Electro Scientific Industries, Inc.
Oct 25, 2012

ESI Announces Second Quarter Fiscal 2013 Results

Revenues Increase 36% 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 2013 second quarter ended September 29, 2012. Financial measures are provided on both a GAAP and non-GAAP basis.

Revenue in the second quarter was $80.2 million, compared to $59.0 million in the first quarter of 2013 and $81.9 million in the second quarter of last fiscal year. On a GAAP basis, net income was $5.2 million or $0.17 per diluted share, compared to a loss of $0.9 million or $0.03 per share in the prior quarter and income of $8.5 million or $0.29 per diluted share in the second quarter of fiscal 2012. On a non-GAAP basis, second quarter net income was $7.0 million or $0.23 per diluted share, compared to income of $1.9 million or $0.06 per diluted share in the first quarter of fiscal 2013 and income of $9.3 million or $0.32 per diluted share in the second quarter of fiscal 2012.

"We delivered strong sequential growth in revenues and profitability, as we shipped most of the large microfabrication orders received in the June quarter," stated Nick Konidaris, president and CEO of ESI. "Our Singapore factory shipped a record number of units, enabling us to meet customer commitments and driving solid operating margins."

Net orders for the second quarter were $35.0 million, compared to $74.1 million in the prior quarter. Konidaris continued, "The order rate reflects the variability of our advanced microfabrication business, following the large design wins last quarter. However, overall microfabrication orders are up from last year for both the quarter and year to date."

GAAP gross margin was 41.8%, up from 40.1% last quarter. Non-GAAP gross margin was 42.8% compared to 41.0% in the prior quarter. GAAP operating expenses were essentially flat, while non-GAAP operating expenses increased by $2.2 million due to higher variable expenses, the addition of Eolite and continued investment in our growth initiatives. Non-GAAP operating income was $10.5 million, or 13.1% of sales, compared to $2.7 million, or 4.5% of sales, in the first quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments including restricted cash totaled $205 million. The company used approximately $11 million in operating cash during the quarter. Inventories increased by $9 million and receivables increased by $30 million, directly related to the timing of shipments in the quarter, yielding a DSO of 66 days.

Third Quarter 2013 Outlook

Based on recent order levels, ESI expects revenues for the third quarter of fiscal 2013 to be around $40 million. Non-GAAP loss per share is expected to be $0.00 to $0.05.

Konidaris concluded, "Although overall market conditions remain weak, we continue to see a full funnel of microfabrication opportunities, and we are optimistic about our growth initiatives in the longer term. Our team remains focused on disciplined execution, improving productivity and quality, and meeting customer commitments."

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 800-230-1093 (domestic) or 612-288-0329 (international). The conference ID number is 266829. 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, 2012, at 800-475-6701 (domestic) or 320-365-3844 (international), passcode 266829. 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 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, growth, 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 risk that the company may not be able 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 we may incur unanticipated costs or expenses in connection with our acquisition of Eolite Systems; 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 2013 Results
(In thousands, except per share data)
(Unaudited)
 
 
Fiscal quarter ended Two fiscal quarters ended
Operating Results: Sep 29, 2012 Jun 30, 2012 Oct 1, 2011 Sep 29, 2012 Oct 1, 2011
Net sales $ 80,152 $ 58,969 $ 81,884 $ 139,121 $ 158,930
Cost of sales   46,632   35,316     45,943     81,948     89,229  
Gross profit 33,520 23,653 35,941 57,173 69,701
Operating expenses:
Selling, service and administration 15,114 15,663 14,884 30,777 31,380
Research, development and engineering 10,527 9,534 10,742 20,061 21,976
Legal settlement costs   -   -     -     -     550  
Net operating expenses   25,641   25,197     25,626     50,838     53,906  
Operating income (loss) 7,879 (1,544 ) 10,315 6,335 15,795
Non-operating income (expense):
Gain on sale of previously impaired auction rate securities - - - - 2,729
Interest and other income (expense), net   91   (150 )   (406 )   (59 )   (543 )
Total non-operating income (expense)   91   (150 )   (406 )   (59 )   2,186  
Income (loss) before income taxes 7,970 (1,694 ) 9,909 6,276 17,981
Provision for (benefit from) income taxes   2,759   (750 )   1,372     2,009     3,531  
Net income (loss) $ 5,211 $ (944 ) $ 8,537   $ 4,267   $ 14,450  
 
Net income (loss) per share - basic $ 0.18 $ (0.03 ) $ 0.30   $ 0.15   $ 0.51  
 
Net income (loss) per share - diluted $ 0.17 $ (0.03 ) $ 0.29   $ 0.14   $ 0.49  
Electro Scientific Industries, Inc.
       
Second Quarter Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of: Sep 29, 2012 Jun 30, 2012 Mar 31, 2012
 
Assets
Current assets:
Cash and cash equivalents $ 70,956 $ 84,316 $ 69,780
Restricted cash 22,269 22,269 22,269
Short-term investments 101,700 100,601 106,674
Trade receivables, net 58,371 28,110 32,744
Inventories 79,318 70,492 68,055
Shipped systems pending acceptance 262 357 1,360
Deferred income taxes, net 9,046 9,950 10,021
Other current assets   4,539   4,480   4,060
Total current assets 346,461 320,575 314,963
 
Non-current investments 10,508 12,994 23,046
Property, plant and equipment, net 30,937 31,030 32,103
Non-current deferred income taxes, net 34,686 38,141 36,489
Goodwill 7,889 8,150 4,014
Acquired intangible assets, net 12,714 13,526 8,332
Other assets   16,451   14,993   14,263
Total assets $ 459,646 $ 439,409 $ 433,210
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 30,559 $ 18,466 $ 13,045
Accrued liabilities 27,824 22,838 21,635
Deferred revenue   9,456   10,676   10,751
Total current liabilities 67,839 51,980 45,431
 
Non-current income taxes payable 9,335 9,414 9,109
 
Shareholders' equity:
Preferred and common stock 172,064 170,557 168,143
Retained earnings 209,615 206,746 210,021
Accumulated other comprehensive income   793   712   506
Total shareholders' equity   382,472   378,015   378,670
Total liabilities and shareholders' equity $ 459,646 $ 439,409 $ 433,210
 
 
End of period shares outstanding   29,391   29,263   28,970
Electro Scientific Industries, Inc.
         
Analysis of Second Quarter Fiscal 2013 Results
(Dollars and shares in thousands)
(Unaudited)
 
 
Fiscal quarter ended Two fiscal quarters ended
Sep 29, 2012 Jun 30, 2012 Oct 1, 2011 Sep 29, 2012 Oct 1, 2011
Sales detail:
 
Interconnect & Microfabrication Group $ 69,137 $ 47,832 $ 51,227 $ 116,969 $ 99,439
 
Components Group 7,831 7,705 6,486 15,536 17,295
 
Semiconductor Group   3,184     3,432     24,171     6,616     42,196  
 
Total $ 80,152   $ 58,969   $ 81,884   $ 139,121   $ 158,930  
 
 
 
 
Gross margin % 42 % 40 % 44 % 41 % 44 %
 
Selling, service and administration expense % 19 % 27 % 18 % 22 % 20 %
 
Research, development and engineering expense % 13 % 16 % 13 % 14 % 14 %
 
Operating income (loss) % 10 % (3 %) 13 % 5 % 10 %
 
Effective tax rate % 35 % 44 % 14 % 32 % 20 %
 
Weighted average shares outstanding - basic 29,339 29,116 28,747 29,228 28,609
 
Weighted average shares outstanding - diluted 29,961 29,116 29,426 29,912 29,326
 
End of period employees 679 651 683 679 683
Electro Scientific Industries, Inc.
         
Second Quarter Fiscal 2013 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Two fiscal quarters ended
Sep 29, 2012 Jun 30, 2012 Oct 1, 2011 Sep 29, 2012 Oct 1, 2011
 
Net sales $ 80,152 $ 58,969 $ 81,884 $ 139,121 $ 158,930
 
Gross profit per GAAP $ 33,520 $ 23,653 $ 35,941 $ 57,173 $ 69,701
Add back:
Purchase accounting included in cost of sales 545 337 289 882 578
Equity compensation included in cost of sales   217     216     261     433     557  
Total non-GAAP adjustments to gross profit   762     553     550     1,315     1,135  
Non-GAAP gross profit $ 34,282   $ 24,206   $ 36,491   $ 58,488   $ 70,836  
Non-GAAP gross margin   42.8 %   41.0 %   44.6 %   42.0 %   44.6 %
 
Operating expenses per GAAP $ 25,641 $ 25,197 $ 25,626 $ 50,838 $ 53,906
Less:
Purchase accounting included in operating expenses:
Selling, service and administration 82 73 72 155 186
Research, development and engineering   47     47     47     94     94  
Subtotal - purchase accounting included in operating expenses   129     120     119     249     280  
Equity compensation included in operating expenses:
Selling, service and administration 1,017 2,261 1,599 3,278 5,537
Research, development and engineering   666     500     537     1,166     1,083  
Subtotal - equity compensation included in operating expenses   1,683     2,761     2,136     4,444     6,620  
Acquisition and integration costs included in operating expenses:
Selling, service and administration   70     789     -     859     -  
Subtotal - acquisition and integration costs included in operating expenses   70     789     -     859     -  
Other items excluded from operating expenses:
Legal settlement costs   -     -     -     -     550  
Subtotal - other items excluded from operating expenses   -     -     -     -     550  
Total non-GAAP adjustments to operating expenses   1,882     3,670     2,255     5,552     7,450  
Non-GAAP operating expenses $ 23,759   $ 21,527   $ 23,371   $ 45,286   $ 46,456  
% of Net sales 30 % 37 % 29 % 33 % 29 %
 
Operating income (loss) per GAAP $ 7,879 $ (1,544 ) $ 10,315 $ 6,335 $ 15,795
Non-GAAP adjustments to gross profit 762 553 550 1,315 1,135
Non-GAAP adjustments to operating expenses   1,882     3,670     2,255     5,552     7,450  
Non-GAAP operating income $ 10,523   $ 2,679   $ 13,120   $ 13,202   $ 24,380  
% of Net sales 13 % 5 % 16 % 9 % 15 %
 
Non-operating income (expense), net per GAAP $ 91 $ (150 ) $ (406 ) $ (59 ) $ 2,186
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) $ 91   $ (150 ) $ (406 ) $ (59 ) $ (484 )
 
Net income (loss) per GAAP $ 5,211 $ (944 ) $ 8,537 $ 4,267 $ 14,450
Non-GAAP adjustments to gross profit 762 553 550 1,315 1,135
Non-GAAP adjustments to operating expenses 1,882 3,670 2,255 5,552 7,450
Non-GAAP adjustments to non-operating expense - - - - (2,670 )
Income tax effect of non-GAAP adjustments   (848 )   (1,411 )   (2,002 )   (2,259 )   (3,166 )
Non-GAAP net income $ 7,007   $ 1,868   $ 9,340   $ 8,875   $ 17,199  
% of Net sales 9 % 3 % 11 % 6 % 11 %
 
Basic Non-GAAP net income per share $ 0.24   $ 0.06   $ 0.32   $ 0.30   $ 0.60  
 
Diluted Non-GAAP net income per share $ 0.23   $ 0.06   $ 0.32   $ 0.30   $ 0.59  
Electro Scientific Industries, Inc.
           
Second Quarter Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
Fiscal quarter ended Two fiscal quarters ended
Sep 29, 2012 Jun 30, 2012 Oct 1, 2011 Sep 29, 2012 Oct 1, 2011
 
Net income (loss) $ 5,211 $ (944 ) $ 8,537 $ 4,267 $ 14,450
Non-cash adjustments and changes in operating activities   (16,413 )   12,296     17,867     (4,117 )   1,086  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (11,202 ) 11,352 26,404 150 15,536
 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (360 ) 6,126 (32,233 ) 5,766 (50,536 )
 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,202 ) (2,895 ) 1,810 (5,097 ) 2,205
 
Effect of exchange rate changes on cash 404 (47 ) (169 ) 357 526
         
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,360 ) 14,536 (4,188 ) 1,176 (32,269 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   84,316     69,780     88,331     69,780     116,412  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,956   $ 84,316   $ 84,143   $ 70,956   $ 84,143  

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

Source: Electro Scientific Industries, Inc.

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