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ESI Announces Third Quarter Fiscal 2016 Results

PORTLAND, Ore., Feb. 02, 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 2016 third quarter ended January 2, 2016, which comprised fourteen weeks, compared to thirteen weeks in the prior and year-ago quarters. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring, inventory write-down and other items.

Third quarter revenue was $43.3 million, compared to $46.5 million in the second quarter of 2016 and $43.7 million in the third quarter of last fiscal year. GAAP net loss was $4.6 million or $0.15 per share. Non-GAAP net income was $0.4 million or $0.01 per diluted share.

“In the third quarter we continued to deliver on our turnaround plan as we grew our orders, increased gross margin, reduced adjusted operating expenses, and generated positive non-GAAP earnings. For the third consecutive quarter we generated positive cash from operations and grew our cash balance,” stated Ed Grady, president and CEO of ESI. “Further, the company took another step forward in our market expansion strategy as we announced nViantTM, a laser system designed for via drilling in High-Density Interconnect circuit boards.”

Bookings in the third quarter were $52.6 million, compared to $51.5 million in the prior quarter and $40.6 million last year. Grady continued, “Flex via drilling had another strong quarter, with growth coming from our new GemStoneTM system. Micromachining also saw solid demand, with a follow-on order for our Lumen series system. Perhaps most important strategically, we were selected as plan of record and received our first order for the CornerStoneTM Series 2 laser drilling system from a large semiconductor manufacturer. We believe this selection positions us well in the high-performance IC Package via drilling market with industry leading cost of ownership and capability."

GAAP gross margin was 40.9%. Non-GAAP gross margin was 44.9% compared to 40.6% in the prior quarter. Operating expenses on a GAAP basis were $22.2 million, up slightly from $21.4 million in the prior quarter. On a non-GAAP basis operating expenses decreased to $19.0 million from $19.6 million last quarter. Non-GAAP operating income was $0.5 million compared to a loss of $0.8 million in the second quarter. Grady added, “We are pleased with our sequential improvement in gross margin and lower operating expenses as our lean programs and cost management efforts continue to show results."

Balance Sheet and Cash Flow

At quarter end, cash and investments grew to $62.8 million, from $60.2 million last quarter. The company generated $3.5 million in cash from operations. Inventories increased by $2.8 million, total trade receivables decreased by $12.6 million, and accounts payable decreased by $3.0 million.

Fourth Quarter 2016 Outlook

Based on current market conditions, revenues for the fourth quarter of fiscal 2016 are expected to be between $47 million and $53 million. Non-GAAP earnings per diluted share is expected to be $0.03 to $0.08.

Grady concluded, "With the introduction of GemStone, CornerStone, and now nViant, ESI has more than tripled its addressable market in PCB laser processing. In addition, the trend in these markets is transitioning towards requiring the level of precision, accuracy, and speed that are the strengths of ESI. With these new products we believe there is significant opportunity to grow our share of this large market. Market penetration, leading to revenue and earnings growth, remains our top priority. While economic and market forces could impact capacity buys and the timing of new product adoption, ESI's turnaround and success story continues to progress."

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 62533773. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through February 12, 2016, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 33654635. 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 write-down 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, 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 Topwin Optoelectronics; 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; the risk that our cost-reduction program will not result in the anticipated level of savings; 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.
Third Quarter Fiscal 2016 Results
(In thousands, except per share data)
(Unaudited)
Operating Results:
Fiscal quarter ended Three fiscal quarters ended
Jan 2, 2016 Sep 26, 2015 Dec 27, 2014 Jan 2, 2016 Dec 27, 2014
Net sales:
Systems$31,282 $35,570 $31,750 $98,914 $85,447
Services12,060 10,902 11,911 33,991 36,100
Total net sales43,342 46,472 43,661 132,905 121,547
Cost of sales:
Systems20,292 22,345 22,031 63,922 59,707
Services5,329 5,706 6,917 17,464 20,074
Total cost of sales25,621 28,051 28,948 81,386 79,781
Gross profit17,721 18,421 14,713 51,519 41,766
40.9% 39.6% 33.7% 38.8% 34.4%
Operating expenses:
Selling, general and administrative12,468 12,534 12,332 37,619 36,384
Research, development and engineering7,778 8,283 8,384 24,706 25,953
Acquisition and integration costs 40 194
Restructuring costs1,944 591 2,597
Net operating expenses22,190 21,448 20,716 65,116 62,337
Operating loss(4,469) (3,027) (6,003) (13,597) (20,571)
Non-operating income (expense):
Interest and other income (expense), net67 6 64 68 (134)
Total non-operating income (expense)67 6 64 68 (134)
Loss before income taxes(4,402) (3,021) (5,939) (13,529) (20,705)
Provision for income taxes184 239 437 681 165
Net loss$(4,586) $(3,260) $(6,376) $(14,210) $(20,870)
Net loss per share—basic$(0.15) $(0.10) $(0.21) $(0.45) $(0.68)
Net loss per share—diluted$(0.14) $(0.10) $(0.21) $(0.45) $(0.68)


*Certain reclassifications have been made to amounts reported in prior periods to conform to current period presentation, as previously disclosed on our Forms 10-K and 10-Q






Electro Scientific Industries, Inc.
Third Quarter Fiscal 2016 Results
(Amounts in thousands)
(Unaudited)
Financial Position As Of:
Jan 2, 2016 Sep 26, 2015 Mar 28, 2015
Assets
Current assets:
Cash and cash equivalents$42,071 $43,642 $50,994
Short-term investments20,771 16,607 6,612
Trade receivables, net37,012 49,097 42,295
Inventories60,881 58,035 56,637
Shipped systems pending acceptance1,470 2,499 2,516
Deferred income taxes, net134 135 178
Other current assets4,371 3,475 6,090
Total current assets166,710 173,490 165,322
Non-current assets:
Non-current investments
Property, plant and equipment, net23,507 24,650 25,858
Non-current deferred income taxes, net98 85 174
Goodwill7,445 7,445 7,717
Acquired intangible assets, net7,909 8,230 8,958
Trade receivable288 794 3,656
Other assets10,776 10,464 9,555
Total assets$216,733 $225,158 $221,240
Liabilities and shareholders' equity
Current liabilities:
Accounts payable$16,344 $19,347 $9,514
Accrued liabilities20,980 18,913 18,666
Deferred income tax liability, net174 174 173
Deferred revenue7,708 12,662 12,376
Total current liabilities45,206 51,096 40,729
Income taxes payable1,384 1,278 1,176
Deferred income tax liability, net232 407 443
Other liabilities3,166 2,585 1,571
Shareholders' equity:
Preferred and common stock193,547 191,948 189,134
Accumulated deficit(25,950) (21,366) (11,741)
Accumulated other comprehensive loss(852) (790) (72)
Total shareholders' equity166,745 169,792 177,321
Total liabilities and shareholders' equity$216,733 $225,158 $221,240
End of period shares outstanding31,537 31,448 30,704


*Certain reclassifications have been made to amounts reported in prior periods to conform to current period presentation, as previously disclosed on our Forms 10-K and 10-Q






Electro Scientific Industries, Inc.
Analysis of Third Quarter Fiscal 2016 Results
(Dollars and shares in thousands)
(Unaudited)
Fiscal quarter ended Three fiscal quarters ended
Jan 2, 2016 Sep 26, 2015 Dec 27, 2014 Jan 2, 2016 Dec 27, 2014
Sales detail:
Component Processing
Interconnect Products (IP)$22,824 $21,500 $16,213 $64,969 $48,531
Component Test Products (CTP)3,303 4,491 4,164 14,292 13,986
Semiconductor Products (SP)11,384 6,763 11,453 29,288 31,969
37,511 32,754 31,830 108,549 94,486
Micromachining
Micromachining Products (MP)5,831 13,718 11,831 24,356 27,061
Net Sales$43,342 $46,472 $43,661 $132,905 $121,547
Gross margin % 41% 40% 34% 39% 34%
Selling, general and administrative expense % 29% 27% 28% 28% 30%
Research, development and engineering expense % 18% 18% 19% 19% 21%
Operating loss % (10%) (7%) (14%) (10%) (17%)
Effective tax rate % (4%) (8%) (7%) (5%) (1%)
Weighted average shares outstanding - basic 31,495 31,384 30,617 31,355 30,507
Weighted average shares outstanding - diluted 31,713 31,384 30,617 31,355 30,507
End of period employees 647 677 652 647 652






Electro Scientific Industries, Inc.
Third Quarter Fiscal 2016 Results
(In thousands, except per share data)
(Unaudited)
Reconciliation of GAAP to Non-GAAP Financial Measures:
Fiscal quarter ended Three fiscal quarters ended
Jan 2, 2016 Sep 26, 2015 Dec 27, 2014 Jan 2, 2016 Dec 27, 2014
Gross profit per GAAP$17,721 $18,421 $14,713 $51,519 $41,766
Purchase accounting271 325 163 862 836
Equity compensation103 114 154 346 474
Charges for inventory write-off of discontinued product1,356 1,356
Non-GAAP gross profit$19,451 $18,860 $15,030 $54,083 $43,076
Non-GAAP gross margin44.9% 40.6% 34.4% 40.7% 35.4%
Operating expenses per GAAP$22,190 $21,448 $20,716 $65,116 $62,337
Purchase accounting(264) (248) (90) (967) (270)
Equity compensation(1,020) (952) (885) (2,905) (2,928)
Acquisition and integration costs (40) (311) (194) (311)
Restructuring costs(1,944) (591) (2,597)
Non-GAAP operating expenses$18,962 $19,617 $19,430 $58,453 $58,828
% of Net sales44% 42% 45% 44% 48%
Operating loss per GAAP$(4,469) $(3,027) $(6,003) $(13,597) $(20,571)
Non-GAAP adjustments to gross profit1,730 439 317 2,564 1,310
Non-GAAP adjustments to operating expenses3,228 1,831 1,286 6,663 3,509
Non-GAAP operating income (loss)$489 $(757) $(4,400) $(4,370) $(15,752)
% of Net sales1% (2%) (10%) (3%) (13%)
Non-operating income (expense), net per GAAP$67 $6 $64 $68 $(134)
Non-GAAP non-operating income (expense)$67 $6 $64 $68 $(134)
Net loss per GAAP$(4,586) $(3,260) $(6,376) $(14,210) $(20,870)
Non-GAAP adjustments to gross profit1,730 439 317 2,564 1,310
Non-GAAP adjustments to operating expenses3,228 1,831 1,286 6,663 3,509
Income tax effect of other non-GAAP adjustments26 (53) 93 (126) (830)
Non-GAAP net income (loss)$398 $(1,043) $(4,680) $(5,109) $(16,881)
% of Net sales1% (2%) (11%) (4%) (14%)
Basic Non-GAAP net income (loss) per share$0.01 $(0.03) $(0.15) $(0.16) $(0.55)
Diluted Non-GAAP net income (loss) per share$0.01 $(0.03) $(0.15) $(0.16) $(0.55)






Electro Scientific Industries, Inc.
Third Quarter Fiscal 2016 Results
(Amounts in thousands)
(Unaudited)
Consolidated Condensed Statements of Cash Flows:
Fiscal quarter ended Three fiscal quarters ended
Jan 2, 2016 Sep 26, 2015 Dec 27, 2014 Jan 2, 2016 Dec 27, 2014
Net loss$(4,586) $(3,260) $(6,376) $(14,210) $(20,870)
Non-cash adjustments and changes in operating activities8,089 5,428 (7,043) 22,208 4,349
Net cash provided by (used in) operating activities3,503 2,168 (13,419) 7,998 (16,521)
Net cash (used in) provided by investing activities(5,234) (12,264) 7,613 (17,029) 28,420
Net cash provided by (used in) financing activities277 264 (2,613) 411 (9,165)
Effect of exchange rate changes on cash(117) (357) (770) (303) (1,129)
NET CHANGE IN CASH AND CASH EQUIVALENTS(1,571) (10,189) (9,189) (8,923) 1,605
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD43,642 53,831 79,255 50,994 68,461
CASH AND CASH EQUIVALENTS AT END OF PERIOD$42,071 $43,642 $70,066 $42,071 $70,066






Reconciliation of GAAP to Non-GAAP Financial Measures - Projected Fiscal quarter ending
April 02, 2016
Non-GAAP diluted earnings per share $ 0.03 - $0.08
Purchase accounting (0.02
)
Equity compensation (0.04
)
Other items
GAAP diluted EPS $(0.03) - $0.02


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

Source:Electro Scientific Industries, Inc.