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Rubicon Technology, Inc. (RBCN)·Q1 2016 Earnings Summary

Executive Summary

  • Revenue rebounded sequentially to $4.287M (+$1.831M q/q), driven by six-inch PSS wafer sales; GAAP loss per share improved to $0.28 from $0.49 in Q4, though gross margin remained sharply negative due to depressed sapphire pricing .
  • Management guided Q2 revenue and GAAP EPS to be similar to Q1, with a significant step-up in PSS wafer volumes expected in Q3 on customer projections; optical initiatives LANCE and SapphirEX hit milestones, supporting margin mix over time .
  • Cash use was elevated (~$5.7M) given SapphirEX tool down payment and $0.9M litigation settlement; net cash used in operating activities was $4.387M; cash and short-term investments stood at $25.0M at quarter-end .
  • Stock catalysts: potential selection in a large consumer electronics sapphire application in coming months, Q3 PSS ramp, and continued polishing cost reductions; near-term Q2 likely neutral given “similar to Q1” guide .

What Went Well and What Went Wrong

What Went Well

  • Six-inch PSS wafer demand: “We expect meaningful increases in six-inch PSS sales over the course of this year because of our large diameter capability and vertical integration,” with a significant Q3 step-up expected; Q1 wafer revenue rose by $1.5M q/q, with $1.1M from PSS .
  • Optical business progress: Delivered the first 18x36 inch sapphire window under LANCE, nearing completion of crystal growth deliverables; SapphirEX production tool scheduled for May to enable pilot production .
  • Sequential improvement: Revenue up to $4.287M from $2.456M in Q4; GAAP EPS improved to $(0.28) from $(0.49); OpEx down to $2.737M from $3.321M .

What Went Wrong

  • Sapphire pricing and margin pressure: Gross loss remained high ($5.419M; gross margin –126.4%) due to excess capacity and weak pricing; core sales limited (2-inch $2k; 4-inch $439k) .
  • Idle costs and underutilization: Idle plant costs were $2.3M with crystal growth at ~30% capacity and underutilized polishing in Malaysia, constraining margin recovery .
  • Cash burn: Elevated cash use (~$5.7M) given SapphirEX payment and litigation settlement; net cash used in operating activities was $4.387M, despite careful CapEx management ($0.549M in Q1) .

Financial Results

Results vs Prior Periods

MetricQ3 2015Q4 2015Q1 2016
Revenue ($USD Millions)$5.346 $2.456 $4.287
Cost of Goods Sold ($USD Millions)$9.237 $11.444 $9.706
Gross Loss ($USD Millions)$(3.891) $(8.988) $(5.419)
Gross Margin (%)–72.8% (derived from )–366.2% (derived from )–126.4% (derived from )
Operating Expenses ($USD Millions)$3.000 (ex-impairment/accrual) $3.321 $2.737
Operating Loss ($USD Millions)$(6.873) (non-GAAP) $(12.309) GAAP $(8.156)
Net Loss ($USD Millions)$(48.196) GAAP (includes impairment) $(12.706) $(7.333)
GAAP EPS ($)$(1.84) $(0.49) $(0.28)

Q1 2016 vs Prior Year and Sequential

MetricQ1 2015Q4 2015Q1 2016
Revenue ($USD Millions)$8.910 $2.456 $4.287
Net Loss ($USD Millions)$(8.348) $(12.706) $(7.333)
GAAP EPS ($)$(0.32) $(0.49) $(0.28)
Gross Loss ($USD Millions)$(5.109) $(8.988) $(5.419)

Revenue by Product Group

Product Group ($USD Thousands)Q3 2015Q4 2015Q1 2016
Core – 2 Inch$551 $10 $2
Core – 4 Inch$1,233 $472 $439
Core – 6 Inch$40 $0 $0
Total Core$1,824 $482 $441
Wafers – Polished$763 $455 $825
Wafers – PSS$1,373 $404 $1,520
R&D$270 $105 $97
Optical & Other$1,116 $1,010 $1,404
Total Revenue$5,346 $2,456 $4,287

KPIs (Q1 2016)

KPIQ1 2016
Cash & Short-term Investments ($USD Millions)$25.0
Cash and Cash Equivalents ($USD Millions)$21.290
Net Cash Used in Operating Activities ($USD Millions)$(4.387)
Total Cash Use (incl. tool down payment & litigation) ($USD Millions)~$(5.7)
Capital Expenditures ($USD Millions)$0.549
DSO (days)41
Inventory ($USD Millions)$20.853
Idle Plant Cost ($USD Millions)$2.3
Crystal Growth Utilization (%)~30%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2016None disclosed prior“Similar to Q1” (≈$4.3M) Maintained vs prior quarter actual
GAAP Loss per ShareQ2 2016None disclosed prior“Similar to Q1” (≈$(0.28)) Maintained vs prior quarter actual
RevenueQ1 2016$4–$5M Actual $4.287M Met guidance
GAAP Loss per ShareQ1 2016$(0.24) to $(0.28) Actual $(0.28) Met guidance (low end)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2015, Q4 2015)Current Period (Q1 2016)Trend
Six-inch PSS wafer rampPSS increased q/q to $1.4M; consignment built; customer start pushed to Jan; focus on vertical integration Q1 wafer revenue +$1.5M q/q; $1.1M from PSS; significant Q3 step-up expected; patterning capacity to be maxed later in year Improving demand; capacity constraints possible in H2
Optical LANCE large windowsHitting dimensional milestones; targeting dominance in large-area optical products Delivered first 18x36 inch window; nearing completion of deliverables; strong interest Execution progressing; commercialization approaching
SapphirEX coatingProduction tool scheduled for May; samples performing well Tool delivery in May; pilot production to enable qualification; samples placed in commercial setting Advancing toward pilot/commercial
Pricing/macro & supply/demandBacklighting weakness; excess capacity; limited core sales Excess capacity persists; LED general lighting growing; OLED pressure in backlighting; pricing weak Still challenged; selective product focus
Cost reductions (polishing/crystal)Polishing cost reduction via partner learnings; continued process improvements Main focus on polishing; larger Malaysia volumes to improve unit costs; broad SG&A and yield projects Ongoing; volume leverage expected in Q3
Cash managementCapEx tightly managed; elevated cash use Q4 due to inventory build Cash use high (tool + litigation); expect capex minimal post-Q2; aim to reduce operating cash burn Near-term elevated; medium-term improvement targeted

Management Commentary

  • “We expect meaningful increases in six-inch PSS sales over the course of this year because of our large diameter capability and vertical integration.”
  • “There is significant interest in these massive windows and we believe that completing the development of this technology should add significant values to our optical business.” (LANCE)
  • “We are scheduled to take delivery on a production tool in May… enable higher volume samples and pilot production capacity… qualification process is moving forward nicely.” (SapphirEX)
  • “Paramount among our objectives this year is the drive to reduce the use of cash and become cash flow positive as soon as possible.”

Q&A Highlights

  • Core sales pacing: Management plans to maintain similar volume of 4-inch core sales near term to keep crystal growth talent and furnace readiness for potential new market ramps .
  • PSS linearity and capacity: Expect step-up in H2 and potential to “remain at that level until additional capacity is added,” implying possible capacity bottleneck if demand persists .
  • Cost reduction focus: Most opportunity remains in polishing; also pursuing SG&A and crystal growth yield improvements; higher Malaysia volumes to reduce wafer costs .

Estimates Context

  • Wall Street consensus via S&P Global for Q1 2016 EPS and revenue was unavailable during this analysis window; coverage appears limited for RBCN’s period. As a result, comparisons are anchored to company guidance and reported actuals .
  • Given Q1 actual revenue of $4.287M and GAAP EPS of $(0.28), the company met its Q1 guidance ranges ($4–$5M revenue; $(0.24)–$(0.28) EPS) .

Key Takeaways for Investors

  • Near-term setup: Q2 likely flat vs Q1, with limited price-driven margin relief; trade setup is neutral into Q3 pending the PSS step-up and pilot production in SapphirEX .
  • Medium-term upside hinges on execution and selection: A large consumer electronics sapphire application decision in coming months could drive volumes later this year and materially in 2017+; Rubicon’s vertical integration and six-inch capability are differentiators .
  • Cost leverage catalyst: Expected Q3 volume ramp through Malaysia polishing should reduce unit costs and improve gross margin trajectory; monitor idle cost progress and yield improvements .
  • Optical mix expansion: LANCE milestone delivery indicates credibility to shift mix toward higher-margin optical products; continued commercialization could diversify away from commodity core pricing volatility .
  • Liquidity watch: Cash and STI ~$25M provides runway; net cash used in operating activities ($4.387M) and near-term SapphirEX payments suggest continued discipline on CapEx and working capital is critical .
  • Guidance credibility: Q1 guidance was met; Q2 guide “similar” lowers near-term uncertainty. The Q3 PSS ramp and potential capacity constraints should be monitored for upside or supply bottlenecks .
  • Risk factors: Persistent sapphire oversupply, OLED substitution in backlighting, and underutilization (idle costs $2.3M; 30% crystal growth utilization) remain headwinds until new applications or PSS adoption absorb capacity .