Veeco Instruments Inc.

Good day, ladies and gentlemen. Welcome to the VECO Instruments Incorporated corporate-hosted Q2 2022 earnings call. At this time, I would like to turn the conference over to Anthony Benzavinga. Please go ahead.

Thank you, and good afternoon, everyone. Joining me today on the call 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 report on Form 10-K, an 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 us today. VECO delivered another solid quarter of top and bottom line results, reflecting strong demand for our semiconductor products. The VECO United team is executing well, innovating to advance our product portfolio and managing our supply chain to meet customer commitments. Today, I'll take you through our second quarter highlights and discuss our markets and technologies. John will provide a financial update and guidance, and then we'll be happy to take your questions. Demand continued to be strong in the second quarter. We saw healthy order activity in our semiconductor and data storage markets, which drove an increase in our backlog. Our revenue of $164 million was above the midpoint of our guide and driven by another record quarter of semiconductor shipments. with significant contribution from laser annealing and advanced packaging lithography systems. Our solid execution let the non-GAAP operating income of $23 million and non-GAAP EPS of 35 cents, which were above the top end of our guided range. And we ended the quarter with $231 million in cash and short-term investments. Earlier today, We demonstrated our commitment to further improve transparency, diversity and inclusion, and our environmental responsibility by issuing our 2021 sustainability report with updated full year metrics and status on our recently announced ESG goals. Our customers expressed great interest in this area and investors have provided positive feedback on our initiatives as well. Looking ahead, There are many examples of capacity additions, new fab expansions, and technology transitions, particularly in logic where VECO semiconductor exposure is greatest, which give us confidence in our future. Our previously provided full year guidance remains intact, and we're excited that 2022 will be a growth year. I'll switch gears to our markets and technologies, starting with the semiconductor market. There are several significant growth drivers underpinning our semiconductor market. They are artificial intelligence and high performance computing, mobility, the transformation of the automotive industry, and ongoing data center and cloud adoption. Veco is well positioned with exciting products to address the semiconductor market. To cite a few examples, our laser annealing systems have applicability in both leading and trailing nodes, helping our customers with AI and high-performance computing, as well as mature automotive and consumer applications. Our advanced packaging lithography systems help our customers enable various 3D integration techniques to improve device performance and power consumption for data center and other high-performance computing applications. And our ion beam deposition systems for EUV mass splanks are a critical part of the leading edge front-end ecosystems, which enables the most advanced semiconductor devices. Looking more specifically at our laser annealing product line, this is Veco's largest product line, leading our growth trajectory into the semiconductor market. Consistent with our strategy and enabled by our recent capacity expansion, we had a strong shipping quarter, broadly supporting domestic and Asian customers with systems for both advanced node and mature node applications. Our San Jose facility ramp is on schedule, and our operations will be fully transferred to the new building by the end of Q3. The increased manufacturing footprint is enabling the ramp of our laser annealing output to meet our customers' demand. And demand for laser annealing remains healthy, as we see customers adopt our technology and add capacity. VECO's laser annealing platform is the production tool of record at the world's leading logic players. Today, we're shipping for their current capacity needs at their most advanced nodes and continuously innovating to enable their next nodes. In addition to Logic, we're excited to introduce laser annealing to the memory market. In fact, a leading DRAM manufacturer recently signed off their evaluation system for a future node. We anticipate follow-on orders in the late 2023 or early 2024 timeframe. to support our customers' manufacturing plans. Overall, our laser annealing business is growing as we win process steps and new customers. Now, looking at our advanced packaging lithography product line. We continue to experience good traction in applications such as fan-out wafer-level packaging, copper pillar and bump driven by GPU production and high-performance computing. For example, During the quarter, we had multiple shipments for high-volume manufacturing wafer-level packaging applications. We expect our advanced packaging lithography products to continue to be a contributor to our semiconductor market for years to come as manufacturers seek to increase I-O densities and strategies to integrate diverse chips in packages to improve performance. Switching gears to the EUV mass blank product line, our ion beam deposition technology has been identified as the technology of choice to deposit defect-free films to create EUV mask blanks. We expect this product line to remain in demand as customers plan their capacity additions to keep up with the adoption of EUV lithography. ASML recently reiterated their plans to ship 55 EUV systems in 2022, 60 in 2023, 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. Without question, our semiconductor business is performing quite well and driving VECO's growth in 2022 and beyond. Looking now at our compound semiconductor market. While we're seeing a slowdown in 5G RF-related activity in the compound semiconductor market, we're experiencing an increase in photonics applications. During the quarter, we shipped multiple deposition systems to support laser diodes for optical communication and specialty LED production. Looking ahead, we're working to penetrate the compound semiconductor market with our MOCBD solutions by targeting microLED and power electronics applications. Our gallium nitride and arsenide phosphide systems are in the field under evaluation with leading customers. In the power electronics case, we're working with a foundry customer who is evaluating our Propel single wafer gallium nitride system for 8-inch power applications. We believe there are opportunities in the consumer, automotive, and data center power markets to enable improved cost of ownership with an 8-inch solution while delivering best-in-class film properties. In microLED, we're engaged in two applications, working with a number of leaders in the industry for five-plus years. The first approach is more traditional, where red, green, and blue microLEDs are produced independently and transferred to a display. We have our Lumina arsenide phosphide system under evaluation for red microLED opportunities. We expect this evaluation to close in the second half of this year. For the second approach, we have 200 and 300 millimeter gallium nitride systems that we're deploying for an innovative micro LED application where the blue, green, and red pixels are produced on the same silicon wafer. Both approaches can potentially be a good long-term opportunity for the company going forward. Our third major end market is data storage. We believe this market will provide secular growth for VECO in the long run. Data stored in the cloud is still forecasted to grow at a 35% CAGR, with the number of heads and complexity of heads expected to grow as well. This corresponds with an increase in hard drive capacities and the overall number of heads shipped. Today, the industry is shipping 20-plus terabyte drives with larger drives on the horizon. 2022 data storage performance is playing out as we expected. As we look forward, based on strong order activity with customers today and the current lead times, we continue to gain confidence that 2023 will be a growth year over 2022. Now, let's review our 2022 priorities. With employee health a priority, as we monitor the pandemic's evolution, We're staying flexible regarding safety protocols in our facilities. We further strengthened our commitment to improving our culture during the quarter by launching a company-wide interim employee survey to monitor the progress of several cultural initiatives we have underway. The feedback was excellent, and we're proud of the initial progress we've made. We're maintaining our focus on converting our evaluation systems into ongoing business and, in fact, our evaluation program has been quite successful. During the quarter, three more systems installed at customer sites were signed off. Our expectation is this will result in follow-on volume business in the future. Another key focus for us in 2022 is managing our supply chain to deal with the global shortages of certain components, commodities, and OEM products. It bears repeating that our supply chain team has been doing a great job keeping our production lines operating, and enabling VECO to reaffirm our 2022 guidance for the year. With these priorities in mind, we're committed to making a material difference and building a stronger VECO that serves all our stakeholders. With that, I'll turn it over to John.