Electro Scientific Industries, Inc.
Nov 1, 2016

ESI Announces Second Quarter Fiscal 2017 Results

PORTLAND, Ore., Nov. 01, 2016 (GLOBE NEWSWIRE) -- Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2017 second quarter ended October 1, 2016. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, acquisition costs, and other items.

Second quarter revenue was $29.7 million, compared to $47.7 million in the first quarter of 2017 and $46.5 million in the second quarter of last fiscal year. GAAP net loss was $9.7 million or $0.30 per share, compared to a net loss of $0.1 million, or $0.00 per share in the first quarter. On a non-GAAP basis net loss was $7.7 million or $0.24 per share, compared to net income of $3.0 million or $0.09 per diluted share in the prior quarter.

Michael Burger, president and CEO of ESI, said, "Our second quarter was challenging for ESI, with short-term overcapacity in our core business resulting in sequentially lower revenues, earnings, and cash flow. The team reacted appropriately to the change in market environment, by controlling operating expenses while keeping focused on our long-term growth initiatives."

Bookings in the second quarter were $28.0 million, compared to $30.4 million in the prior quarter and $51.5 million last year. Burger continued, "The demand environment continues to be challenging in fiscal 2017, with year-to-date bookings down 37% from a year ago. As we expected, capital spending in the flex via drilling market remained low during the quarter. Nevertheless, we added three new flex customers, and we expect to see improvement in flex before the end of the fiscal year. Further, our Micromachining division has begun to see traction with improved quote and design-in activity. Lastly, our Visicon acquisition is beginning to produce new business opportunities, as customer interest in a laser solution with integrated verification is growing."

On a GAAP basis gross margin was 37.0%, compared to 43.7% in the prior quarter. Operating expenses were $20.9 million, up slightly from $20.5 million in the prior quarter. Operating loss was $9.9 million, compared to income of $0.3 million last quarter.

Non-GAAP gross margin was 38.2% compared to 46.7% in the prior quarter. Non-GAAP operating expenses remained flat at $18.9 million, despite the addition of the Visicon acquisition completed during the quarter. Non-GAAP operating loss was $7.6 million, down from income of $3.3 million in the first quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments were $59.1 million, compared to $69.8 million last quarter. The company used $7.5 million of operating cash. Inventories increased by $2.4 million, due to the addition of Visicon inventory. Trade receivables decreased by $4.5 million, and accounts payable decreased by $5.4 million. In addition, the company paid approximately $2.0 million of cash for the acquisition of Visicon.

Third Quarter 2017 Outlook

Based on current orders and backlog, revenues for the third quarter of fiscal 2017 are expected to be approximately flat with second quarter levels. Non-GAAP loss per share is expected to be $0.25 to $0.30.

Burger concluded, "Over the past two and a half years Ed Grady has led an effort to transform ESI by strengthening its core business while expanding into large and growing market segments that leverage ESI's technology advantages. I want to thank Ed for his visionary leadership during this turnaround."

He continued, "I'm happy to be at ESI, and I am excited by the potential for growth. The technology at this company continues to amaze me. As I begin to work with our management team during these challenging market conditions, I see opportunities to sharpen our execution and focus our efforts on new product development and adoption."

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 17972950. A live audio webcast can be accessed at www.esi.com. 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, or adjusted, financial measures exclude the impact of purchase accounting, equity compensation, restructuring, integration costs, inventory write-down and other items. We believe that this presentation of non-GAAP financial measures allows investors to 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 industry's highest precision and speed, and target the lowest total cost of ownership. ESI is headquartered in Portland, Oregon, with global operations and subsidiaries in Asia, Europe and North America. 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, 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 and regional 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 Visicon Technologies or achieve the anticipated cost synergies; the risk that the incorporation of Visicon's vision technology does not give us a competitive advantage; the risk that our new products may not gain acceptance in the marketplace; the risk that new products may not be introduced to the market in the anticipated time frame or at all; 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.
Second Quarter Fiscal 2017 Results
(In thousands, except per share data)
(Unaudited)
 
Operating Results:         
 Fiscal quarter ended Two fiscal quarters ended
 October 1,
2016
 July 2, 2016 September
26, 2015
 October 1,
2016
 September
26, 2015
Net sales:         
Systems$21,442  $38,200  $35,570  $59,642   $67,632 
Services8,216  9,468  10,902  17,684  21,931 
Total net sales29,658  47,668  46,472  77,326  89,563 
Cost of sales:         
Systems14,146  22,422  22,345  36,568  43,630 
Services4,532  4,438  5,706  8,970  12,135 
Total cost of sales18,678  26,860  28,051  45,538  55,765 
Gross profit10,980  20,808  18,421  31,788  33,798 
 37.0% 43.7% 39.6% 41.1% 37.7%
Operating expenses:         
Selling, general and administrative12,766  12,871   12,534  25,637  25,151 
Research, development and engineering7,760  7,630  8,283  15,390  16,928 
Acquisition and integration costs335    40  335  194 
Restructuring costs    591    653 
Net operating expenses20,861  20,501  21,448  41,362  42,926 
Operating (loss) profit(9,881) 307  (3,027) (9,574) (9,128)
Non-operating income (expense):         
Interest and other income (expense), net206  (78) 6  128  1 
Total non-operating income (expense)206  (78) 6  128  1 
(Loss) income before income taxes(9,675) 229  (3,021) (9,446) (9,127)
Provision for  income taxes  347  239  347  497 
Net loss$(9,675) $(118) $(3,260) $(9,793) $(9,624)
Net loss per share - basic$(0.30) $  $(0.10) $(0.30) $(0.31)
Net loss per share - diluted$(0.30) $  $(0.10) $(0.30) $(0.31 )
                    


Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(Amounts in thousands)
(Unaudited)
 
Financial Position As Of:   
 October 1, 2016 July 2, 2016 April 2, 2016
Assets     
Current assets:     
Cash and cash equivalents$52,685  $62,463  $42,413 
Short-term investments3,500  4,506  15,252 
Trade receivables, net29,744  34,272  42,770 
Inventories61,895  59,522  60,470 
Shipped systems pending acceptance3,893  2,319  1,181 
Other current assets5,547  5,219  5,340 
Total current assets157,264  168,301  167,426 
Non-current assets:     
Property, plant and equipment, net24,581  24,775  24,543 
Non-current deferred income taxes, net884  951  914 
Goodwill12,652  7,445  7,445 
Acquired intangible assets, net6,589  6,866  7,146 
Other assets15,448  14,556  12,626 
Total assets$217,418  $222,894  $220,100 
Liabilities and shareholders' equity     
Current liabilities:     
Accounts payable$13,611  $19,031   $16,061 
Accrued liabilities17,170  15,024  18,334 
Deferred revenue10,951  8,812  6,373 
Total current liabilities41,732   42,867  40,768 
Non-current liabilities     
Income taxes payable1,360   1,343  1,266 
Deferred income tax liability, net226  227  234 
Other liabilities6,529  7,676  7,801 
Total liabilities49,847  52,113  50,069 
Shareholders' equity:     
Preferred and common stock202,493  196,077  195,024 
Accumulated deficit(33,792) (24,116) (23,998)
Accumulated other comprehensive loss(1,130) (1,180) (995)
Total shareholders' equity167,571  170,781  170,031 
Total liabilities and shareholders' equity$217,418  $222,894  $220,100 
End of period shares outstanding32,966  32,175  31,613 
         


Electro Scientific Industries, Inc.
Analysis of Second Quarter Fiscal 2017 Results 
(Dollars and shares in thousands)
(Unaudited)
 
 Fiscal quarter ended Two fiscal quarters ended
 October 1,
2016
 July 2, 2016 September
26, 2015
 October 1,
2016
 September
26, 2015
Sales detail:         
Component Processing         
Interconnect Products (IP)$13,527  $30,918  $21,500  $44,445  $42,145 
Component Test Products (CTP)4,990  4,602  4,491  9,592  10,989 
Semiconductor Products (SP)7,222  7,609  6,763  14,831  17,904 
 25,739  43,129   32,754  68,868  71,038 
Micromachining         
Micromachining Products (MP)3,919  4,539  13,718  8,458  18,525 
Net Sales$29,658  $47,668  $46,472  $77,326  $89,563 
          
Gross margin % 37.0%  43.7%  39.6%  41.1%  37.7%
Selling, general and administrative expense % 43%  27%  27%  33%  28%
Research, development and engineering expense % 26%  16%  18%  20%  19%
Operating (loss) income % (33%)  1%  (7%)  (12%)  (10%)
Effective tax rate %  %  152%  (8%)  (4%)  (5%)
Weighted average shares outstanding - basic 32,396   31,815   31,384   32,109    31,280 
Weighted average shares outstanding - diluted - GAAP 32,396   31,815   31,384   32,109   31,280 
End of period employees 725   657   677   725   677 
                    


Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of GAAP to Non-GAAP Financial Measures:      
 Fiscal quarter ended  Two fiscal quarters ended
 October 1,
2016
 July 2, 2016 September
26, 2015
 October 1,
2016
 September
26, 2015
Gross profit per GAAP$10,980  $20,808  $ 18,421  $31,788  $33,798 
Purchase accounting228  229  325  457  591 
Equity compensation136  120  114  256  243 
Charges for inventory write-off of damaged product  1,116    1,116   
Non-GAAP gross profit$11,344  $22,273  $18,860  $33,617  $34,632 
Non-GAAP gross margin38.2%  46.7% 40.6% 43.5% 38.7%
                    
Operating expenses per GAAP$20,861  $20,501  $21,448  $41,362  $42,926 
Purchase accounting(203) (250) (74) (453) (910)
Equity compensation(1,383) (1,170) (1,126) (2,553) (1,866)
Charges for asset write-off of damaged product  (100)   (100)  
Acquisition and integration costs(335)   (40) (335) (308)
Restructuring costs(14) (37) (591) (51) (124)
Non-GAAP operating expenses$18,926  $18,944  $19,617  $37,870  $39,718 
% of Net sales64% 40% 42% 49% 44%
                     
Operating (loss) income per GAAP$(9,881) $307  $(3,027) $(9,574) $(9,128)
Non-GAAP adjustments to gross profit364  1,465  439  1,829   834 
Non-GAAP adjustments to operating expenses1,935  1,557  1,831  3,492  3,208 
Non-GAAP operating (loss) income$(7,582) $3,329  $(757) $(4,253) $(5,086)
% of Net sales (26%) 7% (2%) (6%) (6%)
                     
Non-operating income (expense), net per GAAP$206  $(78)  $6  $128  $1 
Acquisition-related adjustments$(190) $  $  $(190) $ 
Non-GAAP non-operating income
(expense)
$16  $(78) $6  $(62 ) $1 
                    
Net income per GAAP$(9,675) $(118) $(3,260) $(9,793) $(9,624)
Non-GAAP adjustments to gross profit364  1,465  439  1,829  834 
Non-GAAP adjustments to operating expenses 1,935  1,557  1,831  3,492  3,208 
Non-GAAP adjustments to non-operating expense(190)      (190)  
Income tax effect of other non-GAAP adjustments(101) 65  (53 ) (36) (152)
Non-GAAP net (loss) income$(7,667) $ 2,969  $(1,043) $(4,698) $ (5,734)
% of Net sales(26%) 6% (2%) (6%)  (6%)
Basic Non-GAAP net (loss) income per share$(0.24) $0.09  $(0.03) $(0.15) $(0.18)
Diluted Non-GAAP net (loss) income per share$(0.24 ) $0.09  $(0.03) $(0.15) $(0.18)
                     


Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(Amounts in thousands)
(Unaudited)
 
Consolidated Condensed Statements of Cash Flows:        
 Fiscal quarter ended Two fiscal quarters ended
 October 1,
2016
 July 2, 2016 September
26, 2015
 October 1,
2016
 September
26, 2015
Net loss$(9,675) $ (118) $(3,260) $(9,793) $(9,624)
Non-cash adjustments and changes in operating activities2,204  11,566  5,428  13,770  14,119 
Net cash (used in) provided by operating activities(7,471) 11,448  2,168  3,977  4,495 
Net cash (used in) provided by investing activities(2,475) 8,979  (12,264) 6,504  (11,795)
Net cash provided by (used in) financing activities259   (398) 264  (139) 134 
Effect of exchange rate changes on cash(91) 21  (357) (70) (186)
NET CHANGE IN CASH AND CASH EQUIVALENTS(9,778) 20,050  (10,189) 10,272  (7,352)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD62,463  42,413   53,831  42,413  50,994 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$52,685  $62,463  $43,642  $52,685  $43,642 
                    


Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending
December 31, 2016
  
Non-GAAP loss per share(0.25) - (0.30)  
Purchase accounting(0.01) - (0.02  
Equity compensation (0.06) 
Other items(0.01) - (0.02 
GAAP loss per share(0.33) - (0.40)  

 

Brian Smith

ESI

503-672-5760

smithb@esi.com

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Source: Electro Scientific Industries, Inc.

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