Q1 2020 Earnings Call

Good afternoon, and welcome to make.

Comps first fiscal quarter 2020 conference call.

This conference call is being recorded today Tuesday January 28 2020.

At this time all participants are in listen only mode. I will now turn the call over to Mr., Steve Marotta, They make Holmes Vice President of Investor Relations Mr. fraud type. Please go ahead.

Thank you Catherine good afternoon, and welcome to make comes first fiscal quarter 2020 earnings Conference call.

I would like to remind everyone that our discussion today will contain forward looking statements, which are subject to certain risks and uncertainties as defined in the safe Harbor forward looking statements contained in the private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those discussed today.

For more detailed discussions of the risks and uncertainties that could result in those differences, we refer you to make comps filings with the FCC.

Management statements. During this call will include discussions of certain adjusted non-GAAP financial information.

A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related form 8-K, which was filed with the FCC today.

With that I'll turn over the call to Steve Daly, President and CEO Maaco.

Thank you and good afternoon I.

I will begin today's call what the general company update after that Jack Kober, Our Chief Financial Officer, who will provide a more in depth review of our fiscal 2020 Q1 financial results. When jackets finished I will provide revenue and earnings guidance for our Q2, and then we would be happy to take some questions.

Revenue for Q1 was $119.1 billion, an adjusted EPS was seven cents per diluted share.

It was a good start to our fiscal 2020 and the Maycom team did an outstanding job during the quarter to achieve these results.

They comps management and employees continue to drive improvements across all aspects of the business.

The management team is doing a great job, establishing a culture of engineering excellence and fiscal discipline.

Our Q1 revenue by end markets was as follows Telecom was 45.6 million industrial and defense was 50.5 million and data center was 23 million.

All markets performed well with sequential growth of 50%, 1% and 2% percent respectively.

On a geographic basis, 45% of our first quarter revenue was from domestic customers and 55% from international customers similar to prior quarters.

Our book to Bill ratio was 1.1 to one and our turns business or business booked and shipped within the quarter was approximately 25% of our total revenue.

We experienced solid bookings across all three end markets and generally speaking demand for our products was strong in the first fiscal quarter.

The sequential growth in our telecom end market was primarily driven by demand for our fiveg products and to a lesser degree by an increase in two point fiveg upon following multiple quarters of decline.

As a reminder, our fiveg portfolio today consists of receive side RF front end modules control products for base stations high performance analog Icees for Fiveg front haul in high performance coherent driver and T.A. products for mid Hall.

We view Fiveg is a key driver for Maycom revenue in the years ahead and in the coming quarters, we anticipate expanding our current fiveg portfolio by launching complementary new products, including more optical components more discrete RF components and more high performance analog and mixed signal.

I see is.

Our industrial and defense end market revenue was driven by various U.S. defense programs Satcom applications and increased sales to our test and measurement customers.

Going forward, we plan to expand our efforts to win market share with our existing products and we will target satellite and defense Oems with our high reliability components.

Our data center end market revenue continues to show improving trends driven largely by our hundredg product portfolio.

Today, we services market with high speed analog products.

The inventory in our sales distribution channel is relatively low compared to historical levels and we believe our largest high volume customers are carrying relatively low levels of inventory.

This has and we expect that it will continue to support near term incremental revenue growth.

Revenue growth and our three core markets will also be driven by our ability to design and bring new products to market quickly and win market share.

We are confident that changes made in our engineering management and broader organization in September as well as the updates to our product development process will allow us to improve may comps competitiveness and time to market.

Along these lines during the quarter, we launched 13 new products. This exceeded the pace of the last several quarters and we expect this rate to continue to increase throughout 2020.

Simply put we are increasing the efficiency of our R&D spending by streamlining the product launch process.

I would like to highlight three notable product releases from the first quarter, which illustrate the diversity of our technology.

First we expanded our microwave mimic portfolio with two new gallium arsenide mixer products covering six to 26 gigahertz and 15 to 45 gigahertz.

In addition to having broadband with these up and down converters feature high linear already a key differentiator and a requirement for high performance microwave systems.

We offer these products as bare die or and low cost surface Mount packages and they will target point to point microwave radios test and measurement and other high frequency applications.

Second during the quarter, we released to production Silicon germanium 28, Gigabaud linear email laser driver targeting Fiveg backhaul applications. This device supports one hundredg two hundredg and four hundredg data rates using Pam four modulation.

And third we launched a 12.5 watt 50 people Gan on silicon surface Mount Wideband power amplifier.

This product is notable for its wide band performance and 56% drain efficiency a 2.5 gigahertz.

Applications for this product includes secure communications avionics and ISS infrastructure.

These three products highlight the breadth of technology, we have as well as the diverse end markets, which we serve.

Today, we sell hundreds of differentiated products to thousands of customers.

We have relatively low direct customer concentration and low product revenue concentration.

Our existing product portfolio in our recently released products established the foundation of May cause it should provide us the opportunity for revenue and profit growth in the near term.

At the same time, we are focused on completing R&D on technology, which will help drive may comps growth over the longer term.

These include new technologies like next generation Gan on Silicon Dsps lasers, L Pic assemblies and silicon photonics.

We recognize that these technologies have the potential to generate significant revenues and profits in the years ahead.

During the quarter, we made progress on various key technology developments as an example, our laser diode development team implemented a variety of wafer processing changes to improve our products performance as well as improve our test and burn in yields.

In the coming weeks and months, we will verify that these changes meet our reliability requirements as well as the long term reliability requirements of the Telcordia standards for optical components. These results will provide us the opportunity to enter the Fiveg front haul market with a 20 fiveg laser solution that services up to 10.

Kilometer applications, enabling new design wins and new revenue.

This is just one of many laser reengineering efforts underway.

Our laser technology supports over 15 unique laser configurations, most of which use our patented etch faceted technology.

Laser technology will target data rates from one hundredg to four hundredg and applications in the data center Fiveg front haul and mid hall and various other high volume markets.

I can provide a few general updates related to our RF power product and development activities.

First our design team is doing a great job executing their new product plan, which now includes adding gan on silicon carbide products to our portfolio.

Second our efforts to transition our Gan on Silicon technology to Estes six inch fab continue.

Capital equipment planning procurement and installation, which is necessary to complete the process development all continue to progress.

I would like to highlight that STN. They can still have a significant amount of work in front of us to complete the Gan on silicon development.

And for this reason, we will announce the associated schedules and product introductions. When we're further along in the project.

And third using our existing four inch Gan supplier, we have made incremental progress on our Fiveg Gan on silicon massive mimo amplifier design and product performance.

Current six want eight watt intend watt product performance is achieving improved results and is becoming increasingly competitive to ldmos Gan on silicon carbide.

Over the past six months, we have been reengineering, the packaging device matching and optimizing amplifier performance by developing new digital pre distortion or DPT test techniques.

Our goal is to finish these product designs in intersect the market.

With a compelling product at a compelling price.

We believe the demand for massive mimo amplifier products will grow in the years ahead.

May come has a diverse business and customer base, we stand in front of a multibillion dollar Sam or serviceable addressable market with a unique in proprietary technology portfolio.

We recognize our revenues are small relative to RCM and for this reason, we believe we have a tremendous opportunity to increase revenues profitability and stockholder value in the years ahead.

Our operations team continues to execute well on meeting customer commitments in fiscal 2020, the team will be focused on improving key metrics and performance of our wafer fab as we see opportunities to improved cycle times, lower scrap levels and improve inventory planning.

During the quarter operations kicked off a major S&P or sales inventory operations and planning project with a long term goal of improving the cross functional planning of our inventory management and ultimately lowering our you know.

These process improvements are expected to reduce inventory ways and we believed that the associated savings will drop right to our bottom line, we expect to see benefits of these efforts and our fiscal 2021.

In summary, we continue to approve all aspects of our business, including technology Roadmaps company positioning within the core three markets and operational improvements I am pleased with the results today and we expect continue improved performance as we move ahead.

Ill note that we'll be attending the optical fiber conference or alessi in San Diego in March during our fiscal Q2.

We will have some additional new products to introduce with the conference as well as some great product demonstrations at our booth.

I will now provide a more detailed review of our Q1 financial results.

Thanks, Steve and good afternoon, everyone. Our fiscal Q1 results were another tangible steps toward improving becomes overall profitability and cash flow.

Most notably we posted sequential improvements in revenue adjusted earnings per share in free cash flow.

This has been a company wide effort and I would also like to thank all of the May come employees, who had been working hard to help achieve this.

Revenue in the first fiscal quarter of 2020 was $119.1 million up 6% sequentially.

The sequential improvement was driven by positive trends across our end markets, including growth from early Fiveg deployments in telecom.

Healthy demand in industrial and defense as well as increases in data center.

On a year over year basis revenue was down 21% from $150.7 million.

Fiscal first quarter of 2018.

Adjusted gross profit in fiscal Q1 was $63.7 million for 53.5% revenue.

Adjusted gross margin was up 50 basis points sequentially.

Gross margin improvement remains a key focal point for us.

As Steve noted, we have a number of ongoing internal initiatives aimed at cycle time improvement scrap reduction and operational efficiencies that we believe will result in incremental gains gross margin for the course of fiscal 2020 and beyond.

Total adjusted operating expense was $50.7 million, consisting of R&D expense $31.6 million SGN a expense of $19.1 million.

Operating expenses were down more than $300000 sequentially.

We incurred $1.2 million of restructuring charges in the first fiscal quarter associated with the restructuring plan, we announced back in June 2019.

We anticipate approximately $2 million of additional restructuring expense remaining over the course of fiscal 2020 as we complete these actions.

As I have previously noted there are few remaining items related to our June 2019 restructuring plan that we expect will provide additional opex reductions later in fiscal 2020.

I would also like to note that from time to time or R&D expenses may include large expenditures associated with certain development programs.

We will continue to invest in new product opportunities, while also aggressively managing our discretionary spending.

Adjusted operating income in the first quarter was $13 million translating into 10.9% adjusted operating margin.

We see ample operating leverage in our business model for the remainder of fiscal 2020, as we expect revenue growth to continue and operating expenses to remain relatively stable.

Depreciation expense for fiscal Q1 was $7.4 million and adjusted EBITDA was $20.4 million.

Fiscal Q1, adjusted net interest expense was approximately $7.6 million down slightly from the fiscal fourth quarter of 2019.

Our non-GAAP adjusted income tax rate in fiscal Q1 continue at 8% and resulted in an expense of approximately $400000.

Fiscal Q1, adjusted net income was $4.9 billion translating into seven cents of adjusted earnings per fully diluted share utilizing a share count of 67.5 million fully diluted shares.

Now moving on to cash flow and balance sheet items.

Cash flow from operations was a highlight for our fiscal Q1 coming in at $37.7 billion.

The primary factor behind the improved cash generation was lower working capital levels led by an $18 million reduction in our accounts receivable balance.

This is a direct result of our efforts to improve revenue linearity throughout the quarter, which has allowed us to collect more accounts receivable within the quarter.

We feel this continued focus on monthly linearity will have other benefits and operational efficiencies such as reduced cycle times.

Lower expedited freight costs improved production visibility and better inventory management.

Q1 was a transitional quarter for us and we do expect the trend of improved revenue linearity in working capital management to continue.

However, during Q2, we do not believe we will be able to generate operating cash flow at the same level. We did here in fiscal Q1.

We have taken numerous steps throughout the organization to continue to drive healthier cash flow.

Focused capital spending tight operating expense management and further working capital improvements.

During fiscal Q1 capital expenditures totaled $4.2 billion were 3.6% of revenue.

We anticipate capex in fiscal Q2 will be up from Q1 levels as a result of the timing of payments for certain capital investments.

We expect overall capital expenditures in fiscal 2020 to be below fiscal 2019 levels and we continue to remain focused on achieving appropriate returns on capital that we deployed.

Fiscal Q1 free cash flow was a positive $33.4 billion as compared to a negative $13.6 billion in Q4, driven by the combination of higher Q1 cash flow from operations and lower capital expenditures as previously discussed.

Inventories were $106.9 billion at quarter end down approximately $1 million sequentially.

Inventory turns were roughly flat at two times during the fiscal quarter.

Inventory management remains an area of emphasis and we see opportunities for continued improvement in our inventory metrics going forward.

Cash cash equivalents and short term investments were $210 million up $33 million from $177 million at the end of fiscal Q4.

As a reminder, our short term investments are comprised of corporate bonds in commercial paper and are classified as held for sale.

Total long term debt was $693 million inclusive of finance leases.

Our long term debt of $655 million is covenant light it has minimal annual principal payments until its maturity in may 2024.

We also have an undrawn $160 million credit line available through November 2021.

I want to note that fiscal Q1 was the first quarter in which we implemented Fas These new standard on lease accounting assay 842.

The adoption of this new accounting standard resulted in an increase in our assets and liabilities of approximately $38 million.

In summary, we are pleased with our financial progress in the first fiscal quarter of 2020.

Well, there's still much more work for us to do in order to achieve our longer term objectives. We believe that we're off to a good start with positive momentum across the business.

I will now turn the discussion back over to Steve.

Thank you Jack.

Hey, calm expects net revenue in Q2 fiscal 2020, and <expletive> March 27th 2020 to be in the range of $122 million to $126 million. Adjusted gross margin is expected to be in the range of 53% to 55% in adjusted earnings per share is expect.

To be between nine cents and 13 cents per share based on 68 million fully diluted shares.

Our Q2 revenue projections include expectations, the telecom and data center end market revenues will be up in industrial and defense end market revenues will be flat to slightly down.

We are excited about the multiple opportunities in front of us and we are focused on execution and planning I.

I would now like to ask our operator to invite our listeners to ask any questions.

Thank you to ask a question press Star then one key on your Touchtone telephone.

Again to ask a question press star one.

And our first question comes from harsh Kumar with Piper Sandler Your line is open.

Yes, Hey, guys first of all congratulations solid execution, good to see that positive free cash flow.

All of the other companies are talking about data center getting better.

We didn't see that in the December quarter in a meaningful way, but I think your guidance implies that it will be up in March was curious if you can give some color maybe why didn't move.

December quarter and than perhaps what you're thinking specifically for that in March It and then I will follow up.

Yes, I think the.

I think that are what we're seeing in the datacenter market is in line with industry. We are seeing a positive momentum in terms of booking activity in demand.

Most of our exposure on the data center is.

On our one hundredg analog solutions that are generally for short short reach type applications.

As we look into Q2.

We see continued strength.

We think our sequential growth from the data center will be low.

Bill I'll say like above 10%.

Sort of low teens type of a sequential growth.

But generally it that end market behaved well to us.

We're seeing the demand for.

Hundredg products, and we think theres some significant growth in front of us to come.

Okay. Our next question comes from Quinn, Bolton with Needham and company. Your line is open.

Hey, let me Echo.

Congratulations on the a nice results and especially on the on the nice cash generation in the quarter.

Steve I wanted to come back you had mentioned some new products I think it was Gan on Silicon 68 to 10, why not just trying to get a sense.

The applications for that and how those products may differ.

For much or you're doing with S.T. micro for Gan on silicon.

So just to remind everybody we have a fairly robust power business. Most of it revolves around legacy bipolar transistor business, where you're talking about 50 watt in above type power levels, and we see that that's a stable market. It's typically in.

Avionics defense type and applications test and measurement event and so part of our strategy in terms of product developments is to make sure that.

As the new technologies come forward, such as Gan on silicon or even Gan on silicon carbide that we.

Address those same markets with a with a more relevant technology or a newer technology. So our strategy over the next year or two will be to build out our general power transistor as well as power amplifier business.

For this multi market category, what we'd like about this market as the Asps are high the margins are generally very strong typically above our corporate average.

So it's a low medium volume high mix type of a product area and it's additive to the the strategy that revolves around Fiveg NSP.

But it's very very different so.

As you know the S.T. strategy is really taking our existing gan on silicon process and transitioning into a six inch low cost high volume fab specifically to address.

Markets like massive mimo in Fiveg.

Got it is so different application. Thank you. The other question ahead is.

You guys seem to be reporting strengthen the telecom side of the business driven by Fiveg I think front in mid whole, yet when we listen to Texas instruments and Xilinx reporting here. After the close both companies have talked about seems slower activity on fiveg.

Wondering if you might be able to help helps reconciled the strength, you're seeing versus perhaps some of the the weakness some of the larger players in the space are saying.

Well I think.

A few things number one.

We're very small relative to the size of the market remember we're in front of a multibillion dollar Sam so our incremental growth in any period isn't necessarily representative of the market.

That's the first point I'd make the second is our telecom and market is actually a large catch all for a variety of different submarkets. So fiveg is one of them.

But we have other submarkets that drive growth for example, GPON and I think I mentioned in the script that that was an area that was showing strength, so but with that said we are seeing.

New revenue from new products in the Fiveg front haul market and we believe.

We're in a strong position.

With some of our products some of our analog products.

To to support that market so.

I guess I'll leave my comments at that other than we are seeing the strength, we think that that strength will continue.

We have a lot of different products that go into telecom, we talked about the high power switches in the past front end modules of course for Fiveg radios, and then the access market, which is the GPON market. So telecom for May come as a very broad market.

As we look into Q2, we think we'll see high single digit sequential growth.

Coming from all these things I just talked about.

Thank you.

Thank you and as a reminder, if you would like to ask a question press Star one please limit yourself to one question and one follow up.

Our next question comes from toy Sonnenberg softer with Stifel. Your line is open.

Yes, Thank you and congratulations on the strong results Steve.

Apologize for making this comparison, but the previous management team that may come seem to be really aggressive on Gan on silicon you just mentioned that perhaps with Gan on silicon carbide.

To me it appears and you've been able to more of an a balanced.

Approached when it comes to the different flavors again is that the right way to think of it or is there any other reason why you are.

Starting to make more investments and again as we can carve it.

Right. So I'd look at our business from a portfolio point of view and we will have products that will run through our internal fab and we'll have products that we will go to the market and we'll use external fabs and so.

When we think about Gan on silicon organic silicon carbide.

Or any other a process, whether its high power p. hand, or HBT or even bipolar.

Our strategy is simple we want to make sure our chip designers have access to the best technology for the applications that they are focused on.

How about $50 million of revenue today.

As in industrial and defense. This is this is an end market that we sit in or or contribute to that that wants the best technologies and so when we compare certain applications.

To the different Gan process technologies, there are many instances where gan on silicon carbide.

We'll provide a superior solution and so we want to provide our designers access to that process. So I look at the opening up of the aperture of our Gan strategy as additive.

We are certainly not backing away from.

Our goals regarding.

Gan on silicon and developing a high volume solution.

For a variety of markets, including massive mimo. There are there are some compelling attributes of Gan on silicon in terms of ease of use for example in.

In certain applications. So we're continuing to develop that we see it as a long term activity as I pointed out.

But I don't think you should interpret these actions as strategy change where were replacing Gan on silicon.

With Gan on Silicon carbide.

That's that's really helpful. In my follow up question is perhaps for the both of you.

As it relates to gross margin. So you said, you're taking some actions internally operations to try and improved yields scratching soon and so forth.

Should we think about those initiatives kind of getting the company beyond the immediate goal of 60% gross margin or or is that kind of part of the will to march towards that long term target.

It Tory it's Jack if those those initiatives are getting us inline with that with that March towards improving margins. We know we had margins in the in the high Fiftys going back.

The past couple of years or so so we're we're taking a many of these initiatives to try and get us back in line. There we have posted sequential increases in our gross margins over the past couple of quarters and.

And the expectation is that will that will continue.

I would take some time as we work our way through it.

And once again as revenue recovers, we think we've got.

More of an opportunity to expand from a from a gross margin perspective as well.

The other the other area just to note is in addition to gross margin expansion from an operating margin point of view, we feel we've got sufficient leverage just based on our current opex structure, and where we're going to have that really contribute to to the bottom line.

Thank you and our next question comes from Tom Diffely with D.A. Davidson. Your line is open.

Yes. Good afternoon, when you look at the fairly impressive outlook for high single low double digit growth.

It's mostly coming from our you would describe as a market recovery versus new products or are the new products start to have a meaningful impact on that.

Yes, I think it's a little bit of both.

And just to be clear in our guidance I think at the midpoint, it's around 4% aggregate sequential growth.

Some of the Submarkets. So our smaller markets are growing faster right now such as data center and telecom.

But I think it's it really is a combination of both there are pockets, where there's market recovery such as of the data center, but theres other areas, where we're winning market share in some of that's due to the great work. The company has been doing over the past.

Few years, including.

Developing products for.

Long haul, adding to that product set for example, linear Tia days.

Modulator drivers that are running at higher data rates.

So.

Our goal as as a business is too.

More rapidly introduce products to capture the market opportunity and so what Jack and I and the team are doing a really focusing on how do we move products out the door at a faster rate whether it be.

Gallium arsenide mimic that we run in our foundry, whether it's a laser diode that we want to sell into the data center.

Or whether it's a massive mimo amplifier for Fiveg. So I think the theme around May coms growth will at least in the next year or two will be centered around our ability to launch products for these very large markets that are demanding the products now.

Okay, Great and then when you look at the ramping level of new product release is are there certain enter a certain end market, where your additionally focused higher margin markets or is this truly across the board.

So we back in September we we actually reorganized our engineering organization into six different groups, which were primarily aligned by technology. Those technologies in some instances are very focused on one market in some instances they serve many markets and so each one of these.

Engineering organizations has a product development plan and I would say generally speaking theres a continual of products that have lower margins and products that have higher margins depending on.

The performance of the product in the and the end application.

And so over the long term as a part of our strategic planning, we do want to increase the gross margins of the company and while we can work on making improvements with the operation of the business and whether it be yields and production or.

Better designs that have more margin during production.

That will get us so far that the next step is really launching products that command higher gross margins.

Because the customers willing to pay a higher price and so.

We are going back to our strategy and we are reviewing.

The end markets that we're in we're reviewing the markets that were not in and we're asking ourselves. The question how do we get our margins above 60% on and the answer we'll really be.

Coming from what products, we choose to design now with that said as Jack highlighted here just a moment ago.

One thing Thats.

Tremendous tremendous strength for May calm as we have incredible manufacturing power and leverage and you saw a glimpse of that really looking from the fourth quarter to the first quarter, where we just had maybe 6% revenue growth, but we had 50% increase and EPS, 56% in that range and so.

So you know part of what we want to do as a management team is make sure that we capture the opportunities that drive shareholder value, which ultimately means driving earnings up and so there's lots of different ways to do that it can be by launching more high margin parts, but it can also be.

As a result of launching of say lower or or.

Lower than let's say corporate average margin parts, but the the revenue stream associated with that is tremendous and so we will certainly look at all of these.

Strategies.

And you could be sure that are our underlying theme will be though to drive shareholder value, which means driving earnings up.

Thank you and our next question comes from.

Tim Seven go with Northland Capital Your line is open.

Hi, good afternoon, and congrats on the results.

Wanted to focus in on your telecom growth.

In the quarter.

And to the extent.

Thats somewhat on driven sounds like mostly five few driven and within that probably mostly front haul mid hall, but if you have a kind of comment on that I'd like to hear it.

To what extent are you able to ascertain kind of what could end markets are driving that growth I assume you know China's or.

A significant one there and I wonder can give us an update on kind of where you're standing with.

Why way these days in that regard and I'd like to fall.

Yes.

Your initial comments are are accurate incorrect regarding.

What do you believe the growth is coming from it is primarily coming from.

Basically fiveg front haul and the chips associated with.

That end application, it's primarily a China end market, although there is a small contribution coming from other.

Overseas markets that are not that are outside of China.

Regarding quite away you know qualys as everybody knows what on the entity less back in May.

Prior to that our revenue at Wawa had been ramping up they had not.

In recent years achieved a 10% revenue level, but they were climbing up to that point and then in the middle of May that changed and since then we've seen.

Well number one.

Vast majority of the products that we.

We're selling to walk away, we're no longer selling to walk away because of the export restrictions.

But there is a small subset that we are allowed to sell to them and.

We've been doing that and I would say over the past seven months the revenues to walk away have effectively been declining.

Or flat.

And so when we do our Aoki planning and we look at our future.

Activities, we sort of take take the associated revenues out of our modeling.

And consider that upside, but the general trends.

Has been flat really over the last two quarters.

But declining.

And so again.

When I look at that and think about our business at large I would say clearly we're always a key player in the telecom space, but our strategy has to be to grow beyond.

Beyond hallway and make sure that.

If we lose a key customer that we're still strong enough to be profitable and to grow and that's where the diversity of our business accounted comes into play we have thousands of customers we have hundreds of product lines.

Don't have a lot of customer concentration relative to our peers and so we think this is a strength.

But we are we are certainly keeping an eye on while away.

We're not really engaged with them at this stage other than selling a very small subset of what we were previously selling them.

All of our forward looking planning is sort of X, while way until things change.

Got it.

And your follow up on the front haul side do you made some comments around 25 gig lasers into that application, though I'm not sure I caught the timing.

I'm, assuming you're kind of front haul.

Revenues today or more.

Each period, driven what could the.

The laser.

Part add to that and when might you expect that to rent.

So.

You're right it could be very additive we.

We didn't specifically talked about the timing of that other than to say that we've just gone through a process update.

And now we're going through a qualification.

Pays.

So the best thing to do with the stages too.

Wait for updates and this on the timeline.

I can say that it's it's going to take at least a quarter or two too.

Get to the point, where we're comfortable talking about ramps or product to turn just introductions are things like that we still have a fair amount of work to do internally. So.

No no 20 fiveg.

Laser revenue for front haul in the near term.

Thank you and our next question comes from harsh Kumar with Piper Sandler Your line is open.

Thanks for follow up question.

Jack I'm just curious if you could talk about how we should think about Opex. Your opex was actually kind of held in the actually went down a little bit volume grew revenues and I think you made some comments that you're going to be reining in our sort of holding it pretty tight.

Is that in context of absolute dollar terms or is that in as a percentage of spot sales for resi yet.

We're focused on managing all the operating expenses harsh there can be some ups and downs, depending on some some R&D expenditures as I had noted earlier.

We're focused on the dollars as we work our way through.

And it will continue to do that and aggressively manage it.

Thanks.

Thank you and I'm showing no further questions at this time I'd like to turn the call back to Mr., Steve Daily for any closing remarks.

Thank you and closing Jack and I would like to thank our employees for their efforts throughout the past quarter have a good evening.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.