Q3 2020 Perceptron Inc Earnings Call
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as your major this conference is being recorded I'd now like to turn the conference over to your host Mr. Bill Rush <unk> interim Chief Financial Officer Perceptron.
Thank you may begin.
Good morning, and welcome to Perceptrons Investor call and webcast to discuss the company financial results for the third quarter fiscal 2020.
My name is no rush line and I'm Perceptrons interim Chief Financial Officer.
Joining me on the call today as Jay Freeland Chairman of the board, an interim Chief Executive Officer.
After the market close yesterday Perceptron issued its third quarter earnings release on form 10-Q, which is available on the company's website that investors.
Perceptron Dot com.
We will begin the call with her prepared remarks.
And then open the call up for questions horrible before we begin today's call.
My responsibility to inform you that some of the materials that we will be discussing today constitute forward looking information under the meaning of the private Securities Litigation Reform Act.
Any forward looking statements made are based on information believes to be true as of today.
Actual results may differ materially.
For discussion of some of the factors that could cause actual results to differ please refer to the risk factor section of our latest annual and quarterly filings with the FCC.
Additionally, please note that you can find reconciliations of historical non-GAAP financial measure as discussed during our call in the press release issued today.
Unless otherwise noted comments are in U.S. dollars.
And references to years will be fiscal years, which ended on June thirtyth.
With that with that I'd like to now turn the call over to Jay.
Thanks Bill.
I'd like to start todays call, but definitely I think the perceptron team on their perseverance and dedication during a very difficult time for a rolling around the world.
Due to the Cobot 19 pandemic our company like most is facing the most challenging set of market conditions I've witnessed in the 30 years I've been a business.
However, this team has continued to operate draw, but we have delivered on everything within our control all while continuing to provide you the health safety and welfare of our employees.
Thus far we've only had one employee contract the virus. We're pleased to say this employee has fully recovered and this back at work.
Our ability to ensure the continuity of operations. During this crisis with almost every employee working remotely has been an amazing challenge on behalf of means our leadership team I'm grateful for the efforts put forth by our employees during this period as well as their proven ability to execute throughout the disruption.
Turning to a discussion of our operations in response to shelter in place orders, resulting from the Cobot 19 pandemic, we shuttered operations in China on February John.
Italy shut down on March 16, and our Michigan operations shuttered operations on March 24, Arthur sodium Germany did not shutdown, but has been running staggered chefs with many employees working remotely.
Currently all of our facilities are now open again and are currently operating at various utilization levels.
The most critical functions that need to be performed in our facilities those being manufacturing and service are completely operational.
Most of them support functions continue to operate remotely help maintain a proper level social doesn't seem within the facilities and to allow the onsite teams to function in a well controlled environment.
At the end of May we're operating at approximately 50% capacity across all our facilities and anticipate activity levels to increase during June given discussions with our customers.
Throughout the crisis, we've utilized short work programs were available to help alleviate the cost of our workforce.
And as previously announced we also applied for and received alone from the SBH Paycheck protection program, which provided $2.5 million to cover employee salaries and other qualifying expenses here in the United States.
One of my goals for this entire crisis has been to avoid layoffs or furloughs to ensure our team is ready to deliver as soon as conditions improve.
To date, we've been successful in that regard.
Not surprisingly a large number of our customer shuttered their operations around the time, we did resulting in a situation where product deliveries and onsite installations were virtually impossible during the first half of the fourth quarter.
Most of those customers have started to reopen their facilities, allowing us to begin delivering products and services during may and June.
Notably, while India, and Brazil have not reopened this should not have a material impact on our operations as they represent less than 5% of total revenue on a combined basis.
Around the world, we have not experienced any meaningful order cancellations, we have seen a handful of new business opportunities get pushed into fiscal Q1. In Q2. However, the sales team has been able to continue interface and customers remotely through all this so the current pipeline for fiscal Q4 in Q1 looks promising.
Visibility beyond fiscal Q1 is more difficult, but we're starting to see a return to normal conditions, which should improve the visibility over the coming weeks, we remain cautiously optimistic with respect to the macro environment and we'll continue to monitor market conditions.
Looking ahead remain focused on identifying the best long term strategic options for the company every option for Perceptron remains on the table. The five most critical strategic priorities for us are as follows.
Our top priority is ensuring that we continue to stabilize the companys financial performance, while we have made measurable progress in this regard none of US had planned for a global pandemic, creating a higher hurdle for us to clear I.
I believe we have taken all the necessary steps for perceptron to sustain its operations. During this transitional period until we actually the pandemic.
This allows us to refocus on the more strategic strengthening work that was previously underway.
Our second strategic priority involves efforts to further enhance perceptrons core technology portfolio.
Our engineering teams have been successfully meeting their internal development milestones, even while working remotely.
On balance all of our existing programs remain within a month or less of their original delivery days, representing an extraordinary achievement given the cobot 19 related disruption.
Our third priority is extending perceptrons position as a market leader within the automotive vertical well development and execution of this initiative took a backseat during the crisis. It remains critical even with the near term uncertainty that was created within the automotive sector. There is substantial untapped opportunity across the manufacturing processes at the.
I am level as well as within the supply chain. We currently remain a relatively small piece or the very large market, creating an opportunity to grow our share of wallet overtime.
Our fourth critical area of focus is to diversify perceptrons revenue base into additional growth markets such as heavy industry construction in aerospace. This initiative is also applies to keep our focus on managing through the crisis, but our efforts here have restarted as well.
Our best and final strategic priority for the company is to select the right leaders for both the CEO and CFO roles. Our board remains committed to identify and world class candidates to lead us through our next phase of growth.
We have spoken with our search consultants and believed that there remains a very deep pool of potential candidates for the positions in question.
Pandemic related volatility may work in our favor as organizational change that other companies open the door for us to add leadership talent.
Well I'll pandemic related uncertainty continues to weigh on our markets, we have taken all the necessary and appropriate actions to position our business for execution as business conditions returned to some level of normalcy again, we have a stable pipeline of business ahead of us with no material cancellations the orders our backlog thus far given this stable base of demand.
We will continue to execute on our plan positioning the company for growth as we exit this transitional period I'll now turn the call over to Bill.
Thank you Jay.
Total sales in the fiscal third quarter were 12.7 million down 6.4 million or 34% sequentially from the previous quarter and down 2.9 million or 19% from Q3 of the prior year on a sequential basis by geography sales in Asia were impacted the most percentage wise declining 53% or 2 million dollar.
Followed by the Americas, declining, 37% or $2.5 million, and Europe, declining, 22% or $1.9 million.
On a year over year basis. The majority of the 2.9 million dollar sales decline came from Europe, and Asia, each of which contributed a $1.4 million decline year over year for each region.
Currency effects negatively impacted sales by approximately 200000 in the current quarter.
Total bookings in the front fiscal third quarter were 10.9 million down 3.5 million or 24% sequentially from the previous quarter and down 2.3 million or 17% from Q3 of the prior year.
On a sequential basis by geography bookings in Asia declined 2.4 million or 51%.
Europe declined 1 million or 14% and Americas declined a modest 0.1 million or 4%.
On a year over year basis Asia bookings declined 1.4, 1.7 million. The Americans declined 1 million, while bookings increased in Europe, I point 4 million.
Gross profit at the <unk> percent of sales for the fiscal third quarter was 34.6% down 257 basis points from the prior quarter and up 190 basis points from Q3 of the prior year.
On a sequential basis gross margin declined due to changes in the revenue mix, while on a year over year basis gross margin increased due both to changes in the revenue mix and lower fixed manufacturing costs.
Turning to operating expenses engineering, and R&D expenses were 1.5 million in the fiscal third quarter, a decrease of approximately 100000 compared to the previous quarter and a decrease of approximately 300000 from Q3 of the prior year.
Selling general and administrative expenses were 4 million in the quarter a decrease of 300000 from the previous quarter and a decrease of 400000 from Q3 of the prior year.
We expect total operating expenses in the fourth quarter to be roughly 5% to 10% down from Q3 levels.
Severance impairment and other charges for the quarter were 2.8 million, an increase of 2.3 million from the previous quarter.
The majority of increase was from the impairment of 2.2 million in goodwill and intangibles.
And severance costs related to our previously announced restructuring in February.
We had a tax benefit in the quarter of 347000 reflective of certain geographies and where we expect to be able to utilize net operating losses in the future.
Net loss for the quarter was 3.9 million or 41 cents per diluted share compared with a net loss of 1 million or 10 cents per diluted share in Q3 of the prior year.
Adjusted net loss for the quarter, which excludes the impact of severance impairment and other charges with 1.1 million or 11 cents per diluted share compared with 1 million or 10 cents per load for diluted share in the prior year.
Prior year comparable period.
As of quarter end, we had $2.5 million in borrowings outstanding on our lines of credit and at 10.6 million in total cash and cash equivalents globally.
Sequentially the quarter, we entered into an unsecured loan pursuant to the paycheck protection program under the Corona virus aid relief and economic a security Act.
With that I would like to now turn the call back to the operator, who will open the call up for your questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question can you.
You me Prestart, you if you'd like to remove your question from the Kim.
Participants using speaker equipment, maybe necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line upgrade Paul.
Capital Group. Please proceed with your question.
Yeah. Thanks morning, Hope you guys are doing well.
I guess first in terms of order activity demand I'm curious how things were tracking through the first few weeks of March I'm not sure. If you have that do you know that color, but sounds like the impact of so what do you closed or.
Both yourself and I'd customers with a pretty significant impact so I'm not sure if you're able to quantify that at all.
Hi, good morning, Greg.
So, yes, I'm I'm not going to quantify it just because I don't think we've ever disclosed sort of what the track looks like during the course of the quarter, but you're right. The shutdown at facilities in some of our customers were even ahead of us as as the world's sort of globally from one region. The next to the next no question that had an impact in the even.
Before they officially shot.
We were definitely seeing pauses as everybody was trying to assess what they were going to do was this real was this something that was the impact their business yeah, they're all going through the same analysis, the but quite frankly, we weren't probably most companies work.
So that's that right clearly brought closures to a pretty quick halt during the course of the quarter, particularly in March and and I will say, we tend to be heavily loaded in the third month of a quarter I think we've talked about that before but we tend to many of our orders tend to be backend loaded and that's just driven by the customers decision making process.
Not uncommon in in the space rent either.
So when we look at the pipeline then you have some you clearly have some deals in there that arches pushes from from Q3 into fiscal Q4.
There are a large number of deals that were already in the pipeline that we had planned on for Q4 that are still active and then you have the new one bit of threaded in based on anticipated demand for Q1 of next year fiscal Q1 for us.
As well as you know some last minute ones coming that appear to be.
Real demand for Q4, that's come pop.
When you look at the customer base, what we're seeing is that for particularly the OEM level, which is where the bulk of our businesses customers who have already expended a meaningful cash on the programs that there that were underway all of those orders are moving along and tracking.
That sort of the pace, we would expect for closure dates you had said when you track against the anticipated closure date are those all seem to be tracking fine.
For newer programs, where there was less expended we feel confident with how we had handicaps our internal estimates for Q4 and for Q1.
And that's based on our history. So obviously there could be some variation to it because we don't know if history is a perfect marker at this point, but the customers of sending the rights signals, where we see you know potential gaps and it's just too soon to know is new programs. The customers were you know just starting to develop.
Starting to spend on well those get pushed another quarter or two which would be a smaller percentage very small percentage of our anticipated Q4 in Q1 activity and then you know ramps up a bit for Q2 in Q3 those are the ones, where we have some uncertainty at this point and we're trying to stay on top of on a regular base.
Just with the customers just to gauge where the where the mindset is.
Okay. That's really helpful. I don't want to put words in your mouth, but you are sort of implying that at least since quarter end.
Demand levels, you know, whether that's orders or pipeline activity. It sounds like it's improved.
Sort of sequentially on a monthly basis from the beginning of April I mean, you got through and I guess kind of what what are you seeing now that that gives you confidence that the near term will sort of continued to improve as we get into June and your next fiscal year.
Improved just probably guess maybe too strong of an adjective I would say that we definitely saw some new deals come into the pipeline. So that's if you. If we look at that we'd say is that improving sequentially month to month than I'd say, yes. We're we're starting to see some improvement many of the deals that are in there were already in the pipe even in Q3, but we weren't.
Planning to close them again based on customer demand they weren't being we weren't planning close them until fiscal Q4 or Q1 anyway.
So now what we're obviously, what we're really watching is.
Do they continue to track to the expected closure date, and we've not seen anything meaningful slip that like I said, we had one or two deals that pushed out a quarter or to but we had enough in the pipeline to offset those based on what the anticipated timing wasn't again, how how we handicap the.
Quarter, when we're trying to decide what should we bank on what should we make our purchase order yarn supply purchase orders based on.
I still feel pretty good about where we're out there.
Q4, Q1, obviously, you know everybody's going through the same thing there's it's.
It's still Merck even those we have good line of sight on everything that's in the pipe.
The real question is well they all flows and.
We feel good about everything we're hearing right now we've got a month ago. You know, we really won't know until the next couple of weeks as the PEO start coming across based on their plan timelines.
Yep Okay.
What about the competitive environment any meaningful changes that you witnessed during the pandemic and I guess you know more importantly, how do you see her child.
In addition, when we start to emerge from all this.
Yeah, I I'd say, we've not seen any change in the competitive environment. When it went quiet so to speak it sort of quite across the board. We have not seen anything where you might look at it and they did did anybody take advantage of the period to drop price or did they drop price in order to help keep themselves afloat and you know anything like that.
We've not seen any what I'd call irrational behavior in the marketplace. It's been generally quiet and on the beyond that on the deals where we know we're competing it's the same parties that we would always compete against then it's been relatively.
Consistent with what we've seen from past practice.
Yeah Okay.
I'm curious I've always thought that automation was was a key driver for some of your solution I mean, helping to replace manual inspection tools with social distant seen in the pandemic do you think that automation could become a more meaningful driver for your business or is it.
During the calendar no he's had any conversations with customers out soon.
Yeah, I think it's too early to tell I mean in concept I agree on a percent with that idea.
But I think right now everybody is literally some cases you know it's like the refining their way through the that's the restroom as they reopen their facilities. So I think it's just a little early to tell at that can become a strategic advantage over the long term.
The whole idea that we have been consistent in selling on in the past have created productivity by having fewer people involved in the process for being able to eliminate a step in the process to apply your labor elsewhere, which still creates productivity. Those are all still a real variables that come into play.
In the customers decision, making and so with this help over the long term.
As it relates to social distancing or otherwise I think it's too soon to know if that's a long term neat.
Yep, Okay last one for me thinking back to the announcement last fall strategic options. I know you briefly mentioned a search process for CEO CFO, but can you update us on where we are today, what some of the company's near term priorities are.
So the the nearest term ones up shoring up the financials and starting sort of the diverse nation the diversification path.
Are on track it will say.
As I noted in the comments you know the push into other verticals sort of hit a pause during this whole pandemic and the search itself was I would call slow rolled best during this this process you have the the you put your pay attention to fire. When you have fire and you're trying to that too many and obviously there was a large ones.
A worry about this quarter.
Next quarter.
Is giving more time and flexibility, particularly the backend now as people start opening up again, you start thinking more strategically about the business again and.
None of those priorities have changed and we do continue to look at all the past options for you know preceptor a long term.
Alright, alright, that's it for me, thanks, and good luck going forward.
Thanks, Greg.
Thank you ladies and gentlemen, as reminder, if he'd like to join the question can you. Please press star one any telephone keypad. Our next question comes from the line of Sarkis Sherbetchyan with B. Riley FBR. Please proceed with your question.
Thank you I good morning, Jane Doe.
Morning.
Warrants artist.
Hey, So just wanted to touch upon what you a ended off with the last question are there.
You mentioned in the prepared comments diversifying the revenue business one of the key strategic.
Pillars here so that's through the other verticals in an effort for restarted here. So for these other verticals would you take a bi or build approach and what would be the potential timeline that your teams targeting to accomplish.
Right. So I would say, it's both and I'll give you a little bit more caused to go with it. So if you look at metrology in total and this is all metrology the entire metrology market around the world. So were just a small piece of that but your automotive is still the largest vertical by most measures its anywhere.
Call. It you know two and three quarters, the $3 billion of opportunity per year.
The next big to ones are heavy industry in aerospace.
And they're both roughly 2 billion and we do essentially zero in those so those when we talk about why there on the opportunity list. It's the size of the market and they are both already utilizing metrology technology on a variety of forms.
In their facilities today, and they have real accuracy need their real productivity needs and as time goes by they continue to develop more and more automation needs as it relates to metrology and that's obviously, where we play.
Very well.
Get there there are I think you're gonna have to have two different paths. One is no question. We obviously lack what I'd call meaningful scale as an organization were great in automotive our team those automotive inside and out.
We are embedded with all of the major manufacturers.
Around the World and that's made the company very successful over the over time period, well, we don't as a team there's not a huge understanding the knowledge of those other two verticals. So.
What we try to buyer way in that would be one potential routes. Obviously in our current financial condition. It would take something extraordinary creative to but there are some companies that would be very interesting in that regard, but it would take the very creative financial.
Arrangement just to be able to pursue that in the near term. The other option of course is that you hire experts who had been focused on those areas and understand both metrology and speak the language within those two verticals and you start developing a path there, which obviously takes longer to thread the needle, but starts giving you some presence and.
On a in that space and that's an area where the company is tiptoed around it and tried it in years past five years ago 10 years ago, I don't think really put the right focus and effort on it.
[laughter] aerospace is a longer plot because of the the qualification requirements that you have to go through with the potential customers not just the Oems, but within the supply chain to that being said I guess like I said, they all need metrology equipment. They all had extraordinarily tight tolerances and they have productivity needs.
So both are the right answers one takes longer but is more within our immediate term capability or grasp. The other one would be much quicker, but to buy somebody right. Now obviously, we really would have to come up with a pretty creative.
Path for doing so that being said like I said there are companies there that are interesting and companies there that I've had dialogue with to gauge interest into gauge the possibility.
And all of that is of course.
Under the promise of you know if this company needs to continue operating independently what else should we be doing to eliminate some of this reliance on automotive without losing.
All of the revenue in value, we currently get from automotive so it how it all has to be incremental.
That's super helpful. Thanks for that in one more for me so how's the team balancing the need to drive technology in the current portfolio and that kind of against the cost reduction efforts you've outlined.
Yeah. So when we went through the reduction.
We did hit engineering, we hit every department and you know in a in a perfect World Engineering would be the probably the second to last place I would hit sales being the for the last place.
And that historically, that's sort of how have operated as well.
We did hit at this time and what we did was as we were preparing for a nice and downside Dumpy engineering leaders, we understood exactly what's programs, we're working on which ones held the most promise we spent time with the sales team, saying look if you had to prioritize.
Even more.
Measurably than you have in the past or in to get to the west we have now what would that looked like.
That helped us identified than where we could make cuts reasonably without disrupting.
The growth opportunity for the company and so I feel very confident that what we have on the in the pipeline right now are the mission critical and most critical for the customer needs as we see them today and for the customers that we serve today and there are several in there that are attached to technology that is easily applicable to.
Those other verticals. So we have ensured that we have if we figure out how to get into those markets. We have technology that does not need to be modified adapted or change just because it's serving you know dear, let's say our cat or.
Suppliers of Boeing.
It would not have to be modified to be able to perform the same function that it does within automotive and that's how we how we prioritize that.
Great. Thank you that's all for me.
Thank you. Our next question comes from the line of Tim with investments. Please proceed with your question.
I just ask what.
What's the technical terms of the PPP alone or in terms of when when.
The forgive ability window closes and that type of thing just wanted to see if there was some detail there.
[music].
Our.
Our current window is a it's an eight week program from the date the received the funds, which in our case was April 16th.
So that would extend that to June.
16th under the under the current program. Although there is some discussion of enlarging the time period in Congress for which.
Qualified expenses would.
Would would qualify under the program.
Following that.
The SP a have a.
Hello.
Basically an application that you would fill out.
Where you would input Youre qualified expenses, which is primarily the salary expenses. According to.
The third and calculation of.
After the.
Under 100000, only up to $100000.
Salary is can be included.
And.
And additional criteria and then there's some.
Money that a certain percentage that can be used for rent and overhead and things like that.
But.
There's also a they also take a calculation of what you're ft. U.S. based employee base is that's compare as compared to.
Quarter earlier, and a year ago period, and if it's any smaller there there is a.
I would call it a hair cut that you would you would take in terms of what's what's forgivable.
So after you go through the kind of the mathematics of it.
You would send that submission off to two to the S.P.A. and a SBQ takes roughly 90 days.
You know two to review the information.
When all and when all said and done.
It's more like a five five month kind of review period, So I I think.
As it relates to our application will be we wouldn't really know probably until September October what what amounts forgivable and what amount would constitute a long term loan with them.
I would add though bill I think I don't think you added. This so I think it wasnt your comments that we do believe that.
A meaningful majority of the loan will be forgiven based on our understanding of.
The process and how it was designed and it's important to note how important that was for us because that.
When we applied for that loan and brought the cash and there is no question that that helped avoid.
For the layoffs and furloughs within the operations in the U.S. and that would have made it very difficult to restart with the efficiency that we were able to.
Great Okay.
Okay. That's a question on the on the executive search.
You have ongoing.
Yeah I've heard you described.
The process here and I think going back a quarter to you've also.
Discussed it and it seems like a very difficult needle to spread.
Just.
I've seen many seo changes over the years and.
The Theres theres, good and bad associated with all of them in that usually as CEO that comes in wants to put an imprint on the company and usually wants to be it.
Growth mode as some kind.
And given the size of your company and the the.
Heavy amount of restructuring costs, you've taken out which has been fantastic over the past year.
Especially in a in a.
Difficult auto environment.
It's a difficult strategic box for anybody.
Yes, I'm just wondering if that feedback has come through on the process.
And how it might color type a candidate be you'd be looking for for the CEO role could also extended the CFO role.
Yeah. So I would agree first that it is a.
Now, let's say, it's difficult, but it is a.
It is let's use difficult. So it is a bit of a difficult meals thread.
Yeah. The good news is that when I look at the organization and I My experience in this space over 15 or 16 years now.
The good news as we do not have to have somebody that comes from the metrology space to be successful in the role they do need to understand manufacturing and industry in general and need to understand.
The solutions based sale and type of product they sale that we have a and with some understanding of technology in general right. So it's got it they had to at least at some of that Backgrounder experience.
From my perspective, and I believe search consultants would agree with this we're going to get either one of two types youre going to get somebody who has done this before.
And it's an opportunity for you know sort of one more success story, where they've come in and help turn the organization around or they've helped find the right strategic option for the organization and they were successful in doing so and it had that experience and that becomes valuable to us from a.
As a leader or we find somebody that is has not had their shot yet and so it's an opportunity to run a standalone company or Standalone public company, maybe they run a standalone, it's highly likely they came from say a division of a larger organization and they may be a younger more.
Risk tolerant individual who would say yeah look I understand that.
Yeah, I may get a chance to come in here and run this for the long term I may get a chance to come in here and a bigger player makes a pass them. We decide it's the right just strategic alternative and it's a short lived.
Career, but I'm willing to take that chance for an opportunity to show what I can do and I think the value that we have there is that while you would ideally have somebody who's already done this before and run a public company before.
At least at the board level with my experience you can we get lean on somebody who is new to the public market side and how to run Trulia Standalone read don't have the safety net of a larger organization to help you out when you make mistakes.
Because between myself and the rest of the board, we've got plenty of experience having done that other companies. So.
But the consultants have assured me that there are plenty of fish in the pool, and we will find the right person and but I still like I said I think it's probably one of those two Ah that we're going to it that we're going to find.
Thank you Sir our next question comes from the line of ramp guessing Neuberger Berman. Please proceed with your question.
Hey, good morning.
Morning ramping.
Sorry for the background noise.
Walking in my New office space outside.
I'd just unfortunately, I think survivability is.
You know in question here based on your.
You know your size Oh, your your end markets and just the sheer.
Visibility the there.
You guys. You've had you know here we are in June so we've had some time.
In the quarter as according later than most can you give us any sense for.
And I can't guide and don't want to guide.
Just trying to understand what sort of level of.
What are the frame and.
Quarterly cash burn or monthly cash burn.
Can you just thinking in the numbers, but you can you give us any sense for.
Hi, guys, revealing the current burn rate.
And what that might look like.
Well I would say that a with our current cash levels.
We do expect that Q4 again to be adversely affected the because of the pandemic a pretty much for the whole month of April you had a Italy and you had the U.S. that that were under lockdown on but as we look.
To the end of Q4, we don't see our cash levels declining if anything perhaps a slightly increasing quarter over quarter.
And as we look to recover and exit.
The kind of ours situation, we believe that we have an adequate level of cash and able to support our needs.
And ran to tack onto that though to Nick it points directly back to the deal sort of strategic questions. If the company is going to continue to stay as a standalone entity, you're 100% right. This focus on a market while it's not a niche right automotive is a huge space, it's way too much reliance on it.
Single industry that can whipsawed company our size every time there's.
Even a little bit of change in their space and so you know if this isn't part of a larger entity.
In this company needs to very rapidly diversify into other verticals that can help shoulder. The burden when you get sort of the effective one vertical they typically aren't moving perfectly in unison I'll say, obviously, the last quarter would be an exception to that but that's another kind of an unusual.
Situation, but that is absolutely for the long term of this company if its standalone that that is a must.
So the take away I guess is that in Q4 looking into Q1, you guys sort of feel like to the with the backlog.
And the level of or order students that.
You know you sort of you're not going to go in a significant cash burn is that fair.
Well there is cash burn from operations, but we also have Oh, we also have cash conversion from our working capital. We also have the PPP alone.
So for those I'm, just wondering though on the conversion that like if you start to.
Just a flywheel starts to go the other way right. I mean, you know you can't fill in the receivables you're probably not going.
To to pull down.
At some point.
You lose the ability to to to to harness the flywheel.
You know from from the you know the backlog in the revenues that you have as as you work down but I guess that's.
It's more of a mid.
Next year type of issue so the real the real question is how how do these you know this from this vertical has a vertical weight backup.
And for you and I guess, that's going to be an orders.
Phenomenon you know.
As we discussed this in three months and.
No. That's how you feel the pipelines picking back up.
Yeah, that's right I think particularly right well when we're doing the update for Q4 here in seven or eight weeks whenever that get set what how the pipeline has both converted in Q4 that will be obviously there is possibility at things from Q4 move to Q1, you know, there's a little bit of uncertainty there and those would not scared me as much what.
We'll really be looking for is how has the rest of the pipeline continued to develop as it relates to orders that are potential opportunities for fiscal Q2.
Enterprise starting to see some of Q3 and an unfortunate I really can't give you a good guide on that one until we get a little really you know we ourselves need another 456 weeks on that to get some comfort around how that's is it really tracking or you know was a false positive.
Okay, great, maybe but maybe one suggestion is you know as it closely you know the June quarter relatively early in July as you can give us any sort of update on the balance sheet and things that you know things that you are comfortable updating us on from early perspective, I think that's helpful. I'll give you some data points versus waiting for you know the results that come out you know.
I guess or whatever.
Okay.
Thats certainly something we'll we'll consider and ER and keep in mind ran I appreciate the of the feedback.
Great. Good luck guys. Thanks.
Thank you.
Thank you ladies and gentlemen that concludes our question answer session alternative for back to Mr. Friedman for any final comment.
Great. Thanks, very much I appreciate everybodys participation today, and we look forward to update and all of you again after fiscal Q4.
Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.