FEIC

FEI Company (FEIC)

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FEI Company (FEIC)

Q1 2010 Earnings Call Transcript

May 4, 2010 5:00 pm ET

Executives

Fletcher Chamberlin – Treasurer & IR Director

Ray Link – EVP & CFO

Don Kania – President & CEO

Analysts

Bill Ong – Merriman & Co.

David Luke – GC Research

Hari Chandra – Deutsche Bank

Satya Kumar – Credit Suisse

Jim Ricchiuti – Needham & Co.

Patrick Ho – Stifel Nicolaus

David Duley – Steelhead Securities

Mark Miller – Noble Financial

Ben Catholic – First Investors

Robert Weaver – Forest Investments

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the FEI first quarter earnings conference call. During today’s presentation, all parties 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, Tuesday, May 4, 2010.

I would now like to turn the conference over to Mr. Fletcher Chamberlin. Please go ahead, sir.

Fletcher Chamberlin

Thank you, Damien. Good afternoon, ladies and gentlemen. As the operator said, I'm Fletcher Chamberlain, 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.

Before we begin our presentation, we have the regular housekeeping matters to address. This call contains forward-looking statements. To the extent that we discuss expectations about future corporate performance and guidance, customer orders, revenue growth, performance by product and market, margin improvement, market developments and opportunities, product and technological developments, product introductions and shipment schedules, the effects of future movements and the exchange rates, cost saving, timing and expensive restructuring, changes in our effective tax rate and 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 risk factors are cited in today's press release and 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 are available free of charge on the SEC's Web site, at www.sec.gov, or on our Web site or from Investor Relations department at 503-726-7710. The company assumes no duty to update forward-looking statements set out in these 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 Web site at www.fei.com.

I'll now turn the call over to Ray for a review of the financials, and then Don will comment on our markets and the business environment.

Ray Link

Thanks, Fletcher. Good afternoon, everyone. I will go through the financial report and guidance in detail and then I’ll turn the call over to Don.

We had mixed results for the first quarter. Orders were very strong and gross margin improved by 130 basis points. Revenue was in line with expectations after adjusting for the effective currency changes. On the other hand, operating expenses were higher than planned and GAAP operating income was affected both by restructuring and our previously announced unusual bad debt write-off. Excluding the bad debt charge, earnings were within our guidance range. We now have recorded 16 consecutive quarters of GAAP profitability.

Turning now to the details, net bookings for the first quarter were $167.9 million, up 3% from the fourth quarter and up 29% from last year, an all-time record for first quarter and are third highest in company history. Gross bookings were $175.6 million and they were reduced by $7.7 million due to the revaluation of backlog for currency movement. The euro/dollar rate finished the quarter at $1.36 compared with the $1.43 at the end of the fourth quarter and that reduced the backlog value.

Even with the reduction the backlog at the end of the quarter was 373.4 million, another record high with approximately 90% scheduled for delivery within a year. Don will talk more in a moment about the cap position of our bookings and our market outlook.

Net sales of $149.1 million were down 3% compared with the fourth quarter and up 5% from last year’s first quarter. The seasonal revenue decline in the fourth quarter to the first quarter is not unusual for us. This year 4.1 million of the 5.4 million sequential declines were due to the effect of the currency rate changes during the quarter. Without the currency rate change we would have been well within our guidance range. Our guidance resume a euro/dollar rate of the $1.45 and the average rate for the quarter was $1.39.

Electronics revenue of $41.3 million was up 25% from the fourth quarter and up 41% from last year’s first quarter. Electronics revenue suffered less than the semiconductor capital industry as a whole in the downturn and we’re now seeing a similar upturn to other equivalent companies.

Electronics made up 28% of revenue in the current quarter compared with 41% at the cyclical peak second quarter of 2007 and up from the 21% level we recovered some since the fourth quarter of 2008. We also built backlog in Electronics in the first quarter and look for more growth as 2010 progresses.

Life Science revenue of $24.1 million, 16% of the total and was up 15% from last year’s first quarter and down 17% from the fourth quarter. We continue to expect significant quarter-to-quarter variability in Life Science bookings and revenue in the context of significant long run growth for FEI.

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