CyberOptics Corporation
Q1 2015 Earnings Call Transcript

Published: 23 Apr 2015

[Operator:]

Good day. And welcome to the CyberOptics First Quarter 2015 Conference Call. Today’s conference is being recorded. At this time, I would 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 joining CyberOptics first quarter earnings conference call. With me today is Jeff Bertelsen, our CFO and Chief Operating Officer, who will review our recent operating results, following my brief overview of our first 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, 2014, and other filings with the SEC. We urge you to review these discussions of risk factors. Turning now to our first quarter performance, revenues totaled $9.5 million, down modestly from $9.8 in the first quarter of 2014, we also reported a net loss of $781,000 or $0.12 per share, virtually unchanged from the net loss of $809,000 or $0.12 per share in the first quarter of 2014. CyberOptics first quarter result, which were consistent with our previously announced forecast for this period were affected by soft sales of traditional SMT inspection systems, due we believe to customers waiting for the availability of our new 3D AOI system, the SQ3000. Despite this weak start of 2015, we are confident of achieving steadily improving results over the balance of the year for a number of reasons. In addition to the $1.5 million in backlog that we had at the end of first quarter for our new memory module inspection system, the MX600, we received an additional $2 million order in April. This order boosted our backlog for this product to approximately $3.5 million. During the second quarter, we expect to book the initial revenues from SQ3000. We also are forecasting the first sales of our 3D-enabled CyberGage Scanning System in this year’s second half. Moreover, we anticipate the continuation of solid sales growth of our WaferSense/ReticleSense product line in the semiconductor market due to ongoing investments in new products and marketing initiatives. Now for the next few minutes, I will provide some additional color on our various growth initiatives. In the second quarter, we expect to complete engineering on our new SQ3000 AOI system, which is based upon our breakthrough 3D Multi-Reflection Suppression or MRS sensor technology. The SQ3000 is design to expand CyberOptics presence in the smartphone and tablet market, as well as our high precision applications, we are identifying defects is critical due to smaller electronics packaging and increasing component density on circuit boards. 3D AOI is roughly a $60 million market growing at an approximate 40% compound annual growth rate. We believe we have developed the best-in-class 3D technology and the product differentiation enabled by our MRS technology should allow us to gain a growing share of the 3D AOI market over the long-term. Interest in our 3D MRS technology is high making us believe SQ3000 sales should ramp up over the balance of the year. This ground breaking technology was initially validated by our previously announced long-term agreement to supply MRS enabled 3D sensor to KLA-Tencor for its backend semiconductor package inspection systems. Sales under this agreement are expected to increase steadily during the year since KLA has now transitioned from beta testing to full production. Turning next to memory inspection. The additional $2 million order for our new MX600 system from one of the world’s top four memory manufacturers further validates the value proposition of this new product. This customer will use MX600 to inspect memory modules at the end of the production line after singulation. A 2D system, the MX600 leverages our proprietary Strobed Inspection Module or SIM technology and autonomous image recognition software. Revenue recognition from the sale of our first MX600 to this customer will now be realized in the second quarter and revenues from the balance of our current MX600 orders will be recognized in this year’s second half. Turning now to the CyberGage Scanning System, this product was a component of our March 2014 acquisition of Laser Design Inc. CyberGage is a 3D general metrology inspection system using the range of industrial application. From the outset, it was our plan to incorporate our 3D MRS technology into CyberGage to significantly strengthen its inspection capability and broaden the appeal and application of this product in the diverse range of market. This initiative involves a very complex technology that admittedly has presented some technical challenges that have delayed the rollout of this product. We are making good progress with our development efforts and believe a 3D MRS enabled CyberGage should be market ready in this year’s second half. We believe there is no viable competitive product for CyberGage at this time, which has made customer interest in this product very high. Moreover, we believe a large potential market exists for 3D general metrology, inspection system. For this reasons, we believe CyberGage could be a significant contributor to CyberOptics long-term growth. Before closing out this section of my remarks, I also want to mention the significant progress that we are making with our WaferSense, ReticleSense product line. Based on Semiconductor products, primarily WaferSense and ReticleSense, increased a strong 18% in the first quarter and we anticipate the continuation of solid sales growth of this products family. Turning to the future, we entered this year’s second quarter with an order backlog of $6.8 million, up 15% from $5.9 million at the beginning of 2015. Approximately, 32% of our backlog at March 31st was comprised of MRS related and Memory Inspection products, which is a key indication we are making progress with our new products. This growing backlog, together with the interest we have generated from beta site partners and potential customers to whom we have demonstrated our MRS-based products causes us to forecast significant sales and bottom line improvements in the second quarter on a sequential basis. Moreover, we are also forecasting profitability for the rest of 2015. Consequently, despite our first quarter results, we are reiterating our previously reported guidance of at least 10% sales growth and at least breakeven operating results for 2015. Much work remains before us, but we are confident CyberOptics is moving in the right direction. And we are excited about the significant opportunities facing us. Thank you. Now, Jeff Bertelsen will review our first quarter operating results in some details.

[Jeff Bertelsen:]

Thanks, Subodh. I will lead up briefly by reviewing the performance of our product lines. Sales of traditional SMT inspection systems declined 33% year-over-year, due we believe to customers waiting for the availability of our new 3D AOI system, the SQ3000. As Subodh indicated earlier, we expect to book our first SQ3000 sales in this year’s second quarter. In addition, revenue recognition from the sale of our first MX600 Memory Inspection System will be realized in the second quarter while revenues from the balance of our MX600 orders will be booked during the second half of this year. For these reasons, we are currently forecasting sequentially higher system sales in the June quarter. Sales of SMT sensors increased 7% from last year's first quarter. Sales of Semiconductor products, principally WaferSense and ReticleSense were up a strong 18% from last year’s first quarter. These products are continuing to gain traction in the Semiconductor market that customers are finding that are WaferSense and ReticleSense. Product family is able to significantly improve manufacturing processes and yields. As a result, Semiconductor products are becoming an increasingly important component of our sales mix and we are forecasting another period of strong double-digit growth in this year’s second quarter. Finally, LDI sales were up significantly year-over-year, reflecting the timing of the units late March 2014 acquisition. Moving down the P&L, our first quarter gross margin of 48% was up from 46% in the year earlier period due to an increased proportion of higher margin products in our sales mix, including SMT sensors and Semiconductor products. Total operating expenses were virtually flat with the level on last year's first quarter. Year-over-year operating expense increases resulted from the March 2014 LDI acquisition and were offset by other cost savings that were implemented throughout 2014. We reported an operating loss of $826,000 in this year’s first quarter, compared to the loss of $722,000 in the first quarter of 2014. Cash and marketable securities totaled $18.4 million at the end of the first quarter, compared to $20.3 million at the beginning of 2015. During the first quarter, we use cash for inventory related to new products and our growth initiatives. Our cash reserves are more than ample to support our continued growth. Thank you. I'll now turn the call over to the conference call operator who will poll you for any questions.

[Operator:]

Thank you. [Operator Instruction] We’ll now take our first question from Miles Jennings, Private Investor.

[Miles Jennings:]

Good afternoon.

[Subodh Kulkarni:]

Good afternoon, Miles.

[Miles Jennings:]

Thanks for the report. I just had a couple of product questions. Could you comment please on the Airborne Particle Sensor, both Reticle and the Quartz product as well? I know that you said that revenue is up 18%. I wondered, if some of that increase is coming from APSR and the APSRQ.

[Subodh Kulkarni:]

Sure, Mike. Thanks for the question. APSR and APSRQ, APSR got launched on second half of the last year if you recall and APSRQ, we announced it just a couple of months ago on. And it’s going through qualifications right now APSRQ, a lot of interest but actually APSRQ didn’t contribute in the first quarter. We are still in the qualification state. Yes, the most of the growth, in fact, all of the growth that you’ll see in the WaferSense, ReticleSense product line is primarily because of the product that we already had available on Jan 1stt not APSRQ.

[Miles Jennings:]

Including APSR.

[Subodh Kulkarni:]

APSR contributed some, I just don’t recall how did they contribution was but not a significant one.

[Miles Jennings:]

Right. Right. Correct.

[Subodh Kulkarni:]

The difference between APSR and APSRQ as you probably are aware is, APSR fits into the mass process. It doesn’t really fit into the semiconductor fab lines per se, because it’s not designed to fit into the robotic structure of the semi conductor process equipment. And by definition there are the lot fewer mass process worldwide than fab lines and lithographic lines. So APSRQ market potential is significantly larger than APSR. And that’s why we develop APSR into APSRQ, the Quartz version which can be loaded into the lithographic system. So we expect to see the contribution of APSRQ as the years goes on and certainly in future. But this is a very high-end product that needs significant time for qualification and evaluations before lithographic customers allow something foreign to enter their system.

[Miles Jennings:]

Excellent. And just one further question, if I may, on the MX600, do you remember any module? Do you have any priority aspect of that product including any patents related to that product?

[Subodh Kulkarni:]

Sure. Fundamentally MX600 users are proprietary of SIM 2D AOI technology that’s the Strobed Inspection Module technology that we use in our other 2D AOI products. It’s the same sensing technology that is completely proprietary to us.

[Miles Jennings:]

Good.

[Subodh Kulkarni:]

That’s what enables the high speed and the accuracy is that semiconductor memory manufactures needs to assemble this complex SSD and DRAM modules. So definitely it’s very proprietary, we feel very good about that aspect of MX600.

[Miles Jennings:]

Excellent. That is no RAM to SIM.

[Subodh Kulkarni:]

Yeah. That is the SIM proprietary technology that we used in our QX family for instance.

[Miles Jennings:]

Thank you.

[Subodh Kulkarni:]

Thanks.

[Operator:]

[Operator Instruction] At this time, it appears we have no further questions in the queue.

[Subodh Kulkarni:]

Well. Thank you again. In summary, we are pleased with the progress made and excited about the future for CyberOptics and we look forward to updating you in near future. Thank you.

[Operator:]

That concludes today’s presentation. Thank you for your participation.