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Executives

Brian Smith – Director-Investor Relations

Nick Konidaris – President and Chief Executive Officer

Paul Oldham – Chief Financial Officer, Vice President of Administration, Corporate Secretary

Analysts

Jim A. Ricchiuti – Needham & Co. LLC

Mark S. Miller – Noble Financial Capital Markets

David Duley – Steelhead Securities LLC

Tom Diffely – D.A. Davidson & Co

Electro Scientific Industries, Inc (ESIO) Q4 2013 Earnings conference call May 7, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the ESI Fiscal 2013 Q4 Earnings Call. My name is Whitlee and I’ll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today Mr. Brian Smith. You may proceed.

Brian Smith

Thank you, Whitlee, and good afternoon everyone. My name is Brian Smith, Director of Investor Relations for ESI. With me today are Nick Konidaris, our CEO; and Paul Oldham, our Chief Financial Officer. This call will cover our fiscal 2013 fourth quarter results. Before we go into the details of the call, I would like to remind you that comments that we say on this call will include forward-looking statements concerning customer orders, shipments, revenue, gross margins, expenses and earning.

These statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include a number of risks and uncertainties that are discussed in more detail in today’s press release and our filings with the SEC. Actual results may differ materially from those forward-looking statements. This call also contains time-sensitive information that we believe to be accurate as of today, May 7, 2013, and which could change in the future. This call is the property of ESI.

Now, I will turn the call over to Nick.

Nick Konidaris

Thank you Brian, Good afternoon, and welcome to our fourth quarter conference call. We grew orders and revenues versus the prior quarter as our transformation to focus on consumer electronics continues. On the non-GAAP basis, we also improved our gross margin operating profit and EPS. Demand related to our consumer electronics business improved. Our flex interconnect business rebounded after several slow quarters and received our first orders for the DiamondBlaze glass cutting system.

In our advanced microfabrication business, orders for new design names pushed out one quarter, we expect to see orders beginning in Q1 fiscal year 2014. Incidentally during our fourth quarter and DRAM customer order several memory repair system for capacity driven by mobile DRAM.

Revenues for the quarter were $39.6 million; non-GAAP loss per sale was $.03. Paul who will go into more details around the financials in a moment. Now I’ll discuss each of our businesses.

The interconnect and micorfabrication group had revenue of $22 million, down about 25% from last quarter. For the fiscal year revenues grew 2% with most advanced micorfabrication and flex circuit driving showing modest gains over record levels last year.

Orders within interconnect and micorfabrication group rebounded. Orders for advanced microfabrication products grew modestly in the quarter and we are up 40% from the fiscal year. The final of activity continues to be brisk and we expect orders from new design beginning in Q1 fiscal year ‘14.

We are working hard to secure more new design wins in the coming fiscal year and we see the potential to grow this business again over fiscal year 15 levels.

The pace of design in future innovation at our customers continues to quick and we continually prove ourselves to be a unique partner in our ability to keep up with them and enabled their success.

Orders for flex via drilling products increased more normalized levels in the quarter. The via drilling market for flex circuits have been depressed for several quarters following much build-up in capacity last spring.

In our fourth quarter of last fiscal year, we shipped nearly a year’s worth of orders, which took the three quarters to absorb. With capacity utilization returning to its normal high level, flex circuit manufacturers began towards the more capacity from your side.

In addition, our new model 5335, who sell proprietary for dynamic technology and industry leading cost of ownership and accuracy is gaining traction of the market. As I mentioned earlier, we shipped a multi unit order for our new DiamondBlaz system for optimally cutting net generation certain glass. The orders work for systems capable of handling final sizes from gen 3.5 through gen 6

With smartphones, tablets and now touch screen laptop computers, the demand for touch panel glass is expected to grow dramatically. As we market observed the latest generation Strengthened Glass technologies demand for our own DiamondBlaze production will grow.

Turning to our semiconductor business; at $8.7 million revenues were more than doubled from last quarter. We mentioned in our last quarter, you might see the occasional capacity add in memory PF and that is still the case. We’re prepared to serve our customers need for new capacity, but do not expect to see a meaningful revenue in this business.

As the quarter closed, we announced to have entered into an agreement to acquire the semiconductor systems business from GSI Group. This business produces industry leading wafer marking, wafer trimming and circuit trimming laser systems. (inaudible) we’re very excited to add these products to our portfolio and to welcome the GSI System Inc. to the ESI family.

Our components group generated $7.9 million for revenues nearly double the level from last quarter. On the order side demand was below last quarter, but reflecting a slow ceramic capacitor market. Although overall MLCC production is still in order capacity. We received another order for our newest model 5510-A as technology changed our smaller form factors, higher capacitance and embedded designs has presented ESI with opportunities to differentiate the solutions and grow market share.

Turning now to the outlook of the Company. First a common on our strategy, with respond the ESI and our focus on capturing the expanding opportunities in consumer electronics. In addition we’re investing kind of emerging opportunities in 3D semiconductor, LED packaging, and enabling laser technologies. This strategy is on track and we’re excited about our growth prospects.

As you look to our new fiscal year, we see more this improvement in many of our markets. Our largest market an advanced laser microfabrication continues to present as with opportunities to win new designs and received large orders. Laser cutting or touch panel glass is emerging can looks to become a significant market for us. Flex circuits are getting back door full capacity utilization and the emergency market is expected to grow in 2013 compared to a decline in 2012.

In semiconductor and LED, we’re investing and developing singulation solutions for next generation 3D packages and LED wafers and substrates.

Lastly, our recent acquisition broadens our product portfolio now through ESI on both the top line and the bottom line. In the near term business levels will be driven by technology various timing of designing’s and modest improvements from capacity utilization.

For the first quarter of fiscal 2014, we expect revenues to be in the mid-to-high $40 million range including our recent acquisition. Non-GAAP EPS is expected to be breakeven to slightly positive.

Now I will turn the call over to Paul for a detailed discussion of our results for the first quarter.

Paul Oldham

Thank you, Nick, and good afternoon, everyone. The following information includes results from our fourth quarter of fiscal 2013, which ended March 30. To improve comparability, we are also providing earnings per share and related income statement results on a non-GAAP basis, excluding the impact of purchase accounting, equity compensation, restructuring charges, evaluation charges and other items.

Before reviewing the operating results, I would like to take a minute to discuss the restructuring and other special charges in the quarter. In refocusing our business, we discontinued a variety of legacy products and narrowed our product development efforts. This resulted in a charge of roughly $25.7 million, which included $19.8 million to write-down the inventory mostly for our memory repaired products.

The write-off of approximately $3.3 million of assets and restructuring charge of about $2.6 million, as a return to our product portfolio. Consolidated our organization structure and reduced headcount. In total about $3 million of these charges will result in cash outlays, most of which has already been paid out.

In addition we recorded a $47 million valuation allowance on our Federal and State deferred tax assets based on historical U.S. profitability and our projections for domestic versus foreign income in future years. As a result of these actions we expect to be a leaner, more focused organization, better positioned to weather the troughs in our business and drive profitable growth.

As Nick mentioned following the end of the quarter, we acquired the semiconductor systems business of GSI for approximately $8 million. For the remainder of the fiscal year, we expect this business should generate revenues of $20 million to $25 million and incremental EPS of $0.05 to $0.10 before transition costs and purchase accounting.

Now turning to the operating results for the quarter; orders were $44 million, compared to $26 million last quarter and $17 million a year ago, or it’s increased from Q3 primarily from a rebound in our flex interconnect businesses, but we were down from record levels last year. In addition we received our first orders for our new DiamondBlaze, Strengthened Glass cutting system and a multi unit order for DRAM repair driven by mobile DRAM.

Shipments were $43 million and backlog increased to $33 million. Our book to bill ratio was 1.03 to 1. Deferred revenue increased $3.7 million on higher contract booking and shipment of newly introduced systems. Revenue for the quarter was $39.6 million, up from $37.9 million last quarter. Sequential improvement in both our semiconductor and components groups more than offset the decline in interconnect and microfabrication.

GAAP gross margin was negative 16% and the included $22.1 million of the inventory related and asset depreciation charges I mentioned earlier. Also in cost of sales were $489,000 of purchase accounting, and $263,000 in equity compensation.

On a non-GAAP basis, gross margin was 42.2%, up from 39.9% last quarter on better manufacturing efficiency. Looking forward to next quarter, we expect non-GAAP gross margins to increase on higher volume, better mix and the addition of the GSI system business.

GAAP operating expenses were $24.7 million, which included $3.6 million of restructuring costs and asset write-offs, $1.5 million of equity compensation and the $123,000 of purchase accounting.

Non-GAAP operating expenses in Q4 were $19.4 million, a slight increase from Q3 Looking forward, we expect non-GAAP expenses in Q1 to be higher by $1.5 million to $2 million as a result of the addition of the Semiconductor Systems Group.

On a GAAP basis, operating loss was $30.9 million, compared to income of $9.4 million last quarter, which included the $15.4 million in net proceeds on the IP legal settlement. Non-GAAP operating loss was $2.7 million, compared to a loss of $3.9 million in the prior quarter. The sequential improvement reflects the higher sales in gross margin.

Income tax expense on a GAAP basis for the quarter was $35.2 million, reflecting the valuation allowance I discussed previously. The non-GAAP tax rate was a benefit of 58%, largely a result of R&D tax and other manufacturing credit for the year.

Looking forward, we will report non-GAAP tax expense on a cash basis, which will also approximate the GAAP tax rate, given the valuation allowance. We expect the tax rate for both GAAP and non-GAAP basis to be approximately 5% to 10%.

On a GAAP basis, fourth quarter net loss was $65.8 million or $2.23 per share, compared to income of $0.23 per diluted share last quarter. On a non-GAAP basis, the net loss was $1 million or $0.03 per share, compared to a loss of $0.05 per share last quarter.

Turning now to our balance sheet, cash and investments were $157.4 million, a decrease of $13.7 million from last quarter. During the quarter, we used $10.4 million of operating cash, primarily due to an increase in accounts receivable. In addition, we paid our normal quarterly of $0.08 per share on March 14.

For the quarter, inventories decreased by $17 million after the write-off of memory repair and other discontinued inventory, resulting in inventory turns of approximately 2.6 times. Underlying inventories increased approximately $3 million. Accounts receivable increased by $30 million to $32 million. DSO increased to 73 days primarily on the timing on shipment. Capital expenditures were $1 million, and depreciation and amortization excluding purchase accounting was $3 million.

In summary, revenues improved by remained below our breakeven level. On a non-GAAP basis, solid gross margins and good expense control limited our lost to $0.03 per share. Turning now to next quarter, we expect Q1 revenues to be in the mid-to-high $40 million, which includes the addition of a partial quarter of the acquired Semiconductor Systems Business. Non-GAAP net income is expected to be breakeven to slightly positive.

Now we will turn the call back to Nick for a brief summary.

Nick Konidaris

To summarize, this quarter we’ll continue the transformation of ESI into our company focused on growing opportunities in laser microfabrication for smart consumer electronics. We entered new markets such as glass singulation and broadened our portfolio through the recent acquisition. We trimmed our portfolio of legacy products, refocused our product development efforts and lower our cost structure. Our strategy to be the leading laser microfabrication company is on track.

This concludes our prepared remarks. We are ready for your questions. Whitlee? Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jim Ricchiuti of Needham & Co. You may proceed.

Jim A. Ricchiuti – Needham & Co. LLC

Thanks. Good afternoon.

Nick Konidaris

Good afternoon.

Paul Oldham

Hi, Jim.

Jim A. Ricchiuti – Needham & Co. LLC

A couple of questions. I wonder if you can tell us how many of the DiamondBlaze systems are currently in the field right now or will ship?

Nick Konidaris

In the field there is one right now and the order was for three systems.

Jim A. Ricchiuti – Needham & Co. LLC

Okay. And Nick, how many customers for the three orders that you received?

Nick Konidaris

One customer.

Jim A. Ricchiuti – Needham & Co. LLC

One customer. Can you give us a sense as to how this has the potential to roll out over the next couple of quarters, will this customer be evaluating it over a period or do you expect a ramp from this customer?

Nick Konidaris

Yeah, this is not an evaluation order. This is an outside order of three systems. This

customer is much of acreage to a design win, this new tempered glass into products by the OEM, so that people could make the transponders, the tablets, phones, laptops and so forth. And these systems are going to be used to basically accelerate the penetration of the new glass into the final products of the OEM designers. And this is the reason that as the design wins take place, we think is going to be in the $40 million to $50 million per year business and the way to see this order is not his is evaluation, it’s not evaluation. It’s outside order, but is [exit] order to accelerate the acceptance of the new tempered glass.

Jim A. Ricchiuti – Needham & Co. LLC

Would you anticipate other production orders from this customer in the current quarter?

Nick Konidaris

We would anticipate production orders from the TPMs, which are the touch panel manufacturers.

Jim A. Ricchiuti – Needham & Co. LLC

In the current quarter?

Nick Konidaris

No. I would not say in the current quarter, but starting, the current quarter, but definitely this year, definitely in the first half of this year.

Jim A. Ricchiuti – Needham & Co. LLC

Okay. And with respect to the improvement you saw in flex interconnect, was that primarily coming out of Korea?

Nick Konidaris

I’m not sure that was primarily, but I definitely can say that Korea was a very big part.

Jim A. Ricchiuti – Needham & Co. LLC

Okay. And, Paul, can you say what the backlog that you get from the semiconductor business, from GSIG?

Paul Oldham

It is about $3 million to $4 million.

Jim A. Ricchiuti – Needham & Co. LLC

$3 million and $4 million. And I may have missed it, did you gave your year-end backlog?

Paul Oldham

We did. It was $33 million.

Jim A. Ricchiuti – Needham & Co. LLC

Okay. Okay, thank you.

Nick Konidaris

Thank you.

Operator

Your next question comes from the line of Mark Miller, Noble Financial Capital Markets. You may proceed.

Mark S. Miller – Noble Financial Capital Markets

Good afternoon, Nick and Paul.

Nick Konidaris

Hi, Mark.

Mark Miller – Noble Financial Capital Markets

Hi. I might just ask some questions about the coning activity. I seems like this quarter was certainly an uptick from last quarter and we’ve seen momentum into the current quarter. Also you’ve mentioned you’ve got some orders for DRAM memory repair when mobile customers in DRAM prices had really been very strong this quarter. We are herein talk about capacity adds positively larger this year, next year. What’s your take on that?

Nick Konidaris

Yeah, on the second part the take that you have on the memory repair, these are basically driven by mobile DRAM, and if that business continues strong we’re going to see, occasional we’re going to see orders for memory there. In terms of the first question, in terms of order activity, the general comment I would say is that our customers who are involved in consumer electronics that includes flex as an example, clearly we see tremendous activity there, a rebounding on the activity. We also see in parts of the business that still remain in the overcapacity DRAM, LED and MLLC, we see an improvement of the climate for all of this through businesses. Definitely we see that in MLCC and definitely we see that in LED

Mark S. Miller – Noble Financial Capital Markets

Couple of firms reported a corporate firms, they will reported by some uncertainties by certain chip manufactures over; when Apples going to do with it’s future chip orders both in quantity and where they are going. Do you mentioned, you had some order push out. So I am just wondering, if you feel any effects of that, one firm especially hard because of this?

Nick Konidaris

Yeah, we didn’t see push outs and I don’t think we said push outs. So that’s not applied to us, what I refer to is that orders for design wins were delayed by a quarter, but I’ll expect to start them, starting this quarter Q1 please fiscal year 2014.

Mark S. Miller – Noble Financial Capital Markets

Thank you.

Nick Konidaris

Thank you.

Operator

Your next question comes from the line of David Duley of Steelhead.

David Duley – Steelhead Securities LLC

Yeah, a couple of questions for me when you look at your guidance, I guess, let’s call it $45 million to $49 million you just did that you just dd,. How should we think about the pieces, I guess I am trying to figure out what you think contributions from GSI is in this partial quarter and outside of that, where will the growth come from over the balance of the growth come from?

Nick Konidaris

Yeah, the way to think about it David is, we talked about GSI providing $20 million to $25 million for the remaining of the year. So you can kind of think about that, what we across the 11 month, when I think you can get a fair representation about what we would expect for the quarter that would put our base business sort of in the low $40 million range that’s the way to kind of think about it.

David Duley – Steelhead Securities LLC

And so, you have just a couple, $3 million or $4 million with the growth in the base business, is that coming from the recognizing the glass cutter or the diamond, I’m sorry.

Paul Oldham

No, it’s really coming from the strength in the flex market that we saw in the fourth quarter from the orders.

David Duley – Steelhead Securities LLC

Okay. And I guess it’s somewhat ironic the quarter in which you’ve written off most of your memory repair inventory you’ve now received the orders. If you’ve written off the inventory, how will that impact gross margins going forward? Is that a positive impact in the upcoming quarters or how should we think about that?

Paul Oldham

The way to think about it is that we try to assess that we thought was the potential business in this area going forward and what we really wrote off was the excess of that. So as Nick mentioned, we still expect from time to time an incremental order here and there, and so that’s contemplated because we do intend to continue to support our customers, but we don’t expect that overall business to be very meaningful. If we saw a meaningful uptick that might be different, but based on our expectation we’d expect sort of normal margins on whatever handful units we might receive in the future on orders.

David Duley – Steelhead Securities LLC

Okay. And then, as far as the inventory write-down, was that all in the memory repair business or did you write-down inventory for other product lines? I think you mentioned other products, but I was trying to make sure I understood what you’re trying to tell us?

Paul Oldham

Yeah, it was certainly the majority that was memory, but we also endearing our focus had a number of kind of older products that we’ve been carrying along and we’ve essentially discontinued those in order to focus more on the core area.

David Duley – Steelhead Securities LLC

Okay. I guess that’s it from no, one final question from me is, how should we think now that you’ve rolled GSI in going-forward what is the new break-even and what expense levels are you assuming end margin levels are you assuming?

Paul Oldham

Yeah, so we talked about lowering our break-even to the $40 million to $45 million level, with the recent actions that we’ve taken, a simple way to think of is our break-even now is probably in the mid to high $40 million range so maybe $45 million to $50 million with keeps its and including GSI Group, but of course GSI will add revenues as well. From an operating expense perspective still add something like a $1.5 million to $2 million per quarter.

David Duley – Steelhead Securities LLC

Okay, thank you.

Nick Konidaris

Yeah.

Operator

Your next question comes from the line of Tom Diffely of D.A. Davidson & Co. You may proceed

Tom Diffely – D.A. Davidson & Co

Yeah, good afternoon so, maybe just one more then on GSI the relative margin structure with the similar to what you currently have.

Unidentified Company Representative

Probably slightly better.

Tom Diffely – D.A. Davidson & Co

Okay, and Paul, when you look at the older or the less popular products that were cut, is there any revenue impact from those?

Nick Konidaris

No, not meaningful.

Tom Diffely – D.A. Davidson & Co

Okay, so the biggest piece was the memory, can you just basically cash charge in that sense.

Nick Konidaris

Effectively we’re trying to acces what’s the real marketing and going-forward and size kind of the remaining inventory to that and of course like I said, we’ll support the customers but there is no investment in memory repair.

Tom Diffely – D.A. Davidson & Co

Okay, all right, and then, just when you look at the semi business the up-tick in the quarter we at four digit, part of that DRAM system at self or is that clearly just orders in the memory repair. And it was orders and revenue in the quarter?

Tom Diffely – D.A. Davidson & Co

Okay, all right. And then I guess, long term basis, is there deferred revenue as fart the GSI business where it ramps through the year as opposed to being in force once we get to a full quarter of it?

Paul Oldham

These are pretty standard products. They have been a leader in the markets for a while, so they wouldn’t be a growing balance, if you will deferred revenue, and I think the way to think about in general, this quarter will be lower by virtue of the fact that it’s two months in the quarter instead of three months.

Tom Diffely – D.A. Davidson & Co

Okay, as I understood back when you get to the main business, it sounds like you thought that you were saying that the interconnect business, micro machining business, you were expect to grow this year on a year-over-year basis.

Nick Konidaris

That business basically that business that we are going is the first of all, it’s interconnect as part of the interconnect and my consuming that includes in addition to interconnect includes all the consumer electronics wood, steels with glass closures and other components inside smart mobile device.

Tom Diffely – D.A. Davidson & Co

And do you expect to see some of the kind of the normal seasonality there with the your second and third quarter, one of them little bigger than the first and fourth quarters.

Nick Konidaris

I think that the history stays that there is seasonality based on major events in the year, holidays and all of that stuff. It remains to be seen, but regardless the fact of the matter is that our pipeline is full, but we are constantly presented with new opportunities. We see a lot of technology being developed in new consumer devices and we’re going to start seeing orders from this quarter.

Tom Diffely – D.A. Davidson & Co

Okay. And as far as the geosciences business go that’s all in your Semiconductor Group or is some still out to the other groups?

Paul Oldham

It will reflect at all in our Semiconductor Group.

Tom Diffely – D.A. Davidson & Co

Okay. And then, just slightly on the GSI business, what kind of impact do you think that’s going to have on the equity compensation or the purchase accounting portion of your GAAP results?

Paul Oldham

It will be nominal.

Tom Diffely – D.A. Davidson & Co

Okay. Okay, thank you very much.

Nick Konidaris

Thank you.

Operator

Your next question comes from the line of Jim Ricchiuti of Needham & Co. You may proceed.

Jim A. Ricchiuti – Needham & Co. LLC

Paul, you can say what your largest customer represented fiscal 2013 revenues?

Paul Oldham

We’ve haven’t disclosed that yet. We typically, we’ll talk about that in our 10-Q.

Jim A. Ricchiuti – Needham & Co. LLC

Okay. And with respect to the pick up in the flex market, Nick is there some digestion here or would you anticipate this business now to be at a more in a recovery mode where you’ll see more consistent order pattern?

Nick Konidaris

Our expectation is that’s going to be in a recovery mode with more consistent pattern, which is going to be a growing pattern in comparison to past years.

Jim A. Ricchiuti – Needham & Co. LLC

And what drives that, what is that at this point that you see is different about the demand for the flex product line this year versus a last year, was it just there was over investment last year, or is there some market, are there some market drivers that give you the confidence that is going to be more consistent this year?

Nick Konidaris

Well. First of all, the market driver is very smaller and smarter electronics that in order to connect a camera to the computer unit to have a Flex is an example. So that’s the standard driver. But what happens a year ago last spring will basically got years work for borders and that was not justified by any market data, it was just everyone was taking position against upcoming opportunities that should not lumpy, and it took sometimes to digest of capacity. If that were to happen in the future and when we see another quarter where the demand may exceed may even exceed one year’s typical demand. But so far we don’t see that happen.

Jim A. Ricchiuti – Needham & Co. LLC

But you do see orders front line orders this quarter? Regualtors.

Nick Konidaris

Yes

Jim A. Ricchiuti – Needham & Co. LLC

And with respect on the advanced microfabrication orders being pushed out that you anticipate coming in this quarter, can you say whether this is geared more for capacity additions or is it for new designs or is there anything can say about how you see this next tranche of orders that you might see?

Paul Oldham

I would say that they’re primarily new designs.

Jim A. Ricchiuti – Needham & Co. LLC

Okay, thank you.

Paul Oldham

Thank you.

Operator

Your next question comes from the line of Tom Diffely of D.A. Davidson. You may proceed.

Tom R. Diffely – D.A. Davidson & Co.

I just one more question on DiamondBlaze, you talked about one in a fill and three new orders what is the average, how many system would you expect to have per average FPD fed going-forward. Is there you’re going to use the next generation costs.

Paul Oldham

While depending on the generation we expect few units per touch panel manufacturer all of those amounting to some thing came in the neighborhood of 50 install base plus or minus, but this for a particular glass generation and a particular set of design wins a new design wins get out throughout in our new glass in getting glass generation and particular set of design names. New devices get added to long-term now and or new glasses get introduced our capacity is going to be de modify the orbit king.

Tom R. Diffely – D.A. Davidson & Co

Okay, what’s your sense of the kind of adoption rate for Concore this next generation glasses, is it fairly rapid or is it kind of take some time.

Paul Oldham

This is our first experience with this adoption rate and I really don’t ‘have historic with respect to give you a sense, but I can tell you that we’re extremely busy along with a lot of other people trying to accelerate that adoption.

Tom R. Diffely – D.A. Davidson & Co.

Okay. And then, Paul, if you look at the tax rate of 5% to 10%, is that just for a limited period of time when we use up NOLs or is that we think stimulate it’s two years?

Unidentified Company Representative

We think it’s in the three-plus year range.

Tom R. Diffely – D.A. Davidson & Co.

Okay, great. Thank you.

Unidentified Company Representative

Thank you.

Operator

There are no further questions in the queue. I would now turn your conference back over to Mr. Nick Konidaris. You may proceed.

Nick Konidaris

Thank you very much for joining us. You are welcome to call Paul, Brian or me I you have further questions. This concludes our call. Thanks for your interest in ESI.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank for your participation. You may now disconnect. Have a great day.

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