Posts Tagged ‘GTAT earnings’

by Matt Margolis

GT ended Q1 2014 with a backlog of $609 million, consisting of 300 million of ASF orders, 296 million of Polysilicon and 13 million related to PV equipment. GT booked $29 million of equipment orders during the quarter, including 15 million in PV and 14 million in Sapphire that are have now been reported as part of the $609 million backlog. In addition, GT expects that the $58 million order for high temperature specialty furnaces will be reflected in Q2 reported backlog.

GT defines its order backlog as “amounts due under written contractual commitments and signed purchase orders for PV, Polysilicon and sapphire equipment not yet shipped to customers”. Essentially, GT’s back order represents open Purchase Orders (PO’s) for GT’s equipment that have not been shipped to customers.

Once items orders have been fulfilled from backlog they are shipped to the customers. However, if the equipment has been shipped to the customer and GT’s service staff has not completed the final assembly, integration and testing, the revenue from this shipment would be reported in “deferred revenue”. If GT has fulfilled sapphire materials and completed shipment but the product has not been “taken” for use by the customer it would also be reported as deferred revenue. Under the terms of the sapphire materials contract with Apple GT was expected to ship the goods to a defined facility for just-in-time production by Apple and GT bears the cost of storage. GT’s 10-K defines sapphire materials deferred revenue as, “short-term contracts or sales orders for sapphire materials”.

Once GT completes the servicing of equipment at a customer location GT will move the “deferred revenue” into recognized revenue during the related period. Sapphire materials once they are taken possession by the customer out of storage GT will move the “deferred revenue” into recognized revenue for the related period.

GT reported deferred revenue totaling $175.6 million in the quarter ending March 29, 2014 representing an increase over the last 6 months of $113.4 million. The amount of GT’s deferred revenue should be watched closely, as this represents the amount of goods that have been completed; either assembled and shipped equipment to customer locations or sapphire materials that have been grown, processed an d shipped to a defined storage location by the sapphire customer. Once GT completes the servicing of equipment at a customer location and the customer takes “final delivery” of the equipment GT will move the “deferred revenue” into recognized revenue during the related period. Sapphire materials revenue recognition is very similar, once GT’s customer takes “final delivery” out of storage GT will move the “deferred revenue” into recognized revenue for the related period. The release of Apple’s upcoming products that will feature sapphire are not known, however GT will be ramping up production and accumulating a significant amount of deferred revenue, which will only be recognized once Apple has taken “final delivery” of the goods. GT’s CEO mentioned during the conference call that the sapphire produced from Mesa will be fully utilized.

The annual revenue generated from Apple cannot be deduced by simply doubling the 2014 sapphire segment revenue but instead by examining the sapphire production capacity that will be produced from the Mesa, AZ facility. I am in the process of completing my production capacity analysis and my preliminary results indicate that GT can generate between $1.9B and $3.6B of annual sapphire revenue from the Mesa, AZ sapphire plant to Apple. This revenue range is based on a ASP (average selling price) of between $8 and $10 per 5” sapphire screen, 1,600 to 1,950 furnaces fully ramped furnaces, sapphire boules between 200 and 230 kg in size, days to grow a sapphire boule of 17 to 22 and an estimated loss from kerfing and grinding of 20%.

Full Disclosure: I am long GTAT

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GTAT reports Q1 Results

Posted: May 7, 2014 by mattmargolis24 in GTAT Investor Information, Uncategorized
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GT confirms guidance $600-800m for 2014. Reports 22 cent loss per share on $22.5m of revenue, which is largely in line with management’s guidance. Conference call scheduled for 8 AM tomorrow morning.

Revenue for the first quarter was $22.5 million including $13.2 million in photovoltaic (PV), $5.6 million for the sapphire segment and $3.7 million for the polysilicon segment. This compares to $32.6 million of revenue in the fourth quarter of calendar 2013 and $57.8 million of revenue in the first quarter of fiscal year 2013.

Non-GAAP gross profit for the first quarter was $1.9 million, or 8.5 percent of revenue, compared to $6.8 million, or 21.0 percent of revenue in the fourth quarter of calendar 2013 and $14.3 million, or 24.7 percent of revenue for the first quarter of calendar 2013.

During the first quarter, PV and polysilicon non-GAAP gross margins were 37% and 57%, respectively, largely in line with historical ranges. The sapphire segment had a negative gross margin during the first quarter, which reflected the impact of minimal ASF(R) revenues and the ongoing build-out of the company’s sapphire materials operation in Arizona.

During the quarter, the company incurred non-GAAP operating expenses of $43.4 million, consisting of $23.5 million in R&D and $19.9 million in SG&A.

Non-GAAP loss per share was $0.22 in the first quarter, which was in line with guidance. This compares to a non-GAAP loss per share of $0.22 in the fourth quarter of 2013 and non-GAAP loss per share of $0.07 in the first quarter of calendar 2013.

Management Commentary

“Our results for the March quarter were in line with our expectations,” said Tom Gutierrez, president and chief executive officer. “We continue to expect that 2014 will be a transformational and significant year for GT as our sapphire materials business ramps up and we continue to execute on our strategy of investing in new technologies that will help drive growth in 2015 and beyond.

“With respect to our Arizona project, we have now received three of the four prepayments from Apple,” Gutierrez continued. “We continue to expect our sapphire segment to contribute meaningfully to revenue this year.

“In addition, the favorable dynamics in our served markets continue to drive renewed customer interest in our ASF(TM), Polysilicon, HiCz(TM), and DSS(TM) solutions. Beyond these product lines, we continue to make significant progress with new game-changing technologies such as our Merlin(TM) solar module metallization and interconnect solution, our Hyperion(TM) ion implanter and the recently announced initiatives to develop coating and bonding solutions.”

Cash, Backlog and Orders

The company ended the quarter with $509 million of cash, cash equivalents and restricted cash, compared to $593 million in December.

During the first quarter the company received its second prepayment from Apple in the amount of $111 million. Shortly after the end of the first quarter, the company received its third prepayment from Apple in the amount of $103 million, which is not reflected in the first quarter’s ending balance sheet. Inclusive of the third prepayment, the company has received approximately $440 million out of the $578 million total prepayments that it is eligible to receive under the agreement with Apple. The company expects that the total prepayments it receives from Apple will fully fund its capital outlays related to the project in Arizona.

Equipment orders booked during the quarter were $29 million, including $15 million in PV and $14 million in Sapphire. The company ended the quarter with $609 million of equipment backlog, consisting of $300 million of ASF(TM) orders, $296 million of polysilicon orders and $13 million related to PV equipment. Subsequent to the close of the quarter, the company booked a $58 million order for high temperature specialty furnaces, which will be reflected in the Q2 reported backlog.

Business Outlook

GT reiterates the following guidance for fiscal year 2014, which ends December 31, 2014:

— Revenue in the range of $600 to $800 million,

— Non-GAAP gross margin in the range of 25% to 27%, and

— Fully diluted Non-GAAP earnings per share in the range of $.02 to $.18
Conference Call, Webcast

On Thursday, May 8, 2014, at 8:00am ET, the company will host a live conference call with Tom Gutierrez, president and chief executive officer, and Raja Bal, chief financial officer, to discuss its first quarter fiscal year 2014 results, general business update and outlook.

#1 GT will raise 2014 FY guidance to $800m to $1B from $600m to $800m driven by sapphire and equipment sales.  GT will not break down the revenue contribution between ASF equipment and sapphire material sales.

#2 GT will announce another significant PV win in the Middle East.  PV Tech’s Mark Osborne has been tracking a large PV project in the Middle East that was expected to decided before the end of 2013.  To the best of my knowledge this project is still on the table and GT is in position to win this bid.

#3 GT will announce new applications for Hyperion related to solar cells as a result of GT’s develop work with a “well-known” solar cell manufacturer in Asia.

#4 The first high volume sapphire covered phone will be sold.  Although, I believe the iPhone 6 could be announced as early as June there is nothing preventing Apple from launching whenever they feel like it.  90 days from May 7 gives me until August 7th for the first high volume sapphire covered phone to be sold.

#5 GT will announce its first PO for Hyperion, likely headed to the Medical or Military.

#6 GT will announce the first Merlin order (towards the end of my 90 day view).

#7 GT will announce further progress and the commercialization of its composite glass that can be bonded with sapphire lamina.

#8 GT will announce its first “total solutions” order related to Hyperion coupled with ASF furnace and bonding equipment or coupled with a Silicon Carbide furnace and bonding equipment.

GT’s Road Ahead

Below is GT’s 2012 Diversification Road Map.  I would appreciate it if GT provided an updated version to help guide me towards the company’s 2017 and 2018 goals.

As you can see from the chart below on the left hand side above current business, GT has delivered Merlin for module technologies but is still holding out on the solar cell technologies.  It makes complete sense to couple GT’s solar cells and Merlin module technologies together to deliver a charge to the solar industry.

 

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Full Disclosure: I am long GTAT

 

by Matt Margolis

A memorandum dated March 27, 2014 from Merrimack’s Community Development Director, Timothy J Thompson addressed to Robert Best, Chairman of the Merrimack Planning Board provides details of GTAT’s imminent expansion and renovation plans at their Merrimack facility.  The memorandum seeks acceptance and consideration of Final Approval of an application for site plan review to construct a 46,000 square foot building expansion as well as renovate the existing 117,532 facility located at 243 and 247 Daniel Webster Highway.  The plans were reviewed by Merrimack’s planning board on April 1, 2014 and were unanimously approved 7-0-0, officially granting GTAT approval to construct a 46,000 square foot building expansion and 117,532 square foot renovation of the existing facility.  The project is targeting an “aggressive” completion target of Fall 2014 based on the correspondence between Merrimack’s Community Development Director and the Planning Board Chairman.  The current Merrimack facility measures 117,532 square feet, the approved expansion would bring the facility to 163,532, which represents a 39% increase in the size of the facility.  The memo also details GT’s plans to shift the facility from an R&D and test facility to a manufacturing facility.  The memo cites “recent contacts at  global manufacturing partners are driving the need to grow their current facility.”  Key takeaways from the memorandum are below:

  • Recent contacts at global manufacturing partners are driving the need to grow their current facility
  • The existing facility will be renovated to support the company’s manufacturing processes rather than the research and testing operation currently in use.
  • The company would be making a significant investment in replacing their outdated and obsolete equipment and installing additional equipment to support their manufacturing use.
  • The applicant is requesting the waiver to allow the plan to be recorded in the fall, following boundary survey and completion of an as built plan
  • Expansion will add 46,000 new square feet on top of 117,352 square feet of existing space

According to GTAT’s website the current Merrimack facility houses GT’s ASF furnace and LED business along with R&D and pilot production functions for a number of new technologies and other advanced materials.

Our ASF furnace and LED business is located in Merrimack. Our Merrimack facility is also the location of our  research and development and pilot production functions for a number of new technologies including Silicon Carbide and other advanced materials.

Details of the expansion and renovation memorandum of GT’s Merrimack facility are below:

Link to the memorandum dated March 27, 2014 and Merrimack Planning board’s approval of the expansion and renovation plans dated April 1, 2014.

Below are some key excerpts from the memorandum in text and image form.

GTAT has grown considerably from their start in Merrimack, and the recent contacts with global manufacturing partners are driving the need to grow their current facility to reflect the change to their operations from R&D focus to a more manufacturing focus.

GTAT is now seeking to expand the facility further by adding a 46,000 square foot addition.   The new addition will house primarily administrative office and administrative functions of the company, while the existing facility will be renovated  to support the company’s manufacturing processes rather than the research and testing operation currently in use.  In doing so, the company would be making a significant investment in replacing their outdated and obsolete equipment and installing additional equipment to support their manufacturing use.

GTAT is exploring several options on how to handle this shift, and among their current considerations is to expand on their facility here in Merrimack (other options are also being considered by the company).  The project has a very aggressive time schedule to meet the demands of the company, and the application before you has been prepared within the last several weeks, whereas a similar type of application would typically take months for the design engineer to prepare a submission for site plan approval

The applicant is requesting the waiver to allow the plan to be recorded in the fall, following boundary survey and completion of an as built plan

 

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Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings

 

 

by Matt Margolis

GTAT is expected to announce the date of their Q1 2014 earnings release and conference within the next week.  I’m expecting GT to announce their Q1 2014 results and host their earnings conference call on Monday May 5th.  The consensus estimates I’ve gathered from the analyst community is for GT to post Q1 sales of $31 million and a loss per share of $0.24.  My Q1 2014 estimate is aligned with the analyst community, I am projecting sales of  $28 million and a loss per share of $0.24.  I’m going to be laser focused on the capital spending that GT reports for Q1 2014 as well as to see if additional PP&E was deployed, most if not all this capital is related to the ramp up occurring in Mesa, AZ.  Another line item I am curious about is the headcount, as GT expected its global headcount to reach 1,000 employees by the middle of 2014, up from 541 employees as of 12/31/13.    Most of these new employees will be located in Mesa, AZ so the headcount will shed some light into the equipment ramp and overall status of the Mesa sapphire facility through March 2014.   I have shared information on several occasions that the Mesa sapphire plant went live with 140 tools (sapphire growth furnaces) on 1/10/14 and significantly increased the number of active tools by the middle of February as evidenced by their building permit request to make changes to the MV (medium voltage) fuse to accommodate the tool load.

 

Q1 2014 Analyst Revenue and EPS Estimates

As I stated above the consensus estimates for Q1 2014 across the board are very much aligned.  Listed below is the chart of the Q1 2014 revenue and earning estimates by analyst.

Q1 2014 Analyst Average

 

2014 Analyst Revenue and EPS Estimates

 

The 2014 analyst revenue consensus is $714 million and positive EPS of $0.12.   Revenue estimates range from $671 million (Stifel) to $797m (UBS) and EPS estimates range from $0.04 to $0.17.   It’s interesting that not one analyst decided to “think outside the box,”  because every single one of them stayed within GT managements 2014 guidance “box” of $600 to $800 million of revenue and EPS of $0.02 to $0.18.

My  2014 revenue estimate was based on a bottom’s up approach including  focus on Apple’s iPhone 6, iWatch and iPod 2014 unit volume sales plus two additional months of inventory build.  I am firmly in the camp that Apple will introduce sapphire cover screens on both iPhone 6 models (4.7″ and 5.5″ models), the iWatch as well as the redesigned iPod touch.  My estimated Apple revenue is $1,180 million or 89% of my FY 2014 revenue.  I’m currently estimating 2014 revenue of $1,331 million and EPS of $0.62, this would represent $534 million in revenue and $0.44 of EPS above street high analyst estimates.

2014 Analyst Estimates

 

2015 Analyst Revenue and EPS Estimates

The 2015 analyst revenue consensus is $1,258 million and positive EPS of $0.90.   Revenue estimates range from $1,086 million (Stifel) to $1,643 million (Credit Suisse) and EPS estimates range from $0.45 to $1.49.   Stifel, Canaccord and Bank of America might be 3 sport athletes but they clearly do not know which sport GTAT is playing.   At a minimum I would have thought those 3 firms could have at least a minimum taken their 2014 estimates, calculated the impact of a full year for GT’s Apple business and simply added a simple unit growth estimate that is consistent with industry smartphone trend.  I know this financial modeling exercise could take a good analyst a few minutes but I figured the “Wall Street” heavyweights could at least put in a few hours to come up with something that resembles a coherent thought to support their 2015 estimates.  I fully expect GT’s 2015 analyst consensus for revenue to trend north of $2,000 million and EPS estimates to be at or above $2.00 per share driven largely by what is actually going on inside the Mesa, AZ sapphire facility.  GT’s management has guided 2015 of over $1,000 million and they have not provided an updated EPS estimate for 2015.

My  2015 revenue estimate was based on a bottom’s up approach including Apple unit sales and expected market adoption across GT’s diversified product portfolio.  The chart below breaks my 2015 revenue into key revenue category so you can  see my expected revenue contribution by each line of business.  My estimated Apple revenue for 2015 is $2,027 million or 64% of my 2015 FY revenue estimate, which is down from 89% of total revenue in 2014.   I’m currently estimating 2015 revenue of $3,177 million and EPS of $2.84, this would represent $1,534 million in revenue and $1.35 of EPS above street high analyst estimates.

2015 Analyst Estimates

 

2016 Analyst Revenue and EPS Estimates

Before I get into the 2016 estimates I first want to blast every analyst but Credit Suisse.  Three out of six dropped out of GTAT’s analyst class before they finished their 2015 EPS estimates.  Only one analyst actually completed their 2016 revenue and EPS homework assignment for GTAT.  The remaining 5 analysts need tighten up the belt, focus and listen to Pooh and just, “think, think, think!”

The 2016 analyst revenue consensus is $1,923 million and positive EPS of $1.83.   Revenue estimates range from $1,637 million (Stifel) to $2,748 million (Credit Suisse) and EPS estimates range from $1.25 to $3.00.  Credit Suisse revenue and EPS estimates are actually 50% higher than the rest of the peer group.  Now it’s clear to you as well that the analysts outside of Credit Suisse dropped out of GTAT’s analyst class and failed to do their home for 2016!  I fully expect GT’s 2016 analyst consensus for revenue to trend north of $3,000 million and EPS estimates to be at or above $3.00 per share driven largely by GT’s Hyperion, HicZ and Merlin technologies, which will all see tremendous growth and adoption by 2016.   GT’s managements guidance for 2016 is EPS in excess of $1.50 per share, however GT has not provided a revenue estimate for 2016.

My  2016 revenue estimate was based on a bottom’s up approach including Apple unit sales and expected market adoption across GT’s diversified product portfolio including a significant pickup in Hyperion, HicZ and Merlin technology sales.  The chart below breaks my 2016 revenue into key revenue category so you can see my expected revenue contribution by each line of business.  My estimated Apple revenue for 2016 is $2,216 million or 47% of my 2016 FY revenue estimate, which is down from 89% and 64% of total revenue in 2014 and 2015.   It should be noted that the Apple % of GT’s total sales in my model are expected to decrease year over year as GT’s diversified growth strategy continues to bear fruit from the seedlings that were planted over the last few years.  I’m currently estimating 2016 revenue of $4,736 million and EPS of $5.26, this would represent $1,988 million in revenue and $2.26 of EPS above street high analyst estimates.

2016 Analyst Estimates

 2014 to 2016 Revenue and EPS Estimates, Price Targets and Key Ratios

The chart below has all of the goodies you want to know.  The average analyst Price Target is $21.89 and it ranges from $26 (Credit Suisse) to $13.75 (Stifel).  The average analyst Price Target yields a 2016 forward PE of 12 based on an average 2016 EPS estimate of $1.83.  My price target is currently $85 based, which actually only represents a forward PE of 17 based on my 2016 EPS estimate of $5.26.

 

 

Analyst 2014 to 2016 Summary

 

Conclusion

Most of the Wall Street analysts are deadbeat analysts when it comes to GT Advanced Technologies.  Credit Suisse has clearly put in the time and done all of their homework assignments for 2015 and 2016.  The rest of the Wall Street analyst community decided to drop out of the GTAT analyst class because they didn’t want to “think, think, think”.

I’ve done more than my fair share of thinking in regards to GT Advanced Technologies and the company’s future prospects.  My estimates are clearly much higher than Wall Street but so is the time I’ve dedicated to my craft.  Wall Street will continue to lag my estimates by 6 to 9 months and that should be expected.  I also want to be very clear that yes, GT needs to deliver on a lot of fronts to hit my revenue and EPS forecasts for 2014 through 2016 and there is certainly some risks that should be discounted.  However, at the same time, I believe Apple will likely introduce sapphire cover screens on the Apple iPad before the end of 2015.     A sapphire covered iPad could contribute an additional $1,000 million of annual revenue above and beyond my already street high estimates in the year following its initial release.  Additionally, Hyperion and Merlin technologies are game changers in their respective marketplaces and may generate an additional $1,000 million or more of additional sales that have not been included in my estimates.    Even Goldman Sachs is modeling 2018 Hyperion sales at over $2,000 million a year with a EPS contribution of $1.58, which assumes a 60% conversion of the market opportunity and a gross margin of 35%.  A slight shift Hyperion’s expected  adoption cycle to the left and GT’s sales could rise by billions sooner rather than later.    Lastly, GT has new products are waiting in the wings for the market to develop and although we have no clear line of sight to these new products and technologies today, it would be prudent to expect up to another $500m of new product revenue that will be moved over from R&D and introduced into the marketplace by 2016.

My price target is currently $85 based, which actually only represents a forward PE of 17 based on my 2016 EPS estimate of $5.26.  I try to stay away from PE ratios but GT’s expected rapid growth over the next several years could certainly support a PE of 30 to 50, once the world see’s how they can deliver the goods to Apple.  I will also let you do the math and take my 2016 EPS estimate and multiply it by a justified PE of 30 to 50 to see where I think GT’s share price could be headed over the next few years.  Yes I am fully aware that the math works out to a share price well into the triple digits and a market cap that exceeds $20 billion and to be honest that may just be the beginning for GT Advanced Technologies.

 

Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours.