VRGY Verigy Ltd. (MM)

Verigy Ltd. (NASDAQ:VRGY), a premier semiconductor test company, today reported financial results for its fiscal second quarter, ended April 30, 2007. Second quarter revenue was $183 million, an 11 percent increase from the prior quarter revenue of $165 million and a 5 percent decline from $192 million in the second quarter of fiscal 2006. Orders for the second quarter were $202 million, an increase of 52 percent from the prior quarter of $133 million. The book-to-bill ratio was 1.10 for the second quarter. On a GAAP basis, net income for the quarter was approximately $22 million, or $0.36 per fully diluted share, compared to net income of $13 million, or $0.22 per share in the prior quarter, and to a net loss of $11 million, or ($0.22) per share in the prior year period. Net income for the quarter included approximately $2.4 million of charges related to separation and restructuring activities undertaken in connection with Verigy�s spin-off from Agilent Technologies last year. Excluding these charges related to the spin-off, non-GAAP net income for the quarter was $24 million, or $0.40 per share. �Verigy had a very strong quarter for both product lines,� said Keith Barnes, Verigy president and chief executive officer. �Our V5000 memory products showed sustained strength in the quarter and our SOC revenue grew 41 percent sequentially. We received increased business from existing customers and won new accounts in design validation and production test. Our book-to-bill ratio for the quarter was 1.10 and sequential order growth was greater than fifty percent. Second quarter bookings represented our highest order quarter since our record quarter of $313 million a year ago.� �We exceeded the high end of the range of our revenue and earnings guidance, and improved our free cash flow performance,� added Bob Nikl, Verigy chief financial officer. �This is our fourth consecutive quarter of strong financial results and reflects our continuing solid execution since our IPO last year.� Outlook for Q3 2007 For the third quarter ending July 31, 2007, the company provided the following guidance: Revenue is expected to be in the range of $195 to $205 million. GAAP net income is expected to be in the range of $26 to $29 million, or $0.43 to $0.48 per share, including approximately $3.2 to $3.7 million of share-based compensation expense. On a non-GAAP basis, the company expects to report net income of $27 to $30 million, or $0.45 to $0.50 per share.�To reconcile third quarter GAAP and non-GAAP net income and earnings per share, the company expects to exclude $1 to $1.5 million of charges related to separation and restructuring from the GAAP results. Conference Call and Webcast Verigy�s management will present more details on its second quarter results on a conference call with investors today beginning at 1:30 p.m. (Pacific). This event will be webcast live in listen-only mode. Listeners may log on at http://investor.verigy.com and select �Q2 Fiscal Year 2007 Verigy Earnings Conference Call� in the �Events & Presentations� section. The webcast will remain available on the company�s Web site for seven days. A telephone replay of the conference call will be available from 4:30 p.m. (Pacific) today through June 7, 2007. The replay number is +1 888-286-8010 toll-free, or international callers may dial +1 617-801-6888; enter pass code 32081009. About Verigy Verigy designs, develops, manufactures, sells and services advanced test systems and solutions for the memory and system-on-chip segments of the semiconductor industry. Verigy�s scalable platform systems are used by leading semiconductor companies worldwide in design validation, characterization, and high volume manufacturing test. Formerly part of Agilent Technologies, the company began doing business as Verigy on June 1, 2006, and completed its initial public offering on June 13, 2006. Information about Verigy can be found at www.verigy.com. Forward-Looking Statements This earnings release contains forward-looking statements, including statements regarding Verigy�s guidance for the third quarter and other statements that express the company�s expectations, beliefs, plans and forecasts. These forward-looking statements are based on current information and estimates, and are not guarantees of future performance or events. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. The risks and uncertainties include, but are not limited to, unforeseen changes in demand for semiconductors and thus for semiconductor test solutions, the strength of our customers� businesses, and unforeseen changes in the demand for current and new products and technologies. Additional factors that may cause results to differ materially from those in the forward-looking statements are discussed in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2007. The forward-looking statements, including guidance, are only valid as of this date, and Verigy undertakes no duty to update any forward-looking statements. Information About Non-GAAP Measures Our management uses non-GAAP measures to evaluate the operating performance of the company. By eliminating the separation and restructuring charges associated with Verigy�s spin-off from Agilent Technologies, management believes it is better able to assess the operating performance of the business. Since management finds the non-GAAP information to be useful, we believe that our investors also benefit from seeing our results �through the eyes� of management in addition to seeing our GAAP results. This information also facilitates our management�s internal comparisons to our historical operating results as well as to the operating results of our competitors. A reconciliation between our GAAP and non-GAAP results is provided in the attached tables. Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. VERIGY LTD. CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) (Unaudited) � � Three Months Ended Six Months Ended April 30, April 30, � 2007� � 2006� � 2007� � 2006� � Orders: $ 202� $ 313� $ 335� $ 489� � Net revenue: Products $ 147� $ 158� $ 275� $ 301� Services � 36� � 34� � 73� � 61� Total net revenue 183� 192� 348� 362� � Cost of sales: Cost of products (a) 79� 81� 148� 155� Cost of services (a) � 25� � 25� � 50� � 49� Total cost of sales 104� 106� 198� 204� � Operating expenses: Research and development (a) 22� 25� 45� 50� Selling, general and administrative (a) 35� 40� 69� 77� Restructuring charges -� 8� -� 14� Separation costs � 1� � 20� � 3� � 35� Total operating expenses 58� 93� 117� 176� � Income (loss) from operations 21� (7) 33� (18) Other income (expense), net � 4� � -� � 7� � -� � Income (loss) before taxes 25� (7) 40� (18) Provision for income taxes � 3� � 4� � 5� � 9� � Net income (loss) $ 22� $ (11) $ 35� $ (27) � � � Net income (loss) per share - basic: $ 0.37� $ (0.22) $ 0.59� $ (0.54) � Net income (loss) per share - diluted: $ 0.36� $ (0.22) $ 0.59� $ (0.54) � � Weighted average shares (presented in thousands) used in computing net income (loss) per share: Basic 59,004� 50,000� 58,884� 50,000� Diluted 59,945� 50,000� 59,567� 50,000� � (a) Share-based compensation expense by function: Cost of products $ 0.4� $ 0.7� $ 0.8� $ 1.2� Cost of services $ 0.2� $ -� $ 0.4� $ -� Research and development $ 0.4� $ 0.3� $ 0.9� $ 0.8� Selling, general and administrative $ 2.2� $ 1.5� $ 4.8� $ 4.5� VERIGY LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except share data) � � � � April 30, October 31, 2007� 2006� (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 168� $ 300� Marketable securities 180� -� Trade accounts receivable, net 71� 108� Receivables from Agilent -� 8� Inventory 73� 87� Other current assets � 55� � 48� Total current assets 547� 551� � Property, plant and equipment, net 41� 44� Goodwill 18� 18� Other long-term assets � 60� � 61� Total assets $ 666� $ 674� � LIABILITIES AND SHAREHOLDERS� EQUITY � Current liabilities: Accounts payable $ 71� $ 75� Payables to Agilent 5� 37� Employee compensation and benefits 43� 43� Deferred revenue, current 53� 58� Income and other taxes payable 9� 23� Other current liabilities � 15� � 15� Total current liabilities 196� 251� � Long-term liabilities � 33� � 34� Total liabilities 229� 285� � Commitments and contingencies � Shareholders' equity Ordinary shares, no par value, 59,056,065 issued and outstanding at April 30, 2007 Additional paid in capital 371� 358� Retained earnings 69� 34� Accumulated other comprehensive loss � (3) � (3) Total shareholders' equity � 437� � 389� Total liabilities and shareholders� equity $ 666� $ 674� VERIGY LTD. RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (In millions, except per share amounts) (Unaudited) � Three Months Ended Year-to-Date Ended � � October 31, 2007 EPS July 31, 2007 EPS April 30, 2007 EPS January 31, 2007 EPS 2007� EPS � GAAP net income $ -� $ -� $ -� $ -� $ 22� $ 0.36� $ 13� $ 0.22� $ 35� $ 0.59� Non-GAAP adjustments: Restructuring charges in cost of sales -� -� -� -� 1.1� 0.02� 1.1� 0.02� 2.2� 0.04� Restructuring charges in operating expenses -� -� -� -� -� -� -� -� -� -� Separation related costs in cost of sales -� -� -� -� 0.4� 0.01� 0.2� -� 0.6� 0.01� Separation related costs in operating expenses -� -� -� -� 0.9� 0.01� 2.0� 0.04� 2.9� 0.05� Other � -� � -� � -� � -� � -� � -� � -� � -� � -� � -� Non-GAAP net income $ -� $ -� $ -� $ -� $ 24� $ 0.40� $ 16� $ 0.28� $ 40� $ 0.69� � � � Three Months Ended Twelve Months Ended � October 31, 2006 EPS July 31, 2006 EPS April 30, 2006 EPS January 31, 2006 EPS 2006� EPS � GAAP net income (loss) $ 14� $ 0.25� $ 13� $ 0.23� $ (11) (0.22) $ (16) (0.32) $ -� $ -� Non-GAAP adjustments: Restructuring charges in cost of sales 2.2� 0.03� 2.2� 0.04� 2.4� 0.05� 0.9� 0.02� 7.7� 0.14� Restructuring charges in operating expenses 0.9� 0.01� 1.6� 0.03� 8.0� 0.16� 6.0� 0.12� 16.5� 0.31� Separation related costs in cost of sales 1.0� 0.02� -� -� 3.7� 0.07� -� -� 4.7� 0.09� Separation related costs in operating expenses 12.6� 0.21� 20.9� 0.38� 20.0� 0.40� 15.0� 0.30� 68.5� 1.28� Other � -� � -� � -� � -� � (0.7) � (0.01) � -� � -� � (0.7) � (0.01) Non-GAAP net income $ 31� $ 0.52� $ 38� $ 0.68� $ 22� $ 0.45� $ 6� $ 0.12� $ 97� $ 1.81�