YAVNE, Israel, Feb. 8, 2017
2016 fourth quarter highlights
- Record revenues of $215 million
- Gross margin of 46.8%
- GAAP net income margin of 11.9%; adjusted EBITDA margin of 23.2%
- Cash flow from operations of $49 million
- GAAP EPS of $0.53(diluted); non-GAAP EPS of $0.70 (diluted)
- GAAP and non-GAAP EPS include the negative impact of $4.8 million related to currency translation and hedging loss
2016 full year highlights compared with 2015 full year
- Revenues of $806 million, up 7% compared with $753 million
- Gross margin of 46.2%, compared with 45.2%
- GAAP net income margin of 9.9%, compared with 7.5%; adjusted EBITDA margin of 20.8%, compared with 19.0%
- Cash flow from operations of $108 million, compared with $89 million
- GAAP EPS of $1.71(diluted), up 31% from $1.31(diluted); Non-GAAP EPS of $2.52(diluted), up 21% from $2.09(diluted)
- GAAP and non-GAAP EPS include the negative impact of $6.0 million related to currency translation and hedging loss
2017 first quarter guidance
- Quarterly revenue range:$180 million to $190 million
- Quarterly gross margin range of 45.5% - 46.0%
ORBOTECH LTD. (NASDAQ: ORBK) (the "Company") today announced its consolidated financial results for the fourth quarter and full year ended December 31, 2016.Commenting on the results, Asher Levy, Chief Executive Officer, said: "Our fourth quarter results marked a strong finish to a very successful year for Orbotech. In 2016, we posted record revenues on both annual and quarterly bases, as well as year over year growth and improved profitability in each of our three principal operating divisions. We generated significant cash from operations, enhanced our balance sheet, strengthened our competitive position in all major business areas and continued to implement our growth strategy. As we enter 2017, we feel encouraged by positive industry trends, such as growth in flexible OLED manufacturing, increased electronic content in smartphones and automobiles and progress in advanced packaging and MEMS. We expect significant revenue contribution from new products launched during 2016. These solutions, together with our ongoing research and development efforts, are not only an important ingredient of our future growth, but should increase our total addressable market and create new opportunities for the Company, while at the same time strengthening our position as an enabler of critical technologies for the manufacture of future electronic products and devices. We expect our results in 2017 to be more backend loaded compared to previous years, due to timing of deliveries, and that the estimated revenues in the first quarter will be the lowest during 2017. Overall, we expect favorable industry trends, as well as our technological leadership and longstanding relationships with key designers and manufacturers, to lead to revenue growth and ongoing profitability improvement during 2017."
Revenues for the fourth quarter of 2016 totaled $215.0 million, compared with $188.2 million in the fourth quarter of 2015, and $205.0 million in the third quarter of 2016.
In the Company's Production Solutions for Electronics Industry segment:
- Revenues from the Company's semiconductor device ("SD") business were $62.1 million (including $48.4 million in equipment sales) in the fourth quarter of 2016. This compares to SD revenues of $70.1 million (including $57.5 million in equipment sales) in the fourth quarter of 2015.
- Revenues from the Company's printed circuit board ("PCB") business were $77.2 million (including $48.6 million in equipment sales) in the fourth quarter of 2016. This compares to PCB revenues of $67.9 million (including $38.3 million in equipment sales) in the fourth quarter of 2015.
- Revenues from the Company's flat panel display ("FPD") business were $71.6 million (including $60.2 million in equipment sales) in the fourth quarter of 2016. This compares to FPD revenues of $45.4 million (including $35.9 million in equipment sales) in the fourth quarter of 2015.
Revenues in the Company's other segments totaled $4.2 million in the fourth quarter of 2016, compared with $4.8 million in the fourth quarter of 2015.
Service revenues for the fourth quarter of 2016 were $55.6 million, compared with $53.8 million in the fourth quarter of 2015.
Revenues for the full year of 2016 totaled $806.4 million, compared with $752.5 million for the full year of 2015.
Gross profit and gross margin in the fourth quarter of 2016 were $100.7 million and 46.8%, respectively, compared with $84.6 million and 45.0%, respectively, in the fourth quarter of 2015. Gross profit and gross margin in the full year of 2016 were $372.4 million and 46.2%, respectively, compared with $339.8 million and 45.2%, respectively, in the full year of 2015.
GAAP net income and GAAP net income margin in the fourth quarter of 2016 were $25.6 million and 11.9%, respectively, compared with $16.0 million and 8.5%, respectively, in the fourth quarter of 2015. GAAP net income and GAAP net income margin for the full year of 2016 were $79.4 million and 9.9%, respectively, compared with $56.8 million and 7.5% in the full year of 2015.
GAAP earnings per share (diluted) for the fourth quarter of 2016 were $0.53, compared with $0.37, for the fourth quarter of 2015. GAAP earnings per share (diluted) for the full year of 2016 were $1.71 compared with $1.31 in the full year of 2015.
Adjusted EBITDA (as defined below) and adjusted EBITDA margin for the fourth quarter of 2016 were $49.9 million and 23.2%, respectively, compared with $35.6 million and 18.9%, respectively, in the fourth quarter of 2015. Adjusted EBITDA and adjusted EBITDA margin for the full year of 2016 were $168.1 million and 20.8%, respectively, compared with $143.2 million and 19.0% for the full year of 2015.
Financial expenses for the fourth quarter of 2016 were $5.7 million which included a currency translation and hedging loss of $4.8 million, mainly due to the strengthening of the U.S. dollar against other currencies during the quarter. GAAP and non-GAAP earnings per share include this negative $4.8 million impact. During the fourth quarter, the Company prepaid $20 million of its long-term debt.
Non-GAAP net income and non-GAAP net income margin for the fourth quarter of 2016 were $33.7 million and 15.7%, respectively, compared with $23.4 million and 12.4%, respectively, for the fourth quarter of 2015. Non-GAAP net income and non-GAAP net income margin for the full year of 2016 were $116.9 and 14.5%, respectively, compared with $90.8 million and 12.1%, respectively, for the full year of 2015.
Non-GAAP earnings per share (diluted) for the fourth quarter of 2016 were $0.70, compared with $0.54 per share, for the fourth quarter of 2015. Non-GAAP earnings per share (diluted) for the full year of 2016 were $2.52, compared with $2.09 for the full year of 2015.
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.
As of December 31, 2016, the Company had cash, cash equivalents (including restricted cash), short term bank deposits and marketable securities of $236.6 million, and debt of $88.4 million. During the fourth quarter of 2016, the Company generated cash from operations of $49.2 million. As of December 31, 2016, the actual number of ordinary shares outstanding was approximately 47.8 million.
Applied Microstructures acquisition
During the fourth quarter of 2016, the Company acquired the assets of Applied Microstructures, Inc. ("AMST") for $6.4 million in cash and earn-out payments of up to $10.5 million over 15 months. The Company estimates that the earn-out will total $1.5 million and be payable in the first quarter of 2018. AMST is part of the SD division, offering an adjacent process in MEMS, with potential expansion in encapsulation. The Company estimates that annual revenue contribution from this purchase will be in the range of $6 million to $8 million with such annual revenues contributing higher gross margins than the average products' gross margin.
First Quarter 2017 Guidance
The Company expects revenues for the first quarter of 2017 to be in the range of $180 million to $190 million, and gross margin to be in the range of 45.5% - 46.0%.
An earnings conference call for the Company's fourth quarter and full year 2016 results is scheduled for today, February 8, 2017, at 9:00 a.m. EDT. The dial-in number for the conference call is +1-646-254-3367 or (US toll-free) 877-280-1254 and a replay will be available on telephone number +1-347-366-9565 or (US toll-free) 866-932-5017 until February 22, 2017. The pass code is 6525115 or Orbotech Q4. A live webcast of the conference call can also be heard by accessing the Company's website at: http://edge.media-server.com/m/p/bp4qjpdv
. The webcast will remain available for 12 months at: http://investors.orbotech.com/phoenix.zhtml?c=71865&p=irol-audioarchives
About Orbotech Ltd.
Orbotech Ltd. (NASDAQ: ORBK) is a global innovator of enabling technologies used to manufacture the world's most sophisticated consumer and industrial electronic products. Orbotech is a leading provider of yield enhancement and production solutions for electronics reading, writing and connecting, used by manufacturers of PCBs, FPDs, micro-electro-mechanical systems (MEMS), RF devices, power semiconductors and other electronic components. Orbotech's solutions include automated optical inspection and shaping, direct imaging, laser drilling, inkjet printing, array test and repair, yield management, and etch and deposition wafer process solutions.
Today, virtually every electronic device in the world is produced using Orbotech systems. 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, 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, cyclicality in the industries in which the Company operates, the Company's production capacity, 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 Brexit process and administration change 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 smartphones, tablets and other electronic devices as well as automobiles, 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 ongoing audit in Israel (the amount of taxable income is subject to ongoing audit by the Israel tax authority and such audits often result in proposed assessments and any estimation of the potential outcome of an uncertain tax issue is a matter for judgment, which can be subjective and highly complex; however, the Company believes that it has provided adequately for any reasonably foreseeable outcomes related to the tax audit, but future results may include favorable or unfavorable material adjustments to estimated tax liabilities in the periods when the assessments are made or resolved or the audit is closed), the Company's ability to achieve strategic initiatives, including related to its acquisition strategy, the Company's debt and corporate financing activities; the final timing and outcome, and the 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, ongoing or increased hostilities in Israel and the surrounding areas, 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, 2015, and subsequent SEC filings. 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 margin, non-GAAP net income 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 of intangibles and acquisition costs; (iii) certain items associated with sale or disposition of businesses; (iv) tax impact; and/or (v) share in losses of equity method investee and amounts associated with non-controlling interests company; and/or (vi) charges associated with the financing activities related to the retirement of the Company's 2014 credit agreement with JPMorgan.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.The effects of a sale or disposition of a business have also been excluded from the non-GAAP measures. This item is inconsistent in amount and frequency. By excluding the item from the non-GAAP measures, management is better able to evaluate the Company's ability to utilize its existing businesses and estimate the long-term value that remaining businesses will generate for the Company. Furthermore, the Company believes that this adjustment correlates more closely with the sustainability of the Company's operating performance.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, 2015, and its subsequent SEC filings.