SOURCE: Photon Dynamics, Inc.

January 26, 2006 16:00 ET

Photon Dynamics Reports Record Bookings of $55.8 Million and First Quarter Fiscal 2006 Earnings per Share of $0.20 ($0.26 Excluding Stock-Based Employee Compensation of $0.06) on Revenue of

$41.6 Million

SAN JOSE, CA -- (MARKET WIRE) -- January 26, 2006 -- Photon Dynamics, Inc. (NASDAQ: PHTN), a leading global supplier of integrated yield management solutions for the flat panel display market, today reported financial results for the first quarter of fiscal year 2006, ended December 31, 2005.

Revenue for the first quarter of fiscal 2006 was $41.6 million, a sequential increase of 68 percent from the $24.8 million reported in the fourth quarter of fiscal 2005 and a year-over-year increase of 14 percent compared to the $36.6 million reported for the same quarter a year ago.

Net income for the first quarter was $3.4 million or $0.20 per diluted share, compared to a net loss for the prior quarter of $5.9 million, or ($0.35) loss per share, and compared to net income of $0.5 million, or $0.03 per diluted share, for the same quarter in the year ago period.

The results include the impact from SFAS 123R, which the company adopted in the first quarter of fiscal 2006. The company included stock-based employee compensation expense of approximately $1.0 million, or $0.06 per diluted share, in its costs of revenue and operating expenses during the first quarter of fiscal 2006. Excluding stock-based employee compensation expense, net income would have been $4.3 million and earnings per diluted share would have been $0.26 for the first quarter of fiscal 2006.

Bookings for the first quarter of fiscal 2006 were $55.8 million, and the company posted a backlog of $115 million at the end of the first quarter of fiscal 2006. The company noted that bookings and backlog are not necessarily indicative of future revenue and that historically, bookings have fluctuated on a quarter-to-quarter basis. This trend may continue in the future.

Income from continuing operations for the first quarter of fiscal 2006 was $4.0 million or $0.24 per diluted share, as compared to a loss from continuing operations of $5.9 million or ($0.35) per share for the fourth quarter of fiscal 2005, and income from continuing operations of $0.5 million, or $0.03 per diluted share for the first quarter of fiscal 2005.

Photon Dynamics' financial position remained strong with cash, cash equivalents and marketable securities of $92.7 million. During the quarter, both inventory and accounts payable decreased, while accounts receivable increased slightly to $28.4 million.

The improvement in gross margin from 38.5% to 46.2% from the fourth quarter of fiscal 2005 to the first quarter of fiscal 2006 was due primarily to improved overhead absorption, a favorable warranty adjustment, and a favorable product mix. The company's product mix for the quarter was 75% in its tester products, which exceeds the company's long-term expectation of 60% to 65%. Product mix can vary significantly on a quarter-to-quarter basis resulting in gross margin fluctuations.

"We are very pleased with the results of the quarter, in particular with respect to bookings, revenue and margins," commented Jeffrey Hawthorne, CEO and President. "Our bookings results continue to validate our market leadership in yield management for flat panel manufacturing. Bookings were strong across all segments of our business. During the first quarter, we began to reap the benefits of the cost control and operational and quality improvement efforts that we have implemented. In addition, we are seeing a decline in our warranty costs related to the increased reliability and serviceability of our tools."

Mr. Hawthorne continued, "While our business remains cyclical, estimates for end-user demand for flat panels continue to increase, with year-over-year demand almost doubling from 2004 to 2005. Our outlook for 2006 also has strengthened and we continue to focus on improving execution to optimize our bottom line."

Company Projections for Fiscal Year 2006 Second Quarter

The company estimates revenue for the second quarter of fiscal 2006 to be between $46 and $50 million, and net income per diluted share to be between $0.01 and $0.10, including the impact of SFAS 123R, which at this time the company projects to be approximately $0.06 per diluted share.

Information Regarding Non-GAAP Financial Measures

Photon Dynamics provides non-GAAP net income and non-GAAP earnings per share data as additional information for its operating results. These measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. Photon Dynamics' non-GAAP net income and non-GAAP earnings per share exclude the effect of SFAS 123R, restructuring charge, amortization of intangible assets, and loss from discontinued operations. Because SFAS 123R is a material, non-cash item and this is the first quarter it has been included in GAAP net income, we have also provided non-GAAP information excluding only the impact of SFAS 123R to provide more comparability with prior periods. Management excludes the effect of SFAS 123R and other charges as indicated, because management does not believe that these charges are directly applicable to the core operating performance of Photon Dynamics. As a result, management excludes the effect of these charges for budgeting purposes, as well as for analyzing the underlying performance of Photon Dynamics. Management believes that although GAAP measures are important for investors to understand, providing investors with certain non-GAAP measures provide investors additional important information to enable them to assess, in the way that management assesses, both the current and future operations of Photon Dynamics.

Earnings Conference Call

The company will host a quarterly conference call today at 4:30 pm EST. To access the conference call in the U.S. or Canada, dial (866) 244-4637. For all international calls, dial (703) 639-1179. Both numbers will use confirmation code 838129.

A digital replay will be available on Photon Dynamics' website at www.photondynamics.com under 'presentation/conference call' in the 'investors' section of the website two hours after the conclusion of the conference until such time as Photon Dynamics issues a press release announcing its second quarter fiscal 2006 financial results.

A replay will also be available by phone call two hours after the conclusion of the conference from January 26 to February 9, 2006. You may access the telephone replay by dialing (703) 925-2533 or (888) 266-2081 and entering confirmation code 838129.

About Photon Dynamics, Inc.

Photon Dynamics, Inc. is a leading global supplier of integrated yield management solutions for the flat panel display market. Photon Dynamics develops systems that enable manufacturers to collect and analyze data from the production line, and quickly diagnose and repair process-related defects, thereby allowing manufacturers to decrease material costs and improve throughput. Founded in 1986, Photon Dynamics is headquartered in San Jose, California with sales and customer support offices in Beijing, China; Seoul, Daejeon, Gumi, and Cheonan, Korea; Hsinchu, Tainan, and Taichung, Taiwan; and Tokyo and Tsu, Japan. For more information about Photon Dynamics, visit its website at www.photondynamics.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

The statements in this press release relating to Photon Dynamics' estimated financial results for the second quarter of fiscal 2006 and end user demand strengthening in fiscal 2006 are forward-looking statements. These forward-looking statements are based on current expectations on the date of this press release and involve a number of uncertainties and risks. These uncertainties and risks include, but are not limited to: the current economic uncertainty, which may cause consumers to purchase products containing flat panel displays at a rate lower than Photon Dynamics and its customers expect, and therefore that could lead Photon Dynamics' customers to reduce investments in Photon Dynamics' products below that which Photon Dynamics projects until the markets become more certain; current economic conditions may cause an increase in competitive pricing pressures; and the risk of the introduction of competing products having technological and/or pricing advantages, which would reduce the demand for Photon Dynamics' products. As a result, Photon Dynamics' actual results and end user demand may differ substantially from expectations. For further information on risks affecting Photon Dynamics, refer to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "Factors Affecting Operating Results" in Photon Dynamics' Annual Report on Form 10-K as filed on December 14, 2005 with the Securities and Exchange Commission. Photon Dynamics undertakes no obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise.


                           PHOTON DYNAMICS, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             (In thousands)
                               (Unaudited)
                                             December 31,   September 30,
                                                  2005            2005
                                              ------------   -------------

ASSETS
Current assets:
  Cash and cash equivalents                   $     20,376   $      20,288
  Short-term investments                            72,347          72,738
  Accounts receivable, net                          28,361          27,067
  Inventories                                       31,392          32,545
  Other current assets                               3,252           3,932
                                              ------------   -------------
    Total current assets                           155,728         156,570
 Land, property and equipment, net                  18,116          19,366
 Other assets                                        5,172           4,390
 Intangible assets, net                              2,833           3,205
 Goodwill                                              153             153
                                              ------------   -------------
    Total assets                              $    182,002   $     183,684
                                              ============   =============

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
   Accounts payable                           $      9,413   $      13,005
   Warranty                                          3,898           5,346
   Other current liabilities                        14,093           8,618
   Deferred gross margin                             6,251          13,113
                                              ------------   -------------
     Total current liabilities                      33,655          40,082
 Other liabilities                                     973           1,008
 Commitments and contingencies                           -               -
 Shareholders' equity:
 Common stock, no par value                        289,153         287,765
 Accumulated deficit                              (142,126)       (145,489)
 Accumulated other comprehensive income                347             318
                                              ------------   -------------
     Total shareholders' equity                    147,374         142,594
                                              ------------   -------------
     Total liabilities and shareholders'
      equity                                  $    182,002   $     183,684
                                              ============   =============


                           PHOTON DYNAMICS, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share data)
                               (Unaudited)
                                                   Three Months Ended
                                                      December 31,
                                                  2005            2004
                                              ------------   -------------

Revenue                                       $     41,633   $      36,639
Cost of revenue                                     22,382          22,781
                                              ------------   -------------
Gross margin                                        19,251          13,858
Operating expenses:
  Research and development                           8,071           9,470
  Selling, general and administrative                6,845           4,684
  Restructuring charge                                  62               -
  Gain on sale of fixed assets                           6               -
  Amortization of intangible assets                    372             397
                                              ------------   -------------
    Total operating expenses                        15,356          14,551
                                              ------------   -------------
Income (loss) from operations                        3,895            (693)
Interest income and other, net                         500           1,255
                                              ------------   -------------
Income from continuing operations before
 income taxes and discontinued operations            4,395             562
Provision for income taxes                             352              39
                                              ------------   -------------
Income from continuing operations before
 discontinued operations                             4,043             523
Loss from discontinued operations                     (680)             (6)
                                              ------------   -------------
    Net income                                $      3,363   $         517
                                              ============   =============
Income per share from continuing
 operations:
  Basic                                       $       0.24   $        0.03
                                              ============   =============
  Diluted                                     $       0.24   $        0.03
                                              ============   =============
Loss per share from discontinued
 operations:
  Basic                                       $      (0.04)  $       (0.00)
                                              ============   =============
  Diluted                                     $      (0.04)  $       (0.00)
                                              ============   =============
Net income per share:
  Basic                                       $       0.20   $        0.03
                                              ============   =============

  Diluted                                     $       0.20   $        0.03
                                              ============   =============
Weighted average number of shares:
  Basic                                             16,946          16,872
                                              ============   =============
  Diluted                                           17,047          17,009
                                              ============   =============


                           PHOTON DYNAMICS, INC.
                Reconciliation of GAAP to Non-GAAP Results
                   (In thousands, except per share data)
                               (Unaudited)
                                                    Three Months Ended
                                                       September 30,
                                                   2005            2004
                                              ------------   -------------

 Non-GAAP Net Income

 GAAP net income                              $      3,363   $         517
 Stock-based employee compensation expense             985               -
 Restructuring charge                                   62               -
 Amortization of intangible assets                     372             397
 Loss from discontinued operations                     687               6
 Income tax effect of non-GAAP adjustments             (10)              -
                                              ------------   -------------
 Non-GAAP net income                          $      5,459   $         920
                                              ============   =============

 Non-GAAP Diluted Net Income Per Share

 GAAP net income per share - diluted          $       0.20   $        0.03
 Stock-based employee compensation expense            0.06               -
 Restructuring charge                                 0.00               -
 Amortization of intangible assets                    0.02            0.02
 Loss from discontinued operations                    0.04            0.00
 Income tax effect of non-GAAP adjustments           (0.00)              -
                                              ------------   -------------
 Non-GAAP net income - diluted                $       0.32   $        0.05
                                              ============   =============

 Shares used in diluted shares calculation          17,047          17,009
                                              ============   =============

Contact Information

  • Contacts:

    Corporation:
    Photon Dynamics
    Maureen Lamb
    (408) 360-3581
    Email Contact

    Investors and Media:
    Guerrant Associates
    Laura Guerrant
    (808) 882-1467
    Email Contact