Infinera Corp (INFN) 2008 Q2 法說會逐字稿

Welcome to the second quarter fiscal 2008 investment community conference call of Infinera Corporation.

All lines will be in listen-only until the question and answer portion of the call.

(Operator Instructions).

Today's call is being recorded.

If you have any objections you may disconnect at this time.

Your first speaker is Mr.

Bob Blair of Infinera Investor Relations.

Good afternoon and welcome to Infinera's Q2 2008 earnings call.

Today's call will include projections and estimates that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements address the financial condition, results of operation, business initiatives, views on our market and customer, market condition, results of operations, our products and our competitors' products, and prospects of the Company in 2008 and beyond and are subject or risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the Company's current press release and SEC filings, including the Company's annual report on Form 10-K filed on the February 19, 2008 for more information on these risks and uncertainties.

Today's press releases, including Q2 2008 financial tables and investor information summary and a guidance reconciliation summary will be available today on the investor section of Infinera's website at www.Infinera.com.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

This afternoon's press release and today's conference call also include certain non-GAAP financial measures.

In our earnings press release we announced operating results for the second quarter of 2008, which will exclude the impact of the rolloff of certain ratable GAAP revenue and costs from the balance sheet as well as the impact of non-cash stock based compensation and warrant revaluation expenses.

These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons.

Please see the exhibit to the earnings press release for a reconciliation of these non-GAAP financial measures for the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful and how they are used by management.

On this call we'll also give guidance including guidance for the third quarter of 2008 and for the full-year 2008.

In this guidance, we will include adjusted GAAP results which exclude the impact of the rolloff of certain ratable GAAP revenue and costs from the balance sheet, as well as the impact of non-GAAP non-cash stock based compensation expenses from our results.

Again, we have reconciled these suggested GAAP projections to our GAAP results on the investor section of our website in the document entitled Q3 Guidance Reconciliation Summary.

We've excluded non-GAAP non-cash stock based compensation expenses because we cannot readily estimate the impact of our future stock price on our future stock based compensation expenses.

For the remainder of today's call we will be discussing our second quarter 2008 results and our third quarter 2008 and full-year 2008 guidance excluding the impact of these items, and will refer to these results as adjusted GAAP.

I will now turn the call over to Infinera President and Chief Executive Officer, Jagdeep Singh.

Good afternoon everyone.

Joining me today is CFO Duston Williams who will provide a second quarter financial report and outlook for Q3 after my remarks.

Turning to the second quarter highlights, we reported adjusted GAAP revenue of $91 million in Q2 versus $69 million of invoiced shipments in the year ago period, representing 32% year-over-year growth.

We posted adjusted GAAP net income of $11 million, or $0.11 per share versus $0.04 per share in the year ago quarter, and we generated $5.6 million from operations.

We also added two new customers in the quarter, not including Deutsche Telekom, bringing our new customer roster to 44.

In terms of geographic diversity, our international revenue grew to 22% of revenue in Q2 versus 16% in the year ago quarter.

Last month we were thoroughly disappointed at having to revise our near-term outlook.

This was primarily an outgrowth factor associated with our customer concentration, a challenge that we continued to diligently address.

We remained steadfast in our belief in Infinera's long-term growth potential based on our compelling value proposition, our highly differentiated technology advantage, a substantial and growing optical market, and the effectiveness of our business model.

Vectors for our long-term business model remain encouraging.

We believe that we have built a substantial business based on differentiated technology as evidenced by the results from our first five quarters as a public company.

Revenue of $429 million, net income of $53 million in a global customer roster with a growing install base of Infinera equipment.

We intend to leverage these long-term fundamentals and return to higher levels of growth.

We've identified markets that we believe will be the most critical for us to focus on and we're implementing initiatives across these, including further expansion into international markets by levering the resources we've invested overseas, and continuing harvest the momentum of our initial successes in the EMEA region, including our recent win with Deutsche Telekom.

Second, we remain focused on penetrating additional tier 1 carriers worldwide.

We continue be pleased with our traction with this important group of potential customers.

Third, we have begun to focus our energies on competing in new adjacent markets, including ultra long haul and metro access.

And fourth, in North America where we're not fully penetrated, we're focused on maintaining our share with existing customers while also growing new footprint in market segments such as [Ilex], federal government, cable MSOs, Internet content providers.

We remain committed to funding R&D and product development in order to extend our competitive advantage.

We believe this investment is critical to maintain and grow our technology lead and also to open up doors to compete for business in new markets like ultra long haul and metro.

In the last six months we converted our ongoing investments into several significant technology advances to enhance our PIC based optical networking offering.

We provide our customers with what we believe is the industry's first PIC-based roadmap, indicating our belief that it is possible to double capacity per chip every three years.

We offer what we believe is the only effective path with which customers can scale their networks to move their bandwidth growth needs into the next decade.

We believe [with] a recent introduction of our new ILS2 line system, we improved the capacity and reach of our PIC-based system while also strengthening our ability to compete on more long haul opportunities.

We hear this from our customers and believe that their selection of Infinera as their WDM provider over their incumbent vendor is a validation of our digital optical network architecture, and of the innovative photonic integration, which is at the heart of all our systems.

One of our most recent and significant new customers, Deutsche Telekom, reaffirmed this value proposition when it selected our system for its next generation of international networks.

We believe we won this deal because of the significantly improved scalability, flexibility and speed of service delivery that our architectures provide.

In every other segment that we focused on, including bandwidth wholesalers, cable MSOs, and Internet content providers, establishing a strong relationship with an industry leader has transmitted into strong industry word of mouth and additional business with others in those segments.

We believe we will enjoy similar success with DT and other tier 1 incumbent players over time.

Industry analysts no estimate the total optical market at about $15 billion.

Infinera is now addressing the DWDM, or dense wave division multiplexing segment of that market, which we estimate is $6 billion in size.

The optical market remains a large opportunity, and we're addressing it with differentiated technology and with a significant competitive advantage.

Our strategy in the years ahead is to integrate more and more components into our PICs, in line with the PIC roadmap we announced earlier this year, and deliver more services through systems enabled with these more powerful PICs, thus creating even greater value for our customers and placing more distance between us and the competition.

This strategy is resonating with customers and prospects and we're seeing many new opportunities in the market beyond Q3.

But it's too early to translate these into forecasted revenue.

Dustin will now provide the financial report and our Q3 outlook.

I will review our Q2 actual results and follow that up with an outlook for Q3.

Following analysis of our Q2 results is based on adjusted GAAP, and the results from other quarters in fiscal years are based on invoice shipments and exclude non-GAAP stock based compensation.

See the GAAP to non-GAAP invoice shipments and adjusted GAAP reconciliation which is attached as an exhibit to today's earnings press release for a reconciliation of these results to our GAAP results.

Q2 was a quarter in which we slightly exceeded our revenue expectations and significantly outperformed on an earnings basis.

Looking at the specifics for the quarter, adjusted GAAP revenues in Q2 totaled 90.8 million versus 95.5 million in Q1.

In Q2 we had three 10% or greater customers on an adjusted GAAP basis, Level 3, Cox and Global Crossing.

As expected, Level 3 revenue decreased from Q1 and accounted for 21% of our Q2 adjusted GAAP revenue versus 31% of invoiced shipments in Q1.

Looking at gross margins they were 47% in Q2 versus 45% in Q1.

Once again strong TAM shipments combined with modest cost reductions -- improvements accounted for the better-than-expected gross margins.

It's also worth noting that while TAM shipments in the quarter were strong, we also invoiced a record-tying amount of chassis in Q2.

Operating expenses for the quarter were 32.3 million versus 33.4 million in Q1.

Although expenses were down slightly quarter-over-quarter, they were less than our previous expectations of 36 to 37 million.

This variance was attributed to lower prototype spending, a somewhat slower than expected headcount ramp, along with a reversal of previously accrued bonus dollars as our current operating plan does not project a bonus payout for 2008.

We expect a majority of this variance to roll into spending during the second half of 2008.

Operating income for Q2 was 10.4 million versus 9.6 million in Q1.

Other income expense for Q2 was a favorable 2.6 million, driven primarily by interest income, versus 4.2 million in Q1 which also included asset sales and FX gains.

We booked a tax provision for Q2 of 2.3 million.

Net income for the quarter was 10.7 million or $0.11 per diluted share, based on 97.3 million shares outstanding versus 12.6 million or $0.13 per diluted share in Q1.

Looking at the balance sheet, cash, cash equivalents, restricted cash and investments ended the quarter at 318.2 million versus 316.4 million in Q1.

We generated 5.6 million of cash from operations in Q2 versus 9.8 million in cash from operations in Q1.

DSOs were 57 days versus 42 days in Q1.

The DSOs were higher than historical trends, as we had one specific deal totaling 9 million and was shipped earlier in the quarter.

But the timing of the customer acceptance caused the payment to be pushed into Q3.

This accounted for an additional ten days.

Inventory turns were 3.3 versus 3.5 in Q1.

Accounts payable days came in at 37 days versus 42 days in Q1, and capital expenditures were 4.8 million in Q2 versus 2.5 million in Q1.

During our investor call on June 16th we provided preliminary adjusted GAAP revenue guidance for Q3 of 75 to 80 million, and our guidance today for Q3 remains the same.

As previously discussed, this guidance was based on the timing of new network build at existing customers and the sales cycle with potential new customer wins, along with the timing impact associated with the transition of our recently announced new products.

Additionally on our June 16th call we provided growth guidance for 2008 of approximately 10% and our guidance today for 2008 remains unchanged.

The complete guidance for Q3 which follows below is based on adjusted GAAP results and excludes any non-GAAP stock based compensation expenses.

Revenue of approximately 75 to 80 million; this assumes total GAAP revenues of 113 to 118 million reduced by approximately 38 million for the amortization of deferred revenue recorded on the balance sheet at the end of Q2 2008, which reflects sales included as invoiced shipments in prior periods.

Gross margins of 39% to 40%; this gross margin estimate includes an approximate 4% negative impact from the previously disclosed $3 million onetime charge associated with the initial shipments to Deutsche Telekom.

Operating expenses of 36 million and a net loss of 3 million to 5.5 million.

Once again, this loss assumes an approximate 3 million negative impact from the initial shipments of Deutsche Telekom.

Based on and average estimated diluted weighted shares outstanding of 97.5 million, this would lead to an EPS loss of between $0.03 and $0.06.

Operator, if you would now open it up for questions, please.

Simona Jankowski, Goldman Sachs.

Thank you for taking my question.

I just wanted to ask you, as far as the upside this quarter from both a gross margin and an OpEx perspective, can you help us sort of disentangle a little bit how much of that is sustainable and should carryforward into the forward quarters versus how much of that was more of a one-quarter kind of benefit?

As far as Q2 goes, once again we did get a little bit of a pop from TAMs, cost reductions continue to come in nicely there.

Going forward, the 39 to 40 is really on an equivalent basis.

If you add the 4% back for the DT impact, you add 43 to 44%.

So we trimmed it back a little bit, assuming that TAM shipments aren't quite as strong in Q3.

So a majority of that continues to roll forward.

And we've always said in the next -- foreseeable future that the margins are going to hover probably in the low to mid 40% range, plus or minus.

Thank you for that.

And secondly, from a revenue perspective, you commented on looking to address more completely the metro access and the ultra long haul space, and certainly with your ILS2 line system that is making some progress toward the ultra long haul space.

But can you also just comment what other products (inaudible) do you need to roll out or do you have in the pipeline for the metro access segment?

Also similarly, what other investments, if any, do you need to make from a sales or distribution or headcount perspective for those new segments?

Relative to the second question, all of the segments we're addressing are in the same general customer base that we sell to today, so we believe that the current sales force and [equipment] we have worldwide allows us to sell to all those applications.

Relative to the ultra long haul product, you're correct.

We announced a couple of important new developments last month that were pretty key in allowing us to compete in that space, extended reach of our systems, higher capacity systems and so on.

On the metro front, we haven't specifically talked about any products there, but what we're saying is we believe that is an important segment there for us, and we've got a number of initiatives under way to address that space.

But in terms of the products you would need to address the space, that's not something you've really introduced as of today for the metro access portion.

What we talked about today, what we publicly talked about today has been our current product, which competes well in the metro core segment.

We have not talked about metro access, but we believe it's an important segment for us to play in.

So we have got some initiatives under way in that area.

Lastly on that point, for the ILS2 line system, at what point do you think that should be starting to get reflected in your revenue?

We'll start -- we've started to see some initial orders here, so Q3 and then additional in Q4.

Ehud Gelblum, JPMorgan.

Thanks.

A couple of things if I could.

First of all, it's a minor thing, but I'm wondering what was the mix in the revenue versus what you expected?

There are a couple of telltale signs that kind of look as though the mix ended up slightly different than you anticipated.

One is it seems like you got more TAMs than you expected even a month ago when you preannounced.

If you could comment if that was correct.

And how did that happen?

Was the quarter very back end loaded to give you those TAMs?

Why don't I start with that and then a follow-up?

I wouldn't call it the quarter back end loaded.

We shipped actually reasonably linear on a shipment basis throughout the quarter.

On the TAMs, we talked about this before again, but where we guarantee delivery of TAMs in 10 days, once again that's not surprising that we do get surprised occasionally with TAM orders at the end of the quarter because our customers know that we have TAMs and we will deliver promptly.

So yes, you're right.

That was a little bit different than we had thought.

You now for I think three or four quarters straight have been getting your gross margin consistently low in the guidance versus what you end up with.

And that's why I'm assuming the TAMs ended up being a much more significant part of the revenue base than you expected.

Why is it that you keep getting the gross margin low and underestimating the TAMs, and -- (multiple speakers) what was -- you only beat by 1 million, so as you underestimated the TAMs, what did you overestimate?

You said chassis were at a record, so what was (multiple speakers)

All good questions.

Something is missing here (multiple speakers) outperforming (multiple speakers)

The only correction I would make there is your comments that TAMs were significantly incremental to revenue.

Again, a few TAMs here or there can augment the gross margin percentage pretty heavily.

So -- (multiple speakers)

500 or 600 basis points?

(multiple speakers) Well, no, not obviously that much.

But from -- what changed in the mix, we did ship a few -- fewer DLMs.

So chassis were strong, TAMs were strong, DLMs came down roughly 20% or so from last quarter.

But aren't chassis lower margin than DLMs?

I'm just trying to understand is -- what changed?

And you even reported numbers - you preannounced in mid-June and somehow you blow out the gross margin which is terrific, but I'm just wondering what went up so much, and it must have been TAMs, and what came down?

If it was just DLMs, I just can't seem -- unless you were very conservative on your gross margin guidance, in which case you might be doing that again this quarter.

Just trying to gauge that.

Effectively when we had the call on June 16th, we confirmed guidance in total for Q2.

And once again, it doesn't take whole lot of TAM movement to augment the gross margins.

Clearly at that point we hadn't closed the books on the manufacturing side of the equation, some cost reductions, warranties continues to please us with the product quality, continues to get better.

When -- just when we think it can't get much better because it's really good, it continues to get a little better.

So not having all that information on June 16th obviously we would not be comfortable in tweaking anything at that point.

And finally, if you were to keep your revenue and invoice revenue perspective and sort of switching to this adjusted GAAP revenue, would DT become a 10% customer and/or be one of your larger customers any time or the next year?

Would it be large enough to do that?

Yes, probably -- obviously won't comment on potential shipments to DT on that front.

Okay.

Thanks.

We just -- we don't predict pretty much any new customer's revenue growth over the next several quarters.

George Notter, Jefferies.

Thanks a lot.

I wanted to ask about your initiatives in Europe and trying to penetrate incumbent telcos above and beyond DT.

What are you seeing competitively from some of the big traditional OEMs?

What are you seeing from Huawei, VTE, some of the Chinese vendors, anything new from a pricing perspective out there?

Thanks.

Usually what we see in most of these accounts is typically there's the incumbent vendor, whoever that is, there is -- Huawei is commonly seen over there, and then it's us.

That's typically the three that tend to make most of the final short lists.

And our basic approach, as I think you might know, is really a focused on the value proposition and the things that you get with Infinera approach, like the speed of service turn up and the scalability of the system with the PIC roadmap, and ease-of-use and so on, which you don't get with a conventional WDM solution.

So we try to really focus on the value proposition, and obviously you can't be way out of line with pricing, but we -- again, we find that we don't need to be the absolute lowest bidder on those deals.

So the pricing environment, we try to stay away from turning into a pure commodity sale.

That seems to be working for us.

Got it.

Have you lost any deals on pricing in the last several months?

Generically, I would say we -- we win a lot of the deals we compete on, but we certainly don't win every single deal.

Yes, there are deals that we haven't won.

We don't always know why we don't win those deals that we don't win.

But I would never be so [arrogant] to say that we win every deal we compete on.

And separately, I know there was a manufacturing offshoring initiative going on.

I've asked about this in prior quarters.

I'm trying to get a sense for where that is in the process.

Have you moved more of your manufacturing offshore?

How much of a cost benefit could you capture from that?

Is that starting to run through gross margins now?

Any flavor there would be great.

Thanks.

I think what we previously said there, again, that it would be a second half initiative.

We've done -- actually we've done a lot of work in the first half, and things are going quite well there and we should start to see some benefit in the second half.

Now where that benefit pops up and does some go into pricing to offset some pricing and other things, we will have to see how it plays out.

But we should definitely get some impact going forward.

[Sibu Sibimanian], Standard & Poor's.

I want to ask about December quarter.

I know it's a little early to talk about that, but given a lot of the issues in September are timing related issues, I wanted to see what your subsequent conversations with customers have been.

And will some of those opportunities get pushed out into December, creating more (inaudible) opportunities for growth than you guided for?

Also on the metro access side, you mentioned this briefly, but is there a new set of products that you we need to develop to be in those areas?

Can they still be PIC-based?

And what kind of tweaks to the existing products or new products would you need to develop to address that market effectively?

This is Duston.

I'll take the first half, and let Jagdeep take the second piece.

Regarding Q4, although we are four or so weeks subsequent to our June 16th call, five weeks I guess, we've got another month under our belt there.

We are encouraged by potential opportunities out there, like Jagdeep mentioned, but nothing that we feel comfortable with at this point that would change our view of Q4 and the 10%, approximate 10% growth rate for the year.

And so from your customers (indiscernible) existing customer buildouts, or new customer acquisition, no real change in status from your conversations a few weeks ago.

Nothing substantial.

Think as we said, it's just -- we see activities, just too early to roll that into the forecast.

The second part of your question about metro, I think the things that we want to do there is -- the value proposition resonates very well in environments where there is a high amount of bandwidth density.

So clearly the long haul core regional network, ultra long haul, metro core, all those markets the [counterpart] works really well.

What we -- the focus of our metro initiatives really are to extend that value proposition to a lower bandwidth environment, if you will.

So a network -- so a range where you have fewer wavelengths and fewer drops and so on, what can we do to make the product more compelling in that environment?

And that's really what we're focused on.

We think getting into those networks is helpful for a couple reasons.

One is it provides a more complete solution for our customers who already use us in the backbone of their network, and secondly it provides a good entry point into many networks that we don't currently play in.

So those are the key things we want to focus on on the metro side.

(Operator Instructions).

Jeffrey Schreiner, Capstone Investments.

Thanks for taking my call -- question.

One question I want to ask, the Chinese market, it's been something you guys have talked recently about looking into.

And I was wondering have you seen any initial reception with any of the Chinese carriers within the Chinese market, and could this be the type of market that could help any -- offset any prolonged US spending slowdown?

I think (inaudible) Asia in general, we have been expanding our footprint there over the last several quarters.

We certainly see activity there.

I think what we've seen is when we enter a new market, it typically takes some period of time before the sales footprint translates into meaningful revenue traction.

And so we're a little bit cautious about expecting anything big in the near-term there.

But what's clear is that Asia-Pac in general is on the order of one-third of the world market for WDM equipment.

So we absolutely want to and intend to be players there, it's just -- the history is that it generally takes time to ramp up momentum in a given market.

So that's really what I would say about Asia.

Just trying to understand -- a lot of questions are focused on the June conference call and what we saw in terms of maybe customer delays.

But besides customer delays or in lieu of customer delays, what are other pushback are you receiving right now when you are out talking customers and trying to craft new deals?

I think the kind of things that we have been hearing from customers are exactly the kind of things that we, in some ways, have addressed and are addressing in the product line.

So for example, the interaction of the ILS2 system line last month addressed a number of the things that we were hearing from certain customers.

So the system now has much longer reach.

We announced we could get 2500 kilometers worth of reach on the system with 160 channels in the C-band, so that's twice as many wavelengths in the C-band as most competitive systems get using a 25 GHZ base.

So that's -- the capacity and reach were important aspects of certain applications which we have addressed.

We continued to hear some -- a lot of interest in customers in taking our products downstream toward the metro access.

I [heard] that earlier in the call so those are things we're working on addressing.

Those are the main things.

Other that people I think are very pleased with the whole PIC roadmap.

If you're a carrier that believes bandwidth is growing exponentially, at whatever rate you believe, whether it's 50% or 75% per year, there's really nothing else on the horizon that lets you deal with that kind of capacity outside of photonic integration.

The whole PIC roadmap that we have with the notion of bandwidth per chip doubling every three years is a very powerful concept that resonates.

And that's the core of the value proposition and what we have been doing is filling in the key pieces around that with the reach, and the capacity of overall fiber and the metro access and so on.

One final question, and I appreciate the time.

As we look out in terms of how the business may shift and transition, and you see the current products be more developed and mature and possibly see a higher level of TAM shipments there, how should we expect the business to trend as the ISL2 product line, as you just discussed, is brought in and perhaps less common equipment sales are going to need be associated with that product?

Should we see a little bit higher margins initially from an ISL2 type of product sale versus what we might see from today's current product line?

That's a good question.

I think -- so it's hard to say what difference you'll see in the actual financial results, because the financial results reflected blended averages of both the regular reach system and the extended reach system with the ILS2.

That will be blended.

But within the ILS2 family, within the high-capacity long reach family, your point is valid, which is -- so for example, with 160-channel system, that same initial common equipment deployment now supports twice as many TAM deployments over time.

So hypothetically, if you had a network in which you had a nine-month window to max out from zero TAMs to the full capacity, now you would be doubling that window.

So the [growth] of it was consistent.

So you would go longer with TAM additions without having to add another layer of common equipment, which at some point obviously should help margins, obviously at a product line level, but the impact at the financial statement level is going to be somewhat muted because it's going to be blended with other [products in development].

Thank you.

Jack Monti, Lehman Brothers.

Thanks for taking my question.

I'm just trying to get a better grasp of how we should think about operating model going forward.

I think OpEx is roughly 46% of revenues, your guidance for the third quarter, and I think target model is more like 35% of revenues for operating expenses and 15% operating margins.

How should we think about that going forward and how is the Company thinking about that it is long range plan?

Can we think about 15% operating margins sometime in 2009, or is that further back in 2010?

When we talked about the operating model in its totality -- again we've been talking 2010, in some cases a little bit beyond there.

So 2009 I think is aggressive on the expenses.

It's a little hard unfortunately with the revenue downturn to correlate that to a percent of revenue, because again what we're investing and we believe very heavily in and will continue to invest.

And we're saying that expenses are going to come up about 4 million quarter-over-quarter from Q2 to Q3.

So we will continue to invest.

A majority of that investment is in R&D.

But we're going to continue that type of investment going forward.

So I think in the short-term it gets a little disconnected because of the revenues.

But ultimately, yes, the 35% and 15% -- there's no change to that (inaudible) (multiple speakers)

And it's fair to think about R&D continuing to trend up through 2009 quarter-to-quarter.

Certainly it will poke up a little bit in Q4, and we'll have to see how it trends in '09.

Also quickly on the tax rate it seems like the provision's ticking up 8% in the first quarter, roughly 17.5% in the June quarter.

Should we start thinking 15% to 20% for that provision?

No, unfortunately with our adjusted GAAP and GAAP results that tax provision is based on GAAP profits.

And if you look at the cumulative six-month provision, I think it's around 4.6% of GAAP profits.

And I think on the last call we mentioned it would roughly equal, as we see it today anyway, about 4%-ish of GAAP profits.

So you really have to flip back, and in this case, look at what we're generating for GAAP profits.

Because of the rolloff in the deferred revenues and margin starts to decline in Q3 in Q4, that actual tax provision will also decline in Q3.

In closing, I want to say we're excited about the opportunity for growth in the digital optical network space for Infinera.

Despite our near-term outlook [reset], we believe the fundamentals remain strong and our long-term business model remains intact.

We continue to have confidence in our technology advantage with our PIC-based solutions and the compelling nature of the value proposition.

And our team is focused on delivering strong financial performance in the years ahead as we continue to establish ourselves as a leading systems Company through our differentiated product offering.

I thank all of you for joining us today, and we look forward to reporting our progress in our next call.