Veeco Instruments Inc.

Greetings and welcome to the VCOS and full year 2023 earnings call. At this time, all participants are in a listen only mode. 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. This conference is being recorded. My pleasure to introduce your host, Anthony Pappone, head of investor relations. Thank you, sir.

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 and slide presentation to accompany today's webcast is available on the VECO website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions, or otherwise make statements about the future, these forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings. The vehicle 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. Please note, unless otherwise noted, management will address non-GAAP financial results. we encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. With that, I will turn the call over to our CEO, Bill Miller.

Thank you, Anthony. 2023 was a successful year for Veco. I'm proud to say we grew the business, improved profitability, and most importantly, laid the groundwork for future growth by advancing our product roadmaps. VECO reached two strategic milestones during the year. First, we launched our next generation nanosecond annealing solution. And second, we launched our ion beam deposition system for low resistance metals. Each of these technologies enables our customer to fabricate devices with higher performance and lower power consumption. Revenue from our semiconductor business reached a record in 2023, outperforming WFE growth for the third consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices, despite industry-wide capex reductions, as well as our first HVM laser annealing systems to our third leading Logic customer. While investing for growth is essential to our strategy, we're equally focused on growing profitability. Our team's execution allowed us to grow non-GAAP gross margin, operating income, and EPS. We continue to allocate capital towards organic growth initiatives. In the second half of 2023, we shipped multiple evaluation systems of key technologies and expect to further the evaluation program in 2024. We believe these investments will lead to significant served available market expansion. Switching gears to our full year financial highlights. VECO reported another year of top and bottom line growth. with results coming in near or above the high end of our updated 2023 guidance. Revenue totaled $666 million, led by semiconductor revenue, which increased 12% year-over-year. Gross margin improved to 43.5% in 2023 from approximately 42% in the prior year. And as a result, non-GAAP operating income grew 10% to $110 million, and diluted non-GAAP EPS increased to $1.69. Now for a look at our Q4 highlights. VECO reported another quarter of strong top and bottom line results. Revenue totaled $174 million, gross margin improved sequentially to 45%, driving non-GAAP operating income to $32 million, and non-GAAP EPS totaled 51 cents. Our solid financial results were primarily driven by the semiconductor market, led by our laser annealing systems, with semiconductor revenue increasing 17% sequentially. I'll now provide an update on our markets and review several exciting opportunities. Beginning with the semiconductor market, we're growing our served available market by investing in advanced node logic and memory applications and winning new customers. VECO's LSA technology is gaining share at customers' advanced nodes as new device architectures and shrinking geometries require precise annealing to increase performance. VECO's technology advantages include a lower thermal budget, high dopant activation, and pattern insensitivity to annealing. In 2023, we've also experienced increased demand from matured node customers as they've achieved performance benefits from adopting laser annealing technology. As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers, driving additional applications in logic, and introducing our nanosecond annealing technology. Moving to our position in the EUV ecosystem. Our IonBeam technology is utilized to produce defect-free mask blanks, We continue to work closely with industry leaders as we advance our technology to enable their roadmaps. Looking to 2024, we expect our semiconductor revenue to be up 5% to 10%. Moving to the compound semiconductor market, Veco is focused on several long-term opportunities within power electronics and photonics. We continue to advance our silicon carbide technology, remain highly engaged with Tier 1 customers, and expect to ship two evaluation systems this year. We believe our unique system design and extensive go-to-market infrastructure position us well to capture share in this high-growth market. For GaN power, we're working with Tier 1 power device customers and positioning ourselves at 200 millimeter and 300 millimeter wafer sizes for GaN on silicon solutions. We expect to ship a 300 millimeter evaluation system to a power device customer in 2024. Based on current visibility in the markets we serve, we expect our compound semiconductor business to be up 5% to 10% in 2024. Lastly, looking at the data storage market, Veco provides Ion Beam equipment to manufacture thin-fill magnetic heads for hard disk drives. While we're well-positioned to take advantage of long-term growth in the cloud, We're focused on porting ion beam technology from data storage to the front end semiconductor market. Based on the scheduled ship dates of our backlog, we expect our data storage business to be flat to up 10% in 2024. Moving now to artificial intelligence and the role Veco plays in the AI chip manufacturing process. Growth of AI is having a profound impact on leading-edge product roadmaps, requiring the most advanced technologies to manufacture higher performance AI chips. Our laser annealing systems for transistor formation and IBD systems for EUV mask blanks are established as production tool of record for GPUs and HBM DRAM. Equally as important, we see future opportunities for our nanosecond annealing and ion beam deposition solutions for these same applications. I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market. Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications. Due to our unique laser and architecture, our system can achieve a lower thermal budget and shorter dwell time versus today's most advanced annealing solutions. This results in a shallow anneal that can impact only tens to hundreds of nanometers into the wafer, which may be ideal for next generation steps such as backside power delivery and contact anneal for advanced nodes and 3D devices. Our system has the capability to change the structure and properties of the device, enabling steps like void removal, recrystallization, and grain growth. In Q4, we shipped our first two NSA evaluation systems to two leading logic customers. As we look ahead, we see potential for initial high-volume manufacturing orders in 2025. Turning now to ion beam deposition for 300-millimeter front-end semiconductor applications. VECO is the industry leader in ion beam technology, which has been honed over decades. This core technology can also solve our customers' high-value challenges in advanced semiconductor wafer-level manufacturing. As device geometries continue to shrink, lower resistance metals are important to maintaining device performance. Traditional deposition technologies like PVD are struggling to meet performance criteria. Based on Tier 1 customer data, Our ion beam deposited tungsten and ruthenium films are demonstrating approximately 20% lower resistance compared to traditional PVD. For DRAM, this enables tungsten bitline scaling while maintaining electrical performance of the device. For logic, ruthenium-based metallization can enable new integration schemes at future nodes. In Q4, we shipped our first two IBD 300 evaluation systems to two DRAM customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025. With that, I'll turn it over to John for a financial update.