Electro Scientific Industries, Inc.
Oct 26, 2011

ESI Announces Second Quarter Fiscal 2012 Results

Revenues Increase to $82 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 second quarter ended October 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 second quarter was $81.9 million, compared to $77.0 million in the first quarter of 2012 and $59.6 million in the second quarter of last fiscal year. On a GAAP basis, net income was $8.5 million or $0.29 per diluted share, compared to $5.9 million or $0.20 per diluted share in the prior quarter. On a non-GAAP basis, second quarter net income was $9.3 million or $0.32 per diluted share, compared to $7.9 million or $0.27 per diluted share in the first quarter of fiscal 2012 and $2.9 million or $0.10 per diluted share in the second quarter of fiscal 2011.

"We delivered another quarter of strong sales and earnings growth," stated Nick Konidaris, president and CEO of ESI. "Year over year, sales grew 37% and non-GAAP earnings per share more than tripled."

Orders for the second quarter were $40.6 million, compared to $98.9 million in the prior quarter and $70.2 million in the corresponding quarter last year. Konidaris continued, "Following near-record order levels in the first quarter, orders declined due to lumpiness in our micromachining business and deferred capacity additions in DRAM, LED and passive components due to concerns over the economic environment. Although visibility is limited, we expect customer activity to increase in the third quarter."

Gross margin at 44% was flat with last quarter and last year. Operating expenses decreased sequentially by $2.7 million primarily due to lower stock compensation. Non-GAAP operating expenses increased slightly, from $23.1 million to $23.4 million, but decreased as a percent of sales. Non-GAAP operating income was $13.1 million, or 16% of sales, up from $11.3 million or 15% of sales in the first quarter, and it represented the highest level in more than five years.

Balance Sheet and Cash Flow

At quarter end, cash and investments including restricted cash grew to $226 million. Cash flow from operations was $26.4 million during the second quarter, primarily a result of profitable operations and strong cash collections.

Third Quarter 2012 Outlook

Based on current business conditions, ESI expects revenues for the third quarter of fiscal 2012 to be in the $50 million range. Third quarter non-GAAP earnings per share are expected to be at breakeven or slightly below.

Konidaris concluded, "The uncertain economic and market environment has caused many of our customers to delay their near-term capacity additions. These pauses are typical in some of our markets, and could last several quarters. During this period demand will be primarily driven by our new product introductions as well as opportunities related to growth in smartphones and tablets. In the meantime, we plan to continue to invest aggressively in R&D in order to advance our position and support our customers."

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 800-688-0796 (domestic participants) or 617-614-4070 (international participants). The conference ID number is 43538874. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through November 5, 2011, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 76788016. 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 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, 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 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; 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.
         
Second Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended Two fiscal quarters ended
Operating Results: Oct 1, 2011 Jul 2, 2011 Oct 2, 2010 Oct 1, 2011 Oct 2, 2010
Net sales $ 81,884 $ 77,046 $ 59,554 $ 158,930 $ 118,025
Cost of sales   45,943     43,286     33,553     89,229     70,551  
Gross profit 35,941 33,760 26,001 69,701 47,474
Operating expenses:
Selling, service and administration 14,884 16,496 15,046 31,380 27,891
Research, development and engineering 10,742 11,234 10,217 21,976 20,428
Legal settlement costs   -     550     -     550     -  
Net operating expenses   25,626     28,280     25,263     53,906     48,319  
Operating income (loss) 10,315 5,480 738 15,795 (845 )
Non-operating (expense) income:
Sale of previously impaired auction rate securities - 2,729 - 2,729 -
Interest and other (expense) income, net   (406 )   (137 )   187     (543 )   245  
Total non-operating (expense) income   (406 )   2,592     187     2,186     245  
Income (loss) before income taxes 9,909 8,072 925 17,981 (600 )
Provision for (benefit from) income taxes   1,372     2,159     1,536     3,531     (190 )
Net income (loss) $ 8,537   $ 5,913   $ (611 ) $ 14,450   $ (410 )
 
Net income (loss) per share - basic $ 0.30   $ 0.21   $ (0.02 ) $ 0.51   $ (0.01 )
 
Net income (loss) per share - diluted $ 0.29   $ 0.20   $ (0.02 ) $ 0.49   $ (0.01 )
Electro Scientific Industries, Inc.
         
Second Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Oct 1, 2011 Jul 2, 2011 Apr 2, 2011
 
Assets
Current assets:
Cash and cash equivalents $ 84,143 $ 88,331 $ 116,412
Restricted cash 22,269 22,269 10,769
Short-term investments   96,503   88,546   69,245
Total cash, restricted cash and investments 202,915 199,146 196,426
 
Trade receivables, net 29,631 60,531 44,100
Inventories 75,705 71,982 65,362
Shipped systems pending acceptance 1,339 6,446 5,289
Deferred income taxes, net 9,644 9,667 9,892
Other current assets   4,308   6,414   6,784
Total current assets 323,542 354,186 327,853
 
Non-current assets:
Non-current investments 23,063 - 8,097
Auction rate securities - - 5,166
Property, plant and equipment, net 38,730 39,524 39,661
Non-current deferred income taxes, net 28,865 29,676 30,822
Goodwill 4,014 4,014 4,014
Acquired intangible assets, net 9,159 9,585 10,035
Other assets   12,469   11,942   14,519
Total assets $ 439,842 $ 448,927 $ 440,167
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 15,936 $ 23,940 $ 18,650
Accrued liabilities 20,021 21,037 33,425
Deferred revenue   9,363   21,964   16,039
Total current liabilities 45,320 66,941 68,114
 
Non-current income taxes payable 9,603 9,597 9,754
 
Shareholders' equity:
Preferred and common stock 162,546 158,386 153,189
Retained earnings 221,870 213,333 207,420
Accumulated other comprehensive income   503   670   1,690
Total shareholders' equity   384,919   372,389   362,299
Total liabilities and shareholders' equity $ 439,842 $ 448,927 $ 440,167
 
 
End of period shares outstanding   28,805   28,628   28,299
Electro Scientific Industries, Inc.
         
Analysis of Second Quarter Fiscal 2012 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended Two fiscal quarters ended
Oct 1, 2011 Jul 2, 2011 Oct 2, 2010 Oct 1, 2011 Oct 2, 2010
Sales detail:
 
Semiconductor Group $ 24,171 $ 18,025 $ 13,160 $ 42,196 $ 32,217
 
Interconnect/ Micromachining Group 51,227 48,212 33,090 99,439 53,701
 
Components Group   6,486     10,809     13,304     17,295     32,107  
 
Total $ 81,884   $ 77,046   $ 59,554   $ 158,930   $ 118,025  
 
 
 
 
Gross margin % 44 % 44 % 44 % 44 % 40 %
 
Selling, service and administration expense % 18 % 21 % 25 % 20 % 24 %
 
Research, development and engineering expense % 13 % 15 % 17 % 14 % 17 %
 
Operating income (loss) % 13 % 7 % 1 % 10 % (1 %)
 
Effective tax rate % 14 % 27 % 166 % 20 % 32 %
 
Weighted average shares outstanding - basic 28,747 28,471 28,010 28,609 27,901
 
Weighted average shares outstanding - diluted 29,426 29,262 28,010 29,326 27,901
 
End of period employees 683 684 627 683 627
Electro Scientific Industries, Inc.
         
Second Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Two fiscal quarters ended
Oct 1, 2011 Jul 2, 2011 Oct 2, 2010 Oct 1, 2011 Oct 2, 2010
 
Net sales $ 81,884 $ 77,046 $ 59,554 $ 158,930 $ 118,025
 
Gross profit per GAAP $ 35,941 $ 33,760 $ 26,001 $ 69,701 $ 47,474
Add back:
Purchase accounting included in cost of sales 289 289 289 578 578
Equity compensation included in cost of sales   261     296     294     557     576  
Total non-GAAP adjustments to gross profit   550     585     583     1,135     1,154  
Non-GAAP gross profit $ 36,491   $ 34,345   $ 26,584   $ 70,836   $ 48,628  
Non-GAAP gross margin   44.6 %   44.6 %   44.6 %   44.6 %   41.2 %
 
Operating expenses per GAAP $ 25,626 $ 28,280 $ 25,263 $ 53,906 $ 48,319
Less:
Purchase accounting included in operating expenses:
Selling, service and administration 72 114 139 186 328
Research, development and engineering   47     47     36     94     72  
Subtotal - purchase accounting included in operating expenses   119     161     175     280     400  
Equity compensation included in operating expenses:
Selling, service and administration 1,599 3,938 1,638 5,537 3,862
Research, development and engineering   537     546     399     1,083     776  
Subtotal - equity compensation included in operating expenses   2,136     4,484     2,037     6,620     4,638  
Acquisition costs (settlement proceeds) included in operating expenses:
Selling, service and administration   -     -     280     -     (609 )
Subtotal - acquisition costs (settlement proceeds) included in operating expenses   -     -     280     -     (609 )
Other non-recurring items included in operating expenses:
Legal settlement costs   -     550     -     550     -  
Subtotal - other non-recurring items included in operating expenses   -     550     -     550     -  
Total non-GAAP adjustments to operating expenses   2,255     5,195     2,492     7,450     4,429  
Non-GAAP operating expenses $ 23,371   $ 23,085   $ 22,771   $ 46,456   $ 43,890  
% of Net sales 29 % 30 % 38 % 29 % 37 %
 
Operating income (loss) per GAAP $ 10,315 $ 5,480 $ 738 $ 15,795 $ (845 )
Non-GAAP adjustments to gross profit 550 585 583 1,135 1,154
Non-GAAP adjustments to operating expenses   2,255     5,195     2,492     7,450     4,429  
Non-GAAP operating income $ 13,120   $ 11,260   $ 3,813   $ 24,380   $ 4,738  
% of Net sales 16 % 15 % 6 % 15 % 4 %
 
Non-operating (expense) income, net per GAAP $ (406 ) $ 2,592 $ 187 $ 2,186 $ 245
Non-GAAP adjustment for sale of previously impaired auction rate securities - (2,729 ) - (2,729 ) -
Non-GAAP adjustment for other litigation related costs   -     59     -     59     -  
Non-GAAP non-operating (expense) income $ (406 ) $ (78 ) $ 187   $ (484 ) $ 245  
 
Net income (loss) per GAAP $ 8,537 $ 5,913 $ (611 ) $ 14,450 $ (410 )
Non-GAAP adjustments to gross profit 550 585 583 1,135 1,154
Non-GAAP adjustments to operating expenses 2,255 5,195 2,492 7,450 4,429
Non-GAAP adjustments to non-operating expense - (2,670 ) - (2,670 ) -
Income tax effect of non-GAAP adjustments   (2,002 )   (1,164 )   394     (3,166 )   (1,547 )
Non-GAAP net income $ 9,340   $ 7,859   $ 2,858   $ 17,199   $ 3,626  
% of Net sales 11 % 10 % 5 % 11 % 3 %
 
Basic Non-GAAP net income per share $ 0.32   $ 0.28   $ 0.10   $ 0.60   $ 0.13  
 
Diluted Non-GAAP net income per share $ 0.32   $ 0.27   $ 0.10   $ 0.59   $ 0.13  
Electro Scientific Industries, Inc.
             
Second Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
Fiscal quarter ended Two fiscal quarters ended
Oct 1, 2011 Jul 2, 2011 Oct 2, 2010 Oct 1, 2011 Oct 2, 2010
 
Net income (loss) $ 8,537 $ 5,913 $ (611 ) $ 14,450 $ (410 )
Non-cash adjustments and changes in operating activities   17,867     (16,781 )   (1,266 )   1,086     13,302  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 26,404 (10,868 ) (1,877 ) 15,536 12,892
 
NET CASH USED IN INVESTING ACTIVITIES (32,233 ) (18,303 ) (12,920 ) (50,536 ) (13,118 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,810 395 150 2,205 219
 
Effect of exchange rate changes on cash (169 ) 695 842 526 1,092
         
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,188 ) (28,081 ) (13,805 ) (32,269 ) 1,085
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   88,331     116,412     54,225     116,412     39,335  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,143   $ 88,331   $ 40,420   $ 84,143   $ 40,420  

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

Source: Electro Scientific Industries, Inc.

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