Veeco Instruments Inc.

Good day and welcome to the VCO Instruments Incorporated corporate hosted Q1 2022 earnings call. At this time, I'd like to turn the conference over to Anthony Bencivenga. Please go ahead, sir.

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Beco's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release is available on the Beco 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 Beco.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 factor 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 will 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.

Thank you, Anthony. Good afternoon, everyone, and thank you for joining the call. VECO delivered another solid quarter during challenging times. The VECO United team is performing well, dealing with lingering COVID issues and navigating a difficult supply chain environment. Today, I'll take you through our Q1 highlights and discuss our markets and technologies. John will provide a financial update and guidance, and then we'll be happy to take questions. Demand continued to be strong throughout the first quarter. We saw accelerated semiconductor order activity, which drove an increase in our backlog. Our financial metrics were in line with or above the midpoint of our guidance. From a top-line perspective, we achieved revenue of $156 million driven by record semiconductor shipments, with contributions from laser annealing, advanced packaging lithography, and EUV mask blank systems. Our solid execution led to non-GAAP operating income of $25 million and non-GAAP EPS of 38 cents. We achieved cash flow from operations of $25 million and ended the quarter with $232 million in cash and short-term investments, up $7 million from last quarter. We recently published our first set of environmental, social, and governance goals for 2022 and beyond. We continue to improve transparency, diversity and inclusion, and our environmental responsibility because we believe this makes us a stronger company for all stakeholders. We've been able to meet our financial targets for the first quarter and fulfill our customers' most critical demands. However, we are impacted by supply chain delays. Similar to our peers, we're not seeing an improvement in material lead times, which is impacting our ability to fulfill demand in a timely manner. Nevertheless, despite the supply chain challenges, our previously provided full-year guidance is intact, and we are excited that 2022 will be a growth year. Switching gears to our markets and technologies. There are significant and lasting megatrends that drive our growth markets. We break them down into high performance computing, mobility, transformation of the automotive industry, and the cloud. These megatrends are as strong as ever, as evidenced by the continued pace of technological evolution in areas like artificial intelligence, early stage augmented and virtual reality, and electric vehicles. Our customers in all of our growth markets, semiconductor, compound semiconductor, and data storage are making investments in equipment to add capacity to address these growing demands. VECO is well positioned with exciting products to address these growth markets as we progress toward our financial target of $800 million in annual revenue, which we shared last September at our analyst day. looking specifically at our semiconductor market. According to industry research from SEMI, wafer fab equipment spending is forecasted to remain strong, above $100 billion annually in both 2022 and 2023. Much of this spend is concentrated at the leading edge, where VECO has a strong position helping customers add cutting edge capabilities. Our world-leading laser annealing and EUV mask blank systems are gaining traction, and we expect to gain market share and grow faster than WFE. And as I mentioned earlier, we had a record revenue quarter with our semiconductor products. In laser annealing, FICO's largest product line, we're executing well with advanced node logic providers, where our systems are a tool of record at current and next nodes. As an indicator of this demand, during the quarter, we again received multiple multi-system orders at the leading edge for our laser annealing systems. We continue to innovate and are working on advanced annealing solutions with shorter dwell times to enable our customers to use new materials and new geometries, enabling additional steps and their next nodes. In addition to leading-edge Logic players, a portion of our business includes trailing node customers who are adding capacity to address component shortages for a variety of applications, such as consumer electronics and the automotive industries. Beyond Logic, we've been working to bring our innovative laser annealing solutions to the memory market, and we're working with customers to introduce laser annealing to DRAM for their most advanced nodes. These engagements are progressing well as we perform against milestones, and we expect to have more to report in the coming quarters. Overall, our laser annealing business is growing as we win process steps and win new customers. Now, looking at our advanced packaging lithography product line. We continue to experience good traction in applications such as flip chip and bumping, and fan-out wafer-level packaging, driven by artificial intelligence and GPU production. For example, during the quarter, we had another multi-tool order from an OSAT for a high-volume manufacturing wafer-level packaging solution. Our AP Litho product line is a key enabler for our customers as they seek to improve device performance. Switching gears to the EUV mask line product line, Our ion beam deposition technology has been identified as the technology of choice to deposit defect-free material to create EUV mask blanks. You may recall last quarter we announced a third customer has validated our technology over others by placing an order for our ion beam system as they enter the EUV mask blank market. We expect a strong year as customers add capacity to keep up with the adoption of EUV lithography. ASML is planning on shipping 55 EUV systems in 2022, and they're working on capacity expansion plans to ship 90 systems annually by 2025. With approximately one of our systems required for every 10 to 15 EUV lithography systems, we currently size this market at three to five ion beam systems per year. As we continue to work with the EUV ecosystem and innovate our product line to improve performance, we'll be ready for the industry's next steps, such as high numerical aperture EUV lithography. All in all, our semiconductor business is performing quite well and driving VECO's growth in 2022 and beyond. Looking now at our compound semiconductor market. We serve this market primarily with two product lines, our wet processing equipment, which can be used in a variety of applications, and MOCVD equipment for power electronics and photonics applications. We had a strong shipping quarter with our wet processing equipment as customers added capacity for RF devices. This product line has wide appeal, and we're starting to see adoption of wet processing systems in advanced photonics applications like microLED and augmented and virtual reality. Our gallium nitride and arsenide phosphide MOCBD systems enable several compound semiconductor applications, including power management solutions and photonics. These applications have promising growth potential, and we're looking to build our presence in these emerging markets. During the quarter, we ship systems for micro-LED applications like AR and VR, as well as GaN power electronics. These early-stage wins, along with evaluations we have underway for power electronics and micro-LED, increase our confidence we'll grow in these emerging compound semiconductor markets. Our third major market is data storage. Hard disk drive exabyte capacity shift is expected to grow for the foreseeable future as hyperscalers and enterprises upgrade their storage capabilities. This corresponds to an increase in hard drive capacities and overall number of heads shifted. based on discussions with customers, we forecast data storage equipment shipments will grow in 2023 after an absorption period this year. Now, let's review our 2022 priorities. We continue to be optimistic given today's healthy demand environment coupled with our strong backlog position. As always, our first priority is to keep our employees healthy and safe, and maintain the progress we've been making on our culture so we can maximize our potential. As mentioned earlier, our commitment to our culture and stakeholders was strengthened recently as we released a comprehensive set of ESG goals related to climate change, product responsibility, and diversity and inclusion. We're maintaining our focus on converting our evaluation systems into ongoing business, managing our supply chain, and improving our on-time delivery for customers. This focus is paying off, enabling solid first quarter results. We're on target, ramping our new San Jose manufacturing facility, which we expect to complete by Q3 of this year, and we're advancing our R&D efforts to innovate new products and deliver new evaluation systems to customers. Lastly, Despite the near-term supply chain challenges being experienced across the industry, given our strong demand and robust backlog, we expect to grow revenue in 2022 and deliver on our previously provided annual guidance. With these priorities in mind, we're committed to making a material difference and building a stronger VECO that serves all our stakeholders.