Q2 2020 Veeco Instruments Inc Earnings Call
Ladies and gentlemen, you're currently at hopes to actually go instruments incorporated second quarter 2020 earnings Conference call.
As time goes doesn't getting additional participants do you Wanna get away momentarily, we appreciate patients actually pretty minimal.
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Please standby.
Good day and welcome to the Veeco instruments incorporated second quarter 2020 earnings Conference call. At this time left to turn the conference over to Anthony but let me go head of Investor Relations. Please go ahead Sir.
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Thank you and good afternoon, everyone. Joining me on the call today are either because chief Executive Officer, John Kennedy, Our Chief Financial Officer. Today's earnings release is available to be called website.
Please note that we have prepared a slide presentation to accompany today's webcast. We encourage you to follow along with the slides on Pico Dot com.
Coal is being recorded I'd come extremes and is copyrighted material it cannot be recorded or rebroadcast without because expressed permission your participation implies consent to every quarter.
We expect this call this crisis expectations about market conditions market acceptance and future sales of the company's products future disclosures future earnings expectations for otherwise it makes things about the future such statements are forward looking and are subject to a number like risks and uncertainties that could cause actual results to differ materially.
Statements made including as a result at the Coca 19th.
These factors are discussed in the business description management's discussion and analysis and risk factors sections companies report on form 10-K, and annual reports your share theirs and ours. Subsequent quarterly reports on form 10-Q current reports on form 8-K kidney press releases.
He could does not undertake any obligation to update any forward looking statements, including those made on this call to reflect future events or circumstances. After the date such statements.
During this call management May address Nongaap financial measures information regarding such non-GAAP financial measures, including reconciliations to GAAP measures of performance is available on our website.
With that I'll turn the call over to deal with price opening remarks.
Thank you Anthony.
Good afternoon, everyone and thank you for joining the call we've been executing well despite the ongoing pandemic.
Today I will take you through our Q2 highlights provide a brief cobot 19 update and then turn it over to John for financial update and guidance.
Then I will discuss our markets and technologies before taking your questions.
Q2 results were driven by strength in our data storage business within our scientific and industrial market and revenue came in at $99 million.
The business drove a healthy gross margin of 43% as long as well managed expenses, we achieved non-GAAP operating income of $8 million and non-GAAP earnings per diluted share of 11 cents.
Comparing to our financials from a year ago, we significantly improved operating results.
Due to steps taken over the past several quarters, such as de layering the organization to improve accountability and reduce cost rightsizing, the manufacturing footprint and divesting noncore product line.
We are seeing broad strength across our product launch with notable activity in fiveg related RF filter applications with our wet etch and cleaning products.
For the balance sheet perspective, we managed cashwell during the quarter with strong cash flow from operations of $20 million.
Along with debt refinancing and a product line divestiture, we increased our cash position by $59 million John will explain this in more detail.
Our team has been resilient throughout the stages of the Cobot 19 health crisis, all our sites operated at or near our normal capacity throughout the quarter.
While we're pleased with our operating trajectory. So far we do recognize that we continue to operate in the midst of a global pandemic. Our operating guidelines have been set up with the health of our employees in mind at all safety measures. We initially introduced are still in place.
We have begun to introduce a limited number of employees into our facilities.
But are doing so at a measured pace.
In fact, a significant majority of our employees that can work from home are continuing to do so until further notice.
Overall, we are positioned well.
The market drivers, where we participate such as Fiveg Ers, the cloud and high performance computing are all trending positively.
We have strong customer engagements and has built a healthy backlog.
Wafer fab equipment spending is forecasted to increase in 2028 and again in 2021.
We continue to invest in R&D to advance our core technologies.
From all indications future revenue appears to be a low point.
We are optimistic about the second half a year.
And with that I will turn the call over to John for review the financials.
Thanks, Bill and good afternoon, everyone.
Today, I will summarize our revenue by market and geography cover our piano balance sheet and cash flow and then take you through our guidance.
I will discuss non-GAAP financial data I would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release or at the end of our quarterly earnings presentation.
As Bill mentioned earlier, we had strong performance in our scientific and industrial market, which made up 44% of our $99 million in total revenue.
This was led by I'm beams system shipments to our data storage customers.
The advanced packaging, Mems and RF filter market made up 22% of our overall revenue driven by advanced packaging lithography system shipments to both Hsas and device manufacturers.
The front end semiconductor market contributed 18% of our overall revenue, resulting from laser annealing shipments.
And though we de lighting display and compound semi was 16% of revenue with and MOCVD and wet etch and clean products sold to a variety of customers.
By region.
The U.S. was 30% of revenue and included sales of several technologies to a variety of customers.
EMEA was 26% overall revenue.
Was driven by sales to data storage customers.
Rest of World.
Which includes Japan, Taiwan Korea in Southeast Asia was 26% of overall revenue.
From sales of let's say.
Dougherty and what action clean products.
And finally, China was 18% of overall revenue.
Mainly from MOCVD system and service sales.
We are experiencing challenges closing new orders in China due to the current trade restriction environment.
Have lost several orders that we were anticipating.
As a result in the near term, we expect revenue from China customers could decrease.
As a percentage of our overall revenue.
Now turning to non-GAAP operating results.
We achieved gross margin of 43% into second quarter.
Manufacturing efficiency improvements along with a better product mix are contributing to improved gross margins.
Opex for the quarter was $34 million.
As mentioned last quarter. We are ahead of schedule on our expense reduction target and our restructuring activities are now complete.
In addition, Q2 opex benefited from less travel and other variables expenses as a result of coal 19 related restrictions.
On a non-GAAP basis tax expense for the quarter was approximately $400000 with net income coming in at $5.5 million.
S was 11 cents on a diluted share count of 49 million shares.
Now moving to the balance sheet and cash flow highlights we ended the quarter with cash and short term investments of $301 million, a sequential increase of $59 million.
The cash increase was made up of $20 million in cash flow from operations approximately $30 million in net proceeds from our convertible debt offering.
Which I will describe in more detail in a minute and $10 million from the previously announced sale of a non core product line.
From a working capital perspective, our accounts receivable decreased to $67 million, resulting in a reduction in dsos from 73 in Q1 2020 to 61 for the quarter.
Q1, 2020, Dsos were higher than average due to the timing of when payments were do some falling just outside the quarter.
Accounts payable decreased $10 million to $26 million driving days of payables down to 42.
Partially offsetting the decrease in accounts receivable.
Inventory increased $7 million to $137 million, resulting from investments we made in adding safety stock related to cope with 19 supply chain actions and in preparation for higher shipments in the second half.
And lastly, our capex during the quarter was $900000.
I would like to spend a minute on our recent convertible debt offering.
Our original convertible debt, which was issued in 2017 had at face value of $345 million.
Groupon up 2.7% and is due in January 2023.
In May 2020, we issued $125 million of new convertible notes with a coupon of 3.75%.
In June 2027.
We retired $88 million of the January 2023 notes, which was the rationale for the transaction.
After transaction fees and the cost of the cap call. We added approximately $30 million of cash to the balance sheet, thus improving our liquidity.
Our long term debt is now $382 million made up of two tranches of notes with a weighted average coupon of 3% and the carrying value on our balance sheet of $317 million.
Our annual Cas expense on this debt is $11.6 million.
Now turning to Q3 guidance, although there are still uncertainties surrounding the potential impact of the Cobiz 19 pandemic.
Given our current visibility we are providing Q3 guidance.
Q3 revenue is expected to be between 100 $120 million with non-GAAP gross margin between 42 and 44%.
We expect non-GAAP opex to be between 35 and $37 million on a go forward basis, we expect to keep SGN, a as low as possible, but plan to strategically increase R&D in certain areas to support our growth initiatives.
GAAP EPS is expected to be between a loss of 12 cents and a gain of four cents per diluted share.
Non-GAAP EPS is expected between 10 cents and 26 cents per diluted share.
And now for some additional color beyond Q3 at this time based on our backlog and strength, we are experiencing in data storage and Fiveg RF filters, we see Q4 revenue trending slightly higher than Q3 2020.
And with that I'll turn it back over to bill for a market update.
At this time I want to spend a minute providing an update on the markets, we serve and our technologies.
Within our scientific and industrial market data storage has been strong bolstered by strong cloud and datacenter demand.
For many years, we've invested in ion beam technology, and working close partnership with our customers to enable aerial density increases of their read and write heads.
This drives performance in our high capacity drives using cloud and datacenter applications as our customers continue to seek technological advantage and add capacity. We expect this market to continue to stay strong for us into 2021.
So one in semiconductor results were driven by sales of our let's say products as customers ramp their current advance nodes.
He goes Ellis eight technology Leverages, our unique dual laser architecture and process advantages to offer better temperature control for our customers.
This advantage allows them to stay within their thermal budgets, which is critical at today's advanced nodes.
Looking ahead, we are encouraged by engagements, we are having with our logic customers as they begin developing their next notes. We believe we can expand our market opportunity in laser annealing with the combination of additional process steps at next nodes with existing customers and new customers as well.
In the easy market within front end semiconductor we continue to work closely with our EU the mask blank customers, while we did not ship benign being deposition system in the second quarter. We did receive another order for a system and still see this market as a two to four system opportunity per year.
In compound semiconductor markets, we continue to make investments in our MOCVD product portfolio.
Our latest product voluminous system deposits Arsnine hundred phospholipids and is based on our Turbodisc technology, providing excellent film uniformity yields and low default activity over long campaigns. The luminous system is designed for applications, such as indium phosphide lasers for Datacom and telecom.
Threed sensors for facial recognition and world facing applications.
Right, our for autonomous vehicles, and Red Elie diesel for micro LCD displays.
This system is performing well and we have received excellent feedback from our top tier one customer.
Our propel platform as a 300 millimeter capable fully automated single wafer reactor also based on our Turbodisc technology for best in class film quality.
And it can be clustered with multiple chambers for high volume manufacturing to propel system deposits gallium nitride for applications, such as Fiveg RF Gan power amplifiers power electronic devices used in wireless charging and micro Ltd.
We see opportunity in a compound semiconductor markets, where alumina and propel systems would be an ideal fit.
Despite this our near term visibility remains limited, especially in China, where the regulatory environment is providing headwinds customers are weighing options between buying equipment from U.S. suppliers legacy go.
Or alternative non U.S. suppliers when available.
Our advanced packaging, Mems and RF filter market posted an improved second quarter, driven by multiple advanced packaging lithography systems and upgrades sold to Osats and device manufacturers.
The advanced packaging lithography portion of this market is driven by applications, such as artificial intelligence and high performance computing.
We continue to seek growth in the portion of the advanced packaging lithography market, where our technology is applicable inside this market to be roughly $100 million per year.
The RF filter portion of the market has great potential.
And is driven by Fiveg, RF adoption and increasing RF content in mobile devices.
In fact, some industry reports estimate the number of RF filters per mobile device to increased from 40 to 70 as we transition from Fourg to Fiveg.
As an indication of this market strength, we recently received a significant border for multiple wet etch and clean systems for an RF filter application.
Despite the challenges facing the global economy.
We are continuing along our transformation path to improve profitability and grow the company.
Looking at our 2020 progress to date.
We put appropriate actions in place and maintained our resiliency during the global pandemic.
We executed phase one of our company transformation, which included reducing our expenses improving gross margin optimizing R&D spending and strengthening our foundational businesses, which fund our opportunities for growth.
We are continuing to work on growing the company, which is the second phase of our transformation.
We have new products, which are enabling us to grow market share and our existing markets and we are also extending our core technologies into our front end semi photonics and RF applications.
As a reminder, our new tagalong, making a material difference stands from proving performance, ensuring quality and delivering value to our customers.
We are committed to making a material difference and building a stronger veeco that serves all of our stakeholders.
And with that John and I will be happy to take your questions. Operator. Please open the line.
Thank you if you'd like to ask a question pretty similar pressing star one any telephone keypad, if you're using a speakerphone. Please make sure that you mean function is turned out to layer signal through some equipment.
Once again that is star one to ask a question and I'll pause for just a moment to allow everyone an opportunity to say, though.
And our first question comes from Patrick Ho with Stifel. Please go ahead.
Thank you very much and west and the nice quarter and the outlook maybe build so let's first start off.
It's had been executing like knowledge and your margin profile in this reflects that.
Now that you've had the ultratech business on the pool, who did a time and you're starting to see actually some of the products and the markets. There had been under pressure before purchasing can you discuss some of the efforts on operating model side in those businesses there now contributing to your.
Low margin profile and earnings leverage improvements.
Yeah, Great Great question, Patrick Let me.
Let me pass it to John to talk about some of the expense reduction we did and then I'll talk about.
Some of the other things that we've done.
Sure. Thanks, Thanks, Bill and thanks for the question.
Patrick So post acquisition for Ultratech or what we initially saw it was the synergies that we expected.
Post acquisition, and we were able to get those fairly quickly and mainly in the as best DNA area.
And then last year, what we're able to do.
Thats starting to pay dividends and benefits is we eliminated the excess capacity that existed with ultratech, having manufacturing facilities in both Singapore, and San Jose and we move that Singapore operations, the San Jose.
And more recently in terms of improving the business model and gross margins, we've been working on insert insourcing versus outsourcing and we've done analysis for a number of.
Sub assemblies, where it's made sense for us to bring those in house and we've done that and eliminated some margins stacking there as well.
And as we indicated last quarter, we divested of noncore product line that was a product line that we that we acquired as part of the Ultratech acquisition. So all those activities are starting to pay dividends and prove out in the improved business model for.
Ultratech.
So Patrick let me, let me turn it over the bills will talk a little bit more about the some other activities as well yeah. Thanks John.
Yes, what we've also done is we've moved to a functional structure across the company moving from a business unit structure. So we have moved for example, all the Ultratech engineering under the one one leader.
And the same thing in a in technology and marketing as well and we've moved ultratech into Veecos product lifecycle process.
For how we develop new products I think.
We are able to drive more accountability.
Into the organization is I think that's a that's a fundamental change there.
And then also over the last year. So we spend some time talking about how we were able to recover lost a ellis aid business.
At Ultratech originally had at 28 nanometers.
And then last and so weve.
Been able to come back and win.
Business at the most advanced nodes with two leading customers we are working on.
Another application step with those customers and we are also we're making some progress working on.
Increasing the if the customer base beyond those two leading edge nodes and then finally I guess I would say maybe most importantly, even beyond Ultratech you I think we've done a really good job.
Rebuilding the Veeco leadership team and we've done that by promoting some excellent people and top grading some people, but at this time, our team is jelling really well and.
And we're starting to execute well so.
Pretty positive.
Right, that's really helpful Bill and John maybe as my follow up question in a bit of color on some of the activity you started to see on the advanced packaging side, particularly pick opinion little business and you know bill historically, that's been a very mobility communion marketplace.
In terms of advanced packaging by could you talk about stuff like a high high performance computing can you maybe at least qualitatively give a little bit of color of how much of the buys are still mobility related how much are some of these new.
Devices that are seeing more I guess complex advanced packaging processing.
Yeah. That's that's a great question, Patrick I would say now it's really kind of largely driven by as you said artificial intelligence and high performance computing and the pickup we did see in Q2.
It is encouraging and certainly a pretty big step up from Q1 and that recent activity has been from from Osats an idea Oems for those drivers that you just spoke about.
But certainly not enough to offset a kind of smartphone weakness or mobility as he said so.
As you said before our lead times are short so our visibility.
Into growth is fairly limited.
We are maintaining our leading share at the kind of the greater than one micron resolution applications like fan out wafer level package packaging bumping copper pillars.
We are continuing to invest in that product line and we are planning to ship a new product in the coming quarters. So.
In summary, we are seeing some some positive uptake in our Q2 numbers and ER will stay tune to see she how it progresses.
Great. Thank you very much.
Thanks, Patrick I'll take that exercise or Rick shape.
I apologize will not take on next question from Rick Schafer with Oppenheimer.
Yes.
Congrats on the solid results and great margin.
I guess my first question builds probably for you, it's kind of high level, but but you know as Intel struggled and advanced lithography, because it pretty well understood at this point.
I'm just curious looked a.
How that's affecting veeco and what are some of the puts and takes for you know for you as Intel decides to outsource more at the leading in leading edge.
Yeah, I don't really want to comment anything specific about that Intel, but I will tell you are products in front end semi remain strong for money you V standpoint, we are not really make a the mask blank equipment to deposit the mask blank metal innovations we.
That's really seeing an impact as a matter of fact, one of our customers announced a facility expansion.
And so we're having great engagements with those customers expecting that marks can be about two to four systems.
Per year and from an L. assai perspective.
We are seeing.
Opportunities to.
Expand.
And with other customers beyond the two that we have today so.
I would say I would say, we're still bullish on on front in semi whether its I think almost independent of what it tells us.
Great. Thanks, and John maybe a question for you right in front of obviously gross margins. Once it's great to Q1, you given the guide for Threeq you. There could you maybe talk about the direction of gross margin.
Looking at maybe the fourth quarter next year and what some of the puts and takes there are for further expansion toward your perjured long longer term target.
He still much of the drag at all at this point and maybe I don't know if you didn't say 10 from and what revenue run rate needs to be you know to kind of hit that that mid 40 target.
Thanks.
Yes. Good question, Rick I think you know were creeping we're creeping up on you know on that a target with what we've done in the in the first half of this year and what were and what we've recently done in Q in Q2.
So you know weve, taking the actions as I mentioned earlier around Rightsizing our manufacturing.
What print so really.
Extra volume will will help drive.
Higher gross margins in the future so we get to higher.
Revenue levels margins should benefit from that and you know with quarter to quarter variation, but you know a based upon.
Our product mix as.
The LTV and the in the in particularly.
The trying to come monetized.
We do business, that's no longer a significant part of our business is certainly helping on the on the product.
Mix and in the gross margin.
Improvement overtime.
Thanks.
Thank you and I hear next from Brian Lee with Goldman Sachs.
It has gone this is Alex on for Brian.
So quick question it out and just a follow up yet.
Just a follow up on that gross margin question.
At the beginning of the are you just that's impossible inventory sell down.
As potentially driving closer to 40% margins for the year I know you had limited visibility for Q at now, but do you expect.
Any inventory sell them to weigh on margins that are being here.
So yeah, Alex we did mentioned earlier in the year, we saw some potential headwinds as we sold off some slower moving inventory that's having a lesser.
Packed on our margin profile than than we Ics expected and given the visibility right now we've we've guided for.
Q2, three in the in the 42% to 44% you know gross margin range. We would expect you know variations from quarter to quarter, but.
Given our current profile, that's where we were operating.
Gotcha. That's that's helpful and I know you discussed he market sizing a bit I was wondering if you could kind of expand on that I guess in light of as the metals recent positive commentary and can you kind of quantify from a revenue perspective.
Uh huh.
Got a impact.
How large that school outside said it in 2020, essentially a trajectory into 2021.
Right.
Yeah, what we said is.
It is a for every I think 12 to 15.
Asmar scanners, the industry needs about one of our machines and so on these machines run in excess of $10 million. Each so at two to four systems per year as kind of what we're targeting looking out for right now.
Yeah that kind of puts it in kind of the.
25 to.
Since the million dollar range something on time.
Appreciate it thanks a lot.
Thank you Alex Thank you Alex.
Thank you we'll take our next question from David Duley with Steelhead Securities.
Yeah. Thanks for taking my questions and nice results a couple of questions on steel upfront, but could you just give us an idea about.
What size of that market is for you guys.
Or maybe differentiate a little bit you talked about winning business that influence.
That does have some trailing though.
Total upload.
Well, maybe you could just help us understand what's going on with Oh, that's in China actually so if you could just give it some further commentary around about stuff that would be great.
Yeah, David I would say to answer the first part of your question we've been.
Sizing that market at a $100 million per year, we do see opportunities or.
With that to be expanding so I would probably call that kind of the low end of the sizing right now with the opportunities that you know as we took at.
More application steps.
I think that that could be significant.
I know I spent a lot of time talking about the leading edge nodes and winning various applications and and expanding customers, but we do have.
Trailing edge.
Tools that we sell into China, 14, and 28 nanometer and John how would you size, that's kind of like ER.
20%, Yeah, that's been somewhere building in the 20, 25% range of the annual a system sales for let's say yeah.
Oh.
And.
We thought for the Chinese restrictions also impacting that segment of visible.
You know what were what we're seeing Dave It is a where a Chinese customer has an opportunity to buy non U.S., we are seeing them.
Exercise that.
And but where they don't really have alternatives.
It seems that they're continuing to by U.S. and although I.
I don't know how to direct a example, but what I would say the Ellis aid business doesn't really have.
A good direct a non U.S. competitor so.
We're really seeing much change there, but we have another pieces of the business.
Okay.
Although that's possible.
Would you expect a cold spoke to just still to come to a into next year or could you remind us what your market share.
In that marketplace I believe it's pretty high like 65% you could just update that.
You can start about having high market share below one micron or something like that is not an implication that its smaller geometries, you don't have as much marketshare or the.
To do job matter at this point they will.
Yes, yeah. So.
I would say our market share is about 50% to 60% in this I think greater than one micron.
And then.
The less than one micron.
Vans packaging market, we really don't compete and that's where a SNL and canon.
Really compete there so of that.
Greater than one might crime, we have about 50% to 60% of that and that's been a over 100 million, but recently, it's been a bit it's depressed, but our market share position is about 50 to 60.
There.
I'm, sorry, one more like the fall out of the other kind of Buzz words, a pocket kills the support for the heterogeneous population.
Michael I'm really get those things are still multiple lock on political will not gonna have those.
So now type marketplace.
Or below what my club.
There are a lot of advanced packaging steps below one micron.
But there are a lot above one micron and so on the other summit five microns 10 big tenant beyond so.
But yeah, there's definitely a big piece of it that is.
That will stay greater than one micron.
Oh, okay.
Thank you very negative.
Thank you we'll take our next question from cats for shock with Northland.
Yes, thanks for taking the questions.
Really confident about the fourth quarter can you give any color around you know backlog coverage over Q2, Q4, I pretty much book and you know basically executing at this point.
I would say I'll take a shot to John you can follow up I would say Oh, we do have a pretty strong backlog position and as I said in our prepared.
Remarks, we have a sold a significant piece of business.
For our wet processing equipment in.
Fiveg RF filters, which are the customers really pushing to have it delivered here in the next the next two quarters. So.
Yeah, I think given our backlog coverage and this is other significant order, it's largely an execution issue for us now.
It's not an issue I think thats whats left to be executed [laughter]. Okay got it and then yeah I I would say bill covered a feel covers that well.
And then just circling the some of that product line.
You know how does one of them look you in the back half of it was little weak in the quarter and.
Acting no easy to come back or or an increase in yellow say in the back house.
Yeah, I wouldn't say, we are expecting yeah, we didn't have an easy tools shipment this quarter. So.
We will have a you'd be shipment in the second half so.
That will pick up and we're also expecting Oh, let's say to be be up from this quarter as well.
Okay.
Got it and then.
On the.
And yeah that that I think that's it for me.
Hi, Thanks, Gus Okay. Thank you got.
Thank you will hear next from Mark Miller with the benchmark company.
Rationalizations on your upside in earnings.
Both sets of traditionally bought in functions are you starting to see these orders come back and you expect a large orders.
Quarters ahead.
Yeah, I'd say as I said in the prepared remarks, our visibility and 18 advanced packaging way so to the osats, they're really demanding of very short lead times and so.
They're not sharing the long term forecast with us. So we are visibility is not I'm not that strong. So it hasn't been kind of like what I mentioned with the Fiveg RF filters words, a significant order and we haven't seen anything like that yes in.
Advanced packaging lithography.
If you guided for the third quarter margin slightly better when the of the June quarter.
Just wondering what's in the backlog do you think the backlog and similar mix or is that a richer or somewhat softer mix.
Sure sure go so we were guiding from 40 to 44 sort of mid point would be 43. That's what we you know just achieved this quarter. So we're seeing you know our visibility right now is a similar similar quarter no Bill do you know into.
Okay that.
The mix rules should be a little bit stronger for it for semi we had a a little bit light of mix Mark.
For the <unk>.
For the quarter. So we had a little bit of a a lighter mix there, but overall you know we've got good visibility into the into the backlog for the Q for Q3 and feel comfortable with that 42% to 44% gross margin range.
In terms of the highest mix or higher margin products was it still BNP, what though and data storage would be above average.
I'd be IBT.
I would say, our our data storage as well as our he v. I, probably the higher ones.
Okay.
Thank you.
Thank you Mark Thank you Mark.
Thank you and that does conclude our question answer session I'd like to turn the conference back over to management for any additional closing remarks.
Thank you operator, and thank you for joining us today.
It looks like we made it through our trough quarter and we're looking forward to revenue growth and continued profitability in the second half I look forward to updating you at upcoming virtual conferences. This quarter. Thank you ever.
Thank you that does conclude todays conference thinking off your participation you may now disconnect.
Hmm.
HM.