Celestica Inc (CLS) 2016 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Celestica earnings call for the fourth quarter of 2016.

At this time, all lines are in a listen-only mode.

I would now like to turn the meeting over to one of your hosts for today's call, Lisa Headrick Harpell, Senior Director, Investor Relations.

Please go ahead.

Good afternoon and thank you for joining us on Celestica's fourth quarter of 2016 earnings conference call.

On the call today are Rob Mionis, President and Chief Executive Officer, and Darren Myers, Chief Financial Officer.

This conference call will last approximately 45 minutes.

Rob and Darren will provide some comments on the quarter and then we will open the call for questions.

During the Q&A session, please limit yourself to one question and a brief follow-up.

We will be available after the conference call for additional follow-up.

Please visit www.celestica.com to view the supporting slides accompanying this webcast.

As a reminder, during this call we will make forward-looking statements within the meanings of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including those related to our plans for future growth, trends in our industry and end markets, our anticipated financial and operational results and performance and financial guidance.

Such forward-looking statements are based on management's current expectations, forecasts and assumptions, which are subject to risks, uncertainties and other factors that could cause actual outcomes and results to differ materially from conclusions, forecasts or projections expressed in such statements.

For identification and discussion of such factors and the material assumptions on which such forward-looking statements are based, please refer to the Company's various public filings, including our most recent MD&A, annual report on Form 20-F, including the risk factors section therein, and reports on Form 6-K filed with or furnished to the U.S. Securities and Exchange Commission and our annual information form filed with the Canadian Securities Administrators.

Please also refer to our cautionary statements regarding forward-looking information in such filings and in today's press release.

Our public filings can be accessed at sec.gov and sedar.com.

During the call we will also refer to certain non-IFRS financial measures, which include adjusted gross margin; adjusted SG&A; adjusted operating earnings or adjusted EBIAT; adjusted operating margin, which is adjusted operating earnings as a percentage of revenue; adjusted net earnings and adjusted EPS; inventory turns; cash cycle days; and free cash flow.

Other non-IFRS financial measures that we will refer to are return on invested capital or ROIC, which for all purposes of this call means adjusted ROIC, and adjusted tax rate, which for all purposes of this call means adjusted effective tax rate.

These non-IFRS measures do not have any standardized meanings under IFRS and may not be comparable with other non-U.

S. GAAP or non-IFRS financial measures presented by other issuers.

We refer you to today's press release, which is available at celestica.com, for more information about these and certain other non-IFRS measures, including a reconciliation of the historical non-IFRS measures to the corresponding IFRS measures.

Unless otherwise specified, all references to dollars on this call are to U.S. dollars.

I will now turn the call over to Rob Mionis.

Thank you, Lisa, and good afternoon, everyone, and thank you for joining today's call.

Celestica delivered a solid 2016, with strong growth in revenue and earnings, while generating over $100 million of free cash flow.

For the year we delivered 7% revenue growth and grew adjusted operating earnings by 14% to 3.7% of revenue, our highest level of operating margin since 2001.

I am very pleased with the progress we have made in setting the foundation for our strategy and delivering on our priorities.

I believe that the actions we have been implementing are beginning to yield results and will set us up for the longer-term success.

Before we dive into the quarter and the 2016 fiscal results, I would like to acknowledge the Celestica team for their accomplishments and thank them for their relentless drive and commitment to enabling our customers' success and helping us to meet our company's goals.

On the call today, Darren will review our financial results for the fourth quarter and fiscal year 2016, I will conclude the call with some additional color on 2016 and outline our key priorities for 2017, then Darren and I will open the call for questions.

Now I'd like to turn it over to Darren.

Thank you, Rob, and good afternoon, everyone.

Celestica delivered a solid fourth quarter with year-over-year growth in revenue, earnings per share, adjusted operating margin and return on invested capital.

Fourth-quarter revenue of $1.62 billion was above the high end of our guidance range, led by program strength in our communications end market.

Fourth-quarter adjusted earnings were $0.41 per share and included net positive tax-related impacts of $0.07.

Excluding this benefit, adjusted earnings per share of $0.34 would have been at the high end of our guidance range.

Before discussing the fourth-quarter details, I would like to highlight some of our financial results for the full year.

Our full-year revenue of $6 billion was up 7% relative to 2015.

We delivered over 10% year-over-year revenue growth in our two largest markets, communications and diversified, resulting from new program revenue and strength in certain sub-markets of communications, most notably optical.

Full-year adjusted operating margin of 3.7% was up 20 basis points as compared to 2015.

Adjusted operating margin dollars increased 14% year over year.

IFRS net earnings of $136 million or $0.95 per share increased $0.53 per share relative to last year.

Adjusted earnings per share were $1.40, up $0.48 relative to 2015.

Year to year, both IFRS and adjusted earnings per share were positively impacted by improved earnings, net tax-related benefits and a lower weighted average share count.

We achieved full-year ROIC of 20.8%, up 1% from 2015, and we generated $110 million of annual free cash flow.

Moving on to the fourth-quarter details, let me begin with revenue from an end-market perspective.

Relative to our beginning of-quarter expectations, we had stronger-than-expected performance from our communication and server end markets.

Diversified represented 27% of revenue, decreased 4% sequentially and was relatively flat year over year.

Relative to the same period last year, strong growth in our semiconductor market partially offset reductions from declining demand in the solar panel market.

Our communications end market performed better than expected, representing 44% of total revenue, and was up 6% sequentially due to strong demand, including from new programs.

Compared with the fourth quarter of 2015, communications revenue was up 24% as a result of new programs, program-specific strength and continued demand strength in optical.

Our storage business was in line with our expectations and represented 19% of total revenue for the fourth quarter.

Storage revenue increased 15% on a sequential basis, primarily due to seasonal demand.

Compared to the fourth quarter of 2015, revenue from our storage business was up 6%, largely due to new program ramps, which more than offset declines in end-market demand for certain legacy technologies.

Our server business represented 8% of total revenue and was up 7% sequentially, due to seasonality, and down 19% compared to the fourth quarter of 2015, due to overall demand weakness in this market.

Our top 10 customers represented 72% of revenue for the fourth quarter, up 4% from the third quarter of 2016 and relative to the same period last year, driven by higher demand from select customers in the fourth quarter.

For the year, our top 10 customers represented 68% of total revenue.

For the fourth quarter and full year 2016 we had two customers, Cisco and Juniper, individually contributing greater than 10% of total revenue.

Moving to the financial highlights for the quarter, revenue in the quarter increased 7% compared to the fourth quarter of 2015, primarily due to strong demand and new programs in our communication market.

Adjusted gross margin of 7.2% was down slightly sequentially and up 20 basis points year over year.

Relative to the fourth quarter of 2015, improved performance in our diversified markets and the higher overall revenue drove the gross margin increase.

Our adjusted SG&A expense for the fourth quarter was $47 million, within our expected range of $47 million to $49 million for the quarter and up from $45 million for the same period last year, due to increased investments, partly in sales and strategy.

Adjusted operating earnings for the quarter were $61 million or 3.8% of revenue.

which was in line with the midpoint of our guidance, flat sequentially and up 30 basis points relative to the same period last year.

On a year-over-year basis, the improved adjusted operating margin was driven by higher revenue and improvements across our diversified submarkets, including the turnaround of our semiconductor business.

During the quarter our adjusted earnings and IFRS earnings benefited from $10 million or $0.07 per share of net tax-related benefits.

This was comprised of $2 million of net favorable tax and $8 million of interest refunded, primarily due to the final settlement of our Canadian transfer pricing appeal.

Largely as a result of those benefits, our adjusted tax rate in the fourth quarter was 11% and was below our expected annual range of 17% to 19%.

For the full year, our adjusted tax rate was also 11%.

Adjusted net earnings for the fourth quarter of $60 million and adjusted earnings per share of $0.41 increased over 50% relative to the prior year, resulting primarily from improved adjusted operating margin as well as the net tax-related benefits discussed.

Fourth-quarter IFRS net earnings were $20.9 million or $0.15 per share compared to $12.1 million or $0.08 per share in the fourth quarter of 2015.

The year-over-year improvement reflects higher operating earnings and net tax-related benefits, which were partially offset by higher restructuring costs largely related to the closure of our solar panel manufacturing operation.

Return on invested capital for the quarter was 22.7%, up from 21.4% for the same period last year.

Let me now take a moment to talk about our decision to exit the manufacturing of solar panels.

The recent oversupply of solar panels in the market and unprecedented declines in market pricing have slowed demand.

Although we can't predict the duration of the market instability, we expect the downturn to be prolonged and that the changes in the market will negatively impact the future profitability of our solar panel manufacturing business.

As a result, we made a decision to exit this business in the fourth quarter, which resulted in restructuring charges of $21 million.

Notwithstanding this decision, we remain very excited and committed to our strong and growing energy products business.

Rob will provide further color on our energy business shortly.

Moving on to working capital, our inventory decreased $39 million from the end of the third quarter of 2016 to $891 million at December 31.

Inventory turns for the quarter were 6.6, improving from 6.3 turns in the third quarter.

Capital expenditures were approximately $18 million or 1.1% of revenue for the fourth quarter.

For the full year we paid approximately $64 million for capital expenditures or 1.1% of revenue.

Cash cycle days for the fourth quarter was 44 days, a two-day improvement relative to the third quarter of 2016.

Our free cash flow for the quarter was $69 million compared to free cash flow of $76 million for the same period last year.

Moving on to our balance sheet, our balance sheet remains strong.

Our cash balance increased by $15 million sequentially to $557 million.

During the quarter we repaid $31 million of our outstanding debt.

Our net cash position at December 31 was $330 million, reflecting amounts outstanding on our term loan of $213 million and $15 million drawn on our revolving credit facility.

Within the quarter no shares were purchased for cancellation.

At the end of the fourth quarter we had approximately 141 million subordinate and multiple voting shares outstanding.

Moving on to our guidance for the first quarter of 2017, for the first quarter we are projecting revenue to be in the range of $1.4 billion to $1.5 billion.

At the midpoint revenue is projected to increase 7% year over year and would represent our sixth straight quarter of year-over-year revenue growth.

Sequentially, revenue is anticipated to be down 11%, largely due to seasonality.

At the midpoint of our expectation, we anticipate non-IFRS adjusted operating margin to be approximately 3.5%, a 20 basis point improvement relative to the first quarter of 2016.

First-quarter adjusted net earnings are expected to range from $0.24 to $0.30 per share.

Adjusted SG&A expense for the first quarter is projected to be in the range of $46 million to $48 million and we estimate an annual adjusted tax rate range of 17% to 19%.

Our first-quarter guidance assumes the annual rate and excludes any impacts from taxable foreign exchange.

Now let me provide some further color on our first quarter 2017 outlook in our overall end markets.

First I'd like to highlight some changes we're going to be making to our end-market reporting.

Due to converging technologies in the storage and service end market, going forward the reporting of these markets will be combined into one, the enterprise market.

Our consumer end market, which represented 2% of total revenue in 2016, will now be reported as part of our diversified markets.

These changes will take effect beginning when we release our March 31, 2017 earnings results.

In our diversified markets business, we are anticipating revenue to be relatively flat year to year, as anticipated new program revenue and energy products and increased demands in our semiconductor business is expected to offset lower revenue resulting from the exit from the solar panel manufacturing market.

Moving to our communications end market, we continue to perform very well in this end-market and expect to continue to benefit from new program revenue and demand strength in our optical programs.

Our communications end market revenue is expected to increase in the low 20% range year to year.

Our enterprise end market, which will be comprised of both storage and server programs, is anticipated to decline in the low single digits relative to the same period last year, as new program ramps in our storage business partly offset lower anticipated market demand within server.

In summary, despite the challenging dynamics in some of our end markets, I am very pleased that we expect to continue to drive year-over-year growth in revenue and operating margin in the first quarter.

Now I'd like to turn over the call to Rob for some additional comments on 2016 and our outlook heading into 2017.

Thank you, Darren.

2016 was a strong year for the Company, with solid financial results.

We delivered consistent quarterly year-to-year growth in revenue and earnings per share and achieved our highest annual operating margin percentage performance in 15 years.

We successfully navigated a challenging business environment in 2016 and delivered double-digit growth in our diversified and our communications end markets.

I'm especially pleased with the successful ramps of a number of programs within our diversified markets.

We also drove new programs in our traditional markets, continued to make progress with our JDM offerings and offered pockets of market strength including optical programs within the communications end market, resulting largely from the data center expansion and upgrades to 100G.

As Darren mentioned, we have decided to narrow our smart energy focus to energy products, an area we believe represents high growth and requires partners that can deliver high-complexity solutions.

We believe that our experience and expertise in panel manufacturing have enabled Celestica to build a strong power electronics business, where we are achieving strong levels of growth.

We are winning business with the leaders in this market and plan to expand, with a focus on energy conversion, energy controls, storage and monitoring.

I would now like to highlight a few key accomplishments that contributed to our successful year and that will help to deliver long-term value.

To accelerate growth, we have increased investments in the front end of the business, including bringing on new leadership to help drive our market and product diversification strategy.

2016 represented a strong bookings year across our business.

Although there is more work to be done, I am pleased with the progress we have made.

We have increased our focus on strategy and corporate development with the addition of a chief strategy officer.

We are building out our team and organizing our efforts to accelerate our transformation.

I expect to see more momentum in the back half of 2017 as a result of our efforts.

We continue to add to our capabilities, including our acquisition of Karel, a manufacturing services company that specializes in aerospace and defense.

We continue to invest in our product solutions through our joint design and manufacturing offerings and I'm excited by the breadth of our comprehensive solutions in the areas of storage, network switching, converged storage and server.

We continue to make investments in automation and the connected factory, streamlining our processes and reorganizing to reduce costs, complexity and to improve our responsiveness to support our goal of continued profitable growth.

Lastly, we continue to perform well for our customers, consistently ranking high on their scorecards.

Overall, 2016 was a year of rapid change and evolution.

I am very pleased with our results and confident with the progress we have made to strengthen our foundation for longer-term value creation.

Now let's look ahead to 2017.

As we enter 2017 I am pleased that we are forecasting continued year-over-year growth in revenue and adjusted operating margin in the first quarter.

We are focused on continuing the momentum gained in 2016 in driving growth in revenue and profit.

Our teams will be working hard to continue to grow our diversified business and address continued pressure in the communications and enterprise end market.

Continue to evolve and diversify our customer and product portfolios to better drive long-term consistency in growth and operating margins.

We are focused on driving double-digit organic growth rates over the long term within our diversified markets, while augmenting with acquisitions to build out our capabilities, proof points and relationships.

Our next priority is to achieve continued margin enhancement in diversified, while balancing investments needed to drive continued growth.

A great deal of progress was made in driving margin improvement in diversified markets in 2016 and we see further opportunity for 2017.

Continuing to generate strong free cash flow and return on invested capital is also our priority.

Our balance sheet remains strong and we plan to continue our disciplined approach to the use of cash to invest in our business, drive growth and to continue to return capital to our shareholders over the long term.

Finally, we continue to strive for flawless execution while driving increased productivity and simplification throughout our organization.

In closing, I am proud of our accomplishments in 2016 and I am confident with the progress we are making through our foundation to drive longer-term value creation.

I look forward to sharing our progress in coming quarters.

Now I would like to open the call to questions.

Thank you, [Kristin].

(Operator Instructions).

Robert Young, Canaccord Genuity.

Hi.

Good evening.

First question from me would be around the comms business.

Could you talk about the visibility you have?

Has anything changed there?

How sustainable is the growth you've seen recently when you look forward into 2017?

Sure.

With respect to comms, we have in the near term fair optimism around some of the new programs we won, the trends in optical space driven by datacenter demand and the build-out of 100G.

So we're fairly optimistic in the short term, as indicated by our guidance.

In the longer term, the communications demand remains fairly dynamic so we'll have to see how that plays out.

So is it still like a 90-day visibility window or is it strengthening?

Do you see a little more now?

Yes, broadly speaking, the optical world seems very strong but we have visibility into the guidance window, so 90 days I think is appropriate.

Going out beyond that, it gets a little more murkier.

Hey Rob, I would just add, certainly communications has legs right now.

How long that lasts I think is hard to say but continuing to grow in the low double or low 20% range is not what you should expect as the year goes on.

That will temper somewhat as the year goes on.

Okay, that's great.

Then on the solar panel business, is there any way to sort of dimension how big that is, how much of the impact was in Q4 and how much might be coming in Q1?

Then if you can just talk about how tightly coupled the energy business is to that solar panel business?

Then I'll pass the line.

Hey Rob, I'll take the first part of that and then Rob can jump in for the second part.

From a sizing point of view, the overall business was about 1% of revenue in Q4; it will be about 1% in Q1 as we wind it down.

I'd say on a profit point of view, it made a little bit of money in the fourth quarter and won't have a significant impact in the first quarter, as the team is doing a good job of winding that down.

When I look at the whole 2016, just to give you some perspective, it was 3% of revenue for the full year.

Okay, that's great.

Rob, to your second question, it's not coupled that tightly for couple of different reasons.

Our power products business products are less commoditized.

They're a little bit more complex.

There is more differentiation.

We also serve a multitude of markets; it's not just solar but it's wind and turbine.

It's also a multiple of technologies -- solar conversion, monitoring storage and control.

So we have a very strong growth pipeline for this products business and the supply/ demand dynamics that we've seen in solar panels aren't existing right now in our power products business.

Okay, great.

Thanks a lot, guys.

Thanks, Rob.

Daniel Chan, TD Securities.

Hi, guys.

Thanks for taking my question.

Hi, Dan.

What specifically happened in the solar panels business to make you change your decision?

It just seemed to turn sour pretty quickly after you secured some really long-term supplies and leased out some new space (inaudible).

So just kind of wondering what happened to catch you off guard there.

Yes, as we mentioned in previous calls, Dan, the supply/demand dynamics kind of got out of whack with respect to the impact of the feed-in tariff programs in China, the change of regulations coming out of the U.S. side, so the sense of urgency on products kind of got taken out of the pipeline.

China kind of overbuild its capacity, which drove down pricing and increased a lot of uncertainty.

So when we stepped back from it all and we looked at the new reality, both in the short term, the midterm and the long term, in terms of what the market might be moving forward, we came to the conclusion that we probably will not be able to make reasonable returns moving forward and we decided to exit the business and focus in on the higher-value power products business I just went over.

For us, solar panels was never an end state; it was always a means to an end.

We're very happy with our portfolio that we've been able to build and frankly we're looking to grow it quite substantially moving forward.

Dan, panel prices have dropped upwards of 50% in the last 12 months and really over the last six months, most of that.

So, certainly nobody anticipated that happening.

Okay, great.

That's really helpful.

Thanks.

Just switching gears a little bit, what are the impacts from some of the things the new U.S. administration are proposing, including the border adjustment tax?

How are you thinking about the risk and how does that change the way you're thinking about your strategy as well as capital deployment as you move forward?

I'll start off and I'll let Darren finish but it's certainly early days, Dan, and we're keeping abreast of the policy and we're in constant contact with our customers.

It's really very difficult to predict how everything will play out.

As you know, supply chains -- more specifically electronic supply chains -- are very complex and very well entrenched around the world.

If and when there are policy changes on trade, I believe frankly that industry and the market will have the opportunity to adapt to the changes as they occur.

One thing is that our supply chains are becoming more complex, our customers' supply chains are becoming more complex and frankly, we're a supply chain solutions company and we're looking forward to continuing to assist our customers in navigating through these uncertain waters and making sure that they optimize our total cost of ownership moving forward.

We have a long history of adapting to changes in the marketplace and we see this one as no different but still early in the game.

Yes, not much I would add to that, Dan.

I mean, early days and so we'll need a little bit more and everybody will need a little bit more color on the actual changes and we're all speculating until then.

So right now, it's still business as usual and just helping our customers navigate as we learn more.

Great, thank you.

Thanos Moschopoulos, BMO Capital Markets.

Hi.

Good afternoon.

Rob, just to clarify, with the change in segmentation with servers and storage going into the enterprise unit, is that more of a change from reporting or does it actually reflect a change in go-to-market?

And if so, what implication might that have for the business?

It's more a change in reporting.

Okay.

I mean, those businesses, from the converged point of view we've been driving that for quite some time now and they're working together already but it's more for the external reporting.

Okay.

Do you have an update on the aerospace business on the back of -- I guess it's been over a year now -- with the Honeywell assets and then the most recent tuck-in acquisition?

What are you seeing on that part of the business?

Yes, as you know, Thanos, we're the leading supplier for aerospace and defense EMS.

Karel I think was a great acquisition which really improves our capability within that space.

We're getting some nice traction with respect to taking the offering that we've established with Honeywell and other customers and taking it to future customers.

In the toolbox of things that we're doing is also this operate-in-place that we've done with Honeywell and we expect to be active in 2017 on that front and perhaps others as we move forward.

Great.

At this stage, would aerospace comprise more than half of diversified?

Not quite half.

Okay.

All right.

Thanks, guys.

I'll pass the line.

Gus Papageorgiou, Macquarie.

Thanks.

Darren, just a quick clarification.

Did you say that diversified, you expected this coming quarter to be flat year over year?

Just if you can clarify that.

Then just -- Rob, I know you talked about you're building up your strategy team and your corporate development team.

You are flush with cash.

If you look at your capital structure, I mean, how comfortable are you taking on a net debt position and what would you have to see in order to do that?

Let me do the first part.

Yes, I mentioned the diversified flat year over year really from the panel impact.

We are growing in energy products and we are growing in semiconductor.

As the year goes on, we certainly would expect and we're driving for growth in the diversified markets but starting the year with flat year over year.

Gus, as we mentioned on other calls, we are looking to be more acquisitive in 2017, but more likely in the back half of 2017.

For the right target and the right opportunity and the right investment thesis, we are comfortable in levering up to 3 to 3.5 times.

But we have been and will always be very disciplined in our use of cash to make sure that we're finding the right opportunities, with the right investment theses and the right value creation opportunity for us.

Sorry, when you say 3 to 3.5 times, 3.5 times what?

EBITDA.

So certainly a net debt position, yes.

Great.

Thank you very much.

Great.

Thanks, Gus.

Todd Coupland, CIBC.

Yes, good evening, everyone.

Thanks for taking my questions.

I had a couple of questions, if I could.

On optical, is the demand that you're seeing mostly in the U.S. or are you benefiting from Chinese upgrading of optical networks as well?

I would say we don't see exactly in all the end market, where it goes every time.

I would say it's probably more centric to the U.S. though.

Okay.

I mean, most views of that 100G upgrade is that is going to stay strong all year.

If that's the case, would you be positively surprised in the comms business?

I think we can have a very strong comms year but we don't want to -- there's many programs within communications and we're starting the year very strong.

As always, we're not giving guidance outside of 90 days because things will change.

But I mean, the business is doing quite well today.

Based on the broad trends, Todd, of dataset expansion, the upgrades to 100G, the build-out of the infrastructure in Asia, the trends certainly point to broad strength in the use of optical components and about a third of our communications portfolio is in optical.

So the broad trends are in our favor but as Darren mentioned, seeing out that far into the future, that's a little bit murky for us.

Okay.

Second question, so in terms of your exposure in Mexico, could you just remind us -- I don't know, percent of footprint or percentage of revenue that's coming from Mexico?

Gus, I'd have to get that after, I don't have that exactly in front of me so I don't want to misquote on the call.

I don't have the exact number in front -- certainly within our filings, you can find the square feet there.

Okay.

But at this point, customers are not making any requests for changes or anything along those lines in terms of supply chain moves to the U.S.

Correct.

There's a lot of customers and people around the world running a bunch of what-if analysis but it's all desktop work and frankly very speculative at this point.

I mean, you've seen a lot of symbolic moves in the automotive space already and I guess it's reasonable to assume that there are U.S.-based companies may at least make similar types of symbolic moves, if not material moves?

We also read that a lot of the symbolic moves have been planned for a long period of time and they're just trying to get off the list, if you will, to make sure they don't end up in a bad tweet, if you know what I mean.

So it's hard to really characterize whether these things are as a result of some of the hyperbole in the market or if they've been planned for a long time.

Yes, no, that's certainly fair.

Then just lastly on M&A, so I know you want to be a consolidator in the market.

Just wanted to know your updated opinion.

Do you expect Tier 1 EMS consolidation with the type of move that you seem to be stepping towards or is it still tuck-in?

Not necessarily for Celestica but within the sector.

Yes, that's a good question.

Our strategy that we're pursuing will be capability-based kind of oriented.

So we look at targets that will increase our capabilities and increase our proof points.

As you know, the EMS industry has probably a tainted history of EMS consolidation destroying value at that level and for lots of reasons people have not done that.

On the flipside, there certainly is a lot of capacity out there at that level.

So one would think if your customers are consolidating, so should EMS.

But our strategy that we're pursuing is more of a capabilities-based, proof-point-based strategy moving forward.

Okay.

That's great.

Thanks for the color.

I appreciate it.

Thanks, Gus.

I am showing no further questions at this time.

I would now like to turn the conference back to Rob.

Thank you for your continued support and we look forward to updating you on our progress next quarter.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for your participation and have a wonderful day.

You may all disconnect.