Coherent Corp (COHR) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Coherent's first-quarter and FY17 financial results conference call, hosted by Coherent, Inc.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce Bret DiMarco, Executive Vice President and General Counsel. You may begin your conference.

Thank you, Emily, and good afternoon, everyone. Welcome to today's conference call to discuss Coherent's results from its first quarter of FY17. On the call, we have John Ambroseo, our President and Chief Executive Officer; and Kevin Palatnik, our Executive Vice President and Chief Financial Officer.

I would like to remind everyone that some information provided during this call may include forward-looking statements. Including without limitation, statements about Coherent's future events, anticipated financial results, business trends, and the expected completion, timing and benefits of the Rofin-Sinar transaction. These forward-looking statements may contain such words as expect, will, anticipates or intends, or referred to as guidance. These forward-looking statements are only predictions, and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause actual results to vary significantly.

These forward-looking statements reflect beliefs, estimates and predictions as of today, and Coherent expressly assumes no obligation to update any such forward-looking statements. For a description of risks and uncertainties which can impact these forward-looking statements, you are encouraged to review Coherent's periodic SEC filings, including its most recent Form 10-K, Form 10-Q and Form 8-K.

I'll now turn the call over to John Ambroseo.

Thanks, Bret. Good afternoon, everyone, and welcome to our first fiscal quarter conference call.

As you have seen from the press release, Coherent posted record performance in the first fiscal quarter of 2017, with every market contributing to the results. I want to commend our operating units for delivering or exceeding their customer commitments, while we simultaneously kicked off the formal integration of Coherent and Rofin. I also want to acknowledge our Global Sales Team for their record performance.

Bookings of $551.6 million increased 119% sequentially, and 102.1% versus the prior-year period. The book to bill for first quarter was 1.59%. Microelectronics orders of $373.6 million increased 155.4% sequentially and 97.8% compared to the prior-year period.

ELA system and service orders were very strong in the first quarter. The systems were predominantly LineBeam 1000s, and will be delivered to multiple customers in multiple countries. We believe all or nearly all of these tools are designated for flexible OLEDs. Service demand is reflective of high utilization rates, as end-customers ramp OLED capacity and maintain LTPS LCD output.

In a subsequent event, we have recently received another multi-unit order for LineBeam 1500s. The end-customer would like them delivered in 2018, and we will be able to accommodate their request.

In addition to the front-end ELA process, there are an increasing number of laser-based, back-end FPD applications in the mobile handset market. These apps are linked to specific models, drive burst or bubble orders, and require rapid fulfillment. We had planned for several of these in our FY17 operating plan, but have been better than anticipated. The additional business is reflected in our microelectronics market, and we are ramping in several different product families and locations to meet delivery requirements.

Semi-cap bookings grew by double digits in the first quarter, which is consistent with overall trends in the market, as expressed by SEMI, Gardner and IC Insights. Capacity expansion for 3D NAND is the primary growth driver. Logic capacity expansion is a distant second. Similar to FPD, semi-cap [fab] utilization is high, and this is translated into strong service demand.

Advanced packaging had a nice uptick during Q1. The microvia business picked up some speed from fan-out wafer-level packaging, which provides more I/O connections from a die. Orders from laser direct imaging, or LDI applications, also improved. [Lia] drilling and LDI have historically trailed the semi-cap market by approximately six months.

First-quarter materials processing orders were $96.4 million, representing increases of 242.1% sequentially and 373.7% versus the prior-year period. The large changes are from the Rofin acquisition. The materials processing vertical is the end-market that has expanded the most by virtue of the Rofin acquisition. The traditional market [integrated] business performed well, with contributions from metalwork using UV lasers to textile marketing with CO2 products.

Cutting and converting also fared well, due to volume orders from the packaging and label industries. Automotive applications were very active and drove orders for ultra-fast lasers used in fuel-injector nozzle drilling, and high-power lasers used in power-train welding. We also posted record orders for medical device manufacturing workstations, where we see meaningful opportunities to expand our business.

Instrumentation and OEM component orders of $46.9 million increased 10.3% versus the prior quarter, and 56% versus the prior-year period. The sequential and year-over-year increases arose from an improved outlook for medical OEMs, sustained growth in bio-instrumentation, and higher demand for medical consumables. In refractive surgery, a major vendor is having success with an excimer-based technique. This has put pressure on other processes that utilized short-pulse lasers, but it is a net positive for Coherent.

Bio-instrumentation customers are reporting solid growth in reagent sales, which drives demand for laser-based instruments across all territories. We are exploring new laser architectures that can accelerate instrumentation deployment through lower pricing. Our work in medical consumables, primarily fiber assemblies for lithotripsy, has been rewarded with a steady increase in business. There are more opportunities in this area, and we look forward to securing them.

Scientific orders of $34.8 million were down 0.4% sequentially, and up 3.1% compared to the prior-year period. We had record orders for Astrella, which is a workhorse tool in applications ranging from applied physics to physical chemistry. Two factors led to this. Chinese research investments in the physical sciences continue to grow, and are nearly equal to those in the US. We also believe we have captured market share for ultra-fast amplifiers across multiple geographies.

The multiphoton microscopy market is a consistent overall performer. The mix is shifting towards our newer platforms, including the Discovery, Monocle and Fidelity, due to their [affordability] in optogenetics. Orders for CW impulse lasers used in life sciences and chemistry were also stable to up. This reflects research trends in Europe and Asia. The only product area that declined was for certain gas lasers due to shipping technology.

This was the sixth year in a row where the first-quarter orders were similar to or higher than the fourth-quarter orders, as opposed to a seasonal drop-off, and is a reflection of a geographic shift towards China and Korea. The integration process is fully underway, and there have been few surprises one way or the other. Our employees are doing a good job of managing change, which is never trivial. The early work has focused on integrating the sales and service organizations, consolidating our semiconductor packaging operations, and advancing the high-power laser platform.

The sales service integration is on track, and we expect to have everyone operating on a single platform in the next several months. The packing consolidation is also progressing according to plan.

The opportunity in fiber laser market remains compelling. We are currently producing a 2.5-kilowatt single-modem module, with a 3-kilowatt module nearing completion. The economics of a higher-powered module looked very favorable. Development work of a Coherent pump chip is underway, and we also have some work to do on simplifying the fiber laser supply chain.

We're going to institute a change in our quarterly reporting, effective this quarter, meaning fiscal Q2. We will continue to discuss demand trends, but we will no longer report absolute bookings. There are several reasons behind our decision. We are one of the few players in the industry that provides bookings granularity, which gives competitors insight into our business.

Our bookings volatility has and will continue to be high, by virtue of the ELA business, where high SPs can induce large swings in bookings. These swings are not indicative of the long-term potential of the business. Finally, the earnings power of the Company, especially as it relates to service, have gotten lost in the bookings exuberance. We hope this change will put more focus on our key performance metrics.

We have put ourselves in prime position to capitalize on the demand environment across our four end-markets. Over the coming months, you'll hear about new products and emerging applications that figure squarely into the Company's future. While there is much to do, the team is energized and focused. I'll now turn the call over to Kevin Palatnik, Coherent's Executive Vice President and Chief Financial Officer.

Thanks, John. Today I will first summarize fiscal first-quarter 2017 financial results, and then move to the outlook for fiscal Q2. I will discuss primarily non-GAAP financial results, and ask that you refer to today's press release for a detailed description of our GAAP results, as well as a reconciliation between GAAP and non-GAAP financial results. The non-GAAP adjustments relate to stock-based compensation expense, amortization of intangible assets, acquisition-related costs, restructuring costs, purchase accounting, and the related tax adjustments.

The full text of today's prepared remarks and trended GAAP and non-GAAP supplemental financial information 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.

FY17 first-quarter financial results for the Company's key operating metrics were bookings of $551.6 million, total revenue of $346.1 million, non-GAAP gross margin of 47.2%, non-GAAP operating margin of 25.8%, adjusted EBITDA of 28.4%, and non-GAAP EPS of $2.57. John talked about the approximately $552 million of bookings for the quarter in detail, so I'll move on to the P&L and balance sheet.

Net sales for fiscal first quarter were $346.1 million, which includes Rofin sales for the period November 7 through December 31. This is an increase of $97.6 million, or approximately 39% sequentially. The $346 million of sales came in above our previously guided range, and is due to 66% of Rofin sales occurring, following the closing of the transaction, higher than our expected 55%.

Additionally, we saw strength across all four market segments Coherent serves, with microelectronics, specifically FPD sales, providing the largest contribution. Geographically, Asia accounted for 59% of revenues in the first quarter; the US, 19%; Europe, 18%, and the rest of the world, 4%. Asia includes one territory with revenues greater than 10% of total sales.

Total backlog at the end of first quarter was approximately $1.2 billion. The shippable backlog, defined as shippable within the next 12 months, is approximately $824 million. This includes $482 million or approximately 58% of shippable backlog related to flat-panel design display applications. The comparable shippable backlog at the end of fiscal fourth quarter was $605 million, of which $382 million or approximately 63%, was related to flat-panel display applications.

Other product and service revenues for fiscal first quarter were $101 million, or approximately 29% of sales. Other product revenue consists of spare parts, related accessories, and other consumer role products, and was 24% of sales, representing growth of 42% compared to last quarter. Excluding Rofin, growth would have been 12% compared to last quarter.

Revenue from services and service agreements were approximately 5% of sales, representing growth of 51% compared to last quarter. Excluding Rofin, growth would have been 1% compared to last quarter. And we had one customer in South Korea, an integrator to large flat-panel display manufacturers that contributed more than 10% of the Company's fiscal first-quarter revenues.

Fiscal first-quarter non-GAAP gross profit, excluding stock-based compensation charges, intangibles to amortization, purchase accounting and restructuring, was $163.4 million. At 47.2% of sales for the quarter, non-GAAP gross margin came in slightly above the guided range. Non-GAAP operating margin was 25.8% for fiscal first quarter, and was also above the guided range for Q1, as a result of the compounding effect of higher gross profits, along with lower-than-expected operating expenses. Adjusted EBITDA was 28.4% in fiscal Q1.

Turning to the balance sheet, non-restricted cash, cash equivalents and short-term investments was approximately $360 million at the end of fiscal one, a decrease of approximately $40 million compared to the end of last quarter, as a result of using cash on hand to partially fund the Rofin transaction. International cash, primarily in Europe, was $237 million, or approximately 66% of the total cash and short-term investment balance. Approximately 40% of total cash and short-term investments is denominated in dollars.

Accounts receivable DSO was 63 days, an increase of three days sequentially. The net inventory balance at the end of the first quarter was approximately $386 million. This is a sequential increase of $173 million, and was primarily due to the acquisition of Rofin inventory, which had a value of $178 million on December 31. And finally, capital spending for the quarter was $15.4 million, or 4.4% of sales.

Now I'll turn to our outlook for the second fiscal quarter of 2017. Please note that, unlike Q1, wherein Rofin financial results were included for a partial quarter, Q2 financial results will be consolidated for the entire three months of the quarter. Accordingly, revenue for fiscal Q2 is expected to be in the range of $390 million to $410 million. We expect fiscal Q2 non-GAAP gross margin to be in the range of 44 % to 47%. Non-GAAP gross margin excludes intangibles amortization of approximately $11.7 million, inventory step amortization of approximately $13.4 million, and stock compensation costs estimated at $700,000.

Non-GAAP operating margin for fiscal Q2 is expected to be in the range of 22% to 25%. This excludes intangibles amortization estimated at a total of $17.4 million, inventory step amortization of $13.4 million, and stock compensation expense of a total of approximately $7 million. Other income and expense is expected to be an expense in the range of $8 million to $9 million, primarily related to interest expense and amortization of the debt issuance costs. We do not include transaction gains and losses related to future changes in foreign exchange rates in our outlook.

We expect our non-GAAP tax rate for fiscal Q2 to be approximately 31%. And finally, we are assuming weighted average outstanding shares of 24.9 million for the second quarter.

I'll now turn the call back over to the operator for a Q&A session.

(Operator Instructions)

Patrick Newton, Stifel.

Good afternoon, John and Kevin. Congratulations on the stellar results, and thank you for taking my questions. Jumping right in, given the level of FPD orders that you saw in the December quarter, and you alluded to some more 1,500 quarters in the March quarter, is there any color you can give us on how we should think about the potential for large orders in the intermediate term, maybe call it, six months? You've typically had great visibility in the past, John.

The conversations with customers are quite active. I can't give you specifics in terms of timing or mix, but there are a lot of conversations that are ongoing right now.

Okay, great. And then to fulfill the request for delivery of the 1,500 systems that you alluded to in 2018, do you need to add any capacity, or can you do that with the current footprint that you have?

Patrick, it is Kevin. As you know, in FY16, we added capacity for our ELA tools. That capacity came online in October. And we believe at this point that, that is all the capacity needed to deliver what we have in backlog through the end of 2018.

Great, okay. And then Kevin, did you buy back or retire any debt in the quarter pertaining to the Rofin-Sinar transaction? And then can you perhaps remind us of what your plan is to pay down that debt? I believe you've talked about doing that at an accelerated pace in the past.

Yes, Patrick, we did not pay anything down in quarter. There are certain procedural things that we have to follow, as long as potential breakage fees, if we don't pay on a certain date. So we are working through that. But in terms of the going forward, consistent with what we have said in the past, we will be paying it down. And we will talk about that more once we've made the first payment, in a little more detail.

Great. And last one for me is, given that we have not really seen some of the details around Rofin since the transaction was announced almost a year ago, could you help us level-set what their relative run rate is for their fiber-laser business? And also for their systems assistance business?

Not at this time.

Is that something, John, that you think you will be sharing in the future?

Once we have more comfort around trends. You have to remember, Patrick, we have only been operating this business for seven weeks in the quarter. I would like a little bit more time and data before I start making projections.

All right, fair enough. Thank you very much. Congratulations, and good luck.

Thanks, Patrick.

Jim Ricchiuti, Needham & Company.

Good afternoon. John, I am wondering if you can give any flavor or color on how much of the FPD bookings might have come from China?

I can't give you a specific breakdown, but it was from multiple territories, as I said. There are customers in Korea, China, Japan, who are all making investments at this point.

If you were to rank them, Korea, a larger portion; China, next; followed by Japan? Is that fair?

I can confirm Korea is up front. I prefer not to give any detail about the others. Because while I am not giving specific numbers, it is a trend statement, and we are trying to be very mindful of customer confidentiality here.

Okay. A lot of attention has been focused on the ELA portion of the business, as it relates to FPD. I'm wondering if you can help us understand the opportunity you see in some of the other areas? You alluded to the back-end. Can you help us understand what that could mean for you going forward, as we see this capacity coming into operation?

Sure. So there are a variety of different applications in actually the packaging steps of the overall device, not simply manufacturing the flat-panel display itself. Examples of this would be metalwork or composites work, precision manufacturing of new materials, drilling, cutting, all kinds of applications. They tend to be tied to a specific model.

So as the manufacturer is ramping up production of a new phone, there will be new production techniques that are being used or new production steps that are implemented where they require a laser solution. Sometimes these are for traditional devices like pulse UV lasers. We are seeing an increased level of activity around ultra-fast lasers, because they work particularly well where delicate materials are being used or you have to be very sensitive to imparting heat into the system. Which is typically referred to as haze or heat-affected zone.

The applications -- when you see these applications, they can be for hundreds of lasers at a time. The ramp has to be very steep. So you get an order, and typically, you are expected to fulfill in three to six months. We've seen some of those already, and they can easily be in the eight-figure range.

Okay, that is helpful. And final question, and I will jump back in the queue. Your gross margins for the quarter, and also with respect to the guidance you have given for Q2, are a little above my expectations anyway. I am wondering, how much of that is mix related tied to FPD? Or are you seeing perhaps a little better performance out of Rofin, out of the gate?

And the following question is, what are you seeing thus far with the integration of Rofin? It is still early, and I know you said things are on track. But I'm just wondering if you can give any additional color?

Jim, it is Kevin. With regards to gross margin specifically, clearly FPD is the driver. As we have talked about in the past, microelectronics carries margins that are higher than corporate average. That's becoming a larger percent of the overall business.

As you know, the Rofin gross margin is mid-to-high 30%s. As that weights in, that is a bit of a downward pressure on GMs. And as we look from Q1 to Q2, as we move from a partial quarter to a full quarter of weighting with Rofin, that puts additional downward pressure.

And that is why from a guide perspective, at the midpoint, we are down sequentially. So those are the two big trends. FPD is a larger percentage, and Rofin, as it weights in, will be a larger detractor in Q2 versus Q1.

And just early color on Rofin? Anything that you can share with us over and beyond the fact that you feel it is tracking, in terms of the synergies you have alluded to? Is there anything within the business that has either surprised you, that may be more challenging or more positive?

I would say that the attitude of our new colleagues is quite good. They are embracing opportunities. They are embracing change. The teams are working really well together, looking for revenue synergies, or looking at revenue synergies. We have seen some stuff already in terms of [rails], which would be a laser combined with other optical components, lots of good discussions there. It has not translated into business yet, but it is obviously an area that we are focusing on.

As I have mentioned a number of times, some of the tools that they are producing, whether it is for EMS Automotive or medical, look like winners in the marketplace. And by bringing some more emphasis there, we think there's some great opportunities.

So from a business perspective, we're pretty happy and optimistic about what the future holds. Where we are today is pretty much where we thought we would be. There is a lot of pick-up work to be done, but there is no surprise. We knew that going in.

Okay, thanks a lot.

Sure.

Mark Miller, The Benchmark.

Congratulations on the quarter. Very impressive. I was just wondering two areas. We've derived a lot of this improvement from the application in mobile handsets. Do you have any feelings for the percent of orders that are coming that are related to tablets versus mobile handsets, and where that might be by the end of the year?

I think that the number that is designated for tablets is actually low to zero at this point. Customers may be thinking about in the longer term, but very little has been specifically deployed at this point.

Mark, though, this is Kevin. If we broadened that a little bit and just call it mobile computing, defined by both laptops and tablets, we are encouraged. Because we have seen six or seven laptop manufacturers come out with a high-end OLED screen on their laptops. So as that goes forward and gets adopted, we expect that capacity will be put in place. On the tablets, as John had mentioned, we don't see any actuals there yet, but we are encouraged by the laptop side.

Will that be for the LineBeam 1500, or 1000 tools, or both?

I think it's going to be customer-specific. The customers that are advanced and comfortable with working with large-format tools will probably go for the most efficient solution available to them.

I don't believe you are in this, but there has been in a lot of excitement about Vixels, and the opportunity coming there in cell phones and automotive. Could that be something that you might look at, or is that just not on your menu?

I think there is some conversation in the background about manufacturing techniques. Beyond that, I can't give you much more color.

Finally, could you break out the service again for me, for the sales?

Sure. So total product and service revenues were 29% of total sales in the quarter. And then breaking down that 29%, it was 24% related to parts, and 5% related to service or service agreements.

Okay. In terms of that number, what percent is refurbished, and where is that? What percent does that come into?

Mark, we would never disclose that.

Okay, thank you.

Thank you.

Larry Solow, CJS Securities.

Great, thanks. Some of my questions have been answered. Just a few on Rofin. Any customer reaction you have gotten; good, bad, otherwise?

We just had a major trade show that was here in San Francisco, the Photonics West. It was the first show that we featured a combined presence. The feedback from customers, I would say, is generally positive. We did not have any people screaming at us or concerned about our commitment to their products or to the markets. So generally, very positive.

And you mentioned that they did, I guess you said, 66% of their normal quarter, or what you expected after the acquisition. Was that a timing thing? Was the actual overall number higher than you had thought in the quarter clearly, but was that just taking away from the next quarter? Or are they potentially running ahead of schedule on the revenue side for the year? Any thoughts on that?

Larry, Kevin. We saw both being improved, both the SKU in the quarter, the 66%, and the absolute total of the quarter. So both were compounding benefits to revenue.

Okay. And obviously your gross margin improved. It was above where you thought. It seems like obviously mix shift came into play. I know advanced packaging has had a pretty rough three, four years, if you will. And it sounds like you are optimistic, it sounds like things are getting better. Was that a needle-mover, even in the quarter, in terms of revenue and margin?

While API was up, it was up it was from a very low number. And we are happy about that trend, but it really had no impact on the overall numbers.

Okay, fair enough. Great, thanks.

Thanks, Larry.

Joan Tong, Sidoti & Company.

Good morning, guys. Question regarding FPD also. Just want to see, obviously very solid quarter, another solid quarter of order. And I just want to see, from inception to date on the OLED application, all the orders that have both. Can you give us an update on the LTPS to the OLED ratio?

I am not sure that I completely understand. Are you talking about installed base, or backlog, or --?

All the orders that you have sold. I think, John, you mentioned in the past that, that would be good enough to actually tilt the ratio from the LTPS 20/80 to 80/20. I just want to see, with another solid quarter you had in the December quarter, are we talking about more like 10/90 now? Could you give us an update?

Oh, okay. Thank you for the clarification. I think what you are seeing here is a continued trend that I talked about, I think, last quarter or maybe the quarter before, where some of the early investments that were targeted for this market aren't yet in production. And as a consequence, other manufacturers are having to pick up the shortfall. I think you are still seeing that affect.

I see, got it. That makes sense now. And then John, obviously very solid revenue for this quarter, and you guided very solidly for March as well. And in the past, you mentioned $950 million to $1 billion standalone for Coherent. And just want to see if you can give us an update on the projection for 2017? And maybe layer on top of that the Rofin piece?

Joan, Kevin here. As you know, our practice has always been to give current quarter results and one-quarter-out guide. The only time we swayed from that was Q2 of FY16, and that's because we had a number of record quarters of bookings, and we wanted to provide some guardrails for the Street.

As far as what we have done today, again, current quarter actuals in one guide or one-quarter-guide-out. We are going to maintain that, so we have not given 2017 or FY17 guidance. At this point, we will do it a quarter at a time.

Okay, all right, that is fair. And then finally, you called out material processing and actually, every single end-market is very robust. And just single out material processing, given some of the positive commentary from your peer as to [what's out] Just want to see what other drivers there? And whether the trend that you are seeing is sustainable going forward? Thank you.

So in terms of materials processing, as I mentioned already in the prepared remarks, we saw a lot of activity across a lot of applications. In general, this is new capabilities that are being delivered into the market. And I would say some of it is also due to renewed focus on the part of our new team members in Europe. If you look at the traditional applications, the bread-and-butter applications, they are doing okay. It is a lot of these advanced applications that are really driving the business, where the value add for the laser tool is quite high.

All right. Thank you, guys.

Thanks, Joan.

Tom Hayes, Northcoast Research.

Thank you. Good afternoon, gentlemen. Thanks for taking my call, and congratulations on the quarter. One quick question, Kevin, on the Rofin business. Back in the November call, you had indicated some expectations for timing on the cost versus synergies; generally, more front-loaded on the cost, back-ended on the synergies. Is that still in play now as you are working through, now that you have had a couple weeks to work on the Rofin business?

Tom, thanks for your question. No change. We did announce $30 million of synergies on the November 9 call, post the transaction. We announced a number of actions that represented about 80% of that $30 million number, in terms of skewing between the restructuring costs or the costs associated with obtaining those synergies. As you said and I will echo again, they are front-loaded, with synergies coming later on. So no change in that overall perspective.

Great. Thank you very much.

Thank you.

Jim Ricchiuti, Needham & Company.

I just wanted to follow up on the materials processing business. There has been some uptick in activity, at least that we appear to be seeing, in China. How would you characterize the demand in that market by geography, whether it is China, Europe, North America?

We have seen some positive trends in all three markets, but for different sub-markets. In China, there has obviously been a lot of investment around the EMS supply chain, whether it is for advanced products like ELA, or some of these ultra-fast products, to cutting and marking lasers. So a lot of activity in China for the EMS.

In Europe, we've seen some good work around component technologies that feed the materials processing market. And in the US, it has been a combination of automotive and medical device manufacturing. So while collectively, there has been a lot of positive movement, it is geographically specific in terms of activities.

Okay. I am not sure I understand what you are referring to in Europe, John. And you talked about --

I'm sorry, Jim. We actually have a pretty substantial business where we sell laser components to other companies that manufacture either lasers or systems. And these can be diodes, fibers, connectors, other things. That business has actually been quite strong in Europe.

And those systems are ultimately going elsewhere, right? I mean, do you get the sense those are going to the (multiple speakers)?

The majority of them are exported, and probably much of is going to China.

Okay, thanks a lot.

Sure.

Larry Solow, CJS Securities.

John, just a -- or Kevin, just quick follow-up. You mentioned you had a subsequent follow-up order for several, it sounds, Linebeam1500s that the customer wanted delivered in FY18. If I am not mistaken, I thought you were close to being already filled up almost through FY18. So are these orders or any other additional orders might, if the customer, either at their request, you might have to build up more capacity? Or how does that come into play?

Larry, if you recall, again, I think was last quarter or the quarter before, we talked about the fact that, with some very nominal investments, particularly around optics fabrication, that we could increase output from -- the customer here is an important one to us in the industry. So we've made that accommodation.

Fair enough. That's what I was looking for. Okay, great, thanks.

Yes.

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.

Thank you, Emily. I want to thank everyone for their participation today. Obviously we are very excited about the results, more excited about the future. We look forward to talking to you in a few months.

This concludes today's conference call. You may all disconnect.