Electro Scientific Industries, Inc.
Oct 21, 2009

ESI Announces Second Quarter Fiscal 2010 Results

Revenues Increase 22% Sequentially

PORTLAND, Ore.--(BUSINESS WIRE)--Oct. 21, 2009-- Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading provider of world-class photonic and laser microengineering systems, today announced results for its fiscal 2010 second quarter, ended September 26, 2009. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items.

Second quarter revenues were $27.6 million, a 22% increase from the first quarter. On a GAAP basis, net loss was $6.1 million or $0.22 per share, compared to a net loss of $5.5 million or $0.20 per share in the prior quarter. Excluding the impact of purchase accounting, equity compensation, and other non-recurring items, non-GAAP net loss was $3.9 million or $0.14 per share, compared to a non-GAAP net loss of $6.2 million or $0.23 per share in the first quarter.



“We continued to see improvement in our business, with sequential increases in revenue, gross margin, and non-GAAP operating income,” noted Nick Konidaris, ESI president and CEO. Orders of $29.3 million were up from $28.7 million in the prior quarter as increased semiconductor activity was partially offset by lower orders in passive components.

Second quarter operating expenses on a non-GAAP basis declined sequentially and were down over 20% from the prior year. Konidaris added, ”We are pleased with our ability to continue to manage discretionary spending and preserve cash in a difficult environment.”



Balance Sheet and Cash Flow

At quarter end, cash and investments, including restricted cash, totaled $154.5 million, roughly flat with last quarter and up from one year ago. Restricted cash resulted from our substitution of a letter of credit for a portion of the bond associated with legal action in Taiwan to protect our intellectual property. Cash used in operations was $1.2 million as improvements within working capital nearly offset losses from operations.



Q3 2010 Outlook

ESI expects revenues for the third quarter of fiscal 2010 to be between $32 and $37 million and a non-GAAP loss per share of $0.08 to $0.13 excluding the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items.



Konidaris concluded, "We continue to be encouraged by the improvement in overall business activity. As our customers’ utilization rates improve, we expect second half orders and revenues to be up sequentially from the first half. In addition, our investment in new products and applications should create additional opportunities for growth. Further, our business model should allow earnings to grow faster than sales as revenues increase."

The company will hold a conference call today at 5:00 p.m. EDT. 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 888-419-5570 (domestic participants) or 617-896-9871 (international participants). The conference ID number is 12639188. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through October 31, 2009 at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 35092699. The audio replay will also be available on the ESI Web site.



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 financial measures exclude the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items. We believe that this presentation of non-GAAP financial measures allows investors to better 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 is a pioneer and leading supplier of world-class production laser systems that help its microelectronics customers achieve compelling yield and productivity gains. The company's industry-leading, application-specific products enhance electronic-device performance in three key sectors -- semiconductors, passive components and electronic interconnect -- by enabling precision fine-tuning of device micro-features in high-volume manufacturing environments. Founded in 1944, ESI is headquartered in Portland, Ore. More information is available at www.esi.com.

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, orders, revenue, growth, earnings growth, and loss per share. 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 economic strength and political stability, and overall demand for electronic devices (such as capacitors, semiconductor memory devices and advanced electronic packages) 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 semiconductor industry 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 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 ability of the company to achieve anticipated cost reductions and savings; 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; foreign currency fluctuations; the company's ability to utilize recorded deferred tax assets; taxes, interest or penalties resulting from tax audits; changes in tax laws or the interpretation of such tax laws; and future liquidity and valuation of auction rate securities.

































































































































Electro Scientific Industries, Inc.
 

 

 

 

 


Second Quarter Fiscal 2010 Results
(In thousands, except per share data)
(Unaudited)


 




 


Fiscal quarter ended Two fiscal quarters ended


Operating Results:
Sep 26, 2009

Jun 27, 2009
Sep 27, 2008

Sep 26, 2009 Sep 27, 2008

Net sales $

27,638


$
22,603

$ 49,610

$ 50,241

$

113,634
Cost of sales

 
18,212  

  16,642    

28,538     34,854

 
  67,271  


Gross profit
9,426

5,961

21,072

15,387


46,363


Operating expenses:




Selling, service and administration

11,355


11,971

13,746

23,326

28,846
Research, development and engineering 7,441 7,455 8,446 14,896

18,104
Restructuring costs

-

-

1,174

-

1,923
Merger termination proceeds, net

 
-  

  (4,516 )  

-     (4,516

)
  -  


Net operating expenses
  18,796  

 

14,910
    23,366     33,706    

48,873  
Operating loss (9,370 ) (8,949 ) (2,294 ) (18,319 ) (2,510 )
Non-operating income (expense):

Other-than-temporary impairment of auction rate securities - - (5,381 ) - (10,475 )
Interest and other income, net   357

 
  342  

  1,117  

 

699
    1,977  
Total non-operating income (expense)  

357
    342     (4,264 )  

699     (8,498

)
Loss before income taxes

(9,013
)

(8,607 )

(6,558 )

(17,620

)


(11,008
)
Benefit from income taxes   (2,893 )

  (3,077 )  

(2,449 )

  (5,970 )   (4,141 )
Net loss $ (6,120 ) $ (5,530 )

$ (4,109

)
$

(11,650
)

$
(6,867 )




 
Net loss per share - basic $ (0.22 )

$ (0.20

)
$

(0.15
)

$
(0.43 ) $ (0.25 )




 


Net loss per share - diluted
$ (0.22 ) $ (0.20 ) $ (0.15 ) $ (0.43 )

$ (0.25

)






















































































































































Electro Scientific Industries, Inc.
     

 


Second Quarter Fiscal 2010 Results
(Amounts in thousands)
(Unaudited)


 


Financial Position As Of:
Sep 26, 2009

Jun 27, 2009 Mar 28, 2009


 
Assets

Current assets:

Cash and cash equivalents

$ 85,291

$ 124,474

$
153,538


Restricted cash

2,400

-
-

Short-term investments

  66,760   30,688

  2,380  

Total cash, restricted cash and investments

154,451

155,162

155,918


 
Trade receivables, net 22,054 20,070 18,847
Inventories 77,215 78,744 84,882
Shipped systems pending acceptance 3,876 2,939 2,072
Deferred income taxes, net 6,497 6,206 6,298
Other current assets   11,246

  10,307   10,594  
Total current assets 275,339 273,428 278,611


 
Auction rate securities

8,555

7,134
6,007

Property, plant and equipment, net

41,108

42,234

43,005
Non-current deferred income taxes, net

28,765

25,823

22,620


Acquired intangible assets, net


8,883
9,420

9,972
Other assets

 
20,334  

22,772   24,032  


Total assets

$
382,984 $ 380,811 $ 384,247  


 


Liabilities and shareholders' equity
Current liabilities:

Accounts payable $ 7,981 $ 6,233 $ 7,492
Accrued liabilities 13,216 11,736 12,958
Deferred revenue   12,490

  11,776   11,251  
Total current liabilities 33,687 29,745 31,701


 
Non-current income taxes payable

9,352

9,401
9,023



 
Shareholders' equity:

Preferred and common stock 138,189 135,566 133,808
Retained earnings 199,821 205,941 211,085
Accumulated other comprehensive income (loss)  

1,935
  158   (1,370

)
Total shareholders' equity

  339,945   341,665

  343,523  

Total liabilities and shareholders' equity

$ 382,984

$ 380,811

$
384,247  


 


 
End of period shares outstanding   27,427   27,266

  27,184  













































































































































































Electro Scientific Industries, Inc.
 

     
Analysis of Second Quarter Fiscal 2010 Results
(Dollars and shares in thousands)
(Unaudited)


 


 
Fiscal quarter ended

Two fiscal quarters ended
Sep 26, 2009

Jun 27, 2009 Sep 27, 2008 Sep 26, 2009 Sep 27, 2008
Sales detail:





 

Semiconductor Group

$ 7,714

$ 5,260

$ 12,520

$ 12,974

$ 34,248


 
Passive Components Group

6,098

5,150

6,719

11,248

19,994




 


Interconnect Micro-Machining Group   13,826  

 
12,193  

  30,371  

  26,019    

59,392
 


 
Total $ 27,638   $

22,603
  $ 49,610  

$
50,241   $ 113,634  


 


 


 


 
Gross margin %

34
%

26
%

42
%

31
%

41
%




 
Selling, service and administration expense % 41 % 53 % 28 % 46 % 25 %


 
Research, development and engineering expense % 27 % 33 % 17 % 30 % 16 %


 
Operating loss % (34 %) (40 %) (5 %) (36 %) (2 %)


 
Effective tax rate % 32 % 36 % 37 % 34 % 38 %


 
Average shares outstanding - basic 27,356 27,234 27,035 27,295 27,072


 
Average shares outstanding - diluted 27,356 27,234 27,035 27,295 27,072


 
End of period employees 569 565 686 569 686












































































































































































































































































Electro Scientific Industries, Inc.
 

   

 

Second Quarter Fiscal 2010 Results

(In thousands, except per share data)


(Unaudited)




 

Reconciliation of GAAP to Non-GAAP Financial Measures:



Fiscal quarter ended Two fiscal quarters ended


Sep 26, 2009

Jun 27, 2009 Sep 27, 2008 Sep 26, 2009 Sep 27, 2008




 
Gross profit per GAAP

$ 9,426

$ 5,961

$

21,072


$
15,387

$
46,363


Add back:




Purchase accounting included in cost of sales

289

289

289

578 579
Equity compensation included in cost of sales   350     215    

222     565

 
  429  
Total non-GAAP adjustments to gross profit   639

 
  504  

  511  

 

1,143
   

1,008  
Non-GAAP gross profit $ 10,065   $ 6,465   $

21,583  

$ 16,530

  $

47,371  
Non-GAAP gross margin  

36.4 %

  28.6

%   43.5 %

 

32.9
%

 
41.7 %




 
Operating expenses per GAAP $

18,796


$
14,910

$ 23,366

$ 33,706

$ 48,873

Less:



Purchase accounting included in operating expenses:

Selling, service and administration 198 443

276


641

729


Research, development and engineering   36  

  26  

 

-
    62     (19

)


Subtotal - purchase accounting included in operating expenses
  234  

 

469
    276     703    

710
 
Equity compensation included in operating expenses:

Selling, service and administration 1,460 1,778 662

3,238


1,551


Research, development and engineering   337    

314     285

 
  651  

 
600  
Subtotal - equity compensation included in operating expenses

 
1,797  

  2,092    

947     3,889

 
  2,151  
Other items included in operating expenses:



Net merger termination proceeds

-

(4,516 )

-

(4,516 ) -


Restructuring costs
  -    

-     1,174

 
  -  

 
1,923  
Subtotal - other non-recurring items included in operating expenses

 
-  

  (4,516 )  

1,174     (4,516

)
  1,923  
Total non-GAAP adjustments to operating expenses   2,031

 
  (1,955 )   2,397     76    

4,784
 
Non-GAAP operating expenses

$ 16,765

 

$
16,865   $

20,969
 

$ 33,630

 
$

44,089
 




 
Operating loss per GAAP $ (9,370 ) $ (8,949 ) $ (2,294 ) $ (18,319 )

$ (2,510 )
Non-GAAP adjustments to gross profit 639 504 511

1,143


1,008


Non-GAAP adjustments to operating expenses
  2,031  

 

(1,955
)

 
2,397  

  76    

4,784
 
Non-GAAP operating (loss) income

$ (6,700

) $ (10,400 )

$ 614   $ (17,100 ) $ 3,282  




 


Non-operating income (expense), net per GAAP
$ 357 $ 342 $ (4,264 )

$ 699

$ (8,498

)
Non-GAAP adjustment for impairment of auction rate securities

 
-  

  -    

5,381     -

 
  10,475  
Non-GAAP non-operating income $ 357   $

342  

$ 1,117

 

$
699   $ 1,977  




 
Net loss per GAAP $ (6,120 )

$ (5,530

)
$

(4,109
)

$
(11,650 ) $ (6,867 )
Non-GAAP adjustments to gross profit

639

504

511

1,143


1,008


Non-GAAP adjustments to operating expenses 2,031

(1,955 ) 2,397 76 4,784
Non-GAAP adjustments to non-operating expense - - 5,381 - 10,475


Income tax effect of non-GAAP adjustments
  (406 )   783    

(2,920 )

  377  

  (5,641 )
Non-GAAP net (loss) income

$ (3,856

)
$

(6,198 )

$ 1,260

 

$
(10,054 )

$ 3,759

 




 
Basic Non-GAAP net (loss) income per share $ (0.14 )

$
(0.23 )

$ 0.05   $ (0.37 ) $ 0.14  




 


Diluted Non-GAAP net (loss) income per share
$

(0.14
)

$ (0.23

)
$

0.05  

$ (0.37

) $

0.14  
















































































































Electro Scientific Industries, Inc.


 
     

 

 

 


Second Quarter Fiscal 2010 Results
(Amounts in thousands)
(Unaudited)




 


Consolidated Condensed Statements of Cash Flows:


Fiscal quarter ended

Two fiscal quarters ended
Sep 26, 2009

Jun 27, 2009 Sep 27, 2008 Sep 26, 2009 Sep 27, 2008




 
Net loss $ (6,120 ) $ (5,530 ) $ (4,109 ) $ (11,650 )

$ (6,867

)
Non-cash adjustments and changes in operating activities

 
4,942  

  4,619    

18,339     9,561

 
  22,740  


NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
(1,178

) (911 ) 14,230

(2,089 ) 15,873





 
NET CASH USED IN INVESTING ACTIVITIES

(38,477 ) (28,717

)
(196 ) (67,194

)
(4,721 )




 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 97

(213 )

(700 )

(116 )

(2,853 )




 
Effect of exchange rate changes on cash 375

777


(1,585 )

1,152

(2,315

)


 

 

 

 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS

(39,183 )

(29,064 )

11,749

(68,247
)

5,984




 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   124,474    

153,538  

  135,294

 

 
153,538     141,059

 




 
CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 85,291

 
$

124,474  

$ 147,043

 

$
85,291   $

147,043
 



Source: Electro Scientific Industries, Inc.

ESI
Brian Smith, 503-672-5760