Photon Control Reports Second Quarter and Half-Year 2018 Financial Results

VANCOUVER, Aug. 2, 2018 /CNW/ - Photon Control Inc. ("Photon Control" or the "Company") (TSX: PHO), a leading developer and supplier of optical measurement technologies to the global semiconductor industry, has reported its financial results for the three and six months ended June 30, 2018.

Highlights:

• Record revenue of $14.6 million for the quarter and $28.4 million for the half-year, representing increases of 64% and 37% respectively over the prior year periods;
• Earnings before interest, taxes, depreciation, amortization and foreign exchange ("EBITDA") of $5.1 million or 35% of revenue for the quarter and $9.8 million or 35% of revenue for the half-year;
• Record net income of $3.9 million and basic earnings per share of $0.03 for the quarter and $6.7 million and $0.06 per share for the half-year;
• Order backlog of $19.5 million at June 30, 2018; and,
• Cash on hand of $40.8 million at June 30, 2018.

"Our results reflect the fundamental strength of our products and the robust spending environment for wafer fabrication equipment during the first half of 2018," said Scott Edmonds, Chief Executive Officer. "Revenue from new products continued to grow, as did our new product funnel. As expected, our revenue this year will be front-half weighted given the expected moderation of semiconductor capital expenditures during the third quarter. Our expected decline in revenue during the third quarter is consistent with the forecasts of our customers. With the strong results delivered year-to-date, we look forward to reporting another record year in 2018, with revenue growth outpacing that of the overall wafer fabrication equipment industry."

Second Quarter and Year-To-Date 2018 Financial Results
Total revenue for the second quarter of 2018 increased 64% from $8.9 million to a record $14.6 million, and for the first half of 2018, revenue increased 37% from $20.8 million to $28.4 million. The very large increase year-over-year reflects a second quarter 2017 slowdown while the Company relocated its manufacturing facility, as well as the Company capturing an increased share of customers' spend of fiber optic sensors combined with strong overall market conditions in 2018.

Gross profit in 2018 reflects the benefits of the stronger revenue. Second quarter 2018 gross profit increased 78% to $8.3 million versus the prior year quarter, and first half of 2018 gross profit increased 37% to $16.2 million versus the prior year period. Gross margin increased to 57% for the quarter and year-to-date compared to 53% and 57% in the same year-ago periods. The increase was primarily due to sales mix and greater economies of scale realized from the Company's manufacturing facility.

Operating expenses for the three and six months ended June 30, 2018 were $3.8 million and $6.9 million compared to $4.3 million and $9.0 million in 2017. When normalized for non-recurring charges of $1.8 million and $4.2 million in the 2017 comparable quarter and year-to-date periods, operating expenses increased by $1.3 million and $2.2 million for the quarter and year-to-date due to an increased labour workforce and development costs to support current and future revenue growth.

Total comprehensive income for the quarter was $3.8 million or $0.03 per share compared to a loss of $0.3 million or $Nil per share for the comparable period of 2017 while for the first half of 2018, total comprehensive income was $6.7 million or $0.06 per share versus $1.4 million or $0.01 per share for the first half of 2017.

EBITDA for the quarter and first half of 2018 was $5.1 million or 35% of revenue and $9.8 million or 35% of revenue compared to $2.5 million or 28% of revenue and $7.4 million or 36% of revenue in the same year-ago periods. The Company defines EBITDA as earnings before finance income, accretion expense, income tax, depreciation, amortization and foreign exchange. For the comparative period, EBITDA was adjusted to remove the effect of non-recurring items.

As at June 30, 2018, cash on hand was $40.8 million, an increase of $6.5 million from $34.3 million at December 31, 2017. The increase was attributable to the Company's strong operaing results.

Order backlog (defined as the value of sales orders scheduled to be shipped in the next 6 months) was $19.5 million at June 30, 2018, a decrease from $24.7 million at March 31, 2018 and an increase from $18.3 million at December 31, 2017. The decrease in order backlog since March 31, 2018 reflects the record shipments in the quarter. Although not reflected in the order backlog, the Company also has a strong pipeline of new products under development which contribute to revenue during the prototype and pre-production stages.

China Distribution Agreement
On July 30, 2018, Photon Control announced it entered into an exclusive distribution agreement with Crowntech Photonics ("Crowntech") for the Company's fiber optic-based temperature and position sensors in China. Wafer fabrication equipment spending in China was approximately $4 billion in 2014 and is expected to grow to $11 billion by the end of 2018. The Company's existing sales to China comprised 15% of overall revenue for the first half of 2018 and this new distribution agreement positions the Company to increase its presence in the region as China embarks on its "Made in China 2025" strategy.

Tax Review
Earlier this year, the Company announced it had commenced a review of its existing tax structure with its third-party tax advisors to identify and take advantage of opportunities to achieve the most efficient and effective tax outcomes. In addition to identifying these opportunities, this process involved a review of historical filings and jurisdictional compliance. The review has identified a potential tax liability related to a foreign jurisdiction which could be in the range of $1.4 million to $2.0 million plus penalties, if any. The actual liability amount may be influenced by available tax elections, application of historical losses and offsetting credits and deductions from both the taxing and other jurisdictions; and thus, cannot be more accurately estimated at this time. The Company and its advisors are working diligently to conclude this matter and we will update shareholders as it progresses.

Business Outlook
"We expect Q3 2018 revenue to be in the range of $10 million to $12 million," continued Mr. Edmonds. "Our expectation of a sequential decrease in quarterly revenue in the third quarter is the result of a slow-down in capital spending by our wafer fabrication equipment customers after a very strong first half of this year. Despite this slow-down, we continue to expect to generate year-over-year revenue growth exceeding overall industry growth. This is a result of our focus on etch, the fastest growing subsegment of the market, where adoption of fiber optic sensors is greatest as well as our efforts to add new products to our portfolio. We expect to maintain our EBITDA and net income margins for the year at levels similar to or above those reported in the prior year."

38^th Annual Canaccord Genuity Growth Conference
On Thursday August 9, 2018 at 12:00 pm Eastern time, Scott Edmonds, Chief Executive Officer, will present at the 38^th Annual Canaccord Genuity Growth Conference at the InterContinental Hotel in Boston, Massachusetts.

Conference Call
Photon Control will hold a conference call today (Thursday, August 2, 2018) at 11:00 a.m. Eastern time (8:00 a.m. Pacific time) to discuss these results. The call will be hosted by Scott Edmonds, Chief Executive Officer and Daniel Lee, Chief Financial Officer followed by a question and answer period.

Please call the conference telephone number approximately 10 minutes prior to the commencement of the call. The conference call will be broadcast simultaneously and available for replay here.

Toll-Free Number: 1-877-407-9716
International Number: 1-201-493-6779

Financial Statements and Management's Discussion and Analysis
This news release should be read in conjunction with the Company's condensed interim consolidated financial statements and related notes, and management's discussion and analysis for the three and six months ended June 30, 2018, copies of which can be found at www.sedar.com.

About Photon Control Inc.
Photon Control Inc. designs, manufactures and distributes a wide range of optical sensors and systems to measure temperature and position. These products are used by the world's largest wafer fabrication equipment manufacturers and end users in the semiconductor and solid-state industries. Photon Control Inc.'s high quality products provide industry leading accuracy, speed and quality in the most extreme conditions and are backed by a team of experts providing a variety of on-site and remote services including custom design, installation, training and support. Headquartered in an ISO 9001:2015 manufacturing facility in Vancouver, BC, Photon Control Inc. is listed on the TSX, trading under the symbol ''PHO." Additional information about the company can be found at www.photon-control.com/investors.html.

Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities legislation. These statements generally can be identified by use of forward looking words such as "may", "will", "expect", "estimate", "anticipate", "intend", "consider", "believe" or "continue" or the negative thereof or similar variations. Such forward-looking statements concern the business and anticipated financial performance of the Company and include, without limitation, the Company's expectations with respect to the overall order activity for the balance of the year, growth in the dollar value of the wafer fabrication equipment market, revenue from new products, growth in the etch market and the Company's ability to build on its financial and operational foundation in the future.

These forward-looking statements are based on certain factors and assumptions, including, without limitation: the Company's ability to successfully complete new purchase orders along the timelines expected; continued and future demand for the Company's products; continued sales to the Company's major customers; the continued financial health of the semiconductor industry; and the Company's ability to continue and further enhance revenue diversification and open new market opportunities.

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation: additional measures and controls may not be implemented as expected or along the timelines anticipated; uncertainties relating to the market for the Company's products and maintaining a stable level of orders; fluctuations in revenue as a result of volatility in the markets and product mix; risks relating to the Company's present reliance on its major customers for the majority of its sales; risks relating to the Company's reliance on the financial health of the semiconductor industry; risks relating to the development of competing technologies and the possibility of increased competition; the effect of slow growth in the United States, the Company's principal market, as well as other economies and other economic trends and conditions in the markets that the Company and its customers serve; risks associated with technical difficulties or delays in product introductions, improvements, implementation; uncertainties in product pricing or other initiatives of the Company and its competitors; uncertainties in factors that may result in a reduction in capital expenditures and/or delayed buying decisions affecting demand for the Company's products; risks relating to currency fluctuations, particularly between the Canadian and United States dollars; and risks in pursuing additional development projects to support existing customers or pursue other business opportunities.

The foregoing assumptions, risks and uncertainties are not exhaustive of the items that may affect our forward-looking statements. Should underlying assumptions prove to be incorrect or one or more of these risks and uncertainties materialize, actual results may vary materially from those described in the forward-looking statements. The Company's forward-looking statements are based on beliefs, expectations and opinions of management on the date the statements are made.

For the reasons set forth above, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements included herein if these beliefs, estimates and opinions or other circumstances should change, except as otherwise required by applicable law.

SOURCE Photon Control Inc.

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