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Form 8-K ELECTRO SCIENTIFIC INDUS For: Nov 01

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November 1, 2016 4:15 PM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 1, 2016
 
 
ELECTRO SCIENTIFIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
  

 
 
 
 
 
OREGON
 
0-12853
 
93-0370304
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
13900 NW Science Park Drive, Portland, Oregon
 
97229
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (503) 641-4141
No Change
(Former name or former address, if changed since last report)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02    Results of Operations and Financial Condition
On November 1, 2016, Electro Scientific Industries, Inc. (the “Company”) announced its financial results for the second quarter of fiscal 2017. The Company’s press release announcing this event is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01    Financial Statements and Exhibits
(d)Exhibits
99.1    Press release dated November 1, 2016




SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 1, 2016
 
 
 
 
 
 
Electro Scientific Industries, Inc.
 
 
 
 
By:
 
/s/ Paul Oldham
 
Name:
 
Paul Oldham
 
Title:
 
Senior Vice President of Administration, Chief Financial Officer and Corporate Secretary




letterheadlogoa07.jpg

Brian Smith                                            
ESI
503-672-5760

ESI Announces Second Quarter Fiscal 2017 Results
 
PORTLAND, Ore. – November 1, 2016 – Electro Scientific Industries, Inc. (NASDAQ: ESIO), an innovator of laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2017 second quarter ended October 1, 2016. Financial measures are provided on both a GAAP and a non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, acquisition costs, and other items.
Second quarter revenue was $29.7 million, compared to $47.7 million in the first quarter of 2017 and $46.5 million in the second quarter of last fiscal year. GAAP net loss was $9.7 million or $0.30 per share, compared to a net loss of $0.1 million, or $0.00 per share in the first quarter. On a non-GAAP basis net loss was $7.7 million or $0.24 per share, compared to net income of $3.0 million or $0.09 per diluted share in the prior quarter.
Michael Burger, president and CEO of ESI, said, “Our second quarter was challenging for ESI, with short-term overcapacity in our core business resulting in sequentially lower revenues, earnings, and cash flow. The team reacted appropriately to the change in market environment, by controlling operating expenses while keeping focused on our long-term growth initiatives."
Bookings in the second quarter were $28.0 million, compared to $30.4 million in the prior quarter and $51.5 million last year. Burger continued, “The demand environment continues to be challenging in fiscal 2017, with year-to-date bookings down 37% from a year ago. As we expected, capital spending in

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

ESI Announces Second Quarter Fiscal 2017 Results

the flex via drilling market remained low during the quarter. Nevertheless, we added three new flex customers, and we expect to see improvement in flex before the end of the fiscal year. Further, our Micromachining division has begun to see traction with improved quote and design-in activity. Lastly, our Visicon acquisition is beginning to produce new business opportunities, as customer interest in a laser solution with integrated verification is growing.”
On a GAAP basis gross margin was 37.0%, compared to 43.7% in the prior quarter. Operating expenses were $20.9 million, up slightly from $20.5 million in the prior quarter. Operating loss was $9.9 million, compared to income of $0.3 million last quarter.
Non-GAAP gross margin was 38.2% compared to 46.7% in the prior quarter. Non-GAAP operating expenses remained flat at $18.9 million, despite the addition of the Visicon acquisition completed during the quarter. Non-GAAP operating loss was $7.6 million, down from income of $3.3 million in the first quarter.
Balance Sheet and Cash Flow
At quarter end, cash and investments were $59.1 million, compared to $69.8 million last quarter. The company used $7.5 million of operating cash. Inventories increased by $2.4 million, due to the addition of Visicon inventory. Trade receivables decreased by $4.5 million, and accounts payable decreased by $5.4 million. In addition, the company paid approximately $2.0 million of cash for the acquisition of Visicon.
Third Quarter 2017 Outlook
Based on current orders and backlog, revenues for the third quarter of fiscal 2017 are expected to be approximately flat with second quarter levels. Non-GAAP loss per share is expected to be $0.25 to $0.30.

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

ESI Announces Second Quarter Fiscal 2017 Results

Burger concluded, "Over the past two and a half years Ed Grady has led an effort to transform ESI by strengthening its core business while expanding into large and growing market segments that leverage ESI's technology advantages. I want to thank Ed for his visionary leadership during this turnaround."
He continued, "I'm happy to be at ESI, and I am excited by the potential for growth. The technology at this company continues to amaze me. As I begin to work with our management team during these challenging market conditions, I see opportunities to sharpen our execution and focus our efforts on new product development and adoption."
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 17972950. 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, integration costs, inventory write-down 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

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

ESI Announces Second Quarter Fiscal 2017 Results

ESI’s integrated solutions allow industrial designers and process engineers to control the power of laser light to transform materials in ways that differentiate their consumer electronics, wearable devices, semiconductor circuits and high-precision components for market advantage. ESI’s laser-based manufacturing solutions feature the industry’s highest precision and speed, 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
This press release includes forward-looking statements about the markets we serve, growth, products, revenue, 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 and regional economic strength and political stability, timing of consumer product introductions and overall demand for electronic devices (such as semiconductors, printed circuit boards, displays, LEDs, capacitors and other components) 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; the risk that we may not be successful in penetrating new or adjacent markets; the risk that we do not successfully integrate Visicon Technologies or achieve the anticipated cost synergies; the risk that the incorporation of Visicon's vision technology does not give us a competitive advantage; 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; foreign currency fluctuations; the risk that efficiencies realized from our site consolidation are not as large as expected; 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 2017 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(In thousands, except per share data)
(Unaudited)

Operating Results:
 
 
 
 
 
 
 
 
 
 
Fiscal quarter ended
 
Two fiscal quarters ended
 
October 1, 2016
 
July 2, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Net sales:
 
 
 
 
 
 
 
 
 
Systems
$
21,442

 
$
38,200

 
$
35,570

 
$
59,642

 
$
67,632

Services
8,216

 
9,468

 
10,902

 
17,684

 
21,931

Total net sales
29,658

 
47,668

 
46,472

 
77,326

 
89,563

Cost of sales:
 
 
 
 
 
 
 
 
 
Systems
14,146

 
22,422

 
22,345

 
36,568

 
43,630

Services
4,532

 
4,438

 
5,706

 
8,970

 
12,135

Total cost of sales
18,678

 
26,860

 
28,051

 
45,538

 
55,765

Gross profit
10,980

 
20,808

 
18,421

 
31,788

 
33,798

 
37.0
%
 
43.7
%
 
39.6
%
 
41.1
%
 
37.7
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
12,766

 
12,871

 
12,534

 
25,637

 
25,151

Research, development and engineering
7,760

 
7,630

 
8,283

 
15,390

 
16,928

Acquisition and integration costs
335

 
—

 
40

 
335

 
194

Restructuring costs
—

 
—

 
591

 
—

 
653

Net operating expenses
20,861

 
20,501

 
21,448

 
41,362

 
42,926

Operating (loss) profit
(9,881
)
 
307

 
(3,027
)
 
(9,574
)
 
(9,128
)
Non-operating income (expense):
 
 
 
 
 
 
 
 
 
Interest and other income (expense), net
206

 
(78
)
 
6

 
128

 
1

Total non-operating income (expense)
206

 
(78
)
 
6

 
128

 
1

(Loss) income before income taxes
(9,675
)
 
229

 
(3,021
)
 
(9,446
)
 
(9,127
)
Provision for income taxes
—

 
347

 
239

 
347

 
497

Net loss
$
(9,675
)
 
$
(118
)
 
$
(3,260
)
 
$
(9,793
)
 
$
(9,624
)
Net loss per share - basic
$
(0.30
)
 
$
—

 
$
(0.10
)
 
$
(0.30
)
 
$
(0.31
)
Net loss per share - diluted
$
(0.30
)
 
$
—

 
$
(0.10
)
 
$
(0.30
)
 
$
(0.31
)



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

ESI Announces Second Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(Amounts in thousands)
(Unaudited)
Financial Position As Of:
 
 
 
 
October 1, 2016
 
July 2, 2016
 
April 2, 2016
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
52,685

 
$
62,463

 
$
42,413

Short-term investments
3,500

 
4,506

 
15,252

Trade receivables, net
29,744

 
34,272

 
42,770

Inventories
61,895

 
59,522

 
60,470

Shipped systems pending acceptance
3,893

 
2,319

 
1,181

Other current assets
5,547

 
5,219

 
5,340

Total current assets
157,264

 
168,301

 
167,426

Non-current assets:
 
 
 
 
 
Property, plant and equipment, net
24,581

 
24,775

 
24,543

Non-current deferred income taxes, net
884

 
951

 
914

Goodwill
12,652

 
7,445

 
7,445

Acquired intangible assets, net
6,589

 
6,866

 
7,146

Other assets
15,448

 
14,556

 
12,626

Total assets
$
217,418

 
$
222,894

 
$
220,100

Liabilities and shareholders' equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
13,611

 
$
19,031

 
$
16,061

Accrued liabilities
17,170

 
15,024

 
18,334

Deferred revenue
10,951

 
8,812

 
6,373

Total current liabilities
41,732

 
42,867

 
40,768

Non-current liabilities
 
 
 
 
 
Income taxes payable
1,360

 
1,343

 
1,266

Deferred income tax liability, net
226

 
227

 
234

Other liabilities
6,529

 
7,676

 
7,801

Total liabilities
49,847

 
52,113

 
50,069

Shareholders' equity:
 
 
 
 
 
Preferred and common stock
202,493

 
196,077

 
195,024

Accumulated deficit
(33,792
)
 
(24,116
)
 
(23,998
)
Accumulated other comprehensive loss
(1,130
)
 
(1,180
)
 
(995
)
Total shareholders' equity
167,571

 
170,781

 
170,031

Total liabilities and shareholders' equity
$
217,418

 
$
222,894

 
$
220,100

End of period shares outstanding
32,966

 
32,175

 
31,613



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

ESI Announces Second Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Analysis of Second Quarter Fiscal 2017 Results
(Dollars and shares in thousands)
(Unaudited)
 
Fiscal quarter ended
 
Two fiscal quarters ended
 
October 1, 2016
 
July 2, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Sales detail:
 
 
 
 
 
 
 
 
 
Component Processing
 
 
 
 
 
 
 
 
 
Interconnect Products (IP)
$
13,527

 
$
30,918

 
$
21,500

 
$
44,445

 
$
42,145

Component Test Products (CTP)
4,990

 
4,602

 
4,491

 
9,592

 
10,989

Semiconductor Products (SP)
7,222

 
7,609

 
6,763

 
14,831

 
17,904

 
25,739

 
43,129

 
32,754

 
68,868

 
71,038

Micromachining
 
 
 
 
 
 
 
 
 
Micromachining Products (MP)
3,919

 
4,539

 
13,718

 
8,458

 
18,525

Net Sales
$
29,658

 
$
47,668

 
$
46,472

 
$
77,326

 
$
89,563

 
 
 
 
 
 
 
 
 
 
Gross margin %
37.0%
 
43.7%
 
39.6%
 
41.1%
 
37.7%
Selling, general and administrative expense %
43%
 
27%
 
27%
 
33%
 
28%
Research, development and engineering expense %
26%
 
16%
 
18%
 
20%
 
19%
Operating (loss) income %
(33%)
 
1%
 
(7%)
 
(12%)
 
(10%)
Effective tax rate %
—%
 
152%
 
(8%)
 
(4%)
 
(5%)
Weighted average shares outstanding - basic
32,396
 
31,815
 
31,384
 
32,109
 
31,280
Weighted average shares outstanding - diluted - GAAP
32,396
 
31,815
 
31,384
 
32,109
 
31,280
End of period employees
725
 
657
 
677
 
725
 
677

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

ESI Announces Second Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(In thousands, except per share data)
(Unaudited)
Reconciliation of GAAP to Non-GAAP Financial Measures:
 
 
 
 
 
 
 
Fiscal quarter ended
 
Two fiscal quarters ended
 
October 1, 2016
 
July 2, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Gross profit per GAAP
$
10,980

 
$
20,808

 
$
18,421

 
$
31,788

 
$
33,798

Purchase accounting
228

 
229

 
325

 
457

 
591

Equity compensation
136

 
120

 
114

 
256

 
243

Charges for inventory write-off of damaged product
—

 
1,116

 
—

 
1,116

 
—

Non-GAAP gross profit
$
11,344

 
$
22,273

 
$
18,860

 
$
33,617

 
$
34,632

Non-GAAP gross margin
38.2
%
 
46.7
%
 
40.6
%
 
43.5
%
 
38.7
%
 
 
 
 
 
 
 
 
 
 
Operating expenses per GAAP
$
20,861

 
$
20,501

 
$
21,448

 
$
41,362

 
$
42,926

Purchase accounting
(203
)
 
(250
)
 
(74
)
 
(453
)
 
(910
)
Equity compensation
(1,383
)
 
(1,170
)
 
(1,126
)
 
(2,553
)
 
(1,866
)
Charges for asset write-off of damaged product
—

 
(100
)
 
—

 
(100
)
 
—

Acquisition and integration costs
(335
)
 
—

 
(40
)
 
(335
)
 
(308
)
Restructuring costs
(14
)
 
(37
)
 
(591
)
 
(51
)
 
(124
)
Non-GAAP operating expenses
$
18,926

 
$
18,944

 
$
19,617

 
$
37,870

 
$
39,718

% of Net sales
64
%
 
40
%
 
42
%
 
49
%
 
44
%
 
 
 
 
 
 
 
 
 
 
Operating (loss) income per GAAP
$
(9,881
)
 
$
307

 
$
(3,027
)
 
$
(9,574
)
 
$
(9,128
)
Non-GAAP adjustments to gross profit
364

 
1,465

 
439

 
1,829

 
834

Non-GAAP adjustments to operating expenses
1,935

 
1,557

 
1,831

 
3,492

 
3,208

Non-GAAP operating (loss) income
$
(7,582
)
 
$
3,329

 
$
(757
)
 
$
(4,253
)
 
$
(5,086
)
% of Net sales
(26
%)
 
7
%
 
(2
%)
 
(6
%)
 
(6
%)
 
 
 
 
 
 
 
 
 
 
Non-operating income (expense), net per GAAP
$
206

 
$
(78
)
 
$
6

 
$
128

 
$
1

Acquisition-related adjustments
$
(190
)
 
$
—

 
$
—

 
$
(190
)
 
$
—

Non-GAAP non-operating income
(expense)
$
16

 
$
(78
)
 
$
6

 
$
(62
)
 
$
1

 
 
 
 
 
 
 
 
 
 
Net income per GAAP
$
(9,675
)
 
$
(118
)
 
$
(3,260
)
 
$
(9,793
)
 
$
(9,624
)
Non-GAAP adjustments to gross profit
364

 
1,465

 
439

 
1,829

 
834

Non-GAAP adjustments to operating expenses
1,935

 
1,557

 
1,831

 
3,492

 
3,208

Non-GAAP adjustments to non-operating expense
(190
)
 
—

 
—

 
(190
)
 
—

Income tax effect of other non-GAAP adjustments
(101
)
 
65

 
(53
)
 
(36
)
 
(152
)
Non-GAAP net (loss) income
$
(7,667
)
 
$
2,969

 
$
(1,043
)
 
$
(4,698
)
 
$
(5,734
)
% of Net sales
(26
%)
 
6
%
 
(2
%)
 
(6
%)
 
(6
%)
Basic Non-GAAP net (loss) income per share
$
(0.24
)
 
$
0.09

 
$
(0.03
)
 
$
(0.15
)
 
$
(0.18
)
Diluted Non-GAAP net (loss) income per share
$
(0.24
)
 
$
0.09

 
$
(0.03
)
 
$
(0.15
)
 
$
(0.18
)

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

ESI Announces Second Quarter Fiscal 2017 Results

Electro Scientific Industries, Inc.
Second Quarter Fiscal 2017 Results
(Amounts in thousands)
(Unaudited)
Consolidated Condensed Statements of Cash Flows:
 
 
 
 
 
 
 
 
 
Fiscal quarter ended
 
Two fiscal quarters ended
 
October 1, 2016
 
July 2, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Net loss
$
(9,675
)
 
$
(118
)
 
$
(3,260
)
 
$
(9,793
)
 
$
(9,624
)
Non-cash adjustments and changes in operating activities
2,204

 
11,566

 
5,428

 
13,770

 
14,119

Net cash (used in) provided by operating activities
(7,471
)
 
11,448

 
2,168

 
3,977

 
4,495

Net cash (used in) provided by investing activities
(2,475
)
 
8,979

 
(12,264
)
 
6,504

 
(11,795
)
Net cash provided by (used in) financing activities
259

 
(398
)
 
264

 
(139
)
 
134

Effect of exchange rate changes on cash
(91
)
 
21

 
(357
)
 
(70
)
 
(186
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(9,778
)
 
20,050

 
(10,189
)
 
10,272

 
(7,352
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
62,463

 
42,413

 
53,831

 
42,413

 
50,994

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
52,685

 
$
62,463

 
$
43,642

 
$
52,685

 
$
43,642




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

ESI Announces Second Quarter Fiscal 2017 Results

Reconciliation of GAAP to Non-GAAP Financial Measures - Projected
Fiscal quarter ending December 31, 2016
 
 
Non-GAAP loss per share
(0.25) - (0.30)
Purchase accounting
(0.01) - (0.02)
Equity compensation
(0.06)
Other items
(0.01) - (0.02)
GAAP loss per share
(0.33) - (0.40)


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

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