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Electro Scientific Industries, Inc. (NASDAQ:ESIO)

Q3 2010 Earnings Conference Call

January 27, 2010 05:00 p.m. ET

Executives

Brian Smith - Director of Investor Relations

Nick Konidaris - CEO

Paul Oldham - CFO

Analysts

David Duley - Steelhead Securities

Jim Ricchiuti - Needham & Company

Operator

Good day ladies and gentlemen and welcome to the ESI Fiscal 2010 Third Quarter Earnings Conference call. My name is Christopher and I will be your operator for today. At this time all participant are in a listen-only mode. Later we will conduct a question and answer session. (Operator instructions). I would now like to turn the conference over to your host for today. Mr. Brian Smith, Director of Investor Relations. Please proceed.

Brian Smith

Thank you Christopher 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, Chief Financial Officer. This conference call will cover our fiscal 2010 third quarter results. Before we go into the details of the call I would like to remind you that some of what we may say on this call will include forward-looking statements concerning customer orders, shipments, revenue, gross margin, expenses and earnings.

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 January 27, 2010 which could change in the future. This call is the property of ESI.

Now I will turn the call over to our CEO Nick Konidaris.

Nick Konidaris

Thank you, Brian. Good afternoon and welcome to our third quarter conference call. During the quarter, we continued to see improvements in overall business activity with stronger revenues across most of our product lines and operating results approaching breakeven. Better demand for PCs, high definition TVs and smart phones drove higher demands for our customers' products which raised their utilization rates and their need for our systems.

Although we have not seen yet improvement in the memory repair market. Our strategy to expand our addressable market and invest in new applications is creating new opportunities for growth. Revenues grew 41% from last quarter to $59 million with strong growth in [all three] of our businesses.

Non-GAAP loss per share dropped to $0.03 compared to $0.14 last quarter. Bookings more than doubled from last quarter to $61 million led by large order for our new modem ML5900 micro-machining system. We also saw strong growth in passive component test, LED wafers scribing and LCD repair.

Overall our new Wave Research business had its strongest level of orders in its history. On the other hand, our memory repair business remained weak as the DRAM manufacturers still have excess capacity in laser [yield improvement] systems. Revenues in our semiconductor segment went up 28%, and bookings were about flat versus last quarter. The LED and LCD end markets were very strong and are both benefiting from the strong demand for LED-backlit displays in TVs.

Looking forward in our semi business, we expect to see more of the same in the next few quarters. The LED industry continues to our capacity, while the DRAM wafer repair market will remain weak until the second half of 2010.

When wafer starts should increase and the DRAM manufacturers begin to fully utilize their existing laser repair systems. We may see some technology driven demand but not in large quantities. However, we are encouraged by the projected level of bit growth and the fund and the investment that these are carrying and believe we would be well positioned in this market when additional capacity and new technology begins to come on live.

Our Interconnect and Micromachining Group continued its solid performance. The Flex Interconnect business was down seasonally but we added several new customers this quarter driven by the continued shape towards the need for sub-70 micron vias.

Looking forward into fiscal 2011, we expect solid growth in this business driven by demand for smart phones and other complex control devices. Our state of the art Micromachining business had a very strong third quarter winning a large order for our new model ML5900. As we announced in November this revolutionary new system is a major step forward in terms of flexibility, accuracy and throughput. It works on 3-dimensional devices and different materials and combines precision micromachining and inspection into a single system.

Well this product will penetrate at new applications and secured the large order which we expect to shape in the March quarter. We are excited about these new applications and we believe this versatile platform provides opportunities for follow-on business. Our success in leveraging our core technologies into state-of-the-art micromachining applications in markets has played a meaningful in mitigating the impact of this economic downturn.

During the quarter we also purchased the intellectual property and assets of applied photonics. This acquisition combined with our internal capability will enable us to expand our presence in the fast growing market for both large and small format glass micromachining. We expect to launch better systems into this market during the next two quarters and have systems in production even in the next twelve months.

Our Passive Components Group also had a very good quarter with sales up 70% and bookings more than doubling versus Q2. (Inaudible) was well over 1.5 to 1. We think some of these shoulders were placed as a catch up since many MLCC manufacturers waited until they were at or near 100% utilization before adding capacity. In addition, during the quarter we introduced and received customer orders for the model of 3500, the latest in our family of market leading MLCC high capacitance test solutions. The 3500 increases throughput by 50% and handles a wider range of component sizes and capacitance wideness.

Looking forward, orders in this business may be a bit little choppy as capacities absorbed in the market but we believe that overall growth will continue to be driven by the (inaudible) and higher capacitance MLCCs in new other phone devices.

Turning now to the outlook for ESI. Although visibility is still somewhat limited, we are more optimistic about the recovery in our end markets and the growth forecast for 2010. Also encouraging is the success of our new products like the ML5900 demonstrating our ability to continue to penetrate new applications and grow our addressable market. Given the strength we have seen this quarter, we expect revenues in our fourth quarter of $50 to $55 million and positive earnings per share on both a GAAP and non-GAAP basis.

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

Paul Oldham

Thank you, Nick and good afternoon everyone. The following information includes results from our third quarter fiscal 2010 which ended January 2. To approve 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 expenses and non recurring items.

Orders for the third quarter were $61.2 million up from $29.3 million in the prior quarter and $21.2 million from the prior year. As Nick mentioned that the biggest contributor to the growth was a large order for our new application on our recently introduced ML5900 micromachining system. Excluding the impact of this order, overall demand increased approximately 25% sequentially with strong growth and passive components LED scribing and LCD repair.

In addition we saw good volume in our laser ablation business driven by year end government and universally spending. However, memory repair orders continued to be weak and are not expected to show meaningful improvement before the second half of this calendar year. Shipments in Q3 were $33.8 million up sequentially from $28.4 million driven by the stronger order activity. Ending backlog increased by $27 million from last quarter to $52 million. Differed revenue decreased by $5.2 million as we had several new systems passed acceptance testing with customers.

Revenue for the third quarter was $39 million up 41% sequentially. All three businesses again showed a sequential improvement as they have each quarter since the drop in Q4 of last year. Gross margin for the quarter was 38% including $540,000 and cost of goods sold for purchase accounting and equity compensation. On a non-GAAP basis, gross margins were 39% up from 36% last quarter primarily reflecting the higher sales volume and improved mix.

GAAP operating expenses were $20.7 million up from $18.8 million in the previous quarter. Included in the third quarters operating expenses were purchase accounting amortization of approximately $230,000 and stock compensation of $1.4 million. Excluding the impact of these items, non-GAAP operating expenses were $19 million up $2.3 million from the prior quarter reflecting the effect of having an extra week in the quarter, the elimination of some of our temporary cost reduction measures and increased project expenses for new products.

On a GAAP basis the third quarter net loss was 2.4 million or $0.09 per share. Non GAAP net loss was 900,000 or $0.3 per share compared to the next loss of $3.9 million or $0.14 per share in the prior quarter. Income tax benefit for the quarter reflected a tax rate of 56%. On a non-GAAP basis the tax rate was approximately 74%. The improved rate was primarily a result of debtor estimated annual results and credits related to the recent completion of our domestic tax audit. Based on accounting rules for income tax is some of the benefit of these items will be recognized next quarter resulting in a tax rate near zero in Q4 on a GAAP basis and between 15% and 20% on a non-GAAP basis. Longer term we expect our non-GAAP tax rate to be in the low 30s.

Turning now to our balance sheet, cash and investments including restricted cash was $163 million up over $8 million from the prior quarter. Restricted cash increased by $8.4 million resulting from the substitution of a letter of credit for the remaining bond related to our legal action in Taiwan to protect our intellectual property.

In addition, during the quarter we sold $1.9 million of auction rate securities at 71% at par. We continued to hold auction rate securities currently valued at approximately $7 million. Cash flow from operations was positive at almost $1 million for the third quarter as losses from operations were more than offset by cash generated through working capital improvements. Inventories increased by $1.4 million reflecting inventory purchased at the end of the quarter to support higher Q4 shipments partially offset by ongoing inventory reduction efforts. Inventory returns were 1.2 times and improvement over last quarter.

Accounts receivables increased slightly on higher shipments resulting in a reduction of DSO by 21 days to 52 days. This improvement was driven by strong cash collections and the timing and level of shipments during the quarter. Capital expenditures were approximately $800,000 and depreciation and amortization excluding purchase accounting was $2.5 million.

Looking forward, we are encouraged by current business activity and market forecast. However, visibility continues to be limited particularly beyond the current quarter. Based on our current booking and backlog levels we expect revenues in the fourth quarter of between $50 and $55 million. Non-GAAP operating expenses are expected to increase $1.5 to $2 million due to incremental investments in new products, restoration of employee pay levels, and variable pay associated with the return to profitability. As a result we expect non-GAAP earnings excluding stock compensation, purchase accounting and other non recurring items of between $0.05 and $0.10 per share.

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

Nick Konidaris

To summarize in our third quarter we showed excellent sales and bookings growth on the back of improving end markets and the successful execution of our strategy to grow the addressable market. We are excited about opportunities for growth across all businesses. The DRAM wafer repair market remains weak but it will eventually improve driven by new capacity and technology needs. As these market recovers we believe we will see faster growth in revenues and earnings. This concludes our prepared remarks. We are ready for your questions. Christopher.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line David Duley, Steelhead Securities. Please proceed.

David Duley - Steelhead Securities

Good afternoon and congratulations on the projected return to profitability it's been sometime.

Paul Oldham

Good afternoon David.

Paul Oldham

Thanks, David.

David Duley - Steelhead Securities

I was wondering just a couple of house keeping questions. Did you have any 10% customers during the quarter?

Paul Oldham

We had two 10% customers in the quarter.

David Duley - Steelhead Securities

And would you be putting those in your quarterly reports or we have to wait till the annual thing to come out to know who they are?

Paul Oldham

We typically disclose the names of the 10% customers at the end of the year not during the quarter because they can vary from quarter-to-quarter.

David Duley - Steelhead Securities

With one of these 10% customers be the same 10% customer you had last year?

Paul Oldham

We really don’t comment on it during the quarters, David.

David Duley - Steelhead Securities

Okay. I think you mentioned that it was 14-week quarter versus a 13-week quarter but I saw the R&D number jump sequentially and I was kind of wondering how I might be setting that going forward.

Paul Oldham

Yeah, we are making selective increases in our R&D expenses. And so that was certainly impacted by the extra week and return of part of the pay but also some increased investments. As we look into next quarter, we would expect that number just like the other expenses to also be up as we restore the balance of the pay. We'll have some variable pay associated with R&D as well as the other functions but also against some selected investments there including some increases related to the investment in our glass micromachining effort and the acquisition of Applied Photonics.

David Duley - Steelhead Securities

You mentioned I think the new MLCC tester 3500 is that an upgrade to the tester you released a couple of years ago that you are successfully with the kind of revenue you revolutionized the throughput or is it somehow a different tester that addresses different parties.

Nick Konidaris

It’s a different version tester of the same family. The family includes three testers, the 3500, which is the most recent. The 3555 and the 3550 and the 3555 is focused on large format devices the 3550 is focused on high capacitors this one is focused on all devices and a wider ratio range of capacitors because of higher productivity it is a higher price tester and overtime we expect that to really obsolete one of the other two testers.

David Duley - Steelhead Securities

I guess I am trying to figure out is you were quite successful with that previous testers launch into that marketplace where we see the same kind of success with this product as it's adopted by several major players who are on niche product.

Paul Oldham

No I think we are going to share the same success like how we have seen with the previous products of 3500 that success basically would be underscored by the fact that we are going to open even more costly suppliers and the other thing I would say is that this brought back the 3500 already on (inaudible) backlog.

David Duley - Steelhead Securities

Okay and finally from me is you mentioned you got a large order for a micromachining application, can you help us understand what that application is, is that a new application or is an extension of a current application, help us understand really what that is.

Paul Oldham

We can't. I would not be helpful because we like not to comment on applications but directionally I would tell you that this is a new application.

Operator

Ladies and gentlemen your next question comes from the line of Jim Ricchiuti. Please proceed.

Jim Ricchiuti

Paul I just wanted to make sure I understood you correctly did you say that excluding the large order that you received in the quarter your bookings were up about 25%.

Paul Oldham

That’s correct.

Jim Ricchiuti

Sequentially. Okay so we are talking about it did this order roughly in the magnitude of around $25 million? Is it large order?

Paul Oldham

It's over $20 million yes.

Jim Ricchiuti

Okay and so if we put that aside and we look at the bookings in that, say $35 million range for the rest of the business, if we assume kind of the current market environment that is no improvement in DRAM, until later in the year is it fair to say that based on what you are seeing right now and potentially you could see bookings in the area going forward in the $30 million to $35 million or do you feel the market is stronger than that and may be can support a higher quarter level?

Paul Oldham

Yeah, I think you know looking beyond this quarter is always tough because the visibility is limited. But certainly we are encouraged by forecast we are seeing relative to consumer electronics, relative to handset, relative to a number of things that drive our business and so we think we could see orders that support the level of business that you are suggesting or little higher. In addition, if we see additional applications that we can penetrate with these new 5900 products which is a very versatile product or if there is follow-on opportunities then those could also help support a higher number.

Jim Ricchiuti

And you mentioned that you had two 10% customers in economic stand, you don’t want to comment directly on that but can you help us may be give us some indication as to which of the businesses, their customer came from? One in the semiconductor side and one interconnect or may be you just help us a little bit along those lines?

Paul Oldham

Well, you can look at where the orders were and I think you can probably design which group they were out of it. Fairly our passive component business was the next strongest business after our Interconnect and Micromachining business.

Jim Ricchiuti

Okay and Nick, you talked a little bit about some choppiness in passives. Based on just the some of the end markets PCs, smart phones those applications including TVs can really chew up a lot of passives. Do you feel that, that business is on a stronger growth trajectory even if there is going to be some lumpiness here in bookings?

Nick Konidaris

Yes the choppiness refers to the fact that the business is going to be lumpy but overall we see this thing as a market in continuing recovery utilizations. Our utilizations rates are at 90%, we see not orders from Japan, Korea, Taiwan and we see an [envelope] of new consumer products that all of them have increased content of capacity sent in corresponding MLCCs and we feel good about that.

Jim Ricchiuti

Just to clarify one of the earlier questions from David I wasn’t sure did you say that this larger order was from a new customer or is this from an existing customer?

Paul Oldham

I didn’t say new customer or existing. I said that rationally it is a new application.

Jim Ricchiuti

Okay, new application. And then if you could just talk a little bit about this acquisition of [DEM] (inaudible) and assets of Applied Photonics is this company focused, has it been focused primarily in the LCD monitor is that where you see the opportunity here

Nick Konidaris

Yeah we see that thing in LCD markets we are very excited about this opportunity. It will allow us to really with the either half and combine to reach our capability to focus on both large and small form of the glass do micromachining, the beauty of this technology, it is a single step no contact, no mechanical process, zero degree, more carefully there is no glass losses you cut the glass as better adds strength and is capable of very clean rectilinear or curvilinear cuts. The company before we bought it had sold already systems to LCD customers and we think that this is the market that from a total point of view is in the $75 million to $100 million.

Jim Ricchiuti

May be broad terms how many systems have they put into the field and it sounds like you feel pretty confident that the new next version I guess or next generation equipment is going to be out fairly shortly, its sounds like two quarters away.

Nick Konidaris

Its two quarters away. The systems in the field are up, don’t know what exactly but in the total field this was a very small company at the time we acquired it but these are revolutionary systems and we are very excited by the technology and the reception we have received from the customers for other systems.

Jim Ricchiuti

That’s it for me. Congratulations on the quarter.

Operator

(Operator instructions). Your next line comes from David Duley, Steelhead Securities. Please proceed.

David Duley - Steelhead Securities

Yes, a couple of more questions from me. I guess my recollection is this kind of displayed in the cycles historically we might have seen some technology bias in the DRAM market and for some reason they seem to be absent this time. And I was wondering if you might talk about why that is or if my perception is wrong. Also there is a lot of people that worry about alternative technologies i.e. using testers to blow these fuses rather than a memory repair system. So has there been any other customers that have adopted that methodology that might impact the technology bias.

Paul Oldham

Yeah, let me address the second part there is no other customer, we are not concerned about any customer adopting alternative technologies not for these cycle may be two cycles and we don’t know what will happen after that. So, this is not the issue. The issue here is that as you know CapEx in memory in 2007 was close to $21 billion, $22 billion and in 2010 it's expected to be about $7 billion to $8 billion.

And the industry continues to suffer from excess supply and pricing pressure and although customers are implementing DDR3 and smaller nodes. They are trying to stretch the efficiency of their investment and during that by extending existing fuse designs into new technology like DDR3 and new nodes like 5X nanometers. So, as a result they can utilize some excess capacity that they have in terms of memory peers who expect that excess capacity to be consumed as the bids increase by the end of the year and industry start turning up the volume and the [the wafer] starts seeing full capacity and technology wise.

David Duley - Steelhead Securities

Now is there something in the market place that we might monitor to as a leading indicator for instance when they start to buy DRAM testers from advance testing [Teradyne] and (inaudible). Would that be the time that they might start to buy some ESIO memory repair equipment to kind of address the products?

Paul Oldham

It not only would be DRAM testers from many of these companies and increases in buying high-end brokers

David Duley - Steelhead Securities

So I guess essentially the DRAM guys are doing a major shrink right now that’s what they're spending the $7 million and $8 million on it. And we need to have that shrink put in place to have the incremental unit volumes to come out fast before you are (inaudible).

Paul Oldham

We need to have that in place and we need to have that in place without them in the process of that shrink in order to save a little bit of extra money we want them to also start shrinking the fuse box. If they don’t shrink their fuse box and there happened to have all the glass equipment that can blow those fuses then nothing may be delayed. But at the end of the day we have zero doubts that we have increased in the memory bit growth that’s expected to be 70% to 80%. With the corresponding increase later on the owned wafers starts showing the technology going down. We have zero doubts that we are going to see the business coming back we think is going to start in the second half and there is nor any threat from that competitive technology that we are aware of. And there is not a market share loss and we keep investing in these businesses for the way to be ready.

David Duley - Steelhead Securities

Did you guys buy any stock back during the quarter?

Paul Oldham

We did not. We have an authorization from the board for $20 million to buy, to control dilution. At this point in time we are very aware about our strategic objective to really grow their top line and we think that conserving cost to really be poised for opportunities and we see a lot to grow their top line is the prudent thing to do.

David Duley - Steelhead Securities

And I support whatever growth opportunities that you see, that you think you need a cash flow but I would point out that the stock is still trading below hard book value and if you do really think your memory business is going to turn on and your earnings levels are going to go up dramatically so is the stocks so buying it here under $11 might be better than waiting to buy it at a much higher price. That’s just made sense. Congratulations on a nice quarter.

Operator

Your next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

Jim Ricchiuti - Needham & Company

I was just wondering if you could comment on the revenue upside that you saw in the quarter relative to your prior guidance. Can you talk a little bit about what drove in what areas?

Nick Konidaris

Yeah, I would say it was mostly a faster pick up or recovery in our passive components business. As you recall last quarter we were encouraged by activity we were seeing around our tooling area that supports that business as well as levels of capacity but we certainly saw that business take an up tick more than we expected in this quarter. We expected to see some but we saw more than anticipated there.

Jim Ricchiuti - Needham & Company

Okay and then just turning to the Interconnect Micromachining area, it sounds like you feel pretty comfortable with the level of demand and potential for continued booking strength coming out of the LED and Flex markets, is that fair to say?

Paul Oldham

Yeah, this quarter or third quarter that we just ended is typically a seasonally lower quarter for Interconnect and for Flex and that was consistent with what we saw but that market we continue to feel very good about. If you look at the overall your last year was relatively strong and as we look into the next few quarters we see a very good business there again driven strong sales of handsets and consumer electronics.

Jim Ricchiuti - Needham & Company

Great and I wonder if you can just provide an update on some of the new product development including in the LED area. Where do you stand with that? And maybe if you could give us a bit of time line on some of the new products you talked about in the past?

Nick Konidaris

Yeah. In each segment that we report, we have active programs to really introduce new products in fiscal year '011 towards the second half. In semiconductor segment we are working to introduce a di-sync product for thin non-flash wafers when I say thin, 50 micron or below. At this point in time, we have identified the data sides we are working very hard to install product there for evaluation and that product would be available for deployments in the second half.

And the micromachining area, in addition to the ML5900 we are working very hard and then we have demonstrative products already deployed for a another class of application totally new we call it laser direct ablation, the end result of that product would be to allow by passing the (inaudible) step in making HDIs or IC packages and by using delays of technology at the micro levels allow for more dense Interconnect packages or [censuring] HDI instead of a HDI PCP that has done layers who can help us in functionality of six layers as an example. And we feel very good about exceptional receiving from the customer who have deployed that product. As we speak, that will be available again for volume production in the second half of the year.

In the LED area there are two developments one is who would continue to keep working for its finding a solution that will not affect the light output of LEDs as we scribe the wafer this is we think that a solution there would open more significantly out opportunity in this market. At this point in time I would say we might be close to a solution but we have not found a solution and therefore I'll have to be a little bit more careful in predicting the timing of the same. But in the LED we are developing visual tester and spectroscopic tester. This is a product who have identified the better sites and we expect to be able to deploy that in production in the second half of the year.

Jim Ricchiuti - Needham & Company

Nick in one of the new products areas that you mentioned the laser direct ablation for HDI can you talk a little bit about the competitive environment in that market right now.

Nick Konidaris

Yeah, we really don’t know of any competitor in this market, the issue there is, but this is a totally new technology depends on us from a laser micromachining point of view and we are the only ones to have that capability but also depends on adoption of special we should be materials that are laser activated as the micromachine this organic layers and which material succeeds and basically between the desire to shrink the HDIs between the materials, the laser system and the development of the process this thing is going to become we hope a significant business in the years to come.

Jim Ricchiuti - Needham & Company

Thanks and just a final question, some of the recent acquisition opportunities that you have come across seem to be more along the lines of technology bias, can you talk a little bit about how active the effort is from an acquisition standpoint and to what extent you think you might be continuing to follow this strategy of smaller I don’t know if you want to call them tucking acquisitions that provide good technology or do you see some opportunities out there possibly through a larger acquisition.

Nick Konidaris

Well as you know our mission is to really be the leader and pioneer in the laser-based micromachining and visuals inspection and testing. We have made smaller technology acquisition such who are profitably state but don’t forget that’s just over a year ago, we have made an attempt to torch a bigger acquisitions didn’t workout our way. So we really don’t have preference size wise of course, size sometimes can be a limitation but we are very focused on very adjacent to what we do or to develop or to go into probably new markets but where the current technology would be fundamentally something that we understand very, very well.

Jim Ricchiuti - Needham & Company

So just that might be partial explanation for the cash and the balance sheet and may be taking more the wait-and-see attitude on going forward with additional buyback?

Nick Konidaris

(Inaudible) it's not so difficult to explain if you take into account the fact that we want to grow the top line. If you say that we want to grow the top line and the precision is a valid way of doing that and we believe it is. You need to have cash, if you don’t have cash its very difficult to borrow at this stage and you can borrow it but attempts that not very pleasant either very dilutive or very, very expensive and all we have to do is remind ourselves that people that you know very well and what happens to them because they borrow that very expensive cost of capital kind of service. We don’t need the cash to really because like to have the cash, we need the cash because we want to grow the top line and throughout some point in time we feel that, and if we are successfully growing the top line I think the cost excess, if we have any and we have some is going to be taking care instantaneously.

Operator

Your next question comes from the line of David Duley, Steelhead Securities

David Duley - Steelhead Securities

One final follow-up from me is I think the drop rate to gross margins in the current quarter on the incremental revenue was about 47% can we ask about the top line growth, can we project that kind of drop rate out going forward?

Paul Oldham

Our goal would like to be a little bit higher than that. We talked about drop rates on gross margin between 50% and 60%. This quarter was impacted by the fact that we did put payback partially and next quarter we will have that same feature and as well as some slightly higher costs in some discretionary areas and things like warranty. So I think going forward in the long run we would expect a higher drop rate than we saw in this quarter.

David Duley - Steelhead Securities

The range in EPS for the quarter from $0.05 to $0.10 that’s a pretty big range what's the key variable when you fill that range up that I should be trying to corporate into my model.

Paul Oldham

The top-line

Operator

With no further questions in queue I would now like to turn the call back to CEO, Nick Konidaris for closing remark please proceed

Nick Konidaris

To reiterate, we see our markets improving and slowly making their way back to previous demand levels. With our strong product portfolio and the successful execution of our strategy to grow the addressable market, we are becoming more diversified as we march towards profitable growth.

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

Operator

Again ladies and gentlemen thank you for your interest in ESI. You may now disconnect. Have a good day.

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