Q2 2024 Nova Ltd Earnings Call

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Operator: Good day, and welcome to the NOVA Limited second quarter 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would like now to turn the conference over to Miri Segal, CEO of MSIR. Please go ahead.

Good day and welcome to the Nova Limited second quarter 'twenty 'twenty four results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by person.

Speaker Change: The Starkey 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 your Touchtone phone.

Draw. Your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Mary Seagal T. O M. S. IR. Please go ahead.

Miri Segal: Thank you, Operator, and good day to everybody. I would like to welcome all of you to NOVA's second quarter 2024 Financial Results Conference call. With us on the line today are Gabby Waisman, President and CEO, and Guy Kizner, CFO. Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's earnings release also applies to this

Mary Seagal: Thank you operator, and good day to everybody I would like to welcome all of you to Nova's second quarter 'twenty 'twenty four financial results conference call.

Gabby Weisman: Well that's on the line today are Gabby Weisman Crazy Dent in C O and Daiichi isn't there so.

Speaker Change: Well, we begin may I remind our listeners that certain information provided on this call may contain forward looking statements and the safe Harbor statement outlined in todays earnings release also pertains to this call.

Speaker Change: Not received a copy of the release please be in 18 of the Investor Relations section of the company's website.

Miri Segal: 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'll now turn the call over to Gabby Waisman, NOVA's President and CEO. Gabby, please go ahead.

Speaker Change: We begin the call with a business update followed by a guy with an overview of the financials. We will then open the call for the question and answer session.

Gaby Weisman: I'll now turn the call over to grab the Weisman now Vice President and C. O. Gaby. Please go ahead.

Gabby Waisman: 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 Kizner, Nova's Chief Financial Officer, will review the quarterly financial results in... Nova delivered an exceptionally strong quarter, exceeding the high end of the guidance in revenue and profit, with record results across the board. Our performance was propelled by our exposure across geographies, customers, and technology nodes, and manifested throughout NOVA's dimensional, materials, and chemical metrology portfolio. Our revenue grew 11% sequentially and 28% year-over-year, and Profitability set another unprecedented record. Furthermore, our overall cash reserves reached record levels at approximately $760 million.

Gaby: Thank you Mary and thank you all for joining us today.

Gaby Weisman: I will start the call by summarizing our second quarter performance highlights.

Gaby Weisman: Following my commentary, Greg Kitchener, Chief Financial Officer will review the quarterly financial results in detail.

Speaker Change: Nova delivered an exceptionally strong quarter exceeding the high end of the guidance and revenue and profit with record results across the board.

Speaker Change: Our performance was propelled by our exposure across geographies customers and technology nodes and manifested throughout nova's dimensional materials and chemical metrology portfolio.

Greg Kitchener: Our revenue grew 11% sequentially and 28% year over year.

Gaby Weisman: And profitability set another unprecedented record.

Gaby Weisman: Furthermore, our overall cash reserves reached record levels at approximately $760 million.

Gabby Waisman: The strong momentum and the outstanding performance result from our consistent execution. These results also attest to our ability to leverage market opportunities while relying on our flexible operational model to maximize the benefits. Looking at the broader picture, our first half of 2024 revenue came just under $300 million.

Speaker Change: The strong momentum and the outstanding performance.

Speaker Change: From our consistent execution.

Speaker Change: These results also attests to our ability to leverage market opportunities, while relying on our flexible operational model to maximize the benefits.

Speaker Change: Looking at the broader picture the first half of 'twenty 'twenty four revenue came just under $300 million, 17% higher than the same period last year.

Gabby Waisman: 17% higher than the same period last year, a significantly higher rate than current forecasts for wafer fab equipment. Given our third quarter guidance, we remain confident in our ability to outperform the market. Going forward, we see a steady increase in demand for leading-edge nodes, including gate-all-around and advanced packaging-related processes, led by customers in Taiwan, Korea, and the U.S. The upside to our performance this quarter is free fall

Speaker Change: A significantly higher rate than current forecasts for wafer fab equipment.

Speaker Change: Given our third quarter guidance, we remain confident in our ability to outperform the market.

Speaker Change: Going forward, we see a steady increase in demand for leading edge nodes, including gate, all around and advanced packaging related processes led.

Speaker Change: Led by customers in Taiwan, Korea, and the U S.

Speaker Change: The upside to our performance this quarter is three fold.

Gabby Waisman: First, the Nova Prism 2 platform's strong performance resulted from a faster-than-expected adoption rate in advanced packaging and gate-all-around processing. Second, our chemical metrology division delivered record results, driven by increasing demand for our solutions in high bandwidth memory, packaging, and front end of line logic processing. Finally, our service business grew 19% year over year by leveraging the increasing utilization rates to secure contract-based and value-added services sales, rounding out the contribution for this stellar quarter.

Speaker Change: Uh huh.

Speaker Change: Nova PRIZM to platform strong performance resulted from a faster than expected adoption rates in advanced packaging and gate all around processes.

Speaker Change: Second our chemical Metrology Division delivered record results driven by increasing demand for solutions in high bandwidth memory packaging and front end of line logic processes.

Speaker Change: Finally, our service business grew 19% year over year by leveraging the increasing utilization rates to secure contract base and value added services sales rounding.

Speaker Change: Rounding up the contribution for this stellar quarter.

Gabby Waisman: While these revenue streams stand out, our performance relies on the broad diversity of our portfolio and market presence, with multiple new customers in all product divisions. A company's inherent ability to succeed in our industry's dynamic nature stems from having a myriad of revenue streams that complement and compensate through ebb and flow. Nova has built this solid foundation through deep partnerships with our customers, Flexible Operations, and the unwavering dedication of our team.

Speaker Change: While these revenue streams standout.

Speaker Change: Performance relies on the broad diversity of our portfolio and market presence with multiple new customers in all product divisions.

Speaker Change: Our company's inherent ability to succeed in our industry is dynamic nature.

Speaker Change: From having a myriad of revenue streams.

Speaker Change: Complement and compensate.

Speaker Change: Ebb and flow.

Nova: Nova has built this solid foundation for deeper partnerships with our customers flexible operation and the unwavering dedication of our teams.

Gabby Waisman: It makes us confident that we can leverage every opportunity and address any challenge to thrive on our journey and realize our long-term strategic plan. AI is reshaping our digital world and expediting the implementation of scaling agents in integrated circuits to boost performance and power efficiency, which are at the core of enabling large language models through training and infrastructure.

Speaker Change: It makes us confident that we can leverage every opportunity and address any challenge to thrive on our journey and realize our long term strategic plans.

Speaker Change: Artificial intelligence is reshaping, our digital world and expedited implementation of killing agents and integrated circuits.

Speaker Change: Boost performance and power efficiency, which are at the core of enabling large language models for training and infant stages.

Gabby Waisman: Scaling is manifested in more complex designs through three avenues: Dimensions, Materials, and Advanced Specs. It is also manifested in the size of the dyes manufactured and in the number of dyes required in solutions such as high bandwidth memory.

Speaker Change: Scaling is manifested in more complex designs for free avenues.

Speaker Change: I mentioned materials and advanced packaging.

Speaker Change: It is also manifested in the size of manufactured dies and then the number of guys required and solutions such as high bandwidth memory.

Gabby Waisman: These developments profoundly impact our industry, in the number of wafers needed to supply demand and in the yield ratio you must obtain to secure profitability with a lower number of dyes per wafer. Couple that with a growing complexity of architecture and materials, and you have the growth drivers of process control in the coming years. We can already see these trends echoed in Nova's portfolio and performance.

Speaker Change: These developments profoundly impact our industry and the number of the wafers needed to supply demand and in the yield ratio you must be obtained to secure profitability with a lower number of die per wafer.

Speaker Change: Couple that with a growing complexity of architecture and materials and you'll have the growth drivers of process control in the coming years.

Speaker Change: We can already see these trends echoed in Nova portfolio and performance.

Gabby Waisman: There are multiple indications that our differentiated portfolio is well-structured to meet our customer needs and address their challenges. The surge in demand for advanced notes and the entry of gate-all-around-based architecture drive sales of our most advanced critical dimensions and materials solutions. I mentioned PRISM-2 earlier as a great example of the rapid adoption of our solutions by the manufacturers already engaged in gate-all-around production. This quarter, we recognize revenue from multiple PRISM-2

Speaker Change: There are multiple indications that our differentiated portfolio is well structured to meet our customer needs and address their challenges.

Speaker Change: The surge in demand for advanced nodes.

Speaker Change: And the entry of gate, all around based architecture drive sales of our most advanced critical dimensions and materials solution.

Speaker Change: I mentioned prism to earlier is a great example of the rapid adoption of our solutions by the manufacturers already engaged in gateway around production.

Speaker Change: This quarter, we recognized revenue for multiple president two tools.

Gabby Waisman: Demand is also consistently high for our advanced integrated metrology and XPS material metrology platform. We're engaged with all customers developing Gable around production lines, and we estimate the transition will add 20% to 30% to the number of metrology steps.

Speaker Change: Demand is also consistently high for advanced integrated metrology and xps material metrology platforms.

Speaker Change: We're engaged with all customers developing gate all around production lines.

Speaker Change: We estimate the transition will add 20% to 30% so the number of metrology steps.

Gabby Waisman: By the end of 2026, we see an opportunity of $500 million in Gate All Around, including adoption of our new technology. However, the demand for metrology is not limited to gate-all-around processes, and we also see equipment deliveries driven by the demand for process control in FinFET advanced processes. Nova had a record booking of VeriFlex XPS platforms this quarter, of which over 40% resulted from capacity growth in such. Advanced Packaging is a revenue accelerant with significant revenue and bookings in chemical and dimensional metrology.

Speaker Change: By the end of 'twenty 'twenty, six we see an opportunity of $500 million and gate, all around including adoption of our new technologies.

Speaker Change: The demand for metrology is not limited to gate all around processes and we also see equipment deliveries driven by the demand for process control and Finfet advanced nodes.

Speaker Change: Nobody had a record booking a very flex xps platforms this quarter.

Speaker Change: Of which over 40% resulted from capacity growth in such notes.

Speaker Change: Advanced packaging as a revenue accelerant with significant revenue and booking in chemical and dimensional metrology.

Gabby Waisman: Approximately half of PRISM-2 record bookings stem from advanced packaging processes, such as through silicon, where PRISM has a unique advantage in filtering information from specific underlayers. The platform is also under evaluation in one of the world's leading foundries, alongside our integrated and chemical metrology platform. There is a clear use case for front-end tools at the back-end of advanced modes.

Speaker Change: Approximately half of prism two record bookings stem from advanced packaging processes, such as through Silicon via where prison has a unique advantage in filtering information from specific under layers.

Speaker Change: Yeah.

Speaker Change: The platform is also under evaluation in one of the world's leading foundries alongside our integrated and chemical metrology platform.

Speaker Change: There was a clear use case of front end tools at the backend of advance nodes.

Gabby Waisman: And we were early to respond by creating a dedicated portfolio to address this. I want to summarize my prepared notes by saying that looking into the second half of 2024, we see robust and diversified bookings and potential upside across all three divisions. We see encouraging indicators that our industry is moving into a growth cycle, with trends coming primarily from logic across nodes. We remain vigilant for changes in market conditions and confident in our ability to deliver on our promise to outperform the market. Now, for more details on the financials, let me hand over the call to Guy.

Speaker Change: And we were early to respond by creating a dedicated portfolio to address this need.

Speaker Change: I want to summarize my prepared notes by saying that looking into the second half of 'twenty 'twenty four we see a robust and diversified bookings and the potential upside across all three divisions.

Speaker Change: We see encouraging indicators. So the industry is moving into a growth cycle with strength coming primarily from logic across notes.

Speaker Change: We remain vigilant for changes in the market conditions.

Speaker Change: I'm confident in our ability to deliver on our promise to outperform the market.

Speaker Change: Now for more details on the financials, let me hand over the call to Guy.

Guy: Thanks Scott.

Guy Kizner: Good day everyone, and thank you for joining our 2024 second quarter conference call. I am excited to address you today as the newly appointed Chief Financial Officer of Nova. It has been a privilege to be part of this incredible organization, and I look forward to continuing to contribute to our success in this role.

Guy: Good day, everyone and thank you for joining our 2024 second quarter conference call.

Guy: I'm excited to address you today as newly appointed Chief Financial Officer of novel.

Guy: It has been a privilege to be part of this incredible organization and I look forward to continuing to contribute to our success in this role.

Guy Kizner: Now let's review the financial and business highlights for the quarter. Total revenues in the second quarter of 2024 reached a record level of $156.9 million, exceeding the company guidance for the second quarter, reflecting growth of 11% quarter over quarter and 28% year over year. This strong performance was driven by high demand for our products and faster than anticipated acceptance processes by our customers. Product revenue distribution was approximately 75% from logic and foundry and approximately 25% from memory.

Guy: Now, let's review the financial and business highlights for the quarter.

Guy: Total revenues in the second quarter of 2024 reached a record level of $156 9 billion dollar exceeding the company guidance for the second quarter.

Guy: Reflecting growth of 11% quarter over quarter, and 28% year over year.

Guy: This strong performance was driven by high demand for our products and faster than anticipated acceptance processes by our customers.

Guy: Product revenue distribution was approximately 75% from logic and foundry and approximately 25% for memory.

Guy Kizner: Product revenue includes 4 customers and 4 territories that contributed each 10% or more to product revenue, reflecting the company's diversified position across regions and customers. Blended gross margin in the second quarter was 59% on a GAAP basis and 61% on a non-GAAP basis, stopping the company target model of 57% to 59%.

Guy: Product revenue includes four customers and four territories that contributed each 10% or more to product revenues.

Guy: Reflecting the company's diversified position across regions and customers.

Guy: Blended gross margin in the second quarter were 15, 9% on a GAAP basis, and 61% on a non-GAAP basis.

Guy: Stopping the company target model of 57% to 59%.

Guy Kizner: The high gross margin in the quarter was attributed to a favorable product mix, coupled with higher revenue volume growth. We expect gross margin to gradually normalize in the coming quarter, aligning with the high end of the company target model on an annual basis. As expected, operating expense increased in the second quarter and came in at $47 million on a GAAP basis and $42.3 million on a non-GAAP basis. Operating margins in the second quarter were 29% on a GAAP basis and 34% on a non-gap basis, exceeding the high end of the company target model of 27% to 31%.

Guy: The high gross margin in the quarter was attributed to favorable product mix, coupled with higher revenue volume growth.

Guy: We expect gross we expect gross margin to gradually normalize in the coming quarter aligning with the high end of the company target model on an annual basis.

Guy: As expected operating expense increased in the second quarter and came in at $47 million on a GAAP basis, and $42 $3 million on an all get basis.

Guy: Operating margins in the second quarter were 29% on GAAP basis, and 34% on a non-GAAP basis exceeding the high end of the company target model of 27% to 31%.

Guy Kizner: This excellent result was driven by healthy quarterly gross margins and the company's robust operational model. Financial income in the quarter remained elevated, following higher yields on cash reserves, and came in at $8.4 million. The effective tax rate in the second quarter was approximately 16%.

Guy: These six cents result was driven by a healthy quarter of gross margins and the company and robust operational model.

Guy: Financial income in the quarter remained elevated following higher yields on cash reserve and came in at $8 $4 million.

Guy: The effective tax rate in the second quarter was approximately 16%.

Guy: Yeah.

Guy Kizner: Earnings per share in the second quarter on a GAAP basis were $1.41 per diluted share, and earnings per share on a non-GAAP basis were $1.61 per diluted share, exceeding the high end of our second quarter guidance, and reflecting a record for the third consecutive quarter. Finally, I would like to share the details of our guidance for the third quarter of 2024. Currently, we expect revenue for the quarter to be between $168 million and $176 million.

Guy: <unk> per share in the second quarter on a GAAP basis were $1.41 per diluted share and earnings per share on a non-GAAP basis were $1.61 per diluted share exceeding the high end of our second quarter guidance, reflecting the record for the third consecutive quarter.

Guy: Finally, I would like to share the details so far our guidance for the third quarter of 2024.

Guy: Currently we expect revenue for the quarter to be between $168 million and $176 million.

Speaker Change: Yeah for earning per diluted share to range from one dollar and 39 cents to one dollar and 52 cents.

Guy: non-GAAP earnings per diluted share to range from $1.60 to $1.73.

Guy Kizner: Gap earnings per diluted share are expected to range from $1.39 to $1.52. Non-gap earnings per diluted share are expected to range from $1.60 to $1.73. At the midpoint of our third quarter 2024 estimate, we anticipate the following: gross margin of approximately 56% on a GAAP basis and approximately 58% on a non-GAAP basis; operating expense on a GAAP basis to increase to approximately $50 million and on a non-GAAP basis to increase to approximately $45 million. Financial income is expected to remain similar to the second quarter, and the effective tax rate is expected to be approximately 14%.

Guy: At the midpoint of our third quarter 2024 estimates we anticipate the following.

Guy: Gross margin of approximately 56% on GAAP basis, and approximately 58% on a non-GAAP basis.

Guy: Protein expand some get basis to increase to approximately $50 million and a non-GAAP basis to increase to approximately $45 million.

Guy: Financial income to remain similar to the second quarter and the effective tax rate is expected to be approximately 14%.

Guy Kizner: Before I conclude my remarks, I would like to note the following. During the first half of 2024, the company generated a record free cash flow of $115 million, or 38% of revenue that grew the company's cash reserve to approximately $759 million at the end of the second quarter of 2024. This healthy cash level provides the required flexibility to pursue organic and non-organic business development activities toward executing the company's $1 billion strategic plan. With that said, we will be pleased to take your questions. Operator.

Guy: Before I conclude my remarks, I would like to note the following.

Guy: During the first half of 2024, the company generated a record free cash flow of $115 million was 38% of revenue that grew company cash reserve to approximately $759 million at the end of the second quarter of 2024.

Guy: This healthy cash level provides the required flexibility to pursue organic and inorganic business development activities towards executing the company's $1 billion strategic plan.

Guy: With that we will be pleased to take your questions.

Guy: Peter.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Blayne Curtis of Jeffreys.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're 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 it. Please press Star then two at this time, we will pause.

Speaker Change: <unk> currently to assemble our roster.

Guy: Yeah.

Guy: Yeah.

Guy: Yeah.

Guy: Our first question comes from Blayne Curtis of Jefferies.

Blayne Curtis: Thank you for taking my questions and for the great results. Maybe you can just walk through, a few people have seen some lumpiness in memory. It was down a bit. Can you maybe just talk through that? And then in your outlook, the commentary on booking sounds pretty balanced. So I'm just kind of curious about the outlook for the memory segment to recover in the second half.

Speaker Change: Taking my questions and great results.

Blayne Curtis: Maybe you can just walk through a few people have seen some lumpiness in memory. It was down a bit can you maybe just talk through that and then in your outlook commentary on bookings sound pretty balanced. So I'm just kind of curious the outlook for for the memory segment to recover in the second half.

Gabby Waisman: Yes, so thank you for the comment and question, Blayne. So this quarter, logic was up.

Speaker Change: Yeah. So thank you for the common question Blayne. So this quarter logic was was up we see a significant ramp in that request and that's reducing of course, the overall share of the memory last quarter. We also had some oh two large DRAM order.

Gabby Waisman: We see a significant ramp in that demand, and that's reducing, of course, the overall share of memory. Last quarter, we also had some too-large DRAM orders that shifted it out a bit. But in H2, we expect, at least in the third quarter and overall, memory to maintain a level of approximately 25 percent. And that's mostly because of the fact that we see high demand coming from logic and advanced packaging, which is obviously increasing the ratio of that part.

Speaker Change: Does that has shifted at all of the bit, but then H two we expect at least in the third quarter and overall, we expect memory to maintain a level of approximately 25%.

Speaker Change: And that's mostly because of the fact that Oh, we see high demand coming from our logic and advanced packaging, which is obviously increasing the ratio of that part.

Guy Kizner: Thanks so much. And then I wanted to ask about gross margin. You've been above the range for a couple quarters, but it drops back in. Can you just remind me the drivers in terms of the mix? And is this more about new products or the end market mix? Like what's the driver for the margin to go back into the range? Yes, so.

Speaker Change: Thanks, So much and then I wanted to ask on on the gross margin you've been above the range for a couple of quarters. It drops back in can you just remind me the drivers in terms of the mix and is this more about new products or the end market mix like what what's the driver for the margin.

Speaker Change: To go back into the range.

Guy Kizner: Yes, so regarding gross margin, there are a couple of factors contributing to that, given the fact that we have a diverse product portfolio with different gross margin profiles, such as software and new products, and the fact that our product ASP ratio to quarterly revenues is relatively high. We have a high sensitivity to product mix within the quarter, and in environments such as we saw in this quarter, higher revenues and faster acceptances from customers than anticipated, we experience such fluctuation.

Speaker Change: Yeah. So regarding the gross margin there are a couple of factors to that given the fact that we have a diversified product portfolio with different gross margin profiles, such as software or a new product and the fact that our product S. B ratio to quarterly revenues are relatively high.

Speaker Change: We have a high sensitivity for a product mix within the quarter and in environment, such as we saw in this quarter that'll fire revenues and faster acceptances from customer than anticipated, we haven't such fluctuation.

Guy Kizner: For the third quarter, as revenue is increasing, we are less sensitive to specific deals, and we believe at this point that our gross margin will be 58% plus minus 1% in the third quarter, and, as we mentioned, on an annual basis, it will be within the high end of our target model of 59%.

Speaker Change: For the third quarter as revenue increases we are less sensitive for specific deals and we believe that disappointed that our gross margin will be a 58% plus or minus 1% in the third quarter and as we mentioned on the annual basis to be within the high end of our target model of 59.

Speaker Change: Thanks, a lot.

Speaker Change: Yeah.

Vivek Arya: The next question comes from Vivek Arya from Bank of America. Please go ahead.

Speaker Change: The next question comes from Vivek Arya from Bank of America. Please go ahead.

Daxan: Hi, thank you for taking our question. This is Daxan on behalf of Vivek.

Vivek Arya: Hi, Thank you for taking our question. This is ducks on on behalf of feedback congrats on the nice results and guide My question is.

Gabby Waisman: Congratulations on the nice results and guide. My question is, Do you think this level of strong guide in Q3 is sustainable? And I'm curious if you saw any type of pull-in from any customers from any geographies in both quarters.

Speaker Change: Do you think this level of strong guide in Q3 are sustainable.

Speaker Change: And I'm curious if you saw any type of pull in from any customers from any geographies and third of course. Thank you.

Gabby Waisman: Obviously, thank you for the question, Dr. Sun. We don't provide the outlook for the fourth quarter yet, but we do expect it to be as strong as the third quarter. In terms of geographies, as we indicated, we saw strong business coming from Korea, Taiwan, and the U.S.

Speaker Change: So obviously a thank you for the question Doug. So we we don't provide the the our outlook for the fourth quarter yet.

Speaker Change: But we do are expected to be as strong as the third quarter in terms of geographies, where as we indicated we saw stronger business coming from Korea, Taiwan and the U S.

Speaker Change: Got it.

Gabby Waisman: Got it. And then. Based on your current manufacturing footprint, is it sustainable and enough to get your $1 billion model, or do you have to constantly feed into the cutback?

Speaker Change: And then.

Speaker Change: But just based on your current manufacturing footprint.

Doug: Is it sustainable and enough to get to your $1 billion of model or do you have to close that'd be see it into the capex.

Gabby Waisman: Yes, so we, as part of the strategic plan that we introduced in 2022, we have invested in facilities in order to support this, our One Billion Plan. So we have invested in our production facilities in Israel, in Germany, and in the U.S. And by the end of this year, we will practically have enough capacity to support the One Billion Plan.

Speaker Change: Yeah. So we as part of the strategic plan that we introduced in 2022, we have invested in the facilities in order to support these Oh 1 billion plan.

Speaker Change: So we invested in Oh facilities production facilities in Israel in Germany, and in the U S and by the end of this year, but we believe we will have enough capacity to support the 1 billion plan.

Gabby Waisman: Got it. If I may just have one more question, recently there was a large U.S.-based, I guess, IDM slash foundry that cut capex significantly. I assume most of that is tied to leading edge and packaging, sort of your bread and butter. So I'm curious if that has impacted your outlook in any way, and do you see this as more idiosyncratic, or is it a sign of some kind of pressure across the industry? Thank you so much. So, uh...

Speaker Change: Got it if I may just have one more.

Speaker Change: Our recent recently there was a large U S based I guess idea I'm slash foundry that cut capex significantly I assume most of that is tied to leading edge in packaging.

Speaker Change: One of your bread and butter, so I'm curious if that impacted your outlook in any way.

Speaker Change: And do you see there that's more idiosyncratic or.

Speaker Change: Is it a sign of kind of pressure across the industry. Thank you so much.

Gabby Waisman: So we expect the focus to continue to be on the five nodes in four years plan that they have. And they also spoke about accelerating the production of AI-related chips. And in both cases, this works in favor of Nova. All in all, I think that this is not reflecting a cross-industry phenomenon.

Speaker Change: So we expect the focus.

Speaker Change: To according at least to those statements set to a continued to be on the five nodes in four years plan that they have and they also spoke about accelerating production of AI related the chip and in both cases. This works in favor of Nova all in all I think that this is a not referred.

Speaker Change: Thing across industry phenomenon.

Speaker Change: Got it thank you.

Speaker Change: Yeah.

Charles Shee: Our next question comes from Charles Shee of Needham & Company. Please go ahead.

Charles sheet: Our next question comes from Charles sheet of Needham and company. Please go ahead.

Gabby Waisman: Hey, good afternoon Gabby, and Guy. I want to ask a question about China. Last year, China was 36% of total revenue. What's the outlook for 2024? Do you think China is going to maintain or even be at a similar level or actually a little bit higher this year, given that the Chinese WFE seems to be running a little bit stronger than many of us thought?

Charles sheet: Hey, Yeah, good afternoon Gabby Guy.

Charles sheet: One wanted to ask a question about China last year, China was 36% of that total revenue what's the outlook for <unk> 'twenty 'twenty four do you think that China is going to maintain a similar.

Speaker Change: Similar level actually a little bit higher this year given that the China, obviously, it seems to be running a little bit stronger than than that many of us thought.

Gabby Waisman: Yeah, so we still see robust demand throughout this year and some projects already scheduled for the next one. And this year is expected to be a bit higher than last year in terms of overall share.

Speaker Change: Yeah, So we still see a robust demand throughout this year and some projects already scheduled for a next one and this year is expected to be a bit higher than last year in terms of the overall share.

Gabby Waisman: Got it. Some of your peers were seeing China's contribution may have peaked in Q1 and slightly trending down throughout the year, but some of your other peers see the opposite. They actually see the second half being higher than the first half. What's the view from Nova?

Speaker Change: Got it do you go because there's some I mean some of your peers were seeing a China contribution to May have peaked in Q1 and slightly trending down throughout the year, but some of the other peers. So see the opposite they actually see it back in.

Speaker Change: Half being higher than first half, but what what what's the what's the view from Nova.

Gabby Waisman: So we see the ratio declining in the second half as the leading edge nodes pick up the pace.

Speaker Change: So we see the ratio declining in the second half as the leading edge nodes pick up the pace.

Gabby Waisman: Got it. Maybe another question about advanced packaging, I think you previously mentioned advanced packaging could grow 50% year-on-year from last year, and maybe the contribution back then you thought it was going to be 15%, but your top line actually went up a lot, and I wonder if any of these two numbers have changed. So, uh, the current, uh, bookend for...

Speaker Change: Got it.

Speaker Change: Maybe another question about advanced packaging I think you previously mentioned a vast packaging could grow a 50% yeah here last year, yeah, and maybe at a contribution and back then you thought it was gonna be 15% by your topline actually it goes up a lot and I was wondering if.

Speaker Change: These two numbers I have changed.

Gabby Waisman: So the current bookend forecast indicates that packaging product revenue will be at least 15% of the company's product revenue this year, as we discussed last time as well. So this is in line with our projections.

Speaker Change: So the current bookend forecasts indicate that the packaging product revenue will be will be at least 15% of the company product revenue. This year as we've discussed the last time as well. So this is in line with our projections last quarter.

Gabby: Thanks Gabby.

Gabby: Sure.

Vedvati Shrotre: The next question comes from Vedvati Shrotre of Evercore ISA. Please go ahead.

Gabby: The next question comes from Goodbody Chartres of Evercore ISI.

Speaker Change: Please go ahead.

Gabby Waisman: Hi, thanks for taking my question. One thing I wanted to, and I know you don't provide these details on a kind of annual basis, but given the strong bookings you're seeing, could you give us a sense of how the product revenues are splitting out dimensional versus materials versus chemicals?

Speaker Change: Right.

Goodbody Chartres: Taking my question one thing I wanted to and I know you don't provide these details right now.

Speaker Change: Annual basis.

Speaker Change: Given the strong bookings I E could.

Speaker Change: Could you give us a sense of how it down.

Speaker Change: It's playing out.

Speaker Change: Now looking at what's really changed.

Speaker Change: Chemicals.

Gabby Waisman: So overall, I would split it, with your permission, Vedvati, a bit differently. I would say that our revenue coming from unique solutions will be around 40% this year. So if we're looking at the new tools, the material metrology, etc., we'll see about 40% of our revenue coming out of that space.

Speaker Change: So overall I I would split it with your permission that was out there a bit different I would say that our our revenue coming from unique solutions will be around 40%. This year. So if we're looking at the new tools that are the material metrology et cetera, we'll see about 40%.

Speaker Change: Oh revenue coming out of that space.

Speaker Change: Okay.

Gabby Waisman: Right, and on the packaging side, how does the packaging revenue sort of split, you know? Good logic was it's HBM or even chemical mythology was it was the dimension of it.

Speaker Change: Got it and on the packaging side.

Speaker Change: How how did the packaging revenue.

Speaker Change: Do you know how quick and I can't quite H B am I, even can make all of my colleagues here.

Speaker Change: Hum.

Speaker Change: And you can be.

Speaker Change: Yeah.

Gabby Waisman: Sure, so chemical metrology is about half of our packaging revenue. And interestingly enough, on the PRISM side, which is a DMT standalone OCD product, about half of the booking is for advanced packaging and high bandwidth.

Speaker Change: Sure. So chemical metrology is about it's about half.

Speaker Change: Of our packaging.

Speaker Change: Oh advanced packaging and advanced packaging revenue.

Speaker Change: And interestingly enough on the prism side are which is a D. M. D. Standalone OCD product about half of the booking is for advanced packaging and high bandwidth memory.

Gabby Waisman: Okay, that's a big increase. I think last time it was 90 90% was some kind of chemicals, and now you're seeing a lot more prism.

Speaker Change: Oh, Okay, that's a big increase I think.

Speaker Change: Panic like 1990 place anyway kind of chemicals and now have you seen a lot in my opinion a booking.

Gabby Waisman: I'm not sure last time. Yeah, sorry, go ahead. Sorry, yeah, go ahead, you were saying.

Speaker Change: Hum I'm not sure last time, Yeah, sorry go ahead.

Speaker Change: Oh, sorry, Yeah go ahead, you may see.

Gabby Waisman: Yeah, I'm not sure we indicated 9% last time, but we definitely see, as you mentioned, an increase in the portion of DMD in that mix.

Speaker Change: Yeah, I'm I'm not sure we indicated 9% last time, but we definitely see as you mentioned an increase in the portion of our D. M D in that mix.

Gabby Waisman: As a follow-up, you characterize a revenue opportunity of $500 million for GATE all around in 2026. Could you give us a sense of the puts and takes? Is this the revenue opportunity for Nova? What share do you expect to capture here? What's the target you've set? Anything here will be helpful.

Speaker Change: Oh I just follow up so you guys crazy, but I think in Europe.

Speaker Change: And gave me an Fi geek I round in 2026.

Speaker Change: Could you give us a sense as to what.

Speaker Change: 10 days instead of asking you apply to anything no like white sand do you expect to capture here.

Speaker Change: What's the target do you think.

Speaker Change: Yes.

Gabby Waisman: Yeah, so, so we definitely see it.

Gabby Waisman: Yes, so we definitely see Gate-All-Around as a major opportunity for us. We see a 20 to 30% increase in metrology steps, including backside power delivery, compared to advanced SYNSET. We are engaged with all the Gate-All-Around manufacturers, and we already have multiple orders across our portfolio for delivery later this year and next one, including multiple evaluations for additional tools, including our new technologies. That increases in terms of opportunities and business in 25 and 26, it evolves, and overall, we see it as a $500 million aggregate sales opportunity by the end of 26 from that transition to get all around, which is coming, of course, from all of our division

Speaker Change: Yeah. So we definitely see gate all around as a as a major opportunity for us, we see 20% to 30% increase in metrology steps, including vaccine powered delivery compared to our advanced our sense that we are engaged with all the gatefold round manufacturers and Oh, we already have.

Speaker Change: Multiple orders across our portfolio for.

Speaker Change: So delivery later this year and the next one including multiple evaluations for additional tool.

Speaker Change: Including our new technologies.

Speaker Change: We see obviously.

Speaker Change: That's increasing in terms of opportunities in business and 25, and 26 of it as it evolves and overall, we see it as a 500 million dollar aggregate a sales opportunity by the end of 'twenty six from that transition to gate, all around which is.

Speaker Change: Coming of course from Oh, all of our divisions.

Speaker Change: Hi, Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

Mark Miller: The next question comes from Mark Miller of The Benchmark Company. Please go ahead.

Speaker Change: The next question comes from Mark Miller of the benchmark company.

Mark Miller: Go ahead. I just want to congratulate you on another strong quarter. In terms of memory sales, you seem to be doing better, and a number of semifirms. I'm just wondering what percent of the memory sales, is it over 50% of memory sales are being... Proven by IBM with memory.

Speaker Change: Please go ahead.

Mark Miller: I congratulate you on another strong quarter.

Speaker Change: In terms of the memory cells, you seem to be doing better.

Speaker Change: A number of semi firms I'm just wondering.

Speaker Change: What percentage of the members themselves as at over 50% of members should it all sort of been.

Speaker Change: Driven by hardware most of memory.

Gabby Waisman: Thank you for the kind comment, Mark. We saw overall about 30%. If we look at Q1 and Q2 and look at H1, we see a share of about 30% coming out of memory. And in the second half, we expect to maintain a level of about 25%. And that's, of course, because of the ratio and the fact that we see higher demand coming from logic and advanced packaging. In terms of the high bandwidth memory that's part of the advanced packaging, 15% product revenue ratio that I indicated before, but we do see a relatively stronger, I would say, demand for memory.

Speaker Change: Thank you for the kind comments Mark we we saw overall about a 30% if we look at the Q1 and Q2 and look at H, one we see a share of about 30% are.

Speaker Change: Coming out of memory.

Speaker Change: And and eight in the second half we expect it to maintain a level of about <unk> 25 per cent and that's of course, a because of the ratio and the fact that we see higher demand coming from logic and advanced packaging.

Speaker Change: In terms of our the high bandwidth memory, that's part of the advanced packaging, 15% our product revenue ratio that I indicated before.

Speaker Change: But yeah, we do see a relative strong stronger I would say demand for.

Speaker Change: From memory.

Gabby Waisman: You talked about PRISM, the record results for PRISM, and also VeroFlex. How did Ellipson go during the quarter in terms of Ellipsons? Sure. So,

Speaker Change: Okay.

Speaker Change: You talked about prism.

Speaker Change: Results for Prism and also there are flips so how does it flips on during the quarter in terms of it looks on sales.

Gabby Waisman: So, in the second quarter, we saw revenue from both leading memory and foundry customers. We do have evaluations with leading foundries, and we were selected by 2.1 manufacturers already from two of those and from leading foundries as well. We have repeat buys, and it also became the PDRR for DRM manufacturing by the world's leading memory customers. So, overall, we do see good traction for the Ellipson.

Speaker Change: Sure. So in in in the second quarter, we saw our revenue from both leading memory and foundry customers are we do have a evaluations with leading foundries.

Speaker Change: Foundries and we were selected by tier one manufacturers are already from two of those and from leading foundries as well we have repeat buys and it also became the PD or are for DRAM manufacturing.

Speaker Change: By the worlds, leading memory customers. So overall, we do see a good traction.

Speaker Change: For the Arab Sun.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Gabby Waisman for any closing remarks.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Gabby Weizmann for any closing remarks.

Gabby Waisman: Thank you, Operator, and thank you all for joining our call today.

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

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

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

Gabby Weizmann: [music].

Gabby Weizmann: Yeah.

Gabby Weizmann: Yeah.

Gabby Weizmann: Yeah.

Gabby Weizmann: [music].

Gabriel Waisman: Nova delivered an exceptionally strong quarter, exceeding the high end of the guidance in revenue and profit, with record results across the board. Our performance was propelled by our exposure across geographies, customers, and technology nodes, and manifested throughout Nova's dimensional, materials, and chemical metrology portfolios. Our revenue grew 11% sequentially and 28% year-over-year, and profitability set another unprecedented record. Furthermore, our overall cash reserves reached record levels at approximately $760 million. The strong momentum and the outstanding performance result from our consistent execution.

Operator: BF-WATCH TV 2021

Gabriel Waisman: These results also attest to our ability to leverage market opportunities while relying on our flexible operational model to maximize the benefits. Looking at the broader picture, the first half of 2024 revenue came just under $300 million, 17% higher than the same period last year, as significantly higher rates than current forecasts for wafer fab equipment. Given our third quarter guidance, we remain confident in our ability to outperform the market. Going forward, we see a steady increase in demand for leading edge nodes, including GADOL around, and advanced packaging-related processes, led by customers in Taiwan, Korea, and the US.

Gabriel Waisman: The upside to our performance, this quarter, is free-fold. First, the Nova Prism 2 platform's strong performance resulted from a faster than expected adoption rates in advanced packaging and GADOL around processes. Second, our chemical metrology division delivered record results, driven by increasing demand for our solutions in high bandwidth memory, packaging, and front-end-of-line logic processes. Finally, our service business grew 19% year-of-a-year by leveraging the increasing utilization rates to secure contract-based and value-added services sales, rounding up the contribution for this stellar quarter.

Gabriel Waisman: While these revenue streams stand out, our performance relies on the broad diversity of our portfolio and market presence, with multiple new customers in all product divisions. A company's inherent ability to succeed in our industry's dynamic nature stems from having a myriad of revenue streams that complement and compensate through add-and-flow.

Gabriel Waisman: Nova has built this solid foundation through deep partnerships with our customers, flexible operations, and unwavering the dedication of our teams. It makes us confident that we can leverage every opportunity and address any challenge to thrive on our journey and realize our long-term strategic plans.

Gabriel Waisman: Artificial intelligence is reshaping our digital world and expediting the implementation of scaling agents in integrated circuits to boost performance and power efficiency which are at the core of enabling large language models for training and infrastructure stages. Scaling is manifested in more complex designs through three avenues, dimensions, materials and advanced packaging. It is also manifested in the size of manufactured dies and in the number of dies required in solutions such as high bandwidth memory.

Gabriel Waisman: These developments profoundly impact our industry, in the number of the wafers needed to supply demand and in the yield ratio you must obtain to secure profitability with a lower number of dies per wafer, a couple of that with a growing complexity of architecture and materials and you have the growth drivers of process control in the coming years. We can already see these trends echoed in Nova's portfolio and performance. There are multiple indications that our differentiates portfolio is well structured to meet our customer needs and address their challenges.

Gabriel Waisman: The surge in demand for advanced nodes and the entry of Gatle around based architecture drives sales of our most advanced critical dimensions and materials solution. I mentioned prison two earlier as a great example of the rapid adoption of our solutions by the manufacturers already engaged in Gatle around production. This quarter we recognize revenue for multiple prison two tools. The demand is also consistently high for our advanced integrated metrology and XPS material metrology platforms.

Gabriel Waisman: We are engaged with all customers developing Gatle around production lines and we estimate the transition will add 20 to 30% to the number of metrology steps. By the end of 2026 we see an opportunity of $500 million in Gatle around including adoption of our new technologies. The demand for metrology is not limited to Gatle around processes and we also see equipment delivered driven by the demand for process control in Synthet advanced nodes.

Gabriel Waisman: Nova had a record booking of Veriflex XPS platforms this quarter of which over 40% resulted from capacity growth in such nodes. Advanced packaging is a revenue accelerant with significant revenue and booking in chemical and dimensional metrology. Approximately half of prison two record bookings stem from advanced packaging processes such as Rousseau will convia where prison has a unique advantage in filtering information from specific under layers. The platform is also under evaluation in one of the world's leading foundries alongside our integrated and chemical metrology platforms. There is a clear use case of front end tools at the back end of advanced nodes, and we were early to respond by creating a dedicated portfolio to address this need.

Gabriel Waisman: I want to summarize my prepared notes by saying that looking into the second half of 2024, we see robust and diversified booking and a potential upside across all three divisions. We see encouraging indicators that our industry is moving into a growth cycle, with trends coming primarily from logic across notes. We remain vigilant for changes in the market conditions and confident in our ability to deliver on our promise to outperform the market.

Gabriel Waisman: Now, for more details on the financials, let me hand over the call to Guy. Thanks, Gadi.

Guy Kizner: Good day, everyone and thank you for joining our 2024 second quarter conference call. I am excited to address you today as the only appointed Chief Financial Officer of Nova. It has been a privilege to be part of this incredible organization and I look forward to continuing to contribute to our success in this role.

Guy Kizner: Now let's review the financial and business highlights for the quarter. Data revenues in the second quarter of 2024 reached a record level of $156.9 million, exceeding the company guidance for the second quarter. Reflecting growth of 11% quarter of a quarter and 28% year over year. This strong performance was driven by hand demand for our products and faster than anticipated acceptance processes by our customers. Product revenue distribution was approximately 75% from logic and foundry and approximately 25% from memory.

Guy Kizner: Product revenue includes four customers and four territories that contributed each 10% or more to product revenues. Reflecting the company's diversified position across regions and customers. Landed growth margin in the second quarter were 59% on a gap basis and 61% on a non-gap basis. Topping the company target model of 57% to 59%. The high growth margin in the quarter was attributed to a fairable product mix coupled with higher revenue volume growth. We expect growth margin to gradually normalize in the coming quarter, aligning with the high end of the company target model on an annual basis.

Guy Kizner: As expected, operating expense increased in the second quarter and came at $47 million on a gap basis and $42.3 million on a non-gap basis. Operating margins in the second quarter were 29% on gap basis and 34% on a non-gap basis, exceeding the high end of the company target model of 27% to 31%. This excellent result was driven by a healthy quarter growth margin and the company robust operational model. Financial income in the quarter remained elevated, following higher yields on cash reserves and came in at $8.4 million.

Guy Kizner: The effective tax rate in the second quarter was approximately 16%. Early in per share in the second quarter on a gap basis were $1.41 per delutature and early per share on the non-gap basis were $1.61 per delutature, exceeding the high end of our second quarter guidance, reflecting a record for the third consecutive quarter.

Guy Kizner: Finally, I would like to share the details of our guidance for the third quarter of 2024. Currently, we expect revenue for the quarter to be between $168 million and $176 million. Yet, per earning per delutature to range from $1.39 to $1.52. Non-gap earning per delutature to range from $1.60 to $1.73. At the midpoint of our third quarter, 2024 estimates when dissipate the following. Gross margin of approximately 56% on gap basis and approximately 58% on a non-gap basis.

Guy Kizner: Operating expense on gap basis to increase to approximately $50 million and on non-gap basis to increase to approximately $45 million. Financial income to remain similar to the second quarter and effective tax rate is expected to be approximately 14%.

Guy Kizner: Before I conclude my remarks, I would like to know the following. During the first half of 2024, the company generated a record-free cash flow of $115 million or 38% of revenue that grew company cash reserve to approximately $759 million at the end of the second quarter of 2024. This healthy cash level provides the required flexibility to pursue organic and non-graining business development activities towards executing the company's $1 billion strategic plan.

Operator: With that, we will be pleased to take your questions. Operator? We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our roster.

Blayne Curtis: Our first question comes from Blaine Curtis of Jeffries. Thank you, my questions and great results. Maybe you can just walk through a few people have seen some lumpiness and memory. It was down a bit. Can maybe just talk through that. And then in your outlook, the commentary on bookings sound pretty balanced. I'm just kind of curious the outlook for the memory segments or the cover in the second half.

Gabriel Waisman: Yes, so thank you for the comment and question, Blaine. So this quarter logic was up. We see a significant ramp in that request. And that's reducing, of course, the overall share of memory. Last quarter, we also had some two large DRM orders that shifted it out a bit. But in H2, we expect at least in the third quarter. And overall, we expect memory to maintain a level of approximately 25%. And that's mostly because of the fact that we see high demand coming from logic and advanced packaging, which is obviously increasing the ratio of that part.

Gabriel Waisman: Thanks so much.

Gabriel Waisman: And then I wanted to ask on the gross margin, you've been above the range for a couple quarters, it drops back in. Can you just remind me the drivers in terms of the mix and is this more about new products or the end market mix, like what's the driver for the margin to go back into the range? Yeah, so regarding the gross margin, there are couple factors to that. Given the fact that we have a diverse product portfolio with different gross margin profiles, such as software and new products, and the fact that our product ASP ratio to quarterly revenues is relative high, we have a high sensitivity for product mix within the quarter.

Gabriel Waisman: And in environments such as we saw in this quarter, higher revenues and faster acceptances from customer than anticipated, we have in such fluctuation. For the third quarter as revenue increasing, we are less sensitive for specific deals. And we believe that this point that our gross margin will be 58% applies minus 1% in the third quarter. And as we mentioned on the annual basis to be within the high end of our target model of 59. Thanks a lot.

Vivek Arya: The next question comes from Vivek Arya from Bank of America. Please go ahead. Hi, thank you for taking our question.

Doug San: This is Doug San on behalf of Vivek. Congrats on the nice results in guide. My question is, do you think this level of strong guide in Q3 is sustainable? And I'm curious if you saw any type of pull-in from any customers from any geographies in both quarters. Thank you. So obviously, thank you for the question, Doug San. We don't provide the outlook for the fourth quarter yet, but we do expect it to be as strong as the third quarter. In terms of geographies, as we indicated, we saw a strong business coming from Korea, Taiwan, and the U.S. Got it.

Gabriel Waisman: And then, just based on your current manufacturing footprint, is it sustainable and enough to get your $1 billion model or do you have to constantly be silenced into the CapEx? Yes, so we, as part of the strategic plan that we introduced in 2022, we have invested in the facilities in order to support our $1 billion plan. So we invested in our facilities, production facilities in Israel, in Germany, and in the U.S. And by the end of this year, practically, we will have enough capacity to support the $1 billion plan. Got it.

Gabriel Waisman: If I may just have one more. Recently, there was a large U.S.-based, I guess, IDM-slash Foundry that cut CapEx significantly. I assume most of that is tied to leading edge and packaging, sort of your bread and butter. So I'm curious if that impacted your outlook in any way. And do you see this as more idiosyncratic or is it a sign of kind of pressure across the industry? Thank you so much. So, we expect the focus to, according to the statements, to continue to be on the five nodes in four years' plan that they have, and they also spoke about accelerating production of AI related chip, and in both cases this works in favor of Nova. All in all I think that this is not reflecting across industry phenomena. Got it. Thank you.

Charles She: Our next question comes from Charles She of Needham in company. Please go ahead. Hey, good afternoon, Gabby. Guy, one, one, ask a question about China. The last year, China was 36% of the total revenue. What's the outlook for 2024? Do you think China is going to maintain, or at that similar level, or actually a little bit higher this year, given that the China WFE seems to be running a little bit stronger than many of us thought.

Charles She: Yeah, so we still feel robust demand throughout this year, and some projects already scheduled for the next one. And this year is expected to be a bit higher than last year in terms of the overall share. Got it. Do you, I mean some of your peers were seeing China contribution to, may have peaked in Q1 and slightly trending down throughout the year, but some of your other peers see the opposite. They actually see second half being higher than first half. What's the view from Nova? So we see the ratio declining in the second half as the leading edge nodes pick up the pace. Got it.

Gabriel Waisman: Maybe another question about events packaging.

Gabriel Waisman: I think that's the end. Young here from last year, and maybe the contribution back then you thought it's going to be 15% by your top line actually goes up a lot, and I wonder if any of these two numbers have changed. So the current booking forecast indicated packaging product revenue will be at least 15% of the company product revenue this year, as we've discussed the last time as well. So this is in line with our projections last quarter.

Gabriel Waisman: Thanks, Gabby. Yes.

Vedvati Shrotre: The next question comes from Vidvati Shratra of Evercore ISI. Please come ahead. Hi, thanks for taking my question.

Gabriel Waisman: One thing I wanted to, and I know you don't provide these details on a kind of annual basis, but given the strong bookings you're seen, could you give us a sense of how the product revenues are splitting out dimensional voices, materials, voices chemical? So overall, I would split it with your permission that's about to be a bit different. I would say that our revenue coming from unique solutions will be around 40% this year. So if we're looking at the new tools at the material metrology, etc., we'll see about 40% of revenue coming out of that space. Right.

Gabriel Waisman: And on the packaging side, how does the packaging revenue sort of split, you know, good logic versus HBM, or even chemical metrology versus the dimensional beast? Sure. So chemical metrology is about half of our packaging or packaging and advanced packaging revenue. And interestingly enough, on the prism side, which is a DMT standalone OCD product, about half of the booking is for advanced packaging and high bandwidth memory. Oh, okay. That's a big increase.

Gabriel Waisman: I think last time it was 90% was kind of chemicals and now you're seeing a lot more prism booking. I'm not sure last time. Yeah. Sorry. Go ahead. Sorry. Yeah. Go ahead. You were seeing. Yeah. I'm not sure we indicated 90% last time, but we definitely see, as you mentioned, an increase in the portion of DMD in that mix. Great.

Gabriel Waisman: As a follow up, so you characterize the revenue opportunity of 500 million for $8 around in 2026. Could you give us a sense of the puts in dates? Like, is this the revenue opportunity for NOVA like what share do you expect to capture here? What's the target you said? Anything your will be helpful. Yeah. So we definitely see gaitled around as a as a major opportunity for us. We see 20 to 30% increase in metrology steps, including backside power delivery compared to advanced synthets.

Gabriel Waisman: We are engaged with all the gaitled around manufacturers and we already have multiple orders across our portfolio for delivery later this year and the next one, including multiple evaluations for additional tools, including our new technologies. We see obviously that increasing in terms of opportunities and business in 25 and 26. So it evolves and overall we see it as a 500 million dollar aggregate sales opportunity by the end of 26 from that transition to gaitled around, which is coming, of course, from all of our divisions. Hi. Thank you.

Mark Miller: The next question comes from Mark Miller of the Benchmark Company. Please, go ahead. I just want to congratulate you on another strong quarter.

Gabriel Waisman: In terms of the memory sales, you seem to be doing better than a number of semi firms. I'm just wondering, what percent of the memory sales, is it over 50 percent of the memory sales are being proven by had being with memory? Thank you for the kind comment, Mark. We so overall, about 30 percent, if we look at Q1 and Q2 and look at H1, we see a share of about 30 percent coming out of memory.

Gabriel Waisman: In a second half, we expect it to maintain a level of about 25 percent. That's of course because of the ratio and the fact that we see higher demand coming from logic and advanced packaging. In terms of the high bandwidth memory, that's part of the advanced packaging, 15 percent product revenue ratio that I'm indicated before. But yeah, we do see a relative stronger, I would say, demand for memory.

Gabriel Waisman: Okay. You talked about the risk of result for prism and also their flex. How did it so in the second quarter, we saw revenue from both leading memory and foundry customers. We do have evaluations with leading foundries and we were selected by Q1 manufacturers already from two of those and from leading foundries as well. We have repeat buys and it also became the PDORR for DRM manufacturing by the world's leading memory customers. Overall, we do see good traction for the elephant.

Gabriel Waisman: Thank you.

Gabriel Waisman: This concludes our question and answer session.

Gabriel Waisman: I would like to turn the conference back over to Mr. Gabby Weissman for any closing remarks. Thank you all for joining our call today.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Dror David Shrotre: You may now disconnect. Dror David Shrotre,