Third quarter 2026 earnings call, November 5, 2026

Memory and advanced packaging push Nova past its 5-year plan

Nova Ltd. reported third quarter revenue of $287.8 million, up 13% sequentially and 28% year-over-year, above the top end of guidance and the third consecutive all-time high. Trailing 12-month revenue has now crossed $1 billion, and non-GAAP operating margin of 35.5% exceeded the upper end of the 28% to 33% target model. Management said both milestones arrived a full year ahead of the original 5-year strategic plan. Non-GAAP EPS of $2.86 also topped the high end of guidance.

Memory was the swing factor. CEO Gabriel Waisman said the segment hit record revenue and bookings, driven mainly by DRAM and split evenly between dimensional and materials metrology. Memory and other products made up 39% of product revenue, with logic and foundry at 61%. Morgan Stanley's Shane Brett calculated that even flat sequential memory revenue in the fourth quarter would imply growth of more than 60% for the year. Management did not dispute the math, saying only that it expects "strong double-digit growth" in memory this year with similar trends next year, led by capacity expansion rather than a major front-end technology inflection.

Fourth quarter guidance calls for revenue of $305 million to $315 million and non-GAAP EPS of $3.03 to $3.18. Waisman now guides second-half 2026 growth to more than 33% versus the second half of 2025. Needham's Charles Shi noted that the guide implies roughly 22% half-over-half growth, above the high-teens range analysts had expected 90 days ago. Waisman said this was "more or less in line" with prior expectations, though possibly "a bit higher in terms of the strength."

Materials metrology: XPS competition is coming, but not yet

The most notable disclosure for the long-term thesis concerned competition in materials metrology, a market Nova pioneered. Waisman said new entrants are expected "towards the second half of next year," and clarified the threat is limited to XPS. He cautioned that the competition "is not here yet," that initial offerings may not be meaningful, and that it does not extend across the broader materials portfolio. He added that Nova does not sell XRF as a stand-alone tool, positioning it as an add-on that augments XPS value.

Nova's response is a two-pronged investment in performance and cost of ownership. The company is releasing new XPS products and has "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." Management framed the arrival of rivals as validation of the market's importance. Investors should still treat it as a risk to what has been one of Nova's highest-value franchises, particularly as demand is currently strong. Customers are raising sampling rates and adding applications, which has pushed tools per fab at leading memory customers up to 9. A significant order from a major customer has also reinforced 2027 demand.

Why 2027 may be a more favorable mix

Citi's Atif Malik asked whether next year's spending mix closes the gap between Nova's growth and wafer fab equipment (WFE) growth. Waisman pointed to several factors. In gate-all-around, metrology intensity rises about 30% versus FinFET, and Nova's share is higher in those applications. In DRAM, he expects continued double-digit investment growth and migration to 1c and 1d nodes. He also cited initial pilots next year for the transition to 4F-Square architectures, which would further raise process control intensity. In HBM, capacity expansion and process complexity continue to drive demand. Waisman added that new entrants in the customer base create room to widen the footprint, and that Nova sees "some linearity" in quarter-over-quarter growth next year.

Waisman was candid that memory carries lower process control intensity than logic, and that Nova's growth relative to WFE "may vary from time to time depending on the investment mix." Management did not quantify 2027 growth, and an Investor Day is scheduled for March 9, 2027, in New York.

Logic, gate-all-around and China

Bank of America's Michael Mani pushed on why logic and foundry growth looks more muted than memory. Waisman rejected the characterization, citing meaningful growth in both advanced and mature nodes. In mature nodes, China revenue and share of sales rose in the third quarter. For the full year, China's share is expected to be lower than in 2025 but still to grow in nominal terms.

On gate-all-around, Evercore ISI's Vedvati Shrotre asked whether revenue could double next year, given expectations that TSMC's N2 capacity nearly doubles in 2027. Waisman declined to put a number on it, calling it "a bit early," but said gate-all-around process control revenue is growing year-over-year and that Nova remains on track for $500 million of cumulative revenue from 2024 to 2026. Four of the 5 major customers have adopted the Metrion platform, either in high-volume manufacturing proliferation or in evaluation, with the fifth hoped for next year. Waisman acknowledged "longer lead times for this tool."

Advanced packaging and chemical metrology broaden the portfolio

Advanced packaging also posted record stand-alone dimensional metrology performance, with OSAT sales picking up significantly as those players follow leading manufacturers' tool selections. More than 10 customers have ordered or completed acceptance of the Nova WMC platform across logic and HBM, with additional evaluations under way.

In front-end chemical metrology, the AncoScene platform completed acceptance and was released for high-volume manufacturing at a leading foundry. Waisman said Nova is gaining share across several geographies and identified KLA as the only competitor in that segment. This extends Nova's chemical metrology presence beyond its historical back-end strength. Value-added services revenue grew about 50% year-over-year, led by upgrades for advanced node production, and service revenue hit a record.

Margins, supply chain and capital return

Gross margin was 59.1% non-GAAP in the quarter, with the fourth quarter guided to approximately 59% and a plus or minus 1% range. CFO Guy Kizner said no headwinds are currently visible. Beyond the fourth quarter, he acknowledged cost increases that would be offset by operational efficiency, higher volumes and pricing adjustments tied to new capabilities, with further initiatives in the pipeline. Non-GAAP operating expenses are rising to about $72 million in the fourth quarter, reflecting higher R&D and what management described as costs related to ongoing strategic evaluations. The company did not elaborate on those evaluations.

Supply chain is a clear area of strain. Asked about component shortages in gas delivery and optics, Waisman said the rapid industry ramp is "stretching our supply chain" and requires "active management attention and mitigation." He did not report a shipment impact. Nova is working on long-term capacity with existing suppliers, broadening its supplier base, and bringing a new cleanroom in Asia online by year-end, closer to customers.

Free cash flow was $132 million in the quarter, or roughly $206 million for the first 3 quarters. Cash and securities total $1.8 billion. Nova repurchased about $38.5 million of shares under the $200 million authorization announced in September. Quarterly financial income is expected to rise to about $18.7 million in the fourth quarter, and the effective tax rate to be about 17%.