Axcelis Technologies Inc (ACLS) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Axcelis Technologies second quarter 2012 conference call. My name is Tony and 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 session towards the end of this conference.

(Operator Instructions)

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 ma'am.

Thank you Tony. This is Amy Rasimas, Director of Investor Relations. Welcome to our conference call to discuss our second 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's 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 10K 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. Axcelis managed well through what turned out to be a more difficult quarter than anticipated. Like others in the industry, our second quarter started off with much promise, showing signs of an industry recovery. Very late in the quarter, as a global economic conditions stall, we along with our peers, found ourselves facing much more challenging industry conditions. Cautious customers slowed their build plans and held back on placing planned orders, actions that impacted both our equipment and after market business. Despite this, we were able to deliver breakeven profitability with a slight miss in revenue guidance.

As many of our peers have reported, Q3 is shaping up to be a difficult quarter, although meetings act Semicon West and several recent trips to Asia and Europe, confirmed that the longer term outlook for the industry is positive. Our goal is to leverage future market strength, and as such, we remain focused on positioning our products for top line growth. At the same time, we recognized a need to continue to reduce our quarterly breakeven revenue level and fortify our cash position. Jay will get into more detail on this in a few minutes. Our plan in 2012 is to continue to extend the reach of the Optima HDx beyond memory, and into logic and foundry. The natural extension will be a key driver of improved market share in the future.

Evaluations for the Optima HDx at Logic and Foundry customers are proceeding. We continue to demonstrate competitive advantages with our cost effective damage engineering solution and our superior extended Eterna ELS3 Source Lifetime for carbon and germanium. In fact, in the field, the ELS3 source exceed its spec, clocking in over 500 hours of uninterrupted carbon implant. This resulted in more than a 100% advantage over the competition. Together the ELS3 with Linde's SPECTRA Soliflex gas delivery system, provides chip makers increased system availability, higher overall productivity and lower cost of consumables, all translating to a compelling cost of ownership advantage.

We're also very pleased about shipping our new medium current system to a large customer in Asia for evaluation, where it will be used to manufacture next generation 2X nanometer flash devices. For those of you who saw our press release earlier this week, you noticed that we have rebranded this system as the Purion M. The Purion M is the first tool in our next generation Purion implant platform and further advances the best Axcelis technology. The Purion M provides significant advantages over our competition, particularly with improvements in yield for applications like Halo implants and increased productivity for implants that utilize the system 335 KEV extended energy range.

We believe that the Purion M will allow us to become a significant player in the medium current segment, an area in which we have had a relatively small presence and market share. We are working on additional Purion M evaluations, which will be addressed in future announcements. The Optima XEx continues to ship to the world's largest chip makers as they add capacity to their fabs. Its excellent reliability, broadest energy range, and superior productivity make it the leading system for high energy implantation. And in dry strip we are building on the momentum our Integra platform had in 2011. Our two evaluations are proceeding well, further demonstrating the superior performance of the Integra ES for advanced strip applications.

Customers are confident in Axcelis' ability to deliver strong technology solutions, that provide superior process performance and the lowest cost of ownership. Our customers continue to strongly support and work with us to extend our reach, as they develop solutions for advanced technology challenges. I am now going to turn the call over to Jay, who will discuss our financial results for Q2, our restructuring actions, and our guidance for Q3.

Thank you Mary, and good afternoon everyone. As Mary indicated, Q2 started out to be a solid quarter for Axcelis. But business tailed off toward the end of the quarter, with a significant slowdown occurring in the last two weeks of June. As a result, revenue for the quarter came in at $59.1 million, slightly below the low end of our guidance. And due to the timing of shipments, our cash balance of $33.9 million was also lower than we had expected. Despite the lower revenues, we were able to generate breakeven earnings, significantly better than our guidance. Q2 consolidated sales of $59.1 million, reflect a sequential improvement of 7.5%.

System sales in the quarter were $26.2 million, while sales for our aftermarket business, which we call GSS, were $32.9 million. Both system sales and GSS sales had modest growth over Q1. And system shipments were $26.8 million, a 43% sequential improvement. Within these shipment totals, ion implant shipments were $24.9 million, or about 93% of the total, and shipments for our cleaning and curing systems, which reflect primarily our dry strip business, were $1.9 million or about 7% of the total. For the first six months of the year, implant shipments were about 81% of total shipments, more in line with our historic ratios. In the quarter, about two thirds of our shipments were to memory customers, and about one third of our shipments were to logic and foundry customers. This was the same profile that we saw in the first quarter.

Sales to our top 10 customers accounted for approximately 90% of our total sales, with three customers exceeding 10%. Systems bookings for the quarter were $18.3 million, down about 22% sequentially. Our book-to-bill ratio was 0.68, compared with a 1.26 in the first quarter. And we exited the quarter with a systems backlog, including deferred revenue of $16.3 million, down about one third from our Q1 ending backlog. GSS revenues were $32.9 million, a sequential improvement of about 2.5%. Fab utilization rates improved during the first two months of the quarter, and then remained essentially flat in June.

Our gross margin in Q2 was 38.5%. A 1.2 point improvement over Q1, and substantially higher than our guidance. We did not recognize either of the two low margin tools that have been at customer sites for several months. Customer budgetary constraints on the first tool prevented us from recognizing revenue in Q2. Delayed acceptance of product enhancements on the second tool, also pushed related revenue from the quarter. We have since received acceptance on that tool. The deferral of these tools out of Q2, had a significant favorable impact on our margins. Additionally in the quarter, we saw much lower than expected warranty and installation costs. And finally, we had lower than anticipated Q2 build volumes that had the effect of delaying some of the anticipated unfavorable manufacturing variances from Q2 to Q3.

Q2 operating expenses, excluding restructuring charges, were $23.2 million, compared with $26.0 million in Q1. These reductions reflect the impact of the restructuring actions we took in February. Within these expense levels R&D expenses were $10.5 million, compared with $11.7 million in Q1, and SG&A expenses were $12.7 million, compared with $14.4 million in Q1. Ending headcount on June 30 was 943 people, including 929 employees and 14 temporary staff. Totaled headcount is down 104 people or about 10% since the start of the year. As a result of these factors, we reported a modest operating loss of $408,000 in Q2. A significant improvement when compared with a $5.5 million operating loss in Q1. Higher revenues, improved gross margins and lower operating expenses all contributed to this improvement.

The Company recorded $153,000 of restructuring charges in the quarter, and slightly over $3 million in restructuring charges for the first six months of the year. Other income net of other expenses was $560,000, primarily as a result of foreign exchange gains. We accrued $469,000 in taxes in the quarter. Including restructuring charges, our net loss for the quarter was $471,000, which translated to breakeven EPS. Looking at our balance sheet, we ended Q2 with a cash balance of $33.9 million, slightly below our guidance. During the quarter our cash declined by $3.4 million. This decline was due primarily to the unanticipated delay in a customer order and payments. Accounts receivable were $35.0 million, an increase of $4.5 million from Q1. This increase was due to both higher shipment levels and the timing of these shipments. Our DSO increased from 50 days to 53 days. Q2 inventories were $126.6 million, a sequential decrease of $2.1 million. We ended the quarter with an accounts payable balance of $17.6 million, essentially unchanged from the prior quarter.

Now I'd like to provide some insights into our view of the last half of the year. Q3 market conditions appear to be more challenging right now than we had previously anticipated. As a result, we are currently projecting Q3 revenues to be between $45 million and $60 million. Within this overall total we expect to see a modest decline in our systems business, and a modest increase in our GSS business. We expect that Q3 gross margins will show a sequential decline to a range of 31% to 36%. At the high end of our revenue guidance, we'd expect to see lower gross margins. At the low end of our revenue guidance, we would expect to see higher gross margins. In the quarter, we expect to recognize the sale of both of the low margin tools I mentioned earlier. We also expect to record an unusually high manufacturing variance in the quarter. Gross margins should recover to the mid to high 30% range in Q4.

Q3 operating expenses should be flat to slightly higher in the quarter. We recognize the need to continue to reduce our operating spending levels, and to lower our breakeven revenue level. Accordingly, we have taken additional restructuring actions which will result in approximately $500,000 of restructuring expense in Q3. As a result, we expect to report a Q3 operating loss of approximately $5 million to $8 million, and a Q3 earnings loss of approximately $0.06 to $0.08 per share. Our cash balance should increase in the quarter to a range of $35 million to $37 million. The primary driver for the increase in our cash balance will be lower inventory levels. With the anticipated recovery of our gross margins in Q4, and the benefit of our Q3 restructuring actions, which will lower our Q4 operating expenses to $21 million to $22 million, we believe that our breakeven revenue level in Q4 will be under $60 million.

Accordingly, we should be close to breakeven profitability in the fourth quarter. In addition, we are focusing our efforts to strengthen our balance sheet, particularly with regard to our cash. We have lowered our operating expense levels and are driving toward higher gross margins. These actions will help to improve our cash balance. Additionally, we have initiated several actions to reduce our inventory, and expect that it should be below $120 million by the end of the year. Also, we have taken actions to move cash from our international locations, to the US, where our cash demands our greatest. As a result of these actions, we remain confident that we are adequately funded to meet our business needs.

In addition, we have no outstanding debt and our $30 million line of credit remains available to fund the business upturn. We will continue to explore other opportunities to add cash to our balance sheet including a re-examination of a potential sale lease back for our Beverly facility. Last quarter I indicated that we needed to achieve revenues of approximately $70 million plus and gross margins in the mid to high 30% range to return to profitability. With the actions we have taken, we are driving to return to profitability and generate cash, at revenue levels below $60 million. We believe that as a result, we are well positioned to withstand any lingering softness in the industry, and will generate significant revenues, operating profits, and cash, as our business improves. With that said like to turn the call back to Mary.

Thank you Jay. We believe that we have a strong road map to drive top line growth, improve profitability, and generate cash. Continuing on this path will drive customer penetrations and market share gains, and result in enhanced shareholder value. With that I'd like to open it up for questions.

(Operator Instructions)

John Cangelosi, Axcelis.

I have a question, how much of your business do you do in Europe? You do any business in Europe?

In terms of our system sales, most of our system sales tend to be over in the Asia-Pacific area, however we have over the years had a very strong implant business in Europe and as a result a good portion of our GSS after market business still takes place in Europe.

If you take a look at Q2 though, about 20% of our bookings came out of Europe and about 30% of our shipments. It is mixed but it really varies quarter-over-quarter. So I think basically what you are asking us, are we exposed to what is going on right now in Europe. And based on the reaction and discussions we've had with our customers, our customers are much more influenced by the global economy and what is happening in the global economy in the semiconductor industry, versus any of the immediate things that are happening on the continent.

Right, another question. Do you foresee any more restructuring expenses coming in the last half of this year?

We continue, we have said this before, and we continue to review where we are. What market conditions are, where the Company's financial performance lies. And we have always said that, should market conditions continue to deteriorate that we will continue to look at our operating expenses, and take actions. And in fact that is what drove the additional restructuring that we took in, in Q3. So, it is just simply a matter of monitoring, and then making decisions about what the right thing to do is for the business.

Christian Schwab, Craig-Hallum Capital Group.

Jay, who were the top three customers, and what percentages where they? Do have that handy?

We don't list the specific customers. They were all above 10% and they are generally in the 10% to 20% range.

Great. Do you think the Company is at a position to maybe seek strategic alternatives? We've struggled for a number of years now, not to get back to profitability. And maybe the organization may be attractive to somebody else. Your stock, your after market revenues if you will, at call it $140 million to $150 million, are quite profitable sustainable business. Most companies don't trade well below product and support. Are we at that type of point yet or is that something we need to look at down the road, depending on how the top line looks?

Christian, we all know that consolidation is accelerating in the industry and the Axcelis management team and our Board believes that it is critical that we gain additional scale as we move forward. As you know, our primary goal at this point in time is to drive the business, to be the best that it can be. We're growing top line growth, we are improving gross margins, we are reducing our operating expenses, we're driving very hard for profitability and to generate cash.

And we believe that taking all of those actions will allow us to be a very profitable Company and a candidate potentially to gain the scale. To become part, potentially, of another company. I think we just wait and watch and we continue to do what we are doing now. I think we have had a very strong road map to drive that top-line growth and profitability, and we will just keep marching down that path and see where it takes us.

Fabulous, thank you.

Ladies and gentlemen this concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma who will make a few closing remarks.

I would like to thank you all for joining us today, and we look forward to seeing many of you at the Craig-Hallum Alpha Select Conference in New York, which is scheduled for September 27. Thank you again.

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