安森美 (ON) 2002 Q1 法說會逐字稿

Welcome to the ON Semiconductor's first quarter earnings release conference call. All lines will be in a listen-only mode until the formal question and answer session. At that time, instructions will be given. At the request of On Semiconductor, today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Rudy Garcia, Director of Investor Relations for ON Semiconductor. Mr. Garcia, you may begin.

Good afternoon and thanks for joining us for ON Semiconductor's first quarter conference call. In a moment, I will introduce Steve Hanson, our President and Chief Executive Officer. Also joining the call will be John Kurtzweil, our newly appointed Chief Financial Officer. Each will cover the progress we have made in the first quarter. After we have heard from both Steve and John, we will reserve 15 minutes for Q&A.

First, I would like to highlight our upcoming event calendar. ON Semiconductor will be presenting at the Salomon Smith Barney semiconductor conference on May 8th, the J P Morgan technology conference on May 9th, and the Prudential European semiconductor conference on May 29th. We will also host our 2002 Annual Shareholder Meeting on May 23rd in Tempe, Arizona.

During the course of this conference call we might make projections or other forward-looking statements regarding future events or the future financial performance of the company. The words estimate, intend, expect, plan or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our 2001 Form 10K and other filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect actual results or change assumptions or other factors.

Now let's hear from our President and Chief Executive Officer, Steve Hanson, who will provide an overview of the first quarter. Steve.

Thanks, Rudy, and thanks to everybody for joining us this afternoon. It's good to complete the first quarter of the year with some momentum. We believe that we're clearly seeing positive signs of a recovery now. All of our key financial measures showed improvement for the quarter. As important, we feel good about the forward-looking picture as the backlog continues to grow. Pricing has been aggressive but, as a result of our increasing utilization rates, our factory utilization was at 68 percent versus 49 percent in Q4, plus the capture of our cost reductions and our continuous improvement in higher value added new products, our gross margins exceeded estimates by 320 basis points. This, coupled with our continuous improvement in G&A efficiency, is moving us towards a positive cash position. Cash finished at $148 million, 6 percent ahead of the plan that we had at the end of Q1. Revenues in the first quarter were $269 million, a sequential increase from the fourth quarter of 2001 and ahead of our previous guidance of sequentially flat to slightly down.

Strength in the quarter came from the industrial, the consumer and also the automotive markets with sequential growth from the prior quarter of 13 percent, 9 percent and 6 percent, respectively, with all product families contributing to the growth in each of these markets.

Our Computing and Networking revenues were relatively stable from the prior quarter with Computing up one percent and Networking down 4 percent sequentially. Our MOS power products were particularly strong in computing revenues, up 14 percent from the prior quarter, while our high performance logic focus on clock and data management began to experience spot turns and replenishment driving a growth of 14 percent sequentially in the networking revenues for that business unit.

Wireless was the lone market that showed significant seasonal weakness, with revenues down 19 percent from the prior quarter as all product families experienced decline. However, orders were strong for Wireless in quarter as witnessed by the backlog growth from both Nokia and Motorola of greater than 30 percent from the beginning of the first quarter.

In terms of backlog, overall orders continue to be strong through the first quarter with backlog of $223 million at the end of the first quarter. This is an increase of $24 million, or a 12 percent improvement from the end of the fourth quarter of 2001. Asia leads all regions, growing its backlog by over 40 percent through the quarter, as Wireless and other OEM customers grew by over 50 percent in the region. Recent design wins at leading customers, such as HiTech, Legend, QDI, Samsung and TCL, support our growing presence in Asia.

With respect to new products, our overall revenues attributed to new products remained in the 20 percent range in the first quarter demonstrating continued strengthening of the return on R&D investments. We introduced 63 new products across all categories, but experienced the largest percent of that in the area of power management. Just a couple of key devices that are gaining good momentum as a result of launches in the first quarter, we introduced a battery charger controller for portable applications for multiple customers already at a run rate of 500,000 with projections from customer demand to be a $1.2 million a year run rate. We introduced a DC to DC converter with synchronous rectification for low battery detection, specifically for the PDA market. Multiple customers, and already approaching a run rate demand of $1 million per year. We introduced a pulse-width modulation

controller targeted for cell phone base band processor control and that one is already receiving demand, driving a $4 million a year rate.

The design win activity was pretty pervasive, but most active in areas such as PCs, PDAs, consumers, especially digital camera requirements. Also, handheld wireless demand. Customer design and activity appears to be strong and especially strong in the region of China.

With respect to our high-performance technologies built on the ECL base and targeted for clock and data management functions, while the telecommunications and networking markets that utilize these products continue to experience issues, we've focused our efforts on obtaining design wins into platforms that we think have great potential to define the next growth curve for those markets. As a result, in the first quarter, we earned 40 design wins in these markets, mostly in the areas of enterprise computing and networking infrastructure. We also introduced four devices last quarter from our new gigacom family and silicon germanium products. All of our performance rated greater than 10 gigahertz and aimed at the OC-192 space. Good momentum. Good momentum in new products, continuing with a good focus on analog, on power management and on high-performance clock and data products.

With that, I'd like to introduce John Kurtzweil, our new Chief Financial Officer and Treasurer, and turn it over to him to take you through the financial results. John.

Thank you, Steve. Our first quarter revenues of $269 million and pro forma loss per share of 26 cents were ahead of consensus estimates as turns business increased in the quarter and cost savings were further realized. Turns business increased to 22 percent of revenue in the first quarter, compared to 19 percent in the prior quarter. Clocks and data management, analogs and MOS power products all experienced increased turns; the business in the quarter with Asia and Japan leading the regions.

By-product family, our clock and data management revenues, rebounded from its low in the fourth quarter of 2001 to 38 percent in the first quarter to $22 million. Standard components and MOS powered revenues each grew 2 percent sequentially to $126 million and $34 million, respectively. While our analog revenues declined 5 percent sequentially from the fourth quarter of 2001, impacted by seasonal weakness in the Wireless market.

Gross margin improved to 22 percent in the first quarter, up from 14 percent in the prior quarter, with increased cost savings and factory utilization improving to over 65 percent in the first quarter from approximately 50 percent in the fourth quarter of 2001. With days of inventory moving closer to normalized levels at the end of 2001, we were able to bring factory run rates closer to in-demand levels and increase overall utilization. Unit shipments were up 4 percent in the quarter with all four product groups increasing sequentially from the fourth quarter. On a mixed adjusted basis, ASPs were down 3 percent sequentially in the quarter versus a 6 percent decline in the prior quarter and appeared to be stabilizing based on recent order patterns.

On the cost side, we are ahead of our planned actions to reduce cost and expect to realize approximately $360 million of annualized cost savings. Completed actions to date have achieved approximately $290 million of annualized savings. As a result of the operational progress that I just highlighted, EBITDA improved to $29 million in the first quarter, up $18 million from the fourth quarter of 2001. EBITDA represents a net income or loss, before interest expense, provisions for income taxes, depreciation and amortization expense, restructuring and other charges in minority interests.

Turning to the balance sheet, inventory was lowered by $14 million in the quarter and remained at 73 days on a cost basis. Day sales outstanding continue to be stable at 45 days. Cash and cash equivalents were $148 million at the end of the first quarter, down $32 million from the prior quarter, with improvements in working capital and lower capital expenditures. Capital expenditures for the quarter were $6 million.

Deferred income on sales to distributors was lowered by $21 million in the first quarter, signaling continued progress by distributors in reducing their inventory to more normalized levels. On a global basis, distributor inventory was reduced to 16 weeks by the end of the first quarter as compared to 20 weeks at the end of the fourth quarter of 2001. We estimate normal targeted inventory levels to be around 13-15 weeks for distributors.

Regarding our second quarter outlook, we expect revenues and margins to show sequential improvement again with the continued strength of orders, particularly in Asia, and further execution on our cost-reduction activities. We anticipate revenues to be between $270 and $275 million in the second quarter with gross margins increasing to 25 to 27 percent and operating expenses remaining flat to slightly down from the first quarter. At these revenue and expense levels in the second quarter, we expect to reduce the loss per share to 20 to 24 cents on a GAAP basis. EBITDA is expected to be in the range of $45-$50 million.

In closing, my first few weeks with the company have been extremely eventful and very exciting. I'm very impressed with the methodology used by the company to focus its strategies and execute such a large restructuring initiative with details and accountabilities. The level of success that the company has experienced with this restructuring is a testament to the entire organization. We are just starting to build momentum and I look forward to helping lead the return to profitability and growing success.

With that, I would like to turn it back over to Steve to wrap up and lead us into Q&A. Steve.

Thanks, John, and welcome aboard as part of your first call with ON Semiconductor. We've become a different company over the course of the previous year and we strengthened and upgraded our leadership team as well with specific skill sets that will charter the direction for ON going forward.

is now our Executive Chairman and Chairman of the Board. John, who you just heard from, has joined us as a Senior Vice-President, Chief Financial Officer and Treasurer. I'm happy to announce that Bill Bradford has recently come on board as a Senior Vice-President of Sales and Marketing. Our ability to attract high-level talent clearly reflects the great potential of the company and these three individuals are of that caliber and are going to be great assets to the company going forward.

All of this is happening at the right time, the backlog is up, inventories are returning to normal levels, costs are coming in line and consumer confidence is rising. We're preparing for the increase in demand that we expect to follow. With improving financials and our continued focus on providing power and data management solutions, we're extremely excited about strengthening our competitive position as the market begins to recover.

At this time, I'd like to invite our new Chairman of the Board,

to say a few words. Cyrus.

Thank you very much, Steve. Good afternoon, everybody. I'm very pleased to be on the call today. First of all, I'm very glad to be teaming up with Steve and the management team at ON Semiconductor. I've been the

chairman of the company now for several weeks and I've been very pleased with how much excellent potential and differentiated capability exists at ON Semi. What's more, I believe the capabilities are being increasingly focused on very attractive applications, which I'm quite sure will pay big dividends for the company. My role as the Executive Chairman is to collaborate with ON Semi management team and, on a hands-on basis, bringing even a sharper focus on the market opportunities. I'm very excited and encouraged with what I have observed so far. In a lot of ways, ON Semi reminds me of

when I joined it as the CEO. The company has a great deal of potential that I'm sure we can realize and create a lot of value for the shareholders. So, keeping in short, I'll turn it back to Steve.

Thanks, Cyrus. It's great to have you aboard and I think everybody will acknowledge that the examples of caliber like yourself and John and Bill are certainly testimonial to the future of the company.

With that, I'd like to ask the operator to turn it over to the first question.

At this time, we will begin the question and answer session. If you have a question, please press *1 on your touch-tone phone. If you are using a speaker phone, you may need to lift your handset prior to pressing *1. If you wish to cancel your question or if your question has already been answered, simply press *2. Once again, press *1 to ask a question.

Our first question comes from Jonathan Joseph with Salomon Smith Barney. Please proceed with your question.

Steve, with regard to your cellular handset business, some companies like TI or CN are in a pickup there, you saw about a 19 percent decline in shipments in the quarter but a 30 percent increase in orders. Is this a seasonal factor, the volatility in the decline in shipments and the increase in orders, or do you think that describes pretty much a vee bottom and inflection point in your Wireless business?

I think it's a little bit of both, Jonathan. Actually, the seasonality of cell phones has always been, as you know, extremely soft in the first quarter. I was personally pleasantly surprised to see the backup build up, even though it's second quarter activity in terms of billing, but January was just almost flat on it's back. February and March really picked up, especially of the two that we talked about. I think that it's the seasonal characteristic. They're now anticipating Q2 coming on with a healthy build. I also think that it strongly raises the fact that inventories are getting much more in line in the cell phones builders. There is the fact, too, that both of those guys have just recently launched new platforms that, to a large degree, is a different bill of materials, too.

With regard to prices, when we spoke, maybe, three or fours weeks ago, prices were soft in the quarter, still under some pressure, you're now seeing an order book where prices have begun to stabilize. Were prices, as the quarter went on, did they begin to firm up for you and did they come in about in general where you had thought and the outlook, when we say stabilized, does that mean flat in the second quarter or does that mean down by a couple percent?

The overall ASPs were, in the first quarter, down less than what we had anticipated. We, initially, saw the second quarter backlog begin to build with significantly down, I guess, fees but, since then, it has recovered. Our belief right now is that we're going to be down 2-3 percent, probably, in quarter-on-quarter performance for Q2 over Q1.

Would you characterize that as the normal sort of sequential guidance or is that still a little bit under pressure?

I think that's improved from where we were, thinking that it was going to be in the beginning of the first quarter, the January, February timeframes. It's improved from there. I think it reflects the fact that we're now getting to the point in certain areas where manned capacity is having to be increased. We're seeing some lead times beginning to bump out. I think we should expect, probably in another three to six months, or a couple of quarters, certainly, the stability of prices is going to start forming now.

Has it been your experience in previous classical, cyclical upturns that your prices have actually gone up?

No, I don't think that we have ever experienced upward momentum in prices in our business. To get it stable and stop any significant erosion is about as good as we do in an upturn cycle.

OK. Thank you.

Our next question comes from

with US Bancorp Piper Jaffrey.

Two questions. First of all, utilization rates were up significantly during the quarter, are you anticipating a similar ramp for the June quarter?

we expect that the June quarter is going to be up in terms of utilization. It probably won't be as significant of a move. If you recall, Tory, we went through major inventory adjustments in the third and fourth quarter which, at that point in time, or the second half of last year, we drove the manufacturing well below sustaining levels. Now, the recovery backup to a 68 percent utilization rates gets us to about sustaining. The demand that we have in the second quarter is going to create additional utilization, but it won't be near as extreme as what we saw sequentially in Q4 to Q1.

Very good. Secondly, on China, ON is certainly being regarded as a pioneer in that region as far as North American

company is concerned. It seems that you're already getting quite a bit of traction with the likes of Legend, TCL, HiTech and so on. Could you, maybe, give us a little bit more color on what your initial strategy was and how you continue to build on your strategy in China right now?

The initial strategy was to be responsive to what the government expectations were in how we do business over there. Their criteria, clearly, is going to be higher local content and as much infrastructure, internally to the company, as makes sense. We started off with the manufacturing facility, which was a part of the legacy that we took from Motorola but, since then, we've incorporated a design center, four major sales offices in North, South, East and West. We've also put in support infrastructure. The majority of our IT activity in Asia as well as our customer service and CRM activities for all of Asia are now in

. As we move forward, we will build on that fully- integrated ability to design, manufacture and sell products all in China as a part of local content. We will be looking forward to expanding our manufacturing, both backend as well as future front end capability in the

province and expanding our internal design end capability in the country. It's making sure that we satisfy Article 18 that helps our VAT issues and makes us much more cost-effective and addressing the local content initiatives that we think that are going to be barriers to entry to those that can't solve it.

Very good. Thank you.

Our next question comes from

with Credit Suisse Boston. Please proceed with your question.

Just on the cost savings side, you've clearly increased your cost saving targets from previous levels, I think it's $300 million. Can you just talk about the areas where you're taking out additional costs, manufacturing, SG&A? Also, you talked about the $290 million run rate for Q1, do you have what's kind of the realized savings were for Q1, what was actually realized during the quarter on a quarterly basis as part of that run rate?

Let me start with your last question and work back the other way. The realized savings for the quarter were close to $73 million, which when you annualize that out, that's how you get the $290 million. The areas where we're seeing increased cost savings are is that we have consolidated some of the factories over time, the operations in certain centers, and we're seeing increased operational efficiencies which are helping to drive this. I think, as we move along in this process, you typical see that either you don't make your cost savings or you exceed them and we're in the position that the cost savings that we're realizing are accelerating. We're taking out a lot of the overhead that we inherited when we spun off from Motorola.

Good. Just the Q1 to Q2 gross margin improvement you're looking for, could you just talk a little bit about how much of that is the cost savings plan, how much of that is, maybe, stabilization of pricing, is there some mix in that? Maybe you could just comment on that?

I think a good chunk of it is coming from the cost savings as we continue to move forward on that. A little bit of pricing, a little bit in revenue, but it's a lot of the operational efficiencies we're getting from the cost savings activity in the simplification of our operations.

OK. Selling or sell through, can you just talk about that? It looks like distributor inventories still need to come down a little bit. Do you see that coming into balance soon?

Certainly, we're going to start balancing out sell in versus sell through and that, definitely, is going to start showing, we believe, in the second quarter. We're now beginning to see sell into, the distributors start to pickup which clearly indicates that they are in a stocking mode. There are plenty of cases where they're short of product so the good news is that we think that their inventory level, as John said, we expect that they will be down in our normal operating range of 13 to 15 weeks by the end of Q2. It's going to be back to normalcy and business as usual. Consequently, by the end of the second quarter, our delta between sell in and sell through is pretty much going to zero out.

OK. Just a final numbers question. Depreciation and amortization during the quarter and does your EBITDA figure include the

JV and how much was that?

When we look at our depreciation and amortization, that was about $30 million for depreciation and about $3 million for amortization. For the

joint venture, that's not in our EBITDA number.

OK. So it's not in there for Q, also it's not in the adjusted Q4 number as well, right?

That's right.

Great. Thanks very much.

Our next question comes from

with Robinson Stevens. Please proceed with your question.

One question regarding your high performance ECL product line. You mentioned that you've seen strong design activity from network computing. I was wondering, what other platforms do you see leading the revival in high-speed and high-bandwidth communications?

The application for those products, predominately, is in the ATE business, high-end servers and the networking, the telecommunications side of the business. The metropolitan area networks has shown some activity. We have seen nothing out of the ATE business of any significance, however, I do believe that we, as semiconductors begin to show some momentum picking up, obviously, automatic test equipment is going to become one of the expansion areas for the equipment side. The high-end server activity, some of it is design win activity, but that's starting to show gradual signs of momentum. Our turns effort in that particular space did turn on quite strong in Q1, however, I'll re-emphasis to everybody that, as a result of the collapse of IT spending last year, that business has really been almost invisible in the fourth quarter and is just now coming back to some normal levels. Most of it appears to be replenishment of inventory and a build against demand, or a build-to-order kind of effort from most of our OEM customers.

Great. Thank you. One follow-up, if I could, regarding distribution sell through, obviously, things are getting toward healthy levels. Could you give us some granularity on what relative areas within distribution, maybe geographies or product families, are improving in sell-throughs?

Our next question comes from

with Lehman Brothers. Please proceed with your question.

This is

. You mentioned that you're seeing some strength in automotive and industrial and I was just wondering if you're seeing an opportunity to increase silicon dollar content in these segments and if you could point to, maybe, any specific applications where you're seeing some opportunities?

I'll take the consumer space first. We continue to see good momentum in game boxes. Not only are we in X-box, and I've mentioned this one before, but we're in about $2.70 per X-box in on an 11 part set of products, some of which are sole source and some of which are not. We're also gaining momentum in Sony and continue to be in the Play Station II at a greater and greater level. That's both in our analog products as well as our standard discreet parts. Nintendo has also come on. From a consumer space, it's game boxes that's probably the number one in momentum but we have begun to feel some positive trends in digital cameras, in particular, and again, I mentioned one of the unique applications specific designs was specifically targeted to digital cameras.

In the automotive world, we are pretty much all over the place. Because we sell components into the modular builders, or board builders of Delphi, Vistion, DaimlerChrysler's activity in Huntsville, it's difficult to take an individual car and identify our actual content. We're typically in the range of $7.00, anywhere from $1.00 to $7.00, in a car today. That varies between IGBTs for ignition control all the way to discreet components that might be in a car radio, CD player or window lifter. On average, I would say that, per car, we're probably running in the neighborhood of $2.50 to $3.00 per typical car. That's a figure for North America. Europe, off the top of my head, it's probably a little bit less than that.

OK. Just a follow-up. In terms of product mix, could you sort of break out the percent of revenue that you're getting from analog discretes and logic and sort of where you see that mix heading as we go through the remainder of the year?

I don't want to give it in units that would be confusing to you. We are about 33-34 percent in analog today. The discreet business is about 41-42 percent. In standard logic, it is probably 8 percent. MOS Power is in the neighborhood of 15 percent. I don't know whether that adds up completely to 100 but those are rough numbers.

How do you see that mix sort of shifting throughout the year?

Given the fact that we are placing our R&D investments and new product efforts around the analog, power management and high-performance logic sides of the business, those are going to continue to grow. We have an expectation that the standard components portion of the business will continually be significant in terms of it's contribution to the overall revenue, but it's going to get smaller and smaller as we grow in our management, analog, high-performance logic. The focused areas that we're concentrating on, we expect to triple their overall contribution to the overall revenue over the next three years, which means that they will become a significant figure piece of the base.

Great. Thank you.

Our next question comes from David Phipps with JP Morgan. Please proceed with your question.

Most of my questions have been answered so I'll ask just detailed things. What's the percentage that your top 10 customers hold in revenues? You gave the mix adjusted ASP decline for the first quarter, you get the actual cap ex expectations for 2002. Could you talk a little bit about the opportunities for the P-4 Intel and roll a lot of that stuff out in the first quarter - -

David, we're having a real hard time hearing you.

I'm sorry. Could you talk a little bit about the opportunity for the P-4 that you have? Intel spoke highly of that on a call last night. Then, cap ex for 2002?

The cap ex for 2002, we expect to be in the $40 million range.

On the P-4 activity, I'll just mention motherboards in general, we continue to aggressively pursue additional design wins, both for the P-4 as well as for the

chipset. We're working with every motherboard manufacturer. We are on target to meet our growth expectations this year. We don't have an up-to-date Q1 market share number, but as I mentioned before, we went from zero in the P-3 to 16 percent share as an exit velocity in the P-4 motherboard for the end of Q4. The good news for us is that we continue to gain momentum in both controller and MOSFET devices. We'll be launching a new set of drivers that compliment those controllers and FETs in the June-July timeframe, hopefully, targeted in time to meet the next generation of Prescott motherboard platforms for the P-4s. We're ganging up, resourcing with more applications focus in Taiwan as well as in the local U.S. major OEMs to drive more penetration and we're still feeling pretty good about that.

Just a clarification point on the ASP trend, you gave a down through the 3 percent in the second quarter, is that mix adjusted as well or is that an actual?

That's mix adjusted.

OK. Thank you.

Our next question comes from

of Lehman Brothers. Please proceed with your question.

Can you go over the - - did you take a restructuring charge

, but did you take any restructuring charges during the quarter? I just wanted to clarify, once again, that the

minority interest was not in the $29 million of EBITDA you reported?

In terms of the restructuring charge, the restructuring charge during the quarter was $7.1 million. That was all people-related and, primarily, in Europe where we had to go through the government to get certain approvals. As we got these approvals, then we could rollout in it's accounting rule base where we have to be able to notify the people and tell them exactly what their benefits are. We weren't able to do that until we got approval from the government, which we were able to do in the first quarter.

Those cash charges, that cash has been paid or it's to be paid?

Most of that is to be paid. For the year, we have about $28-$30 million of cash restructuring charges that need to be paid out that are accrued for and we've paid out about $7 or $8 million, no, I think it was like $9 million last quarter and there's about $18 or $19 million to go.

Great. The other question I have is regarding the EBITDA guidance. It appears that you've got about $10-$12 million in EBITDA into the second quarter coming from first margin for every 100 sales. The additional pickup in EBITDA, I guess, is coming from SG&A, is that right? I just wanted to check my math there.

Additional EBITDA is coming from the - - there's going to be some from SG&A. The majority of it is coming from the cost restructuring efforts and product efficiencies that we're seeing in our factories through our restructuring plan that was put in place throughout last year.

As I look at 300-500 basis point improvement in your gross margins that on the sales guidance you have, I guess that is a $10-$12 million improvement and your forecast saying roughly $15-$20 million of EBITDA improvement. I'm just wondering, is that coming from SG&A or should we assume that you're going to spend less on R&D or is it a higher depreciation amortization and what else is in there?

The restructuring activity, a lot of that still moves forward in Q2. Part of that is the social plan activity that we have announced in France that couldn't take place until the second quarter. The answer to your question is that, yes, there's still a substantial chunk of that that will come out of SG&A.

Great. That's exactly what I was looking for. My last question is, is there any visibility yet, you mentioned your orders are up, that they are fourth quarter, one. Second, are you happy with the 2 percent sequential increase in your revenue? Maybe, if there's some granularity there, I'm sure there's some costs that are doing better than others?

I think, a sequential increase in revenue is better than where any of us in the industry have been in the last year and a half, so I'll take that as a starting point. Certainly, we're pretty encouraged about Q2. However, if you look at the way that our backlog builds up, Q3 is showing good positive signs as well. As a matter of fact, the backlog in Q3 is at the same point in time for Q2, is actually above Q2, so we're continually seeing the likelihood of sequential quarter-on-quarter growth. We have not seen that in a year and a half. Q2 will be above Q1 and Q3 is certainly starting off above Q2.

Great. Thank you very much.

Now I'd like to turn the call over to Mr. Steve Hanson for closing remarks.

Again, I want to thank everybody for joining us on the call. It feels like the wind is beginning to build at our backs. We've got a great new set of additions to our leadership team. Our plan, in terms of cost control, is truly starting to pay off. We are anxiously looking forward to the opportunity to turn that positive cash flow corner. With that, thanks, everybody, for joining us and we look forward to talking to you at the end of Q2.

Thank you, everyone, for participating in today's teleconference call and do have a good day.