Advanced Energy Industries, Inc.
Q2 2015 Earnings Call Transcript

Published: 3 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Advanced Energy Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now turn the conference over to Annie Leschin, Investor Relations. Please go ahead.

[Annie Leschin:]

Thank you, operator, and good morning, everyone. Thank you for joining us today for our third quarter 2015 earnings conference call. With me on today’s call are Yuval Wasserman, President and CEO; and Tom Liguori, Executive Vice President and CFO. By now you should have received a copy of the earnings release that was issued yesterday evening. For a copy of this release, please visit our website at advancedenergy.com or call us directly at 970-407-4670. Let me just mention that we will be presenting at the UBS Global Technology Conference on November 18th in San Francisco and at the CER Midtown Cap Summit in New York on December 10th. As other events occur, we will make additional announcements. Now, I’d like to remind everyone that except for the historical financial information contained herein, the matters discussed on this call contains certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believe, expect, plans, objectives, estimate, anticipate, intent, target, goals or the like should be viewed as forward-looking and uncertain. Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the markets we serve; the timing of orders received from our customers, and unanticipated changes in our estimates, reserves or allowances, as well as other factors listed in our press release. These and other risks are described in Forms 10-Q, 10-K and other forms filed with the SEC. In addition, we assume no obligation to update the information that we have provided you during this call, including our guidance provided today and in our press release. Guidance will not be updated after today’s call until our next scheduled quarterly financial release. And just as a reminder in today’s call, we will refer to both GAAP and non-GAAP results. Non-GAAP measures exclude the impact of stock-based compensation, the amortization of intangibles, restructuring charges and other non-recurring items. A reconciliation of non-GAAP income from operations and per share earnings is provided in the press release table. We’ll be referring to the earnings slide posted on our website as well this morning. And with that, I’d like to turn the call over to Yuval Wasserman.

[Yuval Wasserman:]

Thank you, Annie. Good morning everyone and thank you for joining us for our third quarter conference call. The third quarter of 2015 was a solid one for AE. Total results met our expectations on our topline and we had to form on the bottom line. Driven by new reference volume of our semiconductor business core Precision Power revenues excluding inverters increased 3% from last quarter. Service revenues reached new highs yet again this quarter, while industrial revenues stayed at similar level till last quarter. As expected, revenues from our inverter business continued to ramp down, as we remain on track to complete the majority of the wind down process by the year end. In total, third quarter revenue was $131 million, non-GAAP profitability exceeded our expectations at $0.51 per share, driven mainly by healthy revenues and operating margins for our core Precision Power business excluding inverters. We ended the quarter with a solid cash position of nearly $200 million. Over the last few years, we had expanded our addressable Precision Power market with the addition of other leading power products and technologies. This quarter was no exception; we again continued to target and win important designs across multiple application areas. In semiconductors, we are benefiting from increasing our power solution presence and content for both current and next generation technologies, as the industry relies on an increasing number deposition and etch process steps to support multi-patterning, advanced device architecture and new electronic materials. The projected growth in the number of process steps is compounded by the increase in power content in each process chamber, driven mainly by demanding process requirements for complex architectures in new chemistries, requiring the use of multiple RF requisition power combinations during the process. This quarter we’ve made further headway in advanced memory. We won etch and surface treatment applications related to 3D NAND and sub-20 nanometer processes with our latest leading RF technology platform. Additional wins were achieved in advanced 3D packaging with our RF and DC products. Building upon our presence in the US and Asia. Other exciting and growing applications for which AE is leading with our RF and remote plasma source technologies include plasma enhanced atomic layer deposition and Thin Films removal and surface modification using radicals processing. In industrial applications, we saw design win successes across a number of areas this quarter. First, our strategy to expand our Solvix hard coating product line outside of its above stated primary EMEA region gained considerable traction. Leveraging a global sales force, we again won the vast majority of the hard coating designs for which we competed in the quarter. We accelerated a global expansion in to North America, where we had wins for machine tools hard coating and in to Korea for automotive and home appliances coating applications. We also saw increased adoption of our bipolar DC technology for large area sputtering, which has demonstrated clear cost of ownership at damages compared to competitive products. With wins in architectural glass coating and defense applications such as hard coating on landing gear assemblies, we are seeing more cross-over in [bipolar] technology. In our power control modules product line, where the market is made out of hundreds of opportunities with smaller volumes, we increased both the number of targets we pursued as well as our win rate this quarter. While historically a German centric business, this PCM product line has begun to penetrate the North American market for furnished and industrial heating applications. We continue to invest in our geographical expansion plan and increase the number of external channel partners. Finally, our high voltage product line continues to generate a growing number of design wins in areas such as defense and aerospace, life science and analytical equipment. This product line is positioned for additional growth in semiconductor metrology and inspection applications. Now let me turn to our quarterly results. This quarter we had a near record high results semiconductor applications. Industry trends are driving increased requirements for etch and deposition, continuing to present opportunities for AE. Our nearly 4% sequential growth outperform expectations due to accelerated order from US and Korean OEMs for PECVD, etch and plasma source abatement. Entering the fourth quarter, the industry is expecting a temporary pullback in capital spending, driven by overcapacity in memory devices and by the delay in the industry’s transition to next generation technologies including 3D NAND and 14 and 16 nanometer thin film, which still remains the next significant investment on the horizon for 2016. Our strong and growing presence in applications that are enabling for advance patterning 3D devices and 3D packaging for logic devices and 3D NAND memory position us to benefit from the anticipated growth from these applications as they drive higher number of process steps and hired content of advanced power-delivery solutions. As we expand the new industries and applications, we continue to make important investments in R&D in order to remain the top supplier for our customers able to meet their next generation needs. AE is competitively positioned as we are focused pure-play provider of highly engineered precision and power conversion solutions for our customers’ most difficult applications. Our early stage R&D engagement with our OEM customers enables us to be a trusted technology partner as our OEMs develop competitive and proprietary solutions for their end use customers. Revenue from industrial applications remained relatively flat this quarter, albeit with a slightly different mix than last quarter, increases in flat panel display, largely offset decreases in architectural glass, while our general industrial applications leveled out. During the quarter, we realized the first stream from our recently established partnership of large industrial automation companies. By making products such as our PCA modules in barometers available to their channels, we are essentially making it easier for customers to use their control with our technology. While still small, we have begun to see adoption from this program and expect it to continue to ramp in the fourth quarter. This quarter we also implemented a new strategy to accelerate our growth in the architectural glass market. In addition to sales of our advanced power solutions for new glass coating lines, we are now helping our customers to upgrade older coating lines with the new bipolar PC technology to extend the life of their existing lines and improve the cost of ownership through higher potential throughput and increased quality of deposited films. This new offering, heading upgrades and retrofit to our sales to greenfield factories sold directly to end user increases our [SAM], and we believe could become a sizeable contributor to glass revenue overtime. Similar opportunities exist in other applications such as data storage. Looking at the fourth quarter we anticipate increases across our various industrial applications including glass, data storage and hard coating. Precision Power service revenue grew this quarter to its highest level since the third quarter of 2008. We continue to deliver high value repair solutions to our customers, resulting in share gains globally from smaller lower quality repair shops. The significant value we bring to our customers provides substantially higher quality service reducing the total cost of ownership. We have significantly enhanced our sales effort in customer engagement across Asia and North America to address this opportunity. Going forward, with the exception of seasonal changes due to holidays, we expect to see gradual growth driven by volume, share gains, upgrades and retrofit. Last quarter we began the process of winding down our inverter business. More than four months in, we are on track with our goal to largely complete this by year end. Finally, this quarter we outlined our capital allocation plan to most effectively utilize our cash and return value to our shareholders. This plan centers on increasing shareholder value by investing in long term growth opportunity and making distribution to shareholders, allocating 70% of our future free cash flow to organic and inorganic growth investment and 30% to share repurchases. We expect to want to make organic investment to grow our market leadership in semiconductor applications, expanding to industrial markets and increase our geographical presence. Two, make acquisitions to increase our TAM, focusing on industrial products and applications. Three, make share repurchases to meaningfully reduce share count overtime, and four, create more flexible capital structure that may include debt instruments to fund key investments. Overall, we were pleased with our results in the third quarter. We again saw the efficiency and power of our business model to generate strong profit in cash this quarter and offset some of the lumpiness of different markets. Coming off of the record level achieved in semiconductor year-to-date, we anticipate a sequential decline in revenues near term, as we await investment in next generation semiconductor technologies and continue the inverter wind down. Over the long term, we plan to grow and diversify our industrial applications utilizing our global distribution channels and partners to increase market share and uncover new opportunities. Our ongoing success in winning designs across a variety of critical applications and providing high quality service to our customers is increasing our worldwide presence as a leader in Precision Power conversion. We remain committed to executing on our strategic long term plan to drive profitable growth strong cash flow and earnings per share. I would like to thank our customers, partners, shareholders and our valued employees for their support. Thank you for joining us, and we look forward to seeing many of you in the upcoming quarter. I would now like to turn the call over to Tom. Tom?

[Tom Liguori:]

Thank you Yuval. Looking at the third quarter financial highlights on slide 14, total revenues were in line with our expectations for the quarter at 130.8 million. non-GAAP earnings per share at $0.51 came in above expectations, as our business excluding inverters generated non-GAAP operating margin of 30%. The inverter wind down is proceeding well, on schedule and budget. We continue to generate healthy cash flows. Cash and marketable securities increased by 15.8 million to 199 million, and as Yuval mentioned, we announced a capital deployment strategy in the third quarter that centers on increasing shareholder value, by investing in long term opportunities to drive earnings and share repurchases to meaningfully reduce our share count. Turning to slide 15, which illustrates sales by market; excluding inverters revenues increased to 18% year-over-year to 107.9 million. Semiconductor sales drove the overall increase, increasing 26% year-over-year and 4% sequentially. Industrial sales were 21.4 million, a 4% increase year-over-year and up slightly from the second quarter. Service revenues of 13.6 million increased 77% year-over-year, and 3% sequentially due to share gains and volume increases. Inverter revenues decreased 56% year-over-year and 29% sequentially to 22.9 million as we continue to wind down the business. Turning to slide 16 on the non-GAAP information; as noted earlier, revenue excluding inverters increased to 18% year-over-year to 107.9 million, with operating income of 32.4 million or 30% of revenues. In the inverter business we continue sell off existing inventory and wind down operations. On slide 17, our wind down team performed well and adhering to a strict schedule, cost and cash flow budget. We are in fact to cease all production activities in Q4. Our last customer shipment is scheduled for December. In Q1, 2016 we plan to collect our remaining receivables to [fully] exit our facilities. The cash outflow for inverter business in the third quarter was 11.7 million. We anticipate the total second half of 2015 cash outflow for the wind down will be at the low end of the 20 million to 30 million range guided in our June 29 press release. During the third quarter, we incurred 13.2 million of charges related to the wind down. These charges are on slide 18 and include restructuring charges of 13.9 million for severance and contract settlement cost. An inventory write-down of 3.4 million that is included in cost of sales and recovery of previously impaired accounts receivable of 4.1 million included in SG&A. We also made progress reducing shared corporate overhead cost during the quarter. Previously we refereed to 8 million to 10 million of shared corporate overhead cost and provided a target to reduce these costs by half by 2016. To-date, we achieved 1.3 million of annual savings and have identified over 2 million of additional annualized savings. Overall, we are well on track to achieve our targeted savings. On slide 19, the third quarter tax expense was a benefit of 7.6 million. As we explained in our second quarter call, the 48 million quarterly tax expenses in Q2 was a result of a required GAAP calculation as [applied] from annual tax rate to the quarterly results. This large tax expense should reverse in the second half of the year, allowing us to end the year with minimal tax expense or even with slight tax benefit. The third quarter benefit of 7.6 million which is consistent with this approach. In the fourth quarter we currently anticipate recording a tax benefit of 40 million or higher, resulting in a total year tax expense near zero. For 2016, we anticipate our normalized tax rate for the business excluding invertors to be in the neighborhood of 15%, assuming existing tax regulations. Turning to slide 20, the balance sheet; even with the cash required to wind down inverters, cash and marketable securities increased by 15.8 million to 199 million. During the last nine months, we increased our cash balance by 70.6 million. Turning to slide 21; the capital deployment strategy we announced during the third quarter is designed to put our strong cash flows to work to drive increased shareholder value over the long term. Our management team is committed to investing in organic and inorganic growth opportunities to increase our earnings, while repurchasing shares to meaningfully reduce our share count. Our Board authorized the share repurchase of up to a 150 million over the next 30 months. We anticipate implementing the initial phase of this repurchase program in the fourth quarter. In conclusion, our core power business continues to operate well, generating healthy operating margins and cash flow. We are making solid progress with the wind down of our inverter business anticipate being substantially complete by year-end. Turning to slide 22 on fourth quarter guidance, we anticipate a sequential decline in revenues as we continue the inverter wind down and in semiconductors the right investments in next generation technologies, the growing contribution from our industrial and service businesses allowing us to partially offset the semi industry slowdown. Despite the revenue decline in the fourth quarter, our streamlined cost structure and management discipline is allowing us to continue to generate non-GAAP operating margins in the low 20s in our business excluding inverters. This concludes our prepared remarks for today. Operator, we’d like to open the call for questions.

[Operator:]

[Operator Instructions] And our first question comes from Edwin Mok from Needham.

[Edwin Mok:]

First just housekeeping; on your non-GAAP EPS guidance for the fourth quarter what tax rate are you using to calculate that?

[Tom Liguori:]

15%, Edwin.

[Edwin Mok:]

15%, okay, great, just to clarify that, and then the Semi Cap side based on your commentary it seems to imply constant low to your competitor down quite a bit this quarter sequentially. Any way you can kind of think about how much do you think that is customer digesting inventories [treated] to build up as you just had a record quarter, versus your actual shipment or customer actually down that much. Just kind of give us a sense of those industry and bit of [volatile] color you can provide in sort of first (inaudible) ’16.

[Yuval Wasserman:]

Edwin Q4 decline for us practically is not new news, as was reported to the rest of the market by our customers and our peer group of companies. I think it’s a combination, if you see our Q3, we saw an increase in our semi business and it was increased from Q2 and it was driven mainly by a product mix and the customer mix which means, I see product that saw some investment, and also an increase in our remote plasma source product line. So that’s why we saw those 4% increase quarter-over-quarter. Obviously coming from an increase of 4% in Q3 to a decline in Q4 which as we believe is an air pocket that’s why you saw a revenue drop. As far as we can see in to next year, based on what we hear from analysts, forecasters, end user customers, and some of our customers, we expect to see a recovery within the first half towards the end of the first half in our business, as some of the wafer fab equipment company start buying a component for their anticipated recovery. I think the important thing to note here from our perspective, we continue to operate our business at 20% operating income during the lower end of the trough, right, which is a very powerful matter which allows us at the bottom of the trough to continue to invest in R&D to develop technologies and product for the market as the market recovers. I hope that helps.

[Edwin Mok:]

Yeah, that’s actually a helpful color. On the industrial side, I think your commentary suggest you expect to see some growth this quarter, with a new partner ramping. Industrial we always find a little (inaudible) business gives you a different product, so you guys are selling through this market trend. Any way you can kind of think as well as that, partners, opportunity because you expect that it’s going to be ramped up this quarter, and also that’s [twice] you put in picture any kind of trend, general trend we should think about as per the quarter given that there too might be (inaudible) quarter is there anything that we should expect to benefit from that fully as we go to the new year? Any color you can give there?

[Yuval Wasserman:]

Yeah. So if you look at the industrial markets for us, very diversified, very broad spaces of applications. As we continue to grow our products either the organic products or the products we acquired in 2014, we take them to the new markets. So the growth is going to be driven, let me start with that. The industrial world is more influenced by macro economical forces than the other side of our business. So as a result of that, it can be lumpy and a lot of the influence on the glass market and such is driven by emerging markets and how they invest in infrastructures. But at the same time, we expect to see gradual growth in our industrial world driven by number one, geographical expansion as we take products to markets that were not present before. For example, our hard coating product line is now catching really good momentum in North America for hard coating applications. As I mentioned in the prepared remark, in machine tools hard coating, in aerospace and etcetera. And also we saw some really nice progress in Korea driven by automotive applications and coating for some appliances. So that’s basically geographical expansion. We also see additional growth that will come from practically gaining share as we continue to win new applications with recently acquired product lines, for example, high voltage power supplies and the power control modules that grow in various industries, even in semiconductors.

[Edwin Mok:]

Great, that’s helpful. Last question I have on the margin front. You already mentioned obviously you were going in to down trend, so margin could see a little more pressure here. If I went back to 2013 which is, if I do the math its structured on the similar level on your Semi Cap business before you did an acquisition, your operating margin is actually a little higher right, may be in the top blended average for that period, that’s kind of in the mid-20s right. Is it because just on cost option of this additional new industrial or can you help me out with reaching those two maths.

[Yuval Wasserman:]

I have Tom to respond to the math.

[Tom Liguori:]

Hi Edwin, I think what you’re seeing is, what looked at it in the past didn’t have the shared corporate cost. So actually on an apples-to-apples basis about a year ago we were between 19% and 21% on similar volumes, so actually slightly better.

[Yuval Wasserman:]

The response for that is, that we need to share the shared corporate cost.

[Edwin Mok:]

Shared corporate cost with the inverter business you mean.

[Tom Liguori:]

Right. So now when you look at our financials and when we say AE without inverters which I think is what you’re referring to Edward that includes all the shared corporate cost which we’re on track to reduce.

[Operator:]

And our next question comes from Kris Sankar of Bank of America/Merrill Lynch. Your line is now open.

[Kris Sankar:]

I had two of them, first one, Yuval you kind of mentioned that expected to come in towards the back half or towards the end of second half. I am kind of curious if you look at your guidance for Q4 you are down sequentially 13% or so. Have you ever seen it did this sharp in the past, if so or if not what is different this time around?

[Yuval Wasserman:]

I think as I mentioned before, I think its timing issue. Obviously it’s not different from other companies in our segment in Q4. As you know, it’s a very consolidated industry, we have just a few fab companies buying equipment from just a few suppliers that buy power supplies or component from a small number of key suppliers. So, you would expect to see some lumpiness that is driven by timing and by the product and customer mix. In general, directionally I think we are performing like the rest of the market. As I mentioned before, our Q3 was exceptionally higher than others, and in Q4 we are doing just like others. We expect to see the market see an initial recovery in the first half, and this specific application space related to some of the advanced technology of plasma processes, what we hear from forecasters and some of our customers that the future growth expected in this specific application are going to be double digit CAGR. So we are very bullish about the future, and we are very excited about the product and technology that we have in the pipeline, and we need to go through Q4, perform as well as we do in terms of operating margins and be ready for the ramp in the first half.

[Kris Sankar:]

Got it. And then a quick question, can you guys quantify how much your high voltage revenues were?

[Yuval Wasserman:]

We really do not break our industrial revenue components. We have a very broad mix of products and applications. What I can tell you is that our high voltage product line is one of the focus areas for growth. It’s an area that we expand in multiple industries and we’ll continue to grow in this area both organically and inorganically.

[Kris Sankar:]

Got it, and just to clarify with Tom, you said the buyback has not yet started right?

[Tom Liguori:]

Correct. So we plan to initiate the first phase of that authorization in Q4. The reason it didn’t start is, when we announced it we were in a quiet period and we thought it was best to wait till after the earnings call and get in to Q4.

[Operator:]

And our next question comes from Mehdi Hosseini of SIG. Your line is now open.

[Mehdi Hosseini:]

Looking in to second half of ’16 when the invertor business is completely off your book and some of the typical costs have gone away, how should we think about a pro forma operating margin?

[Tom Liguori:]

Sure that’s a great question Mehdi. So long term our operating margin is the low to mid 20% range, okay. And that’s how you should view it. So even in Q4 we are at the low end.

[Mehdi Hosseini:]

So effectively as we exit this year you are at the low end of that targeted margin and as semi rebounds by mid next year, you should be able to see the margin expansion.

[Tom Liguori:]

Correct. We should see the margin expansion --.

[Mehdi Hosseini:]

What was the cash outflow in Q3?

[Tom Liguori:]

For inverters I assume that’s what you mean?

[Mehdi Hosseini:]

Yes.

[Tom Liguori:]

It was 11.7 million, and for Q4 roughly the same, because what we said was the total for the second half associated wind down will be at the low end of our 20 million to 30 million. So everything with that cash flow is on plan on schedule.

[Mehdi Hosseini:]

And one last question, just pulling back to for semi, and I don’t want to beat down a dead horse but if I just go with the midpoint of your guide range and your semi business would decline by 30% sequentially and 27% year-over-year, and it would reach a low 50 million revenue run rate, which you haven’t really seen since early 2014. So this doesn’t seem to be an air pocket. And I know the question has come up and I wanted to go back, is this really the lack of visibility that your customers are seeing or is it the next year more backend loaded and in that context your question is shipping is going to decline and not going to make an adjustment to their inventory which is adversely impacting here.

[Yuval Wasserman:]

So Mehdi obviously we have clear visibility regarding what will happen in Q4, which is practically we are in the middle of. And we rely on best information we get from our customers and sometimes listening to their customer trying to predict what will happen in 2016. And what we hear is that there is an anticipation for a recovery towards the second half of next year of wafer fab equipment shipment or deliveries where since we are a supplier to the companies that build and deliver equipment, we anticipate that we will see some of the recovery a little bit earlier than our customers. That’s the extent of the visibility we have in some of the critical applications of which we are a key supplier, we expect to see an accelerated growth as the investment will not be driven by capacity but some of the investment may be driven by transition of some of the (inaudible) applications to mass production. But our crystal ball is as good as the information we hear from our customers, their customers and some forecasters.

[Tom Liguori:]

Mehdi just let me clarify the revenue, trying to make sure that we’re on the same thinking. So Q4 without inverters, the midpoint of the guidance 85 million, so it’s down 21%.

[Yuval Wasserman:]

21% not 30%.

[Mehdi Hosseini:]

I was more focusing on semiconductor which would be ticket to 85, you will need to do a [50]. So just to summarize the trend in semi, if this year you saw a front loaded year, your first half was much as strong as second half. Next year maybe is more of a backend loaded, is it how your customers are ramping, is that a fair way of summarizing everything.

[Yuval Wasserman:]

This is the information that we hear from various sources within the industry and this is the extent of visibility that we have Mehdi.

[Operator:]

And our next question comes from Jerome Nathan of Sidoti. Your line is now open.

[Jerome Nathan:]

Your slides kind of indicated wins on the advance packaging, 3D packaging side. Can you talk about your exposure in general to that trend, and the potential there?

[Yuval Wasserman:]

Were you asking about our exposure to 3D.

[Jerome Nathan:]

Packaging, yeah.

[Yuval Wasserman:]

Packaging, okay. Obviously a very important process in 3D is a deep [via] etch in to silicon. And this is a unique process, it’s a plasma etch process where deep holes are being drilled in the silicon substrate to allow for stacking of devices one on top of the other. Obviously as a unique etch process it requires RF power supplies matching that course and adjacent accessories to be used in this specific unique process, and we are a supplier of choice for some of the critical applications related to 3D packaging.

[Jerome Nathan:]

So would you be involved only when its 3D and [interpersonal] or would you be involved even if it’s an interpersonal, because it looks like there are two different ways you can do it.

[Yuval Wasserman:]

Well we are involved in all the processes where plasma chemistry is being used for either etch or deposition. So there’s not a single process that we serve, we serve a broad base of plasma processes and that could be etch, deposition, surface treatment in some non-packaging areas, some applications related to surface modification, atomic layer deposition etcetera. We are a critical supplier of these applications. We are the number power supply supplier for the industry, and as a result of that we are very spread across applications and markets within the semi market.

[Jerome Nathan:]

And my next question was regarding operating expenses. Non-GAAP OpEx for this quarter was around 28 million. How should we think about OpEx on a sustainable basis in ’16 especially after you talked about that 4 million to 5 million in further cost reductions.

[Tom Liguori:]

That’s a good question. So by mid-2016 basically we’ll down 4 million to 5 million on an annual basis or slightly over $1 million a quarter.

[Jerome Nathan:]

Okay. But I’m guessing the 28 includes some OpEx on the inverter side as well, right? So that should go away as well.

[Tom Liguori:]

Yeah. Okay, thank you for clarifying that. So right now we’re reporting operating margin. Once we go in to discontinued mode, you’ll see the full breakout of the R&D and SG&A etcetera. But for modeling right now, the current run rate left slightly over 1 million a quarter is a good way to think about it.

[Jerome Nathan:]

And my last question, pro forma and you‘re probably not spending too much CapEx in an inverter, but how should we think about CapEx and D&A?

[Tom Liguori:]

We look at CapEx basically less than $5 million a year, going forward without inverters.

[Operator:]

And our next question comes from Pavel Molchanov of Raymond James. Your line is now open.

[Pavel Molchanov:]

So it’s now been almost a year since the last acquisition. That was longer period without M&A as I think any of us can remember. Can you talk about the pipeline and whether is this just kind of a temporary blip or are you not seeing a lot of attractive opportunities out there.

[Yuval Wasserman:]

Obviously we were very busy during the last three or four quarters doing two things; number one, integrating three acquisitions we acquired in 2014 as we consolidate two high voltage acquisitions in to one product line, migrating our manufacturing to low cost regions, integrating our G&A and driving significant synergies from these acquisitions. The other area of focus and emphasis was to manage carefully through the wind down of inverter business. So we were very busy integrating acquisitions and divesting in the product line. Obviously we continue to very aggressively looking at a lot of opportunities. We have a very rigorous method of screening and looking at potential acquisitions. We entertain pipeline and our intention as we described during the capital allocation strategy disclosure is to continue to focus on inorganic growth and we definitely are entertaining some targets right now.

[Pavel Molchanov:]

And then on what you guys talked about in September, which is the allocation 70 million M&A, 30% buy back. If we just look at around numbers that implies about $30 million of buyback annually, but your authorization is for 150 over two and a half years, but still a lot more than 30 million annually. So with that 70-30, what’s the time table for those percentages to actually apply? It’s clearly not in the short run right?

[Tom Liguori:]

That’s a really good question. When we look at the authorization, we were also looking at the cash we had available today. And as far as the capital deployment plan we’re seeing, okay going forward then 30% of cash flows a year or two is a share repurchase. That’s the difference. I understand your question.

[Yuval Wasserman:]

So this is a 30 months plan Pavel, and over the next three months since the announcement, the plan is to spend a $150 million on stock repurchase. And as Tom mentioned earlier, we are going to start implementing a strategy in the plan in Q4 this quarter, right. Obviously it’s going to be dependent on various drivers that will be decision points for how much and when. Also we are going to focus on acquisitions as well, and as you heard today, we ended up the quarter with a $199 million cash, and we continue to generate cash as we go forward. So we feel very comfortable that we have a solid plan and a solid strategy.

[Operator:]

[Operator Instructions] And our next question comes from James Covello of Goldman Sachs. Your line is now open.

[Unidentified Analyst:]

Hi, this is [Salsi German] on behalf of Jim. Thanks for letting me ask the question. If [WFE] is flat next year, can you talk about what your expectation might be for the semi business and what you’re expecting in terms of share gains.

[Yuval Wasserman:]

Well the only way that I can answer the question is that we continue to win significant applications in the semiconductor market driven our advanced technology mainly in RF power and remote plasma source technology. We are the number one leader in the market by far, and as such, it allows us to continue to invest in R&D and to continue to pursue additional applications. We expect to see growth coming from recent wins we had all the way from last year through this year in new applications that go in to 3D devices, 3D packaging and [sincere] technology and multi patterning that will require not only additional process steps but also much higher power content in every process chamber. So there’s a compounding effect here that in addition to the growing number of process steps there is more content of power in each chamber and that may explain the anticipation to see the 3D process technology drivers to grow much faster than the general WFE market. I hope I answered the question, I cannot give you percentages or our anticipated share gain. All I can tell you is that we’re doing great, our technology leading and we’ll look forward to growth in 2016 and beyond.

[Unidentified Analyst:]

That’s helpful. And then as a follow-up, you’ve given the target at $2 to $3 in earnings before and is that still the right target should we be thinking about or can you give us any further update on this school or what would need to happen to hit that target.

[Yuval Wasserman:]

This continued to be our aspirational goal, and I can repeat that. We talk about operating between $2 to $3 per share and accumulating throughout accumulatively since the last analyst day between $250 million to $320 million of cash which basically will help us to pursue some of the strategy that were described by Tom earlier. So we reiterate our aspirational goals.

[Operator:]

And I’m showing no further questions at this time. I’d like to turn the conference back over to Yuval Wasserman for closing remarks.

[Yuval Wasserman:]

Thank you everyone for joining us today. Obviously we had very strong Q3 with almost record revenue for semi and service. As the rest of the industry anticipates we expect to see a temporary decline in Q4, which we manage carefully and we expect to continue to deliver profitability at the level that we have demonstrated before, with operating incomes above 20% of revenue which allows us to continue to invest and continue to compete effectively. I’m looking forward to seeing all of you or some of you in the next event that we talked about. And again, thank you very much for participating today in the call.

[Operator:]

Ladies and gentlemen, thank you for participating in today’ conference. This does conclude the program and you may now disconnect. Have a great day everyone.