Azenta Inc (AZTA) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Helix Technology's second quarter conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time.

(Operator Instructions).

As a reminder, this call is being recorded today Thursday, July 21, 2005. I would now like to turn the conference over to our host, Mr. James Gentilcore President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Welcome ladies and gentleman and thank you for joining us for this second quarter conference call. With me this morning are Paul Kawa, our Chief Financial Officer and Bev Couturier, our Director of Investor Relations. I will now ask Bev to read our Safe Harbor statement, 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, you may call 508-337-5172, 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 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, the successful completion of the company's strategic business combination with Brooks Automation Inc., including the ability to successfully integrate the operation and employees of the company and Brooks on a timely basis, the successful integration of Polycold into the operations of Helix, 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 booking, and other risks contained in exhibit 99.1 to the company's annual report on Form 10K 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 issued this morning, Helix Technology achieved sequential improvement in both revenue and net income in the fiscal second quarter of 2005 versus our first fiscal quarter as well as significant margin improvement.

In light of the recently issued financial results of some of our industry peers, we believe our results demonstrate that we remain on track with our new products and service program, and that these programs will continue to contribute to our organic growth through this cycle.

As we said last quarter, our continued gross margin improvement comes from a combination of new products that are better for Helix and its customers, and continuous improvement in manufacturing and materials performance that we will drive throughout the year.

Our second quarter, like our first, was marked by several accomplishments. Among the successes I would to like to highlight are the following. First, our revenue growth came from not only a full quarter of Polycold contribution, but also from a particularly strong showing in our global support services. A significant number of customers signed TrueBlue Service Agreements. It fact, it was a record quarter for these contracts, validating our belief that these agreements are good for our end user customers and good for Helix.

I should add that the pace of signing gives us increased confidence that fab utilization is continuing to move in the right direction. We are seeing increased interest in our extended service agreements that reach beyond our own products to include other vacuum subsystems and increase the content of our TrueBlue Agreements.

Second, the Polycold integration process remains on track and is moving ahead as planned. The early phases of integration, sales channels, business and manufacturing systems are nearing completion. Material sourcing in our targeted low-cost regions will begin next quarter and we continue to see encouraging revenue synergy opportunities at our large semiconductors OEMs. The integrated content potential on each tool increases significantly when the Polycold products are added to the existing content from the other Helix subsystems. But we remain confident in the long-term contribution that we expect from Polycold.

Third, our gross margin improvements continued in the second quarter as we said it would in our last earnings call. In fact, our operating margins were substantially better quarter-to-quarter, even after taking into account the costs associated with our July 11 merger announcement. We continue to do a good job of controlling operating expenses and generating cash from operating activities.

Our new product platforms from CTI-Cryogenics and Granville-Phillips are now incorporated on most 300 mm PVD and in plant tools, delivering significant performance advantages for our customers process vacuum requirements. With each new process step at the leading edge technology node, the need for more advanced process vacuum control becomes more evident, and the Helix solutions continue to surpass expectations.

Looking ahead, we believe our performance in the 3Q will reflect that of the industry overall, with the slower OEM order rate of last quarter affecting our third quarter revenue levels. We expect the impact of that slowdown to be partially offset by the continued strong performance of our service business.

Moreover, we are cautiously optimistic that the recent news that some of the largest device manufacturers are revisiting their capital expenditure plans and considering possible increases in CapEx spending, will be good for the industry and good for Helix. I will now turn the call over to Paul for more detail on our financial performance.

Thank you, Jim, and good morning. I would like to provide you with some insight on our quarterly financial results which were just released. Sales for the second quarter was $41.9 million, an increase of approximately $3 million, with just over 7.5% from our first quarter.

Excluding the results of the Polycold acquisition, sales were essentially flat. Sales were lower than a year ago by approximately 4.8%. Our operating profit for the quarter was approximately $3.5 million, or 8.3% of revenue. Excluding the utilization expense of purchase intangibles associated with the Polycold acquisition of approximately $600,000 per quarter, and the merger costs of approximately $500,000, operating profit for the quarter was approximately $4.6 million, or 10.9% of revenue.

Net income for the quarter was $2.6 million or $0.10 per share, excluding the amortization expense of the purchase intangibles and the merger costs, pro forma net income for the quarter was approximately $0.13 per share. Orders for the quarter were $42.0 million, down slightly from our Q1 level. Our book-to-bill ratio was about 1.0.

Looking behind the revenue levels, sales to semiconductor customers were 52%, which is down from 60% in our prior quarter, reflecting a full quarter of Polycold with sales into a broader range of markets including semiconductor. Our vacuum pump products including PolyCold accounted for approximately 87% of our total sales. Sales attributable to our Granville-Phillips vacuum measurement and controls instrumentation products were about 13% of the total.

Our global customer support business continues to perform well, contributing to about 32% of total revenues for the quarter including Polycold. The trend of increasing customer acceptance of our TrueBlue Service Offerings has continued with the addition of several new contracts and contract renewals signed during the quarter. Sales to end-users as a percent of revenue were just under 60% of consolidated sales for the quarter.

Sales attributable to our largest customers, including outsourcing partners, were 17% of our business, up from 14% in our previous quarter. We ended the second quarter with a backlog of approximately $26 million, up slightly from the previous quarter.

Headcount at the end of quarter was approximately 670 people, including temporaries, a slight decline from our Q1 levels with our permanent headcount at just over 580 people. Our Q2 gross margin was $17.4 million, or 41.5% of sales, compared with 40.1% in the first quarter.

Excluding the amortization of developed technology in both quarters, gross margin improved to 42.4% in Q2 from 40.6% in Q1. This improvement over Q1 was due to both higher sales levels and lower manufacturing costs. R&D expenditures for the quarter were approximately 3.1 million, compared with 2.1 million in Q1.

Selling, general and administrative expenses for the quarter were 10.3 million, compared with 10.6 million in Q1. The sequential decline was due primarily to the abnormally high cost in Q1 associated with the implementation of Sarbanes Oxley Section 404, in addition to lower personnel-related costs in Q2. A portion of this decline was offset by the inclusion of Polycold for the full second quarter.

Our joint venture contributed approximately $437,000, down slightly from the prior quarter's amount of approximately $474,000. Net interest and other income for the quarter declined to approximately $66,000 from $121,000 in Q1. Income before taxes was $3.97 million and our tax rate for the quarter was approximately 34%.

Reduction in the tax rate from Q1 reflects the impact on Q2 of our projected full year rate based upon our current assumptions. We continue to focus on opportunities for lowering our rate for the year. Turning now to our balance sheet, our cash and investments totaled $29.9 million, an increase of approximately 1.7 million from the first quarter, and our cash flow from operations was approximately 4.8 million.

Accounts receivable totaled 26.2 million, down from 27.7 million at the end of Q1, reflecting an improvement in our collections with our DSO declining to 56 days from 58 days at the end of Q1. Our inventory levels increased marginally to 23.7 million from 23.1 million at Q1, and our inventory turns in Q2 declined slightly to 4.1 from 4.4 in the previous quarter.

Capital expenditures were approximately 1 million for the quarter and depreciation expense was approximately 1.4 million. Yesterday, our board approved a quarterly dividend of $0.08 per share, unchanged from the prior quarter. I would now like to provide some insight on our third quarter.

We expect softening in the Semiconductor Capital Equipment Market this quarter and as a result, we are projecting Q3 revenues could be flat to down approximately 10% from Q2. We expect to alleviate some of the impact of the lower revenue projections on our bottom line results via close scrutiny of our discretionary spending, and continuing to pursue opportunities for improvement in our manufacturing operation. Thank you. Operator, I would like to now open the line for questions.

(Operator instructions).

Our first question comes from the line of Theodore O'Neill from Wells Fargo Securities. Please go ahead.

Thanks very much. I just wanted to check -- did I hear correctly that sales to your largest customer and their cohorts or whatever you want to call it was 17% in the quarter?

Correct.

Okay, and I was wondering Jim, if you could talk about -- looking at the Brooks and Helix combination, now one of the things that I think you're bring to the table - or Helix is bringing to the table is the service organization. And if I have got that correct, could you talk about some of the ways you think your service organization benefits by the combination of the two companies?

Okay Theodore, first of all, I would like to refer anyone to the transcript from our July 11th call for -- this is particularly on the earnings call, but I will answer that question generally. As we said before, our strategy, which has been underway for a few years now is to extend beyond our own products and to look for opportunities first in the vacuum space, and that's what I mean when I talk about extended service agreements, where our customers that have the contracts in place, have a sense of our accomplishment on our own product-installed base, are now turning to us for other vacuum services.

The third phase of that strategy would reach beyond just vacuum subsystems into other types of subsystems. So you can imagine that in a Brooks -- in the Brooks installed base, there are not only vacuum subsystems for transport, but there are other non vacuum subsystems.

And generally speaking, wherever we can bring the logistics strength of Helix, the infrastructure that we have in the service agreements and in our service business, and the ability to predict when an unscheduled outage might occur on any particular subsystem, that's where our customers are looking for our help to, in essence, reduce their cost of unscheduled downtime.

So, generally speaking, I think you can see where a Brooks-Helix combination fits into that strategy. We think it fits perfectly and quite frankly, is one of the strong reasons for the combination.

Would you go so far as to think that you think the Helix Service Organization is better at delivering that than the Brooks?

Well, I would refer you to the comment that Ed Grady has already made in the July 11th conference call Theodore.

Okay, well, I think you do a better job of speaking about those issues, but thanks very much.

Our next question comes from the line of Mark Miller from Hoefer & Arnett . Please go ahead.

I'm just wondering, because of the acquisition of Brooks or merger with Brooks, future of GOLDLink, it would seem now that you have a wider platform, fab utilizations are coming back up, what is the status in terms of has Brooks given you any thoughts about that? I know some other firms have been doing that with Cymer as an example. They have just provided a service-oriented to check on the laser performance.

Yes, let me address that in a broad way Mark. GOLDLink has been incorporated into our high-end service agreements, so we are seeing, we haven't talked about it specifically as a stand-alone product, because now it is a product that is actually part of our service offering.

So, we certainly believe that whether it be a Brooks subsystem or another vacuum subsystem, as long as we can use the GOLDLink connection to bring predictive information back out to a team of experts that are analyzing that and avoiding unscheduled downtime, then that's going to have an advantage to us.

At this point in time, I would say that we are very, very -- as you know, July 11th was only 10 days ago, so, I would not want to give the impression that we're that far along in the integration of that capability, but I see nothing to prevent it from being one of the priorities on an integration plan, should the merger proceed.

I'm just wondering, like I said, the semiconductor stocks have been rallying recently. We have broken out perfectly to a new level we haven't seen for a while. But reports are September is going to be weaker and yet we hear about fab utilization, is this just kind of a timing issue? We hear fab utilizations are coming up and you made some positive comments today. Just curious why September seems to be not any improvement, if anything, maybe down.

Well, I think it is a timing issue, Mark. Semicon last week was a good chance for all of us to visit with our customers and our customers' customers, and the biggest unknown going into the quarter was when the foundries would begin to increase their capital spending and, generally speaking, what I heard at Semicon was a confidence that that is coming.

And in fact, for Helix, that means that we need to be positioned and we always are, because of our short cycle time, to respond quickly and it may be at the end of a quarter or it may be at the beginning of a quarter. I still think that there are generally speaking, there are -- it is not clear exactly when they will come back into the capital equipment market in a big way, but we're ready to respond to our OEM customers and directly to those end users that we deal with directly.

Thank you.

(Operator Instructions).

Mr. Gentilcore, we have no further questions at this time. Please continue.

Okay, thank you, operator. Let me conclude by reiterating what I said in today's press release. I'm pleased with our revenue for the quarter and with our overall financial performance. The particularly strong service revenue reflects our customers' validation of the TrueBlue Service concept as a path to better operating economics, and the first full quarter of revenue and profit contribution from Polycold systems added to our overall strong performance.

As we head for the anticipated completion of our merger with Brooks Automation later this year, we continue to believe that the strategic, operational and financial outlook for our business is very bright. Thank you.

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