Veeco Instruments Inc 2026 Q2 Earnings Call

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. The 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. Please note that we will not be addressing questions related to our pending merger with Axcelis. We urge you to read the joint proxy statement relating to the transaction with Axcelis. With that, I would now like to hand the call over to our CEO, Bill Miller.

Thank you, Alex, thank you everyone for joining us today. We believe the industry is at an important inflection point where AI-driven investments are accelerating demand for enabling semiconductor technologies at an unprecedented pace. Veeco is uniquely positioned at the intersection of the fastest-growing segments of WFE: high-performance computing, Advanced Packaging, and Silicon Photonics, creating a significant opportunity for accelerated multi-year growth. Let me review our top four key takeaways from the quarter. First, we had strong quarterly performance exceeding our guidance ranges and Street's expectations. Revenue was $193 million. Non-GAAP operating income was $23 million, and non-GAAP diluted EPS was $0.33. Second, order momentum accelerated across all major end markets. During the second quarter, we secured $200 million in Advanced Packaging orders for wet processing and lithography systems, strengthening our visibility into 2027.

Third, we're focused on executing our growth opportunities through a manufacturing expansion plan to meet customers' requirements. We're making deliberate investments ahead of revenue in the second half of 2026 to meet the demands of 2027. Lastly, Veeco is achieving meaningful commercial validation with our next-generation Nanosecond Annealing system, hitting major milestones in our evaluation program and securing a follow-on order. We're excited about the compelling long-term growth runway supported by AI infrastructure and high-performance computing. We remain focused on executing our strategy and delivering sustained value for our shareholders. Before moving on, I'll briefly note that the merger with Axcelis continues to progress as planned with shareholder approval from both companies and all regulatory clearances secured other than China antitrust approval. We continue to target a second half 2026 closing.

Interaction among integration teams remains on schedule and further supports our conviction in the compelling strategic fit and potential long-term value creation of the combination. We move to the next slide, I'll highlight Veeco's role in our largest market, semiconductor manufacturing, and share our served available market opportunity through 2030. The accelerating investment in AI infrastructure and high-performance computing is driving a fundamental shift in leading-edge enabling technologies. This trend aligns well with Veeco's differentiated portfolio and positions us to benefit from the industry's evolving growth opportunities. I'll begin with Advanced Packaging, which is rapidly becoming a larger and increasingly important part of our business through our Wet Processing and Lithography portfolio. The demand remains robust as AI-driven investments accelerate the adoption of Heterogeneous Integration and increasingly complex two-and-a-half and 3D architectures.

Building on the strong momentum we experienced in the first quarter, activity among leading customers continues to strengthen and provides us with a unique level of visibility into customer expansion plans. A result, we have significant backlog for 2027, and our customers' forecasted roadmaps reinforce our confidence in the long-term growth trajectory of the business. One example, we are actively engaged with a tier 1 foundry on a panel processing opportunity, and we're encouraged by the progress. Looking longer term, we expect Advanced Packaging to become an increasingly meaningful contributor to Veeco's growth as we gain share in a growing market that we project will approach $1 billion by 2030. To support this growth, we're expanding our manufacturing footprint in-house and with our outsource partners in Southeast Asia. In the front-end wafer manufacturing process, we serve both advanced logic and foundry, as well as memory customers.

In logic and foundry, we have long-standing and trusted customer relationships and remain the production tool of record at all three tier 1 customers for our Laser Spike Annealing system, driving repeat business. We're also pleased with our progress for our next-generation Nanosecond Annealing system and recently announced that a tier 1 customer successfully completed their evaluation and placed a follow-on order for a second system to ship in the second half of 2026. We also announced that the third tier 1 logic customer received an NSA evaluation tool. Veeco has now successfully engaged all three tier 1 logic customers with our NSA technology, and we continue working closely with them to support future roadmaps. I'll discuss the memory semiconductor market, which represents a significant long-term growth opportunity as AI-driven compute architecture accelerates demand for DRAM and NAND technologies.

These technology transitions are creating new thermal processing and material requirements that align well with Veeco's differentiated annealing capabilities. The memory industry is at the early stages of adopting laser-based technologies for annealing applications. We continue to make solid progress with leading memory customers, including serving as the production tool of record at a Tier 1 high-bandwidth memory manufacturer that is accelerating their investments in 2026. We're also advancing an LSA evaluation at a second Tier 1 DRAM customer and are excited about the potential for additional follow-on orders in the 2027/28 timeframe. Customer engagement continues to expand with a third DRAM customer with potential to enter an evaluation agreement over the coming quarters. We're encouraged by strong engagement with several NAND customers who are exploring applications for our LSA and NSA platforms, which are continuing to advance well.

Our annealing platform continues to perform exceptionally well, and in the second quarter, we delivered record revenue across our LSA and NSA product lines. Looking ahead, we projected an annealing SAM of approximately $1.3 billion by 2030 as advanced logic and memory devices become increasingly complex and require more precise thermal processing solutions. Our memory market opportunity continues to advance through our ion beam deposition technology with multiple IBD300 systems under evaluation for advanced DRAM applications, such as bit line metallization. These evaluations continue to progress with high customer engagement. Collectively, these engagements strengthen our position in the memory market and provide additional avenues for future growth. Veeco continues to be a leader in ion beam deposition for EUV mask blanks and is well positioned as the industry advances towards High NA lithography.

We have expanded the use of our ion beam technology for EUV pellicles, which protect defect-free masks and improve productivity as EUV utilization scales. We continue to win production business at a Tier 1 foundry and engage new customers for EUV pellicles. We see an ion beam deposition SAM opportunity of approximately $500 million by 2030, driven by adoption of our IBD300 platform for low-resistance metals and our leadership position in deposition for EUV applications. On the next slide, I'll discuss our compound semiconductor market and the projected served available market opportunity through 2030. Our outlook remains supported by the secular growth of AI infrastructure in silicon photonics, optical connectivity, and power efficiency. We believe these trends are driving a significant inflection in compound semiconductors, where adoption is accelerating across both optical networking and power applications, which continues to create an increasingly attractive opportunity for Veeco.

In silicon photonics, we project a $700 million SAM by 2030 for our role in the manufacturing of indium phosphide lasers. The rapidly evolving landscape of AI data centers is driving demand across our Spector IBD system, WaferStorm and WaferEtch for wet processing solutions, and Lumina MOCVD platform. We continue to see engagement with these customers as they move toward large-scale deployments. I'll provide greater detail in our role in silicon photonics on the next slide. In the other photonics category, we project $550 million in SAM by 2030. This includes opportunities for red MicroLEDs, low-Earth orbit satellites, and AR/VR applications. In GaN power, we project $250 million in SAM by 2030, supported by long-term trends tied to AI data center power efficiency, electrification, and high-power density applications.

We remain encouraged by our progress with a leading power IDM customer, where our Propel 300 platform continues to advance towards production. Following the previously announced pilot line order, we believe we're well positioned to participate in future capacity expansions. Veeco is also a critical member in the imec 300-millimeter GaN power consortium program to advance power electronics manufacturing alongside other industry leaders. On the next slide, I'll dive deeper into the role we play in Silicon Photonics. Within the compound semiconductor market, we continue to benefit from the growing demand tied to AI, particularly through our exposure to Silicon Photonics and the Indium phosphide lasers used for optical connectivity applications. Industry investment remains focused on a hyperscaler's need for higher bandwidth and optical connectivity across increasingly large AI data clusters.

As bandwidth requirements continue to accelerate, the industry is increasingly focused on overcoming the copper wall, where traditional electrical interconnects become less efficient at supporting higher speed data transmission. At the same time, hyperscalers continue to advance optical networking architectures, including evolution of EML pluggables, Silicon Photonics pluggables, as well as the longer-term solutions of near package and co-packaged optics. Collectively, these trends are driving broader adoption of optical connectivity throughout the AI infrastructure ecosystem. These architectures increasingly rely on Indium phosphide laser technologies. Our portfolio spans multiple steps of the laser manufacturing process, including epitaxy, wet processing, and laser facet coating. Given our engagement with our customers, we continue to believe this opportunity represents at least $2 billion over the coming years. Let me briefly touch on each of our products in the laser manufacturing space.