Velo3D Inc (VELO) 2022 Q3 法說會逐字稿

Greetings. Welcome to the Velo3D Reports Third Quarter 2020 Results. At this time, all participants are in a listen-only mode. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the conference over to your host, Bob Okunski, Vice President of Investor Relations. You may begin.

Thank you. I'd like to welcome everyone to our third quarter 2022 earnings conference call. On the call today, we will start out with comments from Benny Buller, CEO of Velo3D, who will provide a summary of the quarter as well as an update on certain key strategic priorities for the balance of 2022. Following Benny's comments, Bill McCombe, our CFO, will then review our third quarter 2022 financial results and provide our guidance.

As a reminder, a replay of this call will be available later today on the Investor Relations page of our website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the safe harbor slide of today's presentation, today's press release as well as our 2021 10-K and second quarter 2022 10-Q filing. Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non-GAAP reconciliations. Finally, to enhance this call, we have posted a set of PowerPoint slides, which we will reference during the call on the Events and Presentations page of our Investor Relations website.

With that, I'd like to turn the call over to Benny Buller, CEO of Velo3D. Benny?

Thanks, Bob, and I would like to welcome everyone to our third quarter earnings call. We remain very excited about the opportunity for additive manufacturing and continue to believe our technology is rapidly changing in the way mission-critical parts are manufactured across multiple industries.

I would now like to discuss the specifics of our third quarter. Please turn to Slide 4. At the high level, we are pleased with our Q3 performance as we posted strong year-over-year revenue growth of 119%. Increased sizable backlog by 20% and expanded our new and existing customer footprint. We also continue to see strong demand for our industry-leading technology during the quarter as Q3 bookings rose 50% sequentially to $27 million with our backlog now totaling $66 million. I would also like to highlight the significant operational success we have had over the last 18 months. As you can see from the chart, year-to-date revenue has tripled compared to last year, while last 12 months revenue has more than doubled. This trend reflects not only strong customer demand for our technology, but also our ability to rapidly scale our business and production operations this year.

However, our Q3 revenue was below plan as supply chain disruptions limited the availability of certain key system components. These shortages impacted our production schedule and led to a number of customer shipments being delayed to the fourth quarter. Given the impact of our first quarter shipment delays, ongoing supply chain uncertainty and the continued initial ramp of our Sapphire XC 1MZ system, we are reducing our 2022 revenue guidance to a range of $75 million to $80 million. To emphasize, the adjustment to our 2022 revenue guidance is not fundamental or demand related, but entirely due to the potential impact of the factors I just discussed.

As I mentioned, demand for our Sapphire and Sapphire XC systems remain high. This reflects our success in continuing to expand our footprint across multiple markets and new applications. In particular, we are starting to benefit from our market expansion investments as we added a number of new marquee customers during the quarter. For example, we are seeing strong traction in Europe as we booked 2 market-leading European aerospace OEMs during the quarter. Additionally, we also added a top-tier automotive OEM here in the United States.

Looking forward, we remain very excited about the future as our bookings and backlog growth reflect the increasing adoption of our technology. We are confident that we have a clear path to profitability given our current capital resources. We will achieve this by leveraging our strong top line growth in combination with our relentless focus on accelerating production efficiency. We also expect to benefit from our working capital and expense management initiatives as well as return to normalized pricing given the end of our launch, customer and early bird system discounts. As a result, we believe we are well positioned to profitably capitalize on the rapidly expanded market from mission criticize high-value metal parts.

I would now like to provide some additional color on the challenges we faced in the quarter as well as our strategic initiatives to drive operational improvements in 2023. Please turn to Slide 5. As I previously mentioned, we experienced significant supply chain disruptions during the quarter, which affected our production plan. Specifically, we were impacted by key component shortages, especially system-level electronics. Additionally, when we did receive the necessary parts, the parts arrived too late in the quarter in order to qualify and ship the systems on time. As a result, we didn't meet our production goals for the quarter. While the supply chain conditions remain challenging, we have secured substantially all the parts needed for our production plant this quarter. We also experienced longer-than-expected production and testing cycle times for our first Sapphire XC 1MZ systems, which contributed to our shipment delays.

Similar to the ramp of our Sapphire XC product, initial volume production of the Sapphire XC 1MZ presented us with certain challenges that needed to be addressed during the building process which affected our ability to meet our shipment forecast. I'm happy to announce that we have already shipped our first Sapphire XC 1MZ earlier this quarter. Given the history of previous new product fronts, these challenges will diminish as we ramp volume and gain production experience. However, we do not expect to reach the volume levels needed to fully overcome these issues until the first quarter of 2023.

I want to reiterate that demand for this system continues to increase, and we remain focused on efficiently scaling our Sapphire XC 1MZ production to achieve our growth quarter shipment target. Given the challenges I have discussed, we have identified and instituted a number of strategic initiatives to minimize future supply chain disruptions and improve our overall production efficiency.

Please turn to Slide 6. Overall, we made significant progress on a number of initiatives in the quarter. First, we have continued to build our supply chain team as well as improving multiple operational processes with the goal of reducing shortages in the future. Second, we successfully instituted a number of programs to further streamline our purchasing process and better manage our inventory to meet our challenges. These initiatives will enable us to materially lower inventory levels while improving efficiency. We expect to see this benefit starting in the first half of 2023. Third, we reorganized our factory floor to accelerate the production process to reduce delay. Efforts here include tighter management of material flow to the production sales and reducing production labor waste associated with material shortages.

Looking forward, our initiatives for the fourth quarter and 2023 are focused on growing output through production efficiency gains rather than increasing investment. We are making progress in these areas and expect measurable benefits from these efforts starting in the first quarter of next year. Our key focus remains on reducing our system balance of materials costs through a combination of increased outsourcing of subassemblies parts as well as the benefit of increasing volume of our fixed cost base. Both of these efforts will allow us to scale without materially increasing labor costs while improving efficiency.

Additionally, we are instituting initiatives to reduce production cycle times by further leveraging our continuous improvement capability on the production floor. These programs are enabling us to analyze data and processes in real time, provide feedback to the team and implement changes more quickly. Finally, we continue to work with our new and existing vendors to better manage our supply chain, including the staggering of component deliveries to better match our build schedule and minimize overall inventory levels.

I would now like to highlight why we remain very confident in our long-term growth opportunity as customers continue to choose our industry-leading technology to produce their most critical metal parts. Please turn to Slide 7. Overall, we are pleased with our progress in adding new customers as well as expanding our geographic footprint. With the opening of our European operations and recent penetration of new industries, we are addressing a significant portion of the global laser metal out of that fusion market.

Additionally, the significant investment were needed to make in building out our sales and marketing group for long-term growth is now behind us. We are already seeing the benefit of this investment as reflected in our strong third quarter bookings and backlog growth. With our recent hires, we believe our sales and marketing organization is now fully staffed to deliver on the next phase of growth for the company. As I previously discussed, we booked a number of new customers during the quarter including 3 landmark customers in new markets. First, our European expansion is going well as we booked 2 industry-leading EU aerospace customers in Q3. Interest remains high in Europe, and we have a number of opportunities to add to our footprint there in the first quarter. In the U.S., we also added a major automotive manufacturer as we expand our material applications.

To close out our new customer highlights, we also had 3 customers acquiring multiple Sapphire systems on the initial purchase. This reinforces the growing acceptance of our technology in the market. Also, we recently shipped our first tooling steel machine for automotive applications following our recent (inaudible) steel material qualification. Demand for this application is strong with our first order within a few months of our qualifying announcement.

Qualifying these materials is a game changer for the automotive and tooling industry as it enables production of high-quality die-cast tooling with geometrical flexibility that has not been possible before. Velo3D is the only company that can print the large diameter of high-quality internal channels needed for those applications, which will enable higher throughput while reducing cost for the customer. Finally, we are continuing to expand our industry footprint outside the space sector with new customer additions and follow-on purchases from companies in the aviation, hypersonics, automotive, defense and energy industries.

In closing, we are excited about the future opportunity and believe we are well positioned to capitalize on the growing demand for high value through these printed metal parts. We remain confident in our ability to reach profitability given our current liquidity and look forward to executing on our long-term strategic vision.

With that, I would like to turn the call over to Bill to discuss the financials and our guidance.

Thanks, Benny. Moving on to our quarterly financial performance. Please turn to Slide 9. Revenue for the quarter was $19.1 million, down slightly versus the second quarter but up 119% year-over-year. Compared to our expectations, Q3 revenue was lower due to a number of shipments being delayed to early Q4, as Benny mentioned, due to material shortages and resulting production delays.

Compared to Q2, Q3 year sales revenue declined to $16.5 million due to a decline in ASP as a result of 2 factors: a change in the mix of shipments towards a higher proportion of Sapphires versus Sapphires XC and more of the Sapphire XC shipments being to the launch customer than was the case in Q2. This impact was partially offset by higher recurring and service revenue, which rose approximately $600,000 to $2.6 million in the quarter and reflected the increased number of systems in the field.

On a year-over-year basis, year of sale revenue was up 127% from $7.3 million to $16.5 million, and recurring revenue was up 80% from $1.4 million to $2.6 million. Gross margin for the quarter was a negative 1%. Compared to our expectations, gross margin was impacted by the delay in system shipments to the fourth quarter and by higher-than-expected inventory adjustment charges associated with the initial production of our Sapphire XC product. Compared to Q2, Q3 margin reflects the higher proportion of lower-margin launch customer shipments and elevated inventory adjustment charges, offset by lower recurring and service losses. Adjusted operating expenses for the quarter, excluding stock-based compensation, were $22.7 million, in line with Q2. G&A rose $1.1 million, primarily reflecting a reallocation of facilities and IT costs between departments. For the same reason, R&D and sales and marketing expenses were $0.3 million and $0.6 million lower, respectively. Excluding this reallocation, operating expenses were largely in line with Q2.

GAAP net income for the quarter was a loss of $75.2 million including a noncash loss of approximately $47.5 million related to changes in the fair value of our warrants and earn-out liabilities. On a non-GAAP basis, which excludes this loss and stock-based compensation expense, net loss was $22.5 million. Adjusted EBITDA for the quarter, excluding same costs was also a loss of $21.2 million.

Turning to the balance sheet on Slide 10. We exited the quarter with a very strong balance sheet with $113 million in cash and very limited debt. Cash usage for the quarter was $29 million, down $4 million -- down from $44 million in Q2. The sequential decline was driven primarily by a lower inventory build compared to Q2 and better working capital management. Investment in working capital increased by $3 million due to an increase in accounts receivable and inventories, offset by an increase in contract liabilities. The inventory increase was due to higher work in process inventory due to the shipment delays and higher stocks of materials. We expect inventory to decrease over the next 3 quarters as we ship systems, draw down our stocks in materials and move to more staggered materials deliveries. CapEx was $5 million, primarily related to final payments for our construction of our Lakeview facility and CapEx for leased systems. We expect CapEx to be slightly lower for the fourth quarter.

Finally, we expect total cash usage in Q4 to be in the range of $25 million to $35 million, depending on the timing of deposit payments for certain recent bookings, material receipts and shipments. We remain confident that we have the liquidity to fund our business plan through to profitability.

I'd now like to provide our outlook for the balance of the year. Please turn to Slide 11. Overall, we executed well in the third quarter despite the challenging supply chain conditions. However, as Benny discussed in his opening comments, we're adjusting our 2022 revenue guidance from $89 million to a range of $75 million to $80 million. We expect fourth quarter revenue growth of between 25% and 50% to a range of $24 million to $29 million which is largely supported by our existing backlog and gross margin of 5% to 10%, excluding nonrecurring items and inventory adjustments.

This change in full year guidance is driven by the impact of shipment delays on Q3 revenue, ongoing supply chain challenges and potential Sapphire XC 1MZ production timing risks as we continue with the early stages of ramping production of this product. Again, this adjustment does not reflect any change in business fundamentals or the outlook for customer demand for our systems.

In conclusion, we are focused on executing on our clear path to profitability within our current capital resources. This path is comprised of 5 elements. Firstly, realizing on our revenue growth potential and achieving manufacturing productivity gains through increasing our scale. Secondly, ASP improvements as shipments with the now expired launch customer and early good reservation discounts get behind us. Thirdly, bill of material cost reductions for Sapphire XC based on longer-term higher volume supply contracts with larger strategic vendors. Fourthly, improving working capital efficiency through inventory reductions driven by better planning and staggered monthly deliveries. And finally, controlling operating expenses by managing to flat to modest headcount growth. Based on these initiatives, we are well positioned to drive reduction in EBITDA losses and cash burn in the coming quarters.

With that, I'd like to turn the call over for questions. Operator?

And at this time, we will be conducting a question-and-answer session. (Operator Instructions) And one moment please while we poll for any questions. And our first question comes from the line of Brian Drab with William Blair.

I first wanted to just ask. Bill, you mentioned several times that you'll be able to -- the target is to get to profitability with the current resources. When does that -- in your model, when does that need to happen? Is that second quarter of next year, third quarter of next year? It seems like it needs to happen within a year based on the burn rate?

Brian, I would think it's a longer horizon than that. We plan to bring down our current cash burn rate by bringing down our inventory and improving profitability. We also have a major CapEx behind us now. So we think that we have a runway through to breakeven profitability and cash that's around the end of next year, but I don't want to be precise about it because I -- we're not going to give specific guidance on 2023 yet. We certainly, at a minimum, would get our cash burn rate down to a much smaller level. And obviously, the smaller the quarterly burn rate, the longer the cash runway is that you have from any cash balance at a given time. If we can get the cash burn rate down into the single digits, that gives us plenty of runway and that would certainly be our objective.

Yes, I'd like to add here that as Bill said, we didn't finalize yet our 2023 operating plan. We are looking to see how we are going to complete our Q4 and 2023 -- 2022 numbers as a guideline of what we can accomplish next year. But in some of the scenarios we are looking next year, we will be profitable in Q4. But this is not something we are committing today as we are evaluating the specific work plan for 2023.

Okay. Is there the potential for your revenue in 2023 to potentially be higher than you were originally expecting given your push, it looks like supply chain issues are going to prevent you from shipping everything that you wanted to this year. Demand hasn't changed. Is this all kind of fall into 2023 and maybe give you a little bit of a tailwind as you start the year, backlog is up and you sort out some of the manufacturing supply chain issues?

So right now, as I said, we didn't finalize the plan for 2023. But in some of the scenarios we are looking, the revenue will be very close to what we discussed before.

And then last question is, can you -- I know you haven't -- obviously -- you haven't set your 2023 budget. But -- what can you comment on in terms of OpEx dollars directionally even in 2023 versus 2022? We're all trying to model this, of course, and the cash flow.

For the question you asked, this is the easiest one. So the OpEx will be very similar in 2023 to the levels we are exiting 2022.

In terms of dollars, right?

Yes. Dollars quarterly spend to 2022. Very similar currently.

Yes. Okay. All right.

Our next question comes from the line of Troy Jensen with Lake Street.

Just to follow up on Brian's about fully funded to profitability. I think you guys also just filed a shelf tonight. So is that just good corporate governance to get ready for when you do need capital? Or just kind of can touch on that, please, if you would.

Yes. Look, we don't want to go beyond what we said in the accompanying press release. Which is that, firstly, because we've just anniversaried our 12 months of going public, we're now S3 eligible. So we view it as good corporate government's practice to put up a shelf. We don't have an immediate intention to sell securities. But the registration statement, obviously does provide us flexibility that if there were to be a financing opportunity that was advantageous to the company and stockholders, we would be better positioned to take advantage of it. And I think that really says everything that we currently think about the -- on the topic.

Maybe just one more thing in the same category is, as we said, we didn't make our plans for 2023 as we didn't finalize our plans. We are looking for scenarios which are going to become profitable before the end of 2023. This is our goal yet, and we're looking at how we can accomplish that. In those scenarios, we definitely don't need more cash but the market and the capital market and the world are very unpredictable these days. So we want to be ready for later.

Yes. Good corporate governance, I get it. A follow-up on a couple of the customer comments here. So I know during the quarter, you guys announced Kevton placed a big order, and I know they shift into auto, but that is not the same as the auto OEM that you mentioned in the prepared remarks, correct?

Correct.

So there's 2 new auto OEM that is not...

Auto OEM is -- it's an OEM firstly and it's a big large company.

Yes. I just wanted to be clear. So and then on the European customers to this quarter, am I remembering correctly, you guys had on last quarter, Q2?

We have a customer in Europe prior, you're right. But these 2 are in addition to that. So that -- these are customers to enter in Europe.

Yes. All right. Perfect. And then just on the launch customer pricing, is that going to be completed now in Q4 and last quarter, Bill, you provided that nice chart that showed kind of when this launch pricing system sales we're going to hit. So I'm just wondering if it's going to linger into next year. Just if you could help us a little bit on the....

We've already shipped the last system in that quarter to the launch customer. So that's already occurred in Q2.

Yes. So we fleshed out now, Okay, perfect. And then, Benny, I know I asked this a lot. I just love to get your thoughts, too. Just any change on the competitive landscape? Obviously, who I thought was your biggest competitor is now getting acquired by a bigger entity and there's some debate whether or not that's good or bad for competition, but just kind of thoughts on the competitive landscape, please.

So our biggest competitor was and remains the same company. And this company has not been acquired. SLM has not been our largest competitor.

Okay. The other German guy, right?

Sorry?

The other German guy is your biggest competitor.

Yes, they are significantly larger.

Great. Exactly. But I guess I didn't think there is far along and (inaudible) is what I was kind of leading towards there. Denmark.

Yes, this is the question you asked me before, do I see any change in this. And we are working with a lot of customers, we are seeing a lot of things in the market. And I don't see any of these other companies have any useful capability for -- that actually enables customers to make the parts so that they are useful with this technology. So...

Well stated, very clear. Good luck guys going forward.

Our next question comes from the line of Jim Ricchiuti with Needham & Company.

I just wanted to go back to a comment you made about operating expense relative to -- for '23 relative to Q4, exiting Q4, I may have missed it, Bill, did you actually talk about OpEx because OpEx for Q4, what I'm asking, I guess is, will that be increased from Q3 levels? You've got a big trade show here. So how do we think about operating expense for Q4 if we're going to assume that it doesn't change that much in '23.

Yes, it should be relatively flat in Q4. And as we said we believe that 2023 OpEx will be relatively similar. In my remarks, I mentioned that we're managing to flat to modest growth in headcount, and that's the major driver of OpEx.

Got it. And the other question I had is just with respect to components and securing the necessary components to meet your Q4 plan. I'm wondering what kind of an impact that might have on gross margin if you've had to go out into the market and aggressively purchase these parts that, that might end up being, again, a headwind to your Q4 gross margin?

I think firstly, the components that resulted in the shipment delays were a very small proportion of the total bill of material. But obviously, if there's 5% of the bill of material that you don't have, you can't ship the system. So I guess, that's point one. We saw the bulk of the impact of -- on material cost from the current environment in the early part of 2022, when we had to go out and buy put in purchase orders for a significant amount of material that showed up as inventory in Q2, and we still continue to carry much of it in Q3. So most of that impact from a tight material market is already in the numbers in Q2 and Q3. And as we mentioned last time, we're now burning through that inventory and flowing it into cost of goods and into shipments. So we wouldn't expect a further incremental negative pressure on material costs from here.

I think as we mentioned in the past, we have negotiated some deals to which will bring material cost reductions and those will start showing up that materials start flowing this quarter, and it will end up in cost of goods in the first quarter of first and second and in following quarters of next year. So hopefully, we'll see an improving trend. And we've got further component subassembly deals that we're looking to do to try to bring bill of material costs down even more.

Okay. And one final question, if I may, just slipping in. Just, Benny, in light of, I think you alluded to it, the overall macro environment, the uncertainty. Are you seeing any change in customer behavior? Has there been any change in terms of anticipated order activity or any de-bookings at all? Or are you still seeing fairly consistent demand that you would have expected going into the quarter?

So we don't see yet de-booking. I didn't see de-booking. What we did see are 2 different things. We saw, one, customers have a more trouble securing capital budget. Capital margins take longer to secure; and two, capital companies postponing payments Okay. So collections become lower.

Okay. Got it.

And our next question comes from the line of Wamsi Mohan with Bank of America.

Yes. I guess I want to go back to the comment you guys made about working capital improvement to maybe drive much lower cash burn. If you're tracking to $25 million to $35 million right now in the fourth quarter, can you give us some sense of how much of that benefit to get down to the single digit would come from the improvement in inventory versus other areas? And how soon can you get to a single-digit sort of cash burn rate? That's my first question. I have a follow-up.

So first, inventory reduction is a cash flow improvement, is not EBITDA improvement per se. So on the EBITDA side, we are planning to get to this level. As I said, we didn't finalize the numbers yet. But the -- in some scenarios, we hope we can get there in Q3. The inventory levels that we operate right now are very high. And in the last few quarters, we were not able yet to reduce them in a significant way because a lot of the inventory that we have in inventory that will last into next year.

And a lot of that is inventory of things that we had trouble sourcing. So we made a deliberate decision to keep very high levels of inventory this year. This is starting to improve. So we are going to start seeing in Q1, a gradual reduction in inventory. I would not plan, I don't want to set expectation that in Q4, you're going to see inventory drops in a massive way, but we are going to start seeing inventory dropping in Q1. And we hope to get to significant better inventory levels than what we have right now by the end of the year. So the reduction in the inventory level and the working capital improvement should help us get to a better cash flow than EBITDA when it comes to the second half of next year.

Wamsi, think in any particular -- in any given quarter, the working capital reduction is going to be a single digit million.

I see. Okay.

When that would happen, the other drivers of profitability improvement. We are -- and this is an important one, we're getting behind us not only the launch customer deals, but also the early bird reservation discounts. So the bulk of our early shipments were at that kind of pricing were priced under one of those 2 arrangements. So as we move into normal pricing, that's going to be a significant benefit and then I also mentioned the bill of materials reductions that we -- part of which we've already negotiated and more of which we hope to negotiate going forward. So you're going to see impacts from all 4 of those things.

Okay. That's helpful. Can I ask about your supply constraints? You -- I think you said that you have procured enough components to meet the revenue guidance that you have here for the fourth quarter. As you look into the early part of next year, do you see these supply chain issues alleviating? Do you have confidence that you will be able to procure the components necessary? Do you need to do that now? How are you thinking about the persistence of these supply chain issues?

So I think that we have succeeded in resolving most if not all, of the supply chain issues that we suffered in the last 2 quarters. These are famous last words you'll see us saying that we resolved all the supply chain issues. So I would not be surprised if there will be something new coming up. But I think I'm optimistic this quarter based on how I see specifically for Q4, where we are with the supply chain and the path for the systems that we need to produce in Q4. We already have the parts we need for those -- for this quarter shipment. So this is a much better state than we were last time around when we had the earnings call. So that's a good state. Is it going to keep like that into Q1? I hope so. I have all the reason to suspect so, but it's not guaranteed.

We've also entered into some long-term supply contracts with certain vendors so that they have an estimated quarterly quantity from us. And so they know exactly what they need to procure they have a lot more lead time to go make sure that they have the components they need to deliver the assemblies that we've ordered from then. So I think in that respect, we're in a much better place than we were in early 2022.

Okay.

And our last question comes from the line of Shannon Cross with Credit Suisse.

I wanted to go back to the liquidity question. I know you have -- I think you have aligned with Silicon Valley Bank that had something where they would release funds upon installation. I'm not sure if that's correct, if I'm remembering right. Can maybe you talk about other sources of liquidity that you might have, if you get to the point where maybe inventory doesn't come down like you'd expected or costs are higher than anticipated.

Sure. We have 2 lines with Silicon Valley Bank. One is a working capital revolver, which is $30 million. I think only $3 million of that is drawn. And the second facility is $30 million, I should say. And the second facility is an equipment financing facility for systems that we lease to customers, and that's $15 million in total, and it's approximately a little less than 1/3 drawn at this point. So we have some reasonable amount of undrawn facilities from Silicon Valley Bank.

Okay. That's helpful. And then...

We lost you Shannon. Shannon, are you there?

Sorry about that. What I wanted to understand, I know we talked a lot about inventory, but I'm just curious, as you look at your inventory, given the growth expectations that you do have because, obviously, you're still a growing company. I guess I'm trying to figure out how we balance what you can draw down near term with kind of the ongoing inventory levels you may need to have to be able to manage the revenue growth that at least theoretically should be coming through this industry. So I don't know if you can talk a little bit about how you're thinking about that, what maybe levels of cash you think you need to have to manage the business? Just anything you can give because clearly, there are some concerns out there given the supply chain challenges, right?

Yes. I think the difference in the approach to inventory levels is that in the beginning of this year, in general, we were targeting because we had such limited visibility on where problems might arise. We were targeting holding 6 months of components, 6 months' worth of production. And what we're now implementing is much more staggered deliveries where we have 1, 1.5 months of inventory.

Now look, we haven't -- it will take us, as Benny mentioned, well into next year to work through all that excess inventory. But with these longer-term contracts and staggered deliveries, you can have -- if you can count on those deliveries, you can have a much smaller quantity of on-hand materials. So that's how we're able -- why we're confident that we can bring down inventory and increased production at the same time.

Okay. And what percent of your -- sorry, go ahead.

I was just going to say we're getting much more experience with our suppliers for the XC product and so we're getting much more comfortable with their reliability and the ability to deliver on a staggered monthly basis.

Okay. And I was just going to ask what percent of your inventory you have right now is effectively finished goods or almost finished goods versus component?

It's probably close...

Yes, around 1/3 plus and minus is finished goods.

Okay. Great.

Just Shannon, just to make sure, it is about 30%.

Okay. Great.

So I'd like to thank everyone for taking the call and taking the time. Thank you again, and we'll talk with you again next quarter.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.