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ESI Announces Strong Third Quarter Fiscal 2018 Results

PORTLAND, Ore., Jan. 31, 2018 (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 third quarter ended December 30, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis. Non-GAAP results exclude the impact of purchase accounting, equity compensation, restructuring, and other items shown in the non-GAAP reconciliation table below.

Third quarter revenue was $110.8 million, compared to $33.8 million in the third quarter of last fiscal year. GAAP net income was $34.0 million or $0.94 per diluted share, compared to a net loss of $9.7 million or $0.29 per share one year ago. On a non-GAAP basis net income was $35.6 million or $0.99 per diluted share, compared to net loss of $7.6 million or $0.23 per share in the prior year's third quarter.

Michael Burger, ESI's president and CEO, stated, “We delivered another quarter of excellent financial results. I’m particularly proud of the entire ESI team as they demonstrated the power of our highly scalable cost model by shipping a record amount of product, resulting in dramatic increases in revenue and profitability. Our non-GAAP gross margin rate of nearly 49% enabled adjusted operating margin of over 32% and adjusted quarterly earnings of nearly $1.00 per share."

Total orders for the quarter were $134.0 million, compared to $44.1 million one year ago and $128.9 million in the prior quarter. Burger continued, "Bookings more than tripled year over year as increasingly complex consumer electronics have driven an expansion of the flexible circuit content per device, requiring flexible circuit manufacturers to add capacity of our industry-leading laser drilling products."

GAAP gross margin was 48.0%, compared to 33.9% in the third quarter of last year, on significantly higher revenues. Operating expense was $19.9 million, down from $21.5 million last year, as a result of our now-completed cost reduction activities that were partially offset in the quarter by higher volume-related variable expenses. Operating income was $33.2 million, or 30% of revenue, compared to a loss of $10.1 million in last year's third quarter.

Balance Sheet and Cash Flow

At quarter end, total cash, restricted cash and current investments increased to $100.2 million. The company generated $15.1 million of cash from operations during the quarter. Sequentially, and as a result of our increased production and shipment levels, inventories increased by $13.1 million to $74.5 million, and accounts receivable increased by $28.0 million to $75.7 million. Inventory turnover improved to 3.4 times and days sales outstanding remained relatively steady at 62 days.

Fourth Quarter 2018 Outlook

Based on current market and backlog conditions, revenues for the fourth quarter of fiscal 2018 are expected to be between $95 and $110 million. Non-GAAP earnings per diluted share is expected to be $0.75 to $0.95.

Burger concluded, "Similar to other capital equipment providers, our visibility of specific demand levels beyond the first quarter of fiscal 2019 remains limited. That said, we believe the underlying technology trends for our products will drive long-term growth in our targeted markets, and our business model should translate the incremental revenue into leveraged earnings growth."

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 24885109. A live audio webcast can be accessed at www.esi.com.

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, 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 our expected financial results for the fiscal 2018 fourth quarter and fiscal 2019 first quarter, our projections for orders and backlog, anticipated technology trends, the ability of our business model to translate incremental revenue into leveraged earnings growth, and other statements containing the words “believes”, “expects”, “anticipates,” “continue,” “will,” “may,” "should," 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 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 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; 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; our 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

Third Quarter Fiscal 2018 Results

Condensed Consolidated Statements of Operations
(Unaudited)

Fiscal quarter ended Three fiscal quarters ended
(In thousands, except per share data)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Net sales:
Systems$99,418 $60,316 $25,427 $221,827 $85,069
Services11,422 10,651 8,352 32,664 26,036
Total net sales110,840 70,967 33,779 254,491 111,105
Cost of sales:
Systems52,502 38,179 17,283 132,107 53,851
Services5,182 6,256 5,048 16,276 14,018
Total cost of sales57,684 44,435 22,331 148,383 67,869
Gross profit53,156 26,532 11,448 106,108 43,236
Gross margin48.0% 37.4% 33.9% 41.7% 38.9%
Operating expenses:
Selling, general and administrative11,040 11,648 13,280 35,496 38,917
Research, development and engineering8,165 8,274 7,868 25,373 23,258
Restructuring costs706 2,162 321 4,079 321
Acquisition and integration costs 31 366
Total operating expenses19,911 22,084 21,500 64,948 62,862
Operating income (loss)33,245 4,448 (10,052) 41,160 (19,626)
Non-operating income (expense):
Interest and other income (expense), net789 (229) 34 376 162
Total non-operating income (expense)789 (229) 34 376 162
Income (loss) before income taxes34,034 4,219 (10,018) 41,536 (19,464)
(Benefit from) provision for income taxes61 (41) (325) 401 22
Net income (loss)$33,973 $4,260 $(9,693) $41,135 $(19,486)
Net income (loss) per share - basic$0.99 $0.13 $(0.29) $1.22 $(0.60)
Net income (loss) per share - diluted$0.94 $0.12 $(0.29) $1.16 $(0.60)

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2018 Results

Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)Dec 30, 2017 Sep 30, 2017 Apr 1, 2017
Assets
Current assets:
Cash and cash equivalents$62,251 $47,973 $56,642
Short-term investments36,824 32,802 5,743
Trade receivables, net75,674 47,565 40,494
Inventories74,502 61,423 58,942
Shipped systems pending acceptance5,780 7,765 5,713
Other current assets5,116 5,309 6,180
Total current assets260,147 202,837 173,714
Non-current assets:
Property, plant and equipment, net19,732 18,874 21,619
Goodwill2,626 2,626 3,027
Acquired intangible assets, net5,525 5,883 6,564
Income taxes receivable935
Other assets(1)17,339 17,819 19,821
Total assets$306,304 $248,039 $224,745
Liabilities and shareholders' equity
Current liabilities:
Accounts payable$38,577 $24,378 $21,213
Accrued liabilities40,391 32,050 22,186
Deferred revenue11,982 15,782 14,712
Total current liabilities90,950 72,210 58,111
Non-current liabilities
Long-term debt12,875 12,982 13,489
Income taxes payable1,587 1,285 1,036
Other liabilities10,085 7,956 7,578
Total liabilities115,497 94,433 80,214
Shareholders' equity:
Preferred and common stock211,330 208,670 207,152
Accumulated deficit(20,273) (54,246) (61,407)
Accumulated other comprehensive loss(250) (818) (1,214)
Total shareholders' equity190,807 153,606 144,531
Total liabilities and shareholders' equity$306,304 $248,039 $224,745
End of period shares outstanding34,309 34,067 33,260
(1) Included in Other assets is long-term restricted cash of $1.1 million each on Dec 30, 2017, Sep 30, 2017 and Apr 1, 2017.

Electro Scientific Industries, Inc.

Analysis of Third Quarter Fiscal 2018 Results

(Unaudited)

Fiscal quarter ended Three fiscal quarters ended
(Dollars and shares in thousands)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Sales detail:
Printed Circuit Board$83,799 $43,541 $15,987 $179,658 $60,432
Component Test7,473 7,677 5,407 23,331 14,999
Semiconductor12,351 12,028 6,690 31,116 21,521
Industrial Machining7,217 7,721 5,695 20,386 14,153
Net Sales$110,840 $70,967 $33,779 $254,491 $111,105
As % of Net Sales
GAAP
Gross profit48.0% 37.4% 33.9% 41.7% 38.9%
Selling, general and administrative expense10% 16% 39% 14% 35%
Research, development and engineering expense7% 12% 23% 10% 21%
Total operating expenses18% 31% 64% 26% 57%
Operating income (loss)30% 6% (30%) 16% (18%)
Non-GAAP
Gross profit48.9% 46.4% 34.5% 47.6% 40.7%
Net operating expenses17% 26% 57% 23% 51%
Operating income (loss)32% 20% (23%) 25% (11%)
GAAP - Effective tax rate %0.2% (1.0%) 3.2% 1.0% (0.1%)
Weighted average shares outstanding
Basic34,224 33,861 32,919 33,839 32,379
Diluted GAAP36,010 34,874 32,919 35,562 32,379
Diluted Non-GAAP36,010 34,874 32,919 35,562 32,379
End of period employees595 594 716 595 716
Reconciliation of Cash and Investments
Dec 30, 2017 Sep 30, 2017 Apr 1, 2017 Dec 31, 2016
Cash 33,565 29,998 29,302 30,325
Cash equivalents 28,686 17,975 27,340 14,566
Restricted cash 1,087 1,098 1,090
Cash, cash equivalents, and restricted cash at end of period 63,338 49,071 57,732 44,891
Short-term investments 36,824 32,802 5,743 6,301
Cash, restricted cash and current investments 100,162 81,873 63,475 51,192

Electro Scientific Industries, Inc.
Third Quarter Fiscal 2018 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)

Fiscal quarter ended Three fiscal quarters ended
(In thousands, except per share data)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Gross profit per GAAP$53,156 $26,532 $11,448 $106,108 $43,236
Purchase accounting242 242 229 735 686
Equity compensation64 77 142 208 398
Charges for other asset and inventory impairment 6,083 (170) 13,277 946
Charges from VAT audit777 777
Non-GAAP gross profit$54,239 $32,934 $11,649 $121,105 $45,266
Operating expenses per GAAP$19,911 $22,084 $21,500 $64,948 $62,862
Purchase accounting(116) (117) (210) (452) (663)
Equity compensation(649) (1,253) (1,674) (3,113) (4,227)
Impairment of assets 54 (46)
Acquisition and integration costs (31) (366)
Restructuring costs(706) (2,162) (321) (4,079) (372)
Non-GAAP operating expenses$18,440 $18,552 $19,318 $57,304 $57,188
Operating income (loss) per GAAP$33,245 $4,448 $(10,052) $41,160 $(19,626)
Non-GAAP adjustments to gross profit1,083 6,402 201 14,997 2,030
Non-GAAP adjustments to operating expenses1,471 3,532 2,182 7,644 5,674
Non-GAAP operating income (loss)$35,799 $14,382 $(7,669) $63,801 $(11,922)
Non-operating income (expense), net per GAAP$789 $(229) $34 $376 $162
Gain on asset sale net of other non-operating expenses(687) (687)
Acquisition-related adjustments (190)
Non-GAAP non-operating income
(expense)
$102 $(229) $34 $(311) $(28)
Non-GAAP income (loss) before income taxes$35,901 $14,153 $(7,635) $63,490 $(11,950)
Net income (loss) per GAAP$33,973 $4,260 $(9,693) $41,135 $(19,486)
Non-GAAP adjustments to gross profit1,083 6,402 201 14,997 2,030
Non-GAAP adjustments to operating expenses1,471 3,532 2,182 7,644 5,674
Non-GAAP adjustments to non-operating expense(687) (687) (190)
Income tax effect of other non-GAAP adjustments(235) (483) (248) (742) (284)
Non-GAAP net income (loss)$35,605 $13,711 $(7,558) $62,347 $(12,256)
Basic Non-GAAP net income (loss) per share$1.04 $0.40 $(0.23) $1.84 $(0.38)
Diluted Non-GAAP net income (loss) per share$0.99 $0.39 $(0.23) $1.75 $(0.38)

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2018 Results

Condensed Consolidated Statements of Cash Flows
(Unaudited)

Fiscal quarter ended Three fiscal quarters ended
(In thousands)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Net income (loss)$33,973 $4,260 $(9,693) $41,135 $(19,486)
Non-cash adjustments and changes in operating activities(18,872) 14,005 6,017 (338) 19,787
Net cash provided by (used in) operating activities15,101 18,265 (3,676) 40,797 301
Net cash (used in) provided by investing activities(2,974) (28,597) (3,687) (36,360) 2,817
Net cash provided by (used in) financing activities1,838 (725) 381 607 242
Effect of exchange rate changes on cash302 125 (812) 562 (882)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH14,267 (10,932) (7,794) 5,606 2,478
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD49,071 60,003 52,685 57,732 42,413
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$63,338 $49,071 $44,891 $63,338 $44,891


Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending
March 31, 2018
Non-GAAP earnings per diluted share0.75 - 0.95
Purchase accounting(0.01)
Equity compensation(0.04)
Other items(0.05)
GAAP earnings per diluted share0.65 - 0.85

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

Source:Electro Scientific Industries, Inc.