Q4 2020 Coherent Inc Earnings Call
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Good afternoon, and welcome to Coherents fourth quarter fiscal year 2020 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.
During such tone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Brett to Marco Executive Vice President and Chief Legal Officer. Please go ahead.
Thank you Jason and good afternoon, everyone. Welcome to today's conference call to discuss Coherents results from its fourth fiscal quarter in fiscal year ended October three 2020, all of US here a coherent hope that you and your family are staying healthy and safe. During these challenging times on the call with me are any matus, our president and.
Keep executive officer, and Kevin Palatnik, our executive Vice President and Chief Financial Officer.
I would like to remind everyone that some information provided during this call may include forward looking statements, including without limitation statements about coherents 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 where.
For jazz project outlook future expects will anticipates believes intends 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.
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.
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 products, including but not limited to adoption of OLED displays the demand for and use of our products and commercial applications continued timely availability.
Products and materials from our suppliers, our ability to timely shipped our products and our customers ability to accept such shipments worldwide government economic policies, including trade relations between the United States and 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 todays financial press release I.
I will now turn the call over to Andy Matus, our President and Chief Executive Officer.
Thank you Brett and thank you to everyone for joining our earnings call today.
While fiscal Q4 was still overshadowed by the impacts of Cobot mine team.
I'm happy to report that on just about every metric our performance exceeded the fiscal note off Q3.
But before I discuss our results and market trends in more detail I want to take a moment to acknowledge the tireless efforts and dedication of all our teams around the globe.
Were actively embracing the new normal of either getting business done remotely all.
Oh, working in our labs and manufacturing site by adhering to our strict stay safe and healthy rules.
It is exciting to see that innovation and our customer centric focus continue to flourish.
Even in these unusual circumstances.
Looking at our top line, we improved bookings and revenues sequentially from last quarter slow.
And even though full Cisco 2020 topline was lower than the previous fiscal year. We finished the fiscal year with a positive book to bill ratio at an improved backlog position that increased approximately 10% year over year.
To add a little color.
Three of our four end markets saw solid double digit percentage increases in bookings over the prior quarter.
As anticipated, our OEM components and instrumentation as well as our scientific businesses saw the fastest recoveries as research labs, and non cobot related hospital utilization drove a sequential increase in clinical testing and laser related medical procedures.
Let me now started with micro electronic.
As you know this market is made up of three sub segments.
Flat panel display that me and advance packaging and interconnect.
Our SPD business is primarily driven by mobile demand and also worldwide sales of new handset remain depressed relative to pre cobot level.
We saw a clear upturn in factory utilization of our E. L. Eight installed base from the prior quarter as consumer spending recovered and several smartphone manufacturers ramp production on new five G enabled models.
We were especially excited to see the entire new iPhone 12 lineup from Apple adopt flexible OLED displays, which together with the new Foldable models from Samsung LG and several Chinese manufacturers should continue that trend towards flexible OLED, becoming the technology.
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We continue to be cautiously optimistic and we are at the front end of a multi year type g. driven smartphone upgrade cycle, which together with announcement of more than 20 laptops, having oldest screen options, including the new Lenovo Thinkpad X one fold and the recent.
We introduced Samsung Galaxy tab S 70, plus tablets.
All bodes well for further utilization of our L.A. installed base.
What's driving healthy services business.
Published reports have noted that one or more display makers other than the historical incumbent and that will be supplying flexible OLED displays into apple.
Even if only in limited volumes for replacement screens.
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Other public reports have noted that several Chinese OLED manufacturers have reached a yield inflection point, where they are actively allocating production capacity for larger screen for I T devices, such as tablets laptops and monitors.
We believe that these changes in the competitive landscape will help drive older price points lower in all mobile screen format and reduced the premium over LCD, which is the stimulus required to drive the next round of new capacity and fab investments.
In that regard I'm also happy to report that since our last call. We have several new orders from multiple customers in China.
In Q4, we also saw a significant increase in the level of investment and bookings related to micro LCD displays where we enjoy an industry leading position.
This reflected by sales and active engagement with more than 25 customers.
All working on process development.
As a precursor to a mass production solution.
Our micro LNG customer base includes almost all earned OLED and LCD manufacturers as well as many well known micro Ltd specific start ups and display industry integrators.
We are uniquely positioned with multiple you receive aleutians pro four separate micro LCD processes.
He late for high performance low power consumption Backplane.
Laser lift off for customers using sapphire carry us.
Ladies a transfer and laser repair.
The appeal of micro Itla D is reduced electrical consumption for improved battery life and higher absolute brightness relative to own it.
We are continuing to accelerate our efforts and investments in UBI, Michael LCD solutions to help our customers develop delays, though processes of record. So we can in turn develop the laser based capital equipment systems needed for mass production.
We will further discuss our new process development product offerings with you later in fiscal 21.
We see a co existence of the two technologies in the years to come with flexible OLED remaining that dominant choice for mobile in the long term.
And micro and indeed, becoming the new entrant in high end TV, where brightness is a key advantage and devices were battery size is at a premium such as watch us or future smart glasses.
We believe we are well positioned to remain the laser solution display industry leader for all display technology.
Moving onto the semiconductor market consistent with widely reported industry news, we're seeing sustained strength and increased demand for both new systems for semiconductor inspection as well as for service demand from our installed base.
The outlook for Q1 is up and in general fiscal 21 looks positive to that end we had recently.
Had a significant design win at an industry leader displacing a legacy competitor.
In advanced packaging and interconnect, we see five G driving increased demand and smaller geometries.
That our power management and next generation H.T.I., PCB, which is playing to our strength in our C. O two laser via hole drilling business.
As a result of the continuous drive and semi innovation it.
Including miniaturization and energy efficiency lasers are gaining share from traffic additional mechanical drilling solutions.
We are well positioned with China's leading HDR laser drilling equipment supplier, who.
Who appears to be taking share from the historical industry leader.
We have taken more C O two laser orders in the first four weeks of this quarter then.
Then all of Q4 and appear to be at the front end of a five g. driven multi quarter expansion across the entire apiay space similar.
Similar would that.
Stephen F P D and Anthony.
Moving onto materials processing.
Consistent with the September manufacturing, PMI, which indicated an expansion in the index across all major economies.
Materials processing orders in Q4 increased double digit percentages versus Q3.
A few highlights.
We saw improvement in medical device manufacturer orders for marking cutting and welding applications as well as orders driven by the return of elective surgeries.
Our machine tools or systems orders also improved sequentially, primarily due to micromachining and general marking and engraving applications.
The main priority for our materials processing business is to continue the turnaround in profitability, which we began last fiscal year with our withdrawal from the commodity kilowatt fiber laser market.
Going forward we.
We will focus on precision manufacturing.
A subset of the materials processing market, where we participate well both in terms of market share and margins on all three levels of.
Components lasers and systems.
We would be focusing our R&D and our manufacturing capabilities towards new product that will serve higher margin.
Send a bull market.
Examples in our systems business include medical device manufacturing semiconductor wave, a marketing and precision welding.
Later this fiscal year.
In the components space.
We will be launching a whole new category of laser diode products that would allow us to address completely new applications and customers dramatically increasing the size of our servable market.
We will give you more color on a future call.
This recovery in the medical area also extends to large part of our OEM components and instrumentation business.
Well orders increased double digit percentage has from Q3.
The principal driver was the rebound in flow cytometry.
Demand as reported by several of the flow cytometry industry leaders.
Backup to some 90% of pretty cold it level.
Although still constrained due to reduced hospital utilization lab testing and research lab openings.
Customer halted their medical consumables production for a time in Q3 and have now started to replenish inventories as hospital utilization improved.
Discretionary procedures benefited from the U.S. consumer.
Consumer confidence increasing sharply in September after back to back monthly declines.
We continue to lay the foundations for OEM volume growth in flow cytometry with several design wins with our recent UBI product offering at 360, and 320 nanometers and Aibileen completely new applications.
Similarly, we have received several new design wins from industry leaders with our industry, leading stellarex laser light engines opening up an expanded serviceable market.
Our customers want to work with us not just to supply them. The lasers, but also all the beam delivery optics in an integrated subsystems.
These design wins are foundational core revenue growth later in 21, as our customers ramp to volume.
The scientific business is the smallest of our market segment and represents lasers.
Sales of laser equipments to universities and National Labs. These.
These activities are funded by central or local government organization.
University endowments and private foundations.
This segment was hit hard during the cobot shutdowns in Q3 and as expected bounced back noticeably as soon as universities and research institutes reopened.
Not only did we experienced double digit percentage booking increases.
We nearly reached our 2019 run rate order volumes and the segment.
An early decision of our strategy work.
Has been to double down on our small.
But successful defense business that has largely been operating in stealth mode for many years and to be clear our intent to focus on and serve this market much more decisively and publicly.
Let me expand in some detail.
Coherent currently serves aerospace and defense applications, such as directed energy weapons as well as technology for target designation.
Countermeasures fiber optic gyro scopes.
Speciality large diameter uptick and tire telescope payloads for intelligent so.
Surveillance.
And reconnaissance.
To give you some specific.
We've shipped more than 700 directed energy amplifiers in total.
Equates to well over a mega watt UV laser power.
We sell products to a significant number of U.S. defense contractors that serve all branches of the armed forces.
We have recently been awarded with some exciting design wins in the defense space.
Which will boost our revenue in this market.
In 22 and 23.
What set up that's not the part in this market.
Is the U.S. based supply chain for all critical components, many of which are vertically integrated with incoherent.
Which we believe is unique in the industry.
Our U.S. defense customers have made it clear that a secure U.S. based supply chain is and will be required moving forward.
We not only make our own laser diode ft and packaged diodes in the U.S.
But we also supply that the geology single mode amplifiers cyber.
Critical for every directed energy amplifier.
We own several other businesses that make critical component and today, we are announcing that we have entered into an agreement to acquire E T.
Crude by a privately held highly specialized U.S. component maker of optical isolators and other specialized fiber components, which are supplied to the U.S. directed energy market.
This acquisition supports our us based supply chain with further vertical integration of critical components.
Once we clear regulatory approval, we expect the transaction to close in our second fiscal quarter.
The Mega trend that is driving this opportunity in aerospace and defense, it's related to add symmetrical threat.
From relatively cheap drones.
Drones swarms and the potential to counter other threats such as more tourists, where there are no current defensive solutions.
Coherent has been working on this technology for well over a decade.
And it's only in the last year that that technology has reached technology readiness level six and seven.
Meaning successful prototype demonstration in relevant operational environment.
Based on the department of defense, the nine level technology readiness level.
Several U.S. programs are slated to Prague progress.
Two technology readiness level eight.
Meaning full system qualification and hence higher volumes in the next three to five years with deployment beyond that timeline.
To focus our resources and our expectation expertise effectively and to demonstrate our commitment to the defense space. We have moved the management reporting of all aerospace and defense related sites under a single senior Vice President reporting directly to our.
Oh.
And we're staffing up the entire organization for growth.
Now lets take a broader look at our strategy as indicated on our last call. We wanted to give you an update on where we are heading and our priorities.
We've spent the past six months laying the foundation for our mid and long term growth strategy and our good to great transformation.
You've already heard many near term specifics of what we plan to do woven into the end market commentary above including our newly publicly to clear focus on aerospace and defense.
Our approach to strategic growth is twofold.
On the one hand.
We will align our business around and markets that are supported by global industry Mega trends.
One example would be health care.
Driven by the confluence of low cost clinical instrumentation.
Hi, genomics and aging population and unsustainable cost.
Our objective is to hold or obtain a number one or number two position in all major markets that we participate in.
In parallel we will strengthen our operational excellence to optimize the enterprise.
More of which you will hear in our Q1 call.
Going forward, we will be focusing our efforts on for end market.
Microelectronics, which estimate captures the three sub categories of display semi and API.
Instrumentation, which captures the three subcategories of bio instrumentation therapeutics and research.
Precision manufacturing, which captures none micra electronics non commodity kilowatt fiber industrial applications.
Aerospace and defense.
We will explore opportunities to move up the tech stack and offer wherever possible subsystems to our customers that when will enable them to go to market faster.
By doing so we believe we can more than double our addressable market over the next two to three years.
Fiscal 21 is a foundational year for us.
Our continued focus on operational excellence will take us from good to great.
Putting it in a simple formula for 21.
We will transform our pilots business by driving new investments in our oil less business.
And as we will continue to report. These two segments, you will be able to see our progress each quarter.
If you look at our good to great trends are more nation more holistically.
We're kicking off projects that.
It will transform the operational efficiency of all our processes.
Reduce the complexity of our portfolio.
Focus our investments on growth opportunities.
And enhance the focus and alignment with our customers even further.
New product introduction and strategic design wins will be early proof points on the go to market side.
Looking at RPM help you will see us return to a gross margin with a four handle by the end of 21.
We will keep you updated on our progress at our upcoming earnings calls and we are planning to hold an investor day in the summer of 21.
With that let me turn the call over to Kevin.
Thank you Andy.
Today I will first summarize fiscal fourth quarter 2020 financial results then move to the outlook for fiscal Q1 of 2021.
I'll discuss primarily non-GAAP financial results and ask that you refer to today's 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 amortization of intangible assets restructuring costs, the related tax adjustments and tax adjustments for stock based compensation.
The full text of todays prepared remarks, and trended GAAP and non-GAAP supplemental financial information will be posted on the coherent investor Relations website.
A replay of this webcast will also be made available for approximately 90 days following the call.
Fiscal fourth quarter 2020 financial results for the company's key operating metrics were total revenue of $316.8 million.
Non-GAAP gross margin of 37%.
Non-GAAP operating margin of 8.4%.
Adjusted EBITDA of 13.2%.
Non-GAAP EPS of one dollar and one cents.
Total revenue for the fiscal fourth quarter was $316.8 million and came in at the high end of our previously guided range.
The scientific and OEM instrumentation markets were the key drivers of revenue this quarter as a result of many University and research labs reopening.
Our revenue mix by market for Q4 was microelectronics, 45% materials processing, 25% OEM.
Well, we in components in instrumentation, 20% and.
And scientific and government 10%.
Geographically Asia accounted for 52% of revenues in the fiscal fourth quarter, the U.S., 26%, Europe, 18% and the rest of the world 4%.
Asia includes two territories with revenues greater than 10% of sales.
And we had one customer in South Korea, we alluded to large flat panel display manufacturing that contributed more than 10% of our fiscal fourth quarter revenue.
Revenue from other product and service for the fiscal fourth quarter was $105 million or approximately 33% of sales.
Other product revenue consists of spare parts related accessories, and other consumable products and was approximately 28% of sales revenue from services and service agreements was approximately 5% of sales.
Total services revenues increased sequentially by approximately 8.5% primarily due to increased utilization in our ERP tools for flat panel display manufacturer.
Fiscal fourth quarter non-GAAP gross profit, excluding stock based compensation costs intangibles amortization and restructuring was approximately $117 million.
Non-GAAP gross margin was 37% for Q4, a sequential increase of 390 Bips and came in above the midpoint of our previously guided range due primarily to a myriad of items, including increased volumes lower inventory write offs and lower warranty costs.
Although non-GAAP operating expenses increased to approximately $91 million non-GAAP operating margin increased 250, bips to 8.4% for the fiscal fourth quarter and came in virtually at the midpoint of our previously guided range.
Adjusted EBITDA was 13.2% in fiscal Q4.
Turning to the balance sheet Nonrestricted cash cash equivalents and short term investments were approximately $476 million at the end of fiscal Q4, an increase of approximately $55 million compared to the end of last quarter.
Given our continued focus on cash preservation, we did not repurchase any shares in Q4 pursuant to our current buyback authorization.
We also did not make any voluntary payments against our term loan and at the end of fiscal two for the outstanding amount of the term loan in U.S.C. was approximately $420 million.
Yes receivables Dsos were 63 days compared to 60 days in the prior quarter.
The net inventory balance at the end of fiscal fourth quarter was approximately $427 million.
A decrease of $22 million in spite of a currency headwind and resulted from our continued focus on optimizing our inventory balances and increasing our turns.
Now I will turn to our outlook for this first fiscal quarter of 2021.
Revenue for fiscal Q1 is expected to be in the range of $300 million to $320 million.
This revenue range reflects the current uncertainty in Europe with regard to the impact of the coated resurgence and many countries in the region implementing some form of a lockdown.
We expect fiscal Q1, non-GAAP gross margin to be in the range of 36% to 39% non.
Non-GAAP gross margin excludes intangibles amortization of approximately $1.9 million and stock compensation costs estimated at $1.7 million.
Non-GAAP operating margin for fiscal Q1 is expected to be in the range of 7% to 10%.
This excludes intangibles amortization estimated at a total of $2.5 million and stock compensation expense of a total of approximately $11.9 million.
Other income and expenses estimated to be in expense in the range of $4 million to $5 million we.
We do not include transaction gains and losses related to future changes in foreign exchange rates than our own in the outlook.
We expect our fiscal Q1 non-GAAP tax rate to be in the range of 24% to 25%.
And finally, we are assuming weighted average outstanding shares of approximately $24.4 million for the fiscal first quarter.
I'll now turn the call back to the operator for Q and a session.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone for using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
First question is from Jim Ricchiuti from Needham and company. Please go ahead.
Hi, Thank you. Good afternoon couple of questions I'm wondering if you can give us some sense as to how much of your display backlog is represented by these emerging micro Ltd.
Wins that Youve alluded to.
Yeah.
Cindy.
Financial impact of the micro LCD orders is relatively minuscule in comparison to of all our overall backlog the strategic relevance of these design wins is extremely high because it shows movement and a brand new technology.
And we think we are at the inflection point, where.
Display manufacturers are really trying to figure out how to turn micro realities into a commercially viable solutions.
How to include two lasers as the process of record for the manufacturing process and we're helping them through this whole design process.
Got it that's.
Thanks to a clarifying that and then Andy with respect to.
The aerospace and defense opportunities you alluded you mentioned that this part of your business has been in a in a stealth mode can you give us some sense as to how how big that portion of the business is doing and then as we begin to think about it over the next one to two years it sounds like.
You see a pretty good runway of opportunities go where can you give us.
Sense of where it is today.
Jim It's Kevin I can you know, we're going to do we're going to defer that until Q1 as Andy mentioned in his prepared remarks. These are one of the four markets that will focus on going forward and as a result, we'll break that out as we do today with our four markets, but we won't do that into acute till the end of Q1.
Okay, and then last question and I'll jump back in the queue. It appears as you're going after these opportunities that your R&D levels may be going up is that a fair way to think about one area of your opex.
Look we're going to be making sure we invest enough R&D dollars into the areas that matter. So we will do both we will de focus.
Areas, where we feel we can.
Weed out the portfolio, where we can streamline the portfolio would set those R&D dollars free and we'll double down in those areas that we think will hold attractive growth potential in the near and intermediate term.
Net net it might lead to a slight increase of the R&D dollars, but nothing earth shattering in the relationship of our total opex cost envelope kind.
Got it thank you and Jim Jim if I could if I could add to that Jim I'm sure. You know we closed the quarter at 91 million as Andy said, we'll we'll defocusing some areas focused on other areas, maybe that's a net add.
But I I for planning purposes for modeling purposes, because I know this is this will be a question from others as well I think the mid to high Eightys is the right area to be in for Opex modeling.
Great. Thank you Kevin.
True.
The next question comes from Tom O'malley from Barclays. Please go ahead.
Hey, good evening guys. Thanks for taking my question.
My first one is really related to the outlook into December obviously at the midpoint of guidance you are seeing some deceleration could you walk us through what's causing that is it the scientific and government taking a breather after recovery orders microelectronics stepped down just any color on those moving segments into December Super helpful.
Yeah, Tom its Kevin so from Oh are.
Our universities and research standpoint, as you might imagine a lot of kids are coming home from college.
Google They'll go back post Thanksgiving and the expectation and certainly embedded in our outlook is universities will start to close down a bit.
As opposed to the reopening that we saw mid quarter. Similarly.
Similarly in Europe, as you've already read I'm sure there are different types of lockdowns going on in many different countries.
There is an expectation that that will increase and.
Clearly that will impact the business.
Instrumentation, and scientific will be impacted as well.
Okay. That's helpful. And then if you're gonna size. The impact you, obviously made a point of of specifically mentioning the European lock down is that factored in conservatively are you already seeing trends I just I'm trying to understand if this is.
Cautionary going into the next quarter, if there's you're you're actually seeing business trends slow.
Yeah, It's it's D. All of the above Tom we're concerned in certain countries our ability to for some of our field service engineers to travel and therefore potentially impacting service revenues and then it just broadens from there. So you know at this point in time with the information we have.
Oh this is where we landed in terms of the December revenue range.
That's helpful. And then just I want to sneak one more in you mentioned that you had several orders during the during the quarter from customers in China. You've also mentioned micro Itla can you talk about the mix of business going forward I know that it's a couple of years out but do you think that might grow you would represent a bigger portion of what that Tam in the in the micro like.
Tronox business will be longer term or do you still feel the same way that your existing Oh led opportunities are really going to make the bulk of that growth up.
Oh, let's see for the next two to three years. There's no question that Oh, Oh, let's flex OLED is going to make the bulk of the opportunity and is going to drive a topline anyway, you look at it.
It gets really interesting when you look past three years, if you look in the three to five year time Horizon. We then starts to see micro L.D. picking up and that's all net new Tam because it's kinda go into new fields, and if you go back to.
My prepared remarks.
We will see one of the areas were micro entities will be effective.
Might very well be.
In the TV space, which is a space that we're currently do not play in so anything we do in the TV space, it's going to be net new Tam for coherent.
Thanks Lucas.
[noise]. The next question comes from Brian Lee from Goldman Sachs. Please go ahead.
Hey, guys. Thanks for taking the questions and then maybe just a follow up on that though that previous one the you know the multiple orders from a different Chinese customers in the quarter can you can you provide a bit more context is that E.L.A. is that L. O is there a mix can you kind of give us a sense of what that mix.
Look like and.
So how many customer he saw new bookings from in the quarter for Ah for OLED equipment.
Yeah, Hey, Brian its Kevin So in terms of the orders that we referred to in the prepared remarks. The significant majority of that was all E.L.A. for.
For OLED or.
There's some other things that we took orders for in terms of dollar amounts that those systems, you know called them prototype systems much less expenses were lower ASP than the lay equipment and therefore driving up again, the significant majority of the Gilly bookings were L.A.
You had a second question then I missed it.
Yeah, I mean multiple cut customers is I mean, you had two customers order. He delay was it you know four or five or you kind of give us a sense of the magnitude of how broader customer lowering base yourself.
Yeah, we're gonna stay with most of the customers correct.
Okay Fair enough and then on.
The ER just two more from my end and I'll pass it on the the cycle times are we still in that sort of six month lead time from order to.
ER shipment until or has anything changed on that front I know that Kobe not impacted I'm certain delivery timelines are for different logistical issues earlier in the year, but where are we now.
Yes, yes so.
No real change there and any configuration TV or you can get a minimum six months.
So no change at all.
Okay.
And then last one the gross margin Andy you mentioned, having a four handle by the end of 2021, I just want to make sure.
I understand the commentary clearly so so you know we're on the same pace, that's 40% plus on non-GAAP gross margin being achieved in fiscal Q4, 2021 is that right and I guess, if so why maybe wouldn't we see a better progression since.
You already got.
Adding 36 to 39 for Q1, and Q4 still a ways away.
Thank you guys.
Brian first of all yes, it means a 40% plus towards the end of Q1 as it relates to its the end of 21 my bad.
And.
That could be the end of Q4 it could actually also be the end of the calendar year Needless to say that revenue and revenue growth will augment the ramp off.
Our gross margin and.
We cannot predict the full revenue ramp for the year, yet and so you've got a little bit of flexibility in that statement, but we feel very.
Certain that the work that we do on our good to great transformation in our portfolio re direction will get us to the four handle as the year progresses.
Okay, No I appreciate that color, but I guess the way you answered in Indio fiscal Q4 wheel end of fiscal 21 or <unk> end of calendar 21 that so it it's it's either going to be.
Later later as opposed to I mean, you wouldn't open up that sort of a.
A thought process here that you know you could actually pull that forward to any degree because fiscal Q4 versus.
I don't have to fight it you sort of making a wider range out several quarters as opposed to bringing that it.
Hi, Brian.
If we see the world after the announcement yesterday about a vaccine if we see the world bouncing back to pre cobot levels sooner than anticipated or that will drive volume and volume increases will always help you to achieve higher gross.
Margins as they will drive our fab utilization.
But we don't know that yet so at this point, let's just stay with where we are and as the year progresses, we will update you accordingly.
Okay fair enough thanks, guys.
Thanks, Brian.
Next question is from Mehdi Husseini from ESG. Please go ahead.
Yes, thanks for taking my question.
Andy Kevin did you say that backlog was up 10% year over year.
Correct, 10% in Q4 versus Q4 hundred 19, that's right.
Right right.
Now you also mentioned that easily system. The minimum cycle time is about six months and if I were to put that into context. So backlog does that mean that the customers are on the ground Oh, let's side can afford to wait.
And come back later and book additional system.
Well they can always come back muddy and book look systems I would look at it a little differently and specific to fiscal 21. This means they could book as late as March and we can still shipping revenue it in fiscal 21.
Right right. Unfortunately, you don't.
Record backlog or bookings on a quarterly basis.
Yeah, we don't put our case yeah.
Yeah, our K is going to be filed in early December and we'll we'll calibrate backlog at that point.
Got it. Thank you and then a couple of follow ups.
I'm, a little bit confused with the.
All the initiatives, you're taking aim regrouping.
Our new segmentation and focusing on higher growth and expanding the Tam.
I haven't heard anything but.
Addressing the footprint or.
Sizing the company and he had come up in the past and how your two calls Andy.
Hi, Pat participated since joining the company, but I haven't heard anything about improving the cost from recycling and you mentioned that you're expecting to volume to help with the 400 gross margin how should I be concerned this too.
Okay.
Mehdi if you go back I said, we're gonna do fourth thing is not in our good to great transformation.
Hey, transform the operational efficiency of all our processes.
Be reduce the complexity of our portfolio.
The focus our investment on growth opportunity.
And the enhanced focus and alignment with our customers. If you look at the first two that clearly includes streamlining of portfolio. It.
Also includes we're going to take a critical look at some of the footprint of our organization and these are all elements of our good to great transformation, but especially if you look at the same site consolidation. These are.
Very complex issues, because you've got people your cup product lines, you've got customer commitments that you have to work through.
Which is why I also told you that we will keep you updated on give you more color at the end of Q1, because these are things that take proper planning and.
Very good execution, so that they will show up as margin accretive to the organization.
Great very helpful.
Would it be fair to say that as you exit at Slide 21, you have to tailwind behind you and and and as you look into a flight 20, twos, where both revenues would scare and also operational inefficiencies would help with the better margin profile is that the right with the combined.
But absolutely the as we.
We should do.
Most of the restructuring in fiscal 21, and we're going to do most of the product streamlining in fiscal 21, So think about it. This way we're going to be looking at every product, especially products that sit in markets, where the market is and so attractive.
And were the margin contribution of the product is diluted to the organization. Those are the first things on our radar screen and we've actually developed a complete roadmap around this and we're tackling every single one of them and as you know we have a pretty broad portfolio and are brought to us.
Hold your you have some stars and you have some elements of the portfolio that aren't as well performing so we were going to be working through all of that but going into 22. The benefits of all that work should be with us on.
On a sustainable basis for the whole a 12 month in.
In the next fiscal year.
So it seems to me that.
You may try to keep Kevin.
You could also enjoyed the benefits of all the hard work. It's like 22 is any chance there.
But any update on the CFO search.
I I happy I'm happy to give you an update on the CFO search we're looking at a very strong slate of diverse candidates.
I've interviewed personally more than a dozen highly qualified individuals at any one of them would have been.
Hey, good choice. So now we have the the good and the heart the hard problem and the good problem of condensing that slate of candidates down to the perfect athlete for us going forward and.
I would expect us to be able to give you an answer.
No later than our next earnings call.
Thanks much.
The next question comes from Larry Solow from CJS Securities. Please go ahead.
Yes, hi, its Pete Lucas for Larry.
Got it covered a lot just a couple of quick ones from me or any change in the cadence of Chinese government subsidies and investments in OLED Fabs, a thus far that you're seeing in 2020.
Pete to Kevin here in terms of the Chinese subsidies no change there, but they are still funding a good part of the Capex for <unk> for the the growing fabs.
That will go into OLED or OLED manufacturing so no change.
Oh, great helpful and just a last one from me a Andy I think you've done it in terms of the use of proceeds in cash I think you mentioned cash preservation and no buybacks or no payments on the term loan now can you kind of talk about your priorities for cash going forward and how you think about debt pay downs acquisitions and buybacks.
And do you know how you would look to use the cash.
Well I guess.
Without saying this is exactly what we're going to do but just my bias is always if we can use our cash to invest into R&D with our own resources that would be my first area to go to because that's how you create a very attractive IP portfolio and how.
Great and the long term.
Very margin accretive elements of your portfolio.
If we then find areas, where a bi opportunity accelerate our time to market.
Like the smell.
Small acquisition that we talked about on this call we will definitely use our cash to do so but we expect these acquisitions to be more tuck in size of acquisitions.
And then third.
You have every other opportunity of what puts you can do with your cash we're not saying we're not we're excluding the opportunities.
Of share buybacks, but it's not our first focus and let's not.
Declare the pandemic to be over yet, we really want to be.
Mindful stewards.
Off of the cash position of our company to give us security and Optionality going forward.
Extremely helpful. Thank you very much.
Next question is from Nick told her off from Longbow Research. Please go ahead.
Yeah. Thanks.
All right I have a couple of questions can you guys can maybe talk about how much exactly have a corporate related impact are you baking in the December quarter.
Because oh look at Europe, it's only 18% to 20% of your cells is your OEM and scientific market are overweight the European universities and research labs.
Any color there would be helpful. Thanks.
Yeah, I mean again you.
You know, what you're not thinking specifically say because the dynamic in Europe is changing week to week, we embedded what we knew at the time.
We did take our forecast down into that range.
But that's all I'm going to say I cant calibrated at this point.
Okay. There's the scooter on OLED side, you guys have been taking orders I believe now through June 2019.
And as we think about typical lead times have been six months years. There has been some push out due to coal, but which you spoke about in the beginning of the year, but have you guys seen as there's no push out of orders just because I'm looking at the numbers and it applies the June and September. This year, you should probably the cooling off one high end system and.
Just based on your guidance and language. It doesn't it seems like there's going to be a ramp up in those systems in the in the near term quarters.
Yeah, Nick Kevin again, you know when we if I go back to June of last year. We said it we took our first order singular.
Related to you know the next build out we did come back in the September and December quarters, and so we took orders plural.
We never really calibrated that other than singular versus multiple we do ship easily systems every quarter it.
It varies by quarter in terms of the number of shipments.
But that's that's all I'm going to say at this point you know we're very pleased that we took multiple orders from multiple customers since our last call and that will help build out to fiscal 21.
Okay is there any anything different in terms of the mix of those orders are you guys sitting maybe a little bit higher mix of Linebeam 1000 also sit on the 15 hunger.
[noise], you know going back to the first quarter. We we took back on June 19, we said the Chinese were predominantly Linebeam one thousands there's been no change in that.
Okay. Okay.
All right next question I think that the gross margin comments, the 40 hand or not until the end of calendar year 21, I I guess.
HM.
Expenses that implies if I'm thinking correctly that your revenue is going to stay roughly flattish or grow a very little from here you are talking about strong bookings growth and all of your segments.
Have multiple orders for OLED, how do we cleared the fact that you know essentially you're projecting that your revenue is going to you in a random bat in old 300 million range for the next four quarters.
But just when you look at a gross margin.
They go ahead and I'm, sorry got a thing you got to look at the puts and takes.
He also said we're going to streamline our portfolio, if if I could magically make every product that dilutes, our gross margin disappear overnight the ramp would look different but in every product that you have to you have customer commitments you have in some cases you have a next generation other technology.
That will enhance our cost position in some cases, we still have to perform work or do some sort of applications for products to get there. So you have.
The positive of the higher end product.
Offset in the first half of the fiscal.
With the portfolio that still diluting, our gross margin and as we progress. These things will welcome a swing to the positive territory and just to give you. An example on how volumes and make a huge difference.
I talked about in my prepared remarks that we have.
We'll have some very exciting news on our diodes.
Those are all SAP business model, you know how SAP business model works loading of the Fab goes up and your gross margin goes up dramatically. So many puts and takes many stories within the story and.
It's just because this way we feel comfortable that we will get to this point and we will update you on our progress and you'll see how fast he will turn the.
The corner from the low in Q3, two where we said we're going to be.
Yes.
Got it thanks.
The next question comes from Mark Miller from the benchmark company.
Thank you for the question, but just wanted to go back to margins again, and your projections for improving margins.
You indicated it's going to be mainly volume driven but are there any mix effects you could see that are also going to help drive the margins I'm just wondering to break down between higher volumes than any improving mix and then what what improving mix is going to drive that.
Yeah, Hey, Mark its Kevin I'm, certainly again, all the above will contribute to an improved margin volumes for sure because a better you know call it overhead absorption or mix will be in our favor as well as we look into fiscal 21. The fact because of good to great will also help.
You know basically filling some of the portfolio and reinvesting in other areas to drive higher margin products and all of that will contribute to a minimum four handle.
Okay.
You said feel to be a drilling you know is certainly an opportunity as we go to fiveg and in the.
Yes, the smartphones.
As you go into smaller via sizes are you gonna have to transition to a new type of laser.
No but.
Well it was very briefly <unk>. We've introduced are those generations. The important thing is.
As they go to the smaller footprint as they can no longer use canaccord drills. So the nice thing about this market is we're actually this is a classical example, we're laser in fringes of the take on technologies that were done with.
Other technologies previously and so it expands the opportunity and we have a ready portfolio and our C. O. Two laser factory is working around the clock right now to fulfill customer demand.
Okay. I believe you said, it's not gap out that will be from mid to high Eightys is that just for the first quarter is that the trend throughout the year.
That's a good trend throughout the year mark Okay, so you're going to be bringing that down persons sense. Okay. Thank you.
Thank you Mark.
There are no more questions in the queue. This concludes our question and answer session.
Like to turn the conference back over to Eddie matters for any closing remarks.
Okay I want to say, thank you to everybody who spent the afternoon or evening with us on this call. Thank you for all your questions are we've got an exciting business on a an exciting year ahead of us and we will keep you posted as we are making progress on our trajectory. Thank you and good night.
[noise]. The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
[noise] [laughter] another one.
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