Electro Scientific Industries, Inc.
May 9, 2017

ESI Announces Fourth Quarter and Full Year Fiscal 2017 Results

PORTLAND, Ore., May 09, 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 fourth quarter and year ended April 1, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring, impairments of intangible assets, inventory, and goodwill, and other items.

Fourth quarter revenue was $49.9 million, compared to $51.5 million in the fourth quarter of last fiscal year and $33.8 million last quarter. GAAP net loss was $17.9 million or $0.54 per share, and included $18.1 million of charges primarily related to restructuring and the impairment of goodwill, intangible assets, and inventory. Of the charges, approximately $5.2 million are expected to be paid in cash. Non-GAAP net income was $2.9 million or $0.09 per diluted share.

"The company had a strong quarter operationally with orders, revenues, and non-GAAP earnings exceeding expectations," stated Michael Burger, president and CEO of ESI. "The seasonally strong orders resulted in our highest backlog in nearly five years and position us well as we enter fiscal 2018. I am also pleased with the progress we are making on our restructuring plan. Our new executive team is in place and we are on track with our plans to improve our consistency of earnings over time."

Orders in the fourth quarter were $82.3 million, compared to $55.6 million last year and $44.1 million in the prior quarter. Burger continued, "Seasonally strong markets and solid execution drove orders to their highest quarterly level in over five years. Year over year we grew fourth quarter orders in all product groups, as well as in service."

On a GAAP basis gross margin was 36.5%, compared with 41.1% in the fourth quarter of fiscal 2016, and included approximately $4.0 million dollars of charges reflecting the impairment of intangible assets and impairment of inventory associated with our restructuring activities. Operating expenses were $36.3 million, up from $20.1 million one year ago, and included $6.6 million of restructuring costs and a $7.4 million impairment of goodwill. Operating loss was $18.1 million, compared to income of $1.1 million in the year-ago quarter.

On a non-GAAP basis gross margin was 45.7% compared to 42.7% one year ago. Non-GAAP operating expenses increased year over year to $20.1 million. Non-GAAP operating income was $2.7 million, or 5.4% of sales, compared to income of $3.3 million in the fourth quarter of last year.

Full Year Fiscal 2017 Results

Fiscal 2017 revenue was $161.0 million, a decline of 12.7% compared to $184.4 million in fiscal 2016. On a GAAP basis, fiscal 2017 net loss was $37.4 million or $1.15 per share, compared to net loss of $12.3 million or $0.39 per share in the prior year. On a non-GAAP basis, net loss was $9.4 million or $0.29 per share, compared to net loss of $1.7 million or $0.05 per share in 2016.

Balance Sheet and Cash Flow

At quarter end, total cash and investments, including restricted cash, were $66.5 million. The company used $1.1 million of cash in operations during the quarter. For the fiscal year the company used $0.8 million of operating cash. During the quarter, inventories were flat sequentially and trade receivables increased by $12.9 million. In addition, during the quarter the company received proceeds from a $14 million ten-year term loan secured by the company's headquarters facility.

First Quarter 2018 Outlook

Based on current market and backlog conditions, revenues for the first quarter of fiscal 2018 are expected to be in the low $60 million range. Non-GAAP earnings per diluted share is expected to be $0.15 to $0.20. Additionally, we expect to incur approximately $1-2 million of restructuring charges and $3.5 to $4.5 million of inventory and asset impairments as we finalize our restructuring plans.

Burger concluded, "Our markets were seasonally strong in the fourth quarter. Although visibility is limited, we are seeing a better market environment and fewer headwinds than one year ago, which is encouraging. Our objective is to execute and drive demand so that the seasonally weaker quarters will see less of a drop-off compared to last fiscal year. In addition, the reorganization we announced in February should help us to improve execution, lower our breakeven revenue level, and deliver profitability in both strong and weak demand cycles."

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 12233475. 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, inventory and goodwill 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 micro-machining 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, including our expectations around restructuring our business, improving execution, and delivering more consistent earnings. These forward-looking statements are based on information available to us on the date of this release and we undertake 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; 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; our ability to respond promptly to customer requirements; the risk that we may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; our ability 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; our need to continue investing in research and development; our ability to hire and retain key employees; our 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; risks associated with our restructuring efforts; 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.
Fourth Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Operations
(Unaudited)
       
    Fiscal quarter ended Fiscal year ended
(In thousands, except per share data)   Apr 1, 2017 Dec 31, 2016 Apr 2, 2016 Apr 1, 2017 Apr 2, 2016
Net sales:               
Systems   40,029  25,427  44,043  125,098  142,957 
Services   9,889  8,352   7,443  35,925  41,434 
Total net sales   49,918  33,779  51,486  161,023  184,391 
Cost of sales:             
Systems   27,499  17,283  25,247   81,350  89,169 
Services   4,189  5,048  5,055  18,207  22,519 
Total cost of sales   31,688  22,331  30,302  99,557  111,688 
Gross profit   18,230  11,448  21,184  61,466  72,703 
Gross margin   36.5% 33.9% 41.1% 38.2% 39.4%
Operating expenses:            
Selling, general and administration    13,781  13,280  12,134  52,698  49,753 
Research, development and engineering   8,461  7,868  7,694  31,719  32,400 
Restructuring costs   6,614  321   227  6,935  2,824 
Acquisition and integration costs     31    366  194 
Impairment of goodwill   7,445      7,445    
Net operating expenses   36,301  21,500  20,055  99,163  85,171 
Operating (loss) income   (18,071) (10,052) 1,129  (37,697) (12,468)
Non-operating income:            
Interest and other income, net   103  34  127  265  195 
Total non-operating income   103  34  127  265  195 
(Loss) income before income taxes   (17,968) (10,018) 1,256  (37,432) (12,273)
Benefit from income taxes   (45) (325) (697) (23) (16)
Net (loss) income   $(17,923) $(9,693) $1,953  $(37,409) $(12,257)
Net (loss) income per share—basic   $(0.54) $(0.29) $0.06  $(1.15) $(0.39)
Net (loss) income per share—diluted   $(0.54) $(0.29) $0.06  $(1.15) $(0.39)


Electro Scientific Industries, Inc.
Fourth Quarter Fiscal 2017 Results
Condensed Consolidated Balance Sheets
(Unaudited)
 
(In thousands)       Apr 1, 2017 Dec 31, 2016 Apr 2, 2016
Assets                          
Current assets:            
Cash and cash equivalents       $56,642  $44,891  $42,413 
Short-term investments       5,743  6,301  15,252 
Trade receivables, net       40,494  27,644  42,770 
Inventories, net       58,942   58,830  60,470 
Shipped systems pending acceptance       5,713  3,983  1,181 
Other current assets       6,180  5,903  5,340 
Total current assets       173,714  147,552  167,426 
Non-current assets:            
Property, plant and equipment, net       21,619  23,660  24,543 
Deferred income taxes, net       890  836  914 
Goodwill       3,027  9,352  7,445 
Acquired intangible assets, net       6,564  9,611  7,146 
Other assets       18,931  17,025  12,626 
Total assets        $224,745  $208,036  $220,100 
Liabilities and shareholders' equity            
Current liabilities:            
Accounts payable       $21,213  $14,345  $16,061 
Accrued liabilities       21,752  16,015  18,334 
Current portion, long-term debt        434     
Deferred revenue        14,712  10,822  6,373 
Total current liabilities       58,111  41,182  40,768 
Non-current liabilities:            
Long-term debt       13,489     
Income taxes payable       1,036  1,048  1,266 
Deferred income tax liability, net       8  218  234 
Other liabilities       7,570  6,085  7,801 
Total liabilities       80,214  48,533  50,069 
Shareholders' equity:            
Preferred and common stock       207,152  204,859  195,024 
Accumulated deficit       (61,407) (43,485) (23,998)
Accumulated other comprehensive loss       (1,214) (1,871) (995)
Total shareholders' equity       144,531  159,503  170,031 
Total liabilities and shareholders' equity       $224,745  $208,036  $220,100 
End of period shares outstanding       33,260  33,151  31,613 


Electro Scientific Industries, Inc.
Analysis of Fourth Quarter Fiscal 2017 Results
(Unaudited)
 
  Fiscal quarter ended Fiscal year ended
(Dollars and shares in thousands)  Apr 1, 2017 Dec 31, 2016 Apr 2, 2016 Apr 1, 2017 Apr 2, 2016
Sales detail:           
PCB $28,339  $15,987  $29,152   $88,771  $94,121 
Component Test 7,382  5,407  5,609  22,381  19,901 
Semiconductor 8,036  6,690  8,974  29,557  38,262 
Industrial Machining 6,161  5,695  7,751  20,314  32,107  
Net Sales $49,918  $33,779  $51,486  $161,023  $184,391 
           
As % of net sales          
GAAP          
Gross profit 36.5% 33.9% 41.1% 38.2% 39.4%
Selling, service and administration expense 28% 39% 24% 33% 27%
Research, development and engineering expense 17% 23% 15% 20% 18%
Net operating expenses 73% 64% 39% 62% 46%
Operating (loss) income (36%) (30%) 2% (23%) (7%)
Non-GAAP          
Gross profit 45.7% 34.5% 42.7% 42.3% 41.3%
Net operating expenses 40% 57% 36% 48% 42%
Operating income (loss) 5% (23%) 6% (6%) (1%)
           
GAAP - Effective tax rate % 0.3% 3% (55%) 0.1% 0.1%
Weighted average shares outstanding          
Basic 33,065  32,919  31,580  32,551  31,411 
Diluted GAAP 33,065  32,919  32,393  32,551  31,411 
Diluted Non-GAAP 33,822  32,919  32,393  32,551  31,411 
End of period employees 683  716  651  683  651 


Electro Scientific Industries, Inc.
Fourth Quarter Fiscal 2017 Results
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
 
 Fiscal quarter ended Fiscal year ended
(In thousands, except per share data)Apr 1, 2017 Dec 31, 2016 Apr 2, 2016 Apr 1, 2017 Apr 2, 2016
Gross profit per GAAP$18,230  $11,448  $21,184  $61,466  $72,703 
Purchase accounting447  229  278  1,133  1,140 
Equity compensation105  142  99  503  445 
(Recovery of) charges for inventory write-off of damaged product  (170)   946   
Charges for write-off of inventory1,696      1,696  1,356 
Charges for impairment of intangibles2,349    435  2,349  435 
Non-GAAP gross profit $22,827  $11,649  $21,996  $68,093  $76,079 
          
Operating expenses per GAAP$36,301  $ 21,500  $20,055  $99,163  $85,171 
Purchase accounting(414) (210) (262) (1,077) (1,229)
Equity compensation(1,707) (1,674) (882) (5,934) (3,787)
Recovery of (charges for) write-off of damaged product  54    (46)  
Acquisition and integration costs  (31)   (366) (194)
Restructuring costs(6,614) (321) (227) (6,986) (2,824)
Impairment of goodwill(7,445)     (7,445)  
Non-GAAP operating expenses$20,121  $19,318  $18,684  $77,309  $77,137 
          
Operating (loss) income per GAAP$(18,071) $(10,052) $1,129  $(37,697) $(12,468)
Non-GAAP adjustments to gross profit4,597  201  812  6,627  3,376 
Non-GAAP adjustments to operating expenses16,180  2,182  1,371  21,854  8,034 
Non-GAAP operating income (loss)$2,706  $(7,669) $3,312  $(9,216) $(1,058)
          
Non-operating income, net per GAAP$103  $34  $127  $265  $195 
Acquisition-related adjustments       (190)  
Non-GAAP non-operating income$ 103  $34  $ 127  $75  $195 
Non-GAAP income (loss) before income taxes$2,809  $(7,635) $3,439  $(9,141) $(863)
          
Net (loss) income per GAAP$(17,923) $(9,693) $1,953  $(37,409)  $(12,257)
Non-GAAP adjustments to gross profit4,597  201  812   6,627  3,376 
Non-GAAP adjustments to operating expenses16,180  2,182  1,371   21,854  8,034 
Non-GAAP adjustments to non-operating expense      (190)  
Income tax effect of other non-GAAP adjustments32  (248) (731) (252) (857)
Non-GAAP net income (loss)$2,886  $(7,558) $3,405  $(9,370) $(1,704)
Basic Non-GAAP net income (loss) per share$0.09  $(0.23) $0.11  $(0.29) $(0.05)
Diluted Non-GAAP net income (loss) per share$0.09  $(0.23) $0.11  $(0.29) $(0.05)


Electro Scientific Industries, Inc.
Fourth Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
  Fiscal quarter ended Fiscal year ended
(In thousands) Apr 1, 2017 Dec 31, 2016 Apr 2, 2016 Apr 1, 2017 Apr 2, 2016
Net (loss) income $(17,923) $(9,693) $1,953  $(37,409) $(12,257)
Non-cash adjustments and changes in operating activities 16,789  6,017  (5,249) 36,576  16,959 
Net cash (used in) provided by operating activities (1,134) (3,676) (3,296) (833) 4,702 
Net cash (used in) provided by investing activities (203) (3,687) 3,217  2,614   (13,812)
Net cash provided by (used in) financing activities         13,923  381  313  14,165  724 
Effect of exchange rate changes on cash 255  (812) 108  (627) (195)
NET CHANGE IN CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
 12,841  (7,794) 342  15,319  (8,581)
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH AT BEGINNING OF PERIOD
 44,891  52,685  42,071  42,413  50,994 
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH AT END OF PERIOD
 $57,732  $44,891  $42,413  $57,732  $42,413 


Reconciliation of GAAP to Non-GAAP Financial Measures - Projected     Fiscal quarter ending
Jul 1, 2017
       
Non-GAAP diluted earnings per share                                     $0.15 - $0.20
Purchase accounting     ($0.02) - ($0.01)
Equity compensation     ($0.05) - ($0.04)
Other items     ($0.20) - ($0.12)
GAAP diluted EPS     ($0.12) - $0.03

 

Brian Smith 

ESI

503-672-5760

smithb@esi.com

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Source: Electro Scientific Industries, Inc.

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