Q3 2019 Earnings Call
Third quarter 2019 financial results conference call at this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Require any further assistance. Please press star than zero. Please not that this conference call is being recorded today October 28 2019.
This time I'd like to turn the call over to Claire Mcadams NFX Investor Relations Counsel. Please go ahead.
Thank you and good afternoon, everyone. Thank you for joining us today does it Scott Intevacs financial results for the third quarter of 2019, which ended on September 28.
In addition to discussing the company's recent results, we will provide financial guidance for the remainder of 29 team. Joining me on today's call is coal our Wendell Blonigan, President and Chief Executive Officer, and your money Chief Financial Officer, Wendell, we'll start with a review of each of our businesses and our outlook going forward.
Jim will review third quarter results and discuss our financial outlook before turning the call over its just too QNX.
I'd like to remind everyone that today's conference call contains certain forward looking statements, including but not limited to statements regarding financial results for the company's most recently completed fiscal quarter, which remains subject to adjustment in connection with the preparation of our Form 10-Q .
Well his comments regarding future events and projections about the future financial performance of into that.
These forward looking statements are based upon our current expectations and actual results could differ materially as result of various risks and uncertainties relating to these comments and other risk factors discussed.
In documents filed by US with the Securities and Exchange Commission, including our annual report on Form 10-K , a quarterly reports on Form 10-Q . The contents of this October 20 coal include time sensitive forward looking statements represent our projection as of today.
We undertake no obligation to update the forward looking statements made during this conference call.
I will now turn the call over to Wendell.
Thanks [noise].
Thanks, corn and good afternoon.
Today, we reported Q3 results above the high end of guidance revenues of $26.3 million were above expectations due primarily to stronger than expected levels of hard drive upgrades during the quarter.
Favorable gross margin in photonics helped to drive a smaller net loss than forecast a two cents per share.
In the third quarter, we continued to gain momentum driving our strategies for revenue growth and profitability last quarter. We discussed the multiple critical milestones we achieved in the first half of the are laying the groundwork for Ferguson future growth trajectory.
In photonics, the new record order announced in July drove backlog to an also record level of $76 million at quarter end.
We continue to see quarter on quarter revenue growth and increasing operating profitability for the photonics business in 29 team and our order momentum through the third quarter signals. Another year of strong growth is expected for photonics and 2020.
In our thin film equipment or to your fee business in third quarter in response to our customers request to accelerate their installations, we delivered the remaining five energy systems in backlog.
We successfully completed the installation qualification of our first vertex specter evaluation system with the leading display cover glass manufacturer, which signed often began running demos full time in August .
Additionally, we continue to see cell phone manufacturer pool, driving the agreement Finalization for a second vertex evaluation system to ensure dual sourcing capacity in the supply chain.
Finally in the third quarter, we near completion of the building test of our first matrix PVD evaluation system for advanced semiconductor packaging, which is on track to be delivered and installed this year.
As we move into the fourth quarter of 2019, we continue to manage a number of moving pieces in our business, particularly in our thin film equipment group.
These pieces can be positively or negatively impacted not only by current its industry climate, but by the global trade in macro economic environment as well.
Since our last call. However, our confidence levels have strengthened for year over year revenue growth in both photonics and equipment, which raises our expectation for returned to profitability for fiscal 2019.
Looking to have to 2020, we continue to drive for revenue and profitability growth.
In photonics, our backlog and order momentum to date indicates another significant your growth.
Our equipment business, our visibility for 2020 is limited and as I mentioned has weathered many moving pieces at this moment.
We continue to assess how the business environments are unfolding and are building or 2020 outlook as we finish up 2019, we do however, see the 2020 revenue profile has with 20 teen and now 2019 to be significantly back half loaded.
Now for an update of our business segments, starting with photonics.
Our results to date and expectations for a strong Q4 are driving growth for this fiscal year of over 35%, which with operating profitability inline with our long term model of 10% to 15%.
We recorded significant revenues from the our best program during Q3 and announced the expansion of the programs scope in the associated increasing contract revenue.
This now 31, and a half million dollar contractors for the development and delivery of the initial lots of digital night vision cameras for us the I know system level development and qualifications.
Through the under 2020, the I've asked camera modules, we are delivering will leverage the successful accomplishments of our state of the art digital night vision cameras.
Over the past year, along with our next generation ice 19 sensor development activities.
The major revenue opportunity for all slicing the actual fielding of I've asked systems to the dismounted soldiers after the qualification and selection processes are complete.
Until July the I've asked award was the single largest order ever booked in photonics and continues to represent the largest future revenue opportunity for this business.
If successful we projected volumes digital night vision camera modules beyond the initial development contract to be field into the dismounted soldiers would be into hundreds of thousands of units.
The success of the I've asked program over the next five years is a primary component of our potential to double the level of revenues in the photonics business compared to the last five years and beyond 2023 continue to drive the largest revenue opportunity component comprising our 1.4 billion dollar revenue opportunity pipeline.
[noise] also supporting our growth out what was the latest record bookings for Photonics, Illinois announced last quarter, a $40 million multiyear contract award to supply digital night vision cameras can supported the U.S. government.
Together. These two major orders have contributed to our all time record levels Photonics backlog building strong foundation for future growth and increasing our confidence in another year of girls for Photonics and 2020.
We have multiyear visibility for our manufacturing options and continued validation of our digital night vision technology.
With regard to our ongoing technology advancement efforts. We've now completed the initial ice 19th sensor design and performance qualifications.
We are currently building the ice 19 sensors in small quantities in support of several new programs that will be the launch vehicles for the ice 19.
Supported by the government. We now have successfully met the design specifications required to take digital night vision to its next level of performance, including enhanced framework capability and higher dynamic range will ship. Our first camera system based on the ice 19 in late Q4 and expect to field a significant quantity next year.
For multiple programs, including items.
Moving now to our equipment business instant film equipment as I mentioned earlier, we were pleased to report continued progress in our growth initiatives outside the HDD market and in particular, our effort to expand our current footprint in the display cover glass industry.
In our two year fee growth initiatives, we made important progress engaging with handset makers, which provided the customer pull to install our first vertex evaluation system with a leading display cover glass manufacturer. This vertex was quickly qualified and signed off in August for decorative back cover glass applications.
The tool has been dedicated to running decorative patterning applications and demos have been requested by most major handset makers in China. The interest level for this capability is very encouraging.
This evaluation system preside provides quick turn regional accessibility intevacs newest technologies.
And enables new differentiated and fully integrated films that configurations that expand the freedom and options available for the design of next generation smartphones.
Customer pull with a top five handset maker is also driving the activity to place a second vertex evaluation system with another display cover glass manufacturer also in China.
At our last call we were very close to finalizing the agreement with the initial manufacturing partner. However, during Q3, we end the handset manufacturer together selected an ultimate display cover glass company to work with on this project.
Currently our business team is in China, finalizing the new agreement and we continue to plan on the second tool shipping and being operational before the end of the year second display cover glass.
The strategy with both these evaluation agreements is to generate production demand with the major handset maker and enabled these tools to convert to revenue in 2020, while driving additional growth through follow on orders. We also continue to work with both top tier and boutique cover glass manufacturers, who are also candidates for additional reminiscing.
Adams.
For my earlier comments, you Bell tool revenue timing and follow on orders or some of the moving pieces in our equipment forecast.
Regardless, we're driving for year over year growth in our TLC business in 2020, and such growth would likely be driven in part by multiple vertex systems converting to revenue next year.
Prior to our call today, we issued a press release updating our product line offerings for our vertex tool as well as our latest diamond like carbon protective coating trademark diamond clad.
Over the last several quarters I've discussed our internal development programs to push the performance envelope of our protective coating to approach that of Sapphire and also reduced the cost of deposit in the coatings on cover glass.
I'm in cloud is proprietary multi step process that improves upon our original single layer film solution for DLC 1.0.
Developed in house utilizing the ion beam source technology release last year diamond clad and outperform similar to Sapphire and scratch testing at the most standard and is far superior to the industry standard glass will enter anti fingerprint or coatings, which scratch animals five level.
I'm in cloud coding outperforms standard cover glass by a factor of foreign paper, we're testing and by a factor of four to six times in use case, ADF durability testing with sand denim and perspiration.
We have begun some initial sampling to select customers today and are now officially rolling out the product we have trademark the name and will be driving a marketing campaign to raise awareness in early 2020.
Beyond the improvements that we've made toward protective films performance. We've also been working to reduce the cost of applying film.
The adoption of protective coatings for cover glass has shown a clear cost performance tradeoff and we have been aggressively working both sides of that equation as we moved from a single layer DLC film to a multi layered approach of diamond clad the film costs on our standard inline vertex system went up which was in the wrong direction today.
We introduced a new platform architecture for our technology vertex marathon.
This new system utilizes the core source technology, we developed and release last year, well on a high throughput platform optimized for multi layer coding.
By moving the Diamond club process to the Mirror fund platform. We have enabled the most advanced Oh DLC technology at less than half of the cost of all DLC 1.0, our first version deposited on previous generations of vertex.
Our first marathon tool has been built in is moving into our clean them now to prepare for demo activities for all the Filmstruck Certex addresses specifically Diamond club protective coating as well as answered reflective decorative and unique patent applications for more information. Please see our website at www.
You got Intevac Dot com.
We are eager to see how the to evolve system projects progress and are excited to introduce diamond cloud in the vertex marathon into the market.
Vertex remains a key program in the company and I will continue to update you on our protection business activities each quarter.
Now I'll talk about progress beyond our efforts in display cover panel.
We've made steady progress in the building test of our first matrix PVD evaluation system for advanced semiconductor packaging, which is scheduled for Q4 delivery to a leading osats or outsourced semiconductor assembly and test provider.
The matrix PVD system will go into evaluation and qualification that their R&D facility and is designed to lower the cost of advanced semiconductor packaging architectures. These architectures and it will smaller package footprints from mobile devices as well as improved thermon elect thermal and electrical performance as compared to conventional packages.
Yes, yes for the energy platform in our solar cell ion implant business, we continue to have confidence in the future potential for the energy product line last quarter, our customer accelerated their delivery schedule for the five tools remaining in backlog, which have shipped in are reflected in our third quarter revenues.
We continue to discuss additional tools for 2020 in support of a multi gigawatt capacity expansion in China, which would utilize arent being built in as well.
Just as in other areas of our equipment business. These additional tools are also moving pieces and we will need the new expansion in China to launch in order to re grow our energy backlog.
We believe however, we do have the potential to see another good year of energy revenue in 2020 based on current discussions with our customers.
And finally, an update on our HDD business.
Recent HDD channel information indicates hard drive units came in a bit better than expected in the third quarter, even after adjusting for the inconsistency among suppliers of 14 versus 13 week quarters expectations for strong near like near line drive demand in the second half continued to drive the majority of growth.
For media as we exit 2019.
Capacity utilization rates by our customers are currently very high and even with the two 200 lean shipping in Q4 and two more in 2020, we continue to believe the hard drive industry could exhaust its media capacity by the end of 2020.
Beyond that long term forecasts currently model media demand growth of 8% annually through 2023 in support of the 25% growth rate expected for Exabytes shipped on hard drives.
Meanwhile, after tempering our expectation for HDD upgrades in the second half due to very high tool utilization rates in the associated lack of tool availability for upgrades our customers continue to push forward with strategic technology upgrades, regardless the results for Q3 with some upside in our HDD.
The upgrade revenues and for the full year revenue forecast has improved modestly since our last call with an even stronger upcoming quarter forecast for Q4.
As far as far as what we're seeing for our HDD business in 2020 at this point, it's too early to say our plant upgrade activity is very strong year end in our visibility for the level of upgrades in 2020, whether they're similar higher or lower than this year is quite limited.
We also have little visibility for additional 200 lean orders beyond the two in backlog, but as the demand picture starts to solidify for the media required in the second half the 2020, our customers would likely start making those plans then.
Just like other parts of our equipment business, the HDD media business can be lumpy quarter to quarter and year to year.
Of note over the last few years, our HDD customers have started each calendar year with relatively conservative views of capital investment and yet we have exited each year with a stronger and more profitable HDD business than we had expected in January .
The overall take away.
From the long term outlook of hard drive media is that our HDD business is reasonably stable at current levels and given the need for capacity additions to support the forecast demand of hard drive storage for the cloud.
We continue to expect the business contributed at least as much revenue over the next five years as it has over the past five with modest upside depending on media capacity needs to support Nearline drives growth.
So in summary, we've achieved critical milestones for the primary objectives of our 2019 corporate growth initiatives and with the introduction of our vertex marathon system and Diamond class protective coatings, we're very excited about our future business opportunities.
And while it's premature to provide our outlook for 2020 on todays call I've explained some of the drivers and moving pieces that surround our push for another year of growth.
First in Photonics and military digital night vision, we have the backlog and the multiyear visibility to forecast strong growth ahead for 2020.
Second.
Second in hard drive media, which we expect to continue to be stable and profitable we're working to gain visibility on the upgrades and tool orders required to drive growth next year.
Third in display cover panel, we're driving for growth in 2020.
We're excited about our new diamond cloud protective coatings and in the coming months, we look forward to achieving market adoption of the higher performance and lower cost coding enabled by the vertex marathon platform.
For in solar we're encouraged by discussions with our customers. So far that 2020 could be another good year of shipments.
Yes, the newest market for US was advanced semiconductor packaging could begin to contribute to revenue in 2020, but it's certainly a market we feel could be meeting to be a meaningful contributor in used to call.
In conclusion to sum up our final outlook for fiscal 2019, we expect strong year over year growth in photonics exceeding 35% and modest growth for the equipment business with this improved revenue and operational outlook, we can now guides and confidence for a return to profitability for the full year.
I'll now turn the call over Jim to discuss the details of our recent financial results Q4, and our full year outlook Jim.
Thank you Wendell.
Consolidated third quarter revenues totaled $26.3 million about 3% above the high end of the guidance range.
No equipment revenues totaled $17.1 million going included five energy systems, along with upgrades spares and service.
Product revenue of $9.2 million included $4 million of product revenue and $5.2 million of contract research and development revenues.
Q3, consolidated gross margin was $8.8 million were 33.4% and slightly above guidance of 32% to 33%, but down from Q2 due to the mix five lower margin energy tools in the quarter and no 200 billings in Q3 s.
Q3, operating expenses were $9.2 million down slightly from Q2 and at the midpoint of our guidance primarily due to a more focused emphasis on selected programs in R&D.
This resulted in a net loss of $480000 or two cents per share the smaller lost in our guidance.
Our backlog was $115.4 million at quarter end.
Thin film equipment backlog of $39.3 million include for 200 lead HDD systems and non systems HDD backlog.
Backlog in our photonics business was $76.1 million.
We ended the quarter with cash and investments, including restricted cash of $37.1 billion.
To approximately $1.60 cents per share based on 23.2 million shares a quarter.
Cash came in below our $40 million objective due to delays in customer payments.
We ended the quarter with an accounts receivable balances.
$9 million, which was higher than we expected.
Customers delayed payments that would do end of quarter until the first week of the current quarter.
We received almost $8.5 million and collections in the first week of Q4 alone.
Cash flow used by operations was $2.1 million during Q3.
Q3 capital expenditures were $1.9 million and depreciation and amortization were $858000 for the quarter.
The company continues to manage cash very closely to maintain a minimum balance of approximately $40 million as a result stock buybacks during the quarter were limited.
We purchased 40737 shares of common stock for total $69000 during the third quarter.
As of October 28, 2009, P. the company has repurchased 5 million shares.
For $29.2 million out of 40 million dollar plan.
For Q4, we are projecting consolidated revenues to be between 34 million and $35 million.
We expect fourth quarter gross margin to be between 42% and 44%.
In Q3 as mix improves with two 200 liens going a higher amount of HPV upgrades in the Q4 revenue forecast.
Q2, Q4 operating expenses are expected to be between 9.2.
$9.4 million.
We expect interest income of about $100000 and GAAP income tax expense of about $1 million in the quarter as I had mentioned previously.
Our cash taxes will be lower.
For Q4, we are projecting net income in the range of 18 cents to 22 cents per share assuming approximately 23.4 million shares.
Given our Q4 guidance, we expect full year revenues to grow 13% to 14% over 2018.
To about $108 million.
At this revenue level and expected product mix, we expect gross margins to be approximately 36%.
Operating expenses of around $37 million for the year.
We expect interest income of about $500000 and GAAP income tax.
About $2.1 billion for the year, which more than half will be non cash.
At the midpoint of our Q4 guidance ranges for the year, we're projecting full year profitability of around two to three cents per share.
We're also projecting to every year with a total balance of cash and investments over $40 million and reporting net increase compared to the end of fiscal 2018.
This completes the formal part of our presentation operator, we're ready for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby well, we compile the culinary roster.
Our first question comes from Craig Ellis, a B. Riley FBR. Your line is now open.
Yeah. Thanks for taking the question and congratulations on returning to profitability Jim I just wanted to follow up to start with a clarification on gross margin guidance for the fourth quarter nice to see the the 40% to 44% range is that all driven by.
The mix thats occurring and that thin film side of the business are you seeing margin improvement and in photonics as well.
I think the percentage wise is going to be driven mostly by the thin film equipment mix.
Although if you listen to one will slow down part of the conversation we believe that the.
Photonics business could grow at least 35% and so if it does then the revenue in Q4 Photonics will also increase which will contribute more margin dollars in Q4 than it did in Q3, but the percentage is going to be.
Heavily weighted towards not having the five energy tools and having to 200 liens in Q4 kidney equipment business.
Got it and then moving onto a couple of questions for when the window you.
You start the fourth quarter, but the very strong backlog position in photonics.
Can you just talk a little bit more about what you're seeing there and if that backlog position something that we should think the company will sustain or as the company drives growth in revenue well, we'd be saying that backlog position come down as you work through successful orders that have already been achieved.
Well, we think just looking over the next the duration of the I've asked program, we think those revenue levels or are pretty much at their run rates.
And then of course, we also announced in the.
A larger.
Program, the $40 million booking that we had that's all in backlog that goes over several years, but what I can't say is that we certainly have a pipeline a programs that we are engaged with.
Particularly ones that are going to launch the ice 19 sensor into the market.
That are still on our fleet to go to go get so there's we're not out of opportunities too.
Bill Photonics backlog at this point.
Good and then a couple on the thin film side first.
The matrix PVD tool that Scott advanced packaging.
Potential it sounds like Thats going into R&D, one is that so too.
Can you talk about the potential to drive that into other customers and then thirdly, if this tool where to go into production can you give a sense for what the opportunity would be you transition from R&D into production.
Yeah. Okay. So we have to be very careful because the customer very much does not want us to disclose what they're doing but it is going into the factory that will initially started out on the but then would convert to a to volume manufacturing.
We expect.
That to occur.
In the in 2020.
Depending on how how quickly they progress in their qualification of the entire.
Suite of tools for their line.
And this one.
When that would occur we would do an upgraded that tool that we put the what I'll call. The material handling right now, it's mostly manual and that we put the foups and other things on the on the tool when Steve is that conversion.
And we think Theres an opportunity just in that particular line for at least two two more systems beyond the upgrade on the though.
As far as zone.
Additional customers I think this was really important for us because we were in a position yeah. We live with the customer. So yeah. We look we love the tool we know it works in the in solar cell industry, but.
We want to see proof that it's working in volume production in advanced packaging industry.
And we'll we'll have that data.
As we get towards the end of the year, which would make the doors opened easier for us another out opportunities.
Thanks for that and then lastly from me before I hop back in the Q sounds like there's two vertex that could BREP rack and a fourth quarter. If I have that right and then a couple of more next year, hopefully I'm not getting to the tools to make stop but can you just walked through the engagement activity in some of the Rev. Rec activity on the protect type.
Yes, as I said in my we've got one tool out there that's installed sign off and running demos.
Back to get the next went out here.
Within a month, we just got a final up finalize up some of the.
Legal terms in the Eagle contracts, so that when we expect as well to get out that they would be dolls running into the 2020 timeframe.
One of those tools turns.
The worst case scenario it turns on 12 months abuse. The other one is configured at once it gets X amount of production through within that triggers the purchase but our goal here is to get adoption and get some volume production through those tools. So it would make sense to go ahead and Rev. Rec, those and get those in full production.
The.
Goal here is to get enough production that will drive follow ons in 2020.
Most all right. Thanks Wendy.
Almost all those tools need to go through their full.
Cycle, especially if they're on the marathon platform that will need to go through full acceptance cycle before we can run recognition.
Thank you.
Thanks.
Correct.
Thank you and our next question comes from Mark Miller from the benchmark. Your line is now open. Thank you for the question.
How many people are your discussion with in terms of euro temperature coating tool.
It seems like at least to put the are there others you're in discussions with.
Oh I didn't quite understand the question Mark Hi.
[laughter].
Who are you talking to how many manufacturers to progress manufacturers are engaged with for the vertex.
Decorative tool.
Well in my remarks, I would well, let me say it this way.
Where everybody is all the major handset makers have seen our 1.0 diamond like carbon.
The.
Diamond clad we just just last week started selectively showing some people of what we've got.
And we'll go across the hand makers all this fall the top end makers to get that in front of them.
On the decorative back coatings as I mentioned is that we've got demo request for most of the major Chinese handset makers today on the tool it's running and then I would say there's one that's one particular.
Handset maker that I referenced is really driving the second tool into the field. So theres dual sourcing for their products. So we're making good progress Aaron and we'll continue our visibility on the diamond clad.
Starting now.
Do you expect to get the timing.
Tools revenue next year.
That would be the expectation that we make that happen next year we.
Just got out of the fields.
This weekend and we have a targeted tool that we're going to upgrade in the field with the Diamond class sources, we expect to have that done before the end of year.
Terms or your photonics backlog, how does that compare in terms of margins compared to <unk> will that be an uplift to margins compared to previous photonics backlog say margins.
It's going to be similar to the margins you've been seeing.
With a higher volume, we have a higher amount of efficiency.
I know last quarter, we did 43%.
That was a little bit higher than we expected I think you're going to see high thirtys.
Maybe even around 40 as we will look at the backlog Thats currently there.
Thank you.
Thanks, Mark Thanks, Mark.
Thank you and as a reminder, if you'd like to ask a question. Please hit Star then one on your touched on telephone. If your question has been answered please or pit the pound key. Our next question comes from Neil Choksi with Maxim Group. Your line is now open.
Yes, Thank you hey.
So this vertex marathon.
Seems to especially the.
Diamond clad seems to be significant upgrade diamond quite as only available on vertex marathon is that correct.
No. It can be done on the specter tools that are out there today and it's just a matter of how much out how much output of the you can get off of that tool versus the marathon and.
Just a throughput is slower.
So it can run at least for engineering and development work and run on spectrum no problem.
But I think in large volume production it needs to go to the marathon platform and we have the ability to take the source lots of the components off of it and install vertex spectra and those bolt right onto the marathon platform. So theres I see an upgrade path through to get to the higher volumes.
Okay.
Oh are you disclosing the SP on the marathon.
Not at this time.
Okay, we're really looking at the overall cost of getting the film's down and they are more complicated film with more layers and we were able to deliver that multi layer half the cost of 1.0 on vertex. So.
Okay, that's what we're driving that.
Right right.
No. The evaluation systems. These two to cover bus Oems are they spectra or marathon at this point spectrum, they would be candidates to convert to the new platform later.
Okay, Okay all right.
But wondering how appearance years ago, you guys were talking about smartphone out into wild relatively high volume skew.
The Ot LLC coding.
Has there been additional smartphone skews has hit the market since then.
With the LDL C through our work with truly they have some.
Covered glass, that's going on some phones in the China market only.
But.
It's it's what we want to take and really address the market for the protective coatings with diamond client, where we could not perform at sapphire level until now so we'll be going back out to show that we've got there.
Okay understood and then on the a hard not to say I know you addressed this in your prepared remarks, so I apologize, but can you just trying to review was expectation on the timing for the for the 200 systems and backlog right now.
Yes, we clearly said that two of those would go in Q4.
And at the moment. The other two are scheduled to customer has requested that they go into his fiscal year.
2021, which would be our 2020, which would be like July for continuing to work with the customer. That's one of the reasons why wouldn't will also pointed out that as we look at 2020. It is definitely backend loaded in those two 200 lean certainly contribute to that.
Backend loaded but of those four to go in this current quarter Q4, 19 and the other two we'll go next year currently the customers talking about putting them in the back half of our.
2020 calendar year, so that it gets into his beginning of his 2021 fiscal year.
Okay.
And I think you guys also discuss the expectation that order activity for new lean to hundreds could also come through within the next six months for within 2020 as well is that correct.
I think we're we're right now trying to figure out how we ended the.
19 COVID-19, it's going to play out looks like Q3 was a little bit better.
But.
Just seasonally the front half of the.
Calendar years tend to be light and that's when we typically see those type of.
Plans formulating.
So we probably won't have visibility clear visibility on that our calendar 20.
20 plans until partway through the calendar year.
Okay. Thank you.
Thanks Neil.
Thank you only have a follow up Craig Ellis with B. Riley FBR. Your line is now open.
Yes, thanks for taking the follow up I think we ultimately got there with some of your commentary and responsible ask question went all but I wanted to go back to the comment that 2020 would be a backend loaded year similar to what we saw in 2018 and 2019 and I think mathematically.
2018, with a little bit more backend loaded up the two bed.
Acknowledging the fact that there's a lot of potential business that may not solidify until the first half of next year can you provide any further color around how the linearity would compare to 18 and 19 do you expected to be somewhere in that range or would it be even more backend loaded than what we've seen.
In two recovery year say Tina thank you.
Hey, Greg This is Jim I think from what we're looking at currently today, it's going to be more back end loaded than either 18 or 19, it won't be a backend loaded for photonics because of their high backlog.
But if you look at the backlog in thin film equipment and you look at a lot of our initiatives that were out promoting whether it'd be vertex or whether it be the follow on order on energy or whether it be the matrix evaluation tool.
There's a lot of progress being made but if you look at the climate of Windows will convert to revenue there would be focused on the back half. So it's going to be more back half loaded than 2018 or 29 keywords.
And then how do you feel about maintaining a $40 million cash position to the first half of next year end and into that back half Jim.
I'm going to say at the moment I still feel really good about it I think some of the drivers that could influence that is as we get success with the vertex tools. We have in the five that we've sold been successful and getting down payments. We don't know if those will continue as we move forward and thats.
One of the reasons for keeping the cash and so that we can fund the growth as inventory for those six months or so between the time, we buy it and converted to cash so.
I feel very comfortable absent of any major business change happening, but if there is a more severe business change be no doubt payments, we have the cash to be able to fund that and quickly turn that inventory of the cash so I feel really good about that.
Got it thank you.
Right.
Thank you and have a question from Dan less somewhat Westcap management. Your line is now open.
Yes, hi, good afternoon. Thank you for taking the questions. Most have been answered by now, but Jim on the well Wendell be $40 million contract you guys announced in Photonics last quarter was there any revenue contribution from that particular contract in Q3.
No there wasn't that we would expect to that we wouldn't see revenue on that contract till the very into Q4 I think.
Okay got it that's helpful.
Go ahead Jim.
Multiyear contract I think as Lisa.
Got it yes, so and when that starts to contribute into Q4, maybe more awareness in Q1 next year do you anticipate that revenue to be kind of linear over the life of the contract or is there any spikes that your.
Estimating.
I think.
The customer has its not allowed us to tell you tell anybody exactly what that program is.
However, we expect from a it's a it's a manufacturing volume manufacturing contracts. So we expect that to be pretty stable, but we do see it initially rap.
Some smaller numbers as far as units per month to a little bit more but that rapidly through I guess, maybe the first quarter next year and then it would be very very predictable and.
Wow.
Got it Okay. That's helpful. And then finally as that starts to kind of layer onto the photonics revenue stream do you anticipate that there could be even more operating margin expansion in photonics them, we've already seen.
Yeah, I'm going to say no youre or our model is the mid Thirtys and.
What are the questions earlier, I said could be the high Thirtys I would say as we're looking into 2020 absent of any favorable news, we see and yields are efficiency, that's going to probably be mid to high thirtys throughout the year may fluctuate a little bit quarter over quarter, depending on what's going on with the funded R&D in any given quarter.
Yes, no fair enough, Jim I I was more interested in the operating margin.
Oh, the operating margin.
Given your question to give that I'm, sorry, it's focused more on the gross margin no no. That's quite a right. Yeah. That's why I ask because I know there'll be some fluctuations on the gross margins line, but you've done an admirable job getting the operating margins into a level I didn't think you could get that quickly with the layering on of the additional revenues from the additional program do you think that operating margin.
Has a chance to increase from here as well.
You know I think it's going to be.
Similar to our model, we've talked about our model and I think what we've given them all around 15%. It may fluctuate in any given quarter not a lot we hope, but I think it'll stay girl 15, maybe a little bit above that as we go through next year.
I don't have spoken to get you guys are yes.
There's a limit to how much the government's allows us to make in that business. So.
Okay, maybe I'm, a little mistaken sorry.
Weren't you considerably higher than that in Q3, I I think you're over over 20% in Q3 Archer.
I think we might have been 22, but I think in that particular quarter. We were we were fortunate to have some.
Manufacturing variances that hit which kind of reset some things but.
I don't expect that level necessarily to go quarter over quarter. So we do see some programs that maybe have about short duration slightly higher margins some ability to under spend in the opex because we're spending it on the revenue, but we can't delayed some of the funded some of the internally funded R&D.
The program. So there is a combination of a number of things, but don't expect 22% to be the new normal and it's going to be like that going forward.
Okay. Okay. That's really helpful. Jim and then finally, Wendell and can you comment.
To to Belabor. This last 40 million dollar contract the.
You indicated that your ice night 19 will be kind of ready at the end of this year.
Remind us was that order specific to the 11 or will that morph into the 19.
That order is based on the ISO love it.
No but.
Every I Celeven, we ship thousands of candidate to replace with listening to you at some point.
Very good guys. Thanks, very much for taking the questions congratulations.
Good.
Thank you and on I'll turn the call back over to Mr. Blonigan.
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