Mattson Technology, Inc. Q4 2008 Earnings Call Transcript

Feb. 4.09 | About: Mattson Technology, (MTSN)

Mattson Technology, Inc. (NASDAQ:MTSN)

Q4 2008 Earnings Call Transcript

February 4, 2009 5:00 pm ET

Executives

Andy Moring – CFO

Dave Dutton – President and CEO

Analysts

Junaid Ahmed [ph] – Citi

Patrick Ho – Stifel, Nicolaus

Jenny Yun [ph] – JPMorgan

Peter Kim – Deutsche Bank

Ben Pang – Caris & Company

Gary Hsueh – Oppenheimer

John Boardman [ph] – JP Boardman Inc. [ph]

Operator

Good day, everyone, and welcome to the Mattson Technology Inc. Fourth Quarter 2008 Financial Results Conference Call. As a reminder, today’s conference is being recorded. Information provided in today’s conference call contains forward-looking statements regarding the company’s future prospects, including but not limited to anticipated market position, bookings, revenue, margins, earnings per share, tax rate and fully diluted shares outstanding for future periods.

Forward-looking statements address matters that are subject to a number of risks and uncertainties that can cause actual results to differ materially. Such risks and uncertainties include but are not limited to those described in today's news release and in the company's Forms 10-K, 10-Q and other filings with the Securities and Exchange Commission. The company assumes no obligation to update the information provided in this conference call.

At this time, I would like to turn the conference over to Mr. Andy Moring, Chief Financial Officer. Please go ahead.

Andy Moring

Thank you, and welcome to our fourth quarter 2008 conference call. With me today is our president and CEO Dave Dutton. After I review the financial performance and give guidance, Dave will comment on the business and then we will open up the call of Q&A.

When we had our conference call in October, indications were that the semiconductor equipment industry was entering an unprecedented economic crisis. The global macro economic meltdown of the markets had created a situation where orders and deliveries had virtually shut down, and the maintenance business of spares and service sharply curtailed. We realized that we would need to use our strong balance sheet for the short-term, but also to prudently cut cost to protect cash for what could be a broad-based and protracted downturn. Our strategy was to continue with our aggressive cost reduction programs while protecting the investment in new products in order to successfully penetrate the new markets of dialectic etch and millisecond anneal.

There are a few key points I would like to emphasize relative to our financial performance for the fourth quarter. During the quarter, our cash losses were significantly below our operating losses. Among our peers, our cash position at $2.08 per share remains one of the strongest in our industries and we have no debt. During the quarter, we announced a restructuring that reduced our breakeven point to the low to mid $40 million level. This restructuring combined with similar reductions in the second and third quarters have significantly reduced our cost structure and will enable us to minimize cash burn as we respond to the current worldwide downturn.

We have taken steps to ensure that our balance sheet continues to be conservative, which is a reflection of our strict financial discipline. We announced that we have reviewed our goodwill, long lived and intangible assets for accounting requirements, and have impaired and written these assets off of our books. We have also taken adjustments to accounts receivables, inventories and fixed assets this quarter due to the uncertainties of the current environment.

Now to a more detailed look at our financial results for the fourth quarter. Net sales of $13.1 million were within a quarterly guidance, but down 57% from the third quarter, reflective of the severe downturn. Revenue percentage breakdown was Southeast Asia and China, 14%; Korea, 14%; Japan, 19%; Europe, 26%; Taiwan, 14%; and North America, 13%. Memory was the largest segment at 68% followed by logic at 32%.

Fourth-quarter gross margin was 4.6%, down from 25.5% from the third quarter results. This decline was the result of under absorption of factory costs resulting from the exceptionally low revenue levels and $4.3 million of inventory reserves booked in alignment with our conservative accounting practices. Fourth quarter operating expenses were $29.2 million, excluding the $30.9 million in restructuring and impairment charges announced earlier in two separate press releases. Included in operating expenses this quarter are charges to our accounts receivables reserves to reflect several recent customer announcements and accelerated amortization of new product evaluation equipment. These additional adjustments equal over $5 million and are reflected in the SG&A line in operating expenses. Excluding these one-time costs, operating expenses were $3.3 million lower than the third quarter due to the continuing impact of previously announced cost-cutting measures.

Tax expense for the quarter was $1.6 million, considerably higher than the third quarter, due to a true up of the 2007 tax provision for a foreign entity relative to the actual filing of the return. During the fourth quarter, Mattson concluded our annual evaluation of goodwill and intangible and other assets for potential impairment as required under SFAS numbers 142 and 144. Based on the results of the evaluation, we incurred noncash impairment charges for all of our goodwill and intangible assets and for a fixed asset. The non-cash impairment charge was approximately $18 million against goodwill, $7 million against intangibles and $3 million against fixed assets.

In addition, we have taken approximately $3 million of restructuring charges to the P&L for the quarter. These charges represent actual costs incurred for the restructurings announced in both the third and fourth quarters. There are approximately $2 million in charges associated with both announced restructurings that have yet to be recognized in the P&L and will be charged in the first half of 2009. Once all of the restructuring activities have been completed, our global head count will be approximately 400, down over one third from the middle of 2008.

Fourth quarter GAAP net loss was $60.5 million or $1.22 loss per share. The impact of restructuring impairment costs and operating cost expense adjustments was $0.73 per share. Our balance sheet remains conservative and reflects sound financial and operational controls. Cash, cash equivalents and short-term investments at the end of the fourth quarter of over $103 million was down 12% from the previous quarter. Our cash has high liquidity and we continue to have no offsetting debt.

The decrease in cash for the quarter of $14 million is considerably lower than the operating loss. We have been able to use our existing inventories and payments of receivables to minimize the cash impact to our operating results. Inventories decrease by $8 million during the quarter, partly due to reserve adjustments. Approximately 42% of our inventory is for evaluation tools already delivered or new product inventories being built for shipment to our customers' production sites. Another 25% of inventory is for our worldwide spare parts support requirements.

I'll now turn to our guidance for the first quarter of 2009. Because of the macro economic situation and the oversupply conditions in the semiconductor market, our customers have dramatically reduced their capital expenditures. We do not expect this situation to change in the near term. Our guidance is as follows. Q1 revenues in the range of $6 million to $14 million, gross margins will be below 20% because of manufacturing under absorption at these very low volumes, and earnings will be in the range of loss per share of $0.55 to loss per share of $0.45.

The anticipated decrease in cash for the quarter will once again be considerably below operating losses. We expect that we will end the first quarter with a cash position of approximately $90 million. We have enough inventory units on hand to effectively handle most tool demand for the next several quarters and will continue to manage our receivables. The restructuring activities we have initiated in the past six months will continue to show results and we are enacting further dramatic steps this quarter which Dave will explain to reduce the company's cash losses. We have targeted having six to eight quarters of cash on hand at all times as a contingency for the future and will continue to look at cost reduction opportunities to enable that target to be achieved.

So let me summarize. Our industry is experiencing an unprecedented downturn, intensified by the current global economic conditions. However, Mattson maintains a significant amount of cash that enables us to continue to invest in our future and gives us a margin of safety of about two years. During the fourth quarter, we have once more demonstrated that we can cut costs and we will continue to do so but we reiterate that we will not jeopardize our growth initiatives.

Now I will turn the call over to Dave who will elaborate further on Mattson's business results and prospects. Dave?

Dave Dutton

Thanks, Andy.

Good afternoon, everyone. As Andy mentioned since our last update, the global recession has continued to worsen and with significant impact on our sectors. The decline in spending for capital equipment is unprecedented as semiconductor manufacturers delay almost all investments due to weak demand across all sectors of the semiconductor market. With reduced utilization levels in our customer's factories, our spares and services business has seen a significant reduction as well. Currently, the semiconductor industry appears frozen in its tracks.

This is a very tough environment but our industry and more importantly the Mattson Technology team is no stranger to adverse conditions. We have navigated rough waters before and have every confidence that we can do so regardless of conditions. In the 2002 to 2003 timeframe, this Mattson Technology team faced a unique set of challenges that required a restructure of a three-day merger. At that time, we reduced headcount and OpEx by over two thirds and emerged a stronger, more profitable market leader, building our RTP and strip into their current leadership positions.

While circumstances differ, today's challenges are very similar. Our key challenge today is to further strengthen the company by building our growth positions around our market leading core products. Over the last several quarters, we have established a clear set of priorities designed to strengthen the company, expand positioning, and enable us to better serve our customers. Our goal is to first ensure the long-term stability of the company and second position Mattson Technology for growth when the market returns.

The first and foremost priority is to preserve cash during this economic crisis. As Andy noted, we are committed to maintaining a cash balance of six to eight quarters of cash and hand at all times as a contingency for the future, and we will manage our P&L by reducing our breakeven point in line with the changing economic environment. Second, we will not sacrifice our core investments in the dielectric etch market where we are clearly differentiated technology as we believe success in this market positions Mattson for market share and revenue gains upon return to improved industry conditions.

And third we intend to continue to grow our market share position in our core segments of strip and RTP. While we continue to invest in new products, we have taken decisive actions to control costs and to stay aligned with the requirements of our customers. In doing so, we have re-organized our structure to further reduce costs of operations and to streamline the company going forward. Over the past six months, we have announced a number of cost reduction activities. And we are now taking additional measures that we will expect to reduce operating expenses by another $3 million per quarter. By the end of the second quarter of 2009, we expect the cumulative effect will be a reduction of overall operating expenses of approximately 40% from the third quarter of 2008.

The specific additional reductions include the following. We have instituted 2009 compensation cuts. I will personally be taking a 20% cut in compensation and the Board of Directors will be taking a 10% cut in compensation. In addition, no executive bonuses were paid in 2008 and none are expected to be paid in 2009. All other employees will be taking a range of 10% to 12% cut in compensation through a combination of unpaid time off or reduced workweeks and shutdowns per local regulations. We have suspended our 401(k) matching for our employees and we have undertaken further discretionary cost reduction measures specific to outside services, travel and facilities related costs. Again, these measures combined will reduce operating expenses by another $3 million per quarter.

Let us talk about how the products are positioned, starting with the progress we are making in etch. In spite of the slow market conditions, our customers continued their process development and qualification activities with our etch products. The Nexion dielectric etcher is in full volume production at a leading memory manufacturer. Our customers have expanded Nexion's qualifications to the next generation node demonstrating the tool's extensibility. During the quarter, we shipped the fourth etch system to the customer, who has entered into a joint evaluation agreement with us for development of extended process portfolio beyond the current process area we serve.

The Alpine system which enables dual damascene integration is in the final device qualification stage at a leading foundry customer where we have demonstrated greater than 30% cost of ownership reduction against a leading etch competitor. Alpine is also being extended into the multi-level packaging program where our cost of ownership and ion energy control provide key differentiation against other tools available in the market.

We are actively engaged with six etch customers, up from one last year, serving many different process applications such as spacer etch, pad etch,, hard mask open, and PR recess. And we expect tool placement by some of these customers as we move through 2009. In strip, even in these difficult times, we continue to gain market share and believe that we have recaptured our market leadership position. In 2008, Suprema gained four new customers, not only helping our surface cleaning group maintain revenue levels in a down year, but more importantly positioning strip for upside growth in the next up cycle. The Suprema is now working on the most advanced nodes in memory, logic and foundry, and has driven share gains for Mattson.

In RTP, we entered this down cycle very reliant on DRAM. As we explained to you at the 2008 analyst conference, our plan was to extend our winning UL [ph] system further into the NAND Flash market and to penetrate the logic market. Our latest generation RTP was placed at a leading DRAM and NAND provider's R&D facility. At another top memory provider, Helios has expended from its DRAM leadership to meeting qualifications at advanced NAND node and is expected to add incremental market share in the next up cycle.

During this past year, Helios has demonstrated acceptable performance to specification at leading logic and foundry customers. The economic environment has delayed tool placement, but we're confident that we will see new positions as the market returns.

We are pleased with our progress that Millios advanced millisecond anneal tool is making for advanced DRAM junction formation at a leading memory manufacturer. The Millios was chosen above all other competitors for it higher throughput, best in class production worthiness, while delivering the most flexible process window. The Million has demonstrated device performance and is currently in an extended marathon phase to ensure it is ready for the upcoming production ramp. After completion of the marathon, focus will shift to using the Millios' process flexibility to enhance device performance. We are working with two other key customers towards placements in the second half of 2009.

Before we take your questions, let me close with saying that the current economic conditions place significant challenges on the entire technology food chain, and we are all in unchartered territory. We clearly recognize the severity of conditions and we enter 2009 addressing these challenges challenging economic conditions head-on. We're not just restructuring for the down cycle; rather we've strategically built a new and efficient Mattson Technology that has increased customer centricity and improved operational efficiency, and is expected to generate higher earnings and cash flow per revenue dollars when the market comes back.

We have a history and a culture of doing more with less. Our company and products have been built on the foundation of substantially higher productivity than our competitors. It is this core company culture that has allowed us to adjust our cost as businesses contracted while maintaining our product and customer focus. We continue to maintain a strong financial foundation to support the company's growth strategy and future business objectives. Our cash reserves have been built with the cyclical nature of this industry firmly in mind and we have one of the strongest cash positions in our industry, which we'll judiciously use to sustain us through the economic downturn and position Mattson Technology for the future.

And with that I would like to thank you very much for listening. We are now open for your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) We will hear first from Timothy Arcuri with Citi.

Junaid Ahmed – Citi

Hi. Thanks for taking my question. This is Junaid Ahmed [ph] calling in for Tim. Could you please talk about cash requirements and I think that you might be needing to raise money late next year, and if so, how you would go about accomplishing that?

Andy Moring

We really haven't discussed that at this point in time. I think we were quite clear that we are positioning ourselves so that we have six to eight quarters of cash available for working levels and what we need for the foreseeable future. So we haven't even gotten to a point where we've had those discussions about what would have to happen late next year.

Junaid Ahmed – Citi

Okay. So you think six to eight quarters you're okay?

Andy Moring

We've said that we had six to eight quarters of cash reserves on hand. And as we go through the year, it becomes apparent that this is going to extend out even longer, we will take the necessary steps from a cost reduction perspective to continue to have that six to eight quarters of reserves at that point in time as well.

Junaid Ahmed – Citi

But if business deteriorates to that level where you cannot compensate with just cost reductions, and you have to raise money, how – I guess I was thinking along those lines?

Dave Dutton

Again, we really have not discussed that because we believe that we still have room to take further cuts if necessary if the business conditions warrant that.

Junaid Ahmed – Citi

Okay, thank you very much.

Operator

We will take our next question from Patrick Ho with Stifel, Nicolaus.

Patrick Ho – Stifel, Nicolaus

Thank you for taking my question. A couple of questions on my front, first off, related to the last question about you know your cash balance and the cash burn, would it be fair for me to characterize as your cost savings yet realized, and as we progress through the year, the burn should actually reduce even if you don't significantly grow revenues in this type of environment?

Andy Moring

That's exactly right Patrick.

Patrick Ho – Stifel, Nicolaus

Okay great. And in terms of you know the gross margins this quarter, obviously you had the inventory reserve. Can you just give a little clarification of what type of I guess pro forma gross margins you would have at these kinds of depressed revenue levels? I guess excluding that inventory reserve, what would your gross margins be with the low fixed cost absorption that you're experiencing right now?

Andy Moring

We would probably be in the 20% to 25% range at these low levels. It is very difficult to tell and it depends on just exactly the configuration of the tools that we do end up shipping. Again, as we stated last time, we don't appear to have any erosion on ASP on the few deals that we are talking to customers about, but certainly with these low levels, our absorption becomes a problem to hit our standard gross margin targets.

Patrick Ho – Stifel, Nicolaus

No, fair enough. And final question on my front, one of your largest customers is obviously the big memory manufacturer in Korea, given some of the changes in their management, do you see any structural changes in their philosophy of spending CapEx versus just some of the market related factors where everyone is kind of holding back? Do you see any fundamental structural changes in their overall thinking with their management change?

Dave Dutton

Yes, Patrick, that is a good question. I would tell you at this time I think it is too early to tell philosophically what will change. We do feel very strongly about the new management team and the length of time we have been engaged with them in the past in their previous positions. I think right now, across the industry, all of our customer base is certainly working hard at trying to reduce their capital intensity, especially during the near term as they work through this as well. To me, during this time, it is so much different than before, so irrational to react to the severity of this economic crisis.

Right now we're not really willing to draw any trends at the moment because we think there still is as we return to some normalcy, our customers still have to invest in technologies, still have to move things forward. And you have got to remember that Mattson has continually been a leader in cost of ownership, providing more value with less CapEx than anybody else we compete with in our segment, so actually the market continues to favor us expanding further and further.

Patrick Ho – Stifel, Nicolaus

Great, that's very helpful. Thanks a lot.

Dave Dutton

Thanks.

Operator

We will take our next question from Jenny Yun [ph] with JPMorgan.

Jenny Yun – JPMorgan

Hi, good afternoon. Sorry, I joined a little bit late. Did you give the revenue breakdown by geography?

Andy Moring

Yes, we did.

Jenny Yun – JPMorgan

Could you give that to me again?

Andy Moring

Okay. To go back to my numbers here, Southeast Asia and China, 14%; Korea, 14%; Japan, 19%; Europe 26%; Taiwan, 14%; and North America 13%. And memory was 68% with logic at 32% of the total.

Jenny Yun – JPMorgan

Logic was 32. Okay, is this – memory was 68% of revenues or bookings?

Andy Moring

Revenue.

Jenny Yun – JPMorgan

Okay, got you. And then Andy I think you said something at the end of your comments about like a two-year period about your cash, could you repeat that? I didn't quite get all that.

Andy Moring

Well, we said we had a margin of safety of about two years. We have a stated goal of six to eight quarters of cash at any time as a cushion or contingency. So as we go through this year and it becomes, if it becomes indicative that we're going to have to continue to cut cost, we will do so in order to maintain the six to eight quarters of cushion.

Jenny Yun – JPMorgan

I got you. And what is your breakeven or what are you taking that too?

Andy Moring

Our stated breakeven on an operational profit level is in the low to mid $40 million level. We have not really stated our cash breakeven point, but it is considerably below that as long as we maintain the inventory levels that we currently have as well as the receivables levels.

Jenny Yun – JPMorgan

Okay. So the low to mid 40s?

Andy Moring

40s.

Jenny Yun – JPMorgan

Okay. Then what was the gross margin and operating margin on that?

Andy Moring

That would be closer to the mid to – well, probably the mid 40% range, a little bit below our stated goal of 40% to 50%.

Jenny Yun – JPMorgan

Okay. And then on – so while we are kind of below this breakeven point, what's your like – did you say what you are comfortable with from a cash burn perspective?

Andy Moring

Well, we are not comfortable with any cash burn, but as long as we keep our goal of six to eight quarters available, we're comfortable. And if it appears that we need to do that, we will continue to cut costs in order to get to that point.

Jenny Yun – JPMorgan

Okay. And so what is six to eight quarters of cash, what amount is that?

Andy Moring

I'm sorry. The six to eight quarters would be – right now we feel that our run rate, we have six to eight quarters of cushion available to us, based on our current cash levels.

Jenny Yun – JPMorgan

Okay, fair enough. Thank you.

Andy Moring

But again as we stated earlier, we will continue to work that number down as we go through the year.

Jenny Yun – JPMorgan

Okay. And then one final question, if you pull out the $5.5 million in accelerated amortization as well as the $30 million in restructuring one-time charges and goodwill write-off, what is your EPS for the quarter?

Andy Moring

We said that all of our adjustments had an impact of – it would have meant that we would have an EPS of about $0.47 per share.

Jenny Yun – JPMorgan

Okay, great. Thank you.

Operator

Our next question comes from Peter Kim with Deutsche Bank.

Peter Kim – Deutsche Bank

Hi. Thanks for taking my question. I was wondering about any concerns about doubtful accounts in your receivables?

Andy Moring

We took necessary reserves against our doubtful accounts this quarter reflected in the numbers that we just announced.

Peter Kim – Deutsche Bank

I mean when you look out, many of your DRAM customers have – are going through some very extenuating circumstances these days, and so do you anticipate that these doubtful accounts could continue to grow over the next couple of quarters?

Andy Moring

No, because you're going to continue. If we do ship to these customers, we will continue to take a look at the terms that we put them under. Many of these customers are already on LCs at least for the first 90% of their revenue, so we will continue to look at the final 10% in certainly our service business going forward, and take a very conservative approach with those customers as needed. As of right now, we feel that every potential customer does have problems we've properly reserved for.

Peter Kim – Deutsche Bank

Okay great. With regards to inventories, you noted that you had about 42% of that inventory was in evals, and I understand you are trying to expand your served markets and making a pretty trying effort in that regard, but I was just wondering 42% on evals, how long do you think it'll be before you can turn that into cash? I mean do you see evals under like six months to a year term?

Andy Moring

Well, let me clarify. We said they were 42% was for evals, finished goods and new products that were being produced right now that have not necessarily shipped as of yet. We typically certainly would like to turn our new product inventory into revenue once it goes to the customer within six to nine months. But certainly at this point in time, as Dave were alluded to, it is much more difficult with the customer situation being what they are. So we're just taking the opportunity at this point in time to continue to make sure we qualify those tools, get the customers comfortable with them, and ready to buy them and other tools when the industry turns up.

Peter Kim – Deutsche Bank

Okay. You know if I look back to your history, I mean your inventory has been very low in your trough cycle quarters, and relative – current levels of inventory is exceedingly high compared to history, and I was just wondering how much – that seems to me like a risk, and therefore I want to kind of get a clear understanding about what you anticipate, how much of this inventory do you think will convert to cash in the next two, three quarters? This is of particular concern because you guys have expressed concern about cash position over the next two to three years.

Dave Dutton

Pete, this is Dave. I think just kind of dwelling on what Andy said on this inventory. So we, as Andy mentioned, we built inventory and we have concerns on this. I mean this eval inventory is in the field now, and is actually continuing to build our customers application portfolio and is absolutely serving a real value for us and for our customers.

And I think the way to look at it is, as some of our customers bring back their budgets, so the question is when and if anybody could predict that, that would be wonderful, like predict the end of the recession. But we can't. So we do know that it is somewhere probably in the near future where we will start to see the first budget activity. We really believe most of these products are far enough along and engaged with our customers. In fact many are really running manufacturing that on those first budgets, these tools will turn revenue, and then turn cash on the typical term.

So in many ways, we are really positioned at the first level of spending that will return to this industry on a technology buy and extended tool basis to actually see some revenue enhancement and some cash flow coming sooner than if we were just taking orders, investing at working capital to build that and then send it out.

Peter Kim – Deutsche Bank

Okay. Thanks for the clarification on that. Last question, I was wondering, you know, yes, I think it is the right thing to do today to size the business and try to put the business towards growth in the future. But if things were to linger, and I think a lot of people believe that this downturn could linger for a long time. And if that was to happen, I was wondering if you guys were giving any consideration to possibly scaling down your businesses, truncating certain business segments that you don't expect to perform, have you guys given that consideration?

Dave Dutton

I will put it this way. The way we are structured, our businesses across the product lines, A, not only are very much inter-related. So we're very efficient with the amount of people it takes to sustain them and deliver at a maintenance level to our customers. And so we feel we are able to reduce our cost and still deliver fully across this product line set to our customers while still moving forward. And in that case, that's why you feel our confidence with our cash balance and our ability to maneuver all these products, even the new ones that are out in the market, those are mature enough and they are built off of a lot of already production proven aspects of existing segments that we are able to deliver moving forward. We don't see the need to take some of the assets and move them out of performing for the company.

Peter Kim – Deutsche Bank

Okay, thank you.

Operator

We will hear next from Rob Cihra with Caris & Company.

Ben Pang – Caris & Company

Ben Pang, thanks for taking my question. In 2009, where do you guys feel you are best positioned to gain market share in your core segments, in logic or memory?

Dave Dutton

It's a good question. Actually we feel pretty strong across all areas. In memory, we feel especially with the etch area and Helios expanding into NAND that we will see market share gains there. And in logic we feel with the Alpine doing things like dual damascene processing as well as the Millios and the Alpine – not the Alpine, the Helios starting to gain traction there, that as those markets come back we are expecting to see as well.

So I think the way to look at it is if we look at moving forward, the CapEx this year, we are really engaged in about 70% of the total CapEx today. And across that that existing businesses, it's typically one to two products, many times two products and above, and every one of those areas, we have an incremental new piece of business that's engaged, installed at the field, in the field now and ready to turn and move into production ramp with a customer. So we really feel bullish that both sides of that logic and memory will see expansion.

Ben Pang – Caris & Company

And judging by your comments earlier, you don't think any of this cost cutting is going to inhibit you from getting share?

Dave Dutton

Correct. We feel – that's why we've (inaudible) invest in the losses we have so far. We have made sure to get these to the point where the momentum and the work we have established with the customers is carried to the point that they will be able to deliver when the customers move forward.

Ben Pang – Caris & Company

All right. Thank you.

Operator

We will take our next question from Gary Hsueh with Oppenheimer.

Gary Hsueh – Oppenheimer

Hi guys. Thanks for taking my question. Didn't really join or participate in most of the prepared comments, so could you help me understand what proportion of that $5.5 million in SG&A in terms of cost was related to accelerated amortization of eval tools?

Andy Moring

Approximately half was the acceleration and then half was reserves we took for doubtful accounts.

Gary Hsueh – Oppenheimer

Right. What does that actually mean? Why would you – what would instigate you to take an accelerated amortization on an eval tool?

Andy Moring

Just de little bit more conservative and to make sure we've got the proper valuation. We ran this by our auditors and they seem comfortable that it was a more conservative way to state our inventories and we went ahead and made the adjustment.

Gary Hsueh – Oppenheimer

So you basically wrote down inventory the value associated with some eval tools?

Andy Moring

Yes. Typically our eval tools we depreciate over 36 months, not that we really find it is necessary to take 36 months actually turn the tools, but we just accelerated that to 24 months for many of the tools just again from a pure conservative stance.

Gary Hsueh – Oppenheimer

Okay. So that's a positive that now in terms of the timeline for acceptance you expect to get acceptance in a much quicker timeframe?

Andy Moring

We always expect to get acceptance much quicker than that. I guess what you will see is when those tools actually do turn, that you will get a favorable gross margin impact on the tools when they actually do turn to revenue.

Gary Hsueh – Oppenheimer

Okay. All right. And my second…

Andy Moring

We feel we are accelerating the amortization.

Gary Hsueh – Oppenheimer

Okay. So it is just more conservative accounting, not necessarily anything really rooted in what's happening on the ground floor in a fab?

Andy Moring

Yes. Absolutely.

Gary Hsueh – Oppenheimer

All right. Second question, Dave, you mentioned shipping a fourth Nexion etcher to a memory customers, I'm just wondering embedded in your guidance or maybe in your results even for Q4, did we get any revenue recognition from that Nexion customer yet?

Dave Dutton

So, Gary – and we actually issued a release I think it was in Q4 on this for tools that shipped to this customer. We have seen revenue recognition from this customer and this tool actually moves into their advanced R&D and is working on a plethora of application beyond the Nexions that are just in – or not just, but that are in the production factories now and really shows the commitment of both our customers and us and the strength of our etch program continuing to move forward into the future with them.

Gary Hsueh – Oppenheimer

Okay, Dave. So that was in Q4 or in your guidance for Q1 that revenue recognition on that on one tool at least?

Dave Dutton

No, we – I said we have revenue recognition at this customer which I think was back in the middle of last year. And as far as guidance, we haven't guided whether there is more revenue recognition coming up or not.

Gary Hsueh – Oppenheimer

Okay. I am just curious, I'm just hoping that with this customer, at least this customer is either allowing you to recognize revenue since the tool may be running production and it is helping to support the R&D given I think the deteriorating state of your balance sheet. I just would hope that this customer would start to help you guys out and wanted to confirm whether or not they actually have.

Dave Dutton

Well, a couple of things Gary. I mean I still view our balance sheet as extremely strong and we are managing it and we're utilizing the cash that we are burning to make sure that these tools are expanding at our customers' sites. So you can look at it two ways. We could work hard to bring turn some of this into revenue now or we are choosing to work harder and continue to extend the amount of use our customers put on these tools so that when they come back and ramp, we will see more business moving forward. I think that's a more prudent investment for the future of the company.

Gary Hsueh – Oppenheimer

Okay. Great, thank you.

Operator

We will take a follow up from Patrick Ho with Stifel, Nicolaus.

Patrick Ho – Stifel, Nicolaus

Thanks a lot. First off, Andy, do you have the stock options for this quarter?

Andy Moring

Yes. Our stock option expense is hovering probably about $950,000.

Patrick Ho – Stifel, Nicolaus

Right. And just in terms of the receivables and the inventory comment that you made earlier, do you feel comfortable that you are with the right customers in terms of the receivables and the inventory? What I mean by that is, we know who the major players are, we know who the large players are, and obviously the likelihood of those receivables are, I guess at some point secure, but there are a lot of struggling DRAM manufacturers out there and with all the talk about consolidation, do you feel comfortable that those receivables in inventory at some point will be collected?

Andy Moring

I believe that we will collect almost all of these receivables. Again, we have had a long standing receivables policy with a lot of our customers that require the first 90% to be on letters of credit, and of course those are totally collectable. When we set up reserves for some of the more struggling customers, it is typically the final 10%, in the service and spares business. So we're not talking about significant volumes of money but there are just pockets of cash to be collected in a number of different customers.

Patrick Ho – Stifel, Nicolaus

Great. That's helpful. Thanks a lot.

Operator

(Operator instructions) We will hear next from John Boardman [ph] with JP Boardman Inc. [ph]

John Boardman – JP Boardman Inc.

Thank you. I have just one question, what were your cash and cash equivalents at the end of the quarter, not including short-term investments?

Andy Moring

About $77 million, but our short-term investments are extremely liquid. And so we really don't break them out in that level of detail simply because if I need to get to that money, it is very easy to get to.

John Boardman – JP Boardman Inc.

Okay. Great, thank you.

Operator

And we have no further questions from the phone audience at this time. I would like to turn the conference back over to Mr. David Dutton for any additional or closing remarks.

Dave Dutton

Thank you. And thanks everybody for joining our fourth quarter conference call. We look forward to updating you on our progress in our next quarter's call and as we move through this market and through the year. Thank you.

Operator

That does conclude today's conference call. We would like to thank you all for your participation. Have a great day.

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