Penguin Solutions Inc (PENG) 2019 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the SMART Global Holdings Fourth Quarter Fiscal 2019 Earnings Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Suzanne Schmidt.

You may begin the call, ma'am.

Thank you, operator.

Good afternoon, and thank you for joining us on today's earnings conference call to discuss SMART Global Holdings fourth quarter and full year fiscal 2019 results.

Ajay Shah, Chairman and Chief Executive Officer, will begin the call with a discussion of the market and the business; followed by Jack Pacheco, Chief Operating and Financial Officer, who will review the financial results in more detail and provide the forward guidance, after which we will open the call to your questions.

As a reminder, our earnings press release and the replay of today's call can be accessed under the Investor Relations section of SMART's website at smartgh.com.

We encourage you to go to our website throughout the quarter for the most current information on the company including information on the various financial conferences we will be attending.

Before we begin the call, I would like to note that today's remarks and the answers to questions may include forward-looking statements.

Any statement that refers to expectations, projections or other characterizations of future events, including financial projections and future market conditions, is a forward-looking statement.

Actual results may differ materially from those expressed in these forward-looking statements.

For more information, please refer to the risk factors discussed in the documents we file from time to time with the SEC, including our most recent Form 10-K and Form 10-Q.

We assume no obligation to update these forward-looking statements, which speak as of today.

Additionally, during this call, our non-GAAP financial measures will be discussed.

Reconciliations for those directly comparable GAAP financial measures are included in today's earnings press release.

With that, I will now turn the call over to Chairman and CEO, Ajay Shah.

Thank you, Suzanne, and welcome to everyone on the call.

Fiscal 2019 ending August 31 was an amazing year on the journey of transformation for SMART Global Holdings.

We're making great progress since we started fiscal 2019 as a predominantly memory products company with 62% of fiscal 2018 revenue generated primarily from sales of standard memory products in Brazil.

In contrast, today, we are a more balanced company with 32% of revenue from Brazil, 30% of our revenues coming from a new vertical called specialty computing and storage systems, while 38% of our revenues are generated from our Specialty Memory Products business during our fiscal Q4 that we just concluded.

Along the way, we've faced down a turbulent market, especially in the second half of fiscal 2019, as commodity memory component prices fell by over 60%, significantly affecting our Brazil memory product selling prices.

We also faced other macroeconomic headwinds related to trade and capital spending, affecting our overall business conditions in all business areas.

Finally, changes in the way local manufacturing regulations are implemented in Brazil created uncertainties for our customers early in calendar 2019.

However, since then, we've been able to navigate through these and we emerged much stronger with a clear long-term business model.

Outstanding efforts by our team at SMART have resulted by year-end in a broad portfolio of businesses, much larger served markets and the revenue decline of only 6% year-over-year, which is considerably better than the overall memory and semiconductor markets.

We also completed 2 key acquisitions and are on our way to integrating them to drive growth, profitability and diversification away from commodity memory products and from our business in Brazil.

We accomplished all of this while reducing total debt, adding $67 million in cash to our balance sheet and having paid $75 million approximately in cash from operations towards both of these acquisitions that we made in the last quarter.

During the fourth fiscal quarter of 2019, we completed the acquisitions of both Artesyn Embedded Computing and Inforce Computing.

We achieved non-GAAP operating profit 36% higher than the previous quarter; and non-GAAP earnings per share of $0.50, which was 47% higher than the previous quarter.

Importantly, we generated significant operating cash flow of almost $50 million as we further reduced inventories by another 11% in the quarter and ended the quarter with $98 million in cash and short-term investments.

Our balance sheet is strong, and we remain well positioned to continue to execute on our growth strategy.

Let me now comment on the main factors impacting our financial results in the fourth fiscal quarter.

Our Supply Chain Services business, which we report under Specialty Memory Products, came in well below expectations.

Late in the quarter, we saw this business impacted because of the weakness in some of our OEM customers resulting from adjustments to their inventory positions.

We believe that our supply chain business has bottomed out and are currently anticipating a modest improvement in the first fiscal quarter.

Now let me turn to a review of each of our 3 main lines of business for the fourth quarter, beginning with our specialty computing and storage business, which represented 30% of our net revenue in the quarter, up from 15% in the prior quarter, and totaled approximately $84.6 million.

Earlier in the quarter, as mentioned, we completed these 2 acquisitions of Artesyn and Inforce Computing.

The Inforce business, which we renamed as our wireless computing line of products, had sales of roughly $15 million in the trailing 12 months pre-acquisition and is expected to more than double in fiscal 2020, benefiting from synergies in the SMART's OEM sales force and its operation strength.

In addition, we saw our Penguin high-performance computing business grow strongly from the prior quarter, as the fourth fiscal quarter is the seasonally strongest quarter in the government segment.

We are excited about the prospects for continued growth in this area driven by robust backlog and pipeline for new business across our targeted markets.

We are making excellent progress with the integrations of both Artesyn Embedded Computing and Inforce Computing, improving margins and operating metrics.

As we have previously said, these acquisitions will both be accretive immediately in the first full quarter of operation, which is Q1, the quarter we currently are in.

Turning now to our Specialty Memory Products business, which represented 38% of net revenues and approximately $104.6 million in revenue.

The business performed well as revenues were higher than prior quarter despite the weakness of our Supply Chain Services business that I had referred to earlier.

On a full year basis, net sales were 5% higher than the previous fiscal year, while the markets suffered significant price declines.

In addition to our outstanding set of Tier 1 customers, we've been investing in more channels through which to sell a greater variety of products, and we continue to execute well on this strategy.

Looking ahead, while the majority of the inventory corrections appear to be behind us, the overall environment is still cautious and customers are trying to maintain minimum inventories and ordering with short lead times.

Moving on finally to our Brazil line of business, which represented 32% of total company revenues in the Q4 period compared to 43% in the quarter prior and totaled approximately $89 million compared to $101 million in the previous quarter due to memory component prices continuing to decline, although at a slower pace in the past quarter.

As we indicated last quarter, falling memory prices impacted our business, while unit volumes have continued to increase.

The new rules regarding local manufacturing based on a points system became effective on July 1 this year.

And I would like to discuss our Brazil business in more detail and give you our perspective on the market dynamics in that region.

Let me focus here on 3 key points.

First, the Brazilian government remains very much in favor of local manufacturing, given that it supports over 100,000 jobs in the Brazilian IT industry, and it's a long-term policy objective.

Our Brazil business remains solid, and we continue to maintain our leadership position in the memory market.

As we said on our last quarterly announcement, there is no change in our business expectations in Brazil.

And secondly, the new points system gives both our customers and ourselves flexibility in the way we run our businesses.

While the old system required customers to purchase a fixed amount of each type of component locally, the new rules allow customers to mix and match different locally manufactured components to meet the minimum requirements for their tax benefits.

Under the new rules, memory provides by far the highest amount of points to our customers in mobile phones, desktops and notebooks, which are our largest target markets in Brazil.

As we see it, these new rules are a positive that now allow us to run our Brazil business as we would any other line of business.

And third, since the uncertainty over the new rules has been lifted, our customers are now giving us increased visibility into their requirements.

We're seeing higher bookings, and for fiscal Q1, which is the first full quarter under the new regulations, we're confident our Brazil business will grow sequentially over Q4.

As our customers evaluate their choices, our analysis shows that memory products offer some of the lowest cost per point towards meeting their local manufacturing requirements as compared to other locally sourced components.

Jack will go into more details on our expectations going forward.

So let me turn this call over to Jack for a review of our financials and our guidance.

Jack?

Great.

Thank you, Ajay.

Overall, gross revenue for the fourth fiscal quarter was $422 million, while net sales were $278 million.

As a reminder, the difference between gross revenue and net sales is related to our Supply Chain Services business, which is accounted for on an agency basis, meaning that we only recognize the net sales, the net profit on a Supply Chain Services transaction.

Our breakdown of net sales by end market for the fourth fiscal quarter was as follows: mobile and PCs, 28%; network and telecom, 22%; servers and storage, 11%; industrial aerospace, defense and other, 39%.

Now moving to the rest of the income statement.

Non-GAAP gross profit for the fourth quarter was $53.4 million compared with last quarter's $43.7 million, due primarily to higher sales of Specialty Memory along with Specialty Compute & Storage products.

Non-GAAP operating expenses were $35.4 million compared with $30.5 million in the previous quarter.

The increase was primarily due to the recent acquisitions.

Non-GAAP net income for the fourth fiscal quarter was $11.9 million or $0.50 per diluted share compared with $7.9 million or $0.34 per diluted share in the previous quarter.

Adjusted EBITDA totaled $25.2 million compared with $19.2 million in the prior quarter.

For the full year of fiscal 2019, net sales totaled $1.2 billion compared with $1.3 billion in the prior year.

Gross profit on a non-GAAP basis for fiscal year 2019 totaled $240.6 million compared with $293.6 million in the prior year.

Non-GAAP net income for fiscal year 2019 was $78.3 million or $3.34 per diluted share compared with $147 million or $6.36 per diluted share in the prior year.

Turning to working capital.

Our net accounts receivables increased to $233.4 million from $230.2 million last quarter, and our days sales outstanding increased to 50 days for this quarter compared with 47 days last quarter.

Inventory levels continued to decline and totaled $119 million at the end of the fourth fiscal quarter compared with $133 million at the end of the third fiscal quarter.

Inventory turns remained approximately the same as the previous quarter at 12.5x.

Consistent with past practice, accounts receivable, days outstanding and inventory turnover are calculated on a gross sales and cost of goods sold basis, which were $422 million and $370 million, respectively, for the fourth fiscal quarter of 2019.

After using $76 million in cash for the 2 acquisitions in the quarter, we ended the quarter with $98 million of cash and cash equivalents compared with $126 million at the end of the third quarter and $31 million at the end of the prior year.

Fourth quarter cash flow from operations increased to $49 million compared with $46 million in the prior quarter.

And now let me touch on some of the financial dynamics.

For Specialty Compute & Storage, we continue to make excellent progress in the transformation of Penguin to more value-add supplier, as we exited the year with gross margins over 19%.

In line with our expectations, Penguin is accretive to our EPS in the fourth quarter.

Integration activities are ongoing for both Embedded Computing and Inforce.

We will have Inforce transition to our SAP system this month and Embedded Computing by the end of this year.

We're also in the process of migrating manufacturing from China to Malaysia for Embedded Computing and expect to have that completed by the end of this fiscal quarter.

We will make our first production shipments from Embedded Computing for Malaysia during this quarter.

For Specialty Memory, as Ajay mentioned earlier, the product side of this business significantly outperformed this quarter driven by a broad portfolio of products that we ship every quarter, which again topped 600 different unique SKUs.

Regarding our Supply Chain Services business, I'd like to take a few moments to discuss this in more detail.

Remember, this is not a product business, it is a fulfillment business, which can be impacted by memory pricing as we transact more standard commodity memory products in this business.

Our customers are continuing to work through their inventory issues that in turn impacted our financial results for the quarter.

We source product from multiple suppliers based upon our customer-specific sourcing strategy, and we manage our inventory across all of the different facilities, contract manufacturers and configuration centers.

And we have been doing this successfully for over 20 years.

This is the business that drives our gross revenue, which was down by $20 million from Q4, even though our net sales grew by $42.7 million from the previous quarter.

With that as a backdrop, let me now turn to our guidance for the first quarter of fiscal 2020.

We currently estimate that our first quarter fiscal '20 net sales will be in the range of $275 million to $285 million.

We expect mobile memory units to increase by greater than 20% for Brazil, leading to an increase in revenue by the mid-single digits from Q4.

Specialty Compute will also increase in Q1, as we'll have the full impact of Embedded Computing and Inforce for a full quarter.

Gross margin for the quarter is estimated to be approximately 22% plus or minus 1%, up 3% from Q4.

This increase in gross margins is being led by our new acquisitions.

GAAP earnings per diluted share is expected to be between $0.30 to $0.40.

On a non-GAAP basis, excluding share-based compensation expense, acquisition-related expense and intangible asset amortization expense, we expect non-GAAP earnings per diluted share will be in the range of $0.68 to $0.78.

The guidance for the first fiscal quarter does not include any view on the foreign exchange gains or losses and includes an income tax provision expected to be in the range of 8% to 12%.

The number of shares used to estimate earnings per diluted share for the first fiscal quarter is 23.9 million.

Capital expenditures for the first fiscal quarter are expected to be in the range of $6 million to $10 million, as we will add equipment to facilitate the manufacturing move of Embedded Computing to our factory.

Please refer to the non-GAAP financial information section and the reconciliation of non-GAAP financial measures to GAAP results and the reconciliation of GAAP net income to adjusted EBITDA tables in the earnings press release for further details.

Operator, we are now ready to take questions.

(Operator Instructions) Our first question comes from the line of Raji Gill from Needham & Company.

Just on the guidance around the Brazil business, so just doing the math, you're basically saying that the units for mobile are going to be up 20% and the Brazil mobile revenue will be up mid-single digits, if I heard that correctly.

So that means ASPs are still coming down decently.

Could you talk a little bit about the pricing environment in the Brazil mobile segment?

Yes.

I mean we still expect ASPs to be down somewhere between 10%, 15% in Q1 as well.

So units are up at -- ASPs are going down, so the revenue is not growing as fast as it would have.

ASPs were flattening out.

And then on -- in terms of -- in the Specialty Memory, the customers working down their inventory issues, the OEM, is there a specific area vertical within Specialty Memory?

Is it on the server storage?

Is it on the networking side?

And you mentioned that you expect the bottom in that area.

What's giving you confidence on that?

So the answer is yes.

Okay.

All of the above have had over-inventory doubt in their channels.

And this reference is really into the supply chain part of the business, which now we're dealing with the customers and more of their products are going through channels and stuff, and there's a lot of channel inventory out there for them.

And so we -- and looking at signals from our customers, we expect that, that business will start to slowly recover here in 2020 as they start working down their channel inventory issues.

My last question will be on the point system.

A lot of discussion and uncertainty around the new point system.

Ajay, you've mentioned that you view this actually as a positive for your business because it eliminates -- well, first of all, it eliminates the uncertainty now the new rules are lifted, but it gives customers like Samsung mobile, LG mobile more flexibility to mix and match.

I was wondering if you could kind of go over the point system in terms of how many points memory is as a percentage or as part of the total points that are needed for mobile phones and just to kind of frame that discussion.

And then your -- kind of your discussion about customers are giving you increased visibility now, could you maybe talk about that as well?

Sure.

I think you maybe alluded to, in your question, the points are different for different areas.

So for example, mobile phone, which is I think the area that you referred to.

Mobile phone, the way the system is defined is, I think, it's a gross total of 151 points and the -- our customers are required to achieve 57 points.

Now if you look at memory, memory makes up by itself 45 points.

And in addition, batteries make up another 8 points.

For them to achieve their 57 points, they would -- by the way, of the 151, many, many of those items are simply not available from local Brazilian manufacturing.

So the choices are far fewer.

And so -- which is why we have been, of course, in contact with all of our major customers and they understand that memory is a big part of what they would require to be -- to buy to meet their points for mobile phones.

And then, of course, that by itself, while it's a -- they could buy more into, say, cables or they could do other things, the choices are limited, as a result of which, our customers are giving us clear forecasts and orders, not just sort of a directional thing that give us confidence that memory is going to be a big part of their ongoing requirements in terms of the local content.

And not only are we talking about this in some theoretical fashion.

That's what we're saying is happening right now.

So if you look at our projections for Q1, our projections for Q1 are amazingly for an increase in revenue, because the units are going up so sharply.

And as Jack mentioned earlier, in the mobile phone area, our units expected growth is about 20%, slightly above 20% actually, and the overall revenue growth is in the mid-single digits.

So not only are we talking about this in terms of how the system is defined to work, but more specifically in terms of how it's working.

Now this is not some theoretical discussion.

So I know there's been a lot of speculation around this, and we can walk through whether it's mobile phones or notebooks or desktops, and we can -- we clearly have understood this and have been working with our customers for months.

And we have, as a result, been talking to them about how they could simplify their overall supply chains by focusing most of their purchasing on memory in the long-term basis.

So you referred to and I referred to comments that we think this is a positive.

In the past, take again mobile phones, customers really could -- had no benefit in buying more than 50% of their requirements from local manufacturing.

However, now they can fulfill much more -- they can buy much more than 50% if that's what makes sense for them.

And I had referred to a metric called cost per point and we analyze this carefully because we look at all the different choices that our customers have and we look at the points that they would get from that and they -- we look at the premium that they would pay compared to international prices.

And based on that, memory is very much the -- one of the most attractive ways for them to capture the points they require and for the lowest premium, if you will, over international prices.

And that's really a big part of why we're seeing the forecast to be going up, and that's really why we have confidence that our business model, as we've said before, is completely intact and one could argue maybe gives us greater flexibility and is better.

Any -- I know Brazilian regulations can be a little bit of a challenge for clear understanding, and so I'm trying to spell it out as well as I can in a phone call like this.

Our next question comes from the line of Blayne Curtis from Barclays.

This is Tom O'Malley on for Blayne Curtis.

Just a quick question on Artesyn and Inforce in the August quarter.

Could you guys break out how much they contributed to revenue in the quarter?

This is a partial quarter.

Sorry, I didn't catch your name.

But -- Tom.

This is a partial quarter, so it's not meaningful what we did in the last period because these acquisitions didn't close until somewhere approximately middle of July.

So -- but what we have said is that for the quarter -- or for the year, these acquisitions, we think, on a run rate basis will be around $100 million -- $90 million to $100 million is the numbers that we've provided in the past.

And I have also said in my comments that Inforce had trailing 12-month revenue before we acquired the company of about $15 million.

And we are expecting, based on design wins and because -- the Inforce products don't -- they are design win products.

So once they're designed in, it takes a certain amount of time for that to ramp up.

And based on modeling that, we are expecting both a very accretive as well as a significant growth business coming from there.

Okay.

I guess a better way to ask the question then is just from a Penguin-exclusively perspective, clearly, this is a seasonally strong quarter.

Can you just give some color on how that performed in the quarter?

What kind of design traction are you seeing?

And if you could give some year-over-year commentary, that would be great as well if you can.

Yes.

Penguin had, as expected, a strong quarter and particularly driven by federal because this is seasonally a high period for our federal business.

And so the company came in more or less at expectations -- that business came in more or less at expectations.

And so if we look at the year-over-year growth, we acquired the company only in June of 2018.

So that was a partial quarter.

And so if we look forward now, we think that the business -- and the quarters are different, right?

They were on the calendar quarter -- calendar year-end, and we were on a August year-end.

But when we try to compare roughly, we would say that the growth rate was in the mid-teens.

Our next question comes from the line of Sidney Ho from Deutsche Bank.

I want to go back to the implied guidance.

I think you said that you expect Brazil mobile revenue to be up mid-single digit.

Both specialty computing and service businesses are also up, but I don't think I recall you give a range.

But the overall guidance is roughly flat.

Does that mean the other businesses, meaning Brazil memory and the Specialty Memory outside of the Supply Chain Services, will be down?

What kind of magnitude are you thinking?

And within specialty computing, I know you have Inforce and Artesyn being a full quarter, should we expect the Penguin side of things to come down after a strong quarter?

Yes, real quick.

So on the Brazil piece, really we expect Brazil as a whole will be up single digits, not just Brazil mobile memory.

I mean that was -- so really Brazil as a whole group of business is going to be up in Q1 over Q4.

Specialty Compute, we said would be up Q4 over Q1.

So that would imply that -- we've talked about our supply chain business being weak, that we continue to -- that we expect that continue to be weak in the Q1 time frame.

And that's at a high level.

And then I got the first part of the question, Sidney.

What was the second part?

Yes, it's more about the specialty computing, if you exclude the...

Yes, the Penguin.

Yes, I mean you've got to remember Penguin's Q4 is their seasonally high quarter, and we always expect that, that business will drop off somewhat in Q1.

So we expect if that same phenomenon to happen this quarter, it will drop down by a certain percent.

But as a whole then, we have the full quarter of Artesyn and Inforce, which combined will make that segment grow somewhat from Q4 to Q1.

Okay.

That's fair.

A follow-up question is on the Brazil business.

You talk about the new rules in place since July.

You said you're seeing a rebound in forecasted volumes.

How should we think about the revenue opportunity going forward for this, let's say, the entire Brazil business?

Is the $90 million to $100 million range the right way of thinking about it?

Or do you think this is going to continue to grow as well?

Well, Sidney, I don't know if you're in the business of forecasting memory prices, but that's what we would need to be doing to really give you an answer that's precise.

Right now, we're somewhere in that neighborhood.

We are currently, based on our forecast of some, but not as significant decline in memory prices, looking at that growth continuing through -- maybe Q2 is a seasonally weak period even in Brazil because you have the calendar year-end, and that tends to be manufacturing shutdown for weeks.

So Q2, if you look back in our history, has always been seasonally a little weaker and then Q3 and Q4 are stronger.

So that's the kind of behavior we expect in Brazil.

And based on our model of memory prices -- and I can't claim that we have a fantastic model because that's not our business.

But based on our model, we think that Q2 will be a sequential small decline and then Q3 and Q4 will be stronger, up in terms of revenue.

And that's based on, as I just want to caveat again, based on our model of what prices are going to do.

It's -- unfortunately, we don't have a crystal ball that's necessarily perfect, but I haven't figured out who does, so...

Right.

I'll have one more question and I'll go away.

But if you're looking at the local manufacturing calculation, the new rules, how often are those calculations being assessed?

And do you think we'll see periods where customer purchases are low and then followed by a period of catch-up because they have to make the quota?

Is there anything that will skew the linearity of the business?

I think the short answer for right now is we don't know because these rules, as I said earlier, came into place July 1. We are -- we know that -- so earlier, we had said that we expect the second half of calendar '19 to be stronger than the first half of calendar '19 and that we're seeing certainly in units, but even -- right now even in revenue dollars.

And so that seasonality we have a decent idea to predict.

But as to how the new local content rules will impact this seasonality is a little early to tell to be honest.

Our next question on the line is from Suji Desilva from Roth Capital.

Can you talk about Brazil business?

You talked, Ajay, about with the rule changes, you can now run the business like your other segments.

Can you elaborate on that?

What that might mean for maybe the cost structure in Brazil, the capacity, how you might adjust that, potential profitability improvement?

Anything you could give there would be helpful.

No, that's a great question.

I think that when we say that, what we're saying is, see, before you had a ceiling, 50%, and you had a floor, 50%.

So you would -- I'm talking specifically about the mobile memory.

It's different in different business.

So I just want to clarify that before I keep going and someone accuses me of having misled everyone.

The -- coming back to your question.

So if we are in a mode where we work with our partner, as you know, we have a larger semiconductor company that's a partner, and we want to increase our penetration in memory, we are able to adjust pricing accordingly and get customers more excited about buying greater amounts of memory and there's no ceiling at 50%.

Meanwhile, if on the other hand there are shortages and maybe availability is tightened for whatever reason, we might take the approach that might instead try to optimize the value from the units we do have.

So you can -- like every other business, you can use a strategic aspect of availability, pricing, products, supply chain.

What we never talk about is we enable for many of our, particularly PC and local, customers the ability to configure memory at the very last minute and they can take advantage of price declines in that way because we offer a much, much shorter lead time with our local manufacturing.

So that's yet another metric that we can employ like any other business.

I mean -- so I don't know if I'm not clear enough, please let me know because I'd like to make sure that I explain myself well.

No, I think the point about not having to ship 50%, no matter what, is very clear, I guess.

It gives you a lot of flexibility.

So that part helps for sure.

And then going to the Supply Chain Services -- I'm sorry, the specialty computing business, the $90 million to $100 million from the acquisitions in fiscal '20 you're roughly forecasting, what's the linearity of that?

Is that back-end-loaded or fairly even?

And do the acquired businesses have similar seasonality to Penguin in the coming years or just in general?

Yes, we don't think that the seasonality is quite the same because Penguin has a significant federal component, which has this particular seasonality.

However, Penguin is a big part of that Specialty Compute segment for us.

And so we will see that variation, weaker Q2 again because that's when the federal business is at its low point, and then a stronger Q4.

The business we acquired from Artesyn does have some decent-sized military component as well.

So that tends to have a slightly higher Q4.

It's not as much of a peak.

So we would see somewhat similar behavior, just a little bit more modulated compared to Penguin, which has a somewhat more extreme seasonality.

(Operator Instructions) We have Vedvati Shrotre from Jefferies.

Sorry, we didn't hear a question.

Yes.

This is Vedvati here.

I'm calling -- I'm speaking on behalf of Mark Lipacis.

So a quick question here.

I wanted to understand is till now, our understanding was it's a pass-along business.

Essentially, you buy memory components and you put them together and sell them.

So can you help me understand how the memory price movements really -- how does it affect your profitability?

And just like is it -- if memory prices are going up, profitability goes up, is it something like that of that order?

Yes.

I mean so there's 2 ways.

We talked about demand, so of course, in this business, we have different ways we charge our customers for services.

With some of the services, we charge our customer on a flat dollar rate, let's say, per unit.

The other parts of the services may be a percentage of the total value of the memory product we're buying.

So it really depends on the customer and what we're doing for that customer.

So of course, if memory prices, let's say, fell, we could get less percentage of that.

But then that also -- if you look at the density of memory you buy, too, sometimes the density of memory doesn't drop, meaning they buy higher density memory because it's cheaper, so you may not get as much of a memory price impact on the business.

But basically, there's 2 ways.

The -- we either charge per unit or we're going to charge a percentage of the total value of the product in that business.

This concludes our Q&A session.

And now I would like to turn the call to Ajay Shah, CEO of company.

Thank you, operator, and thank you all for joining us, and we look forward to reporting on our progress in the coming months.

Once again, thanks for joining us on this call this afternoon.

Goodbye.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation, and have a wonderful day.

You may all disconnect.