Quantum Corp (QMCO) 2003 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Quantum Corporation second quarter earnings conference call.

At this time, all participants are in a listen-only mode.

Following today's presentation, instructions will be given for the question and answer session. If anyone should need assistance at any time during the conference, please press the star, followed by the zero and an operator will assist you.

As a reminder, this conference is being recorded today, Monday, the 28th of October, 2002.

I would now like to turn the conference over to Ms. Audrey Krat, Manager of Investor Relations. Please go ahead, ma'am.

Thank you.

Good afternoon, and thank you for joining us. With me here today are Rick Belluzzo, Quantum's CEO, and Michael Lambert, Quantum's CFO.

As you know, during the course of this discussion today, we will make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of Quantum. We would like to caution you that such statements reflect only our current expectations, and that actual events or results may differ materially.

The forward looking statements we will make include statements regarding our anticipated fiscal Q3 revenue and pro forma gross margins; operating expenses and earnings per share; the anticipated improvement of our financial results, including renewed profitability by Q4, continued reduction of our operating expenses, and the improvement of our gross margins; the data protection market and our leadership, and long-term growth opportunities in data protection; our expectation that overall revenue contributions from our tape automation products will increase; the closing of and benefits related to the Benchmark acquisition; the expected capabilities, revenue contribution and market penetration of current and future products; the expected timing of the qualification of our SDLT 320, with remaining major systems and tape automation partners; expected cash and non-cash charges associated with our Q2 restructuring activity; our credit facilities, and continued sluggishness in customer buying behavior and overall uncertainly in broader IT spending are all forward looking statements within the meaning of the safe harbor.

Our statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. We refer you to risk factors and cautionary language contained in our press release issued today announcing the Q2 FY of 2003 earnings results we will discuss here, as well as our report filed with the Securities and Exchange Commission from time to time, including, but not limited to those risks and uncertainties listed in the section entitled, "Management Discussion and Analysis of Financial Conditions, and Results of Operations, Trends and Uncertainties," pages 44-55 in our annual report on form 10-K, filed with the Securities and Exchange Commission on July 1st, 2002, and our most recent quarterly report on 10-Q, pages 40 to 49, filed on August 14th, 2002. Such reports contain and identify important factors that could cause actual events and results to differ materially from those contained in our projections and forward looking statements.

We undertake no obligation to update such projections of forward looking statements in the future.

I'll now turn the call over to Rick Belluzzo, Quantum's CEO.

Thank you, Audrey.

Good afternoon, and thank you for joining us as we report Quantum's fiscal Q2 earnings.

As you'll hear during today's call, I'll be emphasizing three themes to describe our results and outlook.

First, in the September quarter, we began to see a more significant revenue contribution from products we launched earlier this year.

Second, we have taken decisive steps to ensure our progress over the next two quarters in further growing revenue and reducing spending so that we can return to profitability on a pro forma basis in fiscal Q4. This is reflected in the recent announcements we've made regarding the acquisition of Benchmark, outsourcing of manufacturing, the spin-off or our NAS business and other restructuring actions. Third, as these announcements also demonstrate, we are increasing our focus on data protection leadership where we believe there is a significant long-term growth opportunity.

To make comparisons with our July 24th guidance easier and in discussing our fiscal Q2 pro-forma results today, we will include results of our NAS business, which we've reported as a discontinued operation. Including NAS, total revenue for the quarter was up sequentially to 215 million, at the high end of the range we set in July. Both our DLT Tape Group and Storage Solutions Group revenues increased from fiscal Q1. With an overall pro-forma loss for fiscal Q2 of $13 million, we also entered the quarter at the better end of the range for loss-per-share that we had projected in July. We had expected the pro-forma loss-per-share to be in the range of eight to 13 cents and the fiscal Q2 result was a pro-forma loss of eight cents per share.

Now I'll discuss fiscal Q2 highlights in our Storage Solutions Group. For the September quarter, Storage Solutions Group revenue was up slightly on a sequential basis to $62 million. While the difficult IT spending environment continued to present significant challenges, EOM sales increased 20 percent over the June quarter. In addition, channel sales continued to show solid growth in Q2, evidence of the benefits we are seeing for the re-focused channel strategy we launched in April. We were also pleased that fiscal Q2 revenue from our tape automation products increased 10 percent over the June quarter. One of the cue reasons for this increase was a more significant revenue contribution from our newer products as seen for the quarter that I mentioned earlier.

Over the past year we have developed the industry's broadest tape automation line, including the ATL P4000 and NP 7000 at the high end, ATL M2500 in the mid-range and the Quantum SuperLoader at the low end. Looking forward we expect to see increased overall revenue contributions from our tape automation products, particularly from our newer products, as we capitalize on key OEM wins secured over the last two quarters. Hewlett Packard shows the Quantum SuperLoader as its high performance auto and selected Quantum as its enterprise class tape library supplier. IBM also began offering the Quantum SuperLoader in one of its key product lines and Sun began selling our ATL M1500 and M2500 modular libraries under its Sun Storage brand. Our tape automation portfolio will be enhanced by the addition of Benchmark's Value Smart Tape 640 Blade, once the acquisition closes, offering a complement to the Quantum SuperLoader at a different price, performance and capacity point. The 640 Blade will enable Quantum to cover the entire range of customer needs in the autoloader space.

Along with the momentum we are seeing in tape automation, we are also taking a leading role in disc-based backup. Last week we announced general availability of the Quantum DX30, a unique combination of hardware and software in a dense disc-based backup system. It can be seamlessly combined with a tape library and integrated into an existing storage infrastructure to deliver a high-performance, low-cost solution for the many customers struggling with shrinking backup windows and constrained IT budgets. We have won our first EOM relationship for the Quantum DX30, working with a large systems integrator to incorporate our product into their data protection solutions. As a result of our work on the Quantum DX30, we have also taken the lead in forming the enhanced backup solutions initiative with companies such as Network Appliance, and . This initiative is an open-industry forum dedicated to improving and extending the backup model of data protection to education, communication, and coordination among suppliers and end users.

Now let me turn to the performance of our DLTtape business in fiscal Q2. September quarter revenue for the DLTtape Group was $163 million - a two percent increase over the previous quarter. Tape Drive revenue was $69 million, and we continued to benefit from the recurring revenue stream provided by tape media sales and royalties, which together totaled 94 million. Of the $94 million in total media revenue, which was a four percent increase over the June quarter, 50 million was from direct sales of Quantum branded media and 44 million was from royalty revenue.

One of the key positives in fiscal Q2 was the two percent sequential increase in overall Tape Drive shipments, which did not include any benchmark shipments because the acquisition is not yet closed. Looking at just SuperDLTtape Drives, shipments increased 20 percent over the June quarter, which we believe will represent a gain in market share when the analyst reports are published. One of the reasons for the increase in SuperDLTtape shipments was the momentum behind the SDLT320. It offers 60 percent greater capacity, higher performance, and a lower cost per gigabyte than any other drive in the market, as well as the backward compatibility to previous generations of DLTtape that is so important to end users.

The SDLT320 is currently shipping through HP, , , and , as well as Quantum. All remaining major system OEMs and tape automation partners are in qualification and we expect them to begin shipping the SDLT320 in the next few months.

Clearly, another decisive step we've taken to insure revenue growth in our progress toward renewed profitability in fiscal Q4 is the soon-to-be-completed Benchmark acquisition. Benchmark will bring a complimentary low-cost product line to Quantum, and they continued to show strong growth in the September quarter.

We will not fully benefit from the Benchmark revenue contribution in fiscal Q3 quarter because the acquisition is not expected to close until later in November. However, our integration is being conducted to insure no loss of Benchmark's momentum once the transaction is closed. In addition, we will leverage the expertise that Benchmark has developed in delivery of high-quality tape drives under a low-cost model by hiring the key team of employees responsible for the success of this business.

In addition to the decision to acquire Benchmark, another key step we took in fiscal Q2 was the outsourcing agreement we reached with .

Now I'll turn the call over to Michael Lambert, who will provide additional details on Quantum's fiscal Q2 financial performance. Michael?

Thanks, Rick.

First, I'll comment on our fiscal second quarter's pro forma results, and then I'll comment on our balance sheet. Next, I will cover the reconciling items between our GAAP and pro forma income statements that were sent out in addition to today's press release. This will include an update on this quarter's restructuring activity relative to the guidance we provided in our recent September 9 announcement. Finally, I'll provide an update on our bank activities.

As Rick mentioned, we'll be covering our pro forma actual results for fiscal Q2 in a manner consistent with our beginning of quarter guidance, including NAS results in our pro forma P&L as if it were a continuing operation. In GAAP reporting, NAS is treated as a discontinued operation.

Including NAS, overall revenue for fiscal Q2 was 215 million - up two percent from fiscal Q1. Our pro forma loss per share was eight cents diluted on the favorable end of our .08 to .13 guidance. GAAP loss per share was .71. The pro-forma gross margin for fiscal Q2, excluding amortization of intangibles was 29 ½ percent, down 1.4 points from fiscal Q1. We expect that the acquisition of Benchmark, our outsourcing program and our restructuring, will help us begin migrating back toward our target margin of 35 percent. Pro forma operating expenses for fiscal Q2, excluding amortization of intangibles, goodwill impairment charges and special charges, were $78 million. This was down $4 million from last quarter, showing progress toward our target operating expense range of $65 to $70 million.

From a balance sheet perspective, we exited the quarter with $309 million in cash and short-term investments, up $3 million sequentially. During the quarter, we were roughly neutral in cash provided by operating activities of continuing operations, even in spite of a significant GAAP loss. Improved working capital management was a primary contributor here, driven primarily by two factors: Number one, an approximately $15 million reduction in our outstanding AR balance on a small increase in revenue, which improved DSO more than 10 percent, from 61 to 54 days; and two, an approximately $15 reduction in product inventory, which equates to a turns improvement of more than 1x, from 5.1 times to 6.1 times. In addition, the movements of some restructuring cash severance costs of fiscal Q3 also contributed to the increase in cash in the September quarter. When including discontinued operations in the view, we consumed $6 million in cash from operating activities.

Other key sources and uses of cash included about $4 million used for capital expenditures, down from fiscal Q1 $6 million as the Company continues to prudently spend investment dollars. In addition, we generated $11 million in cash from the sale of our investment portfolio.

Now, I will spend a couple of minutes describing the reconciling items between our fiscal Q2 GAAP and pro forma income statements. For your reference, these items are outlined in the table included with our pro forma statements of operations, as well as in the table included in our press release.

Fiscal Q2's reconciling items totalled $99 million after taxes. We incurred $14 million of special charges, nearly all of which is cash related. These charges were mostly severance, as well as asset and facility charges associated with the first phase of our recently announced restructuring. The second element to this charge was a separation expense associated with our recent CEO transition, totaling $3.6 million. The remaining $75 million in unusual charges are non-cash; we incurred a $16 million intangibles write down, associated with our NAS business. In addition, we recorded a $59 million goodwill impairment, associated with our business.

The last few reconciling items between our GAAP and pro forma financial statements include $4 million in quarterly amortization of intangible assets, and just under $5 million in tax-related items.

Now that covers fiscal Q2 restructuring activities, now let me provide a summary update on our Phase I and II restructuring activities in aggregate. We expect total restructuring-related charges to be in the $100 to $120 million range, still within the guidance we provided on our September 9 restructuring call. Cash related charges, however, are expected to be in the 30 to 40 million range, below our initial 40 to 45 million guidance. A piece of this is lower severance costs, due to the recent mass sale announcement.

Given the September quarter's approximately 90 million in costs associated with both special charges, and goodwill intangible write-downs, this would leave approximately 20 to 30 million in charges for fiscal Q3, most of which would be cash. Most of these cash charges will be paid out in fiscal Q3 and Q4.

Finally, let me provide an update on our bank activities. We received waivers for fiscal Q2's performance from both our credit and synthetic lease bank syndicates. These waivers will required given our results and significant restructuring charges. We're currently negotiating a new set of credit facilities on terms that incorporate the changes associated with our recent restructuring efforts and our current outlook. While we cannot guarantee this, we expect to have the new credit facilities in place by the end of fiscal Q3.

I will now turn the call back over to Rick, who will discuss the outlook for fiscal Q3.

Thanks, Michael. As we discuss the outlook for fiscal Q3, we'll shift gears and treat as a discontinued operation, excluding this from our guidance. For your convenience, we have included a ProForma view in the - in the results we sent out today labeled discontinued operations view, which showed fiscal Q2 results from continuing operations. This is a view that thus represents Quantum's go-forward business.

As other technology companies have discussed in their earnings calls this months, customer buying behavior remains sluggish in the near term, with continued constraints on IT budgets. We have considered this difficult environment in setting our fiscal Q3 revenues expectations, as well as the fact that the only benchmark revenue included in our Q - fiscal Q3 results, will be that achieved after the acquisition closes later this quarter.

Based on these considerations, we expect Quantum's overall revenue in December, in the December quarter to be relatively flat to slightly up in comparison to the 204 million in revenues from continuing operations we achieved in the September quarter, again excluding .

We also expect ProForma gross margins to be relatively flat to slightly up on a sequential basis and ProForma operating expenses to continue to decline as we begin to see the benefits from our restructuring actions. As a result, we expect our ProForma earnings per share to track toward break even for fiscal Q3, excluding the special charges Michael mentioned.

In closing, let me talk briefly about the two basis priorities I have pursued since becoming CEO in September. One priority has been to improve Quantum's short-term financial performance by focusing on growing revenue and reducing spending to move toward break even performance for the current quarter, and resume profitability in fiscal Q4.

As I have discussed on this call, we are on track to achieve these goals and I am committed to making sure that we maintain our focus and sense of urgency.

The other priority I've been pursuing is to ensure that we develop a long-term position of sustainable growth and profitability. In evaluating how we can best accomplish this objective; I have been spending time with people inside and outside of Quantum. As I have done so, it has become clear that the real opportunities for us centers around an increased focus on data protection leadership.

There are several reasons why this makes sense for Quantum. First, we have a strong market position in several key areas of data protection. In addition, the data protection market offers tremendous long-term opportunities. It is broad and large, about $30 billion, and projected to grow at double digit rates over the next several years. As customers look for better ways at solving their data protection challenges, there's also significant opportunity for leadership for innovative solutions in defining new market segments.

For Quantum, our focus on data protection involves several levels of products: those that build on our current leadership, like tape drives; and those that provide opportunity for stronger near-term growth, like tape automation; and those that engines for new areas of leadership, like the Quantum DX 30.

The Benchmark acquisition and the spin-off reinforce this focus. The Benchmark acquisition helps us strengthen our core tape drive and automation businesses, and the spin-off enables to focus more of our R&D investments on new areas of data protection.

Across our product lines and across Quantum, this data protection focus is also about delivering better ways for customers to address their expanding data protection needs, providing them with integrative solutions that are simple and scalable, and optimize their investments.

As you can see, the two priorities are pursuing are interrelated. We are committed to delivering on the short-term goal of renewed profitability through the improvements we've made to our product lines, and a variety of operational changes. At the same time, we are working to build upon the progress we are making to further strengthen our long-term position with new products, solutions and services focused on the growing data protection market.

Thank you for joining us. Now, we'll open up the call for questions.

Thank you, sir.

Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star, followed by the one on your pushbutton phone. If you would like to remove yourself from the polling process, press the star, followed by the two. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received.

If you are using speaker phone equipment, you will need to lift the handset before making your selection.

One moment, please, for our first question.

Our first question comes from Clinton Vaughan with Salomon Smith Barney. Please go ahead with your question.

Thank you.

Could you give us a little bit of insight into the -- you know, how you plan to more competitively position yourselves with regards to . And then, also, on our division, any plans there, or any form of restructuring, or add-ons that you can give us insights to going forward there? Thanks.

This is Rick. Let me comment on our competitive position with . We have been focused largely with our product line to make sure we can deliver better price performance and value to customers, and reinforce our message around compatibility.

Today we have the lead with the 320. The has already started by announcing their next version of product, and we are aggressively working our roadmap to see what we can do to basically break this leapfrog pattern that we've been on in the industry, where they come out with a product that has price performance leadership, we come out with a product with price performance leadership. That's about the way we're lined up here today.

So, the first action is about an intense focus working with a variety of technology solutions to be able to improve our roadmap to get ahead and stay ahead. And we haven't totally put that together in a way that we can communicate it, but we're aggressively working at it.

Secondly, we clearly have to look at ways to change the messaging in the marketplace. We have made tremendous progress with products like the SDLT 320. We have to find new ways of getting ahead of the competition in terms of selling the story, having people understand the strength of the 320 today, which we think are significant relative to the competition and work, to make sure that the selling proposition and our partners are communicating more aggressively than they have in the past. We think the combination of those two forces will allow us to continue to gain share-back and position SDLT as the leadership technology going forward.

Let me also--this is Michael--I'll take a shot at what I think the second question was. You mentioned what I think was a question around our SSG--or our restructuring in aggregate and was SSG involved in that. So the message certainly was that the restructuring was both across the SLT business, as well as the SSG business, so both sides did play and were affected there.

OK. And could you give us any longer term--or update us on some longer term targets, maybe two, three, four quarters out for gross margin and operating margin?

Well, so in terms of three to four quarters out in terms of gross margin, you know, without giving a hard number on it because, of course, there are a lot of puts and takes there, we expect to have migrated a reasonable way back towards our target and, of course, our target margin that we have talked about at length over the last 12 months is a mid-thirties gross margin. Mid-35 percent.

On the op ex side, we have, in the short term, i.e. Q4 , communicated externally a view that we expect to be in the 65 to 70 million range and, of course, that's what we're executing to. We still feel comfortable that we will be there in Q4. And then, of course, we're always looking for--in fiscal Q4--and, of course, then we're always looking for the opportunities to drive the next set of reductions down beyond that. But for now, I'll keep us focused from a guidance standpoint on staying within that 65 to 70 range, which is two quarters out, and then we'll talk to you more as we get closer to that timeframe about the next steps beyond that.

Great, thanks a lot.

Sure.

Our next question comes from Will with Robert W. Baird. Please go ahead with your question, sir.

Good afternoon. Just a couple of questions, one having to do with the outsourcing, has that been concluded yet and, in particular, has the transaction whereby they're going to buy the inventory happened and, if it hasn't, when will it happen and what will the cash impact be? And then you mentioned the--you won on the automation side some incremental business with IBM and I was wondering if you could just elaborate on that a little bit. And then finally if you could comment on kind of your channel trends over the last couple of quarters and the relative importance of the EOM customer versus other channels. ?

Well, OK, so this is Michael. I'll take the first question then I think Rick will probably talk to the other two. So as far of the outsourcing agreement goes, of course, we're in the process right now of working it through all the government approvals required to have take over and manage the production force. We expect that to happen in the, you know, late November, early December timeframe at this stage so the inventory purchase has not occurred and is something that is expected to occur still by the end of fiscal Q3.

On the automation side, yes, we continue to be excited about the wins that we've had with MP, with Sun and you mentioned the one with IBM. IBM was the one for their autoloader product for our autoloader product that they will - they will distribute. So, that was one of several wins.

We continue to pursue those because we do believe that if most of the system companies really de-emphasize developing products in this area on their own, that we are a natural partner to be able to go forward. And so we'll continue to pursue those. And as you know, they sometimes take a while to get traction with the sales teams in the field, but as we said in our announcement here that we are starting to see some improvement there and we're excited about that moving forward.

The other part of the business that's important is the channel, and we have seen some improved trends in the U.S. where we're most advanced in terms of building this network of supported by a few distributors and our direct sales force or our sales force basically reinforcing that process so that our and channel partners really take a very aggressive role in the marketplace. We saw good growth in the U.S. Europe is something - is an area that's been lagging that we are working to accelerate our transition to this model in Europe, and hope to see some improvement in those results in the near term.

OK, thank you.

Ladies and gentlemen, if you have a question, press the star, followed by the one on your push-button phone.

Our next question comes from Bill Lewis with J.P. Morgan. Please go ahead with your question, sir.

Thank you. Couple things if I could - first of all, next quarter in the December quarter, how much should we factor in for Benchmark contributing? I think on the prior call you had talked about it being at about a $20 million per quarter run rate. Did they achieve that in September? And then, should we include about a third of that in revenue for the December quarter and, you know, full contributions beyond that?

Yes, this is - this is Rick.

First of all, we have talked 20 million. Their results continue to be quite strong, and so we think that that's - that estimate is still good. We haven't - we're not in a position to provide specific guidance to you on what Benchmark revenue is in the quarter given the challenge on when it will actually close and what the seasonality is in the quarter. There are a number of factors like that, so we're not being precise about providing an exact number on what to expect in this quarter.

But you are - just so I understand correctly - you are including it in the guidance you're providing of flat to slightly up. Is that correct?

We're - what's in there is some level, but we're very cautious about what level and very conservative about it because we are - you know, we are again not - you know, trying to be careful that we don't get overly enthusiastic about the close date and cause the number to be higher than it should.

We expect - this is Michael - we expect the deal to close, you know, at the earliest, third week in November and could, you know, depending on what happens with all - tying down all the details, could fall over into the beginning of December. That's part of the reason, as Rick mentioned, we were a little bit cautious about how we managed that because there's quite a bit of variability around the time - the exact timing here.

OK, great. And what is your estimate of what the cash position's going to be exiting the December quarter? Any comments you can make on what you expect cash flow from operations to be in that quarter?

Sure, Bill. I'll talk you through what I think some of the puts and takes are which give you some of the views of the numbers, although I'm not going to provide an exact number or an exact range.

So, how we think about Q3 is that we do expect to consume cash in Q3 primarily due to the restructuring charges that we have and we will be paying out, as well as the Benchmark acquisition we have a little bit of cash out on that, and we have some cash offset against that, and then of course, on the positive side, now the numbers there, at least on the cash out number we've talked to was $11 million, if you remember as part of the deal.

On the positive side of the fence there, we have the Jabil inventory purchase, which will be a partial offset to that. We expect that to be lower than we had guided during the outsourcing agreement announcement but that's really driven by the fact that we managed our inventory better leading up to that this quarter, and so essentially we've got some of that cash now. And then the other positive offset we have is the sale of our NAS business, for which we'll get a small amount of cash proceeds in also.

And then of course, we'll be continuing to focus on managing our working capital better, consistent with this quarter's progress both on DSO and on inventory. So we do expect to be a consumer, but I don't want to necessarily put out an exact number in guidance there.

Okay, so just so I understand, you had said $20 to $30 million associated with restructuring, $11 million you say on the Benchmark acquisition, and then on the positive side, Jabil something less than the $30 million you talked about, and something nominal for the NAS sale, is that right?

Yes, although not all the restructuring bill will go out in Q3, some of it will flow out in Q4 also.

Okay. And just last, if I could, are--do you have plans to provide fiscal Q1 financials, including the discontinued operations?

Q1, --you mean, rearview mirror, Bill?

Yeah.

Yeah, so when we file the Q, you will actually see NAS as, in essence, as a discontinued operation, so you'll see the comparison to Q1.

Okay, great, thanks.

Next, we have a question from with . Please go ahead with your question, sir.

Thank you. I'm interested if you've noticed any of your sales turning into DX30? I know DX30 hasn't been out that long, but if you've seen any customers potentially switching their preference there, and any expectations for that going forward? And then secondly, if you could just mention, I know you have the high-end tape library business with , but from more of a media perspective, if you've noticed any drop off in DLT sales to them as they kind of aggressively push their own ? Thank you.

Okay, this is Rick. Let me address--address the first question. First of all, on the DX30, we're very excited about the product, and it's just only started shipping, and I am pretty convinced that we will not see any impact on the library business, especially since the DX30 is probably positioned a little bit under, in terms of the , in terms of the performance range, but as I've been out talking to customers, and it's dangerous to maybe respond to just to customers you visit, but I've spent a lot of time in the last couple of weeks with some customers, and they are clearly looking at the DX30 in a new place in the way they think of their architecture for data protection, and today there are a lot of multiple copies put on hard disc; this makes that process easier, makes it very simple.

It's really attractive for customers who up until now haven't really been able to afford to provide that level of robust infrastructure, because of price points that have been too high, so this product fits into the infrastructure well, it's very simple to implement, it allows people to make a copy to disc, and then take it to tape at their leisure. So we think it's mostly complementary, and don't really see that as being a negative on the library business any time soon.

On the - on the DLT side in HP, we've had a variety of discussions with HP. HP will continue to allow customers to basically choose the format that they want to embrace. And so the SDLT products will continue to be in their product line and we will, you know, again to work to support them in the messaging and continue to get the message out to customers of the advantage of DLT technology as it - as it transitions to SDLT.

OK. Thank you very much.

Next, we have a question from of . Please go ahead with your question.

Good afternoon. I was just trying to get at a ballpark number for your R&D for this second half of the year.

You're looking at , in terms of an expense to revenue number?

Yes. Or, if you want to go with a dollar figure, whatever works best for you guys.

I think we had talked about getting down to eventually a R&D number in the 11 percent range or so, which is where we'll be headed. I don't - I don't have in front of me the full second half forecast for that, , but we will be managing down, or toward to that level.

OK. You think 11 percent is the ...

Give or take.

By the end of the fiscal year you're saying, Mike?

Yes.

Yes.

That's right.

Ballpark, that's fine. Thank you.

Yes.

There are no further questions at this time. , please go ahead.

That's it? Thanks for joining us and we look forward to talking to you next quarter.