FEI's CEO Presents At Bank Of America Merrill Lynch Industrials And Materials Conference (Transcript)

FEI Company (FEIC)

Bank of America Merrill Lynch Industrials and Materials Conference Call

September 5, 2012 11:00 am ET


Don R. Kania – President and Chief Executive Officer


Unidentified Analyst

[Call Starts Abruptly] The Bank of America Merrill 2012 Industrials and Materials Conference. It’s my great pleasure today to introduce FEI Corporation and speaking today for the company will be Don Kania, President and CEO of the company.

FEI is a $2 billion market cap company. A little bit different from entering companies presenting here, we’re global leader in simplifying sophisticated scientific instruments namely electron microscope that are used in the electronics industry, they’re used in Material Sciences doing a lot in terms of natural resources, also used heavily in Life Sciences research. there is a guy that helps everybody design the materials that are being talked about here.

And with that, I’ll turn it over to Don.

Don R. Kania

Thank you, and good morning everybody, thanks for coming today. And the usual Safe Harbor statements apply for us. So let’s get in the meat of it. So we make very, very sophisticated microscopes, and for the purposes of this discussion, it’s probably pretty much all you need to know. But we’ve been working quite aggressively on not just selling the microscope to a customer, but selling the solutions to customer in a market orientation of the company, which has been evolving over the past few years, which has been quite successful for us.

So how you make the samples that go into the microscopes, which are shown in the middle here? and then what you do with the data that comes out, so you can get useful information, so that the customer can create value for himself with what we do.

So what’s the investment thesis overall? Technology leadership, workflow that has provided solution to the customer, has led to market share leadership; we are the market share leader in this segment. It’s a secular growth opportunity, I think a couple of very important reasons, we’re diversified geographically, and there is plenty of opportunity in the world, and the world is a big place, and that’s a wonderful thing. And as well as we have diversified market, so we crosscut, and I’ll talk about each of those, a variety of different customers.

And at the same time, we have a strategy to expand our served available market, and to exactly double it by 2015. And in these uncertain economics times, both the diversity of markets, geographies and the fact that we’re going after existing markets; we don’t need markets to grow for us to have the opportunity for FEI to grow. We’ll provide a better mousetrap into new segments and I’ll highlight that.

So I think, we have the opportunity in these times our uncertainty to be more robust. We have been expanding our margins, we got a good track record with that, and we have plans to continue that in the future that comes with better products, better operations; we’ve done some acquisitions, which will improve that as well. And then we’ve had significant cash generation, we started to pay a dividend happened in the last six weeks or so. And we do, do opportunistic buybacks with our cash. So we’re trying to be more efficient with our balance sheet overall.

As this outline of the growth, we go back to ‘98, we had bookings have been grown about 12% in compound annual growth rate, you see some volatility in that. in the near-term, we’ve also had a good track record of continuing to grow, and as you can see if you look at the period of the great recession, we didn’t suffer a significant amount during that period. And I think that speaks to the robust of our diversified market geographic model for the company.

If you look by segment, and let’s go through briefly what the segments are. Electronics, think semiconductor customers, think Intel, it’s about a third of our business, and we like it at that type. I’d like to emphasize lot of people who often look at noncyclical businesses are little bit scared buyback, and our thesis is within that segment we’re cyclical growth, our opportunity has been growing, and I’ll show you some data on that.

We have a certain call Material Science, think college professors, researchers, and industrial companies that looking material, and I want to understand where the items are, what the items are doing in that information, the capability we provide them with. And then Life Sciences, we provide a similar capability to researchers think National Institutes of Health and universities primarily some technologies, medicals of customer of us. Well we’re providing them with a capability to image in three dimensions, interesting pieces of the biological machinery of life.

And then finally have a large service and components business, two of our sophisticated, they’re complicated average stone crisis of $1 million to give you scale, and we can provide the proprietary service capability for that, a modest gross margin business, but highly profitable business overall.

If you look by the bookings by geography, I want to focus on the charts on the bottom. We are about third USA and Canada with the trend lines. Europe plus, which I have been placed include South America, the way we report right now. It’s been about core to a third of our business, and what’s been that the big driver in the past three years, and I’ll show a little bit more on that is the growth of the emerging markets particularly Asia and specifically China over the past few years. China represents about eight of FEI’s business.

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