Q2 2020 Ichor Holdings Ltd Earnings Call
Good day, ladies and gentlemen, I'll walk and so I Corps second quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will be given at that time.
<unk> operator sits just turn the call. Please press star sure only telephone keypad as a reminder, this conference is being recorded.
I'd now like to introduce your host for todays conference Claire Mcadams Investor Relations.
Please go ahead.
Thank you operator.
Afternoon, and thank you for joining today's second quarter 2020 conference call.
As you read or earnings press release, and as you listen to this conference call. Please recognize that both contain forward looking statements within the meaning of the federal Securities laws.
These forward looking statements, including those made about the impact of the ongoing covidien 19th endemic on our operations in the industry at large are subject to a number of risks and uncertainties many of which are beyond our control, which could cause actual results to differ materially from such statements.
Risks and uncertainties include those spelled out in our earnings press release.
Described in our annual report on form 10-K for fiscal year 2019, and form 10-Q for fiscal Q1 2020 on file with the FCC and those described in subsequent filings with the FCC.
I've noticed in those aforementioned filings, we remind you that the Kobin 19 pandemic continues to create significant volatility and uncertainty in our industry.
Limiting our ability to provide longer term forward looking statements.
You should consider all forward looking statements in light of those and other risks and uncertainties.
Additionally, we will be providing certain non-GAAP financial measures during this conference call.
Earnings press release, and the financial supplement posted to our IR website. Each provided a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures.
On the call with me today, our Jeff Hendry Center CEO, Larry Spark our CFO.
Jeff will begin with an update on our business and a review of our results and outlook and then Larry will provide additional details of our second quarter results and third quarter Guy.
After their prepared remarks, we will open the lines for questions.
I'll now turn over to call to Jeff Andreessen death.
Thank you Claire welcome to our Q2 earnings call.
Trust and hope that all of you and your families are staying healthy I'm sick.
Today, we reported second quarter financial results at the upper end of expectations. When we provided guidance in early May we expanded the Rangers the revenue any P.S. given the level of uncertainties related to coded related constraints on our manufacturing sites.
And the global supply chain.
We noted that at the high end of the range assumes no additional restrictions on our manufacturing sites and a quicker than anticipated recover recovery of or Weldment capacity.
We're very pleased to report that easing restrictions and the rapid improvement or weldment capacity enabled us to deliver total revenues of $222 million.54 per share in earnings in the second quarter.
The global wafer fab equipment were Wi Fi market has shown itself to be fairly resilient and continues to be strong in this dynamic and rapidly changing cobot environment.
We continue to see strong levels of demand from our customers ending Q2, we achieved sequential growth in revenues as well as increases in gross margin operating margin and earnings per share.
Year to date and 2020, we have grown revenues by 59% and he asked by over 120% versus the first half of 2019.
Our foremost response priority is to ensure the health and safety of our employees and their families and our performance in the second quarter is testament to the dedication commitment and ingenuity of our workforce and delivering exceptional service to our customers. During this unprecedented in challenging times.
We entered the second quarter were shelter in place and distancing requirements and effective and effect at all of our manufacturing locations. These impacted our capacity levels. As you would expect our largest challenge was the shelter in place order on our Malaysia Weldment operation that affected most of April.
We all know these are unprecedented times, which requires certain degree of out a box thinking to adjust to the new requirements that we must follow.
We have had to redesign work flows work schedules and factory spacing within our factories in order to maximize the productivity across all of our operations.
In addition, all employees, who can perform their jobs remotely or continue to do so.
Our operational keep up the capabilities and supply chain have largely recovered from the significant constraints experienced earlier this year.
But we remain vigilant and continuing to take all appropriate actions to protect our people and safely maintain business operations globally.
I continue to be amazed by our employees and supply chain partners, who have worked closely together to keep our business operating at a high level. During these unprecedented challenges.
I want to thank our employees and partners for their incredible contributions as we navigate the impacts of co design team.
Turning to the demand environment beyond keeping our employees and their families save our second priorities.
As to maximize our output in support of our customers delivery requirements, while continuing to drive or strategic growth initiatives.
Since February we've been working tirelessly to ensure that we support our customer strong level of shipments in light of the challenges the entire industry is facing pulping capacity as well as the global supply chain.
Our Q2 guidance range assume we would continue to face these challenges throughout the quarter and output would be constrained, which in turn gave us the visibility predicts sequential revenue growth for the September quarter.
Our quicker than expected recovery resulted in revenues exceeding expectations at the high end and with continued strong levels of demand from our customers. We continue to forecast sequential growth at the midpoint of our September guidance. This outlook the equates to 55% revenue growth year over year for the first three quarters of 2012.
Got it.
About double that rate and earnings per share growth.
We will continue to have an expanded range. However.
Given the level of uncertainties and risks related to covert 19 that can change I'm very short notice and rapidly impact our business.
Nonetheless at this point, we see strong levels of customer demand continuing in the fourth quarter.
We're well on track for a record revenue year with year over year growth far exceeding that of the overall industry.
Estimate to our success in expanding our served markets and increasing our share within those markets.
Which brings me to a review of the progress that we're making against revenue growth objectives for the year.
And gas delivery, we are continuing to work with our customers on opportunities to increase their share by leveraging our global manufacturing and engineering footprint.
And Weldments nm precision machining after multiple new qualifications in 2019, we're moving forward with additional new qualifications, which we'll see first revenues in later part of this year.
Additionally, we're also benefiting from the continue to bring up.
The lithography with year over year growth in our gas delivery shipments expected for both 2020 and 2021.
Each of these factors is enabling us to achieved revenue growth outperforming the overall industry.
Another revenue growth driver will be success and penetrating new customers principally in Asia. The second the largest served market for chemical delivery is with customers in Japan and Korea.
We have added capability and capacity in our Korea operation, which we acquired in mid 2018 and in Japan. We have partnered with a value added resale reseller that is actively marketing our liquid delivery module.
We continue to work with our Korean customer that is evaluating our liquid delivery module and in Japan, we are actively and discussions with several potential new OEM customers. Both of these will position us for meaningful contribution from this region starting in 2021.
Further we continue to make progress on our strategy to lever leverage our engineering capabilities and IP portfolio to develop new proprietary products to drive longer term expansion of our share of our served markets as well as to drive the operating model towards increased levels of profitability.
We continue to invest in this area and are making good progress and the development of our proprietary next generation cats delivery solution and expect to have our first beta units delivered this year.
Before turning the call over to Larry I'll make a few com final comments related to other recent announcements.
Included in our filings today is a universal shelf registration statement for up to $200 million. This filing as a component of our strategic growth initiatives, increasing the flexibility available to us with our current capitalization structure and enabling us to be nimble and that quickly when strategic opportunities arise.
In late June we announced that we made the decision to close our plastics manufacturing facility in California.
We made this decision in order to streamline our operations and improve our asset utilization with this business.
We remain committed to our chemical delivery business and have ample capacity and other operations to address the growth opportunity. We see for this business. We're targeting to have this restructuring completed by the end of the year and are working with our customers to qualify these products that other sites.
To summarize the second quarter the team did a great job managing through the challenges we encounter as a result of the pandemic to deliver sequential growth in revenues gross margin operating margin earnings per share and while making good strides against our strategic growth initiatives.
We continue to operate in a strong demand environment have outperformed the industry growth with a 59% year over year increase in revenues to date in 2020, and with our current visibility or forecast in second half revenues to be stronger than the first half.
The longer term growth drivers for fluid delivery, serving critical semiconductor processes, such as etch deposition and CMP remain firmly intact.
Ill now turn the call over to Larry to provide an update on our financial performance and outlook Larry.
Thanks, Jeff.
First I would like to remind you that the piano metrics discussed today, our non-GAAP measures unless identify the measure as GAAP based.
These measures exclude the impact of share based compensation expense amortization of acquired intangible assets nonrecurring charges and discrete tax items and adjustments.
There is a very useful very helpful schedule summarizing our GAAP and non-GAAP financial results, including the individual line items for non-GAAP operating expenses, such as R&D and SDMA in the Investor section of our website for reference during this conference call.
Second quarter revenue were $222 million up slightly from Q1 and up 59% from the same period last year as Jeff mentioned, the high end of our guidance range for the second quarter assume no additional restrictions on our manufacturing sites in a quicker than anticipated recovery of our well Mick.
Bassi, we actually came in above the high end of the range in revenues due to strong execution in a challenging operational environment.
In spite of these challenges we reported our fifth straight quarter of sequential revenue growth as customer demand has remained strong.
We also achieved sequential growth in gross margin operating margin and earnings per share gross margin for the quarter was 14% up 20 basis points from Q1.
We continue to face a number of cobot 19 related headwinds impacting gross margin in Q2, such as increased freight and material sourcing costs as well as costs associated with ensuring the health and safety of our global workforce.
These higher costs impacted second quarter gross margin by about 100 basis points consistent with our expectations discussed in may.
In the current operating environment, we expect these costs to come down a bit with the gross margin impact it moderating to approximately 50 basis points in Q3.
Operating expenses came in as expected at $14.5 million down slightly from Q1, and we expect to remain around this level through the second half of Twentytwenty.
Operating margin improved 30 basis points in the quarter and operating income was up 5% over Q1.
Our interest expense in the second quarter declined to $2.3 million and our tax rate increased slightly to 11.5 per cent compared to 10.2% in Q1.
Our planning rate for tax over the next couple of years continues to be in the range of 10% to 13%.
With revenues just above the high end of the range, a 20 basis point improvement in gross margin and relatively stable expenditures EPS of 54 cents was at the high end of our guidance range.
Year to date growth and earnings per share has doubled the rate of our revenue growth.
Now I will turn to the balance sheet.
We ended the quarter with $57 million of cash compared to $42 million last quarter. The increase in cash was primarily due to increased borrowings on our revolving credit facility with our total debt balance up $23 million over Q1.
We generated approximately $15 million of cash from the PML. During Q2, but this was offset by a significant increase in receivables that resulted from the upside in revenues occurring late in the quarter. As a result day sales outstanding increased to 43 days from 36 days in the prior quarter and.
Inventory turns declined slightly to 5.2.
We're very focused on ensuring adequate liquidity support projected long term business growth, we're comfortable with our debt levels and capitalization given our current outlook was 64 million of EBITDA over the last 12 months, we are well below our three times coverage covenants at the current debt balances Eva.
And with the increased debt level, we have secured more favorable terms and expect interest expense to decline in the third quarter.
All the revolver gives us significant flexibility the S. Three shelf registration statement filed today will offer us additional optionality, enabling us to be more.
Enabling us to be up opportunistic with strategic growth initiatives and improve upon our current capitalization structure.
Now I will turn into our third quarter guidance.
With revenue guidance in the range of $210 million to $240 million our earnings guidance of 50 to 70 cents per share reflects an improvement in gross margin and a similar level of operating expenses compared to Q2.
We are forecasting interest expense declined about two to about $2 million per quarter, and our full year tax rate to be around 11%.
We are assuming approximately 23.5 million diluted shares outstanding for the third quarter.
Given that we're operating in a dynamic and rapidly changing environment with continued cobot related restrictions and constraints in place we expects to face some level of gross margin headwinds for the foreseeable future that being said, we anticipate sequential improvement in gross margins again for the fourth quarter.
Our historical gross margin flow through as in the low twentys and the longer term goal remains to drive greater gross margin accretion through incremental cost reduction programs growing our share within higher margin components markets and increasing our content of proprietary IP within our products.
Operator, we're ready to take questions. Please open the line.
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For participants using speaker equipment, it may be necessary to pick up your head simple personal start keys, one moment, please do call for questions.
Our first question comes a lot of Quinn Bolton with Needham. Please proceed with your question [laughter].
Hey, guys. Congratulations on the nice results and outlook, Larry just wanted to start with your gross margin comments, you said that the coveted related impact should decrease right about 100 basis points in the second quarter did totaling 50 in the third quarter. So should we be thinking yeah with revenue levels roughly flat quarter.
During the quarter that gross margin in Q3 somewhere around 14.5% or are there other mix mix related or operational efficiencies that could drive a better than fortune and half percent gross margin.
I think we'll be in the range of as you mentioned around 14 a half.
Okay, great conviction is significant.
And I guess kind of looking back to the to the 2018 peak gross margins. So probably a couple hundred basis points below the levels you were able to achieve in the last cycle can you can you give us any sort of sense. What's changed is it you know the sort of overhang. So on some of the plastic pure the.
Liquid cited a business that the different just just try and should we still be thinking longer term you can get back to kind of a 16, 17% gross margin I'm, assuming that low twentys pull through on incremental revenue.
Well take when I'll start.
Thanks that.
We've talked about this before as we've added some capacity since the prior peaks. So that that has some effect on the gross margin not being able to get back till we cross those revenue levels up.
50 million or something like that so thats part of it we do have some headwinds I think in.
Plastics is a business that hasn't ramp for us we're working to make that a much more efficient operation at this stage working on other gross margin initiatives. Obviously, we have some headwinds that will work themselves out as we get through this pandemic and I would fully I would I would not be happy if we went back up those two.
200 basis points by the time, we can get worked through some of this stuff in the next several quarters.
And the only other thing I'd add is some of the share gains that we added in the last year.
We're in the integration area, which as you know, it's traditionally lower margins than the kind of aggregating the company. So.
Hey, if that act, yes, yes, let's take a long term I want to change that that mix.
Little more heavy in the Weldments and the juices machining and that'll give us more of a tailwind there.
Great and just maybe last question for me with the revenue ramping nicely. How you guys filling on just overall capacity revenue capacity for the facilities you feel like you've got the rates infrastructure in place or do the job to start adding incremental manufacturing capacity. If the cycle continues into 2021, which it certainly looks like it well.
Well, we added some that were still that is a adequate to handle what we can see for the foreseeable future. We do have plans in place.
And we can quickly turn on incremental capacity and under six months. So you know I would say.
The belief in the in the marketplace today is that the second half obviously is going to me as stronger WSE environment than the first half of the year with memory is starting to improve and 2021 seems to be a year, where we'll see growth on top of 2020. So I think we're in good shape at least through the next year so with cups.
Pass city and they won't take much in Capex to increase that you know if we need to.
Great. Thank you.
Yep.
Our next question comes a lot of Cindy.
With Deutsche Bank. Please state your question.
Great Thanks, and congrats Sunday good execution.
My first question as you talk about strength likely will continue into Q4. This call is that a couple of questions. Here. One is that a typical visibility for you guys. Given you a relatively short lead times or is it just because the backlog is just building longer lead times at least stretch and the second part of that question can you talk about what areas do you see strength.
Into Q4, what is foundry logic for this memory and maybe how does that compare to what do you expect maybe a quarter ago. Thanks.
So Q4 visibility we typically get.
Really good visibility for three months in pretty good Phil visibility Directionally for six months.
From our from our customers. So that's that's where our confidence comes in addition to the.
We do see.
Memory recovery, we were not the best ones to ask about this but we do have enough visibility into the memory space now that we have a Korean operation that we can still see.
Memory strengthening, albeit a lot of what's going on now our tech techno transitions incremental layers and threed NAND in one or one X Y and one why that will disease that we can see there. So there there hasn't been a bunch of the wafer starts that we see increasing in the second half, but we.
I do see that being a stronger and still a solid solid foundry logic.
Market, even though it will come down a little bit from the front half.
Okay. That's helpful. Maybe I follow up question as I know on the gross margin side I know a lot of interest for the near term gross margin treachery, but have you kind of look beyond this co that.
Issues focusing on the longer term.
I think it Apache Taco at various components that drives the gross margin accretion can you kind of help us rank order one of the biggest drivers outside outside of maybe just revenue growth is it the at the cost reduction program. You talk about is at the high margin decision with its the products off like the higher proprietary IP maybe.
And I put a timeframe you next 12 to 24 months.
Yes.
We're obviously focused on growing the components side of the business, which we've talked about having higher.
Incremental margins than.
And the the average of the company.
And so we're focused on continuing to grow those games shares in that particular area. We're streamlining our plastics operation that will help we have continued cost reduction.
Programs inside the company and that will drive it and so I I would imagine that.
On the the streamlining of our plastics business the bulk of that we'll probably see the benefit of that happening.
In 2021, but we'll see some effect of that and we have other plans in place this quarter.
I mean this year for gross margin improvements that will help us continue to drive the margin up and then hopefully in 12 to 18 months, we're back to more normalized.
Revenue levels, I mean margin levels.
Great. Thank you.
Our next question comes on line of Chris <unk> with Cowen and company. Please do with your question.
Hi, Thanks for taking my question two of them, Jeff can you do see a little bit about this trend do you see well you get products line is it mainly god.
Is it across the board can you just give some color on that.
Yeah, It's a it's generally across the board I think as I as I was talking about where you know, we like dep and agile lot CMP as well. So I think we're seeing a lot of strengthen those particular types of applications. So we're seeing a you know what we can see as a bit of a stronger memory back half.
In the front half, although it was not not too bad in the front half as well and then foundry logic. So it is across the board for US we're seeing growth in all all of verticals of our business.
Got it has got a that's really helpful. And then you kind of said that didn't have any kind of traction on the coty and semi cap Williams as the calendar 21 story.
Do you think you'll get equal opportunity both nandita good mainly be one most of the other with some of the Cody in semi cap them.
Well I think today, we're primarily exposed to a threed NAND.
We hope to to work with their customers got exposure in both Threed NAND and DRAM, but at this point. That's when you look at our revenue stream in Korea, which is relatively small it's mostly focused on threed NAND at this particular stage, we're working to.
Qualify illiquid delivery model, which would go on a cleaner I think that will get us access to a DRAM space and then we're also working with the other Oems there on a deposition.
Gas panels were primarily on the upside there. So we're working across probably three or four of the local Oems now.
Okay and again, it's a 2021 story for us so.
Got it.
Okay.
Our next question comes on line of Mitch Steves with RBC capital markets. Please proceed with your question.
Hey, Thanks for taking my question I had two at the first one is just really rich I going back to the gross margin question here, you're talking about kind of improving revenue trends going forward of gross margins being up in December September. So we're going to thinking about this if revenues continue to go up and you had a plant closure as well shouldn't you see kinda operating.
We ended up faster rate, so you're going to see more leverage off the operating margin line or am I thinking about this incorrectly on a go forward basis.
Yes, So I think the simple answer is yes is is we streamline and operation.
I would tell you it's not a very large operation per se I mean, it's a.
You've probably seen the 8-K on it you can kind of size from the head count I won't repeat it on the conference call, but it's not.
Real real big but it will have a positive effect and we're trying to also see the growth in the components business start to outgrow certainly early part of the year, we were seeing a faster pace of growth and gas panels and now we're hoping that the components business catches up, particularly as they start to add some inventory onto their books, which we've seen a.
A little bit of so far.
I understood in the second one is just the move to high Tech it seems like more and more companies kind of pushing to bleeding edge. So does that change any of the value proposition for you guys. So if they sell higher and semi cap equipment you guys. So into their wouldn't that increase the ASP is or the content do you guys are their value of the Cox you guys are getting.
Or is it not really the case at the higher end solutions would be value out for you know I think I think when you look at the newer higher end solutions I think what you're going to see as there's more and more gases use per gas panel that will drive incremental ASP for us.
And the number of gas is so with the gas you have yoga flow control or et cetera, and all the components together with us and so it will drive incremental.
ASP for us over the long haul I, how how to size that I couldn't tell you stop in my head right now how many new gas is but I do know with some of the more advanced.
Semiconductors that are being manufactured today, they are using more and more gas is for gas Pam.
Just to clarify there a quick so if you know the number of gas panels or gas valves were afraid 20 years in the higher end can you maybe give us what.
That ASP would be versus kind of us more standard unit I'm not sure I was afraid that I'm not looking for the exact mix because that's pretty much impossible to expedite the what's the Caspian das different than the content.
Yeah, I think thats pretty hard for us to just give you a range there because it would depend on how many gas is if there had one or two it's it's not going to be a tremendous.
ASP increase in absolute dollars, but it does it digits varies by deposition application and each one of our OEM customers. So it's a little little tough to give you a ASV guidance on on that particular.
Question.
Okay. Thank you.
Yep.
Once again, if you would like this question. Please press star one on your telephone keypad. Once again, if you were just a question. Please press star one what are your telephone keypad. Our next question comes on line of Tom Diffely with D.A. Davidson. Please proceed with your question.
Yes. Good afternoon, maybe another question on the closure of the classic facility was that driven at all by demand either being less than you thought or geographically different than you thought it was a purely just a cost savings restructuring program.
Well I think there.
The answer is it's a little bit of the ball I mean, the that part of the business wasn't scaling is quickly is or the other gas delivery versus chemical delivery. We looked at the capacity that we have we manufacture plastics.
And for sites and so we had enough capacity such that we could Oh go ahead and make the decision to close this between now and the ended the year and work to move those products into other facilities.
Okay, and then Jeff what do you think you guys are as far as the easy rollout goes for gas power levels to your company are you still in the early innings are you getting close to kind of a steady state.
No I think we're where we have.
We're obviously, we do the low pressure gas delivery for a every viewed tools. So whatever ones are getting manufacturer, where we're on each and every one of those were probably now working on at least three.
Of the.
Types of products that they have 34 36 5000, so we continue to work closely with our customer there.
Okay and then finally has many of the Commerce Department rulings impacted your discussions will.
Create a Japanese suppliers as far as not wanting to have less content.
No not of any significance, yet obviously, we read everything you guys read and there could be maybe a net benefit to some of the local Korean Oems, but I think when it comes to more advanced applications I think they still have to rely on our our other larger customers.
Okay, great. Thank you.
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Our next question comes a lot of Craig Ellis with B. Riley. Please proceed with your question.
Yeah. Thanks for taking the question and congratulations on the nice execution.
Hi, Jeff Denbury. My first question was just clarifying gross margin. So I think what I heard is that gross margins will rise in the third quarter and in the fourth quarter and is the fourth quarter rise really are the last step hundredish basis points of Copel headwinds coming out of gross margin or.
Is that something else, that's driving the sequential gross margin improvement.
I think theres, a little more of some of our cost improvement initiatives in the fourth quarter.
And I'm, a little bit of product mixes we.
Ship, some more of machining and components business at least that's our expectation co coal bed I think until we see a change in the distancing requirements and the restrictions in the cleaning extra cleaning we do we have to do today I think that's gonna be with us until that.
Situation changes.
Makes sense, thanks, Larry and then a.
A large U.S. manufacturer pushed out a seven nanometer project time.
Admittedly it was planned for next year or so it's always away, but what if any impact is there I corp. from that move.
Well I think that Theres, if there's an impact other than to the amount of equipment sold by our customers. I mean, we obviously will feel some sort of impact that I guess the question really comes I think the underlying question is does that migrate somewhere else and is it just a timing delay.
I think the underlying demand products is there.
Got it got it and then lastly, guys. It just on on the filing today, so nice to have that incremental 200 million up flexibility, but what was the specific trigger for doing. So now is that that you feel like you have enough demand visibility, but being able to move strip.
Strictly as much more feasible is that something that you see a with the opportunity set just if you can help fill in what the driver is Tibet current timing that would be appreciate it. Thanks guys. Yeah. I you know I think I think it's just something that the that company is been discussing for a period of time that we wanted to come.
Is that are putting a shelf out there just to ensure we had some flexibility should there be a.
One opportunity that we couldn't fund either from ongoing cash generation or the revolvers that we had today and other kind of optionality to our capital structure. So I wouldn't read much into the specific timing on this other than you know we generally have some strategic.
Eric discussions at the board level and that decision was made here recently.
Got it thanks, Jeff.
You bet.
Our next question comes a lot of Patrick Ho Stifel. Please state your question.
Hi, Thank you very much and congrats on a nice quarter, Jeff I apologize if you've gone through is a a few times already but with the gross margin is that where there are today and some of the improvements you see on a going for bases in terms of revenue growth being a contributor.
What are some of the other key variables that are weighing on it today that you can I guess drive all helped improve upon are there anything you you're doing you mentioned I guess, the plastics restructuring and things of that nature, but what are the efforts can you do internally to get gross margins are up about.
200 basis points, you know as you go or no forward.
Well I'll start and then maybe Larry can finish up I think on on the product side. We're we're trying to drive the growth in our components business and in the at the initial phases. This particular ramp that we're seeing we've seen our gas panel business outgrow our components business to some degree that'll normalizes as we start to see.
The you know inventories recover in our customers and and we saw the little bit of that but largely any kind of inventory growth that we're seeing in our customers today is probably a little bit more around.
Just the timing of everybody's recovery.
Cove. It so we're going to drive incremental higher margin product growth.
Obviously, we've done something on the plastic side from restructuring, we're driving other internal cost reduction programs.
And so we'll we'll we'll see some improvement quarter over quarter and and we continue to just drive at relentlessly within a within the company and with that maybe it's Larry has any other comments.
No I think as you mentioned the product mix I mean, the new products, whether it's new gas power next generation gas valves other things that those.
<unk> to the extent, we can get those qualified and in the revenue mix I mean, that's that's probably the biggest.
Long term.
Kind of strategic move it said, it's a 2021 move but a that's that that's going to be a one of the ones that Jeff didn't mention.
Great. That's helpful and maybe Jeff has a follow up question in terms of some of the easy lithography opportunities are you described in the past as your customer there migrates to its next generation system and eventually to the high end Ace systems.
How much more I guess content or.
You know given some of the vacuum capabilities that are required in those systems, how much more content do you believe you can increase as they move upon how you guys. They move into those next generation systems.
Well, what I I mentioned, a little bit earlier is that we're we're working we're delivering.
On every movie tool that they ship, we have the low pressure gas, there's a high pressure gas that's a little bit of something it takes a lot more engineering in a different type of expertise that we have because of the levels of pressure versus low and high pressure. So it's a long term opportunity, but on the near term opportunity there's other.
You mean parts and Weldments that we can probably focus on there, but that would versus the ASV of the gas distribution system, which is as you know significantly higher than you know process tool or an edge tool just because of the sheer size and complexity of what we're doing for them but.
It will as they get more sophisticated we're seeing some ASP appreciation, but not very much.
Because that that unit isn't changing.
Dramatically with each generation.
Great. Thank you very much.
Okay.
I'm.
We have reached the end of my question answer session and I would like to turn the call back over to Jeff Anderson for any closing remarks.
Thank you for joining us on our call this quarter I'd like to thank our employees suppliers and customers for their support as we manage through these challenging times, we look forward to updating you again on our next earnings call in early November in the meantime, we were scheduled to participate and the virtual conferences hosted by Needham next week and by city.
And Deutsche Bank in September, which will be available via webcast on our IR web site, operator that concludes our call.
This concludes this concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation I think a wonderful day.
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