Exhibit 99.1
ESI Announces Fiscal 2007 Second Quarter Results
PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 4, 2007--Electro Scientific
Industries, Inc. (Nasdaq:ESIO), a leading provider of world-class production
laser systems for microengineering applications, today announced results for its
fiscal 2007 second quarter ended December 2, 2006.
Second quarter sales were $59.3 million, down 1% compared to first quarter
sales of $60.2 million and up 22% compared to prior year second quarter sales of
$48.6 million. Operating income for the quarter was $3.6 million, compared with
operating income of $7.1 million in the first quarter and operating income of
$1.8 million in the second quarter a year ago. Net income for the quarter was
$3.8 million, or $0.13 per basic and diluted share, compared with net income of
$6.8 million, or $0.23 per basic and diluted share, in the first quarter and net
income of $3.2 million, or $0.11 per basic and diluted share, in the second
quarter a year ago.
Included in the second quarter 2007 operating results was $0.9 million of
stock-based compensation expense, up from $0.6 million in the first quarter.
Additionally, the second quarter included a $1.0 million recovery relating to
insurance coverage for the shareholder and derivative litigation of 2004, which
reduced operating expense in the quarter. Included in the first quarter 2007
results was a $1.3 million insurance recovery which also reduced operating
expense. The company anticipates no further recoveries from these matters.
Orders for the second quarter were $62.4 million, a decrease of 8% compared
with $67.6 million in the first quarter and a decrease of 4% compared with $64.9
million in the second quarter of fiscal 2006.
Backlog of $42 million at the end of the second quarter was down from $58
million at the end of the prior quarter. Backlog was adjusted downward $18
million during the quarter as the result of a customer's request to convert part
of a previous order for UV-based semiconductor systems to IR-based systems and
to postpone delivery of additional UV-based systems. Because the postponement
extended the shipment date for the systems beyond the 12-month internal
requirement to be classified as backlog, the company decided to remove the
systems from backlog. This request was a decision by a single customer to extend
IR-based technology on current fuse designs in the near-term, with the intention
of utilizing UV-based technology over the longer term.
Deferred revenue increased $1.1 million from the first quarter, ending the
second quarter at $13.3 million. Deferred revenue increased less than expected
as several late quarter shipments of new products were accepted prior to the end
of the quarter.
"Industry demand remained healthy in each of our markets during the
quarter," noted Nick Konidaris, ESI's president and chief executive officer.
"Despite the sequential decline in orders which was the result of fluctuations
in the order timing of major customers, we believe a pattern of steady growth
continued as orders grew on a two-quarter rolling average basis. The
semiconductor business remained strong as the capacity ramp continued in the
DRAM manufacturing market as end-market drivers, including Microsoft's Windows
Vista(TM) operating system, drove accelerated bit rate growth. Further, adoption
of our UV-based DRAM link-processing tool is proceeding well, as customers
representing over half of the industry are now utilizing this technology in
production. In addition, orders for both the components and interconnect
businesses remained strong as broad-based end-market demand continued to drive
demand."
Konidaris continued, "While the revenue level for the quarter was at the
upper-end of our expectations, we were disappointed with the company's gross
margin performance. Going forward, as recently launched and soon-to-be launched
new products assume a larger percentage of sales, we believe gross margins
should revert back to levels consistent with our target operating model."
Gross margin of 41 percent was down from 45 percent in the first quarter.
The decrease in gross margin was in equal part due to incremental manufacturing
related expenses and a change in sales mix. Sales mix was impacted by both a
revenue mix shift away from semiconductors, ESI's highest margin business, and a
mix shift to lower margin sales within the business units. The incremental
manufacturing related expenses are not expected to recur in the third quarter.
Operating expenses were $20.6 million, up $0.4 million from $20.2 million
in the prior quarter. Excluding the impact of insurance-related recoveries in
both quarters and stock compensation expense, operating expense was
approximately flat.
Interest and other income of $2.3 million was down from $2.9 million in the
first quarter due to interest received on tax refunds in the first quarter as
well as lower average invested balances. The decrease was partially offset by
higher investment returns.
Cash and investments were $217 million, up $4 million from the end of the
first quarter. The increase in cash was primarily due to a decrease in accounts
receivable and the net income earned during the quarter. The increase was
partially offset by an equity investment made during the quarter and an increase
in inventory.
Accounts receivable decreased $7 million during the quarter to $54 million.
The decrease was primarily due to cash collections of several shipments that
occurred late in the prior quarter.
Inventories of $72 million increased $5 million from the prior quarter. The
increase was primarily due to mid-quarter sales mix changes as well as
additional engineering systems required prior to new product launch.
Konidaris added, "In an environment of healthy industry fundamentals, we
expect to continue to see a growth pattern on a two-quarter rolling average
basis, while we also continue to experience fluctuations in quarterly order
timing. Given existing backlog and order expectations, we believe third quarter
shipments and revenue will be in the range of $55 million to $65 million. We
expect the gross margin percentage in the third quarter to increase by
approximately 2 to 3 percentage points from the second quarter. While the
incremental manufacturing-related expenses incurred in the second quarter are
not expected to recur, the sales mix is not expected to improve substantially
until after the third quarter. We anticipate operating expenses to be
approximately flat compared to the second quarter, excluding the impact of the
$1.0 million insurance recovery in the second quarter. Included in the margin
and operating expense guidance is expected pre-tax stock compensation expense of
approximately $0.9 million. We believe net interest and other income in the
third quarter will be approximately $2.4 million. And lastly, we expect the tax
rate for the third quarter to be approximately 20%, given the recent
reinstatement of the R&D tax credit. We now expect our normalized tax rate to be
approximately 32%."
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) with conference ID
number 4428999. A live audio webcast can be accessed at www.esi.com. Upon
completion of the call, an audio replay will be accessible through January 11,
2007 at 800-642-1687 (domestic participants) or 706-645-9291 (international
participants). The audio replay will also be available on the ESI website.
Forward-Looking Statements
This press release includes forward-looking statements concerning the
markets we serve, shipments and revenue, gross margins, operating expenses,
stock compensation expense, 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 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.
About ESI, Inc.
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 microfeatures in high-volume manufacturing environments.
Founded in 1944, ESI is headquartered in Portland, Ore. More information is
available at www.esi.com.
Electro Scientific Industries, Inc.
FY 2007 Results
(In thousands, except per share data)
(Unaudited)
Operating Results: Three Months Ended Six Months Ended
------------------ ------------------
Dec. 2, Nov. 26, Dec. 2, Nov. 26,
2006 2005 2006 2005
-------------------------------------
Net sales $59,301 $48,643 $119,465 $93,151
Cost of sales 35,027 27,475 67,910 52,336
--------- -------- --------- --------
Gross profit 24,274 21,168 51,555 40,815
Operating expenses:
Selling, service and
administration 12,023 11,365 24,181 22,442
Research, development and
engineering 9,617 7,983 18,921 15,812
Insurance recoveries (1,000) - (2,287) -
--------- -------- --------- --------
Total operating expenses 20,640 19,348 40,815 38,254
--------- -------- --------- --------
Operating income 3,634 1,820 10,740 2,561
Interest and other income, net 2,278 2,270 5,188 3,511
--------- -------- --------- --------
Income before income taxes 5,912 4,090 15,928 6,072
Provision for income taxes 2,123 902 5,367 1,537
--------- -------- --------- --------
Net income $ 3,789 $ 3,188 $ 10,561 $ 4,535
========= ======== ========= ========
Net income per share - basic and
fully diluted $ 0.13 $ 0.11 $ 0.36 $ 0.16
========= ======== ========= ========
Electro Scientific Industries, Inc.
Analysis of FY 2007 Results
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
Dec. 2, Nov. 26, Dec. 2, Nov. 26,
2006 2005 2006 2005
---------------------------------------
Sales detail:
Semiconductor Group $ 29,440 $ 25,237 $ 61,183 $ 53,138
Passive Components Group 15,892 12,033 34,524 23,082
Electronic Interconnect Group 13,969 11,373 23,758 16,931
--------- --------- --------- ---------
Total $ 59,301 $ 48,643 $119,465 $ 93,151
========= ========= ========= =========
Gross margin % 41% 44% 43% 44%
Selling, service and
administration expense % (a) 19% 23% 18% 24%
Research, development and
engineering expense % 16% 16% 16% 17%
Operating income % 6% 4% 9% 3%
Effective tax rate % 36% 22% 34% 25%
Average shares outstanding -
basic 29,128 28,705 29,102 28,674
Average shares outstanding -
diluted 29,522 28,997 29,303 28,896
End of period employees 617 584 617 584
(a) Includes insurance recoveries.
Electro Scientific Industries, Inc.
FY 2007 Results
(Amounts in thousands)
(Unaudited)
Financial Position As Of: Dec. 2, Sep. 2, Jun. 3,
2006 2006 2006
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 89,271 $ 75,326 $ 79,961
Marketable securities 125,184 135,552 140,106
-------- -------- --------
Total cash and securities 214,455 210,878 220,067
Trade receivables, net 53,582 60,112 47,978
Income tax refund receivable 691 978 1,570
Inventories 72,302 67,445 63,834
Shipped systems pending acceptance 3,221 3,382 3,941
Deferred income taxes 12,104 12,279 11,982
Prepaid and other current assets 8,250 6,033 4,410
-------- -------- --------
Total current assets 364,605 361,107 353,782
Long-term marketable securities 3,009 2,504 9,265
Property, plant and equipment, net 45,050 45,710 43,338
Deferred income taxes, net 10,128 10,399 13,318
Other assets 31,924 26,451 17,762
-------- -------- --------
Total assets $454,716 $446,171 $437,465
======== ======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 13,298 $ 14,848 $ 11,272
Accrued liabilities 25,608 22,760 24,705
Deferred revenue 13,344 12,259 13,321
-------- -------- --------
Total current liabilities 52,250 49,867 49,298
Shareholders' equity:
Preferred and common stock 169,492 167,750 166,459
Retained earnings 232,583 228,794 222,022
Accumulated other comprehensive income
(loss) 391 (240) (314)
-------- -------- --------
Total shareholders' equity 402,466 396,304 388,167
-------- -------- --------
Total liabilities and shareholders'
equity $454,716 $446,171 $437,465
======== ======== ========
End of period shares outstanding 29,154 29,097 29,051
======== ======== ========
Total cash and investments $217,464 $213,382 $229,332
======== ======== ========
Electro Scientific Industries, Inc.
FY 2007 Results
(Amounts in thousands)
(Unaudited)
Consolidated Statements of Cash Flows: Six Months Ended
------------------
Dec. 2, Nov. 26,
2006 2005
------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,561 $ 4,535
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,108 3,858
Stock-based compensation expense 1,488 936
Tax benefit of stock options exercised - 890
Provision for doubtful accounts 104 (144)
Loss on disposal of property and equipment - 46
Insurance recovery on damaged equipment (1,287) -
Deferred income taxes 2,947 320
Changes in operating accounts:
Increase in trade receivables, net (5,344) (491)
Decrease in income tax refund receivable 879 7,809
(Increase) decrease in inventories (12,142) 1,578
Decrease in shipped systems pending acceptance 720 749
Increase in prepaid and other current assets (3,722) (1,855)
Increase in accounts payable and other current
liabilities 2,927 7,533
Increase in deferred revenue 23 356
--------- --------
Net cash provided by operating activities 1,262 26,120
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (5,718) (9,478)
Minority equity investments (11,000) -
Insurance recovery on damaged equipment 1,287 -
Change in investments, net 21,672 20,575
(Increase) decrease in other assets 397 (6,373)
--------- --------
Net cash provided by investing activities 6,638 4,724
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock
plans 1,410 1,750
--------- --------
Net cash provided by financing activities 1,410 1,750
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS $ 9,310 $32,594
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 79,961 $61,314
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,271 $93,908
========= ========
CONTACT: ESI
Craig Stoehr, 503-671-7061