Azenta Inc (AZTA) 2003 Q1 法說會逐字稿

Welcome to the Helix Technology First Quarter conference call. At this time all participants are in a listen-only mode. Later we'll conduct a question and answer session. If you have a questions at that time please depress the 1 on your touchtone phone. You may remove yourself from queue at any time by depressing the pound key. If you are using a speaker phone please pick up your handset before depressing a number. If you should require assistance during the call please press zero then star. As a reminder this conference is being recorded. I would now like to turn the conference over to our host, President and Chief Executive Officer, Mr. Robert Lepofsky. Please go ahead, sir.

Thank you very much. We appreciate each of you joining us for our first quarter conference call this afternoon. We also recognize this is a busy season for the analyst community with the number of conference calls scheduled for this afternoon and the holiday commitments tonight and tomorrow. We are going to plan to finish up today in about one half hour. We'll keep our introductory remarks relatively short in order to leave adequate time for your questions. Joining me here today is Jay Zager, Helix Senior Vice President and our Chief Financial Officer, Beverly Armell, our Director of Investor Relations, and James Gentilcore, Executive Vice President and Chief Operating Officer. I'd now like to turn the call over to Beverly for some opening comments.

Thank you, Bob, and good afternoon, everyone. We assume that each of you has received a copy of our press release that we just issued after the close this afternoon. If that is not the case please call 508-337-5172 and we'll fax one to you immediately. I'd like to take a minute to read our Safe Harbor statement. The following call contains certain forward-looking statements including statements regarding the company's future performance.

Such statements are based on current expectation and are subject to risk, 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 global support operations, the help of the global semiconductor capital equipment market and the timing and scope of any change in the current depressed industry conditions, the company successes and standing 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, Beverly. We're actually reasonably upbeat this afternoon. Not necessarily about any break through news in the marketplace but more about the performance of our people in taking control of those factors that are within our own control and in the true Helix tradition, doing what we say we are going to do and delivering on expectations we set. We said last July that we would begin a process that would restructure our operations over a 6-9 month period to allow us to return to profitability and positive cash flow on significantly lower sales volumes. We said we would focus on the roll-out of new product platforms that would differentiate us from competitors, bring value to our customers and improve financial results for our shareholders. We said we would invest in the growth and development of our global support business with a particular focus on moving that business from a transaction orientation to a broader-based relationship based business model.

I'm pleased to say that we've made very substantial progress during the first quarter in each of these areas. We've made real progress on right sizing the business. We have over the past seven months reduced our quarterly break even revenue run rate over $8 million quarterly from the mid-$30 million level. On an apples to apples comparison basis meaning by eliminating the non-recurring and special charges in the fourth court of 2002, we've roughly halved our operating loss on essentially flat sequential quarterly revenues. Consequently we remain on our planned track to converge on profitable operations and positive cash flow with solid results to map our progress rather than just words and hopes. New product platforms in both our CTI-cryogenics and Granville-Phillips operation gained significant traction in the marketplace over the quarter. At Granville-Phillips we are protecting market share and traditional product and gaining market share with newer products.

As we continuously broaden our product portfolio, we are also opening the doors to new customers particularly in the non-semiconductor space. Our very important product platform and CTI-cryogenics, the Onboard IS platform saw considerable momentum in the quarter with process qualification completion at a major OEM account. This product has delivered on its promise of providing market leading and previously unattainable performance profiles critical to advanced process semiconductor manufacturing requirements. Both our OEM customers and our end users are very excited about the deployment of this new Helix solution [INAUDIBLE]. The Onboard IS platform will replace an older pump platform in the 300 mm arena.

In addition to performance benefits in 300 mm applications, the Onboard IS platform solution has a better cost price position therefore benefiting both our customers and our shareholders. Our global customer support group also had a great quarter. While the push out of several tool upgrade situations actually resulted in slightly lower sequential quarterly sales in that group, the momentum in transitioning customers to our relationship base service agreements grew quite nicely in the quarter. New offerings launched under the True Blue Service Agreement banner included Basic Blue, Performance Blue and Ultimate Blue. New service agreements were closed in the quarter expanding our agreements in the United States, Europe and in Japan.

These agreements are the platforms for a new way of working with our customers and form the basis for expanding relationships in the quarters ahead. Finally we continue to aggressively pursue our long-term growth strategy of expanding across the fab and beyond our own products. We are engaging with new customers providing next generation tools for semiconductor manufacturing steps that now need the performance attributes that our solutions can provide. The laws of chemistry and physics continue to work in our favor and the evolution of new materials and finer geometries are opening the door to new potential opportunities that are both exciting and challenging. And finally consistent with our strategy of leveraging our unique confidence and capabilities, we are continuing to enhance our strategic relationships with other firms in the industry to leverage both our integrated vacuum solutions and our global customer support activities.

Against that broad backdrop I'd like to ask Jay to comment on the specifics of our financial performance in the quarter. But before I turn the call over to Jay, I want to note that we have continued today our practice of filing and making public our 10-Q virtually simultaneously with our earnings press release so that you can have a complete set of financials to assist in your understanding of our performance. This practice is consistent with our commitment to world class performance across the company in operations, in customer service and in corporate support services including finance and administration. Historically Helix has received kudos for our industry leading performance in manufacturing and customer support. Jay and his entire financial team deserve a lot of credit for leading our industry in the financial reporting arena as well. Jay?

Thank you, Bob, and good afternoon, everyone. I'd like to provide some insight into the financial results we just released. Sales for the first quarter were $23.6 million essentially unchanged from our Q4 results and 16% higher than a year ago. Our net loss for the quarter was $1.4 million or 5 cents per share. Orders for the quarter were $23.6 million, up about 3% from Q4 and up about 9% from a year ago. Our book to bill ratio is approximately 1.0. Let's look behind these revenue levels. Sales to semiconductor customers were about 63% of consolidated sales for the quarter up slightly from 60% of total sales in Q4.

Sales attributable to our CTI-cryogenics vacuum pump product were about 80% of our total. With sales of our Granville-Phillips vacuum measurement and control instrumentation products at about 20% of the total. Our global support business contributed about 1/3 of our total revenues compared with about 35% of our revenues in Q4. During the quarter we experienced a modest slow down in upgrade activity. We expect our service revenues to rebound modestly in the current quarter. OEM sales as a percent of revenue were about 50% of total sales essentially unchanged from the prior period. Sales to our largest customer including outsourcing partners were about 17% of our business compared with about 20% in Q4.

And we ended the quarter with a backlog of $6.2 million unchanged from the end of the year. Head count at the end of the quarter was 515 people including temporaries. Our permanent work force is now below 500 people. Over the past two quarters, we have reduced our employee population by over 150 people, a reduction of about 23%. These reductions which are part of the overall restructuring plan we announced last summer have significantly reduced our break even revenue levels as we have made considerable strides in our effort to return to profitability. Our gross margin in Q1 was $7.8 million or 33.1% of sales compared with 28.1% of sales in Q4 excluding an inventory write-down that we took in the fourth quarter.

The increase in our gross margin percentage in Q1 was due to improvements in our manufacturing operations as well as reductions in our overhead structure as we began to see some of the benefits from several recent manufacturing initiatives. R&D expenditures for the quarter were $2.7 million compared with $3.6 million in Q4. We have now transitioned several critical development projects including a launch of the Onboard IS family of cryo pumps and the introduction of the Micro-Ion Plus combination gauge. As a result, we have been able to reduce our R&D expenditures while still funding new initiatives. Selling, general and administrative expenses for the quarter were $7.8 million, a reduction of $1.1 million or 12% from the Q4 levels.

As a result of these factors, our total operating loss for the quarter was $2.6 million. Roughly one half of the loss we reported in Q4 excluding one-time charges at essentially the same revenue level. The contribution to our profits from our joint-venture in Japan was $290,000 and net interest income in the quarter was $253,000. The net loss before taxes was $2.1 million and our tax rate for the quarter was 32.5%. Let's now turn to our balance sheet. At the end of the quarter our cash and investments were $69.4 million, an increase of approximately $6 million from our year end level. This increase was due to an $11 million tax refund that we received during the quarter. Customer receivables were $17.3 million, about $2 million higher than the year end balance. Our DSO was 66 days compared with 58 days at the end of the year.

The increase in our receivable balance and in our DSO was due to the unusual skew of our Q1 sales due to the timing of customer plant shutdowns. As a result, almost half of our quarterly revenues occurred during the month of March. Our DSO will return to more normal levels in the second quarter as our revenue skew returns to a normal pattern. We do not have significant collection issues. Inventory levels were essentially unchanged in the quarter at $23.6 million. Inventory turns were 2.7 times, also unchanged. Capital expenditures for the quarter were about $400,000. As we have previously indicated, we completed several major capital projects during FY 2002 supporting our new product initiatives and the introduction of our Global Information System and would therefore anticipate lower capital spending levels this year. Having said that, Q1 was particularly light and we expect capital spending for the full year to be in the $3-4 million range. Depreciation was $1.5 million in the quarter and we expect to remain at this level for the balance of the year. Today we announced that our board has approved a quarterly dividend of 4 cents per share unchanged from the prior quarter.

Now I'd like to provide some insight in the current quarter. Our business has remained remarkable stable for the past several quarters and we see this trend continuing in the second quarter. Planned shutdowns of key OEMs have tempered our revenue performance and we have preliminary indications this trend may continue in the current quarter. As a result, we anticipate that Q2 revenues could range from flat to slightly improved over Q1 with some improvements in the bottom line performance as we have made significant strides in reducing our ongoing expenses through a combination of head count reductions, facility closures and consolidations, improvements in manufacturing efficiencies and reductions in discretionary spending. We remain committed to achieving profitability and positive cash flow for the corporation and we'll be able to deliver on these objectives with only a modest upturn in business conditions. Now I'd like to turn the meeting back to Bob.

Thank you, Jay. Again to conserve time we're going to move directly to the Q&A session. Operator, we'd like to open the lines for questions.

Thank you, sir. Once again ladies and gentlemen, if you have a question at this time please press the 1 on your phone. I will take the first question from the line of Ali Irani from CIBC. Please go ahead.

Good afternoon, gentleman. Congratulations on the quarterly improvement. This is very typical of Helix performance from other cycles. I'm glad to see it come back again, Bob. I was hoping you could give us some color on Granville-Phillips and the new product. Obviously there's a lot of potential, there's fragmentation of the end market and the customers there and I'm hoping that especially the non-semi businesses can help grow the diversification of the business line and I have a follow-up from there.

Let me begin and maybe James can add some additional color. To set the scene, I want to make one thing very clear to you; we're not following into the trap that just because we're in a down part of the cycle that suddenly all of our focus is in non-semiconductor. Our principal focus is still very much committed to the semiconductor side and our product development portfolio at Granville-Phillips is again has a heavy orientation to the semiconductor side. That said, as many of you know, the analytical instrument market has always been a major market for Granville-Phillips. Within the analytical instrument market, we continue to strengthen relationships with key instrument manufacturers and we are starting to see, again, the output of particular joint product development programs for selected OEMs in the instrument business. And, in addition to that, I think one place where enhancing our effort is with the direct users by improving not only the product portfolio for those end users but importantly distribution mechanisms and access to market. Maybe James, you want to add a few comments there.

Hey, James.

A couple of quick comments. I think it's important to - in our end user market, there's still a very strong preference for the highest end of the Granville-Phillips products. Our stabilizing gauge is a product line that's very well received in the end user community. To that I would just add that in the OEM world, there are situations where they are looking for more price -- less performance in some cases and less price to the OEM. The product lines that we are positioning with right now give us the flexibility to still provide the high end performance for the end users directly but to have products that offer something more in line with what the OEMs are offering. The products we are launching right now will have a lot more flexibility, a lot more ability to select price performance point that worked for the OEMs.

James, historically the Granville-Phillips business has been known exactly that, the accuracy of the products. When you see this transition starting to nanometer, is there a market share opportunity in that for Granville Phillips?

Yes, it gets back to the preference from the end users which also affect the OEMs down to the nanometer range to make sure that we have got a very accurate repeatable stable product especially in the high vacuum machines where [INAUDIBLE].

Please, let me just add something, I think you noticed that in both business areas, we never talk about product lines, we talk about important platforms. That's a mind set at Helix. We began in our pump business and we've carried that into our gauging and instrumentation products. Where we invest in platforms and then we can custom tailor solutions for individual customers or individual applications. That, then, positions us to be able to respond to customers who want more for more and customers who want more for less. But in order to get more for less, it's not about just cutting price it's about tailoring the capability we're delivering at the price point that the market demands. The concept of product platforms is very much part of the thinking and you know that's the way we always talk and talk about our product introductions and to your question in the gauging area, it's very much a platform orientation that gives us that flexibility without having product proliferation.

And one follow-up question for you, Bob. On the CTI side, I remember the talk about two quarters ago about the Litho market opportunity, now that those platforms are ramping in 300 millimeter, can you give us a sense of the contribution and whether it's growing to the business and also generally how much 300 millimeter represents of your sales?

On the lithography is just one example of emerging opportunity for us and, again while we have some product offerings that are on current generation products that are currently ramping and shipping, a lot of our focus that we've been talking about in recent quarters is about next generation product so we don't want to mislead you about the issue of ramp and the specific target platforms we're involved in. I think you're also going to find us consistent with our strategic commitment of across the fab to be talking about other process steps that we have historically not been involved with and that's some of the activity that has us particularly encouraged at the present time.

And this is again on the CTI side?

Actually on both sides. On both sides. In terms of 300 millimeter percentage of sales, I'm looking around the table and seeing all heads shaking. We don't have that number at our fingertips this afternoon. Jay will get back with a number.

Terrific. Thanks again. And congratulations for the improvement.

We have a question from the line of Mark Miller with Hoefer and Arnett.

Congratulations, also. Doing a good job bringing down your break even level. A couple comments on some calls that have been on earlier this week, people have seen some pickup over the last couple weeks in [INAUDIBLE], in customer activity, I wonder if you've seen that and basically how did the March quarter go? Was it linear or were things; picking up at the end of March for you?

Let me give you the perspective there in terms of, as Jay said earlier, the quarters have continued to be remarkably stable. What we mean by that is weekly booking rates remain remarkably stable. If you dig underneath that, what you really see is one area of our business will pick up off setting a little fall back in another one. So it's one step forward, one step backward. The good news of that scenario is again the solid foundation that we have that traces its heritage all the way back to early October. The bad news is we'd like to get to the point where it's one step forward, another step forward and another step forward so that you can start to really build momentum. When we talk about flat, that's aggregate flat, and it is about one guy moving ahead a little bit, another sector pulling back a bit.

What was your cash generation or usage from operations?

This is Jay, Mark. We actually used a little bit of cash on the quarter probably to the tune of about $3-4 million. Again, you got to look at those numbers with a grain of salt because a lot of that was due to the fact that our receivables balance went up because the revenue came in late in the quarter.

Okay.

As Bob and I have indicated, we've made significant progress and with literally a modest upturn in revenues, we should be at cash break even fairly soon.

Final question, I don't sense there is, have you seen major shifting especially in the cryo pump area, you still have a very document share?

We have a very strong position and, again, I think from our vantage point, it's also part of our rather upbeat tone of conversation. Q1 saw real demonstration of what CTI-cryogenics products are all about. Not only in the eyes of our end users but in the eyes of our OEMs where they really, in a couple of cases, took a look at alternative products and at the end of the day concluded we had the right product at the right time, price, performance and support. We are feeling pretty good having been tested against potential entry points, and, again, the products have really delivered on expectation.

Thank you very much.

Thank you.

And our next question is from the line of Robert Stern with Needham Please go ahead.

Good afternoon, everybody. You talked about considerable momentum in the Outboard IS product but with Granville-Phillips you talked about market share gain. Is it the correct interpretation to assume that the progress in the Outboard IS is more in the applications lab than with customers? And could you be more specific with regard to Granville-Phillips as to where the market share gain was. Was that combination gauges, was it stronger in OEM or end user, was it strong in sputtering or Ion implants or perhaps outside of semiconductors.

Let me take the first piece of the question, Rob, to clarify the language, if you will. Market share gains I'll come back to with Granville-Phillips. The Onboard IS momentum is for us, the momentum is the transition from our Legacy Onboard System which has been the industry standard for both 200 and 300 millimeter systems to our newest platform, the Onboard IS platform and the rate of conversion particularly in the 300 millimeter area to Onboard IS has been the focus of our activities. The Onboard IS is a system that delivers the highest levels of product performance for the customers and has a much more attractive cost price relationship for us and our customers. So when I talk about the momentum in CTI-cryogenics and the Onboard IS, I'm referring to the transition from Onboard products and the closing of the door to any competitive thrust against the strong position of CTI-cryogenics.

So these are design ins

You know I don't like the words "design ins", I only care about shipments. These are design ins that have resulted in an increasing level of shipments and the conversion of product mix that's really gaining momentum and again will help us significantly in Q2 versus Q1. With regard to the Granville-Phillips piece, a little more complex to answer your question given the broad range of customers, I will tell you we've had both successes and we've also had our share of lack of success or lack of progress at target accounts for particular products. If I could focus a second on the successes, the successes have been market share gains and market share gains do come in the context of combination gauge. Those combination gauges have certainly been at second tier customers, second tier OEM accounts and in select tool applications at what we would call the first tier or the largest OEM accounts where they may have had an alternative product on a tool, they have had deficiency issues with the competitors product and Granville-Phillips has been able to come in and demonstrate a superior product for particular applications deficiency. Where we haven't had maybe the level of success that we would like to have but we;re still in there working hard is to increase the rate that we knock the other guy off of tools. But it's an ongoing process. So in the aggregate at GP, we're quite happy in terms of, again, progress in the quarter and w're also very enthusiastic about, again, there will be through the course of the year more and more announcements about additional products that will flow out of the product development activity, each one targeted at a particular customer/competitor opportunity.

Very helpful. Can you make any generalizations about how much longer the window will stay open for some of these new tools before the configuration becomes fixed so that you still have the opportunity to maybe kick out somebody who thinks there might have been designed in?

That's a great question, Rob. I will tell you that the Helix mind set is that we are highly respectful of people who are in a tool. We don't think that displacing a current supplier is a particularly easy track. And particularly if you're trying to do it the way we are doing it, which is performance-based as opposed to merely walking in the door on day one and offering a product at a ridiculous price unless the product offering has a significantly lower cost and that gives us obviously some flexibility but we tend to be market priced guys as opposed to cost plus guys. Short answer to your question is we think that the window is always open if you are solving real problems that exist with an incumbent product. But we, again, are respectful in terms of products that are working well where there's little incentive to changes is an opportunity but a much tougher one.

Thank you very much.

Thank you.

And our next question is from the line of Theodore O'Neill with AG Edwards. Please go ahead.

Thanks, very much. Bob, going back to your comments about the industry taking one step forward and one step back, in the last quarter, I believe we had pretty much one step forward our of the implant business, and I was wondering if you could comment about the upcoming quarter, where you think the step forward will be in the next quarter.

Right on the mark, Theodore. The implant was that one step forward. We talked about that in our last conference call as one of the bright spots and it was a very bright line. That, I think, is part of Jay's tempered view about how much progress will we make in Q2 compared to Q1 given the particular strength in implant. And I think we again want to be cautious of not getting ahead of the calls of our individual customer sets, but that is an area that we continue to watch closely so that the overall balance continues to move forward.

Thanks. And I don't know if Jay covered this on the call, can you talk briefly about the one or two things that were so critical in getting your gross profit margins up sequentially?

I think it was a combination effect, Theodore. Number one, part of our entire relooking at the company, we made significant improvements and reductions on manufacturing overheads. We've also been working with our suppliers and looking at opportunities in that area, and frankly, as we move to the Onboard IS product and combination gauge product, those are products which give us significant cost benefits over the products they're, particularly in the case of Onboard IS, displacing. So it's a combination of newer products, more efficiencies and lower operational expenditures in the manufacturing area.

So we should expect with a similar level of revenue, you can put up a similar gross profit margin going forward?

Let me be more specific, with a similar level of revenue, we'll actually continue to show some favorable improvement in gross margin because the changes that we're talking about are continuous, not one-time changes. Some of the benefits that we were able to get in the first quarter, we don't have a full quarter's benefits in the numbers. So I would expect that moving forward, our margins will continue to strengthen.

Terrific, thanks, very much.

Okay. Again, we are watching the clock here so we're going to take one last question to be able to fulfill our commitment on timing.

Thank you, sir. We have a question from the line of Mr. Steven Pelayo with Morgan Stanley.

Made it in under the wire. Couple quick questions here, Bob. You talked about a very stable environment you've seen here. In the past you talked about this $2 million a week run rate. But yet you talked about 50% of revenues coming in the March quarter. So I'm curious, how much of that was related to just kind of a pickup after some shutdowns, how much was that related to a pickup in the general environment and if it is just a pickup, those shutdowns, then does it slow back down now as you go into this next quarter back down to the $2 million a week run rate basis because you continue to forecast a stable environment?

Let me pick up on that one, that's easy. If you look at the way the industry operated in Q1, of course, the first week of the quarter was still coming off of the shutdowns from the Christmas-New Year's time period. We then had shutdown in February at key OEMs. And for us we actually do a four week, four week, five week. So March was our five weeks so you can start to see we were back on track, if you will, but that's what we mean by half of the business being in the March quarter. That said, the number that you use there is still the operative number. Nominally, we are looking at these $2 million weeks. For us, you know, whether it's 2 or 2-1 or 2-2 or 1-9, that's at the point we're at, very significant to us.

Last couple quick questions were relative to the R&D level that's being spent, it looks down quite a bit, is that the new run rate? Should we think flat going forward from here and one final question was relative to the equity income line from Japan. I would expect with maybe some of the flat panel activity in your relationship with [INAUDIBLE] could see some more activity there. Any comments?

Yeah, first on the R&D run rate, that's a good level. James has been deeply engaged in reviewing the R&D portfolios in the operations. We are both excited and committed, but we are highly focused and I think we've cut out a lot of peripheral activity so they're targeted development programs and we think this level of operation for the next several quarters is probably a good rate. And, again, your observation is correct relative to the JV and flat panel, and that's one of the reasons why we've had the strong contribution in the current quarter. And as we have said before, as the flat panel business goes, so goes the performance of the JV.

Great.

Okay. Thank you very much. Thank you, operator. As I said earlier, we're really quite pleased with where we are at today, but I do want to assure each of you we are not complacent. We have our hands full, our people are hard at work engaging with customers, developing new products and service offerings, transitioning the new platforms into production and relentlessly driving down our costs. We continue to operate in a challenging environment but we believe we are on solid footing. We remain committed to achieving profitable operations and positive cash generation. We are looking forward with high expectations to the long-term growth of this business, and we particularly appreciate your continued support. In closing, I'd like to extend our best wishes for the holidays to each of you and we thank you for joining us this afternoon. Have a good evening.

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