Good afternoon, and welcome to the Amtech Systems First Quarter 2012 Financial Results Conference Call. [Operator Instructions] Please also note, this event is being recorded. I would now like to turn the conference over to Brad Anderson, CFO of Amtech Systems. Please go ahead, sir.

Hello, everyone, and thank you for joining us this afternoon for Amtech Systems First Quarter Fiscal 2012 Results Conference Call. On the call today are J.S. Whang, Amtech's Executive Chairman; Fokko Pentinga, Chief Executive Officer and President; and myself, Brad Anderson, Chief Financial Officer. After the close of market trading today, Amtech released its first quarter 2012 financial results for the quarter ending December 31, 2011. The release will be posted on the company's website at amtechsystems.com. During today's call, management will make forward-looking statements. All such forward-looking statements are based on information available to us as of this date, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by our customers and competitors; change in volatility and the demand for its products; the effect of changing worldwide political and economic conditions on government-funded solar initiatives; capital expenditures; production levels, including those in Europe and Asia; the effect of overall market conditions, including the equity and credit markets; and market acceptance risks. Other risk factors are detailed in the company's Securities and Exchange Commission filings, including its Forms 10-K and Forms 10-Q. Let me quickly highlight the agenda for this discussion. J.S. Whang, our Executive Chairman, will start with an overview of Amtech's overall corporate objectives and long-term strategies. Fokko Pentinga, our Chief Executive Officer, will update you on the current operating environment and progress on our technologies and development, and then I will review our first quarter financial results year-over-year and sequential trends and the outlook. So I will now turn the call over to J.S. Whang, our Executive Chairman, to begin the discussion.

Thank you, Brad. Good afternoon, everyone, and thank you for joining us today. We really appreciate your continued interest in Amtech Systems. In 2011 we celebrated our 30th anniversary as a technology solutions company. Over our many years, we have proven that Amtech is a highly relevant participant in the marketplace. Our long-term objective is to continue to be a market leader by providing highly cost-effective, leading-edge technology solutions to current and prospective customers in the solar, semiconductor and LED marketplace, plus importantly, to extend our offerings in those markets, further diversifying our product portfolio and future revenue stream. At Amtech, our corporate-wide focus has been, and continue to be, number one, innovation and deployment of next-generation technology solutions for our customers; and number two, enhancing shareholder value through long-term profitable growth. These focal points are what drive Amtech each and everyday. Since last January 1 of this year, Fokko Pentinga has assumed the role of our Amtech's CEO. This has allowed me to intensify our pursuit for new opportunities of strategic importance to the long-term profitable growth of the company. As you are aware, we are internally developing significant new technologies. Fokko will update you on our progress there. At the same time we continue to explore new market opportunities. Our objective is to deliberately pursue strategic acquisition to expand the size of the market we serve by increasing our product and technology offering. We see very interesting and compelling strategic opportunities in solar, as well as in the semiconductor and LED industry. Although macroeconomic challenges across the globe continue to put pressure on the solar industry, we believe there is a significant worldwide commitment to expanding the use of solar energy as broader-based grid parity is being achieved. In solar, the objective is to continue focus on technologies that can support our customers to achieve next-generation higher efficiency solar cell at a lower total cost of ownership. I want to emphasize that in the pursuit of new opportunities, we will review each in the context of our well-defined goal of maximizing the common capital in order to enhance long-term shareholder value. Our overall objective is to further diversify our offerings, while building on our already proven ingenious [ph] platform and technological strength. Let me now turn the call over to Fokko Pentinga to discuss current operations and technologies and development. Fokko?

Thank you, J.S. We work closely with our customers during the quarter and obtained a record amount of acceptances on our tools. And we also continued to face significant headwinds in the December quarter. Therefore, we further reduced cost in the quarter to align with the current demand. We have aggressively addressed both variable and fixed costs. We expect that by April 1, the majority of our current cost reduction plan will have been executed, but we will continue to evaluate market demand and make adjustments as appropriate during the duration of this downturn. We serve markets which experience rapidly changing technology advances. Importantly, we continue to invest in our research and product development activities in this slower sales environment. Our ongoing objectives are to provide the highest quality product and service to our customers, collaborate with our customers to develop technology and cost solutions to meet tomorrow's needs and prepare for the next growth cycle. Let me now address some of the key development programs. First is our solar ion implant. We are developing an ion implant to provide our customers with a more complete solution for the next-generation, high-efficiency solar cell production and as a possible upgrade to their existing solar manufacturing lines. Our plan is to introduce our solar ion implant system at the Shanghai Solar Show this May. In the meantime, we are encouraged by the positive feedback from very selective potential customers in China. We continue to see good progress and are excited about the value that this offering will bring to the marketplace. And next is the N-type. The development of N-type technology is continuing for future high-efficiency cells together with our technology partner, ECM and also Yingli. The offering today is at 19.5% efficiency, and we have a roadmap for efficiencies to 20%…

Thanks, Fokko. Let's review our first quarter results. Net revenue for the first quarter of fiscal 2012 was $24.7 million, down 59% sequentially from $59.9 million for the preceding quarter, and down 54% from the first quarter of fiscal 2011. The decrease was driven by lower system shipments to customers in the solar industry, partially offset by increased recognition of the previously deferred revenue and higher shipments to the semiconductor industry. Semiconductor revenue totaled $9.1 million, a 16% increase from semiconductor revenue in the first quarter of fiscal 2011 and 19% sequentially. Total orders in the first quarter of fiscal 2012 were $11.1 million, $3.1 million of which were for solar, down 34% compared to total orders of $16.8 million, which included $4.7 million of solar orders in the preceding quarter. Again, primarily due to a reduction due to overcapacity in the solar market. At December 31, 2011, the company's total order backlog was $69.2 million compared to total backlog of $85.9 million at September 30, 2011. Solar backlog at December 31 was $55.8 million compared to solar backlog of $71.2 million at September 30. The effect of foreign exchange on backlog was a negative $3.1 million in the December quarter. As a reminder, backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months. Gross margin in the first quarter of fiscal 2012 was 29% compared to 34% sequentially and 36% in the first quarter of fiscal 2011. The lower gross margin is primarily due to lower sales volumes result in less efficient capacity utilization and lower average selling prices due to product mix with more research and development system shipped to leading solar research institutes. The lower margins were significantly offset by a record recognition of previously deferred profit and cost rejections…

[Operator Instructions] Our first question comes from Colin Rusch of ThinkEquity.

This is Robert for Colin. Real quick, looking -- If you could talk a little bit about your backlog and the acceptances within the backlog versus new tools [ph] that were recently added.

Sure, backlog is made up of [indiscernible] each quarter. Combination of actual orders and deferred revenue, that is in the backlog. Nothing has really changed from that as we get new orders. Obviously those are added to the backlog. Shipments are -- reduce the backlog. But the composition of it still remains the same. And as we receive acceptances, that reduces the backlog also.

Okay, great. And you were talking a little bit about how -- as we go forward, can we think that solar activity can be related to efficiency gains and the equipment market? Can you give us a little more background on what you guys are seeing, the discussions you're having with your customers in terms of timing and expectations for when -- what sort of thresholds you're looking for in terms of efficiency gains environment.

Well, let me try to say something about it. First of all at this moment, as I mentioned, the demand for new equipment is still limited and the market is slow, so people do take time. And if you talk about what is the threshold with people for new technologies and the numbers that we have quote presently at 19.5%, for example, on a new technology like N-type is definitely a good number. But people want to see a roadmap to 20% or more. So it is -- stepping into a new technology is a big step. And if you would be limited to that number, 19.5%, 19%, then it would not be sufficient. So they definitely need a roadmap to go to the 20% plus. Doesn't have to be there today, but it should be there in the foreseeable future.

[indiscernible] Do you expect -- while we're seeing an increase in utilization activity right now, do you expect that to accelerate as we get closer to the traditional construction season, or is this what's happening now more of just near-term thing that could fade away?

Well, it's a combination. Of course, the winter in Europe doesn't really help, but I think the biggest difference will be in the speed in which China will start to consume larger numbers. There have been some very recent publications or at least information on the net, where those numbers are expected to grow significantly. And how quick that goes in China, that's sometimes a little bit unpredictable. Often it goes quicker than we expect. So I think that's going to have the biggest impact, especially on the Tier 1 Chinese cell manufacturers, which, I would assume, will have a bit of a better position to get a large portion of this. So I think that's going to be the biggest driver.

Our next question comes from Jay Srivatsa of Chardan Capital Markets.

Fokko, can we step back a little bit and give us a sense of where the demand is today? I mean, are your end customers still struggling with excess inventory? Are they running through their inventories? What does a demand profile look like just in terms of end markets and how that relates to you as you look to the rest of the year?

Frankly, I don't have full insight of the end markets of our customers. But what I have -- of course, it's a very diverse group, and they go from Taiwan to China, Europe and Korea. So it is a wide group. You can't say -- give just one single answer. But where we see it at this moment, the growth in production again is -- of course, if you put back to 100% capacity, I have to assume that their inventory level is relatively low. So [indiscernible] increase 100% with a high inventory, and most of that is what we can see is the Tier 1s in China and Taiwan. That will be not across the board. It's not the Tier 2, 3. Some of them may do very well, but it's not one single answer I can give to that.

I understand. It appears, at least, there seems to be a sense that some of the larger guys are expecting some bounce back in order activity as they look to the rest of the year, maybe more so in the second half. There's been discussion about how polysilicon prices have bottomed out, and that could be an indicator that things could potentially start to pick up. I guess the question related to that would be if that were indeed the case, when do you start to see equipment orders start to trickle down to you guys? Is this something that will be concurrent or do you expect a lag in terms of when you will start to see something from those guys?

Well, first of all, as I mentioned, there are people that are looking for expansions also on the shorter term. These are not huge expansions, but some of them are not necessarily related to market. If you have larger, the government companies, they may not necessarily follow the market or larger companies that have their own plans. And if -- you see, for the general expansions, I would not expect it to happen before the middle of the year. But for technology purchases, meaning, that will have a longer time to get started. It's something that also could happen in this first half.

All right. Last question and I'll step off the queue here. You mentioned China and the potential for some pick up in demand over there. What's your read on Europe? Do you expect that some of the subsidy cutbacks and the feed in tariffs and stuff could make China more of the growth driver for solar sector or you see a snapback in Europe?

Well, for me to fully understand where the European feed-in tariff is going to go, there is, of course, rumors about what happens in Germany. But in general, we can say that the financial situations of governments in Europe isn't all that great at this moment, and they're asking even China for backup. So in spending a whole lot on feed-in tariff more than they've done so far, especially in the south of Europe with Italy and not having such an easy time. I do not expect that the growth will come from Europe. If we would get somewhere close to last year, I think we should be happy. But China is different. I think the biggest growth driver for this year, and maybe even next year will be China. But again the situation around the euro has to clear up before we can get a bit of better view of what's going to happening in the summer or in the autumn here in Europe. So the smoke about Greece and euro will have to go away before we get a better vision on that.

[Operator Instructions] Our next question comes from Mark Miller of Noble Financial.

Just wondering you have a rather significant drop in cash this quarter, some of that was due to payments to the shareholders at Kingstone technology and about half of it was from operations. So what do you -- do you envision a lowered drop in cash next quarter or are there more payments coming to Kingstone?

There's no more payments going to the Kingstone shareholders. From an operational standpoint, we continue to invest in the R&D effort to the solar implant tool through Kingstone. But as far as the shareholders, that was a one time event that occurred. And as far as predicting, we haven't given any forecast for the cash balance. I'll say this that as I mentioned in our prepared remarks, our focus has been and will continue to be rightsizing our working capital, reducing our inventory. We've done a fairly good job with overall, with our receivables. And if you look back and look at the spike we had from a production shipment standpoint in having a significant drop off, it takes time to reduce the commitments and reduce the inflow of inventories that you can start to reduce that inventory. I liken it to -- a supertanker takes a couple of miles for it to turn, so it takes a couple of quarters for that to work. So as I said, our goal is to get that rightsized during this fiscal year, and we've made good progress, not necessarily reflected in the inventory levels at the end of December, but if you look at the purchase commitment reduction, it's made significant progress. And we'll continue to focus on that in the coming quarters.

Since it is more new technology-related, do you expect that orders and sales for N-type [indiscernible] will pick up in the second half of the year?

We do expect it. And bookings for that could be really picking up in second half of the year, not much before that. But the bookings in the second half of this calendar year and will give sales and shipments sometime in the first half of next year. And because technology takes a bit more than just the equipment, it also needs the technology transfer, so that will take some extra time.

Our next question comes from Ty Lilja of Feltl and Company.

I was wondering if you could comment a bit about the outlook for your semiconductor business for the rest of the year?

Well, the semiconductor business looks reasonably well. The growth that we've seen in the first quarter exactly goes to the rest of the year, but it is reasonable position there. So it is quite stable.

Okay, sure. And you mentioned that you're going to have your cost cuts finished by April 1. I was wondering, does that mean another step down in G&A next quarter?

Most of those costs are still coming from the manufacturing side, the labor pool, so hopefully we'll see these benefits.

Okay. Sure, sure. Okay. And also just wondering what you can say about that type of acquisitions you're looking at potentially. And obviously it's hard to tell exactly when something like that will come together, but do you -- under ideal circumstances, how quickly do you think you could make a major acquisition?

Acquisition cases at hand really are what keeps us very busy, particularly my time. And as I indicated earlier, we have a very interesting and compelling cases of marketer, of cases in solar, semiconductor, also LED. We're looking into LED and also semiconductor and interest over further diversifying our business portfolio between solar and nonsolar. And so I do -- looking at the cases, a handful of cases, and we really feel good about possibility of getting one deal done within this year and continue diligently working toward that.

Our next question comes from Howard Halpern of Taglich Brothers.

I guess following up on the acquisition potential question. Is it going to be -- are you aiming at a revenue-generating company or something that you're going to have to develop further to take it to generating revenue?

We are looking at revenue-generating acquisitions but that has [ph] also strategic synergies to our existing operations.

Okay. In terms of ion implant that you're going to introduce in May, how quickly do you anticipate after that introduction that you might see the first bookings or orders for that technology?

That's always difficult to predict, but we do expect orders for that within this year. The exact timing, well, that May till the end of the year is still several months to go and the total plan we had was up to 2 years for the total development, that would still give us a year. We do see some good possibilities for some time in the later part of this year, but we'll have to -- a lot of work still has to be done.

So at the earliest, we would see revenue sometime in fiscal '13 then?

Yes.

Okay. And for Brad. In terms of the last cycle and the next future cycle, what -- or have you put structural -- made structural changes when we have this next up cycle that you'll see even greater leverage, cost wise, than we saw in that previous cycle?

Well, let's first say, I think we did pretty well with the last cycle from a profitability and leveraging standpoint, so we raised the bar pretty high for the next cycle. So I think the way to look at it is, strategically, we went into the last cycle, with really on the solar side, one product, a solar diffusion system. And our expectation is to capture more market share, more of the market, with multiple products. So you're going to have a higher basis of cost to start out with, but hopefully we'll see the benefit of that by getting larger orders when that extension cycle occurs and/or technology buys occur. So structurally, I think we've grown from an infrastructure standpoint, but we've done that purposefully to support a multi-product solar and nonsolar portfolio.

[Operator Instructions] Our next question comes from Aaron Chew of Maxim Group.

Just a broader question about the market dynamics, if I may, and this may be somewhat impossible to answer, but it would be great to get your overall views and impression anyway. It seems like there's really 2 major factors or trends, I should say, affecting the solar industry. One is obviously overcapacity and the other, on a brighter note, is just a growing focus on higher efficiency product. So I'm just wondering, can you speak broadly just to the impact both of those drivers really is having on your outlook for '12, maybe even into '13? In other words, is the real hangup right now with your customers or even prospects simply overcapacity, just that in and off itself, and supply and demand has to really tighten up before you think orders come in? Or is the trend towards higher efficiency product actually leading to greater interest and maybe some of the N-type orders even with the state of overcapacity? And any broader, any broad light you could shed on that would be appreciated.

Okay. Well first of all, the question in general, it is capacity. So if there is a high capacity available and a little demand, people, of course, are reluctant to further increase that production capacity. So if you look on the broader base, yes, correct, it would have to wait until capacity of that customer base needs to increase. So that does not mean that we have to be at a 50-gigawatt demand before we see increases. Some of the customers may get more orders than they can handle today. So -- and these might still do capacity expansions, but that is limited and it's not going to be like a year or so ago. Now if you want to get into the market and, of course, even though there is a large overcapacity for cell productions, still people -- there will still be new entrances and still expansions for technology. [indiscernible] like a few years ago, no, but in this period, there's definite interest on existing customer base that see that they need to go to a higher efficiency and also new entrances that want to start with technology that, at least, gives them a couple of years of further growth also in that efficiency. So stepping on a wagon [ph] that's already on the ceiling, meaning it will not go over 19.5 or 20, that is something that is less interesting than where you have a 20-plus capability. So, yes, it's a bit of combination. Capacity expansions will happen, and higher efficiency is not going to be gigawatts to start with, but there will be definitely several that will start in that and also is reasonable size a very small one.

Well, if I could just -- one quick follow up then. Could you maybe just discuss the potential N-type upgrade opportunity in greater detail? And maybe just offer some general insight into the economics of an upgrade like exactly what does it take for customer to do that from some older P-type equipment? And how do that investment, like for an upgrade investment compared to one for new equipment without getting in?

There is a large part of the existing line that can be used. So I would say 60% of the line can be used and some equipment has to be added. But there the biggest step for people is to go from one technology to the other, from P to N. And that itself is, of course, is a major step, whereas adding equipment to an existing line is easier than going to the complete new technology, meaning different type of wafer. So it's 60% can be used and about 40% would be new, assuming it is a line that is of a good quality with, of course, our equipment already in there.

And I assume it's -- it's safe to assume that when you do that, the whole line has to shut down for a brief period, at least.

It would shut down for a while.

Our next question is a follow-up from Mark Miller of Noble Financial.

I'm just wondering what you're expecting for your tax situation. You got a benefit last quarter. Is that going to be similar in the quarters ahead?

As we -- a loss, call it a small loss position, the closer you get to the breakeven, the more dramatic our permanent differences and other aspects that affect your tax rate. So it could be a little volatile as we go forward. And part of that's because also our China operations, primarily Kingstone, which is developing our solar ion implant, is incurring losses that's related to its research and development. Those losses are not consolidated into our U.S. tax return, therefore the benefits of that loss are currently not being recognized in our financials. Our expectations are that Kingstone itself will be profitable, will have sales in the future and therefore be able to utilize those losses. In the meantime we do not get the benefit of those losses reflected in our GAAP financial.

Your noncontrolling interest, is that part of your noncontrolling interest, the loss this quarter -- I'm sorry, the income this quarter, it looks like.

It looks a little funky in there. So just to explain. U.S. accounting rules require you, when you have a controlling interest, to consolidate 100% of the assets and liabilities, the income and expenses and on the P&L to back out the minority interest of that income or loss. Since we are in a loss position, we are consolidating 100% of the loss, we have to add back 40% or so loss, that is the minority interest's loss. So that almost looks like -- it looks like income that's reducing the loss attributable to Amtech Systems.

Would you expect it to be similar in quarters ahead to what you saw in the December quarter?

Well, we didn't give any specifics that relate that piece of it, but we did say that in our outlook that we expect our research and development costs to be higher, significantly higher in the March quarter. Well, that relates primarily to that minority interest, so the add-back we would expect then to be a little bit higher, too.

Our next question comes from Gordon Johnson of Axiom Capital Management.

I guess my question just centers on the possibility of order cancellations next quarter. As I look at your incremental orders over the past couple of quarters, I noticed that the number of incremental orders versus total orders you're reporting has fallen. I guess the point is, your incremental orders are less than the total orders you're reporting by 3.1x and 1.4x in Q4 and Q1 fiscal of '11 and '12, whereas those numbers were below 1x for the past 3 quarters. So as I look to the, what like a pretty significant increase in your day sales outstanding jumping from 68 days to 122 days and your days of inventory jumping from 84 days to 192 days, which looks like a record, an all-time record, is there risk of incremental order cancellations in the next fiscal quarter?

First of all, we can talk offline. I think I dispute a little bit the calculation of your DSOs, but we can do that offline here as far as that calculation is concerned. As it relates to order cancellations or the backlog, you have to take into account -- I think, we put this in the press release that there is foreign exchange. When the euro is weakened, therefore we usually see some loss, a reduction in the backlog. And I think it's about $3 million at the end of December related to foreign exchange loss. Now, we we've had gains in the past, and we all expect them -- last quarter, it was a $3 million loss. And as far as order cancellations are concerned, any -- we haven't had any cancellations of any major significance. We did back out of our -- or take out of our backlog, but this was at the end of September, I want to say, maybe $5 million or $6 million that was pushed out beyond 12 months. And we always evaluate that every quarter.

Okay. That's helpful. And I know that someone asked a question around acquisition opportunities. You guys mentioned that. That seems like something that could be a significant positive in the future. Can you provide some more color on exactly what you're looking at with respect to acquisitions, and again when we can start to see that be accretive?

Gordon, J.S. On the solar and in semi and LED, I'll cover solar first. The concentration in our effort is to, first, to efficiency gain on new technology that would reduce cost of productions noticeably. That's where our focus is. And as to the LED, this is a new -- we will be new entrant promoting the machine opposed to consumable business we are currently doing well. Consumable business gives us marketing pipelines and throughout the LED industry. However, the volume -- the nature of our consumable doesn't really create a large revenue volume. And so we are looking into opportunity for machine entry into LED. As to the semi, we're looking at increasing the size of operations where we have multiple synergies, as to the manufacturing synergies and as well as of marketing synergies. So those are the items that we are working with.

Okay. So from that, It seems like you guys are moving somewhat away from solar, which just given the current industry dynamic, it seems like a very positive development. Would that be accurate?

That is so, yes, accurate. Opposed to solar, our semi operation has been rather quiet for several years, and we really like to make a meaningful perspective [ph] though of operation of nonsolar business unit. And so I am as seriously looking into nonsolar opportunity, as well as the solar opportunities.

And then that just brings me to my last question. Looking at the OpEx, clearly you guys are investing to ramp out the ion implant opportunity. How long, Brad, should we think about this OpEx thing at these levels? Will we start to see it fall this year or will that extend into next fiscal year?

I think if you look at the plan, and the plan has been an 18, 24-month plan, I would expect to see that peaking this year and then starting to drop off next fiscal year as it relates to ion implant development.

Okay. Should we should expect to see OpEx, kind of, tick up through this fiscal year and then start to tick down in fiscal 2013?

Right.

This concludes our question-and-answer session. I'd like to turn the conference back to Brad Anderson for any closing remarks.

Well, thank you very much for joining us today. We look forward to reporting to you again on our progress and appreciate your continued interest in Amtech. I'll be available for any questions you may have and welcome your follow-up calls. This concludes today's call.

The conference has now concluded, and we thank you for attending today's presentation. You may now disconnect your lines.