Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

FEI Company (NASDAQ:FEIC)

Goldman Sachs Healthcare Conference Call

June 05, 2012 05:40 pm ET

Executives

Don Kania - President & CEO

Analysts

Isaac Ro - Goldman Sachs

Isaac Ro - Goldman Sachs

Okay. All right let's get started. Thanks all of you guys for after lunch sticking around and beautiful weather, its good. Isaac Ro from Life Sciences here at Goldman, very happy to have Don Kania from FEI with us today and we actually think this is a company that has really only in the last year or so come back on the radar screen and named it that investors in this part of the world tend to know much about. So thanks for coming. And secondly, if we could have you maybe sort of a couple of minutes going over the big picture story on your key initiatives for this year and I think if we can start here and we can just jump into questions from there.

Don Kania

Okay, sure. For those you who don't know we are a company that makes electron microscopes, very sophisticated microscope that can see very, very small things and that's the starting point. Our thesis is technology leadership in providing total solutions to a market oriented set of customers and so we organize ourselves around marketplaces one of which is life sciences which fits into the theme of today's meeting, but we also serve the electronics business which is semiconductor customers.

We have an emerging natural resources business where we serve oil and gas and minerals companies and we have a material science business which is our largest single business serving researchers around the globe doing research on materials.

And so technology leadership; we have three technologies which we leverage into all those markets. We just package it up differently for each of those customers to grow the company. The other side that's on the market side driving the topline; we've put a lot of effort into margin improvement and been relatively successful over the past few years and I think we moved over 600 basis points in the past six to eight quarters, so we improved profitability dramatically. We still think there is room ahead for improvement, so you've got I think an opportunity for topline growth, an opportunity for leverage profitability as we go forward.

Isaac Ro - Goldman Sachs

And then just key things for growth this year, how should we think about, you know growth has never been more of a scarcity here; so you guys are growing; tell us a little bit about….

Don Kania

Yeah, last year it was 30% which was really great, obviously we will grow as much this year, but we told the world 6% to 9% organic growth rate for the year on that side and then we have highlighted that by the fourth quarter we will get to 47.5% gross margin which has been from last quarter little over two point improvement.

So you will see some benefit to the bottomline, you will see topline growth and in a lot of ways 2012 because we have major initiatives in both life sciences and natural resources really a set up for faster growth in ’13. So when we take a big step back and say how fast can FEI grow? Our target is 12% or higher over the next few years and which has been our track record if you go back to like ‘98 and you look you draw on it the growth of the company it’s tracked that 12% line.

Isaac Ro - Goldman Sachs

And in a normal year how much volume growth would you say versus mix and share?

Don Kania

Well, off late it’s been -- we’ve grab a lot of share in the past few years, but I think we’re kind of at the end of that rope and that’s why the emphasis we’ve been putting on creating these new marketplaces, take the same technology and repackage and serves some new customers. And the other piece that gives us may be kind of listen into investors today there is always concern about Europe, I am sure we will talk about this.

But our goal is in the growth that we see in particularly in life sciences and in natural resources, it’s customers that already have money and they are spending in a different way, we just want a piece of that. So we don’t rely on growth in spending to continue to grow FEI. We rely on our ability to execute on solutions to that set of customers that’s better than what they are spending their money on today.

Isaac Ro - Goldman Sachs

So maybe we can spend a few minutes going to your key end markets that you currently serve and address how that happens because the technology has been around for a while, I think as expenses in very high end, certainly (inaudible) probably couldn’t use one of these with any great physician other than as a paper weight. So if I think about what it takes the FEI customers involved in using technology what types of innovation are you guys are focused on?

Don Kania

So I think from the technology perspective, we have been wrapping more than just the microscope as a box; we want customers to see it that way. It’s a box that does a functionality; but also many of our customers spend their lives like in the life sciences world, creating some kind of sample, whether it’s some kind of light activity, or mitochondria or something like that they or some kind of drug that they want to understand better. They really want seeing this flow of information so they can get from; I grossly call it Group Today. Our job is to take that group, turn it into information that they can then make rational decisions on or deeper understanding of what they created.

And so with really taking a broad process based view from sample preparation to software in the backend and then analyze this data for the customer and allows them to spend their time of what they want to do. So that’s our approach to life sciences market. That’s our approach to natural resources market where we’ve automated the sample prep, we’ve automated the software that the analysis is done on and we can deliver report to a customer as opposed to pictures from the microscope.

Isaac Ro - Goldman Sachs

Yeah, you have enabled what it looks like in the natural resources, I mean that’s in the probably market that I think is highly interesting, for a lot of the traditional life sciences technology that we see and it makes sense on paper what you feel like those products using those environments. But what does it really take to get an Exxon or somebody like that to use a technology like this in a much, outside of the research lab.

Don Kania

So we started the research lab which is often the place you start and you demonstrate utility and then you have to make a rugged system that can survive and in this case, last year we did three data sites, one in Papua New Guinea, one in the Persian Gulf and one in Poland that turns out. At real sites, real oil wells, where people run around in dirty gloves and oil all over the place and demonstrated that we can actually operate our equipment in that environment, deliver value added data in a timely manner to the customers.

So you really need to do those real-time tests and that includes again that whole process. So you just don’t, you don’t want to have to have a trained scientist running the equipment, you want the technician to be able to get the job done and get the information quickly in the hands of the decision maker so they can save days of labor and something and a drilling rig can cost $500,000 a day to run, so mistakes are expensive, to lessen the mistakes that’s the goal, this was optimized with the use of that larger capital infrastructure.

Isaac Ro - Goldman Sachs

And then if we breakdown the major, how do you guys characterize four major end markets that you have and that resources electronics research and lifer sciences; when you think about the totality there what is the mix what will cause for cyclical versus non-cyclical end markets which were in the (inaudible)?

Don Kania

Yeah, everybody in this world is scared to death of electronics business so it’s cyclical, it is a wonderful thing. And I think as we differentiate ourselves against many of the key equipment suppliers of the semiconductor industry where it’s truly turned into a cyclical or lay business or the cyclical growth business, worst cyclical growth. If we look at the data over the past few years, we have been growing through these cycles where the industry has been essentially flat in terms of total spending. So we are growing, the industry is flat and we are also less volatile because we are focused on technology and not really focused on capacity and that’s where this more volatility, so we see it as a high margin opportunity for FEI, we see it as volatile, though not as volatile in the industry as whole; as a cyclical growth play, not just a cyclical play.

So we are very happy with the business, what we like it about 30% of the FEI, that seems to be about a good fit for it; when we look at the growth of all of our potential businesses this will grow, it will stay around the third. And M&A, this is probably an area we wouldn’t do M&A; we don’t think that we really want to expand our footprint; we like we are at; we feel very comfortable; we build customer intimacy and we think we have roadmaps that can keep us as a compelling player and that’s good enough.

Isaac Ro - Goldman Sachs

Maybe we will come back to the M&A piece a little bit later; I want you to walk through a couple of other items here in end market, one being NIH, we have a collaborative agreement, just walk us through kind of, what the nature of that is and it seems like the NIH has had more outreach with technology companies last couple of years trying to harness ways in which you can realize some real material improvement and productivity enhancements, all that kind of stuff. So assuming the aim, what's your level of interaction with NIH on that front and secondarily do you have a strong opinion on where their budget and sort of budgetary allocations are going?

Don Kania

Okay. First, I was there two weeks ago visiting with my good friends. Our approach to the NIH was we provide ability to the structural biology which is seen as very niche and very isolated from the mainstream and the goal here was to partner with a mainstream player like the NIH that had expertise and what we see as complimentary technologies of NMR and XRD with is quite familiar to people here. Okay, that's about $600 million marketplace which we don’t participate in directly, so the goal is validation for what we do and to define those areas where we can add tremendous value in biologically important problems.

And the NIH I think is no better place in the world to do that where they have expertise in all these domains. They can play together with us and that's the structure that we put together and then we on the output side can define those areas where we can provide differentiated and important information and we seem to have identified several areas where that absolutely true in (inaudible) and structures trans membrane proteins, things like that which are difficult if not impossible to do with those other techniques yet are important to understanding machinery of life and disease.

On the flip side yes, about the NIH budget, I sat down with several of the directors and asked them what do you think about their team and I guess maybe something off the record kind of come at us, but they felt like that Congress had a certain affinity for investing in the Alzheimer’s and AIDS and disease prevention and that there was [not] enough popular support that they didn't expect draconian measures to hit them and generally they admitted that if they were small reductions that they could weather the storm pretty effectively. So from FEI’s perspective, we feel pretty good about that. We are also pushing them on an extramural program in our space. We will see that there's no quick foreclose or anything but we feel if we can show this utility that should not only have an intramural program which they do have, they should foster an extramural program which puts more emphasis on cryo-electron microscopy and the life sciences.

Isaac Ro - Goldman Sachs

Okay, as we put this all together you guys obviously have a pretty strong franchise in all these end markets. What do you think your combined share is on your addressable market? How do you look at ways to merely bolt on adjacent technology that would help leverage your core assets base?

Don Kania

So if you look at globally our market share is somewhere real close to half give or take. And there's a little bit of upside there in terms of market share but we think the bigger win is exactly what you identified is finding those adjacencies where we can grow out into either organically or inorganically.

Natural resources being inorganic, we bought a couple of small software companies to build that business and we are talking now we had $30 million in that space last year and we think we can continue to grow at a high rate this year and into next year.

So we are on the hunt for a more people like these were tuck in, I am okay with that small things, technology adjacencies whether the hardware or software, next to what we do that we can build upon to go attack those next markets.

We are highly unlikely to take a big step. You know it's just not in our nature and in our capability at this point in the growth of the evolution of the company. So stay tuned for that I think and it comes back to ultimately people start what's our capital strategy because we do have a fairly fat balance sheet right now. Its number one, invest in FEI. We ramped up R&D investment this year to 11% which we've targeted. Number two is tuck in M&A. Number three is opportunistic buyback of shares which we’ve executed really to the bunch of 30 last year and we have an approval to continue to do that, so we can’t really comment on the details but that’s the operational strategy as of today.

Isaac Ro - Goldman Sachs

Okay. And I want to come back to the M&A piece a little bit later before we do on the financials may be good time to talk about the P&L side of it and say okay you’ve had phenomenal top line growth double digit compounded in $30 million simply very strong level last year, within that what do you think of opportunities after market for gross margins and operating leverage if in fact you guys are out nearly half the market share addressable?

Don Kania

Well I think those continued opportunity to improve, we targeted 47.5% for Q4. We think we still maintain that sort of target for Q4. We think there are improvements beyond that. We will talk a little bit more about that on our Investor Day which is Thursday in New York, but there is continued room for improvement and it’s really two pieces which doesn’t change anymore. One is our new markets and our new products all have higher margin. And there is lots of room for operational improvements we are no ever near world class in terms of our operations. So the good news from that is there is we can get better. So we’ll both continue and we’ll be relentless on that.

Isaac Ro - Goldman Sachs

And then on the M&A front, just getting back to that topic. You guys had to deal for a company aspects based on what you said earlier on the balance sheet it seems there is lots of capacity to do more so walk us through kind of what kind of assets you are looking for your experience thus far with aspects and then just integration in key [hurdles] you have for the balance of the year?

Don Kania

Let’s go back a little bit further, if we go back to the natural resources business we bought two small companies Intellection and I can't remember the other one right now but stuck in together in Australia has been very effective, didn’t lose any talent and built a little business which we think will be a big business in a few years. Learned a lot how to integrate these relatively delicate small things and these small things is all about the people. It’s not an intellectual property play, not an established market play, its people who have expertise and understanding and some hardware and other stuff but if you lose the people, its really would be a big loss.

And so subsequently we bought TILL in Munich and we bought ASPEX in Pittsburg. TILL have a new product out this year. We bought in January and before the end of the year, we have an integrated product with FEI before the year end which I think is the right kind of, that’s an aggressive but important milestone for the company and then ASPEX; they’ve always been our partner in well side.

So we’ve been able now to accelerate that product roadmap appropriately because now we have direct control over it, where in the past it was an over with an influence based and we’re looking at how we can integrate FEI technology on to that. It's really a great platform, a very robust platform maybe to approach some other markets down the road. So, you know, it’s a, I think we’ve learned those lessons.

We’re seeing success and of course we wait a little longer on the newer ones to show it but I think we’re seeing the right people in place and then the right kinds of outputs in terms of products that will really make sense for us.

Isaac Ro - Goldman Sachs

And then for the next few deals, if you look at the current environment rates probably stay low for longer. There is a lot of competition for new technologies, lots of cash on the sidelines with other companies in your competitive here. So, what kind of metrics financial you guys put in place when you applied some of the goals you have on returns and valuation?

Don Kania

So, discounted cash flow analysis, you know, based on our discount rate. We are accretive enough, that’s easy. You are concerned about our new standard be accretive, you know your point, right. So and we do look at the part two reset of the financial side and we’re very disciplined about that and then you know then it’s going to be an adjacent, kind of half a step away from what we do. We are not going to reach beyond because its what you don’t know that kills you and we’re not in the position to just, we are not a company that’s just going to add on companies because we are a company that’s looking to leverage up value with what we have, what we can acquire and that will be our strategy for next the few years.

Isaac Ro - Goldman Sachs

And discount rate that you have you guys discussed?

Don Kania

And it is around 13, we get the banks to do it for us. Ray checks it and we feel pretty comfortable with that number for FEI like it a little bit that point of time that's fair number for us.

Isaac Ro - Goldman Sachs

And let's say that the (inaudible) of opportunities really just to avail itself and you guys buy whatever you wanted and get it in a fair price, what kind of leverage on the balance sheet would you be willing to take on what you think is a fully capitalized?

Don Kania

Well, I think we, many on the opposite sides. We got $300 million which we could put to work and not affect our ability to safely run the company. So if you are buying small chunks and less than $50 million you know sort of $15 million as chunks we are more limited by our ability to absorb than we are, our ability to deploy the cash thus the other piece of our capital deployment is, if you look at buybacks opportunistically because that is another opportunity to return the money to the shareholders. So we are not limited by cash.

We also have a credit line you know now we really (inaudible) on our credit line but nonetheless right, and we are generating cash, we have accelerated cash generation from past seven years. So we are actually creating it faster than we are spending it. So I think we need to really continue to look at are we giving the right returns to shareholders of that cash as opposed to spending in our companies because that's limited by us and we are generating cash so therefore I think overall we have the buyback programs at place which is as the other side to that balance it out.

Unidentified Company Representative

And with dividends never make sense just given the growth on that, maybe its time for that given the environment and the question I ask myself are we a better stock because you of guys. In the end no, I mean that’s not our job. So picking an opportunistic point is either radically is easy like brain dead (inaudible) box we thought was easy to see but maybe in the future it probably just makes more sense to make it more structural in terms of return on money to the shareholders in a dividend way but stay tuned.

Isaac Ro - Goldman Sachs

Okay. Fair enough, and with respect to the outlook going forward, our estimation is that you have on a regional basis. You know before we got it started you heard we were talking about China. Obviously structurally each growth market, you know the western world I think is more or less replacement market and a lot of the traditional applications and that applications in China so just walk us through your strategy there and how you find success in that region in China?

Don Kania

Yeah China has been explosive grower for us. It's now 12% of the company and it's really only in there's no electronics business there of anything. It's primarily life science and material science business. We've launched its, I have been with the company with six years, five years ago we launched the major effort in China to build up our team and put a demonstration in Shanghai and show real commitment to the region and that's paid off. So going forward more feet on the street, we are actually using some distribution because it’s a big country. The investments moving inland, so the geography is expanding in terms of the opportunities for FEI so more investment but more return on that investment too.

So we feel that we are doing the right things. I think in the longer picture we are looking more strategically so let's say five years out and we probably need to continue to expand our presence there and I am not sure what that answer is but we are examining that at this point. We think its going to be central feature for the long run for FEI.

Isaac Ro - Goldman Sachs

And competitively do you see any dynamic there [dramatically] different. I can't imagine there anywhere on the local flight you know in China at this point but…

Don Kania

No local, it’s the usual competitors you know in those areas where its price competitive yeah you get the price competitive activity but generally we've done a great job with the brand, and particularly putting in a strong service infrastructure has paid off for us and I spent time there. The commitment that people like to see the…that's coming have build relationships you know I have been going there for years. And that adds to the cache that this is a company that's committed to making sure that the right things are done. And people have promised they would call me and talk to me. And so, you do both sides of that, both the sort of the emotional part of the brand commitment and then the actual. We have a Chinese team that's well trained and committed to success.

Isaac Ro - Goldman Sachs

And if we look beyond this, is it fair to say that market for these technologies obviously is still solely driven with Beijing and Shanghai, and those major cities driving most of the volume or are we at a point where the tier two and three cities sort of --

Don Kania

We're starting to see the tier two and tier three cities. So when I go to China, I go to new places. I've been to -- you've got Hangzhou, you've got Dalian, you've got Shenyang, places I don't typically spend a lot of time in. It's not just Beijing, Shanghai, Pearl River. So we're seeing that happen. We've actually seen key researches from Beijing being transplanted to new institutions, which is great. So our customers in one location look to a new location to build a new infrastructure, buy more stuff. It's great.

Isaac Ro - Goldman Sachs

Got it, okay. And then, just last thing on China would be obviously the last couple of months' economic data from an educational standpoint pulled down a little bit. Obviously, there wouldn't necessarily be a one-to-one correlation, but can you give us qualitatively a feel for what you're seeing?

Don Kania

Makes no difference; I think there's a commitment to infrastructure investment from the educational perspective, and that's primarily where we play. So the five-year plans or the five-year plans, it's really -- totally it's very different than we're used to in the U.S. with annual budgets. We have a five-year plan and we're committed.

I remember in the last five-year plan, I was sitting down with the Head of the Chinese Academy of Sciences, and I -- what's going to happen in this great recession, are you going to change your plans? And he looked at me like I was from Mars, because of course we're going to stick. And in fact, they stick to their plan and they continue to invest. And now, you don't expect this current period to be any different.

Isaac Ro - Goldman Sachs

And there has been some talk about the transition in power at the regional level for the government officials in the last year or so, and the impact that that might have on just sort of the flow of funding, not the aggregate amount but the timing of it. Have you seen any sort of fits and starts there in terms of when the --

Don Kania

I would say no more than usual. There's always with -- particularly with the academic markets, there's always these fits and starts, whether it's facilities, whether it's -- I think the intents are always accurate. We're going to buy. And the timing is always uncertain.

Isaac Ro - Goldman Sachs

Speaking of uncertainty, let's just push over to Europe. We're obviously trying to figure out whether or not there's any real tail risk there, and I don't think any of us know for sure. But if we just kind look at your expectations for the year, what needs to happen in Europe for you to kind of hit your goals, however muted they may be?

Don Kania

Here's our view of Europe. There's three parts -- you can divide Europe into three pieces. Northern Europe is fine. Everything France and north will be okay. They'll continue their investment. The Germans actually ramped up their spending. The French actually ramped up their spending.

And I don't think the change in government affects that, because they're looking again, educational infrastructure competitiveness. And those things happen to be relatively resilient. The Nordic, same thing. U.K. has always been pretty poor for a while, like the U.S. So I don't think it's going to get any worse. And the south, okay. The south is going to be difficult, but it's not a big piece of the business.

And Eastern Europe has been a strength, and I think that continues because I think they're somewhat insulated and they are being subsidized to build up their infrastructure so that they compete in the EU, which is where they need to be competitive. And so again, it's an economic imperative for the long run that drives them, and that's going to override any of the short-term issues, I think.

Isaac Ro - Goldman Sachs

Now, I think the (inaudible) market is obviously driven partially by life science, but also the physical science, as you said that that's the case. You mentioned Eastern Europe, but what about Russia? There are new leaderships there. They don't even talk about really investing, and that they are known for having the physical sciences --

Don Kania

Yeah, I always get in trouble -- it's a country driven by criminals, so it's really difficult.

Isaac Ro - Goldman Sachs

Oh boy.

Don Kania

I can see trouble. So it's fits and starts there. I was -- three years ago I was really optimistic that we were going to get a lot done. And we got some done and we'll get some done. The articulated idea that they want to execute and their ability to execute are separated unfortunately.

And until things settle down -- I've talked with some of the senior levels, and they realize that they've got some issues that they need to come to closure on in terms of their ability to follow through on their investment concepts. And so, we still do good business there and we manage our distribution infrastructure. But I think we're a little bit ways from the explosive growth in Russia.

Isaac Ro - Goldman Sachs

Okay. And we'll just maybe circle and say, if we look at the rest of that BRIC community, we've touched Russia. I don't think that Brazil is being super large and high on the radar for this market. But maybe India --

Don Kania

You're wrong there. It's coming.

Isaac Ro - Goldman Sachs

Right, on the energy side, but --

Don Kania

No, no, no. It's coming on the research side too.

Isaac Ro - Goldman Sachs

Okay, go ahead.

Don Kania

Yeah, we just opened an office in Brazil. I was in Brazil a year and change ago. And one thing that people maybe miss a little bit about Brazil, some of their economic success, particularly in agriculture was based on scientific investment. They've developed the soybeans that grow in that climate, and it was based on real science investment.

We're not far from, I think, a bigger investment out of Brazil in the kind of things that FEI does. I think in the next few years, it's a few years. It's not a '13 event exclusively, but I think we're going to see momentum overtime in Brazil. And then India, we haven't talked about. India has been, again, fits and starts like Russia in the sense, high -- when you're selling million dollar products like we do, they've taken more attitude of we'll show people their problem is not big dollar items.

But they do buy them but at a rate that's different than their anticipated economic growth rates. So they're a little bit muted in that way. It's a good market for us but it's not a China. China has really taken the fact that, yeah, we have a lot of people but we want the best infrastructure to train and build factories around, and India isn't quite there yet.

Isaac Ro - Goldman Sachs

So if we -- I know we've gone around the whole globe here in (inaudible). If we look at the emerging markets, we look at Europe and we look at the U.S., how do you kind of frame the regional growth rates you expect over the next five years for the markets you serve?

Don Kania

Five years?

Isaac Ro - Goldman Sachs

Yeah.

Don Kania

Yeah, the U.S. will be muted, I think. It'll be -- I don't understand what's hanging them around. It'll sputter along. Europe will be good, if you include both Eastern Europe and the EU as we know it today. It'll be good because the East will drive it and we'll see benefits everything from the Baltic’s, all the way down to the Czech Republic, and it will be pretty good.

Asia will continue to be extremely strong because I think we'll see Southern Asia come out stronger over the next few years. Not only some of India, but also Vietnam, Thailand, Malaysia, and this is just -- it's ready to stat to invest. So we feel I think that's going to be a very positive. And in South America, both on the natural resources, which we're seeing pull right now.

And then I think mostly Brazil, a little bit Argentina on the scientific aspects of investment will be there as well. So that's why I love the globe. The globe gives us a lot of ability to make investments prudently to continue growth for the next few years.

Isaac Ro - Goldman Sachs

Well, what does global pie look like? Is it at that point in the future like a third U.S., a third Europe, a third emerging markets or is it --

Don Kania

I think emerging markets, they're going to be 40 plus.

Isaac Ro - Goldman Sachs

40 plus?

Don Kania

Yeah.

Isaac Ro - Goldman Sachs

Okay.

Don Kania

That should be a big change for us.

Isaac Ro - Goldman Sachs

Let me stop for a second and ask if there any questions in the audience.

Question-and-Answer Session

Isaac Ro - Goldman Sachs

I've been monopolizing the time. No hands raised, okay. Let me just go back to the technology. It's interesting that there's always an incentive, I think, in this market to have the incremental product. 10% more performance could get you 10% more money in a normal environment.

Do you see pockets or areas where if you really made the high-risk reward investment to make a quarter magnitude improvement in the technology that it would have an according benefit to your business? Is there an area that has some of that investment?

Don Kania

I would argue that's what we've been doing. We did this in one of our pieces of technology called Transmission Electron Microscope a few years ago. We changed the whole game with a technology change in the optics called correctors. We invested millions in that and the payoff was substantial. And so, I think we see selectively places where we can do that.

We did that with fast analytics in a new product called Osiris. So we can see a single atom, we're done, right. Resolution is done. Now we move the competitive landscape to how quickly can you tell which atoms are which. And that's fast analytics and we've introduced a product that was 50 times faster than what people could do before.

So I think we'll just continue to pick those opportunities to change the competitive environment with, I would say, leapfrog past technology. And that's -- it's hard to continue to say we'll continue to do that, but that's our goal is to be open to those kinds of -- and not necessarily -- I don't see them as high risk, high reward.

I see them as what we have to do to be safe. It's just we have to continue to improve productivity of the tools, improve on whatever the parameter of interest is relentlessly to stay in the position that we're in where we get good margins, get paid well and continue to grow for what we do.

Isaac Ro - Goldman Sachs

And last question for me would be, if we look at the financial profile of the company, we talked about top-line and a double-digit profile you've realized. Let's assume you can keep doing that and at the scale you're right now. Is there an EPS growth rate long-term or a total return that you hand deliver to shareholders when you factor in --

Don Kania

You should expect -- we're going to roll out this week an expanded margin model, gross margins, continuing to improve in a 30-month timeframe up to 50%, and then much -- about 1% improvement on the operating spending. But we do not encourage there because million dollar sales -- you can get a lot of leverage when you're selling million dollar products. That's still a handholding process. And then, that will fall through because we'll hold R&D in '11.

There'll be some benefits at the scale we're at to the back office but I think that comes later when we get bigger. I think we need to continue invest in new geographies, and so that's also going to drive some of the investment. So there's still room in the margin. There's little bit of room in the operating spending. So we should see, in addition to the growth of gross margin, we should see the operating improved as well.

Isaac Ro - Goldman Sachs

Okay. Well, we're looking forward to more detail on Thursday. Thank you for coming. Great to have you here.

Don Kania

Well, thanks for the invite. We appreciate it.

Isaac Ro - Goldman Sachs

Okay guys. Well, thank you.

Don Kania

Thank you.

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!

Source: FEI Company's CEO Presents at Goldman Sachs Healthcare Conference (Transcript)
This Transcript
All Transcripts