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Novellus Systems CEO Discusses Q3 2010 Results – Earnings Call Transcript

Novellus Systems CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript

Novellus Systems, Inc. (

NVLS

)

Q3 2010 Earnings Call

October 29, 2010; 4:30 pm ET

Executives

Richard. Hill - Chairman & Chief Executive Officer

John Hertz - Vice President & Chief Financial Officer

Robin Yim - Vice President, Investor Relations

Analysts

C.J. Muse - Barclays Capital

Timothy Arcuri - Citi

Edwin Mok - Needham & Company

Krish Sankar - Bank of America, Merrill Lynch

Jim Covello - Goldman Sachs

TheStreet Recommends

Gary Hsueh - Oppenheimer and Company

Peter Kim - Deutsche Bank

Ben Pang - Caris & Company

Jagadish Iyer - Arete Research

Mehdi Hosseini - Susquehanna

Patrick Ho - Stifel Nicolaus

Timothy Arcuri - Citi

Satya Kumar - Credit Suisse

Presentation

Operator

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Previous Statements by NVLS
» Novellus Systems, Inc. Q2 2010 Earnings Call Transcript
» Novellus Systems, Inc. Q1 2010 Earnings Call Transcript
» Novellus Systems, Inc. Q4 2009 Earnings Call Transcript
» Novellus Systems Inc. Q3 2009 Earnings Call Transcript

Welcome to the Novellus Third Quarter Earnings Conference Call. As a reminder this call is being recorded October 26, 2010. I would now like to turn the conference over to Ms. Robin Yim of Novellus Systems. Please go ahead.

Robin Yim

Thank you operator. Good afternoon and thank you for joining the Novellus Systems third quarter earnings conference call. With me today on the call in San Jose is Rick Hill, Chairman and Chief Executive Officer; and John Hertz, our Chief Financial Officer is travelling and joining us remotely.

Financial results for the third quarter were released on PR Newswire shortly after 1:00 p.m. Pacific Daylight Time. You can obtain a copy of the news release in the Investor Relations section of our website at novellus.com

Today’s earnings call contains forward-looking statements about Novellus’ business outlook, the future performance of Novellus and our products and forecast of key metrics for the fourth quarter of 2010. Specific forward-looking statements include, but are not limited to our forecasted bookings, shipment volume, revenue, gross margin, operating expense, tax rate and earnings per share. Our expectations regarding the additional stock compensation expense resulting from changes in our stock plan, expectations regarding growth and endeavors in 2011, anticipated global semiconductor utilization levels, general economic trends and trends within our industry and market, and other unanticipated future events.

We caution you that forward-looking statements are projections and expectations regarding future events. They involve risks and uncertainties that could cause actual results to differ materially from the results contemplated, including an inaccurate basis for our financial forecast.

Information concerning risks that could cause actual results to differ materially is contained in today’s press release, and our filings with the Securities and Exchange Commission, including our Form 10-K for fiscal 2009, our Form 10-Qs for the first and second quarters of 2010, and our current reports on Form 8-K.

During our call today, we will make references to non-GAAP financial measures, which exclude certain charges, benefits, and other items, which are detailed in our earnings release. For reconciliation of non-GAAP to GAAP financial measures, please refer to our website at novellus.com and our earnings release and our Form 8-K furnished to the SEC today. We do not provide a reconciliation of the forward-looking non-GAAP to GAAP measures because of our inability to project certain charges, costs and expenses. Forward-looking statements are based on information as of today, and we assume no obligation to update any such statements.

John Hertz will begin today’s call with a review of the financial results for the third quarter. Rick Hill will then discuss the state of the business, followed by guidance for the fourth quarter of 2010, and then we will open up the conference call for the Q&A session.

Now I will turn the call over to John.

John Hertz

Thank you, Robin, and good afternoon everyone. I’m pleased to announce another outstanding quarter where we met or exceeded our guidance and continue to improve operating leverage and maintain strong cash flow generation.

Before I get into the specifics, I’d like to preface my comments by stating that throughout the rest of my remarks I will be distinguishing between GAAP and non-GAAP results. The non-GAAP results exclude a total of $5.1 million of charges primarily related to the consolidation of the Switzerland [ph] Industrial Applications Group manufacturing facility into Germany. I’ll refer to them collectively going forward as other items. A detailed breakout of these items, by type is included in today’s press release.

So with that, third quarter 2010 bookings came in at $407 million, up 6% compared to the second quarter and slightly above midpoint of the guidance range, which was flat to up 10%.

As a result of increased business levels, third quarter shipments were $363 million, up 9% for the second quarter. Shipments also finished near the midpoint of our revised guidance range at $355 million to $375 million. Third quarter revenues were $367 million, up 14% over the second quarter, which came in just above the high end of our revised guidance range of $345 million to $365 million. Our third quarter revenues by geographic region are as follows. United States 22%, Greater China 36%, Korea 31%, Japan 4%, Europe 7%.

Third quarter gross margin on a GAAP basis was 49.1%, excluding $2.5 million in other items, gross margin came in at 49.8% in line with the midpoint of guidance. Third quarter operating expenses totaled $91 million on a GAAP basis, excluding $2.6 million and other items and non-GAAP operating expense were $88 million for the quarter. Our data model and increased our operating margin from 22.8% to 25.8% quarter-over-quarter. Other came in as an expense of $132,000. We had approximately $1 million of net interest income, which was offset by approximately $1.1 million of net, unrealized foreign exchange losses due to currency fluctuations and impact on the U.S. dollars held offshore.

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