ESI Announces Second Quarter Fiscal 2009 Results

Business Wire, Oct 22, 2008

PORTLAND, Ore. -- Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading provider of world-class photonic and laser microengineering systems, today announced results for its fiscal 2009 second quarter, representing the three-month period ended September 27, 2008. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items.

Second quarter revenues were $49.6 million, representing a 23% decrease from the first quarter. Net loss for the quarter was $0.7 million or $0.02 per share, compared to a net loss of $2.8 million or $0.10 per share in the prior quarter. Excluding the impact of purchase accounting, equity compensation and restructuring costs, non-GAAP net income was $1.3 million or $0.05 per diluted share, down from $2.5 million or $0.09 per diluted share in the first quarter of fiscal 2009.

"Weakening economic, credit, and market conditions impacted our orders and sales this quarter," noted Nick Konidaris, president and CEO. "However, improved gross margins and tight control of operating expenses allowed us to deliver earnings on a non-GAAP basis that were at the high end of our original expectations."

Second quarter orders were $37.6 million, down 37% from the first quarter, reflecting global economic weakness and further contraction in the semiconductor memory market. "The global financial crisis has put additional pressure on most of our markets. Weakening consumer demand for electronics products exacerbated the overcapacity condition of our customers, particularly for memory repair, driving down average device selling prices and weighing on their profitability and capital spending. Interconnect and micromachining orders were strong, but down from the record level received in the first quarter," Konidaris added.

Gross Margins were 42.5%, up from 39.5% in the first quarter. Operating expenses fell by over $2 million sequentially to $23.4 million, the result of continued efforts to lower the company's cost structure. Konidaris stated, "Consistent with the overall market conditions, we took additional actions during the quarter to reduce our cost structure, which resulted in a restructuring charge of approximately $1.2 million. These actions should enable us to lower our non-GAAP operating breakeven level to approximately $50 million of revenue per quarter and better position us to mitigate the impact of cyclicality in our markets."

Balance Sheet and Cash Flow

Cash and investments were $166.2 million, including approximately $14.1 million of auction rate securities. Cash provided by operations was $14.3 million for the second quarter, driven primarily by a reduction in working capital. During the quarter we repurchased approximately 94,000 shares of stock for $1.4 million, at an average price of $14.65 per share, as part of our ongoing program to offset dilution.

Merger with Zygo Corporation

On October 16 the company announced that it had signed a merger agreement to acquire Zygo Corporation in an all-stock transaction. The merger is expected to close in the first calendar quarter of 2009. Konidaris added, "The merger of Zygo and ESI positions us to become a premier photonic microengineering and metrology solutions company. It creates a company of greater scale with a more diversified revenue stream, and broadens both our range of capabilities and our addressable market. This transaction is an important step forward in both of our strategies, and it will enable us to access new growth opportunities, leverage economies of scale, and improve profitability as we look ahead to the coming years."

Contingent upon the close of the merger, the ESI Board of Directors approved an increase to the existing share repurchase authorization to $100 million. The repurchases will be made at management's discretion in the open market in compliance with applicable securities laws and other legal requirements and are subject to market conditions, share price and other factors. "This repurchase program will reduce dilution from the transaction, while retaining flexibility and liquidity in today's uncertain markets," added Konidaris.

Q3 2009 Outlook

Looking forward, economic uncertainties, liquidity concerns, and cautious capital spending will continue to weigh on the demand for ESI's products. As a result, given our backlog we expect third quarter shipments and revenues of $30-40 million and non-GAAP loss per share of between $0.10 and $0.20 excluding the impact of purchase accounting, equity compensation, restructuring costs, and non-recurring items.

Konidaris concluded, "Although visibility is limited and the timing of a recovery is difficult to predict, we believe that overall demand for our products has bottomed out around current levels. We also believe that the underlying demand drivers of miniaturization and complexity of technology and devices remain intact. In the interim, we will continue to focus on improving gross margins, managing our cost structure, and executing our strategy to expand into new markets and applications, as we demonstrated last week with the Zygo merger announcement. We believe this action will create a company that is positioned to leverage its larger scale into expanded growth opportunities and improved profitability."