BE Semiconductor Industries N.V. Announces Q3-19 Results

Q3-19 Revenue and Net Income of € 89.7 Million and € 19.2 Million, Respectively
Results Exceed Expectations

DUIVEN, the Netherlands, Oct. 24, 2019 (GLOBE NEWSWIRE) -- BE Semiconductor Industries N.V. (the “Company" or "Besi") (Euronext Amsterdam: BESI; OTC markets: BESIY, Nasdaq International Designation), a leading manufacturer of assembly equipment for the semiconductor industry, today announced its results for the third quarter and nine months ended September 30, 2019.

Key Highlights Q3-19

• Revenue of € 89.7 million is down 3.2% vs. Q2-19 but above guidance (-10%) due to higher than anticipated shipments to Chinese subcontractors for mainstream electronics applications. Down 23.1% vs. Q3-18 due to weak industry conditions and customer caution in light of global trade tensions
• Orders of € 82.2 million, approximately flat vs. Q2-19 as market stabilization continues. Down 23.8% vs. Q3-18 primarily as a result of lower bookings for smart phone applications
• Gross margin of 55.1% is down 0.9 points vs. Q2-19 due primarily to less favorable product and customer mix. Within prior guidance. Down 2.9 points vs. Q3-18 due primarily to lower revenue for high end smart phone applications
• Net income increased by € 0.3 million (+1.6%) vs. Q2-19 to reach € 19.2 million due primarily to lower than anticipated operating expenses and a lower effective tax rate. Down € 10.1 million (-34.5%) vs. Q3-18
• Net margin of 21.4% is up 1.0 point vs. Q2-19 (20.4%) as market position and strategic execution help sustain attractive margins in current downturn

Key Highlights YTD-19/YTD-18

• Revenue of € 263.8 million, down 39.0% consistent with ongoing weakness in assembly equipment market. Decrease broad based across Besi’s product portfolio and end markets
• Gross margin reached 55.7% vs. 56.9% in YTD-18. Attractive margin maintained despite significantly lower revenue due to flexible production model and overhead reduction efforts
• Net income of € 47.6 million decreased by € 65.9 million vs. YTD-18 (-58.1%). Net margin of 18.0% reached as business realigned in face of market downturn
• Strong cash flow from operations of € 83.8 million, representing 31.8% of revenue vs. 29.5% in YTD-18  

Outlook  

• Q4-19 revenue estimated to be equal to Q3-19 plus or minus 5% in traditionally weaker quarter than Q3. Gross margin range of 54-56% forecast based on anticipated product mix

Richard W. Blickman, President and Chief Executive Officer of Besi, commented:
“Besi reported another solid quarter in this challenging market environment with Q3-19 revenue of € 89.7 million and net income of € 19.2 million. The better than anticipated performance was due primarily to fast turnaround shipments of epoxy die bonding systems to Chinese subcontractors as they seek to upgrade capacity in light of US/China trade tensions. Profit levels also benefited from the continuation of 55%+ gross margins and a 9.7% reduction in sequential operating expenses. In fact, baseline operating expenses declined to € 23.3 million this quarter, the lowest level in four years as the benefits of our strategic initiatives and operational realignment are realized. As such, we reached a net margin in excess of 20% for the second consecutive quarter in the face of an extended market downturn.

For the most recent nine month period, we generated net income of € 47.6 million resulting in a net margin of 18.0% and cash flow from operations of € 83.8 million, or 32% of revenue. This highlights the profit and cash flow generation of our business model even in a difficult year. Besi’s liquidity also improved in Q3-19 with net cash of € 106.9 million, increasing by € 20.8 million, or +24.2%, vs. Q2-19 despite share repurchases of € 13.3 million during the quarter. This brings total distributions to shareholders to € 161.3 million for the first nine months this year.

Orders of € 82.2 million in Q3-19 were roughly flat with Q2-19 (€ 82.7 million) in a quarter traditionally weaker on a sequential basis due to seasonality. Similar to last quarter, order rates reflected ongoing softness in high end mobile and automotive applications partially offset by more stable demand for logic applications in cloud computing end markets. Continued overcapacity at many customers, shifting supply chain dynamics and global trade tensions remain. Although we realized better than anticipated Q3-19 revenue and order activity to date in Q4-19, we maintain a cautious outlook.

This year, we have seen an increased focus on the assembly interconnect function as part of the front end design process as producers move to <14 nm geometries with ever increasing functionality, density and complexity. At present, Besi is actively involved with leading customers to develop new assembly solutions for the next investment round. Areas include 5G antennas, Micro LED screens, hybrid bonding interconnects for <10 nano smart phone devices, high volume TCB systems for advanced memory and logic applications and high speed flip chip systems for the assembly of <5 micron accuracy microprocessors. As such, R&D activity has been increasing in recent quarters with technical headcount added in Europe to support customer focused efforts. 

For Q4-19, Besi estimates that revenue will be equal to Q3-19 plus or minus 5%. We forecast gross margins in the range of 54-56% due to our anticipated product and customer mix. Operating expenses are forecast to increase by 5-10% sequentially primarily due to higher R&D spending and seasonal influences. In summary, we are very excited about our prospects for the next industry upturn given Besi’s performance in the current downturn, leading edge advanced packaging technology, engagement with customers and highly scalable production model.”

Third Quarter Results of Operations

Besi’s Q3-19 revenue decreased by 3.2% vs. Q2-19 but exceeded prior guidance (-10%). Higher than anticipated revenue levels primarily resulted from increased orders of epoxy die bonding systems for mainstream electronics applications by Chinese subcontractors. Revenue decreased by 23.1% vs. Q3-18 primarily due to lower shipments of die bonding systems for high end mobile applications following significant capacity upgrades in 2017 and 2018.

Orders of € 82.2 million in Q3-19 were roughly comparable to Q2-19 as assembly equipment market conditions continued to stabilize after a precipitous decline vs. 2017 and 2018 levels. Subcontractor orders increased sequentially by € 11.3 million, or 41%, vs. Q2-19, and represented approximately 47% of total orders during the quarter while IDM orders decreased by € 11.8 million, or 21%, vs. Q2-19 and represented approximately 53% of total orders during the quarter.

Besi’s gross margin of 55.1% decreased by 0.9 points vs. Q2-19 due to a less favorable product and customer mix resulting from higher than anticipated shipments to Chinese subcontractors. As compared to Q3-18, gross margin decreased by 2.9 points due primarily to significantly lower revenue for high end mobile and automotive applications partially offset by reductions in production personnel and supply chain activities, and, to a lesser extent, favorable forex influences from an increase in the USD vs. the euro. 

Q3-19 operating expenses declined by € 2.6 million, or 9.7%, vs. Q2-19 primarily due to higher than anticipated government R&D grants, lower variable compensation expense, seasonal influences and active cost control efforts. Operating expenses decreased by € 4.9 million (-16.8%) vs. Q3-18 primarily due to lower sales related, variable costs such as warranty, freight, travel and commissions and higher R&D grants.

Financial expense, net increased by € 0.1 million vs. Q2-19 but decreased by € 0.9 million vs. Q3-18 due to lower hedging costs related to significantly lower sales volume. 

Besi’s Q3-19 net income increased by € 0.3 million, or 1.6%, vs. Q2-19 primarily as a result of decreased operating expenses and a lower effective tax rate. Similarly, net margins increased to 21.4% vs. 20.4%. Versus Q3-18, net income decreased by € 10.1 million, or 34.5%, primarily due to a 23.1% year over year revenue decrease and lower gross margins partially offset by reduced operating expenses, lower net financial expense and a lower effective tax rate.

Nine Months Results of Operations

For the nine months ended September 30, 2019, Besi’s revenue declined by 39.0% vs. the comparable period of the prior year. The decrease was broad based across Besi’s product portfolio and end markets in an ongoing industry downturn. Similarly, orders declined by 38.0% with particular weakness in high end mobile and automotive applications. Orders by IDMs and subcontractors represented 63% and 37%, respectively, of Besi’s total YTD-19 orders vs. 66% and 34%, respectively, in YTD-18. Gross margins of 55.7% were achieved in the current nine-month period as management was able to rapidly align production, overhead and supply chain activities in response to weaker market conditions. In addition, personnel levels were significantly reduced with total headcount declining by 280 people, or 14.6%, between the end of Q3-18 and the end of Q3-19. 

Besi’s YTD-19 net income of € 47.6 million declined by € 65.9 million, or 58.1%, vs. YTD-18 due primarily to its 39.0% year over year revenue decrease and slightly lower gross margins partially offset by an € 18.2 million reduction in operating expenses and a lower effective tax rate.

Financial Condition

Besi Q3-19 cash flow from operations of € 38.8 million increased by € 41.5 million vs. Q2-19 primarily due to reduced tax payments and working capital requirements. In Q3-19, Besi used cash flows from operations to fund (i) € 13.3 million of share repurchases, (ii) € 3.2 million of capitalized development spending and (iii) € 1.0 million of capital expenditures. At the end of Q3-19, cash and deposits aggregated € 383.7 million and net cash was € 106.9 million, an increase of € 20.8 million vs. Q2-19.

Share Repurchase Program
During the quarter, Besi repurchased 504,337 of its ordinary shares at an average price of € 26.38 per share for a total of € 13.3 million. Cumulatively, as of September 30, 2019, a total of 2.9 million shares have been purchased under the current € 75 million share repurchase program (which started July 26, 2018) at an average price of € 21.31 per share for a total of € 61.3 million.

As of September 30, 2019, Besi held approximately 7.7 million shares in treasury at an average cost of € 16.57, equivalent to 9.7% of its total shares outstanding. The Company will extend its current program (which expires on October 26, 2019) until October 26, 2020 but reduce its daily share repurchase activity over the next quarters in accordance with restrictions on its ability to purchase more than 10% of shares outstanding without AGM approval.  

Outlook 

Based on its September 30, 2019 order backlog and feedback from customers, Besi forecasts for Q4-19 that:

• Revenue will be equal to the € 89.7 million reported in Q3-19 plus or minus 5%.
• Gross margin will range between 54-56% vs. the 55.1% realized in Q3-19.
• Operating expenses will increase by approximately 5%-10% vs. the € 24.2 million reported in Q3-19.
  

Basis of Presentation
The accompanying condensed Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. Reference is made to the Summary of Significant Accounting Policies to the Notes to the Consolidated Financial Statements as included in our 2018 Annual Report, which is available on www.besi.com.

Besi has adopted IFRS 16 “Leases” as of January 1, 2019, using the modified retrospective approach and therefore did not restate prior years presented upon adoption in 2019. The most significant change in our accounting policy is the recognition of right of use assets and lease liabilities for operating leases. As of January 1, 2019, we recognized € 14.4 million of right of use assets (€ 13.3 million as of September 30, 2019) and € 14.4 million of lease liabilities (€ 13.0 million as of September 30, 2019 of which € 9.7 million was recorded under lease liabilities and € 3.3 million under other current liabilities).

The adoption of IFRS 16 had a positive impact on our cash flows from operating activities and EBITDA of approximately € 2.6 million in YTD-19 with an offsetting negative cash flow effect under financing activities.

About Besi
Besi is a leading supplier of semiconductor assembly equipment for the global semiconductor and electronics industries offering high levels of accuracy, productivity and reliability at a low cost of ownership. The Company develops leading edge assembly processes and equipment for leadframe, substrate and wafer level packaging applications in a wide range of end-user markets including electronics, mobile internet, cloud server, computing, automotive, industrial, LED and solar energy. Customers are primarily leading semiconductor manufacturers, assembly subcontractors and electronics and industrial companies. Besi’s ordinary shares are listed on Euronext Amsterdam (symbol: BESI). Its Level 1 ADRs are listed on the OTC markets (symbol: BESIY Nasdaq International Designation) and its headquarters are located in Duiven, the Netherlands. For more information, please visit our website at www.besi.com.

Caution Concerning Forward Looking Statements
This press release contains statements about management's future expectations, plans and prospects of our business that constitute forward-looking statements, which are found in various places throughout the press release, including, but not limited to, statements relating to expectations of orders, net sales, product shipments, expenses, timing of purchases of assembly equipment by customers, gross margins, operating results and capital expenditures. The use of words such as “anticipate”, “estimate”, “expect”, “can”, “intend”, “believes”, “may”, “plan”, “predict”, “project”, “forecast”, “will”, “would”, and similar expressions are intended to identify forward looking statements, although not all forward looking statements contain these identifying words. The financial guidance set forth under the heading “Outlook” contains such forward looking statements. While these forward looking statements represent our judgments and expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from those contained in forward looking statements, including any inability to maintain continued demand for our products; failure of anticipated orders to materialize or postponement or cancellation of orders, generally without charges; the volatility in the demand for semiconductors and our products and services; failure to develop new and enhanced products and introduce them at competitive price levels; failure to adequately decrease costs and expenses as revenues decline; loss of significant customers, including through industry consolidation or the emergence of industry alliances; lengthening of the sales cycle; acts of terrorism and violence; disruption or failure of our information technology systems; inability to forecast demand and inventory levels for our products; the integrity of product pricing and protection of our intellectual property in foreign jurisdictions; risks, such as changes in trade regulations, currency fluctuations, political instability and war, associated with substantial foreign customers, suppliers and foreign manufacturing operations, particularly to the extent occurring in the Asia Pacific region; potential instability in foreign capital markets; the risk of failure to successfully manage our diverse operations; any inability to attract and retain skilled personnel; those additional risk factors set forth in Besi's annual report for the year ended December 31, 2018 and other key factors that could adversely affect our businesses and financial performance contained in our filings and reports, including our statutory consolidated statements. We expressly disclaim any obligation to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

⁽¹⁾  Share amounts in 2018 have been adjusted for the 2-for-1stock split effective May 4, 2018
⁽²⁾  The calculation of diluted income per share assumes the exercise of equity settled share based payments and the full conversion of the Convertible Notes