Good day, and welcome to the Amtech Systems Fiscal Third Quarter 2020 Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Amtech Systems' financial third quarter conference call. With me today on the call are Michael Whang, Chief Executive Officer; and Lisa Gibbs, Chief Financial Officer. After the close of market today, Amtech released its financial results for the third quarter of fiscal 2020. That earnings release is posted on the company's website at amtech.com. During today's call, management will make forward-looking statements. All such forward-looking statements are based on information available as of this date, and the company assumes no obligation to update any forward-looking statements. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: Changes in the technologies used by customers and competitors; change in volatility and the demand for products; the effect of changing worldwide political and economic conditions, including trade sanctions, the effect of overall market conditions, including the equity and credit markets and market acceptance risks; capital allocation plans; and the worldwide COVID-19 pandemic. Other risk factors are detailed in the company's SEC filings included in Form 10-K and Forms 10-Q. I will now turn the call over to Michael Whang, Chief Executive Officer.

Thank you, Erika. Before Lisa reviews our third quarter results, I would like to provide an update on how our business is faring through the economic downturn created by the global pandemic. I am pleased to report that all of our global manufacturing facilities remain open. And thanks to the diligent efforts of our supply chain team and manufacturing partners, the third quarter, we saw minimal disruptions to our business. The global impact of the pandemic continues to create challenges. And given the risks and uncertainties surrounding potential resurgences, we must remain vigilant and react quickly when the issues are discovered. Shifting to end markets. We have continued to see stronger demand from those geographies, which were first impacted by the pandemic, namely in the Asia Pacific region. In addition, we are beginning to see demand aligned with the end market exposure. For example, those customers with a heavier exposure to the automotive industry are taking a more cautious approach to capital expansion initiatives as they evaluate the true level of end market demand in the coming quarters. Inversely, those customers who tend to have higher exposure to faster design cycle industries, such as consumer electronics, are continuing to execute on plans for next-generation products. It is worth noting, however, that even these customers remain more cautious than usual as they evaluate the overall economic environment. As the world shifts to focus to the timing and slope of a potential economic recovery, we think it is important to remind investors how macro demand drivers translate into orders for our products. Within the power semi market, for example, demand for our products is closely tied to capacity expansion initiatives, with customers placing orders a few quarters ahead of bringing new capacity online. Historically, some of these customers have been cautious to…

Thank you, Michael. Net revenues increased 5% sequentially and decreased 28% from the third quarter of fiscal 2019 to $15.2 million. Semiconductor and silicon carbide LED revenue in fiscal Q3 2020 increased sequentially due primarily to our Shanghai facility returning to normal operations after the extended Chinese New Year in fiscal Q2, and increased consumable and machine shipments in our silicon carbide LED segment. Semiconductor and silicon carbide LED revenue decreased compared to the third quarter of fiscal 2019, primarily due to global COVID-19 impacts on our customers. At June 30, 2020, our total backlog was $15.2 million compared to backlog of $19.6 million at March 31, 2020. As a reminder, backlog includes customer orders that are expected to ship within the next 12 months. Gross margin increased in the third quarter of fiscal 2020, both sequentially and compared to the same prior year period, primarily due to favorable product mix. Selling, general and administrative expense, or SG&A, in the third quarter of fiscal 2020 was $4.8 million compared to $5.4 million in the preceding quarter and $5.7 million in the third quarter of fiscal 2019. Sequentially, SG&A decreased due primarily to payroll tax credits the company was able to claim as part of the COVID-19 legislation passed by U.S. Congress, the Cares Act. SG&A decreased compared to the same prior year period due primarily to the payroll tax credits, not having our former automation segment included in our results and lower travel due to the COVID-19 pandemic. Relocation and R&D expenses for our silicon carbide LED segment that were expected in the quarter shifted into the fourth quarter of fiscal 2020 due to shutdowns and delays resulting from the COVID-19 pandemic. Additionally, we evaluated staffing levels and cost structures at all of our locations, and made staff reductions at…

Thank you. [Operator Instructions] And we'll take our next – our first question from Jeff Osborne from Cowen & Company. Please go ahead.

Hey good afternoon. Thanks for taking the questions. A couple on my end, Lisa. On the guidance, I missed it when you were talking about the gross margin being in the mid-30s. Can you – you mentioned something about mix and then something after that. Can you emphasize what the mix is?

It's a combination of the lower volumes, so some underutilization and then product – a change of product mix.

And is that within the semiconductor segment or both segments?

I think it's primarily within the semiconductor segment.

Got it. And then is there a way you can quantify what the government benefit was in the quarter? Or give us an indication of what the right OpEx run rate is in the current quarter?

Yes. I mean I think that the – it's a little bit difficult right now because, obviously, travel is also slower because of COVID. But I think that – I hope that our normal SG&A is – it's probably closer to the Q2 number, somewhere in that range going forward, around $5.4 million.

And R&D is consistent? No major changes there?

It will go up in Q4. That's built into our guidance as we continue some of those costs that we're expecting in Q3 shifted into Q4, which is a driver of why we think we'll have a loss in Q4.

Got it. And I know there's no cash impact, but could you articulate what the CapEx ramifications are?

Well, it's new equipment that we've been purchasing over the last several months for our new building for our silicon carbide LED segment. And some of those suppliers were shut down, and all of the different things that happened with COVID-19. But we're in that new building, we're placing that into service. So I think that going into next year, we'll have some increased depreciation with that. But again, the cash has really already been outlaid over the last several months.

Got it. And what was the cumulative price of all that equipment for the new facility? Is there a way to say it was $2 million, $5 million?

It's probably in the $1 million to $1.5 million range.

Got it. Okay. And my last question for Michael was on the – so obviously, orders down and clearly, COVID, a lot of uncertainty at your customers and then their customers, in particular, in auto, as you said. Can you just talk about the constructiveness of the conversations with your customers? Or is it sort of head in sand? Or are they more responsive or less responsive, now that we're four or five, six months into the COVID, depending on where you are in the world?

All right, Jeff, thanks for joining us. I remain very optimistic based on the more recent trends. We're seeing more customer activities. In the frequency and quantity of our discussions, our customers have increased, primarily in the semi segment. So that gives me optimism that we're just right on the cusp of potential momentum, right? The actual timing is difficult to see when that would be. That's all dependent on our customers' actual needs. But I'm definitely heartened by the fact that, as I said earlier, the frequency and the quality of our dialogue with our customers has gotten much better compared to Q2 and early Q3.

It’s great to hear. That’s all I have. Thank you.

Thanks Jeff.

Thank you, Jeff.

[Operator Instructions] And we'll take our next question from Mark Miller from The Benchmark Company. Please go ahead.

What are you thinking about in terms of your tax rate going forward into next year, next fiscal year?

Mark, I think that it's going to be fairly similar to what it's been these last couple of quarters. There are higher rates in some of our foreign locations. So we're paying taxes on that rate differential. But income generated in the U.S. can be offset. So I think it's going to look kind of like what it looks like this quarter and last quarter, fairly similarly, I think.

And what was your CapEx spending in the fourth quarter?

Year-to-date, we spent about $900,000 – $800,000 to $900,000 in CapEx.

Alright, thank you.

Thank you, Marc.

Great. And we have no further questions. This concludes today's question-and-answer session. I would now like to hand the call back over to Lisa for any additional or closing remarks.

Thank you for your time today and for your interest in Amtech. This concludes today's call.

And that does conclude today's call. Thank you for your participation. You may now disconnect.