Orbotech Reports Third Quarter 2018 Results

November 7, 2018

Orbotech Q3 2018 Investor Package
Orbotech Q3 2018 Earnings

2018 third quarter highlights
- Revenues of $261.2 million
- Gross margin of 46.3%
- GAAP EPS of $0.59 (diluted); non-GAAP EPS of $0.79 (diluted)
2018 fourth quarter revenue guidance
- Fourth quarter 2018 revenue is expected to be approximately $270 million

YAVNE, Israel, Nov. 7, 2018 /PRNewswire/ -- ORBOTECH LTD. (NASDAQ: ORBK) (the "Company") today announced its consolidated financial results for the third quarter of 2018.

During the third quarter of 2018, the Company continued to perform well and to provide its customers with innovative solutions that enable them to overcome some of the most difficult production challenges they face today.  The Company expects to conclude the year with revenues of approximately $1.05 billion, reflecting a year-over-year growth rate of around 17%.

Revenues for the third quarter of 2018 totaled $261.2 million, compared with $245.7 million in the third quarter of 2017, and $267.5 million in the second quarter of 2018.

In the Company's Production Solutions for Electronics Industry segment:

  • Revenues from the Company's printed circuit board ("PCB") business were $94.7 million (including $56.7 million in equipment sales) in the third quarter of 2018. This compares to PCB revenues of $85.7 million (including $52.6 million in equipment sales) in the third quarter of 2017.
  • Revenues from the Company's flat panel display ("FPD") business were $78.2 million (including $65.6 million in equipment sales) in the third quarter of 2018. This compares to FPD revenues of $76.0 million (including $64.5 million in equipment sales) in the third quarter of 2017.
  • Revenues from the Company's semiconductor device ("SD") business were $79.0 million (including $62.8 million in equipment sales) in the third quarter of 2018. This compares to SD revenues of $78.6 million (including $65.9 million in equipment sales) in the third quarter of 2017.

Revenues in the Company's other segments totaled $9.3 million in the third quarter of 2018, compared with $5.4 million in the third quarter of 2017.

Service revenues for the third quarter of 2018 were $68.7 million, compared with $59.2 million in the third quarter of 2017.

Gross profit and gross margin in the third quarter of 2018 were $120.8 million and 46.3%, respectively, compared with $118.0 million and 48.0%, respectively, in the third quarter of 2017.

GAAP net income and GAAP net income margin in the third quarter of 2018 were $29.2 million and 11.2%, respectively, compared with $36.6 million and 14.9%, respectively, in the third quarter of 2017.

GAAP earnings per share (diluted) for the third quarter of 2018 were $0.59, compared with $0.75 for the third 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 third quarter of 2018 were $54.0 million and 20.7%, respectively, compared with $57.6 million and 23.5%, respectively, in the third quarter of 2017.

Non-GAAP net income and non-GAAP net income margin for the third quarter of 2018 were $39.3 million and 15.0%, respectively, compared with $44.7 million and 18.2%, respectively, for the third quarter of 2017.  Non-GAAP earnings per share (diluted) for the third quarter of 2018 were $0.79, compared with $0.91 per share, for the third quarter of 2017.

As of September 30, 2018, the Company had cash, cash equivalents, short term bank deposits and marketable securities of $406.2 million, and debt of $56.5 million.  During the third quarter of 2018, the Company generated cash from operations of $52.9 million.  As of September 30, 2018, the actual number of ordinary shares outstanding was approximately 48.6 million.

Fourth Quarter 2018 Guidance

The Company expects fourth quarter 2018 revenue to be approximately $270 million and to conclude the year with revenues of approximately $1.05 billion, reflecting a year-over-year growth rate of around 17%, based on current expectations of product mix.  

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.

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 being contemplated by KLA, KLA's ability to raise additional capital necessary to complete the repurchase program within the time frame expected, the expected benefits, synergies and costs of the acquisition of Orbotech by KLA , management plans relating to the transaction, the timing, outcome and impact of the sell-buy rights related to Orbotech's ownership interest in Frontline triggered by the Orbotech shareholders' approval of the acquisition by KLA or any similar or voluntary transaction, 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 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 foregoing items as well as 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, which may be amplified by cyclicality and overall investment in electronics manufacturing facilities, 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; impact of the favorable resolution of the litigation in Korea and the timing, final outcome and impact of the criminal 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, particularly amortization of intangible assets; (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 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)

 

September 30,

 

December 31,

 
 

2018

 

2017

 

ASSETS

       
         

CURRENT ASSETS:

       

    Cash and cash equivalents 

$383,875

 

$315,803

 

    Marketable securities

1,526

     

    Short-term bank deposits

14,154

 

4,115

 

    Accounts receivable - trade

336,651

 

362,839

 

    Prepaid expenses and other current assets

65,334

 

56,448

 

    Inventories

215,112

 

182,152

 

              T o t a l  current assets

1,016,652

 

921,357

 
         

INVESTMENTS AND NON-CURRENT ASSETS:

       

    Marketable securities

6,629

 

7,888

 

    Funds in respect of employee rights upon retirement

10,381

 

10,622

 

    Deferred income taxes 

39,620

 

43,157

 

    Equity method investee and other receivables

6,877

 

5,556

 
 

63,507

 

67,223

 
         

PROPERTY, PLANT AND EQUIPMENT, net

74,597

 

69,612

 
         

OTHER INTANGIBLE ASSETS, net

49,195

 

68,226

 
         

GOODWILL

177,486

 

177,486

 
         

              T o t a l  assets

$1,381,437

 

$1,303,904

 
         
         

LIABILITIES AND EQUITY

       
         

CURRENT LIABILITIES:

       

   Current maturities of long-term loan

$16,364

 

$16,364

 

    Accounts payable and accruals:

       

      Trade

81,773

 

96,166

 

      Other

118,631

 

123,510

 

    Deferred income

45,218

 

37,445

 

              T o t a l  current liabilities

261,986

 

273,485

 
         

LONG-TERM LIABILITIES:

       

    Long-term loan, net

40,100

 

56,117

 

    Liability for employee rights upon retirement

26,719

 

24,997

 

    Deferred income taxes

11,368

 

14,536

 

    Other tax liabilities

22,799

 

22,901

 

              T o t a l  long-term liabilities

100,986

 

118,551

 
         

              T o t a l  liabilities

362,972

 

392,036

 
         

EQUITY: 

       

    Share capital 

2,415

 

2,404

 

    Additional paid-in capital

445,679

 

433,922

 

    Retained earnings

668,153

 

572,544

 

    Accumulated other comprehensive income

401

 

252

 
 

1,116,648

 

1,009,122

 

    Less treasury shares, at cost

(99,539)

 

(99,539)

 

               T o t a l  Orbotech Ltd. equity

1,017,109

 

909,583

 

    Non-controlling interest

1,356

 

2,285

 

               T o t a l  equity

1,018,465

 

911,868

 
         

              T o t a l  liabilities and equity

$1,381,437

 

$1,303,904

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except per share data)

 (Unaudited)

           
 

Nine months ended

 

Three months ended

 

September 30,

 

September 30,

 

2018

 

2017

 

2018

 

2017

               

Revenues 

$779,292

 

$643,976

 

$261,226

 

$245,664

Cost of revenues

414,620

 

340,224

 

140,385

 

127,652

Gross profit

364,672

 

303,752

 

120,841

 

118,012

               

Operating expenses: 

             

Research and development, net

104,697

 

90,662

 

36,361

 

31,921

Selling, general and administrative

122,097

 

103,019

 

40,864

 

36,563

Equity in earnings of P.C.B. Solutions L.P ("Frontline")

(4,016)

 

(3,235)

 

(1,104)

 

(880)

Amortization of intangible assets

19,113

 

18,635

 

6,372

 

6,371

Transaction cost pending merger with KLA

4,706

     

944

   

Total operating expenses

246,597

 

209,081

 

83,437

 

73,975

               

Operating income

118,075

 

94,671

 

37,404

 

44,037

Financial expenses - net

4,538

 

4,890

 

2,747

 

1,317

               

Income before taxes on income

113,537

 

89,781

 

34,657

 

42,720

Taxes on income

18,857

 

14,256

 

5,600

 

6,569

               

Net income

94,680

 

75,525

 

29,057

 

36,151

Net loss attributable to non-controlling interests

(929)

 

(979)

 

(167)

 

(403)

               

Net income attributable to Orbotech Ltd. 

$95,609

 

$76,504

 

$29,224

 

$36,554

               
               

Basic earnings per share

$1.99

 

$1.60

 

$0.60

 

$0.76

               

Diluted earnings per share

$1.95

 

$1.57

 

$0.59

 

$0.75

               

Weighted average number of shares (in thousands)

             

used in computation of:

             

Basic earnings per share

48,140

 

47,914

 

48,611

 

47,995

Diluted earnings per share

49,037

 

48,812

 

49,502

 

48,903

 

 

 

ORBOTECH LTD.

   

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

   

U.S. dollars in thousands (except per share data)

   

 (Unaudited)

   
               
               
 

Nine months ended

 

Three months ended

 

September 30,

 

September 30,

 

2018

 

2017

 

2018

 

2017

               

Reported operating income on GAAP basis

118,075

 

94,671

 

37,404

 

44,037

Equity-based compensation expenses

10,015

 

6,982

 

3,822

 

2,480

Amortization of intangible assets

19,113

 

18,635

 

6,372

 

6,371

Transaction cost pending merger with KLA

4,706

     

944

   

Non-GAAP operating income

$151,909

 

$120,288

 

$48,542

 

$52,888

               

Reported net income attributable to Orbotech Ltd. on GAAP basis

$95,609

 

$76,504

 

$29,224

 

$36,554

Equity-based compensation expenses

10,015

 

6,982

 

3,822

 

2,480

Amortization of intangible assets

19,113

 

18,635

 

6,372

 

6,371

Tax effect of non-GAAP adjustments

(3,383)

 

(2,244)

 

(1,083)

 

(748)

Transaction cost pending merger with KLA

4,706

     

944

   

Non-GAAP net income

$126,060

 

$99,877

 

$39,279

 

$44,657

               

GAAP earnings per diluted share

$1.95

 

$1.57

 

$0.59

 

$0.75

               

Non-GAAP earnings per diluted share

$2.57

 

$2.05

 

$0.79

 

$0.91

               

Shares used in earnings per diluted share computation - in thousands

49,037

 

48,812

 

49,502

 

48,903

 

 

 

ORBOTECH LTD.

 

RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA

 

U.S. dollars in thousands  

 

 (Unaudited)

 
               
               
 

Nine months ended

 

Three months ended

 

September 30,

 

September 30,

 

2018

 

2017

 

2018

 

2017

               

Net income attributable to Orbotech Ltd. on GAAP basis

$95,609

 

$76,504

 

$29,224

 

$36,554

Net loss attributable to non-controlling interests

(929)

 

(979)

 

(167)

 

(403)

Taxes on income

18,857

 

14,256

 

5,600

 

6,569

Financial expenses - net

4,538

 

4,890

 

2,747

 

1,317

Depreciation and amortization 

35,217

 

32,749

 

11,811

 

11,101

Equity-based compensation expenses

10,015

 

6,982

 

3,822

 

2,480

Transaction cost pending merger with KLA

4,706

     

944

   

ADJUSTED EBITDA

$168,013

 

$134,402

 

$53,981

 

$57,618

 

 

 

ORBOTECH LTD.

       

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

       

U.S. dollars in thousands

       

 (Unaudited)

       
     

Nine months ended

 

Three months ended

     

September 30,

 

September 30,

     

2018

 

2017

 

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

             
                   

Net income

$94,680

 

$75,525

 

$29,057

 

$36,151

Adjustments to reconcile net income to net cash 

             

provided by operating activities:

             

Depreciation and amortization

35,217

 

32,749

 

11,811

 

11,101

Compensation relating to equity awards granted to 

             

          employees and others - net

10,015

 

6,982

 

3,822

 

2,480

Increase in liability for employee rights upon retirement, net

2,112

 

842

 

969

 

685

Deferred financing costs amortization

347

 

363

 

116

 

363

Deferred income taxes

11,524

 

(6,788)

 

(888)

 

(1,327)

Amortization of premium and accretion of discount on marketable

             

          Securities, net

119

 

37

 

42

 

36

Equity in earnings of Frontline, net of dividend received 

(1,278)

 

(363)

 

(161)

 

20

Other

(119)

 

127

 

(61)

 

(290)

Decrease (increase) in accounts receivable:

             

          Trade

26,188

 

(59,138)

 

39,263

 

(24,245)

          Other

(8,886)

 

(7,286)

 

(3,680)

 

(4,359)

Increase (decrease) in accounts payable and accruals:

             

          Trade

(14,393)

 

10,747

 

(2,323)

 

(1,611)

          Deferred income

7,773

 

4,936

 

(24,540)

 

2,503

          Other

(17,653)

 

16,690

 

9,147

 

18,177

Increase in inventories

(32,960)

 

(29,811)

 

(9,639)

 

(11,907)

Net cash provided by operating activities 

112,686

 

45,612

 

52,935

 

27,777

                   

CASH FLOWS FROM INVESTING ACTIVITIES:

             
                   

Purchase of property, plant and equipment

(19,384)

 

(19,850)

 

(5,224)

 

(7,936)

Withdrawal of (investment in) bank deposits

(9,969)

 

(184)

 

(4,947)

 

2,469

Purchase of marketable securities

(500)

 

(1,994)

 

(250)

   

Redemption of marketable securities

   

804

       

Deposits of funds in respect of employee

             

     rights upon retirement

(149)

 

(1,187)

 

3

 

(65)

Net cash used in investing activities

(30,002)

 

(22,411)

 

(10,418)

 

(5,532)

                   

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Repayment of bank loan

(16,364)

 

(16,364)

       

Employee share options exercised

1,752

 

2,138

 

261

 

901

Net cash provided by (used in) financing activities

(14,612)

 

(14,226)

 

261

 

901

                   

Net increase in cash, cash equivalents and restricted cash

68,072

 

8,975

 

42,777

 

23,146

Cash, cash equivalents and restricted cash at beginning of period

315,803

 

228,779

 

341,098

 

214,608

                   

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$383,875

 

$237,754

 

$383,875

 

$237,754

 

 

 

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.