Ladies and gentlemen, greetings and welcome to the VECO fourth quarter and full year 2024 earnings conference call. At this time, all participant lines are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Pappon, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Joining me on the call today are Bill Miller, VICO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release, funny today's webcast, is available on the VICO website. To the extent that this call is 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. VICO 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 status. 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 VICO. 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 NSA 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 300mm GANON silicon evaluation system to a 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 DPS while continuing to invest in our largest SAM expansion opportunities. Switching gears to our full-year financial highlights, VICO 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, for 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 $0.41. Our semiconductor business delivered another solid quarter of revenue, highlighted by record laser annealing revenue, including shipments to two leading-edge customers' gate all-around nodes. I'll now provide an overview of Vico's role in the semiconductor manufacturing process, as well as an update on key technologies driving business today. VECO technologies are critical for several leading-edge semi-manufacturing process steps. Leading-edge customer roadmaps require the most advanced annealing solution, scaling challenges associated with shrinking geometries and new architectures. Device scaling with incumbent technologies is becoming more challenging, and as a result, the number of steps available to laser annealing in both logic and memory is increasing. VECO is the market leader in laser annealing, with our laser spike annealing system qualified as production tool of record for leading Logic customers and one Tier 1 memory customer. Our recently launched next-generation NSA system expands laser annealing capabilities to enable precise anneals at a nanosecond dwell time, and is under evaluation at two advanced Logic customers for several new applications. VECO is also the industry leader in ion beam deposition for EUV mass blanks, with our IBD EUV system enabling deposition of defect-free films for EUV mass blank production. Our ion beam deposition technology is critical to the industry's roadmap and is expanding to adjacent mass blank steps as customers continue to explore new use cases. The growing need for energy-efficient compute is driving the SEMI roadmap to consider new materials and technologies to scale, optimize performance, and reduce power consumption. As device geometries continue to shrink, incumbent technologies are struggling to lower resistivity, driving Tier 1 logic and memory customers to consider new solutions. This recently launched IBD-300 system differentiates itself from incumbent technologies through its ability to preferentially deposit low-resistance metals. This can result in improved thin-film properties and lower resistivity for critical metals in logic and memory, which directly impact device performance, speed, and battery life. Looking ahead, we're highly focused on working with Tier 1 customers to integrate our technology into their manufacturing processes and evaluate new applications. In advanced packaging, our web processing system is production tool of record at a leading foundry, HBM manufacturer, and OSATs. Our system's ability to support challenging process capabilities has enabled our strong position in 3D packaging for AI. and expectations for growth to accelerate in 2025. And in advanced packaging lithography, capacity expansions in the AI and mobile markets have led to expectations of a recovery in 2025 driven by a broad range of customers. Strategy in the semiconductor market has been focused on expanding our served available market by investing in core technologies to enable industry inflections. Vico technologies have exposure to leading-edge inflections in logic, memory, and advanced packaging, enabling technology transitions such as gate-all-around, high-bandwidth memory, EUV lithography, and 3D packaging for AI. In annealing, we forecast our SAM to grow from approximately $800 million to around $1.3 billion. dollars. We expect this to be driven by an increase in laser annealing intensity as logic and memory customers adopt laser annealing to address new challenges. In ion beam deposition, we project our SAM to grow to approximately 350 million dollars for high-value front-end semi-applications requiring critical film performance. Growth in AI is accelerating adoption of new technologies and materials that enable device scaling and address the growing need for energy-efficient compute performance. We believe our IBD-300 system has unique capabilities that can address each of these high-value challenges. In ion beam deposition for EUV mass blanks, we project our SAM to increase to over 120 million dollars as ASML expands EUV and high NA capacity and customers adopt our systems for new applications. And in advanced packaging, we see SAM expansion opportunities for our enabling wet processing technology for an increasing number of applications supporting AI and high-performance computing. As we look ahead, we believe our portfolio of enabling technologies for key inflections positions our semi-business to outperform WFE over the years. I'd now like to provide additional detail on our evaluation program. Our evaluation program is essential to expanding our position in logic and memory, and we're investing in several evaluation systems to capture our largest SAM. Evaluations are targeting several applications, which can result in follow-on business between $30 to $60 million per application win, assuming 100,000 wafer starts per month. While the timing of adoption by system, customer, and market will vary, customers are excited about the value proposition our technologies offer, and we're highly focused on executing. With that, I'll turn it over to John for a financial update.

With revenue for the year, revenue came in at $717 million, increasing 8% over the 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 package. 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 prior year, making up 10% of revenue. Moving to revenue by region. 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, EMEA was 9%. 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, margin came in at 40 prior year. increases increased eight percent operating income increased six percent from the prior year to a hundred and sixteen million dollars and net income increased to a hundred and four million dollars yielding effective an increase from ten percent in the prior year diluted EPS increased to a dollar seventy four for the year on 61 million shares elected gap full-year data amortization expense depreciation 18 million dollars and net interest net income of resulting from us not meeting our market expected dollar gain from a reduction in the estimate of contingent consideration and twelve million dollars in related tax benefits resulting in a net benefit of a product revenue came in at one hundred eighty two million dollars up five percent from the prior year and down one percent two percent of revenue in the compound semiconductor mark twenty three million dollars data storage rising eight percent of a new increase to thirty three million dollars are made up eighteen percent of revenue to an increase the region exclude the United States came in at nineteen for switching gears to our non-gap quarterly results gross margin total approximately below our guidance additional spending for our evaluation programs operating expenses total forty eight million dollars at the low end of guidance income tax expense resulting in in the 14 percent net income came in at approximately looted EPS was for moving to the balance sheet we ended the quarter with cash 35 million dollars really resulting from the timing of one customer payments were due abilities on the balance sheet decreased by 11 million dollars to 49 million dollars the 28 million dollars in capex told an 18 million dollars in 55 between 47 and 49 million dollars net income between 16 and 22 million and diluted EPS between $0.26 and $0.36 on some additional color beyond Q1. With market conditions and our visibility, we expect Q2 revenue to be in a similar range. I'll now provide qualitative commentary for each of our markets. Beginning with the semiconductor market, we continue to expect a decline in investment from computing is driving an increase in leading such as gate all around. We continue to advance our roadmaps in laser annealing, iron beam deposition, and are well-positioned to take advantage of growth in leading-edge investment market. We continue to see opportunities in solar for revenue growth beginning in late 2025 into 2026. We also remain excited for the potential to expand in GAN power with a $60 million to $70 million decline in revenue in 2025. And in science growth in 2020, we believe VECO is a competitor. Contributing to expertise. VECO has a portfolio of enabling technologies that are increasingly critical for several leading edge in place. We believe our exposure to market, then growth in WFE spending, execution to generate long-term Thank you.

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Charles Shee from Needham & Company. Please go ahead.

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

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

Got it. Thanks, John. That's a 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 then 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 yeah good afternoon charles uh you know we're really excited about uh the advanced packaging opportunity uh we see this uh as an opportunity doubling in 25 over 24 and that's largely driven by uh wet processing um so we're really kind of benefiting from capacity expansions at a leading Foundry, an HBM manufacturer, as well as multiple OSATs, and so, you know, we see this as a multi-year opportunity, and also in Litho, our business in 24 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, is doubling. So maybe from 75 million to 150 million.

That's a full-year comment, right? 75 to... Yeah, yeah, yeah, yeah. Okay. Any color...

Yeah, 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.

Yeah, and so we enter the year with a good backlog. And maybe, you know, Charles, this ties back to your first question, you know, a little bit as well about visibility, you know, into the backlog. We're entering 2025 with virtually the same backlog in semiconductor that we started the year with. So the backlog is flat, but the composition of the backlog is different. So at the beginning of the year, we had a higher concentration of backlog with our China. And as we enter 2025, a higher concentration and an increase in the semi-backlog comes from area like 2 nanometer gate all around and advanced packaging. So we've got a reasonable visibility there.

I really appreciate the color. Thanks. I'll be back in the queue. Thank you, Charles.

The next question comes from the line of Rick Schaefer from Oppenheimer. Please go ahead.

Hi, this is William Mock on the line for Rick. Thanks for taking the question. Congrats on your NSA shipment. 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 eval program before? And what gave them the comfort in the decision to make this purchase ahead of the other two that are still on eval?

So this shipment came as part of a multi-tool laser annealing system order from this customer in 2024. And their goal is to enter the market kind of at the two nanometer gate all around. And so this is a new customer for us, but we did not provide an evaluation tool. So this was 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 uh those evals are going well and we're actually looking uh the customers are looking at us for uh multiple applications great thanks um i appreciate that um 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 that talks of terror, 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? Anything has changed with that 20% China bogey? Could it be lower? Thanks.

So thanks for the question, Wei. So yeah, 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 changed licensing. So in the near-term, not an impact. Long-term view of regulations, how regulations may change and what the impact there is it been that we were seeing less of these new you know opportunities or new fabs uh and new projects you know coming uh uh you know being funded or or invested in and that's what that we see uh business um you know slowing down for a couple of years uh get you know you know digested, and that we have good visibility for about, you know, half a year. We see, as we see, about 20 from China in the first half of the year, and a lesser number in the second half. Thank you, Wei.

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

I just wonder if you can provide some more color on memory, specifically high bandwidth with memory. And also, LAM reported very strong sequential improvements in shipments to NAND customers. I'm just wondering 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 we're 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 mid-year, mid-2025. Thank you. And I would say, as I look at, you know, as the business continues with HBM in 2025, and we were shipping volume in 24 as well.

Okay, thank you.

Thank you, Mark.

Thank you.

Thank you.

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

Yes, thanks for taking my questions. On the LSA, I wanna make sure I understand. Have you been qualified for data all around with LSA?

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

Okay.

And then is NSA, you know, being looked at by the logic guys for is the incremental application backside power? uh they're looking at a number of applications um for uh more kind of uh extending more the more traditional front side annealing uh 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 your gate all around question there. You know, when we look at growth drivers in 25, we see gate all around really starting to ramp. And we think gate all around has the potential to double for us in 25 over 24. That, you know, 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 and that that is just purely spares and service yes yep correct that's uh you know we didn't really have any significant systems bookings in 24 and given our lead time that that window is closed on 25 uh systems revenue got it and then um and i guess you know just because nobody else will ask um on scientific and other i mean there's always a budget flush in the fourth quarter you a very strong quarter there um you know are you kind of looking at a similar revenue range or

you know is quantum computing really starting to drive a little more incremental demand um for you know tools that address that market gus i would say we are seeing uh an increase in quantum computing activity uh year over year so these are larger systems and so they're 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 kind of our base, our scientific segment to grow in 2025.

Okay, and I'm assuming that's molecular beam epitaxy?

Correct, yep. And, you know, they're kind of Frankenstein-type tools. It may have an ALD off the side of it or but largely they're predominantly mbe with modifications got it got it so that the price tag is more than single digit millions uh they when they're all packaged together they can be uh they can be over 10 million they might they come in as separate bits but yeah they're they're big opportunities that's why they're they're pretty lumpy got it all right thank you very much thank you guys thank you the next question comes from the line of Dave Dooley from Steelhead Securities please go ahead um yeah thank you very much for

taking my questions um I guess just to start with you know 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 uh second half And then the same thing for semi. That would be very helpful.

So, yeah, so, Dave, let me try to cover that, you know, by the markets, you know, 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 to $70 million year on year, representing we don't have expectations for shipping market business there if I look at the semiconductor your market there's really as we've described on this call so far really two elements to the semiconductor you know market for 2025 and we do see the opportunity for that market to have growth in 2025 on On the one side, we have expectation that China business will be down. On the other side, Bill has mentioned that we have expectation 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 their business despite and then in the compound semi side you know we are coming off low volumes in 2024 we do see some you know opportunities and solar and photonics providing opportunity for revenue growth in in the second half of the year in the compound semi side and as Bill just mentioned the expectation with strength in areas like constant computing on the scientific side that we do see for growth. Not making a quantitative call on the full year and a first half versus second half there. That's our view of the markets for it.

Okay, and essentially you've already kind of taken the downdraft and 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 meld those together, our view, that's flat to up. And it's clear the first half, the second half, not totally clear yet how that's going to go.

And then, you know, there's been a lot of, you know, 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? And 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.

Yeah, 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 we'll 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 25. So that's not going to have any revenue impact on 25. 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, are some of these applications, help us understand how much of it is truly additive and how much is somewhat candlestick from applications that you've already won that 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 will 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 I would say to the first order, it's largely incremental.

Okay. Thank you.

Thank you, Dave.

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

I just want to revisit where you're at on 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, you know, as I said, the customers are engaged. We're jointly working together through integration issues, downstream integration issues, to incorporate the ion beam 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, you know, for memory-type applications per 130 to 40 minutes.

Thank you.

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

Yeah, I wanted to 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, you know, 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, you know, reason for that is as we see lower revenues coming from, that gives us a mix, you know, headwind to gross margins because they typically have, we see additional business coming from the advanced packaging area and the back end, you know, typically has a bit lower, you know, margins there. We have a number of gross margin improvement initiatives that we have going to be the impact of the product mix as we improve manufacturing, efficiency, warrantying our tools, and other agency. We see it now, Dave, we're seeing gross margins closer to the 42% range coming into 2025.

And do you think that 42% goes down with the mix of business as far as China dropping and there's basically no hard-to-strived 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 2020.

Okay. Thank you.

You're welcome. Thank you, Dave.

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 VECO team for their continued support. Have a great evening.

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