Electro Scientific Industries, Inc.
ELECTRO SCIENTIFIC INDUSTRIES INC (Form: 8-K, Received: 02/01/2017 16:23:42)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 1, 2016
 
 
ELECTRO SCIENTIFIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
   

 
 
 
 
 
OREGON
 
0-12853
 
93-0370304
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
13900 NW Science Park Drive, Portland, Oregon
 
97229
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (503) 641-4141
No Change
(Former name or former address, if changed since last report)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02    Results of Operations and Financial Condition
On February 1, 2017 , Electro Scientific Industries, Inc. (the “Company”) announced its financial results for the third quarter of fiscal 2017 . The Company’s press release announcing this event is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01    Financial Statements and Exhibits
(d) Exhibits
99.1    Press release dated February 1, 2017





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: February 1, 2017
 
 
 
 
 
 
Electro Scientific Industries, Inc.
 
 
 
 
By:
 
/s/ Paul Oldham
 
Name:
 
Paul Oldham
 
Title:
 
Senior Vice President of Administration, Chief Financial Officer and Corporate Secretary




LETTERHEADLOGOA11.JPG

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

ESI Announces Third Quarter Fiscal 2017 Results
 
PORTLAND, Ore. – February 1, 2017 Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2017 third quarter ended December 31, 2016 . Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring costs, and other items.
Third quarter revenue was $33.8 million , compared to $29.7 million in the second quarter of 2017 and $43.3 million in the third quarter of last fiscal year. GAAP net loss was $9.7 million or $0.29 per share, compared to a net loss of $9.7 million , or $0.30 per share in the second quarter . On a non-GAAP basis net loss was $7.6 million or $0.23 per share, compared to net loss of $7.7 million or $0.24 per share in the prior quarter.
Michael Burger, president and CEO of ESI, said, “We delivered top and bottom line results at the high end of our expectations in the third quarter, as revenues grew 14% sequentially. We also made progress on new product evaluation by customers, the integration of our Visicon acquisition, and repositioning our Micromachining product line for future success."
Bookings in the third quarter were $44.1 million , compared to $28.0 million in the prior quarter and $52.6 million last year. Burger continued, “The demand environment improved late in the third quarter, specifically with the return of the flex via drilling market from a two-quarter slump. Interconnect

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

bookings were broad based, more than doubled sequentially, and were higher than a year ago. Also, our Component Test group delivered its highest quarterly bookings in more than three years.”
On a GAAP basis gross margin was 33.9% , compared to 37.0% in the prior quarter due to timing of other cost of sales items. Operating expenses were $21.5 million , up slightly from $20.9 million in the prior quarter. Operating loss was $10.1 million , compared to a loss of $9.9 million last quarter.
Non-GAAP gross margin was 34.5% compared to 38.2% in the prior quarter. Non-GAAP operating expenses rose slightly to $19.3 million . Non-GAAP operating loss was $7.7 million , compared to a loss of $7.6 million in the second quarter .
Balance Sheet and Cash Flow
At quarter end, cash and investments were $54.3 million , compared to $59.1 million last quarter. The company used $3.7 million of operating cash in the third quarter. Inventories decreased by $3.1 million , trade receivables decreased by $2.1 million , and accounts payable increased by $0.7 million .
After the end of the quarter, the company announced that it had secured a $14 million, 10-year term loan secured by the company’s headquarters facility. In addition, the company has reached agreement to amend its existing $30 million credit agreement with Silicon Valley Bank and extend it through March 2019.
Fourth Quarter 2017 Outlook
Based on current orders and backlog, revenues for the fourth quarter of fiscal 2017 are expected to be between $40 and $45 million. Non-GAAP loss per share is expected to be $0.02 to $0.07.
Burger concluded, "I am encouraged by our orders performance this quarter. We expect to again see strong seasonal demand for our industry-leading flex products. We also made some progress toward early qualification and customer penetration with our new products, but there is more work to do. As we look forward we are focused on improving execution, accelerating new product adoption, and increasing consistency of earnings over time."

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

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 78791049. 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-downs 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. These forward-looking statements are based on information available to us on

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

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 duties or tariffs could be imposed or increased on goods imported or exported by us; the risk that changes to policies regarding immigration and visits to the United States could negatively impact our ability to hire or retain and train qualified personnel or our ability to operate internationally on an integrated basis; 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.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Third Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
Fiscal quarter ended
 
Three fiscal quarters ended
 
Dec 31, 2016
 
Oct 1, 2016
 
Jan 2, 2016
 
Dec 31, 2016
 
Jan 2, 2016
Net sales:
 
 
 
 
 
 
 
 
 
Systems
$
25,427

 
$
21,442

 
$
31,282

 
$
85,069

 
$
98,914

Services
8,352

 
8,216

 
12,060

 
26,036

 
33,991

Total net sales
33,779

 
29,658

 
43,342

 
111,105

 
132,905

Cost of sales:
 
 
 
 
 
 
 
 
 
Systems
17,283

 
14,146

 
20,292

 
53,851

 
63,922

Services
5,048

 
4,532

 
5,329

 
14,018

 
17,464

Total cost of sales
22,331

 
18,678

 
25,621

 
67,869

 
81,386

Gross profit
11,448

 
10,980

 
17,721

 
43,236

 
51,519

Gross margin
33.9
%
 
37.0
%
 
40.9
%
 
38.9
%
 
38.8
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
13,280

 
12,766

 
12,468

 
38,917

 
37,619

Research, development and engineering
7,868

 
7,760

 
7,778

 
23,258

 
24,706

Acquisition and integration costs
31

 
335

 

 
366

 
194

Restructuring costs
321

 

 
1,944

 
321

 
2,597

Net operating expenses
21,500

 
20,861

 
22,190

 
62,862

 
65,116

Operating loss
(10,052
)
 
(9,881
)
 
(4,469
)
 
(19,626
)
 
(13,597
)
Non-operating income:
 
 
 
 
 
 
 
 
 
Interest and other income, net
34

 
206

 
67

 
162

 
68

Total non-operating income
34

 
206

 
67

 
162

 
68

Loss before income taxes
(10,018
)
 
(9,675
)
 
(4,402
)
 
(19,464
)
 
(13,529
)
(Benefit from) provision for income taxes
(325
)
 

 
184

 
22

 
681

Net loss
$
(9,693
)
 
$
(9,675
)
 
$
(4,586
)
 
$
(19,486
)
 
$
(14,210
)
Net loss per share - basic
$
(0.29
)
 
$
(0.30
)
 
$
(0.15
)
 
$
(0.60
)
 
$
(0.45
)
Net loss per share - diluted
$
(0.29
)
 
$
(0.30
)
 
$
(0.15
)
 
$
(0.60
)
 
$
(0.45
)



13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
 
 
 
Dec 31, 2016
 
Oct 1, 2016
 
Apr 2, 2016
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
44,891

 
$
52,685

 
$
42,413

Short-term investments
6,301

 
3,500

 
15,252

Trade receivables, net
27,644

 
29,744

 
42,770

Inventories
58,830

 
61,895

 
60,470

Shipped systems pending acceptance
3,983

 
3,893

 
1,181

Other current assets
5,903

 
5,547

 
5,340

Total current assets
147,552

 
157,264

 
167,426

Non-current assets:
 
 
 
 
 
Property, plant and equipment, net
23,660

 
24,581

 
24,543

Non-current deferred income taxes, net
836

 
884

 
914

Goodwill and acquired intangible assets, net
18,963

 
19,241

 
14,591

Other assets
17,025

 
15,448

 
12,626

Total assets
$
208,036

 
$
217,418

 
$
220,100

Liabilities and shareholders' equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
14,345

 
$
13,611

 
$
16,061

Accrued liabilities
16,015

 
17,170

 
18,334

Deferred revenue
10,822

 
10,951

 
6,373

Total current liabilities
41,182

 
41,732

 
40,768

Non-current liabilities
 
 
 
 
 
Income taxes payable
1,048

 
1,360

 
1,266

Deferred income tax liability, net
218

 
226

 
234

Other liabilities
6,085

 
6,529

 
7,801

Total liabilities
48,533

 
49,847

 
50,069

Shareholders' equity:
 
 
 
 
 
Preferred and common stock
204,859

 
202,493

 
195,024

Accumulated deficit
(43,485
)
 
(33,792
)
 
(23,998
)
Accumulated other comprehensive loss
(1,871
)
 
(1,130
)
 
(995
)
Total shareholders' equity
159,503

 
167,571

 
170,031

Total liabilities and shareholders' equity
$
208,036

 
$
217,418

 
$
220,100

End of period shares outstanding
33,151

 
32,966

 
31,613



13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Analysis of Third Quarter Fiscal 2017 Results
(Unaudited)
(In thousands, except for end of period employees)
 
 
 
 
 
 
 
 
 
 
Fiscal quarter ended
 
Three fiscal quarters ended
 
Dec 31, 2016
 
Oct 1, 2016
 
Jan 2, 2016
 
Dec 31, 2016
 
Jan 2, 2016
Sales detail:
 
 
 
 
 
 
 
 
 
Component Processing
 
 
 
 
 
 
 
 
 
Interconnect Products (IP)
$
15,987

 
$
13,527

 
$
22,824

 
$
60,432

 
$
64,969

Component Test Products (CTP)
5,407

 
4,990

 
3,303

 
14,999

 
14,292

Semiconductor Products (SP)
6,690

 
7,222

 
11,384

 
21,521

 
29,288

 
28,084

 
25,739

 
37,511

 
96,952

 
108,549

Micromachining
 
 
 
 
 
 
 
 
 
Micromachining Products (MP)
5,695

 
3,919

 
5,831

 
14,153

 
24,356

Net Sales
$
33,779

 
$
29,658

 
$
43,342

 
$
111,105

 
$
132,905

 
 
 
 
 
 
 
 
 
 
As % of Net Sales
 
 
 
 
 
 
 
 
 
Gross profit
33.9%
 
37.0%
 
40.9%
 
38.9%
 
38.8%
Selling, general and administrative expense
39%
 
43%
 
29%
 
35%
 
28%
Research, development and engineering expense
23%
 
26%
 
18%
 
21%
 
19%
Net operating expenses
64%
 
70%
 
51%
 
57%
 
49%
Operating loss
(30%)
 
(33%)
 
(10%)
 
(18%)
 
(10%)
 
 
 
 
 
 
 
 
 
 
Effective tax rate %
3%
 
—%
 
(4%)
 
—%
 
(5%)
Weighted average shares outstanding - basic
32,919
 
32,396
 
31,495
 
32,379
 
31,355
Weighted average shares outstanding - diluted - GAAP
32,919
 
32,396
 
31,713
 
32,379
 
31,355
End of period employees
716
 
725
 
647
 
716
 
647

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)
(In thousands, except per share data)
 
 
 
 
 
 
 
Fiscal quarter ended
 
Three fiscal quarters ended
 
Dec 31, 2016
 
Oct 1, 2016
 
Jan 2, 2016
 
Dec 31, 2016
 
Jan 2, 2016
Gross profit per GAAP
$
11,448

 
$
10,980

 
$
17,721

 
$
43,236

 
$
51,519

Purchase accounting
229

 
228

 
271

 
686

 
862

Equity compensation
142

 
136

 
103

 
398

 
346

Charges for inventory write-off of damaged product
(170
)
 

 

 
946

 

Charges for inventory write-off of discontinued product

 

 
1,356

 

 
1,356

Non-GAAP gross profit
$
11,649

 
$
11,344

 
$
19,451

 
$
45,266

 
$
54,083

Non-GAAP gross margin
34.5
%
 
38.2
%
 
44.9
%
 
40.7
%
 
40.7
%
 
 
 
 
 
 
 
 
 
 
Operating expenses per GAAP
$
21,500

 
$
20,861

 
$
22,190

 
$
62,862

 
$
65,116

Purchase accounting
(210
)
 
(203
)
 
(264
)
 
(663
)
 
(967
)
Equity compensation
(1,674
)
 
(1,383
)
 
(1,020
)
 
(4,227
)
 
(2,905
)
Charges for write-off of damaged product
54

 

 

 
(46
)
 

Acquisition and integration costs
(31
)
 
(335
)
 

 
(366
)
 
(194
)
Restructuring costs
(321
)
 
(14
)
 
(1,944
)
 
(372
)
 
(2,597
)
Non-GAAP operating expenses
$
19,318

 
$
18,926

 
$
18,962

 
$
57,188

 
$
58,453

% of Net sales
57
%
 
64
%
 
44
%
 
51
%
 
44
%
 
 
 
 
 
 
 
 
 
 
Operating (loss) income per GAAP
$
(10,052
)
 
$
(9,881
)
 
$
(4,469
)
 
$
(19,626
)
 
$
(13,597
)
Non-GAAP adjustments to gross profit
201

 
364

 
1,730

 
2,030

 
2,564

Non-GAAP adjustments to operating expenses
2,182

 
1,935

 
3,228

 
5,674

 
6,663

Non-GAAP operating (loss) income
$
(7,669
)
 
$
(7,582
)
 
$
489

 
$
(11,922
)
 
$
(4,370
)
% of Net sales
(23
%)
 
(26
%)
 
1
%
 
(11
%)
 
(3
%)
 
 
 
 
 
 
 
 
 
 
Non-operating income (expense), net per GAAP
$
34

 
$
206

 
$
67

 
$
162

 
$
68

Acquisition-related adjustments

 
(190
)
 

 
(190
)
 

Non-GAAP non-operating income
(expense)
$
34

 
$
16

 
$
67

 
$
(28
)
 
$
68

 
 
 
 
 
 
 
 
 
 
Net loss per GAAP
$
(9,693
)
 
$
(9,675
)
 
$
(4,586
)
 
$
(19,486
)
 
$
(14,210
)
Non-GAAP adjustments to gross profit
201

 
364

 
1,730

 
2,030

 
2,564

Non-GAAP adjustments to operating expenses
2,182

 
1,935

 
3,228

 
5,674

 
6,663

Non-GAAP adjustments to non-operating expense

 
(190
)
 

 
(190
)
 

Income tax effect of other non-GAAP adjustments
(248
)
 
(101
)
 
26

 
(284
)
 
(126
)
Non-GAAP net (loss) income
$
(7,558
)
 
$
(7,667
)
 
$
398

 
$
(12,256
)
 
$
(5,109
)
% of Net sales
(22
%)
 
(26
%)
 
1
%
 
(11
%)
 
(4
%)
Basic Non-GAAP net (loss) income per share
$
(0.23
)
 
$
(0.24
)
 
$
0.01

 
$
(0.38
)
 
$
(0.16
)
Diluted Non-GAAP net (loss) income per share
$
(0.23
)
 
$
(0.24
)
 
$
0.01

 
$
(0.38
)
 
$
(0.16
)

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Third Quarter Fiscal 2017 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
 
 
 
 
 
 
 
Fiscal quarter ended
 
Three fiscal quarters ended
 
Dec 31, 2016
 
Oct 1, 2016
 
Jan 2, 2016
 
Dec 31, 2016
 
Jan 2, 2016
Net loss
$
(9,693
)
 
$
(9,675
)
 
$
(4,586
)
 
$
(19,486
)
 
$
(14,210
)
Non-cash adjustments and changes in operating activities
6,017

 
2,204

 
8,089

 
19,787

 
22,208

Net cash (used in) provided by operating activities
(3,676
)
 
(7,471
)
 
3,503

 
301

 
7,998

Net cash (used in) provided by investing activities
(3,687
)
 
(2,475
)
 
(5,234
)
 
2,817

 
(17,029
)
Net cash provided by (used in) financing activities
381

 
259

 
277

 
242

 
411

Effect of exchange rate changes on cash
(812
)
 
(91
)
 
(117
)
 
(882
)
 
(303
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(7,794
)
 
(9,778
)
 
(1,571
)
 
2,478

 
(8,923
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
52,685

 
62,463

 
43,642

 
42,413

 
50,994

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
44,891

 
$
52,685

 
$
42,071

 
$
44,891

 
$
42,071




13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com


ESI Announces Third Quarter Fiscal 2017 Results

Reconciliation of GAAP to Non-GAAP Financial Measures - Projected
Fiscal quarter ending April 1, 2017
 
 
Non-GAAP loss per share
(0.02) - (0.07)
Purchase accounting
(0.02) - (0.03)
Equity compensation
(0.06)
Other items
(0.02) - (0.03)
GAAP loss per share
(0.12) - (0.19)


13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com