Electro Scientific Industries, Inc.
Jan 26, 2012

ESI Announces Third Quarter Fiscal 2012 Results

Orders Increase 11% 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 2012 third quarter ended December 31, 2011. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring charges, and non-recurring items.

Revenue in the third quarter was $49.8 million, compared to $81.9 million in the second quarter of 2012 and $67.2 million in the third quarter of last fiscal year. On a GAAP basis, net loss was $1.9 million or $0.07 per share, compared to income of $8.5 million or $0.29 per diluted share in the prior quarter. On a non-GAAP basis, third quarter net income was $0.5 million or $0.02 per diluted share, compared to $9.3 million or $0.32 per diluted share in the second quarter of fiscal 2012 and $5.9 million or $0.21 per diluted share in the third quarter of fiscal 2011.

"We executed well in our third quarter, delivering non-GAAP financial results near breakeven and positive cash flow in very challenging market conditions," stated Nick Konidaris, president and CEO of ESI.

Orders for the third quarter were $45.4 million, compared to $40.6 million in the prior quarter and $77.9 million in the corresponding quarter last year. Konidaris continued, "Orders increased sequentially but continued to reflect the relatively weak macro environment and overcapacity in many of our markets."

Gross margin at 42.5% was down compared to last quarter and last year on lower sales volume. Operating expenses decreased sequentially by $0.3 million due to lower discretionary spending, partially offset by $0.9 million of restructuring charges. Non-GAAP operating expenses decreased by $1.1 million to $22.2 million. Non-GAAP operating loss was $0.5 million compared to income of $13.1 million in the second quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments including restricted cash grew to $227 million. Cash flow from operations was $1.4 million during the third quarter.

Quarterly Dividend Initiated

On December 13, 2011 the company announced that its Board of Directors had initiated a quarterly dividend. It authorized a cash dividend of $0.08 per share, payable on February 17, 2012 to shareholders of record on January 27, 2012.

Fourth Quarter 2012 Outlook

Based on recent order levels, ESI expects revenues for the fourth quarter of fiscal 2012 to be in the mid-$40 million range. Fourth quarter non-GAAP loss per share is expected to be $0.05 to $0.10.

Konidaris concluded, "Looking forward, we are focused on qualifying new products, winning opportunities in consumer electronics, and managing our cost structure consistent with current business levels. We remain committed to our goals of expanding our addressable market and driving shareholder value with innovations and breakthrough technologies that grow our top and bottom line."

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 888-419-5570 (domestic participants) or 617-896-9871 (international participants). The conference ID number is 50336551. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through February 5, 2012, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 79943740. 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, restructuring charges 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 electronic devices, semiconductors, LEDs and other high-value components. We partner with our customers to make breakthrough technologies possible in the microelectronics, semiconductor 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.
           
Third Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended Three fiscal quarters ended
Operating Results: Dec 31, 2011 Oct 1, 2011 Jan 1, 2011 Dec 31, 2011 Jan 1, 2011
Net sales $ 49,807 $ 81,884 $ 67,209 $ 208,737 $ 185,234
Cost of sales   28,646     45,943     37,182     117,875     107,733  
Gross profit 21,161 35,941 30,027 90,862 77,501
Operating expenses:

Selling, service and administration

13,944 14,884 15,172 45,324 43,063
Research, development and engineering 10,480 10,742 10,210 32,456 30,638
Legal settlement costs - - 1,311 550 1,311
Restructuring costs   861     -     827     861     827  
Net operating expenses   25,285     25,626     27,520     79,191     75,839  
Operating (loss) income (4,124 ) 10,315 2,507 11,671 1,662
Non-operating income (expense):
Gain on sale of previously impaired auction rate securities - - - 2,729 -
Interest and other income (expense), net   47     (406 )   (39 )   (496 )   206  
Total non-operating income (expense)   47     (406 )   (39 )   2,233     206  
(Loss) income before income taxes (4,077 ) 9,909 2,468 13,904 1,868
(Benefit from) provision for income taxes   (2,196 )   1,372     117     1,335     (73 )
Net (loss) income $ (1,881 ) $ 8,537   $ 2,351   $ 12,569   $ 1,941  
 
Net (loss) income per share - basic $ (0.07 ) $ 0.30   $ 0.08   $ 0.44   $ 0.07  
 
Net (loss) income per share - diluted $ (0.07 ) $ 0.29   $ 0.08   $ 0.43   $ 0.07  
 
 
Electro Scientific Industries, Inc.
     
Third Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Dec 31, 2011 Oct 1, 2011 Apr 2, 2011
 
Assets
Current assets:
Cash and cash equivalents $ 67,557 $ 84,143 $ 116,412
Restricted cash 22,269 22,269 10,769
Short-term investments   124,738   96,503   69,245
Total cash, restricted cash and investments 214,564 202,915 196,426
 
Trade receivables, net 25,707 29,631 44,100
Inventories 72,631 75,705 65,362
Shipped systems pending acceptance 1,239 1,339 5,289
Deferred income taxes, net 11,985 9,644 9,892
Other current assets   3,942   4,308   6,784
Total current assets 330,068 323,542 327,853
 
Non-current assets:
Non-current investments 12,867 23,063 8,097
Auction rate securities - - 5,166
Property, plant and equipment, net 36,159 38,730 39,661
Non-current deferred income taxes, net 30,849 28,865 30,822
Goodwill 4,014 4,014 4,014
Acquired intangible assets, net 8,745 9,159 10,035
Other assets   12,661   12,469   14,519
Total assets $ 435,363 $ 439,842 $ 440,167
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 11,062 $ 15,936 $ 18,650
Accrued liabilities 21,912 20,021 33,425
Deferred revenue   8,384   9,363   16,039
Total current liabilities 41,358 45,320 68,114
 
Non-current income taxes payable 10,102 9,603 9,754
 
Shareholders' equity:
Preferred and common stock 165,557 162,546 153,189
Retained earnings 217,678 221,870 207,420
Accumulated other comprehensive income   668   503   1,690
Total shareholders' equity   383,903   384,919   362,299
Total liabilities and shareholders' equity $ 435,363 $ 439,842 $ 440,167
 
 
End of period shares outstanding   28,887   28,805   28,299
 
 
Electro Scientific Industries, Inc.
         
Third Quarter Fiscal 2012 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended Three fiscal quarters ended
Dec 31, 2011 Oct 1, 2011 Jan 1, 2011 Dec 31, 2011 Jan 1, 2011
Sales detail:
 
Interconnect/ Micromachining Group $ 35,318 $ 51,227 $ 29,780 $ 134,757 $ 83,481
 
Semiconductor Group 8,435 24,171 29,674 50,631 61,891
 
Components Group   6,054     6,486     7,755     23,349     39,862  
 
Total $ 49,807   $ 81,884   $ 67,209   $ 208,737   $ 185,234  
 
 
 
 
Gross margin %

42%

 

44%

 

45%

 

44%

 

42%

 

 
Selling, service and administration expense %

28%

 

18%

 

23%

 

22%

 

23%

 

 
Research, development and engineering expense %

21%

 

13%

 

15%

 

16%

 

17%

 

 
Operating (loss) income %

(8%)

 

13%

 

4%

 

6%

 

1%

 

 
Effective tax rate %

54%

 

14%

 

5%

 

10%

 

(4%)

 

 
Weighted Average shares outstanding - basic 28,849 28,747 28,132 28,689 27,978
 
Weighted Average shares outstanding - diluted 28,849 29,426 28,667 29,384 28,458
 
End of period employees 655 683 638 655 638
 
 
Electro Scientific Industries, Inc.
       
Third Quarter Fiscal 2012 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Three fiscal quarters ended
Dec 31, 2011 Oct 1, 2011 Jan 1, 2011 Dec 31, 2011 Jan 1, 2011
 
Net sales $ 49,807 $ 81,884 $ 67,209 $ 208,737 $ 185,234
Gross profit per GAAP $ 21,161 $ 35,941 $ 30,027 $ 90,862 $ 77,501
Add back:
Purchase accounting included in cost of sales 289 289 289 867 867
Equity compensation included in cost of sales   302     261     252     859     828  
Total non-GAAP adjustments to gross profit   591     550     541     1,726     1,695  
Non-GAAP gross profit $ 21,752   $ 36,491   $ 30,568   $ 92,588   $ 79,196  
Non-GAAP gross margin  

43.7%

 

 

44.6%

 

 

45.5%

 

 

44.4%

 

 

42.8%

 

 
Operating expenses per GAAP $ 25,285 $ 25,626 $ 27,520 $ 79,191 $ 75,839
Less:
Purchase accounting included in operating expenses:
Selling, service and administration 64 72 135 250 463
Research, development and engineering   47     47     36     141     108  
Subtotal - purchase accounting included in operating expenses   111     119     171     391     571  
Equity compensation included in operating expenses:
Selling, service and administration 1,557 1,599 1,414 7,094 5,276
Research, development and engineering   534     537     420     1,617     1,196  
Subtotal - equity compensation included in operating expenses   2,091     2,136     1,834     8,711     6,472  
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 - - 1,311 550 1,311
Restructuring costs   861     -     827     861     827  
Subtotal - other non-recurring items included in operating expenses   861     -     2,138     1,411     2,138  
Total non-GAAP adjustments to operating expenses   3,063     2,255     4,160     10,513     8,589  
Non-GAAP operating expenses $ 22,222 $ 23,371 $ 23,360 $ 68,678 $ 67,250
% of Net sales

45%

 

29%

 

35%

 

33%

 

36%

 

 
Operating (loss) income per GAAP $ (4,124 ) $ 10,315 $ 2,507 $ 11,671 $ 1,662
Non-GAAP adjustments to gross profit 591 550 541 1,726 1,695
Non-GAAP adjustments to operating expenses   3,063     2,255     4,160     10,513     8,589  
Non-GAAP operating (loss) income $ (470 ) $ 13,120   $ 7,208   $ 23,910   $ 11,946  
% of Net sales

(1%

)

16%

 

11%

 

11%

 

6%

 

 
Non-operating income (expense), net per GAAP $ 47 $ (406 ) $ (39 ) $ 2,233 $ 206
Non-GAAP adjustment for gain on sale of previously impaired auction rate securities - - - (2,729 ) -
Non-GAAP adjustment for other litigation related costs   -     -     -     59     -  
Non-GAAP non-operating income (expense) $ 47   $ (406 ) $ (39 ) $ (437 ) $ 206  
 
Net (loss) income per GAAP $ (1,881 ) $ 8,537 $ 2,351 $ 12,569 $ 1,941
Non-GAAP adjustments to gross profit 591 550 541 1,726 1,695
Non-GAAP adjustments to operating expenses 3,063 2,255 4,160 10,513 8,589
Non-GAAP adjustments to non-operating expense - - - (2,670 ) -
Income tax effect of non-GAAP adjustments   (1,269 )   (2,002 )   (1,148 )   (4,434 )   (2,695 )
Non-GAAP net income $ 504   $ 9,340   $ 5,904   $ 17,704   $ 9,530  
% of Net sales

1%

 

11%

 

9%

 

8%

 

5%

 

 
Basic Non-GAAP net income per share $ 0.02   $ 0.32   $ 0.21   $ 0.62   $ 0.34  
 
Diluted Non-GAAP net income per share $ 0.02   $ 0.32   $ 0.21   $ 0.60   $ 0.33  
 
 
Electro Scientific Industries, Inc.
       
Third Quarter Fiscal 2012 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
 
Fiscal quarter ended Three fiscal quarters ended
Dec 31, 2011 Oct 1, 2011 Jan 1, 2011 Dec 31, 2011 Jan 1, 2011
 
Net (loss) income $ (1,881 ) $ 8,537 $ 2,351 $ 12,569 $ 1,941
Non-cash adjustments and changes in operating activities   3,289     17,867     6,007     4,375     19,309  
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,408 26,404 8,358 16,944 21,250
 
NET CASH USED IN INVESTING ACTIVITIES (18,792 ) (32,233 ) (2,335 ) (69,328 ) (15,453 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES 659 1,810 562 2,864 781
 
Effect of exchange rate changes on cash 139 (169 ) 56 665 1,148
         
NET CHANGE IN CASH AND CASH EQUIVALENTS (16,586 ) (4,188 ) 6,641 (48,855 ) 7,726
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   84,143     88,331     40,420     116,412     39,335  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,557   $ 84,143   $ 47,061   $ 67,557   $ 47,061  
 

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

Source: Electro Scientific Industries, Inc.

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