Good day, and welcome to the Veeco Instruments Incorporated hosted Q2 2021 Earnings Call. As a reminder, today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Anthony Bencivenga. Please go ahead, sir.

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Veeco’s Chief Executive Officer; and John Kiernan, our Chief Financial Officer. Today’s earnings release is available on the Veeco 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 veeco.com. This call is being recorded by Veeco Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Veeco’s expressed permission. Your participation implies consent to our recording. To the extent that this call discusses expectations about market conditions, market acceptances and future sales of the company’s products, future disclosures, future earnings expectations or otherwise makes 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 and annual report to shareholders and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and press releases. Veeco 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 may 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 Bill Miller.

Thanks Anthony. Good afternoon, everyone, and thank you for joining the call. I’d like to start today by thanking the Veeco United team for their continued dedication and hard work. They delivered exceptional second quarter financial results and made excellent progress advancing our strategic growth initiatives. We continue to feel confident about the remainder of 2021. Our near-term growth plans are unfolding as expected and the investments we’re making today are also on track, giving us confidence in our longer-term growth plans. I’ll expand on this in a few minutes. But first, I’ll discuss our Q2 highlights, then turn it over to John for a financial update and guidance. Veeco continues to execute well with Q2 results at the high end of our guidance. Strong shipments from our semiconductor and data storage customers drove revenue of $146 million. Our non-GAAP gross margin came in at 42% and we achieved non-GAAP operating income of $21 million leading to diluted non-GAAP EPS of $0.35. Both the top and bottom line results are sequentially better than last quarter and significantly improved from the year ago quarter. In addition, we had generated $10 million in cash flow from operations and improved our cash position. We continue to improve our operating model, while making investments for future growth. I’m particularly excited about our semiconductor market momentum, which is led by our Laser Annealing and Advanced Packaging Lithography systems obtained with our Ultratech acquisition. We’re pleased that the strategic rationale for the acquisition is now serving as a cornerstone to the overall Veeco growth strategy. Before we get into a detailed discussion on each of our four end markets, let’s look at the mega-trends driving our business. The first of these mega-trends is mobility with people and machines always on the move and always connected via…

Thanks, Bill, and good afternoon everyone. I will be discussing non-GAAP financial results and encourage you to refer to the reconciliation to GAAP results in our press release or at the end of the earnings presentation. Looking at revenue, revenue for the quarter was $146 million representing a 9% increase sequentially and a 48% year-over-year increase. The increased revenue from Q1 2021 was largely driven by Data Storage, which grew 27% in the quarter. Semiconductor, Compound Semiconductor and Data Storage, all contributed to a year-on-year increase in revenue from $99 million with the following details providing a little more color. Semiconductor revenue increased by 43% to $54 million, which represented 37% of total revenue, driven by our Laser Annealing and Lithography products. Data Storage revenue increased by 84% to $52 million and made up 35% of our total revenue, driven by both capacity and technology additions by our customers. And Compound Semiconductor revenue increased by 37% to $24 million and made up 17% of total revenue, driven by wet processing systems sold for RF applications. A few comments on Q2 revenue by region, the United States region made up 46% of total revenue and was driven by Ion Beam systems shipped to Data Storage customers. Our Asia-Pacific region excluding China was 34%. China made up 14% of overall revenue and we expect the revenue percentage from China to trend higher given our recent order activity and improving ability to obtain export licenses. Now turning to our non-GAAP quarterly results. Gross margin came in at 41.6%, which was flat to last quarter and toward the top end of our guidance. Operating expenses for the quarter were $39.6 million, flat to last quarter and 27% of revenue, a reduction from 29% in Q1. Operating income of $21.3 million for the quarter increased…

[Operator Instructions] And we’ll now take our first question from Tom O’Malley with Barclays. Tom O’Malley: Hey guys, thanks for taking my question and congrats on the really nice results and updated full-year guidance. I just wanted to kind of dive into an update you normally give us, traditionally Bill you dive into some of the equipment wins that you have or at least equipment status of the LSA business. Could you update us on how some of those evaluation tools are going and where you currently stand with your leading customers there?

Sure Tom. This has been a big focus for the company. We’re planning to put 10 evaluation tools out into the field during 2021 and if you look back historically, the company typically would only have one or two out in the field at any given time. So as of today, we have eight of those 10 tools shipped into the field. Six of those are in the semi space, specifically four are in laser annealing and one is with the current customer to support them in their next node. One is at a new logic customer to engage them to develop their next node and we have two DRAM tools at memory player that are doing quite well, evaluation tools doing quite well there. So we’re really pretty bullish on where we stand, specifically with LSA. We also have two Compound Semiconductor tools out in the field, one is for 8-inch GaN-on-Silicon power electronics at a foundry, pretty exciting opportunity as the world transitions from 6-inch to 8-inch. That tool, just recently shipped and we have another application for microLEDs in the compound semi space. So a lot of good activity there. I mentioned we have six semi tools. I talked about four LSA. We do have two in Advanced Packaging. One is wet processing tool in advanced packaging memory application and one is a Litho application at an idea. So really pretty excited about that. So that covers the eight that are in the field and we have two tools that we’re planning to ship throughout the second half of this year. One is for Laser Annealing tool at a current logic customer for their next node that’s ready to go and now we have one tool that’s a Veeco core technology that we think has a lot of applicability in front-end semi in memory as well as logic. So we are clearly making investments in front-end semi, expanding our service infrastructure. We think it’s critical to work side-by-side with our customers to build sustainable long-term customer relationships to entrench our position here. So I would say we’re pretty happy with the way things are going now, but we need to obviously keep focused here, Tom. Tom O’Malley: Great, that’s super helpful. And then my follow-up question was on the Data Storage business. So you guys have been pretty forthcoming with the fact that there may be some slowdown into the market next year and you can offset that with growth in other areas. But could you just update us on what you’re seeing in that market? You’re up over 80% year-over-year, but some of the players in the storage industry have seen some declines in the topline, or at least some moderating growth. Can you help us square that where you’re starting to see some slowdown there, but in terms of your capacity and your shipments, it’s starting to be moving pretty quickly and the timing that you would see some of that slowdown if you did?

Yes, we carry a pretty long, pretty big backlog in the Data Storage area and what we’re seeing right now in the second – in the third quarter, showing up in our revenue is, we do have a customer building a new line, an 8-inch line and that equipment is going in a tranche here in the second – in the third quarter. But what’s clear from talking with all of our customers is that, data proliferation isn’t slowing. Data Storage is forecasted to grow at 35% per year. Heads are forecasted to grow at 8% to 10% per year. The complexity of those heads which is the number of steps going to our equipment is forecasted to grow at 8% to 10% as well. So we feel very good about the long-term prospects of the data storage business as the industry moves to 20 terabyte, 30 terabyte drives. But what we have seen in the first half of this year is we’ve seen our order rate slow in the first half and given our lead time, we can see a digestion period likely in the first half of 2022. So what I will say though, is that even if Data Storage equipment digestion does continue throughout 2022. At the Veeco level, we’ve been making these investments in semi and compound semi markets to grow next year to more than offset the decline in Data Storage. So specifically in the Semiconductor space, what we’re seeing in our Advanced Packaging lithography space is we are booked out for the rest of this year in litho and have a pretty good order book building for 2022. I think this will be a growth engine for us. Our EUV business remains strong and I think we have a good pipeline of activity queued up in Laser Annealing. So I think we’re going to see strong growth next year there. In the Compound Semi space, we are seeing continued strength in 5G. We see opportunities in power, electronics as well as photonics. So I think we have a pretty good – we’re seeing a potential digestion here next year in Data Storage, but I think we’ve positioned the company to continue the growth. Tom O’Malley: Great, thanks, and congrats again.

Thanks, Tom.

We will now take our next question from Rick Schafer with Oppenheimer.

Thanks guys. And I’ll add my congratulations on a great quarter. Maybe just two questions if I could. Follow on similar to what you were just talking about Bill. Obviously, Data Storage, I think you said is basically sold out this year, given the lead times and everything you just said about potential slowdown in the first half. I guess, what I’m trying to get to is, where are some possible sources of second half upside might lie. What sort of levers can you pull to maybe close whatever supply demand gap there is out there? What kind of flexibility do you guys have to pull in any additional supply?

So, Rick just to understand your question. Your question is kind of more focused on the second half of 2021?

This year, I was looking for the next couple of quarters because you guys obviously have been pretty consistently beating and raising this year. So you’ve clearly found little room for upside in the first half and I was just trying to dig, if it’s not going to come from Data Storage in the second half, kind of areas where we might see upside come from. Is incremental supply a lever that you could pull as well that might quite alleviates any tightness that’s out there and drive some upside as well?

Yes, so Rick, maybe this is John, I’ll take that. So when we just raise the revenue guide for the year at the midpoint to around $570 million from what was previously the midpoint, the $550 million. As Bill indicated, we’re executing against that Data Storage backlog and the increase in revenue even for this quarter, even with the strong revenue coming from data storage, that’s where we expect it to be. So where we are driving a little bit of higher revenue right now is both in our Semi business and as Bill mentioned with some strength in the litho side where activity and as we previously reported, we started to see that activity pick up a bit and that’s continuing. And also with higher utilization at our customers driving higher service revenue. So that really helped us both in Q2 and as well as, as we look out into Q3 and into Q4 as well.

Thanks for that color. My second question is kind of more on margins and I know you guys – there is only so much you can talk about, but I know advanced products like LSA and EUV increasingly contributing to growth becoming a bigger piece of the pie. What does that mean for long-term margin outlook? I mean is 45% and maybe you’re going to update us on – at Analyst Day in a month or so, but I’m just curious, is 45% sort of still kind of where we talked about the long-term target? Is there any way to – should we think about that being bias to the upside as mix continues to sort of favor some of the more advanced products. I’m just curious, long-term what some of the puts and takes are on gross margin in particular and maybe where they could go longer term?

Sure. I think Rick, as you mentioned in the Analyst Day we’re planning to have – we would cover that in what our views are on the financial model. But to answer that shortly is few years out, we do expect with our growth plans to get gross margins in the mid 40%. I would just as a reminder, right now we are focused on growth and we are continuing to make investments in service infrastructure and for the manufacturing ramp, including supporting a number of evals and both of those items are impacting current gross margins. As Bill said earlier, we’ve got a significant increase in the amount of evals that we’re supporting in the field as well as these semi applications that we’re driving today, that is requiring investments in our service and manufacturing. So I think as we move toward a couple of years out here and we execute our growth plans for mid-40%, 45% gross margin would be our target, Rick.

Thanks for the color guys.

Thanks, Rick.

[Operator Instructions] We’ll now take a question from Patrick Ho with Stifel.

Thank you very much and congrats on the nice quarter and outlook. Bill, maybe first off, in terms of your results and your outlook. You clearly delivered upside. The outlook looks really good. The industry in particular on the Semiconductor side is experiencing supply chain constraints, the inability to procure certain parts, allocation all those issues are starting to really pop up in Semi. With the full understanding that you have different types of tools and even for different markets, can you comment on any potential supply chain constraints you’ve seen or are starting to see and have you had any kind of nominal impact on your revenue line, again with the full understanding that you guys actually delivered upside and are providing a pretty strong outlook?

Patrick, that’s really a timely question and we are experiencing lots of constraints in the supply chain. But I will say our supply chain team has done an excellent job of mitigating that and taking some unique approaches here at this kind of interesting time. And I’ll just turn it over to John for a little more detail.

Sure. I think just to carry on from what Bill just said, we haven’t been immune to what’s going on in the industry. Here we are seeing some material shortages and longer lead time and I would say the situation is pretty dynamic. But we have been successful mitigating those risks or and Patrick, as you said [Indecipherable] we are exceeding our revenue target. So what we’ve done here, we’ve been more than closely with suppliers to monitor their upstream risks in trying to get out in front of any issues. We have been making selected buys ahead of demand and to some extent you can see that in the increased inventory that we’re carrying. And I would say one of the other things that we’ve been successful to be able to do is when in supply issue as identified, we’ve been able to move quickly to execute alternative supply and we’ve been working in that regard with suppliers outside of traditional semi base, maybe focusing on competencies in defense and in aerospace. So I guess, overall, I think our supply chain team is an organization is performing well in a tight market environment.

Great, thanks and kudos to you guys on that. And maybe as my follow-up question. I think your commentary on Data Storage is completely consistent with the potential digestion period. Maybe on a qualitative basis, Bill, can you comment maybe the difference between the capacity buyers [Phonetic] see versus say the technology by particularly as you see the industry beginning its move to HAMR and on the WD and to the energy assisted and more types of drives. How much in the technology buys are you starting to see related to those next generation drives and heads?

I would say, Patrick that, we – if I kind of look back over the last few years, a lot of it – over the last number of years has really been volume driven. And I think what we’re seeing now is more of a transition to technology buyers, specifically to enable HAMR in particular steps within HAMR, but not in – not yet in volume, I would say. So certainly, we’ve seen a bit of a pivot here. And I look at the order rate not what we’re shipping.

Great, thank you very much.

Thank you, Patrick.

We will now take our next question from Mark Miller with The Benchmark Company.

Let me add my congratulations on the quarter. Just wondering kind of following up on Patrick’s question about component and supply. I know most of your IBD systems are cryo pump, but there have been some reports turbopumps shortages by at least one major semi equipment manufacture. How exposed are you to turbopumps?

We do have turbopumps and cryo pumps in our Ion Beam deposition and etch tools, and I think John mentioned that we’ve been taking a little more aggressive position in some of these key components. And so, yes, I think we have that fairly covered.

You mentioned in the introductory remarks that micron had committed another EUV and they’re increasing their CapEx. Do you expect the other team around manufacturers to follow suit very quickly? And if so, what does that mean in terms of orders for your IBD for mask blank dilutions?

Yes, I don’t want to really take a position about what our customers are doing, I know Micron has been very public about their EUV adoption. And I think there is others that have – are adopting EUV. And that can be read out in the shipments from ASML going from shipping 30 systems last year to booking 44 in the first half of this year. So a lot of business coming ASML’s way. They have a high productivity tool that they’re going to start shipping, that’s obviously a positive for Veeco. And I would say at this point, what we’re seeing is about one of our assistance for every 10 to 15 ASML scanners, which puts us at about two to four systems per year through kind of a bit lumpy, but I think if you were to average that out, that’s about where we should be sizing it. Obviously as they take a leg up to say 50 plus system shipments and I believe 2022 they are targeting and if that continues onward, that would put an upward bias toward our EUV Mask Blank tool shipments, but I don’t – we’re not quite ready to take that up yet.

Thank you.

Thank you, Mark.

We’ll now take our next question from David Duley with Steelhead Securities.

Yes, thanks for taking my questions. I was wondering if you could just elaborate a little bit more on your Advance Packaging business. I believe you said in response to a question that your capacity was booked out. Could you just talk about that a little bit more? And then where you are seeing demand in that Advanced Packaging business, is it broad base or is it a simple customer and what the applications are? Thank you.

Sure, Dave. We serve this market with lithography as well as wet processing equipment. The lithography area, we’re typically seeing, actually I’d characterize it as a broad base of applications and customers. Applications like heterogeneous integration, Fan-out Wafer Level Packaging, copper pillar and bumping with foundries, IDMs and OSAT, and so we have seen a significant pickup in order activity, which has put this out through the rest of this year at our current capacity levels and clearly enough business activity to kind of state that looks like we’re going to see some positive numbers, positive growth in 2022 over our 2021 business level.

And I know this is probably hard to gauge, but I think it was one or two quarters ago, you weren’t really calling this a growth driver in your business. So just curiosity, since you’ve got really broad-based demand from foundry, OSATs and IDMs, what – is there – what was the switch that went off or is there something that’s being adopted in the marketplace that’s all of a sudden forcing customers or causing customers to come in and order in much greater levels?

I would say we’re – I would say, if I look back a few quarters, we were carrying – our visibility was only out about three months, four months, we were still building a bit to forecast as opposed to build to order and that with – in a very – in a pretty short period of time, we have seen broad adoption. I would say we’ve seen applications like heterogeneous integration multi-chip packaging start to happen in a pretty broad level. And so I were to kind of pin it on something I might choose heterogeneous integration, but there is also in the OSAT some of the more basic steps, where there’s just seems to be a volume of equipment and I wouldn’t want to speculate that’s automotive or chip shortages in general. But it does seem that the activity has picked up.

Yes, I think, listen, we were starting to get some idea over the last six months or so. We started to see the order quoting and activity picking up a bit. I would say that we were a little bit cautious in our outlook. And then the order rate started to pick up a bit and we started to get a little bit more optimistic. And now, I would say as Bill indicated, where we would typically have three to four months visibility, given the current order rate. Right now, we’re getting visibility, five to six months out and maybe even a little bit more in some cases. So I think that’s really given us a – an opportunity to be a bit more out this year.

So, and just as a follow-up, when you talk about heterogeneous integration that’s kind of a broad-based term. I think that is modules and system and package and then some of these, the IDM strategies like forever triplets. So if this is being broadly adopted and I guess it’s a simple observation that a lot of the stuff is actually moving into production volumes and that’s perhaps why you’re seeing much level – higher levels of orders?

Dave, I agree with that characterization. I think we are seeing broad and I don’t really want to go much below heterogeneous integration that I don’t really want to – without disclosing what we’re dealing with what customers. So, but yes, I think that’s – I think the way you characterize it is fine.

Okay, thank you.

Thanks, Dave.

We’ll now take a question from Gus Richard with Northland.

Yes, thanks for taking my question and good execution. I know that’s not random luck. Just as a follow-on on the lithography. There is some long lead-time items, the glass and was wondering how you are fixed for basically raw glass and your fabricators, is that creating a – is that a bottleneck in getting shipped tools out the door?

No, it’s not that. Our lead times are particularly long. I mean it’s – we carry years of glass in various stages of width, whether it’s raw glass or partially processed glass or fully processed glass. And so we would, it’s very hard to never run out of glass. So we carry...

Fair enough. Sorry to interrupt. Just real quick, because normally those tools are like book and ship in a quarter. And I’m just wondering for the stretch and deliveries, is that just customer flat dates or why is it stressed bed?

We are running out of slots. We are ramping our laser annealing business and our lithography business. We did announce that we are doing on expansion, we leased a building about a mile away from our current facility, and that’s really doubling the manufacturing footprint of laser annealing and lithography. And that’s obviously critical for us to execute the business that’s pending in front of us. And so what we’re seeing is, we only spent about $40 million in CapEx between this year and next year. Our lease in our current building ends January 2023. We’re going to have some overlap expenses, but we will be completely in the new building Q3 of next year. So really ramping the second facility is really critical for us. And I’m pleased to say we’re really on track with what is an aggressive construction project.

Got it and then does that business getting the little piece on the LSA second to back to prior peaks?

I don’t think about our prior peaks, like the 2016 and 2017 model. I think we’re there yet.

No, I wouldn’t categorize it to that level.

Got it. That’s helpful. And then finally on the compound semi, there is a number of potential applications for GaN, Power and RF. I was wondering which ones of those are you seeing demand for in particular?

We’re seeing demand in GaN Power, a lot of it is for GaN charging, rapid charging consumer applications. We have sold tools to a number of customers for that application. I did mention a few minutes ago that we’ve placed an 8-inch GaN-on-silicon tool at a foundry, the industry is at 6-inch today. And we believe that the industry is going to move to 8-inch just for economies of scale and leveraging 8-inch infrastructure as opposed to 6-inch infrastructure. So, we think that’s a pretty exciting opportunity for us.

Got it. And any GaN RF business?

We do have GaN RF. A number of companies are looking at multiple uses of the equipment for GaN-on-silicon and power as well as RF applications.

Okay. And then – and on Photonics, is there any production revenue in the – is core activity for photonics picking up at all?

We are seeing, I don’t believe we have the orders yet, but I believe we are looking at repeat orders from customers for photonics applications that we had in eval with over a year ago. We do have on top of that an eval system for microLEDs for arsenide phosphide applications, which is pretty exciting as well.

Is the Photonics application [indiscernible]?

No, it’s for microLED. It would be more of gallium arsenide substrate red opportunity.

Got it. All right, very good. Thanks so much for taking the questions.

Thanks, Gus.

And it appears we have no further telephone questions, I’d like to turn the conference back over to Mr. Miller, for any additional or closing remarks.

Thank you, operator, and thank you for joining our call today. We do remain excited about 2021 and I want to thank our customers and shareholders along with the Veeco United team for their continued support as we execute our growth strategy. We are excited to share more details and introduce you to keep some – a few key members of our leadership team at our Analyst Day in September. Have a great evening.

Once again that does conclude today’s conference. We thank you all for your participation. You may now disconnect.