ON Semiconductor Corporation (ON) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Coherent's Fourth Quarter and Fiscal Year 2015 Financial Results Conference Call hosted by Coherent Inc. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce Ms. Leen Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Thank you, Janna. Good afternoon, and thank you for joining us on today's call. I will provide financial information and John Ambroseo, our President and CEO, will provide a business overview. As a reminder, any guidance and any statements in today's conference call pertaining to future guidance, market trends, plans, events or performance, are forward-looking statements that involve risks and uncertainties, and actual results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the company's reports on Forms 10-K, 10-Q and 8-K, as applicable and as filed from time-to-time by the company. 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 been made available for approximately 90 days following the call. Let me start by saying that we're very pleased with the fourth quarter results that we're announcing today. Revenues for the quarter were $209.6 million with corresponding pro forma earnings of $1.25 per diluted share. The fourth quarter earnings were positively impacted by a lower tax rate, most the result of a more advantageous geographical mix of profits, adding approximately $0.10 per share to our results. Pro forma gross profit and period expenses were also favorable compared to our guidance and contributed to a record pro forma EBITDA of 22.1% for the quarter. Our fiscal 2015 pro forma EBITDA reached 19.3% and exceeded the low end of our long-term targeted range of 19% to 23%. We ended the quarter with a cash balance of $325.5 million, reflecting a quarterly cash flow from operations of approximately $56 million resulting in a record cash flow from operations for the year. Net sales for the fourth quarter of $209.6 million increased $21.1 million or 11.2% sequentially and increased $4.3 million or 2.1% compared to the same quarter a year ago. The recent acquisitions contributed $2 million to our fourth quarter revenue compared to the guidance of $2 million to $3 million. With respect to the revenues by major market applications, we saw double-digit sequential increase in microelectronics, single-digit increases in both our OEM components and instrumentation and scientific markets and a decrease in the materials processing market. Microelectronics revenues grew 20.5% sequentially, which is mainly the result of shipping the third 1500 Linebeam ELA system, partially offset by lower advanced packaging applications sales. The sequential growth of 7.7% in OEM components and instrumentation is driven by the revenue of the new acquisition, more specifically in the military market, and the continuation of a strong sales in the bioinstrumentation submarket. Scientific growth of 3.2% is mainly the result of strength in Asia. Our materials processing market sequential revenue decline of 7% is not indicative of a trend considering that the fourth quarter was a very strong bookings quarter for the company. Our shippable backlog at the end of fiscal 2015, defined as shippable within the next 12 months, is approximately $309.5 million, including $100 million or 32% flat panel display shippable bookings. The comparable shippable backlog at the end of last year was approximately $328 million, of which $136 million or 41% related to flat panel display applications. Geographically, for the full fiscal year, Asia accounted for 52% of the company's revenues; U.S., 27%; Europe, 16%; and the rest of the world, 5%. Asia includes 2 territories with revenues greater than 10%. South Korea and Japan represent 24% and 17% of fiscal 2015 revenues, respectively. Service revenues for the fourth quarter were approximately $64 million or 30% of sales and represent 12% growth both compared to last quarter and the same quarter last year. Fiscal 2015 service revenues increased to almost $241 million or 30% of sales compared to $234 million or 29% of sales last year. The fourth quarter flat panel display service revenues increased approximately $5 million sequentially and fiscal 2015 flat panel display service revenues grew approximately 4% year-over-year. We had one customer in South Korea, an integrator to a large flat panel display manufacturers, who contributed more than 10% of the company's fourth quarter and year-to-date revenues. The fourth quarter pro forma gross profits, excluding stock compensation charges, intangible amortization and the inventory step-up related to the purchase accounting was $93.6 million or 44.6% of sales, which compares to 43.5% last quarter. The sequential increase of 110 basis points was mainly the result of lower-than-expected warranty events and the resulting reduced reserve requirements coupled with improved manufacturing efficiencies. Compared to our guidance, product mix was also more favorable mainly due to the higher-than-anticipated service revenues. Period expenses excluding stock compensation charges, the bargain purchase accounting gain and net of the deferred compensation benefits, for which the offset is included in OIE, were 25.6% compared to a guidance of 26.5% to 27%. The lower period expenses are due in part to a lower spending run rate at the companies we recently acquired. We had originally estimated $1.5 million for 2 months of activity; our revised estimate is approximately $1.5 million for 3 months of activity. In addition, we benefited, sooner than anticipated, from the cost reduction efforts we announced last quarter. We also experienced substantially lower medical claims during the quarter compared to preceding trends. And we move on to the balance sheet. Our cash and cash equivalents for the quarter was $325.5 million, which represents a decrease of $11.3 million compared to last quarter. During the quarter, we repurchased approximately 868,000 shares for a total of $50 million, we completed 2 acquisitions for $9.3 million and had capital expenditures of approximately $6 million. As an offset, our cash flow from operations for the quarter, at $55.6 million, was the strongest quarter we've ever seen. Higher cash flows were mainly driven by our increased earnings coupled with improved working capital metrics. Accounts receivable DSO stood at 61 days compared to 69 days last quarter and inventory turns improved from 2.8 to 3 turns. Year-to-date cash flow from operations amounted to $124.5 million, a record for the company. Approximately $271 million or 83% of the cash balance is held internationally, mainly in Europe and about 72% of the total cash is denominated in dollars. For the full year, we repurchased approximately 1.3 million shares for $75 million. Capital spending for the quarter was $6 million or 2.9% of sales and year-to-date spending was $22.2 million or 2.8% of sales. Let me move on to the guidance for the first quarter of fiscal 2016. As a reminder, our first fiscal quarter is a shorter quarter due to the many holidays and has typically resulted in revenues ranging from 2% to 12% below the fourth quarter revenue of the prior fiscal year. Accordingly, we project our first fiscal 2016 quarter revenue to range from $192 million to $198 million. We forecast the first quarter pro forma gross profit percentage to be in the range of 42.5% to 43% of sales, which is lower than the quarter we just ended, mainly due to a higher purchase price for neon gas resulting from a supply shortage coupled with the impact of lower volumes, a less favorable mix and the diluted impact of the recently acquired businesses. In the meantime, the neon supply shortage has eased and we expect to see margin improvement starting in the third quarter of fiscal 2016. Pro forma margin, as usually, excludes intangible amortization and stock compensation costs. We anticipate the first quarter pro forma period expenses to increase to approximately 27.5% to 28% of sales, mainly as a result of lower revenues. The sequential increase are primarily due to an extra month of spending for our acquisitions and the assumption of a normalized level of medical claims from our self-insured plan. These expenses are partially offset by the impact of the cost reductions we announced last quarter. And again, the guidance excludes intangible amortization and stock compensation costs. Other income and expense is estimated to be immaterial. We do not include transaction gains and losses related to future changes in foreign exchange rates in our guidance. We project our pro forma tax rate to be approximately 30% for the fiscal year. The increase compared to fiscal 2015 is a result of completing our tax exemption status in South Korea during fiscal 2016, a less favorable profit distribution and no reinstatement of the federal R&D tax credit. We forecast our full fiscal 2015 capital spending to be approximately 4% to 5% of sales. And this includes projects that were postponed from fiscal 2015 into fiscal 2016 as well as additional building expansion and improvement projects. We are assuming a weighted outstanding shares of 24.3 million for the first quarter. I will now turn over the call to John Ambroseo, our President and CEO.

Thanks, Leen. Good afternoon, everyone, and welcome to our fourth fiscal quarter conference call. As you've just heard, we posted some pretty good results in our fourth fiscal quarter with clear benefits from mix, warranty and fiscal discipline. I'm particularly pleased by the benefits from reduced warranty costs. A few years ago, I challenged the organization to take a quantum step in design and manufacture for reliability, which benefits both the customer and the bottom line. The value of growing of our income is clear, but we also took the opportunity to reduce the share count by repurchasing $50 million or approximately 3.5% of our common stock. We replenished the cash balance through exceptional cash generation during the quarter, thereby maintaining our flexibility on a go-forward basis. Before discussing the quarterly results, I would like to offer some observations about our business in China. Thus far, the slowing Chinese economy has had a de minimis impact on our business. China continues to invest aggressively in R&D, which is reflected in sales of our scientific products. A nationally-sponsored effort to develop a domestic, high-end FPD industry has been similarly unaffected. While there have been some flutters in the instrumentation market, the trend currently remains up and to the right. Our materials processing business in China, which should be most susceptible to macroeconomic pressure, grew by 39% in fiscal '15 including a pretty strong fourth quarter. The only observable skittishness has been with mom-and-pop integrators who don't have much traction with international customers. Fourth quarter bookings of $205.4 million increased 16.3% sequentially and 12.4% compared to the prior year period. The book-to-bill for the fourth quarter was 0.98. Scientific orders of $33.5 million increased 15.2% sequentially and declined 1.2% compared to the prior year period. We enjoyed a typical fourth quarter bounce in scientific orders. There was a good uptick in Chameleon for multiphoton imaging, especially in neuroscience where the U.S. BRAIN initiative is driving investment. By contrast, we have seen limited benefit from Europe's Human Brain Project which emphasizes computer modeling over imaging. Amplifier orders for time-resolved studies came in strong across the 3 major geographies. We continued a near-term trend of securing orders for high-performance amplifiers from multiuser free electron and accelerator facilities with the recent orders coming from European labs. Our core Astrella and Libra amplifier products also did well, particularly in the U.S. Instrumentation and OEM component orders of $41.4 million increased 34.3% sequentially and 3.5% versus in the prior year period. Our bioinstrumentation business has benefited from growth in personalized medicine, which has driven sales in clinical flow cytometry for our OBIS and HOPS products. We are making further strides in high-speed gene sequencing markets where the throughput requirements are out of reach for visible diodes or LEDs. Our outlook for bioinstrumentation is positive. There is a resurgence -- a modest resurgence in worldwide biopharma R&D. The passage by Congress of the 21st Century Cures Act will increase NIH funding. And while China's investment in biotech may modulate, the CAGR looks like it will maintain a 10% pace. There's no shortage of long-term opportunities on the therapeutic side of the instrumentation business, although there have been some short-term inventory corrections amid consumer confidence and China concerns. We believe this as a transient effect. In terms of new opportunities, we're making steady progress in qualifying our Monaco product in various cataract platforms. Our major dental customer has sustained solid traction. A major research institution has incurred -- has achieved very encouraging results using our new CO laser for surgical procedures. And they cite absorption characteristics of CO versus CO2 as the key differentiator. Microelectronics orders of $97.4 million rose 7.3% sequentially and 25% compared to the prior year period. The Semicap business is being pulled in several directions seemingly at once. Service orders remain strong due to high utilization rates in most fabs. Orders for new equipment are tied to specific end user investments. These positives have been mostly offset by falling chip prices that curb investment as well as another round of consolidation of OEMs and chip makers leading to the inevitable belt-tightening. These factors are already built into our current run rate, so further downside risk is minimal. Following 2 quarters of improvement, API equipment manufacturers are feeling spooked by the trend in the semi market and have adopted a more cautionary posture for legacy products. The 2 applications that appear to have legs are flex packaging and system in package, or SiP. Flex packaging, which relies on UV lasers, is used in mobile and wearable devices. Several systems manufacturers have strength in this area. And SiP has been building momentum in mobile devices and future smartphones are likely to incorporate more SiP design elements. And this will lead to an increase in ultrafast lasers for packaging. The FPD market is firing on all cylinders. We received a number of new system orders in the fourth quarter from LCD fabs. These were for Linebeam 750s. This week, we received an additional orders totaling approximately $45 million for a combination of single and twin Vyper systems. These are terrific numbers, but they pale in comparison to what we see developing for OLED production. Several smartphone manufacturers have either decided to or are evaluating a shift to OLED displays in their devices. Because of nuances in the manufacturing process, production of the highest resolution OLEDs has only been achieved with Twin Vyper/Linebeam 1300 or Triple Vyper/Linebeam 1500 systems. We expect any of new OLED capacity would adhere to these standards. Our recent acquisition of Tinsley Optics provides a dedicated, cost-effective solution to help facilitate deliveries. The combination of volume and the customer's ability to qualify and ramp production lines will likely extend into fiscal 2017. Our ELA service business also performed well in the fourth quarter due to high utilization rates and lower warranty costs. Material processing orders of $33.2 million were up 27.7% sequentially and 7.2% versus the prior year period. We have been working to broaden our participation in the textile business, specifically for denim processing where lasers are used to create design elements including patterning, texture and color. We secured 2 volume orders for CO2 lasers that resulted in record orders for marking. Both customers have been sourcing lasers from competitors. The order intake from cutting and converting was also very good including a number of projects related to consumer packaging. The level of engagement on our second-generation fiber laser is high and testing is going well. We still have work to do to become qualified for deployment with various OEMs, but we have yet to encounter any roadblocks. We still view fiscal '16 as the year for initial orders with the volume ramp occurring in fiscal '17. We have 2 key objectives for fiscal 2016: capitalizing on the myriad opportunities in consumer electronics space and developing an OEM base for our new fiber laser platform. We will continue to put our balance sheet to work by growing the business and/or returning cash to shareholders. We will be presenting at the Needham Conference in New York on Tuesday, January 12, 2016. And please contact Needham if you want to get on our schedule. I want to acknowledge that this is Leen's penultimate conference call with us. She made me swear a blood oath not to embarrass her today, so I'll save my thoughts for the end of January when she loses any chance for retribution. I have to tell you that the reaction to our announcement has been absolutely heartwarming, and I feel like one of Derek Jeter's teammates as he took a victory lap around Major League Baseball. I'll now turn the call over to Janna for the Q&A session.

[Operator Instructions] Your first question comes from Mark Miller with Benchmark.

Yes. I'd like to embarrass Leen, also. Leen, it's been a pleasure working with you and the best for your future endeavors. I was just wondering...

She can't talk, Mark. I'll say thank you for her.

Okay. So we did a good job embarrassing her. Could you give us sales -- did you bring out sales, or did I just miss them? I'm multimode in here with several calls.

Yes, we broke out sales.

By geography or what?

By geography or market, Mark, or both?

By dollar, by dollar. I got the percentages, but...

I didn't. It is on the website. We have all the supplemental financial information on the website, but I can definitely give you the revenue if you would like on the...

No, that's okay. I can get it off the website. Like I said, I'm dealing with multiple calls simultaneously here. John, you mentioned semi, semi was -- you're insulated to a degree by your concentration on scientific. We've heard from several firms they're expecting a pause over the next couple of quarters. What's your outlook there?

In semi?

In semi equipment?

So what we're seeing, Mark, is sort of continued -- I would say pretty strong demand on the service side, which is reflective of the fact that the fabs are running quite hot at the moment. New investment is very limited and I'd say that customers are buying for very specific projects. They're not buying to inventory, they're not doing a lot of future planning at this point. And it's a complicated situation, right? You have a lot of pressure on pricing right now. I think the numbers on memory is down about 50% over the last year. When that happens, it tends to reduce the appetite for investment. And then you have a number of mergers and acquisitions that are taking place among chip makers and equipment manufacturers, whatever it might be, and that leads to the inevitable sort of standstill while people try to figure out exactly what's going on. For us, I think we're-- if we're not at the bottom, we're very close to the bottom on semi. And I'd say that, going forward, it's probably more towards the upside than the downside just where we are relative to the market.

From what you've said and when I've heard on another call, there was a significant shortfall in LEDs for backlighting TV. It seems like OLEDs are really at a very strong inflection point right now. Is that a correct read? And are we going from now the majority TVs will be OLED? And just wondering what, compared to 2015, what percent will be OLED coming in 2016?

So there's, I'd say, there's a bit of difference here when you talk about TVs versus handsets. We do see a potential inflection in the use of OLED in handsets. And that's based on a lot of discussions that are taking place in the industry right now, some of the very well publicized. Your specific question about, I think I heard the comment that LED sales were down because TV sales were down. I don't know if it was really the impact of OLED televisions because OLED TV numbers are still very small as a percentage of being -- of the total market. It will be surprising to me if it had that much of an influence on LED sales.

Do you see that number doubling or tripling next year for the small percentage?

On the TV side?

Yes.

I have no visibility to comment on that. Again, our level of engagement on the TV side is still in the laboratory. It's not in the marketplace yet.

I mean, if you watch the TV, there is somebody showing off what looks to be a handheld mobile phone with an OLED screen. I forget who it was, but that's been on the TV the last week or so if you caught those commercials.

I have seen it. I think it's a Moto X phone that you're referring to. It's when it's dropped to the ground, it doesn't break. Is that the one?

Right, yes.

Yes. There's a very high likelihood that screen was processed on our equipment. What we're seeing specifically in the handset market is a broader adoption of OLED screens than we've seen previously. And I -- and that's probably reflective of the fact that some of the OLED manufacturers, and right now there are only 2 of them of note, are opening up beyond their own borders.

Your next question comes from Joan Tong with Sidoti & Company.

A couple of questions. Just regarding your events packaging. You said that it's actually came back down a little bit after 2 pretty decent quarters. How should I think about, again, or what's really the timing of a cycle? But I know that in the past, there are some imbalance between supply and demand. But in a normal situation, is the cycle shorter than a year? I'm just wondering, like, what's really happening there?

Well, if we look back over a long period of time, the cycles were very similar to the semi market, but with a lead lag of about 6 months. They typically kicked in about 6 months after a semi upcycle started and would trail off about 6 months after semiconductor -- after the semi cycle trough. Recently, we've seen a lot more sort of erratic behavior in that market as people have struggled with capacity shifts and market share shifts. So I don't know if I could give you an exact answer to that question, Joan, of that cycle looks like because it has been somewhat erratic.

Okay. And then how about on the, obviously, your service revenue is very strong this quarter. And that's really helped out with your gross margin. And I think, Leen, you mentioned that, like the flat panel display service revenue is actually up 5%. But year-over-year, as a total, it's like up 12%. So other than the flat panel display, what else is in there? I know semi is part of it, but what's really causing the service revenue being so strong and is this sustainable going forward?

I mean the strength is mainly coming from flat panel display because it increased $5 million quarter-over-quarter.

Right. But on the year-over-year basis, I assume that utilization rate last year, like, in the same quarter is also very strong. So I'm just kind of gauge that on a year-over-year growth what's really causing that?

In the first half of this fiscal year, the utilization was really lower. The utilization ticked up very much in Q3 and Q4. So on average, the increase for flat panel display was 4%, but the -- there was a step up in the second half of fiscal '16.

Okay, okay. And I assume that like in the December quarter, you would see that come down a little bit just because of the seasonality.

We didn't forecast, definitely not an increase and I would say that our forecast probably reflects a little reduction in the service revenue.

That's fine. And then, John, questions regarding the flat panel display order, the ELA order. It seems like you're very optimistic about that. And I think you mentioned there's additional $45 million order. What's your expectation going forward? Like, also taking into consideration of the shift from 750 to more of the larger format. And how should we think about it in 2016?

Sure. So the $45 million in orders that I referenced are actually already in-hand. They were subsequent events because they booked just in the last week or so. We do see a high level of -- or we are having a very high level of engagement with customers to talk about how to drive capacity expansion. And it is going to be related to what kind of products they want to manufacture. If indeed the shift is towards OLEDs, those are going to be for either Twin or Triple Vyper systems. If you look at the progression of a 750 to a 1000 or 1300 or 1500, the price points are about $4.5 million to $5 million for a 750 depending on the exact configuration. A 1000 or 1300, they're roughly the same price range. They're probably $10 million to $11 million; and then the 1500 is a $20 million product.

Okay. And John, just lastly. Any read in terms of like how we should think about 2016 as a full year? I know that you're reluctant to give full year guidance maybe at this point, but just kind of early read, also think about the macro factor into macro environment that we are in right now?

Sure. I'm not surprised by the question, Joan. I was surprised that it didn't come sooner. The thing that's a little bit difficult for us at this point to project on '16 is what the volume and mix of these ELA orders will be. Because the price points are so different, they can actually drive the numbers in a pretty significant way. And as a consequence, I feel like any number I put out there is going to be suspect because I don't have a good enough read on what the mix is right now. The sense is that for display, and to an extent consumer electronics, there are some very attractive opportunities out there, which should support a pretty nice growth model. But I'm not going to jump into yet, because there's a lot of moving pieces. As far as other things that affects '16, I have to tell you that I've been pleased -- surprised and pleased by how well the business in China has held up. There were -- was, again, a lot of uncertainty. Through the end of fiscal '15, it had really a minimal impact for us. Could that change to the worse? Obviously, yes. But it has held up pretty well so far and that would be the big concern that I would have is how demand in China, both direct demand and international capacity affects that business.

Your next question comes from Patrick Newton with Stifel.

Leen, congratulations on the well-deserved retirement. It's been a pleasure working with you. So to continue the focus on the OLED commentary and the FPD commentary. Can you walk us through how important it is that you vertically integrated this large format optic supplier? I understand that they were shuttering the business, but it seems like it's relatively core to obviously what you did -- to what Coherent does. But are there any margin implications for either initial shipments or for your LDU business that are positive stemming from you vertically integrating this business?

So the answer is yes, there are positive margin implications. There are -- on the initial shipment, there is no impact on the LDU because you don't replace these optics as a part of a service event. They're very long-lived devices. And I know I can imagine your next question is, how much of the benefit is it? And the answer is until we've manufactured a bunch of them under our own mantle, again, it's going to be difficult to tell you that number. But it's -- it will give us a positive uplift, I think when we ship out of that factory.

Okay. And then, I guess, on typing the OLED and included bullishness on the mobile devises. I'm curious on -- just ask maybe that TV question a little bit differently. There are some Korean panel vendors that have talked about increasing investments for OLED production in TVs. They've talked about targeting niche high-end markets and quantify 4 million to 5 million OLED TV units per year. And I think that you even discussed having production at full swing to target this market in calendar year 2017. So I realized that's still some time away, but I would assume earlier you said that OLED TV is still on the lab relative to this, just talking about kind of getting off the ground. Is there -- I guess, I just wondered how OLED TV is already being produced or and then I've been -- I assume they're being produced with your equipment. And then, 2, is -- with this opportunity, is this something that you are aware of looking at? And I know that unit volumes aren't necessarily huge, but this is a square inch of glass type of game and I imagine it would we still be relatively substantial at that $3 million to $4 million unit type of run rate.

Sure. So the -- as far as I know, Patrick, there's only one manufacturer that's shipping OLED televisions right now, and that's LG. And they do not use an LTPS process to make those TVs. We're engaged with other companies that are looking at OLED television and some of them may in fact use LTPS-backplanes. But the current product that is in the market from LG does not use our equipment.

Okay, that's helpful. And then just circling back to the FPD service revenue being up 4% year-over-year. It seems like you're relatively low number given the accelerating installed base. So is that due to lower-than-anticipated utilization of the installed base? Or if recall, is that a function of some cost-savings you passed on to customers that I think was quantified at about $8 million to $10 million, but I guess, if that makes sense, John?

Patrick, you're correct that -- I think it was up about a year ago, we mentioned that we had taken some costs out of the service model and we'd pass those onto the customer. And that we would have to grow the service business by $8 million to $10 million before we started to see absolute growth in service. So that's all. That changes baked into the numbers.

So your, call it, organic service growth rate for FPD is not really 3% year-over-year. It'd be more like 8%, if we normalize for the cost savings?

Yes, I hate doing that math. Yes, you could do that way, but our service business grew by 4%.

Okay. And then on semi, you addressed some of the consolidation trends impacting the market. You talked about -- I think you said belt-tightening is going to be the result. But then I think you also made a comment that this trend is largely being baked into your own expectations. And I'm curious as to how you can have comfort that any fallout from consolidation trends can be fully understood at this point given I would imagine that it still quite a large unknown.

So when I look at it from the standpoint of our business, part of the business judgment that goes into that is how likely is it for our products to be impacted by a consolidation? And in one case, one of our customers is being acquired, but they're being acquired by someone who doesn't have a footprint in the same space. So is it likely to have an impact on our business or are the synergies that they seek to extract is going to come from other places? And the answer on that one, I think, is they come from other places. If there is consolidation on the chip makers, could that have an impact on the business? Yes, it could, to the extent that they can eliminate or consolidate fabs. But we haven't seen as much of that yet in the grand scheme of things.

Okay. And just last one, somewhat of a pointed question I guess on fiber lasers. You have your next-generation laser that I think has been out for about 5 months now. You talked about some traction as far as demos and strong customer interest. But bluntly, do you think Coherent will be large player in the fiber laser market? Or do you see Coherent being more of a fringe player that can pick up tens of millions of annual revenue that's beneficial to you, but not necessarily a big dent in the broader fiber laser materials processing market?

I think -- I've said the same thing for a while that our initial goal is to pick up about $100 million in high-power materials processing, which is a combination of fiber lasers, direct diode and high-power CO2. That outlook hasn't changed. We -- I don't think we ever positioned ourselves to become the lead player in this market, at least not right out of the gate.

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.

Thanks, everyone, for participating, and we'll talk to you in a few months.

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