Ladies and gentlemen, greetings, and welcome to the Veeco Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Pappone, Head of Investor Relations. Please go ahead.

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 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 discuss 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 turn the call over to our CEO, Bill Miller.

Thank you, Anthony. 2024 was another successful year for Veeco. We reached several important milestones, grew the business, delivered solid profitability and strategically invested in several exciting long-term growth opportunities. Beginning with strategic milestones, as announced in a press release earlier today, we shipped an LSA system to a leading-edge semiconductor company for high-volume production of a 2-nanometer gate all around logic chips. We also reached an agreement to ship an LSA evaluation to a second leading memory customer in 2025, and we shipped a 300-millimeter gallon silicon evaluation system to Tier 1 power device customer with this customer having since provided positive feedback. Revenue from our semiconductor business reached another record in 2024, outperforming WFE growth for the fourth consecutive year. Our robust performance was primarily driven by record laser annealing revenue, including growth in LSA shipments to mature node customers as well as leading-edge shipments for high-bandwidth memory and gate all around. Another key driver of growth came from wet processing, where our system is production tool of record and 3D packaging for AI. While investing for growth is core to our long-term strategy, expanding profitability is also important. In 2024, we successfully grew non-GAAP operating income and EPS while continuing to invest in our largest SAM expansion opportunities. Switching gears to our full year financial highlights. Veeco delivered top and bottom line growth with results coming in above the midpoint of our updated 2024 guidance. Revenue totaled $717 million, growing 8% from the prior year led by a 13% year-over-year growth in our semiconductor business. Non-GAAP operating income grew 6% to $116 million and diluted non-GAAP EPS grew to $1.74. Now, before a look at our Q4 highlights. Revenue in the fourth quarter totaled $182 million, increasing 5% year-over-year. Non-GAAP operating income $27 million and non-GAAP EPS…

Thank you, Bill. Starting with revenue for the year. Revenue came in at $717 million, increasing 8% over the prior year. Our semiconductor business delivered $467 million in revenue, up 13% year-over-year and comprising 65% of revenue. Growth in the semiconductor market was largely driven by our laser annealing and advanced packaging wet processing systems. Compound semiconductor revenue totaled $78 million, a decline from the prior year representing 11% of revenue. Data storage revenue totaled $99 million, increasing 12% year-over-year and comprising 14% of total revenue. And scientific and other revenue was $74 million, a slight decline from the prior year, making up 10% of revenue. Moving to revenue by region. China comprised 36% of revenue, up from the prior year, driven by growth in sales to semiconductor customers. Our Asia Pacific region, excluding China, made up 32% of revenue, led by shipments to semiconductor customers. United States totaled 23% of revenue, primarily driven by data storage customers. And lastly, EMEA was 9% of revenue for the year. Our order backlog ended the year at approximately $410 million, down approximately $80 million from the prior year, primarily attributed to our data storage business. Now, looking at our full year 2024 non-GAAP operating results. Gross margin came in at 43.3%, relatively consistent with the prior year. Operating expenses increased 8% to $194 million, primarily driven by an increase in R&D investment. Operating income increased 6% from the prior year to $116 million and net income increased to $104 million with tax expense of $15 million, yielding an effective tax rate of 12%, an increase from 10% in the prior year. Diluted EPS increased to $1.74 for the year on 61 million shares. I'll now provide selected GAAP full year data. Amortization expense was approximately $7 million, our equity comp expense was…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Charles Shi from Needham & Company. Please go ahead.

Hi, Good afternoon. A couple of questions. I want to start with the China. I think that you guys provided that qualitatively China will decline this year. That's the same you've had for a while. But I want to ask about Q1, all the peers who reported before you, some of them seems to be guiding to flattish China in Q1, but some are probably seeing more of the immediate drop of the China revenue. So what do you see into Q1? And since I believe China probably accounts for a good amount of the backlog. Supposedly, you have good visibility of how much China can decline. Mind me if you give us a little bit more than quantitative and anything you can provide quantitatively, that would be great.

Sure, Charles. I'm happy to do so. So we do have good visibility into the first half of China and backlog, and we expect our China revenue in the first half of 2025 to be about 25% to 30% of total revenue, down from last year, China for the full year, it was about 36% of our total revenue with that slightly more weighted to Q1 than Q2.

Got it. Thanks, John. That's very helpful color. The other question I do want to ask you more on the advanced packaging side. I did notice you talked about the wet processing product, and it looks like you already saw strong growth for last year. You think it will accelerate in 2025? Mind if you provide us a little bit more color on what's driving that and maybe a little bit more quantitatively, do you see more of the acceleration in the first half in the more immediate quarter or you're seeing something more coming up in the second half of the year?

Yes. Good afternoon, Charles. We're really excited about the advanced packaging opportunity. We see this as an opportunity doubling in 2025 over 2024, and that's largely driven by wet processing. So we're really kind of benefiting from capacity expansions at a leading foundry and HBM manufacturer as well as multiple OSATs. And so we see this as a multiyear opportunity. And also in litho, our business in 2024 was pretty modest, and we're seeing that business pick up with a lot of breadth in advanced packaging as well. So as I said, our advanced packaging, including wet processing predominantly and secondarily, litho is doubling. So maybe from $75 million to $150 million.

That's a full year comment, right? $75 million to...

Yes.

Okay. Any color on….

Yes. I would say, John, it's ramping, but it's going to probably continue to grow from Q1 into Q2 and Q3, I think through the year.

Yes. And so we entered the year with a good backlog. And maybe, Charles, this ties back to your first question a little bit as well about visibility into the backlog. We're entering 2025 with virtually the same backlog in semiconductor that we started year with. So the backlog is flat. But the composition in the backlog is different. So at the beginning of the year, we had a higher concentration of backlog in -- with our China customers for their mature business. As we enter 2025 a higher concentration and an increase in the semi backlog comes from area like two-nanometer gate all around and advanced packaging. So we've got a reasonable visibility there as well.

Thanks. I really appreciate the color. Thanks. I will be back in the queue.

Thanks, Charles.

Thank you, Charles.

Thank you. The next question comes from the line of Rick Schafer from Oppenheimer. Please go ahead.

Hi. This is Wei Mok on the line for Rick. Thanks for taking my question. Congrats on your NSA shipments. This customer looks like it's separate from the other two customers that you currently have on the NSA evaluation program. So I was wondering, has this customer been on the EVA program before? Or -- and what are you going to comfort and the decision to make this purchase ahead of the other two that are still on eval?

So this shipment came as part a multi-tool laser system order from this customer in 2024. And their goal is to enter the market kind of at the 2-nanometer gate all around. And so this was not -- this is a new customer for us, but we did not provide an evaluation tool. So this is a straight sale. So we're now qualified at all for, if you will, advanced logic customers for gate all around nodes for LSA. And we expect growth in gate all-around to really ramp in 2025 with these customers. And I guess I'll just circle back on the NSA eval since you mentioned it. Those evals are going well, and we're actually looking -- the customers are looking at us for multiple applications.

Great. Thanks. I appreciate that. I just wanted to go back to a question on China. I know in the past, you guys commented on seeing China exposure normalizing to around 20% or getting back there. So in light of the export restrictions and everything parts, so I guess you're not seeing any direct impacts on that in the first half of the year. So is it fair to say that you're seeing more of that coming in, in the second half of the year? And anything has changed with that 20% China bogey, could it be lower? Thanks.

So thanks for the question, Wei. So, yes. So what we've seen from changes in regulations, it really didn't have an impact to our near-term view on China. We didn't have backlog with customers that were added to the entity list for systems backlog, nor did any regulations come out that change licensing requirements for our products. So in the near term, not an impact, long-term view of regulations, how regulations may change and what the impact there is. Our view on China had been that we were seeing less of these new opportunities or new fabs and new projects coming being funded or invested in. And that's what had us say that we see business slowing down for China as equipment purchases over the last couple of years get digested and that we have good visibility for about half a year. So we see, as I said in an earlier question that we see about 25% to 30% of our total revenue coming from China in the first half of the year and a lesser number in the second half of the year.

Great. Thank you.

Thank you, Wei.

The next question comes from the line of Mark Miller from Benchmark. Please go ahead.

I'm just wondering if you can provide some more color on high-low memory, specifically high bandwidth memory. And also NAND reported very strong sequential improvements in shipments to the NAND customers. I'm just wondering what you're seeing, if you're seeing anything in NAND?

We don't have any position in NAND, Mark. I would say we're at the point with our nanosecond annealing system where doing some preliminary demos in NAND, but we haven't placed an eval at this time. So really not much exposure there. And in high bandwidth memory, we actually have -- we are a production tool of record with our LSA systems with one DRAM customer, and we've been able to win their logic die and then the peripheral logic on each level of the high-bandwidth memory stack. I think we just announced on our call here that we have an agreement with the second DRAM customer, and we'll be placing an eval probably midyear, mid-2025. And I would say, as I look at -- as the business continues with HBM in 2025, and we were shipping volume in 2024 as well.

Okay. Thank you.

Thank you, Mark.

Thank you. The next question comes from the line of Gus Richard from Northland Capital. Please go ahead.

Yes. Thanks for taking my question. On the LSA, I want to make sure I understand. Have you been qualified for gate-all-around with LSA?

Yes. All the customers were qualified for the gate-all-around.

Okay. And then is NSA being looked at by the logic guys for is the incremental application backside power?

They're looking at a number of applications for more kind of -- extending more traditional front side annealing. And they've also looked at backside as well. They're looking at a few different applications there. And I guess just to circle back on your gate-all-around question there. When we look at growth drivers in 2025, we see gate-all-around really starting to ramp. And we think gate-all-around is a potential to double for us in 2025 over 2024 that would compensate for some of the China headwinds that John was mentioning a little earlier.

Got it. And then just in terms of your hard disk drive revenue at this point, I'm assuming that, that is just purely spares and service?

Yes. Yes, correct. That's -- we didn't really have any significant systems bookings in 2024. And given our lead time, that window is closed on 2025 systems revenue.

Got it. And then -- and I guess just because nobody else will ask. On the scientific and other, I mean, there's always a budget flush in the fourth quarter. You had a very strong quarter there. Are you kind of looking at a similar revenue range? Or is quantum computing really starting to drive a little more incremental demand for tools that address that market?

Gus, I would say we are seeing an increase in quantum computing activity year-over-year. So these are larger systems. And so they're going to show up kind of lumpy in our numbers, whether we have a system or two or we don't on top of or base scientific business. So we're forecasting our scientific segment to grow in 2025

Okay. And I'm assuming that's molecular beam epitaxy?

Correct, yes. And they're kind of Frankenstein-type tools. It may have an ALD off the side of it, but largely they're predominantly MBE with modifications.

Got it. So the price tag is more than single-digit millions?

They -- when they're all packaged together, they can be over $10 million. They may come in a separate bits, but yes, they are big opportunities. That's why they're pretty lumpy.

Got it. All right. Thank you very much.

Thank you, Gus.

Thank you. The next question comes from the line of Dave Duley from Steelhead Securities. Please go ahead.

Yes. Thank you very much for taking my question. I guess just to start with, you talked about the first half of the year. Could you give us an idea what you think for total revenue is first half versus second half? And then the same thing for semi. That would be very helpful.

So, yes. So Dave, let me try to cover that by the markets for the full year. And I'll start with data storage. So as we indicated, we expect that the data storage revenue to be down about $60 million to $70 million year-on-year, representing -- we don't have expectations for shipping systems to customers, and it's just a service and aftermarket business there. If I look at the semiconductor market, there's really, as we've described on this call so far, really two elements to the semiconductor market for 2025. And we do see the opportunity for that market to have growth in 2025. On the one side, we have expectation the China business will be down. On the other side, Bill has mentioned that we have expectation that our advanced packaging business and our business supporting gate-all-around has the opportunity to double. So you take that into consideration, we see the opportunity for growth in the semiconductor business despite the China headwinds. And then in the compound semi side, we are coming off low volumes in 2024. We do see some opportunities in solar and photonics providing the opportunity for revenue growth in the second half of the year in the compound semi side. And as Bill just mentioned, the expectation with strength in areas like content computing, on the scientific side that we do see opportunity for growth there. So I'd say, Dave, we're not making a quantitative call on the full year and a first half versus second half there. But that's our view of the markets for 2025.

Okay. And essentially, you've already kind of taken the down draft in the hard disk drive business. So, now all these moving parts really comes down to the semi growth outside of China versus the semi decline inside of China. Is that kind of...

Correct. And I think when you melt those together, our view, that's flat to up.

Okay.

And it's clear the first half to second half, we're going to -- it's not totally clear yet how that's going to go.

Okay. And then there's been a lot of chatter on HBM spending. Some customers seem to have been qualified and are moving forward with spending and some others aren't. In total, what would you expect your HBM business to do in 2025 versus 2024? I can't remember if you've actually quantified how big it is. If you could help us understand how meaningful it is, that would also be great.

Yes. I would say, we've been shipping high-bandwidth memory laser annealing tools to one customer where we are qualified, and our view is that will remain robust for 2025. And as I said, we're just entered into an eval agreement with the second customer, and that tool is going to ship in middle of 2025. So that's not going to have any revenue impact on 2025. So I would say our HBM revenue is nearly flat and steady with this one customer.

Okay. And then as far as the NSA evaluation or really when you start to see NSA ramping into volume production, will -- are some of these applications -- help us understand how much of it is truly additive and how much is somewhat candlestick from applications that that you've already won would have been addressed by an LSA tool?

A lot of the -- I would say, 80-plus percent are probably incremental. There's a lot of applications where we're doing material modification, because we're only modifying the top shallow surface of the structure and not heating up the whole structure. So the way the machine operates is a lot different than our traditional laser annealing system. What we are seeing though in some gate-all-around applications where there'll be an incremental step for gate-all-around annealing that could be nanosecond annealing and we'll keep the laser annealing steps. There will be possibly an incremental step there. So what I would say to the first order, it's largely incremental, not cannibalistic.

Okay. Thank you.

Thank you, Dave.

Thank you. The next question comes from the line of Mark Miller from Benchmark. Please go ahead.

I just want to revisit where you're at in the ion beam for thin tungsten films. And I believe you were in two customers, anything new there?

Yeah. We have two tools at DRAM memory makers. We're continuing to work with them. We're probably going to continue that through 2025. There's a lot of customer engagement. And as you know, Mark, this is a pretty exciting opportunity to put the fourth deposition technology into the fab, which is pretty exciting. And as I said, the customers are engaged. We're jointly working together through integration issues, downstream integration issues to incorporate the ion beam deposition system into their production line. So I would say, I expect that evaluation to continue throughout 2025 at both customers with high engagement.

Can you give us an estimate of the potential for follow-on orders in that business?

Yeah. We see -- for memory type applications per 100,000 wafer starts, it's probably $30 million to $40 million per application per node per customer.

Thank you.

Thank you, Mark.

Thank you. The next question comes from the line of Dave Duley from Steelhead Securities. Please go ahead.

Yeah. I wanted to just slip one more question in here. Regarding the gross margins through the first half of the year and perhaps in the second half, given the mix that you expect from all your segments. You sound like you have a pretty good idea about the directional pieces of the business. How should we think about gross margins progressing through the year?

Yeah. So that's a good question. Thanks, Dave. Yeah, we expect -- we ended 2024 for the full year with 43% gross margin and our expectation for 2024, that gross margins would be more in the 42% range. And the principal reason for that is as we see lower revenues coming from China customers and data storage customers, that gives us a mix headwind to gross margins because they typically have higher gross margins for those product lines. And then we see additional business coming from the advanced packaging area and the back end typically has a bit lower margins there. We have a number of gross margin improvement initiatives that we have going on to partially offset the impact of the product mix as we improve manufacturing efficiencies, efficiencies and installing, warranting our tools and other efficiency objectives there. But as we see it now, Dave, we're seeing gross margins closer to the 42% range coming into 2025.

And will -- do you think that 42% goes down with the mix of business as far as China dropping and there's basically no hard to drive business -- systems business?

Well, that's what I'm saying. That's the principal reason that we're seeing and calling about a 42% gross margin for 2025 coming down from about 43% in 2024.

Okay. Thank you.

You’re welcome.

Thank you.

Thank you. As there are no further questions, I now hand the conference over to Bill Miller, CEO, for his closing comments.

I'd like to thank our customers and shareholders along with the Veeco team for their continued support. Have a great evening. Bye.

Thank you. The conference of Veeco has now concluded. Thank you for your participation. You may now disconnect your lines.