Veeco Instruments Inc.

Good day and welcome to the VECO Instruments Inc. Corporate Hosted Q3 2021 Earnings Call. At this time, I'd like to turn the conference over to Mr. Anthony Bencivenga, Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Joining me on the call today are Bill Miller, VECO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release is available on the VECO 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 VECO.com. This call is being recorded by VECO Instruments and is copyrighted material. It cannot be recorded or rebroadcast without VECO's express permission. Your participation implies consent to our recording. To the extent this call discusses expectations about market conditions, market acceptance, and future sales of the company's products, future disclosures, future earnings expectations, or otherwise make 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's discussion and analysis, and risk factors sections of the company's reports 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. VIGOR 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 our CEO, Bill Miller.

Thanks, Anthony. Good afternoon, everyone, and thank you for joining the call. The Beco United team did an outstanding job this quarter. We posted solid Q3 financial results, we're continuing to invest for growth, and we're making progress towards our long-term financial targets we shared at our analyst day on September 9th. All our Q3 guided metrics came in at or near the high end of our guidance, with revenue of $150 million driven by record semiconductor sales and strong data storage revenue. Our non-GAAP gross margin came in at 43%, and we achieved non-GAAP operating income of $24 million, leading to diluted non-GAAP EPS of $0.40. Our quarterly revenue is up 34% year-on-year. Looking at year-to-date revenue, compared to the same period last year, we achieved 37% revenue growth, driven by a 67% increase in semiconductor sales. And... We generated $30 million in cash flow from operations, which is the highest quarterly amount generated in almost seven years. We've been transforming the company to take advantage of lasting global megatrends. Part of the transformation includes making fundamental changes, such as developing and practicing a set of core values to improve our culture. This afternoon, we published our second sustainability report, Many of our transformational improvements over the last few years are reflected in this report, but it includes so much more. We greatly improved our environmental and social disclosures and continue to make progress in these areas, minimizing our environmental footprint, becoming more inclusive, and continuing our commitment to good governance, all aligned with VECO's core values. We know these actions will help us improve our operations to better serve our stakeholders while building a more sustainable and transparent company. Now, let's turn to an update on our specific market opportunities, beginning with our semiconductor market. It's been well publicized that wafer fab equipment spending is expected to be over $80 billion in 2021, and that 2022 is expected to grow further from there. The strength in equipment spending reflects both technological advancement and capacity additions. We address this market with three major product lines where our innovation has resulted in solutions that drive better performance for our customers. Enabling better performance allows us to win in targeted applications and expand our served market. In fact, we shared at our analyst day that over the long term, we expect our semiconductor market opportunity to grow at a CAGR of approximately 23%, much faster than forecasted long-term WFE growth. The three product lines are laser annealing, which is currently used in production at both advanced and trailing logic nodes, ion beam deposition systems for EUV mass blank production, and lithography for advanced packaging. Our laser annealing products are used by device manufacturers in their most critical process steps. Customers choose VECO's laser annealing solutions because of its superior capability. This enables annealing with the shortest dwell times for improved device performance. We're currently production tool of record at multiple customers. We expect growth in this product line to come from market expansion in a few ways. In the near term, we'll continue to work with our existing Logic customers on their next nodes, and we're making progress with a significant new Logic customer. In the longer term, we've engaged memory customers with evaluation systems and demos, and expect to penetrate this important market over time. We had another strong revenue quarter in laser annealing, driven by systems to existing Logic customers as they build out current nodes. Our next product serving the semiconductor market is our ion beam deposition system for EUV mass point production. EUV lithography is critical to the progression of Moore's Law. As device geometries in both logic and memories continue to shrink, we expect continued adoption of EUV lithography. We've seen public remarks from Intel, Samsung, TSMC, Hynix, and Micron confirming their commitment to EUV as they seek to advance their product roadmaps. In addition, ASML recently announced plans to double their EUV scanner output from 35 systems in 2020 to approximately 70 systems in 2025. Consequently, we expect demand to grow for our ion beam systems used for EUV mask line production. In fact, we recently increased our outlook for EUV mask line systems from two to four systems per year to three to five systems annually on average. Moving to advanced packaging. For a few quarters now, we've expressed increasing confidence in our advanced packaging opportunity. We had a strong equipment shipping order for our lithography systems, and we had a repeat multi-system order from a leading OSET to support production of GPUs and high-performance computing chips. All three of our products serving the semiconductor market are performing well and are expected to continue this momentum for the foreseeable future. As expressed in our analyst day, the semiconductor market is our biggest driver of growth over the next three to five years, and we're making progress towards that goal. We serve the compound semiconductor market primarily with two product lines, our wet processing equipment for our power amplifiers and filters, and MOCV equipment for power and photonics applications. Our wet processing equipment has broad appeal in material liftoff and solvent-based applications. In addition to the continued demand for our wet processing equipment across RF filter and amplifier applications, we're seeing demand in photonics applications as well. Our MOCVD systems enable fast charging and other power management solutions, as well as micro-LEDs. We ship single wafer systems for power and micro LED applications during the quarter and continue to work towards penetrating these growth markets. Our third market is data storage. In the near term, based on our order activity, we expect data storage revenue to decline. However, our customers continue to invest in their aerial density roadmaps and increase the heads they produce, both driving more ion beam system demand. With the amount of data stored forecasted to grow at 35% annually, we're confident about the long-term prospects of our data storage business. In summary, led by our traction in the semiconductor market, demonstrated by application wins, backlog position, and visibility, we are confident we will grow revenue in 2022. Now, for an update on our 2021 priorities. First, regarding our resilience, there are a couple of updates. With safety being a priority for the company and one of our core values, we've decided to delay our COVID-19 return to facilities plan. This keeps our manufacturing employees safer while ensuring continuity of our operations. Regarding the status of our supply chain, like many of our peers, we're experiencing the effects of global supply chain disruptions, such as longer lead times and cost increases. We've been buying in advance and resourcing components on a more frequent basis each quarter in order to proactively manage the impact to our business. I'd like to thank our supply chain team for minimizing disruptions to our customers. Next, we continue to focus on profitability and we're on track to meet our long-term financial targets. And from a growth perspective, we're solidly on track to deliver more than 25% revenue growth in 2021. Our investments in evaluation systems and service infrastructure are setting us up for success in 2022 and beyond. By keeping these priorities top of mind, the VECO United team is committed to making a material difference and building a stronger VECO. Now, I'll hand it over to John.