Hutchinson: Fiscal 1Q15 Financial Results

 Hutchinson Technology Incorporated reported a net loss of $9.9 million, or $0.32 per share, on net sales of $72.4 million for its fiscal 2015 first quarter ended December 28, 2014.

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.

In the preceding quarter, the company reported a net loss of $5.2 million, or $0.18 per share, on net sales of $70.3 million. The net loss included $870,000 of non-cash interest expense, $400,000 of foreign currency gains, a $325,000 reversal of an accrual for severance costs and $270,000 of site consolidation costs. Excluding these items, the company’s fiscal 2014 fourth quarter net loss was $4.7 million, or $0.17 per share.

As previously reported, the company’s suspension assembly shipments in the fiscal 2015 first quarter totaled 121.7 million, up 4% from the preceding quarter, as the company benefited from increased participation on customers’ disk drive programs and growth in the suspension market.

“Our shipments were generally in line with our expectations for the quarter, but demand softened in late December as customers positioned themselves for what is typically a seasonally slower March quarter,” said Rick Penn, president and CEO.

Gross profit in the fiscal 2015 first quarter improved to $11.5 million, or 15.8% of net sales, up from $9.0 million, or 12.7% of net sales, in the preceding quarter. As in the preceding quarter, the increase in gross profit resulted from higher volume and improved operating performance.

“Our yields and output in both our TSA+ components and DSA assembly operations improved during the quarter,” said Penn.

The company’s Thailand assembly operation increased output by 18% compared with the preceding quarter and accounted for 77% of assembly production.

Penn said that the first smartphone incorporating the company’s shape memory alloy (SMA) optical image stabilization (OIS) actuator was introduced in January for the Taiwan and China markets.

“The interest in our SMA OIS product from handset and camera module makers remains strong,” said Penn. “In the current fiscal year, we are focusing on winning positions on new smartphone programs, improving our production efficiency and increasing our production capacity.“

The company noted that all of the costs of its SMA OIS initiative are currently classified as R&D expenses. R&D expenses for the company’s fiscal 2015 first quarter increased to $6.0 million, compared to $4.8 million in the preceding quarter, primarily due to process development costs for its SMA OIS actuator.

Cash and investments at the end of the fiscal 2015 first quarter totaled $34.5 million compared with $38.9 million at the end of the preceding quarter. At quarter end, the company also held $44.6 million of cash that was restricted in use, including $35 million that was used to help fund the redemption of $39.8 million of 8.50% Convertible Senior Notes on January 15.

As previously disclosed, the company obtained a $15 million term loan during the fiscal 2015 first quarter. There were no outstanding borrowings on the company’s revolving line of credit at the end of the first quarter, compared with $9.5 million at the end of the preceding quarter. Subsequent to the end of the fiscal 2015 first quarter, the company received a $15 million advance payment from a customer for suspension assemblies expected to ship to that customer in the fiscal 2015 second quarter.

Regarding its outlook, the company said it expects fiscal 2015 second quarter suspension assembly shipments to be down about 10% compared with the first quarter in what is typically a seasonally slow period for suspension assembly shipments.

ASP in the fiscal 2015 second quarter is expected to remain flat at approximately 58 cents, while the lower volume is expected to reduce the company’s gross profit.

“We believe the softer demand in our second quarter reflects historical seasonal patterns in the disk drive industry,” said Penn. “With our technology leadership, vertical integration and improved cost model, we expect to benefit from future growth in the suspension assembly market and increased participation on customers’ disk drive programs. In addition, we are encouraged by the growing interest in our SMA OIS actuator, which leverages our core strengths and precision manufacturing expertise.”