Electro Scientific Industries, Inc.
Jan 27, 2011

ESI Announces Third Quarter Fiscal 2011 Results

Revenues Grow 72% Year Over Year and 13% Sequentially

PORTLAND, Ore.--(BUSINESS WIRE)-- Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2011 third quarter ended January 1, 2011. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation and non-recurring items.

Revenue in the third quarter was $67.2 million, compared to $59.6 million in the second quarter of 2011 and $39.0 million in the same quarter one year ago. On a GAAP basis, net income was $2.4 million or $0.08 per diluted share, compared to net loss of $0.6 million or $0.02 per share in the prior quarter. On a non-GAAP basis, excluding the impact of purchase accounting, equity compensation and non-recurring items, third quarter net income was $5.9 million or $0.21 per diluted share, compared to $2.9 million or $0.10 per diluted share in the second quarter.

"The company had a strong growth quarter, with sequential improvement in virtually all operating metrics, including higher revenues, gross margin, net income and cash flow," stated Nick Konidaris, president and CEO of ESI. Sales for the first three quarters of fiscal 2011 were $185.2 million, up 107% from the first three quarters of last fiscal year.

Orders for the third quarter were $77.9 million, compared to $70.2 million in the prior quarter and up from $61.2 million in the prior year's third quarter. Konidaris continued, "Order growth reflected record performance in our Interconnect and Micromachining group. Strong demand for follow-on 5900 applications and record flex orders offset a sequential decline in our Semiconductor group." In addition, during the quarter the company received first orders for the model 9900 wafer dicing system and the model 3800 LED test system.

Revenue increased 13% sequentially, with strong shipments of semiconductor, interconnect and micromachining systems. Gross margin improved to 45%, compared to 44% last quarter and 38% in the last year quarter.

Operating expenses rose sequentially driven by a $1.3 million legal settlement charge and a $0.8 million restructuring charge related to the transition of additional manufacturing activity to Asia. Excluding non-recurring items, stock compensation and purchase accounting, non-GAAP operating expenses were $23.4 million. Non-GAAP operating income was $7.2 million, or 11% of sales, up 89% from the prior quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments totaled $177.3 million. Cash flow from operations was $8.4 million for the quarter and $21.3 million for the first three quarters of the fiscal year.

Q4 2011 Outlook

Based on current business conditions, ESI expects revenues for the fourth quarter of fiscal 2011 to be around $70 million. Non-GAAP earnings per share are expected to be $0.20 to $0.24 excluding the impact of purchase accounting, equity compensation and non-recurring items.

Konidaris concluded, "The combination of new products, good execution and healthy markets resulted in a strong quarter for ESI. Looking forward, we will continue to execute our strategy to expand our addressable market by introducing breakthrough solutions in the semiconductor, LED and advanced micromachining markets."

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 87196414. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through February 6, 2010, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 26375991. 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 financial measures exclude the impact of purchase accounting, equity compensation, legal settlement, 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 leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry. Our systems enable precise structuring and testing of micron to submicron features in semiconductors, electronic devices, LEDs and other high-value components. We partner with our customers to make breakthrough technologies possible in the semiconductor, microelectronics and other emerging industries. Founded in 1944, ESI is headquartered in Portland, Ore., with global operations from the Pacific Northwest to the Pacific Rim. More information is available at www.esi.com.

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, revenue, new products and markets, and earnings 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 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; risks related to the integration of the PyroPhotonics business; 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.
         
Third Quarter Fiscal 2011 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended Three fiscal quarters ended
Operating Results: Jan 1, 2011 Oct 2, 2010 Jan 2, 2010 Jan 1, 2011 Jan 2, 2010
Net sales $ 67,209 $ 59,554 $ 39,048 $ 185,234 $ 89,289
Cost of sales   37,182     33,553     24,231     107,733     59,085  
Gross profit 30,027 26,001 14,817 77,501 30,204
Operating expenses:
Selling, service and administration 15,172 15,046 11,910 43,063 35,236
Research, development and engineering 10,210 10,217 8,793 30,638 23,689
Legal settlement costs 1,311 - - 1,311 -
Restructuring costs 827 - - 827 -
Merger termination proceeds, net   -     -     -     -     (4,516 )
Net operating expenses   27,520     25,263     20,703     75,839     54,409  
Operating income (loss) 2,507 738 (5,886 ) 1,662 (24,205 )
Non-operating (expense) income:
Interest and other (expense) income, net   (39 )   187     369     206     1,068  
Total non-operating (expense) income   (39 )   187     369     206     1,068  
Income (loss) before income taxes 2,468 925 (5,517 ) 1,868 (23,137 )
Provision for (benefit from) income taxes   117     1,536     (3,104 )   (73 )   (9,074 )
Net income (loss) $ 2,351   $ (611 ) $ (2,413 ) $ 1,941   $ (14,063 )
 
Net income (loss) per share - basic $ 0.08   $ (0.02 ) $ (0.09 ) $ 0.07   $ (0.51 )
 
Net income (loss) per share - diluted $ 0.08   $ (0.02 ) $ (0.09 ) $ 0.07   $ (0.51 )
Electro Scientific Industries, Inc.
         
Third Quarter Fiscal 2011 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Jan 1, 2011 Oct 2, 2010 Apr 3, 2010
 
Assets
Current assets:
Cash and cash equivalents $ 47,061 $ 40,420 $ 39,335
Restricted cash 10,769 10,769 10,824
Short-term investments   104,949   118,628   116,140
Total cash, restricted cash and investments 162,779 169,817 166,299
 
Trade receivables, net 44,630 46,388 38,061
Inventories 70,180 73,064 72,090
Shipped systems pending acceptance 4,744 6,285 4,106
Deferred income taxes, net 7,931 7,499 7,232
Other current assets   8,593   8,350   8,677
Total current assets 298,857 311,403 296,465
 
Non-current assets:
Auction rate securities 6,211 5,215 5,021

Non-current investments

14,550 - -
Property, plant and equipment, net 38,840 39,575 40,590
Non-current deferred income taxes, net 34,062 32,909 31,079
Goodwill 4,014 4,014 -
Acquired intangible assets, net 10,446 10,895 8,255
Other assets   14,050   13,340   13,008
Total assets $ 421,030 $ 417,351 $ 394,418
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 16,057 $ 20,440 $ 14,607
Accrued liabilities 27,949 22,683 14,937
Deferred revenue   12,513   16,373   13,193
Total current liabilities 56,519 59,496 42,737
 
Non-current income taxes payable 9,706 9,260 9,019
 
Shareholders' equity:
Preferred and common stock 150,433 147,785 142,369
Retained earnings 201,427 199,076 199,486
Accumulated other comprehensive income   2,945   1,734   807
Total shareholders' equity   354,805   348,595   342,662
Total liabilities and shareholders' equity $ 421,030 $ 417,351 $ 394,418
 
 
End of period shares outstanding   28,184   28,072   27,665
Electro Scientific Industries, Inc.
       
Analysis of Third Quarter Fiscal 2011 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended Three fiscal quarters ended
Jan 1, 2011 Oct 2, 2010 Jan 2, 2010 Jan 1, 2011 Jan 2, 2010
Sales detail:
 
Semiconductor Group $ 29,674 $ 13,160 $ 9,906 $ 61,891 $ 22,880
 
Components Group 7,755 13,304 10,344 39,862 21,592
 
Interconnect Micro-Machining Group   29,780     33,090     18,798     83,481     44,817  
 
Total $ 67,209   $ 59,554   $ 39,048   $ 185,234   $ 89,289  
 
 
 
 
Gross margin % 45 % 44 % 38 % 42 % 34 %
 
Selling, service and administration expense % 23 % 25 % 31 % 23 % 39 %
 
Research, development and engineering expense % 15 % 17 % 23 % 17 % 27 %
 
Operating income (loss) % 4 % 1 % (15 %) 1 % (27 %)
 
Effective tax rate % 5 % 166 % 56 % -4 % 39 %
 
Average shares outstanding - basic 28,132 28,010 27,517 27,978 27,394
 
Average shares outstanding - diluted 28,667 28,010 27,517 28,458 27,394
 
End of period employees 638 627 573 638 573
Electro Scientific Industries, Inc.
           
Third Quarter Fiscal 2011 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Three fiscal quarters ended
Jan 1, 2011 Oct 2, 2010 Jan 2, 2010 Jan 1, 2011 Jan 2, 2010
 
Gross profit per GAAP $ 30,027 $ 26,001 $ 14,817 $ 77,501 $ 30,204
Add back:
Purchase accounting included in cost of sales 289 289 288 867 866
Equity compensation included in cost of sales   252     294     252     828     817  
Total non-GAAP adjustments to gross profit   541     583     540     1,695     1,683  
Non-GAAP gross profit $ 30,568   $ 26,584   $ 15,357   $ 79,196   $ 31,887  
Non-GAAP gross margin   45.5 %   44.6 %   39.3 %   42.8 %   35.7 %
 
Operating expenses per GAAP $ 27,520 $ 25,263 $ 20,703 $ 75,839 $ 54,409
Less:
Purchase accounting included in operating expenses:
Selling, service and administration 135 139 190 463 831
Research, development and engineering   36     36     36     108     98  
Subtotal - purchase accounting included in operating expenses   171     175     226     571     929  
Equity compensation included in operating expenses:
Selling, service and administration 1,414 1,638 1,030 5,276 4,268
Research, development and engineering   420     399     370     1,196     1,021  
Subtotal - equity compensation included in operating expenses   1,834     2,037     1,400     6,472     5,289  
Acquisition costs (settlement proceeds) included in operating expenses:
Selling, service and administration   17     280     -     (592 )   -  
Subtotal - acquisition costs (settlement proceeds) included in operating expenses   17     280     -     (592 )   -  
Other non-recurring items included in operating expenses:
Legal settlement costs 1,311 - - 1,311 -
Restructuring costs 827 - - 827 -
Merger termination proceeds, net   -     -     -     -     (4,516 )
Subtotal - other non-recurring items included in operating expenses   2,138     -     -     2,138     (4,516 )
Total non-GAAP adjustments to operating expenses   4,160     2,492     1,626     8,589     1,702  
Non-GAAP operating expenses $ 23,360   $ 22,771   $ 19,077   $ 67,250   $ 52,707  
 
Operating income (loss) per GAAP $ 2,507 $ 738 $ (5,886 ) $ 1,662 $ (24,205 )
Non-GAAP adjustments to gross profit 541 583 540 1,695 1,683
Non-GAAP adjustments to operating expenses   4,160     2,492     1,626     8,589     1,702  
Non-GAAP operating income (loss) $ 7,208   $ 3,813   $ (3,720 ) $ 11,946   $ (20,820 )
 
Non-operating (expense) income, net per GAAP $ (39 ) $ 187   $ 369   $ 206   $ 1,068  
Non-GAAP non-operating (expense) income $ (39 ) $ 187   $ 369   $ 206   $ 1,068  
 
Net income (loss) per GAAP $ 2,351 $ (611 ) $ (2,413 ) $ 1,941 $ (14,063 )
Non-GAAP adjustments to gross profit 541 583 540 1,695 1,683
Non-GAAP adjustments to operating expenses 4,160 2,492 1,626 8,589 1,702
Income tax effect of non-GAAP adjustments   (1,148 )   394     (641 )   (2,695 )   (264 )
Non-GAAP net income (loss) $ 5,904   $ 2,858   $ (888 ) $ 9,530   $ (10,942 )
 
Basic Non-GAAP net income (loss) per share $ 0.21   $ 0.10   $ (0.03 ) $ 0.34   $ (0.40 )
 
Diluted Non-GAAP net income (loss) per share $ 0.21   $ 0.10   $ (0.03 ) $ 0.33   $ (0.40 )
Electro Scientific Industries, Inc.
           
Third Quarter Fiscal 2011 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
Fiscal quarter ended Three fiscal quarters ended
Jan 1, 2011 Oct 2, 2010 Jan 2, 2010 Jan 1, 2011 Jan 2, 2010
 
Net income (loss) $ 2,351 $ (611 ) $ (2,413 ) $ 1,941 $ (14,063 )
Non-cash adjustments and changes in operating activities   6,007     (1,266 )   3,337     19,309     12,898  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,358 (1,877 ) 924 21,250 (1,165 )
 
NET CASH USED IN INVESTING ACTIVITIES (2,335 ) (12,920 ) (33,964 ) (15,453 ) (101,158 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES 562 150 433 781 317
 
Effect of exchange rate changes on cash 56 842 (42 ) 1,148 1,110
         
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,641 (13,805 ) (32,649 ) 7,726 (100,896 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   40,420     54,225     85,291     39,335     153,538  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,061   $ 40,420   $ 52,642   $ 47,061   $ 52,642  

ESI
Brian Smith, 503-672-5760
smithb@esi.com

Source: Electro Scientific Industries, Inc.

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