Veeco Instruments Inc.

Greetings and welcome to VECO's fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Ben-Savanga, Head of Investor Relations. Thank you. You may begin.

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 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. And with that, I will turn the call over to our CEO, Bill Miller.

Thank you, Anthony. Good afternoon, everyone. Thank you for joining our call. I hope you and your families are well. To begin, I'd like to highlight some recent exciting news. On February 1st, we announced that VECO acquired EpiLuvac, accelerating VECO's entry into the high-growth silicon carbide epitaxy equipment market. I'll share more details on this in a few minutes. I'm going to take you through our 2022 and fourth quarter highlights and explain the acquisition. John will provide a financial update and guidance, and then I'll discuss our markets and technologies before taking your questions. As I look back at 2022, I'm proud of the resilience the VECO United team has exhibited and the accomplishments we made. For starters, as it relates to our growth strategy, we made solid progress advancing our product roadmaps in our semiconductor and compound semiconductor product lines. Several of our customer evaluations were accepted, and we completed our San Jose facility expansion, increasing our much needed semiconductor capacity. We achieved double digit revenue growth, and we grew non-GAAP operating income faster than revenue. An important part of our strategy involves consistently evaluating our product portfolio. As part of this process, we acquired EpiLuvac to participate in the silicon carbide epitaxy market, which we believe will enhance our long-term growth prospects. From a governance and corporate responsibility perspective, we appointed a third female director, Dr. Lena Nicolides, to our board, advanced our ESG program, by publishing our annual sustainability report, and we invested in our VICO United leadership team by implementing a leadership training curriculum. And lastly, with strong order activity, our backlog grew, and we strengthened our balance sheet with robust cash flow from operations. We're pleased with our progress in 2022, and we believe we're set up for solid performance in 2023. Switching gears to our full year financial highlights. 2022 was another year of growth for VECO. Revenue for the full year was $646 million, 11% growth over 2021. It was a record year of semiconductor revenue, which grew 50% year on year, driven by increased traction in both advanced and trailing node laser annealing systems. Orders exceeded revenue throughout the year as well, with backlog ending at $500 million of $60 million on the year. We had strong cash flow from operations of $108 million, a 60% increase over 2021. And non-GAAP operating income grew 15% to $100 million, with diluted non-GAAP EPS coming in at $1.57. We entered 2022 with supply chain challenges and strong demand. By the end of the year, the supply chain challenges persisted while demand became more mixed due to softness in consumer markets such as smartphones and PCs and a weakening macroeconomic environment in general. Overall, given the environment, we're pleased with our full year 2022 financial performance. Now for a look at our Q4 2022 highlights. Results for the fourth quarter were generally within our guidance range, with gross margin exceeding the high end of guidance. Revenue came in at $154 million on strength in our semiconductor market, and we achieved non-GAAP operating income of $24 million, leading to diluted non-GAAP EPS of 38 cents. In addition, we generated $33 million in cash flow from operations. During the quarter, momentum in the semiconductor market continued with strong bookings and revenue activity. The team did an excellent job mitigating supply chain challenges, and in fact, over the course of the fourth quarter, we started to see signs of improvement in supply chain on-time deliveries. Now, let me get into some more details regarding the EpiLuvac acquisition. Two weeks ago, we announced the acquisition of EpiLuvac, a Swedish designer and manufacturer of silicon carbide epitaxy systems. We're excited about this transaction because it accelerates our entrance into the high-growth silicon carbide epitaxy equipment market, which is principally driven by electric vehicle demand. The EpiLubac team has decades of CVD silicon carbide experience, leading to their well-designed system, which targets high productivity, ease of maintenance, and superior process control. The VECO team brings proven manufacturing and go-to-market capabilities to facilitate ramping and penetrating this high-growth market. We believe the EpiLubac team will be a great fit with VECO, and we couldn't be more excited to combine our capabilities, delay our customers, and create meaningful value as we grow the business. The power electronics market has historically been dominated by silicon devices. However, demand has been rapidly growing for higher voltage and higher power applications in automotive, energy, and industrial end markets, which silicon carbide is well suited to address. And in conjunction with large investments by many key players in the silicon carbide ecosystem, the device market is expected to grow at approximately a 30% CAGR from 2023 to 2027. This translates to a forecasted market growth rate for epitaxy equipment from approximately $250 million to about $500 million or a 15% CAGR over the same period. Now to provide an overview of the transaction. The purchase price for this transaction was $30 million paid in cash at closing, with up to an additional $35 million in performance-based earnouts. EpiLubac is an early-stage revenue company with 11 employees. The impact of VECO's non-GAAP financial results is not expected to be material in 2023. Beginning in 2024, as we leverage our manufacturing and global sales and service infrastructure, we expect volume revenue to begin, and for this transaction to be slightly accretive. And with that, I'll turn the call over to John for more details on full year 2022 and fourth quarter financials.