Nova Q3 2026 Earnings Call Transcript

Nova (NASDAQ:NVMI) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Nova Ltd. reported record third-quarter revenue of approximately $288 million, a 28% year-over-year increase, driven by strong performance in memory and advanced packaging segments.

The company exceeded its financial guidance with a non-GAAP gross margin of 59.1% and operating margins surpassing the target range, highlighting strong profitability and effective cost management.

Strategic initiatives include expanding manufacturing capacity with a new clean room in Asia and a focus on advanced logic and memory segments, particularly gate-all-around and DRAM investments.

Nova achieved significant growth in its metrology solutions, with record results in integrated, standalone dimensional, and chemical metrology, and expanded its customer base in advanced packaging and logic applications.

The company provided a positive outlook for Q4 2026, expecting revenues between $305 million and $315 million, and earnings per share in the range of $2.78 to $2.94 on a GAAP basis.

Management emphasized Nova’s strategic positioning to capitalize on semiconductor industry trends, projecting continued momentum and growth into 2027, driven by favorable investment mixes and increased metrology demand.

Full Transcript

OPERATOR

Good day and welcome to the Nova third quarter 2026 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 telephone keypad. 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 Sigel. Please go ahead.

Miri Sigel (Investor Relations)

Thanks, operator, and good day, everyone. Welcome to Nova’s third quarter 2026 financial results conference call. With us on the line today are Gabriel Waisman, President and CEO, and Guy Kizner, CFO. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today’s earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company’s website.

Gabriel will begin the call with the business update, followed by Guy with a financial overview. We will then open the call for the question-and-answer session. I will now turn the call over to Gabriel Waisman, Nova’s President and CEO. Gabriel, please go ahead.

Gabriel Waisman (President and CEO)

Thank you, Miri, and thank you all for joining us today. I will start the call by summarizing our third quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. We delivered another record quarter exceeding the top end of our guidance, with revenue reaching approximately $288 million and growing 28% year over year, as well as record profitability. This performance was driven in part by record revenue from memory and advanced packaging segments.

The strength of the quarter was reflected in outstanding performance in multiple product lines. We achieved record results across integrated metrology, standalone dimensional metrology, and chemical metrology solutions, coupled with record service revenue. These results manifest the continued industry momentum as well as the proliferation of our portfolio across regions, customers, market segments, and critical applications. Our healthy pipeline continues to provide solid visibility into customer demand.

Furthermore, we now guide the second half of 2026 to grow more than 33% compared to the second half of 2025, demonstrating an accelerating momentum of our business into 2027. The semiconductor industry’s investment momentum is substantial. The mounting requirements for computing power, memory, and connectivity are driving increased investments in advanced logic, memory, and packaging nodes. We see this reflected in robust demand across our customer base as our industry continues to expand capacity and transitions to more advanced manufacturing technologies. These trends reinforce our confidence in demand durability. For Nova, the opportunity is shaped not only by the overall level of industry investment, but also by the split to specific nodes and architectures.

As spending shifts towards more complex designs and applications, including gate-all-around, the need for advanced process control and the intensity of metrology keep climbing. While we grow at a fast pace, our growth relative to WFE may vary from time to time depending on the investment mix. Our objective remains to outperform the market over time while continuing to leverage opportunities created by capacity expansions and unique value offerings.

Memory was an important growth engine this quarter, reaching record levels of both revenue and bookings, primarily driven by strong DRAM demand. This performance was supported equally by our dimensional and materials metrology solutions. Our integrated metrology products benefited from capacity expansions in advanced DRAM manufacturing. In materials metrology, demand for our XPS solution continued to grow as customers increased sampling rates and expanded the platform’s use into new applications, increasing tool utilization.

This translates into a growing number of tools per fab at leading memory customers, including a significant order from a major customer that further solidified the demand profile in 2027. Advanced packaging was another significant contributor during the quarter. With record performance of our standalone dimensional metrology solutions and continued strong momentum across the portfolio, our sales to OSAT customers picked up significantly, and we see multiple opportunities to expand our presence in this market. We are particularly pleased with the continued adoption of the Nova WMC platform across both logic and HBM applications and across a broad geographic footprint, with more than 10 customers having placed orders or completing acceptance of the platform and additional evaluations underway.

Alongside growing application content in dimensional metrology, we see adoption of our materials metrology solutions in HBM-related applications, complemented by strong performance from our chemical metrology portfolio. Together, these developments are expanding Nova’s participation across the evolving advanced packaging ecosystem. Advanced logic sustained its robust momentum during the quarter, driven by healthy demand. Looking ahead, as investment mix increasingly shifts towards gate-all-around devices, we expect a step function in the number of tools needed to support process complexity and metrology requirements and in the value provided by our Nova Prism platform. The logic segment also represents an opportunity for our front-end chemical metrology. During the quarter, the Encoscene platform successfully completed acceptance and release for high-volume manufacturing by a leading foundry, and it continues to grow in both market share and customer base.

These developments broaden our opportunity in advanced logic and reinforce the increasing relevance of our portfolio. Nova’s growing installed base continued to drive record service revenue with strong performance in every region. Customers remain focused on maximizing production capacity, which increases the importance of tool availability, productivity, and robustness. These dynamics drove approximately 50% year-over-year growth in value-added services revenue, led by strong demand for upgrades supporting advanced node production. As our installed base expands, we see further opportunities to deliver value throughout the life cycle of our solutions.

As our business continues to scale alongside industry demand, we remain focused on ensuring that our operational infrastructure and supply chain can support our growth and meet our customer commitments. We are working closely with our suppliers to align capacity and planning with our needs while continuing to strengthen the resilience and breadth of our supply base. At the same time, we’re expanding our own manufacturing capacity, including the new clean room in Asia, which is expected to become operational by year end.

Our outstanding execution this quarter, combined with a robust outlook for the fourth quarter, puts us on track to exceed $1 billion in annual revenue, reaching this important milestone a year ahead of our current five-year strategic plan. With a strong pipeline, extended customer visibility, and an increasingly favorable industry investment mix, we believe Nova is well positioned to carry this momentum into 2027. We look forward to discussing the next chapter of Nova’s journey at our investor day on March 9, 2027, in New York City, where we will present our future strategy and provide greater insight into the market and technology transitions ahead, the opportunities they create, and how we are aligning our portfolio and investments to drive Nova’s next phase of growth. Now, for some more details on our financials, let me hand over the call to Guy.

Guy Kizner (Chief Financial Officer)

Thanks, Gabi. Good day, everyone. I will begin by reviewing our third quarter financial achievements and then provide guidance for the fourth quarter. We delivered another quarter of record results, generating $287.8 million in revenue, our third consecutive quarter of all-time highs. Revenue exceeded our guidance and increased 13% quarter over quarter and 28% year over year. This achievement is a testament to the strength of our core offerings as well as our ability to capture and respond to the continued demand in the market.

Product revenue distribution was approximately 61% from Logic and Foundry and 39% for Memory and others. Product revenues included four customers and four territories which contributed each 10% or more to product revenues in the third quarter. Gross margin was 57.7% on a GAAP basis and 59.1% on a non-GAAP basis. These strong margin levels reflect the high value of our product delivered to customers. Combined with record revenue, they enable us to generate another quarter of strong profitability. As expected, operating expense increased to $73.3 million on a GAAP basis and $68 million on a non-GAAP basis as we continue to invest in innovation and future growth opportunities. The increase was driven primarily by higher R&D spending to support our product roadmap and technology leadership, as well as costs related to ongoing strategic evaluations.

Operating margins in the third quarter reached 32% on a GAAP basis and 35.5% on a non-GAAP basis, surpassing the upper range of our target model of 28% to 33%. These results highlight our ability to translate revenue growth into profitable expansion. The effective tax rate in the third quarter was approximately 18%. Earnings per diluted share in the third quarter on a GAAP basis were $2.64 per diluted share, and earnings per share on a non-GAAP basis were $2.86 per diluted share, exceeding the high end of our third quarter guidance.

Turning to the balance sheet, we ended the third quarter with $1.8 billion in cash, cash equivalents, bank deposits, and marketable securities. Our free cash flow for the third quarter reached $132 million, bringing total positive free cash flow for the first three quarters of 2026 to approximately $206 million. This performance highlights the strong cash-generating capability of the business and the quality of earnings. In addition, consistent with our balanced capital allocation strategy, we repurchased approximately $38.5 million of shares during the quarter, following the $200 million share repurchase authorization announced in September.

Next, I’d like to outline our guidance for the fourth quarter of 2026. We currently expect revenues for the quarter to be between $305 million and $315 million; GAAP earnings per diluted share to range from $2.78 to $2.94; non-GAAP earnings per diluted share to range from $3.03 to $3.18. At the midpoint of our fourth quarter 2026 estimates, we anticipate gross margins of approximately 57% on a GAAP basis and approximately 59% on a non-GAAP basis; operating expense on a GAAP basis to increase to approximately $78 million; operating expense on a non-GAAP basis to increase to approximately $72 million. Financial income on a non-GAAP basis is expected to increase to approximately $18.7 million in the fourth quarter, reflecting the higher cash balance on hand. Effective tax rate is expected to be approximately Before I conclude my remarks, I would like to highlight that, based on the midpoint of our fourth quarter guidance, we expect to finish 2026 with another year of record revenues. Moreover, in the third quarter we surpassed our long-term milestone of $1 billion in revenue on a last 12 months basis and delivered profitability at the high end of our target range, both achieved a full year ahead of our original plan. Reaching these milestones ahead of schedule is a testament to the strength of our business model, the disciplined execution of our strategy, and the significant value our process control portfolio creates for customers.

Most importantly, it reflects our ability to consistently generate attractive returns and long-term value for our shareholders. 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 telephone keypad. 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. Our first question comes from Atif Malik with Citi. Please go ahead.

Atif Malik (Analyst)

Hi, thank you for taking my questions. Gabi, you talked about objective to outperform WFE which is a function of spending mix. So when you look at DRAM versus Foundry/Logic mix next year with higher gate-all-around mix and new logic project, do you think that spending mix closes the gap from this year and helps Nova outperformance?

Gabriel Waisman (President and CEO)

Thank you, Atif, for the question. So let me perhaps give some color to what makes the 2027 investment mix more favorable for us, for Nova. So I’ll start with gate-all-around first. We see some shift towards incremental investments in gate-all-around, where intensity of metrology increases by about 30% compared to FinFET, and our Nova share in gate-all-around across all players is higher as well. So that also supports the increase in memory. We do expect continued strong double-digit growth in DRAM investments and moving to some more advanced DRAM nodes, moving to such as 1C/1D, whereas we will see some additional intensity, including in materials metrology where we see increased sampling, new applications, and higher tool utilization which drives an increase in numbers of tools per fab, which is up to nine.

Obviously process control in memory is lower than logic as a whole, but we do see some positive trend in that vector. And the advanced packaging, and specifically in HBM, we continue to see the capacity expansion, the process complexity driving business, and we see some, as I mentioned during the transcript, I do see some adoption in OSATs of some of our tools as a result of those players capitalizing on leading manufacturers’ advanced packaging tool selections that were already made.

And last but not least, we do see some new customers and entrances into the market, and those participants create additional opportunities for us to broaden our customer base and footprint. So overall, what I see is that 2027 combines both the WFE growth with an investment mix favorable for Nova and some opportunities for increased application penetration and expansion of our market share. So I do anticipate this momentum to drive into next year. I would also say that we do see some linearity in the business in the quarter-over-quarter growth next year in that respect.

Atif Malik (Analyst)

Very helpful. And Guy, on the topic of supply chain, there are some concerns in the market that shortages of components like gas delivery and optical could limit the ability to ship more. Are you seeing any issues with Nova or your ability to ship more products, or the bottlenecks elsewhere?

Guy Kizner (Chief Financial Officer)

So we are seeing, we’re definitely seeing this rapid industry ramp stretching our supply chain, and we’re taking steps to ensure that we keep delivering and maintaining our commitments to customers. In spite of it, supply chain resilience remains an area that requires active management, attention, and mitigation. We’re working very closely with both existing suppliers on long-term capacity initiatives while also striving to broaden our supply chain and investing in Nova’s own manufacturing infrastructure.

I did mention our new cleanroom in Asia, and that supports our operational agility, provides us more capacity as part of our long-term plan. It’s closer to customers, by the way, and definitely broadens the local supply chain ecosystem for us.

OPERATOR

Thank you. The next question comes from Shane Brett with Morgan Stanley. Please go ahead.

Shane Brett (Analyst)

Thank you for letting me ask a question. My first question is on memory. Even if I assume your memory revenue is flat quarter over quarter into December, it would imply your memory revenue is up north of 60%, which is seriously impressive, especially given we’ve not necessarily had a huge technology inflection in the front end this year. Just what is driving this really impressive memory growth in Nova, and how do you think about just kind of inflections into next year for memory that could drive even more outperformance?

Thank you.

Gabriel Waisman (President and CEO)

Thank you, Shane. So we did indicate the fact that this quarter we had about 39% of our business coming from memory and others, and we do forecast that our memory revenue this year to have a strong double-digit growth, and we do see some similar trends into next year as well. It’s coming mostly from capacity expansions. You mentioned some transitions, and there are definitely some transitions that are providing some gradual expansion, increase in intensity as a result of architectural changes, and we definitely see some initial pilots next year.

With the transition to 4F square, that will further increase the process control intensity for those customers. So the opportunity in general is diverse and comes from our entire product portfolio. For the dimensional metrology, it’s both the capacity expansion and an increasing intensity in HBM, and in the materials metrology, we see increased sampling rates, new applications, and all of that is driving additional tools per fab. I mentioned reaching the bar of nine with leading customers, and in chemical metrology, it’s definitely the growing adoption of our front-end solutions.

Shane Brett (Analyst)

Got it. That’s great to hear. And for my follow-up, I’d love to hear about the competitive environment in material metrology you pioneered. This market have driven adoption with customers. If we do see competition emerge, how do you think this market will change for you? Thank you.

Gabriel Waisman (President and CEO)

We anticipated the competition in material metrology. I indicated that a few times in the past, and it’s a testament to the fact that this is becoming a meaningful process control area for both customers and obviously for peers and competitors. We see new entrants that will come and compete probably towards the second half of next year, and we are investing considerably in order to maintain a very significant competitive gap, to make it very challenging for new entrants.

But we do welcome the competition. And again, it indicates the importance of this market and the fact that it will continue to grow and be very attractive in terms of the importance it possesses with our customers.

Shane Brett (Analyst)

Thank you.

OPERATOR

And the next question comes from Michael Manny with Bank of America. Please go ahead.

Michael Manny (Analyst)

Hi. Thanks so much for taking my question. To start, could you give us a sense of where Foundry and Logic and Memory end up for Q4? And the basis for that question is, when I look at where your Foundry and Logic growth is tracking overall for this year, it seems to be maybe a little bit more muted, especially relative to Memory, trailing behind overall Foundry/Logic WFE as we see it. How should we interpret that? Is that more of a digestion sort of period after multiple years of very strong growth in that segment?

Is it more of a mix factor or timing factor? And is it really just gate-all-around coming back next year that could help return that part of your business to growth? Thank you.

Gabriel Waisman (President and CEO)

Thank you, Michael. So I wouldn’t say it’s muted. We do see meaningful growth for us in logic and foundry in both advanced and mature nodes, by the way, and I’ll speak to it a bit later. In the advanced logic nodes, the transition to gate-all-around is definitely increasing intensity overall, and I believe that it will also help our growth in that respect. Both the intensity as well as our share with customers. And talking about logic, I would indicate the mature nodes, especially China. Whereas in the third quarter we did see an increase in both revenue and in share of sales. But overall this year we expect China’s share to be lower than 2025 but still nominally grow.

Michael Manny (Analyst)

Got it. Thank you. And for my follow-up, I think on what fundamental you’ve mentioned before that present at all five major customers by end of next year. I think qualifications are still progressing. So how many of the five are in high-volume manufactured today versus still in qualification? What do you see as the timeline and the gating factors for the remaining ones to get to that milestone? Thank you.

Gabriel Waisman (President and CEO)

So we currently. It’s a great question. Thank you, Michael. We do see right now 4 out of the 5 already adopting the Metrion either in high-volume manufacturing, proliferation, or evaluations. I do hope to conclude the fifth next year, and we see strong demand for the Metrion. There are longer lead times for this tool, but we’re very encouraged by the market demand.

Michael Manny (Analyst)

Thank you.

OPERATOR

And the next question comes from Charles Shi with Needham. Please go ahead.

Charles Shi (Analyst)

Hi. Thanks for taking my question. Maybe first I want to clarify and maybe help us unpack the Q3 results and Q4 guidance a little bit. I think roughly 90 days ago we were under the impression that a half-over-half growth for this year is probably in the high-teens range. And obviously I think it’s going to be beat and raise quarter to quarter. That’s what Nova does. But now based on your guidance it seems like it’s going to be half-over-half, 22%.

Wonder if, relative to the expectation, what has changed and what’s driving the upside? That’s the first question. Thank you.

Gabriel Waisman (President and CEO)

So, thank you, Charles. I believe that it’s more or less in line with our initial expectations. So I don’t think that we deviate from the previous forecasts and expectation of having a stronger second half to the first one. It might be a bit higher in terms of the strength, but it’s still in line with the expectation. But we are encouraged, as I mentioned before, by the momentum, and we expect it to continue next year as well.

Charles Shi (Analyst)

Thanks, Gabby. Maybe a follow-up question on materials, the competition, new entrants you mentioned about. We know you have X-ray, you have Raman, you have SIMS, and these are all material technologies. But where exactly, which technology you are seeing new entrants, especially if it’s X-ray? Can you be a little bit more specific, because we know there are all kinds of X-ray technology—XRF, XPS is where you play, but there is X-ray CT, there’s this X-ray CD.

So kind of unpack a little bit for us there what the new entrants you’re seeing and how you intend to maintain your competitive lead. Thank you.

Gabriel Waisman (President and CEO)

Thank you, Charles. So definitely thank you for the question. The competition we are seeing, or we will see—it’s not here yet and we need to be a bit more cautious about it. We’ll probably see something initial, I’m not sure that it will be meaningful, but towards the second half of next year. But it’s centered around XPS only. So we don’t see this across the board in our material metrology portfolio, but XPS only. Nova does have a very extensive XPS plus XRF portfolio. We are not selling, by the way, XRF as a standalone tool. It’s a part or in addition to the XPS capabilities, augmenting the overall application space and value of the tool. The investment, as always, is on the two-pronged approach on both technology and cost of ownership. So we are investing significantly, and we’re releasing new XPS products that are providing higher performance and better cost of ownership, and we’ve doubled down on investments in order to make sure that future generations of tools will have a very significant gap in offering value to customers.

Charles Shi (Analyst)

Thank you. I appreciate the insights, Gabby.

OPERATOR

And the next question comes from Tom O’Malley with Barclays. Please go ahead.

Tripp Smith (Analyst)

Hey team, this is Tripp Smith on for Tom O’Malley. Thank you for the question. I was just curious if you could expand on the qualification and completed acceptance of the Encocene product. I was just curious if there was like a timing on that for the high-volume manufacturing by the leading foundry, and then any kind of color on the competitive space in the front-end chemicals metrology area versus the larger incumbent and how you’re getting share there.

Thank you.

Gabriel Waisman (President and CEO)

Definitely. So first of all, I’ll start with saying that front-end chemical metrology extends our chemical metrology presence beyond our historical strength in backend application. And the third quarter was a record quarter for chemical metrology in general, whereas specifically the Encocene completed acceptance and was released into HVM at the leading foundry, and we’re currently at additional customer penetration stages and we gain market share, which is occurring across several geographies.

We have one competitor in the chemical metrology front-end space, which is KLA, and we are offering very unique value to our customers with that tool.

Tripp Smith (Analyst)

Thank you, and then maybe just as a follow-up. I think we’ve heard a little bit about this in the industry, but, you know, based on your guide, it kind of implies a flattish to down gross margin. I was just curious if that’s coming from continued memory headwinds or broader supply constraints and how you guys are managing those. Thank you very much.

Guy Kizner (Chief Financial Officer)

Yes, so our gross margin this quarter was 59%, and we guided the next quarter also 59. So we don’t see a reduction. Obviously the gross margin for the next quarter can fluctuate plus minus 1%, but we don’t see currently any headwinds on the gross margin side.

OPERATOR

And the next question comes from Venvati Chrotry with Evercore ISI, please go ahead.

Venvati Chrotry (Analyst)

Thanks for taking my question. So you’ve previously outlined $500 million revenue opportunity with accumulated revenue opportunity through ’26, right. Where do we stand against that today? And with TSMC expecting gate-all-around capacity almost doubling in 2027, how should we think about your annual gate-all-around revenues next year? Could they scale similarly? Could you see them double?

Gabriel Waisman (President and CEO)

So thank you for the question. We are on track with the accumulated revenue from ’24 to ’26 of a total of $500 million. And we are very encouraged by the shift towards increasing investments in gate-all-around. I definitely believe that this is providing a tailwind for the company. I think it’s a bit early to assess or provide some color on the number, but we do see growth year over year in our gate-all-around process control revenue.

Venvati Chrotry (Analyst)

Understand. Thank you. And for my follow-up question on gross margins, I understand they’ll be flat in December quarter, but as we go through the year, could you talk about the headwinds you’re seeing or the tailwinds you’re seeing? Like one aspect is, you know, you’re also expanding your manufacturing facilities in Asia. So what would be the impact of that to the gross margins?

Guy Kizner (Chief Financial Officer)

Yeah, so when we are looking beyond fourth quarter, we do see cost increase, but the cost increase is being offset by better efficiency and higher volumes. We also typically adjust pricing when we introduce new capabilities that add value for our customers, whether through unique metrology capabilities or productivity improvements. And, as we mentioned on the last earning call, we do have several initiatives already in the pipeline that we expect to announce in the future, which should further support this trend.

Venvati Chrotry (Analyst)

All right, thank you.

OPERATOR

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

Gabriel Waisman (President and CEO)

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

OPERATOR

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

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