CyberOptics Corporation
Q2 2014 Earnings Call Transcript
Published:
- Operator:
- Good day ladies and gentlemen, and thank you for standing by. Welcome to the CyberOptics 2014 Conference Call. (Operator Instructions) This conference is being recorded. I would now like to turn the conference over to Subodh Kulkarni, President and Chief Executive Officer. Please go ahead, sir.
- Subodh Kulkarni:
- Good afternoon and thanks for taking the time to participated in CyberOptics’ second quarter earnings conference call. Joining me is Jeff Bertelsen, our CFO and COO who will review our recent operating results following my brief overview of our second quarter performance. Jeff and I will then be available to answer your questions At the conclusion of our remarks. I In keeping with Regulation FD, we have made forward-looking statements regarding our outlook in this afternoon’s earnings release. These forward-looking statements reflect our predictions of future results, the achievement of which is subject to a number of risks that are discussed in our Form 10-K for the year ended December 31, 2013 and other filings with the Securities and Exchange Commission. We urge you to review these discussions of these factors. Turning now to our recent performance. The second quarter of 2014 marked our third consecutive 3 month period of significantly improved operating results. We view this positive trend as evidence that our growth initiatives and new products are generating tangible progress towards our goal of achieving sustainable profitable growth. For the second quarter ended June 30, revenues increased 42% to $13.3 million from $9.3 million in the second quarter of 2013. The mid-March acquisition of Laser Design, Inc. or LDI, a Minneapolis-based 3D metrology company, contributed $1.7 million to CyberOptics’ consolidated second quarter revenues. We would have reported robust double digit sales growth even excluding the impact of LDI. Reflecting our strong revenue growth, CyberOptics’ second quarter net loss narrowed significantly to $315,000 or $0.05 per share, down from the loss of $1.2 million or $0.17 per share in the year-earlier period. Sales of SMT sensors increased 52% from last year’s second quarter, driven by demand for LaserAlign sensors from our OEM customers. As we said in our last conference call, our largest OEM customer has made our embedded process verification sensors standard on some of its pick-and-place platforms Sales of inspection systems rose 15% year-over-year due to higher sales of our new solder paste inspection (NASDAQ
- Jeff Bertelsen:
- Thanks, Subodh. As Subodh has already detailed, CyberOptics recorded strong year-over-year sales growth and a significantly reduced loss cost in this year’s second quarter. Our third consecutive quarter of substantially improved operating results makes us optimistic about attaining our goal of sustainable profitable growth. CyberOptics second quarter gross margin of 44% was comparable to the year earlier level. On a consolidated basis, operating expenses rose 17% due in large part to the addition of LDI’s R&D and G&A expense. Our second quarter results included LDI for the full quarter for the first time since we completed the acquisition in March 2014. The increase in R&D expense during the second quarter was also due to a series of technology and product development initiatives that are central to CyberOptics strategic repositioning and future growth opportunities. These R&D initiatives include the 3D MRS technology, 3D AOI inspection system and offsetting LDI’s Auto Gage with 3D MRS. At the same time we are also developing memory inspection, conformal coating inspection and APSR semiconductor products. Several of these new products are expected to start generating sales later this year and we believe all should be making sales contributions by early 2015. We believe the sales outlook for important new product bodes well for our near as well as longer-term prospects. We ended the second quarter of 2014 with cash and marketable securities of $19.2 million compared to $21.3 million at the end of the first quarter. While we've been using some cash to support our growth objectives, our overall cash reserves are more than sufficient to support our organic growth initiatives. Thank you. I'll now turn the call over to the conference call operator who will poll you for any questions.
- Operator:
- (Operator Instructions) And we will take our first question from Ross Strehlow with RBC Wealth Management.
- Ross Strehlow:
- Yeah, I have got few questions. Can you talk a little bit about your sales momentum in the WaferSense area? Are you making traction with some of the big existing customers, have you picked up any new customers?
- Subodh Kulkarni:
- As you see, we reported 9% year-over-year growth in WaferSense and that is in line with what the semiconductor industry at large is reporting. So we are reporting in line with what others are reporting in this area. As you will probably well know, in this area it’s hard to find new customers, it’s a fairly consolidated customer space, the major leaders being the large P [ph] and the second listed not that long – second tier list. It’s hard to pick new – brand new customers but we continue to make good traction, we are continuing to get good interest both with the existing products and in particular with the APS frontline. So we are pleased with the progress we are seeing. It is growing, obviously we hope it grows faster in the future.
- Ross Strehlow:
- And so there hasn’t really been any new customers at that, what you call the second tier, it’s just been kind of the big 3, is that right so far?
- Subodh Kulkarni:
- Well we continue to – obviously the big 3 are very important but the second tier we have some decent presence in the second tier customers, and we continue to make good progress with those customers but it’s not easy to find new customers in this general space as you know, that was my point.
- Ross Strehlow:
- Yes I know that, I know that with the high cost of payout today.
- Subodh Kulkarni:
- Yes.
- Ross Strehlow:
- How about the LDI business itself, is that profitable or how do you break that out?
- Jeff Bertelsen:
- Ross, we don’t be breaking LDI out separately. We are integrating that into our business and we really look at LDI as a product line. We are going to be putting MRS into their Auto Gage product. So there is a significant level of integration. I think we’re pleased with the 1.7 million of revenue that they contributed in the second quarter and with Auto Gage certainly look for more to come in the future. But we don't carve that out or report it separately.
- Ross Strehlow:
- And I would have to say too that, your results look great on your revenue line especially but would it be fair to say that the LDI at this point -- at this quarter actually when you break it all down, added to your loss, is that – would that be a fair statement?
- Jeff Bertelsen:
- I don't – I guess I would, like I said we don't report it separately and we are integrating it. But I don't think it, I would say it wouldn't have significantly impacted us one way or the other. On the bottom line.
- Ross Strehlow:
- So it’s kind of a round to breakeven at this early stage and with the lot – with some very nice prospects to come.
- Jeff Bertelsen:
- Yeah, it's not a big swinger –
- Subodh Kulkarni:
- It’s part of the contributor –
- Jeff Bertelsen:
- One way or the other.
- Ross Strehlow:
- Then if you could talk a little bit about some of these new products that you are talking about in the memory chip module space as well as this other area of inspecting the waterproofing on the circuit boards, is there competition here -- what are the size, what's the potential size of those markets? And I know your products are -- when you said the second half I presume the second half of this year, correct?
- Subodh Kulkarni:
- That is correct. And specific the two products you are asking about the memory inspection module and the conformal coating inspection system, both of these markets are emerging markets, I would define – there is no existing external study telling us or quantifying for us the size of the market, the memory inspection module historically that area, it was typically human beings doing the inspection. So the fact that there is machine vision for inspecting finished memory circuit boards, dim center, SSD type modules, that’s a new emerging area. We have very little to no competition primarily in that space. So we are very optimistic about the potential of that area because memory continues to be growing very, very rapidly as you well know right now. So that’s the emerging space, we are – we definitely are [indiscernible] and we hope to benefit from that. The second one though waterproofing as you said, or conformal coating inspection as we say, it’s again a emerging area, very recently many circuit boards are getting coated with this waterproofing layer if you will and numbers are hard to come by but it is the smaller part of the PCB inspection systems but rapidly growing part of the inspection system market. There are a few competitors who have launched some products recently, the biggest one in that area is Larsen [ph] but there are few others who have launched something. We believe leveraging our QX AOI technology we would have significant advantages when they launch in the second half of this year. So again an emerging market, rapidly growing market, we will definitely get the benefit of being an early entrant in that marketplace.
- Ross Strehlow:
- Subodh, can you give us some idea of the potential sales that you could see in there? We understand these are new areas but any kind of a pull in terms of what is the potential here?
- Subodh Kulkarni:
- It’s hard to put an exact number. I mean we will definitely keep you apprised as we see the market evolve. But I think it’s fair to say that the conformal coating inspection, which is a little more defined than the memory inspection, probably today it’s on the order of maybe 15% to 20% of the AOI market which is about $350 million or so, that gives you a rough feel for the size of the global market. And as I said growing rapidly right now.
- Ross Strehlow:
- So this conformal area, you kind of consider that part of the AOI area and it's about 15% to 20% of that size, okay. That's helpful. I guess that's all from me right now. Thanks guys.
- Operator:
- Our next question will come from Miles Jennings.
- Unidentified Analyst:
- Good afternoon. Thank you for your report. I wanted to just ask you a couple questions regarding the Auto Gage 3D scanning system and it’s retrofitting with the MRS. Could you or would you be willing to give us some idea or clue of the added functionality as a result of incorporating MRS features into the system?
- Subodh Kulkarni:
- Thanks, Miles. Yes, sure, fundamentally MRS technology differentiates itself from other sensing technologies, in its accuracy and speed, it’s significantly more accurate and significantly faster than any other conventional optical sensing technology. And that is enabled with our proprietary consideration of the hardware and in particular the software algorithms that we use in projecting different patterns and how we interpret those patterns. So MRS again compared to conventional optical sensing technologies, it’s significantly faster and much more accurate both at the same time. So Auto Gage as we have been – as LDI has been testing for a while now, was using off-the-shelf optical sensing technology. By incorporating MRS we believe we will achieve significantly faster 3D scanning speed and much higher resolution than what the current product was doing and bring us a huge differentiator in the 3D scanning space.
- Unidentified Analyst:
- Also, since you have been selling this Auto Gage product without the MRS functionality, I assume there's some way of finding out what your general list price is for a fully loaded system, would you mind letting us know the range of price of this surveyor Auto Gage 3D scanning system?
- Subodh Kulkarni:
- It’s too early to quantify since we are still in development with Auto Gage MRS and we definitely will be testing different price points and elasticity, those kind of things as we do our beta site development. It’s fair to say that even though we have – LDI tested the Auto Gage product with customer before, they really didn’t spell any change. So there are no price points established in the market -- off the shelf technology, it was more in the test phase and we acquired LDI just when they were assuming the test phase, we had good valuable input from the customer side, because that input, and decided that MRS would do a lot better job than what conventional off-the-shelf optical technology was capable of handling.
- Unidentified Analyst:
- So the Auto Gage retrofitted product, that will be incremental revenue to the company as a result of this MRS?
- Subodh Kulkarni:
- You mean the MRS retrofitted Auto Gage right, yes, it would be implemented – do what the current product line is going. Today the company doesn’t have a 3D scanner in that category at all, it has a very high end 3D scanner and a articulated on scanner but nothing as a desktop 3D scanner which can do a full 3D scan with push button simply sitting.
- Unidentified Analyst:
- And when you say accuracy, it's one thing to improve a little bit on the current market but it’s another thing to have sort of a step change in accuracy. And I know it's hard to measure what a step change really means but is there some way you can convey the significance of this accuracy – if I am a customer and I would otherwise just be using your regular Auto Gage system and now if I can have the higher accuracy, is that a significant change in accuracy or is it just an improvement?
- Subodh Kulkarni:
- Great question, usually we trade off speed and accuracy, and that usually is a trade off that we have to do with any optical technology and MRS in that sense at the end of the day is an optical sensing technology. There will be some trade off in that. Having said -- the answer to your question clearly depends on the specific application. There are applications that we have been testing our MRS sensor technology and we do see a step – and when I say the step, a significant change in multiple factors, not just 10% or 20% but sometimes more like 3X to 5X type improvement, or even more depending on the application. So it comes down to what exactly are you measuring and how much time can you allow to measure – the trade off, that is enabled by MRS technology is significantly better than the trade off that is enabled by off-the-shelf optical sensing technology. Hope you see what I am trying to say here.
- Operator:
- We, it looks like, have a follow up from Ross Strehlow.
- Ross Strehlow:
- Yeah guys, in your SMT sensors, that was up significantly from last year. How do you see that that whole sector now, is that starting to – or more growth they had, 52% is a significant increase, and I know that business can very be very cyclical. So what's your sense on the state of the marketplace there?
- Subodh Kulkarni:
- We think it’s a good marketplace right now, we don’t see any reason to suddenly believe there is destructions around the corner. As you correctly pointed out, we are dependent on our customers in that space. But the primary customers we have in that space [UT assembly and NTech] all seem to be doing very well in their respective positioning of the product, where our sensor plays a key role. So we don’t anticipate any sudden changes in that trajectory.
- Jeff Bertelsen:
- I think it’s reasonably stable right now.
- Subodh Kulkarni:
- Yeah, and as we mentioned in our press release, Ross, we are working on trying to secure OEM customers in that space with our new MRS technology, so we hope we can broaden that customers in the future. So we are pretty optimistic about sensors as an overall business for us going forward.
- Operator:
- And we also have a follow up from Mr. Jennings.
- Unidentified Analyst:
- I realize everyone had an idea about the change to 450 wafer size, I know that you have, I think WaferSense product to serve that if indeed that market ever develops. But since you do have a product in the market, can you sense whether or not the industry will be going to 450 in the next few years? There are commentaries from major companies saying that it will never happen, and other companies say it’s here pretty soon. And I just wonder what your offhand – not offhand, what your professional judgment is on the likelihood of a major change with the 450 wafer size?
- Subodh Kulkarni:
- We stop to predict something that far out in semiconductor industry, particularly when we don’t play directly in that space in terms of having fab ourselves. Having said that we – we can tell you that we have actually sold 450 millimeter version of WaferSense products to some of the equipment manufacturers because they have to design the equipment for coating of fabs and the need for sensors in designing the equipment. So we have actually registered some sales of 450 millimeter ourselves. Clearly there is activity happening, clearly there is a momentum behind 450 millimeter but it is slow and it is partly -- original plan if you recall from three years ago, the fab should have been doing 450 millimeter by now but clearly they are not. And there are good reasons why 450 millimeter hasn’t taken off and as you correctly point out maybe in some cases it may never take off. But the leading edge fabs are the top three guys in this area clearly are working on 450 millimeter and really equipment manufacturers are working on 450 millimeter and it depends on a lot of the different dynamics that they are dealing with in terms of cost for transistor if you will, if they find alternative means of shrinking the transistor where they don’t need to scale up the wafer size, I am sure they will prefer to do that at a cheaper cost [indiscernible] 450. But they are looking at multiple options to reduce the cost and improve the performance both at the same time. And 450 clearly is one of the things they are looking at. So we are – actually as you may have seen we announced a product a month ago or so, to do a 450 millimeter version of our WaferSense, ReticleSense product line and so we are getting demand from both the 450 but also 150 millimeter size.
- Unidentified Analyst:
- You got to cover –
- Subodh Kulkarni:
- Well, we have to because there are many fabs who are staying with 150 millimeter, they are still not going up the chain and size – the LEDs, and ASIC type fabs. So I think it’s safe to say Miles, that two, three, four years from now, there will be some fabs at 450, maybe just a handful, and there will be many fabs at 150 and everything you number.
- Operator:
- Thank you. (Operator Instructions) And with no additional questions in the queue, I would like to turn the call back over to management for any additional remarks.
- Subodh Kulkarni:
- Sure. Well thank you for attending our conference call. Once again given the sustained performance we are seeing, we are very optimistic about CyberOptics near term and long term future. Thank you again.
- Operator:
- Thank you ladies and gentlemen, this concludes today’s 2014 conference call. If you like to listen to a replay of today's conference please dial 1-888-203-1112 with the access number 5669127 followed by the #. We thank you again for your participation in today's conference. You may now disconnect.
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