VECO earnings call transcript, November 4, 2026

Fourth, we remain focused on executing against the increasing demand through investments in our supply chain with contract manufacturing partners, along with expanding our internal manufacturing capacity. We remain highly optimistic. About the growth opportunities created by AI infrastructure and high performance computing with strong execution, increasing customer engagement and strategic investments underway to support industry demand. We believe VECO is well positioned to capitalize. on these secular trends. Before diving in deeper, I'll briefly touch on the merger with Excellus. The transaction continues to progress with shareholders' approvals secured and progress on custom. Closing conditions, including China regulatory review. We continue to work constructively with China to obtain clearance. We expect the transaction to close by the end of the first quarter of 2027. In parallel, our integration teams continue to plan for a seamless close and remain focused on realizing the potential, fundamental, long-term value creation we believe will be unlocked from this combination. Moving to the next slide. I'll highlight our critical role in semiconductor manufacturing and our served available market opportunity through 2030. AI-driven investment and increasing device complexity are accelerating technology transitions across advanced packaging, leading logic, and memory customers. These trends align well with our differentiated portfolio and are creating multiple opportunities to expand our served available market.

and drive long-term growth. I'll begin with advanced packaging, which continues to be a major growth area for our wet processing and lithography tools. Throughout the year, we have received significant orders from leading Foundry, Memory, and OSAT customers, strengthening our backlog and increasing our visibility for 2027 and into 2028. Beyond the strong order momentum, our pipeline continues to expand. As customers evaluate our technology for next generation advanced packaging applications. For example, we are engaged with a tier one foundry on the qualification of a next generation wet processing. Panel tool. Advanced packaging is becoming an increasingly meaningful contributor to our growth as we gain share in a growing market that we project will approach $1 billion by 2030. To meet anticipated customer requirements, we intend to more than double our manufacturing capacity in 2027 through both in-house expansion and strategic outsourcing partnerships in Southeast Asia and the United States. Providing additional scale and flexibility as we prepare for higher customer volumes. In the front-end manufacturing process, we serve advanced logic and foundry as well as memory. In Logic and Foundry, our annealing solutions continue to be a market leader. Our laser spike annealing product remains production tool of record at all three Tier 1 Logic customers. Driving ongoing business. We continue to advance our next-generation nanosecond annealing system, addressing critical low-thermal budget applications. We have successfully engaged all three Tier 1 Logic customers.

and made significant progress advancing NSA over the past several months. One customer has completed its evaluation and placed a revenue order. A second continues to make progress towards completing its evaluation. And we recently shipped an evaluation system to the third customer. Customers are seeing great results and are accelerating their adoption of our NSA system. We see potential. for additional orders in the coming months, supporting their pilot lines and high volume manufacturing needs. Turning to memory, we are in the early stages of building this business as customers begin adopting laser annealing technologies. We are in the early stages of building laser annealing technologies. We see significant runway for growth as adoption expands, supported by AI-driven demand for DRAM and NAND technologies. We continue to make progress with leading memory customers. Including our LSA tool serving as the production tool of record at a Tier 1 high bandwidth memory customer that accelerated their investment in 2026. We are advancing an LSA evaluation. System at a second Tier 1 DRAM customer with potential follow-on orders in 2027 and 2028. And our engagement with a third DRAM customer could lead to an evaluation agreement in 2027. Our opportunity is also expanding into NAND. Several customers are exploring applications for our LSA and NSA platforms, and we expect to ship our first LSA service.

system for a NAND application to a leading customer by year-end. As 3D NAND manufacturers increase layer counts and device complexity, controlling thermal exposure becomes increasingly critical. Together, these opportunities support our confidence in an annealing SAM of approximately $1.3 billion by 2030. Beyond annealing, we see another meaningful opportunity to expand our presence in memory through our IBD 300. platform. Two systems are currently under evaluation at leading DRAM customers for advanced memory applications, including bitline metallization, where low-resistance films are increasingly critical. These evaluations are progressing. with strong customer engagement and program expansion in 2027. Lastly, we continue to be a market leader in ion beam deposition for EUV mass blanks, working closely with major companies. to enable their technology roadmaps. Demand is supported by AI driven scaling, increasing EUV layer counts at leading edge logic nodes, and the expanding adoption of EUV. and high bandwidth memory applications. Our technology is a critical enabler of the multi layer mirrors used in EUV mask blanks, and we are deeply engaged with customers and industry leaders as they advance their roadmaps. toward high NA lithography and larger format masks. This close collaboration positions us at the forefront of enabling the industry's next generation of EUV technology.

We are also expanding our EUV related opportunity into pellicle applications, where we continue to win production business at a tier one foundry and engage with new customers. Taken together, we see our eye. beam deposition SAM in the front end semiconductor market to be approximately $500 million by 2030. On the next slide, I'll discuss our compound semiconductor market and project. SAM through 2030. AI infrastructure is driving greater demand for high-speed optical connectivity and power-efficient semiconductor devices, creating attractive growth opportunities across our portfolio. in silicon for electronics, we project a $700 million SAM by 2030, primarily driven by indium-phosphide lasers for high-speed optical connectivity. We are gaining momentum across the laser manufacturing process. with multiple Lumina and Lumina Plus orders year-to-date, a market leader position in wet processing, and our differentiated Spectre IBD technology for laser facet coatings. I'll discuss this opportunity in greater detail on the next slide. In other photonics, we project a $550 million SAM by 2030, including applications in space-based solar, micro-LED displays, and other emerging photonics technologies. And in GAN power, we project a $250 million SAM by 2030, supported by AI data center power requirements, electrification, and other high-power-density applications. Our Propel 300-millimeter GAN on silicon platform continues to progress with a leading power semiconductor customer. As we work toward completing the

technical qualifications for future capacity expansion. Collectively, these opportunities position VECO to benefit from the growing requirements for advanced connectivity and power efficiency as AI infrastructure continues to scale. Next, I'll dive deeper into our role in silicon photonics. Within the compound semiconductor market, silicon photonics remains one of our most compelling AI-driven growth areas. As AI clusters scale, higher bandwidth requirements are accelerating the shift from copper to optical connectivity. This transition is driving adoption of advanced indium phosphide lasers. across higher-speed pluggable transceivers and longer-term near-packaged and co-packaged optics. VECO is uniquely positioned across three critical steps in the indium phosphide. laser manufacturing process, epitaxy, wet processing, and laser facet coatings. Given our customer engagements, we continue to believe this represents at least a two- billion-dollar opportunity over the next several years. In MOCBD, momentum continues to build for our Lumina and Lumina Plus platforms. We have received multiple orders year-to-date from leading for the next several years. We are installing systems at existing customers, pursuing additional expansion opportunities, and engaging with prospective customers across Epitaxi applications. We continue to win business supported by competitors. We have innovative advantages of our platform, including differentiated productivity, reduced cleaning requirements, and larger batch processing. In wet processing, our wafer etch and wafer storm platforms

provide critical etching, cleaning, and surface preparation solutions for laser manufacturing. In an ion-beam deposition, our SPECTR tool addresses the critical laser facet coating step. As lasers move to higher power, the requirements for tighter film quality and greater reliability become increasingly stringent, playing directly to the strengths of our differentiated IBD technology. Together, these... Capabilities give us broad exposure to the continued scaling of optical connectivity. We're investing to more than double capacity in 2027 to support our customers' unprecedented demand and capture this multi-year growth opportunity. With that, I'll turn the call over to John to review our financial results.

Revenue came in at $209 million within our guidance range. For the third quarter, our semiconductor revenue was $135 million, an increase of 4% from the prior quarter and comprising 65% of revenue. It was largely driven by laser annealing systems to leading-edge Foundry Logic and memory customers. Along with web processing systems for advanced packaging. For the full year 2026, we expect semiconductor revenue to grow by low to mid-teens compared to the prior full year. This performance is driven primarily by additional sales to leading memory, Foundry Logic, and EUV customers serving AI and high-performance computing applications. In 2027, building on this momentum, we expect revenue to grow by low to mid-teens. We expect revenue growth to meaningfully accelerate, led by advanced packaging. Compound semiconductor revenue for the third quarter totaled $40 million, a 96% increase from the prior quarter, totaling 19% of revenue. For the full year 2026, we expect compound semiconductor revenue to approximately double versus full year 2025. Growth is predominantly driven by our MOCVD. And IBD systems for silicon photonics. Looking ahead in 2027, we expect revenue growth to accelerate driven by the significant backlog for these tools. According to data storage, revenue for the third quarter was $20 million, representing 10% of revenue. We expect revenue to approximately double in data storage year over year in 2026.

Demand continues to increase driven by cloud computing and AI data centers. We have order visibility for 2027 and extending into 2028. We are aligned closely with our customer roadmap. As they adopt HAMR, increasing the need for our ion beam technology. Lastly, in scientific and other, the third quarter revenue was $14 million, representing 6% of revenue. Turning to the quarterly revenue by region, revenue from Asia-Pacific region, excluding China, was 45%, an increase from the previous quarter. Revenue from the U.S. accounted for 31% of revenue, an increase from the previous quarter. Primarily from advanced semiconductor customers. Our China portion was 12% of revenue, a decrease from the previous quarter. EMEA and the rest of the world accounted for 12% of revenue as well. Turning to the third quarter non-GAAP operating results. Gross margin came in at 39%. Below expectations due to higher supply chain costs, product mix, and the timing of revenue recognition on an LSA. System under U.S. government export. Operating expenses totaled approximately $57 million, and income tax expense was $3 million, resulting in an effective tax rate of approximately 12%. Net income was $24 million, and diluted EPS was $0.36 on 66 million shares.

Turning to the next slide to review the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $483 million, an increase of $53 million from the prior quarter. From a working capital perspective, our accounts receivable increased by $6 million to $100 million. Inventory increased by $16 million to $308 million, and accounts payable increased by $11 million to $68 million. Importantly, customer deposits increased by $58 million. $169 million, reflecting strong customer commitment and demand. Cash flow from operations totaled $58 million, and CapEx totaled $4 million during the quarter. Lastly, I'll review our fourth quarter and updated full year 2026 non-GAAP outlook. Demand across our key markets remains strong, and we continue to make deliberate investments to support our future growth. This includes adding capacity and expanding our supply chain to ensure we're well positioned to meet customer needs as these opportunities scale. While there are certain industry-wide component constraints, we're actively working with our suppliers to address them. Fourth quarter revenue is expected to be between $230 and $260 million. Gross margin is expected to be between 43 and 44 percent. Reflecting... Improved volume and more favorable product mix. We expect OpEx between $64 and $66 million. Net income between $34 and $47 million. And diluted EP...

between $0.50 and $0.70 on 66 million shares. We are updating our full year revenue guidance to be between $790 and $820 million. And expect our... non-GAAP diluted earnings per share between $1.32 to $1.52 based on 66 million shares. Our third quarter performance and updated full year outlook demonstrate our continued focus on delivering strong... ...financial results while investing deliberately for the future. With a solid foundation, we remain well positioned to fund our capacity expansion, support our customers, and execute on the opportunities ahead.

Thank you. Now we will begin the question and answer session. So if you do have a question, please press the star followed by the one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star.

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation and you may not disconnect. Have a great day, everyone.