Electro Scientific Industries, Inc.
Jul 26, 2011

ESI Announces First Quarter Fiscal 2012 Results

Orders Increase to $99 Million

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 2012 first quarter ended July 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 first quarter was $77.0 million, compared to $71.6 million in the fourth quarter of 2011 and $58.5 million in the first quarter of last fiscal year. On a GAAP basis, net income was $5.9 million or $0.20 per diluted share, compared to $6.0 million or $0.21 per diluted share in the prior quarter. On a non-GAAP basis, excluding the impact of purchase accounting, equity compensation, gain on auction rate securities and other non-recurring items, first quarter net income was $7.9 million or $0.27 per diluted share, compared to $6.5 million or $0.22 per diluted share in the fourth quarter of fiscal 2011.

"The first quarter was a strong start to our fiscal year," stated Nick Konidaris, president and CEO of ESI. "Revenues increased 8% sequentially and 32% over last year's first quarter."

Orders for the first quarter were $98.9 million, compared to $72.5 million in the prior quarter and up from $64.1 million in the corresponding quarter last year. Konidaris continued, "Record orders in our Interconnect and Micromachining Group, which included a large micromachining order, and strength in our Semiconductor business drove overall orders significantly higher."

Gross margin at 44% was the same as last quarter but up from 37% last year. Operating expenses increased sequentially driven by timing of stock compensation expense and non-recurring costs related to legal proceedings. Non-GAAP operating expenses, which exclude purchase accounting, stock compensation and non-recurring items, decreased from $23.7 million to $23.1 million. Non-GAAP operating income was $11.3 million, or 15% of sales, up from $8.3 million or 12% of sales in the fourth quarter.

"We were pleased with the improvement in non-GAAP profitability as we were able to grow sales on lower non-GAAP expenses for the quarter," continued Konidaris.

Balance Sheet and Cash Flow

At quarter end, cash and investments including restricted cash totaled $199 million. Cash usage from operations was $10.9 million during the first quarter, primarily a result of working capital investments related to increased shipments both in the first quarter and next quarter. In addition, during the quarter the company sold its remaining auction rate securities for approximately $6.5 million, resulting in a pre-tax non-operating gain of approximately $2.7 million.

New LED Solutions Suite Announced

Earlier this month at the Semicon West trade show, ESI announced its new and expanded suite of LED manufacturing systems and applications. The new state-of-the-art products deliver the industry's highest light output LED wafer scribing, the most advanced LED packaging solution, and the highest throughput, highest accuracy packaged LED test.

Q2 2012 Outlook

Based on current business conditions and revenue related to the large order received in the first quarter, ESI expects revenues for the second quarter of fiscal 2012 to be in the $90 million range. For the year, the company now expects revenues at the high end of previous growth projections of 15-25%. Second quarter non-GAAP earnings per share are expected to be $0.35 to $0.40 excluding the impact of purchase accounting, equity compensation and non-recurring items.

Konidaris concluded, "I am pleased with our financial results in the first quarter, continued success in our micromachining business, and opportunities for growth as we expand into high-growth markets such as LED manufacturing and test as well as 3D chip packaging. We believe we are positioned well for continued success moving forward based on the strength of ESI's portfolio, presence in the right growth markets, and strong customer relationships."

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 800-688-0796 (domestic participants) or 617-614-4070 (international participants). The conference ID number is 14435174. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through August 5, 2011, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 49938256. 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 costs, sale of auction rate securities and other 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; and changes in tax laws or the interpretation of such tax laws.

Electro Scientific Industries, Inc.
     
First Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended
Operating Results: Jul 2, 2011 Apr 2, 2011 Jul 3, 2010
Net sales $ 77,046 $ 71,577 $ 58,471
Cost of sales   43,286     40,129     36,998  
Gross profit 33,760 31,448 21,473
Operating expenses:
Selling, service and administration 16,496 15,199 12,845
Research, development and engineering 11,234 10,457 10,211
Legal settlement costs 550 56 -
Restructuring costs   -     (30 )   -  
Net operating expenses   28,280     25,682     23,056  
Operating income (loss) 5,480 5,766 (1,583 )
Non-operating income (expense):
Sale of previously impaired auction rate securities 2,729 708 -
Interest and other (expense) income, net   (137 )   (18 )   58  
Total non-operating income   2,592     690     58  
Income (loss) before income taxes 8,072 6,456 (1,525 )
Provision for (benefit from) income taxes   2,159     463     (1,726 )
Net income $ 5,913   $ 5,993   $ 201  
 
Net income per share - basic $ 0.21   $ 0.21   $ 0.01  
 
Net income per share - diluted $ 0.20   $ 0.21   $ 0.01  
Electro Scientific Industries, Inc.
     
First Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Jul 2, 2011 Apr 2, 2011
 
Assets
Current assets:
Cash and cash equivalents $ 88,331 $ 116,412
Restricted cash 22,269 10,769
Short-term investments   88,546   69,245
Total cash, restricted cash and investments 199,146 196,426
 
Trade receivables, net 60,531 44,100
Inventories 71,982 65,362
Shipped systems pending acceptance 6,446 5,289
Deferred income taxes, net 9,667 9,892
Other current assets   6,414   6,784
Total current assets 354,186 327,853
 
Non-current assets:
Auction rate securities - 5,166
Non-current investments - 8,097
Property, plant and equipment, net 39,524 39,661
Non-current deferred income taxes, net 29,676 30,822
Goodwill 4,014 4,014
Acquired intangible assets, net 9,585 10,035
Other assets   11,942   14,519
Total assets $ 448,927 $ 440,167
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 23,940 $ 18,650
Accrued liabilities 21,037 33,425
Deferred revenue   21,964   16,039
Total current liabilities 66,941 68,114
 
Non-current income taxes payable 9,597 9,754
 
Shareholders' equity:
Preferred and common stock 158,386 153,189
Retained earnings 213,333 207,420
Accumulated other comprehensive income   670   1,690
Total shareholders' equity   372,389   362,299
Total liabilities and shareholders' equity $ 448,927 $ 440,167
 
 
End of period shares outstanding   28,628   28,299
Electro Scientific Industries, Inc.
     
Analysis of First Quarter Fiscal 2012 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended
Jul 2, 2011 Apr 2, 2011 Jul 3, 2010
Sales detail:
 
Semiconductor Group $ 18,025 $ 16,848 $ 19,057
 
Components Group 10,809 14,322 18,803
 
Interconnect/ Micromachining Group   48,212     40,407     20,611  
 
Total $ 77,046   $ 71,577   $ 58,471  
 
 
 
 
Gross margin % 44 % 44 % 37 %
 
Selling, service and administration expense % 21 % 21 % 22 %
 
Research, development and engineering expense % 15 % 15 % 17 %
 
Operating income (loss) % 7 % 8 % (3 %)
 
Effective tax rate % 27 % 7 % 113 %
 
Average shares outstanding - basic 28,471 28,245 27,791
 
Average shares outstanding - diluted 29,262 28,956 28,212
 
End of period employees 684 648 597
Electro Scientific Industries, Inc.
     
First Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended
Jul 2, 2011 Apr 2, 2011 Jul 3, 2010
 
Gross profit per GAAP $ 33,760 $ 31,448 $ 21,473
Add back:
Purchase accounting included in cost of sales 289 289 289
Equity compensation included in cost of sales   296     256     282  
Total non-GAAP adjustments to gross profit   585     545     571  
Non-GAAP gross profit $ 34,345   $ 31,993   $ 22,044  
Non-GAAP gross margin   44.6 %   44.7 %   37.7 %
 
Operating expenses per GAAP $ 28,280 $ 25,682 $ 23,056
Less:
Purchase accounting included in operating expenses:
Selling, service and administration 114 112 189
Research, development and engineering   47     58     36  
Subtotal - purchase accounting included in operating expenses   161     170     225  
Equity compensation included in operating expenses:
Selling, service and administration 3,938 1,412 2,224
Research, development and engineering   546     358     377  
Subtotal - equity compensation included in operating expenses   4,484     1,770     2,601  
Acquisition settlement proceeds included in operating expenses:
Selling, service and administration   -     -     (889 )
Subtotal - acquisition settlement proceeds included in operating expenses   -     -     (889 )
Other non-recurring items included in operating expenses:
Legal settlement costs 550 56 -
Restructuring costs   -     (30 )   -  
Subtotal - other non-recurring items included in operating expenses   550     26     -  
Total non-GAAP adjustments to operating expenses   5,195     1,966     1,937  
Non-GAAP operating expenses $ 23,085   $ 23,716   $ 21,119  
 
Operating income (loss) per GAAP $ 5,480 $ 5,766 $ (1,583 )
Non-GAAP adjustments to gross profit 585 545 571
Non-GAAP adjustments to operating expenses   5,195     1,966     1,937  
Non-GAAP operating income $ 11,260   $ 8,277   $ 925  
 
Non-operating income, net per GAAP $ 2,592 $ 690 $ 58
Non-GAAP adjustment for sale of previously impaired auction rate securities (2,729 ) (708 ) -
Non-GAAP adjustment for other litigation related costs   59     -     -  
Non-GAAP non-operating (expense) income $ (78 ) $ (18 ) $ 58  
 
Net income per GAAP $ 5,913 $ 5,993 $ 201
Non-GAAP adjustments to gross profit 585 545 571
Non-GAAP adjustments to operating expenses 5,195 1,966 1,937
Non-GAAP adjustments to non-operating expense (2,670 ) (708 ) -
Income tax effect of non-GAAP adjustments   (1,164 )   (1,329 )   (1,941 )
Non-GAAP net income $ 7,859   $ 6,467   $ 768  
 
Basic Non-GAAP net income per share $ 0.28   $ 0.23   $ 0.03  
 
Diluted Non-GAAP net income per share $ 0.27   $ 0.22   $ 0.03  
Electro Scientific Industries, Inc.
           
First Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Condensed Consolidated Statements of Cash Flows:
Fiscal quarter ended
Jul 2, 2011 Apr 2, 2011 Jul 3, 2010
 
Net income $ 5,913 $ 5,993 $ 201
Non-cash adjustments and changes in operating activities   (16,781 )   23,347     14,568  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (10,868 ) 29,340 14,769
 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (18,303 ) 39,405 (198 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES 395 730 69
 
Effect of exchange rate changes on cash 695 (124 ) 250
     
NET CHANGE IN CASH AND CASH EQUIVALENTS (28,081 ) 69,351 14,890
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   116,412     47,061     39,335  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 88,331   $ 116,412   $ 54,225  

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

Source: Electro Scientific Industries, Inc.

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