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 solutions, and continued market share gain.

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 roadmap remains aligned with the industry's most advanced manufacturing challenges.

As device architecture becomes more complex and customers pursue new approaches in advanced logic, memory, and packaging, the need for new metrology capabilities, higher levels of automation, and greater software intelligence continue to increase. Recent product introductions demonstrate the breadth of our innovation.

These include a new generation of 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 NovaHub, a scalable platform for fleet and AI-driven analytics that enable advanced applications and supports the efficient operation of large metrology fleets.

Together, these solutions and additional technological innovations still in the pipeline expand our serviceable market while enabling customers to achieve higher performance, greater productivity, and address critical applications across future technology generations. Now, let me turn to some business highlights for this quarter.

Revenue associated with advanced logic more than doubled sequentially as customers expanded production capacity. Demand stretched across product lines and divisions, reflecting the range of process control solutions required in leading-edge logic manufacturing.

This quarter, two areas in particular benefited from advanced logic. In materials metrology, the VeraFlex XPS platform continued to gain traction, driven by proliferation in gate-all-around manufacturing as customers continued 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 doubled 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 solutions, which combine physics-based and machine learning algorithms, help customers address multiple challenges associated with complex 3D device structures. These capabilities play an increasingly important role in managing the expanding Nova's install base in gate-all-around manufacturing.

Another highlight was the record sales of our front-end chemical metrology solution, Nova Ancosys, supported by both advanced memory and mature logic applications, reflecting increasing adoption, deeper engagement with existing customers, and continued market share gains at the front end of the line. Ancosys' strong performance demonstrates its growing role as an important revenue driver and further reinforces our leadership in chemical metrology.

Advanced packaging was another area of strength during this quarter, with record sales contributing nearly 1/4 of our overall product revenue, driven by our dimensional metrology portfolio. This performance was fueled by our customers' continued investments 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 chemistries. The strength and breadth of demand we see across our end markets provide us with increased visibility into the remainder of the year and into 2027.

Customer roadmaps and planned capacity investments continue to support a favorable outlook. Importantly, the drivers behind this demand appear increasingly durable in nature.

Given these trends, we believe we are on a path to reaching our organic growth objectives sooner than originally planned, reinforcing our confidence in Nova's long-term growth. Now, for some more details on our financials, let me hand over the call to Guy.

Thanks, Gaby. Good day, everyone.

I will begin by reviewing our quarter financial achievements and then provide guidance for the third quarter. Total revenues in the second quarter of 2026 reached a record level of $255 million, at the high end of our guidance.

This performance reflects growth of 8% quarter-over-quarter and 16% year-over-year, driven by continued strength across our customers' base and solid demand for our differentiated process control solutions. Product revenues distribution was approximately 73% from logic and foundry and 27% from memory and others.

Product revenues included two customers and four territories which contributed each 10% or more to product revenues. In the second quarter, blended gross margins were 57% on a GAAP basis and 58% on a non-GAAP basis.

Gross margins remained healthy and supported our record revenue and strong profitability performance. As expected, operating expenses increased to $68 million on a GAAP basis and $62.9 million on a non-GAAP basis.

This increase reflects our disciplined approach to reinvesting growth into product development and roadmap expansion, positioning the company for continued long-term success. Operating margins in the second quarter reached 30% on a GAAP basis and 33% on a non-GAAP basis, on the upper range of our target model of 28% 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%.

Earning per share in the second quarter on a GAAP basis were $2.20 per diluted share, and earning per share on a non-GAAP basis were $2.51 per diluted share, exceeding the high end of our second quarter guidance. Next, I would like to outline our guidance for the third quarter of 2026.

We currently expect revenues for the quarter to be between $277 million and $287 million. GAAP earning per diluted share to range from $2.46 to $2.61.

Non-GAAP earning 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're 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 remained 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're well positioned to continue driving profitable growth throughout 2026. With that, we will be pleased to take your questions.

Operator?

Hi team, how are you? This is Trip Smith on for Tom O'Malley.

Thank you for the question and 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.

Thank you, Chris, 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. We see growth in both logic and memory, whereas intensity and growth on the advanced nodes in logic is obviously higher.

Thank you. 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 $210, $215 billion. Just wondering if you could support those levels today or what you might need to do to support those levels.

Thank you for the questions.

Sure. We do have visibility into 2027, where 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.

Obviously and overall, customers are planning further ahead and we do work closely with them on the 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.

Thank you very much.

Hi, thank you for taking my questions. Gaby 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.

Any kind of qualitative commentary you can provide around your customers' behavior, are they putting more down payments or any backlog on RPO that can help us understand how far is your visibility extending?

Thank you for the question, Atif. I think that it's not really comparable to the previous cycles because we're seeing demand from both logic and memory and customers understand that in order to provide the products 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. 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.

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. Thank you, Atif.

I would say that we do see some impact on our BOM cost related to memory. Our portion of our BOM is not significant, we don't see any major change to our gross margin profile due to that.

I would say the margin profile and the gross margin range that we have in our target model, 57% to 60%, is well intact.

Yes, I would add to that, if I understood correctly, Atif, 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 BOM 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.

We continue to support in the best possible way while considering the different changes on the BOM and COGS. 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.

Thank you, guys.

Thank you for letting me ask a question. 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, nothing idiosyncratic.

A bit of a two-part question. Firstly, what is Nova's view on process control intensity recovering into 2027?

My second question is just, do we have levers to outgrow process control growth next year? Thank you.

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 is currently muted in process control, and that, of course, may change in 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.

From our perspective, the most important indicators are customer adoption, market share gains, and technology wins. 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. For my follow-up, you previously published a tech blog focusing on your talks at VLSI 2025 on hybrid bonding and Nova's solutions for it.

Just can you talk about hybrid bonding is impacting your SAM? If there's just an update you can give on your advanced packaging growth for this year as well, that would be very helpful.

Thank you.

Sure. We mentioned in the call that advanced packaging is nearing 25% of our product revenue in the second quarter of the year.

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 our opportunities are now spanning both optical, chemical, and materials metrology.

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.

Technologies such as chiplets, hybrid bonding, panel-level packaging that I also mentioned, 2.5D integration are all increasing the number of measurements required as well as the criticality of those measurements. Overall, advanced packaging is benefiting our business.

We see the hybrid bonding as an additional layer that will accelerate this growth for Nova. It's a positive momentum and trajectory for us.

Great. Thank you very much.

Hi, thanks for taking my question. 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 three months and how they've 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 keeping the lead times as they were in the past while there is an increase in demand from customers, and we continue to basically provide almost similar lead times.

We make a tremendous effort to maintain lead times to customers. I think that we're best in class in lead times in the industry.

The specific lead times vary from product to product. Overall, I would say that between 4 to 12 months at the latest depending on the product line.

Understood. 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? Does it stay at the 25% for the whole year in the second half?

We projected it initially to be between 20% to 25%. I think that it's inching towards 25% for the year.

Understood. Thank you.

Great. Thank you very much.

I just wanted to follow up about the end market outlook. 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? Perhaps if, given your visibility, if you're expecting to see any changes in the memory demand for you entering into the first half of '27?

Sure. 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 technology transitions, such as 4F square, 6F, 6SF square, advanced DRAM architecture, and eventually the 3D DRAM, all increase process complexity and metrology requirements. Now in terms of positioning, 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 naturally, we have different positions, of course, depending on the product line.

Once capacity is back, and the reason I'm saying that is because I'm hoping that capacity is back sometime next year, we're expected to benefit from it.

Excellent. For a quick follow-up for Guy regarding the gross margin.

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?

The main reason is product mix. As we say in every quarter, the estimate that we're giving can fluctuate plus/minus 1%.

As I mentioned earlier, this quarter, the gross margins were 58%, which is healthy level and well within our target model. 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%.

Overall, it reflects the normal dynamic of the business.

Great. Thank you for that.

Hey guys, thanks so much for taking my question. I really appreciate it.

You've talked about having a position across all four of the gate-all-around players. One of those customers, I know, is 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 compare to a more typical brownfield expansion in terms of metrology intensity and what your opportunity might look like there?

I am a bit reluctant to relate to specific customers, as 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 a 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 thresholds required for such a new operation.

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, thank you. 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 Centronix.

I was hoping maybe we could get an update on where Metrion and Elipson sit on the adoption curve exiting Q2. Thanks so much.

Sure. We did speak of the Metrion accelerated adoption 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 utilization and qualifications that we receive 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. 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'll replicate the model that we had with the 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're increasing adoption in logic, especially the advanced nodes right now. I think that we're in a positive trajectory generally with this strategy, and in particular with the Metrion, as I mentioned before.

Great, thank you.

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