Azenta Inc (AZTA) 2004 Q3 法說會逐字稿

Welcome to the Helix Technology third-quarter teleconference. 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. (OPERATOR INSTRUCTIONS) As a reminder, this teleconference is being recorded. I would now like to turn your teleconference over to the President and Chief Executive Officer, Mr. Robert Lepofsky.

Welcome, ladies and gentlemen. It is our pleasure to have you join us for our third-quarter 2004 conference call. We intend to keep our introductory remarks quite brief this morning to allow adequate time for your questions. It is our goal to respond to your needs for information and a deeper understanding of the drivers of our business. And with all that has been said over the past couple of weeks about the general state of our industry, we will tend to be a bit more Helix centric in our comments today rather than to just repeat the messages you've already heard about the state of our markets.

Joining me on the call this morning are Jay Zager, our Chief Financial Officer; Jim Gentilcore, our Chief Operating Officer; and Bev Couturier, our Director of Investor Relations. But before we get underway I would ask Bev to advise you of our Safe Harbor disclosure.

Good morning, everyone. We assume that each of you has received a copy of our earnings release that we issued this morning. If that is not the case please call 508-337-5282 and we will fax one to you immediately. Now I'd like to take a moment to read our Safe Harbor statement.

The following conference call contains forward-looking statements including statements regarding the future performance of the Company's business in the semiconductor capital equipment industry which are subject to a number of important factors which could cause actual results to differ materially from those indicated.

These factors include 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 industry conditions, the Company's success in sustaining order bookings and other risks contained in exhibit 99.1 to the Company's annual report on Form 10-K and its other filings with the Securities and Exchange Commission. The Company assumes no obligation to update the information in this call.

Thank you, Bev. By now each of you has no doubt seen our third-quarter results. Continuing the incredibly high standard of performance we have set regarding full and timely disclosure of all of our financial information, I'm pleased to advise you that today again we have virtually simultaneously issued our press release and filed our 10-Q in order that you may have a complete picture of our financial performance for the past quarter. This action is again typical of the commitment to excellence in responding to the needs of customers, employees and shareholders that is pervasive in the culture of Helix.

Standing alone we believe our third-quarter results are impressive. But against the backdrop of constrained market conditions and slowing order booking rates in the semiconductor capital equipment business, our results clearly demonstrate the excellence in execution you have come to expect from Helix Technology Corporation and the viability of our operating model in both expanding and contracting market environments.

On sales of just over $40 million gross margin remained above 40 percent, operating margin exceeded 11 percent and our bottom-line pretax margin approached 14 percent. Please note that, as we have advised you in the past, we measure our performance on a pretax basis as our tax rate continues to move around depending on customer geography and other issues that Jay will discuss more fully a bit later in our call.

As impressive was our balance sheet performance. We generated over $7.5 million of cash before dividends and discretionary pension funding payments. The excellence in working capital management that we are known for was well demonstrated. Despite lower quarterly sales we had reduced inventory levels and flat DSO metrics that drove our excellent working capital performance. We have an objective of consistently beating peer group companies in key financial metrics throughout the business cycle and we believe that we will achieve this goal again this quarter when everyone's numbers are in.

I'm extremely proud of the efforts of the entire Helix technology team which includes both our employees and business partners throughout the world. They remain committed to a high-level of performance despite an ever-changing and always challenging external environment. Now I'd like to turn the call over to Jay who can go into our numbers in more depth and then I will return to share with you our thoughts about current conditions and forecasted expectations prior to opening the lines to your questions.

Hello, everyone. This morning I'd like to provide some insight into the financial results we just released and offer our perspective on the current quarter. Sales for the third quarter were $40.4 million, a decrease of 8 percent from our Q2 levels and 55 percent higher than a year ago. This decline is consistent with reports from other industry participants and reflects the recent softening in the semiconductor capital equipment markets.

Our operating profit for the quarter was $4.6 million or 11.4 percent of revenue compared with $6.7 million or 15.1 percent of revenue in Q2 and a $1.1 million operating loss a year ago. Net income was $5.8 million or 22 cents per share. In the quarter we adjusted the 2004 tax rate from 18 percent to 12 percent primarily as a result of a reassessment of our full year tax position. This adjustment added 4 cents to our earnings per share. Orders for the quarter were $37 million, about 19 percent lower than our Q2 level. Our book to bill ratio was about .92. Let's look behind these revenue levels.

Sales to semiconductor customers were about 70 percent of our total, unchanged from the prior quarter. Sales attributable to our CTI cryogenics vacuum pump products were about 85 percent of our total while sales of our Granville-Phillips vacuum measurement and controls instrumentation products were about 15 percent of the total. Our global customer support business contributed about 30 percent of our total revenues, unchanged from the prior quarter.

We continue to be pleased by the progress we are making with respect to our TrueBlue service offerings as several new contracts were signed in the quarter. Customer response to this program has been extremely favorable and we are building a steady sustainable revenue stream. OEM sales as a percent of revenue were slightly under 60 percent, unchanged from the prior quarter. And sales attributable to our largest customer, including outsourcing partners, were 28 percent of our business compared with 29 percent in the prior quarter. And we ended the quarter with a backlog of $14.2 million compared with $17 million in Q2.

Headcount at the end of the quarter was 608 people including temporaries, essentially unchanged from the prior quarter. Our permanent headcount remains at about 500 people.

Our gross margin in Q3 was $16.2 million or 40.2 percent of sales compared with 41 percent in Q2. The reduction in our gross margin percentage was due entirely to the lower sales volumes. R&D expenditures for the quarter were $2.7 million, a slight increase from the Q2 level of $2.5 million. Selling, general and administrative expenses were $8.9 million, unchanged from the prior quarter. Higher sales and marketing expenses related to Q3 industry and tradeshow activities were offset by reduced G&A spending. As a result of these factors our operating profit was $4.6 million compared with $6.7 million in Q2.

The contribution to our profits from our joint venture and Japan was $774,000 compared with $860,000 in Q2. We continue to be pleased with the performance of our Japanese joint venture. And net interest income for the quarter was $256,000 compared with $221,000 in Q2. This increase was due to both an increase in our average cash balance as well as slight increases in interest rates. Profit before taxes was $5.6 million compared with $7.7 million in Q2. And we earned $5.8 million or 22 cents per share.

These data reflects an effective tax-free for the quarter of -2.3 percent and an overall tax rate for the 9-month period of 12 percent. The reduction in our overall tax rate from 18 percent to 12 percent reflects primarily a decrease in our projected full year 2004 earnings.

As we indicated in our last conference call, Helix has been subject to an IRS audit a related to certain tax provisions taken on prior year returns. This audit is expected to be resolved either later this year or early in 2005. It is probable that the resolution of this audit may result in a onetime favorable tax benefit. This benefit will be recorded in the period the audit is settled and is not reflected in our current tax assumptions.

Let me now turn to our balance sheet. At the end of the quarter our cash and investments were $76.5 million, an increase of slightly over $4 million from Q2 and about $9 million above our year end levels. Cash from operations exceeded $7.5 million in the quarter. During the quarter we elected to make an optional $1 million contribution to our pension plan. We may choose to make an additional contribution this quarter.

Customer receivables were $24.8 million, a reduction of about $2 million from Q2 reflecting lower sales volumes. Our DSO at the end of the quarter was 55 days, unchanged from the prior quarter and we do not have any significant collection issues. Inventory levels declined by almost $1 million to $20.7 million. Inventory turns were 4.7 in the quarter, essentially unchanged from the prior rates. Capital expenditures were about $700,000 in the quarter and we anticipate full year capital spending will be in the $3 million to $3.5 million range. Depreciation was $1.3 million for the quarter and should remain at that level in Q4. And earlier this week our Board approved a quarterly dividend of 8 cents per share, unchanged from the prior quarter.

Now I'd like to provide some insight on the current quarter. We expect continued softening in the semiconductor capital equipment market this quarter. Reflecting on this we believe it would be prudent to project Q4 revenues at least 10 percent lower than the Q3 level. As we have indicated in prior discussions, we expect to mitigate the full impact of the lower revenue projection on our bottom-line results through continuous improvements in our manufacturing operations and through close management of our discretionary spending. We remain committed to generating operating profits and positive cash flow from operations despite this lower revenue projection. And now I'd like to turn the meeting back to Bob.

Thank you, Jay. Helix has a reputation of saying what we are going to do and doing what we say. Last March when sales were accelerating rapidly we laid out our game plan for 2004. Financial performance targets, market and product development plans, and the steps we plan to take to position Helix technology to meet longer-term expectations. Today external market conditions are substantially different, but we remain on course despite lowered expectations for revenues and lowered EPS numbers. On an incremental basis we will still deliver excellent drop through margins.

Muted end product demand and expanded production capacity as a result of both new tool deployments and the impressive productivity of those tools, particularly those tools processing 300 millimeter wafers, has resulted in lowered fab utilization rates and a slowdown in the rate of capital expansion across the industry. The impact of short cycle times throughout the food chain has given chip makers the ability to act quickly and rationally to their situation.

We believe that the current pullback is healthy and will limit the massive overbuilding and subsequent market collapses we have seen in the past. As demand and capacity come back into balance we would expect a fairly rapid resumption of new fab expansions. We believe that the efficacy of 300 millimeter factories that has now been demonstrated and the drive to technology nodes below 90 nm will be the basis for the next round of capital expenditures. Whether market conditions improve early in 2005 or later in the year, our own plans remain on track.

Our operating model is flexible enough to accommodate fairly wide swings plus or minus 25 to 30 percent in revenues while still allowing us to be responsive to customers, to be profitable and to be cash generating. Our mix of products and support services provide us with new revenue expansion opportunities even during these periods of constrained tool deployments. Our strategic product and market development initiatives are moving forward and are being embraced by customers now and not being pushed into the future. The response to new products, to new customers and new customer support capabilities to existing customers are the basis of our positive and upbeat tone notwithstanding the pressures of a weakened order outlook.

In short, we find ourselves quite well positioned. We have an operating model designed to perform for the benefit of both customers and shareholders in both rising and receding markets. Our commitment to a strategy centered on the needs of our customers for process tool productivity, tool availability and operational economics is a winning strategy. It has positioned us for short-term performance and for long-term gains. We think it has also positioned us to be a core holding for our shareholders, earning attractive returns throughout the inevitable cycles.

With those thoughts as a backdrop, we would now like to open the lines for your questions. Operator?

(OPERATOR INSTRUCTIONS) Robert Stern, Needham & Co.

Could you give us some color on what's happening with your productline and the way the 200 millimeter and 300 millimeter is playing out and how particularly that's going to affect you in the 300 millimeter shift? And also, as a corollary to that, I noticed that the mix between the cryopumps and gauges went to 85/15 instead of the traditional 80/20. So I'd like to know if that's something that's more related to the softening here or is that a permanent shift in the mix?

The 200 to 300 millimeter shift, we've said in previous calls and we continue to experience acceptance of the CTI line across the board on 300 millimeter tools. On the Granville-Phillips line acceptance on later 300 millimeter tools, the ones that are working their way into the market now but not on some of the first ones that came out. So a specific example, we have an important 300 millimeter tool where our OEM customer is now going out to their customers for early evaluation of the Granville-Phillips solution -- positive results there and now that's working its way into the 300 millimeter mix for us.

So in these particular cases we see -- that's a marketshare shift that will start to show up more dramatically each quarter as 300 millimeter, 200 millimeter mix moves further up toward 300 millimeter.

And just to answer the second part of your question, Rob. We don't see this as a permanent shift in the mix of our business. Obviously quarter to quarter small dollar movements can have an impact on the percentages, but basically I think it's reasonable to conclude that our 80/20 traditional mix is something that we see continuing in the future.

And then in summary, Rob, on your 200/300 millimeter question, 300 millimeter transition continues to be very positive and favorable for us. Content for 300 millimeter tool continues to grow and continues to reflect the newer product offerings in both Granville-Phillips and in CTI cryogenics.

Thanks a lot.

Mark Miller, Hoefer and Arnett.

Congratulations on another profitable quarter. A little more detail, too, on this softening. Are you seeing this across the board, i.e. ion implant deposition or mill type applications or are there pockets that are stronger or weaker than others?

Fairly across the board, Mark. In any given week you see fluctuations, but when we look at 4 week, 8 week, 12 week type trends, there's a real consistency here.

Some firms have noted that the softening really just showed up in the last 2 or 3 weeks. Is that your case or was it more from the beginning of the quarter?

I think we began the quarter -- remember again, the short cycle time issue on orders, tools, etc. We clearly began this quarter more optimistic and positive than we were at the end of the quarter, but clearly in August and September we started to see the tempering of the order book. And I think that the only reason that we see it a little sooner is, again, we're so tied to the reality of actual tool deliveries.

I think some of the other companies have the issue of inventory lead/lag and customers that are buying to inventory tend not to adjust as quickly as the reality of tools going out the door. I think that's also why we've seen this consistency, if you will, in the flatness for a little bit longer than some of our peers.

Thank you.

Tim Summers, Stanford Financial.

Regarding the 200/300 millimeter split, I was wondering -- if you look at business in the third quarter, and I'm asking for generalities here, could you quantify the value of Helix components on say an average 200 implanter versus an average 300 millimeter implanter and also do it for PVD as well?

Tim, in the past we've pointed out that there's a combination of the process chambers where our products are used and the vacuum chambers themselves. In both cases there are more spots on a 300 millimeter tool where both pumps and gauges of Helix are being used. In some cases, as we said on the gauge side, it's market share gain and on the pump side as well. It's just more holes on the vacuum chambers or the process chambers that are using 300 millimeter tools. We don't talk specifically about the content on each tool and dollars per tool, but the chip is in the right direction for 300 millimeter.

Alright. Thanks, Jim.

Mr. Lepofsky, please continue with your presentation.

Thank you, operator. As we close today we want to thank you for your participation this morning. We appreciate your continued interest in our company. We hope you have a good day. Operator, that concludes our call this morning.

Ladies and gentlemen, that does conclude your teleconference for today. Thank you for your participation and for using the AT&T Executive Teleconference. You may now disconnect.