ESI Announces Fourth Quarter Fiscal 2013 Results

ESI Announces Fourth Quarter Fiscal 2013 Results

Orders Increase Sequentially

PORTLAND, Ore.--(BUSINESS WIRE)-- Electro Scientific Industries, Inc. (NAS: 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 March 30, 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, 2012

Mar 31, 2012

Mar 30, 2013

Mar 31, 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 administration

13,578

11,696

13,231

56,051

58,555

Research, development and engineering

8,405

8,730

10,184

37,196

42,640

Restructuring costs

2,612

2,924

2,612

3,785

(Gain) loss on sale of property and equipment, net

(1,226

)

966

(1,226

)

966

Legal settlement costs (proceeds), net

103

(15,365

)

(15,262

)

550

Net operating expenses

24,698

3,835

27,305

79,371

106,496

Operating (loss) income

(30,851

)

9,398

(10,476

)

(15,118

)

1,195

Non-operating income (expense):

Gain on sale of previously impaired auction rate securities

2,729

Interest and other income (expense), net

317

(5

)

59

253

(437

)

Total non-operating income

317

(5

)

59

253

2,292

(Loss) income before income taxes

(30,534

)

9,393

(10,417

)

(14,865

)

3,487

Provision for (benefit from) income taxes

35,217

2,625

(2,752

)

39,851

(1,417

)

Net (loss) income

$

(65,751

)

$

6,768

$

(7,665

)

$

(54,716

)

$

4,904

Net (loss) income per share—basic

$

(2.23

)

$

0.23

$

(0.26

)

$

(1.86

)

$

0.17

Net (loss) income per share—diluted

$

(2.23

)

$

0.23

$

(0.26

)

$

(1.86

)

$

0.17

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 acceptance

1,007

359

1,360

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, net

27,894

30,253

32,103

Non-current deferred income taxes, net

3,766

32,880

36,489

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 income

283

542

506

Total shareholders' equity

264,142

329,988

378,670

Total liabilities and shareholders' equity

$

322,208

$

381,880

$

433,210

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, 2013

Dec 29, 2012

Mar 31, 2012

Mar 30, 2013

Mar 31, 2012

Sales detail:

Interconnect & Microfabrication Group

$

22,988

$

30,537

$

31,720

$

170,360

$

166,477

Semiconductor Group

8,682

3,322

8,145

18,754

58,776

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 administration expense %

34

%

31

%

29

%

26

%

23

%

Research, development and engineering expense %

21

%

23

%

22

%

17

%

17

%

Operating (loss) income %

(78

%)

25

%