Azenta Inc (AZTA) 2002 Q1 法說會逐字稿

Ladies and gentleman, thank you for standing by and welcome to the Helix Technology first quarter conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call please press zero then star and as a reminder this conference is being recorded. I would now like to turn the conference over to the President and Chief Executive Officer of Helix, Mr. Robert J. Lepofsky. Please go ahead sir.

Thank you very much and we appreciate each of you joining us today for our first quarter conference call. With me here are Jay Zager, Helix Senior Vice President and Chief Financial Officer. and Beverly L Armell, our Director of Investor Relations. We do assume that each of you has received a copy of the press release and if that is not the case, please call 508-337-5172. We will fax you one immediately. And before we begin, I would like to ask Beverly Armell to take a moment and review our safe harbor disclosure. Beverly.

Thank you Bob. The following call contains certain forward-looking statements, including statements regarding the Company's future performance, such statements are based on current expectations and are subject to risks, uncertainties and changes in condition, including, among others, market acceptance of and demand for the Company's products, the success of the Company's strategic initiatives, including its global support operations, the health of the global semiconductor capital equipment market and the timing and scope of any change in the current depressed industry conditions, the Company's success in sustaining order bookings, and other risks indicated in the Company's filings with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those indicated. The Company assumes no obligation to update the information in this call.

Thank you Bev. Our conference call today follows the calls of our many of customers and peers with a consistent message that after the worst year in the history of the semiconductor capital equipment industry, we are now nearing a period where we are focusing improving sequentially quarterly results.

Earlier this year, we said that we were looking to measure our order booking trends in mid February and again in mid April. As conformation of the market dynamic we saw coming together late in the fourth quarter. In mid February, we did report the continued strength in the order book and today we are pleased to announce that from our advantage point the recovery is in fact coming together as we had anticipated. As you noted in our press release our orders grew 41% sequentially from the extremely depressed level of the fourth quarter of last year. The third month of the quarter was the strongest month and bookings continue strong entering the second quarter. Based on our work with both end users and OEM accounts, we are reasonably optimistic about the quarter ahead and we continue to feel better and better about the rate of potential improvement that may be achievable this year. Now despite the improvement over the fourth quarter, in the first quarter we still generated an operating loss and we want you to know that we are very focused on returning to profitability this year so the continued improvement in booking is the key metric for us.

As many of you know, Helix is uniquely positioned in the sub tear supplier space. We derive revenue and profit streams from both OEM and end user customers. we benefit from both neutral deliveries and from the improvements of existing tools. As fabulization rates increase the demand for our service support exhilarates. We have both well-established high market share product offerings and exciting new business development initiatives. We are protecting our position in traditional sectors of the market and making continued progress in penetrating new sectors. It appears to us that we are in the beginning phase of a period where we can benefit from the investments we have made throughout the downturn and really leverage the improving external market for the benefit of our shareholders.

Before Jay runs through the numbers, let me take a few moments to touch on just a few of highlights of the quarter past that represented over the favorable momentum for Helix that we see building. Since our last conference call two months ago, we did complete a very successful equity offering that strengthens our balance sheet and gives us substantial financial flexibility. Our orders for both our core component and global support businesses increased substantially. Our bookings increased across all market segments including Ion Implant, always an indicator of the state of the market. Late in the quarter, we received multiple mid six-figure upgrade orders from Asian customers for upgrades to existing tools. Late in the quarter, we received a major commitment from an important Taiwanese-based customer for a large number of pump repairs, representing that customer's preparation for a continuing ramp in his product output. During the quarter, we continued to deploy our newest generation Cryopump solution on selected customer tools and continued the preparation for a full production ramp later this year. We received a go ahead for process qualification of our latest 300mm pump product offering for a major OEM's next generation tool, which is expected to begin shipping later this year. We expanded our presence in China and extended our ability to provide both presale and postsale support. We continued to exploit the capability of our GOLDLink technology and bringing all new customer contracts for GOLDLink-enhanced tool support.

We continued initiative in the tool area and remain encouraged by its potential for us in 2003 and beyond. And finally, as planned our Integrated Solutions Group is engaging at a total racking system control initiative with one of our major OEMs on a new generation production tool. This initiative is indicative of our interest in information-based solutions that serve the particular needs of end-users, OEMs, and Helix.

In short, we are moving forward in the deployment of our strategy of leveraging our core component franchises, expanding our global support business and developing the full potential of our information-centric integrated solutions activity. For Helix, Q1 represented a turning point. Certainly, in our own financial performance, importantly in gaining momentum in the deployment of our strategy and in our opinion the real beginning of the cyclical recovery. And against that backdrop, I will now have Jay provide you with some insight behind our first quarter numbers and guidance for the second quarter. Jay if you would.

Thank you Bob and good afternoon everyone. I would like to provide some inside insight of the financial results that we recently released. Earnings for the first quarter were $20.4 million, which was an increase of about 18% from our Q4 levels and 58% lower than Q1 of 2001. The net loss for the quarter was $4.5 million or $0.19 per share. Average shares outstanding in the quarter with $23.05 million reflecting a partial impact of our recently completed secondary offering. Orders for the quarter were $22.8 million over 41% from the Q4 levels and as Bob indicated, orders increased throughout the quarter with March being the strongest month by far. Our book to bill ratio for the quarter was 1.12 compared with 0.93 in Q4, which is our highest book to bill ratio in the past six quarters, and provides solid evidence that our business is entering into a recovery phase. Let us look behind the revenue levels. Sales to semiconductor customers were approximately 58% of consolidated sales compared with 50% in Q4. Sales for the flat panel display and data storage customers were about 19% of total sales down from about 23% in Q4. Sales to customers in other technology areas declined to 23% in Q1 compared with 27% in Q4. Sales attributable to CTI cryogenics vacuum pump products were about 80%of the total while sales of our Granville-Phillips Vacuum measurement and Controller instrumentation products were about 20% of the total. In the first quarter, sales from global support operations were $7.4 million representing about 36% of total sales. OEM sales increased to 48% of total revenue with sales attributable to our largest customer at 26% of the total, up from 14% in Q4. Geographic mix of our sales was essentially unchanged from Q4 with North America at 68%, Europe at 14%, and Asia-Pacific at 18%. We ended the quarter with a backlog of $8.4 million, which was an increase of 19% from Q4 backlog level and at the end of the quarter, we had 623 employees unchanged from the year-end levels. Our gross margin in Q1 was $4.8 million, for 23.7% of sales compared with 20.1% of sales in Q4. The increase in our gross margin was due primarily to the higher revenue levels. Direct labor and material costs as a percent of revenue remained essentially at traditional operating levels. We fully expect to see continued increases in our gross margin percentage as revenue levels continue to increase. R&D expenditures for the quarter were $3.5 million, a slightly reduction from Q4 levels. Our selling, general, and administrative expenses for the quarter totaled $8.1 million, up slightly from Q4. And as a result of these factors, our operating loss for the quarter was $6.7 million, which was an improvement of $1.6 million or 19% from Q4 operating loss. The contribution to our profits from our joint venture in Japan was $45,000, down from about $400,000, in Q4 reflecting the continued slowdown in the Japanese semiconductor economy. And then interest income was about $69,000 in the quarter. As a result, our net loss before-taxes was $4.5 million. Our tax rate for the quarter was 32.5%.

We will briefly turn to our balance sheet. As you know, last month we completed a secondary offering in which we sold 3,450,000 shares and raised about $65 million. As a result, we entered the quarter with almost $75 million in cash and no debts. Customer receivables were $14 million up from $12 million at the end of the year reflecting higher sales levels. Our DSL was 62 days essentially unchanged from the Q4 levels. And we did not have any significant issues with full actions. Inventory levels improved modestly to $27.1 million at the end of the quarter reflecting a fourth consecutive quarter of reductions. Inventory turns were 2.3 an improvement from 2.0 turns in the prior quarter. Capital expenditures were $1.9 million for the quarter down from $2.3 million in Q4. As you know, we are on the final of the development of our new corporate information system and are scheduled to switch to the new system in our domestic operations at the beginning of the third quarter. Depreciation was $1.4 million in the quarter. And in February, our Board approved a quarterly dividend of $0.08 per share unchanged from the prior quarter. Understanding all the risks inherent the future, particularly in this industry, we would like to offer some insights as to how we see our business in the foreseeable future based upon what we see as of today.

With respect of the second quarter, we are anticipating continued improvement in our revenue levels. Based upon the strong Q1 order rates and several positive indications from QEMs and end-user customers, we should see sequential Q2 revenues at or above $25 million. With our indirect manufacturing and infrastructure costs essentially in place, we will be able to convert this incremental revenue to increase gross profits and operating profits at a healthy rates. Accordingly, at these projected revenue levels, we would expect Q2 losses to be no worse than $0.12 per share. And by the way, the average total shares in Q2 will be about 26 million shares. Again, it is important to point out that changes in the blind panels of our QEMs and end-user customers could significantly impact these projections.

So in summary, we are extremely pleased by our Q1 performance. From both the revenue and in EPS perspective, we exceeded the guidance the company had previously conveyed and we are looking at projected financial results for Q2 that are also better than we had previously indicated. And now I would like to meeting back to Bob.

Thank you Jay. Before we open the call to your questions, let me say that what the debate may continue about the strength of the upturn, we at Helix are seeing increased orders and sales in both our core components and global support businesses. While the debate goes on regarding the role of E-diagnostics in the semiconductor equipment space, we at Helix are using E-diagnostics to build our business of improving tool productivity and availability while lowering the total costs of fab operations for our customers. While the debate goes on regarding the decision-making process for sub tear suppliers between the OEM and the end-user, we at Helix are partnered with, deriving revenues from, and solving problems for both sets of customers. While the debate goes on regarding pricing pressures from our customers, we at Helix are responding to the needs of our customers with new products that have lower prices, improved margins for Helix, and increased application. In return, our customers are rewarding us with increasing opportunities for growth. Everyday, brings new challenges, but as a company we have the necessary experience, cadre of incredibly talented people, and commitment to success to allow us commit those challenges. In summary, we are excited about where we are at, what we are doing in the marketplace we are serving. With those backdrop comments, operator we would like to open the call for questions.

Ladies and gentlemen, if you wish to ask a question please press the one on your touchtone phone. You will hear a tone indicating that you have been placed in queue and you may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone, please pick up your handset before pressing the number one. One moment please for the first question.

Our first question comes from Steven C. Pelayo with Morgan Stanley. Please go ahead.

Great, thank you. Congratulations on the . Can you talk a little about the break-even rate and how that moved a little bit, what type of marginal structure, which is assumed at that level?

This is Jay, we are still looking toward a break-even revenue level in the 26-28 million dollar range, and so we are obviously getting very close to it. A key thing for us will obviously be the improvements in gross margins. As you know, they improved by over 3 points in the first quarter and based upon the revenue levels we are looking at, we should be seeing substantial gross margin improvements in Q2, which will obviously bring us closer to our break even revenue levels.

If you are looking at revenue levels at 25 million or better then, probably September. quarter would definitely backed you in the black?

There, my hope would be as a worst case that is correct.

Okay, and then what is your outlook for orders now filling into the June quarter?

We don't forecast the orders, because as you know, by the nature of our business, we do not have a lot of lead-time in receiving orders

What is the other way to quantify Jay, if you flat line the March run rate what kind of sequential growth would that be?

When we talk about growing the business 25 percent this quarter that is based upon taking the information we have as of now and projecting it forward. In continuation to your question Steven, when we come out and say that we see 25 percent or more growth in the second quarter, we are essentially doing exactly what you said, we are taking a look at the trend in the orders, the particular customer base, and that gives us confidence that we feel we think can deliver Q2 results at or on 25 million dollars.

Okay. Could you just break up a little bit of that order book and how much was really kind of your upgrade and your

end-user activity and then what does that mean for the future. Will it be more foul proof? From which side? Which side does

you expect to be more stronger? That type of a, I think you can detail on how to break on bookings, looking forward.

I track the orders more by customers and by components, but I will say that we as we indicated before are seeing right now particularly in the early stages of this quarter really solid growth in our GOLDLink support business particularly overseas. But again, we are seeing a cost to bottom problem. One of the things that gets us very excited Steve, about the quarter as we see it moving forward is that there is a at one particular area. We both talked about Ion Implant and obviously that is an exciting indicator for us both. But frankly we are seeing growth projected this quarter from every one of our business units.

And if you look at it from a just a product perspective, historically very strong positions in PVD and Ion Implants. Can you talk little bit about some of the other semiconductor related but non-PVD and Ion Implant market activity?

The activities are coming along, they are not yet contributing very substantially, but again one of the reasons why the second half of the year and 2003 excites us is that we are putting in place all the right steps, procedures, and processes to start to take advantage of that. So I don't think you can see a lot from us in the immediate future to proceed with second quarter, but I think that is clearly something that we are excited about in the end of the year and beyond.

Okay Bob, and a question for you Bob. It is clear that the level of 200mm activity appears to have snapped back a bit here, I am curious about your thoughts on the competition of 300mm and the rapid 300mm for the year?

It is our interpretation of all the information we are seeing and again leads us to some comfort in our level of enthusiasm that even if there is a period of slower than some anticipated 300mm activity. This little stop in the 200mm is going very nicely still in that period. So we think again that 200mm followed by 300mm activity and that mix will all add up to sequential quarterly activity that goes beyond the current quarter.

Excellent, thank you guys.

And our next question comes from Fred Wolf of Adams, Harkness & Hill. Please go ahead.

Bob, can you talk a little about customer inventory and whether this aggressive ramp is part of that is filling inventories? Can you sort of give us a feeling for how much of that you think is there versus end-user demand?

Yeah, in our case relative to the product side of the business, as I think you know there is not a lot of Helix product ever in the channel. So we don't get the advantage or the disadvantage of inventory lead like and again because of our process with our customers in which the products that we deliver, we basically deliver to a tool and have installed on a tool. What we are seeing orders for and the products that we are delivering or billing on the tools not in the inventory bills. Obviously there are some of our smaller OEMs that do do some anticipatory buying but that is not an important piece of the product side.

Great, thank you.

Our next question comes from Ali Irani with CIBC World Markets. Please go ahead.

Good after gentleman. Actually a couple of questions. One, with the capital budget strengths clearly opening up here at the end-user customers, could you talk a little about the E-diagnostics installed base and whether you are seeing some release on the monitarization of that? And I was hoping perhaps you could give us some idea of what at this point the fixed costs of that business are, to really be able to support on a global basis from these large top 10 customers? The second question would be on Granville-Phillips, if you could bring us up to speed on the new products and the strategy here going forward in that segment into the next ramp and whether there had been any meaningful design went on the new products, if you had any data there. And finally, I was hoping you could give us an idea of where R&D is going to be spent over the next year?

Okay let me try to take it one, two, three. Again. remember, the theme of what we have been saying and what we have been communicating relative to the E-diagnostics area that our focus at this point has been to first leverage the installed capability that we have and make some incremental additions to that and we actually have had signed up some new customers. The real key for us is to use the E-diagnostics capability, so we talk about things such as GOLDLink-enabled support. In our February conference call, we talked about a particular situation where we are using the capability, the E-diagnostics capability and that is exhilarating the growth of our global support business. So it is a different game plan and strategy than some of the people that are selling E-diagnostics products, if you will, or capabilities and quite frankly, we are a customer for people who have E-diagnostics solutions because we are a user of E-diagnostics in the building of our global support business. And that for us is the opportunity for the real monitarization. As I have also explained before, we have a full range of customer situations. We still have customers that actually want to merely have monitoring services and pay us per pump per month for monitoring but the real leverage and the direction we are doing is to now take that information to a broader level, deliver a broader range of services, and in effect, the total vacuum support of the total tool support approach using E-diagnostics.

If we talk about the total capability we have and it is again mixed between the global support, the E-diagnostics activity, and importantly our Integrated Solutions Group. I guess, I would carve out the run rate of cost that still be in the $1.5 million a quarter range. About $6 million a year that I would call information-centric activity and that again crosses over the E-diagnostics and the Integrated Solutions Group and remember our Integrated Solutions Group is again information-centric such as the one situation that I had mentioned with the customer where we'll do the complete vacuum control system for a major new tool using E-diagnostics capability, the control capability, and then delivering the right information to the right party, be that the end-user, the OEM, or Helix. Long answer to short question on E-diagnostics but you know it is my favorite subject.

Sure. Talking a little bit more about that I guess the key component here is the insurance policy, it provides everybody, the end-user, the OEM, and Helix in terms of maximizing return on expensive field costs. I am wondering with the first contract established last quarter and more and more OEM's now hearing from their suppliers about E-diagnostics-enabled products, I heard recently from a peer of yours that the fabs were beginning to limit the number of vendors putting pipes in. What is the leverage that you are achieving with OEMs looking to get access to pipe?

Yeah, I think that it is still very very early in this game relative to the pipes and again when we started there were no pipes. So we had to put our own pipe in. It always has been my opinion that when the game is finally played out there will be one or two, may be three pipes. The information following in those pipes, if you will, will be oriented to different things and again remember that Helix's orientation is to tool availability, if you will, the stuff underneath. There is a lot of activity and a lot of focus relative to what is going on inside the chamber, relative to characterization. A need for different information flow, different use of information and again you have an evolving situation. There are people who are only looking at new tools and how will information flow in new tools. However, as you know, Helix has a very strong and established position with existing fabs and the issue of how you move information out of existing fabs. So it is not an issue that has a simple path and quite frankly I think some of the new players to the game want to have a dialogue in very simple terms but it is a complex matrix of opportunities. What I would say to you is we are focused principally on leveraging vacuum system availability and you can think about the extension capability to be tool availability and you can also say that for the short term, we are doing very little in the characterization side of it. Albeit, as you know, and other listeners, the availability and quality of the vacuum environment certainly does have the second order effects on the .

Great.

You asked me about GP and so that I don't use up our entire time here on your questions, GP continues to move along. Their business continues to expand. The data and the initial deployment relative to the new products are moving along well and the existing business is equally moving along well. So we are very pleased with the rate of progress at GP and we think that GP as we continue through the year will continue to have important sequential growth relative to their product flow. The focus of our R&D over the next 12 months is clearly going to continue in the three categories of: (a) Protecting and enhancing the core component businesses and that means new product offerings for new segments plus again importantly, products that have lower costs, improved margins for us, and lower prices for our customers. (b) Continued global support offerings using the E-diagnostics capabilities in our knowledge of tools and customer environments. (c) And finally in the integrated solutions piece, which is principally, focused on next generation tools.

Thank you.

Thank you.

And we have a question from Robert Stern with Needham & Company. Please go ahead.

Good afternoon.

Hi Rob.

Hi. You know there are service business at $7.4 million did not seem to grow very much in the quarter and I was wondering if you had been expecting stronger growth in that business especially of the bottom as you begin to turn out. I wonder if you could give us a little color on what was going on there?

It will nicely, you know, at sometimes with the service business, a week or two at the end of the quarter or beginning of the quarter can make a big difference in the growth rate when the numbers are so small. So I will give you more insight. The first week of this quarter we had spectacular service results. It could have come in a couple of days earlier it would have shown up on the quarter. Fundamentally, our service business is doing very well and we are very pleased with where we see it today moving forward.

And Rob in my comments, relative to ticking off some of the first quarter successes, I did take note of several in late in the quarter order receipts for major upgrades, actually two of my comments, one was late in the quarter we received multiple, multiple mid-six figure upgrade orders from agent customers for tool upgrades, part of the support business and late in the quarter major commitments from Taiwanese-based customer for large number of pump repairs. Another week in the quarter would have been very nice and again that is just playing out month-by-month the sequential improvement and the momentum build that we see that has the very strong tone that you are hearing in our voice about where we are out at present.

Thanks. If I can ask you a quick follow up, I am wondering if some of those large upgrade orders were for some less traditional applications like CVD and Etch?

No, actually the ones that I am referring to here while there were CVD and Etch requisites, the focus of my specific comments are in `traditional tool upgrades` and again it plays into our whole premise relative to how the recovery would unwind and the fact that customers would focus on some of these upgrades to play out the utilization curve improvement.

Thank you.

Thank you.

And we have a question from Ted with Lehman Brothers

Hi, thank you. Almost of the end markets that you serve, so many other leading players in the OEMs in that position Etch markets are looking for 35-45% type sequential growth in their shipments and you are targeting an increase of 23% or more sequentially. Given that you are more heavily tied to the PVD and implant, does this mean that the PVD and implants are going to lag some of the other capacity driven markets as well or will all these markets tend to go up in line with one another, you know providing kind of conservative type guidance.

I would just comment. You probably listen to far more calls than I do. I have only listened to a few and I know that a number of the sub tear suppliers revenue numbers, both in their last quarter, meaning Q1, and their projections for Q2 are heavily influenced by acquisitions. Obviously, in the Helix Q1 gross number on revenues and projected gross for Q2, there is no acquisition impact. And so I think that any differences that you see may have their foundation in the acquisition side. I think Jay tried to characterize from where we sit today, he is putting a stake in the ground at $25 million. I would let Jay answer

how he would characterize this 20, I am sorry, this $25 million number.

I would say that internally we are obviously targeting to do better than that. So when we tell you $25 million, I think that is a number we feel very comfortable with we feel we can deliver on.

And with the Cryopump market, do the customers typically buy those at the beginning and they build cycle or towards the end when the tools closer to completion before it is ready to be tested? What point in the cycle do you usually fall into?

That is part of the Helix solutions is the fact that given the inventory and supply chain, we deliver a product that then goes directly on to a tool and it is very late in the build and quite close to the final test cycle.

That is part of the Helix solutions is the fact that given the inventory and supply chain, we deliver a product that then goes directly on to a tool and it is very late in the build and quite close to the final test cycle.

Right but then again because of the short time lags you need to be careful quarter by quarter because it is ongoing so you get caught with what we ship at the end of the quarter, what they ship. As we typically say our large OEMs call us this morning, we build the product in the next three to five days, leaves our factory, is received by somebody in their factory who works for us, who installs it on a tool. That is about ready to be buttoned up and then move into final test.

Okay, thank you.

Thank you.

And we have a question from Mark Miller with Hoefer & Arnett Inc. Please go ahead.

Good progress guys. I had a question actually it is kind of a follow up from the last analyst and that was about, are you seeing from your customers any mix shift from PVD tools to CVD tools? Do you have anything about that? Are we going to see a richer mix of CVD tools versus PVD, from like applied in the future?

Ah, I think as Jay said, for Helix in the nature of our products, the PVD will certainly in the foreseeable future still be a very important part of our business. We know that there are those that have long projected the demise of the Cryopump business because of PVD and because of material changes. In fact we see just the opposite. We see more pumps per tool, more chambers per tool. Therefore more dollars per tool, but we think that our business will for the foreseeable future be more influenced by PVD and Ion Implant and then the growing impact of CVD and Etch by nature of our particular product offerings.

Thanks, I would like to go back just to financial statements, I was just curious. I looked at your third quarter of last year, where you had very similar revenues, initial gross margins seem to be significantly higher. I know these are pretty depressed revenue levels, I am just wondering why the margins this quarter were significantly, the gross margins were significantly below, is it product mix, pricing or whatever?

No. As I said, our product mix remains essentially unchanged in terms of influencing our margins. The key things we look at, looking at our gross margins are material costs, direct labor costs and those are not changing at all. Basically we see continued pricing pressure as part of the nature of our business and our objective that we had been able to achieve continually is to offset pricing pressure with improvements in our product costs and labor cost. That is very strong. I think without going into our detail, the Q3 margins last quarter had some, were unusually high and what you are seeing today is more representative of the nature of our business.

Thank you.

If there are any additional questions, please press the one at this time. And we have a follow up question from Steven Pelayo with Morgan Stanley. Please go ahead.

Jay, I don't think we tried to quantify what the gross margins would be at break-even. I think I mixed the but the drop was so beautiful on this model here as you get a little bit more revenues then. So can we just talk a little bit may be at a $30 million run rate what kind of drop to we are talking about, what kind of gross margins we can do? Can you quantify somehow?

Again, it obviously depends on a lot of factors, Steve, but I think for us to do break even we need gross margins to be in the mid to high 30s and we are tracking through that, but again that depends on a lot of factors. Obviously 20% in Q4, 24% in Q1 moving to the high 20s or 30s in Q2, you can sense that where we are and how we are getting there.

Okay, and what kind of revenues do you need to then be above 40%?

Gross margins?

Yeah.

Again I haven't miled it but I will give you a rough cut. I would say it is in the $35-40 million range.

That is great.

That is great.

We are going to start to see gross margins as we talked about it, historically when we get up to, to ramp we should be talking about gross margins in the high 40s and we are moving towards that path.

Excellent and then maybe Bob for you. It appears that the level of activity is pretty sharp at some of the major OEMs. I guess I am curious about your ramp readiness and your ability to meet that demand. I know in the last upturn you guys had a pretty big 30-40% sequential growth quarter. Since it has gone off into really depressed levels how prepared is your supply chain to meet some of those exhilarations?

They are, I mean, we worked through the entire downturn to make sure that we are ready for the upturn and I know everybody says that because it is what you do. We just do not have issues with the supply chain, the factory, and we are turning it at a very nice pace.

So what can you do about that, it is like 40-50% like whatever, is that a problem?

We are feeling pretty good about it.

It is kind of a problem we would like to have.

It is a good problem to have, exactly.

Thanks guys.

And our final question comes from Fred Wolf with Adams, Harkness & Hill. Please go ahead.

Just I know your model, it looks like your expenses are going to decline in the Q2 versus Q1? Is that correct?

No, I would say basically our expenses are essentially flat, you know, we have the infrastructure in place, we have the people in place, so there is no reason for the climb. You might see a bit slight, a slight uptake but nothing substantial.

Great, thank you.

And that is the last question in queue.

At Helix, we do have a track record of anticipating customer needs, making the right investments at the right time, and successfully executing on our business plans. We believe that the investments we made over the course of the business downturn will have a positive impact both near term and over the long term. As a company, we are focused on the future.

We remain optimistic about the opportunities available to us as a key and valued sub tear supplier to this industry. We will continue to move forward and we plan to fully participate in the substantial opportunities ahead. We thank you for your continued interest in Helix and for your participation today. This completes our call. Please have a good day. Thank you.

Thank you. Ladies and gentleman that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.