ESI Announces Third Quarter Fiscal 2013 Results

  ESI Announces Third Quarter Fiscal 2013 Results

Business Wire

PORTLAND, Ore. -- January 31, 2013

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 third quarter ended
December 29, 2012. Financial measures are provided on both a GAAP and non-GAAP
basis.

Revenue in the third quarter was $37.9 million, compared to $80.2 million in
the second quarter of 2013 and $49.8 million in the third quarter of last
fiscal year. On a GAAP basis, net income was $6.8 million or $0.23 per diluted
share, compared to $5.2 million or $0.17 per diluted share in the prior
quarter and a loss of $1.9 million or $0.07 per share in the third quarter of
fiscal 2012. GAAP income included $15.4 million in pre-tax net settlement
proceeds from patent infringement litigation. On a non-GAAP basis, third
quarter net loss was $1.5 million or $0.05 per share, compared to second
quarter income of $7.0 million or $0.23 per diluted share and income of $0.5
million or $0.02 per diluted share in the third quarter of fiscal 2012.

“Solid execution enabled us to deliver respectable results on significantly
lower revenues in the third quarter,” stated Nick Konidaris, president and CEO
of ESI. “In addition, strong ongoing operating cash flow and successful
settlement of our patent dispute enabled us to declare and pay a $2.00 per
share special dividend to our shareholders while preserving our ability to
grow the company and pursue our strategy.”

Orders were $26.3 million, compared to $35.0 million in the prior quarter.
“Slow capital spending in our core markets, combined with timing of design
wins in laser microfabrication, pushed orders lower in the third quarter,”
continued Konidaris. “Nonetheless, we continue to see an active funnel related
to consumer electronics, and we remain optimistic about our long term
opportunities.”

GAAP gross margin was 34.9%, compared to 41.8% last quarter and included $1.2
million of inventory write-downs related to discontinuing our investment in
LED package test. “Given the extended overcapacity in LED and ongoing
commoditization of package test, we have decided to redirect our investments
into more attractive opportunities,” stated Konidaris. Non-GAAP gross margin
was 39.9% compared to 42.8% in the prior quarter on lower volume.

GAAP operating expenses declined significantly due to the patent settlement
proceeds, a $1.3 million gain on the sale of a building in China, and lower
operational spending. Non-GAAP operating expenses, which exclude the
settlement and building sale proceeds, decreased by $4.7 million due to lower
variable expenses and discretionary expense control. “We were pleased with our
flexible cost structure and our ability to reduce costs quickly on lower
volumes,” continued Konidaris. Non-GAAP operating loss was $3.9 million,
compared to income of $10.5 million in the prior quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments totaled $171 million. The company
generated $27.4 million of operating cash during the quarter. Inventories
increased by $1 million and receivables decreased by $40 million, yielding a
DSO of 45 days. In addition, during the quarter, the company paid a one-time
special dividend of $2.00 per share or $59 million.

Fourth Quarter 2013 Outlook

Based on recent order levels, ESI expects revenues for the fourth quarter of
fiscal 2013 to be roughly flat with the third quarter. Non-GAAP loss per share
is expected to be $0.05 to $0.09.

Konidaris concluded, "We believe last quarter reflected trough demand levels
in most of our markets. While we expect to see order levels improve in our
fourth quarter, the ongoing overcapacity condition and increased volatility in
some of our markets lead us to refocus our investments and lower the cost
structure of the company. Looking forward, we will be concentrating our
efforts on the growing opportunities in laser microfabrication for consumer
electronics, including glass singulation, emerging technologies related to
semiconductor 3D packaging, and leveraging proprietary laser capability. As a
result, we expect to be a leaner, more focused company with increased ability
to weather the cyclicality in our business and deliver profitable 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) or
617-847-3007 (international). The conference ID number is 90492586. A live
audio webcast can be accessed at www.esi.com. Upon completion of the call, an
audio replay will be accessible through February 10, 2013, at 888-286-8010
(domestic) or 617-801-6888 (international), passcode 35054562. 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.
                                        
Third Quarter Fiscal 2013 Results
                                                                     
(In thousands, except per share data)
(Unaudited)
                                                                     
                                                                     
               Fiscal quarter ended                     Three fiscal quarters
                                                        ended
               Dec 29, 2012   Sep 29,       Dec 31,     Dec 29, 2012 Dec 31,
                              2012          2011                     2011
                                                                     
Operating
Results:
Net sales      $ 37,930       $ 80,152      $ 49,807    $ 177,051    $ 208,737
Cost of sales   24,697       46,632      28,646    106,645    117,875 
Gross profit     13,233         33,520        21,161      70,406       90,862
                 35      %      42     %      42     %    40      %    44      %
Operating
expenses:
Selling,
service and      11,696         15,114        13,944      42,473       45,322
administration
Research,
development      8,730          10,527        10,480      28,791       32,456
and
engineering
Legal
settlement       (15,365 )      -             -           (15,365 )    550
(proceeds)
costs, net
(Gain) loss on
sale of          (1,226  )      -             -           (1,226  )    2
property and
equipment, net
Restructuring   -            -           861       -          861     
costs
Net operating   3,835        25,641      25,285    54,673     79,191  
expenses
Operating        9,398          7,879         (4,124 )    15,733       11,671
income (loss)
Non-operating
income
(expense):
Gain on sale
of previously
impaired         -              -             -           -            2,729
auction rate
securities
Interest and
other           (5      )     91          47        (64     )   (496    )
(expense)
income, net
Total
non-operating   (5      )     91          47        (64     )   2,233   
(expense)
income
Income (loss)
before income    9,393          7,970         (4,077 )    15,669       13,904
taxes
Provision for
(benefit from)  2,625        2,759       (2,196 )   4,634      1,335   
income taxes
Net income     $ 6,768       $ 5,211      $ (1,881 )  $ 11,035    $ 12,569  
(loss)
                                                                     
Net income
(loss) per     $ 0.23        $ 0.18       $ (0.07  )  $ 0.38      $ 0.44    
share - basic
                                                                     
Net income
(loss) per     $ 0.23        $ 0.17       $ (0.07  )  $ 0.37      $ 0.43    
share -
diluted
                                                                               

Electro Scientific Industries, Inc.
                                                            
Third Quarter Fiscal 2013 Results
                                                                  
(Amounts in thousands)
(Unaudited)
                                                                  
Financial Position As Of:           Dec 29, 2012   Sep 29, 2012   Mar 31, 2012
                                                                  
Assets
Current assets:
   Cash and cash equivalents        $   47,240     $   70,956     $   69,780
   Restricted cash                      22,269         22,269         22,269
   Short-term investments               95,364         101,700        106,674
   Trade receivables, net               18,614         58,371         32,744
   Inventories                          80,224         79,318         68,055
   Shipped systems pending              359            262            1,360
   acceptance
   Deferred income taxes, net           9,048          9,046          10,021
   Other current assets                4,563         4,539         4,060
   Total current assets                 277,681        346,461        314,963
                                                                  
Non-current investments                 6,253          10,508         23,046
Property, plant and equipment,          30,253         30,937         32,103
net
Non-current deferred income             32,880         34,686         36,489
taxes, net
Goodwill                                7,889          7,889          4,014
Acquired intangible assets, net         12,059         12,714         8,332
Other assets                           14,865        16,451        14,263
   Total assets                     $   381,880    $   459,646    $   433,210
                                                                  
Liabilities and shareholders'
equity
Current liabilities:
   Accounts payable                 $   12,511     $   30,559     $   13,045
   Accrued liabilities                  23,340         27,824         21,635
   Deferred revenue                    6,520         9,456         10,751
   Total current liabilities            42,371         67,839         45,431
                                                                  
Non-current income taxes                9,521          9,335          9,109
payable
                                                                  
Shareholders' equity:
   Preferred and common stock           174,113        172,064        168,143
   Retained earnings                    155,333        209,615        210,021
   Accumulated other                   542           793           506
   comprehensive income
   Total shareholders' equity          329,988       382,472       378,670
   Total liabilities and            $   381,880    $   459,646    $   433,210
   shareholders' equity
                                                                  
                                                                  
End of period shares                   29,497        29,391        28,970
outstanding
                                                                      

Electro Scientific Industries, Inc.
                                                                    
Analysis of Third Quarter Fiscal 2013 Results
                                                                          
(Dollars and shares in thousands)
(Unaudited)
                                                                          
                                                                          
                   Fiscal quarter ended                     Three fiscal quarters
                                                            ended
                   Dec 29,      Sep 29,      Dec 31, 2011   Dec 29,       Dec 31,
                   2012         2012                        2012          2011
                                                                          
Sales detail:
                                                                          
  Interconnect &
  Microfabrication $ 30,537     $ 69,137     $ 35,318       $ 147,506     $ 134,757
  Group
                                                                          
  Components         4,071        7,831        6,054          19,607        23,349
  Group
                                                                          
  Semiconductor     3,322      3,184      8,435        9,938       50,631  
  Group
                                                                          
  Total            $ 37,930    $ 80,152    $ 49,807      $ 177,051    $ 208,737 
                                                                          
                                                                          
                                                                          
                                                                          
Gross margin %       35     %     42     %     42     %       40      %     44      %
                                                                          
Selling, service
and administration   31     %     19     %     28     %       24      %     22      %
expense %
                                                                          
Research,
development and      23     %     13     %     21     %       16      %     16      %
engineering
expense %
                                                                          
Operating income     25     %     10     %     (8     %)      9       %     6       %
(loss) %
                                                                          
Effective tax        28     %     35     %     54     %       30      %     10      %
rate %
                                                                          
Weighted average
shares outstanding   29,434       29,339       28,849         29,296        28,689
- basic
                                                                          
Weighted average
shares outstanding   30,043       29,961       28,849         29,954        29,384
- diluted
                                                                          
End of period        655          679          655            655           655
employees
                                                                                    

Electro Scientific Industries, Inc.
                                                            
Third Quarter Fiscal 2013 Results
                                                                              
(In thousands, except per share data)
(Unaudited)
                                                                              
Reconciliation of GAAP to
Non-GAAP Financial Measures:
                      Fiscal quarter ended                       Three fiscal quarters
                                                                 ended
                      Dec 29, 2012   Sep 29,       Dec 31,       Dec 29, 2012 Dec 31,
                                     2012          2011                       2011
                                                                              
Net sales             $ 37,930       $ 80,152      $ 49,807      $ 177,051    $ 208,737
                                                                              
Gross profit per      $ 13,233       $ 33,520      $ 21,161      $ 70,406     $ 90,862
GAAP
Add back:
    Purchase
    accounting          520            545           289           1,402        867
    included in cost
    of sales
    Equity
    compensation        202            217           302           635          859
    included in cost
    of sales
    Charges for
    inventory
    write-off of       1,168        -           -           1,168      -       
    discontinued
    product
      Total non-GAAP
      adjustments to   1,890        762         591         3,205      1,726   
      gross profit
Non-GAAP gross        $ 15,123      $ 34,282     $ 21,752     $ 73,611    $ 92,588  
profit
Non-GAAP gross         39.9    %     42.8   %     43.7   %     41.6    %   44.4    %
margin
                                                                              
Operating expenses    $ 3,835        $ 25,641      $ 25,285      $ 54,673     $ 79,191
per GAAP
Less:
    Purchase accounting included
    in operating expenses:
      Selling,
      service and       74             82            64            229          250
      administration
      Research,
      development      47           47          47          141        141     
      and
      engineering
      Subtotal -
      purchase
      accounting       121          129         111         370        391     
      included in
      operating
      expenses
    Equity compensation included
    in operating expenses:
      Selling,
      service and       979            1,017         1,557         4,257        7,094
      administration
      Research,
      development      301          666         534         1,467      1,617   
      and
      engineering
      Subtotal -
      equity
      compensation     1,280        1,683       2,091       5,724      8,711   
      included in
      operating
      expenses
    Acquisition and integration costs included
    in operating expenses:
      Selling,
      service and      27           70          -           886        -       
      administration
      Subtotal -
      acquisition and
      integration      27           70          -           886        -       
      costs included
      in operating
      expenses
    Other items
    excluded from
    operating
    expenses:
      Restructuring     -              -             861           -            861
      costs
      Legal
      settlement        (15,365 )      -             -             (15,365 )    550
      (proceeds)
      costs, net
      Gain on sale of
      property and     (1,262  )     -           -           (1,262  )   -       
      equipment, net
      Subtotal -
      other items
      excluded from    (16,627 )     -           861         (16,627 )   1,411   
      operating
      expenses
      Total non-GAAP
      adjustments to   (15,199 )     1,882       3,063       (9,647  )   10,513  
      operating
      expenses
Non-GAAP operating    $ 19,034      $ 23,759     $ 22,222     $ 64,320    $ 68,678  
expenses
% of Net sales          50      %      30     %      45     %      36      %    33      %
                                                                              
Operating income      $ 9,398        $ 7,879       $ (4,124 )    $ 15,733     $ 11,671
(loss) per GAAP
    Non-GAAP
    adjustments to      1,890          762           591           3,205        1,726
    gross profit
    Non-GAAP
    adjustments to     (15,199 )     1,882       3,063       (9,647  )   10,513  
    operating
    expenses
Non-GAAP operating    $ (3,911  )    $ 10,523     $ (470   )    $ 9,291     $ 23,910  
(loss) income
% of Net sales          -10     %      13     %      -1     %      5       %    11      %
                                                                              
Non-operating
(expense) income,     $ (5      )    $ 91          $ 47          $ (64     )  $ 2,233
net per GAAP
    Non-GAAP
    adjustment for
    gain on sale of     -              -             -             -            (2,729  )
    previously
    impaired auction
    rate securities
    Non-GAAP
    adjustment for     -            -           -           -          59      
    other litigation
    related costs
Non-GAAP
non-operating         $ (5      )    $ 91         $ 47         $ (64     )  $ (437    )
(expense) income
                                                                              
Net income (loss)     $ 6,768        $ 5,211       $ (1,881 )    $ 11,035     $ 12,569
per GAAP
    Non-GAAP
    adjustments to      1,890          762           591           3,205        1,726
    gross profit
    Non-GAAP
    adjustments to      (15,199 )      1,882         3,063         (9,647  )    10,513
    operating
    expenses
    Non-GAAP
    adjustments to      -              -             -             -            (2,670  )
    non-operating
    expense
    Income tax
    effect of          5,070        (848   )     (1,269 )     2,811      (4,434  )
    non-GAAP
    adjustments
Non-GAAP net (loss)   $ (1,471  )    $ 7,007      $ 504        $ 7,404     $ 17,704  
income
% of Net sales          -4      %      9      %      1      %      4       %    8       %
                                                                              
Basic Non-GAAP net
(loss) income per     $ (0.05   )    $ 0.24       $ 0.02       $ 0.25      $ 0.62    
share
                                                                              
Diluted Non-GAAP net
(loss) income per     $ (0.05   )    $ 0.23       $ 0.02       $ 0.25      $ 0.60    
share
                                                                                        

Electro Scientific Industries, Inc.
                                                                   
Third Quarter Fiscal 2013 Results
                                                                           
(Amounts in thousands)
(Unaudited)
                                                                           
Consolidated
Condensed
Statements of
Cash Flows:
               Fiscal quarter ended                         Three fiscal quarters
                                                            ended
               Dec 29, 2012   Sep 29, 2012   Dec 31, 2011   Dec 29, 2012   Dec 31,
                                                                           2011
                                                                           
Net
income         $ 6,768        $ 5,211        $ (1,881  )    $ 11,035       $ 12,569
(loss)
Non-cash
adjustments
and changes     20,616       (16,413 )     3,289        16,499       4,375   
in operating
activities
NET CASH
PROVIDED BY
(USED IN)        27,384         (11,202 )      1,408          27,534         16,944
OPERATING
ACTIVITIES
                                                                           
NET CASH
PROVIDED BY
(USED IN)        10,447         (360    )      (18,792 )      16,213         (69,328 )
INVESTING
ACTIVITIES
                                                                           
NET CASH
(USED IN)
PROVIDED BY      (60,482 )      (2,202  )      659            (65,579 )      2,864
FINANCING
ACTIVITIES
                                                                           
Effect
of
exchange         (1,065  )      404            139            (708    )      665
rate
changes
on cash
                                                                       
NET CHANGE IN
CASH AND CASH    (23,716 )      (13,360 )      (16,586 )      (22,540 )      (48,855 )
EQUIVALENTS
                                                                           
CASH AND CASH
EQUIVALENTS     70,956       84,316       84,143       69,780       116,412 
AT BEGINNING
OF PERIOD
                                                                           
CASH AND CASH
EQUIVALENTS    $ 47,240      $ 70,956      $ 67,557      $ 47,240      $ 67,557  
AT END OF
PERIOD

Contact:

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