Greetings, and welcome to the Veeco Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Delacroix, Head of Investor Relations. Thank you. You may begin.

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 Veeco's website. To the extent that this call discusses expectations for future revenues, future earnings, the timing and expected benefits of the proposed transaction with Axcelis, market conditions or otherwise make 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. Given the pending merger with Axcelis, we will not be addressing questions related to the transaction. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our previously announced transaction with Axcelis. We urge you to read the joint proxy statement relating to the transaction with Axcelis once it becomes available. With that, I would now like to hand the call over to our CEO, Bill Miller.

Thank you, Alex. Good afternoon, and thanks for joining us. We entered the quarter focused on execution, and I'm pleased to report that Veeco continues to perform well. Third quarter revenue was $166 million, exceeding the midpoint of our prior guidance of $160 million, and non-GAAP operating income was $23 million. Non-GAAP diluted earnings per share was $0.36, above the prior guidance midpoint of $0.28, reflecting continued operational discipline and strong execution across the business. This performance underscores the sustained investment in leading-edge semiconductor technologies, particularly in AI and high-performance computing. These trends are driving healthy demand, especially in gate-all-around, high-bandwidth memory and advanced packaging, where Veeco's differentiated equipment enables customers to advance their most complex technology road maps. On October 1, we announced that we entered into a definitive agreement to combine with Axcelis Technologies in an all-stock transaction to create a leading semiconductor equipment company serving complementary, diversified and expanding end markets. The completion of the merger is subject to, among other things, the approval of our stockholders and various regulatory approvals, which we are focusing on securing. We are hopeful that we will successfully bring this transaction to completion and strongly believe these 2 companies are optimal together and will drive sustainable value creation for all our stakeholders. We expect to see many growth synergies from the transaction that will be integral in driving success for the combined company. First, expansion of our served available market, which combined was over $5 billion on a pro forma 2024 basis. Second, we believe the transaction will enable a broader and complementary product portfolio and provide better solutions and services for the combined company's customers. A few items include adjacent technology steps with Axcelis' ion implantation and our laser annealing, likely providing significant opportunities to enhance device performance and yield.…

Thank you, Bill. Revenue came in at $166 million, above the midpoint of our guidance, in line with the previous quarter. Our semiconductor business reported $118 million, a decline of 5% quarter-over-quarter and 71% of total revenue. Our performance was driven by LSA, IBD EUV for mask blanks and our advanced packaging wet processing systems. In the compound semiconductor market, revenue was $11 million, down from the prior quarter, totaling 7% of revenue. Data storage revenue was $10 million, totaling 6% of revenue. And scientific and other revenue increased to $27 million, totaling 16% of revenue, driven by an increase in optical deposition systems. Turning to the quarterly revenue by region. Revenue from the Asia Pacific region, excluding China, was 49%, a decrease from 59% in the prior quarter. Sales were driven by customers in Taiwan for LSA, IBD EUV masks and advanced packaging. Revenue from China customers was 28%, an increase from 17% in Q2. Sales were driven primarily by LSA and optical deposition systems. The United States came in at 16% and EMEA was 7%. Switching gears to our non-GAAP quarterly results. Gross margin totaled approximately 42% at the top end of our guidance. Gross margin was favorably impacted by higher volume and improved product mix. Operating expenses totaled approximately $46 million, which came in favorably below our previously guided range. Income tax expense was approximately $3 million, resulting in an effective tax rate of approximately 12%. Net income came in at approximately $22 million, and diluted EPS was $0.36 on 61 million shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $369 million, a sequential increase of $14 million. From a working capital perspective, our accounts receivable increased by $10 million to $116 million. Inventory…

[Operator Instructions] As a reminder, given the pending merger with Axcelis, Veeco management will not be addressing questions related to the transaction. We have a question from David Duley of Steelhead Securities.

My first question is on some of the 300-millimeter GaN order activity that you've seen. Is there all of a sudden new adoption in these end markets that you're referring to? I think in the press release, you talked about auto, industrial and data center. I was just wondering if you might be able to address why GaN is being adopted in these particular segments at this point.

Yes. We've had an evaluation with this leading power IDM for over a year, and we've -- it's been successful, and we just received a follow-on multi-chamber order for a pilot line tool, likely for data center applications. And they're going to pilot production in '26, and their plan is to ramp to HBM in '27. 300 millimeters, sorry.

And is there a specific reason now why GaN is being adopted in the data centers?

I think the efficiency of power conversion in the data center is a real limiting issue in the data center. And so any material that can be adopted to convert electricity more efficiently is pretty desirous.

Okay. And then, John, if you could just address the gross margin guidance. I think you mentioned increased evaluation activity as to why the gross margins would be down. But maybe just elaborate on that a little bit for me.

Sure, Dave. I'd be happy to. So yes, we just ended this quarter with gross margin in Q3 around 42% on the high end of our guided range. But we have guided for Q3 a less favorable -- excuse me, for Q4, a less favorable gross margin in 37% to 39% range, which is lower than we have been experiencing. And we did indicate in our prepared remarks a driver being product mix there. And within the product mix, 2 items to highlight. One, is, as you mentioned here, Dave, we're expecting some eval sign-offs this quarter at favorable pricing. Now for clarity, those are not eval related to our NSA at leading logic or eval for our IBD300 for the low-resistance metal. This is more a recurring sort of LSA type of eval and as well as an eval that we have out for in compound semiconductor for micro LED. So that's the one area. The second area is that we have in our semiconductor business, in our Q4 revenue guide, increased amount of business in advanced packaging for -- an application where the gross margins for those tools aren't as high as the company average.

Okay. And then just final question from me is you went through the segments in pretty good detail. But I was just wondering if you could elaborate a little bit more on what you would expect the trajectory of your advanced packaging business to be in 2026. I think it doubled this year. I don't imagine it's going to do that again. But what early indications do you have of growth there?

Yes. The business has doubled, Dave, and it was not easy, and I have to give kudos to our operations team in the business for ramping -- doubling the business in pretty short order there. We are actually running the business to a road map. And so we're working with, as you might imagine, industry leaders and helping them with their wet processing challenges, whether they're moving to Under Bump Metal etch, trying to solve some problems there, photoresist removal and hybrid bonding. So we feel that we've got a number of projects and programs and demo activity to sustain our position. I think it's a bit early for us to comment on the direction of advanced packaging for '26 specifically, really because the business runs on a shorter backlog and shorter lead time. So that full year visibility, we just don't have it for that segment.

The next question we have is from Denis Pyatchanin of Needham & Co.

I think you've previously mentioned an uptick in HDD customer utilization. How are the ordering patterns near term? Is there only visible demand right now for the second half of '26?

Denis, our lead time, this is a build-to-order business, and our lead times are approaching a year, maybe a little bit less, but in that range. And so our first orders we received in Q3 for ion beam and wet processing equipment, and we're negotiating orders in the fourth quarter. So just based on the timing of the receipt of the orders kind of dictates that those would be shipped in the second half of next year.

Great. And on the strength in scientific, could you tell us more about that? Was that driven predominantly by Chinese customers this quarter?

There was some content for Chinese customers this quarter. Some of the strength in that segment this quarter also were for optical deposition tools or general industrial applications there, and there was China content with that.

Got it. And my last one is about NSA, maybe a little bit more high level. So I think you mentioned that it's being tested with logic customers. Do you see NSA adoption as being possible for memory customers as well?

Yes, they're actually interested in adopting it, particularly because of our NSA can anneal only very thin layer. So it's very conducive to material modification and 3D stacking, which is happening in memory applications. But yes, the evals are going quite well, moving along with the 2 that we have. We have strong pull from the third logic customers. And as I just said, memory customers are interested. Our plan would be to ship multiple nanosecond annealing tools in 2026 to a mix of logic and memory or memory.

The next question we have is from Mark Miller of Benchmark.

Can you give us a little update on the thin metal films with IBD evals?

Yes. Yes, we're making good progress in introducing the fourth deposition technology to front-end semi. It remains an exciting opportunity. Our customers are very much engaged, and we're working together to improve or work on bringing the maturity of the product up for high-volume manufacturing as well as working with our customer to integrate the ion beam deposition technology into their existing production processes. So there's clearly still pull. We have 2 tools in DRAM, Mark, but there's definitely pull in logic and potential for evals there in the future.

Okay. So 2 evals with DRAM manufacturers with the IBD tools.

Yes.

In terms of your backlog, the visibility you have, margins are going to be down. You talked about why. But going out in the future, does the backlog look like the margins will improve when you start shipping out of it in the future?

You want to take it, John?

Yes. So Mark, yes, so we just said that we expect the gross margin in Q4 to be down for mix reasons. As we look out into the future, past Q4, our expectation is that we could see margin improvement in '26 over 2025 gross margin improvement. As was mentioned on the call in our prepared remarks, we're getting good visibility. We're starting to get good visibility for data storage with orders starting to come in, in Q3 and more orders being negotiated in Q4 for shipment in the second half of next year as well as orders that we've been receiving for our new products in -- for our MOCVD, which goes into the compound semiconductor market bucket. And again, on a build-to-order type of production there, and we see that in the second half of next year.

Just one more question, if you permit me. Your data storage orders you received this quarter for IBD and wet processing, is that from one customer or from multiple customers?

It was from multiple customers.

At this time, we have no further questions. And I would like to turn the call back over to Bill Miller for closing remarks.

Thank you. Our results this quarter reflect strong execution and steady momentum across our business. We believe the pending merger with Axcelis represents the next phase of that progress. It will broaden our technology portfolio, expand our market reach and create multiple opportunities for revenue growth through cross-selling, integrated solutions and accelerated innovation. We're confident in the path ahead, and we'll continue to update you as the process moves forward. Overall, we're delighted with the response from our stakeholders across the board and are even more energized to deliver on the compelling merits of this strategic combination. Thank you to our employees for their hard work and dedication to Veeco, and thank you to our customers and partners for their continued trust in Veeco. Have a great evening.

This concludes today's conference. Thank you for joining us. You may now disconnect your lines.