LTXCredence Corp. (LTXC, Financial) filed Quarterly Report for the period ended 2009-01-31.
Formed by the 2008 merger of LTX Corporation and Credence Systems Corporation LTX-Credence is a global provider of focused cost-optimized ATE solutions designed to enable customers to implement best-in-class test strategies to maximize their profitability. LTX-Credence addresses the broad divergent test requirements of the wireless computing automotive and entertainment market segments offering a comprehensive portfolio of technologies the largest installed base in the Asia-Pacific region and a global network of strategically deployed applications and support resources. LTXCredence Corp. has a market cap of $27.8 million; its shares were traded at around $0.22 with and P/S ratio of 0.2.
Service revenue, included in net sales, accounted for $17.6 million, or 57.9% of net sales, and $7.2 million, or 23.1% of net sales, for the three months ended January 31, 2009 and 2008, respectively, and $33.5 million or 43.2% of net sales, and $13.9 million or 22.9% of net sales for the six months ended January 31, 2009 and 2008, respectively. The increase in service revenue is primarily a result of the inclusion of Credence-generated service revenue for the three and six months ended January 31, 2009 of approximately $11.9 million and $22.0 million, respectively.
Inventory-related provision. We recorded an inventory-related provision of $5.6 million or 18.5% of net sales in the three months ended January 31, 2009 The provision consisted of $0.8 million related to the implementation of product roadmap decisions related to the ASL 3KMS line and $4.8 million related to future requirements of last time buy components related to the implementation of the product roadmap decisions. For the six months ended January 31, 2009, we recorded an inventory-related provision of $19.3 million, or 24.9% of net sales, which in addition to the $5.6 million noted above also included excess and obsolete inventory as a result of the determination of the current combined company product roadmap, as well as declining customer demand due to the current industry environment. Product roadmap decisions to eliminate the ASL 3KRF and the Diamond D-40 products accounted for $5.9 million of the total inventory related provision. In addition, $6.6 million of the inventory related provision was a result of a significant reduction in the demand for the Sapphire products which have been negatively impacted by the current business conditions. The balance of the inventory related provision of approximately $1.2 million was related to our Fusion CX product line which is being phased out in favor of our Fusion MXc product line.
Gross profit margin. The gross profit margin was $1.0 million or 3.3% of net sales in the three months ended January 31, 2009, as compared to $14.8 million or 47.8% of net sales in the same quarter of the prior year. For the six months ended January 31, 2009, the gross profit margin was $8.1 million or 10.5% of net sales as compared to $29.3 million or 48.3% of net sales for the six months ended January 31, 2008. The decrease in the gross profit margin for the three months ended January 31, 2009 as compared to January 31, 2008 was a result of the $5.6 million inventory related provision recorded for the three months ended January 31, 2009 and increased manufacturing overhead as a result of the merger with Credence. The decrease in the gross profit margin for the six months ended January 31, 2009 as compared to the six months ended January 31, 2008 was primarily the result of the inventory-related provision of $19.3 million and increased manufacturing overhead as a result of the merger with Credence which were partially offset by added gross margin on $26.8 million of additional revenue related to the merger. Excluding the inventory-related provision, gross profit margin was $27.5 million or 35.4% of net sales for the six months ended January 31, 2009.
Restructuring. Restructuring expense was $14.7 million or 48.2% of net sales and $18.5 million or 23.9% of net sales for the three and six months ended January 31, 2009, respectively. The restructuring expense includes employee termination-related severance and outplacement costs, post-employment benefits associated with the merger, as well as costs associated with closing certain facilities. On September 9, 2008, we announced and initiated a restructuring plan. The total cost of the severance related cash charges was $16.5 million of which $12.6 million was recorded as a component of the merger cost in the August 29, 2008 opening balance sheet of Credence and $3.9 million related to the LTX workforce reductions were recorded through the statement of operations as a restructuring charge. These initiatives are expected to result in $45.0 million of annual expense reduction with the full impact of such savings not expected until our quarter ending July 31, 2009. On January 20, 2009, we announced additional restructuring actions that resulted in a total cash charge of $8.8 million and will result in $20.0 million of annual expense reduction with the full impact of such savings beginning in the quarter ended April 30, 2009. The additional restructuring expense recorded during the three months ended January 31, 2009 was related to costs associated with vacating several facilities that are no longer being utilized by us. There were no restructuring costs recorded for the three and six months ended January 31, 2008.
Gain on extinguishment of debt, net. At the time of the completion of the merger, Credence had outstanding $122.5 million aggregate principal amount of 3.5% Convertible Senior Subordinated Notes due 2010 (Notes). In the three and six months ended January 31, 2009, we repurchased approximately $2.7 million and $72.0 million, respectively, of principal amount of the Notes at a discount to their par value. The discount to the par value resulted in a net gain on extinguishment of debt of approximately $1.9 million and $2.2 million in the three and six months ended January 31, 2009.
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Formed by the 2008 merger of LTX Corporation and Credence Systems Corporation LTX-Credence is a global provider of focused cost-optimized ATE solutions designed to enable customers to implement best-in-class test strategies to maximize their profitability. LTX-Credence addresses the broad divergent test requirements of the wireless computing automotive and entertainment market segments offering a comprehensive portfolio of technologies the largest installed base in the Asia-Pacific region and a global network of strategically deployed applications and support resources. LTXCredence Corp. has a market cap of $27.8 million; its shares were traded at around $0.22 with and P/S ratio of 0.2.
Highlight of Business Operations:
Net sales. Net sales consist of semiconductor test equipment, system support and maintenance services, net of returns and allowances. Net sales for the three months ended January 31, 2009 decreased 2.0% to $30.4 million as compared to $31.0 million in the same quarter of the prior year. Net sales for the six months ended January 31, 2009 increased 27.8% to $77.5 million as compared to $60.7 million for the same six month period of the prior year. The decrease in net sales in the quarter ended January 31, 2009 as compared to the same period in the prior year is due to the deterioration of the overall economic environment, offset by net sales of approximately $16.1 million from Credence. The increase in net sales in the six months ended January 31, 2009 as compared to the same period in the prior year is due to the inclusion in the period ended January 31,Service revenue, included in net sales, accounted for $17.6 million, or 57.9% of net sales, and $7.2 million, or 23.1% of net sales, for the three months ended January 31, 2009 and 2008, respectively, and $33.5 million or 43.2% of net sales, and $13.9 million or 22.9% of net sales for the six months ended January 31, 2009 and 2008, respectively. The increase in service revenue is primarily a result of the inclusion of Credence-generated service revenue for the three and six months ended January 31, 2009 of approximately $11.9 million and $22.0 million, respectively.
Inventory-related provision. We recorded an inventory-related provision of $5.6 million or 18.5% of net sales in the three months ended January 31, 2009 The provision consisted of $0.8 million related to the implementation of product roadmap decisions related to the ASL 3KMS line and $4.8 million related to future requirements of last time buy components related to the implementation of the product roadmap decisions. For the six months ended January 31, 2009, we recorded an inventory-related provision of $19.3 million, or 24.9% of net sales, which in addition to the $5.6 million noted above also included excess and obsolete inventory as a result of the determination of the current combined company product roadmap, as well as declining customer demand due to the current industry environment. Product roadmap decisions to eliminate the ASL 3KRF and the Diamond D-40 products accounted for $5.9 million of the total inventory related provision. In addition, $6.6 million of the inventory related provision was a result of a significant reduction in the demand for the Sapphire products which have been negatively impacted by the current business conditions. The balance of the inventory related provision of approximately $1.2 million was related to our Fusion CX product line which is being phased out in favor of our Fusion MXc product line.
Gross profit margin. The gross profit margin was $1.0 million or 3.3% of net sales in the three months ended January 31, 2009, as compared to $14.8 million or 47.8% of net sales in the same quarter of the prior year. For the six months ended January 31, 2009, the gross profit margin was $8.1 million or 10.5% of net sales as compared to $29.3 million or 48.3% of net sales for the six months ended January 31, 2008. The decrease in the gross profit margin for the three months ended January 31, 2009 as compared to January 31, 2008 was a result of the $5.6 million inventory related provision recorded for the three months ended January 31, 2009 and increased manufacturing overhead as a result of the merger with Credence. The decrease in the gross profit margin for the six months ended January 31, 2009 as compared to the six months ended January 31, 2008 was primarily the result of the inventory-related provision of $19.3 million and increased manufacturing overhead as a result of the merger with Credence which were partially offset by added gross margin on $26.8 million of additional revenue related to the merger. Excluding the inventory-related provision, gross profit margin was $27.5 million or 35.4% of net sales for the six months ended January 31, 2009.
Restructuring. Restructuring expense was $14.7 million or 48.2% of net sales and $18.5 million or 23.9% of net sales for the three and six months ended January 31, 2009, respectively. The restructuring expense includes employee termination-related severance and outplacement costs, post-employment benefits associated with the merger, as well as costs associated with closing certain facilities. On September 9, 2008, we announced and initiated a restructuring plan. The total cost of the severance related cash charges was $16.5 million of which $12.6 million was recorded as a component of the merger cost in the August 29, 2008 opening balance sheet of Credence and $3.9 million related to the LTX workforce reductions were recorded through the statement of operations as a restructuring charge. These initiatives are expected to result in $45.0 million of annual expense reduction with the full impact of such savings not expected until our quarter ending July 31, 2009. On January 20, 2009, we announced additional restructuring actions that resulted in a total cash charge of $8.8 million and will result in $20.0 million of annual expense reduction with the full impact of such savings beginning in the quarter ended April 30, 2009. The additional restructuring expense recorded during the three months ended January 31, 2009 was related to costs associated with vacating several facilities that are no longer being utilized by us. There were no restructuring costs recorded for the three and six months ended January 31, 2008.
Gain on extinguishment of debt, net. At the time of the completion of the merger, Credence had outstanding $122.5 million aggregate principal amount of 3.5% Convertible Senior Subordinated Notes due 2010 (Notes). In the three and six months ended January 31, 2009, we repurchased approximately $2.7 million and $72.0 million, respectively, of principal amount of the Notes at a discount to their par value. The discount to the par value resulted in a net gain on extinguishment of debt of approximately $1.9 million and $2.2 million in the three and six months ended January 31, 2009.
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