Coherent, Inc.
Q3 2015 Earnings Call Transcript

Published: 31 Jul 2015

[Operator:]

Good day, ladies and gentlemen and welcome to Coherent’s Third Fiscal Quarter 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 Ms. Leen Simonet, Executive Vice President and Chief Financial Officer. You may begin.

[Leen Simonet:]

Thank you, Jay. Good afternoon, everyone and thank you for joining us on today’s call. I will provide financial information and John Ambroseo, our President and CEO will provide a business overview. As a reminder, any guidance and any statements in today’s conference call pertaining to future guidance, market trends, plans, events or performance are forward-looking statements that involve risks and uncertainties, and actual results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the company’s reports on Forms 10-K, 10-Q and 8-K as applicable and as filed from time-to-time by the company. The full text of today’s prepared remarks and trended GAAP and non-GAAP supplemental financial information, including bookings and revenues by market will be posted on the Coherent Investor Relations website. A replay of this webcast will also be made available for approximately 90 days following the call. Let me first give you the financial highlights of our third fiscal quarter. We ended the quarter with revenues of $188.5 million and pro forma earnings of $0.82 per diluted share. The third quarter revenue does not include the third LB 1500 ELA system that we had previously indicated may ship in the third quarter. The customer requested that we deliver this unit in the fourth quarter as originally scheduled resulting in approximately $20 million revenue shift from the third to the fourth quarter. The high point of our third quarter performance is the sizable step up in the pro forma gross profit percentage, which led to a sequential increase in our pro forma EBITDA percent to 18.4% compared to 17.6% last quarter. Net sales for the third quarter of $188.5 million declined $8 million or 4.1% compared to the same quarter a year ago, which is the result of the unfavorable impact of exchange rate fluctuations. Compared to the previous quarter, net sales decreased $15.2 million or 7.5% which is partially due to the Linebeam 1500 ELA system shift to the fourth quarter and a slowdown in semiconductor investments. In addition, our medical ophthalmic revenues declined following a very strong second quarter. The third quarter ending shippable backlog, defined as shippable within the next 12 months, is approximately $305 million, including $114 million, or 37%, flat panel display shippable bookings. The comparable backlog at the end of last quarter was $315 million, including $116 million or also 37% flat panel display shippable bookings. Geographically, Asia accounted for 50% of the company’s revenues, U.S. 28%, Europe 16% and the rest of the world 6%. Service revenues for the third quarter of approximately $57 million compared to a record second quarter of almost $66 million. The decline occurred across all the major markets. Service revenues represented 30% of the company’s revenues and were in line with our forecast. We had one customer in Japan, an integrator to flat panel display manufacturers, who contributed more than 10% of the company’s third quarter revenue. The third quarter pro forma gross profit, excluding $700,000 stock compensation charges, $1.3 million intangible amortization and $1.3 million accrual for an ongoing multi-year customs audit was $82.1 million, or 43.5% of sales, which is 100 basis points above the high end of our guidance range. The sequential increase of 160 basis points is mainly the result of a more favorable product mix in the Microelectronics and OEM components and instrumentation markets, lower warranty expenses and the favorable impact of a weaker euro versus the dollar, partially offset by the unfavorable impact of a weaker yen versus the dollar. Pro forma period expenses, excluding stock compensation, intangibles amortization and the impairment of our SiOnyx investment were 28.4% of sales and declined almost $3 million compared to the previous quarter. Our cash and cash equivalents balance for the quarter was $336.8 million which represents a sequential decrease of $7.7 million compared to last quarter. About 78% of our cash is denominated in dollars, 25% of the total cash is held in the United States and 75% internationally. Cash flow from operations for the third quarter was $11.6 million negative mainly as a result of increased accounts receivable. DSO at the end of the third quarter increased to 69 days primarily due to unfavorable sales linearity, particularly in Japan and the timing of certain payments. Inventory turns declined to 2.8 turns and was negatively impacted by the shipment delay of our Linebeam 1500 ELA system. Year-to-date cash flow from operations remains strong at approximately $69 million and increased 6% versus the comparable period last year. Capital spending for the quarter was $4 million or 2.1% of sales, bringing the year-to-date spending to $16.2 million or 2.7% of sales. At the end of July, we acquired the assets of Raydiance, a private company, and the Tinsley Optics business of L-3 Communications for a combined $9.3 million in cash, excluding transaction costs, which will be reflected in our fourth quarter ending cash balance. The acquisitions are projected to be accretive towards the end of fiscal 2016. Since both transactions closed during the last week, we plan on providing purchase accounting specifics at our next conference call. The guidance for the fourth quarter will only include activity for two months on a pro forma basis. Let me give you the guidance for the fourth quarter. Our current outlook for the fourth quarter revenue ranges from $205 million to $215 million and is inclusive of our third Linebeam 1500 ELA system which was shifted from the third to fourth quarter and approximately $2 million to $3 million revenue from the recent acquisitions. We project our fourth quarter pro forma gross profit percentage to be in the range of 42.5% to 43% of sales, inclusive of the recently acquired businesses. Both of the businesses are expected to be dilutive to our pro forma gross profit percentage until the end of fiscal 2016. We anticipate the third quarter pro forma period expenses to be approximately 26.5% to 27% of sales inclusive of approximately $1.5 million of expense increase for the acquired businesses. Other income and expense is estimated to be immaterial. We do not include transaction gains and losses related to future changes in foreign exchange rates in our guidance. We project our pro forma tax rate to be approximately 27% for the fiscal year and we forecast our full 2015 capital spending to be approximately 3% to 3.5% of sales. And we are assuming weighted outstanding shares for the fourth quarter of approximately 25 million. I will now turn over the call to John Ambroseo, our President and CEO.

[John Ambroseo:]

Thanks Leen. Good afternoon everyone and welcome to our third fiscal quarter conference call. We have had a dynamic few months at Coherent. It began with a customer asking us to pull in a shipment of the most complex product we manufacture and later request that we go back to the original ship date. We had a fantastic showing at Lasers Munich. We introduced about a dozen new products and captured a record number of leads. I will highlight three of the new releases during my prepared remarks. We also completed two asset acquisitions. One addresses short pulse processing applications and the other protects a critical piece of our supply chain. Second quarter bookings of $176.7 million, decreased 19.9% sequentially and 27.8% compared to the prior year period. The large differences are primarily due for the timing of system orders for FPD annealing lasers. The book to bill for the third quarter was 0.94. Scientific orders of $29.1 million increased 10% sequentially and 1.1% compared to the prior year period. The sequential order growth was led by our Chameleon product family in biological imaging and neuroscience. Most of the increase came from North America. Europe and Japan posted modest improvements. And the Chameleon mix is evolving from the traditional Ti

[Operator:]

[Operator Instructions] And our first question comes from the line of Jim Ricchiuti with Needham & Company. Your line is open.

[Jim Ricchiuti:]

Hi, thank you. Good afternoon. John just wanted to touch base with you on your comments on the display market. If I heard you, you are anticipating orders in the current quarter or next fiscal quarter some of these larger ELA orders, is that correct or did I miss you?

[John Ambroseo:]

That is correct. And it's consistent with what I have said last quarter as well.

[Jim Ricchiuti:]

Okay. Now there are some equipment companies in the space that are also talking about some large orders in the display market looking out to the first half of calendar ‘16. And I am wondering are these, what is your visibility like even as you look beyond the next one to two quarters. Just curious if this is aligning with what you are seeing in the market maybe you are seeing orders ahead of them or are there potentially other larger deals behind this?

[John Ambroseo:]

There are a limited number of integrators that serve this market today and we do business with all of them. So our visibility through those integrators I think is pretty good. The difference in timing between what we are seeing and what others in the space are seeing, they simply – we relate it to the guidance that we give to customers that some of the components particularly the optics are fairly long lead time items that we try not to keep in stock, given the cost and complexity. So we have asked them, informed them to try to put orders in well ahead so that we can get those materials in line for their requested delivery date. So to put it bluntly, they need to work backwards from when they want tool delivered is when we need to see an order.

[Jim Ricchiuti:]

Okay. Now, that’s helpful and just putting that aside looking at the outlook for Q4. It sounds like you are already seeing some softening in your semi business, if you were to look at some of the other markets and maybe highlight areas that potentially are weaker in terms of relative to your guidance. I mean, it sounds like semi, is that the biggest factor in terms of the softening that you – in that microelectronics piece of the business?

[John Ambroseo:]

So, if you may not recall, Jim, but we had issued a caution warning on semi last quarter as well and we thought we had captured most of it, but it has weakened further. I would have to say that this is unfortunately not uncommon behavior in the semi market that when they perceive it’s tightening, they lock down pretty quickly and try to burn off as much inventory as they can. We are seeing some of that behavior right now. The other area that had an impact on our fourth quarter was we were expecting as I mentioned in my prepared remarks, we were expecting some orders for micro-materials processing out of the consumer electronics industry and given the weakness in the devices, weakness in sales of the devices that these lasers would support, those investments have been deferred.

[Jim Ricchiuti:]

Okay, thanks a lot.

[John Ambroseo:]

Yes.

[Operator:]

Your next question comes from the line of Mark Douglass with Longbow Research. Your line is open.

[Mark Douglass:]

Hi, good afternoon, John and Leen.

[John Ambroseo:]

Hi, Mark.

[Leen Simonet:]

Hi, Mark.

[Mark Douglass:]

Leen, did you call out sales by end market?

[Leen Simonet:]

I did not, because we have the supplemental information. It’s already probably on the website that has the trended information for market by region everything.

[Mark Douglass:]

Okay. With the call out of the reduction in expenses of $5 million a year, is that all in OpEx?

[Leen Simonet:]

No, about 50% is R&D, 40% in manufacturing and then the remaining 10% in SG&A.

[Mark Douglass:]

Okay. And they should be spread pretty evenly throughout 2016 if we try to capture that?

[Leen Simonet:]

Yes, starting in Q1, yes.

[Mark Douglass:]

Okay, excellent. And then with Raydiance, so you really just – is this buying really the technology and the know-how, John. I guess a little bit of installed base, you get some service revenue as opposed to actually using their laser-based platforms. It sounds like you are going to use more your laser-based platform than your decision in expertise and their connections, obviously their relationship with Samsung you already have a strong relationship that probably factor into it too?

[John Ambroseo:]

We certainly bought it for the intellectual property. Your comments are correct that they have an installed base that is actually utilized at a pretty reasonable rate and we will be taking over the service support for those products and we will use the – we will use their know-how and technologies to continue to develop ultrafast processing in multiple markets, not only the markets we serve today, but markets that we envision going forward.

[Mark Douglass:]

Okay. And then with the CO laser, has that been pretty well received? We still think it’s still really early, when would you think you even get revenues on that? And when you do, how much cannibalization is there going to be versus really it provides maybe some market share gains or even new opportunities?

[John Ambroseo:]

So, the CO laser is early in the market. There has got to be as I mentioned a lot of process and tool development. While it has roughly the same form factor as a CO2 laser, the change in wavelength does require a tool manufacturer to accommodate for that, so different optic scanners, etcetera. As we discussed I think in Munich, it works when you are using very short working distances from the objective to whatever the surfaces. So, in other words, the last lens, until you are drilling a hole or cutting, because CO does have strong water absorption at the CO wavelength. So, it’s not a drop in replacement for CO2. It’s an augmentation to the capabilities in the VM market. If the markets switches to 25 micron holes and they choose the CO lasers, one of the solution or the solution that in fact cannibalizes our CO2 business. There are a number of applications whether it be in the medical market, again taking advantage of very high water absorption or in the thin glass film cutting markets. Those are essentially add-ons to what we do today.

[Mark Douglass:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Patrick Newton with Stifel. Your line is open.

[Patrick Newton:]

John and Leen, thank you for taking my questions and good afternoon.

[John Ambroseo:]

Good afternoon.

[Leen Simonet:]

Good afternoon.

[Patrick Newton:]

So I think I need a little bit of handholding here on the – how the impact of the Linebeam 1500 impacts the guidance for the September quarter, so just to make sure I understand you would have used capacity, your manufacturing capacity to start building that 1500 in the June quarter, as soon as the customer pushed out the delivery to September I would assume you would have finished it, it’s sitting in finished goods and then – and now you are shifting September quarter capacity to other flat panel display orders is that, I know that’s over simplistic, but is that the right way to think about the cadence and use of your manufacturing capacity?

[John Ambroseo:]

Yes.

[Patrick Newton:]

Okay, great. And then so if we - knowing that and then going back to your kind of original guidance for the year where you talked about second half growth being about 10% higher than first half, I think you walked us through that semi was an issue, I think you quantified that as being a couple of million in revenue. It sounds like you had a – you said a consumer electronic order push out, I am assuming that’s roughly $10 million Sapphire order, was there any other material push out that I missed and did the shift in the timeframe of the delivery the Linebeam 1500 impact any other cadence of your flat-panel display revenue?

[John Ambroseo:]

No, there was no impact to the FPD e-business from the shift of the 1500 back to September. But the gap is primarily due to some lost opportunities and when I said lost I mean not competitively lost, but not materializing for microelectronics using short-pulse lasers and then the semi market actually got worse than we had originally projected from Q3. There are some other cats and dogs in there, but that’s the bulk of it.

[Patrick Newton:]

Okay, that’s very helpful. And then can you give us any type of the thoughts or information around why the customer moved from an expedite position to back to the original delivery timeframe is there any yield or demand issues for their final product that would have done that. I think the reason I ask is I think that investors interpreted the X, Y request to be a positive for fall-on orders and I just want to make sure that this reversion shouldn’t be seen as a negative?

[John Ambroseo:]

So, we know exactly why the customer pushed out, but we are not at liberty to discuss that.

[Patrick Newton:]

Okay. And then you did reiterate I think on earlier question that you do have comfort in large FPD orders exiting the fiscal year and end of fiscal year ‘16, should we think in the past when these – when the tranches of orders have come they have had pretty high magnitude $100 million or more, is that size reasonable to the opportunity that you see on the horizon?

[John Ambroseo:]

It’s a big number, whether it’s above or below $100 million, I am not going to comment, but it’s certainly a meaningful number when you take all the orders that are in the pipeline together.

[Patrick Newton:]

Okay. And then just last one for me is kind of along the lines of Raydiance and Tinsley acquisitions, is there – I would assume that Raydiance is the majority of the revenue, but can you give us a rough revenue split between the two and then could you also given the 100 installed tools for Raydiance, can you help us understand the mix of your expectation of new tool sales versus service?

[John Ambroseo:]

So, the revenue is about equal between Raydiance and Tinsley. The – remember that the business that Tinsley that was – the business Tinsley was doing with Coherent is now internal so we don’t count it as outside revenue any longer. With the Raydiance product I would say in the short-term it is going to be mostly service and spares and some tools here and there as we get our arms completely around that the of product portfolio. Given that Tinsley is now all internal should we just assume it might improve all of the FPD products gets that much better?

[John Ambroseo:]

So, all of Tinsley is not internalized as I mentioned we will continue to do their aerospace and defense business. The aerospace side is predominantly ground based and space based telescopes. And there are some contracts that are being fulfilled along those lines. And I would say that for when we ship a large format system meaning 1,000 millimeters and above that is going to benefit us on the gross margin line. For the 750s at least for the near-term, we will continue to use our existing suppliers.

[Patrick Newton:]

Great. Thank you for taking my question.

[John Ambroseo:]

Sure.

[Operator:]

Your next question comes from the line of Larry Solow with CJS Securities. Your line is open.

[Larry Solow:]

Hi good afternoon. John just back on the, just on the Q4 guidance not to hop around just trying to connect with that, I think you had guided I think last quarter you actually had given back half guidance, so the full year number was like I think 8.20 to 8.30, if I do the math now its like basically loosing about $25 million plus or minus, is it really just those – is it just the three things, the consumer electronics opportunity which is about $10 million that you have quantified and the weakness in semi-cap and some of the lost opportunities in short pulse, is it just those three or are there other nicks and nats in other areas?

[John Ambroseo:]

Larry, as I mentioned and just my math is a little bit different, I think the gap is about $20 million.

[Larry Solow:]

Okay, that’s fine.

[John Ambroseo:]

But be that as it may about $10 million is the short pulse opportunity, there is a few million that comes from semiconductor and then there is other pieces here and there that make up the difference. There is not one outlined item.

[Larry Solow:]

Okay. So, you are not seeing – so you are not necessarily seeing a general sluggishness across in your markets or anything, it just seems with there particular area, the one biggest piece being that the consumer electronic device sorry I mean semi-capital?

[John Ambroseo:]

That’s correct.

[Larry Solow:]

Alright.

[John Ambroseo:]

That’s correct.

[Larry Solow:]

Okay. And then in the consumer electronic device in particular, you said its deferred is that and definitely what sort of your thoughts on that?

[John Ambroseo:]

The term deferral is meant to mean two things. It hasn’t been lost competitively.

[Larry Solow:]

Right.

[John Ambroseo:]

But it’s going to require an increase or a need to increase capacity on the part of the end user. In other words the device manufacturer for that order comes back on the books. And the question is that, does that happen before the next generation whatever the consumer electronic devices, do they expand capacity for the existing one or do they just wait until they have the next-generation product ready and roll it into that, it’s difficult for us to predict that given the separation between us and the people who are ultimately making those decisions.

[Larry Solow:]

Alright. And – but in the long-term would you expect in this next-generation product to be involved with that or you don’t into this sort of hinder those chances or not particularly?

[John Ambroseo:]

No, I don’t think it hinders. As I mentioned during my comments, there is an awful lot of work going on in short pulse processing trying to develop novel manufacturing techniques for a wide array of products. Some of them have taken hold and others haven’t. And one of the reasons that we acquired the Raydiance assets as we feel that it can help us develop that market better and faster than we could simply as a laser manufacturer.

[Larry Solow:]

Okay. Just you discussed some definitely longer terms and good opportunities in the drill via market, and obviously what about near-term in particular in dense packaging has that shown – does that showing signs of continued recovery, how is that market doing in general?

[John Ambroseo:]

As I mentioned in my comments, we see a lot of activity in that area with good order opportunity. It’s a very different market than it was a year ago where it was struggling to find its footing and now its taking steps forward seemingly a quarterly basis.

[Larry Solow:]

Okay. And in terms of the next generation fiber laser, I think you said you are hopeful or expecting some meaningful orders or sales beginning in the back half of next fiscal year. Without getting into really quantifying guidance right there within that, what do you think – can you help us sort of size or frame that opportunity over the next two years and what the step up from your original fiber laser to this one does in sort of your addressable market?

[John Ambroseo:]

So, Larry, I am going to punt on that one.

[Larry Solow:]

Okay.

[John Ambroseo:]

Because the last time I gave a view on what I thought we were doing with fiber lasers, I was wrong.

[Larry Solow:]

Okay.

[John Ambroseo:]

And I prefer not to make the same mistake.

[Larry Solow:]

Okay. But how about just sort of not what you expect, but sort of what even the increased kilowatts, what percentage of the market you were addressing and now what percentage you can – I am not saying you are getting any percentages, what sort of is the addressable target, I assume it goes up several fold or….

[John Ambroseo:]

If you look at the market for 1 kilowatt lasers, which is where we played with the first generation product and where we go with a multiple kilowatt platform, it’s probably in the order of a 10x step up in addressable market.

[Larry Solow:]

Okay.

[John Ambroseo:]

We were probably looking at a market that was $100 million and now we are probably looking at a market that’s $1 billion.

[Larry Solow:]

And why do you think that your initial expectations on the first generation 1s, why you didn’t get there? Anything in particular you could share or now that sort of looking back and looking forward?

[John Ambroseo:]

I think there were a couple of things. I think the market moved to higher powers faster than we originally anticipated.

[Larry Solow:]

Right.

[John Ambroseo:]

And I think that the – while the product – the initial product design worked well in certain parts of the world, where we were seeing a lot of activity, the use of deionized water proved to be more of a challenge for the customers than we had imagined. That’s one of the reasons we eliminated it in the second generation product.

[Larry Solow:]

Right, okay. Gross margin obviously better than expected even with the lower sales. First question is that the margins on the Linebeam, would that have actually been doing – would that have hurt margin on an overall basis considering it’s – it’s probably harder to deliver into much bigger product or is that – would that been sort of in line with the margin?

[John Ambroseo:]

It probably would have been accretive to that report [ph].

[Larry Solow:]

Okay. So then I think you mentioned the other benefits or mix, which hopefully going forward that continues and then lower warranty cost, are the lower warranty costs also sustainable or do you believe or is it…

[John Ambroseo:]

We have certainly been putting a lot of work into cost of quality, because it’s critical for the customers and it’s a differentiator in the marketplace. Warranty tends to fluctuate on a quarterly basis just like mix can fluctuate on a quarterly basis, but we have tried to put programs in place to make the warranty cost go down on a consistent manner.

[Larry Solow:]

Okay. Just a question in China obviously little bit more of a slowdown there in general, but I know you have mentioned it sort of spending is not unilaterally slowing down and it’s sort of mixed, because where programs are evolving, anything you could update in terms of impact or potential impact on Coherent in particular?

[John Ambroseo:]

We haven’t seen much of an impact from all of the drama going on in China yet. It doesn’t mean that we won’t see any. As I mentioned for example, we had record orders for marketing systems, CO2 marketing systems coming out of China. I think the research market is doing fine, but it is a pretty turbulent place and it’s difficult to project how that is going to translate into the mid and long-term, because we have certainly seen this in the past, where the government through the banking system has responded quickly to try to get things under control, but thus far not a lot for us to report in that regard.

[Larry Solow:]

Okay, great. And just last question, I know you get this a lot, but I am just getting it from a lot of clients myself, so just any update in your thoughts on the capital allocation? Obviously, it sounds like couple of nice tuck-in acquisitions which sounds like strategically they make a lot of sense. And I guess on the positive side, you only had to spend $10 million to get them. You have a lot of cash obviously and people have been obviously always view that as certainly overall positive, but we would like to see – do something with that cash, thoughts on how you prioritize your capital allocation going forward?

[John Ambroseo:]

I will tell you what I consistently say, we are open to multiple users and when we make deployment decisions it should be – those decisions should have the opportunity to drive good returns for shareholders, if it means doing acquisitions or if means buying back stock. It’s what we will do. We are not going to run out and spend the money just to make a metric on the balance sheet look better.

[Larry Solow:]

Okay, fair enough, great. Thanks. I appreciate it.

[Operator:]

Your next question comes from the line of Joan Tong with Sidoti & Co. Your line is open.

[Joan Tong:]

Hi, John and Leen. How are you guys?

[Leen Simonet:]

Hi, Joan.

[John Ambroseo:]

Good, Joan. How are you?

[Joan Tong:]

Very good. John, you mentioned in the past, your semiconductor equipment business is mostly driven by the utilization rate, because there is a lot of service revenue coming out from that segment or sub-segment, if I were to ask you like in a mid-cycle type of situation we know that it’s a boom and burst like end market, in a mid-cycle type of situation, what is the revenue breakdown between service and products for you guys?

[John Ambroseo:]

On a percentage basis mid-cycle – and I am – Leen is looking at the data really quickly. I am going to take a swag and say it’s probably 50-50.

[Joan Tong:]

Okay. I see that makes sense. So you mentioned utilization rate which we have seen that is still pretty high, so really the weakness is all coming from the equipment sales side?

[John Ambroseo:]

It’s all coming from new system sales, that’s correct.

[Joan Tong:]

Okay, I see. And Leen did you mention how dilutive the two acquisitions going to be in the upcoming two or three quarters, I know that you project accretive situation by the end of fiscal 2016, but did you give guidance in terms of how dilutive, but it takes couple of quarters?

[Leen Simonet:]

No, but you can probably calculate it for the fourth quarter, because I gave some numbers with respect to revenue and period expenses. And I can tell you that for the fourth quarter it’s probably around $0.05 per share.

[Joan Tong:]

$0.05 per share and you mentioned is about $1.5 million is operating expenses from the – additional operating expenses from that two acquisitions for the September quarter, am I correct? Okay.

[Leen Simonet:]

Yes.

[Joan Tong:]

Okay, good. And just one quick question, John I haven’t heard you talk about the additive manufacturing side of things, can you just give us a quick update?

[John Ambroseo:]

Well, I mentioned – I alluded to one application which is clouding where we had been seeing some reasonable business for the oil and gas industry.

[Joan Tong:]

Okay.

[John Ambroseo:]

And given how pricing has gone in the oil industry in particular those capital investments have slowed down. As far as other applications in automotive etcetera, they still exist, but they are becoming a little bit more challenging to capture.

[Joan Tong:]

Okay. And then finally just to follow-up on that margin question, the gross margin is very nice this quarter. And then meanwhile you have the large ELA system get push out and if somebody asks about what are that particular sales would have been accretive and you said yes, but is the margin of those large systems on par with like the smaller guys like the 750 in general?

[John Ambroseo:]

I don’t think that we have ever – well I know we haven’t given the exact margins on any of these systems. The large ones are probably not quite as good as the 750s but they are close.

[Joan Tong:]

Okay, alright, great. Thank you.

[Operator:]

Your next question comes from the line of Jim Ricchiuti with Needham & Company. Your line is open. Again Mr. Ricchiuti, your line is open.

[John Ambroseo:]

Jay, is there anybody in the queue behind him?

[Operator:]

The next question comes from Patrick Newton with Stifel. Your line is open.

[Patrick Newton:]

Yes. John, just a follow-up on kind of a philosophical question that I get from investors over time which is should we think about Coherent as it just appears cyclical company or Coherent is a growth company. And so if you go back and we look at kind of fiscal year revenues, your prior revenue peak out of a cycle and then fast forward to today. At the midpoint against revenues is virtually flat over a full fiscal year period. There is a lot of pros I think, you can talk about flat panel display been a pro later in some acquisitions that have helped out. And then there is a lot of cons, I think you have talked about in the past about how API is down significantly from that prior peak. And you just touched on semi in the current quarter and I think scientific and research is also down from those prior peak funding levels, but as we look forward over the next 4 years and if you are talking about all of the new products that were announced at Munich, how should we think about Coherent, are you a company that’s a growth company that’s supposed to breakout and we should see rebounding in cyclical uptick in the semi business or the API business or should we think of you more as a cyclical company and productivity gains that you create through new lasers actually impacts growth, so just philosophically if you can help us kind of levels that how we should view Coherent?

[John Ambroseo:]

Sure. It’s a very fair and appropriate question, Patrick. What I would highlight from 2011 is we had two markets that went through an inversion I guess. You already mentioned one, which was API and there was a fairly significant amount of revenue lost between ‘11 and ‘15 for a variety of reasons. Some of it was overcapacity, some of it was one of the main competitors was basically sidelined for a year or two and all the business was falling to our customers. But the other market is the scientific market and we have actually quantified that one for people that between I think it was ‘11 and ‘14 revenue in scientific went down by about $35 million. And that was essentially stimulus related. And the loss of revenue in API was actually greater than that. So when I look at what we are doing, I would try to judge the efficacy of programs. The investments that we have made and that we targeted for different markets have largely delivered what we expected of them. But we were trying to fill a $70 plus million hole created by those two markets. If you take a baseline, today’s baseline and say what does it look like going forward, we have certainly – I think we have done a good job of positioning ourselves in a number markets where we should be able to capture growth going forward. The Monaco was a pretty exciting product, the CO product can be a game changer and clearly the fiber market is a big opportunity. And we don’t have to capture a lot of market share for it to move the needle for us. So I am comfortable that there are good growth opportunities on the horizon. I think we are – if we are dealing with ‘15 as sort of the basis for comparison.

[Patrick Newton:]

And John, you mentioned Monaco, the carbon monoxide and fiber you didn’t mention flat panel display is that part of the growth story?

[John Ambroseo:]

Well, of course flat panel display is a big part of the story but I mentioned the three because these are new opportunities that are not part of the mix. So yes they all contribute. I wasn’t excluding flat panel because of any reason other than I was trying to focus on new things.

[Patrick Newton:]

Great. Thank you, John.

[John Ambroseo:]

Sure.

[Operator:]

The next question comes from Mark Douglass with Longbow Research. Your line is open.

[Mark Douglass:]

Hello again with the expectations for follow-on orders or more orders I should say in fourth quarter and in 1Q in flat panel. And what are the chances, any of these sneak into fiscal ‘16 or would these predominantly fall into fiscal ‘17?

[John Ambroseo:]

You mean for revenue.

[Mark Douglass:]

Correct.

[John Ambroseo:]

Yes. I think a fair number will actually be ‘16 deliveries.

[Mark Douglass:]

Okay. So you have some of the opening capacity? Okay. Thank you.

[Operator:]

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

[John Ambroseo:]

Thank you so much everyone for your participation and Jay, thank you as well. We will look forward to speaking to you in a few months.

[Operator:]

This concludes today’s conference call. You may now disconnect.