Rofin-Sinar Technologies F1Q08 (Qtr End 12/31/07) Earnings Call Transcript

Rofin-Sinar Technologies Inc. (NASDAQ:RSTI)

F1Q08 (Qtr End 12/31/07) Earnings Call

January 31, 2008 11:00 am ET

Executives

Gunther Braun - Chief Executive Officer

Ingrid Mittelstaedt - Chief Financial Officer

Analysts

Antonio Antezano - Bear Stearns

John Harmon - Needham and Co.

Steven Lobes - Yellowfin Capital Management

Grant Hopkins - Ferris, Baker Watts

Chuck Murphy - Sidoti & Company

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Greg Halter - Great Lakes Review

Mark Miller - Brean Murray

Operator

Welcome to Rofin-Sinar 2008 first quarter results conference call. Today's call is hosted by Mr. Gunther Braun, Chief Executive Officer and Mrs. Ingrid Mittelstaedt, Chief Financial Officer. Following management's comments, you will have the opportunity to ask questions.

Mr. Gunther Braun, please go ahead.

Gunther Braun

Thank you, and good morning or good afternoon to everyone. I am here in Plymouth in Michigan together with Ingrid, our Chief Financial Officer. I hope you all got the press release containing our first quarter 2008 results. We will give you some comments about our business and performance and then, we will open it up for question.

Now before we start, I would like to make the usual statement about the information you are getting in this conference call. Based on the Fair Disclosure Regulation of the SEC, we will also include a summary of our own financial estimates for our next quarter in the fiscal year 2008. This guidance is only an estimate and is of course subject to all the risks and uncertainties as summarized in our Safe Harbor statement, which I will read to you shortly. I would like to encourage you to perform your own market investigation and the research and not to place undue reliance on our estimate.

Safe Harbor statement. Our discussion may include prediction, estimates or other information that maybe considered forward looking. While these forward-looking statements represent our best current judgments and what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. Throughout our discussion, we will attempt to discuss important factors relating to our business that may affect our prediction. You may also want to review our last 10-Q and 10-K filings for a more complete disclosure of financial risks.

Okay. Before I comment on industries, markets we serve, products and technologies, same story we would like to review; first the performance of the quarter ended December 31, 2007. So, let's start with the first quarter. As you have seen from our press release, we had an outstanding quarter with a new record in sales of $134.7 million, which is $23 million or 21% higher than in the comparable quarter of fiscal year 2007.

The weakening of the U.S. dollar exchange rate helped us in increased sales by approximately 10% or $11.1 million, which still left an impressive 10% increase based on last year's exchange rates. We achieved also new quarterly record high in net income with $16.9 million or approximately 13% of net sales, which is slightly above our high forecast range.

We achieved strong sales in our micro/marking business, which is also a new sales record for this part of our business. Net sales increased 10% over the comparable quarter to $63.4 million or 47% of total sales, but we had an even stronger increase in sales of our macro business. This is also a new record high, business increased 38% to $61.2 million or 45% of total sales.

Again, thanks to the high demand for our CO2 lasers from the machine tool industry, that also last quarter the automotive industry contributed nicely. Our component business and you know which mainly consist of laser diode, power supplies, fiber optics and of course, in the future, Nufern will be added, increased slightly and reached $10.1 million representing 8% of quarterly sales. And I would say that's mainly due to timing of orders and shipments, geographically.

The highlight again, our sales to the Asian countries which increased by 55% to 24% of quarterly sales and reached $33 million and that's the second best quarterly sales number in our history for this region. Main contributors were China, Taiwan, Japan and Korea and I think it's not a surprise that China made up for $12.5% of quarterly sales. So, a very nice number.

North America, as expected under the circumstances contributed reasonably well with $27.4 million or 20% of quarterly sales. And this leads now to Europe and Europe was responsible for the remaining 56% of the quarterly sales and increased 24% to $74.3 million comparing to last year's first quarter. And of course, I mentioned already the currency fluctuation which impacted positively the numbers in Europe and Asia.

Our spare parts business and service business increased by 23% and accounted for approximately 27% of net sales for the quarter.

Now coming to the break down of our quarterly laser sales by industry, automotive, I mentioned already, last quarter nice, contributed 12% compared to 9% in 2007, but there was one bigger project which where we could recognize the revenue. It's a little bit special situation.

Machine tool, 37%, after 34% in '07. So in the first quarter, we had still strong demand in Europe and in Asia. Semiconductor electronics, 25% after 14% in '07. We had a nice solar cell and semi business and I have to say we had a strong electronic business, mainly consumer electronics.

Others, 26% versus 43% in '07 and again, good portion is medical device and again jewelry. During the first quarter, we shipped a total of 959 lasers. That's approximately 7% or 59 lasers more compared to last year's first quarter. And if you do the mathematics of course, average selling price, ASPs, increased because business was towards more to a higher output power. So in the macro or for macro applications, we shipped 354 lasers up to 289 units in last year's first quarter and in the marking and micro business, we shipped 605 versus 611 lasers.

Now, let me hand it over to Ingrid who will further comment on the financials.

Ingrid Mittelstaedt

Thanks, Gunther. Good morning and good afternoon to everyone. As already mentioned, we are very proud with the increase in revenue of 20.5% on a year-over-year comparison and the organic growth of approximately 10%. And also total Group's gross profit for the quarter was 43.5% of net sales compared to 41.1% in Q1 of fiscal year '07. And the higher gross profit was primarily a result of the following tax. Higher margins in the macro business due mainly to [delivery] of our major systems, high productivity achieved primarily in the manufacturing of high power CO2 lasers, favorable product mix with a higher portion of sales to the semiconductor and electronic industries, 6.7 million higher service and spare part revenue representing an increase of 23% compared to first quarter '07 and higher production capacity utilization in marking and component business.

SG&A including intangible amortization for the quarter was 18.5% in Q1 2008 as a percentage of sales as compared to 19.3% of net sales in the same period last fiscal year. In absolute figures, SG&A expenses increased by 3.4 million to 24.9 million for the quarter. The increase in SG&A expenses is mainly a result of our increased selling and marketing activities specially in Asia, higher commissions related to the record level of revenue and additional SG&A expenses from the companies we acquired in fiscal year '07, partially offset by 0.4 million lower stock-based compensation expense.

The weakening of the U.S. dollar mainly against the Euro, increased SG&A expenses by approximately by 1.7 million. R&D expenses for the quarter were or amounted for $8.8 million or 7% of total sales compared to $6.2 million or 6% in the first quarter of fiscal '07.

Quarter gross spending was $9.3 million versus $6.6 million in '07 and the increase in R&D expenses is mainly a result of higher expenses related to the development of fiber lasers and additional R&D expenses from the recently acquired companies.

The exchange rate fluctuation increased R&D by $0.9 million during the first quarter of '08. The income from operations of $24.9 million represents 18.5% of sales versus $18.1 million or 16.2% in Q1 2007. The weakening of the U.S. dollar against the foreign currencies has the affect of increasing the income from operations by $1.2 million.

Other income expenses, the quarterly net other income amounted for $0.3 million. Net interest income accounted for $1.7 million compared to $1 million in the first quarter of fiscal year 2007. The first quarter '08 includes $1.6 million exchange losses compared to $0.6 million exchange losses in the first quarter 2007.

Our effective tax rate on income before income taxes and minority interest for the first quarter was approximately 32.2% compared to 37.7% for the same period last fiscal year and the lower effective income tax rate is mainly due to the changes in the German tax law.

Net income for the first quarter amounted to $16.9 million, which is a new record in the company's history and resulted in diluted earnings per share of $0.53 based on $31.6 million weighted average shares outstanding. The weakening of the U.S. dollar against the major foreign currencies had the effect of increasing the net income by $0.4 million. Even with the influence of the weak U.S. dollar against other currencies, we were able to improve the gross margin, maintain a reasonable level of SG&A expenses and delivered this excellent result that were also of course positively influenced by the lower income taxes in Germany.

In November 2007, the Board of Directors approved a shares split and a share buyback program with the objective of increasing the company's share liquidity, broaden our shareholder base and reward our existing shareholders. The share buyback program was implemented middle of November 2007 and authorized the repurchase of up to 120 million of the company's common stock or approximately 10% of the shares of common stock outstanding at that time.

As of December 31st 2007, the company bought back approximately 1.7 million of shares for round about $78 million.

At the end of 2007, we slowed down the buyback activities in order to concentrate on the acquisition. The two-for-one stock split was done in the form of a dividend on each outstanding share for shareholders of record as of November 22 and the distribution date was December 5th, 2007.

And now coming to the balance sheet. The weakness of the U.S. dollar mainly against the Euro comparing the exchange rate from December 31st, '07 versus September 30, '07 resulted in a change of approximately 3.5%. Cash and short-term investments decreased by $65.3 million to $162.9 million compared to September 30, '07, mainly due to the implementation of the share buyback program.

As approximately 60% of the liquidity is denominated in U.S. dollar, the impact of the exchange rate fluctuation only resulted in an increase of $3.2 million. Accounts receivable net amounted to $103.6 million and remained at the same level as last fiscal year at even the higher record level of sales. Exchange rate fluctuations increased accounts receivables by $2.5 million. The days sales outstanding improved and decreased from 78 days average last fiscal year to approximately 69 days for the three month period ended December 31st, '07.

Net inventory increased by approximately $12.1 million to $147.9 million. The impact of the exchange rate fluctuation was to increase net inventory by $3.8 million. The company increased the inventory stock in order to meet delivery requirements during the second quarter due to the record level of order entry combined with the Christmas holidays and the moving activities at our subsidiary in Gunding.

The Gunding facility consolidated into one building in order to gain future production efficiency. Based on the three-month cost of good sold figures, inventory turned approximately 2.1 time. Total debt decreased approximately $3.5 million to $37.1 million at the end of the December and long-term debt represents now $8.9 million. Stockholders' equity decreased slightly from 72% to approximately 69% of total assets.

Now, I would like to give you some information related to the cash flow. During the three-month ended December 31st, '07, the company generated $12.2 million from its operating activities. The company generated $60.7 million primarily from the sale of short-term investments, acquisition of new business and offset by capital expenditures. The company used net cash of $68.9 million in financing activities which are mainly related to the shares buyback program and repayments of that debt, partially offset by the issuance of new shares from the exercise of stock option.

Now, coming to our earnings guidance. As a result of our current market judgment and backlog situation, we want to give you the following guidance of the financial performance of the second fiscal quarter 2008, and for the whole fiscal year 2008. This guidance is only an estimate and again subject to all the risk of our Safe Harbor statement.

Second quarter, sales volume should be between $135 million and $140 million. Gross profit in the range of 42% to 43% of net sales; period expenses including intangible amortization in the range of 25% to 27% of net sales; income before income taxes and minority interest between 16% and 18% of net sales and the effective tax rate, well, depends mainly on the overall mix of results in the different countries and then non-deductible expenses should be in the range of 32% to 33%. Non-cash items of our profit and loss statement including intangible amortization and fixed asset depreciation are estimated in the range of 2% to 2.5% of net sales.

For the fiscal year 2008, the revenues would be between $540 million and $550 million. Gross profits in the range of 42% to 43% of net sales; period expenses in the range of 25% to 27% of net sales, income before income taxes and minority interest in the range of 17% to 19% of net sales and the effective tax rate between 32% and 33%. The non-cash items are estimated in the range of 2% to 2.5% of net sales. All these estimates depend on all the well-known risks and are subject to change.

Thanks for listening and let me hand it back to Gunther.

Gunther Braun

Thanks, Ingrid. Let me comment first on our forecast. Given the backlog December 31st, it was approximately $139 million. A solid recurring revenue from service and spare parts and of course our newly acquired company Nufern, we should be able to reach our highest forecast target, even taking into account the pessimistic outlook for the economy currently.

Now let me give you some comments on the macro economic conditions we face and how we see it in the next quarters and usually, I will start with the macro business. As predicted in the last conference call, high powers, CO2 lasers for cutting applications to the machine food industry were on a high level. New orders are coming in a little bit slower but so far it's nothing to worry about. Most important regions currently are still Europe and Asia and again, largest single market especially for the slab laser type is now Asia, especially China.

The same holds true for our lower power CO2 lasers 100 to 600 watts manufactured in the U.K. This business runs also on a nice level. Demand for our product is good and there, we see a trend more towards higher output power also in this business. Today, we have no reason to believe that the business in both product lines should dramatically change during the next quarter.

Automotive sub-supplier business was in the first quarter '08, $4.4 million higher compared to last fiscal year's first quarter and the reason was a bigger order from the tier one supplier were revenue was recognized. We do not believe that the remaining quarters will be on the same level by the way. So, they will become more comparable to the average of last fiscal year.

Activities of special welding applications like, for example, car seats. Another new application is the cleaning or a plating of coated material, mainly steel for a better welding capability, for example, tailored blanks with the new generation of high powered Q-switched, diode-pumped solid state lasers which also can be used in micro application. Other application and you know that in our macro business of welding of all different types of tubes or profiles used in automotive, food industry or sanitation market.

So that's on the macro. Now coming to the marking and micro business, semiconductor and [portable] tag business was and is currently very nice. Coating activities in semiconductor is good and portable tag unbelievable growth.

In the solar cell industries, as predicted, worldwide business is continuing to increase. Lasers are used in silicon and thin film wafer production for many different applications like isolation, edge isolation, edge deletion or scribing for example and the investment activity in this industry, so new plants is continuing on a high level of growth.

Our strategy for this industry is to concentrate on being the laser supplier either directly to the solar cell manufacturers or to the systems manufacturer for the production line. It's a worldwide business and I think we can capitalize on our global presence and global network there.

Jewelry business is on a consistent good levels. Smart card business is at previous quarter levels. And one highlight last quarter was the electronic industry, especially laser for consumer electronic application, like the spot welding is the application. Consumer electronic is a solid growth driver in the micro field for us. A lot of coating activity is going on and this hopefully will continue.

On medical, as you all know, medical instrument business is another area where we have seen nice growth rates over time, besides the slowdown in fine cutting business, due to the concern about track coating, we believe that our product portfolio for all different type of application suits very well the demand for this or of this industry.

Lasers will continue to play a very important role for the medical device industry to improve the capability and productivity and let's see what we get this week at the MD&A show in Anaheim and let's see what we learn more about this business and this industry.

So that's an update on our major industries and based on the above, we believe that the worldwide business climate can or should support our growth targets over the next quarters.

I am quite sure you want to hear something about our acquisition and acquisition strategy, so headline acquisition. First our recent acquisition, Nufern. As you have seen from our press release, we have closed the deal in January, exactly Thursday, last week. Nufern is one of the leading independent supplier of specialty fibers, active and passive. They have developed to 200-watts CW fiber laser which they began to market and in the 10 or 20-watts power range they work and are working on the pulse fiber laser, and of course, they do amplifiers.

Nufern was founded in 2000 as a telecom specialty optical fiber company and you all know what happened to that industry. 2003, Nufern went more to high power fibers. In 2005, they got the first large U.S. Government contract awarded by the JTO and U.S. Air Force.

So, Nufern stay as an independent specialty fiber and fiber laser supplier, supporting all customers which values Nufern's technology. Main focus will be on military and defense industry, but of course, also OEM fiber laser suppliers and fibers to everyone who considers Nufern fiber as the best choice.

That's Nufern, so welcome on board to the Nufern guys. I am quite sure some are listening. It's great to have you on board.

Now, China and I know everyone is talking about China and I am allowed to talk a little bit more about our potential acquisition, because I got the permission of our partners there.

So what happens there, we are still in negotiations with our potential acquisition candidate. The company is working in the field of high-power lasers and have two owners, one ultimately belongs to a governmental organization which is in the stage or hinge for the required approvals to get to the next step.

Investment should be in the high single-digit dollar million and I hope you understand that we cannot name the company, but I still hope it does not take many more months for the announcement. But what we have done so far in addition to this project, we have been active in founding two new companies. The foundation process is may be 90% completed. Some permissions are missing, but in the progress or process to get. We have rented already a space for these activities.

The first one will be focusing on assembling laser diode bars. Target market, of course, is China. Leasehold improvement and investment in production tools, is the next or let's say, the current step or task. And our plan is to start this operation by summer time.

And the second one will focus on laser markers, addressing again the Chinese market. We will use existing technology only adapt this for the local needs. Local sourcing and local manufacturing is a must and should help us to address the large domestic market for lower cost products. Our expectation is to start this operation by the second half of this calendar year. I hope this gives you some clarity in understanding what we are going to do in China and its going on. It's moving along.

Now, order entry in the first quarter, we achieved another record high in order entry, this, $157.9 million. So, it's really a very nice number. The orders for our macro products represent $78.6 million and the orders for our micro and marking products represent $79.3 million. So, our backlog end of December was $139.8 million. It's a very solid basis for the second quarter of course and the breakdown in the backlog was, for macro, 38%, components 11%, and 51% is micro and marking.

So, let me summarize our performance over the last period. We are proud to have reached of course new record highs in all areas. What we have done, we have allocated more money to R&D last quarters or last quarter. This should last until we have reached certain goals for technology and products. The markets, especially in North America, gets more challenging, of course. We will see what it does to the other regions that I still believe that our current strategy and our worldwide setup, we can generate the business and deliver the numbers we have forecasted.

We continue to focus on our core competences within industrial laser material processing application. Of course, with Nufern, we are a little bit more present than in military and defense hopefully. Our broad product portfolio and wide global and regional coverage will further support our future growth.

So, thanks for listening and now we are prepared to answer your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions).

Gunther Braun

It looks like our numbers were two good.

Operator

Our first question comes from Mr. Antonio Antezano from Bear Stearns. Please go ahead with your question.

Antonio Antezano - Bear Stearns

Thank you. Good morning.

Gunther Braun

Good morning, Antonio.

Ingrid Mittelstaedt

Good morning, Antonio.

Antonio Antezano - Bear Stearns

I guess if you could provide more color in terms of your activities in emerging markets. You mentioned China being 12% of sales already. And I was wondering in Eastern Europe or other emerging markets, what is your performance there? What kind of contribution, if can share?

Gunther Braun

Okay. If you are talking about Eastern Europe, I would say because of our set up of our business, Eastern Europe is not, this market, where we can achieve big sales currently. Especially in the macro business, we don't offer a complete system, for example, laser cutting systems. So, basically our customer has to enter this market and sell the whole laser cutting system incorporated with our lasers. So, activities is more on our customers for Eastern Europe. And that's the reason why this region has a lesser focus on our side.

Other emerging markets, of course, is India. We believe that India is also an interesting region in the future. But due to the set up of India, it's a large country. The infrastructure is not as developed like in other emerging countries. You have to go by region there. You have certain regions where they focus on electronics as well as on automotive and so on.

It's, of course, a talk for us to be present there. We hired already sales guy, service guy, but it's not like China that it will start like the China business. It needs more thoughtful thinking, how to address the market and where to start. But of course, I am quite sure that we will also start Rofin-Baasel India company in the near future. So, that's not out of range.

Antonio Antezano - Bear Stearns

And then a follow up on gross margins, which was impressive and you did mention that even despite the strong euro. And I was wondering in a scenario of, let's say, a softer euro, where will you see your gross margin is going, because since that you have an upward trend for gross margins and I was wondering what would be your outlook for the next year or two years?

Gunther Braun

The outlook for the next years, we don't give. You know us. We have a visibility, usually backlog of three months and then the projects you have. But why was the gross profit so nice. I would say some guys moved from one location. They'd be moved from four buildings into one building and they did a quite good job in moving that, so the costs may be were not as high as we thought. Still, efficiency was great. The lasers were shipped in other locations.

The same happened, so we got this benefit on the other side. We shipped more and you'll see that if you just take the quarter sales divided by the laser numbers, ticket per laser average sales are higher than in the previous quarters. We shipped more systems, invoice more systems and on the high power CO2 laser, the trend was more towards higher output power. And everything together was the right mix and the right industries helped us to deliver such a nice number.

Antonio Antezano - Bear Stearns

And final question, if I am allowed, is just, what is the contribution of Nufern in your guidance?

Gunther Braun

Okay. It's only 8 months by the way and we are conservative like we always are. It's in the range of $10 million and everybody knows it.

Operator

Thank you. Our next question comes from Mr. John Harmon from Needham and Co. Please go ahead with your questions.

John Harmon - Needham and Co.

Hi, everyone. Good morning, good afternoon, where ever you are.

Gunther Braun

Hi, John. Plymouth.

John Harmon - Needham and Co.

A few questions please. First of all, was Nufern profitable? And are its margins somewhere to yours or kind of roughly where are they?

Gunther Braun

Let's shoot for breakeven. It's the answer on Nufern.

John Harmon - Needham and Co.

Okay, breakeven is fine. And maybe you can talk about how Nufern changes your fiber laser strategy now? How long will it take you to qualify Nufern's lasers and does that change the product demonstration that you did in Munich, the kilowatt fiber laser. Is that product still on track for, I think, sometime in the first half of this year?

Gunther Braun

Let's start with your last comment. The 1 kilowatt fiber laser Nufern will not change this program. The 1 kilowatt fiber laser is on track. We have some certain units. We do them testing. We do application work. I would like to have more units available already but that's not the case. But we have enough now to test. And as I said, it's on track and I expect still this to launch within 2008. No doubt about it.

On Nufern, the first target is clearly that we want to maintain the excellent business Nufern has in terms of fibers, specialty fibers. They should support the current customer base and gain new customers of course in this area. In addition, what we are going to do of course, we get Nufern's fiber laser product, because the fibers, we tested already, so we did already production. And in the 1 kilowatt, of course, we use Nufern's fibers next year. And let's see what the outcome is, how good is the performance and so on, with the fiber laser products of Nufern. So, I cannot tell you that they are superior or great or whatever. Just, we have to do the work first and understand the capability of these lasers and maybe next quarter conference call, I can talk more about it, if this is of interest.

John Harmon - Needham and Co.

Okay. Thank you.

Gunther Braun

We are convinced that we get good products. Not doubt about it.

John Harmon - Needham and Co.

Thank you. Its sounds like you said that if you are able to replace the fiber lasers that you are selling on OEM basis, that you might have to add some capacity at Nufern?

Gunther Braun

First, we have to test it, qualify it for really industrial use and you know, we are not the guys to break everything with all the other partners. We work in a competitive environment and we respect our vendors and partners.

John Harmon - Needham and Co.

Sure, I understand. I understand that you can't talk about the business you are looking at acquiring. But the other couple of businesses that you are founding in China, just curious where you will locate them?

Gunther Braun

If not at the coastline, it's a little bit more in the land.

John Harmon - Needham and Co.

Okay.

Gunther Braun

As a fact, I don't talk about the city at the moment. But it's nice that our partner said, okay, I can say more about it, because it's always somehow in the air and if a concrete project is going on, the contracts are negotiated. So, it is not a question of finding, completing. It is just a question to get all the permission and then we will announce it.

John Harmon - Needham and Co.

Thank you and just one final question. You said that you interrupted your share buyback to close the Nufern acquisition. Now that the acquisition is closed, do you intend to resume it and it looks like you bought a lot of shares in one fell swoop. Is that the way you intend to go forward with that?

Gunther Braun

Ingrid, any comment.

Ingrid Mittelstaedt

Not yet. We are in the process of evaluating that, how we will continue and I have said, we'd slow down.

Gunther Braun

Of course, we announced this that we allocated the $120 million and there's still some money left. So, I am quite sure we'll do this in the 12 month of period, John.

John Harmon - Needham and Co.

Great. Thank you very much.

Gunther Braun

Thank you.

Operator

Next question comes from [Steven Lobes] from Yellowfin Capital Management. Please go ahead with your questions.

Steven Lobes - Yellowfin Capital Management

Good morning.

Gunther Braun

Good morning.

Ingrid Mittelstaedt

Good morning.

Steven Lobes - Yellowfin Capital Management

It's pretty obvious how a declining dollar has benefited the comparisons as far as the sales results are concerned and the financial statements are concerned. Could you give us a little bit of color as to how much you think it has helped you qualitatively, obviously, on competitive standpoint?

Gunther Braun

On the profit line, you mean?

Steven Lobes - Yellowfin Capital Management

No, from a competitive standpoint, meaning --

Gunther Braun

Okay.

Steven Lobes - Yellowfin Capital Management

If the dollar repositioned, how much of that contributed to your recent success?

Gunther Braun

Of course, it's sometimes a challenging situation, when you compete somewhere in the world where competitors are going with the U.S. price list or U.S. currency price list and we are coming in with the euro price list, because the products are manufactured in Europe but we try to have this natural hedge. So, therefore, it's sometime challenging because of the weakening U.S. dollar, these products gets cheaper of course.

What we try, of course, is either to argue on technology, so that our customers get better technology and therefore, a benefit. We try to argue about the cost of ownership, which means maintenance cost, efficiency and so on. On the other side also we try to gain orders may be to offer a little bit more performance to our customers compared to our competitors. And so far, I would say, we have proven that we can be pretty successful. We were pretty successful over the years, because that's not just the situation currently we face, this I think the last twenty years. So every time, when the dollar weakens and you have products in Europe manufactured, then you get into such a trouble. But so far, we had the answers for that.

Steven Lobes - Yellowfin Capital Management

Thank you.

Gunther Braun

But if -- yeah.

Steven Lobes - Yellowfin Capital Management

The only other comment I would make is just to encourage you to be very opportunistic as far as the rest of the dollar is dedicated to the share repurchases. Thank you very much.

Gunther Braun

Thank you

Steven Lobes - Yellowfin Capital Management

Bye.

Gunther Braun

Bye.

Operator

Our next question comes from Grant Hopkins from Ferris, Baker Watts. Please proceed with your questions.

Grant Hopkins - Ferris, Baker Watts

Good morning.

Gunther Braun

Good morning, Grant.

Grant Hopkins - Ferris, Baker Watts

My first question relates to your backlog. Quarterly sales are typically, let's say, 15% to 25% higher than the backlog at the end of the last quarter. What's different this quarter? Pretty much, no premium in there.

Gunther Braun

What's different is we have orders which have longer lead time, so larger orders which have to shipped but not in the second quarter, also they go into the first quarter or a bigger punch of this in the third quarter. So, that's the reason.

Grant Hopkins - Ferris, Baker Watts

Okay, thank you. Is there any indication that you guys are gaining market share. Your sales group is quite robust compared to competitors right now it looks like.

Gunther Braun

Compared to the U.S. competitors, I think so. Compared to our largest competitor, the company trounced the German-based machine tool manufacturer. We don't know because they are privately owned and they don't publish quarterly numbers or half year numbers. But I would think so.

Grant Hopkins - Ferris, Baker Watts

Thank you. My last question is for Ingrid. I think you said operating cash flow was $12.2 million. What was CapEx in the quarter?

Ingrid Mittelstaedt

CapEx was $3.5 million now.

Grant Hopkins - Ferris, Baker Watts

3.5 and that doesn't include any acquisitions? Are there any?

Ingrid Mittelstaedt

No.

Grant Hopkins - Ferris, Baker Watts

Alright. Thank you very much.

Gunther Braun

Thank you, Grant.

Operator

Our next question comes from Chuck Murphy from Sidoti & Company. Please go ahead with your question.

Chuck Murphy - Sidoti & Company

Good morning, guys.

Gunther Braun

Good morning, Chuck.

Ingrid Mittelstaedt

Good morning, Chuck.

Chuck Murphy - Sidoti & Company

Well, I take it that you feel pretty good about the outlook is I can't remember a time that you have raised guidance after the first quarter.

Gunther Braun

That's right. But we got a new company.

Chuck Murphy - Sidoti & Company

Okay. So, but what has changed aside from the Nufern acquisition to give you that increased confidence in the outlook. It sounded like the orders stuff is particularly well. Could you perhaps elaborate a little bit on the order that you have gotten?

Gunther Braun

No, I think you have seen it. It's a new record in order entry for a quarter. We never were that high. Last quarter was a record with 130 something million. Well, that's now $20 million higher. If you take our fiscal year, we know what we did in the first quarter. We have a backlog and almost everything is shippable.

In this fiscal year, if you add that, we know our service and spare part business. That's pretty consistent over the year. We have our acquisition, Nufern. Of course, we will get a little bit in China. In addition, I am quite sure, sorry, for this. And in addition to that we have certain industries were a lot is going on. Like portable tag. If you look through this industry, if you look to the guys there, that's very dynamic on the other side.

Also here in the U.S., Lou has an offer to get a larger project. Of course, do we get it or not, we have to fight for it. We still see that machine tool business, of course, a little bit slower, but its moving ahead, so no reason to be nervous. Consumer electronic industry, there are also projects which are going on. So, that's the reason and why we believe, we cannot or we can make our forecasted numbers.

Chuck Murphy - Sidoti & Company

Okay. And as far as the margin guidance goes, 43.5 this quarter. Given that you had the moving capacity expansion in this quarter and you won't necessarily have that going forward, I mean would that then imply since semis are going to be a bigger piece of the mix, that there may even be some upside to the 42% to 43%?

Ingrid Mittelstaedt

It will depend on the product mix again. As we said, we had very nice projects and the revenue this quarter with very high power lasers and systems and on the other side, you know this was Gunding, but also in Hamburg, we will make some changes in the manufacturing and that is not done yet.

Gunther Braun

I would phrase it in that way. We have now or we should have more space, more availability to manufacture more lasers and first, we have to fill in this production capacity with new orders. So, I would not go for a higher gross profit, but you never know.

Chuck Murphy - Sidoti & Company

Okay. And can you just kind of expand on auto in general? I mean obviously, I don't think anybody has higher hopes for the industry itself, but what's going on there that has kind of spurred some new sales for you guys?

Gunther Braun

It's just the normal business. As I said in the first quarter, we had one special larger product which helped us to get to the 12% of quarterly sales, but this was one project.

Chuck Murphy - Sidoti & Company

Was that in Europe or North America?

Gunther Braun

It was a European project, sub-supplier. And we expect it should stay in the range, typically stay between 7% and 9% for us. Auto is the normal activities. It's nothing that -- we miss a lot of opportunities and it's nothing but there is a large opportunity out, well, but it contributes to our business and it should stay in the 7% to 9% range.

Chuck Murphy - Sidoti & Company

Okay. Alright, I think that's all for me. Thanks.

Gunther Braun

Thank you, Chuck.

Operator

Next question comes from Ian Fleischer from Friedman, Billings, Ramsey and Co. Please go ahead with your questions.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Hi, Gunther and Ingrid.

Gunther Braun

Hi.

Ingrid Mittelstaedt

Hi.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Just, I want to make sure that I understand that you still expect to complete the $120 million share repurchase by the end of fiscal 2008?

Gunther Braun

I think we announced this for a 12 months period in November. So, take November.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Okay. Fair enough and when you look at your guidance, what do you think the swing factors are that would get you to the higher low end of your guidance range?

Gunther Braun

I would say to the higher end that especially in the machine tool industry, our customers take delays as predicted and there are no questions about -- and that's may be for different things but letter of credit, cash payment questions and these things and that's to get to the high range. And just the opposite, if they delay shipments then, of course, it can go more to the lower range, but I personally expect to be hopefully at the higher range.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

And with respect to North America, what are your expectations in your guidance there? I think when you reported during September quarter, you had hoped that that market would stabilize somewhat and maybe improve a little bit. What are your thoughts on that market currently?

Gunther Braun

Maybe to help you, in this North America market, we have shipped or we have recognized revenue in the range of I think $28 million, Ingrid, in the first quarter.

Ingrid Mittelstaedt

Yeah.

Gunther Braun

Order entry was for $43 million. This I forgot to mention, when I started my talk. Now you will see $43 million, it's a very nice order entry for the first quarter compared to $28 million. Of course not everything is shippable, in the second quarter. But it tell you and proves what I said basically in the first quarter in November that I believe North America should be at least on the same level than last fiscal year, hopefully a little bit higher and better. And the quarter entry proves that.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Do you happen to have off hand what the orders were in North America in the first quarter of the prior year's period?

Gunther Braun

Ingrid, can you check the order entry? But it was maybe in the $30 million range or --

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Okay.

Gunther Braun

It was $26.8 million.

Ingrid Mittelstaedt

27 only compared to 43.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Okay, that's helpful and just finally, with respect to your capacity expansion, is that fully completed at this point?

Gunther Braun

Not yet.

Ingrid Mittelstaedt

No.

Gunther Braun

Not yet. In one location, yes, in [Maine] they are still working on it and there we say, it will happen in summer time and in Hamburg. It should happen this quarter.

Ian Fleischer - Friedman, Billings, Ramsey and Co.

Okay, great. Thanks very much.

Gunther Braun

Thank you.

Operator

Next question comes from Greg Halter from Great Lakes Review. Please go ahead with your question.

Greg Halter - Great Lakes Review

Yes, good morning and good afternoon.

Gunther Braun

Good morning, Greg.

Ingrid Mittelstaedt

Good morning.

Greg Halter - Great Lakes Review

I was wondering about the receivables and on the inventory side. I know you discussed what foreign currency added; was there any impact in terms of addition from your acquisitions that you have made over the past year? Anything meaningful?

Ingrid Mittelstaedt

Yeah, but it was not much.

Gunther Braun

Wasn't that meaningful; on the inventory, maybe a little bit more on the receivables.

Ingrid Mittelstaedt

Not, it is really immaterial.

Greg Halter - Great Lakes Review

Okay, thank you. And you had indicated that your capital expending for the quarter was about $3.5 million. What would you expect that to be for the full fiscal year?

Ingrid Mittelstaedt

We think so, 11, maybe people will say a changed rate, maybe $13 million.

Greg Halter - Great Lakes Review

11 to 13, okay. And you still have a good chunk of cash, which is a good problem to have, just wondering where that is invested if you've been involved in any of these crazy securities that are out there, hopefully not.

Ingrid Mittelstaedt

No, we will not. We have a controversial policy for investing and we had no problem.

Gunther Braun

And we will have problem.

Greg Halter - Great Lakes Review

That is good to hear.

Ingrid Mittelstaedt

Always, very short-term investment so that we are able to react if we need the money; for example, for an acquisition.

Greg Halter - Great Lakes Review

Okay. That is great to hear.

Gunther Braun

I think subprime pricing can hold these kind of things.

Greg Halter - Great Lakes Review

And also have you seen or have the ability to push through any price increases over the last quarter?

Gunther Braun

Greg, common.

Greg Halter - Great Lakes Review

Got to ask.

Gunther Braun

I think that's not the case in our industry that you come with price increases. Of course if you come out with new products, with the new technology then the question is how you set your prices. But price increases that's, it's a nice word, but usually we cannot succeed with that.

Greg Halter - Great Lakes Review

Okay. And then on the other side, are you seeing any price degradations then?

Gunther - Braun

Yes and no. I think if you just calculate the pure kilowatt or per watt dollar spend, you see a little bit price degradation. But on the other side, if you see the product it's works that we roughly get to the same or a little bit more for the product and if you do a club of production, well, somehow it should help and you don't reduce your gross profit margin hopefully.

Greg Halter - Great Lakes Review

Okay.

Gunther Braun

I think it does not work everywhere.

Greg Halter - Great Lakes Review

All right. And then one last one, have you repurchased any shares so far in the current quarter.

Gunther Braun

This is a [new step], no.

Ingrid Mittelstaedt

No.

Greg Halter - Great Lakes Review

Okay. Thank you.

Operator

(Operator Instructions) Our next question comes from Mr. Mark Miller from Brean Murray. Please go ahead with your question.

Gunther Braun

Everything answered all ready.

Operator

Mr. Miller, your line is now open

Mark Miller - Brean Murray

Congratulations on a strong quarter. Just looking at your guidance and quickly going through the second half of the year. It looks to me it's quite considerable at the midpoint of your guidance that you are not going to see the typical 10% up-tick that you've seen in the last two years in sales and Europe more flattish in the second half of the year and also it looks like your bottom-line should be flat this one way down. I mean, this is inconsistent with your belief.

Gunther Braun

I think you know us. We are more on the conservative side as we don't come out with bullish numbers and bullish forecast. I think a forecast from $480 million to $550 million top line, it's nice. Given our three months visibility, of course we could come up with higher numbers. But still we don't see all the business in the second half and when you travel around and be at conferences in the U.S. you just face pessimistic mood about the economy. So there is no reason at the moment really for us to put bullish numbers out, “let's deliver these numbers” I think they are quite is nice and hopefully we can over achieve that.

Mark Miller - Brean Murray

So it sounds like you are taking something into account or some negativity in your account and U.S. economy because these numbers are conservative?

Unidentified Company Representative

I think it would not be wise to go just bullish because you know the overall discussions here. Lets do as our job, let's deliver the numbers and at the end of the year we'll see and I am quite sure it will be a good year.

Mark Miller - Brean Murray

Thank you.

Gunther Braun

Thank you.

Operator

At this time there are no further questions. I would now like to turn the call back over to Mr. Gunther Braun for his concluding remarks.

Gunther Braun

Okay. Thanks for listening. I hope we would surprise you a little bit on numbers and our performance as we said the second quarter should be also reasonable well. We're anxious to see of course our order entry which will be the indication for the next quarter. But again we believe so far we've been in the right position to deliver the numbers, what we forecasted and hopefully we can talk to you again in three months with reasonable good number. Thank you. Bye.

Ingrid Mittelstaedt

Thank you. Bye.

Operator

Ladies and gentlemen, this concludes the Rofin-Sinar's 2008, first quarter results, conference call. Thanks you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!