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FEI Reports Third Quarter Results

Revenue of $227.8 Million and Book-to-bill of 1.1

GAAP EPS of $0.51 and Non-GAAP EPS of $0.69

HILLSBORO, Ore., Oct. 28, 2014 (GLOBE NEWSWIRE) -- FEI Company (Nasdaq:FEIC) reported results for third quarter of 2014. Revenue of $227.8 million was up 4.2% compared to $218.5 million in the third quarter of 2013 and down 3.9% compared to $237.0 million in the second quarter of 2014.

Net bookings in the third quarter were $250.1 million with a book-to-bill ratio of 1.1-to-1. Backlog grew to a record $539.0 million, an increase of $65.5 million since the beginning of the year. Bookings and backlog in the third quarter were negatively impacted by $19.4 million due to revaluation of the backlog for changes in foreign exchange rates. Excluding the impact of foreign exchange revaluations on existing backlog, bookings for the third quarter would have been $269.5 million, an all-time record and up 4.0% compared with the second quarter of 2014. Movements in foreign exchange rates negatively impacted revenue in the third quarter by $2.7 million, compared with second quarter of 2014 rates.

Diluted earnings per share computed on the basis of accounting principles generally accepted in the United States ("GAAP") were $0.51, compared with $0.67 in the third quarter of 2013 and $0.59 in the second quarter of 2014. Net income for the quarter was $21.6 million compared with $28.6 million in the third quarter of 2013 and $24.9 million in the second quarter of 2014. Third quarter results include previously announced realignment and other charges of $7.7 million, or $0.18 per share, net of taxes.

Diluted earnings per share computed on a non-GAAP basis were $0.69, compared with $0.67 in the third quarter of 2013 and $0.70 in the second quarter of 2014. Non-GAAP net income for the quarter was $29.4 million, compared with $28.6 million in the third quarter of 2013 and $29.7 million in the second quarter of 2014.

The gross margin in the third quarter was 47.7%, up 130 basis points from 46.4% in the second quarter of 2014 and at the highest level since 47.9% in the third quarter of 2013.

"Earnings were at the high end of our guidance range and we are encouraged by our gross margin progress," commented Don Kania, president and CEO. "We exited the quarter with record backlog reflecting strong customer demand for our differentiated workflows across both Science and Industry. We continue to see increased interest from customers in key new adjacent markets of structural biology and near-line semiconductor. While foreign exchange movements negatively impacted our reported revenue and backlog, our future earnings stand to benefit from the stronger US dollar.

"Looking forward, we expect fourth quarter revenue to be up substantially over the third quarter, supported by the strong bookings activity over the past several quarters. Profitability is expected to improve in the fourth quarter and we believe we are on track to achieve our mid-2015 targets of 50% gross margin and 20% operating income."

Total cash, investments and restricted cash at the end of the quarter was $493.0 million, a decrease of $17.2 million from the end of the second quarter. Cash flow provided by operating activities was $28.2 million. During the quarter, the company spent $9.8 million to repurchase 126,000 shares of its common stock, paid cash dividends of $10.5 million and spent $12.1 million on plant and equipment, principally to complete the new facility in the Czech Republic. Including share repurchases made through October 27, the company has repurchased 795,000 shares of common stock at a total cost of $62.5 million since the beginning of 2014.

Outlook

For the fourth quarter of 2014, revenue is expected to be in the range of $265.0 million to $280.0 million. GAAP earnings per share are expected to be in the range of $0.80 to $0.94. GAAP earnings guidance for the fourth quarter includes restructuring costs of approximately $7.5 million. Non-GAAP earnings per share are expected to be in the range of $0.94 to $1.08. The effective tax rate is expected to be approximately 20%.

Non-GAAP Financial Measures

This press release reports FEI's results on a GAAP basis as well as on a non-GAAP basis. Non-GAAP net income, diluted earnings per share, operating expenses, operating income, cost of sales and gross margin exclude certain costs for asset impairments, inventory write-downs and severance related to the company's facilities consolidation and realignment efforts and related tax impacts. A reconciliation of these charges and benefits, along with their impact on net income and earnings per share, is included in a table attached to this press release, along with GAAP statements of operations, balance sheets, additional supplementary information and summary cash flow information.

FEI's management uses these non-GAAP financial measures because they exclude items that are generally not directly related to the performance of the company's core business operations and therefore provides useful supplemental information to management and investors regarding the performance of the company's business operations, facilitates comparisons to the company's historical operating results and enhances investors' ability to review FEI's business from the same perspective as FEI's management.

These non-GAAP financial measures are not intended to be used in isolation and should not be considered a substitute for any other performance measure determined in accordance with GAAP. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool, including that other companies may calculate similar non-GAAP financial measures differently, limiting their usefulness as a comparative tool. The company compensates for these limitations by providing specific information regarding the GAAP amounts included in or excluded from the non-GAAP financial measures. The company further compensates for the limitations of its use of non-GAAP financial measures by presenting comparable GAAP measures more prominently. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures included with this press release with our GAAP net income and net income per diluted share.

Investor Conference Call -- 2:00 p.m. Pacific time, Tuesday, October 28, 2014

Parties interested in listening to FEI's quarterly conference call may do so by dialing 1-888-417-8516 (U.S., toll-free) or +1-719-457-2628 (international and toll), with the conference title: FEI Third Quarter Earnings Conference Call, Conference ID 7851326. The call can also be accessed via the web by going to FEI's Investor Relations page at http://investor.fei.com/events.cfm, where the webcast will also be archived.

Safe Harbor Statement

This news release contains forward-looking statements that include guidance for revenue and earnings per share for the fourth quarter of 2014, the impact of certain items on our results for the quarter, assumptions about tax rates and our continued progress toward our mid-2015 gross margin and operating income targets. Forward-looking statements may also be identified by words and phrases that refer to future expectations, such as "guidance", "guiding", "forecast", "toward", "plan", "expect", "expects", "are expected", "is expected", "will", "projecting", "looking forward", "continue to see", "outlook" and other similar words and phrases. Factors that could affect these forward-looking statements include, but are not limited to: the global economic environment; lower than expected customer orders, including for recently-introduced products; potential weakness of the Science and Industry market segments; potential disruption in manufacturing or unexpected additional costs due to the transition from older to newer products; potential delayed or reduced governmental spending to support expected orders; potential disruption in the company's operations due to organizational changes; cyclical changes in the semiconductor industry, which is a major component of Industry market segment revenue; the relative mix of higher-margin and lower-margin products; potential for increased volatility resulting from larger sales transactions and rescheduling of orders by customers; risks associated with a high percentage of the company's revenue coming from "turns" business, when the order for a product is placed by the customer in the same quarter as the planned shipment, and risks associated with building and shipping a high percentage of the company's quarterly revenue in the last month of the quarter; delays in meeting all accounting requirements for revenue recognition; fluctuations in foreign exchange rates, which can affect margins or the competitive pricing of our products; additional costs related to future merger and acquisition activity; failure of the company to achieve anticipated benefits of acquisitions and collaborations, including failure to achieve financial goals and integrate acquisitions successfully; reduced profitability due to failure to achieve or sustain margin improvement in service or product manufacturing; failure to achieve improved operational efficiency and other benefits from infrastructure investments and restructuring activities; changes to current restructuring activities, including greater than estimated costs, or potential additional restructurings, realignments and reorganizations; potential customer cancellations or requests to defer planned shipments; changes in backlog and the timing of shipments from backlog; inability to deploy products as expected or delays in shipping products due to technical problems or barriers, especially with regard to recently introduced TEM products; potential shipment or supply chain disruptions; and additional selling, general and administrative or research and development expenses. 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.

About FEI:

FEI Company (Nasdaq:FEIC) designs, manufactures and supports a broad range of high-performance microscopy workflow solutions that provide images and answers at the micro-, nano- and picometer scales. Its innovation and leadership enable customers in industry and science to increase productivity and make breakthrough discoveries. Headquartered in Hillsboro, Ore., USA, FEI has over 2,600 employees and sales and service operations in more than 50 countries around the world. More information can be found at: www.fei.com.

FEI Company and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 28, June 29, December 31,
2014 2014 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 272,441 $ 272,372 $ 384,170
Short-term investments in marketable securities 92,589 125,945 108,191
Short-term restricted cash 11,988 19,176 18,798
Receivables, net 219,203 225,174 194,418
Inventories, net 190,394 195,712 181,725
Deferred tax assets 9,890 10,670 15,114
Other current assets 42,648 35,913 28,324
Total current assets 839,153 884,962 930,740
Non-current investments in marketable securities 77,005 57,643 47,278
Long-term restricted cash 38,953 35,075 32,718
Non-current inventories 53,845 57,326 62,104
Property plant and equipment, net 166,520 171,937 157,829
Intangible assets, net 59,371 65,121 47,197
Goodwill 177,820 184,994 136,152
Deferred tax assets 9,156 7,528 1,751
Other assets, net 17,693 13,668 10,315
TOTAL $ 1,439,516 $ 1,478,254 $ 1,426,084
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 79,584 $ 87,975 $ 73,247
Accrued liabilities 48,970 53,743 57,851
Deferred revenue 92,386 91,033 91,563
Income taxes payable 12,435 8,651 4,579
Accrued restructuring, reorganization and relocation 6,462 1,398 50
Other current liabilities 55,907 52,331 46,324
Total current liabilities 295,744 295,131 273,614
Other liabilities 77,543 83,703 74,902
SHAREHOLDERS' EQUITY:
Preferred stock - 500 shares authorized; none issued and outstanding
Common stock - 70,000 shares authorized; 41,844, 41,959 and 42,136 shares issued and outstanding at September 28, 2014, June 29, 2014 and December 31, 2013 623,092 626,814 637,482
Retained earnings 438,564 427,307 392,958
Accumulated other comprehensive income 4,573 45,299 47,128
Total shareholders' equity 1,066,229 1,099,420 1,077,568
TOTAL $ 1,439,516 $ 1,478,254 $ 1,426,084
FEI Company and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 28, June 29, September 29, September 28, September 29,
2014 2014 2013 2014 2013
NET SALES:
Products $ 169,131 $ 179,030 $ 162,452 $ 517,459 $ 502,284
Service 58,625 57,925 56,044 173,517 159,879
Total net sales 227,756 236,955 218,496 690,976 662,163
COST OF SALES:
Products 83,653 92,077 79,894 262,327 247,757
Service 35,522 35,027 33,857 103,893 100,213
Total cost of sales 119,175 127,104 113,751 366,220 347,970
Gross margin 108,581 109,851 104,745 324,756 314,193
OPERATING EXPENSES:
Research and development 25,312 26,221 25,397 77,178 75,619
Selling, general and administrative 49,463 50,587 45,346 148,513 131,509
Restructuring, reorganization and relocation 7,699 2,228 11,259 1,090
Total operating expenses 82,474 79,036 70,743 236,950 208,218
OPERATING INCOME 26,107 30,815 34,002 87,806 105,975
OTHER EXPENSE, NET (831) (806) (661) (1,907) (3,618)
INCOME BEFORE TAXES 25,276 30,009 33,341 85,899 102,357
INCOME TAX EXPENSE 3,629 5,061 4,735 14,228 16,957
NET INCOME $ 21,647 $ 24,948 $ 28,606 $ 71,671 $ 85,400
BASIC NET INCOME PER SHARE DATA $ 0.52 $ 0.59 $ 0.69 $ 1.70 $ 2.14
DILUTED NET INCOME PER SHARE DATA $ 0.51 $ 0.59 $ 0.67 $ 1.68 $ 2.04
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 41,891 42,080 41,750 42,053 39,928
Diluted 42,465 42,627 42,455 42,624 42,300
FEI Company and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended (1) Thirty-Nine Weeks Ended (1)
September 28, June 29, September 29, September 28, September 29,
2014 2014 2013 2014 2013
NET SALES:
Products 74.3% 75.6% 74.4% 74.9% 75.9%
Service 25.7 24.4 25.6 25.1 24.1
Total net sales 100.0% 100.0% 100.0% 100.0% 100.0%
COST OF SALES:
Products 36.7% 38.9% 36.6% 38.0% 37.4%
Service 15.6 14.8 15.5 15.0 15.1
Total cost of sales 52.3% 53.6% 52.1% 53.0% 52.6%
GROSS MARGIN:
Products 50.5% 48.6% 50.8% 49.3% 50.7%
Service 39.4 39.5 39.6 40.1 37.3
Gross margin 47.7 46.4 47.9 47.0 47.4
OPERATING EXPENSES:
Research and development 11.1% 11.1% 11.6% 11.2% 11.4%
Selling, general and administrative 21.7 21.3 20.8 21.5 19.9
Restructuring, reorganization and relocation 3.4 0.9 1.6 0.2
Total operating expenses 36.2% 33.4% 32.4% 34.3% 31.4%
OPERATING INCOME 11.5% 13.0% 15.6% 12.7% 16.0%
OTHER EXPENSE, NET (0.4)% (0.3)% (0.3)% (0.3)% (0.5)%
INCOME BEFORE TAXES 11.1% 12.7% 15.3% 12.4% 15.5%
INCOME TAX EXPENSE 1.6% 2.1% 2.2% 2.1% 2.6%
NET INCOME 9.5% 10.5% 13.1% 10.4% 12.9%
(1) Percentages may not add due to rounding.
FEI Company and Subsidiaries
Non-GAAP Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended (2) Thirty-Nine Weeks Ended (2)
September 28, June 29, September 29, September 28, September 29,
2014 2014 2013 2014 2013
GAAP Gross Margin $ 108,581 $ 109,851 $ 104,745 $ 324,756 $ 314,193
Adjustment for:
Inventory write-off 230 755 985
Non-GAAP Gross Margin $ 108,811 $ 110,606 $ 104,745 $ 325,741 $ 314,193
GAAP Operating Expenses $ 82,474 $ 79,036 $ 70,743 $ 236,950 $ 208,218
Adjustment for:
Acceleration of acquisition-related earn-out (2,500) (2,500)
Impairment and other asset write-offs (1,831) (466) (2,297)
Restructuring activities (7,699) (2,228) (11,259) (1,090)
Non-GAAP Operating Expenses $ 72,944 $ 73,842 $ 70,743 $ 220,894 $ 207,128
GAAP Operating Income $ 26,107 $ 30,815 $ 34,002 $ 87,806 $ 105,975
Adjustment for:
Inventory write-off 230 755 985
Acceleration of acquisition-related earn-out 2,500 2,500
Impairment and other asset write-offs 1,831 466 2,297
Restructuring activities 7,699 2,228 11,259 1,090
Non-GAAP Operating Income $ 35,867 $ 36,764 $ 34,002 $ 104,847 $ 107,065
GAAP Net Income $ 21,647 $ 24,948 $ 28,606 $ 71,671 $ 85,400
Adjustment for:
Inventory write-off, net of tax 183 607 782
Acceleration of acquisition-related earn-out, net of tax 2,011 1,984
Impairment and other asset write-offs, net of tax 1,453 375 1,823
Restructuring activities, net of tax 6,110 1,792 8,935 870
Non-GAAP Net Income $ 29,393 $ 29,733 $ 28,606 $ 85,195 $ 86,270
GAAP Diluted Net Income Per Share $ 0.51 $ 0.59 $ 0.67 $ 1.68 $ 2.04
Adjustment for:
Inventory write-off 0.01 0.02
Acceleration of acquisition-related earn-out 0.05 0.05
Impairment and other asset write-offs 0.03 0.01 0.04
Restructuring activities 0.14 0.04 0.21 0.02
Non-GAAP Diluted Net Income Per Share $ 0.69 $ 0.70 $ 0.67 $ 2.00 $ 2.06
(2) Diluted net income per share amounts may not add due to rounding.
FEI Company and Subsidiaries
Reconciliation of Forward-Looking Non-GAAP Information
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended December 31, 2014
Low Range Guidance High Range Guidance
GAAP Net Income $ 33,600 $ 39,500
Adjustment for:
Restructuring, reorganization and relocation (3) 7,500 7,500
Income tax effect of above adjustments (1,500) (1,500)
Non-GAAP Net Income $ 39,600 $ 45,500
GAAP Net Income Per Share $ 0.80 $ 0.94
Non-GAAP Net Income Per Share $ 0.94 $ 1.08
Shares Used in Above Calculations 42,200 42,200
(3) Principally severance costs and lease abandonment.
FEI Company and Subsidiaries
Consolidated Summary of Cash Flows
(In thousands)
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 28, September 29, September 28, September 29,
2014 2013 2014 2013
Net Income $ 21,647 $ 28,606 $ 71,671 $ 85,400
Depreciation 7,740 5,991 22,379 17,442
Amortization 3,614 2,620 10,478 7,868
Stock-based compensation 6,494 4,603 17,456 13,316
Other changes in working capital (11,320) 6,898 (49,386) 16,218
Net cash provided by operating activities 28,175 48,718 72,598 140,244
Acquisition of property, plant and equipment (12,107) (4,586) (35,429) (47,152)
Payments for acquisitions, net of cash acquired (2,694) (65,049) (2,694)
Other investing activities 13,631 (12,812) (17,967) (24,158)
Net cash used in investing activities 1,524 (20,092) (118,445) (74,004)
Dividends paid on common stock (10,490) (5,010) (20,619) (11,173)
Repurchases of common stock (9,836) (40,315)
Other financing activities 2,379 1,850 10,940 9,223
Net cash used in financing activities (17,947) (3,160) (49,994) (1,950)
Effect of exchange rate changes (11,683) 5,966 (15,888) 4,910
(Decrease) increase in cash and cash equivalents $ 69 $ 31,432 $ (111,729) $ 69,200
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes, net $ 4,575 $ 1,302 $ 14,458 $ 7,505
Accrued purchases of plant and equipment 986 6,434 986 6,434
FEI Company and Subsidiaries
Supplemental Data Table
($ in millions, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 28, June 29, September 29, September 28, September 29,
2014 2014 2013 2014 2013
Income Statement Highlights
Consolidated sales $ 227.8 $ 237.0 $ 218.5 $ 691.0 $ 662.2
Gross margin 47.7% 46.4% 47.9% 47.0% 47.4%
Net income $ 21.6 $ 24.9 $ 28.6 $ 71.7 $ 85.4
Diluted net income per share $ 0.51 $ 0.59 $ 0.67 $ 1.68 $ 2.04
Sales and Bookings Highlights
Sales by Segment
Industry Group $ 107.1 $ 127.2 $ 103.6 $ 340.7 $ 306.4
Science Group 120.7 109.8 114.9 350.3 355.8
Sales by Geography
USA & Canada $ 77.0 $ 80.5 $ 65.2 $ 229.7 $ 195.4
Europe 56.6 63.6 63.1 187.2 199.3
Asia-Pacific and Rest of World 94.2 92.9 90.2 274.1 267.5
Gross Margin by Segment
Industry Group 51.5% 50.4% 54.2% 51.5% 52.4%
Science Group 44.3 41.7 42.2 42.7 43.2
Bookings and Backlog
Bookings - Total $ 250.1 $ 259.0 $ 251.0 $ 756.4 $ 719.4
Book-to-bill Ratio 1.10 1.09 1.15 1.09 1.09
Backlog - Total $ 539.0 $ 516.7 $ 482.0 $ 539.0 $ 482.0
Backlog - Service 160.5 143.5 126.2 160.5 126.2
Bookings by Segment
Industry Group $ 154.2 $ 109.9 $ 98.8 $ 387.3 $ 310.2
Science Group 95.9 149.1 152.2 369.1 409.2
Bookings by Geography
USA & Canada $ 90.0 $ 86.4 $ 63.7 $ 234.5 $ 198.4
Europe 53.4 73.3 81.0 219.4 204.1
Asia-Pacific and Rest of World 106.7 99.3 106.3 302.5 316.9
Balance Sheet and Other Highlights
Cash, equivalents, investments, restricted cash $ 493.0 $ 510.2 $ 508.9 $ 493.0 $ 508.9
Days sales outstanding (DSO) 88 87 89 88 89
Days in inventory 190 181 205 190 205
Days in payables (DPO) 61 63 61 61 61
Cash Cycle (DSO + Days in Inv - DPO) 217 205 233 217 233
Working capital $ 543.4 $ 589.8 $ 633.0 $ 543.4 $ 633.0
Headcount (permanent and temporary) 2,693 2,689 2,609 2,693 2,609
Euro average rate 1.33 1.37 1.33 1.36 1.32
Euro ending rate 1.27 1.36 1.35 1.27 1.35
Yen average rate 103.38 102.18 98.83 102.76 96.46
Yen ending rate 109.04 101.37 98.63 109.04 98.63

CONTACT: FEI Company Jason Willey Investor Relations Director (503) 726-2533 jason.willey@fei.com

Source:FEI Company