ORBK Orbotech Ltd. - Ordinary Shares

ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2011.

Commenting on the quarter, Rani Cohen, President and Chief Executive Officer, said: “We recorded a successful third quarter, both in terms of revenue and net income. We continue to develop and tailor our technological roadmap. As part of our efforts to enable our customers to meet the increasingly demanding inspection and production challenges they face with the advent of ever more sophisticated mobile devices, we are today separately announcing the introduction of new solutions across several areas of our PCB and ECM offerings. At the same time, mindful of both the prevailing mood of macro-economic uncertainty and the sharp decline in capital expenditure in the FPD industry, we are closely monitoring our operating expenditures and inventories to ensure that our infrastructure remains fully aligned to any business conditions.”

The existing global economic uncertainty has impacted commercial and consumer spending, causing a number of printed circuit board (“PCB”) manufacturers to delay the receipt of new manufacturing equipment, which, in turn, led to slightly lower sequential PCB equipment revenues for the Company in the third quarter. At the same time, the continued strong consumer sales of mobile devices gave rise to additional revenues from opportunities realized in the electronics component manufacturing (“ECM”) industry, particularly in the touch screen area where the Company’s revenues continue to increase sequentially. During the quarter the Company sold a record number of laser-based direct imaging systems and also recognized initial revenues from its new Emerald UV laser drilling system, which the Company anticipates will form a strategic part of its PCB product portfolio in 2012 and beyond.

Manufacturers of flat panel displays (“FPD”s) continue to experience lower utilization rates due to the weak demand for liquid crystal display (“LCD”) televisions. As a result, LCD manufacturers have been scaling back their capital expenditure plans for LCD televisions, as evidenced by the very low overall order activity; a state of affairs which is expected to continue through the first half of 2012. On the other hand, the Company continued to receive new orders for FPD equipment for use in the manufacture of mobile devices; and there are preliminary indications of new mobile-related fabrication plant investments as manufacturers upgrade existing plants to cater for newer, more demanding applications in this part of the industry.

Revenues for the third quarter of 2011 totaled $144.4 million, compared to $153.4 million in the second quarter of 2011 and $156.1 million in the third quarter of 2010. GAAP net income for the third quarter of 2011 was $14.7 million, or $0.34 per share (diluted), compared to GAAP net income of $18.9 million, or $0.48 per share (diluted) for the second quarter of 2011 and GAAP net income of $16.1 million, or $0.45 per share (diluted), in the third quarter of 2010.

Revenues for the first nine months of 2011 totaled $432.0 million, compared to $401.0 million recorded in the first nine months of 2010. GAAP net income for the first nine months of 2011 was $44.8 million, or $1.13 per share (diluted), compared to a GAAP net income of $30.2 million, or $0.84 per share (diluted), in the first nine months of 2010.

Non-GAAP net income for the third quarter of 2011 was $18.6 million, or $0.42 per share (diluted), compared to non-GAAP net income of $23.8 million, or $0.67 per share (diluted), in the third quarter of 2010. Non-GAAP net income for the first nine months of 2011 was $55.6 million, or $1.40 per share (diluted), compared to non-GAAP net income of $51.1 million, or $1.43 per share (diluted), in the first nine months of 2010. 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.

Sales of equipment to the PCB industry were $56.6 million in the third quarter of 2011, compared to $58.8 million in the second quarter of 2011, and $42.4 million in the third quarter of 2010. Sales of equipment to the FPD industry were $49.6 million in the third quarter of 2011, compared to $56.6 million in the second quarter of 2011, and $80.5 million in the third quarter of last year. Sales of character recognition products were $1.8 million in the third quarter of 2011, compared to $1.6 million in the second quarter of 2011, and $2.1 million recorded in the third quarter of 2010. In addition, service revenue for the third quarter of 2011 was $36.4 million, similar to $36.4 million in the second quarter of 2011, and compared to $31.1 million in the third quarter of 2010.

The Company completed the quarter with cash, cash equivalents, short-term bank deposits and marketable securities of approximately $288.8 million; and debt of $104.0 million, compared with cash, cash equivalents, short-term bank deposits and marketable securities of approximately $296.5 million; and debt of $112.0 million at the end of the second quarter of 2011.

An earnings conference call for the Company’s third quarter 2011 results is scheduled for Monday, November 7, 2011, at 9:00 a.m. EST. The dial-in number for the conference call is 517-308-9463, and a replay will be available on telephone number 402-344-6824 until November 21, 2011. 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 and flat panel displays; and 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 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 and Non-GAAP Financial Measures

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 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, 2010. 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; and/or (iii) our discontinued operations. 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 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 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. 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, 2010.

  ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2011       September 30 December 31 2 0 1 1 2 0 1 0 U. S. dollars in thousands

A s s e t s

 

CURRENT ASSETS:

Cash and cash equivalents 158,528 179,503 Short-term bank deposits 130,267 2,780 Accounts receivable: Trade 197,003 153,518 Other 28,293 29,919 Deferred income taxes 5,929 5,913 Inventories 120,928 112,812 Assets of discontinued operations   12,351   T o t a l current assets 640,948   496,796    

INVESTMENTS AND NON-CURRENT ASSETS:

Marketable securities 2,549 Funds in respect of employee rights upon retirement 12,056 13,017 Deferred income taxes 9,946 12,679 Other long-term investments 1,420   29   23,422   28,274    

PROPERTY, PLANT AND EQUIPMENT, net

24,149   24,842    

GOODWILL

12,444   12,034    

OTHER INTANGIBLE ASSETS, net

57,582   66,395       758,545   628,341      

Liabilities and equity

 

CURRENT LIABILITIES:

Current maturities of long-term bank loan 32,000 32,000 Accounts payable and accruals: Trade 39,806 26,535 Other 54,795 55,290 Deferred income 29,277 24,421 Liabilities of discontinued operations   2,172   T o t a l current liabilities 155,878 140,418  

LONG-TERM LIABILITIES:

Long-term bank loan 72,000 96,000 Liability for employee rights upon retirement 27,447 27,501 Deferred income taxes 1,806 2,188 Other tax liabilities 14,991   12,679   T o t a l long-term liabilities 116,244 138,368     T o t a l liabilities 272,122   278,786    

EQUITY:

Share capital 2,087 1,758 Additional paid-in capital 269,783 174,940 Retained earnings 271,601 226,809 Accumulated other comprehensive income (loss) (1,742 ) 1,454   541,729 404,961 Less treasury shares, at cost (57,192 ) (57,192 ) T o t a l Orbotech Ltd. shareholders' equity 484,537 347,769 Non-controlling interest 1,886   1,786  

T o t a l equity

486,423   349,555       758,545   628,341                 ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011   12 months

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

REVENUES

431,980 400,979 144,364 156,092 529,355  

COST OF REVENUES

251,405 232,255 83,675 90,043 312,901          

GROSS PROFIT

180,575 168,724 60,689 66,049 216,454  

RESEARCH AND DEVELOPMENT COSTS - net

62,582 57,246 21,332 20,236 78,327  

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES

53,689 49,925 17,993 17,836 66,264  

AMORTIZATION OF INTANGIBLE ASSETS

9,213 10,632 3,071 3,544 14,176          

OPERATING INCOME

55,091 50,921 18,293 24,433 57,687  

FINANCIAL EXPENSES- net

5,706 5,989 1,810 1,456 7,284          

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ON INCOME

49,385 44,932 16,483 22,977 50,403  

TAXES ON INCOME

5,822 8,027 1,703 3,647 7,397           43,563 36,905 14,780 19,330 43,006  

SHARE IN LOSSES OF ASSOCIATED COMPANY

109 49          

NET INCOME FROM CONTINUING OPERATIONS

43,454 36,905 14,731 19,330 43,006  

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX

1,363 (6,728) (3,128) (8,717)          

NET INCOME

44,817 30,177 14,731 16,202 34,289  

NET INCOME ATTRIBUTABLE TO

THE NON-CONTROLLING INTEREST

25 18 25 53 144          

NET INCOME ATTRIBUTABLE TO ORBOTECH LTD.

44,792 30,159 14,706 16,149 34,145  

AMOUNTS ATTRIBUTABLE TO ORBOTECH LTD.:

INCOME FROM CONTINUING OPERATIONS

43,429 36,887 14,706 19,277 42,862  

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX

1,363 (6,728) (3,128) (8,717)          

NET INCOME ATTRIBUTABLE TO ORBOTECH LTD.

44,792 30,159 14,706 16,149 34,145    

EARNINGS PER SHARE:

INCOME FROM CONTINUING OPERATIONS:

BASIC

$1.12 $1.06 $0.34 $0.55 $1.23  

DILUTED

$1.09 $1.03 $0.34 $0.54 $1.20  

NET INCOME ATTRIBUTABLE TO ORBOTECH LTD.:

BASIC

$1.15 $0.86 $0.34 $0.46 $0.98  

DILUTED

$1.13 $0.84 $0.34 $0.45 $0.95    

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION

OF EARNINGS PER SHARE - IN THOUSANDS:

BASIC

38,785 34,877 43,177 34,924 34,911  

DILUTED

39,759 35,743 43,872 35,810 35,778               ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011       12 months

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December 31 2 0 1 1 2 0 1 0 2 0 1 1 2 0 1 0 2 0 1 0 U.S. dollars in thousands

CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income 44,817 30,177 14,731 16,202 34,289 Adjustment to reconcile net income to net cash provided by operating activities: Loss (income) from discontinued operations (1,363) 6,728 3,128 8,717 Depreciation and amortization 15,073 17,785 5,095 5,750 23,665 Compensation relating to equity awards granted to employees and others - net 2,915 3,575 778 1,011 4,725 Increase (decrease) in liability for employee rights upon retirement (54) 2,532 (516) 2,342 2,589 Deferred income taxes 2,335 449 1,038 (1,035) (3,866) Loss from sales and write down of marketable securities 395 920 966 1,252 Other, including capital loss (gain) 1,069 (330) 1,023 (608) (1,147) Decrease (increase) in accounts receivable: Trade (43,485) (33,965) (12,703) (2,673) (5,755) Other 1,121 (6,163) 1,524 (4,795) (4,673) Increase (decrease) in accounts payable and accruals: Trade 13,271 22,863 (12,841) 5,789 1,434 Deferred income and other 5,753 12,833 3,508 13,126 15,870 Decrease (increase) in inventories (8,116) (21,458) 1,805 (13,802) (19,018) Net cash provided by operating activities - continuing operations 33,731 35,946 3,442 25,401 58,082 Net cash used in operating activities - discontinued operations (740) (7,059)   (1,315) (8,972) Net cash provided by operating activities 32,991 28,887 3,442 24,086 49,110  

CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase of property, plant and equipment (5,188) (3,506) (2,803) (1,277) (6,752) Placement of bank deposits (127,300) (67,300) (2,780) Sales of marketable securities 1,967 6,742 6,742 6,742 Other investment (2,310) (810) Proceeds from disposal of property, plant and equipment 35 21 21 20 Decrease (increase) in funds in respect of employee rights upon retirement (13) (624) 200 (336) (617)

Net cash provided by (used in) investing activities - continuing operations

(132,809) 2,633 (70,713) 5,150 (3,387) Net cash provided by (used in) investing activities - discontinued operations 9,155 (106)   (151) (268) Net cash provided by (used in) investing activities (123,654) 2,527 (70,713) 4,999 (3,655)  

CASH FLOWS FROM FINANCING ACTIVITIES:

  Repayment of long-term bank loan (24,000) (24,000) (8,000) (8,000) (32,000) Employee stock options excercised 1,649 69 219 12 902 Proceeds from issuance of shares, net 90,683 Acquisition of non-controlling interest   (511)     (511) Net cash provided by (used in) financing activities 68,332 (24,442) (7,781) (7,988) (31,609)           Currency translation adjustments on cash and cash equivalents   (147)   27 (220)           NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (22,331) 6,825 (75,052) 21,124 13,626   CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 180,859 167,233 233,580 152,934 167,233           CASH AND CASH EQUIVALENTS AT END OF PERIOD 158,528 174,058 158,528 174,058 180,859   LESS - CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS AT END OF PERIOD 810 810 1,356 CASH AND CASH EQUIVALENTS OF CONTINUING           OPERATIONS AT END OF PERIOD 158,528 173,248 158,528 173,248 179,503               ORBOTECH LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS FROM CONTINUING OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011     12 months

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

Reported net income attributable to Orbotech Ltd. on GAAP basis

44,792 30,159 14,706 16,149 34,145   Non-operating income (expenses): Financial expenses - net (5,706) (5,989) (1,810) (1,456) (7,284) Taxes on income (5,822) (8,027) (1,703) (3,647) (7,397) Net income attributable to the non-controlling interest (25) (18) (25) (53) (144) Share in losses of associated company (109) (49) Income (loss) from discontinued operations* 1,363 (6,728)   (3,128) (8,717) (10,299) (20,762) (3,587) (8,284) (23,542)             Reported operating income on GAAP basis 55,091 50,921 18,293 24,433 57,687   Equity based compensation expenses 2,915 3,575 778 1,011 4,725 Amortization of intangible assets 9,213 10,632 3,071 3,544 14,176 Non-GAAP operating income 67,219 65,128 22,142 28,988 76,588   Non-operating expenses (10,299) (20,762) (3,587) (8,284) (23,542) Income (loss) from discontinued operations* 1,363 (6,728) (3,128) (8,717)          

Non-GAAP net income from continuing operations

55,557 51,094 18,555 23,832 61,763   Non-GAAP earnings per diluted share $1.40 $1.43 $0.42 $0.67 $1.73   Shares used in earnings per diluted share calculation-in thousands 39,759 35,743 43,872 35,810 35,778

* The loss from discontinued operations, net of tax, was attributable to the re-classification during 2010 of OMS and OMD as discontinued operations.