科磊 (KLAC) 2007 Q4 法說會逐字稿

Good afternoon and welcome to the ICOS Vision Systems Second Quarter 2007 Earnings Conference Call. With me today is Anton De Proft, President and Chief Executive Officer. You should have all received a copy of the press release, which was issued earlier today and if you didn't, a copy has been posted to the Investor Relations section on the Company's website at www.icos.be.

Before starting the call, I would like to mention that certain statements made by management during the course of this conference call may constitute towards forward-looking statements such as -- such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of ICOS to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include amongst others those detailed in the Company's reports filed with the regulatory authorities and its annual report.

There will also be a question-and-answer session later during this conference and instructions will be given at that time. (OPERATOR INSTRUCTIONS)

I would now like to hand over the call to Mr. Anton De Proft. Please begin your meeting and I will be standing by.

Well, thank you very much and to everyone, hello and welcome to our fourth quarter and fiscal year 2007 conference call. As you have been able to read I'm sure in our joint press release earlier today, KLA-Tencor has made a friendly tender offer to acquire ICOS. We believe that combining the strengths of KLA-Tencor and ICOS will significantly increase our growth potential and provide strong resources for further advancing our existing products and technologies and for adding even more value to our customers. I would also like to note that during this call, we will not provide guidance on the current quarter or beyond.

So, let me now discuss our performance during the fourth quarter and the entire year 2007. Revenues for the three months ended December 31 were EUR22.5 million representing a 12% increase over the third quarter revenues of EUR20.1 million and a 4.5% increase from the EUR21.5 million reported for the fourth quarter of 2006.

Income from operations for the fourth quarter were EUR2.6 million compared to an operating income of EUR1.7 million in the third quarter and EUR120,000 reported for the fourth quarter of 2006.

Net income for the fourth quarter 2007 was EUR2.8 million or EUR0.27 per share. And as for the year, revenues were EUR80 million compared to EUR105.6 million in 2006. Income from operations in 2007 was EUR5.6 million compared to EUR22.3 million in 2006. And net income was EUR8 million or EUR0.79 per share compared to net income of EUR20.1 million or EUR1.91 per share in 2006.

Our fourth quarter revenues were in line with our expectations with all three product lines contributing to our sequential growth. And during the year 2007, we spent 19% of our revenues in R&D and we saw further evidence of the potential of our new product lines. Revenues from our wafer inspector products grew 91% during 2007 and solar cell inspection products grew 44%.

New customers, the first time buyers accounted for 11% of revenues during the fourth quarter. These customers were buying all three of our product lines and were also geographically fairly well spread with locations in the U.S., China, Korea, Taiwan and Japan. For the year 2007, new customers accounted for 12% of revenues, and also here we saw a good spread with customers located around the world and buying from all three of our major product lines. And then, new product sales accounted for approximately 7% in the fourth quarter. These new products included mostly wafer inspector and new variants of our component inspector.

The fourth quarter has been very intense with respect to R&D activities and new product introductions. We continued our intense R&D efforts across all product lines and spent net 16.2% of revenues on R&D. Let me remind you that we do not activate any R&D work, rather expense all our R&D costs immediately in the quarter. The high R&D expenditure of today are therefore an investment in the future and the Company's potential financial performance.

As a result of our intense R&D efforts, we were able to introduce major new product introductions in each of our three product line during 2007. We expanded our solar cell inspection product line up with the microcrack inspector. This system detects non-penetrating micro cracks in an early stage of the production process. By doing so, it avoids wafer breakage and line stops later in the process and increases the yield of the solar cell production line. We also introduced our 300 millimeter wafer handler, which allows us to offer our superior 2D and 3D image processing capabilities to high volume applications such as memory.

And then, in addition, we also introduced our component inspectors, CI-T120S and CI-T130S, for high density flip chips -- flip chip substrate inspection. This newest version of our component inspector addresses the growing needs to inspect 100% 3D bump inspection in combination with high resolution surface inspection of high density flip chip substrate.

And then, the organization, the total number of employees stood at 363 full time equivalents at the end of the third quarter. That should be at the end of the fourth quarter compared to 343 full time equivalents at the end of the third quarter of 2007. The increase of our personnel was spread over R&D operations and sales organization in support of our three major product lines. We continue to consolidate our R&D activities for solar cells in Belgium and to further extend our software development center in India.

Then, the revenue breakdown for product line inspection systems accounted for 83% of sales and inspection modules were 17% in the fourth quarter, and that compares to 84% of inspection systems and 16% of inspection modules for third quarter revenues.

During the fourth quarter, we saw revenue increase from all our product line consistent with earlier guidance. In fact, the fourth quarter marked the first time that our three major product lines each contributed at least 10% of our revenues. Revenue breakdown per geographical area, during the fourth quarter, we realized 74% of the turnover in Asia, of which 7% in Japan and 67% in other areas of Asia. So, 21% of our turnover was realized in Europe and 4% in the U.S.

So then, the financial information on revenues of EUR22.5 million, we achieved a gross margin of 52.6% in the fourth quarter compared to a gross margin of 54.2% in the third quarter. This gross margin was negatively affected by the depreciation of the U.S. dollar and by some one-time write-offs as a result of our consolidation of our solar cell activities in Belgium.

Our net R&D expenses in the fourth quarter amounted to EUR3.6 million or 16.2% of revenues. Our R&D expenses benefited in the fourth quarter from a grant of EUR393,000 compared to a grant of EUR303,000 in the third quarter of 2007. SG&A expenses increased to EUR5.7 million compared to EUR5.5 million in the previous quarter. This increase was mainly caused by higher commission expenses in line with our higher sales activity. The operating profit for the fourth quarter was EUR2.6 million up from EUR1.7 million in the previous quarter, showing the strong leverage of our business model.

During the fourth quarter, we realized a net financial income of EUR573,000 compared to EUR586,000 of net financial income for the third quarter. Our net financial income consists mainly of interest income and the net impact of currency exchange effect remains limited. We incurred a tax expense of EUR394,000 compared to a tax benefit of EUR311,000 in the third quarter. As indicated before, our tax rate can vary with our geographical mix of sales and manufacturing especially when compared on a quarterly basis.

Consequently, we realized net profit for the fourth quarter of 2007 of EUR2.7 million or basic earnings per share of EUR0.27. Then, the cash flow in the fourth quarter of 2007 defined as net income increased by non-cash items was positive at EUR3.5 million, while changes in working capital and provisions used EUR9.2 million in cash resulting in a negative net cash flow used by operating activities of EUR5.7 million.

During the fourth quarter, we generated EUR614,000 from investing activities and we used EUR6.6 million for financing activities. The financing activities include repurchase of own shares, for which we received the authorization of the extraordinary general assembly of shareholders held on June 6, 2007 and June 11, 2007. We purchased during the fourth quarter a total number of 220,111 shares for a total cash consideration of EUR6.5 million. And since the start of the program, we have now repurchased 720,831 shares. As a consequence of the friendly bid by KLA-Tencor, we have stopped the repurchase of our own shares.

The balance sheet, cash balances stood at EUR44.5 million at the end of the fourth quarter, down from EUR56.8 million one quarter earlier. Accounts receivable increased to EUR21.9 million from EUR17.4 million at the end of the previous quarter. Days outstanding increased to 87 days at the end of the fourth quarter, up from 78 days at the end of the previous quarter. Inventories decreased to EUR19.2 million at the end of the fourth quarter compared to EUR20.7 million one quarter earlier. Inventory split, that's EUR5.7 million in raw materials, EUR9 million work in progress, and EUR4.5 million finished goods.

So, to conclude, I will briefly return to KLA-Tencor's friendly tender offer to acquire all shares of ICOS. ICOS and KLA-Tencor have highly complementary market positions with no overlapping product lines. We serve adjacent markets and we believe that as part of KLA-Tencor, ICOS will be able to develop more growth opportunities. We are looking forward to becoming a part of KLA-Tencor and develop more powerful inspection and metrology equipment that adds more value for our customers.

That concludes my prepared remarks and I would now like to open the call for questions. Operator?

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Eric de Graaf. Please go ahead with your question announcing your company and location.

Hi, it's Eric de Graaf, Petercam in Amsterdam. And first of all, congratulations, I think that there is a clear recognition of your performance and your developments in the most recent 25 years. I was at that celebration not that long ago. I was wondering, you don't want to talk about 2008 which I can imagine, how long has you been in discussion with KLA? Is this something that just developed in recent days or weeks or did you has earlier conversation at some point, could you give us a little bit more background on that one?

Yes, well, first of all, thank you, Eric. And yes, not too long ago, we celebrated our 25th anniversary and so well, we are looking for many more years, of course. But like I said there is a lot of operational synergy and we are active in adjacent markets and obviously, the contact between all players in the industry are --- we talk to everybody active in the industry, so it's not really that easy to point out. It's definitely not so that it's a sudden out-of-the-blue email of last week so to speak. It's something that, well, materialized and became concrete over a somewhat longer period of time and, well, that materialized in a concrete but -- a bid and that's quite -- that's, of course, a very recent development because as soon as the offer was made, our Board has, of course, looked at that, well, very quickly and evaluated that and we have also been as we have to made it public as soon as possible.

Okay. About the -- one of the comments was that it's a friendly bid supported by the Board and that all -- any board member will tender their shares and offer. How big is the detail to holding roughly of all the Board members and associated people to due to the Board?

Yes, that's roughly, I don't know the exact number, but roughly that's 20% to 25% of the shares.

No, that's what I thought, but just to be sure that --

Right.

And that is unconditional or that is --?

Well, the exact conditions are in the press release, so --

Yes, I know. So, I mean that's -- I understand -- let's understand it in parts that if the bid is made and this is the -- then there will be a participation of the Board members, that's I guess basically if those --

Right. And then there is an unsolicited higher bid and things like that, but it's the clear intention of these people to indeed go ahead and turn in their shares.

Okay. If there are, let's say, decision or plans of you and -- or you will continue in this whole process or you will continue to be CEO of ICOS or leading ICOS in the same [consolation], will it be a separate entity or will it be fully integrated within KLA?

Well, what I can say is that the management is supportive of the bid and the whole management team will remain active in the company and indeed it's the intent that ICOS remains active in the market and with the products and so on that is active in now, and that we can even accelerate our growth. Both KLA-Tencor and ICOS I think are two great companies. There is quite a bit of similarities also between the companies, and the intent is that from an ICOS point of view is that we can grow faster in all the activities that we have started and that we are doing now and so that there for us, this is definitely not the end of an era, this is the beginning of what we believe can be even a stronger period in our adjustments, but yes, as part of a larger group, I suppose, to a separate public company.

Okay. Well that's it from me. Thank you very much, lots of good luck and we will miss you on the Belgium Stock Exchange.

Well, thank you. Actually, I'll miss that part of it but okay, I guess that's life. I appreciate your comments, Eric.

Absolutely.

(OPERATOR INSTRUCTIONS) We appear to have no further questions, sir. I hand the conference back to you.

All right, well in that case, thank you very much to everyone and well, we will speak to each other again in three months. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference, you may now disconnect your lines. Thank you.