Good day and welcome to the NOVA LTD second quarter 2026 results conference call. All participants will be in listen-only mode. Should you need assistance, please seek now a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchstone telephone. To withdraw your question, please press star then to. Please note today's event is being recorded. I would now like to turn the conference over to Ms. Mary Segal, CEO of MSIR. 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 Gabby Weissman, President and CEO, and Guy Kisner, 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. Gabby 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 Gabby Weissmann, NOVA's President and CEO. Gabby, 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 highlight. Following my commentary, guys will review the quarterly financial results in detail. We delivered an exceptional quarter, achieving record revenue of $255 million dollars 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-gas 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 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 prosperity. 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 investment in manufacturing capacity and the process control solution 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 variplex 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 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' extended 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 Veriflex XPS platform continued to gain traction, driven by proliferation in gable around manufacturers as customers continued to increase the number of Veriflex tools per fast. This traction was one of the factors driving our recent cleanroom 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 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 Gator-Laral manufacturing. Another highlight was the record sales of our front-end chemical metrology solution, NOVA-Ankosy, 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. AnchorScene's strong performance demonstrates its growing role as an important revenue driver and further reinforces our leadership in chemical metrology. Advanced packaging was another area of strength during this quarter, with record sales contributing nearly one quarter of our overall product revenue, driven by our dimensional metrology portfolio. This performance was fueled by our customers' continued investment in advanced packaging and high bandwidth memory capacity to support growing demand for AI-related devices. An important growth driver was the Nova WMC platform, which continued to gain traction across advanced packaging applications, including a recent tool of record selection by a leading foundry customer for multiple layers measurement in advanced packaging production flows. We also saw accelerating adoption of the NOVA WMC across memory and foundry customers, positioning us to benefit from further 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 investment 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 roadmaps and planned capacity investment 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 long-term growth. Now, for some more details on our financials, let me hand over the call to Guy.

Thanks, Gabi. 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 This performance reflects growth of 8% quarter over quarter and 16% year over year, driven by continuous strength across our customer's 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 gap basis and 58% on a non-gap 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 continual long-term success. Operating margins in the second quarter reached 30% on a gap basis and 33% on a non-gap 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 gap basis were $2.20 per diluted share, and earnings per share on a non-gap 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. Gap earning per diluted share to range from $2.46 to $2.61. Non-gap 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 gap basis and approximately 59% on a non-gap basis. Operating expenses on a gap basis to increase to approximately $74 million. Operating expenses on a non-gap basis to increase to approximately $68 million. dollars. Financial income on a non-gap basis to remain similar to that of the second quarter. Effective tax rate is expected to be approximately 17 percent. 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're well positioned to continue driving profitable growth throughout 2026 with that we will be pleased to take your questions operator thank you we will now begin the question and answer session to ask a question you

may press star then one on your touchstone telephone if you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then to. At this time, we will pause momentarily to assemble our roster. First question is from Tom O'Malley-Barclays.

Hi team, how are you? This is Trip Smith on for Tom O'Malley. Thank you for the questions 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 free demand still this year, which may change, but we see growth in both logic and memory, whereas intensity and growth on the advanced nodes in logic is obviously higher.

Thank you. 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, $215 billion. I'm 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. So we do have the 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 polling, 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 the capacity planning. It's too early to say whether a 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.

Next question is from Atif Malik, CT.

Hi, thank you for taking my questions. Gabby, 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 customer's behavior? Are they putting more down payments or any backlog on RPO that can help us understand how far is your visibility extending?

Yeah, thank you for the question, Atif. I think that it's not really comparable to the previous cycles because we're seeing demands 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 a 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 supplies and trains?

Yes, so thank you, Atif. I would say that we do see some impact on our bone cost related to memory. Our proportion of memory portion of our bone 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, 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 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. 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. Thank you, guys.

Next question is from Shane Brett Morgan Stanley.

Thank you for letting me ask the question. 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 two-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.

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 3DNAND, 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 Novel's growth and outperformance remain firmly intact.

Got it.

And for my follow-up, so you previously published a tech blog focusing on your talks said on 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 um your advanced packaging growth for this year as well that would be very helpful thank you sure so um we mentioned in the call that advanced packaging is nearing 25 percent 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 multi-year structural growth opportunity for Nova and our 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 the complexity and I'm talking about both 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 So it's a positive momentum and trajectory for us.

Great. Thank you very much.

Next question is from Vidwati Shrotri, Evercord.

Hi. Thanks for taking my question. The first one I wanted to understand is you talked about lead times increasing. Could you compare, you know, where the lead times are today versus where they were in the past three months and how they have changed?

Well, thank you, Vedrathi. 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 the lead times. and they increase while there is a 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 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? 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 that it's inching worth 25% for the year.

Thank you.

Next question is from Dennis Payet-Chachin, Nedam.

Thank you very much. So I just wanted to follow up about the end market outlook. So if I understood it correctly, you're expecting a 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 if, you know, 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. 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 transition, such as the 4S2, 6S2, 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 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 the capacity is back sometime next year, we're expected to benefit from it.

And for a quick follow-up for Gaia regarding the gross margin. So it looks like the gross margin isn't 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 mixed in the quarter or some sort of unforeseen cost?

Yeah, 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 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 percent our our third quarter outlook is 59 percent and we expect full year gross margin to be approximately 59 and overall it reflects the normal dynamic of the business great thank you for that next question is from craftford clark jeffries hey guys thanks so much for taking my

question i really appreciate it um you've talked about having a position across all four of the gate all-around players uh one of those customers i know has joined uh with the terra fab project um i was hoping you could help us unpack maybe uh you know without divulging any specific information um you know how does a greenfield project like terra fab you know with a new five operator at a, you know, leading edge node compared to, you know, more typical brownfield expansion in terms of, you know, 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 TerraFab specifically. Generally speaking, and that's not a comment related to TerraFab, 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 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. Thank you. And then just as a follow-up, you know, in the release, I know you guys called out records in the AnchorSys front-end chemical metrology business and in Centronics. I was hoping maybe we could get an update on where Metreon and Ellipson sit on the adoption curve. Thanks so much.

Sure. So we did speak of the Metreon accelerated adoption the first quarter of the year, and we continue to see demand for Metreon going forward in terms of both the number of customers, both across logic and memory, as well as the 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 Dimetreon and Ellipson. 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 this will 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 are increasing adoption in logic, especially the advanced nodes right now, and I think that we're on a positive trajectory generally with this strategy and in particular with the Metreon, as I mentioned before.

Great. Thank you.

This concludes our question and answer session. I would like to turn the conference back to Mr. Gabi Weisman, Novus 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.