ACLS
#Thank you, Michelle.
With me today is <UNK> <UNK>, Executive Vice President and CFO, and <UNK> <UNK>, Executive Vice President of Corporate Marketing and Strategy.
If you have not seen a copy of our press release issued earlier today, it is available on our website.
Playback service will also be available on our website as described in our press release.
Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's Safe Harbor provision.
These forward-looking statements are based on Management's current expectations and are subject to the risks inherent in our business.
These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review.
Our actual results may differ materially from our current expectations.
We do not assume any obligation to update these forward-looking statements.
During the first quarter, execution across the business was solid, driven by continued momentum of Purion sales and strength in both the memory and non-leading edge foundry and logic segments.
Revenue of $73.3 million, driven by a 42% quarter-over-quarter systems increase, was above both Company guidance and analyst consensus estimates.
Earnings of $0.02 per share were at the top end of guidance and above consensus estimates.
For the second consecutive quarter, system revenue was split nearly evenly between the memory market at 55% and the non-leading edge foundry and logic market at 45%.
We expect this trend to continue into the second quarter and likely throughout the year.
The balanced revenue between these two markets, combined with our lower exposure to the turbulence of the leading edge FinFET based foundry logic market is providing a more stable environment for Axcelis to ramp Purion.
As a result, we expect second quarter revenues between $69 million and $74 million.
Gross margin is expected to be approximately 33%.
Operating profit is expected to be $4 million to $6 million with an EPS ranging from $0.02 to $0.04.
Our cash balance will be approximately $80 million.
As we discussed last quarter, the introduction of the Purion H high current implanter and the Purion M medium current implanter has opened an additional 85% of the market, giving Axcelis access to 100% of the nearly $1 billion ion implant systems market.
According to market share data from Gartner, Axcelis' ion implant market share increased from 8.8% in 2013 to 12.3% in 2014.
Based on current Purion momentum and the strength of both memory and non-leading edge foundry and logic markets, we expect Axcelis will exit 2015 with between 17% and 20% share of the ion implant market.
The commonality of the Purion platform, combined with our innovative scanned spot beam, advanced energy filter, and Eterna ELS source, has enabled the Purion product family to rapidly gain momentum with our customers.
Two customers in the memory market have all three Purion products running in production and are experiencing the full power of Purion.
The Purion H high current tool is now installed and running production in four fabs at two customers.
Memory customers ramping 20 nanometer DRAM processes are using Purion H extensively for advanced material modification implant applications.
These applications benefit greatly from the precision of the scanned spot beam and from a lower cost of ownership due to the long lifetime of the Eterna ELS source.
In addition to its strength in the memory market, the industry leading Purion XE high energy implanter continues to penetrate new customers in both 200 and 300 millimeter.
These customers manufacture products such as sensors, power devices, and specialty logic chips, supporting automotive, mobile, and the internet of things.
These customers benefit from the productivity advantages of the Purion platform.
Image sensor customers also see significant yield advantages as a result of the low metals contamination inherent in the Purion design.
Additionally, during the quarter our legacy products and used tools also saw significant activity within this segment.
Strong customer support has been a key to the early success of Purion.
Customers value the competition and innovation.
We expect the rapid adoption of the Purion H to continue with additional penetrations and sales into 2015.
Our customers are very vocal about wanting two strong implant suppliers to evenly split their business.
Our strategy for 2015 has not changed since the last quarter.
Our main objective is expanding our memory footprint and growing our topline by gaining share with Purion, especially the Purion H and the very active cooling and memory market.
Our other objectives include targeting placement of at least one Purion H evaluation unit at a leading edge foundry or logic customer, maximizing the revenue opportunity at customers using non-leading edge process technology by selling Purion systems, legacy products, used tools, and upgrades, maintaining our strong GSS business and preparing for growth in service as the increasing install base of Purion products exit the warranty period, maintaining tight control of operating expenses and cash during the aggressive Purion H ramp, and driving gross margin improvement initiatives to deliver high mid-30% gross margins by Q4, with a path to greater than 40% gross margins in 2017.
With that, I'll turn it over to <UNK> to discuss our first quarter results, including a detailed update of our gross margin improvement initiatives.
<UNK>.
Thank you, <UNK>.
We are pleased with our Q1 financial performance and guidance for Q2.
Revenue in Q1 was above Company guidance and analyst consensus, driven by the continued ramp of Purion H.
Gross margin was slightly ahead of our improvement plans, fueled by lower material and labor costs and a broad product mix, and quarter end cash was $74.5 million, which includes positive cash flow from operations, in addition to proceeds from the sale of our headquarters.
Current cash is at the highest level net of debt since 2002.
Looking at our first quarter results, revenue finished at $73.3 million, up 17.2% from $62.5 million in Q4 and above our guidance.
System sales were $42.5 million, up 42.3% from $29.9 million in Q4.
GSS revenue finished at $30.8 million, down 5% from $32.7 million in Q4.
Q1 sales to our top 10 customers accounted for about 81% of our total sales, compared to 70% in Q4, with one of these customers at 10% or above.
Q1 system bookings were $65.9 million, compared to $56.1 million in Q4, with a Q1 book-to-bill ratio of 1.46 versus 1.72 in Q4.
Backlog in the quarter finished at $60.1 million, compared to $37.9 million in Q4.
Q1 combined SG&A and R&D spending was $19.9 million, compared to our guidance of $19 million.
Higher costs were mainly due to unplanned proxy fees and incremental R&D spending to support the rapid ramp of Purion H.
SG&A in the quarter was $11.7 million, with R&D at $8.2 million.
In Q2, we expect SG&A and R&D spending to return to our model of approximately $18 million.
Gross margin in Q1 finished at 31.9% and above guidance, compared to 30.1% in Q4.
Lower than planned material and labor costs on our Purion products and higher overall factory efficiency drove this improvement.
In Q1, we also took our final charges for capitalized variances that were accrued during the 2014 pause.
Gross margin improvement remains a top focus across the business and I am personally involved in critical programs that drive lower product cost.
As highlighted in our last call, gross margin improvement roadmaps take advantage of Kaizens that optimize factory and supply chain efficiency, Purion platform commonality that provides supply chain leverage through higher part volume, launching ship-from-cell on all Purion products to shorten manufacture and cycle time and improve labor productivity, and implementation of factory and supplier Kanban programs to improve inventory turns in our cash-to-cash cycle.
Operating profit in Q1 was $3.4 million, above our guidance, and compares to $0.4 million in Q4.
Q1 net income of $1.9 million, or $0.02 per share, was at the high end of our guidance, compared to $0.2 million, or $0.00 per share in Q4.
Q1 inventory ended at $109.5 million, compared to $104.1 million in Q4.
The increase in inventory was primarily driven by field stock to support the increasing number of Purion shipments.
<UNK>wever, inventory turns did increase in the quarter, driven by improving factory cycle times.
Q1 accounts payable were $30.5 million, compared to $21.6 million in Q4, due to higher manufacturing volume and the timing of material purchases.
Q1 receivables finished at $42.8 million, flat with Q4.
Q1 cash and cash equivalents finished at $74.5 million with no debt and well above our guidance of mid-60s, driven by the proceeds from the sale of our headquarters and cash generated from operations.
This compares to a cash balance of $30.8 million in Q4.
We expect Q2 cash flow to remain positive and to increase cash to approximately $80 million.
In summary, I would like to direct you to the business model in our investor presentation as a way to look at Axcelis financially.
The model shows our target quarterly revenues for 2015 are in the $70 million to $75 million range with gross margins in the mid-30% range.
Combined SG&A and R&D spending should be modeled at approximately $18 million.
This model results in quarterly net income of approximately $5 million to $7 million.
Based on our Q2 guidance we are approaching this model.
Looking forward, the longer term model highlights the amount of leverage in the business.
Axcelis will generate significant profits in cash as gross margins move towards 40% and beyond.
Implementation of the programs I discussed will fuel a steady improvement of gross margin while the success of Purion will drive the revenue growth.
With that, I will now turn the call over to <UNK>, who will discuss current market conditions and opportunities for Axcelis.
<UNK>.
Thank you, <UNK>.
The memory market continues to be strong for Axcelis.
In DRAM, the 20-nanometer ramp continues in multiple fabs where the Purion H is the tool of record for critical material modification implants.
The 3D NAND ramp is beginning, but expected to be more weighted to Q3 and Q4.
The Purion XE plays a critical role in this process ramp.
There continues to be turbulence in the leading edge foundry and logic market.
We are focused on placing a Purion H evaluation system at a leading edge foundry logic customer during 2015 that will drive revenue in 2016 and 2017.
The non-leading edge foundry and logic market is extremely active and has represented nearly half of our revenue for the last two quarters.
So we thought it would be worthwhile to spend a few minutes to discuss the issues these customers face and the solutions that Axcelis provides for them.
We define this market segment as customers producing 28-nanometer and older products on either 200 millimeter or 300 millimeter wafers.
These customers are building advanced devices, but on older technologies for a variety of reasons.
These products could be analog devices, mems, power devices, specialty logic, or sensors, supporting markets such as the internet of things, automotive, mobile, wearables, and consumer electronics.
Many customers in this market are four-wall constrained, making productivity their number one buying criteria.
Others, such as those building advanced image sensors, need capability only available on a modern implanter, and thus are driven by technical criteria.
Axcelis offers this group of customers four choices to address their needs.
For the customer with a more strategic focus and in need of the highest level of productivity or the lowest levels of metals contamination, Purion is the best solution for both 200 millimeter and 300 millimeter.
Customers in need of additional capacity and a shorter qualification time can choose to buy a new legacy tool exactly like the tool they are currently running.
If a customer has time and budget constraints, a used legacy tool upgraded and refurbished by Axcelis is often the best choice for this market.
And lastly, for a customer that needs incremental capacity or incremental performance capabilities, Axcelis offers upgrades to their existing install base.
This is a very active market segment and one that will provide a nice balance in the memory market for Axcelis for the foreseeable future.
Now I will turn the call back to <UNK> for her closing remarks.
Thank you, <UNK>.
Our Purion products are highly competitive and are rapidly gaining market share.
To drive our revenues and share gain in 2015, we are focused on two very active market segments - memory and non-leading edge foundry and logic.
Our highly leveraged business model is in place.
Our streamlined cost structure and margin improvement initiatives will yield strong earnings and generate significant cash in 2015.
And most importantly, we continue to have strong customer support.
Our customers want to divide their implant business equally between two strong suppliers.
Ensuring we meet our current customers' expectations with respect to the ramp of the Purion H in 2015 while expanding our Purion footprint is our top priority.
We thank you for your continued support.
And with that, I'd like to open it up for questions.
Yes.
So for shipments, if you take a look at memory, we were at about 55%, and the non-memory, which is foundry logic business, is 45%.
Well, the DRAM spend is on 20-nanometer and seems to be pretty strong---+continuing to be pretty strong.
Purion H is a product that they are using in 20-nanometer and it's a new product.
So even if it was moderating a little bit, at this point we're not seeing that as a result of the new product penetration.
3D NAND looks like it's ramping more for the third and fourth quarter of the year.
I think originally or last quarter we had talked about it being more of a middle of the year and that seems to be stronger now in the second half, really beginning in the third quarter.
In fact, if I look at our bookings, and we've said before that our bookings aren't necessarily indicative of the future because often we book and ship in the same quarter.
But if we look at our bookings for the quarter, our---+there's a slight shift towards in fact the foundry logic away from the memory.
It's about 55% to 45% memory.
And as I look at the memory split, it's still very heavily DRAM oriented.
So that supports what <UNK> is saying, that there is still a significant amount of DRAM spending going on, at least relative to Axcelis' opportunities, and the flash will ramp up later in the year.
Well, I think, <UNK>, the leading edge processes we'll be looking to implant as they reach higher levels of yield in order to fine tune that and improve their overall bin splits and so forth.
Likely they're---+they'll be using them for material modification implants and electrical tweaks, for lack of a better word, on the parametrics to give them better performance and better yield in those more valuable bins.
Well, <UNK>, in terms of the Q1 numbers, we did see some improvement on the material side and on the factory side in labor.
But as you know, the volumes continue to pick up because of the commonality across this Purion platform.
This is going to be something of a continue to run right on to 2016.
So if you look at kind of what we've been saying this year starting off a little slow, finishing in the high mid-30s, kind of a mid-30% gross margin year, and then kind of wrap this up to us saying we're going to get in the 40s in 2017.
It's kind of a gradual path that gets you there.
And the material---+so the material will continue to work in our favor as well as some of the labor pieces.
And then, the other important part to the drops off in the first half is some of these expediting fees we have been talking about and some of the rework just on the first units going out.
That should be behind us.
So that will help continue to move this up.
But Q1 it was mostly the labor and materials, starting to see that a little bit sooner than we anticipated.
Okay.
Thanks.
At this point, we see DRAM, especially for Axcelis, relative---+especially relative to Purion H, being there for the entire year.
And so, what that means in terms of the overall market, again we're---+we may be a little bit disconnected, <UNK>, because of the new product penetration with Purion H and its importance in these material modification implants at 20 nanometer.
And so, both---+so we see it pretty steady through the year.
So our customers have been saying that to us now for several years since we've had the Purion platform.
I think they've been excited about the platform and as we've rolled out each additional tool, we've also increased the opportunity that we have to actually achieve that 50% of the market.
I think we have a very good chance of hitting that goal.
And we've talked about this in our model that we expect by 2017 we can actually have up to 40% of the market.
And if you look at the mix among the competitors, 40% of the market could actually be a leading market share.
So that's our goal.
We're focused on that.
We think with the progress that we're actually seeing now in the first half of 2015 that will get us halfway there by the end of this year, which is really I think accelerated versus I think what many people had anticipated.
So halfway there by the end of this year, and onwards to 40%-plus by 2017.
Thank you.
We've been talking about this.
We actually were in a range of 20% to 24% market share back---+just as we were coming out as a public company, so the early 2000s.
So we're pretty excited about this, because getting back up to 20% is getting us into what we consider to be a more normal range for Axcelis.
And with the toolset that we have right now with the Purion platform, we think we can do even better than that.
Yes, I think that's exactly right, <UNK>.
The longer the turbulence stays in the leading edge, the more established Purion H gets with both memory and with the non-leading edge foundry and logic customers, which then proves the tool solid for both logic and high volume and makes it easier for those customers to make a decision to go with the tool.
Couple that with its technology advantages for material modifications and angle control and so forth, and I think the turbulence is going to be a positive thing as well.
Well, we can't comment specifically on the customer's process.
But it is a step which Purion H has a significant performance advantage over the competition.
And as a result, the customer has been moving it into multiple fabs as they've rolled out the 20-nanometer process in multiple fabs.
We have.
There---+if you look at that market in terms of installed implanters that these customers are using, it's measured in the thousands.
So there's a fair amount of opportunity in terms of upgrades, replacement, refurbishment, and so forth.
And any one of these customers who purchases a Purion to replace the tool, that generates a used tool opportunity as well.
So it's a nice market and we expect as a result of the internet of things and the automotive market especially, that this will be a very active market at least through the end of this year and likely well into next.
Thanks, <UNK>.
Thank you, Michelle.
We will be attending the B.
Riley Conference on May 14 in Los Angeles, the <UNK> Hallum in Minneapolis on May 26, and the CEO Summit in July at SEMICON West.
We will also be on the road during the month of June.
And we're looking forward to catching up with all of you.
Thank you.
