Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UTEK > SEC Filings for UTEK > Form 10-Q on 28-Oct-2013All Recent SEC Filings

Show all filings for ULTRATECH INC

Form 10-Q for ULTRATECH INC


28-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to current and historical information, this Quarterly Report on Form 10-Q ("Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as "may," "will," "should," "could," "would," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," or "continue" or the negative of such terms or other comparable terminology. This Report includes, among others, forward-looking statements regarding our expectations about:

the timing and recognition of revenue;

our manufacturing cycles, delivery and non-linearity of shipments, customer acceptance, and installation cycles of our products;

the need for continued large overhead expenses for the commercialization of our laser processing and inspection systems, the next generation 1X lithography technologies, and the next generation of 1X wafer steppers, which have relatively long manufacturing cycles and will require a significant expenditure on research and development, engineering, sales, support, and general administration, for which an increases in any of these costs, or a failure to meet our sales targets, could materially impact our cash flow and operating results;

revenue from licensing activities and arrangements;

variations in sales from period to period in volatile markets such as nanotechnology;

the market acceptance and volume production of our advanced packaging systems, laser processing systems, inspections systems and our 1000 platform steppers;

demand for our products and technological change;

industry developments that impact our customers and demand for their products;

sales to international customers which represent a significant portion of our revenue;

our future cash flow, short term investments, and access to additional credit and equity being sufficient to meet our operating requirements for the next 12 months;

foreign and domestic tax rates and treatment; and

the financial and operational impact of acquisitions or development of future product lines, technologies, businesses, or the issuance of debt and equity securities.

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part II, Item 1A. "Risk Factors" of this Report. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

OVERVIEW

We develop, manufacture and market photolithography, laser thermal processing and inspection equipment for manufacturers of semiconductor devices, including advanced packaging processes and various nanotechnology components such as thin film head magnetic recording devices, laser diodes, high-brightness light emitting diodes ("HBLEDS") and atomic layer deposition ("ALD") for customers located throughout North America, Europe, Singapore, Japan, Taiwan, Korea and the rest of Asia. We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Within the semiconductor industry, we target the market for advanced packaging applications. Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry. Within the nanotechnology industry, our target markets include thin film head magnetic recording devices, ink jet print heads, HBLEDs and atomic layer deposition for the nanotechnology portion of our defined served market.

RESULTS OF OPERATIONS

We derive a substantial portion of our total net sales from sales of a relatively small number of newly manufactured systems, which typically range in price from $0.2 million to $6.0 million. As a result of the larger sale prices, the timing and recognition of revenue from a single transaction has had and most likely will continue to have a significant impact on our net sales and operating results for any particular period.

Our backlog at the beginning of a period typically does not include all of the sales needed to achieve our sales objectives for that period. In addition, orders in backlog are subject to cancellation, shipment or system acceptance delays, and deferral or rescheduling by a customer with limited or no penalties. Consequently, our net sales and operating results for a


Table of Contents

period have been and will continue to be dependent upon our obtaining orders for systems to be shipped and accepted in the same period in which the order is received. Our business and financial results for a particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment and system acceptance during that period. Furthermore, a substantial portion of our shipments has historically occurred near the end of each quarter. Delays in installation and system acceptance due, for example, to our inability to successfully demonstrate the agreed-upon specifications or criteria at the customer's facility, or to the failure of the customer to permit installation of the system in the agreed upon time, may cause net sales in a particular period to fall significantly below our expectations, which may materially adversely affect our operating results for that period. This risk is especially applicable in connection with the introduction and initial sales of a new product line or as a result of industry trends impacting our foundry customers, including a shift toward semiconductors utilizing new technology transistor architecture. Additionally, the failure to receive anticipated orders or delays in shipments due, for example, to rescheduling, delays, deferrals or cancellations by customers, additional customer configuration requirements, or to unexpected manufacturing difficulties or delays in deliveries by suppliers due to their long production lead times or otherwise, have caused and may continue to cause net sales in a particular period to fall significantly below our expectations and for our operating results to vary from period to period, materially adversely affecting our operating results for that period. In particular, the long manufacturing and acceptance cycles of our advanced packaging family of wafer steppers, laser thermal processing and inspection systems and the long lead time for lenses and other materials, could cause shipments and acceptances of such products to be delayed from one quarter to the next, which could materially adversely affect our financial condition and results of operations for a particular quarter.

Additionally, the need for continued expenditures for research and development, capital equipment, ongoing training and worldwide customer service and support, among other factors, will make it difficult for us to reduce our operating expenses in a particular period if we fail to achieve our net sales goals for the period.

Sales Summary

                                            Three Months Ended                Nine Months Ended
                                     September 28,     September 29,    September 28,     September
                                          2013              2012            2013           29, 2012
International sales                        55 %              52 %            71 %              63 %
Domestic sales                             45 %              48 %            29 %              37 %
Total sales                               100 %             100 %           100 %             100 %

Semiconductor systems sales                67 %              85 %            83 %              80 %
Nanotechnology systems sales               33 %              15 %            17 %              20 %
Total systems sales                       100 %             100 %           100 %             100 %



Net Sales

Third Quarter

                                                 Three Months Ended
                                         September 28,        September 29,      Amount of    Percentage
(In thousands, except percentages)            2013                2012            Change        Change
Sales of:
Products                               $         26,235     $        56,242     $ (30,007 )      (53.4 )%
Services                                          3,397               3,652          (255 )       (7.0 )%
Licenses                                            100                 653          (553 )      (84.7 )%
Total net sales                        $         29,732     $        60,547     $ (30,815 )      (50.9 )%

Net sales consist of revenues from products (system, system upgrades, and spare parts sales), services, and licensing of technologies. Product sales decreased by 53.4% to $26.2 million for the three month period ended September 28, 2013, as compared to $56.2 million in the corresponding period of 2012. The $30.0 million decrease was due to (i) decreased system sales of $26.7 million, (ii) decreased system upgrade sales of $1.9 million, and (iii) decreased parts sales of $1.4 million.

On a product market application basis, systems sales and system upgrades to the semiconductor market decreased $28.0 million to $14.1 million for the three month period ended September 28, 2013, as compared to $42.1 million in the corresponding period of 2012. The decrease was primarily due to a lesser number of system units sold. Semiconductor industry


Table of Contents

sales consist of sales to the advanced packaging market, the laser processing applications market, semiconductor and semiconductor inspection market.

Nanotechnology market system sales were $7.0 million for the three month period ended September 28, 2013 as compared to $7.6 million in system sales in the corresponding period of 2012. The decrease in sales in the nanotechnology market of $0.6 million was primarily due to product mix. System sales to the nanotechnology market are highly dependent on customer capacity demand in the industries we serve, including HBLEDs, ALD, thin film heads, automotive MEMS, LED/laser diodes, and ink jet print heads, and therefore, we expect to experience significant variations in sales to this market from period to period.

Services sales for the three month period ended September 28, 2013 decreased by $0.3 million compared to the corresponding period in 2012 from $3.7 million to $3.4 million. This decrease is the result of a decrease in service contract sales.

License sales were $0.1 million for the three month period ended September 28, 2013 as compared to $0.7 million in the corresponding period of 2012. License revenue results from tool resales by our existing customers to third parties and from royalty arrangements. Pursuant to our license arrangements, such transactions are subject to a license fee based on units sold. Future revenues from licensing activities, if any, will be contingent upon existing and future licensing arrangements. We may not be successful in generating licensing revenues in the future and do not anticipate the recognition of significant levels of licensing income during the remainder of 2013.

For the three month period ended September 28, 2013, international sales decreased $15.1 million to $16.3 million or 55% of total net sales, as compared to $31.4 million, or 52% of total net sales for the corresponding period of 2012. For the three month period ended September 28, 2013 as compared to the corresponding 2012 period, (i) sales to Europe decreased by $7.2 million,
(ii) sales to Korea decreased by $5.3 million, (iii) sales to the rest of Asia (other than Taiwan and Japan) decreased by $4.0 million, and (iv) sales to Taiwan decreased by $1.6 million, partially offset by increased sales to Japan of $3.0 million.

Our international revenue generally is not subject to significant exchange rate fluctuations, principally because sales contracts for our systems are generally denominated in U.S. dollars. In Japan, however, orders are sometimes denominated in Japanese yen. Yen denominated contracts subject us to the risk of currency fluctuations. We attempt to mitigate this risk by entering into foreign currency forward exchange contracts for the period between when an order is received and when it is recorded as revenue. After recording revenue, we use various mechanisms, such as natural hedges, to offset substantial portions of the gains or losses associated with our Japanese yen denominated receivables due to exchange rate fluctuations. We had approximately 40.6 million Japanese yen denominated receivables at September 28, 2013. International sales expose us to a number of additional risks, including fluctuations in the value of local currencies relative to the U.S. dollar, which impact the relative cost of ownership of our products and, thus, the customer's willingness to purchase our product. (See Part II, Item 1A, "Risk Factors" herein).

Year-To-Date
                                                        Nine Months Ended
                                                                                            Amount of    Percentage
(In thousands, except percentages)         September 28, 2013       September 29, 2012       Change        Change
Sales of:
Products                                 $            121,471     $            154,870     $ (33,399 )      (21.6 )%
Services                                               11,373                   13,061        (1,688 )      (12.9 )%
Licenses                                                  400                    1,303          (903 )      (69.3 )%
Total net sales                          $            133,244     $            169,234     $ (35,990 )      (21.3 )%

Product sales decreased by 21.6% to $121.5 million for the nine month period ended September 28, 2013 as compared to the same period in 2012. The decrease was mainly due to decreased systems sales of $21.5 million and decreased systems upgrade sales of $14.6 million, which was partially offset by increased parts sales of $2.7 million.

On a product market applications basis during the nine month period ended September 28, 2013, system sales (which includes systems upgrade sales) to the semiconductor industry decreased by $25.7 million to $85.5 million from the corresponding period of 2012. The decrease was primarily due to fewer units sold.


Table of Contents

Nanotechnology market sales were $16.9 million for the nine month period ended September 28, 2013 as compared to $27.3 million in the corresponding period in 2012, a decrease of $10.4 million. The decrease in sales in the nanotechnology market was primarily due to fewer HBLED units sold, partially offset by increased revenue from ALD products.

Services sales during the nine month period ended September 28, 2013 decreased by $1.7 million to $11.4 million from the comparable period of 2012. This decrease is the result of a decrease in service contract sales.

Revenues from licensing activities decreased by $0.9 million to $0.4 million for the nine month period ended September 28, 2013, as compared to the same period of 2012.

For the nine month period ended September 28, 2013, international net sales decreased by $11.9 million to $94.1 million, or 71% of total net sales, as compared with $106.0 million, or 63% of total net sales, for the comparable period of 2012. The decrease in international sales was due to (i) decreased sales to the rest of the Asia (other than Korea, Taiwan and Japan) of $27.6 million, (ii) decreased sales to Europe of $17.5 million, and (iii) decreased sales to Korea of $4.3 million, partially offset by (a) increased sales to Taiwan of $31.8 million, and (b) increased sales to Japan of $5.7 million.

Gross Profit

Third Quarter

On a comparative basis, gross margins decreased to 39.7% for the three month period ended September 28, 2013, compared to 56.4% for the corresponding period of 2012. The 16.7% decrease in gross margin was due to (i) a 9.2 percentage point decrease related to manufacturing inefficiencies resulting from lower production volume, (ii) a 4.2 percentage point decrease related to lower service cost utilization, and (iii) a 3.3 percentage point decrease related to increases in other manufacturing costs.

Year-to-Date

On a comparative basis, gross margin decreased to 49.1% for the nine month period ended September 28, 2013, compared to 55.9% for the corresponding period of 2012. The 6.8% decrease in gross margin was due to (i) a 3.1 percentage point increase in material costs due to product mix, (ii) a 2.9 percentage point decrease related to manufacturing inefficiencies resulting from lower production volume, and (iii) an 0.8 percentage point decrease related to lower service cost utilization.

Our gross profit as a percentage of sales has been and most likely will continue to be significantly affected by a variety of factors, including the following:
the introduction of new products, which typically have higher manufacturing costs until manufacturing efficiencies are realized and which are typically discounted more than existing products until the products gain market acceptance; the mix of products sold; the rate of capacity utilization; write-down of inventory and open purchase commitments; product discounts, pricing and competition in our targeted markets; and non-linearity of shipments during the period that can result in manufacturing inefficiencies.

Operating Expenses

Third Quarter

                                                  Three Months Ended
                                          September 28,        September 29,       Amount of      Percentage
(In thousands, except percentages)             2013                2012             Change          Change
Research, development, and engineering  $          8,415     $         7,745     $       670          8.7 %
Selling, general, and administrative              12,082              11,469             613          5.3 %
Total operating expenses                $         20,497     $        19,214     $     1,283          6.7 %

Research, development and engineering expenses for the three month period ended September 28, 2013 were $8.4 million, as compared to $7.7 million for the corresponding period in 2012. The $0.7 million increase was due to (i) a $0.7 million increase in expenses related to the ALD product group, (ii) a $0.2 million increase in stock-based compensation expenses, and (iii) a $0.1 million increase in costs related to additional engineering projects, partially offset by a $0.3 million decrease in bonus plan expense. As a percentage of net sales, research, development and engineering expenses for the three months ended September 28, 2013 increased to 28.3% from 12.8% for the corresponding period of 2012. This percentage increase was primarily due to the decrease in net sales experienced in the three month period ended September 28, 2013.


Table of Contents

Selling, general, and administrative expenses for the three month period ended September 28, 2013 were $12.1 million as compared to $11.5 million for the corresponding period of 2012. Selling, general and administrative expenses increased by $0.6 million due to (i) a $0.6 million increase in expenses related to the ALD product group, (ii) a $0.6 million increase in stock-based compensation expense, and (iii) a $0.1 million increase in sales and marketing related expenses, partially offset by a decrease of $0.7 million in bonus plan expense. As a percentage of net sales, selling, general and administrative expenses for the three month period ended September 28, 2013 increased to 40.6% as compared to 18.9% for the corresponding period of 2012 primarily due to the decrease in net sales experienced in the three month period ended September 28, 2013.

Year-To-Date
                                                       Nine Months Ended
                                                                                            Amount of     Percentage
(In thousands, except percentages)        September 28, 2013       September 29, 2012        Change         Change
Research, development, and engineering   $            24,613     $             22,280     $     2,333         10.5 %
Selling, general, and administrative                  35,265                   32,938           2,327          7.1 %
Total operating expenses                 $            59,878     $             55,218     $     4,660          8.4 %

Research, development and engineering expenses for the nine month period ended September 28, 2013 were $24.6 million as compared to $22.3 million for the corresponding period in 2012. The $2.3 million increase was due to (i) a $1.7 million increase in expenses related to the ALD product group, (ii) a $0.5 million increase in stock-based compensation expenses, and (iii) a $0.9 million increase in costs related to additional engineering projects, partially offset by a $0.8 million decrease in bonus plan expense. As a percentage of net sales, research, development and engineering expenses for the nine month period ended September 28, 2013 increased to 18.5% from 13.2% for the corresponding period of 2012. This percentage increase was due to the increase in research, development and engineering costs and to the decrease in net sales experienced in the nine month period ended September 28, 2013.

Selling, general and administrative expenses for the nine month period ended September 28, 2013 increased $2.3 million to $35.3 million from the corresponding period in 2012. This was primarily due to (i) a $1.7 million increase in expenses related to the ALD product group, (ii) a $1.7 million increase in stock-based compensation expense, (iii) a $1.5 million increase in sales and marketing related expenses, and (iv) a $0.3 million increase in field service administration costs partially offset by (a) a $1.6 million decrease in bonus plan expense, (b) a $1.0 million decrease in legal expenses, and (c) a $0.3 million decrease in travel and related expenses. As a percentage of net sales, selling, general and administrative expenses for the nine months ended September 28, 2013 increased to 26.5% from 19.5% for the corresponding period of 2012 due to both the increase in overall spending and the decrease in net sales over the same period.

Provision for Income Taxes

For the three and nine month periods ended September 28, 2013, we computed our U.S. provision for income taxes based upon the actual tax rate for that period by applying the discrete method, as we determined that small changes in the estimated income or loss for the U.S. jurisdiction would result in significant changes in the estimated annual effective tax rate for that jurisdiction. We computed our provision for income taxes in other jurisdictions based on an effective annual tax rate method. We recorded income tax benefits of $0.6 million and $1.1 million for the three and nine month periods ended September 28, 2013, respectively, as compared to income tax provisions of $2.6 million and $5.8 million for the comparable periods in 2012. The income tax benefit recognized for the three and nine month periods ended September 28, 2013 resulted primarily from tax benefits due to return to provision adjustments associated with the filing of our 2012 tax return and the extension of the federal research and development tax credits under the American Taxpayer Relief Act of 2012, partially offset by foreign income taxes. The income tax provision recognized in the three and nine month periods ended September 29, 2012 resulted primarily from U.S. federal, state and foreign income taxes. Income tax estimates can be affected by estimates of whether, and within which jurisdictions, future earnings will occur and how, when and if cash is repatriated to the United States, combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters and we do not anticipate any material earnings impact from their ultimate resolution.


Table of Contents

We are eligible for tax incentives that provide that certain income earned in Singapore is subject to a tax holiday and/or reduced tax rates for a limited period of time under the laws of Singapore. To realize these benefits, we must meet certain requirements relating to employment and investment activities. This exemption is expected to expire within 8 years. Our ability to realize benefits from these initiatives could be materially adversely affected if, among other things, applicable requirements are not met, the incentives are substantially modified, or if we incur losses for which we cannot take a deduction. Each quarter we assess the likelihood that we will be able to recover our deferred tax assets. We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. As a result of our analysis, we concluded that it is more likely than not that, as of September 28, 2013, our net deferred tax assets will not be realized, with the exception of those in Japan and Taiwan. Therefore, we continue to provide a full valuation allowance against net deferred tax assets outside of Japan and Taiwan. It is possible that sometime in the next 12 months the positive evidence will be sufficient to release a material amount of our valuation allowance; however there is no assurance that this will occur.
We are subject to federal and state tax examination for years 1999 forward and 1997 forward, respectively, by virtue of the tax attributes carrying forward from those years. We are also subject to audits in the foreign jurisdictions in which we operate for years 2003 and forward. There are no material income tax audits currently in progress as of September 28, 2013.

Outlook

The anticipated timing of orders, shipments and system acceptances usually requires that we fill a number of production slots in any given period in order to meet our sales targets. If we are unsuccessful in our efforts to secure those production orders, or if existing production orders are delayed or cancelled, our results of operations will be materially adversely impacted. Additionally, we may not exceed or even maintain our current or prior levels of net sales for any period in the future for the reasons enumerated in this report and our Annual Report on Form 10-K for the year ended December 31, 2012. We believe that the market acceptance and volume production of our advanced packaging systems, laser processing systems, inspection systems and our 1000 Platform steppers are . . .

  Add UTEK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UTEK - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.