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ESI Announces Strong First Quarter Fiscal 2019 Results

PORTLAND, Ore., Aug. 01, 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 2019 first quarter ended June 30, 2018. 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.

First quarter revenue was $110.6 million, compared to $72.7 million in the first quarter of last fiscal year. GAAP net income was $31.1 million or $0.87 per diluted share, compared to net income of $2.9 million or $0.08 per diluted share one year ago. On a non-GAAP basis net income was $34.6 million or $0.96 per diluted share, compared to net income of $13.0 million or $0.38 per share in the prior fiscal year's first quarter.

Michael Burger, ESI's president and CEO, stated, "The technology trends toward the need for precision laser processing and component test within the consumer electronics and automotive markets have enabled us to post a strong start to our fiscal year with 52% year on year revenue growth and excellent overall financial performance."

Total orders for the quarter were $82.3 million, compared to $76.6 million one year ago and $111.8 million in the prior quarter. Burger continued, "We have seen a dramatic increase in demand for our MLCC testing tools as many MLCC producers have begun adding manufacturing and testing capacity that partially offset the expected cyclical softness in new demand for flexible circuit laser drills and resulted in an overall 7% year on year order growth."

GAAP gross margin was 48.1%, compared to 36.3% in the first quarter of last fiscal year. Operating expense was $20.2 million, down from $23.0 million last year. Operating income was $33.0 million, or 30% of revenue, compared to income of $3.5 million in last fiscal year's first quarter.

Non-GAAP gross margin was 48.3%, compared to 46.7% one year ago, primarily as a result of significantly higher revenues.  Non-GAAP operating expense decreased year over year from $20.3 million to $18.7 million as a result of the completion of the Company's restructuring activities, and non-GAAP operating income was $34.8 million or 31% of sales.

Balance Sheet and Cash Flow
At quarter end, total cash, restricted cash and current investments increased to $131.0 million. The company generated $9.8 million of cash from operations during the quarter despite sequential increases in inventory and accounts receivable that resulted from the timing of customer shipments.

Second Quarter 2019 Outlook
Based on current market and backlog conditions, revenues for fiscal 2019 second quarter are expected to be between $80 and $90 million. Non-GAAP earnings per diluted share is expected to be $0.52 to $0.62.

Burger concluded, "I’m pleased to see the same technology trends toward connected devices, automotive and 5G that led to strong demand for flex products have now resulted in increased demand for our MLCC test tools, strengthening our belief that overall company demand will remain above historical levels for the foreseeable future."

The company will hold a conference call today at 5:00 p.m. ET. The call will include a review of the financial results, operational performance and business outlook, followed by a question and answer session. The conference call can be accessed by calling 888-419-5570 (domestic participants) or 617-896-9871 (international participants). The conference ID number is 93200917. 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 2019 second quarter, our expectations regarding market and backlog conditions, anticipated technology trends, our belief that overall company demand will remain above historical levels for the foreseeable future, 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.

Contact
Erica Mannion or Michael Funari
Sapphire Investor Relations, LLC
617-542-6180
investorrelations@esi.com


ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
First Quarter Fiscal 2019 Results
Condensed Consolidated Statements of Operations
(Unaudited)

      
 Fiscal quarter ended
(In thousands, except per share data)Jun 30, 2018 Mar 31, 2018 Jul 1, 2017
Net sales:     
Systems$96,857  $103,522  $62,093 
Services13,767  9,871  10,591 
Total net sales110,624  113,393  72,684 
Cost of sales:     
Systems50,094  53,247  41,426 
Services7,332  5,424  4,838 
Total cost of sales57,426  58,671  46,264 
Gross profit53,198  54,722  26,420 
Gross margin48.1% 48.3% 36.3%
Operating expenses:     
Selling, general and administrative10,130  11,128  12,808 
Research, development and engineering10,059  9,038  8,934 
Restructuring costs  (144) 1,211 
Total operating expenses20,189  20,022  22,953 
Operating income33,009  34,700  3,467 
Non-operating income (expense):     
Interest and other income, net452  (283) (184)
Total non-operating income (loss)452  (283) (184)
Income before income taxes33,461  34,417  3,283 
Provision for (benefit from) income taxes2,318  (40,671) 381 
Net income$31,143  $75,088  $2,902 
Net income per share - basic$0.90  $2.19  $0.09 
Net income per share - diluted$0.87  $2.10  $0.08 

Electro Scientific Industries, Inc.
First Quarter Fiscal 2019 Results
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)Jun 30, 2018 Mar 31, 2018
Assets   
Current assets:   
Cash and cash equivalents$74,854  $76,792 
Short-term investments55,026  47,121 
Trade receivables, net80,525  63,044 
Inventories94,265  87,686 
Shipped systems pending acceptance1,937  4,734 
Other current assets (1)5,041  5,493 
Total current assets311,648  284,870 
Non-current assets:   
Property, plant and equipment, net22,870  22,025 
Non-current deferred income taxes, net43,637  43,518 
Goodwill2,626  2,626 
Acquired intangible assets, net4,812  5,169 
Other assets(1)11,110  14,780 
Total assets$396,703  $372,988 
Liabilities and shareholders' equity   
Current liabilities:   
Accounts payable$32,616  $37,354 
Accrued liabilities32,193  34,533 
Deferred revenue9,026  9,818 
Total current liabilities73,835  81,705 
Non-current liabilities   
Long-term debt12,659  12,766 
Income taxes payable2,345  1,901 
Other liabilities10,614  10,258 
Total liabilities99,453  106,630 
Shareholders' equity:   
Preferred and common stock211,766  210,995 
Retained earnings86,000  54,816 
Accumulated other comprehensive (loss) income(516) 547 
Total shareholders' equity297,250  266,358 
Total liabilities and shareholders' equity$396,703  $372,988 
End of period shares outstanding34,525  34,387 

(1) On June 30, 2018, $1.1 million of current restricted cash was included in Other current assets. Included in Other assets as of March 31, 2018, is long-term restricted cash of $1.1 million.


Electro Scientific Industries, Inc.
Analysis of First Quarter Fiscal 2019 Results
(Unaudited)

 Fiscal quarter ended
(Dollars and shares in thousands)Jun 30, 2018Mar 31, 2018Dec 30, 2017Oct 1, 2017Jul 1, 2017
Sales detail:     
Printed Circuit Board$66,337$70,896$76,933$38,187$46,185
Component Test9,4058,4016,5047,0077,448
Semiconductor18,77722,36210,6649,6415,181
Industrial Machining2,3381,8635,3175,4813,279
Service13,7679,87111,42210,65110,591
Net Sales$110,624$113,393$110,840$70,967$72,684


As % of Net SalesFiscal quarter ended
GAAPJun 30, 2018 Mar 31, 2018 Jul 1, 2017
Gross profit48.1% 48.3% 36.3%
Selling, general and administrative expense9% 10% 18%
Research, development and engineering expense9% 8% 12%
Total operating expenses18% 18% 32%
Operating income30% 31% 5%
Non-GAAP     
Gross profit48.3% 49.2% 46.7%
Net operating expenses17% 17% 28%
Operating income31% 33% 19%
      
GAAP - Effective tax rate %6.9% (118.2%) 11.6%
Weighted average shares outstanding     
Basic34,459 34,350 33,432
Diluted GAAP35,924 35,830 34,321
Diluted Non-GAAP35,924 35,830 34,321
End of period employees634 615 607
      
      


Reconciliation of Cash and InvestmentsFiscal quarter ended
 Jun 30, 2018 Mar 31, 2018
Cash$25,808 $ 58,817
Cash equivalents49,046   17,975
Current restricted cash1,097   —
Long-term restricted cash  —   1,093
Cash, cash equivalents, and restricted cash at end of period  75,951   77,885
Short-term investments  55,026   47,121
Cash, restricted cash and current investments$ 130,977 $ 125,006
    


Electro Scientific Industries, Inc.
First Quarter Fiscal 2019 Results
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

 Fiscal quarter ended 
(In thousands, except per share data)Jun 30, 2018  Mar 31, 2018  Jul 1, 2017 
Gross profit per GAAP$53,198  $54,722  $26,420 
Purchase accounting243  242  251 
Equity compensation106  69  67 
Charges for other asset and inventory impairment  277  7,194 
Charges from VAT audit(97) 521   
Non-GAAP gross profit$53,450  $55,831  $33,932 
      
Operating expenses per GAAP$20,189  $20,022  $22,953 
Purchase accounting(114) (114) (219)
Equity compensation(1,393) (1,223) (1,211)
Restructuring costs  144  (1,211)
Non-GAAP operating expenses$18,682  $18,829  $20,312 
      
Operating income per GAAP$33,009  $34,700  $3,467 
Non-GAAP adjustments to gross profit252  1,109  7,512 
Non-GAAP adjustments to operating expenses1,507  1,193  2,641 
Non-GAAP operating income$34,768  $37,002  $13,620 
      
Non-operating income (expense), net per GAAP$452  $(283) $(184)
(Income) expense, on charges from VAT audit, Gain on asset sale, net of other non-operating expense (income)(49) 336   
Non-GAAP non-operating income
(expense)
$403  $53  $(184)
Non-GAAP income before income taxes$35,171  $37,055  $13,436 
      
Net income per GAAP$31,143  $75,088  $2,902 
Non-GAAP adjustments to gross profit252  1,109  7,512 
Non-GAAP adjustments to operating expenses1,507  1,193  2,641 
Non-GAAP adjustments to non-operating expense(49) 336   
Income tax effect of other non-GAAP adjustments1,734  (41,225) (24)
Non-GAAP net income$34,587  $36,501  $13,031 
Basic Non-GAAP net income per share$1.00  $1.06  $0.39 
Diluted Non-GAAP net income per share$0.96  $1.02  $0.38 

Electro Scientific Industries, Inc.
First Quarter Fiscal 2019 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 Fiscal quarter ended 
(In thousands)Jun 30, 2018  Mar 31, 2018  Jul 1, 2017 
Net income$31,143  $75,088  $2,902 
Non-cash adjustments and changes in operating activities(21,374) (48,457) 4,529 
Net cash provided by operating activities9,769  26,631  7,431 
Net cash (used in) investing activities(9,916) (10,993) (4,789)
Net cash used in financing activities(840) (1,739) (506)
Effect of exchange rate changes on cash(947) 648  135 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(1,934) 14,547  2,271 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD77,885  63,338  57,732 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$75,951  $77,885  $60,003 


Reconciliation of GAAP to Non-GAAP Financial Measures - ProjectedFiscal quarter ending
September 29, 2018
  
Non-GAAP earnings per diluted share0.52 - 0.62
Purchase accounting(0.02)
Equity compensation(0.05)
Other items(0.10)
GAAP earnings per diluted share0.35 - 0.45


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