Azenta Inc (AZTA) 2005 Q1 法說會逐字稿

Ladies and gentlemen, 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 giving instructions at that time. If you should require assistance during this call, please press "*" then "0".. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to our host James Gentilcore. Please go ahead.

Thank you, Operator. Welcome, ladies and gentlemen, and thank you for joining our first quarter conference call. Joining me this morning are Paul Kawa, our Interim Chief Financial Officer and Bev Couturier, our Director of Investor Relations. I will ask Bev to advise you of our Safe Harbor statement and then we can begin. Bev?

Thank you, Jim, and 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 508-337-5172 and we will fax one to you immediately. Now I would 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 and the semiconductor capital equipment industry, which are subject to a number of important factors that may 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. As you can see from our earnings release, we had sequential improvement in revenue over the fourth quarter of 2004 and improved gross margin. As stated the majority of the revenue increase was from Polycold, but were up slightly in our other businesses as well. When considered against the backdrop of some recent calls in our sector, it demonstrates that we are on track with the new product and services programs that will contribute organic growth through this cycle. The sustainable gross margin improvement comes from a combination of new products that are better for Helix and its customers and continuous improvement in manufacturing and material performance that we will drive throughout the year.

The first quarter was one of many accomplishments and some disappointments. An important accomplishment was the completion of the acquisition of Polycold Systems. On February 15, our two companies began the post merger acquisition process and demonstrated the planning and execution that has consistently made Helix a high performer or equally important to the integration process. The team leaders from both companies are hard at work on the execution of this phase and we expect to complete the integration on schedule and to move on to the long-term synergies that will create lasting value for our customers and shareholders.

The real excitement in this phase is the direct customer feedback on a broader basis than is possible before the merger is complete. We have spent the last two months listening closely to the Polycold customers on all three continents that we serve. We have found that the reputation of the company, the brand and the product are as strong as ever, so we are starting from a solid base. The areas identified for increases in customer satisfaction were centered on infrastructure issues. Their global customers need the infrastructure that Helix brings and the more sophisticated controls and diagnostic capabilities that are inherent in our global support strategy. I have personally met with two of the CEOs of their larger customers and they have made it very clear where they see the strength of the combination and where we should put our emphasis. The general impression from direct customer feedback is that Polycold meets the standards that Helix customers demand.

Our integration teams are focusing on high leverage areas, such as shortening manufacturing cycle times and sharing system control platforms for next generation products. We have also identified certain of the Polycold sales channels as a way to reach the general vacuum markets and to broaden the penetration for other Helix products from CTI-Cryogenics and Granville-Phillips. As you know, the Helix focus is on the semiconductor, flat panel and data storage markets, but the combination gives us a better vehicle to address the broad vacuum markets, which use all of our products. We are also enthusiastic about the semiconductor equipment side. Because of our focus and reputation in this market, we are already sitting down with key OEMs, who can use the Polycold products not only for vacuum but for a variety of thermal management applications. This is important in the process markets where Helix already participates and in markets like metrology, where the combined applications we are addressing gives us a stronger foothold and a key growth area for Helix.

Paul will address the financial performance in more detail, but at this phase of the integration we are confident that we can capture the full potential of Polycold as part of Helix, and are pleased with the integration process. This is not to take away from the performance of other Helix businesses in this quarter.

CTI-Cryogenics continued the transition of the new on board IS platform particularly in ion implant applications, where throughput is so critical and on board IS has demonstrated its value in enhancing throughput and therefore operating economics.

Granville-Phillips continues to gain traction with a combination measurement solutions, which help our OEM customers minimize the cost of integrating vacuum measurement into their new tools.

Although we started late in this important segment, we believe we have the right products to lead this transition as it becomes the standard on future tool architecture. Our TrueBlue Service Agreements continue to grow in number and in reach. We are glad to see that the acceptance rate is increasing in Asia, where most of the world's fab capacity is moving.

We signed another important agreement with a major foundry in Taiwan in the first quarter and expect our second Mainland China fab to sign shortly.

As I said in the beginning of the call, we also had our disappointments this quarter, but they were not on the operating side. They were primarily in the unanticipated cost of Sarbanes Oxley 404 compliance and estimating our effective tax rate as we head into a more normalized period.

Being an early filer and a year end filer, we were one of that first group of public companies that hit this unpleasant SarbOx learning curve. You should be confident that we are attacking this issue with the same process orientation we use for operational excellence and we'll be better prepared as we deal with this year's compliance cost. By the way, we did receive a clean opinion on all fronts in the first full year of 404 compliance. I will now turn the call over to Paul to give you more detail on the financial performance. Paul,

Thank you, Jim. Good morning, everyone. I'd like to provide you with some perspective on our quarterly financial results which were released earlier this morning. Sales for the first quarter were 38.9 million, which were lower than a year ago by approximately 3.7%, but sequentially higher than the fourth quarter of 2004 by approximately 4 million or 11%. Excluding the results of our Polycold acquisition, on which we closed in the middle of February, Sales are up just over.5%. Net income for the quarter was 1.7 million or $0.07 per share.

Orders for the quarter were 43.3 million up just over 25%, and excluding Polycold up about 11% from our 2004 Q4 levels. Our book to bill ratio was about 1.1. I'd now like to provide some additional details to our revenue results. Sales for the semiconductor customers excluding the results of Polycold were comparable to our prior quarter of 65% including Polycold's results, sales for semiconductor customers accounted for approximately 60% of our total revenue for the quarter. Our CTI-Cryogenics vacuum pump products accounted for approximately 75% of our total sales. Sales attributable to our Granville-Phillips vacuum measurement and controls instrumentation products were about 15%of the total with sales of Polycold contributing approximately 10% since its acquisition of February 15th.

Our global customer support business contributed to about 30% of total revenues for the quarter. We continue to see the trend of increasing customer acceptance of our TrueBlue service offering with several new contracts and contract renewals signed during the quarter. OEM sales as a percent of revenue were just under half of consolidated sales for the quarter. Sales attributable to our largest customer including outsourcing partners were 14% of our business, down from 19% last quarter. We ended the quarter with a backlog of $25.1 million up $11.7 million from December 31st with Polycold accounting for approximately $8.8 million of this increase.

Headcount at the end of quarter was 685 people including temporaries. The Polycold acquisition added approximately 100 employees to Helix. Excluding the impact of the acquisition headcount is down approximately 17 people from our Q4 2004 levels, with permanent headcount remaining at about 500 people. Our permanent headcount has remained essentially flat for eight quarters.

Our gross margin in Q1 was $15.6 million or 40.1% of sales, an increase of 70 basis points from the prior quarter. This improvement was due to favorable product mix and continued contributions from manufacturing operations.

R&D expenditures for the quarter were approximately $2.1 million compared with $3 million in Q4. R&D was relatively unchanged from Q3 of 2004, and it was lower than Q4 of 2004 due to incremental costs incurred in Q4 for a specific technical program.

Selling, general and administrative expenses for the quarter were $10.6 million compared with $9.5 million in Q4. This sequential increase was due primarily to the addition of Polycold and continued high compliance costs associated with implementation of Sarbanes Oxley Section 404.

Our operating profit for the quarter was $2.1 million or 5.4% of revenue compared with 1.2 million or 3.5% last quarter. Our joint venture contributed approximately $0.5 million down from the prior quarter by approximately $800,000.

Net interest and other income for the quarter declined to approximately 121,000 compared with in [370,000] in Q4 primarily due to lower cash balances as a result of our acquisition of Polycold.

Income before taxes was 2.7 million and our tax rate for the quarter was 36%. While our rate was higher than anticipated in Q1, we are aggressively pursuing opportunities to lower our rate for the year.

Focusing now on our balance sheet. Our cash and investments totaled $28.2 million, down approximately 48.1 million from our year end position, which was the result of our acquisition of Polycold. Cash flow from operations was approximately $4.9 million. Accounts receivable totaled 27.7 million, of which Polycold accounted for approximately 4.6 million. Excluding Polycold, customers' receivables declined approximately $1 million from the fourth quarter of 2004 reflecting improvements in collections as our DSO declined to 58 days from 62 days at December 2004. Our inventory levels increased to 23.1 million from 21.6 million at Q4. Excluding Polycold, we reduced inventory levels by approximately $1 million with our inventory turns increasing to 4.1 turns in Q1 from 3.1 turns in Q4 of 2004.

Capital expenditures were approximately $800,000 for the quarter, a level consistent with our prior three quarters. Depreciation was approximately $1.3 million for the quarter. The acquisition of Polycold added goodwill and intangible assets of approximately $43.5 million to our balance sheet. The amortization expense associated with the intangible assets totaled approximately $300,000 for the quarter. Earlier this week, our Board approved a quarterly dividend of $0.08 per share, unchanged from our prior quarter.

I would now like to provide some insight on our second quarter. Including a full quarter's impact of Polycold, we are expecting Q2 revenues to increase over Q1 by up to 10% and gross margins to remain strong. SG&A expenses, which will reflect a full quarter of Polycold, are expected to be marginally higher. As a result of the above factors we are expecting an improvement in both our sequential operating profit and earnings per share. As we have previously communicated, we are committed to improving both, gross margin and operating margin levels during 2005. Thank you.

Operator, we will now open the line for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press "*" then "1". You will hear a tone indicating that you have been placed in queue and you may remove yourself from queue at anytime by pressing the "#" key. If you are using a speakerphone, please pickup the handset before pressing the numbers. Once again, if you have a question, please press "*" then "1" at this time. And one moment please for our first question. And we have a question from Robert Maire, Needham. Please go ahead.

Yes. Can you give us a little more granularity as to the -- either geographic or product breakdown as to where the strengths and weaknesses were? And we have heard other commentary from other companies in the industry about different linearity in the quarter, could you also give us a little granularity as to strength in the beginning versus the end of the quarter and what you see going into the second quarter?

Yes, Robert, this is Jim. I think that geographically we had an even balance in line with what we usually have, obviously because our joint venture in Japan covers a lot of flat panel in Japan, that shows up in a different way than our -- it's not in our revenue number. But strength in Asia was in the service agreements, was where we expected it to be. North American performance was about the same. As far as the level through out the quarter, last quarter it was a fairly even build from the beginning of the quarter, we -- the end of last year was particularly soft and the very beginning of the -- of the first quarter, it started to strengthen and stabilize, I should say, throughout the quarter. Our expectations going into this quarter that we are in are also for a relatively stable performance throughout the three quarters. Because of the short cycle time of our products, that’s -- we tend to -- in all of our businesses I should say, except for Polycold, which is a little longer cycle time at this point. So their business, looking at the end of the quarter, we are in for some of Polycold's more general customers, we don’t have as clear a visibility as we do for our other businesses. But I would characterize the quarter that we are in right now as relatively stable throughout the quarter. We haven’t seen any softening at this -- to this point and I don’t expect it.

Okay. Should I interpret stable as relatively flattish from Q1?

Yeah. I mean it's up slightly, as our guidance would indicate, but very slightly. I would say that just -- this is just my opinion from what we hear from our customers, what we see in the marketplace, we are cautiously optimistic because we don’t see any of the signs that would signal a precipitous drop-off of any sort. So in fact we are -- that’s what’s behind our guidance.

And one last question if I might. I have heard from some other suppliers to the industry of what they perceive as a little bit of a market share shift amongst their customers. The absolute total number remaining the same, but there being a little shifting in terms of share, maybe away from a larger player, have you experienced any other share shifting amongst your customers?

Robert, we certainly wouldn't speak specifically about any share shifting and I would characterize at this point. Yeah, we do see in a general basis on a quarterly -- typically in a quarter depending on the particular customer strength for the particular IDM or a particular end user you might see a stronger quarter for one than another. But generally speaking we don't see any drastic dynamic in of our OEM business, any drastic dynamic shift in any of our OEM business.

Okay great, thanks.

You're welcome.

And our next question comes from Ali Irani, CIBC World Markets. Please go ahead.

Yes, good morning gentlemen. I was hoping you could try to quantify for us the extent of the Sarbanes Oxley costs in the first quarter and whether you'll have ongoing cost ahead as well as part of the marginally higher SG&A? And also if you could talk a little bit about some of the synergies that you could drive with the Polycold acquisition and whether it's possible that we go through the year and continue to see SG&A kind of hold flat here even though your revenues could grow again. Thank you.

Ali, this is Paul, year-over-year Sarbanes increased our cost incrementally approximately $800,000, while we are expecting a definite drop in those costs for the balance of the year. I don't think we're going to return to historical levels. So, while we will be up year-over-year on an overall -- excuse me -- while we will be down year-over-year on an overall basis and down from Q2, I don't think we are going to return to historical levels.

What was the increase on a sequential basis from Q4?

Q4 to Q1 was just over 250,000.

So really most of the SG&A increase this quarter relates to Polycold and I'm wondering how much of that are onetime related expenses due to integration in some of your legal expenses and so on because if I read into your guidance for revenue growth and marginally flat SG&A, it seems that there must be some -- and you're getting a full quarter of contribution from Polycold versus just a half a quarter and yet your SG&A is staying flat. So, am I reading this correctly that there were some kind of one-time integration expenses involved?

Well, the flatness of the SG&A would really be the drop in -- the expected drop in our Sarbanes cost offset by the full quarter of Polycold.

Okay. Could you also perhaps, Jim give us a little bit of view of what you're seeing in your pipeline ahead as you go to the second half I know you've been very lean historically and really times are short, just a couple of days, but perhaps you could give us a sense of what your customers are coming to you in terms of rank capability and, in particular I'm hoping you could give us a sense of what that means for your mix migration to on board IS?

Okay, Ali. First let me also answer your second question that you asked in the beginning about synergies with Polycold. One thing that I mentioned in the prepared statements, we are -- there is two specific situations that I'm aware of already and I am sure there is more that are starting to load in but we're going into customers that are semiconductor data storage or flat panel customers and bringing Polycold and Helix together in front of those customers to look at more integrated solutions where Polycold may have had a piece of the business and CTI and GP had a piece of the business or in some cases where this new application, especially in the thermal management side. So what I am hearing back from the sales organization and our account teams is that the strength that we bring by all three groups participating in development discussions with OEMs that where typically Polycold wouldn’t have been invited to those tables just because of their size. So, they have got product, they have got applications, understanding, they’ve got technology to extend that product. But they just didn’t access into the big OEMs who need a much broader infrastructure. So we're very optimistic. Obviously that doesn’t have immediate short term impact, but in the final stages of integration, we're certain that we're going to be able to capture some of that, integrate it into a more complete solution for the semiconductor OEMs -- semiconductor capital equipment OEMs and start to reap some significant benefits. Moving on to the question about the second half, we -- because we're usually not on the radar screen if there’s a shift one way or the other for our OEM customers, because of a short cycle time, we can react very quickly. So, there's a tendency to -- unless they know they’ve got something very specific that they need to let us know, there's not -- we're not talked to about preparedness because they’re assuming our preparedness. Having said that once again just a personal feel is that the second half of the year is solidifying, I think that the projections, the capital expenditures that we’ve heard about in the public marketplaces and from some of our customers and in private conversations, are leading people to have a confidence that there is not this cliff, even if it's a short one. there’s -- a small one, there's not a cliff that's waiting for us in the second half of the year. And that has been a very consistent message that I've heard directly from some of our larger customers and that our, you know, our regular communication channels are hearing consistently as well. That's what --.

Are you hearing this both from the OEMs as well as the end users, you have a particular insight into the end-users that you serve directly on the service and replacement market.

Right.

Are you getting the same message from both of them?

Yeah. And let me elaborate on that second part, because that’s a good point, Ali. We have, what I would call, a very imperfect model right now. But because of our TrueBlue Service Agreements and the fact -- and that’s a long-term relationship, one to three year relationship with the fabs, they are -- we are finding that unless we are in a sweet spot that we would call above the 80% utilization without a level of precision, I don’t want to imply a level of precision here, but if the utilization rate is stable at the fab and it's in that area where it is extremely important to make sure that you don’t have any kind of uninterrupted down time, we are finding that there is -- the pipeline for our service contract is filling up and it is still staying very strong, as a matter of fact it's strengthening in this quarter. So we interpret that to mean that the utilization at least for the fabs that are talking to us, and in many cases these are leading technology fabs, they want to protect that level of fab utilization. So by contrast if we see fabs that are drifting down into the 70% or towards the 70% utilization or even considering shutting down a portion of the fab and shifting all the productivity to another portion of it, we see a different kind of behavior in our service business. So to this point in time its been up and to the right, and as I mentioned in my prepared comments, at Asia where we were particularly pleased to see that, because we are -- they are starting -- we are starting to adopt our service products to the Asian market better and they are starting to accept the value that the service agreements, these longer term service agreements bring. In essence, we have a goal to eliminate any unscheduled downtime and to optimize their scheduled downtime. So, when you are in the sweet spot of their fab utilization they have a higher interest level in these contracts, and that’s what we are seeing right now.

I have just one final clarification for you and for Paul. When you talk about in your guidance about gross margins remaining strong, could you just give us an indication of where the drop rate is historically when you have seen 10% revenue moves organically, there's been a fair degree of leverage to your gross margins? What should we expect this time around?

Well if we have to adjust that because, if you think about the Poly -- I mean, the drop through of 50% or so that we saw throughout last year for every incremental solid revenue was for organic revenue. Now if you bring the Polycold, the complete Polycold P&L into that, we are not going to get drop through on incremental revenue from Polycold. But in general, -- Paul, you may want to comment on that, on the drop through that we expect to see going forward. While another piece of this, Ali, is that, the amortization from the intangible assets for Polycold is about -- was about 300,000 for this quarter that we were just in.

Something to just breakout of the SG&A line.

Right.

Great. Thank you very much.

And our next question comes from Theodore O'Neill, Wells Fargo Securities. Please go ahead.

Thanks very much. If I do the math right and back out, what I think is, Polycold in the next quarter, it looks like the ex-Polycold business is flat quarter-to-quarter? Have I got that right?

Let me see. Let's see. If we take about roughly 7 million out of the quarter, and -- yeah, I mean it's -- Theodore, I think that is safe to say. Generally speaking it's going to be -- it's flat, up just slight, very much like you saw Q4 to Q1.

Yeah. Now Jim, I heard what you were telling Ali just now about what the customers are saying, but if I look at Samsung, for instance, Intel, Talent Infrastructure (phonetic), they have all spent a third or more of their CapEx budget already in the first quarter. I know those three are a big chunk of the whole Megillah. So, while your customers might be saying one thing, I understand that's what you got to work with, how do you feel you are situated to flex downward on the expense side if we have a cliff in the second half?

Okay. First of all, a clarification on the first part. When we are talking about fab utilization and as it relates to our service business and where we get insight into that, that’s really for fabs that are already up and running. So it's not really -- its not addressing what’s happening with new CapEx that's just coming online now. But -- and for the second part, I guess, I would only say that Helix has demonstrated throughout the cycle that we know what we have to do get the breakeven point down and we know how to get there in a hurry. It’s a drill that we have at the ready if we need it. And just for historical perspective, last -- in the last lower part of the cycle we were running at a 27 million breakeven, a slightly lower cash breakeven. Now we have to factor Polycold in and we are still trying to refine the model for that. But we believe that we have got room to get the breakeven down quickly if we have to if in fact we saw a precipitous drop. So it's going to be speed to getting it down more than and careful not to do that if the business stays as steady as it has been.

So, the sort of back of the envelope breakeven would be some thing like the 28 million plus half of Polycold's revenues which would put it up in the 33-34 million?

That’s probably a good back of the envelope. You know I think we can -- we will certainly refine that a bit more and we're still working that ourselves but I mean the best way to look at it is that we can as I said we can get we know what we can do with the business before Polycold. We know that Polycold's got a good operating model that came over and is still working fine. They have got good variable cost in their model as well. So I would think that the relative ability to drop breakeven if have to is not impaired by the addition of Polycold.

Right, sure and you have mentioned the thermal management market is that is part of that thermal chuck?

Yes. The two biggest pieces of it that are chuck cooling in a variety of process applications and then also cooling of detectors and in the semiconductor market those detectors are typically used for x-ray diffraction accessories that are used in.

Metrology,

Metrology, right. So they are already established there, you know, Polycold would be selling to a subsystem provider to the electron microscope, to the KLA's, the Hitachi's, the applied materials. So, you know, two -- so we have that product for device cooling and then also as I said earlier chuck cooling for a wider variety of processes.

And my last question, did the timing of Jay's leaving impact the Sarbanes Oxley costs you are complaining about?

No, the 2 incidents are unrelated. You know, I wanted to say earlier that I think what we learned is that in retrospect we decided to put all of the load on our audit firm and our inside people and to avoid outside consulting and that was something that Jay believed was the right approach to take. I think what we learned because the audit firms were training armies of new accountants to deal with this that we didn’t have the more efficient use of our human capital on either side and so there were in retrospect there were probably some outside experts that could have helped alleviate some of this cost and on a go forward mode as I said you know we learned from that. We are working with our audit firm to make sure they've learned as well and you know we are pretty good at process assessment here. If we can minimize the number of control points, it has to be tested but still meet all the compliance criteria and we are confident that we can get this cost back moving in the right direction but as Paul said earlier, it would be unrealistic to portray at this point in time that its going to get back down the historical levels that we all saw before SarBox 404.

Okay. Thanks very much.

Okay.

Our next question comes from Mehdi Hosseini with FBR. Please go ahead.

I wanted to further understand the Polycold business and as far as I could understand it when it comes to flat panel displays used for DVD is there any chance that Polycold could be or Polycold application could be extended into CVD? And my second question has to do with margins. Could you help us understand what your targeted gross margin is now that you have closed Polycold acquisition?

Our targeted gross margin on a consolidated basis?

Yes.

Okay. Let's hit that one first, that’s the easiest. As we said in our prepared statements, we are -- we believe that we can improve the gross margin throughout the remainder of this year. And that’s a combination of product mix across all of the business set areas. It's a continuous improvement that we get because we're constantly working our cycle time issues, and in fact we have momentum going in sourcing products in low cost regions, both Asia and Mexico, that are helping to keep our material costs in check and actually moving -- lowering our material cost. So with all three of those things, we would expect improvements quarter-over-quarter -- and Paul -- 100 basis points per quarter just as a rough rule.

And this is assuming that the core [semi-cap] business would remain flat for the rest of the year?

Well, there's an assumption that there is some growth, but very, very modest and it really is kind of in line with this couple of percent per quarter, 1% to 2% per quarter growth that we're experiencing right now. Now having said that, I’ve been in the business for 28 years now and I can’t remember too many times when we had three or four quarters of stability like this. So it could change one way or the other very quickly and we're certainly aware of that. But, yeah, the assumptions are that there's very modest growth in the second half of the year, except for some of the new market opportunities that we’ve been talking about in metrology, and then I guess that’s a good segue into your other question about flat panel PVD for Polycold and then moving to other process applications. So let me answer that. First of all, let me try to paint a picture of the flat panel market as we see it. We participate in three different ways. We have our joint venture with Allvac, who is one of the larger providers of PVD tools and our joint venture – a 50-50 joint venture provides the majority of the vacuum requirements -- the cryogenic vacuum requirements and water pumping requirements to Allvac. In fact, Polycold is also a supplier to Allvac for some applications where the helium refrigeration cycle just does not meet the full requirements. So we -- those two Polycold and UCI are peacefully co-existing with their largest customer -- with UCI’s largest customer, and that’s where we participate in a big way in flat panel. We also participate with CTI and Granville-Phillips and we participate with the other PVD providers, as well as Allvac through CTI and Granville-Phillips. Polycold participates in all of those segments. And for the kind of product that Polycold has, which is a water -- a cryogenic pump, but it is water pump primarily, there -- I don’t know of any technical reasons why it wouldn’t be able to be used in CVD in conjunction with a more classical turbo molecular pump that would be used for the PVD process. But the advantage of Polycold is the very, very high water pumping speeds. And there is no way of getting around the water vapor that will come into a very large generation seven process chamber, whether it be CVD, PVD or any other kind of process. So we do think that there is extendibility over to other process applications for flat panel display and we do think that’s where the strength of the Helix infrastructure combined with the Polycold product and applications understanding in that area will go a long way for us

Can you also help me understand as to dollars opportunity that could other areas in flat panel provide (indiscernible) -- anything outside of PVD, could that represent similar dollars of market revenue or would it be more or less -- how should we think about it?

Well, I would say -- I mean, its incremental revenue, because we are not – it's not business that we would be taking away from any of our other product groups. It's an area that -- as I said, there were places – there were doors that Polycold just couldn’t open before because of their size and the lack of the broad infrastructure. So, I can’t give you an exact quantity, but qualitatively these are new markets that we have been successful in the past as Helix bringing our other kind of products into those markets because of this infrastructure. So we have reason to be optimistic, but obviously a lot of the real top line synergy is going to -- we are just starting to work those things now. And as I referred to in my prepared remarks, it’s the meetings with these customers that are setting the groundwork for where we will take our Polycold opportunities going forward.

So should we expect some sort of announcement by you over the next couple of quarters, talking about design wins in these areas?

Yes. I think, as we learn more about Polycold, there are two areas we will hear more detail as we fine tune the business model and fully incorporate it into our business model. So we understand the drop through in these issues, we will be sharing that. And then we will talk about -- with a certain degree of specificity, we don’t like to name, in many cases we are not allowed to name specific design wins on specific tools for specific customers, but we can certainly give you enough color to understand how we are doing in that dynamic.

Great, thank you.

You are welcome.

And our next question comes from Tim Summers, Stanford Financial Group. Please go ahead.

Thank you. Just a couple of housekeeping questions. Does Polycold have any material amount of business with Applied Materials, and do they have a material amount of service revenue. Thanks.

Tim, there is -- they do participate with Applied. For them it’s a significant customer, but it's an indirect channel, and this is for the Applied metrology group. So today there is -- that’s the only place that Polycold has business, and it’s an ongoing business. It’s a significant part of one of their significant customers is about as accurately as I can say it right now. On the process side, you can imagine because of our relationship with applied, we are look -- this is where we are looking for opportunities to expand in the thermal management area. That certainly would fit in any of the Applied equipment portfolios.

And what about on the service side?

On the service side, their business historically has been -- they have a large distributor base that has typically been authorized service centers if you will. So they deal with -- these are different gases than we have in helium cryopump. These are mixed refrigerants that are kind of special cocktails that have a lot of environmental restrictions and concerns and they have trained certified many of their distributors to deal with that you know refilling the cryogenic fluids, if that's required and we would assume that that business would continue through those channels. Where we are looking obviously in the markets that we serve more in a more focused fashion flat panel, data storage and semiconductor where our services agreements are. We are now starting to talk to some of those customers to see if we can incorporate a more comprehensive type of service that's in line what we do for our other products throughout the company. So the short answer is the service business is not a significant business today most of it is really through their distributors but we do see potential in our three primary served markets to grow that business on the heels of our global customer support strategy.

Thank you.

And if there are any additional questions, please press"*" then "1" at this time. Please hold, we do have a question from Mark Miller, Hoefer and Arnett. Please go ahead.

I have a couple of questions, could we infer that the margins of Polycold before you acquired it were similar to yours or were they below —- their gross margins?

Their gross margins were similar to ours, Mark. They were a segment report in the Intermagnetics General Company and you can see in there what their gross margin history has been and we're finding the same thing as we now have half a quarter under our belt.

A lot of firms break out their amortization costs but it looks like you have chosen just to include this in SG&A, is there a reason for that or am I misinterpreting what you have said?

No, there is a portion of our amortization cost that is split between cost of sales and SG&A.

Okay. We talked before about you guys were trying to infer from the service contracts how the business was going. I was wondering you know especially with you know the TrueBlue service, are you able to monitor pump usage because you're in the every fab in the world Simer (phonetic) does this with their pulse usage, you know, you get some good handle on the trends in terms of what's going on in the fab, I wonder if you have any data like that or maybe you could think about supplying data like that where you could see trends in pump usage throughout from your TrueBlue service?

Yeah, actually we have similar capability but its not - it's always something that we felt is really proprietary to those specific fabs.

I am just wondering if you could break it out in general, you know, that your pump usage was up or down across your whole customer base rather than just discussing a specific (multiple speakers) but that’s what Simer does. It's quite helpful to the community by the way?

Okay, well, we can certainly take a look at that. I mean there are similar, you know, the algorithms that we use to run the diagnostic programs also do tell us you know how many times wafers move in and out of chambers that have our pumps, we'll investigate?

And the final question you know in terms of the new equipment coming on market do you still see a trend in more -- your pumps, more your vacuum equipment for tool and still the same balance between the usage of cyro pumping and other types of pumps like turbo molecular or are we seeing any shifts there in new equipment coming out in terms of the use -- the types of pumps being used?

Yeah, we're seeing a steady use -- the applications in plant PBD in particular some of the water pumping applications that are in semiconductor processes not -- this is not the kind that Polycold would use, these are -- Polycold's are for much larger vacuum chambers than a 300 millimeter chamber. We are seeing a steady mix if you will of cryogenic vacuum pumps to other types of pumps. The only area this is an exception and it is the area we're focusing on is in metrology, where we’ve been led to believe that at 65 nanometer node in particular, you have issues with -- you know, you have line width and beam and electronic beam intensity issues that the trace amounts of hydrocarbons that still get through any pump but a cryopump because a cryopump is a capture pump. It has no moving parts and no oil. So those trace amounts of hydrocarbons can actually do damage to a scan to an inspection by an electron microscope and therefore, I guess put generally, the eBeam technology used in the metrology tools is moving into the sweet spot of cryopumps and away from other kinds of through pumps that might introduce even trace amounts of hydrocarbon. So that one, it looks like there’s a shift going on in our favor, but it's still very early. But a very promising market for us because of its size, the number of units that are being used in all types of metrology -- electron beam metrology.

Thank you very much.

Okay.

And our final question comes from Victor Hernandez (phonetic) at UBS. Please go ahead.

Hello

Hello.

Yes, can you hear me?

Yes, we can.

Oh, I'm sorry. So, can you tell us what those sales to Applied Materials were during the quarter?

Yes, Paul. I can give you a percentage of our total sales to Applied Materials --

Okay.

Which you mentioned in your prepared remarks as well, right, Paul?

Yeah, 14% including outsourced partners.

Okay. And that compares to the 19% of total sales that you have in the December quarter

Correct.

Okay. And could you also tell me what your bookings were during the quarter please?

Bookings were 43.3 million.

Great. Thank you very much.

And Mr. Gentilcore, there are no further questions. Please continue with your closing remarks.

Okay, thank you. Thank you very much for your continued interest in the success of Helix. We are confident that we have the right strategy and the right people who are prepared to execute this strategy. And as we said, we have some issues to work on that we will be addressing this quarter and we look forward to talking to you on your next call. Thank you.

And, 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.