HILLSBORO, Ore., Aug. 2 /PRNewswire-FirstCall/ -- FEI Company reported results for the second quarter of 2006. Bookings and revenue reached the highest second-quarter total in the company’s history, and the backlog of unfilled orders grew to record levels. Revenue and net income increased compared with the second quarter of last year.
Net sales for the quarter ended July 2, 2006 of $113.1 million were up 5% compared to net sales of $107.5 million in the second quarter of 2005. Bookings in the second quarter totaled $134.0 million, resulting in a book-to- bill ratio of 1.18 to 1.00 and a record-high backlog of $243.6 million at the end of the quarter.
Net income on the basis of accounting principles generally accepted in the United States (GAAP) was $4.1 million for the second quarter of 2006, compared with a net loss of $45.8 million in last year’s second quarter and a net loss of $5.2 million in the first quarter of 2006. Diluted earnings per share in the latest quarter was $0.11, compared with a loss per share of $1.36 in the prior year’s second quarter and a loss per share of $0.15 in the first quarter of 2006.
“We returned to GAAP profitability in line with our plans in the second quarter,” said Ray Link, interim CEO and CFO. “Our order rate remained strong and we built additional backlog during the quarter. Bookings were paced by NanoElectronics with growth of 24% compared with the first quarter and 76% compared with last year’s second quarter. Our breakeven level stayed below $100 million per quarter, even as we increased R&D spending to support new product development.”
“Our outlook is for revenue growth, solid bookings and improved earnings in the second half of 2006 compared to the first half,” continued Link.
Restructuring, asset impairment, severance, merger, bond buy-back and related charges in the second quarter of 2006 were $918,000, compared with $12.9 million in the first quarter of 2006 and $17.1 million in the second quarter of 2005.
The latest quarter also included $1.2 million of stock-based compensation expense, included in cost of sales and operating expenses, in accordance with the implementation of SFAS 123R. Stock-based compensation expense is expected to be approximately $1.8 million in the third quarter and $2.1 million in the fourth quarter of 2006.
As previously announced, the company has now organized its business around three major markets: NanoResearch and Industry, NanoElectronics and NanoBiology. Bookings and revenue comparisons for the three market segments and other data are included in the supplementary information attached to this release.
Total cash and investments increased in the quarter to $364.1 million from $254.7 million at the end of the first quarter, primarily as a result of the sale of $115.0 million of 2.875% convertible notes, offset by the repurchase of $4.2 million of 5.5% convertible notes and $11.1 million for the repurchase of 500,000 shares of common stock. Total convertible debt at the end of the quarter was $310.9 million. Cash flow provided from operations for the quarter was $6.8 million. Capital spending for the quarter was $1.3 million, and depreciation expense was $3.3 million. Inventory turnover was 3.2 times in the second quarter, and receivables days sales outstanding were 99 days.
Third Quarter Guidance and Outlook for the Fourth Quarter of 2006
FEI currently expects net sales for the third quarter of 2006 to be in the range of $113 million to $117 million. Bookings are expected to be greater than sales for the quarter, further adding to the backlog. Earnings per share in the third quarter, including stock compensation expense but excluding a net gain on the sale of investments, are expected to be in the range of $0.08 to $0.14 per share, assuming a tax rate of approximately 30%.
For the fourth quarter of 2006, the company expects a significant increase in shipments and improvements in gross margin and earnings. For reasons why the company’s actual results may differ from guidance, please see the section titled “Safe Harbor Statement” below.
Investor Conference Call -- 2:00 p.m. PDT Wednesday, August 2, 2006
Parties interested in listening to FEI’s quarterly conference call may do so by dialing 1-800-257-1297 (domestic, toll-free) or 1-303-262-2193 (international) and asking for the FEI Q2 Earnings call. The call can also be accessed via the web by going to FEI’s Investor Relations page at http://www.fei.com, where the webcast will also be archived. A telephone replay of the call will also be accessible for one month by dialing 1-800-405-2236 (US) or 1-303-590-3000 (international) and entering the access code 11066779#.
About FEI
FEI’s Tools for Nanotech(TM), featuring focused ion- and electron-beam technologies, deliver 3D characterization, analysis and modification capabilities with resolution down to the sub-Angstrom level. With R&D centers in North America and Europe and sales and service operations in more than 50 countries around the world, FEI is bringing the nanoscale within the grasp of leading researchers and manufacturers and helping to turn some of the biggest ideas of this century into reality. More information can be found on the FEI website at: http://www.fei.com .
Safe Harbor Statement
This news release contains forward-looking statements that include our guidance for the third and fourth quarters and the second half of 2006 as well as statements about future bookings, revenue, earnings, stock-based compensation expense, financial results, profitability, backlog growth, gross margins and cost control. Factors that could affect these forward-looking statements include, but are not limited to, the continued growth in nanotechnology markets in general and more particularly, the strength of the nanoresearch and industry, nanoelectronics and nanobiology segments; cyclical changes in the data storage and semiconductor industries, which are the major components of the nanoelectronics market; fluctuations in foreign exchange and interest rates; our continued ability to maintain deferral accounting of hedge transactions; reduced profitability due to failure to achieve or sustain margin improvement or cost reductions; additional stock-based compensation expense from additional hiring; lower than expected customer orders; cancellation of customer orders; failure of customers to adopt new technologies; increased competition and new product offerings from competitors; lower average sales prices and reduced margins on some product sales due to increased competition; failure of the company’s products and technology to find acceptance with customers; delays in shipping new products; changes in the mix of products sold in a quarter; unfavorable business conditions and lack of growth in the general economy, both domestic and foreign; failure to accurately estimate the amounts and timing of restructuring charges; restructurings and reorganizations not presently anticipated; timing of facilities closings, relocations, severance and other charges included in future restructurings, if any; reduced sales due to geopolitical risks; changes in trade policies and tariff regulations; additional research and development expenses; inability to overcome technological barriers; additional selling, general and administrative expenses; unanticipated events affecting the value of investments in private companies; additional costs related to future merger and acquisition activity; and failure of the company to achieve anticipated benefits of current or future acquisitions, including failure to achieve financial goals and integrate the acquisitions successfully. Please also refer to our Form 10-K, Forms 10-Q, Forms 8-K and other filings with the U.S. Securities and Exchange Commission for additional information on these factors and other factors that could cause actual results to differ materially from the forward-looking statements. FEI assumes no duty to update forward-looking statements.
FEI Company and Subsidiaries Condensed Consolidated Balance Sheets (In thousands) (Unaudited) July 2, April 2, December 31, ASSETS 2006 2006 2005 CURRENT ASSETS: Cash and cash equivalents $168,522 $74,835 $59,177 Short-term investments in marketable securities 139,120 113,066 156,049 Short-term restricted cash 27,692 31,103 20,138 Receivables 122,542 110,655 98,330 Inventories 87,070 81,487 84,879 Deferred tax assets 3,446 4,849 5,157 Other current assets 39,417 33,362 32,328 Total current assets 587,809 449,357 456,058 Non-current investments in marketable securities 23,963 33,284 44,602 Long-term restricted cash 4,796 2,411 519 Property plant and equipment, net 59,131 58,531 59,011 Purchased technology, net 6,997 7,553 8,154 Goodwill 41,348 41,417 41,402 Deferred tax assets 2,393 1,343 1,095 Other assets, net 51,835 46,112 45,190 TOTAL $778,272 $640,008 $656,031 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $30,123 $25,074 $26,186 Current accounts with Philips 2,162 1,512 1,964 Accrued payroll liabilities 13,536 13,539 9,205 Accrued warranty reserves 5,656 5,006 5,193 Deferred revenue 47,135 39,828 43,647 Income taxes payable 10,159 8,965 9,021 Accrued restructuring, reorganization and relocation 3,938 6,995 5,274 Other current liabilities 34,188 29,234 31,072 Total current liabilities 146,897 130,153 131,562 Convertible debt 310,882 200,062 225,000 Deferred tax liabilities 2,223 2,101 1,947 Other liabilities 5,607 5,155 5,079 SHAREHOLDERS’ EQUITY: Preferred stock - 500 shares authorized; none issued and outstanding -- -- -- Common stock - 70,000 shares authorized; 33,681, 33,902 and 33,800; shares issued and outstanding at July 2, 2006, April 2, 2006 and December 31, 2005 337,290 342,196 332,125 Accumulated deficit (57,203) (61,302) (56,081) Accumulated other comprehensive income 32,576 21,643 16,399 Total shareholders’ equity 312,663 302,537 292,443 TOTAL $778,272 $640,008 $656,031 FEI Company and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended July 2, April 2, July 3, July 2, July 3, 2006 2006 2005 2006 2005 NET SALES: Products $84,855 $86,624 $80,626 $171,479 $174,419 Service and components 28,293 27,145 26,867 55,438 54,067 Total net sales 113,148 113,769 107,493 226,917 228,486 COST OF SALES: Products 46,793 45,965 51,785 92,758 103,901 Service and components 19,991 20,851 19,047 40,842 38,987 Total cost of sales 66,784 66,816 70,832 133,600 142,888 Gross profit 46,364 46,953 36,661 93,317 85,598 OPERATING EXPENSES: Research and development 14,845 14,001 15,867 28,846 32,054 Selling, general and administrative 24,564 23,818 25,174 48,382 50,487 Amortization of purchased technology 645 641 1,517 1,286 2,859 CEO severance -- 9,324 -- 9,324 -- Restructuring, reorganization and relocation 824 2,245 1,124 3,069 1,124 Asset impairment -- 465 15,944 465 15,944 Merger costs 32 452 -- 484 -- Total operating expenses 40,910 50,946 59,626 91,856 102,468 OPERATING INCOME (LOSS) 5,454 (3,993) (22,965) 1,461 (16,870) OTHER INCOME (EXPENSE): Interest income 3,089 2,244 1,905 5,333 3,719 Interest expense (1,569) (1,658) (3,982) (3,227) (6,489) Other expense, net (526) (383) (993) (909) (1,209) Total other income (expense), net 994 203 (3,070) 1,197 (3,979) INCOME (LOSS) BEFORE TAXES 6,448 (3,790) (26,035) 2,658 (20,849) INCOME TAX EXPENSE 2,349 1,431 19,750 3,780 21,513 NET INCOME (LOSS) $4,099 $(5,221) $(45,785) $(1,122) $(42,362) PER SHARE DATA: Basic earnings (loss) per share $0.12 $(0.15) $(1.36) $(0.03) $(1.26) Diluted earnings (loss) per share $0.11 $(0.15) $(1.36) $(0.03) $(1.26) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 33,770 33,867 33,544 33,819 33,500 Diluted 39,691 33,867 33,544 33,819 33,500 RECONCILIATION OF RESULTS The following table reconciles the specific items excluded from U.S. GAAP in the calculation of Non-GAAP results for the periods indicated below: INCOME STATEMENT Twenty-Six Weeks RECONCILIATION Thirteen Weeks Ended Ended July 2, April 2, July 3, July 2, July 3, 2006 2006 2005 2006 2005 U.S. GAAP income (loss) before taxes $6,448 $(3,790) $(26,035) $2,658 $(20,849) Add back: CEO severance -- 9,324 -- 9,324 -- Restructuring, reorganization and relocation 824 2,245 1,124 3,069 1,124 Asset impairment charges -- 465 15,944 465 15,944 Inventory write-offs and adjustments -- -- 6,416 -- 6,416 Write off of cost method investments -- -- 770 -- 770 Merger costs 32 452 -- 484 -- Stock based compensation expense 1,244 1,250 -- 2,494 -- Bond buy-back costs 62 391 1,796 453 1,796 Non-GAAP (loss) income before taxes $8,610 $10,337 $15 $18,947 $5,201 STOCK COMPENSATION The following table summarizes stock compensation: Cost of sales 202 197 -- 399 -- Research and development 220 228 -- 448 -- Selling, general and administrative 822 825 -- 1,647 -- Total $1,244 $1,250 $-- $2,494 $-- The press release and reconciliation table contain non-GAAP pre-tax net income information that excludes certain significant charges. These excluded items are: -- CEO severance, primarily related to the charges associated with stock based compensation and cash payments (included as a separate line item); -- Restructuring charges, primarily for severance, lease termination and relocation expenses (included as a separate line item); -- Asset impairment charges, primarily related to the company’s changed strategy for enterprise resource planning systems and the company’s semiconductor products (included as a separate line item); -- Inventory write-downs, related to the previously announced closure of the company’s facility in Peabody, Massachusetts and the company’s decision to no longer invest in certain business lines (included in cost of sales); -- Write-off of investments, primarily due to the impairment of cost based investments (included in other income/expense); -- Merger costs, primarily for due diligence costs (included as a separate line item). -- Stock based compensation expense, primarily for previously granted options, due to the adoption of SFAS 123R (included in operating expenses). -- Bond buy-back costs, primarily for the bond issuance (included in other income/expense). We generally use non-GAAP financial measures for assessing the company’s performance against management targets, which do not account for charges or gains of this type, as a basis for making strategic and tactical decisions and as a means to evaluate period-to-period comparison. We believe that use of non-GAAP numbers is important as these figures ignore certain events that could obscure or enhance trends or other factors affecting our business. This is especially true when, as in this quarter, the GAAP financial information includes a number of charges that did not exist in the company’s prior comparable reporting periods. For these reasons, we believe that these non-GAAP measures are also useful to investors. Further, we believe the financial analysts who regularly follow and report on our company or sector exclude items such as these when analyzing our performance relative to our guidance and the performance of other sector participants, and in projecting our future financial results. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, GAAP measures of earnings per share. Our non-GAAP numbers may be different from those of other companies and direct comparison should not be relied upon. FEI Company and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Twenty-Six Weeks Ended Ended July 2, April 2, July 3, July 2, July 3, 2006 2006 2005 2006 2005 NET SALES: Products 75.0% 76.1% 75.0% 75.6% 76.3% Service 25.0% 23.9% 25.0% 24.4% 23.7% Total net sales 100.0% 100.0% 100.0% 100.0% 100.0% COST OF SALES: Products 41.3% 40.4% 48.2% 40.9% 45.5% Service 17.7% 18.3% 17.7% 18.0% 17.1% Total cost of sales 59.0% 58.7% 65.9% 58.9% 62.6% Gross profit 41.0% 41.3% 34.1% 41.1% 37.4% OPERATING EXPENSES: Research and development 13.1% 12.3% 14.8% 12.7% 14.0% Selling, general and administrative 21.7% 20.9% 23.4% 21.3% 22.1% Amortization of purchased technology 0.6% 0.6% 1.4% 0.6% 1.2% CEO severance 0.0% 8.2% 0.0% 4.1% 0.0% Restructuring, reorganization and relocation 0.8% 2.0% 1.1% 1.4% 0.5% Asset impairment 0.0% 0.4% 14.8% 0.2% 7.0% Merger costs 0.0% 0.4% 0.0% 0.2% 0.0% Total operating expenses 36.2% 44.8% 55.5% 40.5% 44.8% OPERATING INCOME (LOSS) 4.8% -3.5% -21.4% 0.6% -7.4% OTHER INCOME (EXPENSE): Interest income 2.8% 2.0% 1.8% 2.4% 1.6% Interest expense -1.4% -1.5% -3.7% -1.4% -2.8% Other expense, net -0.5% -0.3% -0.9% -0.4% -0.5% Total other expense, net 0.9% 0.2% -2.8% 0.6% -1.7% INCOME (LOSS) BEFORE TAXES 5.7% -3.3% -24.2% 1.2% -9.1% INCOME TAX EXPENSE 2.1% 1.3% 18.4% 1.7% 9.4% NET INCOME (LOSS) 3.6% -4.6% -42.6% -0.5% -18.5% FEI COMPANY Supplemental Data Table 1 ($ In Millions Except Per Share Amounts) (Unaudited) Q2 Ended Q1 Ended Q2 Ended 7/2/2006 4/2/2006 7/3/2005 Income Statement Highlights Consolidated sales $113.1 $113.8 $107.5 Gross margin 41.0% 41.3% 34.1% R&D spending $14.8 $14.0 $15.9 R&D (% of sales) 13.1% 12.3% 14.8% SG&A $24.6 $23.8 $25.2 SG&A (% of sales) 21.7% 20.9% 23.4% Net income (loss) - GAAP $4.1 ($5.2) ($45.8) Diluted earnings (loss) per share - GAAP $0.11 ($0.15) ($1.36) Sales by Market Segment NanoElectronics $40.6 $41.2 $43.0 NanoResearch & Industry $36.8 $35.3 $28.4 NanoBiology $7.4 $10.1 $9.2 Service and Components $28.3 $27.2 $26.9 Sales by Geography North America $32.7 $44.3 $33.8 Europe $47.0 $38.7 $47.4 Asia Pacific $33.4 $30.8 $26.3 Bookings Total $134.0 $150.2 $112.8 Book to bill ratio 1.18 1.32 1.05 Backlog - total $243.6 $222.7 $168.6 Backlog - Service and Components $47.0 $44.4 $41.8 Bookings by Market Segment NanoElectronics $51.1 $41.2 $29.1 NanoResearch & Industry $44.7 $56.2 $49.3 NanoBiology $7.3 $19.7 $6.4 Service and Components $30.9 $33.1 $28.0 Balance Sheet Highlights Cash, equivalents, investments, restricted cash $364.1 $254.7 $276.1 Operating cash generated (used) $6.8 ($2.9) ($11.9) Accounts receivable $122.5 $110.7 $116.9 Days sales outstanding (DSO) 99 89 99 Inventory turnover 3.2 3.2 3.1 Inventories $87.1 $81.5 $92.0 Property, plant and equipment $59.1 $58.5 $65.3 Fixed asset investment (during quarter) $1.3 $1.2 $4.7 Depreciation expense $3.3 $3.4 $4.0 Current liabilities $146.9 $130.2 $139.7 Working capital $440.9 $319.2 $316.0 Shareholders’ equity $312.7 $302.5 $314.9 Headcount (permanent and temporary) 1,646 1,646 1,780
FEI Company
CONTACT: Fletcher Chamberlin, Investor Relations of FEI Company,+1-503-726-7710
Web site: http://www.feicompany.com/
