PORTLAND, Ore., Feb. 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 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 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."

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 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.
 
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 )

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  

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  

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 )

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  

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)

 

Brian SmithESI503-672-5760smithb@esi.com

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