U.S. Markets closed

Edited Transcript of CYBE earnings conference call or presentation 25-Jul-18 8:30pm GMT

Q2 2018 CyberOptics Corp Earnings Call

MINNEAPOLIS Aug 1, 2018 (Thomson StreetEvents) -- Edited Transcript of CyberOptics Corp earnings conference call or presentation Wednesday, July 25, 2018 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jeffrey A. Bertelsen

CyberOptics Corporation - VP of Finance, CFO, COO & Secretary

* Subodh K. Kulkarni

CyberOptics Corporation - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Gregory William Palm

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Jaeson Allen Min Schmidt

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the CyberOptics Second Quarter 2018 Earnings Call. Today's conference is being recorded.

At this time, I like to turn the conference over to Dr. Subodh Kulkarni, President and CEO of CyberOptics. Please go ahead, sir.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [2]

--------------------------------------------------------------------------------

Good afternoon, and thank you for taking the time to participate in CyberOptics' Second Quarter Earnings Conference Call. Joining me is Jeff Bertelsen, our CFO and Chief Operating Officer, who will review our operating results in some detail, following my overview of our recent performance. We 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, 2017, and other filings with the Securities and Exchange Commission. We urge you to review these discussions of risk factors.

Turning now to our recent performance. Sales for the second quarter ended June 30 totaled $15.9 million, which exceeded the upper end of our previously issued guidance. We reported sales of $16.4 million in the second quarter of 2017. Second quarter earnings came to $740,000 or $0.10 per diluted share compared to earnings of $1.1 million or $0.15 per diluted share in the year-earlier period.

By way of an overview, our second quarter revenue was driven by record sales of WaferSense semiconductor product line, which is becoming one of our key growth engines. And although sales of inspection/metrology systems were lower year-over-year, our quarter ending backlog of 3D MRS-enabled SQ3000 AOI systems makes us confident this important product should post strong year-over-year sales growth in the third quarter of 2018. I should also mention that development of our MRS-enabled mid-end semiconductor inspection capability is on track, and we are expecting initial sales of this sensor later this year, but more on this in a few minutes.

Now I will provide some detail on our second quarter performance by product category. Second quarter sales of semiconductor sensors, principally the WaferSense product line, rose 25% year-over-year to nearly $4 million. This marks a new quarterly record for this product family. Semiconductor fabs and other customers are increasingly recognizing the value of WaferSense sensors as important tools for improving yield and productivity. Our new sensor for manufacturers of flat panel displays have recently been launched, and additional WaferSense applications are currently under development. For this reason, we anticipate continued strong growth for this product.

Sales of inspection/metrology systems declined 13% year-over-year to $6.7 million but were up 13% from this year's first quarter. Reflecting normal variability in our quarterly sales, total sales of 3D MRS-enabled SQ3000 systems declined 6% year-over-year in the second quarter to $2.6 million but rose modestly year-over-year in the first half of 2018. This sales total includes our new SQ3000 CMM system that combines automated optical inspection and metrology functionality.

We sold 2 SQ3000 CMM systems in the second quarter to one of the world's largest consumer electronics companies for non-SMT application. We also sold 1 CyberGage system in the second quarter to a new customer, a large global Fortune 50 company. Total SQ3000 sales are forecasted to increase significantly in this year's third quarter on a year-over-year basis given the strong second quarter ending backlog of these systems. And during the quarter, we sold approximately $1 million of metrology-related x-ray systems.

As previously reported, a $1.6 million order was received in the second quarter for MX600 memory module inspection systems with revenues expected in the first quarter of 2019. We are pursuing other MX600 opportunities, but revenues from any orders received this year most likely would be realized in 2019.

Total sensor sales declined 7% year-over-year to $5.3 million in the second quarter of 2018. Sales of 3D MRS-enabled sensors primarily to KLA-Tencor and Nordson declined modestly to $1.6 million in the second quarter but were up 59% year-over-year in the first half of 2018. Multiple semiconductor manufacturers are evaluating working prototypes of our MRS-enabled mid-end semiconductor inspection sensors in our lab.

In the 3 micron pixel size, these prototypes can measure picture sizes down to 30 microns accurately and at very high speeds. We are targeting 1 micron resolution at 3 sigma accuracy at speeds that would inspect more than 20 300-millimeter wafers per hour. We believe nominal initial sensor sales will be realized later this year, marking an important strategic milestone in the development of what we believe to be a significant long-term opportunity.

Sales of mid-end inspection sensors are expected to ramp up in 2019 and beyond. In addition to OEM opportunities with our mid-end sensors, we are pursuing new OEM relationships for our MRS technology in our key SMT semiconductor and metrology markets.

In summary, total second quarter sales of all 3D MRS-enabled products, including sensors, inspection systems and metrology products, came to $4.3 million compared to $4.7 million in the year-earlier period. For the first 6 months of 2018, total MRS revenues rose 24% year-over-year to $8.6 million. Total sales of our 3D MRS-enabled products are expected to grow significantly on a year-over-year basis in the third quarter of 2018.

Looking ahead, we are forecasting sales of $14.75 million to $16.25 million for the third quarter ending September 30, 2018.

We are encouraged by the progress that our 3D MRS sensor technology is making in our targeted markets as well as outlook for our WaferSense product family. CyberOptics is moving in the right direction, and we are optimistic about our future.

Thank you. Now Jeff Bertelsen will provide additional details regarding our outlook and second quarter performance.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [3]

--------------------------------------------------------------------------------

Thanks, Subodh. Since our second quarter sales already have been covered in some detail, I will provide a brief overview of what we are currently anticipating for the third quarter.

Although third quarter sales of the WaferSense line of semiconductor products are forecasted to be down somewhat on a sequential quarterly basis, we anticipate strong double-digit growth for WaferSense sales on a year-over-year basis in the third quarter of 2018. We see WaferSense as one of our key growth drivers going forward as this product line continues gaining traction in the semiconductor market.

Inspection and metrology systems also are forecasted to perform strongly in this year's third quarter, with sales increasing at double-digit rates on both the sequential quarterly and year-over-year basis. Within this category, total SQ3000 sales, including the new SQ3000 CMM, are forecasted to increase significantly in the third quarter on a year-over-year basis given our strong quarter ending backlog of these systems. Finally, sensors are expected to report modestly higher third quarter sales on a year-over-year basis.

Taken as a whole, total sales of 3D MRS-enabled inspection systems, sensors and metrology products are forecasted to grow significantly on a year-over-year basis in the third quarter of 2018.

Moving down the P&L. CyberOptics second quarter gross margin declined slightly to 46% from 47% in the year-earlier period due principally to our sales mix, including sales of $1 million of CT scanning systems in the quarter. In addition, as we mentioned in last quarter's earnings call, we are experiencing some pricing pressures on our 2D and 3D inspection systems in the broader SMT market. Our third quarter gross margin is expected to be down slightly on a sequential basis given that inspection and metrology systems are expected to account for a larger portion of our total revenue in the third quarter.

Total operating expenses in the second quarter of 2018 rose a modest 5% year-over-year, largely due to increased R&D spending on new MRS-based products, including our MRS-enabled mid-end semiconductor inspection sensor and WaferSense devices, as well as bonus accruals that were absent in the year-earlier quarter.

Depreciation and amortization expense totaled $666,000 in this year's second quarter, and stock compensation expense was $225,000. We believe total operating expenses in the third quarter of 2018 will be down slightly when compared with the second quarter level but up modestly year-over-year.

Our second quarter 2018 tax rate was 24%. We are forecasting our tax rate to be at or near this level going forward, excluding any excess tax benefits from stock-based compensation.

Cash and marketable securities totaled $24.2 million at the end of the second quarter, up from $22.9 million at the end of the first quarter of 2018. CyberOptics ended the second quarter of 2018 with an order backlog up $13.8 million, including the $1.6 million order for the MX600 systems, up from $12.1 million at the end of this year's first quarter. And as indicated in this afternoon's release, we are forecasting sales of $14.75 million to $16.25 million for the third quarter of 2018.

Thank you. We would now be happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll take our first question from Jaeson Schmidt from Lake Street Capital Markets.

--------------------------------------------------------------------------------

Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

Wondering really quickly, I apologize if I missed it, if you could go through the absolute revenue numbers for your 4 segments.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [3]

--------------------------------------------------------------------------------

Sure. So OEM sensors were $5.3 million; WaferSense was $3.94 million, almost $4 million; and then inspection and metrology, as we had mentioned last time, we're combining those categories, that was about $6.7 million in the second quarter.

--------------------------------------------------------------------------------

Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4]

--------------------------------------------------------------------------------

Okay, perfect. And then a really strong Q2, and I know at the midpoint for Q3, it will be a slight sequential decline. Do you think any orders got pulled into Q2? And could you just comment sort of on the linearity of the order patterns throughout Q2?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [5]

--------------------------------------------------------------------------------

Yes. I mean, I think the order patterns, I would say we're fairly linear throughout the quarter. Obviously, we were happy with the second quarter, came in a little ahead of what we had initially forecasted. I think we're very optimistic about Q3 as well. I would note that we are expecting a very strong systems quarter in Q3, and a lot of that can depend on the timing of acceptances and so forth. But just given our backlog and the order flow, we think things are definitely moving in the right direction, and we're seeing a pretty steady flow of orders.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [6]

--------------------------------------------------------------------------------

Yes. The only thing I would add, Jaeson, to Jeff's comments is it is -- as you know, it is very difficult for us to predict revenues, particularly for the systems area down to the exact, when the acceptances will happen. There's always going to be some movement of systems revenues between quarters.

--------------------------------------------------------------------------------

Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [7]

--------------------------------------------------------------------------------

Okay. That makes sense. And you mentioned you had a CyberGage order with a Fortune 50 customer. Is there an opportunity to expand further at this customer in the relative near term? Or do you think this is simply going to be a one-and-done type situation?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [8]

--------------------------------------------------------------------------------

No. I'm glad you asked that question. We are definitely seeing better traction with CyberGage now, and that's continuing into Q3 than what we were seeing a year ago or so when we launched the product. It just tells you how long it takes when you are launching a disruptive technology and getting customers interested and evaluating it and making sure they understand the pros and cons of a new technology. This particular customer has a worldwide -- they are obviously a very large company. They have worldwide metrology needs. They like the core concept of fast, accurate, easy-to-use scanner in their metrology lab. So they have started with their headquarters, but they definitely are planning on implementing CyberGage technology everywhere in their world manufacturing operations big time. So they are thinking long-term, in a big way. We will see how it goes. And we continue to talk to other customers, too, and we are getting very interesting traction in CyberGage. Again, they're relatively small in the big scheme of things but strategically important, I believe.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll take our next question from Greg Palm from Craig-Hallum Capital Group.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [10]

--------------------------------------------------------------------------------

Subodh, maybe hoping you can start off with some general macro commentary. Just kind of curious, any change in sentiment or behavior from your customer base compared to maybe last quarter? And what's -- where are we at in the pipeline, I guess, compared to last quarter?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [11]

--------------------------------------------------------------------------------

Overall, we feel -- just based on our comments, we feel fairly bullish going forward in the second half, clearly from the areas where we participate, which is the semiconductor, SMT and metrology area. We see good economic conditions. There may be some movement. I mean, we have talked in the past about semiconductor, and we are following the same news that you are, some change in buying pattern, particularly from the memory side. But we haven't really seen it at our level. We see that more in the external comments and other companies' reports. But when it comes to WaferSense or other products that we are selling to the semiconductor sector, we haven't seen anything specific to comment about it. Overall, I would say on the 3 areas that we play in: SMT, semiconductor and metrology, continue to look good economically globally, so nothing negative from a macro environment standpoint as far as our visibility is concerned. Regarding the projects, we continue to have a very healthy pipeline of what we call "large projects." Many of them, as I mentioned in my last quarterly earnings call, have started buying in ones and twos, so not quite large enough orders to justify putting out separate press releases for those kinds of orders. But I would say, about 5 to 6 of those 20-plus projects have started ordering either SQ or something else. Most of them were SQ-related in small numbers. We, obviously, put out the press release for MX600. That was more than $1 million, that was about $1.6 million. And we'll continue to do so. If we get any large orders, more than definitely $1 million, we will just be transparent and let you know. But overall, we feel pretty good about the pipeline right now, the economic conditions and how we are positioned for the second half of this year and, frankly, for the next 3 to 5 years.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [12]

--------------------------------------------------------------------------------

Got it. So the SQ backlog that -- in associated commentaries, that represent a lot of those kind of onesies and twosies orders that you sort of just talked about? Or is that a handful, a major part of that for Q3?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [13]

--------------------------------------------------------------------------------

They certainly -- the backlog does consist of the ones and twos from those large project customers. There are some others, too, it's not just exclusive to those customers. But overall, SQ has a very healthy backlog right now.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [14]

--------------------------------------------------------------------------------

Okay. Nice to see margins bounce back here in Q2 compared to Q1 on a sequential basis. Just curious, the pricing pressure that you talked about last quarter, should we assume that that's maybe weighted off here a little bit? Or is that still a potential concern going forward? And I don't know if it's helpful to talk about the margin profile specifically of that SQ backlog that you talked about.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [15]

--------------------------------------------------------------------------------

Yes, I think, in the broader SMT market, we're certainly seeing some margin pressure, which could impact us a little bit possibly in the near term. I'm not expecting a big swing there or anything. I think going forward, with our sensor technology, we are focusing on more higher-end specific applications for customers that are more demanding, that drive higher margins and a higher-margin profile. So to the extent and while some of our revenue tends to be concentrated in SMT, we'll see a little bit of that margin pressure and some of it on our older legacy products, the 2D AOI products and so forth. Moving forward, we still, I think, have opportunity to hopefully retain or expand our margins.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [16]

--------------------------------------------------------------------------------

And then one other thing I will add, Greg, is clearly, WaferSense is our highest margin category. And when WaferSense becomes a larger portion of the revenues, that does help overall margins. And to some extent, that had -- did happen in Q2 where WaferSense was almost $4 million of the total number, and that did help bring the margins up a little bit. But overall, as Jeff said, we believe that between WaferSense and MRS, which are generally higher than our corporate average, and as they become a larger portion of our total revenues, we'll continue to inch up despite the broader SMT market challenging us with the margins.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17]

--------------------------------------------------------------------------------

Yes, it makes sense, okay. Last one, you mentioned, in addition to the CyberGage sale, I think you said something like 2 SQ CMMs to a large consumer electronics customer. So is it a new customers? Is it an existing customer? And I don't know what you can say, but can you give us any more details about application and whatnot?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [18]

--------------------------------------------------------------------------------

It is a large consumer electronics company, as we said. They are an existing customer. They have bought other things from us in the past. We are really not allowed to disclose the specific application because it gets into very -- some very sensitive areas that they play in, so we can't talk about what specific. But it is a non-SMT application. We are basically doing metrology type things for consumer electronic type products. That's all we can say.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

We'll take our next question from [Bill Musselman from Pine Capital].

--------------------------------------------------------------------------------

Unidentified Analyst, [20]

--------------------------------------------------------------------------------

What percentage of your revenues does the 2D business represent in this quarter?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [21]

--------------------------------------------------------------------------------

Sure. So the -- it was about $7.6 million out of the $15.9 million that we reported, so a little less than half.

--------------------------------------------------------------------------------

Unidentified Analyst, [22]

--------------------------------------------------------------------------------

And that business, is it essentially holding -- I guess, before I ask that, is that really representative of the trend? Or is this quarter different than past quarters? I guess, I'm asking, is this representative? That's the way I should ask that.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [23]

--------------------------------------------------------------------------------

Yes, I think it's fairly representative. I think, last year, we did like $28 million, so I think we're right in the ballpark there.

--------------------------------------------------------------------------------

Unidentified Analyst, [24]

--------------------------------------------------------------------------------

Great, that's helpful. And that business, is -- does it continue to hold reasonably steady? Or is it trending upward or downward?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [25]

--------------------------------------------------------------------------------

I think, as a whole, it's -- it will be fairly steady, that's our belief. In the second quarter, it was down 10%, just round numbers, year-over-year, but we think it's pretty flat. It's going to bounce up and down, but we think it's -- in balance, in total, it's going to be fairly flat.

--------------------------------------------------------------------------------

Unidentified Analyst, [26]

--------------------------------------------------------------------------------

So if we have a quarter where it's up 10%, you would encourage us not to be too enthusiastic about that nor should we be too unhappy with it being down 10% this quarter.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [27]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [28]

--------------------------------------------------------------------------------

Correct. We, in general, expect it to be flattish. In our investor presentation, we openly say that the business, it will be between $25 million and $30 million going forward. So one -- some quarter, you may see a positive number. Some quarter, you may see a negative number. But don't take that too much into consideration. It should be a flattish business between $25 million and $30 million going forward.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) [Miles Jennings]

--------------------------------------------------------------------------------

Unidentified Analyst, [30]

--------------------------------------------------------------------------------

I just have a few short questions. In terms of revenue for the second quarter, would you mind mentioning which were the top 2 WaferSense contributors?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [31]

--------------------------------------------------------------------------------

In general, in WaferSense, Miles, our gapping sensor is the biggest contributor, and the next one is the teaching sensors. Our gapping sensor generally has become almost a de facto standard for many CVD pieces of equipment. They find the value of controlling the gap between the electrodes very high in controlling the uniformity. So many CVD process engineers are beginning to use gapping sensors more or less as a standard these days. So that has become our biggest contributor. And the teaching one plays a good role in the eye implant area, in centering the electrodes. That's a pretty important part of their process recipe. So those are our 2 generally the highest ones. Every order of products contribute, but AGS and ATS are generally our high sellers.

--------------------------------------------------------------------------------

Unidentified Analyst, [32]

--------------------------------------------------------------------------------

I noticed on your website that you made a statement, I'm hoping you would just expand on it a little bit. You state that, "We believe that the SQ3000 CMM is the world's first inline CMM that can measure any object and deliver hundreds of thousands of dimensions simultaneously in less than 10 seconds." There are lots of conditions in there. Could you sort of expand on this and perhaps give us a sense of your nearest competition?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [33]

--------------------------------------------------------------------------------

Sure. I mean, it's a broad question. So what we mean by that statement is, if you look at CMM -- CMM, first of all, stands for coordinate measuring machine. So typical CMMs are these large granite slabs with either touch probes or lasers that are doing the scanning. Typical operation takes several minutes, sometimes several hours, with a manual operator fixing it, indexing it, calibrating it and so on. So it's a manually intensive long operation to get the data you do. That is typical CMM. So in that sense, SQ is the first time, we believe, anywhere in the world is attempting to do inline CMM type capabilities. There is -- as far as I know, there is nothing like that, that exist in the world today where you can do 10 seconds or 15 seconds for full inspection and metrology and generate a full report at the end of it like a CMM does. So in that sense, it may be the only inline CMM system out there from a competition standpoint. But right now, we haven't seen anyone from the CMM world get into that kind of measurement just because they don't have the technology to enable those speeds. Some other AOI competitors arguably could do what we are doing, and we may see that in the future whether they are going to do some inline type measurements. And we see some of -- some aspects of it. For instance, Koh Young, if you go to their website, they are doing something with what they call machine optical inspection, MOI. And that -- even though they are generating inspection report and not metrology report, clearly, they have the metrology numbers before they generate the inspection report, so they could do something along those lines. Another AOI competitor called TRI from Taiwan, they may be able to do something like that. And we have seen some of that. But I don't believe any of our AOI competitors, and certainly no one from the CMM side, has attempted to do what we are doing with SQ CMM in the sense of truly inline, full inspection and metrology report.

--------------------------------------------------------------------------------

Unidentified Analyst, [34]

--------------------------------------------------------------------------------

That really is wonderful. Just one further question, if I may. I think you are moving Laser Design into your headquarters. Are you sort of finished with that? Or have you completed that?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [35]

--------------------------------------------------------------------------------

No, that will -- their lease expires at the end of the year, so they'll be moving in right around the first of the year.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

(Operator Instructions) And there are no further...

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [37]

--------------------------------------------------------------------------------

So thank you for your interest. Are there any other questions?

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

I do apologize, [Eric Slate] from -- private investors has a question.

--------------------------------------------------------------------------------

Unidentified Participant, [39]

--------------------------------------------------------------------------------

Okay. A couple of things, nice quarter, you guys. A question I have on your CyberGage, how many units do you have in the field now that you've sold?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [40]

--------------------------------------------------------------------------------

I would say about a dozen or so in the field that have been sold and about similar number that are in demo configurations worldwide.

--------------------------------------------------------------------------------

Unidentified Participant, [41]

--------------------------------------------------------------------------------

How much -- how many in demo? I didn't hear that. How many in demos?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [42]

--------------------------------------------------------------------------------

About a dozen, both sold as well as in demos. So we must have built 20 to 25, and half of them have been sold, half of them are in demo configuration right now. So still very small numbers, yes.

--------------------------------------------------------------------------------

Unidentified Participant, [43]

--------------------------------------------------------------------------------

Got it. And how many different companies is that, that you're working with, either in demo or you sold? I mean how many different entities?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [44]

--------------------------------------------------------------------------------

As far as demos, it's hard to know because they moved around quite a bit, so that number is (inaudible). As far as sold, only one customer has bought multiple CyberGages so far, so I -- offhand, I would say 8 or 9 customers so far.

--------------------------------------------------------------------------------

Unidentified Participant, [45]

--------------------------------------------------------------------------------

Okay. And obviously, I mean it sounds like that's made a lot of progress over the last year. I mean I know it's slower than we all would like, but it sounds like it's -- you're making some progress there?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [46]

--------------------------------------------------------------------------------

Yes, definitely. I mean, as I mentioned in my comments, it took a long time to get things going, and it is a disruptive technology. We knew that we were going against well-established industry giants in the CMM world. And we are relatively unknown company in the CMM world with a very disruptive technology. And that does take time to get going. And we are pleased -- I mean, as I mentioned, it's all still very, very small numbers. But I believe, strategically, we are making good inroads with high-quality customers, so we feel pretty good about the potential of the technology.

--------------------------------------------------------------------------------

Unidentified Participant, [47]

--------------------------------------------------------------------------------

Right. So the conversations now compared to a year ago, they would seem a lot more -- I mean, a lot more progressive now or a lot more -- is it -- just is a long cycle, huh?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [48]

--------------------------------------------------------------------------------

It is a long cycle. And in fairness, we have made some subtle, but important, improvements as the year has gone by in terms of accuracy resolution, ease-of-use, those kinds of things. Nothing dramatically different than what we had a year ago but enough to address some of the minor concerns that we were hearing a year ago. So -- whether it is the combination of just time and the small changes we have done or not, we don't know. But we certainly are seeing more traction today than we -- what we were a few months and certainly a year ago.

--------------------------------------------------------------------------------

Unidentified Participant, [49]

--------------------------------------------------------------------------------

Now the CyberGage product, the ones that you sold to or even demoed, are those mostly outside of the semiconductor space? And the [more] space, is that more industrial application?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [50]

--------------------------------------------------------------------------------

Absolutely. In fact, I'm trying to recall, and help me, Jeff. I don't believe we have sold any CyberGage to any semi customer so far. It's -- all our applications have been metrology applications.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [51]

--------------------------------------------------------------------------------

Yes. And industrial, not inspecting a PCB or...

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [52]

--------------------------------------------------------------------------------

Or audit, module audit.

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [53]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Unidentified Participant, [54]

--------------------------------------------------------------------------------

Well, that's good, potential diversification. Now the other question I had, and Jeff might be able to answer this, what were your largest memory module orders in the company's history? It seemed to me, years ago, when I was involved with you guys, it was like $10 million at one point, you had a huge order. Am I right on that?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [55]

--------------------------------------------------------------------------------

Well, I think, yes. And I think what you're referring to, and this goes back a long time, there was a large order to sell solder paste machines to a memory manufacturer. What our MX memory module system does now is it inspects the modules after they've been singulated, so a different application really. So we (inaudible) the memory manufacturers.

--------------------------------------------------------------------------------

Unidentified Participant, [56]

--------------------------------------------------------------------------------

If you look at that area, the memory modules, you actually have one of the big 3 memory players, right?

--------------------------------------------------------------------------------

Jeffrey A. Bertelsen, CyberOptics Corporation - VP of Finance, CFO, COO & Secretary [57]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [58]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Unidentified Participant, [59]

--------------------------------------------------------------------------------

Okay. Which one is that? Just kidding. Now the other 2, are you -- they must be aware that you're out there. So are you engaging any kind of -- I guess, that's not the right question. But I would assume that you want to go get those 2 also, so you have 3 of the guys?

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [60]

--------------------------------------------------------------------------------

Yes, absolutely. I mean we are talking to the other 2. And even though 3 players dominate the memory industry, there is a Tier 2. And there are smaller, but important, players in the Tier 2, including Toshiba and a few others. So it's not like it's only dominated completely by -- it's 100% owned by 3. So we are definitely talking to the other 2 as well as some of the Tier 2 players. We do hope that...

--------------------------------------------------------------------------------

Unidentified Participant, [61]

--------------------------------------------------------------------------------

So if we look at the market that you're in with those, what is the potential dollar amount that you can go after in that kind of -- I was never clear on that one, on the memory module side.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [62]

--------------------------------------------------------------------------------

It is little tricky to quantify the exact dollar of the total market size. I mean, roughly, our systems go for $0.5 million a piece, we can tell you that. And -- but it -- the exact throughput and how it gets configured depends a lot on the individual configuration. It's a fully automated system, so it depends on how the modules are coming down the conveyor, how we pick them up and automatically sold them. There is a little -- I hate to put a number just because every memory company seems to have their unique configuration of how they singulate, and the conveyors know the various different plays, so you have to fit into that ecosystem in a fully automated manner. So even though it will be the same machine, the throughput could be different depending on the customer is what I'm saying. And that changes the market size quite a bit. But it is a large market. It's a large market. One of the 3 players -- I mean clearly, the market out there for us is more than a factor of 3 than what we have sold so far and continue to sell.

--------------------------------------------------------------------------------

Unidentified Participant, [63]

--------------------------------------------------------------------------------

More than a factor of 3, okay. And what -- how -- is that based on last year's revenues or on the module or this year's? Or I don't know, I guess, what I'm trying to find, figure out, is it -- in the next 2, 3 years, is it a $10 million, $15 million opportunity or $5 million? I guess, that's the real question.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [64]

--------------------------------------------------------------------------------

I would say it's in the orders of tens of millions of dollars. I mean, it is a -- we sold 6 million in 2016, we sold nothing in 2017. As we mentioned in our comments, it's very unlikely we will sell anything in 2018. Even though we are collecting the orders right now, they are all 2019 type orders. So that gives you a feel. So when the orders come, they are large orders. I don't think it's a single-million dollar type of business, but I don't think it's $100 million either. So it's in -- the business potential is in the tens of millions of dollars.

--------------------------------------------------------------------------------

Unidentified Participant, [65]

--------------------------------------------------------------------------------

So $20 million, $30 million maybe something along that line.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [66]

--------------------------------------------------------------------------------

Along that line, yes.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

(Operator Instructions) And there are no questions.

--------------------------------------------------------------------------------

Subodh K. Kulkarni, CyberOptics Corporation - President, CEO & Director [68]

--------------------------------------------------------------------------------

Well, thank you for your interest and questions. We look forward to updating you at the end of our third quarter results. Thank you.