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ESI Announces Strong First Quarter Fiscal 2019 Results

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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  
Services 13,767     9,871     10,591  
Total net sales 110,624     113,393     72,684  
Cost of sales:          
Systems 50,094     53,247     41,426  
Services 7,332     5,424     4,838  
Total cost of sales 57,426     58,671     46,264  
Gross profit 53,198     54,722     26,420  
Gross margin 48.1 %   48.3 %   36.3 %
Operating expenses:          
Selling, general and administrative 10,130     11,128     12,808  
Research, development and engineering 10,059     9,038     8,934  
Restructuring costs     (144 )   1,211  
Total operating expenses 20,189     20,022     22,953  
Operating income 33,009     34,700     3,467  
Non-operating income (expense):          
Interest and other income, net 452     (283 )   (184 )
Total non-operating income (loss) 452     (283 )   (184 )
Income before income taxes 33,461     34,417     3,283  
Provision for (benefit from) income taxes 2,318     (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 investments 55,026     47,121  
Trade receivables, net 80,525     63,044  
Inventories 94,265     87,686  
Shipped systems pending acceptance 1,937     4,734  
Other current assets (1) 5,041     5,493  
Total current assets 311,648     284,870  
Non-current assets:      
Property, plant and equipment, net 22,870     22,025  
Non-current deferred income taxes, net 43,637     43,518  
Goodwill 2,626     2,626  
Acquired intangible assets, net 4,812     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 liabilities 32,193     34,533  
Deferred revenue 9,026     9,818  
Total current liabilities 73,835     81,705  
Non-current liabilities      
Long-term debt 12,659     12,766  
Income taxes payable 2,345     1,901  
Other liabilities 10,614     10,258  
Total liabilities 99,453     106,630  
Shareholders' equity:      
Preferred and common stock 211,766     210,995  
Retained earnings 86,000     54,816  
Accumulated other comprehensive (loss) income (516 )   547  
Total shareholders' equity 297,250     266,358  
Total liabilities and shareholders' equity $ 396,703     $ 372,988  
End of period shares outstanding 34,525     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, 2018 Mar 31, 2018 Dec 30, 2017 Oct 1, 2017 Jul 1, 2017
Sales detail:          
Printed Circuit Board $ 66,337 $ 70,896 $ 76,933 $ 38,187 $ 46,185
Component Test 9,405 8,401 6,504 7,007 7,448
Semiconductor 18,777 22,362 10,664 9,641 5,181
Industrial Machining 2,338 1,863 5,317 5,481 3,279
Service 13,767 9,871 11,422 10,651 10,591
Net Sales $ 110,624 $ 113,393 $ 110,840 $ 70,967 $ 72,684


As % of Net Sales Fiscal quarter ended
GAAP Jun 30, 2018   Mar 31, 2018   Jul 1, 2017
Gross profit 48.1%   48.3%   36.3%
Selling, general and administrative expense 9%   10%   18%
Research, development and engineering expense 9%   8%   12%
Total operating expenses 18%   18%   32%
Operating income 30%   31%   5%
Non-GAAP          
Gross profit 48.3%   49.2%   46.7%
Net operating expenses 17%   17%   28%
Operating income 31%   33%   19%
           
GAAP - Effective tax rate % 6.9%   (118.2%)   11.6%
Weighted average shares outstanding          
Basic 34,459   34,350   33,432
Diluted GAAP 35,924   35,830   34,321
Diluted Non-GAAP 35,924   35,830   34,321
End of period employees 634   615   607
           
           


Reconciliation of Cash and Investments Fiscal quarter ended
  Jun 30, 2018   Mar 31, 2018
Cash $ 25,808   $  58,817
Cash equivalents 49,046     17,975
Current restricted cash 1,097     —
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 accounting 243     242     251  
Equity compensation 106     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 profit 252     1,109     7,512  
Non-GAAP adjustments to operating expenses 1,507     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 profit 252     1,109     7,512  
Non-GAAP adjustments to operating expenses 1,507     1,193     2,641  
Non-GAAP adjustments to non-operating expense (49 )   336      
Income tax effect of other non-GAAP adjustments 1,734     (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 activities 9,769     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 PERIOD 77,885     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 - Projected Fiscal quarter ending
September 29, 2018
   
Non-GAAP earnings per diluted share 0.52 - 0.62
Purchase accounting (0.02)
Equity compensation (0.05)
Other items (0.10)
GAAP earnings per diluted share 0.35 - 0.45


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