Good day, ladies and gentlemen and welcome to the Veeco Instruments Q3 2024 Earnings Conference Call. At this time, all participants will be in a listen-only mode. There will be an opportunity to ask questions later during the conference. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to Anthony Pappone, the Head of Investor Relations. Thank you and you may proceed, sir.

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer; and John Kiernan, our Chief Financial Officer. Today's earnings release and slide presentation to accompany today's webcast is available on the Veeco website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions or otherwise makes statements about the future, these forward-looking statements are based on management's current expectations and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K, annual report and other SEC filings. Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. With that, I will now turn the call over to our CEO, Bill Miller.

Thank you, Anthony. Veeco delivered solid third quarter top and bottom line results above the midpoint of our guidance. Revenue totaled $185 million, non-GAAP operating income, $31 million and non-GAAP EPS of $0.46. Our semiconductor business delivered record revenue, increasing 26% year-over-year and 13% sequentially, highlighted by an increase in shipments to leading-edge customers across several product lines. As announced in today's press release, a leading foundry, HBM manufacturer in OSATs placed over $50 million in orders for our wet processing systems in 2024, driven by AI. Our advanced packaging wet processing business is a key driver of growth in our semiconductor business in 2024, and recent orders are extending visibility into 2025. I'll now provide an overview of Veeco's role in the semiconductor manufacturing process as well as an update on key technologies driving business today. Veeco technologies are increasingly critical for several leading-edge semi manufacturing process steps. The semi road map requires advanced annealing capabilities to meet enhanced performance requirements from new architectures and shrinking geometries. Key capabilities include solutions with lower thermal budgets and surface level precision. As a result, the opportunity for laser annealing is expanding as device scaling with incumbent technology becomes more challenging. Veeco is the market leader in laser annealing with our LSA systems qualified as production tool of record for our logic and memory customers' most advanced nodes. Equally as important, our next-generation nanosecond annealing technology achieves an even lower thermal budget at a nanosecond dwell time, expanding laser annealing capabilities to potentially enable industry inflections, during the quarter LSA demand from leading edge customers increased, including shipments to several leading edge logic and DRAM customers. Turning to ion beam deposition for EUV mask blanks. Veeco's IBD EUV system enables deposition of defect-free films for EUV mask blanks, making Veeco the market…

Thank you, Bill. Starting with revenue for the quarter. Revenue came in at $185 million, above the midpoint of our guidance, up 4% from the prior year and 5% sequentially. Our semiconductor business delivered record revenue during the quarter, comprising 67% of revenue, led by strength across several product lines. In the compound semiconductor market, revenue declined from the prior quarter to $16 million, totaling 8% of revenue. Data storage revenue declined slightly to $33 million, comprising 18%. And lastly, scientific and other made up 7%. Turning to quarterly revenue by region. Revenue from Asia Pacific region, excluding China, was 33% and the United States came in at 32%. In line with expectations, the percentage of revenue from China decreased to 30% due to a decline in semiconductor sales. We continue to expect China revenue for the full year to be around 33% of revenue. And lastly, EMEA was 5%. Switching gears to our non-GAAP quarterly results. Gross margin totaled approximately 44%, in line with guidance. Operating expenses totaled $50 million, also in line with guidance. Income tax expense was approximately $3 million, resulting in an effective tax rate of approximately 11%. Net income came in at approximately $28 million and diluted EPS was $0.46 on 62 million shares. Looking at our GAAP results. Operating expenses declined by approximately $4 million from the prior quarter due to a $5 million gain from a change in estimate related to the Epiluvac acquisition. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $321 million, a sequential increase of $16 million. From a working capital perspective, our accounts receivable increased by $40 million to $132 million, primarily due to timing of shipments as well as a change in customer mix. Inventory decreased…

Thanks John. Despite near-term headwinds in our data storage business, we remain confident our strategy can deliver long-term value for shareholders. First, some industry analysts and leading equipment providers project growth of the semi industry to over $1 trillion in the 2030 time frame, contributing to expectations for long-term growth in wafer fab equipment spending. Second, Veeco has a portfolio of enabling technologies that are increasingly critical for several leading-edge semi manufacturing process steps. Third, our strategy of investing in core technologies to enable industry inflections in advanced logic and memory continues to gain traction. Fourth, we believe our exposure to these high-growth areas of the market can enable our SAM to grow faster than growth in WFE spending. And finally we expect our execution to generate long-term value for Veeco shareholders. With that, I'll now turn the call over to the operator to open up Q&A.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Mark Miller from Benchmark. Please proceed with your question, Mark.

Recently ASML gave a forecast that was somewhat below expectations. And one concern was that their equipment is not being used as many process steps as previously thought. I'm just wondering if you're seeing any impact from that.

Yeah. Thanks for making some time for us today Mark. Appreciate it. Our outlook for this year 2024 is flat very similar to ASML's outlook in the three to five system range. And then looking forward to 2025, we also are expecting a three to five system range as we've discussed that the industry needs one of our systems for every 10 to 15 ASML scanner shipments. We do expect some new application wins to provide the opportunity for revenue growth beyond that. And I would say, that's probably potentially, one system every year or so. But -- so we're still very comfortable, with our view of three to five on average going forward. And then obviously, as ASML scanner shipments continue to increase as they're planning, our business would increase kind of in parallel with that. Q – Mark Miller: You mentioned that China will be down somewhat. Is that primarily driven by the slower EV market or other factors there?

I'll take a shot. Maybe John, can fill in. I would say, largely our China market is really in the semi space. And so I would say, really the demand for China has been strong in 2024. As John mentioned in our prepared remarks, our recent customer engagements have moderated and we expect China revenue to decline as customers digest capacity. So, it's a bit too early to definitely say how much China revenue will decline. We generally have about six months visibility overtime, we could see revenue moving towards more normalized rates. Q – Mark Miller: Thank you.

Thank you, Mark

Thank you. The next question comes from Ross Cole from Needham & Co. Please proceed with your questions, Ross. Q – Ross Cole: Hi. Thank you for taking my questions. I was wondering if you could provide any directional color for the different business segments for at least maybe the first quarter of 2025 or some guidance for the full year there. Thank you.

Sure. I'll take a stab at that, Ross. So as we look into 2025, I would say for the full year, it's a bit early to provide detailed quantitative guidance, but we certainly can provide some qualitative commentary on the markets, as we head into 2025. You just heard Bill describe that recent customer engagements, if I'm talking about the semiconductor market here, that recent customer engagements in China have moderated a bit. And despite that view, we see the opportunity for growth in the semiconductor business in 2025, driven by AI growing from about 10% of our business to 20-plus percent in 2025. This includes our wet processing business, where we're seeing growth accelerating into next year. We also see a recovery in our AP lithography business that's been light as customers are adding capacity expansions for AI and mobile. We continue to be excited and see recent wins for our LSA business in both logic and memory. And as Bill also just mentioned, we see opportunities in our EUV mask business as well. So we see opportunity for growth in the semi market in 2025. If I move on to the compound semi market in GaN power we see emerging use cases have driven some traditional silicon power electronic manufacturers to consider adoption of GaN on silicon for 300-millimeter production, which is a pretty exciting opportunity. In the SiC power market while the transition to 200-millimeter production continues weaker demand from a slowdown in EV adoption, has resulted in customers delaying investments there. We're also seeing some opportunities for several arsenic phosphide photonics and solar applications. And given that, we see potential for growth related to these activities in the second half of 2025 and moving into 2026, but a bit too early to call the extent of that. The one area we see a headwind in 2025, is in the data storage side. So our customers' utilizations are improving, but they remain below peak levels from a few years ago. And we generally work with about a year worth of lead time with our customers. And in discussions with customers, they've indicated they are not planning to invest in new systems to expand capacity in 2025. And as a result of that, we expect about a $60 million to $70 million reduction in our revenue from our data storage business in 2025 compared to 2024.

Great. Well, I really appreciate the extra color there. Thank you.

Thanks, Ross.

[Operator Instructions] The next question comes from Dave Duley from Steelhead Securities. Please proceed with your questions, Dave.

Thanks for taking my question. I guess first off on the $50 million worth of orders in the wet processing business, could you give us a rough cut, how it's split between DPUs and high-bandwidth memory?

Yes. It's – Dave, I would say, this is – a lot of it's in our wet processing business and clearly we're seeing it as a key driver of business this year and continuing to see it strong in 2025. And I would characterize it as business from leading foundry as well as high-bandwidth memory manufacturer and as well as OSATs. So the exact breakdown of that is kind of hard to say. But clearly, we have exposure in all those steps that you just asked about there And we have about those 50 orders equipped about 20 systems of business. And from continuing discussions on and planned orders we're getting quite confident 2025 will be a strong year. And as John mentioned, we're seeing AI-related business whether that's in foundry/logic HBM or OSATs kind of growing from about 10% of our business to 20% of our business plus in 2025. So exciting opportunity.

I'm just curious, if you're calling this out now because you just got a big piece of the $50 million of cumulative orders? Or has this been kind of ongoing split throughout the year? Just regarding the timing I guess.

Yes. It's been ramping the business throughout the year. I would say we were kind of undersizing it previously. And now I think we're getting our hands around the opportunity now and have some good visibility into next year.

Okay. And then one of the hot buttons for everybody is China and what exactly is going to happen there. I guess you characterized it as you expect the Chinese revenue to decline. And there was – you said one other comment about normalizing. Maybe you could just help us understand where you would expect Chinese revenue to be? What is normal? And it sounds like normal is going to be sometime in 2025. So I'm just kind of trying to figure out how much it's going to go down what percentage it's going to equate to.

I think it's a little bit more nuanced than that Dave. Clearly it's kind of too early for us to kind of call the year. We have only about six months of visibility. And so I would say over time. I'm not exactly sure how that's going to roll up over time. I think it's probably safe to say whether that's the end of 2025 or into 2026 we'll probably get to what I think John characterized as more normalized rates. And so if you go back a few years, China ran about 20% plus or minus range of our business. So I would say, we don't see that rolling off right away early on. But we would think that eventually we'd probably come back to normalized rates at some point.

Okay. Great. And then as far as your progress on your evaluation systems, you gave us some pretty good detail on the segments of your business and the directions. I was just curious, do you expect let's say in the first half of 2025 for any of these evaluation systems to start to contribute to revenue? Or maybe do you think you have placed another evaluation system in the high-bandwidth memory segment? And that's it for me. Thanks.

Great. Thanks, Dave. I'll give you a brief update. Kind of in semi we have the two evaluations in our nanosecond annealing in logic. We're actually being assessed for multiple applications that the customers are evaluating us for. We've had some positive feedback. As a matter of fact we actually have strong pull for a third evaluation at the third logic customer as well as a memory customer that we're trying to manage through our resources on. I would say there are potential for NSA follow-on orders in late-2025 at the rate we're kind of going here, so very positive there. And I would say in the IBD300 tool that we have for low-resistance metals in the memory applications, we're making good progress there. We continue to work with the customers. And we're working with them now at the point of trying to integrate this new kind of fourth deposition technology into the fab and helping them integrate this technology into their upstream and downstream processes. And once again, we are receiving strong pull from two logic customers where we're considering probably putting one at least one and maybe two evaluations in the field in 2025. And I would think here we're probably looking at initial follow-on orders late-2025 but probably more like 2026. We're also planning to put eval LSA, Laser annealing LSA evals out to a second leading memory customer in the first half of 2025 as well. So a pretty full slate of tools in the field that we're supporting and some planned incremental investments here in 2025.

Great. Thank you very much.

Thanks.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session as there are no further questions. I'd now like to turn the call back to Mr. Bill Miller, for closing remarks. Thank you, sir.

Thank you. I do want to thank our customers and shareholders along with the Veeco United team for their continued support. And wish you all a great evening, this evening. Thank you.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.