Q3 2020 Coherent Inc Earnings Call
[music].
Good afternoon, and welcome to <unk> third quarter fiscal year 2020 financial results Conference call. All participants will be in listen only mode should you need assistance. Please ignore conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask the question. We press Star then one and Touchtone phone.
To withdraw your question. Please press Star then too.
Please note. This event is being recorded I would now like to turn the conference over to introduce Brett Demarco Executive Vice President and General Counsel. Please go ahead.
Thank you down the hill and good afternoon, everyone. Welcome to today's conference call to discuss coherence results from its third fiscal quarter into July 420 20.
All this year coherent hope that you and your family are staying healthy unsafe during these challenging times.
On the call with me are Andy Madis, our President and Chief Executive Officer, and Kevin Plotnik, Our executive Vice President and Chief Financial Officer I.
I would like to remind everyone that some information provided during this call may include forward looking statements, including without limitation statements about coherence future events anticipated financial results business trends global economic trends and the expected timing and benefits if any of such trends. These forward looking statements may contain such words as proof.
Correct outlook future expects will anticipates believes in tens or referred to as guidance.
These forward looking statements reflect beliefs estimates and predictions as of today and coherent expressly assumes no obligation to update any such forward looking statements.
These forward looking statements are only predictions and are subject to substantial risks factors that could cause or contribute to such differences include but are not limited to risks associated with the recovery of global and regional economies from the negative effects of cobot, 19, and related private and public sector measures global demand acceptance and adoption of our proud.
Mix, including but not limited to adoption of OLED displays the demand for and use of our products and commercial applications continued timely availability of products and materials from our suppliers, our ability to timely ship, our products and our customers' ability to accept such shipments worldwide government economic policies, including trade relations, but.
In the United States in China, and other risks identified in the company's SEC filings.
For a detailed description of risks and uncertainties, which could impact. These forward looking statements you should review coherents periodic SEC filings, including its 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 Madis, our president and.
Chief Executive Officer.
Thank you Brett and thank you to everyone.
Blending or earnings call today.
This was my first full quarter at year end and as you can imagine.
I'm still on the steep learning curve about our company.
Customers, our product portfolio and our people.
I had never imagined how much one can actually get done in a solely virtual worlds.
I must say I'm extremely excited to see how all our employees are actively embracing the normal of either getting business done remotely.
All working in our labs and manufacturing sites, but its hearing to our strict stay safe and healthy foods.
I'm pleased to report that both the number of active cobot cases, as well as necessary corn teams and our workforce were de Minimis.
Under the leadership of our Kogut steering committee, we have been able to safely ramp up our manufacturing readiness from some 80% back in April two over 90% to date.
Looking at our top line, we were able to improve our revenues sequentially from last quarter.
Although our book to Bill ratio dropped below one as we saw the effect so cobot slowing demand several end market.
To add a little color.
Three was the first quarter that was fully overshadowed by coated with substantial headwinds as most of Europe and the U.S., we're under shelter in place orders.
This impact was seen much more of the booking side than on the revenue this site.
On average our proposal activity level in Q3 was more than 10% below the previous quarter.
The month of April Mark the low point with proposal activity more than 40% below Q2 average.
We are encouraged to see that both June and no July proposal activity rebounded to levels North of the Q2 Ed rich.
To be clear when I say proposal I'm, referring to.
Two quotes arch queues ours piece and similar activities.
If we do not experience another shelton place environment in the months to come this should be an early signs of recovery that could manifest itself in our Q1 bookings.
Now, let's take a closer look at our market segment.
Starting with micro electronics as you know this market is made up of three sub market.
Flat panel display.
Semiconductors and Ipi.
All three markets have been impacted by cobot 19, but there are bright spot.
In quarter.
Let panel display revenue was aided by increased linebeam shipments destined for Chinese customers.
Fab utilization by our customers was still down in Q3, and our corresponding service revenue was off for a second quarter in a row.
More than 20% from or pre cold good run rate.
However, we experienced strong service bookings, which together with consistent reporting higher fab utilization in July bodes well for increased service revenues in the future.
Reports of many new Fiveg and flexible OLED enabled smart phone launches in the next quarter's gives us confidence that the recovery should be sustainable as these products are expected to drive an upgrade cycle.
If you look at the micro electronics market more broadly we continue to capture a mind end market share in the laser lift off technology for flexible OLED, but are you viewed late 750, which continues to outperform our solid state lays a competitor.
And we have one significant repeat ultrafast business in Korea related to flex a little old at cutting and ultra thin glass for full doubles.
Semiconductor inspection remains a bright spots with a strong demand across all notes driven by strength in cloud computing and data centers.
Our fiscal Q3, so a historic high demand.
In advanced packaging and interconnect.
We see five key driving increased demand in smaller geometry, and next generation PCB, which is driving strength in our COO two laser via drilling business.
We are well positioned with China's leading equipment supplier, who appears to be taking share from the historical industry leader.
With consumer spending in habits worldwide being impacted by cobot.
I would expect to see a somewhat quicker recovery for mobile electronics compared to big ticket items, such as for example cars.
We therefore expect faster recovery across micro electronics.
Then we would put materials processing.
Looking at materials processing machine tool demand remains depressed, especially across Europe and to a lesser extent the U.S.
Bookings are down more than 25% from pre coded levels.
This trend already started in the German automotive sector before the pandemic.
But has been exacerbated by the impact of cold it.
With our recently announced exit from the commodity kilowatt fiber laser business, we chose to have a more limited participation in the China materials processing market.
However, we continue to see strength in non metal applications, such as converting medical device manufacturing and speciality semiconductor marking.
We expect a slow recovery in the overall European U.S. marketing welding and cutting markets given the big ticket nature of the sector.
But we are using the opportunity to reach June and in this in our industrial systems and components sales organization and head of some key new product launches, which we believe will position us for share gains even in a relatively flat market in our upcoming fiscal year.
Our OEM components and instrumentation business is made up of three important sub markets lifecycle instrumentation.
Medical diagnostics and therapeutics and defense.
Lifetime is down more than 15% from pre Kobin run rate as many noncovered related research labs have been close.
This was partially offset with reasonably robust demand for clinical applications.
In the last few weeks, we've seen some upturn in sales activity, which feels like the beginning of the recovery, but we need another month or to verify if this is truly the case.
In medical Therapeutics, we definitely experienced an upturn and theres activity as pent up demand for mainly elective procedures starts to rise.
Similarly, we see many research scientists now returning to their lapse and the proposal pipeline for sales and ultrafast laser research and ground based astronomy looks robust after a very weak Q3, when few lapse were open.
As part of the OEM components and instrumentation and market. The sense is emerging as an attractive stuff market for us where we are very well positioned in amplifiers for directed energy counter measures as well as speciality optics for aerospace.
And continue to see strong bookings.
We see this as a multiyear growth opportunity and will expand further and our plans in this market in future calls.
Early in the pandemic, we recognized the need to enhance our go to market approach as the world around us is changing at an unprecedented pay.
As announced yesterday it was therefore that for the first time in our history. We added the position of the Chief marketing officer to the executive staff.
With David GE I'm excited to welcome a digital marketing expert to coherent.
Upscaling, our leadership builds on multiple levels is one part of our good to great initiative that we launched in Q3.
Operationally excellent increased efficiencies and best practice sharing across all parts of our global organization is another important pillar of our good to great transformation.
And is therefore that I ask Mark Sobi, our chief operating officer to oversee both our eye or less and less business unit.
One area that clearly underlines the fact that operational excellence as a team sport and requires ongoing and continuous improvement on all levels of an organization is cash generation.
And therefore very excited to report that as a company our focus on cash is starting to manifest itself in a noticeable improvement of our cash position from Q2 two Q3.
And with that I'll turn the call over to Kevin.
Thanks, Andy today on her summarize fiscal third quarter, turning 20 financial results then moved to the outlook for fiscal Q4.
Ill discuss primarily non-GAAP financial results and ask that you refer to todays press release for a detailed description of our GAAP results as well as a reconciliation between GAAP and non-GAAP financial results.
The non-GAAP adjustments relate to stock based compensation expense.
Position of intangible assets restructuring costs related tax adjustments and tax adjustments for stock based compensation.
The full text of today's prepared remarks, and trend as GAAP and non-GAAP supplemental financial information will be posted on the careering Investor Relations website.
A replay of this webcast will also be made available for approximately 90 days following the call.
Fiscal third quarter 2020 financial results for the company's key operating metrics were total revenue of $298.3 million non-GAAP gross margin of 33.1%.
Non-GAAP operating margin of 5.9%.
Adjusted EBITDA of 9.6% and non-GAAP EPS of 52 cents.
Total revenue for the fiscal third quarter was $298.3 million and came in at the high end of our previously guided range.
Although we were high in the range sales were negatively affected by covert 19.
We estimate the impacting revenues was approximately $9 million to $10 million during the quarter.
Our revenue mix by market for Q3 was microelectronics, 48% materials processing, 27%, OEM components, and instrumentation, 18% and scientific and government 7%.
Geographically Asia accounted for 54% of revenues in the fiscal third quarter, the U.S., 22% gear up 19% and rest of world 5%.
Asia includes two territories with revenues greater than 10% sales.
We had one customer in South Korea related to large flat panel display manufacturing that contributed more than 10% over fiscal third quarter revenues.
Revenue from other product and service for the fiscal third quarter was $97 million for approximately 33% of search.
Other product revenue consists of spare parts related accessories, and other consumable products and was approximately 20% of sales.
Revenue from services and service agreements was approximately 5% ourselves.
Total service revenues were virtually flat sequentially for the bigger rebound in display offset by decreases in materials processing.
Fiscal third quarter non-GAAP gross profit excluding stock based compensation costs intangibles amortization restructuring was approximately $99 million.
Non-GAAP gross margin was 33.1% for Q3 and came in above the midpoint of our previously guided range due primarily to a stronger mixes are either late tools, partially offset by higher manufacturing costs related to lower volumes.
Non-GAAP operating expenses decreased by approximately $1 million. This resulted in a non-GAAP operating margin of 5.9% for the fiscal third quarter in came in above our previously guided range.
Adjusted EBITDA was 9.6% in fiscal Q3.
Turning to the balance sheet, none unrestricted cash cash equivalents in short term investments were approximately $421 million at the end of fiscal Q3, an increase of approximately $52 million compared to the into last quarter.
Given our focus on cash preservation. During this continued period of relative uncertainty in the global economy, we did not repurchase any shares in Q3 pursuant to our current buyback authorization.
We also did not make any voluntary payments against our term loan at the end of fiscal Q3, the outstanding amount under the term loan in U.S.C. was approximately $406 million.
Accounts receivable Dsos 60 days compared to 62 days in prior quarter. So net inventory balance at the end of fiscal third quarter was approximately $449 million decrease was $8 million, resulting from our continued focus on optimizing our inventory balances and increasing our turns.
Now I'll turn to our outlook for our first fourth fiscal quarter of 2020.
Revenue for fiscal Q4 is expected to be in the range of $290 million to $320 million.
You'll note that we tightened the guided range as a result of our improved visibility and certain end markets. We.
We expect fiscal Q4, non-GAAP gross margin to be in the range of 34.5% to 38.5%.
Non-GAAP gross margin excludes intangible amortization of approximately $2.3 million and stock compensation costs estimated at $1.2 million.
Non-GAAP operating margin for fiscal Q4 is expected to be in the range of 6.5% to 10.5%.
This excludes intangibles amortization estimated total of $2.9 million and stock compensation expenses, a total of approximately $13.2 million.
Other income and expense is estimated to be an expense in the range of $4 million to $5 million.
We do not include transaction gains and losses related to future changes in foreign exchange rates than our aligning outlook.
We expect our fiscal Q4 non-GAAP tax rate to be in the range of 20% to 21%.
And finally, we are assuming weighted average outstanding shares approximately 24.3 million for the fiscal fourth quarter.
I'll now turn the call back to the operator, Danielle for acute and as such.
We'll now begin the question and answer session to ask a question you May Press Star then one and you touched 10 pounds.
We are using his speakerphone, please pick up your handset before passing the keys.
Lets try your question. Please press Star then tail.
At this time of POZEN Emmet, Kelly just Hamilton roster.
The first question comes from Jim Appreciating and Needham and company. Please go ahead.
Hi, Thank you good afternoon, I asked if I heard you correctly I think you said the book to Bill was below one for the quarter and then some of which clearly I guess is the result of.
Well, there, but I'm wondering if.
You can talk a little bit about.
How the book to Bill might have varied from different sectors. For instance is there any color you can give us on the.
Activity.
In the display market, where there's clearly some build out but theres also some puts and takes about things being pushed to the right.
Hey, Jim has Kevin.
Hi.
[laughter] doing.
So listen we did say that book to Bill was less than one.
It was pretty much across the board against all of our end markets micro electronics materials processing et cetera.
You know, we haven't called out display.
Specifically in a couple of years, you know in terms of bookings or book to Bill the reason backlog.
We do that once a year or do you know after the K. So let me let me just say that across the board we were less than less than one there were some bright spots as you heard in Andys prepared remarks, well good friends with strong some bio medical stuff was the strong materials processing generally was.
It was weak very weak.
And let me leave it there.
No that's helpful. Kevin I appreciate that and just a with respect to [noise].
The display business you have the service business.
The question I have is is you called out utilization and clearly that's a factor, but if we look at the overall service business is there anything else going on within that display related.
Service business that potentially suggests that maybe customers are finding a way to utilize the lasers more efficiently where we're not seeing this kind of recurring revenue that maybe we would have thought otherwise.
[noise], Jim it's a very very very small factor there are always improvements in process that the yield a little bit more what we've got flashes for the tubes, but frankly, it correlates much much stronger the two utilization.
And if we look back in time to the April may timeframe.
Frankly utilization was down we have seen a pick up.
In the last month or so as you know.
Companies start to gear up for the full set of phones and the early spring sort of phones by two of the no major handset manufacturers I'm. So as we look forward, we do expect a bit of rebounded display as I mentioned that we saw a little bit in the current quarter was more than offset by a materials cross.
At the same but as we look ahead services should be on the rebound path.
Got it last question, which made I'll jump back in acute Andy when you joined you talked about and it's early days. When you first on did you talk to that in broad terms.
Well focusing on markets where.
You think you have the potential to be either number one number two and I wonder if you could talk a little bit.
About a <unk> you know if you can add a little bit more to that narrative that discussion about how you see the portfolio, possibly evolving.
Right.
As you also recall, we said we wouldn't give more color.
On that at the after the close of the fiscal but just kind of where we are and what.
We're.
Well the Windows is blown right now I mean, it's clearly for some of the key markets and it's definitely displays that's that's OLED and whatever other next generation displays there are on the horizon that the whole lays the lift off market semi is a very strong in a place for us.
On the scientific as a strong market for us to go on the materials processing. We're gonna be ended devices, we're going to be very focused we life, we like medical that life science. So we'll.
Take markets, where we have a very strong saddling, we like marketing, especially speciality marketing and then we like a lot of the non metal.
Cutting and handling businesses and then as we said early on the call in our prepared remarks defend.
Starting show up on our radar screen as a truly attractive opportunity for many years to come but you've got to give me a few more weeks to work through that before we can squawk, a little bit more about that.
Okay Fair enough. Thank you I'll jump back in the Q.
Thanks, Jim.
The next question comes from Tom O'malley of Barclays. Please now.
Hey, guys. Thanks for taking my question I just wanted to look at the September quarter. Obviously, you start there was about 30 million headwind from coven coming into June and it only impacted you think you said 9 million and looking at September you're seeing some sequential growth at the midpoint.
But can you talk about the different levers that are getting you to that growth clearly if you take the lower base.
You need some high sequentials to get there, but with the but the better numbers what came in a little bit weaker into September whats improving to get you to that bid for industrial fives.
Tom It's Kevin Yes, so you're right at the midpoint call it three or five up 7 million or so and for 7 million, it's a myriad of things within the business.
Suffice to say, we're still a bit cautious as we look forward. There's been a lot of talk in California about potential shutdowns put the resurgence in such an that may spread across the U.S. So you know we believe the guide reflects some of that uncertainty.
But for the 7 million increase at the midpoint, it's a myriad of small things.
And our you quantify any covidien pack for the September quarter, or you just building that into the guidance.
We've built a little in the guidance, but we'll talk about after the fact, when we have a better better view looking backwards.
Okay, and then and then my follow up is just in the materials processing business.
Walked away from some commodity business and you describe some moving parts and the preamble, particularly the strike the non middle applications.
But that segment really isn't down as much as I would expect can you talk about what's doing better there and if you're walking away from a couple million dollars you clearly needed to see something more than offset as it just been known bell applications are you seeing any last time buys from customers that are walking away or is that a lot of the out of the run right now.
So the majority of it is out of the run rate for sure. If I look at the materials processing bucket from a revenue standpoint, we are down about 6% five 6%.
You know frankly, there wasn't I'd say any strength in that sector at all we talked about last quarter during the call that I expected materials processing to be in the low Eightys and we came in at 81 in change I think we're nearing a trough.
At least that's my my perspective at this point.
So you know there frankly, there was there was not a lot of strengthen materials product processing from a booking standpoint.
So I hope.
I Hope I hope you get that.
Great. Thanks, guys.
Thanks, Tom.
The next question comes from Mehdi Hosseini thing. Please go ahead.
Yes. Thank you for taking my question I want to go back to your commentary regarding.
Book to Bill and how business fundamental actually show in a moment.
Into the month of June's in July and I wanted.
Use the microelectronics to two to ask your question it was.
Double digit perhaps the supply chain disruptions were behind you. So you are able to show double digit growth on a sequential basis, perhaps lack of face to face interaction.
You may have pushed out some additional booking from June into September is that the way we should think about the dynamics. So is this something else that you can elaborate up I don't have a follow up.
Yeah, I think Thats, a pretty fair way to think about it I mean, if you look at the quarter.
On April was basically a throw away money from a sales point of view and we're just now back.
At a rate a word we used to be before the pandemic and even that is predominantly through remotes channel.
So I think you're thinking about it and the proper way.
Okay, and then a follow up is for both you and then.
And Kevin you are making changes to the executive team you also streamlining your product portfolio and you have hired the chief marketing officer should I spent some.
Elevated opex for the next couple of quarters as you pursuing new initiative or changing the leadership, especially executive team.
Is separate from how you are managing to Opex.
Yeah. It many it's Kevin so from an Opex standpoint, as we look into the September quarter, you'll see based on my guidance that the Opex does increase a bit.
Again from a myriad of items not the least of which is a new executive management, if you will.
So even if you work the numbers, you'll see a mid eightys opex on a non-GAAP basis, and I think thats, a pretty good number going forward.
Okay, and Kevin your net cash per share show positive trend for the first time in many quarter.
Is that going to be sustainable.
We do believe it will be sustainable many and in fact, you know given the strength in the euro right now actually the <unk> converting the euro loan into U.S. D. The strength of Euro hurdles, we would have been that much more net positive but regardless.
Specific to your question, Yeah, we should be able to maintain and build out.
Alright, thank you.
Thank you.
The next question comes from Larry Solow, and he J S Securities. Please go ahead.
Hi, Good afternoon are just a couple of follow ups, Kevin you mentioned sort of the the sequential improvement.
On revenue.
At the midpoint.
No mention of of older equipment <unk> panels, but do you expect to China. You mentioned you shipped some line beams and this quarter was that a little bit ahead of schedule or.
Is that related to recent orders I assume and sort of whats the.
But we're going to get a little bit of a bump up the trust from from not alone and I realize there big ticket items. So two three machines kind of assuming a big difference.
Any color on that yeah.
Yeah, Hi, Larry I'm going to be careful here I mean, we've never really called out display in calibrated. It specifically you driving double digit growth in absolute dollars this quarter.
You know I look forward.
Suffice to say it again he said in his prepared remarks, you know we will ship line beams in the September quarter, but I'm not going to calibrate that Korea.
I'd like to say that we are showing you know to the mid point, we are showing an increase in revenue in total.
Fair enough absolutely.
Fair enough and then on not just on the sort of the cadence of it sounds like you certainly supposed to improvement.
Proposals through the quarter.
And I guess that translates I guess, you sort of building those standards for one quarter to delay so is that why you're looking towards maybe an improvement in bookings.
I think and the highlighted in Q1 that next year and I guess, that's just sort of directly correlated with the rise in proposals.
I don't know how things how that shakes out for Q4, but my guess you know that's sort of just that in a vacuum proposals related to.
Bookings of one quarter later, I guess right.
Yeah.
No we've got a broad portfolio or some of or deals I mean, if you take a look at at the big Excimer deal to habit Super long lead time, a when we do when we work on design win they can have gosh lead time north of a year that thing for the majority of.
Our portfolio, you're looking at a four to six months.
From a quote to Uh huh.
A two contract type of a cycle.
We see that many companies are trying to preserve their their cash and our super prudent on their capex spending so right now they will probably era to be on the side of the longer sales cycle. Then again if demand flips. These things can also flipped.
Relatively fast, but I do think you're you're thinking about it from a modeling point of view the right way.
Okay that Larry Larry if I could add please yes.
Yeah, I mean, you get the everyone gets that the only difference between revenue and bookings is tightening.
And given given co bid in April partly may and so forth I mean that just to leave everything and so from a bookings to revenue standpoint as can be explained by that that difference between when you book when you take an order and even the sales activity prior to that it just seems like it's taking.
Little bit longer and such that that will roll into Q1 as opposed to the September quarter, We've got backlog for the September quarter, and such and we are showing an increase in revenue right sequentially.
But all the newer sales activity that we're starting to see and started and grow will benefit from that in the Q1 under the December quarter.
Right, Okay, and then just and respond to the part question about a potential increase in operating expenses for.
For our you know obviously building out the management team a little bit.
I'm thinking maybe in the in the mid term you know you spoke last quarter about a it without getting into you know quantifying the specifics, but you spoke Andy about I think it was my question about how do you grow you know the materials processing business. It in a you know sort of economy, that's unlikely to grow up next couple of years in new you know.
To be already obviously were strain that matures process. It was already coming in as you know on that on the downbeat before coated so and you spoke to improve profitability and whatnot exiting some some businesses where your margins are probably lower maybe money, losing businesses, even so I'm actually thinking perhaps over the next again.
Few quarters your operating expenses will potentially at least in those businesses go down I don't know if you can add any color tonight. Thanks.
Yeah from a foreign Opex standpoint, what you're really thinking about Larry is the Cogs side the cost of sales side all of the kind of silly the equipment the labor to produce product right that all goes into Cogs. So to the extent that we streamlined our manufacturing operations that will benefit car.
From an Opex standpoint, you know sales marketing finance, all the corporate overheads and such as we as we add David for marketing and potentially others, we'll see.
That will impact Opex proper.
Fair enough, okay, great I appreciate that out clarification on thanks again.
Thanks there.
The next question comes from Mark Miller as a benchmark company. Please go ahead.
Thank you for taking my question your departure from the fiber laser business was were there any charges or maternal charges in this quarter's report.
But nothing material Mark this is Kevin a you'll see in the GAAP to non-GAAP reconciliation theres, a little bit of restructuring that you'll see some of that is related to getting out of the kilowatt fiber business.
Hey, your your stock based compensation took a jump is this a new trend or was there are some onetimers and stock based compensation that drove higher than previous quarters present.
Yeah I appreciate that question Mark It did grow rough numbers 5 million quarter over quarter, and then has to do with Andy coming onboard and John transitioning to the special advisor role.
When that happens or any commitments, we've made as a company to John get accelerated to the current quarter and then layer on top of that Andy's equity and such and that drives the significant piece of that stock comp increase.
What does that go back to the round the 8 million dollar level one in upcoming quarters.
[noise] I don't think it goes all the way down that we we gave a number of 13 that change so close.
Thank you.
At heart.
Your next question comes from that.
Well as Longbow Research. Please go ahead.
Yes, Thanks, Hey, guys congrats on good results and execution.
Kevin I can we dive a little bit answers a service discourse on because.
Well look at third party data her realization the first half of 20 utilization was actually up versus the first graph of 19 at least a bit I'm looking at.
And I know you guys have been talking that your supply chain apartments have been lowering their inventory on hand than I thought that I had reached a trough so.
How should we think about why well first why you're not seeing I mean currys here in the June quarter is there anything preventing you from major reaching out to customers and doing changes and the services.
Or how should we think about the ramp up all of that going for as we think utilization will be scaling up pretty substantially.
Yeah, Hi, Nick Thanks for the question you know, we did see things improve a little bit I'm on utilization throughout the quarter early in the quarter was still pretty down.
You know this is the numbers that like share, but behind the 97 million I talked about for those services display was up sequentially.
And that was completely offset by the or there is primarily in materials processing.
As we look forward and as I mentioned earlier as you.
You know some of our customers in the panel business ramp up to supply the fall so phones in the spring sort of phones of 21.
Utilization should grow in there for a services should rebound a bit as well.
Okay, and just related to that what is the level of inventory at least for your visibility or your customers and end users is it still above normal below normal out or how would you characterize it.
It's still below normal Nick I think everybody given the macro environment of the pandemic I think everybody is really focused on cash in managing inventories, we've seen that really streamline and even come down further than we thought.
Just a couple of quarters ago. So.
They are are very sparingly, using their inventory and maintaining lower and lower thresholds.
Okay. So we think the gross margin does September quarter guide is pretty good relative to the incremental revenue growth or that you're guiding to are you guys will obviously, but you really are helping but are you guys are willing to provide any framework to how we should investors think about the gross margin trajectory relative to us.
Let go of revenue as we start to think about the but you're right scaling up into next year.
Yeah.
I can do there Nick is if we go back to the peak periods of 17 and 18 when you know.
Hey was pretty pretty dominant in the overall portfolio.
You know I'm thinking we can get back to those those levels a once the true OLED ramp hits.
You know it won't be linear maybe a little lumpy, but we can get back to near those levels going forward.
Okay. That's very helpful and last question for me I think we spoke previously about fiveg being a a tailwind for many businesses, but including the yeah, Hey, I P business.
Related to PCB Interconnects I think a Andy you mentioned that you're starting to see some some up and increasing activity hottie, how should we think about the ramp up both of those orders and sales as we you know expect five do you smoke sparse malls and eventually become about 40% of mix or by some third parties and.
Next year.
But the good news about Fiveg phones is that they need more real estate for the antenna and they need more power.
And both you can get to.
With our technology optimize that you optimize on the old It and then we also help them on the drilling on the chip side. So net net the more five gee the more tailwind for the usage of our technology. Now these are not things that people order off the shelf.
And put into Morrow, but as you see five GE ramping and as Fiveg readiness goes from the high end up the smartphones into the mid range that will be goodness for us and that should.
Continue all through the next year.
Got it thanks, guys. Good luck.
They connect.
The next question comes from Brian Lee of Goldman Sachs. Please go.
Hey, guys. Thanks for taking the questions.
I apologize if you've covered some of this I had top on a little bit late but.
Any Kevin or were there any orders in the quarter for the the OLED business. It seems like maybe this is the first time in several quarters, where you didnt have any order, but it just wanted to confirm that maybe I'll start there.
Yeah, Brian.
Yes. So the answer is we did not take any orders for our high end Healy equipment or we did take orders in display surrounding that.
But none of our high end systems and again, we attribute that to two coated.
In the ability to to sit side by side with the customer.
All of that's done virtually and it's often difficult with two different languages to communicate.
But we do see as we look forward or we do see orders.
It in the upcoming quarters based on the ramp.
Okay. So this is more of just a timing slash.
Kobe related issue this isn't something where you would consider to be a pause in the cycle and you have seen no.
No cancellations that's correct.
That is correct and yes, we would see we would view this as temporary no timing oriented related to costs primarily.
Okay. That's helpful. And then I guess related to that just on the guidance. It seems a bit more a and this is with respect to the revenue outlook, but it seems a bit more flattish. Then then I suppose we would have anticipated given the E.L.A. orders and also halo orders over the past several quarters.
Errors.
And your stated six month lead times are you seeing lead times extend or have you seen customers kind of push out installation timing I'm. Just maybe can you provide a caught some context for how to think about the order strength of the past you know three to four.
On the OLED side of the business and how that's going to translate to the P. and now I just I I thought you know, maybe we would have seen a bigger inflection here into a into into the fourth quarter.
Yeah, Hey, Brian Kevin again, so yes things are taking generally just longer lead times per se for our equipment haven't changed but the front end of that the negotiations the contract work the sales activity that is taking longer and in fact in part it was shut down for part.
The March leading into you noticed the fiscal third quarter. Our June quarter in early April so that really push things to the right by a quarter or more.
Okay. That's helpful. Thanks, guys I'll pass it on.
Thank you Ryan.
Your next question comes from Andrew that Thank you Barry and bearing bank. Please go ahead.
Oh.
Hi, Thanks for taking my question I know most have been answered, but I was wondering if maybe Andy could you discuss a little bit the significance of hiring David as Chief marketing Officer, My understanding because it's the first time you had one person in such a role.
And how important that is a for the future career.
No I'm happy to Andrew but.
If you look at it.
Coherent is a fantastic company with a great amount off technology talent and I cannot begin to tell you how impressed I am.
With all the bright people that are meeting, but in a world where the traditional ways of selling have been deeply changed overnight.
And we took a very.
Honest look at ourselves, we wouldn't consider ourselves the benchmark in E business.
Or digital marketing.
<unk> country to where we do consider ourselves the benchmark on technology, and we said, but we have a high feeling on that side and hence we brought someone on board, who actually have software background to has digital marketing experience background just to give you an example.
Trade shows in our industry, where a very important way on how to generate leads on how to talk with your customers and I don't think any trade shows in the western world are going to be done probably for another year or so so we just needed to get pulled into the digital space and with David onboard where.
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Working very hard on this and that's going to change our look and feel and it's also going to help to increase the effectiveness of our sales force.
That's helpful. Maybe could you discuss what you've alluded to in your prepared remarks regarding your products potentially rolling out and I'm just on the industrial laser space could you maybe give us a flavor of what those could be.
You know, what they're really cool, but let's talk about them when we're ready to announce the product.
Especially with Europe being an important market for US you really don't whatever launch a product in the mid stuff when everybody is taking vacations. So you'll hear more about as we go into the new fiscal year.
Sounds good thank you.
There's a follow up question for Mark Miller with Benchmark Company. Please go ahead.
[noise] should provide cash from operations. Please.
Sure markets, Kevin again, its 54 million.
Okay, and I'm, just wondering sequentially in terms of specific opexa R&D and SGN, a how does that flow from the prior quarter into this quarter or the similar.
Yeah for the September quarter, you'll note from guidance that we are guiding up little bit not backs.
That has to do with the new executives onboard some new initiatives and so forth. So we should typically the a in a round numbers middle Eightys for Opex going forward.
Okay.
And just one final question in terms of China.
One of the another at least affirmed just reported very strong rebound in China.
But then said that that was kind of moderate in the current quarter, what's what's your outlook for your business in China.
Let's say, we we kind of a reduced our China exposure.
So if you look at the on the display side.
That business is it's going very strong and China is a big opportunity and we don't see any impact there, but we got out of the kilowatt fiber business. So the headwind that we saw there the race to the bottom on the pricing side. There was one of the main reason why we took the decision that we took a few months ago.
To to exit that business and you see it both ways, we didn't quite get the uplift.
China coming out of the cobot situation earlier than Europe, or the U.S. and by the same token were not being as much of the pricing headwind because we don't have as much exposure, especially in the material processing side of the house in China.
Thank you.
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As a follow up question, Nick that Colorado as long lived research. Please go.
Yes, Hi, again, thanks, just related to even investment a your peers are taught and I know there's into automotive industry are seeing initial investments related to easy.
So I was wondering if what do you all perspective, and what are you seeing specifically in China, India, where I think those are much ahead of us what's happening in the U.S.
So easy isn't exciting markets.
We see I.
Continuous increase and.
Interest in our arm laser technology.
Which is very unique in the way that we can bundle or the laser light and the ring anandia side of the laser and it bodes extremely well if you need to work with complicated models like aluminum copper, which both are very important when you're talking about TV and you talked about at it bringing electricity to the powertrain and all that.
Good stuff. So we think it's an attractive market, but if you run it through your model. We also want to be realistic it's still in emerging markets.
And once you see the the bake auto companies.
Shifting more of their production into electric vehicles, you'll see that market ramping but you are talking you're talking years. Here. This is not something that's kinda swing the pendulum overnight, but we're at the forefront of it and were.
Starting to become constructive about the segment.
Yeah. Thanks, guys.
This concludes our question and answer session I would like to turn the conference back over to Andy Madden for closing remarks.
Well, let me just say thank you for all of your interest today, and we will keep you posted of our progress and we'll be looking for talking to you at the end of the next quarter. Thank you ever much and bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.