ORBK Orbotech Ltd. - Ordinary Shares

ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the second quarter and six months ended June 30, 2010.

Revenues for the second quarter of 2010 were $147.3 million, a record amount for the Company in any quarter, compared to $103.1 million recorded in the first quarter of 2010 and $94.0 million in the second quarter a year ago. GAAP (U. S. generally accepted accounting principles) net income for the second quarter of 2010 was $12.4 million, or $0.35 per share (diluted), compared to GAAP net income of $1.6 million, or $0.05 per share (diluted) for the first quarter of 2010 and a GAAP net loss of $1.2 million, or $0.03 per share, in the second quarter of 2009.

Revenues for the first six months of 2010 totaled $250.3 million, compared to $185.9 million recorded in the first six months of 2009. GAAP net income for the first six months of 2010 was $14.0 million, or $0.39 per share (diluted), compared to a GAAP net loss of $9.1 million, or $0.26 per share (diluted), in the first six months of 2009.

Non-GAAP net income for the second quarter of 2010 was $17.2 million, or $0.48 per share (diluted), compared to non-GAAP net income of $2.5 million, or $0.07 per share (diluted), in the second quarter of 2009. Non-GAAP net income for the first six months of 2010 was $23.8 million, or $0.66 per share (diluted), compared to non-GAAP net income of $1.1 million, or $0.03 per share (diluted), in the first six months of 2009. The Company’s GAAP results for the second quarter of 2009 included $3.3 million of income from the Salvador Imaging, Inc. transaction, which is discussed in the detailed description of the non-GAAP adjustments in the accompanying reconciliation of GAAP to non-GAAP results (the “Reconciliation”).

The continued strong demand for sophisticated consumer electronic devices has resulted in increased orders for the Company’s printed circuit board (“PCB”) and flat panel display (“FPD”) inspection and production solutions. In the Company’s FPD business, this continued strong demand has translated into increased bookings for FPD equipment and expedited deliveries of products for new and existing fabrication plants. As previously announced, during the second quarter the Company received customer acceptances for its new Generation 8 FPD Array Checker electrical test systems and recognized revenues totaling $47 million from sales of these systems that were delivered by June 30, 2010. In the Company’s PCB business, the Company’s Paragon Xpress and Paragon Ultra direct imaging systems are increasingly becoming a “must have” solution for high density interconnect (HDI) PCB production.

As a result of these recent trends, the Company is today announcing that it is updating its revenue guidance for the full year of 2010 from a range of $460 - $470 million to a new range of $500 - $510 million.

Commenting on the results, Rani Cohen, President and Chief Executive Officer, said: “We are pleased with the Company’s financial results for the quarter. Our record quarterly revenues, although certainly a function of the prevailing strong business environment, also reflect the quality of Orbotech’s solutions and customer support; while our improved net income speaks to our operating efficiencies. The operational challenges posed by the current high level of bookings will be considerable; however, we are confident that our careful resource utilization and the specific steps we are taking during this ramp-up period will mean that our customers can continue in the future to rely on Orbotech’s superior and innovative product solutions and support.”

Sales of equipment to the PCB industry were $41.4 million in the second quarter of 2010, compared to $38.3 million in the first quarter of 2010, and $17.0 million in the second quarter of 2009. Sales of equipment to the FPD industry were $72.5 million in the second quarter of 2010, compared to $33.9 million in the first quarter of 2010, and $41.5 million in the second quarter of last year. Sales of character recognition products were $1.6 million in the second quarter of 2010, compared to $1.5 million in the first quarter of 2010, and $2.0 million in the second quarter of 2009. Sales of medical imaging equipment were $2.1 million in the second quarter of 2010, compared to $2.5 million in the first quarter of 2010, and $6.2 million in the second quarter of 2009. In addition, service revenue for the second quarter of 2010 was $29.7 million, compared to $26.8 million in the first quarter of 2010, and $27.3 million in the second quarter of 2009.

The Company completed the quarter with cash, cash equivalents and marketable securities of approximately $163 million, compared with approximately $169 million at the end of the first quarter of 2010; and $144 million in debt, compared with $152 million in debt at the end of the first quarter of 2010. The Company’s portfolio of marketable securities at quarter end included approximately $9.6 million of auction rate securities primarily tied to student loans.

An earnings conference call for the Company’s second quarter 2010 results is scheduled for Monday, August 2, 2010, at 9:00 a.m. EDT. The dial-in number for the conference call is 210-795-2680, and a replay will be available on telephone number 402-220-3251 until August 16, 2010. 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 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. The Company’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 (CAM) and engineering 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 use, among other things, in web-based, location-independent data entry for check 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 corporate headquarters, executive and registered offices and principal research and development, engineering and manufacturing facilities in Israel. The Company’s extensive network of marketing, sales and customer support teams, located in over 35 offices throughout North America, Europe, the Pacific Rim, China and Japan, delivers 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, the Company’s production capacity, product acceptance, 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 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, 2009. 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 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; and/or (iii) a gain representing additional consideration from the sale of Salvador Imaging, Inc. which was owned by PDI at the time of the PDI acquisition in 2008. 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 effects of amortization of intangible assets have also been excluded from the non-GAAP net income measure. 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 Company’s Annual Report on Form 20-F filed with the SEC for the year ended December 31, 2009.

  ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2010       June 30 December 31 2 0 1 0 2 0 0 9 U. S. dollars in thousands

A s s e t s

 

CURRENT ASSETS:

Cash and cash equivalents

 

152,934

 

167,233

Accounts receivable: Trade 181,842 149,817 Other 26,821 27,661 Deferred income taxes 3,930 4,384 Inventories   107,191     101,599  

T o t a l  current assets

  472,718     450,694    

INVESTMENTS AND NON-CURRENT ASSETS:

Marketable securities 9,790 9,969 Funds in respect of employee rights upon retirement 11,295 11,285 Deferred income taxes 9,134 10,164 Other long-term investment   29     29     30,248     31,447      

PROPERTY, PLANT AND EQUIPMENT, net

  26,391     29,331    

GOODWILL

  12,664     12,774    

OTHER INTANGIBLE ASSETS, net

  74,178     81,516         616,199     605,762      

Liabilities and equity

 

CURRENT LIABILITIES:

Current maturities of long-term bank loan 32,000 32,000 Accounts payable and accruals: Trade 43,044 27,119 Other 47,220 51,675 Deferred income   20,427     17,336  

T o t a l  current liabilities

142,691 128,130  

LONG-TERM LIABILITIES:

Long-term bank loan 112,000 128,000 Liability for employee rights upon retirement 25,180 25,030 Deferred income tax 2,010 2,010 Other tax liabilities   9,475     10,079  

T o t a l  long-term liabilities

148,665 165,119    

T o t a l  liabilities

  291,356     293,249    

EQUITY:

Share capital 1,751 1,746 Additional paid-in capital 172,043 169,748 Retained earnings 206,674 192,664 Accumulated other comprehensive income   62     3,817   380,530 367,975 Less - treasury shares, at cost   (57,192 )   (57,192 )

T o t a l  Orbotech Ltd. shareholders' equity

323,338 310,783 Non-controlling interest   1,505     1,730  

T o t a l  equity

  324,843     312,513         616,199     605,762                   ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTH AND THREE MONTH PERIODS ENDED JUNE 30, 2010  

6  m o n t h s  e n d e dJ u n e  3 0

3  m o n t h s  e n d e dJ u n e  3 0

12 monthsendedDecember 31

2 0 1 0 2 0 0 9 2 0 1 0 2 0 0 9 2 0 0 9 U.S. dollars in thousands (except per share data)  

REVENUES

 

250,324

 

185,875

 

147,255

 

94,013

 

377,600

 

COST OF REVENUES

148,051 115,092 86,819 57,229 235,608          

GROSS PROFIT

102,273 70,783 60,436 36,784 141,992  

RESEARCH AND DEVELOPMENT COSTS - net

38,780 33,227 20,646 16,548 67,872  

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

33,067 31,510 18,177 15,584 65,193  

AMORTIZATION OF INTANGIBLE ASSETS

7,201 10,082 3,598 5,041 20,187  

IMPAIRMENT (ADJUSTMENT OF IMPAIRMENT) OF GOODWILL

627 (2,280 ) (2,280 ) (2,070 )          

OPERATING INCOME (LOSS)

22,598 (1,756 ) 18,015 1,891 (9,190 )  

FINANCIAL EXPENSES- net

(4,690 ) (8,828 ) (2,465 ) (3,797 ) (10,977 )          

INCOME (LOSS) BEFORE TAXES ON INCOME

17,908 (10,584 ) 15,550 (1,906 ) (20,167 )  

INCOME TAX EXPENSE (BENEFIT)

3,933 (1,546 ) 3,169 (777 ) (411 )          

NET INCOME (LOSS)

13,975 (9,038 ) 12,381 (1,129 ) (19,756 )  

NET LOSS (INCOME) ATTRIBUTABLE TO THE NON-CONTROLLING INTEREST

35 (33 ) 18 (56 ) (168 )          

NET INCOME (LOSS) ATTRIBUTABLE TO ORBOTECH LTD.

  14,010     (9,071 )   12,399     (1,185 )   (19,924 )  

EARNINGS (LOSS) PER SHARE:

BASIC

$ 0.40   $ (0.26 ) $ 0.36   $ (0.03 ) $ (0.58 )  

DILUTED

$ 0.39   $ (0.26 ) $ 0.35   $ (0.03 ) $ (0.58 )  

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF EARNINGS (LOSS) PER SHARE - IN THOUSANDS:

BASIC

  34,859     34,406     34,888     34,453     34,501    

DILUTED

  35,829     34,406     35,904     34,453     34,501                     ORBOTECH LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS FOR THE SIX MONTH AND THREE MONTH PERIODS ENDED JUNE 30, 2010    

6  m o n t h s  e n d e dJ u n e  3 0

3  m o n t h s  e n d e dJ u n e  3 0

12 monthsendedDecember 31 2 0 1 0 2 0 0 9 2 0 1 0 2 0 0 9 2 0 0 9 U.S. dollars in thousands (except per share data)    

Reported net income (loss) attributable to Orbotech Ltd. on GAAP basis

 

14,010

 

 

(9,071

)

 

12,399

 

 

(1,185

)

 

(19,924

)

  Non-operating income (expenses): Financial expenses - net (4,690 ) (8,828 ) (2,465 ) (3,797 ) (10,977 ) Income tax benefit (expense) (3,933 ) 1,546 (3,169 ) 777 411 Net loss (income) attributable to the non-controlling interest   35     (33 )   18     (56 )   (168 )   (8,588 )   (7,315 )   (5,616 )   (3,076 )   (10,734 )             Reported operating income (loss) on GAAP basis 22,598 (1,756 ) 18,015 1,891 (9,190 )   Equity based compensation expenses 2,564 3,392 1,188 1,903 6,445 Amortization of intangibles assets 7,201 10,082 3,598 5,041 20,187 Adjustment of impairment of goodwill (*)     (3,300 )     (3,300 )   (3,300 ) Non-GAAP operating income 32,363 8,418 22,801 5,535 14,142   Non-operating expenses (8,588 ) (7,315 ) (5,616 ) (3,076 ) (10,734 )          

Non-GAAP net income

  23,775     1,103     17,185     2,459     3,408    

Non-GAAP earnings per diluted share

$ 0.66   $ 0.03   $ 0.48   $ 0.07   $ 0.10    

Shares used in earnings per diluted share calculation-in thousands

  35,829     34,725     35,904     34,678     35,076    

(*) The adjustment of impairment of goodwill of $3.3 million recorded in 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.