HUTCHINSON TECHNOLOGY REPORTS SECOND QUARTER RESULTS
Seasonally Lower Volume and Higher OIS Development Costs Reduce Profitability
Hutchinson, Minn., April 30, 2015 -- Hutchinson Technology Incorporated (NASDAQ: HTCH) today reported a net loss of $9.7 million, or $0.29 per share, on net sales of $62.4 million, for its fiscal second quarter ended March 29, 2015. The net loss included $430,000 of non-cash interest expense and a $140,000 foreign currency gain. Excluding these items, the company’s net loss for the fiscal 2015 second quarter was $9.4 million, or $0.28 per share.
In the preceding quarter, the company reported a net loss of $9.9 million, or $0.32 per share, on net sales of $72.4 million. The net loss included a $4.3 million loss on debt extinguishment, $860,000 of non-cash interest expense, $640,000 of foreign currency losses and $160,000 of site consolidation costs. Excluding these items, the company’s net loss for the fiscal 2015 first quarter was $3.9 million, or $0.13 per share.
Compared with the preceding quarter, the company’s suspension assembly shipments declined 17% to 101.1 million. “We had anticipated a seasonal decline in shipments in our second quarter, but the decline was steeper than we expected, primarily due to weakness in the personal computer market,” said Rick Penn, Hutchinson Technology’s president and chief executive officer. “While our current demand is still heavily weighted toward PC applications, cloud and hyperscale applications are expected to provide future growth for suspension assembly demand,” said Penn.
Gross profit in the fiscal 2015 second quarter totaled $6.3 million, or 10.0% of net sales, compared with $11.5 million, or 15.8% of net sales, in the preceding quarter. The decline resulted from the lower volume in the quarter which reduced operating leverage as the company curtailed production and managed inventory down. Despite the reduced operating leverage, Penn said that operating efficiency in the quarter remained strong in its component and assembly operations. The company’s Thailand assembly operation accounted for 85% of assembly production in the second quarter, up from 77% in the preceding quarter.
Regarding its shape memory alloy (SMA) optical image stabilization (OIS) actuator, Penn said the company continues to focus on optimizing manufacturing processes and refining product designs in order to increase acceptance among smartphone and camera module manufacturers. “As we work to win new programs, customer interest in our SMA technology is encouraging,” said Penn. “The smartphone camera market is in the early phases of adopting OIS technology, and as we’ve stated previously, we are still in the initial stages of developing this new opportunity.” Total research and development expenses increased to $7.1 million in the fiscal 2015 second quarter compared to $6.0 million in the preceding quarter, with the increase attributable to additional costs for OIS product and process development.
Cash and investments at the end of the fiscal 2015 second quarter totaled $43.6 million compared with $34.5 million at the end of the preceding quarter. Cash generated by operations in the quarter totaled $15.6 million and included the remainder of an advance payment from a customer and other working capital improvements. Capital spending totaled $8.2 million in the second quarter.
“The seasonal weakness that we saw in the March quarter has continued into the June quarter, with an extremely slow start to the quarter as customers have reacted to lower disk drive demand by reducing their build plans and their levels of suspension inventory,” said Penn. As a result, the company currently expects fiscal 2015 third quarter suspension assembly shipments to be down approximately 10% compared with the second quarter and average selling price to be 58 to 59 cents per part. Due to the lower volume, third quarter gross profit is also expected to decline compared to the second quarter.
“The current weakness in demand is disappointing but consistent with seasonal demand and production in the disk drive industry and, in particular, the weight that personal computing applications still carry in our mix of business,” said Penn. “In the second half of the calendar year, we expect higher volume due to increased worldwide suspension assembly demand and an improving position on customers’ disk drive programs. We’re also encouraged by the level of development activity that is occurring with our customers across all of the disk drive segments. Beyond our core business, our SMA OIS product presents an attractive opportunity to extend our precision manufacturing expertise into a new market.”
Hutchinson Technology to Host Conference Call
The company will conduct a conference call and webcast for investors beginning at 4:00 p.m. Central Time today. Individual investors and news media may participate in the conference call live via the webcast, which will be available through the Investor Relations page on Hutchinson Technology’s web site at www.htch.com/investors. Webcast participants will need to complete a brief registration form and should allow extra time before the webcast begins to register and, if necessary, download and install audio software.
About Hutchinson Technology
Hutchinson Technology is a global supplier of critical precision component technologies. As a key supplier of suspension assemblies for disk drives, we help customers improve overall disk drive performance and meet the demands of an ever-expanding digital universe. Through our new business development initiatives, we focus on leveraging our unique precision manufacturing capabilities in new markets to improve product performance, reduce size, lower cost, and reduce time to market.
Cautionary Note Regarding Forward-Looking Statements
This announcement contains forward-looking statements regarding demand for and shipments of suspension assemblies, product mix, pricing, market position, operating performance, market adoption and production of OIS actuators and financial results. The company does not undertake to update its forward-looking statements. These statements involve risks and uncertainties. The company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of changes in market demand and market consumption of disk drives or suspension assemblies, changes in demand for our products, market acceptance of new products, the company’s ability to produce suspension assemblies at levels of precision, quality, volume and cost its customers require, changes in product mix, changes in customers yields, changes in storage capacity requirements, changes in expected data density, changes in the company’s ability to operate its assembly operation in Thailand and other factors described from time to time in the company's reports filed with the Securities and Exchange Commission.
| INVESTOR CONTACT: | MEDIA CONTACT: | |
| Chuck Ives | Connie Pautz | |
| Hutchinson Technology Inc. | Hutchinson Technology Inc. | |
| 320-587-1605 | 320-587-1823 | |
Hutchinson Technology Incorporated
Condensed Consolidated Statements of Operations - Unaudited
(In thousands, except per share data)
| | | Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| | | March 29, | | | March 30, | | | March 29, | | | March 30, | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net sales | | $ | 62,359 | | | $ | 60,699 | | | $ | 134,782 | | | $ | 131,011 | |
| Cost of sales | | | 56,097 | | | | 54,836 | | | | 117,056 | | | | 119,618 | |
| Gross profit | | | 6,262 | | | | 5,863 | | | | 17,726 | | | | 11,393 | |
| | | | | | | | | | | | | | | | | |
| Research and development expenses | | | 7,097 | | | | 4,389 | | | | 13,139 | | | | 8,331 | |
| Selling, general and administrative expenses | | | 5,848 | | | | 6,212 | | | | 11,833 | | | | 12,075 | |
| Severance and site consolidation expenses | | | - | | | | 650 | | | | 159 | | | | 1,242 | |
| Asset impairment | | | - | | | | - | | | | - | | | | 4,470 | |
| Loss from operations | | | (6,683 | ) | | | (5,388 | ) | | | (7,405 | ) | | | (14,725 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expense), net | | | 267 | | | | 656 | | | | (288 | ) | | | (2,417 | ) |
| Loss on extinguishment of long-term debt | | | - | | | | - | | | | (4,318 | ) | | | - | |
| Interest income | | | 15 | | | | 10 | | | | 19 | | | | 35 | |
| Interest expense | | | (3,270 | ) | | | (3,959 | ) | | | (7,723 | ) | | | (7,736 | ) |
| Loss before income taxes | | | (9,671 | ) | | | (8,681 | ) | | | (19,715 | ) | | | (24,843 | ) |
| | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | 32 | | | | 25 | | | | (113 | ) | | | (791 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss | | $ | (9,703 | ) | | $ | (8,706 | ) | | $ | (19,602 | ) | | $ | (24,052 | ) |
| | | | | | | | | | | | | | | | | |
| Basic loss per share | | $ | (0.29 | ) | | $ | (0.31 | ) | | $ | (0.61 | ) | | $ | (0.86 | ) |
| | | | | | | | | | | | | | | | | |
| Diluted loss per share | | $ | (0.29 | ) | | $ | (0.31 | ) | | $ | (0.61 | ) | | $ | (0.86 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted-average common shares outstanding | | | 33,270 | | | | 28,047 | | | | 31,910 | | | | 27,923 | |
| | | | | | | | | | | | | | | | | |
| Weighted-average diluted shares outstanding | | | 33,270 | | | | 28,047 | | | | 31,910 | | | | 27,923 | |
