Exhibit 99.1
ESI Announces Third Quarter Results - Reports Fourth Consecutive Quarter of Orders over $70 Million
PORTLAND, Ore.--(BUSINESS WIRE)--Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading provider of world-class photonic and laser micro-engineering systems, today announced results for its fiscal 2008 third quarter, representing the three-month period ended December 29, 2007.
Third quarter sales were $77.3 million, representing a 6% decrease from the second quarter primarily due to the timing of revenue recognition of new products. Operating income for the quarter was $8.2 million, including the impact of $1.0 million of purchase accounting charges related to the purchase of New Wave Research (NWR), which closed during the second quarter of fiscal 2008. Third quarter net income was $6.7 million, or $0.24 per diluted share, including the impact of purchase accounting.
Third quarter orders were $74.6 million, up slightly compared with $74.4 million in the second quarter of 2008. Orders for the third quarter reflected an increase from the prior quarter in the semiconductor group, driven by strong demand for new products in this segment. Passive component orders were down slightly from the prior quarter, although third quarter results were at the second highest quarterly level since 2004. Interconnect and micro-machining orders were down in the third quarter due to the timing of orders for micro-machining applications.
“The third quarter continued our pattern of strong financial results for the company,” noted Nick Konidaris, ESI President and CEO. “ESI reported the highest level of order activity since the fourth quarter of 2004 and the fourth consecutive quarter of orders in excess of $70 million. Shipments and revenue continued strong for the company and included a healthy mix of new products, particularly in the semiconductor and passive component segments. For the third quarter, we recorded the second highest quarterly level of shipments for the company since 2001.”
Gross margin for the third quarter was 46%, including the impact of $0.5 million in purchase accounting charges to cost of goods sold, compared to 45% in the prior quarter, which included $1.1 million in purchase accounting charges. Excluding the impact of purchase accounting, gross margin for the third quarter was 47%, slightly higher than the equivalent adjusted margin of 46% in the second quarter. Third quarter margin improvement was largely due to a favorable shift in product mix for the quarter.
Operating expenses were $27.5 million in the third quarter, including the impact of $0.5 million in purchase accounting charges, compared to $29.3 million in the prior quarter, which included $3.2 million in purchase accounting charges. Excluding the impact of purchase accounting, expenses were up approximately $0.9 million compared to the prior quarter. The sequential increase was due to the inclusion of a full quarter of results from NWR and related integration expenses. Compared to the second quarter of fiscal 2007, third quarter expenses were up $6.3 million, excluding purchase accounting, largely due to the impact of the NWR acquisition and expenses to support higher overall business activity.
Income tax expense for the second quarter was $3.4 million, an effective tax rate of 34%.
Third quarter net income was $6.7 million or $0.24 per diluted share, compared to $5.5 million or $0.19 per diluted share in the second quarter of fiscal 2008. Excluding the impact of purchase accounting, net income was $7.7 million or $0.27 per diluted share, compared to net income of $9.8 million, or $0.34 per diluted share in the prior quarter.
Cash and investments were $182 million, up $3 million from the second quarter. Cash provided from operations was $6 million for the third quarter, and $14 million for the six months ended December 29, 2007.
Accounts receivable were $60 million at the end of the third quarter up $4 million compared to $56 million in the prior quarter. The increase in accounts receivable is primarily the result of shipment timing and the revenue deferral of items shipped during the quarter.
Inventories of $89 million decreased $3 million from the second quarter.
Deferred revenue was $24.8 million, up $5.4 million compared to the second quarter. The increase in deferred revenue resulted primarily from shipments of new products in the semiconductor and passive component segments.
On January 22, 2008, our Board of Directors voted to resume the previous share repurchase program and authorized the repurchase of up to $12.7 million of our outstanding common stock over a six-month period beginning January 29, 2008. The share purchases will be made in either open market or private transactions. The size and timing of these purchases will depend on price, market, business conditions, and other factors.
Konidaris added, “As a result of the slowdown in capital spending in the semiconductor industry for calendar 2008, we expect our shipments and revenue to be approximately $65 to $75 million in the fourth quarter. The gross margin percentage is expected to be approximately 44 percent, reflecting less favorable product mix compared to the third quarter. Excluding the impact of purchase accounting of $0.3 million, margins are estimated at approximately 45 percent. Operating expenses are expected to be approximately flat with the third quarter, including purchase accounting. The effective tax rate is anticipated to be approximately 36% for the fourth quarter. Earnings per share are expected to be approximately $0.08 to $0.15 per diluted share.
“We continue to see tangible results from our strategy of investing in new products and applications for the company. Our diversified portfolio of products has allowed us to better absorb short-term fluctuations between our product segments and provide more consistent results for the company in recent quarters. Although capital spending in our semiconductor industry is likely to be lower in calendar 2008, we remain confident that our investments in new technology and new products will allow us to remain competitive and profitable going forward.”
The company will hold a conference call today at 5:00 p.m. Eastern Time. The session will include a review of the financial results, operational performance, business outlook, and a question and answer period.
The conference call can be accessed by calling 800-374-2470 (domestic participants) or 706-634-5108 (international participants). The conference ID number is 27842655. A live audio Web cast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through February 7, 2008 at 800-642-1687 (domestic participants) or 706-645-9291 (international participants). The audio replay will also be available on the ESI Web site.
Discussion of Non-GAAP Financial Measures
In this press release, we have presented net income amounts which have not been determined in accordance with generally accepted accounting principles (GAAP) and are therefore non-GAAP financial measures. Non-GAAP net income excludes the impact of purchase accounting charges recorded in the quarter and six months ended December 29, 2007. We believe that this presentation of non-GAAP net income provides investors with valuable information regarding the impact of purchase accounting charges on our net income and net income per share, and particularly the impact of non-recurring purchase accounting charges. We have included a reconciliation of non-GAAP net income to net income reported in accordance with GAAP. Because our calculation of non-GAAP net income may differ from similar measures used by other companies, investors should be careful when comparing our non-GAAP net income to that of other companies.
About ESI
ESI is a pioneer and leading supplier of world-class production laser systems that help its microelectronics customers achieve compelling yield and productivity gains. The company’s industry-leading, application-specific products enhance electronic-device performance in three key sectors—semiconductors, components and electronic interconnect—by enabling precision fine-tuning of device micro-features in high-volume manufacturing environments. Founded in 1944, ESI is headquartered in Portland, Ore. More information is available at www.esi.com.
Forward-Looking Statements
This press release includes forward-looking statements concerning the markets we serve, shipments and revenue, gross margins, operating expenses, the impact of the NWR acquisition, non-operating income, and tax rates. Actual results may differ materially from those in the forward-looking statements. Risks and uncertainties that may affect the forward-looking statements include: 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 risk that customer orders may be canceled or delayed; the ability of the company to respond promptly to customer requirements; 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 ability of the company to achieve anticipated cost reductions and savings; 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 successfully integrate NWR; the risk of disruptions to the business of NWR resulting from the acquisition; the company’s ability to create and sustain intellectual property protection around its products; 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. | ||||||||||||||||||||
FY 2008 Results | ||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Operating Results: | Three Months | Six Months | ||||||||||||||||||
Dec. 29, | Dec. 2, | Dec. 29, | Dec. 2, | |||||||||||||||||
Net sales | $ | 77,286 | $ | 59,301 | $ | 159,604 | $ | 119,669 | ||||||||||||
Cost of sales | 41,602 | 35,027 | 87,111 | 69,130 | ||||||||||||||||
Gross profit | 35,684 | 24,274 | 72,493 | 50,539 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, service and administration | 15,978 | 12,023 | 31,358 | 24,074 | ||||||||||||||||
Research, development and engineering | 11,508 | 9,617 | 22,601 | 18,921 | ||||||||||||||||
Insurance recoveries | - | (1,000 | ) | - | (2,287 | ) | ||||||||||||||
Write-off of acquired in-process research & development | - | - | 2,800 | - | ||||||||||||||||
Total operating expenses | 27,486 | 20,640 | 56,759 | 40,708 | ||||||||||||||||
Operating income | 8,198 | 3,634 | 15,734 | 9,831 | ||||||||||||||||
Interest and other income, net | 1,856 | 2,278 | 3,916 | 5,090 | ||||||||||||||||
Income before income taxes | 10,054 | 5,912 | 19,650 | 14,921 | ||||||||||||||||
Provision for income taxes | 3,392 | 2,123 | 7,458 | 4,930 | ||||||||||||||||
Net income | $ | 6,662 | $ | 3,789 | $ | 12,192 | $ | 9,991 | ||||||||||||
Net income per share - basic | $ | 0.24 | $ | 0.13 | $ | 0.44 | $ | 0.34 | ||||||||||||
Net income per share - diluted | $ | 0.24 | $ | 0.13 | $ | 0.43 | $ | 0.34 | ||||||||||||
Reconciliation of GAAP Net Income to Non-GAAP Net Income: | ||||||||||||||||||||
(Presented to aid comparison of net income to periods prior to the acquisition of New Wave Research, Inc.) | ||||||||||||||||||||
GAAP net income | $ | 6,662 | $ | 12,192 | ||||||||||||||||
Amortization of acquisition-related FMV adjustments included in cost of sales | 224 | 1,112 | ||||||||||||||||||
Amortization of acquisition-related intangibles included in cost of sales | 291 | 513 | ||||||||||||||||||
Subtotal | 515 | 1,625 | ||||||||||||||||||
Amortization of acquisition-related intangibles and adjustments to depreciation included in: | ||||||||||||||||||||
Selling, service and administration | 542 | 919 | ||||||||||||||||||
Research, development and engineering | (24 | ) | (24 | ) | ||||||||||||||||
Write-off of acquired in-process research & development | - | 2,800 | ||||||||||||||||||
Subtotal | 518 | 3,695 | ||||||||||||||||||
Non-GAAP net income | $ | 7,695 | $ | 17,512 | ||||||||||||||||
Basic non-GAAP net income per share | $ | 0.28 | $ | 0.63 | ||||||||||||||||
Diluted non-GAAP net income per share | $ | 0.27 | $ | 0.62 |
Electro Scientific Industries, Inc. | |||||||||||||||||||
Analysis of FY 2008 Results | |||||||||||||||||||
(Dollars and shares in thousands) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Three Months | Six Months | ||||||||||||||||||
Dec. 29, | Dec. 2, | Dec. 29, | Dec. 2, | ||||||||||||||||
Sales detail: | |||||||||||||||||||
Semiconductor Group | $ | 39,691 | $ | 29,440 | $ | 77,867 | $ | 61,324 | |||||||||||
Passive Components Group | 18,767 | 15,892 | 42,558 | 34,553 | |||||||||||||||
Interconnect Micro-Machining Group | 18,828 | 13,969 | 39,179 | 23,792 | |||||||||||||||
Total | $ | 77,286 | $ | 59,301 | $ | 159,604 | $ | 119,669 | |||||||||||
Gross margin % | 46 | % | 41 | % | 45 | % | 42 | % | |||||||||||
Selling, service and administration expense % | 21 | % | 20 | % | 20 | % | 20 | % | |||||||||||
Research, development and engineering expense % | 15 | % | 16 | % | 14 | % | 16 | % | |||||||||||
Operating income % | 11 | % | 6 | % | 10 | % | 8 | % | |||||||||||
Effective tax rate % | 34 | % | 36 | % | 38 | % | 33 | % | |||||||||||
Average shares outstanding - basic | 27,817 | 29,128 | 27,989 | 29,102 | |||||||||||||||
Average shares outstanding - diluted | 28,238 | 29,522 | 28,452 | 29,303 | |||||||||||||||
End of period employees | 804 | 636 | 804 | 636 |
Electro Scientific Industries, Inc. | |||||||||||||
FY 2008 Results | |||||||||||||
(Amounts in thousands) | |||||||||||||
(Unaudited) | |||||||||||||
Financial Position As Of: | Dec. 29, | Sep. 29, | Jun. 2, | ||||||||||
Assets | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 152,997 | $ | 102,795 | $ | 100,462 | |||||||
Marketable securities | 7,584 | 53,166 | 124,607 | ||||||||||
Total cash and securities | 160,581 | 155,961 | 225,069 | ||||||||||
Trade receivables, net | 59,986 | 56,489 | 55,722 | ||||||||||
Inventories | 88,934 | 91,891 | 80,981 | ||||||||||
Shipped systems pending acceptance | 10,368 | 6,714 | 1,817 | ||||||||||
Deferred income taxes, net | 10,179 | 10,214 | 9,504 | ||||||||||
Prepaid and other current assets | 8,722 | 9,399 | 5,776 | ||||||||||
Total current assets | 338,770 | 330,668 | 378,869 | ||||||||||
Long-term marketable securities | 21,727 | 23,246 | 3,622 | ||||||||||
Property, plant and equipment, net | 45,792 | 46,782 | 43,859 | ||||||||||
Acquired New Wave Research intangible assets, net | 11,001 | 11,744 | - | ||||||||||
Goodwill | 11,541 | 12,866 | 1,442 | ||||||||||
Deferred income taxes, net | 8,373 | 7,996 | 11,246 | ||||||||||
Other assets | 35,938 | 33,307 | 26,630 | ||||||||||
Total assets | $ | 473,142 | $ | 466,609 | $ | 465,668 | |||||||
Liabilities and shareholders' equity | |||||||||||||
Current liabilities: | |||||||||||||
Accounts payable | $ | 12,215 | $ | 16,217 | $ | 13,826 | |||||||
Accrued liabilities | 26,307 | 28,081 | 25,465 | ||||||||||
Deferred revenue | 24,751 | 19,365 | 12,290 | ||||||||||
Total current liabilities | 63,273 | 63,663 | 51,581 | ||||||||||
Income tax liabilities | 7,598 | 7,843 | 5,757 | ||||||||||
Shareholders' equity: | |||||||||||||
Preferred and common stock | 142,612 | 142,160 | 162,719 | ||||||||||
Retained earnings | 259,156 | 252,494 | 245,546 | ||||||||||
Accumulated other comprehensive income | 503 | 449 | 65 | ||||||||||
Total shareholders' equity | 402,271 | 395,103 | 408,330 | ||||||||||
Total liabilities and shareholders' equity | $ | 473,142 | $ | 466,609 | $ | 465,668 | |||||||
End of period shares outstanding | 27,837 | 27,844 | 28,766 | ||||||||||
Total cash and investments | $ | 182,308 | $ | 179,207 | $ | 228,691 |
Electro Scientific Industries, Inc. | |||||||||||
FY 2008 Results | |||||||||||
(Amounts in thousands) | |||||||||||
(Unaudited) | |||||||||||
Consolidated Statements of Cash Flows: | Six Months Ended | ||||||||||
Dec. 29, | Dec. 2, | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income | $ | 12,192 | $ | 9,991 | |||||||
Adjustments to reconcile net income to net cash | |||||||||||
provided by operating activities: | |||||||||||
Depreciation | 4,944 | 4,108 | |||||||||
Amortization of intangible assets | 1,310 | - | |||||||||
Write-off of in-process research & development | 2,800 | - | |||||||||
Stock-based compensation expense | 2,182 | 1,488 | |||||||||
Provision for doubtful accounts | - | 104 | |||||||||
Loss on disposal of property and equipment | 34 | - | |||||||||
Insurance recovery on damaged equipment | - | (1,287 | ) | ||||||||
Deferred income taxes | (54 | ) | 2,947 | ||||||||
Changes in operating accounts: | |||||||||||
Increase in trade receivables, net | (2,673 | ) | (5,350 | ) | |||||||
Increase in inventories | (52 | ) | (11,740 | ) | |||||||
(Increase) decrease in shipped systems pending acceptance | (8,242 | ) | 749 | ||||||||
(Increase) decrease in prepaid and other current assets | 1,178 | (2,843 | ) | ||||||||
Increase (decrease) in accounts payable and other liabilities | (10,136 | ) | 2,470 | ||||||||
Increase (decrease) in deferred revenue | 10,604 | (77 | ) | ||||||||
Net cash provided by operating activities | 14,087 | 560 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Purchase of property, plant and equipment | (3,284 | ) | (5,718 | ) | |||||||
Purchase of securities | (277,309 | ) | (281,840 | ) | |||||||
Proceeds from sale of securities and maturing securities | 353,526 | 303,512 | |||||||||
Cash paid for acquisition of New Wave Research, net of cash acquired | (36,159 | ) | - | ||||||||
Minority equity investment | - | (11,000 | ) | ||||||||
Insurance recovery | - | 1,287 | |||||||||
Decrease in other assets | 1,022 | 1,099 | |||||||||
Net cash provided by investing activities | 37,796 | 7,340 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
Proceeds from exercise of stock options and stock plans | 3,373 | 1,370 | |||||||||
Share repurchases | (21,552 | ) | - | ||||||||
Excess tax benefits realized from stock options exercised | 710 | 40 | |||||||||
Net cash provided by (used in) financing activities | (17,469 | ) | 1,410 | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | $ | 34,414 | $ | 9,310 | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | $ | 118,583 | $ | 79,961 | |||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 152,997 | $ | 89,271 |
CONTACT:
ESI
Chris Butterfield, 503-672-5760