FEI Company (NASDAQ:FEIC) Q4 2015 Earnings Conference Call - Final Transcript

Feb 02, 2016 • 05:00 pm ET

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FEI Company (NASDAQ:FEIC) Q4 2015 Earnings Conference Call - Final Transcript

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Presentation
Executive
Tony Trunzo

Q4 with revenue growing to $66 million, up 14% on an organic basis compared with Q4 last year. For the full year 2015 service revenue was $244 million, up 11% on an organic basis. Overall gross margin in the quarter was 48.8% compared with 46.5% a year-ago driven by improved factory absorption due to strong volume as well as higher software revenue.

Gross margin in the Science segment improved sequentially for the fourth consecutive quarter and Company-wide gross margin improved by 2.3 percentage points despite the negative gross margin impact of lower semiconductor revenue mix. Operating expenses were $74 million in Q4 compared with $82 million in Q4 of 2014.

Quarterly expenses included a year-over-year currency benefit of approximately $6 million and $5.3 million of additional costs related to the acquisition of DCG. Excluding unusual items in each of this year and last year, operating expenses were approximately flat year-over-year. Adjusted EBITDA for 2015 was $217 million, up 9% from 2014.

Moving forward we will provide an adjusted EBITDA reconciliation in our earnings press release to offer additional view into our operational performance, given recent M&A activity. Q4 cash from operations was $70 million and equal to 145% of quarterly net income. During the quarter we paid cash dividends of $12 million, invested $6.9 million in plant and equipment, and repurchased 433,000 shares of our stock at an average price of $75.77 per share.

Full-year cash from operations of $204 million was up 43% compared to 2014 and represented 138% of annual net income, excluding the non-cash benefit of the Q3 goodwill impairment charge. During 2015 we repurchased 1.4 million shares of our stock and increased our quarterly dividend for the third consecutive year to an annualized level of $1.20 per share.

Total returns to shareholders via dividends and repurchases were $153 million in 2015, equivalent to 75% of our cash flow from operations. At the end of 2015 we were over half way through the 2 million share two-year repurchase plan we announced at our June investor event. In December we invested $162 million in the previously announced acquisition of DCG, expanding our footprint in the less cyclical semiconductor lab. The combination of FEI and DCG technologies offers us the opportunity to create unique workflows that connect electrical failure and physical fault analysis. This is an area of increasing emphasis as device shrinks become more challenging, and logic and memory designs moves to 3D.

Q4 revenue included $1 million attributable to DCG, while Q4 operating expense includes transaction integration costs in the amount of $3.8 million and ongoing operating expenses of $1.5 million. The net impact on Q4 results from the DCG transaction was a reduction in net income of $3 million, or $0.07 a share. For the full year 2016, DCG is expected to generate revenue of approximately $70 million. Adjustments required by purchase accounting rules will reduce reported net revenue by approximately $12 million in 2016, with the majority of these adjustments occurring during Q1.

Taking into