Veeco Instruments (NASDAQ:VECO) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Veeco Instruments aims to reach $1 billion in revenue by 2030, driven by strong momentum in the compound semiconductor market and significant orders totaling over $250 million for indium phosphide laser manufacturing tools.

The company reported revenue of $158 million for the quarter, slightly below guidance, with a gross margin of 36% and net income of $9 million.

Future outlook projects revenue between $170 and $190 million for the next quarter, with full-year 2026 revenue guidance reaffirmed between $740 and $800 million.

Veeco Instruments is expanding capacity for its Spectre Ion Beam Deposition system and wet processing technologies, anticipating significant growth opportunities in AI data centers and silicon photonics.

Management highlighted strong customer demand and expanding market opportunities, particularly in silicon photonics and AI-related applications, despite some revenue declines in mature node China business.

Full Transcript

Bill

To reach $1 billion by 2030. We continue to demonstrate our ability to support our customers High volume manufacturing ramps driven primarily by AI Moving to the next slide I want to spend time discussing our stronger than expected momentum in the compound semiconductor market. We're seeing a clear industry inflection point underscored by Nvidia's recent investments in and optical networking leaders in silicon photonics. The industry is transitioning from copper interconnect to co-packaged optics as AI data centers require higher speeds, greater bandwidth density and improved power efficiency. Indium phosphide laser manufacturing is a critical component of this shift and a foundational technology for next generation AI optical infrastructure as the industry transitions towards future capacity requirements. We believe this represents a growth opportunity of approximately $2 billion over the next several years. Veeco plays a critical role across multiple steps of the indium phosphide laser manufacturing process and we're seeing rapidly accelerating order demand across several of our product lines. Beginning with Epitaxy, MOCVD is a critical step and we're seeing increasing orders for our Lumina MOCVD indium phosphide platform as leading photonics customers expand capacity to support AI driven data center growth. We also support downstream process steps with our wafer etch and wafer storm wet processing technologies for advanced etching and surface preparation. What I would like to highlight for investors is is the laser facet coating and epitaxy opportunities are similar sized and significant for the manufacturing of indium phosphide lasers. Our Spectre Ion Beam Deposition system designed for the critical laser facet coating step is essential to the process. Veeco is a market leader in ion beam deposition and is differentiated from traditional approaches such as E-beam evaporation, ion-assisted deposition, or PVD. Compared to other approaches, the Spectre Ion Beam deposition tool delivers low loss optical films with tight control of thickness, uniformity and reflectivity precision that is required for anti reflective and highly reflective facet coatings on indium phosphide lasers. We have engagements with industry leaders that will drive the growth of our Spectre IBD business in 2027 and beyond. As announced in today's press release, we received over $250 million in orders from multiple customers for our MOCVD wet processing and ion beam deposition tools to support the manufacturing of indium phosphide lasers with Delivery starting in 2026 and significantly accelerating in 2027. A large portion of these orders is for our Spectre IBD system from leading suppliers of next generation 800 gig and 1.6 terabyte optical transceivers for hyperscale customers. This significant order activity underscores the long term value of our ion beam deposition technology leadership and our expanding role in this rapidly growing market. We have long standing partnerships with our customers spanning more than two decades and we are well positioned across our multiple differentiated products to meet their growing needs. In silicon photonics, our focus remains on supporting customer production ramps, executing early deployments and expanding our footprint to meet customer demand. With that, I'll flip to the next slide to share our projected served available market within the compound semi space in silicon photonics specific to the manufacturing of indium phosphide lasers. We project our Sam to be $700 million in 2030. As we discussed on the previous slide, demand is accelerating across several of our products driven by AI data centers. Our Lumina MOCVD batch platform, wafer storm and Etch and our Spectre ion beam deposition for the laser facet coatings are gaining significant traction. Other photonics driving SAM growth include red micro LEDs, solar cells for low earth orbit satellites and AR VR applications. Additionally, a global optoelectronic solution provider accepted and qualified our Lumina plus MOCVD system for high volume arsenide phosphide production including for use in micro LEDs. We expect these other photonics applications to total $550 million by 2030. In GaN Power we project our SAM to be $250 million by 2030 as we continue to see strong long term drivers tied to AI data center power efficiency, electrification and high power density applications. Importantly, at a leading power IDM customer, we have an evaluation for our Propel 300 system in place and we received a pilot line order for a multi chamber system which we previously announced at the end of 2025. This represents an important validation point as customers move from development to early production. Looking ahead as this customer ramps and finalizes long term capacity plans, there is potential for additional system orders in the second half of 2026 for delivery in 2027. In the next several years we expect our compound semiconductor served available market opportunity to meaningfully grow as AI power efficiency and advanced connectivity continue to reshape the industry. I would now like to hand the call over to John to walk through the financials.

John

Thank you Bill. Revenue came in at $158 million, slightly below the midpoint of our guidance. In previous quarter our semiconductor business reported $109 million, a decline of 1% and comprising 69% of revenue. Revenue in the semiconductor market was largely driven by Laser Annealing Systems co leading Foundry logic and memory customers and wet processing systems for advanced packaging. Compound Semiconductor revenue totaled $19 million, a 6% decline from the prior quarter, totaling 12% of revenue. Data storage revenue was $10 million flat to the prior quarter representing 6% of revenue. Scientific and other revenue declined 16% to $20 million, comprising 13% of revenue. Turning to the quarterly revenue by region, revenue from Asia Pacific region excluding China was 57%, no change from the prior quarter. Sales were driven by leading semiconductor customers in Taiwan for our laser Annealing systems and wet processing systems for advanced packaging. The US accounted for 20% of revenue and increased from the previous quarter, primarily from semiconductor customers. Our China portion was 13% of revenue, a decrease from the previous quarter. EMEA and the rest of the world accounted for 10% of revenue. Turning to the first quarter non GAAP results, first quarter gross margin came in at 36% and operating expenses total $49 million. Income tax expense was approximately $1 million, resulting in an effective tax rate of approximately 11%. Net income was approximately $9 million and diluted EPS was $0.14 on 62 million shares. Moving to the balance sheet and cash flow highlights we ended the quarter with cash and short term investments of $383 million, a decline of $7 million. From a working capital perspective, our accounts receivable increased by $40 million to $151 million, inventory increased by $7 million to $282 million and accounts payable increased by $5 million to $60 million. Customer deposits included within contract liabilities on the balance sheet increased $19 million to $69 million. Cash flow from operations totaled $8 million and CapEx totaled $5 million during the quarter. Next I'll turn to our second quarter non GAAP outlook. Second quarter revenue is expected to be between 170 and $190 million, gross margin is expected to be between 38 and 40%. We expect OpEx between 52 and $55 million, net income between 12 and $21 million and diluted EPS between 20 and $0.32 on 64 million shares. Based on our current visibility, we're reiterating our full year 2026 revenue guidance between 740 and $800 million with growth accelerating in the second half of the year year as well as reiterating our diluted non GAAP EPS between $1.50 and $1.85. I'll now provide additional commentary for each of our markets. Beginning with the semiconductor market in 2026. We expect strong growth from our tier one customers driven by AI and high performance computing more than offsetting declines in the mature node China business. Additionally, our advanced packaging wet processing systems are forecasted to contribute to revenue growth as customers increase manufacturing capacity to support AI workloads. In the compound semiconductor market, we see strong growth in silicon photonics, particularly for Indian phosphide laser manufacturing driven by AI data center demand. We are also seeing emerging opportunities for low earth orbit satellites, micro LEDs, AR VR applications and GAN power. We have received significant orders in the first quarter across this market which is driving meaningful revenue growth into 2027. In data storage, we secured orders in the second half of 2025 and experienced continued order activity in 2026 for our HDD equipment. We are seeing increase in AI driven demand for higher capacity, HDD's supporting investments in capacity and new technologies such as Hamr. Customer engagements remain strong with our business fully booked in 2026 and extending into the first half of 2027. As we look ahead, we are seeing continued acceleration across several of our core markets supported by increased customer engagement, expanding pipelines and strong order visibility. Our focus remains on disciplined execution as we support customer production ramps and deliver against the next phase of growth. I would now like to turn the call to the operator for Q and A.

Dennis Pachinin (Equity Analyst)

I appreciate it. Thank you. So maybe we can start with this $250 million order. With the orders beginning in 2026, could you tell us maybe which quarter would you expect us to start? Q3 or Q4? And then at what point in 2027

Bill

do you think this will kind of hit its revenue quarterly peak? Yeah, Dennis, I would say we'll start shipping against those 250 million plus of aggregate orders in the third quarter, but I would say probably the most significant ramp will probably start in Q1 27. Great then for these systems, the Lumina for the Spectre and for the WaferStorm kind of. What are your current lead times and what do you think your maximum capacity is to meet demand for these systems on an annual basis? We have plans to increase our Spectre IBD capacity about 10x from its kind of base level we're at today. It's starting to hit that kind of level in early 27, and we're looking at future capacity needs to potentially double that again. And in wet processing, we're looking to add some expansion capacity to our existing facility as well as looking to an outsourced partner contract manufacturer in Southeast Asia for further capacity expansion. Great, thank you. Then my final one is about gross margins. So it looks like we came down a little bit to 36.2 from 37.7. Is this predominantly due to mix like heavier advanced packaging or maybe were there some other variables contributing?

John

Yeah, I think specifically to Q1. One of the factors that you know, contributing is that we had, you know, one less LSA system to a China customer. We got recently informed by BIS that that customer would require a license to ship to certain fabs for that customer. So that had about an $8 million impact on the top line for Q1 and also put us outside, as you mentioned, the gross margin guidance range.

Dennis Pachinin (Equity Analyst)

Well, great. That's it for me. Congratulations on that big order. Thank you, Dennis.

OPERATOR

Thank you, Dennis. Our next question comes from David Dooley with Steelhead Securities. Please state your question.

David Dooley (Equity Analyst)

Yeah, excuse me. Thanks for taking my question. A few other questions on the significant order activity. I was wondering, you kind of addressed it, but it sounds like there are like three tools involved in the big order here and are they equally split or is it. Could you just kind of talk about the volume of each tool of the $250 million order? And then as far as the ramp up of this business, is this. Did you take this business from another competitor? And you know, so I'm kind of curious about the competitive dynamics of this. And are you sole sourced or are you sharing the business?

Bill

Yeah, Dave, let me give you some color here because we don't really talk, haven't really historically talked a lot about the indium phosphide solutions that we have. So if you think about there's really three pieces that Veeco serves in indium phosphide laser manufacturing. First is the EPI step, which I think is pretty well known and discussed. So Veeco and our competitor provide MOCVD equipment to make the business end of the laser, the indium phosphide epitaxy that makes the device we Also have wet process processing, wet etch and wet clean steps as part of the formation of the laser. And then also a part that's probably not as well known by investors is Veeco has an ion beam deposition product called the Spectre that deposits the anti reflective and highly reflective coatings to create the laser facet coatings in the laser. And as you might guess having followed the company, ion beam deposition can deposit films much better than PVD or e beam deposition, etc. So we can deposit films with much better optical properties, very similar to the fact that we can make better IBD EUV film or better ion beam deposition films for low resistance metals. So here's another example of kind of this ion beam core technology where Veeqo sold over 100 tools during the dot com boom, lighting up DWDM fibers. And then that business kind of went away for quite a long time. But during that time, Veeqo maintained these deep technical relationships with a number of key customers where we are the kind of process tool of record in their laser facet coating business. And so I think it's probably worth noting that, you know, when you look at the size of the three opportunities in front of us, the Epitaxy market and the laser facet coating market opportunities are of about the same size. They're pretty significant markets. And I would characterize our laser facet coding opportunity where we have a very strong incumbent position, not everywhere, but at a number of key companies. Whereas in the Epitaxy space, as I think you know, our competitor has a decent, very good incumbent position. But Veeqo has over the past number of years developed some products to improve our competitiveness. And in that group of 250 million plus of orders, we did receive a number of MOCVD orders as part of that ramp. So I would say a large portion of that was for the IBD laser facet opportunity, but also includes some very important orders for wet processing because that's a really critical step in the device manufacturing as well as the Epitaxy step.

David Dooley (Equity Analyst)

Okay, so the EPI step is the one where you've gone head to head, I think with like Axtron and. I guess one part of the business here. Would you say you're a second source or a primary source? And I'm sorry to dwell on this, but it's mentioned in the press release, I think multiple customers. Could you just elaborate a little bit more about your positioning?

Bill

Yeah. So I would say in laser facet coating we have a very strong incumbent position. I would Say in the epitaxy step, we are probably more the second provider there today as a second source. And I would say in the wet processing, we have a strong position there with the number of the leaders there.

David Dooley (Equity Analyst)

Okay, final question from me, and we'll turn it over to others, is the GAN opportunity. You know, I think you talked about it and you've received an order in the past, I think from a 300 millimeter GAN customer. How big of a market do you think that that could be if, you know, if you're able to penetrate and, and capture some of the business that I'm assuming all these things are, all these GAN parts are going into the data center. But maybe I'm wrong. Maybe you could just elaborate a little bit about that and that's it for me. Thanks.

Bill

Yeah, Dave, you're right on there. I mean, I'd say The adoption of 300 millimeter GaN on silicon is squarely targeted at the AI data centers. I would say we've had, as you know, a tool out with a major IDM for some time. The performance of our tool set is doing quite well. We have a pilot line tool order from the customer and we're in the process of manufacturing that and would expect to ship that at the end of the year kind of time frame. So yes, it's definitely squarely in the AI data center applications.

David Dooley (Equity Analyst)

Thank you.

OPERATOR

Thank you, Dave. Our next question comes from Gus Richard with Northland Capital Markets. Please state your question.

Gus Richard (Equity Analyst)

Yes, thanks for taking the question and congratulations on the huge water momentum, you know, to hit the high end of the range for the full year. You know, what are the levers to get there? Is it delivery times?

John

Yeah, so thanks for the question, Gus. I think our opportunity to go to the higher end of the range right now primarily rests in the semiconductor piece of our business. And I would say in the areas of laser annealing and lithography are probably sort of the drivers, you know, there. You know, if I look at the other markets and I look at like for example, the data storage market, you know, you know, given our lead times and how we work with our customers on, you know, sort of build to order, you know, there could be some upside in some service and aftermarket business, but the systems business is pretty much booked out for this year and we're booking orders into next year. And in the compound semiconductor market, we're able to get some of this new into the back half of the year, as Bill mentioned here, and answering an earlier question about some tools coming into Q3 and Q4 and we were anticipating that as part of our view for the year already anyway. But the predominant increase in capacity in bringing on and meeting the customers shift dates principally happen in 2027. Got it. And sort of the underneath question is the spectra, does that have a similar 3 quarter lead time as ion beam depth for HDD? You know, we'll work to on that, you know, sort of, you know, lead time. We've been, you know, in this business for, you know, a long period of time. You know, recent business is a few tools, you know, you know, a quarter and yeah, I think the lead times are more in that, you know, sort of nine month lead time, you know, there, you know, as we look to, you know, ramp up, this business here will look to reduce lead and cycle times for that business in order to meet customer shipment requirements. But mainly we're going to see sort of a step up in the output for that business starting in Q1 of 2027.

Gus Richard (Equity Analyst)

Okay, got it, got it. Makes complete sense. And then just in terms of some

John

of the evals that are going on the ion beam deposition for the memory market, you know, do you think you

Gus Richard (Equity Analyst)

can reach conclusion on those evals, you know, in the next quarter or two and sort of what are your prospects on getting over the finish line?

John

Yeah, we're, you know, the feedback from our customers is it's not a matter of if, it's a matter of when. They're impressed with, very impressed with the film performance of the ibd. Where we're working very closely with them is in areas such as particle performance, automation, reliability. And so they've extended their evals out through the end of 2026. And we're working on a few CIP improvements to the tool to address some of those shortcomings. So I would say it's really, the customer is really quite excited about the opportunity. But we do have some, I would call it engineering work left to do to demonstrate the high volume requirements of front end semi.

Gus Richard (Equity Analyst)

Got it. All right, thanks. That's it for me.

OPERATOR

Thank you guys. Thank you guys. A reminder to all participants to ask a question. Please press star one on your telephone keypad. Our next question comes from David Dooley with Steelhead Securities. Please state your question.

David Dooley (Equity Analyst)

Yeah, again thanks for taking my further questions. Could you talk a little bit more about the hard disk drive business? And you know, what do you think that that will, what sort of second half growth profile should we expect versus the first half? And then you talked about obviously having, you know, the order book is full and manufacturing plots are full for 26. Are you expanding capacity for 2027 at this point or. It would seem to me like the disk drive guys are going to add a lot of capacity given what they're seeing from the AI data centers. But maybe I'm wrong.

Bill

Yeah, I would say, Dave, we're looking to double that business in 26 over 25. And I would say the trajectory of it is more second half loaded. I think probably the first system shipment is planned to happen in Q2, not in Q1, and then ramping in Q3 and Q4 just based on lead times. As you know, we kind of do a build to order model. We're not a build to forecast model. And that kind of keeps us, the industry healthy. And that does seem to work for everybody. But what we are seeing, I would characterize year to date at this point that both of our major customers are continuing to place orders not only for front end equipment at the wafer level, but also the back end, what they call the slider fabs, which clearly means that there are increases in the number of heads that they're producing. So I would guess based on the order activity we're seeing here early in 26, that certainly the first half of 2027 will remain strong. And I would just characterize the commercial activity still remains pretty positive from an order book standpoint. John, I don't know if you'd like to add.

John

Yeah, I think you covered that very well, Bill. I think that really sums up well where we are with 2026 and you know, what visibility we have into 2027 at this time.

David Dooley (Equity Analyst)

And then final one for me is what would you expect kind of, you know, a rough cut of what you expect your semi revenue to grow in 26 and I'm guessing it's probably going to grow higher in 27. But maybe you could elaborate a little bit on some of the puts and takes to growth in both 26 and 27.

John

Yeah, we see mostly, you know, sort of, you know, positive environment here in 2026 and you know, estimates of a growing WFE environment in 2016 and moving into 2027. So pieces of the business, you know, attached to, you know, AI and high performance, you know, computing expected to grow. And so that's advanced foundry logics with our laser annealing product, high bandwidth memory for our customer that we've, you know, penetrated, you know, there and you know, continued, you know, strength in advanced packaging. I would say that, you know, the one, you know, headwind for us in the semi business, but is more than offset in the strength in the pieces of the business I just mentioned is declining business in China for mature node. So we expect that business to have headwind in 2026. We've been foreshadowing this for the last two years or so right now that we saw the business falling off in 2025. As a reminder, we have a narrow, you know, base of business there in China. It's really highly predominant for our LSA product for 40 and 28 nanometer, you know, fabs. And there just don't seem that same level of investment in new fabs that we saw a couple of, a couple of years ago. So taking all that into consideration, we see, you know, sort of our semi business growing this year over last year.

David Dooley (Equity Analyst)

Mid teens, I was going to say, since you're taking the Chinese lumps this year, I would guess that, you know, your growth rate would probably accelerate next year.

John

You know, we're looking at a very positive, you know, WFE environment and we have nice attachments to the areas that are expected to drive wfe. So yeah, I think as we have this early look at 2027, you know, 2027 looks positive. Bill, did you know, sort of mentioned earlier in prepared remarks that we are increasing, you know, our capacity for advanced packaging. We see opportunities, you know, for that to continue to grow into 2027. So we're taking, you know, making some investments to increase capacity there as well.

Bill

It's probably also worth mentioning, Dave, that, you know, a lot of the WFE estimates that you see include some pieces of the silicon photonics market. And so you'll see that show up in our compound semi. So when you look at semi alone, really, some of the compound semi will probably be categorized as WFE more generally. And so our compound semi business is probably going to grow 50%. So when you take, you know, the kind of the mid teens that John spoke about in the portion that's really significantly growing, we're probably growing much higher than that on a WFE basis. Great point. Thank you. Thanks, Dave.

OPERATOR

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

Bill Miller

Thank you. As we look ahead, we believe Veeqo is well positioned to meet the evolving needs of our customers. As the silicon photonics industry reaches an inflection point driven by AI and high performance computing, our technologies across logic, memory, advanced packaging, compound semi and data storage are becoming increasingly critical as customers push for greater performance scale and efficiency. With strong customer demand, expanding served available markets and disciplined execution we see meaningful long term growth and remain focused on delivering sustained value for our shareholders. I'd like to thank our employees for their hard work, as well as our customers, partners and shareholders for their continued trust in Veeqo. Have a great evening.

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