Coherent, Inc. Conference Call Prepared Remarks Q3 13 Helene Simonet-EVP & Chief Financial Officer

Transcription

1 Coherent, Inc. Conference Call Prepared Remarks Q3 13 Helene Simonet-EVP & Chief Financial Officer Good afternoon and welcome to Coherent s third fiscal quarter conference call. On today s call, I will provide financial information and John Ambroseo, our President and CEO, will provide a business overview. As a reminder, any guidance and any statements in today s conference call pertaining to future guidance, market trends, plans, events or performance, are forward-looking statements that involve risks and uncertainties, and actual results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the Company s reports on Forms 10-K, 10-Q and 8-K, as applicable and as filed from time-to-time by the Company. These forward looking statements are subject to the safe harbor provisions of the private securities litigation reform act. The Company undertakes no obligation to update any forward looking statements. The full text of today s prepared remarks, trended GAAP and non-gaap supplemental financial information and orders and bookings by market will be posted on the Coherent Investor Relations website. A replay of this webcast will also be made available for approximately 90 days following the call. Highlights of the Quarter Let me first give you the highlights of the company s financial performance. Revenues were $213.7 million with corresponding pro forma earnings of $0.91 per diluted share. We ended the quarter with a cash balance of $202 million and our pro forma EBITDA% for the quarter was 17.3%. Our year to date pro forma tax rate is approximately 24%. We project a pro forma tax rate for full fiscal year to be approximately 25%, resulting in a fourth quarter rate of approximately 28%. This lower tax rate versus the prior years reflects a more favorable geographic distribution of profits in part due to the impact of manufacturing in Korea and Singapore where we currently enjoy tax exemptions. Sales Net sales for the third quarter increased 6.8% sequentially and 8.8% compared to the same quarter a year ago. Our backlog, shippable within 12 months, at the end of June remained strong at $299 million and flat panel display applications represented 31% of the total. Service revenues for the quarter grew 9% sequentially, slightly ahead of the total revenue growth, with the majority of the increase resulting from a larger flat panel display systems installed base. On a trailing twelve month basis, total service revenues represented 25% of the total company revenues compared to 24% last quarter. 1

2 And geographically, on a trailing twelve month basis, Asia accounted for 50% of the company s revenues, US 24%, Europe 19% and rest of the world 7%, which is unchanged from last quarter. With respect to revenues by major market application, our Materials Processing and Microelectronics market segments were the key contributors to our revenue growth, both sequentially and year over year. Materials Processing had another record revenue quarter and its sequential growth of 18% was principally the result of strength in marking applications. Fiber laser revenues are minimal and do not yet contribute to the growth in materials processing; it is however worthwhile mentioning that during the quarter we shipped and recognized revenue on a 3Kw fiber prototype unit. Microelectronics grew 12% sequentially with the strongest growth in advanced packaging followed by flat panel display and semiconductor applications. Our OEM components and Instrumentation revenue declined 8% sequentially mainly because of record medical revenues in the second quarter, so a tough comparison for this market segment and therefore the decline was not surprising. Scientific revenues are in line with expectations and slightly declined on a sequential basis which was predominantly due to budget constraints in the US. The Company s sales by major market application for the third fiscal quarter are as follows (in $ millions). Q3 13 Q2 13 Q3 12 Scientific Microelectronics Materials Processing OEM Comp. & Instrumentation Total Gross Profit, Operating Expenses The third quarter pro forma gross profit, excluding $0.6 million stock compensation charges, $1.4 million intangibles amortization and $0.4 million inventory step up from the purchase accounting, was $85.6 million, or 40.1% of sales, an increase of 40 basis points from the 39.7% we recorded last quarter. The increase is primarily the result of higher volumes and resulting improved leveraging of costs in a number of our business units, partially offset by a negative impact from currency fluctuations, although to a lower extent than we have seen in prior periods. Our total pro forma operating expenses are 26.4% of sales compared to 26.7% last quarter, a slight improvement and within our prior guidance range. 2

3 Balance Sheet Our cash and cash equivalents balance for the quarter was $202 million compared to $204 million for the prior quarter. Approximately $123 million or 61% of the cash balance is held internationally. Cash flow from operations for the third quarter was slightly negative due to the timing of a large international tax payment. Year to date cash flow remains strong at almost $68 million compared to $44 million for the comparable period last year. This significant step up is mainly the result of improved working capital management. Capital spending for the quarter was $4.9 million or 2.3% of sales resulting in year to date spending of $15.4 million or 2.6% of sales. We project annual capital spending now to be closer to 3.0% of sales versus the previous guidance of 3.5% of sales. Fourth quarter of fiscal year 2013 guidance Turning to our outlook for the fourth quarter, we expect our revenues to be in the range of $200 to $210 million. The sequential revenue decline is primarily the result of one less Twin Vyper scheduled to ship in the fourth quarter compared to last quarter. As you may recall, the ASP of one of these units is greater than $7 million. The pro forma gross profit percentage is estimated to be in the range of 40.5% to 41.0% of sales, an improvement compared to the third quarter notwithstanding a decline in revenues. The increase is mainly the result of a more favorable product mix. The GAAP cost of sales will reflect intangibles amortization estimated to be $1.4 million and stock compensation costs projected at $0.6 million. We project the pro forma period expenses (excluding stock compensation costs and intangible amortization) to be in the range of 26% to 26.5% of sales, which is similar to the third quarter. The GAAP period expenses for the fourth quarter will include intangibles amortization estimated to be $1.0 million and stock compensation costs of approximately $4.0 million. As mentioned earlier, we are assuming a fourth quarter pro forma tax rate of 28% and we project the full fiscal 2013 capital spending to be around 3.0% of sales. We are assuming weighted outstanding shares of 24.8 million for the fourth quarter. I will now turn over the call to John Ambroseo, our President and CEO. SPECIAL NOTE REGARDING NON-GAAP FINANCIAL MEASURES 3

4 NON-GAAP FINANCIAL MEASURES: Coherent utilizes a number of different financial measures, both GAAP and non-gaap, in analyzing and assessing the overall business performance, for making operating decisions and for forecasting and planning future periods. Coherent considers the use of non-gaap financial measures helpful in assessing its current financial performance, ongoing operations and prospects for the future. Ongoing operations are the ongoing revenue and expenses of the business, excluding certain costs that Coherent does not anticipate to recur on a quarterly basis or which do not reflect ongoing operations. While Coherent uses non-gaap financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Coherent does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, Coherent believes that disclosing non-gaap financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance. In assessing the overall health of its business, Coherent excluded items in the following general categories described below: Pro forma Net income (loss) and net income (loss) per basic or diluted share. We have excluded certain recurring and non-recurring items in order to enhance investors understanding of our ongoing operations and to compare these results across multiple fiscal periods, particularly where a one-time event may have an impact in one fiscal quarter and not another. Pro forma EBITDA is defined as operating income adjusted for depreciation, amortization, stock compensation expenses, major restructuring costs and certain other non-operating income and expense items. We have excluded these items in order to enhance investors' understanding of our ongoing operations. This measure is used by some investors when assessing the performance of Coherent. Each of the non-gaap financial measures described above, and used herein, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-gaap financial measures as an analytical tool. In particular, these non-gaap financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in Coherent s financial results for the foreseeable future. In addition, other companies, including other companies in Coherent s industry, may calculate non-gaap financial measures differently than Coherent does, limiting their usefulness as a comparative tool. Thanks, Leen. Good afternoon everyone and welcome to our third fiscal quarter conference call. We had several noteworthy events in the third quarter. We achieved a new record in materials processing orders. We shipped a prototype of a three kilowatt fiber laser. We secured design wins in the instrumentation and medical OEM space. There was further progress in glass cutting and we re poised for a meaningful new LTPS order. We introduced several new products and went virtual at a tradeshow, which is the first time it s ever been done in our industry. Quarterly Results Second quarter bookings of $189.2 million were down 6.3% sequentially and 13.6% compared to the prior year period. The book-to-bill for the third quarter was

5 Scientific Scientific orders in the third quarter of $28.8 million were down 0.3% sequentially and up 6.7% versus the prior year period. A strong performance in China and benefits from Abenomics in Japan helped offset continued softness in the U.S. and European research markets. Orders were again skewed towards life science applications, especially in the U.S. where physical sciences are more heavily impacted by sequestration. We introduced a new member of our Vitara family in the third quarter. The Vitara Ultra Broadband is the first laser to simultaneously deliver pulses shorter than eight femtoseconds and provide adjustable bandwidth. Trust me; this is a big deal to propeller heads the world over. Instrumentation and OEM Components Instrumentation and OEM components orders of $31.8 million were down 32.8% sequentially and up 7.4% versus the prior year period. The sequential decline is largely due to the timing of volume orders from medical OEM accounts. Our instrumentation business is holding up well despite the effects of sequestration. Part of the strength comes from new products including OBIS and Galaxy that have broadened our market participation. Our legacy products such as Sapphire remain a cornerstone in the cytometry market. Medical OEM bookings were lower following a record-setting second quarter that included a number of volume orders. We have been working on design wins in this space and received a pilot order for cataract treatment. We are also working on a next generation laser for flap cutting in LASIK, which promises to reduce system cost and complexity. Microelectronics Microelectronics orders of $88.2 million decreased 2.8% sequentially and 34.8% compared to the prior year period. The large year-over-year decline is due to the timing of large ELA orders. The semiconductor capex market is being influenced by a number of factors heading into the second half of calendar 2013 and Industry analysts are forecasting rising utilization rates, which boosts capacity expansion and service revenues, due to increasing demand for advanced components for smartphones, 5

6 tablets, set-top boxes and automotive electronics. Growth in these devices offsets continued deterioration of the PC market. Demand should also be bolstered by shifts within the IDM universe with TSMC purportedly winning the applications processor for Apple. The combination of these factors has led Gartner to project semi capex growth at 19% and SEMI at 24% for calendar Orders from advanced packaging and interconnects applications were very strong during the third quarter for CO 2 lasers used in via drilling and UV lasers used in laser direct imaging and flex circuit manufacturing. We believe the strong demand is, in part, due to Chinese and Taiwanese PCB manufacturers ramping up for the new iphone. The trends within the FPD market are consistent with previous reports. The rollout of LTPS annealing systems continues and we are actively negotiating the next round of orders. New systems will need to support WQXGA (2560 x 1440 or >500 pixels per inch) displays, which may require higher laser powers to maintain throughput levels. These displays will be utilized in premium smartphones and phablets and will represent a portion of the estimated 450 million AMOLED displays to be produced in For comparison, approximately 195 million AMOLED displays will be produced in We have seen an increase in demand for UV lasers used in patterning One Glass Solution or OGS panels. The use of OGS is expected to increase since it is thinner, lighter and less expensive to manufacture than other designs. Application development for cutting of strengthened glass is very active with emphasis on the cut quality, speed and the ability to make rounded cuts with little to no post processing. It should be no surprise that Asian panel manufacturers will be at the forefront of this business. With respect to the TV market, Samsung has begun shipping a 55-inch, AMOLED-based unit. It has a curved screen and a LTPS backplane. It is a dramatic looking device with a matching $15,000 price tag. The price will come down as capacity comes on-line and yields increase. Materials Processing For a second consecutive quarter, we have set a new record for materials processing orders. Bookings were $40.4 million, which were up 16.1% sequentially and 49.1% versus the prior year period. Bookings were strong across most submarkets and product lines. Cutting and packaging for consumer devices drove orders for UV-marking and CO 2 -cutting lasers. Orders for kilowatt class CO 2 lasers came from consumer packaging applications. 6

7 We are making good progress in our fiber laser programs. We are shipping one kilowatt lasers as planned and field deployment is going as expected. We also shipped a three kilowatt prototype to a leading system integrator for metal cutting. Testing at their facility has gone very well. The system delivers the required cutting speed and quality in a package considerably smaller than fiber lasers of comparable output power, thereby saving space on the production floor. In an OEM configuration, the laser might even fit inside the customer s tool. The next step is to ship beta units to end users for device and process validation. If all goes according to plan, we would expect to receive an OEM volume order in Wrap We re presenting at several upcoming investor conferences including the Needham conference in New York on August 13 th, the Deutsche Bank Access Technology conference in Las Vegas on September 10 th and the Longbow conference in New York on September 12 th. I ll now turn the call back over to the operator for the Q&A session. 7