Q1 2020 Earnings Call
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Today, which Mary Jane Raymond.
Financial Officer, Ma'am, you may begin.
Thank you call and good morning, I'm Mary Jane Raymond the Chief Financial Officer, Syracuse, Six incorporated welcome to our first quarter earnings call for fiscal year 2020.
With me today on the call as Dr. Chuck Mattera.
Our Chief Executive Officer, and Dr. Giovanni Barbara So our Chief strategy Officer under President of the compound semiconductor segment.
This call is being recorded on Tuesday November 12 2019.
Just as a reminder, any forward looking statements we may make today. During this teleconference are given in the context of today only.
We do not undertake any obligation to update these statements to reflect events.
Subsequent to today.
With that let me turn it over to Dr. Chuck Mattera Chuck.
Mary Jane Good morning, and thanks to everyone who are joining us today.
Before we begin I really want to take a minute to thank all of our veterans.
They remind us of the importance of dedication and determination.
All.
In two six is strategic position in the aerospace and defense market.
As we have many times in the past 20 years, we were started another new chapter in the evolution of two six.
On September 24th we called the finished or transaction the largest acquisition in our history.
Our excitement is only increased since day, one as a result of the copper entirety of the technology and manufacturing platforms are both companies.
Despite some market forces commensurate with our conservative Chase.
In the normal heavy lifting that is needed and the time immediately after an acquisition. We are confident that we will disrupt the status quo.
As a result of the acquisition, we're the largest component and sub systems. So far in their global optical optical communications market and we believe the undisputed leader in photonics solutions and compound semiconductors.
The combination of the semiconductor laser.
Customized optics and integrated circuit technologies, along with the miniatures nation in automation platforms on the new company positioned us well to expand into a larger portion, but each of our end markets.
For example, we fully expect our industry, leading indium phosphide laser capabilities to enable rapid growth across multiple markets, including optical communications automotive Hyperscale data Center Communications life Science diagnostics and consumer electronics applications to name a few.
Moreover, we believe that increased scale and quality will ultimately yield lower cost greater competitiveness and result in more ubiquitous adoption at scale.
In fact, we're already seeing tremendous growth in our indium phosphide base coherent products.
Our recent innovations in highly integrated indium phosphide laser components in analog integrated circuits have propelled us into a leading position for the latest generation of hundred G 203, and 400, you Pluggable coherent transceivers.
In fact, we've already had multiple design engagements for the coherent opportunities before us and the we are committed significant resources in order to intersect the market and establish a strong number one position.
Our investment focus is being guided by a broad customer base with whom we have over 20 active design engagements.
We expect to see meaningful revenue and profit upside in both Aflac 20 and 21.
This differentiated platform for coherent product will help offset the fact that the datacom space is in a low part of this cycle as web two dot old players prepare for a technology change.
Combined with our coherent transceiver innovations are a high speed virtual know how will help spur growth in the next transceiver upgrade cycle and data centers from one hundredg through 400, Jane and 800, G, which you're wanting will discuss in more detail.
We're continuing to work at expanding the number of new opportunities that we can address from our three D sensing vixel business.
I have spent a good deal with my personal time in the last six weeks communicating with customers and employees to understand the capability and readiness of the operations at the Sherman, Texas plant.
That facility is the newest and largest of the world's compound semiconductor fabs known to us.
During my visit.
I found a well equipped world class wafer fab substantial insufficient in house MOCVD epitaxial growth infrastructure in capacity.
And the market, leading development team well positioned for the next generation design and cycle currently underway.
Although the fraud was qualified in the September quarter, and was well positioned to begin volume shipments in the December quarter, a technical issue required some additional time attention and that work is causing a doing.
We are working closely with our largest greedy sensing customer to implement inequality driving improvements that had been identified.
And as of today, our Conservative view is that we will begin shipping in the March quarter.
We are actively sharing best practices between the Fabs and expect the benefits of that synergy two quick we accrue.
We are accelerating the improvements through the final stages of the approval process and the Meanwhile, we've been asked to ramp up the capacity and shipments from our eastern Pennsylvania in war in New Jersey, Fabs over and above our forecast and that is going extremely well.
With respect to cost synergies, we got off to a very good start at the cracker the dot.
Our pre closing integration planning work allowed us to hit the ground running on the first day of the combined company.
At this point, we have a very robust process underway for the supply chain synergies the largest portion of our identified 85 million of cost of goods sold synergies over three years.
Our new Chief sales Officer is also working with his team to identified revenue synergies, which would be accretive to our total 150 million <unk> hundred 50 million three year cost synergy projections from both the cost of goods sold and Opex.
Customer and gave <unk> engagements have remains very positive and then discussions with them. We sense that momentum is building that are a key accounts.
At the Opex level, we've already achieved a good part of the synergies associated with corporate costs, including the elimination of the duplicated C suite personal insurance order threes and directors fees to name just a few examples.
Regarding the order to hold separate the fairness to our WSS business, we believe that the market leading potential of the combination of two six and finished rwss caused China's regulators to rule that they'd be held and operated separately to preserve competition.
Our remedy plan has already been submitted for approval.
And we look forward to both of our WSS teams driving as the market gross.
Now I would like to make some summary comments to tie it all together.
Hi, I'm more confident than ever in our ability to enable our growth driven by the long term mega trends in our markets, including Fiveg wireless cloud computing optical communications three D sensing and electric vehicles.
Our strategic plan calls for us to leverage our broad innovation and technology advantages, which along with our unique insights into market shares will drive significant long term value creation through a much larger customer outreach increased global scale expanded and complementary product road map.
And existing leadership positions with the largest customers in our fast growing markets.
We now have over 10000 customers and as many reasons why we are optimistic about the future.
In fact, the confidence of our top customers, whom we serve which are expected to account for over one and a half billion dollars of annualized sales are excellent reminders of the potential power of this platform.
We look forward, we look forward to their being great partners with us and our future growth plans.
Looking back we worked on the planning and integration details of the strategic acquisition for two years, leading up to the closed in September .
We acquired finished or to increase the number of our technology platforms and expand our addressable markets, while filling our broad objective of enabling the change that the world is experiencing today as it becomes more connected intelligent mobile and dielectric.
It is especially important to note that since we announced the acquisition over a year ago changes in market conditions brought on by the side effects of a protracted trade dispute a slowing industrial global economy, but Don market cycles associated with the adoption of new technologies and some operational challenges have created.
Year term headwinds.
These will require us to step up our efforts to get us onto a trajectory to achieve our long range projections. Therefore, we will continue to further assess the business after operating it in this new structure for one to two quarters to define the gaps in the steps that we will take to simultaneously increase our topline.
And to align our cost structure with market realities.
And the Meanwhile, we will remain focused on executing our strategy leveraging the technology identifying and closing gaps step by step while working to improve our operating leverage.
With all that is going on we clearly have rolled up first leaders and the working to cover the ground quickly.
We have some work yet to do to get ourselves to the extraordinary level of performance that we're capable of and I'm looking forward to being able to report steady progress to you each quarter with that I'll turn it over to Germany joining.
Thank you Chuck and good morning.
As it has all of the combination of two seeks infinity. So.
We expect to be ranked number one the optical communications component market.
With the goals of Fiveg, which expands the Wolf communication infrastructure fund the power to Metro call in subsequent wells, we're seeing increased them on the cost our bed become integrated value chain.
For example, we are in a sold out bill seasonally bumps and demands from somebody in pumps alone now council with testing, we don't follow the backlog.
Fiveg is also driving increased demand for coherent transmission.
We have an exciting roadmap for coherent communications from components to modules and subsystems.
As Chuck mentioned, well on a leadership position for the next generation of highly integrated modules.
We're already seeing meaningful revenue this fiscal year with a focus on PC baby to generate 10 times school year over year.
We're also very excited about our work with customers on component all things that were previously captive within pizza.
Clothing in new full spy lasers detectors icees integrated optical subassemblies.
The lives of the buys you spoke communications alone will enable us to sell it total addressable market previously unserved by fees.
A $1.4 billion by plan dependency.
The design and we're off to will create a novel quarters.
It will really shipping samples now.
We expect revenue to begin to materialize in Q1 of why 21.
Fully diluted Transceivers those users usually rebar same thats the market has been down about 15% from 2018, but we expect it to recall the income and Atlantic Randy as we have multiple customer acquisition on found a way for revenue in the Central Hall.
Kolenda 2020 .
While the mainstream Paul assuming 100 Mg.
While this will to LNG for LNG and based on the G World fuel new upgrade cycles in data centers.
I will increase that's impossible development, thus position us well to go to market with the highest feedback on modules for Hyperscale data centers.
Fiveg is also to drive a full gallium nitride don't see the bulk up either that colleagues in wireless base stations.
During Q1, we saw a nice in semi insulating silicon carbide demand for wireless applications, even as the demand for conducting silicon carbide for power the tonics Pip widely diminished due to macroeconomic conditions.
The shift in the mines required us to lead tool that portion of our proprietary pharmacies.
To address the Sargent why there's the mine.
We expect to the introduction of Fiveg handsets will further accelerate deployments of Fiveg base stations worldwide.
We China being the largest marketing 2020 and going to rapidly into next three years.
We recently introduced the world's first Siemens relieving Twond, let me let me go see the won't come by Saab sleep for high power amplifiers for use in Fiveg base stations complementing our 200 million meet those conducting cynical cup by substrates introduced four years ago.
We also secured the one that limit on dollar sole sourced contact for our 150 meet the substrates.
We are in Nepal system, securing a large scale facility and then lucky.
Our objective three to five times capacity expansion.
In the next three years four of our market leading suitable cup by substitutes.
Turning to the industrial market, we saw about the 10% decline year over year. We've also been decline coming from China and you look.
Given the where not only seeing the adoption in your system sales, but a novel I'll drop into GDP. So key geographic markets, such as China, right SPNC conditions that affect most of our industrial customers.
This may persist into calendar 2020 duly believed that the long term demand for laser processing on deals we returned to growth, especially.
Well, we know Davies innovative solutions that enable processing at higher Liza followers increased level automation.
As a result, we continue to trend based on our technology platforms. In fact, we reasonably this leaves a line of laser light cables for Walter High power laser safety certified over 26 kilowatt and receive the first of all the follow on to the remote welding had for automotive battery welding applications.
Enabled by our proprietary machine vision on softer platform for automated and on assisted seem tracking.
We also known as the world's first to market the spirit, except filings for high power lasers, providing less focus shifts they conventional latency that ever go in laser powers.
With respect to clean sensing after 24 months in this market. We are we'll see shameful fytwenty to be an excellent revenue year.
We believe that we are very well positioned for growth in the following year speeds on our shared our world agreements.
Let me go the NPV this exceeds five capacity be both chevron and Walmart and our market leading power conditioned the efficiency of our biggest holidays.
We are engaged in a lump of new opportunities for pixels in mobile devices for next year and we're seeing a lot of interest in activity in time of flight Domino's for won't cesium mobile applications.
The leaving on broadband those are moving from architect into technology in select high end model phones to offer into technology, our standard across multiple platforms as consumers see the benefit depleted technology, especially important announcement.
We are pleased to report the feds shipment of our fully integrated.
Sensing module.
If I look to address the needle some of those customers and we look forward to beginning to gain share in that segment of the threed sensing market too.
We're also seeing a storm beginning Thursday level Vixel technology for Threed imaging and sensing you know the wall. Dave is also on automation and Aiotv.
We are qualified and shipping to one large automotive customer for an income being pretty common across multiple verticals.
We are in active discussions in multiple dilutive customers and supply chain pockets wont be rolling out the previous technology over the next five years.
So it is found us are driving interest in and adoption all in cost being driver then passenger monitoring additional control in either solution to be sandals extending out to the car for soft launch book similar detection.
Last quarter, we also simplified our factory in Vietnam for automotive standards, and we believe that the combined we dealt with regional Copa capabilities follow optical subassemblies. This capability, we contribute to our competitiveness for sub assemblies and modules for debt markets.
In addition to give you sensing our Warren and Chevron Fabs can address our the markets with bumping up applications.
It was then well be made out of 16 forgotten on I try line as part of our previously announced a partnership with Sumitomo and actually the barges innovation and leader in gallium nitride.
Devices.
In short month. The plan is to continue to produce high speed vehicles for the did have a market.
And we are proud of our teams accomplishment and demonstrated in the first one other G bump for big So rich conservative for LNG and they found digi market.
We will leverage the form of finished goods pixels anybody the capability to increase our sales in the component market.
Our aerospace and defense business grew 15% over the prior year beer and represents two epicentral mobile revenue into Florida.
We are making.
This ties into several new pull gums and it remains strategically our customers existing programs.
We are now engaged in 15, new programs with a portfolio of leading edge technologies to precisely the LIBOR high energy laser beams at the pocket.
We also secured two key design wins in Goldman sense of products foot to multiyear contracts, what the cumulative down the middle dollar debt.
With that limits on the lower damaging.
Thank you Giovanni and good morning.
So I'm going to do a few things. This morning first I'll give you a few minutes navigation of the press release.
Next I'll review, the headline highlights of the quarter and close with a discussion of the updated levels of key expensive that progress on our synergies.
Financing and the outlook.
So table one on the second page of the press release, you will see the gap result, including six days a censtar.
Table too on the third page walks you through the build out of those numbers starting with the operating result for legacy to say.
Last time, we will report results for legacy TSX.
So the columns across the top our legacy to six.
And it's our first six days.
Severance and related cost.
Acquisition related cost.
And then a sub total column of all the special items of columns, two three and four.
The far right column.
The consolidated GAAP results.
Table three on page six shows the segment results.
The six days a fitness are in a line called finished our another this is not to indicate that's been istar will be account segment, because it will not day the related nature of finished Sars operations to two six and operation.
Results in the right trade and thing to merge them into our structure once we see the dynamic.
Quarter.
Finally table for on page seven.
She has been non-GAAP margin results by segment.
We can answer any questions you have on this format when we get to the kidney.
The revenue was $340 million in the quarter, including $22 million for incentive stock.
Revenue growth was 8% with organic growth at 1% compared to last Q1.
EPS was a loss of 39 cents for gap and positive 57 cents for non-GAAP .
non-GAAP adjustments were $59 million on a pre tax basis and $48 million on an after tax basis.
These are the adjustments triggered by the close.
In addition.
Legacy to six non-GAAP adjustments for $15 million, including about 5.5 million of cost we anticipated in the non-GAAP guidance.
The table seven of the press release gives you the breakdown of all these items.
Regionally our Q1 slide 20 revenue was split 46% in North America, 22% in Europe , 17% in China, 9% in Japan, and the remainder was in the rest of the world.
The regional breakdown for legacy to six.
We're not actually materially different from that.
The regional growth was strongest actually in the rest of Asia, namely Korea and Taiwan.
And very good in Japan in North America, but down about 20% in China.
The Companys overall gross margin for Q1 was 36.2%.
And 38.3% on a non-GAAP basis.
non-GAAP gross margin excludes the partial inventory ship up inventory step up in.
In the quarter of $7.3 million.
The GAAP operating margin was negative 5.4%, including all the deal costs.
And 15% on a non-GAAP basis down 30 basis points from the same period last year.
Regarding the segment.
Adjusted operating margins for the quarter compound semiconductor was 17.6% a good advancement of 210 basis points sequentially and 310 basis point compared to the same period last year.
Photonics was 12.6%.
Around 330 basis points sequentially largely due to mix.
And being out of capacity on key products.
Our year end backlog was $720 million, consisting of 386 million in photonics, and 334 million in compound semiconductor with about $200 million.
Finished our.
The backlog container orders that will ship over the next 12 months.
It is worth noting that in our long term share arrangements with customers for Threed sensing.
Bookings are typically recorded during the quarter of shipment.
The company had other expenses of $5 million consisting.
$4 million, a $4 million charge.
For the extinguishment of the former credit facility.
And $1 million for negative currency.
Capital expenditures this quarter were 2020 $6 million.
For the combined company for the year.
We are expecting capex in the $220 million range.
With respect to interest expenses of $6.9 million for the quarter. This is related largely to two six it previously existing debt.
The new debt interest and mandatory prepayments.
They will run about $40 million to $44 million a quarter.
26 to 27 of which is interest and 14% to 17%, which is mandatory principal repayments.
The total expected debt service payments for fiscal year, 20, which includes interest and principal.
Today $118 million.
Our cash flow.
$440 million and our net debt position is $2.05 billion.
Our total debt ratio, it's 4.6 times and the net debt leverage ratio the basis of the credit facility is 3.8 times.
We are still assessing the tax position of both companies and believe that at this time the tax rate will range from 11% to 14%.
For the fiscal year 2020.
Okay.
Of the $2.9 billion purchase price for Finisar.
$752 million was allocated to amortizing intangible assets.
762 goodwill.
And the balance to the tangible net assets, we acquired or total assets left the liabilities assumed.
Based on our work today, the intangibles will be expensed over a weighted average life of approximately seven years.
Because we have a year to finalize the purchase accounting.
These numbers and the weighted average time period are subject to modification.
Regarding our progress on synergies, we're tracking well against our target of $150 million in annual cost synergies within three years after the close of the transaction.
We have action synergies equivalent to about 20% of our target so far this year.
For the largest part of the Cogs synergies that being supply chain.
We established a global procurement organization that includes procurement materials management and supplier quality.
The Chief procurement officer directed that this work begin in a clean room prior to the close.
To define the combined spend for direct materials indirect good services and Capex.
To define our supplier base, including the suppliers, we buy from jointly.
And to help us identify our sourcing priority as well as to validate our savings roadmap.
We are aggressively taking action to maximize working capital improvement, including standardizing payment terms for common suppliers and defining opportunities to streamline the number of the suppliers.
We don't expect the synergies to generate a significant amount of cash this year.
Because we are planning to action a good portion of the synergies this year and that will have cost to achieve them.
Remember that the synergy work is aimed at reducing the total cost plan at both companies combined over the next three years, that's improving both the growth.
Operating margins.
Turning to the outlook.
During Q2 fiscal year 2020.
Number of activities are underway with respect to integration and qualification.
Some of which could affect these results.
At this point.
Outlook for the second fiscal quarter, ending December 30, Onest 2019.
Its revenue of $590 million to $630 million.
And the EPS on a non-GAAP basis of 20 to 50 cents.
The non-GAAP EPS.
Is adjusted for $18 million in stock comp.
It's $34 million and amortization.
79 million in the rest of the more or less onetime inventory step up.
And $18 million in cost to facilitate the integration, including the move from Alan to Sherman.
The share count to be used is 95.5 million shares interest expense as I noted is about $26 million.
This is at today's exchange rate.
We are attending several investor conferences in December and we will provide any updates that we can during this session.
The pro forma financial statements.
Required to be filed under Form 10-K .
Our expected to be issued on or about December nine.
2019.
Now as we turn to the culinary for this call remember that our actual results may differ from these forecasts due to a variety of factors, including but not limited to changes in the product mix.
Customer orders.
Competition.
Changes in the trade and tariff regulation.
And general economic conditions.
I'll also remind you know our answers to your questions today.
Contain certain forward looking statements.
And for which.
Results.
May vary as they are based on our best knowledge today.
Paul You May open the line for questions.
As a reminder to ask a question you May proceed Star then one all your telephone keypad. If your question has been answered or you wish to remove yourself from the Q you me pressed upon Keith.
Somebody will be compile the Q in a roster.
And our first question will come from.
Meta Marshall of Morgan Stanley .
Your line is open.
Great. Thanks, so much.
Maybe just starting with kind of looking forward into Q1 and then.
It sounds that.
Perhaps some of the weakness to expectation goods coming from kind of slower ramp on some of the tenants are products that just any help kind of between legacy.
I guess the tenants are I'm, just looking into Q1, and then second question since.
Compound semiconductors had a tremendous amount of operating leverage in Q1, and just anything any help there as to where you were seeing that leverage would be helpful. Thanks.
Well into the first question. The second question for it and then then Chuck and Giovanni can answer the first part of your question. So.
As you know three sensing business for both companies as one of the few businesses because of the consumer aspect, where a lot of the capacity if not almost all of it needs to go in for qualification.
As a result volume if it lags.
Ken caused this leverage but when it is shipping is very very good and you. We see this as well even in cell types, where when the volumes are high.
The operating leverage is very good so thats not atypical and the capital intensive company.
But I would say that particularly in compound semiconductor because of the.
Shipments in Threed sensing and while down not not dramatically down just 10% not what some others are reporting with respect to industrial that also helped the margin mix a little bit.
I would add that the just to repeat maybe what I said.
Well actually with the goal we're hosting the call today from war in New Jersey from from our Threed sensing and compound semiconductor fab.
I said, it's going extremely well here.
The team here have done really a fantastic job.
And it's really exciting to see so I think thats that we've said all along.
When we got the these fabs drilled to target utilization that we would be able to have a real mice business and that's what we're saying.
For the rest of your question with regard to to the to the business I think we try to.
I tried to give a very clear transparent and balanced view.
Each one of our markets in Q1, whether we talk about our traditional silicon carbide or industrial laser markets, we experienced softness.
In the legacy Twosix markets and the first quarter.
And with regard to the finished or legacy finish our business.
The the web two though scale purchases of Transceivers were less than what we expected there would be in the first quarter and so I would say.
It's a mix of both legacy incentives for our business that that.
We're a little bit softened in what we would have hoped for were expected meter.
Got it thank you so much.
Your next question will come from Jim Ricchiuti from mid need to have and company. Your line is open.
Thank you.
Good morning.
Chuck.
Mary Jane I think you mentioned that there were some areas, where you're experiencing very tight capacity, where you may be out of capacity can you talk a little bit about where that is that it needs.
Power amplifier business.
So I would say probably in a few places yes. So one of the areas in upper optical communications, we have seen what seems to be the beginning of fiveg starting to pick up here and while we usually see in fact, even in great years, we usually see the Q1 quarter lower than the Q4 quarter.
We are out of capacity on several of the key price, especially comp.
With respect to silicon carbide.
We are as we've talked many times continuing to increase that capacity and in particular in this quarter.
Arise as Giovanni mentioned end demand for that semi insulating substrate, which is used for RF.
That caused that conversion us on furnaces and we are.
And constrained the capacity in the first quarter. So we're now on with that.
And then probably a few other places here or there, but those are probably the two main ones, which you say Chuck.
Just recapping for legacy through 690 pumps.
Semi insulating silicon carbide substrates.
And on the legacy Finisar aside we are working aggressively to add capacity in our coherent coherent optics in corn transceiver manufacturing wants to keep pace with the anticipated demands.
And Chuck just with respect to Sherman you talked about some of the technical issues no. If you could elaborate on that or not but it seemed to suggest that you see that being resolved in the March quarter is that.
Should we think about that is occurring late in the March quarter or any any additional color you can provide on that.
Yeah, there's a there's a chance it could go early on in the end of the March quarter, There's a chance it could take a little bit longer with these things I can elaborate on it. This way simply this is normal tour semiconductor laser fab.
These are issues that that as soon as you resolve five or 10 issues. The next one or two pop up but you've seen this is all normal we've been we've been through this in our history, we take it with our heads up.
Well I can tell you. This if there's any way for it to be a day earlier.
I guarantee anybody that will make it happen if it's possible.
And it is a top priority for us and at the moment.
I think we will suffice it to say as soon as we possibly can and we're doing a collaboratively with a great customer as soon as we can will get onto it.
But as far as guidance goes.
You're baking in later in the quarter.
In the March quarter, Jim, but thats it thats rolling through all I'd like to say.
Okay. Thank you yes.
Your next question will come from for had not gem of Cowen Your line is open.
Yes.
Morning, guys. Thank you for taking my question I'll start over the few questions or.
Can you help us understand the Sandler approval process require you to separate of these solid business NSR.
Well, if you'd have to yours.
Yes, so reiterating your cost synergy targets.
$50 million anyhow.
I want to Matt.
Hi, Laminates. So your question was can we explain that rolling to hold the WSS separate.
No. My question is more what is the impact on your synergy cost targets you seem to have reiterated your 40 to 50 million dollar cost savings target that.
I would assume you'd be that leads to let slip business separately for a period of two years would have impacted that so can you help us understand how much.
Put and take it.
Packing your synergies target.
Okay. Good morning for hot.
It's just it is very very difficult to hear what you're saying or do I understand there's any way for you to either get switch your handset or whatever your system. Your own. Please please make an adjustment, but I'm going to answer the question I think I occurred here.
We started this process, where the within a 150 millimeter 150 million of synergies that we haven't or a plan.
We both our objective based on delivering more than that.
Because not everything will hit not everything will hit exactly on schedule.
And we know that we have to run faster to just to be able to get the where we want to be and we'd like to be able to deliver more.
It's just our overall culture, that's our attitude.
The whole place.
So for sure we will we will have to deal with additional costs that were not in our plan as a result of holding these businesses suffered.
And we don't know exactly what they are what we have an estimate of what they want.
And that estimate is going to over three years cause us to run even faster.
So that we can still deliver on the promise of the synergies we were not.
There's no mogens here and there is no there isn't anything we have to deliver so whatever we have to take on we'll take it on we're going to try to mitigate all the time because we're so focused on the cost, but we have to do things right. We have to do the right things and we have to go fast.
And.
Not at all discouraged about the possibility that there'll be some extra costs.
We know that we're going to talk to figure out how to get some extra revenue or reduce the cost someplace else and we're working on.
Okay.
Okay can you guys hear me now better is better yes did you hear what I've said for hot.
Yes, I did thank you for your response, if you can quantify what the additional had cost from this keeping that reflects was business that would be helpful.
Got to do that on this call fraud.
Okay.
If you can also provide us an update on fitness art I mean, it's been they've been especially in quite beautiful three quarters can you help us update on employee retention key talent retention, especially as it relates to TD sensing you often hear about people, leaving can you just give us an update on.
Deployed retention rates.
Yeah, I would say this is one heck of an exciting place to work up.
And and we Haven, a normal attrition rate that we've experienced in running these businesses.
And I can tell you that that I know of no no corner of the company.
Where the attrition rate.
Is higher than normal is probably lower than normal there's a lot of people that want to come to work here.
And I would say is a great a great interest in people wanting to come to work in such an exciting company, where this roadmap.
It nothing's perfect, but we're determined to be able to match the right talent that we need to have in the jobs that we need to have and as part of our our day one assessment going forward, we've identified a few critical spots.
Of our own assessment and in conjunction with the assessment of some of our customers and we will go and work to fill those.
At the top objective of us this to retain the top talent that we have into attract additional people to be able to fuel the growth that is this company.
I am I'm, a very very excited about our engagement with our employees worldwide.
Super. Thank you so much up if I could ask a question I would probably revenue net thought we probably need to let someone else had a chance, but if we have time for sure what will be please take any other questions from me.
Hi, this is going to be if a question on the industrial revenue.
If you can just help us.
What was the amount of revenue that was.
The disappointment was due to organic and demand versus being shortened components.
For industrial your question with how much is organic all of it.
So no what I meant to say sorry, what I meant to US was how much of the weakness in the industrial revenue was that the result of the you being out of components and.
During the supplies.
On the industrial revenue I think we answered that question. There is a reduction in new systems built and as the GDP in some major industrial countries declines that has an effect on the aftermarket.
So operator lets start an ex the next analyst on the call.
The next question will come from some mix Saturday.
Morgan Your line.
Hi, Tom.
Hi, I imagine hi, Chuck So just wanted to see if you can dig deeper into couple of end market, particularly in optical communications, Scott Telecom and Datacom. You mentioned this trend you're seeing in telecom related to fight Tejas I wanted to understand if it's across all geographies or are you seeing weakness in China and then on data.
Is that any visibility at this point in terms of a stabilization in that end market or what your plans would be relative to be open as our business. There in terms of you've seen some competitors switching from more goods.
Chip so any thoughts there.
I scenario I would say our hotels are a telecom business, our optical communications business is strong.
And the A.
I mean, a real real driver is the turn on Fiveg.
Our our our factories.
Around the world.
Are working feverishly to keep pace with increases in orders and increases demand associated with Fiveg.
So that's a that's a key highlight that's in China as I would say that's across all geographies.
It's just just been strong.
Every geography, we report China US North America, Japan.
And then the rest of the world too.
So that's a real driver I think thats going to continue.
On the on the on the Datacom side.
Our best view is that the market probably will go through another another two quarters maybe.
And so our remodel today anticipates that in the second half of the calendar year, we'll begin to see.
Lift and the in the Datacom business and the Meanwhile, I said earlier, our coherent optics in coherent transceiver business is exploring a tremendous amount of interest as is the interest in the in the indium phosphide base.
Laser components sales.
We've had a number of seminars with customers already around the world.
And there is a great deal of excitement people are already beginning to dedicate design and qualification resources to be able to get our lasers.
In both form fit and function into their products and that element to our strategy seems to be right at the on day one.
And enthusiasm that pupils and waiting for.
Got it maybe just a quick follow up if I may Muni trading a lot of your synergy targets and I understand the headwinds here from the macro perspective are you all to either getting beaten boson EPS accretion in the first full year or is that something.
NFC based on his whole new dedicated on synergies with you.
Right I think I think your latter part of your question probably answered it for yourself I mean, I think weve.
Scene.
Some changes as Chuck summarized at the end of his remarks in at least two of the major end markets.
Not really three that are causing the ramp.
For the ramp for Threed sensing for example to be lower than we would have anticipated having said that.
Actually that would have been affecting the two six based business.
As well.
Changes in the end markets.
You can see that from the organic growth in the quarter. So as a result to that I think what I'd like to really do is take the time to be through not only that pro forma that with is still in about a month time here, but also to as Chuck put it had at least one full month of looking at how the company has stealing and what we can do too.
Support they accelerated growth we're seeing in some cases on the topline, but also in how we can work.
Work more efficiently together to be able to see then how we think we'll end the year. So I think I think thats really the best way to think about it exactly as you already have sonic.
Okay great.
Thank you. Thank you sorry.
The next question will come from Simon.
Paul go of Raymond James Your line is open.
Thanks for taking the question I wanted to see if we could take a little bit more deeply on the trends you're seeing in the what used to be finished source transceiver business I think Giovanni indicated he expected improvement in the second half of of 20, just want to make sure that's calendar or fiscal but but understand what's driving that is this.
About new products or is this something that you see within the the demand side I'd like to get a better understanding of the trajectory of that particular business. Thank you.
In summary is the result.
Quite.
BC pipeline.
Of.
New design wins that have the team expects and we think that.
Whether these are one on the with these 400 with zero eight offices said all of these.
These.
You know bond with capacities will acquire new views and.
So without going a little who the customer list that we obviously, we can we see that the as an opportunity to the business to bounced back a little bit whether these today.
So we're really very confident that the this plan for the team is that the.
The best through the integration helps aloft.
Some of the.
Some only source the Cleveland solutions as Chuck mentioned.
Competitive.
So its of so not a of opportunities going on.
We we noted.
We have a promising flawless standpoint, that's why we we've made the comments.
And maybe just to drill down on one particular area a number of of Oems have talked about vertically integrating silicon photonics and you've got some other players with silicon Photonics I don't know that we've heard much from finished Saar for about a year.
On this topic. So it's a it's been quiet just how do you compete against those kinds of products, where you have your own or are your costs better how do we think about that thank you.
Okay. Thanks, Simon so.
Yes, we have some updated in silicon photonics is one of.
So many blocks phones that the team.
As a be walking on over the past few years.
You know I, obviously at the same time ive to Ive to say, it's hard to believe this ecopetrol is we will replace into falsified full.
So many applications.
And so its obligations of I think there is an advantage.
Even if as you probably know in some demanding application suite of ammonia access will be complemented by a.
And up to five which should we.
Creates a great opportunity for our.
Ill defined team to be design in so obligation, maybe you'll need it up to five and that.
It's lumpy we are working on as a team.
In in the into seek so.
Again is one of the mainly platforms that.
We we have available to us we have a number of bartmess that will walk in with.
To the LIBOR the chips for that either obligations and they complement well with the vessel the into full side as well as the IC platforms that.
The team has developed over the years, so just though I think the new some activity going on but just one remaining it's we're locked up walking on silicon photonics to make our products.
You know more attractive is just the one of many.
Platforms that you need to add but you'll disposal to delever the best the powder money can buy and Thats. So we had no.
I was as chief technology.
Ignostic officer.
And.
As I believe that Youre still the case.
It doesn't matter what the technologies I know you fix all built that's all you have you will always talk about suitable dominance. If you don't have only that you also talk about suitable launch I think thats has been feeney saw and that flow through seeks to.
To do the door was that specific lawful.
Great. Thank you for taking the question.
Hello.
Again, if you have questions you will need to press star one on your thoughts on that.
Your next question is from Tim Savageaux. Your line is open.
Hi, Tim.
Hi, sorry about that good morning.
Well try to keep it a somewhat coherent here no pun intended if you look at your total revenue guide for.
Fiscal Q2.
A couple of questions about that.
I guess about 610 million mid range.
Hey.
You mentioned the strength in telecom pretty consistently if you look at both what came over from fitness or in the road and.
Coherence side as well as your overall telecom business.
I will give us a sense of of that Q2 guide how much of that is telecom.
I assume you expect that to grow year over year, and I will follow up.
So it's pretty hard for us we don't normally break this down by by end market I mean, I do think that we would.
That you see some of the growth.
From from that area, but I would say the other thing theres. Some as we just discussed in the call. Some some downdraft, we're dealing with whether they be you know in industrial or or.
As Chuck went into some great detail about that resolving some things from a three shipping point of view from nationally.
Got it well it seems like it could be 40, 45% or so.
And that's kind of where I was headed if you look at kind of comparable to last year it looks like that.
The comparable comparable guide down almost 10% high single digits.
And realizing you're going to be wanting to move away from legacy to seek some kind of store concepts rather quickly.
Given this is the first quarter out of the box I Wonder if you could characterize that.
You know high single digit or nearly 10% decline.
Expect to see that.
The legacy to six and since our businesses.
Or would that be concentrated in datacom, its sorry, maybe industrial it to six any color there would be appreciated.
Okay sure well first of all I'd say the guide white right [laughter], there's there's still a lot to get underneath but I would say that if you think about the size of that business is coming in it would not be unreasonable to think that some of that would.
Com side, and if not really most of it.
I would say that as we look at the opportunities before us.
It will be I think for our for all of your benefit important to judge kind of revenue synergy synergies on a little bit more aggregated basis than one quarter, but but I think you are on the right track that probably the most of it it's really still from a datacom side because as Giovanni said, we have seen that market continue to decline as I think you guys have as well.
And I, it's more of a calendar 2020 recovery Johnny talked about more than Tesco.
Great and very quickly I missed the photonics and compound semiconductor backlog numbers, if you really.
Total backlog effects and it's our.
Right.
Well, let me start with the ones you're asking so it's 330 334 for compound semi.
386 four.
Photonics, and then finish Saar brought about 200 million of the backlog, which you'd have to assume right. This based on how their businesses construction over the years that most of that since that time.
Got it and final question is if you looked at the Q2 bottom line guide.
I'm, obviously impacted by interest expense I would gather without you too much synergy impact of the you did talk about hitting the ground running.
So it's.
Kind of looks like we're adding up the respective expense run rate I assume there's some synergy impact in there I think you mentioned a metric of 20% I'm not sure if that reflected.
Your expectations for the year the quarter, but at a high level, how much synergy is contemplated on the expense side, either in Cogs or or Opex in your bottom line guide for Q2.
Right. Okay. So first of all of the as you.
The expenses.
For work right. So this is why Chuck is talking about.
Continuing to look at the synergies, but generally speaking if you think about kind of how the business model was done the revenue would have been increasing and so obviously the opex would have had some movement as well to accommodate the increasing revenue. The first thing that we're going to try and do is severely moderate plenty increased carpet and.
But the to your question overall, we had originally estimated that in the first year, we have about 35 million of synergies a again.
Less than say 50, 850 divide by trade because we don't necessarily have for the whole here. So I think to try and identify synergies on every single line item after one quarter might be pretty hard I mean this from a.
Executive suite point of view that as people you asked are now no longer among us.
Doing very well elsewhere, but for example on the audit fee. The Odyssey comes in across the year.
I will materialize in the first quarter. So in terms of actually realizing it will be realized through the year. Some other ones were counting has having been actioned integrate.
It doesn't mean, they actually hit the second quarter in the full amount, but generally speaking I would say that we're looking at somewhere of at least in the neighborhood of $30 million to $35 million for the year and as Chuck said, we will be getting on with that very very quickly given that we've also seen some changes in the the topline profile.
For the company in this year already.
Well done.
Thanks sure.
And that concludes sorry, keeney session I would now like turn the conference back to Mr. premium for closing remarks.
Thank you very much all of you for joining us we'd like to.
Well update you on our results for sure if when we report out the second fiscal quarter of fiscal year 20 in early February .
And as we indicated that should we have any updates shift where our share and we'll have four investor conferences after Thanksgiving and will be seen any of that so thank you very much for joining us and we'll talk you said bye bye.
Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect. Your lines. Thank you for participation.