Maxlinear Inc (MXL) 2016 Q2 法說會逐字稿

Good afternoon. My name is April, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the MaxLinear 2016 second-quarter earnings release conference call. (Operator Instructions). And now I'd like to turn the call over to our host, Mr. Gideon Massey, Head of Investor Relations. Sir, you may begin your conference.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's second-quarter 2016 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO, and Adam Spice, CFO.

During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among these statements, we will provide information relating to our current expectations for third-quarter 2016 revenue, including expectations for revenue trends in our cable, terrestrial, satellite, high-speed interconnect, wireless infrastructure and other target markets, gross profit percentage and operating expenses on GAAP and non-GAAP basis, the potential strategic and operational impacts of our completed acquisitions from Microsemi and Broadcom, and our current views regarding opportunities and trends in our markets, including our current views of the potential for growth in each of our target markets.

These statements are forward-looking statements within the meanings of federal security laws, and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our current target markets -- including the terrestrial, cable, satellite, high-speed interconnect, and wireless infrastructure markets -- do not grow as we currently expect, or if we are not successful in expanding our target addressable markets through acquisition or the introduction of new products.

Acquisitions, including our recently completed acquisition of Microsemi's wireless access business unit, present particular risks relating to our ability to integrate the acquired business and maintain relationships with key employees, customers, suppliers, and other third parties. In addition, substantial competition in our industry, consolidation among broadband operators in our principal target markets, potential declines in average selling prices, consolidation in the semiconductor industry, the prevalence of intellectual property litigations in our industry, generally and against us specifically, and cyclicality in the semiconductor industry are all material risks that could adversely affect our future operating results.

For a more detailed discussion of these risks and other factors you should consider in evaluating MaxLinear and its prospects, please refer to the information included under the caption Risk Factors in our filings with the Security and Exchange Commission, including in particular our Form 10-K for fiscal 2015, which was filed with the SEC in February 2016, our quarterly report on Form 10-Q for the quarter ended March 31, 2016, which we filed in May of 2016, and our Form 10-Q for the second quarter, and our other SEC filings. These forward-looking statements are made as of today, and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements.

The second-quarter 2016 earnings release is available on the Company website at maxlinear.com. In addition, MaxLinear reports gross profit, income/loss from operations, and net income/loss and basic and diluted net income/loss per share in accordance with GAAP, and additionally on a non-GAAP basis. Our non-GAAP presentations exclude the effect of stock-based compensation expense, accruals under our equity-settled performance-based bonus plan, outstanding patent litigations, deferred merger proceeds, change in fair value of contingent considerations, restructuring charges, impairment and amortization of acquisition-related intangibles, non-recurring acquisition and integration-related expenses, production mask impairment, and release of valuation allowance due to net deferred liability acquired.

Management believes that this non-GAAP information is useful because it can enhance the understanding of the Company's ongoing economic performance, and MaxLinear therefore uses non-GAAP reporting internally to evaluate and manage the Company's operations. MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company internally analyzes its operating results. The full reconciliation of the GAAP to non-GAAP financial data and a detailed explanation of our non-GAAP reporting can be found in our earnings release issued earlier today. The earnings release and reconciliation is available on our website, and we ask that you review them in conjunction with this call.

In addition, we provide forward-looking gross margin and operating expense guidance on a non-GAAP basis but do not provide a reconciliation. This non-GAAP guidance excludes estimates for stock-based compensation expense, bonus accruals, acquisition-related expenses, and restructuring charges. Each of these expense items is explained in greater detail in the press release. The timing and amounts of these future expenses, which we would need to provide a reconciliation for, non-GAAP gross margin and operating expense guidance, are inherently unpredictable or outside our control to predict. Accordingly, we cannot provide a quantitative reconciliation for forward-looking non-GAAP estimates without unreasonable effort. Material changes to any of these items could have a significant effect on our guidance and future GAAP results.

And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Gideon, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the details of the financial results, we are very excited by the increasing scale of our strategic footprint in the wireless access and backhaul markets resulting from our recent acquisition of Microsemi and Broadcom wireless infrastructure assets. We also continue to aggressively pursue organic and inorganic growth opportunities in wireline and network infrastructure consisting of high-speed fiber optic interconnect from metro, long haul, and data center markets.

The fundamental underpinning of our infrastructure market initiatives and our operator broadband access and connectivity markets is a core CMOS RF mixed signal SoC technology platform. This scalable technology platform has enabled MaxLinear to address what is now a growing, sizable, and diversified served available market of approximately $4 billion in 2020.

Our revenue of $101.7 million in Q2 of 2016 is consistent with the prior guidance range. It is down 1% sequentially and up 44% year over year. These relatively flat sequential revenue results were achieved owing to the continued strong momentum in our high-speed optical interconnect solutions, along with seasonal strength in our cable DOCSIS data CPE markets.

These growth drivers overcame significant expected declines in legacy video SoC shipments and a larger than previously anticipated sequential decline in legacy satellite analog channel stacking outdoor unit shipments. Our ability to maintain a relatively flat top line in the face of large declines in legacy Entropic products -- namely, video SoC and analog channel stacking outdoor unit products -- highlights the strength and increasing diversification of our revenue streams.

Our relentless focus on product engineering and supply chain optimization, as well as a favorable trend of infrastructure revenues in our product mix, has resulted in a sequential expansion of GAAP and non-GAAP gross margins to 61.9% and 63.8%, respectively. Expanding gross margins and continued tight operating expense management not only resulted in sequential expansion in both GAAP and non-GAAP operating margins -- 22% and 34%, respectively -- but also delivered strong operating cash flow generation of $32.3 million.

Now moving to the specific business highlights for the second quarter of 2016, operator revenues grew 2% sequentially and accounted for 76% of total revenue in the quarter. Within operator-based revenue mix, demand for 24-channel cable data gateway CPE solutions, consisting of our cable full-spectrum capture RF receiver front ends and MoCA connectivity SoCs, was the strongest. It was accompanied by solid double-digit in 4K resolution, satellite gateway RF front-end shipments.

As I mentioned at the outset, these strengths were offset primarily by a greater-than expected-decline in satellite analog outdoor unit channel stacking shipments and declines in receiver solutions for cable video set-top box applications.

Within the operator family, the cable DOCSIS data gateway market continues to be an exciting and strategic growth platform for us. It enables us to address the expanding over-the-top video and data markets. Our customer-designed wins and operator engagements around the new multi-gigabit cable DOCSIS 3.1 standard based data services are gathering very strong momentum. We expect initial product rollouts in the fourth quarter of 2016 and into the first half of 2017. We are excited about the underlying market dynamics supporting the DOCSIS 3.1 product cycle as well as our leadership position competitively in cable data front-ends and companion power gain amplifiers and MoCA solutions. We expect a multiyear upgrade cycle to drive solid growth for our cable data business due to upcoming DOCSIS 3.1 deployments.

Within our operator family, our satellite revenue growth resulted from an increase in 4K resolution full-spectrum capture receiver deployments, driven by the resumption of next-generation gateway rollouts across multiple Tier 1 satellite operators in North America and Europe.

Despite the near-term headwinds presented by current and future step-downs in our legacy Entropic analog channel stacking outdoor unit revenues and the sequential second-quarter revenue flatness in digital channel stacking outdoor units, we remain excited by our longer-term prospects in the channel stacking market as it transitions from legacy analog to digital. We have the broadest and most competitive platform solutions in the satellite outdoor unit market, ranging from satellite Ku-Ka-band RF down converters, combined with our digital channel stacking SoCs, to the direct satellite-to-IP converting SoCs for the emerging Sat-to-IP digital outdoor unit market.

Across our operator platforms, MoCA continues to be an increasingly strategic part of our business as it expands from being simply a whole-home PVR conduit to a critical high-banded backbone connectivity solution that enables robust delivery of broadband data and video-connected home. For those attending CableLabs' Summer Conference this week and IBC later in August, we will be demonstrating our latest multi-gigabit MoCA 2.5 solution, which is the industry's first 2.5-gigabits-per-second wired connectivity solution.

Moving to our infrastructure and other product revenues, revenue was roughly 16% of total revenues in the quarter. We witnessed a strong and continuing ramp in shipments of our high-speed optical interconnect products. Specifically, our long-haul 100-gigabit-per-second laser driver supporting network built out by major Chinese wireless carriers more than doubled sequentially. Along with robust customer demand, this strong growth in second quarter was enabled by the elimination of our own supply chain constraints in the prior quarters. We're increasingly confident of meeting our internal growth target of up to $20 million in high-speed interconnect revenue in 2016.

We continue to leverage MaxLinear's world-class engineering and operations capabilities to expand our footprint in the high-speed optical interconnect market. We're now leading the production a range of cross products that had been earlier announced at the Optical Fiber Conference in March. These include our MxL2025 quad leader driver the metro markets and our MxL9101 quad TIA solution for inside the data center 100-gigabit NRZ market. We expect the initial ramp of these new products in Q4 2016, which will yield a meaningful and a more diversified revenue stream moving into 2017.

Additionally, our infrastructure and other category benefited from the initial contribution of our Microsemi wireless assets acquisition, which was limited to two months of revenue contribution, as well as adjustments related to the transition from sell-in to sell-through distributor revenue recognition.

Lastly, legacy video SoC revenues derived from the Entropic acquisition were $8.1 million in the quarter, declining to 8% of total revenues versus approximately 16% in the prior quarter. As expected, the weakness was owing to declines in cable HD digital-to-analog converter deployments, which were magnified further by a recent consolidation of two major cable operators in North America. Internally, we are prognosticating an imminent decline of these legacy SoC revenues as the market transitions to ultra-HD 4K resolution devices and legacy SoC platforms reach a terminal end-of-life phase.

Now for some comments on our recent wireless asset acquisitions. As noted earlier, we're excited about the strategic footprint expansion enabled by these two wireless infrastructure acquisitions, consisting of MaxLinear's RF wireless access solutions and Broadcom's wireless backhaul assets. With the Microsemi wireless infrastructure 3G/4G access technology platform, we anticipate exciting growth potential in the longer term, represented by the migration of wireless infrastructure asset markets from 2G, 3G, and 4G to ultimately massive MIMO 5G deployments.

The proliferation of multiple higher frequency range cellular bands from below 6 gigahertz to millimeter wave frequency bands and the dramatic increases in channel bandwidth requirements significantly enhances the complexity of wireless access technologies. It also vastly increases the number of transceivers needed in each remote radio head deployed in macro and micro wireless base stations. As the wireless network densifies further in 5G to support multi-gigabit data services, there's a multiplicative effect on the addressable market for our CMOS broadband RF mixed signal transceiver technology solutions.

With the Broadcom backhaul business, we acquired a proven, market-leading microwave and millimeter-wave backhaul modem capability that is complementary to organically develop microwave RF transceiver outdoor unit solution. Together, the constitute the world's first complete and most advanced wireless backhaul technology platform and the only full system solution. Broadcom's hardware, software, and system-level expertise developed over a 15-year period has secured meaningful design wins at Tier 1 wireless infrastructure OEM customers.

This acquisition of Broadcom's baseband technology platform not only accelerates the time to revenue in our target wireless infrastructure market, but also enhances significantly the market share prospects of our organic microwave backhaul remote radio head transceiver offering. We are currently sampling our remote outdoor unit microwave radio single-chip solution significantly at our internal target timeline. Our internally developed microwave backhaul radio transceiver solution represents an unprecedented level of performance and CMOS integration benefits, addressing carrier license bands from 5 gigahertz to 45 gigahertz. It eliminates dozens of discrete and expensive RF chips, thereby simplifying design and reducing the cost of microwave backhaul deployments. Significantly, through the Broadcom and Microsemi wireless asset acquisitions, we have secured strong customer relationships with all the major Tier 1 wireless carrier OEMs in the world, establishing MaxLinear as a strategic supplier into the 4G and 5G massive MIMO transceiver markets.

We have stayed true to a lean operating philosophy through all these acquisitions. We have acted decisively to ensure that the recently acquired teams are right-sized in order to take full advantage of design and operating synergies. As a result, we now have talented and focused teams of approximately 30 and 55 engineering employees in Burnaby near Vancouver in Canada, and Herzliya in Israel, respectively. These talented resources are not only developing differentiated wireless infrastructure technologies, but are also supporting MaxLinear's goal development roadmap.

Before I turn the call over to Adam Spice, our Chief Financial Officer, I would like to reiterate that we are extremely pleased to have delivered a near-record revenue in the second quarter, along with gross and operating margin expansion and strong cash generation. Our expanding portfolio of market-leading broadband access and connectivity solutions has positioned MaxLinear to address the key challenges faced by our operator partners. Simultaneously, our recently completed wireless infrastructure acquisitions, combined with our organic initiatives, significantly accelerates our ability to address and grow revenues in the large and growing wireless and wired infrastructure markets. We look forward to sharing more information regarding the progress in our infrastructure initiatives in the coming months.

Now let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for a review of the financials and our forward guidance.

Thank you, Kishore. On Q2 revenue of $101.7 million, GAAP and non-GAAP gross margins for the second quarter were approximately 61.9% and 63.8% of revenue, respectively, versus our original guidance of 60% to 61% for GAAP and 62% to 63% for non-GAAP gross margin. The upside in gross margins was in part due to the mix effect resulting from the receipt of $1.3 million in revenue from the sale and concurrent license of certain legacy video SoC intellectual property in the quarter. This compares to GAAP and non-GAAP gross margins of 59.6% and 61.3%, respectively, in the first quarter of 2016, and GAAP and non-GAAP gross margin of 38% and 58.4%, respectively, in the year-ago quarter. The delta between GAAP and non-GAAP gross margins in the second quarter was primarily related to the amortization of $2.1 million of acquisition-related purchased intangibles and inventory step-up.

Q2 GAAP operating expenses were approximately $40.5 million, $500,000 below guidance, the delta due primarily to higher purchase price accounting charges and acquisition and integration costs and expenses associated with the recent acquisitions, which were largely offset by lower-than-forecast operating expenses. GAAP operating expenses included $1.3 million in acquisition and integration fees and expenses related to our recently announced acquisitions, $200,000 of restricted merger proceeds and contingent consideration related to our Physpeed acquisition, and $800,000 for the amortization of purchased intangible assets.

Accruals related to stock-based compensation and stock-based bonus and incentive plans were $4.8 million and $2.6 million, respectively, and we incurred $200,000 of professional fees related to the Cresta Technologies patent litigation. Consistent with 2015, payouts under our 2016 performance bonus plan are expected to be settled primarily in shares of MaxLinear stock, with the first-half 2016 awards being made in mid-August.

Net of these items, non-GAAP OpEx was $30.6 million, $1.4 million below our prior guidance of $32 million, $1.1 million higher than the Q1 2016 and up approximately $1.3 million from the year-ago quarter. As indicated in the GAAP comments earlier, the largest driver of the underage relative to guidance resulted from continuing acquisition-related headcount and related efficiencies, combined with some miscellaneous project-related savings.

Second-quarter GAAP OpEx attributable to R&D was up approximately $300,000 quarter on quarter and was approximately flat year on year at $24 million, which included stock-based compensation of $3.1 million, $1.7 million related to the first-half 2016 stock-based bonus plan and incentive awards, $200,000 in Physpeed deferred merger proceeds and contingent consideration, and $100,000 for the amortization of purchased intangible assets.

Excluding these items, second-quarter non-GAAP R&D was down approximately $200,000 quarter on quarter, and it was down approximately $300,000 year on year to $18.8 million. Within the sequential R&D spending decrease, there was $400,000 related to tape-out and prototyping expense reductions and $400,000 related to a reduction in IP spending. These sequential declines were partially offset by $300,000 in annual merit increases and higher spending on design tools and other miscellaneous expenses.

Second-quarter GAAP OpEx attributable to SG&A was up approximately $2.9 million quarter on quarter and down $7.1 million from the year-ago quarter to $16.5 million. GAAP SG&A expenses included $1.7 million in stock-based compensation, $1.3 million in acquisition and integration costs and expenses related to the recently announced acquisitions, $700,000 for the amortization of acquired intangible assets, $800,000 in stock-based bonus plan accruals and incentive compensation, and $200,000 in net professional fees related to the Cresta Technologies patent litigation.

Excluding these items, second-quarter non-GAAP SG&A was up $1.3 million on a quarter-on-quarter basis and up $1.6 million from the year-ago quarter to $11.8 million, with the sequential increase driven primarily by acquisition-related expenses, relocation expenses related to our Irvine facility move, and higher commission expenses and annual merit increases.

At the end of the second quarter of 2016, our headcount was 525 as compared to 506 at the end of the first quarter of 2016 and 531 at the end of the second quarter of 2015. We continue to evaluate our staffing levels globally, particularly following our recent acquisition activity, to strike a balance between driving near-term bottom-line operating leverage and staffing key long-term growth initiatives. We continue to drive operating leverage by appropriately balancing hiring across our locations in the US, India, China, Taiwan, Israel, and Canada.

GAAP income from operations was $22.4 million in Q2 compared to the income from operations of $21.7 million in the prior quarter and a loss from operations of $32.1 million in the Q2 of last year, which was heavily impacted by the purchase accounting of the Entropic acquisition that closed in April of 2015.

GAAP earnings per share in the second quarter were $0.33 on fully diluted shares outstanding of 67.5 million shares. This compares to our adjusted GAAP EPS of $0.31 in the prior quarter and a GAAP net loss per share of $0.58 in Q2 of last year.

As you may have noted in our press release from earlier today, we adopted ASU Number 2016-09 related to the changes to employee shared-based payment accounting in Q2 of 2016. As a result, when computing diluted EPS using the Treasury method due to our stock price being higher today versus when some long-term equity awards were originally granted, fewer hypothetical shares can be repurchased at the time of vesting, resulting in a greater number of incremental shares being issued upon exercise of share-based payment awards. The impact of this adoption for the three quarters ended June 30, 2016, was a reduction to the provision for income taxes and an increase to net income of $3.5 million and an increase to basic earnings per share of $0.06 and diluted earnings per share of $0.04. Diluted earnings per share for the three months ended June 30, 2016, was also impacted by an increase of 910,000 shares related to the adoption of this provision.

The adoption of ASU Number 2016-09 also resulted in a reduction to the previously reported provision for income taxes and an increase to net income of $1.6 million and an increase to basic and diluted earnings per share of $0.02 for the three months ended March 31, 2016. Diluted earnings per share for the three months ended March 31, 2016, were also impacted by an 825,000 share increase in the average shares outstanding. Non-GAAP earnings per share in Q2 were $0.50 on fully diluted shares of 67.5 million compared to adjusted $0.49 per share in Q1 of 2016 and $0.22 per share in Q2 of last year.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents, and investments balance increased $9.6 million from the end of Q1 2016 to approximately $176.5 million, an increase of $94.4 million as compared to the $82.1 million in Q2 of last year. Our cash flow from operations in the second quarter of 2016 was approximately $32.3 million versus $39 million generated in the first quarter of 2016 and $4.6 million in the year-ago quarter.

Our days sales outstanding for the second quarter was approximately 38 days, or one day more than the prior quarter and two days less than the year-ago quarter. As a reminder, we only recognize revenue on a sell-through basis, and as such, we're not subject to revenue fluctuations caused by changes in distributor inventory levels. Our inventory turns were 5.6 in the second quarter compared to 5.4 in the first quarter and 6.8 in the year-ago quarter.

That leads me to our guidance. We expect revenue in the third quarter 2016 to be in the range of $94 million to $98 million. Built into this range, we expect operator revenues to account for roughly 78% of overall revenue; infrastructure and other, approximately 16%; and legacy video SoC, approximately 6%. More specifically, within operator, we expect growth to be driven primarily by our satellite 4K gateway front-end and channel stacking shipments, which will be more than offset by lower cable CPE platform shipments of analog front ends and MoCA connectivity solutions, as well as lower cable video tuner demodulator SoC shipments.

Although analog channel stacking is forecast to be flat to slightly up in the third quarter, all preliminary indications are that the primary operator customer for these solutions is planning a relatively hard cut-over to digital channel stacking in the Q4 2016 to Q1 2017 timeframe, which leads to greater forecast uncertainty and volatility related to the timing and impact of potential last-time buys.

Within infrastructure and other, we expect modest declines in TV and consumer terrestrial set-top box shipments and a significant step back in high-speed interconnect, reflective of seasonality and a stepping back from what was an exceptionally strong second quarter, one in which we overcame prior quarters' supply constraints. Within infrastructure and other, we expect these declines to be largely offset by contributions from our recently acquired wireless infrastructure businesses.

And lastly, within our legacy video SoC markets, we expect continued sequential declines, given end of life of certain North American cable HD DTA deployments and significantly reduced visibility resulting from the recently closed merger of Time Warner and Charter Communications.

While in the near term we anticipate headwinds owing to the imminent decline in revenues from our legacy video SoC and analog ODU platforms, we are excited about the diversification into wireline and wireless infrastructure markets, which should lead to upward pressure to our gross margins longer term.

We expect GAAP gross profit margin to be between 58.5% and 60% of revenue, with sequential declines driven by the purchase price accounting impact of the Broadcom wireless backhaul acquisition, and non-GAAP gross profit margins to be between 63% and 64% of revenue in the third quarter. Our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors.

We continue to fund strategic development projects targeted at delivering attractive top-line growth in 2016 and beyond, with a particular focus on infrastructure initiatives and our goals of increasing the operating leverage in the business. Excluding the previously referenced, yet to be determined potential acquisition-related charges related to the Microsemi wireless infrastructure access acquisition, we expect Q3 -- or I should say the Broadcom backhaul acquisition in Q3 -- we expect Q3 2016 GAAP operating expenses to increase approximately $3.5 million quarter on quarter to approximately $44 million, with the largest increases coming from purchase price accounting impacts and headcount additions, primarily related to the Broadcom acquisition that closed on July 1, the full-quarter effect of the Microsemi wireless acquisition that closed on April 28, and professional fees and expenses related to information systems migrations, acquisition integration, and patent filing activities.

We expect that Q3 2016 non-GAAP operating expenses will increase $2 million sequentially to approximately $32.5 million, driven largely by the earlier-referenced headcount additions and other expenses related to recently closed Microsemi and Broadcom asset acquisitions and their related integration activities and expenses related to information systems migrations.

In closing, we are pleased to put a cap on a very eventful second quarter of 2016, reporting record profitability and a Company expansion in both gross and operating margins on strong revenue and cash flow generation as we simultaneously continue to diversify our business and expand our served addressable markets while maintaining tight operating expense management. We believe the increased diversification of our business through strategic acquisitions and organic development initiatives position us to benefit from the growing demand for bandwidth across consumer, operator, and wired and wireless infrastructure platforms.

And with that, I would like to open the call to questions. Operator?

(Operator Instructions.) Anil Doradla.

Just a couple of clarifications here. So, Adam, when we look at the guidance, clearly there seems to be some near-term pullbacks from the two things that you'd talked about. Now, can you give us a little bit color as to how much of it is driven by your lack of visibility and conservativeness versus how much of it, you've got a lot of visibility and that's clearly happening. Obviously, there are a couple of things going around. So can you help us appreciate some of those finer points?

Anil, there are a lot of moving pieces, and similar to prior quarters, there's a range on our guidance. I think what's we've tried to do, and what we always to do, is set the midpoint where we think there's a very high confidence of us getting to. And I think what the guidance really reflects, again, is we've had a tremendously strong first half of 2016 in our operator business.

The cable CPE platforms have done very, very well. And what we have seen in prior years, and what we see playing out today, is a return, a consistent return to volatility at some point in the year, almost always in the second half of the year. In prior years, it's either been a Q3 or a Q4, or a Q3 and a Q4. And right now, I think what you're seeing is that we have enough visibility, obviously, for Q3, given where we are in the quarter, that we just feel that we have certainty that the seasonality is certainly there for a portion of our business.

And part of it also is the fact that, again, we had a very, very strong Q2 also in our in high-speed optical interconnect because in prior quarters, as that business was ramping, we were really supply constrained. And so what you saw was a very, very strong Q2, where it more than doubled from Q1.

So I wouldn't say there's, for example, the softer guide isn't so much a function of all these businesses being necessarily weaker, but the fact that you had some growing pains in some of these new businesses, and they're naturally spurty and choppy. And I think that we're seeing this, certainly, in the interconnect business. We believe very strongly that we're going to hit the goals that we put forward for the full-year 2016 growth targets.

I think when you look at our cable CPE business, again, when you step back, what we see is a very strong business year on year, but unfortunately it is a business that does exhibit seasonality pretty consistently. And I think right now, we just have to be in the situation where you're having seasonality coinciding with the aging of some of these legacy products from Entropic that we've been very, very clear and transparent that we're going to develop, and we are seeing those. We saw a big step down in Q1 and Q2 from the legacy video SoC. We see more step-down from Q2 to Q3.

We are seeing stability in the analog channel stacking -- in fact, maybe even a little bit of growth from Q2 to Q3. But as my comments indicated, we are feeling increasingly confident that we know there will be a relatively hard cut-over as we progress which, again, puts a little more risk into our factor. We built that into our guidance about when you're looking at pretty certain end-of-lifing of certain product lines, you have to take a much more, I would say, cautious view on whatever you build into the guidance, because we certainly don't want to over-commit.

So hopefully, that provides you some color about what's framing our guidance. Those are most of the big movers, and I think we've also had very strong from our satellite 4K business, which actually, again, is continuing into the third quarter. So we've got a lot of moving pieces. It's not the simplest story. We have a lot of different moving pieces, and even the growing pieces of our business aren't immune to some volatility from time to time as we grow into them.

Great. And when you talk about the hard cut-offs on the analog (inaudible) stacking, you talked about some near-term growth there. So is it fair to say that Q4 will see this hard handover between analog and digital? Or is that something that you just are not able to predict at this stage?

So, Anil, this is Kishore. That would be a logical conclusion, and we have been informed by the primary customer that they are contemplating a hard cutover. And to the extent that we are seeing Q3, some more analog ODU, it's hard to bracket that as an end-of-life ordering, or if Q4 and Q1 represent the end of life. But it's very clear now that the analog ODU at this principal customer, all throughout North America, either has intimated that they're going to go to a hard cutover.

Having said that, a natural question would be, do you see a stronger ramp in digital ODU? But as things go in life, the bad news comes first, and then the later good news. So our backlog does not indicate the reciprocal to the analog ODU going way, the digital ODU improving in a lockstep in time. But as we said, we're very optimistic, and actually, we are positively disposed that our ODU business has long-term growth legs and is going to do very well because we have the most comprehensive and a superior technology platform.

Another way to look at all these issues, whether it's the video SoC going away or the legacy products going away, once they're done, you're going to see a good, strong gross margin expansion. And at the same time, all the products in our portfolio will be growth portfolio products. So we're looking forward to put this behind us, regarding which we have been telling everybody, buy-side and sell-side analysts, about a disappearance of the legacy analog ODU and video SoC business. Over several quarters we have been in communication with you guys.

Very good. And if you don't mind me sneaking one final clarification, so DOCSIS 3.1 ramps. I mean, there are different operators with different strategies. How would you characterize where we are in the DOCSIS 3.1 ramps? Thanks.

I would say that we are still, in my calculus, the North American/ Canadian operators have always been more aggressive in the DOCSIS data deployment. So we have some backlog in deployment for Rogers, for example, in Canada. And we have some preliminary background deals for a major cable operator in North America. But if we just were to pattern out how these guys function, I would just say that we're at (inaudible) to zero, and I would say we will ship some in Q1, not something that would meaningfully impact our guidance. It could go up strongly. These guys have done pretty strange things. Just when you think things are down, they come and place large orders for new transitions. But at this point, Q4 is far away. But I really think that 2017 will be a good product cycle for us, and we're very, very well positioned.

You will also see later IBC announcements regarding new DOCSIS 3.1 CableLab, 34 products being announced with particular OEMs, this time for some major operators all over the world.

Great. Thanks a lot, guys.

Gary Mobley.

As a point of clarification, the analog SWM business -- correct me if I'm wrong -- but isn't that approximately 20% of the total revenue?

Well, we said that in Q1 it was about $17 million, Gary, so it was about, let's call it about 17% of revenues, roughly -- a little less than 17% in Q1. Q2, we said it was going to be down, as it was in Q2. So if you think about right now, if you think about what it means for Q3 as a percentage of total revenue, it's probably more in the, call it maybe in the, call it 12%-ish range for total revenue in the quarter. So it's not 20%. So it's been coming down. It's come down from 17% to, let's call it around, I think it was around 12% -- 11% or 12% in Q2. And it's flat to uppish a little bit in Q3, but treading water, if you will.

Okay. I realize this is difficult to predict, the transition between the analog SWM modules and the digital SWM modules with your one main customer. But do you have any assessment of what your market share could be in digital SWM? I know you'll be splitting the business with Broadcom, but do you think it will be a 50/50 split?

So, Gary, this is Kishore. At this stage, I'm very happy to tell you guys that the digital ODU market, the split is maybe 90/10 in MaxLinear's favor for the ones that have deployed. Even it were even 10%, I don't know that at current point or very clearly. However, the analog outdoor unit product, at this particular customer, we get 100%. And now that's going to transition over to digital outdoor unit. And when the transitions were complete, we will be -- we expect that we will be splitting maybe 60/40, in that range, for the digital outdoor units. So -- or half that. Let's call it, just to keep it simple, 50/50. And so that's the landscape, which implies that globally, if we look at the digital outdoor unit market, we should have substantially the greater majority of the sockets worldwide. And as we speak, we are really doing a good job in bringing the sockets worldwide.

And the other thing, on the longer term, you need to understand that the kind of stuff we're doing with the really, really high-frequency integrations of Ku/Ka-band down conversions and the Sat-to-IP conversions, it's just an easy platform for us, and we believe we'll be the longstanding winner in this marketplace.

Okay, that's very helpful. Along the lines of competition from Broadcom, can you talk a little bit about what you feel in terms of Broadcom's commitment towards DOCSIS, specifically DOCSIS 3.1, and MoCA 2.5 and beyond?

Gary, I cannot speak for Broadcom's strategic plans, but I can speak for MaxLinear's plans. I would say that where we stand, I would say DOCSIS 3.1, we work with Intel. It's a really great partner for us. We are pretty much close to offering all the mixed signal in front on the Intel baseband processor. I would like to say that our platform is the, by far, the most superior platform out there.

Broadcom does have an offering. We don't know the states or the beta state of its maturity. However, I would say in North America with the major operators who are planning new deployments, we are extremely well positioned.

With regard to MoCA 2.5, I don't think there's going to be any players going to have MoCA 2.5 any time soon, given that even in MoCA 2.0, the bonded MoCA 2.0, bonded channel one, is still being qualified or certified, and they're not very strongly working solutions except MaxLinear's MoCA 2.0, which is now the only fully integrated solution, including the LNA, the transmitter PA, and the full modem all integrated in a single chip.

So I don't think we should think about competition in the matter. You should look at us as a leader in MoCA, and we'll continue to be a leader in MoCA. And DOCSIS 3.1, we hope to continue to preserve or grow our market share as time proceeds.

Okay. I will hop in the queue and let others ask questions. Thanks, guys.

Quinn Bolton.

Just a couple of clarifications. Kishore, I think in your comments, you talked about an imminent decline in the legacy video SoC and obviously, you talked about the hard cut over to digital channel stackers at your largest analog channel-stacking customer. So just -- I hear those comments and it sounds like both of those product lines, sounds like go to zero relatively quickly. Is that the right way to interpret your comments?

I would say that -- I wish I could give you more color, but these guys always drag their feet more than not. But they're very good at giving you warnings just to prepare the supply chain. I would say at this point it's a good assumption to work with. But when you say two quarters, you have to take into con what Adam already guided for Q3. So within the context of Q3, Q4, and Q1, it's a good assumption to make.

Got it. And then I don't think I heard, but obviously, if your analog channel stacker customer has notified you of a hard cutover, I assume that you've now seen orders on the books for that customer on the digital channel stacking side? Can you confirm if they've placed those orders?

Look, we have been shipping digital ODU very robustly, but it is not to this particular operator. We've been shipping to another major operator in North America. But with this particular operator, we still do not have the backlog that we would like to see that gives you as a signal that this is a hard cutover. But they're still within lead time, so orders could develop for digital outdoor unit because it's a zero-sum game, to some extent, between digital ODU and analog ODU for this operator, even though the share will be split between our competitor and us. But we have not seen the backlog to indicate the converse of they've been telling of analog ODU hard cutover. But it's going to happen. We're just trying to be upfront and honest about this and giving you information as much as we have and as well as we have at this stage.

Quinn, to give you a little more color, too, because I think when we talk in these terms, sometimes there can be confusion in where people put their guideposts. But I think what we should not take away from this discussion is that the revenue goes to zero in Q1. There's no scenario where the revenues go to zero in Q4 and go to zero in Q1. That's not on the table. I would think that -- so what you see now is you see what we think is a declining forecast, staring now for some of these businesses, particularly Q4 for analog ODU. And naturally, these things would have tails on them.

And then the question becomes, how do you manage that tail? For example, do you put last-time buys in place so that we can continue to get efficiencies out of our supply chain and not be distracted volumes as they tail out over time? For us, it might be a better decision for us to basically put last-time buys in place, pull some of that revenue from later in 2017 into either Q4 or Q1 of 2017.

So it's really hard to draw very specific conclusions on what the profile's going to look like. But I think it's clear that it would be safe to not have any real significant revenue for those two product lines beyond, I would say, the Q1 period. So for Q2, it would be safe to taking it down to some negligible amount. But I wouldn't do that before Q2.

Got it, okay. And then obviously, you talked about the optical business. Obviously, it takes a step back in Q3 as you caught up to demand in the second quarter. Based on visibility, would you expect that business to recover back in the fourth quarter? And if so, do you think it has a chance to get back to second-quarter levels? Or would it be a more modest recovery? I know Q2 seems like, with the doubling in that business, it was a particularly strong quarter.

So, Quinn, I think there are two levels to his answer. I know you put out an article of an optical super-cycle, but if that were to happen, obviously, we would benefit from that. But at this stage, we only have anecdotal information of good things happening, but no indications of real volumes. Because the carriers in China, for example, have not yet given out the bids. So in that context, we don't see going to Q2 level. However, we are launching new products, and they could ramp in Q4. So it's early to say that -- and if good things were to happen, I do not see any reason in a Q4 or Q1 window, why we won't start seeing some more good outcomes.

So we are cautiously waiting to see if this super-cycle pans out, but we'll be thrilled if that were to pan out.

Got it. Thanks, guys.

Ross Seymore.

Just sticking in that infrastructure category, to get it down to 16%, it seems like that fall-off in high-speed interconnect has to be large, but you should have somewhat of an offset from the two wireless acquisitions in there. Can you just talk about relative movements in the three main pieces in that infrastructure and other segment for 3Q?

Yes, so we'll give you some color on that. So again, we mentioned there's going to be some, I would say, smaller declines across TV and terrestrial set-top box. And those are really driven more just by -- it's one of those older markets where you've got some ASP compressions that are played, not a lot of unit growth and so forth. So that's really not what's moving the needle much.

You're absolutely right that we've got a pretty significant fall-off from Q2 to Q3 for the high-speed optical, and that's the biggest headwind, if you will, to keeping the revenue relatively flat quarter on quarter. So if you look at the step down from HSI, there's a more than offsetting step up from the wireless assets that we bought, but there's also another step down, which I mentioned earlier in the call, which was related to the sale of some IP, a license that was non-recurring in Q2. So there was about $1.3 million that we got in the quarter that goes away. So that's part of that sequential decline is you've got the step down in HSI, you don't have the recurrence of the $1.3 million from the sale of the IP, and all of that's being offset by the introduction of the wireless infrastructure revenue. And it goes to basically keep the business roughly flat sequentially. So those are the moving pieces.

So that IP revenue was in the infrastructure and other category, I take it?

Yes, it's other. We just call it other, because it is what it is.

Because it's other, exactly. And then getting back to your answering the questions about how fast stuff goes to zero, can you remind us, in the analog channel stacking side versus the legacy video SoC, rather than when they might decline, is there a thing that would offset that or the glide paths down to a low amount be different -- you know, different customers in analog channel stacking, a single customer in legacy video SoC, so that the probability of going to zero might be different between the two?

So, Ross, this is Kishore. As you pointed out, the cable video SoC shipped to cable operators, and the analog channel (inaudible) ships to a major operator in North America. So they are very -- they have two -- it's a diversity of two. And to that extent, they could split a bit in terms of time.

However, on the video SoC, the consolidation -- the primary customer was -- the remaining customer was the Time Warner-Charter configuration, and their consolidation has created a pause or the indications that they may not be interested to further prolong these platforms. I talked about end of life in the SoC platform. So that's what caused this abruptness in my statement about an imminent decline.

On the analog channel, I don't, or I think Adam's comments are still valid. There will be a small tail. As Adam responded to Quinn, it is not going to go to zero, but it would be a good idea to assume that there will be a very small tail in Q1 and could be zero in Q2.

I guess there's one final question for Adam. You guys always do a good job on controlling the OpEx side of the equation. Off of that base in the third quarter that you guided to, the $32.5 million, how should we think about that changing going forward?

I think it's relatively -- we normally don't give guidance out beyond the current quarter, but I can say that we're relatively flat, I would say. Q3 to Q4 right now is what we're looking at.

Great, thank you.

Brian Alger, ROTH Capital Partners.

Appreciate the candor tonight. Obviously, it's a lot of moving parts and pieces here. As we look at -- it seems like ripping the Band-Aid off, where we knew some businesses were going to decline eventually, and we've come to that day. Can you maybe frame up for us what, absent these next two to three quarters, where we have the end-of-lifing on outdoor unit and obviously, the SoC, what we're looking at in an aggregate shape in terms of a growth engine for the infrastructure and the remaining businesses, the digital stacking and what-not? Maybe frame it up in that sense as opposed to what's going on here in the near term with the noise, if you will.

Hi, Brian, this is Kishore. I think it will really -- why don't we work through the categories here? So I would like to still focus first on our operator business. It's still a substantial part of the business. We have cable data, which is a very exciting platform with all the over-the-top stuff. And the DOCSIS 3.1 would present a great product cycle growth story moving forward as, if you follow Comcast or any of these guys' subscribers and the data consumption subscription is really increasing, and they're very excited about increasing the data rate. And then the ASP improves on these things. Okay, that's one part of it.

Second is they're launching these new multi-platforms. Obviously, there's some timing risk on the deployment of these new platforms, what we call Carded, which is MoCA 2.1 for about 1 gigabit per second, and MoCA 2.5, what we call Locadia, that has a 2.5-gigabit-per-second data backbone for precisely the DOCSIS 3.1 kind of deployment inside the home. So as a platform category, there's a pretty good, solid growth vehicle.

And then we move to satellite. We've got our 4K satellite gateway front end. We're doing very, very well. We ship to the major Tier 1 operators in Europe and in North America. And they will prove to be a very strong vehicle for it as well, as the world is now indeed switching over to ultra-HD platforms from all the video and over-the-top operators in their deployments.

And then we want to talk about our offerings in infrastructure and other categories which will repay much of the infrastructure at the time. That's a good way to raise our high-speed direct connect products for telcom, which is basically long-haul and metro, are really doing very well. We have been really aligned on one product, a long-haul driver for almost all of our revenue into this date. But now we are launching these products for TIAs, for long-haul. We're launching these products for drivers and TIAs for metro. We're also launching a TIA for inside the data center for 100 gigabit NRZ. I think these are untapped growth drivers for us, and we are just being cautious in estimating until we get confirmation of the design wins and what their ramp rates are.

And also, if you look at our wireless assets, right now we are clearing up and cleaning up all these things that we have acquired. There's always a lot of stuff that need to be cleaned up. So while we're cautious about the cleanup involved, it means that by the time of the second half next year, you should see a robust pickup because of revenue synergies between the backhaul platform and the RF front end and microwave platform that we have organically developed that is really doing very well. That should be growing pretty robustly as well. So you have the wireless assets growing, the high-speed optical components growing as well.

And so you see that all the businesses pretty much, once the analog -- oh, I didn't mention digital outdoor units. Naturally, suffice it to say that the analog outdoor unit is going away. The digital outdoor unit is going to do even better, and then the operators outside North America are also deploying them. We'll get traction there, too; we have traction there. So you can see that once the analog outdoor unit and you remove the video SoC legacy, which is a substantial amount in last year, you'll see that all of these revenues growing very nicely, robustly, once we get through first half of next year.

So I think here we are. This is a day that had gotten delayed and postponed more than we had thought earlier, so we've done very well on cash flow and things like on top of these legacy businesses, but now we look forward to deploying the cash and having these nice growth vehicles, improving our sustainable operating margin. Our gross margin will expand in a positive direction, for sure. And then we have proven that we can do wonderful things as a corporate M&A team to be able to really do some very good strategic and inorganic acquisitions that are accretive to our business moving forward.

So all in all, you can see that are still pretty excited about where we have brought the Company forward here. It's a legitimate RF mixed signal, 65% gross margin, $300 million-plus run rate company, and I think that's pretty remarkable in this day and age.

All right. So if I could summarize -- there's obviously a lot of growth drivers that are a bit on the come, and in the meantime over the next two to three quarters, as we're winding down these businesses, those growth drivers won't offset the headwinds. But it sounds as though by the time we get into Q2 -- I know you were talking about the second half of next year -- but it seems like in terms of inflections with seasonality and the end of purchasing, shouldn't we be hitting that inflection point more around Q2 than the second half of next year? Or is it something that takes a little bit longer for the growth engines to kick in?

Sitting here at this point, I want to be conservative in my tone and my approach to next year, naturally, because we need to regroup in how we look at the outward years and the timing of each of these units. But yes, you could be right. But at this point, the second half would be a safer inflection point to think about.

Okay.

I think that's right also, because I would say that I just want to reiterate, too, that we're seeing the declines in the -- the declines are in front of us for analog ODU and for the video SoC. But at the same time, I think part of the challenge that we face that contributed to our guidance for Q3 is seasonality in our core business. And again, that's not something that's new. People that have been familiar with MaxLinear for an extended period of time will realize that that seasonality presents itself. And I think that last year, the seasonality was there and we talked about it, but it was really swamped and overcome by the Entropic accretion and the synergies that we got from that deal so aggressively.

So I think that I'd be a little bit -- 2015 was a little bit of a head-fake because it was there, but people didn't pay attention to it, even though we spoke to it. And I don't think the seasonality in the core business across cable in particular shouldn't be a huge shock to investors, because it's been a perpetual piece of our business. But it's here.

That's a good point.

Not just the legacy, but there's also core seasonality. So I think that's what people need to think about. And I think the big question that we have for ourselves right now is what is the extent of that seasonality? I've said in my earlier comments that it's been there every year. It's either been either Q3 or Q4 or Q3 and Q4. And there's been combinations where you've had Q3 -- like last year, Q3 cable was down sharply in Q3 and then basically flattish to Q4. So we don't yet have enough visibility to know whether that's going to play out again this year, as it did last year, or whether you've got even more seasonality on top of that, or whether you could see a little bit of a bounce.

So it's too early to call Q4, but I don't think you can take seasonality for Q4 off the table at this point, either.

Okay, thanks, I appreciate that. Thank you.

Tore Svanberg.

So obviously, you talked about these legacy declines and now they're here. So maybe to ask or frame Brian's question a little bit differently, once you get through this transition period, what type of a growth rate do you think you will be seeing from MaxLinear going forward?

That's a tough one, Tore. I think that -- again, I think Kishore addressed it the right way, which is if you look at the various pieces, or if you really look at our infrastructure and other, which is now -- it is more infrastructure than other, and that's where the focus of the investment is. That's where the growth of the revenues are coming from. That, we are very confident. You've got solid, double-digit growth coming in the foreseeable future for that business. And I think that's one that even should be a grower sequentially from Q3 to Q4, so that's not going to suffer from the, I would say, the legacy headwinds.

When you start looking at the operator business, I think the operator business is one where historically we've talked about that business being a 10%-ish grower, plus or minus, depending. It could be a little bit less in a year where there's not a lot of new deployment news. It should be a little bit better when there's a heavy new deployment cycle like DOCSIS 3.1 or 4K satellite gateway front ends. And certainly, we're seeing that very nice growth on 4K satellite front ends right now. We had a very good first half-year in 2016, driven by the 24- and 32-channel count adoptions from the DOCSIS market.

So I think that when you strip out the analog headwinds, the analog ODU headwinds, and you just look at our core operator business, which is comprised of all the front ends, the MoCA, plus the digital channel stacking, that should be a double-digit growth business. I don't think there's any reason to change from that framework or view.

I think that the infrastructure should be multiples of that as far as percentage growth. It should be certainly a solid, solid double-digit grower. And, of course, that leaves the only remaining category is the SoC, which as we talked about, will be largely out of the mix once you get out of the Q1 timeframe in 2017.

So I think we're still -- we've not changed our goal. We believe that we can grow the business over a three- to five-year time period at a 15% to 20% top-line CAGR, and we're very confident that we can do that. And that view was even taken into perspective that we knew that these legacy businesses were going to go away. So that's all factored in; it's net of that.

So I think the question really is, as Brian pointed out, is when do you turn the corner as far as when you return to true net growth once all these headwinds are moving past? And I think it's anybody's bet whether it's Q2 or the second half of next year. But I don't think -- our confidence has not changed at all in the fact that we're going to get there. It's just a matter of -- and I think when you're talking about a matter of a quarter or two, I think that's a little bit splitting hairs in this kind of dynamic.

That's helpful. And coming back to the outdoor unit business, so you mentioned you foresee a pretty steep decline in analog, but you haven't really seen the backlog yet in digital. How do you think that's going to play out? Or I guess the question is if digital would potentially ramp for some of your customers in Q1, when would you typically get that backlog or that visibility?

Tore, this is Kishore. I think that we do get visibility a quarter out, for sure. And at this point, we have a major operator in North America outside of this analog ODU operator that's ramped very nicely. We've got some operators in Europe just ramping, a little sputtering. But those should be in solid ramp phase in Q1. And then coming back to this North America operator that is analog ODU based today and wants to switch over to digital outdoor unit, we expect a 50/50 split, and we're going to share the split from 100%. And then the ASPs themselves are down at the 32% to 40% relative to analog outdoor unit. So all in all, the amount of uplift you get from transition to digital ODU from this primary operator is decent, but nothing significant relative to the analog ODU. So you are to keep that in perspective.

So if you think about this and, say, fast-forward three to four years from now, can satellite be a $100 million business? Yes, absolutely. But right now on a run rate basis, it's going to be well below that. That's the bottom line.

Sounds good. And on the cable business, I know you typically don't guide more than a quarter out, but it does seem like, per Adam's mentioning of seasonality in the second half, it does look like that business is maybe correcting a little bit earlier than usual. As you look at Q4, it does look like you also have the growth of D1's -- I mean the DOCSIS 3.1 starting in Q4. So is there a chance for Q4 to be flattish in the core cable business, or do you think it would still be down sequentially?

It's very hard to say, because until you want the great, the previous two years, the cable data side, we have seen some very schizophrenic ordering patterns. We thought things were going to go down in Q3, and we guide so, and then they start placing orders in a hurry in Q4. And two years before that, doing exactly a similar transition to 3.0, we saw a situation where we actually pre-announced a negative outcome, and then at the end of the quarter, they started ordering, and we felt like fools. So given that situation, we are trying to be at a place where we don't make that mistake. So how Q4 will turn out -- hopefully, better. But at this stage, visibility, even if it's available, is really not a good visibility. To say that it's absolutely volatile and non-dependable, and if you add on top of that a DOCSIS 3.1 transition dynamics, I think -- I'm not willing to wager how it's going to play out. But hopefully, it's better than what I'm telling you today.

Fair enough. Just one last question for Adam. Adam, the inventory days is given at 63 days in the quarter, which I believe is an all-time low. Is that just simply a function of some of these end-of-life products that you have with the legacy businesses, or is there anything else going on there?

I think certainly we depleted our inventory significantly of our high-speed optical interconnect, because we were supply constrained pretty severely in Q2. Even so, we basically shipped out pretty much everything that we had orders for. So I think that we certainly stepped down. We had very lean inventories in interconnect products. We're basically building to backlog for these end-of-life products because we don't want to be left with any inventory at hand. So I would say it's fair to say that the end of life for legacy products is having a pretty big influence on how we manage our inventory levels right now. It's all building to backlog, very little reliance upon any forecast at this point because we don't want to be left with stuff on hand.

Sounds good. Thank you, guys.

There are no questions at this time. Do you have any closing remarks?

All right. Thank you very much, operator. As a reminder, we'll be participating in the ROTH Capital Second Annual Data Center Technology Conference on September 7 in San Francisco, the Deutsche Bank Technology Conference on September 13 in Las Vegas, and we hope to see many of you there.

With that being said, we thank you all for joining us today, and we look forward to reporting on our progress to you in the next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.