Nova Ltd. (NASDAQ:NVMI) Q2 2025 Earnings Call Transcript

Nova Ltd. (NASDAQ:NVMI) Q2 2025 Earnings Call Transcript August 7, 2025

Nova Ltd. beats earnings expectations. Reported EPS is $2.2, expectations were $2.05.

Operator: Welcome to the Nova Limited Second Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Miri Segal, CEO of MS-IR. Please go ahead.

Miri Segal-Scharia: Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova’s Second Quarter 2025 Financial Results Conference Call. With us on the line today are Gaby Waisman, President and CEO; and Guy Kizner, CFO. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today’s earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company’s website. Gaby will begin the call with a business update, followed by Guy with an overview of the financials. We will then open the call for the question-and-answer session. I will now turn the call over to Gaby Waisman, Nova’s President and CEO. Gaby, please go ahead.

Gabriel 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 detail. Nova delivered another record quarter with revenue at the top end of our guidance and profitability that exceeded guidance. Our quarterly revenue grew 3% sequentially and 40% year-over-year. This performance was driven by multiple revenue streams with record revenue of our chemical metrology division and service business. Our product portfolio and value proposition, which support technological transitions and improvements in yield and productivity resulted in record results in the logic/foundry and advanced packaging segments.

In the first half of 2025, our revenue grew 45% compared to the same period last year, fueled by logic capacity build-out across advanced and mature nodes, DRAM and advanced packaging capacity increases driven by higher metrology intensity. We continue to invest in expanding our business and market share, building on the growing technological complexity of our customers’ processes. Nova’s ability to thrive in a rapidly evolving industry is rooted in a resilient and diversified business model. Our multiple revenue streams are designed to balance fluctuations and sustain growth. This foundation is strengthened by long- standing customer partnerships, agile operations and the steadfast commitment of our teams. Together, these elements position us to capitalize on emerging opportunities, navigate challenges effectively and execute on our long-term strategic vision with confidence.

AI is a secular growth engine, driving an increasing demand for a variety of highly efficient devices, resulting in more sophisticated designs and manufacturing processes, which in turn drive investment in advanced nodes, packaging and related metrology. Larger dye sizes, greater design diversity and yield requirements are accelerating development cycles and creating a need for advanced metrology at additional steps. Moreover, there is a demand for advanced packaging solutions specifically designed to accommodate and process wafers of various forms and shapes. All of these translate into demand for more metrology capabilities and create new opportunities. Nova’s recent performance offers compelling validation of the alignment of our strategic direction with the market.

The strength and relevance of our portfolio are increasingly evident as we continue to deliver solutions that not only align with customer priorities, but also anticipate their future needs. This reinforces our position as a trusted partner in enabling their success and ours in a shifting industry landscape. More specifically, for the June quarter, there are 4 areas I want to highlight today. Nova is in a pole position to take advantage of the industry’s shift to gate-all-around architecture. We are already working with the 4 leading customers who are implementing this process. Notably this quarter, we recognized revenue from a gate-all-around customer that adopted multiple Nova platforms across the entire portfolio with additional solutions currently under evaluation.

This quarter’s record performance in advanced packaging has further reinforced our standing in this rapidly expanding segment with our chemical metrology division performing exceptionally well. In addition, our optical metrology portfolio for advanced packaging, which has expanded to include Nova Sentronics platforms, supports evolving customer needs and captures the increasing demand in this critical segment. To round out key market segments, Nova is also well positioned in the memory market, particularly in DRAM and high-bandwidth memory. Our leadership in chemical metrology continues to expand, supported by record results in high-bandwidth memory and a recent win at a leading memory manufacturer, which expanded our market share in front-end chemical metrology for interconnect applications.

In optical metrology, a leading memory manufacturer has adopted the Nova Sentronics platform for key applications in high-bandwidth memory. This recent acceptance is a result of the solution’s unique ability to address major challenges such as high voltage, nonsymmetric shapes and different surface conditions. On the materials metrology front, we recently introduced the active charge compensation feature on the Nova VeraFlex platform for 3D NAND applications. This innovative solution further enhances accuracy in X-ray metrology by effectively addressing photoelectron-induced charge distortion, enabling precise analysis of critical memory cell components such as nitrogen. With shipments to 2 leading memory manufacturers this quarter, we believe that active charge compensation will further accelerate the adoption of the VeraFlex platform in advanced 3D NAND manufacturing.

Finally, our service business continues to act as a growth driver for us with 10 consecutive quarters of revenue increase and yet another quarterly record. Service revenue grew 7% sequentially and 31% year-over-year. An important driver of this performance is value-added services, which focus on productivity improvements in our installed base and adding capabilities to address new applications. In summary, our teams demonstrated effective execution and delivered consistently strong results in all segments, markets and regions. Our near-term guidance remains solid, and we continue to focus on investing in our portfolio, which proves to be well matched with our customers’ expectations and technology inflection. Most importantly, we are fully aligned and committed to executing our strategic plan, which continues to guide our long-term priorities and investments.

In October, Guy and I will attend SEMICON West and will be available for in-person meetings. I invite you to reach out to our IR contact to schedule a meeting. We look forward to having meaningful conversations with you. Now for some more details on our financials, let me hand over the call to Guy.

Guy Kizner: Thanks, Gaby. Good day, everyone, and thank you for joining our 2025 second quarter conference call. I will begin by reviewing our second quarter financial achievements and then provide guidance for the third quarter. Total revenues in the second quarter of 2025 reached a record level of $220 million, marking the fifth consecutive quarter of record-breaking results. This performance reflects a growth of 3% quarter-over-quarter and 40% year-over-year. Product revenue distribution was approximately 75% from logic and foundry and 25% from memory. Product revenues included 4 customers and 4 territories, which contributed each 10% or more to product revenues, highlighting the company’s well-balanced and diversified reach across markets and customers.

In the second quarter, blended gross margins were 58% on a GAAP basis and 60% on a non-GAAP basis, in the upper end of our target model range of 57% to 60%. The high gross margin in the quarter was attributed to a product mix weighted towards higher- margin offerings. As expected, operating expenses increased to $61.6 million on a GAAP basis and $56.9 million on a non-GAAP basis. Operating margins in the second quarter reached 30% on a GAAP basis and 34% on a non-GAAP basis, surpassing the upper range of our target model of 28% to 33%. This excellent result was driven by a healthy quarterly gross margin and the company’s robust operational model. The effective tax rate in the second quarter was approximately 15.5%. Earnings per share in the second quarter on a GAAP basis were $2.14 per diluted share, and earnings per share on a non-GAAP basis were $2.20 per diluted share, exceeding the high end of our second quarter guidance, marking the seventh consecutive quarter of record-breaking performance.

This achievement underscores the effectiveness of our business strategy and the increasing value our solutions deliver to customers and stakeholders alike. Turning to the balance sheet. We ended the second quarter with $856 million in cash, cash equivalents, bank deposits and marketable securities. Our free cash flow for second quarter reached $43 million. An additional $4.7 million was paid in connection with the acquisition of Sentronics as part of the final purchase price adjustment. Next, I’d like to outline our guidance for the third quarter of 2025. We currently expect revenue for the quarter to be between $215 million and $227 million. GAAP earnings per diluted share to range from $1.77 to $1.97 non-GAAP earnings per diluted share to range from $2.02 to $2.22.

At the midpoint of our third quarter estimates, we anticipate the following: gross margins of approximately 57% on a GAAP basis and approximately 59% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $63 million. Operating expenses on a non-GAAP basis to increase to approximately $57.5 million. Financial income on a non-GAAP basis to remain similar to that of the second quarter. Effective tax rate is expected to be approximately 16%. Before I conclude my remarks, I would like to note the following: Nova’s first half 2025 revenues increased more than 45% over the comparable half of 2024, outperforming WFE growth forecast. The company’s solid guidance for the third quarter of the year positions Nova to continue outperforming on a year-over-year basis throughout the rest of 2025.

In addition, in our last earnings call, we shared our expectation that the newly implemented tariffs will reduce gross margins by approximately 30 to 50 basis points. Based on the latest updates and improved visibility, we now estimate the impact will be closer to 20 basis points, a more favorable outcome than initially anticipated. With that, we will be pleased to take your questions. Operator?

Q&A Session

Operator: [Operator Instructions] The first question we have is from Atif Malik of Citi.

Atif Malik: First question for Gaby. Gaby, you highlighted gate-all-around as a major shift for you guys. Some of your peers saw their Taiwan sales decline sequentially in the June quarter, but the Japan sales go up. I was just curious with respect to your aggregate gate-all- around sales, how did they fare in the June quarter? And what kind of trajectory you see in second half for aggregate gate-all-around wafer starts or sales across multiple regions? And then I have a follow-up for Guy.

Gabriel Waisman: Definitely. Thank you so much, Atif, for the question. Overall, we are currently positioned well across all 4 gate-all-around customers, and we’re very excited about this opportunity. We also mentioned that we are — we have a plan to reach an aggregate of $500 million from gate-all-around revenue until the end of 2026, and we’re on track to achieve that. We saw a strong demand in the first half of this year, and we see stability in the second half from gate-all-around. So overall, we are very encouraged by that and by the momentum that gate-all-around continues to provide us.

Atif Malik: Great. And then, Guy, the gross margins were strong, 60% versus 58% guide. You talked about the product mix. If you can just provide more color, are the record chemicals business driving the upside to the gross margins? And was there any tariff impact to the 60% number for the June quarter?

Guy Kizner: So the tariffs impact were marginal. The stronger result for the first half, as I mentioned, was driven by product mix, not necessarily the contribution for chemical metrology, but it’s a specific mix of variety of our offering that drove this exceptional gross margin result.

Operator: The next question we have is from Vivek Arya of Bank of America Securities.

Michael Sebastian Mani: This is Michael Mani on for Vivek Arya. I wanted to start on Sentronics. Could you talk about the momentum you’re seeing in the business so far this year? And more specifically, how much did it contribute to growth in June and how much is it contributing in September? Essentially, what I’m trying to parse out is how much the organic business is growing, if you’d be able to offer that.

Gabriel Waisman: So thank you for the question, Michael. We’re very encouraged by the integration of Sentronics into our business, and we are investing in ensuring the go-to-market in which we concluded the transition into Nova, whereas most of our sales are currently direct as part of our global business group. We see very encouraging signs of adopting the Sentronics portfolio with multiple customers and the expansion to various territories. So overall, we are very optimistic and very bullish about the growth and the potential accretive addition of Sentronics to our business.

Michael Sebastian Mani: Got it. And on gate-all-around, one of your larger IDM customers is pretty meaningfully cut down their CapEx for next year. I know you just mentioned that you’re still on track to complete your $500 million sales for gate-all-around by next year. So could you just help us unpack maybe how impactful that customer was to achieving that goal? And if more broadly, you’ve seen any changes in the road map there with them or in any customers that maybe gives us a little more pause into next year?

Gabriel Waisman: Thank you for the question. So overall, I think that the exposure we have and the strong positioning across all 4 gate-all-around customers provides us the ground to — for confidence in our ability to achieve the overall growth and revenue that we forecast from gate-all-around. We are well on track with that, and we believe that next year is going to be even stronger than this year in that respect.

Michael Sebastian Mani: Great. And if I could just ask one more quick question. You’ve talked about in the past this lab-to-fab strategy that will especially help drive growth in your materials metrology segment where you’re sole sourced. Where are we in the strategy if you take a step back? Would you say this is something that’s more impactful to growth in the next 2 years? Will it take longer to play out? Are there certain milestones in terms of customer road map inflections that we should be looking for to see when this part of the business really inflects? Just how should we measure progress in that part of the strategy?

Gabriel Waisman: So it’s an excellent question. And I will divide it into a few areas, which relate to our material metrology portfolio and the lab-to-fab strategy. So first, with regards to XPS, our key efforts are on driving additional value for this tool in order to expand the adoption and increase the number of tools per fab. And part of my speech earlier related to another addition of active charge compensation, which is intended to open up a new area of applications for us, especially in 3D NAND. And we continue in terms of our road map to invest in adding value improving cost of ownership in order to continue and do so. And we are very pleased with the traction that we see in the adoption of XPS and XRF across fabs. With regards to new tools such as the in-line SIMS, the METRION and the Raman, the ELIPSON, so we spoke about the additional key evaluations that we embarked on at the beginning of this year that we expect to turn into revenue, 2 very strategic evaluations for us, and we are well on track to achieve that.

And with regards to the ELIPSON, we already see repeated orders with very encouraging indications from multiple customers, including a leading gate-all-around customer with the potential for multiple tools. So overall, I think that we have a very robust plan in terms of lab-to-fab, focusing, of course, on material metrology, which is certain around adoption of the well-positioned XPS and introduction and expansion of the footprint of the METRION and ELIPSON, which are positioned, especially for advanced nodes.

Operator: The next question we have is from Blayne Curtis of Jefferies.

Ezra Gabriel Weener: Ezra Weener on for Blayne. Just kind of want to start, a lot of your peers are seeing a lot of strength in China. Can you talk a little bit about your geographic mix and what you’re seeing there and what you think that will do into next year? And then secondly, in terms of HBM, I know it’s not a big piece of your business, but you did mention strength there, which is also not exactly what we’re seeing at peers. So can you talk about what’s driving that strength?

Gabriel Waisman: Thank you for those questions. So I’ll start with HBM. And I’ll relate in general to advanced packaging, which is a growing market for us with the continued momentum. Last year, it was about 15% of our business. And this year, we expect a higher percentage. It’s a new market for us. So HBM is growing. And in general, it’s about 1/3 of our advanced packaging business. With regards to the second question relating to China. So earlier this year, we said that China will be flat or slightly lower. We now expect the nominal value to be moderately higher year-over-year, whereas revenues slightly skewed towards the first half. Percentage- wise, China is forecasted to decrease year-over-year because of the higher investments in advanced nodes.

Operator: The next question we have is from Matthew Prisco of Cantor.

Matthew Patrick Prisco: I guess to start, in your dimensional metrology business, can you offer an update on the competitive landscape there? And any potential changes in share dynamics or adoption trends over the last 3 months?

Gabriel Waisman: Thank you, Matthew. So with regards to dimensional metrology, we have 2 key product lines, the integrated metrology and the stand-alone OCD. In terms of the competitive landscape, there’s not much change in that respect. We have one key competitor on the integrated metrology, and we’re competing with 2 on the stand-alone OCD. With regards to integrated metrology, we continue to lead, and we saw a strong momentum and results in the second quarter of the year, and we believe that, that leadership will be maintained. With regards to stand-alone OCD, we are extremely encouraged by the market share gains that we see in the market. We have a unique technology and value proposition, which drives our market share, both in the front end in the advanced nodes as well as in the advanced packaging. And we believe that there are good grounds to see continued expansion of that business for us.

Matthew Patrick Prisco: Perfect. And then maybe specific to ELIPSON and METRION, how are you guys thinking about revenue contribution from these systems in 2025 and potential for growth there in 2026? Maybe how has that outlook changed over the last 3 months as well?

Gabriel Waisman: So ELIPSON and METRION are well on track in terms of our business plan. We are seeing both being adopted by advanced node manufacturers. We’re targeting both memory and logic with these tools. And we have a very strong focus on the evaluations, which will result in becoming a process tool of record. And then, of course, the proliferation in lines in which those advanced nodes become high volume. So we see growth year-over-year. Obviously, this is something that we need to focus on, especially in becoming these process tool of records for those customers. And then, of course, with the proliferation of high volume, we expect the relative part of that business in Nova to grow.

Operator: The last question we have is from Charles Shi of Needham & Company.

Yu Shi: Gaby and Guy, maybe the first one, you reaffirmed that $500 million cumulative gate-all-around revenue from last year to next year. Can you give us a sense on where you are for this year in terms of the progress towards that $500 million? Are you like 40% there, 45% there, probably not 50% there, but kind of give us some sense on where you are tracking towards that goal, let’s say, by the end of this year?

Gabriel Waisman: Thank you, Charles. So first of all, we related to the fact that ’26 is going to be stronger than ’25, which is in turn, stronger than ’24. This is a natural evolution of investments in gate-all-around. So this is still the case, and we see that we are well on track in terms of this year with the gate-all-around revenue.

Yu Shi: Do you — any chance you can give us a little bit of quantitative color? I mean we don’t need it precise, but do you want to see if you can give us some better sense about where you are tracking towards this year?

Gabriel Waisman: I still don’t have those final numbers. I guess that this color could be provided better around the end of this year.

Yu Shi: Look forward to that. Maybe a next question. Thanks for the China color you provided. Obviously, numbers have been going up for you guys. You guys did a great job. But relative to 90 days ago, 180 days ago, let’s say, relative to the beginning of the year, demand environment definitely is improving a little bit further. But if I may, between China versus the ex-China demand environment, where have you seen the greater upside so far? The reason why I ask this is some of your U.S. peers were more or less saying, yes, the ex- China outlook is more or less similar to what they see — what they saw at the beginning of the year, but China has shown a good amount of upside so far. Is that something you guys are seeing similarly? Or you actually have a little bit different dynamics there?

Gabriel Waisman: Thank you. We do have different dynamics. So it’s very difficult to relate to peers as we’re acting in different segments, and we have a different product portfolio. What I can say is that the resilience we see is due to the fact that we have now 3 different divisions, the chemical materials dimensional, they’re all acting differently and have their own dynamics, plus the new addition of Sentronics that gives us a strong footprint in packaging and advanced packaging. So I would say in general that we see different dynamics to result in revenue streams that may be different than other peers in the industry.

Yu Shi: So it feels like more or less a similar upside ex China versus China?

Gabriel Waisman: Yes.

Operator: [Operator Instructions] At this time, it seems we have no further questions, and that concludes the Q&A session. I would like to turn the conference back over to Gaby Waisman, Nova’s President and CEO, for closing remarks. Thank you.

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

Operator: Ladies and gentlemen, that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.