SOURCE: Photon Dynamics, Inc.

February 13, 2007 16:00 ET

Photon Dynamics Reports Fiscal 2007 First Quarter Results

SAN JOSE, CA -- (MARKET WIRE) -- February 13, 2007 -- Photon Dynamics, Inc. (NASDAQ: PHTN), a leading global supplier of integrated yield management solutions for the flat panel display (FPD) market, today reported financial results for the first quarter of fiscal year 2007, ended December 31, 2006.

Revenue for the first quarter of fiscal 2007 was $21.4 million, compared to fourth quarter fiscal 2006 revenue of $29.3 million.

Net loss for the first quarter was $7.2 million or $0.43 loss per share, compared to fourth quarter net loss of $6.1 million or $0.36 loss per share.

Loss from continuing operations for the first quarter of fiscal 2007 was $7.2 million or $0.43 loss per share. This compares to loss from continuing operations of $6.4 million or $0.38 loss per share for the fourth quarter of fiscal 2006.

First quarter non-GAAP net loss was $6.0 million or $0.36 loss per share, excluding the impact of equity-based compensation expenses, restructuring charges and amortization of intangible assets, net of related tax. These results compare to fourth quarter non-GAAP net loss of $5.2 million or $0.31 loss per share, excluding the impact of equity-based compensation expenses, restructuring charges, amortization of intangible assets, and income from discontinued operations, net of related tax. A reconciliation of these non-GAAP measures is provided after the GAAP financial statements below.

The Company had cash, cash equivalents and short-term investments of $97.1 million as of December 31, 2006 compared to cash, cash equivalents, and short-term and long-term investments of $103.6 million as of September 30, 2006.

First quarter gross margin increased to 26.0% compared to 14.1% in the prior quarter. Improved gross margin for the first quarter was due to a higher proportion of test system revenue, receipt of final acceptances for three of the Company's Generation 8 test systems, and lower warranty expense than in the prior quarter.

First quarter bookings were $17 million, and backlog as of December 31, 2006 was $66 million. 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. These fluctuations in bookings may continue in the future.

Commenting on the results for the quarter, Jeffrey Hawthorne, Photon Dynamics' Chief Executive Officer, said, "Despite challenging conditions in the flat-panel display market, Photon Dynamics has continued to make headway operationally, and I am pleased with our execution during the quarter on several of our key initiatives:

--  Most notably, we achieved final acceptances for three of our
    Generation 8 test systems.
--  We made progress and met our milestones in our plan to move portions
    of the Company's manufacturing to Asia, which will enable us to achieve our
    objectives for improving gross margin by reducing manufacturing and
    logistics costs.
--  We maintained our commitment to fiscal conservatism and aggressively
    managed our operating expenses."
    
Hawthorne continued, "While Photon's customers continue to invest in capital spending, recent announcements by certain customers indicate a reduction in their respective capital expenditure spending levels for 2007. As a result, many analysts have revised their estimates for 2007 flat-panel display cap-ex spending to be down approximately 25%-30% from 2006 levels. While the fluctuation in customer investment plans obviously impacts the Company, we believe that manufacturers will invest in future capacity, particularly if TV demand remains on track; although the exact date the market will recover is uncertain at this time.

"As a management team, we recognize the need to size our business in response to market conditions. Thus, the Company is in the process of evaluating a lower breakeven point based on the changing dynamics in the market environment. With that said, however, we are committed to investing in strategic R&D spending." Hawthorne concluded, "The profitable growth of Photon Dynamics is of utmost importance to the entire organization, and we are actively engaged in exploring and developing avenues which we believe will provide future growth opportunities."

Company Projections for Fiscal Year 2007 Second Quarter

The Company estimates revenue for the second quarter of fiscal 2007 to be between $10 and $15 million, with a loss per share of ($0.55) to ($0.65).

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 123 (R), restructuring charges, amortization of intangible assets, and income (loss) from discontinued operations, as well as the tax effects of these adjustments. Because SFAS 123 (R) is a material, non-cash item, Photon Dynamics has also provided non-GAAP information excluding the impact of SFAS 123 (R). Management excludes the effect of SFAS 123 (R) 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 this non-GAAP measure provides investors additional important information to enable them to assess, in the way that management assesses, both the current and future operations of Photon Dynamics.

First Quarter Earnings Conference Call

The Company will host a quarterly conference call today at 5:30 pm EST. To access the conference call in the U.S. or Canada, dial (800) 240-4186. For all international calls, dial (303) 205-0033.

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 2007 financial results.

You may access the telephone replay by dialing (800) 405-2236 or (303) 590-3000 and entering access code 11083913.

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 Web site 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 results for the second quarter of fiscal 2007 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 adoption of new technology by the Company's customers; the delay of investments by the Company's customers in response to current economic factors, which could reduce their demand for Photon Dynamics' products; the migration of our manufacturing operations offshore and the changing customer investment climate, which could lead to impairments of assets and incurring of restructuring costs; an increase in competitive pricing pressures; the introduction of competing products having technological and/or pricing advantages, which would reduce the demand for Photon Dynamics' products; and failure to comply with a variety of United States and foreign federal, state and local laws and regulations could lead to the Company incurring additional expenses, interest and penalties. 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, 2006 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,
                                                      2006         2006
                                                  -----------  -----------

ASSETS

Current assets:
   Cash and cash equivalents                     $    19,085  $    47,935
   Short-term investments                             78,009       54,834
   Accounts receivable, net                           18,055       29,341
   Inventories                                        24,938       18,442
   Other current assets                                3,902        3,972
                                                 -----------  -----------
      Total current assets                           143,989      154,524
Long-term investments                                     --          787
Land, property and equipment, net                     15,054       15,891
Other assets                                           6,063        4,542
Intangible assets, net                                 1,343        1,716
Goodwill                                                 153          153
                                                 -----------  -----------
      Total assets                               $   166,602  $   177,613
                                                 ===========  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                              $     7,199  $     7,657
   Warranty                                            7,858        8,058
   Other current liabilities                          10,276        9,944
   Deferred gross margin                               2,841        7,454
                                                 -----------  -----------
      Total current liabilities                       28,174       33,113
Other liabilities                                        118          119
Commitments and contingencies
Shareholders' equity:
   Common stock, no par value                        286,681      285,510
   Accumulated deficit                              (148,609)    (141,409)
   Accumulated other comprehensive income                238          280
                                                 -----------  -----------
      Total shareholders' equity                     138,310      144,381
                                                 -----------  -----------
      Total liabilities and shareholders' equity $   166,602  $   177,613
                                                 ===========  ===========



                          PHOTON DYNAMICS, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share data)
                               (Unaudited)


                                                     Three Months Ended
                                                        December 31,
                                                 ------------------------
                                                     2006         2005
                                                 -----------  -----------

Revenue                                          $    21,435  $    41,633
Cost of revenue                                       15,871       22,382
                                                 -----------  -----------
Gross margin                                           5,564       19,251
Operating expenses:
   Research and development                            7,995        8,071
   Selling, general and administrative                 4,930        6,851
   Restructuring charge                                  446           62
   Amortization of intangible assets                     373          372
                                                 -----------  -----------
      Total operating expenses                        13,744       15,356
                                                 -----------  -----------
Income (loss) from operations                         (8,180)       3,895
Interest income and other, net                         1,081          500
                                                 -----------  -----------
Income (loss) from continuing operations before
 income taxes and discontinued operations             (7,099)       4,395
Provision for income taxes                               101          352
                                                 -----------  -----------
Income (loss) from continuing operations before
 discontinued operations                              (7,200)       4,043
Loss from discontinued operations                         --         (680)
                                                 -----------  -----------
      Net income (loss)                          $    (7,200) $     3,363
                                                 ===========  ===========
Income (loss) per share from continuing operations:
   Basic                                         $     (0.43) $      0.24
                                                 ===========  ===========
   Diluted                                       $     (0.43) $      0.24
                                                 ===========  ===========
Loss per share from discontinued operations:
   Basic                                         $        --  $     (0.04)
                                                 ===========  ===========
   Diluted                                       $        --  $     (0.04)
                                                 ===========  ===========
Net income (loss) per share:
   Basic                                         $     (0.43) $      0.20
                                                 ===========  ===========
   Diluted                                       $     (0.43) $      0.20
                                                 ===========  ===========
Weighted average number of shares:
   Basic                                              16,590       16,946
                                                 ===========  ===========
   Diluted                                            16,590       17,047
                                                 ===========  ===========



                           PHOTON DYNAMICS, INC.
                Reconciliation of GAAP to Non-GAAP Results
                  (In thousands, except per share data)
                                (Unaudited)


                                   Three Months Ended  Three Months Ended
                                      December 31,       September 30,
                                   ------------------  ------------------
                                     2006      2005      2006      2005
                                   --------  --------  --------  --------

Non-GAAP Net Income (Loss)
 Reconciliation For All Non-GAAP
 Items

GAAP net income (loss)             $ (7,200) $  3,363  $ (6,054) $ (5,853)
Stock-based employee compensation
 expense                                400       985       832       985
Restructuring charge                    446        62        --        62
Amortization of intangible assets       373       372       372       372
Loss (income) from discontinued
 operations                              --       680      (346)      680
Income tax effect of non-GAAP
 adjustments                             --       (10)       (4)      (10)
                                   --------  --------  --------  --------
Non-GAAP net income (loss)         $ (5,981) $  5,452  $ (5,200) $ (5,232)
                                   ========  ========  ========  ========

Non-GAAP Net Income (Loss) Per
 Diluted Share Reconciliation For
 All Non-GAAP Items

GAAP net income (loss) per share -
 diluted                           $  (0.43) $   0.20  $  (0.36) $  (0.35)
Stock-based employee compensation
 expense                               0.02      0.06      0.05      0.06
Restructuring charge                   0.03        --        --      0.00
Amortization of intangible assets      0.02      0.02      0.02      0.02
Loss (income) from discontinued
 operations                              --      0.04     (0.02)     0.04
Income tax effect of non-GAAP
 adjustments                             --        --     (0.00)    (0.00)
                                   --------  --------  --------  --------
Non-GAAP net income (loss) -
 diluted                           $  (0.36) $   0.32  $  (0.31) $  (0.31)
                                   ========  ========  ========  ========

Shares used in basic shares
 calculation                         16,590    16,946    16,849    16,931
                                   ========  ========  ========  ========
Shares used in diluted shares
 calculation                         16,590    17,047    16,849    16,931
                                   ========  ========  ========  ========

Contact Information

  • Contacts:

    Corporation:
    Photon Dynamics
    Mike Schradle
    (408) 360-3561
    Email Contact

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