Q1 2022 CyberOptics Corp Earnings Call
Good day and welcome to the fiber optics first quarter 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Doctor Seaborne Coke coal Kearney. Please go ahead.
Thank you.
Good morning, and thanks for participating in fiber optics earnings conference call for the fourth quarter of 2022.
Joining me is Jeff Bertelsen, our CFO and Chief operating officer.
We review our results in some detail following my overview of our recent performance.
We then they'll be pleased to 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 morning's earnings release.
Forward looking statements reflect our outlook for future reserves, which is subject to a number of risks that are discussed in our Form 10-K for the year ended December 31st 2021, and other filings with the Securities and Exchange Commission.
We urge you to review these discussions of risk factors.
Turning now to our recent performance.
<unk> reported strong sales and earnings in the first quarter of 2022.
Each of our product groups through your annuity sensors semiconductor products and inspection and metrology systems posted strong double digit year over year sales growth in the first quarter of 2022.
The competitive advantages of this Florida started loving cyber optics to further penetrate our.
Targeted growth markets in the areas of advanced surface, Mount technology, or SMT applications in semiconductor capital equipment.
This makes us confident about cyber optic second quarter and full year prospects.
We reported sales of $24 $2 million for the first quarter of 2022 ended March 31st an increase of 37% from $17 $7 million in the first quarter of 2021 .
Net income for the first quarter of 2022 was $3 $6 million or <unk> 47 cents per diluted share an increase of 149% from earnings of $144 million or <unk> 19 cents per diluted share in the year over year quarter.
This strong operating results are evidence that fiber optics is continuing to perform at a high level.
No for the next few minutes I'll briefly review the performance of each of our product families.
Sales of <unk> sensors increased 27% year over year eight $1 billion in the first quarter of 2022.
Within this category sales of <unk>, a modest sensors rose, 15% year over year to $4 9 million in the first yields in the year's first quarter.
Semiconductor inspection and metrology applications are continuing to generate demand for our <unk> and <unk> sensors.
Sales of <unk> sensors are forecasted to post solid growth on a year over year basis in the second quarter of 2022.
Sales of semiconductor sensors, principally at wafer sincelejo sensors increased 34% year over year to $6 $8 million in the first quarter of 2022.
Strong global demand for semiconductors is intern driving demand for semiconductor capital equipment their RV products as products are utilized.
Yeah.
Sales of semiconductor sensors are forecasted to post strong double digit growth on a year over year basis in the second quarter of 2022.
Sales of inspection and metrology systems rose, 49% year over year in the first quarter of 2020 due to $9 $4 million.
Driving this strong growth with sales of <unk> thousand multi function inspection systems, which increased 45% year over year to $5 $9 million.
Advanced product is continuing to gain traction among both existing and new customers.
Total excuse he thousand seals.
Too many of duty applications came to 619 Jose in this year's first quarter.
In the first quarter of 2021, we did not book any many really debated eschew sale.
As the year progresses, we anticipate receiving new orders for many of the U D related applications.
With current as well as new customers getting a production.
We are confident many of these liquid inspection and metrology applications would make another strong contribution to our full year revenue stream.
First quarter system sales benefited from customer acceptances of $1 million.
<unk> Street holds then final visual inspection systems and sensors it gets for memory modules.
New orders totaling $3 5 million for <unk> 3000 systems, well received during the first quarter, which brought our quarter ending it makes backlog to $5 $9 million.
Orders in the current backlog is scheduled to be recognized as revenue over the balance of 2022.
Do you expect to receive additional it makes orders as the year progresses.
Given normal sales fluctuation of capital equipment inspection and metrology system sales are forecasted to be relatively flat on a year over year basis in the second quarter of 2022.
Fiber optics backlog at the end of this year's first quarter totaled $47 4 million up from $47 $3 million at December 31st 2021, and $32 $4 million at the end of first quarter of 2021.
We are forecasting sales of $25 million to $28 million for the second quarter of 2022, ending June 30th compared to $25 $2 million reported in the second quarter of 2021.
Our sales forecast for Q2 assumes roughly $1 million. It makes it related revenue in the Florida.
The lower end of our sales forecast assumes limited shipments of eschew systems to China due to COVID-19.
Our three D M RSV sensors, and inspection systems and semiconductor sensors are enabling siloed optics to capitalize upon significant growth opportunities in our targeted SMT and semiconductor capital equipment market.
For this reason, we see 2022 shaping up as another good year for cyber optics.
Thank you know Jetblue and Sam will review, our first quarter performance in greater detail. Thanks abode.
Our gross margin percentage in the first quarter of 2022 was 47, 8%.
Up slightly from 47, 3% in the first quarter of 2021, but down from 49, 6% in the fourth quarter of 2021.
The year over year improvement in gross margin percentage stem from a slightly better sales mix and related gross margins on inspection and metrology system sales.
<unk> sequential quarterly decline, which was previously previously anticipated and in line with our expect with our expectations heading into the quarter was mainly attributable attributable to lower price points on S Q3 thousand system sales.
Our gross margin percentage for the second quarter of 2022.
It is expected to be down about one percentage point from this year's first quarter level, mainly due to revenue mix.
Total operating expenses in the first quarter of 2022 increased 15% year over year to $7 6 million.
Increase was due to higher third party channel commissions, resulting from the significantly higher year over year sales.
Along with higher compensation costs for new employees and higher spending for Tradeshows.
Depreciation and amortization expense totaled $569000 in the first quarter of 2022.
Stock compensation expense came to $353000.
Total operating expenses in the second quarter of 2022 are forecasted to increase by a few percentage points on a sequential quarterly basis.
Our effective income tax rate for the first quarter of 2022 was 11%.
It was favorably impacted buying by an increase in the amount of income eligible for <unk> and guilty benefits.
A change in U S tax law, requiring capitalization and subsequent amortization of R&D expenses.
While the change is expected to have a favorable impact on our effective tax rate in 'twenty to 'twenty two it will most likely increase the amount of cash we extend for income taxes, particularly in 2023 and later years.
Cash and marketable securities totaled $38 2 million at the end of this year's first quarter down slightly from $38 3 million at December 31, 2021, and up from $32 3 million at the end of the first quarter of 2021.
Given tight supply chains, and X and extended lead times for certain key components needed to manufacture our products, we have deemed it prudent to keep additional inventories on hand, so we can meet anticipated customer demand.
Particularly eschew systems for mini led related applications.
These extra inventories will be worked down to more normal to more normal levels as we progress through this year.
I should also emphasize that to date part shortages and shipping delays have not had a significant impact on our business and at this time, we do not anticipate a major impact going forward.
We believe our capital resources are adequate for achieving our growth objectives are.
Our lineup of Mrf's enabled sensors and systems on wafer sets semiconductor products are enabling us to capitalize upon them apart important growth opportunities in our targeted markets.
Our progress at penetrating our park markets make us believe that 2022 is shaping up as another good year for cyber objects. Thank you we would now be happy to take your questions.
Yeah.
Thank you if you'd 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 again press star one to ask a question.
We will take our first question from the line of Greg Palm. Please go ahead.
Hey, Jeff Good morning, Congrats on the good results here.
Thanks, Greg.
Wanted to start off with maybe some high level commentary you know it's about maybe just talk about what you're seeing from an industry demand standpoint. It just kind of remind US you know exposure to China. What are you. What are you seeing over there just given the walk downs, maybe just a little bit of color would be helpful.
Sure so.
We play both in the semiconductor and electronics manufacturing market.
On a total basis this market continues to be very healthy and growing.
Consolidated double digits right now.
The growth rate seems to be a little bit getting to be a little bit slower than 'twenty 'twenty. One 2021 was a great year for semiconductors and electronics.
Do you foresee that the total market.
285 books and in 2021 at this point it looks like the growth rate has slowed down a little bit from <unk>, but still very healthy all solid double digit kind of growth rate. Similarly in 'twenty because people are starting to and this is starting to project what will happen in 2023 again the growth rate is expected to slow down.
Later bake.
It seems to be a solid positive numbers, so China clearly under Covid issues in East Asia, clearly are impacting all of these numbers and Thats why some slowdown is starting to.
Happen.
But despite all the effect of Covid factor the geopolitical factors.
The Russia, Ukraine situation.
The overall industry semi and electronics continues to be extremely has the demand continues to be strong and good markets continue to grow at a solid double digit clip flex total macro backdrop comment Casey from Ottawa perspective.
We didn't that we continue to do well as you can clearly see our Q1, we had a great growth rate of 37%. We continue to believe it will grow solid double digits.
The rest of the year, so we feel pretty good about our position our technologies our products.
Macro.
No.
Okay, that's great and.
Specific to mini Leds.
And that you still expect orders in in 'twenty two.
What's your visibility at this point and I mean, do you see any risk of stuff pushing just given what's what's going on with supply chain and the lockdowns over over there in China.
There is there is some risk I mean clearly the.
Execution in China, the chip shortage in worldwide and there are some specific chipset for medium duty applications. So some of those external factors may impact the scale up right, but directionally, we are pretty confident.
Caleb is going on different products different consumer electronics companies are getting into the market. So exactly as we had been predicting many Eddie will continue to grow exactly which quarter and how many systems that stuff to forecast. So it is possible that given what's going wrong.
Then maybe a few months delay, but overall, we feel pretty good that the many of the D market will continue to grow at a healthy eliminate it and we will continue to benefit from that by selling skus systems in that marketplace.
And to be clear, you're expecting both significant orders and significant revenue generation in 'twenty two correct.
Correct. Okay. Good and then maybe just one one last one more of a housekeeping question. The $5 9 billion of IMAX backlog can you confirm whether that's all three D and how should we think about recognition of that full amount throughout the year I think some of them.
In Q2 based on the mix comment, but you know should we assume that you know maybe a third third third or or how should we kind of think about it at this point.
Yes, so of the $5 9 million five 3 million of it is three D theres a little bit of <unk> in it but it's virtually all three D. And then in terms of of right now, how we kind of see that laying out through the balance of the year.
You know certainly you know, we're expecting $1 million in Q2.
Right now.
Just using round numbers.
Anticipating 3 million done in Q3, and then the balance in Q4 as we get closer to the end of the second quarter Theres Theres, a chance that that the $2 million in Q4 could move into Q3, but we'll know more about that in the next.
A few months into this.
Certainly get more orders.
That could have potentially Q3 and Q4 numbers.
Okay, Great Alright, I'll hop in the queue. Thanks, so much.
Greg.
Thank you we'll take our next question from Orin.
Chairman. Please go ahead. Your line is now open.
Hi, how are you congratulations on the result.
Just a follow up wanted to question.
The question in terms of the orders and the like.
But inspection.
Does the timing of lockdown locked down.
And that type of order flow or.
Not so much because of it.
Gotta be done way in advance and.
Are you hopeful that there'll be more orders imminently and has anything changed in the overall dynamic positive or negative.
So if I understand your question that you're asking about the China, Lockdown and how does that impact the immediate EDI.
Overall business.
L B.
Yes, Michael that's on my talk I'm sorry.
That's okay.
So indeed, China Lockdowns.
The unpredictability of how the Lockdowns are being done is impacting how the scalar.
Is happening in China, because as of today most of their manufacturing lines.
<unk> mini Leds for the audit in China. So these lockdowns are impacting current prediction as well as investment plans. So it is a little unclear.
Unclear how things go from here given the uncertainty.
Nature of the Lockdowns.
There is also a little bit of impact because there are some custom chips that are needed for many idd displays angle.
And those ships are in short supply so it's a combination of.
China Lockdowns, we can supply that.
That are impacting the scalable familiarity having said that visa Inc.
Continue to scale up as I mentioned in the earlier question that may be a delay of a month or two or three here.
Fundamentally changes and many of you will continue to get scaled up and we still feel pretty confident that the business will be a solid growth generator for us in 2022 and beyond.
Yeah.
Assume that the lockdown lifts.
You know you kind of recap in terms of its really been primarily one customer view with interest from lots of other calls.
Let's detail, you're comfortable providing kind of give us the lay of the lake.
Okay.
Excellent site itself, the one customer base with multiple customers.
Any other dynamic.
Dynamics.
Yeah.
Customers, who are getting involved in many of the right now it's no longer just a single customer situations.
And there are many projects that are going on on many of them are in China and actually the lockdowns and what happens is important but there are other countries that are starting to get into <unk>.
There is no longer a one customer one country situation.
The China is important.
Finally, the consumer electronics company.
Let's start you're scaling up it is very important when it is beginning to become a more of an ecosystem now a bit more companies more applications more products. So we certainly expect growth to come from video.
Yes.
Yeah.
Have you actually I apologize I don't recall, if you actually ship more than one customer.
We actually as we have previously disclosed viewership media related eschew systems to multiple customers.
And some of them many of them out of contract manufacturers, who service more than one order trends consumer electronics companies. So yes, we are shipping linearity.
Yeah.
Ooh multiple applications multiple customers right now.
And I guess just my question was with those customers those customers have multiple customers that still want.
All right.
So they do have multiple customers, we're just not sure of the.
One was similar to the other questions that they don't disclose those details, but if you just do a search on many at ETE micro OLED right. Now you can get a list of all the different kinds of projects that are going around in the world with mini and micro duty and you're going to see a list of consumer electronics companies that you may lenses.
Contract manufacturers that support this consumer electronic companies. So the ecosystem is becoming broader than just a single customer and a couple a couple of contract manufacturers.
And finally last question.
One of the new business.
Thanks.
Yeah.
The only one.
You go with that win.
Are you hoping to aneel.
I guess, hoping to sit back.
During this calendar year.
And are you hoping to get other.
During this year.
On there and there's a lot that affected that at all as well in terms of the car.
That's getting the next customer.
Sure. So if I understand your question right. It is about the WEX product and hope to execute them physically.
Yes, so as we have disclosed before.
We have two major customers right now for our WEX system. One is we are servicing to our Chinese system integrator.
He actually said on the sensor and software in that case.
Major IDM, we sell the whole WEX systems. So you have two customers we're servicing as of right now we are talking to multiple customers.
Thanks.
As a long evaluation processes take a long time for selection.
They have to make sure that the go.
I'll go through all that I know this is sometimes it takes months if not quarters for them to come to that conclusion.
As I mentioned before in the in the semiconductor area.
There is a significant concentration of customers for visually 30 to 40 customers.
Matter in this space once it will be on time.
Subsidiary small every win is a big win but it takes a long time to event, but right now we feel pretty good about the two things we have and one of them has started scaling of aggressively Sylvia beyond scaling up multiple systems right now that one we still have a ship our first system would we expect them to start selling getting buying more once once they are happy with the port.
Four months and we are talking to more so we are pretty confident we will get a couple more by the end of this year, but it does take a long time to go through their evaluation processes and qualifications.
And just a follow up on that thank you for that clarification that would be amazing if you can get more customers.
So on that one large customer.
On the systems side.
Any idea when you're going to ship that person.
Hi.
It is sometime in this quarter.
Frankly, it would have happened had it not been for the Lockdowns in China.
That does impact.
Because we are leading the finance system in China, right now and the Lockdowns due to impact us in getting the project shipped but it should still hasnt. This quarter, so long as the lockdowns become little more reasonable.
Okay.
And.
That is actually a bookable.
Shipment.
The revenue from it.
Yes that particular shipment right now what we're anticipating as it will ship in the second quarter as <unk>.
<unk> said and just given the customer acceptance on it mentally we're assuming it will become revenue in Q3.
Got it a bit like whatsapp and any any yet.
I know, it's totally a guess that they are quite how long the evaluation.
No.
With that.
Obviously, they've got a lot of valuation.
Quakers et cetera to get to this point to pull the trigger but do you think it's a six month wait nine months later that would be sort of any clue.
Well it could be shorter, but our experience suggests that it will be in the order of six months or so.
Although the guest assistant in their production environment.
For the rest of this year effectively equaled the issue.
Orders for the next systems.
Okay. Okay. Okay.
Thanks, a lot.
Once again, if you'd like to ask a question. Please press star one.
We'll take our next question is from the line of Greg Johnson. Please go ahead. Your line is open.
Okay.
Baseball and Jeff Congrats on a great quarter.
Okay.
Yeah, Hey, if you could just give any color I know this is a ways off but with the memory in semi.
Centers in some of the.
Production builds that are going here.
What are you seeing there how would you you.
You now have us think about when that comes on and.
Is there anything outside of those as far as maybe even some of the consumer side that might be.
A little bit more domestic oriented.
So if I understand your question right, Greg you're asking us to comment about the memory industry in general and U S. Production of memory is that correct, yeah, and how that you know there's so many things that are building out here as far as production and Theres been some incentive obviously for.
Yeah less less.
Less dependence are in China in and outside of the U S.
So the memory chip.
In market, if you will I mean, it's dominated by logic.
Large manufacturers, Samsung Hynix and micron.
Most of the Fabs.
That these three companies have not in China.
We are in.
Places like Korea.
Some in the U S. Japan, those kinds of leases that are doing that.
The whole China related discussion.
Third important when it comes to memory chip manufacturing.
Regarding your specific question about the U S production.
I believe you're specifically, referring to the chips act that is being discussed.
This level right now.
As far as I can tell most of the discussion around that is centered around processes kind of chips Island.
Discussion.
For memory chips in that that kind of discussion and that's because of the.
Significant exposure the wood has when it comes to processes chips with respect to save on <unk> and specifically TSMC.
So that's where a lot of the discussion gets.
<unk> see any discussion about memory manufacturing when it comes to the chipset I think memory is.
Just from our perspective Liberty is a very healthy market right now.
We will continue to stay very healthy for all the reasons that.
We have discussed in the past.
I don't think the U S chip sectors going to significantly change.
The chips are going to be made and those kinds of things that may have more impact on the processor side and less on the Liberty side.
That answered your question.
Yeah and I'm. Just you know are you playing in anything there as far as benefiting from all the build that is.
<unk> being down here.
Well certainly I mean, we play in the front end of semiconductor Fabs with our <unk> product line, we certainly play in the back end.
Avatar startups take the Liberty mortgage inspection system in the U S.
SKU.
And some of the centers, we sell and so on so we play across the whole spectrum. It clearly.
You have a big exposure to the memory manufacturers because of eschewed it makes specifically.
If more chips get made in the U S. It's good for us.
Obviously the other.
In this region, but in all fairness I mean right now.
More than 80% of our sales come from outside the U S and we have successfully penetrated.
<unk>, even though they are inquiry at Avon.
Other countries, so that hasn't been a negative factor for us certainly as U S. Citizens station, Yes, we would love to see more fabs here in the U S. It has all of us as a country but.
I don't think we can see that our business has been good because we are not in that.
This is a fab.
He has been a pretty good job of penetrating faster delivery out into the void.
Did that answer your question Greg.
No I'm.
I'm good thank you very much.
Thanks, Craig.
Once again, if you'd like to ask a question. Please press star one.
We will take our next question from the line of <unk>. Please go ahead. Your line is open.
Oh, Hey, congratulations to both Jeff another solid quarter.
Thanks.
Eric.
So let's talk about memory the last gentlemen.
We're still working on the third.
You had the first two biggest memory guys. So that third one still I would say hot and heavy right.
Absolutely we continue to work with the colored large memory manufacturer. They are a customer of ours for a SKU systems. So they know works pretty well, let's say auto customer of ours for wafer defense. So they know us pretty well, but so far we have not been able to convince them to start buying all that makes systems yet.
Okay something to look forward to.
Now back to the many many micro it seems to be the topic today. So on that 25 point to two <unk>.
Is it 25% to $28 million guide.
I take it that you don't spec you guys never speculate.
So in that $25 228 is there any mini micro in that number.
Those revenues are now.
I mean there is.
We aren't anticipating any new orders for Q2.
For for for many LCD and in our Q2 guidance Theres, a little bit of backlog left and we're anticipating that but no. No large orders are included in the guidance.
Okay. So really.
As we've talked before Jeff.
These orders come sort of out of the blue.
Don't really know the plants right.
I mean, we don't necessarily have great visibility are the customers don't go into a lot of details regarding their plans. So.
So they do tend to show up when they show up.
So I guess my point is.
That 25.2 to 28, if we get a nice lumpy order like we've seen in the past.
Which probably should happen at some point here those numbers could be revised up quite nicely right without a nice lumpy order.
Sure it's possible I mean, if we get in.
Unanticipated order as you said.
Later in the quarter I mean, it's possible, but again, we're not including anything or necessarily expecting anything in our guidance.
That's the way to do it but so.
So on the W. X 3000 will jump over there for a second.
I think we've talked about this before you would think by the fourth quarter. We will start maybe seen yes about six months right, we'll start seeing not.
The ramp happening.
Yes, I think you know us.
As we've said as the year progresses, I think we'll get some more orders for that and Oh. So yes. It's certainly you know over time, we certainly would see that business increasing you know as we continue to show the product and do more evaluations with customers.
We anticipate more orders going forward.
Now the other question I have one last one.
On the many micro is my understanding.
The only way to really play yet.
On the domestic side is.
It is on the backend and that would be Kulicke and <unk>.
Then yourselves right.
Theres no other public companies out out there.
Applied materials those are the big ones, though.
Involved is that correct.
Great.
More complex in that area come in the mini Leds themselves have made of different kinds of fabs.
Most of them out in Asia than the transfer process.
Many of the D from semiconductor Fabs.
Straits to whatever subsidy do you want to use whether it's plastic or glass Vega didn't wanted and certainly as you mentioned.
We can so far with the picture that assist in place certainly without excuses simply there are a few other companies.
The ones, who make albums and pick and place machines.
And the other things that play into it as well.
Then there is the Hulu.
Final packaging process that makes the Finnish display.
Companies get involved in it.
Little more complex than just one or two companies, making the whole manufacturing Oh, yes, no I realize that I just thought a publicly traded companies I guess that was my question, though I know there's like.
Probably quite a few suppliers.
And also are publicly traded but that's not that important. The other question is are you youre downstream from <unk> software and software right.
Well actually we are both upstream and downstream I mean, we there are as we have discussed in the past. We have there are six steps of inspections and that linearity is transferred to a subset of choice and that is a step.
Just a couple of steps.
Incoming inspection and started about inspections.
That happened before the pick and place operation happens when you get sort of a picture of the system or some other.
Can play system.
A couple of audience fixtures happened.
Before we can place and.
40 inspection steps happened after the PK place. So if you had both upstream and downstream.
I'm going to make a point real quick I was looking through many Michael it's hard to really get anything to conclude you go to their site, but I did pull something up that might afford it to Jeff.
It mentions all these companies I never really recognized agent properties, it's got collecting Salford, but they don't even know you guys have never.
Never seen cyber optics and there just shows you how under followed.
So I don't know.
You guys can do anything about that but some of the one chart in particular that they listed all of the companies that are charged with local companies and then what's clicking softball, but no cyber optics just to point that out.
But great quarter and look forward to the next one.
Thanks, Eric.
Yes.
Once again, if you'd like to ask a question. Please press star one.
Yeah.
There are no further questions at this time factor.
Kearney I'd like to turn the conference back over to you for any additional closing remarks.
Thank you all for your questions and interest we look forward to updating you after.
In Q2, thanks again.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
Yes.
Yes.
[music].
Yeah.
Okay.
Yes.
Yeah.