Nov 1, 2017

ESI Announces Second Quarter Fiscal 2018 Results

PORTLAND, Ore., Nov. 01, 2017 (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 2018 second quarter ended September 30, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring, impairments of other assets and inventory, and other items included in the non-GAAP reconciliation table below.

Second quarter revenue was $71.0 million, compared to $29.7 million in the second quarter of last fiscal year. GAAP net income was $4.3 million or $0.12 per diluted share, compared to a net loss of $9.7 million, or $0.30 per share one year ago. On a non-GAAP basis net income was $13.7 million or $0.39 per diluted share, compared to net loss of $7.7 million or $0.24 per share in the prior year's second quarter.

Michael Burger, CEO of ESI, stated, "We delivered a quarter of strong financial results, with revenues more than doubling from one year ago, higher gross margin, lower fixed expenses, and strong earnings."

Burger continued, "We are in an extraordinary time as we have seen a near-term inflection in growth for flexible circuit drilling equipment as a result of new materials, technologies, and applications for flexible circuits. During the quarter we received several large orders for our industry-leading 5335 series of flexible circuit drilling products. Combining our flex demand with excellent performance across our other product categories resulted in total orders for the quarter of $128.9 million."

On a GAAP basis gross margin was 37.4%, compared to 37.0% in the second quarter of last year, and was impacted by $6.1 million of charges for impairment of other assets and inventory as we completed our restructuring and product portfolio pruning activities. Operating expenses were $22.1 million, up from $20.9 million last year, with lower fixed expenses offset by higher variable expenses and $2.2 million of restructuring costs. "We have completed the major elements of our restructuring program as committed and expect to be fully in our cost structure model for the third quarter," Burger noted. Operating income was $4.4 million, compared to a loss of $9.9 million in last year's second quarter.

Non-GAAP gross margin was 46.4%, up from 38.2% in the second quarter of last year on higher sales volume. Non-GAAP operating expenses were $18.6 million, down from $18.9 million a year ago despite the addition of variable expenses associated with significantly higher revenues. Non-GAAP operating income was $14.4 million, or 20% of sales, compared to a loss of $7.6 million last year.

Balance Sheet and Cash Flow

At quarter end, total cash, restricted cash and current investments increased to $81.9 million. The company generated $18.3 million of cash from operations during the quarter. Sequentially, inventories decreased by $0.8 million, and accounts receivable decreased by $1.4 million. DSO is at 61 days.

Third Quarter 2018 Outlook

Based on current market and backlog conditions, revenues for the third quarter of fiscal 2018 are expected to be between $80 and $90 million. Non-GAAP earnings per diluted share is expected to be $0.48 to $0.60. Given order and backlog projections we expect fourth quarter results to be in a similar range.

Burger concluded, "The current manufacturing environment is as robust as I can recall in recent history, which is driving demand for products across our portfolio. In addition, our flex business is performing at exceptional levels, driven by both significant capacity additions and ramp of new applications and materials. Although we do not expect these business levels to continue indefinitely, we believe the underlying technology trends will drive growth in our markets over multiple years, and our new business model should allow us to improve profitability and generate consistent earnings over time."

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 59042117. 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, inventory and goodwill 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 enables our customers to commercialize technology using precision laser processes. ESI's solutions produce the industry's highest quality and throughput, 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

The statements contained in this press release that are not statements of historical fact, including statements regarding factors contributing to near-term inflection in growth, completion of our restructuring program, timing of realization of our cost structure model, and the statements under "Third Quarter 2018 Outlook", and other statements containing the words "believes", "expects", "anticipates," "continue," "will," "may" and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. These forward-looking statements are based on information available to us on the date of this release and we undertake 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 those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as: 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; 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, including as a result of any shipment delays; our ability to respond promptly to customer requirements; the risk, especially at heightened production levels, that we may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; our ability 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; our need to continue investing in research and development; our ability to hire and retain key employees; our ability to create and sustain intellectual property protection around our 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 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; risks associated with our restructuring efforts; foreign currency fluctuations; the risk that duties or tariffs could be imposed or increased on goods imported or exported by us; the risk of timing of shipments or increased costs related to licenses for goods 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.


 
ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Second Quarter Fiscal 2018 Results 
Condensed Consolidated Statements of Operations
(Unaudited)
 
          
 Fiscal quarter ended Two fiscal quarters ended
(In thousands, except per share data)Sep 30, 2017 Jul 1, 2017 Oct 1, 2016 Sep 30, 2017 Oct 1, 2016
Net sales:         
Systems$60,316  $62,093  $21,442  $ 122,409  $59,642 
Services10,651  10,591  8,216  21,242  17,684 
Total net sales70,967  72,684  29,658  143,651  77,326 
Cost of sales:         
Systems38,179  41,426  14,146  79,605  36,568 
Services6,256  4,838  4,532  11,094  8,970 
Total cost of sales 44,435  46,264  18,678  90,699  45,538 
Gross profit26,532  26,420  10,980  52,952  31,788 
Gross margin37.4% 36.3% 37.0% 36.9% 41.1%
Operating expenses:         
Selling, general and administrative11,648  12,808  12,766  24,456  25,637 
Research, development and engineering8,274  8,934  7,760  17,208  15,390 
Restructuring costs2,162  1,211    3,373   
Acquisition and integration costs    335    335  
Total operating expenses22,084  22,953  20,861  45,037  41,362 
Operating income (loss)4,448  3,467  (9,881) 7,915  (9,574)
Non-operating (expense) income:          
Interest and other (expense) income, net(229) (184) 206  (413) 128 
Total non-operating (expense) income(229)  (184) 206  (413) 128 
Income (loss) before income taxes4,219  3,283  (9,675) 7,502  (9,446)
(Benefit from) provision for income taxes(41) 381    340  347 
Net income (loss)$4,260  $2,902  $(9,675) $7,162  $(9,793)
Net income (loss) per share - basic$0.13  $0.09  $(0.30) $0.21  $(0.30)
Net income (loss) per share - diluted$0.12  $0.08  $(0.30) $0.21  $(0.30)
                    


 
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Condensed Consolidated Balance Sheets
(Unaudited)
      
(In thousands)Sep 30, 2017 Jul 1, 2017 Apr 1, 2017
Assets      
Current assets:     
Cash and cash equivalents$47,973  $58,909  $56,642 
Short-term investments32,802  9,720  5,743 
Trade receivables, net47,565  48,081  40,494 
Inventories61,423   62,257  58,942 
Shipped systems pending acceptance7,765  6,657  5,713 
Other current assets5,309  5,358  6,180 
Total current assets202,837  190,982  173,714 
Non-current assets:     
Property, plant and equipment, net18,874  20,480  21,619 
Goodwill2,626  2,626   3,027 
Acquired intangible assets, net5,883  6,266  6,564 
Other assets(1)17,819  15,243  19,821 
Total assets$248,039  $235,597  $224,745 
Liabilities and shareholders' equity      
Current liabilities:     
Accounts payable$24,378   $25,793  $21,213 
Accrued liabilities32,050  23,818  22,186 
Deferred revenue15,782  14,834  14,712 
Total current liabilities72,210  64,445  58,111 
Non-current liabilities      
Long-term debt12,982  13,379  13,489 
Income taxes payable1,285  1,214  1,036 
Other liabilities7,956  8,114  7,578 
Total liabilities94,433  87,152  80,214 
Shareholders' equity:     
Preferred and common stock208,670  207,954  207,152 
Accumulated deficit(54,246) (58,506) (61,407)
Accumulated other comprehensive loss(818) (1,003) (1,214)
Total shareholders' equity153,606  148,445  144,531 
Total liabilities and shareholders' equity$248,039  $235,597  $224,745 
End of period shares outstanding34,067  33,689  33,260 
         
(1) Included in Other assets is long-term restricted cash of $1.1 million each on Sep 30, 2017, Jul 1, 2017 and Apr 1, 2017.
 


 
Electro Scientific Industries, Inc.
Analysis of Second Quarter Fiscal 2018 Results
(Unaudited)
    
 Fiscal quarter ended Two fiscal quarters ended
(Dollars and shares in thousands)Sep 30, 2017 Jul 1, 2017 Oct 1, 2016 Sep 30, 2017 Oct 1, 2016
Sales detail:         
Printed Circuit Board$43,541  $52,318  $13,527  $95,859  $44,445 
Component Test7,677  8,181  4,990  15,858  9,592 
Semiconductor12,028  6,737  7,222  18,765  14,831 
Industrial Machining7,721  5,448  3,919  13,169  8,458 
Net Sales$70,967  $72,684  $29,658  $143,651  $77,326 
          
As % of Net Sales         
GAAP         
Gross profit37.4% 36.3% 37.0% 36.9% 41.1%
Selling, general and administrative expense16% 18% 43% 17% 33%
Research, development and engineering expense12% 12% 26% 12% 20%
Total operating expenses31% 32% 70% 31% 53%
Operating income (loss)6% 5% (33%) 6% (12%)
Non-GAAP         
Gross profit46.4% 46.7% 38.2% 46.5% 43.5%
Net operating expenses26% 28% 64% 27% 49%
Operating income (loss)20% 19% (26%) 19% (6%)
          
GAAP - Effective tax rate %(1.0%) 11.6% % 4.5% (3.7%)
Weighted average shares outstanding         
Basic33,861  33,432  32,396  33,647  32,109 
Diluted GAAP34,874  34,321  32,396  34,716  32,109 
Diluted Non-GAAP34,874  34,321  32,396  34,716  32,109 
End of period employees594  607  725  594  725 
          
Reconciliation of Cash and Investments         
   Sep 30, 2017 Jul 1, 2017 Apr 1, 2017 Oct 1, 2016
Cash  29,998  37,976  29,302  25,659 
Cash equivalents  17,975  20,933  27,340  27,026 
Restricted cash  1,098  1,094   1,090   
Cash, cash equivalents, and restricted cash at end of period 49,071  60,003  57,732  52,685 
Short-term investments  32,802  9,720  5,743  3,500 
Cash, restricted cash and current investments 81,873  69,723  63,475  56,185 
             


 
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)
 
 Fiscal quarter ended Two fiscal quarters ended
(In thousands, except per share data)Sep 30, 2017 Jul 1, 2017 Oct 1, 2016 Sep 30, 2017 Oct 1, 2016
Gross profit per GAAP$26,532   $26,420  $10,980  $52,952  $ 31,788 
Purchase accounting242  251  228  493  457 
Equity compensation77  67  136  144  256 
Charges for other asset and inventory impairment6,083  7,194    13,277  1,116 
Non-GAAP gross profit$32,934  $33,932  $11,344  $66,866  $33,617 
          
Operating expenses per GAAP$22,084  $22,953  $20,861  $45,037  $41,362 
Purchase accounting(117) (219) (203) (336) (453)
Equity compensation(1,253) (1,211) (1,383) (2,464) (2,553)
Impairment of assets        (100)
Acquisition and integration costs     (335)   (335)
Restructuring costs(2,162) (1,211) (14) (3,373) (51)
Non-GAAP operating expenses$18,552  $20,312  $18,926  $38,864  $37,870 
          
Operating income (loss) per GAAP$4,448  $3,467  $(9,881)  $7,915  $(9,574)
Non-GAAP adjustments to gross profit6,402  7,512  364  13,914  1,829 
Non-GAAP adjustments to operating expenses3,532  2,641  1,935  6,173  3,492 
Non-GAAP operating income (loss)$14,382  $13,620  $(7,582) $28,002  $(4,253)
          
Non-operating (expense) income, net per GAAP$(229) $(184) $206  $(413) $ 128 
Acquisition-related adjustments    (190)   (190)
Non-GAAP non-operating (expense) income$(229) $(184) $16  $(413) $(62)
Non-GAAP income (loss) before income taxes$14,153  $13,436  $(7,566) $27,589  $(4,315)
          
Net income (loss) per GAAP$4,260  $2,902  $(9,675) $7,162  $(9,793)
Non-GAAP adjustments to gross profit6,402  7,512  364  13,914  1,829 
Non-GAAP adjustments to operating expenses3,532  2,641  1,935  6,173  3,492 
Non-GAAP adjustments to non-operating expense    (190)   (190)
Income tax effect of other non-GAAP adjustments(483) (24) (101) (507 ) (36)
Non-GAAP net income (loss)$13,711  $13,031  $(7,667) $26,742  $(4,698)
Basic Non-GAAP net income (loss) per share$0.40  $ 0.39  $(0.24) $0.79  $(0.15)
Diluted Non-GAAP net income (loss) per share$0.39  $0.38  $(0.24) $0.77  $(0.15)
                    


 
Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
    
 Fiscal quarter ended Two fiscal quarters ended
(In thousands)Sep 30, 2017 Jul 1, 2017 Oct 1, 2016 Sep 30, 2017 Oct 1, 2016
Net income (loss)$4,260  $2,902  $(9,675) $7,162  $(9,793)
Non-cash adjustments and changes in operating activities14,005   4,529  2,204  18,534  13,770 
Net cash provided by (used in) operating activities18,265  7,431  (7,471) 25,696  3,977 
Net cash (used in) provided by investing activities(28,597) (4,789) (2,475) (33,386) 6,504 
Net cash (used in) provided by financing activities(725) (506) 259  (1,231) (139)
Effect of exchange rate changes on cash125  135  (91) 260  (70)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(10,932)  2,271  (9,778) (8,661) 10,272 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD60,003  57,732  62,463  57,732  42,413 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$49,071  $60,003  $52,685  $49,071  $52,685 
                    


Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending December 30, 2017
  
Non-GAAP earnings per diluted share0.48 - 0.60
Purchase accounting(0.01)
Equity compensation (0.04)
Other items(0.04) - (0.02)
GAAP earnings per diluted share0.39 - 0.53


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

 

Source: Electro Scientific Industries, Inc.

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