Nova Ltd. (Translation of Registrant’s name into English) | Israel (Jurisdiction of incorporation or organization) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Ordinary Shares | NVMI | The Nasdaq Global Select Market |
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.
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3A. | Selected Financial Data | 1 | |
3B. | Capitalization and Indebtedness | 1 | |
3C. | Reasons for the Offer and Use of Proceeds | 1 | |
3D. | Risk Factors | 1 | |
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4.A | History and Development of the Company | 32 | |
4.B | Business Overview | 33 | |
4.C | Organizational Structure | 46 | |
4.D | Property, Plant and Equipment | 46 | |
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5.A | Operating Results | 51 | |
5.B | Liquidity and Capital Resources | 53 | |
5.C | Research and Development, Patents and Licenses, etc. | 54 | |
5.D | Trend Information | 58 | |
5.E | Critical Accounting Estimates | 58 | |
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6.A | Directors and Senior Management | 60 | |
6.B | Compensation | 64 | |
6.C | Board Practices | 67 | |
6.D | Employees | 75 | |
6.E | Share Ownership | 75 | |
6.F | Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation. | 77 | |
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7.A | Major Shareholders | 77 | |
7.B | Related Party Transactions | 78 | |
7.C | Interest of Experts and Counsel | 80 | |
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8.A | Consolidated Statements and Other Financial Information | 80 | |
8.B | Significant Changes | 80 |
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9.A | Offer and Listing Details | 80 | |
9.B | Plan of Distribution | 80 | |
9.C | Markets | 80 | |
9.D | Selling Shareholders | 81 | |
9.E | Dilution | 81 | |
9.F | Expenses of the Issue | 81 | |
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10.A | Share Capital | 81 | |
10.B | Memorandum and Articles of Association | 81 | |
10.C | Material Contracts | 81 | |
10.D | Exchange Controls | 81 | |
10.E | Taxation | 99 | |
10.F | Dividends and Paying Agents | 99 | |
10.G | Statements by Experts | 99 | |
10.H | Documents on Display | 99 | |
10.I | Subsidiary Information | 99 | |
10.J | Annual Report to Security Holders | 99 | |
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• | Increased cybersecurity threats and more sophisticated computer crime could disrupt our business. |
• | We depend on international sales, which expose us to foreign political and economic risks. |
• | We are subject to laws and regulations that could restrict our operations such as economic sanctions and export restrictions. |
• | Changes in global trade policies and other factors beyond our control may adversely impact our business, financial condition and results of operations. |
• | We may be affected by instability in the global economy and by financial turmoil. |
• | Because we derive a significant portion of our revenues from sales in Asia, our sales could be hurt by instability of Asian economies. |
• | Our business is subject to risks related with doing business in China. |
• | 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. |
• | There has been significant 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. |
• | 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. |
• | We operate in an extremely competitive market, and if we fail to compete effectively, 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 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. |
• | The markets we target are cyclical and it is difficult to predict the length and strength of any downturn or expansion period. |
• | Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health, or ESH, regulations. |
• | Pricing and demand for our specific product lines could substantially 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. |
• | Our inability to significantly reduce spending during a protracted slowdown in the semiconductor industry could reduce our prospects of achieving continued profitability. |
• | There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs. |
• | 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. |
• | 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. |
• | Our dependence on a single manufacturing facility per product line magnifies the risk of an interruption in our production capabilities. |
• | Our lease agreements for our Manufacturing Facilities include provisions that exempt the landlord and others from liability for damages to our Manufacturing Facilities. |
• | Shipment changes or cancellation may render our backlog not a reliable indicator of actual sales and financial results. |
• | We may not be able to successfully complete and integrate current and/or future acquisitions. |
• | We depend on continuous cooperation with Process Equipment Manufacturers (“PEMs”) to enable sales of our systems which are integrated with the process equipment. |
• | 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. |
• | We depend on a limited number of suppliers, and in some cases a sole supplier. |
• | The disclosure rules regarding the use of conflict minerals may affect our relationships with suppliers and customers. |
• | Our lengthy sales cycle increases our exposure to customer delays in orders, which may result in obsolete inventory and volatile quarterly revenues. |
• | Our inability to attract, recruit, retain highly skilled key personnel. |
• | Conditions in Israel, including the recent attack by Hamas and other terrorist organization from the Gaza Strip and Israel’s war against them, may adversely affect our business, our results of operations and our ability to raise additional funds. |
• | Our convertible senior notes may impact our financial results, dilute existing shareholders, and create downward pressure on the price of our ordinary shares. |
• | Currency fluctuations could harm our profit margins. |
• | We received certain research and development grants, which could impose restrictions on our ability to use technology developed under these programs. |
• | Certain shareholders may control the outcome of matters submitted to a vote of our shareholders, including the election of directors. |
• | The market price of our ordinary shares may be affected by a limited trading volume and may fluctuate significantly. |
• | 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. |
• | 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. |
• | Our shares are listed for trade on more than one stock exchange. |
• | 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; 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. |
• | intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars and acts of terrorism or war, including current war between Russia and the Ukraine; and |
• | 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. |
• | trade protection measures, such as tariff increases, and import and export licensing and control requirements; |
• | potentially negative consequences from changes in tax laws; |
• | difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China; |
• | historically, lower protection of intellectual property rights; |
• | changes and volatility in currency exchange rates; |
• | unexpected or unfavorable changes in regulatory requirements; and |
• | local preference of emerging local competitors in China. |
• | pending patent applications will be approved; or |
• | 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. |
• | result in our loss of proprietary rights; |
• | subject us to significant liabilities, including triple damages in some instances; |
• | require us to seek licenses from third parties, which licenses may not be available on reasonable terms or at all; or |
• | prevent us from selling our products. |
• | the contribution and value our solutions bring to our customers; |
• | our product innovation, quality and performance; |
• | our global technical service and support; |
• | the return on investment (ROI) of our equipment and its cost of ownership; |
• | the breadth of our product line; |
• | our success in developing and marketing new products; and |
• | the extendibility of our products. |
• | our continuing need to invest in research and development; |
• | our continuing need to market our new products; and |
• | our extensive ongoing customer service and support requirements worldwide. |
Any acquisition may involve many risks, including the risks of: |
• | diverting management’s attention and other resources from our ongoing business concerns; |
• | entering markets in which we have no direct prior experience; |
• | improperly evaluating new services, products and markets; |
• | being unable to maintain uniform standards, controls, procedures and policies; |
• | failing to comply with governmental requirements pertaining to acquisitions of local companies or assets by foreign entities; |
• | being unable to integrate new technologies or personnel; |
• | incurring the expenses of any undisclosed or potential liabilities; and |
• | the departure of key management and employees. |
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 | Nova i Platform Nova Astera |
Dimensional Optical CD Stand-Alone Metrology | Nova T-platform Nova MMSR | ||
• 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 | Nova Elipson |
• Computational Modeling for Metrology Platforms | Physical modeling (Modeling Software Solutions) | Nova MARS | |
• Machine Learning • Advanced Algorithms | Mathematical modeling algorithms (Software solutions) | Nova FIT | |
• 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 |
1. | Dimensional Metrology |
2. | Modeling and Software |
• | 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 - Nova FIT modeling suite complements traditional modeling of Optical Critical Dimensions by machine learning and data driven algorithmic solutions. The algorithmic suite works in conjunction with Nova MARS physical modeling engine and Nova’s Fleet Management solution to improve metrology performance, speed up time to solution and expand metrology envelope for enriched process control. Nova FIT embeds advanced machine learning and big data architecture into optical modeling, enhancing 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. |
3. | Materials Metrology |
• | 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. |
• | 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. |
4. | Chemical Metrology – |
• | 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. |
• | 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. |
2021 | 2022 | 2023 | ||||||||||
Total revenues from five largest customers | 70 | % | 57 | % | 52 | % | ||||||
Range of revenues from five largest customers | 4%-31 | % | 6%-23 | % | 5%-19 | % |
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 |
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 | 8,000 | March 2029 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 is currently being constructed. The facility is planned to fully replace the Pliezhausen facility. |
Germany Pliezhausen | Offices, manufacturing and laboratories | 4,500 | 2025, to be replaced by the Bad Urach facility. |
Taiwan Hsinchu | Offices and laboratories | 2,000 | 2031 |
US, China, Korea, Taiwan, Japan | Offices and laboratories | Less than 2,000 each | Ranging between 2024 and 2027. |
• | Solid business results, including growth in service sales. |
• | Expanding our manufacturing capacity by opening of a new clean room facility in Israel. |
• | 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. |
• | Continued evolution of our Optical CD solutions with new generations of Integrated and Standalone metrology platforms. |
• | Completion of the post-merger integration of ancosys. |
• | 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 2023 we published 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 are committed to proactively invest in embedding social responsibility as part of our culture and business management to support our values. |
• | 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 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 approach 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). |
• | Meeting strategic, development, operational and delivery targets in light of 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 in order to properly control expenses. |
• | 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 to accommodate further growth. |
• | Failure to design, implement and smoothly transition to the new ERP system. |
• | 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. |
• | 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. |
2021 | 2022 | 2023 | ||||||||||
Revenues from product sales | 81 | % | 81 | % | 78 | % | ||||||
Revenues from services | 19 | % | 19 | % | 22 | % | ||||||
Total revenues | 100 | % | 100 | % | 100 | % | ||||||
Cost of products sale | 32 | % | 34 | % | 32 | % | ||||||
Cost of services | 12 | % | 11 | % | 12 | % | ||||||
Total cost of revenues | 43 | % | 45 | % | 43 | % | ||||||
Gross profit | 57 | % | 56 | % | 57 | % | ||||||
Operating expenses: | ||||||||||||
Research and development expenses, net | 16 | % | 16 | % | 17 | % | ||||||
Sales and marketing expenses | 10 | % | 9 | % | 10 | % | ||||||
General and administrative expenses | 4 | % | 4 | % | 4 | % | ||||||
Total operating expenses | 30 | % | 29 | % | 31 | % | ||||||
Operating profit | 27 | % | 26 | % | 26 | % | ||||||
Financial income (expense), net | (1 | )% | 2 | % | 4 | % | ||||||
Income before income taxes | 26 | % | 28 | % | 30 | % | ||||||
Income tax expenses | 4 | % | 3 | % | 4 | % | ||||||
Net income | 22 | % | 25 | % | 26 | % |
2021 | 2022 | 2023 | ||||||||||||||||||||||
Domestic | Abroad | Domestic | Abroad | Domestic | Abroad | |||||||||||||||||||
Electronic equipment | 2,356 | 1,134 | 3,664 | 4,155 | 2,086 | 2,867 | ||||||||||||||||||
Office furniture and equipment | 22 | 283 | 66 | 1,055 | 360 | 499 | ||||||||||||||||||
Leasehold improvements | 371 | 650 | 8,934 | 436 | 2,994 | 2,457 | ||||||||||||||||||
Land and buildings | - | - | - | 3,004 | - | 5,925 | ||||||||||||||||||
Total | 2,749 | 2,067 | 12,664 | 8,650 | 5,440 | 11,748 |
• | 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). We note that a company also has the option of declaring in its IIA grant application an intention to exercise a portion of the manufacturing capacity abroad, thus, if the grant application is approved by IIA, such company will avoid the need to obtain additional approvals and pay the increased royalties cap for manufacturing outside of Israel at portions which were mentioned in such approved grant applications. |
• | 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. |
• | 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. |
Name | Age | Position |
Eitan Oppenhaim (4) | 58 | Executive Chairman of the Board of Directors |
Avi Cohen (1)(2) (4) | 70 | Director |
Raanan Cohen (2)(3) | 68 | Director |
Zehava Simon (1)(2)(3)(4) | 65 | Director |
Sarit Sagiv (1)(2) | 55 | Director |
Yaniv Garty (3)(4) | 56 | Director |
Gabriel Waisman | 53 | President & CEO |
Dror David | 54 | Chief Financial Officer |
Shay Wolfling | 52 | Chief Technology Officer |
Adrian S. Wilson | 52 | President of US subsidiary & General Manager Material Metrology Division |
Effi Aboody | 53 | Corporate VP and General Manager Dimensional Metrology Division |
(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 |
As of December 31, | 2021 | 2022 | 2023 | |||||||||
Total Personnel | 819 | 1,177 | 1,202 | |||||||||
Located in Israel | 428 | 505 | 516 | |||||||||
Located abroad | 391 | 672 | 686 | |||||||||
In operations | 176 | 280 | 287 | |||||||||
In research and development | 328 | 462 | 477 | |||||||||
In global business | 240 | 311 | 318 | |||||||||
In general and administration | 75 | 124 | 120 |
Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Beneficially Owned | ||||||
Wasatch Advisors Inc. (1) | 3,123,837 | 10.77 | % | |||||
FMR LLC (2) | 2,416,804 | 8.33 | % | |||||
Menora Mivtachim Holdings Ltd. (3) | 2,083,389 | 7.18 | % | |||||
Migdal Insurance & Financial Holdings Ltd. (4) | 1,909,027 | 6.58 | % | |||||
Harel Insurance Investments & Financial Services Ltd. (5) | 1,849,259 | 6.37 | % |
(1) | The information is based upon Amendment no. 4 Schedule 13G/A filed with the SEC by Wasatch Advisors Inc. on February 9, 2024 regarding holdings as of December 31, 2023. |
(2) | The information is based upon Amendment no. 2 to Schedule 13G/A filed with the SEC by FMR LLC, its subsidiaries and Abigail P. Johnson on February 9, 2024 regarding holdings as of December 31, 2023. |
(3) | The information is based upon Amendment no. 6 to Schedule 13G/A filed with the SEC 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 14, 2024 regarding holdings as of December 31, 2023. |
(4) | The information is based upon Schedule 13G filed with the SEC by Migdal Insurance & Financial Holdings Ltd. on January 31, 2024 regarding holdings as of December 31, 2023. |
(5) | The information is based upon Amendment no. 10 to Schedule 13G/A filed with the SEC by Harel Insurance Investments & Financial Services Ltd. on January 30, 2024 regarding holdings as of December 31, 2023. |
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% |
• | An individual citizen or resident of the U.S. (as determined under U.S. federal income tax rules); |
• | 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; |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | 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. |
• | persons who own, directly, indirectly or constructively, 10% or more (by voting power or value) of our outstanding voting shares; |
• | persons who hold the ordinary shares as part of a hedging, straddle or conversion transaction; |
• | persons whose functional currency is not the U.S. dollar; |
• | persons who acquire their ordinary shares in a compensatory transaction; |
• | broker-dealers; |
• | insurance companies; |
• | regulated investment companies; |
• | real estate investment companies; |
• | qualified retirement plans, individual retirement accounts and other tax-deferred accounts; |
• | traders who elect to mark-to-market their securities; |
• | tax-exempt organizations; |
• | banks or other financial institutions; |
• | 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; |
• | U.S. expatriates and certain former citizens and long-term residents of the United States; and |
• | persons subject to any alternative minimum tax. |
• | fails to furnish its taxpayer identification number, or TIN, which, for an individual, is ordinarily his or her social security number; |
• | furnishes an incorrect TIN; |
• | 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 |
• | 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. |
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; |
• | 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 |
• | 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. |
2022 | 2023 | |||||||
Audit Fees | 713,000 | 740,000 | ||||||
Tax Fees | 50,000 | 26,000 | ||||||
Other Fees | 61,000 | 25,000 | ||||||
Total | 824,000 | 791,000 |
Period | (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) | ||||||||||||
March 2023 | 1,255 | $ | 89.45 | 252,983 | 78.47 |
• | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; |
• | a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; |
• | the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; and |
• | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents. |
Item 17. Financial Statements
Page | |
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 1281) | F-3 - F-5 |
F-6 | |
F-7 | |
F-8 | |
F-9 | |
F-10 | |
F-11 - F-39 |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Valuation of excess and obsolete inventory reserve | |
Description of the Matter | The Company’s inventories totaled $138.2 million as of December 31, 2023. 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 (finished goods, work-in-process, service inventory and raw materials), of future usage and market demand for the Company's products. |
How We Addressed the Matter in Our Audit | 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, among others, 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. |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 107,574 | 111,121 | ||||||
Short-term interest-bearing bank deposits | 119,850 | 95,305 | ||||||
Marketable securities (Note 3) | 216,258 | 167,073 | ||||||
Trade accounts receivable, net of allowance of $277 and $215 at December 31, 2023 and 2022, respectively | 111,256 | 109,320 | ||||||
Inventories (Note 4) | 138,198 | 116,600 | ||||||
Other current assets (Note 5) | 17,084 | 13,527 | ||||||
Total current assets | 710,220 | 612,946 | ||||||
Non-current assets | ||||||||
Marketable securities (Note 3) | 191,351 | 153,462 | ||||||
Interest-bearing bank deposits and restricted cash | 6,254 | 2,083 | ||||||
Deferred tax assets (Note 14) | 23,583 | 20,097 | ||||||
Severance pay funds (Note 9) | 1,146 | 1,194 | ||||||
Operating lease right-of-use assets (Note 11) | 41,856 | 44,885 | ||||||
Property, plant and equipment, net (Note 6) | 66,874 | 55,886 | ||||||
Intangible assets, net (Note 7) | 39,184 | 43,586 | ||||||
Goodwill | 50,080 | 49,009 | ||||||
Other long-term assets | 3,259 | 957 | ||||||
Total non-current assets | 423,587 | 371,159 | ||||||
TOTAL ASSETS | 1,133,807 | 984,105 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Convertible senior notes, net (Note 10) | 197,678 | - | ||||||
Trade accounts payable | 35,158 | 42,732 | ||||||
Deferred revenues | 41,978 | 30,543 | ||||||
Operating lease current liabilities (Note 11) | 6,703 | 5,968 | ||||||
Other current liabilities (Note 8) | 41,294 | 54,825 | ||||||
Total current liabilities | 322,811 | 134,068 | ||||||
Non-Current liabilities | ||||||||
Convertible senior notes, net (Note 10) | - | 196,394 | ||||||
Accrued severance pay (Note 9) | 3,363 | 3,599 | ||||||
Operating lease long-term liabilities (Note 11) | 39,762 | 43,697 | ||||||
Deferred tax liability (Note 14) | 10,574 | 12,190 | ||||||
Other long-term liabilities | 6,545 | 7,194 | ||||||
Total non-current liabilities | 60,244 | 263,074 | ||||||
Commitments and contingencies (Note 12) | ||||||||
TOTAL LIABILITIES | 383,055 | 397,142 | ||||||
SHAREHOLDERS’ EQUITY (Note 13) | ||||||||
Ordinary shares, no par value - Authorized 60,000,000 shares at December 31, 2023 and 2022; Issued and Outstanding 29,013,834 and 28,678,476 at December 31, 2023 and 2022, respectively. | ||||||||
Additional paid-in capital | 139,694 | 121,398 | ||||||
Accumulated other comprehensive loss | (3,325 | ) | (12,508 | ) | ||||
Retained earnings | 614,383 | 478,073 | ||||||
Total shareholders’ equity | 750,752 | 586,963 | ||||||
Total liabilities and shareholders’ equity | 1,133,807 | 984,105 |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Revenues: | ||||||||||||
Products | 405,037 | 464,152 | 337,026 | |||||||||
Services | 112,885 | 106,577 | 79,087 | |||||||||
Total revenues | 517,922 | 570,729 | 416,113 | |||||||||
Cost of revenues: | ||||||||||||
Products | 163,981 | 191,402 | 131,453 | |||||||||
Services | 60,764 | 62,357 | 49,217 | |||||||||
Total cost of revenues | 224,745 | 253,759 | 180,670 | |||||||||
Gross profit | 293,177 | 316,970 | 235,443 | |||||||||
Operating expenses: | ||||||||||||
Research and development, net (Note 2S) | 88,043 | 90,458 | 65,857 | |||||||||
Sales and marketing | 52,467 | 52,729 | 39,876 | |||||||||
General and administrative | 20,404 | 23,852 | 17,324 | |||||||||
Total operating expenses | 160,914 | 167,039 | 123,057 | |||||||||
Operating income | 132,263 | 149,931 | 112,386 | |||||||||
Financial income (expense), net (Note 17) | 22,436 | 8,478 | (3,133 | ) | ||||||||
Income before taxes on income | 154,699 | 158,409 | 109,253 | |||||||||
Income tax expenses (Note 14) | 18,389 | 18,196 | 16,152 | |||||||||
Net income | 136,310 | 140,213 | 93,101 | |||||||||
Earnings per share: | ||||||||||||
Basic | 4.73 | 4.89 | 3.28 | |||||||||
Diluted | 4.28 | 4.43 | 3.12 | |||||||||
Shares used in calculation of earnings per share: | ||||||||||||
Basic | 28,828 | 28,697 | 28,372 | |||||||||
Diluted | 32,089 | 31,870 | 29,816 |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Net income | 136,310 | 140,213 | 93,101 | |||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Cumulative Translation Adjustment | 2,946 | (5,039 | ) | - | ||||||||
Available-for-sale investments (Note 3): | ||||||||||||
Unrealized gain (loss) on available-for-sale marketable securities, net | 5,193 | (6,047 | ) | (1,016 | ) | |||||||
Cash flow hedges (Note 16): | ||||||||||||
Unrealized gain (loss) from cash flow hedges | (532 | ) | (2,421 | ) | 74 | |||||||
Less: reclassification adjustment for net gain (loss) included in net income | 1,576 | 1,813 | (442 | ) | ||||||||
Other comprehensive income (loss) | 9,183 | (11,694 | ) | (1,384 | ) | |||||||
Total comprehensive income | 145,493 | 128,519 | 91,717 |
Accumulated | ||||||||||||||||||||||||
Ordinary | Additional | Other | Total | |||||||||||||||||||||
Shares | Paid-in | Comprehensive | Retained | Shareholders’ | ||||||||||||||||||||
Number | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||||
Balance as of January 1, 2021 | 28,176,862 | 74 | 129,274 | 570 | 241,620 | 371,538 | ||||||||||||||||||
Issuance of shares upon exercise of options | 236,652 | (* | ) | 11 | - | - | 11 | |||||||||||||||||
Issuance of shares upon vesting of RSU | 165,530 | (* | ) | (* | ) | - | - | - | ||||||||||||||||
Share based compensation | - | - | 10,488 | - | - | 10,488 | ||||||||||||||||||
Elimination of the par value of the Ordinary shares (Note 1) | - | (74 | ) | 74 | - | - | - | |||||||||||||||||
Other comprehensive loss | - | - | - | (1,384 | ) | - | (1,384 | ) | ||||||||||||||||
Net income | - | - | - | - | 93,101 | 93,101 | ||||||||||||||||||
Balance as of December 31, 2021 | 28,579,044 | - | 139,847 | (814 | ) | 334,721 | 473,754 | |||||||||||||||||
ASU 2020-06 adoption (Note 10) | - | - | (13,770 | ) | - | 3,139 | (10,631 | ) | ||||||||||||||||
Issuance of shares upon exercise of options | 161,416 | - | 90 | - | - | 90 | ||||||||||||||||||
Issuance of shares upon vesting of RSU | 191,494 | - | - | - | - | - | ||||||||||||||||||
Share based compensation | - | - | 16,647 | - | - | 16,647 | ||||||||||||||||||
Share repurchase at cost | (253,478 | ) | - | (21,416 | ) | - | - | (21,416 | ) | |||||||||||||||
Other comprehensive loss | - | - | - | (11,694 | ) | - | (11,694 | ) | ||||||||||||||||
Net income | - | - | - | - | 140,213 | 140,213 | ||||||||||||||||||
Balance as of December 31, 2022 | 28,678,476 | - | 121,398 | (12,508 | ) | 478,073 | 586,963 | |||||||||||||||||
Issuance of shares upon exercise of options | 133,485 | - | 122 | - | - | 122 | ||||||||||||||||||
Issuance of shares upon vesting of RSU | 203,128 | - | - | - | - | - | ||||||||||||||||||
Share based compensation | - | - | 18,286 | - | - | 18,286 | ||||||||||||||||||
Share repurchase at cost | (1,255 | ) | - | (112 | ) | - | - | (112 | ) | |||||||||||||||
Other comprehensive income | - | - | - | 9,183 | - | 9,183 | ||||||||||||||||||
Net income | - | - | - | - | 136,310 | 136,310 | ||||||||||||||||||
Balance as of December 31, 2023 | 29,013,834 | - | 139,694 | (3,325 | ) | 614,383 | 750,752 |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | 136,310 | 140,213 | 93,101 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation of property, plant and equipment | 10,344 | 8,621 | 6,475 | |||||||||
Amortization of intangible assets | 5,857 | 6,033 | 2,458 | |||||||||
Amortization of premium and accretion of discount on marketable securities, net | (3,001 | ) | 1,666 | 1,708 | ||||||||
Amortization of debt discount and issuance costs | 1,284 | 1,282 | 4,229 | |||||||||
Share-based compensation | 18,286 | 16,647 | 10,488 | |||||||||
Net effect of exchange rate fluctuation | 1,754 | 4,523 | (745 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Trade accounts receivables, net | (1,183 | ) | (31,634 | ) | (5,132 | ) | ||||||
Inventories | (26,000 | ) | (29,311 | ) | (18,457 | ) | ||||||
Other current and long-term assets | (5,752 | ) | (4,223 | ) | 192 | |||||||
Deferred tax assets, net | (6,241 | ) | (13,740 | ) | (2,989 | ) | ||||||
Operating lease right-of-use assets | 3,050 | 3,873 | 1,680 | |||||||||
Trade accounts payables | (7,807 | ) | 5,142 | 11,697 | ||||||||
Deferred revenues | 11,391 | 15,243 | 10,621 | |||||||||
Operating lease liabilities | (3,221 | ) | (6,351 | ) | (904 | ) | ||||||
Other current and long-term liabilities | (11,352 | ) | 1,509 | 17,919 | ||||||||
Accrued severance pay, net | (188 | ) | 46 | (79 | ) | |||||||
Net cash provided by operating activities | 123,531 | 119,539 | 132,262 | |||||||||
Cash flows from investment activities: | ||||||||||||
Acquisition of subsidiary, net of acquired cash | - | (78,469 | ) | - | ||||||||
Change in short-term and long-term interest-bearing bank deposits | (29,658 | ) | 129,944 | (31,456 | ) | |||||||
Investment in marketable securities | (273,572 | ) | (211,742 | ) | (215,091 | ) | ||||||
Proceed from sales and maturities of marketable securities | 195,087 | 81,325 | 12,862 | |||||||||
Purchase of property, plant and equipment | (17,188 | ) | (21,314 | ) | (4,816 | ) | ||||||
Net cash used in investing activities | (125,331 | ) | (100,256 | ) | (238,501 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Settlement of a contingent consideration liability | - | (8,480 | ) | - | ||||||||
Purchases of treasury shares | (112 | ) | (21,416 | ) | - | |||||||
Proceeds from exercise of options | 122 | 90 | 11 | |||||||||
Net cash provided by (used in) financing activities | 10 | (29,806 | ) | 11 | ||||||||
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash | (2,357 | ) | (4,454 | ) | 622 | |||||||
Decrease in cash, cash equivalents and restricted cash | (4,147 | ) | (14,977 | ) | (105,606 | ) | ||||||
Cash and cash equivalents - beginning of year | 111,721 | 126,698 | 232,304 | |||||||||
Cash, cash equivalents and restricted cash - end of year | 107,574 | 111,721 | 126,698 | |||||||||
Supplemental disclosure of non-cash activities: | ||||||||||||
Operating right-of-use assets recognized with corresponding operating lease liabilities | 785 | 17,398 | 3,198 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the year for income taxes | 26,842 | 23,014 | 13,275 |
A. | Principles of Consolidation and Basis of Presentation | |
B. | Use of Estimates in the Preparation of Financial Statements | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
C. | Financial Statements in U.S. Dollars |
D. | Cash, Cash Equivalents and Restricted Cash | |
As of December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cash and cash equivalents | 107,574 | 111,121 | 126,698 | |||||||||
Long term restricted cash | - | 600 | - | |||||||||
Cash, cash equivalents and restricted cash | 107,574 | 111,721 | 126,698 |
E. | Short Term Bank Deposit | |
F. | Marketable Securities | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
G. | Trade Accounts Receivables | |
H. | Business Combination | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
I. | Inventories | |
• | Raw materials - using the moving average cost method, with specific items valued on a first-in, first-out (FIFO) basis | |
J. | Property, Plant and Equipment | |
Years | |||
Electronic equipment | 3-7 | ||
Office furniture and equipment | 3-17 | ||
Leasehold improvements | Over the shorter of the term of the lease (including its extension periods) or the useful life of the asset |
K. | Goodwill and Intangible Assets | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Weighted Average Useful Life (Years) | ||
Technology | 3-9 | |
Customer relationships | 10-13 |
L. | Implementation costs incurred in cloud computing arrangement that is a service contract: | |
M. | Impairment of Long-Lived Assets | |
N. | Accrued Warranty Costs | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
O. | Derivative Financial Instruments |
P. | Leases | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Q. | Convertible Senior Notes |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
R. | Revenue Recognition | |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
S. | Research and Development | |
T. | Income Taxes | |
U. | Share-Based Compensation | |
2 0 2 1 | ||||
Risk-free interest rate | 0.89 | % | ||
Expected term of options | 4.97 years | |||
Expected volatility | 39.02 | % | ||
Expected dividend yield | 0 | % |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
V. | Earnings per Share | |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Net income for basic earnings per share | 136,310 | 140,213 | 93,101 | |||||||||
Amortization of debt issuance costs related to the Convertible Notes, net of tax | 1,130 | 1,128 | - | |||||||||
Net income for diluted earnings per share | 137,440 | 141,341 | 93,101 | |||||||||
Basic weighted-average shares outstanding | 28,828 | 28,697 | 28,372 | |||||||||
Dilutive effect of share-based compensation | 580 | 492 | 819 | |||||||||
Dilutive effect of Convertible Senior Notes | 2,681 | 2,681 | 625 | |||||||||
Diluted weighted average shares outstanding | 32,089 | 31,870 | 29,816 | |||||||||
Earnings per share: | ||||||||||||
Basic | 4.73 | 4.89 | 3.28 | |||||||||
Diluted | 4.28 | *4.43 | 3.12 |
* The Company has voluntarily corrected an immaterial error in calculating the nominator of its diluted EPS for the year ended on December 31, 2022. The as-adjusted diluted EPS for the year ended December 31, 2022, was $4.43, while the previously reported Diluted EPS was $4.40.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
W. | Concentrations of Credit Risk | |
X. | Fair Value Measurements |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Y. | Certain prior period amounts have been reclassified to conform to the current period presentation. |
Z. | New Accounting Pronouncements | |
Marketable securities | Amortized Cost | Unrealized gains | Unrealized losses | Fair Value | ||||||||||||
Matures within one year: | ||||||||||||||||
Corporate bonds | 166,667 | 54 | (1,235 | ) | 165,486 | |||||||||||
Governmental bonds | 50,824 | 43 | (95 | ) | 50,772 | |||||||||||
217,491 | 97 | (1,330 | ) | 216,258 | ||||||||||||
Matures after one year: | ||||||||||||||||
Corporate bonds | 167,452 | 620 | (1,568 | ) | 166,504 | |||||||||||
Governmental bonds | 24,803 | 58 | (14 | ) | 24,847 | |||||||||||
192,255 | 678 | (1,582 | ) | 191,351 | ||||||||||||
409,746 | 775 | (2,912 | ) | 407,609 |
Marketable securities | Amortized Cost | Unrealized gains | Unrealized losses | Fair Value | ||||||||||||
Matures within one year: | ||||||||||||||||
Corporate bonds | 114,475 | 1 | (1,341 | ) | 113,135 | |||||||||||
Governmental bonds | 54,282 | - | (344 | ) | 53,938 | |||||||||||
168,757 | 1 | (1,685 | ) | 167,073 | ||||||||||||
Matures after one year: | ||||||||||||||||
Corporate bonds | 147,888 | 28 | (6,046 | ) | 141,870 | |||||||||||
Governmental bonds | 11,948 | - | (356 | ) | 11,592 | |||||||||||
159,836 | 28 | (6,402 | ) | 153,462 | ||||||||||||
328,593 | 29 | (8,087 | ) | 320,535 |
NOTE 4 - INVENTORIES
A. | Composition: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Raw materials | 50,156 | 38,050 | ||||||
Service inventory | 31,407 | 26,069 | ||||||
Work in process | 31,873 | 25,676 | ||||||
Finished goods | 24,762 | 26,805 | ||||||
138,198 | 116,600 |
B. | In the years ended December 31, 2023, 2022 and 2021, the Company wrote down inventories in a total amount of $8,748, $6,406 and $5,126, respectively. |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Prepaid expenses | 10,999 | 9,107 | ||||||
Governmental institutions | 3,682 | 2,889 | ||||||
Governments grants receivables | 662 | 1,416 | ||||||
Hedging derivative | 1,229 | - | ||||||
Other | 512 | 115 | ||||||
17,084 | 13,527 |
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Cost: | ||||||||
Electronic equipment | 72,116 | 64,176 | ||||||
Office furniture and equipment | 6,322 | 5,471 | ||||||
Leasehold improvements | 39,875 | 34,955 | ||||||
Land and building | 11,673 | 5,181 | ||||||
129,986 | 109,783 | |||||||
Accumulated depreciation: | ||||||||
Electronic equipment | 49,765 | 43,414 | ||||||
Office furniture and equipment | 3,548 | 2,833 | ||||||
Leasehold improvements | 9,799 | 7,650 | ||||||
Land and building* | - | - | ||||||
63,112 | 53,897 | |||||||
Net book value | 66,874 | 55,886 |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Original amount: | ||||||||
Technology | 58,227 | 56,916 | ||||||
Customer relationships | 9,747 | 9,603 | ||||||
67,974 | 66,519 | |||||||
Accumulated amortization: | ||||||||
Technology | 22,955 | 17,525 | ||||||
Customer relationships | 5,835 | 5,408 | ||||||
28,790 | 22,933 | |||||||
Net book value | 39,184 | 43,586 |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Technology | 5,430 | 5,426 | 1,918 | |||||||||
Customer relationships | 427 | 607 | 540 | |||||||||
5,857 | 6,033 | 2,458 |
Year ending December 31, | ||||
2024 | 5,782 | |||
2025 | 5,285 | |||
2026 | 5,285 | |||
2027 | 5,285 | |||
2028 | 5,285 | |||
2029 and thereafter | 12,262 | |||
Total | 39,184 |
A. | Consists of: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Accrued salaries and fringe benefits | 27,105 | 31,652 | ||||||
Accrued warranty costs (See B below) | 8,080 | 9,517 | ||||||
Governmental institutions | 4,846 | 12,202 | ||||||
Governments grants payables | 1,019 | 647 | ||||||
Hedging derivative | - | 454 | ||||||
Other | 244 | 353 | ||||||
41,294 | 54,825 |
B. | Accrued Warranty Costs: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Other current liabilities | 8,080 | 9,517 | ||||||
Other long-term liabilities | 443 | 1,113 | ||||||
8,523 | 10,630 |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Balance as of beginning of year | 10,630 | 8,885 | ||||||
Services provided under warranty | (11,764 | ) | (11,959 | ) | ||||
Changes in provision | 9,657 | 13,704 | ||||||
Balance as of end of year | 8,523 | 10,630 |
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.
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 130% of the conversion price on each applicable trading day; | |
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 $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the ordinary shares and the conversion rate on each such trading day; | |
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. | |
NOTE 10 - CONVERTIBLE SENIOR NOTES, NET (Cont.)
• | An increase of $12,075 to liability for convertible senior notes, in the consolidated balance sheets, to reflect the full principal amount of the convertible notes outstanding net of issuance costs. |
• | A reduction of $13,770 to additional paid-in capital, net of estimated income tax effects, to remove the equity component separately recorded for the conversion features associated with the convertible notes. |
• | An increase to deferred tax assets, net of $1,444, to reflect the decrease in deferred tax liability relating to removal of the equity component stated above. | |
• | A cumulative-effect adjustment of $3,139, net of estimated income tax effects, to the balance of retained earnings. | |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Principal amount | 200,000 | 200,000 | ||||||
Unamortized issuance costs | (2,322 | ) | (3,606 | ) | ||||
Net carrying amount | 197,678 | 196,394 |
NOTE 11 - LEASES
NOTE 11 - LEASES (Cont.)
Year | ||||
2024 | 6,759 | |||
2025 | 6,257 | |||
2026 | 5,422 | |||
2027 | 5,345 | |||
2028 | 5,415 | |||
2029 and thereafter | 30,681 | |||
Total lease payments | 59,879 | |||
Less imputed interest | (13,414 | ) | ||
Total | 46,465 |
A. | Rights of Shares: |
B. | Share Repurchase: |
C. | Equity Based Incentive Plans: |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Cost of Revenues: | ||||||||||||
Product | 3,193 | 2,456 | 1,358 | |||||||||
Service | 1,753 | 1,710 | 802 | |||||||||
Research and Development | 7,736 | 6,861 | 3,994 | |||||||||
Sales and Marketing | 3,437 | 3,179 | 2,221 | |||||||||
General and Administrative | 2,167 | 2,441 | 2,113 | |||||||||
Total | 18,286 | 16,647 | 10,488 |
2023 | ||||||||
Share Options | Weighted Average Exercise Price | |||||||
Outstanding - beginning of year | 290,711 | 29.83 | ||||||
Exercised | (133,485 | ) | 25.20 | |||||
Cancelled and forfeited | (50,947 | ) | 39.61 | |||||
Outstanding - year end | 106,279 | 31.04 | ||||||
Options exercisable at year end | 100,540 | 29.40 |
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) | |||||||||||||||||||
20.01-35.00 | 88,913 | 1.56 | 26.37 | 88,913 | 26.37 | |||||||||||||||||
35.01-50.00 | 12,450 | 3.41 | 44.16 | 8,882 | 44.31 | |||||||||||||||||
50.01-70.00 | 2,036 | 3.59 | 53.61 | 1,305 | 53.61 | |||||||||||||||||
70.01-102.35 | 2,880 | 3.48 | 102.35 | 1,440 | 102.35 | |||||||||||||||||
106,279 | 31.04 | 100,540 | 29.40 |
2023 | ||||||||
Number of RSUs | Weighted average grant date fair value (USD) | |||||||
Unvested - beginning of year | 484,721 | 81.05 | ||||||
Granted | 334,012 | 105.94 | ||||||
Vested | (203,128 | ) | 70.89 | |||||
Canceled | (27,936 | ) | 88.27 | |||||
Unvested at year end | 587,669 | 98.39 |
NOTE 14 - INCOME TAXES
A. | Israeli Taxation |
1. | The tax rate on a company in Development area A, effective January 1, 2014 is 9% (instead of 7% in 2014 and 6% in 2015 and thereafter), and the tax rate for companies in all other areas will be 16% (instead of 12.5% in 2014 and 12% in 2015 and thereafter). |
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 15% to 20%. |
B. | U.S. Taxation |
C. | Deferred Taxes: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | 412 | 1,080 | ||||||
Tax credits carryforward | 2,872 | 1,610 | ||||||
Reserve and allowances | 9,853 | 10,058 | ||||||
Operating lease liabilities | 2,494 | 3,178 | ||||||
Research and development | 14,842 | 10,176 | ||||||
Gross tax assets | 30,473 | 26,102 | ||||||
Valuation Allowance | (2,790 | ) | (2,098 | ) | ||||
Total tax assets | 27,683 | 24,004 | ||||||
Deferred tax liabilities: | ||||||||
Intangible assets acquired in business combination | (11,346 | ) | (12,539 | ) | ||||
Operating lease right-of-use assets | (1,936 | ) | (2,631 | ) | ||||
Reserve and allowances | (1,392 | ) | (927 | ) | ||||
Total deferred tax liabilities | (14,674 | ) | (16,097 | ) | ||||
Net deferred tax assets | 13,009 | 7,907 |
Year ended December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Deferred tax assets | 23,583 | 20,097 | ||||||
Deferred tax liabilities | (10,574 | ) | (12,190 | ) | ||||
13,009 | 7,907 |
Year ended December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Domestic | 7,855 | 8,683 | ||||||
Foreign | 5,154 | (776 | ) | |||||
13,009 | 7,907 |
D. | Income before taxes on income included in the consolidated statements of operations: |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Domestic | 117,936 | 121,076 | 76,400 | |||||||||
Foreign (mainly US) | 36,763 | 37,333 | 32,853 | |||||||||
154,699 | 158,409 | 109,253 |
E. | Income tax expenses (tax benefits) included in the consolidated statements of operations: |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Domestic | 17,363 | 15,868 | 12,297 | |||||||||
Foreign (mainly US) | 1,026 | 2,328 | 3,855 | |||||||||
18,389 | 18,196 | 16,152 | ||||||||||
Current | 24,845 | 32,323 | 19,311 | |||||||||
Deferred | (6,456 | ) | (14,127 | ) | (3,159 | ) | ||||||
18,389 | 18,196 | 16,152 |
F. | Tax Reconciliation: |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Income before taxes on income | 154,699 | 158,409 | 109,253 | |||||||||
Statutory tax expenses | 18,564 | 19,009 | 13,110 | |||||||||
Effect of non-benefited income New Technological or Preferred Enterprises statuses in Israel | 657 | 335 | 88 | |||||||||
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 | (384 | ) | (1,131 | ) | (448 | ) | ||||||
Change in tax reserve for uncertain tax positions | (625 | ) | (51 | ) | (713 | ) | ||||||
Effect of foreign operations taxed at various rates | 4,070 | 3,477 | 3,249 | |||||||||
Foreign Derived Intangible Income benefit | (2,497 | ) | (2,483 | ) | (1,785 | ) | ||||||
Tax credits | (1,801 | ) | (1,640 | ) | (1,592 | ) | ||||||
Trapped Profits agreement net effect | - | - | 3,716 | |||||||||
Adjustments for previous year’s tax | (651 | ) | (172 | ) | (113 | ) | ||||||
Change in valuation allowance | 871 | 692 | 601 | |||||||||
Other | 185 | 160 | 39 | |||||||||
(175 | ) | (813 | ) | 3,042 | ||||||||
Actual tax expenses | 18,389 | 18,196 | 16,152 |
G. | Effective Tax Rates: |
H. | Tax Assessments: |
I. | Undistributed earnings of foreign subsidiaries: |
J. | Uncertain Tax Positions: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
Balance at the beginning of the year | 9,276 | 8,674 | ||||||
Decrease related to prior year tax positions | (2,884 | ) | (1,202 | ) | ||||
Increase related to current year tax positions | 3,030 | 1,804 | ||||||
Balance at the end of the year* | 9,422 | 9,276 |
M. | Income from Other Sources in Israel: |
A. | Sales by Geographic Area (as Percentage of Total Sales): |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
% | % | % | ||||||||||
China | 36 | 28 | 21 | |||||||||
Taiwan, R.O.C. | 18 | 32 | 37 | |||||||||
USA | 13 | 16 | 23 | |||||||||
Korea | 20 | 13 | 11 | |||||||||
Other | 13 | 11 | 8 | |||||||||
Total | 100 | 100 | 100 |
B. | Sales by Major Customers (as Percentage of Total Sales): |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
% | % | % | ||||||||||
Customer A | 19 | 12 | 21 | |||||||||
Customer B | 18 | 23 | 31 |
C. | Long-lived assets by geographic location: |
As of December 31, | ||||||||
2 0 2 3 | 2 0 2 2 | |||||||
% | % | |||||||
Israel | 62 | 66 | ||||||
US | 19 | 20 | ||||||
Germany | 13 | 9 | ||||||
Other | 6 | 5 | ||||||
Total long-lived assets (*) | 100 | 100 |
A. | Hedging Activities | |
B. | Derivative Instruments | |
Derivative Assets Reported in Other Current Assets December 31, | Derivative Liabilities Reported in Other Current Liabilities December 31, | |||||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 3 | 2 0 2 2 | |||||||||||||
Derivatives designated as hedging instruments in cash flow hedge | 1,229 | - | - | 454 |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Loss (gain) on derivative instruments | 1,576 | 1,813 | (453 | ) |
Year ended December 31, | ||||||||||||
2 0 2 3 | 2 0 2 2 | 2 0 2 1 | ||||||||||
Interest income | 22,643 | 6,478 | 2,194 | |||||||||
Amortization of debt discount and issuance costs related to the Convertible Senior Notes (Note 10) | (1,284 | ) | (1,282 | ) | (4,229 | ) | ||||||
Exchange rate gain (loss), net | 1,303 | 3,469 | (948 | ) | ||||||||
Bank charges | (226 | ) | (187 | ) | (150 | ) | ||||||
Total | 22,436 | 8,478 | (3,133 | ) |
Number | Description |
97 | |
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 |
NOVA LTD. | ||
By: | /s/ Gabriel Waisman Gabriel Waisman President and Chief Executive Officer |