Veeco Instruments Inc.

2021-2023 earnings call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Anthony Papon, Head of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Good afternoon. 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 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 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. These factors are discussed in the business description, management's discussion analysis, and risk factors sections of the company's report on Form 10-K and annual report to shareholders, in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and press releases. BCO does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances at 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 our call today. Veco executed well in Q1 with solid top and bottom line results. Our team continues to perform well and remains focused on executing our growth strategy to create value for our customers and shareholders. Today, I'll take you through our first quarter highlights and discuss our markets and technologies. John will provide a financial update and guidance, and then we'll be happy to take questions. Revenue in Q1 came in at $154 million, non-GAAP operating income totaled $20 million, and non-GAAP diluted EPS came in at 30 cents, all above the top end of our guided range. This quarter's results reflect solid execution. Revenue for our semiconductor products remained elevated, increasing by 20% year over year, led by laser annealing. Our team did an excellent job of managing supply chain during the quarter. While material lead times remained elevated, our suppliers' on-time deliveries have improved. We're starting to see some signs that material lead times could improve in the second half of the year. As we look ahead in 2023, We remain committed to investing in the semiconductor and compound semiconductor markets with differentiated solutions positioning VECO for long-term growth. Now switching gears to our markets and technologies. As we've discussed in the past, there are four key megatrends driving growth in our three primary markets of semiconductor, compound semiconductor, and data storage. These trends are high-performance computing and AI, mobility and the immersive user experience, the transformation of the automobile industry, and the cloud. Turning first to the semiconductor market, our strategy is to expand our served available market by delivering differentiated solutions at the leading edge. We accomplish this with three key technologies. First, our laser annealing product line, which reduces thermal budgets at advanced nodes, is gaining momentum. This is demonstrated by recent orders for additional annealing steps at leading logic customers. We're also seeing traction within the memory market for advanced nodes, which represents a significant long-term growth opportunity for the company. Second, our ion beam deposition system for EUV is another differentiated technology that new and existing customers continue to adopt. These systems are used to manufacture nearly defect-free EUV mass blanks and have been the system of choice for many years. We expect continued demand for our ion beam deposition systems as customers add capacity to support increased adoption of EUV lithography. ASML recently reiterated their plans to ship around 60 EUV lithography systems in 2023. With approximately one of our systems required for every 10 to 15 EUV lithography systems, we size the market at three to five systems per year. And third, we provide advanced packaging lithography and wet processing solutions to IDMs, foundries, and OSATs. Our lithography systems serve applications such as copper pillar, bumping, redistribution layers, and wafer-level packaging. Our wet processing systems are primarily used for photo resist strip and solvent cleans. As widely reported, the prevailing consensus for wafer fab equipment spend to decline this year by somewhere in the range of 15 to 25%. The forecasted decline is weighted more heavily towards memory than logic. As our semiconductor business is currently more exposed to logic, we remain confident that our semiconductor market sales will outperform WFE spend in 2023. A few key highlights from Q1 that further support our positive outlook include multiple LSA orders for DRAM devices from a world-leading memory device manufacturer, despite industry-wide CapEx reductions, additional production orders from our most recent Advanced Logic customer, shipment of an advanced node logic LSA evaluation system for a second application, further advancement toward an evaluation system over the next quarter for our next generation annealing solution, and we're making progress toward shipping an ion beam deposition evaluation system for low resistivity metals. We expect growth in our LSA and EUV mask-linked product lines to more than offset softness in our advanced packaging lithography and wet processing business due to weak consumer electronic demand. As such, we expect our semiconductor revenue to be slightly up in 2023. Now, on to the compound semiconductor market. We primarily serve this market with our wet processing equipment for RF filter and power amplifier devices. along with our epitaxy equipment for power electronics and photonics applications. Our wet processing business has been weak over the last six to nine months due to softness in the smartphone market. Timing of the market recovery is not yet clear. However, the power electronics and photonics markets offer promising opportunities for growth. In power electronics, we're focused on GAN with our legacy MOCBD technology and with CVD silicon carbide, which we recently acquired. Integration of the acquired CVD technology is progressing well, with our system expected to be demo ready in the second half of 2023. Our system represents a significant opportunity for a differentiated solution to address growing power electronics demand in the electric vehicle market. Our epitaxy equipment to address micro-LED applications continues to display promising long-term growth potential. We're making ongoing investments in this area, including R&D, supporting customer demos, and evaluations to penetrate these market opportunities. Now, looking at our data storage market. Beko's ion beam equipment is used to manufacture our customers' magnetic heads. Despite the industry's widely reported challenges, such as excess capacity and inventory, we continue to expect revenue growth in 2023 based on ship dates of orders in our backlog. Taking a step back, the long-term trends in the HDD industry continue to remain promising. According to Gartner and our internal estimates, nearline hard disk drive exabyte shipments are expected to grow at an approximate 25% CAGR over the next five years. In addition, Seagate recently stated they have not let up on executing their heat-assisted magnetic recording or HAMR-based product roadmap and are tracking well to their plan to recognize initial revenue in the second quarter of the year. Larger drives use more magnetic heads, and newer recording technologies like HAMR use more complex heads. Adoption of this technology offers an opportunity for increased deposition and equipment. As such, we remain positive on the long term opportunity as the industry recovers from its current challenges. Moving on to our 2023 priorities. As always, our first objective is to keep our employees safe and healthy and to promote a culture that prioritizes teamwork and execution. During the quarter, We maintained our commitment to improving our corporate culture by launching our biannual employee survey to assess our progress on key initiatives. We also reiterated our commitment to further improve transparency, diversity, inclusion, and our environmental responsibility by issuing our fourth sustainability report. In regard to execution, focusing on our supply chain is one of our top priorities. as on-time delivery and quality metrics are essential to maintaining and improving customer satisfaction. Our investments in future innovation and product development are critical to our future success and growth strategy. We'll continue to engage our customers through evaluation system shipments and remain focused on penetrating the rapidly growing silicon carbide market. Lastly, we're focused on outperforming WFE growth expectations with our semiconductor products, which should support us in maintaining profitability levels. With these priorities in mind, we're committed to making a material difference and building a stronger VECO that serves all stakeholders. With that, I'll turn it over to John.