Orbotech Announces Third Quarter 2013 Results *2013 third quarter: *Revenues: increased to $113.4 million *Gross margin: improved to 44.6% *GAAP net income: $0.28 per share (diluted) *Non-GAAP net income: $0.32 per share (diluted) *Operating cash flow: $22.7 million *2013 guidance: *Revenues for 2013: approximately $440 million Business Wire YAVNE, Israel -- October 31, 2013 ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2013. Commenting on the results, Asher Levy, Chief Executive Officer, said: “We are pleased to report a strong third quarter, in which we posted increased revenues and improved gross margins and operating income. While revenues from our traditional PCB business were slightly lower than in the second quarter, we posted record quarterly revenues of more than $10 million in our electronics component manufacturing business. In the FPD industry, we are seeing increased activity as manufacturers solidify their investment plans, particularly in China. Our service organization continues to provide highest quality service to our customers, as is clearly reflected in our results for the quarter which included record service revenues. As we previously announced, Orbotech has recently established two new corporate units: ‘Strategy and Business Development’ and ‘Global Product Organization’. We believe that these new business units better position the Company in pursuing selective strategic business transactions, including acquisitions of related businesses, as part of its corporate strategy, and in continuing to provide our customers with innovative solutions.” Revenues for the third quarter of 2013 totaled $113.4 million, compared to $108.8 million in the second quarter of 2013 and $95.6 million in the third quarter of 2012. GAAP net income for the third quarter of 2013 was $11.9 million, or $0.28 per share (diluted), compared to GAAP net income of $10.5 million, or $0.24 per share (diluted) in the second quarter of 2013 and GAAP net loss of $45.7 million, or $1.05 per share, in the third quarter of 2012. GAAP net loss for the third quarter of 2012 reflected: (a) a non-cash impairment charge of $30.0 million relating to intangible assets allocated to the Company’s flat panel display (“FPD”) business; (b) a write-down of inventories and a provision for open commitments in the amount of $14.3 million; and (c) $1.7 million of costs in connection with the Korean litigation, which were recorded in general and administrative expenses. Non-GAAP net income for the third quarter of 2013 was $13.6 million, or $0.32 per share (diluted), compared to non-GAAP net loss of $12.3 million, or $0.28 per share, in the third quarter of 2012. Revenues for the first nine months of 2013 totaled $317.8 million, compared to $289.9 million recorded in the first nine months of 2012. GAAP net income for the first nine months of 2013 was $27.4 million, or $0.63 per share (diluted), compared to GAAP net loss of $44.8 million, or $1.03 per share, in the first nine months of 2012. Non-GAAP net income for the first nine months of 2013 was $32.9 million, or $0.76 per share (diluted), compared to non-GAAP net loss of $1.7 million, or $0.04 per share, in the first nine months of 2012. 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 printed circuit board (“PCB”) industry were $45.5 million in the third quarter of 2013, compared to $51.1 million in the second quarter of 2013 and $40.3 million in the third quarter of 2012; and sales of equipment to the FPD industry were $26.5 million in the third quarter of 2013, compared to $20.2 million in the second quarter of 2013 and $15.2 million in the third quarter of 2012. In the Company’s Recognition Software segment, sales were $2.3 million in the third quarter of 2013, compared to $1.7 million in the second quarter of 2013 and $2.0 million in the third quarter of 2012. Service revenue for the third quarter of 2013 reached a quarterly record $39.1 million, compared to $35.8 million in the second quarter of 2013 and $38.1 million in the third quarter of 2012. The Company completed the quarter with cash, cash equivalents, short-term bank deposits and marketable securities of $221.1 million and debt of $8 million. The Company generated cash of $22.7 million from continuing operations in the third quarter of 2013. To date, the Company has repurchased approximately 2.3 million of its Ordinary Shares, at a total cost of approximately $26.0 million, under the share repurchase program originally approved in November 2012. Pursuant to approval granted by its Board of Directors, the Company will continue to repurchase shares, up to the originally approved total of $30 million. Such purchases will be subject, among other things, to the share price and market conditions and will be made in accordance with all applicable laws and regulations. The initial trial in the criminal proceeding against the Company’s Korean subsidiary and certain of its employees is in its final stage. The district court decision is currently expected by the end of November, subject to change depending on the court’s schedule. Orbotech continues to have faith in the judicial process and believes that it has safeguarded customers’ information from inappropriate disclosure in all circumstances. While the Company continues to incur fees and expenses in connection with this matter, the fiscal effect in the third quarter of 2013 was not material. Due to the elimination of the proportionate method of consolidation for joint ventures under applicable Israeli GAAP, which became effective on January 1, 2013, commencing from the first quarter of 2013 Orbotech Ltd. began to account for its 50% interest in the Frontline P.C.B. Solutions Limited Partnership (“Frontline”), the joint venture owned equally by Orbotech Ltd. and Mentor Graphics Development Services (Israel) Ltd.) with respect to computer-aided manufacturing and engineering solutions for PCB production, using the equity method. As a result, the Company now reports its investment in Frontline as a one line item within investments and other non-current assets in the Company’s consolidated balance sheets; and its share of earnings on one line in its consolidated statement of operations. This presentation has been applied in the Company’s financial statements for all prior periods for consistency. The Company’s share in the earnings of Frontline was presented under operating income since Frontline is integrated into the operations of the Company. An earnings conference call for the Company’s third quarter 2013 results is scheduled for Thursday, October 31, 2013, at 9:00 a.m. EST. The dial-in number for the conference call is 517-308-9494, and a replay will be available on telephone number 203-369-1354 until November 15, 2013. The pass code is Q3. 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 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 its 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 timing, terms and success of any strategic transaction, the outcome and impact of the pending 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, cyclicality in the industries in which the Company operates, the Company’s production capacity, timing and occurrence of product acceptance, fluctuations in product mix, 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 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 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, 2012. 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 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, 2012. ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2013 September 30 December 31 2013 2 0 1 2* U. S. dollars in thousands A s s e t s CURRENT ASSETS: Cash and cash equivalents 162,816 256,663 Short-term bank deposits 43,013 3,014 Marketable securities 7,756 2,238 Accounts receivable: Trade 184,272 164,482 Other 32,553 29,836 Deferred income taxes 6,977 7,862 Inventories 92,936 93,854 T o t a l current assets 530,323 557,949 INVESTMENTS AND NON-CURRENT ASSETS: Marketable securities 7,474 12,788 Funds in respect of employee 10,742 10,598 rights upon retirement Deferred income taxes 16,250 13,634 Other long-term investments 8,703 7,592 43,169 44,612 PROPERTY, PLANT AND EQUIPMENT, 27,445 24,559 net GOODWILL 12,444 12,444 OTHER INTANGIBLE ASSETS, net 11,412 14,442 624,793 654,006 Liabilities and equity CURRENT LIABILITIES: Current maturities of long-term 8,000 64,000 bank loan Accounts payable and accruals: Trade 32,413 27,472 Other 58,946 53,698 Deferred income 21,870 17,388 T o t a l current liabilities 121,229 162,558 LONG-TERM LIABILITIES: Liability for employee rights 25,781 25,221 upon retirement Deferred income taxes 2,238 2,236 Other tax liabilities 17,909 16,478 T o t a l long-term liabilities 45,928 43,935 T o t a l liabilities 167,157 206,493 EQUITY: Share capital 2,115 2,102 Additional paid-in capital 279,215 274,856 Retained earnings 255,955 228,569 Accumulated other comprehensive 358 628 income 537,643 506,155 Less treasury shares, at cost (79,981 ) (59,151 ) T o t a l Orbotech Ltd. 457,662 447,004 shareholders' equity Non-controlling interest (26 ) 509 T o t a l equity 457,636 447,513 624,793 654,006 * Applying Equity Based Method to 50% interest in the Frontline P.C.B. Solutions Limited Partnership ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2013 9 months ended 3 months ended 12 months September 30 September 30 ended December31 2013 2012* 2013 2012* 2012* U.S. dollars in thousands (except per share data) REVENUES 317,760 289,883 113,435 95,569 387,008 COST OF 180,507 172,956 62,893 59,151 233,447 REVENUES WRITE- DOWN OF 14,255 14,255 14,255 INVENTORIES GROSS PROFIT 137,253 102,672 50,542 22,163 139,306 RESEARCH AND DEVELOPMENT 50,973 51,734 17,640 17,174 68,703 COSTS - net SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 53,776 55,583 18,992 18,709 73,051 EQUITY IN EARNINGS OF (3,969 ) (5,352 ) (1,622 ) (1,632 ) (6,764 ) FRONTLINE AMORTIZATION OF INTANGIBLE 3,030 8,916 1,010 2,852 9,907 ASSETS RESTRUCTURING 1,918 5,063 CHARGES IMPAIRMENT OF INTANGIBLE 29,980 29,980 30,142 ASSETS OPERATING 33,443 (40,107 ) 14,522 (44,920 ) (40,796 ) INCOME (LOSS) FINANCIAL 1,052 5,247 504 1,808 5,120 EXPENSES - net INCOME (LOSS) FROM OPERATIONS 32,391 (45,354 ) 14,018 (46,728 ) (45,916 ) BEFORE TAXES ON INCOME TAXES ON INCOME 5,434 222 2,299 (742 ) 456 (TAX BENEFIT) 26,957 (45,576 ) 11,719 (45,986 ) (46,372 ) SHARE IN LOSSES OF ASSOCIATED 183 115 69 50 165 COMPANY NET INCOME 26,774 (45,691 ) 11,650 (46,036 ) (46,537 ) (LOSS) NET LOSS ATTRIBUTABLE TO THE NON-CONTROLLING (612 ) (846 ) (225 ) (342 ) (958 ) INTEREST NET INCOME (LOSS) 27,386 (44,845 ) 11,875 (45,694 ) (45,579 ) ATTRIBUTABLE TO ORBOTECH LTD. EARNINGS PER SHARE: INCOME (LOSS) FROM OPERATIONS: BASIC $0.64 ($1.03 ) $0.28 ($1.05 ) ($1.05 ) DILUTED $0.63 ($1.03 ) $0.28 ($1.05 ) ($1.05 ) WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF EARNINGS PER SHARE - IN THOUSANDS: BASIC 42,819 43,482 42,248 43,537 43,501 DILUTED 43,450 43,482 43,113 43,537 43,501 * Applying Equity Based Method to 50% interest in the Frontline P.C.B. Solutions Limited Partnership ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2013 9 months ended 3 months ended 12 months September 30 September 30 ended December31 2013 2012* 2013 2012* 2012* U.S. dollars in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net income 26,774 (45,691 ) 11,650 (46,036 ) (46,537 ) (loss) Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and 9,715 14,690 3,581 4,778 17,919 amortization Impairment of Intangible 29,980 29,980 30,142 assets Compensation relating to equity awards granted to employees and 2,311 2,286 674 480 3,070 others - net Increase (decrease) in liability for 560 730 1,194 626 (640 ) employee rights upon retirement Deferred (1,729 ) (3,670 ) (418 ) (2,471 ) (5,440 ) income taxes Non-cash expenses in 601 601 respect of restructuring Capital gain from disposal 24 75 of equipment Amortization of premium and accretion of discount on marketable Securities, 312 94 588 net Equity in earnings of Frontline, 731 (1,410 ) (423 ) (81 ) (1,232 ) net of dividend received Other 405 1,084 69 738 1,498 Decrease (increase) in accounts receivable: Trade (19,790 ) 16,780 1,013 2,876 31,725 Other (3,019 ) (1,863 ) (1,060 ) (460 ) (2,708 ) Increase (decrease) in accounts payable and accruals: Trade 4,941 2,354 (1,431 ) 4,975 (4,789 ) Deferred income and 11,980 (15,170 ) 9,022 664 (14,679 ) other Decrease (increase) in 811 7,574 (1,311 ) 11,504 11,925 inventories Net cash provided by 34,002 8,299 22,654 7,648 21,443 operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, (10,206 ) (6,475 ) (3,701 ) (3,047 ) (9,484 ) plant and equipment Withdraw (placement) (39,999 ) 115,584 10,500 50,010 142,278 of bank deposits Purchase of marketable (516 ) (14,935 ) (189 ) (15,614 ) securities Other (2,250 ) (2,050 ) investment Proceeds from disposal of property, 3,034 plant and equipment Decrease (increase) in funds in respect of employee rights upon (186 ) (189 ) (63 ) 40 (254 ) retirement Net cash provided by (used in) (53,157 ) 93,985 4,497 47,003 119,960 investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term (56,000 ) (24,000 ) (8,000 ) (8,000 ) (32,000 ) bank loan Employee stock options 2,138 662 1,228 51 719 exercised Acquisition of treasury (20,830 ) (9,137 ) (1,959 ) shares Net cash used in financing (74,692 ) (23,338 ) (15,909 ) (7,949 ) (33,240 ) activities NET INCREASE (DECREASE) IN (93,847 ) 78,946 11,242 46,702 108,163 CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS 256,663 148,500 151,574 180,744 148,500 AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS 162,816 227,446 162,816 227,446 256,663 AT END OF PERIOD * Applying Equity Based Method to 50% interest in the Frontline P.C.B. Solutions Limited Partnership ORBOTECH LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS FROM CONTINUING OPERATIONS FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2013 9 months ended 3 months ended 12 months September 30 September 30 ended December31 2013 2012* 2013 2012* 2012* U.S. dollars in thousands (except per share data) Reported operating 33,443 (40,107 ) 14,522 (44,920 ) (40,796 ) income (loss) on GAAP basis Equity based compensation 2,311 2,230 674 480 3,070 expenses Restructuring 1,918 5,063 charges Impairment of Intangible 29,980 29,980 30,142 assets Amortization of intangible 3,030 8,916 1,010 2,852 9,907 assets Non-GAAP operating 38,784 2,937 16,206 (11,608 ) 7,386 income Reported net income (loss) attributable 27,386 (44,845 ) 11,875 (45,694 ) (45,579 ) to Orbotech Ltd. on GAAP basis Equity based compensation 2,311 2,230 674 480 3,070 expenses Amortization of intangible 3,030 8,916 1,010 2,852 9,907 assets Restructuring charges, net 1,918 4,593 of tax credit Impairment of Intangible 29,980 0 29,980 30,142 assets Share in losses of 183 115 69 50 165 associated company Non-GAAP net income (loss) 32,910 (1,686 ) 13,628 (12,332 ) 2,298 from operations Non-GAAP earnings per $0.76 ($0.04 ) $0.32 ($0.28 ) $0.05 diluted share Shares used in earnings per diluted share 43,450 43,482 43,113 43,537 44,071 calculation-in thousands * Applying Equity Based Method to 50% interest in the Frontline P.C.B. Solutions Limited Partnership Contact: Orbotech Ltd. Adrian Auman, +972-8-942-3560 Corporate Vice President Investor Relations and Special Projects or Orbotech, Inc. Michelle Harnish, +1-603-289-7937 Marketing Communications Manager
Orbotech Announces Third Quarter 2013 Results
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