Coherent, Inc.
Q1 2017 Earnings Call Transcript

Published: 8 Feb 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to Coherent's First Quarter and Fiscal Year 2017 Financial Results Conference Call, hosted by Coherent, Inc. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce, Bret DiMarco, Executive Vice President and General Counsel. You may begin your conference.

[Bret DiMarco:]

Thank you, Emily, and good afternoon, everyone. Welcome to today's conference call to discuss Coherent's results from its first quarter of fiscal 2017. On the call, we have John Ambroseo, our President and Chief Executive Officer, and Kevin Palatnik, our Executive Vice President and Chief Financial Officer. I would like to remind everyone that some information provided during this call may include forward-looking statements including without limitations, statements about Coherent’s future events, anticipated financial results, business trend and the expected completion, timing and benefits of the Rofin-Sinar transaction. These forward-looking statements may contain such words as expects, will, anticipates, or intends are referred to as guidance. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause actual result to vary significantly. These forward-looking statements reflect beliefs, estimates and predictions as of today and Coherent expressly assumes no obligation to update any such forward-looking statements. For a description of risks and uncertainties which could impact these forward-looking statements, you are encouraged to review Coherent's periodic SEC filings including its most recent Form 10-K, Form 10-Q and Form 8-K. I will now turn the call over to John Ambroseo.

[John Ambroseo:]

Thanks, Bret. Good afternoon, everyone and welcome to our first fiscal quarter conference call. As you've seen from the press release, Coherent posted record performance in the first fiscal quarter of 2017 with every market contributing to the results. I want to commend our operating units for delivering or exceeding their customer commitments while we simultaneously kicked off the formal integration of Coherent and Rofin. I also want to acknowledge our global sales team for their record performance. Bookings of $551.6 million increased 119% sequentially and 102.1% versus the prior year period. The book-to-bill for the first quarter was 1.59. Microelectronics orders of $373.6 million increased 155.4% sequentially and 97.8% compared to the prior year period. ELA system and service orders were very strong in the first quarter. The systems were predominantly LineBeam 1000s and will be delivered to multiple customers in multiple countries. We believe all or nearly all of these tools are designated for flexible OLEDs. Service demand is reflective of high utilization rates as end customers ramped OLED capacity and maintained LTPS LCD output. In a subsequent event, we have recently received another multi-unit order for LineBeam 1500s. The end customer would like them delivered in 2018 and we will be able to accommodate their request. In addition to the front-end ELA process, there are an increasing number of laser-based backend FPD applications in the mobile handset market. These apps are linked to specific models drive burst or bubble orders and require rapid fulfillment. We had planned for several of these in our fiscal 2017 operating plan, but have been better than anticipated. The additional business is reflected in our microelectronics market and we are ramping in several different product families and locations to meet delivery requirements. Semi-cap bookings grew by double-digits in the first quarter, which is consistent with overall trends in the market as expressed by SEMI, Gartner and IC Insights. Capacity expansion for 3D-NAND is the primary growth driver. Larger capacity expansion is a distant second. Similar to FPD, semi-cap fab utilization is high and this is translated into a strong service demand. Advanced packaging had a nice uptick during Q1. The microvia business picked up some speed from fan-out wafer-level packaging which provides more I/O connections from a die. Orders from the Laser Direct Imaging or LDI applications also improved. Via Drilling and LDI have historically trailed the semi-cap market by approximately six months. First quarter materials processing orders were $96.4 million representing increases of 242.1% sequentially and 373.7% versus the prior year period. The large changes are from the Rofin acquisition. The materials processing vertical is the end market that has expanded the most by virtue of the Rofin acquisition. Additional marketing and engraving business performed well with contributions for metalwork using UV lasers to textile marking with CO2 products. Cutting and converting also fared well due to volume orders from the packaging and label industries. Automotive applications were very active and drove orders for ultra-fast lasers used in fuel injector nozzle drilling and high power laser used in powertrain welding. We also posted record orders for medical device manufacturing workstations where we see meaningful opportunities to expand our business. Instrumentation OEM component orders of $46.9 million increased 10.3% versus the prior quarter and 56% versus the prior year period. The sequential in year-over-year increases arose from an improved outlook for medical OEM's, sustained growth in bioinstrumentation and higher demand for medical consumables. In refractive surgery, a major vendor is having success with an excimer-based technique. This is to put pressure on other processes that utilize short-pulse lasers, but it is a net positive for Coherent. Bioinstrumentation customers are reporting solid growth in reagent sales, which drives demand for laser based instruments across all territories. We are exploring new laser architectures that can accelerate instrumentation deployment through lower pricing. Our work in medical and consumables, primarily fiber assemblies for lithotripsy, has been rewarded with a steady increase in business. There are more opportunities in this area and we look forward to securing them. Scientific orders of $34.8 million were down 0.4% sequentially and up 3.1% compared to the prior year period. We have record orders for Astrella, which is a workforce tool and applications ranging from applied physics to physical chemistry. And two factors led to this, Chinese research investments in the physical science is continue to grow and are nearly equal to those in the U.S. We also believe we have captured market share for ultra-fast amplifiers across multiple geographies. The multi full-time microscopy market as a consistent overall performer that makes the shifting towards our newer platforms including the discovery, monocle and fidelity, due to their applicability in optogenetics. Orders for CW and pulse lasers used in life sciences and chemistry were also stable to up. This reflects research trends in Europe and Asia. The only product area of the decline was for certain gas lasers due to shipping technology. This was sixth year in a row when the first quarter orders were similar to our higher than the fourth quarter orders as opposed to a seasonal drop off and as a reflection of a geographic shift towards China and Korea. The integration process is fully underway and there have been few surprises one way or the other. Our employees are doing a good job in managing change, which is never trivial. The early work has focused on integrating the sales and service organizations, consolidating our semiconductor packaging operations and advancing the high power laser platform. The sales service integration is on track and we expect to have everyone operate on a single platform in the next several months. The package with consolidation is also progressing according to plan. The opportunity of fiber laser market remains compelling. We are currently producing a 2.5 kilowatts single-mode module with a 3 kilowatt module nearing completion. The economics of a higher power module look very favorable. Development work of a Coherent pump chip is underway and we also have some work to do on simplifying the fiber laser supply chain. We are going to institute a change in our quarterly reporting affected this quarter meaning fiscal Q2. We will continue to discuss demand trends, but we will no longer report absolute bookings. There are several reasons behind our decision. We are one of the few players in the industry that provides bookings granularity which gives competitors insight into our business. Our bookings volatility has and will continue to be high, our virtue would be ELA business, where highest piece and induce large swings in bookings. These swings are not indicative of the long-term potential of the business. Finally, the earnings power of the company, especially is it relates to service have gotten lost in the bookings exuberance. We hope this change will put more focus on our key performance metrics. We've put ourselves in prime position to capitalize on demand environment across our four end markets. Over the coming months, you'll hear about new products in emerging applications that figures squarely into the Company's future. While there's much to do the team is energized and focused. I’ll now turn the call over to Kevin Palatnik, Coherent’s Executive Vice President and Chief Financial Officer.

[Kevin Palatnik:]

Thanks, John. Today, I’ll first summarize fiscal first quarter 2017 financial results then move to the outlook for fiscal Q2. I’ll just discuss primarily non-GAAP financial results and ask that you refer to today’s press release for details description of our GAAP results, as well as our reconciliation between GAAP and non-GAAP financial results. The non-GAAP adjustments relate to stock-based compensation. Amortization of intangibles assets, acquisition related costs, restructuring costs purchase accounting and the related tax adjustments. The full text of today's prepared remarks and trended GAAP and non-GAAP supplemental financial information will be posted on the Coherent Investor's Relations website. A replay of this webcast will also be made available for approximately 90 days following the call. Fiscal first quarter 2017 financial results for the Company's key operating metrics were bookings of $551.6 million, total revenue of $346.1 million, non-GAAP gross margin of 47.2%, non-GAAP operating margin of 25.8%, adjusted EBITDA of 28.4%, and non-GAAP EPS of $2.57. John talked about the approximately $552 million of bookings for the quarter in detail, so I will move on to the P&L and balance sheet. Net sales for fiscal first quarter were $346.1 million which includes Rofin sales for the period November 7 through December 31. This is an increase of $97.6 million or approximately 39% sequentially. The $346 million of sales came in above our previously guided range and it’s due to 66% of Rofin sales occurring following the closing of the transaction higher than our expected 55%. Additionally, we saw strength across all four market segments Coherent serves with Microelectronics, specifically FPD sales providing the largest contribution. Geographically, Asia accounted for 59% of revenues in the first quarter, the U.S. 19%, Europe 18%, and the rest of the world 4%. Asia includes one territory with revenues greater than 10% of total sales. Total backlog at the end of the first quarter was approximately $1.2 billion. The shippable backlog defined as shippable within the next 12 months is approximately $824 million. This includes $482 million or approximately 58% of shippable backlog related to flat panel display applications. The comparable shippable backlog at the end of fiscal fourth quarter was $605 million of which $382 million or approximately 63% was related to flat panel display applications. Other product and service revenues for fiscal first quarter were $101 million or approximately 29% of sales. Other product revenue consist of spare parts related to accessories and other consumable products and was 24% of sales representing growth of 42% compared to last quarter. Excluding Rofin growth would have been 12% compared to last quarter. Revenue from services and service agreements were approximately 5% of sales representing growth of 51% compared to last quarter. Excluding Rofin growth would have been 1% compared to last quarter. And we had one customer in South Korea, an integrator to large flat panel display manufacturers that contributed more than 10% of the Company’s fiscal first quarter revenues. Fiscal first quarter non-GAAP gross profit excluding stock-based compensation charges, intangibles amortization, purchase accounting, and restructuring was $163.4 million. At 47.2% of sales for the quarter, non-GAAP gross margin came in slightly above the guided range. Non-GAAP operating margin was 25.8% for fiscal first quarter and was also above the guided range for Q1 as a result of the compounding effect of higher gross profits along with lower than expected operating expenses. Adjusted EBITDA was 28.4% in fiscal Q1. Turning to the balance sheet, non-restricted cash, cash equivalents and short-term investments was approximately $360 million at the end of fiscal 1, a decrease of approximately $40 million compared to the end of last quarter as a result of using cash on hand to partially fund the Rofin transaction. International cash primarily in Europe was $237 million or approximately 66% of the total cash and short-term investment balance. Approximately 40% of total cash and short-term investments is denominated in dollars. Accounts receivable DSO was 63 days, an increase of 3 days sequentially. The net inventory balance at the end of the first quarter was approximately $386 million. This is a sequential increase of $173 million and was primarily due to the acquisition of Rofin Inventory, which had a value of $178 million on December 31. And finally, capital spending for the quarter was $15.4 million or 4.4% of sales. Now I'll turn to our outlook for the second fiscal quarter of 2017. Please note that unlike Q1, we’re in Rofin financial results were included for a partial quarter, Q2 financial results will be consolidated for the entire three months of the quarter. Accordingly, revenue for fiscal Q2 is expected to be in the range of $390 million to $410 million. We expect fiscal Q2 non-GAAP gross margin to be in the range of 44% to 47%. Non-GAAP gross margin excludes intangibles amortization of approximately $11.7 million, the inventory step amortization of approximately $13.4 million, and stock compensation cost estimated at 700K Non-GAAP operating margin for fiscal Q2 is expected to be in the range of 22% to 25%. This excludes intangibles amortization estimated at a total of $17.4 million, inventory step amortization of $13.4 million, and stock compensation expense of a total of approximately $7 million. Other income and expense is estimated to be an expense in the range of $8 million to $9 million, primarily related to interest expense and amortization of the debt issuance cost. We do not include transaction gains and losses related to future changes in foreign exchange rates in our outlook. We expect our non-GAAP tax rate for fiscal Q2 to be approximately 31%. And finally, we are assuming weighted average outstanding shares of 24.9 million for the second quarter. I'll now turn the call back over to the operator for a Q&A session.

[Operator:]

[Operator Instructions] Your first question comes from the line of Patrick Newton from Stifel. Your line is open. Please go ahead.

[Patrick Newton:]

Yes. Good afternoon, John and Kevin. Congratulations on the stellar results and thank you for taking my questions. Jumping right in, I guess given the level of FPD orders that you saw in the December quarter and you alluded to some more 1,500 orders in the March quarter. Is there any color you can give us on how we should think about the potential for large orders in that intermediate term maybe call it six months you've typically had great visibility of the past John?

[John Ambroseo:]

The conversations with customers are quite active. I can't give you specifics in terms of timing or mix, but there are a lot of conversations that are ongoing right now.

[Patrick Newton:]

Okay. Great. And then I guess to fulfill the request for delivery of the 1,500 systems that you alluded to in 2018. Do you need to add any capacity or can you do that with the current footprint that you have?

[Kevin Palatnik:]

Patrick, it’s Kevin. As you know in fiscal 2016, we added capacity for our ELA tools. That capacity came on line in October and we believe at this point that that's all the capacity needed to deliver what we have in backlog through the end of 2018.

[Patrick Newton:]

Great. Okay. And then I guess, Kevin did you buyback or retire any debt in the quarter pertaining to the Rofin-Sinar transaction. And then can you perhaps remind us of what your plan is to pay down that debt? I believe you've talked about doing it at an accelerated pace in the past.

[Kevin Palatnik:]

Yes. Patrick, we did not pay anything down in quarter. There are certain procedural things that we have to follow as long as potential breakage fees if we don't pay on a certain date, so we're working through that. But in terms of the going forward consistent, what we've said in the past, we will be paying it down and we'll talk about that more once we made the first payment in a little more detail.

[Patrick Newton:]

Great. And just last one for me as I guess given that we haven't really seen some of the details around Rofin since the transaction was announced almost a year ago. Could you help us to level said what the relative run rate is for their fiber laser business and also for their systems business?

[Kevin Palatnik:]

Not at this time.

[Patrick Newton:]

John that you think you will be sharing in the future?

[John Ambroseo:]

Once we have more comfort around trends, you have to remember, Patrick, we've only been operating this business for seven weeks in the quarter. I'd like a little bit more time and data before start making projections.

[Patrick Newton:]

All right. Fair enough. Thank you very much. Congratulations. Good luck.

[Kevin Palatnik:]

Thanks, Patrick.

[Operator:]

Your next question comes from the line of Jim Ricchiuti from Needham & Company. Your line is open. Please go ahead.

[James Ricchiuti:]

Good afternoon. John, I'm wondering if you can give any flavor or color on how much of the FPD bookings might have come from China.

[John Ambroseo:]

I can't give you a specific breakdown, but it was from multiple territories as I said. There are customers in Korea, China, Japan who are all making investments at this point.

[James Ricchiuti:]

If you were to rank them Korea, a larger portion China next followed by Japan is that fair?

[John Ambroseo:]

I can confirm Korea is upfront, I prefer not to give any detail about the others because while I'm not giving specific numbers, it is a trend statement and we're trying to be very mindful of customer confidentiality here.

[James Ricchiuti:]

Okay. A lot of attention has been focused on the ELA portion of the business as it relates to FPD. I'm wondering if you can help us understand the opportunity you see in some of the other areas and you alluded to the backend. Can you help us understand what that could mean for you going forward as we see this capacity coming into operation?

[John Ambroseo:]

Sure. So there are a variety of different applications and actually the packaging steps of the overall device not simply manufacturing the flat panel display itself. Examples of this would be metal work or composites work, perception manufacturing of new materials drilling, cutting all kinds of applications. They tend to be tied to a specific model. So as a manufacturer is ramping up production of a new phone, there will be new production techniques that are being used or new production steps that are implemented where they require a laser solution. Sometimes these are for traditional devices like pulse UV lasers. We're seeing an increased level of activity around ultra-fast lasers because they work particularly well where delta materials are being used or you have to be very sensitive to imparting heat into the system, which is typically referred to as haze or heat defected zone. When you see these applications, they can be for hundreds of lasers at a time. The ramp has to be very steep. So you get an order and typically you're expected to fulfill it in three months to six months and we've seen some of those already, and they can easily be in the eight figure range.

[James Ricchiuti:]

Okay, that’s helpful. And final question and I'll jump back in the queue. Your gross margins for the quarter and also with respect to the guidance you're given for Q2 are a little above my expectations anyway. And I'm wondering how much of that is mix related tied to FPD or you know are you seeing perhaps a little better performance out of Rofin out of the gate? And the follow-on question is, what are you seeing thus far with the integration of Rofin it's still early and I know you said things are on track, but I'm just wondering if you can give any additional color?

[Kevin Palatnik:]

Yes, Jim, it’s Kevin. So with regards to gross margins specifically clearly FPD is a driver as we've talked about in the past microelectronics carries margins at a higher than corporate average that's becoming a larger percent of the overall business. As you know the Rofin gross margins mid-to-high 30s as that weights in that is a bit of a downward pressure on GMs. And as we look from Q1 to Q2 as we move from a partial of quarter to a full quarter of waiting with Rofin that puts additional downward pressure and that's why from a guide perspective at the midpoint we're down sequentially. So those are the two big trends FPD is a larger percentage and Rofin as it waits in will be a larger detractor in Q2 versus Q1.

[James Ricchiuti:]

And just early color on Rofin, anything that you can share with us over and beyond the fact that you feel it's tracking in terms of the synergies you've alluded to is there anything within the business that has either surprise you. That may be more challenging or more positive?

[Kevin Palatnik:]

I would say that the attitude of our new colleagues is quite good. They are embracing opportunities there - they're embracing change. The teams are working really well together looking for revenue synergies or looking at revenue synergies. We've seen some stuff already in terms of rails which would be a laser combined with other optical components, logic with discussions, there hasn't translated into business yet, but it's obviously an area that we're focusing on. And as I've mentioned a number of times, some of the tools that that they're producing whether it's for EMS automotive or medical look like winners in the marketplace and by bringing some more emphasis there. We think there are some great opportunity. So from a business perspective we're pretty happy and optimistic about what the future holds where we are today is pretty much where we thought we would be. There's a lot of pickup work to be done, but there's no surprise. We knew that going in.

[James Ricchiuti:]

Okay, thanks a lot.

[John Ambroseo:]

Sure.

[Kevin Palatnik:]

Thanks Jim.

[Operator:]

Your next question comes from Mark Miller from The Benchmark. Your line is open. Please go ahead.

[Mark Miller:]

Congratulations on a quarter, very impressive. I was just wondering two areas. We’ve derived a lot of this improvement from the application in mobile handsets. Do you have any feelings on percent of orders that are coming that are related to tablets versus mobile handsets and where that might be by the end of the year?

[John Ambroseo:]

I think that the number that is designated for tablets is actually low to zero at this point. Customers maybe thinking about it in the longer term, but very little has been specifically deployed at this point.

[Kevin Palatnik:]

Mark, this is Kevin. If we broaden out little bit and just call it mobile computing, defined by both laptops and tablets. We're encouraged because we've seen six or seven laptop manufacturers come out with a high-end OLED screen on their laptops. And so as that moves forward and gets adopted, we expect that capacity will be put in place. On the tablets as John mentioned, we don't see any actuals there yet, but we're encouraged by the laptop side.

[Mark Miller:]

Well that be for lending 1,500 or 1,000 tools or both?

[John Ambroseo:]

I think it's going to be customer specific. The ones the customers that are advanced and comparable with working with large format tools will probably go for the most efficient solution available to them.

[Mark Miller:]

I don't believe you're in this, but there's been a lot of excitement about VECSELs and the opportunity there coming in cell phones and automotive. Could that be something you might look at or it's that just not on your menu?

[John Ambroseo:]

I think there's some conversation in a background about manufacturing techniques, beyond that I can't give you much more color.

[Mark Miller:]

Finally, could you breakout the service again for me for the sales?

[Kevin Palatnik:]

Sure. So total product and service revenues were 29% of total sales in the quarter and then breaking down that 29%, it was 24% related to parts and 5% related to service or service agreements.

[Mark Miller:]

Okay. In terms of that number what percent is refurbishment? Where is that? What percent does that come into?

[Kevin Palatnik:]

Yes. Mark, we would never disclose that.

[Mark Miller:]

Okay. Thank you.

[Kevin Palatnik:]

Thank you.

[Operator:]

Your next question comes from the line of Larry Solow from CJS Securities. Your line is open. Please go ahead.

[Lawrence Solow:]

Great. Thanks. Some of my questions have been answered. Just a few on Rofin, any customer reaction you've gotten good, bad or otherwise?

[John Ambroseo:]

We just had a major trade show that was here in San Francisco, Photonics West. It was the first show that we featured a combined presence. The feedback from customers I'd say is generally positive. We didn’t have any people screaming at us or they’re concerned about our commitment to their products or to the markets, so generally very positive.

[Lawrence Solow:]

And you mentioned they did I guess you said 66% of the normal quarter or what you expected after the acquisition? Was that a timing thing? Was the actual overall number higher than you I guess you thought in the quarter clearly, but is that just – was that ticking away for the next quarter or they were potentially running ahead of schedule on the revenue side for the year or any thoughts on that?

[Kevin Palatnik:]

Yes. Larry, Kevin. So we saw both being improved, both squid in quarter was 66% and the absolute total of the quarter, so both were compounding benefits for revenue.

[Lawrence Solow:]

Okay. And obviously, I think your gross margin was above where you thought, it seems like obviously makeshift came into play. I know advanced packaging has had a pretty rough three, four years if you will and it sounds like you're optimistic things or its sounds like things are getting better. Was that a needle mover even in the quarter, in terms of revenue and margin?

[John Ambroseo:]

Well, API was up, it was up from a very low number and we're happy about that trend, but it really had no impact on the overall numbers.

[Lawrence Solow:]

Okay. Fair enough. Great. Thanks.

[Kevin Palatnik:]

Thanks, Larry.

[Operator:]

Your next question comes from the line of Joan Tong from Sidoti & Company. Your line is open. Please go ahead.

[Joan Tong:]

Good morning, guys. Question regarding FPD also, just want to see obviously very solid quarter and other solid quarter of order. And I just wanted to see like from inception to date under OLED application or the orders that have both. Can you give us an update on the LTPS to the OLED ratio?

[John Ambroseo:]

I'm not sure that I completely understand. Are you talking about installed base or backlog or…

[Joan Tong:]

For the orders that you have both. I think John, you mentioned in the past that that would be good enough to actually give the ratio from the LTPS 20/80 to 80/20. So I just want to see another solid quarter that you had in the December quarter. Are we talking about more or like 10/90 now, can you just give us an update?

[John Ambroseo:]

Okay. Thank you. Thank you for the clarification. I think what you're seen here is a continued trend that I talked about. I think last quarter or maybe the quarter before where some of the early investments that were targeted for this market aren't yet in production and as a consequence other manufacturers had haven’t yet pick up the shortfall. I think you're still seeing that effect.

[Joan Tong:]

I see. Got it. That makes sense now. And then John, obviously very, very solid revenue for this quarter and you guided very solidly for March as well. And in the past you mentioned 950 to 1 billion standalone for Coherent and just want to see if you can give us sort of an update on the projection for 2017 and maybe lay on top of that with the Rofin piece.

[Kevin Palatnik:]

Yes. Joan, Kevin here. So as you know our practice is always been to give current quarter results and one quarter out guide. The only time we swayed from that was Q2 of fiscal 2016 and that's because we had a number of record quarters of bookings and we wanted to provide some guardrails to street. As far as what we've done today, again, current quarter actual in one guide or one quarter guide out. We're going to maintain that, so we haven't given 2017 or fiscal 2017 guidance at this point; we will do it in the quarter every time.

[Joan Tong:]

Okay. All right that's fair. And then finally you call material processing and actually every single and market it very robust and just single out material processing given some of the positive commentary from your peer as well. I just wanted to see what other drivers there and like whether the trend that you are seeing is sustainable going forward? Thank you.

[Kevin Palatnik:]

So in terms of material processing as I mentioned already in prepared remarks, we saw a lot of activity across a lot of applications. In general this is new capabilities that are being delivered into the market and I'd say some of that is also due to renewed focus on the part of our new team members in Europe. If you look at sort of the traditional applications, the bread and butter applications, they're doing okay. It's a lot of these advanced applications that are really driving the business where the value-add for the laser tool is quite high.

[Joan Tong:]

All right, thank you guys.

[Kevin Palatnik:]

Thanks, Joan.

[Operator:]

You're next question comes from the line of Tom Hayes from Northcoast Research. Your line is open. Please go ahead.

[Thomas Hayes:]

Thank you. Good afternoon, gentlemen. Thanks for taking my call and congratulations on the quarter. Just one quick question, I guess Kevin on the Rofin business back in the November call you had indicated some expectations for timing on the cost versus synergies generally more front loaded on the cost back ended on the synergies. Is that still come in play now as you're working through? Have you had a couple weeks to work on the Rofin business?

[Kevin Palatnik:]

Yes, Tom thanks for your question. Yes, no change. We did announce $30 million of synergies on the November 9, call posted transaction. We announced the number of actions that represented about 80% of that $30 million number in terms of skewing between the restructuring costs or the costs associated with obtaining those synergies. As you said and eco again they are front-loaded with synergies coming later on, so no change in that overall perspective.

[Thomas Hayes:]

Great, thank you very much.

[Kevin Palatnik:]

Thank you.

[Operator:]

Your next question comes from the line of Jim Ricchiuti from Needham & Company. Your line is open. Please go ahead.

[James Ricchiuti:]

I just wanted to follow-up on the materials processing business. There's been I think some uptick in activity at least that we appear to be seeing in China. How would you characterize the demand in that market by geography whether it's China, Europe, North America?

[John Ambroseo:]

So we've seen some positive trends in all three markets, but for different sub markets. In China there's obviously been a lot of investment around the EMS supply chain, whether it is for advanced products like ELA or some of these ultra-fast products to cutting and marking laser, so a lot of activity in China for the EMS. In Europe, we've seen some good work around component technologies that feed materials processing market and in the U.S. it's been a combination of automotive and medical device manufacturing. So collectively there's been a lot of positive movement, it is geographically specific in terms of activities.

[James Ricchiuti:]

Okay. I'm not sure I understand what you're referring to in Europe, John, any – you talked about?

[John Ambroseo:]

I’m sorry, Jim. So we actually have a pretty substantial business where we sell laser components to other companies that manufacture either lasers or systems and these can be diodes, fibers, connectors other things. That business has actually been quite strong in Europe.

[James Ricchiuti:]

And those systems are ultimately going elsewhere, right. I mean do you get a sense that those are going to China?

[John Ambroseo:]

The majority of them are exported and probably much of it is going to China.

[James Ricchiuti:]

Okay. Thanks a lot.

[Kevin Palatnik:]

Sure.

[John Ambroseo:]

Thanks, Jim.

[Operator:]

Your next question comes from the line of Larry Solow from CJS Securities. Your line is open. Please go ahead.

[Lawrence Solow:]

John or Kevin just a quick follow-up. You mentioned you had subsequent follow-up order for – are several, it sounds like 1,500 that the customer want to delivered in I think fiscal 2018. If I'm not mistaken, I thought you were close to being already filled up almost through fiscal 2018, so are these orders or any other additional orders made at the customer either at their request to build up more capacity or has that coming into play?

[John Ambroseo:]

So Larry if you recall, again, I think it was last quarter or the quarter before, we talked about the fact that with some very nominal investments particularly around optics fabrication that we could increase output. The customer here is an important one to us and the industry, so we've made that accommodation.

[Lawrence Solow:]

Fair enough. Okay, great. Thanks.

[Kevin Palatnik:]

Thanks, Larry. End of Q&A

[Operator:]

And at this time, we have no further questions in the queue. I’ll turn the call back over to John Ambroseo for any additional or closing remarks.

[John Ambroseo:]

Thank you, Emily. I want to thank everyone for their participation today. Obviously, we are very excited about the results more excited about the future. We look forward to talking to you again in a few months.

[Operator:]

And this concludes today's conference call. You may now disconnect.