Coherent Corp (COHR) 2007 Q1 法說會逐字稿

Good day. Welcome to our 2007 earnings results conference call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer of Coherent, Helene Simonet. Please go ahead.

Thank you. Good afternoon, and welcome to our first quarter fiscal 2007 conference call. As a reminder, the special committee of our Board of Directors has not yet concluded their independent review of the company's historical stock option practices and related accounting. At this time, Coherent has not determined if it needs to record any noncash adjustments related to prior stock option grants or to restate any of its previously-filed financial statements. The company will provide only select financial information until the special committee completes its review.

On today's call, I will provide certain financial information and then John Ambroseo, our President and CEO, will provide a business and operational overview. We will also limit our forward-looking financial guidance for the current quarter to select financial information. Please remember, any guidance and any statements in today's conference call pertaining to future plans, events or performance are forward-looking statements that involve risks and uncertainties, and actual results may differ significantly.

Factors that could cause the actual results to differ significantly include risks and uncertainties, including risks associated with general market and business conditions, currency adjustments, contract cancellations, manufacturing risks, competitive factors and uncertainties pertaining to customer orders, financial products and services, development of markets for the company's products and services, the final conclusions of the special committee and the timing of such conclusions concerning matters relating to the company's stock option grants and other risks as identified in the company's SEC filings. Listeners are encouraged to refer to the risk disclosures described in the company's registration statement on Form S3 and the reports on Forms 10-K, 10-Q and 8-K, as applicable.

Let me also remind you, that the full text of today's prepared remarks, which will include references to historical bookings and sales by market, will be made available through the Coherent Investor Relations website. A replay of the webcast will be made available for 90 days following the call.

Our overall book-to-bill for the quarter was .9221 and our backlog at the end of Q1 '07 remains strong at $189.8 million. This compares to a backlog $199.1 million at the end of Q4 '06 and $192.8 million a year ago. John will talk more about the bookings performance by major market applications, but in summary, first quarter orders of $36.2 million increased by 3.5% over the corresponding prior year period and were down 10.8% from the immediately-preceding quarter. Company sales for the first quarter, our seasonally slowest quarter of the fiscal year, were $147.6 million, up 12.7% from the same quarter a year ago and down 6.6% sequentially. In absolute dollars, four of our five end markets improved from the same quarter last year, the exception being our smallest market, graphic arts and display.

The company sales, by significant market application, are as follows: scientific and government programs $32.9 million, micro electronics $55.8 million, material processing $19.4 million, OEM components and instrumentation $34.2 million, graphic arts and display $5.3 million, for a total of $147.6 million. Our ending cash balance for the quarter, including restricted cash was $524.5 million, representing an increase of $26.8 million compared to last quarter.

Cash flow was almost $29 million, which significantly benefited from the the improvements of accounts receivable [inaudible] sales outstanding. These outstanding decreased from 63 days at year end to 58 days at the end of Q1 '07. Capital spending amounted to $5.7 million or 3.8% of sales, which is in line with the guidance provided.

The year-on-year cash balance, including restricted cash, increased $267.5 million, of which $195 million net of issuance costs related to the sale of convertible notes. Our long-term debt balance at the end of the first quarter was $201.1 million, which is similar to the balance at the end of the fourth quarter. Our guidance for the second quarter of fiscal 2007 will be limited to sales and capital expenditures. We expect our second quarter sales to be approximately 2% to 5% above the first quarter of fiscal 2007. This represents approximately a growth of 3% to 6%, compared to the second fiscal quarter of 2006.

Capital spending for the full fiscal 2007 is projected to be approximately 4% of sales. While it is regrettable we cannot yet report our full-year goals because of the pending internal stock option review, we continue to operate our business with a strong focus on growing both our sales and earnings. I will now turn over the call to John Ambroseo our President and CEO.

Thanks, Lene. Good afternoon, everyone and welcome to our Q1 conference call. Following a strong fourth quarter and a very solid fiscal year, we experienced typical seasonality in the first quarter. In other words, this was no surprise. We also recognize the frustration that limited financial reporting causes. Rest assured, our emphasis on fundamental execution remains firmly entrenched. Orders in the fourth fiscal quarter -- sorry -- first fiscal quarter totaled $136.2 million, a decline of 10.8% from our seasonally high Q4 and an increase of 3.5% versus the prior year period. The book-to-bill was 0.92. The book-to-bill also reflected typical seasonality.

Orders of $30.5 million in the scientific market decreased 6.6% sequentially and increased 4.4% versus the prior year period. Q1 orders represented a good first quarter, following an historically strong fourth quarter. We saw continued demand for core product, including Chameleon, Mira, and Vitesse.

We also launched several new product at the Photonics West Trade Show. The Chameleon Ultra II is the latest version in this product family and delivers higher performance for biological imaging applications. The Legend Elite, an amplified system used largely by physicists and chemists, offers enhanced ability and delivers greater performance than its predecessors. The OPerA Solo is the first fully-integrated optical parametric oscillator, a device which creates a broad spectrum of colors when used in conjunction with with an amplifier system like the Legend series.

On a geographic basis, North America was slower, following a strong Q4, Europe posted its highest bookings is in eight quarters, results in the Pacific Rim and Japan were similar to Q4. Bookings of $47.4 million from the microelectronics space were down 24.2% sequentially and rose 5.7% versus the prior year period.

Orders for [semi-cap] applications were mixed in Q1. We saw continued demand for lasers used in photomask writing and repair, inspection and metrology from existing accounts. New business was slower than expected due primarily to delayed product introductions from customers. This should right itself over the upcoming quarters.

The advanced action area was also mixed. The via drilling market exhibited continued softness as capacity demand eased. By contrast, the laser-direct imaging market is gaining momentum, the benefits of this technology are reaching more and more customers. We are focused on the production ramp of LDI Lasers, as well as the introduction of new products that will drive drive higher ROIs for the end customers.

Activity was brisk in the flat-panel display market. We continue to enjoy a strong market share position through our association with JSW. To the best of our knowledge, a potential competitor has not yet shipped a [inaudible] system. And we have raised the bar yet again with the LSX 540C, the latest in excimer laser technology for the [inaudible] market. The 540C delivers the highest performance and [inaudible] available, which reduces the cost per process panel. There is also considerable action in the [inaudible] market with the [inaudible] solution may be a visible, rather than ultraviolet laser. We are equally well-positioned in this technology class. Orders of $33.3 million for the instrumentation and OEM components were up 4.2% sequentially and 1.1% versus the prior year period.

Bio-instrumentation orders remain strong from established and emerging accounts. This is very encouraging, since competitors are trying to position themselves for part of this business. During last quarter's call, I described new procurement policies in China for medical equipment. The situation is clarifying and the market is starting to right itself. This should create some lift for laser sales into refractive surgery in the next few quarters. Our OPS yellow laser has established solid transaction in the [inaudible] market. Multiple customers plan to release next-generation products, using the OPS platform. They are scheduled to hit the market over the next 12 months.

Bookings of $4.7 million for graphic arts and display were down 5.8% sequentially and 45.4% versus the prior year period. The printing market continues to march toward infra-red solutions. On the display side, we announced a non-exclusive licensing agreement for consumer display applications with OSRAM in December. We continue to pursue applications outside the consumer space, including cinema and simulators. Materials processing orders of $20.3 million decreased 1.5% sequentially from a very strong Q4 and increased 26.2% from the prior year period. The demand shipped towards Asia is accelerating and seasonality continues to diminish. Product diversity is growing as customers are pulling solid-state and excimer products along with the CO2 lasers. Both patterns were evident in order flow from existing and new customers.

In terms of application drive, product marketing coding, as well as textile processing, remain strong and we have seen a recent pickup in lasers used for diamond processing. There is much interest in fiber laser technology and some of you may be interested in how it affects our business. There is a compelling case for fiber lasers in the kilowatt and above power range due to their size, electrical efficiency, and purported reliability. They are capturing share in the automotive market, although the gains appear to be mostly in North America.

In Europe, local suppliers are defending their space with high-powered disk lasers, but one would expect the battle to intensify. Fiber laser sales to China are controlled under various international treaties and domestic policies, impeding growth in China. While the latest round of international trade talks, known as the Wassenauer Talks, has increased the thresholds, they are still well e still well below the sweet spot in the market. Coherent is not active in the kilowatt class lasers. The advantages of fiber lasers diminish with output power as performance costs and efficiency are similar to other light sources. We have seen limited impact from fiber lasers on our business, since the bulk of our materials processing business is wavelength-dependent above and below the fiber laser regime. Nonetheless, we continue to explore fiber technology and how it may benefit customers in our various markets.

We recently attended two investor conferences and the most frequently-asked questions were regarding prospects for the plutonics industry and our sizable cash balance. With respect to industry prospects, pardon the pun, but they've have never been brighter. Lasers are enabling new applications and replacing legacy technologies. An indicator of this was the number of inquiries at the Photonics West Trade Show, held last week in San Jose. Traffic was good and customers were seeking solutions rather than knowledge. As far as the cash, we are considering all possible uses, although we continue to believe that accretive acquisitions still represent the best way to create long-term shareholder value. I'll now turn the call back over to Angie to begin the Q & A session.

[OPERATOR INSTRUCTIONS] We will first hear from John Harmon of Needham & Company.

Good afternoon. I was wondering if you could discuss your philosophy about your backlog, whether your backlog merely represents orders with ship dates that are farther out or whether you can work your backlog to add or subtract from your revenues in a given quarter?

Sure. For an order to appear in the reported backlog, John, there are a few conditions that have to be satisfied. First, and foremost, you have to have a customer-confirmed order with a customer-confirmed ship date that is within a 12 month time horizon. Anything that doesn't meet that criteria doesn't fall into the shippable backlog. A good chunk of the number that we report actually has scheduled calloffs from customers built into it -- or I should say all of it. Some of it is near term and some of it is in later quarters.

OK. So, in other words you don't work your backlog to smooth your revenues or smooth out your business?

I am not sure I completely follow the question, but if the question is how do we manage it, our goal is to deliver products to customers when they expect them. We try not to force products on customers when they don't want them.

Fair enough. Good answer to the question. Secondly, just looking at the sequential decline in orders in the microelectronics area, you said it was primarily from the deriving from the semi-conductor equipment industry?

So, the two areas that I highlighted was part of semi was slower, because we were expecting some orders from customers that were introducing new platforms. And those platforms are late to market, so it resulted in the orders not coming in. And the second part is we continue to see softness in the via drilling market, which believe is consistent with the global view that the via market has been slower following a very rapid build-up over the last probably three or four quarters.

OK, thank you. Finally, I think you announced about six products at Photonics [inaudible], but you mentioned three in your remarks. Which of those. . .

I actually mentioned four and there were two others that I didn't mention.

Okay. But which of these do you think address the biggest markets or represent the biggest revenue opportunities for you.

Well, the flat panel market is clearly the most interesting one, in terms of scale. The scientific continues to be an important market for us, but in terms of growth potential, it doesn't have the same kind of potential that the FPD market does.

All right. Thank you very much.

[OPERATOR INSTRUCTIONS] Our next question is from John [Terrell] of [Terrell] and Company.

John, a couple of things. If you could talk about one -- are your competitors is acting in a rationale manner? Do you see any of your competitors' pricing or anything of that nature that is detrimental to your interests?

I would say that the landscape as far as competitor pressure really has not changed in a substantial amount of time. Our competitors, like us, are focused on being strong companies and having solid financial performance and adding revenue for revenue's sake is not something that is happening widely in the industry right now. Obviously, the smaller competitors, private companies have different pricing models than the established public companies. Again, that is not a new dynamic in the industry. I think the one thing that does surprise me, and is perhaps not a question you are asking, is I am amazed at the number of players introducing technologies that are sort-of well-established. The industry doesn't need 25 purrveyors of small solid state visible lasers, for example. But that's their investment decision, not ours.

Nothing in the warranty area where competitors are offering unrealistic warranties or things of that nature?

We haven't seen changes any changes from what people have been doing, no.

Second question, you talked about the new products that you introduced. Anything in the R&D pipeline that excites you?

There are a number of things, but it hasn't been our practice to talk about products that have not released or at least not yet been shown to the public.

I thank you.

Our next question is from Jiwon Lee of Sidoti & Company.

Hi. Good afternoon. Just a couple of quick questions. John, if you could please talk about -- in terms of percentage of sales, the products that you introduced over the last year or so, roughly what percentage these new products represented and your pricing ability in the marketplace for these new products?

So the first part of your question, Jiwon, regarding percentage from new products, that is not a number that we release. Because we see that as being a fairly critical metric and we don't want to alert the competition as to where the action is in the marketplace. As far as pricing goes, the pricing models really reflect the dynamic in the individual markets in which we participate. Our goal is to capture the maximum value for the value that we deliver. That hasn't changed. But certain markets are more volume-driven. Other markets are more performance-driven. And you have to use pricing models that are appropriate for those customer sets. There's no one size fits all.

How would you characterize the semi- con equipment or the via drilling market.

Well, as I mentioned during my talk and then in my response to a previous question, the semi-cap market is mixed right now. We have seen continued demand for established applications, with established customers. We see that as a good thing. However, some of the products that we were expecting to receive orders for or customers that we were expecting to receive orders for, didn't materialize in the first quarter as their link to market with their platforms that will incorporate our technology. On the API sight or, specifically, the via drilling side, I believe I mentioned during the fourth quarter call that we were seeing some softness in thevia drilling market and that softness has continued. And, again, that is consistent with what the global view is on that market right now.

In terms of the flat panel display, I was under the impression that you are sort-of [inaudible]. In other words, the type of things that you can provide to your flat panel display customers were growing. Any sort of updates or additional colors on that front?

The one that we are talking about right now is in the [inaudible] space, where we've introduced yet the latest version of the Landis Steel product portfolio. And the goal in terms of expanding that market is really driving down the cost for the process panel. That is the linchpin, if you will. So, we have activities on the excimer side, we have activities on the solid-state side to achieve the exact same result. Some of those we've talked about publicly and some of those we hope to be talking about publicly in the upcoming months. But it is clearly an area that we see as attractive.

And finally, John, how far along are you with the internal review that you are undertaking?

As Lene we mentioned in her opening comments, we are not in a position to comment. And that is pretty much the drill.

We just try, thank you.

Of course.

[OPERATOR INSTRUCTIONS]It appears there are no further questions at this time. Mr. Ambroseo, I would like to turn the call back over to you for any additional or closing remarks.

I would like to thank everyone for participating in the call and we look forward to speaking to you during the next conference call.

This concludes today's conference. Thank you for your participation, and have a great day.