Tylan General Q3
|
Tylan General Q3
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh)
TYLAN GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TYGN)") else Response.Write("(Nasdaq: TYGN)") end if %> ALEXANDRIA, VA, September 12, 1996/FOOLWIRE/ -- Tylan General, Inc., a leading global supplier of process management equipment, announced Aug. 28. 1996 its financial results for the third quarter ended July 28, 1996. On July 3, 1996, the company issued 1.3 million shares of its common stock in exchange for all of the outstanding shares of common stock of Span Instruments, Inc., a Plano, Texas-based manufacturer of high purity pressure monitoring and control instruments. The merger was accounted for as a pooling of interests. Therefore, the company's consolidated financial statements have been restated to reflect the merger for all prior periods.
Revenues for the third quarter of fiscal 1996 were $39.3 million, compared with $32.6 million in the third quarter of fiscal 1995 and with $42.0 million in the second quarter of fiscal 1996. An operating loss of $1.6 million was incurred in the third quarter, as compared to an operating profit of $4.1 million in the same period of the prior year and as operating profit of $3.3 million in the second quarter of fiscal 1996. Excluding $3.7 million of non- recurring business combination and integration costs associated with the acquisition of Span Instruments, operating income for the third quarter of fiscal 1996 would have been $2.1 million.
The company incurred a net loss for the third quarter of fiscal 1996 of $1.7 million or $0.22 per share. Adjusting for the after-tax effect of the business combination and integration expenses, additional costs incurred to deter a potential unsolicited attempts to acquire the company and an extraordinary loss relating to the pre-payment of Span Instruments indebtedness, net income would have been $1.1 million. This compares with net income of $2.0 million for the third quarter of fiscal 1995 and of $1.7 million in the second quarter of fiscal 1996.
Revenues for the first nine months of fiscal 1996 were $114.7 million, compared with $83.0 million reported for the same period of fiscal 1995. Operating income for the first nine months of fiscal 1996 was $3.5 million or excluding non-recurring business combination and integration costs associated with the combination with Span Instruments, operating income would have been $7.2 million for the first nine months of fiscal 1996. The Company had operating income of $8.9 million in the first nine months of the prior year. Net income for the first nine months of fiscal 1996 was $764,000. Adjusting for the after-tax effect of the non-recurring business combination and integration expenses, additional costs incurred to deter potential unsolicited attempts to acquire the company and extraordinary loss, all as described above, net income for the first nine months of fiscal 1996 would have been $3.6 million, or $0.45 per share. Net income was $3.7 million in the first nine months of 1995.
"As we have previously announced, our industry has slowed considerably, and in the third quarter we continued to see fab cancellations and delays from our customers, resulting in the rescheduling of orders," said David Ferran, chairman, president and CEO. "It is difficult to determine how long these conditions will persist, but we have taken cost reduction steps company-wide, including a 17 percent work force reduction, to better position the company during this difficult period." In addition to the merger with Span, Tylan General announced in July 1996, that the board of directors adopted a shareholder rights plan to protect shareholders from abusive takeover tactics, including attempts to acquire control of Tylan General at an inadequate price. On August 20, 1996, the company announced that it had received expressions of interest from potential industry buyers regarding the acquisition of Tylan.
Chair/CEO David Ferran:
"The third quarter was one full of interesting events....As expected, we began to really feel the effects of the semiconductor equipment downturn during our third quarter...[as we warned in our record second quarter earnings release] the quarter was negatively impacted by a significant cutback in purchases by our largest customers, namely the large systems manufacturers. As our largest customers adjusted their inventories and purchase volumes to match their new lower business levels, orders fell here at Tylan General to $34.7 million, as compared to $48.8 million during the record-high previous quarter. Shipments also declined to $39.3 million compared to last quarter's $42 million." "We were able to accelerate the closing of the Span Instruments combination from the previously scheduled September 4 to July 3" to assure Span employees and customers of the financial and service strength of Span and the willingness of the two companies to consummate the merger. The number of Tylan shares to be exchanged for Span was also reduced from 1.47 million to 1.3 million. The shares were also unregistered at the time of the closing to allow a more orderly flow of shares into the market should Span's insiders decide to sell. "We believe that the shareholders of both Span and Tylan General benefited by the acceleration of the closing on the new terms and we are confident that our decisive action went a long way to allay concerns of our shareholders, employees, and important customers." "Since completing the transaction, I'm pleased to say that the integration of the companies has progressed very smoothly. The people chemistry...has been fantastic and the performance of Span thus far has met or exceeded our expectations. Having said that, I just wanted to remind you that Span's semiconductor-related business has grown to 70% of its total revenues and that our expectation is that Span will also experience softness in their order levels if, and as, the weak market continues."
Outside of the other issues which have drawn the attention of Tylan investors in the last quarter, Ferran spoke about their recent deal with Innovative Laser Corp.: "We believe that the technology that ILC has developed will enable an IC manufacturer to detect minute amounts of chemical contamination in semiconductor process gas streams. More importantly, the technology will allow the manufacturer to do this with incredible resolution and will work with the most corrosive of the semiconductor gasses used today. This is technology that we feel is extremely valuable, and if successfully developed, could open up an entirely new market for Tylan General for in-situ contaminant analysis. Our estimates are, that by the year 2000, this market could be as large as $500 million a year." There are no products or technologies, in the opinion of Tylan General, that can effectively accomplish these tasks. "We're expecting to see the first products resulting from our collaboration to come to market in the 2-3 year time frame, with a full line of products being ready for market by the start of our fiscal year 2000."
Ferran addressed the 13-D filing by Danher Corp. on June 27, in which Danaher revealed it held a 10.4% stake in Tylan General. "This came as a total surprise to all of us...as there had been no prior contact with Danaher or any of its representatives." With the advice of both investment and legal counsel, Ferran declined to meet with Danher Corp. Ferran referred Danaher to advisors at Goldman Sachs. Tylan's Board of Directors has formed a special committee to investigate the possibility of selling the company. Don Whitson and David Ferran have also formed a group to look into purchasing the company. The company has reduced its workforce by 17% and has cut discretionary spending in adjusting for the industry downturn and will take a step-by-step approach to the downturn. "We have things well in hand and the industry downturn came as no surprise. For what it's worth, I think the industry as a whole may be down 30% in calendar 1997 compared to 1996, and that we won't see signs of recovery until 1998." Ferran commented that he hoped he wasn't being overly pessimistic, but he didn't believe he was.
David Stone, CFO:
Revenues for the quarter were $39.3 million, up 21% from $32.6 million in Q3 1995 and down 6% from Q2 96. Net income in the quarter was impacted by several one-time charges" $3.7 million in integration costs associated with the Span merger and by costs to deter a potential unsolicited bid to acquire the company. Before these charges, net income was $1.1 million, down 45% from the $2.0 million in Q3 1995 and down 35% from the $1.7 million in Q2 96. Reported EPS for Q3 96 was based on 7.8 million shares, as compared to $0.30 EPS on 6.7 million shares in Q3 95 and $0.21 on 8.0 million shares in Q2 96. Gross margins was 40.2% for Q3 96 compared with 43.3% last year and 40.6% last quarter. The decrease from last quarter involves an inventory write-down and higher than expected scrap and efficiency variances in the Rancho Dominguez flow products facility. The decrease in gross margin from Q3 95 is related to the above, as well as product mix for conventional gas panels, which carry lower gross margins. On the expenses below gross, SG&A, not including extraordinary charges, was 27.3%, as compared to 24.3% a year ago and 24.9% last quarter. The increase was primarily due to higher expenses for legal and other professional services and for travel and conferences. R&D expense was 7.3%, compared to 6.0% for Q3 95 and 7.7% in Q2 96. Tylan's model for R&D continues to be 6-8% of revenues, but the company is seriously considering increasing beyond that model over the next several quarters. Inventory turned 3.4 times in Q3 96, down from 4.1X in Q3 95 and 4.3X in Q2 96. Inventory turnover was unfavorably impacted by significant customer rescheduling and cancellations. Accounts receivable days-sales-outstanding (A/R DSO) was 59 days, worsening from 50 in Q3 95 and 54 in Q2 96.
Q&A
The situation with Intelligent Gas Panels continues to develop favorably. The company is finding increasing acceptance for the technology, however, the IGP is really being focused on the 12 inch tools by the large systems companies. It's too late in the 8 inch cycle to try to fit out those systems with the IGP. The large systems manufacturers are embracing the technology for R&D tools in 12 inch and there has been little in the way of appreciable revenue from IGPs. Many more units are in the field for evaluation in R&D when compared to revenue-unit count. The maximum share count in the event of any transaction involving the company (merger or buyout, including a management buyout) would be 8.1 million shares.
On a question regarding revenues tracking the industry in general, Ferran commented that Tylan's business opportunities certainly track the forward-looking growth for the industry. With fewer fabs being constructed at the moment, there is less need for original process management and instrumentation. Tylan is working to gain share in this slowdown environment with new product roll-outs and opportunities in the Japanese mass flow controller market.
Roper CEO/Chair Derrick N. Key's resignation from the Board of Directors was completely friendly and Tylan considers Key a "very good friend." The company has made new commitments to R&D programs, in technology and engineers, so that they may be well-positioned for an upturn. Tylan is developing an all-new line of mass flow controllers that is planned to be introduced in December. There is an entirely new line of throttle and gauge valves that will be introduced at the Semicon Japan show. Tylan is also making major investments in new sensor technology and the new laser technology, as well as the next-generation IGP.
The mass flow business has come back very strongly in the first few weeks of the quarter and they are working with Lam to bring inventory back in-line.
The gas stream/laser product targeted for R&D was developed at the University of Arizona and was funded by Sematech, Motorola, Applied, among other organizations. As the technology moved toward commercialization, the scientist who worked with the university formed Innovative Laser Corp. to find industrial partners. Several companies bid on the technology, and while Tylan entered the bidding late, they moved aggressively to win exclusive rights for the IC, flat panel, fiber optic, and thin film deposition industries. The laser can handle highly corrosive gasses -- the entire gas stream can be passed through the sensing device and be analyzed to the parts/billion level of moisture contamination. In addition, its in situ capabilities make the device that much more attractive to potential customers.
Customer breakdown: 1. Lam Research 2. Applied Materials 3. Tokyo Electron Limited (TEL) 4. Watkins-Johnson 5. Semigas. Percentage of sales breakdowns were not available. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
|
|
Copyright 1996, The Motley Fool |