Electro Scientific Industries, Inc.
Oct 30, 2014

ESI Announces Second Quarter Fiscal 2015 Results

PORTLAND, Ore.--(BUSINESS WIRE)-- Electro Scientific Industries, Inc. (NASDAQ:ESIO), the premier source for innovative laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2015 second quarter ended September 27, 2014. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, and other items.

Revenue in the second quarter was $42.9 million, compared to $35.0 million in the first quarter of 2015 and $59.6 million in the second quarter of last fiscal year. GAAP net loss was $6.2 million or $0.20 per share. Non-GAAP second quarter net loss was $4.9 million or $0.16 per share.

"Our second quarter reflected sequential growth in sales and gross profit, combined with sequentially lower operating expenses," stated Ed Grady, president and CEO of ESI. "The result was a 40% decrease in our non-GAAP operating loss versus the prior quarter."

Bookings for the second quarter were $43.0 million, compared to $47.3 million in the prior quarter. Grady continued, "Demand for our flex via drilling products remained strong, as did demand for after-sales service and support. In addition, we executed well against our milestones to set the foundation for growth and profitability, with the announcement and shipment of the first multi-unit order for our new mid-range platform with an internally-developed laser, and the securing of new agreements with industry-leading channel partners to extend our reach in Asia."

GAAP gross margin was 36.8%. Non-GAAP gross margin was 37.7% compared to 39.5% in the prior quarter. Operating expenses were $21.3 million, down from $22.2 million in the prior quarter. On a non-GAAP basis operating expenses decreased to $20.4 million from $21.0 million last quarter. Non-GAAP operating loss was $4.2 million compared to $7.1 million in the first quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments were $98 million. The company used $3.8 million in cash from operations during the quarter and paid $2.4 million for the quarterly dividend of $0.08 per share. Inventories decreased by $4.6 million and trade receivables increased by $6.4 million on higher shipments.

Third Quarter 2015 Outlook

Based on recent order levels, ESI expects revenues for the third quarter of fiscal 2015 to be around $40 million. Non-GAAP loss per share is expected to be $0.16 to $0.21.

Grady concluded, "We are changing our processes and approach in order to better connect our core competencies to large and growing markets. As we execute our plans to revitalize ESI we expect to begin seeing results over the next several quarters that will lead to top line growth and a return to profitability."

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 888-339-2688 (domestic participants) or 617-847-3007 (international participants). The conference ID number is 44681861. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through November 9, 2014, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 45623341. 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's integrated solutions allow industrial designers and process engineers to control the power of laser light to transform materials in ways that differentiate their consumer electronics, wearable devices, semiconductor circuits and high-precision components for market advantage. ESI's laser-based manufacturing solutions feature the micro-machining industry's highest precision and speed, and target the lowest total cost of ownership. 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, profitability 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, timing of consumer product introductions and overall demand for electronic devices (such as semiconductors, printed circuit boards, displays, LEDs, capacitors and other components) 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; the risk that we may not be successful in penetrating new or adjacent markets; 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 2015 Results
(In thousands, except per share data)
(Unaudited)
 
Operating Results:
Fiscal quarter ended Two fiscal quarters ended
Sep 27, 2014 Jun 28, 2014 Sep 28, 2013 Sep 27, 2014 Sep 28, 2013
Net sales $ 42,856 $ 35,030 $ 59,647 $ 77,886 $ 105,819
Cost of sales 27,075   21,795   35,015   48,870   61,801  
Gross profit 15,781 13,235 24,632 29,016 44,018
37 % 38 % 41 % 37 % 42 %
Operating expenses:
Selling, service and administration 12,915 13,100 14,251 26,015 28,798
Research, development and engineering 8,424 9,145 9,719 17,569 18,144
Gain on acquisition of Semiconductor Systems business     (35 )   (499 )
Net operating expenses 21,339   22,245   23,935   43,584   46,443  
Operating (loss) income (5,558 ) (9,010 ) 697 (14,568 ) (2,425 )
Non-operating (expense) income:
Other-than-temporary impairment of cost based investments (3,588 ) (3,588 )
Interest and other (expense) income, net (244 ) 46   80   (198 ) 20  
Total non-operating (expense) income (244 ) 46   (3,508 ) (198 ) (3,568 )
Loss before income taxes (5,802 ) (8,964 ) (2,811 ) (14,766 ) (5,993 )
Provision for (benefit from) income taxes 441   (713 ) (33 ) (272 ) 68  
Net loss $ (6,243 ) $ (8,251 ) $ (2,778 ) $ (14,494 ) $ (6,061 )
Net loss per share—basic $ (0.20 ) $ (0.27 ) $ (0.09 ) $ (0.48 ) $ (0.20 )
Net loss per share—diluted $ (0.20 ) $ (0.27 ) $ (0.09 ) $ (0.48 ) $ (0.20 )
 
     
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2015 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of:
Sep 27, 2014 Jun 28, 2014 Mar 29, 2014
Assets
Current assets:
Cash and cash equivalents $ 79,255 $ 82,459 $ 68,461
Short-term investments 18,548 23,866 38,444
Trade receivables, net 39,390 32,957 37,813
Inventories 55,749 60,398 58,902
Shipped systems pending acceptance 5,180 2,547 2,054
Deferred income taxes, net 145 160 161
Other current assets 4,019   4,563   4,674
Total current assets 202,286 206,950 210,509
Non-current assets:
Non-current investments 3,985
Property, plant and equipment, net 26,867 27,086 27,930
Non-current deferred income taxes, net 677 811 704
Goodwill 7,889 7,889 7,889
Acquired intangible assets, net 5,988 6,305 6,845
Other assets 12,309   12,253   12,347
Total assets $ 256,016   $ 261,294   $ 270,209
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,659 $ 14,597 $ 14,465
Accrued liabilities 21,059 21,101 20,524
Deferred income tax liability, net 170 170 170
Deferred revenue 16,440   12,268   10,515
Total current liabilities 50,328 48,136 45,674
Non-current income taxes payable 1,177 1,151 1,654
Shareholders' equity:
Preferred and common stock 183,833 182,451 183,193
Retained earnings 20,008 28,668 39,336
Accumulated other comprehensive income 670   888   352
Total shareholders' equity 204,511   212,007   222,881
Total liabilities and shareholders' equity $ 256,016   $ 261,294   $ 270,209
End of period shares outstanding 30,610   30,495   30,155
 
   
Electro Scientific Industries, Inc.
Analysis of Second Quarter Fiscal 2015 Results
(Dollars and shares in thousands)
(Unaudited)
 
Fiscal quarter ended Two fiscal quarters ended
Sep 27, 2014   Jun 28, 2014   Sep 28, 2013 Sep 27, 2014   Sep 28, 2013
Sales detail:
Interconnect & Microfabrication Group $ 26,600 $ 20,948 $ 38,301 $ 47,548 $ 72,718
Semiconductor Group 9,767 10,749 10,935 20,516 16,548
Components Group 6,489   3,333   10,411   9,822   16,553  
Total $ 42,856 $ 35,030 $ 59,647 $ 77,886 $ 105,819
 
Gross margin % 37 % 38 % 41 % 37 % 42 %
Selling, service and administration expense % 30 % 37 % 24 % 33 % 27 %
Research, development and engineering expense % 20 % 26 % 16 % 23 % 17 %
Operating (loss) income % (13 %) (26 %) 1 % (19 %) (2 %)
Effective tax rate % (8 %) 8 % 1 % 2 % (1 %)
Weighted average shares outstanding - basic 30,552 30,353 29,967 30,452 29,856
Weighted average shares outstanding - diluted 30,552 30,353 29,967 30,452 29,856
End of period employees 634 618 626 634 626
 
     
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2015 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:
  Fiscal quarter ended Two fiscal quarters ended
Sep 27, 2014   Jun 28, 2014 Sep 28, 2013 Sep 27, 2014 Sep 28, 2013
 
Gross profit per GAAP $ 15,781 $ 13,235 $ 24,632 $ 29,016 $ 44,018
Purchase accounting 226 447 965 673 1,654
Equity compensation 152   168   189   320   374  
Non-GAAP gross profit $ 16,159   $ 13,850   $ 25,786   $ 30,009   $ 46,046  
Non-GAAP gross margin 37.7 % 39.5 % 43.2 % 38.5 % 43.5 %
 
Operating expenses per GAAP $ 21,339 $ 22,245 $ 23,935 $ 43,584 $ 46,443
Purchase accounting (90 ) (90 ) (357 ) (180 ) (623 )
Equity compensation (881 ) (1,162 ) (1,045 ) (2,043 ) (3,494 )
Acquisition and integration costs (590 ) (994 )
Restructuring credits 90 90
Legal settlement costs (55 )
Gain on purchase of acquisition of Semiconductor Systems business     35     499  
Non-GAAP operating expenses $ 20,368   $ 20,993   $ 22,068   $ 41,361   $ 41,866  
% of Net sales 48 % 60 % 37 % 53 % 40 %
 
Operating (loss) income per GAAP $ (5,558 ) $ (9,010 ) $ 697 $ (14,568 ) $ (2,425 )
Non-GAAP adjustments to gross profit 378 615 1,154 993 2,028
Non-GAAP adjustments to operating expenses 971   1,252   1,867   2,223   4,577  
Non-GAAP operating (loss) income $ (4,209 ) $ (7,143 ) $ 3,718   $ (11,352 ) $ 4,180  
% of Net sales (10 %) (20 %) 6 % (15 %) 4 %
 
Non-operating (expense) income, net per GAAP $ (244 ) $ 46 $ (3,508 ) $ (198 ) $ (3,568 )
Other-than-temporary impairment of cost based investments     3,588     3,588  
Non-GAAP non-operating (expense) income $ (244 ) $ 46   $ 80   $ (198 ) $ 20  
 
Net loss per GAAP $ (6,243 ) $ (8,251 ) $ (2,778 ) $ (14,494 ) $ (6,061 )
Non-GAAP adjustments to gross profit 378 615 1,154 993 2,028
Non-GAAP adjustments to operating expenses 971 1,252 1,867 2,223 4,577
Non-GAAP adjustments to non-operating expense 3,588 3,588
Income tax effect of other non-GAAP adjustments 43   (966 ) (1,193 ) (923 ) (1,139 )
Non-GAAP net (loss) income $ (4,851 ) $ (7,350 ) $ 2,638   $ (12,201 ) $ 2,993  
% of Net sales (11 %) (21 %) 4 % (16 %) 3 %
Basic Non-GAAP net (loss) income per share $ (0.16 ) $ (0.24 ) $ 0.09   $ (0.40 ) $ 0.10  
Diluted Non-GAAP net (loss) income per share $ (0.16 ) $ (0.24 ) $ 0.09   $ (0.40 ) $ 0.10  
 
       
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2015 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:
  Fiscal quarter ended Two fiscal quarters ended
Sep 27, 2014 Jun 28, 2014 Sep 28, 2013 Sep 27, 2014 Sep 28, 2013
Net loss $ (6,243 ) $ (8,251 ) $ (2,778 ) $ (14,494 ) $ (6,061 )
Non-cash adjustments and changes in operating activities 2,404   8,988   8,369   11,392   2,952  
Net cash (used in) provided by operating activities (3,839 ) 737 5,591 (3,102 ) (3,109 )
Net cash provided by (used in) investing activities 3,573 17,234 (5,796 ) 20,807 (8,883 )
Net cash used in financing activities (2,190 ) (4,362 ) (2,020 ) (6,552 ) (5,195 )
Effect of exchange rate changes on cash (748 ) 389   435   (359 ) 249  
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,204 ) 13,998 (1,790 ) 10,794 (16,938 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 82,459   68,461   73,765   68,461   88,913  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,255   $ 82,459   $ 71,975   $ 79,255   $ 71,975  

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

Source: Electro Scientific Industries, Inc.

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