Transcript part IV
JD Padgett: OK. And then with respect to interest expense looking forward,
what should we model there? And is there any assumption in that around
repaying some of the convert?
Bob Woodbury: No, I wouldn't make that assumption quite yet. I think we want to
- before - clearly with the cash on the balance sheet we like having a net
de-levered position. We're actually looking at - we have a call in June.
It's not clear that we're going to immediately go out and buy the bonds
back. I think we want to make sure that the company is extremely stable in
its - we're still burning a little bit of cash. So, before I go and take
that cash and utilize it for that - I don't think I'd model that this year
directly. We are thinking about that, but not - there's no actions planned
right now.
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If you look at on an interest base - with (slanted) quarters times the 175
and you've got a couple hundred grand and some amortization of the debt for
debt cost on a quarterly basis, offset with about a - call it a 1.25
interest income line. So, it's going to be about the $1.4 million, I think,
net
JD Padgett: Net expense?
Bob Woodbury: Yes.
JD Padgett: OK. And the last question just about the normalized tax rate in
fiscal '05. Will you present your pro forma numbers at that rate even
though you might not be paying that in cash tax?
Bob Woodbury: Yes. What happens is - call it for the sake of argument, there's
about a - actually about $270 million deferred tax asset - an allowance for
that tax asset on the books. The way the accounting will work when you can
clearly see a way through profitability, you'll assess that. And what
happens is there's a one-time entry that will be a pick up to P&L of about,
let's call it, $250 million, $260 million benefit to P&L, and it goes up
onto the balance sheet, increasing. So, equity increases and our assets
increase.
As you go to next year, you would take a normalized effective rate of 38
percent and hit the P&L. But again keep in mind there's only about $1
million - when you do cash flow models, about $1 million of whatever that
38 percent tax provision would count against is actually cash utilized. The
residual balance you'd actually just take that asset down to eventually eat
through the NOLs.
JD Padgett: OK. So, the pro forma presentation will have that 38 percent.
Bob Woodbury: Correct. Absolutely.
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JD Padgett: OK. Great. Thank you.
Bob Woodbury: Thank you.
Operator: Thank you. And, next, we'll hear from Theodore O'Neill at A.G.
Edwards.
Theodore O'Neill: Thank you. A follow-up on JD's question. Bob, when you get to
45 percent gross profit margins, what's the operating margin percentage
going to look like at that point?
Bob Woodbury: I'd say 16 - I don't know if it's quite 45, Theodore, probably
43, 44, I think, is what I'd set. But I think you're going to be in that
16, 17 percent range.
Theodore O'Neill: And if I'm ...
Bob Woodbury: It might get upwards to 18, but I think that's kind of stretching
it going up to 18.
Theodore O'Neill: And historically Brooks has never had an operating margin that
high even at the last peak. Is that correct?
Male: Twelve percent.
Bob Woodbury: Yes, about 12 percent.
Theodore O'Neill: OK. And it looks like, if I'm doing the math right, a lot of
this - a lot of the improvement is coming here on the back of SG&A expense
as a percent of sales relative to where it's been before.
Bob Woodbury: Correct.
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Theodore O'Neill: I know you weren't there at the time, but - when it was going
on in 2000. But can you talk about one or two of the more salient points
about how you were able to get operating margins as a percent - I mean,
SG&A as a percent of sales so low here at this point as we start going up
to the next peak?
Bob Woodbury: The biggest part was just taking headcount out. We've gone from
an excess of 3,000 heads to about 1,900 heads, as well as closing a lot of
offices. If I look at my SG&A expense today - so literally the cuts have
been really taking bodies out. And usually the SG&A bodies are fairly
expensive. If I look at going out from an SG&A standpoint I still need
today less G&A today than I already currently have. And that's why we're
aggressing this back office going to a hub-centric and regionalized basis
throughout the world. So, less G&A.
If you look at even on the up turn, the sales force today, I think, has 59
quota-carrying sales guys. As the up current happens, most of those order
trends are going to happen from existing customers. So, I don't need a lot
more sales support. I may need some support guys, but I'm not going to need
a lot of infrastructure build there. So, I think that the - again, the SG&A
current dollar levels may grow a little bit, again really because of comp
issues more than anything as opposed to infrastructure build. But I think
it can sustain that actually well in excess of 150 - $600 million
annualized run rate.
If you go back and look at op ex from a dollar standpoint, just a year ago
op ex was $45 million, down this quarter to $35 million. And, again, it's
just been a steady flow of taking costs out, bodies out. We're still
focused to nip it down.
Male: One other quick comment for you. If you look at over the past three years
the history, the company ran several of the acquisition as independent
operations. And as part of our strategy this past 18 months or so, we have
consolidated that. So, we've created a lot more efficiency in
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the organization, went from 14 manufacturing sites to three. We've
consolidated the sales force into a single sales force, a number of things
that give us a greater efficiency to operate in the market we're in.
Theodore O'Neill: Fair enough. Thank you.
Bob Woodbury: Thanks, Theodore.
Operator: Thank you. And now with (C.E. Unterberg Towbin) we have Darice Liu.
Darice Liu: Good morning. Very nice quarter, everyone. Just a few questions.
(Michael), you mentioned one of your large tier one customers is shifting
from the module to system model. I was wondering if you can elaborate on
the margin leverage you're initially seeing as these type of top tier one
customers begin the shift to system model.
Michael Pippins: I think I'll let Bob discuss the margins.
Bob Woodbury: Darice, it ends up being - it's going to be front end again.
We'll gauge more quickly in the future. It depends on the mix literally.
What happens is some of the customers are actually buying components today
which have effectively today's margins, right. If the customer, then,
outsources to Brooks for us to do the system, we would expect about flat to
slightly up margins because of the full package, giving it a Brooks design.
We're also chatting right now with customers where they're saying, "Look,
we're buying components today, and we think that that's not a value add for
us to take a bunch of components, Brooks and other vendors, and putting
those together." So, we're actually chatting with them about doing that,
where we literally we take their prints, we take their bill of materials,
we take
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their vendors for the pieces that are not Brooks components, and we would
supply the components that normal Brooks margins.
However, if we're only buying raw material - pieces of metal effectively
that builds some of the housings that are their design, which I need no
engineering content on, those situations are actually going to have
incrementally lower margins, very good operating margins, I would say in
excess of 20 percent operating margins, 20, 25 percent. But the gross
margins on those particular cases could actually be lower than average.
So, it depends on the customer solution if it's going to be, "Hey, Brooks,
help me design that solution for my application," or if it's, "Hey, Brooks,
let me focus on my core competency. And can you help me in this and take my
existing platforms, incorporate your components there and outsource that
piece to it?" We're actually in dialogues on both of those types of
scenarios as we speak. It's a little hard to tell you if it's incrementally
up or incrementally down. It depends on if it's risk of Brooks or if it's
at no risk of Brooks.
Michael Pippins: The thing I would comment is we've said we have four tier ones
that we're doing business with. Three of those are buying our designs, so
it's really one that we're doing their design.
Darice Liu: Fair enough. And I was wondering if you can break out how much
percentage-wise your FPD business in the quarter was.
Male: I don't have a good number for you right now on the percentage of revenue
that was flat panel. But if I had to guess, it was three or four percent.
It's a pretty small number. However, I think over the next few quarters
you're going to see that percentage grow as we start to ship some of the
OEM flat forms, and that was system-based business. And, as I commented,
there's a couple of fairly large software contracts that are in the
pipeline. So, it will remain a small number.
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Darice Liu: OK.
Male: Darice, let me comment quickly on the flat panel business. I've recently
been in Korea. And the OEM part of our business in flat panel is being
highly accepted by the customers in Asia. So, if you remember, we told you
we moved the flat panel business from (Chumsford) and centralized that
business in Korea. And the acceptance rate by OEM customers has grown by
leaps and bounds in the last two quarters. And we're beginning to see that
in the bookings and you'll begin to see that in revenue.
The fact - the reason it won't become a larger percentage is because our
other business is growing at the same pace now. But if we were still in the
semiconductor flatness, you'd be seeing flat panel take off as a very large
percentage of our business in terms of growth.
Darice Liu: Sounds great. Thank you.
Operator: Thank you. And our last question today will come from Timothy Acuri.
Timothy Arcuri: Hi, guys. Just a quick follow-up, I guess one for Bob Woodbury.
At $150 million, say, on the top line, what would op ex be?
Bob Woodbury: Yes, $39 million, $40 million. It's hard, Tim, as you look at -
it's tough when you get to a model basis on percentages. But if I look at
today, again, as I think I said to Theodore O'Neill, I don't need any more
G&A. I need less. I need insignificantly different - a little bit more on
the sales support. If I added - just pick a number - 100 more engineers
here, maybe that adds $10 million to my infrastructure, $2.5 million a
quarter. So, it's hard to see op ex getting ever much - even in the best of
times with good comp plans in place, does it begin with a four. Is it a
40'ish number at the top? So, I think $39 million, $40 million is probably
the right number.
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Timothy Arcuri: OK. Thanks. And then I guess I'll just give you one more. Do you
have - are you willing to talk about how much of the 127 in bookings was
from that large AMHS winner, how much of that kind of total $40 million
project size was booked?
Male: Just to put it in perspective, it was less than half of the total project.
And so, you can - I think you guys have a pretty good feel for what a
300-millimeter AMHS project is worth, and it was less than half.
Timothy Arcuri: Great. Thanks, guys.
Mark Chung: Thank you, operator. This concludes our call for the quarter. And
please keep in tune for future news releases. Thank you.
Operator: That does conclude today's conference call. Thank you all for your
participation. |
