EX-99.1 2 exhibit991q21809302017.htm EXHIBIT 99.1 Exhibit


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

ESI Announces Second Quarter Fiscal 2018 Results
 
PORTLAND, Ore. – November 1, 2017 – Electro Scientific Industries, Inc. (NASDAQ:ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2018 second quarter ended September 30, 2017. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring, impairments of other assets and inventory, and other items included in the non-GAAP reconciliation table below.
Second quarter revenue was $71.0 million, compared to $29.7 million in the second quarter of last fiscal year. GAAP net income was $4.3 million or $0.12 per diluted share, compared to a net loss of $9.7 million, or $0.30 per share one year ago. On a non-GAAP basis net income was $13.7 million or $0.39 per diluted share, compared to net loss of $7.7 million or $0.24 per share in the prior year's second quarter.
Michael Burger, CEO of ESI, stated, “We delivered a quarter of strong financial results, with revenues more than doubling from one year ago, higher gross margin, lower fixed expenses, and strong earnings."
Burger continued, "We are in an extraordinary time as we have seen a near-term inflection in growth for flexible circuit drilling equipment as a result of new materials, technologies, and applications for flexible circuits. During the quarter we received several large orders for our industry-leading 5335 series of flexible circuit drilling products. Combining our flex demand with excellent performance across our other

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

product categories resulted in total orders for the quarter of $128.9 million.”
On a GAAP basis gross margin was 37.4%, compared to 37.0% in the second quarter of last year, and was impacted by $6.1 million of charges for impairment of other assets and inventory as we completed our restructuring and product portfolio pruning activities. Operating expenses were $22.1 million, up from $20.9 million last year, with lower fixed expenses offset by higher variable expenses and $2.2 million of restructuring costs. “We have completed the major elements of our restructuring program as committed and expect to be fully in our cost structure model for the third quarter,” Burger noted. Operating income was $4.4 million, compared to a loss of $9.9 million in last year's second quarter.
Non-GAAP gross margin was 46.4%, up from 38.2% in the second quarter of last year on higher sales volume. Non-GAAP operating expenses were $18.6 million, down from $18.9 million a year ago despite the addition of variable expenses associated with significantly higher revenues. Non-GAAP operating income was $14.4 million, or 20% of sales, compared to a loss of $7.6 million last year.
Balance Sheet and Cash Flow
At quarter end, total cash, restricted cash and current investments increased to $81.9 million. The company generated $18.3 million of cash from operations during the quarter. Sequentially, inventories decreased by $0.8 million, and accounts receivable decreased by $1.4 million. DSO is at 61 days.
Third Quarter 2018 Outlook
Based on current market and backlog conditions, revenues for the third quarter of fiscal 2018 are expected to be between $80 and $90 million. Non-GAAP earnings per diluted share is expected to be $0.48 to $0.60. Given order and backlog projections we expect fourth quarter results to be in a similar range.
Burger concluded, "The current manufacturing environment is as robust as I can recall in recent history, which is driving demand for products across our portfolio. In addition, our flex business is performing at exceptional levels, driven by both significant capacity additions and ramp of new applications and

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

materials. Although we do not expect these business levels to continue indefinitely, we believe the underlying technology trends will drive growth in our markets over multiple years, and our new business model should allow us to improve profitability and generate consistent earnings over time."
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 59042117. A live audio webcast can be accessed at www.esi.com. The webcast will be available on ESI’s website for one year.
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, inventory and goodwill write-downs, 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

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

The statements contained in this press release that are not statements of historical fact, including statements regarding factors contributing to near-term inflection in growth, completion of our restructuring program, timing of realization of our cost structure model, and the statements under “Third Quarter 2018 Outlook”, and other statements containing the words “believes”, “expects”, “anticipates,” “continue,” “will,” “may” 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 health of the financial markets and availability of credit for end customers and related effect on the global economy; 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 need to continue investing in research and development; our ability to hire and retain key employees; 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; risks associated with our restructuring efforts; 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; 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.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

ELECTRO SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Second Quarter Fiscal 2018 Results
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Fiscal quarter ended
 
Two fiscal quarters ended
(In thousands, except per share data)
Sep 30, 2017
 
Jul 1, 2017
 
Oct 1, 2016
 
Sep 30, 2017
 
Oct 1, 2016
Net sales:
 
 
 
 
 
 
 
 
 
Systems
$
60,316

 
$
62,093

 
$
21,442

 
$
122,409

 
$
59,642

Services
10,651

 
10,591

 
8,216

 
21,242

 
17,684

Total net sales
70,967

 
72,684

 
29,658

 
143,651

 
77,326

Cost of sales:
 
 
 
 
 
 
 
 
 
Systems
38,179

 
41,426

 
14,146

 
79,605

 
36,568

Services
6,256

 
4,838

 
4,532

 
11,094

 
8,970

Total cost of sales
44,435

 
46,264

 
18,678

 
90,699

 
45,538

Gross profit
26,532

 
26,420

 
10,980

 
52,952

 
31,788

Gross margin
37.4
%
 
36.3
%
 
37.0
%
 
36.9
%
 
41.1
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
11,648

 
12,808

 
12,766

 
24,456

 
25,637

Research, development and engineering
8,274

 
8,934

 
7,760

 
17,208

 
15,390

Restructuring costs
2,162

 
1,211

 
—

 
3,373

 
—

Acquisition and integration costs
—

 
—

 
335

 
—

 
335

Total operating expenses
22,084

 
22,953

 
20,861

 
45,037

 
41,362

Operating income (loss)
4,448

 
3,467

 
(9,881
)
 
7,915

 
(9,574
)
Non-operating (expense) income:
 
 
 
 
 
 
 
 
 
Interest and other (expense) income, net
(229
)
 
(184
)
 
206

 
(413
)
 
128

Total non-operating (expense) income
(229
)
 
(184
)
 
206

 
(413
)
 
128

Income (loss) before income taxes
4,219

 
3,283

 
(9,675
)
 
7,502

 
(9,446
)
(Benefit from) provision for income taxes
(41
)
 
381

 
—

 
340

 
347

Net income (loss)
$
4,260

 
$
2,902

 
$
(9,675
)
 
$
7,162

 
$
(9,793
)
Net income (loss) per share - basic
$
0.13

 
$
0.09

 
$
(0.30
)
 
$
0.21

 
$
(0.30
)
Net income (loss) per share - diluted
$
0.12

 
$
0.08

 
$
(0.30
)
 
$
0.21

 
$
(0.30
)

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
Sep 30, 2017
 
Jul 1, 2017
 
Apr 1, 2017
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
47,973

 
$
58,909

 
$
56,642

Short-term investments
32,802

 
9,720

 
5,743

Trade receivables, net
47,565

 
48,081

 
40,494

Inventories
61,423

 
62,257

 
58,942

Shipped systems pending acceptance
7,765

 
6,657

 
5,713

Other current assets
5,309

 
5,358

 
6,180

Total current assets
202,837

 
190,982

 
173,714

Non-current assets:
 
 
 
 
 
Property, plant and equipment, net
18,874

 
20,480

 
21,619

Goodwill
2,626

 
2,626

 
3,027

Acquired intangible assets, net
5,883

 
6,266

 
6,564

Other assets(1)
17,819

 
15,243

 
19,821

Total assets
$
248,039

 
$
235,597

 
$
224,745

Liabilities and shareholders' equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
24,378

 
$
25,793

 
$
21,213

Accrued liabilities
32,050

 
23,818

 
22,186

Deferred revenue
15,782

 
14,834

 
14,712

Total current liabilities
72,210

 
64,445

 
58,111

Non-current liabilities
 
 
 
 
 
Long-term debt
12,982

 
13,379

 
13,489

Income taxes payable
1,285

 
1,214

 
1,036

Other liabilities
7,956

 
8,114

 
7,578

Total liabilities
94,433

 
87,152

 
80,214

Shareholders' equity:
 
 
 
 
 
Preferred and common stock
208,670

 
207,954

 
207,152

Accumulated deficit
(54,246
)
 
(58,506
)
 
(61,407
)
Accumulated other comprehensive loss
(818
)
 
(1,003
)
 
(1,214
)
Total shareholders' equity
153,606

 
148,445

 
144,531

Total liabilities and shareholders' equity
$
248,039

 
$
235,597

 
$
224,745

End of period shares outstanding
34,067

 
33,689

 
33,260

(1)
Included in Other assets is long-term restricted cash of $1.1 million each on Sep 30, 2017, Jul 1, 2017 and Apr 1, 2017.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

Electro Scientific Industries, Inc.
Analysis of Second Quarter Fiscal 2018 Results
(Unaudited)
 
Fiscal quarter ended
 
Two fiscal quarters ended
(Dollars and shares in thousands)
Sep 30, 2017
 
Jul 1, 2017
 
Oct 1, 2016
 
Sep 30, 2017
 
Oct 1, 2016
Sales detail:
 
 
 
 
 
 
 
 
 
Printed Circuit Board
$
43,541

 
$
52,318

 
$
13,527

 
$
95,859

 
$
44,445

Component Test
7,677

 
8,181

 
4,990

 
15,858

 
9,592

Semiconductor
12,028

 
6,737

 
7,222

 
18,765

 
14,831

Industrial Machining
7,721

 
5,448

 
3,919

 
13,169

 
8,458

Net Sales
$
70,967

 
$
72,684

 
$
29,658

 
$
143,651

 
$
77,326

 
 
 
 
 
 
 
 
 
 
As % of Net Sales
 
 
 
 
 
 
 
 
 
GAAP
 
 
 
 
 
 
 
 
 
Gross profit
37.4%
 
36.3%
 
37.0%
 
36.9%
 
41.1%
Selling, general and administrative expense
16%
 
18%
 
43%
 
17%
 
33%
Research, development and engineering expense
12%
 
12%
 
26%
 
12%
 
20%
Total operating expenses
31%
 
32%
 
70%
 
31%
 
53%
Operating income (loss)
6%
 
5%
 
(33%)
 
6%
 
(12%)
Non-GAAP
 
 
 
 
 
 
 
 
 
Gross profit
46.4%
 
46.7%
 
38.2%
 
46.5%
 
43.5%
Net operating expenses
26%
 
28%
 
64%
 
27%
 
49%
Operating income (loss)
20%
 
19%
 
(26%)
 
19%
 
(6%)
 
 
 
 
 
 
 
 
 
 
GAAP - Effective tax rate %
(1.0%)
 
11.6%
 
—%
 
4.5%
 
(3.7%)
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic
33,861
 
33,432
 
32,396
 
33,647
 
32,109
Diluted GAAP
34,874
 
34,321
 
32,396
 
34,716
 
32,109
Diluted Non-GAAP
34,874
 
34,321
 
32,396
 
34,716
 
32,109
End of period employees
594
 
607
 
725
 
594
 
725
 
 
 
 
 
 
 
 
 
 
Reconciliation of Cash and Investments
 
 
 
 
 
 
 
 
 
 
 
 
Sep 30, 2017
 
Jul 1, 2017
 
Apr 1, 2017
 
Oct 1, 2016
Cash
 
 
29,998

 
37,976

 
29,302

 
25,659

Cash equivalents
 
 
17,975

 
20,933

 
27,340

 
27,026

Restricted cash
 
 
1,098

 
1,094

 
1,090

 
—

Cash, cash equivalents, and restricted cash at end of period
 
49,071

 
60,003

 
57,732

 
52,685

Short-term investments
 
 
32,802

 
9,720

 
5,743

 
3,500

Cash, restricted cash and current investments
 
81,873

 
69,723

 
63,475

 
56,185


13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Reconciliation of GAAP to Non-GAAP Financial Measures:
(Unaudited)
 
Fiscal quarter ended
 
Two fiscal quarters ended
(In thousands, except per share data)
Sep 30, 2017
 
Jul 1, 2017
 
Oct 1, 2016
 
Sep 30, 2017
 
Oct 1, 2016
Gross profit per GAAP
$
26,532

 
$
26,420

 
$
10,980

 
$
52,952

 
$
31,788

Purchase accounting
242

 
251

 
228

 
493

 
457

Equity compensation
77

 
67

 
136

 
144

 
256

Charges for other asset and inventory impairment
6,083

 
7,194

 
—

 
13,277

 
1,116

Non-GAAP gross profit
$
32,934

 
$
33,932

 
$
11,344

 
$
66,866

 
$
33,617

 
 
 
 
 
 
 
 
 
 
Operating expenses per GAAP
$
22,084

 
$
22,953

 
$
20,861

 
$
45,037

 
$
41,362

Purchase accounting
(117
)
 
(219
)
 
(203
)
 
(336
)
 
(453
)
Equity compensation
(1,253
)
 
(1,211
)
 
(1,383
)
 
(2,464
)
 
(2,553
)
Impairment of assets
—

 
—

 
—

 
—

 
(100
)
Acquisition and integration costs
—

 
—

 
(335
)
 
—

 
(335
)
Restructuring costs
(2,162
)
 
(1,211
)
 
(14
)
 
(3,373
)
 
(51
)
Non-GAAP operating expenses
$
18,552

 
$
20,312

 
$
18,926

 
$
38,864

 
$
37,870

 
 
 
 
 
 
 
 
 
 
Operating income (loss) per GAAP
$
4,448

 
$
3,467

 
$
(9,881
)
 
$
7,915

 
$
(9,574
)
Non-GAAP adjustments to gross profit
6,402

 
7,512

 
364

 
13,914

 
1,829

Non-GAAP adjustments to operating expenses
3,532

 
2,641

 
1,935

 
6,173

 
3,492

Non-GAAP operating income (loss)
$
14,382

 
$
13,620

 
$
(7,582
)
 
$
28,002

 
$
(4,253
)
 
 
 
 
 
 
 
 
 
 
Non-operating (expense) income, net per GAAP
$
(229
)
 
$
(184
)
 
$
206

 
$
(413
)
 
$
128

Acquisition-related adjustments
—

 
—

 
(190
)
 
—

 
(190
)
Non-GAAP non-operating (expense) income
$
(229
)
 
$
(184
)
 
$
16

 
$
(413
)
 
$
(62
)
Non-GAAP income (loss) before income taxes
$
14,153

 
$
13,436

 
$
(7,566
)
 
$
27,589

 
$
(4,315
)
 
 
 
 
 
 
 
 
 
 
Net income (loss) per GAAP
$
4,260

 
$
2,902

 
$
(9,675
)
 
$
7,162

 
$
(9,793
)
Non-GAAP adjustments to gross profit
6,402

 
7,512

 
364

 
13,914

 
1,829

Non-GAAP adjustments to operating expenses
3,532

 
2,641

 
1,935

 
6,173

 
3,492

Non-GAAP adjustments to non-operating expense
—

 
—

 
(190
)
 
—

 
(190
)
Income tax effect of other non-GAAP adjustments
(483
)
 
(24
)
 
(101
)
 
(507
)
 
(36
)
Non-GAAP net income (loss)
$
13,711

 
$
13,031

 
$
(7,667
)
 
$
26,742

 
$
(4,698
)
Basic Non-GAAP net income (loss) per share
$
0.40

 
$
0.39

 
$
(0.24
)
 
$
0.79

 
$
(0.15
)
Diluted Non-GAAP net income (loss) per share
$
0.39

 
$
0.38

 
$
(0.24
)
 
$
0.77

 
$
(0.15
)

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2018 Results
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Fiscal quarter ended
 
Two fiscal quarters ended
(In thousands)
Sep 30, 2017
 
Jul 1, 2017
 
Oct 1, 2016
 
Sep 30, 2017
 
Oct 1, 2016
Net income (loss)
$
4,260

 
$
2,902

 
$
(9,675
)
 
$
7,162

 
$
(9,793
)
Non-cash adjustments and changes in operating activities
14,005

 
4,529

 
2,204

 
18,534

 
13,770

Net cash provided by (used in) operating activities
18,265

 
7,431

 
(7,471
)
 
25,696

 
3,977

Net cash (used in) provided by investing activities
(28,597
)
 
(4,789
)
 
(2,475
)
 
(33,386
)
 
6,504

Net cash (used in) provided by financing activities
(725
)
 
(506
)
 
259

 
(1,231
)
 
(139
)
Effect of exchange rate changes on cash
125

 
135

 
(91
)
 
260

 
(70
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(10,932
)
 
2,271

 
(9,778
)
 
(8,661
)
 
10,272

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD
60,003

 
57,732

 
62,463

 
57,732

 
42,413

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$
49,071

 
$
60,003

 
$
52,685

 
$
49,071

 
$
52,685




13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Second Quarter Fiscal 2018 Results

Reconciliation of GAAP to Non-GAAP Financial Measures - Projected
Fiscal quarter ending December 30, 2017
 
 
Non-GAAP earnings per diluted share
0.48 - 0.60
Purchase accounting
(0.01)
Equity compensation
(0.04)
Other items
(0.04) - (0.02)
GAAP earnings per diluted share
0.39 - 0.53


13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com