FEI Company ( FEIC)

Q3 2011 Earnings Call

October 27, 2011 5:00 pm ET


Fletcher Chamberlin – Treasurer & Communications Director

Raymond A. Link – Executive Vice President and Chief Financial Officer

Dr. Don R. Kania – President and Chief Executive Officer


Patrick Ho – Stifel Nicolaus & Company, Inc.

Bill Ong – Ticonderoga Securities

James Ricchiuti – Needham & Co.

Mark Miller – Noble Financial Capital Markets

Thomas Diffely – D. A. Davidson & Co.



Welcome to the FEI Third Quarter Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, October 27, 2011.

It is now my pleasure to introduce our host for today, Mr. Fletcher Chamberlin. Please go ahead.

Fletcher Chamberlin

Thank you, Diane. Good afternoon, ladies and gentlemen. As Diane said, I am Fletcher Chamberlin, 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.

We’ve again posted some slides under the Events & Presentations section in the Investor Relations part of our website, fei.com. We will refer to these slides during today’s call. We hope that having these slides will make it easier for you to listen to our comments rather than just focusing on getting the numbers recorded.

While you are pulling up the slides and before we get into the presentations, we also have the regular housekeeping matters to address. This call contains forward-looking statements. To the extent that we discuss expectations about future corporate financial performance and goals, future customer orders, performance by product and market, the outlook for margins and revenue, market developments and opportunities, future product and technological developments, the effects of future movements in exchange rates, future hiring plans, expected government spending for research tools, our expected effective tax rate or other future plans and events, these 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 and other risk factors are cited in today’s press release on slide two of the slides posted on this call and in 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 of the SEC filings are available free of charge on the commissions website at sec.gov or on our website or from our Investor Relations Department at 503-726-7710.

The company assumes no duty to update the 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 brief review of the financials and then, Don will comment on our markets and the business environment.

Raymond A. Link

Thank you, Fletcher and good afternoon everyone. We had another very good quarter. Revenue was a record for the third quarter, our second highest ever in line with our guidance and up 34% from last year’s third quarter. Orders were solid at $186 million net of the currency impact on backlog and above $200 million at constant exchange rates and above the high end of our guidance range.

Gross margin was in line with our forecast and operating margins at 17% or up 5.5 percentage points from a year ago. EPS was the highest in our history and ahead of our guidance and consensus estimates. All of the growth in 2011 has been organic with no additions from acquisitions. We have now recorded 21 consecutive quarters of GAAP profits demonstrating consistency over the long-term. We returned $15 million to our shareholders during the quarter with open market share repurchases and net cash has increased since the beginning of the year.

Gross bookings for the quarter at constant currency rates from the end of the Q2 were $201.1 million and net bookings including the downward revaluation of the backlog and quarter end currency rates were $186.4 million.

At the end of Q3, the euro was $1.34 compared to $1.45 at the end of Q2. The weaker euro reduces the value of our euro denominated backlog when converted back to dollars.

When we look at our orders on a constant currency basis, orders for the second and third quarters were essentially equal. The good news is that a weaker euro also reduces our cost of good sold so that while our total backlog is down in dollar terms, the gross margins in backlog increases. In addition, new orders in Q3 continue to be booked with a higher gross profit margin than earlier quarters.

The backlog at the end of the quarter was $440.1 million and represents over six months of backlog at our current revenue run rate.

Moving to slide four, total revenue growth was lead by both Research and Industry and Life Sciences. Research and industry revenue was $74.4 million making up 36% in the total. It was up 35% in the second quarter and up 45% from last years third quarter. That’s the highest quarterly total ever for this segment. The book-to-bill ratio of research and industry was 1.02.

Life sciences revenue of $30.2 million was also hit past quarterly total ever and made up 50% of the total. It was up 13% in the second quarter and up 65% from last years third quarter. For the first nine months of the year, life science from revenue is up 42% from a comparable period a year ago. We expect to have over $100 million in life science revenue this year.

Read the rest of this transcript for free on seekingalpha.com

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