Zygo Corporation (NASDAQ:ZIGO)
F1Q09 (Qtr End 09/30/08) Earnings Call Transcript
October 30, 2008, 6:00 pm ET
Walter Shephard – VP, Finance, CFO, and Treasurer
Bruce Robinson – Chairman & CEO
Ladies and gentlemen, thank you for standing by and welcome to the Zygo Corporation Q1 Fiscal 2009 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question-and-answer session.
As a reminder, this conference is being recorded today Thursday, October 30, 2008. I would now like to turn the conference over to Walter Shephard, Chief Financial Officer. Please go ahead sir.
Thank you, Dave. Good evening everyone. I want to thank you for joining us tonight for our first quarter fiscal 2009 conference call. Before I turn the call over to Bruce Robinson, Zygo’s Chairman and CEO, I would like to read the following forward-looking statement.
All statements, other than statements of historical facts that are made during this call regarding our financial position, business strategy, plans, anticipated growth rates, market acceptance, and objectives of management for future operations are forward-looking statements. Forward-looking statements are intended to provide management's current expectations or plans for the future operating and financial performance based upon information currently available and assumptions currently believed to be valid.
Forward-looking statements can be identified by the use of the words such as, "anticipate," "believe," "estimate," "expect," "intend," "plan," "strategy," "project," and other words of similar meaning in connection with the discussion of future operating or financial performance. Actual results could differ materially from those contemplated by the forward-looking statements as the result of certain factors.
Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are fluctuations in capital spending of our customers, fluctuation in net sales to our major customers, manufacturing and supplier risks, dependence on timing and market acceptance of new product development, rapid technological and market change, risk in international operations, dependence on proprietary technology and key personnel, length of the sales cycle, environmental regulation, investment portfolio returns, fluctuations in our stock price, and the risks associated with the merger between the ESI and Zygo. Further information on potential factors that could affect Zygo Corporation's business is described in our reports on file with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended June 30, 2008.
Now I’d like to turn the call over to Bruce.
Thank you, Walter. Ladies and gentlemen welcome to Zygo’s first quarter fiscal 2009 conference call.
The good news is that the attention to expense control and margin improvement allowed us to achieve profitability at the high end of our expectations in a very difficult economic climate. In addition, our core instrument group continued to grow in the quarter. We were also pleased that the optics division received a contract for manufacturing a new disease-related surgical device for $1 million in the early part of this second quarter. The bad news is we anticipate that a global recovery in CapEx spending is likely to be slow and long-term. We have experienced push outs across virtually all segments of our business.
Recent estimates from analysts put capital spending in the semiconductor sector down a further 18% in 2009 with a bottom in the second to third quarter. This estimate today is probably as accurate or inaccurate as anyone else’s at this point in time. This makes it very difficult to provide any visibility as to future orders in sales. The semiconductor market has been particularly hard hit and as to when it will recover is very difficult to predict.
In October, we announced that the company had signed a merger agreement with ESI Inc. in an all-stock transaction. A proxy statement regarding the contemplated merger will be filed with the SEC in a few weeks and will outline in detail the reasons for the merger. In the meantime, our focus in Zygo has to be on controlling expenses to match the economic conditions while not jeopardizing the future opportunities when the market recovers.
I will now turn it over to Walter to give you the financial results.
Thank you, Bruce.
As we have reported, orders in the quarter were $28.8 million with the Metrology Solutions Division accounting for 79% of the total orders booked. Within this division, our instrument group booked the majority of the orders as the diverse customer base mitigated some of the economic conditions. The rest of the division all heavily semiconductor related, felt the effects of the worldwide reduction for capital expenditures.
Our Optical Systems orders were also impacted by the macroeconomic picture. Although this division is not as exposed as the semiconductor market as the Metrology Division is, it saw order push outs from one of its main customers in the elective eye surgery market. Although there is quoting activity going on, aside from the new customer win that Bruce mentioned that occurred earlier in the second quarter, placement of orders has slowed. Backlog at the end of the quarter was just under $63 million.
Sales for the quarter at $38.4 million of which 72% was from the Metrology Solutions Division and the balance of 28% from the Optical Systems Division. Canon sales in quarter represented 19% of the total sales with 11% being Canon consumed sales and sales to other end-use customers accounting for 8%.
As well as the case with orders, Metrology Division sales where led by the instrument group which had an 11% growth over Q1 of last year. In addition, the Display Systems unit also had a strong quarter in terms of revenue as we begin to shift the strong backlog accumulated at the end of the last fiscal year.
We are pleased with the gross profit margin of approximately 44%. Both divisions had solid improvements in their margins from the previous year with a combination of product mix and factory cost down efforts showed positive effects.
Operating expenses were $15.6 million in the quarter. Although this is an increase over the $13.1 million of expenses in Q1 of last year, it is down $3.7 million from our fourth quarter numbers and it does reflect the additional operating cost of the Solvision acquisition. It was not in the last quarter it is first quarter numbers.
We have concentrated our cost control efforts by delaying hiring were appropriate and pushing out expenses but not at the expense of hurting critical projects. Our net income in the quarter was $500,000 or $0.03 a share on a diluted basis. This represents a $0.08 turnaround from our Q1 loss over a year ago.
Our balance sheet remains strong. Our cash, cash equivalents, and marketable securities were $52.3 million, an increase of $1.2 million from the year-end. Although our accounts receivable balance declined by $2.4 million, our DSOs has increased to 61 days from 55 days at year-end. Despite this increase the receivables are in good shape, we do not see any unusual changes in our customers paying habits.
Inventory levels rose to $40.6 million, an increase of $3.1 million from the beginning of the year. The reason for the increase is that we do have semiconductor units, principally Display Systems, in the field that are waiting acceptance for revenue recognition. In addition, the instrument group inventory increased in preparation for Q2 shipments. We will now turn the call over to the operator today for questions.
Thank you, sir.
(Operator instructions) Mr. Shephard, there are no questions at present time, sir.
I think that’s understandable. I did want to mention – this is Bruce Robinson, I did want to mention that the filings that are with the SEC at the moment are public and can be taken online. We’ll be filing the S-4 in a few weeks and when the S-4 comes out there will be a lot more information concerning the merger. At that point in time, then we can discuss it in further detail. Thank you very much for attending this evening and we appreciate it very much.
Ladies and gentlemen that does conclude the conference call for today. We thank you very much for your participation.
(Operator instructions) Thank you very much for attending and have a great day.
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