Veeco Instruments Management Discusses Q2 2012 Results - Earnings Call Transcript

Veeco Instruments (VECO)

Q2 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Debra Wasser - Senior Vice President of Investor Relations & Corporate Communications

John R. Peeler - Chairman, Chief Executive Officer and Member of Strategic Planning Committee

David D. Glass - Chief Financial Officer and Executive Vice President

Analysts

William Ong - B. Riley & Co., LLC, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Noah Kaye - ThinkEquity LLC, Research Division

Colin W. Rusch - ThinkEquity LLC, Research Division

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Olga Levinzon - Barclays Capital, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Carter B. Shoop - KeyBanc Capital Markets Inc., Research Division

Edwin Mok - Needham & Company, LLC, Research Division

Farhan Ahmad

William C. Peterson - JP Morgan Chase & Co, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

John Shen

Stephen Chin - UBS Investment Bank, Research Division

Aaron Chew - Maxim Group LLC, Research Division

David Duley

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Veeco Second Quarter 2012 Earnings Conference Call. Today's call is being recorded. For opening remarks, and introductions, I would like to turn the conference over to Senior Vice President of Corporate Communications and Investor Relations Ms. Debra Wasser. Please go ahead.

Debra Wasser

Thank you, operator, and thank you, all, for joining us today. Our earnings release was distributed at 4:00 this afternoon and is available on our website. Also posted on our site is the PowerPoint version of today's results. This call is being recorded by Veeco and is copyrighted material. It cannot be recorded or rebroadcast without Veeco's expressed permission. Your participation implies consent to our taping.

To the extent that this call discusses expectations about market conditions, market acceptance and future sales of the company's products, future disclosures, future earnings expectations or otherwise make statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.

These factors are discussed in the Business Description and Management's Discussion and Analysis section of the company's report on Form 10-K and annual report to shareholders, as well as in our subsequent quarterly reports on Form 10-Q, quarterly reports on Form 8-K and press releases. Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements made.

During this call, we may address non-GAAP financial measures. Information regarding such non-GAAP financial measures, including reconciliation to GAAP measures and performance, is available on our website.

I'll now turn over the call to John for opening remarks.

John R. Peeler

Thanks, Deb. We did well in Q2. Revenue was $137 million. EBITA was 20 million, gross margin at 45%, and EPS was $0.37. And all of these were right in the middle of our guidance range. Additionally, cash grew to $540 million. And we're on track to deliver full year revenue of $520 million to $560 million, and that implies an EBITA of 13% to 16%.

We continue to perform well, but as we all know, we're living through a downcycle. And what Veeco has done really well was to plan for that downcycle. Over 4 years ago, we started building our operations strategy around a variable cost structure. It took a lot of planning and hard work, but it's really paid off. The fact that we can go from $300 million of revenue in an upcycle quarter to a $137 million of revenue in a downcycle quarter and still make 15% EBITA shows that we did a great job managing our cost.

Let's look at some macroeconomic trends. When people go home and turn on the TV at night, they are likely to see a story about an insolvent country in Europe or the growth slowdown in China or the delay in economic recovery in the U.S. And all of this has driven consumer confidence down, and consumers aren't spending. Our customers see that, and they're pulling back the throttle.

Our Q2 orders were weak at $103 million, and MOCVD orders bumped along the bottom at $70 million, and Data Storage and MBE both trended down.

On the other hand, current quoting activity and capacity levels at our customers leads us to believe that orders will improve gradually as we go to the second half of the year. But right now, it feels like customers have no real drive to step on the gas. Before the LED market specifically, it's a mix bag of both positive and negative signs. On the positive side, fab utilizations continue to go up. For example, in Taiwan, they're about 80% to 95%. In Korea, they're 65% to 80%. And in China, where we have a lot of focus, overall fab utilization is under 50%. But what most people don't know is that the top players in China are at much higher utilization levels.

Other positives include the continued reductions in LED lightbulb prices and the rapid improvement in LED lighting designs and packaging. On the negative side, poor consumer confidence is impacting TV and consumer electronic sales, and our customers are very cautious about capacity expansion.

Let's turn to Data Storage. We have record revenue in Q2 due to the Thailand flood recovery efforts. But the hard disk drive manufacturing capacity is now back to pre-flood levels, and our customers are conservative on CapEx spending. And this brought weak Q2 orders. We expect some pickup in the second half but no dramatic changes.

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