Electro Scientific Industries, Inc.
Feb 1, 2017

ESI Announces Third Quarter Fiscal 2017 Results

PORTLAND, Ore., Feb. 01, 2017 (GLOBE NEWSWIRE) -- Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2017 third quarter ended December 31, 2016. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring costs, and other items.

Third quarter revenue was $33.8 million, compared to $29.7 million in the second quarter of 2017 and $43.3 million in the third quarter of last fiscal year. GAAP net loss was $9.7 million or $0.29 per share, compared to a net loss of $9.7 million, or $0.30 per share in the second quarter. On a non-GAAP basis net loss was $7.6 million or $0.23 per share, compared to net loss of $7.7 million or $0.24 per share in the prior quarter.

Michael Burger, president and CEO of ESI, said, "We delivered top and bottom line results at the high end of our expectations in the third quarter, as revenues grew 14% sequentially. We also made progress on new product evaluation by customers, the integration of our Visicon acquisition, and repositioning our Micromachining product line for future success."

Bookings in the third quarter were $44.1 million, compared to $28.0 million in the prior quarter and $52.6 million last year. Burger continued, "The demand environment improved late in the third quarter, specifically with the return of the flex via drilling market from a two-quarter slump. Interconnect bookings were broad based, more than doubled sequentially, and were higher than a year ago. Also, our Component Test group delivered its highest quarterly bookings in more than three years."

On a GAAP basis gross margin was 33.9%, compared to 37.0% in the prior quarter due to timing of other cost of sales items. Operating expenses were $21.5 million, up slightly from $20.9 million in the prior quarter. Operating loss was $10.1 million, compared to a loss of $9.9 million last quarter.

Non-GAAP gross margin was 34.5% compared to 38.2% in the prior quarter. Non-GAAP operating expenses rose slightly to $19.3 million. Non-GAAP operating loss was $7.7 million, compared to a loss of $7.6 million in the second quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments were $54.3 million, compared to $59.1 million last quarter. The company used $3.7 million of operating cash in the third quarter. Inventories decreased by $3.1 million, trade receivables decreased by $2.1 million, and accounts payable increased by $0.7 million.

After the end of the quarter, the company announced that it had secured a $14 million, 10-year term loan secured by the company's headquarters facility. In addition, the company has reached agreement to amend its existing $30 million credit agreement with Silicon Valley Bank and extend it through March 2019.

Fourth Quarter 2017 Outlook

Based on current orders and backlog, revenues for the fourth quarter of fiscal 2017 are expected to be between $40 and $45 million. Non-GAAP loss per share is expected to be $0.02 to $0.07.

Burger concluded, "I am encouraged by our orders performance this quarter. We expect to again see strong seasonal demand for our industry-leading flex products. We also made some progress toward early qualification and customer penetration with our new products, but there is more work to do. As we look forward we are focused on improving execution, accelerating new product adoption, and increasing consistency of earnings over time."

The company will hold a conference call today at 5:00 p.m. ET. The session will include a review of the financial results, operational performance and business outlook, and also a question and answer period. The conference call can be accessed by calling 888-339-2688 (domestic participants) or 617-847-3007 (international participants). The conference ID number is 78791049. A live audio webcast can be accessed at www.esi.com. The webcast will be available on ESI's website for one year.

Discussion of Non-GAAP Financial Measures

In this press release, we have presented financial measures which have not been determined in accordance with generally accepted accounting principles (GAAP) and are therefore non-GAAP financial measures. Non-GAAP, or adjusted, financial measures exclude the impact of purchase accounting, equity compensation, restructuring, integration costs, inventory write-downs and other items. We believe that this presentation of non-GAAP financial measures allows investors to assess the company's operating performance by comparing it to prior periods on a more consistent basis. We have included a reconciliation of various non-GAAP financial measures to those measures reported in accordance with GAAP. Because our calculation of non-GAAP financial measures may differ from similar measures used by other companies, investors should be careful when comparing our non-GAAP financial measures to those of other companies.

About ESI

ESI's integrated solutions allow industrial designers and process engineers to control the power of laser light to transform materials in ways that differentiate their consumer electronics, wearable devices, semiconductor circuits and high-precision components for market advantage. ESI's laser-based manufacturing solutions feature the industry's highest precision and speed, and target the lowest total cost of ownership. ESI is headquartered in Portland, Oregon, with global operations and subsidiaries in Asia, Europe and North America. More information is available at www.esi.com

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, growth, products, revenue, and earnings. These forward-looking statements are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. Actual results may differ materially from those in the forward-looking statements. Risks and uncertainties that may affect the forward-looking statements include: the risk that anticipated growth opportunities may be smaller than anticipated or may not be realized; risks related to the relative strength and volatility of the electronics industry—which is dependent on many factors, including component prices, global and regional economic strength and political stability, timing of consumer product introductions and overall demand for electronic devices (such as semiconductors, printed circuit boards, displays, LEDs, capacitors and other components) used in wireless telecommunications equipment, computers and consumer and automotive electronics; the health of the financial markets and availability of credit for end customers and related effect on the global economy; the volatility associated with the industries we serve which includes the relative level of capacity and demand, and financial strength of the manufacturers; the risk that customer orders may be canceled or delayed; the ability of the company to respond promptly to customer requirements; the risk that the company may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; the ability of the company to develop, manufacture and successfully deliver new products and enhancements; the risk that customer acceptance of new or customized products may be delayed; the risk that large orders and related revenues may not be repeated; the company's need to continue investing in research and development; the company's ability to hire and retain key employees; the company's ability to create and sustain intellectual property protection around its products; the risk that competing or alternative technologies could reduce demand for our products; the risk that we may not be successful in penetrating new or adjacent markets; the risk that we do not successfully integrate Visicon Technologies or achieve the anticipated cost synergies; the risk that the incorporation of Visicon's vision technology does not give us a competitive advantage; the risk that our new products may not gain acceptance in the marketplace; the risk that new products may not be introduced to the market in the anticipated time frame or at all; foreign currency fluctuations; the risk that duties or tariffs could be imposed or increased on goods imported or exported by us; the risk that changes to policies regarding immigration and visits to the United States could negatively impact our ability to hire or retain and train qualified personnel or our ability to operate internationally on an integrated basis; the company's ability to utilize recorded deferred tax assets; taxes, interest or penalties resulting from tax audits; and changes in tax laws or the interpretation of such tax laws.

 
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Third Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 Fiscal quarter ended Three fiscal quarters ended
 Dec 31, 2016 Oct 1, 2016 Jan 2, 2016 Dec 31, 2016 Jan 2, 2016
Net sales:         
Systems$25,427  $21,442  $31,282  $85,069  $98,914 
Services8,352  8,216  12,060  26,036  33,991 
Total net sales33,779  29,658  43,342  111,105  132,905 
Cost of sales:         
Systems17,283  14,146  20,292  53,851  63,922 
Services5,048  4,532  5,329  14,018  17,464 
Total cost of sales22,331  18,678  25,621  67,869  81,386 
Gross profit11,448  10,980  17,721  43,236  51,519 
Gross margin33.9% 37.0% 40.9% 38.9% 38.8%
Operating expenses:         
Selling, general and administrative13,280  12,766  12,468  38,917  37,619 
Research, development and engineering7,868  7,760  7,778  23,258  24,706 
Acquisition and integration costs31  335    366  194 
Restructuring costs321    1,944  321  2,597 
Net operating expenses21,500  20,861  22,190  62,862  65,116 
Operating loss(10,052) (9,881) (4,469) (19,626) (13,597)
Non-operating income:         
Interest and other income, net34  206  67  162  68 
Total non-operating income34  206  67  162   68 
Loss before income taxes(10,018) (9,675) (4,402 ) (19,464) (13,529)
(Benefit from) provision for income taxes(325)   184  22  681 
Net loss$(9,693) $(9,675) $(4,586) $(19,486 ) $(14,210)
Net loss per share - basic$(0.29) $(0.30) $(0.15) $(0.60) $(0.45)
Net loss per share - diluted$(0.29) $(0.30) $(0.15) $(0.60) $(0.45)


Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)   
 Dec 31, 2016 Oct 1, 2016 Apr 2, 2016
Assets     
Current assets:     
Cash and cash equivalents$44,891  $52,685  $42,413 
Short-term investments6,301  3,500  15,252 
Trade receivables, net27,644  29,744  42,770 
Inventories58,830  61,895  60,470 
Shipped systems pending acceptance3,983  3,893  1,181 
Other current assets5,903  5,547  5,340 
Total current assets147,552  157,264  167,426 
Non-current assets:     
Property, plant and equipment, net23,660  24,581  24,543 
Non-current deferred income taxes, net836  884  914 
Goodwill and acquired intangible assets, net18,963  19,241  14,591 
Other assets17,025  15,448  12,626 
Total assets$ 208,036  $217,418  $220,100 
Liabilities and shareholders' equity     
Current liabilities:     
Accounts payable$ 14,345  $13,611  $16,061 
Accrued liabilities16,015  17,170  18,334 
Deferred revenue10,822  10,951  6,373 
Total current liabilities41,182  41,732  40,768 
Non-current liabilities     
Income taxes payable1,048  1,360  1,266 
Deferred income tax liability, net218  226  234 
Other liabilities6,085  6,529  7,801 
Total liabilities48,533  49,847  50,069 
Shareholders' equity:      
Preferred and common stock204,859  202,493  195,024 
Accumulated deficit(43,485) (33,792) (23,998)
Accumulated other comprehensive loss(1,871) (1,130) (995)
Total shareholders' equity159,503  167,571  170,031 
Total liabilities and shareholders' equity$208,036  $ 217,418  $220,100 
End of period shares outstanding33,151  32,966  31,613 


Electro Scientific Industries, Inc.
Analysis of Third Quarter Fiscal 2017 Results
(Unaudited)
(In thousands, except for end of period employees)
  Fiscal quarter ended Three fiscal quarters ended
  Dec 31, 2016 Oct 1, 2016 Jan 2, 2016 Dec 31, 2016 Jan 2, 2016
Sales detail:          
Component Processing          
Interconnect Products (IP) $15,987  $13,527  $22,824  $60,432  $64,969 
Component Test Products (CTP) 5,407  4,990  3,303  14,999   14,292 
Semiconductor Products (SP) 6,690  7,222  11,384   21,521  29,288 
  28,084  25,739  37,511  96,952  108,549 
Micromachining          
Micromachining Products (MP) 5,695  3,919  5,831  14,153  24,356 
Net Sales $33,779  $29,658  $43,342  $111,105  $132,905  
           
As % of Net Sales          
Gross profit 33.9% 37.0% 40.9% 38.9% 38.8%
Selling, general and administrative expense 39% 43% 29% 35% 28%
Research, development and engineering expense 23% 26% 18% 21% 19%
Net operating expenses 64% 70% 51% 57% 49%
Operating loss (30%) (33%) (10%) (18%) (10%)
           
Effective tax rate % 3% % (4%) % (5%)
Weighted average shares outstanding - basic 32,919  32,396  31,495  32,379  31,355 
Weighted average shares outstanding - diluted - GAAP 32,919  32,396  31,713  32,379  31,355 
End of period employees 716  725  647  716  647 


Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)
(In thousands, except per share data)      
  Fiscal quarter ended Three fiscal quarters ended
  Dec 31, 2016 Oct 1, 2016 Jan 2, 2016 Dec 31, 2016 Jan 2, 2016
Gross profit per GAAP $ 11,448  $10,980  $17,721  $43,236  $51,519 
Purchase accounting 229  228  271  686  862 
Equity compensation 142  136  103  398  346 
Charges for inventory write-off of damaged product (170)     946   
Charges for inventory write-off of discontinued product      1,356    1,356 
Non-GAAP gross profit $11,649  $11,344  $19,451  $45,266  $54,083 
Non-GAAP gross margin 34.5% 38.2% 44.9%  40.7% 40.7%
           
Operating expenses per GAAP $21,500  $20,861  $22,190  $62,862  $65,116 
Purchase accounting  (210) (203) (264) (663) (967)
Equity compensation (1,674) (1,383) (1,020) (4,227) (2,905)
Charges for write-off of damaged product 54      (46)  
Acquisition and integration costs (31) (335)   (366) (194)
Restructuring costs (321) (14) (1,944) (372) (2,597)
Non-GAAP operating expenses $19,318   $18,926  $18,962  $57,188  $58,453 
% of Net sales 57% 64% 44% 51 % 44%
            
Operating (loss) income per GAAP $(10,052) $(9,881) $(4,469) $(19,626) $(13,597)
Non-GAAP adjustments to gross profit 201  364  1,730  2,030  2,564 
Non-GAAP adjustments to operating expenses 2,182  1,935  3,228  5,674  6,663 
Non-GAAP operating (loss) income $(7,669) $(7,582 ) $489  $(11,922) $(4,370)
% of Net sales (23%) (26%) 1% (11%) (3%)
           
Non-operating income (expense), net per GAAP $34  $206   $67  $162  $68 
Acquisition-related adjustments   (190)   (190)  
Non-GAAP non-operating income (expense) $34  $16  $67  $(28 ) $68 
           
Net loss per GAAP $(9,693) $(9,675) $(4,586) $(19,486) $(14,210)
Non-GAAP adjustments to gross profit 201  364  1,730  2,030  2,564 
Non-GAAP adjustments to operating expenses 2,182  1,935  3,228  5,674  6,663 
Non-GAAP adjustments to non-operating expense   (190)   (190)  
Income tax effect of other non-GAAP adjustments (248) (101) 26  (284) (126)
Non-GAAP net (loss) income $ (7,558) $(7,667) $398  $(12,256) $(5,109)
% of Net sales  (22%) (26%) 1% (11%) (4%)
Basic Non-GAAP net (loss) income per share $(0.23) $(0.24) $0.01  $(0.38) $ (0.16)
Diluted Non-GAAP net (loss) income per share $(0.23) $(0.24) $0.01  $(0.38) $(0.16)


Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)        
 Fiscal quarter ended Three fiscal quarters ended
 Dec 31, 2016 Oct 1, 2016 Jan 2, 2016 Dec 31, 2016 Jan 2, 2016
Net loss$(9,693) $(9,675) $(4,586) $(19,486) $(14,210)
Non-cash adjustments and changes in operating activities6,017   2,204  8,089  19,787  22,208 
Net cash (used in) provided by operating activities(3,676) (7,471) 3,503  301  7,998 
Net cash (used in) provided by investing activities(3,687) (2,475) (5,234 ) 2,817  (17,029)
Net cash provided by (used in) financing activities381   259  277  242  411 
Effect of exchange rate changes on cash(812) (91) (117) (882) (303)
NET CHANGE IN CASH AND CASH EQUIVALENTS(7,794) (9,778) (1,571) 2,478  (8,923)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD52,685  62,463  43,642  42,413  50,994 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$44,891  $52,685  $42,071  $44,891  $42,071 


Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending
April 1, 2017
  
Non-GAAP loss per share(0.02) - (0.07)
Purchase accounting(0.02) - (0.03)
Equity compensation (0.06)
Other items(0.02) - (0.03)
GAAP loss per share(0.12) - (0.19)

 


Brian Smith

ESI

503-672-5760

smithb@esi.com

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Source: Electro Scientific Industries, Inc.

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