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GT Advanced Technologies Inc (GTAT)

Q2 2014 Earnings Conference Call

August 5, 2014 08:00 AM ET

Executives

Ryan Flaim - VP of IR

Tom Gutierrez - President and CEO

Raja Bal - CFO

Analysts

Brian Lee - Goldman Sachs

Jade Dorsheimer - Canaccord Genuity

Stephen Chin - UBS

Krish Sankar - Bank of America

Weston Twigg - Pacific Crest Securities

Pavel Molchanov - Raymond James

Operator

Good day, ladies and gentlemen and welcome to the GT Advanced Technologies, Inc., Q2 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instruction). As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference Ms. Ryan Flaim, VP of Investor Relations. Ma’am you may begin.

Ryan Flaim

Thank you, and good morning. As we begin, I would like to remind everyone that certain statements made during this call may be forward-looking for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. We may discuss our expectations regarding future events. In particular, these maybe forward-looking statements regarding estimated future financial results for calendar 2014 and beyond, factors likely to affect financial results and other forward-looking statements regarding market conditions, and factors which may affect the performance of each of our business segments.

In this connection, we direct your attention to the slide entitled Forward Looking Statements, which is at the back of the presentation accompanying the call. Important factors that could cause actual results to be different than our expectations are discussed in GT Advanced Technologies' filings with the Securities and Exchange Commission, including the statements under the heading Risk Factors in the Company's quarterly report on Form 10-Q for the quarter ended March 29, 2014 and Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Statements made during this call should be evaluated in light of these important factors. GT Advanced Technologies is under no obligation to and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

A webcasted replay of today's presentation will be available for 90 days, beginning today at approximately 12 noon Eastern, and can be accessed on the Investor Relations section of our Web site. An audio replay will also be available through August 14, 2014. Please refer to our Web site for details. Following today's call, we will be posting a copy of our prepared remarks to our Web site. And finally during Q&A, we ask that you limit your questions to an initial question and one follow-up.

With that, I will now turn the call over to Tom Gutierrez, President and CEO of GT Advanced Technologies.

Tom Gutierrez

Good morning and thank you for joining us today. With me today is Raja Bal, our Chief Financial Officer. After I provide a brief business update, Raja will report on our Q2 financial results and provide our guidance for the balance of the year. Before taking questions, we will also provide an update on some of our strategic initiatives and longer term outlook. Results during the second quarter were in line with our guidance. The sapphire segment of our business accounted for over 75% of the revenue in the quarter, with the majority of it related to the sale of sapphire production equipment.

In fact, for the first time in several quarters, we delivered some of our ASF backlog. We have continued to see strong interest in our suite of sapphire production tools and are in advanced discussions with several current and prospective customers who are very interested in taking ASF shipments this calendar year. Our solar business accounted for the balance of our sales in the quarter, with the majority of that being related to our continued success at selling off our DSS inventory.

We remain encouraged by solar industry dynamics. The recently announced U.S. tariff rulings, while a negative for some in the industry, are a net positive for GT as they continue to put pressure on the industry to lower cost which is at the heart of our solar value proposition. In addition, industry experts continue to project a major solar capital equipment spend cycle beginning in the back half of 2015. The build-out of our Arizona facility, which has involved taking a 1.4 million square foot facility from a shell to a functional structure and the installation of over 1 million square feet of sapphire growth and fabrication equipment, is nearly complete and we are commencing the transition to volume production.

We do not expect to reach full operational efficiency in Arizona until early 2015. Raja will comment further on the significant ramp up costs we have experienced as part of the start-up of the operation. The fourth prepayment from Apple is contingent upon the achievement of certain operational targets by GT. GT expects to hit these targets and receive the final $139 million prepayment by the end of October 2014. We remain very positive about our sapphire materials business.

As we reported yesterday, we are narrowing our consolidated guidance for the year. We now expect revenue of $600 million to $700 million for 2014, which is at the lower end of our previous range. However, we expect non-GAAP EPS to be $0.12 to $0.18, which is at the high end of our previous range and is driven largely by change in product mix and stronger associated gross margins. After Raja discusses our quarterly results and FY14 guidance in more detail, I will provide some insight into our long-term outlook. Raja?

Raja Bal

Thanks, Tom and good morning everyone. Before I provide the details of our June quarter results, please note a full reconciliation of our GAAP and non-GAAP financial measures is included in the press release and the presentation accompanying this call. During the quarter, we recorded revenues of $58 million, in line with the guidance range we provided during our Q1 earnings call. Revenue included $44 million for our Sapphire segment, $11 million for our PV segment and $3 million for our Polysilicon segment.

Consolidated Non-GAAP gross margins for the quarter were 25%. By segment, our PV gross margins were 45% and in line with historical ranges. Polysilicon was 12% and sapphire was 20%. The latter reflected the contribution of higher margin asset sales during the quarter which were partially offset by negative gross margins incurred in our sapphire materials operation.

On a GAAP basis, our gross margins included the impact of $45 million of sapphire production ramp up cost. As we indicated last quarter, this line item consists of costs incurred in connection with the production inefficiencies and inventory losses associated with the establishment and qualification of production processes in Arizona.

The Q2 expense was greater than anticipated and reflects the complexity and challenges we’ve had ramping the operation. We expect to incur up to an additional $45 million of production ramp up cost during the remainder of the year, highly concentrated in Q3.

During the quarter, we incurred non-GAAP operating expenses of $34 million consisting of $19 million in R&D and $15 million in SG&A. This compares to $43 million in Q1 with a reduction resulting from lower operating expenses for the sapphire segment including from focusing the Salem operation exclusively on sapphire production.

On a GAAP basis in connection with the recently announced restructuring, we recognized cash and non-cash charges of $1.8 million and $6.5 million respectively during the quarter. Given our accumulated net operating losses of over $80 million, we expect to pay minimal cash taxes in 2014 and 2015. Accordingly, we’ve adopted a cash-based tax methodology for non-GAAP purposes and restated our prior period reflect this. This change increases our non-GAAP loss per share for the first half of the year by eliminating non-cash tax benefits associated with losses incurred.

Conversely for the second half, this change in methodology increases our non-GAAP EPS by eliminating non-cash tax expenses associated with our anticipated profits. Assuming a profit for the full year, this marginally improves our non-GAAP EPS, which is contemplated in our guidance.

Cash interest expense was $3 million and our cash tax expense for the quarter was $300,000 resulting in a non-GAAP net loss of $22 million. Based on a 137 million shares outstanding, our Q2 non-GAAP loss per share was $0.16.

In terms of the balance sheet, we ended the quarter with $333 million of cash, cash equivalents and restricted cash, as compared to $509 million in March. The change reflects approximately $51 million of cash used in operating activities, and $225 million invested in CapEx, which was partially offset by the receipt of our third Apple prepayment of $103 million during the quarter. To date we have received a total of $439 million in prepayments.

As Tom noted earlier, the fourth prepayment is contingent upon the achievement of certain operational targets by GT. We expect to attain these targets and receive the final $139 million prepayment by the end of October.

Other significant changes in the balance sheet worth noting: total inventory increased to $182 million from $112 million last quarter as we built working capital ahead of a strong anticipated revenue ramp for the second half of the year; and total deferred revenues increased to $219 million from $175 million in Q1 as we recognized additional Arizona rent and prepayment benefits during the quarter.

We booked $75 million of equipment orders in Q2, including $2 million from PV and $72 million from Sapphire equipment. After considering backlog fulfilled during the quarter, our Q2 ending equipment backlog was $628 million, up from $608 million at the end of Q1. The Q2 ending backlog consisted of $333 million of Sapphire equipment orders, $292 million of Polysilicon and $3 million of PV.

Our backlog security was 27% at quarter end, consisting of $65 million in deferred revenue, $5 million in letters of credit and a $101 million in nonrefundable customer deposits. An additional point to note, GT’s total headcount now exceeds 1800, which includes approximately 700 temporary workers.

Moving on to guidance for the year. We are tightening revenue to the lower end of our previous range and now expect $600 million to $700 million, reflecting our current view of volumes associated with the Arizona project as well as our expectations for Sapphire equipment shipments for the second half.

We continue to expect more than 80% of the year’s revenue to come from our sapphire segment. While we anticipate significant contributions from both the equipment and materials businesses, the mix of equipment will now be higher than originally anticipated. The mix shift is expected to have a favorable impact on gross margins. As such, we are updating our non-GAAP gross margin guidance to between 27% and 29% for the year.

We expect non-GAAP OpEx of a $150 million, at the lower end of our previous range. CapEx will be approximately $550 million for the year, of which $381 million has been recognized through the end of Q2. We expect year-end cash and equivalents of approximately $400 million. Cash taxes will be approximately $1.5 million for the year, and we now expect non-GAAP EPS for the year of $0.12 to $0.18, at the higher end of our previous range. This reflects the higher mix of equipment revenue and assumes we exit the year with 160 million fully diluted shares.

Although we aren’t providing quarterly guidance today, we expect the balance of the year to be heavily weighted towards the fourth quarter in terms of revenue and earnings. With that I will turn the call back to Tom.

Tom Gutierrez

Thanks, Raja. Although, we will not be providing detail today on the equipment offerings in our PV, polysilicon, power electronics and LED businesses, we remain committed to advancing the state-of-the-art in these areas. We are making good progress and remain confident that these parts of the business will contribute nicely to future revenues and profitability. My remaining commentary will focus on two of our largest opportunities Merlin and Hyperion.

With respect to Merlin, our uniquely engineered solar module metallization and interconnect technology, the response from partners and potential customers has been strong. We achieved a significant milestone this quarter by completing the testing required to satisfy the performance, safety and quality requirements of the IEC standards utilized by the industry. This third-party validation is an important step towards commercialization of Merlin. The interest in Merlin has been fueled by its potential to lower cost and improve reliability while driving significant efficiency gains without requiring large sums of capital or massive changes to existing operations.

This early traction has validated our belief that Merlin is highly differentiated from the more traditional three-bus bar approach to modules as well from the variety of multi-wire solutions that are on the market today. We are in active discussions with several customers and are in the process of shipping sample quantities to them. Some of these customers are looking at building large panel making operations in the U.S., using Merlin technology as part of their efforts to penetrate the U.S. market.

We expect to start seeing limited levels of Merlin related revenue as early as Q3 of this year. We remain on target for broader commercialization in early 2015 and expect Merlin will be a significant contributor to earnings beginning that year. As we have noted before, if Merlin was adopted across 20% of the projected PV market by 2018, this could translate into a $1 billion revenue stream for GT. On Hyperion, we have discussed the technology’s unique capabilities as a tool for the production of ultra-thin sapphire, silicon carbide and silicon laminates or templates.

We continue to make excellent progress in these areas and have now exfoliated 26 micron thick sapphire lamina at a 6-inch diameter. We have also made significant progress with silicon carbide material. We have exfoliated 32 micron thick 2-inch foils. We are not aware of any freestanding silicon carbide lamina of this thickness having been produced by anyone else in the world to-date. We recently exfoliated a 200 millimeter, 50 micron thick silicon film, an ideal thickness for many solar and semiconductor applications.

In combination with these efforts, we are making good progress with our bonding and glass substrate partners. Beyond exfoliation, we have uncovered some new and very promising market opportunities for Hyperion, whereby the unique proton current and energy capabilities of Hyperion’s accelerator can be leveraged as the basis of a commercially viable neutron source. For example, we are in discussions with world leaders in Boron Neutron Capture Therapy or BNCT, an emerging cancer treatment. We are in the process of working with these leaders to get Hyperion incorporated into BNCT clinical trials.

Industry experts have told us that one of the key challenges that the BNCT market has historically faced is the requirement to co-locate facilities with nuclear reactors, which is both a costly and logistical hurdle. It is believed that Hyperion will eliminate that need altogether and the industry is very excited about this prospect. Early clinical trial results in Japan and Western Europe have shown great promise for BNCT. Hyperion is indeed proving to be a very versatile tool and we expect to secure our first order for a BNCT Hyperion accelerator this year.

We are planning to host a webcast in the fall of this year to provide more detail on our Hyperion and Merlin strategic initiatives and the potential we see as these reach maturity over the next several years. Lastly, we remain confident in our ability to achieve our target of $1.50 or more of non-GAAP earnings per share in 2016, based on the combined contributions of Merlin, Hyperion and the other technology platforms we are working on, along with the expected growth of our sapphire and solar businesses.

Before we open the call up for questions, I would like to note that as is our typical practice, we expect to provide preliminary guidance parameters for 2015 when we report our Q3 results. Our revenue target for 2015 remains unchanged. However, we will not be in a position to provide detailed guidance until we complete our annual planning process which has just begun.

With that, operator we will now open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). First question comes from Brian Lee of Goldman Sachs. Sir, your line is open.

Brian Lee - Goldman Sachs

Hey guys, thanks for taking the questions. Just from, first off, how should we think about the level of cash burn for 3Q and 4Q and do you see the need to raise additional capital to get Arizona scaled up to targeted operational efficiency. And then I have a follow-up.

Tom Gutierrez

As our guidance for the year suggests I mean we are expecting to end the year with approximately $400 million of cash on the balance sheet. And as you know from prior history, this business really starts to generate the cash once the order flow and the revenue flow starts to move. So at the moment, okay, we don’t expect need to go out into the marketplace to raise additional capital.

Brian Lee - Goldman Sachs

Second question was just around the Apple relationship. I guess, Tom, given our prepared remarks about the Mesa facility just now moving into production or very shortly and the final Apple prepayment likely said to be received in October, which is a bit behind schedule I think relatively to original expectation, does it seems difficult to see how the Apple relationship results in much revenue this year, are their just very lead times once the facility is up and running or is there something up that I might be missing, just trying to reconcile that a little bit? Thank you.

Tom Gutierrez

I understand your question. I have to sort of side step a little bit early and I can’t speak to the volumes or the applications or the timing of Apple’s business. And we can speak to the fact that we are starting to ramp our production and move into volume manufacturing. We can talk to the startup challenges that we’ve had, this is one really massive undertaking that we’ve taken on. But I really can’t for others that might be on the line that are going to ask me similar questions really discuss Apple’s product volume plans or timing.

Operator

Thank you. Our next question comes from Jade Dorsheimer of Canaccord Genuity. Your line is open.

Jade Dorsheimer - Canaccord Genuity

Hi, thanks. First congratulations on the undertaking and ramping up Arizona, it’s impressive. I guess first question to Tom on the ASF equipment business. Are you allowed to sell this to other handset cover glass or to other vendors that maybe using this for covered glass applications? I know based on reading the contracts that there is a time frame that you are unable to provide materials to other companies for this application but I am wondering if you can still be an arms dealer to other non-Apple related suppliers.

Tom Gutierrez

Jeff, there is exclusivity provisions in our agreement with Apple. Those exclusivity provisions are not all encompassing. And so there are applications that we can sell into, but I am not at liberty to provide a lot of detail as to what some of those applications might be. But it is not a complete chokehold of given our ability to be able to sell our advanced Sapphire technology. And indeed as we did this quarter, we started to deliver on some of our ASF backlog as you know. But there as significant given the nature of the relationship exclusivity provisions that we have to be true to.

Jade Dorsheimer - Canaccord Genuity

Can you elaborate on without providing any additional details from a competitive perspective or they would the breach contract, can you provide any further color on what those exclusivity points maybe?

Tom Gutierrez

I really can’t Jade. I think they provide too much information about market plans the directions that we might take or that our customers might take themselves. Not something I can elaborate on.

Jade Dorsheimer - Canaccord Genuity

Last quarter you provided guidance for Q2 and today while you’ve updated the full year. You are choosing not to provide guidance for Q3, which I assume is just a lack of visibility on timing of the flowing between Q3, Q4. I was wondering though if you could provide some maybe puts and takes on how you are thinking about the split. And it’s in reference to the comments that miles -- you expect the final milestone to be achieved by the end of October which would really leave two months left in the year and for presumably midpoint 570 million of additional revenues to flow through. So could you maybe provide a little bit more color in terms of how we should look at that split from a Q3, Q4 perspective?

Tom Gutierrez

Okay. I think that’s a reasonable question. I mean normally we don’t provide quarterly guidance; we did last quarter because the earlier in the year we wanted to make sure that the annual splits were understood at this point. We remain very backend loaded and the puts and takes between Q3 and Q4 relates to the timing of delivery of equipment. We have a fair amount of equipment to deliver through the balance of the year, the actual timing of our Sapphire materials ramp and a variety of other factors. I would say that you should assume that the fourth quarter was very heavily loaded relative to the third quarter without giving specific numbers.

Jade Dorsheimer - Canaccord Genuity

Okay, thank you. And then last question from me, just on the change in non-GAAP gross margin. The removal or exclusion of the start-up cost, I am just wondering what was the thought process there in terms of taking this out at this point because it seems as if we will have several quarters of this kind of flowing through. Or maybe that’s wrong assumption. So, if you could may be just go through the thought process there of excluding that, it seems like that’s fairly material in terms of a delta of whether you include it or exclude it? Thanks.

Tom Gutierrez

I think it makes sense to sort of put it in context and then may go to the question itself and I think to put the costs in context which are rather substantial, you have to sort of step back and think about what we are doing here. This is a 1.4 million square foot facility, as I said we have taken it from a shell to fully operating entity. There was a point in time when we had 1,200 construction workers rolling around through the facility, massive power and water and other infrastructure being put in. We have hired hundreds of workers that have had to be absorbed, trained into a four shift, 24x7 operation. We feel that entity with over a 1 million square feet of production in fab equipment that’s had to installed, got up to speed, new processes, fine tuning, the amount of consumables that we take on our rather, rather substantial and we have had to sort of put that supply chain in place and ramp it up.

And so our thought process was that the unique cost that we are absorbing as part of going from zero to 100 and point 1 second here are not reflective of the performance of the business on an ongoing basis and the purpose of non-GAAP is essentially to be able to project what the underlying performance of the business is when you take out these exceptional cost associated with ramping up something, something this substantial and unique. And that’s really the rationale for that, I mean you might make an argument that some of it can be capitalized or not but we think that the right treatment is to treat it as we did and to be able to show the marketplace what the underlying performance is versus what the extraordinary costs are.

Operator

Thank you. And our next question comes from Stephen Chin of UBS. Your line is open.

Stephen Chin - UBS

Thanks. So, I have a couple of questions on the final prepayment that’s expected in October. The first is even though the final prepayment is not expected till October, can you still ship as much material to the customer even before the sign off or do you still need to wait until the final prepayment is made and you get signed off before you resume shipments. So, just some clarity to start there.

Tom Gutierrez

I think you are making presumption that the milestone is of a nature that is a gate and as the word implies there, progress, based on the progress that we have made and progress has admittedly been slower due to some of the start-up challenges that we face. But there are metrics that were defined before we even started to populate the operations, some of those metrics most overtime as the project is going on. And they really shouldn’t be looked at as a gate, their indicators of progress versus anything else and they are under our control. These are things that we have to execute on.

Stephen Chin - UBS

Okay and may be a follow-on to that. If the final prepayment does not come through by that October timeframe is there an extension possible to that or is there a scenario where you then might need to raise more cash, if you don’t get that prepayment?

Tom Gutierrez

I would say that these are milestone based, right and so when you reached a milestone, you get paid, they are not cliffs per se. And so I feel very confident based on the progress that we are making that we will achieve the milestone in that timeframe but as I indicated with the projection of having close to $400 million in the bank at the end of the year, it’s not a world-ending event, if it slides although again I don’t anticipate that it will slide.

Stephen Chin - UBS

Last question from me. I understand that you obviously don’t want to give specific third quarter sales guidance, but could you share any color what percentage of the second half of the year revenue is covered by backlog, is there any color you can share there?

Tom Gutierrez

No, not really Stephen. I think it’s a combination of backlog as you know parts of our business are now book and ship as we really show up in backlog. I think we’ve given about as much granularity as our visibility is; we’re willing to give at this point.

Operator

Thank you. And our next question comes from Krish Sankar of Bank of America. Your line is open.

Krish Sankar - Bank of America

I had a couple of them. First on the EPS guidance of $0.12 to $0.18 for the year. Does this compare an apples-to-apples basis with your prior guidance was $0.2 to $0.18 given that you are backing out the startup cost and changes in cash tax rate?

Tom Gutierrez

Well the startup cost I think is something that we’ve always presumed that we are going to back out and so that doesn’t really change the situation. I think that the tax implications are a couple of pennies, we are not -- it’s not a major move and so, the $0.12 to $0.18, I think it should be considered to be on an apples-to-apples basis to what we said before ex those couple of pennies associated with the tax.

Raja Bal

Particularly when you consider that fact that we’ve guided now to a lower end of our previous revenue range, we’re going to have a better mix given the higher contribution of equipment for the year. And so if you add all that up, the tax impact is pretty nominal on our EPS guidance.

Krish Sankar - Bank of America

And the follow up question, just to think about if I look at your full year guidance heavily weighted towards Q4. I mean if I look at what your sales run rate in the U.S. has been, has been extremely low. Is it fair to assume that any shipment of Sapphire products is not going to really materialize into any final mobile product this year given that most of the revenues are going to Q4, which means it will be production for next year?

Tom Gutierrez

Who do you think is going to win Superbowl this year? I can’t answer that question obviously. As I indicated I really cannot comments on Apple’s product line plans or timing or revenue streams or anything else like that. I wish I was in a position to do that, but I can’t.

Krish Sankar - Bank of America

If I can just squeeze in one, why did you stop the Corapolis development?

Tom Gutierrez

We don’t believe that Corapolis is competitive from a performance cost or in the applications that we are moving to.

Operator

Thank you. Our next question comes from Weston Twigg of Pacific Crest Securities. Your line is open.

Weston Twigg - Pacific Crest Securities

Just kind of dig into the Sapphire a bit more. On your ASF backlog, can you give us an idea of a percentage that is attributable to the LED industry versus outside of the LED industry?

Tom Gutierrez

The machines themselves, the tools are not specific to an industry and so these customers that have big tools and back log use them across many different applications, industrial consumer and LED, I really can’t speak to the market share that my customers and any specific portion of the marketplace, but the tools are general purpose tools, they are not specific to any industry.

Weston Twigg - Pacific Crest Securities

And then on the2016, you said that you still expect to earn over $1.15 on design Merlin and Hyperion growth but I was wondering if maybe you could give us an idea of how much you think Sapphire will be as a percentage of 2016 revenue just to give us a baseline.

Tom Gutierrez

I think when we embarked on this strategy, the goals that we set for the company as a whole and we still believe that the strategy is we do it all over again if we had to is that we wanted a balanced a company that was diversified. The diversity is eager to speak given the things that we are working on. The balance I would expect that the equipment business in 2016 would be a substantial part of our revenue stream and this year is unusual in terms of having Sapphire be close to 80% of our total revenue. I would not expect that as we move into 2016 that, that would be the case. But having said that, I can’t really provide you with a split at this point. Equipment will play a major role. I mean when you look at the potential of Hyperion and Merlin, those two parts of the business could be very, very substantial.

Operator

Thank you. And our next question comes from Pavel Molchanov of Raymond James. Your line is open.

Pavel Molchanov - Raymond James

I remember last November when you announced the Apple deal originally, you said that, you are not going to be shipping any ASF furnaces in view of the new Apple relationship, it sounds like you guys have that kind of reconsider that and are in fact shipping some of them to third-parties, is that right?

Tom Gutierrez

No, perhaps a little bit of context to what I said at the time, given the size of our operation and what we have to accomplish in a short period of time which I spoken to. Even we did not have the bandwidth to be able to deliver to a lot of other people. It’s never been an issue where we can’t for contractual reasons for anything else. They have got to spend a bandwidth issue for us but that time is past, okay, and so we are now in a position where we can deliver tools to others and indeed are starting to deliver tools to others.

Pavel Molchanov - Raymond James

Okay and then can I ask about the Malaysian order from earlier this year. At the time of the announcement, I remember the statement was its contingent on the customer getting financing and it’s been, I supposed close to six months now. Any progress on that guys actually securing financing?

Tom Gutierrez

I mean they are actively seeking financing but I can’t really speak for them in terms of the progress that they have made. I still see it as a viable opportunity for GT but I really can’t comment on their progress.

Pavel Molchanov - Raymond James

Okay, I mean I guess has it been postponed longer than you have anticipated or is it consistent with what you thought at the beginning?

Tom Gutierrez

This is consistent with what I thought.

Operator

Thank you. Our next question comes from [indiscernible] of Stifel. Your line is open.

Unidentified Analyst

Thanks for taking my question. First one in terms of the Arizona facility, what still needs to be happen before you guys commence on transition to volume production?

Tom Gutierrez

Again as I have made in my prepared comments, I mean we are transitioning into volume production as we speak but beyond that I really can’t provide any additional clarity.

Unidentified Analyst

And the second question I have is in terms of QSE and HiCz shipments. When do you guys expect to recognize revenue on that side?

Tom Gutierrez

We have indicated that we would expect to get a HiCz order before the end of this year and that’s still the expectation. I would not expect significant revenues from HiCz and in 2014 I would expect that the orders will come and that there will be revenue recognition in 2015.

Unidentified Analyst

Got it and the last question in terms of the Hyperion technology, when do you expect to have the end stations ready for commercialization?

Raja Bal

I would imagine, it’s always been a 2015 target in terms of the variety of different applications. We are pretty excited about this Boron Neutron Capture Therapy because the tool is so unique and it’s ready to go to market. It doesn’t require an end station and the same thing for some military applications and some industrial applications that we are working on. And so we would expect that the applications that are going to drive that kind of potential are going to come first. As a matter of fact our first order is likely to be a BNCT order this year and the end stations will move in late 2015 as we move into 2016 we will become available for the various applications. And there is the power electronics applications with silicon carbide, there is obviously the sapphire and I wouldn’t discount the silicon applications for semi and solar because a 50 micron thick freestanding silicon wafer is one quarter of thickness typically of what you see being used in the marketplace.

And silicon is still a major part of the cost particularly in the solar industry, so those applications, long answer to your question but I think the expectation is our applications still require end stations ready to go to market actively discussing big orders this year and the early next year. Then the end stations ready for primetime into 2015 as we move into 2016 and each end station is different depending on the industry. Other questions?

Ryan Flaim

Okay, operator, we are ready for the next question. It seems like we might be having some technical issues. Operator, are you there? If it’s unclear on this and if we can be heard still on the live cast, so if there still listeners if you wouldn’t mind holding for a moment. Okay, we’re going to wrap up.

Tom Gutierrez

It doesn’t appear that we can hear additional questions. I think that was the last of the queued up questions anyway. So I want to thank everybody for joining us today. I really appreciate the diligence and the questions that have been asked we look forward to seeing you and as I indicated this fall we have a deep dive into Hyperion and Merlin that will provide additional context as to why we are so excited about those two new product areas. Again thank you very much.

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Source: GT Advanced Technologies' (GTAT) CEO Thomas Gutierrez on Q2 2014 Results - Earnings Call Transcript
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