Q3 2025 Nova Earnings Call

Speaker #3: Good morning and welcome to Nova s third Quarter 2020 financial 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 .

Speaker #3: Then zero on your telephone keypad . After today's presentation , there will be an opportunity to ask questions . To ask a question , you may press star , then one on your telephone keypad .

Speaker #3: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Miri Segal , CEO of MSR .

Speaker #3: Please go ahead .

Speaker #4: Thank you . Operator . And good day , everyone . I would like to welcome all of you to Nova's third quarter 2020 financial results conference call .

Speaker #4: With us on the line today are Gaby Weissmann , president and CEO . And Guy Kizner CFO . Before we begin , I would like to remind our listeners that certain information provided on this call may contain forward looking statements and the safe harbor statement outlined in today's earnings release also pertains to this call .

Speaker #4: If you have not received a copy of the release , please view it in the Investor Relations section of the company's website . Gabi will begin the call with a business update , followed by Guy with an overview of the financials .

Speaker #4: We will then open the call for the question and answer session . I will now turn the call over to Gabi Weissmann , Nova's president and CEO .

Speaker #4: Gabi , please go ahead .

Speaker #5: Thank you . Mary , and thank you all for joining us . I will start the call today by summarizing our third quarter performance highlights .

Speaker #5: Following my commentary , Guy will review the quarterly financial results in detail . Nova achieved record quarterly revenue of $224.6 million in the first quarter , marking a robust 25% year over year growth .

Speaker #5: This performance reflects the continued trust of our customers , driven by demand in advanced nodes and advanced packaging . This quarter , we delivered record revenue from memory devices fueled by strong demand for advanced Dram and high bandwidth memory .

Speaker #5: We also reached record revenue from advanced logic nodes , predominantly driven by gate all around processes . Our metrology revenue benefited from adoption of our electron and metreon platforms , and we also achieved record service revenue , underscoring the resilience and value of our portfolio and business model .

Speaker #5: According to our fourth quarter guidance , 2025 will be a record year for Nova , reflecting growth of approximately 30% year over year at the midpoint .

Speaker #5: Looking ahead , we anticipate further growth in 2026 with advanced Logic , advanced packaging and Dram continuing to fuel the momentum . Recent announcements of large scale investments in artificial materials intelligence are creating a positive outlook for sustained industry growth and wafer fab equipment spending .

Speaker #5: Manufacturing . Integrated circuit devices for AI applications introduces unique process control challenges such as complex architectures , tighter tolerances , new packaging technologies , and the integration of new materials .

Speaker #5: Our customers are constantly challenged to reduce ramp up periods and then maximize yields in high volume production . Nova's solutions are purpose built to address these challenges , enabling our customers to deliver the performance and reliability required for next generation AI devices .

Speaker #5: With this in mind , in 2026 , we expect WFC growth in the mid-single digits with potential upside as AI driven demand trickles down the value chain to increased utilization rates and wafer starts .

Speaker #5: Now , I'd like to review some of the highlights from the past quarter . First , our record sales in memory . This quarter was driven by several key achievements in materials metrology .

Speaker #5: We saw record sales to memory fabs . We also secured new orders for our prism platform , supporting HBM manufacturing in chemical metrology .

Speaker #5: We anticipate receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova front end platform , which replaces a competing tool .

Speaker #5: These wins underscore Nova's expanding footprint and the important role our solutions play in enabling advanced memory production . Second , Nova achieved record sales in advanced logic driven primarily by a strong demand for our solutions in gateway manufacturing processes , notably our Lipson Materials Metrology Platform was selected as a tool of record by a leading global foundry , and we have already delivered several systems for use in high volume production .

Speaker #5: Lipson leverages state of the art Raman spectroscopy to provide precise , nondestructive material characterization . These capabilities are essential for advanced device nodes .

Speaker #5: In addition , we recognized revenue from the sales of the Metreon platform to a gate all around manufacturer . Further expanding the adoption of this tool .

Speaker #5: We expect to see orders from additional customers in the coming months . Third , in advanced packaging , the demand for Nova's optical metrology solutions continues to increase , particularly for critical dimension measurements in the most complex manufacturing environments .

Speaker #5: Our portfolio for advanced packaging includes prism , WMC , SMD , Integrated Metrology and the Analyzer . These solutions address multiple stages in the production process , such as Post , applications as well as measurements of fruit , via wafer warpage total thickness variation and electroplating analysis .

Speaker #5: This quarter , we introduced our latest optical metrology platform , the Nova WMC , and next generation Modular System designed from the ground up to address the evolving requirements of advanced packaging .

Speaker #5: The WMC has already been adopted by three customers for HBM and Power Device Manufacturing , with additional customer evaluations and demonstrations underway . The WMC offers exceptional versatility , supporting a wide range of wafer sizes and forms , and multiple metrology technologies .

Speaker #5: This positions WMC as a cornerstone tool for next generation packaging , including two and a half D , 3D and hybrid bonding applications .

Speaker #5: The strong demand for the WMC is a testament to its ability to address industry challenges , such as high warpage , non-symmetric shapes and diverse surface conditions , all with high throughput and nanometer level fidelity .

Speaker #5: Additionally , our prism and integrated metrology platform were adopted by a leading global logic manufacturer for advanced packaging processes . And our chemical and platform , the Alkalizer was shipped to a gate all around customer for backend packaging processes .

Speaker #5: All of these embody Nova's commitment to deliver comprehensive , integrated solutions that enable our customers to meet the stringent requirements of advanced packaging and maintain a competitive edge .

Speaker #5: Finally , we marked a significant milestone in our operational excellence and capacity expansion with the opening of our new state of the art production facility in Mannheim , Germany .

Speaker #5: This advanced cleanroom , which extends our existing site , enables us to triple our production capacity for advanced packaging , optical metrology solutions , while further improving our manufacturing process and quality .

Speaker #5: To conclude my prepared remarks this quarter reflects the strength of Nova strategy and execution across all fronts , from technology , leadership to operational scale .

Speaker #5: As our industry continues to evolve , driven by AI and increasingly complex architectures , Nova is well positioned to support our customers with differentiated , scalable and innovative solutions .

Speaker #5: Looking ahead , we remain confident in our ability to deliver long term growth and value for more details on the financials . Let me hand over the call to Guy .

Speaker #5: Thanks , Gaby . Good day , everyone , and thank you for joining our 2025 third Quarter . conference call . I will begin by reviewing our financial achievements for the third quarter of the year .

Speaker #5: And then provide guidance on the fourth quarter . Total revenues in the third quarter of 2025 reached a record level of $224.6 million , marking the sixth consecutive quarter of record breaking results .

Speaker #5: This performance reflects the growth of 2% quarter over quarter and 25% year over year . Product revenue distribution was approximately 70% from logic and Foundry and 30% from memory .

Speaker #5: Product revenues included for and three customers each 10% or more to product revenues . In the third quarter . Blended gross margins aligned with our guidance , achieving 57% on a GAAP basis and 59% on a non-GAAP basis .

Speaker #5: Well within our target model range of 57% to 60% . Operating expenses increased to $63.5 million on a GAAP basis , and $58.6 million on a non-GAAP basis .

Speaker #5: As we use top line growth to invest in R&D for long term opportunities and in ongoing strategic evaluations . Operating margins in the third quarter reached 28% on a GAAP basis , and 32% on a non-GAAP basis , demonstrating the scalability of our model and the strong value proposition of our process control portfolio .

Speaker #5: The effective tax rate in the third quarter was approximately 16% , earning per share in the third quarter . On a GAAP basis , were $1 and $0.90 per diluted share , and earnings per share on a non-GAAP basis were $2.16 per diluted share .

Speaker #5: Turning to the balance sheet . During the third quarter , the company generated approximately $67 million in free cash flow , bringing the total positive free cash flow for the first three quarters of 2025 to approximately $170 million .

Speaker #5: In September 2025 , the company successfully completed a 0% convertible notes offering of $750 million with a 35% conversion premium and a capped call structure that raised the effective premium to 75% .

Speaker #5: As a result , total Cash cash equivalents bank deposits , and marketable securities increased to $1.6 billion at the end of the quarter .

Speaker #5: This strong financial position enabled us to continue investing in R&D and strategic growth initiatives , while maintaining the flexibility to pursue M&A opportunities and capitalize on market trends that support our long term objectives .

Speaker #5: Next , I'd like to outline our guidance for the fourth quarter of 2025 . We currently expect revenue for the quarter to be between 200 and $15 million , and $225 million .

Speaker #5: GAAP earnings per diluted share to range from $1 $0.77 to $1.95 . non-GAAP earnings per diluted share to range from $2.02 to $2 , and $0.20 at the midpoint of our fourth quarter 2025 guidance , when anticipate the following gross margins of approximately 57% on a GAAP basis and approximately 58% on a non-GAAP basis .

Speaker #5: Operating expenses on a GAAP basis to increase to approximately $65 million , operating expenses on a non-GAAP basis to increase to approximately $59 million .

Speaker #5: Financial income on a non-GAAP basis is expected to increase to approximately $16.8 million in the fourth quarter , reflecting the higher cash balance on hand diluted share count for the fourth quarter is expected to be approximately 34 million , incorporating the full quarter effect of the recently issued convertible notes .

Speaker #5: The increase in share counts and higher financial income are expected to largely offset each other , resulting in a minimal impact on a non-GAAP earnings per share .

Speaker #5: Effective tax rate is expected to be approximately 16% . Before I conclude my remarks , I would like to highlight that based on the midpoint of our fourth quarter guidance , we expect to close 2025 , with record high revenues , reflecting exceptional annual growth of approximately 30% .

Speaker #5: Our non-GAAP profitability outlook for 2025 remains robust , with blended gross margins around 59% and operating margins near 33% . Positioning us at the high end of our target model and highlighting the strength and scalability of our business .

Speaker #5: With that , we will be pleased to take your questions . Operator .

Speaker #3: We will now begin the question and answer session to ask a question . You may press star , then one on your telephone keypad .

Speaker #3: 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 two .

Speaker #3: At this time we will pause momentarily to assemble our roster . The first question comes from Atif Malik with Citi . Please go ahead .

Speaker #6: Hi . Thank you for taking my questions and strong execution throughout the year . Gabby . With respect to your mid-single digit wafer fab equipment outlook for next year , if I recall , this was the same outlook that you were giving in early September , and a lot of things have changed in the Memory land since then .

Speaker #6: So can you walk us through the upside case ? This WFP and is Nova still going to outperform the WFP ? And we have been hearing that the memory makers are somewhat constrained in their shell capacity .

Speaker #6: Is that is that the driver that is limiting the growth to mid-single digit ? If you can just walk us through the puts and takes ?

Speaker #5: Definitely . Thank you for your question . So first of all , I believe that there's been some improvement since the September September discussions .

Speaker #5: But in general , I think that for the Nova side , we do believe that we have the right growth engines and ability to outperform this growth .

Speaker #5: And we estimate that 2026 will continue the trend, and that in general, we believe it will be more of a second-half weighted year.

Speaker #6: Great . And then guy on the gross margins a little bit light on the reported quarter and guiding to 58% . Can you walk us through the puts and takes on the gross margin ?

Speaker #6: And are you seeing any impact from the incremental China restrictions to your gross margins ?

Speaker #5: So this quarter , we reported gross margin of 59% . And it's aligned with our forecast . Looking ahead for the next quarter , we are guiding 58% plus -1% point that range reflects continued disciplined and pricing and cost structure .

Speaker #5: And importantly , our ability to deliver strong value to customers . The main fluctuation when they occur and the gross margins is mainly product mix .

Speaker #5: During the quarter and the right way to look on our performance is on the annual basis where in 2025 , we expect to see 59% and it's well aligned within our target model of 57 to 60% gross margin .

Speaker #6: The impact from the China restrictions , any incremental impact .

Speaker #5: No . Currently , we don't see a significant impact from China .

Speaker #6: Thank you .

Speaker #3: The next question comes from Blayne Curtis with Jefferies . Please go ahead .

Speaker #7: Hi . Thanks for taking my questions . It's Ezra Weiner on for Blayne . Just to start in the quarter . Found foundry and logic was down like 6% .

Speaker #7: Memory up a little over 20 . Can you talk about the moving pieces there , especially considering you said leading Edge Foundry hit a record and then how do you see that going into next quarter ?

Speaker #5: Sure . So first of all , we mentioned that , as you said , that this quarter have seen an increase in the memory sales and we've reached a record revenue level this quarter .

Speaker #5: Memory was about 30% of our sales were Dram generated . The majority of that business . And we see Dram is recovering nicely , and we have a good exposure in this market .

Speaker #5: We do expect this trend to continue next year . And that memory will be one of the growth drivers for WFC in 2026 , saying that our long term model suggests the ratio of 40% memory and 60% logic due to the higher metrology intensity in logic , specifically , to your question about the the ingredients of that growth , we see adoption of our portfolio across the product divisions by leading memory customers .

Speaker #5: We mentioned direct VFX sales to memory . We have multiple orders for the latest and greatest prism standalone OCD tool . We have a new win for the WMC for HBM , and we have a new memory customer in chemical metrology .

Speaker #5: So we do see the fundamentals of the growth in the memory , and we do expect continued growth next year in that sector .

Speaker #7: Got it . Then in terms of what you're seeing from China , given clearly trailing edge foundry logic is down .

Speaker #5: Excuse me . You were you were cut at the end .

Speaker #7: Yeah . So foundry and logic is down in September . But leading edge was up . So that does seem to likely be related to China .

Speaker #7: Can you talk a little bit about what you're seeing in China ?

Speaker #5: Sure . So first of all , we expect the nominal value of our business in China this year to be slightly higher year over year compared to last year .

Speaker #5: We mentioned that the revenue is skewed towards the first half of the year . And on an on an annual basis , we expect our revenue from China to be nominally higher .

Speaker #5: All in all , but of course , that the share of the overall business from China should be lower than last year . Last year , we had 39% , and this year will be lower , probably the the range of , let's say , the 30 ish plus percent mark .

Speaker #5: We do believe that China has already normalized in terms of the business levels in the second half of this year , and we expect this trend to continue in the first half of 2026 .

Speaker #7: Got it . Thank you .

Speaker #3: The next question comes from Liam Farr with Bank of America . Please go ahead .

Speaker #8: Hi , I'm from Michael . Thank you so much for taking my question . I was just wondering it turns gate all around .

Speaker #8: What kind of trajectory are you seeing in for Q and through 26 as well ? Thank you . .

Speaker #5: So gate all around has been driving our business and the third quarter has peaked in that respect . We are exposed to all of the for gate all around the players .

Speaker #5: And we mentioned before that the aggregated business that we expect for 24 to 26 from that gate all around business is about $500 million .

Speaker #5: And this is well on track. Our business from all around in 2025 significantly increased, and we expect this to continue next year.

Speaker #5: And as I mentioned before , we are on track with our original plan , both in terms of scope and in terms of timelines .

Speaker #5: We are very fortunate and we're encouraged to see all the players advancing towards manufacturing and we believe that this will continue where demand is certainly growing .

Speaker #8: Okay . Thank you . Just to follow up , in terms of , you know , you've mentioned M&A adds upside to your long term model , where would you like to expand or do a tuck in deal if you could ?

Speaker #8: And what kind of capabilities would you be looking to acquire ?

Speaker #5: So after the the convert that we successfully concluded early in September , we definitely have the right war chest to pursue inorganic growth opportunities .

Speaker #5: We're looking predominantly on the semiconductor area process control , but we are definitely open to some additional segments as long as there is a strong semi business in that part , we have a dedicated team in the company that pursues such opportunities , and we are definitely looking forward in making sure that we can execute on our strategic plan in that respect .

Speaker #8: Thank you .

Speaker #3: The next question comes from Vedavathi Schroeder with Evercore ISI . Please go ahead .

Speaker #9: Hi . Thanks for taking my question . My first question was on the outlook that you shared . So mentioned it's second half waited for 2026 .

Speaker #9: Can you provide some color whether you know how how this splits like foundry logic versus memory and is is that comment of second half weighted for for both the end markets .

Speaker #5: Thank you for for the question . First of all I'd like to reiterate the fact that we have the right growth engines and the ability to outperform the growth of next year .

Speaker #5: We see some upsides as well . And in terms of the specifics , I believe that the advanced nodes and in particular gate all around will accelerate the further in the second half of next year .

Speaker #5: Driving that that weighted assumption . But of course , we are not we're not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in in next year .

Speaker #5: In general , and accelerating towards the second half in particular .

Speaker #9: I understand . And my second question was more on the advanced packaging piece . So you have the portfolio sort of increasing with your WC product lines , and at the same time , you're kind of winning multiple applications across HBM and advanced Foundry Logic .

Speaker #9: What's your view on advanced packaging contribution for 25 , and how much of how much of your revenues would be coming from advanced packaging applications this year ?

Speaker #9: And where does that go next year ?

Speaker #5: Sure . So the current 2025 numbers show a high double digit revenue growth for the company . We expect to see a higher share of revenue for advanced packaging compared to last year .

Speaker #5: Last year was about 15% . This year it will be approximately 20% . The majority of the revenue from advanced packaging is coming from logic devices , whereas the main contributors , by the way , for that business are the dimensional and chemical metrology portfolios , which I alluded to in the in the script .

Speaker #5: And we expect 2026 to grow , to further grow in , in that business . Definitely , given the latest AI announcements that that we we heard of .

Speaker #9: Understood . And if I may squeeze one last one in on on I understand your positioning on Dram side , and I think foundry logic your your positioning is very clear .

Speaker #9: Could you give us a sense of what it like your positioning in Nand cycle . You know what . What would you have to see for , for maybe the non revenues to start inflecting .

Speaker #5: So nowadays is a bit muted . Still I definitely hope that it will be growing probably towards the second half of next year .

Speaker #5: And we are well positioned in and as well . So our our business which is basically capacity driven , requires more investments on the capacity side that as I mentioned , I hope would would start at the second half of next year .

Speaker #9: I thank you .

Speaker #3: The next question comes from Charles XI with Needham . Please go ahead .

Speaker #4: Hey .

Speaker #10: Gabby and Guy , congrats on the on the good results . Maybe I'll start with the commentary on next year . Mid-single digit if you outperform that number .

Speaker #10: Second half weighted . But can you provide a little bit of color on relative to second half 25 . What's your best view on first half ?

Speaker #10: 26 in terms of your top line run rate , etc. ? And maybe some of the puts and takes between , let's say , foundry logic and memory or China non-china as much as you can at this point .

Speaker #10: Thank you .

Speaker #5: Sure . Thank you Charles . So first of all , we don't we don't as you know , provide a guidance beyond the next quarter .

Speaker #5: So it would be difficult to drive into details . But I would I would mention that 2026 is driven by both memory growth and investments in advanced logic and advanced packaging .

Speaker #5: Are position across these segments is strong . And that would drive our growth relatively related to that . And we also invest a lot in market share gains in order to accelerate and fuel that momentum .

Speaker #5: In terms of China , I believe that the business that we see in the second half of the year or the second , the business that we already have in China , is already normalized in terms of business levels , and we expect this to trend to continue in the first half of next year .

Speaker #5: Beyond that , at this moment in China , of his ability is limited and the market is very dynamic . So we'll need to we need to see how things evolve .

Speaker #10: Got it . Maybe I'll quickly follow up on China . Sounds like a first half . 25 was pretty strong for you . Second half it's normalized .

Speaker #10: China sounds like it's a it's a little bit first half weighted for 25 . And if I extrapolate what you said that normalization trend continues into first half 26 .

Speaker #10: Sounds like China is probably a down year . Next year . Is that the right read . And if that's the case what would you .

Speaker #10: Yeah sorry .

Speaker #5: I'm sorry for interrupting you , Charles . Not necessarily . So I mentioned that we have lower visibility for the second half , as it's a very dynamic market , but we do hope that nominally , the business in China will remain solid .

Speaker #5: So it doesn't allude to any changes in the overall levels in China . Next year . Next year .

Speaker #10: Thank you . I appreciate the color .

Speaker #5: Thank you .

Speaker #3: This concludes our question and answer session . I would like to turn the conference back over to Gabby Wiseman . Nova's president and CEO .

Speaker #3: For any closing remarks .

Speaker #5: Thank you . Operator . And thank you all for joining our call today .