Electro Scientific Industries, Inc.
May 12, 2015

ESI Announces Fourth Quarter Fiscal 2015 Results

PORTLAND, Ore.--(BUSINESS WIRE)-- Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2015 fourth quarter ended March 28, 2015. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring charges, asset write-offs, and other items.

Revenue in the fourth quarter was $37.6 million, compared to $43.7 million in the third quarter of 2015 and $37.1 million in the fourth quarter of last fiscal year. GAAP net loss was $15.1 million or $0.48 per share. GAAP net loss included costs associated with a previously-announced site consolidation and write-off of the company's minority equity investment. Non-GAAP fourth quarter net loss was $6.5 million or $0.21 per share.

"This was a productive quarter, as we achieved critical product milestones and delivered revenue and earnings that were better than expected," stated Ed Grady, president and CEO of ESI. "We introduced two key new products directed at the PCB industry, one of which contained a new internally-developed laser yielding higher performance. We also closed the Topwin acquisition to drive our business in China, and took actions to consolidate locations to improve efficiency and agility."

Bookings for the fourth quarter were $40.0 million, compared to $40.6 million in the prior quarter and $31.7 million last year. Grady continued, "Bookings reflected solid performance from most of our product groups, with good growth year over year in our interconnect and component test businesses as we invest to expand into our target markets."

GAAP gross margin was 37.1%. Non-GAAP gross margin was 40.7% compared to 36.9% in the prior quarter. Operating expenses were $25.2 million, which included one-time charges related to our facility closure and acquisition-related charges associated with Topwin. On a non-GAAP basis operating expenses were $21.7 million compared to $20.5 million last quarter. Non-GAAP operating loss was $6.4 million compared to $4.4 million in the third quarter.

Full Year Fiscal 2015 Results

Fiscal 2015 revenue was $159 million, down 12% compared to $181 million in fiscal 2014. On a GAAP basis, fiscal 2015 net loss was $35.9 million or $1.17 per share, compared to net loss of $38.3 million or $1.28 per share in the prior year. On a non-GAAP basis, net loss was $23.4 million or $0.76 per share, compared to net loss of $5.1 million or $0.17 per share in 2014.

Balance Sheet and Cash Flow

At quarter end, cash and investments were $58 million. The company used $11.0 million of cash in operations during the quarter. Inventories decreased $2.8 million, and trade receivables increased by $5.4 million. In addition, the company spent approximately $9.0 million in connection with the acquisition of Topwin Optoelectronics.

First Quarter 2016 Outlook

Revenues for the first quarter of fiscal 2016 are expected to be in the $40 million range. Non-GAAP loss per share is expected to be $0.15 to $0.20.

Grady concluded, "Our new products and adjacent applications are key to ESI's turnaround effort. Initial customer reaction to our new CornerStone™ and GemStone™ products has been encouraging. The addition of Topwin has already begun to contribute in terms of both product portfolio and customer engagements, and we are on track to introduce a new cost-effective flexible micromachining system leveraging a Topwin platform this quarter. Finally, we are improving the efficiency of our business to help us achieve our financial goals as we grow our revenues over the next several quarters."

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 52942680. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through May 22, 2015, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 72366166. 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, products, 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; the risk that we do not successfully integrate Topwin Optoelectronics; the risk that our new products may not gain acceptance in the marketplace; foreign currency fluctuations; the risk that efficiencies realized from our site consolidation are not as large as expected; 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.

Fourth Quarter and Fiscal 2015 Results

(In thousands, except per share data)
(Unaudited)
 
Operating Results:                
Fiscal quarter ended   Fiscal year ended
Mar 28, 2015 Dec 27, 2014 Mar 29, 2014 Mar 28, 2015 Mar 29, 2014
Net sales $ 37,571 $ 43,661 $ 37,081 $ 159,118 $ 181,167
Cost of sales 23,633   27,884   33,354   100,387   117,141  
Gross profit 13,938 15,777 3,727 58,731 64,026
37 % 36 % 10 % 37 % 35 %
Operating expenses:
Selling, service and administration 13,939 13,397 14,516 53,351 55,753
Research, development and engineering 9,214 8,383 9,927 35,166 37,839
Restructuring costs 2,069 1,101 2,069 1,070
Gain on sale of property and equipment, net (1,301 )
Gain on acquisition of Semiconductor Systems business                 (499 )

Net operating expenses

25,222   21,780   25,544   90,586   92,862  
Operating loss (11,284 ) (6,003 ) (21,817 ) (31,855 ) (28,836 )
Non-operating (expense) income:
Loss and other-than-temporary impairment of cost method investments (4,263 ) (6,115 ) (4,263 ) (9,703 )
Interest and other income, net 564   64   (2 ) 430   113  
Total non-operating (expense) income (3,699 ) 64 (6,117 ) (3,833 ) (9,590 )
Loss before income taxes (14,983 ) (5,939 ) (27,934 ) (35,688 ) (38,426 )
Provision for (benefit from) income taxes 69   437   (301 ) 234   (92 )
Net loss $ (15,052 ) $ (6,376 ) $ (27,633 ) $ (35,922 ) $ (38,334 )
Net loss per share—basic $ (0.48 ) $ (0.21 ) $ (0.92 ) $ (1.17 ) $ (1.28 )
Net loss per share—diluted $ (0.48 ) $ (0.21 ) $ (0.92 ) $ (1.17 ) $ (1.28 )
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2015 Results

(Amounts in thousands)

(Unaudited)

         
Financial Position as of:

 

Mar 28, 2015 Dec 27, 2014

Mar 29, 2014

ASSETS
Current assets:
Cash and cash equivalents $ 50,994 $ 70,066 $ 68,461
Short-term investments 6,612 9,565 38,444
Trade receivables, net 45,951 40,503 37,813
Inventories 56,637 59,424 58,902
Shipped systems pending acceptance 2,516

948

2,054
Deferred income taxes, net 178 145 161
Other current assets 6,090   3,812   4,674
Total current assets 168,978 184,463 210,509

Non-current assets:

 

Non-current investments 3,985
Property, plant and equipment, net 25,858 27,187 27,930
Non-current deferred income taxes, net 174 628 704
Goodwill 17,859 7,889 7,889
Acquired intangible assets, net 8,958 5,733 6,845
Other assets 9,555   13,200   12,347

Total assets

$ 231,382   $ 239,100   $ 270,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,514 $ 14,175 $ 14,465
Accrued liabilities 20,237 19,429 20,524
Deferred income tax liability, net 173 170 170
Deferred revenue 12,376   7,823   10,515

Total current liabilities

42,300 41,597 45,674
Non-current liabilities:
Income taxes payable 1,176 1,298 1,654
Deferred income tax liability, net 443
Shareholders' equity:
Preferred and common stock 191,387 184,696 183,193
(Accumulated deficit) retained earnings (3,852 ) 11,200 39,336
Accumulated other comprehensive (loss) income (72 ) 309   352
Total shareholders' equity 187,463   196,205   222,881
Total liabilities and shareholders' equity $ 231,382   $ 239,100   $ 270,209
End of period shares outstanding 31,272   30,606   30,155
 

Electro Scientific Industries, Inc.

Analysis of Fourth Quarter and Fiscal 2015 Results

(Dollars and shares in thousands)
(Unaudited)
       
Fiscal quarter ended  

Fiscal year ended

Mar 28, 2015   Dec 27, 2014   Mar 29, 2014 Mar 28, 2015   Mar 29, 2014
Sales detail:
Interconnect & Microfabrication Group $ 25,842 $ 28,043 $ 22,851 $ 101,433 $ 120,947
Semiconductor Group 6,617 11,453 10,696 38,586 35,779
Components Group 5,112   4,165   3,534   19,099   24,441  
Total $

37,571

$ 43,661 $ 37,081 $ 159,118 $ 181,167
 
Gross margin % 37 % 36 % 10 % 37 % 35 %
Selling, service and administration expense % 37 % 31 % 39 % 34 % 31 %
Research, development and engineering expense % 25 % 19 % 27 % 22 % 21 %
Operating loss % (30 %) (14 %) (59 %) (20 %) (16 %)
Effective tax rate % (0.5 %) (7 %) 1 % (0.7 %) 0.2 %
Weighted average shares outstanding - basic 31,106 30,617

30,130

30,657 29,974
Weighted average shares outstanding - diluted 31,106 30,617 30,130 30,657 29,974
End of period employees 695 652 633 695 633
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2015 Results

(In thousands, except per share data)

(Unaudited)

           

Reconciliation of GAAP to Non-GAAP Financial Measures:

 

Fiscal quarter ended

Fiscal year ended

Mar 28, 2015

  Dec 27, 2014 Mar 29, 2014 Mar 28, 2015 Mar 29, 2014
Gross profit per GAAP $ 13,938 $ 15,777 $ 3,727 $

58,731

$ 64,026

Purchase accounting

298 163 448 1,134 2,710
Equity compensation 112 154 164 586 722
Charges for inventory write-off of discontinued product 952     12,785   952   12,786  
Non-GAAP gross profit $ 15,300   $ 16,094   $ 17,124   $ 61,403   $ 80,244  
Non-GAAP gross margin 40.7 % 36.9 % 46.2 % 38.6 % 44.3 %
 
Operating expenses per GAAP $

25,222

$ 21,780 $ 25,544 $ 90,586 $ 92,862
Purchase accounting (90 ) (90 ) (151 ) (360 ) (900 )
Equity compensation

(946

) (885 ) (810 ) (3,874 ) (5,383 )
Acquisition and integration costs (465 ) (311 ) (204 ) (776 ) (1,508 )
Restructuring costs (2,069 ) (1,101 ) (2,069 ) (1,070 )
Legal settlement (costs) proceeds, net (68 )
Gain on sale of property and equipment, net 1,301
Gain on purchase of acquisition of Semiconductor Systems business 499
Charges for asset write-off         (1,020 )       (1,020 )
Non-GAAP operating expenses $ 21,652   $ 20,494   $ 22,258   $ 83,507   $ 84,713  
% of Net sales 58 % 47 % 60 % 52 % 47 %
 
Operating loss per GAAP $ (11,284 ) $ (6,003 ) $ (21,817 ) $ (31,855 ) $ (28,836 )
Non-GAAP adjustments to gross profit 1,362 317 13,397 2,672 16,218
Non-GAAP adjustments to operating expenses 3,570   1,286   3,286   7,079   8,149  
Non-GAAP operating (loss) income $ (6,352 ) $ (4,400 ) $ (5,134 ) $ (22,104 ) $ (4,469 )
% of Net sales (17 %) (10 %) (14 %) (14 %) (2 %)
 
Non-operating (expense) income, net per GAAP $ (3,699 ) $ 64 $ (6,117 ) $ (3,833 ) $ (9,590 )
Loss and other-than-temporary impairment of cost method investments 4,263 6,115 4,263 9,703
Gain on liquidation of foreign subsidiary (597 )     (597 )  
Non-GAAP non-operating (expense) income $ (33 ) $ 64   $ (2 ) $ (167 ) $ 113  
 
Net loss per GAAP $ (15,052 ) $ (6,376 ) $ (27,633 ) $ (35,922 ) $ (38,334 )
Non-GAAP adjustments to gross profit 1,362 317 13,397 2,672 16,218
Non-GAAP adjustments to operating expenses 3,570 1,286 3,286 7,079 8,149
Non-GAAP adjustments to non-operating expense 3,666 6,115 3,666 9,703
Income tax effect of other non-GAAP adjustments (83 ) 93   (126 ) (913 ) (797 )
Non-GAAP net (loss) income $ (6,537 ) $ (4,680 ) $ (4,961 ) $ (23,418 ) $ (5,061 )
% of Net sales (17 %) (11 %) (13 %) (15 %) (3 %)
Basic Non-GAAP net (loss) income per share $ (0.21 ) $ (0.15 ) $ (0.16 ) $ (0.76 ) $ (0.17 )
Diluted Non-GAAP net (loss) income per share $ (0.21 ) $ (0.15 ) $ (0.16 ) $ (0.76 ) $ (0.17 )
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2015 Results

(Amounts in thousands)

(Unaudited)

             
Consolidated Condensed Statements of Cash Flows:
 
Fiscal quarter ended   Fiscal year ended
Mar 28, 2015 Dec 27, 2014 Mar 29, 2014 Mar 28, 2015 Mar 29, 2014
Net loss $ (15,052 ) $ (6,376 ) $ (27,633 ) $ (35,922 ) $ (38,334 )
Non-cash adjustments and changes in operating activities 4,080   (7,043 ) 12,390   8,429   19,218  
NET CASH USED IN OPERATING ACTIVITIES (10,972 ) (13,419 ) (15,243 ) (27,493 ) (19,116 )
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (8,213 ) 7,613 8,545

20,207

7,831
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 456 (2,613 ) (2,025 ) (8,709 ) (9,100 )
Effect of exchange rate changes on cash (343 ) (770 ) 10   (1,472 ) (67 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (19,072 ) (9,189 ) (8,713 ) (17,467 ) (20,452 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 70,066   79,255   77,174   68,461   88,913  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 50,994   $ 70,066   $ 68,461   $ 50,994   $ 68,461  

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

Source: Electro Scientific Industries, Inc.

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