Good day, and welcome to the Veeco Instruments Third Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Anthony Bencivenga, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer; and Sam Maheshwari, our Chief Operating Officer and 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 morning, everyone, and thank you for joining the call. Before we get into Q3 results, I'd like to share a few observations after my first 30 days in my new role. For starters, I'm thankful and delighted for the opportunity to lead Veeco into our next exciting chapter. And I say this for a few reasons: First and this comes as no surprise to me, we have a great team here at Veeco. They are dedicated and capable of overcoming any challenge. Second, when you examine our broad product portfolio, you'll see it is built upon exceptional core technologies. We have best-in-class deposition, etch and laser-based products solving tough customer challenges in many markets. For example, our leading Ion Beam technology was originally used for etching and depositing magnetic materials in the production of thin film heads in the data storage market. This technology is now being applied in the front semi-market to produce mask blanks for EUV lithography and to etch magnetic materials for magnetic RAM, an emerging embedded memory solution. And third, the markets in which we operate are positively impacted by fundamental megatrends such as the explosion of data, artificial intelligence and next generation wireless communication. I am excited to work with Veeco's highly motivated team as we help our customers' progress along their technology roadmaps. Having said that, it has become clear some of our prior plans have been impacted for various reasons. The first was our forecast to grow full year 2018 revenue over 2017. Given our current visibility, full year 2018 revenue will be lower than pro forma 2017 revenue of combined Veeco and Ultratech. The revenue shortfall was driven by us U.S. foundry's decision to put its 7 nanometer FinFET program on hold. We are also seeing broader China…

Thanks, Bill, and good morning, everyone. Today, I will be discussing our non-GAAP financial performance. You can find the detailed reconciliation between GAAP and non-GAAP results in the press release and on our website. First, I would like to address the expense reduction efforts Bill was referring to. And then, I'll provide some color on bookings followed by details on revenue. You may recall, we announced $15 million in annualized OpEx synergies when we acquired Ultratech. A few actions are still outstanding and we expect to complete them by early Q1 of 2019. We recently initiated additional expense reduction efforts to align our cost structure to the current business conditions. These new actions are projected to save an additional $20 million annually to bring our quarterly non-GAAP operating expenses to $40 million by Q2 of 2019. These expense reductions are being implemented primarily in SG&A with a minimal impact to our R&D and new product development efforts. Now turning to bookings details. In Front-End Semi, we experienced a sharp increase in orders driven by two EUV mask blanks deposition tools in Japan and an LSA tool which is being incorporated into a leading edge semiconductor node. In Industrial and Scientific markets, orders remained strong in data storage as well as our optical coatings business. In Advanced Packaging, MEMS & RF Filter markets, we booked multiple lithography tools with a large Taiwanese OSAT who is adding capacity to provide wafer level advanced packaging applications for their logic customers. In the LED Lighting, Display & Compound Semi markets, bookings continued to be weak as expected. Orders from China were weak across all of our product lines with no bookings for Blue LED MOCVD tools. As such, China made up only 5% of our total bookings. Scientific & Industrial orders were 39% of…

Thanks, Sam. We have several market opportunities in front of us and I will focus on a few of them today. The first opportunity I will focus on is our EUV mask blank deposition systems. In the Front-End Semi market, IDMs and foundries have been continually investing in next generation technologies to advance Moore's Law. The next investment inflection in this evolution is EUV lithography. We have been working on EUV mask blank deposition systems for the Front-End Semi market for many years and are excited to finally see this technology become adopted. Every EUV lithography step requires a photo mask and every photo mask starts as a mask blank. Our Ion Beam deposition systems are proven to produce EUV mask blanks with the lowest level of defects. We have three of these systems in backlog and expect to book another one in the fourth quarter. On a go forward basis as EUV lithography adoption continues, we believe we will have a sustainable business in EUV mask blank systems. These are complex systems with nearly 12-month lead times, and we are focusing on delivering to our customers as we grow this business over the coming year. The next opportunity I am focusing on is our Laser Spike Annealing or LSA system which is at the cutting edge of Front-End Semiconductors. Our LSA system serves a critical function in Front-End Semi manufacturing and has been a process tool of record for manufacturing advanced logic devices from 40 nanometers down to 14 nanometers. We have been working with leading foundries and IDMs for insertion in their leading edge nodes. During this quarter, after an evaluation period, we received an order for an LSA system from a market leader for their upcoming node. We believe this order may lead to multiple follow on…

Thank you, sir. We'll now take our first question from Mr. Brian Lee from Goldman Sachs. Please go ahead, sir. Your line is open. Brian Lee - Goldman Sachs & Co. LLC: Hey, guys. Thanks for taking the questions. I had several here, so maybe if we could just start big picture. Bill, you sound like, you're setting the expectation that we're going to be in the soft revenue environment for you for a bit of time, and you do have pretty tough comps into the first half of 2019 given how strong revenue trends were for you in the first half of 2018. So just when I put all this together, you're annualizing the $400 million top line heading into 2019. What sort of the end markets that are going to put you back onto a trajectory for year-over-year growth? And is that something that you could see materializing by Q3 of next year? Or is this really going to be all the way into the end of the year where you obviously would have the easiest comp looking at Q4 guidance right now?

Yeah. Great, great question, Brian. I think we could take this from a couple of different directions. If I look at, say, Q2 bookings, I'd say $130 million and Q3 bookings at $100 million, those numbers have very, very little China business in them or Blue LED and that's an average of $115 million. So I think kind of where we are, that would be a place for us to target looking at our bookings. But to answer your growth question, I think we will see growth in EUV with our mask blank business. As we said in our prepared remarks this is a long-lead item looking at nearly 12 months, and so we won't see any of that revenue until Q2 of 2019 and continuing throughout the rest of 2019. So I think that would certainly be something that would be a growth driver. The second area that I think is a bit of a growth driver for us as we mentioned is the win we had in LSA in cutting-edge node. We haven't been in that space since 28 nanometer. So this is, I think, a big win for us and will give us an opportunity to win other applications with this customer as well as provide us an opportunity with other customers to gain share. And so this, as you know, will take some time to be adopted and won't be a quick panacea but certainly further growth there will drive our business longer-term. The other area of growth for us is in VCSEL. As I said, that business has been pushed out and will be not impacting us in the short term positively, so I would see that more later in 2019. Brian Lee - Goldman Sachs & Co. LLC: Okay, great. Now – that's helpful. Maybe on that last point, second question was going to be around VCSEL. Can you maybe elaborate a bit more on what's driving the delays there. Is this just technical qualifications, is it a slowdown in the overall end market where maybe your offering is coming in a bit of a wrong period in time in terms of the adoption curve, or is there some competitive dynamics playing out there? And then related to that, what sort of the -even if it's rough ballpark figures, what your revenue opportunity for that category as you think about it holistically?

Sure Brian. I would say I have to place the blame squarely on us here. The market is robust. We do have a tool running in our lab in Somerset New Jersey. We are making VCSEL today. We are closely engaging with customers. Many of our customers, all of the main players really are trying to pull us into this market space. They really, really want us to be there because of our production performance in high volume. At this time, we're meeting most of the specifications. But unfortunately, we do need more time to iterate the process to achieve all the requirements. I would say this market is $150-million market where we have very little share today. And so I think once we have our product out on the market, I would think we do have an opportunity to gain share in a rational manner. The market is pretty significant. I do believe we are in very early innings here. And I think we're seeing adoptions in facial recognition but there are opportunities for world facing VCSELs which require higher power and different wavelengths opportunities in automotive. And so I think although we've got to have a short term bump here, the opportunity is pretty significant over a number of years, so we'd certainly remain bullish on this market over the long term. Brian Lee - Goldman Sachs & Co. LLC: Okay, great. Appreciate that. Last one from me, on the gross margins, maybe for Sam. I appreciate the updates around OpEx and the quantification around how that's going to flow through over the next several quarters in terms of your savings initiatives. But if you guys do see this revenue run rate linger in the $400-plus-million range through a decent part of 2019, is there any actions being contemplated or underway for the manufacturing cost side of things where you can get to the 40% levels or above even without a meaningful expansion in the topline or is that not part of the game plan at the moment? Thank you, guys.

Yeah. Thanks, Brian. Great question again. So look, we have been reducing costs on the OpEx side quite a bit. As we look at the last few quarters' strength and as I guide towards the next two quarter, it's continuously coming down. So I think what we are trying to do here is to reduce costs in a measured manner and in a way that we can consistently keep on executing towards it. So overall right now, we are guiding you midpoint of 95 million and midpoint of 37% gross margin. But we started the initiative of reducing manufacturing costs in Singapore. It is more than halfway done, but the savings are not yet coming in through into the P&L. And towards the midpoint of Q1 2019, that would be completed. So gross margin side, cost reduction initiatives are yet to play out fully. We remain squarely focused on 40% or higher in terms of our gross margin. I do believe the $95 million run rate on revenue is causing headwinds for gross margin from a volume perspective, so I would say with $100 million or more, say $105 million, $110 million, we should be in the 40% range in terms of gross margin in one to two quarters because our cost reduction initiatives would be completed. So I get a little bit of benefit from volume, $95 million is somewhat low, and then we also get a chance to complete our cost reductions. So again overall, we continue to target 40% gross margin or higher at the levels you talked about. Brian Lee - Goldman Sachs & Co. LLC: Okay. Thank you, guys.

Thank you, Brian.

We'll now take our next question from Patrick Ho from Stifel. Please go ahead, sir. Your line is open. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Thank you very much. And thanks for taking the questions. Bill, maybe just first to start off, looking at the bigger picture of the red-yellow LDE market and the MOCVD opportunity there. You just mentioned about VCSEL being a 2019 story, but if you look at the big picture for that segment, do you see new customer gains as a driver in 2019 or are some of the customer wins that you generated in 2018 turning into volume, will that be the bigger driver?

Thanks. Thanks, Patrick. As I think about it, I think this would largely be, as it relates to VCSEL, new opportunities for us going forward. We do have little share in that space today and so this would be a lot of new customer opportunities for us. Although, some of them actually are also ongoing customers, but I would say, on an 80-20 I would say most of these would be new customer opportunities for us. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Okay. Great. Moving on to the LSA segment. It's very encouraging to hear you get a leading edge win given how muted that business has been for some time now. I guess what's been the change because it has been several nodes where our customers have not employed LSA at a high volume basis. I guess, what's the change or what are some of the manufacturing challenges that help you to at least get this qualification win at this point?

Yeah. Thanks for the question. And you and I had a few conversations about this over time and we see this as a big win for us and what we needed to do is do a better job of basically listening to our customers, understanding their needs, supporting them and delivering the results. And there is nothing overly magical other than listening to our customers and doing things well for them to get this win. So we're quite proud of it and it has been a number of nodes since we've been near the leading edge. So we are excited. This is a first step for us. I think this is a milestone that we can certainly leverage with this customer as well as other customers as well. We also see opportunities with our Melt technology to make some inroads in terms of reducing contact resistance as well. So we're finally delivering on some of our commitments there right. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Great. And final question maybe for Sam in terms of the OpEx cuts, they obviously make a lot of sense in the near term, but you've been in the industry especially on the semi cap side were things can turn very quickly. I guess given the cuts now, how flexible or how reactive can you be if business suddenly turns that have "enough" manufacturing capacity as well as people to meet a potential turn in demand?

Sure. Yes, Patrick. Thanks. So as I said, most of these cuts are coming through into the G&A area. And so it's mostly general and administrative functions. So we are trying to keep all of our manufacturing capacity other than places where we do know it is an excess, for example in Singapore. So we are keeping sufficient upside capability for the industry to turn up and then we should be able to meet it. We also have a number of relationships with the outside contract manufacturers and outside partners. We are preserving those as well and those are very valued partners. So I think we would have that capability. The one thing I'd like to add and make sure we all realize that the businesses that we are now getting particularly in terms of EUV, they come with a long lead time. So it gives us a lot more visibility. Then, also with Ion Beam technology we get lot longer lead times from our customers as opposed to quicker book and ship in the same quarter and these such things. So it gives them more visibility. The business is higher margin, the business is much more value add, and the quick turn less than six months or five months type of visibility that we use to get on the LED side, that business as the overall proportion of revenue is declining. So I continue to feel good about our ability to turn and be able to address should the demand pick up. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Thank you very much.

Thanks, Patrick.

We will now take our next question from David Duley from Steelhead Securities. Please go ahead, sir. Your line is open.

Thanks for taking my question. I wanted to ask a few questions on the Advanced Packaging market. There's been lots of OSATs and IDMs talking about ramping up, pan out in different volumes. And I was wondering what you were seeing there? Is that something that you're participating in? And also and that's more on the foundry logic side. You mentioned that the package being adopted more in memory, I think, for high bandwidth memory applications, if you could just elaborate a little bit more on what's going on in that segment of the market, I would much appreciate it.

Sure, David. No problem. We are seeing growth in Fan-out Wafer Level Packaging. We recently received some orders from a very large OSAT for this exact market. So we are still very much a major player in this. We still have a very strong market share and don't see that eroding. So we will be participants in that market. I think if you just – it's more of the Taiwan market Korea et cetera, but in China, we have seen some softness in the OSAT space. But that's a little bit more color I'd like to add there. As it relates to high bandwidth memory, what we are seeing is customers move towards advanced packaging techniques to eliminate wire bonding etcetera, and we have been successful in winning business there. So I think that will provide an additional market opportunity for us going forward.

And David, I also like to add there that with the new iPhone, the size of the chip is higher (38:04), so one of the key foundry in Advance Packaging who's been our customer, we're seeing utilization improve. Their utilization, as we were seeing, was running low, but now that has picked up maybe not enough to demand a significant capacity upgrade, but the utilization has gone up and so from a technology change perspective, it's definitely been helpful to us this change. And if the capacity gets a little bit higher then there is a possibility of capacity upgrade and we remain hopeful of that. We are not there yet, but nonetheless I would say there has been a positive marker.

Okay, well that was one of the next questions I was going to ask. I'll go on to the -- other one is as far as the Advanced Packaging market when you look into 2018 for Veeco, do you think they'll see more growth from the memory side or from the fan-out foundry logic side?

I would say, David, the answer is both. We do see opportunities in memory for sure. I think that it's a significant opportunity for Veeco and we do see, as Sam just said, the utilizations picking up in the mainstream fan-out space, and we are seeing OSATs add capacity as well. So, I think it's an opportunity in both spaces looking out into 2019.

And I would add, David, to Bill's the answer there that in memory -- I think in logic its more driven by technology change as well as capacity, whereas our initial thinking in memory is that we have a tool that has a unique ability provides a really good cost of ownership advantage to our customers. So, at least our initial view is that our technology is coming in initial application and it's a big market. Typically, we've not sold AP tools and memory in the past. This is what changed in the last six months. So we remain hopeful and we hope we are able to crack into more applications in memory. But I would say it's mostly around technology and capacity on the foundry logic side and some work about much more unique to Veeco, unique to Veeco tools on the memory side

Okay. And final question from for me. Sam, I think you mentioned something about valuation triggering another impairment charge. If you could just elaborate a little bit more on that particular statement.

Sure. Absolutely. So, Veeco reports their numbers in one segment so to say (41:08). And so we are carrying about approximately $300 million of goodwill on the books. I think it's $307 million to be exact. And there are certain GAAP guidance where the carrying value of goodwill on the books cannot be higher than the market value of equity and then there are some adjustments to it. So, without going into too much complexity in simple terms, the value of numbers of my goodwill that I carry on the balance sheet is linked to the market cap of the company; and the market cap obviously changing based on how the share prices change. And then every year, on October 1st, do a Goodwill test and we did this year as well and we passed the test. However, the cushion was small; it was about $60 million. So, what that is telling me is that that from that day onwards as we closed the quarters in the coming quarters if the share price trading pattern is such that the market cap is lower than the amount of good we're carrying then we'll have to take a non-cash charge to our P&L. Now, it is completely a non-cash charge. It does not impact our operations or liquidity in any manner. This is something we would exclude from our non-GAAP financials but nonetheless we will follow the GAAP guidance and report financials accordingly. And since the cushion was low on October 1, I thought I would go ahead and provide the advance information or advance notice to the investors.

We appreciate that. Unlike the impairment charge you took, I think, last quarter, which was directly tied to Ultratech's business performance, this isn't necessarily tied to that; this is purely tied to the market cap of the combined entity.

Yes. Your understanding is completely correct. And that makes it in a way simpler than the Ultratech situation which was dependent upon performance and bookings and revenues et cetera.

Thank you.

Thanks, David.

We now take our next question from Gus Richard from Northland. Please go ahead. Your line is open.

Yeah, thanks for taking my questions. On the LSA tool order is what node is that?

You know, I'm really not at liberty to say. I would tell you with the next node. I'm sorry, Gus.

All right. That's all right. I get it. And then you haven't mentioned your strain (44:17) measurement business this quarter, I was wondering if there any sign of life in that business or is that equipment dead for a while.

We actually are in the midst during 2018 of addressing some product issues that we've had with our customers, and we are expecting to come out with a series of product improvements and upgrades to that. And we are certainly seeing very strong customer interest in that. I just don't want to get too far ahead of ourselves in that space but certainly the technology is – customers find it quite interesting. We just need to make sure that we can meet all of the requirements to meet their product roadmaps.

Gus, I would add, that product is generally focused around the memory side and the memory side has been running weak. There are certain product advances we need to make that Bill just mentioned, but at the same time, the overall memory market in these last six months have been soft as you very well know. And so that's what we are going through right now.

Okay. It will be product enhancements move that beyond the memory market or is it still going to be primarily focused there?

It will stay probably in the memory market both NAND and potentially DRAM.

Got it. And then on the EUV business, have the mask makers move beyond pellicle issues so that EUV can be used on other layers, other than via?

That's my understanding. Obviously resist in pellicle issues have been an issue but we are seeing customers starting to take out EUV. So, we are following that market very closely obviously.

Got it. Okay. Thank you very much.

Thank you, Gus.

Thanks, Gus.

There are no further questions over the telephone at this time. I'd like to turn the conference back to our host for any additional or closing remarks.

Thank you, operator, and thank you, everyone, for joining our call today. And I look forward to giving you an update next quarter. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.