Semitool Inc. F2Q08 (Qtr End 03/31/08) Earnings Call Transcript

May. 9.08 | About: Semitool Inc. (SMTL)

Semitool Inc. (SMTL) F2Q08 (Qtr End 03/31/08) Earnings Call April 24, 2008 5:00 PM ET

Executives

Ray Thompson - Chairman and CEO

Larry Viano - Vice President and CFO

Larry Murphy - President and COO

Geoff High - Pfeiffer High Investor Relations, Inc

Analysts

Edwin Mok - Needham & Company

Matt Petkun - D.A. Davidson & Co

Gavin Duffy - Broadpoint Securities

David Mason - JW Mason

Pete Fredrick - Radnor Growth Capital

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Semitool Earnings Call. My name is Sylvana. I will be your coordinator for today. (Operator Instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call. Mr. Geoff High of Pfeiffer High Investor Relations, Inc. You may proceed, sir.

Geoff High

Thank you Sylvana. Good afternoon, and welcome to Semitool's second fiscal quarter conference call.

Presenting on behalf of the company will be Chairman and Chief Executive Officer, Ray Thompson, President and Chief Operating Officer, Larry Murphy, and Vice President and Chief Financial Officer, Larry Viano.

I would like to remind everyone that matters discussed during this call may include forward-looking statements that are based on Management's estimates, projections and assumptions as of today's date, and are subject to risks and uncertainties that are disclosed in Semitool's filings with the Securities & Exchange Commission. The company's business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statements. Semitool assumes no obligation to update forward-looking statements that become untrue because of subsequent events.

A webcast replay of today's call will be available at semitool.com for 90 days after the call. In addition, a telephone replay will be made available for 48 hours, beginning approximately two hours after the conclusion of this call. Details for listening to today's call or webcast are available in today's news release.

With that, I will now turn the call over to Ray Thompson. Ray?

Ray Thompson

Thank you, Geoff. On previous calls, you have heard me boast about the strength of the Management Team we have assembled at Semitool. I would submit to you that our second quarter results validate those comments. As you now know, this team delivered a 75% improvement in bookings versus the same quarter last year, and it is the strongest sales performance since our record bookings in the third quarter of fiscal 2006, and all this in the face of what you, yourselves, know to be a very challenging market in the semiconductor equipment business.

These results also speak to the strength of our four-year-old flagship product. We have received recent customer reports of Raider tools delivering up time performance in excess of 95%, especially in high volume production operations.

In fact, that number is so high, Raiders have actually become the performance and reliability benchmark tool in those paths. These ownership benefits have helped us penetrate several new companies, customers. And the latest came in Korea, where we have delivered our first Raiders to one of our industry's largest buyers of capital equipment.

With an eye toward additional opportunities, we have entered into three important product development partnerships. One is with the world's largest equipment company, and two are with the largest foundries in the world. And these projects span the range of applications, positioning Semitool to address some of the largest new business prospects we have seen in the 29-year history of this company.

I will now turn the call over to Larry Viano, who will provide you with some color on our financial results, and then Larry Murphy will then give you some operational highlights. Larry?

Larry Viano

Thanks, Ray. Let me start with the review of our tool revenue composition for the last 12 months. Approximately 82% came from Raider sales. That's up from the 76% LTM figure we gave you at the end of the first quarter. 18% of revenue came from batch tool.

Geographically, during the last 12 months 39% of sales came from North America, 27% came from Europe, and 37% came from Asia. We shipped 20 Raiders during the quarter.

Gross margin came in at 48% versus 49% in last year's second quarter. Gross margin would have been approximately 2 percentage points higher without the investments we made to capture a major new customer that has already begun to place additional orders.

Turning to expenses, SG&A was $20.1 million versus $18.7 million in the second quarter of last year. Commission expense was the primary difference. As a percentage of sales SG&A was 32% versus 35% in the same quarter a year ago.

R&D costs were $6.9 million or 11% of sales versus $7.3 million or 14% of sales in the second quarter a year ago.

Moving to the balance sheet, we ended the quarter with cash, cash equivalents, and marketable securities of $13 million, and working capital of a $129 million. We drew-down $9 million of our line of credit at March 31st.

Receivables increased to $83 million, which reflects our strong shipment level, particularly toward the end of the quarter. Also, inventories increased to $87 million, reflecting our expanding production level. Our tax rate for the quarter was 36%.

And, now, to our guidance. We currently expect third quarter revenue to be in the range of $64 million to $67 million, and earnings between $0.09 and $0.11. Shipments for the quarter are expected to range from $65 million to $68 million. We are maintaining our full year revenue forecast of between $230 million and $250 million.

I will now turn the call over to Larry Murphy, who will provide you with some operational highlights. Larry?

Larry Murphy

Thanks, Larry.

The most encouraging aspect of our second quarter was that our accomplishments came from so many fronts. We continue to make significant progress in Asia, which has been responsible for 59% of our tool bookings during the first half of the year.

In Korea, alone, our bookings over the past six months have exceeded what we have done in that market for the past several years combined, and this is only the beginning.

As Ray mentioned, we have added a major new customer for both packaging and Copper Damascene applications. This customer now has three Raiders on site, and will take delivery of two more later this quarter. We have received our first order for Copper Damascene tool from a large memory manufacture in Japan.

With these key wins, we can today count as customers, the largest capital spenders in Korea, Japan, Taiwan, and China. We have now established a very strong customer base in which we can support future growth.

Our efforts during the last several years to lay a solid foundation are paying off. The strong design of our Raider platform, combined with our world-class manufacturing and outstanding Asian sales and service teams have positioned us for continued success in the region.

From a market perspective, wafer level packaging and Through-Silicon-Via continue to be very strong, and are areas in which we have gained additional market share. We also received our second tool order from the solar sector during the quarter.

In spite of the tough market conditions, we have continued to capture new process of record opportunities, which will bode well for our business when the market turns around.

Operator, we're now ready to take questions.

Questions-and-Answer Session

Operator

(Operator Instructions.)

And the first question comes from the line of Edwin Mok from Needham & Company. You may proceed.

Edwin Mok - Needham & Company

(Question Inaudible)

Larry Murphy

Can you repeat your question, again, Edwin?

Edwin Mok - Needham & Company

Sorry, you mentioned of the new copper customer this quarter and you also mentioned a Japan customer. Is that the same customer?

Larry Murphy

No, that would be a separate customer. The one in Japan is a new customer for us in Japan. I think the other one was in Korea.

Edwin Mok - Needham & Company

Okay. Great. Thanks for clarifying that.

Larry Murphy

Sure.

Edwin Mok - Needham & Company

I have a question regarding (inaudible)? Can I ask how do you visualize that going forward…?

Larry Murphy

That's a good question, Edwin, and we -- it really depends, obviously, on when they make their investment cycle. I would say from an order standpoint we would not see much until at the earliest the fourth quarter of this year, probably something in '09, more likely.

Edwin Mok - Needham & Company

Great. What about (inaudible)?

Larry Murphy

Our product positioning is fairly strong, Edwin. We've had some penetration points already. We expect that to be the fastest growing segment of our business over the next few years. And, again, we had the highest throughput tool in the industry right now and the shortest process time, so we feel like we are pretty well positioned.

But most of our activity right now is with the memory customers, as they seem to be the first ones trying to drive cycle time down, getting away from the batch processes [right in front of the line]. So that is where most of our focus is right now, but just like everybody else in the cleaning business, I think we see that as a very positive and exciting market going forward.

Edwin Mok - Needham & Company

(Question Inaudible)

Larry Murphy

Thank you.

Operator

Our next question comes from the line of Matt Petkun from D.A. Davidson & Co. You may proceed.

Matt Petkun - D.A. Davidson & Co

Good afternoon. Let me begin by suggesting that you guys fire your conference call facilitator. There's a terrible echo, we can hear you guys, but everybody else has a massive echo. Can you even hear me?

Ray Thompson

Yes.

Larry Murphy

Yes, we can hear you fine. We're not deaf.

Matt Petkun - D.A. Davidson & Co

Maybe you want to repeat my question because what everybody else hears from me is a big echo.

Larry Murphy

Okay. I'll do that.

Matt Petkun - D.A. Davidson & Co

Thanks, Larry. The first question for me is just on the advanced packaging side. To what extent would the advanced packaging business impact your quarter from a bookings perspective in Q1, and can you kind of color that business for us for the rest of the year?

Larry Murphy

Sure. I assume you meant our fiscal Q2?

Matt Petkun - D.A. Davidson & Co

Yes.

Larry Murphy

Okay. The question was -- perhaps we are having echoes out there still -- was that how much affect did the Wafer Level Packaging events have on our bookings in fiscal Q2, and how that might play-out for the rest of the year? Is that correct, Matt?

Matt Petkun - D.A. Davidson & Co

Yes.

Larry Murphy

Okay. Well, it had a significant impact on us. The market has been very strong now for a couple of quarters for us, and we expect it to remain strong, to be honest with you. And there might be some lumpiness in the timing of the orders that we expect coming forward, but we expect that market to be strong for several quarters to come.

Matt Petkun - D.A. Davidson & Co

And are you getting orders from primarily packaging, third-party packaging houses, or are you getting them directly from …

Larry Murphy

Both, and we actually captured new customers in both Korea and Japan for that -- for packaging applications and that we didn't have historically. So we actually gained some market share in that space.

Matt Petkun - D.A. Davidson & Co

Is it primarily (inaudible) ship, or are you starting to see more work done in (inaudible)?

Larry Murphy

Well, certainly, all of that, to be honest with you. So you have the RDL applications, you have the starter bumps, you have the lead-free applications, and now the emerging Through-Silicon-Via is really starting to take-off for us. So we have been part of the EMC-3D Consortium, one of the founding members of that group, and there is a lot of energy and excitement about chip stacking. And so Through-Silicon-Via market is really starting to take-off for us, as well.

Matt Petkun - D.A. Davidson & Co

Okay. Great. And then for the other Larry, when you're looking towards Q3 and the guidance you provided, what types of gross margins are you expecting? Is that going to be flattish? And how should we think about your sales costs and R&D costs over the course of the year?

Larry Viano

We expect margins to improve marginally next quarter. And as far as SG&A, that's going to be -- it's going to be flattish. It might go up a little bit with the increased volume. We do have a fair amount of commission expense related to some sales coming up. So there's some variability below the line there, Matt, but not a whole lot of change.

Matt Petkun - D.A. Davidson & Co

Okay. Thanks, guys. It's quite a quarter.

Ray Thompson

Thanks Matt

Larry Viano

Thanks Matt.

Operator

And the next question comes from the line of Gavin Duffy from Broadpoint Securities. You may proceed.

Gavin Duffy - Broadpoint Securities

Thank you. You guys hear me okay?

Larry Murphy

Yes.

Gavin Duffy - Broadpoint Securities

Great quarter and great guidance. Just quickly on the Korea customer, I just wanted to clarify, when you said you had three Raiders already there, and then two more to ship in the June quarter. Is that correct?

Larry Murphy

That's correct, Gavin.

Gavin Duffy - Broadpoint Securities

Okay. Did you break -- I am talking about your applications. Did you break out the mix…

Larry Murphy

There is all three.

Gavin Duffy - Broadpoint Securities

All three. Okay. And would you -- this is going to be going forward versus probably its going to be split between logic and memory applications…?

Larry Murphy

It will be split.

Gavin Duffy - Broadpoint Securities

Split. Okay. The -- could you maybe just give us a little bit of an update on the relationship with (inaudible) you have any kind of customer reaction yet, basically, how the relationship benefits both of you guys?

Ray Thompson

From our perspective, Gavin, it's going well. This is Ray. We expect to deliver the tool to them I think this next week or this week, probably next week. And we are anxious to get started with that and the opportunities that that tool presents for both companies.

It has had a very nice on our relationships with our customers, especially at the higher end. They have encouraged customers who were maybe historically skeptical about Semitool, especially from our locational standpoint. And it's been a nice, a very nice early beginning here for our relationship, very satisfactory from our standpoint.

Gavin Duffy - Broadpoint Securities

Okay. Thank you. And I guess the last question would be it about cleaning and maybe the market is changing a bit, have you seen basically any kind of change competitively now that plan has picked up, it seems to me looking at (inaudible) they are going to have few integration headaches maybe this might take a while and I don't know they are maybe kind of hoping for some more options especially in the front end of the line?

Ray Thompson

That's a fair question, Gavin. I think it has yet to be played out. I heard their conference call, as well, and anytime you do a merger and acquisition you're going to have some time to sort all that out, but I haven't seen that in the marketplace yet.

Gavin Duffy - Broadpoint Securities

Okay. Again, thank you, guys, very much, and congrats on a great quarter.

Operator

Our next question comes from the line of [David Mason from JW Mason]. You may proceed.

David Mason - JW Mason

Thank you. Gentlemen, great, great quarter. Can you expand a little more on your opportunity in the solar sector and what you envision coming from that?

Ray Thompson

At this time, our main participation is in the area of -- that we've got the -- I think the only real working tool on there, of providing a porous silicon process, which will give some opportunities for the unique production methods of creating the solar cell, itself, as we can -- our customer can transfer the processes through the porous core silicon layer, and then separate the cell from a [form]. So I -- it's progressing, it's got a ways to go.

David Mason - JW Mason

Great. Thank you very much.

Operator

And the next question comes from the line of [Pete Fredrick from Radnor Growth Capital] You may proceed.

Pete Fredrick - Radnor Growth Capital

Yes. Good afternoon, gentlemen. You said that you accessed your line of credit. Is that in the other current liability line...?

Larry Viano

Yes, it is. And we are out of the line now, so.

Pete Fredrick - Radnor Growth Capital

So you're out of the line now, so it was repaid during, after the quarter ended?

Larry Viano

That's correct. We were in it for just a short time, and less than a week.

Pete Fredrick - Radnor Growth Capital

Okay. And the (inaudible) receivables, I wonder if you could sort of paint us a picture of your cash and liquidity plans for the next nine, 18 months?

Larry Viano

Well, we don't look out quite that far. For the next, through the next six months things are looking pretty tight for cash, but things will be adequate. We do have a lot in receivables. That will start to be coming due here shortly, and so it'll -- will probably in the line a few more times, but the long-term cash should take care of itself.

Pete Fredrick - Radnor Growth Capital

Are any of the receivables with (inaudible) material?

Larry Viano

No.

Pete Fredrick - Radnor Growth Capital

Okay. Thank you.

Operator

And your next question comes from the line of [Drake Mosard] from [Investors Limited]. You may proceed. Mr. Drake Mosard, your line is open, if you would un-mute your line.

Ray Thompson

Sylvana, it looks like he's no longer on.

Operator

And at this time we'll go to the next question, to Mr. Matt Petkun from D.A. Davidson & Co. You may proceed.

Matt Petkun - D.A. Davidson & Co.

Hi. Just a follow-up question, and it's one that you typically don't respond to, but I would be interested if you guys could give any sort of bookings color as we head into the back half of this calendar year?

Larry Murphy

You are right, Matt, we typically don't respond to that. We have been on a good growth curve. We expect that curve to continue. There will probably be some lumps along the way, but we do not see any reason for that not to change.

Operator

And, at this time, we don't have any further questions in the queue. I will pass the call over to Mr. Ray Thompson for closing remarks.

Ray Thompson

Well, thank you, all, for joining us today, at the midpoint of our fiscal 2008. We think we are well on our way to a very solid year, and we look forward to speaking with you again soon. Stay tuned.

Operator

Thank you, ladies and gentlemen, for your participation. This concludes the presentation for today. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!