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Rudolph Technologies Reports 2018 Second Quarter Results

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  • Quarterly record revenue of $77.5 million
  • Software sales drive margins to high end of guidance

Rudolph
Technologies, Inc.
(NYSE:RTEC), a leading provider of semiconductor
process control systems, lithography equipment, as well as process
control and yield management software for wafer fabs and advanced
packaging facilities, today announced financial results for the 2018
second quarter.

2018 Second Quarter Highlights

  • Record second quarter revenue of $77.5 million, an increase of 15
    percent over the 2017 second quarter.
  • Gross margin of 54 percent at high end of guidance.
  • GAAP earnings of $0.45; non-GAAP earnings of $0.51 was at the high end
    of guidance.
  • Added new lithography customer in China for fan-out packaging
    applications.
  • Record shipments to China in the second quarter, representing 30
    percent of total revenue.
  • The new Firefly™ and Dragonfly™ inspection systems were delivered to
    four additional new customers.
 
Key Financial Data for the Quarters Ended June 30, 2018,
March 31, 2018, and June 30, 2017
(in thousands, except per share amounts)
 
US GAAP
   

June 2018

   

March 2018

   

June 2017

Revenue $ 77,476 $ 73,096 $ 67,418
Gross profit margin 53.9 %

58.0

% 52.6 %
Operating income $ 16,674 $ 17,465 $ 12,695
Net income $ 14,697 $ 15,130 $ 9,193
Net income per diluted share $ 0.45 $ 0.47 $ 0.29
 
US NON-GAAP

June 2018

March 2018

June 2017

Revenue $ 77,476 $ 73,096 $ 67,418
Gross profit margin

54.0

% 58.1 % 52.7 %
Operating income $ 19,138 $ 19,352 $ 15,671
Net income $ 16,552 $ 16,346 $ 10,605
Net income per diluted share $ 0.51 $ 0.51 $ 0.33
 

Michael Plisinski, chief executive officer, commented, "All product
teams contributed nicely to the record-setting second quarter. Our
software business is back to historical peaks and we expect to set new
records in 2019. Our lithography business continues to add new customers
and product innovations, expanding our total available market. Our
process control products saw broad appeal, particularly from the memory
market, and we experienced growing adoption of our new inspection
platforms."

Mr. Plisinski concluded, "Despite the industry pause in the third
quarter, we see growth returning in the fourth quarter to levels similar
to that in the first half of the year. Longer term, we see the large
secular trends in automotive, high performance computing, and wireless
communication continuing to create growth opportunities for all of our
business units."

Second Quarter 2018 GAAP Financial Results
Second quarter
revenue totaled $77.5 million, an increase of 6 percent compared with
$73.1 million for the first quarter of 2018 and a 15 percent increase
compared with $67.4 million in the second quarter of 2017. The second
quarter gross margin was 54 percent of revenues, compared to 58 percent
in the first quarter of 2018. The decrease in gross margin was the
result of the first quarter of 2018 gross margin included a high value
lithography system for a flat panel display customer that was comprised
of inventory with reduced book value.

Operating expenses for the second quarter of 2018 totaled $25.1 million,
compared to $22.8 million in the 2017 second quarter. As a percentage of
revenue, operating expenses represented 32 percent of revenue in the
2018 second quarter compared to 34 percent in the same quarter last
year. The increase in operating expenses over the prior year was
primarily due to an increase in compensation related expenses, project
costs related to the Company's AMOLED initiative, and an increase in
third party sales commissions, offset by lower legal expenses.

GAAP net income for the second quarter of 2018 was $14.7 million, or
$0.45 per diluted share, compared with a net income of $9.2 million, or
$0.29 per diluted share, for the same period in 2017. The increase in
GAAP net income was primarily due to an increase in sales and gross
margin, and a lower effective tax rate due to the 2017 Tax Cut and Jobs
Act "Tax Reform" passed by the U.S. Congress. In the first quarter of
2018, GAAP net income was $15.1 million, or $0.47 per diluted share.

Second Quarter Non-GAAP Financial Results
Second quarter
2018 non-GAAP net income was $16.6 million, or $0.51 per diluted share
at the high end of the Company's guidance. Non-GAAP results excluded
certain items, as detailed in the attached table. Second quarter 2017
non-GAAP net income was $10.6 million, or $0.33 per diluted share. In
the first quarter of 2018, non-GAAP net income was $16.3 million, or
$0.51 per diluted share.

Balance Sheet
At June 30, 2018, cash and marketable
securities increased $3.1 million over the previous quarter to $183.5
million and cash provided by operating activities was $4.8 million for
the second quarter. Accounts receivable increased in the quarter to
$82.6 million and inventory increased to $84.2 million primarily due to
higher sales volumes and a slight increase in days sales outstanding in
the quarter. Working capital increased in the quarter and ended at
$313.4 million.

Outlook
The Company is currently anticipating revenue for
the third quarter ended September 30, 2018 to be $65 million plus or
minus 5 percent. The Company is also expecting diluted GAAP net income
per share to be in the range of $0.25 to $0.35 and non-GAAP net income
per diluted share to be in the range of $0.30 to $0.40.

Conference Call
Rudolph Technologies will discuss its 2018
second quarter results on a conference call it is hosting today at 4:30
PM EDT. To participate in the call, please dial (888) 204-4368
(Domestic) or (323) 794-2423 (International), reference Conference ID #
2088303 at least five (5) minutes prior to the scheduled start time. A
live webcast will also be available on the Company's website at www.rudolphtech.com

To listen to the live webcast, please go to the website at least fifteen
(15) minutes early to register, download and install any necessary audio
software.

There will be a replay of the conference call available from 8:00 p.m.
ET on August 2 until 11:59 p.m. ET on August 9, 2018. To access the
replay, please dial (888) 203-1112 (Domestic) or (719) 457-0820
(International) at any time during that period and use Conference ID
2088303.

A replay will also be available on the Company's website at www.rudolphtech.com.

Discussion of Non-GAAP Financial Measures
The Company has
provided in this release non-GAAP financial information including
non-GAAP gross profit, operating income, net income, and net income per
diluted share, as a supplement to the condensed consolidated financial
statements, which are prepared in accordance with generally accepted
accounting principles ("GAAP"). Management uses these non-GAAP financial
measures internally in analyzing the Company's financial results to
assess operational performance. The Company believes that both
management and investors benefit from referring to these non-GAAP
financial measures in assessing its performance and when planning,
forecasting and analyzing future periods. Further, the Company believes
these non-GAAP financial measures are useful to investors because they
allow for greater transparency with respect to key financial metrics
that the Company uses in making operating decisions and because the
Company believes that investors and analysts use them to help assess the
health of its business and for comparison to other companies. Non-GAAP
results are presented for supplemental informational purposes only for
understanding the Company's operating results. The non-GAAP information
should not be considered a substitute for financial information
presented in accordance with GAAP, and may be different from non-GAAP
measures used by other companies.

The financial statements provided with this release include a
reconciliation of the non-GAAP financial measures to those measures
reported in accordance with GAAP.

The Company's non-GAAP financial measures, used in this press release,
reflect adjustments based on the following items:

Share-based compensation expense. These expenses relate to
employee restricted stock units and employee stock options. The Company
excludes stock-based compensation expense from its non-GAAP measures
primarily because such expenses are non-cash expenses that the Company
does not believe are reflective of ongoing operating results.

Amortization of intangibles. The Company incurs expenses for the
amortization of intangible assets acquired in acquisitions. The Company
excludes these items because these expenses are not reflective of
ongoing operating results in the period incurred. These amounts arise
from the Company's prior acquisitions and have no direct correlation to
the operation of the Company's core business.

Patent litigation fees and income. The Company, from time to
time, may incur charges or benefits that are outside of the ordinary
course of the Company's business related to litigation. The Company
believes it is useful to exclude such charges or benefits because it
does not consider such amounts to be part of the ongoing operation of
the Company's business and because of the singular nature of the claims
underlying the matter.

Net tax provision (benefit) adjustments. This line item
represents the income tax effects of the non-GAAP items.

About Rudolph Technologies
Rudolph Technologies, Inc. is a
leader in the design, development, manufacture and support of defect
inspection, lithography, process control metrology, and process control
software used by semiconductor and advanced packaging device
manufacturers worldwide. Rudolph delivers comprehensive solutions
throughout the fab with its families of proprietary products that
provide critical yield-enhancing information, enabling microelectronic
device manufacturers to drive down costs and time to market of their
devices. Headquartered in Wilmington, Massachusetts, Rudolph supports
its customers with a worldwide sales and service organization.
Additional information can be found on the Company's website at www.rudolphtech.com.

Forward Looking Statements
This press release contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act") which include Rudolph's
business momentum and future growth; the benefit to customers of
Rudolph's products and customer service; Rudolph's ability to both
deliver products and services consistent with our customers' demands and
expectations and strengthen its market position; Rudolph's expectations
regarding the semiconductor market outlook; Rudolph's third quarter 2018
financial outlook; as well as other matters that are not purely
historical data. Rudolph wishes to take advantage of the "safe harbor"
provided for by the Act and cautions that actual results may differ
materially from those projected as a result of various factors,
including risks and uncertainties, many of which are beyond Rudolph's
control. Such factors include, but are not limited to, the Company's
ability to leverage its resources to improve its position in its core
markets; its ability to weather difficult economic environments; its
ability to open new market opportunities and target high-margin markets;
the strength/weakness of the back-end and/or front-end semiconductor
market segments; and fluctuations in customer capital spending.
Additional information and considerations regarding the risks faced by
Rudolph are available in Rudolph's Form 10-K report for the year ended
December 31, 2017 and other filings with the Securities and Exchange
Commission. As the forward-looking statements are based on Rudolph's
current expectations, the Company cannot guarantee any related future
results, levels of activity, performance or achievements. Rudolph does
not assume any obligation to update the forward-looking information
contained in this press release.

 
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) - (Unaudited)
       
June 30, December 31,
2018 2017
  (Audited)
ASSETS
Current assets
Cash and marketable securities $ 183,457 $ 177,359
Accounts receivable, net 82,555 65,283
Inventories 84,222 67,521
Prepaid and other assets   9,868   11,919
Total current assets 360,102 322,082
Net property, plant and equipment 16,880 17,342
Intangibles 30,565 31,127
Other assets   15,319   15,371
Total assets $ 422,866 $ 385,922
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 32,011 $ 26,800
Other current liabilities   14,699   15,507
Total current liabilities 46,710 42,307
Other non-current liabilities   10,166   10,461
Total liabilities 56,876 52,768
Stockholders' equity   365,990   333,154
Total liabilities and stockholders' equity $ 422,866 $ 385,922
 
 
RUDOLPH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) - (Unaudited)
     
Three Months Ended Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
2018 2018 2017 2018 2017
Revenue $ 77,476 $ 73,096 $ 67,418 $ 150,572 $ 128,097
Cost of revenue   35,740   30,675   31,962   66,415   60,773
Gross profit   41,736   42,421   35,456   84,157   67,324
Operating expenses:
Research and development 12,733 11,783 12,146 24,516 24,156
Selling, general and administrative 11,946 12,793 10,110 24,739 19,778
Amortization   383   380   505   763   1,010
Total operating expenses   25,062   24,956   22,761   50,018   44,944
Operating income 16,674 17,465 12,695 34,139 22,380
Interest income, net (476 ) (391 ) (223 ) (867 ) (414 )
Other expense (income)   (140 )   182   166   42   435
Income before income taxes 17,290 17,674 12,752 34,964 22,359
Provision for income taxes   2,593   2,544   3,559   5,137   6,015
Net income $ 14,697 $ 15,130 $ 9,193 $ 29,827 $ 16,344
Earnings per share:
Basic $ 0.46 $ 0.48 $ 0.29 $ 0.94 $ 0.52
Diluted $ 0.45 $ 0.47 $ 0.29 $ 0.92 $ 0.51
Weighted average shares outstanding:
Basic 31,859 31,662 31,501 31,760 31,397
Diluted 32,437 32,317 32,146 32,377 32,104
 
 
RUDOLPH TECHNOLOGIES, INC.
NON-GAAP FINANCIAL SUMMARY
(In thousands, except percentage and per share amounts) -
(Unaudited)
       
Three Months Ended Six Months Ended
June 30,     March 31,     June 30, June 30,     June 30,
2018 2018 2017 2018   2017
Revenue $ 77,476 $ 73,096 $ 67,418 $ 150,572 $ 128,097
Gross profit $ 41,851 $ 42,482 $ 35,553 $ 84,333 $ 67,481
Gross margin as percentage of revenue 54.0 % 58.1 % 52.7 % 56.0 % 52.7 %
Operating expenses $ 22,713 $ 23,130 $ 19,882 $ 45,843 $ 39,590
Operating income $ 19,138 $ 19,352 $ 15,671 $ 38,490 $ 27,891

Operating margin as a percentage of revenue

24.7 % 26.5 % 23.2 % 25.6 % 21.8 %
Net income $ 16,552 $ 16,346 $ 10,605 $ 32,898 $ 18,836
Net income per diluted share $ 0.51 $ 0.51 $ 0.33 $ 1.02 $ 0.59
 
 
RECONCILIATION OF U.S. GAAP GROSS PROFIT,
OPERATING EXPENSES AND OPERATING INCOME TO NON-GAAP
GROSS PROFIT, OPERATING EXPENSES AND OPERATING INCOME
(In thousands, except percentages) - (Unaudited)
       
Three Months Ended Six Months Ended
June 30,     March 31,     June 30, June 30,     June 30,
2018 2018 2017 2018 2017
U.S. GAAP gross profit $ 41,736 $ 42,421 $ 35,456 $ 84,157 $ 67,324
Pre-tax non-GAAP items:
Share-based compensation expense   115   61   97   176   157
Non-GAAP gross profit $ 41,851 $ 42,482 $ 35,553 $ 84,333 $ 67,481

U.S. GAAP gross margin as a percentage of revenue

53.9 % 58.0 % 52.6 % 55.9 % 52.6 %

Non-GAAP gross margin as a percentage of revenue

54.0 % 58.1 % 52.7 % 56.0 % 52.7 %
U.S. GAAP operating expenses $ 25,062 $ 24,956 $ 22,761 $ 50,018 $ 44,944
Pre-tax non-GAAP items:
Amortization of intangibles 383 380 505 763 1,010
Litigation fees 671 1,553
Share-based compensation expense   1,966   1,446   1,703   3,412   2,791
Non-GAAP operating expenses   22,713   23,130   19,882   45,843   39,590
Non-GAAP operating income $ 19,138 $ 19,352 $ 15,671 $ 38,490 $ 27,891

GAAP operating margin as a percentage of revenue

21.5 % 23.9 % 18.8 % 22.7 % 17.5 %

Non-GAAP operating margin as a percentage of revenue

24.7 % 26.5 % 23.2 % 25.6 % 21.8 %
 
       

RUDOLPH TECHNOLOGIES, INC.
RECONCILIATION OF U.S.
GAAP NET INCOME (LOSS) TO

NON-GAAP NET INCOME
(In
thousands, except share and per share data) - (Unaudited)

 
Three Months Ended Six Months Ended

June 30,
2018

   

March 31,
2018

   

June 30,
2017

June 30,
2018

   

June 30,
2017

U.S. GAAP net income $ 14,697 $ 15,130 $ 9,193 $ 29,827 $ 16,344
Pre-tax non-GAAP items
Amortization of intangibles 383 380 505 763 1,010
Litigation fees 671 1,553
Share-based compensation expense 2,081 1,507 1,800 3,588 2,948
Net tax benefit adjustments   (609 )   (671 )   (1,564 )   (1,280 )   (3,019 )
Non-GAAP net income $ 16,552 $ 16,346 $ 10,605 $ 32,898 $ 18,836
Non-GAAP net income per diluted share $ 0.51 $ 0.51 $ 0.33 $ 1.02 $ 0.59
 
       

SUPPLEMENTAL INFORMATION - RECONCILIATION OF THIRD QUARTER 2018
GAAP
TO NON-GAAP GUIDANCE (net of tax)

 
Low High
Estimated GAAP net income per diluted share $ 0.25 $ 0.35
Estimated non-GAAP items:
Share-based compensation expense 0.04 0.04
Amortization of intangibles   0.01   0.01
Estimated non-GAAP net income per diluted share $ 0.30 $ 0.40
 

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