Vancouver, BC, March 18, 2020 – Photon Control Inc. (“Photon Control” or the “Company”) (TSX: PHO), a leading developer and supplier of optical measurement technologies to the global semiconductor industry, has reported its financial results for the three months and year ended December 31, 2019.
Fourth Quarter Highlights:
- Revenue of $8.9 million;
- Earnings before finance income, accretion expense, income taxes, depreciation, amortization and foreign exchange gain or loss (“EBITDA”)[1] of $2.1 million or 24% of revenue;
- Net income of $0.7 million;
- Order backlog of $20.8 million at December 31, 2019; and,
- Cash and cash equivalents of $33.4 million at December 31, 2019.
“We are pleased to report positive momentum in our business as 2019 concluded, with second-half revenues increasing 16% versus the first-half of the year, and our order backlog increasing 75% during the fourth quarter,” said Nigel Hunton, Chief Executive Officer. “In 2019, we successfully managed the business through the downturn in the semiconductor equipment market by leveraging our operating model to generate 22% EBITDA1 and consistently profitable results, while increasing customer collaboration and investing in technology innovation, which sets the foundation for long-term profitable growth for the Company and value for our shareholders.”
Fourth Quarter and Full Year 2019 Financial Results
Total revenues for the fourth quarter of $8.9 million were relatively flat versus the third quarter of 2019. The Company experienced an increase in revenues from multiple customers following a multi-quarter period of market weakness; however, this increase was largely offset by the expected sequential quarterly decline from our new distributor in Asia, which had made significant purchases for inventory during Q3 2019. Compared to 2018, total revenue for the fourth quarter of 2019 increased 7% to $8.9 million compared to $8.2 million for the fourth quarter of 2018, and for the year, revenue decreased 30% from $46.7 million in 2018 to $32.7 million in 2019.
Gross profit for the fourth quarter of 2019 decreased sequentially to $4.7 million from $4.8 million for the prior quarter, and gross margin decreased to 52.6%. The variability in gross margin is a function of numerous factors, including sales volume and product and customer mix. Gross margin of 52.6% for the quarter increased from 52.1% in the fourth quarter of 2018, and for the fiscal year, gross margin decreased to 53.7% versus 54.9% in the comparable period of 2018.
Operating expenses for the three months ended December 31, 2019 decreased by 15% to $2.6 million compared to $3.1 million for the three months ended September 30, 2019, with the decrease primarily attributable to lower staffing costs due to headcount vacancies and additional investment tax credits for research and development activities. Operating expenses of $2.6 million for the quarter decreased from $3.1 million in the fourth quarter of 2018. For the fiscal year ended December 31, 2019, operating expenses were $12.8 million compared to $13.1 million in 2018, with the decrease being attributable to a reorganization of the sales and marketing function and cost reduction measures realized on the general and administrative function in response to the cyclical nature of the semiconductor industry, offset by the costs to support new product development and investments in disruptive technologies.
Net income for the quarter was $0.7 million or $0.01 per share compared to $1.5 million or $0.01 per share for the third quarter of 2019, and $2.7 million or $0.03 per share for the comparable period of 2018. Fiscal year 2019 net income was $2.4 million or $0.02 per share versus $10.7 million or $0.10 per share for fiscal year 2018.
EBITDA1 for the three months ended December 31, 2019 was $2.1 million or 23.9% of revenues compared to $2.4 million or 27.9% of revenues in the prior sequential quarter, and $2.5 million or 30.7% of revenues for the same year-ago period. The decrease for the quarter was due to the change in fair value of contingent consideration, where management increased its estimate of future royalties payable following early signs of a recovering wafer fabrication equipment environment.
As of December 31, 2019, cash and cash equivalents were $33.4 million, a decrease of $0.6 million from $34.0 million at September 30, 2019. The decrease was primarily attributable to the growth in the Company’s inventory position to support its order backlog (defined as the value of sales orders scheduled to be shipped in the next 6 months).
Order backlog was $20.8 million at December 31, 2019 compared to $11.9 million at September 30, 2019. The order backlog reflects the beginning of an upturn in wafer fabrication equipment spending and improved near-term demand from semiconductor wafer fabrication equipment manufacturers.
During the year ended December 31, 2019, the Company re-purchased and cancelled 5.5 million common shares for a total cost of $7.1 million, in accordance with the share buyback program.
Business Outlook
“We are encouraged by the significant increase in our order backlog and believe it positions us well for 2020,” said Nigel Hunton, Chief Executive Officer. “We are experiencing an improved wafer fabrication equipment environment, reflecting continued strength in the foundry and logic markets and the beginning of a recovery in the memory market. As of today, we have recorded $14 million in revenues for Q1 2020, and we currently expect $1 million of additional shipments by quarter-end, provided no substantial disruptions to the global semiconductor supply chain. At this revenue level, we would expect Q1 2020 EBITDA1 margin to be at least 30% of revenue. While it’s currently unknown as to how the COVID-19 virus will impact our business, we are closely monitoring the situation and remain committed to our growth strategy. Longer-term, the Company will maintain its investments in research and development and expand its sales and marketing footprint to new markets, positioning us for long-term growth in revenue, profitability and shareholder value.”
1 See “Non-GAAP Performance Measures”
Conference Call
Photon Control will hold a conference call tomorrow (Thursday, March 19, 2020) at 11:00 a.m. Eastern time (8:00 a.m. Pacific time) to discuss these results. The call will be hosted by Nigel Hunton, Chief Executive Officer, and Daniel Lee, Chief Financial Officer, followed by a question and answer period.
Please call the applicable conference telephone number approximately 10 minutes prior to the commencement of the call. The conference call will be broadcasted simultaneously and be available for replay. Further information can be found at https://www.photoncontrol.com/investors/
Financial Statements and Management’s Discussion and Analysis
This news release should be read in conjunction with the Company’s consolidated financial statements and related notes for the year ended December 31, 2019, and management’s discussion and analysis for the three months and year ended December 31, 2019, copies of which can be found at www.sedar.com.
About Photon Control Inc.
Photon Control Inc. designs, manufactures and distributes a wide range of optical sensors and systems to measure temperature and position. These products are used by the world’s largest wafer fabrication equipment manufacturers and end users in the semiconductor and solid-state industries. Photon Control Inc.’s high quality products provide industry-leading accuracy, speed and quality in the most extreme conditions and are backed by a team of experts providing a variety of on-site and remote services including custom design, installation, training and support. The Company is headquartered in an ISO 9001:2015 manufacturing facility in Vancouver, BC, has a sales and engineering office in San Jose, California, and a sales distribution network in Asia. Photon Control Inc. is listed on TSX, trading under the symbol ‘’PHO.” Additional information about the company can be found at https://www.photoncontrol.com/investors/
Investor Relations Contact:
Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of applicable Canadian securities legislation. These statements generally can be identified by use of forward-looking words such as “may”, “will”, “could”, “would”, “should”, “might”, “expect”, “estimate”, “anticipate”, “intend”, “consider”, “believe”, “plan”, “project”, “assume”, “strategy”, “goals”, “objectives”, “potential”, “possible”, “confident” or “continue” or the negative thereof or similar variations. Such forward-looking statements concern the business and anticipated financial performance of the Company and include, without limitation, the Company’s outlook on the long-term prospects of the market and the Company, the Company’s expectations with respect to its overall order activity, projections of the Company’s revenue, EBITDA1, growth in the etch and deposition market, timing of the semiconductor industry cycle, cost structure, and the Company’s ability to build on its financial and operational foundation in the future.
These forward-looking statements are based on certain factors and assumptions, including, without limitation: the Company’s ability to develop, manufacture and sell new products that meet the needs of its customers and gain commercial acceptance; the Company’s ability to continue to sell its products in line with expected quantity, price and delivery times; the Company’s ability to attract new business; continued and future demand for the Company’s products; continued sales to the Company’s major customers; the Company’s operations not being adversely affected by supply, operating, cyber security, litigation or regulatory risks; the Company’s ability to react to the cyclical nature of the semiconductor industry; the Company’s ability to enhance revenue diversification and open new market opportunities; and, the Company’s expectations regarding market risk, including interest rate changes, tax changes and foreign currency fluctuations.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation: uncertainties relating to the market for the Company’s products and maintaining a stable level of orders; fluctuations in revenue as a result of volatility in the markets and product mix; risks relating to the Company’s present reliance on its major customers for the majority of its sales; risks relating to the Company’s reliance on the financial health of and timing of cycles in the semiconductor industry; risks relating to the development of competing technologies and the possibility of increased competition; the effect of slow growth in the United States, the Company’s principal market, as well as other economies and other economic trends and conditions in the markets that the Company and its customers serve; risks associated with the spread of the COVID-19 virus; risks associated with the adverse impact of climate change; risks associated with technical difficulties or delays in product introductions, improvements, implementation; uncertainties in product pricing or other initiatives of the Company and its competitors; uncertainties in factors that may result in a reduction in capital expenditures and/or delayed buying decisions affecting demand for the Company’s products; risks relating to currency fluctuations, particularly between the Canadian and United States dollars; risks in pursuing additional development projects to support existing customers or pursue other business opportunities; and such other risks as are identified in the Company’s Annual Information Form and other disclosure documents filed on SEDAR at www.sedar.com.
The foregoing assumptions, risks and uncertainties are not exhaustive of the items that may affect our forward-looking statements. Should underlying assumptions prove to be incorrect or one or more of these risks and uncertainties materialize, actual results may vary materially from those described in the forward-looking statements. The Company’s forward-looking statements are based on beliefs, expectations and opinions of management on the date the statements are made.
For the reasons set forth above, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements included herein if these beliefs, estimates and opinions or other circumstances should change, except as otherwise required by applicable law.
Non-GAAP Performance Measures
Items marked with 1 are non-GAAP performance measures and readers should refer to pages 1 and 7 of the Company’s Management’s Discussion and Analysis for the three months and year ended December 31, 2019.
[1] See “Non-GAAP Performance Measures”