Axcelis Technologies Inc (ACLS) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Axcelis Technologies third quarter conference call. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mary Puma, Chairman and CEO of Axcelis Technologies. You may proceed.

Thank you. This is Mary Puma, Chairman and CEO of Axcelis Technologies. Welcome to our conference call to discuss the third quarter of 2009. With me today is Steve Bassett, Axcelis's EVP and CFO, and Bill Bintz, Senior VP of Marketing. If you have not seen a copy of our press release issued earlier today, it is available on our Web site. Playback service will also be available on our Web site as described in our press release.

Please note that comments made today about our expectations for future revenues, profit and other results are forward-looking statements under the SEC's Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

Steve is going to start by discussing Axcelis's third quarter results. In particular, he will focus on cost containment and cash management and will provide some directional guidance on Axcelis's future financial performance. Steve?

Thank you, Mary. We reported a net loss for the quarter of $0.15 per share. Operating results continue to improve quarter-over-quarter due mainly to the benefits we are realizing from cost cutting initiatives. However, revenues, $35 million for the quarter, remain at low levels which are a reflection of overall market conditions. While we are seeing a strong recovery in our aftermarket business, with revenues of $24.9 billion for the quarter, and spare parts sales up 21% over Q2, revenue from sales of new systems are approximates what we have realized over the past several quarters. We expect revenues from our aftermarket business to increase significantly in Q4 by 25% to 35%, and the recovery to continue into 2010 as fab utilization rates increase. Our aftermarket business has historically and continues to be accretive to our overall margins.

Revenue from new systems sales is more difficult to forecast. However we are starting to see a fairly strong increase in quote activity and, as Mary will discuss in more detail later, our product portfolio is solid across all product lines and does position us to realize revenue increases when business conditions improve.

Looking at our expense base and cost containment efforts, operating expenses for the quarter were $21.7 million. This compares to $39.9 million a year ago. On an annual basis, we have reduced spending by $75 million over the past two years. Going forward and through 2010, we expect quarterly expense run rates to approximate what we realized in Q3 which will be a major factor in controlling cash flow.

With a decrease in operating expenses our quarterly revenue break even level has been reduced to about $65 million, which provides us with significant leverage when the market recovers. In addition to controlling expense spending, cash flows for the remainder of 2009 and in 2010 will be largely dependent on working capital management. Throughout 2009, we have been able to minimize the cash burn through effective inventory management. Cash burn in Q3 was $8.5 million of which $2.4 million was from non recurring restructuring costs. In 2009, we have reduced inventory levels by $17.2 million through the sale of product on hand and minimizing new purchases. We expect further decreases in the fourth quarter, and in 2010.

Looking to the fourth quarter, we are forecasting improved operating results with a greater than 50% reduction from Q3's reported loss. This is a result of improving aftermarket business, and our cost containment efforts as discussed earlier. From a cash flow standpoint, we are projecting to approach break even, due mainly to increased aftermarket revenues, controlled expense spending, ongoing working capital management, and a significantly reduced outlay for restructuring costs.

For 2010, we are forecasting operating results to improve overall, and cash flow for the year to be at break even to slightly positive. The efforts we have made during this downturn to change our business model are starting to show positive results. Again, our product portfolio is solid, and the operating leverage we have added should yield high levels of profitability as market conditions improve.

I will now turn the call over to Mary who will give you some business highlights.

Thank you, Steve. As Steve mentioned, our business is clearly begun to ramp up. Like others in the industry, we are enjoying increased aftermarket upgrade and service revenues along with systems orders from a select group of customer who require new equipment for technology transitions and some long awaited capacity buys. As has been the case in recent cycles, Axcelis enjoys business at the front end of an upturn associated with high energy capacity requirements. This ramp has been no different. Axcelis, as the market leader in high energy, has been able to capitalize on multiple tool orders for our well established, share leading high energy technology. Our existing and new products continue to dominate this segment with an install base of approximately 400 tools.

Customers desiring to conserve cash yet boost the performance of these tools have placed multiple orders for our low angle implant upgrade. These upgrades are yield enhancing, improving overall device performance and extending the tools' capabilities for next generation device manufacturing. In addition, the Optima XE, Axcelis's new single wafer high energy tool, is based on the same proven LINAC technology as the Paradigm XE. The tool has received very positive market acceptance by those customers who have determined that transitioning to single wafer high energy is an imperative. We have shipped three Optima XE with one evaluation successfully completed and the other two tools part of evaluations that will end in 2010.

Despite declarations that energy levels are decreasing and the high energy segment is disappearing, we want to assure you that this is not the case. Recent trends at leading chip makers indicate that a significant number of high energy applications will not only continue to exist, but will also require even higher energy levels. An example of this is in the flash memory process flow. Axcelis will capitalize on these trends as the Optima XE is the only tool on the market that could meet these high energy needs, with superior process performance and productivity. Bottom line, Axcelis will retain its leadership in the high energy segment.

Our Optima HDs are running well and all systems in the field have converted to revenue. Customers using the Optima HD have been slow to add capacity during the downturn due to cautious capital spending and more than adequate high current capacity from all suppliers. However we expect new Optima HD tools will be sold in 2010 to our existing customers, as well as to some new logic and memory customers who are currently evaluating the tool. We believe that most, if not all, of our Optima HD finished goods inventory will be sold and generate cash in 2010. The exact timing of these sales is a function of customer purchasing plans which are, not surprisingly, determined by how quickly and robustly the industry ramps. The tools we will be placing in the field in 2010 will incorporate many new process and productivity improvements that have already been proven out at customer sites. We will be providing more details about this improved offering called the Optima HDX in the near future.

During the quarter we announced that we completed the first evaluation of our new dry strip tool, the Integra RS which resulted in a follow on order. We are engaged in head to head evaluations at several other customers, as well as processing demo wafers for many others. Customer feedback is that the Integra is the most productive tool available on the market and provides the widest process window for non-oxidizing plasma chemistries. This is critical to removing Photoresist from our customers' emerging devices. We expect 2010 to be a strong year for the fan out of the Integra at multiple customer locations.

I would also like to update you on some of our technology development activities that are focused on addressing customers' device performance and yield issues associated with advanced transistor fabrication. As thermal budgets are reduced to support further scaling of transistors, end of range damage and the associated leakage current become growing challenges. To address this issue, we are working with a wide range of customers, to investigate the use of our molecular carbon and boron technology. Beyond our molecular technology, we have developed new wafer temperature control technology that complements the favorable dose rate effects associated with our single wafer spot beam architecture. In combination, these technologies offer customers a unique set of capabilities to address their leakage current challenges.

We are also actively engaged with customers to address device speed issues. Use of our molecular carbon implant technology as a vehicle to induce strain in n-moss transistors is viewed as a potentially attractive approach to realized improve device speed. Through our new business partnership with IBS, we are now in a position to begin engaging with customers relative to the use of plasma doping technology in their device fabrication strategies. The unique dual region chamber design associated with the IBS pulsion technology is generating significant interest with customers, not only for today's gate and contact doping applications but also for conformal doping of future 3D device structures.

Although the efforts I just highlighted will not translate into significant sales in the near term, they will offer us the opportunity to further differentiate our products over the longer term, as customers transition their manufacturing capabilities to future technology nodes.

As Steve discussed, our service business has been showing steady signs of improvement since the first quarter of this year. In particular, we have seen our parts business grow, as tools have been brought back online. This is the first stage of recovery. The second stage is characterized by a brisk upgrade business which we are currently experiencing. The final stage is a strong increase in systems sales which we believe is just now beginning. Estimates and forecasts of fab utilization indicate that service revenues will continue to revive through the remainer of 2009 and into 2010 as the industry continues to recover. Further more, we are confident through extensive modeling that despite fab closures, Axcelis' service and after-market will return to historical quarterly revenue run rate and could even exceed them based on new initiatives.

One of these new initiatives, the transition to applied materials for service and support for our customer base in Japan, was completed on September 30th. We believe that this relationship with Applied will not only satisfy our Japanese customers but will also facilitate future sales of systems. Our sales activities in Japan continue to progress and we believe that as the industry strengthens there, Axcelis will successfully compete. It is important to remember that many large Japanese customers are familiar with our implanted technology, most significantly our the high energy LINAC technology, which we are the only supplier to offer in a single wafer architecture.

Although our primary focus remains on making Axcelis's core business successful, we are continuing to explore new business opportunities that will expand our product reach, leverage our core competencies and provide growth. We are in discussions with several partners and customers on ways to utilize our technology, and equipment for solar, LED and other applications, supporting further expansion of the semiconductor ion implant market. We believe that over time these opportunities will strengthen Axcelis's business model.

Like many other companies in our industry, this has been a difficult year for Axcelis. But we have managed our way through the challenges we faced. We believe that we are well positioned not only to weather the remainder of the economic storm but also to capitalize on opportunities as market conditions continue to improve. Given our refreshed product portfolio, our lean cost structure, and our solid cash plan, we are optimistic about the prospects for Axcelis in the coming years.

I would now like to open it up for Q&A.

(Operator Instructions). Your first question comes from Benjamin Pappas of DA Davidson. You may proceed.

Thank you for taking my question. Real quick just wanted to touch on the orders in backlog and shipments, did you provide any numbers for that?

I didn't, but I can. The shipment number was just slightly above the revenues number. It was roughly $36 million as opposed to the $35 billion, in revenue. I'm getting the backlog now, hold on just one second. The backlog including deferred revenues which we haven't recognized yet is about $13.8 million at the end of the quarter.

Okay. And real quickly on your inventory, I was wondering if you could characterize the age of your inventories as we head into the fourth quarter and you have to evaluate them? Do you anticipate many write offs?

No, we evaluate the inventory, actually, at the end of every month, and we don't think that we have any significant exposure to obsolescence. It is an ongoing process we go through monthly.

Okay. Great. Then I was wondering you indicated there were some new products coming up in the LED solar. I was wondering if you could characterize those at all or give us any more detail as to what exactly that might look like?

I don't know that we can get into a lot of specifics but in the solar area, we are working a couple of opportunities to leverage our implant technology for solar manufacturing. In one case we are partnered with two other companies, and a university. We are actually involved in an application process for government funding to take the effort to the next stage.

Okay. And how long until you think, you guys will ultimately decide if this is a viable route you want to take or not?

Over the course of 2010, we will be sorting that out and setting direction.

Okay. Great. I appreciate your time. Thanks, guys.

Your next question comes from the line of Brian Walton of Berlin Capital Management. You may proceed.

Good afternoon, guys, it's Sterling Capital. Hope you are doing well. Three questions. First, Steve, for you, the reference was the expectation at some point in the future, 2010, 2011, was that the aftermarket business could approach, if perhaps not exceed, prior quarterly levels. I wonder if you can just articulate what those quarterly levels would or could be.

I think, Brian, if you go back to 2004 through pretty much through 2007, and even into 2008, we had after market business that ran in the low $40 million. And we believe that that is achievable for a couple of reasons. One is expanded install base with new systems that we will be selling. And the second would be that we have aggressive programs on developing new product offerings that would fit into the aftermarket business.

Would you expect that the margin characteristic of that business going forward would be somewhat similar to that of the past, so obviously very accretive to overall margins?

Yes, we expect that to be the case.

Okay. Great. Two other questions, Mary, perhaps for you. Your largest competitor on their quarterly call talked a lot about the memory market, and I think specifically pointed toward really good visibility in that area, not necessarily in the December quarter but in the March quarter. I wonder if that's the visibility or the environment that you, too, are seeing from your systems business to the memory markets.

I don't think that our visibility at this point is, perhaps, quite as clear as his visibility. One of the things that really is having a significant impact, particularly in the memory market, is excess high current capacity, and this is not an Axcelis specific issue. There are a large number of used systems in the market due to fab closures and mergers and customers are moving these around to fill in some manufacturing holes. Additionally, some customers have been resizing their tools from 200 to 300 mm. And, really, until these customers burn through this excess capacity, the volume for new systems orders for high current applications is going to be low.

So, while we know that the demand is going to be there, I think that the big question right now is exactly the timing on when it is going to come. So whether it is first or second quarter at this point in time I think that's really the big question. The demand there will be. It is just not exactly clear when it will be there. We have better visibility into high energy, and we are seeing a more rapid recovery in the high energy area and we do expect high current order activity to pick up in 2010 -- I am sorry, high energy order activity to pick up in 2010. So we have better visibility into that specific segment.

Just lastly, again sticking to the memory segment, irrespective of whether it be a first, second or even a third quarter event, but 2010, 2011, as those capacity purchases begin in earnest, as you look at that market, look at your customer base, understanding where you have approval or potential approval, do you have market share hopes, expectations, goals against specifically within the memory area for the Optima HD?

We don't have any specific goals that we're articulating but we absolutely have plans to increase the number of Optima HDs that e're shipping into that segment. We've long talked about how our initial target market for the Optima HD was the memory segment, and in fact we've penetrated many of the existing manufacturers, have tools in at those locations, and would expect to have additional capacity orders when those customers begin to buy. Additionally we've supplemented that with some foundry and logic customers, as well. And, again, we expect to penetrate several additional customers in those segments. As the memory business does pick up, and in high current in particular, since you asked about it, as customers digest that excess capacity that exists, we do have an expectation that, yes, we will sell those tools into that segment.

Thank you.

(Operator Instructions). You have no questions at this time.

Okay. I would like to thank everyone for joining us and as always, if you have further questions, please don't hesitate to call either me or Steve directly. Thank you.

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day.