Q4 2019 Earnings Call
Good afternoon, and welcome to make homes fourth fiscal quarter 2019 conference calls.
This conference call is being recorded today Tuesday November 12 2019.
All participants are in listen only mode.
I'll now turn the call over to Mr., Steve Parati becomes vice President of Investor Relations. That's frothy. Please go ahead.
Thank you Liz good afternoon, everyone and welcome to make on its fourth fiscal quarter 2019 earnings Conference call.
I would like to remind everyone that our discussion today will contain forward looking statements, which are subject to certain risks and uncertainties as defined in the safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those discuss today.
For more detailed discussions on the risks and uncertainties that could result in those differences, we were free to make ups filings with the FCC.
Management's statements. During this call include discussions of certain adjusted non-GAAP financial information.
A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release related form 8-K, which was filed with the FCC today.
With that I'll turn over to called the steep Daly President and CEO will make huh.
Thank you and good afternoon.
I will begin today's call with a general company update.
After that Jack Kober, our Chief Financial Officer will provide a more in depth review of our Q4 in full year financial results.
Well jackets finished I will provide revenue and earnings guidance for our fiscal Q1 2020.
And then we would be happy to take some questions from our listeners.
And the fourth fiscal quarter, our revenue was $112.2 million.
Adjusted net income was one cents per diluted share.
The company achieved non-GAAP profitability, primarily a result of the major restructuring we announced in June .
Change it may cost continues at a rapid pace in July and August we evaluated the strengths and weaknesses of our company's organizational structure.
We also reviewed our new product introduction processes and policies.
Our R&D projects in a variety of sales business and operational behaviors and process flows.
After the review was completed we established a new organization, which was announced to our employees in the middle of September .
We also established a priority list to address opportunities across the business.
To review our leadership includes five senior Vice President organized by function, namely sale.
Operation.
Finance technology and legal and HR.
And engineering is now organized by technology and each technology group will manage its own product development product launches in technology Roadmaps.
These six engineering organizations will support one or more of our end markets.
Industrial in defense data center in Telecom.
The new structure eliminates a layer of management and we believe that it will streamline decision, making and approve accountability.
Nine of my 11 direct reports are either due to their position or our into significantly different for expanded role.
Our management team is complete and has extensive leading industry experience.
Our new structure moves away from a matrix organization towards the technology and product line organization, our new structure places all resources necessary to introduce a product, namely chip design package design to software product engineering in qualification under one organization and one person.
The same organization will also manage application engineering and all post sales technical support.
This structure along with our just revised new product introduction or N.P.I. procedure reduces handoffs between departments eliminates bureaucracy and it will improve our ability to second whole priorities.
Most importantly, it will support increased accountability at the product line level.
Our Q4 revenue by end market was as follows.
Just real in defense was 50.1 million up 7% sequentially.
The center was 22.6 million up 28% sequentially.
And telecom 39.6 million down to 10% sequentially.
Our data center revenue showed improved performance following three quarters of decline.
Our industrial and defense revenue was driven by various U.S. defense programs as well as increased the sales to our test and measurement customers.
And our telecom revenue declined sequentially, primarily due to weakness and GE pawn.
Overall, our three core end markets are strong and full of opportunity for make on and I believe our new focus on product development and execution will allow us to win market share more efficiently.
On a geographic basis, 48% of our fourth quarter revenue was from domestic customers and 52% was from international customers similar to prior periods.
Our book to Bill ratio was 1.1 to one.
Turns business or business booked and shipped within the quarter was 31% of our total revenue.
Our operations team is doing a great job focusing on planning and executing linear shipments throughout the quarter.
Which we anticipate will improve cash flows hey, our customer satisfaction.
We have established an internal workings fiscal <unk> fiscal year 2020 annual operating plan.
This plan includes a detailed bottoms up revenue forecast based on known design wins on identified programs.
It also contains a bottom up operating expense capital equipment budget.
In addition, we completed a first pass review of all R&D projects currently be funded to ensure the priorities and the budgets are aligned.
The management team and I are confident we can improve our financial performance during our F. wide 2020.
To ensure we remain focused we have established a top 10 priority list for the company, which underscores the management and all employees are key strategic initiatives for long term growth and profitability.
Additionally, all members of the leadership team have individual top 10 priority list to support corporate objectives.
As we enter our 2020 fiscal year, we are focused on completing products and our pipeline, which will help drive may cobs near and long term growth.
Three primary markets are large and provide may cause significant growth opportunities. For example, we support major Oems in our industrial in defense end market with our leading al gas diode products.
These products are designed into a number of new radar in aircraft platforms that will be deployed over the next few years.
And we have a wide range of technologies and products for our telecom and market.
For example, we believe our high performance analog drivers Ti <unk> days and Apds for Fiveg front haul are among the best in class.
Yes, our 64, Gigabaud coherent driver and T.A. products for deployment and the next generation of Metro long haul optical networks are winning market share.
We continue to have success and the data center with a well established line of high performance analog components, including drivers <unk> in CD ours for one hundredg deployment, along with new designs being introduced for two hundredg applications.
The opportunities that I've just outlined are based on established may caught products that we haven't production today.
These products set the foundation of make off and should provide may come with profit and revenue growth in the coming months in quarters.
Our portfolio also contains new technologies, which are still emerging including Gan on silicon high speed lasers, coherent and Pamfour dsps and silicon photonics.
These technologies are compelling and our engineers continue to make solid technical progress to move these technologies closer to product Division.
We recognized that these technologies have the potential to generate significant revenues and profits in the years ahead.
Further details on updates will be paid as we make progress and after the associated products are launched in generating revenue.
I'll highlight a few notable events that occurred during the fourth quarter.
First may comment tend to this year's see Aiotv or China International Optoelectronic Exposition engines that.
We hosted a live demonstration of an open I must say compliant two hundredg Pam four chipset for datacenter applications.
This chipset includes our high performance CDR with integrated laser driver on the transmit side.
On the receive side. The chipset includes Maycom photo detectors, a quad T.K. and a four channel receive CDR.
We view this solution as a great example of May coms product breadth technology and industry leadership.
Second during the quarter, we began production of a slippery compliant Cabo chip for Fiveg front haul links ranging from 500 meters to 20 kilometers.
This chip integrates a DNL laser driver with eliminating amplifier dual CD ours power management and diagnostics.
We also released recently introduced a transimpedance amplifier, which supports did rates of up to 28 Gigabits per second with very low power consumption.
When used in combination these products and provide our customers a complete solution for low cost low power 20, Fiveg SFP modules for Fiveg Fronthaul applications.
And third we have released a very competitive front end module or fem targeting massive mimo fiveg deployments.
Product utilizes multiple technologies, including a silicon on insulator Orissa light switch in a gallium arsenide low noise amplifier.
The product offers high power switching capability and a high gain low loss low noise figure receive site functionality.
And lastly, we expanded our mimic portfolio to include a family of high performance face shifters.
Hey, Cons engineering did an outstanding job designing all of these unique and best in class products.
Supplementing our design engineering efforts our operations team is working to improve our gross margins, including launching new projects targeting wafer fab yield enhancements reduction of scrap cycle time reduction and lowering the costs from our key suppliers.
We expect that these behind the scenes efforts will generate new profits directly create shareholder value. It will appear in our financial results in the coming quarters.
Our purchasing logistics team have done a great job embracing aggressive cost saving goals.
The management team continues to evaluate all aspects of our business, including technology Roadmaps R&D investments product line strategies sales and pricing strategies operational and supply chain activities. The company positioning within our three core markets.
Jack will now provide a more detailed review of our Q4 and full year financial results.
Thanks, Steve and good afternoon, everyone.
We're pleased that we've returned to non-GAAP profitability here in our fiscal fourth quarter after reporting two quarters of non-GAAP losses.
We'd like to thank all of the May come employees, we've been working hard to help achieve this.
Revenue in fiscal Q4 was $112.2 million up 4% sequentially and down 26% from $151.2 million in Q4 fiscal 2018.
Year over year decline was primarily driven by combination of softness in datacenter demand and a decline in Poland sales.
Adjusted gross profit and adjusted gross margin in fiscal Q4 were $59.5 million and 53% of revenue respectively.
Gross margin remains a key focal point for us and we see opportunities for continued improvement beyond Q4 levels.
As revenue improves over time and depending on our product mix, we expect to see it associated improvement in gross margin.
Total adjusted operating expense was $51.1 billion, which consisted of R&D expense of $32.4 billion SG in a expense $87 million.
Total operating expense would down approximately $13.9 billion were 21% sequentially.
Primarily due to the impact of the restructuring actions, we took in fiscal Q3 2019.
We are on plan to realize the full $50 million annualized savings from these actions by the end of fiscal Q2 2020.
Adjusted operating income in the fourth quarter was $8.5 million translating into 7.6% operating margin.
We incurred $2.5 million of restructuring charges in the fourth fiscal quarter and expect to incur additional restructuring charges of approximately $3 million during fiscal 2020 as we complete these actions.
Depreciation expense for fiscal Q4 was $7.3 million in adjusted EBITDA was $15.8 billion.
Adjusted net interest expense was approximately $7.6 million.
Our non-GAAP adjusted income tax rate in fiscal Q4 continued to 8% and resulted in the expense of less than $100000.
Fiscal Q4, adjusted net income with $806000 translating into once into earnings per fully diluted share utilizing a share count of 66.7 million fully diluted shares.
Now moving on to cash flow and balance sheet items.
Cash flow from operations was negative $7.6 million in fiscal Q4 attributed mainly to a reduction in payables as well as severance related restructuring cash payments.
We've taken steps to improve cash generation going forward, including the previously announced restructuring action.
Focused capital spending.
Operating expense management, as well as managing or working capital.
As a result of these actions we expect positive operating cash flow in Q1 fiscal 2020.
Fiscal Q4 capital expenditures totaled $6.1 million were 5.4% of revenue.
We continued to closely manage all of our spending during the quarter in rescheduled certain capital expenditures into the first half of fiscal 2020.
Despite this we expect overall capital expenditures in fiscal 2020 to be below fiscal 2019 levels.
Remain closely focused on achieving appropriate returns on capital that we employ.
Q4 free cash flow was negative $13.6 million as compared to negative $7.9 billion in Q3.
Primarily as a result of the lower Q4 cash flow from operations, partially offset by lower capital expenditures in the fourth quarter.
Inventories were $107.9 million at quarter end down $2.7 million sequentially.
Inventory turns were 2.0 times during the fourth quarter.
We continue to prioritize inventory management and do see opportunities for continued improvement in our inventory metrics going forward.
As of September 2019 fiscal yearend cash cash equivalents in short term investments were $176.7 million down $9.1 million from $185.8 million at the end of fiscal Q3.
As a reminder, or short term investments are comprised of corporate bonds in commercial paper and are classified as held for sale.
Total long term debt was $684.7 million inclusive of capital leases.
Our long term debt of $655 million, which is covenant light has minimal annual principal repayments until its maturity in May 2024 become also has an undrawn hundred $60 million credit weren't available through November 2021.
Before turning it back to Steve There a couple of accounting items I would like to provide commentary.
We had a onetime noncash GAAP tax benefit of approximately $37 million in Q4 associated with a planned intercompany transfer of assets between two of our international legal entities. We do not expect this to affect non-GAAP tax rate going forward.
Also in keeping with best practices going forward, we will no longer report non-GAAP revenue.
And we have updated historical periods.
This has resulted in the shift of revenue of $7 million and adjusted EPS of 10 cents from the third quarter 2018 to the second quarter 2019.
This update is reflected in that earnings release impacts year to date.
As such for the full year ended September 2019 revenue was $499.7 million adjusted operating income was $10.9 million and adjusted diluted earnings per share was a negative 29 cents.
So in summary, we are pleased with our progress in Q4 2019.
Steve previously noted we recently prepared our fiscal year 2020, internal annual operating plan, which lays out a path towards continued improvements in profitability and cash flow.
Well, there's still a lot of work for us to do in order to achieve our longer term objectives. We believe that we are entering fiscal 2020 positive momentum.
I will now turn the discussion back over to Steve.
Thank you Jack.
They call them expects revenue in Q1 F. Why 2020, ending January Threerd 2020 to be in the range of $130 million to $170 million.
Adjusted gross margin is expected to be in the range of 53% to 55%.
And adjusted earnings per share is expected to be between once said in five cents per share based on 67.5 million fully diluted shares.
Our Q1 revenue projections include expectations that all three of our end markets will grow sequentially.
Both will be led by our datacenter end market followed by growth in our telecom and industrial and defense end markets.
In summary, we are excited about the multiple revenue growth opportunities in front of us and we are focused on execution and planning.
We continue to evaluate all aspects of the business, including technology Roadmaps R&D investments product line strategies sales strategies operational and supply chain activities and company positioning within the markets we serve.
I would now like to ask the operator to take any questions.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
Withdraw your question press the pound Keith.
And the interest of time, we ask that you limit yourself to one question and one follow up.
Our first question comes from harsh Kumar with Piper Jaffray. Your line is now open.
Yeah, Hey, guys. Congratulations on very strong results and a continued progress here I think Steve when you're talking about the guidance you're seeing all end markets will grow I get the data center side, we're getting a lot of data points about the data center side going.
But I was curious what is turning around in the in the particularly in the telecom side for you.
And that it coming back.
I guess from such a deficit that you reported in the September quarter I'd be curious and then also.
So what is working on the defense and industrial site.
Sure. So on the telecom side, our growth is being driven primarily by Fiveg fronthaul.
We're seeing some of our high performance analog products have success. There. So we're pleased about that.
And then on our defense side. It has as I pointed out in the script the lots to do with our radar programs and airborne.
Receiver programs that we support.
Okay, Great and then is a lot of the companies are now saying parts. So why they business can be recognized I would just wanted to clarify is is why we have one other things that's coming back for you or how are you looking at that particular piece of that particular customer.
I would say, it's not coming back I would say it's.
Going down that's the trend of so.
As we look forward in terms of our growth.
We think we'll continue to grow.
Even as our while way business declines.
I would like to think this is temporary and perhaps in the future when.
If and when they come off the entity less then we'll certainly reengage and.
That could provide us some potential upside, but all of our planning all of our focus right now is certainly X wawa.
Okay and last one for me.
Data Center was you know it was a big number two or three quarters ago drop down to about 16 17 mode now its backup in the Twentys what is the real number that we should be thinking about that you can that's a legitimate number for us to think about in terms of you're getting back your company getting back to that level.
Well I think theres going to be two phases, the near term phase will be.
I would say incremental growth due to our contributions to one hundredg platforms, where we have very competitive cdrs t. days.
And drivers.
I think as we look out maybe two or three quarters will supplement that with some leading T <unk> days as well as.
What I would consider high frequency opto drivers.
And then a little bit further out from there we think our photo detectors and our silicon photonics will start to contribute so the near term, it's going to be a lot of the H.P.A. products that we've been very successful with.
As the data rates go up specifically four hundredg, we have products that are.
Winning sockets as I mentioned, the tea is the drivers and some of our detectors.
And that long term silicon photonics.
Our next question comes from Blayne Curtis with Barclays. Your line is now open.
Hey, guys at this total mally on for Blayne Curtis Congratulations on nice results here.
I wanted to start with just forming in the new organization.
You guys have have done a good job of kind of describing here. How you have talked to him priority list in different areas, where you're focused on the business.
And you highlighted a couple in the script can you talk about just in terms of growth of those opportunities that you laid out where you're most excited and where you could see the most growth. Obviously data center is starting to Reaccelerate now, but is there an area, where you think that you could really see revenue profile change in the business overall.
Right so.
Yes, I think there is and I think some of those transformational step ups in revenue our are certainly out in the future.
In terms of the near term, which is what we're really focused on I think we're going to see incremental growth from a product driven strategies based on our existing portfolio. So we're looking at things like the front end modules that I talked about we're looking at.
All sorts of components for Fiveg Fronthaul.
When I look at our mimic product line I think theres tremendous opportunities to embellish the current portfolio set.
So I wouldn't want to necessarily call out any one particular product area or technology group I think they all have tremendous.
Growth opportunity remember Maycom right now west as Jack said last year. We were just under 500 million. We are very small relative to the size of the markets that we serve.
So with our breadth of technology.
Putting the diodes that mimics the high performance analog components as well as then the Lightwave components. When we look at the laser portfolio, we will look at our photo detectors.
And then the Silicon Photonics, which is certainly very interesting.
And then of course, the power I'll mention that we're very active.
And part of our reorganization was was certainly updating the.
Organization and the strategy around our power and Gan activities. So each one of these groups.
Has tremendous opportunity for growth.
We have.
Put in place what I believe very rational and aggressive business savvy leaders that will drive the technology Roadmaps.
As well as keep a keen eye on budget. So I think we have the right team.
I think we have the right technology set.
And our goal here is to certainly when more market share than than we've done in the past.
Great. That's really helpful. And then I just wanted to dive into some of the longer term opportunities you talked about as well you mentioned the paperboard DSP Silicon Photonics Gan on Silicon I think you know before the transition.
There was a policy of focusing on things a little further out but I think that people have continued to ask on the opportunity with Gan on silicon just given how present fiveg is going into 2020.
And at a time I think that was one of the businesses larger drivers can you update us on where that stands with you today from a more conservative view and what do you guys think you have in terms of technology and what the size of that market maybe for you.
Sure maybe I'll just give a quick gan update so just to remind everybody. We are today shipping Gan on silicon amplifiers and components, primarily for Fourg and.
Hi, reliability mobile radios military manpack type radios and Thats a very sick. So these are very successful.
Sockets that customers are really enjoying the performance of the products.
I think over the next 12 months, we'll see incremental growth within this product set.
The second area, perhaps that you've alluded to is our activity with working with Citi.
That program continues the recent update is the capital equipment has now moving towards estee.
We are focused very much on.
Really.
Polishing the specifications that we're looking at in terms of process technology as well as working with S&P on schedules.
We have recently done a complete review of pricing with Festina make sure we fully understand the cost of the technology. When we're at high volume production and I think those conversations were very productive.
And so that that program is on schedule I won't go any further than that other than to remind everybody that this is a significant technology development.
The third item.
Is I'll point out regarding Gan as as we reorganized we combined our traditional Gan on silicon team with our.
Group that was focused on bipolar transistors.
We put them all under one organization.
And that has the benefit because now we're bringing a broader.
Capability to the engineering team.
We are also I'll point out opening up the aperture slightly.
Regarding our Gan on Silicon and Gan on Silicon carbide strategy, we're now having our technologists, new baseline characterization on different Gan on silicon carbide transistors.
We believe that there is a place for this technology in our portfolio, especially at the higher powers the higher frequencies.
In some of our military and satellite customers are very interested in having may comp participate here. So we are opening up the aperture and we're bringing.
Engineering efforts to.
Really establish a baseline.
Of where the industry is regarding ill say half micron 0.4, micron as well as quarter Micron and even 0.1 micron Gan on silicon carbide.
And so we believe over the long term our engineer should have access to the best technologies. There are as I'd mentioned actually on our last call. We have to foundries internally, but we also deal with nine external foundries and so we want our power amplifier group to be able to have access.
To the best technologies now this will absolutely complement our Gan on silicon efforts.
We today still believe that Gan on silicon is the right.
Process for massive mimo, given the volumes given the price points and given the low power levels. So this is not going to take away from that effort. It will certainly be additive.
Our next question comes from Quinn, Bolton with Needham and company. Your line is now open.
Hey, Steve I wanted just to get an update on on the lasers I think when you.
Took over as CEO , you sort of implemented a review of fully is your manufacturing and you know with an efforts trying to reduce some of the scrap can you sort of tell us where you're in that in that.
Effort to to raise yields on the on the 25 gig lasers and then a follow up question you had mentioned some new products. The the femmes in phase shifters for sort of the fiveg applications, but what kind of timeframe should be thinking about.
In terms of revenue generation from those families and phase shifters.
Sure. So on the laser front as you know we have three different markets. We service with our lasers, we have different data rates, we have different laser structures.
And these lasers are used in different modulation schemes. So.
When we talked about 20, Fiveg lasers is probably about six different versions of that.
So let me talk about the near term and delays or revenues that we think will generate over the next 12 months, let's say.
Certainly two point fiveg upon as an important market for the company.
It's been soft recently, we have had a lot of inventory in the channel over the last couple of quarters. So it really hasn't been contributing to our topline.
We think that will change in about a quarter or two things will start to pick up.
And that's an area, where we've been very successful.
That's of course for the.
Access market lets say.
We think over time, the market will move to 10 G.
And we are working on the development of a laser for that market.
It's early days were still.
In development mode, Let's say.
And I would put that towards.
Maybe nine to 12 months away, we should be in a position where.
We're having.
Traction in the market with some of our products.
When you talked about 20, Fiveg lasers, I'll I'll focus the conversation on 20 Fiveg FP.
This is the growth area for the company, we do expect to see.
New revenue to the two our top line and the next 12 months.
This is primarily for Fiveg front haul applications.
We think that we have some technical advantages over the.
The competitors.
And so we're taking advantage of that and it will absolutely it'll probably be the shining the bright shining light of the laser portfolio in the next 12 months.
And then the last product al talked about specifically as our 10, GLP lasers, which have historically been.
Very strong in the market supporting Fourg, LTE backhaul and not that volume's been coming down.
For obvious reasons as those base station deployments are declining and other deployments are taking over in terms of the the the.
The CW lasers, and the DFB lasers for the data center I would put all of those lasers.
In the category of R&D and product development, we still have a lot of work to do.
Within our fab two to dial things and with those lasers, one mistake, we won't make again is starting production before we have a product that's fully qualified and will run high yield. So it's absolutely unacceptable to be having these large scrapped or write offs due to.
Starting production and then.
Ultimately, having the product failed a color or have a very low yield so we won't be doing that again.
I guess you added I'm sorry, you added also a question about our Fabs and face shifters. The Fem revenue, we expect in this fiscal year.
The phase shifters also this fiscal year I'll just highlight the phase shifters. These are these are low to medium volume hiatus P type products. So it'll be buried within the portfolio.
Our next question comes from tore Svanberg with Stifel. Your line is now open.
Yes. Thank you another can limitations on the diligent process here.
Steve.
Could you talk a little bit about any sort of.
Product to a product lines, you may have shut down or pruned I mean, obviously have a $60 million opex reduction so.
Any any visibility you can share with us on on product lines or were technologies that that may have been shut down and prudent at this point.
I can only mentioned the one that we we previously discussed on our last call, which was the optical modules for data centers Thats. One were that with highlighted that we have exited that business.
We think that was the right decision even today.
But I can't really add anymore comments in terms of.
Pruning or or focusing or.
Emphasizing product lines that's.
Thats certainly part of our strategic planning process and our internal reviews are these are things we constantly do.
And so we've not made any announcements at this point on that particular question.
That's very fair.
As a follow up and when you talked about sort of the long term and technologies that have potential you mentioned tempt for DSP.
Then I think near term you kind of also working more on on pad for more from an envelope perspective. So.
Could you reconcile those those two for US and do you intend to action best in both analog and potentially pencil DSP.
Yes, we have.
As you know we have a few DSP programs underway, we have actually two captured customers.
And we plan on adding a third DSP at some point in time.
To to our portfolio and so.
There is a coherent version and there's a pamfour DSP version I really don't want to going into any more details on that.
So that those those are programs that the company has been working on for a number of years, we're not providing any updates tonight in terms of the status of those programs other than we continue to work on them.
Regarding other areas, where we contribute to.
Sort of Pam four products 204 hundredg.
Areas, where we have that what I consider the HP products. These are cdrs drivers tea is these would all fit nicely.
Inside of an analog Pam four solution.
Our next question comes from Harlan sur with Jpmorgan. Your line is open.
Good afternoon, and congrats on the solid execution in thinking about the longer term gross margin potential for makes long and if I look at your catalog products of Nixon diodes in.
Switches and whatnot most of these products that are probably situated in your eye, Indeed business and maybe some in your telecom business you know in your prior company.
These products are driving 70% plus gross margins Lutz to gross margin profile of May columns catalog business relative to that 70% plus profile and if there was a large difference if you can maybe help us understand why.
Okay. So.
I'm not sure we typically provide the gross margin by product line or by product set.
As an example, the catalog business that you mentioned.
And I will say that we have the continuum of gross margins, we have products at or above 70%, we have products at or below our corporate average. So what you are of course seeing as a blended average.
Jack do you want to comment more on that just I mean with regard to our overall margins.
Looking to two definitely make improvements over time, we realized where we're at.
From an industry perspective, and we want to get to that.
That above average phase at some point in time in the future. So focusing on the margin improvement is an area that we have.
And with our guidance here in Q1, we've got a bit of an uptick in the guidance range that that we put for the gross margin.
Yep I appreciate the insight Darren.
The team has been engaging number of active antenna programs for both civil and defense related initiatives with the Spark Hall architectural can you guys just give us an update on these programs and revenue contribution or maybe potential timing of tangible revenue contribution.
Yes, I would.
We look at the that particular program the sensor program that you're talking about is a long term program.
I don't think it will be adding any material revenue to our topline in the next 12 months.
We continue to engage customers.
That are interested in the technology, we've put together what we think is a very interesting.
Architecture, we have.
Done an outstanding job with the packaging technology Thats associated with this.
This platform.
And so we continue to share our information in our technology with with the major primes.
But I would say for the next 12 months I.
I would temper expectations there.
The main radar programs that we are looking at our really long term.
Programs that are I would characterize as being in their infancy regarding having the end customer define the requirement. So we're talking about many years before.
Significant contribution to the topline.
Our next question comes from Mark Delaney with Goldman Sachs. Your line is now open.
Yes, good afternoon, and thanks for taking the questions and thanks for all the details on the efforts underway at the company.
My first question was on on the 2020 plan.
Steve You mentioned the company has has a plan in place for I think you said revenue cost and essentially free cash flow or there are there any more details you can share with investors about what what those metrics may look like.
Not specifically.
Okay.
You should follow up on.
And then on our bookings.
If my math right I think.
You are you said book to Bill was 1.12nd quarter in a row I think of positive book to Bill, which is nice to see I think the the absolute bookings numbers, maybe down a little bit.
In terms of and dollars, maybe down about 5% quarter on quarter, but obviously with the positive book to Bill anything you can share in terms of kind of the absolute change of bookings versus last quarter as I, just sort of normal quarter to quarter fluctuations or any any areas were bookings were bit softer.
Mark This is Jack so quarter over quarter. The bookings were about about flat, maybe maybe a little bit up but he'll based on.
The lower revenue, we had last quarter in Q3 that drove obviously, a higher book to bill ratio of 1.2.
Okay. That's helpful clarification, and most one Jack you think you guided for positive operating cash flow for next quarter, or which I have had very nice to see after kind of what what was reported the system. This current quarter and others ought to work underway to to get there.
In terms of free free cash flow.
When should we think about a positive free cash flow. Thanks.
Yes, obviously cash flow continues to be an area of focus and historically has been an area of focus for us even if you look at.
Our full year 2019, we did generate positive operating cash flow of around $20 million to $21 million. So.
We want to make sure we're staying focused on that piece of it here in the fourth quarter. We did have some cash flow headwinds as I had described including some cash payments associated with restructuring actions. So that was a bit of a headwind here in in Q4.
Some of that will will linger on as we've noted with some of those restructuring costs working their way into the remainder of 2020.
But we do feel relatively confident about our cash flow.
Specifically, the operating cash flow side of things.
Capital can can tend to be a bit lumpy as we had described so that that would obviously impact our free cash flow. So.
It's going to continue to be an area focus for us as we go out into the future and as Steve and I had mentioned our internal operating plan does provide for cash flow improvements as we work our way through the years.
We have a follow up question from the line of tore Svanberg with Stifel. Your line is now open.
Yes. Thank you just kind of comp for Jack So just to clarify because you're going to be reporting GAAP numbers going forward.
The guidance you gave a is that a GAAP guidance non-GAAP guidance, especially on EPS number.
No that that was non-GAAP guidance between a penny and five cents for Q1 very good okay, very good and will you be.
Sharing with us on some of your non cash items in the stock comp and things like that when you to publish the GAAP numbers.
Yeah as Weve.
As detailed in the earnings release, there was a full reconciliation between GAAP and non-GAAP .
All those items are listed out.
No, but I mean since you're moving to GAAP only I'm just when it may just wondering what the what you will be sharing with does going forward.
I think the clarification. There then is in terms of our guidance. Its non-GAAP related I think to the point that you might be making as we did make an adjustment here in terms of our our GAAP revenue to non-GAAP revenue. We had historically had some differences and we clean that legacy item up here in.
In the fourth quarter it had no impact on the current quarter. It was more of a legacy item that we were we were addressing with the change.
Sounds good thank you.
We have a follow up question from lineup harsh Kumar with Piper Jaffray. Your line is now open day.
Yes, hey, thanks to our opportunity to ask a follow up clearly I mean, your common sound like.
Things are moving your company should be able to grow revenues I was curious how we should think about operating expenses.
Going forward, particularly into December .
Then also beyond that as revenue grows and then my my second question was if you have Jack maybe if you take out the severance piece.
How does the free cash flow, a low quarter, two quarters out or whatever timeframe you want to bake to talk about it.
Yes, so from from an operating expense perspective.
We came in here in the fourth quarter around 51 million, a little bit north of that our guidance kind of get you get you to that rough range.
For the for the Q1 time period.
One does does have some some headwinds that we would be facing that the beginning of our merit process. So.
I think coming in at that level feels right.
From a from a cash flow perspective.
As we had mentioned some of those restructuring items was there was a headwind that hit us here in the fourth quarter.
Roughly about $5 million to $6 million that hit us in Q4, so that should not repeat if those same levels in Q1 and beyond.
Thanks.
That concludes today's question and answer session I'd like to turn the call back to Mr. daily for closing remarks.
Thank you and closing Jack and I would like to thank our employees for their efforts throughout the past quarter in the last fiscal year, we have a talented management team a world class employee base and together I'm confident we can achieve our objectives. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.