Axcelis Technologies Inc (ACLS) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter Axcelis Technologies, Incorporated, earnings conference call. My name is Denise and I will be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed.

Thank you, Denise. This is Mary Puma, Chairman and CEO of Axcelis Technologies. With me today is Kevin Brewer, Executive Vice President and CFO, and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy.

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 provisions. 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.

Axcelis returned to profitability in Q4. We accomplished this by executing against our plans to grow Purion system revenue. Our system revenues have increased 26% quarter-over-quarter and have doubled since the first quarter of 2013. Throughout 2014, we will continue to grow Purion system sales and maintain tight control of our cost structure in order to achieve last peak quarterly revenues of $90 million during the current industry upturn and to sustain profitability through the full cycle.

Our fourth-quarter revenues, gross margins, expenses, operating profit, and earnings per share were all within guidance. Revenues were up 20% quarter-over-quarter, with system revenues up 26% as we continued to make progress selling our Purion products. Tight cost controls allowed us to generate an operating profit of $1 million and earnings per share of $0.01.

Turning to first-quarter guidance, we are expecting revenues to increase to between $60 million and $66 million. We expect to deliver between breakeven and $2 million of operating profit and earnings per diluted share of zero to $0.02.

Earnings will be under pressure this quarter mainly due to lower gross margins, driven by the anticipated closure of the two outstanding Purion M evaluations. Historically, first-in-field tools deliver lower margins. Gross margins will be in the mid 30% range, but below the Q4 level.

We are also projecting a small increase in operating expenses over Q4 due to one-time, normal annual expenses.

Cash will be in the low $40 million range. This is down slightly based on timing of shipments. We expect our AR balance to increase significantly in the quarter.

We remain on a trajectory during this cycle to achieve last peak quarterly revenues of about $90 million. Our confidence stems from improving market conditions, our customers' conviction that 2014 investment plans remain on track, and our ability to execute on Purion product penetration.

In 2014 we continue to believe that memory investment will remain steady throughout the year, with foundry spending recovering in the second half of the year. Strong memory spending will ensure that our Purion XE high-energy tools account for a significant portion of our business throughout 2014.

After the successful closure of our two Purion M evaluations, we expect to begin to ship initial capacity orders to both memory and foundry customers. Additionally, we plan to ship multiple evaluation units of our recently announced Purion H high-current system throughout the year.

Current industry forecasts indicate that this cycle will have a more steady build to the peak, which we expect will occur in the first half of 2015.

We are very excited about the introduction of the Purion H high-current system, our newest member of the Purion family. The Purion platform and associated products -- the Purion XE, Purion M, and now the Purion H -- offer our customers the most innovative implant products on the market today.

The Purion platform was designed in collaboration with our customers to be the fastest, cleanest, most precise, lowest cost of ownership system available. Each member of the Purion family contains patented technology that ensures that we deliver these specifications.

Key elements include advanced scanned spot beam architectures married to a 500 wafer per hour single-wafer Purion M station; the Purion Contamination Shield that tightly controls particles, metals, and energy contamination; the Purion Vector dose and angle control system, that provides the most accurate and uniform dose, energy, and angle control; and finally, our industry-leading Eterna ELS source, that has a very long lifetime and performs exceptionally well for emerging applications like carbon germanium and damage engineering.

Platform commonality is important to both Axcelis and to our customers. From an Axcelis perspective, the Purion platform will allow us to capture significant reductions in engineering, development, and product costs. It is a major reason we believe we will exceed 40% gross margins in the next cycle, as Purion products ramp and mature. Commonality also reduces inventories and manufacturing cycle time.

From a customer perspective, there are device and operational benefits. It is easy to understand how commonality reduces customer operator training and parts inventories and increases ease-of-use.

From a device perspective, Purion implanters enable advanced 3D device processing in two ways: first, by extending the traditional process application space, particularly at high and low energies; and second, by providing better process performance versus the competition for traditional implant applications.

The first advantage, extending customers' ability to implant at higher and lower energies, is very important as it allows customers to use implant for advanced chip development. For example, higher energies enable implantation for advanced NAND devices and CMOS image sensors. This is why the Purion XE, which provides a 2X productivity advantage at these energy ranges, has very high market share and is a system of choice for leading memory and foundry manufacturers.

Lower energies are critical in developing advanced planner and 3D devices like FinFET. The Purion H is the only implanter on the market that can operate at these low energies at production levels. This is why customers are so excited about the launch of the Purion H.

The second advantage, providing better process performance for traditional implants, stems from the key elements of the Purion platform, including tighter angle and dose control, constant focal length scanning, and a highly productive 500 wafer per hour endstation. The combination of the Purion endstation and the scanned spot beam architecture used on each of the Purion products provides our customers with unrivaled implant applications bays coverage.

This broad coverage and overlap of the individual products allows the customer to envision the implant bay almost as if it were a single processing area instead of the traditional high-current, medium-current, and high-energy bays. Customers will be able to develop a new manufacturing strategy for their implant operations to improve productivity, yield, and cost by using a complete Purion solution.

Now I would like to provide a quick update on each of our Purion products, starting with high energy. The Purion XE continues to be the standard for high-energy performance, driven by its LINAC-based beamline. We recently announced several wins for the Purion XE, including the penetration of a new foundry dedicated to image sensors, and multiple system orders from a new fab focused on advanced NAND devices.

Quote activity remains high, and we expect to continue to add further new customers for the Purion XE. Our high-energy business remains strong and should continue well into 2014.

Turning to medium current, we expect the Purion M to gain traction throughout the year, with repeat orders and sales to new customers, allowing us to gain 10% to 20% market share during this cycle. The two Purion M evaluations underway, one at a memory customer and one at a pureplay foundry, are going well and we anticipate successfully closing both in the first quarter.

Purion M demos underway with several new customers are also proceeding well. Key advantages of the Purion M are driven by its patented angular energy filter based beamline, which allows the system to deliver very low energy implants at high levels of productivity, something previously unavailable to the industry and important as device features continue to shrink.

Additionally, the Purion M uses less electricity, resulting in up to a 50% reduction in cost per wafer versus the competition, supporting our customers' green initiatives. The Purion M's very broad energy range, ranging from 5 keV up to 1 MeV, allows customers to run high-energy implants on this medium-current tool. This flexibility drives optimal efficiency when the Purion M is used in memory fabs with the Purion XE.

Finally, turning to high current, we announce the Purion H in early December, at the urging of our customers. Prior to this, discussions with customers were very restricted and under NDA. Customers wanted the flexibility to have broader internal discussions as they planned for their 2014 capacity.

We expect that there will be a strong pull for Purion H and that we will place multiple systems in the field in 2014. In the meantime, we have very active demos underway at our Advanced Technology Center in Beverly with several customers, including those with whom we worked closely to develop Purion technology and products.

The Purion H's advantages come from its innovative magnetically scanned spot beam that includes a unique five-filter design. The result is performance that delivers the highest beam currents and shortest tune time.

The magnetically scanned spot beam, coupled with the Purion Vector dose and angle control system, provides significant uniformity advantages over the competitors' ribbon beam architecture. This is important to foundry analyzer customers when processing advanced FinFET devices. This will result in improved parametric control and better yield.

The most exciting feature is the Purion H's low-energy capability, which opens a whole new implant application space. This will also enable the development of advanced devices. We will continue to provide more data on the Purion H's performance as we roll it out this year.

Bottom line, the Purion H, along with the Purion M and the Purion XE, provide customers with the best overall technical and manufacturing implant solution to their emerging device processing challenges. With that, I will turn it over to Kevin to provide more details on fourth-quarter results.

Thank you, Mary. Throughout 2013, we were focused on driving quarter-over-quarter improvement and operating performance, strengthening our balance sheet, and launching new products on a Purion common platform. In Q4 we returned to profitability, with positive earnings per share of $0.01 compared to a loss of $0.04 in Q3.

Tight spending controls, growth in our systems business, and stronger gross margins drove the substantial Q4 improvement. We have now been below our targeted quarterly breakeven of $60 million for four consecutive quarters.

Looking at the details of our Q4 results, across the board we were within guidance for the quarter. Revenues were $58.6 million, up 20% from Q3. With our total revenue, system sales were $25.5 million, up 26% from Q3 and 100% from Q1.

GSS sales finished at $33.1 million, up 16% from Q3 and 18% from Q1. We expect our GSS revenue to fluctuate quarter to quarter, based on the level of used tool and upgrade sales.

In the quarter, sales to our top 10 customers accounted for about 75% of our total sales, with three of these customers at 10% or above. Approximately 55% of our shipments were to memory customers, primarily flash, while 45% were the foundry logic customers.

Q4 system bookings were $16.8 million. System backlog, including deferred revenue, finished the quarter at $21.5 million and our book-to-bill finished at 0.62. Lower system backlog and book-to-bill in the quarter are not indicative of upcoming system sales and simply reflect customer-specific ordering practices.

Q4 gross margins improved to 36.3%, up 150 basis points from Q3. Product mix, along with higher factory utilization and costout initiatives drove this incremental improvement. Q4 inventory ended at $95.8 million, up slightly from $94.3 million in Q3, and reflects a ramp in business.

Q4 combined SG&A and R&D was $20.2 million, with SG&A spending at $11.3 million and R&D at $8.9 million. Q4 operating profit was $1.04 million, reflecting an improvement in performance of $3.8 million over Q3.

Net income finished at $614,000 or $0.01 per share. Included in this number is $515,000 of foreign exchange loss and cost associated with financing. Cash, cash equivalents, and restricted cash finished at $47.1 million, at the high end of guidance.

In 2014, we will continue to maintain tight spending controls while making the necessary investments to drive top-line growth with our Purion products. Improving profitability is a top priority, and we plan to keep expenses in line with the low level established in 2013.

Gross margin improvement in 2014 will be fueled by platform commonality and higher tool sales, and we have aggressive gross margin improvement initiatives in place for all of our Purion products.

Our cash position is strong and adequate to fund our planned business ramp. We have a line of credit in place should we need additional working capital. With our improved financials, strengthened balance sheet, and launch of the Purion product family, we are well positioned as the industry continues to recover.

Thank you, and now I would like to turn the call back to Mary.

Thank you, Kevin. We are very excited about the potential of the Purion platform. Our Purion penetration strategy is now in full swing.

Our Purion XE high-energy system has strong market acceptance. Customers using the Purion XE in their fabs have also taken the first Purion Ms, based upon their strong preference for the Purion platform. The Purion M's performance has further cemented their acceptance of this platform.

Finally, the Purion H, in addition to providing complete commonality across all implant segments, brings significant advantages in technical performance and manufacturing flexibility. There is a strong pull for the Purion H from our customers using the Purion XE and Purion M.

Purion has been designed to be the implant platform of the future. It has been optimized for the low-energy requirements of advanced logic devices, the high-energy requirements of advanced memory devices, and the uniform angle and dose control requirements of FinFET devices. Its broad applications bays coverage will open up new manufacturing strategies for our customers' implant bays, resulting in higher levels of fab productivity and lower cost.

We are confident that the Purion product family will propel Axcelis back into leadership in ion implantation and bring significant financial rewards to our shareholders through the cycle. With that, I would like to open it up for questions.

(Operator Instructions) Brett Piira, B. Riley & Company.

Great. Thanks for taking my call. Could you just talk a little bit about -- obviously, your revenues were at the low end of guidance, still within there. But just was there any specific segments that were weaker than you had hoped? Or what were the gives and takes there?

I think the issue there was we had some used tools that we had teed up in the quarter that actually have moved around on us, and that was one of the things that moved the needle. Just as you have heard us say, systems moving around can change a quarter, financials in a quarter, in any given quarter.

The same thing is true of used tools. They tend to be some of the larger-dollar volume transactions.

Brett, this is Doug. I think the thing to look at is that high energy continued to be strong in the quarter, as we have been talking about. So with memory cycles continuing, and high energy has really been the focus for the Purion line and making sure that that is out there, and is the kind of penetration point for the Purion product family.

Okay, great. Maybe as a follow-up, can you give us any revenue breakout by segment from the outlook? Do you still think memory should be your main driver? Or how do you think it should look?

Yes. I think, as Mary said during the call, we see memory pretty steady during the course of this year. Both flash and DRAM seem to both be very active. That is good for us on the high-energy side, which again allows the Purion XE to continue to penetrate, gain footprint, and open the door for the rest of the Purion family.

Okay, great. Maybe just one more and then I will jump back in. Last earnings you guys had some pretty good visibility into 1Q, that you thought it was going to be up sequentially. How is your visibility looking now into 2Q? Or just any commentary on how things are different from last call.

Well, I think the guidance that was given is $60 million to $66 million, and I think we're still in that same memory pattern.

So I think we look favorably towards the high-energy business as a result of that. And again, as just said, that opens the door for the Purion M as the second half of the year opens up.

Yes. I mean, there are multiple things that we are really looking forward to in the second half of the year, as Doug just said. We should have memory and foundry customers in those segments, both spending. And then the addition of the Purion M to the mix I think is going to be very positive for us.

Great. Thanks a lot, guys.

Edwin Mok, Needham.

Great. Thanks for taking my questions. Congrats for hitting your profitability target and the guide for that as well in the first quarter. My first question is actually on booking, right? Booking was down quite a bit, and you only have a book-to-bill of 0.62.

What happened there? Did some booking that you were expecting got pushed out? Because I thought you guys made some announcement about Purion XE booking in the quarter.

No, Edwin, if you look at the bookings this quarter and any one of our quarters, that number moves around. And in particular this quarter because of the particular customers that are buying from us and the tendency to get purchase orders at the last minute; it is not really reflected in the book-to-bill in terms of what we see for revenue this quarter.

So I wouldn't get too alarmed at that number. Last quarter it actually was up. This quarter it's down a little bit. But as I said, it's more to do with the specific buying patterns of one particular customer.

I see, okay. That's fair. Given your revenue guidance for the first quarter, which is quite a bit above -- or the implied system shipment will be quite a bit above your booking in the fourth quarter, I imagine you expect to have something incrementally booked in the March quarter. Am I thinking about it the right way?

Oh, absolutely. Yes.

Yes. A lot of what we get is booked and shipped in the quarter. That is what happened.

Yes.

I see, so a lot of turn business that resulted in this kind of swing in this number (multiple speakers)

Maybe an easier way to say it is we will have shipments that we can count on where the purchase orders may come in a week before we ship.

I see. Okay, that's fair. On -- I guess follow-up to the visibility question beyond this quarter, beyond your current guidance, right? Maybe one way to help us think about that is, you have a Purion M product which you will sign off for the first customer, and you expect additional sign-off this quarter. And you have a Purion H that you (inaudible), I guess, right? I guess two (inaudible) questions.

First is on the three customers on Purion M. When do you expect the timing for repeat orders from those customers?

And in terms Purion H, I guess right now we're just focusing on maybe eval or JDP. What are the timing -- what should we look for in terms of timing for those to happen?

Yes. Edwin, I think what you want to do is look at this as some kind of phased, where Purion XE is out there establishing the footprint and the common endstation presence within the fabs. The three evaluation systems at the three different fabs, we, as we said in the script, expect that we will see the second two close during the course of this quarter, and that will lead to more volume as we get into the second half.

There is a possibility of some Purion M in Q2, but we're really looking at Purion M as a second-half story. And that allows us to cut both across the foundry business, which we expect to come back during the second half, as well as the memory business in both segments, DRAM and NAND, which we expect to be relatively strong throughout the year.

Purion H, which was announced, we expect that that is really an evaluation story for 2014. We would expect multiple evaluations to go out during the course of this year, leading to footprint being established, allowing us to grow the share during the downturn on the high-current product.

Don't forget -- go ahead, Edwin. Sorry.

No, go ahead, Mary.

Well, what I was going to say is: don't forget that there is a tremendous amount of work going on here in Beverly right now. We have been working with several of these customers throughout the development of the tool, so there are lots of wafers being run here in Beverly.

So our expectation is that we will put the evaluations in, and we anticipate the tool will run very well. And perhaps some of the evaluations -- perhaps some of them could be shorter, although they tend to be pretty rigid on the 12 months.

But what we would expect is to start to get some repeat orders before the evaluation closes. And we have talked about that before, that customers will do that if they see good performance on the tool.

I see, yes. You kind of answered my first question, which is the time it takes this initial evaluation tool. I guess your view is it could take up to a year. Okay, great. Helpful.

Then on the guidance, you guys talk a little bit about the increased costs for the current quarter, and I am trying to understand, just to be really clear. Is it just the new year, some adjustment for a new year? Or was there any one-time cost increase that we expect to come out in the second quarter and beyond?

Yes, Edwin. Our plan this year is to do what we did last year and to hold our spending in that $20 million to $21 million range. What we have in Q1 is -- I will give you an example of one big thing.

Unemployment insurance kicks in, in the first quarter. The full year is paid in the first quarter, and it has to get expensed in the first quarter. That is almost $600,000 there.

So, yes, the incremental really is some one-time costs.

Great. That answers my question. Lastly on the GSS, last quarter and the fourth quarter was actually a repeat; [reason] my model it seems like that is the biggest GSS revenue you guys had since 2011 or what I remember it. I am trying to understand.

Is that just something happened, all the business happened to happen at the same time? Or is it something that has changed in your business that allowed you to grow at that rate? And how do we think about it over a long term?

Yes, I think our GSS business is very -- is broken into a couple of components. The service piece of the business and consumables and spares ties closely to fab utilization. So that is very dependent on the fab utilization at different regions.

Then the second piece is really the upgrades and used tools, and those tend to be a little more lumpy as you go quarter to quarter, depending on what those customer needs are. Those customers tend to be in more of the second tier, not in the top three, five CapEx spenders. So their plans are not quite as solid in terms of visibility.

Great. Sorry, I lied; can I ask one last question? How much of your sales came from strip?

Oh, it was insignificant. It was like less than 5%. It might have been one legacy tool that went out; but very small.

Great. Thanks for answering my questions.

(Operator Instructions) Patrick Ho, Stifel Nicolas.

Thank you very much. I missed some of the beginning, so I apologize if this was addressed already. The transition to 3D NAND, do you see any changes in the capital intensity given the high energy? Obviously very well positioned within the memory market. Do you see that capital intensity increasing as the industry moves to 3D NAND processes?

Patrick, the 3D NAND process does have higher energy requirements, which is good for Axcelis and for the Purion XE since it can reach those high energies at very high throughput. So there is a solid demand in the advanced NAND processes; and that is somewhat true even in the planar NAND for the higher bit densities.

Right. Maybe you have addressed the second question I had; it was the DRAM industry, as it moves to 20 nanometers and a lot of the process changes that are going on there, particularly with double patterning emerging for that node. Are some of those same requirements on the high-energy side positive as the DRAM industry moves to 20 nanometers?

Yes. So DRAM uses a little bit less high energy than NAND; still has a requirement for high energy. The thing that becomes very, very positive for Axcelis and the Purion family in that area is the combination of the Purion M and the Purion XE.

When we talk about that flexibility that that gives manufacturing fabs, there is a lot of overlap. And that will allow them to run both a Purion M and a Purion XE in a 20-nanometer DRAM factory much more effectively than they could another combination.

Great. A final question from me, maybe on for Kevin. You guys performed very well on the gross margin line this past quarter. But with a lot of evaluation tools out in the field right now, as well as some of the ones on the high-current side and they are about to go this year, can you just comment on the potential lumpiness in margins, as those tools start getting recognized as revenues, as you are trying to ramp up your volume business, which should help margins? How does that offset one another?

Yes. Overall, Patrick, what we are saying is mid 30% gross margins this year. And quarter to quarter it will move a little bit, but I don't think we will see any significant peaks and valleys in that.

The thing that will happen, as the systems business becomes a much bigger part of our mix, the system gross margins are definitely improving significantly, but they are not quite as high as GSS. We always say GSS is very accretive to the business. So there is always going to be this pressure as we grow the systems business and as it starts to dwarf the GSS business.

But even with that, we feel comfortable saying that this year, with the significant growth in systems and because of the improvements, that will hold our gross margins in the mid 30%s, kind of flat. And then as the volume really kicks in, as Mary said, getting the business back into a 40%-plus gross margin range with higher volumes in the system is very achievable with this Purion platform.

Great. Thank you very much.

Christian Schwab, Craig-Hallum Capital.

Thank you. Almost all my questions have been asked already except one. Mary, your comment in the press release and what we talked about on the last conference call, that we expect to achieve quarterly revenues of $90 million during the current industry upturn. Is that something that you would anticipate approaching in 2014? Or is that something that could be more like the first half of 2015?

Well, I think what we have always done is expected that we would tie our peak typically to the peak in the industry. So based on the fact now that the slope of the ramp appears to have flattened out a little bit -- which is actually a good thing, as perhaps the upturn will last a little bit longer and the peak has been moved into 2015 -- it is very possible that, yes, our peak quarters could in fact be in 2015 versus 2014.

Christian, the latest Dataquest numbers suggest that that peak is in the first half of 2015.

Great. No other questions. Thank you.

We have no further questions. I would now like to turn the call back over to Mary Puma. Please proceed.

Okay. Thank you, Denise. We have seen a lot of investor interest in Axcelis on recent trips and investor conferences, and we are planning to continue to be very active. We expect to be out on the road this quarter, as well as attending the SQL conference in San Francisco on February 12 and the Piper Jaffray conference in New York in March.

Thank you very much for your interest in XLS. Axcelis.

This concludes today's conference. You may now disconnect. Have a great day.