MTSN

Mattson Technology, Inc. (MTSN)

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Mattson Technology (MTSN)

Q3 2012 Earnings Call

October 24, 2012 5:00 pm ET

Executives

David L. Dutton - Chief Executive Officer, President and Director

J. Michael Dodson - Chief Operating Officer, Chief Financial Officer, Executive Vice President of Finance and Secretary

Analysts

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Edwin Mok - Needham & Company, LLC, Research Division

Larry Chlebina

Benedict Pang - Caris & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Mattson Technology Inc. Third Quarter Financial Results Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, the President and CEO of Mattson Technology Inc., David Dutton. Sir, you may begin.

David L. Dutton

Good afternoon, everyone. Thank you for joining us today to discuss Mattson Technology's financial results for the 2012 third quarter, which ended September 30, 2012. I will give you an overview of the business, then Mike will provide the financial results and progress on our cost reduction program, and last, I will close with our business outlook and guidance for the fourth quarter of 2012.

Before going into the specifics of the call, I'd like to remind everyone that 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, revenue, margins, operating expenses, earnings per share, tax rate, fully diluted shares outstanding for future periods, the company's ability to secure additional sources of liquidity to address working capital needs.

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 SEC. The company assumes no obligation to update the information provided in the conference call.

And now let me turn to the business of our third quarter. In the third quarter of 2012, we saw the continuing effects of a slowing global economy as our customer spending became more cautious. The European debt crisis continued to affect and slow economies of emerging countries and the sluggish U.S. economy kept downward pressure on semiconductor demand. In this environment, we are expecting existing fab capacity for DRAM and NAND to remain underutilized through the -- through at least the next quarter.

In the foundry area, we are seeing limited amounts of capacity being added for 20-nanometer to establish pilot line capacity for early yield burning. There are some spot 28-nanometer capacity being added as our customers ship products from 1 foundry to another. We are expecting foundry spending to remain lumpy due to equipment reuse and specific customer requirements depending on device yield and product demand. Currently, we do not forecast the change in these market conditions through the end of 2012.

In our last quarterly earnings conference call, we outlined our Phase 3 restructuring plans. Through the quarter, we have been executing that plan and are achieving the results necessary to navigate the company through this slow economic period and establish a streamlined operating infrastructure that will leverage improved profitability and cash flow during the next business growth cycle.

As part of our restructuring, we announced that besides his CFO duties, Mike Dodson has been appointed to the role of Chief Operating Officer, where he will have oversight of manufacturing operations, supply chain and administration. Mike has been a significant partner in implementing our cost reduction programs. With Mike focused on our tactical execution and further streamlining of the organization, I will be able to spend more time on our strategic directions, strengthening our products, customer relationships and culture for Mattson Technology to deliver the future.

We are in the final stages of lowering our headcount by greater than 25% versus the second quarter of 2012. We have now reduced our cash flow breakeven point from over $50 million to mid-$30 million quarterly sales run rate, primarily through restructuring activities and related spending reductions across the company. By the end of 2012, we expect that our cash flow breakeven will be approaching the low-$30 million quarterly sales run rate.

Our in-sourcing strategy included aggressive cost improvements in our supply chain. These cost-reduction efforts and our investments in new products positions, which increased customer value, are resulting in an improved gross margin base, further strengthening our breakeven level.

In regards to liquidity, we are pursuing other sources of funding, which include considering solutions that are not dilutive to current shareholders to strengthen our ability to meet the working capital needs within the industry rebound.

Mike will give more detail on our customer -- on our cost improvements and plans moving forward in a moment. But first, I will provide a product update.

In Etch, our paradigmE is extending further into the Etch applications stage [ph] as we have capabilities that improve on-wafer performance while keeping costs low. In the third quarter, our paradigmE moved into production at one of our foundry customers. We also announced that we shipped our paradigmE to a new customer where it is undergoing qualification for leading-edge dual-pattern Etch applications.

In our Etch customer base, our paradigmE has engaged in new applications, including advanced dual-pattern etching with major foundry customers and 3-dimensional NAND Etch. Our Etch systems are installed at 5 customers and we are engaged with multiple new customers. We have over 50 Etch systems in production and this number continues to grow. The emergence of dual-patterning and 3-dimensional structures is increasing the number of Etch steps in this $4 billion Etch market.

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