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ESI Announces Second Quarter Fiscal 2013 Results



  ESI Announces Second Quarter Fiscal 2013 Results

                      Revenues Increase 36% Sequentially

Business Wire

PORTLAND, Ore. -- October 25, 2012

Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading supplier of
innovative laser-based manufacturing solutions for the microtechnology
industry, today announced results for its fiscal 2013 second quarter ended
September 29, 2012. Financial measures are provided on both a GAAP and
non-GAAP basis.

Revenue in the second quarter was $80.2 million, compared to $59.0 million in
the first quarter of 2013 and $81.9 million in the second quarter of last
fiscal year. On a GAAP basis, net income was $5.2 million or $0.17 per diluted
share, compared to a loss of $0.9 million or $0.03 per share in the prior
quarter and income of $8.5 million or $0.29 per diluted share in the second
quarter of fiscal 2012. On a non-GAAP basis, second quarter net income was
$7.0 million or $0.23 per diluted share, compared to income of $1.9 million or
$0.06 per diluted share in the first quarter of fiscal 2013 and income of $9.3
million or $0.32 per diluted share in the second quarter of fiscal 2012.

“We delivered strong sequential growth in revenues and profitability, as we
shipped most of the large microfabrication orders received in the June
quarter,” stated Nick Konidaris, president and CEO of ESI. “Our Singapore
factory shipped a record number of units, enabling us to meet customer
commitments and driving solid operating margins.”

Net orders for the second quarter were $35.0 million, compared to $74.1
million in the prior quarter. Konidaris continued, “The order rate reflects
the variability of our advanced microfabrication business, following the large
design wins last quarter. However, overall microfabrication orders are up from
last year for both the quarter and year to date.”

GAAP gross margin was 41.8%, up from 40.1% last quarter. Non-GAAP gross margin
was 42.8% compared to 41.0% in the prior quarter. GAAP operating expenses were
essentially flat, while non-GAAP operating expenses increased by $2.2 million
due to higher variable expenses, the addition of Eolite and continued
investment in our growth initiatives. Non-GAAP operating income was $10.5
million, or 13.1% of sales, compared to $2.7 million, or 4.5% of sales, in the
first quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments including restricted cash totaled $205
million. The company used approximately $11 million in operating cash during
the quarter. Inventories increased by $9 million and receivables increased by
$30 million, directly related to the timing of shipments in the quarter,
yielding a DSO of 66 days.

Third Quarter 2013 Outlook

Based on recent order levels, ESI expects revenues for the third quarter of
fiscal 2013 to be around $40 million. Non-GAAP loss per share is expected to
be $0.00 to $0.05.

Konidaris concluded, "Although overall market conditions remain weak, we
continue to see a full funnel of microfabrication opportunities, and we are
optimistic about our growth initiatives in the longer term. Our team remains
focused on disciplined execution, improving productivity and quality, and
meeting customer commitments.”

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 800-230-1093 (domestic) or
612-288-0329 (international). The conference ID number is 266829. A live audio
webcast can be accessed at www.esi.com. Upon completion of the call, an audio
replay will be accessible through November 5, 2012, at 800-475-6701 (domestic)
or 320-365-3844 (international), passcode 266829. 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 financial
measures exclude the impact of purchase accounting, equity compensation,
restructuring charges 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 is a leading supplier of innovative, laser-based manufacturing solutions
for the microtechnology industry. Our systems enable precise structuring and
testing of micron to submicron features in electronic devices, semiconductors,
LEDs and other high-value components. We partner with our customers to make
breakthrough technologies possible in the microelectronics, semiconductor and
other emerging industries. Founded in 1944, 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, 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 economic
strength and political stability, and overall demand for electronic devices
(such as capacitors, semiconductor memory devices and advanced electronic
packages) 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 risk that the company may not be able 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 we may
incur unanticipated costs or expenses in connection with our acquisition of
Eolite Systems; the risk that competing or alternative technologies could
reduce demand for our products; foreign currency fluctuations; 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.
                                                                   
Second Quarter Fiscal 2013 Results
(In thousands, except per share data)
(Unaudited)
                                                                     
                                                                     
                 Fiscal quarter ended                 Two fiscal quarters ended
Operating        Sep 29,    Jun 30,      Oct 1,       Sep 29,       Oct 1, 2011
Results:         2012       2012         2011         2012
Net sales        $ 80,152   $ 58,969     $ 81,884     $ 139,121     $ 158,930
Cost of sales      46,632     35,316       45,943       81,948        89,229   
Gross profit       33,520     23,653       35,941       57,173        69,701
Operating
expenses:
Selling,
service and        15,114     15,663       14,884       30,777        31,380
administration
Research,
development        10,527     9,534        10,742       20,061        21,976
and
engineering
Legal
settlement         -          -            -            -             550      
costs
Net operating      25,641     25,197       25,626       50,838        53,906   
expenses
Operating          7,879      (1,544 )     10,315       6,335         15,795
income (loss)
Non-operating
income
(expense):
Gain on sale
of previously
impaired           -          -            -            -             2,729
auction rate
securities
Interest and
other income       91         (150   )     (406   )     (59     )     (543    )
(expense), net
Total
non-operating      91         (150   )     (406   )     (59     )     2,186    
income
(expense)
Income (loss)
before income      7,970      (1,694 )     9,909        6,276         17,981
taxes
Provision for
(benefit from)     2,759      (750   )     1,372        2,009         3,531    
income taxes
Net income       $ 5,211    $ (944   )   $ 8,537      $ 4,267       $ 14,450   
(loss)
                                                                     
Net income
(loss) per       $ 0.18     $ (0.03  )   $ 0.30       $ 0.15        $ 0.51     
share - basic
                                                                     
Net income
(loss) per       $ 0.17     $ (0.03  )   $ 0.29       $ 0.14        $ 0.49     
share -
diluted

Electro Scientific Industries, Inc.
                                                                 
Second Quarter Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)
                                                                   
Financial Position As Of:           Sep 29, 2012   Jun 30, 2012   Mar 31, 2012
                                                                   
Assets
Current assets:
  Cash and cash equivalents         $   70,956     $   84,316     $   69,780
  Restricted cash                       22,269         22,269         22,269
  Short-term investments                101,700        100,601        106,674
  Trade receivables, net                58,371         28,110         32,744
  Inventories                           79,318         70,492         68,055
  Shipped systems pending               262            357            1,360
  acceptance
  Deferred income taxes, net            9,046          9,950          10,021
  Other current assets                  4,539          4,480          4,060
  Total current assets                  346,461        320,575        314,963
                                                                   
Non-current investments                 10,508         12,994         23,046
Property, plant and equipment,          30,937         31,030         32,103
net
Non-current deferred income             34,686         38,141         36,489
taxes, net
Goodwill                                7,889          8,150          4,014
Acquired intangible assets, net         12,714         13,526         8,332
Other assets                            16,451         14,993         14,263
  Total assets                      $   459,646    $   439,409    $   433,210
                                                                   
Liabilities and shareholders'
equity
Current liabilities:
  Accounts payable                  $   30,559     $   18,466     $   13,045
  Accrued liabilities                   27,824         22,838         21,635
  Deferred revenue                      9,456          10,676         10,751
  Total current liabilities             67,839         51,980         45,431
                                                                   
Non-current income taxes payable        9,335          9,414          9,109
                                                                   
Shareholders' equity:
  Preferred and common stock            172,064        170,557        168,143
  Retained earnings                     209,615        206,746        210,021
  Accumulated other comprehensive       793            712            506
  income
  Total shareholders' equity            382,472        378,015        378,670
  Total liabilities and             $   459,646    $   439,409    $   433,210
  shareholders' equity
                                                                   
                                                                   
End of period shares outstanding        29,391         29,263         28,970

Electro Scientific Industries, Inc.
                                                                         
Analysis of Second Quarter Fiscal 2013 Results
(Dollars and shares in thousands)
(Unaudited)
                                                                           
                                                                           
                    Fiscal quarter ended                    Two fiscal quarters ended
                    Sep 29,      Jun 30,       Oct 1,       Sep 29,       Oct 1, 2011
                    2012         2012          2011         2012
Sales detail:
                                                                           
  Interconnect &
  Microfabrication  $ 69,137     $ 47,832      $ 51,227     $ 116,969     $ 99,439
  Group
                                                                           
  Components Group    7,831        7,705         6,486        15,536        17,295
                                                                           
  Semiconductor       3,184        3,432         24,171       6,616         42,196   
  Group
                                                                           
  Total             $ 80,152     $ 58,969      $ 81,884     $ 139,121     $ 158,930  
                                                                           
                                                                           
                                                                           
                                                                           
Gross margin %        42     %     40     %      44     %     41      %     44      %
                                                                           
Selling, service
and administration    19     %     27     %      18     %     22      %     20      %
expense %
                                                                           
Research,
development and       13     %     16     %      13     %     14      %     14      %
engineering expense
%
                                                                           
Operating income      10     %     (3     %)     13     %     5       %     10      %
(loss) %
                                                                           
Effective tax rate    35     %     44     %      14     %     32      %     20      %
%
                                                                           
Weighted average
shares outstanding    29,339       29,116        28,747       29,228        28,609
- basic
                                                                           
Weighted average
shares outstanding    29,961       29,116        29,426       29,912        29,326
- diluted
                                                                           
End of period         679          651           683          679           683
employees

Electro Scientific Industries, Inc.
                                                                     
Second Quarter Fiscal 2013 Results
(In thousands, except per share data)
(Unaudited)
                                                                       
Reconciliation of GAAP to Non-GAAP Financial Measures:
                 Fiscal quarter ended                   Two fiscal quarters ended
                 Sep 29,      Jun 30,      Oct 1,       Sep 29,       Oct 1, 2011
                 2012         2012         2011         2012
                                                                       
Net sales        $ 80,152     $ 58,969     $ 81,884     $ 139,121     $ 158,930
                                                                       
Gross profit     $ 33,520     $ 23,653     $ 35,941     $ 57,173      $ 69,701
per GAAP
Add back:
Purchase
accounting         545          337          289          882           578
included in
cost of sales
Equity
compensation       217          216          261          433           557      
included in
cost of sales
Total non-GAAP
adjustments to     762          553          550          1,315         1,135    
gross profit
Non-GAAP gross   $ 34,282     $ 24,206     $ 36,491     $ 58,488      $ 70,836   
profit
Non-GAAP gross     42.8   %     41.0   %     44.6   %     42.0    %     44.6    %
margin
                                                                       
Operating
expenses per     $ 25,641     $ 25,197     $ 25,626     $ 50,838      $ 53,906
GAAP
Less:
Purchase
accounting
included in
operating
expenses:
Selling,
service and        82           73           72           155           186
administration
Research,
development        47           47           47           94            94       
and
engineering
Subtotal -
purchase
accounting         129          120          119          249           280      
included in
operating
expenses
Equity
compensation
included in
operating
expenses:
Selling,
service and        1,017        2,261        1,599        3,278         5,537
administration
Research,
development        666          500          537          1,166         1,083    
and
engineering
Subtotal -
equity
compensation       1,683        2,761        2,136        4,444         6,620    
included in
operating
expenses
Acquisition
and
integration
costs included
in operating
expenses:
Selling,
service and        70           789          -            859           -        
administration
Subtotal -
acquisition
and
integration        70           789          -            859           -        
costs included
in operating
expenses
Other items
excluded from
operating
expenses:
Legal
settlement         -            -            -            -             550      
costs
Subtotal -
other items
excluded from      -            -            -            -             550      
operating
expenses
Total non-GAAP
adjustments to     1,882        3,670        2,255        5,552         7,450    
operating
expenses
Non-GAAP
operating        $ 23,759     $ 21,527     $ 23,371     $ 45,286      $ 46,456   
expenses
% of Net sales     30     %     37     %     29     %     33      %     29      %
                                                                       
Operating
income (loss)    $ 7,879      $ (1,544 )   $ 10,315     $ 6,335       $ 15,795
per GAAP
Non-GAAP
adjustments to     762          553          550          1,315         1,135
gross profit
Non-GAAP
adjustments to     1,882        3,670        2,255        5,552         7,450    
operating
expenses
Non-GAAP
operating        $ 10,523     $ 2,679      $ 13,120     $ 13,202      $ 24,380   
income
% of Net sales     13     %     5      %     16     %     9       %     15      %
                                                                       
Non-operating
income           $ 91         $ (150   )   $ (406   )   $ (59     )   $ 2,186
(expense), net
per GAAP
Non-GAAP
adjustment for
gain on sale
of previously      -            -            -            -             (2,729  )
impaired
auction rate
securities
Non-GAAP
adjustment for
other              -            -            -            -             59       
litigation
related costs
Non-GAAP
non-operating    $ 91         $ (150   )   $ (406   )   $ (59     )   $ (484    )
income
(expense)
                                                                       
Net income
(loss) per       $ 5,211      $ (944   )   $ 8,537      $ 4,267       $ 14,450
GAAP
Non-GAAP
adjustments to     762          553          550          1,315         1,135
gross profit
Non-GAAP
adjustments to     1,882        3,670        2,255        5,552         7,450
operating
expenses
Non-GAAP
adjustments to     -            -            -            -             (2,670  )
non-operating
expense
Income tax
effect of          (848   )     (1,411 )     (2,002 )     (2,259  )     (3,166  )
non-GAAP
adjustments
Non-GAAP net     $ 7,007      $ 1,868      $ 9,340      $ 8,875       $ 17,199   
income
% of Net sales     9      %     3      %     11     %     6       %     11      %
                                                                       
Basic Non-GAAP
net income per   $ 0.24       $ 0.06       $ 0.32       $ 0.30        $ 0.60     
share
                                                                       
Diluted
Non-GAAP net     $ 0.23       $ 0.06       $ 0.32       $ 0.30        $ 0.59     
income per
share

Electro Scientific Industries, Inc.
                                                                   
Second Quarter Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)
                                                                     
Consolidated Condensed Statements of Cash Flows:
              Fiscal quarter ended                     Two fiscal quarters
                                                       ended
              Sep 29,       Jun 30,      Oct 1, 2011   Sep 29,      Oct 1, 2011
              2012          2012                       2012
                                                                     
Net income    $ 5,211       $ (944   )   $ 8,537       $ 4,267      $ 14,450
(loss)
Non-cash
adjustments
and changes     (16,413 )     12,296       17,867        (4,117 )     1,086    
in
operating
activities
NET CASH
(USED IN)
PROVIDED BY     (11,202 )     11,352       26,404        150          15,536
OPERATING
ACTIVITIES
                                                                     
NET CASH
(USED IN)
PROVIDED BY     (360    )     6,126        (32,233 )     5,766        (50,536 )
INVESTING
ACTIVITIES
                                                                     
NET CASH
(USED IN)
PROVIDED BY     (2,202  )     (2,895 )     1,810         (5,097 )     2,205
FINANCING
ACTIVITIES
                                                                     
Effect of
exchange
rate            404           (47    )     (169    )     357          526
changes on
cash
                                                                     
NET CHANGE
IN CASH AND     (13,360 )     14,536       (4,188  )     1,176        (32,269 )
CASH
EQUIVALENTS
                                                                     
CASH AND
CASH
EQUIVALENTS     84,316        69,780       88,331        69,780       116,412  
AT
BEGINNING
OF PERIOD
                                                                     
CASH AND
CASH
EQUIVALENTS   $ 70,956      $ 84,316     $ 84,143      $ 70,956     $ 84,143   
AT END OF
PERIOD

Contact:

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