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LTX-Credence Corporation

F1Q2011 (Qtr 10/31/10) Earnings Conference Call

November 23, 2010 10:00 AM ET


Mark Gallenberger – VP and CFO

David Tacelli – President and CEO


C.J. Muse – Barclays Capital

Vernon Essi – Needham & Company

Dave Duley – Steelhead Securities

Patrick Ho – Stifel Nicolaus

Tom Diffely – D.A. Davidson

Atif Malik – Morgan Stanley


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Good morning and welcome to the LTX-Credence Corporation’s first quarter Analyst conference call. During the presentation all participants will be in a listen-only model. After the presentation we will conduct a question-and-answer session. (Operator Instructions) At the request of LTX-Credence, this conference call is being recorded. Speakers for today’s call will be David Tacelli, Chief Executive Officer and President; and Mark Gallenberger, Vice President and Chief Financial Officer.

At this time I would like to turn the conference over to Mr. Mark Gallenberger. Sir, you may begin.

Mark Gallenberger

Thank you and welcome to LTX-Credence Corporation’s first quarter fiscal year 2011 conference call for the period ended October 31, 2010. Joining me on today’s call is Dave Tacelli, CEO and President.

After my introductory comments, Dave will discuss the company’s performance for the first quarter and discuss the business outlook. Then I will provide further detail on the company’s financial performance during the first quarter as well as provide guidance for the second quarter of fiscal year 2011. We will take your questions after our prepared remarks.

A replay of this call will be made available through December 23rd by dialing 800-642-1687, and the pass code is 22684263, or you can visit our website at As a reminder, the only authorized spokespeople for the company are Dave Tacelli, Rich Yerganian and myself. Also LTX-Credence will be participating in two upcoming investor conferences. On December 9, we will be presenting at the Barclays Global Technology Conference in San Francisco and in the second week of January we will be presenting at the Needham Growth Conference in New York.

Now, for our Safe Harbor statement. During the course of this conference call we may make projections or other forward-looking statements regarding LTX-Credence’s business outlook or the future financial performance of the company. We wish to caution you that these statements, such as projected revenues, net income, earnings per share, operating expenses, gross margin, cash flow and non-GAAP measures as well as breakeven targets are only predictions and that actual events or results may differ materially.

The guidance provided during this call represents the company’s estimates as of this day and the company assumes no obligation to update this guidance. Please refer to our Safe Harbor statement in our earnings release for more information on important factors that could cause actual results to differ.

Now onto the call. Dave?

David Tacelli

Thank you Mark, and good morning everyone. I want to start today by saying I won’t be offering any comments in my prepared remarks regarding our announcement last week to merge with Verigy. We believe in the positive impact in this merger and what it’ll have for the combined business on it shareholders. But for now the next step is to continue to run LTX-Credence until the merger closes. Until that time, there is not much more to add on what we discussed on the conference call last week.

I’d like today to focus on the outstanding results for our first fiscal quarter, our recent ASLx product introduction and our view on how we see this cycle playing out. There are three key components to the strategy for our company. The first continuously improve on the business model that we’ve designed for a cyclical business. To aggressively see growth opportunities through competitive takeaways, and finally a strong pipeline of new cost optimized products designed with innovative technology with the ultimate goal of lowering our customers cost of test.

First, a review of our quarterly financial results. Revenues were up 3% over the previous quarter at $76 million we achieved the highest revenues for any single quarter since the merger of LTX-Credence. But while revenues were at the low-end of the range, all other financial metrics including EPS exceeded the high-end of the range. The business model continues to perform better than expected with another strong quarter of industry leading gross margin performance.

Our guidance for the second fiscal quarter reflects a softening in the market that many had been predicting for some time now. We have been consistent in our comments on the business cycle and have confidence in the independent market research firms that forecast a positive business environment over the next several years. We have also been consistent in commenting that not every quarter will be up until the right due to the possible effects of seasonality or capacity absorption causing a short-term pullback in business levels.

We believe we’re at one of those points in this cycle. There is no indication that this is anything more than a combination of seasonality and a small component of capacity absorption. The long-term fundamentals of our industry and our business remains strong. We remain highly confident that our business model can continue to generate positive EBITDA throughout an entire business cycle. The general guideline we’ve been communicating to our investors is that for every incremental revenue dollar above breakeven about $0.60 should go to the gross margin line and about $0.50 of that should drop to the bottom line.

Because of this variable cost structure we’ve put in place, we believe this formula is valid for both periods of growth and decline. On the business development front, we’ve made significant progress with several of the competitive situations I mentioned on the last conference call. We believe initial revenues from at least one of these opportunities will occur in the current quarter. These new business opportunities are in a combination of potential new customer wins and our core target markets as well as additional expansion into our new market initiatives.

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