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Electro Scientific Industries, Inc. (NASDAQ:ESIO)

F2Q2011 Earnings Conference Call

October 28, 2010 5 PM ET

Executives

Brian Smith – Director, IR

Nick Konidaris – President and CEO

Paul Oldham – VP, Administration, Corporate Secretary and CFO

Analysts

Jim Ricchiuiti – Needham & Company

Mark Miller – Noble

Tom Diffely – D.A. Davidson

David Duley – Steelhead Securities

David Fondrie – Heartland Funds

Operator

Good day ladies and gentlemen and welcome to the ESI fiscal 2011 second quarter earnings conference call. My name is Kathy and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I will now like to turn the conference over to your host for today, Mr. Brian Smith, Director of Investor Relations. Please proceed, sir.

Brian Smith

Thank you Kathy 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 conference call will cover our fiscal 2011 second quarter results. Before we go into the details of the call, I would like to remind you that some of what we say on this call will include forward-looking statements concerning customer orders, shipments, revenues, gross margins, 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, October 28, 2010 and 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 second quarter conference call. This was another growth quarter for ESI. Orders at $70 million were the highest in over two years. We continue to see strong demand in our memory repair business, and our flex interconnect products had record orders and shipments. Sales grew sequentially and more than doubled year-over-year. Gross margins rebounded from last quarter resulting in solid non-GAAP earnings. Lastly, during the quarter, we acquired PyroPhotonics, a manufacturer of unique tailored-pulse fiber lasers which strengthens our differentiated product offering and enables us to move into adjacent markets.

Revenues for the quarter were $60 million, up 2% from Q1. Non-GAAP earnings per share were $0.10. Paul will go into more detail around the financials in a moment. We generated $70 million of orders compared to $64 million last quarter. The increase was driven by strong sequential demand for memory repair systems, as we again received orders from multiple customers. We also saw record orders in flex interconnect and we penetrated a new micromachining application yielding a large order plus several smaller follow-on orders.

Revenues in our semiconductor business were $13 million, down from last quarter due to the timing of shipments. However, orders in semi were up sequentially and far above last year. The key driver again was strong demand in our memory repair business, as a result of a large order from Hynix for our newest high performance memory repair system. This product, based on our patented tailored-pulse technology offers the industry’s fastest throughput for the latest technology (knowledge).

Our LED scribing business was softer in Q2, after record orders in Q1. Looking forward, in our memory repair business, we expect order levels to be choppy as some customers absorb the new capacity and the other customers come on line. Longer term, we expect this business to continue its recovery but to pre-recession levels, driven by growth in (inaudible) PCs, servers, and smartphones. Additionally, we expect the LED scribing and LCD repair businesses to remain solid.

This quarter, we also entered the thin wafer dicing market with our introduction of the model 9900. This system is under evaluation of multiple customers, and we expect it to generate incremental revenues over the next several quarters.

Our Interconnect and Micromachining group had another strong quarter at $33 million, one of its best revenue quarters ever. Within IMG, revenues in our flex interconnect business were particularly strong driven by record demand. Historically, the September quarter is seasonally strong and this year was no exception. We saw good customer acceptance for our new 5330xi high performance via drilling system. Looking forward, we expect this business to continue to perform well driven by strong growth in consumer electronics.

We also had a good quarter in our advanced micromachining business. We penetrated a new application with the model 5900 leading to a large order this quarter and we saw strong follow-on business from previous applications. We’re excited about our long-term growth potential as we expand our capabilities in glass, new generation PCBs and other advanced micromachining applications.

Revenues in our passive components group were $13 million, down sequentially from very strong sales last quarter, but more than double sales from one year ago. Orders were also slightly lower as capacity adds were absorbed into the market, but still reflect good customer demand for both component tester systems and consumables. Looking forward, we believe that the growth drivers for passive component demand remain healthy, especially demand for smartphones. As such, customer demand in this business should remain solid and would be driven by timing of capacity additions.

Finally, we are pleased to announce that at the end of last quarter, we acquired a Canadian laser company called PyroPhotonics. Pyro provides the tailored-pulse fiber lasers that we use in our newest high performance memory repair solutions. Having this technology in-house provides sustained competitive differentiation in this important market and provides a platform that can be extended into other applications including solar. We are excited about this technology as a future potential of tailored-pulse fiber lasers. Paul will give more details about the near-term financial impact in a moment.

Turning now to the outlook for ESI. The global economy continues to expand, but there are crosswinds and our business will continue to be choppy. In this environment, we expect revenues to increase to the mid-$60 million range in the third quarter, and non-GAAP EPS between $0.10 and $0.15.

Looking forward, we will continue executing our growth strategy of expanding our addressable market by introducing new products and penetrating new applications.

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

Paul Oldham

Thank you Nick and good afternoon. The following information includes results from our second quarter of fiscal 2011 which ended October 2nd. 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 expenses and non-recurring items.

Orders for the second quarter were $70 million, up 10% from the prior quarter and more than double from last year. As Nick mentioned, the sequential growth was driven mainly by strength in memory repair and flex interconnect. These increases were partially offset by a slight decline in passive components as customers absorbed capacity and lower LED scribing business following the large order received last quarter.

Shipments in Q2 were $65 million compared with $56 million in Q1. Ending backlog increased by $5 million to $54 million and the strong semiconductors orders offsetting backlog reductions in the other businesses.

Deferred revenue increased approximately $6 million due to new product shipments not yet recognized in revenue. Revenue for the second quarter increased 2% sequentially to $60 million, driven primarily by strong orders and a reduction of backlog in our Interconnect and Micromachining business. Semiconductor and Component group revenues declined due to timing of orders. Our book-to-bill ratio was 1.07 to 1.

Gross margin for the second quarter was 44% including $580,000 in cost of goods sold for purchase accounting and equity compensation. On a non-GAAP basis, gross margins were 45%, up from 38% last quarter. The sequential improvement was driven primarily by the favorable absorption impact of higher production levels and improved mix within each of our product areas. We are pleased to see gross margins rebound roughly consistent with our model.

GAAP operating expenses were $25.3 million, including approximately $2.2 million of stock compensation and purchase accounting amortization. In addition, we incurred approximately $280,000 in costs related to the acquisition of PyroPhotonics. Excluding the impact of these items, non-GAAP operating expenses were $22.8 million, up $1.7 million from the prior quarter. The increased spending was largely due to variable expenses associated with higher business volume and profitability and the impact of annual salary increases. Looking forward, we expect non-GAAP operating expenses to be up an additional $1 million to $1.5 million in the third quarter due primarily to the addition of PyroPhotonics, variable expenses associated with higher revenues and the timing of project spending.

On a GAAP basis, operating income was $740,000 compared to a loss of $1.6 million last quarter. Non-GAAP operating profit was $3.8 million or 6% of sales compared to $0.9 million or 2% of sales in the prior quarter. The higher operating income is the result of the improved sales and gross margins.

Income tax expense for the quarter was $1.5 million, bringing our year-to-date tax rate to approximately 32%. A higher expense this quarter was a result of the timing of income between quarters and an increase in the expected level of annual income. Our non-GAAP tax rate was approximately 29%. In the long term, we expect our GAAP and non-GAAP tax rate to be in the low 30s as operating income increases. Although income before taxes was positive, the higher tax expense this quarter resulted in a net loss of $600,000 or $0.02 per share on a GAAP basis. On a non-GAAP basis net income was $2.9 million or $0.10 per share compared to net income of $800,000 million or $0.03 per share in the prior quarter.

Turning now to our balance sheet. Cash and investments including restricted cash were $170 million, down $10 million from the prior quarter. Cash used in operations was $1.9 million for the second quarter. Inventories increased by $3 million due to materials positioned to support shipments early in the third quarter. Inventory turns were 1.9. We expect to see inventory decline and turns improve in the third quarter based on projected timing of shipments.

Accounts receivable increased by $13 million to $46 million. DSO increased to 71 days, largely due to timing of shipments late in the quarter and the increase in deferred revenue. Capital expenditures were approximately $1.3 million and depreciation and amortization excluding purchase accounting was $2.6 million. As Nick mentioned, this quarter we purchased the assets of PyroPhotonics, a leader in fiber-based tailored-pulse lasers for approximately $8 million. These lasers are used in our newest generation memory repair products and represent a platform that can be used in many other applications, including solar. In the short term, we expect this acquisition to be $0.02 to $0.03 dilutive per quarter, primarily due to higher expenses and nominal topline impact. We expect this business to reach breakeven within one year.

Looking forward, although our markets are relatively healthy, economic uncertainty and its impact on consumer and enterprise demand, combined with capacity levels at our customers will result in continued choppiness in some of our markets. Based on current strength in our business, we expect revenues in the third quarter to increase to the mid-$60 million range. Gross margin is expected to be roughly flat, given lower production levels. Excluding the impact of PyroPhotonics, operating margins should increase roughly consistent with our model of 40% leverage. As a result, we expect non-GAAP earnings excluding stock compensation, purchase accounting and other non-recurring items to be between $0.10 and $0.15 per share.

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

Nick Konidaris

To summarize, we completed a successful quarter. We continue to lead in most of our markets. Our growth strategy is on track and we expect to announce several major new market expanding products in the coming quarters.

Looking forward, we expect our market’s growth to be paced by overall economic growth and recovery, which is difficult to predict. Over the longer term, our goal is grow by taking what to do best and using it to serve the needs of an ever larger number of customers. This concludes our prepared remarks. We’re ready for your questions now. Kathy? Operator?

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions). Our first question comes from the line of Jim Ricchiuiti of Needham & Company. Please proceed.

Jim Ricchiuiti – Needham & Company

Hey, good afternoon.

Nick Konidaris

Good afternoon, Jim.

Jim Ricchiuiti – Needham & Company

Paul, maybe the first question for you. Can you – with respect to the $1 million to $1.5 million of additional OpEx that you are anticipating this quarter, is most of that going to be in SG&A?

Paul Oldham

Most of that will be in engineering because it’s mostly the addition of PyroPhotonics.

Jim Ricchiuiti – Needham & Company

Okay. So, as much as 70% of that in engineering?

Paul Oldham

I’d say two-thirds.

Jim Ricchiuiti – Needham & Company

Two-thirds? Okay, terrific. And I wonder if you could talk a little bit more about this business. So there are merchant laser supplier, and you’ve been one of their customers. Can you talk a little bit about the kind of revenues they may be generating and maybe elaborate a little bit more on the solar applications and other applications for the technology?

Nick Konidaris

Yes, this is an early stage company that has developed a unique laser. And the uniqueness of the laser is in the fact that they contain the pulse wave and the energy profile in a temporal mode within the pulse. This is important technology for us in the memory area, and we’ve been one of their customers; and the biggest customer in fact, because that’s the first application that found a home with this technology. In parallel, they were finding out that these tailored-pulse capability is ideally suited for processing solar panels, especially those that are called by the name in (inaudible) solar film based panels. This is by far a larger market than memory repair. But as far as the memory is concerned, this was a unique and only supply of this kind of lasers for us. So, an opportunity arose, and we made the decision to acquire them for the unique benefit they were offering to us in the traditional memory repair, and in addition we are very much intrigued by the opportunity to really enter into the solar market. But as far as memory is concerned, they secure an in-house unique supply of those tailored-pulse technology and this is a key differentiator for the latest nodes.

Jim Ricchiuiti – Needham & Company

Nick, would you be willing to talk a little bit about the time line for you to maybe move into the solar market with this technology?

Nick Konidaris

Yes, the movement in the solar market is going to be, I mean it’s effective now, but is insignificant. It’s effective now in the sense that they are enjoying small evaluation type of sales from the solar market. But over time, they finalize the development of a higher energy laser starting next year when we expect them to breakeven, we are going to see brisk sales in solar. But meanwhile, every memory repair system that we are shipping is using their laser.

Jim Ricchiuiti – Needham & Company

Okay, last question from me. Just with respect to the micromachining application that you mentioned, can you talk at all about that? Is this a new customer? Is this an existing customer? And I wonder if you could give us any sense as to the size of the order that you received.

Nick Konidaris

Yes, this is an existing customer. Micromachining is really very pioneering set of applications that is limited by the nature of pioneering to very few customers. I prefer not to talk about the size of the order, but I would say that that was sizable and we are very pleased with penetrating in micromachining and other applications.

Paul Oldham

Jim, I would say that unlike the prior quarter a year ago when we had a large order, that represented the predominance of the business, that wasn’t the case in this case. It wasn’t the majority of the business there. It was a large order but it wasn’t the majority.

Jim Ricchiuiti – Needham & Company

Should we assume it is the same customer?

Nick Konidaris

If we have an understanding of what is the customer, we could – have such conclusion, but I have not mentioned a customer, Jim.

Jim Ricchiuiti – Needham & Company

Thank you.

Operator

The next question comes from the line for Mark Miller of Noble. Please proceed.

Mark Miller – Noble

Just wondering if you could comment on your backlog in terms of the mix there. Is that similar to the product mix you shipped this quarter; higher mix, lower mix?

Paul Oldham

Yes, the backlog, Jim, is most heavily in our semiconductor business and our interconnected micromachining business. Probably 80% of the backlog is between those two businesses.

Mark Miller – Noble

So, similar to what you shipped this quarter?

Paul Oldham

Pretty similar. May be a little heavier to semi.

Mark Miller – Noble

Okay and which would be a little higher margin?

Paul Oldham

Historically semi has been a little higher margin.

Mark Miller – Noble

Just wondering about GSI. There’d been some pressures or you’d mentioned that, you know, while they were in reorganization there, there was no inclination for them to be – or they were being more aggressive in their pricing. Have you seen any improvement there, or do you expect any improvement?

Nick Konidaris

I don’t know if I can comment about expectation of improvement in pricing. All I can say however is that they continue to be a viable and strong competitor. However, we maintain our leadership position and we think we are increasing our market share.

Mark Miller – Noble

So, in the LED scribing area, there has been reports that when you use the laser to scribe, there has been some output shortfall. I wonder if there is any progress made there. Or would these new fiber lasers have any advantages there in terms of eliminating that concern?

Nick Konidaris

It’s too early for us to talk whether this new fiber lasers will have benefit in LED. What I would say is that the LED industry is transitioning to the high brightness. We think this is a very – it’s a great growth opportunity for us, and we are really focused developing processes and new products that – and we are talking to our customers, we will evaluate new product developments that we are working on.

Mark Miller – Noble

Thank you.

Nick Konidaris

Thank you.

Operator

Our next question comes from the line of Tom Diffely of D.A. Davidson. Please proceed.

Tom Diffely – D.A. Davidson

Yes, good afternoon. First, I wanted to talk about the memory repair business. Are you still seeing excess capacity of the repair tools in the – kind of the standard, I guess, DRAM market and we are – if you have seen a few orders on kind of the high end or the new systems, or what do you see kind of the supply and demand of just overall memory repair tools?

Nick Konidaris

We see that the majority of the market today is really experiencing shortage of tools and they are ordering and that’s what we enjoy. But there is a part of the market that these approaching a point where they are going to run out of capacity. And some of that capacity was available to them because they decommissioned memory repair systems from Flash. But they are approaching a point where they are going to run out of capacity and we expect to be able to enjoy business when that – when they hit that moment.

Tom Diffely – D.A. Davidson

Okay. So over the next few quarters, do you think all the customers will be in that situation, will have to start ordering new tools?

Nick Konidaris

That’s our expectation.

Tom Diffely – D.A. Davidson

Okay great. And then on the flex business, interconnect, is that becoming more of a seasonal business for you?

Nick Konidaris

This is a – it’s a seasonal business, but more important than that is a steady base business and the seasonality is not as profound as in the rest of capital equipment that experiences, you know, the small violent cycles.

Tom Diffely – D.A. Davidson

You know, it seems like with the lead times on the equipment that, you know, the whole industry is getting a little bit more seasonal, where, you know, Q2 and Q3 are a little bit stronger, Q4 and Q1 seem to be a little lighter, and I was just kind of curious as some of these trends you’re seeing as well.

Nick Konidaris

We do see those trends. And I think that is exactly the trend that makes for strong seasonal calendar Q3 of fiscal in our case, Q2 for flex.

Tom Diffely – D.A. Davidson

Yes, okay, great.

Paul Oldham

I think I would add to that Tom, is that we are seeing more applications move to these smaller DSIs and so we have seen on top of that seasonal trend, more customers and better demand really driven by the growth in smartphones.

Tom Diffely – D.A. Davidson. Okay, and then finally, you know, for the new lasers, the PyroPhotonics, for the (inaudible) market and the solar market, is that – are you just selling these lasers into that system or at the market, are you selling systems at some point?

Nick Konidaris

Right now we are selling lasers. At some point in time we will be selling systems too.

Tom Diffely – D.A. Davidson

Okay, all right. Well, thank you very much.

Nick Konidaris

Thank you.

Operator

(Operator Instructions). The next question comes from the line of David Duley of Steelhead Securities. Please proceed.

David Duley – Steelhead Securities

Yes, could you – you mentioned the flex business is quite strong, and I think you mentioned one of the end market applications was smartphones. Is that the key driver as to why that application – that business is strong?

Nick Konidaris

Yes, there is flex and smartphones. And overall there’s flex in laptops and it’s these kinds of consumer devices that basically are the driver.

David Duley – Steelhead Securities

Is that what also is driving your micromachining business?

Nick Konidaris

From a point of view of consumer and portables and smartphones, the answer is, yes.

David Duley – Steelhead Securities

Okay. And can you talk about a little bit in the upcoming quarter how you expect the segments to perform and just a little bit of color on the three main segments here, and the revenue forecast?

Nick Konidaris

Okay. What I will – well if we look what happened this quarter, I will go through that and I would give you my sense moving forward. We saw very strong orders in memory repair this quarter. The fundamental driver there is growth in (inaudible) and we feel that’s going to continue. And as we mentioned earlier, as all of the customers reach a point of no excess equipment, all of them are going to be buying and we think that in the long term choppy, yes it may be, this is a growth business for us.

LED, we are really focusing. We would have been the leader so far in commodity LED. We are focusing right now in high brightness. We have extremely focused engineering effort in that area. We are producing a new product that’s going to be evaluated. LEDs as an industry may be experiencing a weakness in terms of growth rate right now, but the transition to high brightness is extremely strong and we think that that is another growth potential for us in the next few quarters and definitely during the next year.

In micromachining, we think that flex is going to continue in a steady mode seasonal and slight increase. This is a steady going business and we have a very strong leadership position with a product line that we continue to be improving and is offering unique advantages to the flex from a compounding position (role to role) capability.

In general micromachining, this is a very – we had good demand as we mentioned. So we penetrated new application. We have visible in front us a number of new applications and the expansion of existing applications. The set of customers is small, but these are – all of them big customers. And to the extent that the consumer globally is strong, we expect in a choppy mode, very good business in general micromachining.

And MLCCs, as you know, they are omnipresent in almost every electronic device, especially the consumer devices. And although this quarter was relatively – was lower than the previous quarter, the fundamentals are very strong. We expect continued demand in systems and we feel good about that because we saw strong demand in that tooling.

And so basically if I go back to how we were describing the last few quarters, our business, we said that our traditional business is more or less with the exception of memory did recover to pre-recession levels. Memory now is coming on board and we expect after that the effect of the new businesses and opportunities that are going to come out of our engineering program. So, there are always things that we are on a growth mode. But in these full of crosswind economic environment, we have to say that although we are going to be growing, we expect a choppiness in – along the way.

David Duley – Steelhead Securities

So just specifically in the memory repair or DRAM market, you know, you had a strong order quarter. So I suspect revenue will go up this coming quarter and the word “choppiness” to me means down on the order front. So is that a fair way to characterize that business, or do you expect…?

Nick Konidaris

It is a fair way if you think that I implied that orders are going to be down next quarter. But we don’t know that. I mean orders can come at any point in time based on what is going to happen in the marketplace.

David Duley – Steelhead Securities

Okay. You mentioned that gross margins would be flat with roughly $5 million of incremental revenue. I would think the incremental absorption on the higher revenue would offset lower production. Maybe…

Nick Konidaris

Yes, you are right. But we are going to have less absorption because of lesser production volumes.

Paul Oldham

Yes David, the situation is that this quarter as you saw, we built a little bit of inventory. We also increased deferred revenue which will ship out. So if you look at the actual production in the factory, it’s a little lower despite higher revenues in this coming quarter. So we are not…

David Duley – Steelhead Securities

Okay, so your shipment level reflects your deferred revenue, which would have been in shipment, and that was your production, okay, I got you.

Paul Oldham

Got it.

David Duley – Steelhead Securities

That’s it for me. Thanks.

Paul Oldham

Okay, thanks David.

Nick Konidaris

Thank you.

Operator

We have a follow-up question from the line of Jim Ricchiuiti of Needham & Company. Please proceed.

Jim Ricchiuiti – Needham & Company

Yes, another question on PyroPhotonics. I believe you mentioned that it would be – you anticipate it being accretive in 12 months?

Nick Konidaris

Yes, breakeven within a year. And after that – soon after that will become accretive.

Jim Ricchiuiti – Needham & Company

Nick, can you help us understand what has to happen to get to breakeven? They are clearly early stage, and I am just trying to understand does that assume they make more significant progress in solar? Are there other markets that they are – you anticipate them being able to move into?

Nick Konidaris

We are focused in solar, and what needs to happen is increased sales in solar.

Jim Ricchiuiti – Needham & Company

And is that increased sales in solar with a system of your own?

Nick Konidaris

Not initially, would be with other laser.

Jim Ricchiuiti – Needham & Company

But to get to the breakeven point in 12 months?

Nick Konidaris

It requires (inaudible) not a system of our own.

Jim Ricchiuiti – Needham & Company

Got it. Thank you.

Nick Konidaris

Thank you.

Operator

Our next question comes from the line of David Fondrie of Heartland Funds, please proceed.

David Fondrie – Heartland Funds

Yes, good afternoon. I just like to follow up an earlier question, trying to understand the increase in operating expenses. As I look at it, the SG&A increased to almost $2.2 million this quarter, which is like 17% increase, and sales were relatively – I mean substantially flat. So on a sequential basis, a pretty significant increase in that SG&A expense. Now, we’re talking about another $1.5 million – $1 million to $1.5 million increase. But I take that as directly related to this new acquisition.

Paul Oldham

Yes, that’s correct, David. If you look at the increase this quarter, the two big factors, and there’s lots of things, but the two big ones are increase in variable expenses. And that really goes throughout the company. It ends up hitting a lot of SG&A because it’s where the people are. But at our company variable pay comes in lot of forms; sales commissions. Also every employee in the company has part of their target that pay as variable, that ranges from 5% to over 50%. And the performance metrics on that are both revenue and profitability. So, as we’ve seen increased profitability that’s been a factor there. Now that’s variable within a year based on performance and that resets every year. So it’s – it does affect the current year, but is also baked into our model from a leverage perspective. So it shouldn’t affect the leveraging as revenues or profitability grow.

And you are right. In next quarters, as expenses go up, that’s primarily related to the acquisition. And the maturity of those expenses are in R&D, but there’s a little bit of sales and marketing there as well.

David Fondrie – Heartland Funds

I am sorry, I still don’t – maybe I am missing something here, but if revenues didn’t really increase and profitability didn’t increase second quarter over first quarter, why are these variable compensation things? Is it based upon past performance?

Paul Oldham

Actually profitability increased pretty significantly, specifically it’s EBITDA that we look at, and it’s up by a significant amount from our first quarter to our second quarter.

David Fondrie – Heartland Funds

Okay, okay, yes. I suppose these are non-GAAP numbers I am looking – or I am looking at GAAP numbers as opposed, perhaps, to non-GAAP numbers.

Paul Oldham

Yes, EBITDA metric is what the specific profitability metric is for variable expenses. And like I said, that’s the majority but there’s other variable expenses. There’s increased travel and activity that went with the higher bookings and other things, as well the biggest part was the profitability.

David Fondrie – Heartland Funds

Very good. Thank you.

Operator

(Operator Instructions). With no questions in the queue at this time, that concludes the Q&A portion of this call today. I would now like to turn the conference over to Mr. Nick Konidaris, CEO. Please proceed sir.

Nick Konidaris

Thank you. In summary, we are executing well on our strategy to grow by leading in the markets we currently serve, and by leveraging our expertise into new and adjacent markets and applications. As a reminder, we will be holding a conference for investors and analysts on the 18th of next month in New York City. If you would like information regarding this conference, please see the press release we issued last week, or contact Brian Smith, our Director of Investor Relations. 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

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

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