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Coherent Inc (NASDAQ:COHR)
Q4 2020 Earnings Call
Nov 10, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Coherent's Fourth Quarter Fiscal Year 2020 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Bret DiMarco, Executive Vice President and Chief Legal Officer. Please go ahead.

Bret DiMarco -- Executive Vice President, Chief Legal Officer and Corporate Secretary

Thank you, Jason, and good afternoon everyone. Welcome to today's conference call to discuss Coherent's results from its fourth fiscal quarter and fiscal year ended October 3, 2020. All of us here at Coherent hope that you and your family are staying healthy and safe during these challenging times. On the call with me are Andy Mattes, our President and Chief Executive Officer; and Kevin Palatnik, our Executive Vice President and Chief Financial Officer.

I would like to remind everyone that some information provided during this call may include forward-looking statements, including without limitation, statements about Coherent's future events, anticipated financial results, business trends, global economic trends and the expected timing and benefits, if any of such trends. These forward-looking statements may contain such words as project, outlook, future, expects, will, anticipates, believes, intends or referred to as guidance. These forward-looking statements reflect beliefs, estimates, and predictions as of today, and Coherent expressly assumes no obligation to update any such forward-looking statements. These forward-looking statements are only predictions and are subject to substantial risks.

Factors that could cause or contribute to such differences include, but are not limited to, risks associated with the recovery of global and regional economies from the negative effects of COVID-19 and related private and public sector measures; global demand, acceptance and adoption of our products, including but not limited to adoption of OLED displays; the demand for and use of our products in commercial applications; continued timely availability of products and materials from our suppliers; our ability to timely ship our products and our customers' ability to accept such shipments; worldwide government economic policies, including trade relations between the United States and China; and other risks identified in the company's SEC filings. For a detailed description of risks and uncertainties, which could impact these forward-looking statements, you should review Coherent's periodic SEC filings, including its most recent Form 10-K, Form 10-Q and Forms 8-K, including the risks identified in today's financial press release.

I will now turn the call over to Andy Mattes, our President and Chief Executive Officer.

Andy Mattes -- President & Chief Executive Officer

Thank you, Bret, and thank you to everyone for joining our earnings call today. While fiscal Q4 was still overshadowed by the impacts of COVID-19, I'm happy to report that on just about every metric our performance exceeded the fiscal low of Q3. But before I discuss our results and market trends in more detail, I want to take a moment to acknowledge the tireless efforts and dedication of all our teams around the globe who are actively embracing the new normal of either getting business done remotely or working in our labs and manufacturing sites by adhering to our strict stay safe and healthy rules. It is exciting to see that innovation and our customer-centric focus continue to flourish even in these unusual circumstances.

Looking at our top line, we improved bookings and revenues sequentially from last quarter's low. And even though full fiscal 2020 top line was lower than the previous fiscal year, we finished the fiscal year with a positive book-to-bill ratio and an improved backlog position that increased approximately 10% year-over-year. To add a little color, three of our four end markets saw solid double-digit percentage increases in bookings over the prior quarter. As anticipated, our OEM Components and Instrumentation as well as our Scientific businesses saw the fastest recovery, as research labs and non-COVID related hospital utilization drove a sequential increase in clinical testing and laser-related medical procedures.

Let me now start with microelectronics. As you know, this market is made up of three sub-markets: flat panel display, semi and advanced packaging and interconnect. Our FPD business is primarily driven by mobile demand. And although worldwide sales of new handsets remains depressed relative to pre-COVID levels, we saw a clear upturn in factory utilization of our ELA installed base from the prior quarter, as consumer spending recovered and several smartphone manufacturers ramped production on new 5G-enabled models. We were especially excited to see the entire new iPhone12 lineup from Apple adopt flexible OLED displays, which together with the new foldable models from Samsung, LG and several Chinese manufacturers, should continue the trend toward flexible OLED becoming the technology of choice.

We continue to be cautiously optimistic that we are at the front end of a multi-year 5G-driven smartphone upgrade cycle, which together with announcements of more than 20 laptops having OLED screen options, including the new Lenovo ThinkPad X1 Fold, and the recently introduced Samsung Galaxy Tab S7+ tablets, all bodes well for further utilization of our ELA installed base, which drives a healthy service business.

Published reports have noted that one or more display makers other than the historical incumbent may now be supplying flexible OLED displays into Apple, even if only in limited volumes for replacement screens. Similarly, other published reports have noted that several Chinese OLED manufacturers have reached a yield inflection point where they are actively allocating production capacity for larger screens for IT devices such as tablets, laptops and monitors. We believe that these changes in the competitive landscape will help drive OLED price points lower in all mobile screen formats and reduce the premium over LCD, which is the stimulus required to drive the next round of new capacity and fab investments. In that regard, I'm also happy to report that since our last call we have several new orders from multiple customers in China.

In Q4, we also saw a significant increase in the level of investment and bookings related to microLED displays, where we enjoy an industry-leading position. That is reflected by sales and active engagement with more than 25 customers, all working on process development as a precursor to a mass production solution. Our microLED customer base includes almost all current OLED & LCD manufacturers, as well as many well-known microLED specific start-ups and display industry integrators. We are uniquely positioned with multiple UV solutions for four separate microLED processes, ELA for high performance/low power consumption backplanes, laser lift off for customers using sapphire carriers, laser transfer and laser repair.

The appeal of microLED is reduced electrical consumption for improved battery life and higher absolute brightness relative to OLED. We are continuing to accelerate our efforts and investments in UV microLED solutions to help our customers develop the laser processes of record, so we can, in turn, develop the laser-based capital equipment systems needed for mass production. We will further discuss our new process development product offerings with you later in fiscal '21.

We see a co-existence of the two technologies in the years to come, with flexible OLED remaining the dominant choice for mobile in the long term and microLED becoming the new entrant in high-end TV, where brightness is a key advantage, and devices where battery size is at a premium, such as watches, or future smart glasses. We believe we are well positioned to remain the laser solutions display industry leader for all display technologies.

Moving onto the semiconductor market, consistent with widely reported industry news, we are seeing sustained strength and increasing demand both for new systems for semiconductor inspection, as well as for service demand from our installed base. The outlook for Q1 is up and in general, fiscal '21 looks positive. To that end, we had recently -- had a significant design win at an industry leader, displacing a legacy competitor.

In advanced packaging and interconnect, we see 5G driving increased demand in smaller geometries, better power management and next-generation HDI PCBs, which is playing to our strength in our CO2 laser via hole drilling business. As a result of the continuous drive in semi innovations, including miniaturization and energy efficiency, lasers are gaining share from traditional mechanical drilling solutions. We are well positioned with China's leading HDI laser drilling equipment supplier, who appears to be taking share from the historical industry leader. We have taken more CO2 laser orders in the first four weeks of this quarter than all of Q4 and appear to be at the front end of a 5G-driven multi-quarter expansion across the entire API space, similar with that seen in FPD and in Semi.

Moving onto materials processing, consistent with the September manufacturing PMI, which indicated an expansion in the index across all major economies, materials processing orders in Q4 increased double-digit percentages versus Q3. A few highlights. We saw improvements in medical device manufacturing orders for marking, cutting and welding applications as well as orders driven by the return of elective surgeries. Our machine tool or systems orders also improved sequentially, primarily due to micro-machining and general marking and engraving applications. The main priority for our material processing business is to continue the turnaround in profitability, which we began last fiscal year with our withdrawal from the commodity kilowatt fiber laser market.

Going forward, we will focus on precision manufacturing, a subset of the materials processing market, where we participate well both in terms of market share and margins on all three levels of components, lasers and systems. We will be focusing our R&D and our manufacturing capabilities toward new products that will serve higher margin, defendable markets. Examples in our systems business include medical device manufacturing, semiconductor wafer marking and precision welding. Later this fiscal year, in the components space, we will be launching a whole new category of laser diode products that will allow us to address completely new applications and customers, dramatically increasing the size of our servable market. We will give you more color on a future call.

This recovery in the medical area also extends to large parts of our OEM components and instrumentation business, where orders increased double-digit percentages from Q3. The principal driver was a rebound in flow cytometry. Demand, as reported by several of the flow cytometry industry leaders, is back up to some 90% of pre-COVID levels, although still constrained due to reduced hospital utilization, lab testing and research lab openings. Customers halted their medical consumables production for a time in Q3 and have now started to replenish inventories as hospital utilization improved.

Discretionary procedures benefited from the US consumer confidence increasing sharply in September, after back-to-back monthly declines. We continue to lay the foundations for OEM volume growth in flow cytometry with several design wins with our recent UV product offerings at 360 and 320 nanometers, enabling completely new applications. Similarly, we received several new design wins from industry leaders, with our industry-leading CellX laser light engines opening up an expanded servable market. Our customers want to work with us not just to supply them the lasers, but also all the beam delivery optics in an integrated sub-systems. These design wins are foundational for revenue growth later in '21 as our customers ramp to volume.

The scientific business is the smallest of our market segments and represents sales of laser equipment to universities and national labs. These activities are funded by central or local government organizations, university endowments and private foundations. This segment was hit hard during the COVID shutdowns in Q3 and, as expected, bounced back noticeably as soon as universities and research institutes reopened. Not only did we experience double-digit percentage booking increases, we nearly reached our 2019 runrate order volumes in this segment.

An early decision of our strategy work has been to double down on our small, but successful defense business that has largely been operating in stealth mode for many years and to declare our intent to focus on and serve this market much more decisively and publicly. Let me expand in some detail. Coherent currently serves aerospace and defense applications such as directed energy weapons, as well as technology for target designation, countermeasures, fiber optic gyroscopes, specialty large diameter optics and entire telescope payloads for intelligence, surveillance and reconnaissance.

To give you some specifics, we've shipped more than 700 directed energy amplifiers in total. This equates to well over 1 megawatt of laser power. We sell products to a significant number of US defense contractors that serve all branches of the armed forces. We have recently been awarded with some exciting design wins in the defense space, which will boost our revenue in this market in '22 and '23. What sets us apart in this market is a US-based supply chain for all critical components, many of which are vertically integrated within Coherent, which we believe is unique in the industry.

Our US defense customers have made it clear that a secure, US-based supply chain is and will be required moving forward. We not only make our own laser diode epi and packaged diodes in the US, but we also supply the specialty single-mode amplifier fiber, critical for every directed energy amplifier. We own several other businesses that make critical components and today, we are announcing that we have entered into an agreement to acquire EOT, a privately held, highly specialized US component maker of optical isolators and other specialized fiber components, which are supplied to the US directed energy market. This acquisition supports our US-based supply chain with further vertical integration of critical components. Once we clear regulatory approvals, we expect the transaction to close in our second fiscal quarter.

The megatrend that is driving this opportunity in aerospace and defense is related to asymmetrical threats from relatively cheap drones, drone swarms and the potential to counter other threats such as mortars, where there are no current defensive solutions. Coherent has been working on this technology for well over a decade, and it's only in the last year that the technology has reached Technology Readiness Levels 6 & 7, meaning successful prototype demonstration in relevant/operational environments, based on the Department of Defense's 9-level Technology Readiness Levels. Several US programs are slated to progress to Technology Readiness Level 8, meaning full system qualification and hence, higher volumes in the next three to five years, with deployment beyond that timeline.

To focus our resources and our expertise effectively and to demonstrate our commitment to the defense space, we have moved the management reporting of all aerospace and defense-related sites under a single Senior Vice President reporting directly to our COO, and we are staffing up the entire organization for growth.

Now let's take a broader look at our strategy. As indicated on our last call, we wanted to give you an update on where we're heading and our priorities. We've spent the past six months laying the foundation for our mid and long-term growth strategy and our good-to-great transformation. You've already heard many near-term specifics of what we plan to do woven into the end market commentary above, including our newly publicly declared focus on aerospace and defense. Our approach to strategic growth is two-fold. On the one hand, we will align our business around end-markets that are supported by global industry megatrends. One example would be healthcare, driven by the confluence of low-cost clinical instrumentation, AI, genomics, an aging population and unsustainable cost. Our objective is to hold or obtain a Number 1 or Number 2 position in all major markets that we participate in. In parallel, we will strengthen our operational excellence to optimize the enterprise, more of which you will hear in our Q1 call.

Going forward, we will be focusing our efforts on four end markets: microelectronics, which yesterday captures the three sub-categories of display, semi and API; instrumentation, which captures the three sub-categories of bio-Instrumentation, therapeutics and research; precision manufacturing, which captures non-microelectronics/non-commodity kilowatt fiber industrial applications; and aerospace and defense. We will explore opportunities to move up the tech stack and offer, wherever possible, subsystems to our customers that will enable them to go to market faster. By doing so, we believe we can more than double our addressable market over the next two to three years.

Fiscal '21 is a foundational year for us. Our continued focus on operational excellence will take us from good to great. Putting it in a simple formula for '21, we will transform our ILS business, while driving new investments in our OLS business. And as we will continue to report these two segments, you will be able to see our progress each quarter.

If you look at our good-to-great transformation more holistically, we are kicking off projects that will transform the operational efficiency of all our processes, reduce the complexity of our portfolio, focus our investments on growth opportunities and enhance the focus and alignment with our customers even further. New product introductions and strategic design wins will be early proof points on the go-to-market side. Looking at our P&L, you will see us return to a gross margin with a four-handle by the end of '21. We will keep you updated on our progress at our upcoming earnings calls, and we are planning to hold an Investor Day in the summer of '21.

With that, let me turn the call over to Kevin.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you, Andy. Today, I'll first summarize fiscal fourth quarter 2020 financial results, then move to the outlook for fiscal Q1of 2021. I'll discuss primarily non-GAAP financial results and ask that you refer to today's press release for a detailed description of our GAAP results, as well as a reconciliation between GAAP and non-GAAP financial results. The non-GAAP adjustments relate to stock-based compensation expense, amortization of intangible assets, restructuring costs, the related tax adjustments and tax adjustments for stock-based compensation. The full text of today's prepared remarks and trended GAAP and non-GAAP supplemental financial information will be posted on the Coherent Investor Relations website. A replay of this webcast will also be made available for approximately 90 days following the call.

Fiscal fourth quarter 2020 financial results for the company's key operating metrics were total revenue of $316.8 million, non-GAAP gross margin of 37%, non-GAAP operating margin of 8.4%,, adjusted EBITDA of 13.2% and non-GAAP EPS of $1.01. Total revenue for the fiscal fourth quarter was $316.8 million and came in at the high-end of our previously guided range. The scientific and OEM instrumentation markets were the key drivers of revenue this quarter as a result of many university and research labs reopening.

Our revenue mix by market for Q4 was microelectronics 45%, materials processing 25%, OEM components and instrumentation 20%; and scientific and government 10%. Geographically, Asia accounted for 52% of revenues in the fiscal fourth quarter, the US 26%, Europe 18% and rest of the world 4%. Asia includes two territories with revenues greater than 10% of sales. And we had one customer in South Korea related to large flat panel display manufacturing that contributed more than 10% of our fiscal fourth quarter revenues.

Revenue from other product and service for the fiscal fourth quarter was $105 million or approximately 33% of sales. Other product revenue consists of spare parts, related accessories and other consumable products and was approximately 28% of sales. Revenue from services and service agreements was approximately 5% of sales. Total services revenues increased sequentially by approximately 8.5% primarily due to increased utilization in our ELA tools for flat panel display manufacturing.

Fiscal fourth quarter non-GAAP gross profit, excluding stock-based compensation costs, intangibles amortization, and restructuring, was approximately $117 million. Non-GAAP gross margin was 37% for Q4, a sequential increase of 390 bps and came in above the midpoint of our previously guided range due primarily to a myriad of items, including increased volumes, lower inventory write-offs and lower warranty costs.

Although non-GAAP operating expenses increased to approximately $91 million, non-GAAP operating margin increased 250 bps to 8.4% for the fiscal fourth quarter and came in virtually at the midpoint of our previously guided range. Adjusted EBITDA was 13.2% in fiscal Q4.

Turning to the balance sheet, non-restricted cash, cash equivalents and short-term investments were approximately $476 million at the end of fiscal Q4, an increase of approximately $55 million compared to the end of last quarter. Given our continued focus on cash preservation, we did not repurchase any shares in Q4 pursuant to our current buyback authorization. We also did not make any voluntary payments against our term loan, and at the end of fiscal Q4, the outstanding amount of the term loan in USD was approximately $420 million.

Accounts receivable DSO was 63 days, compared to 60 days in the prior quarter. The net inventory balance at the end of the fiscal fourth quarter was approximately $427 million, a decrease of $22 million in spite of a currency headwind and resulted from our continued focus on optimizing our inventory balances and increasing our turns.

Now, I'll turn to our outlook for this first fiscal quarter of 2021. Revenue for fiscal Q1 is expected to be in the range of $300 million to $320 million. This revenue range reflects the current uncertainty in Europe with regard to the impact of the COVID resurgence and many countries in the region implementing some form of a lockdown. We expect fiscal Q1 non-GAAP gross margin to be in the range of 36% to 39%. Non-GAAP gross margin excludes intangibles amortization of approximately $1.9 million and stock compensation costs estimated at $1.7 million.

Non-GAAP operating margin for fiscal Q1 is expected to be in the range of 7% to 10%. This excludes intangibles amortization estimated at a total of $2.5 million and stock compensation expense of a total of approximately $11.9 million. Other income and expense is estimated to be an expense in the range of $4 million to $5 million. We do not include transaction gains and losses related to future changes in foreign exchange rates in our OI&E outlook. We expect our fiscal Q1 non-GAAP tax rate to be in the range of 24% to 25%. And finally, we are assuming weighted average outstanding shares of approximately 24.4 million for the fiscal first quarter.

I'll now turn the call back to the operator for a Q&A session.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question is from Jim Ricchiuti from Needham & Company. Please go ahead.

James Ricchiuti -- Needham & Company -- Analyst

Hi, thank you. Good afternoon. Couple of questions. I'm wondering, if you can give us some sense as to how much of your display backlog is represented by these emerging microLED wins that you've alluded to?

Andy Mattes -- President & Chief Executive Officer

Jim, the financial impact of the microLED orders is relatively minuscule in comparison to our overall backlog. The strategic relevance of these design wins is extremely high, because it shows movement and a brand new technology. And we think we are at a inflection point where display manufacturers are really trying to figure out how to turn microLEDs into a commercially viable solutions, how to include lasers as the process of record for the manufacturing process, and we're helping them through this whole design process.

James Ricchiuti -- Needham & Company -- Analyst

Got it. That's -- thanks for clarifying that. And then Andy, with respect to the aerospace and defense opportunities you alluded -- you mentioned that this part of your business has been in a stealth mode. Can you give us some sense as to how big that portion of the business is? And then, as we begin to think about it over the next one to two years, it sounds like we see a pretty good runway of opportunities. But where -- can you give us a sense of where it is today?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Jim, it's Kevin.

James Ricchiuti -- Needham & Company -- Analyst

Hi, Kevin.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

We're going to defer that until Q1. As Andy mentioned in his prepared remarks, these are one of the four markets that we're focused on going forward. And as a result, we will break that out as we do today with our four markets, but we won't do that until the end of Q1.

James Ricchiuti -- Needham & Company -- Analyst

Okay. And then last question, and I'll jump back in the queue. It appears as you're going after these opportunities that your R&D levels may be going up. Is that a fair way to think about one area of your opex?

Andy Mattes -- President & Chief Executive Officer

We're going to be making sure we invest enough R&D dollars into the areas that matter. So we will do both. We will defocus areas where we feel we can weed out the portfolio, where we can streamline the portfolio, we will set those R&D dollars free and will double down in those areas that we think will hold attractive growth potential in the near and in the mid-term. Net-net, it might lead to a slight increase of the R&D dollars, but nothing earth-shattering in the relationship of our total opex cost envelope.

James Ricchiuti -- Needham & Company -- Analyst

Got it. Thank you.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Jim, if I could -- if I could add to that, Jim.

James Ricchiuti -- Needham & Company -- Analyst

Sure.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

We closed the quarter at $91 million. As Andy said, we will defocus in some areas, focus on other areas, maybe that's a net add, but for planning purposes, for modeling purposes, because I know this is -- this will be a question from others as well. I think the mid-to-high-80s is the right area to be in for opex modeling.

James Ricchiuti -- Needham & Company -- Analyst

Great. Thank you, Kevin.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Sure.

Operator

The next question comes from Tom O'Malley from Barclays. Please go ahead.

Thomas O'Malley -- Barclays -- Analyst

Hey, good evening, guys. Thanks for taking my question. My first one is really related to the outlook into December. Obviously, at the midpoint of guidance, you are seeing some deceleration. Could you walk us through what's causing that? Is it the scientific and government taking a breather after recovery or does microelectronics stepped down? Just any color on those moving segments into December is super helpful.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. Tom, it's Kevin. So from a university and research standpoint, as you might imagine, a lot of kids are coming from college. It's doubtful they will go back post-Thanksgiving, and the expectation and certainly embedded in our outlook is, universities will start to close down a bit as opposed to the reopening that we saw mid-quarter. Similarly, in Europe, as you've already read, I'm sure, there are different types of lockdowns going on in many different countries. There is an expectation that, that will increase. And clearly, that will impact the business, instrumentation and scientific will be impacted as well.

Thomas O'Malley -- Barclays -- Analyst

Okay. That's helpful. And then, if you're going to size the impact you obviously made a point of specifically mentioning the European lockdown. Is that factored in conservatively? Are you already seeing trends? Just I'm trying to understand if this is cautionary going into the next quarter, or if there is -- you're actually seeing business trends slow?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. It's the all of the above, Tom. We are concerned in certain countries, our ability to -- for some of our field service engineers to travel and therefore, potentially impacting service revenues and then it just broadens from there. So at this point in time with the information we have, this is where we landed in terms of December revenue range.

Thomas O'Malley -- Barclays -- Analyst

That's helpful. And then, just I want to sneak one more in. You mentioned that you had several orders during the quarter from customers in China. You've also mentioned microLED. Can you talk about the mix of business going forward? I know that it's a couple of years out, but do you think that microLED will represent a bigger portion of what that TAM in the microelectronics business will be longer term, or do you still feel the same way that your existing OLED opportunities are really going to make the bulk of that growth up?

Andy Mattes -- President & Chief Executive Officer

Look, for the next two years to three years, there is no question that OLED flex -- OLED is going to make the bulk of the opportunity and that's going to drive top line anyway you look at it. It gets really interesting when you look past three years, if you look into three-year to five-year time horizon. We then start to see microLED picking up, and that's all net new TAM because it's going to go into new fields. And if you go back to my prepared remarks, we see one of the areas where microLEDs will be effective might very well be in the TV space, which is a space that we are currently do not play in. So anything we do in the TV space is going to be net new TAM for Coherent.

Thomas O'Malley -- Barclays -- Analyst

Thanks a lot guys.

Operator

The next question comes from Brian Lee from Goldman Sachs. Please go ahead.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking the questions. Maybe just a follow-up on that previous one, the multiple orders from different Chinese customers in the quarter. Can you provide a bit more context? Is that ELA, is that LLL, is there a mix? Can you kind of give us a sense of what that mix look like? And also how many customers you saw new bookings from in the quarter for OLED equipment?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. Hey, Brian, it's Kevin. So in terms of orders that we referred to in the prepared remarks, the significant majority of that was all ELA for OLED. There are some other things that we took orders for. In terms of dollar amounts, those systems call them prototype systems much less expensive or a lower ASP than the ELA equipment and therefore, driving again the significant majority of the bookings for ELA. You had a second question, and I missed it.

Brian Lee -- Goldman Sachs -- Analyst

Yeah. I mean, multiple customers, as I mean. You had two customers order ELA? Was it four or five, or you kind of give us a sense of the magnitude of how broader customer ordering bases are?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. We are going to stay with multiple customers, Brian.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Fair enough. And then the -- there's two more from my end, and I will pass it on. The cycle times are we still in that sort of six-month lead time from order to shipment or has anything changed on that front? I know that COVID had impacted certain delivery timelines for different logistical issues earlier in the year, but where are we now?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. So -- no real change there and any configuration of ELA you can get minimum six months, so no change at all.

Brian Lee -- Goldman Sachs -- Analyst

Okay. And then last one. The gross margin, Andy, you mentioned, having a four-handle by the end of 2021. I just want to make sure, I understand the commentary clearly. So we are all in the same page, that's 40% plus on non-GAAP gross margin being achieved in fiscal Q4 2021, is that right? And I guess, if so why maybe wouldn't we see a better progression since you are already guiding $36 million to $39 million for Q1 and Q4 still always away? Thank you, guys.

Andy Mattes -- President & Chief Executive Officer

Brian, first of all, yes, it means 40% plus toward the end of Q1 -- sorry, toward the end of '21, my bad. And that could be the end of Q4. It could actually also be the end of the calendar year. Needless to say that revenue and revenue growth will augment the ramp of our gross margin. And we cannot predict the full revenue ramp for the year yet. Hence, you've got a little bit of flexibility in that statement, but we feel very certain that the work that we do on our good-to-great transformation in our portfolio redirection will get us to the four-handle as the year progresses.

Brian Lee -- Goldman Sachs -- Analyst

Okay. I appreciate that color. But I guess the way you answered, Andy, fiscal Q4 -- end of fiscal '21 or end of calendar '21, that -- so it's either going to be later as opposed to. I mean, you wouldn't open up the sort of thought process here that you could actually pull that forward to any degree because fiscal Q4 versus calendar Q4, I think you are sort of making a wider range out several quarters as opposed to bringing that in?

Andy Mattes -- President & Chief Executive Officer

Brian, if we see the world after the announcement yesterday about a vaccine. If we see the world bouncing back to pre-COVID levels, sooner than anticipated that will drive volume and volume increases will always help you to achieve higher gross margins as they will drive our fab utilization, but we don't know that yet. So at this point, let's just stay with where we are, and as the year progresses, we will update you accordingly.

Brian Lee -- Goldman Sachs -- Analyst

Fair enough. Thanks guys.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thanks, Brian.

Operator

Next question is from Mehdi Hosseini from SIG. Please go ahead.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Yes, thanks for taking my question. Andy, Kevin, did you say that backlog was up 10% year-over-year?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Correct. 10% of Q4 versus Q4 '19, that's right.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Right, right. You also mentioned that for ELA system, the minimum cycle time is about six months. And if I were to put that in the context of backlog, does that mean that customers on the -- such as on the OLED side can afford to wait and come back later and book additional system?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Well, they can always come back, Mehdi and book systems. I would look at a little differently and specific to fiscal '21, it means they could book as late as March, and we can still ship in revenue in fiscal '21.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Right, right. Unfortunately, you don't report backlog or bookings on a quarterly basis.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, we don't, but our case -- yeah, our case is going to be filed in early December, and we will calibrate backlog at that point.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Got it. Thank you. And then a couple of follow-ups. I'm a little bit confused with all the initiatives you are taking in regrouping for new segmentation and focusing on a higher growth and expanding the TAM, but I haven't heard anything about addressing the footprint or sizing the company. It had come up in the past in the prior two calls that Andy have participated since joining the company. But I haven't heard anything about improving the cost from resizing. And you mentioned that you are expecting the volume to help with the 400 [Phonetic] gross margin. How should I reconcile these two?

Andy Mattes -- President & Chief Executive Officer

Mehdi, if you go back, I said we are going to do four things as that in our good-to-great transformation: A) transform the operational efficiency of all our processes; B) reduce the complexity of our portfolio.; C) focus our investment on growth opportunities; and D) enhance the focus and alignment with our customers. If you look at the first two, that clearly includes streamlining of portfolio. It also includes we are going to take a critical look at the footprint of our organization, and these are all elements of our good-to-great transformation. But especially if you look at the site consolidation, these are very complex issues, because you've got people, you've got product lines, you've got customer commitments that you have to work through, which is why I also told you that we will keep you updated and give you more color at the end of Q1, because these are things that take proper planning and very good execution, so that they will show up as margin accretive to the organization.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Great. Very helpful. Will it be fair to say that as you exit FY '21, you have the tailwind behind you and you looking to the FY '22 is when both revenues with the scale and also operational efficiencies would help with better margin profile, is that the right way to think about it?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Absolutely. As we -- we should do most of the restructuring in fiscal '21, and we are going to do most of the product streamlining in fiscal '21. So think about it this way. We are going to be looking at every product, especially products that sit in markets where the market isn't so attractive and where the margin contribution of the product is dilutive to the organization. Those are the first things on our radar screen. And we have actually developed a complete roadmap around us. And we are tackling every single one of them. And as you know, we have a pretty broad portfolio, and in a broad portfolio, you have some stores and you have some elements of the portfolio that aren't as well performing. So we are going to be working through all of this, but going into '22, the benefits of all that work should be with us on a sustainable basis for the whole 12-month in the next fiscal year.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

So it seems to me that you may try to keep Kevin, so that you could also enjoy the benefits of all the hard work in FY '22, any chance there, or any update on the CFO search?

Andy Mattes -- President & Chief Executive Officer

I'm happy to give you an update on the CFO search. We are looking at a very strong slate of diverse candidates. I have interviewed personally more than a dozen highly qualified individuals. Any one of them would have been a good choice. So now, we have the good and the hard problem and the good problem of condensing that slate of candidates down to the perfect athlete for us going forward. And I would expect us to be able to give you an answer, no later than our next earnings call.

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Thank you so much.

Operator

The next question comes from Larry Solow from CJS Securities. Please go ahead.

Peter Lukas -- CJS Securities -- Analyst

Yes, hi. It's Pete Lukas for Larry. You guys covered a lot. Just a couple of quick ones from me. Any change in the cadence of Chinese government subsidies and investments in OLED fabs thus far that you are seeing in 2020?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Pete, Kevin here. In terms of the Chinese subsidies, no change there. They are still funding a good part of the capex for the growing fabs that will go into OLED, or OLED manufacturing. So, no change.

Peter Lukas -- CJS Securities -- Analyst

Great, helpful. And just a last one from me. Andy, I think you have done it in terms of the use of proceeds in cash. I think you've mentioned cash preservations and no buybacks or no payments on the term loan now. Can you kind of talk about your priorities for cash going forward and how you think about debt paydowns, acquisitions and buybacks and how you would look to use the cash?

Andy Mattes -- President & Chief Executive Officer

Well, I guess, without saying, this is exactly what we are going to do, but just my bias is always, if we can use our cash to invest into R&D with our own resources, that would be my first area to go to, because that's how you create a very attractive IP portfolio, and how you create in the long term very margin accretive elements of your portfolio. If we then find areas where a buy opportunity accelerates our time to market, like the small acquisition that we talked about on this call, we will definitely use our cash to do so, but we expect these acquisitions to be more tuck-in size of acquisitions. And then third, you have every other opportunity of what you can do with your cash. We are not saying we are not -- we are excluding the opportunity of share buybacks, but it's not our first focus. And let's not declare the pandemic to be over yet. We really want to be mindful stewards of the cash position of our company to give us security and optionality going forward.

Peter Lukas -- CJS Securities -- Analyst

Extremely helpful. Thank you very much.

Operator

Next question is from Nik Todorov from Longbow Research. Please go ahead.

Nikolay Todorov -- Longbow Research -- Analyst

Yeah, thanks. All right. I have a couple of questions. Can you guys, Kevin, maybe talk about how much exactly of a COVID-related impact are you baking in December quarter? Because, if I look at Europe, it's only 18% to 20% of your sales, is your OEM and scientific market overweight the European universities and research labs? Any color there would be helpful? Thanks.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. We are not going to come out and specifically say, because the dynamic in Europe is changing week-to-week. We embedded what we knew at the time. We did take our forecast down into that range, but that's all going to say, I can't calibrate it at this point.

Nikolay Todorov -- Longbow Research -- Analyst

Okay. Let's switch on OLED side, you guys have been taking orders, I believe, now since June of 2019. And as we think about typical lead times have been six months, yes, there has been some push-outs due to COVID, which I think you spoke about in the beginning of the year. But have you guys seen additional pushout of orders, because I'm looking at the numbers and it implies that in June and September of this year, you shipped probably the equivalent of one high-end system. And just based on your guidance and language, it doesn't seem like there is going to be a ramp-up in those systems in the near-term quarter?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, Nik, Kevin, again. When we -- If I go back to June of last year, we said that we took our first order singular related to the next build-out. We did come back in the September and December quarters. And so, we took orders. We never really calibrated that other than singular versus multiple. We do ship ELA systems every quarter. It varies by quarter in terms of the number of shipments. But that's all I'm going to say at this point. We are very pleased that we took multiple orders from multiple customers since our last call. And that will help build out fiscal '21.

Nikolay Todorov -- Longbow Research -- Analyst

Okay. And is there anything different in terms of the mix of those orders? Are you guys seeing maybe a little bit higher mix of landing 1,000 instead of the 1,500?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Going back to the first order, we took back in June '19. We said the Chinese were predominantly line LineBeam 1000s. There has been no change in that.

Nikolay Todorov -- Longbow Research -- Analyst

Okay, OK. All right. The next question I think that the gross margin comments, the 40 handle not until the end of calendar year '21. I guess essentially that implies if I'm thinking correctly that your revenue is going to stay roughly flattish or grow a very little from here? Yet you are talking about strong bookings growth in all of your segments. We have multiple orders for OLED. How do we square the fact that essentially you are projecting that your revenue is going to range in that -- in a low-$300 million range for the next four quarters?

Andy Mattes -- President & Chief Executive Officer

Just when you look at the gross margin...

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Go ahead, Andy, I'm sorry.

Andy Mattes -- President & Chief Executive Officer

You've got to look at the puts and the takes. We also said we are going to streamline our portfolio. If I could magically make every product that dilutes our gross margin disappear overnight, the ramp would look different. But in every product that you have, you have customer commitments. You have -- in some cases, you have a next generation of the technology that will enhance our cost position. In some cases, we still have to perform work or do some certifications for products to get there. So you have the positive of the higher-end products, offset in the first half of the fiscal with the portfolio that's still diluting our gross margin. And as we progress, these things will come swing to the positive territory.

And just to give you an example on how volumes can make a huge difference, I talked in my prepared remarks that we have -- we will have some very exciting news on our diodes. Those are all fab business models and you know how fab business model works, loading of the fab goes up and your gross margin goes up dramatically, So many puts and takes, many stories within the story, and let's just put this way, we feel comfortable that we will get to this point and we will update you on our progress and you will see how fast we will turn the corner from the low in Q3 to where we said we are going to be.

Nikolay Todorov -- Longbow Research -- Analyst

Got it. Thanks.

Operator

The next question comes from Mark Miller from The Benchmark Company.

Mark Miller -- The Benchmark Company -- Analyst

Thank you for the question. I just want to go back to margins again and your projections for improving margins. You indicated that it's going to be mainly volume driven, but are there any mix effects you could see that are also going to help drive the margins? I'm just wondering the breakdown between higher volumes and any improving mix? And then, what in the improvement mix is going to drive that?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. Hey, Mark, it's Kevin. Certainly, again all the above will contribute to an improved margin; volumes for sure because a better, call it overhead absorption. Mix will be in our favor as well as we look into fiscal '21. The fact of good to great will also help, basically selling some of the portfolio and reinvesting in other areas to drive higher margin products. All of that will contribute to a minimum four-handle.

Mark Miller -- The Benchmark Company -- Analyst

Okay. You said CO2 be a drilling is certainly an opportunity as we go to 5G in the smartphones. As you are calling the smaller via sizes, are you going to have to transition to a new type of laser?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

No. Basically, we've introduced those generations. The important thing is, as they go to the smaller footprint is they can no longer use mechanical drills. So the nice thing about this market is, we are actually -- this is a classical example where Laser infringers of the technologies that were done with other technologies previously. And so, it expands the opportunity. And we have a ready portfolio and our CO2 Laser factory is working around the clock right now to fulfill customer demand.

Mark Miller -- The Benchmark Company -- Analyst

Okay. I believe you said that non-GAAP opex will be from mid to high-80s. Is that just for the first quarter, or is that the trend throughout the year?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

That's a good trend throughout the year, Mark.

Mark Miller -- The Benchmark Company -- Analyst

Okay. So you are going to be bringing that down as a percent of sales. Okay. Thank you.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you, Mark.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Andy Mattes for any closing remarks.

Andy Mattes -- President & Chief Executive Officer

Hi, guys. I want to say thank you to everybody who spent the afternoon or evening with us on this call. Thank you for all your questions. We've got an exciting business and an exciting year ahead of us, and we will keep you posted as we are making progress on our trajectory. Thank you, and good night.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Bret DiMarco -- Executive Vice President, Chief Legal Officer and Corporate Secretary

Andy Mattes -- President & Chief Executive Officer

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

James Ricchiuti -- Needham & Company -- Analyst

Thomas O'Malley -- Barclays -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Mehdi Hosseini -- Susquehanna Financial Group -- Analyst

Peter Lukas -- CJS Securities -- Analyst

Nikolay Todorov -- Longbow Research -- Analyst

Mark Miller -- The Benchmark Company -- Analyst

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