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ESI Announces Fourth Quarter Fiscal 2014 Results

Companies mentioned in this article: Electro Scientific Industries, Inc.

PORTLAND, Ore. -- (BUSINESS WIRE) -- Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2014 fourth quarter and year ended March 29, 2014. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring and asset impairments, and other items.

Revenue in the fourth quarter was $37.1 million, compared to $38.3 million in the third quarter of 2014 and $39.6 million in the fourth quarter of last fiscal year. On a GAAP basis, net loss was $27.6 million or $0.92 per share, compared to net loss of $4.6 million or $0.15 per share in the prior quarter. Fourth quarter results included charges for inventory write-offs, corporate restructuring and an impairment of an equity investment. On a non-GAAP basis, fourth quarter net loss was $5.0 million or $0.16 per share, compared to net loss of $3.1 million or $0.10 per share in the third quarter of fiscal 2014 and a net loss of $1.0 million or $0.03 per share in the fourth quarter of fiscal 2013. Orders for the fourth quarter were approximately $32 million, compared to $36 million in the prior quarter.

GAAP gross margin was 10.1%. Included in cost of sales was $12.8 million of charges related to the write-off of inventory for discontinued products. Non-GAAP gross margin was 46.2% compared to 44.6% in the prior quarter. Operating expenses were $25.5 million, and included $2.3 million of restructuring charges, asset write-offs, and acquisition and integration costs. On a non-GAAP basis operating expenses were $22.3 million, up from $20.6 million in the prior quarter due to installation costs related to the first shipments of DiamondBlazeTM glass cutting systems to touch panel manufacturers, and the shipment of a development tool to a leading semiconductor manufacturer. Non-GAAP operating loss was $5.1 million compared to a loss of $3.5 million in the third quarter.

Full Year Fiscal 2014 Results

Fiscal 2014 revenue was $181 million, down 16% compared to $217 million in fiscal 2013. On a GAAP basis, fiscal 2014 net loss was $38.3 million or $1.28 per share, compared to net loss of $54.7 million or $1.86 per share in the prior year. On a non-GAAP basis, net loss was $5.1 million or $0.17 per share, compared to net income of $6.4 million or $0.21 per diluted share in 2013.

Balance Sheet and Cash Flow

At quarter end, cash and investments were $111 million. The company used $15.2 million in operating cash during the quarter primarily due to working capital increases. For the fiscal year, use of operating cash was $19.1 million. Also, during the quarter the company spent $191 thousand to repurchase about 20,000 shares of ESI stock pursuant to its stock repurchase authorization, and paid $2.4 million for the quarterly dividend of $0.08 per share.

First Quarter 2015 Outlook

Based on recent order levels, ESI expects revenues for the first quarter of fiscal 2015 to be between $30 and $35 million. Non-GAAP loss per share is expected to be between $0.25 and $0.30.

“This was a challenging end to our fiscal year,” stated Edward C. Grady, president and CEO of ESI. “As we look forward, we are changing our market approach, our go-to-market strategy, and our execution as part of our commitment to grow the company for the long term. Although these changes will take several quarters to develop, I am excited about the technology, innovative spirit, and market opportunities that we believe will enable us to return to profitable growth.”

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 888-419-5570 (domestic participants) or 617-896-9871 (international participants). The conference ID number is 62427815. A live audio webcast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through May 23, 2014, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 11097875. 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 financial measures exclude the impact of purchase accounting, equity compensation, restructuring charges and other items. We believe that this presentation of non-GAAP financial measures allows investors to better 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 is a leading supplier of innovative, laser-based manufacturing solutions for the microtechnology industry. Our systems enable precise structuring and testing of micron to submicron features in electronic devices, semiconductors, LEDs and other high-value components. We partner with our customers to make breakthrough technologies possible in the microelectronics, semiconductor and other emerging industries. Founded in 1944, ESI is headquartered in Portland, Ore., with global operations from the Pacific Northwest to the Pacific Rim. More information is available at www.esi.com.

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, revenue, earnings growth and earnings per share. These forward-looking statements are based on information available to us on the date of this release and we assume 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: 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—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 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; the ability of the company to respond promptly to customer requirements; the risk that the company may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; 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 risk that large orders and related revenues may not be repeated; 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 risk that competing or alternative technologies could reduce demand for our products; risks related to the integration of the Semiconductor Systems business acquired from GSI Group, Inc.; foreign currency fluctuations; 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.

Fourth Quarter and Fiscal 2014 Results

(In thousands, except per share data)

(Unaudited)

           
Operating Results:                
Fiscal quarter ended   Fiscal year ended
Mar 29, 2014 Dec 28, 2013 Mar 30, 2013 Mar 29, 2014 Mar 30, 2013
Net sales $ 37,081 $ 38,267 $ 39,574 $ 181,167 $ 216,625
Cost of sales 33,354   21,986   45,727   117,141   152,372  
Gross profit 3,727 16,281 (6,153 ) 64,026 64,253
10 % 43 % (16 %) 35 % 30 %
Operating expenses:
Selling, service and administration 14,516 12,408 13,578 55,753 56,051
Research, development and engineering 9,927 9,768 8,405 37,839 37,196
Restructuring costs 1,101 2,612 1,070 2,612
Gain on sale of property and equipment, net (1,301 ) (1,301 ) (1,226 )
Gain on acquisition of Semiconductor Systems business (499 )
Legal settlement costs (proceeds), net         103         (15,262 )
Net operating expenses 25,544   20,875   24,698   92,862   79,371  
Operating loss (21,817 ) (4,594 ) (30,851 ) (28,836 ) (15,118 )
Non-operating (expense) income:
Other-than-temporary impairment of cost based investments (6,115 ) (9,703 )
Interest and other (expense) income, net (2 ) 95   317   113   253  
Total non-operating (expense) income (6,117 ) 95 317 (9,590 ) 253
Loss before income taxes (27,934 ) (4,499 ) (30,534 ) (38,426 ) (14,865 )
(Benefit from) provision for income taxes (301 ) 141   35,217   (92 ) 39,851  
Net loss $ (27,633 ) $ (4,640 ) $ (65,751 ) $ (38,334 ) $ (54,716 )
Net loss per share—basic $ (0.92 ) $ (0.15 ) $ (2.23 ) $ (1.28 ) $ (1.86 )
Net loss per share—diluted $ (0.92 ) $ (0.15 ) $ (2.23 ) $ (1.28 ) $ (1.86 )
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2014 Results

(Amounts in thousands)

(Unaudited)

         
Financial Position As Of:
Mar 29, 2014 Dec 28, 2013 Mar 30, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 68,461 $ 77,174 $ 88,913
Restricted cash
Short-term investments 38,444 46,299 56,144
Trade receivables, net 37,813 27,479 31,779
Inventories 58,902 68,626 63,067
Shipped systems pending acceptance 2,054 1,179 1,007
Deferred income taxes, net 161 1,714 1,682
Other current assets 4,674   4,796   3,898
Total current assets 210,509 227,267 246,490
Non-current assets:
Non-current investments 3,985 6,024 12,329
Property, plant and equipment, net 27,930 27,830 27,894
Non-current deferred income taxes, net 704 3,680 3,766
Goodwill 7,889 7,889 7,889
Acquired intangible assets, net 6,845 7,696 9,088
Other assets 12,347   19,199   14,752
Total assets $ 270,209   $ 299,585   $ 322,208
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 14,465 $ 14,191 $ 16,958
Accrued liabilities 20,524 20,944 24,930
Deferred income tax liability, net 170
Deferred revenue 10,515   6,694   10,196
Total current liabilities 45,674 41,829 52,084
Non-current liabilities:
Income taxes payable 1,654 6,208 5,982
Shareholders’ equity:
Preferred and common stock 183,193 181,844 176,631
Retained earnings 39,336 69,368 87,228
Accumulated other comprehensive income 352   336   283
Total shareholders’ equity 222,881   251,548   264,142
Total liabilities and shareholders’ equity $ 270,209   $ 299,585   $ 322,208
End of period shares outstanding 30,155   30,095   29,583
 
Electro Scientific Industries, Inc.
Analysis of Fourth Quarter and Fiscal 2014 Results

(Dollars and shares in thousands)

(Unaudited)

 
    Fiscal quarter ended   Fiscal year ended
Mar 29, 2014   Dec 28, 2013   Mar 30, 2013   Mar 29, 2014   Mar 30, 2013
Sales detail:
Interconnect & Microfabrication Group $ 22,851 $ 25,378 $ 22,988 $ 120,947 $ 170,360
Semiconductor Group 10,696 8,535 8,682 35,779 18,754
Components Group 3,534   4,354   7,904   24,441   27,511  
Total $ 37,081 $ 38,267 $ 39,574 $ 181,167 $ 216,625
 
Gross margin % 10 % 43 % (16 %) 35 % 30 %
Selling, service and administration expense % 39 % 32 % 34 % 31 % 26 %
Research, development and engineering expense % 27 % 26 % 21 % 21 % 17 %
Operating loss % (59 %) (12 %) (78 %) (16 %) (7 %)
Effective tax rate % 1 % (3 %) (115 %) 0.24 % (268 %)
Weighted average shares outstanding - basic 30,130 30,054 29,540 29,974 29,357
Weighted average shares outstanding - diluted 30,130 30,054 29,540 29,974 29,357
End of period employees 633 631 579 633 579
 
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2014 Results

(In thousands, except per share data)

(Unaudited)

     
Reconciliation of GAAP to Non-GAAP Financial Measures:
    Fiscal quarter ended Fiscal year ended
Mar 29, 2014   Dec 28, 2013 Mar 30, 2013 Mar 29, 2014 Mar 30, 2013
Gross profit per GAAP $ 3,727 $ 16,281 $ (6,153 ) $ 64,026 $ 64,253
Purchase accounting 448 608 489 2,710 1,891
Equity compensation 164 184 263 722 898
Charges for inventory write-off of discontinued product 12,785 19,765 12,786 20,933
Charges for intangibles write-off of discontinued product     2,347     2,347  
Non-GAAP gross profit $ 17,124   $ 17,073   $ 16,711   $ 80,244   $ 90,322  
Non-GAAP gross margin 46.2 % 44.6 % 42.2 % 44.3 % 41.7 %
 
Operating expenses per GAAP $ 25,544 $ 20,875 $ 24,698 $ 92,862 $ 79,371
Purchase accounting (151 ) (126 ) (123 ) (900 ) (493 )
Equity compensation (810 ) (1,079 ) (1,466 ) (5,383 ) (7,190 )
Acquisition and integration costs (204 ) (310 ) (1,508 ) (886 )
Restructuring costs (1,101 ) (59 ) (2,612 ) (1,070 ) (2,612 )
Legal settlement (costs) proceeds, net (13 ) (103 ) (68 ) 15,262
Gain on sale of property and equipment, net 1,301 1,301 1,262
Gain on purchase of acquisition of Semiconductor Systems business 499
Charges for asset write-off (1,020 )       (1,006 )   (1,020 )   (1,006 )
Non-GAAP operating expenses $ 22,258   $ 20,589   $ 19,388   $ 84,714   $ 83,708  
% of Net sales 60 % 54 % 49 % 47 % 39 %
 
Operating loss per GAAP $ (21,817 ) $ (4,594 ) $ (30,851 ) $ (28,836 ) $ (15,118 )
Non-GAAP adjustments to gross profit 13,397 792 22,864 16,218 26,069
Non-GAAP adjustments to operating expenses 3,286   286   5,310   8,149   (4,337 )
Non-GAAP operating (loss) income $ (5,134 ) $ (3,516 ) $ (2,677 ) $ (4,469 ) $ 6,614  
% of Net sales (14 %) (9 %) (7 %) (2 %) 3 %
 
Non-operating (expense) income, net per GAAP $ (6,117 ) $ 95 $ 317 $ (9,590 ) $ 253
Other-than-temporary impairment of cost based investments 6,115       9,703  

 

 

 
Non-GAAP non-operating (expense) income $ (2 ) $ 95   $ 317   $ 113   $ 253  
 
Net loss per GAAP $ (27,633 ) $ (4,640 ) $ (65,751 ) $ (38,334 ) $ (54,716 )
Non-GAAP adjustments to gross profit 13,397 792 22,864 16,218 26,069
Non-GAAP adjustments to operating expenses 3,286 286 5,310 8,149 (4,337 )
Non-GAAP adjustments to non-operating expense 6,115 9,703
Income tax effect of valuation adjustments 46,916 46,916
Income tax effect of other non-GAAP adjustments (126 ) 468   (10,319 ) (797 ) (7,508 )
Non-GAAP net (loss) income $ (4,961 ) $ (3,094 ) $ (980 ) $ (5,061 ) $ 6,424  
% of Net sales (13 %) (8 %) (2 %) (3 %) 3 %
Basic Non-GAAP net (loss) income per share $ (0.16 ) $ (0.10 ) $ (0.03 ) $ (0.17 ) $ 0.22  
Diluted Non-GAAP net (loss) income per share $ (0.16 ) $ (0.10 ) $ (0.03 ) $ (0.17 ) $ 0.21  
 
Electro Scientific Industries, Inc.
Fourth Quarter and Fiscal 2014 Results

(Amounts in thousands)

(Unaudited)

       
Consolidated Condensed Statements of Cash Flows:
    Fiscal quarter ended   Fiscal year ended
Mar 29, 2014 Dec 28, 2013 Mar 30, 2013 Mar 29, 2014 Mar 30, 2013
Net loss $ (27,633 ) $ (4,640 ) $ (65,751 ) $ (38,334 ) $ (54,716 )
Non-cash adjustments and changes in operating activities 12,390   3,876   55,324   19,218   71,823  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (15,243 ) (764 ) (10,427 ) (19,116 ) 17,107
NET CASH PROVIDED BY INVESTING ACTIVITIES 8,545 8,169 54,534 7,831 70,747
NET CASH USED IN FINANCING ACTIVITIES (2,025 ) (1,880 ) (1,564 ) (9,100 ) (67,143 )
Effect of exchange rate changes on cash 10   (326 ) (870 ) (67 ) (1,578 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (8,713 ) 5,199 41,673 (20,452 ) 19,133
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 77,174   71,975   47,240   88,913   69,780  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,461   $ 77,174   $ 88,913   $ 68,461   $ 88,913  
 


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Contact:

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