Morning, everyone. Welcome to day one of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. Semiconductors and Semiconductor Equipment stocks. It's my pleasure to welcome Guy Kizner, Chief Financial Officer for Nova Measuring Instruments. I'll kick it off with my questions first. If you have a question, we'll open it towards the end of the fireside chat. Please raise your hand and the mic will come to you, and you can ask your question. Welcome, Guy. Thank you. Guy, let's talk about the market outlook. It's been super exciting year. I think you guys have talked about 2026 wafer fab equipment growth, an outlook of like mid-teens kind of framework. I know you guys don't spend a lot of time forecasting WFE relative to your large cap peers. We're just curious in terms of the framework you put out in May of mid-teens, how has that evolved? How are you looking at the market size this year and next year? Yeah. I think, as you mentioned, we're relatively a small player in this industry of giants. We don't have really the ability to look on the WFE or have internal forecast. When we are talking about WFE, we're usually referring to the consensus in the market. We're relying on external sources. I think what is unique in 2026 is that every two months, we saw revisions of these numbers, and it's up as we go. It's driven mainly by AI, right? Even today that we're already just four months until the end of this year, there's still a wide range of estimates for 2026, right? You have Gartner talking about 20% growth, TechInsights in the high 20s. You have other analysts talking about 30%, 35%, 38%, even though it's four months left, right? When you have the big players, the backlog is out there, the shipment plans are out there, and there is still a wide range of WFE estimates. For us, definitely the numbers moved up when we're looking on the WFE, it will be above 20%. The exact number, it's very tough for us to call for a specific one. Got it. Let's talk about what you do see, which is the type of spending for your tools and products. If you can just talk about where is the incremental demand coming from in terms of leading edge logic, in DRAM and around HBM. Anything you see on the NAND side in terms of green shoots? When we're looking at 2026, definitely there are many drivers that working. First is the advanced node, as you mentioned, both on the Gate-All-Around, but also a lot of spending happening on the 3 nm as well. DRAM, definitely we see it's a significant additional capacity expansions that are happening there, and advanced packaging. I think for us, the main driver that is not working yet is NAND. As you know, even though NAND is spending, it's mainly skewed towards upgrades. Unfortunately, Nova is not benefit from the upgrades, and we need greenfield capacity additions. It doesn't happening yet. Hopefully, we will see some of it happening in 2027. This is, I would say, the longest down cycle on NAND side. Except NAND, I would say all the engines other than that working very strongly. Great. Guy, something that you guys have alluded to in the past is your outperformance. I think you guys have said 2x WFE. Now you've had very strong share gains in the last few years, which sets up tougher comps moving forward. Can you talk about your ability to outperform WFE? Are you still feeling confident about that 2x number and just, what will be the drivers to continue to drive out performance relative to the market rate? I think historically, if you look on over performance, you see that we are capable of outperforming WFE significantly. Just recent years, 2024, we grew by 30%, WFE didn't grow so much. 2025, we grew by 31%, WFE didn't grow so much. We are looking at 2026, and we talked about how significant this year is in terms of WFE spending, and we see a different, let's say, dynamic, and we see something change, and the question is why? I would say, the uniqueness of 2026 is definitely strong year, and Nova is growing nicely this year as well, but we don't see the same outperformance that we usually used to see from Nova, and the question is, why? I would say it's mainly driven by the investment mix. First, NAND, as I said before. Even though NAND contributing to the WFE spending, Nova is not contributing for that because there is no capacity expansion. Second, a lot of investment happening in DRAM, and even though we are selling to the major players in the DRAM, the metrology intensity in DRAM is lower compared to the logic side. We talked about the fact that we are having our long-term model suggest 60/40 towards logic. It's mainly because on the logic side, the metrology intensity is higher. Third, and this is mainly the most important one on the advanced nodes on the logic side, usually the investment pattern is happening when the customer is moving to new tech node, and after that, you have a high volume manufacturing. The customer transition to the newer tech node, and then there are a lot of capacity expansions there. What we're seeing this year, given the fact that the AI customers didn't transition to the Gate-All-Around to the newer tech node, and they are still using the N-1, 3 nm and 5 nm, and obviously the huge demand that we're seeing there, the customers spending a lot of capacity expansions in the 3 nm. Both in U.S. and in Taiwan. So in a way, when you're looking on 2026 in terms of spending weight, you see that the metrology intensity went down because of the spending, I would say, mix. Now the question is what's happening going forward. How 2027 is going to look like. I think first, let's look on NAND. I think hopefully we will see NAND increasing the capacity. So practically for us, it's coming from zero to business because we are positioned with all the key customers there. Second, I would say on the DRAM side, we are not expecting significant change. DRAM will be a significant driver and we're going to enjoy from capacity expansions, but we are not expecting any significant metrology intensity increase. It will happen when the industry will move to the 4F², but it will happen in 2028 and going forward. I would say on the logic side, we do expect much more mixed queue towards the 2 nm and the Gate-All-Around, and less on the 3 nm. I would say when we are looking on 2027, we will see much more metrology intensity going up in terms of the mix. Given the fact that Nova has its significant growth drivers to continue to outperform, I think we are well-positioned. We have the right drivers continue to outperform the industry going forward. Yeah, that's super helpful. So it's basically the mix of the spend as well as the timing of the technology that can change numbers from year- to- year, but you see a stronger year next year. On 2027, can you just talk about the quality of your bookings or backlog that's giving you the confidence that these customers are going to move forward with the 2 nm or 1.4 nm early R&D work? Yeah. We talked about the visibility in our latest earning call, and the fact that we have a better visibility now than we saw in the previous up cycles. We need to distinguish between when we're talking about visibility vs the backlog. I think when we're talking about visibility, it's mainly, first of all, on the backlog side, we do see a significant backlog, and it's higher vs the previous up cycles. This is one. Second, we see much more that the customers are much more adhering to our lead times. As you know, our lead time is in four months to 12 months, depending on the product line, and we're seeing that the customer are much more adhering to those lead times. The second is the engagement that we are having with customers, meaning we are engaging much earlier. They are giving us forecasts. Given the fact that all the supply chain is stretched, they want to make sure that all the vendors capable to keep up with that. So they are giving you a forecast, say, one year ahead, sometimes even longer than that, in order to make sure that all the vendors are already capable to supply all the demand. So definitely the visibility and the confidence we're having is Guy, any change to, like are they putting deposits down? Any change vs prior cycles that are pointing to this cycle being a lot more durable than the past? I would say we are not changing, not the lead times to our customers and not the terms and condition. If the customer had deposits as part of their terms and condition and payment terms, it still remain that. If the customer didn't have it still remained the same. We are not changing the terms and condition of the lead to the customer. Okay. Let's talk about some of the newer products with Metrion, Elipson entering high volume manufacturing. How much are these products contributing to your growth this year and next year? We have three main driver, three main products, as you mentioned, Elipson, Metrion, and the newest platform that we released a year ago, Nova WMC. I think this is a very good example how Nova, with the right innovation that we are doing, how we are introducing new technology-driven metrology solution that increasing our addressable market, that not necessarily always looking on the WFE increase. I would say Elipson and Metrion had a very significant year last year, when we had a very significant qualification with many of the tier one customers, where they adopted this solution. Our strategy there is to take existing technologies that have been used in lab and bring into inline capability, and a lot of key customers have already adopted this technology. Now for us, the focus right now is to continue to work with these customers and to add more and more applications and more solutions that could be solved with these tools that the customer already is using in order to increase the utilization and in order to increase the attach rate. This is the path that we are doing right now, and this was our strategy, as we did previously with the VeraFlex. It was very successful, and this is what we are doing right now, both with Elipson and Metrion. We are looking for more application, more use cases, and in some cases, we're very successful at that front, and we see repeat buys from leading customers with this platform. But it's a, let's say it's a process to have with those customers. Nova WMC is a different story because Nova WMC platform we introduced a year ago, and the main focus is to address the most complex advanced packaging applications. This tool was structured as a tool that can do, the uniqueness of this tool is that you can deploy different sensors in one tool. So in one measurement, you can really solve different applications that in the past you needed maybe to have a couple of different tools in order to do so. Second, this platform is very flexible in terms of handling different size and shapes of wafer. So if we're talking about bonded wafer, thin wafer, the standard 300 mm, 150 mm, 200 mm, no matter what kind of size and shape wafer, due to the panel-level packaging and so forth. The uniqueness of this platform is very unique, and we see a very strong adoption of this platform, even though it was introduced just one year ago. Just recently, we announced another win with this platform, and we see a very rapid adoption solution. Super exciting. Guy, Advanced Packaging is now 25% of your sales. It's growing fast for the market. We constantly get asked by clients on kind of share shifts in this market. Without naming any competitor, can you kind of address your share gain opportunities in this important market? Advanced Packaging is a significant growth engine for Nova because if you recall, a few years ago, we had zero exposure to packaging. We did couple of things. First, we acquired two companies, both ancosys, that today are our chemical metrology division, and the Sentronics company that we acquired in the beginning of 2025 that has very strong positioning on the advanced packaging. Second, we took our front-end tools, consists both integrated metrology and the optical system, mainly Prism, and we deployed it into the Advanced Packaging applications. This strategy paid off because as you said, 2025 it was about 20%. The second quarter we said we reached a level of 25% of contribution of advanced packaging. These are the key areas that we are exposed today, and I would say the potential for us to continue to expand that is through material metrology. Today the material metrology solutions that we are having are not exposed to the advanced packaging. What we are seeing, given the fact that the advanced packaging challenges keep increasing and the front end application becoming much more relevant for the back end. We see early discussions with the customers where they want to see how we can solve a specific application with our material metrology. This is definitely another growth engine for us. I would say these are the key areas of advanced packaging. Great. Let's talk about the financial model, then we'll come back to the products more. Gross margin has been a big topic with investors. Q2 gross margin is 58%. Your target model is 57%-60%. What is the path to reach the high end of your target model? Yeah. As you said, in the first half of the year, we showed a 59% gross margins. In the third quarter guidance, we also guided a 59%. I would say even today we're operating in the high end of our target model. In terms of the gross margins, I would say that there are a few factors that play into that. First of all, definitely as we scale the business and the capacity is increasing, there is an economic of scale, this definitely contributing to the gross margin increase. Second, the technological advance that we are doing. Usually, the way that the pricing working with the customer is that you are increasing your pricing and definitely the gross margin through more value to the customer. It means what kind of productivity you are bringing, what kind of capabilities. So with every capability that you are bringing, you are extending your ASPs accordingly. Definitely, we are sharing this benefit with the customer as well, but this is helping us to progress. So with every new technological advancement that we are doing, a newer product that we are introducing, usually driving higher ASPs. And third, I would say the size of the customer. Usually, the bigger customer, the higher discounts that he is getting compared to a smaller customer that getting a lower discount. So this is the economic of sales. Those are the key factors that changing our gross margin mix. I would say this is the mix. On the other end, we have the material cost increase, labor cost increase, and so forth. Currently, we believe that we can operate in higher range of the gross margin depending on factors that I described change. Factors going forward. All right. Some of your peers have talked about value-based pricing and things like that. Do you guys have opportunities to kind of raise pricing on your newer products that could structurally take the margins higher over time? Yeah. Mainly, I would say the pricing strategy, semi and specifically process controlling from our side is really based on value. So your opportunity to extend the ASPs and the margins is through value that you are bringing to the customers. I think if you look on Nova's gross margin profile, we are definitely the top performance, and this reflect the high value that we are bringing to our customers. I would say it is really reflecting that, every capability that we bring really the ability for us to margins accordingly. Okay. Can you help us understand the difference between the gross margins between products and services? Yeah. The gross margin on the product side is higher, because the service is very. You need to have a very broad infrastructure. It's very labor intense. You want to make sure that you're investing enough in the infrastructure, that you're having a very good support to the customers, because eventually his next decision about who he's going to cooperate with and who will be the tool of record, part of it is also the serviceability, so we're investing a lot on that. The gross margins on the service side are lower. Obviously, as you scale, also on the service side, you can benefit from that as well because, for example, if you have a new site, you still need to put infrastructure. You need to put the office, you need to put FSEs, and as the customer scale, increasing his install base, it doesn't translate to linear investments. So even there we see operational leverage and gross margin leverage as the gross margin of the service is also ending. Great. The target model, you're reaching the quarterly run rate underlying the $1 billion revenue target ahead of 2027. How should we think about your aspirations for your next target model? Yeah. I think second quarter was a very significant milestone for us, when we achieved the milestone of run rate of our target model, that we announced back in 2022. We said that we are going to continue our path of doubling our revenues, and we achieved it practically one year ahead of the timeline, given the market share growth and more technology adoptions and obviously the environment of the WFE. Now we are working on the next target model. We are planning to do Investor Day in the beginning of 2027, where we are going to outline our view over the next five years over the market, what kind of technology that we should expect to see, what kind of technology we are going to introduce in order to capture those opportunities, and definitely how the growth trajectory for Nova will be accordingly. And together with that, also the financial model, because it is part of the strategy. I think if you look on our previous target model, you saw that we had a range of operating margins and these kind of attractions. So even though we reached the model, we reached the top line, we also reached the high end of our estimate. With this growth, we saw an operational leverage. As we look on the next growth, we should expect the operational leverage keep increasing. Great. I have multiple questions on the cash allocation. You just announced a $200 million share buyback program. Can you talk about your expectations of over what period of time you will be implementing that? Yeah. Our capital allocation strategy are not really changed. As you know, today we have more than $1.7 billion cash available, where the key top priority for us is inorganic growth, and it does not change. We are spending a lot of time, and a lot of focus from the management in order to make sure that it is happening. So even though we do have in our balance sheet $1.7 billion, it allow us to look for a bigger scale companies and bigger opportunities, but it does not really change our, let us say, risk appetite for what kind of M&A we want to have. We still want to be disciplined in the way we deploying this capital, meaning it need to be accretive, it need to fit our financial model. We need to identify very clear synergies between the business, either on the top line or technological level. We believe that these criteria is really what driving our previous M&A that eventually were very successful. In terms of buybacks, buyback was always part of our capital allocation strategy. Previously we announced the $100 million buyback that we concluded, and now we deployed an additional authorization up to $200 million that we are going to use based on the market condition, based on the market valuation. Great. You need a very good track record, creating value through M&A and Sentronics. What are the areas that we could expect you to add kind of more products, new products, newer markets? Is Photonics an area of interest or Advanced Packaging will remain kind of the near-term focus? We definitely looking on those areas, but not only those, other areas as well, where our key focus, given the fact that in our space, you don't have an endless list of companies that doing what we are doing, not in process control, not in semi. We are looking at all opportunities, and we are looking mainly on what kind of synergies bring to the table. If we are not identify synergies, this is not area where we want to look. Our view is not necessary what kind of technology we want to bring in, mainly is what kind of synergies these two businesses On the manufacturing side, I had the chance to visit your factory in Fremont, and you're adding more clean room. How should we think about the CapEx as a percentage of sales, particularly into next year? Some of your peers are talking about doubling their manufacturing capacity. We very successfully were able to manage, let's say, our capacity ahead of the demand. The fact that Nova were growing very fast in those years, and we were able to catch those all opportunities without any significant bottleneck, it just show how much attention we are spending on the agility on the operational side. We are continuing to do so even this year. As you said, we are doubling our production floor. In the U.S., we opened a new clean room in Germany. We are going to open a new clean room by the end of this year for the first time in Asia. This is part of our ongoing plan in order to capture all those opportunities and all the demand that we expect to see going forward. It is part of our strategy. We are already investing a lot of our CapEx is focused on the infrastructure, and we will continue to do so in 2027 and forward ahead. I think our focus is not only on our capacity and clean room space, it is also about the whole supply chain. Because you need to make sure that your vendors are up to speed together with you because you can have a lot of clean room space, but eventually, if there is a bottleneck and specific vendor that is crucial for your tools, it is practically not allowing you to meet the demand. We are spending a lot of time to making sure that, and the visibility that we are giving to our vendors in order for them to ramp their capacity in order to make sure that, if we identify a specific problem with specific vendor, to qualify another vendor that can supply for us. A lot of our attention is to make sure that we have enough focus and we eventually have this demand flexibility, and this is part of our focus going forward. Let me pause here and see if there are any questions in the audience. If you have a question, please raise your hand. Hi. I'm just curious on the Advanced Packaging part. Some of your peers are talking about very rapid growth this year. I'm just curious for you guys. What are the share gain opportunities ahead? Is it more on memory side, is it more on the cohorts like kind of Foundry logic side, or is it more on the emerging opportunities like hybrid bonding? I think the main opportunity is towards the hybrid bonding. I'd say hybrid bonding is definitely a big opportunity for Nova. Hybrid bonding is really bringing the front end to the back end capability. When you are looking on the metrology intensity, it's definitely going up when you are having an application of copper-to-copper bonding. Then you need to see much more controls if it's wafer-to-wafer and die warpage control or CMP uniformity or flatness control. Those challenges definitely drive much more metrology capability that those capabilities usually today is being used on the front end, especially with our dimensional metrology portfolio, but also with our material metrology portfolio. Now, the time, I would say, in terms of the hybrid bonding is mainly about qualifications that are happening right now. I think the high volume manufacturing, the capacity is not big story in 2027. It's something that we will see future ahead. But right now, the main point and the significant importance is mainly towards qualifications, and this is where our attention is. I would say this is the biggest opportunity for us right now in the packaging side. Guy, China. You have discussed China sales normalizing towards the 25%-30% of sales. Can you just talk about competition in China from domestic metrology makers? What are the areas where you're seeing more domestic competition and where is Nova the strongest? China is a very important market. I would say not only for Nova, for the whole WFE. I would say today they are investing 25%- 30% over all WFE spending. Nova is today, I would say, it is around 30% of our revenues. This year, even though we said in the beginning of the year that China will go slightly down to flat. Now, given the visibility that we are having in China, it will be another growth year for China for us on a nominal basis. Obviously, percentage-wise, it will continue to go down given the fact that the other areas are growing faster. You are right saying that now the main focus from the China, it is the local ecosystem, the fact that there are a lot of export control being introduced. From China perspective, there are a lot of local vendors that are going after different areas in the fab on the semi-cap size, including in the area that we are operating. Still there is a gap in terms of capabilities, but we are looking on this as a risk. We are not dismissing any competition with going our way. We believe that they have the talent, the funds, the government support in order to succeed. Our strategy is to continue to invest a significant portion of our revenues into the R&D in order to drive more capabilities and continue to open the gap vs their capability vs us in order to be able to compete in this market going forward. Even today there is a gap. We do expect them to continue to invest and try to close the gap. Our goal is to run faster. Awesome. We are almost out of time. Guy, thank you for coming to the Citi conference. Thank you.