Axcelis Technologies Inc (ACLS) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies first quarter 2010 conference call. I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards 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. Please proceed, maam.

Thank you. This is Mary Puma, Chairman and CEO of Axcelis Technologies. Welcome to our conference call to discuss the first quarter of 2010. With me today is Steve Bassett, Axcelis EVP and CFO, and Matt Flynn, Executive VP of Customer Operations. 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'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. I'm going to turn this over to Steve who will discuss first quarter results and reiterate our positive outlook for 2010. Steve?

Thank you, Mary. We reported a net loss for the quarter of $0.11 per share, in line with our expectations. Total revenues increased to $48.5 billion up by 25% over Q4 and up by 89% over the same period in 2009. We expect total revenues to increase another 15% to 20% in Q2. Revenue from system sales was $16 million, double what we reported in Q4. We are experiencing strong quota activity, which has lead to an increase in order flow and a 45% increase in shipments over Q4. We project this trend to continue and are forecasting system revenues to increase by 20% to 25% in Q2. Mary will talk more about it later, but we are gaining meaningful market acceptance of our technology. We shipped three Optima HDX high current systems in the quarter, shipped two more in April, and have in our plan to ship another five by the end of Q2. We are expecting to sell all Optima HDs in inventory during 2010, and will be ramping production of new systems later this year.

We continue to see a strong ongoing recovery in our after market business with revenues of $32 million for the quarter. Our daily spare parts order rate has increased by over 50% since the beginning of the year. We expect our after market business to continue to grow throughout 2010 and return to more normal revenues of $40 million per quarter by the end of the year. Gross margins for the quarter were 26.8%. Margins remain at a low level due to low revenue volume and the related under absorption of fixed cost. We do expect overall margins to increase to the low [30s%] in the back half of 2010 as volume, both new systems and after market, improves. However, we do not expect any near-term margin improvement until we work through existing inventory. For the second quarter of 2010, we are forecasting gross margins to approximate what we experienced in Q1. 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, operating expenses for the quarter were $23.4 million, in line with our expectations. Going forward and through 2010, we expect quarterly expense run rates to approximate $25 million. The increased spending level relates principally to added research and development investment. Turning to our cash position, we did burn approximately $10 million of cash during the quarter, mainly due to the timing of customer shipments and the related increase in accounts receivable of $15 million. Nearly 50% of the quarter's revenue was generated in March. We are currently projecting to be cash flow positive in Q2. We also remain on track to be cash flow positive for the year as a whole. Overall for 2010, we are forecasting operating results to improve significantly and are expecting to return to profitability by the fourth quarter. Beyond 2010, we have a highly leveraged business model that should yield significant profits as we continue to gain market share across all product lines. I will now turn the call over to Mary.

Thank you, Steve. 2010 is the year in which Axcelis will strengthen its market position, return to profitability, and generate cash. Our top priority is to win additional product penetrations that will lead to further improvement in our financial performance. We grow more confident every day that our operating plans will yield these positive results as [FAB] utilization remains high and customers become more certain about their capital investment plans. Over the last several years, we have invested heavily in new product development. Despite the severe market downturn of 2008 and 2009 and related belt tightening, Axcelis continued to aggressively invest in new product and technology development. As a result, we have introduced new product models across all implant segments and in Dry Strip. We believe that the technical innovation embodied in our Optima and Integra product platforms provide customers with superior process performance, capital efficiency and productivity.

Now that the market is improving, customer acceptance is accelerating and we are starting to realize benefits in the form of system orders. in particular, the Optima HDX, our single wafer high current system, is quickly gaining momentum for logic, [foundry], and memory applications. Yesterday, we announced a very important multiple tool order from one of the world's largest chip manufacturers located in Asia for use of the Optima HDX for their most advanced production. Axcelis continues to work closely with this customer to ensure strong product performance and to provide enhancements to the Optima HDX that will meet this customer's evolving technical requirements. Axcelis is also engaged with many other customers who are generating data and seeing device results that highlight the benefits and extendibility of the Optima HDX. At the heart of the Optima HDX's appeal is its unique spot beam technology and short beam line, which maximize beam current, minimized beam set-up time and offer a set of process related advantages. The Optima HDX is well positioned at a very exciting time in the high current market.

For the first time in many years, this market is witnessing significant turbulence in device-related process requirements. As a result, customers are evaluating high current equipment based on new technical capabilities in addition to the usual competitive factors. Customers are also very intent on ensuring that there are two strong implant suppliers. We believe that this turmoil in the high current market creates an opportunity for significant market share gains for Axcelis since the Optima HDX is particularly suited to address these device-related challenges. During the past quarter, customer interest in advances in our high current technology has intensified to levels we have not seen for many years. Much of our technology development has focused on addressing ion implantation issues associated with improving device performance and yield in advanced transistor fabrication. As thermal budgets are reduced to support the continued scaling of transistors, end-of-range damage and the resulting leakage current have become growing challenges. Damage engineering is the term used to describe how these challenges are managed.

The Optima HDX has a unique combination of capabilities to address this important market requirement. The favorable damage engineering effects inherent in our single wafer spot beam architecture combined with the added benefits from our new closed loop wafer temperature control technology together yield significant device performance improvements for our customers. Axcelis has been investing in this emerging area for several years and has demonstrated significant performance improvements. But as importantly, we have done this with a technical approach that is dramatically more attractive to our customers than the competitive offering. Physics dictates that [ribbon] beam architectures simply cannot provide damage engineering solutions as cost effective and robust as those of our Optima HDX spot beam technology. Our approach offers significant advantages in terms of design simplicity, cost, and compatibility with high-volume production environments. Recent customer engagements confirm this.

Customers are also very pleased that our installed base of Optima HD systems through field upgrade kits can be elevated to the performance levels associated with our latest Optima HDX model, and can easily be modified to incorporate our new damage engineering technology. We believe that the [upgradeability] of our tools will lead to the sale of additional new systems. Beyond the advantages described above associated with our spot beam and innovative temperature control technology, we are also tapping the full breadth of our molecular carbon and [Boron] technology to further reduce leakage current. In combination, these technologies offer customers a unique set of capabilities to address their advanced device challenges. We expect to have multiple Optima HDX systems at customer sites equipped with device enhancing capabilities during the next three to six months. This will result in improved market share for Axcelis. I'd now like to make a few comments about our other flagship products in medium current and high energy implant and in Dry Strip.

Medium current implant is picking up momentum. We will soon be introducing our next generation system, the Optima MDX. Customers are showing renewed interest based on the Optima MDX's innovative beam line technology. We believe that over time we will also gain increased market share in this segment. The Optima XE remains the only tool on the market that can meet customers' high energy requirements with superior process performance, productivity and extendibility. The strength of the high energy market continues to be a positive for Axcelis, and we expect to maintain our market leadership position over the long term. Customer interest in our new Integra Dry Strip platform remains strong. During the quarter, we received a significant design win at a leading chip maker for their most advanced production facility. Demos and evaluations of the system continue, and we are expecting capacity buys from several other customers in the latter part of 2010. In summary, we believe that the remnants of recent storms have almost passed. Our order trend reflects the financial return we expect from our R&D investments, and as we ramp, we will reap the financial benefits of the restructuring that we have done. We are well positioned to compete effectively and as a result, we believe that the future holds much promise for our products and financial performance. I would now like to open it up for Q&A.

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

Hi, guys, good afternoon. How you doing?

Good, how are you, Brian?

Good. Two questions if I could. I think, Mary, you highlighted the improved penetration of the HDX really in all three of the categories -- logic, foundry and memory. And I was just wondering if in the quarter, the product actually received some new design-ins in any of those categories that we may or may not be familiar with. That's the first question. I guess the second question, longer term, with such improved visibility that I think the whole industry is seeing, and certainly it sounds like you guys are seeing, I wonder if you could just help us understand kind of structurally the earnings potential at Axcelis. And as I think you and I have talked about, just wanting to know or understand if we look out later on in this cycle, if Axcelis can earn its cost of capital. And if you assume book value at $2 and the cost of capital at 15%, that would suggest a bogey of at least $0.30 to $0.40 in earnings power. Thanks.

Okay, well Brian, I'll take the first one and then I'll turn it over to Steve to answer the second one. In terms of design-ins in the quarter, we did receive one new design-in from a customer, and in fact have already received some repeat business from that customer. The rest of the tools that were shipped in the first quarter were for capacity buys. And moving into the second quarter, there will be some new design in activity as well as capacity buys.

Okay. Brian, I think it's entirely feasible that Axcelis could earn its cost of capital over the term of a cycle. We're coming off a very, very low revenue base and in a significant downturn. We are recovering with our after market business, and we don't have to go too far with penetration of our systems business across all of our product lines to get up to revenue levels that could yield profits in the, I would estimate, in the $0.50 to $0.60 range. And it's not unreasonable for us to expect that we can get back to $350 million to $400 million with as reasonable penetration in systems. And if we do that, then I think we would earn our cost of capital across a cycle. Again, we're seeing some very, very positive feedback from our customers. Our Optima HDX business has picked up dramatically and is continuing to show good promise. So I think moving forward you can expect that we will make significant returns.

Okay, thank you.

Thank you.

(Operator Instructions). Our next question comes from the line of [T.J. Solett] of Potomac Capital. Please proceed.

Hi, good afternoon.

Good afternoon.

I just wanted to clarify. You mentioned in the release, including the return of profitability and positive cash flow generation, you were referring to throughout 2010. Does that mean at some point in 2010 returning? Or is it possible that you could actually reach cash flow positive and [profitability] for the whole year?

From a cash flow standpoint, we expect to be cash flow positive for the whole year. From a profitability standpoint, we expect to recognize a net profit in the fourth quarter.

Okay, great. And to be sooner than the fourth quarter, is that just not realistic or if things fly your way in terms of some customer shipments, could you reach it before the fourth quarter?

The third quarter actually could look promising. If things actually fell our way there is a potential for the third quarter, and I was just looking this morning at EBITDA, we could be EBITDA break even in Q3 anyway.

Okay, thank you.

This concludes the Q-and-A portion of the call. I will now turn the call back over to Mary Puma for closing remarks.

Thank you for joining us and as always, please feel free to call either me or Steve directly if you have any further questions. Thank you.

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