Orbotech Reports First Quarter 2018 Results
Orbotech Reports First Quarter 2018 Results
2018 first quarter highlights
-- Revenues of $250.6 million
-- Gross margin of 47.1%
-- GAAP EPS of $0.61 (diluted); non-GAAP EPS of $0.83 (diluted)
Second quarter 2018 revenue guidance
-- Second quarter 2018 revenue range: $250 million to $265 million
YAVNE, Israel, May 8, 2018 /PRNewswire/ -- ORBOTECH LTD. (NASDAQ: ORBK) (the "Company") today announced its consolidated financial results for the first quarter of 2018.
Throughout the early part of 2018, the Company has continued to deliver innovative solutions to its customers that will help them overcome some of the most difficult production challenges they face today. The technology leadership and momentum in Orbotech's business underscore our confidence in our ability to capitalize on the opportunities available to us for the remainder of 2018.
Separately, Orbotech is today announcing that it has received orders totaling approximately $50 million from Taipei-based Career Technology (Mfg.) Co., Ltd., a worldwide manufacturer of flexible printed circuit (FPC) PCBs for advanced electronic devices, for a range of solutions for liquid-crystal polymer (LCP) FPC production. These solutions will be implemented in Career's new FPC production lines for the manufacture of next generation LCP smartphone flexible components. Delivery is scheduled to begin during the second quarter of 2018 and to be completed by the end of 2018. These significant orders further validate Orbotech's position as a technology leader in its served industries.
Revenues for the first quarter of 2018 totaled $250.6 million, compared with $187.6 million in the first quarter of 2017, and $256.9 million in the fourth quarter of 2017.
In the Company's Production Solutions for Electronics Industry segment:
-- Revenues from the Company's printed circuit board ("PCB") business were
$87.1 million (including $53.3 million in equipment sales) in the first
quarter of 2018. This compares to PCB revenues of $77.5 million
(including $49.8 million in equipment sales) in the first quarter of
2017.
-- Revenues from the Company's flat panel display ("FPD") business were
$80.6 million (including $69.1 million in equipment sales) in the first
quarter of 2018. This compares to FPD revenues of $53.4 million
(including $43.0 million in equipment sales) in the first quarter of
2017.
-- Revenues from the Company's semiconductor device ("SD") business were
$78.6 million (including $67.2 million in equipment sales) in the first
quarter of 2018. This compares to SD revenues of $52.5 million
(including $41.5 million in equipment sales) in the first quarter of
2017.
Revenues in the Company's other segments totaled $4.3 million in the first quarter of 2018, compared with $4.2 million in the first quarter of 2017.
Service revenues for the first quarter of 2018 were $58.6 million, compared with $50.9 million in the first quarter of 2017.
Gross profit and gross margin in the first quarter of 2018 were $117.9 million and 47.1%, respectively, compared with $87.1 million and 46.4%, respectively, in the first quarter of 2017.
GAAP net income and GAAP net income margin in the first quarter of 2018 were $30.3 million and 12.1%, respectively, compared with $14.9 million and 8.0%, respectively, in the first quarter of 2017.
GAAP earnings per share (diluted) for the first quarter of 2018 were $0.61, compared with $0.31 for the first quarter of 2017.
A reconciliation of each of the Company's non-GAAP measures to the comparable GAAP measure (the "Reconciliation") is included at the end of this press release.
Adjusted EBITDA (as defined below) and adjusted EBITDA margin for the first quarter of 2018 were $53.1 million and 21.2%, respectively, compared with $32.5 million and 17.3%, respectively, in the first quarter of 2017.
Non-GAAP net income and non-GAAP net income margin for the first quarter of 2018 were $41.1 million and 16.4%, respectively, compared with $22.3 million and 11.9%, respectively, for the first quarter of 2017. Non-GAAP earnings per share (diluted) for the first quarter of 2018 were $0.83, compared with $0.46 per share, for the first quarter of 2017.
As of March 31, 2018, the Company had cash, cash equivalents, short term bank deposits and marketable securities of $301.9 million, and debt of $72.6 million. During the first quarter of 2018, the Company utilized cash for operations of $20.4 million. As of March 31, 2018, the actual number of ordinary shares outstanding was approximately 48.5 million.
2018 Guidance
The Company expects second quarter 2018 revenue to be in the range of $250 million to $265 million based on current expectations of product mix. Other than with respect to the foregoing quarterly revenue guidance, the Company is withdrawing the financial guidance provided with respect to 2018 and beyond for all financial metrics and periods presented.
In light of the pending acquisition by KLA-Tencor Corporation, Orbotech will not provide guidance other than with respect to quarterly revenues, nor will it hold a conference call to discuss its financial results.
About Orbotech Ltd.
Orbotech Ltd. (NASDAQ: ORBK) is a leading global supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products. Orbotech provides cutting-edge solutions for use in the manufacture of printed circuit boards (PCBs), flat panel displays (FPDs), and semiconductor devices (SDs), designed to enable the production of innovative, next-generation electronic products and improve the cost effectiveness of existing and future electronics production processes. Orbotech's core business lies in enabling electronic device manufacturers to inspect and understand PCBs and FPDs and to verify their quality ('reading'); pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces ('writing'); and utilize advanced vacuum deposition and etching processes in SD and semiconductor manufacturing ('connecting'). Orbotech refers to this 'reading', 'writing' and 'connecting' as enabling the 'Language of Electronics'. For more information, visit www.orbotech.com and www.spts.com.
Cautionary Statement Regarding Forward-Looking Statements
Except for historical information, the matters discussed in this press release are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, future prospects, developments and business strategies and involve certain risks and uncertainties. The words "anticipate," "believe," "could," "will," "plan," "expect" and "would" and similar terms and phrases, including references to assumptions, have been used in this press release to identify forward-looking statements. These forward-looking statements are made based on management's expectations and beliefs concerning future events affecting Orbotech and are subject to uncertainties and factors relating to Orbotech's operations and business environment, the previously announced acquisition of Orbotech by KLA, the manner in which the parties plan to effect the transaction, including the share repurchase program, the ability to raise additional capital necessary to complete the repurchase program within the time frame expected, the expected benefits, synergies and costs of the transaction, management plans relating to the transaction, including with respect to the Company's ownership interest in Frontline, the expected timing of the completion of the transaction, the parties' ability to complete the transaction considering the various closing conditions, including conditions related to regulatory and Orbotech shareholder approvals, the plans, strategies and objectives of management for future operations, product development, product extensions, product integration, complementary product offerings and growth opportunities in certain business areas, the potential future financial impact of the transaction, and any assumptions underlying any of the foregoing. Actual results may differ materially from those referred to in the forward-looking statements due to a number of important factors, including but not limited to the possibility that expected benefits of the transaction may not materialize as expected, that the transaction may not be timely completed, if at all, that KLA-Tencor may not be able to successfully integrate the solutions and employees of the two companies or ensure the continued performance or growth of Orbotech's products or solutions, the risk that the Company may not achieve its revenue expectations within and for 2018 (including, without limitation, due to shifting move-in dates); cyclicality in the industries in which the Company operates, the Company's supply chain management and production capacity, order cancelation (often without penalty), timing and occurrence of product acceptance (the Company defines 'bookings' and 'backlog' as purchase arrangements with customers that are based on mutually agreed terms, which, in some cases for bookings and backlog, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty), fluctuations in product mix within and among divisions, worldwide economic conditions generally, especially in the industries in which the Company operates, the timing and strength of product and service offerings by the Company and its competitors, changes in business or pricing strategies, changes in the prevailing political and regulatory framework in which the relevant parties operate, including as a result of the United Kingdom's prospective withdrawal from the European Union (known as "Brexit") and political uncertainty in the United States, or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis, the level of consumer demand for sophisticated devices such as smart mobile devices, automotive electronics, flexible applications and devices, augmented reality/virtual reality and wearable devices, high-performance computing, liquid crystal display and organic light emitting diode screens and other sophisticated devices, the Company's global operations and its ability to comply with varying legal, regulatory, exchange, tax and customs regimes, the timing and outcome of tax audits, including the best judgment tax assessment issued by the Israel Tax Authority with respect to the audit of tax years 2012-2014 in Israel and the related criminal investigation, the Company's ability to achieve strategic initiatives, including related to its acquisition strategy, the Company's debt and corporate financing activities; the timing, final outcome and impact of the criminal matter and ongoing investigation in Korea, including any impact on existing or future business opportunities in Korea and elsewhere, any civil actions related to the Korean matter brought by third parties, including the Company's customers, which may result in monetary judgments or settlements, expenses associated with the Korean matter, and ongoing or increased hostilities in Israel and the surrounding areas.
The foregoing information should be read in connection with the Company's Annual Report on Form 20-F for the year ended December 31, 2017, and subsequent SEC filings. The Company is subject to the foregoing and other risks detailed in those reports. The Company assumes no obligation to update the information in this press release to reflect new information, future events or otherwise, except as required by law.
Non-GAAP Financial Measures
Non-GAAP net income, non-GAAP operating income, non-GAAP earnings per diluted share detailed in the Reconciliation exclude charges, income or losses, as applicable, related to one or more of the following: (i) equity-based compensation expenses; (ii) certain items associated with acquisitions, including release of earn outs, amortization of intangible assets and acquisition costs; (iii) tax impact including tax effect of Non-GAAP adjustments and tax benefit; (iv) share in losses of equity method investee and amounts associated with non-controlling interests company; (v) release of valuation allowance and/or (vii) expenses associated with the KLA transaction that were recorded during the first quarter of 2018.
The Company uses the non-GAAP measures indicated in the Reconciliation to supplement the Company's financial results presented on a GAAP basis. These non-GAAP measures exclude equity based compensation expenses, amortization of intangible assets, share in losses/profits of associated companies, as well as certain financial and other expenses and items that are believed to be helpful in understanding and comparing past operating and financial performance with current results. Management uses all of the non-GAAP measures to evaluate the Company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Orbotech believes that these measures enhance investors' ability to review the Company's business from the same perspective as the Company's management and facilitate comparisons with results for prior periods. In addition, these non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. However, the non-GAAP measures presented are subject to limitations as an analytical tool because they exclude certain recurring items (such as, equity compensation, financial expense and amortization of intangible assets) as described below and in the Reconciliation. The presentation of this additional non-GAAP information should not be considered in isolation or as a substitute for net income; net income attributable to Orbotech Ltd. or earnings per share prepared in accordance with GAAP, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. For a quantification of the adjustments made to comparable GAAP measures, please see the Reconciliation.
The effect of equity-based compensation expenses has been excluded from the non-GAAP measures. Although equity-based compensation is a key incentive offered to employees, and the Company believes such compensation contributed to the revenues earned during the periods presented and also believes it will contribute to the generation of future period revenues, the Company continues to evaluate its business performance excluding equity based compensation expenses. Equity-based compensation expenses will recur in future periods.
The effects of amortization of intangible assets have also been excluded from the measures. This item is inconsistent in amount and frequency and is significantly affected by the timing and size of acquisitions and dispositions. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well. Amortization of intangible assets will recur in future periods and the Company may be required to record impairment charges in the future. The Company believes that it is useful for investors to understand the effects of these items on total operating expenses.
Adjusted EBITDA is also a non-GAAP financial measure. The Company defines adjusted EBITDA as net income attributable to Orbotech Ltd., further adjusted, in addition to the items described above, to exclude taxes on income, financial expenses (income) - net and depreciation. The Company presents adjusted EBITDA because it considers it to be an important supplemental measure and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in Orbotech's industry. Adjusted EBITDA margin is a measurement of Orbotech's adjusted EBITDA as a percentage of its revenues. Although the Company believes its presentation of adjusted EBITDA is useful, its adjusted EBITDA measure may not be comparable to similarly named measures presented by other companies.
For more information about all of the foregoing items, see the Reconciliation, the Company's Annual Report on Form 20-F filed with the SEC for the year ended December 31, 2017, and its subsequent SEC filings.
ORBOTECH LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
U. S. dollars in thousands
(Unaudited)
March 31, December 31,
2018 2017
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $290,056 $315,803
Short-term bank deposits 4,143 4,115
Accounts receivable - trade 398,134 362,839
Prepaid expenses and other current
assets 60,488 56,448
Inventories 198,384 182,152
T o t a l current assets 951,205 921,357
INVESTMENTS AND NON-CURRENT ASSETS:
Marketable securities 7,734 7,888
Funds in respect of employee rights
upon retirement 10,570 10,622
Deferred income taxes 40,911 43,157
Equity method investee and other
receivables 6,196 5,556
65,411 67,223
PROPERTY, PLANT AND EQUIPMENT, net 71,010 69,612
OTHER INTANGIBLE ASSETS, net 61,855 68,226
GOODWILL 177,486 177,486
T o t a l assets $1,326,967 $1,303,904
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
loan $16,364 $16,364
Accounts payable and accruals:
Trade 91,926 96,166
Other 116,539 123,510
Deferred income 40,660 37,445
T o t a l current liabilities 265,489 273,485
LONG-TERM LIABILITIES:
Long-term loan, net 56,232 56,117
Liability for employee rights upon
retirement 26,167 24,997
Deferred income taxes 12,960 14,536
Other tax liabilities 20,823 22,901
T o t a l long-term liabilities 116,182 118,551
T o t a l liabilities 381,671 392,036
EQUITY:
Share capital 2,409 2,404
Additional paid-in capital 437,632 433,922
Retained earnings 602,812 572,544
Accumulated other comprehensive
income 66 252
--- ---
1,042,919 1,009,122
Less treasury shares, at cost (99,539) (99,539)
------- -------
T o t a l Orbotech Ltd. equity 943,380 909,583
Non-controlling interest 1,916 2,285
T o t a l equity 945,296 911,868
T o t a l liabilities and equity $1,326,967 $1,303,904
========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except per share data)
(Unaudited)
Three months ended Year ended
March 31, December 31,
--------- ------------
2018 2017 2017
---- ---- ----
Revenues $250,551 $187,649 $900,856
Cost of revenues 132,642 100,524 475,538
------- ------- -------
Gross profit 117,909 87,125 425,318
Operating expenses:
Research and
development, net 33,595 28,675 125,434
Selling, general and
administrative 41,066 33,953 143,363
Gain from the release of AMST earn out payment
obligation (1,471)
Equity in earnings of
P.C.B. Solutions L.P
("Frontline") (1,529) (1,050) (4,524)
Amortization of
intangible assets 6,371 5,893 25,006
Transaction cost pending
merger with KLA 2,481
Total operating expenses 81,984 67,471 287,808
------ ------ -------
Operating income 35,925 19,654 137,510
Financial expenses
(income) -net (1,645) 2,006 5,535
Income before taxes on
income 37,570 17,648 131,975
Taxes on income 7,671 2,868 1,088
Net income 29,899 14,780 130,887
Net loss attributable to
non-controlling
interests (368) (140) (1,498)
---- ---- ------
Net income attributable
to Orbotech Ltd. $30,267 $14,920 $132,385
======= ======= ========
Basic earnings per share $0.62 $0.31 $2.76
===== ===== =====
Diluted earnings per
share $0.61 $0.31 $2.71
===== ===== =====
Weighted average number of shares (in thousands)
used in computation of:
Basic earnings per share 48,437 47,839 47,989
Diluted earnings per
share 49,331 48,768 48,850
ORBOTECH LTD.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
U.S. dollars in thousands (except per share data)
(Unaudited)
Three months ended Year ended
March 31, December 31,
--------- ------------
2018 2017 2017
---- ---- ----
Reported operating
income on GAAP
basis 35,925 19,654 137,510
Equity-based
compensation
expenses 3,032 2,218 9,876
Amortization of
intangible assets 6,371 5,893 25,006
Transaction cost
pending merger
with KLA 2,481
Gain from the release of AMST earn out
payment obligation (1,471)
Non-GAAP operating
income $47,809 $27,765 $172,392
======= ======= ========
Reported net income
attributable to
Orbotech Ltd. on
GAAP basis(1) $30,267 $14,920 $132,385
Equity-based
compensation
expenses 3,032 2,218 9,876
Amortization of
intangible assets 6,371 5,893 25,006
Tax effect of non-
GAAP adjustments (1,059) (748) (4,656)
Tax benefit (18,778)
Transaction cost
pending merger
with KLA 2,481
Gain from the release of AMST earn out
payment obligation (1,471)
Non-GAAP net income $41,092 $22,283 $142,362
======= ======= ========
GAAP earnings per
diluted share $0.61 $0.31 $2.71
===== ===== =====
Non-GAAP earnings
per diluted share $0.83 $0.46 $2.91
===== ===== =====
Shares used in
earnings per
diluted share
computation -in
thousands 49,331 48,768 48,850
(1) Reflects the net benefit of approximately $16 million consisting of the impact of increase in deferred tax assets during the
last quarter of 2017,
mainly for the valuation allowance releases and decrease in deferred tax liabilities offset by an increase in our tax provisions.
ORBOTECH LTD.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
U.S. dollars in thousands
(Unaudited)
Three months ended Year ended
March 31, December 31,
--------- ------------
2018 2017 2017
---- ---- ----
Net income
attributable to
Orbotech Ltd. on
GAAP basis $30,267 $14,920 $132,385
Minority interest
and equity losses (368) (140) (1,498)
Taxes on income 7,671 2,868 1,088
Financial expenses
-net (1,645) 2,006 5,535
Depreciation and
amortization 11,629 10,651 44,543
Equity-based
compensation
expenses 3,032 2,218 9,876
Transaction cost
pending merger
with KLA 2,481
Gain from the release of AMST earn out
payment obligation (1,471)
ADJUSTED EBITDA $53,067 $32,523 $190,458
======= ======= ========
ORBOTECH LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
(Unaudited)
Three months ended Year ended
March 31, December 31,
--------- ------------
2018 2017 2017
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $29,899 $14,780 $130,887
Adjustment to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation
and
amortization 11,629 10,651 44,543
Compensation
relating to
equity awards
granted to
employees and others - net 3,032 2,218 9,876
Increase
(decrease) in
liability for
employee
rights upon
retirement,
net 1,299 (130) 1,028
Deferred
financing
costs
amortization 115 132 479
Deferred income
taxes 11,802 322 (29,241)
Amortization of
premium and
accretion of
discount on
marketable
Securities, net 38 (333) 167
Equity in
earnings of
Frontline, net
of dividend
received (581) 26 (727)
Other 90 127
Gain from the
release of
AMST earn out
payment
obligation (1,471)
Gain from step
up acquisition
of a
subsidiary (478)
Decrease
(increase) in
accounts
receivable:
Trade (35,295) (27,441) (36,496)
Other (4,016) 5,469 (10,568)
Increase
(decrease) in
accounts
payable and
accruals:
Trade (4,240) (1,146) 24,030
Deferred income 3,215 1,216 8,869
Other (21,111) (6,912) 36,845
Increase in
inventories (16,232) (8,182) (47,914)
Net cash (Used in) provided by
operating activities (20,446) (9,240) 129,956
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (5,884) (4,979) (24,445)
Purchase of intellectual property (700)
Proceeds from sale of property,
plan and equipment 5 157
investment in bank deposits (28) (12) (3,326)
Purchase of marketable securities (2,292) (1,994)
Redemption of marketable securities 1,804 1,004
Acquisition of subsidiary consolidated for the first
time 102
Deposits of funds in respect of employee
rights upon retirement (77) (1,057) (1,250)
Net cash used in investing
activities (5,984) (6,536) (30,452)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loan (16,364)
Employee share options
exercised 683 667 3,884
Net cash provided by (used in)
financing activities 683 667 (12,480)
Net (Decrease) increase in
cash, cash equivalents and
restricted cash (25,747) (15,109) 87,024
Cash, cash equivalents and
restricted cash at beginning
of period 315,803 228,779 228,779
------- ------- -------
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT END OF
PERIOD $290,056 $213,670 $315,803
======== ======== ========
Company Contact:
Rami Rozen
VP, Investor Relations
Orbotech Ltd
Tel: +972-8-942-3582
Rami.rozen@orbotech.com
Tally Kaplan Porat
Director of Corporate Marketing
Orbotech Ltd
Tel: +972-8-942-3603
Tally-Ka@orbotech.com
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SOURCE Orbotech Ltd.
