Avid Technology Inc (AVID) 2018 Q2 法說會逐字稿

Good day, and welcome to the Avid Q2 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Dean Ridlon. Sir, please go ahead.

Thank you, Todd, and good evening, everyone. I'm Dean Ridlon, Vice President of Investor Relations at Avid Technology. Welcome to our Q2 2018 earnings call. With me today are Jeff Rosica, Avid CEO and President; and Ken Gayron, Avid Executive Vice President and Chief Financial Officer.

On our call today, we'll be using both non-GAAP measures and certain operational metrics, both of which are defined in our Form 8-K and supplemental financial and operational data sheet available on our Investor Relations webpage. These non-GAAP measures are also reconciled with GAAP measures in the table to our press release and in the supplemental financial and operational data sheet available on the Investor Relations section of our website.

I would also like to remind you that certain statements made on this call are considered forward-looking statements within the meaning of the securities laws such as, for example, statements about expected future operating results and financial performance. Forward-looking statements are inherently uncertain, not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Any forward-looking information relayed on this call speaks only as of this date, and we undertake no obligation to update the information, except as required by law. For additional information, including a discussion of some of the key risks and uncertainties associated with these forward-looking statements, please see the forward-looking statements section of our press release issued today as well as the Risk Factors and forward-looking statements section of our 2017 annual report on Form 10-K available from the SEC, the Avid Technology website or our Investor Relations department.

We've also added a supplemental presentation in an effort to complement today's narrative. We hope that you will find it helpful.

We'll be recording today's call, which will be available as a replay for a limited time. You may replay this conference call and access the supplemental presentation by going on the Investor Relations page of our website and clicking the Events & Presentations tab. Later, we will be conducting a question-and-answer session, and instructions will be given at that time.

And now I'd like to turn the call over to Jeff.

Well, thanks for getting us started, Dean. I also want to thank everyone for joining us on this call.

Today in our prepared remarks, we'll clarify how the company is refining our business while continuing to shift to a better-margin, highly recurring revenue model while also strengthening our operational rigor. From this, we expect to make visible improvements in the second half of 2018 and '19, especially with regard to expanding EBITDA margins and improving free cash flow generation. I'll also offer some highlights about what drove our performance in the second quarter. Then, our new CFO, Ken Gayron, will take us through the financial details of the quarter's results. He will also introduce some new operational metrics, which we believe will help provide greater visibility into how we think about our portfolio and our business. Ken will also discuss our guidance for the balance of the year.

But first, I'd like to take a couple of minutes to step through how we think about Avid and the opportunity for investors as well as how we're aligning our strategy to the prospects we see moving forward. Okay. So let's get to it.

Avid has come a long way after the transformation we've been through over the past several years but today stands on the threshold that we firmly believe is a significant opportunity for the company. With a strong market position and leading brand, combined with our unique strategy and highly differentiated solutions, we are well positioned to capitalize on key market dynamics and industry trends. As such, I'll outline why we believe Avid is an attractive investment opportunity.

First of all, I'd like to ensure that the investment community fully appreciates that Avid has become a company where today more than half of our revenue is recurring. We have a significant opportunity to continue to grow recurring revenue as we shift more of our customer base from perpetual licenses to subscriptions, further expand our subscription offerings and continue to sign additional long-term agreements with existing and new customers and channel partners.

Next, I'll also emphasize that Avid's move to shift the centerpiece of our strategy towards high-margin software is succeeding, and we've built a large and growing portfolio of software platforms and applications, which, together with maintenance, now represent more than half of the company's revenues.

Additionally, Avid's unique platform strategy has positioned us very well to help our large enterprise customer base navigate the disruption impacting media and entertainment and also help them to optimize their operations and business, thus creating an opportunity for us to grow wallet share in these accounts. As well, Avid is well positioned to capture the next big emerging opportunity, leveraging the strategic partnership with Microsoft and our next-generation MediaCentral platform with cloud and SaaS offerings specifically targeted at media entertainment.

Finally, the evolution of our business, together with the changes we're making at the cost structure and with a more focused execution of our strategy, Avid is poised to deliver improved EBITDA and cash flow moving forward.

Now I'd like to also offer our perspective on how to think about the 3 key components of our portfolio, each of which have distinct attributes that drive business performance and create value.

If you remember from our last earnings call, we showed you how we think about our business, reflecting a clear and simpler way to think about our overall portfolio. The software portion of our business consists of both our creative software and enterprise software suites, which make up a large high-margin software and maintenance business for the company. As part of our strategy, we are transitioning from perpetual license to subscription-based models as well as setting the stage for more growth fueled by our move to cloud and SaaS offerings. The vast majority of the revenue from this part of our portfolio is recurring in nature.

Now the integrated solutions part of our business consists of uniquely differentiated value-added integrated solutions that are made up of best-in-class hardware platforms, combined with tightly integrated high-value software. These solutions also directly support our software strategy and enhance the overall economics, and we expect to see better growth and margin profile in this area moving forward.

As part of our strategy to secure long-term agreements with our enterprise customers and key channel partners around the globe, this portion of our portfolio does also contribute to the recurring revenue element of our business. All of this is supported by our comprehensive services offerings, including professional services, training and education. While these have historically been lower-margin areas for Avid, we believe there's an opportunity to migrate toward more strategic, higher value-added services, especially as we move into cloud and SaaS offerings, which have a much higher margin profile for our business.

Now that I provided our view how to think about the opportunity and took a brief look at the portfolio strategy and the business drivers underlying it, let me now give you some highlights in how we performed during the second quarter.

Avid made substantial progress during the quarter on the initiatives I outlined in our last earnings call. We continued to execute on our plans to move to higher-quality recurring revenue streams and to grow software revenues while putting into motion the actions that will also improve hardware product margins as we look ahead to 2019.

Notably, bookings in Q2 continued to be very strong, growing by 12% year-over-year and further increasing our backlog with the 2 additional long-term agreements which expand our recurring revenue.

We were quite pleased to see our business with large Tier 1 enterprise customers rebound during the quarter as we saw strong sequential growth. Likewise, both our Tier 2 and Tier 3 customer segments continued to perform quite well.

Looking at the specific products, our storage business had a very good quarter while our creative software solutions had another quarter of significant double-digit growth, driven heavily by subscriptions and our e-commerce channels. And the live sound product introductions that generates so much excitement for us after unveiling during Avid Connect and NAB back in April drove the strongest bookings we've seen in this category over the past 3 years, which positions us really well as we prepare for the delivery of these new products starting in the second half of this year. These live sound consoles are examples of the integrated solutions we deliver that also support our software strategy.

Turning to revenue. While it did grow sequentially and was in line with guidance, it would have been slightly better had my team not made the difficult but, I think, correct decision to delay the initial shipment of our next-generation MediaCentral platform from June until the end of July to resolve some remaining software quality concerns. This meant that we're unable to recognize revenue from the scheduled backlog for the related products during Q2. However, because the product is now shipping, we'll be recognizing that revenue starting in Q3.

With that said, we are, though, very encouraged by the underlying business performance as bookings, billings and shipments were strong across our software and integrated solutions segments relative to the prior quarter and prior year. We also resolved the HDX card supply shortage in the quarter, and supply has now returned to normal availability and delivery.

Gross margins for Q2 were in line with our plan despite headwinds in professional services as we continued to see strength in margins across software, hardware and maintenance segments. Increasing our gross margins remains an important area of focus for us, and we'll continue improving the efficiency of our professional services business specifically to that end. We have identified several opportunities to improve, and our action plans are underway, and thus expect to see higher gross margins in the back half of this year and into early 2019.

Adjusted EBITDA was in line with our guidance. We do believe, though, there is an additional opportunity to drive EBITDA margin expansion to even more rigor around costs. To help deliver improved EBITDA margins, the management team has identified additional cost savings opportunities that are targeted at nonpersonnel-related activities that we expect would reduce our expense run rate by approximately $20 million next year. Ken will dive into details about this initiative during his remarks.

Overall, I'm encouraged by the progress we made in Q2 and the work that we've accomplished during the quarter to improve the underlying business, and we remain confident that our momentum will continue throughout the second half.

Now among my priorities in the first 100 days as CEO was to ensure that Avid had the right management across all functions of our organization to effectively lead us forward and to have the right level of operational execution and focus on business performance. I'm quite happy to inform you that the complete executive management team is now fully in place with the transition being quite swift and successful.

While we leverage key management talent from within the company to fill many of the roles, Avid has also attracted top talent from the outside. At the end of May, we announced a series of changes to the company's leadership when Avid also welcomed new talent, including the hiring of Diana Brunelle as our new Chief Human Resources Officer. Also, at that time, I promoted Dave Perillo, a highly accomplished manufacturing supply chain expert, who also recently joined the company, to lead our Global Supply Chain Operations. Just recently, we also welcomed our new Chief Marketing Officer, Melissa Puls, who has filled the post I vacated when I became CEO.

And finally, I'm pleased to introduce Ken Gayron as our new Chief Financial Officer, who will walk you through the details of our results for the second quarter. He's also going to unveil some insights into our business with our new approach to revenue reporting and metrics, and he'll discuss guidance. Ken will then hand the call back to me for some short closing remarks before we take your question. So over to you, Ken.

Thank you, Jeff, and good evening, everyone. I'm very excited by the opportunity to be part of the Avid family and join Jeff's leadership team.

Prior to Avid, I was Chief Financial Officer of 2 other technology-driven organizations, where I helped lead business transformations, resulting in significant value creation for shareholders. Prior to becoming a CFO, I held senior finance roles and worked in investment banking in New York for 10 years.

What attracted me to Avid is that it's a company with a great brand, a strong technology platform and an incredibly loyal customer base. The software part of our business is growing, and the opportunity to help our customers leverage the cloud is quite compelling. I also see a clear path to improve margins, free cash flow and shareholder value over time. With that, let's get into our Q2 results.

Q2 saw continued momentum in bookings. Also, revenue and adjusted EBITDA for the quarter were within guidance. Bookings were $110.3 million, an increase of 12% year-over-year and 9% sequentially. This growth was primarily driven by the signing of strategic purchase agreements with enterprises in our large resellers. Specifically, our Tier 1 business rebounded from the weakness we saw in Q1 and grew sequentially.

Revenue was $98.6 million for the quarter, within guidance. Results were mixed with continued good growth in our direct digital e-commerce and subscription businesses. However, we had a delay in shipping MediaCentral, which Jeff talked about earlier, which negatively impacted Q2 revenue.

I wanted to clearly point out to investors that on a comparative basis, our revenue is ahead of last year by 4% when you exclude noncash revenue. Noncash revenue in the first half of 2017 included software products that had been recognized on a ratable basis over many years under old revenue recognition guidance, even though the company had collected cash for these products in years prior to 2016.

The impact of noncash revenue was approximately $10 million in Q2 '17 and is down considerably to $2 million in Q2 '18. However, the $8 million delta creates an immediate headwind when you compare revenue and gross profit on a year-over-year comparison.

As the new CFO, I want to be very transparent on the noncash elements with our investors, and we'll continue to track this moving forward.

Additionally, given the transformation Avid has been making towards software, subscription and driving more long-term agreements, I wanted to introduce a new operational metric called recurring revenue that we'll define later during the call to help investors track the progress we are making both in our business and strategy.

Recurring revenue as a percentage of total revenue increased from 51% in the second quarter of 2017 to 57% in the second quarter of 2018 due to growth in our subscriptions and businesses under long-term agreements.

Gross margin was flat with Q1 and in line with our plan. We continue to see good margins for software and our core hardware products like storage that contain high-value software. However, the margins on professional services this quarter adversely impacted overall gross margins. We remain focused on making improvements in professional services and have also identified areas of opportunity, including items like freight and logistics that we expect to return to margin improvements over time.

Non-GAAP operating expenses for the quarter were $56 million, in line with our plan. Adjusted EBITDA was $5.3 million for the quarter, in line with guidance. Adjusted EBITDA is down sequentially due to a multimillion dollar marketing investment for our annual attendance at the NAB conference and down year-over-year due to the impact that noncash revenue had on Q2 '17 results.

Free cash flow was negative $8.7 million in Q2, largely due to the payment of the 2017 bonus for our employees during the quarter, as planned and expected. We expected free cash flow to improve in the coming quarters due to normal seasonality plus the benefits of our cost saving initiatives that will start impacting profitability in Q4 2018 and in 2019.

Now moving to the balance sheet. At June 30, 2018, we had cash of $60.2 million. The balance excludes the $8.5 million letter of credit issued last quarter in favor of one of our current hardware suppliers and it's reflected on our balance sheet under restricted cash. We are currently making progress with our main suppliers on several business terms and are working to have the letter of credit released over time.

We ended Q2 at 47.7 million of accounts receivable, reflecting turnover of 44 days. Inventory was relatively flat, but we continue to expect to see an increase in the back half of the year due to some planned new product releases and hardware production transitions.

Deferred revenue was $97.7 million at June 30, down from a $106.4 million in Q1 2018 as a result of the seasonality in our maintenance revenue as the first quarter is a seasonal high point we renew and bill a significant portion of our annual (inaudible).

Moving forward, we expect deferred revenue to be roughly in line with the current level in the third quarter and then start increasing in the fourth quarter of 2018 and first quarter of 2019 due to normal seasonality.

Contractually committed backlog was $350.5 million at June 30 and has grown by $67 million or 24% over the past year. Our backlog is significant asset and we remain focused on continuing to harvest it to contribute to our revenue, EBITDA and cash.

Annual contract value, another new operational metric being introduced by the company, has grown over 20% annually in the past 4 years and was $245 million at the end of Q2. We believe we'll make progress on this metric as we both grow our high-margin software revenue streams and add more long-term agreements.

At the end of Q2, long-term debt was $230.7 million. The increase from March 31 balance of $203 million is primarily the result of the $22.7 million increase in our term loan in May. We were compliant with our covenant leverage ratio at the end of Q2.

As you'll recall, this year free cash flow will be a primarily reported cash flow metric. This graph shows the quarterly free cash flow as well as the normalized view for the 2016 bonus payment made in Q4 2017. Free cash flow for the second quarter of 2018 was negative $8.7 million due to the payment to our employees of the 2017 bonus of $8.3 million in the quarter.

When you bridge free cash flow from the first quarter of 2018, a positive $3.3 million to negative $8.7 million in the second quarter of 2018, in addition to the $8.3 million bonus, the other elements in the second quarter of 2018 or the June 30 semiannual interest payment on the convertible note, higher capital expenditures to support the move to Microsoft Azure and higher marketing investment related to the NAB Show.

As we turn to the second half of 2018, we expect to generate positive free cash flow and remain confident in achieving our guidance for free cash flow for fiscal 2018.

Now moving on to reporting. Avid's business has evolved to be more software-oriented, however, our financial reporting has not kept pace. As the new CFO, I am introducing a transparent and more detailed depiction of Avid's revenue streams today that better maps to our business. We are showing the new revenue categories that we are planning on using in our 10-Q and 10-K filings beginning in fiscal 2019.

The first category is revenue from software licenses and maintenance, which includes both subscriptions and perpetual licenses. The second category is revenue from products and integrated software. Lastly is revenue from professional services.

As you can see, so far this year, over half of Avid's revenues comes from high-margin software licenses and maintenance. Much of our software licenses and maintenance revenue comes to us as part of subscriptions and long-term agreements. In addition, some of our long-term agreements include a portion of hardware sales that are part of an integrated solution and are strategically important to our high-margin software business. The revenue from these long-term deals is inherently sticky as we currently have over 44 long-term agreements with excellent renewal rates since we introduced them 3 years ago.

To give you a better view into how sticky our revenue has become, we are going to start reporting each quarter on the percentage of our revenue that is recurring in our annual contract value. This page gives you the definitions we are using for how to calculate both items.

With that explanation of our methodology, let's turn to the next slide for the results that show the progress we are realizing with our strategy. This graph shows the percentage of recurring and nonrecurring revenue per each period.

As you can see, as we have signed more long-term enterprise customer agreements and grew our software subscription revenues, resulting in a consistent increase in the percentage of recurring revenue in our business. This quarter, 57% of total revenue was recurring, up significantly from 49% in 2017 and 22% in 2014. We expect recurring revenue to grow over time given the strong growth we are seeing in subscriptions and our long-term agreements.

Now to ACV. This graph shows our annual contract value has also steadily increased. ACV has grown by over 20% annually, driven from our strategy to focus on high-quality, higher margin software and long-term agreements. We expect to see continued growth in ACV over time given our strategy and the improvement in our pipelines. The increase in both recurring revenue and ACV are important metrics to us and provide transparency, visibility and confidence as a management team as we look forward.

During my 2 months here, I've reviewed with the management team opportunities to further optimize our expense structure based on my prior experience of transforming other technology-driven organizations. I believe there's an opportunity to reduce our annual cost by approximately $20 million for 2019 with a heavy focus on nonpersonnel-related initiatives. Importantly, we believe we'll be able to do this utilizing minimal cash. These opportunities will favorably impact both our gross margin and operating margin and ultimately drive improved EBITDA and cash flow.

In addition to the supply chain savings that Jeff discussed earlier, we plan to consolidate our facilities as lease expires, amend our travel policies, reduce our use of outside consultants and scale back our spending with third-party service providers.

Overall, it's about being more efficient with our spending. We plan to report on our progress on this important initiative in the coming quarters.

Lastly, let's turn to guidance. In terms of guidance, we are reaffirming and tightening the range for our full year 2018 guidance. For full year 2018, our revenue guidance is now $410 million to $420 million. The adjusted EBITDA guidance is $40 million to $46 million, and free cash flow guidance is $4 million to $12 million.

As we have reaffirmed and tightened the range for our 2018 full year guidance, and since I just arrived at the company, Avid will not be issuing quarterly guidance for the balance of 2018.

With that, I'd like to turn the call back to Jeff for a few closing remarks.

All right. Thanks, Ken. So in closing, I want to take this moment to underscore that our management team remains focused on delivering better performance, including driving growth, EBITDA margin expansion and higher free cash flow. In line with this, there are a number of important things we're focused on.

First, continuing to grow our recurring revenue as we expand our subscription offerings and sign more long-term agreements. Just as important, driving our higher-margin software business by delivering innovative applications and expanding our e-commerce channels.

Next, delivering on our next-generation MediaCentral platform is important to our Tier 1 enterprise customers to help further grow wallet share and drive higher contract values. As well, we'll soon start to capitalize on the cloud opportunity as our initial SaaS offerings come to market in late Q4 and throughout 2019.

Lastly, we expect to improve EBITDA and cash flow by focusing on all of this as well as executing on our new $20 million cost savings program that includes the elements of our supply chain initiative and shipping important new product releases in the second half that are already in our pipeline.

We're well positioned to achieve meaningful progress across all these fronts during the balance of 2018, which we expect will improve Avid's underlying business metrics, overall performance and financial results moving forward.

So this wraps up our prepared remarks. I'll now hand the call back to the operator to manage your questions.

(Operator Instructions) We'll take our first question from Steven Frankel with Dougherty.

Could you give us some estimate on what the impact of the delay in MediaCentral was on revenue in the quarter?

Yes. We're not going to quantify it precisely, but let's just say it's in the millions. The revenue we did miss in Q2, though, has been included in our guidance for the fiscal 2018 full year as deliveries have now begun late last month.

Okay. And the company used to be very proud of this MediaCentral license number that Luis talked about every quarter, and I noticed you're no longer disclosing that. Could you tell us why you no longer think that's an important metric that we should be focused on?

So in terms of metrics, I think we're introducing 2 new metrics, which is recurring revenue and ACV, and we think those are very good metrics to judge the progress of our business as we're growing our recurring revenue streams, our software streams, our high-margin maintenance agreements as well as the long-term agreements. We are disclosing subscriptions, which is a key element in terms of measuring the progress of those revenue streams. And that's what we're at this point moving forward with in terms of operational metrics at this point.

And Ken, let me just add. And Steve, also don't forget that we weren't giving numbers on our software business and maintenance business before, which we are now. So we're using a lot of indicative metrics before the operational metrics. I think now you can clearly see the numbers associated in the software numbers.

All right. And do you disclose -- maybe I missed this in all the numbers today, what percent maintenance is of that recurring revenue portion?

Yes. So maintenance, in terms of recurring revenue, if you look at the numbers, it's a $102 million for the first half of 2018. The maintenance portion is roughly $70 million of it.

Okay. And then you talked about a $20 million incremental expense reduction, but $20 million off of what level?

Yes. So the $20 million annual kind of -- I would call it spend optimization, is off of the existing cost structure that's in place today. When we look at the cost structure, the areas of opportunities that we see are really nonpersonnel-related. The areas that we're looking at are in the supply chain mainly, also amending travel and expense policies, areas like facilities as well as looking at our service providers and looking for ways to, I guess, maximize those initiatives in terms of the spend of those service providers. I will say that there are a number of areas in those expense categories that we see clear visibility to getting to the $20 million. So we feel good about the savings target. The leadership team has reviewed it. We are now in the process of executing it. And the savings will start being realized in our P&L by the fourth quarter of 2018 and be all realized by the fourth quarter of 2019. So the full $20 million of savings will be in the 2019 cost structure.

Okay. And then back to bookings. It was nice to see the Tier 1 bookings rebound. Were there 1 or 2 large deals that you'd characterize the strength in the quarter? Or was it more broad-based than that?

Well, it was broad-based, Steve. I mean, yes, every quarter, when our Tier 1 business is at its full fighting rate, if I can use that term, it always is made up of some large deals because that's typical of that market segment. So yes, there are some deals in there. But actually, overall, we saw more broad-based improvement in the Tier 1 area, including, as I mentioned, the storage area. A lot of our storage is sold into Tier 1, and we had quite a good quarter. It was storage, too. So there was a number of things hitting well in Tier 1 in the second quarter.

Okay. And you also mentioned a large channel deal in Q1. I don't particularly think about the channel as doing bookings. It's more -- historically, it's been a book-and-ship business. What's the structure of this deal that gives you more visibility with the channel?

Well, actually, we -- some of our long-term agreements or a portion of our long-term agreements are with channel partners. Sometimes, they're a back-to-back agreement to support enterprise agreement with an end customer. And sometimes, they're just commitments that we make with a partner for a given piece of business. So actually, there is more than one. There's many we have with key channel partners, especially our largest channel partners, that are long-term commitments with those partners. So it was a model we're evolving to more and more, and it really does help us create that visibility for the business going forward and to have that committed level of investment and effort from these key partners.

And any update on the performance in China during the quarter given your new partnership there?

We've met our expectations.

Yes, in terms of the contractual agreements, we've met our expectations and the China business is on target.

We'll take our next question from Hamed Khorsand with BWS Financial.

Just a couple of questions here. First off, could you just talk about what you were getting from the customers, the enterprise customers this quarter versus last quarter? I know last time, you were talking about pushouts. This time around, you're not really talking about much from the enterprise side other than buying storage.

Hamed, this is Jeff. So yes, as I said to Steve, it is a more broad-based set of business. I mean, it's across all of our portfolio. I mean, we saw improvement pretty much across the product range, both software and hardware in the Tier 1 space. I mentioned storage because we've talked about storage before, and we really had a very strong storage -- a strong quarter for storage, but it really was across much of the product base and it was across a lot of the customer base. We did see strength overall, but the EMEA region did perform quite well for us in the quarter.

Okay. And storage has historically been a cycle as far as the Q2 and Q3 time frame. I mean, was it just pent-up demand and then it just goes back to being a normal kind of revenue stream in Q3 and Q4 now that you've had the first 2 quarters?

Well, I don't know -- I mean, I know, as you'll remember, we've talked about transitioning from our previous product range, the NEXIS product range. It took some time for that transition. Now that said, obviously, some quarters -- quarterly, you've got different levels of Tier 1 business that happened with big customers. But generally, storage is a pretty consistent business overall in the industry and for us. And so there are some cycles because of customers' upgrades cycles, but it's largely driven on the business that we closed with a lot of the customers. We also see Tier 1 is the only contributor to our storage business. We do a significant portion of our storage business than what you know we refer to as Tier 2, which is a lot of more of the small to medium-sized businesses and more creative teams or production environments.

Okay. And then, has there been any improvement as far as the conversion going from the premium product to a paid subscription?

I wouldn't say there's been an improvement. I don't have the numbers in front of me, but I think we've seen pretty consistent patterns in those conversions over time.

I mean, the subscription revenue, as you can see, in terms of the recurring revenues, is growing quite nicely over the past year. And in terms of subscribers, we're up over 40% in subscribers.

Okay. And then, as far as just the savings plan that you're trying to implement, I guess since it's more related to spending, what's your time line of your expectations for Q4 since you're saying that some of it will happen in Q4?

Yes. So in terms of the cost savings, we have about $1.5 million that will be in Q4 in terms of realized in the P&L. And then it's roughly $6 million in Q1, $6 million in Q2 of '19 and then the balance in Q3 of '19.

Okay. Shouldn't that just have an immediate benefit to your cash flow?

Yes, that will have an immediate benefit to cash flow. As we said in the call, there could be a minimal outlay in terms of cash, but again, they're nonpersonnel-related.

So thank you all again, I guess, for joining us today, and we look forward to speaking with you again next quarter. Have a great evening.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.

Thank you.