ESI Announces Fourth Quarter Fiscal 2013 Results

  ESI Announces Fourth Quarter Fiscal 2013 Results

                         Orders Increase Sequentially

Business Wire

PORTLAND, Ore. -- May 07, 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 fourth quarter and year
ended March30, 2013. Financial measures are provided on both a GAAP and
non-GAAP basis, which excludes the impact of purchase accounting, equity
compensation, restructuring and valuation allowance charges, and other items.

Revenue in the fourth quarter was $39.6 million, compared to $37.9 million in
the third quarter of 2013 and $45.5 million in the fourth quarter of last
fiscal year. On a GAAP basis, net loss was $65.8 million or $2.23 per share,
compared to net income of $6.8 million or $0.23 per share in the prior
quarter. Fourth quarter results included a $25.7 million charge related to
restructuring and asset write-offs, and a $46.9 million charge related to a
valuation allowance recorded against US deferred tax assets. On a non-GAAP
basis, fourth quarter net loss was $1.0 million or $0.03 per share, compared
to net loss of $1.5 million or $0.05 per diluted share in the third quarter of
fiscal 2013 and loss of $1.9 million or $0.06 per diluted share in the fourth
quarter of fiscal 2012.

“During the quarter we continued to transform the company toward our growth
initiatives in laser microfabrication for smart consumer electronics and
announced a restructuring plan to improve efficiency,” stated Nick Konidaris,
president and CEO of ESI. “The result will be a leaner and more focused
company better able to drive profitable growth.”

Orders for the fourth quarter increased to $44.1 million, compared to $26.3
million in the prior quarter. Konidaris continued, “In addition to increased
demand for our interconnect products, we also received the first orders for
our new DiamondBlaze™ series of glass cutting systems.”

GAAP gross margin reflected the inventory and asset write-offs that were part
of the corporate restructuring program. Non-GAAP gross margin was 42.2%
compared to 39.9% in the prior quarter. Operating expenses were $24.7 million,
well above last quarter due to the restructuring and asset write-off charges
in the fourth quarter and the patent settlement expense credit in the prior
quarter. On a non-GAAP basis operating expenses remained relatively flat
sequentially at $19.4 million. Non-GAAP operating loss was $2.7 million
compared to a loss of $3.9 million in the third quarter.

Full Year Fiscal 2013 Results

Fiscal 2013 revenue was $217 million, down 15% compared to $254 million in
fiscal 2012. On a GAAP basis, fiscal 2013 net loss was $54.7 million or $1.86
per diluted share, compared to net income of $4.9 million or $0.17 per diluted
share in the prior year. On a non-GAAP basis, net income was $6.4 million or
$0.21 per diluted share, compared to net income of $15.9 million or $0.54 per
diluted share in 2012. Konidaris added, “In fiscal 2013 we felt the full
impact of a prolonged slump in capital spending on new capacity for LED,
passive components and memory repair. At the same time, our advanced
microfabrication business remained robust following record levels last year.
Looking to fiscal 2014, we expect our focus on laser microfabrication for
smart consumer electronics to drive revenue and earnings growth.”

Balance Sheet and Cash Flow

At quarter end, cash and investments fell by $13.7 million from the previous
quarter to $157.4 million. The company used $10.4 million in operating cash
during the quarter primarily due to increased receivables on timing of
shipments in the quarter. For the fiscal year, operating cash flow was $17.1
million.

Acquisition of Semiconductor Systems Business from GSI Group

After the quarter ended the company announced it had entered into an agreement
to acquire the Semiconductor Systems business from GSI Group, Inc. The
transaction closed on May 3, 2013, and it brings together two of the
preeminent providers of laser manufacturing systems serving the semiconductor
industry. Konidaris stated, "With complementary capabilities but almost no
product overlap, this acquisition broadens our product portfolio and allows
ESI to provide a more complete set of laser-based manufacturing solutions to
our customers."

First Quarter 2014 Outlook

Based on recent order levels, ESI expects revenues for the first quarter of
fiscal 2014 to be in the mid to high $40 million range including revenues from
the recent acquisition. Non-GAAP earnings per share is expected to be
breakeven to slightly positive.

Konidaris concluded, “ESI is focused on the growth industries of smart
consumer electronics, 3D semiconductor packaging and LED. We continue to
pursue applications within those industries where our expertise in laser
microfabrication can improve our customers' manufacturing yield, add new
capabilities, increase their throughput and lower their cost. And with our
acquisition of GSI's Semiconductor Systems business we have expanded our
offerings and services to our customers. Laser microfabrication is a growing
business, and our mission is to be the leading laser microfabrication company
in the world.”

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 73379529. A live audio webcast can be accessed at www.esi.com. Upon
completion of the call, an audio replay will be accessible through May 17,
2013, at 888-286-8010 (domestic participants) or 617-801-6888 (international
participants), passcode 21331365. 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, revenue, earnings growth 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 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; risks related to the
integration of the Semiconductor Systems business acquired from GSI Group,
Inc.; 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.
Fourth Quarter and Fiscal 2013 Results
(In thousands, except per share data)
(Unaudited)

Operating                                                       
Results:
                 Fiscal quarter ended                     Fiscal year ended
                 Mar 30, 2013  Dec 29,      Mar 31,      Mar 30,      Mar 31,
                                2012          2012         2013          2012
Net sales        $ 39,574       $ 37,930      $ 45,492     $ 216,625     $ 254,229
Cost of sales     45,727       24,697     28,663       152,372     146,538 
Gross profit       (6,153  )      13,233      16,829         64,253        107,691
                   (16     %)     35      %   37       %     30      %     42      %
Operating
expenses:
Selling,
service and        13,578         11,696      13,231         56,051        58,555
administration
Research,
development        8,405          8,730       10,184         37,196        42,640
and
engineering
Restructuring      2,612          —           2,924          2,612         3,785
costs
(Gain) loss on
sale of            —              (1,226  )   966            (1,226  )     966
property and
equipment, net
Legal
settlement
costs             103          (15,365 )   —            (15,262 )    550     
(proceeds),
net
Net operating     24,698       3,835      27,305       79,371      106,496 
expenses
Operating          (30,851 )      9,398       (10,476  )     (15,118 )     1,195
(loss) income
Non-operating
income
(expense):
Gain on sale
of previously
impaired           —              —           —              —             2,729
auction rate
securities
Interest and
other income      317          (5      )   59           253         (437    )
(expense), net
Total
non-operating      317            (5      )   59             253           2,292
income
(Loss) income
before income      (30,534 )      9,393       (10,417  )     (14,865 )     3,487
taxes
Provision for
(benefit from)    35,217       2,625      (2,752   )    39,851      (1,417  )
income taxes
Net (loss)       $ (65,751 )    $ 6,768      $ (7,665 )   $ (54,716 )   $ 4,904   
income
Net (loss)
income per       $ (2.23   )    $ 0.23       $ (0.26  )   $ (1.86   )   $ 0.17    
share—basic
Net (loss)
income per       $ (2.23   )    $ 0.23       $ (0.26  )   $ (1.86   )   $ 0.17    
share—diluted


Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)

Financial Position As Of:                                     
                                    Mar 30, 2013   Dec 29, 2012   Mar 31, 2012
Assets
Current assets:
Cash and cash equivalents           $  88,913      $  47,240      $   69,780
Restricted cash                     —              22,269         22,269
Short-term investments              56,144         95,364         106,674
Trade receivables, net              31,779         18,614         32,744
Inventories                         63,067         80,224         68,055
Shipped systems pending             1,007          359            1,360
acceptance
Deferred income taxes, net          1,682          9,048          10,021
Other current assets                3,898         4,563         4,060
Total current assets                246,490        277,681        314,963
Non-current assets:
Non-current investments             12,329         6,253          23,046
Property, plant and equipment,      27,894         30,253         32,103
net
Non-current deferred income         3,766          32,880         36,489
taxes, net
Goodwill                            7,889          7,889          4,014
Acquired intangible assets, net     9,088          12,059         8,332
Other assets                        14,752        14,865        14,263
Total assets                        $  322,208    $  381,880    $   433,210
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable                    $  16,958      $  12,511      $   13,045
Accrued liabilities                 24,930         23,340         21,635
Deferred revenue                    10,196        6,520         10,751
Total current liabilities           52,084         42,371         45,431
Non-current income taxes payable    5,982          9,521          9,109
Shareholders' equity:
Preferred and common stock          176,631        174,113        168,143
Retained earnings                   87,228         155,333        210,021
Accumulated other comprehensive     283           542           506
income
Total shareholders' equity          264,142       329,988       378,670
Total liabilities and               $  322,208    $  381,880    $   433,210
shareholders' equity
End of period shares outstanding    29,583        29,497        28,970


Electro Scientific Industries, Inc.
Analysis of Fourth Quarter and Fiscal 2013 Results
(Dollars and shares in thousands)
(Unaudited)

                  Fiscal quarter ended                    Fiscal year ended
                   Mar 30,      Dec 29,     Mar 31,      Mar 30, 2013  Mar 31, 2012
                   2013          2012         2012
Sales detail:
Interconnect &
Microfabrication   $ 22,988      $ 30,537     $ 31,720      $ 170,360      $ 166,477
Group
Semiconductor      8,682         3,322        8,145         18,754         58,776
Group
Components Group   7,904        4,071       5,627        27,511        28,976    
Total              $ 39,574      $ 37,930     $ 45,492      $ 216,625      $ 254,229
                                                                           
Gross margin %     (16      %)   35       %   37       %    30        %    42        %
Selling, service
and                34       %    31       %   29       %    26        %    23        %
administration
expense %
Research,
development and    21       %    23       %   22       %    17        %    17        %
engineering
expense %
Operating (loss)   (78      %)   25       %   (23      %)   (7        %)   0         %
income %
Effective tax      (115     %)   28       %   26       %    (268      %)   (41       %)
rate %
Weighted average
shares             29,540        29,434       28,931        29,357         28,749
outstanding -
basic
Weighted average
shares             29,540        30,043       28,931        29,357         29,461
outstanding -
diluted
End of period      579           655          627           579            627
employees


Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2013 Results
(In thousands, except per share data)
(Unaudited)

Reconciliation of GAAP to Non-GAAP                                     
Financial Measures:
                Fiscal quarter ended                       Fiscal year ended
                 Mar 30, 2013  Dec 29,       Mar 31, 2012   Mar 30,       Mar 31,
                                2012                         2013          2012
Net sales        $ 39,574       $ 37,930      $ 45,492       $ 216,625     $ 254,229
Gross profit     $ (6,153  )    $ 13,233      $ 16,829       $ 64,253      $ 107,691
per GAAP
Add back:
Purchase
accounting       489            520           289            1,891         1,156
included in
cost of sales
Equity
compensation     263            202           259            898           1,118
included in
cost of sales
Charges for
inventory
write-off of     19,765         1,168         1,982          20,933        1,982
discontinued
product
Charges for
intangibles
write-off of     2,347        —           —            2,347       —         
discontinued
product
Total non-GAAP
adjustments to   22,864        1,890        2,530         26,069       4,256     
gross profit
Non-GAAP gross   $ 16,711      $ 15,123     $ 19,359      $ 90,322     $ 111,947 
profit
Non-GAAP gross   42.2      %    39.9     %    42.6      %    41.7      %   44.0      %
margin
Operating
expenses per     $ 24,698       $ 3,835       $ 27,305       $ 79,371      $ 106,496
GAAP
Less:
Purchase
accounting
included in
operating
expenses:
Selling,
service and      76             74            64             305           314
administration
Research,
development      47            47           47            188          188       
and
engineering
Subtotal -
purchase
accounting       123           121          111           493          502       
included in
operating
expenses
Equity
compensation
included in
operating
expenses:
Selling,
service and      1,073          979           1,150          5,330         8,244
administration
Research,
development      393           301          496           1,860        2,113     
and
engineering
Subtotal -
equity
compensation     1,466         1,280        1,646         7,190        10,357    
included in
operating
expenses
Acquisition
and
integration
costs included
in operating
expenses:
Selling,
service and      —             27           —             886          —         
administration
Subtotal -
acquisition
and
integration      —             27           —             886          —         
costs included
in operating
expenses
Other items
excluded from
operating
expenses:
Restructuring    2,612          —             2,924          2,612         3,785
costs
Legal
settlement
costs            103            (15,365  )    —              (15,262   )   550
(proceeds),
net
(Gain) loss on
sale of          —              (1,262   )    966            (1,262    )   966
property and
equipment, net
Charges for
asset            1,006          —             —              1,006         —
write-off
Charges for
engineering      —             —            199           —            199       
material
write-off
Subtotal -
other items
excluded from    3,721         (16,627  )    4,089         (12,906   )   5,500     
operating
expenses
Total non-GAAP
adjustments to   5,310         (15,199  )    5,846         (4,337    )   16,359    
operating
expenses
Non-GAAP
operating        $ 19,388      $ 19,034     $ 21,459     $ 83,708     $ 90,137  
expenses
% of Net sales   49        %    50       %    47        %    39        %   35        %
Operating
(loss) income    $ (30,851 )    $ 9,398       $ (10,476 )    $ (15,118 )   $ 1,195
per GAAP
Non-GAAP
adjustments to   22,864         1,890         2,530          26,069        4,256
gross profit
Non-GAAP
adjustments to   5,310         (15,199  )    5,846         (4,337    )   16,359    
operating
expenses
Non-GAAP
operating        $ (2,677  )    $ (3,911 )    $ (2,100  )    $ 6,614      $ 21,810  
(loss) income
% of Net sales   (7        %)   (10      %)   (5        %)   3         %   9         %
Non-operating
income           $ 317          $ (5     )    $ 59           $ 253         $ 2,292
(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    $ 317         $ (5     )    $ 59          $ 253        $ (378    )
income
(expense)
Net (loss)
income per       $ (65,751 )    $ 6,768       $ (7,665  )    $ (54,716 )   $ 4,904
GAAP
Non-GAAP
adjustments to   22,864         1,890         2,530          26,069        4,256
gross profit
Non-GAAP
adjustments to   5,310          (15,199  )    5,846          (4,337    )   16,359
operating
expenses
Non-GAAP
adjustments to   —              —             —              —             (2,670    )
non-operating
expense
Income tax
effect of        46,916         —             —              46,916        —
valuation
adjustments
Income tax
effect of        (10,319   )    5,070        (2,565    )    (7,508    )   (6,999    )
other non-GAAP
adjustments
Non-GAAP net     $ (980    )   $ (1,471 )   $ (1,854  )   $ 6,424     $ 15,850  
(loss) income
% of Net sales   (2        %)   (4       %)   (4        %)   3         %   6         %
Basic Non-GAAP
net (loss)       $ (0.03   )    $ (0.05  )    $ (0.06   )    $ 0.22       $ 0.55    
income per
share
Diluted
Non-GAAP net     $ (0.03   )    $ (0.05  )    $ (0.06   )    $ 0.21       $ 0.54    
(loss) income
per share


Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2013 Results
(Amounts in thousands)
(Unaudited)
                                                               
Consolidated Condensed Statements of Cash Flows:
             Fiscal quarter ended                   Fiscal year ended
              Mar 30,       Dec 29,      Mar 31,      Mar 30,       Mar 31,
              2013          2012         2012         2013          2012
Net (loss)    $ (65,751 )   $ 6,768      $ (7,665 )   $ (54,716 )   $ 4,904
income
Non-cash
adjustments
and changes   55,324       20,616      5,034       71,823       9,409    
in
operating
activities
NET CASH
(USED IN)
PROVIDED BY   (10,427   )   27,384       (2,631   )   17,107        14,313
OPERATING
ACTIVITIES
NET CASH
PROVIDED BY
(USED IN)     54,534        10,447       6,857        70,747        (62,471  )
INVESTING
ACTIVITIES
NET CASH
(USED IN)
PROVIDED BY   (1,564    )   (60,482  )   (1,622   )   (67,143   )   1,242
FINANCING
ACTIVITIES
Effect of
exchange
rate          (870      )   (1,065   )   (381     )   (1,578    )   284      
changes on
cash
NET CHANGE
IN CASH AND   41,673        (23,716  )   2,223        19,133        (46,632  )
CASH
EQUIVALENTS
CASH AND
CASH
EQUIVALENTS   47,240       70,956      67,557      69,780       116,412  
AT
BEGINNING
OF PERIOD
CASH AND
CASH
EQUIVALENTS   $ 88,913     $ 47,240    $ 69,780    $ 88,913     $ 69,780 
AT END OF
PERIOD

Contact:

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