Orbotech Announces Third Quarter 2009 Results

November 2, 2009 6:59 AM EST

YAVNE, Israel--(BUSINESS WIRE)-- ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2009.

Revenues for the third quarter of 2009 totaled $92.3 million, compared to $94.0 million recorded in the second quarter of 2009 and $94.8 million in the third quarter a year ago. GAAP (U. S. generally accepted accounting principles) net loss for the third quarter of 2009 was $5.5 million, or $0.16 per share, compared to GAAP net loss of $1.2 million, or $0.03 per share for the second quarter of 2009 and GAAP net loss of $43.1 million, or $1.29 per share, in the third quarter of 2008.

Revenues for the first nine months of 2009 totaled $278.2 million, compared to $300.3 million recorded during the corresponding period in 2008. GAAP net loss for the first nine months of 2009 was $14.6 million, or $0.42 per share, compared to GAAP net loss of $34.1 million, or $1.02 per share in the first nine months of 2008.

Non-GAAP net income for the third quarter of 2009 was $1.1 million, or $0.03 per share (diluted), compared to non-GAAP net income of $0.8 million, or $0.02 per share (diluted), in the third quarter of 2008. Non-GAAP net income for the first nine months of 2009 was $2.2 million, or $0.06 per share (diluted), compared to non-GAAP net income of $14.2 million, or $0.43 per share (diluted), in the first nine months of 2008.

The Company's GAAP results for the third quarter of 2008 included: (a) an impairment charge of $38.5 million ($32.5 million net of taxes) relating to a write-down of substantially all of the goodwill and intellectual property of Orbotech Medical Denmark A/S; (b) an impairment charge of $5.4 million relating to a write-off of the then remaining goodwill of the Company's assembled PCB business; and (c) a restructuring charge of $3.7 million. These items are explained in the detailed description of the non-GAAP adjustments in the accompanying reconciliation of GAAP to non-GAAP results (the "Reconciliation").

Sales of equipment to the printed circuit board ("PCB") industry were $20.3 million in the third quarter of 2009, compared to $17.0 million in the second quarter of 2009, and $31.6 million in the third quarter of 2008. Sales of equipment to the flat panel display ("FPD") industry were $37.6 million, compared to $41.4 million in the second quarter of 2009, and $31.7 million in the third quarter of last year. Sales of character recognition products were $2.4 million in the third quarter of 2009, compared to $2.0 million in the second quarter of 2009, and $2.0 million recorded in the third quarter of 2008. Sales of medical imaging equipment were $4.1 million in the third quarter of 2009, compared to $6.2 million in the second quarter of 2009, and $3.4 million in the third quarter of 2008. In addition, service revenue for the third quarter of 2009 was $27.9 million, compared to $27.3 million in the second quarter of 2009, and $26.0 million in the third quarter of 2008. The financial data, including revenue data, presented in respect of the third quarter of 2008 does not include results attributable to the business of Photon Dynamics, Inc. ("PDI"), which was acquired on October 2, 2008. The impact of currency rates in the third quarter of 2009 was similar to that in the first and second quarters of 2009.

The Company completed the quarter with cash, cash equivalents and marketable securities of approximately $170.2 million, compared with approximately $140.3 million at the end of the second quarter of 2009, and $160 million in debt. The Company's marketable securities included approximately $19.1 million of auction rate securities primarily tied to student loans.

During the third quarter of 2009, many PCB manufacturing customers, primarily in the Far East, were reporting plant utilization rates at over 80% capacity, driven mainly by communications, consumer and computer-related products. This trend towards increased capacity utilization has had a positive sequential effect on the Company's sales of PCB equipment.

FPD fabrication facilities have recently been running at close to full capacity utilization, with supply and demand appearing to be in approximate equilibrium. During the quarter certain of the Company's FPD customers requested to expedite delivery of previously-ordered systems, which positively impacted FPD revenues for the quarter. Growth in this industry is being driven by higher demand from China and emerging economies, which the Company expects will lead to greater capital expenditure in the FPD industry during the latter part of 2010, and continuing into 2011.

Commenting on the results, Rani Cohen, President and Chief Executive Officer, said: "Business conditions are generally continuing to improve and the industries that we serve are beginning to revert to 'investment mode'. Our expansive portfolio of products, made possible through our consistent investments in research and development, has positioned us well to meet our customers' current and future production requirements. One example is our new direct imaging system, which was recently introduced after successful field testing and is expected to contribute to revenues as early as the fourth quarter of 2009. We maintain our commitment - even in challenging economic circumstances - to provide our customers with new and innovative solutions, as well as first class service and support. Our continued ability to maintain tight control of our costs has also allowed us to generate operating cash flow. We remain positive as to the short and long term demand for our products."

Referring to the PDI transaction, Mr. Cohen added: "A full year has now passed since we closed our acquisition of PDI. Thanks to the outstanding efforts of our employees, we have successfully concluded a very complex and challenging integration process. Our comprehensive product portfolio, combined with our significant, accumulated FPD know-how and expertise, has positioned us very well to face the challenges which the coming ramp-up in the FPD industry will pose."

An earnings conference call for the Company's third quarter 2009 results is scheduled for Monday, November 2, 2009, at 9:00 a.m. EST. The dial-in number for the conference call is 210-795-2680, and a replay will be available on telephone number 402-220-9768 until November 16, 2009. 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 is principally engaged in the design, development, manufacture, marketing and service of yield-enhancing and production solutions for specialized applications in the supply chain of the electronics industry. Orbotech's products include automated optical inspection (AOI), production and process control systems for printed circuit boards (PCBs) and AOI, test and repair systems for flat panel displays (FPDs). The Company also markets computer-aided manufacturing and engineering (CAM) solutions for PCB production. In addition, through its subsidiary, Orbograph Ltd., the Company develops and markets character recognition solutions to banks and other financial institutions, and has developed a proprietary technology for web-based, location-independent data entry for check processing and forms processing; and, through its subsidiaries, Orbotech Medical Denmark A/S and Orbotech Medical Solutions Ltd., is engaged in the research and development, manufacture and sale of specialized products for application in medical nuclear imaging. Of Orbotech's employees, more than one quarter are scientists and engineers, who integrate their multi-disciplinary knowledge, talents and skills to develop and provide sophisticated solutions and technologies designed to meet customers' long-term needs. Orbotech maintains its headquarters and its primary research, development and manufacturing facilities in Israel, and more than 30 offices worldwide. Orbotech's extensive network of marketing, sales and customer support teams throughout North America, Europe, the Pacific Rim, China and Japan deliver its knowledge and expertise directly to customers the world over. For more information visit www.orbotech.com.

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 cyclicality in the industries in which the Company operates, a sustained continuation or worsening of the worldwide economic slowdown, 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 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, 2008. 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.

ORBOTECH LTD.

CONDENSED CONSOLIDATED BALANCE SHEET

AT SEPTEMBER 30, 2009

                                                     September 30  December 31

                                                     2009          2008

                                                     U. S. dollars in thousands

Assets

CURRENT ASSETS:

Cash and cash equivalents                            150,956       105,127

Marketable securities                                              320

Accounts receivable:

Trade                                                149,012       180,701

Other                                                30,627        27,106

Deferred income taxes                                3,921         5,222

Inventories                                          97,262        122,152

Total current assets                                 431,778       440,628

INVESTMENTS AND NON-CURRENT ASSETS:

Marketable securities                                19,284        19,241

Other long-term Investments                          29            29

Funds in respect of employee rights upon retirement  11,317        12,521

Deferred income taxes                                12,080        8,795

                                                     42,710        40,586

PROPERTY, PLANT AND EQUIPMENT, net of                30,708        39,325
accumulated depreciation and amortization

GOODWILL                                             12,785        12,747

OTHER INTANGIBLE ASSETS, net of                      86,582        101,575
accumulated amortization

                                                     604,563       634,861

Liabilities and equity

CURRENT LIABILITIES:

Short-term loan                                      160,000       160,000

Accounts payable and accruals:

Trade                                                20,366        36,377

Other                                                51,124        56,428

Deferred income                                      17,275        22,473

Total current liabilities                            248,765       275,278

LONG-TERM LIABILITIES:

Liability for employee rights upon retirement        26,087        27,678

Tax liabilities                                      14,284        16,208

Other long-term liability                                          2,667

Total long-term liabilities                          40,371        46,553

Total liabilities                                    289,136       321,831

EQUITY:

Share capital                                        1,746         1,727

Additional paid-in capital                           168,236       161,914

Retained earnings                                    198,014       211,142

Accumulated other comprehensive income (loss)        2,948         (6,123  )

                                                     370,944       368,660

Less treasury stock, at cost                         (57,192 )     (57,192 )

Total Orbotech Ltd. shareholders' equity             313,752       311,468

Non-controlling interest                             1,675         1,562

Total equity                                         315,427       313,030

                                                     604,563       634,861

ORBOTECH LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2009

                                                                     12 months

                          9 months ended        3 months ended       ended

                          September 30          September 30         December 31

                          2009       2008       2009      2008       2008

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

REVENUES                  278,225    300,333    92,350    94,760     429,546

COST OF REVENUES:

COST                      174,071    180,103    58,979    58,680     260,639

WRITE DOWN OF INVENTORY                                              3,348

GROSS PROFIT              104,154    120,230    33,371    36,080     165,559

RESEARCH AND DEVELOPMENT  50,011     55,860     16,784    17,108     76,602
COSTS - net

SELLING, GENERAL AND      47,518     53,795     16,008    17,855     73,346
ADMINISTRATIVE EXPENSES

AMORTIZATION OF OTHER     15,135     3,046      5,053     939        8,099
INTANGIBLE ASSETS

IN-PROCESS RESEARCH AND                                              6,537
DEVELOPMENT CHARGES

RESTRUCTURING CHARGES                3,676                3,676      8,800

IMPAIRMENT (ADJUSTMENT
OF IMPAIRMENT) OF         (2,280  )  22,584               22,584     110,403
GOODWILL

IMPAIRMENT OF OTHER                  21,260               21,260     21,260
INTANGIBLE ASSETS

OPERATING LOSS            (6,230  )  (39,991 )  (4,474 )  (47,342 )  (139,488 )

FINANCIAL INCOME          (10,459 )  1,436      (1,631 )  (1,489  )  (1,324   )
(EXPENSES)- net

LOSS BEFORE TAXES ON      (16,689 )  (38,555 )  (6,105 )  (48,831 )  (140,812 )
INCOME

INCOME TAX BENEFIT        (2,228  )  (4,587  )  (682   )  (5,831  )  (5,739   )

NET LOSS                  (14,461 )  (33,968 )  (5,423 )  (43,000 )  (135,073 )

LESS: NET INCOME
ATTRIBUTABLE TO THE       113        157        80        119        232
NON-CONTROLLING INTEREST

NET LOSS ATTRIBUTABLE TO  (14,574 )  (34,125 )  (5,503 )  (43,119 )  (135,305 )
ORBOTECH LTD.

LOSS ATTRIBUTABLE TO
ORBOTECH LTD.

ORDINARY SHARES PER
SHARE:

BASIC                     $(0.42  )  $(1.02  )  $(0.16 )  $(1.29  )  $(4.04   )

DILUTED                   $(0.42  )  $(1.02  )  $(0.16 )  $(1.29  )  $(4.04   )

WEIGHTED AVERAGE NUMBER
OF SHARES (IN THOUSANDS)

USED IN COMPUTATION OF
EARNINGS PER SHARE:

BASIC                     34,548     33,402     34,660    33,427     33,512

DILUTED                   34,548     33,402     34,660    33,427     33,512

ORBOTECH LTD.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

FOR THE NINE MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2009

                                                                     12 months

                              9 months ended      3 months ended     ended

                              September 30        September 30       December 31

                              2009      2008      2009     2008      2008

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

Non-GAAP Net Income

Reported net loss
attributable to Orbotech      (14,574)  (34,125)  (5,503)  (43,119)  (135,305)
Ltd. on GAAP basis

Non-operating income
(expenses):

Financial income (expenses)   (10,459)  1,436     (1,631)  (1,489)   (1,324)

Income tax benefit            2,228     4,587     682      5,831     5,739

Net profit attributable to    (113)     (157)     (80)     (119)     (232)
the non-controlling interest

                              (8,344)   5,866     (1,029)  4,223     4,183

Reported operating loss on    (6,230)   (39,991)  (4,474)  (47,342)  (139,488)
GAAP basis

Equity based compensation     4,984     3,796     1,592    1,441     5,275
expenses

Amortization of intangibles   15,135    3,046     5,053    939       8,099
assets

In-process research and                                              6,537
development charges (1)

Restructuring charges (2)               3,676              3,676     8,800

Impairment of goodwill (3)              22,584             22,584    110,403

Impairment of other                     21,260             21,260    21,260
intangible assets (4)

Adjustment of impairment of   (3,300)
goodwill (5)

Non-GAAP operating income     10,589    14,371    2,171    2,558     20,886

Non-operating income          (8,344)   5,866     (1,029)  4,223     4,183
(expenses)

Income tax effect of                    (6,011)            (6,011)   (6,011)
non-GAAP adjustment (6)

Non-GAAP net income           2,245     14,226    1,142    770       19,058

Non-GAAP net income per       $0.06     $0.43     $0.03    $0.02     $0.55
diluted Share

Shares used in diluted        34,710    33,402    35,537   33,427    34,743
shares calculation

        In-process research and development charges in 2008 were associated with
   (1)  the Photon Dynamics, Inc. ("PDI") acquisition. For more information
        about the PDI acquisition, see the Company's 2008 Annual Report on Form
        20-F filed with the SEC.

        The restructuring charges of $8.8 million in 2008 and the $3.7 million
        in the 3 month period ended September 30, 2008, relate to reductions in
   (2)  the Company's workforce and rationalizations of certain of its research
        and development, manufacturing and operating activities, in order to
        realign the Company's infrastructure.

        The impairment charge of $110.4 million in 2008 is comprised of: a
        write-off of $87.9 million recorded in December 2008 of goodwill
        associated with the Company's FPD business; a write-down of $17.1
   (3)  million recorded in September 2008 of the goodwill associated with
        Orbotech Medical Denmark A/S ("OMD"); and a write-off of $5.4 million
        recorded in September 2008 of goodwill associated with the Company's
        assembled PCB business.

   (4)  The impairment charge of $21.3 million in 2008 was related to a
        write-down of the intellectual property of OMD.

        For more information about OMD and the related impairment, see the
        Company's 2008 Annual Report on Form 20-F filed with the SEC.

        The adjustment of impairment of goodwill of $3.3 million recorded in
   (5)  June 2009 represents additional consideration from the sale of Salvador
        Imaging which was owned by PDI at the time of the PDI acquisition in
        2008.

        The income tax effect in 2008 was related to the impairment associated
   (6)  with OMD that occurred in the third quarter of 2008. The adjustments in
        2009 do not have a related income tax effect.

Non-GAAP net income and non-GAAP earnings per share detailed in the Reconciliation exclude charges or income, 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; (iii) restructuring and asset impairments; (iv) a gain representing additional consideration from the sale of Salvador Imaging, Inc. which was owned by PDI at the time of PDI acquisition in 2008; and/or (v) tax credits relating to the above items, in each case as described in more detail in the Reconciliation. Management uses non-GAAP net income and non-GAAP earnings per share 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 (loss) or earnings (loss) 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 detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these 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 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 do not include certain recurring items 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. Non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects.

The effect of equity-based compensation expenses has been excluded from the non-GAAP net income measure. 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 effect of amortization of intangible assets, in-process research and development charges and impairment charges have also been excluded from the non-GAAP net income measure. These items are inconsistent in amount and frequency and are significantly affected by the timing and size of acquisitions. These items were significantly higher in the fourth quarter of 2008 and first, second and third quarters of 2009 primarily as a result of the Company's acquisitions, including the PDI acquisition in October 2008. 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. Although these expenses are not recurring with respect to past acquisitions, these types of expenses will generally be incurred in connection with any future acquisitions. Restructuring expenses relate to realignment initiatives announced in 2008. For more information about these items, see the Company's Annual Report on Form 20-F filed with the SEC for the year ended December 31, 2008.

    Source: Orbotech Ltd.

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