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Executives

David Tacelli - President and Chief Executive Officer

Mark Gallenberger - Vice President and Chief Financial Officer

Analysts

Patrick Ho - Stifel Nicolaus

Vernon Essi - Needham & Company

Christian Schwab - Craig-Hallum Capital

David Dooley - Steelhead

Tom Diffely - D.A. Davidson

LTX-Credence Corporation (LTXC) F1Q 2014 Earnings Conference Call December 3, 2013 10:00 AM ET

Operator

Good morning and welcome to LTX-Credence Corporation’s First Quarter Analyst Conference Call. To the presentation, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions) At the request of LTX-Credence, this conference call is being recorded. Speakers for today’s call will be David Tacelli, Chief Executive Officer and President; and Mr. Mark Gallenberger, Vice President and Chief Financial Officer.

At this time, I would like to turn the conference over to Mr. Mark Gallenberger. Sir, you may begin.

Mark Gallenberger - Vice President and Chief Financial Officer

Thank you and welcome to LTX-Credence Corporation’s first quarter fiscal year 2014 conference call for the period ended October 31, 2013. Joining me on today’s call is Dave Tacelli, CEO and President. After my introductory comments, Dave will discuss the company’s performance for the first quarter and discuss the business outlook. Then I will provide further detail on the company’s financial performance during the first quarter as well as provide guidance for the second quarter of fiscal year 2014. We will take your questions after our prepared remarks.

A replay of this call will be made available through December 5 by dialing 855-859-2056 and the pass code is 97980302 or you can visit our website at ltxc.com. As a reminder, the only authorized spokespeople for the company are Dave Tacelli, Rich Yerganian and myself.

In addition, the company will be presenting at the Midtown CAP Summit in New York City on Wednesday, December 11 beginning at 10:00 AM.

Now, for our Safe Harbor statement. During the course of this conference call, we will make forward-looking statements regarding LTX-Credence’s business outlook for the future financial performance of the company. We wish to caution you that these statements such as projected revenues, net income or loss, earnings or loss per share, operating expenses, gross margin, cash flow, non-GAAP measures and breakeven targets are management’s current predictions and that these statements are subject to known and unknown risks and uncertainties that could cause actual results or events to differ materially from those stated or implied. The statements provided during this call represent the Company’s estimates as of this day and the company assumes no obligation to update them after this call. Please refer to our Safe Harbor statement in our earnings release for more information on important factors that could cause actual results to differ.

Now, on to the call. Dave?

David Tacelli - President and Chief Executive Officer

Thanks Mark. Good morning everyone. I just wanted to walk through my presentation today. It will have two major topics. The first one, I planned to review the semi cap test industry, where we are in that industry and how LTX is performing. And second, I am going to talk about our new company. We are very excited as most of you have seen the press release from last night we completed the acquisition of Multitest and Everett Charles. I am going to talk about how that differentiates us in the test sale, but more importantly, why we believe that, that aligns us with where customers want to go in the future.

Talk a little bit about the industry, we see three major drivers and they have been the same drivers for our business for a long time and for the industry for a long time. First in the mobility space, devices such as power amplifiers, power management devices, application processors have been the key driver of IC demand over the past five quarters. On the automotive side, there are two major benefits. One, electronic content keeps climbing in cars. It’s not so much the number of vehicles produced, but the content and the variety of content that is driving IC demand in the automotive space. The second benefit in automotive space for LTX-Credence is because we have had so many design-ins over the past 24 months. We have continued to see steady flow of orders supporting those new customers. The third driver in the consumer space, this has been one of the weaker points over the last 12 months. And I will show a chart where you can see later on in the presentation, this really needs to pickup as we go into 2014 and we believe it will picking up in 2014 which should generate some demand.

Another key thing is if you look at tester sales over the past year, specifically for us 2013, it’s been about 20% to 25% below a trend line. And what that does is two things. Number one, we believe it gives us optimism as we head into 2014 because you don’t really see a trend like this continuing for beyond the year. The second thing is we think that the spend has been so low and you will see that the spend has been down around $1.5 million for SOC, $1.5 billion for SOC type capital. We believe this is going to pick up as well.

On the company side, we have announced the acquisition of Multitest and Everett Charles. We are very excited about that acquisition of what it does for us and how it complements the products inside the test cell and outside the test cell. Also I want to highlight that the integration planning is well underway. And we have got two goals in the near-term. One is to completely outline the integration. We believe to have that – we will have that completed in the first 90 days. And second is the entire integration we have on tap to be completed inside 12 months. So well underway with this structure and how we are going to role that out.

Another company point is we are seeing seasonality, some weakness seasonality and that’s pretty consistent with all the competitors in the test space. But on the different side Diamondx revenues and the customers moving into volume production has actually held us up a little bit better than the competition. We expected to see this in the late 2012 and moving into ‘13. Did not see it early on, but we are now starting to see it as we move through fiscal ‘14.

If I go on to the next slide, what you see here is the trend for semiconductor – semiconductor test revenue over the past few years. And you can see in the current 2013 we are well under that trend line. Now, one of the things to point out is if you go back in time in 2012 that peak demand was really driven by some of the yield issues that wafer sort for 28-nanometer. We don’t expect that to continue and we also expect that as we move forward to 2014 with the strength in mobility continuing, the strength in automotive specifically for us and a modest rebound in consumer spending we should see a return to a positive momentum in 2014.

To get into a little bit more detail as we look at the some of the key market segments as we discussed earlier the automotive mobility and consumer markets. The way I would describe these three markets automotive seems to be okay, it seems to be stable. Again we have seen a little bit more strength in automotive based on design wins. On the mobility side I would categorize it as solid. I don’t think it’s ramping quite dramatically but for the most of the industry with the communication devices, with applications out there more and more cell phones and types of tablets I see the mobility space is solid and the recovery really needs to be in the consumer space. If you look from fiscal ’12 to fiscal ’13 you see a dramatic drop and this is where we are really counting on 2014 the whole calendar year to see a rebound and a pickup in the overall industry.

So how have we performed? Well, look at the last five quarter trends. We have really been kind of stuck in the middle. We have seen again some good business out of automotive, good business out of mobility and then fluctuating business out of some of the consumer markets. In the most recent quarter we reported $32.8 million of revenue and it was about the midpoint of our guidance between $31 million and $35 million. On the EPS side we were actually near the high term – high side of the guidance. Our original guidance was from a loss of $0.14 to a loss of $0.09 so 10% – $0.10 actually performing a little bit better with gross margins holding in the 52 to 53 range through this four or five quarter period.

What I would like to do now is kind of switch gears and spend a little bit of time talking about our new company. The new company we believe has positioned us for massive growth as we go through the next few years but also a changing environment in the customer space in the test cell. As we look at what I would call the semiconductor process and that’s from wafer fabrication to packaged test. In the past LTX-Credence has participated in only one of those pieces inside two areas inside wafer test and package tests and that is with our test systems. With the acquisition of Multitest we are now adding many new areas such as contactors, load boards and in the final test space, handlers. That gives us the capability to not only sell more pieces that gives us the capability to have more recurring revenue, but it also gives us the ability to innovate inside the test cell. In addition to Multitest, the acquisition of Everett Charles as a whole new level of capability to the company more in the PCB which is the printed circuit board test and printed circuit board assembly test area. What this does for the company? It actually doubles our available market from about $2.5 billion to approximately $5 billion, adding all these new areas.

So let’s talk a little bit more about the test cells. With the acquisition of these new companies, we now offer the only complete comprehensive set of products over the test cell. What this does for us it gives us the ability for our customers to optimize efficiency and to accelerate their time to volume. And how do we do that? We do that by combining the pieces such as the load boards, contactors, handlers and testers in a single solution. We are in the process of integrating some of those products today. And we have done that in the past before we are merged as companies. But more importantly, one of the things in our commitment to customers is to deliver best-in-class products in each market segment. So not only will we deliver innovative test solutions, we will continue to develop testers and all of the different peripherals as best-in-class products. In addition to some of the activities of Multitest, Everett Charles gives us a whole new capability to expand into a variety of vertical markets.

With the acquisition of Everett Charles, we are now the market leader in flying probe PCB test through the brand APG O&M. We have strong brand loyalty in PCB test fixtures. As a market of fact, we are the only supplier from a global standpoint the test fixtures for the functional and ICP market. We have some of the best-in-class probe technology. One of the things we are looking to do and looking to expand is how do we move a lot of that sales into the Taiwan and China market and look to expand to our presence in Spirox. And one of the key things to the company as you move forward in a very cyclical industry is we have a significant increase in our recurring revenue stream. And what we have talked about in the past is our recurring revenue goes from LTX’s service-only to a variety of recurring revenue in the probe, contactor board side.

So what does this like from a customer standpoint? Well, I am sure everyone has seen customer logo charts in the past. I want to point out three things on this chart. The first is overlapping customers between LTX-Credence and Multitest. What does this give us? It gives us immediate access to working with customers in the test cell area, not only can we work on test cell concepts for different market segments, but also how do we take integrate products in a very innovative way for these customers. The second thing it gives us as you can see a very unique cross-selling opportunities, selling LTX products to Multitest customers and Multitest products to LTX customers. And the third thing it gives us, it gives us access to a wide variety of customers we never would have talked to in the past, companies like Cisco, Continental, Huawei. And Huawei is pretty unique, because we are already selling into the food chain of Huawei to customers like RDA, HiSilicon, Spreadtrum and some of their suppliers like JCET, KYEC and Nantong Fujitsu. So three very important points not just customer logos on the slide, but how we are really going to build the business.

If I jump into some of the numbers, very, very, I’d say, complicated slide, but let me walk you through it. The first section, Q4 2013 is data that we have already showed to investors. And this was a combination of LTX and Multitest what we would have look like pre-synergy and post-synergy on the deal. The new piece of data is Q1 2014. In our most recently reported quarter, LTX-Credence reported $32.8 million. ECT and Multitest would have reported $74.1 million. So we would have combined with no synergy at about $106.9 million. Couple of things to note. First, as we saw a decline in the market being mostly capital driven, ECT and Multitest did not see that same decline, the matter of fact in this time period saw an increase, again built off the strong recurring revenue. The other thing is as we move forward in time we expect any kind of cyclicality in the market to be offset by some more of this recurring revenue, even though they will see some. And as I get to the next slide, you will see that there is some weakness in the business, but it is a far less degree than ours or any other capital equipment supplier.

As I move to the next slide, talk a little bit about guidance you will see some of this. For guidance for the quarter for LTX-Credence, we are anticipating revenue of between $25 million to $29 million. It’s about 17% down at the midpoint. And if you look at ECT and Multitest, this number here is only 2 months worth of data. So it’s the December and January data. And that ranges about $44 million to $46 million for guidance. And if you look overall, combined guidance is somewhere between $69 million and $75 million. And again, I will point out here that no synergies have been taken into account in this data.

I think what’s more important as we move forward well we have picked three target points on quarterly revenue, sales of $95 million, $125 million and $150 million. And why are these significant? Well, the $95 million is basically at the baseline of what we think the low point will be plus or minus a few million dollars. The $125 million signifies where we believe as the company will be cross cycle. And the $150 million is a number that we believe as we grow in enhanced portions of the test cell. Now, with all these numbers what we will include or we have included is $15 million in annual synergy. So in each one of the quarters is about $3.75 million in synergy dollars. Again, very good opportunity to grow, opportunity for growth in the profit line, opportunity for growth in the revenue line and really as we move forward an opportunity to change how people look at and approach the test cell.

So with that as a background, I will now turn it over to Mark for some of the detailed financial comments for the quarter and the guidance. Mark?

Mark Gallenberger - Vice President and Chief Financial Officer

Thanks, Dave. Revenue for the quarter was $32.8 million, which is down about 13% from the prior quarter. Our gross margin was 52.3%, which is also down from the last quarter’s result of 53.3% and that’s primarily due to less absorption of our fixed cost on a lower revenue base. The total operating expenses were $23.8 million and this was down from the prior quarter, but it’s higher than our run rate primarily driven by acquisition-related expenses of about $1.7 million that we incurred during the quarter.

Our amortization of purchase intangible assets that’s associated with the Credence merger was $193,000. This has been cut in half from the prior fiscal year and for modeling purposes you should model $193,000 per quarter for fiscal year ‘14. Net loss for the quarter was $6.9 million or $0.14 loss per share on a GAAP basis. Excluding amortization and the acquisition-related expenses of $1.7 million, our non-GAAP net loss for the quarter was $5 million or $0.10 loss per share. Our EBITDA for the quarter was negative $2.5 million. This calculation excludes stock-based compensation expense of $1.1 million and it also excludes the acquisition-related expenses of $1.7 million.

Next, I will provide a breakdown of our revenue for the quarter, about 46% came from IDMs, while 54% came from sub-contract test and fabless companies. About 75% of revenue was for product and 25% was for service. For the quarter, we had two customers, each represent greater than 10% of our revenues.

So now on to the balance sheet. We ended the quarter with net cash of approximately $118 million, which is down approximately $6 million from the prior quarter. And the decline was primarily driven by the EBITDA loss as well as the acquisition-related expenses. We have finished the quarter with trade accounts receivable of $28.1 million, which is flat from the prior quarter. However, our DSOs actually increased from 67 days to 77 days due to the lower revenue versus the prior quarter. Our inventory was essentially flat from the prior quarter at $29.2 million. Net capital expenditures during the quarter were $1.8 million versus last quarter which was only $400,000 last quarter. Depreciation expense was $1.4 million. We ended the quarter with accounts payable of $16 million and stockholders’ equity of $192 million.

So now moving on to the guidance I will just mention it once again from the slides that Dave had represented. Our guidance for Q2 includes two months of estimates from Multitest and ECT operations and obviously includes a full three months for LTX-Credence. We expect revenues to be in the range of $69 million to $75 million and our non-GAAP net loss per share to be in the range of $0.21 to $0.15 and that assumes 48 million shares outstanding. The non-GAAP guidance excludes amortization of purchased intangible assets and any one-time charges related to the acquisition. Acquisition-related fees such as legal, tax and banking fees are expected to be approximately $2 million in fiscal Q2. We do expect other charges to be incurred during the quarter related to restructuring, amortization of additional purchase of intangible assets related to Multitest and ECT as well as the standard purchase price accounting adjustments.

However these estimates cannot be estimated at this time. At the mid pint of the guidance range, our gross margin is expected to be approximately 35%. Our depreciation is expected to be $2.3 million for this quarter. And we expect going forward our depreciation expense to approximately $2.8 million on a run rate basis.

So this concludes our prepared remarks. And at this time we will take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Patrick Ho from Stifel Nicolaus. Sir, your line is open.

Patrick Ho - Stifel Nicolaus

Thank you very much and congratulations on getting the deal closed. Dave maybe first in terms of the SOC test environment as you look forward, from an LTX perspective, is there any difference or any impact between the high end smartphone versus the low end smartphone market where if one takes off you will get better exposure in terms of the content?

David Tacelli

Patrick I don’t see a lot of difference for us. The majority of our exposure into the smartphone has been across the board in the PA space, our amplifier space. We have not been a big player, a player at all in the application processer space. The thing I would say is as more phones are shipped into China and India, we have been a bigger player in that market through the companies that I mentioned earlier. So not for high phone or high performance versus the low performance but those other factors really help us.

Patrick Ho - Stifel Nicolaus

Okay, great, that’s helpful. And two questions for Mark in terms of the deal and the implications on a going forward basis. First in terms of the $15 million synergies on an annual basis, do you see that the first or second half weighted in terms of the year as you progress?

Mark Gallenberger

Yes, Patrick we have gotten more into it and we are obviously very confident in that $15 million target and the more I look at it I think about half of that savings is going to be achieved within probably the first four to six months and then the balance obviously in the second half. So when you look at it from that perspective it’s going to be pretty linear.

Patrick Ho - Stifel Nicolaus

Great, that’s helpful. And final question from me Mark, can you just give an estimate of what you think the shareholder equity maybe as a combined company on a full quarter basis?

Mark Gallenberger

Yes, right now it looks like – well let’s go with tangible book value. Right now our tangible book is about $150 million. When you look at what we are picking up in terms of the working capital and some of the long-term assets and long-term liabilities, I think the tangible book value is probably going to come down about $10 million. So if you keep the goodwill out of it right now, because we haven’t don the purchase price accounting that could really skew the numbers that’s why I would avoid giving a shareholder equity number at this point kind of focus on tangible book which excludes the intangibles on the goodwill.

Patrick Ho - Stifel Nicolaus

That’s fair enough. Thanks again guys and congrats again.

David Tacelli

Thanks Patrick

Operator

Thank you. And our next question comes from Vernon Essi from Needham & Company. Your line is open sir.

Vernon Essi - Needham & Company

Thank you very much and echoing Patrick’s comment there congrats on the acquisition. I was wondering I guess Mark a couple of things and I guess on – it sounds though you are not in a position to give us too much detail about the intangible side, but is there any color you can provide on perhaps how we should treat that on a go forward basis roughly or at least talking from amortization standpoint within our models?

Mark Gallenberger

Yes, right now it’s hard to give you a lot of guidance I mean right now if you look at just the Credence acquisition the amortization schedule is now about $192,000 for quarter. When I look at the balance – I am sorry when I look at the purchase price for the Multitest and ECT relative to what’s come in over there is really not going to be a whole lot. But it’s not going to be, it’s something I can even give you an estimate on today. But given the assets that are coming over relative to the purchase price there is going to be very little amortization in the schedule. So it’s hard for me to even give you an estimate but it’s not to be in the millions of dollars for quarter.

Vernon Essi - Needham & Company

And then moving on just to sort of look at the EPS guide relative to some of the other pieces you have given us and even this pro forma table in your presentation on the September results for standalone Multitest and ECT are very helpful and it seems like the business that you acquired is tracking very much in line in fact gross margins very steady there. Looking at the guides you have given however to get to that EPS numbers it seems like OpEx is coming in higher than I would have expected I guess eyeballing some of these historical points that you have given us. I guess what is to make up for the difference there I mean considering that this is a pro forma EPS number I mean I guess it excludes any one-time expenses you are going to have, is there anything in there that we can sort of dive into that might be increasing more than we would have anticipated?

Mark Gallenberger

I would say one thing that’s in there is the interest expense tied to the loan, so you get two months there which is going to be probably for the two months probably around $300,000 to $350,000 in interest expense alone, so that obviously is additive to the pro forma or the new pro-estimates if you will. Other than that I think the primary diver is what we see lot of times is some times we will get favorable product mix in other quarters we will get unfavorable product mix. So part of that is going to be a function of what they are seeing.

And I think they are going to have some normal ebbs and flows in their OpEx just like us, but I don’t think it’s going to be anything that’s concerning in anyway. The other thing that we have also put in there was some additional depreciation expense that were not in some of the Multitest ECT numbers earlier because those were discontinued operations from Dover. And so those numbers did not have some depreciation that we think should be in there going forward. So those are probably some of the primary factors. So I think the underlying OpEx if you will which is more cash related I think that’s held fairly steady maybe it’s picked up a little bit but nothing all that material.

Vernon Essi - Needham & Company

Okay. And just to fact check one thing you had given a data point on depreciation just I have this correct on a go forward basis we should be looking at $2.8 million for a new co, correct?

Mark Gallenberger

On a full quarter basis but for this quarter since it’s a partial quarter it’s 2.3.

Vernon Essi - Needham & Company

Got it, okay. Thanks Mark.

Mark Gallenberger

Sure.

Operator

Thank you. And our next question comes from Christian Schwab from Craig-Hallum Capital.

Christian Schwab - Craig-Hallum Capital

Hi, great. Thanks for taking my question and congratulations on the acquisition. How – guys how much longer are you going to be giving the quarterly revenue from Multitest and Everett Charles Technology as we build our models?

David Tacelli

Yeah, Christian one of the things that we haven’t decided on at this point is how long we would do that. We understand investors want to continue to see the organic growth for LTX-Credence, the work we have put in with the new products. So I would say that we will continue it for some period of time. We just haven’t determined how long.

Christian Schwab - Craig-Hallum Capital

Okay, that’s fair. And then as far as market share I know that your business has been trending below or the business has been trending below the historical trend line as you pointed out. Do you believe that there is any parts of the business either mobility, automotive or consumer where you may be potentially losing market share or do you think that’s 100% correlated to spend?

David Tacelli

I think it’s the opposite I think in the mobility space even though we have had such a dominant place in the PA market. I think we continue to gain share with customers we weren’t doing business with in the past. And same thing with automotive, I think we have continued to gain share and some of those customers have gone to production. I think we like all the competitors in the space have seen the – also the effects that a poor overall consumer market in the other areas. But as far as share gains or losses, I think if anything it’s been the opposite.

Christian Schwab - Craig-Hallum Capital

Perfect and then as we kind of look at the LTX businesses as standalone basis, do you kind of believe this $25 million to $29 million reflects the bottom of the cycle and we should begin to modestly improve from here?

David Tacelli

That’s what it seems to us and the other fact that I would give you is the number of evaluations, the number of customers that are designing us in specifically with Diamondx continues to increase. So if we see any modest improvement at all in some of the other market segments we serve we should see a steady increase of orders and revenue flow over the next several quarters.

Christian Schwab - Craig-Hallum Capital

Great and then as we look – getting back to a couple of years ago at $50 million to $60 million what type of either obviously we can talk about the consumer again, but think about more simplistically as far as like an SOC cam, to get back to $30 million to $60 million with some of the market share gains that you just highlighted as well as potentially some new customers that could come via the acquisitions and customer overlap that you highlighted. What type of SOC cam would be required to return to $50 million to $60 million a quarter again?

David Tacelli

I think if we saw a market and I’ll say capital only of $1.8 billion to $2 billion you would see us up in that range. And I am talking capital only not service. And I am not including in that any additional revenue from test cell advancements, from entering new markets, we have got a couple of those on the agenda to work with Multitest. I am speaking strictly from a test market size and the share that we have already believe we have won.

Christian Schwab - Craig-Hallum Capital

Great, no other questions, thank you.

David Tacelli

Thanks Christian.

Operator

Thank you. And our next question comes from David Dooley from Steelhead. Your line is open.

David Dooley - Steelhead

Yes, a couple of questions from me just as a clarification and I haven’t seen the new slides that you presented today. So could you just in the original presentation you gave us a combined entity revenue number of $109 million, I believe could you compare that number and the pieces of that number to the quarter that’s just completed?

David Tacelli

Yes, Dave in the slide, if you go there is a section that had Q4 of fiscal 2013, that’s the number you are referring to the $109 million. And then right below that in the same slide is Q1 of 2014 and then the comparisons are there. So I think it was $109 million in fiscal Q4 of 2013 and it was $106 million – $107 million in fiscal Q1 2014. And the primary drop was LTX-Credence where the ECT Multitest businesses actually went up $2 million during that same time period, right.

David Dooley - Steelhead

Okay. And then, so we have $109 million and $107 million and on an apples-to-apples basis since you are guiding to two quarters instead of two months instead of three months, what will this number look like in Q2 for a full quarter of everything?

David Tacelli

Yes, we haven’t given that, but what I would use is a proxy is we also laid out a model, three different revenue levels, one at $95 million, one at $125 million and one at $150 million. And I would say it would be pretty close to the $95 million level plus or minus a few million.

David Dooley - Steelhead

Okay, I apologize I do not have the slides up.

David Tacelli

Yes, sorry about that, Dave. Yes, in one of the slides we talked about three different quarterly revenue numbers, $95 million, $125 million and $150 million. I think with the full quarter’s revenue, you would be very close to the $95 million range. In that model, the one thing I want to point out is we have synergy included in that model. So that would be if you are looking at an EPS, the difference.

Mark Gallenberger

Yes, the other way to look at it is for the Q2 guidance that we gave ECT and Multitest we had a range of around $44 million to $46 million. Obviously that range is tighter because they got more recurring revenue in there. If you just try to spread it like peanut butter, you multiply that number by 1.5 that kind of takes the $46 million, which is the high end up to $69 million. If you add our high end, which is $29 million that kind of gets you to about $98 million or so on the high end of the revenue range. And then on the low end that would be about $90 million, $92 million. So like Dave said the midpoint is right around the $95 million.

David Dooley - Steelhead

And this $98 million to $92 million run rate on a go forward basis, is this a level of profitability, what sort of pro forma EPS numbers does this yield?

David Tacelli

Well, right now that would put us actually in a loss position without any sort of restructuring. So that’s why if you look at the business model at the $95 million level that assuming we got a full synergy realized, that puts us at basically a breakeven for operating income and positive EBITDA.

David Dooley - Steelhead

Okay. And in the quarter that just ended or no, excuse me, in the quarter that you are guiding to what level of recurring revenue do you think we will have?

David Tacelli

It’s going to be little higher. If you look at the 3-year average, if you go back and look at the last 3 years’ results, we were averaging just around 50% to 51%. This quarter, I think that number because of the capital equipment sales are down, the recurring revenue is probably going to be in the mid 50s.

David Dooley - Steelhead

Okay. Final question for me is on a combined basis, who will the five biggest customers be or the most important customers and who represents the biggest cross-selling opportunities?

David Tacelli

Well Dave, the right answer is all my customers are valuable to me. There is no one customer or two customers. The way we have always looked at it is all our customers are valuable. I would look at that chart that we showed and we did show a customer chart and there are some significant cross-selling opportunities, some significant names on that chart and I can tell you that we are working on all of them.

David Dooley - Steelhead

Let me ask in a different way. As far as historical revenue goes, who are the top five customers?

David Tacelli

Yes, we haven’t shared that information. But one thing I can say going forward with the new, what I will say customer dispersion that maybe one that may not be one 10% customer on a regular basis or on a fiscal year basis, but companies may float in and out, but they may not get there on a fiscal year basis.

Mark Gallenberger

Yes, Dave, with this much greater revenue base, we don’t have these huge concentrations like LTX-Credence historically has had. And so right now, we would only be disclosing any customers that are greater than 10%. And so like Dave mentioned, a lot of the customers they may go in and out in any given fiscal quarter at the greater than 10% customer, but on a fully fiscal year basis, it’s possible we may not have any. I think the only exception might be Spirox who is our partner in Taiwan and China, but when you peel the onion behind Spirox, as you know there is multiple customers driving revenue through that single customer that we defined in our 10-K.

David Dooley - Steelhead

Thank you.

Operator

Thank you. (Operator Instructions) And our next question comes from Tom Diffely from D.A. Davidson.

Tom Diffely - D.A. Davidson

Yes, good morning. So Mark, quick question first on the stub quarter, when you look at the revenue and expenses, were they pretty evenly matched as far as being two month each or is one of them larger than the other one on a relative basis?

Mark Gallenberger

I would say because going back to the recurring revenue stream that kind of moves out the revenue and how it kind of flows in on a monthly basis. So there is underlying capital equipment, but relative to what I used to, it’s much more a level loaded. So I would say that it’s fairly even between the two months, including the OpEx.

Tom Diffely - D.A. Davidson

With no real purchase accounting issues that would stop the revenues that would make lower?

Mark Gallenberger

I am sorry, can you repeat that?

Tom Diffely - D.A. Davidson

Yes, no real purchase accounting issues that would dampen the revenues on a near-term basis?

Mark Gallenberger

No, no.

Tom Diffely - D.A. Davidson

Okay. And then so when you look at business, same business is exactly the same as the January quarter this year, a year from now, once you have the $15 million in cost savings, it sounds like that would essentially be a breakeven quarter. The reason I asked is earlier you said there are some mix issue that may have hurt this quarter more than the average quarter?

Mark Gallenberger

Well, Tom, I think when you have so many different products now and so much close to 40% to 50% of your revenue is kind of recurring, it really depends on how the capital equipment flows and what products. I think what Mark was trying to highlight is we are a little bit more subject to mine or mix shifts than we were in the past, it’s just LTX-Credence, but I don’t see it as massively significant.

Tom Diffely - D.A. Davidson

Okay. And then Dave, you…

Mark Gallenberger

The only thing I point out, I am sorry, Tom, the only thing I would point out on that was if you look at that one slide that we presented that showed the June 30 Multitest ECT numbers compare that to the September ECT Multitest numbers, the revenues went up $2 million, but they maintained the same level of operating income and EBITDA. And lot of that is mix dependent. So lot of times there is a little more sensitivity to what they are shipping relative to consumables and recurring versus capital equipment.

Tom Diffely - D.A. Davidson

Okay, it makes sense. And Dave, maybe just give us a quick sense of what your feeling is, what your thought is of just the hills of the PCB market over the next year?

David Tacelli

I think because we are so diverse right, we are covering not only the bare board tests, we are also covering the assembled boards. I think we have got a great reach into a lot of those different segments of the market. Number one, number two, on the assembled board side we are the only global provider of fixtures. So the company wants to copy exactly across all their factories. We are the only supplier of that. That gives us the competitive advantage. And on the bare board side, we have got some really unique technology, leading edge technology on speed and capability for flying probe that gives us the competitive advantage, where we dominate the market today. So I think the market itself I think is okay, but there are some competitive things we have in global reach we have that gives us the competitive advantage.

Tom Diffely - D.A. Davidson

Okay, thank you.

Operator

Thank you. And I am showing no further questions at this time gentlemen. And I would like to hand the conference back over to Mr. Mark Gallenberger for closing remarks.

Mark Gallenberger - Vice President and Chief Financial Officer

Okay. Well, I want to thank everybody for joining us today. And as I have mentioned earlier, we will be presenting at the Midtown CAP Summit in New York City next Wednesday, December 11 beginning at 10:00 AM. Thank you very much for your time and have a good day.

Operator

Ladies and gentlemen, thanks for participating in today’s conference. This concludes the program. You may all disconnect and have a wonderful day.

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