Q4 2019 Earnings Call
Afternoon, My name is Julie and I'll be your conference operator today.
At this time I would like to welcome everyone to the Viavi solutions fiscal fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press. The pelkey. Thank you Bill Ong head of Investor Relations you May begin your conference.
Thank you and welcome to Viavi solutions fourth quarter fiscal year 2019 earnings call. My name is still on head of Investor Relations.
Joining me on todays call well look Hagen, President CEO and among all the Terrell CFO .
Please note. This call will include forward looking statements about the company's financial performance. These statements are subject to risk and uncertainties that could cause actual results to differ materially from current expectations and estimation. We encourage you to review our most recent annual reports and SEC filings, particularly the risk factors described in those filings.
The forward looking statements, including guidance, we provide during this call about the only as of today.
The undertakes no obligation to update these statements.
Please also note that unless we state otherwise all results except revenue on non-GAAP .
Reconcile these non-GAAP results to our preliminary GAAP financials, and discuss the usefulness and limitations in today's earnings release, the belief plus all supplemental earnings slides, which include spoke of financial tables are available on the obvious website.
Finally, we are recording todays call I will make the recording available by 430 P.M. Pacific time. This evening on our website I would now like to turn the call to Omar.
Thank you Bill we obviously revenue at 289.7 million grew 11.1% year on year and exceeded our revenue guidance range and they see revenue at 221.4 million was above the midpoint of revenue guidance driven by revenue upside in fiber and wireless products, we should be revenue at 68.3 million exceeded the guidance range you'd upside from a pool, where speed as well as our three D sensing products.
We always operating margin at 17.6% exceeded the high end of our guidance and was up 460 basis points year on year EPS at 17 cents exceeded the guidance range and increased five cents or 41.7% from a year ago.
Now moving to our reported Q4 results by business segment, starting with NFC and actually revenue at 221.4 million grew 6.7% year on year.
They didn't really see any revenue at 197.3 million grew 10.2% from a year ago levels driven by strong performance in both fiber and wireless test products across field and lab market segments.
Yes, the revenue at 24.1 million declined 15.4% from a year ago levels, driven primarily from the expected run off before maturity sharons products and from a decline in data center products due to weaker demand from our data center customers.
And then she gross margins at 65.7% increased 370 basis points year on year, primarily due to higher overhead cost absorption from higher revenue volumes as well as gross margin improvements in our growth products within essi.
And is he is operating margins at 13.4% increase foreign 20 basis points from a year ago levels affecting the gross margin improvements and a favorable operating leverage in our opex structure at higher revenue volumes.
And if he is book to Bill ratio was about one.
In any given quarter or NFC business is primarily a book ship business.
Since we provide specific quarterly revenue guidance, we're going to see we believe that the quarterly book to Bill ratio metric, which we currently report is that have done that.
Hence we will stop reporting this metric starting in fiscal Q1 2020.
Now turning to always be.
Well just be revenue at 68.3 million increased 28.4% year on year, driven by the three D sensing and Anticounterfeiting product revenue well discuss gross margin at 49.5% increase 290 basis points due to higher absorption of manufacturing overhead as revenue grew in both quote with speed and three D sensing product lines.
Operating margins at 31% increased 300 basis points, reflecting the higher gross margin levels as and was within our guidance range.
Now moving to a fiscal year 2019 performance.
We always revenue at 1.13 billion increased 29.1% year on year, driven by 27.9% revenue growth in NFC business segment, and a 32.6% growth in or speed.
And is your revenue growth was driven by a mix of organic growth in our fiber products across both lab and field and inorganic growth from the acquisition of the wireless and outcome test and measurement assets.
This was partially offset by declines in our assay business from the expected run off of the mature product revenue and weaker demand for our data center products.
Well its speeds revenue growth was primarily organic with strength in both threed sensing and anti counterfeiting products led by redesign and reprint wall in phones from four major banknotes.
We always operating margins at 17.5% expanded 360 basis points year on year.
Driven by the significant improvements of 510 basis points, you know and I see operating margins as a result of favorable operating leverage with revenue growth and continued cost management discipline across all functions.
Our operating profit at 197.6 million grew 62.2% on an increase of 75.8 million year on year, but 56 million of the growth contributed by NSC and 19.8 million of the growth in the west beat.
It appears at 68 cents grew 54.5% or 24 cents year on year.
Now turning to the balance sheet.
Our total cash and short term investments ending balance was 426.5 million operating cash flow for the quarter was 28.5 million in Q4, we repurchased 2.4 million of Viavi stock at an average cost basis of $12.50 per share including commissions.
Off the 200 million authorized for share buybacks, we have repurchased shares approximately.
148.6 million as of the end of fiscal Q4.
We'll continue to be opportunistic by repurchasing, we always talk to offset earnings dilution from stock based compensation now onto our guidance.
We expect fiscal first quarter 2020 revenue for Viavi to be approximately 283 million plus or minus 10 million operating margin at 16.4% plus or minus 1% and EPS to be in the range of 14 cents to 16 cents.
We expect NSC revenue to be approximately 208 million plus or minus 8 million, but operating margins at 10% plus or minus 1%.
We expect wispy revenue to be approximately 75 million plus or minus 2 million, but operating margin at 34% plus or minus 1%.
Our tax expense is expected to be approximately 18% to 19%. We expect other income and expenses to reflect a net expense of approximately 2.5 million.
Share count is approximately 237 million shares.
The estimated a sequential increase in share count primarily reflects the accounting impact to weighted average shares from our existing 2023, and 20 424 convertible notes as we obviously every chip pricing this quarter to date is trading at both the conversion price of these notes.
With that I will turn the call to Alec.
Thank you Omar.
I'm pleased with our performance during this fiscal fourth quarter, you need to see the Fiveg wireless market remains strong and some symbiotically pulling a long fiber product or service providers upgrade the network infrastructure for higher bandwidth capacity the strength in both 11 field fiber independent of Fiveg is also drives being driven by industries upgrade to a 400 gig cable demand cyclically declined year on year as North American cable providers, mostly completed their DOCSIS three Dearborn upgrade the North American decline was partially offset by strong demand for DOCSIS three that's one product in other geographies. The S. E business segment remained weak this quarter driven by weaker spending by enterprise data center customers.
You know a speed the anti counterfeiting revenue exceeded our expectations driven by higher Banknorth reprint volumes, while the business pipeline remains robust visibility remains limited and we don't expect to see revenue uptick until sometime in calendar year 2020.
The three D. Sensing revenue also exceeded our expectations with strength from both the optical filters and diffusers largely driven by ongoing based smartphone devices.
We expect three D sensing revenue to continue growing year on year.
To recap during the fiscal year 2019, we successfully executed on the Viavi transformation strategy and we have laid out during our September 2016 analyst day and have exceeded our non-GAAP profitability targets. The major highlights include the NFC business segments, achieving double digit non-GAAP operating margins of 11.9% for the fiscal year 2019.
And the oldest speed three D sensing products expanding to multiple customers in multiple product lines.
Please the revenue more than doubling from the prior fiscal year.
Lastly, today about 50% of overall Viavi revenue comes from products with strong expected secular growth, namely Fiveg fiber and three D sensing as compared to fiscal year 2015, where there were was minimal secular growth in both NFC and always be and mark.
In the fiscal year 2020, we're launching the next phase of the obvious transformation with a greater focus.
On the growth both organic and inorganic.
We expect to continue to leverage a major secular growth drivers in fiveg wireless fiber in three D sensing to achieve higher levels of revenue and profitability. We invite you to our analyst day event on September 12, 2019 in Santa Clara, California, where we are well outline our going forward strategy and goals.
There will also be a live webcast of our presentation, who will provide more information regarding the next on sedans.
In conclusion, I would like to thank my Viavi team for the strong performance in fiscal 2019 and express my appreciation to our customers and our shareholders for their support I will now turn the call over to Bill.
Thank you all there.
So yeah. It was asking the question answer session, we ask everyone to limit discussion to one question and one follow up.
Certainly as a reminder, if he would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from John Moran from Stifel. Your line is open.
Thanks, very much all like I was wondering if you could talk a little bit more about a the carbon business or the lab test business in in Fiveg. Obviously, that's been a driver of growth certainly through this last fiscal year. Just curious how you see that playing out as we're going into fiscal 20.
And if you can comment at all about sort of existing customers and their contribution versus maybe new customers coming on.
Yes. Thank you. So obviously, there's been that business has performed well above our expectations and pretty much exceeded all our own business projections. When we were doing this deal. So you know it's as usually the case the acquired company never performance better than the best ever performance. The day you look at their first Powerpoint deck in this case it's been.
A nice exception and it's done much better than even our upside scenario was that said, we expect that business to continue to be strong this year, although probably growing a at a lower rate and but we also going to start seeing substitution between the deep protocol testing to more of a capacity testing so as our customers start shifting gears from development to production. The configuration of the staff will be more of a production focus and a bit less of a developing focus but we still expect development to be a major part of the sales going forward.
Furthermore, what we are doing we are leveraging our very strong position in the labs.
To develop and launch a comprehensive a rough portfolio of products for the field and we have said the road map about a year and a half ago. As we were contemplating this acquisition and a lot of those products are coming out in the second half of this calendar year. So basically first half of our fiscal year. So.
And that's the way, it's not just the Cobham wireless business, but this positioning us for a strong outlook. This year and a continued growth, but also we are placing significant emphasis to use that position to build out a meaningful wireless instrumentation, a field instrumentation business, where we are have very little today. So in that respect Oh, we are looking to change the profile of Viavi you from being a primarily.
Wireline, a field instrumentation to being wireline and wireless field instrumentation business. So hopefully that helps and obviously, we continue to add other product lines and extensions to the carbon business to expand our Tam within each of our customers.
So thinking John I'll, just take this opportunity to give a quick update on the I know the question was it on the revenue side, but it could quickly given an update on the synergies on the cost synergies of this business.
Oh, we were waiting till the end of fiscal 19 to give you guys. An update so if you recall for the two assets that we acquired the amcom asset into wireless acid, Oh, we had estimated cost synergies of anywhere between $15 million to $20 million or a three year period and as of end of our Q4, which is 18 months into roughly about 15 to 18 months into the deal we have actually actioned between $15 million to $20 million of cost synergies two thirds of those synergies are actually already reflected in our fiscal 19 results. So in addition to growing and driving topline growth. We also accelerated the cost synergies. We then also reinvested some of the cost synergies back into the business to drive further growth in this into wireless Lan business as well as to love to feel initiative, but the next two to three years. So some of it is reinvested back into the business.
Thank you great and then maybe just as a follow up Amer you mentioned in the guidance the higher share count as a result of some of the anti dilutive measures of the converge how do we think about that maybe have a little bit of a longer term basis is there a way that we can sort of model that based on every dollar above the strike price or something like that how do we look just sort of beyond even just the next quarter or two to think about this all over the longer term given that that now it looks like you know that's going to be in the money moving forward.
Yeah. So it's a very good question actually so so let me give you a little bit of additional color here more than what I mentioned in my prepared remark on how to think about this.
I will start with the fiscal Q1 guidance of 237 million shares and if you see sequentially. It's it's grown by four and a half million shares one thing that you got to keep in mind is.
Typically our share count increases sequentially from fiscal Q1, which is a September quarter two of fiscal of from fiscal Q4 of fiscal Q1, which is September quarter due to vesting of equity awards as well as the annual grants would that happen every year right. So there's some element of that already.
Factored in not to 37, what we do as we go and buy back shares and offset that dilution. In addition to that coming to your specific questions. What we have seen is oh since the share price. If you look at the average share price. This quarter till date. It is at about $14.24 and it's higher than the 13 22 and be 30 94. Those are the two conversion prices for the two conduits. We have so our stock price is very much in the money and so there's about three and half million shares that got added because of the accounting impact of these this up these conduits being in the money. So for every dollar increase above the average I'll say coding 50, and if you just take a buck increase from there you should think about adding about 3 million shares to the share count now to put things in context, what it really means is that the EPA is dilution is less than.
Half a cent it's about three tenths of a cent if you'd been converted into how much of additional operating profit we need to golf said that it's about 500 K two 700, Cape So for in our models, we actually go and drive the operating profit dollars because you know we noticed.
We don't know where the stock price will be but we always factor that in our in our operating model.
Thanks, very much I appreciate that.
Very much thank you.
Your next question comes from Alex Henderson from Needham Your line is open.
Great. Thank you very much.
Two pretty interesting announcements that came out.
Little bit later.
In time that we were unable to ask you a lot of questions.
Can you talk a bit about the.
China mobile deal that you announced and the Samsung.
Just kind of give us some bigger than a bread box slice kind of calculus.
Well you know Uh huh.
I think some of those things kind of came out.
We didn't think it was such a big deal, but I guess it turned out to be a lot bigger deal and I mean, you just kind of thought that everybody knew where our presence was so it goes to show that it's probably a good occasionally attitude towards your on corn I mean, clearly I mean, the first one is you know we've been that partner with China mobile on the.
On the network splicing and a number of other fiber standards, but we also obviously been working with them on testing Fiveg and now they said you know when we when you start a regionally you sell a lot of your system emulation system testing gear into the.
Equipment manufacturers, but at the moment the products are shipping I mean, one thing we don't talk much about is the next level of customers that come in are usually the service providers with their own labs, where they want to test and evaluate.
All the vendor's equipment, although the volumes of sales to service providers arm significantly lower because they don't need as many test stands a debt. Nevertheless, as an important element does it allows us to get into the from the.
Oh yams labs into service provider labs, and subsequently into their field equipment. So.
In that respect we felt that our collaboration one just significantly beyond just purely a one off sale there we actually doing a lot more with the carrier in evaluating various.
Performance of various equipment and.
Standards and such we were happy when they were are more than welcome to.
A press a joint press this with US in case of Samsung I mean, it is a significant customer of ours I mean, there were.
At this point, we pretty much have every major a base station manufacturers, where we have majority share with exception I would say well wait a while ways very much today ace in internal solution and aside from Y way we are the.
A strongest have the strongest position in the testing labs across all our wireless infrastructure. So.
I think that Samsung was the last yeah.
It will yes for us to capture and we did and.
I think that was the press release.
So bigger than a bread box or smaller than us.
[laughter].
[laughter].
Well it depends on how big is the bread box or are the slide [laughter] significant let's put it that way.
One last question if I could.
Could you tell us whether the three D sensing grew on a quarter to quarter basis.
So.
A three D sensing did grow on a quarter to quarter basis.
From fiscal Q3 19 to two fiscal Q4 19, yes, it did grow sequentially.
Great. Thank you.
Yeah.
And as I said in my prepared remarks, it was predominantly I mean at the June quarter.
Is.
You know depending on a a standard youre supporting its a transition quarter for one and not so much for the other so it was primarily driven by the Android devices in Asia.
Thank you.
Your next question comes from Michael.
These from MKM partners. Your line is open.
Uh huh.
Oh, Thanks, very much Oh like you mentioned in the prepared remarks, three D sensing more than doubled year over year I think it looks like to me like it nearly tripled.
You know maybe up about 170%.
Can you give us some help on how to think about this for.
The next year and I think you just.
Mentioned that it was primarily driven by Android. So can you just generally talk about the other ecosystem a seasonality in the back half of this calendar year.
Well I think the.
It's actually I think it is a little bit more than doubled right because I think what do we say a lot.
So yes, so yeah, so we saw more than more than doubled exactly so we.
So I'll give a little bit more color into another can take it from there. So we said you know roughly about $65 million plus or minus would be the full year and we landed actually close to about $70 million in three D. Sensing. So it's more than doubled to all explained well cost because I think it's 25 different area 28, yes, so well wait is being modest you're right it's much more than doubled.
Right. So no somebody looking forward basically how do we think about it you know for the for the year, what kind of guide post can you give us to model it for that for the year event, but also you know for that for the next two quarters.
You know as the or you expect strength out of both ecosystems.
Well I mean, so here here is the thing I think clearly it's going to grow in terms of the amount of growth.
I have two babies cautious here because I don't know how much of the americanisation of supply chain in Asia in China going to impact us ultimately I mean, clearly we have the best technology, the best price performance.
You bet.
Best demonstrated ability to supply and delivery and support our customers. If it's all purely comes down to competitive metrics and the best provider wins, then we clearly should do extremely well, but we also have to be I'm being I'm hedging my bats, and being a bit more cautious in terms of the.
Some of the.
Oh, Hi, Tim some of the RCM 13 Asian supply chain to reduce the reliance on American company. So.
We don't have an issue with the supply, but I think its one thing I cannot predict as the political.
Wins, and that's why we are being cautious but in any case, we expect strong growth. This year just how much is going to grow is going to be really a function of.
What are some of those trade winds are going to blow.
Okay, I guess I just want to follow up on the same topic, because you know from from listening to one of the Vixel players it seems like the.
Yeah, I'm trying not to say the name, but the non Android you know big customer.
It seems like they actually pulled forward a little bit into the June quarter or maybe some early building this year.
And you're getting you're calling out strength in Android I'm wondering if you also saw strength.
In the iOS in the quarter.
So remember I think you have to really take into account your lead times, if you're providing a big so your lead time is probably closer to three months to get the product for the fab into assemblies on for US. The lead time is met a couple of weeks so and the orders that you would if you were OEM you would place orders much sooner with the semiconductor vendor and you pray bleach orders much later with the let's say optical vendor I actually prefer our situation more because ultimately our orders are much closer to the actual demand. So we have a much lower risk of overbuilding inventory and we can respond very quickly to the ups and downs.
In the.
Demand without and avoid overbuilding inventory.
Okay, great. Thanks for that and then if I could just ask one more on it it's good to see any it looks like you have pretty balanced strength between wireline and wireless test I think you've got some questions on wireless.
Could you just talk about sort of the drivers on wireline write downs, which regions what type of customers you know you're seeing a good demand out of.
So on the wireline as I mentioned I mean, the this shared fiber has been extremely strong right and I would say.
The biggest trends we've seen is indeed, a lemon production this whole conversion too for 400 gig and a lot of the R&D in the 800 gig is driving a lot of.
And production requirements. So I think lab is driven by you know just everybody developing from semiconductors two modules to testing the.
OEM gear I'm at 400 gig and.
Advance development on 800 gig and in production there is a very strong demand for water modules and obviously, that's driving demand for the production test equipment. So let's say in fiber that is probably what I would say not passed a 12 months for fiber has been the strongest.
Then further I know once all these things are happening with the Fiveg preparation, although it's probably on just in the early stages, but also pushing a 400 gig upgrade of the.
Fiber optic networks, a we're also seeing healthy demand for field Fibrek testing, especially in Europe , and in Asia, and as a whole new set of fiber optic networks being laid out trans Pacific Trans Atlantic So our Swan and National networks. We also seeing healthy demand for the our advanced fiber monitoring solutions, which as you know a big combination of software and hardware that monitors the whole fiber network. So I would say the biggest driver and fiber is a 11 production. The next one I would say is on optical network monitoring solutions and the next one is the installation and field equipment as a lot of that infrastructure gets deployed we expect to see down the line more demand for the kind of installer on construction fiber tools as they started doing.
The customer connections.
And from a regional growth perspective, Mike.
You talked about no NSC grew 6.7% and any actually grew 10.1, which was a 100% organic growth and actually any grew in all the regions Americas, Europe , and LPG, including China.
Yes, so thanks for that.
Modest demand by North American customers, we are seeing a lot of other customers are pulling demand.
All right. Thanks, a lot.
Sure.
Your next question comes from Samik Chatterjee from Jpmorgan. Your line is open.
[noise].
Let me.
Sneak taxonomy.
I think there may be a right sorry, guys can you hear me now.
Yes, we can hear you guys.
Yeah, sorry, My headset must have died on me. This is Joe Cardoso on for Sonic sorry about that.
So just to dig into my first question can you tell us what you're seeing in terms of demand from service provider customers, specifically from a telecom and cable perspective, and then within that can you touch on what you spoke to last quarter about cable hitting a stable level are we there yet and if not when do you expect this to reach that stable level.
So I think the analysts is you've got to look at geographically right. So.
I would say.
Europe , and Asia or the service provider demand this I would qualify as healthy.
Latin America is a healthy.
North American is better than it was a year ago, but still far below the levels of the past, although we see.
Sporadic urgency requirements here and there.
A full products as they need becomes acute that said I would qualify it it's no longer as dire as it was about a year ago and it's I'd say is gradually improving the good news for US is we are no longer us heavily reliant on major North American players for our revenue and growth and anytime they.
Turn on the spigot.
It clearly.
Comes for us as the a nice upside.
In terms of the cable.
So as I said earlier, North American operators by and large have completed their purchases for upgrade to DOCSIS three to one.
Last year, and I would say.
They continue to buy equipment on the kind of maintenance replacement level.
But we are now starting to see obviously deployments happening in.
For Texas Red wine in Europe , and Latin American so there we saw a fairly strong demand.
For DOCSIS 301, that's at those regions are not as big as North America for cable. So it's not enough to offset the decline in North American, but I think for the next couple of years, we see cable to be more of a kind of steady Eddy.
Demand until the next standards, which would be the duplex.
Upgrade of the network coming down in about two to three years, maybe three years out and I want to jump. The gun now that said, we are seeing different opportunities in cable providers that are driving some of argument today. They may not be as big as the field installation, but they nevertheless presents very good opportunities its comes down to network monitoring and increasingly fiber I mean, something that was not the case in the past today. If you look at any of the cable from providers.
In cable it is becoming a mustn't misnomer to call them I mean, they are really fundamentally fiber networks with a little bit.
Core accident very end.
As a result, we actually see good opportunities longer term to do a lot more fiber and fiber monitoring.
Selling to cable providers and with some of them. They are also looking at Fiveg spectrum.
And have a good opportunity to become a wireless service provider. So I think that's my outlook on.
Cable companies over the next couple of years I think there is a lot them with the morphosys going on in the cable space.
Thank you and then my second question relates to the recent tension between us and China.
A lot of the networking equipment suppliers this earning season kind of highlighted weakness in the quarter and then going into next quarter. So I just wanted to get your guys take on what you guys are seeing from your customers in the region and then if you guys you're baking any conservatism into your first quarter guidance. Thank you.
Well on the NFC side, we have a fairly limited exposure to China.
We mainly sell lab gear and in our case, given where it's geographically developed and built.
It's not as if we're not as exposed to the import sanctions.
Enter China some of our North American peers, because the equipment. We sell is predominantly originated in design outside of North America.
Now, where we do have exposure to China is on the some of the supply chain, where we buy equipment and provided there's north American tariffs importation of these products North America.
Obviously that gives us some exposure that sad our supply chain is fairly diverse and we can easily shift products from one geography to another and we have a.
We have been mitigating that potential risk for the last couple of years. So in a way for us it's really in the noise.
The only area, where I do have concern is the.
Our threed sensing so even though we are manufacturing in China and our products are developed there.
It's really more of a backlash against the.
American supply chain versus the specifically.
Import.
Restrictions and that is the only think I'm thinking of right now and clearly we have to take it.
With a healthy dose of pragmatism.
And we have factored some of that already in our Q1 guidance, which reflects our in our guidance exactly.
Okay, Thanks, guys and great results.
Thank you.
Your next question comes from Tim Savageaux from Northland Capital markets. Your line is open.
Hi, good afternoon.
And I will look I wonder if you could give us some.
Maybe similar.
Medium term commentary to what you just did on cable on the five G.'s side I know you mentioned.
Pretty broad geographic strength.
In network enablement, I imagine that applies to fiveg as well, mostly with your equipment Oems, but I wonder if you can comment on.
Kind of end market network deployment dynamics across various regions, whether you see that.
Kind of the same as last quarter accelerating decelerating.
No a lot of the activity is focused on Asia do you have any comments on.
Kind of these deployment progress among carriers across regions, North America, and Europe as well.
Sure.
So I would look at it.
For the performance, it's a bit of a keynote to the highway three lane.
Hi way three lanes in each direction right. So you got to do your Fastlane Thats very much China I mean they are.
It's full speed ahead, and they're deploying network and.
They're experimenting with every flavor of Fiveg. The risk then I would say there is the medium speed line.
And that's all it's actually helping us with Korea in the high speed Lane as well I mean, they're going pretty fast.
The second lien output, Japan, and North America with the recent lots of trials in case of Japan, they're actually looking to do some.
Deployments in high density areas ahead of the Olympics.
So are there, but you know these deployments and trials.
Different flavors, whereas Japan is heavily focused on consumer I mean in North America, its combination consumer fixed wireless as well as private fiveg networks. So everybody's experimenting with different flavors of Fiveg to see which one would have the best economic rationale to deploy and I think the economic rationale varies between China.
Korea, Japan, and North America, and then there is if I would call. The first lane kind of the slow lane output on a Europe in that space, where they're just.
Doing isolated trials are doing a lot of planning and I'd imagine Europe will be.
Starting to we're going to start seeing more of it happening.
In the next 12 months, so I'd say, that's kind of our view on.
While we are things are taking place.
Great and if I could follow up also on any but focused on the gross margin side, you saw some pretty significant year on year and iron.
Yes, those are also completely organic increases.
In gross margin.
Could you talk in more detail in terms of the drivers there.
Mix I know you mentioned synergies and.
But I imagine that that takes place as much on the on the operating expense or operating leverage line. If you could specifically address the drivers for the gross margin increases in any in the quarter and maybe the sustainability of those.
Sure. So I will start and then I'll turn it over to Mark to provide you more color. So you think about the gross margin.
Couple of things drive it I mean first and foremost there is mix. So when we talk about stronger growth in lab and production those products fundamentally come at a higher gross margin in terms of the margin.
Profile the closer we get to the consumer the lower the margin, but the volumes are much higher the more you get into the lab, but the margins are much higher but the volumes alone. So if we look at where we've had very strong demand is we had a lot of strong demand 11 production, it's a much more customized.
Environment and.
It's a lot of customer specific.
Requirements that we implemented in our equipment and does the margins are higher since those businesses have grew the.
The strongest in fiscal 19 that obviously gave you some uplift in the gross margin mix and the next one is volume.
Our revenue going up significantly our manufacturing operation remains fairly flat. So the cost of manufacturing overhead to supply chain management procurement manufacturing engineering. All these other things is fairly fixed so whether we ship a $600 million of revenue 700, 800 900 billion it scale us almost perfectly.
With the revenue and as such the percentage of the Vera.
The.
The drag on the standard margin become smaller and smaller so I'd say, that's kind of the second biggest kicker and of course. The last one is some of the synergies did come out of manufacturing in terms of both.
Better material cost, but also the rationalization of some of the functions, where we absorbed or under Twoq. The.
Functions previously done at locations and centralize it in our manufacturing organization. So I think this is just kind of qualitatively is the way to describe defined the variance.
In margins Mark No I think I think you covered it all.
I think I provided all of the color there it okay.
Okay.
Your next question comes from Richard Shannon from Craig Hallum. Your line is open.
Hi, guys. Thank you for taking my questions.
Well actually the follow up on one of the first questions asked regarding the the cob on the acquired businesses, including column I think your answer is referring specifically to that in Fiveg.
And that you are you saw strong year better than expected, but it's still growth in this current fiscal year, but not as high wondering if you can extend that discussion to the other segments within any or maybe just any collectively.
About growth in this year versus last.
So I can I can just so Richard I think we will we have this analyst day on September 12, and we'll give you more color.
On the full year guide as well as.
What the key drivers as Willis will do for the next three years so.
That's the plan, but you know at a at a high level, we do expect a need to continue to grow.
A year on year.
Driven by both fiber and wireless.
We also expect SC.
To actually after multiple years of decline, we expect to see it will be flattish this year.
What the mature assurance business actually continuing to go down. So for example, the mature assurance business was roughly 16% of the Essi mix in fiscal 19, we expect that to go to roughly about 10%. So there will be continuous decline in the mature assurance products, even in fiscal 20, but that'll be offset for the first time by the growth in our growth businesses, so any any continuing to grow.
And as he actually declined as the remaining flat. So all NFC is expected to grow year on year on the always be side.
Three D sensing will grow double digits.
Again, we will give more color in the next two or three weeks.
And the the quote RSP business at least for first half.
Again as you know the visibility on that business is also limited by the first half we do not expect any key redesigns. So we're assuming that the first half the court wispy business will be.
Roughly in the 50 plus or minus.
The baseline revenue and and we expecting in calendar 2020 some of the reprint volumes to kick in.
We don't know whether that's going to be in the first half of calendar 20 or the second half.
But that's how we're modeling so three D sensing business growing core RSP business sort of flattish to decline and overall slight growth in our SP business and growth in the NSC business. So that's the overall color.
We'll give you more more details when we meet into three weeks.
Okay sounds good I'll look I look forward to more detail then maybe just a follow up on the fiber side here I wasn't clear me in your discussion with any other questions.
About 400 gig, an 800 gig where that was addressing.
More datacom or telecom, maybe if you could be more specific there and then are there any other differing trends between those two separate markets.
Yes, I mean, the 400 gig when we talk about wrote them. It's predominantly I think telecom thing, but there is also quite a bit of a data com.
Interconnect between the.
Datacenters Pamfour and things like that so thats the same products go into a testing semiconductor devices and modules in production.
Core as well as developing these products. So I mean, it's pretty much the same set of products and when I say also we are seeing in the near term I mean, there is already our thinking going on.
Upgrading and Metro networks to 400 gig, that's obviously going to drive.
Some.
Demand for 400 gig product as well.
Okay, Great. That's all fine, it's very much a lab really leading edge R&D.
Excellent. Thank you for the detail that's all for me.
Your next question comes from matter Marshall from Morgan Stanley . Your line is open.
Great. Thanks.
I wanted to just on the fiber commentary you know is the strength there kind of from one carrier that is what came from laying fiber to connecting it or is that more widespread and Additionally, you know you've noted over the past couple of quarters, but maybe some telcos were deciding whether that kind of last feed or last couple of feet should be something like do that faster whether it would be fiber and just kind of any changes you've seen in the dynamic there or any trends with GE that path, we should be mindful of thanks.
Yes, so when we talk about become more field fiber, which as the operator said during fiber it varies by geography. If you look at Asia a lot of it is really building out new networks.
You know, whether its trans Pacific fiber or a national fiber network things of that nature. So it's big systems with water monitoring and kind of higher end equipment.
If we are talking about a Europe , there, you're probably seeing a bit more of the connecting customers connecting buildings.
In installation and things of that nature or more like kind of lost several miles.
And our Latin America is probably more like.
Europe in that respect on North America, I think it's mainly yeah, I'd say metro networks.
Got it and then any changes on the dot fastened kind of any adoption. There is that primarily just for kind of laugh.
While our you know I know it had had more legs in Europe , and North America any change to that or.
So I mean, so I don't know its clearly cable is the biggest one in the U.S. and I've covered that already are on SEDAR faster, we do see a demand.
Pretty nice demand in Europe , so its.
Steel there I mean, I don't know I don't think there is going to be probably a one or more generations at most maybe one more generation of G fast after that but it's.
Clearly fiber is getting deeper and deeper in network. So I would say Europe is primarily depending on the countries within GE faster or.
Fiber to the curb and we're seeing.
Probably longer term more and more going towards fiber, but I think GE fastest ULAE.
Pretty healthy market in Europe for us.
Got it thanks guys.
Sure.
Your next question comes from Jan thing from Rosenblatt Securities. Your line is open.
Thanks for taking my question. So I just want to get some color about Bob you mentioned you had very strong growth, that's where do you see anything from Ed white market and stuff.
The growth more coming from the theater side or are the diffuser product and also do you see the impact from the ban allawi so far thanks.
So I think clearly diffusers.
We when we acquired the RPC they already had a designed in pipeline there was extensive and it's ramping very nicely and.
By and large they do provide the best technology in the the best performance. We are Oh, we also seeing.
Demand on the filter side, but thats, probably where I have more concerned about the americanization off from.
Our supply chain and that's sad I mean, we are exploring various other means of either being a a lot providing some licenses to some of the people to outright I doing or manufacturing for them and then let them do the backend a simulation and supplying various module manufacturer. So I think thats, probably I'll say on filters is the area where I would.
Im being more conservative about now the other thing is.
When we look at these things. There's also a number of players decided to delay three D sensing period, and we had a strong traction with those players. So I think in the end in China, It's basically while way today I'm asking.
Oppo and vivo I kind of.
Kicking the can down the road until the supply chain is more mature I mean, clearly this is one of the things we are watching but.
We'll see.
How it plays out.
Given all the negotiations that are going on.
Well, we have other ways you are monetizing.
Our filter technology.
Okay Cool, but you mentioned there are some redesign of the threed sensing for getting to 2020 or do you see any of.
Yes, low yes, quite you can potentially play a role in that in the back a camera module in there in the end of the calendar 2020, I mean from a you are on the major client. Thanks.
Are you talking about the like a world facing camera.
Yes, that's right.
Well I mean, we are pretty much in all the major design. So I mean, we are the technology leader in them.
I think.
We know that if they go to production, we will do very well, it's a really matter of timing, but one of the other things.
We are hoping for is there has been also talk at some point in time more and more time of flight products coming out and that will actually play very well into our favor a they'd would allow us to also potentially supply our diffuser products into these modules.
Whereby today, we are fairly you know we are absent in the structured light for the diffuser product.
Okay, what's the difference or if I compare ASP between the diffuser and theaters.
You talking about the difference in SP, well, we don't provide that information I'm sure you can get it from your sort of sources.
Thanks.
That's all my questions picture.
Thank you.
Your next question comes from Dave Kang from B. Riley FBR. Your line is open.
Thank you good afternoon, just a couple of questions on your fiscal 20 outlook, you expect north not for any growth of double digits.
Any more color or maybe use 10% over or under and also on.
Three d. as you expect double digit growth, so if oh, well ways. The main one and if you're concerned about them internalizing then.
Primarily the growth will come from the North American customer.
So let me just.
Just correct you I know you said any will grow double digit I said, all any will grow as he will be flat and we'll give you more color on what the NSC growth will be.
You know typically this business is a long term NSC is a low single digit grower right. So.
But there will be some quarters for example, this quarter in fiscal Q4 that we repeated we just reported we grew 10%.
We we expect.
Fiscal Q1 to be also a strong quarter for any so overall any for the full year will still be a low single digit grower with essi actually remaining sort of flattish. Okay. So that's the commentary on NSC now with regard to three D sensing.
We are going in with the view that as we have done in the past that you know when we see upside then we will come and give you the upside and Thats. What we have done in fiscal 19, we increased our estimates.
When we saw the upside coming in so we went from 55 to 60 to 60 to 65 and then now we said we landed on 70. So we are going to take a similar approach even in fiscal 20, when we when we provided the guidance because there's always mention there's a lot of uncertainties and and we don't want to put the put the cart before the horse here and so we will give you more color when we when we meet in two or three weeks, but we will we will not change. The we we guide is what I wanted to tell you.
Got it.
Almost a mix between you said most of the sequential growth in the fourth quarter was Android what was the mix between iOS versus Android.
Well, we don't give that information, but most of the growth was Android, but there was also a little bit of growth in even iOS.
So it was a mix of growth between iOS sequentially button, iOS and Android, but more so on the Android side.
And we don't we don't share that mix.
Got it and my last question is on Capex, what was it and then how should we think about this fiscal year.
Yes, so the Capex was roughly $45 million for the full year. So we landed about 4% of our revenue roughly.
You should expect us to be between three and 5%.
Of offer revenue going forward, the though the capex the mix of Capex will change in the last in the past periods. We used to put lot of investments on the on the wispy side to go and build the capacity for three D. Sensing I think what you will see US is now shift the capex towards growth areas in NSC, we're feeling comfortable in investing in the wireless side. So we will make investment in wireless capex.
To go drive productivity of our R&D teams and so the Capex will shift between between say or Spi into NSC and and also we're also implementing on upgrading our I'd systems here, we've been working on this for the past one and half years and so you will see some capex even on the on the corporate side, but overall capex will be between 3% to 5% of revenue.
Got it thank you very much.
We have a follow up question from Alex Henderson from Needham Your line is open.
Oh, that's great.
Just wanted to ask a question relative to the architecture on the deployment on Fiveg. It seems like most of what's being deployed right now is a fourg the backbone for Julie.
Oh.
Backhaul, but fiveg in the in the towers, so mostly it's around the the build around the towers.
Does that have an impact on your relative positioning in terms of the timing of the spend or is that more a function of yeah impacting or the routing and switching and optical guys or that are in that back haul piece that are still using the phone where they're still using the fourg backbone.
So the.
What you're describing I mean, clearly what's being done today that are not standalone. The implementation of the cost can overlay on fourg and I think for in the foreseeable future that's going to be the main.
Deployment.
Oh, that's sad in many ways worthy Fiveg has is actually going to run fiber all the way to the antenna. So at least in the between base station antenna you're going to need.
More fiber and then you had before and you are right. It is largely leveraging the.
Fourg backhaul, but even that backhaul in some cases needs to be upgraded to a higher bandwidth.
If you really want to add additional services so.
In fact, I mean this is why I said the five G.
Sales into the lab will continue to be very strong because.
Today, it's all predominantly not stand alone, but there is also a lot of different flavors of it.
Being required depending on implementation and longer term people are going to be looking at.
Pure Fiveg networks. So reality here is for many years to come Fiveg standards are going to continue to evolve a new development will need to take place and that's why we are.
Bullish on the.
Oh around Fiveg lab presence.
And then if I could just get a clarification.
I thought you were talking about.
The any.
Growing higher than low single digits with the.
Sep is flat.
And when did you mean that the blended anyway, and I think it was going to grow low single digits.
When you guys spoke a moment ago.
So so let me just stuck in stage two.
What we are seeing here is Alex.
In Q1 in Q1, we will be double digit grower in any business and and we do the same with double digit growth in fiscal Q4 that we recently reported for the full year, we have to be anywhere between low to mid single digit grower overall for any for the full year, right and assay being flattish to slight growth. So overall NFC should be.
Low to mid single digit growth for fiscal year 20.
Does that imply that the back half is fairly flat and any noise, yes, yes, it might be flat at this point them based on our visibility that we have we assuming it is flattish because remember we had a very strong Q4 of fiscal 19 right. The recently reported quarter was quite strong growing about 10, plus 10 plus percent. So we're assuming that the back half to your point, you're absolutely right. There's room in the back half will be flattish as we move into the year you know, we'll get more visibility, but we do know that the as Alex mentioned that we will see traction both in fiber in wireless and at this point in time, we have visibility to fiscal Q1, a little visibility into fiscal Q2. So I will give you more color on how things will shape up in the in this in the in the second half when we when we meet.
Okay. That's helpful. Thank you.
There are no further questions at this time Bill I turn the call back over to you.
Thanks Julianna. This concludes our earnings call for today. Thank you everyone.
This concludes today's conference call you may now disconnect.
Okay.