Fabrinet (FN) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fabrinet second quarter 2013 financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Paul Kalivas, Fabrinet's Chief Administrative Officer and General Counsel.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the second quarter of fiscal year 2013, which ended December 28, 2012. With us on the call today are Tom Mitchell, Chief Executive Officer and Chairman of the Board of Directors of Fabrinet; TS Ng, our Chief Financial Officer; and John Marchetti, our Chief Strategy Officer.

This call is being webcast and a replay will be available on the Investors Section of our website located at investors.fabrinet.com. Please refer to our website for important information, including our earnings press release and our non-GAAP to GAAP reconciliation.

I would like to remind you that today's discussion may contain forward-looking statements about the future financial performance of the Company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law.

For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on November 6, 2012.

We will begin the call with brief remarks by Tom, John, and TS, followed by time for questions. I would now like to turn the call over to Fabrinet's CEO and Chairman, Tom Mitchell.

Thank you, Paul, and good afternoon, everyone. I am pleased to report solid second quarter results, with sequential growth in revenue and earnings per share. While the challenging global economy continues to weight on our business over the near term, we are optimistic about the long-term opportunities for growth, which include new business from existing customers, potential business from new customers, and positive trends in the market we serve.

We remain to be committed to provide world-class manufacturing services to all of our customers and are doing all we can to help them meet their current and future production needs while exploring opportunities to further diversify our revenue. I want to thank our employees for our employees for all their hard work, and our customers for their continued trust and support of Fabrinet.

I will now turn the call over to John Marchetti, Chief Strategy Officer, for a further perspective of the markets we serve. John?

Thanks, Tom, and thanks, everyone, for joining us today. In terms of overall demand trends, we did see some weakness in orders over the last month of the December quarter. This softness was not attributable to any one particular customer or end market vertical, but rather was fairly broad-based across our lines of business. Over the last several weeks, we have begun to see some signs of improvement, but we remain somewhat cautious, as it is still too early to determine if this improvement is sustainable throughout the entire quarter.

Looking at our segments, in optical communications, we saw some cuts to orders late in the quarter, as our customers did not see an uptick in overall demand going into calendar year end. There was still a lot of excitement and focus in some of the more advanced components and modules, which is encouraging, and we are hopeful that these trends will continue.

As I indicated earlier, we have begun to see indications of orders improving in our optical communications business, and while it is too early to call this a trend, we are encouraged by these early signs and expect that the March quarter will represent the trough for our optical business in calendar 2013. We believe the underlying fundamentals of our optical business remain strong and expect to benefit through our customers from the 100-gig upgrade cycle, even as the timing of that cycle remains somewhat uncertain.

Demand in our laser and sensor segment is mixed as well, with some variation by application. The laser market appears to be in a bit of a slump, as some of the weakness that we saw in the government and research markets continued through last quarter, and the industrial market remains solidly mixed.

We expect that over the near term, our laser business may continue to experience some sluggishness. However, we continue to believe that the overall laser market is in the early stages of outsourcing and represents a significant opportunity for growth over the next several years.

The demand and visibility in our automotive segment remains solid, and we are encouraged that signs point to this continuing. We continue to win key accounts in this segment and are excited about the opportunities for growth in the coming quarters. Overall, we remain confident that our laser, sensor and other segment will be a critical driver of our top line growth for the next several years.

Looking beyond the scope of the March quarter, we remain encouraged by the overall growth prospects for our business. We continue to have success in new customer acquisition and in winning new programs from existing customers. And while these new wins always take time to generate meaningful revenue, we believe the pipeline for both of these growth avenues is strong.

With that, I would now like to turn the call over to TS, our CFO, for a report on our financial results. TS?

Thanks, John. As usual, I would like to start with an update on the insurance recovery status, review the results for the second quarter, and then end with our outlook for the March quarter. We continue to expect our financial results to be impacted for multiple quarters due to the timings of approval and payment of insurance proceeds. We have now submitted claims for all losses related to equipment, inventory, property, and business interruption claims for losses incurred through the end of the first quarter of fiscal 2013.

In the second quarter, we received an insurance payment towards our owned equipment claims in the amount of approximately $4.8 million. This is the second consecutive quarter where we have received insurance payments against our claims, and we will continue to aggressively pursue the balance of our claims. We will disclose additional information on the timings and payments of our insurance claims as it becomes available.

Now to review the results for the second quarter. Please note that all numbers are GAAP unless stated otherwise.

Our total revenue for the second quarter of fiscal 2013 was $167.4 million, an increase of 6% sequentially and 33% compared to the second quarter of fiscal 2012. Please remember that the second quarter of 2012 was impacted by the flood recovery.

On an end market basis, revenue from optical communications was $120 million, or 72% of total revenues for the quarter, while laser, sensors, and other revenue was $48 million, the remaining 28%. As Tom indicated in his prepared remarks, we will continue to look for ways to further diversify our revenue base.

Our share-based compensation expenses for the quarter were $1.38 million, of which roughly $1.1 million was included in SG&A, this compared to share-based compensation of $1.25 million last quarter and $1.6 million in the December quarter of last year.

Our flood-related item for the quarter was income of $4.8 million, which represented an insurance payment on our equipment claims for Fabrinet-owned equipment. This amount is included in our results as other income and is excludable on non-GAAP results. We intend to book the gains on the insurance proceeds in future periods as those amounts become reasonably certain.

Our effective tax rate for the first quarter was 4.3% including the effect of flood-related insurance recoveries as well as the relief of some property tax provisions. Without these items, our normalized tax rate would have been 5.2%, within our expected range of 5% to 6%.

On a non-GAAP basis, net income totaled $13.8 million for the quarter, or $0.39 per share, calculated from a base of roughly 35 million fully diluted shares. Non-GAAP net income grew 8% sequentially compared to non-GAAP net income of $13.8 million last quarter, an increase of 123% compared to non-GAAP net income of $6.2 million in the same period last year.

On a GAAP basis, including flood-related income and share-based compensation expenses, our net income was $16.2 million, or $0.48 per share. In the near term, we expect that our GAAP results may continue to fluctuate due to the size and timing of future insurance recoveries.

Moving on to the balance sheet and cash flow statement, we ended the quarter with a cash balance of $138 million. The $30 million sequential increase was primarily due to positive operating cash flow and the proceeds from the insurance payment.

I would now like to discuss guidance for next quarter. We expect revenues of between $147 million and $151 million. We anticipate non-GAAP net income of $0.29 to $0.31 per share based on a fully diluted basis of 35 million shares. We anticipate GAAP net income of $0.26 to $0.28, although we note that GAAP net income remains subject to the timings of insurance recoveries.

That concludes our prepared remarks. At this point I would like to turn the call over for questions. Operator?

(Operator Instructions.) Sherri Scribner, Deutsche Bank.

In your commentary, you talked about demand picking up in the last couple of weeks -- the first couple of weeks of this quarter, I'm sorry. And we've heard from some of your customers that their expectations for the back half are more optimistic. Can you give us a sense of what you're hearing from customers and if you expect to see demand improve in the second half of calendar '13?

Yes, thanks, Sherri. Yes, I'll take a first stab at it, and then, obviously, I'll turn it over to Tom for maybe some commentary from some of the customers he's been talking with. Again, I think what we are expecting from our customers dovetails with exactly what they've been saying publicly. We did see our optical orders in particular start to get better a little bit over the last couple of weeks -- nothing dramatic, but like we said in the script, something that gives us at least a little bit of an encouraging outlook. But I think all of them are at least anticipating that as we go through this calendar year, we should see demand, specifically on the optical component side, start to get a little bit better.

Tom, I don't know if you want to add any color to that, given some of the customers you've been talking with.

No, I think, Sherri, that my experience is that we are really dovetailing, or perfectly aligned, with our customer base, and like John said, that's exactly what we're seeing. And our experience is always, going forward, that we do see the perfect alignment of our customers' demand working with us. Does that help you out?

That's very helpful. Thank you very much, Tom. And also, I just wanted to get a sense of, I know that Building 6 is somewhat of a drag on expenses because it's not fully utilized. Can you give us some sense of how full Building 6 is right now and when you -- you probably don't want to give me a time when it would be fully utilized, but what are your expectations for ramping that? Thanks.

Sure. So Building 6 right now is a little less than 50% occupied from a space perspective. So even within that 50%, if you will, there are still customers that are in the early stages of establishing their production with us. So some of that is new customer, if you will, space that is being occupied, so it's going to take them a little bit of time to get up to a meaningful revenue level with us from there.

In terms of how long that building's going to take to firm up, a lot of that is really going to depend on how quickly some of the new customers that we're talking with and that we're in various stages of contract negotiations, how quickly we can close some of that business and get it moved into the factory. So at this point, we continue to monitor that. As that building continues to fill up, we'll share that with folks. But it's not something we necessarily forecast on a quarter-by-quarter basis.

Sure, that makes sense. Okay, thank you.

Patrick Newton, Stifel Nicolaus.

The first one -- John, can you walk us through what is baked in the revenue outlook? I know you talked about orders slowing in the month of December and starting to improve in the month of January. But I guess the 9% sequential decline in midpoint is definitely below what we've heard so far out of your top two customers as far as what they've pointed to in the March quarter. So are there any material commercial laser sensor items that are also baked into this outlook that would point to the sequential decline?

Sure. Thanks, Patrick. I think that the big thing for us here is we did see weakness across essentially the bulk of the customer base, both on the laser and the optical side, as we came through the last month of the second quarter -- of our fiscal second quarter, excuse me.

As we got into the early part of January, that definitely firmed up to where we saw that bouncing around at the same level for several weeks. And like I said, over the last week or two, we've started to see a small uptick in some of the optical comm stuff. But when we look across that customer base or what's really in the guidance is we have a number of customers that are essentially down a little bit sequentially for us as we go into that March quarter. And when you tally all that up, that's how we get to the outlook that we get to.

Okay, that's helpful. And for TS or for John, can you help us understand why your gross margin contracted sequentially on higher revenue? Was that a mix issue? Or any detail would be great.

All right, I'll take that. So I think last quarter the gross margin down about 20 basis points. So we experienced a little bit of headwinds on the chin. This is due to the Thai baht. So as you know, the US dollar has been depreciating. Therefore, Thai baht is appreciating. So that change alone accounts for the decline, or probably it's a lot of plus and minus, but eventually, it's the headwind from the foreign exchange that accounts for that.

Okay, and just one more, if I may, because I think this is really an important issue as far as gross margin on a go-forward basis, is your current insurance policy -- can you remind us when it expires or comes up for renewal? And at this point, do you have any sense as to whether the renewal of a contract or signing a new insurance contract would be a positive or negative impact relative to your current insurance policy?

Okay, sure, Patrick. Now, actually, we just renewed our insurance policy for this calendar year. And as compared to the last year, we actually realized some savings. So there will be some saving there, which will be reflected in the March quarter. So that's the only thing I can tell you there.

Can you help us quantify just in the sense that last time it went up exponentially -- is this time it's down a little bit or is it a pretty meaningful delta relative to the prior contract?

Yes, so there's no way it can go back to the pre-flood level. That's almost impossible. But I will say that this decline, new policy is significantly reduced from our last quarter. So you might be looking in some gross margin improvement.

Perfect. Thank you. Good luck, gentlemen.

Alex Henderson, Needham and Company.

So can you talk a little bit about what's going on with one of your larger customers in terms of Oclaro having moved stuff? Have you finally stabilized your situation with those guys? I know that they're moving some stuff between production locations and realigning things. Has that at least stabilized in that particular instance?

It has, Alex. I think, at least for the near term, the decisions that we were waiting on have been made. There still is probably going to be some small impact as a program or two comes our way and that kind of a thing. But I think, for the most part, where we stand with them today, I would absolutely characterize it as stable. We're not expecting any big changes from there on a go-forward basis.

And the second question, as you're looking at this mix between the December actual and the March guidance, it looks like some of that had to do with some timing. As you're looking at the commentary that you're getting from people over the last month, it seems like they're seeing a pickup from October levels to the January timeframe, and several of the companies have made that comment. Did you also see that trajectory, or would it be lagged from the time they saw it? In other words, if they saw a weakness in orders in October, would it show up in your numbers in December?

I think it is fair to say that we are typically the tail of this dog. I mean, all of this has got to work down the chain to us. And I think, like I said, we saw a pretty steady drop after the Thanksgiving holiday as we came through that month, and then it leveled off again. So whether that is us catching up to a weaker start to the quarter for our customers, I think is reasonable. And again, like I said, we don't want to make too much out of it. That's why I think we're trying to be somewhat conservative here.

But just like I think our customers have shared publicly, they're certainly talking about looking at better demand levels over the coming months. And I think that's just a matter of time before we catch up to some of that commentary.

But mechanically, it sounds like there's about a two- to four-week lag from when they see an order to the time it actually gets translated out to you guys in terms of when you'd be shipping that order. Is that the right way to think about it?

I think that's fair.

So if they were seeing a pickup in December, then that would not be reflected in your December quarter per se, but rather into your January quarter?

Correct.

Okay, thank you very much.

Troy Jensen, Piper Jaffray.

Congrats on the nice quarter, gentlemen.

Thanks, Troy.

It's a quick question here for John. Just to be clear, when you say you saw an uptick in optical, is that an uptick off of the December month level, or is it an uptick from the first month of the December quarter?

It's an uptick off that sort of baseline that we reestablished in the beginning of January. So we had a decline, essentially, through the month of December. That stabilized out, and now we're starting to see it pick a little bit back up from there.

Perfect. And just to be clear, you guys don't experience any type of steep price cuts like the component guys do? You know, the price negotiation seems good.

Not really, because we don't have new product launch in the time to market and so on. So most of our pricing, our revenues are cost-based. So a customer, obviously, keep asking for cost reductions, that is just a normal affair. We work with them to take the costs out, and so actually, our pricing model is cost-plus.

All right, perfect. And then the last question here, just more clarity on the guidance here. Could you guys maybe separate optical guidance versus lasers? Do you expect both segments to be down this 9% to 10% sequentially, or is one going to do better than the other?

I would say, Troy, we don't guide that way. But what I will say is the little bit of an uptick that we have seen over the last couple of weeks has been much more on the optical side than it has been, necessarily, in lasers. That end market still seems to be a little bit lumpy.

Now, for us it's off a small base, so it could certainly rebound much easier than something in our optical segment. But for now, I think some of the positive signs we've seen just in these last couple of weeks have been pretty much on the optical components side, not really on the laser side as well.

All right, perfect. Thanks, guys. Good luck this year.

Ehud Gelblum, Morgan Stanley.

A couple of questions. First of all, TS said gross margin could never go back to pre-flood level; that's impossible. Why not? What don't I see?

I didn't say that. I didn't say that, Ehud. I said the insurance premium will never go back to the pre-flood level.

Oh, I'm sorry, I'm sorry. Then I misunderstood. (Inaudible question - multiple speakers). Okay, that's much better. I understand. I'm surprised you get insurance at all at this point, but (inaudible question - multiple speakers).

The dip that you saw, that you said, John, you said you saw in December in optical -- or across both, actually -- did that affect your revenues in December, or was that an order dip that affected what you would have collected in revenues in January? So is that an explanation for your guidance for the March quarter? Or would, without that dip, would your December revenues have been even greater than that $167 million?

No, Ehud. It is primarily an order commentary. So it would be affecting our March quarter. It would not have had -- it may have had a small impact on December, or I should say on the December quarter, but it is primarily forward-looking from an order perspective.

Okay. And the time between order and revenue for you is roughly about the same -- four or five weeks or so? Is that a good way?

It's four or five weeks, I'd say, on lag time. And then our typical lead time is six to eight weeks. It could be a little bit shorter if we've got a lot of the material in-house. But again, we try not to keep a lot of excess inventory on hand. But typically, if you looked at our turnaround time to ship the goods, it's usually somewhere in the six- to eight-week timeframe.

So if you lost, let's say, three weeks of strong orders during this dip in the month of December, and that led to roughly three weeks of weak revenue in the March quarter, is that the way to think about it? And then it picked back up again as you got into January, so we have a hole of roughly three weeks, and that's what is explaining the downtick in revenues in the March quarter?

I think, certainly relative to where we thought we would be, yes.

And that brings me to my next question. What is normal March seasonality for you guys? I'm looking at my model, and I don't quite pick out anything that jumps out at me.

Unfortunately, at least the last couple of years that we've been public, it's been very tough for us to determine, just because we peaked March two years ago. And last year we were in the midst of a flood recovery. So it's been tough for us to really normalize out that seasonality. But I think generally we're in line with what our customers go through. So while it is typically, I think, we would expect it to be flat to slightly down, this is probably down a little bit more than we would have hoped for.

Okay, so the flat to slightly down -- all right. I appreciate that. That's actually very helpful. Now, the $167 million was higher than your guidance, obviously. Can you go over again some of the areas that beat you versus your expectations?

I'm sorry, one more time, Ehud? I missed that.

What areas were stronger for you than what you were looking at from a guidance perspective for the quarter that you just reported?

From the guidance?

I would say that as we're looking at the March quarter guidance, in terms of what is stronger than what we were anticipating, the only one that really is even in line, I would say, is the automotive segment.

I'm sorry. I'm talking about for your quarter that you just reported.

Oh, the quarter we just reported. My apology, okay.

You guided to $159 million to $163 million to $167 million, so what areas beat there?

Yes, so I mean, I think relative to what we were guiding for, optical did come in a little bit stronger than we were anticipating in that December quarter. And if anything, laser was probably a little bit weaker than we were hoping for. But I think the automotive probably came in pretty much on line with our expectations, and optical was probably a little bit stronger.

And finally -- I'm sorry I've taken up so much of your time -- but within optical, is there anything you can hang your hat on there? 100-gig, WSS, anywhere?

It's not something I'm really prepared to go into. I apologize.

No problem. I appreciate it. Thanks, guys.

Paul Coster, JPMorgan.

Can you just repeat what you said about March is the trough quarter for the fiscal year or the calendar year?

No, we anticipate, Paul, that it will be the trough in optical for the calendar year.

Oh, okay. So optical. All right, got it. And then for laser, no comment on what it might look like from a sequential perspective with the back end of the year in mind?

Not yet, no.

Okay. Now, I just want to go back to gross margins for a second, because it does feel like, with the guidance you've issued, your near growth seems to be back in order and if you've got sequential growth, you should see it through the remainder of the year.

So going back to this point of can you return to the gross margins that you saw pre-flood levels, I imagine it's not impossible. It would be a function of capacity but also the new business. Can you talk a little bit about gross margins as a function of capacity utilization, particularly on Building 6, and gross margins as a function of bringing in new business and whether you've got a threshold that you look to exceed when you're bringing in that new business?

Paul, this is TS. I think previously we said that we came up from two campuses into one big campus after the flood. So we have tons of fixed overhead now. And again, we said that once the top line grows, it will take care of the gross margin. So in the past we said at $190 million to $192 million, we are pretty comfortable that we're going to receive 12% to 12.5% historical gross margin levels. So that do not change, because basically there's a volume leverage here.

Obviously, the fact that we also have a lot of cost reduction programs -- they're working on this daily and so on -- bringing new business will more helping the top line rather than, obviously, you bring in the new business, initially we can have better leverage on materials and so on. But potentially new customer is mostly helping the top line. But gross margin in the short run is mostly volume leverage and capacity is even.

Okay. Thank you. And then if I look back at the last few quarters, you've beaten or exceeded the top end, or you're aligned with or exceeded the top end of the range of guidance that you've issued, generally. Would you describe your forecasting method, at least from the purpose of issuing guidance, as conservative, because it certainly seems that way?

I would say we're certainly trying to be conservative, Paul, if only because at the end of the day, as we indicated as to what happened in 2Q in terms of orders, we're relying, obviously, on the business of our customers. This isn't our product. We don't build any of our own products that we're bringing to market. And so we are somewhat at the mercy of our customers' order patterns.

And so we do have to manage that expectation somewhat carefully. We're not out purposely trying to sandbag a quarter or a number, but we do, I think, purposely put in a level of conservativism just to make sure that we've got a little bit of wiggle room because, again, we don't ultimately control the order forecast.

Okay, thanks very much.

Subu Subrahmanyan, the Juda Group.

I wanted to clear again the delta between your customers' guidance for this quarter and your guidance, talking about down by about 10%. Most customers have guided flat, maybe down a little. But December you were up, while most customers were flat. So John, is it fair to say that if you look from September to March, that's probably more realistic of what happened to your customers, and you just didn't see the impact in December because of the lag time between when the order patterns shift and your revenues get impacted?

I think that's fair. Again, you have the orders that we were seeing in the September quarter were stronger. That's going to, obviously, impact our December quarter from a revenue perspective, where like we indicated, we started to see a little bit of weakness here late in fiscal 2Q from an order perspective, and I think that is having an impact on us in terms of the guidance we're giving for March.

And as your order patterns do pick up a little bit towards late in the month of January, given your six- to eight-week lead time, that still can impact the current quarter. So how much of that is factored into your guidance, this starting to improve kind of pattern?

Very little at this point, Subu. Like I said, we're trying to be careful and not overly anxious to count all these orders in because, obviously, they can easily shift out a little bit. And again, the uptick that we're seeing right now continues to be pretty small and measured, so we're trying not to be overly optimistic about that. So it's in the guidance, to be fair, but it's not 100% in the guidance, if that makes any sense.

Fair enough. And final question, if you look at the comment on this quarter being the bottom, is it some qualitative metrics, is it quantitative metrics, that gives you confidence that for optical comm, March could be the bottom?

I think it is more qualitative than anything else. If we had enough visibility to really call that from an order perspective, that would be a bit stronger. But I think in terms of the conversations that we're having with customers and what they're telling us their expectations are as they go through the calendar year, that's really where that commentary stems from. But to be fair, that absolutely could change six to nine months down the road.

Got it. Thank you.

(Operator Instructions.). Alex Henderson, Needham and Company.

So just to kill a dead horse here, for instance, JDSU was suggesting that the quarter in the March quarter would be a little bit more back-end loaded than normal, based off the idea that there was going to be larger orders, and it would take the service providers a little longer to distribute that, orders out to their customers. If that's an accurate read, then they would expect, instead of orders coming in for them in late February, that it would come in during the March timeframe, in which case, I would think for you, that would therefore translate out from the March quarter into the April quarter. Is that a reasonable read of the way the lag would work on that? If that's accurate, then aren't we just simply showing between the month of March and April?

Right. I think you're fair, Alex. If that's the way it ultimately plays out from the carrier, and then it would filter down to us, I think, in that type of fashion.

All right. So if that's accurate, that would imply a better second quarter because you're picking up that month of March in the second quarter timeframe. Am I thinking correctly on that?

Right. If normally we would start to see those orders trickle in in late February to where maybe we could get a little bit of that revenue there in March, that would then count toward that quarter. If JDSU is correct in how they're reading the market, then we would see more of that benefit come to us in the June quarter than in the March quarter.

Okay. So the second question -- you talked a little bit about the 50% occupied rate in the Building 6. Can you give us what the occupied rate is companywide?

And second, when you're thinking about added volumes, there's two ways you can add volume. You can add volumes on existing lines, and you can add volumes by filling in that 50% occupied. How should we think about -- or unoccupied portion of Building 6. How should we think about the mix between those two? Will more of the incremental volumes over the next 12 to 18 months be coming from existing lines or from adding additional lines?

So I think that, to answer your first question, Alex, the entire footprint today is just under 70% occupied. So essentially, with Buildings 3, 4, and 5 now, we are almost completely full. There's a little bit of space here and there, but those buildings are generally, they're generally full. So our unoccupied space is predominantly what's left in Building 6.

Over the next 12 months, I would certainly expect that upside in terms of volume is going to come more so from existing lines and just seeing demand for those products pick up, if you will, than us necessarily adding a bunch of new lines into the space and having that be a huge, huge driver.

To be fair, we certainly hope that we're going to continue to add new business into that factory, but I would expect that bigger impact to our volumes is going to come from existing customers and existing lines.

If I could just follow one more question off of that. So is the improvement in margins as you move towards full capacity more a function of driving more volume across existing lines or a function of the unoccupied capacity coming onstream and driving additional incremental volume across your fixed space?

What I would tell you, Alex, is it's going to be driven, like TS said, off of revenue. And I think the quickest revenue path, if you will, over the next 12 months is likely to come from volume as opposed to space.

So it doesn't matter which one drives it as long as it's revenue?

Correct.

Okay, thank you very much.

New customers take top of the line to them. We said the new customers take a while to ramp up, so once you get them, so --

Thank you very much. That cleaned it up. Thanks.

This ends our Q&A session. I'll turn it back to management for closing remarks.

Thanks very much, everybody, for joining us today.

Ladies and gentlemen, thanks for participating in today's program. This concludes the call. You may all disconnect.