Nova Measuring Instruments Ltd Stock

Good morning, everyone. Welcome to day 1 of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. semiconductors and semiconductor equipment stocks. It's my pleasure to welcome Guy Kizner, Chief Financial Officer for Nova Measuring Instruments.

I'll kick it off with my questions first. If you have a question, we'll open it towards the end of the fireside chat, please raise your hand and the mic will come to you and you can ask your question.

Welcome, Guy.

Thank you.

Let's talk about the market outlook. It's been a super exciting year. No, I think you guys have talked about 2026 wafer fab equipment growth, an outlook of like mid-teens kind of framework. I know you guys don't spend a lot of time forecasting WFE relative to your large-cap peers. But we're just curious in terms of the framework you put out in May of mid-teens. How has that evolved? How are you looking at the market size this year and next year?

Yes. So I think as you mentioned, we usually are -- we're relatively a small player in this industry of giants. So we don't have really the ability to look on the WFE or have internal forecast. So when we are talking about WFE, we are usually referring to the consensus in the market. We're relying on external sources. And I think what is unique in 2026 is that every 2 months, we saw revisions of these numbers, and it's up as we go. And it's driven mainly by AI, right? And even today that we are already just 4 months until the end of this year, there's still a wide range of estimates for 2026, right? You have Gartner talking about 20% growth, Techinsights in the high 20s. You have other analysts talking about 30%, 35%, 38% even though with 4 months left, right, when you have the big players, the backlog is out there, the shipment plans out there, and there is still a wide range of WFE estimates.

So for us, definitely, the numbers moved up when we're looking on the WFE, it will be above 20%. The exact number, it's very tough for us to call for a specific one.

Got it. Let's talk about what you do see, which is the type of spending for your tools and products -- and can -- just talk about where the incremental demand coming from in terms of leading-edge logic in DRAM around HBM. Anything you see on the NAND side in terms of the green shoots?

When we're looking at 26, so definitely, the -- there are many drivers that are working. First is the advanced node as you mentioned, both on the gate-all-around, but also a lot of spending happening on the 3-nanometer as well. DRAM, definitely, we see a significant additional capacity expansions that are happening there and advanced packaging. I think for us, the main driver that is not working yet is NAND. As you know, even though NAND is spending, it's mainly skewed towards upgrades. Firstly, Nova is not going -- benefit from the upgrades, and we need greenfield capacity additions. And it doesn't -- happening yet. Hopefully, we will see some of it happening in 2027. This is, I would say, the longest down cycle on NAND side. So except NAND, I would say, all the engines other than NAND are working very strongly.

Great. Something that you guys have alluded to in the past is your outperformance. But I think you guys have said 2x WFE. Now you've had very strong share gains in the last few years, which sets up tougher comps moving forward. But can you talk about your ability to outperform WFE? Are you still feeling confident about that 2x number and -- just like what would be the drivers to continue to drive outperformance relative to the market rate?

So I think historically, if you look on our performance, you see that we are capable of outperforming WFE significantly just recent years, '24, we grew by 30%. WFE didn't grow so much. '25, we grew with 31%, WFE didn't grow so much. But we are looking at 2026, and we talked about how significant this year is in terms of WFE spending, and we see a different, let's say, dynamic and we see something change. And the question is why, right?

I would say, the uniqueness of 2026 is not only -- is definitely a strong year and Nova is growing nicely this year as well, but we don't see the same outperformance that we usually used to see from Nova. And the question is why. So I would say it's mainly driven by the investment mix. First, NAND, as I said before, right, even though NAND contributing to the WFE spending, Nova is not contributing for that because there is no capacity expansion.

Second, a lot of investment happening in DRAM and even though we are selling to the major players in the DRAM, the metrology intensity in DRAM is lower compared to the logic side, right? And we talked about the fact that we are having our long-term model suggests 60-40 towards logic. It's mainly because on the logic side, the metrology intensity is higher. And third, and this is mainly the most important one on the advanced nodes on the logic side, given the fact -- usually, the investment pattern is happening when the customer is moving to tech node. And after that, you have a high-volume manufacturing, the customer transition to the newer tech node and then there are a lot of capacity expansions there.

But -- what we are seeing this year given the fact that the AI customers didn't transition to the gate-all-around to newer tech node, and they are still using the N minus 1, 3-nanometer and 5-nanometer and obviously, the huge demand that we are seeing there, the customers spending a lot of capacity expansions in the 3-nanometer, right, both in U.S. and in Taiwan.

So in a way, when you're looking on 2026 in terms of spending weight, you see that the metrology intensity went down because of the spending, I would say, maintenance. Now the question is what's happening going forward, right? How 2027 is going to look like -- and I think, first, let's look on NAND. I think, hopefully, we will see NAND increasing the capacity. So practically for us, it's coming from 0 to business because we are positioned with all the key customers there.

Second, I would say on the DRAM side, we are not expecting significant change. DRAM will be a significant driver and we're going to enjoy from capacity expansions. But we are not expecting any significant metrology intensity to increase. It will happen when the industry will move to the 4F square, but it will happen in '28 and going forward. But I would say on the logic side, we do expect much more mix skewed towards the 2-nanometer and the gate-all-around and less on the 3-nanometer. So I would say when we are looking at '27 we will see much more metrology intensity going up in terms of the mix.

And given the fact that Nova has its significant growth drivers to continue to outperform, I think we are well positioned. We have the right drivers continue to outperform the industry going forward.

Yes, that's super helpful. So it's basically the mix of the spend as well as the timing of the technology that can change numbers from year-to-year, but you see a stronger year next year.

On 2027, can you just talk about the quality of your bookings or backlog that's giving you the confidence that these customers are going to move forward with the 2-nanometer or 1.4 nanometer early R&D work.

Yes. We talked about the visibility in our latest earnings call and the fact that we have better visibility now than we saw in the previous up cycles. And we need to distinguish between when we're talking about visibility versus the backlog, right? I think when we are talking about visibility, it's mainly -- first of all, on the backlog side, we do see a significant backlog and it's higher versus the previous up cycles. This is one.

Second, we see much more that the customers are much more adhering to our lead times. As you know, our lead time is 4 months to 12 months, depending on the product line. And we're seeing that the customers are much more adhering to those lead times. And the second is the engagement that we are having with customers, meaning they are giving us -- we are engaging much earlier. They are giving us forecast. They are -- and given the fact that all the supply chain is stretched, they want to make sure that all the vendors are capable to keep up with that. So they are giving you a forecast, say, 1 year ahead, sometimes even longer than that in order to make sure that all the vendors are already capable to supply all the demand.

So definitely, the visibility and the confidence we're having is...

Guy, any change to -- like are they putting deposits down? Any change versus prior cycles that are pointing to this cycle being a lot more durable than the past?

So I would say we are not changing not the lead times to our customers and not the terms of condition. Maybe -- so if the customer had deposits as part of the terms and conditions and payment terms, it still remains intact. If the customer didn't have it, it still remained the same. So we are not changing the terms and conditions to the customer.

Okay. So let's talk about some of the newer products with METRION and ELIPSON entering high-volume manufacturing. How much of these products contributed to your growth this year next year?

So we have 3 main drivers, 3 main products, as you mentioned, ELIPSON, METRION and the newest platform that we released a year ago, WMC. And I think this is a very good example how Nova with the right innovation that we are doing, how we are introducing new technology-driven metrology solution that increase in our addressable market. It's not necessarily always looking on the WFE increase.

I would say ELIPSON and METRION has a very significant year last year when we had a very significant qualification with many of the Tier 1 customers where they adopted this solution, Nova's strategy there is to take existing technologies that are being used in lab and bring into in-line capability. And a lot of key customers already adopted this technology.

Now for us, the focus right now is to continue to work with these customers and to add more and more applications and more solutions that could be solved with these tools that are already -- the customer already is using in order to increase the utilization and in order to increase the attach rate. So this is the path that we are doing right now, and this was our strategy, as we did previously with the VeraFlex, it's very successful. And this is what we are doing right now, both with ELIPSON and METRION where we are looking for more application more use cases. And in some cases, we are very successful in that front, and we see repeat buys from leading customers with this platform, but it's -- let's say, it's a process to have with those customers.

WMC is a different story because WMC platform we introduced a year ago, and it's -- the main focus is to address the most complex advanced packaging applications. This tool was structured as a tool that can -- the uniqueness of this tool is that you can deploy different sensors in 1 tool. So in 1 measurement, you can really solve different applications that in the past, you need maybe to have a couple of different tools in order to do so.

And second, this platform is very flexible in terms of handling different size and shapes of wafer. So if we're talking about bowed wafer, fine wafer, the standard 300 millimeter, 150, 200, no matter what kind of size or shape, wafer due to the panel packaging and so forth. So the uniqueness of this platform is very unique and we see a very strong adoption of this platform. Even though it was introduced just 1 year ago, we -- just recently, we announced another win with this platform, and we see a very rapid adoption solution.

It's very exciting. Guy advanced packaging is now, like 25% of your sales. It's growing faster than the market. We currently get asked by clients on kind of share shifts in this market. And without naming any competitor, can you kind of address your share gain opportunities in this important market?

So advanced packaging is a significant growth engine for Nova because if you recall a few years ago, we had 0 exposure to packaging, right? And we did a couple of things. First, we acquired 2 companies, both Ancosys that today are our chemical Metrology division and the Sentronics company that we acquired in the beginning of 2025 that has very strong positioning on the advanced packaging. And second, we took our front-end tools, consist both integrated metrology and the optical [indiscernible] Prism, and we deployed it into the advanced packaging applications. And this strategy paid off because, as you said, in 2025, it was about 20%. The second quarter, we said we reached a level of 25% of contribution of advanced packaging.

So -- and these are the key areas that we are exposed today. And I would say the potential for us to continue to expand that is through material metrology. So today, the material metrology solutions that we are having are not exposed to the advanced packaging. What we are seeing, given the fact that the advanced packaging challenges keep increasing and the front-end applications becoming much more relevant for the back end. So we see early discussions with the customers where they are -- want to see how we can solve a specific application with our material metrology. So this is definitely another growth engine for us. So I would say these are the key areas of advanced packaging.

Right. Let's talk about the financial model, and we'll come back to the products. Gross margin has been a big topic with investors. Q2 gross margins is 58%. Your target model is 57% to 60%. What is the path to reach the high end of your target model?

Yes. So in -- as we said, in the first half of the year, we show the 59% gross margins. In the third quarter guidance, we also guided at 59%. I would say even today, we're operating in the high end of our target model. In terms of the gross margins, I would say that there are a few factors that play into that. First of all, definitely, as we scale the business and the capacity is increasing, there is economic of scale. So this definitely contributing to the gross margin increase.

Second, the technological advance that we are doing. So usually, the way that the pricing is working with the customer is that you are increasing your pricing and definitely the gross margin through more value to the customer. I mean what kind of productivity you are bringing, what kind of capability. So with every capability that you are bringing, you're extending your ASPs accordingly. Definitely, you are sharing this benefit with the customer as well but this is helping us to progress. So with every new technological advancement that we are doing in your product that we're introducing usually driving higher ASPs.

And third, I would say the size of the customer usually is the bigger customer, the higher discounts that he is getting compared to a smaller customer that's getting a lower discount. This is the economics of sales. So those are the key factors that changing our gross margin mix. And so I would say this is the mix.

On the other hand, we have the material cost increase, labor cost increase and so forth. So currently, we believe that we can operate in a higher range of taxes margin depending on factors that describe the chain factors going forward.

Some of your peers have talked about like value-based pricing and things like that. Do you guys have opportunities to kind of repricing on your newer products that could structurally take the margins higher over time?

Yes. So mainly the, say, the pricing strategy semi and specifically process control from our side is really based on value. your opportunity to extend the ASPs and the margins it's true value to bring it to the customers. I think if you look on Nova's gross margin profile, we're in the top performance. And this reflects the high value that we are bringing to our customers. So I would say it's really reflecting that. So every capability that we bring really the ability for us to margins [indiscernible].

Okay. Can you help us understand the difference between the gross margins between products and services?

Yes. So the gross margin on the product side is higher because the service is very -- you need to have a very broad infrastructure, it's very labor intense. You want to make sure that you're investing enough in the infrastructure that you have in a very good support to the customers because eventually, his next decision about who is going to cooperate with it, we will be the tool of record. Part of it is also the visibility. So we're investing a lot on that. So the gross margins on the service side are lower.

Obviously, as you scale also on the service side, you can benefit from that as well because, for example, if you have a new type, you still need to put infrastructure. You need to put the office, you need to put FSEs. And as the customer scale in increase in the installed base, it doesn't translate to linear investments. So even there, we see operational average gross margin leverage as the gross margin of the services also.

You're reaching the quarterly run rate underlying the $1 billion revenue target ahead of 2027. How should we think about your aspirations for your next target model?

Yes. So I think second quarter was a very significant milestone for us, right? When we achieved the milestone of run rate of our target model that we announced back in 2022. We said that we are going to continue our path of doubling our revenues and we achieved it practically 1 year ahead of the timeline given the market share growth and more technology adoptions and obviously, the environment of the WFE.

And now we are working on the next target model. We are planning to do an Investor Day in the beginning of 2027, where we're going to outline our view over the next 5 years over the market, what kind of technology we should expect to see, what kind of technology we are going to introduce in order to capture those opportunities. And definitely how the growth trajectory for Nova will be accordingly. And with that, also the financial model. because it's part of the strategy.

I think if you look on our previous target model, you saw that we had a range of operating margins and these kind of traction. So even though we reached the model -- reached the top line. We also reached the high end of our estimate. And with this growth, we saw in operational leverage. And as we look in the next growth we should expect operation leverage keep increasing.

I have multiple questions on the cash allocation. You just announced a $200 million share buyback program. Can you talk about your expectations of over what period of time you'll be implementing that?

Yes. So our capital allocation strategy has not really changed. As you know, today, we have more than $1.7 billion cash available where the key top priority for us is inorganic growth, and it doesn't change. We are spending a lot of time and a lot of focus from the management in order to make sure that it's happening. So even though we do have in our balance sheet, $1.7 billion, it's allow us to look for bigger scale companies and bigger opportunities, but it doesn't really change our, let's say, risk appetite for what kind of M&As we want to have. We still want to be disciplined in the way we're deploying this capital. Meaning it's need to be accretive. We need to meet our financial model. We need to identify very clear synergies between the business. Either on the top line or technological level. And we believe that this criteria is really what's driving our previous M&As that essentially were very successful.

In terms of buybacks, I think was always part of our capital allocation strategy. And previously, we announced the $100 million buyback that we concluded. And now we deployed an additional authorization up to $200 million that we are going to use based on the market condition based on the market valuation.

Yes. Indeed, a very good track record creating value through M&A, Ancosys, Sentronics. So what are the areas that we could expect you to add kind of more products, new products, new markets, like is [ Photonics ] an area of interest or advanced packaging will remain kind of the near-term focus?

We're definitely looking on those areas, but not only those other areas as well, where our key focus, given the fact that in our space, you don't have an endless list of companies that are doing what we are doing, not in process control, not in semi. So we are looking at all opportunities, and we are looking mainly on what kind of synergies you bring to the table. If we have not identified synergies, this is material when we want to look. So our view is not necessary what kind of technology we want to bring in, mainly is what kind of synergies these 2 businesses.

And then on the manufacturing side, I had a chance to visit your factory in Fremont and you're adding more clean room. And how should we think about the CapEx as a percentage of sales particularly into next year, some of your peers are talking about like doubling their manufacturing capacity.

So we were very successfully. We're able to manage the let's say, our capacity ahead of the demand, right? And the fact that Nova we're growing very fast in those years, and we're able to be -- able to catch those all opportunities without any significant bottleneck. It just shows how much attention were outstanding on the agility on the operational side. And we're continuing to do so even this year, right, as you said, we're doubling our production floor in the U.S. We opened a new clean room in Germany. We are going to open a new clean room by the end of this year for the first time in Asia.

And this is part of our ongoing plan in order to capture all those opportunities and all the demand that we expect to see going forward. So it's part of our strategy. We're already investing a lot of our CapEx is focused on the infrastructure, and we will continue to do so in 2027 and forward ahead. I think our focus is not only on our capacity and clean room space, it's also about the whole supply chain. Because you need to make sure that your vendors are up to speed together with you because you can have a lot of clean room space. But eventually, if there is a bottleneck in specific vendor that's crucial for your tools, it's practically not allowing you to meet the demand. So we're spending a lot of time to making sure that -- and the visibility that we are giving to our vendors in order for them to ramp their capacity in order to make sure that if we identify a specific problem with specific vendor to qualifying other vendor that can supply for us.

So a lot of our attention is to make sure that we have enough focus and we eventually have this demand flexibility. And this is part of our focus going forward.

So let me pause here and see if there any questions in the audience. If you have a question, please raise your hand.

I'm just curious on the advanced packaging part. Some of your peers are talking about very rapid growth this year. And I'm just curious for you guys, is it -- what are the like share gain opportunities ahead? Like is it more on memory side or more only class like kind of foundry logic side? Or is it more on the emerging opportunities like hybrid bonding.

I think the main opportunities towards the hybrid bonding, let's say, hybrid bonding is definitely a big opportunity for Nova. Hybrid bonding is really bringing the front end to the back-end capabilities. So when you're looking on metrology intensity is definitely going up when you are having an application of copper-to-copper bonding. And then you need to see much more controls if it's wafer to -- and die warpage control or CMP uniformity or flatness control. So those challenges definitely drive much more metrology capability that those capabilities usually today is being used on the front end, especially with our dimensional metrology portfolio, but also with our material metrology portfolio.

Now the time, I would say, in terms of the hybrid bonding is mainly about qualifications that are happening right now. I think the high-volume manufacturing, the capacity is not a big story in 2027. It's something that we will see future ahead. But right now, the main point in the significant importance is mainly towards qualifications, and this is where our attention is. I would say this is the biggest opportunity for us right now in the packaging side.

China, you have discussed China sales normalizing towards the 25%, 30% of sales. Can you just talk about competition in China from domestic metrology makers? What are the areas where you're seeing more domestic competition? And where is Nova the strongest?

So China is very important market. I would say, not only for Nova for the whole WFE, I would say, today, they are investing 25% to 30% of overall WFE spending. And Nova is today, I would say, it's around 30% of our revenues. And this year, even though we said at the beginning of the year, that China -- will go slightly down to flat. Now given the visibility that we're having in China, it will be another growth year for China for us on a nominal basis. Obviously, percentage-wise, it will continue to go down given the fact that the other areas are growing faster.

You're right saying that now the main focus is on the -- from the China, it's the local ecosystem. The fact that there are a lot of export control being introduced. And from China perspective, they are -- there are a lot of local vendors that are going after different areas in the fab on the semi-cap side, including the area that we are operating. Still there is a gap in terms of capabilities. But we are looking on this as a risk, right? We are not dismissing any competition with going our way. We believe that they have the talent, the funds, the government support in order to succeed. And our strategy is to continue to invest a significant portion of our revenues into the R&D in order to drive more capabilities and continue to open the gap versus their capability versus us in order to be able to compete in this market going forward.

So even today, there is a gap. We do expect them to continue to invest and try to close the gap. Our goal is to run faster.

Awesome. We're almost out of time. Thank you for coming to the Citi Conference.

Thank you.

Good day, and welcome to the Nova Ltd. Second Quarter 2026 Results Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Ms. Miri Segal, CEO of MS-IR. 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. Gaby will begin the call with a 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. Gaby, 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 transitions 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 road map 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 Prism targeted for advanced memory structures, a new generation of 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 Nova Hub, 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, 2 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 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 platforms 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 installed 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 1/4 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 investments 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 investments in upgrading existing tools to address new process requirements such as tool upgrades, coupled with enhancements to our chemical metrology fleet.

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 road maps 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 customer 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 road map 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% to 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%. Earnings per share in the second quarter on a GAAP basis were $2.20 per diluted share, and earnings 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 earnings per diluted share to range from $2.46 to $2.61. Non-GAAP earnings per diluted share to range from $2.70 to $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. We achieved record revenues, delivered operating margins at the upper end of our target model and generated earnings above the high end of our guidance. These results highlight both the demand of our solutions and the leverage inherent in our operating model. Our financial position remains strong with more than $1.7 billion in cash and investments, providing substantial flexibility to continue investing in R&D, support strategic growth initiatives and pursue selective M&A opportunities that align with our long-term objectives. Combined with our positive third quarter outlook, we believe we are well positioned to continue driving profitable growth throughout 2026.

With that, we will be pleased to take your questions. Operator?

[Operator Instructions] First question is from Tom O'Malley, Barclays

This is Trip Smith on for Tom O'Malley. Nice results today. I was just a little curious about what's going on in the split between logic/foundry and memory. Just based on the numbers you guys gave, the 73-27 split, it implies nice sequential growth for logic/foundry, but a step down in memory, down 14% quarter-over-quarter. I was just wondering what the puts and takes were there.

Thank you, Trip, for the question, and thank you for the kind comments. We are projecting memory to be about 30% for us this year. Obviously, the intensity in logic is higher, and our long-term model calls for about 60-40 in favor of logic. But we do see strong demand from DRAM, somehow muted demand from 3D NAND still this year, which may change. But we see growth in both logic and memory, whereas the intensity and growth on the advanced nodes in logic is obviously higher.

And then just as a quick follow-up. We've heard buy side, sell side talking about potentially 40% growth next year for WFE. That implies something closer to like $210 billion, $215 billion. I was just wondering if you could support those levels today or what you might need to do to support those levels.

Sure. So we do have visibility into 2027 where our customers are planning further ahead. And obviously, we're working closely with them to plot capacity and inventory levels. In some cases, we're already receiving orders and planning the 2027 deliveries. We did see some pull-ins by the way, that drove both the first half and are obviously driving the second half of the year.

But obviously, in overall customers are planning further ahead, and we do work closely with them on their capacity planning. It's too early to say whether 2027 will grow 40%. We do anticipate it to be a growth year for us. And therefore, we are working to ensure that our supply chain can provide us with the needed capacity. They are stretched, but we are managing production as well as the supply chain to ensure that we are meeting the lead times and the increased demand from our customers.

Next question is from Atif Malik, Citi.

Gaby, you used the word enhanced visibility in your prepared remarks. And I was curious if you can compare or contrast this cycle, particularly on the DRAM side to any prior memory cycles, maybe perhaps the NAND cycle in 2001 to 2007, which was a fairly long investment cycle. But any kind of qualitative commentary you can provide around your customers' behavior? Are they giving -- putting more down payments or any backlog and RPO that can help us understand how far is your visibility extending?

Yes. Thank you for the question, Atif. I think that it's not really comparable to the previous cycles because we are seeing demand from both logic and memory and customers understand that in order to provide the product in the lead times that suppliers, including Nova are committed to, they should work closely or closer with us on giving us long-term or longer-term visibility into next year. That didn't happen in previous cycles, long or short ones. And we are encouraged by that because it does give us the ability to work with our supply chain and making sure that we have the right planning in terms of capacity in order to address the needs of next year.

So I would say that comparably, it's an unprecedented cycle in terms of the visibility and also customer intimacy that allows us to have better planning for both the second half of this year as well as into next one.

Great. And a follow-up for Guy. Guy, can you talk about any impact from higher component costs, particularly memory to your gross margins? And if you can share your philosophy or strategy around pricing? Are there any knobs for you to take your target gross margin model higher in this environment of supply constraints?

Yes. So thank you, Atif. I would say that we do see some impact on the -- on our BOM costs related to memory. Our proportion of memory portion of our BOM is not significant. So we don't see any major change to our gross margin profile due to that. So I would say the margin profile and the margin range, the gross margin range that we have in our target model of 57% to 60% is well intact.

Yes. I would add to that, if I understood correctly, also from the ASP side. Obviously, there is a balance and, let's say, an effort on all sides to ensure that pricing continues to support both the down side and COGS that Guy mentioned as well as customer expectations -- we are looking at the long term in that respect and the customers are long-term partners of ours. So we continue to support in the best possible way while considering the different changes on the BOM and COGS. But overall, as Guy said, we are maintaining our gross margin model, and we are confident that we will continue to do so through this year and the next one.

Next question is from Shane Brett, Morgan Stanley.

So my first question is, if I take your guidance, you're growing products in the low to mid-20s, which is a bit below WFE this year, but I think that's more so due to process control intensity being quite a bit lower this year and nothing idiosyncratic. So a bit of a 2-part question. Firstly, what is Nova's view on process control intensity recovering into 2027?

And my second question is just do we have levers to outgrow process control growth next year?

Thank you very much, Shane. I would say that in terms of process control intensity, we need to break down the process control into end markets because they behave differently. Logic process control intensity is higher than memory, while advanced packaging is, of course, rapidly growing. Process is also tapping on other growth engines such as 3D NAND, which is investing in upgrades, but it's currently muted in process control. And that, of course, may change in the future.

More importantly, the structural drivers that propel our business are still in place. We have increasing complexity in architectures and materials that are driving the need for process control. And from our perspective, the most important indicators are customer adoption, market share gains and technology wins. And we see continuous strength across these areas and remain confident that those long-term drivers of Nova's growth and outperformance remain firmly intact.

Got it. And for my follow-up, you previously published a tech blog focusing on your talks at VLSI 2025 on hybrid bonding and Nova solutions for it. Just can you talk about hybrid bonding is impacting your SAM? And if there's just an update you can give on your advanced packaging growth for this year as well, that would be very helpful.

Sure. So we mentioned in the call that advanced packaging is nearing 25% of our product revenue in the second quarter of the year. And we see advanced packaging evolving from essentially no revenue several years ago into a meaningful and growing contributor to our business. We view this advanced packaging as a multiyear structural growth opportunity for Nova and opportunities are now spanning both optical, chemical and materials metrology. So it's across the board. It's becoming increasingly similar to front-end manufacturing in terms of complexity, and I'm talking about both logic and memory, of course, and technologies such as chiplets, hybrid bonding, panel level packaging that I also mentioned the 2.5D integration are all increasing the number of measurements required as well as the criticality of those measurements.

So overall, advanced packaging is benefiting our business. We see the hybrid bonding as an additional layer that will accelerate this growth for Nova. So it's a positive momentum and trajectory for us.

Next question is from Vedvati Shrotre, Evercore.

The first one I wanted to understand is you talked about lead times increasing. Could you compare where the lead times are today versus where they were in the past 3 months and how they have changed?

Thank you, Vedvati. I mentioned the fact that even though the supply chain is stretched, we are managing production to ensure that we are improving the lead times as and while the demand from customers, and we continue to basically provide almost similar lead times. So we make a tremendous effort to maintain lead times to customers. I think that we are best-in-class in lead times in the industry. The specific lead times vary from product to product. Overall, I would say that it's been between 4 to 12 months at the latest depending on the product line.

Understood. And for my follow-up question, I know you talked about advanced packaging being 25% of your product revenues in 2Q. Maybe how do you see the year end up in terms of contribution from advanced packaging? Do we -- does it stay at the 25% for the whole year in the second half?

I believe it will be -- we projected it initially to be between 20% and 25%. I think inching towards 25% for the year.

Next question is from Denis Pyatchanin, Needham.

So I just wanted to follow up about the end market outlook. So if I understood correctly, you're expecting memory for you to be down this year. If so, maybe could you talk about what you're maybe seeing in more detail in DRAM versus NAND in the second half? And perhaps given your visibility, if you're expecting to see any changes in the memory demand for you entering into first half of '27.

Sure. So first of all, our long-term model is based on a ratio of 60-40, 60 logic/foundry versus 40 memory, and that's because of the higher process control intensity in logic. In 2025, our ratio was 70-30. And this year's memory share is expected to grow slightly, whereas the majority of our memory exposure is DRAM. On the metrology side, intensity between DRAM and NAND is more or less similar. But NAND at this point is a bit muted for us because growth is driven by upgrades rather than capacity and process control intensity or expansion.

Looking ahead, we believe that the technology transitions such as 4F square, 6F square advanced DRAM architecture and eventually the 3D DRAM all increase the process complexity and metrology requirements. Now in terms of positioning, we sell -- if you look at the NAND specifically, which is relatively muted this year, we sell to all the top players in the NAND market and different -- naturally, we have different positions, of course, depending on the product line. But once capacity is back, and the reason I'm saying that is because I'm hoping that capacity is back sometime next year, we are expected to benefit from it.

Excellent. And for a quick follow-up for Guy regarding the gross margin. So it looks like the gross margin is in with your long-term range, but maybe about 90 basis points below the guidance. Maybe you can tell us about what drove this unexpected change? Was it mix in the quarter or some sort of unforeseen costs?

Yes. So the main reason is product mix. And as we say in every quarter, the estimate that we're giving can fluctuate plus/minus 1% -- and as I mentioned earlier, this quarter, the gross margins were 58%, which is a healthy level and well within our target model. And as we discussed previously, gross margin can fluctuate from quarter-to-quarter depending on product mix.

Looking on the first half of 2026, gross margin was approximately 59%. Our third quarter outlook is 59%, and we expect full year gross margin to be approximately 59%. And overall, it reflects the normal dynamic of the business.

Next question is from Crawford Clarke, Jefferies.

You've talked about having a position across all 4 of the gate-all-around players. One of those customers, I know, has joined with the [ Terafab ] project. I was hoping you could help us unpack maybe without divulging any specific information, how does a greenfield project like [ Terafab ] with a new fab operator at a leading-edge node compared to a more typical brownfield expansion in terms of metrology intensity and what your opportunity might look like there?

So I am a bit reluctant to relate to specific customers, as you know. So I will not relate to [ Terafab ] specifically. Generally speaking, and that's not a comment related to [ Terafab ]. It's a general comment related to greenfield operation, which happened a couple of years ago, for example, in Rapidus, it happens in other territories, of course. What we see is the higher metrology intensity as the fab is being built out as a result of the need to improve time to market and getting to the yield threshold required for such a new operation.

So the general generic answer I have, which is that we see process control intensity at the initial stages of greenfield fabs is higher than ongoing operations of more mature ones.

Super helpful. And then just as a follow-up, in the release, I know you guys called out records in the ancosys front-end chemical metrology business and in Sentronics. I was hoping maybe we could get an update on where Metrion and Elipson sit on the adoption curve exiting Q2.

Sure. So we did speak of the Metrion accelerated adoption in the first quarter of the year, and we continue to see demand for Metrion going forward in terms of both the number of customers, both across logic and memory as well as the utilization and qualifications that we received for this product. We also indicated the fact that we moved into high-volume manufacturing proliferation, which is true both for the Metrion and Elipson and the effort that we're investing right now for both those lab-to-fab concept products is to increase the utilization of the tools, introduce new applications and gain adoption by more customers so that we will replicate the model that we had with XPS in the past, and we're currently working on having multiple tools per fab. I also indicated the fact that on the XPS, we are increasing adoption in logic, the advanced nodes right now. And I think that we are in a positive trajectory generally with this strategy and in particular, with the Metrion, as I mentioned before.

This concludes our question-and-answer session. I would like to turn the conference back to Mr. Gaby Waisman, Nova's President and CEO, for any closing remarks.

Thank you, operator, and thank you all for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

My name is Michael Mani. I'm an analyst here one the semiconductors and semi-cap equipment research team here at Bank of America. Very pleased to have with me today the team from Nova Measuring Instruments. We have Gaby Waisman, Chief Executive Officer; and Guy Kizner, Chief Financial Officer. Gaby and Guy, thanks so much for being with us.

Thank you. Thanks for having us, Mike. Really Appreciate it.

So to start before we kind of get into the more near-term dynamics and the kind of opportunity ahead. I was just hoping you could give a quick reflection on the -- where the company is in its strategic journey. Over the last couple of years, you've had a number of years where you strongly outperformed WFE. That's due to the unique kind of exposures you have in your portfolio. If you could spend a little bit of time talking about those specific exposures, dimensional materials and chemical metrology. what makes Nova so special? How does that recipe work in your favor to outperform WFE time and time again?

So Nova strategy is very clear. We're focusing on organic growth, and coupling that with inorganic acquisitions in order to drive and add more firepower into either the product lines that we already have or to expand to additional segments and add more synergies as we do so. In terms of organic growth, we have currently 3 divisions, each one with 2 or 3 product lines, covering basically the entire market span and from front end, of course, Logic and DRAM as well as 3D NAND to advanced packaging, packaging and compact. Now in terms of the unique capabilities and the reasons for our growth, it has to do with differentiation and innovation. It's all about giving the right performance with a superior cost of ownership, and that's how we win market share. And our strategy is based on continuing to do so while we invest about 15% of our revenue in R&D and innovation in order to make sure that we stay ahead of the curve.

In terms of the unique attributes to each of the divisions. On the dimensional metrology line, we have 2 product lines that are targeting either the CMP market with integrated metrology or process control with stand-alone optical critical dimension measurements. In terms of our material metrology, we have basically 4 products. We have the -- sorry, 3 products, we have the XPS, which is coupled also with XRF. We have the in-line SIMS, the Meterion and we have in line Raman, which is ELIPSON. These are unique products that are targeting material characterization and ultra film thickness as well as in-depth profiling of the deposited layers during the production process. And we have the chemical metrology in which we have both the back-end side as well as the front-end copper dual damascene tools. And that's all coupled with fleet management and a unique capability of having both mathematical as well as physical modeling to drive better performance and throughput and cost of ownership using unique generative AI capabilities. On top of that, of course, we have an offering, a dimensional metrology offering specifically to the back end, that was added as part of the recent acquisition that we did and demonstrating phenomenal growth over the last year after the acquisition. And this is targeting especially the advanced packaging, but not only the compound, the power and other 150 and 200-millimeters market, with unique handling capabilities that are going to also serve the latest advanced packaging architectures that are emerging now into the market.

Great. Great introduction. Now moving on to your outlook for this year. Obviously, very -- it's a very strong year for WFE. You guys talked about some of the strength you're seeing, particularly in the second half. If you could just give us a segmentation of like where you're seeing that strength in Foundry and Logic and DRAM, high-bandwidth Memory versus advanced packaging and NAND. And just like to the extent you have visibility, like what does 2027 look like from where you stand today?

Sure. So there's definitely a momentum in advanced Logic investments, especially in gate-all-around, but not only -- and we tap on this growth. We have demonstrated our ability to have an established position across all 4 gate-all-around players. And we obviously have a good position across both advanced and mature logic markets, which gives us an ability to tap on the growth in each and every one. We've also expanded our footprint into the DRAM market. We've grown from about 25% exposure and ratio in 2025 into more than 30% in the first quarter of the year, and that's driven essentially by both material and chemical metrology positions over there. And right now, 3D NAND is a bit muted, but we do see it as a growth opportunity once greenfield investments come online, which gives us some additional firepower in our growth trajectory for -- hopefully, for the next year. In addition, advanced packaging is a very interesting story for us. 5 years ago, we had no business in advanced packaging. Today, we have more than 20% coming out of that part. About 2/3 of that from Logic, 1/3 from high-bandwidth Memory. But we see both the inflection points in advanced packaging, such as the coming hybrid bonding and additional advanced architecture driving more and more needs in metrology. We see the adoption of both dimensional metrology as well as chemical and now coming on board, material metrology is demonstrating signs of initial adoption and definitely encouraging signals for years to come since what we are witnessing is the porting of front-end tools into advanced packaging architectures and using similar type of applications there. So material metrology is definitely the next wave of adoption as we see it for Nova.

Great. And I think it would be helpful to have like a quick clarification on your view for WFE and your opportunity this year versus some of your peers. I think there might be a little bit of confusion over what those different baselines are, right? Obviously, everybody defines WFE in a different way. You define it specific to the opportunities Nova has. Maybe just give us a sense of like when you talk about WFE and your opportunity, like what does that mean maybe relative to what peers are saying when people make that comparison?

Definitely. So we've seen WFE numbers dramatically change over the last quarter or 2, and we rely on external sources. We get our data about WFE there. The important factor for Nova is to have the right drivers to outperform WFE. And this is what we're investing in. It comes from both differentiation and unique offering as well as our ability to have a relationship and be able to tap in on opportunities as they present itself. And we are definitely planning to outperform WFE, whatever number it is.

So earlier this week, we had the opportunity to visit your manufacturing facility on Fremont, where your materials metrology production tools is primarily based out of there. [ Then ] I have a chance to meet Adrian Wilson, your General Manager of materials metrology business, really fascinating experience. And we got to see our capacity expansions in progress, right? So a lot of exciting momentum there. Talk about the state of supply where you're adding it, right? Do you feel like you have enough for the years of WFE and process control tool growth ahead? And once you're fully done with these expansions, how much -- how large of a business can it support from a revenue footprint perspective?

So within our strategy and our strategic plan, we're investing capital in order to make sure that we have the right capacity to support our customers. That's what we've done in the recent years. We've doubled our capacity in '24 and '25, we're able to double the capacity of our divisions and our production centers across the world to make sure that we are ready for the current ramp. And we are constantly investing and making sure that we can maintain those lead times in years to come. This is part of our strategic plan going forward as well. And we recently announced the opening of a production center in Asia, which is going to have a significant portion of our ability to deliver product into the market in 2027 and onwards. But we are all -- we're constantly looking at our capacity and making sure that we can stay ahead of the curve. Just as an indication, we've doubled our capacity in Germany after the acquisition, and we're making sure that we can supply from that part of the world as well.

The production center in Asia is also giving us more flexibilities in terms of the ability -- the proximity to customers and the agility it gives us in supply chain, there's a natural need to make sure that our supply chain is geared towards the capacity requirements that we need as well. And we've demonstrated this capability over the last years, having the right operational agility to address the demand. And we continue to monitor that and invest in broadening our supply chain and making sure that they have the visibility to support us in years to come.

Perfect. Let's move on to leading edge Logic. So for gate-all-around, you've reiterated this cumulative $500 million new opportunity, 2024 through 2026, right? So we're getting towards the end of that period. When you first set out that target, I'm sure there was an assumption on starting with the number of 2-nanometer wafer starts and get-all-around wafer starts. The attach rate you would have for certain tools and then of course, Nova's share opportunity. As we stand here today, I mean, how has that trended relative to your expectations, which was set 2 years ago because so much has changed? And where have you seen like the biggest differences if at all or any surprises?

Sure. So you said it right. We were looking at the cumulative demand for gate-all-around between '24 and '26, and we based our projections on both the demand as well as our position across the 4 players. Now obviously, there were a lot of ups and downs in terms of who is the player that can supply, and there were question mark about some of the players, but I'm very happy to say that what we are seeing now is that all 4 players have potential to take part of those demand fulfillment for gate-all-around, both now and going forward. And we are well on track in terms of having this $500 million of cumulative business. There's always a potential for upside, but very encouraging to see that our projections were well on track. And it's a demonstration of our ability to have a strong position across market segments with the leading players and definitely to meet the demands, the most stringent demands of gate-all-around providers into the market.

Right. And like to your point, the 2-nanometer get-all-around expansion story doesn't really end this year. A lot of people expect it to be a very large node, relatively speaking, one of the largest in a couple of generations. And of course, like this year, most of it is being driven by one customer, but to your point, it's broadening a lot of those customers, Nova had no exposure to in the FinFET era. So maybe talk about when you think about like the next leg of expansion for gate-all-around, the next build out over the next 2 years. Does your share potential look different there? And does the process control intensity of some of these newer customers favor you in a way since they're newer and they're trying to maximize yields and are a little bit behind maybe the leader in the market?

Every inflection point in the industry and definitely the move from FinFET to gate-all-around presents an opportunity for Nova. And what happened with gate-all-around is that we both improved our position across those players as well as so metrology intensity grow by about 30%. That gives a strong basis for the growth in years to come. As you say, we expect this node to be a very significant one with all players and what we also see are additional inflection in technology that could drive additional opportunities for Nova. It has to do with hybrid bonding on the advanced packaging side. It has to do with moving to 4 and 6F square on the DRAM and later on to 3D DRAM, has to do with the multi-deck opportunities in 3D NAND. And we are looking at all of those as opportunities for market share gains. Obviously, there's CFET later on. That, coupled with the capacity and volume growth that we see in the market are giving us the right tailwind and confidence to see the growth of our business in years to come.

Perfect. So let's move on to advanced packaging. So that's become a meaningful part of your business relatively quickly, right? From here, like where do you see like the next leg of growth coming from? You have some interesting potential applications, things like WMC. Could you talk about how large that market could be for you over the next couple of years? And what do these next generation of challenges from a metrology perspective look like that Nova is uniquely able to solve?

So this is a very interesting story for us. As I mentioned, we had no business 5 years ago in advanced packaging, and now we have more than 20%. The story is about having a two-pronged approach to advanced packaging. We're coming from both the front-end side, customizing front-end tools to have a unique position on the back end and having products stemming from advanced packaging, gaining more and more share as a result of the synergies, and of course, investment in R&D. You talk about WMC, WMC is a great story about having an advanced packaging tool with a much better engineering and I would say, a Swiss army knife of sensor capabilities to address multiple applications from warpage to topography from TSVs to RDL. And this gives us an ability to expand our footprint with more and more customers tackling the most high-value problems that customers have for metrology in the advanced packaging.

On the front-end side, we've customized our integrated metrology, and we have established a very dominant position in advanced packaging. Now there is a strong runway ahead for those kind of products because if we look at advanced and integrated metrology specifically, the attach rate on the front end is close to 100%. On the back-end side, it's much, much lower. So we have both the opportunity to increase attach rate while specs are becoming tighter as well as tap into the growth of high volume and adoption of that integrated metrology tool. On the PRISM side, this is stand-alone OCD, the unique ability that we have to combine spectral interferometry as part of the optical channel gives us unique capabilities on displacing other types of tools and introducing optical tools that have better cost of ownership. And this is only at the beginning. So here as well, we have a runway to grow, and we're in the beginning of the journey. And last but not least, as I mentioned, the material metrology, which is going to tap into to applications that are also porting from the front end into the advanced packaging space as well as unique challenges that they have that require XPS, the XRF tools and more.

And today is more of your business in advanced packaging. Is it in Memory and Logic? I think I believe it's in HBM. And how -- but how does that shift in the next couple of years, right? Does it shift more towards Logic? Like, what's the opportunity there?

So right now, it's actually about 2/3 Logic and the third on high-bandwidth Memory. I expect that it could balance out. What we look at in terms of our long-term model in general in metrology is about 60-40 between Logic and Memory, simply because Logic is more intense in metrology compared to Memory. So long term, you may get to that ratio, It, of course, depends on the cyclical nature of investments in Memory or Logic, but that's more or less where we're driving at. And in terms of our growth, we have seen strong double-digit growth for advanced packaging in Nova in the last couple of years. We see continued momentum in investments in advanced packaging. So we definitely see the opportunity to increase the ratio of that business as part of the overall business that we have. And we have a very a very focused approach into front end, whereas most of our business is there, but definitely a strong lag and interest to grow our advanced packaging part while combine that approach from both the front end and the back end.

Great. And roughly 1.5 years ago, you acquired a business called Sentronics, right. Could you just give us an update on how that integration is going? Have you started to see that going to translate into wins? Or is that -- is it still a little early to make a comment on that?

That integration was phenomenal. As I mentioned, we've acquired the Sentronics at the end of January last year. We opened up a new cleanroom, doubling the capacity of total last year, and we see this business growing at a strong double-digit pace, whereas the introduction of the WMC is an example of how the synergies work -- worked us -- worked out in the sense that we see both adoption of this tool across Logic and Memory customers as well as additional potential, expanding the footprint geographically with more and more territories and more and more customers. And we see a great future for that business as part of Nova.

Great. And could you spend a little bit talking about hybrid bonding. When will we start to see that part of the business really begin to reflect for Nova? What applications do you think it will happen first? And why are you well positioned to kind of capitalize on that?

So we are already at the stage of qualification to become tool of record for hybrid bonding. We're either selected or we're in advanced stages of evaluations. And this is the critical moment for us to gain the share in hybrid bonding and make sure that we can tap on the growth. The growth of the business depends on the pace of building upon this unique capability and the architectures of advanced packagings in years to come. I expect some pull-in compared to the original outlook for adopting this technology. But we definitely see the critical time now in establishing our position at that space. Now when we look at the specific characteristics with the combined, the planarity and the need to have unique applications in the TSV or RDL. Topography and warpage, we are well positioned to address all of it with the product portfolio that we have. And we are building upon more and more applications that could serve that market. What we also see is that every such step tightens or every such step tightens the spec that is required, and this complexity is what we thrive upon. So this complexity drives more and more needs for metrology across the board. Our tools are well geared to address those -- these complexities, and that gives us more opportunities in this space.

And on those qualifications, when do you think you'll know like how long before they go on volume, what your share is, like whether it'd be one [ process of record ], like roughly how long before does that typically happen?

So I believe that we have a fair view of the share in the beginning of next year, whereas this is a continuous fight after you have those share, of course, you need to continue and fight for it in volume manufacturing, but I think that we'll have a good understanding at the beginning of next year.

Great. Let's talk about your broader strategy with lab-to-fab, right? So very key framework for the company in terms of how it's driven growth over many years. Number one, just if you could give us a reminder of like what exactly the strategy entails, how it worked for you maybe, especially in the VeraFlex product? And where are we in that sort of plan? Every quarter, we hear of a number of wins across your various products like Meterion, ELIPSON and all. But let me put that into context in terms of where we are in terms of initial adoption versus broader proliferation across key end markets and all these various applications that you can serve?

Definitely. So first of all, moving in line is the holy grail in metrology. There are technologies in the lab that are crucially important for the semiconductor industry. But having those technologies in an automated way in line is providing great efficiencies to our customers, and this is the foundation of our lab-to-fab strategy. We've started with XPS and XRF. We've seen the adoption of that over the last years from a tool per customer moving to a tool per fab, of course, expanding on the number of customers. And we've announced a few quarters ago on milestone of reaching 8 tools per fab in one of the leading customers globally. We are continuing to expand the footprint in the way that we're addressing more applications, increasing the utilization, which drives the adoption of the tools in the fabs. And we've seen this momentum building out -- building up over the last years. Now with the Raman tool, the ELIPSON as well as the Meterion, the in-line SIMS, we are mimicking the same kind of approach. We are offering distinct opportunities, unique opportunities for customers to [ port ] their lab tools into the fab, in those spaces. And for the in-line SIMS. we've had a record quarter in the first quarter of the year, whereas what we have done is to first start -- of course, with the advanced nodes customers, both in Logic and Memory, introducing this tool in the penetration stage, having initial adoption. Then moving into proliferations with those customers, expanding, of course, the number of customers. And the next thing to watch is obviously the move to more than 1 tool per fab. Right now, we are at the stage of introducing it to all of the customers. Of course, that has to do with the advanced nodes and making sure that we have the first tool per fab with these customers moving on the next stages of proliferation and adoption. And of course, we're expecting this cycle of adoption compared to the XPS to be much faster.

Great. And very quickly, one of our product offerings is an X-ray metrology, right? That's been the kind of one of the bread and butter products of the business for many years, and we've been very successful there. We started to see a little bit more competition in that particular area. A lot of unique strengths in Nova's favor in terms of why you might be able to keep your edge. But if you could just articulate what those strengths are, if you're seeing any kind of competitive pressure at all in this particular segment in the market, and just general thoughts there?

So we definitely expect competition. We're currently a sole source, but we expect competition to come. And what we are doing, we're adamant about is making sure that we maintain a competitive gap and we continue to invest in innovation and technology to make sure that once technology is there or once -- sorry, competition is there, we will be able to offer better value to our customers and making sure that we can convince them that our solution provides better performance or superior performance with the cost of ownership. So we continue to heavily invest in XPS and XRF. And we have more and more capabilities to ensure that this gap is going to be maintained, while anticipating competition to come, broadening, of course, our presence across market segments. And again, the key is to continue to invest. I believe that the competition will come probably next year sometime, but remains to be seen.

Sure. Let's bring guidance to the conversation for a discussion on some of the financials. So gross margins stayed kind of near the upper end of the target model here, like kind of closer to the end of 60%. As you look ahead, what are the kind of key factors supporting this level of gross margins? Is it just mix? Is it just -- is it volumes? And is there a chance for the company to maybe take more value as you introduce new products over the next couple of years?

So first of all, what's driving the gross margin, it's usually reflecting the value that we're bringing to the customers, right? And all the innovation that Gaby mentioned, so it's eventually reflected in the gross margins that you are making as a business. As you mentioned, we are at the high end of our model that was introduced back in 2022. And there are -- when you're looking ahead, I think there are a couple of headwinds and tailwinds with the gross margins. So there are definitely pressure from the cost that associate with product, the labor costs going up, the material cost, the shipment costs with all the energy is going up and so forth. On the other hand, definitely, the scale is contributing to the gross margin tailwinds. Technology, once you are introducing a new product with new capabilities, usually, you are sharing this benefit with the customer. And part of it, you are increasing the ASPs. So this is definitely expanding that. So I would say in the short term, we are -- we will remain at the gross margin level as we saw before. But looking ahead, we -- once we are going to introduce the next growth pace of the next 5-year horizon, we're going to also share the new financial target model, and then we're going to outline exactly how it's going to look like.

Great. And yes, that's a good segue as well because you gave your target model just over a year ago, last March was your Investor Day. $1 billion in sales by 2027. We're already at that run rate with this last quarter. And that's entirely through organic growth. You talked about additional synergies potentially from M&A. So obviously, if you'd like to give an updated target model today, that would be fantastic, but probably not. But so much has changed in the past year based on the assumptions on that model. So if you were to sort of think about creating a new one today for the next 5 years, right, when you think about growth through 2030 because that's the kind of time scale we're thinking about for semi caps. Like what would you bear in mind? Like what would you have us consider? And then just very quickly, like any kind of updates on what you'd be looking to acquire from -- with your very strong cash position that you've developed?

So you're Right saying that we introduced our original model and the growth of the $1 billion model back in 2022 when we said that we are going to continue our path of doubling our revenues every 5 years. And as you said, it seems like we're going to achieve. We are on our track to achieve that. Definitely, we had a very good successful run with that, with all the new technology that we introduced, the market share gains and so forth. Once we reach the $1 billion target, and this is a significant milestone for the company, we're definitely going to step back and outline the next growth trajectory, where the focus will be the inflection point that are about to happen in the industry, hybrid bonding, CFET, 3D DRAM [indiscernible], all those inflection points usually driving for much more metrology intensity. And for us to really deploy the unique technology that we're investing and -- in order to capture more share and improve the positioning of the company. So definitely something to look forward to.

In terms of inorganic growth, we have today more than $1.7 billion in cash and where the majority is allocated towards inorganic growth. We have a strict criteria is what kind of acquisition we want to make. So it needs to be accretive, need to be similar to our financial model, and we need to identify clear synergies between the business, mainly on the top line or technological synergies. Once the company meets those criteria. This is a company that we believe that we can go and acquire and to drive the business. We did previously 3 very successful acquisitions that drove a lot of value to our shareholders. And we believe that we can execute on that front as well.

And is there like a particular technology or end market you would be looking to ideally acquire something in? Or are you just very open-minded?

So these are the criteria. And the reason why is because we -- there are not so many targets out there. So we cannot cherry-pick a specific submarket or technology, really focus on this criteria. Once the company meeting those criteria. This is something that we want to go ahead and acquire, right.

One final question, and it's just on share gains. So if you look at like the latest third-party data that came out, Nova picked up several points of share. Again, it's a very -- process control market is very -- there's some very tough competitors, but every year, you've been able to kind of pick up shares and find your own niche in the market. If you were to look at where you have the potential to expand share this year and into next year. Does that look very similar to where it was last year, like what key applications should investors focus on in terms of tracking your share gain progress?

So based on the latest Gartner report for CD and Thin Film metrology, we grew from about 20.3% in 2023 to about almost 28.8%, almost 29% share in 2025. This is an impressive growth, which is attributed to the differentiation we offer in the market. And we definitely see additional market share growth potentials across our portfolio. I'm not sure it's going to be in the same pace, but we definitely have a strong focus on gaining market share, and the opportunities are across the board. I think that the unique offering that we have is giving us the opportunity to expand on practically every product line, and it's about execution and our ability to introduce more value.

Perfect. Well, on that optimistic note, thank you very much for being with us here today. And yes, it's been a great conversation. So thanks so much for your presence.

Thank you. Thank you very much for having us.

Great. Thank you.

Good day, and welcome to Nova's First Quarter 2026 Financial Results Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova's First 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.

Gaby will begin the call with a 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. Gaby, please go ahead.

Thank you, Miri, and thank you all for joining us today. I will start the call by summarizing our first quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. Nova delivered another record quarter, exceeding guidance across financial and operational metrics.

First quarter revenue reached $235.3 million with record profitability. This performance was supported by record revenue from memory devices, driven by robust demand for advanced DRAM alongside strong momentum in advanced packaging and gate-all-around applications. We achieved multiple customer wins and record sales in several of our product lines.

Our focus on meaningful partnerships with our customers, operational excellence, differentiated solutions and investment in innovative technology are key building blocks in our continuing outstanding results.

The latest Gartner market share report further attests to the resilience of our long-term strategy, showing an additional 400 basis points share gain in film and critical dimension metrology. This is the second consecutive year of significant share growth, cementing Nova's position as this market's second largest vendor.

AI investments remain a fundamental driver of industry growth with a shift towards agentic AI models, increasing computing and memory requirements. This is accelerating capacity expansion across Logic, Memory and advanced packaging while also introducing greater manufacturing complexity and yield challenges, driving higher process control and metrology intensity. These dynamics reinforce the relevance of Nova's portfolio and positions us well to support production ramps, yield improvement and demanding time-to-market requirements.

Capacity expansion across all segments and tighter alignment with our customers' planning are improving our visibility and supporting our momentum. Our customers understand the importance of early engagement, and we are working closely with them to plan capacity and inventory levels to meet their demand.

As part of this planning, we are making strides in expanding our global manufacturing footprint with the construction of the new facility in Asia. This investment is designed to increase our production capacity, optimize our cost structure and improve load balancing across regions while positioning us closer to key customers and supply chain partners. The new facility is expected to become operational towards the end of 2026.

Now let me turn to some business highlights for the quarter. In memory, we delivered record revenue this quarter, driven by strong demand for advanced DRAM applications, which accounted for approximately 2/3 of our memory business. This momentum was reflected in record sales of our Metrion platform, including repeat purchases by a leading memory customer for both advanced 3D NAND and DRAM devices as the platform continues to move from initial adoption into broader deployment.

Our front-end chemical metrology solution, Nova AncoScene, also achieved record sales, and we gained additional market share at a leading memory customer in Asia with multiple tool deliveries expected over the course of the year. At the same time, capacity expansions supported continued demand for our XPS and dimensional metrology solutions. Looking ahead, we also see robust HBM-related bookings for our Nova WMC and Semdex stand-alone platform.

In Logic, increasing market demand and ramp-up of advanced device production led to record revenue from Nova's integrated metrology product line, driven by gate-all-around and new customer penetrations in mature nodes and advanced packaging. A great indicator of our strength in the Logic segment is the recent recognition we received from Intel, where Nova was awarded the Intel EPIC Supplier Award, the highest honor in Intel's global supply chain.

Out of thousands of suppliers Intel works with, Nova is included in a select list of companies to receive this award in 2026. This recognition underscores the scale and depth of our engagement and collaboration with Intel. In advanced packaging, the strong demand drove yet another record quarterly revenue. Our portfolio is well matched with the evolving demand in 2.5D and 3D packaging production. One such example is the Nova WMC that addresses the critical issue of increased warpage and non-uniform surfaces introduced by new advanced packaging schemes that bring forth new material and structural challenges.

AI and broader scaling limitations are among the drivers of hybrid bonding processes. Adoption is progressing faster than expected in several advanced device segments. Because the process depends on direct copper-to-copper interfaces and ultrafine pitch interconnects, it is highly metrology-intensive, requiring tight control of surface planarity, alignment accuracy and interface integrity throughout multiple process steps.

Our portfolio positions us well to support this transition. This has already translated into strong positioning of our optical and chemical metrology platforms across top-tier manufacturers.

Turning to services. We delivered record service revenue this quarter, marking the 13th consecutive quarter of sequential growth. This consistent performance reflects the expanding scale and increasing utilization of our installed base and the deep operational engagement our teams have with customers worldwide.

To summarize my part, Nova delivered an all-round record quarter, highlighting the value of our tools and services. Customer schedule considerations are expected to have a positive impact on the first half of the year, and we expect the second half to run higher. We are setting the stage and solidifying our investments in technology and infrastructure towards the anticipated industry 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 financial achievements for the first quarter of this year and then provide guidance for the second quarter. We delivered record revenue of $235.3 million in the first quarter of 2026, exceeding the high end of our guidance range. Revenue grew 6% quarter-over-quarter and 10% year-over-year, demonstrating the strength of customer demand and the momentum of our product portfolio.

Revenue mix was approximately 66% from Logic and Foundry customers and 34% from Memory customers, reflecting a broad-based contribution across our end markets. We also continue to benefit from a diversified customer and geographic footprint with 4 customers and 5 geographic regions, each contributing more than 10% of total product revenue.

In the first quarter, blended gross margins were 57.7% on a GAAP basis and 59.4% on a non-GAAP basis, in the upper end of our target model range of 57% to 60%. The strong gross margin performance was driven by a favorable product mix alongside continued growth in our services business, which contributed positively to overall gross margin performance.

Operating expenses in the first quarter totaled $64.9 million on a GAAP basis and $59.4 million on a non-GAAP basis. We continue to invest strategically in R&D and go-to-market capabilities to accelerate innovation, support our expanding product road map and capture future growth opportunities. Operating margins in the first quarter reached 30% on a GAAP basis and 34% on a non-GAAP basis, exceeding the upper end of our target model range of 28% to 33%. This performance highlights the strength of our operating model and our continued focus on profitable growth. The effective tax rate in the first quarter was approximately 17%, modestly above our guidance, primarily reflecting the geographic and entity mix of income in the quarter. We expect this dynamic to normalize as the year progresses.

Earnings per share in the first quarter on a GAAP basis were $2.04 per diluted share, and earnings per share on a non-GAAP basis were $2.33 per diluted share, exceeding the high end of our first quarter guidance and driven by record quarterly performance.

Next, I would like to share the details of our guidance for the second quarter of 2026. We currently expect revenue for the quarter to be between $245 million and $255 million. GAAP earnings per diluted share to range from $2.10 to $2.24. Non-GAAP earnings per diluted share to range from $2.34 to $2.48. At the midpoint of our second 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 $72 million. Operating expenses on a non-GAAP basis to increase to approximately $66 million. Financial income on a non-GAAP basis is expected to be approximately $16 million. Effective tax rate is expected to be approximately 15%.

As we conclude, we are pleased with our strong start to 2026, delivering record revenue and record profitability for the quarter. The continued momentum across our business reflects healthy customer demand, the value of our product portfolio and disciplined execution across the organization.

Looking ahead, we remain focused on investing in innovation, supporting our customers' evolving needs and driving sustainable long-term growth while continuing to deliver strong financial results.

With that, we will be pleased to take your questions. Operator?

[Operator Instructions]

The first question today comes from Elizabeth Sun with Citi.

This is Elizabeth for Atif. I guess my first question is, Gaby, in your prepared remarks, you talked about you had multiple customer wins in several product lines. So I was wondering if you could elaborate a little bit on that? Is it more on Memory or Foundry, Logic customers? And is it driven mostly by new products or really like overall strength across the portfolio?

Thank you so much, Elizabeth, for the question. So it's across Logic and Memory and across several of our product lines. I believe I mentioned they are chemical metrology solutions. And I also indicated the fact that we have a broader adoption of our in-line SIMS, the Metrion solution, but we see some wins across our product portfolio and definitely across segments.

Got it. And then on the share gain perspective this year, are you expecting like similar outperformance versus last 2 years? And where do you see the most share gain opportunities this year? Is this more from front end or packaging side?

So in terms of the share gain, I indicated the fact that based on the Gartner report recently published, we grew about 400 basis points in 2025 compared to 2024, and this is the second consecutive year of growth, making us the second largest vendor in this space. We definitely aim to continue and drive market share. This is a primary objective that we have value that we offer to our customers.

And we look at all segments. Advanced packaging is definitely one of them. We have good traction with advanced packaging customers across the board, top-tier customers as well as growth in the Chinese advanced packaging realm. We also see some initial good traction and adoption in hybrid bonding, also with top-tier customers and a higher metrology intensity there, which gives us good opportunity to grow our market share as a result of the metrology challenges such as flatness or interconnect yield.

So we see good opportunities across the board and definitely advanced packaging, in particular, is a growth area for us.

Next question comes from Michael Mani with Bank of America.

To start, could you give us your sense of where you think Nova's growth could end up for the full year maybe relative to WFE and maybe in context of some of the systems revenue guidance and full year WFE guidance that some of your peers have given. And very strong memory mix this quarter. How do you expect the mix between Foundry and Logic and Memory to kind of look for this year for you relative to prior years?

Thank you, Michael, for the question. So first of all, in terms of WFE, the way we read the market today, we expect WFE to reach mid-teens growth, and this is higher than what we were looking at back in February. We are expecting to outperform this number. The growth is driven by both Logic, Memory, advanced packaging. And within Memory, of course, it's primary DRAM. We did give a target as part of our strategic plan to reach $1 billion in revenue by 2027, and we are on track, of course, to reach this number.

As you know, we are not providing guidance beyond that, but we're definitely on track. In terms of the Memory versus Logic, we saw a growth in the memory share this quarter compared to last year. And I expect Memory to become more dominant this year compared to last one on the backdrop of investments in advanced DRAM.

Great. And for my follow-up, I just want to ask about gross margin. So nice strength there in the first half of this year, the upper end of your target. What were the drivers kind of led to you being able to kind of sustain at this 59% level? And do you think staying at these levels is possible through the second half? Just what are the puts and takes there?

Yes. So our target model, as I mentioned, is 57% to 60%. Currently, based on the business dynamic and obviously, based on the first half results, we see gross margins for 2026 will be within the same rate that you -- that we were giving the guidance for the first half of the year. So I would say this will be sustainable during the year.

The next question comes from Shane Brett with Morgan Stanley.

I want to follow up on the WFE growth benchmark for this year is mid-teens is a little bit lower than what the process tool companies have talked about this year because they're talking about growth well into the 20s. Some of the drivers for WFE this year are just greenfield DRAM and 3-nanometer logic where I perceive the process control intensity to be a little bit lower than 2-nanometer where the process control intensity is quite high. But just how should we think about your ability to outperform WFE in what can be perceived as a little bit of a challenging year for process control?

Thank you, Shane, for the question. So it's too early to call how process control specifically will look like this year. But Nova capitalizes on growth vectors of both process and process control which is a factor in driving growth. So in process, for example, where our integrated products are embedded in dimensional as well as chemical metrology that are correlative to the growth in the process sector, process control, where our dimensional metrology, such as our stand-alone products are well positioned and obviously, material metrology portfolio plays.

And also the lab-to-fab growing factor in terms of adoption where we address emerging critical applications for advanced nodes. All in all, whether it's going to be the mid-teens or a bit higher numbers, this is continuously updated, as you know, over the last few months, we do expect to outperform, but it's too early to say how process control looks like versus process. And as I mentioned, we tap into both.

Understood. That's very clear. And for my follow-up, so we're seeing a broadening of leading edge Logic investment with one of the players, you actually mentioned in your prepared remarks talking a lot more about increasing process control intensity in-line inspection. We're also seeing just a lot more investment in 3-nanometer. Just how are you looking at the dynamics right now in leading-edge logic, just given the breadth of players expanding, but maybe a little bit more investment on N+1.

Thank you for that. So yes, we are well positioned across all gate-all-around players. And we're very, of course, honored to take part of their growth and providing them support on process control. And we continue to invest in R&D in order to maintain our differentiation and provide value as we did in the past. We are seeing a growing investment in areas such as 3 nanometers. Obviously, the metrology intensity in the gate-all-around is higher, but we do tap into the growth of those advanced FinFET technologies as well. And obviously, that would intensify once investment shifts or continues to grow on the gate-all-around as well.

The next question comes from Matthew Prisco with Cantor.

So I guess, first, maybe could you just give us an update on where lead times stand today and how we should think about your visibility, both in terms of kind of customer orders and how those customer conversations are going? Are those extending into kind of 2027, 2028 at this point?

Thank you, Matthew. So first, we do have improved visibility towards next year. Customers are definitely planning further ahead, and we're working closely with them to I would say, [indiscernible] capacity and inventory levels. We do see some pull-ins, by the way, driving the first half higher than originally forecasted, as you've seen from our guidance. And in some cases, we are already receiving orders and planning the 2027 deliveries.

Our lead times are still shorter than some of our peers, but we do have higher visibility, as I mentioned than before, and more confidence in our annual performance. I would also say that in terms of timing of the deliveries, this is definitely driven by the customers based on their demand structure.

Okay. That's helpful. And then for a follow-up on the supply side, given this robust demand backdrop, how are you thinking about that capacity today? Any constraints arising on your side? And if we're in kind of a $180 billion plus WFE world next year, is that something you can support and continue outgrowing the market?

So I did indicate the fact that we are launching a new production center in Asia that is going to be operational towards the end of this year. This is part of our answer to the growing demand, making sure that we have the right capacity to support our customers. We see, I would say, some pressure on the supply chain, and we're mitigating that by working with a few suppliers in order to have the agility and flexibility to support the demand.

We're also seeing, by the way, some cost pressure at the supplier level, mainly tied to the higher chip prices and other factors. But we have been able to manage and mitigate by applying active cost management and leveraging long-term relationships. And the bottom line and the most important is that we are managing suppliers to meet demand.

The next question comes from Charles Shi with Needham & Company.

Maybe the first one, Gaby, can you talk a little bit about your positioning in X-ray technology. And we are hearing from your peers, there seems to be expanding opportunities for X-ray. There are things like CD measurement as well as things like void detection for hybrid bonding. And we know Nova is a leader in X-ray, especially XPS. What's your view on the latest, let's say, market landscape in X-ray? And how does Nova view those opportunities we're hearing? And how do you plan to capture those opportunities?

Thank you, Charles, for that question. So first of all, there are multiple challenges and inflection points at both the front end and in advanced packaging for X-ray applications. And there's also a broad spectrum of technologies that can address these challenges. And of course, X-ray is one of them. We believe that X-ray could play out in a very significant role in addressing those challenges. We have a strategy that taps into hybrid metrology. This is something that was at our cornerstone of the strategy as we have for years now.

And we do have a broad portfolio, both optical and X-ray, both homegrown. We have engaged in collaboration with customers on those aspects or those challenges. And as an example, we published several papers, one with Samsung on hybrid OCD plus Raman plus machine learning with IBM on hybrid OCD with X-ray and machine learning.

And we also see emerging XPS and material metrology in other spheres, both in the front end, as I mentioned, including advanced packaging. We are also seeing emerging XPS and material metrology competition. And we have that from both a local vendor in China as well as other potential growing competition in years to come. So we are investing in our road map to broaden our competitive advantage and provide value to our customers in order to maintain our dominant position in this space.

Can you talk about your China expectation for this year? I recall last time you talked about maybe flat to slightly up, but has anything changed? And how you view your China growth this year?

So China is a significant part of our business and also from the overall WFE spending. As a result of advanced nodes growth, China's share of our revenue is expected to decrease as we've already seen last year compared to 2024. In the long term, we expect China to stabilize in the range of 25% to 30% of our business. We see also an increase in demand in China for packaging with a multitude of new customer engagements around advanced packaging and high-bandwidth memory.

China is also a very competitive market, as you know. And we focus on ensuring and reassuring our customers with offering the best-of-breed products and the best possible value and cost of ownership as a differentiating factor. We are encouraged to see some potential growth in China this year. So there is some positive momentum in the business in China compared to last quarter.

The next question comes from Vedvati Shrotre with Evercore ISI.

The first one I have is you're seeing your Logic customers sort of put their road map together. How are you thinking about the $500 million gate-all-around revenue target? And what do you think happens to the gate-all-around revenues next year?

Thank you, Vedvati. So we're on track for the forecasted $500 million cumulative gate-all-around revenue that we provided, and we are very well positioned with all gate-all-around manufacturers across the portfolio. We do see growth in gate-all-around investments in 2027 compared to this year as well.

Understood. And also on similar lines, like what are you thinking about advanced packaging growth this year or into the second half versus the first half this year?

I would say that advanced packaging for Nova is edging towards the mid-20s of product revenue this quarter with the majority coming from Logic. Looking forward, we also see healthy high-bandwidth memory bookings. And for the year, in general, we see similar levels of growth in advanced packaging to what our peers have already mentioned.

[Operator Instructions]

The next question comes from Thomas O'Malley with Barclays.

This is Trip Smith on for Tom O'Malley. Just wanted to step back to gross margins. Gross margin coming down sequentially in the guide in your range. Just curious the drivers there and why a bit of the step down?

We guided the gross margins for the second quarter for non-GAAP were 59%. Usually, when we are guiding, it's plus/minus 1%. So it's within the same magnitude, I would say.

Okay. And then just as a follow-up, I was curious about the time line around hybrid bonding. You guys have talked about it being a driver there. So just curious what you're seeing in that market and any color there would be great.

Yes. So we are very encouraged by the traction that we see in hybrid bonding. We have already a good positioning with the top-tier customers. We see higher metrology intensity in hybrid bonding. I indicated the fact that we see challenges such as flatness, such as CMP uniformity within wafer and within die work pitch, edge roll off interconnect yield and the multitude of challenges that are emerging.

Obviously, this is providing higher intensity on top of the advanced packaging, which already seen incremental metrology steps compared to the past. We do see some pull-ins for hybrid bonding with some customers, especially Memory. So there is definitely an opportunity for us to continue and tap into this part of advanced packaging.

This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman.

Thank you, operator, and thank you all for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Nova Ltd. Fourth Quarter and Full Year 2025 Financial Results Conference Call [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thanks, operator, and good day, everyone. I would like to welcome all of you to Nova's 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. Gaby will begin the call with a 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. Gaby, please go ahead.

Thank you, Miri, and thank you all for joining us today. I will start the call by summarizing our fourth quarter and full year performance highlights. Following my commentary, Guy will review the quarterly and annual financial results in detail. 2025 was an exceptional year for Nova, delivering record performance across our business and strong execution in a rapidly expanding semiconductor landscape.

We delivered record annual revenue of $880.6 million, up 31% year-over-year, along with record GAAP and non-GAAP profitability with earnings per share growing 29% year-over-year. Fourth quarter revenue exceeded the midpoint of our guidance, reaching $222.6 million, up 14% year-over-year. This performance highlights the depth of our portfolio, solid customer demand, our leading market position and our disciplined operational focus.

It underscores Nova's strategic alignment with key vectors in the industry and strengthens our foundation as we move into another year of growth. We entered 2026 with a robust investment cycle, translating into accelerating demand for leading-edge nodes and steady investments in mature ones. It has manifested in capacity additions, higher-yield pressures and a need to maximize device performance. Rising design complexity is increasing the number of process steps and accelerating adoption of new integration methods such as backside power delivery and hybrid bonding. Coupled with faster time to market and yield requirements, it is broadening the need for precise metrology.

Some manufacturers have already announced an increase in CapEx plans, contributing to the positive outlook. We are confident that our operational agility, flexibility and grit enable us to address our customer needs. An emerging segment fueled by the AI era is silicon photonics, a technology that uses light photons instead of electrons to transfer data, enabling ultrafast data transmission at lower power consumption. It requires very high accuracy measurements of optical structures such as waveguides and modulators, necessitating precise alignment and 3D characterization, which opens new opportunities for Nova.

These market and technology dynamics are reinforcing our strategic alignment with the fastest-growing and most technically demanding segments of our industry. We are engaged with our customers to address their high-value challenges and are well positioned to capitalize on the opportunities they pose. We expect positive momentum to propel our performance in the coming quarters. One of the highlights of the fourth quarter was when a global leading logic customer selected Nova's integrated metrology portfolio for CMP applications across gate-all-around processes. Following a comprehensive evaluation, the customer adopted our full CMP product suite, extending their earlier back-end deployment into front-end high-volume manufacturing.

Multiple orders have already been placed for 2026 with additional orders expected as capacity ramps. This win reflects our close collaboration with customers to accelerate time to market, support their technology roadmaps and enhance yields. Another highlight is our services organization, delivering record quarterly and annual revenues. This performance was driven by capacity installation, adoption of our value-added services to support yield improvement and a focus on shifting from Time and Materials towards annual service contracts.

We are especially proud that our teams earned multiple service excellence awards from leading customers in Asia, underscoring our deep commitment to customer success. Nova's growth this year was broad-based. In gate-all-around processes, we are now firmly established as a foundational partner in the industry's transition to next-generation architectures and expect to see demand increase further in 2026. In advanced packaging, revenue rose more than 60% year-over-year, representing approximately 20% of product revenue.

We saw strong traction across both dimensional and chemical metrology platforms and broad adoption of our dedicated products. And in memory, we saw record results driven primarily by DRAM applications where manufacturers expanded adoption of the materials and chemical metrology offering. Nova's advanced metrology solutions secured multiple strategic qualifications across leading global manufacturers, reinforcing our position as a trusted partner for next-generation technology inflections.

A few examples include the ELIPSON materials metrology solution, which was selected as tool of record by a leading foundry for advanced gate-all-around production and recent adoption of the Metrion platform for gate-all-around as well as advanced 3D NAND and DRAM device manufacturing. At the same time, our Nova WMC optical metrology system gained traction in advanced packaging and high-bandwidth memory.

On the technology front, we continue to invest in R&D, including a noble metrology solution that leverages our optical and materials metrology core competencies amplified by Nova's unique strengths in modeling and signal analysis. This new solution is designed to address emerging challenges associated with technology inflections such as gate-all-around, CFET and advanced memory. Nova's unique strengths in physical and AI-driven modeling will come together in this new solution, enabling precise measurement of individual nanoscale structures, improved parameter decorrelation for complex architectures and coverage of critical gaps left by existing metrology technologies.

Looking ahead to 2026, we are entering the year with increasing confidence in the market environment. We see favorable trends across logic, advanced packaging and memory applications. Current order patterns point to another growth year for Nova with momentum expected to build through the first half and accelerate in the second half of the year. Our priorities for 2026 remain clear: continue to expand our leadership in advanced nodes, proliferate our materials metrology platforms, deepen our share in advanced packaging ecosystems and scale our operations to support increasing customer requirements.

To that end, we are strengthening our operational foundation for the next phase of expansion, including the launch of a new state-of-the-art ERP system to manage growing volume of business with greater efficiency and scalability. We are also expanding our global manufacturing footprint by building new production capacity in Asia, enhancing cost efficiency while positioning us closer to key customers and supply chain partners. We remain focused on executing with discipline, capturing opportunities and outperforming WFE.

I'm thankful to our employees for their dedication and commitment and to our customers and partners for their trust in Nova. For more details on the financials, let me hand over the call to Guy.

Thanks, Gaby. Good day, everyone. I will begin by reviewing our financial achievements for the fourth quarter of 2025, then summarizing our performance for the full year and finally, provide guidance for the first quarter of 2026. In the fourth quarter of 2025, total revenues reached $222.6 million, above the guidance midpoint of $220 million. This performance reflects a growth of 14% year-over-year. Product revenue distribution was approximately 75% from logic and foundry and 25% from memory.

Product revenue included 3 customers and 4 territories, which contributed each 10% or more to product revenues. In the fourth quarter, blended gross margins were 57.6% on a GAAP basis and 59.6% on a non-GAAP basis, in the upper end of our target model range of 57% to 60%. The high gross margin in the quarter was attributed to a favorable product mix. Operating expenses increased in the fourth quarter and came in at $67.5 million on a GAAP basis and $62 million on a non-GAAP basis.

We continue to ramp up R&D and sales and marketing spending in targeted manner to advance our product roadmap and unlock future growth opportunities. Operating margins in the fourth quarter reached 27% on a GAAP basis and 32% on a non-GAAP basis. The effective tax rate in the fourth quarter was approximately 11% on a GAAP basis, primarily reflecting the release of uncertain tax positions following the completion of a tax assessment audit. The effective tax rate on a non-GAAP basis was approximately 16%.

Earnings per share in the fourth quarter on a GAAP basis were $1.94 per diluted share, and earnings per share on a non-GAAP basis were $2.14 per diluted share, exceeding the midpoint of our fourth quarter guidance of $2.11.

Moving on to the annual results of 2025. Revenues increased 31% year-over-year, reflecting our continued outperformance of the industry through disciplined execution of our strategy. We are also building the foundations to sustain this outperformance by gaining market share, qualifying our differentiated portfolio with strategic customers and advancing innovation through continued investment in R&D of more than 15% of revenues.

The geographic revenue split in 2025 was as follows: China was 33%, Taiwan was 29%, Korea was 16%, U.S. was 9% and other territories contributed the remaining 13%. Gross margins for the year were 57.4% on a GAAP basis and 59% on a non-GAAP basis. Operating margin for the year came in at 29% on a GAAP basis and 33% on a non-GAAP basis, in the upper end of our target model range of 28% to 33%. These operating margins demonstrate the strong value proposition of our process control solutions and our consistent operational execution.

Earnings per diluted share on an annual basis came in at $7.96 on a GAAP basis and $8.62 on a non-GAAP basis. Turning to the balance sheet. We ended 2025 with more than $1.6 billion in cash, cash equivalents, bank deposit and marketable securities. During 2025, the company generated $218 million in free cash flow and presented healthy parameters related to working capital management.

Next, I would like to share the details of our guidance for the first quarter of 2026. We currently expect revenues for the quarter to be between $222 million and $232 million. GAAP earnings per diluted share to range from $1.90 to $2.02. Non-GAAP earnings per diluted share to range from $2.13 to $2.25. At the midpoint of our first quarter 2026 estimate, we anticipate the following: gross margins of approximately 56% on a GAAP basis and approximately 58% on a non-GAAP basis. Operating expenses on a GAAP basis to decrease to approximately $65 million; operating expenses on a non-GAAP basis to decrease to approximately $60 million. Financial income on a non-GAAP basis is expected to be approximately $16 million. Effective tax rate is expected to be approximately 16%. To conclude, our 2025 results reflect strong execution and continued progress against our strategy. As we look to 2026, we see positive momentum in the business and remain focused on investing in innovation, strategic customer relationship and capacity to support long-term performance. With that, we will be pleased to take your questions. Operator?

[Operator Instructions] The first question comes from Blayne Curtis with Jefferies

Ezra Weener on for Blayne. Just wanted to start by looking at your guidance. You've talked about the first quarter, but can you talk a little bit about the year, what you're seeing? We've heard a lot of different WFE outlooks and what you're seeing for your WFE outlook that you plan to outperform.

So I believe that the most important, and thank you for the question, Ezra, factors in outperforming the WFE is having the right growth engine, and we are well positioned in that respect. With regards to WFE, we anticipate it to be in the low double digits based on, I assume the same data that you are seeing. So we definitely see a momentum gathering where we expect the second half of the year to accelerate. And we do see the first half of '26 higher than '25. So it's definitely progressing in the right direction.

Got it. And then just a follow-up would be, if WFE does accelerate, do you have any bottlenecks in terms of your own production and being able to meet demand

So it's a great question. First of all, we have made significant investments over the last year to expand our manufacturing capacity, and we have the sufficient one to support our growth outlook, including, of course, clean room capacity for advanced packaging in particular. And this year, we continue to invest in infrastructure, including new production capacity in Asia and also the investment in IT infrastructure, such as the ERP to improve the efficiency and scalability. And we believe that these actions give us the ability to manage higher volumes with better cost and time efficiency, being closer to the customers and providing greater transparency.

The next question is from Matthew Prisco with Cantor.

Maybe just to start, can you offer any additional color on maybe how customer conversations have evolved over the past 3 months across each end market? And then those customer conversations, are those translating into actual orders at this point to support that second half inflection?

So thank you, Matthew. So let me start with perhaps taking it into the growth engines, the primary growth engines and drivers for us this year and take it to the customers specifically. So we see '26 as another growth year with several key drivers. First is the advanced logic and gate-all-around. We see proliferation of gate-all-around across all leading manufacturers with increasing process control intensity. On DRAM and high-bandwidth memory, we see a healthy recovery in DRAM and continued build-out of HBM capacity.

In advanced packaging, we see growing contribution from hybrid bonding. And of course, we support it with our both dimensional and chemical portfolio that we see significant growth over there. Overall, we see the increased capital investments as has been published by several of our customers. Of course, it takes time until this has turned out into WE orders and, of course, revenue for company. But we've seen those latest announcements as very encouraging and building the momentum getting to 2026.

Okay. That's helpful. And then maybe as a follow-up, can you walk us through share dynamics in your dimensional metrology business, both from the overall portfolio and that integrated CD opportunity you talked about? And maybe a specific focus on PRISM as well and Nova's positioning there and kind of adoption trends of those systems?

So I hope I understand the question correctly. But if you're talking about the overall market share, so as per the Gartner latest report for 2024, we grew to become second in market share with an overall market share in CD and film film at about 25%. That represented an overall increase of about 25%, and we are seeing continued market share gains across our portfolio. In terms of the integrated metrology, we've I've mentioned the fact that we have a leading global logic customer adopting our integrated metrology portfolio and product suite for its gate-all-around CMP processes. We've also mentioned the fact that both ELIPSON and METRION has had an excellent year in '25 and are becoming important growth engines for the company.

ELIPSON is a tool of record at a top foundry for advanced gate-all-around production with additional tools at another leading logic and memory customers. We also see repeat orders and proliferation from R&D into high-volume manufacturing. And on the METRION side, we have recently qualified at both gate-all-around logic customer and a leading memory manufacturing manufacturer as we have planned to and discussed, and this is a very significant milestone for the company. In both cases, of course, we are at the early phase of proliferation, and our goal is to evolve to become a multiple tool per fab similar to how we scaled XPS historically.

And just as a side note, we've just shipped the 300th XPS tool, and it's definitely a reason to become -- to be optimistic. We also see share gain traction with our stand-alone OCD solutions for packaging and advanced packaging and also on the front-end copper dual damascene for our chemical portfolio. So definitely quite optimistic in terms of the share gain momentum as we enter 2026

The next question is from Michael Mani with Bank of America Securities.

Could you just clarify your view for the business this year between DRAM and foundry and logic, which one do you expect to grow faster? And thanks for your WFE view for 2026 of low double digits. I guess as you look out to this year, you said you'd be able to outperform, and that makes sense because you have the right product suite, gaining share. It's going to be a very leading edge heavy year. But does the degree of outperformance you expect this year look very different from the past couple of years? It feels like it should be stronger given all those dynamics, but would love to hear your view on that.

Thank you for the question. We do see several vectors in growth this year, stemming especially from advanced logic and DRAM. We see significant growth coming from advanced packaging as well. I think that I mentioned the fact that we had about 60% growth in '25 in advanced packaging, bringing the total share out of the company's revenue to about 20%.

And we believe that advanced packaging will still have a double-digit growth this year. So the major vectors for growth are both leading-edge advanced logic and DRAM as well as advanced packaging. In terms of NAND, we do see some signs of improvement, but we are waiting an inflection point similar to what we've seen on DRAM and HBM. And in terms of outperformance, of course, we are aiming to outperform WFE, but it's still early on this year to indicate any specific number.

Got it. And then on China, so I think you mentioned it came in at 33% of sales for 2025. I think that was a little higher than expected. So heading into this year, I mean, what's your view for the market? Is it flat? Is it slightly down? And any sort of color on what exactly you're seeing that might be driving that lack of growth?

So we've had 39% of our business from China in 2024. And as you indicated, it normalized to about 33% last year. China is a large and very, very important territory for us, and we expect it to continue and represent around 30% of our sales. We do see shorter lead times in China, which reduced visibility, but we are seeing trends that make us believe that China will continue to have steady investments this year to maintain this proportion that I've just indicated as part of our overall sales. Naturally, as advanced nodes and DRAM invest more and China is focused on mature nodes, we'll see the relative portion of China go down even if the nominal sales remain flat, but we are seeing signs of improvement in the business in China as well.

The next question is from Shane Brett with Morgan Stanley.

So my first question is on leading-edge logic. So how should I think about your share position in the context of your largest customer adding more 3-nanometer wafers this year? I'm asking this because your Taiwan revenue is up nearly 90% year-over-year in 2025, which is very reflective of your strong position. I'm just curious just how much better this can be for you in 2026.

So I'm not sure I can discuss specific shares with a specific customer. But I can say that in terms of gate-all-around specifically, and we'll talk a bit more about the advanced nodes in gate-all-around, we're well positioned across all 4 players. And we see the growth this year and the momentum increasing compared to last one. In terms of 3-nanometer, of course, the intensity is not as high as it is in gate-all-around in the 2-nanometer, but it's still very significant. So any investment in advanced nodes is very beneficial for us.

Got it. And then for my follow-up, so for advanced packaging revenue, you kind of talked about low double digits. But I guess relative to some of the etch and dep players, that feels a little bit light, but it's kind of in line with your kind of metrology inspection peers. Just what's the dynamic that's going on in advanced packaging this year that's, I guess, leading to a bit of a moderation from 60% growth to kind of low double digits this year?

So advanced packaging for us is relatively new, and we see the penetration of more and more products and gaining share in advanced packaging. So out of the 20% of product revenue that I indicated, about 1/4 to 1/3, depending on the quarter is high-bandwidth memory and the rest is logic. We do see strong double-digit growth this year as well. And since we are engaged with all players and introducing more and more solutions and capabilities, we believe that this is a great opportunity for us, and we'll see the growth continuing into this year as well.

The next question is from Elizabeth Sun with Citi.

This is Elizabeth for Atif. First question is for is for gross margin guidance for Q1 is 58% slightly is down sequentially. So I'm just wondering what's the puts and takes in the gross margin guide for Q1.

Sure. So this quarter, we reported gross margin of 59.6%. Looking ahead for the next quarter, we are guiding gross margin of 58%, plus/minus 1% point. And this reflects the current specific product mix as we see it right now for the quarter. But as we always said, margins can fluctuate on a quarterly basis. And the right way to look on our margin profile is on the annual basis. So nothing really changed structurally. It's based on specific product mix in a specific quarter.

Got it. And then on gate-all-around accumulative revenue of $500 million until '26. So we are already in '26. I'm just wondering like you have a lot of announcement recently. So I'm wondering for gate-all-around in total, are you seeing the accumulated revenue to be maybe above the $500 million level?

So we do see the momentum. And as I mentioned, we are well positioned across all players, and we are on track with getting to the $500 million mark as an accumulated revenue for '24 to '26. Obviously, '26 is expected to be higher than '25. So we'll see how it goes. Right now, I can say that we're on track to getting to this target.

The next question is from Charles Shi with Needham & Company.

Maybe 2. First one is regarding China, how -- it looks like you talked about a little bit reduced visibility, but overall looking strong. It sounds like probably second half should see some pickup in China revenue relative to second half as well, in line with the overall trend for what -- I mean what you guided for your overall revenue. Is that still the case? And how do you feel about sustaining maybe last year's China growth somewhere around 11% based on your -- the geographical breakdown you just provided? Any color would be great.

Thank you, Charles. So overall, if we look at process control in China, at least according to the data that we have from external sources, process control in China actually went down. But as I mentioned before, for us, it nominally went up, and we're very encouraged about the position that we have there. Obviously, as I mentioned before, proportionally, it went down from 39% to 33%.

And the more investment there is in advanced nodes, it's expected to continue to go down, whereas I believe that it will normalize around the 30%. So it will continue to be a dominant and key territory for us moving forward. In terms of the trends, we currently see the some increased visibility, even though in general, visibility went down in China as well. But what we see now gives us more confidence about at least the nominal level of business in China in '26.

Got it. The other question, I know this is actually a question I got asked a lot. One of your peers talked about rising memory prices having some impact on gross margin. Wondering if you are seeing any of that. I know it's kind of hard to compare what you see versus what your peer sees. And I just want to get some clarification. Is memory price creating any pressure on your gross margin?

Not sure I fully understood the question. But overall, we don't see a correlation between memory pricing to our gross margin. No.

The next question is from Vedvati Shrotre with Evercore ISI.

I think most of my questions have been answered. So the one I had was, can you talk about how your lead times have changed maybe 3 months versus now? And within that, your peers talked about the optical components being constrained. Does that impact you as well as you go through the year?

Yes. So thank you for the question,. I agree with the fact that there is more pressure on the lead times. which, of course, impacts visibility as well. But that pressure on lead times calls for our operational agility to improve, which we're doing, as I previously mentioned.

We're working with our suppliers and with our supply chain to make sure that we have both the material and to have the capacity to support the business and the anticipated growth this year. So there is additional pressure on the lead times, but we are making ourselves more agile in order to accommodate for that.

And is the optical component a driver of that lead time pressure?

No. I think that the lead time pressure is coming from the customers that they have to turn CapEx into WFE and to actual deliveries into the fab. It's across the board, meaning that it impacts both the material, chemical and dimensional metrology portfolio that we have. There's no difference in the requests that we have from different components of our portfolio.

This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman, Nova's President and CFO -- CEO, excuse me, for closing remarks.

Thank you, operator, and thank you all for joining our call today.

The conference has concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Nova's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova's Third Quarter 2025 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.

Gaby will begin the call with a 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. Gaby, please go ahead.

Thank you, Miri, and thank you all for joining us. I will start the call today by summarizing our third quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. Nova achieved record quarterly revenue of $224.6 million in the third quarter, marking a robust 25% year-over-year growth. This performance reflects the continued trust of our customers, driven by demand in advanced nodes and advanced packaging.

This quarter, we delivered record revenue from memory devices, fueled by strong demand for advanced DRAM and high-bandwidth memory. We also reached record revenue from advanced logic nodes, predominantly driven by gate-all-around processors. Our materials metrology revenue benefited from adoption of our ELIPSON and METRION platforms, and we also achieved record service revenue, underscoring the resilience and value of our portfolio and business model. According to our fourth quarter guidance, 2025 will be a record year for Nova, reflecting growth of approximately 30% year-over-year at the midpoint.

Looking ahead, we anticipate further growth in 2026 with advanced logic, advanced packaging and DRAM continuing to fuel the momentum. Recent announcements of large-scale investments in artificial intelligence are creating a positive outlook for sustained industry growth and wafer fab equipment spending. Manufacturing integrated circuit devices for AI applications introduces unique process control challenges such as complex architectures, tighter tolerances, new packaging technologies and the integration of new materials. Our customers are constantly challenged to reduce ramp-up periods and then maximize yields in high-volume production.

Nova's solutions are purpose-built to address these challenges, enabling our customers to deliver the performance and reliability required for next-generation AI devices. With this in mind, in 2026, we expect WFE growth in the mid-single digits with potential upside as AI-driven demand trickles down the value chain to increase utilization rates and wafer starts.

Now I'd like to review some of the highlights from the past quarter. First, our record sales in memory this quarter was driven by several key achievements. In materials metrology, we saw record Veraflex sales to memory fabs. We also secured new orders for our PRISM platform supporting HBM manufacturing. In chemical metrology, we anticipate receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova AncoScene front-end platform, which replaces a competing tool. These wins underscore Nova's expanding footprint and the important role our solutions play in enabling advanced memory production.

Second, Nova achieved record sales in advanced logic, driven primarily by strong demand for our solutions in gate-all-around manufacturing processes. Notably, our ELIPSON materials metrology platform was selected as a tool of record by a leading global foundry, and we have already delivered several systems for use in high-volume production. ELIPSON leverages state-of-the-art Raman spectroscopy to provide precise nondisruptive material characterization. These capabilities are essential for advanced device nodes. In addition, we recognized revenue from the sales of the METRION platform to a gate-all-around manufacturer, further expanding the adoption of this tool. We expect to see orders from additional customers in the coming months.

Third, in advanced packaging, the demand for Nova's optical metrology solutions continues to increase, particularly for critical dimension measurements in the most complex manufacturing environments. Our portfolio for advanced packaging includes Prism, WMC, SemDex, integrated metrology and the Ancolyzer. These solutions address multiple stages in the production process such as post-CMP applications as well as measurements of Through-Silicon Via wafer voltage, total thickness variation and electroplating analysis. This quarter, we introduced our latest optical metrology platform, the Nova WMC, a next-generation modular system designed from the ground up to address the evolving requirements of advanced packaging.

The WMC has already been adopted by 3 customers for HBM and power device manufacturing with additional customer evaluations and demonstrations underway. The WMC offers exceptional versatility, supporting a wide range of wafer sizes and forms and multiple metrology technologies. This positions WMC as a cornerstone tool for next-generation packaging, including 2.5D, 3D and hybrid bonding applications. The strong demand for the WMC is a testament to its ability to address industry challenges such as high warpage, nonsymmetric shapes and diverse surface conditions, all with high throughput and nanometer level fidelity.

Additionally, our PRISM and integrated metrology platform were adopted by a leading global logic manufacturer for advanced packaging processes and our chemical metrology platform, the Ancolyzer, was shipped to a gate-all-around customer for back-end packaging processes. All of these embody Nova's commitment to deliver comprehensive integrated solutions that enable our customers to meet the stringent requirements of advanced packaging and maintain a competitive edge.

Finally, we marked a significant milestone in our operational excellence and capacity expansion with the opening of our new state-of-the-art production facility in Mannheim, Germany. This advanced clean room, which extends our existing site, enables us to triple our production capacity for advanced packaging optical metrology solutions while further improving our manufacturing process and quality.

To conclude my prepared remarks, this quarter reflects the strength of Nova's strategy and execution across all fronts from technology leadership to operational scale. As our industry continues to evolve, driven by AI and increasingly complex architectures, Nova is well positioned to support our customers with differentiated, scalable and innovative solutions. Looking ahead, we remain confident in our ability to deliver long-term growth and value. For more details on the financials, let me hand over the call to Guy.

Thanks, Gaby. Good day, everyone, and thank you for joining our 2025 third quarter conference call. I will begin by reviewing our financial achievements for the third quarter of the year and then provide guidance on the fourth quarter. Total revenues in the third quarter of 2025 reached a record level of $224.6 million, marking the sixth consecutive quarter of record-breaking results. This performance reflects a growth of 2% quarter-over-quarter and 25% year-over-year. Product revenue distribution was approximately 70% from logic and foundry and 30% from memory. Product revenues included 4 customers and 3 territories, which contributed each 10% or more to product revenues.

In the third quarter, blended gross margins aligned with our guidance, achieving 57% on a GAAP basis and 59% on a non-GAAP basis, well within our target model range of 57% to 60%. Operating expenses increased to $63.5 million on a GAAP basis and $58.6 million on a non-GAAP basis as we use top line growth to invest in R&D for long-term opportunities and in ongoing strategic evaluations. Operating margin in the third quarter reached 28% on a GAAP basis and 32% on a non-GAAP basis, demonstrating the scalability of our model and the strong value proposition of our process control portfolio. The effective tax rate in the third quarter was approximately 16%. Earnings per share in the third quarter on a GAAP basis were $1.90 per diluted share, and earnings per share on a non-GAAP basis were $2.16 per diluted share.

Turning to the balance sheet. During the third quarter, the company generated approximately $67 million in free cash flow, bringing the total positive free cash flow for the first 3 quarters of 2025 to approximately $170 million. In September 2025, the company successfully completed a 0% convertible notes offering of $750 million with a 35% conversion premium and a capped call structure that raised the effective premium to 75%. As a result, total cash, cash equivalents, bank deposits and marketable securities increased to $1.6 billion at the end of the quarter. This strong financial position enable us to continue to invest in R&D and strategic growth initiatives while maintaining the flexibility to pursue M&A opportunities and capitalize on market trends that support our long-term objectives.

Next, I'd like to outline our guidance for the fourth quarter of 2025. We currently expect revenue for the quarter to be between $215 million and $225 million. GAAP earnings per diluted share to range from $1.77 to $1.95. Non-GAAP earnings per diluted share to range from $2.02 to $2.20. At the midpoint of our fourth quarter 2025 guidance, we anticipate the following: gross margins of approximately 57% on a GAAP basis and approximately 58% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $65 million. Operating expenses on a non-GAAP basis to increase to approximately $59 million.

Financial income on a non-GAAP basis is expected to increase to approximately $16.8 million in the fourth quarter, reflecting the higher cash balance on hand. Diluted share count for the fourth quarter is expected to be approximately 34 million, incorporating the full quarter effect of the recently issued convertible notes. The increase in share count and higher financial income are expected to largely offset each other, resulting in a minimal impact on the non-GAAP earnings per share. Effective tax rate is expected to be approximately 16%.

Before I conclude my remarks, I would like to highlight that based on the midpoint of our fourth quarter guidance, we expect to close 2025 with record high revenues, reflecting exceptional annual growth of approximately 30%. Our non-GAAP profitability outlook for 2025 remain robust with blended gross margins around 59% and operating margins near 33%, positioning us at the high end of our target model and highlighting the strength and scalability of our business. With that, we will be pleased to take your questions. Operator?

[Operator Instructions] The first question comes from Atif Malik with Citi.

Strong execution throughout the year. Gaby, with respect to your mid-single-digit wafer fab equipment outlook for next year, if I recall, this was the same outlook that you were giving in early September and a lot of things have changed in the memory land since then. So can you walk us through the upside case to this WFE? And is Nova still going to outperform the WFE? And we have been hearing that the memory makers are somewhat constrained in their shell capacity. Is that the driver that is limiting the growth to mid-single digit? If you can just walk us through the puts and takes.

Definitely. Thank you for your question. So first of all, I believe that there's been some improvement since the September discussions. But in general, I think that for the Nova side, we do believe that we have the right growth engines and ability to outperform this growth. And we estimate that 2026 will continue the trend and that in general, we believe it will be more of a second half weighted year.

Great. And then, Guy, on the gross margins, a little bit light on the reported quarter and guiding to 58%. Can you walk us through the puts and takes on the gross margin? And are you seeing any impact from the incremental China restrictions to your gross margins?

So this quarter, we reported gross margin of 59%, and it's aligned with our forecast. Looking ahead for the next quarter, we are guiding 58%, plus/minus 1% point. That range reflects continued discipline in pricing and cost structure and importantly, our ability to deliver strong value to customers. The main fluctuation when they occur in the gross margins is mainly product mix during the quarter. And the right way to look on our performance is on an annual basis, where in 2025, we expect to see 59%, and it's well aligned within our target model of 57% to 60% gross margin.

And the impact from the China restrictions, any incremental impact?

No. Currently, we don't see a significant impact from China.

The next question comes from Blayne Curtis with Jefferies.

It's Ezra Weener on for Blayne. Just to start, in the quarter, foundry and logic was down like 6%, memory up a little over 20%. Can you talk about the moving pieces there, especially considering you said leading-edge foundry hit a record? And then how do you see that going into next quarter?

Sure. So first of all, we mentioned that, as you said, that this quarter has seen an increase in the memory sales, and we've reached a record revenue level. This quarter, memory was about 30% of our sales, where DRAM generated the majority of that business. And we see DRAM is recovering nicely, and we have a good exposure in this market. We do expect this trend to continue next year and that memory will be one of the growth drivers for WFE in 2026. Saying that, our long-term model suggests a ratio of 40% memory and 60% logic due to the higher metrology intensity in logic.

Specifically to your question about the ingredients of that growth, we see adoption of our portfolio across the product divisions by leading memory customers. We mentioned record VF XPS sales to memory. We have multiple orders for the latest and greatest PRISM stand-alone OCD tool. We have a new win for the WMC for HBM, and we have a new memory customer in chemical metrology. So we do see the fundamentals of the growth in the memory, and we do expect a continued growth next year in that sector.

Got it. Then in terms of what you're seeing from China, given clearly trailing edge foundry logic is down.

Excuse me, you were cut at the end.

Yes. So foundry and logic is down in September, but leading edge was up. So that does seem to likely be related to China. Can you talk a little bit about what you're seeing in China?

Sure. So first of all, we expect the nominal volume of our business in China this year to be slightly higher year-over-year compared to last year. We mentioned that the revenue is skewed towards the first half of the year. And on an annual basis, we expect our revenue from China to be nominally higher all in all. But of course, that the share of the overall business from China should be lower than last year. Last year, we had 39% and this year will be lower, probably the range of, let's say, the 30-ish-plus percent mark. We do believe that China has already normalized in terms of the business levels in the second half of this year, and we expect this trend to continue in the first half of 2026.

The next question comes from [ Liam Farr ] with Bank of America.

On for Michael. I was just wondering in terms of gate-all-around, what kind of trajectory are you seeing in 4Q and through '26 as well?

So gate-all-around has been driving our business and the third quarter has peaked in that respect. We are exposed to all of the 4 gate-all-around players. And we mentioned before that the aggregated business that we expect for '24 to '26 from that gate-all-around business is about $500 million, and this is well in track. Our business from gate-all-around in 2025 significantly increased, and we expect this to continue next year. And as I mentioned before, we are on track with our original plan both in terms of scope and in terms of time lines. We are very fortunate and we're encouraged to see all the 4 players advancing towards manufacturing. And we believe that this will continue where demand is certainly growing.

Just a follow-up. In terms of -- you've mentioned M&A adds upside to your long-term model. Where would you like to expand or do a tuck-in deal, if you could? And what kind of capabilities would you be looking to acquire?

So after the convert that we successfully concluded early in September, we definitely have the right war chest to pursue inorganic growth opportunities. We are looking predominantly on the semiconductor area, process control, but we are definitely open to some additional segments as long as there is a strong semi business in that part. We have a dedicated team in the company that pursues such opportunities, and we are definitely looking forward in making sure that we can execute on our strategic plan in that respect.

The next question comes from Vedvati Shrotre with Evercore ISI.

My first question was on the WFE outlook that you shared. So you mentioned it's second half weighted for 2026. Can you provide some color whether -- how this splits like foundry logic versus memory? And is that comment of second half weighted for both the end markets?

Thank you for the question. First of all, I'd like to reiterate the fact that we have the right growth engines and the ability to outperform the growth of WFE next year. We see some upside as well. And in terms of the specifics, I believe that the advanced nodes, in particular, gate-all-around will accelerate further in the second half of next year, driving that weighted assumption. But of course, we are not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in next year in general and accelerating towards the second half in particular.

Understand. And my second question was more on the advanced packaging piece. So you have the portfolio sort of increasing with your WFE product lines. And at the same time, you're kind of winning multiple applications across HBM and advanced foundry logic. What's your view on advanced packaging contribution for '25? And like how much of your revenues would be coming from advanced packaging applications this year? And where does that go next year?

Sure. So the current 2025 numbers show a high double-digit revenue growth for the company. We expect to see a higher share of revenue for advanced packaging compared to last year. Last year was about 15%. This year, it will be approximately 20%. The majority of the revenue from advanced packaging is coming from logic devices, whereas the main contributors, by the way, for that business are the dimensional and chemical metrology portfolios, which I alluded to in the script. And we expect 2026 to grow -- to further grow in that business, definitely given the latest AI announcements that we heard of.

Understood. And if I may squeeze one last one in. On -- like I understand your positioning on DRAM side. And I think foundry logic, your positioning is very clear. Could you give us a sense of what it -- like your positioning in NAND cycle? What would you have to see for like maybe the NAND revenues to start exacting?

So NAND is a bit muted still. I definitely hope that it will be growing probably towards the second half of next year. And we are well positioned in NAND as well. So our business, which is basically capacity driven, requires more investments on the capacity side that, as I mentioned, I hope would start at the second half of next year.

The next question comes from Charles Shi with Needham.

Congrats on the good results. Maybe I'll start with the commentary on next year, mid-single-digit WFE, you outperformed that number second half weighted. But can you provide a little bit color on relative to second half '25, what's your best view on first half '26 in terms of your top line run rate, et cetera, and maybe some of the puts and takes between, let's say, foundry, logic and memory or China, non-China as much as you can at this point?

Sure. Thank you, Charles. So first of all, we don't, as you know, provide guidance beyond the next quarter. So it would be difficult to drive into details. But I would mention that 2026 is driven by both memory growth and investments in advanced logic and advanced packaging. Our position across these segments is strong, and that would drive our growth relatively -- related to that. And we also invest a lot in market share gains in order to accelerate and fuel that momentum.

In terms of China, I believe that the business that we see in the second half of the year or the second business that we already have in China is already normalized in terms of business levels. And we expect this trend to continue in the first half of next year. Beyond that, at this moment in China, our visibility is limited and the market is very dynamic, so we need to see how things evolve.

Got it. Maybe I quickly follow up on China. It sounds like first half '25 was pretty strong for you. Second half, it's normalized. China sounds like it's a little bit first half weighted for '25. And if I extrapolate what you said that normalization trend continues into first half '26, it sounds like China is probably a down year next year. Is that the right read? And if that's the case, what do you -- yes, sorry.

Sorry for interrupting you, Charles. Not necessarily. So I mentioned that we have lower visibility for the second half as it's a very dynamic market. But we do hope that nominally, the business in China will remain solid. So it doesn't allude to any changes in the overall levels in China next year.

This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman, Nova's President and CEO, for any closing remarks.

Thank you, operator, and thank you all for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, everyone. Welcome to day 2 of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. semiconductors, semiconductor equipment and networking equipment names here at Citi. It's my pleasure to welcome Gaby Waisman, President and CEO of Nova. We also have Miri in the audience from friendly neighborhood IR Group. Welcome, guys.

Thank you.

I'm going to kick it off with my questions first. If you have a question, feel free to raise your hand and a mic will come to you and then you can ask your question.

Gaby, let's talk about kind of the state of the union on the equipment space. What's your current market outlook for this year and next year? And if you can just walk us through each end market, memory, DRAM, NAND, leading and trailing logic.

Sure. So first of all, thank you very much for having me, and thank you all for joining. When we look at the market, we are very pleased with the fact that we are planning to outpace the market WFE growth in 2025. We have H1 numbers in, and we have a mid-guidance of $221 million in Q3. So we're definitely on track to outperform WFE, which is going to be a bit less than expected earlier this year or lower than expected earlier this year. We're talking about single -- mid-single digits, perhaps a bit less. So definitely outpacing the market growth.

And when we're looking at next year, what we see is that logic as a whole is probably going to be a bit down, whereas gate-all-around and leading-edge nodes are still going to grow. We see memory growing at a faster pace than this year, which is mostly focused around DRAM. And we see double-digit growth for advanced packaging, which overall, if we summarize, what we see is still around single -- mid-single-digit growth, but it's going to be higher than in '25. And obviously, our target, as always, is to outpace the market.

That's very helpful and a lot more constructive than where most investors are, and we agree with that outlook ourselves. Gaby, we had KLA, your elder cousin or brother this morning in the inspection market. Talk about it's a good time to be in inspection and metrology market. When you look at the end demand drivers in terms of where AI is going, the complexity, the HPM chips, stacking, chiplets and whatnot. Can you just kind of parse it out within all your products, like which end demand drivers in terms of secular growth drivers, whether it's gate-all-around advanced packaging, you're most excited about going into next year?

So first of all, it's a fascinating time to be in metrology. There's no doubt about it. What we see is that the growing complexity is driving the need to invest in more process control and gain insight in order to support a faster yield and obviously reaching the yield targets on high-volume manufacturing. I'm very excited about leading-edge nodes in general and advanced packaging.

We were fortunate to have been able to position in time our dimensional tools to cater for advanced packaging requirements. And there are some specific examples to attest to that in both being able to deliver on unique value as well as being very creative in positioning advanced node tools to address critical applications in advanced packaging to displace other type of technologies in a better cost of ownership, which is always what the customers are looking for.

The sweet spot is obviously delivering better performance with a better cost of ownership, and this is always what we are trying to do. And we're excited about the evolution of each and every technology in our space. When we're looking at Logic, for example, we see great gate-all-around, coupled now with backside power delivery, then, of course, having more advanced nodes, getting up to CFET. We're looking at -- in DRAM at 4F squared or 6F squared and then 3D DRAM. We're looking at advanced packaging, moving into hybrid bonding.

And all of those trends add complexity, complexity to dimensional complexity to material, complexity to chemical, which is obviously very supportive of our growth, each inflection point technologically, which is coupled with the market demand that is driving additional investments in capital is definitely supportive of our business fundamentals. And such complexities is always for a company like Nova, which is in the cutting edge of technology and a very strong culture of innovation is giving us opportunities to disrupt, to gain share, and this is exactly where we want to be.

And Gaby, just to level set the knowledge of our audience here. I had a chance to visit your manufacturing facility in Fremont, and I was kind of blown away looking at the complexity of your tools. You guys are generating the X-rays and then using it to kind of inspect the wafer and analyze it, sophistication software. So it will be helpful for this audience to know what exactly are you doing in terms of your products and material characterization. Most investors are more focused on KLA or other optical inspection competitors. And you do have those competitors in certain parts of the market, but your core market in the material side, in the chemical side, you guys are almost monopolistic in terms of your IP. And so just walk us through what is the secret sauce in the part of the market that you're immensely successful.

So I'll start with materials metrology in which we're, as you said, a sole source. We are tapping on a very unique X-ray technology capabilities, which very few companies possess and very few companies, by the way, possess both optical and X-ray in general and definitely in our space. And what we're doing with X-ray is that we're focusing on material characteristics on the composition of materials, on the in-depth profile of the materials deposited on being able to do ultra-film thin -- ultra-film thickness measurement, which, by the way, optical tools are finding it very challenging to do. And this is done with a state-of-the-art hardware, which is coupled with software, as you mentioned, in order to deliver an automated in-line tool.

The secret sauce, as you called it, is based on the fact that we are taking technologies which were developed and designated for the lab, and we are taking it in line. Now you may think that it requires automation, but it's not the case. In order to get to the same performance you have with a manual tool in the lab, which takes minutes, hours in order to get to a measurement and not connected by any stretch to the fab automation or even to the host, you need to have a very sophisticated mechanism to allow for those measurements to be done in tens of wafers per hour rather than one wafer every few hours or even few days.

And if we take the in-line SIMs as an example, which is our new material characterization tool, the in-line SIMs technology, when you're using it today in the lab, you need to take a wafer out of your production process. You need to break it into coupons, send it to the lab. There's a very highly trained, educated person that measures it with a lab sense tool. And it takes about between days and weeks to get the measurement result back to the fab. Now just imagine what happens if there was an excursion or a problem with a wafer, you had thousands of wafers going downstream without you even knowing that you had an issue with your material deposition process, and you can certainly not do sampling or to process such a measurement on more than one place on the wafer, which is critically important today when every die on the wafer becomes different.

So the ability to take such a technology into the fab do it in a completely automated way, connect it to the host, get the results in a matter of minutes or hours and doing it across the wafer and being able to move this wafer downstream is nothing less than a revolution. And that's why the technology has moved so far in order to be able to attract customers, and we are very excited by the opportunity that these technologies possess. And it has -- even for the XPS tools that have been adopted by many, many customers and proliferated across high-volume manufacturing, it's far from reaching and exhausting the potential. The new generation of tools is definitely looking at additional application and additional capabilities to make this tool more attractive to customers and to add on proliferation across many of the segments that we look at in the market, even in the next year or 2 to advanced packaging.

Yes. I think well said, it's the kind of the lab-to-fab approach, which kind of differentiates most of your products. So just staying on the leading edge investments, many large OEM peers are talking about some sort of seasonality in gate-all-around spending in second half this year. What is Nova seeing? If you can also talk about your position with the 4 leading-edge customers.

Sure. So we have made considerable strides into securing a very sound position across all 4 gate-all-around manufacturers. So from moving from FinFET to gate-all-around, we were also able to improve our position and share across those 4 customers. And what it gives us is the understanding that no matter what demand is flowing, the overarching demand for gate-all-around manufacturing, Nova can have the share of that production.

Now obviously, it's critically important for the industry as well as for Nova to have all those 4 producing gate-all-around wafers and delivering, and we are supporting and very fortunate and proud to support all of those 4. But eventually, that gives us the confidence to see and stand behind the $500 million of cumulative revenues between '24 and '26 from gate-all-around, so that we can deliver to all of those once they are producing and when they are producing at the volumes that they expect.

Okay. And then some of your peers are seeing kind of divergence in this market where maybe the lithography-centric players are seeing weakness in leading edge, Applied Materials talked about gate-all-around spending being down by 10% in their forecast. Like what are you seeing? And also, if you could separate 3-nanometer versus 2-nanometer, like some peers are saying that the demand could be stronger for 3-nanometer next year versus 2-nanometer. Is that what you see as well? Or is it something different?

I would first say that we are not counting 3 nanometers as part of the gate-all-around. This is part of the leading-edge logic/foundry business that we are counting. And obviously, the bulk of our business is leading edge. We definitely believe that there is some seasonality across those manufacturing, but we haven't experienced the same trend that others are relating to. We're definitely seeing a stable and steady demand from our customers on the leading-edge nodes. And we believe that next year, we're going to see solid demand coming from both leading edge as well as gate-all-around, whereas there are additional gate-all-around customers that are starting production next year, which is adding to the mix. And that's part of the way we've described our cumulative revenue in which '25 is significantly higher than '24, and we're going to see continuous growth from gate-all-around in '26 compared to '25.

All right. And what are your expectations on the China revenue mix this year? And if you can separate multinational versus domestic and how overall China should do this year and next year?

It's an interesting question. Thank you, Atif. I think that unlike many of the peers in the industry and some analysts that looked at about a 20% drop in the business in China this year, earlier this year or the end of last one, we've projected a flat to slight decline in our business from China, whereas in the last earnings call, we have revised that to being slightly up. So in revenue, Nova is actually growing in China compared to others.

Obviously, because of the investment in advanced nodes, the share of business is going to be reduced from the 39% that we had in '24, which is more or less equal to other peers in the industry to a lower number in '25. We don't have the final number yet. We'll see how it works. But we've definitely seen around 35% in the first half. So we're seeing that decline as a result of the higher investment in advanced nodes. But in nominal values, we see growth in China. It's a bit skewed towards H1. But overall, the business in China is solid.

Good to know. And then, Gaby, there has been news that the international fabs, particularly memory ones, will have to ask for licensees moving forward versus getting a waiver. Do you see any impact from that change in terms of your business? I mean these fabs weren't upgrading to leading edge in any manner before, but any sort of impact?

Yes. So we're talking about TSMC, Samsung, Hynix and Intel, whereas Intel has sold to Hynix. And their licenses are supposed to be revoked at the end of the year. I'm quite confident that there will be some negotiation process or appeals. But as you said, the level of investments of those fabs recently has been depressed. And predominantly, most of our business in China is for the domestic players.

All right. So Gartner data showed a nice -- I believe it was more than 4-point something in market share gain for you guys. And can you walk us through where the share gains came from last year, how sustainable they are?

So Gartner reported in their latest publication earlier this year, the fact that we have grown our market share from around 20% in 2023 to 24.8% in 2024, making us the second player after KLA, which has approximately 50% of the market. We are very pleased. It's a dramatic leap in our market share that demonstrates the trust that customers have in the value of our technology and the relationships that we've built across the semi industry. This share is coming both from the 2 other players, of course, and it's a result of higher value, which is, in turn, because of disrupted technologies that offer superior performance or capabilities that other players don't have.

We have unique capabilities such as spectral interferometry for the stand-alone OCD. We've added unique capabilities to be able to address advanced packaging challenges on both integrated metrology as well as the stand-alone OCD. We were able to provide better chemical metrology tools such as adding direct metal replenishment to our Ancolyzer, which is our chemical tool for back end in order to defend and increase the market share while gaining share on the front end. So all of that was instrumental in driving our business and obviously, our share. And we believe that we have the capability to improve our share position in years to come. There's still a lot of room to grow. We are looking at additional segments and additional application spaces in which our tools can deliver. So we are very bullish and very excited by the opportunities in the market.

Great. Let's spend some time on ancosys and the chemical metrology area, particularly with respect to advanced packaging. Where are you finding the incremental opportunities for that chemical's opportunity within advanced packaging? And how do you kind of take your front-end technology portfolio and kind of take the back end where there are incumbents with kind of far inferior technology to yours? How do you kind of transport that know-how into back-end market?

So when you're looking at Nova versus our competitor in the chemical metrology space, KT, we were -- we are a market leader on the packaging, and our effort was to defend that position while increasing our share on the front end. In order to defend and increase our share on the back-end side, we've added value to our tools by unique capabilities such as the direct metal replenishment. This is a unique metal powder-based tool, which is replenishing the electroplating bath thus saving waste, increasing the ability of the electroplating bath ability to maintain the performance over time and definitely providing cost of ownership advantages to the customers. This is a unique capability that Nova has.

And on the front-end side, we've gained the trust of quite a few customers and penetrated with our front-end tools to increase our market share over there. And we are continuing to invest in identifying additional opportunities and capturing additional share. On the dimensional metrology, it's a very exciting story because we were fortunate to identify the inflection point of which advanced packaging required metrology tools and capabilities such as the likes of Nova. We started about 3 years ago, understanding that the complexity of advanced packaging, both in logic and in memory is such that yield would become extremely important. The cost of lower yield would become very, very high because you're now putting a few dies side by side, which already finished production and those are advanced node dies. And you need to provide the same type of metrology capabilities that we have on the front end.

So what we've done is we've taken, as an example, our integrated metrology tool, and we have repurposed it in order to cater for the advanced packaging requirements that are different in nature, not in terms of metrology, but in terms of engineering. And we were able to move very fast in order to position those tools and capture the lion's share of the market over there.

On the stand-alone OCD, it's even more remarkable because we've taken the latest and greatest technology, which is basically a gate-all-around technology or the most advanced technology for memory on stand-alone OCD. And we have figured out a way to use that in order to provide a solution to applications that were only being able to be addressed with different type of technologies that are much worse in cost of ownership, taking an optical technology, which is known for its cost of ownership, being sure that it can address in terms of performance, those type of applications and displace those other type of technologies with our most advanced tools, which is -- it's kind of an oxymoron, right? And that enabled us to penetrate with our stand-alone OCD to that space of advanced applications in the packaging space.

On top of it, of course, we coupled it with the latest acquisition that we made that we can further discuss in order to add more applications and address a broader type of spectrum for our customers, adding value as a result of being able to look at the broader number of applications within the production process.

Yes. Let's talk about Sentronics and integration. How is it going?

So we concluded the acquisition of Sentronics at the end of January this year. And we've been focusing on moving from a distribution model that they had to direct sales and service by our own team. We've already concluded that across all key regions. We've launched a new platform, which is a very exciting one, already adopted by a leading memory customer that has superior capabilities, being able to address asymmetric structures, different warpage, surface uniformity capabilities and definitely a very impressive engineering while looking at different wafer sizes and shapes. And this is giving us a great advantage in this particular market.

We've invested in additional capacity already seeing the growth of the business of Sentronics. And we're very excited by the fact that we are identifying a lot of synergies between the company, between Sentronics and Nova, now Sentronics being part of it. And we also found a great cultural fit. They have a great team, and it's working phenomenally.

Yes, you've had good success with the acquisitions in the last few years. Let me pause here and see if there are any questions in the audience. And if you have a question, please raise your hand. All right. Let's keep moving.

Gaby, services is a nice growth driver for most equipment suppliers. And -- but your services growth double digit is higher than some of the process equipment peers and KLA has some similar trends. Should we expect this level of growth to sustain going forward regardless of the WFE levels unless it's a very bad year?

We definitely look at double-digit growth for our service business. And it's different in nature and very interesting because we are catering to an installed base of more than 6,400 tools today, and it's growing. And we are offering our customers a service, which is built upon either contracts or time and material or value-added services. The value-added services are actually focused on offering productivity improvements to that installed base. And some of the growth of our business is a result of the fact that those tools that are exiting their warranty periods are getting into either contracts or time and material adding to the growth of the service business. We had 10 consecutive quarters of growth in our service business, and we definitely foresee a double-digit growth going forward.

Great. What prompted your recent convertible deal? And how will you use the proceeds from the $650 million convertible note offered to support your future growth?

So the day before yesterday, we concluded the issuance of a private convertible note offer upsized to $650 million with a greenshoe of $100 million, so a total of $750 million with a 0% coupon. We are looking at being able to invest in corporate development activities, infrastructure, disruptive technologies and definitely inorganic growth with these proceeds. We believe that since we have ambitious growth targets, and we've indicated the fact that beyond the $1 billion of organic growth mark by '27, we would like to add at least $150 million to $200 million of inorganic component. We need to have the right war chest, especially looking at the fact that this market has been undergoing consolidation.

So we would like to make sure that within our toolkit, we have the means to execute in a very focused and very swift manner once we have actionable targets. And it's coupled with the fact that we have very stringent criteria of being accretive within a year of having unique and sustainable -- unique technology with a sustainable business growth, a cultural fit, and all of that has to be identified. And once it does, we need to be able to execute in the best possible manner. I think the convertible offer was with very attractive terms. So we are very pleased with the outcome, and we're definitely very excited about the fact that we now have the right war chest to accommodate opportunities once they present themselves.

Great. And then going back to your comment that the logic market overall could be flat to down, but the leading edge will be strong next year. Some of your peers have talked about some green shoots outside China in terms of mature logic demand picking up. I was curious if you're seeing that as well? Or is China the main reason why the mature logic will be down?

So first of all, logic is not going to be down. It's going to be perhaps a bit of a slower growth. It's still going to grow. It's not going to go down, whereas gate-all-around will have -- or leading edge will have a higher growth than mature. But logic, and I apologize if that was misunderstood, is still going to grow. There are definitely quite a few opportunities across the board with mature nodes with logic, which are not necessarily centered around China or other territories. There are other places in which there are investments in building capacity and building fabs.

And we are definitely very interested in being able to pursue such opportunities with having the infrastructure close to every such infrastructure, which is being built. This is part of our capital plan to make sure that we have the infrastructure in each and every location such as that. But we are definitely tracking today all of those opportunities. We're exposed to front-end packaging up to specialty with our products and our presence and global business team. So we have an ability to service customers in different locations, whether it's within a specific geography or across geographies.

Great. With that, we're almost out of time. Thank you, Gaby, for coming to Citi conference. Thank you.

Thank you very much.