Q1 2021 CyberOptics Corp Earnings Call
Please standby.
Good day, everyone and welcome to the Ciber optics first quarter 2021 earnings call.
Today's call is being recorded and on.
At this time I would like to turn the conference over to doctors, who both Kulkarni President and CEO of fiber optics. Please go ahead.
Thank you.
Good afternoon, and thanks for participating in fiber optics earnings conference call for the fourth quarter call. Thank you for 'twenty one.
Joining me is Jeff Bertelsen, our CFO and Chief operating Officer, who will review our results in some detail following my old what does he go for two simple songs.
We then did the police will answer your questions at the conclusion of our remarks.
In keeping with regulation FD, we have made forward looking statements regarding our outlook in this afternoons.
H.
These forward looking statements reflect auto club for future reserves.
Could you subject to a number of risks that aren't just question on debt.
For the year ended December 30 flow strength quickie, and then findings for the Securities Exchange Commission.
Oh did you to review these discussions of risk factors.
Turning now to our recent performance cyber optics first quarter sales exceeded our previously issued guidance for the speed.
On our strong performance was driven by significantly higher sales itself well for you to flex.
So patients on a modest three decent sort of sick pay for defense semiconductor products.
Firstly, leading sensing inspection and metrology products.
For a position cyber optics to capitalize upon the robust capital spending environment.
Our target to electronics and semiconductor markets.
We reported sales of $17 million for the first quarter of 2021 ended March 31st.
Please also eight per cent from 16 worked for for near the all those into.
For score for 2020.
Net income for the current quarter was one point for the new dollars on 19 cents per diluted share.
Two other things off each other and 44000 or 11 cents per diluted share the euro earlier quarters.
In addition to the higher sales reported in this year's fourth quarter on.
Earnings also benefited someday you might get on gross margin to 47 per cent for 44% the euro disappeared.
The increased proportion of high margin day for since I'm going to kick start ups, you know sales mix during the current Corp.
I know its review on first quarter performance by product side of it.
Sales of three D. At what he said so to see increased 54 per cent yet on what are your just six boring for you.
The fourth scorecard.
On.
This growth was driven by sales of treaty, a modest sensors, which of those 37 per cent year over year to $42 million due to demand from OEM customers and system integrators using the sensors for the hot end semiconductor inspection and metrology applications.
Sales of TD on recent so it's on forecasted to post strong euro what are your growth in the second quarter of 2021.
Sales of for some semiconductor sensors increased 98 per cent year over year to a new quarterly recalled on $5 billion in the first two months of 2021.
Sales for this year that process improvements and so it is not expected to post strong sequential and year over your increases in the second quarter growth granted you want do.
And in part by demand for semiconductor Fabs do you need to speed yet.
We believe the global the chip shortage will persist for some time, which bodes well for our product sales for semiconductor customers in coming periods.
Sales of our SKU 3000, Multifunction inspection system said, it was 33% yield or what are your total.
For $1 billion in this year's first quarter.
This increase was offset by significantly lower sales itself legacy systems.
So it makes nobody module inspection systems.
As a result sales.
So of inspection and metrology systems felt 'twenty for secured order your six $3 billion in the first quarter of 2021.
Since late 'twenty 'twenty, you have received orders valued at $7.
For Treaty. It makes three tells that Liberty bodied inspection systems.
We expect to recognize $2 $4 million of the it makes three towels on orders and revenue in the second quarter all credit Glenn do you want.
But it makes a few times on orders are particularly encouraging since we believe the signal of the importance of audio, especially on technology do memory module manufacturers.
I'm also pleased to announce that we recently received a new order for many Aleve D inspection and metrology valued at $2 $4 billion. This Florida, which was not included in on March 30 for his backlog is expected to ship periodically to old 2021 starting in the second quarter.
Sales of inspection and metrology systems in the second quarter for granted when do you want are forecasted to post strong double digit growth on both a sequential and year over year basis.
Our backlog on March 31st to integrate you weren't talk a $30 million to $40 million up from $23 million at December 30 closed well integrating reflecting strong order backlogs L. P. D. A modest sensors excuse he thompson and it makes for intelligent systems.
The products.
We're forecasting sales of Glenn do you want to get to $3 million for the second quarter of 'twenty or 'twenty, one ending June 30th.
Compared to $60 million in the second quarter look like you're drinking.
Alright, once a day for some time.
On your platforms.
He goes to continue to be leadership positions in both SMT and semiconductor markets.
We believe positive market conditions will persist throughout 2021 which is forecasted to be another period of strong operating results for cyber optics.
Thank you Jeff.
Jeff Bertelsen will review, our fourth quarter per phone once in greater detail.
Thanks aboard as.
As we stated in this afternoons earnings release net income in the first quarter of 2021 benefited from a significant improvement in our gross margin percentage, which rose to 47 per cent from 44 per cent in the first quarter of 2020.
This improvement resulted from the increased proportion of high margin products in our sales mix, particularly wafer subs semi conductor products as well as three D. M. R. S sensors.
We believe our gross margin percentage in the second quarter of 2021 will decline by roughly three percentage points from the level posted in this year's first quarter, given an increased proportion of lower margin system products in our in our anticipated second quarter sales mix, including two.
$2.4 million of M X 3000 memory module inspection systems.
Our gross margin percentage for the balance of 2021 will be heavily dependent upon product mix.
Particularly sales volumes of high margin wafer sense and three D. M. R. S sensors.
The benefits from our cost reduction program for our F Q3 thousand product have been delayed until 'twenty 'twenty two our platform supplier on a on.
Expected Lee informed us that they would not be able to meet our cost reduction targets, resulting in the project delay.
Total operating expenses on the first quarter of 2021 increased modestly by <unk>.
By about one per cent year over year to $6 6 million dip.
Depreciation and amortization expense totaled $636000 on the first quarter of 2021 and stock compensation expense came to $334000.
Total operating expenses in the second quarter of 2021 will be significantly higher on a year over year basis in part due to the higher revenue levels being forecasted during this period.
You may recall that we realize the significant benefit from our Singapore job support program that favorably affected our R&D expense in the second quarter of 2020.
The Singapore government is not offering these wage credits in 2021 and.
In addition, operating expenses were unusually low in the second quarter of 'twenty 'twenty due to travel bans shelter in place mandates and other measures related to the COVID-19 pandemic.
Total operating expenses for the second quarter of 2021 are forecasted to increase by about 5% to 8% from the level on the first quarter of 2021 due to higher channel commissions and incentive compensation, given the higher revenue levels being forecasted.
New hires and other investments in the business will also add to operating expenses in the second quarter of 2021.
Our effective income tax rate in the first quarter of 2021 was 18% and we are forecasting a similar tax rate in the second quarter.
Cash and marketable securities totaled $32.3 million at the end of this year's first quarter up.
Up from 30.6 million at the end of the fourth quarter of 'twenty 'twenty.
We believe our capital resources are adequate for achieving our growth objectives.
We would now be happy to take your questions.
Certainly and everyone to ask a question that is star one on your telephone keypad. Please.
Please note that if you're on a speaker phone to pick up your handset or do you price your mute function to allow that thing else for HR system.
Again that is star one if you'd like to ask your question and we'll go first to Craig Palm of Craig Hallum Capital Corp.
Yeah.
Good afternoon, congrats on the good results, maybe maybe just starting with the <unk>.
The backlog and just the overall commentary on the demand environment I think it's I think it's a record backlog and maybe record orders. If my math is right, but outside of some of the Amex orders that you publicly announced where are you seeing the most strength, whether it's you know application or end market.
Thanks, Craig.
So certainly as you don't give on what's going on in the semiconductor industry. The chip shortage for a lot of semi cap.
All markets are growing like Fabs are investing some of the other.
The extent they'll threat excited cartilage like me for instance, we are seeing strong Florida for sense certainly on the back end side every day.
Switching to steps as you mentioned.
You said that you are seeing very good day back for all the all the sensors that we sell to Oems for back end semiconductor applications like Kelly.
But he also in addition to that is Q3 thousand adult.
But he was pleased at that back end semiconductor area.
Strong demand for them.
Video say modest startups.
And we for some startups, it's a very healthy market for semi cap in general.
Okay, Good and I think back in 2019, if if we're thinking about three D. M. R. S. Sensors, there was an over inventory situation. If I recall I'm curious do you have visibility right now into whether these current order trends as real demand if you want to call debt versus something like replenishment.
We certainly believe it's real demand E on.
Customer to soft Saturday precipitous.
Good day to those who they are selling into.
And as you know I mean, right now, there's a city or a shortage of chips worldwide or videos industries, and there's a real appetite to increase capacity on <unk>.
On the wafer side, but also on the package side.
Where all this sense so to speak on building a great Oh.
So there is real demand because of the shortage of chips.
We believe that will continue for the foreseeable future.
Yeah makes sense, Okay last one for me on on.
Order you got it.
And obviously, a big announcement in validation you know recently out in the marketplace. What are your current thoughts on on how that opportunity will evolve over time, but just you know maybe I admit it on on how you're well positioned to capitalize on that trend it becomes a big market opportunity.
Certainly.
It was discussed in the past.
It's an exciting display technology on that.
Just on there that literally the first large consumer electronics company announced it for startup launch last week.
And you can see the marketing that screen with it for the superior display quality for that.
On a excitement at all.
The backlight.
For LCD technology.
We certainly expect that consumer electronic company and other companies to bring.
Both products on the marketplace over the next few.
More on central quarters.
Just wondered if you have a very nice position at all.
This step is qualified for.
Various inspection steps that are needed in manufacturing this circuit.
Right you gotta be accused him a few select locations.
But its application.
It is complex for Lora applications, but did the liberty editing manufacturing.
Our competitors, who are thinking lower price for a choppy accused other day. So we have a computer share.
But needless to say as the market will continue to grow we continue to believe it's a very good growth opportunity for us and really working with other customers on the nextgen.
So many of the leading technology with other days are getting smaller spacing is getting smaller so what are the next few years. He believes this is.
Gross opportunity for on Q2 total platform and day modest technology each other.
And would you characterize this as 2.4 million dollar order as the first of potentially several this year or do you think that this is sort of a one and only one for the year.
No. We believe that is even more orders as the year goes along and also on the existing Costa what other customers have it yet.
The operating losses.
Like many other U D. So this thing to continue to all that worried about it.
And people get more orders something going on there.
Don't think this is the one that goes on.
For the rest of great. Thank you on.
Okay, Great alright, Thanks, I'll hop back in the queue.
Thanks, Craig.
Our next question will come from Jason Smith of Lake Street.
Hey, guys. Thanks for taking my questions. Just following up on Craigs question on backlog I know, it's going to vary by customer and end market, but just big picture. How we should we think about the time line for that backlog flowing through the P&L.
Yeah I mean.
Good good question, Jason I mean, a reasonable chunk COVID-19 is going to flow, but certainly obviously not all of it is going to flow into.
Into the upcoming second quarter, So I would say you know roughly about.
You know.
50% of it or so is going to flow into the second quarter and then you know if you think of the rest of it it's probably a quarter and a corridor for for Q3 and Q4 something like that.
Okay, that's really helpful.
And then I know.
On a bit difficult with Chinese new year, and then couple that with the current backdrop, but can you talk about linearity in the March quarter.
Yeah. So on terms of linearity you know I would say certainly we saw.
Particularly on the systems side orders picked up definitely you know after Chinese new year's and in the March timeframe. So we definitely experienced that I would say in terms of the the sensor products.
Those order flows you know really where more linear and as sue bold comment I mean, we've seen really strong orders for M. R. S sensors and wait for some products. So even though those were more linear definitely some lumpiness on the system side and definitely tilted more towards March for though.
<unk> products.
Okay, and then just the last one for me and I'll jump back into queue did you see any constraints on the supply side at all in Q1.
We did not I will say you.
You know supply certainly is getting tight parts are getting tight you know and so that's something we're watching very carefully.
And we are spending you know effort more effort on that right now just making sure we have the parts to fill our customer orders.
So I would comment that it's tight you know Q2 will also be be tight we feel reasonably good about Q2 right now and then you know we're really starting to look at the back half of the year and trying to secure.
Secure part so so we're able to meet the anticipated demands.
Okay. Thanks, a lot guys.
Things Jason.
And once again every line to ask a question that is star one on your telephone keypad.
We will now go to Eric Slavens Acme archives.
Oh.
Hey, Congratulations I always knew you guys had it and you just we wanted it yesterday, but a great quarter.
So can you hear me.
Yeah, Yeah, yeah, okay.
Yeah sure just driving on the beach talking to you guys, but gosh.
Here's my question every quarter I asked this on your third memory player.
I know that could come any time it was like the second one that dropped in.
Or it seemed like it took longer like he's always do but what's the color on the on that.
On the third memory player now.
Well certainly we are right, where we have to say.
To a customer who says you know what.
For the three largest memory manufacturers, we are talking to a total still optimistic they will eventually choose Ara technology at all.
Product over what they're using right now, but as all screen.
Haven't given us any orders yet, but we feel pretty good about eventually getting that business, but can you just say why it is time as you said.
Yeah, I think last time I talked to you Jeff you mentioned that like when you get an order from that for a customer to be announced a new customer is that correct.
Yeah, we we would we would make that clear.
Okay, that's consistent with what we did with the second customer.
So.
What was the bottom line breakeven for the.
First quarter I know last quarter was around 14 million what about the first quarter.
Yeah.
Yeah, Eric So I mean, if we are you know just just taking a look at our P&L and I will just use round round numbers to keep share simple. So our operating income was was 1.7 million. So if we just sort of assume a 50% gross margin, which was a little little high.
I know that that would equate to three point for millions. So you know if you if you strip three point for million off the 17 point Southern that we did you know you would you would get roughly you know 40.
$14 million.
So you guys did 19 sense I think the estimate was 13 to 16, so what's you're doing you're you're guiding 21 to 23 million. So, let's just take 20 to buy it right in the metal even though you guys tend to hit your higher numbers that to me it looks like an incremental of 4.3 million.
With let's say five cents to the bottom line all the 14th so we'd be looking at a quarter up near 40 cents hypothetically right.
You know Eric we don't you know P. O I know that really P&L guidance, we do give metrics as I had commented on in my remarks. So you could go build a model.
If you would like to do that that's what I just did so yeah. So I figured it would be 38 to 40 cents, which is crazy growth.
So all right now the other question on the many micro did you get an order a as I say on driving some of that total it what did you go on order for two point for millions on the many micro site.
Yesterday, we just announced that this afternoon.
Beautiful so more to come on.
Alright, I think that does Oh, one last question once again driving a what was the cash on the balance sheet now.
Our cash at the end of Q1 was $32.4 million.
So that's about a <unk> and you got 7.2 million.
Sorry 30, yeah.
And fully diluted what your share count now.
Our fully diluted fully diluted shares were rough.
Roughly seven point for a $5 million.
Okay. So youre looking at about four and change on the cash per share now.
Something like that.
Correct I've got like $4.40.
Okay, perfect, Yeah, Hey, a great order again keep it going.
Thanks, Eric Thanks, Eric Alright.
Alright.
And next we will go to <expletive> Ryan of Colliers.
Thank you.
Do you have one housekeeping what was the cash flow from ops in Q1.
Sure Yeah, the cash flow from operations in Q1 was $2.4 million.
Okay.
It's about in your commentary on weight per cent you you indicated too new.
Customers now is that existing customers on wafer stance and you're moving into a new other fabs that they are operating or is this new chip manufacturers.
On the clarification did you say two new fabs not to new customers or existing customers, but two new fabs that they are picking up as we speak so that's any day.
What is being advanced fabs it creates new opportunities for the for the centers because they are running into issues on productivity issues.
The other two new fabs of existing customers that are driving on the current demand.
Well that cross selling is a it has to be pretty a pretty good for your confidence about the ability to get deeper and Dear. These you know these major chip manufacturers.
Yeah, certainly I mean do you feel that you have a very good position right now with this products and technologies. So we continue to get better and better traction with existing large semiconductor fabs.
Okay.
Now the memory side you you made a comment on the third player I was more interested in the first player of the opportunity go on from two D to three D cause I think that customers spend you know 15, 17, some odd million dollars and two D equipment.
What are the challenges to get that customer. That's day, you know like the product and the other capabilities. What's what are the challenges to get them to switch over to two or three D.
Well I mean the.
There are some low.
Just to go the challenges are in terms on the exact fitting into their automation, a turnkey system that happens to be a topic.
All other than our 20 systems because of the sensor dimensions at all but does that all solvable problems will be on working with them right now as we speak on how do we got to go to art.
RTD It makes system in their existing automation society those would be solved in the next next few months here.
And then they have to worry about their capex budget and debt.
Making sure that.
They have opened thorny issue right now on everyone's getting their fabs and production on all out.
And getting six lakhs to on a on a line is not busy right now so they have to work out their time line and their schedules and other catheter budgets. So I don't view this problem says insurmountable.
Tackle them, so I'm pretty sure moving forward, we should be receiving TD. It makes orders for the first customers.
Okay great.
I think on the last call you were talking that you had some you know you were concerned or had some potential concerns on supply.
Supply chain and it wasn't giving you much or if any visibility into the second half of the year. You know now that we're into the second quarter can.
Can you give some qualitative sense. The key are the second half versus first half.
What we should expect.
Yes.
Yeah sure I'll take that simple you know on terms of our supply chain <expletive> I mean, it's it's been pretty tight here and in the first Q1. It was we're seeing the same in Q2.
And you know just given the current environment you know our expectation its going to remain tight in Q3 and Q4, but you know.
We're up really proactively working with all of our suppliers too.
You know secure sources of supply we are seeing lead times push out so.
So we are we really are working on that and thankfully you know at least in the first half of 2021 we don't see it as being a constraint and hopefully will mitigate anything for the second half.
Okay. So then for revenues without guidance.
You get a you know we've had for men and industry commentary of the second half.
Was setting up to be stronger than the first half.
Can you give us a qualitative look as to what your expectations might be.
Sure I mean, I think we are you know I'll comment and then sue well, maybe you can jump in I mean.
You know we definitely think this is a robust environment right now and you know just given the lumpiness in the nature of our business, it's hard to pinpoint exactly where things will land, but we think everything looks healthy and certainly expect it to continue Sue Bo do you want to add to that.
Yeah.
A tricky one because there's so many moving parts here, but all of you on right.
Many analysts have predicted that the second half sales are going to be better for semi cap on electronics in general.
As you mean that obviously, we will do better in the second half awesome.
As you can clearly see from the backlog jumped quite a bit from just simple it's pretty close to March 31.
And even with a very good Q2 record Q2 sales of the we expect a very healthy backlog to continue at the end of Q2 based on the orders that we have already disclosed that makes hard on.
Medium duty order, we disclose today. So we expect strong demand to continue because as chip shortages in many electronic parts shortages. So the what is the supply chain challenges also benefiting us big time for when it comes to day Mac and.
And we definitely expect second half to be a strong second half sold on it could be a very strong year for us.
Okay, great. Thank you and congratulations on a strong performance.
Thanks <expletive>.
And now we'll take a question for a private investor Chris that Joe Tsai.
Hello, and congratulations on great results.
Thank you.
I worked on kind of a more on German or long term question.
For this.
Because we are a good growth this quarter on predicting growth growth next quarter.
You've talked a lot about the chip shortage or for a Burger brokering, sorry capital investment.
Would you say.
How much of your growth would you say base for growth.
For higher level of capital investment just for more for.
For higher volumes of production or is there for growth resulting from.
Ah you're.
Your machines bring your more and more processes are more scope for.
For I guess for machine vision.
Or kind of for me, it's more into the other.
And for the manufacturing process.
I mean, it's a good very good question already looking at other big doughnut sales. So we definitely see a strong dependence to semi cap.
Which is the Catholics, a catheter market in the semiconductor industry as well as electronics manufacturing day. So we certainly are selling systems, particularly into the catheter market, our OEM customers and they are buying other sensors. They are sitting in for that catheter market. So we are definitely keep that guidance, but we do have sales from other areas as well like the metrology kind of thing.
Yeah.
It skews CMA awesome on the scanning services. So we are a little more devoted to see for he done a pure play semi cap company and that goes with the broader economy.
So our guess is that based on what we have seen so far almost 70% of our sales are coming from the semiconductor customer order said there is some strong electronics beauty electronics manufacturing on some other customers.
So we do have some exposure to as you mentioned machine vision for AI and other areas non semiconductor or electronics manufacturing.
But it's much smaller compared to semi and electronics, Jeff you want to absolutely.
Yeah, I mean, I would agree with that and then certainly.
If you look at last year, and then also this year and into the future I think we do have some some of the exciting applications that we talked about today like like a three D memory module and many many L. A D and so forth and those will be key drivers for us.
Okay.
And within our within the thing kept manufacturing is there any kind of like for preservation like maybe your machines are being used for most but instead.
In certain manufacturing and that's in.
In packaging and so on.
Well I mean, there's certainly a day little need for using automated optical inspection.
And I'll go to have applications, not just pure high speed manufacturing, but again the volume has become fairly small once you get outside manufacturing and at the competition can you just quite a back do you start competing with metrology type companies like Nigel on X ago, those kinds of companies.
So very different marketplace. Once you live manufacturing it getting too though.
One off kind of equipment, but suddenly.
AOR assistant leasing some of those markets. So we do see some customers for that but again.
By and large the volume started doing by the large semiconductor manufacturers on electronics manufacturers.
Alright, thanks for the answer to your question. Okay. Yes. It does very helpful. Good luck.
Thank you.
And with that it appears we had no other phone questions I'd like to turn the call back to our presenters for any closing comments.
Well. Thank you all for your interest and questions. So the on excited about the upcoming quarter and look forward to updating you with our results at the end of Q2. Thanks again.
And with that everyone that does conclude today's call I'd like to thank you again for your participation you may now disconnect.
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