FEI Co. (FEIC)
Q2 2010 Earnings Call
August 5, 2010 05:00 pm ET
Fletcher Chamberlin - Treasurer & IR Director
Ray Link - EVP & CFO
Don Kania - President & CEO
Noah Huth - Merriman & Company
Jim Ricchiuti - Needham and Company
Mark Miller - Noble Financial
Peter Kim - Deutsche Bank
Patrick Ho - Stifel Nicolaus
David Wu - GC Research
Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the FEI second 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 Thursday August 5, 2010. I would now like to turn the conference over to Mr. Fletcher Chamberlin. Please go ahead, sir.
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 in Oregon are Don Kania, our President and CEO; and Ray Link, Executive Vice President and Chief Financial Officer.
Before we begin our presentation, we have the regular housekeeping matters to take care of. This call contains forward-looking statements. To the extent that we discuss expectations about future corporate performance and guidance, customer orders, revenue growth, performance by product and market, margin improvements, market developments and opportunities, product and technological developments, product introductions and shipment schedules, the effects of future movements and exchange rates, cost savings and restructuring, changes in our effective tax rate of other future events and 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 documents and other filings with the SEC. Investors are urged to read these documents. Copies are available free of charge on the SEC’s Web site, at www.sec.gov, or 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 Web site 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 markets and the business environment.
Thanks Fletcher and good afternoon everyone. I will go through the financial report and guidance in detail and then I’ll turn the call over to Don. We had a good quarter. Orders were very strong for the third quarter in a row, given us a record back log. Gross margins improved by more than 1% from the first quarter and last year’s second quarter.
Revenue was inline the expectation despite of moderating impact of the Euro/Dollar exchange rate that was lower than our guidance assumptions. Operating expenses excluding the restructuring were down.
GAAP EPS was $0.40 and earnings excluding restructuring had a significant one time tax benefit worked the high end of our guidance, ahead of consensus estimates and above both the first quarter and last year’s second quarter. We now have recoded 17 consecutive quarters of GAAP profitability.
Turning now to the details, net bookings for the second quarter were $175.1 million, up 4% from the first quarter and up 11% from last year. That’s an all time record for second quarter and the second highest for any quarter in the company’s history.
Gross bookings were a $185.1 million and were reduced by $9.9 million due to the re-valuation of the backlog for currency movements. The backlog at the end of quarter was $402.5 million, another record high. Don will talk more in a moment about the composition of the bookings and our market outlook.
Net sales of $146 million were down 2% compared with first quarter and up 4% from last year’s second quarter. This average currency rate have been the same in Q2 as in Q1, revenue would have been $5 million higher, up compared with first quarter.
Electronics revenue up $56.9 million or up 38% from the first quarter and up 76% from last year’s second quarter, the highest level since the second quarter of 2007. Book-to-bill ratio for electronics is 1.26 to 1 as we build backlog for electronics in second quarter and are looking for more revenue growth in the second half.
Life science revenue $14.6 million up 10% in the total and was down from last year’s second quarter and from the first quarter. However, orders were strong and the book-to-bill ratio for life science was 1.89 to 1. Research and industry revenue up $37.4 million made up 26% of the total and was down 19% from the first quarter and down 32% from last year’s strong second quarter which included significant shift into our large accounts order.
Service revenue up $37.1 million for the quarter, in level with the first quarter and up 12% from last year’s second quarter. Geographically we continued our broad diversification with North America making up about 32% of revenue for the quarter and Europe making up 31%.
Asia, Japan and the rest of the world continued to have very strong performance making up 37% at second quarter revenue reflecting a strategy expand our presence in those markets over the last few years. As expected gross profit margins improved for the third consecutive quarter to 41% from 39.7% in a first quarter and 38.4% in Q4, last year.