NOVA LTD.

Nova Ltd. is a leading innovator and key provider of metrology solutions for advanced process control used in semiconductor manufacturing. The semiconductor manufacturing process is divided into front-end and back-end processes, and the demand for metrology systems is driven by capital equipment spending of semiconductor manufacturers, which is in turn driven by worldwide demand for semiconductor components. Industry data indicates worldwide demand for semiconductors will continue to grow, driven by the growing adoption of AI, networks and data centers, and additional growth engines such as IoT applications, advanced network infrastructure, automotive, and green energy solutions. According to Gartner forecasts, semiconductor revenues are expected to grow by 33% in 2026, following a growth of 21% in 2025, and WFE is expected to grow by 12% in 2026, following a growth of 11% in 2025. The growing investment in advanced technology nodes introduces growing complexity and new challenges into the semiconductor manufacturing process, setting favorable business conditions for process control demand. The Company operates in an extremely competitive market, and the semiconductor capital equipment industry is intensely competitive.

Nova competes mainly with Onto Innovation Inc. and KLA Corp., which manufacture and sell CD, thin films and chemical metrology and process control systems. In addition, the Company competes with process equipment manufacturers such as ASML Holdings N.V., LAM Research, and Applied Materials Inc. Following the acquisition of Sentronics and the expansion of its portfolio in the wafer level packaging and specialty markets, Nova is in direct competition with companies such as Merck and Camtek. Some competitors have greater financial, engineering, manufacturing and marketing resources than Nova does. The Company believes its ability to compete successfully depends on factors including product innovation, quality and performance, global technical service and support, the return on investment of its equipment, the breadth of its product line, and its success in developing and marketing new products. The Company's unique metrology portfolio, combining optical, X-Ray and chemical metrology for both dimensions and materials, provides a competitive edge.

Nova delivers a comprehensive suite of metrology solutions spanning optical, materials, and chemical technologies. The Company generates revenue from the sales of advanced process control systems, spare parts, labor hours, and service contracts. In 2025, product sales accounted for approximately 80% of total revenues, and services accounted for approximately 20%. Revenues derived from sales of advanced process control systems, spare parts and labor hours are recognized at a point in time, when control of the promised goods or services is transferred to the customers. Revenues derived from service contracts are recognized ratably over time. The Company's customer base is highly concentrated among a limited number of large customers, and the Company serves all leading manufacturers in the logic, foundry, memory and packaging sectors of the integrated circuit manufacturing industry, with customers located across Asia, Europe and North America.

Nova's product portfolio is composed of four major metrology categories: Integrated, Standalone (dimensional and materials), Chemical and Software. The Dimensional Integrated Metrology platforms enable advanced process control required for the most advanced logic and memory technology nodes, and are directly integrated with manufacturing process equipment. The Dimensional Standalone Metrology portfolio is comprised of multiple product lines utilized to characterize critical dimensions such as width, shape and profile, and includes platforms such as Nova Prism, Nova WMC, Nova VeloCD, Nova MMSR, Nova SemDex and the Nova T-series. The Materials Standalone Metrology portfolio utilizes technologies including XPS, XRF, SIMS, and Raman spectroscopy, and includes three platforms: Nova VeraFlex, Nova Metrion, and Nova Elipson. The Chemical Metrology portfolio includes platforms such as Nova AncoScene, Nova Ancolyzer, and Nova DMR, intended to help manufacturers ensure high-quality electroplating processes. The Modeling and Software category includes Nova MARS physical and geometrical modeling, Nova FIT machine learning and modeling solutions, and Nova HPC, a computational management layer.

Following the acquisition of Sentronics in January 2025, Nova expanded its technology offering. Sentronics develops flexible and modular metrology tools equipped with multiple metrology sensors for a variety of critical dimension applications, including thickness, roughness, and topography. The addition of Sentronics' modular dimensional metrology technology to Nova's dimensional metrology portfolio will enable Nova to diversify its offering in the growing field of advanced wafer level packaging and specialty devices. Nova's research and development staff consists of about 682 highly skilled members, approximately 163 of whom hold Ph.D.'s. The Company's patents, utility models and patent applications principally cover various aspects of optical measurement systems and methods, integrated process control implementation concepts, X-ray based measurement systems and methods, and chemical metrology equipment.

On January 30, 2025, Nova completed the acquisition of Sentronics Metrology GmbH, a privately held company with headquarters in Mannheim, Germany, for a cash amount of $60,158 ¹. On September 5, 2025, the Company closed an offering of $750 million ² aggregate principal amount of 0% Convertible Senior Notes due 2030 in a private offering to qualified institutional buyers. In connection with the pricing of the 2030 Convertible Senior Notes, the Company entered into privately-negotiated capped call transactions with certain financial institutions. During 2025, the Company spent an aggregate of $35,003 ³ to repurchase 146,500 ⁴ ordinary shares under its share repurchase program. In 2025, the Company expanded its production and development capabilities with a new manufacturing facility in Mannheim, Germany. During the first half of 2026, the Company expects to complete the expansion of its cleanroom in Fremont, CA, U.S., doubling the amount of production bays.

In 2025, Nova achieved record product and service sales results, record profitability and earnings per share. Total revenues increased by 31% in 2025 following an increase of 30% in 2024. Revenues in 2025 increased by $208.2 million ⁵, or 31%, compared to 2024. Revenues attributable to product sales were $705.6 million ⁶, an increase of $167.2 million ⁷, or 31%, compared to 2024. Revenues attributable to services were $175.0 million ⁸, an increase of $40.9 million ⁹, or 31%, compared to 2024. Gross profit was $505.2 million ¹⁰ in 2025 compared to $387.1 million ¹¹ in 2024. Operating income was $253.5 million ¹² in 2025 compared to $187.5 million ¹³ in 2024. Net income was $259.2 million ¹⁴ in 2025 compared to $183.8 million ¹⁵ in 2024. Diluted EPS was $7.96 ¹⁶ in 2025 compared to $5.75 ¹⁷ in 2024.

The Company's strategy defines its growth path to reach $1B USD in revenues by 2027. The Company plans to continue executing its well-defined strategy to reach this target. The Company anticipates ongoing growth in the adoption of its solutions as the semiconductor manufacturing process becomes increasingly complex and the industry evolves.

A key growth vector is the expansion into advanced packaging. The Company plans to further expand into advanced packaging with new and existing products. The addition of Sentronics' modular dimensional metrology technology will enable Nova to diversify its offering in the growing field of advanced wafer level packaging and specialty devices. The Company intends to create synergy between Nova and Sentronics' technologies towards a combined and enhanced offering for advanced packaging applications. Another growth vector is the continued proliferation of Nova's advanced solutions across the board, including materials, chemical and dimensional metrology solutions, hardware and software coupling, and machine learning and AI capabilities. The Company plans to expand its total available markets by addressing new emerging metrology applications and market sectors, including the challenging buildup of advanced Logic technology nodes, memory scaled 3D-NAND nodes, DRAM scaled devices and advanced packaging schemes. The Company also plans to continue delivering metrology systems for mature technology nodes and traditional packaging.

In 2025, net research and development expenses represented 16% of revenues, similar to 2024. The Company's gross margin attributable to product revenues in 2025 was 60%, compared to 61% in 2024. The decline in product gross margins in 2025 was primarily driven by a shift in the product and customer volumes mix. Gross margin attributable to service revenues in 2025 was 47%, compared to 44% in 2024, with the increase primarily due to economies of scale resulting from higher service revenue volumes. The Company's effective tax rate was 15% in 2025, same as 2024.

In 2025, the gross investment in capital expenditures, including inventory items moved to capital and investment in the new ERP, was approximately $33 million ¹⁸, and was financed from the Company's operating cash flow. In 2026, the Company expects its gross capital spending to remain at a similar level, primarily driven by ongoing investments in facilities and infrastructure. During the first half of 2026, the Company expects to complete the expansion of its cleanroom in Fremont, CA, U.S., doubling the amount of production bays. In January 2026, following a multi-year implementation, the Company launched its new enterprise resource planning system (ERP). The Company plans to successfully complete the go-live and stabilization of its new ERP system.

The Company's net research and development expenses in 2025 were $143.4 million ¹⁹, an increase of $33.1 million ²⁰, or 30%, compared to 2024, after offsetting grants received of $2.4 million ²¹ in 2025. Research and development expenses excluding grants received or receivable in 2025 were $145.8 million ²², compared to $112.4 million ²³ in 2024. The Company plans to continue investing in research and development programs aimed to generate new organic growth engines for process control. The Company's capital expenditures are primarily for network infrastructure, computer hardware and software, construction and leasehold improvements of facilities, expansion of clean room facilities and demonstration and development tools. In March 2022, the Company announced a $100 million ²⁴ repurchase program of its ordinary shares. Through December 31, 2025, the Company spent an aggregate of $86.53 million ²⁵ to repurchase 560,001 ²⁶ ordinary shares under this program.

The major challenges the Company could face in fulfilling its plans include meeting strategic, development, operational and delivery targets considering the uncertainties around the macro-economic, geopolitical and trade restriction issues across the globe. The Company also faces challenges in correctly understanding the market trends and competitive landscape to ensure its products retain proper differentiation, and in creating aggressive, innovative and competitive roadmap deliverables at reasonable costs. The Company's ability to significantly reduce expenses during a cyclical downturn may be limited because of its continuing need to invest in research and development, market new products, and provide extensive ongoing customer service and support worldwide. The Company is subject to risks related to doing business in China, including trade protection measures, difficulties associated with the Chinese legal system, and lower protection of intellectual property rights. Changes in global trade policies, including tariffs and export restrictions, may adversely impact the Company's business, financial condition and results of operations.

The Company depends on a small number of large customers, and the loss of one or more of them could significantly lower revenues. Total revenues from the five largest customers were 51% ²⁷ in 2025. The Company is subject to U.S. export restrictions that have limited the ability of its U.S. subsidiary to serve a small portion of the available Chinese market, and in September 2025, BIS issued the "Affiliates Rule" expanding end-user export controls. The Company's convertible senior notes due 2030, with an aggregate principal amount of $750 million ²⁸, may impact financial results, dilute existing shareholders, and restrict the ability to take advantage of future opportunities. Because most revenues are generated in U.S. dollars but a significant portion of expenses is incurred in NIS and Euro, the Company's profit margin may be harmed by currency fluctuations; during 2025, the U.S. dollar devaluated against the NIS by 12.5% ²⁹ and against the Euro by 11.3% ³⁰. The Company's investment portfolio, with marketable securities totaling $907 million ³¹ as of December 31, 2025, may be adversely affected by market conditions and interest rates.

Management's message emphasizes that 2025 was a year of significant achievements, including record product and service sales results, record profitability and earnings per share, and diversification of the customer mix across multiple territories. Management highlights the further expansion into advanced packaging with new and existing products, and the continued proliferation of Nova's advanced portfolio including materials, chemical and dimensional metrology solutions. The Company's strategy defines its growth path to reach $1B USD in revenues by 2027. Management plans to focus on investing in organizational development, continuing to strengthen the competitive market position through unique innovation and technological leadership, and expanding total available markets by addressing new emerging metrology applications and market sectors. The Company also plans to continue looking for investment opportunities to broaden its portfolio and enrich its brand.