Axcelis Technologies Inc (ACLS) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Axcelis Technologies Incorporated earnings conference call. I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session 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, Ms. Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed.

Good afternoon. This is Mary Puma, Chairman and CEO of Axcelis Technologies. Welcome to our conference call to discuss the fourth quarter and full year 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 website. Playback service will also be available on our website as described in our press release.

Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC 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.

I'm going to turn this over to Steve, who will discuss Axcelis's fourth quarter and full year results. He will provide some additional detail on how 2010 is shaping up. Steve?

Thank you, Mary. We reported a net loss for the quarter of $0.10 per share. The amount of loss was slightly greater than originally forecast due to an installation scheduled for December that has moved to the first quarter of 2010 and a non-cash adjustment to stock compensation expense. However, our overall operating results continue to show substantial improvement quarter-over-quarter, and in the fourth quarter we generated positive cash flow of $3.7 million, reflecting continued recovery in our business and effective working capital management. We are seeing a strong ongoing recovery in our aftermarket business with revenues of $31 million for the quarter, up 25% over Q3. We expect our aftermarket business to continue to grow throughout 2010, and as fab utilization rates increase, approach revenues of $40 million per quarter by the end of the year. Our aftermarket business has historically and continues to be accretive to our overall margins.

Revenue from new systems sales was $8 million and averaged slightly below $9 million a quarter for 2009. However, we are seeing a strong increase in order flow. Since December 1, we have received over $20 million in new systems orders, reflecting both the overall market recovery and the market acceptance of our products. We are currently forecasting total revenues to increase in Q1 2010 by 20% to 30% over Q4.

Gross margins for the quarter were 29.3%. While still at a low level due to reduced revenue volume and the related underabsorption of fixed costs, margins have shown constant improvement throughout 2009. We expect overall margins to increase further in 2010 as volume, both new systems and aftermarket, improves. However, margins in the near term are largely dependent on product mix and will fluctuate quarter to quarter as we work through existing inventory. For the first quarter of 2010, we are forecasting gross margins in the range of 24% to 28% and in the low to mid 30s for the remainder of the year. Beyond 2010, as volume continues to increase, we expect margins to improve to more normal levels in the low 40s.

Looking at our expense base and cost containment efforts, operating expenses for the quarter were $21.1 million, in line with our expectations and down 57% from a year ago. Going forward and through 2010, we expect quarterly expense run rates to range from $22 million to $25 million. Fluctuations from quarter to quarter are mainly due to material usage for R&D. With the reduction we have made in spending levels, we estimate our quarterly revenue breakeven at $65 million.

In addition to controlling expense spending, cash flows 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, and as I mentioned earlier, achieve positive cash flow of $3.7 million in Q4. In 2009, we reduced inventory levels by $26 million through the sale of product on hand and minimizing new purchases. We expect further decreases in 2010 and are projecting cash flow for the year to be positive. However, we will experience quarterly fluctuations, resulting principally from the variability in timing of customer shipments and inventory purchases for new system orders, and are currently estimating a $5 million to $10 million cash burn in Q1.

Overall for 2010, we are forecasting operating results to improve significantly, and depending on the timing of customer buying patterns, to approach breakeven, or at a minimum EBITDA breakeven, by the second half of the year. The efforts we have made during this downturn to change our business model are starting to show positive results. As I mentioned earlier, we are experiencing good market acceptance for our products and the operating leverage we have added should yield high levels of profitability as market conditions continue to improve. I will now turn the call over to Mary.

Thank you, Steve. I would like to start by reiterating a key message from last quarter's call -- that 2009 was a difficult year for Axcelis, but that we managed through our challenges by significantly reducing expenses, managing our cash carefully, and continuing to invest in technology and our global support infrastructure. Coming out the other end of these difficult times has made us a stronger business and better prepared to take advantage of a market recovery. While I think many in the industry would agree that things are not yet back to normal, we are in what I termed in our last earnings call the third and final stage of a recovery, meaning that following a growth in parts and upgrade, we are seeing an increase in system sales. As a result, we believe that 2010 is a year in which Axcelis expects to substantially improve our market condition and financial performance.

The timing and level of our success remains predicated on the slope of improvement in the industry, but we are encouraged by the uptick in the global economy and the increasingly more bullish plans that our customers are sharing with us. So, consistent with what others in the industry are reporting, our business is strengthening. Our aftermarket revenues revealed another solid increase quarter-over-quarter, and as I mentioned, our systems business is showing renewed signs of life. This is fueled by the long awaited return of capacity buying, and perhaps more importantly for Axcelis, an increase in new design wins across our Optima and Integra product lines.

Not only are Axcelis's products winning based on technical traction, but also on commercial attractiveness as well. As the trend towards larger customers and customer consortia continues, the focus on dual suppliers grows. For example, many customers have flat out told us that they have determined that they will source from two implant companies and that Axcelis's implant technology, products, and global infrastructure make us one of the two implant suppliers of choice.

I will now provide a brief update on several of our flagship products. We have been talking about the competitiveness of our single wafer high current product and how it is going to win back share in this implant segment. While the rollout of the Optima HD was derailed by the industry downturn, we kept at it over the last couple of years and our efforts are paying off. We believe that we are now back on track and quickly gaining momentum. As we detailed in recent press releases, we have received orders from both new and existing customers from multiple Optima HDx's, our newest version of the Optima HD, for both logic and memory applications -- despite the fact that high current appears to be the slowest implant segment to recover due to more than adequate high current capacity in many fabs. We are very excited about the new opportunities that the Optima HDx is generating. Furthermore, Optima HD's can be elevated to Optima HDx performance with a popular upgrade package. We have received very positive customer feedback on how this has enhanced tool performance.

So why is the Optima HDx winning? Because it offers a unique combination of enhancements to maximize beam current, minimize beam set up time, and eradicate energy contamination. This allows the Optima HDx to deliver the most precise and repeatable performance in the high dose base. The system's unique spot beam technology and short beam line deliver the industry's highest drift beam current, up to 36 milliamps or 38% higher than our competitors. To further enhance performance, the Optima HDx's proprietary Autotune beam tuning system has significantly accelerated both tune times and success rates, providing up to a 60% advantage over competitive systems. Key to the system's enabling technology is the proprietary Radius scan, which ensures the best across wafer dose and angle process uniformity as well as repeatability. These advantages are providing customers with a winning solution to their implant requirements and will allow us to regain high current and implant market share overall.

In addition, the Optima XE, Axcelis's single wafer high energy tool, continues to garner significant interest. Recent trends at leading chip makers towards higher energies, like fast growing applications in flash memory and image sensors, create additional opportunities for the Optima XE. The Optima XE is the only tool on the market that can meet customers' energy requirements with superior process performance and productivity. These capabilities will win us new customers around the world, including Japan. In Japan, where our partnership with Applied Materials for service support is off to a good start, customers have shown interest in our superior high energy Linac technology, which makes this an exciting new market for Axcelis that will further solidify Axcelis's leadership in the high energy segment.

I would also like to update you on some of our implant related technology development activities. We continue to make good progress working with a wide range of customers to address damage engineering issues, and improve device performance and yields 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 becomes growing challenges. We are currently tapping the full breadth of our molecular carbon and boron technology to investigate their abilities to reduce leakage current. Beyond our molecular technology, we have also developed new wafer temperature control technology. When combined with the favorable damage engineering effects associated with our single wafer spot beam architecture, the results are showing advantages that have caught the attention of many customers. In combination, these technologies offer customers a unique set of capabilities to address their leakage current challenges.

We also continue to heavily engage with customers to address their device speed goal. Use of our molecular carbon implant technology as a vehicle to induce strain in NMOS transistors is viewed as an attractive approach to realize improved device speed. These product development activities are further differentiating our products and technology as customers investigate the implant equipment changes they will need to transition their manufacturing capabilities to future technology nodes.

Moving to dry strip, we received another order for the Integra. As we announced earlier today, a large foundry has selected the tool to run their advanced applications. The Integra offers at least two major advantages -- the highest throughput available on the market and the strongest process performance for addressing the most challenging photoresistor removal applications. We remain on track for a fanout of the Integra at multiple customer locations in 2010.

We continue to explore new business opportunities that will expand our product reach, leverage our core competencies, and provide growth. It is our intent to cement our strategy and plans in the coming months so that we are in a position to launch new initiatives that over time will strengthen Axcelis's business model. Like many other companies, we are happy that 2009 is behind us. We believe that 2010 promises to be a year in which we will experience many improvements, particularly in our market position and financial results. It is a year in which our goal is to continue to seed the market with design-ins of our Optima and Integra systems, reap benefits in the form of repeat orders where we are currently process tool of record, generate cash, and return to profitability. We've seen positive signs in the first six weeks of this year that bode well for the future and we can honestly say that we look forward to what the rest of 2010 brings. I would now like to open it up for Q&A.

(Operator Instructions). Your first question comes from the line of Brian Walton from Sterling Capital. Please proceed.

Good afternoon, guys, how are you?

Hi, Brian.

Steve, I wonder if you could just spend a second detailing inventories? We have -- obviously we had the raw number of where we stand, but I wonder if you might be able to break that out, give us a sense of how much might be devoted to aftermarket inventory? How much might be systems based? And I think you've referenced in the past that maybe there were 10 or 11 finished systems within inventory and you expected to sell those throughout the year? I wonder if you could just update us on that issue.

Sure, Brian. Inventory components, I don't have all of the detail right in front of me, but I'll give you an overview. We have a fixed investment in the field service inventory of about $40 million, and it fluctuates a little bit off that. But over the year, it's going to average around $40 million, and we have currently in finished goods or nearly finished goods, work in process, somewhere close to $35 million of inventory. I think today as we sit here, we have 12 finished tools in inventory. We did ship one in January and we've got a number of those scheduled to ship over the next few months. So our plan is, and the way things seem to be working out so far for the year, that most of the finished product that we have in the inventory, if not all of it, will ship during 2010.

And Steve, I just wonder -- from a structural standpoint, where would you envision -- obviously we've got very inflated as it pertains to inventory over the last couple of years. But as things normalize going forward in 2010, 2011, where do you think Axcelis can operate from a normalized inventory level? Your largest competitor I think operates with a similar amount of inventory today, but obviously significantly greater revenue. So structurally where do you think that number can move down towards?

I think that this year, you'll see the inventories go below $100 million, down closer to the $85 million to $90 million range, and that's probably an appropriate level considering the fixed investment we have in the field service inventory. Obviously, if volume increases in 2011, which there is consensus estimates that it will, then inventories will [rage], but I have -- will increase. But I would expect we would be able to maintain inventories in the $90 million to $110 million range, depending upon volume.

And there if I could, just a follow-up question. There's commentary about second half reaching breakeven to EBITDA breakeven, and I think you've ventured some guidance in terms of gross margin looking out into 2011, obviously very dependent upon the underlying market. But as we think about Axcelis in an improved state and as we get into 2011, any parameters that you might be able to provide in terms of operating profitability, whether they be EBITDA margins or operating margins again in an approved state?

Let me turn that over to Steve. Steve can talk about the model, Brian.

I think that you'll find that our operating expenses will be largely fixed. It will not vary with volume. And then our margins will improve dramatically as we start moving more product through the factory, but it's really going to be top line driven. If we get back to the $40 million to $42 million quarterly range of revenues for our aftermarket business, and the markets improve to the extent that people are now estimating they will, I think that you'll see good bottom line profitability and good EBITDA profitability. But again, it's all going to depend on the top line. I think that Mary said it -- our products are positioned so that we can take advantage of the market share, but the market is something that we don't control, unfortunately.

Right. We will be positioned to take advantage of that, Brian. I think with the improvements that we've made, really during the downturn in terms of how well the products are running out in the field, the improvements that we've made to them, some of the upgrades -- for example, the Optima HDx, we've got some new improvements coming out in medium current and high energy as well, along with the Integra product line. So I think as we roll out through the year, if you see the market improve the way that some of the analysts and the forecasters are predicting, that we will be well positioned to take advantage of that.

Thank you.

Your next question comes from the line of Ted Ketterer from TK Associates. Please proceed.

Hello?

Ted? Are you there?

I am. Can you hear me?

Yes, we can.

Okay. I just have a question, either last quarter or the previous quarter, there was a reference to a partnership or (inaudible) investigating and applying for solar in the solar space. And I was wondering if there have been any updates to just what's going on and what the outlook for that effort is?

Yeah, this is Bill Bintz. We commented on it during the last call and I think it's still in play. There's still a number of attractive opportunities we're investigating in solar. But as I guess I said last time, really can't comment on it in much detail at this point, but we do expect to set direction on that during the course of 2010.

Right. We actually did bring in a person to lead that effort in January. We hired a Vice President of Business Development who is going to be looking at a wide range of opportunities from potential additional opportunities in the semiconductor/semiconductor equipment arena through solar, LED, and a number of other areas. So as Bill said, we will be reporting on those throughout the coming year as our plans firm up.

Thank you.

(Operator Instructions). This concludes the Q&A portion of the call. I would now like to turn the call back over to Mary Puma for closing remarks.

Well, I'd like to thank you very much for your time, and you can either call me or Steve directly if you have any further questions. So again, thank you very much.

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