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Operator
Welcome to the conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, February 19, 2004. I would now like to turn the conference over to Ms. Jody Burfening. Please go ahead, ma'am.
Jody Burfening - Investor Relations
Thank you. Good morning, everyone. This is Jody Burfening from Lippert/Heilshorn & Associates. Welcome to ICOS Vision Systems' fourth quarter fiscal 2003 earnings conference call. With me on the call today is Anton DeProft, President and Chief Executive Officer.
You should have all received a copy of the press release which was (indiscernible) earlier this morning. If you have not yet received the release, a copy has been posted to the investor relations section of the Company's website at www.ICOS.ce.
Before starting the call I would like to mention that certain statements made by management during the course of this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results (indiscernible) achievements of ICOS to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those detailed in the Company's reports filed with the Securities and Exchange Commission.
With that, I would now like to turn the call over to Anton. Good morning, Anton.
Anton DeProft - President & CEO
Good morning and thank you, Jody. I would also like to welcome everybody here to our fourth quarter and fiscal year 2003 conference. I will start by discussing our performance during the fourth quarter and the entire year, then I would like to make some comments on the outlook of our business, and after that I would be glad, of course, to take your questions, followed by closing remarks.
Revenues for the three quarters -- the three months ended December 31, 2003 were EUR50 million, a sequential increase of 42 percent over the third quarter revenue of 10.6 million, and 74 percent higher than the 88.7 million we recorded in the fourth quarter of 2002. Income from operations for fourth quarter of 2003 was 3.1 million, more than (indiscernible) of the EUR427,000 recorded in the fourth quarter of 2002. The net profit for the fourth quarter was EUR3.3 million, or 31 Eurocents per share, compared to a net loss of EUR927,000, or 9 Eurocents per share for the same quarter a year earlier.
For the whole year, revenues were EUR44.8 million compared to 30.6 million in 2002, an increase of 47 percent. The operating profit for 2003 amounted to EUR5.9 million compared to a loss from operations of EUR325,000 in 2002. The net profit over 2003 was EUR5.3 million, or 51 Eurocents per share, compared to a (technical difficulty) EUR2.4 million, or 23 Eurocents per share in 2002.
ICOS ended another year of growth with an exceptionally strong performance in the fourth quarter, the ninth consecutive quarter of sequential revenue growth. We were especially happy with the way that our operational model reacted to the sharp increase in demand. In essence, we maintained delivery times even as revenues increased 42 percent in three months. In addition, the combination of (indiscernible) gains and our low fixed cost operating model caused the operating margin, a key performance measure, to jump from 13.3 to 20.5 percent in the fourth quarter.
First-time buyers accounted for 14 percent of revenues for the fourth quarter of 2003. These customers were located in all major areas and were customers for OEM products as well as inspection machines. For the fiscal year 2003, new customers accounted for 17 percent of revenue. We have solidified our position as we build up a stronger relation with all large integrated device manufacturers and their main subcontractors. In addition, we added several new customers for new applications for our existing gear (technical difficulty), thereby extending our market potential.
For instance, we have added new customers for connector inspection and substrate (ph) inspection. And finally, we have added new customers for new equipment, such as FTI, which we expect to become our second most important product line in 2004.
Research and development activities remain intensive in support of our (technical difficulty) product offering and customer base. First, a substantial amount of R&D effort during the quarter was spent on the continued development of the FTI system. As we expect this emerging market to grow quickly over the next years, we will continue to invest considerable R&D resources in this (indiscernible).
Secondly, a substantial amount of R&D effort during the quarter was spent on our trade based inspection systems. We constantly improve the features of these systems in terms of inspection capabilities and speed. But also, a sizable amount of the development is geared towards newer applications, such as the inspection of the new type of microprocessors and the connectors and their substrates. Some of these developments expand the market potential for those systems.
Finally, major R&D work was spent on the continuous improvement of various products and on the development of technologies for future generation inspection equipment. Sales from new products in the fourth quarter accounted for 4 percent, and for the entire year, 19 percent.
The competitive situation, especially during the fourth quarter -- the market has turned up strongly and demand increased significantly. As always, the groundwork for market share gains are laid during the downturn -- and we have communicated several times on that -- when systems are being evaluated and qualified. However, the real test comes when the heat is turned on and systems need to be delivered. Therefore, our main efforts during the quarter have revolved around shipping quality products to our customers on time.
We are very happy that our operational model, which allows us to operate with low fixed costs during the downturn, has now allowed us to increase our revenues (indiscernible) 42 percent in just three months with delivery times virtually unchanged. We believe that delivery will remain an important (indiscernible) development as we progress through the cycle, and we are convinced that we are well equipped to continue to deliver quality products to our customers when they need them.
An important element in this capacity increase and flexibility is the acquisition of the Chinese plant for final assembly and quality control. We are progressing well here, and we expect this acquisition to close during the remainder of this quarter, as we announced earlier.
The total number of employees stood at 173 full-time equivalents at the end of the fiscal year 2003, up from a level of 162 at the end of the third quarter and 150 full-time equivalents at the end of fiscal year 2002. As we have grown revenues over the past nine quarters, we have added some new employees to support our future growth.
The revenue breakdown per product line in the fourth quarter -- revenues breakdown was 13 percent board level, 10 percent system level, and 77 percent inspection machines. This compares to 8 percent aboard level, 15 percent system level, and 77 percent inspection machines for the third quarter. For the whole year, we sold 71 percent inspection machines, 15 percent board level, and 14 percent system level products, which is the identical spread (indiscernible) in the year 2002.
The revenue breakdown per geographic area during the fourth quarter of this year, the major sales volume was again realized in Asia, where we did 62 percent of our (indiscernible), of which 4 percent was in Japan. (indiscernible) 24 percent of the turnover was realized in Europe and 14 percent in the U.S. The U.S. came in very strong with sales tripling versus the earlier quarter. Japan came in weak, but this is more a coincidence, as several sizable orders and deliveries fell just outside this quarter. In fact, we expect Japan to be strong again during the (indiscernible) quarter.
Before we move on with the financial information, I would like to give you a quick update on the Scanner (ph) case. As you may remember, Scanner Technologies sued ICOS in 2000 for alleged patent infringement. Even though we strongly contested the allegations, as previously disclosed, we settled the case last year for the vast majority of the systems. For the remainder of the systems, the court ruled that ICOS (indiscernible) infringing the patents. Scanner has appealed this ruling, and the oral hearing in the field took place on February 6. The court ruling is expected in the next 90 days. If we're successful in this appeal, we expect the litigation (indiscernible) to be essentially over; if we are not, it is important to know that ICOS' sales of the remaining (indiscernible) products have been limited, and other than legal expenses, we would not expect an adverse ruling in the appeal to have a significant impact on the Company.
Let's turn then to the financial information. On revenues of 50 million, we achieved gross margin of 57.4 percent in the fourth quarter compared to gross margin of 56.8 percent in the previous quarter. This gross margin increase is in line with the guidance that we gave during our last call, and is mainly the effect of product mix changes and increases in product efficiencies. For the running quarter, we expect a gross margin between 57 and 59 percent.
R&D expenses increased to 1.79 million compared to 1.55 million in the previous quarter, mainly due to some new hirings and increased allocation for our profit-sharing (indiscernible). The R&D expenses for the quarter were close to our long-term target of 12 (indiscernible). And for the first quarter of this year, we believe that the R&D expenses will continue to be in the range of 1.7 to 1.9, depending on the recording of grants (indiscernible) be received.
SG&A expenses increased to 3.76 million compared to 3.05 million in the previous quarter, mainly as a consequence of the higher level of (indiscernible), which is related directly to the increased (indiscernible). The balance of the increase came from the increased allocations for our profit-sharing plan and some limited hirings. We believe that our SG&A costs will continue to increase during the current quarter, mainly because of the increasing sales commissions and by some additions to our organization in preparation for further expected market expansion.
The income from operations for the fourth quarter was 3.1 million, more than double of the 1.4 million reported in the previous quarter. Operating margin jumped from 13.3 percent in the third quarter to 20.5 percent in the fourth quarter. During this fourth quarter of 2003, we recorded a foreign currency exchange gain of 291,000.
We included tax of 170,000, or approximately 5 percent of income before taxes. This number is especially low because we eliminated a valuation allowance related to a tax credit in Japan. This elimination was based on improved business conditions and outlook in our Japanese subsidiary, and added a onetime contribution of approximately 4 Eurocents in this quarter. Without this effect, our tax rate would have been around 17 percent.
Consequently, we realized a net gain for the fourth quarter of 2003 of 3.3 million, or 31 cents per share. This was the fourth consecutive quarter that we more than doubled our net earnings per share. We realized 2 Eurocents during the first quarter, 5 during the second, 12 during the third, and now 31 during the fourth.
Cash flow from operations in the quarter was (indiscernible) at 2.9 million. The net cash flow from operations, including changes in working capital, amounted to positive 636,000. During the fourth quarter we used 43,000 in (indiscernible) activities and we spent net 208,000 for financing activities.
Let's now turn to the balance sheet. We continue to have a very strong balance sheet as our operations generated extra cash that we (indiscernible) managing our working capital (indiscernible). Cash balances stood at 29.5 million at the end of the fourth quarter, up from 29.4 million 1 quarter earlier. We believe that our current cash level is more than adequate for future operations.
Accounts receivable increased to 30.1 million from 9.6 million at the end of the previous quarter. Days outstanding were 78 days in the fourth quarter, slightly down from 81 days in the third quarter of 2003. Inventories increased to 10.7 million at the end of the fourth quarter compared to an inventory level of 10.3 million at the end of the third quarter. The inventory split was 3.7 million raw materials, 4.2 million
(technical difficulty)