Michael Plisinski, chief executive officer, commented, “Rudolph continues to build out its diversified business model and the third quarter saw growth in a number of areas most notably in specialty devices which increased 70 percent in the quarter and represented 29 percent of system revenue. This increase was primarily driven by RF manufacturers installing new systems and software for initial production of 5G modules. Software maintained its recovery in the quarter and we delivered an enterprise yield management system to provide process knowledge across four assembly and test facilities at a top tier automotive supplier in the quarter. Lastly, our lithography business leveraged our previous success in the panel market to add a second JetStep System tool into an OSAT customer’s wafer-level packaging expansion for automotive devices. Unfortunately the positive accomplishments were not enough to compensate for the pushouts in revenue from our memory customers which declined by 68% from the second quarter high.”

Mr. Plisinski concluded, “Consistent with prior statements we see the third quarter revenue as a low point for the year and growth returning in the 4^th quarter resulting in our 4^th consecutive record year. We continue to drive advances in our core product lines such as the Dragonfly G2 system while organically introducing new product lines to expand our TAM such as our announced new NovusEdge^TM system and our long-term program for our high resolution display lithography tool. We believe that our continued pace of innovation will provide continued growth for Rudolph and are confident in our strategy. Our recently announced $40M stock buyback program demonstrates our confidence in our financial ability to execute our innovation strategy and provide an additional method of shareholder return.”

Third Quarter 2018 GAAP Financial Results

Third quarter revenue totaled $60.4 million, a decrease of 22 percent compared with $77.5 million for the second quarter of 2018 and a 10 percent decrease compared with $66.9 million in the third quarter of 2017. The third quarter gross margin was 52 percent of revenues, compared to 54 percent in the second quarter of 2018. The decrease in gross margin was the result of fewer metrology tools in the product mix and the sale of a lower margin lithography tool in the third quarter.

Operating expenses for the third quarter of 2018 totaled $23.8 million, compared to $9.6 million in the 2017 third quarter and $25.1 million in the second quarter of 2018. The increase in operating expenses over the prior year was primarily due to a one-time patent infringement settlement of $13 million in the prior year quarter, which offset the total operating expenses by that amount. The sequential decrease in operating expenses was due to lower research and development and incentive compensation costs in the quarter.

GAAP net income for the third quarter of 2018 was $7.2 million, or $0.22 per diluted share, compared with a net income of $17.4 million, or $0.54 per diluted share, for the same period in 2017. The decrease in GAAP net income was primarily due to the gain on the patent infringement settlement recorded in the prior year.

Third Quarter Non-GAAP Financial Results

Third quarter 2018 non-GAAP net income was $8.5 million, or $0.26 detailed in the attached table. Third quarter 2017 non-GAAP net income was $10.6 million, or $0.33 per diluted share. In the second quarter of 2018, non-GAAP net income was $16.6 million, or $0.51 per diluted share.

Balance Sheet

At September 30, 2018, cash and marketable securities increased $10.9 million over the previous quarter to $194.3 million and cash provided by operating activities was $15.0 million for the third quarter. Accounts receivable decreased in the quarter to $68.5 million and inventory increased to $91.4 million primarily due to inventory build for the Company’s Display initiative and an increase in service inventory to support new products. Working capital increased in the quarter and ended at $320.9 million.

Outlook

The Company is currently anticipating revenue for the fourth quarter ended December 31, 2018 to be up and in the range of $60 million - $66 million. The Company is also expecting diluted GAAP net income per share to be in the range of $0.20 to $0.27 and non-GAAP net income per diluted share to be in the range of $0.24 to $0.31.

Conference Call

Rudolph Technologies will discuss its 2018 third quarter results on a conference call it is hosting today at 4:30 PM EDT. To participate in the call, please dial (800) 263-0877 (Domestic) or (646) 828-8143 (International), reference Conference ID # 5577350 at least five (5) minutes prior to the scheduled start time. A live webcast will also be available on the Company’s website at www.rudolphtech.com

To listen to the live webcast, please go to the website at least fifteen (15) minutes early to register, download and install any necessary audio software.

There will be a replay of the conference call available from 8:00 p.m. ET on November 1 until 11:59 p.m. ET on November 8, 2018. To access the replay, please dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) at any time during that period and use Conference ID 5577350.