Q3 2021 II-VI Inc Earnings Call
Good day and welcome to the two six fiscal Q3 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mary Jane Raymond Chief Financial Officer. Please go ahead.
Thank you Shelby and good morning, I'm Mary Jane Raymond the Chief Financial Officer here at two six incorporated welcome to our earnings call today for the third quarter of fiscal year 2021.
With me today on the call are Dr. Chuck Mattera, our Chief Executive Officer.
Dr. Giovanni Barbarossa, our Chief strategy officer on the President of the compound semiconductors segment. This call is being recorded on Thursday may 6th 2021 hour.
Our press release on our updated Investor presentation are available on the Investor Relations tab of the website I I Dash V I dotcom.
Just as a reminder, any forward looking statements we may make today. During this teleconference are given in the context of today on Mike.
They are subject to various risk factors and are subject to change possibly materially.
We do not undertake any obligation to update these statements to reflect events subsequent to today, except as required by law.
A list of our known risk factors can be found in our form 10-K for the year ended June 30th 2020 filed on August of 2020, as well as the form S. Four filed on May 4th 2021.
Our remarks today do not constitute an offer to sell or the solicitation of an offer to buy any securities.
For generations and.
In short we are committed to changing our world.
And delivering long term stakeholder value along the way.
I would like to recognize or a global pandemic response team and all of the two six employees, who once again mitigated the impact to our people and facilities during the quarter as the vaccines and the viruses squared off.
The safety of our employees remains hour a top priority.
With an incalculable total and suffering from COVID-19, I am grateful to the entire scientific community, who developed the vaccines and who are battling heart. This global pandemic now surging in India.
We will keep all of the people of the world in our prayers.
I also want to recognize hour or two six employees, who have been enabling PCR testing throughout the pandemic by supplying vital optical filters and thermal management components to makers of life science diagnostic instruments used around the world for COVID-19 testing and for vaccine day.
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Now turning to the business Q3 was a very exciting quarter in which we continue to focus on the growth drivers over our business as.
As you know on March 25th we were selected as the successful bidder for coherent.
We have known and regarded coherent for years as pioneers of industrial laser processing and as you can see in the guest four we had been discussing a possible strategic combination with them for some time.
Coherent will add complimentary strength to two six with their expertise and industrial laser solutions for precision manufacturing and to focus on the markets and applications for life Sciences semi cap equipment and aerospace and defense three of two six is important emerging markets.
We are excited about expanding or a technical resources with deep domain knowledge and laser technologies to continue to bring breakthrough solutions to the market.
The combination will also expand our access to new markets and provide us an unmatched opportunity to expand our sales service and supply chain teams to best serve customers around the world, while delivering on the synergy plants.
Coherent will be our largest acquisition to date and partnering with vain capital will be a great endeavor.
R. A Q3 revenue was 783 million.
Doing pace of the emerging digital transformation that we are enabling.
We are pleased with the progress and positive news on many fronts, including the redefinition of a new normal in the face of COVID-19.
Increased GDP forecast and evidence of an economic recovery well underway.
Looking ahead to the impact of announcements of infrastructure stimulus investments the start of an apparent multiyear cycle and semi cap equipment, along with the other irreversible megatrends that underpin mobile intelligent and electric.
We continue to be very excited.
As one example of a possible leading indicator during the quarter. We saw particular strength from the industrial laser aftermarket whose revenues were at the same all time record level of the March quarter of 2018.
In addition, several of the AI error megatrends, including the computing and the markets are very healthy and the demand drivers continue to emerge with a proliferation of new use cases, and the buildup of new Fabs that have been recently announced are expected to drive the growth of our semi cap businesses.
Finally, I am proud to note that our 50th anniversary will take place on June 22nd and so the end of an extraordinary beginning for two six will be here before along.
With all of that excitement soon behind us I believe that the best is yet to come as we continued to reinvent the enterprise in the face of irreversible and accelerating change.
We are proud to be serving so many large innovators like apple.
That are also committed to having a profoundly positive impact on the world.
Their announcement yesterday about our relationship should help clarify our sense of the importance of our long term strategic investments and disruptive technologies and products that can be manufactured it's scale.
The announcement by Apple yesterday focused on an award from Apple to two six of up to $410 million and future business from their advanced manufacturing funding.
Is apple stated in their announcements this will accelerate two six is delivery of future components for iphones.
We are enthusiastic about expanding our partnerships with market leaders like Apple to enable on many of the positive changes through the adoption of new technologies that we expect to unfold over the years ahead.
We are honored to be Apple's trusted partner and we look forward to continuing on a longstanding relationship.
With that I'll turn it over to Doctor Giovani Barbarossa or achieve strategy officer.
And the president of the compound semiconductors segment, Giovanni well detailed Q3 and some of the key drivers of our queue for Giovanni Thank you Chuck.
The up on announcement was indeed lyrics items.
We are proud that our fix of technology is enabling meaning iPhone features including face Ivy, maybe <unk> anemology and posted Mon Celsius in a day.
<unk> as the Apple announcements, David the lie thus comment on allows comment us to pay that to the muffled environment, which improves low light photography and enables more heavily stink augmented reality expediencies.
We are proud of creating hundreds of high tech jobs in the us.
Our loan standard collaboration with Apple.
For our global to dissenting business this quarter it almost doubled over the same quarter last year with a typical seasonal pattern.
All facilities of qualified and shipping to multiple customers and without any great procedure on through new design wins with current and future components for the global market.
In fact, we are walking on expanding the technology blocks from saw sensing with electronics, but I've us.
And the recently introduced multi junctural diesel and fly illumination module platforms.
We expect the revenue for <unk> for fiscal year 21 to follow the usual seasonal pasta Wildwood squarely focused on Pip, adding photos on that will begin in color and a Q3.
Starting to the rest of our business in the quarter Aerospace and defense grew 16% year over year and 11% sequentially.
Driven by the increasing adoptions of lasers, and advanced optics fully diverse that whole day managing applications.
Our sales and communications saw a solid customer pool it costs, both David on and debacle, particularly from our web scale customers.
For example, Q3 was the second quarter, we doubled that Avenue for our two ombud info on digits on seamless.
These are follow ups, which I experiencing a strong pool, resulting in a book to build a show of almost fire.
And which will continue to drive our growth as the words came let's continue to move too high a day that AIDS.
At the same time, we a procedure on to leave the deployment of next generation optical interfaces at 800, Jean by leveraging our enabling photonic integrated simply platforms on both indium phosphide NCD from which are capable of supporting two LNG data rates, but waveland.
The transformation of of the optical communication on market continues with Congress ended the central behaviors accelerating they are able to Lucian total was disaggregated optical networks in all day.
To keep pace with a full adopted market demands for bandwidth.
We are excited by the market expansion on opportunities for our key amazing components modules and integrated solutions and we believe that we are adding a leading position to continue to need.
Enabled these fosco we market.
The industrial market also experienced exciting goes to do in the Florida.
Our Avenue in this market through the cost all types of lays on systems, 24% Geo over here and sequentially.
And will reach an all time highest avenue for hour after market optics and domestic us.
Globally hour after Marquez Avenue reach a blip on Democratic codes, but even by jolting fiber, Lisa optics she'll to Liza components, and customize being delivery systems for the assembly of batteries for the largest electric vehicle manufacturers in the world.
Of a life Sciences business grew sequentially for the fourth consecutive quarter driven by demand for our optical filters discrete optics and thermal management solutions for a portfolio of applications, including Bcf testing.
These speeds on this nearly doubled over here increasing from about 2% of total revenue a year ago to 4%.
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Sales will see the Hong Kong test Obsoletes grew over 50 percentage Q3 compared to last year, we sales too over 30 customers in Bios and markets. While we continued to make steady progress in building double device and multiple business and accelerating our whole day capacity expansion.
Our semiconductors capital equipment by the lines are sold out.
On all of our engineered materials products for both the front end and the back end of the line and our sales into this market group, 15% sequentially.
We continue to expand out honey factoring capacity ahead of the facility and demands that are being from the multimedia investment cycle, which is globally on the way.
The GDP growth that Chuck residence Avenue.
This coming from both North America and Asia markets.
To support this bill we open a new technology and not in the sense of in Shanghai, which should we not related last month.
We also opened our applications lot from Lisa material policy in soochow to better serve a group number of industrial customers in China.
Finally, we expect our global cynical carpi with a positive operations by opening it with a finishing line on our foochow accomplice to better said, the Kobe elected vehicle market globally, including in China, which is expected to be the largest market full elect to vehicles.
Finally, many of our large strategic customers are operating gasped, oxidate, our investments and compound semiconductor innovations, including from our exciting suitable cut by based Wi backup platforms, Accordingly will dissipate, adding over three on the jobs to our global RMB.
Over the next 12 to 18 months with over 150 of those positions in the US with that let me turn it over too many dream. Many James Thank thank you Giovanni and good morning first in case you missed it two six was recently recognized by Forbes as one of the best mid sized companies in America. Thank you.
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I'd also like to thank my colleagues around the world for their remarkable efforts to keep our factories and fab humming in these challenging times. Thank you very much.
Turning to the quarter.
Our non-GAAP gross margin was 38, 9% and the non-GAAP operating margin was 18% the non-GAAP gross margin and the non-GAAP operating margin remain well ahead of the margins two six reported right before the acquisition of <unk> close.
COVID-19 expenses incurred in the quarter to maintain safe or places, where five $5 million of which about 2 million is included in non-GAAP.
This total includes lost work time and collectively these costs put downward pressure on the margins in the quarter.
At a segment level, the non-GAAP operating margins or $14, 7% for photonics and 24.2% for compound semiconductors.
Similar to last quarter compound sammy's margins were driven.
Nice strong mix.
Our record backlog of 1.13 billion consists of $750 million in photonics and $380 million and compound semiconductors. The backlog contains orders that will ship over the next 12 months.
GAAP operating expenses, which are SG&A, plus R&D, where $214 million.
Excluding $21 million, a amortization $14 million of stock comp and 17 million of M&A and integration costs.
Non-GAAP, opex with $163 million or 21% of revenue.
Over and over 500 basis points below the op X percentage of revenue just prior to the clothes on the acquisition when it was nearly 26% for two six incentives are combined excluding amortization stock comp and transaction costs. These.
These improvements are driven by accelerated achievement of synergies in our ongoing cost control.
Quarterly GAAP EPS.
Was 66.
And non-GAAP EPS was 91.
With after tax non-GAAP adjustments of $30 million in total the diluted share count for the gap results was 116 million shares for non-GAAP. The diluted share count was 125 million shares the.
The gap and non-GAAP EPS calculations are in the last two tables of the press release.
Scott comp was $17 million for the quarter $3 million and Cox and $14 million on Opex, we expect stock comp for Q4 to be 18.
Million dollars cash.
Cash flow from operations in the quarter was $91 million in free cash flow $64 million, we paid down $75 million of our debt. In addition to the required payment of $15 million in Q3.
Our net debt position moved to a net cash possession of $79 million the interest expense in the quarter was $13 million.
Capital expenditures this quarter were $26 million for the year, we expect capex to be between $170 million to $190 million to support our forecasted growth, particularly and compound semiconductors.
Depreciation was $47 million in the quarter and we expect our forward depreciation expense to be about $48 million a quarter.
FX was again in the quarter of seven 9 million, primarily driven by the Swiss Frank in the Malaysian Ringgit. This is a reversal of the first half of fiscal year 21 trading in these two currencies.
The effective tax rate in the quarter was 13% due to receiving renewed high tech status in several countries.
We expect the tax rate to be between.
16, and 19% for the year, making the queue for tax rate between 20 and 22% the.
The tax rate to be used for the non-GAAP items is 19%.
The tax rate expectation is reduced from our prior range of 18% to 22% due to renewables of high Tech status, which we cannot include until they are in hand.
Super R&D deductions increased stock option exercises and changes in mix and income around the world.
We had 18 $5 million in total cost for M&A integration and other costs largely for coherent incentives.
With respect to our series Babe preferred stock issuance, we are very very happy for our new partnership with pain, we look forward to their advice and counsel as we go forward. Two six has already received $750 million of the committed bank capital investment of 1.8 billion and.
On the form a preferred equity this investment carries a 5% annual dividend.
Paid in cash and capitalized the principal for the first four years.
This drive a $10.2 million dividend in queue for that will be deducted from the net income in the same manner that the six 9 million dividend is deducted for the series a preferred stock.
In Q3.
The Bane investment had a marked to market gain of $11 million for the changes in our stock price during the period between the signing of our agreement and the receipt of the funds.
Now that the first tranche of funds has been received this will not repeat.
Turning to the outlook on queue for our record backlog and yesterday's announcement by Apple indicate continued strong demand trends our fiscal year 21 outlook is ahead of our original budget, including are having to replace about 5% of our budget had consolidated.
Revenues for the whole year due to the restrictions on Huawei.
We did that within three quarters.
Four Q4 hour wider guidance range simply reflects an extra measure of caution related to the supply chain risks, which have increased in the last few months and the potential impact of our continued rigorous COVID-19 protocols, which could affect our ability to confirm some of our.
Walk in process inventory to finished goods by year end.
Our outlook for revenue for the fourth quarter ending June 30th 2021 is expected to be $752 million to $802 million in earnings per share on a non-GAAP basis at 63.
283.
At 118 million shares.
Four Q4, we expect both the series and the series day preferred stock to be anti dilutive.
This EPS range includes the deduction of the 10.2 million of the band dividend from the net income and accounts for about nine.
This is at today's exchange rate on an estimated tax rate of 21%.
For the non-GAAP earnings per share, we add back to the gap earnings pretax amounts of $21 million on amortization $18 million in stock comp and $12 million and transaction and integration costs.
The estimated queue for sure count as 111 million shares for gap and $118 million for non-GAAP. The actual dollar amount of non-GAAP items, the tax rate the exchange rate and the share count are all subject to change.
Before we go to the Q&A just as a reminder.
Our answers today may contain forecast from which are actual results may differ due to a variety of factors, including but not limited to changes in products mix customer orders supply chain shortages, both upstream or downstream competition.
<unk> and regulations ongoing requirements to combat COVID-19, 19 virus and general economic conditions.
We would also ask that each firm limit its questions to one question with no follow up as we would like to try and get everyone and during the call today, we expect to end this call at 10 am.
Shelby you May open the line for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
[noise] again press star one to ask a question we pause for just a moment to allow everyone an opportunity to signal for questions.
We'll take our first question from Jed Dorsch on a mirror with Canaccord January.
Okay.
I guess given that I only have one question and assuming somebody else will ask on the.
You know the impact in quantifying on the.
On the supply chain I guess my my question would be more strategic around.
The value proposition on the both the gallium nitride as well as that of the indium phosphide and specifically it seems for indium phosphide that most of the.
The driving force is in optical and yet 15, 50 presents an opportunity from a nearby application. So when do you see that starting to materialize and similarly on the gallium nitride.
The value proposition moving from.
And base stations too.
Lower voltage.
Devices.
Hey, David Hi, Thanks for your question is drove on it.
Absolutely.
The neutrals five was one of the germs in Phoenix, though which made the.
Clearly on <unk> survivable, and we expect though.
Four five blocks from today call I would say at least.
You are from mall, we'd be with you in the hospital now with on a novel of obligations and.
What can be all of them were actually investing heavily on so.
<unk> also with respect to the platform and likewise government much line, we continue with our auto insurance when we go more to make progress to quantify almost 60 inch Lima, and while in New Jersey.
So we think of the boat by the Middle of next fiscal year, we'll see some.
Some impact on on our growth.
Actually it for all of you just before we turn to the second question. Please let me correct something.
Had a small mistake with respect to the series day preferred stock.
The investment carries a 5% dividend that's paid in stock and capitalized to the principal for the first four years, so sorry for that mistake. Okay go ahead Shelby.
Thank you we'll take our next question from Paul Silverstein with Carolyn.
Yeah <unk>.
The numbers, you're putting the proxy that you should go here for fiscal 22 in particular.
If I remember both Foreperson on top one group.
<unk> Indian so you can do.
That lies behind on what would seem to be giving all the drivers you're looking at and their impact.
It's.
<unk> very salt number so you too goodbye.
Sure Hi, Paul Smear Jane.
First of all we are S. For projection includes lots of evaluations of opportunities and risk whether it be the pandemic supply chain shortages trade restrictions and several other things like that all of those factors were present this year and present when we did our budget for fiscal year 21, it would be for.
Fair to say that we have probably successfully offset several of those but all of them have not gone away and so we have many of these risks if not other ones presenting themselves in fiscal year 2022.
We are working on the 22 budget now and we like our colleagues give quarterly guidance. This is why the projections are not meant to be guidance.
And I would say is the company looks at those risks going for we will be doing our very best to be seeing what we can do to offset them as we go forward as we did in 21.
We'll take our next question from an auto.
<unk> capital.
Hi, Good morning, guys really appreciate you taking the question.
May end up being more of a clarification of giovanni's earlier remarks, but just the conversation that's begun around three.
<unk> technology, becoming more integrated the use of integrated Dixville technology.
Would love to get your perspective on how the companies use integrated digital technology.
If you view involvement with this favorably and if so what your perspective on roadmap from marketplace involved that may be Giovanni made a made a remark that I missed partially about.
About the flood illuminator and it sounded like Navy integration, but I wanted to just sort of clarify that and get your thoughts on that really appreciate it.
Thanks on other these drama.
Thanks for the question.
Obviously the.
This of investment we started years ago with almost vertically integrated succeeds blocks from.
On global mustard on on four pixels.
To be just the beginning withdrawn and to enable.
<unk> on one of the day into reality virtual reality and generally speaking.
New applications for photo consumer the contents pauses and.
Well as I said during the and the repetitive.
Prepared remarks.
We've doubled.
The revenue this quarter over.
Last year.
And those you know the market did not bulb.
So clearly we have been gaining sure we are getting sure we will continue.
I expect to continue.
Two group to group.
Sure it over the over the next bill.
Two quarters and within the next to us and thus will divide on this.
Sensually from innovation.
We have announced multi junctural veto victual of family of products. We started with two will go through three will eventually go to a larger number of junctions to increase the follow the big sales wheel commscope.
Illumination modules plot homes, where we can integrate the big sales with some reflective optics that we making the house. So we have we have a very attractive roadmap. So she will come.
Clearly is unusual cause when you see apple announcing.
Collaboration on them because it public with regard to future components.
Okay.
And we'll take our next question from harsh Kumar with Piper Sandler.
Hey, Mary Jane I wanted to clarify something you said could be she reach.
A N.
And a good deal so it was and.
Did I hear that correctly, how does that you didn't see these things day off.
Does that work.
And then is that is that alright.
Heart broke into the 688827 Comcast items.
How does that guidance.
Yeah.
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So the first of all the way that the EPS calculation goes for Q3 from an actual point of view.
Is in the press release, and so when we have a security and in the queue for guidance, we do expect the series and the series be to be anti dilutive.
What what happened to them.
Is that you deduct the dividend from the net income to reach.
Net income available to the common shareholders and then you. The chairs that are used are the ones that are the common shares outstanding plus any other shares for example stock comp or the convertible debt that are dilutive and so in this case on the third quarter. For example on the series day, because it was diluted you add back to $6.
Nine and you add the shares that's why the shares are 125, when it's anti dilutive you do not add back the dividend and you do not add in the sure. So that's why the non-GAAP shares for Q4 are at 118 and yes. The line census in the guidance range.
We'll take our next question from John Martini with.
My phone.
Thanks, very much Mary Jane if you could just spend a moment or two going on through some of that puts and takes in the gross margin line this quarter down a little bit more sequentially done and certainly we hadn't expected you did mention some of the charges that you took around.
Some of the COVID-19 related issues curious at that whole 2 million that you mentioned and non-GAAP ex in that line, but just any color that you can give us on gross margin would be helpful.
Yes so.
First of all the total amount of cost if I look across the whole company at everything we're doing including how if we have a person. Unfortunately testing positive we ask them to quarantine, which leads to last time, those total cost or about five $5 million on that I would say.
That the vast majority of that at least 90% of it is in the gross margin because.
In our company.
Every factory I believe that would be correct to say.
Our colleagues that are working every day in the operations are considered essential so they are actually coming into work and interacting with others, whereas most of the people in Jna NR a day are working from home still.
That I would say did have some that the entire five $5 million had downward pressure on the gross margin. The 2 million that we non-GAAP within attempt to try and look at what do we think is the unusual amount in the quarter because there probably is an amount of COVID-19 costs that will go on for some time. So that is that is one thing that is was increased in the court.
That's a fair things to say I think the second thing is that notwithstanding that compound semiconductors had a very nice mix in.
In the quarter at the end of the day, they certainly had some somewhat lower mix in the quarter and so did.
Photonics, so mixed had a lot to do with the quarter. If you remember last quarter, a significant part of the revenue wasn't <unk> sensing because that's the high quarter for <unk>.
And in this quarter, we had I would say more of a.
Ah more moderated mix of everything in the quarter notwithstanding that we're also seeing industrial pick up. So those are really the main puts and takes I would say.
For the third quarter.
We'll take our next question from Simon Leopold with Raymond James.
Thank you very much for taking the question.
I wanted to see if I could get a little bit more help understanding the.
<unk> announcement yesterday and in terms of the commitment and appreciate what you've laid out I wonder if maybe you could compare and contrast.
The announcement they made yesterday too.
What they announced with finesse are back in December 2017, how how are these different and I guess, what I'm. The conclusion on leaping two is that this should be thought of as a as a promise or purchase order commitment and so it does outline some sense of what they'll buy from you in the future over some undetermined time.
If you could help us with that thank you.
All right. Thanks.
Thanks for your Christie's development, yes, absolutely.
The announcement clearances for future.
Neutral components for iphones. So clearly there is clearly disease.
Commitments will two two business.
An agreement so it's at all specifically.
Components so.
I think it could be.
If you walk is a continuation of what was on the refinished so in a way.
But I think.
This on Austin is probably a little bit more clear.
S announcement.
So I think the.
Really thankful too.
Leadership too.
Announcements to the public domain and give us.
Talk about it.
We'll take our next question from Mark Miller with Benchmark company.
No just curious about the the increases in SG&A and also other other income items was that the became from the bank.
Investment.
Yes, so first of all.
The latter.
In other income and expense this quarter, we had two positives both of which come out of non-GAAP, One day FX less positive in the quarter. After two quarters of negative and the second one was the $11 million.
Increase for.
Mark to market recording for the band security. So that's correct Mark Numb with respect to the increase in SG&A. If you remember last quarter from an M&A point of view, we did not have to too much in our integration costs coming out, but this quarter. We had just for coherent 11 $15 million on.
Cost for that pending acquisition.
We'll take our next question from day King would be Riley.
Okay. Good morning, My question is going back to that proxies on forecast.
So what about physical 23, physical 22, you're providing fairly conservative forecast by the 20th.
It's like 20%, so what's a dragging on.
20% type of I'm, not saying, 20%, but the much stronger growth in physical 23 versus 22.
Okay, and let's just let's just review this first of all with respect to the end markets. We are serving all of our comments that we said today remain in place we are saying ourselves right at the cusp of serving some really wonderful future Mega revenue trends so.
In the in the preparation for the.
With a five year plan for the for the forecast that we're done one of the things we looked at when we were preparing these.
Just say take the 21 budget as a part of that we had a lot of things moving in the world whether that be COVID-19, just starting trade restrictions that were new and growing and uncertain election, et cetera, et cetera, and as I said, we said that we expect.
Did successfully offset those pretty well in fiscal year 21, but our thinking is that those do not really go away.
And could present themselves in this near term as in 22.
So we have work underway and that's what's going on right now too.
Figure out how we will deal with that and continue to deliver four to six that said, we still see very very strong growth drivers going forward. So when you look at the projections. If you think about them in terms of the opportunities that are available to two six we have a lot of very wonderful opportunities ahead of us.
We'll take our next question from Richard Shannon with Craig Hallion.
Well. Thank you guys for taking my question, maybe a two parter within communications a couple of comments very interesting ones from Giovanni you called out some strength here and data com, which is not Mister surprising, but a very strong book to Bill I think I heard you say five time, if you can confirm that there would be helpful in helping to understand where that's coming from including share gains in telecom seems to be a little.
Bit softer and get two six is doing well here can you help us understand.
Where you're where you're seeing that's different than others. Thank you.
The issue.
Javan Thanks for your question yes.
Yes, absolutely.
Five a specific to the <unk> info on boots on fevers.
So clearly.
We are getting back on track after.
Almost a year standby over the finish up team.
Waiting for the Chinese have Google logo customers.
The name of the side line waiting for the combination to take place and I think now.
Dolphin going much faster than the market line because of blue.
The book to be the issue is an indication of that so it's an indication of.
Yes, I believe Guinea shows an indication of.
The.
Four months defenestration on the block homes and.
And.
The strength as I said on the prepared remarks sexually across the board, though it just won't be finalized those two because those are really.
Enabling the next day.
In addition.
The employment.
Particularly in full.
For the web skills customers.
We'll take our next question from Jim or Judy with Needham and company.
Hi, Good morning, I, just wanted to follow up on some of the comments on component constrained. So I'm wondering how you're thinking about supply chain issues potentially looking out beyond the June quarter are you more concerned by what you're seeing out there and do you see any signs of potential double.
Ordering in this kind of environment. Thank you.
Okay very good morning, Jim This is Chuck and thanks for your question.
Good morning, Thanks for your question.
Coming back to some of the related questions about the about the future and the demand we feel like the demand is continuing to be strong.
As far as the supply chain goes.
When we put our long range plan together.
And while we're currently reevaluating even in the near term.
We've taken a very cautious assessment.
The near term.
And we think we are justified to do that.
And we must do that we've been operating very successfully inside the bounds of a once in 100 year global pandemic.
We've also on one.
Heck of a job managing the supply chain, but it's not only our ability to manage the supply chain that we have to stay focused on we're looking one and two steps.
Downstream from us.
And we have to be mindful that even though the demand environment.
His feeling very very strong.
That all of our customers and their customers also have to operate inside this very complex global supply chain and.
And by the way when the Intel CEO says that.
Chip shortages will persist for a couple of years.
We have to pay attention to that so our ability to manage through this I feel very confident we have the very best team in the world to do it.
And I think we can begin to feel.
Restarted the quarter, we had a little bit more of a challenge is restarted the quarter. This quarter. Then we had the last couple of quarters I've got great confidence sooner our team, but there's only so much that day. They can do and so we will we will play. This every quarter, we will do a very very aggressive work we manage this business.
Day by day month by month, and we have our heads on a swivel about what we need to do.
Keep everything on.
On the attractive we were on Okay, I'm really excited about a gym, it's going to be a challenge, but I think there's no better team in the industry to work through.
We'll take our next question from Christopher Rowland with Susquehanna.
Thanks, guys can check this might be a follow up for you I'm trying to put all the pieces together here you made your brown cloud was fairly flat here. It sounds like you have some additional constraints that would grow backlog stuff like from the start transceivers.
I think if you want to talk about any other areas of constraint growing backlog that that would be great. But then given you're fairly flat backlog Ah you know what areas are actually loosening up for you as well, but that you're able bookshelves, yeah, just just at high level.
Perspective of backlog.
Just where you still have constraints and where you're able to fulfill fully.
Well every manufacturing winehouse constraints whoever whoever runs the constraints from controls and runs the business. So our whole ability to be able to maximize the yoga throughput through the constraints as our main focus we have we have lots of factories lots of manufacturing lines.
We have a common discipline toward constraint management across the company.
I don't think I'm going to be able to articulate for you every one of the constraints.
If you say, where do we have any excess capacity.
Not a lot of it.
There's not a lot of it hanging around.
And that's why we have been investing in capital and we will continue to invest in capital and capacity to enable us both a breakthrough constraints and to be ready to launch new products and new platforms to drive the growth from.
From 2022 and beyond.
We'll take our next question from Meadow Marshall with Morgan Stanley.
Great. Thanks, and congrats on the corner I'm married and I just wanted to spend a second on the EPS outlook on.
On a similar kind of volume the fiscal Q3, and so I understand the commentary gave around the preferred chairs and some of the Kobe costs that are there any other factors needs to be considering that are more physical queue for specific like bonus through ups or if some of this just mix of the businesses, we expect from fiscal Q3 to physical people.
Thanks.
Sure well I think if you think about our remarks on the one hand with respect to various things about.
Supply chain.
COVID-19 et cetera, we are probably taking a bit of a.
Conservative approach as we look at Q4, given the various things we could encounter and the EPS is a little bit of a reflection of also the wide range.
We have in the in the revenue guidance it is true Matt.
Met a that it's it is are here and we do sometimes have true upset that force say compensation. We recognize for example that happened last year. So we have been working to not have that be two remarkable but at the end of the day.
There could be a little bit of that certainly as we finish out the year I would say the main thing, though really is that.
Should we see spikes from a COVID-19 point of view.
That drive some cost, but it's really more of the shortages that could just drive that efficiency and the company.
In queue for now having said that as you can see for all of our other for US we worked very very hard to offset those we also try our very best to anticipate by being extremely paranoid before it even starts.
But there are as Chuck was indicating growing shortages in some parts of our components that could make it a little bit challenging as as I noted in terms of just the basic moving work in process inventory of finished goods to be able to sell it and notwithstanding Christmas comment earlier that the backlog was pretty flat. There's certainly people on our company that think that backlog.
Contains a revenue we should be shipping already so our focus is to really deliver to our customers needs.
We will take our last question from Michael Genuity slip Westport capital.
Great. Thanks very much.
It doesn't sound like there's been a change, but I just would like any comments on expected regulatory approval for for the coherent deal you'll have that process is going and then if you could just clarify for me I'm confused about the preferred dividend if it repeats beyond the fourth quarter and if it does how often.
Right So <unk>.
First of all.
With respect to the filings going as planned we're already filed in the United States were in process for the other jurisdictions.
The Air Force App ex you've already seen that and then with respect to the dividend certainly it's a quarterly dividend. So it's 5% a year and is is <unk>.
Calculated and accumulated quarterly and as I said, it's stock paid and capitalize to the principal for the first four year. So yes. The dividend is every quarter simple in this area space same as it is for the series.
That concludes today's question and answer session. At this time I will turn the conference back over to the speakers for any additional are closing remarks.
Thank you Shelby very very much before we end our call today, we'd like to invite all of you to the two six advanced markets and technologies event to be held virtually on may 20th from 10 o'clock in the morning to noon Eastern U S time, we'd love to have all of you. There. Thank you so much for joining us today.
And have a good day.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.
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