UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
20-F
OR
For the fiscal year ended
December 31
,
2024
OR
OR
Commission File Number
000-30668
(Exact name of Registrant as specified in its charter)
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Nova Ltd.
(Translation of Registrant’s name into English)
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(Jurisdiction of incorporation or organization)
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(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of the Registrant’s Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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The
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
29,278,401
ordinary shares, as of December 31, 2024.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
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Indicate by check mark whether the registrant has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes
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No
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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in filing reflect the correction of an error to previously issued financial statements.
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive – based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
International Financing Reporting Standards as issued by the International Accounting Standards Board
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Other
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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17
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Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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No
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TABLE OF CONTENTS
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Page
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1
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1
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1
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1
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3A.
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Selected Financial Data
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1
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3B.
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Capitalization and Indebtedness
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1
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3C.
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Reasons for the Offer and Use of Proceeds
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1
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3D.
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Risk Factors
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1
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28
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4.A
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History and Development of the Company
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28 |
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4.B
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Business Overview
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29
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4.C
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Organizational Structure
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40
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4.D
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Property, Plant and Equipment
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40
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41
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41
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5.A
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Operating Results
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45
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5.B
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Liquidity and Capital Resources
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47
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5.C
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Research and Development, Patents and Licenses, etc.
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48
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5.D
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Trend Information
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50
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5.E
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Critical Accounting Estimates
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50
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53
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6.A
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Directors and Senior Management
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53
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6.B
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Compensation
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56
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6.C
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Board Practices
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58
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6.D
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Employees
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65
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6.E
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Share Ownership
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65
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6.F
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Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation.
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66
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67
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7.A
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Major Shareholders
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67
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7.B
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Related Party Transactions
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68
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7.C
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Interest of Experts and Counsel
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69
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69
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8.A
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Consolidated Statements and Other Financial Information
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69
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8.B
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Significant Changes
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69
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69
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9.A
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Offer and Listing Details
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69
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9.B
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Plan of Distribution
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69
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9.C
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Markets
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70
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9.D
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Selling Shareholders
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70
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9.E
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Dilution
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70
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9.F
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Expenses of the Issue
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70
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70
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10.A
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Share Capital
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70
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10.B
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Memorandum and Articles of Association
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70
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10.C
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Material Contracts
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70
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10.D
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Exchange Controls
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70
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10.E
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Taxation
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71
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10.F
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Dividends and Paying Agents
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85
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10.G
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Statements by Experts
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85
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10.H
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Documents on Display
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85
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10.I
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Subsidiary Information
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85
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10.J
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Annual Report to Security Holders
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85
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85
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86
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86
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86
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INTRODUCTION
In this annual report (this “
Annual
Report
”), references to “we,” “us,” “our,” “our business,” “the Company,”
“Nova” and similar references refer to Nova Ltd. and, where appropriate, its consolidated subsidiaries.
This annual report contains estimates, projections
and other information concerning our industry and our business, as well as data regarding market research, estimates and forecasts prepared
by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently
subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this
information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including
those discussed under the headings “Special Note Regarding Forward-Looking Statements” and Item 3.D. “Risk Factors”
in this Annual Report.
FORWARD – LOOKING STATEMENTS AND RISK FACTORS SUMMARY
This Annual Report contains estimates and forward-looking
statements, principally in the sections entitled Item 3.D. “Key Information—Risk Factors,” Item 4. “Information
on the Company,” and Item 5. “Operating and Financial Review and Prospects.” In some cases, these forward-looking statements
can be identified by words or phrases such as “may,” “might,” “will,” “could,” “would,”
“should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,”
“estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible”
or similar words. Statements regarding our future results of operations and financial position, growth strategy and plans and objectives
of management for future operations, including, among others, expansion in new and existing markets, are forward-looking statements.
Our estimates and forward-looking statements are
mainly based on our current expectations and estimates of future events and trends which affect or may affect our business, operations
and industry. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are
subject to numerous risks and uncertainties.
These forward-looking statements are subject to a
number of known and unknown risks, uncertainties, other factors and assumptions, including the risks described in Item 3.D “Key
Information—Risk Factors” and elsewhere in this Annual Report.
The below important factors and uncertainties, among
others, could cause actual results to differ materially from those described in these forward-looking statements. The below is also a
summary of the risk factors described in Item 3.D “Key Information – Risk Factors” of this Annual Report.
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Risks Related to Economic
and External Risks
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Increased cybersecurity threats and more sophisticated computer crime could disrupt our business.
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We depend on international sales, which expose us to foreign political and economic risks.
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We are subject to laws and regulations that could restrict our operations such as economic sanctions and export restrictions.
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Changes in global trade policies and other factors beyond our control may adversely impact our business, financial condition and
results of operations.
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Changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact
our business, results or operations and financial condition.
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We may be affected by instability in the global economy and by financial turmoil.
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Because we derive a significant portion of our revenues from sales in Asia, our sales could be hurt by instability of Asian economies.
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Our business is subject to risks related with doing business in China.
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Risks Related to Technology
and Intellectual Property
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Because of the technical nature of our business, our intellectual property is extremely important to our business, and our inability
to protect our intellectual property could harm our competitive position.
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There has been litigation involving intellectual property rights in the semiconductor and related industries, and similar litigation
could force us to divert resources to defend against such litigation or deter our customers from purchasing our systems.
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We may incorporate open-source technology in some of our software and product, which may expose us to liability and have a material
impact on our product development and sales.
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We may use AI technologies which may expose us to liability and have a material impact on our product development.
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Risks Related to our
Industry
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We operate in an extremely competitive market, and if we fail to compete effectively, our revenues and market share will decline.
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If we do not respond effectively and on a timely basis to rapid technological changes, our ability to attract and retain customers
could be diminished, which would have an adverse effect on our sales and ability to remain competitive.
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The ongoing consolidation in our industry may harm us if our competitors are able to offer a broader range of products and greater
customer support than we can offer or if our main suppliers cease delivery of important component as a result of being acquired by a larger
company.
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The markets we target are cyclical and it is difficult to predict the length and strength of any downturn or expansion period.
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Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health, or ESH,
regulations.
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Risks Related to our
Operations
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Challenges in designing or implementing our new ERP system could negatively impact our business and operations.
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Pricing and demand for our specific product lines could substantially reduce our sales.
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We depend on a small number of large customers, and the loss of one or more of them could significantly lower our revenues.
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Our inability to significantly reduce spending during a protracted slowdown in the semiconductor industry could reduce our prospects
of achieving continued profitability.
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There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development
costs.
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New product lines that we may introduce in the future may contain defects, which will require us to allocate time and financial resources
to correct.
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If any of our systems fail to meet or exceed our internal quality specifications, we cannot ship them until such time as they have
met such specifications.
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Our dependence on a single manufacturing facility per product line magnifies the risk of an interruption in our production capabilities.
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Our lease agreements for our Manufacturing Facilities include provisions that exempt the landlord and others from liability for damages
to our Manufacturing Facilities.
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Shipment changes or cancellation may render our backlog not a reliable indicator of actual sales and financial results.
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We may not be able to successfully complete and integrate current and/or future acquisitions.
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We depend on continuous cooperation with Process Equipment Manufacturers (“PEMs”) to enable sales of our systems which
are integrated with the process equipment.
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Some of our commercial agreements with PEMs and customers may include exclusivity provisions and limitations on the use of certain
intellectual property which could limit or prevent future business relationships with third parties.
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We depend on a limited number of suppliers, and in some cases a sole supplier.
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The disclosure rules regarding the use of conflict minerals may affect our relationships with suppliers and customers.
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Our lengthy sales cycle increases our exposure to customer delays in orders, which may result in obsolete inventory and volatile
quarterly revenues.
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Our inability to attract, recruit, retain highly skilled key personnel.
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Risks Related to Our
Incorporation and Location in Israel
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Conditions in Israel, including Israel’s conflicts with Hamas and other parties in the region, as well as political and economic
instability, may adversely affect our business, our results of operations and our ability to raise additional funds.
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Risks Related to Our
Indebtedness and Capital Structure
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Our convertible senior notes may impact our financial results, dilute existing shareholders, and create downward pressure on the
price of our ordinary shares.
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Risks Related to Financial,
Legal, Regulatory and Taxation Risks
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Currency fluctuations could harm our profit margins.
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We received certain research and development grants, which could impose restrictions on our ability to use technology developed under
these programs.
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Certain shareholders may control the outcome of matters submitted to a vote of our shareholders, including the election of directors.
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The market price of our ordinary shares may be affected by a limited trading volume and may fluctuate significantly.
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We may be classified as a “passive foreign investment company” for U.S. income tax purposes, which could have significant
and adverse tax consequences to U.S. shareholders.
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The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities
of shareholders under U.S. law.
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Our shares are listed for trade on more than one stock exchange.
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You should not rely on forward-looking statements
as predictions of future events. We have based the forward-looking statements contained in this Annual Report primarily on our current
expectations and projections about future events and trends that we believe may affect our business, financial condition and operating
results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors
described in the section titled “Risk factors” and elsewhere in this Annual Report. Moreover, we operate in a very competitive
and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks
and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. The results, events and
circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could
differ materially from those described in the forward-looking statements.
In addition, statements that “we believe”
and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to
us as of the date of this Annual Report. While we believe that information provides a reasonable basis for these statements, that information
may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review
of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Annual
Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking
statements made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information
or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking
statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
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OUR FUNCTIONAL CURRENCY
Unless otherwise indicated, all amounts herein are expressed in United States dollars
(“U.S. dollars”, “dollars”, “USD”, “US$” or “$”).
The currency of the primary economic environment in which we operate is the U.S. dollar,
since substantially all our revenues to date have been denominated in U.S. dollars and over 50% of our expenses are in U.S. dollars or
in New Israeli Shekels linked to the dollar. Transactions and balances denominated in dollars are presented at their original amounts.
Non-dollar transactions and balances have been re-measured into dollars as required by the principles in ASC 830 Foreign Currency Matters.
All exchange gains and losses from such re-measurement are included in the net financial income when they arise.
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PART I
Item 1.
Identity of Directors,
Senior Management and Advisors
Not applicable.
Item 2
. Offer Statistics and
Expected Timetable
Not applicable.
Item 3
. Key Information
3A.
Selected Financial Data
[Reserved]
3B.
Capitalization and Indebtedness
Not applicable.
3C.
Reasons for the Offer and Use of Proceeds
Not applicable.
3D.
Risk
Factors
You should carefully consider the risks described
below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also
impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected
by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may lose
all or part of your investment. This Annual Report also contains forward- looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this Annual Report.
Economic and External Risks
Increased information technology security threats and more sophisticated
computer crime could disrupt our business.
Our global operations
are linked by information systems, including telecommunications, the internet, our corporate intranet, network communications, email and
various computer hardware and software applications. In light of information technology security threats, we have implemented network
security measures and engaged the services of cybersecurity experts to implement security policies and tools which were reviewed and discussed
by our audit committee and board of directors. In the current environment, there are numerous and evolving risks with regards to cybersecurity
and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human
or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and
security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting businesses such as
ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently
induce employees, customers, sub-contractors, agents, distributors or others to disclose information or unwittingly provide access to
systems or data. In addition, some of our software and products utilize open-source technologies, which may also be used by computer hackers
for the purpose of cyber-attacks. Since the beginning of the war between Israel and Hamas which began on October 7, 2023, and other hostilities
with Hezbollah, Iran and other Iranian proxies, Israeli and Israeli associated companies have become more frequently the target of cyberattacks.
As such, the risk of a cyberattack against our information technology systems and data security may become heightened. Furthermore, the
increasingly growing capabilities of artificial intelligence (“AI”) and its availability to public use and adopted, may be
used to identify vulnerabilities in our systems craft sophisticated cyberattacks.
1
Although we have invested in measures to reduce these
risks, such as creating a cybersecurity risk management program in place a cybersecurity incident response plan which includes an incident
response plan, we can provide no assurance that our current IT systems are fully protected against third-party intrusions, viruses, hacker
attacks, information or data theft or other similar threats. The cost and operational consequences of implementing, maintaining, and enhancing
further data or system protection measures could increase significantly to overcome increasingly intense, complex, and sophisticated global
cyber threats. Despite our best efforts, we are not fully insulated from data breaches and system disruptions and, accordingly, we have
experienced and expect to continue to experience actual or attempted cyberattacks of our IT networks. Although none of these actual or
attempted cyberattacks has had a material adverse effect on our operations or financial condition thus far, we cannot guarantee that any
such incidents will not have a material adverse effect on our operations or financial condition in the future. Any material breaches of
cybersecurity or media reports of perceived security vulnerabilities to our systems or those of the Company’s third parties, even
if no breach has been attempted or occurred, could cause us to experience reputational harm, loss of data, loss of customers and revenue,
regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard our customers’
information, or financial losses that are either not insured against or not fully covered through any insurance maintained by us. Any
of the foregoing may have a material adverse effect on our business, operating results and financial condition.
As
such, our tools and servers may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with
our computer systems and tools located at our facility, at cloud services or at customer sites, or could be subject to system failures
or malfunctions for other reasons. Increased information technology security threats and more sophisticated computer crime pose a risk
to the security of our systems and networks and the confidentiality, availability and integrity of our data or customer data or suppliers’
data. Cybersecurity attacks could also include attacks targeting the security, integrity and/or reliability of the hardware and software
installed in our products. System failures or malfunctioning could disrupt our operations and our ability to timely and accurately process
and report key components of our financial results.
We are dependent on international sales, which expose us to foreign
political and economic risks that could impede our revenue stream.
Our principal customers are located in Taiwan, South
Korea, China and the United States, and we produce our products in Israel, the United States and Germany. International operations expose
us to a variety of risks that could seriously impact our financial condition and impede our revenue stream including:
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instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchange restrictions
and devaluations, restrictive governmental controls on the movement and repatriation of earnings and capital, and actual or anticipated
military or political conflicts, , particularly in emerging markets, including but not limited to, the impeachment motion against the
South Korean President Yoon Suk-Yeol; rising inflation and elevated U.S. budget deficits and overall debt levels, including as a result
of federal pandemic relief and stimulus legislation and/or economic or market and supply chain conditions, can put upward pressure on
interest rates and could be among the factors that could lead to higher interest rates in the future. Higher interest rates could adversely
affect our overall business or reduce our liquidity.
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2
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intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars and acts of terrorism or war, including
the current war between Russia and the Ukraine, the war between Hamas and Israel and the limited military operations in Lebanon, Syria,
Yemen and other areas in the Middle East, as well as the tensions between Taiwan and China and the Chinese actions in the South China
Sea; and
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interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited
to, strikes, shortage in raw materials and subcomponents due to geopolitical situation and financial instabilities. For instance, trade
restrictions, changes in tariffs and import and export license requirements could adversely affect our ability to sell our products in
the countries adopting or changing those restrictions, tariffs or requirements. This could reduce our sales by a material amount.
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All of these risks could result in increased costs
or decreased revenues, either of which could have a materially adverse effect on our profitability.
We are subject to laws and regulations that could restrict our
operations, including economic sanctions and export restrictions.
Our business is subject to certain laws and restrictions
based on the items we export and countries with which we conduct business.
Specifically, starting 2018 and to date, the U.S.
Department of Commerce, Bureau of Industry and Security (BIS) has taken actions to restrict exports to several Chinese-based semiconductor
manufacturers by adding them to the U.S. Export Administration Regulations’ (EAR) Entity List. These manufacturers have acquired
and continue to acquire several of our metrology solutions. Due to the abovementioned export restrictions, our U.S. subsidiary is currently
restricted from shipping tools or parts, or to provide any form of service to such customers, until it is granted an appropriate license
by BIS.
In addition, in 2020 the U.S. Department of State
introduced restrictions on exporting to customers who are suppliers to Huawei, which is a Chinese based electronics supplier.
In October 2022, the U.S. Department of Commerce
introduced additional restrictions that have limited the ability of our U.S. subsidiary to serve a small portion of the available Chinese
market. As part of these restrictions, in addition to the Entity List additions, the U.S. Department of Commerce has also restricted shipment
of products used for certain advanced technology nodes, including products that use artificial intelligence and advanced computing products.
Consequently, our U.S. subsidiary is required to obtain a license in order to ship to certain Chinese entities which are known to have
or are known to plan to have, certain advanced-nodes manufacturing or development abilities (as those are defined in the EAR). These restrictions
also apply to shipments of high-power advanced chips to China (as those are defined in the regulations), by any entity. These new restrictions
also impose personal liability on any “U.S. Person” who has “knowledge” that any item shipped, transmitted
or transferred will be used for certain advanced nodes and/or high-powered chips development or production.
3
In October 2023, the U.S. Department of Commerce
issued two additional rules further restricting China’s ability to obtain advanced computing chips, develop and maintain supercomputers,
and manufacture advanced semiconductors, and added several new Chinese entities to the Entity List. In November 2023, the U.S. Department
of Commerce also partially suspended some of the licenses granted by it concerning certain Chinese customers as recipients.
In September 2024, the U.S. Department of Commerce
issued an interim final rule further restricting certain end uses for semiconductor capital equipment. This interim final rule targets
advanced technologies such as GAAFET (Gate-All-Around field effect transistor), advanced semiconductor manufacturing equipment and Quantum
computers controls, which includes hardware, software, and related components. Pursuant to this, exporters will need to obtain licenses
for the export outside of the US, reexport, or transfer (in-country) of certain items, all subject to the terms of the general license
issues together with the interim final rule.
In December 2024, BIS issued a package of rules designed
to further impair China’s capability to produce advanced-node semiconductors with ‘military applications’, that can
be used in the next generation of advanced weapon systems and in artificial intelligence (AI) and advanced computing. Such regulatory
measures include, but are not limited to, new controls on semiconductor manufacturing equipment, new controls on software tools, new controls
on high-bandwidth memory (HBM), and additions of 140 entities to the Entity List. The regulatory update also includes the establishment
of two new Foreign Direct Product (FDP) rules and corresponding de minimis provisions, new software and technology controls, and a clarification
to the EAR regarding existing controls on software keys.
In some cases, the abovementioned export restrictions
might also be applicable to the items exported from countries other than the U.S., either by international arrangements made between countries,
as updated from time to time, imposing export limitation and supervisory duties, or by limitations on the re-export of certain U.S. origin
items.
Since the introduction of each of these restrictions,
we have put in place processes to ensure compliance with applicable restrictions. While we continue to conduct detailed assessments of
the new restrictions and monitor new sanctions and restrictions that could arise, any potential violations of such regulations, whether
under U.S. or other jurisdictions, could have an adverse impact on our reputation, business, results of operations and financials.
New export control regulations
have also been introduced in other jurisdictions, including certain European countries, including Germany and the Netherlands which are
adopting or expected to adopt comparative controls to the U.S. EAR; China on items related to gallium and germanium; and Japan on advanced
semiconductor-manufacturing equipment.
While certain export
administration regulations issued in some jurisdictions currently do not have a direct major effect on us, these may have an adverse effect
on our supply chain, as well as the semiconductor manufacturing sector in China by reducing the demand for metrology equipment from this
sector and therefore indirectly affect our sales. In addition, our growing presence in Europe, through recent acquisitions, may increase
our exposure to changes in the European export control regulations and updates to the Wassenaar List of Dual-Use Goods.
We are also subject to the Israeli export control
regime, which mainly governs defense exports and export of dual-use items. Dual-use items are defined under the Israeli export control
regime in accordance with the Wassenaar List of Dual-Use Goods and Technologies (the Wassenaar Control List), which is adopted into the
Israeli law. Our products are not currently subject to control under Israeli law. However, the Wassenaar Control List is updated annually,
and any changes in the classification of the components, materials, software or technology used in our products could impact exports from
Israel, potentially leading to licensing requirements which may delay our export operations, create additional costs related to handling
the licensing requests, and potentially limit our market, as sales and export of controlled items would be subject to the regulator's
discretion.
Changes in global trade policies and other factors beyond our control
may adversely impact our business, financial condition and results of operations.
The international environment in which we operate
is affected by inter-country trade agreements and tariffs. As a result of recent revisions in the U.S. administrative policy there are,
and may be additional, changes to existing trade agreements, greater restrictions on free trade and significant increases in tariffs on
goods imported into the United States. Therefore, there is current uncertainty about the future relationship between the United States
and other countries with respect to trade policies, taxes, government regulations, and tariffs, and we cannot predict whether, and to
what extent, U.S. trade policies will change in the future, including as a result of changes by the new U.S. presidential administration.
For example, the U.S. has recently signaled its intention to change U.S. trade policy, including potentially renegotiating or terminating
existing trade agreements and leveraging tariffs. In February 2025, the U.S. imposed additional tariffs on imports from China and subsequently
paused implementation of tariffs on imports from Canada and Mexico. These additional tariffs or any future tariffs or retaliation by another
government against such tariffs or policies have introduced significant uncertainty into the market. Future actions of the U.S. administration
and that of foreign governments, including China, with respect to tariffs or international trade agreements and policies, remain currently
unclear.
4
The escalation of a trade war, tariffs, retaliatory
tariffs or other trade restrictions on products and materials either exported by us to China or raw materials imported by us from China
may significantly impede our ability to provide our solutions and service our customers in China or other effected locations. Such developments
may result in a decrease in demand for our products and technologies as well as delays in payments from our customers. Furthermore, other
governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions
or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries, where our
customers are located, could adversely affect our business, financial condition, operating results and cash flows.
We may be affected by instability in the global economy and by financial turmoil.
There is an inherent risk, based on the complex relationships
among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and national security influences might lead to trade
disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry. This would adversely affect our business
with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region or global economy. A significant trade dispute, impact
and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits. Instability
in the global markets and in the geopolitical environment in many parts of the world, including current war between Russia and the Ukraine,
as well as other disruptions may continue to put pressure on global economic conditions. In the event global economic and market conditions,
or economic conditions in key markets, remain uncertain or deteriorate further, we may experience material impacts on our business, operating
results, and financial condition.
The Russia – Ukraine conflict could affect our business.
The ongoing war between Russia and Ukraine has impacted
not only the global economy but the global energy markets as well, in particular the European energy market. Following our recent acquisition
of a German subsidiary, we are experiencing the effects of the increasing prices for energy supplies. This could result in increased operating
expenses in Germany, in the expense of shipping materials to and from our various facilities, and wellbeing of our employees with respect
to the energy crisis in Europe and the inability to heat buildings etc. Since the Russian invasion of Ukraine, the cost for liquefied
natural gas has more than doubled, this could lead to further energy price increase, causing global market disruption and volatilities
in supply chain. The high volatility of energy prices could have a negative effect on our acquisition in Germany, and our business expansion
in other regions, which may adversely affect our financial condition and operating results.
Current market conditions, including inflation and recessionary
pressures could affect our growth and profitability.
The inflation, slower
growth, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment, geopolitical issues increase
in energy costs, unstable global conditions and changes in currency exchange rates have led to global economic instability. Furthermore,
despite recent reductions in interest rates by the U.S. Federal Reserve, such rates remain subject to fluctuations and could rise in the
future. Such changes, and their impact on the global macro-economic environment, can impact our business, operating results, and financial
condition.
5
Because we derive a significant
portion of our revenues from sales in Asia, our sales could be hurt by instability of Asian economies.
A
number of Asian countries have experienced political and economic instability. For instance, Taiwan and China have had a number of disputes,
as have North and South Korea, and Japan has for a number of years experienced significant economic instability. Additionally, the Asia-Pacific
region is susceptible to the occurrence of natural disasters, such as earthquakes, cyclones, tsunamis and flooding. We have subsidiaries
in Taiwan, South Korea, China, Japan and Singapore and we have significant customers in Taiwan, South Korea and China. An outbreak of
hostilities or other political upheaval, economic downturns or the occurrence of a natural disaster in these or other Asian countries
would likely harm the operations of our customers in these countries, causing our sales to suffer.
Our business is subject to the risks associated with doing business
in China.
Our results of operations, financial conditions,
and prospects are subject to a significant degree to economic, political and legal developments in China including government control
over capital investments or changes in tax regulations that are applicable to us. China’s economy differs from the economies of
most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth
rate and control of foreign exchange, and allocation of resources. As one of our subsidiaries is located in China, our business is subject
to the risks associated with doing business in China, including:
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trade protection measures, such as tariff increases, and import and export licensing and control requirements;
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potentially negative consequences from changes in tax laws;
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difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual
obligations in China;
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historically, lower protection of intellectual property rights;
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changes and volatility in currency exchange rates;
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unexpected or unfavorable changes in regulatory requirements; and
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local preference of emerging local competitors in China.
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Our business could be disrupted by catastrophic events.
The occurrence of unforeseen or catastrophic events
such as terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, emergence of a pandemic, or other widespread
health emergencies (or concerns over the possibility of such an emergency), could create economic and financial disruptions, and could
lead to operational difficulties that could impair our ability to manage our business.
Risks related to technology and
intellectual property
Because of the technical nature of our
business, our intellectual property is extremely important to our business, and our inability to protect our intellectual property could
harm our competitive position.
Our continued success depends upon our ability to
protect our core technology and intellectual property. We therefore have an extensive program devoting resources to seeking patent protection
for our inventions and discoveries that we believe will provide us with competitive advantages. Our patents, utility models and patent
applications principally cover various aspects of optical measurement systems and methods, integrated process control implementation concepts,
and optical, opto-mechanical and mechanical design. In addition, our patents and applications cover various aspects of X-ray based measurement
systems and methods, including process control implementation concepts, X-ray energy sources, electron optics and detection, vacuum systems
and equipment integration. Additionally, our chemical metrology equipment requires coverage of various elements and sub-systems performing
various types of chemical analysis of the process chemicals and semiconductor wet process control – including electrodeposition,
wet etch and clean and CMP sectors.
6
We cannot assure that:
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pending patent applications will be approved; or
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any patents will be broad enough to protect our technology, will provide us with competitive advantages or will not be challenged
or invalidated by third parties. We also cannot assure that others will not independently develop similar products, duplicate our products
or, if patents are issued to us, design around these patents. Furthermore, because patents may afford less protection under foreign law
than is available under U.S. law, we cannot assure that any foreign patents issued to us will adequately protect our proprietary rights.
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In
addition, a number of patents which relate to our main-stream products have already expired or are expected to expire in the coming years.
Such expiration may add significant competition to our tools in this area, which may lead to a decrease in our incomes. In addition, not
all our patents provide coverage in all territories we operate in, and thus in some territories there is less coverage on some product
lines.
In
addition to patent protection, we also rely upon trade secret protection, employee and third-party nondisclosure agreements and other
intellectual property protection methods to protect our confidential and proprietary information. Despite these efforts, we cannot be
certain that others will not otherwise gain access to our trade secrets or disclose our technology.
Additionally, as part of our long-term technological
collaboration, we are engaged with joint development activities with some of our strategic customers and vendors as well as with research
institutes. These activities impose some limitations on the joint intellectual property developed as part of these programs.
Furthermore,
we may be required to institute legal proceedings to protect our intellectual property. If such legal proceedings are resolved adversely
to us, our competitive position and/or results of operations could be harmed. For additional information on our intellectual property,
see “Item 4B. Business Overview — Intellectual Property” in this Annual Report.
There has been significant litigation involving intellectual property
rights in the semiconductor and related industries, and similar litigation involving our Company could force us to divert resources to
defend against such litigation or deter our customers from purchasing our systems.
We
have been, and may in the future be, notified of allegations that we may be infringing intellectual property rights possessed by others.
In addition, we may be required to commence legal proceedings against third parties, which may be infringing our intellectual property,
in order to defend our intellectual property. In the future, protracted litigation and expense may be incurred to defend ourselves against
alleged infringement of third-party rights or to defend our intellectual property against infringement by third parties. Adverse determinations
in that type of litigation could:
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result in our loss of proprietary rights;
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subject us to significant liabilities, including triple damages in some instances;
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require us to seek licenses from third parties, which licenses may not be available on reasonable terms or at all; or
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prevent us from selling our products.
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Any litigation of this type, even if we are ultimately
successful, could result in substantial cost and diversion of time and effort by our management, which by itself could have a negative
impact on our profit margin, available funds, competitive position and ability to develop and market new and existing products. For additional
information on our intellectual property, see “Item 4B. Business Overview — Intellectual Property” in this Annual Report.
7
We may incorporate open-source technology in some of our software
and products, which may expose us to liability and have a material impact on our product development and sales.
In order to leverage big data and distributed computing,
some of our software and products utilize open-source technologies. These technologies may be subject to certain open-source licenses,
including but not limited to the General Public License, which, when used or integrated in particular manners, impose certain requirements
on the subsequent use of such technologies, and although scanned and reviewed may pose a potential risk to proprietary nature of products.
In the event that we have or will in the future, use or integrate software that is subject to such open source licenses into or in connection
with our products in such ways that will trigger certain requirements of these open source licenses, we may (i) be required to include
certain notices and abide by other requirements in the absence of which we may be found in breach of the copyrights owned by the creators
of such open source technologies; and/or (ii) be required to disclose our own source code or parts thereof to the public, which could
enable our competitors to eliminate some or any technological advantage that our products may have over theirs. Any such requirement to
disclose our source code or other confidential information related to our products, and the failure to abide by license requirement
resulting in copyright infringement, could materially adversely affect our competitive position and impact our business results of operations
and financial condition.
We may use AI technologies which may expose us to liability and
have a material impact on our product development.
AI is driving more semiconductor businesses, specifically
those in process control. Utilizing AI as part of process control is changing and will change the nature of the solutions and may change
the balance between hardware capabilities and software or algorithms needs. AI is a rapidly evolving technology which requires further
review and analysis to ensure that any line of codes we generate by using these tools is accurate, complies with quality standards, does
not infringe any legal or commercial terms, and is secured code. Furthermore, our competitors may be more successful in integrating AI
technology into their products. While AI is creating efficiency in some aspects of our development, such as software coding and customer
support, there can be no assurance AI will enhance our business operations. While we scan and review these technologies prior to use,
when using third party AI technologies, that generate packages and lines of code, certain risks may arise, including: (i) accuracy and
quality of the code; (ii) enforcement of legal and commercial terms; (iii) security of the code potentially exposing us to cybersecurity
risks such as defects, viruses, ransomware or malware.
8
Risks related to our industry
We operate in an extremely competitive
market, and if we fail to compete effectively, our revenues and market share will decline.
Although the market for process control systems used
in semiconductor manufacturing is currently concentrated and characterized by relatively few participants, the semiconductor capital equipment
industry is intensely competitive. We compete mainly with Onto Innovation Inc., and KLA Corp., which manufacture and sell CD, thin films
and chemical metrology and process control systems. In addition, we compete with process equipment manufacturers (“PEMs”),
such as ASML Holdings N.V., LAM Research, and Applied Materials Inc., which develop (or additionally may acquire companies which develop)
in-situ sensors and metrology products. Established companies, both domestic and foreign, compete with our product lines, and new competitors
enter our market from time to time, including the recent emergence of local competitors in China. Some of our competitors have greater
financial, engineering, manufacturing and marketing resources than we do. If a particular customer selects a competitor’s capital
equipment, we expect to experience difficulty in selling our solution to that customer for a significant period of time. A substantial
investment is required by the customers to evaluate, test, select and integrate capital equipment into a production line. As a result,
once a manufacturer has selected a particular vendor’s capital equipment, we believe that the manufacturer generally relies upon
that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements
with the same vendor. Accordingly, unless our systems offer performance or cost advantages that outweigh a customer’s expense of
switching to our systems, it will be difficult for us to achieve significant sales from that customer once it has selected another vendor’s
system for an application. We believe that our ability to compete successfully depends on a number of factors both within and outside
of our control, including:
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the contribution and value our solutions bring to our customers;
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our product innovation, quality and performance;
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our global technical service and support;
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the return on investment (ROI) of our equipment and its cost of ownership;
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the breadth of our product line;
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our success in developing and marketing new products; and
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the extendibility of our products.
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If we fail to compete in a timely and cost-effective
manner against current or future competitors, our revenues and market share will decline.
If we do not respond effectively and on a timely basis to rapid
technological changes, our ability to attract and retain customers could be diminished, which would have an adverse effect on our sales
and ability to remain competitive.
The
semiconductor manufacturing industry is characterized by rapid technological changes, new product introductions and enhancements and evolving
industry standards. Our ability to remain competitive and generate revenue will depend in part upon our ability to develop new and enhanced
systems at competitive prices in a timely and cost-effective manner and to accurately predict technology transitions. Because new product
development commitments must be made well in advance of sales, new product decisions must anticipate the future demand for products. If
we fail to correctly anticipate future demand for products, our sales and competitive position will deteriorate. In addition, the development
of new technologies, new product introductions or enhancements by our competitors could cause a decline in our sales or loss of market
acceptance of our existing products.
The ongoing consolidation in our industry may harm us if our competitors
are able to offer a broader range of products and greater customer support than we can offer or if our main suppliers cease delivery of
important component as a result of being acquired by a larger company.
We believe that the semiconductor capital equipment
market has undergone consolidation over the last few years. For example, Lam Research Corporation acquired Novellus Systems Inc. in 2016
and Coventor in 2017; Thermo Fisher Scientific Inc. acquired FEI Company, Inc. in 2016; ASML Holdings N.V. acquired Hermes Microvision
Inc. in 2016 and Berliner Glas Group in 2020; KLA Corporation acquired Orbotech Ltd. in 2019 and ECI Technology in 2022; and Nanometrics
Inc. and Rudolph Technologies, Inc. merged in 2019. We believe that similar acquisitions and business combinations involving our competitors,
our customers, and our suppliers and the PEMs may occur in the future. These acquisitions could adversely impact our competitive position
by enabling our competitors and potential competitors to expand their product offerings and customer services, which could provide them
an advantage in meeting customers’ needs, particularly with those customers that seek to consolidate their capital equipment requirements
with a smaller number of vendors. The greater resources, including financial, marketing, intellectual property and support resources,
of competitors involved in these acquisitions could allow them to accelerate the development and commercialization of new competitive
products and the marketing of existing competitive products to their larger installed bases. Accordingly, such business combinations and
acquisitions by competitors and/or customers could jeopardize our competitive position. In addition, an acquisition of a major supplier
by a larger company may lead to a cease delivery of components that are important to the delivery of our products and will require us
to invest resources to find alternative sources.
9
The markets we target are cyclical
and it is difficult to predict the length and strength of any downturn or expansion period.
The semiconductor capital equipment market and industries,
which are cyclical, experienced steep downturns and upturns in the last two decades. While in recent years, we saw more stable capital
investment patterns overall, in some of the years, there was a downturn in the capital equipment market and we cannot predict the timing
of the market recovery or of potential future downturns and how these may impact our business
Our operations may be delayed or interrupted, and our business
could suffer if we violate environmental, safety and health, or ESH regulations.
Some of our activities require the use of various
gases, chemicals, hazardous materials and other substances such as solvents and sulfuric acid which may have an impact on the environment.
We are subject to Environmental, Safety and Health (“ESH”) regulations, and a failure to manage the use, storage, transportation,
emission, discharge, recycling or disposal of raw materials or to comply with these ESH regulations, or a failure of any of the above
by a supplier, manufacturer, or other third party in our value chain, could result in (i) regulatory penalties, fines and other legal
liabilities, (ii) suspension of production or delays in operation and capacity expansion, (iii) a decrease in our sales, (iv) an increase
in pollution cleaning fees and other operation costs, or (v) damage to our public image, any of which could harm our business. In addition,
as ESH regulations are becoming more comprehensive and stringent, and may vary by jurisdiction, we may incur a greater amount of capital
expenditures in technology innovation, materials substitution, and the hiring and retention of new or existing personnel, in order to
comply with such regulations, which may adversely affect our results of operations.
Operational risks
Challenges in designing or implementing our new ERP system could
negatively impact our business and operations.
We are in the advanced stages of replacing
our current enterprise resource planning system (“ERP”) with a new one, which requires significant investment of human and
financial resources. We depend heavily on our ERP system to manage our business and report operating results. While the new ERP system
is intended to maintain accurate financial records, improve operational functionality, and provide timely information to our management
regarding our business operations, we cannot ensure the transition and implementation of the new ERP system will be seamless. We may experience
disruptions to our operations, including, delays, increased system costs or other unforeseen difficulties. In turn, these disruptions
could adversely affect our ability to manage our business and to appropriately forecast and report our results.
Because substantially most of our current sales are dependent on
few specific product lines, factors that adversely affect the pricing and demand for these product lines could substantially reduce our
sales.
We are currently dependent on few process control
product lines. We expect these product lines to continue to account for a substantial portion of our revenues in the coming years. As
a result, factors adversely affecting the pricing of, or demand for, these product lines, such as competition and technological change,
could significantly reduce our sales.
We depend on a small number of large customers, and the loss of
one or more of them could significantly lower our revenues.
Like our peers serving the semiconductor market,
our customer base is highly concentrated among a limited number of large customers. We anticipate that our revenues will continue to depend
on a limited number of major customers, although the companies considered to be our major customers and the percentage of our revenue
represented by each major customer may vary from period to period. As a result of our customer concentration, our financial performance
may fluctuate significantly from period to period based, among others, on exogenous circumstances related to our clients. For example,
it is possible that any of our major customers could terminate its purchasing relationship with us or significantly reduce or delay the
amount of orders for our products, purchase products from our competitors, or develop its own alternative solutions internally. The loss
of any one of our major customers would adversely affect our revenues. Furthermore, if any of our customers become insolvent or have difficulties
meeting their financial obligations to us for any reason, we may suffer losses. For more information regarding our sales by major customers
as percentage of our total sales, see Note 15 to our consolidated financial statements contained elsewhere in this Annual Report.
10
Our inability to significantly reduce
spending during a protracted slowdown in the semiconductor industry could reduce our prospects of achieving continued profitability.
Historically, we have derived all our revenues, and
we expect to continue to derive practically all of our revenues, from sales of our products and related services to the semiconductor
industry. Our business depends in large part upon capital expenditures by semiconductor manufacturers, which in turn depend upon the current
and anticipated demand for semiconductors. The semiconductor industry has experienced severe and protracted cyclical downturns and upturns.
Cyclical downturns, as those we have experienced in the past, including the slowdown in 2023, may cause material reductions in the demand
for the products and services that we offer, and may result in a decline in our sales. In addition, our ability to significantly reduce
expenses during such cyclical downturn may be limited because of:
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our continuing need to invest in research and development;
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our continuing need to market our new products; and
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our extensive ongoing customer service and support requirements worldwide.
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Furthermore,
in recent years, we increased our leased facilities and related investments and our operating expenses. In the event of a global recession
or certain other economic conditions forcing the Company to materially reduce its expenses, portions of such facilities may be rendered
obsolete. As a result, we may have difficulty achieving continued profitability during a protracted slowdown.
There can be no assurance that revenues from future products or
product enhancements will be sufficient to recover the development costs or to ensure the sale of inventory related to these products.
We
must continue to make significant investments in research and development in order to introduce new products and technologies, or to enhance
the performance, features and functionality of our existing products, to keep pace with the competitive landscape and to satisfy customer
demands. Substantial research and development costs are typically incurred before we confirm the technical feasibility and commercial
viability of a new product, and not all development activities result in commercially viable products. There can be no assurance that
revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products
or enhancements. In addition, we cannot be sure that these products or enhancements will receive market acceptance or that we will be
able to sell these products at prices that are favorable to us. Our business will be seriously harmed if we are unable to sell our products
at favorable prices or if the market in which we operate does not accept our products. In addition, in some cases, we accumulate inventories
based on sales forecasts. If such sales forecasts do not materialize, we might need to write-off the related inventory, which will increase
our losses.
New product lines that we may introduce in the future may contain
defects, which will require us to allocate time and financial resources to correct.
Our
new product lines may contain defects when first introduced. If there are defects, we will need to divert the attention of our personnel
from our ongoing product development efforts to address the detection and correction of the defects. We cannot provide assurances that
we will not incur any costs or liabilities or experience any lags or delays in the future. Moreover, the occurrence of such defects, whether
caused by our products or the products of another vendor, may result in significant customer relations problems and adversely affect our
reputation and may impair the market acceptance of our products.
11
If any of our systems fail to meet or exceed our internal quality
specifications, we cannot ship them until such time as they have met such specifications. If we experience significant delays or are unable
to ship our products to our customers as a result of our internal processes or for any other reason, our business and reputation may be
adversely affected.
Our
products are complex and require technical expertise to design and manufacture. Various problems occasionally arise during the manufacturing
process that may cause delays and/or impair product quality. We actively monitor our manufacturing processes to ensure that our products
meet our internal quality specifications. Any significant delays stemming from the failure of our products to meet or exceed our internal
quality specifications, or for any other reasons, would delay our shipments. Shipment delays could be harmful to our business, revenues
and reputation in the industry.
Our dependence on a single manufacturing facility per product line
magnifies the risk of an interruption in our production capabilities.
As
of the date of this Annual Report, we have two main manufacturing facility for our Optical CD and Raman technology-related product lines,
which are located in Weizmann Science Park, Rehovot and Nes Ziona, Israel, one main manufacturing facility for our XPS and secondary ion
mass spectrometry (“SIMS”) technology related product lines, which is located in Fremont, CA, and one main manufacturing facility
for our Chemical Metrology product lines, which is located in Bad Urach, Germany (the "Manufacturing Facilities"). These Manufacturing
Facilities include special clean manufacturing jigs and/or room environments, which are customized to our needs. In addition, most of
our ongoing inventories, including our main warehouse and work in process, are located in these Manufacturing Facilities. Although we
adopted measures to protect these Manufacturing Facilities and inventories, such as implementing a disaster recovery plan which includes
potential usage of laboratory facilities in all major sites, any event affecting any of our Manufacturing Facilities or affecting our
ability to work in our Manufacturing Facilities such as requirement of working from remote location, including natural disaster, labor
stoppages or armed conflict, may disrupt or indefinitely discontinue our manufacturing capabilities and could significantly impair our
ability to fulfill orders and generate revenues, thus negatively impacting our business.
Our lease agreements for our Manufacturing Facilities include provisions
that exempt the landlord and others from liability for damages to our Manufacturing Facilities.
Pursuant
to the lease agreements for our Manufacturing Facilities, the landlord and anyone on its behalf, and additional tenants are exempt from
any liability for direct or consequential damages to our Manufacturing Facilities, except in the event of willful misconduct. While we
have obtained insurance policies against certain damages, the aforementioned exemption of liability could compromise our ability to recover
the full amount of such damages, and consequently we may incur substantial costs upon the occurrence of such damages.
Because shipment dates may be
changed and some of our customers may cancel or delay orders with little or no penalty, and since we encounter difficulties in collecting
cancellation fees from our customers, our backlog may not be a reliable indicator of actual sales and financial results.
We schedule production of our systems based upon
order backlog and customer forecasts. We include in backlog only those orders received from the customers in which a delivery date has
been specified. In general, our ability to rely on our backlog for future forecasting and planning is limited because shipment dates may
be changed, some customers may cancel or delay orders with little or no penalty, and our ability to collect cancellation fees from customers
is not assured. Thus, our backlog may not be a reliable indicator of actual sales and financial results and this may affect the accuracy
of our forecasts.
We may not be successful in our efforts to complete and integrate
current and/or future acquisitions, which could disrupt our current business activities and adversely affect our results of operations
or future growth.
Any acquisition may involve many risks, including
the risks of:
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diverting management’s attention and other resources from our ongoing business concerns;
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entering markets in which we have no direct prior experience;
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improperly evaluating new services, products and markets;
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being unable to maintain uniform standards, controls, procedures and policies;
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failing to comply with governmental requirements pertaining to acquisitions of local companies or assets by foreign entities;
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being unable to integrate new technologies or personnel;
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incurring the expenses of any undisclosed or potential liabilities; and
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the departure of key management and employees.
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In November 2024, we announced the acquisition
of Sentronics Metrology GmbH (“Sentronics”) which was subject to customary closing and regulatory conditions and closed on
January 30, 2025. If we are unable to successfully integrate Sentronics or any of our future acquisitions, our ability to grow our business
or to operate our business effectively could be reduced, and our business, financial condition and operating results could suffer. Even
if we are successful in completing acquisitions, we cannot assure that we will be able to integrate the operations of the acquired business
without encountering difficulty regarding different business strategies with respect to marketing and integration of personnel with disparate
business backgrounds and corporate cultures. Further, in certain cases, mergers and acquisitions require special approvals, or are subject
to scrutiny by the local authorities, and failing to comply with such requirements or to receive such approvals, may prevent or limit
our ability to complete the acquisitions as well as expose us to legal proceedings prior or following the consummation of such acquisitions.
In some cases, such proceedings, if initiated, may conclude in a requirement to divest portions of the acquired business. As of the date
of this Annual Report, we are not aware of any pending proceedings as such in connection with the acquisition of Sentronics.
We depend on continuous cooperation with Process Equipment Manufacturers
(“PEMs”) to enable sales of our systems which are integrated with the process equipment, and the loss of PEMs as business
partners could harm our business.
We believe that sales of systems which are integrated
with the process equipment will continue to be an important source of our products revenues. Sales of such integrated systems, which include
Optical CD integrated metrology and chemical metrology, depend upon the ability of PEMs to sell semiconductor equipment products that
are able to integrate with these metrology systems. If our PEMs are unable to sell such products, if they choose to focus their attention
on products that do not integrate our systems, or if they choose to develop their own metrology solutions, our business could suffer.
If we were to lose our PEMs as business partners for any reason, our inability to realize sales from such systems could significantly
harm our business. In addition, we may not be able to develop or market such new systems, which could slow or prevent our growth.
Some of our commercial agreements with PEMs and customers may include
exclusivity provisions and limitations on the use of certain intellectual property. Such limitations may prevent us from engaging in certain
business relationships with third parties, and may limit our ability to use certain elements of our intellectual property. As a result,
our ability to introduce new products in relevant markets might be affected.
Some of our commercial agreements with PEMs and customers
may include exclusivity provisions, which prevent us from engaging in certain business relationships with third parties. In addition,
some of our commercial agreements with PEMs also include limitations on the use of certain joint intellectual property. These exclusivity
obligations and limitations are often used as a tool to promote the development and the penetration of innovative new solutions, and are
usually limited in terms of scope and length. When considering whether to enter into any such exclusivity arrangements or accepting such
limitations, we usually take into consideration the terms of the exclusivity (e.g., length and scope), the expected benefit to the Company,
and the risks and limitations associated with such exclusivity or limiting undertakings. Exclusivity obligations or limitation of use
relating to certain parts of our technology and products may affect our ability to commercialize our products, engage in potentially beneficial
business relationships with third parties (including by means of a merger or acquisition), or introduce new products into relevant markets,
which could slow or prevent our growth.
13
We depend on a limited number of suppliers, and in some cases a
sole supplier. Any disruption, delay or termination of these supply channels may adversely affect our ability to manufacture our products
and to deliver them to our customers.
We purchase components, subassemblies and services
from a limited number of suppliers and occasionally from a single or a sole source. Disruption or termination of these sources could occur
(due to several factors, including, but not limited to, supplier capacity limitations, low availability of raw materials, bankruptcy,
work stoppages due to a pandemic, or other reasons, acts of war, terrorism, fire, earthquake, energy shortages, flooding or other natural
disasters), and these disruptions could have at least a temporary adverse effect on our operations. Although we generally maintain an
inventory of critical components used in the manufacture and assembly of our systems, such supplies may not be sufficient to avoid potential
delays that could have an adverse effect on our business.
In addition, while in some instances we have an escrow
agreement in place, the acquisition of a major supplier by a larger company may lead to a cease delivery of components that are important
to the delivery of our products and will require us to invest resources to find alternative sources.
To date, we have not experienced any material disruption
or termination of our supply sources where replacement material has not been found and qualified.
A prolonged inability on our part to obtain components
included in our systems on a cost-effective basis could adversely impact our ability to deliver products on a timely basis, which could
harm our sales and customer relationships.
The disclosure rules regarding the use of conflict minerals may
affect our relationships with suppliers and customers.
The Securities and Exchange Commission, or SEC, requires
certain disclosure by companies that use conflict minerals in their products, with substantial supply chain verification requirements
in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries. These
rules and verification requirements may impose additional costs on us and on our suppliers, and limit the sources or increase the prices
of materials used in our products. Among other things, this rule could affect sourcing at competitive prices and availability in sufficient
quantities of certain minerals used in the manufacture of components that are incorporated into our products. In addition, the number
of suppliers who provide conflict-free minerals may be limited, and there may be material costs associated with complying with the disclosure
requirements, such as costs related to the process of determining the source of certain minerals used in our products, as well as costs
of possible changes to products, processes, or sources of supply as a consequence of such verification activities. We may not be able
to sufficiently verify the origins of the relevant minerals used in components manufactured by third parties through the procedures that
we implement, and we may encounter challenges to satisfy those customers who require that all of the components of our products be certified
as conflict-free, which could place us at a competitive disadvantage if we are unable to do so. While we have created processes and procedures
designed to enable compliance with these rules, if in the future we are unable to certify that our products are conflict free, we may
face challenges with our customers, which could place us at a competitive disadvantage and harm our reputation.
Increased attention to ESG matters and conservation measures may
adversely impact our business or that of our manufacturers.
There has been increasing and evolving public focus
by investors, customers, environmental and social activists, the media, politicians, governmental authorities, and nongovernmental organizations
and other stakeholders on a variety of environmental, social, and governance (“ESG”) matters. We experience pressure to make
commitments relating to ESG matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives
relating to ESG. Furthermore, if we do not successfully manage diverging ESG-related expectations across stakeholders, it could erode
stakeholder trust, impact our reputation, subject us to shareholder activism or litigation, and adversely affect our business, financial
condition, results of operations and cash flows.
14
This emphasis on ESG matters has resulted
and may result in the addition of new and varied laws and regulations, including reporting requirements. For example, in March 2024, the
SEC adopted rules to require public companies to disclose certain climate-related information, however the rules are being litigated in
light of the new U.S. Administration and are unlikely to proceed. However, if we are ultimately required to comply in whole or in part
with these rules, or in case of ununiform rules across jurisdictions are enacted, we may incur additional legal, accounting and financial
compliance expenses. Moreover, this could result in increased management time and attention to ensure we are compliant with the regulations
and expectations.
We may experience increased
costs in order to execute upon our ESG goals, initiatives, and commitments and measure achievement of those goals, initiatives, and commitments
which could have an adverse impact on our business and financial condition. We published our first Environmental, Social, and Governance
(ESG) Insight Review in April 2023, in which we provided details on our strategy and principles to practices associated with climate change,
human capital and diversity, governance, sustainability, diversity of our board and other Company policies. In light of investors’
and regulators’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that
we will successfully meet our customers’ or society’s expectations as to our proper role. If we fail, or are perceived to
fail, to meet the ESG values, standards and metrics that we set for ourselves, or our articulated public benefit purposes, or if we fail
to meet regulatory requirements for ESG disclosures, we may experience negative publicity and a loss of customers, employees, or suppliers,
or be subject to regulatory fines or penalties or litigation, which will adversely affect our business, financial condition, and results
of operations.
Our lengthy sales cycle increases our exposure to customer delays
in orders, which may result in obsolete inventory and volatile quarterly revenues.
Sales of our systems depend, in significant part,
upon our customers adding new manufacturing capacity or expanding existing manufacturing capacity, both of which involve a significant
capital commitment. We may experience delays in finalizing sales while a customer evaluates and approves an initial purchase of our systems.
Our sales cycle for new customers, products or applications, may take longer than twelve (12) months to complete. During this time, we
may expend substantial funds and management effort, but fail to make any sales. Lengthy sales cycles subject us to a number of significant
risks, including inventory obsolescence and fluctuations in operating results, over which we have limited control.
Due to intense competition for highly skilled personnel, we may
fail to attract, recruit, retain and develop qualified employees, which could materially and adversely impact our business, financial
condition and results of operations.
We compete in a market that involves rapidly changing
technological and regulatory developments that require a wide-ranging set of expertise and intellectual capital. In order for us to successfully
compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the
entire spectrum of our intellectual capital needs. While we have a number of our key personnel who have substantial experience with our
operations, we must also develop and exercise our personnel to provide succession plans capable of maintaining continuity in
the midst of the inevitable unpredictability of human capital. Our principal research and development activities are conducted from our
headquarters in Israel and our subsidiaries in the U.S and Germany, and we face significant competition for suitably skilled developers
in these regions. The high-tech industry in Israel, the U.S. and other territories we operate in has experienced significant levels of
employee attrition and is currently facing a severe shortage of skilled human capital. We may encounter higher attrition rates in the
future depending on the economic growth of each territory. We may not succeed in recruiting additional experienced or professional personnel,
retaining current personnel or effectively replacing current personnel who depart with qualified or effective successors. Many of
the companies with which we compete for experienced personnel have greater resources than us.
Our effort to retain and develop personnel may also
result in significant additional expenses, which could adversely affect our profitability. There can be no assurance that qualified employees
will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract
qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
15
Risks Related to Our Incorporation and Location in Israel
Conditions in Israel, including Israel’s conflicts with Hamas
and other parties in the region, as well as political and economic instability, may adversely affect our business, our results of operations
and our ability to raise additional funds.
We are incorporated under the laws of the State of
Israel, and many of our employees, including certain management members, operate from our offices that are located in Rehovot, Israel.
In addition, most of our officers and directors are residents of Israel. Accordingly, our business and operations are directly affected
by economic, political, geopolitical and military conditions in Israel.
Since the establishment of the State of Israel
in 1948 and in recent years, armed conflicts between Israel and its neighboring countries and terrorist organizations active in the region
have involved missile strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel, and recently
abduction of soldiers and citizens.
Following the October 7, 2023 attacks by Hamas terrorists
in Israel's southern border, Israel declared war against Hamas and since then, Israel has been involved in military conflicts with Hamas,
Hezbollah, a terrorist organization based in Lebanon, and Iran, both directly and through proxies such as the Houthi movement in Yemen,
armed groups in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has conducted
limited military operations targeting certain Syrian military assets, Iranian military assets and infrastructure linked to Hezbollah and
other Iran-supported groups. Although certain ceasefire agreements have been reached with Hamas and Lebanon (with respect to Hezbollah),
and some Iranian proxies have declared a halt to their attacks, there is no assurance that these agreements will be upheld. Military activity
and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential for escalation
into a broader regional conflict involving additional terrorist organizations and possibly other countries. Furthermore, the fall of the
Assad regime in Syria may create additional geopolitical instability in the region.
While our facilities have not been damaged during
the current war, the hostilities with Hamas, Hezbollah, Iran and its proxies, and others have caused and may continue to cause damage
to private and public facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupt our operations and
supply chains. In addition, some Israeli organizations, government agencies and companies have been subject to extensive cyberattacks.
The continuation of the war has also led to a deterioration
of certain indicators of Israel’s economic standing, for instance, a downgrade in Israel’s credit rating by rating agencies
such as by Moody’s, S&P Global, and Fitch.
In connection with the ongoing war, several hundred
thousand Israeli military reservists were drafted to perform immediate military service, and military reservists are expected to perform
longer reserve duty service in the coming years. The absence of our employees due to their military service in the current or future wars
or other armed conflicts may materially and adversely affect our ability to conduct our operations.
Our commercial insurance does not cover losses that
may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement
value of certain direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that such government coverage
will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material
adverse effect on our business.
The global perception of Israel and Israeli companies,
influenced by actions by international judicial bodies, may lead to increased sanctions and other negative measures against Israel, as
well as Israeli companies and academic institutions. There is also a growing movement among countries, activists, and organizations to
boycott Israeli goods, services and academic research or restrict business with Israel, which could affect business operations. If these
efforts become widespread, along with any future rulings from international tribunals against Israel, they could negatively impact our
business operations.
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Further, prior to the October 2023 war, the Israeli
government pursued changes to Israel’s judicial system and has recently renewed its efforts to effect such changes. In response
to the foregoing developments, certain individuals, organizations, and institutions, both within and outside of Israel, voiced concerns
that such proposed changes, if adopted, may negatively impact the business environment in Israel. Such proposed changes may also lead
to political instability or civil unrest. If such changes to Israel’s judicial system are pursued by the government and approved
by the parliament, this may have an adverse effect on our business, results of operations, and ability to raise additional funds, if deemed
necessary by our management and board of directors.
Risks Related to Our Indebtedness and Capital Structure
Our convertible senior notes due 2025 (“Convertible Senior
Notes”) may impact our financial results, result in the dilution of existing shareholders, create downward pressure on the
price of our ordinary shares, and restrict our ability to take advantage of future opportunities.
In October 2020, we closed an offering of $200 million
aggregate principal amount of 0% Convertible Senior Notes due 2025 in a private offering to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended. In 2024, holders of an aggregate principal amount of $18.5 million of Convertible
Senior Notes elected to convert their Convertible Senior Notes. We paid approximately $ 18.5 million and delivered 154,215 ordinary shares
to settle such conversions. The Convertible Senior Notes affect our earnings per diluted share figures, as procedures under the Accounting
Standards Update (“ASU”) 2020-06 require that we include in our calculation of earnings per diluted share the number of ordinary
shares into which the Convertible Senior Notes are convertible. See also Note 10 to our consolidated financial statements contained elsewhere
in this Annual Report.
The Convertible Senior Notes may be converted, under
the conditions, during the periods and at the premium specified in the Convertible Senior Notes, into cash and our ordinary shares, if
any (subject to our right to pay cash in lieu of all or a portion of such shares). If our ordinary shares are issued to the holders of
the Convertible Senior Notes upon conversion, there will be dilution to our shareholders’ equity and the market price of our ordinary
shares may decrease due to the additional selling pressure in the market. Any downward pressure on the price of our ordinary shares caused
by the sale or potential sale of ordinary shares issuable upon conversion of the Convertible Senior Notes could also encourage short sales
by third parties, creating additional downward pressure on our share price.
Furthermore, the indenture for the Convertible Senior
Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations
under the Convertible Senior Notes. These and other provisions in the indenture could deter or prevent a third party from acquiring us
even when the acquisition may be favorable.
On December 22, 2024, the Company obtained a tax
ruling from the Israeli Tax Authority (the “
ITA
”) determining the administration of
our Israeli withholding tax obligations in relation to considerations to be paid to the holders of the Convertible Senior Notes upon their
future conversion and settlement as well as other related tax aspects.
We may not have the ability to raise the funds necessary to settle
conversions of the Convertible Senior Notes, if we are obligated to settle such conversions, in whole or in part, in cash, repurchase
the Convertible Senior Notes upon a fundamental change or repay the Convertible Senior Notes in cash at their maturity, and our future
debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Senior Notes.
Holders of the Convertible Senior Notes have the
right, under the indenture governing the Convertible Senior Notes to require us to repurchase all or a portion of their Convertible Senior
Notes upon the occurrence of a fundamental change before the applicable maturity date, at a repurchase price equal to 100% of the principal
amount of such Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any. Moreover, we will be required to
repay the Convertible Senior Notes in cash at their maturity, unless earlier converted, repurchased or redeemed. We may not have enough
available cash or be able to obtain financing at the time we are required to make such repurchases of the Convertible Senior Notes and/or
repay the Convertible Senior Notes upon maturity and/or settle conversions of the Convertible Senior Notes (should we elect to settle
such conversions, in whole or in part, in cash or should we be required to settle such conversions, in whole or in part, in cash, if in
the future we irrevocably elect to settle the conversions in cash, in whole or in part).
17
Our ability to repurchase or to pay cash upon conversion
of Convertible Senior Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to
repurchase the Convertible Senior Notes at a time when the repurchase is required by the indenture or to pay cash upon conversion of the
Convertible Senior Notes when required or at maturity as required by the indenture would constitute a default under the indenture. A default
under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness.
If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient
funds to repay the indebtedness and repurchase the Convertible Senior Notes or to pay cash upon conversion of the Convertible Senior Notes
or at maturity.
Financial, legal, regulatory and taxation risks
Because most of our revenues are generated in U.S. dollars, but
a significant portion of our expenses is incurred in currencies other than U.S. dollars, and mainly New Israeli Shekels and Euro, our
profit margin may be seriously harmed by currency fluctuations.
We generate most of our revenues in U.S. dollars
but incur a significant portion of our expenses in currencies other than U.S. dollar, and mainly New Israeli Shekel (commonly referred
to as NIS) and Euro. In accordance with ASC 842 of lease accounting standard, we are required to present a significant NIS linked liability
related to our operational leases in Israel. In addition, the operations of our German subsidiaries Nova Measuring Instruments GmbH and
Sentronics Metrology GmbH are mainly Euro based. As a result, we are exposed to risk of devaluation of the U.S. dollar in relation to
the NIS, Euro and other currencies. In such event, the dollar cost of our operations in countries other than the U.S. will increase and
our dollar measured results of operations will be adversely affected. During 2024, the U.S. dollar revaluated against the NIS by 0.6%,
after being revaluated by approximately 12.8% in the previous three years, and revaluated against the Euro by 6.3%, after being revaluated
by approximately 10.9% in the previous three years. We cannot predict the future trends in the rate of devaluation or revaluation of the
U.S. dollar against the NIS and the Euro, and our cost of operations could be adversely affected by such trends.
We are subject to various regulations and standards relating to
data privacy and security. Failure to comply any applicable privacy, security, data protection laws, regulations, standards or other requirement
could have an adverse effect on our business prospects, results of operations, and financial condition.
The regulatory framework for privacy and security
issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. In particular, in the European Union,
the General Data Protection Regulation (the “GDPR”) imposes more stringent data protection requirements and provides for greater
penalties for noncompliance. For example, we collect, use, maintain and otherwise process certain personal data about candidates and employees.
Our ability to collect, use, maintain or otherwise process personal data has been, and could be further, restricted by existing and new
laws and regulations relating to privacy and data collection and protection, including the GDPR.
Additionally, the uncertainty created by current
and future privacy laws and regulations can be compounded when services hosted in one jurisdiction are directed at users in another jurisdiction.
For instance, European data protection rules may apply to companies which are not established in the European Union (“EU”)
(this is the so-called extraterritorial scope of the GDPR). The GDPR has an even wider territorial scope and contains significant penalties
for non-compliance. The GDPR, among other things, imposes requirements to provide detailed and transparent disclosures about how personal
data is collected and processed, grants rights for data subjects to access, delete or object to the processing of their personal data,
provides for a mandatory breach notification to supervisory authorities (and in certain cases, affected individuals) of certain data breaches,
sets limitations on the retention of personal data and outlines significant documentary requirements to demonstrate compliance through
policies, procedures, training and audits. To further complicate matters in Europe, to date, supervisory authorities in the member states
have some flexibility when implementing European Directives and certain aspects of the GDPR, which can lead to diverging national rules.
European supervisory authorities have been very active in terms of enforcing data protection rules, including with respect to cookie-related
matters.
18
Additionally, organizations transferring personal
data across-borders need to implement a lawful transfer mechanism, for example by executing Standard Contractual Clauses or registering
with the Data Privacy Framework, and to perform a data transfer impact assessment to evaluate the legal regime applicable in the destination
country, in particular applicable surveillance laws and rights of individuals, and that additional measures and/or contractual provisions
may need to be put in place. However, the nature of these additional measures is currently uncertain.
We are also subject to evolving EEA privacy laws
on cookies and tracking technologies, including the Privacy and Electronic Communications (EC Directive) Regulations 2003, “ePrivacy
Directive”. Informed and freely given consent is required for the placement of non- essential cookies and similar technologies on
website users. The GDPR also imposes conditions on obtaining valid consent for cookies, such as a prohibition on pre-checked consents
and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Recent European court and regulatory
decisions are driving increased attention to cookies and tracking technologies, which could increase costs and subject us
to additional liabilities.
Similarly, there have been laws and regulations adopted throughout the United States
and Israel that impose obligations in areas such as privacy, in particular protection of personal data and implementing adequate cybersecurity
measures to protect such data. One of the most prominent current privacy state laws is the California Consumer Privacy Act (CCPA) as amended
by the California Privacy Rights Act (CPRA). Additional U.S. states have implemented, or are in the process of implementing, similar new
laws or regulations that regulate privacy rights and obligations. More generally, some observers have noted that these new state privacy
laws could mark the beginning of a trend toward more stringent United States federal privacy legislation, which could increase our potential
liability and adversely affect our business.
The Cyberspace Administration of China created uncertainty
by publishing the Personal Information Protection Law, which came into force on June 1, 2023. For the outbound data transfer before the
effective date, the law included a rectification period of six months ending on December 1, 2023 (inclusive). This law imposes more stringent
data protection requirements, restricts cross-border data transfers, and imposes significant fines for non-compliant conduct.
19
In addition, failure to comply with the Israeli Privacy
Protection Law 1981 and its regulations, as well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative
fines, civil claims (including class actions) and, in certain cases, criminal liability. Future legislation may result in a change to
the current enforcement measures and sanctions.
There have also been privacy bills enacted in other
countries around the world which have introduced new or expanded privacy, security, cyber-security and artificial intelligence requirements
and we expect that legislation will continue to evolve in the coming years. For example, the rising adoption of AI and Generative AI in
daily operations and products poses additional and new risks, including, without limitation, data privacy and security risks, intellectual
property infringement, ownership issues and/or confidentiality issues. Threats include potential data leaks, social engineering attacks,
and decision-making based on manipulated information. Growing regulatory requirements for information security and data protection add
to the challenge. Moreover, attackers leverage AI as both a tool and exploit vulnerabilities in AI systems. Therefore, it is difficult
to determine whether and how such existing laws and regulations will apply to and impact the internet and our business.
In December 2023, new laws regulating artificial
intelligence have been enacted in China. The European Union’s Artificial Intelligence Act (the “EU AI Act”) was published
in the EU Official Journal on July 12, 2024, and is the first comprehensive horizontal legal framework for the regulation of AI across
the EU. The EU AI Act entered into force on August 1, 2024, and the prohibited activities will take effect on February 2, 2025,
and majority of the other obligations are expected to take effect by 2026. The fines under the EU AI Act range from (i) the higher of
€35,000,000 or up to 7 percent of a company’s total worldwide annual turnover for non-compliance with prohibited AI practices,
to (ii) the higher of €7,500,000 or up to 1 percent of a company’s total worldwide annual turnover for the supply of incorrect,
incomplete, or misleading information to notified bodies and national competent authorities. Once gradually applicable, the EU AI Act
will have a material impact on the way artificial intelligence is regulated in the EU, including requirements around transparency, conformity
assessments and monitoring, risk assessments, human oversight, security, accuracy, and general purpose artificial intelligence models.
Further, the cost to comply with such laws or regulations could be significant and could increase our operating expenses, require technical
changes, development and implementations, which could adversely affect our business, financial condition and results of operations.
The EU Data Act, adopted on November 27, 2023, establishes
rules for data sharing (personal data and non-personal data) and reuse in the European Union, with most obligations effective starting
September 2025. Amongst others, the EU Data Act sets general conditions for data sharing between businesses and imposes measures to boost
fairness and competition in the European cloud market. Additionally, the EU Data Act safeguards companies from unfair contractual terms
related to data sharing imposed by dominant market players. Compliance may require us to implement new data management protocols, technological
development and changes of our semiconductors and review contractual practices, potentially increasing operational costs.
Any inability to adequately address privacy and security
concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business
prospects, results of operations and/or financial position.
20
We participate in government programs under which we receive research
and development grants. Some of these programs imposed restrictions on our ability to use the technologies developed under these programs.
The reduction or termination of these programs would increase our costs.
We participate in Israel Innovation Authority, or
IIA royalty free grant programs. In addition, through the years, we participated in consortia which are either solely managed and funded
by the IIA, or are jointly funded by the EU commission and the National Innovation Authorities of the participating companies, i.e. The
Israel Innovation Authority can jointly fund Nova Ltd. participation and the BMBF (The German National Innovation Authority) can jointly
fund Nova Measuring Instruments GmbH (which since 2023, also began participating in consortia which were submitted under the KDT JU routes,
which are part of Horizon Europe, Nova Ltd. is also participating in European only funded/managed consortia. To maintain our eligibility
for these programs, we must continue to meet certain conditions.
Some of these programs also restrict our ability
to manufacture particular products and transfer particular technology, which were developed as part of the local Innovation Authority
funding agent (i.e., the IIA in Israel and the BMBF in Germany) programs, outside of the country in which these were manufactured. The
restrictions associated with these programs may require obtaining approval of the research and development committee nominated by the
IIA or BMBF for certain actions and transactions and pay additional payments to the IIA or BMBF. Approval to manufacture products, which
their development was partially funded by the local Innovation Authority funding agent, the country they are manufactured in or consent
to the transfer of technology, if requested, might not be granted and if granted, may increase our financial liabilities to the respected
Innovation Authority. In addition, if we fail to comply with certain restrictions associated with formerly received funding from IIA or
BMBF, we may be subject to criminal charges.
We may be further exposed to risks related to the
receipt of funding from other governments or governmental agencies in connection with strategic development programs, under which we receive
funding. Under such strategic development programs, governments and governmental agencies typically have the right to terminate the program’s
funding at any time. In addition, a project may be terminated by a mutual agreement, if the parties determine that the project's goals
or milestones are not being achieved. As a result, there is no assurance that these sources of external funding will continue to be available
to us in the future. Moreover, under the terms of certain governmental funding programs in which we receive funding, the applicable granting
agency has the right to audit the costs that we incur, directly and indirectly, in connection with such programs. Any such audit could
result in modifications to, or even termination of, the applicable governmental funding program. Any adverse finding resulting from any
such audit could lead to penalties (financial or otherwise), termination of funding programs, suspension of payments or other adverse
consequences to our ability to receive governmental funding. In addition, obligations related to grants received from the IIA grants bear
an annual interest which are linked to the U.S. dollar. Pursuant to the latest IIA regulations, grants received until January 1, 1999,
bear no interest. Grants received before June 30, 2017, bear an annual interest rate that applied at the time of the approval of
the applicable IIA file, and that interest rate will apply to all of the funding received under that IIA approval. Grants received from
the IIA after June 30, 2017, bear an annual interest rate based on the 12-month London Interbank Offered Rate, or LIBOR, until December
31, 2023, and as of January 1, 2024, bear an annual interest rate based on the 12-month Secured Overnight Financing Rate, or the SOFR,
or at an alternative rate published by the Bank of Israel, with the addition of 0.72%. Grants approved after January 1, 2024, will bear
the higher of (i) the 12 months SOFR interest rate, plus 1%, or (ii) a fixed annual interest rate of 4%.
The application of tax laws is subject to interpretation and if
tax authorities challenge our methodologies or our analysis of our tax rates it could result in an increase to our worldwide effective
tax rate and cause us to change the way we operate our business.
The application of the tax laws of various jurisdictions
to our international business activities (as well as to entities which we acquired) is subject to interpretation and also depends on our
ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The tax authorities
of the jurisdictions in which we (and entities we acquired) operate may challenge our methodologies for valuing developed technology or
intercompany arrangements, including the transfer pricing, or determine that the manner in which we (and the entities we acquired) operate
the business does not achieve the expected tax consequences, which could result in tax and penalty payments and in an increase of our
worldwide effective tax rate, and could adversely affect our financial position and results of operations.
21
A certain degree of judgment is required in evaluating
our tax positions and determining our provision for income taxes. In the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by
earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where
we have higher statutory rates, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other
laws, regulations, principles and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be
subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for tax authorities
in different countries to have conflicting views. In addition, tax laws are dynamic and subject to change as new laws are passed and new
interpretations of the law are issued or applied. For example, the work being carried out by the OECD on base erosion and profit shifting
as a response to increasing globalization of trade could result in changes in tax treaties or the introduction of new legislation that
could impose an additional tax on businesses. As a result of changes to laws or interpretations, our tax positions could be challenged,
and our income tax expenses could increase in the future.
For instance, if tax authorities in any of the countries
in which we operate were to successfully challenge our transfer prices, they could require us to reallocate our income to reflect transfer
pricing adjustments, which could result in an increased tax liability to us. In addition, if the country from which the income was reallocated
did not agree with the reallocation asserted by the first country (including in the process of Mutual Agreement Procedure or otherwise),
we could become subject to tax on the same income in both countries, resulting in double taxation. If tax authorities were to allocate
income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it could increase our tax
liability, which could adversely affect our financial position and results of operations.
The enactment of legislation implementing changes in taxation of
international business activities, the adoption of other corporate tax reform policies, or changes in tax legislation or policies could
impact our future financial position and results of operations.
There can be no assurance that our effective tax
rate for the year ended December 31, 2024 will not change over time as a result of changes in corporate income tax rates or other changes
in the tax laws the jurisdictions in which we operate. Any changes in tax laws could have an adverse impact on our financial results.
Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions where we have
business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny
and tax reform legislation is being proposed or enacted in a number of jurisdictions. For example, the Inflation Reduction Act of 2022
signed into law in the United States on August 16, 2022 among other changes, introduced a 15% corporate minimum tax on certain corporations
and a 1% excess tax on certain stock repurchases by certain corporations.
The Tax Cuts and Jobs Act passed in 2017 provides
that a percentage of foreign earnings under the Global Intangible Low-Taxed Income (“GILTI”) regime is taxable in the U.S.
and a percentage of U.S. earnings under the Foreign Derived Intangible Income (“FDII”) regime is not subject to tax in the
U.S. For tax years beginning on January 1, 2026, the percentage of GILTI that is taxable in the U.S. increases from 50% to 62.5% and the
percentage of FDII not subject to tax in the U.S. decreases from 37.5% to 21.875%. The change in GILTI and FDII percentages can have a
material and adverse impact to our effective tax rate beginning in the quarter ending September 30, 2026.
In addition, there is growing pressure in many jurisdictions and from multinational
organizations such as the Organization for Economic Cooperation and Development (OECD) and the EU to amend existing international taxation
rules in order to align the tax regimes with current global business practices. Specifically, in October 2015, the OECD published its
final package of measures for reform of the international tax rules as a product of its Base Erosion and Profit Shifting (BEPS) initiative,
which was endorsed by the G20 finance ministers. Many of the initiatives in the BEPS package required and resulted in specific amendments
to the domestic tax legislation of various jurisdictions and to existing tax treaties. We continuously monitor these developments. Although
many of the BEPS measures have already been implemented or are currently being implemented globally (including, in certain cases, through
adoption of the OECD’s “multilateral convention” (to which Israel is also a party) to effect changes to tax treaties
which entered into force on July 1, 2018 and through the European Union’s “Anti Tax Avoidance” Directives), it is still
difficult in some cases to assess to what extent these changes our tax liabilities in the jurisdictions in which we conduct our business
or to what extent they may impact the way in which we conduct our business or our effective tax rate due to the unpredictability and interdependency
of these potential changes. In January 2019 the OECD announced further work in continuation of the BEPS project, focusing on two “pillars”.
On October 8, 2021, 136 countries approved a statement known as the OECD BEPS Inclusive Framework, which builds upon the OECD’s
continuation of the BEPS project. The first pillar is focused on the allocation of taxing rights between countries for in-scope large
multinational enterprises (with revenue in excess of Euro 20 billion and profitability of at least 10%) that sell goods and services into
countries with little or no local physical presence. The second pillar is focused on developing a global minimum tax rate of at least
15 percent applicable to in-scope multinational enterprises (with revenue in excess of Euro 750 million). Israel is one of the 136 jurisdictions
that has agreed in principle to the adoption of the global minimum tax rate. Given these developments, it is generally expected that tax
authorities in various jurisdictions in which we operate may increase their audit activity and may seek to challenge some of the tax positions
we have adopted. It is difficult to assess if and to what extent such challenges, if raised, might impact our effective tax rate. On December
15, 2022, Council of the EU unanimously adopted the EU Directive on Global Minimum Tax. Subsequently, various EU member states enacted
the Pillar II mechanism such that it shall become effective by December 31, 2024 or after that date.
22
In the United States, the Trump administration has
indicated the intent to propose significant changes to the U.S. tax system. Many aspects of these potential proposals are unclear or undeveloped
and we are unable to predict which, if any, changes to the U.S. tax system will be enacted into law, and what effects any enacted legislation
might have on our tax liabilities. In addition, the Trump administration has indicated that the United States may impose retaliatory
measures with respect to jurisdictions that have, or are likely to, put in place tax rules that are extraterritorial or disproportionately
affect American companies. The likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict
whether such changes will occur and, if so, the ultimate impact on our business.
Changes in certain tax benefits under the Israeli Capital Investment
Encouragement Law may increase our ETR.
Starting 2017, we made an election to receive Tax
benefits under Israeli “Economic Efficiency Law” as a “Preferred Technological Enterprise”. While we believe that
we meet the statutory conditions to entitle us to such benefits there can be no assurance that the tax authorities in Israel will concur
to our position in general or with respect to certain portions of our income and may impact all or specific year (which are open for an
audit). Should it be determined that we have not, or do not meet such conditions, the benefits received would be cancelled. We would also
be required to pay increased taxes or refund any benefits previously received, adjusted to the Israeli consumer price index and interest,
or other monetary penalty.
For additional information regarding Approved and
Benefited Enterprise, Preferred Enterprise and Preferred Technological Enterprise see, “Item 10E. Taxation – Israeli Taxation”
in this Annual Report.
It should be noted that the Israeli government may
reduce or eliminate the above-mentioned benefits in the future, inter-alia, in light of or as a response to the OECD or the “two
Pillars” initiatives. The termination or reduction of these grants or tax benefits could harm our financial condition and results
of operations, and result in significantly higher tax payment. In addition, if we increase our activities outside Israel due to, for example,
future acquisitions or outsourcing of manufacturing or development activities, these activities generally will not be eligible for inclusion
in Israeli grants or tax benefit programs. Accordingly, our effective corporate tax rate could increase significantly in the future.
We experience quarterly fluctuations in our operating results,
which may adversely impact our share price.
Our quarterly operating results within a specific
year can fluctuate significantly. A principal reason is that we derive a substantial portion of our revenue from the sale of a relatively
small number of systems to a relatively small number of customers. As a result, our revenues and results of operations for any given quarter
may decrease due to factors relating to the timing of orders, the timing of shipments of systems, and the timing of recognizing these
revenues. Furthermore, our quarterly results are affected by the cyclical nature of the semiconductor capital equipment market and industries.
23
We also have a limited ability to predict revenues
for future quarterly periods and, as a result, face risks of revenue shortfalls. If the number of systems we actually ship, and thus the
amount of revenues we are able to record in any particular quarter, is below our expectations, the adverse effect may be magnified by
our inability to adjust spending quickly enough to compensate for the revenue shortfall.
Some of our contracts and arrangements
potentially subject us to the risk of significant or non-limited liability.
We produce highly complex optical, mechanical and
electronic components and, accordingly, there is a risk that defects may occur in any of our products. Such defects can give rise to significant
costs, including expenses relating to recalling products, replacing defective items, writing down defective inventory and loss of potential
sales. In addition, the occurrence of such defects may give rise to product liability and warranty claims, including liability for damages
caused by such defects.
In our commercial relationship with customers, we
attempt to negotiate waivers of consequential and indirect damages arising from damages for loss of use, loss of product, loss of revenue
and loss of profit caused by our products. Similarly, with respect to our commercial relationship with subcontractors and suppliers, we
attempt to negotiate arrangements which do not include a limitation of liabilities and limitation of consequential and indirect damages.
However, some contracts and arrangements we are bound by, expose us to product liability claims resulting in personal injury or death,
up to an unlimited amount, and the incurrence of the risk of material penalties for consequential or liquidated damages. Additionally,
under such contracts and arrangements, we may be named in product liability claims even if there is no evidence that our products caused
the damage in question, and such claims could result in significant costs and expenses relating to attorneys’ fees and damages.
In addition, such contracts and arrangements may
include non-limited liability provisions for infringement of a third party’s intellectual property rights in connection with our
products.
Although we have not incurred in the past any material
penalties for consequential or liquidated damages, we may incur such penalties in the future. Such penalties for consequential or liquidated
damages may be significant (and so is the legal process conducted in connection with such penalties) and could negatively affect our financial
condition or results of operations.
A large number of our ordinary shares continue to be owned by a
relatively small number of shareholders, whose future sales of our shares, if substantial, may depress our share price.
If our principal shareholders sell substantial amounts
of our ordinary shares, including shares issued upon the exercise of outstanding options or warrants, the market price of our ordinary
shares may fall. For additional information on our major shareholders, see “Item 7A – Major Shareholders” in this Annual
Report.
Certain shareholders may control the outcome of matters submitted
to a vote of our shareholders, including the election of directors.
To the best of our knowledge, approximately 35% of
our outstanding ordinary shares are cumulatively held by five of our shareholders. As a result, and although we are currently not aware
of any voting agreement between such shareholders, if these shareholders voted together or in the same manner, they would have the ability
to control the outcome of corporate actions requiring an ordinary majority vote of shareholders as set in the Company’s Amended
and Restated Articles of Association. Even if these shareholders do not vote together, each one of them may have the ability to influence
the outcome of corporate actions requiring the vote of shareholders as set in the Company’s Amended and Restated Articles of Association. For
additional information on our major shareholders, see “Item 7A – Major Shareholders” in this Annual Report.
24
The market price of our ordinary shares may be affected by a limited
trading volume and may fluctuate significantly.
In the past, there has been a limited public market
for our ordinary shares and there can be no assurance that an active trading market for our ordinary shares will continue. An absence
of an active trading market could adversely affect our shareholders’ ability to sell our ordinary shares in short time periods.
Our ordinary shares have experienced, and are likely to experience in the future, significant price and volume fluctuations, which could
adversely affect the market price of our ordinary shares without regard to our operating performance. Financial forecasts and announcement
of major players in the industry may have an effect on our share price.
In addition, the price of our ordinary shares could
also be affected by possible sales of our ordinary shares by investors who view our convertible senior notes as a more attractive means
of equity participation in our company, and by hedging and arbitrage trading activity that such investors may engage in.
We manage our available cash through various bank institutions
and invest large portions of our cash reserves in bank deposits. The bankruptcy of one of the banks in which or through which we hold
or invest our cash reserves, might prevent us to access that cash for an uncertain period of time.
We manage our available cash through various bank
institutions and invest large portions of our cash reserves in bank deposits. As of December 31, 2024, a large portion of our cash reserves
were invested in bank institutions, of which approximately 10% (from total cash reserves and investment portfolio) was invested in one
bank institution in Israel. The bankruptcy of one of the bank institutions in which we hold our cash reserves or through which we invest
our cash reserves, might prevent us to access that cash for an uncertain period of time.
Our investment portfolio may be adversely affected by market conditions
and interest rates.
We maintain substantial balances of liquid investments,
for purposes of financing our operations and acquisitions. Our marketable securities totaled $443 million as of December 31, 2024. The
performance of the capital markets affects the values of funds that are held in marketable securities. These assets are subject to market
fluctuations and various developments, including, without limitation, rating agency downgrades that may impair their value. We generally
buy and hold our portfolio positions, while minimizing credit risk by setting limits for minimum credit rating and maximum concentration
per issuer. Our investments consist primarily of government and corporate debentures, which are primarily fixed-income securities.
Although we believe that we generally adhere to conservative
investment guidelines, the continuing turmoil in the financial markets may result in impairments of the carrying value of our investment
assets. In addition, as our investment portfolio is invested primarily in fixed-income securities it is affected by changes in interest
rates. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic
and political conditions. Any significant decline in our financial income or the value of our investments as a result of the changes in
interest rates and interest rate expectations of the financial markets, deterioration in the credit rating of the securities in which
we have invested, or general market conditions, could have an adverse effect on our results of operations and financial condition. We
classify our investments as available-for-sale. Changes in the fair value of investments classified as available-for-sale are not recognized
as income during the period, but rather are recognized as other comprehensive income, or OCI, which is a separate component of equity
until realized. Realized losses in our investments portfolio may adversely affect our financial position and results.
We may fail to maintain effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002 imposes certain duties
on us and our executives and directors. Section 404 of the Sarbanes-Oxley Act of 2002 requires (i) management’s annual review and
evaluation of our internal control over financial reporting and (ii) an attestation report issued by an independent registered public
accounting firm on our internal control over financial reporting, in connection with the filing of our Annual Report on Form 20-F for
each fiscal year. We have documented and tested our internal control systems and procedures in order for us to comply with the requirements
of Section 404. While our assessment of our internal control over financial reporting resulted in our conclusion that as of December 31,
2024, our internal control over financial reporting was effective, we cannot predict the outcome of our testing in future periods. If
we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that
we have effective internal controls over financial reporting. Failure to maintain effective internal control over financial reporting
could result in investigation or sanctions by regulatory authorities, and could have a material adverse effect on our operating results,
investor confidence in our reported financial information, and the market price of our ordinary shares.
25
Provisions of our Amended and Restated Articles of Association
and Israeli law may delay, prevent or make difficult an acquisition of Nova, which could prevent a change of control and negatively affect
the price of our ordinary shares.
Israeli corporate law regulates mergers, requires
tender offers for acquisitions of shares above specified thresholds, for special approvals for transactions involving directors, officers
or significant shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax
considerations may make potential transactions unappealing to us or to some of our shareholders. See Exhibit 2.1 to this Annual Report
for a more detailed discussion regarding some anti-takeover effects of Israeli law.
These provisions of Israeli law may delay, prevent
or make difficult an acquisition of Nova, which could prevent a change of control and therefore depress the price of our shares.
The rights and responsibilities
of our shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under
U.S. law.
We are incorporated under Israeli law. The rights
and responsibilities of holders of our ordinary shares are governed by our Amended and Restated Articles of Association and by the Israeli
Companies Law, 1999 (the “Companies Law”) and the regulations promulgated thereunder. These rights and responsibilities differ
in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to the Companies
Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights and fulfilling his or her obligations
toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things,
in voting at the general meeting of shareholders and class meetings, on amendments to a company’s articles of association, increases
in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approval under the Companies Law.
In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome
of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company, or has other
powers toward the company, has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty
of fairness. Because Israeli corporate law has undergone extensive revision in recent years, there is little case law available to assist
in understanding the implications of these provisions that govern shareholder behavior.
Any shareholder with a cause of action against us as a result of
buying, selling or holding our ordinary shares may have difficulty asserting a claim under U.S. securities laws or enforcing a U.S. judgment
against us or our officers, directors or Israeli auditors.
We are organized under the laws of the State of Israel,
and we maintain most of our operations in Israel. Most of our officers and directors as well as our Israeli auditors reside outside of
the United States and a substantial portion of our assets and the assets of these persons are located outside the United States. Therefore,
if you wish to enforce a judgment obtained in the United States against us, or our officers, directors and auditors, you will probably
have to file a claim in an Israeli court. Additionally, you might not be able to bring civil actions under U.S. securities laws if you
file a lawsuit in Israel. We have been advised by our Israeli counsel that Israeli courts generally enforce a final executory judgment
of a U.S. court for liquidated amounts in civil matters after a hearing in Israel. If a foreign judgment is enforced by an Israeli court,
it will be payable in Israeli currency. However, payment in the local currency of the country where the foreign judgment was given will
be acceptable, subject to applicable foreign currency restrictions.
26
Our shares are listed for trade on more than one stock exchange,
and this may result in price variations.
Our ordinary shares are listed for trading on the
Nasdaq Global Select Market and on the Tel Aviv Stock Exchange Ltd., or TASE. This may result in price variations. Our ordinary shares
are traded on these markets in different currencies, U.S. dollars on the Nasdaq Global Select Market and New Israeli Shekels on the TASE.
These markets have different opening times and close on different days. Different trading times and differences in exchange rates, among
other factors, may result in our shares being traded at a price differential on these two markets. In addition, market influences in one
market may influence the price at which our shares are traded on the other.
Our business could be negatively affected as a result of actions
of activist shareholders, and such activism could impact the trading value of our securities.
In recent years, certain Israeli issuers listed on
United States exchanges have been faced with governance-related demands from activist shareholders, as well as unsolicited tender offers
and proxy contests. Although as a foreign private issuer we are not subject to U.S. proxy rules, responding to these types of actions
by activist shareholders could be costly and time-consuming, disrupting our operations and diverting the attention of management and our
employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election
of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant
time and attention by management and our board of directors. The perceived uncertainties due to these potential actions of activist shareholders
also could affect the market price and volatility of our securities.
We may be classified as a “passive foreign investment company”
for U.S. income tax purposes, which could have significant and adverse tax consequences to U.S. shareholders.
Generally, if for any taxable year 75% or more of
our gross income consists of specified types of passive income, or, on average, at least 50% of our assets are held for the production
of, or produce, passive income, we may be characterized as a passive foreign investment company (a “PFIC”) for U.S. federal
income tax purposes. Classification of Nova as a PFIC could result in adverse U.S. tax consequences to our U.S. shareholders, such as
ineligibility for any preferential tax rates on capital gains or on dividends, interest charges on certain taxes treated as deferred,
and additional reporting requirements under U.S. federal income tax laws and regulations. If we are a PFIC, it may be possible for U.S.
holders of our ordinary shares to mitigate certain of these consequences by making an election to treat us as a “qualified electing
fund” under Section 1295 of the Internal Revenue Code of 1986, as amended (the “Code”) or a “mark-to-market election”
under Section 1296 of the Code. U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences
of investing in our ordinary shares.
We believe that for our 2024 taxable year we were
not a PFIC. Nonetheless, because the determination of whether we are, or will be, a PFIC for a taxable year depends on the application
of complex U.S. federal income tax rules, which are subject to various interpretations, there is a risk that we were a PFIC in 2024. Absent
one of the elections referenced above, if we are a PFIC for any taxable year during which a U.S. holder holds our ordinary shares, we
generally will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years regardless of whether we cease
to meet the PFIC tests in one or more subsequent years. Currently we expect that we will not be a PFIC in 2025 or subsequent years. However,
PFIC status is determined based on our assets and income over the course of each taxable year, and is dependent on a number of factors,
including the value of our assets, the trading price of our ordinary shares and the amount and type of our gross income. Therefore, there
can be no assurances that we will not become a PFIC for the 2025 taxable year, or any future year, or that the Internal Revenue Service
(“IRS”) will not challenge any determination made by us concerning our PFIC status. For a discussion on how we might be characterized
as a PFIC and related tax consequences, please see the section of this Annual Report entitled “Taxation - U.S. Taxation –
Passive Foreign Investment Companies.” Investors should consult their own tax advisors regarding all aspects of the application
of the PFIC rules to our ordinary shares.
27
If a United States person is treated as owning at least 10% of
our shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly,
indirectly or constructively) at least 10% of the value or voting power of our shares, such person may be treated as a “United States
shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes one or more
U.S. subsidiaries, certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether we are
or are not treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required
to annually report and include in its U.S. taxable income its pro rata share of the controlled foreign corporation’s “Subpart
F income”, “global intangible low-taxed income” and investments in U.S. property, whether or not such controlled foreign
corporation makes any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation
generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that
is a U.S. corporation. A failure to comply with these reporting obligations may subject you to significant monetary penalties and may
prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting.
We cannot provide any assurances that we will assist investors in determining whether any of our current or future non-U.S. subsidiaries
are treated as a controlled foreign corporation or whether such investor is treated as a United States shareholder with respect to any
of such controlled foreign corporations or furnish to any United States shareholders information that may be necessary to comply with
the aforementioned reporting and tax paying obligations. The Internal Revenue Service provided limited guidance on situations in which
U.S. shareholders may rely on publicly available information to comply with their reporting and tax paying obligations with respect to
foreign-controlled CFCs. A United States investor should consult their own advisors regarding the potential application of these rules
to its investment in the shares.
Item 4
. Information on the
Company
4.A History and Development of the
Company
Nova Ltd. was incorporated in May 1993 under the
laws of the State of Israel. We commenced operations in October 1993 to design, develop and produce integrated process control systems
for use in the manufacture of semiconductors, also known as integrated circuits or chips.
In April 2000, we conducted an initial public offering
and our shares were listed for trading on the Nasdaq Stock Exchange.
In June 2002, we listed our shares on the TASE, pursuant
to legislation which enables Israeli companies whose shares are traded on certain stock exchanges outside of Israel to be registered on
the TASE, while reporting, in substance, in accordance with the provision of the relevant foreign securities law applicable to the Company.
Until 2008, most of our products were sold to process
equipment manufacturers such as Applied Materials, Inc. and Ebara Corp., which later sold these products to semiconductor manufacturers.
Since then, we have changed our business model, selling substantially all of our products directly to semiconductor manufacturers. Through
this process, which has also enabled us to introduce to these customers additional products and features, we have improved our products
gross margins and net profitability.
In April 2015, we acquired ReVera Inc., a privately
held company headquartered in Santa Clara, California, which develops, manufactures and sells stand-alone metrology tools for measurements
of thin-films and composition applications in the semiconductor industry, and on December 31, 2017, we merged ReVera into its parent company,
Nova Measuring Instruments, Inc.
On July 25, 2021, we changed the legal name of the
Company from Nova Measuring Instruments Ltd. to Nova Ltd.
to match the Company’s long-term
strategy. The Company retained its NVMI ticker symbol and its Process Insight® tagline.
In January 2022, we acquired ancosys GmbH, a privately
held company with headquarters in Pliezhausen, Germany which is a leading provider of chemical analysis and metrology solutions for advanced
semiconductor manufacturing, supporting both frontend and backend semiconductor manufacturing. On June 26, 2023, ancosys GmbH merged into
its parent company, Nova Measuring Instruments GmbH.
28
In November 2024, we announced the acquisition
of Sentronics Metrology GmbH, a privately held company with headquarters in Mannheim, Germany which is a global provider of wafer metrology
tools for the backend semiconductor fabrication. 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. The acquisition was subject to customary closing and regulatory conditions and approvals, which were approved
by the German Federal Ministry of Economic Affairs and Climate Action, the closing took place on January 30, 2025.
At the end of 2024, we had seven direct fully owned
subsidiaries, in the U.S., Taiwan, Korea, China, Japan, Singapore and Germany. As of January 30, 2025, with the closing of the acquisition
transaction of Sentronics Metrology GmbH, it became a wholly owned subsidiary of Nova Measuring Instruments GmbH.
Our headquarter office is located in Israel at 5 David Fikes St., 10
th
Floor, Rehovot.
Our website address is
www.novami.com
,
and our telephone number is +972-73-229-5600. We use our website as a means of disclosing material non-public information. Such disclosures
will be included on our website in the “Investors” sections. Accordingly, investors should monitor such sections of our website,
in addition to following our press releases and SEC filings. Information contained on, or that can be accessed through, our website does
not constitute a part of this Annual Report and is not incorporated by reference herein. We have included our website address in this
Annual Report solely for informational purposes. Our SEC filings are available to you on the SEC’s website at http://www.sec.gov.
This site contains reports and other information regarding issuers that file electronically with the SEC. The information on that website
is not part of this Annual Report and is not incorporated by reference herein.
Our agent for service of process in the United States
is Nova Measuring Instruments Inc., which maintains its principal offices at 3342 Gateway Blvd, Fremont, CA 94538. Its telephone number
is 1-408-510-7400.
4.B
Business Overview
Our Company
Nova is a leading innovator and key provider of metrology
solutions for advanced process control used in semiconductor manufacturing. Nova delivers continuous innovation by providing high-performance
metrology solutions for effective process control throughout the semiconductor fabrication process. We bring pioneering metrology solutions
to semiconductors process control, by industrializing lab and research-grade technologies and developing emerging metrology solutions.
Nova’s product portfolio, deployed at the world’s largest integrated-circuit manufacturers, combines high-precision hardware
and cutting-edge software, and provides its customers with deep insight into the development and production of the most advanced semiconductor
devices. Nova’s capability to deliver innovative Optical, X-ray, SIMS and Chemical analysis technology solutions enables its customers
to improve performance, enhance product yields and accelerate time to market.
Nova’s market offering is driven by three product
divisions: The Dimensional Metrology Division (DMD) which is responsible for optical technology-based metrology solutions (integrated
and standalone), the Materials Metrology Division (MMD) which is responsible for X-ray and SIMS (Secondary Ion Mass Spectrometry) based
solutions, and the Chemical Metrology Division (CMD) which is responsible for chemical metrology and replenishment solutions. The corporate
units, such as marketing, next generation technology, human resources, finance and global business group, support all three divisions.
In January 2025, through the acquisition of
Sentronics, we expanded our technology base. Sentronics is a global provider of wafer metrology tools for backend semiconductor fabrication.
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.
29
Our Market
Semiconductor Industry and the Metrology Market
The semiconductor manufacturing process starts with
a flat silicon disc known as a silicon wafer upon which integrated circuits are constructed. To construct the integrated circuits, a series
of layers of thin films that act as conductors, semiconductors or insulators are applied. During the manufacturing process, these film
layers are subjected to processes which remove and add portions of the film, create circuit patterns and perform other functions. The
semiconductor manufacturing process requires numerous precise steps and strict control of equipment performance and process sequences.
Tight process control can be achieved through monitoring silicon wafers and measuring relevant parameters before, during or after each
process step, with metrology tools.
The demand for our metrology systems is driven by
capital equipment spending of the semiconductor manufacturers, which is in turn driven by the worldwide demand for semiconductor components
embedded in technology devices. Industry data indicates worldwide demand for semiconductors will continue to grow, driven by the growing
adoption artificial intelligence and internet of things (“IoT”) applications, advanced network infrastructure, automotive,
and green energy solutions, as well as network and data centers constructed to support the influx of data.
The growing investment in advanced technology nodes
introduces growing complexity and new challenges into the semiconductor manufacturing process, as manufacturers are continuously pushed
to improve performance and cost to gain competitive advantage. In a climate of constant growth, suppliers and manufacturers are asked
to constantly come up with new products with greater functionality, better performance at lower prices. As a result, many new complex
materials, advanced structures and processes are being introduced into the semiconductor manufacturing ecosystem. An environment of growing
complexity in chip design and manufacturing set favorable business conditions for process control demand.
Over the past several years we saw growing demand
for trailing node capacity, driven by the growing need for IoT and sensors that do not require leading edge technologies. This trend is
expected to continue in coming years and to increase the demand for metrology and process control solutions.
In addition, we are seeing a rapid growth in investments
in advanced packaging production lines, driven by the heightened need for high-performance, high-intensity devices to support the increase
in computing power required by AI-related applications. New architectures are emerging in the advanced packaging space, designed to enable
a swift leap in performance rather than wait for the next generation of chip architecture.
The Semiconductor Manufacturing Process
Semiconductors devices typically consist of transistors,
memory cells or other components connected by an intricate system of circuitry on silicon wafers. Integrated circuit manufacturing involves
many individual steps, some of which are repeated several times, through which numerous copies of an integrated circuit are formed on
a single silicon wafer. Because semiconductor specifications are extremely tight, and integrated circuits are becoming more complex, the
process steps are constantly monitored, and critical parameters are measured at each step using metrology equipment. Key process steps,
such as Deposition, Photolithography, Etch, Electro-Chemical Plating, and Chemical-Mechanical Planarization, rely on metrology systems
to monitor film thickness, uniformity, critical dimensions, material and chemical characteristics to ensure the correct result has been
achieved.
The measurements taken by metrology systems during
the manufacturing process help ensure process uniformity and help semiconductor manufacturers avoid costly rework and misprocessing, therefore
increasing efficiency, yield and time to market.
30
The Need for Effective Process Control and Metrology Tools
Several technical and operational trends within the
semiconductor manufacturing industry are strengthening the need for more effective process control and metrology solutions. These trends
include:
• Smaller
IC Devices. The development of advanced smaller features means a larger numbers of integrated circuits per wafer. As feature geometries
decrease, the manufacturing process tolerances decreases as well, and manufacturing yield becomes increasingly sensitive to processing
deviations and defects. In addition, the increased complexity means higher chance of error during manufacturing, leading to additional
inline monitoring and metrology steps.
• Transition
to 3D Device. The transition to ever more complex 3D Integration technology, in order to improve performance, requires complex fabrication
and as a result more sophisticated metrology solutions to be capable of measuring critical dimensions and materials properties in these
3D structures.
•
Faster Time to Market. The accelerating rate of obsolescence of technology and the faster ramp to yield required by customers makes
early achievement of high manufacturing yields a critical component of profitability and metrology has a critical role in achieving these
demanding results.
• Materials
Engineering. In order to overcome limitations in the continued shrink of transistor dimensions, which are used to improve performance,
leading manufacturers are introducing new novel materials to IC production. New materials introduction requires new processing and metrology
solutions in the atom level and thus represents a challenging development for the semiconductor manufacturing industry. It also represents
a growing demand for tighter materials control and therefore increasing demand for Materials Metrology solutions to control parameters
such as composition, stress, ultra-thickness, crystallization and more.
• Chemical
Process Control. The strive for high yields in new and complex IC devices and advanced packaging architectures, growing costs of
materials and chemicals, and tighter sustainability and environmental regulations are driving up the costs of operations and increasing
the need for manufacturers to carry out chemical process control on more elements and with increasing intensity.
•
New Manufacturing Steps. Multiple Lithography technologies including multi-patterning and E-Beam are increasing the number of Etch and
CMP process steps and EUV poses unique metrology challenges.
• Foundry
Model. The rising investment needed for leading edge semiconductor process development and production, as well as the proliferation of
different types of devices, lead to manufacturing increasingly being outsourced to foundries. A foundry typically runs several different
processes and makes numerous different semiconductor product types in one facility. Since Foundries are running multiple products at the
same time, the need for process control and metrology is increasing in order to qualify multiple devices on the same wafer at the same
high process quality.
• Advanced
Memory Technology (SSD). Memory manufacturers are going through technology evolution and build vertical devices to manage layers of NAND
Memory. Such a complex device that can hold up to hundreds of thin high aspect ratio vertical layers requires significant changes in the
manufacturing process. These changes require also many more steps to control through different Metrology solutions and increase the overall
process control intensity for these High Aspect Ratio evolving structures.
• Advanced
Packaging. The evolution in packaging to high-end performance packaging technologies such as flip chip, fan out, 2.5D and 3D packaging
is driven by the need for enhanced performance with higher I/O density and smaller pitch. The advanced packaging business growth is propelled
by AI automotive, 5G and HPC-related applications. Capital investment for High-End Performance Packaging represents a significant part
of the total packaging CAPEX and is shifting from OSATs to Integrated Device Manufacturers and Foundries as the production and process
control requirements are becoming similar to Front-End Fabs. These trends are increasing the TAM for process control and metrology solutions
that Nova delivers to the packaging market.
In order to address the continuous increasing costs
and challenges associated with these trends, semiconductor manufacturers must improve manufacturing procedures, production yields and
time to market. Beyond improving the technology, introducing new process steps and innovative fabrication capabilities, Semiconductors
manufacturers must tighten the control over the process and therefore must increase the Metrology intensity as well as introduce new innovative
Metrology solutions. These new solutions will allow manufactures to overcome new challenges in dimensions, materials and chemical engineering.
31
The Semiconductor Market – Update
According to Gartner forecasts, semiconductor revenues
are expected to grow by 12.7% in 2025, following a growth of 18.1% in 2024. WFE (Wafer Fab Equipment) is expected to grow by 4.1% in 2025,
following a growth of 4.1% in 2024 (Gartner Forecast Semiconductor Wafer Fab Equipment, Worldwide, Q424 Update, published December 2024).
According to research reports, future demand drivers
for semiconductors include AI, smart sensors, internet-of-things industrial devices, green energy, automotive, data center and cloud infrastructure,
and other electronic equipment.
Products
& Technologies
Our product portfolio includes a complete set of
metrology platforms suited for dimensional, films, materials and chemical metrology measurements for process control across multiple semiconductor
manufacturing process steps including lithography, Etch, CMP, deposition, electrochemical plating and advanced packaging. Our offering
is comprised of several key product lines, spanning multiple technologies and addressing key challenges in semiconductor process control,
from R&D to High-Volume-Manufacturing.
Our strategy to offer holistic and diversified portfolio
supports the industry’s frequent transitions, establishing the advantages and unique value we bring to our customers. With the introduction
of new technologies and products, we cover a wider variety of applications, which increase our served and available markets and footprint
in the semiconductor manufacturing market.
|
Technology
|
Product Line
|
Key applications
|
Product families
|
|
• Broadband Spectrophotometry
• Scatterometry
• Spectral Reflectometry
• Imaging and Image Processing
|
Dimensional Optical CD Integrated Metrology
|
Critical Dimensions
Thin films
Wafer topography
|
Nova i Platform
Nova Astera
|
|
Dimensional Optical CD Stand-Alone Metrology
|
Nova T-platform
Nova MMSR
Nova Velo CD
|
||
|
• Spectral Interferometry
|
Nova Prism
|
||
|
• X-Ray Photoelectron Spectroscopy
• X-Ray Fluorescence
|
X-Ray
Materials
Metrology
|
Thin film
Composition
|
Nova VeraFlex
|
|
• Secondary Ion Mass Spectrometry
|
SIMS Materials
Metrology
|
Composition depth-profiling
|
Nova Metrion
|
|
• Raman Spectroscopy
|
Optical Materials Metrology
|
Strain
Crystallinity
Composition
|
Nova Elipson
|
32
|
• Computational Modeling for Metrology
Platforms
|
Physical modeling (Modeling Software Solutions)
|
|
Nova MARS
|
|
• Machine Learning
• Advanced Algorithms
|
Mathematical modeling algorithms (Software solutions)
|
|
Nova FIT for Films CD Metrology
Nova FIT for Material Metrology
|
|
• Big Data Analytics
• High Power Computing
|
Fleet Management (Software solutions)
|
|
Nova FM
Nova HPC
QED
|
|
• Titration – various
types
• CVS, CPVS, PCGA
• Spectrophotometry
• HPLC
• Dynamic Surface Tension
• pH, conductivity, density
|
Chemical Process Control – Analysis and Replenishment
|
Electroplating process applications in interconnect, advanced packaging, and PCB markets
|
Nova Ancolyzer
Nova AncoScene
Nova AncoFlex
|
|
• Solid dosing
|
Metal Replenishment
|
Powder dosing specialty metal oxide materials for electroplating applications
|
Nova DMR
|
Following the acquisition of Sentronics in
January 2025, we have expanded our 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.
About the product lines
Our product portfolio is composed of 4 major product lines.
1. Dimensional
Metrology
Nova’s integrated metrology (IM)
-
Integrated platforms that enable advanced process control (APC) required
for the most advanced logic and memory technology nodes. Nova’ IM solutions offer fast metrology with high productivity, targeting
manufacturing of advanced logic, advanced memory and advanced packaging technologies. Integrated metrology systems are directly integrated
with manufacturing process equipment and provide semiconductor manufacturers with effective and efficient process control by measuring
wafers within the process environment. This family of products allows within-wafer and within-die variation control. Enriched with Nova’s
advanced modeling, machine learning and algorithmic solutions, Nova’s integrated metrology provides enhancements in metrology accuracy,
precision, and tool matching.
33
Nova’s stand-alone metrology platforms
are utilized to characterize critical dimensions such as width, shape and profile with high precision and accuracy and are used in multiple
areas of the fabrication process such as photolithography, etch, CMP and deposition steps. Nova’s stand-alone platforms are targeted
for critical dimensions (CD), topography and thin measurements at the most advanced logic, memory and advanced packaging technology nodes
across all semiconductor leading customers. The expression “stand-alone metrology” generically describes free standing metrology
equipment, located in line, i.e., next to the processing equipment measuring wafer samples in a station of its own. Nova’s stand-alone
metrology product line is comprised of several platforms, ranging from normal channel to multiple channels of information in one tool.
Nova’s unique channels of information enables high metrology performance combined with high productivity. When incorporating Nova’s
advanced suite of modeling and machine learning solutions, the Optical CD stand-alone platform provides cutting-edge performance for critical
dimensions (CD) and thin films measurements of the most complex layer stacks and 3D structures.
2. Modeling
and Software
Some of Nova’s hardware products, including
Dimensional and materials Metrology, are combined with our suite of advanced algorithms and software modeling solutions. Nova’s
software modeling solutions combine top notch algorithms in the field of Artificial Intelligence and machine learning. Nova’s suite
of software modeling products is comprised of Nova MARS physical and geometrical modeling and Nova FIT data-driven machine learning modeling
solutions. These solutions are supported by Nova HPC, a computational management layer, which also serves as the foundation for Nova’s
Centralized Fleet Management and Control. Our comprehensive software modeling portfolio provides customers with a complete modeling and
application development solution designed for complex 3D and HAR structures in the most advanced logic and memory technology nodes:
|
|
• |
Nova MARS - Nova MARS software package is a multi-channel metrology modeling engine designed for the most advanced 3D structures
in advanced process nodes of semiconductor manufacturing. It is a complete modeling solution for scatterometry and spectral interferometry
models’ development, material characterization and recipe optimization which is crucial for facing increasing challenges in semiconductor
metrology. The Nova MARS also injects physical and process related knowledge to solve complex structures.
|
|
|
• |
Nova FIT - The Nova FIT modeling suite complements traditional modeling of Optical Critical Dimensions and Materials by machine learning
and data-driven algorithmic solutions. The algorithmic suite works independently or in conjunction with Nova MARS physical modeling engine
and Nova’s Fleet Management solution, to improve metrology performance, optimize throughput, speed up time to solution, and expand
the metrology envelope for enriched process control. For optical CD, Nova FIT embeds advanced machine learning and big data architecture
into optical modeling. In every permutation of the solution, Nova Fit enhances the way customers utilize metrology measurement data to
tighten process windows, avoid process excursions, and improve yield.
|
|
|
• |
Nova’s Centralized Fleet Management and Control - Nova’s Fleet Management and Performance Monitoring Center simplify
the management and enhance the productivity of Nova tools in the fabrication site. The platform’s ability to process and analyze
large amounts of fleet and metrology data using advanced data analytic tools provides our customers with intelligent and predictive insights
on tool performance and process trends.
|
|
|
• |
Nova HPC - The Nova HPC is a High-Performance Computing solution, which is designed to accelerate Nova MARS and Nova FIT work processes.
Nova HPC significantly expedites application development by accelerating library-building, real time regression and recipe-setting processes.
Its advanced computing hardware design enables optimization of Nova’s proprietary algorithm performance, thus enabling the most
calculation-demanding application development.
|
34
3.
Materials
Metrology
Materials are considered the next frontier in advancing
integrated circuits beyond dimensional and architectural scaling. The growing usage of complex and novel materials in advanced technology
nodes has increased the demand for metrology solutions that can measure materials properties, In Line and In Die, with high precision
and accuracy. Nova’s materials metrology offering utilizes powerful X-Ray, Raman and SIMS technologies that have been optimized
to provide the automation, speed and reliability required in today’s advanced semiconductor production environment. As part of Nova’s
strategic plan, Nova intends to increase its focus on the evolving materials engineering market. The demand to precisely characterize
and control materials composition, thickness, stress and more, is growing in advanced Memory and Logic nodes and requires innovative metrology
solutions. Our Nova Elipson, Metrion and VeraFlex platforms aim to provide such capabilities.
|
|
• |
VeraFlex- Nova’s VeraFlex combines enhanced XPS (X-Ray photoelectron
spectroscopy) capability with an optional unique low energy XRF (X-Ray fluorescence) channel to address logic and memory device fabrication
challenges. This innovative inline technology is a surface-sensitive quantitative spectroscopic technique that is used to determine the
elemental composition and thickness of thin films. When incorporating the Nova Fit advanced suite of machine learning applications, the
platform offers enhanced throughput and precision performance of established applications and maximizes system productivity.
|
|
|
• |
Nova Metrion
-
Nova Metrion
-
targets process control of 3D logic and
memory semiconductor devices. The technology enables advanced materials profile measurements by bringing secondary ion mass spectrometry
(SIMS) into semiconductor production lines on both monitor and product wafer. The Nova Metrion provides quantitative and actionable results
on depth profiling of compositional information with high-depth resolution and precision.
|
|
|
• |
Nova Elipson - Nova Elipson utilizes Raman spectroscopy, a vibrational spectroscopy technique, to detect multiple material properties
such as strain, crystallinity, phases, grain size and composition. The combination of a small spot and high speed of this non-destructive,
optical method makes it a metrology of choice for both memory and logic applications.
|
|
|
• |
Nova FIT for Materials Metrology – a server based solution, when used in conjunction with our VeraFlex IV product, enables
higher measurement throughput and higher precision for certain use cases.
|
4. Chemical
Metrology
Nova offers a market-leading portfolio of advanced,
open and flexible chemical metrology platforms for backend wafer-level packaging, TSV, front-end dual-damascene, and PCB and IC-Substrate
process steps.
The growing number of interconnect steps that require
plating at the front-end of the process as well as the substantial increase in the number of organic alloys and compounds used in advanced
packaging are increasing the need for advanced chemical metrology solutions. Furthermore, the higher material costs, and tighter environmental
regulations are driving up the cost of operations and increasing the need for manufacturers to perform chemical process control on more
elements and with increasing intensity. Our portfolio helps manufacturers ensure high-quality electroplating processes by carrying out
chemical analysis and replenishment in real time.
|
|
• |
Nova AncoScene– the Nova AncoScene is an industry-standard chemical metrology solution for damascene copper and cobalt plating
interconnects applications, qualified by leading global manufacturers for operation in advanced nodes production processes. The solution
supports a continuously growing range of copper and cobalt baths and applications and offers a fully automated analysis of bath components,
overall plating performance, excursions, trends alarms and warnings, and overall process control.
|
35
|
|
• |
Nova Ancolyzer – the Ancolyzer is a fully automated online chemical metrology platform designed with the most flexible architecture
for advanced packaging processes. Nova’s Ancolyzer offers superior analytical performance and supports a wide variety of analytical
techniques for process control. The platform’s flexible and scalable architecture is configured to the specific process analysis
and replenishment requirements. The platform’s superior accuracy and precision are coupled with uncompromising reliability and the
highest availability.
|
|
|
• |
Nova DMR – the Nova DMR offers economical replenishment of metals in a plating bath. This significantly extends the bath chemicals’
lifetime and improves the plater utilization. DMR provides fully automatic powder container docking for uninterrupted operation and eliminates
the constant increase in bath volume, reducing the need for bleed and feed or full bath dump. Thus, reducing environmental impact and
minimizing operational risks and costs. The platform integrates with Nova Ancolyzer and can directly connect to any process tools.
|
|
|
• |
Nova AncoFlex - Nova AncoFlex™ is an industry-standard fully automated inline chemical metrology solution for copper PCB and
IC-substrate production processes. The solution supports a continuously growing range of copper baths and applications and provides excellent
lifetime monitoring of bath composition and performance. The platform combines reported and controlled accuracy and precision with uncompromising
reliability and the highest availability.
|
Our Customers, Sales and Marketing
Our sales and marketing strategy is based mostly
on direct sales channels where we engage with our customers from the early stages of process development, to address their challenges
in the development phase, and later on support their technology transition to high volume production. We seek to establish and maintain
tight cooperative relationships with our customers by consistently providing them with a high level of service, support and new capabilities.
We have a global network of sales and marketing, customer service and applications support offices worldwide. Our teams are empowered
by frequent trainings, remote support options, online resources and rich marketing collateral.
We serve all leading manufacturers in the logic,
foundry, memory and packaging sectors of the integrated circuit manufacturing industry. Our customers are located across Asia, Europe
and North America.
For the distribution of our total revenues, from
products and services, by geographic areas, see Note 15A to our consolidated financial statements.
The semiconductor industry is dominated by a small
number of large companies. As a result, our sales are highly concentrated among a relatively small number of customers. The following
table indicates the percentage of our total revenues derived from sales to our five largest customers and the range of these revenues
from these customers for the periods indicated.
|
|
2022
|
2023
|
2024
|
|||||||||
|
Total revenues from five largest customers
|
57
|
%
|
52
|
%
|
53
|
%
|
||||||
|
Range of revenues from five largest customers
|
6-23
|
%
|
5-19
|
%
|
6-18
|
%
|
||||||
Competition
The industries in which Nova operates are highly
competitive and characterized by rapid technological change. Nova’s ability to compete generally depends on its ability to develop
and introduce competitive solutions, commercialize its technology in a timely manner, continuously improve its products, and develop new
products that meet the evolving customer requirements. Significant competitive factors include technical capability and differentiation,
productivity, cost-effectiveness and the ability to support a global customer base. The importance of these factors varies according to
customers’ needs, including product mix and respective product requirements, applications, and the timing and circumstances of purchasing
decisions. Substantial competition exists in all areas of Nova’s business.
36
Competitors range from small companies that compete
in a single region, which may benefit from policies and regulations that favor domestic companies, to global, diversified companies. Nova’s
ability to compete requires a high level of investment in R&D, marketing and sales, and global customer support activities.
Research and Development
We have assembled a core team of experienced
scientists and engineers who are highly skilled in their particular field or discipline. Our research and development core competencies,
technologies and disciplines are in scatterometry, thin film metrology, XPS, interferometry, Raman Spectroscopy metrology, SIMS metrology,
chemical metrology techniques and semiconductor process control, and include multidisciplinary measurement instruments, complex system
engineering, algorithms, physical modeling, optical design, interpretation software, machine learning, image acquisition, pattern recognition,
X-ray energy sources, electron optics and detection, multiple types of electrochemical, and spectroscopic analysis methods, applied to
characterize individual and complex multi-component mixes vacuum systems and equipment integration. Our research and development staff
consists of about 585 highly skilled members, approximately 110 of whom hold Ph.D.’s (not including the skilled members of Sentronics,
which we acquired in January 2025). In addition, we rely on independent subcontractors and consultants in various fields. Since June 2003,
our research and development operations in Israel are certified for ISO 9001 quality standard (Current ISO 9001:2015 version), additionally
certified in Germany and the U.S. as of 2020 and 2021, respectively.
The metrology and process control market is characterized
by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and
enhancements to our existing product lines is critical to our success. Accordingly, we devote a significant portion of our technical,
management and financial resources to developing innovative products, new applications and emerging innovative technologies.
Our vision is to continue to be an innovative leader
in the semiconductor process control market, through increasing our leadership in the Dimensional, Materials and Chemical metrology solutions.
Our research and development efforts, designed to
support this vision, are structured through different and separate development projects, which are initiated following a detailed project
plan, technical feasibility, and risk analysis. The main projects are monitored throughout their life cycle in a structured process, including
design reviews and project management reviews.
In the frame of our research and development activities
we participate from time to time in development consortia arrangements, which also help us to support our customers in the transition
to advance technology nodes. These consortia are joint collaboration programs with other semiconductors companies and are supported and
funded by the IIA and/or European Joint Research and/or the German BMBF. It should be noted, that in order to maintain our eligibility
for these programs, we must continue to meet certain conditions. These programs might restrict our ability to manufacture particular products
and transfer particular technology, which were funded by the IIA. For additional information, see “Item 5C - Grants from the Israel
Innovation Authority & European programs” in this Annual Report.
As part of our long-term technological collaboration,
we are also engaged with joint development activities with some of our strategic vendors or customers, as well as with research institutes
and other semiconductor companies. These activities sometimes impose limitations on the joint intellectual property developed as part
of these programs.
37
Patents and Other Proprietary Rights
Our continued success depends upon our ability
to protect our core technology and intellectual property. We therefore have an extensive program devoting resources to seeking patent
protection for our inventions and discoveries that we believe will provide us with competitive advantages. Our patents and applications
principally cover various aspects of optical measurement systems and methods, integrated process control implementation concepts, and
optical, opto-mechanical and mechanical design. In addition, our patents and applications cover various aspects of X-ray based measurement
systems and methods, including process control implementation concepts, X-ray energy sources, electron optics and detection, vacuum systems
and equipment integration. Our patents and applications portfolio also include aspects of Chemical metrology. To protect our proprietary
rights, we also rely on a combination of copyrights, trademarks, trade secret laws, contractual provisions (e.g. confidentiality agreements)
and licenses. Our copyrights include software copyrights. We constantly seek to control access to, and distribution of our proprietary
information, such as our proprietary algorithms. We enter into confidentiality and proprietary rights agreements with our employees, consultants
and business partners, and we control access to and distribution of our proprietary information.
Our in-house know-how is an important element
of our intellectual property. The development and management of our products require sophisticated coordination among many specialized
employees. We believe that duplication of this coordination by competitors or individuals seeking to copy our products would be difficult.
The risk of a competitor effectively replicating the functionality of our products is further mitigated by the fact that most of the core
technology operating on our systems is not exposed to a user or to our competitors. To protect our technology, we implement multiple layers
of security.
Despite our efforts to protect our proprietary
rights, competitors may be able to develop similar technology independently or design around our patents and, despite our efforts, our
trade secrets may be disclosed to others. Furthermore, the laws of countries other than the U.S. may not protect our intellectual property
to the same extent as the laws in the U.S. We also cannot assure that: (i) our pending patent applications will be approved; (ii) any
patents granted will be broad enough to protect our technology or provide us with competitive advantages or will not be successfully challenged
or invalidated by third parties; or (iii) that the patents of others will not have an adverse effect on our ability to do business. We
may also have to commence legal proceedings against third parties to protect our intellectual property.
From time to time, we receive communications from
others asserting that our products infringe or may infringe their intellectual property rights. Typically, our in-house patent counsel
investigates these matters and, where appropriate, retains outside counsel to provide assistance. We are not presently involved in any
material legal proceedings in which a third party has asserted that we have violated their intellectual property rights.
If,
however, we become involved in any such litigation and its outcome is adverse to us, it may result in a loss of proprietary rights, subject
us to significant liabilities, including triple damages in some instances, require us to seek licenses from third parties which may not
be available on reasonable terms or at all, or prevent us from selling our products. Furthermore, any litigation relating to intellectual
property, even if we are ultimately successful, could result in substantial costs and diversion of time and effort by our management.
This in and of itself could have a negative impact on us. While we believe that we would be successful in any litigation seeking to enforce
our patent rights, the ultimate outcome of any litigation or other legal proceedings cannot be predicted.
Manufacturing
We have two manufacturing facilities for our Optical
based product lines (including the Raman technology), which is located in Rehovot and Nes Ziona, Israel, one manufacturing facility for
our X-ray and SIMS based product lines, which is located in Fremont, CA, U.S., and following the move of our manufacturing facility from
Pliezhausen in January 2025, one main manufacturing facility for our Chemical Analysis and Metrology technology related product lines,
which is located in Bad Urach, Germany.
In 2023, we expanded our production and development
capabilities with a new state-of-the-art cleanroom in Rehovot, Israel that support the Company’s newly introduced technologies and
continuous growth. In addition, we also established a cleanroom in a new “Innovation Center” facility at our Fremont site.
These facilities became operational in 2023.
38
Our principal manufacturing activities include assembly,
integration, final testing and calibration. Our production activities are conducted in our manufacturing and repair center facilities
in Israel, Germany and in California. We rely and expect to continue to rely on subcontractors and turnkey suppliers to fabricate components,
build subassemblies and perform other non-core activities in a cost-effective manner. While we use standard components and subassemblies
wherever possible, most mechanical parts, metal fabrications, optical components and other critical components used in our products are
engineered and manufactured to our specifications. A small portion of these components and subassemblies are obtained from a limited group
of suppliers, and occasionally from a single or sole source supplier.
In order to leverage the relatively high volume of
systems we manufacture, and in order to decrease production costs, we continue to focus our internal manufacturing activities on processes
that add significant value or require unique technology or specialized knowledge and outsource others. Our sites, in Israel, Fremont,
CA, and Bad Urach, Germany are certified by the ISO 9001:2015 quality mark by an international certification institute. Additionally,
we received the formal certification of ISO 14001and ISO 45001 for our sites in Israel and Fremont, CA. We are being annually recertified
for these standards.
Environmental, Social and Governance (ESG)
Nova ESG 2024 Status
On April 4, 2023, we published our first Environmental,
Social, and Governance (ESG) Insight Review, as was published on our website (the “
ESG Plan
”).
We aim to continue improving our ESG Plan, which we plan to review and updated every two years. Our focus remains the wellbeing of our
employees and their families. On October 7, 2023, our ESG Plan was put to the test and assisted our management team to rapidly adapt our
operations and safety measures to provide support for our teams both in Israel and abroad.
As part of the ESG Plan, we established a management
level ESG Steering Committee, led by our CEO, which oversees the ESG policies, strategy and implementation to monitor our long-term and
annual guidelines and results related to ESG matters. This committee serves as a supplement to the responsibilities of our Chief Human
Resources Officer, which among other matters, is responsible for developing strategies and initiatives to achieve our ESG goals as detailed
in our ESG Plan. All as part of our vision to become a more active influencer in creating a sustainable and equitable future to grow Nova’s
presence in Israel and abroad. Our ESG Plan was composed in accordance with the Global Reporting Initiative (GRI), the Sustainability
Accounting Standards Board (SASB) guidelines, and the United Nations Sustainable Development Goals (SDGs). It is built on four pillars
that we aim to interlace across our daily operations and culture: (i) Governance – elevating ethical and corporate governance methods;
(ii) People and Social Impact – with a focus on both the individual and the surrounding communities; (iii) Innovative Approach –
connecting technical roadmap to unique culture for long-term impact; and (iv) Environment and Supply Chain – managing efficiently
footprint, energy and sustainable supply chain.
For more information
on our ESG Plan – please visit our website where you can access the full report.
Information
contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by
reference herein.
Capital Expenditures
Our capital expenditures are primarily for network
infrastructure, computer hardware and software, construction and leasehold improvements of our facilities, expansion of clean room facilities
and demonstration and development tools. None of these assets are held as collateral or guarantee other obligations. For additional information
on our capital expenditures, see “Item 5B. Liquidity and Capital Resources” in this Annual Report.
39
Government Regulation
For information relating to the impact of certain government regulations
on our business, see
“Item 5.C – Grants from the Israel Innovation Authority”
on this Annual Report.
4.C Organizational Structure
Our Subsidiaries
Our subsidiaries as of the end of 2024 and the countries
of their incorporation are as follows. All of our subsidiaries are wholly owned by the Company:
|
Name of Subsidiary
|
Place of Incorporation
|
|
Nova Measuring Instruments, Inc.
|
Delaware, U.S.
|
|
Nova Measuring Instruments K.K.
|
Japan
|
|
Nova Measuring Instruments Taiwan Ltd.
|
Taiwan
|
|
Nova Measuring Instruments Korea Ltd.
|
Korea
|
|
Nova Measuring Instruments GmbH
|
Germany
|
|
Nova Measuring Instruments (Shanghai) Co., Ltd.
|
China
|
|
Nova Measuring Instruments Singapore Pte Ltd
|
Singapore
|
As of January 30, 2025, with the closing of the acquisition transaction of Sentronics Metrology
GmbH, it became a wholly owned subsidiary of Nova Measuring Instruments GmbH.
4.D
Property, Plant and Equipment
|
Location
|
Purpose of use
|
Approximate
SQM
|
Expiration date
|
|
Israel
Rehovot and Ness Ziona
|
Offices, manufacturing and laboratories
|
16,000
|
August 2029 with an option to extend the lease period by two periods of five years
each, subject to customary conditions. Ness Ziona 2800 sqm lease is expected to end in January 2026
|
|
US
Fremont California
|
Offices, manufacturing and laboratories
|
9,300
|
August 2034 with an option to extend for an additional five years, subject to customary conditions.
|
|
Germany
Bad Urach
|
Offices, manufacturing and laboratories
|
6,500
|
The facility is owned by the Company and as of January 2025, has fully replaced the Pliezhausen facility.
|
|
Germany
Pliezhausen
|
Offices, manufacturing and laboratories
|
3,500
|
March 2025, to be replaced by the Bad Urach facility.
|
|
Taiwan
Hsinchu
|
Offices and laboratories
|
2,000
|
Ranging between 2025 and 2031
|
|
US, China, Korea, Taiwan, Japan, Singapore
|
Offices and laboratories
|
Less than 2,000 each
|
Ranging between 2024 and 2029.
|
We believe that our facilities and equipment are
in good operating condition and adequate for their present usage.
40
Item 4A.
Unresolved Staff
Comments
None.
Item 5
. Operating and Financial
Review and Prospects
Information in this Operating Review and Financial
Prospects Section should be read in conjunction with our consolidated financial statements and notes thereto which are included elsewhere
in this Annual Report.
Executive Overview
Nova is a leading innovator and key provider of metrology
solutions for advanced process control used in semiconductor manufacturing. We deliver continuous innovation by providing state-of-the-art
high-performance metrology solutions for effective process control throughout the semiconductor fabrication lifecycle. We bring pioneering
metrology solutions to the world of process control, by industrializing laboratory and research-grade technologies and developing emerging
metrology solutions. Nova’s product portfolio, deployed by the world’s largest integrated circuit manufacturers, combines
high-precision hardware and cutting-edge software and provides its customers with deep insight into the development and production of
the most advanced semiconductor devices. The unique capability to develop innovative metrology solutions allows our customers to improve
device performance, enhance yields and accelerate time to market. We sell our solutions mainly to semiconductor manufacturers, and in
some cases to semiconductor process equipment manufacturers.
Our business is greatly affected by the level of
spending on capital equipment by semiconductor manufacturers. In addition, demand for our products and services is affected by the timing
of new IC capacity expansion and ramping up of new technology nodes, by the timing of releasing new products by us and our competitors,
market acceptance of our new or enhanced products and changes or improvements in semiconductor design or manufacturing processes.
In the past five years (2019-2024), we achieved a
positive Compound Annual Growth Rate (CAGR) of products revenues of approximately 24.5%, while Gartner Inc. estimates that the Process
Control sector has achieved a CAGR of approximately 16.0% (Gartner Q4-2024 forecast, published in December 2024). During these years,
we successfully diversified our technology to include Material and Chemical metrology capabilities, on top of our Dimensional metrology
solutions. We also added advanced machine learning algorithms on top of our physical modeling, and we advanced our traditional tool set
to include advanced capabilities in both hardware and software. We also diversified our revenue mix across semiconductor sectors, customers
and geographies. During these years, we were also able to increase our total available market through development of new technologies
used for Materials, Dimensional and chemical metrology, addressing emerging applications in Logic/Foundry, Memory and Packaging across
trailing edge and advanced technology nodes.
In 2024, product sales accounted for approximately
80% of our total revenues, and services accounted for approximately 20%.
41
As of the end of 2024, we had cash reserves, net
of convertible senior notes, of approximately $640 million, and working capital of approximately $510 million, which consist of current
assets net of current liabilities. In January 2025, we used approximately $60 million of this cash to pay for the acquisition of Sentronics.
Our service organization is operating on a profit-and-loss
basis, and the objectives of our service organization are defined and measured by customer satisfaction, quality support parameters, and
profit and loss criteria. The service organization provides support to all products we sell, during both the warranty period and the post
warranty period. Service revenues are mostly driven by extended warranty, time and material requests, service contracts and proactive
sales to the install base to improve productivity and metrology performance.
Significant Events in 2024 and Outlook for 2025
During 2024, we demonstrated several
significant achievements
:
|
|
• |
Record product and service sales results.
|
|
|
• |
Record profitability and earnings per share
|
|
|
• |
Diversified customers mix, across multiple territories.
|
|
|
• |
Further expansion into advanced packaging with new and existing products.
|
|
|
• |
Further market adoption of Nova’s advanced portfolio:
|
|
|
o |
Materials, chemical and dimensional metrology solutions.
|
|
|
o |
Hardware and software coupling.
|
|
|
o |
Machine learning and AI capabilities to complement physical modeling.
|
|
|
o |
Holistic offering, including Integrated and Standalone metrology.
|
|
|
• |
Continued proliferation of Nova’s newly announced solutions of Elipson, Metrion and AncoScene products.
|
|
|
• |
Record sales of our Optical CD stand-alone solutions, and continued evolution with new generations of Integrated and Standalone metrology
platforms.
|
|
|
• |
Record sales of materials and chemical metrology solutions.
|
|
|
• |
Continued investments in research and development programs aimed to generate new organic growth engines for process control.
|
|
|
• |
Deepening collaboration with research institutes and customers' development centers, utilizing a variety of our products, leading
to our positioning as a long-term technology development and high-volume manufacturing partner.
|
|
|
• |
ESG (Environment, Social and Governance) – In 2024 we worked to update our first ESG review. We are determined as a company
to play a vital role in creating a world that values equality, safety and environmental health for the benefit of future generations to
come. We remain committed to proactively invest in embedding social responsibility and sustainability as part of our culture and business
management to support our values.
|
|
|
• |
The acquisition of Sentronics,
a privately held company headquartered in Germany, closed on January 30, 2025. Sentronics is a global provider of wafer metrology tools
for backend semiconductor fabrication. 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 enables Nova to diversify its offering in the growing
field of advanced wafer level packaging and specialty devices.
|
42
In 2025, we plan to focus on the
following:
|
|
• |
Investing in organization development to enhance our human capital and the strength of our global teams based on our values and culture.
|
|
|
• |
Continue to strengthen our competitive market position, through unique innovation and technical leadership.
|
|
|
• |
Continue executing our innovation and development plans to meet future industry challenges.
|
|
|
• |
Continue executing our well-defined strategy to reach $1B USD by 2027 in revenues, organically and inorganically. The strategy defines
the Company’s growth path in revenue, customers, technology and financial performance.
|
|
|
• |
Expand our total available markets by addressing new emerging metrology applications and markets sectors, through solutions delivery
to the challenging buildup of advanced Logic technology nodes, memory scaled 3D-NAND nodes and DRAM scaled devices at leading edge customers.
|
|
|
• |
Continue delivering metrology systems for the trailing edge technology nodes and to advanced packaging customers to support new applications
ramp up and expansions.
|
|
|
• |
Continue the collaborations and joint research programs with leading semiconductor manufacturers and relevant leading research institutes.
|
|
|
• |
Continue innovation and diversification of our products through several new product introductions to extend the Company’s market
leadership and total available market.
|
|
|
• |
Continue our plans to generate revenues and competitive edge through SW algorithms and Machine Learning solutions.
|
|
|
• |
Strengthening the partnership with our customers and build a “Customer Centric” approach to accommodate and deliver customers’
requirements along the semiconductor lifecycle.
|
|
|
• |
Continue investing in developing new approaches and methods for inline materials process control.
|
|
|
• |
Continue investing in our chemical metrology product development and enhance our product offering.
|
|
|
• |
Create synergy between our product lines towards a combined offering for advanced applications, which require dimensional, material
and chemical metrology.
|
|
|
• |
Grow our production facilities and offices footprint to meet semiconductor demand and our strategic plans and continue to develop
modern and streamlined core business processes through new ERP and Service CRM infrastructure.
|
|
|
• |
Elevate our investment in ESG programs in order to promote social responsibility programs through our five pillars program (for details,
refer to the Environmental, Social and Governance (ESG) chapter in Item 4.B in this Annual Report).
|
|
|
• |
Build an extensive roadmap for Sentronics products in order to broaden their portfolio and cater to additional applications.
|
|
|
• |
Create synergy between Nova and Sentronics’ technologies towards a combined and enhanced offering for advanced packaging applications.
|
|
|
• |
Leverage Nova’s extensive market presence and exposure to drive Sentronics sales to new heights.
|
|
|
• |
Continue looking for investment opportunities to broaden our portfolio and enrich our brand.
|
The major challenges we could face in fulfilling our plans include:
|
|
• |
Meeting strategic, development, operational and delivery targets considering the macro economical, geopolitical and trade restriction
issues across the globe and the current conditions in Israel.
|
|
|
• |
On time delivery of the required solutions to meet the current and future needs of our existing and new customers.
|
|
|
• |
Correctly understanding the market trends and competitive landscape to ensure our products retain proper differentiation to win customer
confidence.
|
|
|
• |
Creating aggressive, innovative and competitive roadmap deliverables at reasonable costs to properly control expenses.
|
43
|
|
• |
Identifying the metrology evolution roadmap for future industry needs to meet process control requirements and lead the market.
|
|
|
• |
Achieving long-term growth targets while supporting extensive growth in all our activities.
|
|
|
• |
Building a solid global infrastructure and production capacity to accommodate further growth.
|
|
|
• |
Failure to design, implement and smoothly transition to the new ERP system.
|
In order to address the risks above we implemented
a global plan to secure our employees safety, guarantee supply chain resiliency, assure business continuity and continuous support to
our customers.
We collaborate with key customers, equipment manufacturers,
and research institutes to stay informed about their metrology and process control requirements. This helps us align our roadmap to their
needs and address any technical or roadmap risks and challenges.
It is our belief that we have been able to consistently
improve our market position because of a combination of factors:
|
|
• |
Optical metrology has become an enabler for the industry over the last few years.
|
|
|
• |
Materials metrology has been widely adopted by leading memory and logic/foundry customers. We expect further adoption in the next
few years.
|
|
|
• |
The growing adoption of our metrology portfolio in the advanced packaging market.
|
|
|
• |
The growing need for chemical process control and replenishment solutions, driven by ESG and environment sustainability trends for
reduction in chemical materials waste.
|
|
|
• |
Our unique metrology portfolio, combining optical, X-Ray and chemical metrology for both dimensions and materials. This provides
the most advanced portfolio, combining the best innovative metrology capabilities with the best reliability and return on investment.
|
|
|
• |
The ability to provide a unique and differentiated technology portfolio sets us apart from the competition and adding a competitive
edge to our offering.
|
|
|
• |
Our solutions are well accepted by leading customers that allow us to gain more market share with additional process steps and new
applications.
|
|
|
• |
Our ability to closely team with our customers allows us to predict the industry evolution and process control challenges and by
that introduce innovative metrology roadmap to solve industry needs.
|
|
|
• |
Our diversified portfolio, which is a result of continuous investment in research and development, is becoming more attractive to
our customers.
|
|
|
• |
Extending our solutions’ base to include hardware and software elements in a coupled offering.
|
|
|
• |
Successful track record in completing and integrating inorganic products, as a result of M&A, which allows us to diversify our
product offering to expand our addressable markets.
|
|
|
• |
Well controlled and efficient operating model to support our profitable growth and operational resiliency.
|
We anticipate ongoing growth in the adoption of our
solutions as the semiconductor manufacturing process becomes increasingly complex and the industry evolves. We believe that our target
market is growing as we expand our offering to more stages of the semiconductor manufacturing process and develop innovative new metrology
solutions. As the semiconductor production process becomes increasingly challenging, we believe that the need for our diverse portfolio
of technologies for dimensional, materials and chemical metrology will continue to grow in the coming years.
44
5.A
Operating Results
Overview
A substantial portion of our revenues is generated
from a small number of customers, and we anticipate that our revenues will continue to depend on a limited number of major customers.
For the distribution of our total revenues, from
products and services, by geographic areas, see Note 15 to our consolidated financial statements.
The sale cycle of our systems is long and the rate
and timing of customer orders may vary significantly from month to month as a function of the specific timing of fab expansions. We schedule
production of our systems based upon order backlog and customer forecasts.
Our revenues increased by 30% in 2024 following a
decrease of 9% in 2023, and an increase of 37% in 2022.
The following table shows the relationship, expressed
as a percentage, of the listed items from our consolidated income statements to our total revenues for the periods indicated:
Percentage of Total Revenues Year ended December
31:
|
|
2022
|
2023
|
2024
|
|||||||||
|
|
||||||||||||
|
Revenues from product sales
|
81
|
%
|
78
|
%
|
80
|
%
|
||||||
|
Revenues from services
|
19
|
%
|
22
|
%
|
20
|
%
|
||||||
|
Total revenues
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||
|
|
||||||||||||
|
Cost of products sale
|
34
|
%
|
32
|
%
|
31
|
%
|
||||||
|
Cost of services
|
11
|
%
|
12
|
%
|
11
|
%
|
||||||
|
Total cost of revenues
|
45
|
%
|
43
|
%
|
42
|
%
|
||||||
|
|
||||||||||||
|
Gross profit
|
56
|
%
|
57
|
%
|
58
|
%
|
||||||
|
|
||||||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development expenses, net
|
16
|
%
|
17
|
%
|
16
|
%
|
||||||
|
Sales and marketing expenses
|
9
|
%
|
10
|
%
|
10
|
%
|
||||||
|
General and administrative expenses
|
4
|
%
|
4
|
%
|
4
|
%
|
||||||
|
Total operating expenses
|
29
|
%
|
31
|
%
|
30
|
%
|
||||||
|
|
||||||||||||
|
Operating profit
|
26
|
%
|
26
|
%
|
28
|
%
|
||||||
|
|
||||||||||||
|
Financial income (expense), net
|
2
|
%
|
4
|
%
|
4
|
%
|
||||||
|
Income before income taxes
|
28
|
%
|
30
|
%
|
32
|
%
|
||||||
|
Income tax expenses
|
3
|
%
|
4
|
%
|
5
|
%
|
||||||
|
|
||||||||||||
|
Net income
|
25
|
%
|
26
|
%
|
27
|
%
|
||||||
45
Comparison of Years Ended December 31, 2024 and 2023
Revenues.
Our revenues in 2024 increased by $154.5 million, or 30%, compared to 2023. Revenues attributable to product sales were $538.4 million,
an increase of $133.3 million, or 33%, compared to 2023. Revenues attributable to services were $134.0 million, an increase of $21.2 million,
or 19%, compared to 2023. The increase in product revenues in 2024 was attributed to higher demand for our products across all main product
lines. The increase in services revenue in 2024 was primarily driven by the growth of our installed systems base.
Cost of Revenues
and Gross Profit
. Cost of revenues consists of labor, material and
overhead costs of manufacturing our systems, royalties, amortization of intangible assets and the costs associated with our worldwide
service and support infrastructure. It also consists of inventory write-offs and provisions for estimated future warranty costs for systems
we have sold. Our cost of revenues attributable to product sales in 2024 was $210.6 million. Our gross margin attributable to product
revenues in 2024 was 61%, compared to 60% in 2023. The increase in product gross margins in 2024 was primarily driven by a shift in the
product and customer volumes mix. Our cost of services in 2024 was $74.7 million, compared to $60.8 million in 2023. Gross margin attributable
to service revenues in 2024 was 44%, compared to 46% in 2023. The decline in service gross margin in 2024 was primarily due to investments
in service operations and infrastructure aimed at enhancing customer support.
Research and Development
Expenses, net
. Consist primarily of salaries and related expenses and
also include consulting fees, subcontracting costs, related materials and overhead expenses, after offsetting grants received or receivable
from governmental funding of research and development activities. Our net research and development expenses in 2024 were $110.3 million,
an increase of $22.2 million, or 25%, compared to 2023, after offsetting grants received of $2.2 million in 2024 and $3.1 million in 2023.
Research and development expenses excluding grants received or receivable in 2024 were $112.4 million, compared to $91.1 million in 2023.
The increase in 2024 is mainly related to higher investment in existing and new products and technologies and higher personnel costs.
In 2024, net research and development expenses represented 16% of our revenues, compared to 17% in 2023.
Sales and Marketing
Expenses
. Sales and marketing expenses are mainly comprised of salaries
and related costs for sales and marketing personnel, travel related expenses, overhead and commissions to our representatives and sales
personnel. Our sales and marketing expenses in 2024 were $65.1 million, an increase of $12.6 million, or 24%, compared to 2023. Sales
and marketing expenses represented 10% of our revenues in 2024 similar to 2023.
General and Administrative
Expenses
. General and administrative expenses are comprised of
salaries and related expenses and other non-personnel related expenses such as legal expenses. Our general and administrative expenses
in 2024 were $24.2 million, an increase of $3.8 million, or 19%, compared to 2023. The increase in general and administrative expenses
in 2024 was primarily driven by higher personnel costs and related overhead, including acquisition-related expenses. In 2024, general
and administration expenses represented 4% of our revenues, similar to 2023.
Financial income,
net
. Financial income, net is comprised of interest income, financial
expenses related to the Convertible Senior Notes, exchange rate impact and bank charges. In 2024, we recorded $28.7 million of net financial
income compared to $22.4 million in 2023. The increase in financial income in 2024 was mainly attributed to higher interest income in
2024 partially offset by exchange rate impact.
46
Income Tax Expenses
.
Income tax expenses are comprised of current tax expenses and deferred tax expenses/income. In 2024, we recorded $32.5 million income
tax expenses, reflecting effective tax rate of 15%.
Comparison of Years Ended December 31, 2023 and 2022
is incorporated by reference to the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on February
20, 2024.
5.B
Liquidity and Capital Resources
As of December 31, 2024, we had working
capital of approximately $514 million, compared to working capital of approximately $387 million as of December 31, 2023. The increase
in our working capital in 2024 was mainly attributed to the increase in trade accounts receivable and inventories due to the increase
in our operations in 2024.
Cash and cash equivalents, short-term and long-term
deposits and marketable securities as of December 31, 2024 were $820 million compared to $641 million as of December 31, 2023, and increased
mainly due to our fluent operating cash flow, partially offset by share repurchase and the conversion of the Convertible Senior Notes.
Trade accounts receivable increased from $111
million as of December 31, 2023 to $139 million as of December 31, 2024.
Inventories increased from $138 million as of December
31, 2023 to $157 million as of December 31, 2024. The increase in inventory was driven by higher business activity and increased stock
to support the proliferation of new products. Operating activities in 2024 generated positive cash flow from operating activities of $235
million compared to a positive cash flow from operating activities of $124 million in 2023.
The following table describes our investments
in capital expenditures during the last three years (US dollars, in thousands):
|
|
2022
|
2023
|
2024
|
|||||||||||||||||||||
|
|
Domestic
|
Abroad
|
Domestic
|
Abroad
|
Domestic
|
Abroad
|
||||||||||||||||||
|
Electronic equipment
|
3,664
|
4,155
|
2,086
|
2,867
|
1,313
|
3,077
|
||||||||||||||||||
|
Office furniture and equipment
|
66
|
1,055
|
360
|
499
|
29
|
202
|
||||||||||||||||||
|
Leasehold improvements
|
8,934
|
436
|
2,994
|
2,457
|
91
|
843
|
||||||||||||||||||
|
Land and buildings
|
-
|
3,004
|
-
|
5,925
|
-
|
11,660
|
||||||||||||||||||
|
Total
|
12,664
|
8,650
|
5,440
|
11,748
|
1,433
|
15,782
|
||||||||||||||||||
In 2024, the gross investment in capital expenditures,
including inventory items moved to capital and investment in new ERP, was approximately $35 million, and was financed from our operating
cash flow. In 2025, we expect our gross capital spending to remain at a similar level, primarily driven by ongoing investments in facilities
and the implementation of a new ERP system.
Our principal liquidity requirement is expected to
be for working capital and capital expenditures, payment related to acquisition of Sentronics metrology GmbH as well as additional acquisitions
and investment in new ERP. We believe that our current cash reserves will be adequate to fund our planned activities for at least the
next twelve months. Our long-term capital requirements will be affected by many factors, including the success of our current products,
our ability to enhance our current products and our ability to develop and introduce new products that will be accepted by the semiconductor
industry. We plan to finance our long-term capital needs with our cash reserves together with positive cash flow from operations, if any.
If these funds are insufficient to finance our future business activities, which may include acquisitions, we would have to raise additional
funds through the issuance of additional equity or debt securities, through borrowing or through other means. We cannot assure that additional
financing will be available on acceptable terms.
47
Presently, our short-term debt is comprised from
Convertible Senior Notes.
We do not have a readily available source of other
short-term or long-term debt financing such as a line of credit.
With regard to usage of hedging financial instruments
and the impact of inflation and currency fluctuations, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”
in this Annual Report.
5.C
Research and Development, Patents and Licenses, etc.
For information regarding our research and development
activities, see “Item 4B – Research and Development” in this Annual Report.
Grants from the Israeli Innovation Authority & European Programs
IIA sponsoring for generic research and development projects
of large Israeli companies
We participate in a generic research and development
programs sponsored by the IIA, available for Israeli companies that meet specific criteria’s set forth by the IIA. Companies eligible
to participate in these programs receive IIA funding intended to focus on long-term creation of know-how and technological infrastructure,
used for the development or production of future innovative products. These programs do not require payments of royalties to the IIA,
but all other restrictions under the Innovation Law, such as local manufacturing obligations and know-how transfer limitations, as further
detailed hereunder, are applicable to the know how developed by us with the funding received in such programs.
Joint programs of the European Research Area and the IIA (for
Nova Ltd.) or BMBF (for Nova Measuring Instruments GmbH)
We participate in European consortia, which are joint
programs governed by the Electronic Component Systems (ECSEL), Key Digital Technologies (KDT), which starting from 2023 is re-named to
European CHIPACTS, for European Leadership Joint Undertaking
(the “JU”) as part
of the Horizon 2020 & Horizon Europe, respectively, which form cooperations between the participating companies.
Some of the obligations and undertakings specified
hereunder in connection with IIA or BMBF activities (such as the restrictions under the Innovation Law and obligation to grant certain
access rights to our technology and intellectual property rights) apply with respect to some of these joint projects. In addition, the
participation in an EU Consortia includes specific obligations, such as the following: The budgeted grant will be paid to the company
pursuant to certain rules regarding ‘eligible costs’; Obligations to properly implement the activities assigned under the
specific EU Consortia project grant agreement; Restrictions in contributions of third parties (by service or otherwise); Obligations to
keep information up to date and to inform about events and circumstances likely to affect the consortium activity; Obligations related
to records keeping, investigations and audits by the JU in order to verify the proper implementation of the specific EU Consortium project
and compliance with the obligations under the terms of the program, including assessing deliverables and reports during a period of up
to two years following the receipt by the company of the full grant payment; Obligations related to Intellectual property allocation generated
by an EU Consortium, background intellectual property designation prior to the commencement of the EU Consortium’s project and the
provision of access rights to results obtained as part of the EU Consortium. Breach of such obligations may result in the reduction of
the aggregate expected grant amount or claiming back previously received grants. In addition, the company may be subject to administrative
and financial penalties such as temporary exclusion from all JU European Consortia and fines of up to 10% of the maximum expected grant,
as well as to contractual liabilities.
48
European Research Area program
We also participate in European consortia which are
not part of the JU (Joint Undertaking) program, thus, these programs are funded only by the European commission with no national funding
from the Israel Innovation Authority. The restrictions under the Israeli Innovation Law do not apply to the project under these programs.
Past royalty bearing programs and royalties arrangements
Some of our previous research and development efforts
were financed in part through royalty-bearing grants. We were obligated to pay royalties from sales of products funded with these grants.
This obligation included different annual interest rates ranging up to 5%. In August 2016, we entered into a royalty buyout arrangement
(the “Arrangement”) with the IIA. As part of the Arrangement we paid approximately $12.9 million to the IIA in in September
2016. The contingent net royalty liability to the IIA at the time we executed the Arrangement was approximately $24 million. As a result
of the foregoing payment, we are released from any future royalty payments on these previous funds received from the IIA. However, to
the extent that we will be able to commercialize products that were developed as part of IIA programs and were declared as “failed”
at the time of the Arrangement, we will be required to pay royalties to the IIA from income generated from such commercialization. Currently,
we do not anticipate that such failed projects will generate revenues in the future. We note that the Arrangement does not release the
Company from other obligations towards the IIA as further detailed herein. In addition, in the future, we may, alone or together with
third parties, participate in research and development programs, which may bear royalty obligations (depending on the specific terms of
the applicable program).
Pertinent obligations under the Israeli Encouragement of Research,
Development and Technological Innovation in the Industry Law 1984
Under the Encouragement of Research, Development
and Technological Innovation in the Industry Law 1984 and the provisions of the applicable regulations, rules, procedures and benefit
tracks, together the Innovation Law, a qualifying research and development program is typically eligible for grants of up to 50% of the
program’s pre-approved research and development expenses. The program must be approved by a committee of the IIA. The recipient
of the grants is required to return the grants by the payment of royalties on the revenues generated from the sale of products (and related
services) developed (in whole or in part) under IIA program up to the total amount of the grants received from IIA, linked to the U.S.
dollar and bearing annual interest (as determined in the Innovation Law). Following the full payment of such royalties and interest, there
is generally no further liability for royalty payment for our currently developed and sold products. Nonetheless, the restrictions under
the Innovation Law (as generally specified below) will continue to apply even after our company has repaid the grants, including accrued
interest, in full.
The main pertinent obligations under the Innovation
Law are as follows:
|
|
• |
Local Manufacturing Obligation
.
The terms of the grants under the Innovation Law require that we manufacture the products developed with these grants in Israel. Under
the regulations promulgated under the Innovation Law, the products may be manufactured outside Israel by us or by another entity only
if prior approval is received from the IIA (such approval is not required for the transfer of less than 10% of the manufacturing capacity
in the aggregate, as declared to be manufactured out of Israel in the applications for funding, in which case a notice should be provided
to the IIA). This approval may be given only if we abide by all the provisions of the Innovation Law and related regulations. Ordinarily,
as a condition to obtaining approval to manufacture outside Israel, we would be required to pay royalties at an increased rate (usually
1% in addition to the standard rate and increased royalties cap between 120% and 300% of the grants, depending on the manufacturing volume
that is performed outside Israel).
|
49
|
|
• |
Know-How transfer limitation
.
The Innovation Law restricts the ability to transfer know-how funded by the IIA outside of Israel, including by way of a license to a
non-Israeli entity. Transfer of IIA funded know-how outside of Israel requires prior approval of the IIA. The IIA approval to transfer
know-how created, in whole or in part, in connection with an IIA-funded project to third party outside Israel is subject to payment of
a redemption fee to the IIA calculated according to a formula provided under the Innovation Law that is based, in general, on the ratio
between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied
by the transaction consideration, taking into account depreciation mechanism, and less royalties already paid to the IIA. The regulations
promulgated under the Innovation Law establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas
and differentiates between two situations: (i) in the event that the company sells its IIA funded know-how, in whole or in part, or is
sold as part of an M&A transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above
mentioned formulas will be no more than six times the total grants received (plus accrued interest) for development of the know-how being
transferred, or the entire amount received from the IIA, as applicable; (ii) in the event that following the transactions described above
(i.e., asset sale of IIA funded know-how or transfer as part of an M&A transaction) the company undertakes to continue its R&D
activity in Israel (for at least three years following such transfer and maintain at least 75% of its R&D staff employees it had for
the six months before the know-how was transferred, while keeping the same scope of employment for such R&D staff), then the company
is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus accrued interest) for the applicable
know-how being transferred, or the entire amount received from the IIA, as applicable. No assurance can be given that approval of any
such transfer, if requested, will be granted and what will be the amount of the redemption fee payable.
|
Approval of the transfer of IIA funded technology
to another Israeli company requires a pre-approval by IIA and may be granted only if the recipient undertakes to fulfil all the liabilities
to IIA and undertakes abides by all the provisions of the Innovation law and related regulations, including the restrictions on the transfer
of know-how and manufacturing rights outside of Israel and the obligation to pay royalties. In light of the Arrangement (as further discussed
below), in certain circumstances, under such sale transactions (i.e., the transfer of IIA funded technology or portion thereof to another
Israeli company), we might be obligated to pay royalties to the IIA from any income derived from such a sale transaction.
|
|
• |
Licensing arrangements
.
Under the terms of the Innovation Law, licensing know how developed under the IIA programs outside of Israel, requires prior consent of
IIA and payment of license fees to IIA, calculated in accordance with the licensing rules promulgated under the Innovation Law. The payment
of the license fees does not discharge the company from the obligation to pay royalties or other payments due to IIA in accordance with
Innovation Law.
|
These restrictions may impair our ability to enter
into agreements for those products or technologies which were developed with assistance of the IIA grants without the approval of the
IIA. We cannot be certain that any approval of the IIA will be obtained on terms that are acceptable to us, or at all. Furthermore, in
the event that we undertake a transaction involving the transfer to a non-Israeli entity of know-how developed with IIA funding pursuant
to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay
to the IIA. Any approval, if given, will generally be subject to additional financial obligations. Failure to comply with the requirements
under the Innovation Law may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well
as may expose us to criminal proceedings. In addition, IIA may from time-to-time audit sales of products which it claims incorporate technology
funded via IIA programs and this may lead to additional royalties being payable on additional products.
5.D
Trend Information
For information regarding the most significant recent
trends in our market, see “Item 4B– Our Market –
The Semiconductor Market
– Update” in this Annual Report.
5.E
Critical Accounting Estimates
We have provided a summary of our significant accounting
policies, estimates and judgments in Note 2 to our consolidated financial statements, which are included elsewhere in this Annual Report.
The following critical accounting discussion pertains to accounting estimates management believes are most critical to the portrayal of
our historical financial condition and results of operations and that require significant, difficult, subjective or complex judgments.
Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our
financial condition, results of operations and cash flows to those of other companies.
50
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Our management evaluates its estimates on an ongoing basis, including those related
to, but not limited to revenue recognition, allowance for credit losses related to marketable securities, inventory write-offs, business
combination, fair value and useful lives of intangible assets, and income taxes and tax uncertainties. These estimates are based on management's
knowledge about current events and expectations about actions the Company may undertake in the future. Actual results could differ from
those estimates.
Revenue Recognition
Under ASC 606, the company derives revenue from the
sales of advanced process control systems, spare parts, labor hours (mainly systems installation) and service contracts.
Contracts with customers may include multiple performance
obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative Standalone Selling
Price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation. The Company uses a range
of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount
to be allocated based on the relative SSP of the various products and services.
The Company enters into revenue arrangements that
include products and services which are generally distinct and accounted for as separate performance obligations. The Company determines
whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other
resources that are readily available and whether the Company's commitment to transfer the product or service to the customer is separately
identifiable from other obligations in the contract.
Marketable Securities
The Company accounts for credit losses in accordance
with ASU 2016-13, Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments”.
The guidance requires the Company to determine whether a decline in fair value below the amortized cost basis of an available for sale
debt security is due to credit related factors or noncredit related factors. A credit related impairment should be recognized as an allowance
on the balance sheet with a corresponding adjustment to earnings, however, if the Company intends to sell an impaired available for sale
debt security or more likely than not would be required to sell such a security before recovering its amortized cost basis, the entire
impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.
Inventories
Inventories are stated at the lower of cost or net
realizable value. Inventory write-downs are provided to cover risks arising from slow-moving items, technological obsolescence, excess
inventories, discontinued products, and for market prices lower than cost, if any. We periodically evaluate the quantities on hand relative
to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions), the age
of the inventory and the expected consumption of service spare parts. At the point of the loss recognition, a new lower cost basis for
that inventory is established. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings
in the current period.
51
Business Combination
The results of an acquired business in a business
combination are included in the Company’s consolidated financial statements from the date of acquisition according to the guidance
of ASC Topic 805, “Business Combinations.” The Company allocates the purchase price, which is the sum of the consideration
provided and may consist of cash, equity or a combination of the two, to the identifiable assets and liabilities of the acquired business
at their fair values as of the acquisition date. The excess of the purchase price over the amount allocated to the identifiable assets
and liabilities, if any, is recorded as goodwill.
Contingent consideration incurred in a business combination
is included as part of the purchase price and recorded at a probability weighted assessment of the fair value as of the acquisition date.
The fair value of the contingent consideration is re-measured at each reporting period, with any adjustments in fair value recognized
in earnings under general and administrative expenses.
As a result of previous acquisitions, our balance
sheet included acquired intangible assets, in the aggregate amount of approximately $39.2 million and $31.5 million as of December 31,
2023 and 2024, respectively.
We allocate the purchase price to the tangible and
intangible assets acquired and liabilities assumed, based on their estimated fair values. These valuations require management to make
significant estimations and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets
include future expected cash flows from technology acquired, backlog and customer relationships. Management’s estimates of fair
value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
Intangible assets are comprised of acquired technology
and customer relations
.
Accounting for income tax
We are subject to income taxes in Israel, the United
States and numerous foreign jurisdictions. Judgment is required in evaluating our uncertain tax positions and determining our taxes. Although
we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from
that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and
circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these
matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such
determination is made.
Judgment is also required in determining any valuation
allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including
past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change
our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding
impact to the provision for income taxes in the period in which such determination is made.
For a discussion of other significant accounting
policies used in the preparation of our financial statements and recent accounting pronouncements, see Note 2 to our consolidated financial
statements contained elsewhere in this Annual Report.
52
Item 6
. Directors, Senior
Management and Employees
6.A
Directors and Senior Management
The following is the list
of senior management and directors as of February 7, 2025:
|
Name
|
Age
|
Position
|
|
Eitan Oppenhaim (4)
|
59
|
Executive Chairman of the Board of Directors
|
|
Avi Cohen (1)(2) (4)
|
71
|
Director
|
|
Raanan Cohen (2)(3)
|
69
|
Director
|
|
Zehava Simon (1)(2)(3)(4)
|
66
|
Director
|
|
Sarit Sagiv (1)(2)
|
56
|
Director
|
|
Yaniv Garty (3)(4)
|
57
|
Director
|
|
Gabriel Waisman
|
54
|
President & CEO
|
|
Guy Kizner*
|
41
|
Chief Financial Officer
|
|
Shay Wolfling
|
53
|
Chief Technology Officer
|
|
Adrian S. Wilson
|
53
|
President of US subsidiary & General Manager Material Metrology Division
|
|
Effi Aboody
|
54
|
Corporate VP and General Manager Dimensional Metrology Division
|
*On April 8, 2024, Nova announced changes in senior leadership positions.
Dror David who served as Nova’s Chief Financial Officer since 2005 retired from the Company and Guy Kizner succeeded Mr. David effective
as of July 1, 2024.
(1) Member of the audit committee
(2) Member of the compensation
committee
(3) Member of the nominating governance
and sustainability committee
(4) Member of the strategy and
M&A committee
Mr. Eitan Oppenhaim
was named executive chairman of our board of directors on March 31, 2023, after serving as member of our board of directors from October
2019. Mr. Oppenhaim served as the President and Chief Executive Officer of the Company from July 31, 2013, until March 31, 2023, and has
previously served as the Executive Vice President Global Business Group, since November 2010. From 2009 until 2010, Mr. Oppenhaim served
as Vice President and Europe General Manager of Alvarion Ltd., a public company traded on Nasdaq. During the years 2007 through 2009,
Mr. Oppenhaim served as Vice President of sales and marketing of OptimalTest Ltd. Prior to that, from 2002 until 2006, Mr. Oppenhaim served
as Vice President – Business Manager of the Flat Panel Displays division of Orbotech Ltd., a public company traded on Nasdaq. From
2001 until 2002, Mr. Oppenhaim served as Managing Director of Asia Pacific at TTI Telecom International, a leading provider of assurance,
analytics and optimization solutions to communications service providers (CSP) worldwide. Prior to that, from 1994 until 2001, Mr. Oppenhaim
held several key executive positions at Comverse Network Systems Ltd., a public company traded on Nasdaq. Mr. Oppenhaim holds a BA in
Economics from the Haifa University, Israel and an MBA from Ben-Gurion University, Beer-Sheva, Israel.
Mr. Avi Cohen
has
served as a director of the Company since 2008 and during the period between December 2022 and March 2023 he also served as the interim
chairperson of our board of directors while Dr. Michael Brunstein was absent for health-related reasons. Additionally, Mr. Cohen serves
as Executive Chairman of ZOOZ Power Ltd. (TASE: ZOOZ) and as a director of Cognyte Software Ltd. (Nasdaq: CGNT) as well as on the board
of directors of Cortica Ltd., Sight Diagnostics, and CGS Tower Networks Ltd. From July 2016 to September 2017 Mr. Cohen served as the
CEO of MX1, a global media service provider founded in July 2016 as a result of the acquisition of RR Media (Nasdaq: RRM) by SES S.A.
and the following merger between RR Media, and SES Platform Services GmbH. From July 2012 until the merger, Mr. Cohen served as the CEO
of RR Media. Prior to that, until March 2012, Mr. Cohen served as President and CEO of Orbit Technologies (TASE: ORBI). From September
2006 until December 2008, Mr. Cohen served as chief operating officer and deputy to the CEO of ECI Telecom Ltd. Prior to joining ECI,
Mr. Cohen served in a variety of executive management positions at KLA (Nasdaq: KLAC). From 2003 he was a group vice president and member
of the executive management committee. From 1995 he was the president of KLA Israel responsible for the optical metrology division. Prior
to joining KLA, Mr. Cohen also spent three years as managing director of Octel Communications, Israel, after serving as CEO of Allegro
Intelligent Systems, which he founded and which was acquired by Octel. Mr. Cohen holds a B.Sc. and a M.Sc. in electrical engineering and
applied physics from Case Western Reserve University, U.S.
53
Mr. Raanan Cohen
was appointed as a director of the Company by our board of directors in February 2014. Prior to that and until December 2012, Mr. Cohen
served as the President and Chief Executive Officer of Orbotech Ltd., a public company traded on Nasdaq. Mr. Cohen also served in a range
of other executive positions at Orbotech Ltd, including Co-President for Business and Strategy, EVP and President of the Printed Circuit
Board (PCB) Division, Vice President for the PCB-AOI product line and President and chief executive officer of Orbotech, Inc. Prior to
its merger with Orbotech in 1991, Mr. Cohen held various positions at Orbot, another manufacturer of AOI systems. Prior to joining
Orbot in 1984, he worked at Telrad Networks Ltd. Mr. Cohen serves as director of Eyecuracy Ltd., a private company, served as the Chief
Executive Officer of EyeWay Vision Ltd., a private company until November 2024, and has served as a director of Gezuntech therapeutics,
a private company until January 2025. Mr. Cohen holds a B.Sc. in Computer Science from the Hebrew University of Jerusalem, Israel.
Ms. Zehava Simon
was elected as the Company’s external director in accordance with the provisions of the Companies Law in June 2014 and reelected
in June 2017. Effective as of May 2018, and our adoption of the exemption under the Regulation (as defined below), Ms. Simon is no longer
classified as an external director under the Companies Law. Ms. Simon served as a Vice President of BMC Software from 2000 until
2013 and in her last position (as of 2011) acted as Vice President of Corporate Development. From 2002 to 2011, Ms. Simon served as Vice
President and General Manager of BMC Software in Israel. In this role, she was responsible for directing operations in Israel and India
as well as offshore sites. Prior to that, Ms. Simon held various positions at Intel Israel., which she joined in 1982, including leading
of Finance & Operations and Business Development for Intel in Israel. Ms. Simon is currently a board member of Audiocodes Ltd., a
public company traded on Nasdaq and TASE, Nice Ltd., a public company traded on Nasdaq and TASE. Ms. Simon is a former member of the board
of directors of Insightec Ltd. (2005-2012), M-Systems Ltd., a Nasdaq listed company which was acquired in 2006 by SanDisk Corp., a public
company traded on Nasdaq as well (2005-2006) and Tower Semiconductor Ltd., a public company traded on TASE and Nasdaq (1999-2004). Ms.
Simon holds a B.A. in Social Sciences from the Hebrew University of Jerusalem, Israel, a law degree (LL.B.) from Reichman University (formerly,
the Interdisciplinary Center in Herzliya, Israel) and an M.A. in Business and Management from Boston University, U.S.
Ms. Sarit Sagiv
was appointed to serve as a director of the Company by our board of directors in August 2021. Ms. Sagiv serves as a member of the Investments
Committee of Phoenix Insurance and as a member of the board of directors of OPC Energy Ltd., a public company traded on TASE. Ms. Sagiv
served as General Manager of the Global Business division at Amdocs (Nasdaq: DOX) between 2016 and 2020. Prior to this role, Ms. Sagiv
served as the Chief Financial Officer of Nice Ltd. (Nasdaq and TASE: NICE), with responsibility for the finance, legal, operations and
IT areas, and before that as the Chief Financial Officer of Retalix Ltd. (Nasdaq and TASE: RTLX). Ms. Sagiv also held various other Chief
Financial Officer and senior financial positions. Ms. Sagiv is a certified public accountant. She holds a B.A. in Accounting and Economics
and an MBA, both from Tel-Aviv University, Israel and an M.A. in Law from Bar Ilan University, Israel.
Mr. Yaniv Garty
was appointed to serve as a director of the Company by our board of directors as of April 2, 2023. From January 2017 to February 2023,
Mr. Garty was a Vice President at Intel, a public company traded on the Nasdaq, and the General Manager of Intel Israel – Israel’s
largest Hi-Tech employer and Intel’s largest operation outside the U.S. Before returning to Israel from the Bay Area, Mr. Garty
held multiple positions within Intel since its acquisition of Envara Inc. in 2004. He initially served as Chief Operating Officer of Intel’s
Broadband Wireless Division (WiMAX/4G and WLAN solutions), and from 2011 to 2018 as the General Manager of the Wireless Connectivity Solutions
business unit, a worldwide organization responsible for delivering wireless connectivity technologies and products. Prior to Intel’s
acquisition of Envara, Mr. Garty had multiple engineering, business, and managerial positions in different companies, including Serconet
Networks, Optibase, and Orckit Communications. Prior to this, Mr. Garty served as a R&D Engineer with the Ministry of Defense of Israel.
Mr. Garty serves as a director of the board of Strauss Group, a publicly traded company (TASE: STRS) as of September 2024. Additionally,
Mr. Garty serves as the Chairman of the America-Israel Chamber of Commerce since January 2018, a voluntary organization of more than 230
Israeli and multinational companies. Mr. Garty holds a B.Sc. in electrical engineering and an MBA, both from Tel Aviv University, Israel.
54
Mr. Gabriel Waisman
was appointed by our board of directors as the Company’s President & Chief Executive Officer, effective as of March 31, 2023.
Mr. Waisman previously served as the Company’s Chief Business Officer (CBO) since 2016, responsible for customer facing groups,
including global sales, marketing, customer support and applications. Mr. Waisman has over 17 years of managerial expertise in a global
geographically dispersed environment, and extensive experience pioneering multidisciplinary technologies, particularly within the Electronics
and Telecom sectors. Prior to joining Nova, Mr. Waisman served as President of both Orbotech Pacific (Orbotech Ltd Hong Kong) and Orbotech
West (Orbotech Inc., USA) where he was responsible for Sales & Marketing, Finance and Operations, and Customer Support. Prior to this,
Mr. Waisman served in various managerial positions at Alvarion, starting as Strategic Marketing Director, EMEA, and moving on to Vice
President of Strategic Accounts, General Manager of Western Europe, followed by Managing Director, Asia-Pacific. Mr. Waisman has also
served as EMEA Regional Sales & Marketing Director (Broadband Division) at Comverse. He holds a B.Sc. in Electronic Engineering from
the Technion Institute of Technology in Israel and an MBA in Business Administration from the Tel-Aviv University, Israel.
Mr. Guy Kizner
has served as the Chief Financial Officer since July 1, 2024. Mr. Kizner
joined Nova in 2010 and served in several key financial positions such as Director of Financial Planning & Analysis and Vice President
of Corporate Finance. Prior to joining Nova, Mr. Kizner held various finance roles at Delek Group (TASE: DLEKG) and Israel Aerospace Industries,
broadening his expertise in the financial sector. Mr. Kizner holds a B.A. in Accounting from Bar Ilan University, Israel, a B.A. in Economics
and an MBA from the College of Management Academic Studies, Israel.
Dr. Shay Wolfling
joined Nova in 2011, as Chief Technology Officer. Prior to joining Nova, Dr. Wolfling was an R&D manager at KLA-Tencor-Belgium (formerly
ICOS Vision Systems, a public traded company acquired by KLA in 2008), where he led multidisciplinary metrology & inspection development
projects. From 2000 until its technology acquisition by ICOS in 2005, Dr. Wolfling was a founder and Vice President of Research and Development
of Nano-Or-Technologies, a start-up company with a proprietary technology for 3D optical measurements. Dr. Wolfling helped Nano-Or develop
from the idea stage to initial product sales. Prior to founding Nano-Or, Dr. Wolfling was a project manager in Y-Beam-Technologies, a
start-up offering laser-based skin treatments. Dr. Wolfling has several patents under his name in the field of optical measurements. Dr.
Wolfling holds a B.Sc. in physics and mathematics from the Hebrew University of Jerusalem, Israel, a second degree in physics from
Tel-Aviv University, Israel and a Ph.D. in physics from the Hebrew University of Jerusalem, Israel.
Mr. Adrian S. Wilson
joined Nova in January 2018 as General Manager Material Metrology Division
and President of our U.S. subsidiary, Nova Measuring Instruments, Inc. Mr. Wilson has over 30 years of Semiconductor capital equipment
and materials experience. Mr. Wilson joins us from Nanometrics Inc., where he held the position of Vice President & General Manager
of Advanced Imaging and Analytics Business Unit. Prior to Nanometrics Inc., he held the position of Managing Director of Element Six Technologies
Ltd., the non-abrasive arm of the synthetic diamond group of DeBeers, focused on thermal management and optical components for the semiconductor
industry. Mr. Wilson has experience in leading both start-ups and divisions within large public multi-national companies, including KLA,
FormFactor Inc. and Phoenix X-ray Systems & Services Inc., a capital equipment start-up. Mr. Wilson holds a bachelor’s degree
in Electronics Engineering, post Grad in Marketing Management and an MBA in Technology Management. Mr. Wilson’s accreditations include
Fellow of the Chartered Institute of Marketing (UK) and Fellow of the Institute of Directors (UK).
Mr. Effi Aboody
has served as our Corporate VP and General Manager Dimensional Metrology
Division since September 2019. Mr. Aboody joined Nova in 2016 as Vice President and Head of the Global Applications team. Mr. Aboody started
his career at Intel Corporation Ltd in 1996 as an Integration engineer, working in Portland and California R&D centers, in both
logic and memory devices, followed by several managerial positions including Process Integration, Sort testing manager and Yield manager.
In 2008, Mr. Aboody served as Yield and Integration Departments at Numonyx Ltd focusing on NOR flash memory process and reliability. In
2011, Mr. Aboody managed the Engineering and Yield Departments at Micron Technology Ltd Fab12. In 2013, Mr. Aboody returned to Intel Corporation
to manage the Fab28 Yield Organization, responsible for CPU and SoC outgoing yield performance, defects and Labs. Mr. Aboody holds an
Executive MBA from Tel-Aviv University, Israel and a B.Sc. in Materials Engineering from Ben-Gurion University of the Negev, Israel.
55
Voting Agreement
We are not aware of any voting agreement currently
in effect.
6.B
Compensation
The aggregate compensation expensed, including
share-based compensation and other compensation expensed by us, to our board and senior management members listed in item 6.A in this
Annual Report, with respect to the year ended December 31, 2024 (consisting of 12 persons including Mr. Dror David who retired from
his role as CFO effective July 1, 2024) was approximately $10 million. This amount includes approximately $0.4 million set aside or accrued
to provide pension, severance, retirement, or similar benefits and amounts expensed by the Company for automobiles made available to its
executive officers).
Disclosure regarding the compensation of our senior
executives on an individual basis will be disclosed in our proxy statement in connection with the 2025 annual general meeting of shareholders
in accordance with Israeli regulations.
Terms of employment of Mr. Gabriel Waisman, who
was appointed as our President and Chief Executive Officer effective as of March 31, 2023, as were approved by our shareholders at the
2023 annual general meeting of shareholders, and amended by our shareholders at the 2024 annual general meeting of shareholders are as
follows:
General
(i) a monthly base salary of NIS 110,000 (approximately,
$31,000), effective as of April 1, 2023 through June 2024 following which, the monthly base salary was increased to NIS 120,000 (approximately
$32,600); (ii) an annual bonus of up to twelve (12) monthly base salaries for 100% achievement (with additional payment of up to twelve
(12) monthly salaries in the case of overachievement), subject to objectives which are annually predetermined by our board of directors
and the compensation committee, in accordance with our compensation policy; (iii) in the event of termination of employment (other than
for cause), Mr. Waisman will be entitled to a six months advance notice, during which he will be entitled to all of his compensation components,
including the continued vesting of his equity awards. In the event of termination of employment not for cause, the annual bonus will be
prorated (subject to certain adjustments); (iv) customary social benefits such as pension fund or management insurance, education fund,
vacation pay, sick leave and convalescence pay; (v) subject to required approvals under applicable law, a directors and officers' insurance,
including a “run-off” insurance policy; and (vi) monthly travel expenses or a Company car (deducted out of the gross salary),
cellular phone, a land line phone, toll road expenses, a laptop computer, annual medical check-up and other expense reimbursements pursuant
to the Company general policies as applicable from time to time.
Equity-Based Compensation
On June 1, 2023, per the approval at the 2023
annual general meeting of shareholders, Mr. Waisman was granted a total of 12,000 restricted share units that vest over a period of four
(4) years, in equal annual installments, unless such restricted share units have been cancelled in accordance with the terms and conditions
of the share incentive plan of the Company or the employment terms of Mr. Waisman. In addition, Mr. Waisman was granted with 12,000 performance-based
restricted units that vest over a period of four (4) years, in four equal annual installments, provided that the Company meets or exceeds
the non-GAAP operating profit as set forth in the Company's budget as approved by the board of directors for the fiscal year preceding
the date of vesting, unless such performance share units have been cancelled in accordance with the terms and conditions of the share
incentive plan of the Company or the employment terms of Mr. Waisman. In the event a portion of the performance share units fails to vest,
such portion will be carried forward to the fourth vesting date and will vest if the Company’s average annual return on equity based
on net income during the previous four (4) years will be no less than ten percent (10%).
56
On July 1, 2024, per the approval at the 2024
annual general meeting of shareholders, Mr. Waisman was granted an additional 5,930 restricted share units that vest over a period of
four (4) years, in equal annual installments, unless such restricted share units have been cancelled in accordance with the terms and
conditions of the share incentive plan of the Company or the employment terms of Mr. Waisman. In addition, Mr. Waisman was granted with
5,930 performance-based restricted units that vest over a period of four (4) years, in four equal annual installments, provided with respect
to 50% of the units, the Company meets or exceeds the revenue budget as set forth in the Company’s budget as approved by the board
of directors for the fiscal year preceding the date of vesting, and with respect to the other 50% of the units, provided that the Company
meets or exceeds the non-GAAP operating profit as set forth in the Company's budget as approved by the board of directors for the fiscal
year preceding the date of vesting unless such performance share units have been cancelled in accordance with the terms and conditions
of the share incentive plan of the Company or the employment terms of Mr. Waisman. In the event a portion of the performance share units
fails to vest, such portion will be carried forward to the fourth vesting date and will vest if the Company’s average annual return
on equity based on net income during the previous four (4) years will be no less than ten percent (10%).
Compensation upon Significant Event
In the event that prior to the completion of the
vesting of equity awards granted to Mr. Waisman an acquisition of the Company or asset transfer of all or substantially all the assets
of the Company (collectively, “M&A Event”) will occur while Mr. Waisman is employed by the Company and holds the position
of the Company’s Chief Executive Officer & President, then immediately prior to, and contingent upon, the closing of such M&A
Event, all of Mr. Waisman unvested equity awards will become fully vested and exercisable, or substituted for equity awards in a successor
company.
In the event an M&A Event will occur while Mr.
Waisman is employed by the Company and holds the position of the Company’s Chief Executive Officer & President, the compensation
committee and the Board may grant to Mr. Waisman a special bonus of up to 12 monthly salaries.
Compensation upon Acquisition
In the event the Company acquires another business
(whether by merger, share or asset purchase) while Mr. Waisman is employed by the Company and holds the position of the Company’s
Chief Executive Officer & President, Mr. Waisman may be granted a special bonus of up to 12 monthly salaries, subject to the compensation
committee and board of director's discretion. In accordance with this entitlement, on February 2025 our compensation committee and board
approved a bonus of 12 monthly salaries for the acquisition of Sentronics, to be paid to Mr. Waisman in April 2025.
Directors and Officers Equity Based Compensation
As of February 7, 2025, a total of 9,680 options
to purchase our ordinary shares and 107,810 RSU’s were outstanding and held by certain directors and senior management members listed
in item 6.A in this Annual Report (consisting of 12 persons including Mr. Dror David who retired from his role as CFO effective July 1,
2024), of which 8,960 options are currently exercisable or exercisable within 60 days of February 7, 2025. 73,105 shares are held by trustee
due to vested RSUs and 2,149 RSU’s will vest within 60 days of February 7, 2025. See “Item 6E. Share Ownership” in this
Annual Report.
In accordance with our current equity-based compensation
policy, the exercise price of granted options is equal to the closing sale price of the Company's ordinary shares on Nasdaq on the day
of grant.
57
Compensation of Directors
The compensation scheme for our non-executive
directors (other than the chairperson of the board of directors), which does not include any pay per meeting, as approved by our shareholders
in June 2022, is as follows:
(i) an annual payment of NIS 210,000 (approximately
US$60,000) with additional annual payment for service on board committees as follows: NIS 42,000 (approximately $12,000) (or NIS 63,000
(approximately $18,000) for the chairperson) for each member of the audit or compensation committee; and NIS 30,000 (approximately $8,500)
(or NIS 44,000 (approximately $12,500) for the chairperson) for each member of the nominating committee or any other Board Committee;
(ii) in the event of a director appointed by our
board of directors, a one-time equity award of restricted share units of up to $170,000 prorated based on the number of days between the
date of appointment to our board of directors and the date of the first annual general meeting of our shareholders following such appointment,
which will vest over a period of four (4) years; and
(iii) an equity award of restricted share units,
on an annual basis on the date of our annual general meeting of the Company’s shareholders, under our incentive plan (provided the
director is still on the Board) at a value of $170,000, which will vest over a period of four (4) years, subject to such director’s
continued service through such date.
Our shareholders further approved that the chairperson
of the board of directors will be entitled to an annual compensation of NIS 360,000 (approximately US$98,000) and an annual equity grant
of restricted share units at the value of $600,000.
On May 18, 2023, our shareholders approved the following
additional termination terms to Mr. Eitan Oppenhaim, in his position as our former President and Chief Executive Officer: an adjustment
period of six (6) months, in addition to the three (3) months advance notice as set in Mr. Oppenhaim’s employment agreement, during
which Mr. Oppenhaim will be entitled to all compensation components, including bonuses.
On May 18, 2023, our shareholders further approved
the following additional compensation scheme for non-executive directors and chairperson of the board of directors: a director whose service
as a director ends (other than in the case the director is removed by our shareholders or disqualified under the Companies Law) following
at least eight (8) years of directorship will be entitled to the acceleration of vesting of any equity awards, including options and restricted
share units, subject to vesting within three (3) months of his or her last date of service, so such equity awards will be fully vested
as of such date.
On June 23, 2022, our shareholders approved our
current compensation policy.
The full text of our current compensation policy
was filed as exhibit 4.7 to the 2022 Annual Report and is incorporated by reference. Furthermore, following the SEC approval of Nasdaq’s
proposed clawback listing standards, under Rule 10D-1 (the “
Clawback Listing Rules
”),
which directed companies to adopt and comply with a written clawback policy, to disclose and file the policy as an exhibit to its annual
report, we adopted as of October 2, 2023, a clawback policy as contemplated pursuant to the Clawback Listing Rules, as filed as exhibit
97 to the 2023 Annual Report and is incorporated by reference.
6.C
Board Practices
Our Amended and Restated Articles of Association,
as adopted by the Company’s shareholders on June 20, 2024, or the Articles, provide that we may have between five and nine directors.
Our board of directors currently consists of six directors, two of which are female directors.
Under the Companies Law, companies incorporated under
the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq Global Select
Market, are required to appoint at least two external directors.
Pursuant to regulations promulgated under the Companies
Law, companies with shares traded on a U.S. stock exchange, including the Nasdaq Global Select Market, may, subject to certain conditions,
“opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning
the composition of the audit committee and compensation committee of the board of directors. In accordance with these regulations, in
May 2018, we elected to “opt out” from the Companies Law requirements to appoint external directors and related Companies
Law rules concerning the composition of the audit committee and compensation committee of the board of directors.
58
Under these regulations, the exemptions from such
Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder”
(as such term is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Global
Select Market, and (iii) we comply with the director independence requirements, the audit committee and the compensation committee
composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers.
Our board of directors has determined that all of
our directors, except for Mr. Oppenhaim, qualify as ‘‘independent directors’’ as defined by the Nasdaq Stock Market
Rules.
Our Articles provide that directors
may be elected at our annual general meeting of shareholders by a vote of the holders of more than 50% of the total number of votes represented
at such meeting, not taking into consideration abstention votes. In addition, our board of directors is authorized to appoint directors,
at its discretion, provided that the total number of directors does not exceed the maximum number of directors permitted by the Articles.
Our directors serve as such until the next annual general meeting of our shareholders.
According to the Companies Law, the board of directors
of a public company must establish the minimum number of board members that are to have accounting and financial expertise while considering,
inter alia
, the nature of the company, its size, the scope and complexity of its operations and
the number of directors stated in the Articles.
Our board of directors resolved that the minimum
number of board members that need to have accounting and financial expertise is one (1).
Our board of directors determined that Ms. Sarit
Sagiv has accounting and financial expertise as described in the regulations promulgated pursuant to the Companies Law, and that, therefore,
the requirement of the minimum number of board members that need to have accounting and financial expertise, as set by the board of directors,
has been met.
Our board of directors has adopted a training program
for newly appointed directors. Once appointed and following the completion of their onboard training, our directors continue to receive
ongoing training as part of our directors training and development efforts.
Family Relationships
There are no family relationships between any
members of our executive management and our directors.
Board of Directors’ Committees
The Company’s board of directors has appointed
the following committees:
Audit Committee
Our Audit Committee is comprised of Sarit Sagiv
(Chairperson), Zehava Simon and Avi Cohen. The audit committee is responsible to provide oversight of the accounting and financial reporting
process of the Company and the audits of the financial statements of the Company, and assist the Board in its oversight of (i) the integrity
of the Company's financial statements and other published financial information, (ii) the Company's compliance with applicable financial
and accounting related standards, rules and regulations, (iii) the selection, engagement and termination, subject to shareholder approval,
of the Company's independent auditor, (iv) the pre-approval of all audit, audit-related and all permitted non-audit services, if any,
by the Company's independent auditor, and the compensation therefor, (v) the Company's internal controls over financial reporting, and
(vi) risk assessment and risk management, including cyber risks.
59
Under the Companies Law, the audit committee is
responsible, among others, for (i) identifying deficiencies in the business management practices of the Company, including by consulting
with the internal auditor, and recommending remedial actions with respect to such deficiencies; (ii) reviewing and approving related party
transactions, including, among others, determining whether or not such transactions are deemed material actions or extraordinary transactions;
(iii) ensuring that a competitive process is conducted for related party transactions with a controlling shareholder (regardless of whether
or not such transactions are deemed extraordinary transactions), optionally based on criteria which may be determined by the audit committee
annually in advance; (iv) setting forth the approval process for transactions that are 'non-negligible' (i.e., transactions with a controlling
shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions),
as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which
may be determined annually in advance by the audit committee; (v) evaluating the Company’s internal audit program and the performance
of the Company’s internal auditor and the resources at his/her disposal; (vi) reviewing the scope of work of the Company’s
external auditor and making recommendations regarding his/her salary; and (vii) creating procedures relating to the employees’ complaints
regarding deficiencies in the administration of the Company as well as adopting against retaliation. The audit committee is also responsible
for reviewing and approving any material change or waiver in the Company's Corporate Code of Conduct regarding directors or executive
officers, and disclosures made in the Company's annual report in such regard. The audit committee operates under a charter duly adopted
by the board of directors.
Our board of directors has determined that each
member of our audit committee is independent as such term is defined in Rule 10A‑3 under the Exchange Act, and that each member
of our audit committee satisfies the additional requirements applicable under the Nasdaq rules to members of an audit committee.
Our audit committee also acts as our investment
committee, monitoring our cash reserves investment policy.
Compensation Committee
Our
Compensation
Committee is comprised of Zehava Simon (Chairperson), Avi Cohen, Raanan Cohen and Sarit Sagiv. The function of the compensation committee
is described in the approved charter of the committee and includes assisting the board of directors in discharging its responsibilities
relating to compensation of the Company’s officers, directors and executives and the overall compensation programs and reviewing
and approving, or if required by law, approving and recommending for approval by the board of directors, grants and awards under the Company’s
equity incentive plans. The primary objective of the committee is to oversee the development and implementation of the compensation policies
and plans that are appropriate for the Company in light of all relevant circumstances, and which provide incentives that fit the Company’s
long-term strategic plans and are consistent with the culture of the Company and the overall goal of enhancing shareholder’s value.
Our board of directors has determined that each
member of our compensation committee is independent under the Nasdaq rules, including the additional independence requirements applicable
to the members of a compensation committee.
Under the Companies Law and our compensation committee
charter, our compensation committee is responsible, among others, for (i) recommending to the board of directors regarding its approval
of a compensation policy in accordance with the requirements of the Companies Law, and any other compensation policies, incentive-based
compensation plans and equity-based plans; (ii) overseeing the development and implementation of such compensation plans and policies
that are appropriate in light of all relevant circumstances and recommending to the board of directors regarding any amendments or modifications
that the compensation committee deems appropriate; (iii) determining whether to approve transactions concerning the terms of engagement
and employment of our officers and directors that require compensation committee approval under the Companies Law or our compensation
plans and policies; (iv) oversees the administration of our clawback policy with respect to executive compensation, in line with our charter,
including as required pursuant to SEC and Nasdaq rules; and (v) taking any further actions as the compensation committee is required or
allowed to under the Companies Law or the compensation plans and policies.
60
Nominating Governance and Sustainability Committee
Our
Nominating
Governance
and Sustainability Committee
is comprised of Raanan Cohen (Chairperson), Zehava Simon and Yaniv Garty. The function of the nominating
committee is described in the approved charter of the committee and includes responsibility for identifying individuals qualified to become
board members and recommending that the board of directors consider the director nominees for election at the general meeting of shareholders.
In June 2022, our board of directors expanded the committee’s responsibilities to also include recommending to the board of directors
on governance matters and for developing and recommending to our board of directors business conduct and ethics guidelines, applicable
to the Company, including overseeing the Company’s policies, programs and strategies related to environmental, social and governance
(“ESG”) matters, periodically reviewing such guidelines and recommending any changes thereto, and overseeing the evaluation
of our board of directors and management.
Strategy and M&A Committee
In August 2023, our board of directors established
our
Strategy and M&A Committee, which is comprised of Yaniv Garty (Chairperson), Eitan
Oppenhaim, Avi Cohen and Zehava Simon. The function of the strategy and M&A committee is described in the approved charter of the
committee, and includes responsibility for providing the board of directors with recommendations, in relation to: (i) the development
and execution of the Company’s strategy, including its strategic plans and initiatives; and (ii) the identification and analysis
of acquisition, merger, joint venture, and investment opportunities. The committee shall also maintain a cooperative, interactive planning
process with management, including but not limited to, identifying and prioritizing strategic goals.
All committees are acting according to written
charters that were approved by our board of directors. Additionally, we adopted an internal enforcement plan which was approved by our
board of directors. The internal enforcement plan, as part of which we adopted and implementing procedures and policies in order to comply
with the provisions of the Israeli Securities Law, 5728-1968 (the “Israeli Securities Law”), the Companies Law, and the regulations
promulgated thereunder. The internal enforcement plan includes, among others, the board committees’ charters and the internal auditor
charter, procedures with respect to related party transactions, insider trading, which prohibits hedging activities, equity-based compensation
policy, reporting and complaints, anti-bribery and anti-fraud policies and a code of conduct. Each of our committees has the power to
retain, terminate and approve the related fees and other retention terms, as it deems appropriate, outside counsel and other experts and
consultants to assist the committee in connection with its responsibilities without our board of directors’ approval and at the
Company's expense.
Approval of Related Party Transaction
The Companies Law requires that office holders of
a company, including directors and executive officers, promptly disclose to the board of directors any personal interest they may have
and all related material information known to them about any existing or proposed transaction with such company. The approval of the board
of directors is required for 'non-extraordinary' transactions between a company and its office holders, or between a company and other
persons in which an office holder has a personal interest, unless such company's articles of association provide otherwise. Under the
Companies Law, a 'non-extraordinary' transaction between a company or between the company and a third party in which an office holder
of a company has a personal interest, will require the approval of the board of directors or a committee authorized by the board of directors,
unless such company's articles of association provide otherwise. Our Articles do not provide otherwise, and therefore such transaction
requires the approval of our board of directors. If a transaction is an “extraordinary transaction”, it is subject to the
approval of the audit committee prior to its approval by the board of directors. For information regarding the necessary approvals under
the Companies Law for transactions with office holders and directors regarding their terms of engagement with the company, see “—
Compensation of Officers and Directors” in this Item below.
61
In addition, an extraordinary transaction between
a public company and a controlling shareholder (i.e. a shareholder who has the ability to direct the activities of a company, including
a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding
a shareholder whose power derives solely from its position on the board of directors or any other position with the company), or in which
a controlling shareholder has a personal interest, including a private placement in which the controlling shareholder has a personal interest,
a transaction between a public company and a controlling shareholder, the controlling shareholders' relative, or entities under its control,
directly or indirectly, with respect to services to be provided to the public company, and a transaction concerning the terms of compensation
of the controlling shareholder or the controlling shareholder’s relative, who is an office holder or an employee, requires the approval
of the audit committee or, in some cases, the compensation committee (see "— Compensation of Officers and Directors" in this Item
below), the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter
in a shareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements: (i) the majority
must include at least a majority of the shares of the voting shareholders who have no personal interest in the transaction (in counting
the total votes of such shareholders, abstentions are not taken into account); or (ii) the total of opposition votes among the shareholders
who have no personal interest in the transaction may not exceed 2% of the aggregate voting rights in the company. Any such transaction
the term of which is more than three years, must be approved in the same manner every three years, unless with respect to certain transactions
as permitted by the Companies Law, the audit committee has determined that longer term is reasonable under the circumstances.
According to the Companies Law, if an extraordinary
transaction is discussed by the board of directors or the audit committee, directors and office holders that have personal interest in
the proposed transaction, may not participate in the discussion or vote. However, if the majority of the members of the audit committee
or the board of directors (as applicable) have personal interest in the proposed transaction, then all directors (including those with
personal interest) may participate in the discussion and vote, provided that in the event the majority of the members of the board of
directors have personal interest in the transaction, said transaction will also be subject to the approval of the Company's shareholders.
Compensation of Officers and Directors
Under the Companies Law, Israeli public companies
are required to establish a compensation committee and adopt a policy regarding the compensation and terms of employment of their directors
and officers. For information on the composition, roles and objectives of the compensation committee pursuant to the Companies Law and
our compensation committee charter, see above “—Board of Directors’ Committees — Compensation Committee" in this
Annual Report.
Pursuant to the Companies Law, the compensation policy
must be approved by the company's board of directors after reviewing the recommendations of the compensation committee. The compensation
policy also requires the approval of the general meeting of the shareholders, which approval must satisfy one of the following (the "Majority
Requirement"): (i) the majority should include at least a majority of the shares of the voting shareholders who are non-controlling shareholders
or do not have a personal interest in the approval of the compensation policy (in counting the total votes of such shareholders, abstentions
are not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i)
does not exceed two percent of the aggregate voting power in the company. Under certain circumstances and subject to certain exceptions,
the board of directors may approve the compensation policy despite the objection of the shareholders, provided that both the compensation
committee and the board of directors determine that it is for the benefit of the company, following an additional discussion and based
on detailed arguments.
The Companies Law provides that the compensation
policy must be re-approved (and re-considered) every three years, in the manner described above. Moreover, the board of directors is responsible
for reviewing from time to time the compensation policy and deciding whether or not there are any circumstances that require an adjustment
to the company's compensation policy. When approving the compensation policy, the relevant organs must take into consideration the goals
and objectives listed in the Companies Law, and include reference to specific issues listed in the Companies Law. Such issues include,
among others (the “Compensation Policy Mandatory Criteria”): (i) the relevant person’s education, qualifications, professional
experience and achievements; (ii) such person's position within the company, the scope of his responsibilities and previous compensation
arrangements with the company; (iii) the proportionality of the employer cost of such person in relation to the employer cost of other
employees of the company, and in particular, the average and median pay of other employees in the company, including contract workers,
and the impact of the differences between such person's compensation and the other employees' compensation on the labor relations in the
company; (iv) the authority, at the board of director's sole discretion, to lower any variable compensation components or set a maximum
limit (cap) on the actual value of the non-cash variable components, when paid; and (v) in the event that the terms of engagement include
any termination payments - the term of employment of the departing person, the company’s performance during that term, and the departing
person’s contribution to the performance of the company.
62
In addition, the Companies Law provides that the
following matters must be included in the compensation policy (the "Compensation Policy Mandatory Provisions"): (i) the award of variable
components must be based on long term and measurable performance criteria (other than non-material variable components, which may be based
on non-measurable criteria taking into account the relevant person's contribution to the performance of the company); (ii) the company
must set a ratio between fixed and variable pay, set a cap on the payment of any cash variable compensation components as of the payment
of such components, and set a cap on the maximum cash value all non-cash variable components as of their grant date; (iii) the compensation
policy must include a provision requiring the relevant person to return to the company any compensation that was awarded on the basis
of financial figures that were subsequently restated; (iv) equity based variable compensation components should have an appropriate minimum
vesting periods, which should be linked to long term performance objectives; and (v) the company must set a clear limit on termination
payments.
Furthermore, our Compensation Policy contains a compensation
recovery provision which enables us under certain circumstances to recover bonuses paid in excess due to an accounting restatement, allows
our chief executive officer to approve immaterial changes in the terms of employment of executive officers, provided such changes are
in accordance with our Compensation Policy, and enables us to exculpate, indemnify and insure our directors and executive officers subject
to certain limitations as set forth therein.
Pursuant to the Companies Law, any transaction with
an office holder (except directors and the chief executive officer of the company) with respect to such office holder's compensation arrangements
and terms of engagement, requires the approval of the compensation committee and the board of directors. Such transaction must be consistent
with the provisions of the company's compensation policy, provided that the compensation committee and the board of directors may, under
special circumstances, approve such transaction that is not in accordance with the company's compensation policy, if both of the following
conditions are met: (i) the compensation committee and the board of directors discussed the transaction in light of the roles and objectives
of the compensation committee (also see above "—Board of Directors' Committees — Compensation Committee" in this Annual Report)
and after taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the Compensation Policy
Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies the approval must
satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directors may, under special
circumstances, approve such transaction even if the shareholders' meeting objected to its approval, provided that (i) both the compensation
committee and the board of directors re-discussed the transactions and decided to approve it despite the shareholder's objection, based
on detailed arguments, and (ii) the company is not a 'Public Pyramid Held Company'. For the purpose hereof, a "Public Pyramid Held Company"
is a public company that is controlled by another public company (including companies that issued only debentures to the public), which
is also controlled by another public company (including companies that issued only debentures to the public) that has a controlling shareholder.
63
Transactions between public companies (including
companies that have issued only debentures to the public) and their chief executive officer, with respect to his or her compensation arrangement
and terms of engagement, require the approval of the compensation committee, the board of directors and the shareholder's meeting, provided
that the approval of the shareholders' meeting must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee
and the board of directors may, under special circumstances, approve such transaction with the chief executive officer even if the shareholders'
meeting objected to its approval, provided that (i) both the compensation committee and the board of directors re-discussed the transactions
and decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a Public Pyramid
Held Company. Such transaction with the chief executive officer must be consistent with the provisions of the company's compensation policy,
provided that the compensation committee and the board of directors may, under special circumstances, approve such transaction that is
not in accordance with the company's compensation policy, if both of the following conditions are met: (i) the compensation committee
and the board of directors discussed the transaction in light of the roles and objectives of the compensation committee (see above —“Board
of Directors' Committees – Compensation Committee" in this Annual Report) and after taking into consideration the Compensation Policy
Mandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company's shareholders
approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement. In addition, the compensation
committee may determine that such transaction with the chief executive officer of the company does not have to be approved by the shareholders
of the company, provided that: (i) the chief executive officer is independent based on criteria set forth in the Companies Law; (ii) the
compensation committee determined, based on detailed arguments, that bringing the transaction to the approval of the shareholders may
compromise the chances of entering into the transaction; and (iii) the terms of the transaction are consistent with the provisions of
the company's compensation policy. Under the Companies Law, non-material amendments of transactions relating to the compensation arrangement
or terms of engagement of office holders (including the chief executive officer), require only the approval of the compensation committee.
With respect to transactions relating to the compensation
arrangement and terms of engagements of directors in public companies (including companies that have issued only debentures to the public),
the Companies Law provides that such transaction is subject to the approval of the compensation committee, the board of directors and
the shareholders' meeting. Such transaction must be consistent with the provisions of the company's compensation policy, provided that
the compensation committee and the board of directors may, under special circumstances, approve such transaction that is not in accordance
with the company's compensation policy, if both of the following conditions are met: (i) the compensation committee and the board of directors
discussed the transaction in light of the roles and objectives of the compensation committee (see above "—Board Practices –Board
of Directors' Committees – Compensation Committee" in this Annual Report) and after taking into consideration the Compensation Policy
Mandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company's shareholders
approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement.
Pursuant to the Companies Law, a compensation policy
must be re-approved (and re-considered) at least once in every three years. The current compensation policy was approved by our shareholders
on June 23, 2022.
Internal Auditor
Under the Companies Law, the board of directors
must also appoint an internal auditor nominated by the audit committee. Our internal auditor is Ms. Dana Gottesman-Erlich, CPA (Isr.)
of BDO Ziv Haft, an independent registered accounting firm which is a part of the BDO international accounting firm. The role of the internal
auditor is to examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may not
be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s
independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the shares
or voting rights of a company, any person or entity that has the right to nominate or appoint at least one director or the general manager
of the company or any person who serves as a director or as the general manager of a company. Our internal auditor is working based on
a risk survey and audit plan, which is determined by our audit committee and approved by our board of directors.
64
6.D
Employees
Set forth below is a chart showing the number of
people we employed at the times indicated:
|
As of December 31,
|
2022
|
2023
|
2024
|
|||||||||
|
Total Personnel
|
1,177
|
1,202
|
1,383
|
|||||||||
|
Located in Israel
|
505
|
516
|
586
|
|||||||||
|
Located abroad
|
672
|
686
|
797
|
|||||||||
|
In operations
|
280
|
287
|
293
|
|||||||||
|
In research and development
|
462
|
477
|
585
|
|||||||||
|
In global business
|
311
|
318
|
375
|
|||||||||
|
In general and administration
|
124
|
120
|
130
|
|||||||||
The numbers of employees set forth in this table do not include contractors
but includes an insignificant number of temporary employees retained by the Company from time to time. The numbers do not include employees
of Sentronics, acquired on January 30, 2025.
In the high-tech industry in general and specifically
in the semiconductors industry, there is intense competition for high-skilled employees. Nova believes that the company’s future
success will depend, by a large part, on our continued ability to attract, hire and retain qualified and highly motivated employees in
every role and seniority level.
Under applicable Israeli law, we and our employees
are subject to protective labor provisions such as restrictions on working hours, minimum wages, paid vacation, sick pay, severance pay
and advance notice of termination of employment as well as equal opportunity and anti-discrimination laws. Orders issued by the Israeli
Ministry of Economy and Industry make certain industry-wide collective bargaining agreements applicable to us. These agreements affect
matters such as cost of living adjustments to salaries, length of working hours and week, recuperation and travel expenses. In Israel,
we are subject to the instructions of the Extension Order in the Industrial Field for Extensive Pension Insurance 2006 according to the
Israeli Collective Bargaining Agreements Law, 1957 (the “Extension Order”). The Extension Order determines the pension terms
of the employees which fall under its criteria.
6.E
Share Ownership
Based on information provided to us, our 12 directors
and senior management members listed in Item 6.A in this Annual Report (including Mr. Dror David who retired from his role as CFO effective
July 1, 2024), have had, as a group, sole voting and investment power for 82,065 shares beneficially owned by them as of February 7, 2025
(representing approximately 0.3% of the 29,278,991 issued and outstanding ordinary shares of our company as of such date). Such number
includes 8,960 shares subject to options that are immediately exercisable or exercisable within 60 days of February 7, 2025 (with expiration
dates ranging between 2025 and 2028; exercise prices ($/share) ranging between $25.67 and $102.35), 73,105 shares held by the trustee
due to vested RSUs, and 2,149 RSUs to be vested within 60 days as of February 7, 2025.
Beneficial ownership of shares is determined in accordance
with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Ordinary
shares that are subject to warrants or options that are presently exercisable or exercisable within 60 days of the date of February 7,
2025 are deemed to be outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage
ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
65
Employee Benefit Plans
The share option plans under which we have outstanding
equity grants, are described below:
2007 Incentive Plan (which was active until October
2017) - As of December 31, 2024, options to purchase 4,304,112 ordinary shares at an exercise prices which range from $0.43 to $24.96,
the fair market value of our shares on the dates of grant, were granted under this plan of which, as of December 31, 2024, 3,081,139 options
were exercised, no options were outstanding and exercisable, 1,222,973 options had been cancelled and no options were outstanding and
unvested. As of December 31, 2024, a total of 834,142 RSU’s had been granted, of which 728,223 had vested, 105,919 had been cancelled
and no RSU's were outstanding. Following adoption of 2017 share incentive plan, as detailed herein, we have ceased granting equity under
the 2007 incentive plan.
2017 Share Incentive Plan - The maximum number of
ordinary shares to be issued under the plan, which was adopted by our board of directors on August 1, 2017, is 2,500,000, subject to future
increases or decreases by the Company. As of December 31, 2024, options to purchase 635,877 ordinary shares at an exercise prices which
range from $ 22.56 to $ 102.35, the closing price of the Company's ordinary shares on Nasdaq on the day of grant, were granted under this
plan of which, as of December 31, 2024, 347,092 options were exercised, 38,550 options were outstanding and exercisable, 250,235 options
had been cancelled and 720 were outstanding and unvested. As of December 31, 2024, 1,549,509 RSU’s had been granted, of which 917,247
RSU’s had vested, 135,726 had been cancelled and 496,536 RSU's were outstanding.
On June 23, 2022, our shareholders (following an
approval by our compensation committee and board of directors), approved the Company's compensation policy, which includes, among others,
provisions relating to equity-based compensation for Nova's executive officers.
The compensation policy provides, among others, that:
(i) such equity based compensation is intended to be in a form of share options and/or other equity based awards, such as RSUs, in accordance
with the Company's equity incentive plan in place as may be updated from time to time; (ii) all equity-based incentives granted to executive
officers will be subject to vesting periods in order to promote long-term retention of the awarded executive officers. Unless determined
otherwise in a specific award agreement approved by the compensation committee and the board of directors, grants to executive officers
(other than directors) will vest gradually over a period of between three to five years; and (iii) all other terms of the equity awards
will be in accordance with Nova's incentive plans and other related practices and policies. The board of directors may, following approval
by the compensation committee, extend the period of time for which an award is to remain exercisable and make provisions with respect
to the acceleration of the vesting period of any executive officer's awards, including, without limitation, in connection with a corporate
transaction involving a change of control, subject to any additional approval as may be required by the Companies Law. The compensation
policy also provides that the equity-based compensation will be granted from time to time and be individually determined and awarded according
to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive
officer. The fair market value of the equity-based compensation for the executive officers will be determined according to acceptable
valuation practices at the time of grant. Our compensation policy provides that equity-based compensation awarded to employees, executive
officers or directors shall not be, in the aggregate, in excess of 10% of our share capital on a fully diluted basis at the date of the
grant.
Our equity-based compensation policy, provides, among
others, that the exercise price for each option will be equal to the closing sale price of the Company's ordinary shares on Nasdaq on
the day of grant.
For additional information regarding our employees’
incentive plans, see Note 13 of our consolidated financial statements, contained elsewhere in this Annual Report.
6.F
Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation.
Not applicable.
66
Item 7
. Major Shareholder
and Related Party Transactions
7.A
Major Shareholders
The following table sets forth certain information
regarding the beneficial ownership of our outstanding ordinary shares as of the dates indicated below for each shareholder who we know
beneficially owns five percent or more of the outstanding ordinary shares.
Beneficial ownership of shares is determined under
rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power.
Applicable
percentages are based on 29,278,991 ordinary shares outstanding as of February 7, 2025.
|
Name
|
Number of Ordinary
Shares Beneficially
Owned
|
Percentage of Ordinary
Shares
Beneficially Owned
|
||||||
|
FMR LLC
(1)
|
2,655,264
|
9.07
|
%
|
|||||
|
Wasatch Advisors Inc.
(2)
|
2,411,677
|
8.24
|
%
|
|||||
|
Menora Mivtachim Holdings
Ltd.
(3)
|
2,121,579
|
7.25
|
% | |||||
|
Migdal Insurance & Financial Holdings Ltd.
(4)
|
2,286,687
|
7.81
|
%
|
|||||
|
Harel Insurance Investments & Financial Services Ltd.
(5)
|
1,799,718
|
6.15
|
%
|
|||||
|
|
(1)
|
The information is based upon Schedule 13F filed with the SEC by FMR LLC, and subsidiaries
on February 13, 2025 regarding holdings as of December 31, 2024.
|
|
|
(2)
|
The information is based upon Amendment
no. 6 Schedule 13G/A filed with the SEC by Wasatch Advisors Inc. on February 12, 2025 regarding holdings as of December 31, 2024.
|
|
|
(3)
|
The information is based upon the shareholder
notification provided to the Company by Menora Mivtachim Holdings Ltd., Menora Mivtachim Pensions and Gemel Ltd., Menora Mivtahim Insurance
Ltd., Menora Mivtachim Vehistadrut Hamehandesim Nihul Kupot Gemel Ltd. and Shomera Insurance Company Ltd. on February 17, 2025 regarding
holdings as of December 31, 2024.
|
|
|
(4)
|
The information is based upon Schedule 13G
filed with the SEC by Migdal Insurance & Financial Holdings Ltd., Migdal Insurance Company Ltd., Migdal Sal Domestic Equities, Migdal
Mutual Funds Ltd., on February 13, 2025 regarding holdings as of December 31, 2024.
|
|
|
(5)
|
The information is based upon the shareholder
notification provided to the Company by Harel Insurance Investments & Financial Services Ltd. on February 2, 2025 regarding holdings
as of December 31, 2024.
|
All the shareholders of the Company have the same voting rights.
To our knowledge, the significant changes
in the percentage of ownership held by our major shareholders during the past three years have been the decrease in the percentage
of ownership by Wasatch Advisors Inc. to below 10%, remaining above 5% in 2024.
As of February 7, 2025, our ordinary shares were
held by 9 registered holders (not including CEDE & Co.). Based on the information provided to us by our transfer agent, as of February
7, 2025, 8 registered holders were U.S. domicile holders and held approximately 0.02% of our outstanding ordinary shares.
67
Control of Registrant
To the Company’s knowledge, it is not owned
or controlled by a foreign government. Except for the shareholders identified above owning more than five percent of the Company’s
ordinary shares, the Company has no knowledge of any corporation or other natural or legal person owning a controlling interest in the
Company.
7.B
Related Party Transactions
In November 2024, we obtained directors’ and
officers’ liability insurance for our officers and directors with coverage in an aggregate amount of $60 million (including $10
million Side A DIC). This directors’ and officers’ liability insurance was presented and approved by our compensation committee
in accordance with the framework under our compensation policy.
Our compensation policy authorizes the Company, as
long as the compensation policy is in effect, to extend and/or renew the directors’ and officers’ liability insurance or enter
into a new insurance policy, provided however, that the insurance transaction complies with the following conditions: (i) the limit of
liability of the insurer will not exceed the greater of $50 million or 30% of our shareholders equity based on our most recent financial
statements at the time of approval by the compensation committee; and (ii) the insurance policy, as well as the limit of liability and
the premium for each extension or renewal will be approved by the compensation committee (and, if required by law, by the board of directors)
which will determine that the sums are reasonable considering our exposures, the scope of coverage and the market conditions and that
the insurance policy reflects the current market conditions, and it will not materially affect our profitability, assets or liabilities.
Further, upon circumstances to be approved by the
compensation committee (and, if required by law, by the board of directors), we will be entitled to enter into a "run off" insurance policy
of up to seven years, with the same insurer or any other insurance, as follows: (i) the limit of liability of the insurer will not exceed
the greater of $60 million or 30% of our shareholders equity based on our most recent financial statements at the time of approval by
the compensation committee; and (ii) the insurance policy, as well as the limit of liability and the premium for each extension or renewal
will be approved by the compensation committee (and, if required by law, by the board of directors) which shall determine that the sums
are reasonable considering our exposures covered under such policy, the scope of cover and the market conditions, and that the insurance
policy reflects the current market conditions and that it will not materially affect our profitability, assets or liabilities.
We may also extend the insurance policy in place
to include cover for liability pursuant to a future public offering of securities. The insurance policy as well as the additional premium
should be approved by the compensation committee (and if required by law, by the board of directors) which will determine that the sums
are reasonable considering the exposures pursuant to such public offering of securities, the scope of cover and the market conditions
and that the insurance policy reflects the current market conditions, and it does not materially affect our profitability, assets or liabilities.
In addition, following the approval by our shareholders
at the annual general meeting held on June 24, 2021, we undertook to indemnify our officers and directors up to the greater of (a) twenty-five
percent (25%) of the Company’s total shareholders’ equity according to the Company’s most recent financial statements
as of the time of the actual payment of indemnification; (b) US$200 million; (c) ten percent (10%) of the Company "total market cap" (which
shall mean the average closing price of the Company’s ordinary shares over the 30 trading days prior to the actual payment of indemnification
multiplied by the total number of issued and outstanding shares of the Company as of the date of actual payment); and (d) in connection
with or arising out of a public offering of the Company’s securities, the aggregate amount of proceeds from the sale by the Company
and/or any shareholder of Company’s securities in such offering.
Following the approval by our shareholders at the
annual general meeting held on June 23, 2022, and as provided in our compensation policy, we have exempted our directors and officers
in advance for all or any of their liability for damage in consequence of a breach of the duty of care vis-a-vis our company, to the extent
permitted by applicable law.
68
Pursuant to our amended and restated compensation
policy, we may indemnify our directors and officers to the fullest extent permitted by applicable law, for any liability and expense that
may be imposed on the director or the officer, as provided in the indemnity agreement between us and such individuals, all subject to
applicable law and our Amended and Restated Articles of Association.
For information relating to options granted to
officers and directors, see “Item 6E. Share Ownership” in this Annual Report. For information regarding our compensation policy
and compensation arrangements with our directors and executive officers (including our chairman and chief executive officer), please refer
to “Item 6B. Compensation” in this Annual Report.
7.C
Interest of Experts and Counsel
Not applicable.
Item 8
. Financial Information
8.A Consolidated Statements and Other Financial Information
See “Item 17. Financial Statements” in
this Annual Report.
Legal Proceedings
From time to time, we or our subsidiaries may be
a party to legal proceedings and claims in the ordinary course of business. While the outcome of these matters cannot be predicted with
certainty, we do not believe they will have a material effect on our consolidated financial position, results of operations, or cash flows.
We are currently not involved in any significant proceedings.
Dividend Policies
We anticipate that, for the foreseeable future, we
will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect
to pay cash dividends for at least the next several years.
The distribution of dividends may be limited by the
Companies Law, which permits the distribution of dividends only out of retained earnings or earnings derived over the two most recent
fiscal years, whichever is higher, provided that there is no reasonable concern that payment of a dividend will prevent a company from
satisfying its existing and foreseeable obligations as they become due. Our Amended and Restated Articles of Association provide that
dividends will be paid at the discretion of, and upon resolution by, our board of directors.
In addition, distribution of dividends may be subject
to certain tax implications. For additional information regarding tax implication of dividends' distribution, see “Item 10E. Taxation
– Israeli Taxation” in this Annual Report.
Export Sales
Substantially all of our products are sold to customers
located outside Israel.
8.B
Significant Changes
Not applicable.
Item 9
. The Offer and Listing
9.A
Offer and Listing Details
Our ordinary shares began trading on Nasdaq on
April 11, 2000 under the symbol “NVMI”. Our ordinary shares were registered for trading on the Tel Aviv Stock Exchange Ltd.
in 2002 under the symbol “נובה”.
9.B
Plan of Distribution
Not applicable.
69
9.C
Markets
Our
ordinary shares are quoted on the Nasdaq Global Select Market under the symbol “NVMI” and on the Tel Aviv Stock Exchange Ltd.
9.D
Selling Shareholders
Not applicable.
9.E
Dilution
Not applicable.
9.F
Expenses of the Issue
Not applicable.
Item 10
. Additional Information
10.A
Share Capital
Not applicable.
10.B
Memorandum and Articles of Association
A copy of our amended and restated articles of association
is attached as Exhibit 1.1 to this Annual Report and is incorporated by reference to this Annual Report. The information called for by
this Item is set forth in Exhibit 2.1 to this Annual Report.
10.C
Material Contracts
Israeli Lease Agreement
A summary of our Israeli Lease Agreement has been
attached as Exhibit 4.7 to our 2022 Annual Report and is incorporated by reference to this Annual Report. See Note 11 to our consolidated
financial statements included within this Annual Report.
Convertible Senior notes
For a description of our issuance of convertible
notes, see Note 10 to our consolidated financial statements included within this Annual Report.
10.D
Exchange Controls
Israeli law and regulations do not impose any material
foreign exchange restrictions on non-Israeli holders of our ordinary shares.
Dividends, if any, paid to holders of our ordinary
shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our
ordinary shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into freely
repatriable dollars at the rate of exchange prevailing at the time of conversion.
70
10.E
Taxation
Israeli Taxation
The following is a summary of the material Israeli
tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of some Israeli
tax consequences to persons owning our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment
under Israeli law. Examples of this kind of investor include, not for profit organizations, pension funds and other exempt institutional
investors, traders in securities, partnerships and other transparent entities, individuals under the tax regime for “new immigrants”
or “returning residents” and other taxpayers who are subject to special tax regimes not covered in this discussion. Some parts
of this discussion are based on a new tax legislation which has not been subject to judicial or administrative interpretation. The discussion
should not be construed as legal or professional tax advice and does not cover all possible tax considerations.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR,
THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate
tax on their taxable income at the rate of 23% for the 2018 tax year and thereafter. However, the effective tax rate payable by a company
that derives income from an Approved Enterprise, a Beneficiary Enterprise, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred
Technology Enterprise or Special Preferred Technology Enterprise (as discussed below) may be lower. Capital gains derived by an Israeli
company are generally subject to the prevailing regular corporate tax rate.
Income Tax Regulations (Rules on Bookkeeping
by Foreign Invested Companies and Certain Partnerships and Determination of their Taxable Income), 1986
As a “foreign invested company” (as defined
in the Israeli Law for the Encouragement of Capital Investments-1959), the Company's management has elected to apply Income Tax Regulations
(Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income)
- 1986. Accordingly, its taxable income or loss is calculated in US Dollars.
Tax Benefits under the Law for the Encouragement of Capital Investments,
1959
Tax benefits prior to the 2005 Amendment
The Law for the Encouragement of Capital Investments,
1959, generally referred to as the “Investments Law”, provided (prior to the 2005 amendment) that a capital investment in
eligible facilities may, upon application to the Israeli Authority for Investments and Development of the Industry and Economy (the
“Investment Center”), be granted the status of an Approved Enterprise. Each certificate of approval for an Approved Enterprise
relates to a specific investment program delineated both by its financial scope, including sources or funds, and by its physical characteristics
or the facility or other assets, e.g., the equipment to be purchased and utilized pursuant to the program.
A company owning an Approved Enterprise is eligible
for a combination of grants and tax benefits (the “Grant Track”). The tax benefits under the Grant Track include, among others,
accelerated depreciation and amortization for tax purposes. The benefits period is ordinarily seven years commencing with the year in
which the Approved Enterprise first generates taxable income. The benefits period is limited to 12 years from the earlier of the
commencement of production by the Approved Enterprise or 14 years from the date of approval of the Approved Enterprise.
A company owning an Approved Enterprise may elect
to forego its entitlements to grants and tax benefits under the Grant Track and apply for alternative package of tax benefits for a benefit
period of between seven and ten years (the “Alternative Track”). Under the Alternative Track, a company’s undistributed
income derived from the Approved Enterprise will be exempt from corporate tax for a period of between two and ten years, starting from
the first year the company derives taxable income under the Approved Enterprise program. The length of this exemption will depend on the
geographic location of the Approved Enterprise within Israel. After the exemption period lapses, the company shall be subject to tax at
a reduced corporate tax rate between of 10% to 25% depending on the level of foreign investment in the company in each year for the remainder
of the benefits period.
71
In the past, we had elected to be taxed under the
Alternative Track and in subsequent years elected to forego this tax regime and elected to adopt the Preferred Technological Enterprise
regime as mentioned below.
Dividends paid to Shareholders out of any income
attributed to an Approved Enterprise (or out of dividends received from a company whose income is attributed to an Approved Enterprise)
are generally subject to withholding tax at the rate of 15% or at a lower rate provided under an applicable tax treaty (subject to the
receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). The 15% tax rate is limited to dividends and
distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. After this period,
the withholding tax is applied at a rate of up to 30%, or at the lower rate under an applicable tax treaty (subject to the receipt in
advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). In the case of a company which is considered
a Foreign Investment Company as defined in the Investment Law, the 12-year limitation on reduced withholding tax on dividends does not
apply.
A dividend distributed or deem distributed from income
which was exempt from tax (“
Trapped Profits
”) derived from the Approved Enterprise
will be subject to tax with respect to the amount distributed (grossed up to reflect such pre-tax income that it would have had to earn
in order to distribute the dividend) at the corporate tax rate which would otherwise been applicable, which is at ranged between 10%-25%,
depending on the level of foreign investment in the company in each year. Under the Investments Law, the transfer of funds from the company
to shareholders and other related parties may be deemed to be regarded as a dividend distribution for this purpose in certain circumstances.
On November 15, 2021 a new amendment of the Investment
Law was enacted (i) providing a reduced corporate income tax on the Trapped Profits distributed within a year from such amendment. The
reduced corporate income tax is based on a certain formula and subject to reinvestment of certain amounts in enumerated assets/activities;
(ii) harshening the rules with respect to determining the profits from which a dividend was distributed and providing that part of any
dividend distribution, will be deemed as distributed from the Trapped Profits, according to a certain formula. In 2021, the Company reached
a settlement with ITA and released all Trapped Profits pursuant to the aforementioned amendment.
Tax benefits under the 2005 Amendment
An amendment to the Investments Law, which was effective
as of April 1, 2005, changed certain provisions of the Investments Law, or the 2005 Amendment. An eligible investment program under the
2005 Amendment qualified for benefits as a “Beneficiary Enterprise”. According to the 2005 Amendment, only Approved Enterprises
receiving cash grants require the prior approval of the Investment Center. As a result, a company was no longer required to obtain the
advance approval of the Investment Center in order to receive the tax benefits previously available under the alternative benefits program.
Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet
the criteria for tax benefits set forth in the 2005 Amendment. A company that had a Beneficiary Enterprise may, at its discretion, approach
the ITA for a pre-ruling confirming that it is in compliance with the provisions of the Investment Law.
The duration of the tax benefits described herein
is limited to the earlier of seven (7) or ten (10) years (depending on the geographic location of the Beneficiary Enterprise within Israel)
from the Commencement Year (as described below) or 12 or 14 years from the first day of the Year of Election (as described below), depending
on the location of the company within Israel. Commencement Year is defined as the later of the first tax year in which a company had derived
liable income for tax purposes from the Beneficiary Enterprise, or the Year of Election, which is defined as the year in which a company
requested to have the tax benefits apply to the Beneficiary Enterprise. The tax benefits granted to a Beneficiary Enterprise are determined,
depending on the geographic location of the Beneficiary Enterprise within Israel.
Similar to the previously available Alternative Track,
exemption from corporate tax may be available on undistributed income for a period of two to ten years (i.e., Trapped Profits), depending
on the geographic location of the Beneficiary Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the remainder
of the benefits period, depending on the level of foreign investment in each year. If the company pays a dividend out of income derived
from the Beneficiary Enterprise during the benefits period and such dividend is actually paid at any time up to 12 years thereafter, except
with respect to a foreign investment company, in which case the 12-year limit does not apply, such income will be subject to withholding
tax at the rate of 15% (in case of non-Israeli shareholders – subject to the receipt in advance of valid certificate from the ITA
allowing the 15% tax rate, or a lower rate under a tax treaty, if applicable). A Company that pays dividend out of Trapped Profits will
be subject to tax with respect to the amount distributed (grossed up to reflect such pre-tax income that it would have had to earn
in order to distribute the dividend) at the corporate tax rate which would have otherwise been applicable.
72
We had three Approved Enterprise plans under the
Investments Law, which entitled us to certain tax benefits.
As a result of the 2005 Amendment, tax-exempt income
generated under the provisions of the Investments Law, as amended, subjected us to taxes upon distribution or liquidation and we may be
required to record deferred tax liability with respect to such tax-exempt income. On November 15, 2021 a new amendment of the Investment
Law was enacted (i) providing a reduced corporate income tax on the Trapped Profits distributed within a year from such amendment. The
reduced corporate income tax is based on a certain formula and subject to reinvestment of certain amounts in enumerated assets/activities;
(ii) harshening the rules with respect to determining the profits from which a dividend was distributed and providing that part of any
dividend distribution, will be deemed as distributed from the Trapped Profits, according to a certain formula.
In December 2021, we entered into an elective tax
agreement with the Israeli Tax Authorities and opt-in with the new Amendment. The reduced corporate income tax on the Trapped Profits
was approximately $5.8M, or 10%, and was provided for in the 2021 financial statements of operations, net of related provisions.
Following this elective tax agreement, all of the Trapped Profits were released.
Tax benefits under the 2011 Amendment
On December 29, 2010, the Israeli Parliament approved
the 2011 amendment to the Investments Law (the “2011 Amendment”). The 2011 Amendment significantly revised the tax incentive
regime in Israel, commencing on January 1, 2011.
The 2011 Amendment introduced a new status of “Preferred
Enterprise”, replacing the existing status of “Beneficiary Enterprise” and introduced new benefits for income generated
by a “Preferred Company” through its Preferred Enterprise. A Preferred Company is an industrial company that meets certain
conditions (including a minimum threshold of 25% export). However, under the 2011 Amendment the requirement for a minimum investment in
productive assets in order to be eligible for the benefits granted under the Investments Law as with respect to “Beneficiary Enterprise”
was cancelled.
A Preferred Company is entitled to a reduced flat
tax rate with respect to its preferred income attributed to the Preferred Enterprise, at the following rates:
|
Tax Year
|
Development Region “A”
|
Other Areas within Israel
|
|
2011-2012
|
10%
|
15%
|
|
2013
|
7%
|
12.5%
|
|
2014-2016
|
9%
|
16%
|
|
2017 onwards*
|
7.5%
|
16%
|
* In December 2016, the Israeli Parliament (the Knesset)
approved an amendment to the Investments Law pursuant to which the tax rate applicable to Preferred Enterprises in Development Region
"A" would be reduced to 7.5% as of January 1, 2017.
The classification of income generated from the provision
of usage rights in know-how or software that were developed in the Preferred Enterprise, as well as royalty income received with respect
to such usage, as preferred income is subject to the issuance of a pre-ruling from the ITA stipulates that such income is associated with
the productive activity of the Preferred Enterprise in Israel.
73
In addition, the 2011 Amendment introduced a new
status of “Special Preferred Company” which is an Industrial company meeting, in addition to the conditions prescribed for
“Preferred Company” certain additional conditions (including that the total Preferred Enterprise income is at least NIS 1.5
billion in 2016 and NIS 1 billion and part of a group that generates income of at least NIS 10 billion). The tax rate applicable for a
period of 10 years to income generated by such an enterprise will be reduced to 5%, if located in Development Region “A”,
or to 8%, if located in other area within the State of Israel.
Dividends distributed
from preferred income which is attributed to a “Preferred Enterprise” or a “Special Preferred Enterprise” will
be subject to withholding tax at source at the following rates: (i) Israeli resident corporations – 0% (although, if such dividends
are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% (with respect to non-Israeli shareholders
– subject to the receipt in advance of a valid certificate from the ITA allowing the reduced 20%, or such lower rate as may be provided
in an applicable tax treaty), (ii) Israeli resident individuals – 20% (iii) non-Israeli residents - 20% or a lower rate under a
tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate.
The 2011 Amendment also revised the Grant Track
to apply only to the approved programs located in Development Region “A” and shall provide not only cash grants (as prior
to the 2011 Amendment) but also the granting of loans. The rates for grants and loans shall not be fixed but up to 20% of the amount of
the approved investment. In addition, a company owning a Preferred Enterprise under the Grant Track may be entitled also to the tax benefits
which are prescribed for a Preferred Enterprise.
The provisions of the 2011 Amendment did not apply
to existing “Beneficiary Enterprises” or “Approved Enterprises”, which continued to be entitled to the tax benefits
under the Investments Law, as has been in effect prior to the 2011 Amendment, unless the company owning such enterprises had made an election
to apply the provisions of the 2011 Amendment (such election cannot be later rescinded), which is to be filed with the ITA, not later
than the date prescribed for the filing of the company’s annual tax return for the respective year. A company owning a Beneficiary
Enterprise or Approved Enterprise which made such election by June 30, 2015, was entitled to distribute income generated by the Approved/Beneficiary
Enterprise (which is not related to Trapped Profits) to its Israeli corporate shareholders tax free.
Until the end of 2015, we did not utilize tax benefits
related to Preferred Enterprises. We utilized such benefits between 2016-2017.
The New Technological Enterprise Incentives Regime—the 2017
Amendment
The 2017 Amendment was enacted as part of the Economic
Efficiency Law that was published on December 29, 2016, and became effective on January 1, 2017. The 2017 Amendment provides new tax benefits
for two types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs
under the Investment Law.
The new incentives regime will apply to “Preferred
Technology Enterprises” that meet certain conditions, including: (1) the R&D expenses in the three years preceding the tax year
were on average at least 7% out of the company's turnover or exceeded NIS 75 million (approximately $21 million) for a year; and
(2) one of the following: (a) at least 20% of the workforce (or at least 200 employees) are employees whose full salary has been paid
and reported in the Company’s financial statements as R&D expenses; (b) a venture capital investment approximately equivalent
to at least NIS 8 million (approximately $2.2 million) was previously made in the company and the company did not change its line of business;
(c) growth in sales by an average of 25% or more, over the three years preceding the tax year, provided that the turnover was at least
NIS 10 million (approximately $2.7 million), in the tax year and in each of the preceding three years; or (d) growth in workforce by an
average of 25% or more, over the three years preceding the tax year, provided that the company employed at least 50 employees, in the
tax year and in each of the preceding three years.
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A “Special Preferred Technological Enterprise”
is an enterprise that meets conditions 1 and 2 above, and in addition is part of a group that has total annual consolidated revenues at
least NIS 10 billion.
Preferred Technological Enterprises will be subject
to a reduced corporate tax rate of 12% on their income that qualifies as “Preferred Technology Income”, as defined in the
Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in Development Region "A". These
corporate tax rates shall apply only with respect to the portion of intellectual property developed in Israel. In addition, a Preferred
Technology Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefited Intangible
Assets” (as defined in the Investment Law) to a related foreign company if the Benefited Intangible Assets were acquired from a
foreign company on or after January 1, 2017 for at least NIS 200 million (approximately $54 million), and the sale receives prior approval
from the IIA. Special Preferred Technological Enterprises will be subject to 6% on “Preferred Technology Income” regardless
of the company’s geographic location within Israel.
In addition, a Special Preferred Technology Enterprise
will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Beneficiary Intangible Assets”
to a related foreign company if the Beneficiary Intangible Assets were either developed by the Special Preferred Technology Enterprise
or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the IIA.
A Special Preferred Technology Enterprise that acquires
Benefited Intangible Assets from a foreign company for more than NIS 500 million (approximately $136 million), will be eligible for these
benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed by a Preferred Technology Enterprise
or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source
at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing
the 20% reduced tax rate or a reduced rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an
Israeli company, no tax is required to be withheld. If such dividends are, distributed to a parent foreign company that holds solely or
together with other foreign companies at least 90% of the shares of the distributing company and other conditions are met, the withholding
tax rate will be 4% (or a lower rate under a tax treaty, if applicable, and subject to the receipt in advance of a valid certificate from
the ITA allowing for a reduced tax rate).
We reviewed the criteria for the tax rate of a “Preferred
Technological Enterprise” and a “Special Preferred Technological Enterprise” and concluded that we are entitled to the
reduced tax rate under the “Preferred Technological Enterprises” tax incentive regime starting 2017. We have notified the
ITA that we elected applying this status starting 2017. As part of these tax incentives, the Company is required to allocate its taxable
income between income from preferred technological enterprise and income related to preferred enterprise or regular corporate income.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes),
5729–1969, or the Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company which was
incorporated in Israel, of which 90% or more of its income in any tax year (exclusive of income from certain government loans) is generated
from an “Industrial Enterprise” that it owns and located in Israel or in the “Area”, in accordance with the definition
under section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. An “Industrial Enterprise”
is defined as an enterprise whose principal activity in any given tax year is industrial manufacturing.
An Industrial Company is entitled to certain tax
benefits, including: (i) an amortization of the cost of purchased patent, the right to use a patent or know-how that were purchased in
good faith and are used for the development or promotion of the Industrial Enterprise, over an eight-year period, beginning from the year
in which such rights were first used, (ii) under limited conditions, the right to elect to file consolidated tax returns with additional
Israeli Industrial Companies controlled by it, and (iii) the right to deduct expenses related to public offerings in equal amounts over
a period of three years beginning from the year of the offering.
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Eligibility for benefits under the Encouragement
of Industry Law is not contingent upon approval of any governmental authority.
We believe that we qualify as an “Industrial
Company” within the meaning of the Industry Encouragement Law. There is no assurance that we qualify or will continue to qualify
as an Industrial Company or that the benefits described above will be available to us in the future.
Taxation of the Company Shareholders
Capital Gains
Capital gain tax is imposed on the disposition of
capital assets by an Israeli resident, and on the disposition of such assets by a non-Israeli resident if those assets are either (i)
located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly,
rights to assets located in Israel, unless a tax treaty between Israel and the seller’s country of residence provides otherwise.
The Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. Real Gain is the excess of the
total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli Consumer Price Index (CPI)
or, in certain circumstances, according to the change in the foreign currency exchange rate, between the date of purchase and the date
of disposition.
Generally, the capital gain accrued by individuals
on the sale of our ordinary shares will be taxed at the rate of 25% (for any asset other than shares that are listed on a stock exchange
purchased on or after January 1, 2003 the portion of the gain generated up to December 31, 2011 will be subject to the previous capital
gains tax rates - 20% or 25% in case of a Controlling Shareholder as described below). However, if the individual shareholder is a “Controlling
Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with such person’s relative or another person
who collaborates with such person on a permanent basis based on a contract, 10% or more of one of the Israeli resident company’s
“means of control”) at the time of sale or at any time during the preceding twelve (12) months period (or claims a deduction
for interest and linkage differences expenses in connection with the purchase and holding of such shares), such gain will be taxed at
the rate of 30%.
The Real Gain derived by corporations will be generally
subject to the ordinary corporate tax rate (23% in 2018 and thereafter).
Individual and corporate shareholder dealing in securities
in Israel are taxed at the tax rates applicable to business income – 23% for corporations in 2018 and thereafter and a marginal
tax rate of up to 47% in 2024 for individuals, unless the benefiting provisions of an applicable treaty applies.
Notwithstanding the foregoing, capital gain derived
from the sale of our ordinary shares by a non-Israeli shareholder may be exempt under the Ordinance from Israeli taxation provided that
the following cumulative conditions, among other things, are met: (i) the shares were purchased upon or after the registration of the
securities on the stock exchange, (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain
is attributed; and (iii) with respect to our ordinary shares listed on a recognized stock exchange outside of Israel, so long as neither
the shareholder nor the particular capital gain is otherwise subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985.
Non-Israeli corporations will not be entitled to the foregoing exemptions if (i) an Israeli resident has a controlling interest, directly
or indirectly, alone or together with another (i.e., together with a relative, or together with someone who is not a relative but with
whom, according to an agreement, there is regular cooperation in material matters of the company, directly or indirectly), or together
with another Israeli resident, exceed 25% in one or more of the “means of control” in such non-Israeli resident corporation
or (ii) Israeli residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli resident
corporation, whether directly or indirectly.
In addition, the sale of shares may be exempt
from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the U.S.-Israel Double Tax Treaty exempts
U.S. resident from Israeli capital gain tax in connection with such sale, exchange or disposition provided, among others, that (i) the
U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the
12 month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183
days in the aggregate at the taxable year; (iii) the capital gain from the sale was not derived through a permanent establishment of the
U.S. resident which is maintained in Israel; (iv) the capital gain arising from such sale, exchange or disposition is not attributed
to real estate located in Israel; (v) the capital gains arising from such sale, exchange or disposition is not attributed to royalties;
and (vi) the shareholder is a U.S. resident (for purposes of the U.S.-Israel Double Tax Treaty) and is holding the shares as a capital
asset. Under the U.S.-Israel Double Tax Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S.
federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign
tax credits. The U.S.-Israel Double Tax Treaty does not provide such credit against any U.S. state or local taxes.
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Either the purchaser, the stockbrokers or financial
institution, through which payment to the seller is made, are obliged, subject to the above-mentioned exemptions, to withhold Israeli
tax at source from such payment. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order
to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli
resident company, in the form of a merger or otherwise, the ITA may require from shareholders who are not liable for Israeli tax to sign
declarations in forms specified by this authority or obtain a specific exemption from the ITA to confirm their status as non-Israeli resident.
At the sale of securities traded on a stock exchange
a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and July 31
of every tax year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source
according to applicable provisions of the Ordinance and regulations promulgated thereunder the aforementioned return need not be filed
and no advance payment must be paid. Capital gain is also reportable on the annual income tax return.
Dividends
A distribution of dividends from income, which is
not attributed to an Approved Enterprise/Beneficiary Enterprise/Preferred Enterprise/Preferred Technological Enterprise to an Israeli
resident individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient
is a “Controlling Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12 months
period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the
income from which such dividend is distributed was derived or accrued within Israel.
Distribution of dividends from income attributed
to a Preferred Enterprise or a Preferred Technological Enterprise is generally subject to a withholding tax at source at the rate of 20%.
However, if such dividends are distributed to an Israeli company, no withholding tax is imposed, although, if such dividends are subsequently
distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% (in case of a non-Israeli shareholder – subject
to the receipt in advance of a valid certificate from the ITA allowing the reduced 20% or such lower rate as may be provided in an applicable
tax treaty may apply). Dividends distributed from income attributed to an Approved Enterprise and/or a Beneficiary Enterprise are generally
subject to a withholding tax at source at the rate of 15% (in the case of non-Israeli shareholders – subject to the receipt in advance
of valid certificate from the ITA allowing the reduced 15% tax rate or such a reduced tax rate as may be provided under an applicable
tax treaty).
The Ordinance generally provides that a non-Israeli
resident (either individual or corporation) is subject to an Israeli income tax on the receipt of dividends at the rate of 25% (30% if
the dividends recipient is a “Controlling Shareholder” (as defined above), at the time of distribution or at any time during
the preceding 12 months period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty
(subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). For example, under the U.S.-Israel
Double Tax Treaty the following rates will generally apply in respect of dividends distributed by an Israeli resident company to a U.S.
resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment
of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of
the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such
prior taxable year (if any) consists of certain type of interest or dividends – the maximum tax rate is 12.5% on dividends, not
generated by an Approved Enterprise or a Beneficiary Enterprise, (ii) if both the conditions mentioned in section (i) above are met and
the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to an Approved
Enterprise or a Beneficiary Enterprise – the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%, or the domestic
rate (if such is lower). The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income was derived
through a permanent establishment of the U.S. resident maintained in Israel.
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If the dividend is attributable partly to income
derived from an Approved Enterprise, a Beneficiary Enterprise a Preferred Enterprise, or a Technological Preferred Enterprise, and partly
to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income.
Payors of dividends on our shares, including the
Israeli stockbroker effectuating the transaction, or the financial institution through which the securities are held, are generally required,
subject to any of the foregoing exemption, reduced tax rates and the demonstration of a shareholder of his, her or its foreign residency,
to withhold taxes upon the distribution of dividends at a rate of 25%, provided that the shares are registered with a Nominee Company
(for corporations and individuals, whether the recipient is a Controlling Shareholder or not).
A non-Israeli resident who receives dividends from
which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that
(i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of
income in Israel with respect to which a tax return is required to be filed, and (iii) in the case of individuals, the taxpayer is not
obligated to pay excess tax (as further explained below).
Excess Tax
Individuals who are subject to tax in Israel (whether
any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income
exceeding NIS 721,560 (approximately $197 thousand) for 2024, which amount is generally linked to the annual change in the Israeli consumer
price index (with the exception that based on Israeli new legislation such amount, and certain other statutory amounts will not be linked
to the Israeli consumer price index for the years 2025-2027), including, but not limited to, dividends, interest and capital gain. According
to new legislation, set to take effect on January 1, 2025, an
additional
2% excess tax will be imposed on Capital-Sourced Income (defined as income from any source other than employment income, business income
or income from “personal effort”), to the extent that the Individual’s Capital Sourced Income exceeds the specified
threshold of NIS 721,560 (and regardless of the employment/business income amount of such individual). This new excess tax will apply,
among other things, to income from capital gains, dividends, interest, rental income, or the sale of real property.
Estate and Gift Tax
Israeli law presently does not impose estate or gift
taxes.
Foreign Exchange Regulations
Non-residents of Israel who hold our ordinary shares
are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable
in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required
to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange
control has not been eliminated, and may be restored at any time by administrative action.
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U.S. Taxation
The following discussion describes certain material
United States (“U.S.”) federal income tax consequences generally applicable to U.S. holders (as defined below) of the purchase,
ownership and disposition of our ordinary shares. This summary addresses only holders who acquire and hold ordinary shares as “capital
assets” for U.S. federal income tax purposes (generally, assets held for investment purposes).
For purposes of this discussion, a “U.S.
holder” is a beneficial owner of ordinary shares who is:
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An individual citizen or resident of the U.S. (as determined under U.S. federal income tax rules);
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a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the U.S., any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust, if (a) a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the
authority to control all of its substantial decisions; or (b) the trust has in effect a valid election in effect under applicable Treasury
Regulations (as defined below) to be treated as a United States person.
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This summary is for general information purposes
only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant
to a decision to purchase, hold or dispose of the Company’s ordinary shares. In addition, the possible application of U.S. federal
estate or gift taxes or any aspect of state, local or non-U.S. tax laws is not considered. This discussion is based on current provisions
of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code by the U.S.
Treasury Department (including proposed and temporary regulations) (the “Treasury Regulations”), rulings, current administrative
interpretations and official pronouncements by the IRS, and judicial decisions, all as currently in effect and all of which are subject
to differing interpretations or to change, with a retroactive effect. Such changes could materially and adversely affect the tax consequences
described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any
of the tax consequences described below.
This discussion does not address all aspects of
U.S. federal income taxation that may be relevant to any particular U.S. holder based on the holder’s particular circumstances,
including, but not limited to:
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persons who own, directly, indirectly or constructively, 10% or more (by voting power or value) of our outstanding voting shares;
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persons who hold the ordinary shares as part of a hedging, straddle or conversion transaction;
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persons whose functional currency is not the U.S. dollar;
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persons who acquire their ordinary shares in a compensatory transaction;
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broker-dealers;
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insurance companies;
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regulated investment companies;
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real estate investment companies;
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qualified retirement plans, individual retirement accounts and other tax-deferred accounts;
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traders who elect to mark-to-market their securities;
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tax-exempt organizations;
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banks or other financial institutions;
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persons subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares being taken
into account in an applicable financial statement;
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U.S. expatriates and certain former citizens and long-term residents of the United States; and
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Persons subject to any alternative minimum tax.
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The tax treatment of a partner in a partnership
(or other entity or arrangement classified as a partnership for U.S. federal income tax purposes) may depend on both the partnership’s
and the partner’s status and the activities of the partnership. Partnerships (or other entities or arrangements classified as a
partnership for U.S. federal income tax purposes) that are beneficial owners of ordinary shares, and their partners and other owners,
should consult their own tax advisers regarding the tax consequences of the acquisition, ownership and disposition of ordinary shares.
THIS SUMMARY OF MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT
TO THE PARTICULAR TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE UNITED STATES FEDERAL
INCOME TAX LAWS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF
ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Distributions on the Ordinary Shares
We currently do not intend to distribute dividends
for at least the next several years. However, if we make any distributions of cash or other property to a U.S. holder of our ordinary
shares, the amount of the distribution for U.S. federal income tax purposes will equal the amount of cash and the fair market value of
any property distributed and will also include the amount of Israeli taxes withheld, if any, as described above under “[Israel Taxation]
— Dividends” above. In general (and subject to the PFIC rules discussed below), any distribution paid by us on the ordinary
shares to a U.S. holder will be treated as dividend income to the extent the distribution does not exceed our current and/or accumulated
earnings and profits, as determined under U.S. federal income tax principles. The amount of any distribution which exceeds these earnings
and profits will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in its ordinary shares
to the extent thereof, and then as capital gain income (long-term capital gain if the U.S. holder’s holding period exceeds one year),
from the deemed disposition of the ordinary shares (subject to the PFIC rules discussed below). Corporate holders generally will not be
allowed a deduction for dividends received on the ordinary shares.
The amount of any dividend paid in NIS (including
amounts withheld to pay Israeli withholding taxes) will equal the U.S. dollar value of the NIS calculated by reference to the exchange
rate in effect on the date the dividend is received by the U.S. holder, regardless of whether the NIS are converted into U.S. dollars.
A U.S. holder will have a tax basis in the NIS equal to their U.S. dollar value on the date of receipt. If the NIS received are converted
into U.S. dollars on the date of receipt, the U.S. holder should generally not be required to recognize foreign currency gain or loss
in respect of the distribution. If the NIS received are not converted into U.S. dollars on the date of receipt, a U.S. holder may recognize
foreign currency gain or loss on a subsequent conversion or other disposition of the NIS. Such gain or loss will be treated as U.S. source
ordinary income or loss.
Dividends paid by us generally will be foreign
source, “passive income” for U.S. foreign tax credit purposes. U.S. holders may elect to claim as a foreign tax credit against
their U.S. federal income tax liability the Israeli income tax withheld from dividends received on the ordinary shares. The Code provides
limitations on the amount of foreign tax credits that a U.S. holder may claim. U.S. holders that do not elect to claim a foreign tax credit
may instead claim a deduction for Israeli income tax withheld, but only for a year in which these U.S. holders elect to do so for all
foreign income taxes. Certain U.S. Treasury regulations that apply to foreign income tax paid or accrued in taxable years beginning on
or after December 28, 2021 restrict the availability of any such credit based on the nature of the tax imposed by the foreign jurisdiction
(although Notice 2023-55 provides temporary relief from the application of certain aspects of these regulations and such relief has been
extended by Notice 2023-80 indefinitely until new guidance or regulations are issued). The rules relating to foreign tax credits are complex
(and may also be impacted by the tax treaty between the United States and Israel), and you should consult your tax advisor to determine
whether you would be entitled to this credit.
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Under current law, certain distributions treated
as dividends that are received by an individual U.S. holder from a “qualified foreign corporation” generally qualify for a
20% reduced maximum tax rate so long as certain holding period and other requirements are met. A non-U.S. corporation (other than a corporation
that is treated as a PFIC with respect to the U.S. holder for the taxable year in which the dividend is paid or the preceding taxable
year) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax
treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision
and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock which is readily tradable
on an established securities market in the United States. Dividends paid by us in a taxable year in which we are not a PFIC and with respect
to which we were not a PFIC in the preceding taxable year with respect to the U.S. holder are expected to be eligible for the 20% reduced
maximum tax rate, although we can offer no assurances in this regard. However, any dividend paid by us in a taxable year in which we are
a PFIC or were a PFIC in the preceding taxable year with respect to the U.S. holder will be subject to tax at regular ordinary income
rates (along with any applicable additional PFIC tax liability, as discussed below).
The additional 3.8% tax on “net investment
income” (described below) may apply to dividends received by certain U.S. holders who meet certain modified adjusted gross income
thresholds.
Sale, Exchange or Other Taxable Disposition of the Ordinary Shares
Upon the sale, exchange or other taxable disposition
of the ordinary shares (subject to the PFIC rules discussed below), a U.S. holder generally will recognize capital gain or loss in an
amount equal to the difference between the amount realized and the U.S. holder’s tax basis in the ordinary shares. The gain or loss
recognized on the sale or exchange of the ordinary shares generally will be long-term capital gain (currently taxable at a reduced rate
for non-corporate U.S. holders) or loss if the U.S. holder’s holding period of the ordinary shares is more than one year at the
time of the disposition. The deductibility of capital losses is subject to limitations.
Gain or loss recognized by a U.S. holder on a
sale or exchange of ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. Under
the tax treaty between the United States and Israel, gain derived from the sale, exchange or other taxable disposition of ordinary shares
by a holder who is a resident of the U.S. for purposes of the treaty and who sells the ordinary shares within Israel may be treated as
foreign source income for U.S. foreign tax credit purposes. However, if a U.S. holder is eligible for the benefit of the income tax convention
between the United States and the State of Israel and pays Israeli tax in excess of the amount applicable to such U.S. holder under such
convention or if the Israeli tax paid is refundable, the U.S. holder will not be able to claim any foreign tax credit or deduction with
respect to such excess portion of Israeli tax paid or the amount of Israeli tax refunded. In addition, pursuant to applicable United States
Treasury regulations, if a U.S. holder is not eligible for the benefits of an applicable income tax treaty or does not elect to apply
such treaty, then such holder may not be able to claim a foreign tax credit arising from any foreign tax imposed on the disposition of
our ordinary shares, depending on the nature of such foreign tax. The rules governing the treatment of foreign taxes imposed on a U.S.
holder and foreign tax credits are complex, and U.S. holders should consult their tax advisors as to whether the Israeli tax on gains
may be creditable or deductible in light of their particular circumstances, including their eligibility for benefits under an applicable
treaty and the potential impact of applicable United States Treasury regulations.
The additional 3.8% tax on “net investment
income” (described below) may apply to certain U.S. holders who meet certain modified adjusted gross income thresholds, including
capital gains.
Passive Foreign Investment Companies
In general, a foreign (i.e., non-U.S.) corporation
will be a PFIC for any taxable year in which, after applying the relevant look-through rules with respect to the income and assets
of its subsidiaries, either (1) 75% or more of its gross income in the taxable year is “passive income,” or (2) assets held
for the production of, or that produce, passive income comprise 50% or more of the average of its total asset value in the taxable year.
For purpose of the income test, passive income generally includes dividends, interest, royalties, rents, annuities and net gains from
the disposition of assets, which produce passive income. For purposes of the asset test, assets held for the production of passive income
includes assets held for the production of, or that produce dividends, interest, royalties, rents, annuities, and other income that are
considered passive income for purposes of the income test. In determining whether we meet the asset test, cash is considered a passive
asset and the total value of our assets generally will be treated as equal to the sum of the aggregate fair market value of our outstanding
stock plus our liabilities. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of
the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the
other corporation’s income. The income test is conducted at the taxable year-end. The asset test is conducted on a quarterly basis
and the quarterly results are then averaged together.
81
If a corporation is treated as a PFIC for any
year during a U.S. holder’s holding period and the U.S. holder does not timely elect to treat the corporation as a “qualified
electing fund” under Section 1295 of the Code or elect to mark its ordinary shares to market (both elections described below), any
gain on the disposition of the shares will be treated as ordinary income, rather than capital gain, and the holder will be required to
compute its tax liability on that gain, as well as on dividends and other distributions, as if the income had been earned ratably over
each day in the U.S. holder’s holding period for the shares. The portion of the gain and distributions allocated to prior taxable
years in which a corporation was a PFIC will be ineligible for any preferential tax rate otherwise applicable to any “qualified
dividend income” or capital gains, and will be taxed at the highest ordinary income tax rate in effect for each taxable year to
which this portion is allocated. An interest charge will be imposed on the amount of the tax allocated to these taxable years. A U.S.
holder may elect to treat a corporation as a qualified electing fund only if the corporation complies with requirements imposed by the
IRS to enable the shareholder and the IRS to determine the corporation’s ordinary earnings and net capital gain. Additionally, if
a corporation is a PFIC, a U.S. holder who acquires shares in the corporation from a decedent generally will be denied the normally available
step-up in tax basis to fair market value for the shares at the date of death of the decedent and instead will have a tax basis equal
to the decedent’s tax basis if lower than fair market value. These adverse tax consequences associated with PFIC status could result
in a material increase in the amount of tax that a U.S. holder would owe and an imposition of tax earlier than would otherwise be imposed
and additional tax form filing requirements. Unless otherwise provided by the IRS, if a corporation is classified as a PFIC, a U.S. person
that is a direct or indirect holder generally will be required to file IRS Form 8621, Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund, or any applicable successor form, to report its ownership interest in such entity.
If a corporation is treated as a PFIC with respect
to a U.S. holder for any taxable year, the U.S. holder will be deemed to own shares in any of the foreign entities in which such corporation
holds equity interests that are also PFICs (or “lower-tier PFICs”), and the U.S. holder may be subject to the tax consequences
described above with respect to the shares of such lower-tier PFIC such U.S. holder would be deemed to own.
Status of Nova
as a PFIC.
Under the income test, less than 75% of our gross income
was passive income in 2024.
Under the asset test, while we continued to have substantial
amounts of cash and short-term deposits and the market value of our ordinary shares continued to be volatile, a determination of the value
of our assets by reference to the average market value of our ordinary shares and our liabilities results in a conclusion that the average
value of our passive assets did not exceed 50% of the average value of our gross assets in 2024. Nonetheless, there is a risk that we
were a PFIC in 2024 or we will be a PFIC in 2025 or subsequent years. Additionally, due to the complexity of the PFIC provisions and the
limited authority available to interpret such provisions, there can be no assurance that our determination regarding our PFIC status could
not be successfully challenged by the IRS.
Available Elections
.
If we become a PFIC for any taxable year, an election to treat us as a “qualified electing fund” or to “mark-to-market”
our ordinary shares may mitigate the adverse tax consequences of PFIC status to a U.S. holder.
82
If a U.S. holder makes a qualified electing fund
election (a “QEF election”) for its ordinary shares that is effective from the first taxable year that the U.S. holder holds
our ordinary shares and during which we are a PFIC, the electing U.S. holder will avoid the adverse consequences of our being classified
as a PFIC, but will instead be required to include in income a pro rata share of our net capital gain, if any, and other earnings and
profits (“ordinary earnings”) as long-term capital gains and ordinary income, respectively, on a current basis, in each case
whether or not distributed, in the taxable year of the U.S. holder in which or with which our taxable year ends. A subsequent distribution
of amounts that were previously included in the gross income of U.S. holders should not be taxable as a dividend to those U.S. holders
who made a QEF election. In the event we incur a net loss for a taxable year, such loss will not be available as a deduction to an electing
U.S. holder, and may not be carried forward or back in computing our net capital gain or ordinary earnings in other taxable years. The
tax basis of the shares of an electing U.S. holder generally will be increased by amounts that are included in income, and decreased by
amounts distributed but not taxed as dividends, under the QEF rules described above. In order to make (or maintain) a QEF election, the
U.S. holder must annually complete and file IRS Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company
or Qualified Electing Fund, or any applicable successor form. However, we do not expect that we will prepare or provide to U.S. Holders
a “PFIC annual information statement,” which would enable a U.S. Holder to make a QEF election.
Alternatively, if a U.S. holder elects to “mark-to-market”
its ordinary shares, the U.S. holder generally will include in its income any excess of the fair market value of our ordinary shares at
the close of each taxable year over the holder’s adjusted basis in such ordinary shares. A U.S. holder generally will be allowed
an ordinary deduction for the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value of the ordinary
shares as of the close of the taxable year, or the amount of any net mark-to-market gains recognized for prior taxable years, whichever
is less. A U.S. holder’s adjusted tax basis in the ordinary shares generally will be adjusted to reflect the amounts included or
deducted under the mark-to-market election. Additionally, any gain on the actual sale or other disposition of the ordinary shares generally
will be treated as ordinary income. Ordinary loss treatment also will apply to any loss recognized on the actual sale or other disposition
of ordinary shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect
to such ordinary shares. If a U.S. holder makes a valid mark-to-market election with respect to our ordinary shares for the first taxable
year of the U.S. holder in which the U.S. holder holds (or is deemed to hold) our ordinary shares and for which we are determined to be
a PFIC, such holder generally will not be subject to the PFIC rules described above in respect of its ordinary shares. A mark-to-market
election applies to the tax year for which the election is made and to each subsequent year, unless our ordinary shares cease to be marketable,
as specifically defined, or the IRS consents to revocation of the election. No view is expressed regarding whether our ordinary shares
are marketable for these purposes or whether the election will be available. However, because a mark-to-market election likely cannot
be made for any lower-tier PFICs, if we are a PFIC, a U.S. holder will generally continue to be subject to the PFIC rules discussed above
with respect to such holder’s indirect interest in any investments that we hold that are treated as an equity interest in a PFIC
for U.S. federal income tax purposes. As a result, it is possible that any mark-to-market election will be of limited benefit.
If a U.S. holder makes either the QEF election
or the mark-to-market election, distributions and gain will not be recognized ratably over the U.S. holder’s holding period or be
subject to an interest charge as described above. Further, the denial of basis step-up at death described above will not apply. If a U.S.
holder makes the QEF election, gain on the sale of the ordinary shares will be characterized as capital gain. However, U.S. holders making
one of these two elections may experience current income recognition, even if we do not distribute any cash. The elections must be made
with the U.S. holder’s federal income tax return for the year of election, filed by the due date of the return (as it may be extended)
or, under certain circumstances provided in applicable Treasury Regulations, subsequent to that date.
The foregoing discussion relating to the QEF election
and mark-to-market elections assumes that a U.S. holder makes the applicable election with respect to the first year in which Nova qualifies
as a PFIC. If the election is not made for the first year in which Nova qualifies as a PFIC, the procedures for making the election and
the consequences of election will be different.
SPECIFIC RULES AND REQUIREMENTS APPLY TO BOTH
THE QEF ELECTION AND THE MARK-TO-MARKET ELECTION, AND YOU ARE URGED TO CONSULT YOUR TAX ADVISOR CONCERNING OUR PFIC STATUS AND THE VARIOUS
ELECTIONS YOU CAN MAKE.
83
Medicare Tax on Net Investment Income
A U.S. holder that is an individual or estate,
or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser
of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s
modified adjusted gross income for the taxable year over a certain threshold. A U.S. holder’s “net investment income”
generally may include its dividend income and its net gains from the disposition of shares, unless such dividends or net gains are derived
in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading
activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the
applicability of the Medicare tax to your income and gains in respect of your investment in the shares and the interaction of these rules
with the rules applicable to income included as a result of the QEF election.
United States Information Reporting and Backup Withholding
In general, U.S. holders may be subject to certain
information reporting requirements under the Code relating to their purchase and/or ownership of stock of a foreign corporation such as
the Company. Failure to comply with these information reporting requirements may result in substantial penalties.
Specifically, certain U.S. Holders holding specified
foreign financial assets, including our ordinary shares, with an aggregate value in excess of the applicable U.S. dollar threshold, are
subject to certain exceptions, required to report information relating to our Ordinary Shares by attaching a complete IRS Form 8938, Statement
of Specified Foreign Financial Assets, to their tax returns, for each year in which they hold our ordinary shares. U.S. Holders are urged
to consult their own tax advisors regarding information reporting requirements relating to the ownership of our Ordinary Shares.
In addition, and as discussed in the section of
this Annual Report entitled “U.S. Taxation – Passive Foreign Investment Companies”, if a corporation is classified as
a PFIC, a U.S. person that is a direct or indirect holder generally will be required to file an informational return annually on IRS Form
8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, or any applicable successor
form, to report its ownership interest in such entity, unless otherwise provided by the IRS.
Dividend payments and proceeds from the sale or
disposal of ordinary shares may be subject to information reporting to the IRS and possible U.S. federal backup withholding. Certain holders
(including, among others, corporations) generally are not subject to information reporting and backup withholding. A U.S. holder generally
will be subject to backup withholding if such holder is not otherwise exempt and such holder:
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fails to furnish its taxpayer identification number, or TIN, which, for an individual, is ordinarily his or her social security number;
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• |
furnishes an incorrect TIN;
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• |
is notified by the IRS that it is subject to backup withholding because it has previously failed to properly report payments of interest
or dividends; or
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• |
fails to certify, under penalties of perjury, that it has furnished a correct TIN and that the IRS has not notified the U.S. holder
that it is subject to backup withholding.
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Any U.S. holder who is required to establish exempt
status generally must file IRS Form W-9 (“Request for Taxpayer Identification Number and Certification”).
Backup withholding is not an additional tax and
may be claimed as a refund or a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information
is timely furnished to the IRS.
84
10.F
Dividends and Paying Agents
Not applicable.
10.G
Statements by Experts
Not applicable.
10.H
Documents on Display
As a foreign private issuer, are exempt from the
rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, as
a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange
Act. In addition, we are not required under the Exchange Act to file annual or other reports and consolidated financial statements with
the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Instead, we must file with
the SEC, within 120 days after the end of each fiscal year, or such other applicable time as required by the SEC, an Annual Report containing
consolidated financial statements audited by an independent registered public accounting firm. We also intend to furnish certain other
material information to the SEC under cover of Form 6-K.
We maintain a corporate website at www.novami.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. We have included
our website address in this Annual Report solely as an inactive textual reference.
10.I
Subsidiary Information
Not applicable.
10.J
Annual Report to Security Holders
Not applicable.
Item 11
. Quantitative and
Qualitative Disclosures About Market Risk
Market Risk
Market risk represents the risk of loss that may
impact the consolidated financial position, results of operations or cash flows of the Company. The Company is exposed to market risk
in the area of foreign exchange rates, as described below.
The Company does not utilize financial instruments
for trading purposes and holds no derivative financial instruments that could expose it to significant market risk.
Impact
of Currency Fluctuation
Because our results are reported in U.S. Dollars,
changes in the rate of exchange between the Dollar and local currencies in those countries in which we operate (primarily NIS and Euro)
will affect the results of our operations. The dollar cost of our operations in countries other than the U.S., is negatively influenced
by revaluation of the U.S. dollar against other currencies. During 2024, the value of the U.S. dollar revaluated against the NIS by approximately
0.6% and revaluated against the Euro by approximately 6.3%. As of December 31, 2024, the majority of our net monetary assets were denominated
in dollars and the remainder was denominated mainly in NIS and Euro. Net monetary assets that are not denominated in dollars or dollar-linked
NIS were affected by the currency fluctuations in 2024 and are expected to continue to be affected by such currency fluctuations in 2025.
As of December 31, 2024 the Company recorded a NIS and Israel CPI linked lease liability, under the implementation of ASC 842 in the amount
of $29 million (including exchange rate differences of $0.1 million).
In 2024, we entered into currency-forward transactions
and currency-put options (NIS/dollar) of approximately $169 million with settlement dates through 2024-2025, designed to reduce cash-flow
exposure to the impact of exchange-rate fluctuations on firm commitments of approximately $169 million. In accordance with ASC 815-10,
we recorded in 2024 a decrease of approximately $0.2 million in fair market value in "Other Comprehensive Income". Short-term exposures
to changing foreign exchange rates are primarily due to operating cash flows denominated in foreign currencies and transactions denominated
in non-functional currencies. Our most significant foreign currency exposures are related to our operations in Israel. We have used foreign
exchange forward contracts to partially cover known and anticipated exposures. We estimate that an instantaneous 10% depreciation in NIS
from its level against the dollar as of December 31, 2024, with all other variables held constant, would decrease the fair value of our
net liabilities denominated in NIS, held at December 31, 2024, by approximately $18.3 million.
85
Item 12
. Description of Securities
Other than Equity Securities
Not applicable.
PART II
Item 13
. Defaults, Dividend
Arrearages and Delinquencies
None.
Item 14
. Material Modification
to the Rights of Security Holders and Use of Proceeds
Not applicable.
Item 15
. Controls and Procedures
a) Our management,
including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures
as of December 31, 2024. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the
reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to the our management, including our chief executive officer and chief financial officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing, our chief executive officer and chief
financial officer have concluded that, as of December 31, 2024, our disclosure controls and procedures were effective.
b) Our management,
under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate
internal control over our financial reporting. The Company’s internal control over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) of the Exchange Act, means a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that:
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
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provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
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provide reasonable assurance regarding the prevention or timely detection
of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. Due to its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
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86
Our management evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2024, based on the criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that,
as of December 31, 2024, the Company’s internal control over financial reporting was effective.
c) Kost
Forer Gabbay & Kasierer, an independent registered accounting firm and a member of EY Global, has issued an attestation report
on the effectiveness of our internal control over financial reporting, as stated in their report included herein. See “Report of
Independent Registered Public Accounting Firm” on page F-6.
d) There
were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period
covered by this Annual Report that have materially affected, or are reasonable likely to materially affect our internal control over financial
reporting.
Item 16
[Reserved]
Item 16A
. Audit Committee
Financial Expert
Our board of directors has determined that our audit
committee includes one audit committee financial expert, as defined by Item 16A of Form 20-F. Our board of directors has determined that
Ms. Sarit Sagiv is an “audit committee financial expert” as defined by the SEC rules as well as an independent director as
such term is defined by Rule 5605(a)(2) of the Nasdaq Stock Market and has the requisite financial experience as defined by the Nasdaq
rules.
Item 16B.
Code of Ethics
The Company has adopted a written code of conduct
that applies to all Company employees, including the Company’s directors, principal executive officer, principal financial officer
and principal accounting officer.
You
may review our code of conduct on our website:
https://www.novami.com/
, under “Investors/Corporate
Governance”. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report.
Item 16C
. Principal Accountant
Fees and Services
Since 2015, Kost Forer Gabbay & Kasierer, an
independent registered accounting firm and a member of EY Global (“Kost Forer Gabbay & Kasierer”) has acted as our registered
public accounting firm and independent auditors. The following table sets out the total amount of services rendered to us by Kost Forer
Gabbay & Kasierer, for all services, including audit services, for the years ended December 31, 2024 and 2023::
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2023
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2024
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Audit Fees
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740,000
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776,000
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Tax Fees
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26,000
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23,000
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Other Fees
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25,000
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172,000
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Total
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791,000
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971,000
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“Audit fees” are
fees associated with the annual audit of the Company consolidated financial statements and services that generally the independent accountant
provides, such as consultations on various accounting issues, performance of local statutory audits, fees associated with the audit of
management assessment of internal control over financial reporting, annual tax returns and audit of reports to IIA.
“Tax Fees”
are fees related to ad hoc tax consulting services and opinions.
“Other Fees”
mainly include services related to SEC regulation consulting and due diligence services.
Our audit committee
has adopted a pre-approval policy for the engagement of our independent accountant to perform certain services. Pursuant to this policy,
which is designed to assure that such engagements do not impair the independence of our auditors, all audit, audit related and tax services
must be specifically approved by the audit committee and certain other non-audit, non-audit related and non-tax services may be approved
without consideration of specific case-by-case provided certain terms and procedures are met. The Company’s audit committee approved
all of the services provided by Kost Forer Gabbay & Kasierer in fiscal years 2024 and 2023.
87
Item 16D
. Exemptions from the Listing Standards
for Audit Committees
The Company has not obtained any exemption from applicable audit
committee listing standards.
Item 16E
. Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
In
March 2022, we announced a $100 million repurchase program of our ordinary shares. Through December 31, 2024, we spent an aggregate of
$51.53 million to repurchase 413,501 ordinary shares under our share repurchase program. The following table provides information regarding
our repurchases of our ordinary shares for each month included in the period covered by this annual report on Form 20-F:
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Period
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(a) Total Number
of Ordinary Shares Purchased |
(b) Average
Price Paid per Ordinary Share |
(c) Total Number of
Ordinary Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) |
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November 2024
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58,286
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185.10
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311,269
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67.68
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December 2024
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102,232
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187.94
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413,501
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48.47
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Item 16F
.
Change in Registrant’s Certifying Accountant
None.
Item 16G.
Corporate Governance
There are no significant ways in which the Company’s
corporate governance practices differ from those followed by domestic companies listed on the Nasdaq Global Select Market.
Item 16H
.
Mine Safety Disclosure
Not applicable.
Item 16I
.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
88
Item 16J. Insider Trading Plans (10b5-1)
Item 16K. Cybersecurity
Cybersecurity Risk Management and Strategy
Our cybersecurity risk management program includes:
| • |
risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment;
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a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;
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a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents.
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Cybersecurity Governance
89
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
See pages F-1 through F-41.
Item 19. Exhibits
See Exhibit Index.
90
NOVA LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
NOVA LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
Contents
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Page
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Reports of Independent Registered Public Accounting Firm
(PCAOB ID No.
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F-3 - F-6
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F-7
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F-8
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F-9
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F-10
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F-11
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F-12 - F-41
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F - 2
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Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
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Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
NOVA LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nova Ltd. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2025, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Valuation of excess and obsolete inventory reserve
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Description of the Matter
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The Company’s inventories totaled $156.6 million as of December 31, 2024. As described in Note 2i to the consolidated financial statements, the Company assesses the value of inventories, including raw materials, service inventory, work-in-process and finished goods, in each reporting period, and values its inventories at the lower of cost or net realizable value. Reserves for potential excess and obsolete inventory are made based on management's analysis of inventory levels, future sales forecasts, market conditions and the expected consumption.
Auditing management's estimates for valuation of inventories involved subjective auditor judgment due to the significant assumptions made by management about the future salability of the inventories. These assumptions include the assessment, by inventory category (raw materials, service inventory, work-in-process and finished goods), of future usage and market demand for the Company's products.
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F - 3
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory reserve process, including management's assessment of the underlying assumptions and data.
Our substantive audit procedures included evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data management used to value excess and obsolete inventory. We compared the cost of on-hand inventories to management's sales forecast. We also assessed the historical accuracy of management's estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in the obsolete and excess inventory estimates that would result from changes in the underlying assumptions.
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/s/ KOST FORER GABBAY & KASIERER
A Member of EY Global
We have served as the Company's auditor since 2015.
Tel-Aviv, Israel
February 20, 2025
F - 4
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Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
NOVA LTD.
Opinion on Internal Control Over Financial Reporting
We have audited Nova Ltd.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Nova Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 20, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
KOST FORER GABBAY & KASIERER
A Member of EY Global
February 20, 2025
F - 5
NOVA LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
|
|
||||||
|
Short-term interest-bearing bank deposits
|
|
|
||||||
|
Marketable securities (Note 3)
|
|
|
||||||
|
Trade accounts receivable, net of allowance of $
|
|
|
||||||
|
Inventories (Note 4)
|
|
|
||||||
|
Other current assets (Note 5)
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Non-current assets
|
||||||||
|
Marketable securities (Note 3)
|
|
|
||||||
|
Interest-bearing bank deposits and restricted cash
|
|
|
||||||
|
Deferred tax assets (Note 14)
|
|
|
||||||
|
Severance pay funds (Note 9)
|
|
|
||||||
|
Operating lease right-of-use assets (Note 11)
|
|
|
||||||
|
Property, plant and equipment, net (Note 6)
|
|
|
||||||
|
Intangible assets, net (Note 7)
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Other long-term assets
|
|
|
||||||
|
Total non-current assets
|
|
|
||||||
|
TOTAL ASSETS
|
|
|
||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current liabilities
|
||||||||
|
Convertible senior notes, net (Note 10)
|
|
|
||||||
|
Trade accounts payable
|
|
|
||||||
|
Deferred revenues
|
|
|
||||||
|
Operating lease current liabilities (Note 11)
|
|
|
||||||
|
Other current liabilities (Note 8)
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Non-Current liabilities
|
||||||||
|
Accrued severance pay (Note 9)
|
|
|
||||||
|
Operating lease long-term liabilities (Note 11)
|
|
|
||||||
|
Deferred tax liability (Note 14)
|
|
|
||||||
|
Other long-term liabilities
|
|
|
||||||
|
Total non-current liabilities
|
|
|
||||||
|
Commitments and contingencies
(Note 12)
|
|
|
||||||
|
TOTAL LIABILITIES
|
|
|
||||||
|
SHAREHOLDERS’ EQUITY
(Note 13)
|
||||||||
|
Ordinary shares,
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Retained earnings
|
|
|
||||||
|
Total shareholders’ equity
|
|
|
||||||
|
Total liabilities and shareholders’ equity
|
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
NOVA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share data)
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Revenues:
|
||||||||||||
|
Products
|
|
|
|
|||||||||
|
Services
|
|
|
|
|||||||||
|
Total revenues
|
|
|
|
|||||||||
|
Cost of revenues:
|
||||||||||||
|
Products
|
|
|
|
|||||||||
|
Services
|
|
|
|
|||||||||
|
Total cost of revenues
|
|
|
|
|||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Operating expenses
:
|
||||||||||||
|
Research and development, net (Note 2S)
|
|
|
|
|||||||||
|
Sales and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Total operating expenses
|
|
|
|
|||||||||
|
Operating income
|
|
|
|
|||||||||
|
Financial income, net (Note 17)
|
|
|
|
|||||||||
|
Income before taxes on income
|
|
|
|
|||||||||
|
Income tax expenses (Note 14)
|
|
|
|
|||||||||
|
Net income
|
|
|
|
|||||||||
|
Earnings per share:
|
||||||||||||
|
Basic
|
|
|
|
|||||||||
|
Diluted
|
|
|
|
|||||||||
|
Shares used in calculation of earnings per share (in thousands):
|
||||||||||||
|
Basic
|
|
|
|
|||||||||
|
Diluted
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
NOVA LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands)
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Net income
|
|
|
|
|||||||||
|
Other comprehensive income (loss), net of tax:
|
||||||||||||
|
Cumulative Translation Adjustment
|
(
|
)
|
|
(
|
)
|
|||||||
|
Available-for-sale investments (Note 3)
:
|
||||||||||||
|
Unrealized gain (loss) on available-for-sale marketable securities, net
|
|
|
(
|
)
|
||||||||
|
Cash flow hedges (Note 16)
:
|
||||||||||||
|
Unrealized loss from cash flow hedges
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Less: reclassification adjustment for net gain (loss) included in net income
|
(
|
)
|
|
|
||||||||
|
Other comprehensive income (loss)
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total comprehensive income
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
NOVA LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except ordinary shares number)
|
Accumulated
|
||||||||||||||||||||
|
Ordinary
|
Additional
|
Other
|
Total
|
|||||||||||||||||
|
Shares
|
Paid-in
|
Comprehensive
|
Retained
|
Shareholders’
|
||||||||||||||||
|
Number
|
Capital
|
Income (Loss)
|
Earnings
|
Equity
|
||||||||||||||||
|
Balance as of January 1, 2022
|
|
|
(
|
)
|
|
|
||||||||||||||
|
ASU 2020-06 adoption (Note 10)
|
-
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||
|
Issuance of shares upon exercise of options
|
|
|
|
|
|
|||||||||||||||
|
Issuance of shares upon vesting of RSU
|
|
|
|
|
|
|||||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|||||||||||||||
|
Shares repurchase at cost
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Other comprehensive loss
|
-
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Net income
|
-
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2022
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Issuance of shares upon exercise of options
|
|
|
|
|
|
|||||||||||||||
|
Issuance of shares upon vesting of RSU
|
|
|
|
|
|
|||||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|||||||||||||||
|
Shares repurchase at cost
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Other comprehensive income
|
-
|
|
|
|
|
|||||||||||||||
|
Net income
|
-
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2023
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Issuance of shares upon exercise of options
|
|
|
|
|
|
|||||||||||||||
|
Issuance of shares upon vesting of RSU
|
|
|
|
|
|
|||||||||||||||
|
Issuance of shares upon conversion of convertible senior notes
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||
|
Share based compensation
|
-
|
|
|
|
|
|||||||||||||||
|
Shares repurchase at cost
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Other comprehensive loss
|
-
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Net income
|
-
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2024
|
|
|
(
|
)
|
|
|
||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
NOVA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
|
|
|
|||||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation of property, plant and equipment
|
|
|
|
|||||||||
|
Amortization of intangible assets
|
|
|
|
|||||||||
|
Amortization of premium and accretion of discount on marketable securities, net
|
(
|
)
|
(
|
)
|
|
|||||||
|
Amortization of debt issuance costs
|
|
|
|
|||||||||
|
Share-based compensation
|
|
|
|
|||||||||
|
Net effect of exchange rate fluctuation
|
|
|
|
|||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Trade accounts receivables, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Inventories
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other current and long-term assets
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Deferred tax assets, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Operating lease right-of-use assets
|
|
|
|
|||||||||
|
Trade accounts payables
|
|
(
|
)
|
|
||||||||
|
Deferred revenues
|
|
|
|
|||||||||
|
Operating lease liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other current and long-term liabilities
|
|
(
|
)
|
|
||||||||
|
Accrued severance pay, net
|
|
(
|
)
|
|
||||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
Cash flows from investment activities:
|
||||||||||||
|
Acquisition of subsidiary, net of acquired cash
|
|
|
(
|
)
|
||||||||
|
Change in short-term and long-term interest-bearing bank deposits
|
(
|
)
|
(
|
)
|
|
|||||||
|
Investment in marketable securities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceed from maturities of marketable securities
|
|
|
|
|||||||||
|
Proceed from sales of marketable securities
|
|
|
|
|||||||||
|
Purchase of property, plant and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Settlement of a contingent consideration liability
|
|
|
(
|
)
|
||||||||
|
Conversion of convertible senior notes
|
(
|
)
|
|
|
||||||||
|
Purchases of treasury shares
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from exercise of options
|
|
|
|
|||||||||
|
Net cash provided by (used in) financing activities
|
(
|
)
|
|
(
|
)
|
|||||||
|
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decrease in cash, cash equivalents and restricted cash
|
|
(
|
)
|
(
|
)
|
|||||||
|
Cash and cash equivalents and restricted cash - beginning of year
|
|
|
|
|||||||||
|
Cash, cash equivalents and restricted cash - end of year
|
|
107,574
|
|
|||||||||
|
Supplemental disclosure of non-cash activities:
|
||||||||||||
|
Operating right-of-use assets recognized with corresponding operating lease liabilities
|
|
|
|
|||||||||
|
Accrued purchase of property, plant and equipment
|
|
|
|
|||||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash paid during the year for income taxes
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 1 -
GENERAL
Business Description:
Nova Ltd. (”Nova” or “the Parent Company”) was incorporated and commenced operations in 1993 in the design, development and production of process control systems, used in the manufacturing of semiconductors. Nova has wholly owned subsidiaries in the United States of America (the “U.S.”), Japan, Taiwan, Korea, China, Singapore and Germany (together defined as the “Company”).
On January 25, 2022, the Company completed the acquisition of
100
% shares of ancosys GmbH (hereinafter – ancosys) a privately-held German company. On July 1, 2023, ancosys, merged into Nova Measuring Instruments GmbH.
The ordinary shares of the Company are traded on the NASDAQ Global Market since April 2000 and on the Tel-Aviv Stock Exchange since June 2002.
NOTE 2
-
SIGNIFICANT ACCOUNTING POLICIES
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.
The following is a summary of the significant accounting policies, which were applied in the preparation of these financial statements, on a consistent basis:
| A. |
Principles of Consolidation and Basis of Presentation
|
The Company’s consolidated financial statements include the financial statements of Nova Ltd. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
| B. |
Use of Estimates in the Preparation of Financial Statements
|
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company's management evaluates its estimates on an ongoing basis, including those related to, but not limited to standalone selling price, allowance for credit losses related to marketable securities, inventory write-offs, business combination, fair value and useful lives of intangible assets, income taxes and tax uncertainties income taxes, credit loss related to collectability of trade accounts receivable, goodwill impairment, lease discount rate and lease period. These estimates are based on management's knowledge about current events and expectations about actions the Company may undertake in the future. Actual results could differ from those estimates.
F -
11
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| C. |
Financial Statements in U.S. Dollars
|
The currency of the primary economic environment in which the operations of the Company is conducted is the U.S. dollar (“dollar” or “USD”). Accordingly, the Company uses the dollar as its functional and reporting currency. Certain dollar amounts in the financial statements may represent the dollar equivalent of other currencies, including the New Israeli Shekel (“NIS”) and the Euro. Transactions and balances denominated in dollars are presented at their dollar amounts. Non-dollar transactions and balances are re-measured into dollars in accordance with the principles set forth in ASC 830, “Foreign Currency Translation”.
All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
On consolidation, the assets and liabilities of foreign operations with functional currency other than dollar are translated into dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in other comprehensive income (“OCI”).
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.
| D. |
Cash, Cash Equivalents and Restricted Cash
|
Cash and cash equivalents represent short-term highly liquid investments (mainly interest-bearing deposits) with maturity dates not exceeding three months from the date of deposit. Restricted Cash consist primarily of cash used as collateral for the Company's office leases. Any cash that is legally restricted from use is classified as restricted cash.
The following table provides a summary of cash, cash equivalents and restricted cash that constitute the total amounts shown in the consolidated statements of cash flows:
|
As of December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Long term restricted cash
|
|
|
|
|||||||||
|
Cash, cash equivalents and restricted cash
|
|
|
|
|||||||||
| E. |
Short Term Bank Deposit
|
Short-term bank deposits consist of bank deposits with original maturities of more than three months and up to twelve months.
| F. |
Marketable Securities
|
The Company accounts for marketable securities in accordance with ASC Topic 320, “Investments – Debt Securities”. The Company’s investments in marketable securities consist of high-grade treasury, corporate and municipal bonds.
Investments in marketable securities are classified as available for sale at the time of purchase. Available for sale securities are carried at fair value based on quoted market prices, with unrealized gains and losses, reported in accumulated other comprehensive income (loss) in shareholders’ equity. Realized gains and losses on sales of marketable securities, are included in financial income, net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income, net.
F -
12
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.
The Company classifies its marketable securities as either current or non-current based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as current and marketable securities with maturities greater than 12 months are classified as non-current.
The Company accounts for Credit losses in accordance with ASU 2016-13, Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments”. The guidance requires the Company to determine whether a decline in fair value below the amortized cost basis of an available for sale debt security is due to credit related factors or noncredit related factors. A credit related impairment should be recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, however, if the Company intends to sell an impaired available for sale debt security or more likely than not would be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.
The Company did not recognize an allowance for credit losses on marketable securities as there were no expected credit losses for the years ended December 31, 2024 and 2023.
| G. |
Trade Accounts Receivables
|
Trade accounts receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts, in accordance with ASC 326. The Company makes estimates of expected credit losses for based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers.
| H. |
Business Combination
|
The results of an acquired business in a business combination are included in the Company’s consolidated financial statements from the date of acquisition according to the guidance of ASC Topic 805, “Business Combinations.” The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity or a combination of the two, to the identifiable assets and liabilities of the acquired business at their fair values as of the acquisition date. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill.
Contingent consideration incurred in a business combination is included as part of the purchase price and recorded at a probability weighted assessment of the fair value as of the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, with any adjustments in fair value recognized in earnings under general and administrative expenses.
Acquisition related costs incurred by the Company are not included as a component of consideration transferred but are accounted for as an expense in the period in which the costs are incurred.
F -
13
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| I. |
Inventories
|
Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any. The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions), the age of the inventory and the expected consumption of service spare parts. At the point of the loss recognition, a new lower cost basis for that inventory is established. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.
Inventory includes costs of products delivered to customers and not recognized as cost of revenues, where revenues in the related arrangements were not recognized.
To support the Company’s service operations, the Company maintains service spare parts inventory and reduce the net carrying value of this inventory over the service life.
Cost is determined as follows:
| • |
Raw materials - using the moving average cost method, with specific items valued on a first-in, first-out (FIFO) basis.
|
| • |
S
ervice inventory, work in process and finished goods - using the moving average cost method, with specific items valued on a first-in, first-out (FIFO) and actual production cost basis (materials, labor and indirect manufacturing costs).
|
| J. |
Property, Plant and Equipment
|
Property, plant and equipment are presented at cost, net of accumulated depreciation. Annual depreciation is calculated based on the straight-line method over the estimated useful lives of the related assets. Estimated useful life is as follows:
|
Years
|
|
|
Electronic equipment
|
|
|
Office furniture and equipment
|
|
|
Buildings
|
|
|
|
Over the shorter of the term of the lease (including its extension periods) or the useful life of the asset
|
Depreciation methods, useful lives and residual values are reviewed at the end each reporting year and adjusted if appropriate.
| K. |
Goodwill and Intangible Assets
|
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and identifiable intangible assets acquired, and related liabilities.
Goodwill is carried at cost and is not amortized, but rather is subject to an impairment test, in accordance with ASC 350, “Intangibles – Goodwill and Other”, at least annually (in the fourth quarter), or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. ASC 350 allows the Company to first perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value prior to performing the quantitative goodwill impairment test. The Company operates in
one
operating segment, and this segment comprises one reporting unit.
Any excess of the carrying value of the reporting unit over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to the fair value of the reporting unit.
F -
14
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Intangible assets with finite life (refer to note 2M for impairment assessment of intangible assets with finite life) are amortized over their useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, or, if that pattern cannot be reliably determined, using a straight-line amortization method. There was no impairment of goodwill during the periods presented.
|
Weighted Average Useful Life (Years)
|
||
|
Technology
|
|
|
|
Customer relationships
|
|
| L. |
Implementation costs incurred in cloud computing arrangement that is a service contract:
|
The Company’s cloud computing arrangement (“CCA”) that is a service contract consists of an arrangement with third party vendors for internal use of their software applications that they host. Subscription fees are usually prepaid and recorded in operating expense over the period that the Company has access to use the software. Implementation costs for CCA are capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring cloud computing software for its intended use. Amortization of capitalized implementation costs is recorded on a straight-line basis over the term of the CCA, which is the non-cancellable period of the agreement, together with periods covered by renewal options which the Company is reasonably certain to exercise.
As of December 31, 2024, the Company has capitalized $
8,367
implementation costs in CCA which are included in other long-term assets. As of December 31, 2024, the amortization of these capitalized implementation costs has not yet commenced.
| M. |
Impairment of Long-Lived Assets
|
Long-lived assets (tangible and intangible assets with finite life), held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset Group) may not be recoverable. In the event that the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment charge would be recognized, and the assets (or asset Group) would be written down to their estimated fair values. During the years 2024, 2023 and 2022, no impairment losses have been identified.
| N. |
Accrued Warranty Costs
|
Accrued warranty costs are calculated with respect to the warranty period on the Company’s products and are based on the Company’s prior experience and in accordance with management’s estimate. The estimated future warranty obligations are affected by the warranty periods, install base, labor and other related costs incurred in correcting a product failure.
F -
15
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| O. |
Derivative Financial Instruments
|
ASC 815 requires the presentation of all derivatives as either assets or liabilities on the balance sheet and the measurement of those instruments at fair value.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
In
addition to the derivatives that are designated and qualify as a cash flow hedge, the Company enters into certain foreign exchange forward and option transactions to hedge suppliers. Gains and losses related to such derivative instruments are recorded in financial income, net. Cash flows associated with derivative instruments and their related gains and losses are presented in cash flows from operating activities.
See Note 16 for disclosure of the derivative financial instruments in accordance with such pronouncements.
| P. |
Leases
|
Under ASC 842, a contract is or contains a lease when the Company has the right to control the use of an identified asset for a period of time. The Company determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for the Company’s use. On the commencement date leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term.
The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The right-of-use (“ROU”) asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Costs incurred for common area maintenance, real estate taxes, and insurance are not included in the lease liability and are recognized as they are incurred.
The Company's leases include buildings and car leases, which are all classified as operating leases. Certain lease agreements include rental payments that are adjusted periodically for the consumer price index ("CPI"). The ROU and lease liability were calculated using the CPI as of the commencement date and will not be subsequently adjusted, unless the liability is reassessed for other reasons. Certain leases include renewal options that are under the Company's sole discretion. The renewal options were included in the ROU and liability calculation if it was reasonably assured that the Company will exercise the option.
As the Company’s lease arrangements do not provide an implicit rate, the Company uses its incremental estimated borrowing rate at lease commencement to measure ROU assets and lease liabilities. Operating lease expense is generally recognized on a straight-line basis over the lease term. For leases with a term of one year or less, the Company elected not to record the ROU asset or liability.
F -
16
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| Q. |
Convertible Senior Notes
|
The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options" including Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The Company adopted ASU 2020-06 using the modified retrospective method as of January 1, 2022. See also Note 10.
F -
17
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| R. |
Revenue Recognition
|
Revenue Recognition Policy
The Company enters into revenue arrangements that include products and services which are distinct and accounted for as separate performance obligations. The Company determines whether promises are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether the Company's commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract.
The Company derives revenue from sales of advanced process control systems, spare parts, labor hours and service contracts.
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, upon fulfillment of the contractual terms (typically upon shipment of the systems and spare parts or when the service is completed for labor hours). Revenue from software licenses is recognized at a point in time, when the software is made available to the customer.
Revenues derived from service contracts, are recognized ratably over time in accordance with the term of the contract since the Company has a stand-ready obligation to provide the service. Such contracts generally include a fixed fee.
Revenues from sales which were not yet determined to be final sales due to certain acceptance provisions are deferred.
C
ontracts with Multiple Performance Obligations
Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative Standalone Selling Price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.
Remaining Performance Obligations
Remaining performance obligations (RPOs) represent contracted revenues that had not yet been recognized and include deferred revenues and invoices that have been issued to customers but were uncollected and have not been recognized as revenues. As of December 31, 2024, the aggregate amount of the RPOs was $
92,099
, comprised of $
76,502
deferred revenues and $
15,597
of uncollected amounts that were not yet recognized as revenues. The Company expects substantially all the RPO to be recognized as revenues over the next year.
Contract Balances
Revenues recognized during 2024, 2023 and 2022 from deferred revenues amounts included in the opening balance at the beginning of the period amounted to
$
29,472
, $
27,065
and $
12,924
respectively.
In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied. The expected timing difference between the payment and satisfaction of performance obligations for the Company’s contracts is one year or less; therefore, the Company applies a practical expedient and does not consider the effects of the time value of money.
F -
18
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| S. |
Research and Development
|
Research and development costs are charged to operations as incurred. Amounts received or receivable from the Government of Israel through the Israeli Innovation Authority (“IIA”) or from the European Community as participation in certain research and development programs are offset against research and development costs. The accrual for grants receivable is determined based on the terms of the programs, provided that the criteria for entitlement are expected to be met. Research and development grants recognized during the years ended December 31, 2024, 2023 and 2022 were $
2,171
, $
3,061
and $
3,064
respectively.
| T. |
Income Taxes
|
The Company accounts for income taxes utilizing the asset and liability method in accordance with ASC 740, “Income Taxes”. Current tax liabilities are recognized for the estimated taxes payable on tax returns for the current year. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences between the income tax bases of assets and liabilities and their reported amounts in the financial statements, and for tax loss carryforwards.
Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws, and deferred tax assets are reduced, if necessary, by the amount of tax benefits, the realization of which is not considered more likely than not based on available evidence.
ASC 740-10 requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than
50
% likely of being realized upon ultimate settlement.
| U. |
Share-Based Compensation
|
The Company accounts for equity-based compensation using ASC 718 “Compensation - Stock Compensation,” which requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant-date fair value of those awards.
Share Options
In 2024, 2023 and 2022 the Company did not grant share options.
The Company policy, under ASC 718, the fair market value of each option grant is estimated on the date of grant using the “Black-Scholes option pricing” method. Expected volatility was calculated based on actual historical share price movements over a term that is equivalent to the expected term of granted options. The expected term of options granted is based on historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
F -
19
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company recognizes compensation expenses for the value of awards granted, based on the accelerated method. The Company account for forfeitures as they occur.
Restricted Share Units
The Company recognizes the fair value of Restricted Share Units (“RSUs”) on the grant date based on the market value of the underlying share and the expense is recognized over the requisite service period for awards using the accelerated method.
| V. |
Earnings per Share
|
Earnings per share are presented in accordance with ASC 260-10, “Earnings per Share”. Pursuant to which, basic earnings per share excludes the dilutive effects of convertible securities and is computed by dividing income (loss) available to ordinary shareholders by the weighted-average number of ordinary shares net of treasury shares outstanding for the period. Diluted earnings per share reflect the potential dilutive effect of options and RSUs and full dilutive effect of the Convertible Senior Notes, including adding back of amortization of debt issuance costs related to the Convertible Senior Notes, net of tax. The number of potentially dilutive options and RSUs excluded from diluted earnings per share due to the anti-dilutive effect of out of the money options
amounted to
108,139
in 2024,
299,249
in 2023 and
265,085
in 2022.
Net income per share is shown below (U.S. dollars and share data in thousands, except per share data):
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Net income for basic earnings per share
|
|
|
|
|||||||||
|
Amortization of debt issuance costs related to the Convertible Notes, net of tax
|
|
|
|
|||||||||
|
Net income for diluted earnings per share
|
|
|
|
|||||||||
|
Basic weighted-average shares outstanding
|
|
|
|
|||||||||
|
Dilutive effect of share-based compensation
|
|
|
|
|||||||||
|
Dilutive effect of Convertible Senior Notes
|
|
|
|
|||||||||
|
Diluted weighted average shares outstanding
|
|
|
|
|||||||||
|
Earnings per share:
|
||||||||||||
|
Basic
|
|
|
|
|||||||||
|
Diluted
|
|
|
|
|||||||||
F -
20
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| W. |
Concentrations of Credit Risk
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities, trade accounts receivable and foreign currency derivative contracts.
The majority of the Company’s cash and cash equivalents and bank deposits are invested in dollar instruments with major banks in Israel. Management believes that the financial institutions that hold the Company's investments are corporations with high credit standing. Accordingly, management believes that low credit risk exists with respect to these financial investments.
The trade accounts receivable of the Company are derived from sales to customers located primarily in Taiwan R.O.C., China, Korea and USA. The management of the Company performed risk assessment on an ongoing basis and believes it bears low risk.
The Company entered into options and forward contracts to hedge against the risk of overall changes in future cash flow from payments of payroll and related expenses as well as other expenses denominated in NIS. The derivative instruments hedge a portion of the Company's non-dollar currency exposure. Counterparty to the Company’s derivative instruments is major financial institution.
The Company's marketable securities include investments in highly rated corporate debentures and governmental bonds. The financial institutions that hold the Company's marketable securities are major financial institutions located in the United States. The Company believes its marketable securities portfolio is a diverse portfolio of highly rated securities and the Company's investment policy limits the amount the Company may invest in an issuer.
| X. |
Fair Value Measurements
|
The fair values of the Company’s cash and cash equivalents, short-term interest-bearing bank deposits, trade accounts receivable, and accounts payable approximate their carrying amounts due to their short-term nature.
The Company follows the provisions of ASC No. 820, “Fair Value Measurement” (“ASC 820”), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
In determining a fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions that market participants would use in pricing an asset or liability, based on the best information available under given circumstances.
The hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows:
Level 1
-
Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level 2
-
Other inputs that are directly or indirectly observable in the market place.
Level 3
-
Unobservable inputs which are supported by little or no market activity.
In accordance with ASC 820, the Company measures its marketable securities, at fair value using the market approach valuation technique. Marketable securities are classified within Level 2 because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
F -
21
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The estimated fair values of the derivative instruments are determined based on market rates to settle the instruments. The fair value of the Company’s derivative contracts (including forwards and options) is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and, therefore, the Company’s derivative contracts have been classified as Level 2.
Inputs used in these standard valuation models include the applicable spot, forward, and discount rates. The standard valuation model for the Company options contracts also includes implied volatility, which is specific to individual options and is based on rates quoted from a widely used third-party resource.
The Company’s cash and cash equivalents, restricted cash and interest-bearing bank deposits are classified within level 1. Marketable securities, Derivative instruments and Convertible senior notes classified within Level 2 (see Note 3, Note 16 and Note 10, respectively).
| Y. |
New Accounting Pronouncements
|
Recently issued accounting pronouncements adopted during the period:
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See Note 15 for further detail.
Recently issued accounting pronouncements not yet adopted:
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosure. The standard requires to disclose additional information in tax rate reconciliation table about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories. The standard will become effective for fiscal years beginning after December 15, 2024. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses. This ASU requires to disclose disaggregated information about certain income statement expense line items. Entities are required to disclose purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion for each income statement line item that contains those expenses. Specified expenses, gains or losses that are already disclosed under existing US GAAP are required to be included in the disaggregated income statement expense line-item disclosures, and any remaining amounts need to be described qualitatively. Separate disclosures of total selling expenses and an entity’s definition of those expenses are also required. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
F -
22
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 3 -
MARKETABLE SECURITIES
The following is a summary of marketable securities amortized cost, unrealized gains, unrealized losses, and fair value as of December 31, 2024:
|
Matures within one year:
|
Matures after one year:
|
Total
|
||||||||||||||||||||||||||
|
Corporate
|
Governmental
|
Corporate
|
Governmental
|
|
||||||||||||||||||||||||
|
bonds
|
bonds
|
Total
|
bonds
|
bonds
|
Total
|
|||||||||||||||||||||||
|
Unrealized Gain
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Gain
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss Less
|
||||||||||||||||||||||||||||
|
than 12 months
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
||||||||||||||||||||||||||||
|
12 Months or Greater
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
|
|
|
|
|
|
|
|||||||||||||||||||||
The following is a summary of marketable securities amortized cost, unrealized gains, unrealized losses, and fair value as of December 31, 2023:
|
Matures within one year:
|
Matures after one year:
|
Total
|
||||||||||||||||||||||||||
|
Corporate
|
Governmental
|
|
Corporate
|
Governmental
|
||||||||||||||||||||||||
|
bonds
|
bonds
|
Total
|
bonds
|
bonds
|
Total
|
|||||||||||||||||||||||
|
Unrealized Gain
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Gain
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss Less
|
||||||||||||||||||||||||||||
|
than 12 months
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
||||||||||||||||||||||||||||
|
12 Months or Greater
|
||||||||||||||||||||||||||||
|
Amortized Cost
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Unrealized Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||||||||
|
Fair Value
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Proceeds from maturity of available-for-sale marketable securities during the year ended December 31, 2024, and 2023 were $
243,361
and $
192,585
, respectively.
Proceeds from sales of available-for sale marketable securities, were $
3,036
and $
2,502
which led to $
1
and $
35
realized losses, during the years ended December 31, 2024 and 2023, respectively.
F -
23
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 4 - INVENTORIES
| A. |
Composition:
|
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Raw materials
|
|
|
||||||
|
Service inventory
|
|
|
||||||
|
Work in process
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
|
|
|||||||
| B. |
In the years ended December 31, 2024, 2023 and 2022, the Company wrote down inventories in a total amount of $
|
NOTE 5 -
OTHER CURRENT ASSETS
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Prepaid expenses
|
|
|
||||||
|
Governmental institutions
|
|
|
||||||
|
Governments grants receivables
|
|
|
||||||
|
Hedging derivative
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
NOTE 6 - PROPERTY AND EQUIPMENT, NET
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Cost:
|
||||||||
|
Electronic equipment
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Land and building
|
|
|
||||||
|
|
|
|||||||
|
Accumulated depreciation:
|
||||||||
|
Electronic equipment
|
|
|
||||||
|
Office furniture and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Land and building
|
|
|
||||||
|
|
|
|||||||
|
Net book value
|
|
|
||||||
Depreciation expenses amounted to $
11,736
, $
10,344
and $
8,621
for the years ended December 31, 2024, 2023 and 2022, respectively.
During the year 2024, the Company disposed fully depreciated property, plant, and equipment with a gross value of $
15,739
.
F -
24
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 7
-
INTANGIBLE ASSETS
Intangible assets as of December 31, 2023 originated from the acquisition of ReVera on April 2, 2015, and the acquisition of ancosys on January 25, 2022. As of December 31, 2024 the intangible assets originated from the acquisition of ReVera on April 2, 2015 were fully amortized and therefore are not presented in original amount and in accumulated amortization. The following is a summary of intangible assets as of December 31, 2024 and 2023:
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Original amount:
|
||||||||
|
Technology
|
|
|
||||||
|
Customer relationships
|
|
|
||||||
|
|
|
|||||||
|
Accumulated amortization:
|
||||||||
|
Technology
|
|
|
||||||
|
Customer relationships
|
|
|
||||||
|
|
|
|||||||
|
Net book value
|
|
|
||||||
Amortization expenses amounted as following:
|
|
Year ended December 31,
|
|||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Technology
|
|
|
|
|||||||||
|
Customer relationships
|
|
|
|
|||||||||
|
|
|
|
||||||||||
Annual amortization expenses are expected as follows:
|
Year ending December 31,
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and thereafter
|
|
|||
|
Total
|
|
|||
NOTE 8
-
OTHER CURRENT LIABILITIES
| A. | Consists of: |
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Accrued salaries and fringe benefits
|
|
|
||||||
|
Accrued warranty costs (See B below)
|
|
|
||||||
|
Governmental institutions
|
|
|
||||||
|
Governments grants payables
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
F -
25
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 8
-
OTHER CURRENT LIABILITIES (Cont.)
| B. | Accrued Warranty Costs: |
The Company provides standard warranty coverage on its systems. Parts and labor are covered under the terms of the warranty agreement. The Company accounts for the estimated warranty cost as a charge to costs of revenues when revenue is recognized.
Accrued warranty costs presented in:
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Other current liabilities
|
|
|
||||||
|
Other long-term liabilities
|
|
|
||||||
|
|
|
|||||||
The following table provides the changes in the product warranty accrual for the fiscal years ended December 31, 2024 and 2023:
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Balance as of beginning of year
|
|
|
||||||
|
Services provided under warranty
|
(
|
)
|
(
|
)
|
||||
|
Changes in provision
|
|
|
||||||
|
Balance as of end of year
|
|
|
||||||
NOTE 9
-
LIABILITY FOR EMPLOYEE SEVERANCE PAY, NET
Israeli law and labor agreements determine the obligations of the Company to make severance payments to dismissed employees and to employees leaving employment under certain other circumstances. The obligation for severance pay benefits, as determined by Israeli law, is based upon length of service and the employee’s most recent salary. The liability is partially covered through insurance policies purchased by the Company and deposits in a severance fund.
The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law, 1963 or labor agreements.
Since July 2008, the Company's agreements with new Israeli employees are under Section 14 of the Israeli Severance Pay Law, 1963. The Company's contributions for severance pay have replaced its severance obligation.
Upon contribution of the full amount of the employee's monthly salary for each year of service, no additional calculations are conducted between the parties regarding the matter of severance pay and no additional payments are made by the Company to the employee.
Labor agreements in Taiwan determine the obligations of the Company to make severance payments to dismissed employees and to employees leaving employment under certain other circumstances. The obligation for severance pay benefits is based upon length of service and the employee’s average salary.
Severance pay expenses for the years ended December 31, 2024, 2023 and 2022, amounted to $
782
, $
957
and $
1,114
,
respectively (excluding the Parent Company’s contributions for severance pay under section 14 in Israel).
F -
26
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 10
-
CONVERTIBLE SENIOR NOTES, NET
In October 2020, the Company issued $
175,000
aggregate principal amount, 0% coupon rate, of convertible senior notes due 2025 and an additional $
25,000
aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment option of the initial purchasers (collectively, “Convertible Notes” or “Notes”).
The Convertible Notes are convertible based upon an initial conversion rate of
13.4048
of the Company’s ordinary shares per $
1,000
principal amount of Convertible Notes (equivalent to a conversion price of approximately $
74.60
per ordinary share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events. The Convertible Notes are senior unsecured obligations of the Company.
The Convertible Notes will mature on
October 15, 2025
, (the "Maturity Date"), unless earlier repurchased, redeemed or converted. Consequently, as of December 31, 2024, the Notes are classified as current liability. Prior to July 15, 2025, a holder may convert all or a portion of its Convertible Notes only under the following circumstances:
| 1. |
During any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to
|
| 2. |
During the five business day period after any 10 consecutive trading day period (“measurement period”) in which the trading price, determined pursuant to the terms of the Convertible Notes, per $
|
| 3. |
If the Company calls such Convertible Notes for redemption in certain circumstances, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
|
| 4. |
Upon the occurrence of specified corporate events.
|
On or after July 15, 2025 until the close of business on the second scheduled trading day immediately preceding the Maturity Date, a holder may convert its Convertible Notes at any time, regardless of the foregoing circumstances.
Upon conversion, the Company can pay or deliver cash, ordinary shares or a combination of cash and ordinary shares, at the Company’s election.
The Company may not redeem the notes prior to October 20, 2023, except in the event of certain tax law changes. The Company may, at any time and from time to time, redeem for cash all or any portion of the notes, at the Company's option, on or after October 20, 2023, if the last reported sale price of the Company`s ordinary shares has been at least
130
% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which it delivers notice of redemption at a redemption price equal to
100
% of the principal amount of the notes to be redeemed, (plus accrued and unpaid special interest (if any) to, but excluding, the redemption date).
Upon the occurrence of a Fundamental Change as defined in the Indenture, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to
100
% of the principal amount of the Convertible Notes, (plus accrued and unpaid special interest payable under certain circumstances set forth in the terms of the Convertible Notes (if any) to, but excluding, the fundamental change repurchase date). In addition, in connection with a make-whole fundamental change (as defined in the Indenture), or following the Company’s delivery of a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or redemption, as the case may be.
F -
27
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 10
-
CONVERTIBLE SENIOR NOTES, NET (Cont.)
As of December 31, 2023, condition 1 as stated above has been met, as the Company share price exceeded the abovementioned threshold. During the calendar quarter ending on March 31, 2024, the Notes are therefore convertible. Consequently, as of December 31, 2023, the Notes are classified as current liability
The adoption of ASU 2020-06 (see Note 2Q) resulted in the following changes to January 1, 2022 balance sheet:
| • |
An increase of $
|
| • |
A reduction of $
|
| • |
An increase to deferred tax assets, net of $
|
| • |
A cumulative-effect adjustment of $
|
During 2024, a principal amount of $
18,505
senior convertible notes was converted into
154,215
Company’s ordinary shares at a conversion rate of
13.4048
and a cash payment of $
18,506
.
The net carrying amount of the Convertible Notes as of December 31, 2024 and December 31, 2023 are as follows:
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Principal amount
|
|
|
||||||
|
Unamortized issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Net carrying amount
|
|
|
||||||
Amortization of debt issuance costs related to the Convertible Notes amounted to $
1,280
, $
1,284
and $
1,282
for the years ended December 31, 2024, 2023 and 2022, respectively.
As of December 31, 2024, the total estimated fair value of the convertible senior notes was approximately $
477,907
. The fair value of the convertible senior notes is considered to be Level 2 within the fair value hierarchy and was determined based on quoted price of the convertible senior notes in an over-the-counter market.
NOTE 11 - LEASES
The Company has operating leases for facilities and vehicles. The Company’s leases have remaining terms of
1
to
10
years, some of which include options to extend the leases for
up to additional 10 years.
The weighted average remaining lease term was
11.6
years, and the weighted average discount rate was
3.2
% as of December 31, 2024.
F -
28
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 11
-
LEASES (Cont.)
Lease expenses amounted to $
7,296
, $
6,636
and $
6,587
for the years ended December 31, 2024, 2023 and 2022, respectively. The expected discounted and undiscounted lease payments under non-cancelable leases as of December 31, 2024, excluding non-lease components, were as follows:
|
Year
|
||||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
2030 and thereafter
|
|
|||
|
Total lease payments
|
|
|||
|
Less imputed interest
|
(
|
)
|
||
|
Total
|
|
|||
Operating cash flows for operating leases amounted to $
7,081
, $
6,138
and $
6,450
for the years ended December 31, 2024, 2023 and 2022, respectively.
NOTE 12
-
COMMITMENTS AND CONTINGENCIES
The Company is obligated under certain agreements with its suppliers to purchase specified items of inventory which are expected to be utilized during the years 2025-2028. As of December 31, 2024, non-cancelable purchase obligations were approximately $
127,145
.
From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated the Company would accrue a liability for the estimated loss. As of December 31, 2024 and 2023, the Company was not involved in any material claims or legal proceedings which require accrual of liability for the estimated loss.
NOTE 13 -
SHAREHOLDERS’ EQUITY
| A. |
Rights of Shares:
|
Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus shares (stock dividends) and, in the event of the liquidation of the Company, in the distribution of assets after satisfaction of liabilities to creditors. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders.
| B. |
Share Repurchase:
|
In March 2022, the Company announced a $
100
million repurchase program of the Company’s ordinary shares. Through December 31, 2024, the Company spent an aggregate of $
51,528
million to repurchase
413,501
ordinary shares under the Company’s share repurchase program.
All treasury shares have been canceled as of the end of each respective year.
| C. |
Equity Based Incentive Plans:
|
The Company’s Board of directors approves, from time to time, equity-based incentive plans, the last of which was approved in August 2017. Equity-based incentive plans include stock options, restricted share units and restricted stock awards to employees, officers and directors.
F -
29
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 13 - SHAREHOLDERS’ EQUITY (Cont.)
Share-based compensation
The following table summarizes the effects of share-based compensation resulting from the application of ASC 718 included in the Statements of Operations as follows:
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Cost of Revenues:
|
||||||||||||
|
Product
|
|
|
|
|||||||||
|
Service
|
|
|
|
|||||||||
|
Research and Development
|
|
|
|
|||||||||
|
Sales and Marketing
|
|
|
|
|||||||||
|
General and Administrative
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
As of December 31, 2024, there was $
3
of total unrecognized compensation cost related to non-vested employee options and $
38,277
of total unrecognized compensation cost related to non-vested employee RSUs. These costs are generally expected to be recognized over a period of
four years
.
Shares Options
Share options vest over four years and their contractual term may not exceed
10 years
.
The exercise price is the market price at the date of each grant.
During 2024, 2023 and 2022, the Company did not grant share options.
Summary of the status of the Company’s share option plans as of December 31, 2024, as well as changes during the year then ended, is presented below:
|
2024
|
||||||||
|
Share
Options
|
Weighted
Average
Exercise Price
|
|||||||
|
Outstanding - beginning of year
|
|
|
||||||
|
Exercised
|
(
|
)
|
|
|||||
|
Cancelled
|
(
|
)
|
|
|||||
|
Outstanding - year end
|
|
|
||||||
|
Options exercisable at year end
|
|
|
||||||
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing share market price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the fiscal year. This amount changes based on the fair market value of the Company's shares.
The total intrinsic value of options outstanding as of December 31, 2024 and 2023 was $
6,226
and $
11,302
, respectively. The total intrinsic value of options exercisable as of December 31, 2024 and 2023 was $
6,158
and $
10,857
, respectively. The total intrinsic value of options exercised during the years 2024, 2023 and 2022 was $
9,268
, $
11,149
, and $
14,523
respectively.
The total fair value of options vested during the years 2024, 2023 and 2022 was $
90
, $
407
and $
964
, respectively.
The weighted-average remaining contractual term of options exercisable at year end is
1.612
.
The weighted-average remaining contractual term of options outstanding at year end is
F -
30
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 13 - SHAREHOLDERS’ EQUITY (Cont.)
The following table summarizes information about share options outstanding as of December 31, 2024:
|
Range of
Exercise Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable
|
Weighted
Average
Exercise Price
|
|||||||||||||||||
|
(US dollars)
|
(in years)
|
(US dollars)
|
(US dollars)
|
|||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Restricted Share Units
Restricted Share Units (“RSU”) grants are rights to receive shares of the Company's ordinary shares on a one-for-one basis and are not entitled to dividends or voting rights, if any, until they are vested. RSU’s vesting schedules are
25
% on each of the first, second, third and fourth anniversaries of the grant date, or,
33
% on each of the first, second, and third anniversaries of the grant date. The fair value of such RSU grants is being recognized based on the accelerated method over the vesting period. Performance based RSU grants vest over a period of
3
years and are subject to certain performance criteria; accordingly, compensation expense is recognized for such awards when it becomes probable that the related performance condition will be satisfied.
|
2024
|
||||||||
|
Number
of RSUs
|
Weighted
average
grant date
fair value
(USD)
|
|||||||
|
Unvested - beginning of year
|
|
|
||||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Canceled
|
(
|
)
|
|
|||||
|
Unvested at year end
|
|
|
||||||
Weighted-average grant-date fair value (USD) of RSU granted during the year of 2023 and 2022 was
105.94
and
87.02
, respectively.
The total intrinsic value of RSUs vested during the years 2024, 2023 and 2022 was $
42,449
, $
22,649
and $
16,907
, respectively.
The total fair value of RSU vested during the years 2024, 2023 and 2022 was $
20,054
, $
14,412
and $
10,684
, respectively.
F -
31
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES
| A. |
Israeli Taxation
|
Income Tax Regulations (Rules on Bookkeeping by Foreign Invested Companies and Certain Partnerships and Determination of their Taxable Income), 1986:
As a "Controlled Foreign Cooperation" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the Company's management has elected to apply Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income)-1986. Accordingly, its taxable income or loss is calculated in US Dollars.
Law for the Encouragement of Capital Investments-1959:
Part of the Company’s investment in equipment has received approvals in accordance with the Law for the Encouragement of Capital Investments, 1959 (“Approved Enterprise” status) in three separate investment plans. The Company has chosen to receive its benefits through the “Alternative Benefits” track, and, as such, was eligible for various benefits. These benefits included accelerated depreciation of fixed assets used in the investment program, as well as a full tax exemption on undistributed income in relation to income derived from the first plan for a period of
4
years and for the second and third plans for a period of
2
years. Thereafter a reduced tax rate of
25
% was applicable for an additional period of up to
3
years for the first plan and
5
years for the second and third plans, commencing with the date on which taxable income was first earned but not later than certain dates. The benefit period of the second and third plan ended in 2015.
On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limited the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Privileged Enterprise, such as provisions generally requiring that at least
25
% of the Privileged Enterprise’s Income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.
However, the Investment Law provided that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. Therefore, the Israeli companies with Approved Enterprise status were generally not subject to the provisions of the Amendment.
The entitlement to the above benefits was conditional upon the Company fulfilling the conditions stipulated by the above law, regulations published thereunder and the instruments of approval for the specific investments in "Approved Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled, and the Company may be required to refund the amount of the benefits, in whole or in part, including interest.
In the event of distribution by the Company of a cash dividend out of retained earnings that were tax exempt due to its Approved Enterprise status, the Company would have to pay corporate tax of
10
% -
25
% on the income from which the dividend was distributed based on the extent to which non-Israeli shareholders hold Company’s shares. A
15
% withholding tax may be deducted from dividends distributed to the recipients.
F -
32
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
In 2011, new legislation amending to the Investment Law was adopted(“2011 Amendment”). Under this new legislation, a uniform corporate tax rate will apply to all qualifying income of certain Industrial Companies (Requirement of a minimum export of
25
% of the company's total turnover), as opposed to the current law's incentives, which are limited to income from Approved Enterprises during their benefits period. Under the new law, the uniform tax rate was
10
% in areas in Israel designated as Development Zone A and
15
% elsewhere in Israel during 2011-2012,
7
% and
12.5
%, respectively, in 2013-2014, and
6
% and
12
%, respectively thereafter. The profits of these Industrial Companies may be freely distributable as dividends, subject to a
15
% withholding tax (or lower, under an applicable tax treaty).
Under the transition provisions of the new legislation, the Company may decide to irrevocably implement the new law while waiving benefits provided under the current law or to remain subject to the current law.
In August 2013 "The Arrangements Law" (hereinafter—"the Law") was officially published. The following significant changes affecting taxation were approved:
| 1. |
The tax rate on a company in Development area A, effective January 1, 2014 is
|
| 2. |
The tax rate on dividend distributed, generated from "preferred income" or by a company that has an approved enterprise increased effective January 1, 2014 from
|
In 2015 and 2014, most of the Company’s taxable income in Israel was attributable to Approved Enterprise programs with zero tax rate In 2016, the Company utilized the tax benefits under the 2011 Amendment and the 2013 Law. As a result, most of the Company’s taxable income in Israel was attributable to the Preferred Enterprise, with a related tax rate of
16
%.
The New Technological Enterprise Incentives Regime - Amendment 73 to the Investment Law
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments ("the 2017 Amendment") was published. According to the 2017 Amendment, Technological preferred enterprise, as defined in the Law for the Encouragement of Capital Investments, 1959 ("the Encouragement Law"), with total consolidated revenues of less than NIS
10
billion, shall be subject to
12
% tax rate on income deriving from intellectual property (in development area A - a tax rate of
7.5
%).
Any dividends distributed deriving from income from the preferred technological enterprises will be subject to tax at a rate of
20
%. The 2017 Amendment further provides that, in certain circumstances, a dividend distributed to a foreign corporate shareholder, would be subject to a 4% tax rate (if the percentage of foreign investors exceeds
90
%).
The Company assessed the criteria for qualifying to a “Preferred Technological Enterprise,” status and concluded that the Israeli entity is entitled to the above-mentioned benefits. The Company implemented the new incentives in its tax calculations starting 2017.
On November 15, 2021 a new amendment of the Investment Law (“the Amendment’) was enacted (i) providing a reduced corporate income tax on the Trapped Profits distributed within a year from such amendment. The reduced corporate income tax was based on a certain formula and subject to reinvestment of certain amounts in enumerated assets/activities; (ii) harshening the rules with respect to determining the profits from which a dividend was distributed and providing that part of any dividend distribution, will be deemed as distributed from the Trapped Profits, according to a certain formula.
During December 2021, as part of the Tax Assessment audit for the years 2016-2019, the Company entered into an agreement with the Israeli Tax Authorities and opted-in with the new Amendment. The reduced corporate income tax on the Trapped Profits resulted in income tax expenses (net of reductions of uncertain tax positions provisions) of approximately $
3.7
M, and was included in the 2021 consolidated statements of operations.
F -
33
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
| B. |
U.S. Taxation
|
The Tax Cuts and Jobs Act, 2017:
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “US Tax Act”) that instituted fundamental changes to the taxation of multinational corporations. The Tax Act includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from
35
% to
21
%, adjustments to rules relating to limitations on the deductibility of interest expense and executive compensation, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, foreign derived intangible income deduction, rules that impact the utilization of US NOLs and other corporate tax provisions
.
Foreign-Derived Intangible Income:
The 2017 Tax Act provides tax incentives to U.S. companies to earn income from the sale, lease or license of goods and services abroad (i.e., the portion of a domestic corporation’s intangible income that is derived from serving foreign markets) in the form of a deduction for foreign-derived intangible income (“FDII”). FDII is taxed at an effective rate of
13.125
% for taxable years beginning after December 31, 2017 and at an effective rate of
16.406
% for taxable years beginning after December 31, 2025. The accounting for the deduction for FDII is similar to a special deduction and should be accounted for based on the guidance in ASC 740-10-25-37. The tax benefits for special deductions ordinarily are recognized no earlier than the year in which they are deductible on a tax return.
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act:
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors and Science Act (“the CHIPS Act”) was signed into law. The CHIPS Act provides various tax incentives and credits to encourage investment in semiconductor manufacturing facilities and related research and development activities, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals
25
% of qualified investments in an advanced manufacturing facility. The tax credit is available for property placed in service after December 31, 2022, and for which construction begins before January 1, 2027. The effects of the CHIPS Act are included in the 2024 and 2023 statements of operations.
F -
34
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
| C. | Deferred Taxes: |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax assets and liabilities are as follows:
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
|
|
||||||
|
Tax credits carryforward
|
|
|
||||||
|
Reserve and allowances
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Research and development
|
|
|
||||||
|
Gross tax assets
|
|
|
||||||
|
Valuation allowance
|
(
|
)
|
(
|
)
|
||||
|
Total tax assets
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Intangible assets acquired in business combination
|
(
|
)
|
(
|
)
|
||||
|
Operating lease right-of-use assets
|
(
|
)
|
(
|
)
|
||||
|
Reserve and allowances
|
(
|
)
|
(
|
)
|
||||
|
Total deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net deferred tax assets
|
|
|
||||||
The components of total net deferred tax assets (liabilities), net of valuation allowances, as shown in the consolidated balance sheets are as follows:
|
Year ended December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Deferred tax assets
|
|
|
||||||
|
Deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
|
|
|||||||
Net
deferred tax assets (liabilities) by domestic and foreign are as follows:
|
Year ended December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
Domestic
|
|
|
||||||
|
Foreign
|
|
|
||||||
|
|
|
|||||||
Under ASC 740-10, deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss and tax credits carry-forwards and deductible temporary differences, unless it is more-likely-than-not that some or all of the deferred tax assets will not be realized.
F -
35
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
| D. |
Income before taxes on income included in the consolidated statements of operations:
|
|
|
Year ended December 31,
|
|||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Domestic
|
|
|
|
|||||||||
|
Foreign (mainly US and Germany)
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| E. |
Income tax expenses (tax benefits) included in the consolidated statements of operations:
|
|
Year ended December 31, |
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Domestic
|
|
|
|
|||||||||
|
Foreign (mainly US and Germany)
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Current
|
|
|
|
|||||||||
|
Deferred
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
|
|
|
||||||||||
| F. | Tax Reconciliation: |
The following is a reconciliation of the theoretical tax expense, assuming that all income is taxed at the New Technological Enterprise Laws tax rate in Israel and the actual tax expense in the statement of operations, is as follows:
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Income before taxes on income
|
|
|
|
|||||||||
|
Statutory tax expenses
|
|
|
|
|||||||||
|
Effect of non-benefited income New Technological or Preferred Enterprises statuses in Israel
|
(
|
)
|
|
|
||||||||
|
Permanent differences, including difference between the basis of measurement of income reported for tax purposes and the basis of measurement of income for financial reporting purposes, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Change in tax reserve for uncertain tax positions
|
|
(
|
)
|
(
|
)
|
|||||||
|
Effect of foreign operations taxed at various rates
|
|
|
|
|||||||||
|
Foreign Derived Intangible Income benefit
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Tax credits
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Adjustments for previous year’s tax
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Change in valuation allowance
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
|
(
|
)
|
(
|
)
|
||||||||
|
Actual tax expenses
|
|
|
|
|||||||||
F -
36
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
| G. |
Effective Tax Rates:
|
The Company’s effective tax rates differ from the New Technological Enterprise Laws rates applicable to the Company for tax year 2024 and 2023, primarily due to stock-based compensation deductible expenses and due to tax credits and foreign derived intangible income benefit in the US.
| H. |
Tax Assessments:
|
In December 2021 the Parent Company has received final tax assessments for the years 2016-2019 from the Israeli Tax Authorities.
For the US subsidiary, any tax years starting 2021 and any tax attributes carryforwards from prior periods remain subject to Federal tax examination in future periods (under the standard US statute of limitation and subject to tax filing).
In 2019, Ancosys GmbH received final tax assessments for the years 2014-2016.
The other subsidiaries received final tax assessments through tax years 2017 until 2022.
| I. |
Undistributed earnings of foreign subsidiaries:
|
The Company considers the earnings of certain subsidiaries to be indefinitely invested outside Israel on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferred tax liability of approximately $
49,777
related to the Israel income taxes of undistributed earnings of foreign subsidiaries indefinitely invested outside Israel. Should the Company decide to repatriate the foreign earnings, the Company would need to adjust the Company’s income tax provision in the period the Company determined that the earnings will no longer be indefinitely invested outside Israel.
| J. |
Uncertain Tax Positions:
|
The taxation of the Company's business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty.
In addition, the Company classifies interest and penalties recognized in the financial statements relating to uncertain tax position under the income taxes line item.
Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against the Company that could materially impact its tax liability and/or its effective income tax rate.
The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made.
The following table summarizes the changes in uncertain tax positions:
|
As of December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Balance at the beginning of the year
|
|
|
|
|||||||||
|
Increase (decrease) related to prior year tax positions
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase related to current year tax positions
|
|
|
|
|||||||||
|
Balance at the end of the year*
|
|
|
|
|||||||||
F -
37
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 14
-
INCOME TAXES (Cont.)
* The amounts for the years ended December 31, 2024 and 2023 include $
3,852
and $
2,799
unrecognized tax benefits, respectively, which are presented as a reduction from deferred tax assets, see Note 14c.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expenses.
| K. | Income from Other Sources in Israel: |
Income not eligible for benefits under the New Technological Enterprise Laws mentioned in ”C” above are taxed at the corporate tax rate of
23
%.
NOTE 15
-
GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
| A. |
Segments
|
The Company operates as one operating segment. The Company's chief operating decision maker ("CODM") is the Company’s president and CEO, who review financial information presented on a consolidated basis. The CODM uses consolidated operating margin and net income to assess financial performance and allocate resources. Further, the CODM reviews and utilizes functional expenses (cost of revenues, sales and marketing, research and development net, and general and administrative) at the consolidated level to manage the Company’s operations. These financial metrics are used by the CODM to make key operating decisions and to allocate resources.
See the consolidated financial statements for financial information regarding the Company’s operating segment.
| B. |
Sales by Geographic Area (as Percentage of Total Sales):
|
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
%
|
%
|
%
|
||||||||||
|
China
|
|
|
|
|||||||||
|
Taiwan, R.O.C.
|
|
|
|
|||||||||
|
Korea
|
|
|
|
|||||||||
|
USA
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total
|
|
|
|
|||||||||
Revenues are attributed to countries based on the geographic location of the customer.
| C. |
Sales by Major Customers (as Percentage of Total Sales): |
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
%
|
%
|
%
|
||||||||||
|
Customer A
|
|
|
|
|||||||||
|
Customer B
|
|
|
|
|||||||||
F -
38
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 15
-
GEOGRAPHIC AREAS AND MAJOR CUSTOMERS (Cont.)
| D. |
Long-lived assets by geographic location:
|
|
As of December 31,
|
||||||||
|
2 0 2 4
|
2 0 2 3
|
|||||||
|
%
|
%
|
|||||||
|
Israel
|
|
|
||||||
|
US
|
|
|
||||||
|
Germany
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total long-lived assets (*)
|
|
|
||||||
(*) Long-lived assets are comprised of property, plant and equipment, net and operating lease right-of-use assets.
F -
39
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 16
-
FINANCIAL INSTRUMENTS
| A. |
Hedging Activities
|
The Company enters into forward contracts, and currency options to hedge its balance sheet exposure as well as certain future cash flows in connection with certain operating expenses (mainly payroll and related expenses) and forecast transactions which are expected to be denominated mainly in NIS. The Company is exposed to losses in the event of non-performance by counterparties to financial instruments; however, as the counterparties are major Israeli banks, credit risk is considered immaterial. The Company does not hold or issue derivatives for trading purposes. The notional amounts of the hedging instruments as of December 31, 2024 and December 31, 2023 were $
48,321
and $
36,706
respectively. The terms of all of these currency derivatives are less than one year.
| B. |
Derivative Instruments
|
The fair value of derivative contracts as of December 31, 2024 and December 31, 2023 was as follows:
|
Derivative Assets
Reported in Other
Current Assets
|
Derivative Liabilities
Reported in Other
Current Liabilities
|
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 4
|
2 0 2 3
|
|||||||||||||
|
Derivatives designated as hedging instruments in cash flow hedge
|
|
|
|
|
||||||||||||
The impact of derivative instrument on operating income in the year ended December 31, 2024, 2023 and 2022 was:
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Cost of revenues:
|
||||||||||||
|
Products
|
(
|
)
|
|
|
||||||||
|
Services
|
(
|
)
|
|
|
||||||||
|
Total cost of revenues
|
(
|
)
|
|
|
||||||||
|
Operating expenses
:
|
||||||||||||
|
Research and development, net
|
(
|
)
|
|
|
||||||||
|
Sales and marketing
|
(
|
)
|
|
|
||||||||
|
General and administrative
|
(
|
)
|
|
|
||||||||
|
Total operating expenses
|
(
|
)
|
|
|
||||||||
|
|
(
|
)
|
|
|
||||||||
F -
40
NOVA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
U.S. dollars in thousands, except share and per share data
)
NOTE 17
-
FINANCIAL INCOME (EXPENSE), NET
|
Year ended December 31,
|
||||||||||||
|
2 0 2 4
|
2 0 2 3
|
2 0 2 2
|
||||||||||
|
Interest income
|
|
|
|
|||||||||
|
Amortization of issuance costs related to the Convertible Senior Notes (Note 10)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Exchange rate gain (loss), net
|
(
|
)
|
|
|
||||||||
|
Bank charges
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Total
|
|
|
|
|||||||||
NOTE 18
-
SUBSEQUENT EVENTS
On January 30, 2025, the Company completed its acquisition of all of the outstanding common stock of Sentronics Metrology GmbH, a provider of wafer metrology tools for backend semiconductor fabrication. The Company’s total consideration is expected to be approximately $
60
million in cash.
During the year ended December 31, 2024 the Company recognized $
917
of acquisition-related costs in the consolidated statements of operations under general and administrative expenses.
Due to the timing of the transaction closing date, the initial accounting for the business combination is incomplete and the purchase price allocation is considered preliminary. As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill. The Company expects to finalize the purchase price allocation valuation as soon as practicable, but no later than one year from the acquisition date.
F - 41
EXHIBIT INDEX
|
Number
|
Description
|
|
101.INS
|
Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase
|
|
104
|
Cover page formatted as Inline XBRL and contained in Exhibit 101
|
91
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
|
|
NOVA LTD.
|
|
|
|
|
|
|
|
By:
|
/s/
Gabriel Waisman
Gabriel Waisman
President and Chief Executive Officer
|
Date: February 20, 2025
92
TABLE OF CONTENTS
Part IItem 1. Identity Of Directors, Senior Management and AdvisorsItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on The CompanyItem 4A. Unresolved Staff CommentsItem 5. Operating and Financial Review and ProspectsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholder and Related Party TransactionsItem 8. Financial InformationItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures About Market RiskItem 12. Description Of Securities Other Than Equity SecuritiesPart IIItem 13. Defaults, Dividend Arrearages and DelinquenciesItem 14. Material Modification To The Rights Of Security Holders and Use Of ProceedsItem 15. Controls and ProceduresItem 16 [reserved]Item 16A. Audit Committee Financial ExpertItem 16B. Code Of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Change in Registrant S Certifying AccountantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosureItem 16I. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsItem 16J. Insider Trading Plans (10b5-1)Item 16K. CybersecurityPart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. ExhibitsNote 1 - GeneralNote 2 - Significant Accounting PoliciesNote 2 - Significant Accounting Policies (cont.)Note 3 - Marketable SecuritiesNote 4 - InventoriesNote 5 - Other Current AssetsNote 6 - Property and Equipment, NetNote 7 - Intangible AssetsNote 8 - Other Current LiabilitiesNote 8 - Other Current Liabilities (cont.)Note 9 - Liability For Employee Severance Pay, NetNote 10 - Convertible Senior Notes, NetNote 10 - Convertible Senior Notes, Net (cont.)Note 11 - LeasesNote 11 - Leases (cont.)Note 12 - Commitments and ContingenciesNote 13 - Shareholders EquityNote 13 - Shareholders Equity (cont.)Note 14 - Income TaxesNote 14 - Income Taxes (cont.)Note 15 - Geographic Areas and Major CustomersNote 15 - Geographic Areas and Major Customers (cont.)Note 16 - Financial InstrumentsNote 17 - Financial Income (expense), NetNote 18 - Subsequent Events