LTX-Credence (LTXC)

Q4 2011 Results

August 31, 2011 11:00 a.m. ET

Executives

David Tacelli – President, Chief Executive Officer

Mark Gallenberger – Vice President, Chief Financial Officer

Analysts

Patrick Ho – Stifel, Nicolaus

CJ Muse - Barclays Capital

Christian Schwab - Craig Hallum Capital

Vernon Essi – Needham & Co.

David Duley – Steelhead Securities

Tom Diffely – D.A. Davidson

David Wu - Indaba Global Research

Presentation

Operator

Good morning and welcome to LTX-Credence Fourth Quarter Analyst Conference Call. [Operator instructions.] 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, please go ahead.

Mark Gallenberger

Thank you, operator. Welcome to LTX-Credence Corporation’s Fourth Quarter Fiscal Year 2011 conference call for the period ended July 31, 2011. 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 fourth quarter and discuss the business outlook. Then I will provide further detail on the company’s financial performance during the fourth quarter as well provide guidance for the first quarter of fiscal year 2012. We will take your questions after our prepared remarks.

A replay of this call will be made available through September 30 by dialing 855-859-2056 and the pass code is 91228808. Or you can visit our website at www.ltxc.com. As a reminder, the only authorized spokespeople for the company are Dave Tacelli, Rich Yerganian, and myself.

Also, the company will be presenting at the Kaufman Brothers conference in New York City on Thursday, September 8, at 11:30 in the morning.

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 or loss, earnings or loss per share, operating expenses, gross margin, cash flow, non-GAAP measures, and 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, on to the call. Dave?

David Tacelli

Thank you Mark, and good morning everyone. On today’s call, in addition to providing some detail on our fourth quarter and fiscal year performance, I’ll also review two of the market segments we’re focused on, microcontrols and handsets.

Before I talk about the financial performance of the company and the two individual market segments, I’d like to provide some commentary on the current business environment.

Our industry as a whole has clearly hit a soft patch in the current business cycle. As our guidance for the first quarter indicates, there is a slowdown among our customers, both IDMs and OSATs, driving them to scale back capital purchases. This is not an unusual event for our industry, as all ATE suppliers rely on unit volume expansion as the key driver for business growth. When our customers’ growth either stagnates or declines, it has a dramatic impact on our industry.

That is why at LTX-Credence, we have built a flexible business model. Our goal is to make our cost structure as variable as possible so that when an industry slowdown does occur, we can maintain our aggressive approach at developing new products and gaining additional market share.

Once the integration of LTX and Credence was completed, the model has been proven to generate strong profits and cash. Since our first quarter of fiscal year 2010, the company has generated over $120 million of EBITDA. As we have always maintained, visibility for our business is limited to the very near term, so forecasting the direction of the business beyond this window is extremely difficult.

An encouraging sign for us is that utilization of our equipment at a large number of significant accounts remains relatively high at more than 80%, which means that any upside in demand would translate into immediate orders to us. Of course, if that were to occur, our outsource manufacturing model puts us in a strong position to react quickly.

Industry conditions aside, we remain keenly focused on winning new customers. We expect these new wins to translate into market share gains and revenue growth for LTX-Credence. Over the last several quarters, we have made solid progress at transitioning some of these new accounts from the development stage into volume production. The number of new opportunities remains high and I see additional wins in volume purchases from these customers driving our top line growth.

So how did we do in the fourth quarter? Product revenues were 7% higher than they were in Q3, driven by strong growth in our application-specific and power management market segments. Product sales for application-specific devices grew more than 70% quarter-over-quarter. Our RF power amplifier business was flat compared to Q3, but the mix of systems heavily transitioned to our PAx tester, which has now become our primary revenue generator in that market segment.

Business related to handsets showed the most weakness, declining by 60% quarter-over-quarter. We expect this segment to begin building positive momentum as smart phone suppliers introduce new phones for the holiday season.

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