Q3 2020 CyberOptics Corp Earnings Call
Please standby.
Good day and welcome to the Cyberoptics third quarter 2020 earnings call.
This call is being recorded.
I'd like to turn the conference Dr. Dr. <unk> <unk> Arnie Hi.
C O Cyberoptics. Please go ahead Sir.
Thank you.
Good afternoon, just a party speedring shut off extremely well it is good to go to school school.
Joining me, we're just starting to see a sports you called <unk>.
I would give you a little bit in conjunction so do do well.
Well, we like all of you all functions.
Even don't be pleased to answer your questions at the conclusion of talking books.
It could be but again there should be.
Let me talk working Streetlinks, you've already bought or you could do so well.
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These forward looking statements, which the dodo pizza hut's future research, which is subject to a number of risks that are discussed an awful bids to sell to you ended December 31st revenue like any other filings with the Securities and Exchange Commission.
Well you do have you distinguish himself these clusters.
So little picks.
Strong towards <unk> could enjoy synergy what about you do get modest all the <unk>.
Well it looks like little kids topic, I'd want to get people to us quite a good portion of it.
Including in Switzerland, the garbage applications called the microbiome everybody blockers.
He believes the positives of younger people, just well that you can get there.
We do see itself $20.8 million in the top quartile. Thank you Greg.
I mean, he's off 68%, so bluepoint supposed to be a bullish in due course, we'll talk regularly.
Oh, well done they were looking to $1.8 million or four cents spoke to do good share.
Compared to the net loss what do you do then $52 or five cents per diluted share. The go to be up you do it.
He has held since launch a bunch of them, but told you supposed to be still could be a modest Oh did you increase like before it goes into middle of yours.
$8.9 million in between call. It looked like you couldn't do.
It must be startups and she'll be good sales accounted for 61% of people go to the due to poor school girlfriend regret do good.
The 66, so it did go to <unk> Peter.
The smartest posting gets deployed goals. If you look at those largely being significantly higher sales or maybe a mix liberty bodies inspection systems diffuse took work.
It would be low to appeal for some of these sales.
Sales will be especially with all your systems, you would use I forgot who would be what looks like a little bit.
One $2 billion the core organic revenue growth.
We didn't just category sales up excuse you told your largest social systems, you could use underwritten by supposed to be able to go to $6.9 billion in between quota.
Like what do you do that you're just keeps you told him she wants to do it all goes well go to a little tricky grid.
Approximately $1.1 billion I'll, just walk or loss attributable to the people in Florida. The adult all those are going to see too much like a corridor.
Sure most of the remaining $1.4 billion, it's consistent it's all good I would expect.
This years fourth quarter.
Although young Privy to the plan so far in customer supposed skewed up all that but if you look at a few patients it would appeal as a little bit as we looked into the balls that activities.
The balls, yeah, because if you do get the old well you'd like when do you do that you're going to skew or does it do for your <unk>.
Accordingly, you don't include any potential U.S. Gordon spoke quite good.
Q4 revenue guidance.
You need to be the Paul just wanted to come to some sort of need to be likely to be getting stitching that recalled you applications. It wasn't a significant long term opportunity for cyberoptics.
As such we anticipate achieving additional is likely to be even bigger just you all those going forward.
Cyberoptics received customer acceptances for people keeping us all those <unk> and Mexico subject.
Do you have already been switching systems as opposed to <unk>.
As to what acceptances for about $4 million to $6 million or 600 systems order expected in the fourth quarter.
Are you sure don't talk to do yet yeah look system, so thats for sure.
But they're getting the future.
There's something special in the told your system sales forecast it might go to what do you Oh sequentially in this years fourth quarter.
You can also look forward to the board of litigation.
He's helped your d. So it's supposed to be used to do it looks like you know what you'll do people. Once you actually get all those talk we'll talk with you Greg.
This growth was due in part to talk to you a lot of sort of course, that's sort of what your goal is 59% year, what do you do with your dogs.
Since it seems like it's a good declines on the Yodle. Your thesis is this your sports scores.
Getting the torque <unk> sounds like you've gotten word you used to see would you be able to customers for example, dissolution juxtapose <unk>.
Before there was I'd lost packaging applications.
Well speaking first of all starting to guarantee the sensors into the inspection of gold your systems are demonstrating the systems to the end users.
You know I guess you got to look at those two shows up that you seem to be introduced about us and the black sea trials, but.
But told you and inspection system that incorporates the Dakotas admissions himself.
Commenced in the third quarter.
So well done what doesn't make sense for us.
It's just oh workout stupid they studied being like you couldn't do look.
We believe these are long products have position cyberoptics to capitalize upon she would you be good opportunities. There. He has all these little level I'd watch package inspection of the culture.
Sales of semiconductor sensors, the torque work of integrating increased 4% year over to go to people get older.
[music].
Fourth quarter two is what gives you the dolce <unk> Gabbana dogs, Oh, well guess, what the global double digits. All together what are your pieces.
So a little bit said did the public school girlfriend, you're going to get an order backlog of $72.7 billion compared to the record backlog of $54.8 million.
[laughter].
Q2.
As such we are forecasting suits, all $55 million to $70 million for the fourth quarter Coke Ricky Greg I think you said.
Pretty close.
The pool that can be do I'd want they joke about it since you have to go through all the change of position cyberoptics to capitalize upon attracting girls or did you what gives you the blockage.
What this means a lot of people see the most out little pick some good prospects.
Thank you.
I'll just put a little color will give you all talk about four months ago.
Thanks, the boat sales.
That's our third quarter sales have been covered in some detail.
Well cover several other aspects of our performance for this period.
Gross margin percentage in the third quarter of 2020 was 42% which was.
Which was below our initial forecast for this period and compares to 46% in the second quarter 2020, and 44% in the year earlier period.
The decline in our gross margin percentage in this year's third quarter was attributable to a variety of factors related to our sales mix, including higher sales of legacy products that proportionately lower sales will ever us wafersense based products.
In addition, there are more sales of inspection system products into the lower margin general purpose, that's on T. market.
We are working on cost reduction strategies for the Sq platform, which should start to benefit our gross margins. After the first quarter 2021.
We are forecasting an improvement in our gross margin percentage in the fourth quarter 20.
Based on a change in product mix, we believe our gross margins in the fourth quarter of 2020 will be about 44%, which approximates our corporate average for 2019 and the first nine months of 2020.
Total operating expenses in the third quarter of 2020 increased 4% year over year to 6.5 million.
Or significantly above this year's second quarter level of 5.8 million.
The sequential quarterly increase in R&D expense was due to the expected reduction in benefits under the job support programs implemented by the government of Singapore.
The sequential quarterly increase in <unk> expenses due to higher sales commissions and incentive compensation due to the increase in third quarter sales and improved financial performance.
Travel and trade show costs and professional fees were also higher in the third quarter on a sequential quarterly basis.
Depreciation and amortization expense totaled $595000 in the third quarter, 2020, and stock compensation expense of $305000 where.
We are forecasting slightly lower operating expenses in the fourth quarter of 2020 on a sequential quarterly basis.
Interest income and other was slightly negative in the third quarter due to foreign exchange losses.
Company balances with our foreign subsidiary.
Our effective income tax rate in the third quarter of 2020, it was 19%.
We are forecasting a slightly lower tax rate in the fourth quarter due to excess tax benefit from the.
From the expected exercise of expiring stock options.
Cash and marketable securities of 27.9 million at the end of the third quarter were down from 29.1 million at June 30, 2020, but up from 26.3 million at the end of 2019.
The quarterly sequential decline decline in cash and marketable securities was attributable to the increase in our accounts receivable, resulting from a significant increase in third quarter sales and an inventory build up in preparation for additional micro LNG related up a few orders.
Given available balances of cash and marketable securities. We believe our capital resources are adequate for achieving our objectives.
Thank you we will now be happy to take your questions.
Well. Thank you if you would like to signal with questions. Please press star one you touched.
Touchtone telephone if your choice today using a speaker phone. Please make sure your function is turned off to like your signal to reach our equipment.
Again star one if you would like to ask questions Star.
Our first question will come from Greg Palm with Craig Hallum Capital Group.
Yeah. So the question here.
Maybe just start with my girlfriend E I might have missed it but did you say, whether you would see additional micro <unk> orders in the quarter was the revenue recognized.
With all of that some pretty good we announced orders.
Greg we did receive about a little more than $500000 of new micro LNG orders in the quarter. So there were some some new orders received AD revenue.
Got it and then the additional ones that are still in backlog.
Her that you announced in Q2, presumably.
Just how confident are you.
Pardon the scale up that that you talked about C. bode I mean, how confident are you.
It's just timing related versus something more serious like marketshare lots and then can you talk about that at all.
Sure so as soon as we get those on either contiguous.
Could you give us a split there seems to be something that will pause here.
Based on what a little bit it goes to what it was decided so a few skews out. These geared up. These are this is that space into systems, we have already shipped that shifted the next two weeks or so but of course, it ought to be blunt likely be sued or be they say expecting that to happen on parity, but then after that.
I'm not quite sure why well, that's what those people Oh Geez Peterson form.
He's working though so just a question of all different customer deciding bid executive or excuse.
He's asking about so as we said we need to be we took 30 balls marketing.
It actually.
No.
Just to be clear.
Your orders so today, they don't for one large consumer electronics customer for for multiple different applications or can you can you talk about it.
Sort of how that Mitchell orders getting scaled up.
So so far all the systems, we have shut down for one large could you go to the public companies for a couple of different skews you can get would be anymore due date.
Definitely expect them to scale up more skews the future and we do expect a bit of could you look at all the companies to get into like.
Good good.
Yeah.
<unk>.
I guess that was going to be my next question.
But based on that you know I don't know what digital adoption rate by that's that's first large customer what can you say about the pipeline of opportunities I mean, I'm, assuming there's no more companies that are looking at the technology I mean, that's a specific technology.
Specific technology that really ramps up in calendar 21, or whats your sense in terms of the timeline.
Yeah, I mean does give sitting to Boston.
Really the other video to be doing something like Rudy Sankovic and Oh geez.
Good luck solving because it's such a good position all spot there.
<unk> display quality would be a longer battery life. So you'll see it just seems to be that easy he's going to venture to just.
Venture to displace other specific technologies.
It does I guess I'll give just starting with one large because you can get a political coupled skews.
Oh, yes, he walked away over the next few years you ought to look to see where you could be could you. Please.
Oh, good liquidity, we can maybe he can give you much like we did the site takes before going someplace with all those pieces, how do you get set off difficult, but still good.
I mentioned the live video conventional older technology.
We do believe that it wasn't you know studio differentiating features.
At the cost of it themselves.
If you get a dog adoption.
<unk>.
Okay got it.
And then last one for me on the gross margin side of things and.
Anyway.
Maybe going a little bit more detail I mean was there a specific no.
Product whiners admit that pressure the gross margin from a mix standpoint, most or was that was it sort of across the board can you just give us a little bit more detail there.
Yeah, I mean, it was you know mainly in the inspection systems area and that would be a legacy inspection systems, but also felt some of the sq products.
Yeah, we did have more sales there and to build a broader SMP market and you know we have seen this in the past some of those you know price points are low or and so that definitely impacted the margin. So on and then you know we did have.
When you look at Wafersense in MRF based products. They were as a percent of revenue that you know they are lower than what we were expecting heading into the quarter. And then also you know we did have the you know the large <unk> sq order for for micro Ellie.
That we had on hand at the end of Q2, a chunk of that pushed out. So it's really a combination of those factors that drove the gross margin that we saw.
Yeah makes sense, okay. That's it for me thanks.
In school.
And our next question will come from Jason Smith with Lake Street.
Hey, guys. Thanks for taking my questions just following up on Greg's questions on the micro LNG D. It's about I know you mentioned, you're not including any revenue from that product line into that Q4 guidance, but just curious if you could quantify the ballpark revenue that you had assumed maybe coming in.
Q4 from that product line, a few months ago.
Well, Oh man sitting there must be all included.
Some revenue slug of that system order in Q4 was coming from like PVD, well, that's a really big system could have all of your money.
And you do or what was the <unk>.
'cause they won't be able to get booked in Q4, they can use those things happen it doesn't.
It doesn't come into our guidance. So I didn't say it wasn't multiples you would expect in a box you have some sort of it is for those who do not hedge so that it's not just looking at I just said.
Okay, that's cool exactly how large that old husband, but you can be as we have seen this August Scott <unk> John.
He said he thought I've said it so.
So we thought the that's what I would say you would have expected that changes.
<unk>.
Yeah, I think that that's fair certainly you know if you go back three months ago.
You know there there was more activity and and.
Around like rally D., and we were expecting so incremental large orders that haven't materialized.
Okay. That's helpful. And then just like limiting the micro LNG product line. Just curious if you could provide some color on sort of what you're seeing from your customers across the board as far as are any any guy sort of pulling back on their spending are you seeing Bob.
Purchasing decisions get pushed out to the right a bit more.
Oh, I mean it deal.
Do you think that there are some customers so at the high school.
Well it seems like most of the work <unk> Uh huh.
Hi. So these are what are you going to hope to see because youre doing.
Given that there seems to be doing Jim did he say to me, but if you look at the board.
People are small companies like you have some CEO, Mike long or even the higher doesn't do custom voice. They just do the businesses.
And do you see changing.
Did you get up okay. So.
So you can do to buy a skew that makes a little thought of stores.
Yes, it is more volume should be okay.
Things like ought to discuss that.
That'd be once he took the shot with seven do consider this a couple of also yeah mistake customers and they have a they would I be modeling.
Oh, he's off because this is going to be soft as you can imagine with the school that situation.
So.
Who are adults, but did not did you ever become more problematic as soon as we have.
Well listen we're doing but that's the slippage of course.
Due to the attitude because equaled 60, a bunch of those lost supply.
<unk> and beyond because most of these people in southern Oregon could do that.
[music].
You can go actress.
No I think that's a good summary for the old.
Okay, and then just last one from me I'll jump back into queue. I think previously there was some hope to maybe add on.
Customer on the memory side any sort of change in that timeline I think previously it was up to get that done by year end is that still the goal.
Well they seem to go beyond that.
Today's discussion should that be I'm optimistic that the who.
At some point start buying the next levels, what exactly they do sort of in India.
It's hard to watch it is given that you don't need we don't know if it's high.
It's hard to see how.
Oh weekend. It did it did even order hopefully this year, but considering the sales. This year is going to be if they just because the lead times in like the systems.
Oh, but still because if you look at it I don't believe well they've been stuck playing in those stores.
Okay that makes sense. Thanks, a lot guys.
Thanks, Jason.
And next will be Brian with Colliers.
Thank you.
They suppose are there any cancellations in the backlog.
I know there were there were no cancellation.
Okay.
And how much of the business I got a couple related the kartik, so what what percent of your business.
I used to China, you that there are four combined now with multinationals.
[noise], you've said in the past about imports about four business <unk> Jain of east customers, but it is a little bit deceptive because.
Well because most of what you see losses are SaaS based knowledge with logica.
Yes.
<unk> <unk> <unk>.
But the product is actually shipped from Hong Kong to be used if you're cooking. So there isn't anything even China.
Even China.
And then in some other cases.
Prototyping Chip Williamson, Japan for instance, it will go down.
We will go that which is we don't know the exact.
I know, but hopefully a hook on.
<unk> dollars into China, but that was booked.
The people so.
Okay. So the issue is the large foundry over there China is falling over the normal how's it yes.
That's kind of a material for you guys.
Yeah, I mean, if you ever think do all things that I've been able to see some people have said I see you do said, though small animals, but that's not good news for us.
Okay.
Okay. Thank you.
Anything with the itself selling that material at all.
Hi indexes.
<unk>.
Good bad debts weren't too early to tell how would you hope to get that.
Well that's a good question. There obviously is a is a big announcement disability industry.
Clearly you didn't script, so they're getting a beat the street sort of Oh did either p. big didn't even sexual itself. So I think so.
If I could on like 85, plus spokesman ER beds that you can share it at this.
Well it yourself does that.
The business base get home, which has just been so good.
Symptoms or shut it off the top tier players, obviously, it's a little faster.
Oh, so longer term I mean people too that the consolidated.
Consolidated in Liberty Gusky, its rental segment did nobody does it.
Stability this region to dump, so while capacity expansions and pledged to the meetings and obviously a and b. The medieval she is good for them.
But just like US since then it is such a big woke up our GAAP or they didn't it's true.
As you call it the most people.
It's going to be so most of the country. So.
It indicates good photos, but it does or does that impact.
Exactly because of that sounds like.
Okay.
It doesn't sound like you are.
Your Wi Max or your normal sense, so they pull it slipped a little old so called war.
2021 story the expected horrible.
Yeah pretty much you know on a blank on that well.
It's going to be to come along and the audience I listed yourself.
The audience I listed yourself development.
Well you have all the operational system like all that.
Good.
As we speak so if the law.
Because almost we'll get to 50% of the market isn't they log for those types of products.
Oh, so it seems like a big along with all the different into the ongoing cost of goods because of our value proposition to Hans high speed shouldn't it's going to be higher than that because you are doing.
And to me, there's no well so we feel pretty good about getting traction both with normal sense or will you have to be to get this sort of stuff you X.
Well I do because stores and users.
Okay. Thank you.
Thanks, Jim.
Thank you once again, if you would like to signal with questions. Please press star one on your Touchtone telephone again star.
One if you would like to ask questions. Our next question comes from Warren Hirschman with eight IDH investment partners.
Hi, how are you.
Good Oh, yes.
Good thing got good it's going.
Just going back to the micro led part of the business. So.
Is it possible that.
Possible that that even though the sales have huge but you've had a lot of success in the last 18 months is it possible that it's just it's all that capacity right now by that one cluster.
Assuming let's say the work is being done by.
On the OEM for them.
And I guess you know it's true, it's a plus multiple skews, but if it can you tell us well, so really being aimed at one single skew.
I mean again, we don't know all the due diligence expense you walk into use and so on.
Launch can talk to be keeping certainly superior to.
And then Doug when you Didnt give their supply chains. So we don't know exactly how many skews and they didn't hit the market.
You know how many lines are going to be 16, she has shipped up yes.
And you have quantified that already so we know what actually is happening as we speak and lets you brought up significant though <unk> latest before they'll be.
So to me what they've got someone has slowed us.
Okay. So just one box what you need a public company, though when you go to these.
He just gave him because he is not.
No the chip Mike will lead the future.
She gets what existing knowledge can do with it.
So where does the bulk of the people who go to slides.
You haven't quantified exactly when.
And the other companies are coming along so literally next five years or longer this quarter.
I wouldn't go if I could the adoption in the marketplace.
And does that option because as we said that you expect to see more skews.
<unk>.
Any idea how long did it take to see a second customer.
And they are working with multiple customers to try and get them into production mode.
I think it is.
Like many new technologies getting it into the marketplace is always a big hurdle.
That happens or because it couldn't you will see the value of the technology and the other bigger Dennis.
I'm going to compare to look at all I mean, clearly it could you wouldn't see an excuse to go bigger market because as we all know.
There's one company has gone something with a better display adulthood actually bodies are those who follow suit. So you could look like.
And that's not the case here and as soon as we can.
So we definitely expect.
A few skews or the sales would end of December by more skews from different companies, so let's get out.
And Jim just thinking.
If you look at.
You know I don't think that there were assets how much how many how many customer was approximately a really in cancer and in terms of testing. It. Besides the lead customer that actually is the talk show how many others have actually physically.
That's not physically.
Well just distinguish he is a fairly complex supply chain system.
So at each stage they do some consolidation so that is.
I used to and even in fact, you know soppiness equal did well and it's a good business or close it off so they can do substrates bedrock sq wouldn't be because I guess, what im on them.
And that is that the slate so.
They did a significant consolidation in the display industry than the adults you can find companies getting bogged down and then there's a fiber could you go to the plugs companies or other companies that otherwise I'd love to say that this is part of some sort of simply ecosystem, but it wasn't good companies can put important school system.
So right now if we do that the person that is being they seem to steel companies on the board.
One last quick one company is going to be more difficult you wouldn't want to compete if you will.
So it's a little more complex than just us.
Got it.
So to me the expect minimal work on its coming along with my.
Okay.
Okay, and just a follow up to me the memory test side I didn't catch that way in the last question I just didn't catch the other the answer in terms of how the consolidation.
Might affect things and it has there been any change on the rollout schedule for meeting customers, where there any test because more critical to them.
Well I mean I enjoy live anymore, even switching systems is a very important part of photos and it does show the stupid has the potential to be done to customers.
Those are good for production.
<unk>.
So he how as we have disclosed on duty do you have the two dogs.
The two large nobody but in fact, you there was I thought it was a lot of big system.
What about the has repurchasing of existence for a few years ago, Yeah, Gautam, let's set you look at the Sunoco.
Left that people put into two.
The other one just started up yet this year. So they are ramping up as we speak and then the toward the logica somebody we are talking to them that was my answer but we are optimistic we can get them.
Look we don't know exactly.
The p. large everybody affect your does that already have more than 85% bucket shop.
He said it sounds like she will get it done so it gets skewed higher skilled mix.
Hi, skilled mix is one of those to watch manufacturers.
Just want to shift more bunker shekels to Dodge companies. So.
So I wouldn't know said it doesn't tell the exact impact on us.
At a consolidated level.
Consolidated Liberty, but still going to be a middle of industry was good for us.
Ships, the two dogs nobody them such as those set that's been issued goals.
Okay, and just one question on the extent Megan sales shop.
And so what you described in terms of the R&D reimbursements changing.
And that's going to be a problem I know you won't be getting a slightly higher.
Oh ongoing.
X number.
Yeah are you Ah it sounds like you're maybe referring to this [noise] jobs.
Yeah, I'll start program that.
That's oh, yeah, yeah yeah.
Yes.
Yeah, Yeah I mean.
You know I think yeah, we we well get some benefit from that her for the remainder of this year, but I think once you get into 2020, we should.
Probably be modeling higher opex and be a benefit this year or in the third quarter related to that program, but was about $50000 on R&D expense. So you know if we didnt have that program our R&D costs in Q3 would be about 50000 higher.
Okay.
Huge magnitude here.
Pardon me.
And that's all he got a very big magnitude here and tell you know not relative to what our Q3 actual expense was that correct.
Okay. Thanks very much.
Thank you.
Thank you once again, if you would like to signal with questions. Please press star one and you touched on the telephone again it is star one and we'll pause for just a moment.
There are no further questions at this time.
Thank you for your interest in question. So look forward to updating you at the end, but saw on Q4 I mean, you couldn't do can do I think you have it.
Thank you.
That concludes today's conference. Thank you for your participation have an excellent day.
Yeah.