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FEI Company (NASDAQ:FEIC)

Bank of America Merrill Lynch 2012 Health Care Conference Transcript

May 17, 2012 11:40 AM ET

Executives

Don Kania – President and CEO

Analysts

Derik de Bruin – Bank of America Merrill Lynch

Derik de Bruin – Bank of America Merrill Lynch

Yeah, final day of the Bank of America Merrill Lynch 2012 Health Care Conference. I‘m Derik de Bruin, the Life Sciences Tools and Diagnostics Analyst, and it’s my pleasure this morning to introduce next company, FEI Company, with President and CEO, Don Kania speaking today. There will be a brief presentation followed by some Q&A.

With that, Don.

Don Kania

Thanks a lot and it’s a pleasure to be here. So, get going to the, obviously, the Safe Harbor statement on the slide. We are not going to give anything new in terms of guidance or anything like that. Well, we’ll be reaffirming any guidance, but we’ll show it.

So, who is FEI? I think, we’re, just knew this space and it’s the healthcare world. Our company makes electron microscopes and similar nano tools. There is really three core technologies that we have, one is called transmission electron microscopy, the scanning electron microscopes, and this we called focused ion beam.

All you need to do is we make instrumentation that can see atoms, image molecules in three dimensions, and can -- with the machine surfaces at the atomic scale. And we configure three basic technologies to deliver that capability through a variety of markets, that’s how we do, average selling price, just over $1 million to give you a sense.

So, we also believe in organizing the company around markets and we talk about four markets publically. The semiconductor industry and upper right, there is a picture of President Obama. We visited Intel and Oregon. They put in front of FEI microscope. INTEL is a big customer, usually number one and number two, which will be like a 5%, 6% level, so customer concentration is relatively limited. But semiconductor customers Intel, [PSNT], et cetera, that’s our world there.

Below that is we have our Materials Science business, where we sell, basically the researchers either at in the industrial applications or at universities or institutes around the globe, and that’s Daniel Shechtman, who won the Noble Prize this year in chemistry. He is customer of ours. Great customer of ours and in fact gave our instrumentation credit for his ability to win that Noble Prize.

Upper right, National Protein Center, that’s our Life Sciences business. We do two things there. We work on structural biology that is three-dimensional imaging of micromolecular structure, interesting to the functioning of life and also cell biology, which is relatively new for us at all. I’ll talk a bit more about that.

In the lower right, National Resources business, we serve mining and oil and gas with measuring capabilities of the structures of minerals, and I’ll talk little bit about that too.

So in terms of, on the left, we really have markets that have been well-established for us and those are around a couple hundred million dollars revenue a year.

Upper right, Life Sciences, about $1 million, lower right, the emerging business for us of mineral, Natural Resources is about $50 million under that level. We don’t talk the details on that right now, because is still kind of small.

So, the way to think about FEI, we have a nice run, I think of late. But our goal in terms of continuing to grow the company, which has been about 12% cliff over the past decade or so, is to go find new served available market, use our platform, technologies, reconfigure those in such away either with better sample preparation, better workflows overall that we can go serve new markets, and I’ll show you, we plan to double that by 2014.

We want to continue to expand geographically in the recent quarters. Almost 50% of our business comes out of Asia and Japan, and that’s the dramatic shift over the past two years. We made significant investments there to grow.

And we continue to grow in established markets Europe and U.S. in particular. And at the same time, we are improving our margin performance overall, that includes delivering better value to the customers through workflow based products. Our new customers, our new businesses have higher margins than are older businesses and then we continue to improve our operations internally.

A snapshot here, as we look at the order performance over the past few years on the left-hand side with compound annual growth rate about 12% and in the near-term, you can see in the past few quarters have pretty good trajectory. In fact, we delivered record orders in last quarter in Q1 that we just reported, which is actually unusual, because it’s really off our seasonal pattern, usually Q4 is the strongest quarter, and that was, I’ll go a little bit on the strength of that.

So, let me go through the bookings by segment here, now we’ve taken that view from a marketplace perspective, you can see the four years below last couple of years.

And what we like in FEI is to have a balance amongst our businesses. We like to keep Electronics around the third of our business, so you can see up stage in that range, that’s the semiconductor business. We see it is a cyclical growth business, not as just a cyclical, like, I’ll show you some more information on that.

The Materials Science business steady grower for us, we’ve been doing that for almost the past decade. And then Life Sciences, new and emerging, still a bit spotty, because the average selling prices in that business are actually quite high, we sell tools in the $4 million to $6 million range, that’s the big driver in that business. And so, as a few move in or out of a particularly period that becomes relatively volatile.

And we do get an entitlement in every tool we sell, because there is a high proprietary content. I know the people can’t service them. So our Service and Components business continues to grow steadily sort of an 8% cliff every year, and we’ve been improving its profitability as well.

And if we look by geography and we think geography is really important part of the story for FEI, particularly if you look at the U.S. and particularly in the science and instrumentation area. For FEI over the past, I would say, four, five quarters, U.S. has just not been [doing well], there is nothing, no cliff to fall off, the U.S. has been slow for FEI.

And we don’t expect that to change, though I believe when budget certainty comes for ’13, I think that actually might release some funds, because people are ready to spend, nice to be a scientist, and I know what is like, you try to protect your people, you delay purchases as much as possible, so you get some certainty and I think since that certainty shows up on ’13, from FEI’s perspective, that is selling high ASP products, we manage to see some benefit from that removal of uncertainty.

Europe continues to be good, primarily because Eastern Europe is very, very strong. I think in Poland, recently Poland has been acquiring a lot of equipment. They are using their early EU funds to leverage up their infrastructure. So that they can compete for the Trans-European projects on an even basis with the established countries like Germany and Netherlands, France, et cetera.

Asia-Pacific, very strong, we made a move about five years ago. We’ve got to put up large infrastructure into China and that’s really paid off for us. China is over 12% of FEI’s business now, whereas five years ago, there was practically no business and we continue to believe that that trajectory will carry forward. China has tremendous -- when you look at tremendous infrastructure investment as well. So we expect that to be continued overall.

Certainly take a step back and look at our growth from a geographic perspective. If we look at the developing areas, particularly the Middle East, Eastern Europe and Asia are big drivers over the next few years for us. They’re going to help FEI continue to grow, and in certain quarters we achieve that 50% level coming out of Asia in the past few quarters.

So, let me take a step back. What do we mean by doubling our served available market, we covers our doughnut chart? So at the center of the doughnut, you have a served available market for FEI’s products, everything I described earlier about $1.5 billion and we think that grows 5%, 6% per year.

Around that doughnut, we believe this is a technology perspective. There is a bunch of other technologies or applications that people do, that we see perform in similar areas to what we do, whether it’s Material Science, Life Science, et cetera.

We have NMR, XRD which may be familiar to quite a few if you like microscopy and things like that. We think that total doughnut is simply $3 billion, growing at similar rate, it turns out.

So our strategy has been, I hit the right button, is to go and either by offering more value added or more directed solutions, so that we compete directly with different technologies that is NMR or XRD and Structural Biology, and I will highlight that a little bit, or by acquisition, we’ve actually pulled in like microscope solution into FEI. So we can expand our portfolio of offerings overall.

So the idea here is, we don’t need, we can grow faster than our served available market today, because we’re going to go after markets that where they are spending money, but offer a better mousetrap. So we are going to have new competitors, enter with zero market share, but increase our opportunity overtime.

And then we’ve made some investments lately, which I’ll touch on through the presentation, but through either strategic relations such as with the National Institute of Health or acquisition where we bought two little companies of late or our own investments. We are trying actively to engage in pulling that served available market into FEI's world.

So we’ll go through the market pieces and I’ll spend the most time on Life Sciences because that’s the most relevant to the conference we’re at right now. You can see the bookings overtime chart on the left-hand side.

This is an initiative we started in 2005 to focus on supporting our technology very explicitly through the Life Sconces sector. We focus on two pieces of the puzzle, Structural Biology, fundamentally three-dimensional imaging of large complicated macro molecular structures. And a sweet spot for us is above 150-kilodalton if that’s relevant to anybody in the audience.

We were able to look at arbitrarily complicated structures with a few Angstrom resolutions in three dimensions right now and it’s just the version of tomography, multiple axis views done at a very, very fine scale. And we think, I’ll talk a little bit. We see a lot of applications for that.

Cell biology, now the idea is Google Earth in short, correlative microscopy, take light microscopy, electron microscopy, which exceeded the sub-nanometer level and stick the two digital imaging modalities together in a seamless way for the researchers around the globe in Cellular Biology area.

We’ve got some partnerships. I'll talk a little bit about and then we can sell. But there is a global infrastructure spending going on in this are that we see is very attractive overall. So our key is three-dimensional workflows and we want to be the provider of the entire workflow, which also differentiates significant competitors.

So the biochemist or whatever, they spent their lifetime producing some very interesting or exotic like former fluids. We then take over from there, prepare the samples. We look at these samples in a frozen state, so it’s a live state that’s frozen very quickly, that’s what the Vitrobot does, goes into an imaging system with three-dimensional imaging system called the Krios, ASPs $4 million to $7 million.

And then we provide the software capabilities that convert the information that comes from that automated microscope into three-dimensional solutions, including things like segmentation.

So the upper bluish picture that’s a viral picture, just to give you a sense of what we can do. On viruses, we can get resolution below three actions and it becomes powerful technique in three dimensions.

I won’t go through all the details here, but the short story is, one of our customers at the National Institute of Health is an HIV researcher. He used our instrumentation to understand the mechanisms of HIV and how it interacts with the cellular structure, how it docks on to it and realized that some of the standard imaging techniques that have been used to identify that structure in fact an error, had to with how the samples were prepared. And in fact vaccine strategies have shifted in HIV, as a result of this research. So these are the kind of things that we can do.

Also, we can go in conjunction with existing imaging modalities in these areas, such as NMR. NMR is wonderful at looking at very specific sites of low complexity. We can then put that in the larger context of a larger macro electronic structure or some functioning thing in life.

So that’s why we do 3D imaging. Complementary, we believe to NMR, XRD but also it can provide some near life imaging capabilities that require crystallization. It can look at arbitrary complexities such as trends membrane structures as well.

We think we are early in this process and that's why we’ve done some strategic partnerships with the National Institutes of Health, where we brought together experts in NMR and X-ray, and our own cryo experts, pull them all together.

The goal here is over the next couple years is to importing science for disease, using all those modalities and showing how ultimately we hope that cryo electron microscopy, that is what FEI does. It provides more value for or additional value to that space.

Someone thinking about buying their eight NMR tool, might say, maybe the next one should be a cryo electron microscope and that’s what we mean by more served available market.

We are going to go, become a competitor with broker, for example. That’s our goal. New competitors, offering different capability, we are not going to offer NMR. But we are going to offer a capability that fits into that space, where today there is almost $600 million a year spent on equipment. So we don't need growth, we just need capabilities to win.

We also have, that collaboration includes the NCI, it includes NIDC, KD. It’s pretty cool. We are pretty excited about that. And really ultimately, we think there will be overtime, nowhere in the near-term, but we will get closer to the pharmaceutical world, because of the capabilities that we will provide for them. And I think the real answer is to stay tune overtime.

In Cell Biology, little bit different approach. We recently acquired a company called Till Photonics in Munich, Germany. Now that’s an idea of combining optical microscopy, high-performance either super resolution or live cell imaging that have both capabilities, made that up with either through some three-dimensional imaging modalities that we have or the cryo electron microscopy, I talked about earlier, see at high resolution and then merge that information together.

So, for example, you can use fluorescence microscopy to look at the special extent of some process. But if you want to understand in detail, say, inside the membrane, outside the membrane, how is that happening, where you can’t see that context with the light microscopy. The electron microscopy gives out that context at a finer level of detail.

So now the life science researchers are going to have both access to the dynamics that they get from fluorescence microscopy and the fine detail of context from electron microscopy.

So we acquired, Till just recently, just at the beginning of year. I will emphasize the goal here is not to sell more light microscopes, so we may do that. The goal is to make those technologies together in a workflow that really goes to the next step in high-performance microscopy for cellular biology.

So, summary Life Sciences, Structure Biology, we would have a full works flow solution, three-dimensional imaging relevant to the world of Life Science and disease, partnership with NIH to make that happen. Cell Biology is very new in terms of this correlative solution we just acquired TILL.

We want to connect EM and optical together and we have relationship that we recently announced with the Knight Cancer Center at Oregon Health & Science University, which is used as our launching site for this next level of correlative research overall.

Ownership gears completely a new business for us natural resources, what do we do? We work with oil and gas, mining and we produce the product that can look at the piece of rock and tell you what the minerals are and their three-dimensional special distribution is. Trends up that’s pretty important, if you want to find and produce oil and gas, if you want mine, extract important mineral such as platinum.

So today, we sell to central laboratory. In the future, and I will talk a little bit about the acquisition we did. We are producing a system that can go to mine sites, to the well sites. And we’ve just finish some programs being partnership with Halliburton in partnership with GEOLOG, in partnership with [Qatar Oil] to test those at sites in remote locations to demonstrate the capabilities.

And you might imagine taking that electron microscope to an oil rig in the middle of Persian Gulf, it’s a non-turbulent exercise. What a popular beginning which is the picture, the upper picture in this and that’s popular beginning that’s the -- we delivered the instruments by helicopter.

So what we developed is rugged solutions works on sites, the tremendous value here comes from the software. It’s not the microscope itself where you need a rugged microscope to provide the data. And you can see the three hydrocarbon programs that we did in 2011? The GEOLOG is ongoing.

I also emphasize we do both conventional and unconventional. I think regular wells drilled in the ground big shale, the GEOLOG workers with shale and that some of that work is done in Poland right now.

So we are early in the process, we are going through demonstrating value 2012 over the year our first commercial agreements on this product. So in this context if you remember the doughnut chart, one of the areas was aspects. We brought the company that we have partnered with to produce the rugged electron microscope, paid $30 million for that.

Again, the primary reason for acquisition was to partner up in our National Resources business. But we do believe that there will be some nice opportunity through our materials, all other channels to sell this microscope globally in a very limited distribution channel overall.

Electronics, think semiconductor business, think Intel, think Samsung, think CfMC, think anybody who makes the semiconductor device uses an FEI product. You can see, we had real tremendous growth in the past few years. The world is coming to ask in the sense in this space, but we do again as we do -- you might think about chip biopsies.

We use our micro machining, data machining capability to look under -- open up the surface of the chip and then we can take images with atomic resolution. We can tell people where the atoms are that affect the performance of transistors.

And it turnout as things get smaller and the world here measures things in generation of 65 nanometers or 28 nanometers or 15 nanometers. And as everything get smaller, it gets more complicated. You need more FEI equipment to be able to develop process and execute manufacturing effectively.

And so our argument in this space, Oops! I guess, we don’t have that in this presentation is that as the shrinks go on which they are relentlessly in this business that’s the fundamental business proposition for semiconductors that, in fact if more process steps become, FEI has to be servicing to make that work.

Therefore our share of spend at the marketplace goes up. And therefore, we have cyclical growth and what most people and I would agree characterizes the cyclical business today that is semiconductor equipment.

And so we actually have data that shows, cyclicality peak to cyclicality peak. FEI has grown about 30%. And in fact, we expect that trend to continue overtime because they just need more what we do to be successful as these transistors get ridiculously small.

Material science, research is around the globe, the great driver here ultimately is from the macro point of view, countries investing in an educational infrastructure to educate the workforce to create differentiated industries.

And so we sell in to China, because they want to create a better steel industry. They want to create better semiconductor industry. They want to create industries of the future. But we also see that in Eastern Europe, we see that in the Middle East where there has been tremendous investment during a long-term trend that try to create new businesses overall.

So we’ll quickly run through some financial results. We had -- 2011 was a great year for us. Basically, we grew 30% from ‘10 to ‘11. Our gross margins were up couple of points. You can imagine that operating profit certainly improved as a resulted of that overall.

So we are very proud of the investments that we’ve made over the past two years and have really paid off. We enter this year with the backlog of $430 million coming off about $830 million revenue a year. That’s a very comfortable place for us to operate FEI.

Balance sheet is very strong. We’re proud of our history of improving free cash flow per share overtime. You can see in the table on the right from 2005 to 2011. We’ve been accelerating that. And the question more now is how you’re going to put that money to work, because we have a very strong balance sheet today overall as you can see, carrying about $9.70 cash per share right now.

We reported very strong quarter in Q1. I think the real key was all-time high order flow into the company in the quarter, that’s usually seasonally a little bit weak. So we are excited about that.

Revenue was up again. Gross margin continue to accelerate, which was positive delivered year-to-year growth in earnings. Backlog continues strong and oops! wrong button on, and there have been guidance for ‘12, I don’t even, I’ll just show it here, I’m not going to really talk about it right now.

Other than, we’ve guided revenues to be a quarterly, I mean, well bookings to be a quarterly record in the quarter. We think we can beat the best quarter too ever to be clear on that.

And then uses of cash, I mentioned a couple of acquisitions that we’ve done in the past couple of years, TILL was the optical microscope company aspect to rugged electron microscope company. Natural resources paid the acquisition of two software companies back in the ‘09 timeframe, so we built up from that.

Our Life Sciences grow organically today. So these are small acquisitions few tens million of dollar revenue knacks. That’s our tucking strategy to buy technology, put them in, leveraged it up with FEIs platform approach to creating great workflows for solutions.

We have bought back some stock. We are pretty oppotunistics buyers. We brought, I think, $50 million last year for around 30 bucks a share and trading at 45 right now.

So my joke is, Ray and I, the CFO look like geniuses today at least. We will see how that goes. And we do have a convertible note out there. We cannot buy that back as those the convertible, which is in the money $29 conversion and changed. And that’s June, 13, that will converts.

We feel like we’re pretty good balance sheet shape. So probably we’ll be looking at M&A -- obviously invested in FEI first, looking at MEI -- M&A and we will opportunistically buyback shares.

And then our business model, we show in the second column from the right our prior long-term target, which we achieved the last year that we set a new target for ourselves, which is basically Q4 of ‘12.

So from late acceleration year in gross margin that have to deal with some programs that we have in place that will bear fruit to little bit in Q3 and a lot in Q4, we changed the manufacturing around. We’ve got some supply chain changes coming through. Those are flow through in the fourth quarter.

So you can see our targeted operating model. Goals achieved in Q so coming back to the basics, though our thesis, we’ve got few technologies. We’re the best in the world data.

We basically put those on -- take those platforms and modifying for different markets. So R&D is highly leveraged. We have a strategy to grow the served market. Life Sciences is one of the keys to that overall. We’re continuing to expand our margins.

We put some pretty high bars out there for us to achieve. And we’ll continue to generate cash, put it to work. We’ll do some tuck-in M&A to buyback our stock with most of what we’re investing have the eye for organic growth.

And with that…

Derik de Bruin – Bank of America Merrill Lynch

Great.

Don Kania

Thanks a lot. For your attention, we’ll open up for questions.

Question-and-Answer Session

Derik de Bruin – Bank of America Merrill Lynch

Great. Thanks Don. This is FEI’s relatively new coverage for about -- certainly it’s relatively new name for the healthcare investors. And certainly, the cyclicality aspect of the Electronics business is something that I think makes some healthcare investors nervous, can you walk us through what happened in 2009, what our organic revenue growth was during that time?

Don Kania

For FEI?

Derik de Bruin – Bank of America Merrill Lynch

For FEY -- for FEI.

Don Kania

Sure.

Derik de Bruin – Bank of America Merrill Lynch

And for that context, some of your other semi cap peers…

Don Kania

Right.

Derik de Bruin – Bank of America Merrill Lynch

…were not, obviously as strategic you are?

Don Kania

Yeah. So I think if you go back through the great recession, our worst performance year-to-year, I think it was ’08 to ’09 we were down 4% of revenues. Because of that market, multi-market mix, we were able to take a business that fell of by 35%, peak the valley that was our electronics business, which was half the fall off of the semiconductor industry as a whole.

So the technology carries a strong sway in this business and that’s really what we provide fundamental capability. The way I like to describe it is, if you are a semiconductor manufacturer, you cannot exit the relentless shrinks of your products that is making those features smaller. So you have faster, better, cheaper product.

Since you do that, your whole economic model changes. And so semiconductor companies couldn’t -- can delay in investment in our equipment, may be a quarter, may be two. That’s it. They got to reinvest. They have business cuts in cycle, runs about three years, full refresh of the equipment that drives a great business. They have to basically buy all these stuff every three years. And our thesis is they are actually buying more stuff with each refresh cycle.

So that smooths it out. So there is some cyclicality can’t avoid that, but nowhere near as much as pure-play manufacture of semiconductor equipment because of our diversity. And we’re more growth oriented within the sector itself. So it’s -- it's a great business. We make a lot of money. It’s a very profitable business for us.

It’s our second highest margin business, the actual resources being the highest gross margin business.

Derik de Bruin – Bank of America Merrill Lynch

And that’s because of the high software component?

Don Kania

Yeah. Yeah. Their value, customer’s pay per value they do and we provide tremendous value.

Derik de Bruin – Bank of America Merrill Lynch

And could you discuss the relation with Halliburton and much, how that (inaudible)?

Don Kania

So Natural Resources, well, we got to put some our goal of license to put FEI instrumentation on our oil rig, doing daily measurements to help them exploit more effectively their oil reserve, just leave it at that. But the goal is not to sell equipment in this space. The goal is to sell the service, sell our service in partnership with the traditional provider of services like Halliburton.

The reason we want to do that is two-fold. One, that’s what the industry is used to. Those of you who remember the goal, the Macondo well blowing up, well, what happened. There is a lot of blame go around because BP didn’t own anything. BP didn’t run the site. Halliburton did. BP didn’t own the rigs, somebody else owned it, right. So, it’s an industry that uses this model of buying services to generate their flow of oil.

So we’re just going to be part of what they are used to -- how they are used to paying for activities. We also want to partner with GEOLOG or Halliburton in a sense that FEI does not want to generate an infrastructure, a global infrastructure supporting that service. So fees split is our ultimate goal here that we think we have a higher value added service.

We’ll split the fee with Halliburton. Halliburton will provide all the on-site activities. So they can bear that burden of the cost and FEI will provide this software capability and analysis capability to make that effective.

As I said, we’ve gone through three beta test. This is the year where we’re going to start taking contracts if that happens. And there will be a fee-for-service contract, not selling equipment. But overtime, it’s a tremendously lucrative model.

Derik de Bruin – Bank of America Merrill Lynch

When you look at the Life Science’s market, I think people would assume that your exposures I think with NIH are very high. Could you talk about what is your direct [interaction with] NIH laboratories.

Don Kania

Yeah.

Derik de Bruin – Bank of America Merrill Lynch

I think obviously people worried about much of the [concentration] what can happen?

Don Kania

Right. Right. So our current exposure to the market like that globally in FEI is less than 5%. So those seems directly funded led by like the NIH and all that. I think in the Life Sciences particular what we found most interesting is that Europe has been very strong and including Eastern Europe and China has been way ahead of the curve on this.

They have significant investments going on in that Life Science infrastructure and clearly have designs of developing a pharmaceutical industry. And we’re privy to some of those discussions with the senior members of the Chinese government.

So we feel very comfortable with the prospects being positive going forward. Again, the U.S. just doesn’t have to be allied. U.S. can be -- we’ll love it to be a bigger part of it. But overall, we fell there is enough geographic diversity and the demand will be fine.

Derik de Bruin – Bank of America Merrill Lynch

So you -- little bit unusual in terms of my Life Science coverage that you have almost $10 of share in cash. Which technology company is not unusual to have that much cash with us. And so, I mean, what other type of tuck-in technologies are out there? What else can you expand that? I mean, would you go after x-ray throughout optical technologies. You’re going to repeatedly focus on your core competencies?

Don Kania

I think that will be too specific. But I think we’re clearly interested that the optical technology that we added, we clear against adding other technologies in the right way, particularly they could become the next platform that could serve multiple market places for us. And so certainly, certain aspects of x-ray looks pretty attractive in that area for us, overall.

And the other thing, I want to emphasize we are pretty prudent buyers though. We take a very carefully analysis from this kind of cash flow approach to do valuation. And I think we’ve kind of -- for a few years, we struggled because we kept getting outbid people on certain properties. And now I think we’re figuring out how to leverage those technologies upping and come to the second part of your questions. Where will we add more tuck-ins?

Around the Natural Resources business and around the Life Sciences business, we’re able to identify fair number of prospects that look like the next pieces of the puzzle that could be very attractive. And we have to do a bit of pacing, we can continue to absorb them. I will comment that there is a couple on the horizon right now. So just stay tune on that. So putting the cash to work is very central to what -- where our future holds.

Derik de Bruin – Bank of America Merrill Lynch

And so when you look at the long-term models, what’s the normalized organic revenue growth rate for this company over the long term and EPS growth rate?

Don Kania

Yeah. I think the revenue growth rate greater than 10, we normally say 12 right now. Unless, we look over two-year period. And then EPS, we do a little bit better than that, because we think -- we are not a world class operating company and there is tremendous opportunities to improve internal FEI, the ability to increase margin.

So we look at our peers. And we think we can do better. So we should expect leverage on the bottom-line as well as the -- on the margin line as well as the bottom line.

Derik de Bruin – Bank of America Merrill Lynch

Great. And I think with that….

Don Kania

We’ll close it.

Derik de Bruin – Bank of America Merrill Lynch

We’ll close it. Thank you for coming Don.

Don Kania

Thank you very much. Thank you for your attention.

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