CyberOptics Corporation
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Good day, and welcome to the CyberOptics Third Quarter 2014 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Dr. Subodh Kulkarni, President and Chief Executive Officer. Please go ahead, sir.

[Subodh Kulkarni:]

Good afternoon, and thanks for taking the time to participate in the CyberOptics’ third quarter earnings conference call. Joining me is Jeff Bertelsen, our CFO and Chief Operating Officer, who will review our recent operating results following my brief overview of our third quarter performance. Jeff and I will then be available to answer your questions at the conclusion of our remarks. In keeping with Regulation FD, we have made forward-looking statements regarding our outlook in this afternoon’s earnings release. These forward-looking statements reflect our outlook for future results, which is subject to a number of risks that are discussed in our Form 10-K for the year ended December 31, 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 third quarter of 2014 marked our fourth consecutive three months period of improved year-over-year operating results. As a result, we remain on track toward achieving our previously reported 2014 goal of double-digit organic sales growth and significantly reduced net loss. Cyberoptics' progress throughout 2014 also makes us confident of attaining our long-term goal of sustainable profitable growth. For the third quarter, revenues increased 34% to $11.7 million from $8.7 million in the year-over-year period. Completed in mid-March, the acquisition of Laser Design Incorporated or LDI, a Minneapolis-based 3D metrology company contributed $1.3 million to CyberOptics’ consolidated third quarter revenues. Excluding the impact of LDI, sales were up 19% in the third quarter, reflecting the revenue growth, our net loss narrowed to $448,000, or $0.07 per share, down from the loss of $774,000, or $0.11 per share in the third quarter of 2013. Sales of SMT sensors increased 42% from last year’s third quarter, reflecting solid demand from our OEM customers. Sales of inspection systems rose 4% year-over-year and sales of semiconductor products, principally the WaferSense product line were up 8% from last year’s third quarter. Our WaferSense products are starting to gain traction with manufacturers of flat panel displays as these customers are finding that WaferSense is able to significantly improve their manufacturing processes and yields. Clearly, CyberOptics has made considerable progress to the first nine months of 2014. However, we realized that more work remains before us, and much of our future success will be driven by our emphasis on 3D inspection. Since 3D inspection is the high growth segment of the electronic assembly semiconductor and industrial market, we’re strategically repositioning CyberOptics as a developer and manufacturer of high precision 3D sensors Toward this end, development of our Multi-Reflection Suppression technology or MRS 3D technology continued in the third quarter. This sensor technology will be deployed in our new 3D AOI system, which is designed to expand CyberOptics’ presence in the smart phone and tablet markets as well as other high-precision applications. In these areas, identifying defects has become highly critical due to smaller electronics packaging and increasing component density on circuit boards, which are driving the need for precision 3D inspection. Beta testing and demonstrations of our new 3D AOI systems have started, and reflecting positive customer responses, we already have a pre-launch order. Receiving a pre-launch order is unusual, but during demonstrations, potential customers have been impressed by the clarity of images generated by our 3D AOI system and our features. As planned, we expect to formally launch our 3D AOI system during the first quarter of 2015. In addition to pursuing new OEM opportunities with our MRS 3D technology, we also are incorporating this technology into LDI’s Auto Gage Scanning System, which is used in a wide range of industrial applications. Introduction of the 3D MRS-equipped Auto Gage is planned for early 2015. LDI, it should be reiterated, it's extending our reach into a diverse range of industrial applications in the general metrology market, where the business serves a number of Fortune 500 companies. In other promising new product developments, we delivered our first system for inspecting memory modules, the MX600, in the third quarter and expect customer acceptance later this year or early 2015. The MX600 system leverages our proprietary Strobed Inspection Module or SIM technology and autonomous image recognition software. We see the memory module market as a promising opportunity that could generate at least $3 million in sales during 2015, depending upon the continued strength of the memory market. In addition, initial sales of our recently introduced system for inspecting the conformal coating on circuit boards are expected in the fourth quarter. Looking ahead, we expect to report double-digit year-over-year organic sales growth and a reduced loss in the fourth quarter. The new technology we have developed and the new products we are about to introduce causes us to be very optimistic about our performance in 2015. Thank you. Now, Jeffrey Bertelsen will review our third quarter results in greater detail.

[Jeffrey Bertelsen:]

Thanks, Subodh. As Subodh has detailed, CyberOptics posted year-over-year organic sales growth across all product lines in the third quarter. Our fourth consecutive quarter of improved year-over-year operating results keeps us on track toward achieving our full-year goal of double-digit organic sales growth and it significantly reduced loss. Before continuing I want to mention that, we recognized that $318,000 income tax benefit in last year's third quarter from a reduction in our reserve from income taxes, reflecting expiration of the statue for examining the tax returns of all prior periods. The sizable tax benefit served to lessen the net loss that we reported in the third quarter of 2013 last year. CyberOptics' third quarter gross margin of 45% was virtually comparable to the year earlier level. Total operating expenses rose 17% in the third quarter, due in large part to the addition of LDI's R&D and SG&A expense. The increase in R&D expense for this period was also due to the continuation of the technology and product development initiatives that are central to CyberOptics' strategic repositioning and future growth opportunity. These R&D initiatives include our 3D MRS technology, 3D AOIs inspection system, outfitting LDI's Auto Gage with MRS, and the new memory and conformal coating inspection systems. Several of these new products will generate sales in the fourth quarter and all are expected to make sales contributions in early 2015. This outlook bodes well for our performance during the coming year. We ended the third quarter of 2014 with cash and marketable securities of $17.9 million compared to $19.2 million at the end of this year's second quarter. We have been using cash to support our strong growth in R&D initiative. I would point out that our cash reserves are more than ample to support our continued growth objective. Thank you. I will now turn the call over to the conference call operator who will poll you for any questions.

[Operator:]

Thank you. (Operator Instructions) And our first question will come from Miles Jennings, who is a Private Investor.

[Unidentified Analyst:]

Good afternoon. I just had a one question and what is your estimated start date for offering MRS-enabled 3D scanning services? And from the customer standpoint, what are some of the main differences of MRS 3D scan versus your current non-MRS scans?

[Subodh Kulkarni:]

Thanks, Miles. The 3D scanning – the 3D scanner, which is basically the Auto Gage product, including MRS technology as we discussed in our comments, it’s later to be launched in early 2015. So obviously, we will start using that product in our scanning services area around the same time period as well. So expect us to start offering – I mean, we continue to offer scanning services. We already do scanning services using various different kinds of scanners. Not every scanning service application will need an Auto Gage MRS system, but the ones that makes sense we will definitely plan on using it once the product is available in early 2015. Regarding the second part of your question as to how models compares with respect to other scanning technologies or other sensor technologies, if you will, intrinsically MRS enables higher accuracy and speed both at the same time compared to conventional sensor technologies. In the scanning services area itself the speed is a benefit for us internally. The customer doesn’t see, because provide the job and we are giving them a finished 3D scan as a finished product. So they may not see the speed part that we see it internally, but they will definitely see the higher accuracy images enabled by the MRS technology. Does that answer your question?

[Unidentified Analyst:]

Yes, that’s great. Thanks. I wasn’t sure if you might offer some service before you officially launched the Auto Gage, since the launch might be different from your internal ability to use the Auto Gage in scanning services. So thank you for clarifying that.

[Subodh Kulkarni:]

Thanks.

[Operator:]

(Operator Instructions) At this time I show no questions in the queue, or excuse me, I’m sorry. Greg Weaver with Invicta is up next.

[Gregory Weaver:]

Hi, good afternoon. Sorry, I hopped on a couple of minutes late, if you’ve covered this already. But could you talk little bit about the Osan [ph] environment and kind of how the buying opportunities are out there, are they investing much at this point?

[Subodh Kulkarni:]

Could you repeat the question again, Greg?

[Gregory Weaver:]

Sure, I’m just trying to get the sense of what the environment is like for your equipment in terms of selling whole machines to some of the Asian contract manufacturers in terms of what the outlook is for…?

[Subodh Kulkarni:]

Okay. Thanks for the clarification. I mean, in general, it obviously depends on the global macroeconomic conditions but overall. In SMT inspection systems and even the portfolio of LDI in the 3D scanner area, market is expected to generally grow in the 4% to 5% range right now. Particularly, the SMT inspection systems, that’s what the external reports right now indicate for the foreseeable future. So overall, I would say it’s a stable environment. It certainly depends on global macroeconomic condition.

[Gregory Weaver:]

Okay. Thank you very much.

[Subodh Kulkarni:]

Thanks.

[Operator:]

(Operator Instructions) It appears there are no further questions at this time Dr. Kulkarni. I would like to turn the conference back to you for any additional or closing remarks.

[Subodh Kulkarni:]

Thank you. As you have seen, we are very pleased with the progress we have made to-date and we remain to be very optimistic about our future given the technology and the product investments we have made. Thank you again for attending today’s calls.

[Operator:]

This does conclude today’s conference. Thank you for your participation.