Rubicon Technology, Inc. (RBCN)·Q4 2015 Earnings Summary

Executive Summary

• Q4 2015 revenue was $2.456M, down sharply vs Q3 2015 ($5.346M) and Q4 2014 ($8.912M), as Rubicon limited low-priced core sales and built consignment PSS inventory for a key six-inch customer . GAAP EPS was -$0.49; non-GAAP EPS was -$0.38 after a $2.3M raw material revaluation .
• Revenue landed within prior guidance ($2–$3M), but EPS loss was worse than guided “around -$0.30,” driven by weak sapphire pricing, limited core sales, and consignment production ahead of revenue recognition .
• Management guided Q1 2016 revenue to $4–$5M and GAAP EPS to -$0.24 to -$0.28, citing ramp in six-inch PSS sales and some rebound in four-inch core demand; wafer cost reductions are expected to begin in Q1 with more substantial progress in Q2 .
• Strategic focus: accelerate cost reductions, ramp six-inch PSS where Rubicon’s vertical integration is a differentiator, and advance LANCE (large windows) and SapphirEX (sapphire coating) toward production; cash flow improvement is a top priority .

What Went Well and What Went Wrong

• What Went Well

  • Revenue landed within prior guidance ($2–$3M) despite industry pricing pressure; management built consignment inventory for a key six-inch PSS customer to enable Q1 ramp .
  • Progress on optical initiatives: LANCE reached dimensional milestones for unprecedented 36" x 18" x 2" windows; SapphirEX moved toward pilot production with positive customer testing .
  • Clear six-inch PSS strategy leveraging vertical integration from powder to wafer; management sees six-inch PSS as fastest-growing LED substrate subsegment and expects migration as four-inch pricing bottoms .

• What Went Wrong

  • Severe pricing weakness: Q4 core sales fell to $0.482M from $1.824M in Q3; PSS wafer revenue decreased to $0.404M from $1.373M due to delayed customer timing and weak demand .
  • Gross margin deeply negative (-366%): gross loss of -$8.988M on $2.456M revenue, reflecting low utilization and idle plant costs rising to $2.3M vs $1.8M in Q3 .
  • EPS miss vs prior guidance: GAAP EPS -$0.49 vs “around -$0.30” guided; non-GAAP still -$0.38 even after excluding raw material revaluation and deferred tax estimate change .

Financial Results

Segment breakdown (Revenue by Product Group):

KPIs and operating metrics:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “As expected, the fourth quarter was a particularly challenging one… excess capacity in the market and fluctuations in inventory levels… limited demand creating additional downward pressure on pricing.”
• “We believe that more LED chip manufacturers will adopt the six-inch platform and that six-inch PSS should become the fastest growing subsegment of the LED substrate market.”
• “We are on track to complete our LANCE crystal growth deliverables this year producing windows as large as 36” x 18” x 2”… We also expect to move SapphirEX into production later this year.”
• “Paramount among our objectives this year is the drive to reduce the use of cash and become cash flow positive as soon as possible.”
• “2016 and in particular the next six months are extremely important… as we move new technologies to production, reduce product costs and see how these potential new sapphire markets develop.”

Q&A Highlights

• Polishing cost learnings: Despite the resource-sharing partner stepping back, Rubicon captured process insights to translate into six-inch polishing cost reductions; focus remains on six-inch .
• Strategic options: Management emphasized that the next six months could materially change the situation if new applications materialize and optical initiatives progress; strategic review implied but contingent on developments .
• Prior quarter context: In Q3, management flagged Q4 cash burn could be ~$5M due to inventory build and consignment; reiterated high cash usage short-term to enable Q1 sales conversion .

Estimates Context

• Wall Street consensus for Q4 2015 EPS and revenue via S&P Global was unavailable during this analysis; therefore, vs-consensus comparisons could not be assessed. Management’s own Q4 guidance was met on revenue but missed on EPS as detailed above .
• Q1 2016 guidance implies sequential revenue rebound ($4–$5M) and narrower loss (-$0.24 to -$0.28), which may prompt estimate revisions higher on revenue and lower on EPS loss if coverage exists .

Key Takeaways for Investors

• Revenue in Q4 2015 fell to $2.456M, consistent with deliberate limitation of low-priced core sales and consignment inventory build; expect sequential rebound with six-inch PSS draws in Q1 2016 .
• EPS missed prior guidance due to severe pricing pressure and higher idle costs; non-GAAP EPS (-$0.38) benefited from excluding a $2.3M raw material revaluation and deferred tax estimate changes .
• Structural advantage in six-inch PSS via vertical integration should matter as migration accelerates and four-inch pricing bottoms; expect PSS to drive near-term revenue mix .
• Optical growth vectors are progressing (LANCE and SapphirEX), offering higher-margin diversification beyond volatile bulk sapphire; key 2016 milestones could be stock catalysts .
• Cash position remains solid with $21.216M in cash and $8.895M in short-term investments at year-end; operating cash outflow increased in Q4 due to consignment and limited core sales, but management targets improvement as wafer costs fall .
• Near-term trading: Watch for confirmation of Q1 revenue/EPS guidance and evidence of wafer cost reductions; any update on large new sapphire applications could materially shift sentiment .
• Medium-term thesis: Execution on cost reductions, mix shift toward six-inch PSS and optical products, and potential adoption in new consumer/medical applications are pivotal to margin recovery and cash flow improvement .