ORBK Orbotech Ltd. - Ordinary Shares

ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the fourth quarter and year ended December 31, 2010 and is reiterating its guidance for 2011 and providing revenue guidance for the first half of 2011.

Commenting on the results, Rani Cohen, President and Chief Executive Officer, said: “We are very pleased with the Company’s strong results for the year, posting record annual revenues, strong cash flow and net income and expanding our footprint with customers. During the year we increased our investments in the research and development of new products, including inspection and production solutions for both PCB and FPD manufacturers and a new product for the solar energy industry. Orbotech is entering 2011 with an outstanding product portfolio in all areas of our business and very solid orders for each of our leading products. We believe we are well positioned to take advantage of the strong growth in the consumer demand for sophisticated devices such as smartphones, tablets and other electronic devices, in the manufacture of which our equipment is essential. This should enable us to maintain our position as a leading provider of yield-enhancing and production solutions for the industries we serve.”

Revenues for the fourth quarter of 2010 totaled $128.4 million, compared to $156.1 million in the third quarter of 2010 and $96.7 million in the fourth quarter of 2009. GAAP net income for the fourth quarter of 2010 was $4.0 million, or $0.11 per share (diluted), compared to GAAP net income of $16.1 million, or $0.45 per share (diluted) for the third quarter of 2010 and a GAAP net loss of $5.4 million, or $0.15 per share, in the fourth quarter of 2009. GAAP net income from continuing operations for the fourth quarter of 2010 was $6.0 million, or $0.17 per share (diluted), compared to GAAP net income from continuing operations of $19.3 million, or $0.54 per share (diluted) for the third quarter of 2010 and a GAAP net loss from continuing operations of $4.6 million, or $0.13 per share, in the fourth quarter of 2009.

Revenues for the year ended December 31, 2010 totaled $529.4 million, compared to $359.3 million in 2009. GAAP net income for the year ended December 31, 2010 was $34.1 million, or $0.95 per share (diluted), compared to a GAAP net loss of $19.9 million, or $0.58 per share, for the year ended December 31, 2009. GAAP net income from continuing operations for the year ended December 31, 2010 was $42.9 million, or $1.20 per share (diluted), compared to a GAAP net loss from continuing operations of $16.0 million, or $0.46 per share, for the year ended December 31, 2009.

Non-GAAP net income from continuing operations for the fourth quarter of 2010 was $10.7 million, or $0.30 per share (diluted), compared to non-GAAP net income from continuing operations of $1.9 million, or $0.05 per share (diluted), in the fourth quarter of 2009. Non-GAAP net income from continuing operations for the year ended December 31, 2010 was $61.8 million, or $1.73 per share (diluted), compared to non-GAAP net income from continuing operations of $7.0 million, or $0.20 per share (diluted), for the year ended December 31, 2009.

In the printed circuit board (“PCB”) industry, continuing strong demand for sophisticated consumer end products, primarily tablets, smartphones and other electronic devices, has led to a shortage in high-end PCBs. This has resulted in better-than-expected orders in the fourth quarter for the Company’s PCB inspection and production solutions, in particular the Company’s laser direct imaging tools which have become an essential solution in high-end PCB manufacturing. During the fourth quarter of 2010, the Company introduced and made initial deliveries of its Fusion Series AOI systems. These systems offer significantly improved defect detection over other models, while dramatically reducing false alarm rates. Acceptances were received during the fourth quarter and initial revenues were recorded.

The Company’s flat panel display (“FPD”) business had record revenues for the year. The FPD industry, which during the latter part of 2010 experienced lower capacity utilization rates than had been prevalent in the earlier part of the year, recently began to recover and certain FPD manufacturers have announced plans to invest in new FPD facilities, mainly in China, to support the expected growth in demand for LCD televisions. Additionally, FPD manufacturers are also investing in upgrades of existing facilities to accommodate new and advanced technologies used in the manufacturing of displays for advanced mobile devices. During the fourth quarter, the Company continued to make deliveries of its high performance EVision AOI system for Generation 7.5 to Generation 8.5 substrates and expects to record initial revenues from these systems in the first half of 2011.

The Company is reiterating its previously announced revenue and GAAP net margin guidance for 2011 of approximately $560 million and 10%, respectively; and is providing non-GAAP net margin guidance for 2011 of 12.5% of revenues. Business conditions remain strong and there is a fundamental shift in technology complexity driven primarily by the proliferation of high-end mobile devices such as smartphones and tablets. These trends are reflected in a significant increase in orders for the Company’s laser direct imaging systems with anticipated delivery in the first half of 2011. As a result, the Company expects that revenues in the first half of 2011 will be in the range of $280 - $300 million. However, due to uncertainty about the timing of customer product acceptance of its FPD EVision AOI systems and delivery schedules with respect to our laser direct imaging systems, the Company is not in a position to provide more detailed quarterly guidance, but believes its revenues will be weighted more towards the second quarter.

Sales of equipment to the PCB industry were $50.1 million in the fourth quarter of 2010, compared to $42.4 million in the third quarter of 2010, and $26.0 million in the fourth quarter of 2009. Sales of equipment to the FPD industry were $42.7 million, compared to $80.5 million in the third quarter of 2010, and $40.5 million in the fourth quarter of last year. Sales of character recognition products were $2.5 million in the fourth quarter of 2010, compared to $2.1 million in the third quarter of 2010, and $2.0 million recorded in the fourth quarter of 2009. In addition, service revenue for the fourth quarter of 2010 was $33.1 million, compared to $31.1 million in the third quarter of 2010, and $28.2 million in the fourth quarter of 2009.

The Company completed the quarter with cash, cash equivalents, short-term bank deposits and marketable securities of approximately $184.8 million and debt of $128 million, compared with cash, cash equivalents and marketable securities of approximately $175.8 million and debt of $136 million at the end of the third quarter of 2010. The Company generated cash of $58.1 million from continuing operations in the full year.

In October 2010, the Company entered into an agreement with General Electric Company (“GE”) pursuant to which its subsidiary, General Electric Medical Systems Israel Ltd. acquired the assets of Orbotech Medical Solutions Ltd. (“OMS”) for approximately $9 million in cash at closing and up to an additional $5 million in cash, subject to the achievement of certain agreed performance-based milestones. The transaction, which closed on February 10, 2011, also provided for the release of the Company and GE regarding all outstanding disputes between them. In a judgment rendered on February 14, 2011, the court approved the settlement agreement between the parties and dismissed the litigation with prejudice. In addition, as of December 31, 2010, the Company had committed to a plan to divest itself of Orbotech Medical Denmark A/S (“OMD”), although the timing and terms of any such divestiture are subject to market and other conditions. As a result, OMS as well as OMD have been classified as discontinued operations and certain financial data for 2010 and previous fiscal years provided in the financial information disclosed herein have been recast to present OMS and OMD as discontinued operations. The sale of OMS and OMD are not expected to impact the Company’s cash flow from operating activities in any material respect.

Erez Simha, our Chief Financial Officer, has decided to leave Orbotech to pursue other business opportunities, but will remain at Orbotech for an interim period to facilitate an orderly transition. We have a strong financial management team, headed by our Chief Operating Officer, Amichai Steimberg, which will fulfill this role while we actively look for a successor. Mr. Steimberg served as Chief Financial Officer of the Company from 2000 to 2009.

An earnings conference call for the Company’s fourth quarter and full year 2010 results is scheduled for Wednesday, February 16, 2011, at 9:00 a.m. EST. The dial-in number for the conference call is 212-287-1850, and a replay will be available on telephone number 203-369-3227 until March 9, 2011. The pass code is Q4. 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 a leading global provider of yield-enhancing and production solutions for printed circuit boards (PCBs), which are used in various electronic devices, including smartphones and tablets, and for liquid crystal displays and touch screens. We design, develop, manufacture and market inspection, test and repair and production solutions with PCB and flat panel display (FPD) manufacturers as our main customers. For over 30 years, we have built our global installed base of systems at customers which include leading PCB, as well as virtually all FPD, manufacturers, for whom our solutions are designed to optimize production yields, improve throughput and increase production process cost effectiveness. Orbotech offers a technologically advanced end-to-end solutions portfolio to address yield management at various manufacturing stages for both PCBs and FPDs. Our products include Automated Optical Inspection (AOI) and Repair (AOR), engineering solutions, production and imaging products for PCB manufacturing, as well as AOI, test and repair systems for FPD manufacturing. We also develop and market character recognition solutions, primarily to banks and other financial institutions, for use in check and forms processing. Additionally, we are engaged in the research and development of products for the deposition of anti-reflective coating on crystalline silicon photovoltaic wafers for solar energy panels. Orbotech maintains its corporate headquarters, executive and registered offices and principal research and development, engineering and manufacturing facilities in Israel; and a strong global organizational infrastructure, which includes local management, research and development, logistics, customer service and support, sales, operations and engineering activities. The Company’s extensive network of marketing, sales and customer support teams, located in over 40 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, without limitation, cyclicality in the industries in which the Company operates, the Company’s production capacity, timing and occurrence of 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, the level of consumer demand for sophisticated devices such as smartphones, tablets and other electronic devices, the ability to sell OMD in the timeframe anticipated, if at all, 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, 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) our discontinued operations and/or (iv) a gain representing additional consideration from the sale of Salvador Imaging, Inc. which was owned by Photon Dynamics Inc. (“PDI”) at the time of the PDI acquisition in 2008. 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 (loss), net income (loss) attributable to Orbotech Ltd. 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 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, 2009.

    ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2010   December 31 December 31

2010

2009

U. S. dollars in thousands

Assets

 

CURRENT ASSETS:

Cash and cash equivalents 179,503 164,019 Short-term bank deposits 2,780 Accounts receivable: Trade 153,518 147,894 Other 29,919 27,445 Deferred income taxes 5,913 4,384 Inventories 112,812 94,331 Assets of discontinued operations 12,351   14,325  

Total current assets

496,796   452,398    

INVESTMENTS AND NON-CURRENT ASSETS:

Marketable securities 2,549 9,969 Funds in respect of employee rights upon retirement 13,017 11,266 Deferred income taxes 12,679 10,164 Other 29 29 Assets of discontinued operations   2,123   28,274   33,551    

PROPERTY, PLANT AND EQUIPMENT, net

24,842   27,208    

GOODWILL

12,034   12,034    

OTHER INTANGIBLE ASSETS, net

66,395   80,571       628,341   605,762      

Liabilities and equity

 

CURRENT LIABILITIES:

Current maturities of long-term bank loan 32,000 32,000 Accounts payable and accruals: Trade 26,535 25,164 Other 55,290 49,154 Deferred income 24,421 17,336 Liabilities of discontinued operations 2,172   4,556  

Total current liabilities

140,418 128,210  

LONG-TERM LIABILITIES:

Long-term bank loan 96,000 128,000 Liability for employee rights upon retirement 27,501 24,950 Deferred income taxes 2,188 2,010 Other tax liabilities 12,679   10,079  

Total long-term liabilities

138,368 165,039    

Total liabilities

278,786   293,249    

EQUITY:

Share capital 1,758 1,746 Additional paid-in capital 174,940 169,748 Retained earnings 226,809 192,664 Accumulated other comprehensive income 1,454   3,817   404,961 367,975 Less - treasury stock, at cost (57,192 ) (57,192 )

Total Orbotech Ltd. shareholders' equity

347,769 310,783 Non-controlling interest 1,786   1,730  

Total equity

349,555   312,513       628,341   605,762       ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTH AND THREE MONTH PERIODS ENDED DECEMBER 31, 2010          

12 months ended

3 months ended

December 31

December 31

2010

2009

2010

2009

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

REVENUES

529,355 359,330 128,376 96,681  

COST OF REVENUES

312,901 220,202 80,646 58,945        

GROSS PROFIT

216,454 139,128 47,730 37,736  

RESEARCH AND DEVELOPMENT COSTS - net

78,327 64,106 21,081 17,310  

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES

66,264 63,598 16,339 17,406  

AMORTIZATION OF INTANGIBLE ASSETS

14,176 19,848 3,544 4,962  

ADJUSTMENT OF IMPAIRMENT OF GOODWILL

(3,300 )        

OPERATING INCOME (LOSS)

57,687 (5,124 ) 6,766 (1,942 )  

FINANCIAL EXPENSES- net

7,284 11,090 1,295 642        

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES ON INCOME

50,403 (16,214 ) 5,471 (2,584 )  

INCOME TAX EXPENSE (BENEFIT)

7,397 (372 ) (630 ) 1,933        

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

43,006 (15,842 ) 6,101 (4,517 )  

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

8,717 3,914 1,989 778        

NET INCOME (LOSS)

34,289 (19,756 ) 4,112 (5,295 )  

NET INCOME ATTRIBUTABLE TO

THE NON-CONTROLLING INTEREST

144 168 126 55        

NET INCOME (LOSS) ATTRIBUTABLE TO ORBOTECH LTD.

34,145   (19,924 ) 3,986   (5,350 )  

AMOUNTS ATTRIBUTABLE TO ORBOTECH LTD.:

INCOME (LOSS) FROM CONTINUING OPERATIONS

42,862 (16,010 ) 5,975 (4,572 )  

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

(8,717 ) (3,914 ) (1,989 ) (778 )        

NET INCOME (LOSS) ATTRIBUTABLE TO ORBOTECH LTD.

34,145   (19,924 ) 3,986   (5,350 )    

EARNINGS (LOSS) PER SHARE:

INCOME (LOSS) FROM CONTINUING OPERATIONS

BASIC

$1.23   ($0.46 ) $0.17   ($0.13 )  

DILUTED

$1.20   ($0.46 ) $0.17   ($0.13 )  

NET INCOME (LOSS)

BASIC

$0.98   ($0.58 ) $0.11   ($0.15 )  

DILUTED

$0.95   ($0.58 ) $0.11   ($0.15 )    

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION

OF EARNINGS (LOSS) PER SHARE - IN THOUSANDS:

BASIC

34,911   34,501   35,023   34,755    

DILUTED

35,778   34,501   35,754   34,755             ORBOTECH LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS FROM CONTINUING OPERATIONS FOR THE TWELVE MONTH AND THREE MONTH PERIODS ENDED DECEMBER 31, 2010    

12 months ended

3 months ended

December 31

December 31

2010

2009

2010

2009

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

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

34,145 (19,924) 3,986 (5,350)   Non-operating income (expenses): Financial expenses - net (7,284) (11,090) (1,295) (642) Income tax benefit (expense) (7,397) 372 630 (1,933) Net income attributable to the non-controlling interest (144) (168) (126) (55) Loss from discontinued operations (1) (8,717) (3,914) (1,989) (778) (23,542) (14,800) (2,780) (3,408)           Reported operating income (loss) on GAAP basis 57,687 (5,124) 6,766 (1,942)   Equity based compensation expenses 4,725 6,445 1,150 1,461 Amortization of intangible assets 14,176 19,848 3,544 4,962 Adjustment of impairment of goodwill (2)   (3,300)     Non-GAAP operating income 76,588 17,869 11,460 4,481   Non-operating expenses (23,542) (14,800) (2,780) (3,408) Loss from discontinued operations (1) 8,717 3,914 1,989 778        

Non-GAAP net income from continuing operations

61,763 6,983 10,669 1,851   Non-GAAP net income from continuing operations per diluted share $1.73 $0.20 $0.30 $0.05   Shares used in net income from continuing operations per diluted share calculation-in thousands 35,778 35,076 35,754 35,662     (1) The loss from discontinued operations, net of tax, was attributable to the re-classification during 2010 of Orbotech Medical Solutions Ltd. and Orbotech Medical Denmark A/S as discontinued operations. (2) 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.       ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 2010

     

12 months ended

 

December 31

 

2010

 

2009

 

 

U.S. dollars in thousands  

CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss) 34,289 (19,756 )

 

Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:

Loss from discontinued operations 8,717 3,914

 

Depreciation and amortization 23,665 29,977

 

Compensation relating to equity awards granted to employees and others - net

4,725 6,445

 

Increase (decrease) in liability for employee rights upon retirement

2,589 (2,633 )

 

Deferred income taxes (3,865 ) (531 )

 

Provision for restructuring expenses and non-cash expenses in respect of restructuring

(3,169 )

Loss from sales and write down of marketable securities

1,252 2,866

 

Adjustment of impairment of goodwill (3,300 ) Other, including capital loss (gain) (1,147 ) 38

 

Decrease (increase) in accounts receivable: Trade (5,755 ) 30,882

 

Other (4,674 ) 7,850

 

Increase (decrease) in accounts payable: Trade 1,434 (9,852 )

 

Deferred income and other 15,870 (11,965 )

 

Decrease (increase) in inventories (19,018 ) 23,377  

 

Net cash provided by operating activities - continuing operations

58,082 54,143

 

Net cash used in operating activities - discontinued operations

(8,972 ) (1,134 )

 

Net cash provided by operating activities

49,110 53,009

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase of property, plant and equipment (6,752 ) (3,670 )

 

Earn out income

3,300 Placement of bank deposits (2,780 )

 

Sales of marketable securities 6,742 9,894 Proceeds from disposal of property, plant and equipment 20

Decrease (increase) in funds in respect of employee rights upon retirement

(617 ) 1,236  

 

Net cash provided by (used in) investing activities - continuing operations (3,387 ) 10,760

 

Net cash used in investing activities - discontinued operations (268 ) (229 )

 

Net cash provided by (used in) investing activities (3,655 ) 10,531

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

  Repayment of long-term bank loan (32,000 )

 

Repayment of long-term liability (2,667 )

Employee stock options exercised

902 1,408

 

Acquisition of non-controlling interest

(511 )   Net cash used in financing activities (31,609 ) (1,259 )

 

 

Currency translation adjustments on cash and cash equivalents

(220 ) (175 )

 

    NET INCREASE IN CASH AND CASH EQUIVALENTS 13,626 62,106

 

  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 167,233 105,127

 

   

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD 180,859 167,233

 

 

LESS - CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS AT END OF PERIOD

1,356 3,214

 

 

   

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF PERIOD

179,503   164,019