Nova Ltd. (NVMI) Earnings

Management highlights

- Overall Financial Performance - NOVA delivered a record Q1 2026, exceeding the high end of guidance across all financial and operational metrics, with record profitability. Blended GAAP gross margin reached 57.7% and non-GAAP gross margin reached 59.4%, at the upper end of the 57% to 60% target range. GAAP operating margin was 30% and non-GAAP operating margin was 34%, exceeding the upper end of the 28% to 33% target range. Diluted GAAP EPS was $2.04, and diluted non-GAAP EPS was $2.33. - Gartner data confirmed a 400 basis point market share gain in film SEM and critical dimension metrology in 2025, the second consecutive year of significant share growth, cementing NOVA's position as the second largest vendor in this market. - Industry Dynamics and Strategic Positioning - AI-driven growth, particularly the shift to agentic AI models, is increasing computing and memory requirements, accelerating capacity expansion across logic, memory, and advanced packaging. This trend introduces greater manufacturing complexity and yield challenges, increasing demand for process control and metrology, which aligns with NOVA's product portfolio. - NOVA is expanding its global manufacturing footprint with a new facility in Asia, expected to become operational by the end of 2026. The facility will increase production capacity, optimize the cost structure, improve regional load balancing, and position NOVA closer to key customers and supply chain partners. - NOVA was awarded the 2026 Intel Epic Supplier Award, Intel's highest global supply chain honor, demonstrating the depth of its engagement and collaboration with the leading logic customer. - Product and Customer Highlights - Memory segment: The Metreon platform has moved from initial adoption to broader deployment, including repeat purchases from a leading global memory customer for 3D NAND and DRAM. Nova Ancocaine gained additional market share with a leading Asian memory customer, with multiple tool deliveries scheduled for 2026. Strong HVN-related bookings are already recorded for the Nova WMC and Semdex standalone platforms. - Advanced packaging: Hybrid bonding adoption is progressing faster than expected, and the process is highly metrology-intensive due to requirements for tight control of surface planarity, alignment accuracy, and interface integrity. NOVA's optical and chemical metrology platforms already hold strong positioning across top-tier hybrid bonding manufacturers. - Services: Consistent sequential growth reflects rising installed base utilization and deepening customer operational engagement globally.

Guidance

- For the second quarter of 2026, NOVA guides total revenue between $245 million and $255 million, diluted GAAP EPS between $2.10 and $2.24, and diluted non-GAAP EPS between $2.34 and $2.48. - For full-year 2026, NOVA expects gross margins to remain within its target range of 57% to 60% (GAAP) and 59% (non-GAAP), sustaining the strong levels achieved in the first half of the year. - NOVA reaffirmed its strategic target of reaching $1 billion in total annual revenue by 2027, and confirms it remains on track to hit this goal. - NOVA expects full-year 2026 industry wafer fab equipment (WFE) growth to reach mid-teens, which is higher than the company's February forecast, and NOVA expects to outperform this WFE growth rate for the full year. - Customer schedule adjustments are expected to push more demand into the first half of 2026, with revenue and activity expected to be higher in the second half of the year than the first half.

Segment performance

NOVA reported total Q1 2026 revenue of $235.3 million, a 6% quarter-over-quarter and 10% year-over-year increase. Revenue mix by end market is 66% from logic and foundry customers, and 34% from memory customers. - Memory: Delivered record revenue, with advanced DRAM applications accounting for approximately two-thirds of the memory segment business. Driven by robust demand for advanced DRAM, with strong sales of the Metreon platform, record sales of the Nova Ancocene front-end chemical metrology solution, and ongoing demand for XPS and dimensional metrology solutions. - Logic: Achieved record revenue for NOVA's integrated metrology product line, driven by gate-all-around production ramp-up, new customer penetration in mature nodes, and advanced packaging growth. Advanced packaging accounted for ~25% of product revenue in Q1 2026, the majority of which came from the logic segment, with record quarterly revenue driven by strong industry demand for 2.5D/3D packaging and hybrid bonding. - Services: Delivered record service revenue, marking the 13th consecutive quarter of sequential growth, reflecting the expanding scale of NOVA's installed base.

Risks & headwinds

- NOVA faces growing competition in XPS and material metrology, including from local Chinese vendors and new emerging competitors, requiring continued roadmap investment to maintain market position. - There is ongoing cost pressure at the supplier level, primarily tied to higher chip prices and broader industry demand, which NOVA is mitigating via active cost management and long-term supplier relationships. - Limited near-term visibility into overall process control industry growth for 2026 creates uncertainty around relative performance versus the broader WFE market.

Analyst Q&A

• Q: Multiple customer wins were noted in prepared remarks; are these concentrated in one segment or product area, and can management reaffirm expectations for continued market share gain, highlighting the highest opportunity areas? /

  A: Customer wins are broad-based across both logic and memory segments, and across multiple product lines including chemical metrology and the Metreon inline SEM platform. Gaining market share remains NOVA's primary corporate objective. The highest growth opportunity is advanced packaging, including strong traction with top-tier customers and growing Chinese advanced packaging demand, as well as early adoption in hybrid bonding which has inherently higher metrology intensity that creates share gain opportunities.\n\nQ: How does NOVA expect full-year 2026 growth to compare to broader WFE growth, and how will the memory/logic revenue mix shift this year versus prior years? / A: NOVA currently projects 2026 full-year WFE growth will reach mid-teens, an upward revision from February forecasts, and NOVA expects to outperform this market growth rate. Growth is broad-based across logic, memory, and advanced packaging, with primary memory growth coming from advanced DRAM. Memory's share of total revenue has increased year-over-year in Q1, and memory is expected to become a more dominant contributor to full-year 2026 revenue on the back of heavy advanced DRAM capacity investments.\n\nQ: What is the current status of lead times and order visibility, and are there any capacity or supply chain constraints that could limit NOVA's ability to meet strong demand? / A: Customer planning cycles have extended, giving NOVA improved visibility into 2027 demand, with some customers already placing orders for 2027 delivery. Customer demand pull-ins have pushed first half 2026 revenue higher than original forecasts. NOVA's new Asian manufacturing facility, launching at the end of 2026, is being built to accommodate growing demand. While there is some supply chain pressure and supplier-level cost inflation, NOVA is mitigating risks via multi-sourcing, active cost management, and long-standing supplier relationships to meet all customer demand.\n\nQ: How is NOVA positioned to capture growing X-ray opportunities for advanced nodes and hybrid bonding, and what is the updated 2026 growth outlook for NOVA's China business? / A: X-ray technology is expected to play a significant role in solving emerging metrology challenges across front-end manufacturing and advanced packaging. NOVA's long-standing hybrid metrology strategy leverages its broad in-house portfolio of both optical and X-ray solutions, with ongoing collaborative development with top customers including Samsung and IBM. NOVA faces growing competition in X-ray metrology and is continuing to invest in its roadmap to maintain its leading market position. For China, after years of declining revenue share, NOVA now sees positive momentum in 2026 versus last year, with growing demand for advanced packaging and high bandwidth memory. Long-term, NOVA expects China to stabilize at 25% to 30% of total revenue.