Good day, everyone. Welcome to the Veeco Instruments Inc. Corporate Hosted Q4 and Fiscal Year 2019 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Anthony Bencivenga, Head of Investor Relations. 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 acceptance 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. These factors are discussed in the business description and management’s discussion and analysis 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 for his opening remarks.

Thank you, Anthony. Good afternoon, everyone, and thank you for joining the call. I’ll be talking you through our financial results and discussing our markets. But first, I would like to provide an update on our previously announced company transformation. We characterized our transformation in 2 phases. The first phase, returning the company to profitability is well underway and includes reducing costs and delevering the company. As part of the delevering process, we eliminated the COO role when Sam Maheshwari announced his resignation from the company last December. I’m excited to announce that I promoted John Kiernan to the position of Senior Vice President, Chief Financial Officer as of the beginning of the year. John has been at Veeco for 25 years, leading just about every finance function and we work together for the last 15 years. I’m happy to be partnering with John as we continue through our transformation and prepare the company for growth. Now, I’ll take you through our 2019 progress and high-level financials. Then I’ll turn the call over to John for more detailed financial review. For 2019, our priorities were to innovate, penetrate markets and improve profitability. Regarding our innovation objective, we executed very well. We shipped multiple ion beam deposition systems for EUV mask blank production. We optimized our MOCVD platform for photonics applications and shipped our first beta system to a premier compound semi customer. We developed a 300-millimeter single-wafer fully-automated MOCVD cluster tool and shipped, with acceptance, to a major front-end semiconductor fab. We updated our advanced packaging lithography product to improve its performance and we made major enhancements to our laser annealing product to improve our competitiveness at the next nodes. Regarding our market penetration objective, we had mixed results. We enjoyed great success in the EUV mask blank market, with…

Thanks, Bill, and good afternoon, everyone. Today, I will summarize our revenue by market and geography, cover our P&L, balance sheet and cash flow, and then take you through our outlook for Q1. I will discuss 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 quarterly earnings presentation. Revenue for the quarter was $113 million. The front-end semiconductor market was 35% of our revenue due to multiple EUV mask blank and laser annealing systems. The scientific and industrial market made up 28% with our revenue and was led by ion beam system shipments to our data storage customers. LED lighting, display and compound semi was 23% of revenue. We had multiple wet etch & clean system shipments to RF device customers or 5G related power amplifiers. Revenue in this market also included the sale of slow moving LED-related inventory. The advanced packaging, MEMS and RF filter market made up 14% of our overall revenue, reflecting the continued softness we are experiencing in this market. By region, rest of world, which includes Japan, Taiwan, Korea and Southeast Asia was 48% of overall revenue driven by our EUV mass blank and LSA systems. U.S. was 23%, which included sales to the data storage market. China was 22% of overall sales mainly from multiple wet etch and clean systems. And finally, EMEA was 7% of overall revenue. Now turning to non-GAAP operating results. Fourth quarter gross margin of 40.2% was flat from Q3. We are happy that we are exiting the year at 40% as forecasted, but please note, then selling off a portion of our slow moving inventory there was a slightly negative impact of gross margin. We do expect…

Thanks, John. And now for a business update. We are seeing positive indicators in semiconductor markets. Wafer fab equipment spending is forecasted to increase in 2020 to somewhere around $50 billion. This capacity increase is driven by leading node semiconductor fabrication and advanced packaging. In areas, such as artificial intelligence and high performance computing, 5G wireless infrastructure deployment, cloud computing and big data and autonomous driving. Generally speaking, these market trends and the capacity our customers required bode well for our technologies like ion beam, laser annealing, lithography and MOCVD. More specifically, in our front-end semi market, we are experiencing strong demand for ion beam deposition systems from our EUV mask blank customers. This is consistent with recent messaging from ASML, which reflected 26 EUV lithography scanner shipped in 2019, plan to shift 35 systems in 2020 and capacity improvements underway to ship between 45 and 50 systems in 2021. We also continue to do well with our laser annealing product in the front-end semiconductor market. In the fourth quarter, we’ve recognized revenue on multiple laser annealing systems at leading edge node. As these customers continue to ramp these leading edge node and begin to invest for their next nodes, we hope to gain share, given our laser annealing advantages and ability to meet our customers advanced requirements. In our advanced packaging, MEMS and RF Filter market, we achieved co-production tool of record status at a major OSAT fan-out wafer-level packaging application with our lithography product. We are encouraged by this accomplishment as it validates our lithography technology and ability to compete in this market. The lithography portion of the advanced packaging market has been soft for well over a year. However, we believe the softness as a result of overcapacity and the drivers such as AI and high performance…

Thank you. [Operator Instructions] We’ll hear first from Gus Richard with Northland.

Yes, thanks for taking the question. Congratulations on the good quarter. Could you give a little more color on the second Lumina order? Is that for VCSEL application or Edge-Emitting Lasers?

Yeah. Thanks for the question, Gus. We have placed the beta in the field back in 2019. We’re getting excellent results for not only VCSEL stacks, but also other photonics applications and getting very good feedback from that customer. Also, we’re sharing our VCSEL and micro LED data with several of the important end-customers and they’ve been impressed with their results as well. And to your question, yes, we did receive a straight up purchase order from a second customer. And our understanding is that it’s for VCSEL application. So that’s very positive. So although 2019 was – yeah, go ahead.

I’m sorry. And then, on the EUV side, it looks like you’re shipping roughly 1 a quarter. Is that the kind of run rate we should expect going forward or, given the proliferation of EUV, should that go a little bit faster?

The shipment profile is going to be a bit lumpy. We ended up shipping 4 tools in 2019. But in any given quarter, we could be shipping 0, 1 or 2. I think our backlog going into 2020 here is we have 3 tools in backlog for the year.

Got it. And then, on the LSA, can you kind of split out for us how much is leading edge, let’s say, 5 nanometers, 7 nanometers and below, and how much is of 28 nanometer and more [China] [ph] customer related?

I don’t have that exact number right at the tip of my fingers here. But I would say, just looking back through 2019, I would say, about 80% is at the leading-edge nodes and maybe 20% is at the 28 nanometer nodes, approximately 80/20.

Got it. And then, I guess, the last one for me, obviously, the coronavirus is a wildcard. Can you give us a little bit of a sense as to what this [lith] [ph] is in revenue? What are you selling to China, is it LSA systems, is it advanced packaging? And, how many of your customers are in the near-Wuhan or that province?

Yeah, we’ve been talking to our customers. Our understanding is that all of our customers’ facilities actually are open today. If you look back over 2019, our China exposure was 10% to 20% of revenue. Specifically, here in the first quarter it’s about 10% of revenue. We are selling a mix of products. Some MOCVD equipment, as well as some wet clean and etch products here. That’s our mix in the first quarter.

Got it. That’s it for me. Thank you so much.

Thanks, Gus.

We’ll hear next from David Duley with Steelhead Securities.

Yes, thanks for taking my questions. I had a couple. I guess, first on – you mentioned that you had some slow-moving or over-inventory that you were selling and that could provide some potential headwinds. Could you just give us a little more detail, how much inventory dollar-wise, do you have to – the slow-moving or however you might classify that? And what’s roughly the impact that you saw in the December quarter or in the March quarter from selling older inventory?

Sure, sure. We had mentioned in prior calls that we had about $25 million of what was categorized as slow-moving inventory. We began to make progress and we had been – that had been an ongoing focus for us. And we did make progress in Q4 of 2019. We did sell off about $5 million of inventory. We’ve made progress in terms of also in order activity recently and it’s our current expectation to monetize this inventory throughout 2020.

And the rough impacts on gross margins?

Yes. So, the – yes, we did mention that selling off this slow inventory provides some headwinds to gross margin. We see it in the 1 to 2 percentage point range.

Great. And then, as far as your advanced packaging business, did you – I was little confused, did you mention that you won a piece of business with an OSAT for lithography on a fan-out line? Could you just repeat what you said there?

Yeah. You have that correct, Dave. We said we were a co-PTOR at an OSAT for a fan-out wafer-level packaging application.

Okay. And who is the other viable competitor there?

I believe it will be Canon.

Okay. And as far as your, the big initial customer that was the guy who kind of invented the fan-out package. Certainly on the conference call, they’re talking about a big increase in CapEx for back-end applications. I am not sure how much is directed at fan-out or lithography. But would you expect to see orders from that big customer sometime this year or has there been any indication that things improving there for your types of pieces of equipment?

Yeah. We are in very close contact with that customer as you might expect. Our visibility in lead-time is not very long for this equipment. So we wouldn’t actually have visibility that far out. But we certainly hear and see expectations of lithography market picking up in the second half of the year. We just don’t have visibility to that, given our short lead-times.

Okay. And back to the OSAT win, is there a way to quantify how significant this is for you? Will you be shipping multiple tools on a quarterly basis or is it just a couple of tools initially or any sort of flavor you could give us around that that will be much appreciated?

Yeah. Thanks. Thanks, Dave. I would say, it’s probably, what we can see is it’s probably just a small or handful of tools throughout the year. Obviously, same issue with given our lead-times. No, we’re not given a lot of visibility into their longer-term demand cycles.

Okay. And then final thing for me is, what – if you could help me understand how important the 5G ramp is for you guys. And I know it touches multiple product lines. But as far as where you think it will make the most significant movement of the needle, which areas would that be?

Yeah, we’re actually seeing a pretty broad demand from 5G. The first implementations of 5G we’re seeing are really less than 6 gigahertz, where the equipment sets are fairly similar to 4G. We’re also seeing some interest in millimeter wave, kind of the greater than 20 gigahertz opportunities. And for those opportunities that would really be MOCVD opportunities for us. And we’re also starting to see some early positive signs there. But I would say we are seeing broad demand for many of our products, from many customers, really driven by 5G. I mentioned power amplifiers. We have an MOCVD player there. We’re also selling, having order activity and discussions on wet processing equipment, ion beam itch and lithography tools. And in the RF filter space, we’re seeing opportunities in wet processing and our ALD equipment. So I would there were – as I look to the future this could be driving the business longer term, but I would say, it’s really very early.

Thank you.

Thanks, Dave.

[Operator Instructions] We’ll go next to the Benchmark Company’s Mark Miller.

You indicated that the, you expect the data storage business to remain strong throughout 2020. Is that predicated on a pickup in terms of orders from memory customers, NAND customers later in the year?

Hi, Mark, good question. It’s actually not predicated on that. We have a very good opening backlog position in our data storage business, and we – so we are pretty confident in our view from data storage in 2020. Business is still going to remain strong from an order standpoint, but we’ll – as the year unfolds, we’ll see if the order activity kind of remains strong as it is now.

Number of people who were talking about 5G are talking about acceleration in terms of their equipment orders later year. Do you expect a similar acceleration as we go towards 2021 for 5G opportunities?

Yeah. As I just answered a similar question, we are seeing broad opportunity in a lot of our equipment sets from a number of customers. And there really just starting to be some early discussions, some demo work, some quotations going out. But the activity is certainly increasing. And I wouldn’t be surprised if it does pickup, but I’m really not quite ready to call a big pickup in 5G in the second half of the year yet.

Thank you.

Thank you, Mark.

We’ll go now to Patrick Ho with Stifel.

Thank you very much. Bill, maybe just to follow-up on the advanced packaging lithography side, you mentioned some new wins there. Right now as that marketplace remains in a low, this is actually a great time for you to do a valuation. But how do you see, I guess, the buying when the business picks up again? What I mean by that is, typically when these guys start buying, they’ll just buy capacity. And then, go back to things that they are used to. Do you see when this market turns, I guess, more volume buys for your new system versus the old systems?

Yeah. Yeah. As I said, we did win in advanced packaging litho application at an OSAT. And we also made some significant investments in 2019 in a new lithography platform with better resolution, better field size and the like, and so, as well as depth of focus. And we are working with the leaders in the industry to place eval tools right here in the coming months and quarters. I think we should be well positioned when this market does comeback with a market-leading product to hold our leading market share.

Okay. And maybe as my follow-up question in terms of LSA, obviously, you are in the very leading edge with some of your top-tier customers on that front. They’re also now starting to do evaluation and design work for their next generation nodes. How do you see the application increases, as you go from our node to node in terms of LSA? And basically, what I’m kind of getting is the capital intensity for LSA as you migrate down their nodes?

We’re working with the leaders in the industry on their next nodes. And we actually are very excited to see that, as the nodes become finer, the need for our laser spike anneal technology increases. We think we have an opportunity to go from 1 step today to 2 and maybe even 3 steps at the next node. So we’re working very closely with those customers on those evals right now.

Great. Thank you very much.

Thank you, Patrick.

[Operator Instructions] And with no other questions at this time, I’ll turn things back to you all for closing remarks.

Thank you, operator, and thank you all for joining the call today. We are excited to be entering 2020 with positive momentum and a more focused in streamlined company positioned for success. Have a great evening.

Again, that does conclude today’s conference. Thank you all for joining us.