News Column

Orbotech Announces Second Quarter 2014 Results

August 4, 2014

  • 2014 second quarter

    Revenues: $113.2 million

    Gross margin: 43.0%

    Non-GAAP net income: $0.25 per share (diluted)

    GAAP net income: $0.20 per share (diluted)

    Operating cash flow: $11.6 million

    Service revenues: record $39.9 million

  • Revenue guidance

    Orbotech stand-alone: approximately $260 million in the second half of 2014; of which $118 - 123 million is expected in the third quarter 2014

    SPTS: approximately $100 million in the second half of 2014 on a stand-alone basis under U.K. GAAP



    YAVNE, ISRAEL--(BUSINESS WIRE)-- ORBOTECH LTD. (NASDAQ:ORBK) today announced its consolidated financial results for the second quarter and six months ended June 30, 2014.

    Revenues for the second quarter of 2014 totaled $113.2 million, compared to $104.8 million in the first quarter of 2014 and $108.8 million in the second quarter of 2013. GAAP net income for the second quarter of 2014 was $8.6 million, or $0.20 per share (diluted), compared to GAAP net income of $6.3 million, or $0.15 per share (diluted) for the first quarter of 2014 and GAAP net income of $10.5 million, or $0.24 per share (diluted), in the second quarter of 2013.

    Commenting on the results, Asher Levy, Chief Executive Officer, said: “We are pleased to report strong results for the second quarter. Our PCB business picked up as expected and our FPD business enjoyed another quarter of solid orders as we recorded a cumulative total of $130 million in bookings for the first half of 2014. Our service revenues continue to strengthen.” Mr. Levy continued: “Across the Company, we continue to benefit from our industry leadership, with customers increasingly appreciating our commitment to address their needs as they prepare to build capacity for the expected next generation of smart devices and for the next wave of investment in production facilities for small to mid, ultra high definition displays.”

    Commenting on the previously-announced agreement to acquire SPTS Technologies Group Limited (“SPTS”), Mr. Levy said: “The acquisition of SPTS is part of our strategy to expand into Advanced Packaging. This significant acquisition represents a natural and strategic extension of our business into an adjacent high growth industry. We expect, through this acquisition, to combine the extensive know-how and core assets of both companies and to enhance Orbotech’s portfolio and industry leadership.”

    Revenues for the first six months of 2014 totaled $218.0 million, compared to $204.3 million recorded in the first six months of 2013. GAAP net income for the first six months of 2014 was $14.9 million, or $0.35 per share (diluted), compared to GAAP net income of $15.5 million, or $0.36 per share (diluted), in the first six months of 2013.

    Non-GAAP net income for the second quarter of 2014 was $10.5 million, or $0.25 per share (diluted), compared to non-GAAP net income of $12.4 million, or $0.29 per share (diluted), in the second quarter of 2013. Non-GAAP net income for the first six months of 2014 was $18.7 million, or $0.44 per share (diluted), compared to non-GAAP net income of $19.3 million, or $0.44 per share (diluted), in the first six months of 2013. A reconciliation of each of the Company’s non-GAAP measures to the comparable GAAP measure is included at the end of this press release.

    In the Company’s Production Solutions for Electronics Industry segment, sales of equipment to the PCB industry were $48.5 million in the second quarter of 2014, compared to $41.5 million in the first quarter of 2014 and $51.1 million in the second quarter of 2013; and sales of equipment to the FPD industry were $18.4 million in the second quarter of 2014, compared to $23.1 million in the first quarter of 2014 and $20.2 million in the second quarter of 2013. In the Solar Energy segment, sales were $5.2 million in the second quarter of 2014, compared to $1.8 million in the first quarter of 2014 and $0 in the second quarter of 2013. In the Company’s Recognition Software segment, sales were $1.2 million in the second quarter of 2014, compared to $1.4 million in the first quarter of 2014 and $1.7 million in the second quarter of 2013. In addition, service revenue for the second quarter of 2014 was a record $39.9 million, compared to $37.0 million in the first quarter of 2014, and $35.8 million in the second quarter, of 2013.

    The Company completed the quarter with cash, cash equivalents, short-term bank deposits and marketable securities of approximately $213.6 million. The Company generated cash of $11.6 million from operations in the second quarter of 2014.

    To date, the Company has repurchased approximately 950,000 of its Ordinary Shares, at a cost of approximately $14.3 million, under the share repurchase program approved by the Board of Directors and announced and commenced in the first quarter of 2014. To date, under the current repurchase program and the repurchase program approved in November 2012, the Company has repurchased an aggregate amount of approximately 3.4 million of its Ordinary Shares, at a total cost of approximately $42.0 million. In anticipation of the upcoming closing the SPTS acquisition, for which the Company expects to borrow $300 million under a term loan B credit facility, and the planned announcement of the Company’s capital allocation policy later this month, the Board of Directors will terminate the current share repurchase program effective as at the end of trading on Tuesday, August 5, 2014.

    The Company expects revenues for Orbotech on a stand-alone basis in thesecond half of 2014 to be approximately $260 million, with the third quarter expected to be in the range of $118 - $123 million. SPTS is expected, on a stand-alone basis under U.K. GAAP, to generate revenues of approximately $100 million in the second half of 2014.

    An earnings conference call for the Company’s second quarter 2014 results is scheduled for Monday, August 4, 2014, at 9:00 a.m. EDT. The dial-in number for the conference call is 210-234-0066, and a replay will be available on telephone number 203-369-3779 until August 17, 2013. The pass code is Q2. A live web cast of the conference call and a replay can also be heard by accessing the investor relations section on the Company’s website at www.orbotech.com.

    About Orbotech Ltd.

    Orbotech Ltd. (NASDAQ/GSM: ORBK) has been at the cutting edge of the electronics industry supply chain, as an innovator of enabling technologies used in the manufacture of the world’s most sophisticated consumer and industrial products, for over 30 years. The Company is a leading provider of yield-enhancing and production solutions, primarily for manufacturers of printed circuit boards, flat panel displays and other electronic components. Today, virtually every electronic device is produced using Orbotech technology. The Company also applies its core expertise and resources in other advanced technology areas, including character recognition for check and forms processing and solar photovoltaic manufacturing. Headquartered in Israel and operating from multiple locations internationally, Orbotech’s highly talented and inter-disciplinary professionals design, manufacture, sell and service the Company’s end-to-end portfolio of solutions for the benefit of customers the world over. For more information please see the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov. and visit the Company’s corporate website at www.orbotech.com. The corporate website is not incorporated herein by reference and is included as an inactive textual reference only.

    Cautionary Statement Regarding Forward-Looking and Other 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 SPTS and are subject to uncertainties and factors relating to Orbotech’s and SPTS’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Many factors could cause the actual results to differ materially from those projected including, without limitation, the completion, timing, terms and anticipated benefits of the acquisition of SPTS and the related financing transactions; the timing and impact of conversion of SPTS’s financial statements from U.K. GAAP to U.S. GAAP and the Company’s ability to switch SPTS to a U.S. GAAP reporting regime; Orbotech’s ability to effectively integrate and operate SPTS’s business following the acquisition, the timing, terms and success of any other strategic or other transaction, cyclicality in the industries in which the Company or SPTS operates, the Company’s and SPTS’s production capacity, timing and occurrence of product acceptance (the Company defines ‘bookings’ as purchase arrangements with customers that are based on mutually agreed terms which, in some cases, 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, worldwide economic conditions generally, especially in the industries in which the Company or SPTS operate, the timing and strength of product and service offerings by the Company, SPTS and each of their competitors, changes in business or pricing strategies, changes in the prevailing political and regulatory framework in which the relevant parties operate 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 smartphones, tablets and other electronic devices, the final outcome and impact of the criminal matter and ongoing investigation in Korea, including its 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, ongoing or increased hostilities in Israel and other risks detailed in the Company’s SEC reports, including the Company’s Annual Report on Form 20-F for the year ended December 31, 2013, and subsequent SEC filings. The failure to complete the acquisition of SPTS could have a materially adverse effect on Orbotech’s financial condition and results and could negatively impact the Company’s share price. 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.

    The financial information in this press release related to SPTS, including forward-looking estimates, is based on SPTS’s financial statements prepared in accordance with U.K. GAAP. U.K. GAAP differs in certain important respects from U.S. GAAP, the basis for Orbotech’s financial reporting. Neither SPTS nor Orbotech has begun a reconciliation of SPTS’s financial statements from U.K. to U.S. GAAP and therefore cannot quantify the differences, which may be material. In addition, none of the Orbotech financial information in this press release gives effect to the acquisition of SPTS. Orbotech will account for the acquisition of SPTS under the purchase method of accounting, which will result in a new valuation for the assets and liabilities of SPTS. The new basis of accounting will be based on the estimated value of the assets and liabilities on the closing date of the acquisition. Orbotech will not be preparing any pro forma information for the acquisition and financing until the reconciliation and valuation estimates have been prepared.

    Non-GAAP Financial Measures

    Non-GAAP net income, non-GAAP net income from continuing operations and non-GAAP net income from continuing operations per 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 amortization and impairment of intangibles; (iii) discontinued operations; (iv) restructuring charges; and/or (v) share in losses of associated company. Management uses these 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. 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. The reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures are set forth below. For a detailed explanation of the adjustments made to comparable GAAP measures, please see the Reconciliation.

    To supplement the Company’s financial results presented on a GAAP basis, the Company uses the non-GAAP measures indicated in the Reconciliation, which exclude equity based compensation expenses, amortization of intangible assets, in-process research and development charges, share in losses/profits of associated companies and impairment and restructuring charges, as well as certain financial expenses and non-recurring income items that are believed to be helpful in understanding and comparing past operating and financial performance with current results. However, the non-GAAP measures presented are subject to limitations as an analytical tool because they exclude certain recurring items (such as equity compensation and amortization of intangible assets) as described below and because they do not reflect certain cash expenditures that are required to operate the Company’s business, such as interest expense and taxes. Accordingly, these non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. Management regularly utilizes supplemental non-GAAP financial measures internally to understand, manage and evaluate the Company’s business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

    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. 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 additional 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. For more information about these items, see the Reconciliation and the Company’s Annual Report on Form 20-F filed with the SEC for the year ended December 31, 2013.

         
    ORBOTECH LTD.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    AT JUNE 30, 2014
                       
    June 30December 31
      2014 2013
        U. S. dollars in thousands

    Assets

     

    CURRENT ASSETS:

    Cash and cash equivalents 164,002 161,155
    Short-term bank deposits 26,576 38,650
    Marketable securities 17,901 5,265
    Accounts receivable:
    Trade 191,174 198,203
    Other 33,728 31,546
    Deferred income taxes 8,117 8,094
    Inventories 101,620 93,938
           

    Total current assets

        543,118 536,851
     

    INVESTMENTS AND NON-CURRENT ASSETS:

    Marketable securities 5,094 13,106
    Funds in respect of employee rights upon retirement 10,931 11,024
    Deferred income taxes 12,837 15,130

    Equity method investee and other receivable

        10,223 9,911
        39,085 49,171
     

    PROPERTY, PLANT AND EQUIPMENT, net

        28,696 27,715
     

    GOODWILL

        12,444 12,444
     

    OTHER INTANGIBLE ASSETS, net

        8,381 10,401
           
        631,724 636,582
     
     
    Liabilities and equity
     

    CURRENT LIABILITIES:

     
    Accounts payable and accruals:
    Trade 42,723 43,663
    Other 51,710 55,482
    Deferred income 20,865 24,854
           

    Total current liabilities

    115,298 123,999
     

    LONG-TERM LIABILITIES:

    Liability for employee rights upon retirement 24,581 25,845
    Deferred income taxes 2,406 2,406
    Other tax liabilities     13,664 17,178

    Total long-term liabilities

    40,651 45,429
           

    Total liabilities

        155,949 169,428
     

    EQUITY:

    Share capital 2,148 2,124
    Additional paid-in capital 288,404 281,159
    Retained earnings 283,449 268,570
    Accumulated other comprehensive income (loss)     -266 409
    573,735 552,262
    Less treasury shares, at cost     -97,939 -84,946

    Total Orbotech Ltd. shareholders' equity

    475,796 467,316
    Non-controlling interest     -21 -162

    Total equity

        475,775 467,154
           
        631,724 636,582
     
         
    ORBOTECH LTD.
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    FOR THE SIX AND THREE MONTHS PERIODS ENDED JUNE 30, 2014
                                             
     

    6 months ended

    3 months ended

    12 months ended

    June 30

    June 30

    December 31
    2014 2013 2014   2013 2013
    U.S. dollars in thousands (except per share data)
     

    REVENUES

    217,978 204,325 113,185 108,848 439,995
     

    COST OF REVENUES

    123,649 117,614 64,513 62,267 248,455
             

    GROSS PROFIT

    94,329 86,711 48,672 46,581 191,540
     

    RESEARCH AND DEVELOPMENT COSTS - net

    37,571 33,333 19,110 17,019 69,573
     

    SELLING, GENERAL AND ADMINISTRATIVE

    EXPENSES 40,166 34,784 20,574 17,522 75,948
     

    EQUITY IN EARNINGS OF FRONTLINE

    (3,558) (2,347) (2,054) (1,164) (5,553)
     

    AMORTIZATION OF INTANGIBLE ASSETS

    2,020 2,020 1,010 1,010 4,041
             

    OPERATING INCOME

    18,130 18,921 10,032 12,194 47,531
     

    FINANCIAL EXPENSES (INCOME) - net

    (64) 548 (391) (130) 1,191
             

    INCOME FROM OPERATIONS BEFORE TAXES ON INCOME

    18,194 18,373 10,423 12,324 46,340
     

    TAXES ON INCOME

    2,991 3,135 1,641 1,971 6,927
             
    15,203 15,238 8,782 10,353 39,413
     

    SHARE IN LOSSES OF ASSOCIATED COMPANY

    213 114 144 69 252
             

    NET INCOME

    14,990 15,124 8,638 10,284 39,161
     
     

    NET INCOME (LOSS) ATTRIBUTABLE TO

    THE NON-CONTROLLING INTEREST 111 (387) 46 (216) (840)
             

    NET INCOME ATTRIBUTABLE TO ORBOTECH LTD.

    14,879 15,511 8,592 10,500 40,001
     
     
     

    EARNINGS PER SHARE:

    INCOME FROM OPERATIONS:
    BASIC $0.36$0.36$0.21$0.24$0.94
     
    DILUTED $0.35$0.36$0.20$0.24$0.92
     
     
     

    WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION

    OF EARNINGS PER SHARE - IN THOUSANDS:
    BASIC 41,781 43,106 41,721 42,891 42,571
    .
    DILUTED 42,832 43,621 42,830 43,503 43,253
     
    ORBOTECH LTD.      
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    FOR THE SIX AND THREE MONTHS PERIODS ENDED JUNE 30, 2014
                                           
     
     

    6 months ended

    3 months ended

    12 months ended

    June 30

    June 30

    December 31
    2014 2013 2014 2013 2013
    U.S. dollars in thousands

    CASH FLOWS FROM OPERATING ACTIVITIES:

     
    Net income 14,990 15,124 8,638 10,284 39,161
    Adjustment to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization 6,842 6,134 3,371 3,322 13,261
    Impairment of Intangible assets
    Compensation relating to equity awards granted to
    employees and others - net 1,553 1,637 737 864 3,182
    Increase (decrease) in liability for employee rights upon retirement (1,264) (634) (374) 6 624
    Deferred income taxes (95) (1,311) (350) (1,260) (1,558)
    Non-cash expenses in respect of restructuring
    Amortization of premium and accretion of discount on marketable
    Securities, net 504 218 347 127 554
    Equity in earnings of Frontline, net of dividend received (458) 1,244 (263) 342 446
    Other 441 247 235 2 268
    Decrease (increase) in accounts receivable:
    Trade 7,029 (20,803) (1,148) (5,320) (33,721)
    Other (2,476) (1,959) (3,082) (928) (2,954)
    Increase (decrease) in accounts payable and accruals:
    Trade (940) 6,372 2,212 10,431 11,377
    Deferred income and other (8,781) 2,958 1,935 4,318 15,511
    Decrease (increase) in inventories (7,682) 2,122 (627) (4,129) (190)
    Net cash provided by operating activities9,66311,34911,63118,05945,961
     

    CASH FLOWS FROM INVESTING ACTIVITIES:

     
    Purchase of property, plant and equipment (5,932) (6,505) (2,358) (3,144) (12,978)
    Withdraw (placement) of bank deposits 12,074 (50,499) 15,598 (39,513) (35,636)
    Purchase of marketable securities (14,242) (1,213) (11,752) (643) (9,936)
    Redemption of marketable securities 8,838 886 6,083 580 6,037
    Investment in equity method investee (250) (250) (2,250)
    Proceeds from disposal of property, plant and equipment 15 (200) 6 (200) 39
    Increase in funds in respect of employee
    rights upon retirement (72) (124) (2) (60) (262)
    Net cash provided by (used in) investing activities431(57,655)7,325(42,980)(54,986)
     

    CASH FLOWS FROM FINANCING ACTIVITIES:

     
    Repayment of long-term bank loan (48,000) (8,000) (64,000)
    Employee stock options exercised 5,746 910 2,223 637 3,312
    Acquisition of treasury shares (12,993) (11,693) (8,819) (9,485) (25,795)
    Net cash used in financing activities(7,247)(58,783)(6,596)(16,848)(86,483)
             
    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS2,847(105,089)12,360(41,769)(95,508)
     
    CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 161,155 256,663 151,642 193,343 256,663
             
    CASH AND CASH EQUIVALENTS AT END OF PERIOD164,002151,574164,002151,574161,155
     
         
    ORBOTECH LTD.
    RECONCILIATION OF GAAP TO NON-GAAP RESULTS FROM CONTINUING OPERATIONS
    FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2014
                                                           
     
     

    6 months ended

    3 months ended

    12 months ended

    June 30

    June 30

    December 31
    2014 2013 2014 2013 2013
    U.S. dollars in thousands (except per share data)
     
     

    Reported operating income on GAAP basis

        18,130     18,921     10,032     12,194 47,531
     
    Equity based compensation expenses 1,553 1,637 751 864 3,182
    Amortization of intangible assets     2,020     2,020     1,010     1,010 4,041
    Non-GAAP operating income     21,703     22,578     11,793     14,068 54,754
     

    Reported net income attributable to Orbotech Ltd. on GAAP basis

        14,879     15,511     8,592     10,500 40,001
     
    Equity based compensation expenses 1,553 1,637 751 864 3,182
    Amortization of intangible assets 2,020 2,020 1,010 1,010 4,041
    Share in losses of associated company 213 114 144 69 252
                             

    Non-GAAP net income from operations

        18,665     19,282     10,497     12,443 47,476
     
    Non-GAAP earnings per diluted share     $0.44     $0.44     $0.25     $0.29$1.10
     
    Shares used in earnings per diluted share calculation-in thousands     42,832     43,621     42,830     43,503 43,253
     





    Orbotech Ltd.

    Adrian Auman, +972-8-942-3560

    Corporate Vice President Investor Relations and Special Projects

    or

    Ann Michael, +972-8-942-3148

    Senior Corporate Marketing Communications Manager


    Source: Orbotech Ltd.


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