Ultra Clean Holdings Inc (UCTT) 2015 Q1 法說會逐字稿

Good afternoon. My name is Catina, and I will be your conference operator today. At this time I would like to welcome everyone to the Ultra Clean Technology first-quarter 2015 financial results conference call.

(Operator Instructions)

Joining us today is Ms. Sheri Brumm, our Vice President of Finance; Mr. Casey Eichler, President and Chief Financial Officer; and Mr. Jim Scholhamer, our Chief Executive Officer. I will now turn the call over to Ms. Brumm. Ma'am, you may begin your conference.

Thank you, operator. Welcome to our first-quarter financial results conference call. Presenting today are Jim Scholhamer, Ultra Clean's Chief Executive Officer; and Casey Eichler, Ultra Clean's President and Chief Financial Officer. Casey will begin by discussing the financial results for our first quarter, and Jim will follow with some remarks about the business.

A few moments ago, we issued a press release reporting financial results for the first quarter ended March 27, 2015. The press release can be accessed from the Investor Relations section of Ultra Clean's website, along with the information for the tape delay and replay of the live website at UCT.com. Together with our recently issued press release, this conference call enables the Company to comply with the SEC regulations for fair disclosure. Therefore, investors should accept the contents of this call as the Company's official guidance for the second quarter of FY15.

Investors should note that only the CEO and CFO are authorized to provide Company guidance. If at any time after this call we communicate any material changes in guidance, it is our intent that such updates will be done officially via public forum such as a press release or publicly announced conference call.

The matters that we discuss today include forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995 related to matters including our future financial performance, new product orders and shipments, and industry growth. Investors are cautioned that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission.

The Company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect events or circumstances that occur after this call. Now Casey will discuss the first-quarter results.

Thank you, Sheri. Revenue for the first quarter was $125.3 million, an increase of approximately 4.4% from the prior quarter, and a decrease of 13.1% when compared to the same period a year ago. Semiconductor revenue for the first quarter was $112.8 million, an increase of 10.4% from the prior quarter. And non-semiconductor revenue was $12.5 million, a decrease of 30% when compared to the fourth quarter. Revenue outside the US was 32% in the quarter compared to 30% in the prior quarter. Two customers had revenues over 10% for the quarter.

Gross margin for the first quarter increased to 15.9% compared to 15.3% in the fourth quarter, falling well within our target business model of 15% to 18%. Gross margin was favorably impacted by the insourcing of the next-generation products by one of our customers.

Operating expenses were $13.6 million or 10.8%, excluding one-time charges and amortization of intangibles, as compared to $12.2 million or 10.2% in Q4. As discussed in previous calls, operating expenses are impacted in the first quarter by an increase in auditors' fees associated with the year-end audit work, as well as the addition of Marchi Thermal Products Group. Recently we filed an 8-K detailing a change in our auditors to Moss Adams LLC. We are looking forward to working and partnering with Moss Adams.

We continue to work on driving our operating expenses down, although we expect that they will be up in the second quarter of 2015 from the first quarter, due to our lower revenue forecast. We are currently looking at several opportunities to reduce our overall cost structure, affecting both manufacturing and operational costs and overhead operating expenses, and we will be able to update you in the future.

Operating income was $2.6 million or 2.1% before interest expense and income taxes in the first quarter, compared to $4.9 million or 4.1% in the fourth quarter. Excluding amortization of intangibles and one-time charges, our operating income was $6.3 million or 5.1% in the first quarter compared to $6.1 million or 5.1% in the fourth quarter.

Interest expense for the quarter was $552,000, an increase of approximately $81,000 quarter over quarter. An additional expense for the reversal of debt issuance cost of $690,000 also incurred during the quarter as a result of restructuring our debt to facilitate the acquisition of Marchi Thermal Products.

The effective tax rate for the first quarter was 30.7%, or an expense of $519,000, which was slightly higher than our forecast of 28%. The tax rate for the second quarter of 2015 should continue to be modeled at 28%, but we should see the rate decline by the end of 2015.

First quarter net income was $1.2 million or $0.04 per share. Excluding amortization expense and other one-time charges, the first-quarter net income was $4.2 million or $0.14 per share compared to $0.15 per share in the fourth quarter. The diluted share count was 30.9 million, up 1 million shares compared to the prior quarter, due to the Marchi acquisition. Non-cash charges for the first quarter were $500,000 related to FAS 123(R), $894,000 related to depreciation and $1.1 million related to amortization of intangibles.

Turning to the balance sheet, cash was $69.6 million, a decrease of $9.4 million from the prior quarter. The net cash decreased $37 million during the period, due to the acquisition of Marchi. As a result of this acquisition, our outstanding debt went up to $75.6 million from $48.2 million for the fourth quarter. We anticipate that net cash will be roughly flat in the second quarter.

Accounts receivable was $69.6 million, up $7.8 million from Q4. And day sales outstanding increased to 50 days from 46 days at the end of the fourth quarter. Accounts payable of $50.1 million increased approximately $1.2 million quarter over quarter. Days payable outstanding at the end of the first quarter stayed flat at 43 days from the end of the fourth quarter.

Net inventory was $59.9 million, an increase of $3.1 million over the prior quarter. The majority of the increase in inventory is as a result of the Marchi acquisition. Inventory levels are projected to be flat during the second quarter of 2015.

Shifting to our guidance for the second quarter of 2015, we anticipate a lower revenue forecast for the second quarter. Our revenue guidance for the second quarter is $112 million to $117 million. Our second-quarter earnings guidance is for earnings per share between the range of $0.04 to $0.07, excluding amortization charges and any final acquisition costs associated with Marchi.

As I mentioned in previous earnings calls, we continue to develop our additive manufacturing and prototype quick-turn machining capabilities. While these efforts are on plan, we do not expect to see a significant return on these activities until next year. The tax rate for the second quarter is expected to be approximately 28%.

Now Jim will discuss our operating highlights for the first quarter. Jim?

Thanks, Casey. The first quarter of 2015 has been an exciting time as we focus on outgrowing the semiconductor equipment market in 2015. I am pleased with the achievements made during the last quarter, and we have seen some real strides in our effort to win new business within our semiconductor equipment customer base. I will now go through some highlights from the first quarter.

During Q1, we finished with strong revenue, especially in the semiconductor sector of our business, with an increase in semiconductor revenue of approximately 10% quarter over quarter. Our total revenue of $125.3 million for the first quarter was in the mid-range of our revenue guidance. Previously we had guided our first-quarter adjusted earnings per share, excluding amortization and one-time charges, of $0.11 to $0.14, and revenue of $123 million to $128 million. We were able to achieve earnings per share at the high-end of our guidance at $0.14 per share.

Bottom line profitability has been a focus area for UCT as we investigate opportunities for increased efficiency and optimize some of our lower-utilized sites. We will continue to focus on increasing our revenue and market share in the semiconductor equipment, with an eye on broadening our portfolio and winning new business selections.

In Q1 the percentage of revenue coming from our Asian operations was 32% as compared to 30% in Q4. This percentage fluctuates quarter to quarter, based upon the mix of products going through our factories. We are currently in the process of transitioning several large product lines to our new expanded Singapore facility, which will begin its operations during the second quarter of 2015.

I'd now like to give an update on Marchi Thermal Systems, our newest acquisition, which occurred during the first quarter. As mentioned in the last call, we finalized the acquisition at the beginning of February 2015. The integration activities have gone extremely well, and Marchi has been instantly accretive to our earnings.

Marchi brings added capabilities to the UCT product line. We are exploring opportunities to develop complete offerings utilizing the product lines of the core UCT business, together with the Marchi Thermal Products. We expect this synergistic relationship to improve our market share in the OEM semiconductor equipment supply chain.

During our last earnings call, I discussed a few of the major investments that we are making in our business towards UCT's future growth. We are proud to announce the opening of our prototype center in Fremont, California, during the first quarter. There has been quite a positive reception from our customer base. We have been able to offer quick-turn service through fabrication of parts to our customers, often in a matter of hours.

This fast turnaround is especially valuable during our customers' development cycle. As their new products take hold, this service will help UCT gain more of the up-front parts fabrication business, followed by module integration work and other offerings.

Looking forward to our second-quarter forecast, we do see a drop in revenue, as several ship makers -- our customers' customers -- have made some reductions and pushed out of their CapEx spend in the middle part of 2015. As a result, we are seeing lower revenue in the second quarter versus our very strong first quarter. In addition, we are seeing lower volumes of business in our medical product offerings, which was detailed in our last earnings call.

Our second-quarter forecast, however, has been mitigated by a gain of new business and products in the semiconductor space. Our position in the semi cap equipment market is strong and improving, and we are focusing on winning new business and share in semi equipment throughout the year. However, as the overall semi equipment market is now seeing a bit of softness over the next few quarters, we are currently reviewing our cost structure, and will be making adjustments to better-align with the current revenue outlook and our commitment to stay profitable.

In summary, the first quarter of 2015 set UCT off to a great start to the year, with pick-up of new semiconductor business and solid performance in revenue and operating profit. We are continuing to focus on winning new business in the semiconductor equipment market, as well as maintaining our investments in additive manufacturing and quick-turn machining, which position UCT for important inflections in the future.

And finally, we are making adjustments to our cost structure to position UCT to be competitive under a fluctuating business environment and a competitive environment. With that, operator, we would like to open the call for questions.

(Operator Instructions)

Your first question comes from Edwin Mok with Needham Company.

Jim, Casey, how are you doing? First question, a question on your commentary regarding a little bit softer in the semi cap space in the second quarter. I was wondering how much of that is related to one of your large customers who is doing the M&A? Maybe there are some push-out late to that versus if there is any industry condition? Is there anything associated with that?

Yes, Edwin. There are a lot of variables, especially when quarter to quarter, as we have talked before, timing can be very critical. As you know, we have multiple semiconductor customers, and we also have market share that is heavier in some products than in the other. So as product mix changes and customers' orders from one to the next -- some of those variables change, as well. So there are really quite a few events that sum up to the quarter being either slightly up or slightly down.

I see. Maybe I will ask a different question. On sequential basis, is the sequential decline all come from semi cap? Or are we seeing any non-semi related decline at all?

As we mentioned, the non-semiconductor part of our Business dropped from the last quarter as a result of mostly in the medical product space. We mentioned that on the last call.

Edwin, I would say that generally, the percentage is going to be more from the non-semi than it's going to be from the semi. Within semi, some of our customers, I think, are seeing relatively flat. Some customers are showing a little bit up, and even some people are showing a little bit down. So there is a mixed bag there on the non -- which generally, I think, will probably perform flat or maybe even slightly up. On the non-semi, that's really where we are seeing more of the revenue go down on a quarter-to-quarter basis.

Again, as Jim mentioned, we talked about several different pieces of that, and most recently it's been on the medical side that we've talked about. But that's really where this client is coming from.

Okay, that's fair. On the quick prototype center that you talked about, is that for engineering prototype for customers?

Yes, precisely. That's pretty early on in the cycle. It's when our customers are developing their new products, they're prototyping and doing the quick work on what they call the alpha tools, the tools that they make first internally to test, and also then subsequently on to the beta tools, the tools that they send to their first few customers.

So the cycle on that takes quite some time. It takes four to eight quarters before you begin to see the volume from that work start to show up. But getting in early up-front on those prototyping is a key way in order to get specked into the product and to gain new business.

I see. Okay, that's helpful. So that business -- those kind of businesses are usually pretty small on per-order basis, right? But you think you can get enough scale to get a meaningful revenue from that whole operation?

Correct, yes. The amount of revenue brought in from prototyping is relatively -- is not very material. However, as the volumes increase, we move it out of the prototyping shop and into our main fabrication shops.

So I think really what we're counting on there is, when you get involved in the prototyping and some of the earlier design work at a customer, you tend to have more stickiness and a broader penetration across some of their products, and even within a product. And so by allowing us to get involved earlier on, not only does it get -- as Jim just mentioned -- us from the prototype to production machining, which adds to it, but it also helps us expand our footprint within the customer.

Because we can see other things where we can add value, demonstrate that value to customers and take a bigger piece of the pie. So it's really an early engagement tool that allows you to not only get more production machining, but also penetrate the customer base a little more deeply.

Great, very helpful color. Last question, and then I'll let the other guys ask. On the operating expense on the gross margin side, with this new prototype center, or the three different single additives center that you put in, does that have any impact on your OpEx? Meaning, does it drive your OpEx increase, or does it have an impact on gross margin?

It has some impact on OpEx. But really, the major impact is that we've got it up above the line and we're ramping those businesses, and you are investing in something -- again, we think that additive manufacturing or 3D printing can be very exciting longer-term. It would not only up our existing semi customers, but with other customers. And then the prototyping I just talked about.

We've talked about this over the last couple quarters. But it's just a reminder that we are making some investments that probably have, above the gross margin line, some impact over this year. But we think it's really going to help broaden our margin opportunity and our revenue opportunity in 2016 and going forward.

I see, great. That's all I have. Thank you.

Your next question comes from Dick Ryan with Dougherty.

Casey, a couple of housekeeping questions. Were there any step-up inventory costs in COGS with the acquisition?

No.

Okay. And I think I caught you had $1 million in other expenses. Could you talk about that?

The other expenses -- you mean like where the interest is?

I just thought I caught you talking about $1 million in other expenses, and went to a breakout of that. I didn't catch that conversation.

In the other expense area, basically we have a write-off of the loan cost. So that goes through. That's about 700. Then there is just the standard interest in that. I didn't go through that detail, but I did call out the 700. Maybe that's what you are thinking about.

Yes, that was it. When you look at Marchi, Marchi was two months in the quarter. Can you tell us what that contribution was?

Yes, we really aren't able to call it out because, again, we don't want to get into the segment reporting issues and all the other things our friends in the accounting world want us to stay away from. But I would say that when we purchased it, we had an expectation for the quarter. It met or exceeded that expectation. The customer acceptance has been very strong, and I think employee acceptance across the companies has been very strong.

So that came out the gate and has really performed pretty well for us. And we think that we've got a lot of opportunity, as I think Jim talked a little bit about, to take that and really broaden, again, our opportunity across our biggest semiconductor customers. Not only in the heater space, but also in other areas where heaters are an early entree into the design work.

Sure. Is their business seeing softness in Q2? Their semi business?

No.

Okay, great, thank you. That's it for me.

Your next question comes from Krishna Shankar with ROTH Capital.

Yes. What kind of visibility do you have beyond Q2? I understand the near term weakness in semiconductor capital spending, but can you talk about visibility beyond Q2? And one of the large equipment companies in the industrial lab research just had a relatively positive outlook for Q2. So can you talk about any lumpiness in your semi equipment customers which makes you a little cautious near-term?

Yes, so as you know, we don't guide out several quarters in advance. And also, the visibility two quarters out in this business is not so good. Yes, we're seeing -- I think one thing you have to remember is that we are a small fraction of the entire spend of the semiconductor OEM space. And so typically in our Business, you can be very heavy in a certain product line or a certain area, and other product lines, our presence is less so.

And also, in our customers' business, there can be a lot of lumpiness within their product lines. One, typically, if you look at things like EpiTools, they can run in large numbers very quickly, especially as they're also bought by the substrate houses, as well as the logic fabs. So you can see just within different product lines, within a single customer, you can see a lot of variability as one product line is up and another product line is down.

In our business, we have a lot of sensitivity, just as product mix changes from one quarter to the other. So the ability to really trend and say customer A is up, or OEM supplier A is up, or OEM supplier B is up, we don't always follow linearly with that. What we're looking at next quarter is, we see with our product mix that we're down in the semiconductor space about 8%.

Okay. And then with regard to your non-semiconductor business, in addition to medical, what other areas are experiencing weakness? Can you talk about the consumer electronics business that had gone down dramatically? Is that behind you now, or you're still seeing revenue declines from that business?

Yes, I mean, I think on the non-semi side, obviously there are smaller numbers, so a smaller move feels, on a percentage basis, larger. So I think the major adjustment there you should think about is the medical business. The others are up and down, none of them spectacularly, to be honest with you. They're up or down a relatively small bandwidth, maybe 3% to 5% up or down on most of them. The medical, as we talked about, is one that, over last quarter and this quarter, is ramping down, and that's really the major impact outside of semi.

And that is ramping down, pretty much as we planned, as we saw last quarter when we announced it.

Okay. And then what about gross margins with the Marchi acquisition? Any updates on longer-term gross margin? What the outlook is for gross margins with the blended business?

We continue to guide to the 15% to 18%. And I think that's right. We said that the Marchi acquisition provided a lot of their product lines' better margin profile, which obviously is always favorable. But again, I don't see us moving our margin target for this year. I think it's going to continue to be in the 15% to 18%. But Marchi is additive, and we're appreciative for that.

Okay. And the final question. With some of the OpEx efficiencies you're looking at, could that have an impact on OpEx in the second half of this year? How should we think about OpEx trends?

Yes, I think it will, not only in percentage, but in raw dollars. It's a dynamic industry and dynamic business. And our customers are looking at how to best serve their customers going forward, second half of this year and into next year. And that's making us require to look at how we've got ourselves laid out. You want to be very thoughtful about it, make sure that you're doing the right things. But I think you'll see us in the second half of the year start to talk about how we can better structure our infrastructure to be more effective from an OpEx standpoint.

Okay, thank you.

Sure.

Your next question comes from Christian Schwab with Craig-Hallum Capital.

Great, thanks for taking my question. I was confused. When Ed started talking earlier to get a real explanation of what's going on in your semiconductor business, then you wanted to say it was really the non-semiconductor business. Now we're back saying it's the semiconductor business, and there is ebbs and flows of different product lines. And in the press release, we cite semi conductor equipment.

So if we look at -- just say at the high-end, the $10 million miss versus expectations of the street, whether ours as a collective group was wrong to start with, I guess, is irrelevant. Or maybe on a sequential basis, can you just give us the mix percentage just roughly in dollar amount, semiconductor to non-semi, so we're all on the same page?

Sure. As I said, you know, the majority of the reduction on a quarter-by-quarter basis -- which is what I'll work off of -- is related to the non-semi business. And I think Jim was referencing -- somebody had asked a question earlier about customers being up, and Lam's announcement, which I think is going on as we speak. And related to their business, in particular, I think Jim was saying, depending on what product mix you have within a customer, and depending on how each of the customers are doing, that can move things up or down.

We have seen some softness in the semi side in Q2. It's not reflective to market share. It's not reflective to what we are getting. It's reflective to the mix of customers and mix of products within those customers. It's not a huge change, but it is a softness that I don't think was expected at the beginning of the quarter for Q2. So hopefully that clears it up a little bit. But the majority of that softness is in the non-semi, not the semi.

Okay. So the majority of the guide down to $112 million to $117 million has to do with further weakness in the non-semiconductor side versus the semiconductor side, correct?

It's a larger portion, yes.

Okay. Maybe next time when you put out a press release, it should say that, versus blaming semiconductors, just for whatever that's worth. When you look at the products, so we're all on the same page when we all listen to AMAT and Lam later today, which products are you more tied to? I understand that everybody has different build plans and inventory and chip plans. But just so we're all on the same page at some point in the future, which products at AMAT move the needle the most for Ultra Clean? And which products at Lam move the needle the most?

Yes, so I'll let Jim answer that question. But just to be clear, what we talked about, I think, generally in our press release, was a reduction of semiconductor spend. And I think those comments are related to what we've all seen, I think, from Samsung, Intel and TSMC over the last 30 days. So that moves through everybody's numbers differently and at different times, depending on where you are on the food cycle. But I don't know that anybody feels that there hasn't been a short-term reduction in what people are saying semi equipment capital spend is. Maybe it wasn't clearly stated, and I'll go back and look at it.

I appreciate that. I'm not trying to be difficult, Casey. It just seems like, let's blame one or the other. Either they're short-term reductions for whatever reasons at your two largest customers, and it's semiconductor-related, and that makes a lot of sense, given what Intel, TSM and Samsung have said or people at checks have suggested. It's a different thing to then come on and say there are some moving parts, but it's really just a fall-off in non-semiconductor. I would just -- I think there is some confusion. I'm still confused. But I think I understand what you're trying to say. As far as the products are concerned, maybe that would help.

Obviously we don't go into detail about our customers and the products, and parse that out in detail. But I think you can -- understanding that a significant portion of our revenue is related to the gas panel product, it's pretty straightforward to see which product lines require significant amount of gas reactions and gas panels, and some being much larger than the others. So as you see, certain deposition and certain other processes drive a lot more of that product than others.

Right, okay. I get that. Earlier in the conference call, you suggested that this might be -- what's the quote? Kind of a softness over the next few quarters, when you were thinking about the semiconductor business. So should we assume that there isn't any seasonal pick-up or already improved spending environment as we go into Q3? That this tight reign or reduction, semi cap spending, as far as at least procuring new stuff that may not be in their inventory, as a multi-quarter event? Is that the way we should think about that?

I would say, we don't have that kind of visibility. I think we're looking at the same end-to-end customer announcements that you are, and clearly they have an impact in the one quarter out, and what that impact might be two quarters out is, obviously, a lot murkier for us.

Where we have been focusing is, we have been winning new business, especially outside of the gas panel product. And that business, after it's awarded, tends to come in several quarters out. So we believe we'll start seeing some impact of the new business that we're winning a few quarters out. But again, that process has just started.

Yes, even though, like I mentioned, the three drivers have lightened up their cap spend, I still think if you look at the total number for the year and look at what people are doing, I don't know why we wouldn't see the same somewhat trend, if you will, that we saw over the last couple of years. The second half had a little strength to it as it built through the second half. As Jim commented, we don't guide out that far, and you don't have all the visibility you'd like to have. But if I look at how it feels compared to past years and what's happened, I don't know that it feels that different to me.

Okay. And then one last question, if I may. Is the adjustments to OpEx -- is that a reflection of trying to improve the operating model? Or a question on being too OpEx-heavy, given the fall-off of non-semiconductor business? Or a reflection of potentially pricing getting more aggressive?

It's more the former. We're simply looking at opportunities to reduce our cost structure. And especially as we have many multiple sites, and the sites that tend to be dedicated towards certain customers. And as those businesses fluctuate and move around and our customers' business moves around, we tend to have local over-capacity issues that we're looking to optimize some of the local over-capacity issues that we have built up over the last quarter or so. And also take advantage of whatever reductions we can take in order to drop it down to the bottom line. Pricing pressure is the same pretty much as it's always been.

Also, just to make sure that you it heard correctly, when I talked about it in my discussion, I talked about not only operating expense overhead, but also manufacturing and operational costs. So when you rationalize your capacity load and where you have facilities and what those facilities are doing, I think there is an opportunity not only to get some efficiency in our operating costs or the above-the-gross-margin-line costs, but also below. So it's a combination of both. It's just not OpEx overhead play. It's a combination of that and manufacturing costs that I think we can pull out.

Excellent, all right. I have no other questions. Thank you.

Appreciate it. Thanks.

Your next question comes from Patrick Ho with Stifel.

Hi, there. This is actually Brian on for Patrick. A couple questions. First, just to calibrate on your Q2 outlook, I think Casey indicated that OpEx as a percent of sales would be higher sequentially in 2Q. Do you expect OpEx to decline on a dollar basis?

I guess. I mean, when you're looking at it on a dollar basis, it will decline. But part of that is some of the one-time charges going away. Generally, I think on an apples-to-apples basis, if you strip all of that out, it will probably be about the same or come down a little bit. We've got one more month of Marchi, which will bring in some operating costs. But I think we also have some efficiencies like we talked about, around taxes, audit and things like that. So I think those efficiencies will probably offset that.

Got it, that's helpful. Following up on that, in terms of gross margins then for Q2, is it fair then to think that they'll be below your typical target model of 15% to 18%?

I think that that's not an unreasonable assumption.

Okay. Also, another caller, I think, asked about this a little bit earlier. Do you think in any way your customers might have just built a tad too much of your inventory -- of your subsystems, in conjunction with their direct customer outlooks?

The math I'm looking at also is, that customer of yours who's reporting this afternoon, I think, based on their June quarter outlook, their shipments will up something like 30% first half of 2015 versus second half of 2014. Over that same duration, your revenues will be up 8%, 9%, maybe 10% in your semiconductor business. So perhaps that gives you a little bit of comfort in thinking that if your Q2 looks down right now, it's not to say necessarily you know what Q3 will be, but that could potentially be a healthier situation, relative to your continuing to track their shipment outlook?

What you just talked about doesn't sound unreasonable. I haven't looked at it. If I look at just quarter on quarter -- and again, I was walking into my own call. But I think they were projecting about $1.5 billion in shipments in the March quarter, and about $1.6 billion in shipments in the June quarter. So they're up single-digits, somewhere in there, on a quarter-by-quarter basis.

Again, obviously I was walking in here, I don't know how that breaks out across products or services and spares, and all of that. But obviously they're performing well, and obviously as a good customer of ours, we're very pleased about that. I haven't done the year-on-year look, but what you are saying just on its surface just doesn't seem unreasonable to me.

Okay. And maybe one last question. As you continue -- and there's been some talk here on the call about this. But as you continue to develop new revenue channels in your non-semi business, can you point to any tangible opportunities that lie in your wake the second half of 2015? Or is there still something we should be focusing on for 2016?

There are tangible opportunities, but I don't think they're meaningful revenue opportunities for the second half of the year. I think the meaningful revenue opportunities for the second half of the year and in the beginning of next year really are going to be with our biggest semiconductor customers. And as I mentioned, I think, on the last call and will continue to say today, I think those opportunities are very real and very positive for us.

But it's a business where you don't flip a light switch and it comes on immediately in the quarter. It's going to build, I think, over the second half of this year, into next year. And that makes me optimistic, but it sounds hollow when you're looking at it from this quarter or next quarter. I understand that.

Yes, as we've mentioned in the past, we are focusing on semiconductor. And semiconductor will have a faster turn-on than industries outside of semiconductor.

Okay, great. Thanks for your help.

You bet.

Your next question comes from Darren Frykman with LS Capital.

Hi, how are you?

Hi, there.

Can you give me an update on what was Marchi in the quarter, and did it grow year over year?

Again, we haven't called out Marchi specifically on a Company basis. What we said initially is that, we gave a broad revenue estimate. I would say that Marchi's revenue should grow this year, and has been solid to what we thought the forecast was going to be. I think their margin profile has remained what we hoped it would be. And the kind of integration that we hoped do at this point is probably a little ahead of where we thought it was going to be. That's primarily, obviously, on the front-end; it's in finance and human resources and systems and things like that.

But it's a different acquisition than AIT was. It's one location located very near to us, and something around 50 people overall. We anticipated it to be a pretty smooth integration. There is a guy over there, Joe Williams, who's running it, is somebody that's known to us. He's done a terrific job, and is a really high-caliber individual. So the relationship there is really good, and the opportunities that he's bringing forward are very interesting. So we're upbeat on Marchi and the ability to grow that revenue this year, and I think we will do that.

Okay. And I'm using an $18 million off the press release that you put out, an 8-K back when you made the acquisition. Is that correct?

Right. And so someone that's going to be in our Company with us -- because they were a customer of ours. And so that obviously (multiple speakers). I'm sorry, we were a customer of theirs. And then you had two-thirds of it for the first quarter, and then the full impact. So, I think most of the people I saw out there doing discussions were at $3 million to $4 million a quarter, and building off of that for that business. And based on those numbers, that doesn't seem unreasonable to me.

Right, okay. When I think about you -- and you're including Marchi in semi, correct? I don't know why you wouldn't.

Yes.

Okay. I know (multiple speakers)

(multiple speakers) if it's not pure semi, but yes.

They're basically semi, yes.

However you report it. You report your semi -- 90% was semi. However, you're including Marchi in that, correct?

Yes.

Okay. As I take these things out to fruition, given some of your commentary, I think, Jim, at one point you mentioned that semi might be down about 8%. That gets you to about $103 million. You take away another three for Marchi.

I'm trying to understand, at this point, apples to apples. If I pull out GTAT, if I pull out some of the customers that are ISRG, that are going away, and take that to fruition, it does feel like your core business right now may be slightly down a little bit. And yet, I think all the numbers out there have you flat year over year with -- not including the GTAT and the ISRG, doesn't seem a little bit high? I know you'll make some Marchi back. But there is a hole in there, and it doesn't seem like you have visibility in the third or fourth quarter enough.

Wouldn't it be fair to come out with a full-year estimate out there and help the Street out? Because I'm getting the feeling that no one quite knows how to model third and fourth quarter. And if the second quarter is any indication, they were high. So any help on the third and fourth quarter, just to give people a range of some sort?

It would be -- we would not guide out two or three quarters. I think history is full of people who tried to do that. That would be fraught with risks and misunderstandings, as well, from our side. So I don't believe we would be able to create a view that would be something that would be as accurate -- as you know, this business is very quick to change and quick to turn. And so we would not be comfortable guiding out a whole year.

I don't think, Brian -- I mean, obviously, just look at the first-quarter and the second-quarter guidance. I don't think it's unreasonable to say -- to be flat or slightly up from last year, you have to believe second half is going to be real strong. So I don't think that's a misstatement. And so if somebody equates the second half to not being in that realm, well then, yes, I think you would come to a different place. If you believe that -- and it has in the last couple years, been a stronger second half and sometimes a much stronger second half. If you believe that, well then, it is not unreasonable to be there.

So it really depends on what you want to believe the second half is going to be, and how conservative or optimistic you want to be about it. But it's hard for us to go out and make a commitment one way or the other. If we commit low, obviously that bakes in a low estimation or a low expectation, and I get that. But it's up for people to publish the numbers they think are where it needs to be. But you have to be optimistic about the second half to keep it flat, no question.

Okay. And then finally, you -- I think you mentioned that cash would be flat in the second quarter, in the commentary?

Correct.

I probably should know this, but off the new term structure of the debt, is there any buyback that you can comment on? The stocks indicated down. It's getting low sixes. Is there any sense that you potentially have some thoughts there?

We talk probably a couple times a year anyway -- not like it's routine, but at Board level -- about use of cash, where we're investing our cash and how we think or look at that. It certainly is a part of the discussion. It filters in with the ability to have cash for acquisitions like we just did, which we think long-term can provide a lot of value. So, no, I don't have any specific comment.

As far as the debt facility, obviously we have covenants and restrictions as to what we can or can't do within the loan documents. And you have to make sure you honor that. Now, I don't think that's an impediment if we felt that there was a compelling argument to do an acquisition, buy back stock or use the cash for something else. I think we have a relationship with our financial institutions that we could go have that discussion and I'd feel pretty confident about it. But there hasn't been any announcement, obviously, that we're going do that, and I wouldn't want to lead you down any of those paths. But we look at all of them from time to time.

Okay. Yes, we've discussed this before. This is probably the third or fourth time you have come in line and then lowered. And despite what you are talking about, I think it would be prudent to get ahead of the expectations a little bit and make sure that wherever they are, that they are on the conservative side. So unless you really are seeing a strong back half of the year, which I still don't think you are actually seeing yet -- I would suggest you err on the side of caution. Thanks.

I appreciate that. Thank you.

(Operator Instructions)

Your next question comes from Colin Rusch with Capital Market.

Hearing you talk, can we just take a step back on the strategic vision for what you see happening over the next couple of years, even if we're not going to guide? What I'm hearing you talk about is exiting non-semi cap businesses in certain areas, moving into other ones, having to potentially shut down some capacity.

Part of the exit on the ISRG business, my understanding was, because of the margin profile. And we're going to end up getting hurt on that, just with the utilization levels. But if you could look out a couple years and start looking at the content of this business on a percentage of revenue basis, help me understand what you see involved in the opportunities that you see in front of you, as you work through the semi cap cycle and then see the other opportunities in other areas.

Colin, I think we see -- regardless of the cycles up and down, we still are very bullish as far as the semiconductor equipment space. Not only that the equipment spend will grow over the next few years, but also if we look at our footprint in that space, we're only at a few percent. So there is a tremendous amount of opportunity for us to grow sideways before we hit any boundary walls in equipment spend.

We'll have -- as I mentioned earlier, we'll have -- our customers' modules are basically our products, like a gas panel or a frame or a front-end module. And we'll have some of that business in one of their platforms, and we haven't yet penetrated some of their other platforms, which basically have identically the same module -- in other words, the same product space. So we have a lot of opportunity to grow in our market space that we are currently in, with products that we currently have and that we know how to do.

So we see a lot of opportunity to grow in that space, especially as our customers are coming out with new products and new tools, new systems. That's one of the reasons why we have the prototype shop, is to get into those systems as they're coming out. We see a large amount of opportunity to grow, basically within our SAM. And that's where we're focusing currently.

And in the last -- since we have really put some fuel on that fire over the last three months, we see that strategy start to play out, as we're starting to win business in other platforms and in other areas, and in new platforms coming out. And also wins in modules and products outside of just our very successful gas panel product.

So we really remain pretty confident overall that the semi cap market is going to be healthy and grow. And that also there's a tremendous amount of opportunity for us to grow within that space.

Can you just give us some examples on where you're actually seeing that? Because if you're having that success, you would think that it would start translating into the numbers a little bit quicker than what it seems like it's going to be doing over the next little while.

Well, as I mentioned earlier, even though it is relatively fast, as far as a product cycle. Getting awarded business for a new platform in our customer base, you really don't see a lot of volume for typically at least three to four quarters. And so you wouldn't see business that we were awarded or won one or two months ago. You would not start to see that volume yet. I don't want to get into details of where we are.

Maybe we can take the conversation offline. I appreciate it. Thanks a lot.

(Operator Instructions)

At this time, there are no further questions. Do you have any closing remarks?

I appreciate the continued interest. I'm sure we'll be talking to a lot of you over the next couple months, and look forward to continuing to tell the story. So, appreciate it.

Thank you very much.

Thank you for participating in today's conference. You may now disconnect.