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ESI Announces Strong Third Quarter Fiscal 2018 Results

PORTLAND, Ore., Jan. 31, 2018 (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 2018 third quarter ended December 30, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis. Non-GAAP results exclude the impact of purchase accounting, equity compensation, restructuring, and other items shown in the non-GAAP reconciliation table below.

Third quarter revenue was $110.8 million, compared to $33.8 million in the third quarter of last fiscal year. GAAP net income was $34.0 million or $0.94 per diluted share, compared to a net loss of $9.7 million or $0.29 per share one year ago. On a non-GAAP basis net income was $35.6 million or $0.99 per diluted share, compared to net loss of $7.6 million or $0.23 per share in the prior year's third quarter.

Michael Burger, ESI's president and CEO, stated, “We delivered another quarter of excellent financial results. I’m particularly proud of the entire ESI team as they demonstrated the power of our highly scalable cost model by shipping a record amount of product, resulting in dramatic increases in revenue and profitability. Our non-GAAP gross margin rate of nearly 49% enabled adjusted operating margin of over 32% and adjusted quarterly earnings of nearly $1.00 per share."

Total orders for the quarter were $134.0 million, compared to $44.1 million one year ago and $128.9 million in the prior quarter. Burger continued, "Bookings more than tripled year over year as increasingly complex consumer electronics have driven an expansion of the flexible circuit content per device, requiring flexible circuit manufacturers to add capacity of our industry-leading laser drilling products."

GAAP gross margin was 48.0%, compared to 33.9% in the third quarter of last year, on significantly higher revenues. Operating expense was $19.9 million, down from $21.5 million last year, as a result of our now-completed cost reduction activities that were partially offset in the quarter by higher volume-related variable expenses. Operating income was $33.2 million, or 30% of revenue, compared to a loss of $10.1 million in last year's third quarter.

Balance Sheet and Cash Flow

At quarter end, total cash, restricted cash and current investments increased to $100.2 million. The company generated $15.1 million of cash from operations during the quarter. Sequentially, and as a result of our increased production and shipment levels, inventories increased by $13.1 million to $74.5 million, and accounts receivable increased by $28.0 million to $75.7 million. Inventory turnover improved to 3.4 times and days sales outstanding remained relatively steady at 62 days.

Fourth Quarter 2018 Outlook

Based on current market and backlog conditions, revenues for the fourth quarter of fiscal 2018 are expected to be between $95 and $110 million. Non-GAAP earnings per diluted share is expected to be $0.75 to $0.95.

Burger concluded, "Similar to other capital equipment providers, our visibility of specific demand levels beyond the first quarter of fiscal 2019 remains limited. That said, we believe the underlying technology trends for our products will drive long-term growth in our targeted markets, and our business model should translate the incremental revenue into leveraged earnings 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 participants) or 617-847-3007 (international participants). The conference ID number is 24885109. A live audio webcast can be accessed at www.esi.com.

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, 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 enables our customers to commercialize technology using precision laser processes. ESI’s solutions produce the industry’s highest quality and throughput, 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

The statements contained in this press release that are not statements of historical fact, including our expected financial results for the fiscal 2018 fourth quarter and fiscal 2019 first quarter, our projections for orders and backlog, anticipated technology trends, the ability of our business model to translate incremental revenue into leveraged earnings growth, and other statements containing the words “believes”, “expects”, “anticipates,” “continue,” “will,” “may,” "should," and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. These forward-looking statements are based on information available to us on the date of this release and we undertake 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 those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as: 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; 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, including as a result of any shipment delays; our ability to respond promptly to customer requirements; the risk, especially at heightened production levels, that we may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; our ability 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; our ability to create and sustain intellectual property protection around our 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 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 of timing of shipments or increased costs related to licenses for goods 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; our 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 2018 Results

Condensed Consolidated Statements of Operations
(Unaudited)

          
 Fiscal quarter ended Three fiscal quarters ended
(In thousands, except per share data)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Net sales:         
Systems$99,418  $60,316  $25,427  $221,827  $85,069 
Services11,422  10,651  8,352  32,664  26,036 
Total net sales110,840  70,967  33,779  254,491  111,105 
Cost of sales:         
Systems52,502  38,179  17,283  132,107  53,851 
Services5,182  6,256  5,048  16,276  14,018 
Total cost of sales57,684  44,435  22,331  148,383  67,869 
Gross profit53,156  26,532  11,448  106,108  43,236 
Gross margin48.0% 37.4% 33.9% 41.7% 38.9%
Operating expenses:         
Selling, general and administrative11,040  11,648  13,280  35,496  38,917 
Research, development and engineering8,165  8,274  7,868  25,373  23,258 
Restructuring costs706  2,162  321  4,079  321 
Acquisition and integration costs—  —  31  —  366 
Total operating expenses19,911  22,084  21,500  64,948  62,862 
Operating income (loss)33,245  4,448  (10,052) 41,160  (19,626)
Non-operating income (expense):         
Interest and other income (expense), net789  (229) 34  376  162 
Total non-operating income (expense)789  (229) 34  376  162 
Income (loss) before income taxes34,034  4,219  (10,018) 41,536  (19,464)
(Benefit from) provision for income taxes61  (41) (325) 401  22 
Net income (loss)$33,973  $4,260  $(9,693) $41,135  $(19,486)
Net income (loss) per share - basic$0.99  $0.13  $(0.29) $1.22  $(0.60)
Net income (loss) per share - diluted$0.94  $0.12  $(0.29) $1.16  $(0.60)
                    

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2018 Results

Condensed Consolidated Balance Sheets
(Unaudited)

      
(In thousands)Dec 30, 2017 Sep 30, 2017 Apr 1, 2017
Assets     
Current assets:     
Cash and cash equivalents$62,251  $47,973  $56,642 
Short-term investments36,824  32,802  5,743 
Trade receivables, net75,674  47,565  40,494 
Inventories74,502  61,423  58,942 
Shipped systems pending acceptance5,780  7,765  5,713 
Other current assets5,116  5,309  6,180 
Total current assets260,147  202,837  173,714 
Non-current assets:     
Property, plant and equipment, net19,732  18,874  21,619 
Goodwill2,626  2,626  3,027 
Acquired intangible assets, net5,525  5,883  6,564 
Income taxes receivable935  —  — 
Other assets(1)17,339  17,819  19,821 
Total assets$306,304  $248,039  $224,745 
Liabilities and shareholders' equity     
Current liabilities:     
Accounts payable$38,577  $24,378  $21,213 
Accrued liabilities40,391  32,050  22,186 
Deferred revenue11,982  15,782  14,712 
Total current liabilities90,950  72,210  58,111 
Non-current liabilities     
Long-term debt12,875  12,982  13,489 
Income taxes payable1,587  1,285  1,036 
Other liabilities10,085  7,956  7,578 
Total liabilities115,497  94,433  80,214 
Shareholders' equity:     
Preferred and common stock211,330  208,670  207,152 
Accumulated deficit(20,273) (54,246) (61,407)
Accumulated other comprehensive loss(250) (818) (1,214)
Total shareholders' equity190,807  153,606  144,531 
Total liabilities and shareholders' equity$306,304  $248,039  $224,745 
End of period shares outstanding34,309  34,067  33,260 
         
(1) Included in Other assets is long-term restricted cash of $1.1 million each on Dec 30, 2017, Sep 30, 2017 and Apr 1, 2017.
         

Electro Scientific Industries, Inc.

Analysis of Third Quarter Fiscal 2018 Results 

(Unaudited)

    
 Fiscal quarter ended Three fiscal quarters ended
(Dollars and shares in thousands)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Sales detail:         
Printed Circuit Board$83,799  $43,541  $15,987  $179,658  $60,432 
Component Test7,473  7,677  5,407  23,331  14,999 
Semiconductor12,351  12,028  6,690  31,116  21,521 
Industrial Machining7,217  7,721  5,695  20,386  14,153 
Net Sales$110,840  $70,967  $33,779  $254,491  $111,105 
          
As % of Net Sales         
GAAP         
Gross profit48.0% 37.4% 33.9% 41.7% 38.9%
Selling, general and administrative expense10% 16% 39% 14% 35%
Research, development and engineering expense7% 12% 23% 10% 21%
Total operating expenses18% 31% 64% 26% 57%
Operating income (loss)30% 6% (30%) 16% (18%)
Non-GAAP         
Gross profit48.9% 46.4% 34.5% 47.6% 40.7%
Net operating expenses17% 26% 57% 23% 51%
Operating income (loss)32% 20% (23%) 25% (11%)
          
GAAP - Effective tax rate %0.2% (1.0%) 3.2% 1.0% (0.1%)
Weighted average shares outstanding         
Basic34,224  33,861  32,919  33,839  32,379 
Diluted GAAP36,010  34,874  32,919  35,562  32,379 
Diluted Non-GAAP36,010  34,874  32,919  35,562  32,379 
End of period employees595  594  716  595  716 
          
Reconciliation of Cash and Investments         
   Dec 30, 2017 Sep 30, 2017 Apr 1, 2017 Dec 31, 2016
Cash  33,565  29,998  29,302  30,325 
Cash equivalents  28,686  17,975  27,340  14,566 
Restricted cash  1,087  1,098  1,090  — 
Cash, cash equivalents, and restricted cash at end of period 63,338  49,071  57,732  44,891 
Short-term investments  36,824  32,802  5,743  6,301 
Cash, restricted cash and current investments 100,162  81,873  63,475  51,192 
             

Electro Scientific Industries, Inc.
Third Quarter Fiscal 2018 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)

    
 Fiscal quarter ended Three fiscal quarters ended
(In thousands, except per share data)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Gross profit per GAAP$53,156  $26,532  $11,448  $106,108  $43,236 
Purchase accounting242  242  229  735  686 
Equity compensation64  77  142  208  398 
Charges for other asset and inventory impairment—  6,083  (170) 13,277  946 
Charges from VAT audit777  —  —  777  — 
Non-GAAP gross profit$54,239  $32,934  $11,649  $121,105  $45,266 
          
Operating expenses per GAAP$19,911  $22,084  $21,500  $64,948  $62,862 
Purchase accounting(116) (117) (210) (452) (663)
Equity compensation(649) (1,253) (1,674) (3,113) (4,227)
Impairment of assets—  —  54  —  (46)
Acquisition and integration costs—  —  (31) —  (366)
Restructuring costs(706) (2,162) (321) (4,079) (372)
Non-GAAP operating expenses$18,440  $18,552  $19,318  $57,304  $57,188 
          
Operating income (loss) per GAAP$33,245  $4,448  $(10,052) $41,160  $(19,626)
Non-GAAP adjustments to gross profit1,083  6,402  201  14,997  2,030 
Non-GAAP adjustments to operating expenses1,471  3,532  2,182  7,644  5,674 
Non-GAAP operating income (loss)$35,799  $14,382  $(7,669) $63,801  $(11,922)
          
Non-operating income (expense), net per GAAP$789  $(229) $34  $376  $162 
Gain on asset sale net of other non-operating expenses(687) —  —  (687) — 
Acquisition-related adjustments—  —  —  —  (190)
Non-GAAP non-operating income
(expense)		$102  $(229) $34  $(311) $(28)
Non-GAAP income (loss) before income taxes$35,901  $14,153  $(7,635) $63,490  $(11,950)
          
Net income (loss) per GAAP$33,973  $4,260  $(9,693) $41,135  $(19,486)
Non-GAAP adjustments to gross profit1,083  6,402  201  14,997  2,030 
Non-GAAP adjustments to operating expenses1,471  3,532  2,182  7,644  5,674 
Non-GAAP adjustments to non-operating expense(687) —  —  (687) (190)
Income tax effect of other non-GAAP adjustments(235) (483) (248) (742) (284)
Non-GAAP net income (loss)$35,605  $13,711  $(7,558) $62,347  $(12,256)
Basic Non-GAAP net income (loss) per share$1.04  $0.40  $(0.23) $1.84  $(0.38)
Diluted Non-GAAP net income (loss) per share$0.99  $0.39  $(0.23) $1.75  $(0.38)
                    

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2018 Results

Condensed Consolidated Statements of Cash Flows
(Unaudited)

    
 Fiscal quarter ended Three fiscal quarters ended
(In thousands)Dec 30, 2017 Sep 30, 2017 Dec 31, 2016 Dec 30, 2017 Dec 31, 2016
Net income (loss)$33,973  $4,260  $(9,693) $41,135  $(19,486)
Non-cash adjustments and changes in operating activities(18,872) 14,005  6,017  (338) 19,787 
Net cash provided by (used in) operating activities15,101  18,265  (3,676) 40,797  301 
Net cash (used in) provided by investing activities(2,974) (28,597) (3,687) (36,360) 2,817 
Net cash provided by (used in) financing activities1,838  (725) 381  607  242 
Effect of exchange rate changes on cash302  125  (812) 562  (882)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH14,267  (10,932) (7,794) 5,606  2,478 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD49,071  60,003  52,685  57,732  42,413 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$63,338  $49,071  $44,891  $63,338  $44,891 
                    


  
Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending
March 31, 2018
  
Non-GAAP earnings per diluted share0.75 - 0.95
Purchase accounting(0.01)
Equity compensation(0.04)
Other items(0.05)
GAAP earnings per diluted share0.65 - 0.85
  

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

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