Axcelis Technologies Inc (ACLS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies first-quarter 2012 conference call. My name is Louisa and I'll be your coordinator for today. At this time, all participants are in 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, Amy Rasimas, Director of Investor Relations of Axcelis Technologies. Please proceed.

Thank you, Louisa. This is Amy Rasimas, Director of Investor Relations. Welcome to our conference call to discuss our first-quarter results. With me today is Mary Puma, Chairman and CEO; Jay Zager, Executive Vice President and CFO; and Doug Lawson, Senior Vice President of Strategic Initiatives.

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 the 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'd now like to turn the call over to Mary Puma.

Thank you, Amy. The first quarter of 2012 was a transitional one for Axcelis. Challenging industry conditions, including weak DRAM spending resulted in a quarter that we believe define the bottom of the cycle for Axcelis. During the quarter we took steps to proactively refocus our strategic efforts on our competitive advantages and strengthen our business through restructuring.

We believe that the industry outlook is positive for 2012. The remainder of the year continues to be defined by large planned customer projects. During the first quarter, I spent considerable time with key customers in Asia and gained confidence that many of these programs remain on track and in some cases, could be accelerated should global conditions warrant.

We are also encouraged by signs that participation in the recovery will broaden beyond these large customers and extend into the second tier. Typically this would ensure that we have a robust upturn. Indications of this are reflected in improving fab utilization rates which are creating a positive trend in our average daily spares and consumable orders.

The increase for quotations for upgrades is also a precursor to a ramp. As a result we believe that we are on track to achieve historical $40 million plus quarterly after market revenues in the second half of this year.

In addition, requests for quotes for systems have increased and we are experiencing inquiries about accelerating system shipments dates, another good sign. If the long-awaited increase in DRAM spending occurs later in the year, it should provide incremental revenue. As a result, we expect our financial performance to improve throughout the year.

We believe that our implant share will increase in 2012 despite the fact that it was relatively flat in 2011. The market downturn, customer buying patterns, skewed towards logic and the delay in the launch of our Optima MDxt were all factors contributing to this. In Dry Strip, we more than tripled our share to approximately 18%. In the first quarter, we continue to make progress with product penetration.

In High Current, we have the Optima HDx under evaluation at two logic foundry customers, where it appears that our cost effective damage engineering solution and our superior extended source lifetime for carbon and germanium are true differentiators. In addition, since our last call, the Optima HDx has become process of record at a new fab. The system we shipped to that new fab was for revenue, not evaluation.

Our High Current market share was down slightly in 2011, but should increase in 2012 as we continue to sell the Optima HDx into new fabs and extend its reach beyond memory and into logic. This natural extension of the Optima HDx platform into logic will be a key driver of improved market share.

This summer we are expecting to place Optima MDxt evaluation units with multiple customers. This product provides significant advantages versus our competition, particularly with improvements in yields for applications like halo implants and increased productivity for implants that utilize the system's 335 kev extended energy range. We have high expectations for our ability to be a significant player in this segment, an area in which we've had a relatively small presence and market share.

We shipped multiple Optima XExs during the quarter. These systems went to existing customers and we shipped a revenue system to a new fab as well. We held our number one position in 2011 with over 60% market share. We remain confident about maintaining our leadership in High Energy in the future, due to the excellent reliability and productivity that the Optima XEx provides customers.

And in Dry Strip we continue to build on the momentum our Integra platform had in 2011 and we expect to continue to be among the leaders in this segment in 2012. We currently have two evaluations underway, and additional placements planned for 2012 that will further prove the superior performance of the Integra ES for advanced strip application.

An additional important point is that customers want to ensure that competition in implant remains robust. Axcelis is one of only two implant suppliers with a global infrastructure and a complete competitive product portfolio. An increasing number of customers have concluded that our products offer innovative technology that drives the lowest cost of ownership through higher productivity and superior process performance.

I'm now going to turn the call over to Jay, who will discuss our financial results for Q1 and our guidance for Q2.

Thank you, Mary. And good afternoon, everyone. As expected, Q1 was a challenging quarter. Although we believe this to be the bottom of Axcelis' cycle, we took several actions to lower our ongoing quarterly expenses and position the business to take advantage of improving market conditions in 2012.

Q1 consolidated sales were $55 million below our guidance and 8.9% less than our Q4 results. There were two low margin tools worth about $6 million, which we expected to recognize in the quarter but did not. Both of these tools are currently under installation at customer sites.

The purchase order for the first tool was delayed to the second quarter, due to our customer's budgetary constraints. The second tool requires some additional product enhancements that will be completed over the next few months. While these delays were the primary reason for our lower than expected revenue performance, they were also the primary reason why our gross margins in the quarter were significantly higher than we have projected.

Excluding restructuring charges, our operating loss for the quarter was $5.5 million, which was better than guidance. On an overall basis, we lost $10 million or $0.09 per share which was within our earnings guidance.

Systems sales in the quarter were $22.9 million, while sales for our aftermarket business, which we call GSS, were $32.1 million.

And system shipments were $18.7 million. Within these shipment totals, ion implant shipments were $11.9 million or about 64% of the total. And shipments for our cleaning and curing systems, which reflect primarily our Dry Strip business, were $6.8 million, or about 36% of the total.

In the first quarter, about two-thirds of our shipments were for memory customers, primarily Flash, and about one-third of our shipments were to logic and foundry customers. Sales to our top ten customers accounted for approximately 80% of our total sales, with two customers above 10%.

Systems bookings for the quarter were $23.5 million, down about 21% sequentially. Our book to bill ratio was 1.3 compared to 1.0 with the fourth quarter. And we ended the quarter with a systems backlog, including deferred revenue, of $24.1 million, up slightly from the prior quarter.

GSS revenues were $32.1 million, essentially unchanged from Q4. Fab utilization rates rose during the quarter, an early indicator of improving market trends. Our gross margin in Q1 was 37.3%, compared with 37.4% in Q4, and significantly higher than our guidance.

As I stated earlier, the favorable performance versus guidance was due primarily to the delay in recognizing the two low margin tools. Q1 operating expenses excluding restructuring charges were $26 million compared with $23.9 million in Q4. The Q4 results benefited from a $2.7 million reversal of fiscal year 2011 bonus accruals.

Excluding the Q4 bonus reversal, and the Q1 restructuring charges, operating expenses were down about $600,000 on a sequential basis. Within this total, R&D expenses were $11.7 million, compared with $12.1 million in Q4. And SG&A expenses were $14.4 million, compared with $14.5 million in Q4. Again, excluding the reversal of the bonus accrual.

Ending headcount on March 31 was 956 people, including 946 employees and 10 temporary staff. During the quarter we reduced employee headcount by 79 people and temporary staff by 12 people. Essentially all of the reductions were as a result of the restructuring action implemented in early February. These actions will result in an ongoing savings of approximately $2 million per quarter.

In Q1 we recorded a restructuring charge of $2.9 million. All of the charges related to the headcount actions. This number was higher than expected due to increased separation costs, particularly with respect to expatriate costs at international locations. And as a result of these factors we reported an operating loss including restructuring charges of $8.4 million.

Other expenses net of other income were $915,000. This included a $600,000 foreign exchange loss, primarily as a result of the weakening of the dollar relative to the euro and the Taiwanese dollar in the quarter. We accrued $700,000 in taxes in the quarter. This accrual included a $400,000 non-cash charge related to the write-off of a deferred tax asset in one of our European jurisdictions.

Looking at our balance sheet, we ended Q1 with a cash balance of $37.3 million, which was higher than our guidance. During the quarter, we used $9.7 million of cash, primarily to fund operating losses and restructuring charges. Accounts receivable were $30.5 million, a decrease of $4.6 million from Q4. This decrease was due to lower shipment levels.

Our DSO improved slightly from 52 days to 50 days, as a result of the timing of shipments within the quarter. Q1 inventories were $128.7 million, a sequential increase of $8.7 million. The primary reason for this increase was a reclassification of approximately $6 million in demonstration tools from other assets to inventory. And we ended the quarter with an accounts payable balance of $17.9 million, down almost $2 million from Q4.

Now, I'd like to provide some insights into Q2, and briefly comment on the remainder of the year. We are currently projecting Q2 revenues to be between $60 million and $70 million. Within this overall total, we expect to see sequential increases in both our systems business and our GSS business. This reflects the improving market conditions that Mary described earlier.

We expect that Q2 gross margins will show a sequential decline of about 5 to 6 points. The primary reasons for this decline are, one, we expect to recognize the sale of a low-margin tool in the quarter; two, we expect to see a net revenue deferral in the quarter compared with a significant net gain in Q1, again due to the timing of shipments; and, three, due to changes in our build schedule, we expect to record an unusually high manufacturing variance in the quarter.

Beyond the second quarter, gross margins will continue to be driven by product mix and will fluctuate in the mid to high 30% range. Q2 operating expenses, excluding restructuring charges, will be approximately $25 million, about $1 million lower than Q1.

In the quarter, we expect to record about $400,000 in restructuring charges reflecting some delayed exits from the Q1 reduction in force. Including this restructuring charge, we expect to report a Q2 operating loss of approximately $4 million to $6 million and a Q2 earnings per share loss of approximately $0.04 to $0.06 per share.

This forecasted operatings and earnings loss is due to the projected gross margin decline and the additional restructuring charges. We are projecting that our cash balance will be flat to slightly down, driven primarily by our projected operating loss, and the timing of shipments in the quarter.

Regarding our efforts on the sale lease back or mortgage for our facility here in Beverly, to date, we have not identified an appropriate transaction. Given that we should be able to fund our operations with our existing cash balance, we will continue to evaluate financing strategies. We have no outstanding debt and we still have our $30 million line of credit available.

While we are disappointed that our current outlook does not have us breaking even in Q2, we believe that the actions we have taken to restructure the business and focus on top-line growth will further drive financial improvements throughout the remainder of this year. Based upon our current models, we will need to achieve quarterly revenues of approximately $70-plus million and margins in the mid to high 30% range to return to profitability.

Barring any unforeseen circumstances, we should achieve profitability in the second half of the year. With that, I'd like to turn the call back to Mary.

Thank you, Jay. After a difficult start to the year, we believe that the industry has turned the corner and that we are well positioned to capitalize on an upturn. We are working very closely with our customers to prove out the competitive advantages of our products that will drive market share gains. And as our revenues increase, our leveraged financial model will enhance shareholder value through a significant drop-through in profitability and cash.

With that, I'd like to open it up for questions.

Operator. (Operator Instructions) Questions will be taken in the order received. And your first question comes from the line of Patrick Ho with Stifel Nicolaus.

Thank you very much. Mary, just looking at the results as well as the guidance, if you take away, I guess, some of the revenues that are going to be recognized in the second quarter, it still kind of shows, I guess, flattish revenue on a quarterly basis. Is that due to customer mix or are you still facing some of the issues you mentioned last quarter of about getting systems to the customers?

No, I think it's more of a function still of where we are in the industry cycle. As I mentioned, we're seeing signs of an upturn, but, you know, in terms of the slope and the speed with which that upturn is coming, it has not materialized yet in Q2.

I also think that mix continues to have an effect on us. As you know that, you know, we have a stronger presence in Memory, and so that at this point in time continues to work against us. Although we are shipping tools into some flash fabs at this point in time.

So I think, as I said, as we move into the second half of the year, we will see the recovery accelerate. Our penetration will continue and that's really what's going to fuel what we believe will be an upturn for Axcelis in the second half of the year.

Patrick, this is Jay. So if you just look at it analytically, we did $55 million in the first quarter. Our current guidance has us only recognizing one of those two tools, so that would bring us to about $57 million, $58 million. And we're guiding $60 million to $70 million. So even with that one tool, we see some sequential improvement, somewhere in the 10% to 20% range, even adjusting for that one tool.

Okay. Okay. Great. I apologize because I think I was trying to -- I was trying for $6 million.

No problem.

Jay, maybe a question for you specifically on gross margin. I know there's a lot of moving pieces with that line. As well as OpEx as well, but now that you're going in with several of these new products to, you know, customers, you know, how can we look at both gross margin and OpEx, particularly with new customer engagements? Typically they go up because they're new tools, you're trying to get the customers on board with them.

How do I look at, I guess, both on the gross margin line and OpEx over the next few quarters as you're trying to penetrate new customers?

That's a good question. I think basically in our case, particularly with a product like the MDxt where, you know, we've not placed any, we have some evaluations that Mary indicated we will be, hopefully, putting in place during the summer. The margins on the -- on the newer products, in our case, tends to be relatively low.

They will increase over time and they'll get much stronger but one of the reasons why we don't see a significant increase in margins beyond the mid 30% range is that the flagship products tend to have slightly lower margins, particularly the newer products than the older products as they -- as they tend to get more experience, as we tend to place more products, we'll see continued improvement on a product-by-product basis in the margins.

Right. Thank you very much.

Your next question comes from the line of Christian Schwab with Craig-Hallum Capital Group.

Great. Thank you. Regarding operating expenses, given the trajectory of revenue here off the bottom of the cycle, are you looking at any other meaningful reductions in operating expenses?

Not at this time. Although obviously, you know, we're committed to drive to profitability and generate cash, so if the cycle plays out the way we expect, Christian, and the second half is a much stronger half, you know, we've taken our operating expenses down probably about $4 million to $5 million a quarter in the last year from about $28 million, $29 million a quarter down to about $24 million or so, $24 million, $25 million.

Having said that, I'm very cognizant about the fact that we, you know, our cash position, while it's adequate, is not exorbitant. And therefore, you know, we will, when appropriate, be looking at, at what we need to do to make sure that we, you know, are generating cash and we're keeping the business positive.

Okay. As I guess that -- when you talk about a meaningful recovery or some type of recovery in the back half, you know, from -- call it, you know, $55 million to $60 million, what type of revenue range are you expecting? Are you expecting revenues to get back to, you know, $75 million, $80 million? Or do you think they can recover to, you know, near the highs of 2011?

Yes, I think what we're looking at -- and we've talked about this, Christian -- is that we believe that 2011 will be sort of what I'll call maybe an opposite mirror of 2012. So the first half has been maybe a little bit lower than we had originally anticipated, but we expect that the second half would pick up and that, again, it's going to be a function of timing, but that we certainly could get back to the levels of where we were at the beginning of 2011.

Great. No other questions.

Ma'am, I understand there's no questions. (Operator Instructions) And this concludes the Q&A portion of the call. I would now like to turn the call back over to Mary Puma, who will make a few closing remarks.

I'd like to thank you for joining us today. And please note that we will be attending the Craig-Hallum conference on May 30th in Minneapolis, and we will also be participating in the Needham Bus Tour on June 5th in the Boston area. We look forward to seeing many of you at these events. Thank you.

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