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Edited Transcript of PRCP.OQ earnings conference call or presentation 2-Jun-20 12:30pm GMT

Q3 2020 Perceptron Inc Earnings Call

Plymouth Jun 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Perceptron Inc earnings conference call or presentation Tuesday, June 2, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bill Roeschlein

Perceptron, Inc. - Interim VP of Finance & CFO

* Jay W. Freeland

Perceptron, Inc. - Chairman of the Board, Interim President & CEO

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Conference Call Participants

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* Gregory William Palm

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

* Rand W. Gesing

Neuberger Berman Group LLC - SVP & Senior Research Analyst

* Sarkis Sherbetchyan

B. Riley FBR, Inc., Research Division - Associate Analyst

* Timothy D. Chatard

Meros Investment Management, LP - Portfolio Manager

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Presentation

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Operator [1]

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Greetings and welcome to the Perceptron, Inc.'s Fiscal Third Quarter 2020 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Bill Roeschlein, Interim Chief Financial Officer of Perceptron. Thank you. You may begin.

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Bill Roeschlein, Perceptron, Inc. - Interim VP of Finance & CFO [2]

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Good morning and welcome to Perceptron's Investor Call and Webcast to discuss the company's financial results for the third quarter of fiscal 2020. My name is Bill Roeschlein, and I am Perceptron's Interim Chief Financial Officer. Joining me on the call today is Jay Freeland, Chairman of the Board and Interim Chief Executive Officer.

After the market closed yesterday, Perceptron issued its third quarter earnings release on Form 10-Q, which is available on the company's website at investors.perceptron.com. We will begin the call with our prepared remarks and then open the call up for questions.

Before we begin today's call, it's my responsibility to inform you that some of the materials that we will be discussing today constitute forward-looking information under the meaning of the Private Securities Litigation Reform Act. Any forward-looking statements made are based on information believed to be true as of today. Actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest annual and quarterly filings with the SEC.

Additionally, please note that you can find reconciliations of historical non-GAAP financial measures discussed during our call in the press release issued today. Unless otherwise noted, comments are in U.S. dollars. And references to years will be fiscal years, which end on June 30.

With that, I'd like to now turn the call over to Jay.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [3]

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Thanks, Bill. I'd like to start today's call a bit differently by thanking the Perceptron team on their perseverance and dedication during a very difficult time for everyone around the world. Due to the COVID-19 pandemic, our company, like most, is facing the most challenging set of market conditions I've witnessed in the 30 years I've been in business. However, this team has continued to operate through all of it. We have delivered on everything within our control, all while continuing to provide for the health, safety and welfare of our employees.

Thus far, we've only had 1 employee contract the virus. We are pleased to say this employee has fully recovered and is back at work. Our ability to ensure the continuity of operations during this crisis with almost every employee working remotely has been an amazing challenge. On behalf of the entire leadership team, I'm grateful for the efforts put forth by our employees during this period as well as their proven ability to execute throughout the disruption.

Turning to a discussion of our operations. In response to shelter-in-place orders resulting from the COVID-19 pandemic, we shuttered operations in China on February 10, Italy shutdown on March 16, and our Michigan operations shuttered operations on March 24. Our facility in Germany did not shutdown, but has been running staggered ships with many employees working remotely.

Currently, all of our facilities are now open again and are currently operating at various utilization levels. The most critical functions that need to be performed in our facilities, those being manufacturing and service, are completely operational. Most of the support functions continue to operate remotely to help maintain a proper level of social distancing within the facilities and to allow the on-site teams to function in a well-controlled environment.

At the end of May, we are operating at approximately 50% capacity across all our facilities, and anticipate activity levels to increase during June, given discussions with our customers. Throughout the crisis, we've utilized short-work programs who were available to help alleviate the cost of our workforce. And as previously announced, we also applied for and received a loan from the SBA's Paycheck Protection Program, which provided $2.5 million to cover employee salaries and other qualifying expenses here in the United States. One of my goals through this entire crisis has been to avoid layoffs or furloughs to ensure our team is ready to deliver as soon as conditions improve. To date, we have been successful in that regard.

Not surprisingly, a large number of our customers shuttered their operations around the time we did, resulting in a situation where product deliveries and on-site installations were virtually impossible during the first half of the fourth quarter. Most of those customers have started to reopen their facilities, allowing us to begin delivering products and services during May and June. Notably, while India and Brazil have not reopened, this should not have a material impact on our operations as they represent less than 5% of total revenue on a combined basis.

Around the world, we have not experienced any meaningful order cancellations. We have seen a handful of new business opportunities get pushed into fiscal Q1 and Q2. However, the sales team has been able to continue interfacing with customers remotely through all of this. So the current pipeline for fiscal Q4 and Q1 looks promising. Visibility beyond fiscal Q1 is more difficult, but we are starting to see a return to normal conditions, which should improve the visibility over the coming weeks. We remain cautiously optimistic with respect to the macro environment, and we'll continue to monitor market conditions.

Looking ahead, we remain focused on identifying the best long-term strategic options for the company. Every option for Perceptron remains on the table. The 5 most critical strategic priorities for us are as follows: our top priority is ensuring that we continue to stabilize the company's financial performance. While we have made measurable progress in this regard, none of us had planned for a global pandemic, creating a higher hurdle for us to clear. I believe we have taken all the necessary steps for Perceptron to sustain its operations during this transitional period until we exit the pandemic. This allows us to refocus on the more strategic strengthening work that was previously underway.

Our second strategic priority involves efforts to further enhance Perceptron's core technology portfolio. Our engineering teams have been successfully meeting their internal development milestones, even while working remotely. On balance, all of our existing programs remain within a month or less of their original delivery dates, representing an extraordinary achievement given the COVID-19-related disruption. Our third priority is extending Perceptron's position as a market leader within the automotive vertical. While development and execution of this initiative took a backseat during the crisis, it remains critical even with the near-term uncertainty that was created within the automotive sector. There is substantial untapped opportunity across the manufacturing processes at the OEM level as well as within the supply chain. We currently remain a relatively small piece of a very large market, creating an opportunity to grow our share of wallet over time.

Our fourth critical area of focus is to diversify Perceptron's revenue base into additional growth markets, such as heavy industry, construction and aerospace. This initiative was also paused to keep our focus on managing through the crisis but our efforts here have restarted as well. Our fifth and final strategic priority for the company is to select the right leaders for both the CEO and CFO roles. Our Board remains committed to identifying world-class candidates to lead us through our next phase of growth. We have spoken with our search consultants, and believe that there remains a very deep pool of potential candidates for the positions in questions.

In fact, pandemic-related volatility may work in our favor as organizational changes at other companies opened the door for us to add leadership talent. While pandemic-related uncertainty continues to weigh on our markets, we have taken all the necessary and appropriate actions to position our business for execution as business conditions return to some level of normalcy. Again, we have a stable pipeline of business ahead of us with no material cancellations of orders or backlog thus far. Given this stable base of demand, we will continue to execute on our plan, positioning the company for growth as we exit this transition period.

I will now turn the call over to Bill.

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Bill Roeschlein, Perceptron, Inc. - Interim VP of Finance & CFO [4]

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Thank you, Jay. Total sales in the fiscal third quarter were $12.7 million, down $6.4 million or 34% sequentially from the previous quarter and down $2.9 million or 19% from Q3 of the prior year. On a sequential basis by geography, sales in Asia were impacted the most percentage-wise, declining 53% or $2 million, followed by the Americas, declining 37% or $2.5 million, and Europe declining 22% or $1.9 million.

On a year-over-year basis, the majority of the $2.9 million sales decline came from Europe and Asia, each of which contributed a $1.4 million decline year-over-year for each region. Currency effects negatively impacted sales by approximately $200,000 in the current quarter.

Total bookings in the fiscal third quarter were $10.9 million, down $3.5 million or 24% sequentially from the previous quarter and down $2.3 million or 17% from Q3 of the prior year. On a sequential basis by geography, bookings in Asia declined $2.4 million or 51%, Europe declined $1 million or 14% and Americas declined a modest $0.1 million or 4%. On a year-over-year basis, Asia bookings declined $1.7 million, the Americas declined $1 million, while bookings increased in Europe by $0.4 million.

Gross profit as a percent of sales for the fiscal third quarter was 34.6%, down 257 basis points from the prior quarter and up 190 basis points from Q3 of the prior year. On a sequential basis, gross margin declined due to changes in the revenue mix, while on a year-over-year basis, gross margin increased due both to changes in the revenue mix and lower fixed manufacturing costs.

Turning to operating expenses. Engineering and R&D expenses were $1.5 million in the fiscal third quarter, a decrease of approximately $100,000 compared to the previous quarter and a decrease of approximately $300,000 from Q3 of the prior year. Selling, general and administrative expenses were $4 million in the quarter, a decrease of $300,000 from the previous quarter and a decrease of $400,000 from Q3 of the prior year. We expect total operating expenses in the fourth quarter to be roughly 5% to 10% down from Q3 levels.

Severance, impairment and other charges for the quarter were $2.8 million, an increase of $2.3 million from the previous quarter. The majority of the increase was from the impairment of $2.2 million in goodwill and intangibles and severance costs related to our previously announced restructuring in February. We had a tax benefit in the quarter of $347,000, reflective of certain geographies where we expect to be able to utilize net operating losses in the future.

Net loss for the quarter was $3.9 million or $0.41 per diluted share compared with a net loss of $1 million or $0.10 per diluted share in Q3 of the prior year. Adjusted net loss for the quarter, which excludes the impact of severance, impairment and other charges, was $1.1 million or $0.11 per diluted share compared with $1 million or $0.10 per diluted share in the prior year comparable period.

As of quarter end, we had $2.5 million in borrowings outstanding on our lines of credit and had $10.6 million in total cash and cash equivalents globally. Subsequent to the quarter, we entered into an unsecured loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

With that, I would like to now turn the call back to the operator, who will open the call up for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Greg Palm with Craig-Hallum Capital Group

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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I guess, first, in terms of order activity demand, I'm curious how things were tracking through the first few weeks of March. I'm not sure if you have that color, but it sounds like the impact of facility closures, both yourself and at customers was a pretty significant impact. So I'm not sure if you're able to quantify that at all.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [3]

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So yes, I'm not going to quantify it just because I don't think we've ever disclosed sort of what the track looks like during the course of the quarter. But you're right. The shutdown of facilities in some of our customers were even ahead of us as they rolled sort of globally from 1 region to the next to the next. No question that had an impact. And even before they officially shut, we were definitely seeing pauses as everybody was trying to assess what they were going to do. Was this real? Was this something that was going to impact their business? Yes, they're all going through the same analysis that, quite frankly, we were and probably most companies were.

So that brought -- clearly, brought closures to a pretty quick halt during the course of the quarter, particularly in March. And I will say we tend to be heavily loaded in the third month of a quarter. I think we've talked about that before. But we tend to -- many of our orders tend to be back-end loaded, and that's just driven by the customers' decision-making process, and not uncommon in the space we're in either.

So when we look at the pipeline then, you have some -- you should clearly have some deals in there that are just pushed from Q3 into fiscal Q4. There are a large number of deals that were already in the pipeline that we had planned on for Q4 that are still active. And then you have the new ones that have threaded in based on anticipated demand for Q1 of next year, fiscal Q1 for us, as well as some last-minute ones coming that appear to be real demand for Q4 to come up.

When you look at the customer base, what we're seeing is that for -- particularly at the OEM level, which is where the bulk of our business is, customers who have already expended meaningful cash on the programs that were underway, all of those orders are moving along and tracking at sort of the pace we would expect for closure dates. When you track against the anticipated closure date, those all seem to be tracking fine. For newer programs where there was less expended, we feel confident with how we have handicapped our internal estimates for Q4 and for Q1. And that's based on our history.

So obviously, there could be some variation to it because we don't know if history is a perfect marker at this point. But the customers are sending the right signals. Where we see potential gaps, and it's just too soon to know is, new programs that customers were just starting to develop, just starting to spend on, will those get pushed another quarter or 2, which would be a smaller percentage, a very small percentage of our anticipated Q4 and Q1 activity and then ramps up a bit for Q2 and Q3. Those are the ones where we have some uncertainty at this point. And we're trying to stay on top of on a regular basis with the customers just to gauge where the mindset is.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Okay. Yes, that's really helpful. I don't want to put words in your mouth, but you're sort of implying that at least since quarter end, demand levels, whether that's orders or pipeline activity, it sounds like it's improved sort of sequentially on a monthly basis from the beginning of April. I mean is that true? And I guess, kind of what are you seeing now that, that gives you confidence that the near-term will sort of continue to improve as we get into June and your next fiscal year?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [5]

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Improved is probably a -- maybe too strong of an adjective. I would say that we definitely saw some new deals come into the pipeline. So that's -- if we look at that way and say, is that improving sequentially month-to-month, then I'd say, yes, we're starting to see some improvement. Many of the deals that are in there were already in the pipe even in Q3, but we weren't planning to close them, again, based on customer demand. They weren't being -- we weren't planning to close them until fiscal Q4 or Q1 anyway.

So now, obviously, what we're really watching is, do they continue to track to the expected closure dates. And we've not seen anything meaningful slip. We've had -- like I said, we've had 1 or 2 deals that pushed out a quarter or 2. But we had enough in the pipeline to offset those based on what the anticipated timing was. And again, how we handicapped the quarter when we're trying to decide what should we bank on, what should we make our purchase orders or supply purchase orders based on, I still feel pretty good about where we're at there. Q4, Q1, obviously, everybody is going through the same thing. There's -- it's still murky even though we have good line of sight on everything that's in the pipe. The real question is, will they all close? And we feel good about everything we're hearing right now. We've got a month to go. We really won't know until the next couple of weeks as the POs start coming across based on their planned time lines.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Yes. Okay. What about the competitive environment? Any meaningful changes that you've witnessed during the pandemic? And I guess, more importantly, how do you see yourself at position when we start to emerge from all of this?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [7]

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Yes. I'd say we have not seen any change in the competitive environment. When it went quiet, so to speak, it's sort of quiet across the board. We have not seen anything where you might look at it and say, did anybody take advantage of the period to drop price? Or did they drop price in order to help keep themselves afloat and anything like that. We've not seen any, what I'd call, irrational behavior in the marketplace. It's been generally quiet.

And on the deals where we know we're competing, it's the same parties that we would always compete against, and it's been relatively consistent with what we've seen from past practice.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Yes. Okay. I'm curious, I've always thought that automation was a key driver for some of your solutions. I mean helping to replace manual inspection tools. With social distancing and the pandemic, do you think that automation could become a more meaningful driver for your business? Or is it too soon to tell? I don't know if you've had any conversations with customers since.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [9]

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Yes. I think it's too early to tell. In concept, I agree 100% with that idea. But I think right now, everybody is -- literally, in some cases, it's like they're refinding their way to the restroom as they reopen their facilities. So I think it's just a little early to tell if that can become a strategic advantage over the long term. The whole idea that we have been consistent in selling on in the past of creating productivity by having fewer people involved in the process or being able to eliminate a step in the process to apply your labor elsewhere, which still creates productivity, those are all still real variables that come into play in the customers' decision-making. And so would this help over the long-term as it relates to social distancing or otherwise? I think it's too soon to know if that's a long-term need.

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

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Yes. Okay. Last one for me. Thinking back to the announcement last fall, strategic options. I know you've briefly mentioned the search process for CEO, CFO. But can you update us on where we are today? What some of the company's near-term priorities are?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [11]

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So the nearest-term ones of shoring up the financials and starting sort of the diversification path are on track. I will say, as I noted in the comments, the push into other verticals sort of hit a pause during this whole pandemic. And the search itself was, I would call, a slow roll investor in this process. You pay attention to fire when you have fire and you try not to have too many. And obviously, there is a large one to worry about this quarter.

This quarter is giving more time and flexibility, particularly the back end now as people start opening up again, to start thinking more strategically about the business again. And none of those priorities have changed, and we do continue to look at all the best options for Perceptron in long term.

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Operator [12]

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(Operator Instructions) Our next question comes from the line of Sarkis Sherbetchyan with B. Riley FBR.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [13]

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Just wanted to touch upon what you ended off with the last questioner there. You mentioned in the prepared comments, diversifying the revenue base is one of the key strategic pillars here. So yet through the other verticals, and efforts were restarted here. So for these other verticals, would you take a buy or build approach? And what would be the potential time line that your team is targeting to accomplish that?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [14]

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Right. So I would say it's both. And I'll give you a little bit more color to go with it. So if you look at metrology in total, and this is all metrology -- the entire metrology market around the world. So we're just a small piece of that. But automotive is still the largest vertical by most measures. It's anywhere, call it, $2.75 billion and $3 billion of opportunity per year. The next big 2 ones are heavy industry and aerospace, and they're both roughly $2 billion, and we do, essentially, 0 in those. So those, when we talk about why they're on the opportunity list, it's the size of the market and they are both already utilizing metrology technology in a variety of forms in their facilities today. And they have real accuracy needs. They have real productivity needs. And as time goes by, they continue to develop more and more automation needs as it relates to metrology, and that's obviously where we play very well.

To get there, there are -- I think you're going to have to have 2 different paths. One is, no question, we obviously lack, what I'd call, meaningful scale as an organization. We're great in automotive. Our team knows automotive inside and out. And we're embedded with all of the major manufacturers around the world, and that's made the company very successful over the time period. What we don't -- as a team, this not a huge understanding and knowledge of those other new verticals. So would we try to buy our way in, that would be 1 potential route. Obviously, in our current financial condition, it would take something extraordinarily creative to -- there are some companies that would be very interesting in that regard. But it would take a very creative financial arrangement to be able to pursue that in the near term.

The other option, of course, is that you hire experts who have been focused on those areas and understand both metrology and speak the language within those 2 verticals. And you start developing a path there, which obviously takes longer to thread the needle, but starts giving you some presence and -- in that space. And that's an area where the company has tiptoed around it and tried it in years past, 5 years ago, 10 years ago, and I don't think really put the right focus and effort on it. Aerospace is a longer putt because of the qualification requirements that you have to go through with the potential customers, not just the OEMs, but within the supply chain, too.

That being said, like I said, they all need, metrology equipment, they all have extraordinarily [tight tonsils] and they have productivity needs. So both are the right answers. One takes longer, but is more within our immediate term capability or grasp. The other one would be much quicker, but to buy somebody right now, obviously, we really would have to come up with a pretty creative path for doing so. That being said, like I said, there are companies there that are interesting and companies there that I've had dialogue with to gauge interest and to gauge the possibility. And all of that is, of course, under the premise of if this company needs to continue operating independently, what else should we be doing to eliminate some of this reliance on automotive without losing all of the revenue and value we currently get from automotive. So it all has to be incremental.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [15]

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That's super helpful. And 1 more for me. So how is the team balancing the need to drive technology in the current portfolio, and that's kind of against the cost reduction efforts you've outlined?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [16]

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Yes. So when we went through the reduction, we did hit engineering. We hit every department. And in a perfect world, engineering would be the -- probably the second-to-last place I would hit, sales being the first -- the last place. And that, historically, that's sort of how I've operated as well. We did hit it this time. And what we did was, as we were preparing for and I sent down -- sat down with the engineering leaders, we understood exactly which programs we are working on and which ones held the most promise. We spent time with the sales team saying, look, if you had to prioritize even more measurably than you have in the past to get to the list we have now, what would that look like? That helped us identify then where we could make cuts reasonably without disrupting the growth opportunity for the company. And so I feel very confident that what we have in the pipeline right now are the mission-critical and most critical for the customer needs as we see them today and for the customers that we serve today.

And there are several in there that are attached to technology that is easily applicable to those other verticals. So we have ensured that we have -- if we figure out how to get into those markets, we have technology that does not need to be modified, adapted or changed just because it's serving Deere, let's say, or CAT or a supplier to Boeing, it would not have to be modified to be able to perform the same functions that it does within automotive. And that's how we prioritized it.

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Operator [17]

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Our next question comes from the line of Tim Chatard with Meros Investment.

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Timothy D. Chatard, Meros Investment Management, LP - Portfolio Manager [18]

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Can I just ask what the technical terms of the PPP loan are in terms of when the forgivability window closes and that type of thing? I just wanted to see if there was some detail there.

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Bill Roeschlein, Perceptron, Inc. - Interim VP of Finance & CFO [19]

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Our current window is -- it's an 8-week program from the date that you received the funds, which in our case was April 16. So that would extend us to June 16 under the current program, although there is some discussion of enlarging the time period in Congress over which qualified expenses would qualify under the program.

Following that, the SBA has a -- has basically an application that you would fill out, where you would input your qualified expenses, which is primarily the salary expenses, according to a certain calculation of FTEs under $100,000 -- only up to $100,000 in salary is -- can be included. And some additional criteria, and then there's some money that certain percentage that can be used for rent and overhead and things like that. There's also -- they also take a calculation of what your FTE U.S.-based employee base is as compared to a quarter earlier and a year ago period. And if it's any smaller, there is a, I would call it a haircut, that you would take in terms of what's forgivable.

So after you go through the kind of the mathematics of it, you would send that submission off to the SBA and SBA takes roughly 90 days to review the information. When all said and done, it's more like a 5-month kind of review period. So I think sort of as it relates to our application, we'll be -- we wouldn't really know probably until September or October, what amount's forgivable and what amount would constitute a long-term loan with them.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [20]

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Yes. I would add, though, Bill, I think -- I don't think you had added this, though, I think it was in your comments that we do believe that a meaningful majority of the loan will be forgiven based on our understanding of the process and how it was designed. And it's important to note how important that was for us because that -- when we applied for that loan and we brought the cash in, there is no question that, that helped avoid further layoffs and furloughs within the operations in the U.S. And that would have made it very difficult to restart with the efficiency that we were able to.

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Timothy D. Chatard, Meros Investment Management, LP - Portfolio Manager [21]

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Great. I kind of ask a question on the executive search that you have ongoing. I've heard you describe the process here. And I think going back a quarter or 2, you've also discussed it, and it seems like a very difficult needle to thread. And I'm just -- I've seen many CEO changes over the years. And there is good and bad associated with all of them. And then usually a CEO that comes in, wants to put an imprint on company. And usually, it wants to be in a growth mode of some kind. And given the size of your company and the heavy amount of restructuring and costs that you've taken out, which has been fantastic over the past year, especially in a difficult auto environment, it's a difficult strategic box for anybody. And I'm just wondering if that feedback has come through on the process, and how it might color the type of candidate you'd be looking for, for the CEO role can also extend it to the CFO role?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [22]

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Yes. So I would agree, first, that it is a -- I won't say it's difficult, but it is a -- all right, it is -- let's use difficult. So it is a bit of a difficult needle to thread. The good news is that when I look at the organization, and I -- my experience in this space is over 15-ish, 16 years now, the good news is we do not have to have somebody that comes from the metrology space to be successful in the role. They do need to understand manufacturing and industry in general and need to understand the solutions-based sale and type of product-based sale that we have and with some understanding of technology in general, right? So it's got to -- they have to at least have some of that background or experience.

From my perspective, and I believe the search consultants would agree with this, we're going to get either 1 of 2 types. You're going to get somebody who has done this before, and it's an opportunity for sort of 1 more success story where they've come in and help turn the organization around or they've helped find the right strategic options for the organization. And they were successful in doing so and they've had that experience, and that becomes valuable to us from a -- as a leader. Or we fund somebody that has not had their shot yet. And so it's an opportunity to run a stand-alone company or a stand-alone public company, maybe they've run a stand-alone. It's highly likely they came from, say, a division of a larger organization. And they may be a younger, more risk-tolerant individual who would say, yes, look, I understand that I may get a chance to come in here and run this for the long term. I may get a chance to come in here and a bigger player makes a pass, and we decide it's the right strategic alternative, and it's a short-lived career. But I'm willing to take that chance for an opportunity to show what I can do. And I think the value that we have there is that while you would ideally have somebody who's already done this before and run a public company before, at least at the Board level, with my experience, you can -- we can lean on somebody who is new to the public market side and how to run truly a stand-alone where you don't have the safety net of a larger organization to help you out when you make mistakes. Because between myself and the rest of the Board, we've got plenty of experience having done that at other companies. So the consultants have assured me that there are plenty of fish in the pool, and we will find the right person. And -- but like I said, I think it's probably 1 of those 2 that we're going to find.

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Operator [23]

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Our next question comes from the line of Rand Gesing with Neuberger Berman.

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Rand W. Gesing, Neuberger Berman Group LLC - SVP & Senior Research Analyst [24]

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Unfortunately, I think survivability is in question here based on your size, your end markets and just sheer lack of visibility there. You guys -- you had -- here we are in June, so we've had some time in the quarter, you guys reporting later than most. Can you give us any sense for -- I know you can't guide and don't want to guide. But just trying to understand what sort of level of, or what -- the framing of quarterly cash burn or monthly cash burn. Can you just -- I know you're not going to give me any numbers, but can you give us any sense for how you guys are viewing the current burn rate? And what that might look like?

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Bill Roeschlein, Perceptron, Inc. - Interim VP of Finance & CFO [25]

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Well, I would say that with our current cash levels, we do expect Q4, again, to be adversely affected because of the pandemic. Pretty much for the whole month of April, you had Italy, you had the U.S. that were under lock down. But as we look to the end of Q4, we don't see our cash levels declining, if anything, perhaps slightly increasing quarter-over-quarter. And as we look to recover and exit the coronavirus situation, we believe that we have an adequate level of cash to be able to support our needs.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [26]

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And Rand to tack on to that, though, and it points directly back to the sort of strategic questions. If the company is going to continue to stay as a stand-alone entity, you're 100% right. This focus on a market, while it's not a niche, right? Automotive is a huge space. It's way too much reliance on a single industry that can whipsaw a company our size every time there's even a little bit of change in their space. And so if this isn't part of a larger entity, then this company needs to very rapidly diversify into other verticals that can help shoulder the burden when you get sort of the effect of 1 vertical, they typically aren't moving perfectly in unison. I'll say, obviously, the last quarter would be an exception to that, but that's kind of an unusual situation. But that is absolutely for the long-term of this company, if it's stand-alone, that is a must.

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Rand W. Gesing, Neuberger Berman Group LLC - SVP & Senior Research Analyst [27]

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So the takeaway, I guess, is that in Q4, looking into Q1, you guys sort of feel like, with the backlog and the level of orders cadence, that you sort of -- you're not going to go on a significant cash burn. Is that fair?

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Bill Roeschlein, Perceptron, Inc. - Interim VP of Finance & CFO [28]

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Well, there is cash burn from operations, but we also have cash conversion from our working capital, we also have the PPP loan. And so for those...

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Rand W. Gesing, Neuberger Berman Group LLC - SVP & Senior Research Analyst [29]

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Yes. I'm just wondering on the conversion, like if you start to -- if the flywheel starts to go the other way, right? I mean, you know you can't -- you're not delivering receivables, you're probably not going to pull down. At some point, you lose the ability to harness the flywheel from the backlog and the revenues that you have as you work down. But I guess that's more of a mid- next year type of issue. So the real question is how do these -- this vertical, how does this vertical weighs back up for you? And I guess that's going to be an orders phenomenon as we discuss this in 3 months, and how you feel the pipeline is building back up?

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [30]

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Yes, that's right. I think particularly right when we're doing the update for Q4 here in 7 or 8 weeks, whenever that gets set, what -- how the pipeline has both converted in Q4, that will be -- obviously, there is possibility of things from Q4 move to Q1. There's a little bit of uncertainty there. And those would not scare me as much. What we'll really be looking for is how has the rest of the pipeline continue to develop as it relates to orders that are potential opportunities for fiscal Q2, and are we starting to see some of Q3. And unfortunately, I really can't give you a good guide on that one until we get really -- we ourselves need another 4, 5, 6 weeks on that to get some comfort around how that's -- is it really tracking or was it a falls positive.

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Rand W. Gesing, Neuberger Berman Group LLC - SVP & Senior Research Analyst [31]

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Okay. Great. Maybe 1 suggestion is as you close the June quarter relatively early into July, if you can give us any sort of update on the balance sheet and things that you are comfortable updating us on from an early perspective, I think that's helpful given some data points versus waiting for the results to come out late in to August or what have you.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [32]

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Okay. That's certainly something we'll consider and keep in mind, Rand. I appreciate the feedback.

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Operator [33]

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Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Freeland for any final comments.

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Jay W. Freeland, Perceptron, Inc. - Chairman of the Board, Interim President & CEO [34]

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Great. Well, thanks very much. I appreciate everybody's participation today, and we look forward to updating all of you again after our fiscal Q4. Thank you.

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Operator [35]

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Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.