FEI CEO Discusses Q3 2010 Results – Earnings Call Transcript
FEI Company (
)
Q3 2010 Earnings Conference Call
November 2, 2010 5:00 ET
Executives
Fletcher Chamberlain – Treasurer & IR Director
Ray Link – EVP & CFO
Don Kania – President & CEO
Analysts
David Duley – Steelhead Securities
Tom Diffely – D.A. Davidson & Co.
Mark Miller – Noble Financial
Bill Ong – Merriman Capital
Patrick Ho – Stifel Nicolaus
David Wu – GC Research
Jim Ricchiuti – Needham and Company
Hari Chandra – Deutsche Bank
Presentation
Operator
Compare to:
Previous Statements by FEIC
»
FEI Co. Q2 2010 Earnings Call Transcript
»
FEI Company Q1 2010 Earnings Call Transcript
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FEI Company Q4 2009 Earnings Call Transcript
Good evening ladies and gentlemen. Thank you for standing by. Welcome to the FEI third quarter earnings conference call. During today’s presentation, all parties will be in a listen only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, November 2, 2010. I would now like to turn the conference over to Fletcher Chamberlain. Please go ahead sir.
Fletcher Chamberlain
Thank you operator. Good afternoon ladies and gentlemen. As the operator said, I’m Fletcher Chamberlain, FEI’s Treasurer and Communications Director. With me today at our headquarters are our CEO, Don Kania and EVP and CFO Ray Link.
Before we begin the presentation, we have the regular housekeeping matters we have to take care of. This call contains forward-looking statements. To the extent we discuss expectations about future corporate financial performance, future customer orders, planned shipments schedules, performance by product and market, potential margin improvement, market development and opportunities, future product and technological development, the effects of future movement in exchange rate, expected government spending for research tools, planned cost savings and restructuring, our expected tax rate and other future events or plans, those statements are considered forward-looking subject to risks and uncertainties that could cause our actual results to differ from the forward-looking statements made.
These risk factors are cited in today’s press release and FEI’s most recent 10-K, 10-Q and 8-K document and other filings with the SEC. Investors are urged to read these documents. Copies are available free of charge at the SEC’s website at www.sec.gov, on our website, or from FEI’s investor relations department at 503-726-7710. The company assumes no duty to update forward-looking statements set out in those documents or made on this call. This call is the property of FEI Company. It will be archived in the investor relations section of our corporate website at www.fei.com.
I’ll now turn the call over to Ray for a review of the financials, and then Don will comment on our market and business environment.
Ray Link
Thanks Fletcher, and good afternoon everyone. I’ll go through the financial report and guidance in detail and then turn the call over to Don.
We had a very good quarter. Orders were very strong for the fourth quarter in a row, giving us a record backlog. Gross margins improved by 2.5% from the second quarter and over four points from last year’s third quarter. Revenue was in line with expectations and EPS was ahead of expectation.
GAAP EPS was $0.30 ahead of our guidance and consensus with estimates in last quarter’s non-GAAP results. We now have recorded 18 consecutive quarters of GAAP profitability.
Turning now to the details, net bookings for the third quarter were a record $190.1 million, up 9% from the second quarter and up 27% from last year. Net bookings were increased by $15.1 million due to the revaluation of the backlog for currency movement.
Backlog at the end of the quarter was $439.6 million, another record high. Don will talk more in a moment about the composition of our bookings and our market outlook.
Sales of $153 million were up 5% compared with second quarter even though our third quarter is a normally weak period for shipment, and were up from 9% from last year’s third quarter.
Average currency rates were similar to the second quarter levels and had a minimal impact on this quarter’s earnings. However, the rates at the end of the quarter did move significantly and affected our backlog and balance sheet.
The Electronics revenue of $44 million was down from the second quarter but up 39% from last year’s third quarter and made up 29% of the total. The book to bill ratio for electronics was 1.35 to 1 and we expect sequential revenue growth in the fourth quarter.
Life Science revenue of $18.3 million made up 12% of the total and was up 37% from the second quarter and up 49% from last year’s third quarter. Orders were $18.5 million, yielding a book to bill ratio of about 1 to 1.
Research and Industry revenue of $51.2 million made up 33% of the total and was up 37% from the second quarter and down 17% from last year’s strong third quarter. The book to bill ratio for this segment was 1.43 to 1.
Service and Components revenue was $39.6 million for the quarter, up 7% from the second quarter and up 12% from last year’s third quarter.
We continued our geographic diversification with North America making up about 29% of revenue for the quarter and Europe and the Middle East making up 35%. Asia, Japan and the rest of world continue to have very strong performance, making up 36% of third quarter revenue, reflecting our strategy to expand our presence in those markets over the last few years.
Gross margin in the quarter was 43.5%, the highest level in over eight years, and well above our fourth quarter target of 42%. This is the third consecutive quarter of improving gross margin. A number of factors contributed to the margin improvement including higher volume in new products and increasing contribution from our operations and supply chain improvement.
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