CyberOptics' (CYBE) CEO Subodh Kulkarni on Q1 2016 Results - Earnings Call Transcript

| About: CyberOptics Corporation (CYBE)

CyberOptics Corporation (NASDAQ:CYBE)

Q1 2016 Earnings Conference Call

April 28, 2016 16:30 ET

Executives

Subodh Kulkarni - President & CEO

Jeff Bertelsen - CFO & COO

Analysts

Ross Strehlow - RBC Wealth Management

Operator

Ladies and gentlemen, welcome to today's CyberOptics First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Subodh Kulkarni, President and Chief Executive Officer. Please go ahead.

Subodh Kulkarni

Thank you. Good afternoon and thanks for taking the time to participate in CyberOptics first quarter earnings conference call. Joining me is Jeff Bertelsen, our CFO and COO, who will review our recent operating results, following my overview of our first quarter performance. Jeff and I 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, 2015, and other filings with the Securities and Exchange Commission. We urge you to review these discussions of Risk Factors.

Turning now to our recent operating results; we posted outstanding sales growth and earnings in the first quarter of 2016. The resources and effort that we have devoted to strategically reposition CyberOptics as a leading 3D Sensing Technology Company generated our strongest operating results in quite some time. And through our technological initiatives we are competing effectively and rapidly growing 3D inspection arena which is why we are forecasting strong sales growth and profitability in 2016.

First quarter system sales totaled $19.1 million, double the $9.5 million reported in first quarter of 2015. This strong growth which included sales of approximately $2.5 million from our year-end 2015 backlog of MX6000 Memory Module Inspection Systems was driven by robust demand or new 3D inspection systems and sensors. We also reported earnings of $2.3 million or $0.33 per diluted share in the first quarter of 2016 compared to a loss of $781,000 or $0.12 per share in the year earlier period.

In reviewing our first quarter results, it is instructive to keep two factors in mind. First, 30% of our first quarter sales were generated by 3D MRS-enabled systems and sensors. And second, our MX600 systems when added to those 3D products generated over 40% of our sales for this period. The strong sales contribution made by products that have been on the market for only about one year offers clear proof of the significant progress we are making.

Turning now to an overview of our first quarter results. System sales increased 176% year-over-year, driven by strong demand for our SQ3000 3D MRS-enabled automated optical inspection or AOI systems and the MX600 customer acceptances. During the quarter, we received previously announced follow-on orders of approximately $4 million from our SQ3000 systems from a key customer for a next-generation consumer electronics product. These orders have reinforcing our belief that CyberOptics is gaining share in the rapidly growing 3D AOI market. SQ3000 sales also are accounting for a steadily growing percentage of our total AOI and solder paste inspection sales.

In all, our 3D MRS-enabled systems are gaining significant traction in the marketplace, and we believe this momentum will continue during 2016. And going forward, our systems sales also will benefit from a follow-on order of approximately $2.4 million for MX600 systems that we received in the first quarter. This additional order brings our total MX backlog to about $3.4 million, and customer acceptances and revenues are expected over the balance of 2016.

Sensor sales rose 106% in the first quarter, benefiting from orders for 3D MRS-enabled sensors, as well as a rebound in sales of legacy 2D LaserAlign sensors to our traditional OEM customers. Our 3D sensor sales were generated under long-term supply agreements with KLA-Tencor and Nordson YESTECH, our new OEM customer that we announced in March. Sales to KLA are expected to continue growing as the company incorporates our 3D sensors into a growing portion of its back-end semiconductor packaging inspection systems. Nordson YESTECH introduced its 3D MRS-equipped AOI system at the IPC APEX Expo trade show in March to a very favorable reception. As a result, we believe our Nordson supply agreement should be a positive contributor to our future sales growth.

We are pursuing additional OEM customers for our 3D technology in both, the SMT and non-SMT markets. These initiatives are at varying stages and can have extended timeframes until first sales are realized. Recent interest by current and potential customers in our 3D MRS Technology is further strengthening our confidence in CyberOptics strategic direction in future. Although first quarter sales of semiconductor products were virtually flat on a year-over-year basis, we are very encouraged by the high developed customer interest in our WaferSense and ReticleSense Auto-Multi Sensors that combine leveling, vibration and humidity measurements into an all-in-one wireless real-time device.

Customers are finding numerous applications for this product due to its high value proposition and as we believe our line of AMS sensors should strengthen semiconductor sales in coming quarters.

We are also receiving positive customer feedback from the beta testing for CyberGage360 3D Scanning System, and we continue to believe that initial sales should be realized in this year's second half. A general purpose metrology scanning system based upon CyberOptics' unique 3D MRS Technology, the CyberGage360 appears to face no viable competitive product at this time. Given the advanced inspection capabilities of this system, we believe that CyberGage360 could be a significant contributor to our future growth.

Looking ahead, we ended the first quarter with a backlog of $17.7 million, up from $15 million at the end of 2015, making us confident CyberOptics should post strong year-over-year sales growth and profitability in this year's second quarter. As previously stated, our quarterly results will fluctuate somewhat on a sequential basis during 2016 given the pace of new orders for our 3D products and customer acceptances of our MX600 backlog. However, we are forecasting strongly improved sales and operating results for the full year. Also contributing to this positive forecast is our outlook for CyberGage360 and the growth of our WaferSense/ReticleSense product lines in the semiconductor market.

While very encouraged by our recent performance and positive outlook, I want to reiterate that CyberOptics is a work in progress with much more to be accomplished. Our mission is to continue developing new generations of products and technology while further expanding our customer base in the semiconductor, SMT and general purpose metrology and 3D scanning markets. We are fully committed to this task which we believe will result in substantial value creation for our shareholders.

Thank you. Now Jeff Bertelsen will review our first quarter results in greater detail.

Jeff Bertelsen

Thanks, Subodh. I will lead up by briefly reviewing the first quarter performance of our product lines.

Sales of inspection systems increased 176% year-over-year reflecting strong demand for SQ3000 3D AOI systems and customers acceptances for $2.5 million of MX600 memory module inspection systems. Sales of our new 3D MRS-enabled AOI products are accounting for a growing percentage of our total AOI and Solder Paste Inspection sales and we believe this trend will continue in 2016.

During the quarter we received a follow-on order of approximately $2.4 million for MX600 memory module inspection systems. This additional order brings our total MX backlog to about $3.4 million and customers' acceptances and revenues are expected over the balance of 2016. Total system sales are forecasted to increase significantly year-over-year in the second quarter of 2016 due principally to growing demand for SQ3000 3D AOI systems.

Sales of electronic assembly sensors rose 106% year-over-year reflecting strong orders for 3D MRS-enabled sensors, as well as a rebound in sales of legacy 2D LaserAlign sensors to our traditional OEM customers. Our list of OEM sensor customers is continuing to grow and as Subodh noted, we are actively pursuing other prospects. Total sensor sales should register robust year-over-year growth in the second quarter of 2016 given the outlook for continued demand for 3D MRS sensors, as well as the positive outlook for legacy 2D sensors.

Sales of semiconductor products, principally the WaferSense and ReticleSense product lines were virtually unchanged in comparison to last year's first quarter. However, we are forecasting a solid pickup and sales of our semiconductor products in the second quarter due to the growing interest in our new AMS sensors.

Finally, first quarter LDI revenues rose 64% year-over-year reflecting strong sales of CT Systems driven by our ability to provide a comprehensive offering of training and installation support services. We expect this trend to continue in Q2.

Moving down the P&L, CyberOptics first quarter gross margin of 42% was down from 48% in the year earlier period due mainly to product mix. We believe that our gross margins will well improve in the future as our new 3D product offerings become an ever increasing portion of our overall revenue base.

Total operating expenses were essentially flat in the first quarter of 2016 versus a year ago period, largely due to ongoing cost control. Cash and marketable securities totaled $17.4 million at the end of the first quarter, virtually unchanged from $17.6 million at the end of 2015 reflecting our ability to manage working capital and finance significant sales growth without burning cash. I would also note that no shares of common stock were repurchased in the first quarter under our current share repurchase authorization. Our cash reserves are more than ample to support our growth initiatives.

Thank you. I will now turn the call over to the conference call operator who will poll you for any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we'll go to Robert Sesnin [ph] with Bentley Capital.

Unidentified Analyst

I've got a few questions. Number one, how much room do you think there is for gross margins to grow? And relative one is, you did an unbelievable job of controlling expenses with over 100% increase in revenues. Will operating expenses grow with revenues now or can you maintain them relatively flat?

Jeff Bertelsen

I think the first question in terms of gross margins, there is certainly is room for expansion in the margins as our new 3D products become a growing portion of our revenue. The margins on the 3D MRS sensors are good, the new product, CyberGage, we think will have very good margins as SQ3000 and so forth, so we certainly think there is expansion and room up from here and our goal is ultimately to get those above 50%.

Unidentified Analyst

Okay. And would you also answer the operating expenses? Will you be able to…

Jeff Bertelsen

Sure. And then the operating expenses, I mean, you would -- and we would think that as revenue continues to grow, there would be some expansion in OpEx but not a lot, I mean our model definitely will scale and can accommodate future revenue growth. So lot of the margin from future sales can drop to the bottom-line of course. We'll have some expenses for commissions and we'll need to have some increase in OpEx for coverage and sales support and so forth but not a lot.

Unidentified Analyst

Okay, that's fantastic. My other question is, can you give us an idea where the KLA revenues are now and where they could be over the next 12 to 24 months? And when the Nordson in OEM revenues will kick-in and the potential there as well?

Subodh Kulkarni

We don't quantify to that level of granularity any of the OEM expenses for obvious reasons. Both have kicked in, while KLA certainly is the bigger portion since we started that agreement, middle of last year, Nordson is very recent agreement that just started. Both are expected to continue to grow as KLA mix the sensor on more of its backend inspection systems. We are not quantifying it beyond that point at this time, but both, we believe have significant growth potential over where they are right now.

Unidentified Analyst

Is it fair to say that the penetration you're getting with both of these customers is still fairly low and has a lot of room to grow?

Subodh Kulkarni

That is a fair thing to say. Yes, we just -- I mean as I said, KLA started just a little, more than a year ago and Nordson is just a couple of months old agreement right now. So there is plenty of upward mobility if you will to grow with those two customers from where we are right now.

Unidentified Analyst

Thank you very much. Great job.

Subodh Kulkarni

Thank you.

Jeff Bertelsen

Thank you.

Operator

Thank you. [Operator Instructions] We'll go to Ross Strehlow with RBC Wealth Management.

Ross Strehlow

Congratulations guys, absolutely fabulous quarter.

Subodh Kulkarni

Thank you.

Jeff Bertelsen

Thanks, Ross.

Ross Strehlow

So talk a little bit, if you could, on your sensor sales opportunity. How many other potential customers have you engaged with?

Subodh Kulkarni

We have multiple potential customers we are talking to and they are at different stages. Some small, some very large potential opportunities. We -- these are all at varying stages and once they start, they take a few months to really get traction going as we have seen in the case of/with KLA Tencor and Nordson. So we'll certainly disclose anything of significance as they happen. But there is a very healthy pipeline of potential customers in the future that we think we should be able to monetize on.

Ross Strehlow

I know the sales cycle is long Subodh, but do you expect -- can you give us any kind of flavor of when you expect to engage some new customers like over the next three to six months?

Subodh Kulkarni

But we're already talking to some of them right now, actively, and evaluations are in progress, and those things are already happening with some of them. As we actually get orders and if we believe they are substantial or significant enough, we will obviously disclose at the right time. But yes, we are -- we hope we add some customers during this calendar year. So certainly in the next few months we hope to gain some more OEM customers.

Ross Strehlow

That's great. And then talk about -- can you give more details so far about what's going on in terms of the beta test with the CyberGage 360?

Subodh Kulkarni

Sure.

Ross Strehlow

How many actual locations is it and how many -- again, if you can give us some more detail, whatever you can talk about there would be helpful.

Subodh Kulkarni

Sure. So we started beta test just a couple of months ago with CyberGage. We have it in three locations right now. In general, the results are very favorable, positive. The key value proposition of CyberGage360, it's very easy to use, it's very accurate and very fast. And all the locations that we have, we CyberGage essentially confirm that. It is indeed very to use and accurate and fast. We are also getting some valuable feedback on what we could improve like the size of the physical envelope of large [ph] scan, whole black, thus black have to be in terms of plastics and stuff like that. But we are getting some very valuable constructive feedback that helps direct our future technical progress. But all-in-all, very favorable positive reaction that makes us believe that we should start selling CyberGage360 soon to actual customers.

Ross Strehlow

How many beta test locations are you in right now?

Subodh Kulkarni

We are in three locations. We are expanding the test with more customers but that could be classified as beta early evaluation if you will.

Ross Strehlow

Well, that's great. Subodh, what's your employee count right now compared to six months ago?

Subodh Kulkarni

So our employee count right now is 155 employees and it really has not changed significantly Ross, so it's the same number.

Ross Strehlow

Okay.

Jeff Bertelsen

Yes, I mean -- that's our -- just to clarify that's our full-time employee headcount. I mean we in our factory operations we do add some temporary help just to help scale with the volume so those numbers are -- the temps are not included in that number.

Ross Strehlow

That's great. Thanks a lot guys and congratulations again.

Subodh Kulkarni

Thank, Ross.

Jeff Bertelsen

Thanks, Ross.

Operator

Thank you. [Operator Instructions] And we'll hear from George Mirma [ph], private investor.

Unidentified Analyst

Thank you for taking my questions. First question is on the -- on your SG&A increase, is that due to selling expense?

Jeff Bertelsen

Are you -- if you're -- so our SG&A expense was -- in the first quarter was roughly about $3.5 million just to make sure we're talking the same period versus about -- little short of $3.4 million in Q1 of last year.

Unidentified Analyst

I was comparing it sequentially, as Q4 it was…

Jeff Bertelsen

Okay. So we were at $3.5 million versus about $3 million. I mean most of the SG&A expense would have been attributed to two things. One would have been some increased commission costs and the other part would be incentive compensation just due to the improved financial performance of the company. And then probably a third factor would be -- with the start of the New Year you do get some more trade show activity and stuff.

Unidentified Analyst

Okay, very good. Also I want to drill down a little bit more on gross margin. You had obviously a monster growth in revenue in production in these recent several months. Was there some capacity and yield type issues that may have dragged down margin or is it just purely a mix or…

Jeff Bertelsen

No, I mean -- yes, it's purely a mix, I mean in the -- and for example; sequentially the margins are also 42%. Last year in the first quarter they were 48% and that really is a mix issue. And our highest margin product is the WaferSense product line and that made up of a much bigger proportion of the revenue in the first quarter last year versus this year.

Unidentified Analyst

And you expect to ramp that product line as the year progresses sounds like it?

Jeff Bertelsen

Yes, I mean we feel very good about the potential for the WaferSense product line, particularly the new AMS sensor with the humidity sensing. We're getting a lot of customer interest and good feedback on that product. So we do expect our WaferSense sales to move ahead going forward.

Unidentified Analyst

And then on general capacity, I mean you've obviously proven you've gone from $10-ish million quarterly revenue to near $20 million, you almost doubled your revenue and you didn't seem to have any capacity issue. So what sort of capacity do you have because in your guidance you talked about fluctuations being somewhat which to me means according to Webster's Dictionary it means a little bit but if you're gearing towards a $70 million, $80 million size company, it sounds like you don't have any capacity constraints. But what sort of capacity do you have?

Jeff Bertelsen

If you look at our manufacturing model, I think we have the capacity to -- we certainly have the capacity to meet our needs for the foreseeable future. We -- right for example, right now we'll still run a single shift here. We're breaking up temporary labor. We really do our more final assembly and test as opposed to bending medal and really raw manufacturing activity.

Unidentified Analyst

So if you're only running one shift without adding considerable CapEx you could do two or even three shifts someday to really expand capacity quite a bit more. Yes?

Jeff Bertelsen

Sure, it's possible. I mean there would be some constrain potentially with some of the manufacturing fixtures and so forth but yes, we have plenty of capacity to expand production without incurring significant additional CapEx.

Unidentified Analyst

And on your product like the SQ3000 for example, approximately on average, how long is it from book-to-ship-to-bill kind of timeframes on that? Is it couple of weeks, couple of months, how fast do you think?

Jeff Bertelsen

I would say from when we get the order to when we ship it, to when we actually revenue it, most of those sales still -- we require some customer acceptance on those two revenue. So I would say on general, you're probably looking at 90 days.

Subodh Kulkarni

For repeat purchases it's probably closer to a months or so.

Jeff Bertelsen

Yes, I mean once a customer has bought in multiple machines, the process goes quicker.

Unidentified Analyst

And then one last one. On the CyberGage360, you seem to have some excitement about that anticipate later this year to start getting some orders. Being that this is going into -- I want to learn more about your go-to-market strategy on this because I'm assuming you're talking about going into general metrology which means different vertical markets you've been traditional in like automotive and aerospace, etcetera, etcetera, etcetera, especially dealing with shiny objects and all this but what kind of go-to-market are you going to -- how are you going to distribute it and sell it, direct basis, through partners and then what sort of investment -- that should be doing a direct sales model. What kind of investment is going to be needed to go-to-market with this?

Subodh Kulkarni

Sure. Do remember that we acquired LDI a couple of years ago and with that acquisition we did pick up some reps and channel in the general purpose metrology market. So we have a rep channel right now and that's our primary go-to-market model with CyberGage, we start with the LDI rep channel. In addition to that we have our inspection system rep channel that primarily caters to the SMT customers and SMT customers who want CyberGage like products. We are basically going -- starting with the LDI general purpose metrology rep channel and CyberOptics inspection systems, SMT rep channel, that's how we are starting but you are right, as we go forward we will have to add more reps and more verticals because the product will fit into many, many different verticals, not just SMT or the general purpose metrology area.

Unidentified Analyst

And if I may do a follow-up on this CyberGage, given CyberGage's -- the technology it uses and all out. What would be sort of a very realistic conservative in that multi-billion dollar kind of market opportunity stuff but what sort of target markets could you just more specifically go after and what kind of -- I want to get some kind of sense, or what kind of revenue potential size or magnitude does this have? How are you envisioning this?

Subodh Kulkarni

You touched on a very important point and I wish we could quantify it very clearly but it is -- in a way we are creating a new category within the 3D scanning world because nothing like this exist today. We could quantify the market at a higher level which includes everything from CMMs and terrestrial scanners and that's the multi-billion dollar number that you referred to. And the market is indeed that large for the overall 3D scanner business, and there are many large companies existing but nothing like CyberGage exists today so we are kind of trying to find out what -- how much of the general purpose 3D scanning market is going to be available to us and it's really too early for us to quantify right now as to whether it's hundreds of millions of dollars or tens of millions of dollars or a bigger chunk of the billions of dollars, it's just too hard to quantify sitting here. It's a new product.

Unidentified Analyst

Well, it's very exciting. Thank you, doctor.

Subodh Kulkarni

Thank you.

Operator

Thank you. [Operator Instructions] We'll go to Dennis Shenchak with White Capital [ph].

Unidentified Analyst

Good, clever and good job in pronouncing my name. Maybe, probably obvious in few more hours but are you using NOLs to some degree to minimize the tax rate so the $0.33 or $2.3 million was after pre-tax, after-tax sort of almost the same thing or/and you have -- what is the NOL carry forward and what was the tax rate if any for the first quarter?

Subodh Kulkarni

So pre-tax income was about $2.3 million, and on that we booked the $43,000 income tax provision. So right now for our deferred tax assets, we have a full valuation allowance booked against. So what that means is that, as we generate money right now, we're able to use our NOL from really offset any tax expense so for booking-cum-GAAP purposes, we effectively have very little income tax expense right now.

Unidentified Analyst

And obviously how long do you think the rest of this -- I mean you've had some pretty good losses by, good news/bad news back for several years on all '08-'09, big loss and then last three/four years you've had losses. So you could go -- I don't know how you ramp, maybe a year and a half, two years without any taxes before you use up the NOL.

Jeff Bertelsen

Obviously that depends on future profitability and I would know [Cross Talks]. We have a number of unused R&D tax credits too, so we certainly would go under probably any measure for a while before we'd actually have to pay cash taxes. Now as our profits and our outlook continue to improve at some point, we will have to look out reversing the valuation allowance on the deferred taxes and then that essentially results in a big one-time gain but then you end up booking a more normalized tax rate again for GAAP moving forward. But in terms of cash taxes, we've got NOLs, we've got R&D credits that we can use for a while before we'd actually have to pay a cash to Uncle Sam.

Unidentified Analyst

Okay, thank you.

Operator

And we have a follow-up from George Mirma [ph].

Unidentified Analyst

Hi, thank you. On your earlier comments, you mentioned the goal of someday reaching a 50% gross margin. What kind of timeframe or what needs to happen to sort of reach that goal?

Jeff Bertelsen

We didn't -- that is a goal, a long-term goal, and we didn't put a timeframe on it. Obviously we'd like to drive our margins higher and in that something we're focused on, we need to do but I think really the key metric here for us is for the new 3D products to continue to be a bigger and growing proportion of our…

Subodh Kulkarni

Yes, in general I would say it depends on the mix obviously but higher proportion of WaferSense and a higher proportion of MRS-based sensor OEM orders or SQ3000 systems would take us there faster.

Unidentified Analyst

I guess I'm trying to pinpoint more precisely, does this require the CyberGage to have success to reach this you could actually reach this with your current set of products, pre-CyberGage product line?

Subodh Kulkarni

Again depends on the mix, I mean obviously CyberGage being MRS and being -- it is a higher margin product than the goal likely we talked about here. So CyberGage will certainly help but it's not necessarily needed because WaferSense frankly, WaferSense and ReticleSense is far higher than what we would make out of CyberGage or that matter….

Unidentified Analyst

Can you give anymore color on the WaferSense this year of how -- what your visibility is to it and what you see?

Subodh Kulkarni

Q1 was flat year-over-year, we definitely expect significant growth for the rest of the year as Jeff mentioned in his comments. The new product, AMS, is getting very good traction in all the major fabs and even the equipment makers right now. So we are ramping it up very, very quickly. So we hope to close the year with a very solid growth profile in the WaferSense/ReticleSense product line. And usually the semiconductor business, Q4 is historically the best quarter from a seasonality standpoint. So we should see -- as the year goes on, the semiconductor revenues doing better and better.

Unidentified Analyst

I'm brand new to your company, I'm a little bit ignorant, but is this mostly being driven by more cyclical stuff or because of the interest in the humidity aspects or what sort of -- what are the drivers of this do you think?

Subodh Kulkarni

The primary driver is definitely the interest in a new sensor that is not only -- it has multiple value propositions. One is it combines three different sensors into one; humidity, levelling and vibration; and humidity is definitely a new thing for many customers. But in addition to that we also made the sensor thinner than our older levelling and vibration sensors, and the thicker sensors that we use to sell all these years were just not able to enter some of the equipment makers because physically the slot is quite narrow. So we have opened the market size significantly with this AMS sensor, both for levelling and vibration and all of the new humidity applications. So most of the growth we expect this year is going to be primarily driven by the AMS demand.

Unidentified Analyst

Okay, thank you.

Subodh Kulkarni

Thank you.

Operator

Thank you. We also have a follow-up from Robert Sesnin [ph].

Unidentified Analyst

One last question, instead of speculating on when you might use your tax credits up from both NOLs and R&D. Could you just tell us how much income you can shelter through those two items? Is it $5 million, $10 million, can you give us some idea what that total shelter amount is rather than speculating when they would be used?

Jeff Bertelsen

Sure. I mean we had a valuation allowance against our deferred tax asset of $10 million.

Unidentified Analyst

Okay.

Jeff Bertelsen

So that would be reversed out at some point in the future. In terms of NOLs, I don't have the exact numbers in front of me but I believe we have about $10 million of NOLs, that's pre-tax, so not tax affected in a couple of million dollars of R&D tax credits.

Unidentified Analyst

Okay, that's very helpful. Thank you very much.

Operator

Thank you. Now we have a question from Donald Hall [ph], private investor.

Unidentified Analyst

Gentlemen, thank you very much for outstanding performance.

Subodh Kulkarni

Thanks, Donald.

Unidentified Analyst

And transforming this company into something really is very exciting.

Subodh Kulkarni

Thanks, Don.

Unidentified Analyst

Yes, you're welcome. I have one question, can you tell us roughly what the gross profit margin is on your OEM business?

Subodh Kulkarni

No, we would be very careful not to go there Don because it is only -- that would be telling them what our cost structure is fairly quickly.

Unidentified Analyst

I assume it's lower than the systems business and that's part of the mix issue. Am I right on that?

Subodh Kulkarni

Again, there are different -- I would rather not go and quantify the OEM numbers because there is very high sensitivity on -- they would know the cost of the sensor.

Unidentified Analyst

Okay, I understand. Thank you.

Subodh Kulkarni

I can just say that the OEM sensor business is a very profitable business for us, let's just predict that way.

Unidentified Analyst

Okay, good. Thank you very much.

Subodh Kulkarni

Thanks, Don.

Subodh Kulkarni

Operator

Thank you. And with no additional questions in the queue, I'd like to turn things back over to management for any additional or closing remarks.

Subodh Kulkarni

Well, thank you for your interest and questions. We look forward to updating you about our progress and results at the end of Q2. Thank you.

Operator

Thank you. And again, ladies and gentlemen, that does conclude today's conference. Thank you all again for your participation.

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