Benchmark Electronics Inc (BHE) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Benchmark Electronics, Inc. Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, VP of Strategy and Investor Relations, Ms. Lisa Weeks. Ms. Weeks, you may begin.

Thank you, operator, and thanks, everyone, for joining us today for Benchmark's Third Quarter 2017 Earnings Call. With me this afternoon, I have Paul Tufano, CEO and President; and Don Adam, CFO. Paul will provide introductory comments, and Don will provide a detailed review of our third quarter financial results and fourth quarter outlook. We will conclude our call with a Q&A session.

After the market close today, we issued an earnings release highlighting our financial performance for the third quarter, and we have prepared a presentation that we will reference on this call. The press release and presentation are available online under the Investor Relations section of our website at www.bench.com. This call is being webcast live, and a replay will be available online following the call.

Please take a moment to review the forward-looking statements advice on Slide 2 in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today's remarks that are not statements of historical facts are forward-looking statements, which involve risks and uncertainties described in our press release and SEC filings. Actual results may differ materially from these statements, and Benchmark undertakes no obligation to update any forward-looking statements. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the presentation.

I will now turn the call over to our CEO, Paul Tufano.

Thank you, Lisa, and good afternoon, everyone, and thank you for joining our call. If you turn to the third quarter summary in the slide deck -- first off by saying that I'm very pleased with our performance this quarter. It's the fifth consecutive quarter that we met or exceeded our commitments, and we're very pleased with that.

From a revenue perspective, we generated $604 million of revenue. That's up 5% year-on-year. This is the third consecutive quarter of revenue growth. That growth is really fueled by performance in 4 of our various market sectors. Our Aerospace and Defense sector grew 16% year-over-year, primarily with broad-based growth from existing customers. Our Medical segment grew 17% year-over-year. This is the first quarter of year-on-year growth of any significance since the second quarter of '16. We are pleased with that. It's primarily driven by growth in our cardio and diabetic care programs. Our Test & Instrumentation segment grew 34% year-over-year. We are especially fortunate to have a broad engagement of semi-cap equipment manufacturers in our portfolio. And given the strength of that sector, we are enjoying good growth. And finally, we saw Computing up 16% year-over-year, driven by storage and security providers.

From a gross margin standpoint, we posted 9.4 points of gross margin. It's a 20 basis point improvement year-on-year. Our non-GAAP operating margins were 4.1%. Our EPS was $0.39. Our cash cycle days were 72 days. That's an 8-day improvement over the previous period a year ago but a 7-day deterioration from the second quarter of this year. Clearly, our range for cash conversion days is between 72 and 68, but quite frankly, we were hoping to be below 70.

The result of that increased quarter-on-quarter of cash cycle days is that our cash flow from operations was about flat at minus $3 million. We are $90 million positive on cash flow from operations for the year. Our guidance of $125 million to $150 million stayed intact. And from an ROIC standpoint, we posted 9.9% ROIC. That's 130 basis point improvement from a year ago period. So all in all, I consider this quarter a solid quarter.

If you turn to the next page, which focuses on bookings. As we have previously stated, revenue growth is essential for us to achieve our financial objectives. And therefore, bookings growth drives revenue, and we've had a focus on bookings and set a goal to be equal to or better than $150 million of booking in the second half of the year. I am extremely pleased that we were able to post that $150 million mark in the third quarter. As you look at our bookings mix, 60% of our bookings came from high-value markets, 40% from traditional markets and a pretty good distribution between Industrial, A&D and a little bit in Medical.

So let's give a little color on these bookings. Telco, as we said before, we are very much focused on winning business in next-generation telco. And I'm extremely pleased that we have a new customer this quarter in the free-space optics business. I think this is an exciting area that is critical to both telecommunications and data center opportunities, and we're happy that they have selected us to be their partner. In Industrial, we have a new customer in the energy management area and we're seeing additional wins in smart cities. In A&D, we have new programs, a number of existing customers with existing customer [excuse me] primarily as relates to munitions, communications and avionics. I would like to mention that we have one win but relatively small. It is the largest win we've ever had in our RF area. And as you know, our investment in RF and our high-speed design center is a key focus for us. We are very encouraged by this win. This is a defense win in that space. And then finally, in Medical, we continue to see growth on new platforms with existing customers. So clearly, we've posted or achieved the first part of the goal. Our objective for the fourth quarter was to continue this progress, and we look forward to talking with you about that in the quarter ahead.

Now looking -- turning to the next slide. Earlier this year, we laid out a number of key initiatives. And just to reset, we have always said that our goal is to drive revenue growth. And that revenue growth had to be at the right mix and at the right level of profitability to improve our financial performance, to allow us to achieve our ultimate financial goals of upper margins greater than 5% and ROIC of 12%. And in order to do that, we felt it was important to continue to focus on 3 key areas: First is the optimization of our global network both with the focus on getting consistent customer experience around the globe and, more importantly, to drive improved levels of operational execution. The second was to implement our market-sector sales organization that drives bookings growth and, therefore, revenue growth; and then finally, to expand our engineering capabilities and solutions. And as we've done over the last several quarters, I'd like to now give you an update on where we stand with some of these initiatives.

As it relates to our network optimization, a major action that we took was to relocate the headquarters, the corporation from Houston to Phoenix. And we've talked about that in the past. That was to facilitate the ability to bring the entire corporate staff together, drive better communication, better speed and more thoughtful decision-making. I'm pleased to announce that, that move is substantially complete and that was done with no disruptions in our business. Secondly, last month, we announced that Mike Buseman will join us as the Head of Global Operations. Mike has been onboard for 2 months. He is actively touring our sites. He's accelerating our agenda and operational excellence and customer focus, and we're extremely pleased to have Mike on board.

As it relates to our market sector organization. Our business development teams are at full strength. And more importantly, we've added 2 new experienced leaders in our go-to-market organization. Lynn Borek now heads our Aerospace and Defense industry. Lynn comes to us with vast experience in this space, having previously worked at Boeing, Honeywell and Rockwell Collins. In the Medical space, Todd Martensen has joined us to lead Medical. Todd has a long history in medical device sales, having worked with Johnson & Johnson, Danaher and Braun. And Jim Boigenzahn, who's our previous Head of Medical, is transitioning to lead our efforts to drive our partnership with Qualcomm on our recently made announcement. Now clearly, our objective is to drive our bookings growth in excess of $250 million per quarter, and we've laid that out as our ultimate goal in 2019. We will do that by aligning our business development, our engineering and operations organizations to create better value propositions for our customers. I'm pleased by the traction we're making, and I'm excited about the challenges that lies ahead of us.

As we look at engineering and the expansion of our solutions capabilities, it is our fundamental belief that a robust set of engineering solutions will yield to higher value engagements that are stickier. And to that end, over the past year, we have been investing in a broad range of extended capability, be they in medical or defense or surveillance or next-gen telco or in RF and high-speed design in IoT, the last 2 of which are tied to our relocation to Phoenix and the establishment of our 2 new design centers. To me, these are the keys to driving that profit growth and, more importantly, more sustainable, high-value customer projects.

Now a few weeks ago, Qualcomm Life announced that -- their new smart, single-use biometric sensor reference design. And in part of that announcement, they indicated that Benchmark has been selected to commercialize this product and serve as the device, design and manufacturer of record with the FDA. We are extremely excited to be partnering with Qualcomm in this area. Now first off, we believe this is an exciting, new class of medical devices that will facilitate not only patient monitoring but also outcome-based medicine. And the combination of these sensors and Qualcomm's HIPAA-compliant 2net network will provide health care professionals access to near real-time data, and I think makes significant advancements in health care going forward. So to be at the ground floor of this new market is extremely exciting for Benchmark, but moreover, importantly, we are honored that we were selected by Qualcomm Life. And we are hopeful that, that selection was based on our long track record in the medical device manufacturing, design arena as well as our IoT capability. And we look forward to working with Qualcomm to first bring this device through the FDA certification and then through commercial availability, to drive market demand and, more importantly, to enhance future designs and further expand the market. So this is an indication of how engineering and engineering-led solutions can drive growth in exciting and new markets. And I feel this as a validation of our strategy, and we are humbled by the opportunity to work with Qualcomm.

Now if I turn to the next slide in the deck, which is an update to our progress on our second half milestone. Just to level-set, as we stated earlier this year, our target business model is to achieve operating margins of greater than 5.5% and ROIC of 12%. And to do that, we need to be at revenue of greater than $2.8 billion to $3.3 billion. And in order to give you some waypoints or milestones to track our progress, we laid out a series of interim milestones. This chart reflects those interim milestones for the second half of '17. And so let me just go through them and articulate our progress. On bookings, we said we'd be -- hope to be above $150 million by the second half of the year. I'm pleased to say that we did $152 million in the third quarter. So we're in line. From a revenue mix standpoint, we hope to be 65% of our revenue coming from our higher value market segments. We are currently at 68% and clearly have been above 65% the last 3 quarters. Our gross margin is at 9.4% or about 10 basis points away from our target for the second half of the year. And on SG&A, we have work to do. We're at 5.3% at 30 basis points above where we want to be. And then profit per square foot, we're at $27 a square foot versus $29. Now clearly, the last 2 will be dependent on where revenue and the profit is over the course of the next several quarters and, therefore, puts more emphasis than validation on why driving bookings and revenue growth in the right mix is so essential. So on balance, I think we're tracking well against the majority of these targets, still work to do. And we will endeavor to make that happen.

So with that, I'm going to turn it over to Don. Don will give you some color on the quarter, and then we'll take it fixed in Q&A.

Thank you, Paul, and good afternoon, everyone. Let's start on Slide 9 and we'll recap the third quarter income statement. Revenues were $604 million, which exceeded the high end of our guidance, and we're up 5% year-over-year. And again, it was a third straight quarter of year-over-year revenue growth. Our third quarter non-GAAP operating margin was 4.1% and was consistent with the last quarter. Non-GAAP EPS was $0.39. It was above the high end of our guidance of $0.32 to $0.36, driven by better absorption and higher-than-expected revenues and a favorable tax rate. Please note that our GAAP EPS for the quarter was $0.35, and these GAAP results include $2.5 million of restructuring and other cost, offset by a $1.5 million recovery from the sale of inventory that was written down in the first quarter due to a previously disclosed customer insolvency. For the quarter, our ROIC was up -- was 9.9%, which is a 40 basis improvement -- 40 basis point improvement from last quarter and 130 basis point improvement from last year. And our long-term target is 12%.

Now let's turn to Slide 10 for our quarterly results by market sector. Industrial revenues were flat quarter-over-quarter and were down 12% year-over-year primarily due to softness across several of our top customers. A&D revenues for the third quarter grew 16% year-over-year, a decline of 4% quarter-over-quarter from qualification delays from several customers. Medical revenues were up 16% quarter-over-quarter and 17% year-over-year from higher demand and program ramps from both new and existing customers. And then finally on the Test & Instrumentation sector, revenues were flat quarter-over-quarter and up 34% year-over-year from the strong demand in our precision machining business serving the semi-cap market. In summary, our higher-value markets represented 68% of our third quarter revenues, which is a 9% increase from last year and a 2% increase from the second quarter.

Now let's turn to our traditional markets. Computing was up 16% from last year, driven primarily by growth from our existing storage and new customers. Telco was down 23% year-over-year and 7% quarter-over-quarter as new programs have not offset the lower demand from our existing customer base. Our traditional markets, which represented 32% of our third quarter revenues, were down 2% from last year and 10% from the second quarter. And our top 10% -- our top 10 customers represented 44% of our sales for the third quarter.

Now let's turn to Slide 12 to discuss our quarterly business trends; overall, a very solid quarter. Gross margins for the quarter were 9.4% and improved 20 basis points year-over-year on higher revenues and a better mix. Our non-GAAP operating margins were consistent with the second quarter and down 20 basis points from last year due to our SG&A investments. Beyond the $2.5 million in restructuring for the third quarter, we expect to incur additional restructuring cost of approximately $1 million to $1.5 million in the fourth quarter.

Now please turn to Slide 13, where I'll provide some updates on our cash flow and working capital. We used $3 million in cash from operations for the quarter. Free cash flows were a use of $14 million for the third quarter. Our total cash balance was $730 million as of September 30, with $75 million available in the U.S. Inventory at the end of the quarter was $422 million, an increase of $6 million from June 30. Accounts receivable was $412 million, an increase of $20 million from June 30, and payables were up $8 million quarter-over-quarter.

Let's turn to Slide 14, where we'll review our cash conversion cycle. Our cash conversion cycle was 72 days for the third quarter and was within our expected range of 72 to 68 days. And it's an 8-day overall improvement compared to the third quarter of last year.

Finally, let's go to Slide 15, where we'll look at our fourth quarter guidance. We expect revenues to range from $590 million to $610 million. Our non-GAAP diluted earnings per share are expected to range from $0.34 to $0.38. Implied in this guidance is a 3.8% to 4.1% operating margin range.

For modeling information for the fourth quarter, turn to Slide 16. Overall, we expect Industrial revenues to be flat in the fourth quarter and reflective of the ongoing lack of growth in our large industrial customers. A&D is expected to be up mid-single digits in Q4 based on increased demand across multiple platforms and programs, primarily in communications and radar systems. We expect Medical revenues to be down low single digits after a very strong third quarter of new program ramps. And finally, in Test & Instrumentation, the exceptionally strong demand we saw in the past 3 quarters will moderate somewhere -- somewhat in the fourth quarter, and we expect T&I to be down low-single digits from the third quarter.

Turning to the traditional markets. We expect Computing revenues to decline by low single digits after a stronger-than-expected demand in the fourth quarter -- or in the third quarter, excuse me. Telco revenues should be up mid-single digits from new program launches from our satellite customers.

Interest expense is expected to be $2.3 million, and we expect the tax rate to range from 19% to 20%. The expected weighted average share for the fourth quarter are $50.6 million. And as Paul stated earlier, we had a good, solid quarter.

I'm going to turn the call back to Paul for some concluding remarks.

Thank you, Don. This afternoon, as part of our press release, we announced that Don will be retiring from Benchmark after 15 years of service. There is a great sadness that we see him go. He has been instrumental to me over the past year, and he'll be sorely missed. Clearly, the relocation to Phoenix would have been not in the best interest of his family. And as a result of that, he will be leaving us. A search is underway, and I'd like to thank Don for all his support and contributions and wish him all the best at -- in whatever he does going forward.

So with that, operator, let's open it up for questions.

(Operator Instructions) And our first question comes from Sean Hannan from Needham & Company.

First question is a comment to Don. Don, you've been a true pleasure and gentleman to work with the last many, many years. So you'll certainly be missed.

I appreciate that.

You got it. First question here, in terms of the results versus the guidance, the outperformance -- there's some slight outperformance we had, right. Is this primarily attributable then to the Computing? I think that, that was somewhat referenced in those last remarks. And in effect, was that kind of a pull forward that you had anticipated that pulled out of what otherwise would have been in that 4Q guide?

No, not really. I mean, I think that some of the revenue upside you saw does come from Computing, but it wasn't a pull ahead. And if you're thinking about our Computing exposure, we are really in a lot of storage applications. And the very nature of these applications are they're kind of special bid driven. And as you know, special bids are lumpy and they tail to the back-end at the end of the quarter. So it's always hard to forecast what they could be. Sometimes, you take a little bit conservative view to make sure we don't get caught by surprise. And so the volatility of those kind of products and how they go to market just lends itself to more volatility than not.

Okay. And then when I look at the wins that you folks have been accumulating, you did a nice job around that execution in the quarter. You've had some really great, steady progress over the course of the last many quarters. If I look at that -- how that's been lining up and, of course, considering that it could be 12 to 18 months before some of that really is materializing on that top line, but it would seem to suggest that at this point now, we should have some much better comfort in being able to see some accelerated revenues that would outperform what you're perhaps winding up to do here in '17. And so I just want to see if we can get a perspective around that. I realize you're not going to guide to it, but at this point of juncture, I think it would be useful to get a little bit of insight especially given that revenue growth is such a factor in turning the story here.

No, that's a fair question. So -- but I think we have made some progress in driving bookings growth (inaudible) we need to get that above $200 million, and we're on track to do that. I believe it will materialize in the revenue. Now the question is time to realization. And I think, as we talked about in the previous call, in the Medical and the A&D spaces, time to realization from a booking can be 18 to 24 months. And so the wins we're getting now, depending on the programs and where the program fundings are for A&D and where they go, for Medical, FDA certification, we will show revenue. Now the question is when in '18 and when in '19 does it show? The wins we're getting in telco have a much shorter time to realization. And so I think that [it looks] like a balance between next-gen telco and the high-value segments is really important. I think those should start to materialize hopefully in '18, what is the latter half of '18 and more in earnest in '19. The Industrial space is, to me, the wild card because Industrial is an area where you get time to realization of revenue that should be within 12 to 18 months. Now we are weak in Industrial. Let's be honest. I mean, we are very heavily rotated to flow control, which is oil and gas. I think we're going to -- start to see some recovery in that space in '18. I think it would be modest. And therefore, we need to diversify our exposure in Industrial to other areas. That's why I'm very a big fan of smart cities because I think that's going to be a significant growth driver going forward. I'm a big fan in energy storage management. I'm a big fan of smart kiosks in a variety of things, and what we have to do is we have to target and win more bookings in those areas. And if you've sought our bookings in Industrial, we've been kind of lighter over the last several quarters. So one of my big focus is to get Industrial at a higher rate of bookings that gives you more ability to have certainty on revenue growth near term than longer term. That was a very long-winded answer to your question, and I apologize.

Paul, that actually provided a lot of useful color, although I'll still look to you if I can follow up here. And as we all step back, taking away the color commentary, trying to interpret a little bit more as we look at the model opportunities as we all try to assess the state here, do you feel, at this point, that you're appropriately positioned based on what's been won that you should see some accelerated revenue growth though in '18?

I think that if you look at our growth this year, about 5% -- we'll be between 4% and 5% this year. We're at 5% year-to-date. We're 4.9% year-to-date in the third quarter. So we'll be, let's say, 4% to 5% for '17. I think our ability to go beyond that number in '18 is going to be a function of how strong the second half is because the second half of '18 is when we're going to see some of these programs we won in '17 begin to materialize. And as we go through our planning process in '18 -- for '18, which is happening in the next several weeks, we'll have better color. And the key is going to be the programs we're on today, how much roll-up it will be on those programs just because of normal S-curve. And that's the wild card I can't answer you right now. I'm happy with the wins we're achieving. They're in the right spaces. We're going to accelerate them, probably see more acceleration of revenue growth in the second half of '18. But what that means for the full year of '18, I can't tell you until I fully understand what happens on the S curve on those other programs.

And our next question comes from Steven Fox from Cross Research.

Two questions from me, please. First of all, on the guidance, the -- it looks like now you're looking at down sales quarter-over-quarter and year-over-year. What are the big drivers there in terms of why that's happening? And then secondly, kind of related on the operating margin guidance, I thought originally, you thought you could do more like mid-4s. Now you're looking closer to 4% even though a year ago, you did 4.8% and you've been doing 4% for the first half. Is there any incremental cost that we should think of? I was wondering if there's anything specific that's sort of transitory or ongoing around R&D, et cetera.

So if you look at the expense side of it, clearly, we are -- we've increased our overall SG&A spending. I mean, if you look at it on a quarter-to-quarter, year-over-year basis, it's probably up $3 million to $4 million every quarter. We previously talked about that being a function of real investments in people and capability, and part of it is being employee-related expenses. So I think the fourth quarter will be maybe the same size or higher than the third quarter in terms of the SG&A investment. At the end of the day, it comes down to what top line is going to be. Now part of our guidance is 6 10. If you look at last year, it was bigger than that. So the final question is what would drive it to go higher than 6 10? And so actually, there's a few things that might. You have Computing. As I said, this is a kind of special bid, lumpy business. Year-ends are usually when you see more activity as people flush budgets. They're maybe offsetting. We took a balanced view. If there is, that could drive the revenue up. The margin contribution on that kind of business is less than the average, but it can drive the -- it can drive it up. And so there's probably, in every one of our businesses, 1 or 2 little things that could drive top line, and the top line will drive more margin because it's more about absorption. But if you ask me what is the big thing that can drive the top line revenue growth, I'd say it's what happens in the Computing space.

That all makes sense. And then just a quick follow-up. So in terms of what you're forecasting quarter-over-quarter, how did -- I know you talked about the percent changes, are there any 1 or 2 big dynamics that maybe make this fourth quarter sequentially different from a year ago fourth quarter when you had a little bit more of seasonal lift? Or is it just a different forecasting process?

I think it's -- we take a very balanced view when we forecast. And I think that it's just the question of where certain products are in their segments. I think that -- as I said, Computing is a big -- the big piece. We saw a good [PI] growth or customer station growth over the last 3, 4 quarters. We think overall, that space is going to grow in '18 and beyond. Now whether or not there'll be a fourth quarter [pop], that remains to be seen. So in each of our businesses, we -- or sectors, we've attempted to look at where we are and look at where the risks are and give you the most balanced path possible.

(Operator Instructions) And our next question comes from Jim Suva of Citi.

This is [Tim Young] calling on behalf of Jim Suva. Can you talk about your Industrial segment, which I believe is slightly underperformance of the quarter and, I believe, it has been down year-to-date? How should we think about the growth trajectory per segment, as you had strong new wins in 4 segment in 2016, but it seems like the new wins haven't been successfully reflected in the ramping?

Sure. As I said earlier, I mean, if you look at our Industrial segment, we're heavily rotated toward flow control technologies in oil and gas. Now clearly, that has not been a growth area over the last couple of years. I think we'll see some recovery in '18, which is probably modest. But for us in order to make Industrial grow again, we need to diversify our customer engagements to these other areas. I spoke on a few -- just a while ago. We need to focus on smart cities. We need to focus on energy storage management. We need to focus on smart kiosks. We need to focus on a whole bunch of other areas where we can have more growth profiles than just be dependent on the oil and gas segment. And that's what we're going to go do. We have not made the progress we -- I would have liked we made this year, but we are focused on improving our position.

Just a quick follow-up. On that oil and gas, are you seeing that the churn rate or the order canceling, like Industrial segment? Or is just the program ramps slower than you previously expected?

No. It's -- the industry they serve are petrochemical plants, refineries, offshore drilling. So clearly, with the downturn in oil prices, we've seen that industry to be decimated. And so over the last 3 -- last several quarters, at least 1.5 years, we've seen significant erosion. Now I -- we did see some growth this quarter in that space. And hopefully, that will continue as we go to -- throughout '18.

And we have a follow-up question from Sean Hannan of Needham & Company.

So just kind of coming back to some of the viewpoints around the wins that you folks have accumulated, the Industrial focus, Paul, you had called out some wins that you have been able to garner within smart cities. Want to see if there's an opportunity perhaps to tweak that out a little bit more. When all has been won, what are you currently doing in that today is ramping or actually generating revenues on? Or is really this win that we reference today the main foray for you folks into that area? Any more color would be great.

Okay. So most of our smart city wins that we announced this year have yet to translate to revenue. You'll see at least one of them begin to, hopefully, hear in the fourth quarter or early next year. I think what is more important to me is the number and variety of wins we get with smart cities. The smart city, that's -- it's a big catchall category, right?

Exactly.

And we are trying to parley our strengths in optics, not optics transmissions but in optics cameras and everything.with us on smart cities. We're translating part of our knowledge and capabilities at RF. So to me, it's about getting -- acquiring as many new smart city customers as possible and a variety of different application platforms to allow us to be able to provide a lot more value to customers who are entering the space because smart cities will begin to really take off in the next several years. And so being in the position now, I'm hoping that we can garner a better share of smart city market across the board.

Okay. That's very helpful. And then switching to the Medical space for you folks, you've had some good success in bringing through a fair amount of business in this reported quarter. It's a nice improvement there. I think that there's been some -- internally, some enthusiasm around kind of a recovery and some return to growth within that space. So I just want to understand how should we think about -- looking past then it is going to pull back a little bit this next quarter, how should we think about the cadence of that business performing from here based on what's already been won and in hand. Should we continue to grow before, say, some of the more recent program wins start to kick in and continue those growth factors? Will we kind of stabilize around these levels? How do we think about this path on the Medical front?

So I would hope that we continue to grow. Now there are a few programs that -- quite honestly that are launching now that if they launch, it will continue to allow us to see that growth accelerate quarter-over-quarter. And part of it will be market acceptance, and part of it will be where they stand with regard to stability of the product pipeline. So the more the engagements we have, the greater the certainty of that revenue growth. And so just adding more engagements at various stages of their maturity will get us there. I'd like more engagements. And that's the task of the Medical team. It's to provide more engagements. Now the Qualcomm win was a great win for us because it's a whole brand-new market, and it's going to have a tremendous applications in patient monitoring, in pharmaceuticals, in remote medicine. So it gives the ability to have a lot of best on the table, and that's we've got to do. We've got to put a lot more chips on the table so we have more degrees of freedom. So I'm hopeful that we will continue to see medical acceleration of growth. The more those chips are on the table, the more confident I'm going to be.

That's great. And I mean glad you mentioned Qualcomm. So on my last question here, I just want to see if we can get an understanding. Is that a unique, exclusive relationship? Is there -- can you reference anything in terms of exclusivity there? And what's been communicated -- or among your customers in terms of enthusiasm for that partnership and where this could incrementally drive you from here?

So I mean, in the contract, there's probably a period of exclusivity. It's probably a normal 18-, 20-month thing. To me, as long as we perform for Qualcomm, as long as we're a good partner and getting their product design and through the registration process, where we help them with potential expansion of design and to generate demand, then we'll get our fair share. What is, I think, unique about this opportunity is that it's really a holistic system. I mean, we will design and manufacture the biometric sensors, but the sensors themselves are of no value without their HIPAA-based cloud network because that allows you to have a portable -- bringing data back and forth and to have health care professionals monitor it, and more importantly, you do analytics on the data to improve outcomes. And so to me, it's the combination of the 2 that's most important. And the fact that we are the hardware provider and they are the cloud software provider, this is a great validation of go-to-market across these kinds of spaces. And we will do everything in our power to make sure that we are the best partner to Qualcomm. And as I think about this space, the number of opportunities are kind of unlimited.

And I'm not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.