Good day, ladies and gentlemen, and welcome to the Axcelis Technologies Fourth Quarter and Full Year 2011 Conference Call. My name is Keisha, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed, ma'am.

Thank you, Keisha. Good afternoon. This is Mary Puma, Chairman and CEO of Axcelis Technologies. Welcome to our conference call to discuss fourth quarter and full year results. With me today is Jay Zager, Axcelis EVP and CFO; and Doug Lawson, SVP of Strategic Initiatives. If you have not seen a copy of our press release issued earlier today, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. In 2011, despite a challenging industry environment, we made substantial improvements in our financial performance. We grew Axcelis revenues by 16%. We improved gross margins by almost 5 percentage points. We were profitable for the year, and we generated $1.1 million of cash. Overall, we delivered the best financial performance Axcelis has had in several years. We were also successful in garnering interest, gaining new customers and driving additional business in multiple product lines in markets. Specifically, in high energy, we remain the leading supplier of both single wafer and multi wafer systems. In high current, we ramped volume production of our highly differentiated damage engineering solution for the memory market. In addition, our high current system offers superior extended source lifetime for growing applications like carbon and germanium for customers across all segments.…

Thank you, Mary, and good afternoon, everyone. From a financial viewpoint, fiscal year 2011 was a strong year for our company, with financial results that were better than we have achieved in recent years. We had solid revenue growth, improved our gross margins, returned to profitability and generated cash. Q4, however, was a challenging quarter as the industry downturn continued. We delivered consolidated sales of $60.4 million at the low end of our guidance and 17% lower than Q3. On a year-over-year basis, quarterly revenues declined 35%. Our operating loss in the quarter was $1.3 million. On an overall basis, we lost $2.1 million, or $0.02 per share. This $0.02 per share loss was at the high end of our guidance. Included in this loss was a $900,000 or $0.01 non-cash charge associated with the tax audit in Germany. This audit focused on our financial results in 2000 and 2001. System sales in the quarter were $28.2 million, while sales for our aftermarket business, which we call GSS, were $32.3 million. And system shipments were $29.9 million. Within these totals, high-end implant shipments were $24.4 million or about 82% of the total. And shipments for our cleaning and curing systems, which reflect primarily our dry strip business, were $5.5 million or about 18% of the total. For the full year, approximately 2/3 of our shipments were for implant products and 1/3 were for dry strip products. In the fourth quarter, approximately 62% of our sales were for memory customers, primarily FLASH, while sales to logic and foundry customers were 38% of the total. For the full year, memory sales were 47% of the total, and logic and foundry sales were 53%. Our top 10 customers accounted for about 73% of our sales, with 1 customer above 10%. For the full…

Thank you, Jay. In summary, we have strengthened our financial model and refocused our strategy towards targeted areas of strengths and opportunity. This includes dry strip tools for advanced applications, implant systems for single wafer high energy and medium current, and differentiators for high current implant applications like damage engineering and source technology. We will also continue to invest in next-generation technology, including planning for 450-millimeter development activities. The ever-changing landscape in our industry heightened by increasing consolidation makes it critical that we focus our business where we can win. We believe that this focus will allow us to more aggressively compete and better translate our advantages into shareholder value. With that, I'd like to open it up for questions.

[Operator Instructions] Your first question comes from the line of Christian Schwab with Craig Hallum.

As we look for -- you kind of talked about, throughout the year, higher revenue, lower OpEx and higher gross margins. Should we assume that, that $2 million to $3 million savings kind of comes in throughout the course of the year? Or should we assume that OpEx could be further reduced from that level exiting the year?

We're going to take -- we've taken these actions immediately, so we would expect to see these reductions as early as Q2.

Okay. And is there any other reductions out there? Or is that kind of the run rate we should be thinking about?

Basically, assuming that the business turns up and that all the projections about the recovery are underway, we do not anticipate any additional actions. Obviously, if the market were to turn, we are committed to be generating profit. And I think one of the things we've talked about repeatedly, Christian, is that we need to be profitable throughout the cycle. And not only at the upside, but the downside. And so if we got any sense that things were not proceeding the way everybody expected, my inclination would be that we would take additional actions to ensure profitability.

And as we look through gross margins improving throughout the course of the year, is there a range where you think that you can get gross margins at exiting the year?

I think we're talking about the mid- to high-30s this year. Obviously, it'll depend upon the mix of the business. And as we are successful with our newer products, particularly the Optima products, they tend to have a little bit of a dampening effect in the short term, as we still are on the learning curve with our manufacturing improvements. So these new products will generate, consistently improve margins every quarter as the products are built more continuously, and also, frankly, as the volumes increase a little bit.

Yes, absolutely. As we think about your market share, do you think -- do you have a rough idea of what you think your market share in high energy, high current and medium current is exiting 2011?

It's impossible really right now without understanding exactly what the TAM is. But I think we're taking a look and estimating that our implant market share is probably about flat in 2011 to 2010. We feel very good about the product portfolio that we have. We continue to make some penetration with the Optima HDx, especially in the areas of damage engineering and carbon and germanium. Jay just mentioned the Optima HD. The Optima MDxt, which we've been talking about now, will actually will increase our share in 2012. And then we believe in high current with the Optima XE, we'll be able to hold our market leadership. So we feel very good about that. We think that the market segment, especially if DRAM picks up in the second half of the year, will also play in our favor. And I guess the other thing that's going on out there is the consolidation of Applied and Varian. And we're getting -- continuing to get very strong feedback from customers that they believe that this is going to be something very positive for Axcelis. They want Axcelis to win. Axcelis is really the only viable alternative to applied right now, given the product portfolio that we have, the strength of our products, and the global infrastructure that we have. So we think that we're very well poised to actually increase our market share in 2012.

Okay. And if we kind of just kind of sum up total revenue in 2011, roughly $319 million and growing it 16% in a spending environment that was probably roughly up 10%, as we look to 2012 and to 2013, do you guys think, given especially the comment you just made about maybe increased customer engagements, do you think you could continue to outgrow the spending environment? 90 days ago, it was going to be down 20%. Now it's going to be flat. You just talked about meeting with 3 different customers if the global economy continues to improve. Their CapEx budgets will probably increase. How should we be thinking about your relative growth versus spending?

I think you mean versus industry spending, obviously.

Correct, correct.

I think, simply, we need to be gaining market share across our portfolio. So however fast the market is growing, we need to be doing better than that. And again, it's much more enjoyable to be gaining market share when the market is growing. But even if the market is shrinking, we need to be continually gaining new share. And these customer penetrations are really a critical aspect of that. I think all the factors are in place for us to have a very successful 2012 with our product portfolio, with our customers who are more than ever looking for us as a very strong alternative to the industry leader. So frankly, I think the key for us is good solid execution on the engineering front and the sales front. And assuming we do that, we'll do very well in 2012.

Right. And as we look to 2013, kind of products' been shipping for a while, what would be a gross margin range? Obviously, it would really depend upon mix. But what type of gross margins do you think we can -- 2 years from now, what would be like a realistic target level you guys are thinking up now?

Now we're moving into fantasyland a little bit. Obviously, it's very dependent upon the topline. As the industry is growing and as our market share is growing and as our revenues are growing, that's a real critical factor for us in our gross margins. Probably, the best thing we could be doing to improving our gross margins is getting increased volumes on our products. And that's, to some extent, a function of the marketplace. We are continuing to make manufacturing improvements on a product-by-product basis. We've made substantial progress in the last 12 or 24 months, and there's a lot more room for us to continue to make those improvements. So we would expect to see continuous improvements across the board.

I mean, one of the areas that's particularly exciting for us, as Jay talks about manufacturing improvements, is the commonality that we get between the Optima XEx and the Optima MDxt. They are using the same end station, and that's one of the things that the customers in particular like, especially those customers who are using the Optima XEx and having very good results with it, good performance and good reliability. And so -- in fact, those are the customers that have become some of the first customers for the Optima MDxt. So those are the kinds of improvements that we're making that will accelerate some of this margin improvement.

[Operator Instructions] Your next question comes from the line of Weston Twigg with Pacific Crest Securities.

This is Monika for Wes. I think it's kind of a follow-up for the last question, I mean, given the CapEx environment, we are expecting kind of flattish CapEx. And we have seen the CapEx guidance on the big players in the market. So the question is, do you think over the next 1 or 2 quarters we can see the revenue run rate back to where it was a couple of quarters back at $90 million to $95 million run rate?

I don't think it's going to grow that fast. Although I will tell you, just in the last 2 or 3 weeks, we're seeing more of a trend on some of our customers to pull in shipments. Whereas last year, they were pushing out shipments. So we're seeing very positive indications but we're at $60 million. And getting from $60 million to $90 million, my guess is, is going to take longer than a quarter or 2.

All right, okay. Then can you explain a little bit more about the restructuring effort? Just trying to understand here, is it the particular product segment that gets impacted with the R&D cuts you announced today? Or is it kind of across the board?

It's across the board, but it's more centered on R&D. As Mary indicated, we've changed a little bit of our R&D focus. We're really trying to really identify those areas where we feel we have a strong competitive advantage and really leveraging those like the damage engineering solution, like the extended source life of the carbon and germanium as we've talked about. I mentioned it before, we think when all is said and done, we'll have reduced our headcount by about 90 people or so. I haven't seen the final numbers, but more than half of those people are coming out of the R&D effort. We've also taken a hard look at our global infrastructure, and we're looking to where we can operate more efficiently. And we're also looking at our administrative and support services. We've taken some actions out of those areas as well. And these are different than the ups and downs we see continuously in the manufacturing direct operations, where we've been using temporary staff and we've been ramping up and down as the volumes increase. So these are permanent reductions on our cost base, which we think are really going to help us going forward.

Monika, just to add to that, I mean, you've been following Axcelis now for several years. We're at another, what I'll call, inflection point in terms of the maturity of the Optima product line. And so as we've done in the past, as we've gotten to a point where we -- where the platform becomes stabilized and the tools are running well in the fab, then we're able to shift from, what I'll call, a product development -- new product development kind of phase into more of a continuous improvement kind of phase. And that's really one of the things that's allowed us to take the R&D effort down as well.

Just one more question, kind of on the breakeven side. So do you think with these steps you have taken to restructure the business and the change in CapEx outlook that over Q2, Q3, we should be looking for kind of a breakeven number on the cash side and also on the EPS side? Or kind of how should we think about that?

Well, as I mentioned on the cash side, our cash balance is in a decline a little more than we normally expect in Q1 due to the timing of some of our shipments. So we expect to be seeing positive cash generation in Q2. With respect to breakeven on an operating profit basis, internally, our objective is to achieve breakeven profitability or better in Q2. But at this point, we're not ready to go out and actually guide in that direction.

This concludes the Q&A portion of the call. I would now turn the call back over to Mary Puma who will make a few closing remarks.

Thank you. Well, I'm personally disappointed with our guidance in Q1. I believe that we're taking the right actions. And with these changes, we are showing our commitment to remaining profitable throughout the cycle. I am optimistic about the remainder of the year and look forward to sharing our progress with you. In addition, Jay will be presenting at the Stifel, Nicolaus Conference next week in California. Thank you for your participation.

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day.