Coherent Inc. F1Q09 (Qtr End 12/27/08) Earnings Call Transcript

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 |  About: Coherent, Inc. (COHR)
by: SA Transcripts

Operator

(Operator Instructions) Your first question comes from Mark Douglass - Longbow Research.

Mark Douglass - Longbow Research

A couple of things. What was the orders for scientific again? I missed that.

John Ambroseo

$30.9 million.

Mark Douglass - Longbow Research

When did the investigations roll off for the legal expenses?

John Ambroseo

The remaining costs are tied to the derivative litigation and there is ongoing dialogue with the Plaintiffs in that matter. We can’t tell you an exact timeframe for it.

Mark Douglass - Longbow Research

Okay, But you would expect them to continue to trend down, I assume?

John Ambroseo

I can’t make any predictions at this time, Mark.

Mark Douglass - Longbow Research

Okay, fair enough. Can you give a little more color I guess into the microelectronics market? Your solar I guess, you said its doing okay at this time? Are those orders starting to roll off--?

John Ambroseo

The solar market has performed reasonably well over the last few years. I think if you look at the numbers for ‘08, ‘07, ‘06, you saw roughly a doubling of the business every year. Certainly the first quarter this year, we have record bookings for any given quarter, and that is good news, but as I said there are a lot of moving pieces in the solar market and funding is the big question mark right now, not only from the company end, but also from the consumer end.

That is the reason that I use the term, that we are guardedly optimistic rather than wildly optimistic about the opportunity. As far as the sales of the microelectronics market, I think the pressures in that segment are well documented by companies who have much greater exposure to it than we do. There is weakness in chip demand, there’s weakness in end user demand. So its pretty broad spread at this point.

Mark Douglass - Longbow Research

Your gross margin performance was nice. You were able to get those tops out of there fairly quickly, quicker than I anticipated, that was good to see. Are you expecting I assume the movements you made and the re-foot printing of everything, you’re confident that your 42%, 43% say pro-forma gross margin is more or less sustainable for the rest of the year and going forward?

John Ambroseo

I would love to be able to confirm that, but there is a lot that goes into it, including revenue levels and mix and I think there is enough uncertainty in the marketplace right now that we’ll stick to the 90 day guidance.

Operator

(Operator Instructions) Your next question comes from John Harmon - Needham & Company.

John Harmon - Needham & Company

A couple of questions; first of all, given the remarks you made about the MOCVD versus MBE, I just want to confirm that it is your intention to move the functions performed in Finland into this new facility and equipment that you acquired or is this a new capability for you?

John Ambroseo

This is new capability and we’ll be making future comments about the over arching technologies once we’ve completed all the statutory discussions in Finland.

John Harmon - Needham & Company

Okay, but you did say you do aim to close the Finland fab, clearly this is probably the logical location for that activity to go. I was just wondered if you could kind of talk about the economics of Finland, which is probably an expensive place to have a fab, versus the bay area, which is also an expensive place for a fab?

John Ambroseo

I have to be somewhat delicate in answering this question, John because we are involved as I said in statutory discussions in Finland and before we make any definitive comments we need to complete those good faith discussions. As far as what we’re seeking to do, we do believe that the next generation of technology will be MOCVD based for a number of different applications which is why we made this investment and you can do things with MOCVD that you simply can’t do with MBE.

John Harmon - Needham & Company

Regarding your materials processing business, you reminded us that Photonics West that you are mostly in in-organics, but certainly with your Nuvonics technology you are more in the high powered part of the space.

Would you say that all portions of materials processing have been affected equally or do you think in-organics might have fared any better or worse than metal cutting and other high powered applications?

John Ambroseo

I’m going to reserve judgment on some of the high power applications. Although if you look at the end markets that the high power devices are going into, they all seem to be under pressure. So I wouldn’t be surprised if there is some pressure there, but again our participation at this point is really in low-power and organic processing.

The interesting thing that we have seen in the highlight I has been good and continues to be good and that is very refreshing, but it does represent a break in the cost model as well as the ease of use and integration. I guess I’m hesitating because I’m not sure if it is a new technology that is gaining people’s attention or if it is simply another tool in a market that is holding up well. I don’t think we have enough visibility yet to make that call.

John Harmon - Needham & Company

A question for Leen please, the goodwill that you wrote off, you said it was in the CLC segment, but to which acquisitions exactly does it pertain?

Leen Simonet

The analysis is done on the reporting unit level, which is for us two segments, CLC and SLS. So the fair value calculation is basically done on the entire CLC segment. I can tell you what rolls up into it a little bit, but it is not done on the lower level basis.

Some of the acquisitions or a part of the CLC segment would be our Portland organization, would be the Nuvonics acquisition. It includes some older technologies that we bought a while back as part of semiconductor and it includes the Island technology that we bought about a couple of years ago. So as I said, the analysis is done at the segment level not at the individual acquisition level, because our reporting unit is equal to segment and we also have in there the CO2 acquisition, I think we did in 2000.

Operator

(Operator Instructions) Your next question coming from Jiwon Lee - Sidoti & Company.

Jiwon Lee - Sidoti & Company

First of all for Leen, the other income in the expense line, that was predominantly from, I guess the compensation charge, right the losses from the compensation. Could you give us a little more idea about how much that was in that quarter?

Leen Simonet

During the quarter it was probably about $6.8 million. As I said, the way it’s reflected in the income statement, it’s gross up. So in this particular quarter, we saw benefits of about $6.7 million in the period expenses and the reverse expense comes then in OIE. So net, net, net it has no impact to the company’s results or very immaterial, but it is done on a gross up basis from an accounting point of view.

Jiwon Lee - Sidoti & Company

And the second question is to John. How has order trended so far in the March quarter? Obviously, things are bad across your key markets, but is there any bright spot, as you have alluded in the flat panel display. Maybe there is some share gain opportunity, but how has the order tracked so far in the March quarter?

John Ambroseo

Jiwon I’m sorry, but we can’t comment on order patterns for the current quarter.

Operator

Your next question comes from Ali Motamed - Boston Partners.

Ali Motamed - Boston Partners

You gave some guidance. I was just hoping to clarify some things. You had mentioned revenue 108, 116. Gross profit, R&D and SG&A and then below that you talked about stock-based comp. When you gave those three cost items, did that include the stock based comp or would that be additive. If in the sense that, do I take 42% to 43% gross margin and then add stock-based comp to sort of further reduce that gross margin?

Leen Simonet

Yes, that is correct. When I gave you the percentages and the dollars for gross profit, R&D and SG&A it did not include stock compensation expenses, nor does it include the restructuring costs.

Ali Motamed - Boston Partners

Could you aggregate stock-based comp, the whole lot of it again for me one time?

Leen Simonet

Stock-based comp is going to be estimated at $2.5 million, of which $300,000 relates to cost of sales, $300,000 to R&D, and $1.9 million to SG&A.

Operator

At this time we have no further questions in the queue. I would like to turn the call back over to Mr. John Ambroseo for additional or closing remarks.

John Ambroseo

I’d like to thank everybody for participating in the call and we certainly look forward to talking to you in three month’s time.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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