Revenue for the first quarter, which ended Feb. 3, totaled $119 million, down 2.5% from a year ago. On that revenue figure, Credence nearly managed to break even, losing a paltry $11,000. That was an improvement from a year ago, when it lost $4 million despite a bit more revenue. Gross margins for the quarter clocked in at 43.3%, which was a bit lower than both a year ago (45.6%) and the previous quarter (44.9%). Lower SG&A and R&D expenses accounted for the improvement in the net loss, despite the lower gross margin.
The balance sheet improved significantly over the previous quarter, as Credence completed a convertible note refinancing. The new notes raised $50 million in cash, and the maturity has been pushed out to 2010 from 2008. The company now has $150 million in cash and short-term investments.
Despite sporting a strong book-bill ratio of 1.17, the company's outlook for the second quarter was a bit disappointing. Management claims that its customers' utilization of backend test equipment is below 80%. Ninety percent is often considered the "magic number" at which semiconductor manufacturers will start adding new equipment. As a result, Credence expects revenue to fall 5.5% to 8% -- from the nearly $125 million level it reached a year ago to $115 million-$118 million. Gross margins should be around 45%.
Beyond a weak outlook next quarter, the company still has a number of challenges ahead. Credence needs to continue to improve its cost structure, but management said on the conference call that it also needs to provide a stronger local presence to its customers across the globe. Opening a bunch of small offices around the world that will be staffed with seasoned engineers doesn't seem like a great way to put a lid on costs -- although I don't see how Credence has a choice. Its customers must be supported.
Two of Credence's largest customers are microprocessor makers Advanced Micro Devices
Nevertheless, Credence does have a new CEO, and its free cash flow numbers over the past couple of years have not been as bad as its earnings figures. The company's improved balance sheet may help it engineer a turnaround, but you'll definitely want to do your homework on this one before joining the ranks of shareholders.
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