Q2 2020 Earnings Call
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Please note. This event is being recorded I'd now like to turn the conference over to introduce Brett Demarco Executive Vice President and General Counsel. Please go ahead.
Thank you grant and good afternoon, everyone welcome to todays conference call to discuss coherence results from its second fiscal quarter ended April 4th 2020, all of US here a coherent hoping you and your family are staying healthy and safe on the call with me are Andy matters, our President and Chief Executive Officer, and Kevin Palatnik.
Our executive Vice President and Chief Financial Officer.
I would like to remind everyone that some information provided during this call may include forward looking statement.
Including without limitation statements about coherents future events anticipated financial result business trends global economic trends and the expected timing and benefit if any of such trend.
These forward looking statements may contain such words as project outlook future expect.
We'll anticipate believed in tens of a referred to as Guy.
These forward looking statements reflect beliefs estimates and prediction as of today May 27, 2020, incoherent expressly assumes no obligation to update update any such forward looking statement.
These forward looking statements are only prediction and are subject to substantial risks uncertainties assumptions that are difficult to predict and may cause actual results performance or achievements to materially differ from those expressed or implied by these forward looking statement.
Factors that could cause or contribute to such differences include but are not limited to risk associated with the recovery of global and regional economies from the negative effects of cobot 19, and related private and public sector measures the impact of covert 19 on our business global demand acceptance and adoption of our product worldwide demand.
For flat panel displays and adoption of OLED for mobile displays the pricing and availability of OLED displays the demand for and use of our products and commercial application our ability to generate sufficient cash to fund the capital spending or debt repayment, our successful implementation of our customer design with our and our customers.
Exposure to risks associated with worldwide economic condition.
Our customers' ability to cancel long term purchase orders the ability of our customers to forecast around end markets.
Our ability to accurately forecast future periods continue timely availability of products and materials from our suppliers, our ability to timely ship, our products and our customers' ability to accept that shipments.
Our ability to have our customers qualifier products worldwide government economic policies, including trade relations between the United States, China, our ability to integrate our acquisition successfully manage our expanded operations and achieve anticipated energies our ability to successfully manage our plant site consolidation project and other cost production.
Ramp into achieved the related anticipated savings and approved operational efficiencies and other risks identified in the company that's fine.
For a detailed description of risks and uncertainties, which could impact. These forward looking statements you should review coherent periodic SEC filings, including his most recent form 10-K form 10-Q and forms 8-K, including the risks identified in today's financial press release.
I will now turn the call over to Andy matters, our President and Chief Executive Officer.
Thank you Brett and thank you everyone for welcoming me to coherent.
I am still measuring my time here in week.
And this mark my eight week.
Joining a company as the CEO during a time when the world is fighting a pandemic as most of us.
Our under state and placed orders.
A truly unique experience.
And uncharted territory.
Getting my arms around our company in a virtual world has made a long days.
But at this amazing the productive and effect.
I've spoken with most of our top 20 customers.
This is at many of our site through virtual tours.
Connected with coherent top 100 managers.
And a half held.
Multiple virtual coffee talk with employees.
All levels around the globe.
I'm very energized by the customer feedback I've received about the quality of our service.
The performance of our product.
The high degree of collaboration.
Our customers value when they design process solution with coherent.
I must admit I am extremely impressed with the talent.
The dedication.
As most of all the level of engagement that our colleagues around the world to display.
In the new normal.
Working remotely.
As the leadership team.
We focused our energy during the last week.
Around.
The health of Alright, well you.
The financial help our company.
And to help all partnership.
Customer spend supplier.
We established a central nerve center.
Cobot steering committee or do you see.
Under the leadership of our newly appointed COO Mark Toby.
All executives of the company video meat multiple times, a week to stay on top of the ever changing situation and safety protocols around big no.
Just synchronize our action and responses.
To enable it stable supply chain and logistic.
Discuss inventories of critical part.
And just to meet desired customer delivery date.
But most of April and May we have maintained manufacturing at approximately 85% to 90% of capacity.
While adhering to all social distance the rule.
The CST is now shifting its focus.
Bringing our employees back to work safely.
Oh to incorporate remote working into the new normal up our company.
And how to accelerate best practice sharing around collaboration.
The ability inclusion and accountability.
Before I talk more about the road ahead of us.
Let me has to make over to Kevin to discuss our Q2 results and guide.
Thanks, Andy today, I'll first summarize fiscal second quarter 220 financial results, then moved to the outlook for fiscal Q3.
Ill discuss primarily non-GAAP financial results, an asset you refer to todays press release for a description of our GAAP results as well as the reconciliation between GAAP and non-GAAP financial results.
Non-GAAP adjustments relate to stock based compensation expense amortization of intangible assets goodwill and other long lived asset impairments restructuring costs related tax adjustments.
Yes, thanks for stock based compensation.
The full text of today's prepared remarks, and trended GAAP and non-GAAP supplemental financial information will be posted on the coherent investor relations rare.
A replay of this webcast will also be made available for approximately 90 days following the call.
Fiscal second quarter 2020 financial results for the company's key operating metrics were total revenue of $293.1 million.
Non-GAAP gross margin of 36.2%.
Non-GAAP operating margin of 8%.
Adjusted EBITDA of 11.9%.
Non-GAAP EPS of 61 cents.
Total revenue for the fiscal second quarter was $293.1 million. It came in at the low end of or previously guided range.
Sales were negatively affected by the <unk> 19 pandemic, primarily in Asia during Q2 and began impacting your up in North America later in the quarter.
Yes that makes the impacted revenues was probably between 30 and $35 million during the quarter.
Our revenue mix by market from Q2 is microelectronics, 42% materials processing, 29%, we components and instrumentation, 22% and scientific it's 7%.
Geographically Asia accounted for 48% of revenues in fiscal second quarter, U.S., 25%, you're up 22% and rest of the world 5%.
Asia includes two territories and Europe includes one territory, whose revenues greater than 10% himself.
We had one customer in South Korea related to large flat panel display manufacturing that contributed more than 10% over fiscal second quarter revenues.
Revenue from other product and service for the fiscal second quarter was $99 million were approximately 34% himself.
Other product revenue consistent spare parts related accessories, and other consumable products. It was approximately 29% and sales revenue from services and service agreements was approximately 5% sales.
The other services revenue decreased sequentially by approximately $18 million, primarily resulting from the inability to service our installed base due to shutdowns and travel restrictions and Corona virus impacted areas.
Fiscal second quarter non-GAAP gross profit excluding stock based compensation costs intangibles amortization restructuring was approximately $106 million.
Non-GAAP gross margin was 36.2% Q2, I came in slightly below the midpoint of or previously guided range due primarily to higher manufacturing costs related to lower volumes.
Non-GAAP operating expenses decreased sequentially by approximately $9 million from a myriad of items. The significant items were decreases in variable spending travel related spending and a benefit to expense related to our deferred compensation plan.
This resulted in a non-GAAP operating margin of 8% for the fiscal second quarter. They came in at the high end of our previously guided range.
Adjusted EBITDA was 11.9% in fiscal Q2.
Turning to the balance sheet non restricted cash cash equivalents in short term investments were approximately $369 million at the end the fiscal two two an increase of approximately 19 million compared to the end of last quarter.
Given our focus on cash preservation during this period of relative uncertainty in the global economy, we did not repurchase any shares in Q2 pursuant to our current buyback authorization.
We also did not make in voluntary payments against our term loan and at the end of fiscal Q2, the outstanding amount over the term loan U.S. D was approximately $390 million.
Accounts receivable Dsos were 62 days compared to 68 days in the prior border.
The net inventory balance at the end of fiscal second quarter was approximately $457 million an increase of 7 million primarily due to an increase in finished goods as a result of closures in the shipping and receiving departments of some of our customers due to kill the 19th.
Now I'll turn to our outlook for our third fiscal quarter of 2020.
Let me say at the outset, because there is no clarity with what will happen with global demand in the coming weeks and months.
This uncertainty makes forecasting our business challenging in the near term.
However, our strong balance sheet and cash position provides a significant flexibility in responding to continued corona virus related disruptions going forward.
Having said that revenue for fiscal Q3 is expected to be in the range of $265 million to $305 million.
We expect fiscal Q3, non-GAAP gross margin to be in the range of 30% to 34%.
Non-GAAP gross margin excludes intangibles amortization of approximately $2.2 million and stock compensation cost estimate here at $1.7 million.
Non-GAAP operating margin for fiscal Q3 is expected to be in the range of 1% to 5%.
This excludes intangibles amortization estimate or a total of $2.9 billion and stock compensation expense as a total of approximately $16.1 million.
Other income and expense is estimated to be an expense in the range of $5 million to $6 million.
We do not include transaction gains and losses related to future changes in foreign exchange rates in our align the outlook.
We expect our fiscal Q3 non-GAAP tax rate to be in the range of 17% to 18%.
And finally, we're assuming weighted average outstanding shares approximately 24.2 million for the fiscal third quarter.
I'll now turn the call back to Andy.
Thank you Kevin.
In addition for the financial data.
Let me give you a little color on the main markets we serve.
Starting with micro electronics.
There are two distinct dynamics at play here.
On the one hand.
As a weakness in smartphones.
Driven by slowing of consumer spending which is providing headwind in display.
Impacting our near term service revenues.
That's fab utilization slows.
And on the other hand their strength in the semiconductor business you tend to telecom cloud and data center investment.
Think about our zoom economy, and they're shifting business.
What's the laptop.
Specific to display we are encouraged by recent announcement from multiple laptop manufacturer that they are now including OLED displays at auction for the high end model.
We believe this is a trend that is likely to continue.
Especially at the yields our Chinese customers improve and they have the ability.
Pricing more in line, but LCD overtime.
We also remain optimistic around depending upgrade cycle to five G enabled mobile devices.
The linkage between then flexible OLED screen.
Five GE capability is high.
Given by the need for larger batteries to occupy more off the device volume.
As a requirement for powering their showed a range higher frequency antenna.
Moving onto materials processing.
Even prior to the reason cobot pandemic.
There was a widely reported slowdown in the German automotive and machine tool industry.
And overall the market is being further weakness related to the cobot impact on consumer demand.
There have been mixed report about it early recovery in China.
We remain cautious to see how that plays out.
In general coherent has left material processing exposure to China, then the U.S. and European market.
In our core strength is in more specialized segments of the industry in the non metal cutting and welding applications.
Well I was strengthened PEO too and diode lasers remained a differentiator.
Overall, our instrumentation business remains robust as we are diversified over a range of application across life Science research clinical diagnostic and therapeutic course features.
Elective and insurance.
We've been excited by the use of many of our life science customers tight and instrument.
In the development affecting.
And you into a logical advances in the fight against cold it.
As well as clinical application.
We've seen demand at that end up the spectrum for certain customers.
So through a twofold increase.
Conversely, the same customers.
The same instrument to research labs across the world for non cobot related studies.
And many of those lapse and University has been closed.
For those cut the Merced new system demand has slope.
We are seeing a nice rebound from <unk> therapeutic medical customers now that the coded related restrictions to non urgent medical procedures are being east across the world.
The scientific market segment.
Basically took a time out at universities into that have been largely close.
We expect this segment to recover.
That's the scientific institutions reopened and pent up demand from and research grant begin to flow.
Defense has been an unexpected the area and remains an area Beth multiple 'cause your it.
We are well positioned across multiple opportunities from lays the amplifier slow directed energy applications.
Speciality lightweight aerospace uptick.
We have secured key design win with well known prime contractor.
Apply to the armed forces and we see this as an area of strength going forward for the company.
Our Q2 book to Bill ratio, what significantly above one and our backlog exiting the quarter, it's up from previous quarters.
Nobody knows how long cobot 19, what impact the global economy, but between our backlog in our balance sheet, we see coherent to be as stable position four quarters to come.
Having said that we're concentrating our near term actions on cash generation.
Why do we have not made any final decision.
We are currently analyzing a variety of key step.
And going forward, we would initiate our good to great transformation, which would encompass some action that are already flight.
Well ethic cooperate new one.
Including applying a strategy to our business.
But we will only participate in a market segment. If we have line of sight to achieve a number one or number two position.
Otherwise, we will refocus our energy.
Consistent with the strategy.
We will not be participating in d. kilowatt fiber market right right to the bottom game and therefore, we will complete our move out of the commodity fiber laser market.
Instead, we will focus on areas, where I'll technological advantage, we get rewarded by the market.
For example, microelectronic bio instrumentation in medical device manufacturing.
Also we were doubling down on the old at market and use our pole position to enable the advancement of technologies like micro LCD displays.
Knowing that these are still in the future.
But will be based on many laser processing.
And finally, we will be simplifying our company from an organizational set up to the number of locations to the way be running report our financial.
As you can see.
We have quite some summer homework ahead of that.
We'll have more to share around our good to great transformation.
And on our next call in a few month and especially when we announced our Q4 results and moved into the new fiscal year in October.
And with that I'll turn the call back to the operator Barbecueing <unk> session.
We will now be getting the question answer session.
Ask the question you May pop Star then one on your Touchtone phone.
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At this time, we'll pause momentarily to assemble our roster.
Our first question today will come from.
Jim Ricchiuti with Needham and company. Please go ahead.
Hi, Good afternoon question I had is just on on the a reference to the book to Bill being significantly above one I'm wondering.
If you can tell us if the bookings were up sequentially.
Sure if you're just referring to yeah generally strong bookings.
Strong book to Bill versus the obviously you go lower level of revenues that you reported that was expected.
Yeah, Hi, Jim It's Kevin So you know we stopped talking it and any type of detail on bookings a few years back. So when we talk about book to Bill It is within the quarter or current current view Q2 billings to bookings in corridor.
Got it fair enough and Andy by the way welcome [laughter] didn't want to do a video welcome to coherent.
Can you talk a little doubt.
Whether you saw.
Bookings activity and the OLED space in China, it's been a lot of speculation as you know.
How about new capacity being added there, but I wonder if you could talk to a.
Tone of business in the OLED market in China.
Jim It Kevin again, so again I won't provide a lot of deal here because we just don't isolated to a you know FTD or micro electronics from a booking standpoint, but we did take orders in quarter.
Formulate tools as we did last quarter in the prior two quarters.
That's helpful and then Kevin if I may if I heard you correctly it sounded like you saw a bigger.
Impact from from coated in this quarter, if I, if I got the numbers correctly that's.
I think you're talking going in.
About 20 to 25 million did you say was around 30 to 35 million.
Correct, Yes was that was that a bigger impact that you saw in China or was that just the early impact elsewhere, Europe and the Americas that contributed to the.
The the bigger hit there.
It was larger than we expected, Jim and Oh, I'd say, what we failed to recognize towards that in some of our scientific and OEM instrumentation areas.
Universities and research labs really completely closed down you know the proximity of people working in the labs indoor universities.
Either shipping receiving wasn't available for the lab people themselves couldn't rashid product because they just weren't there. So I think we did underestimate that a bit.
Got it and if I may last question I'll jump back into queue as you begin to deemphasize.
Some product areas, including the kilowatt fiber laser segment can you give us a steel I know that business is not necessarily been that meaningful but can you give us the senses to what the revenue impact would that have that would be.
Oh, you know, Jim I don't want to getting to that level of detail on the call here Oh, we're still analyzing different pieces of the business to figure out where we want to invest going forward I think once we have that.
Data then we can be you know up a little a little bit more forthcoming.
But as we've discussed in the past the commodity fiber for our business was very small in terms of its contribution.
Okay. Thanks, very much I'll jump back in kidney cute.
Our next question will come from Brian Lane with Goldman Sachs. Please go ahead.
Hey, guys. Thanks for taking the questions and yeah welcome Andy looking forward to working together.
Likewise I guess first question I had was just around the.
The trajectory of revenue recognition you know I appreciate the the comment Kevin that you had another.
Yeah. They order in the quarter, so that makes three or three in a row, where do you have your having some you lay orders.
And you've been saying for a while that he the lead times are about six months. So I guess two questions here one have lead times changed at all from that six month.
Range you provided in the past and then too.
Assuming that they have and it would seem E.L.A. tools from you know the older as you saw a couple of quarters ago. When the for you know when the cycle kind of started.
I would start to see revenue in Q3 and definitely by Q4, but then the margin guidance seems to be a bit light for for having somebody L.A. high margin tools in there. So I'm. Just wondering has anything changed on the sort of lead times shipment trajectory in Rev. Rec got timing that we.
Should be aware out here.
Yeah, Thanks, Brian Kevin again.
So you know we have taken orders over the last four quarters actually and we did say that can lead time perspective, it's a minimum of six months.
So as we look into the second half of the year, we haven't given guidance for next quarter or our June quarter.
And it is flat to slightly down but with Covidien such you know just think of covert as delaying or you know things for a quarter or so.
But we should be right back on that trajectory going forward.
Okay. No that's helpful and when would you say, it's it's fairly customer centric with respect to those delays or it is across the board because the reason I ask you obviously have some customers.
In your in your China mix, which or directly are situated in Milan, where.
This call the crisis first materialized and then you had customers in other parts of China, where maybe the impact was a little more peripheral or indirect. So are you seeing the level of delays being pretty broad across the board or is it more concentrated in there.
Handful of manufacturers that have the direct impact.
Yeah, Thanks, Brian you're right one of our major customers, but one of our key customers. She shopped, China Star isn't <unk> and as you know on shut down for two to three months. So yeah, I'd say, it's primarily a geography based meaning <unk> are there a couple of customers there see something in the larger well a couple of <unk>.
Summers, but you know you'd expect to delay given the shutdown by about a quarter.
Okay. That's great and then maybe last one and all and I'll pass it on.
You know can you kind of comment on utilization rates are seeing across your customer base, obviously, we had.
Down tick through different parts of a calendar Q1 in China because of the covert crisis and then you've mentioned in other parts of the world you're starting to seating pack come in.
On the back of China, but where are you kind of seeing utilization rates. How how quickly are they were covering particularly in China and then how should we think about that translating to service revenues here in Q3 and moving through the year It seems like.
We haven't seen a a sub 100 million dollar service revenue quarter in awhile. So is that kind of the low point and just wondering how quick that metric cover as you moved through the rest of the here.
Yeah, So Brian I can't get into specific customers in their yields something that's proprietary information for them, but we want we want to talk about animal call suffice to say that just anecdotally. It seems like it feels like a yields are improving one of a wonderful.
Large oh Chinese Olin manufacturer, that's come out and said that they expect to ship 70 million displays this year.
Compared to what was probably five to 10 million last year.
I believe that's on the back of improving yields.
And tend to get services revenue.
As I mentioned implicated in March.
Service Engineers that just couldn't go into China and sure equipment.
And that intact, despite 18 $19 million or thereabouts, and given that Chinese we opened or for the most part reopened.
I would expect some no rebound in Q3.
As we look into Korea Korea was impacted as well. So we know we probably won't see a full snapped back what you'll see improvement in Q3.
Okay. Thanks, guys I'll pass it on appreciate it.
Thank you.
Our next question will come from Tom O'malley with Barclays. Please go ahead.
Hey, guys. Thanks for taking my question in a welcome Andy due to happy here. My Oh. My first question was related to the impairment charge you guys took in the quarter. You said it was related to the industrial lasers systems business could you be a little more specific it was obviously a larger charge of $400 million plus to where that was related to that business.
Sure. Tom This is Kevin again, you know with regards to impairment.
There's a multi step process to go through this I won't dragging through that mud suffice to say that when the carrying value of certain business on your books.
Comparing with it the fair value of that business.
When fair value was lower.
The write down or take the impairment.
You know specific to the businesses it impacted the islands segment.
In the I left segment is primarily the industrial side of lasers. So it includes a tools business or fiber business diode and fiber components.
It's across the board, but again the key there is as we evaluated the business a fair value was less than book value and and that's why you take the impairment.
Fair and then I guess kind of on a follow up to that question and of course unrelated to he leaves just you focus really on your key Irrs for cash generation you made that point in the prepared remarks, and you made the comment but you would only really participate in the market segment. If you could achieve a one or two position you commented that the fiber laser business, you're going to walk away from the non stop.
TJ portions of that business, but can you just talk about the general laser business and do you think that you can have a one or two position in that longer term and if not what do you think you know alternatives may be accepted on an area you can compete.
Look I, let me let me just start out Kevin has has more real life examples here, but.
We think we have some very unique position than I when I talk to customers. Let me just let me just take the medical instrumentation site. For example, a phenomenal marketshare, where clearly the market leader a lot of opportunity great. Refutation. This is this is a perfect example of that hi.
Both market.
That we want to go after and there are plenty of those opportunities out there and the task at hand for US is to make sure we focus on the areas, where our technological advantage our capabilities our ability to customized into.
<unk> special or manufacturing or testing processes for our customers comes to a full plate and where we can grow at a very nice margin profile.
Thanks, Lynn just one more and I'll pass it along if you look at the outward that you guys. Just started to you know revenue isn't moving down much quarter over quarter, it's only down slightly but to hit on the gross margins again, you're seeing a step down you guys mentioned that manufacturing is going to be a back you know 85% to 90% capacity.
The corner is the gross margin stepped down just a function of mix or is there are moving part within one of the businesses, that's driving that overall number down thanks.
Yeah, Hey, Tom Kevin again, there's a couple of contributing factors you know certainly with revenue coming down ever so slightly volumes take a hit and therefore manufacturing costs go up.
In terms of just coated and call. It the business continuity plan that we have to put in place the distancing the P.P. need it et cetera, et cetera that cost money and and that's that's worth 50 to 60 Bips.
Beyond that again as volumes come down we have inventory on hand, and though we may have to take some provisions against that inventory because of lower volumes. So you know all of those contribute to the margin impact sequentially.
Exactly.
Thank you.
Our next question will come from Mehdi Hosseini with ESI Ji. Please go ahead.
Hi, This is Larry I'm, sorry, well imagine.
And welcome a ending on board. So the first question is what do you think about or opportunities in China, and how does that impact the blended.
Lodging.
Well if you take it.
Well.
If you take China and you go by our segment.
<unk>.
Needless to say OLED and everything around it.
Very very well positioned a if you take the other end of the the spectrum or materials processing ER business in China is.
Relatively small I was highlighting that in my prepared remarks were stronger in Europe or in the U.S. When it comes to do a these type of businesses.
Scientific market.
Also strong in China, but the Chinese University, we're close to justice.
The western universities were so that market didn't.
Literally you didnt happen for the last month, and you'll see that bleed into this quarter as universities are just are starting to reopen so most of our China.
Opportunity sits in the microelectronics market in the semiconductor market.
Great.
And when do you see that impact on the margin.
<unk>.
I don't know that goes back to.
What we said earlier, we'd like to play in markets, where our position gets rewarded and in those segments, where we have a strong representation. We also enjoy the market or the margin profile.
Right.
And then on the old that.
I imagine you guys I'm not going down all that and what do you see that.
Let me turn for in China Korea.
Okay Awesome comment on the Michael Michael Allison.
Yeah, Hi, laureates, Kevin you know rather than geography, let's talk about the application and then Andys prepared remarks, you did talk about Mike really de you may be familiar that's a very process intensive.
Application.
Because you have to pick and place the L.C.D.'s to a display substrate.
But you use lasers in doing so we've already sold some development equipment in that space and you know as we enjoy our position with usually tools and Oleg we'd like to enjoy the same position in tools provided to Mike really do.
Gotcha.
And the lack why Oh me or the margin when do you think you that lock in going forward second half.
Well the best way I can answer that Lori is a if you go back two years 2016, 17, and 18 with phase one of the OLED ramp you saw the Todd Stender upward pressure.
Primarily based on that OLED ran a we've always said that.
It really tools microelectronics in general is accretive to overall corporate margins. So as we shipped more of those machines that will put a positive upward pressure on margins.
Got it.
Great. Thank you.
Thank you.
Our next question will come from Larry Solow CJS Securities. Please go ahead.
Great. Thank you good afternoon, Oh, welcome Andy as well most of my questions have been answered maybe just a couple a high level one.
Could you want to Andy just and I know I think.
When you're drilling coherent is looking at your your path, Yes, I think you've got you know you're one of your focus who's been sorting transparent transforming or sort of repositioning companies for growth do you do you view coherent as.
As that type of a project or is it more of just.
Fine tuning buckets.
Well look the.
If you take a look at our transformation work at what I was trying to express when they called it a good to great transformational.
Of course guarantees are really good company.
Now, having said that Oh like any company their areas in our business, where we can do better where we can double down on operational excellence in execution and wild Ur cobot is going to.
But the question Mark you're on their on on the topline and how quickly consumers react.
And everything that on the cost side, just completely under our control and it's something we can address right here in that right now and we'll be doing.
On that all through the summer month, and we'll we'll update you as soon as we we can squawk about it.
Secondly.
Mid term, we're doing everything to position the company on to a profitable growth trajectory.
I wholeheartedly believe that there is no such thing I think great shrinking company. So.
We're going to make sure that we'll we'll be back toward profitable growth as we get out of the endemic environment.
Okay.
Great how about yourself just a couple of also you no longer term question, but I'm not sure we have great visibility any change, but and look colgate impacting but just in terms of Ah.
The you know plans for directory of of of old let openings over the next be <unk>.
Let's see any changes whether it be thoughtful and you know where maybe more material or allow this is done that supply thought, but if there was a a less demand. If we go into a you know slow or even a question Bobby and there's less demand for these broke new phones, and all that phones with could that potentially shift out.
You know I'm the build on the supply.
Hey, Larry It's Kevin you know when it comes to OLED, a there's no change in story there.
We continue to see the OLED ramp in front of US in fact recently, we've gotten data is 18 different laptops or at the high end, albeit have OLED screens. So we're seeing OLED progress you know from mobile into laptops, we expect tablets will be next.
So in terms of our waves theory, you know wave one being mobile computing, you know and a in handsets wave two or three if you will.
You know tablets laptops.
Automotive, we see that ER that path no change to it at all and we're very encouraged by as many lap laptop manufacturers at who have OLED currently.
Right. Okay, and then just another you know bigger picture question or not you know, obviously materials processing big bigger PQI.
Second biggest PC business by itself, although I realize it sort of many sub market there but.
And like you mentioned, you prepared remark sort of that.
Doing great over the last several quarters with the global economy going to doing.
It's obviously you know post Corbett 19.
I assume industrial production will be at a lower level for them, where we were and if anybody that's one where that goes how low goes and how much a rebound but.
Could you guys still improved performance, even in a lackluster ticked down industrial production environment.
12 to 18 month.
Oh, that's if this goes back to our good to great transformation.
Right, we do see we do see room for improvement, especially on the I left side of the house when it comes to our margin when he comes to our factory loading and.
The more we apply.
And then one and reuse often type of philosophy for our systems in our tool.
In the way that we approached the market our customers.
And that will automatically have a positive impact on the margin profile that we would be generating.
Okay.
Yeah, Okay, all right good Don I really you know, you'll you'll you'll give us more.
The more color to take time, we're going to Atlanta I appreciate the thoughts and not again welcome people here and now thanks again.
Thanks, Larry.
Our next question will come from Mark Miller with the benchmark company like Scott.
Now let me extend my welcome also just had a question about supply chain, where are you in trying to find any supply chain issues because the virus.
Oh, let's say hey, Mark it's Kevin from the supply chain very very minimal impact you know we worked with all of our top 10 suppliers around the world.
Make sure that either a we bought ahead or they had enough supply on hand to a two certainly supply us through Q2 Q3 and beyond so we're in good shape there.
You mentioned Fiveg is becoming an opportunity for you I assume that's because of the higher density. So time will require smaller part for me has.
And possible transition new type of lasers, that's starting to pick up steam or is that a foundry playing in another way.
You know that Kevin.
Sorry, Mark Kevin again, you know it not only in the micro views right to put more content on the boards, but are also has to do with the antenna itself.
The intent is a little bit more bulky and it requires more power and so the the systems need more battery, if you will and because OLED is so much more thinner than L. C D.
You know you can pack more battery and because of its 10 minutes. So there's a couple of things contributing to.
You know fiveg in terms of benefits to the company.
In terms of all what we're seeing a we are seeing a little bit of a pickup but are you know, it's still more in front of less than behind us.
Okay, I'm going to Miss It did you say the cash flow from operation was 19 million or is that was just increasing Josh I'm just wondering what the cash from operations was.
Yeah, that's cash the increase in cash was the 19 cash from ops is 47 million.
47 million for catch ups, okay. Thank you.
Thank you Mark.
Again, if you have a question that Star then one star then one tough question.
Our next question will come from Nick tow draw with Longbow Research. Please go ahead.
Hey, guys good afternoon and potential for let me ask questions.
Regarding the guy or Kevin can you break.
The guide sequentially or how much of a call that impact are you baking in your assumptions and is it fair to assume that the biggest had sequentially potentially Google will come from the scientific and government properties, there to university exposure and materials processing.
Yeah It Nick.
So from a revenue standpoint.
No again, a small decrease quarter on quarter.
And yes, there is some expectation that labs will open up universities will open up the question. There is time it right. So it will happen in the June quarter. You know some are reluctant to open up to date, so that impacts revenue on the gross margin side.
Certainly with lesser volumes that drives unit costs. So.
But in terms of co good and its impact I had mentioned earlier that when you look at safe distancing physical dispensing of people you know split shifts multiple shifts all the things necessary to protect our employees.
That's costing us between 50 and 60 Bips in margin.
[laughter].
Okay and from a top line perspective as a common in fact similar in size relative to the March quarter, roughly about 30 million, what's your thinking it.
Oh, I'm or less affected it's probably it's probably in the third is very five regions range or slightly less.
Okay got it.
Switching gears to at P.D.. So in the last cycle you had one large player and if you're looking to trajectory of shipments. It was a really smoked and then a your pickup and orders and shipments. So now that this cycle is reflecting multiple players.
Potentially up to eight or nine can you share your view and now that you have several orders and a decent backlog under your belt, how should we think about mcgarrity gifts linebeam deliveries over.
Over the next call. It 12 to 14 24 months should investors expect the similar trajectory as the last cycle or takes could be a a little bit more lumpy.
Yeah, Nick Kevin again, you know it terms of the number one customer back into 16, 17 18 timeframe.
Not only did they place really large orders on us, but they were multiyear orders. So we could work with that customer and really plan out the shipments over time.
As you mentioned you know there's many more customers in the phase two well, obviously, China related we do our best to help them plan.
To receive equipment.
But I don't expect the same ramp that we saw in 60 70 80 I can't go into too much further details on that Weve never shared that before but suffice to say I don't think it'll be as dramatic as it was in years past.
Okay got it and then.
Materials processing side, you said there is no different reports.
Regarding China recovery I think March and April were relatively strong, but are you, saying that you're saying you're seeing potentially may or worse are kind of stabilizing on the recovery.
Menton slowing down what is the one of the signs that give you a pause called the recovery in China and materials processing.
Yeah, let Kevin again, you know frankly were a bit more cautious than some of our peers. When it comes to China. A there were some indicators here and there that things have stabilized a bit but then as you may have seen a there were some flare ups in various provinces related to coated.
So we are much more cautious then or some of our peers related to China.
Okay and last question for me I think a couple of quarters ago, you announced a new tier one automotive when Oh on design win and then bundling was related to easy battery welding can you give us any update if you're seeing no orders potentially start increasing from that customers and can you comment overall.
You know the environment for even need and in both Germany in China, and how you see that Oh outlook over the next Sixtyl months.
But when you when you as Andy when you look at.
The welding special <unk> materials that were our technology, especially our our laser has a very unique advantage in the market.
We can do that with with little to no better which leads us to say in.
Around the her.
Electro vehicle market is a very important element.
The worst <unk> a lot of interests.
And we're seeing many proof of concepts out there with customers as we speak and we would expect that's to continue to grow as time progresses.
Okay got it that's helpful. Thanks, guys. Good luck.
Thanks, Nick.
Our next question will come from Joe Wittine with Edgewater Research. Please go ahead.
Hi, Thank you and aegis, partially answered this question here, but I wanted to ask on the exit from a kilowatt fiber or does that strictly include the the the highlight for Ferrari cutting.
Does it also include any welding applications. It sounds like it doesn't include the highlight our and then also within that does does or does the exit of that market include any.
Component that you a upstream components that you sell into other parts of the kilowatts Gil supply chains, such as the diodes and the new for an extent or.
Now, let's start you take your question from from the back so no diodes and moved burn and all that good stuff is definitely a key element of our portfolio.
And we'll continue to do so at wells that we've got to be looking at ways to enhance that business.
When it comes to welding.
As I just said a if you think about welding of material.
Other than met so that's where our unique advantage lies whether it's in a aluminum special aluminum copper you name it and we'll be looking for those type of application and that also for our strategy that we want to play where our technological advantages can I get rewarded and.
Where.
But if you exclude the speciality market like for 10, or so we're basically not participating in the run of the mill.
Copping metal market that truly just the race to the bottom.
Okay, and then maybe on goodwill or Kevin. So so was it more than rofin that was written off or could you give us any more details on on what are the pieces parts and then that I know you did a couple of smaller deal fit through open I think there was a threed printing deal it maybe something else.
Yeah, Joe we may want to take this offline because it's pretty detailed.
But you know there's the goodwill impairment and then there's the intangibles and [noise], but some other assets real property machinery and equipment leases right of use assets et cetera.
You know from a a goodwill standpoint, the majority of that.
Was related to legacy rofin.
But then beyond that some of the assets a word broader than that across the full wireless segment.
Okay, Great and then finally apologies if I Miss is there any help in modeling out DNA given be a said the moving pieces, they're not in the first and second quarters will be will be great, especially oh, so as far out as you're willing to go Kevin.
Yeah, I think you'll see.
Relatively flat from Q2 numbers going forward.
So no I know resumption in travel or or.
Or other variable spend or or some resumption, there and then offset by by by other cuts.
Oh, I think that's a good way to look at it yes.
Okay, great. Thanks, guys.
Thank you Joe.
My last question. So they will come from Jim Ricchiuti with Needham and company. Please go ahead.
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Jim.
I mean art Yep Yep. Thank you just a follow up on the medical business, where you you indicated you're seeing.
So you're still seeing strength, if I heard you correctly, but yeah. We were also hearing and I'm sure you guys are as well just with cold. It there's been a lot of delays and push outs or things like elective surgery and I'm just wondering as.
As you hear about that even even in dental applications are you seeing that reflected at all yet in any of your medical related bookings.
So.
First of all it's amazing what was all considered you elected.
The one thing that absolutely floored me is that a kidney stone treatment work considered elective if you'd ever had to go to one of those you would beg to differ differ on national assessments [laughter] Titan.
But so what do we seen is really a tale of 250 yard.
Anything on the research side anything that in the into flow cytometry space that even remotely affiliated with the search for coated and vaccines and anything you can do you each demand and we had some customer.
Is that <unk> com calls that they literally told US every day towns and make sure you can get systems to us et cetera et cetera.
Flipside like is that for example, dental why we talked with their customers and everybody sees a bright future on that one needless to say nobody was putting in orders in the last week at.
Sure enough emergency procedures, all the Dimple <unk>.
Offices in the country workloads.
So it.
We see this cloud.
These soon into rearview mirror.
As the country is starting to open up again, but it really impacted.
Orders and revenue.
For Q2, and it did so for the first eight week of this quarter.
Got it. Thank you that's helpful.
That's it for me.
This will conclude our question answer session I'd like turn the conference back over to Andy Mountains for any closing remarks.
Well, thank you all for being with US today, we appreciate your questions and your interest in our company.
And we're looking forward to talking to you at the end the next quarter.
Yes, again and they say.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.