Q4 2020 SYNNEX Corp Earnings Call

Good afternoon, My name is Rob and that will be our conference operator today I would like to welcome everyone to the Cynics Fourthquarter School 2020 earnings call Denise.

Today's call is being recorded all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session on there.

This time for opening remarks, I would like to pass a call over till is morally senior manager Investor Relations Lynn you may begin.

Thank you, Rob and good afternoon, everyone welcome to the Sinex Fourthquarter physical 2020 earnings call.

Joining me today to review our financial results are Dennis Polk, President and CEO and Marshall way CFO.

Before we continue let me remind everyone that today's discussion contains forward looking statements within the meaning of the federal securities laws, including predictions estimate projection or other statements about future events strategy demand growth expenses costs and Sir.

Service models.

Actual results may differ materially from those mentioned in these forward looking statements as a result of risks and uncertainties discussed in today's earnings release in the form 8-K, we filed today and then the risk factors section of our form 10-K, and our other reports and filings with the SEC.

We do not intend to update any forward looking statements.

Also during this call we will reference certain non-GAAP financial information reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related for an 8-K available on our Investor Relations website I R. Dot for next Dot com.

This conference call is the property is for the next corporation and May not be recorded or rebroadcast did without our permission I will now turn the call over to Marshall Marshall.

Thanks for Liz and thank you for everyone joining us for today's call. The consolidated queue for in fiscal 2020 results I will present today include Concentrix as the spinoff was completed on December 1st which was the first day of our fiscal 2021.

I'll go forward financial discussion applies to cynics on a standalone basis.

Concentrix will hold a separate earnings call to review its results in greater detail Tomorrow morning January 12th So we will refrain from answering concentrix for.

Related questions on today's call in order to allow the Concentrix management team to directly discuss their business and results during tomorrow call.

Before moving to the fourth quarter results I want to acknowledge that 2020 was a year. Unlike any in recent memory.

The COVID-19 pandemic altered the way that we all work live and learn this year.

Despite this we've successfully spot concentrix created increased value for our shareholders and are well positioned heading into 2021.

The remote work learn a consumed trends continued in the fourth quarter, which led to increases in demand for products and services provided by cynics and Concentrix.

And this dynamic led to record financial results for fourth quarter.

On a consolidated basis total revenue was seven 4 billion up 13% year over year.

Consolidated gross profit totaled 820, <unk> 23 million up for percent or 29 million compared to the prior year.

And gross margin was 11.1% compared to $12, 1% the prior year.

Total adjusted SG&A expense was $503 million for six 8% of revenue.

Down $23 million compared to the year ago quarter, primarily due to continued concentrix synergies related to the convergence acquisition and Laura Concentrix variable operating expenses.

Consolidated non-GAAP operating income was $388 million up $50 million or 15% versus the prior year.

Non-GAAP operating margin was five 2% up 10 basis points compared to the prior year period.

Hold on non-GAAP net income was $271 million up $51 million for 23% over the prior year and non-GAAP diluted EPS was $5 and 21 of 22% year over year now shifting gears to technology solutions queue for operating performance.

Technology solutions revenue was 6.1 billion up 14% or $745 million over the prior year quarter technology.

Technology solutions gross margin of 6% was 30 basis points lower than the prior year quarter, primarily due to product mix operating income of 200 million was up $34 million from the year ago period and.

And non-GAAP operating income was $216 million up 22% for 38 million year over year non.

Non-GAAP operating margin was 3.5% 22 basis points higher than a year ago.

Technology solutions, COVID-19 related incremental expense decreased in queue for as expected driven by a reduction in the amount related to doubtful accounts.

The cost associated with staffing and remote work increased quarter over quarter.

We expect incremental quarterly cost at a minimum of $5 million in 2021 with the goal of creating other efficiencies to offset the majority of these impacts.

Interest expense and effective tax rate for queue for reflects index and Concentrix consolidated results and were consistent with expectations Tech.

Technology solutions Q1 interest expense in finance charges are expected to be approximately $22 million to $23 million and the effective tax rate is expected to be 26% for the quarter and also for fiscal 2021.

Given our spin for comparison to prior year, we believe it's best to compare technology solutions at the non-GAAP operating income operating margin level provided and prior releases in filings.

This is due to the fact that below the operating line technology solutions and Concentrix for under a consolidated capital and tax structure.

This along with stranded corporate costs of approximately $5 million, which we expect lower over time make the comparisons difficult for those who would like to produce a pro forma comparison analysis to the prior fiscal year, we suggest that along with the stranded costs to use on assumed that of 1.5 billion at approximate for 5%.

Plus other financing costs of approximately $7 million per quarter, and a tax rate of approximately 25%.

Please note that the Q1 2020 pro forma tax rate is approximately 15% due to stock based comp tax benefits and fin 48 reversals.

Please note that these are only suggested amounts for pro forma analysis on a no way should be construed as GAAP or equivalent numbers.

Now turning to the balance sheet.

In today's press release, we have provided both the consolidated balance sheet and a pro forma sinex balance sheet posts spin technology solutions that is approximately 1.6 billion and net that is just above 200 million accounts receivable totaled 2.8 billion and inventories totaled two 7 billion as of the end of queue for.

Technology solutions cash conversion cycle for the fourth quarter was 25 days 16 day is lower than the prior year, an eight day lower eight days lower than the prior quarter the.

The decrease was driven by DSO improvements across technology solutions and better inventory turns.

Cash generated from operations was approximately 297 million in the quarter with approximately 205 million attributable to technology solutions, excluding intercompany settlements.

For the full year regenerated $184 billion, an operating cash flow with 1.36 billion attributable to technology solutions at.

At the end of the fourth quarter, including our cash and credit facilities technology solutions had approximately 2.8 billion of available liquidity.

As a result of our improved financial performance and liquidity. Our board of directors has approved the reinstatement of a quarterly cash dividend of 20 for common share. The dividend is expected to be paid on January 29th 2021 to stockholders a record as of the close of business on January 22nd 2021.

Going forward, we intend to utilize 30% or 30% of our free cash flow for capital returned programs, either via dividends and or share buybacks.

We believe this level allows us to adequately invest in our business, while maintaining our commitment to driving long term shareholder returns.

Now moving to outlook for fiscal Q1 week.

We expect revenue to be in the range of for 5 billion into for $8 billion non.

Non-GAAP net income is expected to be in the range of $81 million to $91.5 million and.

And non-GAAP diluted EPS is expected to be in the range of $1.55 $2 75 per diluted share on weighted average shares outstanding of approximately $51.8 million.

As previously announced beginning in fiscal Q1, we've made the decision to exclude share based compensation from our non-GAAP results X.

Excluding share based compensation is consistent with the practices of many of our partners competitors and customers and we believe this more accurately reflects our our operating performance.

R Q1, non-GAAP net income and non-GAAP diluted EPS guidance exclude after tax cost of seven $3 million or 14 per share related to the amortization of intangibles and $3 for a million dollars for seven per share related to the shareholder based compensation. Please.

Please note that these statements of our first quarter fiscal 2021 expectations are forward looking and that are actual results may differ materially.

Lastly, we previously shared that one of our customers would be moving to a consignment service model in 2021, we now have more clarity regarding the timing of this change and expect to transition to occur in our fiscal Q3 2021 as.

Has previously indicated we expect this change to reduce revenue by approximately $600 million per quarter.

Although it may take some time to fully ramp up to that level.

Moving into 2022, we expect further consignment with this customer will take place increasing the quarterly run right to something greater than $600 million per quarter.

On a go forward basis margins related to this customer will be based on product and service mix I will now turn the call over to Dennis.

Thank you Marshall and thank you to everyone join our call.

I am very proud of the accounts complishments of the cynics team in 2020.

Especially so against the backdrop for the very challenging environment.

I would like to thank all of our associates for their hard work and dedication this year in helping us deliver outstanding service and solid financial results.

I would also like to thank both the cynics concentrix teams for their diligence and completing the spinoff on December 1st.

A big congratulations to Chris and the Concentrix team and we look forward to continuing to work with them as a customer of Concentrix.

Thanks, as well to our shareholders for the support of the spin transaction.

Now to our queue for results as.

As Marshall noted Concentrix will discuss this results tomorrow morning, but I would like to say how proud I am of all the associates of Concentrix for delivering solid topline and operating income results in queue for.

Despite the pandemic and other challenges concentrix accelerated into the spin and we look forward to watching their execution and growth going forward.

For those cynics Ts business Ah record topline performance on the fourth quarter was driven by broad based demand across all our platform.

As the remote work learn and consume trends continued.

Our revenue growth along with seasonally high queue for leverage benefits drove solid profit and returns as well.

Consistent with Q2, and Q3 demand remains strong and products such as notebooks Chromebooks cloud collaboration and security.

This was evident in both our commercial and retail distribution businesses.

As expected COVID-19 continued to impact enterprise office demand in queue for.

With office desktop print and other products experiencing lower volumes.

We did however, see the signs of a continuation of the return of on premise projects in queue for that we start to experienced in Q3.

From a geographical perspective U S, Canada, and Japan, all performed well and better than internal expectations.

Latin America was essentially flat compared to the prior year, but overall positive given the obvious challenges and the Geo.

And a hive business Q for was stronger than anticipated with continued demand from our largest customer to support its data center needs.

Part of our overall margin strength during the quarter was also from high leverage and improved efficiencies to the spike in business and recoveries from investments made throughout physical 20 for the drivers.

R Q for guidance anticipated high revenues to be at the lower end of our range of expectations.

This was due to the strong Q3 performance and visibility at the time of our queue for outlook.

And the and revenue was above the high end of our internal range as we performed very well and servicing a significant increase in demand in the quarter.

As we have consistently noted regarding this business it is lumpy and continued to be challenging to predict quarter to quarter.

Turning to our outlook.

Our priority remains on the health and safety of our associates.

Overall, we are optimistic about physical 21, given the startup vaccine rollouts and we are hopeful our world returns to a closer sense of normalcy over the next year.

With this occurring we expect that business investment will increase especially on it.

At the same time, we are cognizant of the fact that while economies around the world should begin to normalize much is still uncertain about the pace and solving all the challenges of the pandemic and the timing of consistent economic recovery.

This is evidenced by additional lockdown actions taken recently and most major countries we operate on.

For our queue, one with continued execution, we anticipate our business will grow slightly better than the market for the quarter.

Continued demand for our products and services related to remote work learn and consume combined with the remaining backlog. We have provides us a base level of confidence on our forecast.

Like the last few quarters, we have estimated our high business at the lower end of our internal projections.

For fiscal 21, using R Q1 forecast as a base.

We expect the rest of physical 21 to progress in line to the seasonal patterns of 2018 at 2019.

This assumes market conditions and demand improved throughout the year and there's no significant change in our current mix of business among other traditional assumptions.

Lastly, I am pleased that we're able to restart our capital return program with our dividend announcement today and marshals comments about our share repurchase program.

In closing our strategy of optimizing our core business investing in organic opportunities and targeting strategic M&A two hance, our our portfolio will continue to provide us with opportunities to grow moving forward.

This strategy along with the drive the termination of the cynics team coupled with the excellent partnerships with our customers vendors and the communities. We operate in support my confidence about the future for cynics.

With that I would like to open up the call for questions.

Yeah in order to ask a question you will need depressed star one and your telephone to withdraw your question press the pound key.

Please limit yourself to one question and one follow up your first question comes from a lineup Kim Yang from City. Your line is open.

Hi, Thanks for taking my questions I want to ask about a margin expansion on and you'll be a business. If we use the midpoint of your guidance and includes share based calm I think I'd go a guiding strawberry quarter margin expansion I'd, roughly 10 basis points from last year was Rover.

15%.

<unk> <unk> expansions lower than the margin expression of 20 based on for you achieved in November quarter.

Senior revenue growth can you maybe just provide some color on that is it due to mix or extra investment you can make the.

On the quarter.

Hi, Tim This is Dennis.

So we are pleased be able to expand our margins year over year. Oh, you look at Q1 21 versus queue on 20, and that's primarily due to as you said the mix on our business, but also the additional leverage we get from the growth on our business.

Traditionally in Q1, though margins will decline a little bit from queue for again because of the leverage we get in our business in queue for which is seasonally high and to some extent mix.

Got Ya and then the uhm if I remember correctly I think you mentioned last quarter, though to your T. S. Q for net that it should be around roughly 700 million.

But it seems like coupon that W reported wasn't lost on 100 million can you maybe just talk about that in the house for me to think about your down to repair more than that dabbs on going forward. Thanks, Yes.

This is Marshall you are right.

A fairly conservative number we estimated we we did have a strong queue for our cash conversion was extremely efficient. Our actual performance is very strong. So I think the combination of those three drove to the cash being at one point for for T. S.

Is it fair to assume that that that the going forward is similar to this level.

Yes, we are optimistic that as we go forward 10, and thinking about 2021 will continue to be.

Cash flow positive and also free cash flow positive.

Gotcha. Thank you.

Thanks for him.

Your next question comes from a line of <unk> from Bank of America. Your line is open.

And thanks for taking my questions.

Dennis can you comment on the strength that you saw on the different channels and you just talk about what you saw on small medium business and.

Enterprise Hyperscale mid market.

And and kind of as a full on to that if you can give us your thoughts on the mix of the business as we go forward and O P. C's have been very strong but from a management standpoint are you focused on.

Shifting the mix more towards the netted down items more towards software and services. So if you can just talk about your strategy in your long term outlook for the mix of the business.

Sure a real good thanks for the question.

So as far as the the strength in the quarter I think that was your first question. It was really across the board.

As you saw on our results double digit increase year over year. So that's it traditionally indicates.

Benefits from all aspects of our business.

If you look at from a vertical perspective, we saw solid federal results in the quarter. We also saw continued education benefit in our business.

And is also I indicated a retail business was strong in the quarter traditionally strong on queue for given the seasonality aspects, but we even beat our internal expectations there.

From a products that set standpoint, as I indicated notebooks and chromebooks. We're we're real drivers during the quarter. Obviously, we had a lot of data center.

Business within our high business that drove a lot of our our year over year increase, but I don't want to take away really anything from all of our our organizations and departments because it really wasn't across the board beat in every category.

So that's your first question. Your second question as far as go forward of course, we're going to focus on areas that can enhance our business and grow our margins, but I don't want that.

Signal anything that we'd ever discount or go away from any existing business that we have our goal is to continue to grow the overall portfolio of our company and offerings and be able to deliver in service anything along that spectrum and get the proper returns for the price we deliver.

And that spectrum and that's our focus going forward, we've done very well so far a recent acquisitions have really helped benefit our company and the breath of products, we have and that's part of our strategy going forward is to increase that breath, either through organic or inorganic means.

Thanks for the details on that day, and it's just a follow up on on what you just said about.

In organic growth I mean, maybe if you can just talk about the overall framework for your capital on location strategy.

How would you prioritize you know.

The return of capital true.

Buybacks or.

Lowering of that.

Net reduction and then emanate using that.

As we get past the pandemic I mean are you open to doing more them and I do think this is the right time for that and how should we think about day.

Any growth going forward.

A <unk> is Marshall I'll start and then hand, it over to Dennis in terms of capital allocation as we mentioned in our prepared remarks are for targeting 30% to 35% of our free cash flow.

To be focused on share repurchase and dividend so.

We're pretty excited about that and how we think it's a good balance of shareholder returns going forward and then I'll turn it over to Dennis just thinking about M&A and opportunities there.

Thanks, Marshall from an M&A aspect, we'll continue our history and that's really been opportunistic when it comes to M&A transactions, but for the past couple of years. As you saw we were more focused and for more of our capital towards the Concentrix part of our business, but now that we're stand alone clearly we can dedicate the capital to the.

T as part of our business and we will do so when it comes to M&A opportunities are focused on M&A is going to be on geographic expansion vendor.

Vendor lying card additions and other services that will help enable our customers and their efforts to deliver to their customers.

We're always going to stay focused on ensuring that when we do an acquisition. It has the right returns.

The integration can be done on the right way within our company and the right culture in management team comes along with it.

Okay. Thanks for all the details appreciate it.

Your next question comes from a line of Shannon Cross from Cross Research. Your line is open.

Thank you very much I was curious in your your commentary you expect to go back to sort of seasonality that you've seen as we go through the year, but you also it sounds like things are getting better. So I'm curious given the strength in P. C's and what we've seen with a return of of enterprise to do it from the projects that were delayed let somebody on.

Offsets would be where where you are anticipating maybe some weakness or or maybe some deceleration from current levels and then I have a follow up thank you.

Hi, Shannon. Thanks for the question. So we wanted to try to.

Allow for analysts to have Ah on it.

What we're thinking about for for fiscal 21 for obviously only guiding to the first quarter by wanted to give some.

Flavor to you for the rest of the year.

Looking at 2020, clearly seasonality of the fiscal year was like no. Other so we went and look back at fiscal 18 or 19 as your average the two we think that is a good projection for the rest of the year.

As far as how the business will play out the rest of the year as I said on my prepared remarks on as you indicated there'll be some ups and downs as as we make a way for each quarter, but we believe.

When some of the business that was.

Better in 2020 starts to to move down in 2021 will see the come back of other businesses that weren't so positive in 2020 and that should balance out again to a more traditional seasonality period again, using the average as of 18 and 19.

Okay, and then I'm curious with regard to the solar winds.

Hackworth whenever we're just gonna have her to describe that.

Have you heard of.

Renewed focus on security, maybe customers need to reevaluate their their data centers to make sure that they're not still susceptible just curious if this is something that's been a driver or do you think will be a driver of demand. This year. Thank you.

Sure. Thank you for the question. So I believe there's been a heightened sense of.

Concern over security, we've seen a definite increase in our business and security over the past call at 12 to 24 months, but.

But I do think when you have these major events occur it causes folks to think even more about.

Their security environment and that traditionally means more investment and the security aspects of individual businesses.

That you haven't seen anything that's like specific necessarily just all at once itself in terms of rented and replace or on thoughts on that way is that fair to say.

I think it's fair to say, we've seen a lot of activity, but I really can't comment on on a specific customer situation for Ya.

Okay. Thank you.

Your next question comes from a line of Adam Tyndall from Raymond James Your line is open.

Okay. Thanks, Good afternoon, I just wanted to start on the capital structure Marshall net debt to EBITDA I think it's around one times now I think he also mentioned that you expect to continue to generate positive cash flow. So that that number is only going to go down. So maybe just touch on now that we're post separation what the optimal <unk>.

Little structure it looks like in your view and you know you can imagine where the next line of questioning those to Dennis.

On on use of proceeds you you've talked about opportunistic acquisitions. If you could just follow up with marshals comments and you talk about geographic footprint is kind of on the bullet point number one when you talk about that historically.

Historically, we think of cynics is much more focused narrow deep specific geography's relative to others. So I'd be curious your gating factors on assessing a particular geography and how you think about geographic expansion on a profitable manner.

Alright, Panama I'll tackle the tactics first and hand, it over to denna for strategy.

We do think 2021, and we are decent year for for free cash flow, we're anticipating roughly about $500 million free cash flow.

And with that we anticipate about 30% to 35% as I said earlier of that to go back in to dividends in share repurchases. So we like that call. It collect the balance of that does leave us a lot of dry powder with liquidity that we have going into 2020 wanted to be in a really good position to take advantage of as you were referencing is this geography is aligned card.

Something else, but I'll flip it over to Dennis now.

Thanks Marshall.

Traditionally adhamiyah right, we've been more targeted.

And the acquisitions that we've made either from a geography standpoint and related to some extent from a vendor and other service standpoint.

But at this point in time, we built a company that has a pretty sizeable base. So.

We do feel more comfortable Tara.

Targeting larger geographic entry if you will endure just overall larger transactions that doesn't mean, we're going to only chase larger deals, we'll do smaller or more tactical ones that they make sense, but given our our confidence and the larger entity. We have today, we do feel we have the ability to execute.

<unk> well.

Basically on any size transaction at this point in time.

Okay. That's fair, maybe just as a quick follow up on clarification on the hide customer change I think if I have it correct. You previously said that you weren't expecting a material change to earnings should volumes with the customer continue at existing levels. It sounds like today, we're hearing that there's gonna be more volume declines so hoping for an update on the statement.

On how much earnings headwind, we should be thinking about at this unfold you starting to approach what can it could be about a 3 billion dollar annualized revenue headwind. So just wanna set proper expectations on the associated earnings head windows that unfolds to the extent that you had the ability. Thank you.

Hey, Adam It's Marshall a couple of things and then again I'll have Dennis also comment.

As you know from previous conversations when this does transition to consignment it does spinoff cash.

Cash from that in terms of reduction in working capital So that will free up cash for us to go do more things with.

And to just.

Back to your your question on the overall volume and profit associated with this customer we still it anticipate profit dollars to be the same but certainly what we contingent upon ongoing growth product mix as you know with and high we have design related services, we have integration services and we have a lot of 50 like services for when you blend that.

That has a different mixture of margin profile as we're thinking about 2021.

At all I would add Adam is just a good point by Marshall with the reduction.

On top line.

From the consignment aspect, it's going to bring a lot of capital to our business.

We have to make sure that we invest that capital wisely back into the business to generate or returns.

Understood that makes sense. Thank you.

Thank you.

Your next question comes from the line of match Sharon from Stifel. Your line is open.

Yeah. So thank you and good afternoon, everyone.

Another question, if I can regarding the hive a business now post spin of Concentrix, it's even a bigger part.

Art of your business, both from top line and and profitability.

And I know a lot of investors ask about you know more granularity a little bit more transparency about about the business in terms of Ah margin structure, our customer mix and then it seems like you're doing more services and more volume on rather margin enhancing Ah kind of services for the company. So.

Would be great to give a little bit more visibility in terms of that business going forward.

Okay now we do appreciate that feedback and we recognize as our our company has changed with the spit off of that investors will be looking for additional information about our operations and we'll take your comments to.

To note and come back with the best we can moving forward with the right amount of disclosure for our investors.

Well, maybe just as a follow up maybe just give us an idea of you you thought you had double digit year over year growth and T. As.

In the last quarter.

Can we assume that you're both the core business and hive.

Ultimate both grew double digits for as hyphen growing faster than the core business.

Yes.

We're pleased with the growth crop all TF landscapes, if you will.

And.

With Latin being the only one that was from a flat. The rest showed strong results. We didn't anticipate the happen moving forward into 21, and then Matt back to the reference of that 18 19 seasonality. If you use Q1 as the marker and then flow from there you'll find that that mid single digit ends up being where you.

Where you get too and we can certainly offline walk you through that to get to where you need to be for thoughts on 2021.

Okay. Thank you Marshall on Matt, Matt I'd, just add just to be very clear or non hi business grew very well in the quarter.

Understood and then just a follow up to that if I can you didn't talk about strength.

And that was product areas client devices, particularly is there any concern about.

Tough comps and maybe wind down of that.

Cycle that we've seen both.

Remote work from home and then on the education market or do you six lakes going into it for a second half of this year.

Yes, I do think the momentum we have in the backlog we have will take us.

Into at least Q2 and possibly Q3.

Of 2021, so there's a decent tailwind there if.

If that business starts to.

To transition to a lower growth rate I do think as I mentioned before we will start to get a bit of a tailwind from the on premise enterprise infrastructure investment side of our business and that should pick up or replace any reduction in the current run rate of the of the.

Book, and Chromebook and other products I mentioned that have done quite well.

All that being said, Matt I do think.

Even with any transition where setup with a very broad portfolio.

Two.

Managed through any type of volume environment in 2021.

Understood. Okay. Thanks, so much.

Thank you ma'am.

Your next question comes from the line of Ananda Borough from Loop capital. Your line is open.

Hey, good afternoon guidance happy new year, and congrats on getting the deal done.

Two for me if I could just just real quick Marshall can you remind us what what leverage ratios.

You're comfortable taking the standard <unk>, well, you and Dennis a comfortable taking the standard Standalone newco.

Pumping you to any of them in a situation.

Sure Yeah, we finished the year all in at 221, and that's with Concentrix without if if the TF major it's two five so very comfortable liquidity to a a.

On non as you know with the right opportunity and the right accretion we've been on ties a little over xxxx. So we've got quite a wide range of acceptability and ability to cover those with the right investment or acquisition.

Okay excellent thank janette and just.

<unk> I guess, just Dennis quickly going back to your T. C. Comments can you are you are you a backlog so I guess, you're you're sort of in a constrained posture right now.

Can you just confirm that and then you know do you think you're more or less constrained in the industry.

And then just just clarification will not clarification, I guess sort of like a dot follow up for Euro marching moving to go do you. If if if when this changes from you know sort of Covid backlogs to more on crab.

Would you mix improve in that situation you know in that maybe there's fewer and fewer chromebooks. So you could have like.

Ah revenue hand off for the next improvement as you move on from there.

Just high level thoughts on this day.

Sure a couple of questions there on on does.

So as far as constraints or shortages challenges the market from an SLA perspective.

Yes at a high level I'd say the SEC.

Second half of the year is better than the first half of the year.

Although we still on an environment, where we do have.

Longer sla's.

Our backlog is made up of for like that is constrained.

But there's also a just a healthy backlog in business, we produced as well so.

So I just want to be clear on that as far as where we're at in our.

Overall products.

Backlog perspective.

As far as going forward in the mix the business yes.

Yes, it should it should change as the.

The backlog runs out and we fill it up with what will hopefully be a return to.

Infrastructure on Prime investment.

And as we also bring more services that go with on from an infrastructure, we should benefit from that as well.

Very helpful. Thank you.

Your next question comes from a line of Vincent Colicchio from Barrington Research. Your line is open.

Yeah, Dennis can you give us some color on where our supply chain constraints may be holding you back on some.

Well I think it's in Ah in several places there's capacity constraints, there's component shortages I believe there's also geo balancing challenge is going on.

And it does depend on which vendor you're talking about but in general those three main categories I would call out.

Thank you my other questions or answers.

Thanks Man.

At this time there are no more questions I will turn on the call back to Dennis Polk for closing remarks.

Great. Thank you I want to thank the cynics team for all their ongoing efforts I have confidence in our business and look forward to executing on our strategy in 2021. Please stay well thank you and good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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