Hutchinson: Fiscal 4Q14 Financial Results

Hutchinson Technology Incorporated reported a net loss of $5.2 million, or $0.18 per share, for its fiscal fourth quarter ended September 28, 2014 compared with a net loss of $11.2 million, or $0.40 per share in the preceding quarter.

The company attributed the improved financial performance to higher volume, the benefits of site consolidation, other cost reductions and improved operating performance.

The net loss for the fiscal 2014 fourth quarter included $870,000 of non-cash interest expense, a $400,000 foreign currency gain, a $325,000 reversal of an accrual for severance costs and $270,000 of site consolidation costs. Excluding these items, the company’s net loss for the fiscal 2014 fourth quarter was $4.7 million, or $0.17 per share. In the preceding quarter, the company’s $11.2 million net loss included $1.5 million of severance and site consolidation costs, $800,000 of non-cash interest expense and a $100,000 foreign currency gain. Excluding these items, the company’s fiscal 2014 third quarter net loss was $8.9 million, or $0.32 per share.

As previously reported, net sales for the fiscal 2014 fourth quarter totaled $70.3 million, up 18% compared with the preceding quarter. The company’s suspension assembly shipments totaled 117.1 million in the quarter, up 20% from 97.5 million in the preceding quarter.

“Our suspension assembly shipments increased due to an increase in disk drive production levels and our improved share positions on several disk drive programs,” said Rick Penn, president and CEO.

Gross profit in the fiscal 2014 fourth quarter improved to $9.0 million, or 13% of net sales, up from $3.6 million, or 6% of net sales, in the preceding quarter. The increase in gross profit resulted from the higher volume in the quarter, lower costs and improved operating performance.

“The lower costs we are achieving through consolidation of our manufacturing operations and other cost reduction measures, combined with improved manufacturing output and yields, helped us convert an 18% increase in net sales into a significant increase in gross profit,” said Penn.

Penn said output at the company’s Thailand assembly operation increased by 33% compared with the preceding quarter. He said the Thailand operation produced 78% of the company’s assembly volume in the fiscal 2014 fourth quarter, up from 64% in the preceding quarter, and is expected to produce about 80% of its assembly volume in the fiscal 2015 first quarter.

During its fourth quarter, the company began ramping production of its shape memory alloy (SMA) optical image stabilization (OIS) actuator.

“We are delivering our SMA OIS actuators for a smartphone that will be introduced in China by the end of the calendar year,” said Penn. “While we are still in the early phases of bringing our SMA OIS actuator to the market, the smartphone camera market represents a significant growth opportunity for us, and the advantages of our SMA OIS actuator are attracting growing interest from other smartphone and camera module makers. We are focused on winning new programs and increasing our production efficiency and capacity.”

On October 23, the company completed a previously reported offering of $37.5 million of 8.50% convertible senior notes due 2019, and the company also completed an exchange of $15 million of its 8.50% senior secured second lien notes due 2017 for 2.5 million shares of its common stock and warrants to purchase an additional 2.5 million shares of its common stock.

“These financing transactions position us to address the $39.8 million of debt that can be put to us in January 2015,” said Dave Radloff, CFO.

He reaffirmed that the company is also pursuing additional first lien financing of up to $15 million.

He also said that the company has entered into an agreement under which it will receive a $15 million advance payment from a customer in the company’s fiscal 2015 first quarter for suspension assemblies expected to ship to that customer in the fiscal 2015 second quarter.

Cash and investments totaled $38.9 million at the end of the fiscal 2014 fourth quarter compared to $40.2 million at the end of the preceding quarter.

Outstanding borrowings on the company’s revolving line of credit were $9.5 million at the end of the fourth quarter compared to $4.8 million at the end of the preceding quarter.

As previously reported, the company increased borrowings under its revolving line of credit during the fourth quarter to accommodate working capital needs, including an increase in accounts receivable that resulted from the increase in sales.

Regarding its outlook, the company said it expects fiscal 2015 first quarter suspension assembly shipments to be 120 million to 125 million as its participation on customers’ programs continues to improve. ASP is expected to remain at approximately $0.58 while gross profit should improve modestly on higher volume.

“The work we have been doing to reduce our costs, ramp production in Thailand, streamline our U.S. operations and strengthen our competitive position is beginning to benefit our financial performance,” said Penn. “We thank our customers for their ongoing commitment and support and our employees for their exceptional effort and dedication. We look forward to pursuing the opportunities in front of us in the HDD drive and smartphone camera markets and expect to make further progress on improving our financial results and cash flow in the new fiscal year.”