FEI's CEO Hosts Investor Meeting Conference (Transcript)

FEI Company (FEIC)

Investor Meeting Conference Transcript

June 07, 2012 9:30 AM ET

Executives

Fletcher Chamberlin – Treasurer, Investor Relations and Communications Director

Don Kania – President and CEO

Ray Link – Executive Vice President and CFO

Benjamin Loh – Global Business Operations

Rudy Kellner – Vice President, General Manager, Electronics

Dominique Hubert – Vice President, General Manager, Life Sciences

Paul Scagnetti – Vice President, General Manager, Natural Resources

Trisha Rice – Vice President, General Manager, Materials Science

Gerrit van der Beek – Vice President, Technology

John Williams – Vice President, Corporate and Strategic Marketing

Analysts

Presentation

Fletcher Chamberlin

I think we’d like to get started. So if people could grab a sit that would be great. There are few more people coming in but we’ll manage. We’ll get going pretty soon. So for those of who, I’ve seen lot of names who has -- many people here, we have talked on the phone. I’m Fletcher Chamberlin. I’m the Treasurer and Investor Relations Director and Communications Director for FEI.

Welcome to everyone who is here. We appreciate you are coming and taking the time to listen to our story. We are pretty excited about what we have to say including this morning’s announcement and we hope you enjoy the presence.

And for people on the webcast thank you very much also for listening in. The slides are available in the PDF form on our website under the -- in the Investor Relations section of our website.

So I’m going to -- let me through the agenda briefly. Don Kania will come up in the moment, give you an overview, talk about what we’ve accomplished so far. He is going to turn it over to Ray, who is going to go through our financial performance and use of cash and some of -- talk a little bit more about the announcement we made this morning about the new building in Brno.

Benjamin Loh, who many of you have not met before, I don’t think. He runs our Global Business Operations. He’s going to talk about our global distribution, as well as our Material Science business. Rudy Kellner, Dominique and Paul, you can see they are going to follow up later.

We should talk until about 11:15 or so, maybe 11:30 and then we’ll take questions till little bit afternoon, so everything works as scheduled, there will be a lunch that will arrive around 11:30. After the Q&A about 12:15 you’re welcome to stay and have informal conversation with management till around 1:30.

So and I’d also wanted to point out a couple of things here, Don, Ray and Rudy on that list are based in Hillsboro, Oregon, where our headquarters is. Benjamin is based in Tokyo, although he really lives on airplane. Dominique is based in our operation in the Netherlands and Paul Scagnetti is here from Brisbane, Australia.

We also have three other members of management here, Trisha Rice, runs our Material Science business. She moved from Hillsboro to the Netherlands last year. Gerrit van der Beek is our Vice President, Technology. He is based in the Netherlands and John Williams. He has stacked in the back corner. He is based in Hillsboro. So this is a truly global company. We’ve got people all over the world and today’s -- one of today’s announcements was about the Czech Republic today.

So they -- and I do need to go through the basic Safe Harbor presentation. We are going to talk about the future. This is the same kind of information we put on the quarterly releases, but this is, we are going to do even more futures, the point of today’s meeting is to talk about our future.

So there are things that could change. There are risks. You all know that. But we encourage people to read the risk factors that we published in all our SEC filings.

And with that, I’m going to turn it over to Don Kania, who has been the CEO since 2006.

Don Kania

Yeah. Thank you, Fletcher. So, I’m just going to kick off throughout the day, you guys get to talk to me all the time. You got to talk to people who do the real work later. So I think that’s the exciting part of today. And as Fletcher said, this is not about the quarter. This is about the strategy and things that we’ve done.

So what I put here. This is exactly what we showed last year. This is to kick off slide that I showed last year in terms of what we want to do strategically as a company to grow and become more profitable and that’s been our focus.

So it’s, how we are grow the company. How we are going to expand margins and what we’re going to do with the cash, since we’ve been generating a lot. And I think today, you saw some of the press releases this morning. I think, we’re going to touch on all these. We get accomplishments that we’ve made in these areas which gives us a lot of excitement about the prospects for the company overall.

So what we do. I think we delivered a lot more market solutions, customer solutions, which differentiates us from our competitors and you’ll hear from each of the Vice President about their business, how their providing differentiated solutions, which ultimately, again come in higher margins and higher market share, that’s really what this is about.

We’ve got a record year in ’11. Ray will give a snapshot of that later in terms of the details, but it really was, I actually, I’m usually pretty conservative in words like, that was a transformational year for FEI. We really took a step up in terms of financial performance, global reach, the kind of products and solutions we’re providing to our customers and we just hope to carry that forward from now on.

We made substantial progress as you’ll see in our served available market that’s really been a model for how we are going to grow FEI. We’re going to go find some customers who have money. They are spending in other stuff. We want to spend it on FEI. And particularly in the Life Sciences business you’ll hear more about that from Dominique and how we plan to make that happen overall.

And then on the cash side, we expanded our investment in FEI. We raised R&D spending. We get back to 11%. We kind of out grow, getting closer to our target of 11%. We grew our ability to ramp that up, but we, as we’ve committed to everyone, we are going to continue to shoot for those levels of spending, because that’s what it takes to grow our business and continue to create new markets for ourselves.

Bought a couple of pieces of the business and you’ll hear more about that today from Paul and Dominique about telling aspects, bring those in. And then we just to make sure buybacks last year, at quite relative today’s pricing, quite favorable pricing overall.

So today, I think, I hope you all walk away with our growing confidence in that we can, and our ability to grow this company. I think, we can continue to execute on finding those new customers. And I think you’ll see a lot of evidence for how we are executing along those lines.

And given that confidence, we are clearly realizing we are going to do more manufacturing space overtime. We will go through those, what we are doing in the Czech Republic that we did announced today, investment in the future that will make in a brand new factory in Czech Republic, both consolidating our activities and giving us the ability to expand in our low cost manufacturing location.

And really at the end of this we have clear priorities for what we are going to do with the cash. Number one, invest in FEI, number two, we are going to continue to look at those tuck-in M&A opportunities that I think we do very effectively and as we grow as a company, we are seeing more and more of those, so that looks very attractive to us a way to bring in technology or market knowledge or improve profitability.

Announced the dividend today, so that’s a new thing, a new way for the cash and these are the priorities. And finally, opportunistic buybacks, since we do have a strong balance sheet, we were, when the Board has approve that for us to continue to look at buying back our own shares overall.

And we’ll update our long-term model and we’ve targeted 47.5% gross margin for Q4. We’re going to show our longer term model and how we expect to be able to improve profitability of the company.

On the lower right here you can see the chart in the lower is our view of going forward, what our served available market expansion looks like and we’ve done our best to quantify that as we understand better how as we learn more about new markets like oil and gas, how much we can access, we add that to the chart and this is our projection into the future.

The SAM in ’11 including service, so it’s a little different than we included service we can have that last year, just in case anybody is trying to compare about $2 billion. We think we can add in ’12 over $300 million of served market, so it’s just be glad to served market overall.

And if you looked over the next few years, we think we can grow the served market in 19% cliff and overall business growth should be at least 12%. That’s our targets for growing FEI. We got the, if we can execute against this plan, if we can execute against getting more customers, we should be able to achieve a 12% growth for the company.

So highlights kind of what you’re going to hear today and what we said, let us go quickly through this, you’ll hear the details from the people who actually do the work. In electronics, we really said, things getting smart, great for FEI, the customers are going to need more of what we do, that’s absolutely critical.

And the biggest opportunity there was getting our equipment closer to where the money is made, near line. And what we did, we got record results in the electronic sector last year and we demonstrated with customers the need for near line.

What’s going to happen in the future? This is a cyclical growth business. I know, we are starting to just get more and more investors who don’t come from the capital equipment background. They have more of an Instrumentation or Life Science background, cyclical growth, this is a great business. We love this business. We like it as a third of our business and that’s what we targeted to be. But it’s a very profitable business for us. We are technologically position. So we are not as volatile as the capital equipment business as a whole.

In Life Sciences, we identified a couple of segments, cellular and structural biology, in this last year, we developed some real key relationships with thought leaders like the National Institute of Health to help us accelerate our learning and our credibility in the community overall.

We bought till high performance optical microscopy bringing in some new market for ourselves and we are growing our pipeline from new customers, this NMR, XRD customers out there. So really, really accomplishments.

This year we are going to have some new correlative products, optical plus electrons together. It’s pretty -- we are very excited about that. We think that’s the new big thing in that space. And we’ll get more scientific output from our laboratory collaborations and that’s how these businesses grow, publications get done, people see those value, other people buy into the whole thing.

I tell many of you that this is a fashion driven business just like whether its handbag or shoes, it’s the same thing. If the fashion is set that people can do something new and novel, and that’s important others come, and that’s how this works, that’s how you grow that business.

In Natural Resources, we saw the promise of WellSite, taken our equipment there, last year business grew really well, Paul will talk about that. But more importantly, we did three data sites with real oil and gas companies, and service providers to test our solution at the site, and we learned a lot. And then this year, what are we doing, we can convert that to real business and Paul will go through that in a lot more detail.

And finally in Material Science, this is a global game, and I know there is a lot of concern. I was at Investor Meeting Monday, Tuesday of this week, everybody is concern about Europe and maybe I’ll cut to the chase on Europe right now. Our view of Europe. It’s real simple.

There are three parts to Europe, northern Europe, everything north of France going to be okay, there will be some give and takes, but the spending in that part of the Europe will be fine, southern Europe not so good, eastern Europe, the emerging part of Europe will remain strong, because they are going to invest in the future.

So in the aggregate Europe is going to be okay, probably better than the U.S., which I’ll remind everybody we’ve always said, U.S. has been slow for us over the past say six quarters.

We don’t see that really changing significantly. But I think we have a sense that maybe as some of the budgeting actually settle down, maybe that will actually be a minor upside in releasing some capital because people are being very conservative in the phase of uncertainty.

And then you will hear more about our views of the future. China has been a big thing in Material Science and then in the future really targeting the new customers in Chemistry, adding time resolution to what we do in this space.

So if we look at our SAM expansion, we showed this chart last year. The total market in 2010 we thought for all of these crazy instruments $7.3 billion, electron microscopy at the center $1.8 billion and so that’s kind of our view of the world.

And our goal is, let’s go find some of those customers, like Microscopes, Natural Resources, NMR, XRD, people that already spending money, another peoples products, so we will have new competitors now, that’s our goal is to expand into those spaces.

And so we did a bunch of recent announcement, so we supported that we could double the served available market by ‘14 and then we did a bunch of things, and you’ll hear about all of these.

We bought a couple of companies, we introduce some new products, we tested those in the field, you’ll hear about all the pieces of the pulse that put in terms of execution during the last year that gives us more confidence that will be able to grow in two, three years.

And if we turn in our goal from ’10 to ’11 and say what happened to the market, while the core market grew about 7%, that’s our best estimates, and the total market grew about 7% overall.

And if obviously we grew much more than that last year, so now we take a view, now we take our step back, you saw the stack bar chart, you’ll hear the pieces of puzzle that by 2015 we should be able to access about $4 billion marketplace, served market gives us ample room to grow. I think we’ve got a lot of the right tools to make that happen. We have the balance sheet to go buy some of the tools that we don’t have to make it happen. So that’s really, that’s the FEI growth story in short.

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

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