Q2 2021 CyberOptics Corp Earnings Call

Please standby as we are about to begin.

Okay.

Good day and welcome to the Ciber optics second quarter 2021earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Dr.

Dr Kulkarni, President and CEO of fiber optics. Please.

Please go ahead.

Thank you.

Good afternoon, and thanks for participating in fiber optics earnings conference call for the second quarter of 2021.

Joining me is Jeff Bertelsen, our CFO and Chief operating Officer, who will review our results in some detail following my overview of our recent performance.

Then will.

We'll be pleased to answer your other questions at the conclusion of our remarks.

In keeping with regulation FD.

Forward looking statements regarding our outlook in this afternoons earnings release.

These forward looking statements reflect our outlook for future results, which is.

Subject to a number of risks that are discussed in our form 10-K for.

The year ended December 30 flow straight through 'twenty and other filings with the Securities and Exchange Commission.

Oh did you to review these discussions of risk factors.

Turning now to our recent for 4 months cyber optic second quarter sales, which exceeded our previously issued guidance marked an all time quarterly record.

This.

This performance was driven by strong double digit year over year sales go through each of our product lines.

In fact, our industry, leading sensing inspection and metrology products are allowing cyber optics can take optimal advantage of the robust capital spending environment.

Good day electronics and semiconductor markets.

We therefore, we reported record sales for $45.2 million for the second quarter of 2021 and at June 30th an increase of 58 per cent from $16 million in the <unk>.

Quarter on 2020.

Net income for this year's second quarter came from people with $1 billion or 41 cents per diluted.

Sure up significantly from other things of $1.6 million or 22 cents per diluted share in the year earlier quarter.

Now for the next few minutes I will review, our second quarter performance by product family.

Sales of <unk> sensors increased 50% year over year to $7.

$1 million in the second quarter of 2024.

This strong growth was driven by sales of P. D. A modest sensors digital was 46% year over year or 2 for $3 million.

Lifting ongoing demand from OEM customers for high end electronics, and semiconductor inspection and metrology applications.

And so sales are forecasted to post robust year over year growth in the third quarter of 2021.

Speaking of a modest sensors I want to add debt customer demonstrations are continuing for on <unk> nano resolution and other sensors for wafers and advanced packaging applications as.

As well as for our.

<unk> 3000, metrology and inspection system that incorporates the nano resolution sensor.

We believe both products are positioning cyber optics to capitalize upon significant longer term growth opportunities.

Sales of semiconductor sensors, consisting mainly of our way for instance products increased.

53% year over year.

For a new quarterly record of $5.5 million in the second quarter of 2021.

Demand for this year's on process improvement centers is being generated in part by the building of new semiconductor Fabs.

Sales of before since brought itself for Gastar to post strong euro.

Increased sales growth in the third quarter of 2021.

Sales of inspection and metrology systems rose, 64% year over year in the second quarter of 2021 to $12.6 million.

Within this product category second quarter sales of FQ3000, Multifunction inspection systems increased.

<unk>, 5% year over year to $6.3 million.

Second quarter system sales also benefited from customer acceptances of $2.4 million of 3 D. It makes 3000 memory module inspection systems.

That's somewhat acceptances for for $9 million of it makes 3.

<unk> systems are expected in this year's third quarter.

Following the end of second quarter cyber optics existing customer for its <unk> 600 memory module inspection system.

Least its first order for the <unk> system.

Customer acceptance of this <unk> system.

3000 slated for the first for 2022.

In this year's second quarter, cyber optics received 3 orders totaling $7.9 million.

From new and existing customers for FQ3000, Multifunction systems for many anybody inspection and metrology.

Our long term growth outlook for many.

Annuity inspection and metrology applications remains promising.

We also recently received follow on orders totaling $2.4 million for eschew 3000, Multifunction systems for inline inspection and metrology in printer cartridge components manufacturing processes.

Sales of inspection and metrology systems.

Our forecast for 2 grew solidly in the third quarter of 2021 on a year over year basis.

Fiber optics backlog at June 30 years, 2021 totaled a record $45.3 million up from $32.4 million at March 31st 2021.

Reflecting strong order backlog.

Backlogs of Tdm auto sensors, excuse me 2000, and it makes me hold on systems and semiconductor sensors.

As a result, we are forecasting sales of 25 for $28 million for the third quarter of 2021 ending September 30th compared to $28 million in the third quarter of 2020.

It is anticipated that there will be no revenues from it makes memory module systems in the fourth quarter of 2021 due to normal quarterly variability in sales from these products.

For this reason sales in the fourth quarter of 2021 that are expected to be lower on a sequential quarterly basis.

However, strong.

All year over year sales growth is anticipated for fourth quarter of 2021 day, 1, but the company's record backlog and robust capital spending environment.

Looking ahead, we believe positive market conditions will continue to benefit cyber optics portfolio into the foreseeable future.

Our industry, leading wafer sensor novartis technology platforms.

Those are enabling us to take optimal advantage of the strong capex spending as a lot of it.

For this reasons.

Optimistic about fiber optics prospects going forward.

Thank you.

Jeff Bertelsen will review, our second quarter performance in greater detail.

Thanks for both.

As mentioned in today's press.

Release, our June 30, backlogs stood at a record $45.3 million roughly.

Roughly 50% of our June 30 backlog is scheduled to ship in the third quarter of 2021.

Slightly more than $10 million of our June 30 backlog relating to OEM customers.

It is scheduled for periods after 2021.

About $4 million of our March 31 backlog was for OEM shipments after 2021.

In addition, we have started to receive amex orders for shipment in early 2022 additional.

Additional amex orders are expected.

<unk> 2021 progresses.

As usual additional book ship orders for revenue are expected as Q3 progresses, making us confident in today's third quarter revenue guidance of 25% to $28 million.

Our gross margin percentage stood at 44% in this year's second quarter.

<unk>, which was down from 46% in the year earlier period.

The decrease was expected given the 2 point for a million of M. Ex 3000 memory module systems in the second quarter sales mix.

Our gross margin percentage for the third quarter is expected to be lower by.

<unk>, 1% to 2 percentage points on a sequential basis from this year's second quarter again, mainly due to higher Amex 3000 sales.

At this time, we expect improvement on our gross margins in the fourth quarter of 2021, given that we arent expecting amex any amex 3000 revenue.

About in the period.

Our gross margin percentage for the balance of 2021 will be heavily dependent upon product product mix, particularly sales volumes of higher margin wafer sensor products and 3 D. M. R. S sensors.

Total operating expenses for the second quarter.

<unk> and 'twenty, 1 increased roughly 28% year over year to 7.4 million.

It bears, noting that operating expenses were unusually low on the second quarter of 2020 due to travel bans shelter in place mandates and other measures related to the Covid pandemic and.

In addition, you may.

For a total 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.

Operating expenses were up roughly 12% on a sequential basis in the second quarter and more than our original expectation due to.

For calling with a 42% sequential growth on revenue and because we exceeded our revenue guidance for the period.

Higher cost included increased sales commissions, mainly third party channel commissions and other forms of incentive compensation due to our improved financial performance.

Depreciation.

Doing enamored of amortization expense totaled $658000 in the second quarter of 2021 and stock compensation expense came to $337000.

Total operating expenses in the third quarter of 2021 are forecasted to be at or near the level on this year's second.

<unk> quarter, mainly impacted by Q3 revenue levels.

Our effective income tax rate for the first 6 months of 2021 was roughly 17%.

And we are forecasting a similar tax rate for the balance of the year ex.

Excluding the impact of any excess tax benefits from.

Quarter option exercises or investing of restricted stock, which may occur later in the year.

Cash and marketable securities totaled $32 million at the end of this year's second quarter down.

Down from $32.3 million at the end of this year's first quarter, but up from 36 point.

<unk>.

Study <unk> 6 million at the end of 2020 day.

The sequential decline in cash was attributable to working capital requirements for inventories on receivables.

We believe our capital resources are adequate for achieving our growth objectives. Thank you we would now be happy to take your questions.

Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your Sig.

On to reach our equipment.

Again price for wanted to ask a question on we'll pause for just a moment to allow everyone an opportunity to signal for questions.

And.

From third will go for too Greg Palm of Craig Hallum Capital Group.

Yeah. Thanks for taking the questions congrats on the really good quarter here.

Thanks, Greg.

I guess, maybe just starting off on <unk> on.

On growth.

Maybe you could help us understand what you think.

And market growth is both for semi cap equipment and electronics manufacturing I'm guessing, it's not growing 58% year over year. So.

But my guess is the remaining growth is coming from some sort of share gains new applications et cetera. So it would be just helpful to get a little broader sense on on.

Driving the growth here.

Sure. So Greg semi GAAP numbers are been publicized because they keep coming from different sources and we track them.

Carefully.

It looks like.

In 2021 semi cap is expected to grow in the 20% to 30 per se right now.

Okay.

Electronic inspection is not as like the semi cap market, but based on some few differences we have seen it looks like it's growing in the neighborhood of about 10% range. So if you will say that we are partly in semi cap and partly in electronics. Our overall market. You can see is roughly growing at about $10.90 per se right.

Really what's so clearly market is not growing at $58 from Disney.

So.

The growth.

Gaining share.

He is moving.

This can be.

Yes.

It makes me think that you compete with the card for a second.

Yes.

So each of them.

Now right now.

Before since again, we don't really compete but we are getting better penetration. So we are the market is very healthy growing.

Composite rate of 10% to 20% as it didn't aggregate in share.

Which is why you're seeing such superlative growth numbers right now.

Got it Okay. That's helpful and the $7.9 million in orders for mini led inspection I think you mentioned that it was for both new and existing customers. So I guess that implies that maybe there's additional application or at least additional customer that is now using the technology for inspection purposes is.

As we speak.

Okay.

What we see from each customer on and what applications.

Oh.

What exact startups on.

Our systems, but yes net.

For example.

Products being commercialized as we speak right now.

Those products using different.

Is that right contractors Ms manufacturers in Asia, So we get the orders from those companies.

Companies they are different names, but we don't want to say anything about which end user on which products are driving growth.

Got it understood and in terms of the Amex product line I think.

You also had mentioned that you're receiving additional orders as we speak I think for placement or Rev. Rec in Q1, 'twenty..2 I guess is that right and I don't recall seeing any recent orders on on the tape. So on maybe those aren't sizable maybe you can just give us a little bit more detail on what's going on.

You heard it correct, we did say that you see even though it makes 2000 order from.

Number 1 customer who has been already it makes 600 system so far on number 2.

As someone who started with that makes things Jose so in the middle 1 customer who ordered it makes sense.

Zone.

<unk>.

Good day, Leawood and good day.

There I believe in Q1 'twenty credit.

Going forward they are committed to buying NXP Jose So we had loans to customers effectively by Ebix.

Sweet households.

Can you say how much of an additional order that is that you have in hand or is it not meaningful at this point.

Yes.

We really want to be careful not to disclose that number because that gives the price of that system and on their behalf to customers. They can use that information.

You don't want to disclose the size of the order for that reason.

Okay Fair enough all right well I'll hop back in the queue, if ex and good luck.

Thanks for thanks, Greg.

And well hear next from <expletive> Ryan of Colliers.

Thank you ladies is moving on that Amex 3000 orders for board.

On the number 1 customers ordered.

Pretty significant amount of your <unk> systems over the year now is this just going to be.

Now, let's take a look and evaluate the 3 D or have they committed to.

Converting to 3 D for their applications going forward.

Okay.

That's what's happening day can stay on increasing the number of lines right now on memory as hard as you can see from Newport from Samsung Hynix and micron.

There's a lot of demand for memory right.

They are building news items, so the new licenses for us.

<unk> 3000 for our number 1 cost.

Some of it will go for it.

The existing 25 also it makes 600 systems we have.

Delivered already they are fully operational and they are being used in manufacturing over time, the customer has committed to.

Putting it makes 3000 under new lines, and then upgrading <unk> 600 per mix 3000 in due course of time.

When they upgrade.

The old <unk> lines to 3 D is it just the configuration issue that you can put the new sensors and merrell.

Systems or do you have to well they have to buy a whole new.

<unk> 3000 system by itself.

We believe.

They have to buy a whole new system. The fundamental architecture of 603000 is better because of the inspection technology for use in 2 D. We use what we call on scan on the fly technology <unk> stopping shoot architecture. So the fundamental architectural differences really difficult.

Existing.

<unk> and <unk> 603000 by just swapping the censored out so we believe they would have to purchase a whole new system.

From 2 <unk>.

Yeah.

The Amex has been kind of a drag on gross margins with and assuming these and other customer increase.

<unk> orders over time will you be able to get gross margins ticking up on that product line with more volume coming through or are there other issues on the gross margin side.

Over time, we definitely.

Believe we will be able to improve our margins.

But right now.

We are.

Kris handicapped by buying extremely expensive automation to meet all their needs.

Time to market is obviously, a big concern they want assistance like Italy for the most efficient way for us to global delivery and it makes sense there for us to buy.

Existing automation.

Off the shelf automation, which makes.

Overtime.

<unk> will be able to take out the cost and automation and improve the margins in index.

Okay.

Housekeeping, Jeff what was cash flow from operations, either if you want to give it to us on a quarter or for the 6 months.

Yes, I mean for the.

Thanks.

It <unk> flow for from operations just for the quarter was about $240000.

And a lot of that was just working capital needs. So we you know with the big jump in sales receivables increased so cash flow from operations was.

240000.

The Capex just in the second quarter was $411000 and depreciation and amortization was $6.58.

Okay and the combined.

You gave a wafer <unk> and 3 D mris related as a present of total revenue just wanted to.

Double check that number.

Sure.

That is in the second quarter it was a little more than 73% 73.

Okay.

Okay. Thank you congratulations.

Thanks, Nick.

Yes.

And as a reminder, you May press star 1 on your telephone keypad. If you have a question that is star 1 for questions.

We'll pause for just a moment.

And so we will go next to our next question.

And that is from Jason Smith of Lake Street.

Yeah.

Hey, guys. Thanks for taking my questions just curious for what Youre seeing from a supply chain or just overall constraint standpoint.

Yes.

Thanks, Jason Yeah from a supply chain perspective, I mean, what we're seeing is.

It really isn't any different than then.

But a lot of other companies are seeing or what we hear on the news I mean, the supply chain as tight right now and there are.

You know some difficulties.

Chips or detectors or some of the other things that go into our products.

To date, we've been able to work our way through those and secure supply. It certainly is an area that we.

A lot of attention to and are putting a lot of effort into.

Right.

Getting right now, we don't see that as causing any significant disruption.

You know in our ability to deliver on a timely manner to our customers, but things certainly are tight out there and we continue to work on that put a lot of effort into it but so far we've been able to navigate our way through it.

Okay and just following up on that have you seen any significant change in your guys as lead times.

And I assume you're talking about in terms of our ability to deliver to our customers Jason.

Correct.

Yes.

It's gotten a.

A little bit elongated.

At various points in time, I don't think theres been any significant delays in our ability to deliver.

I think for the most part we're kind of on par with where we've been or maybe a little bit longer by a week or 2 but I don't think.

<unk> anything significant right now.

But again, you know what all kind of gets back to the supply chain and the supply chain as tight right now.

Okay, I'll jump back into queue. Thanks, a lot guys.

Thanks, Jason.

Okay.

So we will go next to Eric slate of Acme analytics.

So Bo Jeff Hey, congratulations on that as a breakout quarter for you guys.

Thanks, Eric.

There is always on the same for you guys on the call, but can you pick those numbers.

We will have to be some people joining us I would think.

So theres a couple of questions on the memory side did you get the third customer, yes, I know it could happen any time or.

I thought you did when I first read the release on that looked like you just have a <unk>.

Second customer number 2.

Transitioning from <unk> to 3 day is that correct.

So as off growth if you don't have the third non human body manufacturer.

Other customers continue.

We continue to buy on it.

<unk> systems.

Okay.

Over time, we believe this which we will do a mix.

But as we go.

Uh huh.

Third largest customer.

Yes, I don't think Ive are clarified.

Is that third customer.

Actually you get on.

Are they making a big transition for <unk> and Thats. The reason why it's still.

Evaluating or is that the reason.

Yeah.

Right sure what the reason for it.

Holding up as far as we know.

<unk>.

The believe they will switch a little it makes 2000.

Just on.

So question on when not if.

Right.

Thanks for the oral dose yet.

So it sounds like the fourth quarter.

You won't be getting memory orders in for that quarter, but it sounded like.

What Jeff described.

Starting to stack up for another orders for 22 is that correct.

That is basically correct, yes, that's what we said the other stuff.

Turning to see acceptances coming in Q1 off thank you to be on expecting more it makes all of those as 2021 goes along but given the timeline involved in building the Florida.

All of those acceptances for Q.

In Q2.

Well you got to get in 'twenty 2 right.

Now the other question I had is how much many micro exactly have you booked through I think it was 8 and ask Jeff after the first half.

Are you asking about our revenue.

Rick.

Yes, you've announced and bookings through the first half I guess.

Okay, Yes, so it was.

$7.9 million of orders announced.

So far this year.

Okay for many micro.

Got it.

<unk>.

Yes.

I guess that probably does does it and that should do it hey, a great quarter.

Thanks again, thanks, Eric.

And we'll go to our next question from Orin Hirschman of <unk>.

Each investment partners.

Hi, how are you.

Good day, let's say.

Good day guys. Thank you. So 2 questions you mentioned 3 customers now on the micro led side can you kind of just give us the lay of the land what's going on from a 50000 foot view micro led and.

Is that is that 1 of this 1 customer.

I'm not really sure on that if you had had in production more than 1 or 2 customers before and what does the pipeline look like on micro led.

Yeah.

I'll answer at a very high level without getting into details because the other because he found not to be disclosing all the details I mean, it is Mike many IDT micro entity.

Customer it.

Is being used for backlight of Enzo.

Right now, it's a new technology just for the first commercial products given the market just earlier this quarter last quarter that is Q2.

The public reception of those current consumer products has been phenomenally. Good. So the technology is getting accepted.

It deployed and essentially what we salute excuses excuse me is being used.

Inspections debt for 2 out of the 6 steps.

No other meaningful.

The total estimating steps are going to competition right now, but the most demanding steps.

We are getting for the SKU excuse capable of doing on.

All 6 steps look we are getting good up 6 right now.

We expect a lot.

A lot of commercial products to be launched in the next year or 2 with many micro Leds backlight.

Essentially.

Based on both wells if you look at on LCD display there are some drawbacks. If you look at on OLED display there are some drawbacks.

Many micro.

Micro OLED back late with LCD is the best on Board was a very good price volume. So we definitely expect.

Most of LCD displays, let's switch to our many ADT back late display over the next 2 to 3 years and clearly we have a very good position that issue right now.

Sitting on significant growth from this whole area right now.

Just started as I said the first for Scott launched in Q2 of 2021, So we definitely expect more and more announcements from different consumer electronics companies with this technology and no..1 has any IP lock on this area also definitely more than 1.

So we are consumer electronics companies are going to jump into this space in the next year or 2.

So we are quite excited about the growth hopefully that address your question at a high level on the actual orders earlier, we get it from different subcontractors on <unk>. So the number of cash.

We have received orders for many micro entity.

Took a strongly more like $6.7 balance maybe even mortgage yes.

It's 9 <unk> 9 customers now.

Yes.

Okay.

Yes, just 1 clarification on that its non customers just repeat that again non customers that are.

Actually.

And in product at this point.

Correct.

Okay great.

And just in terms of the pipeline of adding additional customers beyond those 3 are you seeing that pipeline increase.

Is it accelerating in terms of the interest.

Yes, definitely the interest is growing.

As I said.

Other technology, just got launched it is.

He is being received very well.

So more skus will be launched in the next few quarters with many of the day back late so the interest is growing more we expect more consumer products to be launching.

And this thing will continue over the next 3 to 5 years so yeah.

Interest is growing in this whole area.

Okay, Great and just in terms of your whatever you can say here in terms of the.

For complete system sensor based systems.

And youre, hoping to sell.

There is beta test now with customers.

I know that's kind of a whole new area for you.

It really for next year, but how are those day just going there are a lot more of that has to be reworked and the product for.

Customer feedback like so potential customer feedback on the Oaks at <unk>, what's that look like at this point those whenever you can.

I believe you were asking about on the Blue ex T V.

For the inspection system.

Correct Yeah.

Yes, yes.

So as I mentioned in my remarks things are going well on boat shipped.

Multiple nano resolution the modest sensors to different customers in this space advanced packaging video as well as we are demonstrating a W. Ex 3000 systems for different customers in Asia as we speak.

These things do take a long time.

In doing this for a few months ago and the interest is high but anytime.

All of these fabs on <unk>, who are the typical customers for those systems wanted to choose a new technology on a new leader you have to go through several layers of qualifications, which takes time. So that's what we're going.

Good internal we hopefully expect to close on all of those here in the next few quarters, but was this really 25 customers who matter in this industry.

After that the number really the market shrinks quite dramatically because this.

So much consolidation in the semiconductor industry. So every win is a big win.

Because you are getting a big chunk of the market. So we hope to get 1 or 2 wins in the next few quarters here and then.

This will continue to grow from there.

But it does take time, but I can say data looks very good.

Feedback has been very very good in general.

Okay, great. Okay. Thank you Pablo.

Thanks for that.

And there are no other questions on the queue at this time I'll turn the call back to our presenters for any additional or closing comments.

So thank you for your interest and questions. We look forward to updating you. After our Q3 gross 2 guys. Thank you.

And so that does conclude the call we would like to thank everyone for your participation you may now disconnect.

Yeah.

[music].