financials looking good
Photon Control earns $3.9-million in Q2 2018
2018-08-02 06:43 ET - News Release
Mr. Scott Edmonds reports
PHOTON CONTROL REPORTS SECOND QUARTER AND HALF-YEAR 2018 FINANCIAL RESULTS
Photon Control Inc. has released its financial results for the three and six months ended June 30, 2018.
Highlights:
- Record revenue of $14.6 million for the quarter and $28.4 million for the half-year, representing increases of 64% and 37% respectively over the prior year periods;
- Earnings before interest, taxes, depreciation, amortization and foreign exchange ("EBITDA") of $5.1 million or 35% of revenue for the quarter and $9.8 million or 35% of revenue for the half-year;
- Record net income of $3.9 million and basic earnings per share of $0.03 for the quarter and $6.7 million and $0.06 per share for the half-year;
- Order backlog of $19.5 million at June 30, 2018;
- Cash on hand of $40.8 million at June 30, 2018.
"Our results reflect the fundamental strength of our products and the robust spending environment for wafer fabrication equipment during the first half of 2018," said Scott Edmonds, Chief Executive Officer. "Revenue from new products continued to grow, as did our new product funnel. As expected, our revenue this year will be front-half weighted given the expected moderation of semiconductor capital expenditures during the third quarter. Our expected decline in revenue during the third quarter is consistent with the forecasts of our customers. With the strong results delivered year-to-date, we look forward to reporting another record year in 2018, with revenue growth outpacing that of the overall wafer fabrication equipment industry."
Second Quarter and Year-To-Date 2018 Financial Results
Total revenue for the second quarter of 2018 increased 64% from $8.9 million to a record $14.6 million, and for the first half of 2018, revenue increased 37% from $20.8 million to $28.4 million. The very large increase year-over-year reflects a second quarter 2017 slowdown while the Company relocated its manufacturing facility, as well as the Company capturing an increased share of customers' spend of fiber optic sensors combined with strong overall market conditions in 2018.
Gross profit in 2018 reflects the benefits of the stronger revenue. Second quarter 2018 gross profit increased 78% to $8.3 million versus the prior year quarter, and first half of 2018 gross profit increased 37% to $16.2 million versus the prior year period. Gross margin increased to 57% for the quarter and year-to-date compared to 53% and 57% in the same year-ago periods. The increase was primarily due to sales mix and greater economies of scale realized from the Company's manufacturing facility.
Operating expenses for the three and six months ended June 30, 2018 were $3.8 million and $6.9 million compared to $4.3 million and $9.0 million in 2017. When normalized for non-recurring charges of $1.8 million and $4.2 million in the 2017 comparable quarter and year-to-date periods, operating expenses increased by $1.3 million and $2.2 million for the quarter and year-to-date due to an increased labour workforce and development costs to support current and future revenue growth.
Total comprehensive income for the quarter was $3.8 million or $0.03 per share compared to a loss of $0.3 million or $Nil per share for the comparable period of 2017 while for the first half of 2018, total comprehensive income was $6.7 million or $0.06 per share versus $1.4 million or $0.01 per share for the first half of 2017.
EBITDA for the quarter and first half of 2018 was $5.1 million or 35% of revenue and $9.8 million or 35% of revenue compared to $2.5 million or 28% of revenue and $7.4 million or 36% of revenue in the same year-ago periods. The Company defines EBITDA as earnings before finance income, accretion expense, income tax, depreciation, amortization and foreign exchange. For the comparative period, EBITDA was adjusted to remove the effect of non-recurring items.
As at June 30, 2018, cash on hand was $40.8 million, an increase of $6.5 million from $34.3 million at December 31, 2017. The increase was attributable to the Company's strong operating results.
Order backlog (defined as the value of sales orders scheduled to be shipped in the next 6 months) was $19.5 million at June 30, 2018, a decrease from $24.7 million at March 31, 2018 and an increase from $18.3 million at December 31, 2017. The decrease in order backlog since March 31, 2018 reflects the record shipments in the quarter. Although not reflected in the order backlog, the Company also has a strong pipeline of new products under development which contribute to revenue during the prototype and pre-production stages.
China Distribution Agreement
On July 30, 2018, Photon Control announced it entered into an exclusive distribution agreement with Crowntech Photonics ("Crowntech") for the Company's fiber optic-based temperature and position sensors in China. Wafer fabrication equipment spending in China was approximately $4 billion in 2014 and is expected to grow to $11 billion by the end of 2018. The Company's existing sales to China comprised 15% of overall revenue for the first half of 2018 and this new distribution agreement positions the Company to increase its presence in the region as China embarks on its "Made in China 2025" strategy.
Tax Review
Earlier this year, the Company announced it had commenced a review of its existing tax structure with its third-party tax advisors to identify and take advantage of opportunities to achieve the most efficient and effective tax outcomes. In addition to identifying these opportunities, this process involved a review of historical filings and jurisdictional compliance. The review has identified a potential tax liability related to a foreign jurisdiction which could be in the range of $1.4 million to $2.0 million plus penalties, if any. The actual liability amount may be influenced by available tax elections, application of historical losses and offsetting credits and deductions from both the taxing and other jurisdictions; and thus, cannot be more accurately estimated at this time. The Company and its advisors are working diligently to conclude this matter and we will update shareholders as it progresses.
Business Outlook
"We expect Q3 2018 revenue to be in the range of $10 million to $12 million," continued Mr. Edmonds. "Our expectation of a sequential decrease in quarterly revenue in the third quarter is the result of a slow-down in capital spending by our wafer fabrication equipment customers after a very strong first half of this year. Despite this slow-down, we continue to expect to generate year-over-year revenue growth exceeding overall industry growth. This is a result of our focus on etch, the fastest growing subsegment of the market, where adoption of fiber optic sensors is greatest as well as our efforts to add new products to our portfolio. We expect to maintain our EBITDA and net income margins for the year at levels similar to or above those reported in the prior year."