Veeco Instruments Inc.

Good day and welcome to the VICO Instruments Q4 and Fiscal Year 2020 Earnings Call. At this time, I would like to turn the conference over to Head of Investor Relations, Anthony Bencivenga. Please go ahead, sir.

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, VCO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release is available on the VCO website. Please note that we have prepared a slide presentation to accompany today's webcast. We encourage you to follow along with the slides on VCO.com. This call is being recorded by Vigo Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Vigo's express permission. Your participation implies consent to our recording. To the extent that this call discusses expectations about market conditions, market acceptance, and future sales of the company's products, future disclosures, future earnings expectations, or otherwise makes statements about the future, Such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made including as a result of the COVID-19 pandemic. These factors are discussed in the business description, management discussion and analysis, and risk factors sections of the company's report on Form 10-K and annual report to shareholders, and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and press releases. VECO 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. During this call, management may address non-GAAP financial measures. Information regarding such non-GAAP financial measures, including reconciliation to GAAP measures of performance, is available on our website. With that, I will turn the call over to Bill for his opening remarks. Thank you, Anthony. Good afternoon, everyone, and thank you for joining the call. I hope you and your families are well. I'm excited to talk to you today about the strong progress we've made on our transformation. Our team executed through the quarter, operating remarkably well through this global pandemic. To begin, I will take you through our highlights, John will provide a financial update and guidance, and then I will discuss our markets and technologies before taking your questions. Reflecting on 2020, I'm proud of what our Vico United team has accomplished. We completed our organizational restructuring and began to reshape our product portfolio. We improved gross margins, reduced operating expenses, and improved profitability. We restructured our debt and strengthened our balance sheet. We also enhanced our governance, appointing an independent chair to the board of directors and assigning our second recently appointed female board member to the audit committee. We improved our focus on ESG and published our first sustainability report. And importantly, we continued to focus on our employees and internal culture. Together, these actions, along with investments in R&D and service to support multiple evaluation systems, are positioning VECO for our next phase of growth and value creation in semiconductor and compound semiconductor markets. Looking at our full-year highlights, 2020 was a remarkable year of improvement for VECO. Revenue for the full year was $454 million compared to $419 million in 2019. Our gross margin improved by nearly five percentage points to 43% in 2020. As a result of our reorganization and expense management, we reduced operating expenses to $144 million in 2020 from $156 million in 2019. From an overall profitability perspective, we achieved $52 million in non-GAAP operating income and reversed our diluted non-GAAP EPS from a loss of $0.03 in 2019 to a profit of $0.86 in 2020. These results go $43 million in cash flow from operations. Once again, the VQ United team did an amazing job focusing on success and executing in a challenging environment. Now for a look at our Q4 2020 highlights. Q4 marked another solid quarter of execution, driven by strength in our semiconductor and compound semiconductor markets. Revenue came in at $130 million, which was above the high end of our guidance, and diluted non-GAAP EPS came in at $0.30, which was at the midpoint of our guidance. Our gross margin came in at 41%, and we achieved non-GAAP operating income of $18 million. In addition, we generated $15 million in cash flow from operations and increased our cash and short-term investments by $10 million. John will provide more details on the financials in just a few minutes. We are optimistic about our growth opportunities in 2021. Market drivers such as semiconductor, 5G, and data center demand are all trending positively and are aligned with VECO's near-term growth objectives in laser annealing, 5G RF, and data storage applications. And our outlook for 2021 is supported by our backlog. As we look out beyond 2021, semiconductor demand is growing. And as such, we evaluated options to increase production capacity for our laser annealing systems. After considering a range of alternatives, we decided investing in a new facility offers the best solution. We are excited about the growth opportunity for our laser annealing product and will be sharing more details on this in the near future. On a related note, we are also proud to announce that we received a multi-system order for our laser annealing product from a leading semiconductor customer for a second application at an advanced logic node. This further validates the capability of our laser annealing technology and provides momentum as we enter 2021. And with that, I'll turn the call over to John for a review of the financials.

Thanks, Bill, and good afternoon, everyone. Today I will be discussing non-GAAP financial data that would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release or at the end of the quarterly earnings presentation. Before turning to our revenue by market and geography, I would like to remind everyone that we modified the way we report revenue by end market to align with the company's evolving strategy. Today we are providing revenue in our new end markets. In the backup section of the earnings presentation, you can find historical data reclassified to the new end markets for comparative purposes. As shown on the slide, our new end markets are semiconductor, which includes front-end and back-end semiconductor, as well as EUV mask-blank systems. Our second market is compound semiconductor, which includes RF filter and device applications, power electronics, and photonics applications such as pixels, laser diodes, and micro-LED display. Our third market is data storage, which includes equipment supporting thin-film magnetic head manufacturing. And our fourth market is scientific and other, which includes research institutions and other applications. Looking at full-year revenue, our semiconductor revenue was $166 million, which represented 36% of the total and a decline of about 6% from the prior year. We expect this market to grow in 2021 on strength in laser annealing systems. Compound semiconductor revenue was $108 million, a 26% increase from 2019, and made up 24% of the total, driven by photonics and RF applications. Data storage revenue was $123 million, a 47% increase over the prior year, and made up 27% of our total revenue as hard disk drive customers added capacity for thin-film magnetic head manufacturing. And scientific and other revenue was $57 million, a decline of 23% from 2019, and made up 13% of the total revenue. And looking at our full-year revenue by region, please take note that we have modified our region naming convention. Our Asia-Pacific region, excluding China, made up 39% of total revenue. The United States was 32%. EMEA was 16%. China made up 13%. And finally, the rest of the world made up less than 1% of our revenue for the year. Turning to Q4 revenue by market and geography. Revenue totaled $139 million for the quarter, which was a sequential increase of 24% and a year-on-year increase of 23%. We had strong performance in our semiconductor market, which made up 41% of our revenue, driven by multiple laser annealing systems and an EUB ion beam system shipment. The compound semiconductor market contributed 33% of our revenue and was driven by multiple system shipments for 5G RF applications and shipments to photonic customers. Our revenue in this market also included the sale of commodity LED systems, which enabled us to monetize slow-moving inventory. Our data storage market came in at 14% of total revenue. We expect growth in 2021 in our data storage market based upon our order backlog going into the year. And finally, the scientific and other market made up 12% of our revenue with systems shipped for a variety of research applications. And looking at our quarterly revenue by region, our Asia-Pacific region, including China, made up 48% of total revenue. The United States was 26%. China made up 14%. EMEA was 12%. And finally, the rest of the world made up less than 1% of our revenue for the quarter.