Q4 2022 Veeco Instruments Inc Earnings Call
Greetings and welcome to Veeco is 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.
Anyone should require operator assistance during the 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 Pennsylvania head of Investor Relations. Thank you you may begin. Thank you and good afternoon, everyone. Joining me on the call today are Bill Miller <unk> Chief Exec.
<unk> 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 FICO Dot com.
This call is being recorded by Veeco instruments and is copyrighted material it cannot be recorded or rebroadcast without <unk> expressed 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 section 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.
<unk> 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.
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 Veeco acquired that'd be leaned back accelerating because entry into the high growth silicon carbide epitaxy equipment market.
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 to Veeco United team has exhibited and the accomplishments we made first.
For starters as it relates to our growth strategy, we made solid progress advancing our product roadmaps and 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 would be moved back 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 Nicholas <unk> to our board.
Advanced our ESG program by publishing our annual sustainability report.
And we invested in our V go 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 Veeco.
Revenue for the full year was $646 million, 11% growth over 2021 it.
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 revenues 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 2020 one.
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 <unk> 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 <unk> acquisition.
Two weeks ago, we announced the acquisition of <unk>, 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.
That'd be like team has decades of CVD silicon carbide experience, leading to their well design system, which targets high productivity ease of maintenance and superior process control. The veeco team brings proven manufacturing and go to market capabilities to facilitate ramping in penetrating this high growth market.
We believe the IP lubec team will be a great fit with veeco and we couldn't be more excited to combine our capabilities delight, 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 with $30 million paid in cash at closing with up to an additional $35 million in performance based earn outs.
That'd be Lou back as an early stage revenue company with 11 employees the impact of Veeco as non-GAAP financial results is not expected to be material in 2023, beginning in 'twenty 'twenty four as we leverage our manufacturing and global sales and service infrastructure, we expect volume revenue to begin and for this transaction.
<unk> 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.
Thanks, Bill and good afternoon, everyone today I'll be discussing non-GAAP financial data and would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release or at the end of the earnings presentation.
Now breaking down our full year revenue of $646 million by market.
Semiconductor revenue was $369 million, which represented 57% of the total.
And an increase of 50% over the prior year.
Our semiconductor growth was driven by strong performance in all product lines led by laser annealing.
Compound semiconductor revenue was $121 million up 13% from 2021 and made up 19% of the total.
Growth in this market was driven by systems for photonics applications.
Data storage revenue was $88 million and made up 13% of our total revenue.
This was a 48% decrease from the prior year.
In line with our expectations as hard disk drive customers slowed their pace of capacity additions for magnetic head manufacturing.
And scientific and other revenue was $68 million, an increase of 12% from 2021.
And made up 11% of total revenue.
And now looking at our full year revenue by region.
Our Asia Pacific region, excluding China made up 36% driven by semiconductor customers.
Knighted states made up 31% of total revenue driven by semiconductor and data storage customers.
China made up 19% of total revenue.
In the second half of 2022, we experienced an accelerated booking rate for trailing node semiconductor systems in China.
Accordingly, we expect China revenue as a percentage of total revenue to increase in the first half of 2023.
And finally, EMEA was 14% of total revenue for the year.
Now turning to full year 2022 non-GAAP operating results, we achieved gross margin of 42%, which is in line with our annual guided range.
Our operating expenses increased to $171 million, reflecting the R&D investments, we've been making in semiconductor and compound semiconductor to execute our growth strategy.
Our non-GAAP operating income increased 15%.
From $87 million in 2021 to a $100 million in 2022.
Diluted EPS increased to $1 57 for the year.
And now I'll provide a few additional full year figures.
For 2022 amortization expense was $10 million, our equity comp expense was $23 million depreciation was $15 million.
Cash interest expense on our debt was $10 million and net cash taxes for the year were $1 $4 million.
GAAP net income of $167 million included a tax benefit of $116 million.
Primarily from the reversal of our valuation allowance in the fourth quarter.
After considering recent significant positive evidence, including a consistent pattern of earnings in the past three years as well as forecasted future earnings. It was determined that a valuation allowance was no longer required for U S federal and certain state net deferred tax assets.
During the year, we utilize all of our $166 million and U S. Federal Nols from current taxable income.
At yearend, we had R&D and foreign tax credit carry forwards of $45 million.
And because of strong order intake as Bill mentioned, we ended 2022 with $500 million in backlog of $60 million increase from 2021.
Turning to Q4 revenue by market and geography.
Revenue totaled $154 million for the quarter, which was within our guidance range.
The semiconductor market made up 61% of our total revenue for the quarter led by multiple LSA systems for both leading and trailing nodes.
As well as E V a P lift those systems.
The compound semiconductor market contributed 16% of our revenue and was driven by systems for photonics applications.
Data storage came in at 11% of total revenue and our scientific another market made up 12% of our revenue.
Now looking at our quarterly revenue by region, Our Asia Pacific region, Excluding China made up 42% of our total revenue driven by semiconductor system sales.
The United States was 25% of revenue driven by a broad range of customers.
China made up 19% of total revenue, primarily driven by trailing node semiconductor systems and finally.
It was 14% of total revenue for the quarter.
Switching gears to our quarterly non-GAAP results gross margin came in at 42%.
Which was above the high end of our guidance due to a more favorable product mix and lower manufacturing and service costs gross margins are influenced by a number of factors and we expect quarter to quarter variations.
Operating expenses for the quarter were $41 million down from Q3 and lower than our guided range due to favorable SG&A expenses.
On a non-GAAP basis tax expense for the quarter was $500000 with net income coming in at $22 million.
And EPS was 38 cents on a diluted share count of $63 4 million shares.
GAAP net income of $129 million for the quarter included the impact of the valuation allowance reversal I highlighted earlier.
Now moving to the balance sheet and cash flow highlights we ended the quarter with cash and short term investments of $303 million.
Our quarterly sequential increase of $31 million.
This increase was primarily due to $33 million in cash flow from operations and as of the end of the quarter, we were cash that positive.
From a working capital perspective, our accounts receivable decreased by $19 million to $124 million.
Dsos for the quarter came in at 73 days down from 75 in the prior quarter.
Inventory was $207 million and days of inventory came in at 196, both up from the prior quarter.
Counts payable was roughly flat at $52 million.
Long term debt on the balance sheet was recorded at $275 million, which represents the carrying value of the $278 million of convertible notes.
In January 2023, $20 million of the outstanding 2.7% convertible senior notes matured and were fully settled by payment in cash.
Our resulting convertible debt principal amount is $258 million.
More information on the convertible notes can be found in the backup section of the earnings presentation.
And finally, our capex during the quarter was $3 million, bringing capex for the year to $25 million.
Now turning to Q1 guidance.
In the current weaker demand environment customers across certain segments of our business have lower fab utilization to address elevated levels of inventory in some cases, they've taken steps to reduce both capital and operating expenses, including spare parts and service.
Taking this into account Q1 revenue is expected to be between $130 million and $150 million.
We expect the following non-GAAP financial metrics for Q1.
Gross margin between 39% and 41%.
Opex between 42 million and $44 million.
Net income between six and $15 million each.
E P S between 12, and 28 cents per diluted share.
And now for some additional color beyond Q1.
Based on our current visibility supported by our backlog our revenue outlook for 2023, as previously disclosed remains between $630 million and $670 million.
We expect revenue in the second half of the year to exceed revenue in the first half.
Upon the scheduled shipments of our backlog.
And we continue to target diluted non-GAAP EPS for the full year to be between $1 15, and $1 35 per share which includes the increased tax provisions going forward as a result of the valuation allowance reversal in the fourth quarter of 2022.
And with that I'll turn it back over to bill for a market update.
Thanks, John turning now to an update on our markets we.
We will start with our semiconductor market, where our strategy is to invest in the leading edge with differentiated solutions. We accomplished this with our laser annealing products, which reduce thermal budgets for advanced node customers.
We're expanding our served available market with our laser annealing product line as we win additional annealing steps at logic customers current and next nodes and by introducing laser annealing to the memory space.
Our ion beam deposition systems are another differentiated solution in our semiconductor market, they're used to manufacture <unk> mask blanks and had been the process of choice for many years as I am beam deposition can deposit are nearly defect free film.
In addition to our strategic initiatives in the semiconductor market, we provide laser annealing equipment for trailing edge capacity and we also provide advanced packaging lithography and wet processing solutions to idms foundries and <unk>. Our technologies are tightly aligned to the semiconductor market, which has driven.
By all four of the Mega trends that we've defined.
High performance computing and artificial intelligence.
<unk> and the immersive user experience transformation of the automobile industry.
And the cloud.
We think our semiconductor business will outpace overall wafer fab equipment spending or Wi Fi in 2023 in fact, we expect our semiconductor revenue to be flat to slightly up in 2023, and this is significantly better than Wi Fi, which is forecasted to be down too.
20% or more for the year.
During the fourth quarter, we had several signs of momentum that support our positive view of the semiconductor market, we had record bookings in the fourth quarter as well as the full year.
In laser annealing order activity and shipment activity for both leading and trailing nodes remained elevated.
We shipped an LSA evaluation system to a leading manufacturer for a new advanced node logic application a step.
In our <unk> mask blank system business, we had strong orders and now have the full year 2023 booked into backlog.
Although consumer products, such as smartphones and Pcs have slowed driving softness in our advanced packaging lithography and wet processing product lines. We expect the positive momentum in our LSA and EV mask blank product lines to offset these challenges.
Switching gears to the compound semiconductor market.
We serve this market today, primarily with our wet processing and Mo's CVD equipment.
With weakness in consumer end markets are wet processing business has been experiencing a slowdown how's.
However, the compound semiconductor end market, we're working to penetrate with M. O C. B D such as Gan power electronics, and micro OLED show promising signs of growth over the long term.
We're committed to continuing our R&D investments.
Most N evaluations with customers and ultimately realizing growth in these markets.
And as described earlier, we are entering the silicon carbide market with our newly acquired Silicon carbide CVD system to address growing power electronics demand in the electric vehicle market.
While 2023 is shaping up to be a challenging year for us and compound semi the markets, we're working to penetrate our emerging.
Growing.
Have enormous potential over the long run.
Now looking at our data storage market.
We've been forecasting a growth year in 2023 for some time now and our opening backlog position in data storage supports this growth the long term trends in the data storage industry appear intact.
According to Gartner near line hard disk drive exabyte shipments are expected to grow at approximately 25% CAGR for the next five years.
Recently, she get announced they expect to launch a 30 terabyte drive with heat assisted magnetic recording in the second quarter of this year.
Larger drives us more magnetic heads and newer recording technologies like hammer.
Use more complex has both of which require more deposition and etch equipment in.
In addition against the backdrop of challenging times for our data storage customers recent analyst reports point to a potential bottoming in the hard disk drive cycle.
Now turning to our 2023 priority priorities.
We entered the year cautiously optimistic given our backlog position coupled with the mixed demand environment within which we're operating.
As a result, we recognize the importance of keeping our employees healthy and safe and maintaining the progress we've made on our culture. So we can continue to execute.
And speaking of execution, we're focused on our supply chain.
On time delivery and quality metrics to maintain and improve customer satisfaction.
We will continue to work with our customers and invest R&D and our product Roadmaps. This leads to customer demos and further evaluation system shipments are critical part of our strategy.
And following the <unk> acquisition, we're focused on integrating the team and the technology and penetrating the silicon carbide epitaxy equipment market.
And lastly, we're focused on outperforming WSB growth with our semiconductor products and growing in the data storage market as we maintain profitability during near term macroeconomic challenges.
With these priorities in mind, we're committed to making a material difference and building a stronger veeco that serves all of our stakeholders.
One last item before we take your questions.
I'd like to thank Anthony Bencivenga for his dedication to the company over the last 12 years. This will be his last quarter with us as head of Investor Relations, where he developed strong relations with the investment community.
He is leaving us to head up Investor relations for a large distributor of electronics and enterprise computing.
I'd also like to introduce Anthony Propone.
Anthony has led the F PNA function at Veeco for the last several years and we will now take on the added responsibility as our head of Investor Relations.
We're thrilled to have them in the IR role.
And with that John and I will be happy to take your questions. Operator. Please open the line.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Tom O'malley with Barclays. Please proceed with your question.
Hey, guys. Thanks for taking my question and Anthony Congrats.
Congratulations on the new role.
Thank you for your help over the years.
I had two quick ones. The first one is you put out an 8-K in early February and talks about some slowing trends could you talk about what has changed since then was this always the expectation for Q1 of the year with a stronger second half or has anything changed since that any carrier and then two on the compound semi side, you're obviously, saying its a weaker year.
Is that really just related to some of the wet processing well or is there any additional weakness that you're seeing there. Thank you.
Sure so commenting on on on Q1, you know our guide for Q.
Q1 is for.
For topline, Tom $130 million to $150 million, so 140 at the midpoint.
And we did consider that and putting out our guided our revenue.
Range for the for the year. So we've got at our revenue range for 'twenty.
23 at $630 million to $670 million, so relatively flat compared.
Compared to.
2022, and you know in setting that guidance, we've taken into consideration.
As bill highlighted.
In the prepared remarks that we we have increased the backlog to a $500 million in them by the end of 2022, So that's about $60 million increase from the from the beginning of the year.
So all that taken into consideration and a strong booking quarter in the fourth quarter.
Remain.
You know our guidance range remains where we previously disclosed that I think he had a second question there as well Tom if you don't mind repeating that yeah, no I was going to just pay but that answered actually both but I guess the other part of the equation as mentioned that the orders were.
It was stronger in the first half of 'twenty three is the increase in backlog directly correlated to those Chinese suffered.
More or can you just describe where you see.
The increase in water, that's giving you better visibility.
Yeah.
Sure Tom So we did see in the second half of this year, our order rate pick up in in China. We were running revenue about a 20% of revenue in 2022 coming from customers in China and that we've seen that now.
On the order side, you know pick up to about a 27% of orders for the year in in 2022, having us exited.
<unk> 2022, with a backlog of about 27%, so we're expecting a higher revenue rate.
In in the beginning part of 2023 as those orders are scheduled to ship out.
Okay.
Thank you.
Thanks, Tom Thank you Tom.
Our next question comes from the line of Gus Richard with Northland. Please Vickie. Please proceed with your question.
Yes, thanks for taking the question Anthony Thanks for all your help over these years and best of luck.
Thank you guys.
You're welcome.
And then on the bookings in the fourth quarter, you said was a record and I'm. Just wondering if you can kind of get a little bit of.
Color on is that coming from data storage in semi is it just what comprised that strong bookings.
Okay.
Yeah, just one quick clarification, I think bill will cover that in a little bit more detail Gus It was a record booking only in our semiconductor segment.
In the fourth quarter.
For the year in semiconductor not the company as a whole.
Thanks for the color John .
Gus just to give a little more color to that I would say gosh, we're in a mixed demand environment and we are seeing as John just said and we said in our prepared remarks, our semi business is strong and we think we're going to be flat to slightly up for 2020.
Three I think we're gonna be well beyond Wi Fi, which is forecast to be down 20% or more as we just said we had record bookings in the fourth quarter, our laser annealing business.
Was strong we had order and shipment activity for both leading and trailing nodes.
During the quarter.
And R E V mask blank system business, we also had strong orders.
In Q4, and now the full year 2023.
Is booked into backlog.
Now the flip side is there some areas of the semi space that arent doing as well the consumer products, such as smartphones and Pcs have slowed and this is driving softness in our advanced packaging lithography and wet processing product line. So.
We expect the positive momentum in our LSA and E beam mask blank products to offset these challenges in semi.
If I just want to expand for a second on on compound semi compound semi is his challenge is setting up to be a challenging year in the near term driven by weakness in five G RF related to the smartphone weakness.
In the longer term, we do feel better about compound semi.
Because these markets, we're working into penetrate such as power electronics in micro OLED are growing and have have enormous potential for us and.
As we just talked about here, we're really excited about entering the silicon carbide choppy market.
With the <unk> acquisition so.
This is really kind of accelerates our entrance into into this space.
And it does add some served available market for us to the tune of 200 to 300 million and 23 growing to 500 million in 2027.
Got it. Thank you very very helpful. And then just on the <unk> acquisition.
Can you basically talk a little bit more about what you purchased was it just a chamber.
Looked up to a mainframe do they have customers that you now have.
Alright.
Are there holes running in production and so.
What do you guys need to do to get it to high volume.
Yeah, that's a lot of questions Gus.
Well, let me kind of try to lay the land out a little bit more clearly so we acquired this 11 person a Swedish.
Engineering and technology company they.
They had developed a silicon carbides previously for four inch and six inch and so this is a new eight inch single wafer silicon carbide reactor and mainframe. So it's an automated system.
System that can run independently.
They have placed one system.
The field.
And it's currently under.
Under installation.
And part of our integration plan.
We're going to put there the second tool shipment is actually going to ship to our Somerset, New Jersey lab, where we're going to facilities and use that as.
A dedicated demonstration tool to to sell our equipment.
So we're planning our our sales kickoff meeting here in the next week or so and the addition of I believe veeco sales worldwide sales footprint, our service footprint in manufacturing operations.
We think we have a very good chance to to be competitive in the silicon carbide b market.
Most likely they will given the timing of all this.
Not much revenue in 'twenty, three but hopefully some revenue growth incremental business in 'twenty four.
Got it thanks, that's very helpful.
Sure Gus.
Our next question comes from the line of Dave Dooley with Steelhead Securities. Please proceed with your question.
Yeah. Thanks for taking my question.
Kind of follow up along the lines of <unk> questions.
As far as FICO goes in the.
Compound semi business historically, how much of your revenue in that business comes from.
<unk> electronics, a various types either standard silicon or Gan on silicon carbide.
Well, we prior to the acquisition.
We don't have any silicon power or silicon carbide power.
We had our Gan on silicon gallium nitride on silicon.
Equipment for 200, and now some 300 millimeter power.
Our applications John I don't know if we have.
That number off the top of our head it's not been the predominant number driving the <unk>.
Compound semiconductor revenue, we were getting more of the compound semiconductor revenue recently from.
From five G related and particularly.
With our wet processing.
Hum.
Business there so that is the largest share recently.
Recently in the in the compound semi space and as Bill mentioned that as a part of the space right now where we are seeing weakness in the in that market.
Okay.
And.
You mentioned about trailing nodes I think that's mainly China, but its prop.
B throughout Asia.
Curiosity do you see the trailing node business.
Yes.
You know growing faster than your overall semi business or is it will be in line or I'm, just trying to get a gauge on how that segment's performance.
Yeah, we have seen an increase in trailing nodes, particularly in laser annealing.
I would say that I know John put a particular focus on China, but.
There's been a decent number of U S bookings and.
And shipment at the trailing node as well.
I would say on the the leading no leading edge logic.
Business the activity.
The business remains a remains strong.
We actually shipped.
An evaluation system to a very bleeding edge logic type application.
And.
That was shipped in the fourth quarter.
Activity remains remained strong.
At the leading edge as well.
Okay and.
As far as.
Could you help us understand maybe what your targets.
We're successful in the Silicon carbide.
<unk> business, you know what would be your market share expectations are or you know, let's say three years from now what would be your goals as far as market share of this market of this segment goes and perhaps you could help us understand what you think you touched on it briefly in your prepared remarks, but why do you think this system.
Be able to take market share from whoever the incumbent is.
Oh, we think.
We've met with a lot of many of the leaders in the leading customers in the silicon carbide at.
B space and we've also benchmarked.
Our capabilities with the competition and we think we are we can stand up.
Pretty well from a cost of ownership, we've certainly had.
Some very good early engagements with with customers.
But as I said.
<unk> question.
This is still early revenue for this company and where we're putting in about demo tool in our facility. So we won't really know we wont really know for some time until we start putting doing real demos and putting competitive films down and starting to ramp this business and really.
<unk> get fully engaged into this market. So we're not really ready to put down a longer term target. We do know that it's a 250 approximately $1 billion market today and it's growing.
And we think this technology.
This design along with V goes infrastructure is a very nice match for us.
Thank you.
Thanks, Dave.
Our next.
Comes from the line of Mark Miller with the Benchmark Company. Please proceed with your question.
Anthony I certainly enjoyed working with you through the years and wish you the best in your new position.
Great. Thank you Mark and welcome.
You mentioned the LSA.
Val tool for logic customer what other eval, what can you give me a status of other eval, having a field.
Yes, we are we just put that one in four semi logic and I would say that's just being installed now.
During the last year, we've actually been very successful signing off our evaluation systems that we had previously placed.
And we've had some follow on.
Volume orders for some of them and we're working with our customers to to see that volume those volume orders.
Into the future.
We have a pretty strong slate of evaluation systems, we're planning to put into the field.
This year.
I would say it really those evaluation tools largely aligned with our strategy.
To grow in semi and compound semi where we've been making the investments. So we have a next generation laser.
Our laser annealing system that we've been working with customers for some time and we're planning to put one maybe two of those eval systems out into the field and as well as.
Two of these look 300 millimeter low resistance ion beam deposition systems into the field for both logic.
And memory type applications.
As well as a few others. So I would think we will probably exit the year of 2023 was kind of re refilling and ending up with 6% to seven.
<unk> in process as we are.
Existing.
23.
Okay.
Your tax rate for 2023 after all through this valuation allowance reversal, what what should we estimated 19% or so yes.
Yeah, I think high teens would be appropriate for non-GAAP and slightly lower for GAAP.
Okay.
Thank you.
Thank you Mark Thank you Mark.
Our next question comes from the line of Rick Schafer with Oppenheimer. Please proceed with your question.
Hi, This is the way Mark on the line for Rick I'd like to Echo My Congrats to Anthony and then you're ruined too welcome to new antibodies to the IRL.
My first question is on the backlog.
Yes. My first question is on the backlog of $500 million. It seems like it's led by semiconductors, but I was wondering if you can break this out even further what's the split between semiconductor compound semiconductors and data storage and as part of that answer I was wondering if you could give us any color on data storage for 'twenty.
'twenty three.
Sure. So I think as we look at the backlog.
Not surprising given the bookings rate.
In the semiconductor has been you know more than 50% of our business recently more than half of the backlog is in semiconductor.
If I look at the next the larger piece of the backlog about 20% of our backlog or so comes from data storage.
And then the rest of the backlog is split evenly between.
Compound semi and scientific and other.
Great. Thank you.
My second question on gross margin or was that 42% for fourth quarter, you guided to a similar range you guys exceeded your guidance for fourth quarter and you guided to a similar range in first quarter. So I was wondering what led to that upside and what are some of the puts and takes to gross margin.
Yeah. So good question there fourth quarter gross margin did come in at 42%.
Which was better than what we expected at the beginning of the quarter when we guided.
And we had a more favorable product mix.
And then we also saw for the first time.
And a while here lower logistics cost and we've done some cost controls and we had manufacturing and service costs come in.
More favorable as well so for the full year 2022, we ended up coming in at 42%.
Gross margin, which was in line with with our guide for the year as we look at gross margin for the full year 2023, we do expect that range of gross margin in 2023 to be similar to the full year 2022 gross margin.
But as you noted for Q1 2023, we're guiding gross margin at 40%.
Mid point and Thats lower than the expected average for the rest of 2023.
Due to a less favorable mix and lower volume and we do expect improvement in the remaining quarters of 2023.
Great. Thank you if I can sneak one last one in there.
If you look back it.
It seems like the technology is complementary to Mo's CBD.
So I was wondering if part of your strategy is there any potential revenue synergies you could think of between the two equipment between that our silicon carbide at peak and Mo's CBD. Thank you.
Yes way, we're actually integrating the <unk> acquisition into the into our most CBD product line and we certainly would look at there may be opportunities because many power companies are looking or investing in not only <unk>.
Icon carbide, but also gallium nitride, so there could be some sales.
Sales synergies and also common.
Common architectures that we could head towards to mix and match different chambers on the same front end if you will.
Okay, great. Thank you.
Thank you Wei.
As a reminder, ladies and gentlemen, it is star one to ask a question for.
Our next question is a follow up question from the line of Gus Richard with Northland. Please proceed with your question.
Yes, Thanks for Indulging me once again.
In terms of ion beam deposition etch or are you guys sort of booked out to through the year given the lead time for that equipment.
Eight of the data storage space, specifically I guess.
No I mean, both the UV mask blanks and <unk>.
<unk> and data storage.
Yes, we're a we're at a very strong booking position there.
I would think yes, we are we are booked out in data storage.
And in <unk> mask blank and there may be one or two tools that may come into the year slip out of the year, but as a general statement.
Our backlog is very strong in ion beam right now.
Yeah, I get it and then you mentioned that youre going to put out some demo tools for ion beam.
Deposition and semi and I know you've been working on it for a while are those tools can the gold's first half second half you know sort of how do you expect the eval.
Yeah, I would I would.
The first the first one we're getting fairly close on.
And if anything believe it or not it may be.
No.
Gated by customer facilities.
And so we're really.
Maybe you have a chance for the first half, but I would conservatively put it in the second half, but where we're working with them to try to find space for them to put this machine.
The machine is ready to got it.
Got it alright, well small grain small gains.
Thanks, so much.
[laughter]. Thank you guys.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you operator and to all joining us on today's call I also want to thank our customers and shareholders along with the Veeco United team for their continued support as we execute on your behalf have a great evening. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.