Good day, and welcome to the Veeco Instruments Inc. Corporate Hosted Q1 2020 Earnings Call. At this time, I'd like to turn the conference over to Mr. 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 make statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties and that could cause actual results to differ materially from the statements made, including as a result of the COVID-19 pandemic. These factors are discussed in the business description, management's discussion and analysis and Risk Factors sections of the company's report on Form 10-K and annual report to shareholders and in our subsequent quarterly reports on Form 10-Q current reports on Form 8-K and press releases. Veeco does not undertake any obligation to update any forward-looking statements including those made on this call, to reflect future events or circumstances after the date of such statements. During this call, management may address non-GAAP financial measures, information regarding such non-GAAP financial measures, including reconciliation to GAAP measures of performance, is available on our website. And 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. To echo some of our industry peers, these are unprecedented times. The effects of the COVID-19 pandemic are ongoing fluid and difficult to predict. I would like to take a few minutes to discuss the impact of COVID-19 has had on Veeco and the steps we have taken to successfully maintain business operations and manage the business through this crisis as it continues to unfold. I will provide some color on our Q1 performance, update you on our markets and then hand it over to John for a financial update. I would like to begin by recognizing the Veeco team for their dedication. It's safe to say that all Veeco employees have been impacted in some way, but have adopted to enable us to perform well in the first quarter. And they continue to deliver overcoming unforeseen disruptions while working from home, Veeco facilities or customer sites. This is a team I am both impressed with and proud to be a part of. Due to disruptions related to various governmental measures implemented to contain the virus in mid-March, we withdrew our financial guidance for the first quarter. Shortly thereafter, as an essential business supporting critical infrastructure, we maintained operations at all our manufacturing facilities with minimal disruptions. Over the course of the pandemic, we have taken steps to keep our employees safe and minimize the spread of the virus, while continuing to serve our customers. Our COVID-19 pledge, developed to keep our employees healthy, is posted in all Veeco facilities and outlines behaviors we expect from everyone on site. These behaviors include social distancing, good hygiene practices, the use of personal protective equipment and a directive that employees who can work from home are required to do…

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. 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 $105 million, which came in at the high end of our revised revenue estimate. While we experienced COVID-19-related disruptions, such as shipment delays, temporary facility closures and supply chain and logistic challenges, we were able to manage through with only modest top line impact. As Bill mentioned earlier, we had strong performance in our scientific and industrial market, which made up 47% of our revenue. This was led by ion beam system shipments to our data storage customers. Front-end semiconductor market contributed 30% of our revenue resulting from EUV mask blank and laser annealing system shipments. LED lighting, display and compound semi was 15% of revenue. We sold additional slow-moving LED-related inventory and shipped multiple wet etch and clean systems to RF device customers for 5G-related power amplifiers. And the advanced packaging, MEMS and RF filter market made up 8% of our overall revenue, reflecting softness in advanced packaging system shipments. By region, the U.S. was 38% of revenue and was driven by sales to data storage customers. Rest of world, which includes Japan, Taiwan, Korea and Southeast Asia was 37% of overall revenue, driven by our EUV mask blank and LSA systems. EMEA was 15% of overall revenue and was also driven by sales to data storage customers. And finally, China was 10% of overall revenue, mainly from legacy MOCVD system and service revenue. Now turning…

[Operator Instructions] We'll take our first question from Patrick Ho with Stifel. Please go ahead.

Bill, I understand the difficulties for providing guidance given the many different businesses and the many different markets you participated. So I'm just going to ask in one segment, just to kind of get your qualitative thoughts on the advanced packaging and there's probably some mixed data points out there. You're right, smartphone demand could be down, but there are opportunities that seem to be going on, notably in Taiwan where they're moving forward with their advanced packaging processes and capacity build. Can you just give qualitatively how you look at the marketplace, at least for the June quarter? And what are some of the swing variables that are out there?

Thanks for the question, Patrick. I would say Q1 was a soft quarter for us in AP. It's actually I think it will come back here pretty quickly. I think that's more a matter of timing than anything else. And so I would expect those numbers to recover here, independent of COVID-19. I mean, we are seeing a lot of the megatrends for artificial intelligence, high-performance computing, 5G still intact and still driving long-term the AP market. As a matter of fact, we just recently won some business from IDM as well. So I think the market is still viable and still going in a general sense, our we just are putting together our eval tool for a new product with better resolution and depth of focus in larger field size for the specifically for the AP market. So I think long term, I think, our market share is holding. It's just that we are waiting for a smartphone recovery here to drive the business in a meaningfully positive way.

Great. That's helpful. And maybe, John, as my follow-up question, obviously, by your gross margin and your OpEx management, you've handled the COVID-19 situation really well. At the same time, just talking around the industry, there is a building of inventory that's probably going through the entire ecosystem from your customers to their customers, there's a level of inventory building. Can you again, maybe on a qualitative basis, talk about how you are making sure that you have the necessary parts the supply, the chain is still open, longer lead time stuff, particularly given that you have a lot of different markets and businesses.

Sure. So we are working closely with our suppliers. We've seen some minor disruptions in supply chain to this point, Patrick, but nothing significant. We are monitoring the health of our suppliers. And right now, they are able and we are able they are able to meet their commitments to us, and we've been able to meet our commitment dates to our customers. And so far, we don't see any change in that pattern. Now of course, there could be things that happen in this environment in the future that we don't see today. But as we stand now, we're able to manage through any of the disruptions.

Yes. I'd just add, our supply chain group has done a really good job. They're talking with our suppliers, almost every week talking to every supplier. We've resourced about 50 parts over the last few months due to the COVID-19. And we might be seeing some hits in terms of on-time delivery, but we're not seeing any by days or a week, but nothing yet that would really cause the whole machine to grind to a halt.

[Operator Instructions] We'll hear now from David Duley with Steelhead.

Yes, thanks for taking my question. A couple of them. Sorry, I missed just a couple of moments of to call I don't think you gave revenue guidance for the June quarter. But as far as the number goes, but did you mention if you thought it would be up or down from the March quarter?

We didn't do that. What we out of an abundance of caution, David, we decided not to provide guidance because we're really worried about the unknown unknowns out there. We could have a number of employees, our employees or our customers' employees test positive for the coronavirus, we may have to shut down a plant for a week or two, there could be further government orders requiring us to close a facility. So really just out of abundance of caution, we've not given guidance. When I look to I Q2 specifically, John mentioned in our prepared remarks, we did have a few tools push out of the quarter. And that specifically was with one Chinese LED customer who happens to be close to Wuhan. And the other area that we're experiencing some delays is really an acceptance of new products, which is really driven by travel restrictions that our engineers from our factories are unable to visit the customer sites. Overall, we are seeing our gross margin improving. As John said, our ion beam products were a higher than normal percentage of revenue in Q1. We wouldn't expect that to last going forward. But I would say that we are expecting to have our gross margins over 40% at these current revenue levels. OpEx is ahead of schedule. We said that sorry, go ahead.

I was going to say, maybe let me ask the revenue question a different way. If there was no COVID going on right now, would you be guiding revenues up, down or flat?

Yes. We really can't I can't really give you that color, David. I apologize for that.

No worries. Okay.

I did say though that...

Go ahead.

I just said, though, that we did have a few tools from one Chinese customer push out of the quarter. But I will say to you that currently, all our facilities are running at or near-normal capacity. We've had no supply chain disruptions. We're not seeing significantly reduced or changed customer demand. The quality of our funnel is strong. We had a strong order flow in April. Our cash collections in April are so far strong. And so I would assume we're moving along.

Okay. And then maybe just elaborate a little bit more. You mentioned that your disc drive business was quite strong. I guess, you mentioned maybe just to elaborate as to why it's strong? And is it all cloud or is it enterprise? Or are there some other things going on? And then if it is the cloud, are they moving more toward using hard drives versus SSD drives as far as storage capabilities go?

Yes. What we're seeing is all of our data storage customers are pretty bullish in adding capacity now. Our 2020 is mostly in backlog right now, and we are quoting for slots in 2021. And what we're seeing is their demand is really driven by the cloud, very large-format drives, 20-terabyte size drives. And they're also going through a technology transition now to energy-assisted magnetic recording. And so what this means is the heads are more complex. And so there are more passes through our tool, and there are more heads per drive, and there's an absolute value of heads is growing. So right now, we're seeing added tailwinds due to the customers needing more capacity and tailwinds due to the complexity of the heads driving more equipment.

[Operator Instructions] With no further questions in the queue, we'll hand the conference back over to Mr. Bill Miller for additional or closing remarks.

Thank you, operator, and thank you all for joining us on today's call. I appreciate the thoughtful questions in these truly unprecedented times. Going forward, we will continue to keep our employees safe as we continue to focus on our customers. I look forward to updating you at our next conference call. Have a great evening.

Thank you. And that does conclude today’s conference. Thank you all for your participation. You may now disconnect.