Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue of nearly $30 million was higher than expected, indicating strong performance despite challenging conditions.
- Record backlog of $56 million at quarter end, boosted by the acquisition of Affirmation, which contributed $22.8 million.
- Successful integration of Affirmation is progressing well, with positive feedback from joint trade shows and customer interactions.
- Continued diversification into defense, aerospace, and industrial markets, which remain solid and provide stability against semiconductor market volatility.
- Strong cash generation from operations, adding $2.1 million this quarter, demonstrating effective financial management.
Negative Points
- Gross margin of 43.8% was lower than expected, primarily due to the timing of the Affirmation acquisition.
- Operating expenses were up $1.1 million versus the prior year, driven by higher corporate development and professional fees.
- The semiconductor market, which constitutes about half of total sales, faced significant headwinds impacting performance.
- Orders worth about $5 million were either delayed or reduced in size, affecting the financial outlook and planning.
- Integration of Affirmation, while positive, introduced complexities in revenue recognition and financial adjustments under US GAAP.
Q & A Highlights
Q: Hey, guys, thanks for taking my questions. Just wanted to start with the orders that shifted towards QUARTER, and curious if you expect to recognize those delayed orders later this year?
A: Yes, Jason. So on the orders that were delayed, I really did just that kind of shift to the right, we do see them kind of moving more into Q. three Q. four later part of the year based on what our customers are telling us as for the reduction in size. That is really on the end users demand driven, and that is for the balance of the year. And in fact, we booked some that reduced size orders primarily in the second quarter here to get that particular customer through the balance of the year. So that's going to be reflected here in Q2, but it was expected in Q1 and just did not materialize.
Q: Got it. That's helpful. And then it sounds like the integration with automation continues to progress to plan. But just curious if there's anything that has surprised you whether good or bad. Now there you've had a little more time with the acquisition.
A: Yes. No, I'm all positive so far. I mentioned in the pre remarks that we had a trade show the APEX show and they jointly district I showed with our our AquaLogic group up in Canada there, and really, really good activity, good interactions between the two businesses and the teams there and customer calls have gone fantastic with them. That being part of a larger U.S. company gives us some credibility to other pursuits and some projects. So all positive from that sense from Duncan, anything from your side that come across?
Q: Okay. No, that's great to hear. And then just the last one for me and I'll hop back into queue. You noted some headwinds from automation regarding gross margins. Just curious if you could quantify the impact here in Q1 yes, I mean, it was 100 basis points of impact.
A: So I literally just the case of relatively thin revenue versus the costs that had to be brought into the stub period based upon number of business days versus number of actual days and things like that, but 100 basis points of impact on the on the margin there.
Q: Thanks for taking the questions. I wanted to start with the front end semi market and just simply put it's got open-ended is some discussion or some color around.
A: Yes, hey, Ted. And on the front end semi. As you know, we make our industry-leading solutions are used in the crystal growth, silicon carbide, gallium nitride as well as in epitaxy applications. And we have seen that the crystal growing a business. Our orders, I would say, soft for a number of quarters now as that capacity, yes, as they digest the shipments that have happened out there in that and where we had been seeing relative strength and hold holding up well was the epitaxy side of things. But then in Q one, that's really where we saw the epitaxy kind of slow and it's really more project driven for the or end users there. Some of the larger projects they were expecting either delayed, canceled or reduced the scope on the number of units that they were going to need on that. So that really was the reduction in size that we saw talking with our any of our customers there, both the integrators and the end users, we really think come due. We that really starts picking up in the second half as well as what they're telling us orders. They're going to need to start placing some for late in the year, but really more so into 2025.
Q: That was great color. And then on a more positive discussion, the defense business has been doing well for quite a period of time. And I'm wondering if you could provide a little more color within that market, what are the applications that are driving it and your outlook forward?
A: Yes, no. And we serve that space quite across all three divisions, if you will. And some of the applications being out robust test, this testing of electronics used in missiles missile defense systems where it opens and our flying probe tests. There are testing circuit boards used in various defense systems as well. And so it really is a wide variety of applications there. We also do some, I'd say more on the defense aero side of the components used in aircraft, some some cameras used on on planes as well. So it's some it touches a wide variety of applications, not in particular, but we do see those staying pretty robust for us here in New new, I'd say designs on on the missiles themselves are the components going into the missiles, driving higher testing needs, driving a more upgrades to our products that we serve in the past. So yes, we see that will continue for quite some time, so good.
Q: I want to hear that. And then my last question on backlog. If we take affirmation out, your backlog was down substantially in that drop in backlog purely semi driven.
A: But yes, I mean, a huge portion of that is semi driven, as you can see from the kind of order activity in semi relatively low or a low quarter revenue still somewhat holding up. You can do the math on that and you can see kind of backlog dropping there. So semi certainly the bigger bigger driver, the front end component, as Nick highlighted in commentary there as well as in Q&A, you're really being asked the kind of driver of that of that sector with respect to kind of that backlog reduction. I think the rest, the markets you're relatively holding up relatively relatively well, but that's where we see the biggest change.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
