Veeco Instruments - Q4 2025

Transcript

Operator (participant)

Greetings, welcome to the Veeco fourth quarter and full year 2025 earnings call. At this time, all participants are in a listen-only mode. It's now my pleasure to introduce your host, Alex Delacroix, Head of Investor Relations. Thank you. You may begin.

Alex Delacroix (Head of Investor Relations)

Thank you. 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, the timing and expected benefits of the proposed transaction with Axcelis, 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. We will not be addressing questions related to our pending merger with Axcelis. Please note that on February 6th, 2026, our stockholders voted to approve all proposals related to our pending merger with Axcelis. We urge you to read the joint proxy statement relating to the transactions with Axcelis. With that, I would now like to hand the call over to our CEO, Bill Miller.

Bill Miller (CEO)

Thank you, Alex. Thank you everyone for joining us on our call today. Veeco executed well in 2025 and accomplished important milestones, setting the stage for future value creation. We grew our semiconductor business, experienced rapid expansion in our order activity for compound semiconductor and data storage customers, supporting strong growth in 2026, and continued to invest strategically in next-generation technologies. Additionally, on October 1, 2025, we announced an all-stock merger agreement with Axcelis Technologies to create a leading semiconductor equipment company. Our new products are gaining powerful traction, fueled by accelerating demand from AI and high-performance computing. As hyperscalers ramp their next-generation infrastructure, we're seeing clear acceleration in order activity. This momentum drove a meaningful build in backlog at year-end, supporting an increase in revenue for 2026. Later in the call, John will provide additional detail on our backlog.

Revenue for our semiconductor business reached another record in 2025, which was primarily driven by laser annealing and wet processing and ion beam EUV technology. We shipped an LSA evaluation system to our second Tier 1 DRAM customer, showing exciting progress for penetration with our memory customers. A key driver for the semiconductor market came from our advanced packaging business, which we doubled year-over-year. This was driven by wet processing and lithography tool shipments for 3D packaging. New products for the compound semiconductor market are gaining significant traction and driving market share gains. We received orders for our new Propel 300mm GaN-on-Si system for GaN power MicroLEDs, and Lumina+ arsenide phosphide for photonics and solar end markets, which support revenue growth primarily in the second half of 2026.

In the data storage market, we see customers expanding capacity, increasing CapEx spend, and adopting heat-assisted magnetic recording, resulting in increased orders in the third and fourth quarter of 2025 for our ion beam and wet processing equipment. This is driving an increase to revenue, principally in the second half of 2026. We continue to invest in strategic opportunities for future growth with our next-generation technologies. We've extended our IBD300 systems evaluations at 2 DRAM memory customers into 2026. Our customers are providing positive feedback with respect to the quality of film performance. We remain excited about the opportunity to introduce ion beam as the fourth deposition technology for the front-end semiconductor space. Our customers are evaluating our next-generation nanosecond annealing systems, which are progressing well, and we expect to expand the evaluation program to another customer in 2026.

Let me take a moment to briefly update you on the progress of our proposed merger with Axcelis. We're pleased that shareholders of both companies approved the merger at their respective special meetings held on February 6th. We've secured regulatory approvals in several key jurisdictions and remain actively engaged with the relevant authorities in China as we work toward the final clearance needed to close. Based on our continued progress, we anticipate completing the transaction in the second half of 2026. Our integration work with Axcelis continues to reflect our strategic alignment and confidence in the merger. We believe the combination will increase R&D scale, enable a broader complementary product platform, realize several growth synergies and ultimately drive sustainable returns for all our stakeholders. Switching gears to financial highlights for the quarter and full year.

Our fourth quarter revenue came in at $165 million, and our EPS came in at $0.24, both at the midpoint of guidance. Our semiconductor business accounted for 67% of revenue. The full year top line was $664 million, and our EPS was $1.33, with our semiconductor business hitting a record year, accounting for 72% of total revenue. Next, I'll review Veeco's critical role in the semiconductor manufacturing space, where the majority of our revenue is generated, and we continue to grow year-over-year. Veeco has historically had a strong position with foundry and logic customers for annealing applications, and the foundation has provided a high level of trust and repeat business across advanced nodes.

At the same time, expanding our presence into memory is one of the most important strategic priorities. The transition to AI-driven architectures, High-Bandwidth Memory scaling, and 3D structures are driving new thermal processing and material requirements, where Veeco has clear technical advantages. For our LSA tool, we're production tool of record at all three Tier 1 logic customers, demonstrating our strong competitive position. Our next generation NSA system has two evaluations at Tier 1 logic customers. We're planning to ship an evaluation system to the third Tier 1 logic customer in 2026. These evaluations for our customers' low thermal budget applications, such as contact annealing, 3D device stacking, and material modifications, are progressing well. We're expecting sign-off of two evaluations during 2026, with the potential for pilot line orders to shortly follow.

On the memory side, we continue to make meaningful progress penetrating the space and are expanding our footprint with Tier 1 DRAM manufacturers. In addition to being the production tool of record at a leading HBM DRAM customer, we recently shipped an LSA evaluation system to a second DRAM manufacturer, an important milestone that reflects growing confidence in our laser annealing capabilities for memory applications. We also have two IBD300 systems under evaluation at leading DRAM customers, with evaluations extended into 2026. Our IBD300 system enables deposition of low-resistance films that are critical for advanced DRAM structures, such as bitline. This provides Veeco with another opportunity to expand our SAM with the next generation memory nodes. Further penetrating the memory space represents a significant long-term growth opportunity as DRAM requirements become increasingly complex with the transition to HBM, stacked architectures, and low-resistance metallization designs.

Our recent wins and evaluation activity represents early but significant steps toward establishing meaningful long-term growth in the DRAM market as this segment accelerates within the industry. Veeco is also the market leader for IBD EUV systems for the deposition of defect-free mask blanks. Leading logic and memory device makers continue to expand adoption of EUV and future adoption of high-NA EUV lithography, which our IBD technology is a key enabler. We're also expanding our business to include EUV pellicles, which are increasingly being used to protect the mask from particles. We're confident our product roadmap is well aligned with the industry and our customers' needs. Lastly, in advanced packaging, we've doubled our business from $75 million in 2024 to $150 million in 2025, driven by AI-related demand.

We've won multiple orders for advanced wet processing and lithography systems from leading foundries. We continue to see strong demand driven by heterogeneous integration and 3D packaging. Looking ahead, we forecast semiconductor market growth at the leading edge, driven by AI and high-performance computing. We expect our semiconductor served available market to continue to expand, driven by new nodes and AI-related demand, including investment in gate-all-around, High-Bandwidth Memory, and 3D packaging. In annealing, we project our SAM to be $1.3 billion by 2029, as devices continue to shrink and shallower and more precise anneals are required to improve performance. In 2026, we see our logic, foundry, and memory customers all increasing capacity for our annealing tools.

Next, our IBD300 platform for low-resistance metals, together with our ion beam deposition systems for EUV mask blanks and pellicles, represent a total SAM opportunity projected to reach $500 million by 2029. The need for low-resistance metals deposited in a uniform manner is required for better device performance and to minimize power consumption. Lastly, in the back-end semiconductor process, our advanced packaging business for our wet processing and lithography tools continues to expand, and the SAM is projected to reach $650 million by 2029. Throughout the year, we've demonstrated the ability to respond successfully in meeting our customers' extreme high-volume manufacturing ramp of advanced packaging for AI. Based on the strong relationships we've developed with Tier 1 foundry and memory customers, we're invited to engage with their R&D teams and becoming a critical partner in their future roadmaps.

We continue to focus the organization on our key growth areas and remain excited about successfully positioning our business to align with industry advancements and meeting our customers' growing needs. I'll now hand the call over to John to walk through the financials and provide an outlook for 2026.

John Kiernan (SVP and CFO)

Thank you, Bill. Revenue for the year, revenue came in at $664 million, declining 7% from the prior year. Our semiconductor business delivered $477 million in revenue, up 2% year-over-year and comprising 72% of revenue. Revenue in the semiconductor market was driven largely by laser annealing, ion beam technology, and our advanced packaging, wet processing, and lithography products. As disclosed in January, two LSA tool shipments to customers in China were under customs review. These matters have since been resolved, we recognized $15 million of revenue related to these systems in the fourth quarter of 2025. Compound semiconductor revenue totaled $60 million, a decline from the prior year, representing 9% of revenue.

Data storage revenue totaled $39 million, declining from the prior year and comprising 6% of revenue. Lastly, scientific and other revenue was $89 million, increasing from the prior year, making up 13% of revenue. Turning to revenue by region, the Asia Pacific region was 50% of revenue, led by shipments to a leading Taiwanese semiconductor customers for multiple Veeco products. Our China portion was 27% of revenue, with a decrease from the prior year in laser annealing systems. The U.S. accounted for 15% of revenue, and lastly, EMEA was 8% of revenue. Our order backlog ended the year at $555 million, a significant increase of $145 million from the prior year. This 35% growth in backlog reflects the strong acceleration in orders in the second half of 2025.

This positions us well for revenue growth in 2026, principally in the second half. I will provide additional market segment commentary in the guidance section. Moving to our full year 2025 non-GAAP operating results. Gross margin came in at 41%. Operating expenses totaled $188 million. Operating income was $84 million, and net income was $80 million, with tax expense of $10 million, yielding an effective tax rate of 11%. Diluted EPS was $1.33 for the year on approximately 61 million shares. I'll now provide selected GAAP full year data. Amortization expense was $3 million. Our equity compensation expense was $37 million. Depreciation, $17 million, and net interest income was $4 million. Turning to Q4 revenue by market and geography.

Revenue came in at $165 million, flat from the prior quarter and at the midpoint of our guidance. Semiconductor revenue declined slightly, comprising 67% of revenue. In the compound semiconductor market, revenue increased from the prior quarter to $20 million, totaling 12% of revenue. Data storage revenue remained flat at $10 million, comprising 6% of revenue. Similarly, scientific and other revenue remained flat at $24 million, making up 15% of revenue during the quarter. Looking at revenue by region, the percentage of revenue from Asia Pacific increased to 54% due to an increase in semiconductor sales, mainly in Taiwan. Revenue from China was 23%, US, 18%, and EMEA was 5%. Moving to our quarterly non-GAAP operating results. Gross margin totaled 38% at the midpoint of our guidance.

OpEx totaled $49 million, also in line with our guidance. Income tax expense was approximately $1 million, resulting in an effective tax rate of 4%. Net income came in at $15 million. Diluted EPS was $0.24 on 62 million shares. On the next slide, I will discuss our balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $390 million, a sequential increase of $21 million. From a working capital perspective, our accounts receivable decreased by $6 million to $111 million. Inventory increased by $12 million to $275 million. Accounts payable increased by $12 million to $55 million. Customer deposits included within contract liabilities on the balance sheet increased by $14 million to $50 million.

Cash flow from operations increased from the prior quarter to $25 million, bringing our total for the year to $69 million. CapEx totaled $3 million during the quarter and $16 million for the year. I would now like to provide a non-GAAP outlook for Q1 and fiscal year 2026. Q1 revenue is forecasted between $150 million-$170 million. We expect gross margin between 37% and 38%, OpEx between $48 million-$50 million, net income between $9 million-$15 million, and diluted EPS between $0.14-$0.24 on 62 million shares. The momentum of orders secured in the back half of 2025 will contribute to meaningful revenue growth, primarily in the second half of 2026, supporting a strong full year outlook.

Full year 2026 revenue is forecasted between $740 million-$800 million. We expect gross margin between 41%-43%, OpEx between $205 million-$220 million, net income between $94 million-$115 million, and diluted EPS between $1.50-$1.85 on 63 million shares. Let me provide commentary for each of our market segments. Beginning with the semiconductor market, we expect strong growth from our Tier 1 customers, driven by AI and high-performance computing, more than offsetting declines in mature node China business. We are seeing accelerating demand for our LSA tools at advanced nodes, along with growth in wet processing applications for advanced packaging as customers scale capacity driven by AI and HBM.

In the compound semiconductor market, we see growth in 2026, weighted in the second half. We received several orders in 2025 for our new Propel 300mm GaN-on-Silicon system for GaN power and MicroLED applications, as well as orders for our new Lumina+ arsenide phosphide system, supporting photonics and solar end markets. These new product wins are driving revenue in the second half of 2026. We're also seeing continued engagement from customers and are taking orders for deliveries into 2027. In the data storage market, we secured orders in the second half of 2025 for our ion beam and wet processing equipment. As we move into 2026, customers are signaling broader HAMR adoption, increasing CapEx investments, and expanding capacity.

These trends by our customers are driving momentum for our business as we are fully booked in 2026 and have multiple orders extending into 2027. Before I hand the call over to the operator for Q&A, I want to reinforce that AI is a critical driver of Veeco's growth in semi, compound semi, and data storage markets, and we have a strong portfolio of enabling technologies that are increasingly critical to serve leading customers. From a semiconductor market perspective, analysts are projecting the industry to grow to over $1 trillion in the near term, with AI accounting for more than half of sales. We are confident that Veeco is well-positioned to create long-term value in an increasingly AI-driven semiconductor market.

We are also excited about the pending Axcelis merger, which we feel will enable us to better accelerate our investments in next-generation technologies and offer an even better product portfolio to our customers. I would now like to turn the call over to the operator to open up for Q&A.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. As a reminder, given the pending merger with Axcelis, Veeco management will not be addressing questions related to the merger. If you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from the line of David Duley with Steelhead Securities LLC. Please proceed.

David Duley (Managing Principal)

Yeah, thanks for taking my question. I was wondering for the outlook for 2026, if you could give us an idea of what you expect your semi business to grow and your hard disk drive business to grow. Actually, just all three segments to your best of your abilities would be awesome.

John Kiernan (SVP and CFO)

Yeah, I'll take that, David, and thanks for the question. Yeah, we've given a guide of $740 million-$780 million of revenue for next year.

Bill Miller (CEO)

$800.

John Kiernan (SVP and CFO)

$800. Excuse me. Thank you, Bill. $740 million-$800 million, you know, next year. If you pick the midpoint of the guide at $770, that's up 16%. We do expect growth in the semiconductor piece of the business, the compound semiconductor, and the data storage piece. The one area of the market that we expect to be down would be the scientific and other, after a strong year in 2025, and we had some, you know, large quantum computing orders that we don't see at this point, continuing into 2026. We're going to see that business call it about $60 million, at the midpoint of our guide, down by about 33%. Let me come back to the semiconductor, you know, market first.

It is our largest, you know, market. We expect growth around 15% at the midpoint of our guide, so about a $550 million revenue year in 2026 for the semiconductor piece of the business, and fairly, you know, in line with the range of estimates for WFE growth between 10%-20% for next year. You know, on the compound semiconductor side, as Bill mentioned in the prepared remarks, we're really making traction with some of our new products, and particularly, for the GaN-on-Si, 300 millimeter for both GaN Power and MicroLED, and our new large, you know, batch size, arsenide phosphide, you know, tool, for solar and other applications.

We expect, you know, that business to be up about a third next year to about $80 million. The data storage, we started signaling the data storage that customers were increasing the order activity in Q3. We expected that activity to continue in Q4. It has, and we're expecting that business to double to about $80 million in 2026. We mentioned in our prepared remarks as well that, you know, we're fully, you know, booked for system orders for 2026 at this point in time, and even started booking orders into the beginning of 2027.

David Duley (Managing Principal)

Along the, that last point in the hard disk drive business, if you're fully booked this year and it's spilling over into next year, I would imagine your customers' CapEx is obviously going up. I would think this would be a multi-year increase in business in that sector. Maybe you could just help us understand what you're thinking.

John Kiernan (SVP and CFO)

We're definitely seeing, with the adoption of HAMR, the capital intensity is going up. Certainly their CapEx is increasing, and we're seeing, you know, the first round of orders that we'll be shipping in 2026 are really for the front-end fabs, and now we're starting to see some orders, not only continuing in the front end, but also the back-end fabs, we call the slider fabs, for a shipment in 2027. It does seem that the amount of heads that are being shipped is increasing, 'cause the slider fab is really just a function of the number of heads shipping. That's a very positive sign, actually. I think it's there's clearly legs into 2027 and potentially beyond.

David Duley (Managing Principal)

Great. Final question from me is on the Propel. I was just wondering, you know, that's the GaN-on-Silicon tool, I believe. You know, what do you think the opportunity for revenue production is in 2026 and 2027? I would imagine the outlook there might be increasing, just given that there seems to be a lot of momentum to adopt GaN in the data centers.

Bill Miller (CEO)

Yeah. Well, what we. As you know, David, we've had an evaluation system at a leading power IDM for some time, and that's going very well. We're at a very solid position there, and we, I think on our last call, announced that we actually received a pilot line order for. We received a pilot line order for a, excuse me, a pilot line order for shipment in 2026. That's gonna drive incremental business and probably approaching $15 million range. And I would expect there's a possibility, just if they stick with their plans of continuing to ramp in 2027, we might receive orders in the second half of 2026 to be shipped in 2027 for that. That's the power opportunity.

We also have a tool in backlog for 300 millimeter Propel GaN-on-Silicon for a MicroLED application. We're actually doing demos with a few different customers for MicroLEDs, as well as other GaN power opportunities.

David Duley (Managing Principal)

Thank you.

Operator (participant)

The next question comes from the line of Denis Pyatchanin with Needham. Please proceed.

Denis Pyatchanin (Equity Research Associate)

Great, thank you. I have a question about the gross margins. It seems like we've taken a little bit of a dip here in Q4 and then in Q1. I think in Q4, it was because of some evaluation systems, and I think you're still guiding a little bit below where you were trending before that. Maybe can you tell us about gross margins in Q1 and how you see them progressing through the rest of the year, given that you guided, I think, 41%-43% for 2026?

John Kiernan (SVP and CFO)

Sure, Denis, thanks for the question. I'll be happy to. Yes, you know, we're guiding Q1 at a similar level to Q4, and we had highlighted coming into Q4 that we saw a change in our product mix, and that product mix moved a little bit more to advanced packaging as a bigger percentage of the overall business with a lower gross margin profile, and also some impact from anticipated sign-offs from evaluation systems. I would say that for Q1, we're seeing a similar revenue profile, and a similar, you know, margin drivers there for Q1. As we look into the year, we do see gross margin accelerating particularly in the second half of the year next year.

That's driven by a couple of factors. You know, one, that we're seeing, you know, business from our new products, and the gross margins on those new products are higher than the most recent averages. Increase in the, you know, data storage, you know, business, will help towards, you know, gross margin improvement. You know, significantly higher volumes in the second half of the year, next year, will also benefit the gross margin profile.

I would say as we, you know, exit, you know, the second half of the year or we're in the second half of the year, in 2026, we would expect to see, you know, gross margins at our 45%, you know, gross margin, you know, target.

Denis Pyatchanin (Equity Research Associate)

That's some great details. Thank you. Just following up on that, is there currently any sort of tariff headwind that's factored into the guide? Could you quantify it, if possible?

John Kiernan (SVP and CFO)

Yes. We started to see the impact principally in the second half of last year. It was running about 100 basis points of gross margin headwind to pre tariff regime. We're baking in slightly higher tariff regime in our forecast in 2026 compared to 2025.

Denis Pyatchanin (Equity Research Associate)

Great. That's it from us. Thank you.

John Kiernan (SVP and CFO)

Thank you.

Operator (participant)

Thank you. At this time, we have no further questions. I'd like to turn the call back over to Bill Miller for closing remarks.

Bill Miller (CEO)

Thank you. As we look ahead to 2026 and beyond, we remain confident in our ability to build momentum. We continue to be excited about the pending merger with Axcelis, which we believe together will enhance our ability to bring needed solutions to the rapidly evolving semiconductor industry and better serve our customers and shareholders. We look forward to keeping you updated on our progress. I would like to take a moment to thank our customers and shareholders for the continued support, as well as recognizing our employees for their dedication. Have a great evening.

Operator (participant)

Thank you. This concludes today's conference. You may disconnect your lines at this time. We thank you for participating.