Q2 2022 CyberOptics Corp Earnings Call
Please standby.
Good day and welcome to the Ciber optics second quarter 2022 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Doctor Sue Bold call Carney.
And CEO . Please go ahead.
Thank you.
Good afternoon, and thanks for participating in cyber optics earnings conference call for the second quarter of 2022.
Joining me is Jeff Bertelsen, our CFO and Chief operating officer.
We'll review our results in some detail following my overview of our recent performance.
We then will 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 afternoon's earnings release.
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 31 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 several fixed reported strong sales and operating results in the second quarter of 2022.
Since we're at the upper end of our previously announced financial guidance for this period.
Our performance benefited from the robust double digit sales growth of our high margin semiconductor sensors as manufacturers continue to recognize significant value in this unique yield and process improvement projects.
Sales of <unk> sensors, and inspection systems were largely consistent with a strong levels recorded in last year's second quarter.
Looking ahead, we are anticipating record operating results for the full year 2022.
But I think our performance is the steady growing acceptance of our P D and modest be sensors and inspection systems and semiconductor sensors.
The competitive advantages of this advanced startups are enabling cyber optics to build leadership positions in our targeted semiconductors and high end SMT capital equipment markets.
This ongoing development also bodes well for our long term operating results.
Reported sales of $27 6 million in the second quarter of integrating two an increase of 9% from $25 $2 million in the second quarter of 2021.
Net income for the second quarter of integrating two was $4 4 million or <unk> 58 cents per diluted share an increase of 41% from the auditing so people and $1 million.
41 cents per diluted share in the year.
Good quarter.
As Jeff will be discussing in a few minutes on stronger earnings growth was driven in part by the increase in our gross margin stemming from an improved sales mix.
Now for the next few minutes I'll briefly review the performance of each of our product families.
Sales of <unk> declined 4% year over year to $6 8 million.
Second quarter of 2022.
Afflicting normal fluctuations in demand from OEM customers.
Within this category sales of P. D. A modest sensors increased 11% year over year to $4 8 million.
Sales of semiconductor sensors, particularly the Veeva says latest products increased 35% year over year in the second quarter of 2022 to a record $744 million.
Increasing customer awareness combined with global demand for semiconductors.
The growth in wafer sensor sales.
Within the last week, we received a new $1 $3 million order photo paper since Florida.
That is expected to ship in the fourth quarter.
We expect wafer sensor sales to remain strong throughout the balance of 2022.
Yeah.
Sales of inspection and metrology systems grew 6% in the second quarter of 2020 to $13 3 million up from the robust level of $12 6 million for starting the year earlier period.
This growth was driven by record sales of eschew 3000, multifunctional inspection systems, which increased 33% year over year to $8 $3 million.
<unk> sales were achieved without a significant contribution from mini Leds related applications.
Which have been pushed out to the second half of 2022.
Based upon discussions with current and prospective customers, we anticipate receiving new orders for linearly related Askew systems.
Q3 or early Q4.
Second quarter system sales also included $1 $7 million of PD <unk> 3000 final visual inspection systems.
During this year's second quarter, we received $5 4 million or <unk> MX orders from recurring customers that ordered that increase and MX backlog to $9 3 million at June 30th.
But it makes backlog is presently expected to be recognized as revenues in this year's third and fourth quarters.
We have agreed to ship a demonstration <unk> system to the remaining large memory manufacturer.
Currently does not use it makes startups.
We are hopeful that this successful demonstration, which will take place in early 2023 will lead to additional mixed things in future years.
So I got optics backlog at June 30 of 2022 reached a record $55 5 million.
Up from $47 $4 million at the end of this year's first quarter.
$45 3 million at June 30 of 2021.
Approximately $38 million of our June 30 backlog is applicable to 2022 sales.
We are forecasting sales of $26 million to $29 million for the third quarter of 2022 ending September 30th.
Compared to the record sales of 2740 $8 million reported in the third quarter of 2021.
Looking ahead, we expect to wrap up the second half of 2022 with strong revenue growth and profitability leading to record operating results for full year 2022.
Thank you Jeff.
Jeff Bertelsen will review, our second quarter performance in greater detail. Thanks.
Thanks to both our gross margin percentage in the second quarter of 2022 was 48, 6%.
Up from 47, 8% in this year's first quarter and up from 44% in the second quarter of 2021.
The year over year improvement in our gross margin percentage was due in large part to higher margin wafer some sensors, representing a larger proportion of our total sales mix.
Margins on <unk> system sales were also up due to an increase in asps, reflecting more demanding applications in our SKU sales mix and more sales through third party sales representatives in the U S.
Our gross margin percentage for the third quarter of 2022 is expected to decrease by roughly 100 to 150 basis points from this years second quarter due to a higher mix of Amex system sales.
Total operating expenses in the second quarter of 2022 increased to $8 4 million.
The increase was due in part to higher third party channel commissions, reflecting the higher level of overall sales and particularly the increase in sales through third party sales reps are.
R&D expenditures were up due to investments in new two D and three D mrf's sensor and system products and new wafer some sensors.
Depreciation and amortization expense totaled $582000 in the second quarter of 2022 and stock compensation expense came to $373000.
Total operating expenses in the third quarter of 2022 are forecasted to be flat on a sequential quarterly basis.
Our effective income tax rate for the first six months of 2022 was 12% and was favorably impacted by by an increasing amount of income eligible for <unk> and guilty benefits do it due to a change in U S tax law, requiring capitalization and subsequent amortization of R&D <unk>.
<unk>.
While the change is expected to have a favorable impact.
Impact on our effective tax rate in 2022, 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 $36 8 million at June 32022, compared to $38 2 million at the end of this year's first quarter and $38 3 million at December 31, 2021, we.
We expect cash to increase as the year progresses.
Part shortages and shipping delays have not had a significant impact on our business to date 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.
We feel very good about our actual results for the first six months of 2022 and expect the second half to be another good period for cyber optics, leading to record operating results for full year 2022.
We remain very optimistic about our long term growth potential. Thank you we would now be happy to take your questions.
Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone if you're joining us today use a speaker phone. Please make sure. Your mute function is turned off to why your signal to reach our equipment again that is star. One if you would like to ask a question star one and.
And our first question will come from Greg Palm with Craig Hallum.
Yeah. Thanks, Congrats on the good results here, it's about and Jeff.
Thanks, Craig Thanks, Greg.
I guess, just kind of start with maybe a.
Broader picture on the landscape.
Really good quarter really good guide doesn't suggest that you are really good orders too. It doesn't suggest that you are seeing much if any of a slowdown so help us understand what you are seeing out there whats how much contribution from just the general industry growth versus maybe potential share gains.
Sure so.
At a high level.
The both the semiconductor and electronics Capex market.
Seem to be slowing down, but still growing so the growth rate has come down from.
Last year, but it's still positive.
And the healthy growth rate I think the latest reports we are seeing still seem to suggest that the overall semiconductor and electronics capital markets that approval somewhere in the 5% to 10%.
Right.
This get into the year 2000, so that's a little.
Brought on macro level within that obviously in the first half of 2020 do honestly this grew 21%.
Clearly, we seem to be outperforming the market.
Good indicators share to gain.
Our effective market penetration in.
In products like wafer since they'd be going to compete with anyone effectively so we feel pretty good about our numbers as you can see the backlog is at a record level.
Orders continue to be really healthy older steam continues to the <unk>. So so far we have not seen any significant slowdown at least in our business, but we realize the macro conditions really dominate.
<unk> reserves and definitely some slowdown, but we still are expecting the broader market to deliver 5% to 10% growth.
Hopefully that answers your macro question.
Yeah, I think thats. Good we can maybe dig into some of the other kind of more company specific categories. What's your visibility into Q4 at this point just trying to think about how that looks versus Q3, given backlog levels. Maybe it also depends on.
When or how much many LNG orders you get if youre expecting that at the end of Q3.
Yeah.
Certainly, we're starting to get some visibility into into <unk>.
Q4, we do have some some orders on the books for Q4.
I think Q4 is starting to shape up nicely, we did get the the wafer sets order that <unk> mentioned, which is a very nice order for Q4, So we're definitely starting to get some visibility and thats, making us feel.
Good about how the year is going to wrap up.
And as it relates specifically to many LCD.
And sort of the resumption of those orders what you talked about expecting some.
In late Q3.
What is the visibility into loans and any concerns that those could continue to get pushed into next year.
There's always a risk that they may get pushed out.
It's being controlled.
By Lockdowns in China, and other external factors that are completely outside our control.
So assuming things continue to improve on the supply side and the China Lockdown site Lockdown because of Covid situation, our customers are telling us that the orders as you move towards the tail end of Q3 or early Q4.
But again many of the factors that we've just talked about.
Even their control so as a result, most of the day things slip further.
But on an overall high level committee that we feel good about 2022 and growing at a healthy run rate in 2022 is based on part of.
That has nothing to do with many of the ADC, even without any <unk> orders. This year, we feel pretty good about delivering already has.
At this point.
And just to clarify if you were to receive those orders in late Q3 or early Q4, those would likely be for Q4 revenue recognition or what the Rev. Rec be in calendar 'twenty three at some point.
Do you think we get the orders towards the tail end of Q3, our early Q4, we should be able to recognize most of that order in Q4.
But it depends on exactly how many systems, the Laurent and usually they come with a timeline on them too so sometimes because it's.
Not practical for them to install <unk> systems at the same time, either so usually there is going to be some type of a lag over there.
We tried to articulate that this weekend when the order comes when the orders start coming in.
Okay makes sense.
And then just last one your commentary on Amex and the demo to that other large memory customer.
Just remind us have you been talking to that customer before and have they ever demo anything or is this what you would call it new development.
We would definitely classify this as new development.
The customer is a large memory manufacturer to the.
They are using.
<unk> systems for their applications. They also obvious to us.
So they know if they level. So we have been talking to them for the light. So far they have not shown in there had not shown any interest in PD Liberty Morelia and switching systems, but that has shifted the Odyssey Interstate announced so that is a positive development as well as begin dose. So that was why we agreed to give more system.
For them that they will get good return on that investment and as I mentioned in my comments, usually these things take long time. So this will impact 2023 and beyond.
Not expecting any sales to that customer in 2022.
Understood. Okay I'll leave it there thanks and good luck going forward.
Thanks, Greg.
And once again, if you would like to signal with questions. Please press star one on your Touchtone telephone.
Again that is star one if you would like to signal with questions.
And our next question will come from Orin Hirschman with <unk> investment partners.
Hi, congratulations on the result.
In football.
Thanks, Laura.
So we've often said that wafer sense that there's a lag between the announcement on the bill on the new builds.
Versus one waitress, Vince really picks up more steam.
Are we at the point now where we're the bill that were announced enough months ago. So that now wafer sensors picking up steam.
We have.
We have seen some lag in defense orders in the past.
We will only know.
In due course of time, if the first instance, slowdown next year, but interestingly like this latest started we talked about.
One 2 million.
It's a fab that is still being bid. So these are pleasantly surprised to see that some customers are starting to accept <unk>.
Part of fab construction losses.
As you know there are many fabs that are being built as we speak in different parts of the world, including the U S right now.
So.
Customers seem to be understanding that the value proposition of the percent is good enough to start having eight enhanced even on deepwater then to start processing some baseload.
But youre right historically, we have seen a lag and differences compared to when the fab started bleeding, but at least in this case, we are seeing business as being a leading product as opposed to lagging product.
And just in terms of the.
The wafer since product unbelief or.
For for.
And that goes along with that mill.
You beat that Bruce.
How is that project coming along I know, it's still very small, but very profitable and very proprietary.
So I believe what youre, referring to our Ips started the internal political centered.
Yes into the pumping systems for <unk>.
We are.
<unk>.
The other <unk> customers have purchased the product is still very small volumes.
But there are two large customer.
Customers are using UV systems in production right now.
Again early early production.
He has collected enough data to make them feel comfortable.
Political currently are reporting.
Seems to be coordinating with that.
Events in that EU re chamber that become very critical for the maintenance operation.
They are continuing to collect that data.
Because this is going into an extremely sensitive part of the process. This is the most expensive piece of equipment they have in their fab.
And every hour of downtime is a significant deal for those customers. So before they changed the downtime and maintenance procedures <unk> they want to be.
100% sure.
We are reporting accurate data, so that data collection process and coordinating with their performance is continuing.
So far all the results suggest that our article count is accurate and they are getting good value out of it. So we are optimistic that this is going to lead to significant opportunity.
Late 2022 maybe at least in 2023 and could be 24.
But overall it looks very promising.
That answer your question.
Yes.
Hello.
You're going to see.
But you know one or two places of orders that would be in an ounce of all event for them or it's going to be more gradual.
Don't know yet, but historically.
Because wafer sensor orders come in smaller chunks.
This was one of the advertisement.
$1 3 million order from one customer which is might be disclosed in our earnings release commentary.
But historically that easily smaller so we are not quite sure how debit order Ips.
One big chunk quarter smaller chunks.
Last question on the system.
The mini led and snacks.
Eventually micro led.
You can.
Has there been any change in the customer.
Programs.
The ladies because of lockdown.
<unk>.
Why the delay.
Is there any change in the index with programs that they wanted to move forward with it.
Yes.
And then over time as opposed to any change in their roadmap.
Not that we know off from what they are telling US plan is still very much what they have told us earlier this year.
So they are continuing to.
Expanded product lineup that has many ADT.
The only thing has been delayed obviously that.
Expecting from their initial input to us late last year. The dollars would have already come in a long time ago clearly they have learned so theyre, telling us that the lockdown in China are submitted that issues have delayed some of the newer product launches, but as far as the exiting US nothing has changed it's just the timeline has been delayed on that front.
Okay. Thank you.
Thanks.
As a reminder, if you would like to signal with questions. Please press star one again star one.
Question comes from Eric slate with Acme.
Oh, yes.
Nice quarter Fellows slowed Jeff.
Thanks, Eric.
So let's start out with many micro OLED I I've heard the call perfectly, but the one part when you talked about it in the presentation. Thanks, a boat you your.
Have you booked how much in many micro Leds have you booked since January .
Are you talking I assume you're talking about revenue Eric.
Yes, yes, yes, not not a ton the the revenue value is about 600000.
Got it.
So really it's been the way because of our.
Parts and also is it mostly is it mainly parts or the fact, China's lockdown or a combination of both.
What they tell US is it is a combination of both.
Okay.
You could probably answer that Oh, Mike many Mike well my understanding is that's mostly.
With me Assembly lines are in China, do you know what percentage of that all in China or is there some in Taiwan or what have you.
And our pilot production lines in Taiwan, but all the volume production that is going on right now is and that's roughly about 50 lines that we have so far.
All in China.
Okay.
And you.
On the many micro my understanding was a very large consumer company that I guess people can figure out.
Look to do a launch in June .
Of this product and because of the delays now they talked October and I think Jeff you might have pointed this out.
You get your inspection equipment, let's say they want to get this product out by December one.
Does it look like within two months, but need to get your inspection equipment in place what's the lag time.
At lead time right now is about four to six weeks for the new order. So long as the order is reasonable seismic influences.
Standard SKU system, which is the <unk> system is close to our standard is consistent.
It's pretty clear that within four weeks of receiving the order, we should be able to fulfill that order.
So really just thinking about this the floodgates could open pretty big on this product, which is the big one in December or excuse me not the end of this year fourth quarter and also the first quarter next year.
So I'll stop by a pent up I would think.
I mean, we certainly would like to see a huge demand come in Q4, obviously, we just don't know as I mentioned earlier supply challenge is China Covid lockdowns, so far outside of our control that even our customers control that if those things continue to delay launches then obviously it may not happen.
We obviously see what you all think that those things come under control.
The growth like.
<unk>, it's just a matter of when but you can't control that.
The other question I had for you was on the Wm 3000, I don't know if that was covered yet, but how much I know you have what you placed one big order earlier in the year is that correct.
Yes, we had one order, Florida finish WEX system.
Also keep in mind, we have disclosed before that we.
We have a partner in China that basically says that WEX system under their name, but in that case, we only book the sensor and software sales. So they are getting traction with one large Chinese customer that you have.
A couple of those in the pipeline right now we have to.
The one order that we have from a large IDM in this quarter and then we are talking two or three other customers right now we feel pretty good about potentially getting some orders from them in the next few months.
And you know the.
I'll think about that's what I was just talking with you guys.
As you guys are very bullish on this end.
As we get out maybe in the 24 when.
Isn't this device used for many micro OLED as we get out to the smartphones, which is the biggest market obviously out in 24. So this is the this will be back for the Wm Smith.
Alright, thank you.
Yes, I mean as time evolves, we will need to use our higher end new <unk>.
<unk> type sensor for that for that product.
And for many Leds as time evolves, yes.
I mean, the current <unk> product.
Consider that a rigorous skew the nextgen medium duty, Florida, which will be smaller entities.
On potentially reflective surfaces.
One of the main reasons, we developed and launched <unk> plus.
That will be able to handle the <unk>.
Eventually Youre question is that by the time, we reach micro entity, which has been the Leds become 30% to 50 microns speeds to 50 microns apart from each other.
That's when we plan to use on an annual not a sensor technology that we already have in the lab and in W X product.
So we need to see that I would hope to take out.
Nano sensor in the WEX system, but put it in a SKU Lake system and the main difference being.
We don't more naturally in light of a sensor into WEX product via water.
In light of sensor in there skew, Florida, so we need to figure out how to take back.
Complex is video.
The medicines that are physically moved at all.
Is this calendar year 'twenty for a decent estimate for.
Seeing many are watching microwave idea at that point.
And the smartphones once again, that's the biggest consumer market is that timeframe reasonable.
It was not locked down two years from now.
I would say that maybe aggressive given the delays we have seen this year right.
Alright.
Yes.
I think for micro OLED.
Like the 50 Micron Leds directly on a piece of glass that we consider refinery displaying your smartphone or other devices.
24 may be a bit too aggressive a timeline I think it's we're looking at more beyond that liquidity clarify maybe more realistic right now.
Okay.
And then I'll take the last one I have for you guys as I think Jeff we spoke about this one's on the or probably more than once but on the memory side like the memory modules you guys are selling.
My understanding this is a lot of replacement as opposed to capacity.
Would that be a fair assumption.
I think it's a combination of both really Eric.
That's what you said can you break that down to what percentage of it 50, 50 or 70 30.
I would say, it's more 70 30 70 towards capacity in Turkey towards replacement.
They have to go through the exact numbers and figure it out and sometimes they don't give us all the visibility that we need to be able to answer that question precisely.
And one more that's the many micro Leds.
Did you pick up a number of new customers.
Actually in any of the lines are you know how many new customers from last quarter, maybe on the many micro side, the WEX memory without waiting for the big player.
Yeah, I mean, I would say on both accounts are there haven't been certainly this year, we've only booked.
600000, a mini micro revenue so there really havent been any customer new customer adds there yet.
At WEX.
They are.
Probably been one or two customer adds really more than I should say with the with the <unk>.
<unk> in terms of actual orders received.
We're starting to get traction there and there are some very exciting customer evaluation.
Going on so we do have hopefully we will get some more customers before the end of the year for WEX.
Yeah on the Clos yesterday.
Well.
And on the cash you have 36 million in cash.
And I guess that product.
And that's because you were building inventory.
Did you say you would be raising or raising you'll be generating cash to go into on the balance sheet between now and the end of the year is there any way you can model. It like if it's close to 37 million now do you think you got it.
You'd be up over 40, or 45 that kind of thing.
Yes, I mean, when you look at our June balance sheet really most of the where you really see the increases around accounts receivable.
We actually did start to reduce inventories a little bit in Q2.
And certainly tight inventory management as a goal of ours, obviously, taking into consideration the supply chain.
Situation, but I do think in the in the back half here as we start to collect some of these June 30 receivables you will see cash grow and certainly expect it to be north of $40 million by.
Certainly by the time the year wraps up.
So to wrap it up for me basically this years that'd be great. Considering many micro has been shut down. So we're looking at you guys are pretty much gave us a good guide and we can get some really nice surprises as we get later in the year due to the many microalgae obviously its been delayed.
Yes, I mean at a high level I would say that we feel pretty good about delivering double digit growth this year.
Even without any immediate contribution certainly linearity comes in we hope it does it will be awarded about double digit growth, we feel pretty good about.
Well, we know it's comment Theres no matter, who does it come the end of this year early whatever himself.
So we have no control over that but once again not a great progress.
Yep, Great progress keep it up thanks, Eric Thanks, Eric.
And that does conclude the question and answer session I will now turn the conference back over to you for any additional remarks.
So thank you for your interesting questions. We look forward to updating you after our Q3 results.
Thanks again.
Thank you.
And that does conclude today's conference. We do thank you for your participation has been excellent.