Q3 2020 Earnings Call

Once again.

Yes, Hi technologies third quarter fiscal 2020 results conference call.

At this time, we are suddenly change.

Yes.

We appreciate your patience and please continue.

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Ladies and gentlemen, thank you for standing by welcome Treaty Gs I technologies third quarter fiscal 2020 results conference call.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session.

At that time, we will provide instructions for those interested in entering the queue for acuity.

Before we begin today's call. The company has requested that I read the falling safe Harbor statement.

The matters discussed in this conference call May include forward looking statements regarding future events.

Future performance, I guess I technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated.

These risks and uncertainties are described in the company's Form 10-K filed with the securities.

Seems to me.

Additionally, I have also been asked to advise you that this conference call is being recorded today January Thirtyth 2020 at your questions, Yes, I technology.

Well seem to call today.

You mean shoe the company's chairman, President and Chief Executive Officer.

Our Douglas Shirley Chief Financial Officer, and BT, what's there.

Vice President of field.

I would now let's turn the conference over to Mr. She please go ahead.

I'm comfortable maybe one thing people joining huh.

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Once we have a complete the Jim you got one qualification.

I will talk to e-commerce awesome.

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No I'm kind of cool D, who will discuss all pieces woman.

Each year.

Critical DB, thank you living.

In addition to all the progress we've made on Gemini one you have completed our internal for qualification on our radiation hardened SRAM to class Q klatsky levels to meet the requirements of aerospace and defense customers.

Besides radiation hardened solution Leverages, our proven technology and offers up to four times a memory size, what the same footprint and power that's occurred memory solutions.

This means legacy Rad hardships rarely can't be switched out for GE as far as higher density solutions, that's a 40 nanometer technology node.

We have identified several.

Perspective opportunities for both our radiation hardened and radiation tolerant chips.

The result, we may see some sales in calendar 2020, and those product categories.

Still see that market Tam of $15 million to $20 million for these products.

Last quarter, we also had the opportunity to radiation test the Gemini one product.

The results were very promising.

Gemini, one where a lot of data processing.

Excuse me body much greater level on satellite expanding the markets for Gemini products to include space.

Aerospace.

Looking at or sales breakdown in the third quarter fiscal 2020 sales to Nokia or 2.6 million for 26.3% of revenue.

Compared to six point Sixmillion for 45.2% revenue a year ago, and 5.3 million for 45.2% revenue in the prior quarter.

Nokia sales have been slower in the most recent quarter and we expect a similar level in the fourth quarter fiscal 2020.

Looking out to the remainder of calendar 2024 cats is expected to improve and returned to levels. We saw earlier in this fiscal year.

Military and defense sales or 18.9% third quarter shipments compared to 16.7% a year ago.

And 23.4% in the prior quarter.

She was quite continues to be our best performing product category with sales of 62% of CIRCOR shipments compared to 69.7% last year and 63.5 person in the preceding quarter.

I'd like to hand, the call over to Doug now. Please go ahead.

Right.

For the third quarter of personal 2020, we reported net loss of $4.6 million or 20 cents per literature.

Net revenues of $10 billion.

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2.3 billion.

That's pretty literature.

However, it was 14.7 go ahead for the third quarter fiscal pretty much team.

And that most of 1.8 million.

Parts of literature.

Progressive 11 separately in the second quarter fiscal 2020.

Gross margin was 60.2%.

<unk> for 3% than the prior year period, and 55.9% them apart or.

Our interest in gross margin in each of these periods, primarily due to mix of products sold in each quarter.

Total operating expenses third quarter fiscal <unk>.

<unk> million dollars compared to $7.8 million from the third quarter. If this were pretty Ritchie <unk> the preceding quarter.

Research and development expenses reported should wait dollars compared to $5.2 billion in the prior year period.

5.8 million per quarter.

The increase in R&D expenses reflects a charge of $2.7 million for third quarter.

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Purchased intellectual property.

Incorporate it into the next generation or Shobanna chips.

Selling general and administrative expenses were $2.6 million.

Quarter ended December 31st prevention.

For 2.6, $40 or the prior year quarter.

Since our sequentially from $2.7 billion into the previous quarter.

Third quarter fiscal 2000, <unk> operating loss was $4.7 million.

Compared to operating income of $2.2 million, New Yorker period.

Operating loss of $1.9 billion or the per quarter.

The third quarter fiscal 2014 got lost.

Interest and other income of $207000.

Tax provision $84000.

Compared to $96000 interest and other income.

The tax provision $70000 for the same period a year ago.

I appreciate Inc. second quarter net loss included interest and other income.

$210000 attached provision of $55000.

Total third quarter fiscal 2020.

Stock based compensation expense was $629000.

Compared to $592000.

Comparable quarter a year ago.

At $642000 per quarter.

At December 31st 20 might change.

The company had six <unk> point Threemillion bar, some cash cash equivalents.

Short term investments and 5.3 million long term investments.

61.8 already been cash cash equivalents.

The short term investments over $9 billion.

The more conversant sort of just forget at March 31st remember too.

<unk> permits for core fiscal year, 2020, or current expectations or brokers.

The range <unk> point Fivemillion.

For the $5 million.

Gross margin of approximately 50% to 52%.

Operator, this call will open the call them shortly.

Thank you if you'd like to ask a question on today's call. Please press star one on your telephone keypad.

If you're listening today using it speakerphone, please pick up your handset and niche or your phone, it's not I knew till I, you seem not to reach our equipment.

Once again, please press star one.

Hi, This you have a question well pause for just a moment.

And once you go first question for Ari Schuman with Needham. Please go ahead.

Hey, guys, sorry, taking the question for Rajiv Gil Ah. So first wanted to start off by talking about the gross margin expectations for the following quarter can kinda talk about why you expect such a thing that again drop off in gross margin and maybe talk about.

How should we think about gross margin going forward any seasonality you can speak about thinking.

Yeah gross margins are really impacted by the mix of product, we expect to ship in the fourth quarter.

The current.

December quarter had a fairly significant shipments for Ah.

So I can try capacity computing ER system and ER.

In Europe , which won't be there and.

This quarter. In addition, Oh Nokia revenues are.

Down again.

Next quarter.

Okay. That's generally a are reasonable level of our gross margins.

I'm more in line with our average, but we're really affected by that mix shift from Oh, my boss that business and.

In Europe in the March quarter.

There's always that ordinary <unk>.

Going forward, we still see that journey that we should be expecting some roomba.

Most 60% range like we've experienced.

And the most recent quarters fairly consistently.

Got you and with regards to the town for the right hard Oh 15 to 20 million I must say gets back to achieve.

20, or 20, and this can be expected to.

Grow up extending the future the what's your long term debt.

A harder to predict what's going to be in 2020, a you know as as we've talked about in the past we had anticipated the already have seen some revenue from the Rad hard which hasn't happened yet, but it's just very difficult to predict with launch schedules and funding and what have you.

We certainly anticipate to get something in calendar 2020, we just don't know what it is.

As far as the town.

You know 15 to 20 million is what we've talked about with the car product family we have.

We as I mentioned, we've done some testing on the Gemini, one which look very promising.

So certainly we'll be able to add hopefully that family to the aerospace portfolio and if that's the case that will certainly grow the tam possibility for that space.

Gotcha and just some more question with regards to your a path to profitability.

Yeah, I never talked about how you're seeing that as we move forward.

Well, it's a question because I'm, sorry was a profitability Ari.

Correct, Yeah, your top sports profitability.

I don't understand them instead of course Yep Yep.

I was just talking about what is your path to profitability.

Oh path to profitability, all who obviously, a rat hard and rats Hollander very high gross margin products are generally were expected to be somewhere at 85% range. Then it doesn't take a lot of Ah route hard slash current hard referred to on a quarterly basis to start breaking even.

In addition to that once we start shipping the Ah Ah Gemini chip that also we expect to be providing your gross margin greater than that our corporate average.

What's really matter of being successful and shipping those products and but should lead us to profitability and growth.

Oh, you have a timeline or not at this time.

We're not giving any forecast on numbers represent a at this kind of early on a German ship, there's a lot of interest, but no one is giving us any kind of a forecast and Uh huh.

Volume data that we can present to people. In addition, ddrs already talked about the route hardware targets, it's a matter of.

Sitting out there and in getting that first order ensuring that report works in space and again, there's a significant amount of interest burden on the bad hard and a lot of information that we're seeing are interested we're seeing or the red tolerant products.

Got it thanks, that's all for me to.

And then my did that star one if you'd like to ask a question on today's call.

Well take our next question, Karen and I guess with call and pending incorporated. Please go ahead.

Hi, guys, Oh, what would be the potential if you've got a helpful.

That's correct customer in the defense.

Area, what would be the potential number of board for customer like that is it a couple is it a dozen is it 100.

Kind of just to get an idea.

What could be helpful customer.

Yeah for demand.

Well I wish product Kurt.

For the Germany, so you're going with a new Gemini you're looking for design wins, what could some of these larger prospects.

What is there potential just in a general sense from single digits dozens to 100 board.

Kind of opportunity is there in your larger prospects.

So I really depends on the the application in the market first when I mean by that is you'll have the volume.

Jim and I boards for drug discovery versus fix a recognition versus e-commerce versus some of these government applications. We talk to all differ so it really depends on the on the market space and also the customer site. So for me to generically answer that question it could be it could be eotech.

And is that we're shipping to customers to thousands so it really depends on on the space and the customer.

So there is an opportunity before.

Always with someone.

So it's too early we talking about quantities, but certainly if you look at some of the up kits are looking at it you know there could be larger but the answer is right now we still need to provide the benchmarking and they're going to be going through we actually had her first workshop this week.

We actually went out to a government entity and get our first workshop. Despite this in fact on Tuesday and Wednesday.

And so right now we still need to improve the that you know this as a solution beyond just a powerpoint presentation and once we get to next level, then they'll start talking quantities, but it's too early they haven't gotten to that point with us yet.

Okay got you kind of know what they want the person we do so that's kind of a follow up was you know the market size for across all of these e-commerce and drug discovery and picture where conditional across all of that.

I mean, I shouldn't assume but the market there is a tens of millions more than happy for what you're saying they think it's more I realize you have to prove it out and that kind of make sure. It's working to what do you want to four.

What you put into it as it is gonna be tens of millions or more to know what just generally are not looking to pin you down, but just kind of generally speaking.

Yeah, So again and whatever numbers, we get we wouldn't be our own internal speculation not piece off with customer feedback because we're not quite there yet I think in within the next couple of quarters. Once we have proven our solution on it does what we say it's gonna do it at it gives them the benefits and the acceleration in the search that they're looking for <unk>.

Started getting those kind of numbers, but right now I don't want a phone numbers out because they certainly have not been provided by by the customers themselves.

Okay Fair enough and then when you get the benchmarks completed in March can you tell foot along to shareholders I don't know what this publishing.

So to some other technical term, but I think we've been waiting you know probably a few years when that's done can we get the release on what the results are.

Yeah, I, we're looking to do a press release.

So it'll be it'll be after 12 months after its done.

Hopefully not no I mean, so as soon as we discussed we we've done the testing with the current board we have up to 250 item.

250 million item database and we're working on the 1 billion tighten database now we're waiting for our new re spin board. The board not again, if you recall the Gemini as a as a chip and then it goes on onto a board and the board. The first board has a limitation. So the next board will be receiving within the next.

Week or two and until sometime in February we'll have it all put together.

So once we have Oh the testing done then we anticipate to publish those results fairly quickly.

Okay, great how jump.

Oh back into queue, if any to.

Thanks Kurt.

Your next from Jeff Bernstein with Cowen. Please go ahead.

Hi, guys [laughter] two questions I, just I missed what you said about the.

Qual of the Red tolerant and Rad hard as friends I thought you said class Q when something else I just wanted to know what those were.

Sure Yeah. So this is our internal qual.

No I mean, we've been working on for the second half of last year, [laughter] and there's two different well, there's a few different levels, but the two major levels are what they call Q until Q1 Q of Lv.

And we're actually going to be doing and those are actually what's called their S. M. D, which is the military drawings, we're gonna be do it on or something called as C. D, which is sourced controlled drawing which was which is the kuno Q and chemo V equivalent so its Q and the other two levels.

Gotcha and those are basically specs in terms of how much ionizing radiation. These things can take.

Exactly and you know how much you know what are the T.I.D.'s or the told doses everything that's correct.

Yeah, Yeah Gotcha, Okay, and then I had a question just on the logistics of supplying product to a potential customers and eventually customers. What's the minimum lot size that you can order from TSMC.

For which are you talking about.

Jamming harder.

Got it <unk> Gemini yeah.

Well I normally we owe the.

Lisa you didn't even though the lopsided. These is a funny if I were locked that's pretty much a minimal.

And the mix them I don't have as soon as Cindy mutation do.

Gotcha, and how long does it take the turnaround.

25 for order.

Oh six month.

If we saw the wafer phone bill on the very beginning.

Give me CODI, we have a wafer stage you know you know failure.

Radio stage of the Pepperdine, so low commodity.

Well do much children, but if you stop on the first got be one and you would take six months.

Okay and about how much is the cost of that so so we give assuming that you already have a one lot size ordered.

And that you'll have product ready to go.

Yeah, right, we're not allowed to disclose the price of the wafers, but but gotcha.

It varies based on the technology, obviously the.

Sure higher.

The more aggressive technology the purchase price.

Gotcha, and and so but can can you say that you have already ordered one lot size. So you have 25 wafers birth of a product that you can have for for a and use available.

No so far we Oh, we have.

We have all Pondel type wafer, which doesn't know which is another production not loss activity mutation, but we do.

Another magow wafer or just to give you started.

Anticipate some kind of lumpy things are coming.

Gotcha, Okay, great. Thank you.

Thanks, Jeff.

Yes, I know reminded that star one if he'd like to the question Keith.

And we'll take a follow up question [laughter], Chairman I guess with Carl I'm, having incorporated please go ahead.

Everything's pronunciation of my name away.

Oh.

Just to remind me, how easy or difficult is it to plug.

Well, I say plug and I don't know Thats even proper.

But to use this board with existing infrastructure or is it a herculean task or is it kind of a plug and play or somewhere in between.

Gentlemen, I bought.

Yes, I know you just right and so we did ourselves here so.

For the workshop that we have here in Sunnyvale, we needed obviously to have some gemini boards and so we have to Gemini boards here at our Sunnyvale facility.

We are we mounted them in our server here you know in our server room and ER between just putting them in and just getting them up and running and it was the first time, we did it took about a de or to with just two guys doing it. So again. This is the first time, we've done it so it's not a herculean effort.

Well thank you.

Well take our next question from George that's fine.

Please go ahead.

Yeah. Thank you could do.

Give me a brief analysis here on the your cash position.

Could you relate the the.

The level of cash that you had at the end of the corridor.

Versus the previous corridor and.

The beginning of the here that the ended that last fiscal year.

And and and with that.

Then I'll ask you a second part of the question place.

So at the end of the most recent quarter were $73.4 million.

At the end of the prior quarter, we were $72.9 billion.

[laughter] every 29 and at the end of the fiscal year March a year ago.

We were 70.8 million <unk> cash balances are grown each quarter.

For the last Oh, Geez I looked at it looks like it's grown every quarter for about three quarters now.

Okay, and <unk> and <unk>.

Kind of interesting that your cash is.

Moved ahead and quarter to quarter basis modestly here.

And your loss for the quarter is how much you recorded you're here that right.

Well, that's a big number a we were at about a.

$1.6 million.

4.6 million and what was it in the last quarter.

1.8 million.

1.89, so bad.

How is it that.

You can have a $4.6 million right and increase your total cash net cash position.

That's got to it does this leads to a suggestion that your inner working margin is some greater somewhere or how do you get to have more cash.

Losing money the way you are.

Well I don't know forget that there's a significant amount of non cash expenses on your piano your stock based compensation as running us over $2 million year.

Depreciation and other Emerson amortization is probably about a million and a half dollars year. So most of all of our cash expenses.

Stock based comp obviously, a we'd be we have every car charges based on bunge out.

Spending any money there Oh, we typically haven't been buying a lot of equipment.

Yeah.

Baddest actually use of cash worst depreciation doesn't.

We haven't bought a lot of slot for anything for long time or the other thing is that about 2.7 million dollar charge that we incurred this quarter, it's significantly influenced the loss for the quarter, but but oh, we're not obligated to pay for that up front. So there's a fairly significant part about an accrued liabilities at the end of the corner.

Okay, and then one final have looked at balance sheets into the balance sheet to figure out what's happening with cash.

And then looking ahead to add in six months out here.

You have any.

Number that you could get back and how much you're gonna have to make as an investment into inventory and develop and to get this board out and into the marketplace.

Yes, it turns of development.

I think we've incurred most of the significant charges at this point certainly there's no significant.

Increase in R&D or once we start generating sales for its problems products.

<unk> history, they grow up much they'll be a little bit or increase in southern to express for recognition. So we have to pay but all in all you know the significant charges have already been incurred the next big thing that we would see us on the current Gemini chip. The we're working on right now in R&D there'll be a you know somewhere between one and $2 million.

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Plus or minus two years still like when when does occur like he's talked about the next generation Gemini too.

Yes.

Okay. So.

I just don't see a big drawn cash at this point, Yeah, we had a.

Board meeting the other day was spent quite a bit of time with them going over our strategy with with Oh, excuse if you products and Uh huh.

We really don't for cities very significant increases in spending over the near term for the next year to at this point.

I see okay. Thank you very much.

Pretty much changing.

Okay. Thank you.

Thanks George.

It appears we have no further questions. At this time. This concludes today's question and answer session I would like to turn the call back over to Mr. shoe for any additional closing remarks.

Thank you over joining us we look forward to speaking with you again, when we did you pull off fourth quarter fiscal 2000 plenty to do so.

Thank you.

Once again that that's good today's conference. Thank you for your participation you may now disconnect differently.

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