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GT Advanced Technologies Inc. Announces Results for Second Quarter Fiscal Year 2014

MERRIMACK, N.H., Aug. 4, 2014 (GLOBE NEWSWIRE) -- GT Advanced Technologies Inc. (Nasdaq:GTAT) today reported results for the second quarter of fiscal year 2014, which ended June 28, 2014.

Three-Months Ended Year-to-Date
Jun 28th, Mar 29th, Jun 29th, Jun 28th, Jun 29th,
2014 2014 2013 2014 2013
Revenue (Millions) $58.0 $22.5 $168.3 $80.5 $226.1
GAAP GM % (62.3%) (2.4%) 34.8% (45.5%) 31.9%
Non-GAAP GM% 25.2% 8.5% 35.0% 20.5% 32.3%
Earnings/(loss) per share ($0.63) ($0.31) $0.10 ($0.94) ($0.06)
Non-GAAP Earning/(loss) per share ($0.16) ($0.32) $0.19 ($0.48) $0.04

During the second quarter revenue was $58.0 million including $44.1 million in sapphire equipment and materials, $11.0 million in photovoltaic (PV), and $2.9 million in polysilicon. Revenue for the first six months of 2014 was $80.5 million including $49.7 million in sapphire equipment and materials, $24.2 million in photovoltaic (PV) and $6.6 million in polysilicon.

Non-GAAP gross profit for the second quarter was $14.6 million, or 25.2 percent of revenue. Non-GAAP gross profit for the first six months of 2014 was $16.5 million, or 20.5 percent of revenue.

During the second quarter, PV and polysilicon non-GAAP gross margins were 45 percent and 12 percent, respectively. Sapphire gross margins were 20 percent, reflecting the contribution of higher margin equipment sales partially offset by negative margins associated with the company's materials operation in Arizona.

During the quarter, the company incurred non-GAAP operating expenses of $33.6 million and for the six months ended June 28, 2014, non-GAAP operating expenses were $76.3 million.

Non-GAAP loss per share was $0.16 in the second quarter. Non-GAAP loss per share for the first six months of 2014 was $0.48.

Management Commentary

"Results during the second quarter were in line with our guidance," said Tom Gutierrez, president and chief executive officer. "We have continued to see strong interest in our suite of sapphire production tools, including our ASF™ equipment. In fact, the sapphire segment of our business accounted for over 75% of the revenue in the quarter, with the majority of it related to the sale of sapphire production equipment.

"The build-out of our Arizona facility, which has involved taking a 1.4 million square foot facility from a shell to a functional structure as well as the installation of sapphire growth and fabrication equipment, is nearly complete and we are commencing the transition to volume production," Gutierrez continued. "We remain confident about the long-term potential of the sapphire materials business for GT.

"The response from partners and potential customers for Merlin™ and Hyperion™, two of our high growth opportunities, has been very strong. We remain confident in our ability to achieve our 2016 non-GAAP earnings per share target of at or above $1.50. This is driven by the expected contributions of Merlin, Hyperion and our other new technology platforms, along with the growth of our sapphire, polysilicon and PV businesses," Gutierrez concluded.

Cash, Backlog and Orders

The company ended the second quarter with $333 million of cash, cash equivalents and restricted cash, compared to $509 million at the end of the first quarter of fiscal year 2014. The second quarter ending cash balance reflects the receipt of $103 million of prepayments for the Arizona sapphire materials project.

The fourth prepayment from Apple is contingent upon the achievement of certain operational targets by GT. GT expects to achieve these targets and receive the final $139 million prepayment by the end of October 2014.

Equipment orders booked during the quarter were $75 million, including $72 million in sapphire equipment. The company ended the quarter with $628 million of equipment backlog, consisting of $333 million of sapphire equipment, $292 million of polysilicon and $3 million of PV.

Business Outlook

The company is updating its guidance for fiscal year 2014, which ends December 31, 2014, as follows:

  • Revenue of $600 to $700 million, the lower end of the previously provided guidance range.
  • Fully diluted non-GAAP earnings per share of $0.12 to $0.18, the higher end of the previously provided guidance range reflecting an expected change in mix and more favorable gross margins in the second half of the year.

The company also reiterated its 2016 non-GAAP EPS target at or above $1.50.

Conference Call, Webcast

On Tuesday, August 5, 2014, at 8:00am ET, the company will host a live conference call with Tom Gutierrez, president and chief executive officer, and Raja Bal, chief financial officer, to discuss its second quarter fiscal year 2014 results, general business update and outlook.

The call will be webcast live and can be accessed by logging on to the "Investors" section of GT Advanced Technologies' website, http://investor.gtat.com/. A slide presentation will accompany the call. The live call can also be accessed by dialing (631) 291-4543. No password is required to access the webcast or call.

A replay of the call will be available for 90-days. To access the webcast replay please go to http://investor.gtat.com/ and select the webcast replay link on the 'Events and Presentations' page. Or, please dial (404) 537-3406. The telephone replay will be available through August 14, 2014 and requires the passcode 76391716.

Investor Financial Summary Document

A comprehensive summary of the company's financial performance can be found on the Investor Relations section of its website on the "Q2 FY14 Earnings Call" webcast page. To access: http://investor.gtat.com.

About GT Advanced Technologies Inc.

GT Advanced Technologies Inc. is a leading diversified technology company producing advanced materials and innovative crystal growth equipment for the global consumer electronics, power electronics, solar and LED industries. Its technical innovations accelerate the use of advanced materials, enabling a new generation of products across this diversified set of global markets. For additional information about GT Advanced Technologies, please visit www.gtat.com.

GT Advanced Technologies Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
June 28, December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 333,147 $ 498,213
Restricted cash 87 1,330
Accounts receivable, net 14,021 12,377
Inventories 132,647 39,087
Deferred costs 11,480 2,977
Vendor advances 14,471 1,341
Deferred income taxes 24,392 17,881
Refundable income taxes 2,758 2,759
Prepaid expenses and other current assets 16,179 7,003
Total current assets 549,182 582,968
Restricted cash -- 93,419
Property, plant and equipment, net 611,465 209,760
Intangible assets, net 93,896 95,943
Goodwill 56,888 54,279
Other assets 196,580 150,912
Total assets $ 1,508,011 $ 1,187,281
Liabilities and stockholders' equity
Current liabilities:
Current portion of prepayment obligation $ 43,900 $ --
Accounts payable 184,613 77,303
Accrued expenses 63,657 39,115
Contingent consideration 6,265 234
Customer deposits 48,165 38,995
Deferred revenue 46,257 19,724
Accrued income taxes 678 301
Total current liabilities 393,535 175,672
Prepayment obligation 306,700 172,475
Convertible notes 294,209 283,914
Deferred income taxes 16,039 23,448
Customer deposits 55,598 55,598
Deferred revenue 173,081 99,672
Contingent consideration 14,521 15,173
Other non-current liabilities 17,711 808
Accrued income taxes 20,787 28,116
Total liabilities 1,292,181 854,876
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000 shares authorized, none issued and outstanding -- --
Common stock, $0.01 par value; 500,000 shares authorized, 137,346 and 134,463 shares issued and outstanding as of June 28, 2014 and December 31, 2013, respectively 1,373 1,345
Additional paid-in capital 367,560 355,916
Accumulated other comprehensive income (loss) 789 1,259
Retained earnings (153,892) (26,115)
Total stockholders' equity 215,830 332,405
Total liabilities and stockholders' equity $ 1,508,011 $ 1,187,281
GT Advanced Technologies Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 28, March 29, June 29, June 28, June 29,
2014 2014 2013 2014 2013
Revenue $58,000 $22,510 $168,330 $80,510 $226,106
Cost of revenue (excluding sapphire production ramp up costs) 48,657 21,152 109,714 69,809 153,875
Sapphire production ramp up costs 45,456 1,899 -- 47,355 --
Total cost of revenue 94,113 23,051 109,714 117,164 153,875
Gross profit (36,113) (541) 58,616 (36,654) 72,231
Operating expenses:
Research and development 22,721 24,572 18,523 47,293 34,964
Selling and marketing 2,522 4,684 4,088 7,206 7,374
General and administrative 17,274 19,490 16,517 36,764 31,080
Contingent consideration expense (income) (538) 2,375 (4,310) 1,837 (3,974)
Impairment of goodwill -- -- -- -- --
Restructuring charges 3,256 -- -- 3,256 2,858
Amortization of intangible assets 3,057 2,976 2,667 6,033 5,122
Total operating expenses 48,292 54,097 37,485 102,389 77,424
(Loss) income from operations (84,405) (54,638) 21,131 (139,043) (5,193)
Other income (expense):
Interest income 91 96 70 187 164
Interest expense (10,588) (12,549) (6,526) (23,137) (14,006)
Other, net 320 508 (179) 828 11
(Loss) income before income taxes (94,582) (66,583) 14,496 (161,165) (19,024)
(Benefit) provision for income taxes (8,201) (25,186) 2,549 (33,387) (12,290)
Net (loss) income ($86,381) ($41,397) $11,947 ($127,778) ($6,734)
Net (loss) income per share:
Basic ($0.63) ($0.31) $0.10 ($0.94) ($0.06)
Diluted ($0.63) ($0.31) $0.10 ($0.94) ($0.06)
Weighted-average number of shares used in per share calculations:
Basic 136,677 135,432 120,481 136,066 119,920
Diluted 136,677 135,432 122,749 136,066 119,920

Reconciliation of Non-GAAP Financial Measures

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, for any non-GAAP financial metrics referenced in this press release, we are also presenting the most directly comparable GAAP financial measures and reconciling the non-GAAP financial metrics to such comparable GAAP measures.

GT Advanced Technologies Inc.
Reconciliation of GAAP to non-GAAP results
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 28, March 29, June 29, June 28, June 29,
2014 2014 2013 2014 2013
Non-GAAP Gross Profit and Gross Margin
Revenue $58,000 $22,510 $168,330 $80,510 $226,106
Cost of revenue (excluding sapphire production ramp up costs) 48,657 21,152 109,714 69,809 153,875
Sapphire production ramp up costs 45,456 1,899 -- 47,355 --
Total cost of revenue 94,113 23,051 109,714 117,164 153,875
Gross profit (36,113) (541) 58,616 (36,654) 72,231
Non-GAAP adjustments:
Share-based compensation expense 508 545 212 1,053 373
Write-down of inventory, vendor advances and PO cancellation fees 2,847 -- 45 2,847 537
Accelerated depreciation for early retirement of fixed assets 1,909 -- -- 1,909 --
Sapphire production ramp up costs 45,456 1,899 -- 47,355 --
Non-GAAP gross profit $14,607 $1,903 $58,873 $16,510 $73,141
Non-GAAP gross margin 25.2% 8.5% 35.0% 20.5% 32.3%
GT Advanced Technologies Inc.
Reconciliation of GAAP to non-GAAP results
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 28, March 29, June 29, June 28, June 29,
2014 2014 2013 2014 2013
Non-GAAP Operating Income (Loss)
Operating income (loss) ($84,405) ($54,638) $21,131 ($139,043) ($5,193)
Non-GAAP adjustments:
Amortization of acquired intangible assets 3,057 2,976 2,667 6,033 5,122
Share-based compensation expense 8,652 5,711 4,905 14,363 9,328
Third party acquisition related expenses 456 795 924 1,251 1,088
Write-down of inventory, vendor advances and PO cancellation fees 2,847 -- 45 2,847 537
Accelerated depreciation for early retirement of fixed assets 2,229 94 1,536 2,323 2,536
Restructuring charges 3,256 -- -- 3,256 2,858
Contingent consideration expense (income) (538) 2,375 (4,310) 1,837 (3,974)
Sapphire production ramp up costs 45,456 1,899 -- 47,355 --
Non-GAAP operating income (loss) ($18,990) ($40,788) $26,898 ($59,778) $12,302
GT Advanced Technologies Inc.
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 28, March 29, June 29, June 28, June 29,
2014 2014 2013 2014 2013
Non-GAAP Net Income & Earnings per Share
Net (loss) income ($86,381) ($41,397) $11,947 ($127,778) ($6,734)
Non-GAAP adjustments:
Amortization of acquired intangible assets 3,057 2,976 2,667 6,033 5,122
Share-based compensation expense 8,652 5,711 4,905 14,363 9,328
Third party acquisition related expenses 456 795 924 1,251 1,088
Write-down of inventory, vendor advances and PO cancellation fees 2,847 -- 45 2,847 537
Accelerated depreciation for early retirement of fixed assets 2,229 94 1,536 2,323 2,536
Restructuring charges 3,256 -- -- 3,256 2,858
Contingent consideration expense (income) (538) 2,375 (4,310) 1,837 (3,974)
Sapphire production ramp up costs 45,456 1,899 -- 47,355 --
Non-cash portion of interest expense 7,189 9,850 3,300 17,039 7,512
Income tax effect of non-GAAP adjustments (1) (8,544) (25,529) 2,089 (34,073) (13,210)
Non-GAAP net (loss) income ($22,321) ($43,226) $23,103 ($65,547) $5,063
Non-GAAP earnings per diluted share ("Non-GAAP EPS") ($0.16) ($0.32) $0.19 ($0.48) $0.04
Diluted weighted average shares outstanding 136,677 135,432 122,749 136,066 119,920
(1) For the three months ended June 28, 2014 and for all prior periods presented, the Company has modified its non-GAAP tax expense to reflect tax expense on a cash basis. Please refer to the Company's discussion regarding the use of non-GAAP financial measures for future details.

Use of Non-GAAP Financial Measures

GT Advanced Technologies Inc.

Discussion Regarding the use of Non-GAAP Financial Measures

Our earnings release contains the following financial measures that have not been calculated in accordance with United States Generally Accepted Accounting Principles ("GAAP"): (i) non-GAAP gross profit and non-GAAP gross margin, (ii) non-GAAP operating income/loss, (iii) non-GAAP net income/loss, and (iv) non-GAAP diluted earnings/loss per share. As set forth in the "Reconciliation of Non-GAAP Financial Measures (unaudited)" tables found above, we derive such non-GAAP financial measures by excluding certain expenses and other items from the respective GAAP financial measure that is most directly comparable to each non-GAAP financial measure. Management uses these non-GAAP financial measures to evaluate our operating performance and to compare such performance against past periods, make operating decisions, forecast for future periods, compare our operating performance against peer companies and competitors and determine payments under certain compensation programs. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-recurring, infrequent or unusual expenses (which may not occur in each period presented) that are not reflective of our ongoing operating results, and non-cash and other items that management believes are also not reflective of our ongoing operating results, in each case that might otherwise make comparisons of our ongoing business performance with prior periods and competitors more difficult, obscure trends in ongoing business performance or reduce management's ability to make useful forecasts.

We provide investors with these non-GAAP financial metrics because it allows our investors to understand and evaluate GT Advanced Technologies' operating results and future prospects in the same manner as management and to compare financial results across accounting periods and to those of competitors and peer companies. In addition, we believe that disclosing these non-GAAP financial measures contributes to enhanced financial reporting transparency and provides investors with added clarity about complex financial performance measures.

We calculate non-GAAP gross profit/loss by excluding from GAAP gross profit, share-based compensation expense, acquisition-related and restructuring-related expenses. We calculate non-GAAP operating income by excluding from GAAP operating income, share-based compensation expense, acquisition-related expenses, restructuring-related charges, production startup costs and impairment of goodwill. We calculate non-GAAP net (loss) income and diluted earnings per share by excluding from GAAP net (loss) income and diluted earnings per share, share-based compensation expense, acquisition-related expenses, restructuring-related charges, , production startup costs, impairment of goodwill, non-cash interest expenses and certain tax items which may not occur in all periods for which financial information is presented. For purposes of calculating non-GAAP diluted earnings per share, we calculate weighted average fully diluted share outstanding by adding the diluted impact of stock compensation using the treasury share method and evaluate the dilutive impact of our 2017 convertible notes taking into consideration the bond hedge transactions that we entered into at the time such convertible notes were issued. We exclude the items identified above from the respective non-GAAP financial measure referenced above for the reasons set forth with respect to each such excluded item below:

Share-Based Compensation - because (1) the total amount of expense is partially outside of our control because it is based on factors such as stock price volatility, market conditions at the time of grant and interest rates, which may be unrelated to our performance during the period in which the expense is incurred, (2) it is an expense based upon a valuation methodology premised on assumptions that vary over time, (3) the amount of the expense can vary significantly between companies due to factors that can be outside of the control of such companies and (4) allows investors to understand our operating performance.

Acquisition-Related Expenses – because items (such as, amortization of acquired intangible assets, fair value adjustments to contingent consideration, fair value charges incurred upon the sale of acquired inventory, acquisition-related professional fees and deemed compensation expenses) (i) are not considered by management in making operating decisions, (ii) are impacted by the timing and size of acquisitions (which may vary significantly over time) and (iii) we believe that such expenses do not have a direct correlation to our future business operations, and therefore including such charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred and such exclusion allows for a more useful comparison of our operating results to prior periods and to our competitors.

Sapphire production ramp up costs -Related Expenses – because these expenses, which primarily relate to costs in connection with production inefficiencies and inventory losses as a result of the qualification of sapphire growth and fabrication equipment and the establishment of related production processes. To the extent these expenses cannot be capitalized under GAAP, have no direct correlation to our future business operations and including such charges does not reflect the performance of our ongoing operations for the period in which such charges are incurred.

Restructuring / Impairment-Related Charges/Write-downs - because, to the extent such charges impact a period presented, we believe that they are not consistently recurring and do not reflect expected future operating expense, nor provide meaningful insight into the fundamentals of current or past operations and have no direct correlation to our future business operations and including such charges does not necessarily reflect the performance of our ongoing operations for the period in which such charges are incurred. Such charges include restructuring, impairment of goodwill and/or long-lived assets, accelerated depreciation for early retirement of fixed assets, write-down of inventory, vendor advances and PO cancellation fees.

Non-Cash Interest Expense – because this expense, comprised of the imputed interest recognized on interest-free customer prepayments and on amortization of the debt discount recorded at inception of the convertible debt borrowings as they relate to the adoption of ASC 470-20, is non-cash, dependent on fair value assessments and is not considered by management when making operating decisions and non-cash expense is not indicative of operating performance.

Certain Income Tax Items – including certain deferred tax charges and benefits that do not result in a current tax pay other adjustments, including but not limited to, items unrelated to the current fiscal year or that are not indicative of operations. During Q2 2014 the Company changed its method of calculating non-GAAP income taxes to reflect its cash tax liability for each period. The Company restated prior period non-GAAP results to reflect this change in all periods presented.

The non-GAAP financial measures do not replace the presentation of GT Advanced Technologies Inc.'s GAAP financial results and should only be used as a supplement to, not as a substitute for, GT Advanced Technologies Inc.'s financial results presented in accordance with GAAP. In addition, non-GAAP financial measures are likely to have limited value for purposes of drawing comparisons between companies because different companies may calculate similarly titled non-GAAP financial measures in different ways because non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Forward-Looking Statements

Some of the information in this press release relates to future expectations, plans and prospects for our business and industry that constitute "forward-looking statements" for the purposes of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to: the Company continues to see strong interest in its suite of sapphire production tools, including our ASF™ equipment; the Company is commencing the transition to volume production at the Mesa, Arizona facility; the Company remains confident about the long-term potential of the sapphire materials business; the Company remains confident in its ability to achieve the target at or above $1.50 of non-GAAP earnings per share in fiscal year 2016 (which is driven by the expected contributions of Merlin, Hyperion and the other new technology platforms, along with the growth of the Company's sapphire, polysilicon and PV businesses); the Company expects to achieve those certain operational targets related to the fourth prepayment from Apple and receive the final $139 million prepayment by the end of October; all information under the caption "Business Outlook", this includes the Company's financial guidance for future periods, including with respect to revenue range for fiscal year 2014, fully diluted Non-GAAP earnings per share range for fiscal year 2014 (and that this range reflects an expected change in mix and more favorable gross margins in the second half of the year), and the Company's guidance with respect to non-GAAP earnings per share for 2016. These forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside the company's control, which could cause actual events to differ materially from those expressed or implied by these statements. These factors may include the possibility that the company is unable to recognize revenue on contracts in its order backlog, the Company may not recognize any benefits from its arrangements with Apple (including, but not limited to, receiving prepayment amounts from Apple and selling (and recognizing revenue) sapphire material to Apple), and the Company may be unable to commercialize products and technology that are under development or that such products and technologies will not gain market acceptance. Although the Company's backlog is based on signed purchase orders or other written contractual commitments in effect as of June 28, 2014, we cannot guarantee that our bookings or order backlog or our arrangement with Apple will result in actual revenue in the originally anticipated period or at all, which could reduce our revenue, profitability and liquidity. Other factors that may cause actual events to differ materially from those expressed or implied by our forward-looking statements include: the Company's ability to successfully transition its business to being a sapphire material and equipment provider; Apple purchasing sufficient quantities under its arrangements with the Company; the Company complying with the provisions of its arrangements with Apple; the impact of continued decreased demand and/or excess capacity in the markets for the output of our solar (polysilicon and photovoltaic) and sapphire equipment; general economic conditions and the tightening credit markets having an adverse impact on demand for our products; increasing trade tensions between the United States and China (and other jurisdictions); the possibility that changes in government incentives may reduce demand for solar products, which would, in turn, reduce demand for our polysilicon and photovoltaic equipment and technologies; technological changes could render existing products or technologies (including products or technologies under development by the Company) obsolete; the Company may be unable to protect its intellectual property rights or may be subject to liability for violating intellectual property rights of another party; competition from other manufacturers may increase; exchange rate fluctuations and conditions in the credit markets and economy may reduce demand for the company's products and various other risks as outlined in GT Advanced Technologies Inc.'s filings with the Securities and Exchange Commission, including the statements under the heading "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 2014 and the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Statements in this press release should be evaluated in light of these important factors. The statements in this press release represent GT Advanced Technologies Inc.'s expectations and beliefs as of the date of this press release. GT Advanced Technologies Inc. anticipates that subsequent events and developments may cause these expectations and beliefs to change. GT Advanced Technologies Inc. is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

CONTACT: Media Jeff Nestel-Patt jeff.nestelpatt@gtat.com 603-204-2883 Investor Relations/Analysts Ryan Flaim ryan.flaim@gtat.com 603-681-3869

Source:GT Advanced Technologies