Hutchinson: Fiscal 3Q16 Financial Results

(in $ million)	3Q15	3Q16	9 mo. 16	9 mo. 16
Revenues	54.7	53.2	189.5	171.3
*Growth*		-3%		*-10%*
Net income (loss)	(10.2)	(6.8)	(29.8)	(21.8)

Hutchinson Technology Incorporated reported net sales of $53.2 million for its fiscal third quarter ended June 26, 2016 compared with $54.2 million in the preceding quarter.

Suspension assembly shipments for the quarter totaled 81.0 million compared with 85.4 million in the preceding quarter.

ASP increased from $0.57 in the preceding quarter to $0.59, due to dual-stage actuated (DSA) suspensions increasing from 49% of the product mix in the preceding quarter to 61% in the fiscal 2016 third quarter.

Gross profit in the fiscal 2016 third quarter totaled $7.1 million, or 13.4% of net sales, compared with $5.7 million, or 10.5% of net sales, in the preceding quarter.

Rick Penn, president and CEO, said the increase in gross profit was primarily due to adjustments the company made to lower its operating costs. This included shifting nearly all of its final assembly production to its Thailand assembly operation, which accounted for 98% of the fiscal 2016 third quarter’s assembly production, up from 88% in the preceding quarter.

The company’s operating loss declined from $7.2 million in the preceding quarter to $3.6 million in the fiscal 2016 third quarter due to the increase in gross profit and a reduction in the accrual of incentive compensation costs that lowered sales, general and administrative expenses.

The company reported a fiscal 2016 third quarter net loss of $6.8 million, or $0.20 per share.

The net loss for the quarter included:

$440,000 of merger-related expenses;
$370,000 of non-cash interest expense; and
an $80,000 foreign currency loss.

Excluding these items, the company’s net loss for the fiscal 2016 third quarter was $5.9 million, or $0.18 per share.

In the preceding quarter, the company reported a net loss of $9.6 million, or $0.28 per share. The net loss for the quarter included: $940,000 of merger-related expenses, $500,000 of severance costs and $360,000 of non-cash interest expense, partially offset by a $710,000 foreign currency gain. Excluding these items, the company’s net loss for the fiscal 2016 second quarter was $8.5 million, or $0.25 per share.

Cash and investments at the end of the fiscal 2016 third quarter totaled $47.8 million compared with $47.9 million at the end of the preceding quarter.

Capital spending in the quarter totaled $1.1 million and is currently expected to be less than $10 million for the fiscal year.

As in the preceding quarter, there were no outstanding borrowings under the company’s revolving line of credit at the end of the fiscal 2016 third quarter.

The company’s net cash, as defined by its November 1, 2015 merger agreement with TDK Corporation, was $50.7 million at the end of the fiscal 2016 third quarter compared with $51.3 million at the end of the preceding quarter. Under the terms of the merger agreement, TDK will acquire all of the outstanding shares of common stock of HTI for base consideration of $3.62 per share, plus additional consideration of up to $0.38 per share, depending on the level of net cash held by HTI as of the measurement date, as defined in the merger agreement. The full amount of additional consideration would be realized if the company’s net cash equals or exceeds $35 million as of the measurement date.

With regard to the U.S. Federal Trade Commission (FTC)’s review of the pending merger, Penn said that the company and TDK are providing additional information to the FTC and are working cooperatively with the FTC to move the review forward. The FTC has not indicated when its review may be completed.

In regards to its new business development efforts, Penn said the company continues to invest in the development of its shape memory alloy (SMA) optical image stabilization (OIS) actuator, a precision component for smartphone camera modules.

“Multiple versions of our SMA OIS actuators are currently being tested and evaluated by customers for possible incorporation into future products,” said Penn. “This includes customer samples of new SMA OIS actuators that were developed for use with larger lenses and with front-facing cameras.”

For its fiscal 2016 fourth quarter, the company currently expects its suspension assembly shipments to decline to 70 million to 80 million as customers rebalance their suspension assembly procurement plans in anticipation of the company’s merger with TDK. ASP in the fiscal fourth quarter is expected to remain flat sequentially at $0.59. Gross profit is expected to decline on the quarter’s lower volume.

Commenting on the outlook for the fiscal 2016 fourth quarter, Penn said that in addition to working with the FTC on their continuing review of the pending merger, the company’s priorities are managing costs to adjust to the expected lower volume, aggressively managing cash and engaging in contingency planning for the potential of continued delays or impediments to the pending merger.