Advanced Energy Industries Inc

NASDAQ:AEIS

Earnings Call Transcript 2017-Q4

[Operator]

Good day, ladies and gentlemen. And welcome to the Q4 2017 Advanced Energy Industries Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn the call over to Ms. Annie Leschin, Investor Relations. Ma'am, you may begin.

[Annie Leschin, Head, IR]

Thank you, Operator, and good morning, everyone. Welcome to Advanced Energy's fourth quarter 2017 earnings conference call. With me on today's call are Yuval Wasserman, President and CEO; Tom McGimpsey, Executive Vice President, Interim CEO and General Counsel, as well as Tom Liguori, former CFO and Advisor. By now, you should have received a copy of the earnings release that was issued yesterday afternoon. For a copy of this release, please visit our website at advancedenergy.com.

Before we begin, I'd like to remind everyone that except for historical financial information contained herein, matters discussed on this call contain 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 believes, expects, plans, objectives, estimates, anticipates, intent, targets, 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 provided during this call, including our guidance provided in yesterday's press release. Guidance will not be updated after today's call until our next scheduled quarterly financial release. Aspirational goals and targets discussed on this conference call or in the presentation material, should not be interpreted in any respect of guidance.

And finally, in today’s call, we will be referring to GAAP and non-GAAP results. Non-GAAP measures exclude the impact of non-cash related charges such as stock-based compensation and the amortization of intangible assets, as well as other non-recurring items such as acquisition related costs. A reconciliation of non-GAAP income from operations and per share earnings is provided in the press release table. We will also be referring to earnings slide posted on the Investor Relations section of our website.

And with that, I'd like to turn the call over to Yuval Wasserman. Yuval?

[Yuval Wasserman, President and CEO]

Thank you, Annie. Good morning, everyone, and thank you for joining us for our fourth quarter earnings conference call.

The fourth quarter punctuated an exceptional year of growth for AE and the markets we serve, as we exceeded our expectations. Revenue rose 32% and non-GAAP EPS climbed 24% year-over-year. Rising semiconductor demand and increasing capital intensity solidified and expended AE's role as a critical enabler for more sophisticated devices throughout the quarter and the year.

2017 saw record performance on both our top and bottom lines, demonstrated the ongoing execution of our growth strategy and the leverage in our model. For the full year, revenue grew 39% and non-GAAP EPS surged 53%.

We expanded our industrial business with the acquisition of Excelsys, grew our market share in existing and new applications and increased our service offering. We also executed on our capital deployment strategy with a $30 million share repurchase. We begin 2018 as a larger and stronger company positioned to continue to deliver profitable revenue growth.

2017 was a phenomenal year for our semiconductor business with growth of 42% over 2016. Sales of our power solutions outpaced wafer-fab equipment industry as the investment in 3D NAND capacity continued, while advancement in technology proceeded at unprecedented levels.

For the fourth quarter, revenue grew 28% over the same period last year. These results clearly demonstrate AE's success as the industry leader in precision power, enabling our customers to perform very sophisticated semiconductor manufacturing processes.

Underlying demand in semiconductors continue to be strong. Currently, we see multiple vectors driving market growth, all of which are underpinned by accelerating data usage. The continuing conversion from planar to 3D architecture that is underway, the next generation devices that have more stack layers and advanced technologies, the general need for memory regardless of 3D or planar driven by the conversion of server forms from hard disk to solid state drives and the increasing memory content in mobile devices.

All of these vectors are driving a significant increase in the number of units we ship, the power level of these units and the advanced features required to deliver the performance level needed. These attributes are accelerators for AE. Plasma-based processes have higher power capital intensity than the rest of the wafer fab equipment in this applications, which is why AE continues to outperform.

With the growing complexity and device structures, the industry is moving to new set of tools and architectures needed to edge 32-layer, 64-layer, and 96-layer of 3D NAND with an increasing need to improve yield for which our RF power delivery strategy is critical.

At the same time, DRAM investment is ramping and becoming more application specific. The same is happening with next generation logic devices as fab's and foundries require advanced dual and quad patterning. Additionally, new materials and device geometries need selective deposition to remove our processes like ALD and ALE.

In general, these new device architectures are demanding more to position in its steps in more complex power delivery solutions offering increased control, mixed frequencies, and use of higher power. For example, in the fourth quarter, we ship the first units of our next generation solid-state match.

This product delivers faster tuning time for leading edge sub 10 nanometers ALD and ALE applications and had this broader dynamic operating range for both power levels and frequencies. We believe all these trends will drive incremental investments in growing demand for power delivery solutions not seen before. For these reasons, we anticipate a strong start to 2018.

At 39% growth in 2017, our industrial business had a strongest performance on strongest performance on record, far exceeding our long-term goal of GDP plus 2 to 3 points. Our sophisticated power suppliers are enabling highly engineered materials such as decorative, optical and functional coatings for consumer electronics, while our PV solar cell business continues to make headway in China and acquisitions add to our specialty power business.

As expected, fourth quarter revenue dipped sequentially while customers digested the significant investment in consumer electronic and coating lines made in prior quarters. Also in thin film industrial, we saw an increase in major PV solar projects and gained significant share for solar cell manufacturing equipment as the majority of the large Chinese OEMs selected our power supplies, making AE the number one supplier to this market.

In flat panel display, we expanded our presence in China with capacity increases in the production of mobile OLED devices. Finally, the adoption of new technology in the glass coating market with our Ascent product is resulting in continued upgrades and purchases of new equipment.

In specialty power, requirements for more rigorous safety and inspection processes in global markets are growing and becoming increasingly important, driving the need for highly sensitive analytical tools.

AE's high voltage power solutions providing low noise and ripple combined with small form factor are gaining traction in medical, life science, mass spectrometry and scanning electromicroscope applications for chemical and physical analysis and inspection.

Our low voltage customized power solutions from a recently added Excelsys line are allowing us to expand our presence in the highly regulated clinical instrumentation market. We expect first quarter industrial revenues to be consistent with the fourth quarter, while year-over-year growth continues for market share gains in new products and applications.

Excelsys continues to be strong contributor, and we’ll look to make further inorganic additions in the future as we expand our product portfolio, and provide new market opportunities worldwide.

Our constant innovation is critical to maintaining our leadership semi-market position, growing share, penetrating new applications and expanding our SAM. By consistently investing in the future and leveraging our growing R&D presence close to our customers both in U.S., EMEA and Asia not only are we staying at the forefront of power delivering control technology we are capturing new opportunities to be designed into next generation tool, and secure income from other new sources.

A clear example is the momentum we are seeing in our dielectric etch business where just a few years ago we had very limited exposure. Today our presence in dielectric etch continues to grow rapidly while etch in general is one of the most important and fastest growing areas of our semiconductor business.

In the fourth quarter, we demonstrated our dominant presence in the semiconductor market by winning virtually all of the designs pursued in advanced memory, both NAND and DRAM, and logic applications and deposition and etch.

In particular, we had wins for etch designs on the three different platforms for advanced memory and secured a PECVD win to expand our business in logic with a key customer. This quarter we saw momentum for our power solutions across a broad spectrum of our industrial markets as well. The highlight in thin-film industrial was our multiple wins in solar PV applications in China, primarily with a newer thin platform.

Additionally, we had wins in flat panel display, OLED, and advanced coating for consumer electronics. In specialty power, we continue to gain share and displace competitors. In thermal, we secure wins in solar cell manufacturing in China, and won a design for lithium ion battery manufacturing with our complete certified solution in Korea.

In high voltage, we had wins in applications including mass spectrometry, medical and security. Aided by our recent acquisition, we also won designs in medical equipment for therapeutic and advanced diagnostic, opening up new markets such as low voltage power solutions design for a cardiac imaging.

Our Service business had a third consecutive record year, growing 26% in 2017. Our highly engineered service products and non-break fix strategy are driving market share gains as customers recognize the advantage of AE service to lower the total cost of ownership over the products lifecycle.

During this incredible period of growth in the semiconductor industry, we’ve expanded our capabilities, achieved economies of scale, and improved the responsiveness, flexibility and quality of our services. This combined with opening of a new service and repair facility in Japan, led to another quarter of growth, as we ended the year with a 29 year-over-year increase in the fourth quarter.

For the first quarter, we anticipate modest sequential growth. Over the longer-term, we plan to broaden our capacity, capability and footprint with a highly engineered service products and the addition of facilities in EMEA and Asia to bolster future growth.

In summary, 2017 was an unparalleled year with exceptional growth across all three of our businesses. Industry fundamentals remain strong entering 2018, driven by the destructive technologies taking hold in our end markets. Our commitment to constant innovation is securing our position as a leading provider of Power Solutions, allowing our customers to address multi-year technology inflections.

Building on our performance, the last few years, we've recently raised our three years aspirational goals to greater than $1 billion in revenue, between $5.5 to $6.5 in non-GAAP EPS and over $550 million in cumulative cash generation.

We remain committed to outperforming the markets we serve, while executing on our capital deployment program to acquire and extend our portfolio and return value to our shareholders. I'd 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.

Before I turn the call over to Tom McGimpsey, I'd like to thank Tom Liguori for his commitment and dedication over the last few years in helping me bring AE to where it is today. We wish him the best of luck in his new endeavor.

With that let me turn the call over to Tom McGimpsey. Tom?

[Tom McGimpsey, EVP, Interim CEO and General Counsel]

Thank you, Yuval.

The fourth quarter concludes another exceptional year for Advanced Energy. We reached the high end of our fourth quarter revenue guidance and exceeded our expectations for non-GAAP EPS. Fourth quarter revenues of $179.2 million rose 1.5% sequentially, and 32.4% year-over-year. Non-GAAP operating margins of 34.1% drove non-GAAP EPS of $1.31, an increase of 10.1% over the third quarter and 23.6% an increase of 10.1% over the third quarter and 23.6% year-over-year.

Beginning with the individual end markets for the fourth quarter, semiconductor sales again reached a new record of $123.6 million, up 6.1% from last quarter and 27.6% from last year. Industry demand for more complex tools resulted in increased capital intensity and demand for our power supplies.

Industrial revenue came in at $30.6 million, down 14.7% from its record high in the third quarter, following the expected digestion of capital investment made in advance of coating for consumer devices in prior quarters. Year-over-year, fourth quarter industrial revenues increased by 60.6% are outpacing market performance.

Service revenue for the quarter climbed to $25 million, up 3.4% sequentially and 28.7% compared to a year ago. Having grown sequentially for eight consecutive quarters, service is now a $100 million annual run rate business for us. This quarter non-GAAP operating margin was 34.1% compared to 31.9% last quarter and 30.7% last year.

The increase over the third quarter was due in part to an improvement in gross margin, primarily from lower warranty costs as our products did continue to perform well at customer sites. In addition, SG&A expenses decreased in the quarter due to lower incentive pay associated with the departure of our CFO. As a result of these factors, non-GAAP EPS benefited by $0.03 in the quarter, leading to a normalized EPS of $1.28.

The total year tax expense of $62.1 million includes: one, tax expense of $72.9 million associated with the recently enacted U.S. tax reform; and two, a benefit of $33.8 million associated with the write down of our solar inverter business, which was initially recorded in the third quarter.

Net of these amounts, the total tax year expense would have been $23.1 million, or an annual effective tax rate of 12%. We expect our total U.S. cash tax liability related to the one-time repatriation tax offset by current activity, including the tax benefit realized by the write down of our solar inverter business to be approximately $16 million, payable over the next eight years.

Of that amount, approximately $1.3 million is estimated to be payable in 2018. We plan to continue to evaluate our tax estimates during the 12 month measurement period as additional information and regulatory guidance and interpretation becomes available.

Looking to 2018, we currently expect our annual tax rate to be in the mid-teens. As a result, GAAP loss per share for the fourth quarter was $0.73. Non-GAAP EPS for the fourth quarter was $1.31 per share, compared to a $1.19 in the third quarter and a $1.06 a year ago.

Turning to the balance sheet, in the fourth quarter, we generated $49.6 million of cash from continuing operations. During the quarter, we also executed on our capital deployment strategy by repurchasing $5 million in stock, while continuing to pursue our pipeline of potential acquisitions.

We ended the year with $410.4 million in cash and marketable securities. 2017 was an exceptional year for Advanced Energy, revenues rose 38.7% to $671 million, non-GAAP operating margin improved by 410 basis points to 32.5% and non-GAAP EPS increased 53.4% to $4.77.

We generated cumulative cash flow from continuing operations of $190 million for the year and repurchased $30 million or approximately 422,000 shares as part of our larger share buyback initiative. We also closed the acquisition of Excelsys for $17.4 million to expand our specialty power business.

Given the extraordinary momentum of the markets we serve and the strength of our financial markets we recently updated our three-year aspirational goals to revenue of more than $1 billion, non-cash EPS of $550 million to $650 million and more than $550 million in cumulative cash generation.

With that, let me turn it over to the operator for questions. Operator?

[Operator]

[Operator Instructions] And our first question comes from the line of Edwin Mok with Needham. Your line is open.

[Edwin Mok, Needham]

So my first question - let me just get this all the way, I'm sure a lot of investors ask the same question regarding the 1Q guidance, I think if I did math correctly semi cap is roughly up around 7% sequentially based on your guidance. Large customer, however, said that the shipments move up 20% of that range, right. You always have sort of waited, you can talk about the difference there, anyway you can now give us some color on that?

[Tom Liguori, CFO and Advisor]

I think that you referred to one OEM that has projected 20% growth. The few things that people need to understand is number one, there's always a timing effect related to when we recognize revenue and when our customers recognize revenue, right. And we usually ship our products earlier to our customers for their preparation of their shipments.

Number two, we have more than one customer, and not all customers are equal, in terms of their growth rate and the timing of where they see the significant surge in their business, because not all of them serve the same end users at the same capacity or same share rate.

So, if you look at that the combination of timing and the distribution of our product and our content among all of our customers will dictate our growth rate. We're very constructive on 2018. As we said earlier, even in the last quarter, we expect 2018 to be stronger than 2017. As we said earlier, we expect that Q1 to be stronger than Q2 and we are constructive towards the first half of 2018.

[Edwin Mok, Needham]

On the wins that you talked about, you've all - just to be clear in terms of timing, right. I think, we talk all before but I just wanted to be very clear. On the semi cap wins, you mentioned that you won all the new designs, including 3# platform, which is very encouraging. But realistically those are more like, I mean, it takes some time for wins to turn into revenue, those potentially will be more or like driver for 2019, is that fair?

And then in industrial design, is that a faster turnaround in terms of the timeframe? I'm actually more interested in the contrast between the semi part of the business versus industrial in terms of top win to revenue…

[Yuval Wasserman, President and CEO]

It's a great question, Edwin and the answer is partially, yes. Some of our industrial business is more of a project related business because some of the applications are not as regulated as semi. They do not apply to copy exactly concept. However, in some highly regulated market and applications like medical, defense, aerospace that are as regulated as semi in terms of the appetite for change, these design wins could take as long as semi and has the same stickiness as semi.

So it’s a mix, it’s really a mix. What we see in our industrial, especially in the area of PV solar, we have become the leading supplier with - I would say the majority of the market share in the new capacity added in the world for PV solar cell manufacturing using our existing and new power supplies. Even though each one of these project is a project, we have become the standard and are the go-to supplier for these power supplies.

[Edwin Mok, Needham]

On the industrial side of business, do you guys talk about this consumer win that drove a lot of the approvals in the September quarter? Is that a one-time situation or are you - that you know discussed from a build the capacity that they need and therefore you have put another design for someone else. Or is this ongoing on recurring comp business that you do expect this customer to come back?

[Yuval Wasserman, President and CEO]

We expect additional capital investments in the area of consumer electronic products to continue into the future, in the same profile, we saw before, it's not a continuum, but rather a surge of investment to build coating lines for the specific products.

The interesting dynamic in this market, it's not driven only by capacity, it is driven by new materials, highly engineered materials that are either optical, decorative or functional, that are really critical for the consumer electronic products that we serve. We provide our power supplies to the equipment makers of these thin film coating processes.

And in most cases, our power supplies are perceived as enabling for this highly engineered materials that sometimes require very sophisticated applications, especially in co-sputtering, reactive sputtering, PVD application, in general.

[Edwin Mok, Needham]

Last question I have on the lower warranty costs that benefit you on the gross margin side right. Is that one-time or is that a more of a sustainable scenario, should we start to assume margin can accomplish at this 54% plus going forward?

[Tom McGimpsey, EVP, Interim CEO and General Counsel]

Well, thanks, Edwin. This is Tom. Yes, it is a one-time and we believe that the gross margins will go back to their normal levels.

[Operator]

And our next question comes from the line of Tom Diffely with D.A. Davidson. Your line is open.

[Tom Diffely, D.A. Davidson]

A quick question on just to make up the semi market. If we look at 2018, we think that the growth is coming from DRAM and logic as opposed to 3D NAND last year. What does that mean for Advanced Energy in terms of both relative revenue growth and perhaps margins?

[Yuval Wasserman, President and CEO]

We've created a much agnostic to the device technology. What we see our power supplies are being used for all devices logic, foundry, DRAM and 3D NAND. Obviously with the transition to 3D NAND and also the migration to more complex 3D NAND devices with many more layers, the capital intensity of the power content in those tools increases, because of the need for higher power, more complex power delivery solutions and with that increase in ASP, so our dollar content increases.

At the same time, as the industry – in the planar devices be DRAM, logic and foundry, as the industry migrates to more advanced geometries here again we need to deliver more power supplies for dual and quad patterning, but sometimes more sophisticated power supplies for new applications that are being applied for these devices, such as selective deposition and selective etch, ALD, ALE, all require some of our advanced power supplies.

[Tom Diffely, D.A. Davidson]

And then from a margin point of view, is there any difference at all, is that more customer and project dependent?

[Yuval Wasserman, President and CEO]

In a semiconductor world, we don’t’ talk about projects, we basically – our relationship with our customers are strategic and our pricing discussions with our customers are strategic and based on long term contracts. So in general you can assume that the gross margins of the products that we sell to the semiconductor customers for the different end-product are very similar.

[Tom Diffely, D.A. Davidson]

And then moving over to the industrial side, is there a normal seasonal pattern at this point or is that one that's going to be more lumpy just based on projects that could turn normal seasonal patterns into random acts?

[Yuval Wasserman, President and CEO]

I'm sorry Tom can you repeat the question.

[Tom Diffely, D.A. Davidson]

Yes. Just curious is there a normal seasonal pattern on the industrial side of the business or is that one at this point more kind of lumpy project based?

[Yuval Wasserman, President and CEO]

The latter, you're right. We don't believe that we have the typical seasonality. Our industrial business is a collection of slivers, its many applications, many industries, many customers, each of them could have a unique investment pattern but it aggregate as we have demonstrated.

We continue to grow, in fact we grow faster than we ever expected, with one exception with a very large investment in industrial coating for consumer electronic products that occurred last year.

[Tom Diffely, D.A. Davidson]

And then just finally on the tax you said tax should be in the mid-teens. It sounds like that's pretty much on track to what you're expecting before the tax implications came through last month. I'm just curious is there any implication from the new tax laws on you?

[Yuval Wasserman, President and CEO]

No, it’s in a sense you should expect mid-teens going forward and minimal impact.

[Operator]

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

[Pavel Molchanov, Raymond James]

So, happy to see your solar wins and in that context, I'm sure you've noticed the when you sectioned Tier-1 solar tariff, have you been approached by any overseas solar manufacturers who might be interested in building U.S. you know capacity in response to the tariff?

[Yuval Wasserman, President and CEO]

No, we have not. As you know note please that we are a supplier to the equipment makers for this industry. So, our customers are mainly concentrated in Asia and EMEA. And we provide our power supplies for these customers wherever they build their machines, they may eventually maybe in the future end up sending their machines back to the U.S., but these companies are offshore companies, Chinese companies and European companies. Our power suppliers became enablers for the next generation vintage of PV solar cells, and as such we deliver them wherever they're needed.

[Pavel Molchanov, Raymond James]

One more on the U.S. tax cut, so you know you've made it clear that your effective rate is going to be you know essentially as it has been. Do you have any overseas cash that you would be interested in repatriating, and if so what might the timetable on that be?

[Tom Liguori, CFO and Advisor]

Yes Pavel, about 70% of our cash is overseas. At this point we’ll look and see what happens but currently we will keep it where it’s at and we’ll make the determination going forward.

[Operator]

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

[Mehdi Hosseini, SIG]

Two follow-ups. Yuval on the NIM side how do you see market opportunities for AE evolving as NAND manufacturers adopt a stack of a stack architecture? And then the second question that I have is on M&A front how should we think about the change of leadership at the CFO spot, and how is that impacting your M&A strategy, and is there an update that you can share with us?

[Yuval Wasserman, President and CEO]

Let me start with the first question, Mehdi. It’s a great question. As the industry migrates to more stack films memories as moving to all the way up to the 96 layers, what we see is that the industry will need new set of tools because of the complexity and a challenging geometry and the architecture of the device.

We’re now talking about aspect ratios that become extremely challenging especially in etch world, that requires the use of higher power to be able to etch that deep and high aspect ratio of devices.

In some cases, more strict and critical control over the power pulses and the frequencies, and the combination of these high power, highly-controlled, very nimble and agile power supplies require a new generation of control algorithms and capabilities including metrology, all of which require the development of either derivatives or new power supplies.

As a result of that, our dollar content per chamber of etcher increases with a number of layers that are applied to the memory device.

[Mehdi Hosseini, SIG]

If I may have just a quick follow-up on this topic. How does the dollar content change if let’s say, for illustration purpose, the 96 layer is two stack of 48, would that stack of a stack change the dollar content for you?

[Yuval Wasserman, President and CEO]

Well, the dollar content for us is a function of the power delivered by the power supply, the control systems we apply and the core technologies we developed to make these power supplies able to etch these challenging devices. So what I'm talking about is increasing ASB.

[Mehdi Hosseini, SIG]

And then on M&A, and it was to update and how should we think about getting the CFO.

[Yuval Wasserman, President and CEO]

So we continue to deploy a very disciplined and rigorous approach to selecting target acquisitions, acquiring companies and integrating the companies. The change in CFO is not a change in our strategy. The change in CFO is not a change in the way we are pursuing our M&A strategy. We have a very good pipeline.

We’re very constructive about our ability to do some good - make some great progress in 2018. And we follow our proven discipline process in integrating and acquiring and integrating companies.

Thus far, all the recent five acquisitions we’ve made are profitable, growing, accretive, generating cash and growing in new verticals and new geographical regions as we planned. 2018 is a good year for us as we have created a very fruitful pipeline of target acquisitions. And obviously the previous CFO was part of that process.

[Mehdi Hosseini, SIG]

I just want to make sure I understand that your new longer term EPS target of $5.50 to $6.50 is that contingent on M&A or is that independent of acquisitions?

[Yuval Wasserman, President and CEO]

It does include both organic growth and target acquisitions between $150 million to $200 million over three years period. And if you look historically what happened is, the reason we’re so comfortable with our new aspirational goal is that our organic growth grew significantly faster than our plan as a result of the markets we serve and share gain.

So, this increase in organic growth coupled with the commitment to acquire between $150 million to $200 million of acquired revenue is what allows us to comfortably set the goal to greater than a $1 billion.

[Operator]

And our next question comes from the line of Patrick Ho with Stifel. Your line is open.

[Patrick Ho, Stifel]

Yuval, maybe just as a follow-up on your services business and the growth you've seen there, obviously it's a great annuity business and you detailed how you're growing above industry average rate.

Can you detail aside from the growth in the installed base, which obviously is a big contributor to the services growth. What are other I guess capabilities or what other new offerings, you know, are you guys providing that's driving this growth, you know not only in 2017, but probably over the next few years?

[Yuval Wasserman, President and CEO]

It's a good question, because in addition to the expected growth driven by the increase in our installed base, we have deployed just a few years ago, a strategy to develop engineered service products. And what it means basically, if we go back we go back to our installed base and instead of relying on fixing broken out of warranty broken products, we offer our customers upgrades, retrofits, used equipment, enhancements and offerings that increase the performance of the products, increase the basically the life of the capital investment they made and allow them to reduce the total cost of ownership of the products.

So we're not talking about - we changed the approach in our service business from being reactionary to address customer problem to being proactive and go to the market with new offerings that provide the customers' enhancements of their old vintage legacy products.

[Patrick Ho, Stifel]

And maybe as a follow-up question in terms of the business environment that you're seeing on the semi side of things. I just wanted to make it clear, you expect the strong first half of the year, do you expect the first quarter to be stronger than the second half? Is that more just on the customer timing and when they take your products or is there something I guess you see from a visibility standpoint that gives you that outlook?

[Yuval Wasserman, President and CEO]

Patrick, let me make a correction here. We did not say that Q1 is going to be higher than Q2. We said Q1 was higher or is higher than Q4. We are constructive in Q2 and I mentioned that earlier. We are very constructive in the first half and from our vantage point right now - from our vantage point right now, Q2 does not look like a down quarter.

[Operator]

[Operator Instructions] And our next question comes from the line Dick Ryan with Dougherty. Your line is open.

[Dick Ryan, Dougherty]

I appreciate the clarification because I thought I heard Q1 would be higher than Q2 as well. Could you provide us the contribution from AMAT and LAM in the quarter, and maybe for the year?

[Yuval Wasserman, President and CEO]

Yes, we really don't break it out at this point. You'll see an update in the 10-K.

[Operator]

And our next question comes from the line of Paul Wick with Columbia Management. Your line is open.

[Paul Wick, Columbia Management]

Could you discuss whether there is a change in capital return in light of tax reform and the large amount of cash on the balance sheet.

[Yuval Wasserman, President and CEO]

Yes, there's really no noticeable change on return on cash.

[Paul Wick, Columbia Management]

No plans to increase the share repurchase?

[Yuval Wasserman, President and CEO]

We continue to look at returning cash to shareholders. Right now, our vehicle is repurchasing. We have an approval that, and a plan to continue to spend up to $100 million of repurchase stock and we will continue to do that based on our deployment of cash for acquisitions, the opportunity in the markets to acquire shares.

[Tom Liguori, CFO and Advisor]

And we may do it opportunistically.

[Yuval Wasserman, President and CEO]

And we may do that opportunistically.

[Operator]

And this concludes today's question-and-answer session. I would now like to turn the call back to Yuval for any closing remarks.

[Yuval Wasserman, President and CEO]

Thanks everybody for joining us this morning. 2017 was an amazing year for us. We expect 2018 to be a better year, a year of growth. To make it clear, so people won’t get confused, we expect Q2 to be as good as Q1, and we're looking forward to seeing many of you during the quarter. Thanks a lot.

[Tom Liguori, CFO and Advisor]

Yuval, this is Tom Liguori, I just wanted to say, I thoroughly enjoyed being your CFO. Thank you for the opportunity and I wish you and Tom the best going forward.

[Tom McGimpsey, EVP, Interim CEO and General Counsel]

Thank you very much. Good luck, Tom.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.