Electro Scientific Industries, Inc.
May 10, 2011

ESI Announces Fourth Quarter and Full Year Fiscal 2011 Results

Generates 72% Annual Revenue Growth and $51 Million Operating Cash Flow

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 fourth quarter ended April 2, 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 fourth quarter was $71.6 million, compared to $67.2 million in the third quarter of 2011 and $59.6 million in the same quarter one year ago. On a GAAP basis, net income was $6.0 million or $0.21 per diluted share, compared to $2.4 million or $0.08 per diluted share in the prior quarter. On a non-GAAP basis, excluding the impact of purchase accounting, equity compensation and non-recurring items, fourth quarter net income was $6.5 million or $0.22 per diluted share, compared to $5.9 million or $0.21 per diluted share in the third quarter.

"The fourth quarter represented a strong finish to a great year for ESI," stated Nick Konidaris, president and CEO of ESI. "We reported our highest quarterly revenue and operating profit in over three years, and we generated nearly $30 million in operating cash flow."

Orders for the fourth quarter were $72.5 million, compared to $77.9 million in the prior quarter and up from $54.2 million in the corresponding quarter last year. Konidaris continued, "The Interconnect and Micromachining Group had its second highest order level, following record performance last quarter. In addition, strength in the DRAM and LED markets, especially mobile DRAM, drove higher orders in our semiconductor business."

Revenue increased 6.5% sequentially, with strong shipments of interconnect and micromachining systems. Gross margin was 44%, compared to 45% last quarter and 43% in the prior year quarter.

Operating expenses decreased by $1.8 million sequentially driven by a reduction in legal settlement and restructuring charges. Excluding non-recurring items, stock compensation and purchase accounting, non-GAAP operating expenses were $23.7 million, up $0.4 million. Non-GAAP operating income was $8.3 million, or 12% of sales, up from $7.2 million or 11% of sales in the third quarter.

Full Year Fiscal 2011 Results

Fiscal 2011 revenue was $257 million, up 72% compared to $149 million in fiscal 2010. On a GAAP basis, fiscal 2011 net income was $7.9 million or $0.28 per diluted share, compared to net loss of $12.0 million or $0.44 per share in the prior year. On a non-GAAP basis, excluding the impact of purchase accounting, equity compensation and non-recurring items, net income was $16.0 million or $0.56 per diluted share, compared to a net loss of $6.6 million or $0.24 per share in 2010. Konidaris added, "Fiscal 2011 was an outstanding year for ESI, with dramatic improvement in all operating metrics. The investments we made in innovation and new initiatives are driving growth, and we believe position us well heading into 2012."

Balance Sheet and Cash Flow

At quarter end, cash and investments totaled $205 million. Cash flow from operations was $29 million for the quarter and $51 million for fiscal year 2011, as a result of higher profitability and improved working capital efficiency.

Q1 2012 Outlook

Based on current business conditions, ESI expects revenues for the first quarter of fiscal 2012 to be between $75 and $80 million. Non-GAAP earnings per share are expected to be $0.24 to $0.28, excluding the impact of purchase accounting, equity compensation and non-recurring items.

Konidaris concluded, "Fiscal 2011 was a strong year for ESI, as we improved our profitability and increased our investment for growth. Looking forward into fiscal 2012, our markets are healthy and we continue to see strong demand for our industry-leading portfolio of products. We will continue to execute our strategy to drive revenue growth and improve profitability by growing our addressable market through entering new applications in the field of laser-based microengineering."

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 a question and answer period.

The conference call can be accessed by calling 800-688-0796 (domestic participants) or 617-614-4070 (international participants). The conference ID number is 58389369. A live audio webcast can be accessed at investors.esi.com. Upon completion of the call, an audio replay will be accessible through May 20, 2011, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 19442599. 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, 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; the risk that competing or alternative technologies could reduce demand for our 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.
             
Fourth Quarter and Fiscal 2011 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended Fiscal year ended
Operating Results: Apr 2, 2011 Jan 1, 2011 Apr 3, 2010 Apr 2, 2011 Apr 3, 2010
Net sales $ 71,577 $ 67,209 $ 59,604 $ 256,811 $ 148,893
Cost of sales   40,129     37,182     33,943     147,862   93,028  
Gross profit 31,448 30,027 25,661 108,949 55,865
Operating expenses:
Selling, service and administration 15,199 15,172 13,300 58,262 48,536
Research, development and engineering 10,457 10,210 9,929 41,095 33,618
Legal settlement costs 56 1,311 - 1,367 -
Restructuring costs (30 ) 827 - 797 -
Merger termination proceeds, net   -     -     -     -   (4,516 )
Net operating expenses   25,682     27,520     23,229     101,521   77,638  
Operating income (loss) 5,766 2,507 2,432 7,428 (21,773 )
Non-operating income (expense):
Sale of previously impaired auction rate securities 708 - - 708 -
Other-than-temporary impairment of auction rate securities - - (1,347 ) - (1,347 )
Interest and other (expense) income, net   (18 )   (39 )   289     188   1,358  
Total non-operating income (expense)   690     (39 )   (1,058 )   896   11  
Income (loss) before income taxes 6,456 2,468 1,374 8,324 (21,762 )
Provision for (benefit from) income taxes   463     117     (704 )   390   (9,778 )
Net income (loss) $ 5,993   $ 2,351   $ 2,078   $ 7,934 $ (11,984 )
 
Net income (loss) per share - basic $ 0.21   $ 0.08   $ 0.08   $ 0.28 $ (0.44 )
 
Net income (loss) per share - diluted $ 0.21   $ 0.08   $ 0.07   $ 0.28 $ (0.44 )
 
 
Electro Scientific Industries, Inc.
       
Fourth Quarter and Fiscal 2011 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Apr 2, 2011 Jan 1, 2011 Apr 3, 2010
 
Assets
Current assets:
Cash and cash equivalents $ 116,412 $ 47,061 $ 39,335
Restricted cash 10,769 10,769 10,824
Short-term investments   69,245   104,949   116,140
Total cash, restricted cash and investments 196,426 162,779 166,299
 
Trade receivables, net 44,100 44,630 38,061
Inventories 65,362 70,180 72,090
Shipped systems pending acceptance 5,289 4,744 4,106
Deferred income taxes, net 9,892 7,931 7,232
Other current assets   6,784   8,593   8,677
Total current assets 327,853 298,857 296,465
 
Non-current assets:
Auction rate securities 5,166 6,211 5,021
Non-current investments 8,097 14,550 -
Property, plant and equipment, net 39,661 38,840 40,590
Non-current deferred income taxes, net 30,822 34,062 31,079
Goodwill 4,014 4,014 -
Acquired intangible assets, net 10,035 10,446 8,255
Other assets   14,519   14,050   13,008
Total assets $ 440,167 $ 421,030 $ 394,418
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 18,650 $ 16,057 $ 14,607
Accrued liabilities 33,425 27,949 14,937
Deferred revenue   16,039   12,513   13,193
Total current liabilities 68,114 56,519 42,737
 
Non-current income taxes payable 9,754 9,706 9,019
 
Shareholders' equity:
Preferred and common stock 153,189 150,433 142,369
Retained earnings 207,420 201,427 199,486
Accumulated other comprehensive income   1,690   2,945   807
Total shareholders' equity   362,299   354,805   342,662
Total liabilities and shareholders' equity $ 440,167 $ 421,030 $ 394,418
 
 
End of period shares outstanding   28,299   28,184   27,665
 
 
Electro Scientific Industries, Inc.
         
Analysis of Fourth Quarter and Fiscal 2011 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended Fiscal year ended
Apr 2, 2011 Jan 1, 2011 Apr 3, 2010 Apr 2, 2011 Apr 3, 2010
Sales detail:
 
Semiconductor Group $ 16,848 $ 29,674 $ 5,645 $ 78,739 $ 28,525
 
Components Group 14,322 7,755 10,105 54,184 31,697
 
Interconnect/ Micromachining Group   40,407     29,780     43,854     123,888     88,671  
 
Total $ 71,577   $ 67,209   $ 59,604   $ 256,811   $ 148,893  
 
 
 
 
Gross margin % 44 % 45 % 43 % 42 % 38 %
 
Selling, service and administration expense % 21 % 23 % 22 % 23 % 33 %
 
Research, development and engineering expense % 15 % 15 % 17 % 16 % 23 %
 
Operating income (loss) % 8 % 4 % 4 % 3 % (15 %)
 
Effective tax rate % 7 % 5 % (51 %) 5 % 45 %
 
Average shares outstanding - basic 28,245 28,132 27,619 28,045 27,449
 
Average shares outstanding - diluted 28,956 28,667 27,924 28,608 27,449
 
End of period employees 648 638 581 648 581
 
         
Electro Scientific Industries, Inc.
 
Fourth Quarter and Fiscal 2011 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Fiscal year ended
Apr 2, 2011 Jan 1, 2011 Apr 3, 2010 Apr 2, 2011 Apr 3, 2010
 
Gross profit per GAAP $ 31,448 $ 30,027 $ 25,661 $ 108,949 $ 55,865
Add back:
Purchase accounting included in cost of sales 289 289 289 1,157 1,155
Equity compensation included in cost of sales   256     252     242     1,084     1,059  
Total non-GAAP adjustments to gross profit   545     541     531     2,241     2,214  
Non-GAAP gross profit $ 31,993   $ 30,568   $ 26,192   $ 111,190   $ 58,079  
Non-GAAP gross margin   44.7 %   45.5 %   43.9 %   43.3 %   39.0 %
 
Operating expenses per GAAP $ 25,682 $ 27,520 $ 23,229 $ 101,521 $ 77,638

Less:

Purchase accounting included in operating expenses:
Selling, service and administration 112 135 189 576 1,020
Research, development and engineering   58     36     36     166     134  
Subtotal - purchase accounting included in operating expenses   170     171     225     742     1,154  
Equity compensation included in operating expenses:
Selling, service and administration 1,412 1,414 1,038 6,688 5,306
Research, development and engineering   358     420     334     1,554     1,355  
Subtotal - equity compensation included in operating expenses   1,770     1,834     1,372     8,242     6,661  
Acquisition costs (settlement proceeds) included in operating expenses:
Selling, service and administration   -     17     -     (592 )   -  
Subtotal - acquisition costs (settlement proceeds) included in operating expenses   -     17     -     (592 )   -  
Other non-recurring items included in operating expenses:
Legal settlement costs 56 1,311 1,367
Restructuring costs (30 ) 827 - 797 -
Merger termination proceeds, net   -     -     -     -     (4,516 )
Subtotal - other non-recurring items included in operating expenses   26     2,138     -     2,164     (4,516 )
Total non-GAAP adjustments to operating expenses   1,966     4,160     1,597     10,556     3,299  
Non-GAAP operating expenses $ 23,716   $ 23,360   $ 21,632   $ 90,965   $ 74,339  
 
Operating income (loss) per GAAP $ 5,766 $ 2,507 $ 2,432 $ 7,428 $ (21,773 )
Non-GAAP adjustments to gross profit 545 541 531 2,241 2,214
Non-GAAP adjustments to operating expenses   1,966     4,160     1,597     10,556     3,299  
Non-GAAP operating income (loss) $ 8,277   $ 7,208   $ 4,560   $ 20,225   $ (16,260 )
 
Non-operating income (expense), net per GAAP $ 690 $ (39 ) $ (1,058 ) $ 896 $ 11
Non-GAAP adjustment for sale of previously impaired auction rate securities (708 ) - - (708 ) -
Non-GAAP adjustment for impairment of auction rate securities   -     -     1,347     -     1,347  
Non-GAAP non-operating (expense) income $ (18 ) $ (39 ) $ 289   $ 188   $ 1,358  
 
Net income (loss) per GAAP $ 5,993 $ 2,351 $ 2,078 $ 7,934 $ (11,984 )
Non-GAAP adjustments to gross profit 545 541 531 2,241 2,214
Non-GAAP adjustments to operating expenses 1,966 4,160 1,597 10,556 3,299
Non-GAAP adjustments to non-operating expenses (708 ) - 1,347 (708 ) 1,347
Income tax effect of non-GAAP adjustments   (1,329 )   (1,148 )   (1,186 )   (4,025 )   (1,452 )
Non-GAAP net income (loss) $ 6,467   $ 5,904   $ 4,367   $ 15,998   $ (6,576 )
 
Basic Non-GAAP net income (loss) per share $ 0.23   $ 0.21   $ 0.16   $ 0.57   $ (0.24 )
 
Diluted Non-GAAP net income (loss) per share $ 0.22   $ 0.21   $ 0.16   $ 0.56   $ (0.24 )
 
     
Electro Scientific Industries, Inc.
   
Fourth Quarter and Fiscal 2011 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
Fiscal quarter ended   Fiscal year ended
Apr 2, 2011 Jan 1, 2011 Apr 3, 2010 Apr 2, 2011 Apr 3, 2010
 
Net income (loss) $ 5,993 $ 2,351 $ 2,078 $ 7,934 $ (11,984 )
Non-cash adjustments and changes in operating activities   23,347     6,007     1,942     42,656   14,839  
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,340 8,358 4,020 50,590 2,855
 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 39,405 (2,335 ) (17,797 ) 23,952 (118,955 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES 730 562 505 1,511 822
 
Effect of exchange rate changes on cash (124 ) 56 (35 ) 1,024 1,075
         
NET CHANGE IN CASH AND CASH EQUIVALENTS 69,351 6,641 (13,307 ) 77,077 (114,203 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   47,061     40,420     52,642     39,335   153,538  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 116,412   $ 47,061   $ 39,335   $ 116,412 $ 39,335  
 

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

Source: Electro Scientific Industries, Inc.

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