Viavi Solutions Inc (VIAV) 2017 Q2 法說會逐字稿

Good afternoon. My name is Maryama, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions second quarter FY17 earnings call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Bill Ong, Head of Investor Relations. You may begin your conference.

Thank you, Maryama. Welcome to Viavi Solutions second quarter FY17 earnings call.

My name is Bill Ong, Head of Investor Relations. Joining on today's call is Oleg Khaykin, President and CEO, and Amar Maletira, CFO.

Please note this call will include forward-looking statements about the Company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent SEC filings, particularly the risk factors described in those filings.

The forward-looking statements, including guidance, we provide during this call are valid only as of today. Viavi undertakes no obligation to update these statements.

Please also note that unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials, and discuss their usefulness and limitations in today's earnings release. The release plus our supplementary slides, which include historical financial tables, are available on our website.

Finally, we are recording today's call and will make the recording available by 4:30 PM Pacific time this evening on our website. I would now like to turn the call over to Amar.

Thank you, Bill. Fiscal Q2 Viavi revenue of $206.5 million was at the high end of our guidance range, as NSE exceeded the revenue guidance range while OSP was near its guidance midpoint. Revenue declined 11% year over year. This was the result of the expected pullback of OSP revenue, and a decline in NE revenue partially offset by revenue growth in our SE business.

Viavi's operating income at $26.9 million declined 11.8% year over year. Operating margin of 13% reached at the high end of the guidance range, and was down 10 basis points year over year on lower revenue. Overall, Viavi operating expenses declined 12.3% year over year or $14.4 million, driven by SG&A expense reduction and R&D spend optimization. EPS at $0.10 exceeded the guidance range of $0.05 to $0.08.

About two weeks ago, we announced the restructuring of our NSE business segment. This plan is part of Viavi's strategy that we first announced at our September 15, 2016 Analyst Day to improve NSE's profitability by narrowing the scope of our SE business and reducing expenses by streamlining NSE business operations.

We expect up to 10% of Viavi global workforce to be impacted as a result of this restructuring. The total cost of this plan will be up to $30 million, including up to $24 million in severance charges.

We expect this plan to be completed by the end of the second quarter of FY18, with most of the actions in the second half of FY17. The majority of the total charges are expected to be recorded within our third quarter of FY17.

We expect this plan to deliver up to $40 million in annualized cost reduction in NSE. This includes a minimum of $35 million in annualized OpEx savings in NSE compared to an annualized fiscal second quarter 2017 NSE OpEx. These savings are already factored in our three-year EPS outlook that we provided at the Analyst Day.

Now moving to our fiscal second-quarter 2017 results by business segment, starting with NSE. NSE revenue at $157.6 million declined 9.1% year over year, driven by a 14.2% decline in the NE segment which was partially offset by SE which was up 10%. NSE gross margins at 64.5% declined 190 basis points year over year on lower NE field instrument revenue.

NE gross margin at 63.8% fell 260 basis points from last year, partially offset by an improvement of 30 basis points in SE's gross margins at 66.7%. NSE's operating margin at 3.8% declined 80 basis points year over year, as a result of lower field instrument revenue which negatively impacted gross margins, offset by continued operating expense reduction in NSE. The book-to-bill ratio for NSE was below 1.

Now turning to OSP. OSP revenue of $48.9 million declined 16.8% from year-ago levels, driven by an expected year-end inventory rebalancing in our anti-counterfeiting business.

Gross margin of 57.7% improved 190 basis points, due to better factory utilization in our consumer and industrial business as well as our anti-counterfeiting business as we built the required safety stock. This was coupled with lower discretionary expenses. Operating margin of 42.7% improved 440 basis points from last year, reflecting both gross margin expansion and lower operating expense.

Turning to the balance sheet, our total cash and short-term investments ending balance was approximately $1 billion. This includes the remaining 1.7 million shares of Lumentum valued at $64.3 million as of the last day of fiscal Q2.

During fiscal Q2, we sold 1.7 million Lumentum shares for a net proceed of $68.5 million, with an average selling price of $39.98. Our book cost basis of these shares is approximately $8.57 per share. As a result, we realized on a GAAP only P&L accounting gain of approximately $53.8 million.

We repurchased a total of 1.9 million shares of Viavi stock during the quarter at the cost basis of $7.55 per share, including commissions, for a total of $14.2 million. Of the $150 million share buyback program to date, we have repurchased $44.3 million worth of Viavi shares.

We will continue to be opportunistic in monetizing our remaining Lumentum position and repurchasing our Viavi stock. Operating cash flow for the quarter was $18.6 million.

Now to our guidance. We expect fiscal third quarter 2017 revenue for Viavi to be in the range of $188 million to $204 million, operating margin at 12% plus or minus 1% and EPS to be $0.06 to $0.08.

We expect NSE revenue to be at $140 million plus or minus $6 million, with operating margin at 1% plus or minus 1%. We expect OSP revenue to be at $56 million plus or minus $2 million, with operating margins at 40% plus or minus 1%.

Our tax expense is expected to be approximately $4.5 million. We expect other income and expenses to reflect a net expense of approximately $2.5 million, and our share count to be approximately 235 million shares. With that, I will turn the call over to Oleg.

Thank you, Amar. I'm pleased with our second-quarter results, as NSE exceeded the high end of the guidance range in both revenue and operating margin. And OSP met our midpoint revenue guidance expectations and delivered better than expected operating margins.

Network enablement, or NE's core instrument business, was impacted by weaker demand in North America. In addition, we did not see any meaningful calendar year-end budget flush from North American tier 1 service providers. This weakness was partially offset by stronger performance in other regions.

In service enablement, or SE, we saw both year on year and sequential revenue improvement in data center, formerly called enterprise. The improvement was largely a result of organizational restructuring earlier in the year. We also saw strength and growth assurance products revenue as we drove solution acceptance.

After a thorough strategic review, we announced the restructuring plan for our NSE business. Our restructuring plan is a result of our big NE focused SE strategy that we announced at our Analyst Day in September. The go forward SE strategy is built around our technology and market strength in mobile assurance and data center as we focus on sustainable, profitable growth.

Moving on to OSP. Anti-counterfeiting revenue declined as expected, both sequentially and year on year due to customer inventory rebalancing to align with the end-market demand.

As we've indicated earlier, the demand for anti-counterfeiting business is expected to rebound in the second half of FY17. That trend is already factored into our guidance.

This week marks my first year at Viavi. Much has been accomplished, and I'm pleased with Viavi's progress during that past 12 months. However, we are just starting to make transformational changes in our Company, as well as our industry.

In conclusion, I would like to express my thanks to our customers and employees for their continued support of Viavi. I'll now turn it over to Bill.

Thank you, Oleg. This quarter we'll be participating in Morgan Stanley's Investor Conference in San Francisco on February 27.

Maryama, let's begin the question-and-answer session. We ask everyone to limit the discussion to one question and one follow up.

(Operator Instructions)

Dmitry Netis, William Blair.

Thanks very much for taking my question. I want to zoom in on SE, Oleg and Amar, and just get a little sense of the commentary you gave there on the restructuring and how it affects the business operations going forward. Can you give us a little more color in terms of any product lines that are getting consolidated or shut down or as part of this restructuring plan?

And update on that front and what it really means to data center, would that just sit the network instruments business or is there other product lines that sit in there? Same thing for mobile insurance. And as you speak to that, can you also give us an update where the legacy assurance businesses in terms of the mix that we had seen in the last couple of quarters?

Thank you, Dmitry. I will start off and give you a bit of color on what's in and what's out, and then I'll turn it over to Amar to give you some bigger visibility on the mix between the legacy and the new.

Now one of the fundamental tenets of our strategy was to really focus on the areas where we have either a very strong technology position, or a very strong market position or a combination of both. And really refocus the SE business and grow from the area. To that extent, we are anchoring our SE strategy around three elements.

The first one is to continue to build on our strength in the location intelligence, which is the acquisition we made the Arieso. So that is our what we call the mobile edge focusing from that area, and supplementing it with the various elements of other product lines that often support over that product. The data capture probing and things like that.

The second element is the ethernet assurance. We have a legacy business that today serves many customers, and it's probably going to run for a number of years. But we are also recognizing that many of our customers are moving in the direction with a greater presence of virtualized instruments and software-defined networking.

So we are in process of developing a unified platform which will take us into that future, but that is also tightly linked and integrated with our physical instruments. So I'd say truly a platform that connects to the physical instrument of the structure of the network, connects you to the virtual instruments infrastructure, and provides the ethernet assurance for the customer. Being able to take it from the existing network to the network of the future.

And the third element is the data center, that is the -- you probably -- you call it a network instruments that is really that division that has been restructured. We had an organizational restructuring there earlier in the fiscal year. We've made a number of product and platform changes, and that business is already starting to show very promising results and we are going to plan to build on that.

So those are the three things that will keep going forward. A lot of the other products are either being put more in the maintenance mode or being phased out. But as you know in this kind of business, there is a lot of the code is reusable in various products.

So to the extent we can reuse the code, we reuse it. To the extent we don't, we basically discontinue investing in that area. That's what allows us to effectively take up to 300 people out of the R&D operations and product management operations. Amar?

So let me give you some additional color for modeling perspective. So if you guys recall during the Analyst Day event, we said as we go ahead and become a more focused SE business, our SE revenue will be low double digit from a mix perspective. SE as a mix of NSE.

So when you look at FY16, we were about 23% to 24% was the SE mix within NSE. That should go to between 15% to 20% as we get into FY19. So the mix of SE within the NSE should be between 15% to 20% as so we head to FY19. So that's the plan based on the restructuring that just we announced.

Now the mix of legacy versus growth within SE, in the current quarter the mix was 65% growth and 35% was legacy. FY19, we should exit roughly at 70% growth and 30% legacy, and in FY18 it should be more of 85% growth and 15% should be legacy. So that's what our estimates are based on the restructuring that we just announced.

Very helpful commentary. If I could just follow up on the cost saving plan. The $40 million that you announced today or a couple of weeks ago, but I think the number actually was the first one we heard about that $40 million cost savings. What's the baseline? How are you treating it?

I think you said -- just if you could repeat that comment, I'm not sure I captured everything. But is the baseline really the December 2016 quarter to peg that $40 million cost savings to? And you will be done with that by the December of 2017 -- December quarter of 2017 to FY18?

I think you captured it well, but let me just make sure that we get more clarity here.

And, Amar, if you also could tell us where the majority of that savings is coming from. I think Oleg mentioned R&D, but is it R&D across the board or is it specific to SE or other parts of the Company? Thank you.

I will give you more color on that too. so let's first start with the baseline, because it's an important question and that's the reason we put that in my script.

The baseline would be the annualized OpEx or analyzed cost as of the December 2016 quarter, so if you take Q2 for NSE business. So when you talk about the overall $40 million, that's a total cost savings as a result of this plan. And on an annualized basis, $35 million our of the $40 million is mainly OpEx, and that's minimum. And the reason we say minimum is because we will drive some additional savings in FY18.

So that $35 million of savings is pegged to the Q2 2017 OpEx of $95.7 million. So if you annualize it, it's roughly about $383 million on an annualized basis and from there you have $35 million of OpEx reduction.

Now all of these things, Dmitry, as was already factored into our EPS guidance that we provided for three-year during the Analyst Day. This is execution against the plan and the outlook that we provided you guys.

Now, when you think about where the savings are coming from, on the OpEx side is it across R&D, it is across [pro claim] management and marketing as well as sales as we become more focused in our SE business. And there's also some reductions happening in COGS as it relates to our service operations related to SE.

In addition to SE, we are also looking at a couple of unprofitable product lines within NE where we are also looking at how we can get into the maintenance mode in that unprofitable product line. But it's mainly SE focused with a little bit of NE.

Very good. I'll cede the floor. Thank you very much for that.

You're welcome.

Alex Henderson, Needham.

Hey, guys. I'm a little puzzled with the numbers here by the mix. I would've thought that the stronger revenues in service enablement would've caused lower margins, given they generally have -- you're losing money over there as opposed to making money in NE.

And what I got was lower than expected NE and stronger SE, but better margins in SE than I would've expected. Can you help me out a little bit with understanding how that mix in the quarter helped the SE profitability?

Yes. So, Alex, that's a good question. So SE revenue growth was driven by two vectors, one was a data center business which is a network instrument business group which goes -- we basically is higher gross margin business, so that really helps. And now we have starting seeing momentum in that business, and hopefully we'll see the momentum go forward.

On the assurance side, we actually drove acceptances of the solutions that we actually sold previously. And when you drive those acceptance of those solutions and it has software and solutions component, it comes in at the very high gross margins. And that's the reason you saw favorable mix of gross margins coming in the SE business.

Okay. So if I could drag down on that a little bit, so the assurance acceptance is fairly lumpy. Will that recur as we go into the upcoming quarter, or is that a you've got the acceptance now you get the revenue stream from that going out, or is that catch up?

How do I think about that? Did that also cause a little bit of a spike in your revenues on that line?

It did cause a little bit of spike, that's exactly right. And that's the reason when we have guided for our NSE in Q3, you will see that we are in line with the seasonal guidance from Q2 to Q3. But we also factored in that SE as we go through this restructuring, it will impact our bookings as well as our acceptances. So we expect that SE revenue to come down, that's exactly right.

Now from a margin perspective, you saw NE gross margins actually declined sequentially because of couple of things. One is, there was an unfavorable product mix that was happening, as well as there was a one-time inventory adjustment that we took as we restructured one of the product line as we announced this whole restructuring within NE. That is a one time.

So we expect the NE gross margins to bounce back between 64% and 65% in our fiscal Q3, and our SE gross margins to be remaining at the 65% mark. So overall, the gross margin should remain the same but the mix will change as we go into fiscal Q3.

So you wobbled up and wobbled down, and I cancelled out the wobbles it comes out about the same?

You're right. Exactly right.

Okay, thanks. Guys, we got just to the crux of it, thanks.

As we were reporting on earlier quarters, we had just the opposite. We had headwinds on SE. And Amar was always very clear that when we do the deployment, we sell through a lot of hardware that we pass through with a small mark up.

So that brings down the gross margin. Once the hardware is installed and it's really the acceptances and then extensions and the add-ons to the solution that we sold, that comes in at a much higher gross margin.

One other question if I could, just on the tax side. If Trump cuts tax rates to 15% to 20%, do you guys have to write down your goodwill, excuse me not goodwill, deferred losses, NOLs?

Write down the deferred losses?

I would assume that that would reduce the amount that you would be able to recognize.

So I need to follow up on that question, Alex. Not to my knowledge, but I think it is better that we get into a bit of detail there and help you so I can understand your question and then -- .

All right, thanks.

Our tax rate, let me just be clear, our cash tax rate has been 15% to 20%. The reason being we do have profits landing in tax jurisdiction where we do not have NOLs, and we are working, as I mentioned during the Analyst Day, on this super distributor model where we'll be able to repatriate both profit and cash back into the US and protect it from using our NOLs.

So we continue do that. And depending on a quarter when the profitability of where it lands in which tax jurisdiction is hard to predict. But 15% to 20% is what the tax rate we are actually targeting.

Okay, thanks.

Thank you, Alex.

Rod Hall, JPMorgan.

Hello, guys. Thanks for taking the question. I guess I wanted to come back to this question of NSE margins. I guess what I want to ask is, as you restructure SE and you realize the cost savings you guys are talking about, does that now drive a breakeven situation with SE so it's no longer losing money? I guess that's my first question.

And by when would you expect that division to breakeven? And then I also -- and I don't know if you're going to want to comment on this or not, probably not. But I would love to have any color on, Oleg, what you are now thinking with regards to M&A?

Obviously this deal has been talked about a lot in conjunction with you guys, and it looks like Keysight is going to go there. Was that ever a good fit for you, or now in retrospect that the deal has been announced can you give us some more color on what you're thinking about what would be a good fit and what wouldn't be? Thanks.

All right. Let me take the SE question first, Rod, and Oleg will follow up with the next question that you have. So SE will be a breakeven in FY18 based on this plan.

So as I mentioned during Analyst Day, going back to my earlier commentary, SE on a fully-loaded basis was losing about $40 million in FY16. That loss is -- basically we cut some of those losses in FY17 and it should breakeven in FY18.

So as we have indicated, NSE is an operating margin expansion story for the next two years. So this is in line with what we guided where operating margins will be between 7% to 9% in FY19, and that's basically -- we are tracking to that particular guidance. Oleg, can I -- ?

Sure. So if you have that, I was just going to take that M&A question that he had.

Sure. Anything else on the SE stuff, Rod, before we (multiple speakers)?

Yes, Amar, could you just give us the timing on that? So would you expect these savings to be coming through in one quarter, two quarters? When can we expect these margins to be what you guys have indicated?

So the 7% to 9% is FY19. So let's keep that, that's our guidance for the three year. We are currently operating between about roughly 2%.

In FY16, we did 1.9%, it will be better in FY17 and much better in FY18. So the savings as we had indicated, most of the actions will happen in the second half of FY17.

So as early as first quarter of FY18, you should start seeing some of the impacts of the savings. In fact, some of the impact of the savings will start showing up even in fiscal -- Q4 of 2017, which is fourth quarter of 2017. But the run rate impact should happen in December quarter for FY18 which is Q2, but as early as Q1 of 2018 where you should see the full run rate impact.

I think we will see most of the potential as we exit this fiscal year in the June quarter. So going into September quarter, we will start capturing most of the savings and then the remainder will fall in in the September and December quarter. And as we complete the calendar year, will be fully implemented.

Okay.

Now regarding your M&A question, during our Analyst Day, we identified that M&A is clearly a part of our corporate development strategy subject to two very important conditions. It's got a have a good, strategic fit either in the cost or technology and revenue synergies, and we continue to be very financially disciplined.

And as you know, there's a saying, every deal has a price. And it also contrary to that says colorary says beyond a particular price, no deal is a good deal. So from our perspective, we will continue to look at multiple opportunities, provided that they make financial sense for us and our shareholders.

And, Oleg, are you still thinking economy wise you'd like to get the SE restructuring done before you head down the path of consolidation or timing wise you are pretty open?

We can do both. The reality is, most of the planning and preparation to do as SE restructurings really took place in the past two quarters. We have now a very well understood strategy and organization going forward, and we are implementing changes -- most of the changes this quarter with the remainder in the June quarter, and then whatever remains later in the fiscal year. So I think most of the heavy lifting in terms of structuring and analyzing and preparing for restructuring is done, it's really now just to get it executed and move forward.

Okay, thank you.

So, Rod, just so that I'm clear. Savings will start in Q4, you'll start seeing some savings in Q3, some in Q4 and then Q1 should be a balance and then Q2 is when you have a full run rate savings.

So that is the whole plan. So the next quarter should be better from an OpEx perspective compared to Q3.

Is that linear, Amar? How do we think about the -- a third, a third, a third or how does it come out?

Well I won't get into that level of detail you can send me a model or fill it up, I was just kidding. But I think you can see, Rod, as I said, most of the actions from a labor perspective will happen in the second half.

So what will happen is some of it will happen towards the end of second half, so that full run rate savings you will see only in the following quarter which is fiscal Q1 of 2018. So I think you should -- don't model it linearly, but there are some step functions. But you should see a full run rate savings starting fiscal Q2.

Okay, thank you.

Thank you very much.

Patrick Newton, Stifel.

Good afternoon, Oleg and Amar. Thank you for taking my questions. I guess first is just a clarification.

Amar, you walked through the SE revenue, and talked about SE being about 23% to 24% and heading down to 15% to 20% of sales in FY19. Is there any lumpiness associated with that, or under current plan, is that a relatively linear decrease?

Yes, I think it's relatively linear. Because as you know, we will see the mature assurance business also ramp down linearly. That's what we are assuming, so it is relatively linear.

Great. And then I guess, Oleg, looking at the NE business, you have some new products, you have some cyclical aspects and some new technologies that are coming to market. Do you have any timeframe that you think you can return the NE business to growth?

So NE obviously is a pretty broad product business, product line business. In fact, today if we look at our fiber portfolio it is growing very nicely. So there's different elements of it.

So the fiber business is growing pretty much across all regions, and there's very strong, healthy demand. The area of weakness we had was really more on the access side. As a lot of the service providers prepared for a deployment of DOCSIS 3.1 and G.fast.

In the second quarter, we actually started seeing the initial deployments in Europe for these new technologies, and I would expect that trend picking up throughout the next several quarters. So obviously as access part of the business starts to recover and returns to growth, it will drive the recovery for the rest of the business. And to the extent North American operators are spending money again on their network and field services, that will further push the demand for that business.

We have a very strong exposure to North America, so any tightness in budgets more than offsets any product line specific strengths that we see around the world. And that was really the case, I would say, for the last two quarters in North America.

But I think from that perspective, the access technology is starting to be deployed such as DOCSIS 3.1 and G.fast is going to make the access part bring back to life, so to say. And we expect the fiber to continue to be strong in the coming year. And to the extent the CapEx spends are going to start to rebound in North America, it will get a nice confluence of factors that should take our NE business and start growing it again.

Great. And just last one on OSP, with the prepayment that you received last quarter. Could you walk us through a little bit more detail around the type of customer, whether the payment -- what it means in regard to capacity commitments, minimum share any other details there? And should we think that you could see some higher volume consumer electronic applications coming out of OSP in the second half of calendar 2017?

So I think we are limited in what we can disclose, given the straight NDA terms of our agreement, but it is a capacity based prepayment. Obviously as I mentioned earlier, to go into high-volume production for the 3D type of filters it takes a capital investment in the reactors and some of the back end of the line processing. We're not going to go and spend money like drunken sailors, and build a factory hoping they will come.

We have a very strong intellectual property differentiation and industry. We do have, we believe, the best technology on the market, and our customers recognize it.

And we do it more as a partnership with our customers, saying hey, we will go ahead and implement capacity and we will deploy it for you. But you need to put skin in the game, and part of that is the prepayment of revenue. And the way it gets back it gets refunded on a per unit basis as the customer realizes the volume forecasts that they commit.

So that's a general mechanism. It's fairly common in OSAT industry, the semiconductor assembly and test. I'm not sure how common it is in our space.

And then timing?

Pardon me?

And the question on timing and percent of (multiple speakers).

As I said, I have been in this business in particular with the ramps in the mobile devices for quite a bit in my previous jobs. And there's always flippage of schedules.

So to be prudent, we did not really hype it or communicate that up to this point, but I think we are getting closer to the point where the production ramp will start materialize. And I would just say that's a second half of this calendar year is where we're looking at, and it will depend on the customer readiness of other vendors whether it comes sooner or later in the second half.

And I think we are planning to give color on that, Patrick, as mentioned earlier, in fiscal Q4 earnings.

And, Patrick, as I said, as we get closer to the beginning of FY18 or our June quarter, we will be communicating more color on these opportunities as they get closer into our, call a, into our gunsight.

Great, thank you, Oleg and Amar, for the detailed responses. Good luck.

Sure.

James Kisner, Jefferies.

Hello, guys this is David Wishnow in for James. Thank you for taking the call. To follow up on the prior question, when we start seeing some of the 3D sensing potential applications flowing through OS&P, do you guys have a sense for what margins will look like relative to the current OS&P margins?

Well not only we do have sense, we know exactly what they will be. Otherwise we wouldn't do that business.

Exactly.

Remember it's a capital-intensive business, and we looked at it from the point of view of a return on our investment. Clearly is not the kind of margins like you would get in anti-counterfeiting. They are lower, but the operating profit contribution and ROI is within our target model.

So just to build on that, as Oleg mentioned, it will be dilutive from a gross margin perspective. The OpEx structure doesn't materially change, so it's operating profit accretive from a dollar perspective and it might be slightly dilutive on operating margins. But again, we will not give the color till we get to a point where we can come and discuss about the volumes et cetera.

Okay, fair enough. And just mechanically, could you refresh us on how these prepayments would flow through the financial statements? Is this -- will you see it show up on the P&L or will it mainly be a balance sheet adjustment?

No, it (multiple speakers).

No, it's very simple model. Think of it this way, and I'm not going to tell you exact mechanism, but let's say I will tell you what it is. Let's say you have a -- you are going to buy pieces from me let's say $2 apiece and you promised to buy 10 units. I will ask you to prepay me $10 and I will refund you $1 for every unit you -- I will credit you $1 for every unit you buy.

So when you buy a unit, I will credit -- I will debit your prepayment account by $1 and I will bill you for the second dollar. You see? So my revenue P&L is going to be exactly -- I will recognize $2 of revenue, but all I am doing is I'm moving $1 from prepayment into my revenue and I'm billing you for a second dollar, you see?

Okay, perfect.

No P&L impact.

Yes, there's no P&L impact, it's really -- just think of it as the customer advance payment. They just pay you revenue ahead, and you credit it against the future invoices.

Okay, great. That's very helpful. Thanks, guys.

Sure.

Meta Marshall, Morgan Stanley.

Hello, thanks for taking the question. I wanted to dig in on a couple things. First on the SE business, you mentioned post the reorganization that some of the other businesses were in maintenance mode or being phased out.

I just wanted to know, is there any potential for monetizing any of those assets, or is that something that you are looking at or should we not be expecting that going forward? And then the second question is just does any of the India reprints have any material impact on the OSP business? Thanks.

So I'll take the first question, and then I'll give you the follow up with the OSP. So if we look at -- we have looked at all the options for our SE business, including the divestiture, selling parts of product line, selling all of the product line. And we had a number of offers, and we had a number of people we talked to.

In the end, we came to conclusion that us doing the restructuring ourselves creates the greatest value for our shareholders. Unfortunately with a lot of these things, there's two things you have to worry about. One is devisibility or severability of various software and technologies one from another to make a clean cut, which is very difficult when you have a lot of intertwined product lines.

And the second one is the customer obligations, because no matter what I put in the agreement and who the party is, in the end our customers still hold us responsible. And we could not truly guarantee the serviceability of the customers to our pre agreed levels with some of the parties we looked at. And in the end when we looked at the value that they were offering and what we can do on our own, there was a wide gap.

And as I said, we view ourselves as very good stewards of our shareholder money, and there is no suckers in this room who are willing to give away a business for nothing. So we decided the best bet for us was to do our own restructuring, bite the bullet, do it right, and later if somebody wants to pay a fair price for it we can always discuss it. But at this point, we feel our current plan gives us the biggest bang for the buck and gives the best value to our shareholders.

Now with respect to the India reprints, clearly we are supplier of pigments to leading manufacturers of ink. So India demonetization clearly drove quite a bit of demand in the prior year. Potentially, we do not know it for sure, exact mix and the amounts, but some of the big demand we had in the prior year was driven we believe in part by India.

And to the extent there is more business to be had, that's not something we see just as yet because there's inventories sitting in the channel that are designed to provide for that. But generally, we avoid getting into details and asking our customer exactly where the pigments are going because there is a great level of confidentiality in the industry.

Got it. Thank you so much, guys.

There are no further questions at this time. I will now turn the call back over to Bill Ong for closing remarks.

Thank you, Maryama. This concludes our earnings call for today. Thank you, everyone.

This concludes today's conference call. You may now disconnect.