EX-99.1 2 a5527289ex99_1.txt Exhibit 99.1 ESI Announces Second Quarter Results, Reports Strongest Shipments and Revenue Since 2001 PORTLAND, Ore.--(BUSINESS WIRE)--Oct. 24, 2007--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 second quarter, representing the three-month period of July 1, 2007 through September 29, 2007. Due to the change in the fiscal year, comparisons are made to the fourth quarter of fiscal 2007, which was the last full three-month fiscal period for the company. All results include the impact of the acquisition of New Wave Research, Inc. (NWR) on July 20, 2007. Q2 2008 to Q4 2007 Comparisons Second quarter sales were $82.3 million, representing a 15% increase from the fourth quarter and the highest quarterly revenue level since fiscal 2001. Operating income for the quarter was $7.5 million, including the impact of $4.3 million of purchase accounting adjustments related to the purchase of NWR. Excluding the impact of purchase accounting adjustments, operating income was $11.8 million, compared to $10.5 million for the fourth quarter of fiscal 2007. Second quarter net income was $5.5 million, or $0.19 per diluted share. Without the impact of purchase accounting, net income was $9.8 million, or $0.34 per diluted share, compared with net income of $7.9 million, or $0.27 per diluted share, in the fourth quarter. Second quarter orders were $74.4 million, up 3% compared with $72.3 million in the fourth quarter of 2007. Orders exceeded $70 million for the third consecutive quarter and represented the highest amount booked since the fourth quarter of 2004. Orders for the second quarter reflected an increase from the fourth quarter in the passive component and interconnect market segments. Semiconductor orders were down from the fourth quarter due to the timing of customer purchases in June. "The second quarter of 2008 represented another successful period for ESI," noted Nick Konidaris, ESI president and CEO. "In addition to achieving the highest quarterly shipment and revenue results since 2001, we recorded the highest order level since the fourth quarter of 2004. Our interconnect segment reported the second consecutive record breaking quarter for orders and the passive component group achieved the highest order levels since 2001. In our semiconductor segment, we received multiple orders for our newest memory repair system, the 9850 UV. In late July, we concluded the purchase of NWR and the partial quarter results from this acquisition contributed to the strong success of the quarter." Gross margin for the second quarter was 45%, including the impact of $1.1 million in purchase accounting charges to cost of goods sold. Excluding the impact of purchase accounting, gross margin for the second quarter was 46%, consistent with the fourth quarter of fiscal 2007. Operating expenses were $29.3 million including the impact of $3.2 million in purchase accounting charges. Approximately $2.8 million of the purchase accounting charges consisted of the write-off of in-process research and development. Excluding the impact of purchase accounting, operating expenses for the quarter were $26.1 million, compared to $22.8 million in the fourth quarter of fiscal 2007. The increase in expense levels compared to the fourth quarter was due to the addition of NWR. Second quarter interest and other income of $2.1 million was down compared to the fourth quarter. The decline was primarily due to lower average cash balances resulting from the purchase of NWR and the impact of our stock repurchase program. Income tax expense for the second quarter was $4.1 million, an effective tax rate of 42%. The increase in tax rate over fiscal 2007 was due to the impact of non-deductible purchase accounting charges. YTD Results Year to date results, which represent the period June 3, 2007 to September 29, 2007, were as follows: orders totaled $99 million; shipments were $104 million; and revenue was $99 million. Net income, including purchase accounting adjustments, was approximately $7 million, or $0.24 per diluted share. These results include NWR activity from the date of acquisition on July 20, 2007 through September 29, 2007 as follows: orders of $6 million; shipments of $6 million; and revenue of $5 million. Financial Position Overview Cash and investments were $179 million, down $49 million from the fourth quarter of fiscal 2007. The decrease was primarily the result of the $36 million net cash investment for the acquisition of NWR and $25 million in stock repurchases for the four month period. Cash generated from operations was $8 million for the second quarter and $12 million year-to-date. Accounts receivable were $56 million, including $5 million from NWR, down slightly compared to the end of the fourth quarter. Inventories of $92 million increased $11 million from the fourth quarter. Approximately half of the increase was due to the acquisition of NWR inventory. The remaining increases were primarily due to the ramp in activity surrounding demand for passive component and interconnect products. Deferred revenue increased from the fourth quarter to $19 million due to customer-specific acceptance criteria on orders that shipped late in the quarter. Konidaris added, "For the third quarter, we expect shipments and revenue to be approximately $73 to $83 million. The gross margin percentage is expected to be approximately 44 percent due to changes in product mix in the third quarter and the impact of purchase accounting adjustments. Purchase accounting amortization is expected to impact third quarter margins by $500 thousand. Excluding the impact of purchase accounting, margins are estimated at approximately 45 percent. Operating expenses are expected to range from $26 to $28 million for the quarter, including $1 million of integration costs and $500 thousand in purchase accounting amortization. We estimate net interest and other income will be approximately $1.7 million. The effective tax rate is anticipated to be approximately 37%, or 32% excluding the impact of purchase accounting. "Although our business is cyclical in nature, our long-term focus and investment in the development of new products and applications has resulted in a more diversified business structure for ESI. We expect demand for our new products in the semiconductor segment, particularly from our dual beam IR and UV tools, will remain healthy in the near-term. We expect demand for products in both our passive component and interconnect & micro-machining groups to remain strong. In addition, new product offerings from our New Wave division are expected to further expand our growth potential 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 19636145. A live audio Web cast can be accessed at www.esi.com. Upon completion of the call, an audio replay will be accessible through November 7, 2007 at 800-642-1687 (domestic participants) or 706-645-9291 (international participants). The audio replay will also be available on the ESI Web site. 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 microfeatures 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 Four Months Ended Ended --------------------- ----------- Sep. 29, Sep. 2, Sep. 29, 2007 2006 2007 --------------------- ----------- Net sales $ 82,318 $ 60,368 $ 99,279 Cost of sales 45,509 34,103 54,395 -------- -------- --------- Gross profit 36,809 26,265 44,884 Operating expenses: Selling, service and administration 15,380 10,764 19,125 Research, development and engineering 11,093 9,304 13,979 Write-off of acquired in- process research & development 2,800 - 2,800 -------- -------- --------- Total operating expenses 29,273 20,068 35,904 -------- --------- --------- Operating income 7,536 6,197 8,980 Interest and other income, net 2,060 2,812 2,876 -------- -------- --------- Income before income taxes 9,596 9,009 11,856 Provision for income taxes 4,066 2,807 4,908 -------- -------- --------- Net income $ 5,530 $ 6,202 $ 6,948 ======== ========= ========= Net income per share - basic $ 0.20 $ 0.21 $ 0.25 ======== ========= ========= Net income per share - diluted $ 0.19 $ 0.21 $ 0.24 ======== ========= ========= 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 $ 5,530 $ 6,948 Amortization of acquisition- related FMV adjustments included in cost of sales 888 888 Amortization of acquisition- related intangibles included in cost of sales 222 222 -------- --------- Subtotal 1,110 1,110 Amortization of acquisition- related intangibles included in: Selling, service and administration 377 377 Research, development and engineering 2,800 2,800 -------- --------- Subtotal 3,177 3,177 -------- --------- Non-GAAP net income $ 9,817 $ 11,235 ======== ========= Basic non-GAAP net income per share $ 0.35 $ 0.40 ======== ========= Diluted non-GAAP net income per share $ 0.34 $ 0.39 ======== ========= Electro Scientific Industries, Inc. Analysis of FY 2008 Results (Dollars and shares in thousands) (Unaudited) Three Months Four Months Ended Ended ----------------- ----------- Sep. 29, Sep. 2, Sep. 29, 2007 2006 2007 ----------------------------- Sales detail: Semiconductor Group $38,176 $31,884 $45,742 Passive Components Group 23,791 18,661 28,209 Interconnect Micro-Machining Group 20,351 9,823 25,328 -------- -------- ----------- Total $82,318 $60,368 $99,279 ======== ======== =========== Gross margin % 45% 44% 45% Selling, service and administration expense % (a) 19% 18% 19% Research, development and engineering expense % 13% 15% 14% Operating income % 9% 10% 9% Effective tax rate % 42% 31% 41% Average shares outstanding - basic 28,161 29,076 28,268 Average shares outstanding - diluted 28,647 29,243 28,743 End of period employees 796 636 796 (a) Includes insurance recoveries. Electro Scientific Industries, Inc. FY 2008 Results (Amounts in thousands) (Unaudited) Financial Position As Of: Sep. 29, 2007 Jun. 2, 2007 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 102,795 $ 100,462 Marketable securities 53,166 124,607 ------------- ------------ Total cash and securities 155,961 225,069 Trade receivables, net 56,489 55,722 Income tax refund receivable 1,085 696 Inventories 91,891 80,981 Shipped systems pending acceptance 6,714 1,817 Deferred income taxes, net 10,214 9,504 Prepaid and other current assets 8,314 5,080 ------------- ------------ Total current assets 330,668 378,869 Long-term marketable securities 23,246 3,622 Property, plant and equipment, net 46,782 43,859 Acquired New Wave Research intangible assets, net 11,744 - Goodwill 12,866 1,442 Deferred income taxes, net 7,996 11,246 Other assets 33,307 26,630 ------------- ------------ Total assets $ 466,609 $ 465,668 ============= ============ Liabilities and shareholders' equity Current liabilities: Accounts payable $ 16,217 $ 13,826 Accrued liabilities 28,081 25,465 Deferred revenue 19,365 12,290 ------------- ------------ Total current liabilities 63,663 51,581 Income tax liabilities 7,843 5,757 Shareholders' equity: Preferred and common stock 142,160 162,719 Retained earnings 252,494 245,546 Accumulated other comprehensive income 449 65 ------------- ------------ Total shareholders' equity 395,103 408,330 ------------- ------------ Total liabilities and shareholders' equity $ 466,609 $ 465,668 ============= ============ End of period shares outstanding 27,844 28,766 ============= ============ Total cash and investments $ 179,207 $ 228,691 ============= ============ Electro Scientific Industries, Inc. FY 2008 Results (Amounts in thousands) (Unaudited) Consolidated Statements of Cash Three Months Four Months Flows: Ended Ended --------------------------------- Sep. 29, Sep. 2, Sep. 29, 2007 2006 2007 ---------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,530 $ 6,202 $ 6,948 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,353 1,969 3,034 Amortization of intangible assets 3,367 - 3,367 Stock-based compensation expense 1,044 577 1,239 Provision for doubtful accounts - 104 - Loss on disposal of property and equipment 2 - 3 Insurance recovery on damaged equipment - (1,287) - Deferred income taxes (73) 2,711 (73) Changes in operating accounts: (Increase) decrease in trade receivables, net 1,210 (12,723) 6,120 (Increase) decrease in income tax refund receivable (389) 592 (389) (Increase) decrease in inventories 137 (6,744) (4,608) (Increase) decrease in shipped systems pending acceptance (4,588) 588 (4,897) (Increase) decrease in prepaid and other current assets 1,268 (1,716) 947 Increase (decrease) in accounts payable and other liabilities (6,880) 1,539 (4,849) Increase (decrease) in deferred revenue 5,218 (1,162) 5,472 ---------- ---------- ----------- Net cash provided by (used in) operating activities 8,199 (9,350) 12,314 ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (1,907) (4,285) (2,473) Purchase of securities (134,041) (135,617) (167,482) Proceeds from sale of securities and maturing securities 163,156 147,195 219,210 Cash paid for acquisition of New Wave Research, net of cash acquired (36,159) - (36,159) Minority equity investment - (6,000) - Insurance recovery - 1,287 - (Increase) decrease in other assets 1,123 1,430 (1,077) ---------- ---------- ----------- Net cash provided by (used in) investing activities (7,828) 4,010 12,019 ---------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options and stock plans 2,037 665 2,184 Share repurchases (18,878) - (24,866) Tax benefits realized from stock options exercised 682 40 682 ---------- ---------- ----------- Net cash provided by (used in) financing activities (16,159) 705 (22,000) ---------- ---------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS $ (15,788) $ (4,635) $ 2,333 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 118,583 $ 79,961 $ 100,462 ---------- ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 102,795 $ 75,326 $ 102,795 ========== ========== =========== CONTACT: ESI Chris Butterfield, 503-672-5760