Nova Ltd. (NVMI) Earnings Call Transcript & Summary

Hello, everybody. My name is Miri Segal, I'm the CEO of MS-IR. I'm happy to be here today and to see, at least, virtually, so many familiar faces among those attending Nova's Investor and Analyst Day. Many of you attended the live Analyst Day back in June 2018. Well, if it weren't such an understatement, I'd say a lot has happened since then. Since 2018, Nova's revenues have grown 50%. Also, over that time span, Nova's share soared from $30 to more than $100. And as you will hear today, we plan to continue and execute a profitable growth strategy that consistently enhances shareholder value. As much as we would have hoped to host this event in a nice New York City hotel over breakfast or lunch, management will do its best to share the presentation in the most accessible and engaging way possible. First, we will allow Nova's executives to make their presentations and provide a peek into Nova's strategy, financial milestones, growth engines and competitive advantage. It is also very important for us to hear your questions. So please feel welcome to share your questions in the chat during the Q&A session following the presentations. Before we begin, may I remind all participants that certain information provided on this virtual event may contain forward-looking statements, and the safe harbor statement outlined in today's presentation also pertains to this virtual event. Now sit back, enjoy your cup of coffee or tea, and let's welcome Eitan Oppenhaim, Nova's President and Chief Executive Officer. Hi, Eitan. It's been a while.

Yes, Miri. It has been too long.

The floor is yours.

Thank you, Miri, and thank you all for joining us today. It has been a while since our last Investor and Analyst Day that we had face-to-face in 2018, and we really hope that you and your families are safe and healthy. During the presentations today, we will try to catch up and share with you our recent business and performance highlights, current market forecasts and drivers, technology directions and most importantly, the strategic plans and growth engines. With me today, I have Dror David, our CFO; Zohar Gil, our Chief Marketing and Business Development Officer; and Shay Wolfling, our CTO. Together, we will cover the main topics during the next 2.5 hours, including Q&A session by the end of the presentations. Before we jump into the details, it's always important to present ourselves to those who are new to the story. Nova is a leading innovator and a key provider of metrology solutions for advanced process control used in semiconductor manufacturing. Our main goal is to deliver metrology solutions, which means that we deliver highly accurate, dimensional and materials measurement through the fabrication of advanced chips that are created on a silicon wafer. Our technology support measurements of small devices in a sub-angstrom environment, or in other words, less than 1/10 billionths of a meter. The last 1.5 years was very challenging to all of us as individuals and as a society. The current environment is quite different from the one we left behind at the end of 2019. As new work methods were formed, industry were changed, different priorities took shape, and our personal lives were profoundly affected. In this environment, the semiconductor industry proved to be very resilient, pushed forward by various drivers. As a result, Nova growth accelerated, and we continued to outperform the industry in several indexes and in several performances. Revenues in the last 12 months grew at around 35% to around $325 million. Market cap grew also significantly, reaching $2.8 billion. During this period, we also showed our continuous resiliency with increasing output and production of around 50%. We continue to invest in emerging technologies with R&D spend reaching highs -- new highs in new products, reaching 25%. As a result, we recently launched 3 new products: the PRISM, the ASTERA and the ELIPSON. Another consequence of our investment in new and differentiated technology is that we filed approximately 50 patents just in the recent months. Our patent count to date stand at around 440 and we will continue filing them to protect our growing investment in technology. We continue growing the company, strengthening the territories and expanding our workforce to around 800 employees globally. So what is so unique about Nova? It's all about our fundamentals. We deliver a unique portfolio of X-ray and optical to measure both dimensions and materials. We invest a lot in disruptive technologies that will fuel our future growth. Our main domains are optical and X-ray capabilities as well as advanced combinations of hardware and software. We continue growing because of diversification in various semi segments in DRAM, in VNAND, in Logic and of course, in Foundry. Though I will elaborate more, but we are very proud of our efficient operational model that provides the companies with the means and capabilities to continue our profitable growth. And finally, our culture, which is very important that is based on strong values, leadership and socially responsible behavior. So what we are really doing, based on very advanced and accurate hardware systems, we measure hundreds of wafers per hour, which in case you are wondering, is very fast, to allow our customers to increase yield and shorten their time to market. Basically, we shine light or X-ray beam into the wafer and using the reflection as well as smart, highly advanced physical and mathematical model, measure the dimensionals and materials, properties of the transistor. Why is that becoming difficult? I'll just give you 2 small examples for what had happened to the semi devices during the last 5 years. In Logic, we grew from 150 million transistor per logic chip to around 11 billion transistor per chip. And in memory, we grew in the SSD from 30 layers to around 150 layers and continues to around 200 layers. From that, obviously, we should talk about the industry. So what is happening in the market? And why we are so optimistic about the market? Usually, in regular presentation, I would show only the left side with the standard growth engines that all of us are experiencing in the last 10 years, which all of you know are the AI, the smartphones, data centers, crypto mining, et cetera. But the last 1.5 years affected the fundamental drivers of the industry in 3 main ways. One, COVID-19 has changed the way we work, play, shop and interact and accelerate both the traditional engines like smartphone, PCs and others, but also the new ones like AI, data center, et cetera. As a result, the whole infrastructure, to support the growing demand for data, had to grow faster and we see the influence on data centers and mobile infrastructure like 5G and mobile that's supporting the 5G. The second one is the temporary global trade limitations imposed by the pandemic and created larger local investment, mainly in China and in the U.S. To meet the demand for these accelerated trends, the industry had to quickly adopt and accelerate the development of several technology inflection points to enable new and better devices, all of which creates a favorable environment for us to capture more opportunities and outperform in the next couple of years. So what does it mean for metrology at all for the demand, for the attach rate, for the intensity? On the dimensional side, we can see that in all segments, customers are investing heavily to improve the device performance. If it's logic, moving from FinFET into nanowires and fork wires; if it's in VNAND, moving to higher rates of memory cells; and if it's DRAM, for higher and complex devices. The more difficult and complex it becomes, the higher the demand for metrology is and therefore, intensity and attach rates are going up and demand, of course, is growing. In our second segment, which is the material side, things are becoming complicated as well. Changing in scales and architecture only are no longer enough. And in order to improve performance, our customers are introducing new materials in each new generation. It creates demands for better inline process control and for new measurements like composition, stress and strain. The usage of new methods for materials engineering is reflected with the growth of both our X-ray and optical solutions for materials. With this background in mind, I am very delighted to introduce our new strategy plan and our new model. Based on our forecast and growth drivers that we see ahead of us, we present our Nova 500 plan. Our target is to reach $500 million in organic revenues by the end of 2024. We believe that the combination of share gains, TAM expansions with our new products, technology innovations and disruptive portfolio, the unique methods and the unique combination of hardware and software and better utilization of our growing installed base in the services side will help us get there. If we should elaborate on the 2 main elements of our growth, which is the organic growth and the inorganic growth, let me just share with you the next 2 slides that showing our pillars and our strategic plans in these 2 areas. The first one is the organic growth, and we are basing our technical organic growth on a few pillars. The first one is a differentiated technology. Nova is the only company that can provide materials and dimensional metrology by 2 main technologies, which is the X-ray and the optical. The second one is the combination of physical and machine learning software capabilities in order to enhance hardware capabilities and provide very advanced solution. The third one is the service revenue. We think that with the growing installed base and the growing demand for our tools, we can utilize more of the installed base and increase our operational and service revenue. And the last one is the continuous demand for lab capabilities to move into production, and we would like to look at many of those laboratory capabilities and see if we can convert them into inline capabilities. Regarding the inorganic engines, as I said before, we continue searching for them in a nonoptimal market and focusing on the following areas: the first one is early access to lab technology that we can convert into inline and in-fab capabilities like we have done with the XPS, ELIPSON and PRISM; the second one is enhancing our materials metrology that we are leading currently in order to continue our leadership in this segment; the third one is expanding our software machine learning capabilities to stretch and enhance our hardware performance; and finally, to keep looking at semiconductor adjacent markets like advanced packaging and compound semi. This slide concludes my part. And with that, I would like to invite Dror David to discuss Nova's financial performance and future directions. Dror?

Thanks, Eitan. Good day, everyone, and thank you all for joining our Analyst and Investor Day. My name is Dror David, and I'm the Chief Financial Officer of Nova. I joined Nova in 1998, just before its initial public offering on the NASDAQ, and I have served as a CFO of the company since 2005. Actually, since my appointment in 2005, Nova has grown its revenues by more than 10x, and its market cap grew more than 100-fold. I hope and believe that the Nova 500 plan we are sharing with you today will within the next few years another step function in Nova's performance and shareholder value. But first, let's look at Nova's performance in the first half of 2021 and 2020. As you probably know, Nova's revenues and profitability have grown rapidly over the past 5 years. Revenues over those 5 years grew at the compound annual growth of 13%, while operating income grew almost twice as much at a CAGR of 24%, leveraging the versatile, resilient and proven business model built into the company operations. This growth led our outstanding performance in 2020 during and despite the COVID-19 environment. In fact, in 2020, the company increased its revenues by 20% over 2019 to $269 million and presented a strong 24% operating margin on a non-GAAP basis. Moving into Nova's performance in the first half of 2021, we can clearly see that the company's profitable growth trend is continuing. Revenues in the first half of 2021 are expected to grow approximately 40% over the same 6 months of 2020. And moreover, over the same period, earnings per share are expected to grow by approximately 50% to almost $1.50 per diluted share in the last 6 months. In recent years, we have mentioned again and again the significant diversification and wide reach of the company revenue sources, spanning over a broad spectrum of the front-end semiconductor manufacturing. Given the current wide verticals of demand in semiconductors as well as the tectonic changes in semiconductor manufacturing arena, including the trade wars, we believe this widespread exposure provides Nova with a significant advantage. As a result of this broad presence, we can capitalize on various demand cycles, different applications and multiple manufacturing shifts across customers and territories. For example, in the first half of 2021, we saw a strong demand in Logic and Foundry coupled with some recovery in Memory investment. Consequently, Nova revenues distribution is approximately 2/3 from Logic and Foundry and another 1/3 from Memory. In parallel, we see an extensive demand for advanced technology nodes in high-end applications such as autonomous cars and AI on one hand, and simultaneously, a strong demand for lower-end devices. Our position allows us to capitalize on both these trends with 70% of our revenues coming from leading edge and 30% coming from trailing nodes. And most importantly, especially given the ongoing trade war and increasing government involvement in semiconductor manufacturing incentivization, Nova's revenue distribution is also balanced across all key territories: Taiwan, Korea and China. In addition, the company's revenue stream from the U.S. is on the rise. Our position in the states with the manufacturing and research site for X-ray applications in California plays an important role given the significant plans by 3 major customers to extend their U.S. manufacturing sites starting 2022. With that, let's move on to discuss the Nova 500 plan in details. Eitan previously discussed, and Zohar will elaborate later on, on the business tailwinds Nova is riding. These tailwinds include the overall market and TAM growth, Nova's unique and differentiated product portfolio, including software, enabling the company to win market share in its core markets, the new technologies, which further expand the company's addressable market and value creation, and the leveraging of the company installed base which, as of today, includes more than 3,000 active systems at more than 150 manufacturing sites globally. Combining all these tailwinds together, we believe the company will be able to reach $500 million in organic revenues in the coming years with services business growing to approximately $100 million on an annual basis. If or once we execute this growth plan, we will be able to continue the company growth trajectory in the past 2 decades, during which the company doubled its revenues every 5 or 6 years. To execute this aggressive plan, we plan to continue our investments in talent and infrastructure as detailed in the following. Today, the company is utilizing approximately 80% of its manufacturing capacity. Should we need to immediately increase capacity, we can do it within a time frame of approximately 3 months by moving into manufacturing in shifts and subleasing additional manufacturing space. However, for the long term, and as part of the Nova 500 strategic plan, we have decided to extend our manufacturing capacity and build a new clean room at Israel headquarters. The facility is expected to incorporate Industry 4 standards and to enable manufacturing of our most advanced technologies to the most rigorous and exacting parameters and specifications. We expect this facility to be operational by mid-'22. And in parallel, given the enhancement of the company's global operations and workforce, which will reach 800 employees soon, given the continued need for effective communication and information management tool between the different sites and also given the rising cost of prevention and protection related to cybersecurity, we expect to increase our general investment in information technology on a global basis. Additionally, to facilitate expansion into new customer bases in new region, we expect to invest in offices and demo centers in new locations in the U.S., China and Ireland. On another current of these positive business tailwinds, we faced significant challenges in the company's main cost element structure. These challenges involve macroeconomic trends beyond our control, which nevertheless have significant impact on our cost of doing business. During the COVID-19 situation, we saw the rising cost of raw materials such as copper, iron and aluminum as well as changes in exchange rates, which weigh on our cost structure in regions other than the U.S. We also see escalating war for talent in major semiconductor sites. This is already evident in Taiwan. It will soon become evident in the U.S., where major customers are planning to build mega fabs in 2022. And it is evident in Israel, where the high-tech industry is practically looking for -- facing shortage in engineers at all levels and expertise. In order to mitigate this challenge, Nova is putting particular emphasis on supply chain management and inventory availability, as evident in our growing inventory levels to ensure our ability to deliver products and services to customers. We are also focusing on strengthening the company employer brand globally in order to attract the top talent needed for the company research and engineering centers across various territories. All in all, following a careful analysis of the company financial model for the Nova 500 plan, from business and cost aspects, we expect the following: on the gross margin front, we believe that the company's continued expected revenue growth, coupled with an expanded offering of high value, high gross margin products such as software and new technologies will enable the company to maintain gross margins between 57% and 59%. Looking into operating expenses, given our growth plans, obviously, we will need to continue and invest in R&D and SG&A. Our model assumes that R&D can range between 17% and 19%. The SG&A can range between 13% and 15%. And as such, at the $500 million revenue level, we should be able to present operating margins of between 26% and 29%. On the tax front, under current tax rules in Israel and the U.S., we expect the effective tax rate on a non-GAAP basis to be approximately 15%. Obviously, this rate may change due to recent administration changes in Israel and the U.S. Share count for diluted earnings per share is expected to grow to approximately 32 million by the beginning of 2022, mainly due to new accounting rules related to convertibles. All in all, we believe that this plan integrates a quarterly earnings power of approximately $1 earnings per diluted share on a GAAP basis. In the most recent 12 months, Nova generated approximately 25% of its revenues as free cash flow amounting to approximately $80 million and raised an additional $200 million in 0% interest rate convertible bonds due 2025. As a result, gross cash reserves accumulated to approximately $480 million. And we plan to use this cash to facilitate and accelerate the company growth through the execution of the Nova 500 plan as following: approximately $10 million anticipated investment in information technology and new locations; approximately $12 million anticipated investment in the new clean room manufacturing facility in Israel; and approximately $40 million to $50 million anticipated investment in working capital to facilitate the Nova 500 growth plan. We believe the company generally needs to keep approximately 20% of its revenues, or $80 million to $100 million in available cash as a cushion and baseline fund to ensure the company's operations. And the remainder, between $300 million to $350 million, should be available as cash for acquisitions. The company will also consider shareholders' return programs as applicable and other Board guidance from time to time. In terms of the M&A search criteria and screening elements, which Eitan mentioned, I would like to reiterate that our main goal for M&A is to accelerate growth. Case in point, the acquisition of ReVera in 2015 and was highly successful, generating a significant revenue growth of the X-ray product line in the last 5 years. We are searching for complementary technology, such as the combination of know-how between X-ray and optics, which enhanced the company product portfolio and holistic solution to advance customers. We do look for businesses which can be accretive within the first year of closing and can improve earnings per share and enhance shareholder value. In the case of the ReVera acquisition, the acquisition was accretive from day 1 on a non-GAAP basis, and the combined company was able to increase EPS by 50% in the second year after the merger. And lastly, we are looking for companies within our main domain of expertise as an entry into the process control segments for semiconductors. With that, I will move the discussion to Zohar Gil, Nova's Chief Marketing and Business Development Officer. Zohar?

Thank you, Dror. So good day to everyone. I'm Zohar Gil, 10 years already at Nova. In my role at Nova, I focus on the company's corporate marketing, strategy and business development activities. Before joining Nova, I worked for 15 years in global high-tech companies in Israel. And I have both an engineering and business academic background. Today, I will be talking about the trends and challenges in the semiconductor market and try to link it to our solution portfolio. But before I dive into this detail, I want to share a broader perspective. Looking at the world, our world is increasingly becoming more connected, more intelligent and more digitized. Connectivity is enhanced by high-speed networks and advanced infrastructure such as 5G and fiber. And the digital transformation is actually emerging into new areas of our life and everything is becoming smarter, smart cities, smart homes, smart factory. And as a result of that, the speed of innovation driven by advanced technology is dramatically increasing. One good example is the way the world handled COVID. Both the ability to find the vaccine in a very fast manner and the ability to deal with the restrictions that were imposed by the COVID were strongly supported by various types of technology. So in essence, a deep technology is driving innovation, and semiconductor is the building block and the foundation for these future evolutions to come. So looking at the semiconductor industry, we see many catalysts that are driving the growth in demand. To share some examples, 5G smartphones are growing in the next 5 years at a rate of 37% of CAGR. If we look at AI that is becoming more and more important in our lives, the total global market for AI is going to grow and reach more than $600 billion at a growth rate of 40 -- over 42%. And if we look at cloud computing, similarly, the revenues from cloud computing is estimated to achieve over $300 billion by 2025, which represent 25% growth rate. And industrial IoT, with the increased use of different sensors, the amount of sensors is going to reach, by 2028, over 1 trillion devices. So basically, all of these things are driving semiconductor revenue, which is expected to exceed $600 billion by 2025. And as Eitan presented in his slides, if we look at all these things that are driving the growth, we see in the last 1.5 years several other key factors that are influencing both the need for more capacity and enhance technology for semiconductor. One of them is the COVID impact; the second one is the geopolitical tensions in the trade war, the trade effect; and the third is the acceleration in semi technology development and the inflection points that are required to reach these performances in the future. And I will talk about each of these separately. So starting with the COVID effect. If we look at what happened actually in 2020, you can see here in the diagram, the forecast before COVID and after COVID and how it affected different segments in semiconductor. So the work from home, the learn from home, the digital transformation generate a significant increase in the mobile industry, in the computer, laptops and also in data centers and storage. And some of the traditionals such as industrial IoT and automotive actually saw a decline because of the lockdowns. And this is partly what's explaining today some of the shortage in these types of semiconductor segments. Moving to the government incentives. So we know that, historically, western countries have been investing less. But recently, with the growing importance of semiconductor in the trade war, we see, for example, the U.S. that will be investing more in semiconductor technology. We expect the U.S. to invest over $50 billion in incentives to support domestic manufacturing, research and talent development. We also expect China to continue their investment in the China 2025 program that is targeted to meet 80% of domestic demand by 2030. Also in Europe, there is the 2030 Digital Compass program, is targeted to amount the level of manufacturing in Europe to over 20%. And of course, the leading countries such as Taiwan and Korea will continue to invest both in the private sectors and in the government sector to support that. So if we look what are the semi applications that are driving growth in the future, you can see here the market size estimated in billion dollars for the different segments and the growth in the next 5 years. So a big portion of the growth will be supported by the automotive market that is driven by both the transition to electric cars and the longer-term transition to autonomous vehicles, and we see the significant growth rate. In addition, we can -- we expect to see continuous growth in infrastructure and network data centers also in consumer IoT and also in the mobile industry that will continue to support the growth going forward at enhanced rates. To share some examples about this growth, what we see is actually that the content of silicon is becoming more and more in some of the more advanced devices. So if we look, for example, in the transition from 4G to 5G phones, there is an increase of about 30% in the semi content. In data storage, in the next 5 years, there is expectation of increase of 30% in the semi content. If we look at the gaming industry, transition to next-generation video games based on cloud will increase the semi content in about 150%. And as I mentioned before, the significant increase in the auto industry, supported by the transition to electrical and autonomous cars will enhance significantly the amount of content of semiconductors in cars. So these are all strong proof points for the continuous growth. And how does this actually impact the capital investments of our customers? So we can see both in terms of the semi CapEx and in terms of the wafer fab equipment, that there is continued expected growth for the next 5 years at rates that are around 10% or 9% to 11%. And these investments will actually happen across all the device segments, so both in Logic and in the different Memory. And if we look, as Eitan and Dror explained, and we compare Nova's growth in terms of the product revenues, so our growth is exceeding the industry metrics. We were able to achieve that in the past 5 years, and we believe that with the Nova 500 plan in our plans, we will also be able to continue that going into the future. And the meaning of that is actually, we're able to increase our share within our addressable markets. The last point I want to touch is related to the semi technology inflections. So in order to continue the improvement in cost economics, in reducing the price and enhancing the performance, we see a variety of different inflections happening that are supported -- are supporting that. So of course, device scaling, which is the traditional Moore's Law will continue to happen. But also scaling at 3D, for example, what we see in memory. The introduction of the new materials, that is becoming more and more important. And the transition to new device structures are also significant inflections. And also in the packaging, we're seeing advanced packaging schemes that are becoming more and more important to support the continuous improvement. And if we want to focus a bit on the device technology road maps in the 3 key segments of Logic, NAND and DRAM. So we can see that there are continuous transition, starting from Logic, there's transition from FinFET and FinFET Plus into a nanosheet and gate-all-around technologies. And this creates a lot of opportunities for us, but also it creates challenges. For example, there is increased complexity. We're required to have measurement of more and more critical dimensions and measure some of the individual properties and the introduction of new material, for example, new metals in the back end of line, create more and more challenges for us. If we look at the NAND, so of course, 3D scaling and the transition from single to multi to triple deck is going to continue. Also scaling by replacing the CMOS under the array, we're taking approaches like wafer bonding. And these, of course, will create challenges related to high aspect ratios and will create structural and material challenges going forward. If we look at the DRAM, we expect to see continued scaling to the 10-nanometer. So 1C and 1D technology nodes. So scaling will continue to be a major factor. The process margins will be challenging. We see wafer edge yield and storage capacity challenges. And basically, again, structural and material challenges in measuring critical dimensions, films and different properties. So with these major challenges that also introduced to us a lot of opportunities, I want to touch the product portfolio and the changes that we did in the past 2 years. So Nova has been continuously developing and improving our existing solutions, but also developing new solutions. In the past 2 years, we have introduced 5 different platforms to the markets that are combined of unique hardware combined with a software modeling capabilities. So I'll start with the dimensional metrology which is one of our key markets. We have both solutions in integrated metrology and in stand-alone metrology. In integrated metrology, where we are the market leader, we introduced 2 new platforms, the Nova i570 and the Nova ASTERA. And basically, both are supporting our extended leadership in the market. The Nova i570 is targeted to go into high-volume production, and the ASTERA will go into R&D of next-generation nodes in the most advanced logic and memory devices. And we already see a good traction with these products with high adoptions of these -- of the Nova i570 in all our leading customers. And this is one pillar of our growth in dimensional metrology. The other one, in the stand-alone metrology, we introduced in the last 2 years the Nova PRISM. Nova PRISM has unique capabilities that go beyond the existing optical channels that are measuring in these type of solutions with the introduction of SI technology. And basically, this product is targeted to address the most advanced metrology requirements in logic, 3D NAND and DRAM. And we already see adoption of multiple customers, both leading logic and leading memory customers. And we believe that these products have an addressable market of over $700 million. Moving to our material metrology and supporting the continuous need for material control in our industry, we continue to invest in our leading X-ray solutions. And I've actually introduced the fifth generation of our solution called the Nova VERAFLEX IV. And this solution is already adopted for some of the leading customers. And basically, we have today the full coverage of -- and material leadership with in-line XPS technology across all the leading customers. In addition to that, we've introduced, on the optical side, a new form of material metrology that is based on Raman Spectroscopy, providing fast in-line nondestructive measurements that support the growing need to have more and more material control. And also, this platform that has been released last year is already adopted by leading logic and memory customers in our industry. And we believe that these 2 products in the materials metrology cater for more than $500 million of addressable market. And the last element that I want to emphasize is, of course, the importance of our modeling and fleet software solutions that are coupled with our new hardware solutions. So in terms of the modeling, our approach is to combine both physical and mathematical modeling. We have the Nova MARS and the Nova FIT platforms. We believe that this holistic approach can really give significant insights and provide unique capabilities that enhance our metrology platforms. And we believe that we have advanced machine learning and leadership in this segment. And in our fleet software solutions that enable to control centrally the large fleet and solutions that we have in our customers, we're putting emphasis on more performance monitoring on big data analytics, and both of these solutions are actually adopted by all of the leading customers of Nova. So I hope this gives you a brief perspective about the industry challenges and about the solutions that we have. And with that, I finish my part, and I would like to invite Shay Wolfling, our CTO, for the next part.

Thank you very much, Zohar.

Thank you.

Well, good day, everyone. I'm Shay Wolfling. I'm responsible for Nova's technology development for the past 10 years. Before joining Nova, I was at KLA, where I arrived there after 2 acquisitions. I had my own start-up company with innovative 3D technology, which was acquired by ICOS, a NASDAQ-traded company in Belgium. Then 2 years after I moved to Belgium, ICOS was acquired by KLA. I have a PhD in Physics from the Hebrew University in Jerusalem. I will start with an overview of some of the challenges of the industry and the opportunities they create for metrology. I will then focus on some of Nova's current and future unique solutions. Starting from the challenges, as the industry continues its journey to move to more advanced technology nodes in both logic and memory, the associated challenges in process increase dramatically in a variety of different axes, as you can see in this slide. Because the time to yield is critical, the time that is available to develop and apply metrology solution keeps decreasing. Moreover, when there are more process step, higher sampling and the design shrinks, this is driving efficiency and metrology performance. There's also a growing need to measure in die and on the device because the test structure are no longer representative of the actual process. Moreover, abundance of new material with a multitude of physical properties must be controlled in line. This includes thickness, composition, stress and much more. From a dimensional perspective, the challenges increase significantly with complex 3D devices such as gate-all-around and high aspect ratio 3D NAND structures. And these additional challenges include controlling of local variation within the device itself as well as the need to control multiple device parameters and properties. If I will conclude these slides, you can see that process control solution must be today much faster, applied to more layers, be more accurate, be applicable for complex 3D structure and new material, be utilized to many points on the wafer and expand to more physical parameters. I will now zoom in on some of the specific dimensional and material metrology challenges in some of the key advanced devices, focusing on 2 examples. In the world of logic, the most significant transition that is happening in the recent years is the transition from the field effect transistor, from the FinFET, which was the first 3D transistor to a nanosheet or a gate-all-around, which has a more complex and a very detailed 3D shape. It has multiple nanometer-sized wires just hanging in mid-air. The manufacturing process of such a complex 3D gate-all-around is accompanied by key dimensional and material challenges, and I will highlight a few of these challenges. Multiple nanosheets, starting from 2 all the way to 5 in the near future, they are lied one on top of the other, and they all must be fully and individually characterized for dimensional measurements. Each nanosheet has a thin film of -- or thin stack of layers on the electric surrounding it. From a material perspective, there are multiple material properties which are critically impacting the performance of the end device. The quality of both the silicon and the silicon germanium, which are forming the nanosheet is critical. The stress and the strength of both the nanosheet and the source/drain area are critical to ensure the device performance. Silicon germanium residues and doping control are also additional properties where customers are asking us to control in line. Moving now to the world of flash, 3D NAND are becoming taller and with much higher aspect ratio. We see that the advanced devices have over 200 tiers of oxide and nitride. A full profile of a few micron-deep channel needs to be characterized, including the top parameter, the middle parameter and the bottom parameters. The over 200 tiers must be fully characterized for the thickness and other properties. All this is done in what we call main floors. At the bottom, you have a complex logic or a cell under array or CMOS under array. And then you have multideck of VNAND cell, which all must be perfectly aligned to each other. From a material perspective, multiple dielectrical films in the channel must be tightly controlled. Before the channel is filled, the thickness and conformality of the deposition on the sidewall is critical. Once the channel is filled, the quality of the polysilicon in the channel is critical for the device performance so that the crystallinity and the grain size should be tightly controlled. These and some of the other key metrology challenges are really driving metrology opportunities and innovation across the different technologies. I will move now to talk on some of the new technological solution Nova has today. So Nova has a variety of technology, which are now proliferated throughout the industry. These include critical dimensional measurement via spectral reflectometry and physical modeling. These include in-line thickness and composition control via our XPS and XRF products and a full fleet connectivity via fleet management. However, in order to meet the growing challenges Nova has developed, in recent years, a large portfolio of disruptive technologies, which I will now guide you through. In order to answer some of the key challenges that I have described of the advanced node, Nova has a rich portfolio of disruptive new metrology solution, both for dimensional metrology, which are used to measure critical dimension and complete 3D profile, as well as for material metrology, measuring thickness, composition, stress and many more material properties. All solutions are comprised both of the hardware and software capabilities, which are both important and complement each other. I will overview some of these solutions now, and then I will dive a bit deeper in the following slides. Starting from the integrated metrology, the ASTERA is the world's first multi-angle of incidence solution, providing a stand-alone performance in the form factor of integrated metrology. In the optical stand-alone world, we introduced the Nova PRISM, with its new spectral interferometry, or SI technology, which enables a complete wavefront measurement and adds a completely new dimension to the world of OCD. In the X-ray material metrology, XPS continues to be the only HVM solution, which enables in-die process control for composition and thickness of ultrathin complex stacks. This is done via our VeraFlex product line. On the optical front, late last year, we introduced the Nova ELIPSON, which is a new Raman Spectroscopy technology, a new addition to our material metrology world. This enables in-line material metrology measurement with an optical and nondestructive technology. In the software and algorithm world, we continue to promote both the MARS physical modeling, which models the light matter interaction as well as the Nova FIT, which is a data-driven machine learning solution. However, our recent innovation stem from the understanding that physical modeling and machine learning are no longer separate entities, and the best results are typically obtained by a smart combination of these 2 types of modeling. If there are multiple Nova tools in each fab, they are typically connected to enhance their performance together. We now utilize this cloud-based fleet management connectivity to provide an even better process insight to our customers. I will now dive a little bit into each one of these innovations. Starting from integrated metrology. For integrated metrology, Nova is the first one who was able to condense both normal incidence and oblique illumination inside the small form factor constraints of integrated metrology. By adding the oblique illumination and adapting a unique architecture for it, we enable expanding the performance of integrated metrology to this of a stand-alone performance. And this is driving a very tight control of wafer-to-wafer processes. These newly introduced capabilities opened various use cases to integrated metrology, especially in early R&D and pilot lines. Complex structure, ultra thin films and small residues typically require oblique illumination channel for control and now can be controlled via integrated metrology. I will elaborate on 1 use case of a 3D NAND, which was validated together with a leading customer. We demonstrated that an oblique channel of the integrated metrology is an enabler to measure ultrathin films of under 20 angstrom on structure and the resulting performance were improved by more than 50%. At the bottom graphs, you can see the cross-wafer distribution of thin film deposition of different angstrom-level thicknesses. And you can clearly see that only with multichannel capability, on the right side, you can control, in a uniform way, the separate thicknesses of the different layers. Moving now to optical CD stand-alone. In the spectral measurement technology, which have been maturing for over 20 years with spectral reflectometry, SR, and spectral ellipsometry, SE, by all vendor, Nova was able to add a completely new dimension of SI, spectral interferometry. All existing techniques at different angles, polarization, wavelengths, measure only the reflectivity of the spectrum reflected from the wafer. With SI, Nova was able to add, on top of the existing technique, measurement of the full reflected wavefront, which is a completely set of new information which is not accessible by the current methods. This addition is done by incorporating interferometry-like hardware, which is typically not used for OCD, and developing a whole new set of algorithms to extract this unique information. The unique hardware and software enable the factor depth profiling via OCD where we can separate top layers for middle and bottom layers of complex 3D structure. As we will see, the SI capability enhances the OCD performance on multiple use cases. To highlight some of the key benefits validated for the SI technology. For example, the cavity edge in the source/drain of advanced logic devices has a very complex diamond shape, 3D shape. This shape is critical for the epi growth and can be monitored in a much higher accuracy using the unique SI technology. As mentioned, one of the key advantage of the SI technology is its depth separation measurement. This advantage has been validated by multiple 3D NAND customers where we can measure the top deck application disregarding the bottom stack, as you can see in the top model. We can also monitor the full cell parameter without considering the complex CMOS under the array, as indicated in the bottom model. Another example of our ability to separate through the depth profile is our ability to measure in gate-all-around the dimensional properties separately of each of the 3 individual nanosheets. I will now address unique solution in our material metrology world. As you know, Nova is the only company who has nondestructive X-ray-based in-line solution for composition and thickness of ultra-thin films and complex stack via our proliferated XPS technology. As validated already in multiple cases and is evident by the AGM proliferation, XPS' capabilities beyond the competing optical tools, especially when films become ultra-thin. Such application of ultra-thin films continue to increase in advanced nodes, where the tuning of the threshold voltage is done by a cascade of thin layers. The XPS tool also includes a simultaneous measurement of XRF, this is in addition to measuring the reflecting electron, we are also measuring the resulting fluorescent X-ray in parallel. This combination of XPS and XRF done on the exact same structure, enable measurement of thickness and composition of complex multi-stacks. With the advancement of the XPS technology, both in hardware and software, the measurement are now done in-line and on the product wafers themselves. This enables control of advanced logic, DRAM and 3D NAND processes. As the XPS has the best sensitivity for thin film, it is now becoming an enabler for innovative processes in the industry, such as the selective deposition, where control of pattern selectivity and even of partial coverage on a single atomic layer is required, and the XPS has this sensitivity. Let us now look at 2 typical use cases. On the left side, on advanced logic customer, you see an example where a customer is using XPS to measure a complete stack of nanosheet devices, the complete multilayer stack, which surround each nanosheet is being measured. We demonstrate here in-line composition control of the titanium aluminum percentage as well as the in-line thickness of the hafnium oxide, both are being used by the customer for active process control. On the right-hand side, in the world of DRAM, the surface-sensitive XPS technology is the only technology which enables direct control of complex high-k dielectric stack within the die itself. Moving forward, you can see that material metrology is no longer only X-ray-based. We introduced last year another Nova unique HVM tool based on Raman Spectroscopy. As you can see on the left, Raman Spectroscopy is a known powerful optical technique, which is used in lab for material characterization. When you illuminate the sample, 1 of approximately every million photons will be reflected at a different wavelengths from the illumination. This is because of the lattice or the crystal vibration. This scattering is called the Raman scattering. Each material has a unique fingerprint which is impacting this Raman spectrum. And this fingerprint is influenced by the multiple material properties of the sample. What Nova has done with Raman Spectroscopy is actually to take this technology from an immature lab technology into an HVM-ready tool. This was done via multiple hardware innovation as well as adding algorithm and modeling layer to translate the raw data into an accurate quantitative material data, which is now used by the customer as an SPC control measure. Raman Spectroscopy has a wide variety of application space, as you can see in this slide, a wide variety of material properties that can be measured. All these applications that are shown here have been validated at leading customers. You can see that the key application is measurement of strain and stress of silicon and silicon germanium, which are the key component of gate-all-around devices. The polycrystallinity and the grain size on DRAM production are also an HVM application. In phase change memory, the phase measurement and the crystallinity are critical for the development and the control process. And also Raman Spectroscopy can be used for detecting lattice defectivity. All these measurements and many more are done optically, non-destructively in die at a very high throughput. Before I conclude the hardware portion and looking at the Raman Spectroscopy as one example, I want to dwell a bit on the complex transition of taking a lab technology into the fab. Such a development is quite challenging and requires significant innovation and modification. First, one needs to, of course, automate the technology in all aspects: software, hardware, wafer handling and so forth. But automation is only the first step in making a technology HVM worthy. One need to take care of the fab connectivities, to add layers of process control, to match between 2 and to do all this in an effective and a nondestructive way. Last but not least, in such a transition, we need to enhance the performance of the technology for the challenging need of advanced nodes and add the data analysis and algorithm layer to extract quantitative data. The level of technology maturity starts with the lab tool, then there are technologies suited for nearline and qualification tools. But we, at Nova, focus in the last phase. These are technologies suited for in-line solution. This is the case with our XPS technology. This is the case with our Raman technology, and this will be the case also with future technologies we are developing. The last group of innovation, which I want to address, is around software and algorithms. As you know, Nova's core competence for many years was in physical modeling. A few years back, we have added machine learning mathematical modeling, and these machine learning solutions are now fully proliferated to all our customers worldwide. Now it's time to move to the next level, comprehensive modeling, which means we encompass a combination of physical modeling with machine learning together with our full fleet management connectivity. These algorithms are based on some of Nova's unique solution and abundance of data coming from our unique channels such as our SI, our integrated metrology, our XPS and our Raman Spectroscopy, as well as information from external reference, such as electrical testing and TEM. This innovative combination brings significant value to our customers and has been demonstrated to do that. This improves the accuracy and the robustness of the measurement. This reduces the amount of destructive reference and this adds more layers and parameters to improve the process control and eventually, this all provide better insights to our customer. Specifically, one key element in which Nova is investing and innovating significantly is the synergy between our unique hardware and our innovative software. We are using our fab-wide Nova FIT computational platform for a full fleet connectivity, and we create cross-platform synergy between our different technology. We continuously and proactively optimize our machine learning model based on our unique data. I will give 2 example use cases. In order to enable profiling for OCD, we developed a dedicated algorithm within the mass physical modeling, which utilizes the PRISM unique signals. As a result, our solution can filter and remove the underlayer part and generate a robust in-die control even when there is a multi-deck 3D NAND and when there's CMOS under the array. The ability to remove this underlayer and focus on the top is then further utilized via our Nova FIT machine learning solution to improve our integrated metrology CMP control, which now has a very high-quality signal reference. So as you can see here, we combine our PRISM technology with our Nova MARS unique modeling to create a quality reference. We then add our Nova FIT machine learning to have a better improvement of CMP control. Another example for cross-platform synergy is utilizing the high-quality XPS data on top layers such as measuring ultrathin films and residue to enable via dedicated and tailored machine learning algorithm improvement of the integrated metrology performance of such layer. In such a way, one can get the high productivity of integrated metrology and the quality of the XPS data. To summarize, Nova has a unique portfolio of solution in all fronts, from the multichannel integrated metrology and the unique SI in the dimensional metrology through the world only HVM-worthy XPS and Raman Spectroscopy for material metrology to comprehensive -- through comprehensive modeling, combining physical modeling, advanced machine learning and synergizing the unique hardware. These solutions were validated by advanced logic, NAND and DRAM manufacturing and are enabling them to solve key dimensional and material metrology challenges, which are critical to continue and drive the industry forward. So far, I have talked about proven solutions that are already proliferated in the field. But in my last slide, I will address some of the future direction as challenges continue to rise. On the dimensional front, we continue to add innovative metrology solution along various wavelengths and energy ranges. You see that there are many more technologies available throughout the spectrum at many energies, and we are going to evaluate quite a few of them. On the material front capability, which today can only be done by lab tools, is the ability to provide a full depth profile of material properties, different layers and different interface layer. We are looking at bringing such a technology from the lab into the fab. On the software and algo, we continue to enhance the synergy between the physical modeling and the advanced machine learning to enable dramatic improvements in metrology performance. Some of these may sound a bit general to you, but it is backed by groundbreaking technology, which is happening in our R&D facilities. With that, I conclude my presentation. I will hand over back to Eitan.

Thank you, Shay. Thank you also, Zohar and Dror for their detailed presentation. With that, we conclude our detailed presentations for the different topics that we cover today. And before we move to our Q&A session, I would like to summarize a few key points and few takeaway from the presentation. This will happen before we take your questions. So I think that the first and most important key takeaway from our presentation today is the company resiliency and the strong position in the market and the readiness to take -- utilize on multiple opportunities that can actually outgrow the market and outperform in the next couple of years, and the target is to continue our sustainable and profitable growth in the coming years. We just presented the $500 million plan which we believe strongly that can happen from our organic products. During the presentation, we covered the market and the drivers -- the new drivers and the traditional drivers which, in one hand, increased the demand in the market for chips and the other way is increasing the complexity of the chips and complexity of the device, and by that, increasing the demand for advanced process control. We tried to share with you and shine some light on our disruptive technology and our unique offering in order for you to understand the unique offering that Nova is presenting to the market which in one size -- side, sorry, can take market share. But on the other side, can also increase the total available market and take additional applications. Dror and myself shared with you the new plans to reach Nova 500 by organic growth until 2024, which are supported by our resilient model and strong operating capabilities in order to support this profitable growth in the future. We also talked about our performance in the past and our ability to outperform the market in the last few years as well as trying to outperform and outgrow the market in the next few years towards Nova 500. And finally, which is always the basic and the center of everything that we do is our values, our culture, our people and our social responsibility strategy that is the center of our activities and activate everything that we do from inside, outside. With that main takeaway, I hope that we convinced you that we are in a stronger position. And with that, I would like to hand over the call to Miri Segal to handle the Q&A session. Miri?

Yes. Thanks, Eitan, and thanks, everyone, for staying with us and tuning into the presentations. We hope you find it informative, helpful and engaging. With the Zoom boom, we know you attend many virtual events, and we are grateful and glad that you joined our event today. Now I will take each question in the order in which it was received, and Eitan will refer you to the appropriate executive. You're welcome to continue sending additional questions throughout the session, and we will do our best to answer them all. So I will start with the first question from Jamie Zakalik of Bank of America. She asks -- Jamie is asking, Nova is targeting $500 million by 2024 on somewhere around 86 billion in WFE. This suggests 9% sales CAGR, even with WFE growing just 1% to 2% based on estimates for 2021. Is this the right way to think about Nova's ability to outperform overall WFE growth? Where can Nova sales go if WFE were to hypothetically reach 100 billion by 2025?

So obviously -- so I'll answer that and I'll take the question, so thank you, Jamie. So basically, when we're looking right now on demand for chips and demand for wafers, of course, when the demand is growing and the WFE is higher than what was prospected in the beginning, the demand for process control is growing, and therefore, the sales will grow as well, obviously. If we're looking right now on the outperformance of Nova, we need to look on 2 basics usually, which is market share gains that we took and prepared to take in the next few years, as well as the demand in the market and increasing total available market by introducing new products and getting new applications. If we're looking, on top of it, on the basic model that we build, it's also -- it always depends on a couple of elements, a couple of factors. The first one, of course, is demand in the market. We need the demand to be higher and growing in order to sell more system and be part of this demand. Second, as we explained, the demand itself is not the only driver for growth. The second one, of course, is the technology inflection. Once the demand is growing for both the traditional and advanced nodes, the complexity is going higher. And therefore, when the complexity is going higher, the intensity per 100th wafer or 1,000th wafer is growing as well. So once we have more investment in advanced technology, we see more intensity and the demand for systems is growing. And the third element is the pace of introducing new technology and new products. So once we introduce our product or introducing the new technology, it's always to a greenfield applications that were not sold today, specifically by in-line products, but from lab or some kind of destructive methods. And once we're bringing it into the fab and mainly in-line capabilities to solve issues during the process, then this is another element to grow our market. So to summarize, it's -- from one side, of course, we need the demand in the market. And once the WFE is growing, the demand for system is growing, but there are the technical elements, the intensity of metrology as well as the new products and extension of total available market. Thanks. So I think that we -- before we fully hand on...

Yes. It's okay. I have -- there was just a technical problem with the muting. So our next question comes from Atif Malik of Citibank. The question is referred to you, Eitan. You mentioned that the team has filed 50 patents in the last 3 months. Can you provide some color on the type of technologies do these -- on the kind of -- on the type of technologies that these patents cover?

All right. So the -- I will answer just the first general answer, and then I'll let Shay to answer all the family of patents. But looking right now on the way that we are trying aggressively to grow the numerous technologies that we bring to the market and the fact that we are trying to be unique in this disruptive portfolio, it has to come with the freedom to operate in such a crowded market. And therefore, we are taking an aggressive [ and broader ] approach in filing those patents. By the way, not only in the U.S. and in Israel as it used to be before, but globally as well as in China, Taiwan, Korea and even Europe. In regard to the family of products or the family of patents, I will allow Shay to elaborate a bit more.

Thank you, Eitan. So basically, we are, as Eitan mentioned, very aggressive on the IP filing. Of course, I will not give specific details. That's part of the filing is that it takes time until this gets established. But basically, we cover the large variety of innovations that I discussed. On the new technologies, where there's a blue ocean, of course, we can file some broader protection, both on the technology implementation and the use cases, but we also continue to file on our core markets on the stand-alone and the integrated and the XPS for new use cases and modification, which continue to evolve as we continue to develop and further expand. And another key point is that we file both on hardware aspect as well as on modeling and use cases and trying to cover various aspects. And also, as Eitan mentioned, we are doing this in various places around the world. Of course, we start with the U.S. filing, but their topic, we also file in Asia and Europe and in Israel.

Great. The follow-up question is how would continued 7- and 5-nanometer future manufacturing delays at U.S. chip maker impact the Nova 500 plan?

So I think that the Nova 500 plan already took into consideration some delays in the leading IBM manufacturer for 7- and 5-nanometer. And actually, looking on the last few weeks, months, we think that the current plan to proliferate some of this technology globally, it will happen at somewhere in H1 2022. One of the things that Zohar talked about is opening a facility in Ireland. And I think that in this phase, we took into consideration that the proliferation of 7- and 5- will happen starting from 2022. If we take this question also to the other logic or foundry customers, mainly the leading one in Taiwan, so they continue investing in capacity very, very aggressively. They took a lot of capacity in the first half, and they are taking a lot of capacity in the second half of facilities in Taiwan. And we already know the plan to take capacity for the new fab that will be opening -- will be opened in Arizona next year, which we don't know currently on the exact technology node, but we assume it will be an advanced node ramping up in the U.S.

Okay. Our next question comes from Quinn Bolton of Needham. Does the Nova 500 model require the introduction of any new technologies to the market other than the platforms discussed today?

So it's -- Quinn, it's a bit difficult question to answer exactly. We -- we're definitely building the growth on -- part of the growth on new products that we introduced organically like the ASTERA, PRISM and ELIPSON. We are in -- actually very optimistic on the attractiveness of those products in the market. We introduced those products, and they are taking a lot of attention from the customers to introduce those products. It's actually solving applications that nobody can or could solve before introducing those technologies. And most of the solution came from laboratory capabilities, which we, right now, move into in-line capabilities. If we're looking right now on the cadence and pace of introduction of new products from Nova, we can see that every 1 year or 1.5 years, we're introducing new technology. I assume that from now on until 2024, we would introduce new technologies as well, which will take part of the $500 million plans that we have.

Great. There is another one from Quinn. Can you please elaborate on the company's ESG initiatives and where investors may be able to find more information on the company's ESG programs?

So the company's ESG or CSR strategy was launched at the beginning of the year. Not that we didn't do things before, but we are trying right now to extend it and to expand the plan to cover other pillars that we didn't cover before. It has the regular pillars of environment, inclusion, diversification, community relations and ethics, which we build our strategy on each one of them. The strategy itself appears in the website, and we have the strategy funded. We are going to increase the investment that we have in each one of them. Of course, the regular one, which is the environment and sustainability, which we always we're investing in green environment, all our offices now are in green places. We moved part of them to a green places. The recycling issue, plastic and everything that is related to that is already taken care of. The new facilities that we are going to open for the clean room is a totally green facility, which is taking care of all those sustainability issues. We are in a process of certificate -- certifying our suppliers to have this CSR and sustainability capabilities as well. And if you're looking right now internally, which this is where we invest most of the money is the inclusion, the fact that we would like to be a diversified company. Just to give just the highlights from this year, around 30% to 40% of our hiring this year were women hiring, so we would like to be really diversified. And of course, inclusion to other minority or other communities in the society. We are, of course, open to that, and we encourage that. So we are really going and expediting our investment, our culture around this CSG -- sorry, ESG, CSR capabilities, and it's part of the budget. It's part of the investment. It's part of the culture.

Great. Our next question is from Brett Rosenbaum of Adage Capital. Can you please quantify the spending intensity growth for Nova products from the migration to GAA nanosheets versus what historical node spending growth for Nova products?

So when we are looking right now on nanosheet, it's not different from the introduction of FinFET, which when we're looking on the logic and the logic provider, it depends which one. But roughly or on average, we are looking on 50% increase in intensity moving from FinFET to nanosheet, at least.

Okay. Our next question is how has Nova managed recent commodity price increases, passing on to customers, et cetera?

Dror?

Yes. So first of all, it is evident that we are facing pricing pressure or cost pressure from our supply chain. In parallel, we are operating in a competitive environment where we need to be competitive with pricing with the customers. All in all, I think that we are taking the actions in order to mitigate that. One action is increasing the revenues from high-value products for the new technologies and software. The other element is increasing inventories and volume purchase agreements with the suppliers, which maintain prices. Obviously, the third element is ability to reduce cost in the elements that we do control such as cycle time and other elements of the product cost. Overall, I think that as I mentioned in my presentation, we believe that through the Nova 500 plan, we will be able to maintain the 57% to 59% gross margins as we did in last years.

Okay. And there is another one. How has Nova's revenues and market breakdown shifted as the electric vehicle market has grown?

So I think that this is a question that is related to a variety of new growth engines in the market. When we're looking right now on advanced applications, it's either being an advanced smartphone or being an advanced vehicle or advanced electrical vehicle. The amount of chips and the amount of advanced chips that are needed for a car or a smartphone or for that point, in high-power computing is, of course, increasing dramatically. In order to improve performance for those applications or those end user devices, you need to increase from one side, the amount of chips that you're getting in, and from the other side, you need to change the complexity of those chips. If before, you could use some of those chips coming from older and traditional technology nodes, we're starting to see that those applications are starting to use more advanced nodes. They need it smaller, they need it with a lot of performance. And therefore, as much as those growth engines are growing faster and increasing demand for that is increasing in the market, we see that the demand for advanced chips is growing. And therefore, as I said before, this is a simple equation. Once the demand is growing, there is increase in demand for metrology tools. And once it's becoming complex, the intensity is growing as well. And on top of it, once you change the architecture or you increase the amount of materials or you change the composition of materials, you need again more metrology, and you see that in the results and the plan in the future. So when we're looking on the model of the 500 or looking on the model of the growth in the future, we're always doing a top-down analysis, looking right now on all devices and advanced devices and general devices and see how they progress over the years, what chips or what semiconductor elements they include and therefore, where they have been introduced, what technology they have been introduced and what does it do to our model. And therefore, all those applications that require advanced technology for sure increased, at the end, the demand and intensity of the metrology capabilities for those advanced customers.

Great. We have just a couple of more questions. How do you see the market evolving in the second half of 2021?

So I was expecting these questions looking right now on the second half. From one side, I want to have one disclaimer is that we are a few days away from our earnings call on the 5th of August, which I hope to see everybody there. And under this disclaimer and those limitations, I can say a few things. I can relate to our -- to the market, and I can relate also to what we see in the market that influence Nova's results. From one side, I can say that the market is continue growing, okay? So the fact that the corona didn't left us yet and the COVID-19 is still here with some limitation, force all of us to work differently, okay? So as I said in my presentation, industries are being changed, working protocols are being shaped, people are playing more from home, people shop more from home. The whole hybrid model is creating some different infrastructure that need to be supported by the semiconductor. So all those things that happens during the corona increased the demand for semiconductor. It's increasing the logic probabilities or the logic demand because you have more devices that need computing power, but you also increase the amount of data that has been required to be stored. So therefore, you need more -- you have more demand for data centers and cloud and everything that is related with the storage. So this is memory. So the combination of logic and memory is keep on growing in the second half going into 2022 as well. And we see this demand not being covered or the gap is not being covered even until the end of this year or until the end of the first quarter of 2022 from our visibility. From our visibility currently, there are strong demand from logic, there are recovering demand for memory. And overall, there's a very strong demand for semiconductor. We see that both through the advanced nodes as well as the traditional nodes like 20, 28, even 40 in China. Additionally to that, we do see that the limitation on trades, mainly between U.S. and China, creating parallel capacity that has been invested both in China and in the U.S. And therefore, we see investment and growth in local China, and we do see the plans of a few customers to build their facility in the U.S., which is going to influence the overall demand in the coming -- at least in the coming couple of quarters. And therefore, I am optimistic that the market will continue growing. How does it influence Nova, this is the second part. So without getting into results, and you know that we don't give guidance beyond the coming quarter. We didn't publish yet the second quarter, but when we're looking right now on the accumulated booking or book-to-bill ratio or pace for the second half, we do see a second half which is a strong second half. And according to what we see right now, if some capacity will not slip between quarters, we do see that the second half is at least strong as the first one with some upside to be even stronger than the first half.

Do you have any acquisition targets in the current market?

So this is a question that we deal with in every discussion that we have. So one side, we are very aggressively looking on the M&A acquisition market. We do think that beside the growth organically, we need to grow also inorganically. And we have our set of targets, set of criteria, as Dror said. It needs to meet at least the majority of the criteria that we have, which start with synergy, with very close to our model that the company needs to be profitable, it has to grow and it has to have some kind of connection on the technical level that we can enhance. So when you're looking on this criteria and you go to the market, there is a set of targets that we are looking at. But on the other side, we -- all of us see what happens in the market. We've seen the valuation, we've seen the multiples. And it's not an optical market, it's not an optical -- sorry, it's not an optimal market to be a buyer. I'm not so sure it's optimal market to sell, but it's a very tough environment to buy. We know that semiconductor is always a tough environment to be a buyer. But in this specific period, it's tough. We do look on the 2 ends of the equation. From one side, we're looking on large companies that can scale us in large amount. And from the other side, we're looking also on a couple of technology companies that maybe can enhance our technology, either in the hardware part or the software part. It always was part of the strategy, and we are continuing looking on those targets specifically in the next coming quarter because we want to enhance the growth and the scale.

Great. And the last question, will the cash flow continue to be as strong as it has been over the last years?

So looking at the model of Nova, obviously, the profitability or operating margin is rather high, around 25%, sometimes more at that. And also looking at the last, let's say, 4 quarters, Nova did generate around 25% of the revenues in operating cash flow. Looking at the buildup of our infrastructure projects, combined with the fact that the company will need to invest in working capital in terms of the growth looking forward, we still expect high level of operating cash flow of around 20% of revenues.

Great. Okay. So let me just look very quickly. I believe that -- oh, I see that we just got a question from Jonathan Art, Federated -- from Federated. I have the question here in front of me. So in terms of revenue mix by optical versus X-ray, how will it look like? And how big is the software business going to be?

So I will -- thank you, Jonathan, for the question. I'll allow -- I will let Dror answer that.

So first of all, we are not disclosing on the company level breakdown of revenues between optical and X-ray or dimensional materials. What I can say is that both of them are growing. Still, today, the dimensional part, which is focusing on the optical element is still the higher portion of the revenues. But we do expect materials as they are becoming more crucial for the next technology nodes to even accelerate in terms of revenues. In terms of the software, in 2020, it was around 7% of the company product revenues. Our model assumes that these revenues will increase to around 10% of the company revenues. As I mentioned before, the growth of service -- of software revenues is very important for the company, from the aspect of gross margins, profitability and obviously, stickiness with the customers.

And a follow-up from another investor, the breakdown between integrated and stand-alone?

Again, we do not disclose the specific numbers of our product lines, including integrated and stand-alone. What I can say is that, obviously, Nova is leading the integrated metrology arena. We have only 1 competitor in this arena, and Nova is the market leader in this market. In terms of the stand-alone market, Nova was able to grow its market share in recent years, mainly as a result of the introduction of the new standalone technology that Shay referred to, the Nova PRISM, but I can't give the details of the specific revenues of the product lines.

Great. So at this point, there are no further questions. I'd like to direct your attention back to Eitan Oppenhaim, President and CEO for closing remarks. And if anyone has any additional questions, so as we mentioned, we'll be happy to answer those during the second quarter conference call. We will hold our conference call on August 5 at 8:30 a.m. Eastern Time. Eitan, please go ahead.

Yes. Thank you, Miri. And again, thank you all for joining us today. I hope that next time we can actually meet face-to-face. I also hope that we could convince you and share with you our optimistic approach towards the future of semiconductor in Nova, particularly in this market. We are very well prepared, and we are increasing or strengthening our position in the market day in, day out, and therefore, we are aggressive in our plans, and we are -- and we believe that we can outgrow the market in the next few years as part of the Nova 500 plan. I would like also to use this opportunity to share my deep gratitude to all Nova's employees globally that actually make a difference every day, day in, day out. It's because of them, the company reached such growth rate in such heights in the last few years. I believe that due to their dedication and due to their engagement, we can continue growth -- grow in this market, and I really appreciate and thank them. With that, we conclude our session. You had both the presentation and the Q&A sessions. We are going to upload this presentation, including the recording into our website, so you can review it again. And I hope that we will see each other very soon in the earnings call on August 5, where we'll share with you the second quarter earning results. Thank you, be safe and see you soon. Thanks.