Q1 2021 Gilat Satellite Networks Ltd Earnings Call
We will be busy day.
Consolidated EBITDA.
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Ladies and gentlemen, thank you for standing by the conference will begin shortly.
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Good day.
Good day.
Okay.
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Ladies and gentlemen, thank you for standing by and welcome to <unk> first quarter 2021 result conference call on.
Participants are present in a listen only mode.
Following managements formal presentation instructions will be given for the question and answer session for upper Euro assistance. During the conference. Please press Star zero.
A reminder, this conference is being recorded May force 2021.
By now you should have all received the Companys press release, if you have not received it please contact <unk> Investor relations team at GK Investor and public relations at one six for 66883559 or view it and the news section of the company's website at Www Dot Dot Dot com.
I would now like to hand over the call to Mr. Ehud Helft GK Investor Relations Mr. Hal would you like to begin please.
Yeah. Thank you operator, good morning, and good afternoon, everyone.
Thank you for joining us today for <unk> first quarter, 2020, one results conference call and webcast and it.
Quoting on this call and it'll be an antibody and beginning at approximately noon eastern time today for us.
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Also please note that investors are urged to read the forward looking statements and day, that's anybody's, where they reminded and stay tuned and made is made on this earning call and I know its historical facts and may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
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The other risk uncertainties and contingencies.
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And it was dead and he turned to introduction on the call today are <unk> CEO and.
And this is a smart happen Gilad CFO.
And I would now like to turn the call over to Eddie said, Yeah I D.
And.
Thank you and wood and good day to everyone I would like to thank you for joining us today and for our first quarter of 2021 earnings growth.
And I'm encouraged by the improvement of our first quarter of 2021 revenues versus the previous quarter.
One of the first quarter and seasonally the weakest one of deals we are seeing and positive progress and momentum across all our business units when compared with the previous quarter. The exception is the ISG segment, which is yet to show recovery.
And everything is in the quarter and were $44 $7 million, which were 5% better than the previous quarter and slightly below the same quarter last year as last year, and we benefited from IFC backlog that we deliver.
Looking ahead, we do expect to see a continued sequential growth strength in revenues throughout 2021 with a boost from the IFC segment. Once you start its recovery, which we do hope it will be towards the end of this year.
We expect that and GSO and cellular backhaul will be the main market segments that will drive growth and 2021 and beyond and we also see strong potential for the defense business to support our growth and a more meaningful way than in the past more of a looking into 2022, we believe that it will be.
A year of significant significant growth for our company is on.
And so projects will materialize and we believe that the IFC was he called for them.
On the bottom line, our adjusted EBITDA losses in Q1 was $1 $4 million.
And with a loss of $5 million in the same quarter last year and.
And as our revenues continue to recover in 2021, we would expect much of this growth to benefit our bottom line.
The lower EBITDA level this quarter and in comparison to the previous quarter was primarily due to the increase in expenses and the less favorable dollar shekel exchange rate.
Expenses on higher because thankfully life and Israel on most of the return to normal and our employees are back to full time work, mainly from the office with the associated expenses.
For a very important project, mainly and Leo and MEO constellations, and which we are currently investing significant R&D Air force and which will enable us to have significant revenue in the future in the coming few quarters.
We also see many opportunities ahead of us and want to make sure we are well positioned to capitalize on those as well and therefore, we are investing increased airports and R&D in order to better support on future growth now.
Now I'd like to focus on some of the business achievements and highlights.
The non-GAAP stationary orbit satellite constellation and the very high throughput satellites continue to be a major strategic focus area and growth engine for.
This quarter, we received additional multimillion dollar order from a leading satellite operator for support of low Earth orbit constellation as reported and the best.
And our subsidiary waste stream was chosen as the vendor of choice to supply Gateway and solid state power amplifiers for this project. In addition, we are on schedule with the development of the growth segment for the SCS also you'd be empower satellite constellation and expect to start seeing significant revenue from this project and the upcoming.
And quarters.
As the leading provider for LNG is so on and V. HTS market, we see significant growth potential for <unk>.
Comprising of hundreds of millions of dollars of market opportunities.
We believe that we are well positioned to win additional engineers. So on V. H D S business as opportunities mature.
<unk> continued to lead to sell our back on industry and according to a new report by industry analyst and it's out there.
The number was on one vendor and modem shipments with a market share of approximately 40%.
According to get other analyses based on their necessary. Both we continue to lead the <unk> market with 80% market share for us.
More and it's really reported was awarded over 5 million dwell on from tier one mobile network operator in Japan for soon on backhaul expansion to quickly provide coverage to rural areas and to support emergency response and in case of natural disasters.
In addition, we are seeing significant expansion and follow on orders from a tier one and my nose around the globe, including and Latin America, Europe, Australia, and from leading mobile operators in Japan.
Neither the testament to the great value our customers and see you know some new shows and they continue to expand on networks.
We are confident and our ability to continue to lead the industry with the transition to <unk> for these we launched this quarter on next generation family of resets Aquarius and Houston.
Both of <unk> networks and engine so constellations.
The multi orbit ultra outperformance vis us provide over two gigabit per second on.
Gar and speed and support seamless satellite handles.
And as we stated previously and we see five G.
And we view five share adoption as a market with huge potential to get up the.
For the addressable market size is expected to reach more than $300 million barrier for satellite equipment on a lethal for G and five G suite on backhaul and motor six billionaire for satellite equipment and services, including satellite capacity and furious.
We believe that the five G adoption initially and the cities will drive significant for G deployment over satellite backhaul and in the southern and rural areas.
And that's the other caveat is less feasible and the second stage five day deployment over the satellite we spread to rural areas as well as setting and the promise of universal coverage.
And the enterprise segment.
And now we.
You're not just announced a strategic agreement valued at tens of millions of dollars, including potential significant projects extensions with a large government Corporation and Asia Pacific.
The equipment and the multi year managed service contract will enable connectivity for multiple application across the nation.
In addition, we saw significant achievements and Latin America with several project projects totaling multimillion dollars in support of broadband connectivity for education to the most remote regions of the continent with these airports, we join our partners and a common goal of bridging the digital divide and promoting.
The vision of equal opportunity for children everywhere.
Among other enterprise project and around the globe. He loves and was chosen to provide a satellite network for thousands of visits to energy plant.
The National leading energy company. We are also seeing growing opportunities in the Iot market segment for which our solution is an excellent fit we secured a large large expansion order flow and Iot project and Latin America, and we are increasing our pipeline with prospects and Europe and Asia Pacific.
And he is well known and we mentioned and our previous conference calls and mobility market segment, especially IFC and maritime was mostly heavily hit by the COVID-19 pandemic.
Saying that we continue to view this segment and strategic for Gila and view the pandemic effect is temporary.
Bonnie and industry recovery, we expect the segment to grow in importance as air passengers increasingly demand reliable high speed Internet connection doing travel we expect this trend to be further stress and with the introduction of free Wi Fi for IFC, which will significantly increase take up rates and will provide.
A strong tailwind for the industry and to get out.
During the quarter and get that reached an important milestone and achieving D. O Watch 60, G certification and successfully tested by global Eagle Entertainment, the major IFC service providers.
And the I bar IFC Transceivers developed and manufactured by our subsidiary registry.
Production units are planned to be shipped to global Eagle for usage and commercial aircraft later this year and onwards.
And I am pleased to report that we have now passed the acceptance test in the region of Cusco. The force project that was awarded in late 2015, mostly the transport and the access networks, followed by a payment of more than $12 million in early April and additional payment of about $7 million to be for.
And received in the coming few weeks.
Following these accept US we are now and the operational phase or for out of six regions. We were awarded.
And a very significant step towards achieving our goal of recurring revenues of over $60 million and feel we are also progressing with the additional two lost regions awarded and US in 2018, although this progress is significantly affected by the pandemic jurisdiction and pillow, which are still very much an effect, we do expect to.
Finish the construction phase of this loss to regency and early 2023 and three.
We reported last quarter, we see growing opportunities in defense segment worldwide, we are making significant progress and materializing these opportunities and I expect to be able to report further progress and wins in the near future.
In summary, we are willing to come on and continue to win new projects across all our target markets.
We have a lot to look forward to in the Gulf in the quarters ahead.
Specifically looking out through the car and T and we expect to see ongoing improvements in revenues quarter over quarter, and we believe that these improvements will benefit our profitability throughout the current year.
At the same time, we are focused on capitalizing and staying ahead of many opportunities that we see you know and markets, which we believe.
And we'll further for a long term future growth I'm excited with a potential for the coming quarters and years.
With that I'd like to hand over simple smart for smart we are now ready for your report. Please go ahead.
And good morning, and good afternoon, everyone.
I would like to remind everyone that our financial results are presented and voted on a GAAP and non-GAAP basis.
And we regularly use supplemental non-GAAP financial measures and generally tend to stay and manage and enjoy HR visuals and to make operating decisions. We believe these non-GAAP financial measures because I had consistent and comparable measures to help investors understand our current and future operating this for me.
Non-GAAP financial measures, mainly exclude the effect of stock based compensation and amortization of purchasing and candy.
And what T J and <unk>.
And of lease incentive litigation expenses other income related to trade secret claims reorganization costs merger acquisition and related and litigation costs and settlement and in New Jersey, and completion of deferred tax assets with respect to carryforward losses, and we can.
Conciliation and neighboring our press release highlights this data and our non-GAAP information presented excludes these items.
Now moving to our financial highlights for the first quarter of 2021.
Oh, Oh, there's a dimension of quarterly results showed an improvement in revenue over the previous quarter and this is already the second quarter with continued sequential growth, we see that trend going in the right direction and the stabilization of law and markets.
The exception, we may use the in flight connectivity or IFC vertical, which we believe will start to recover towards the end of the year.
Revenue for the first quarter were $44 $7 million and they're just $47 7 million for the first quarter 2020, we try and increase in our revenue from enterprise broadband and cellular backhaul solutions compared to the first quarter of last year.
And as a decline versus last year, primarily reflects the impact of the COVID-19 pandemic on revenue from IFC non mobility solutions segment.
Bear in mind that day.
The impact of the pandemic was not apparent and the <unk>.
And of the first quarter last year revenue in the current quarter with slightly improved over that on the previous quarter, which was $42 6 million tons and tons of rent on the revenue breakdown by segment.
Fixed networks segment revenues were $25 $3 million compared to 23 million from the same quarter last year, we saw a slight improvement compared with the previous quarter for fixed networks revenues were $25 $5 million I remind everyone that Q1, and usually the weakest quarter.
Yeah, well Q4, and the strongest in 2020. One we believe that this segment for showed significant improvement over 2020.
Mobility solutions segment revenues were $11 $1 million compared to $19 2 million and the same quarter last year the decreases.
The decrease.
The decrease.
Mainly and the IFC market.
Compared to previous quarter, we saw a slight decrease from $11 $8 million cash.
Infrastructure projects segment revenues, which include the construction revenues for our projects for our planet.
And two were $8 $3 million compared to $5 5 million and the same quarter last year and $5 8 million on the previous quarter, we achieved a significant milestone and this quarter receiving the acceptance for the transport network of Quizzical afford awarded region interval and after the end of the quota and April and also received acceptance.
On the access network on the same agent.
This milestone is very important from a business perspective.
The start of the operational phase for this region on top of the first three regions, which we are already operating and also from a cash perspective.
And if I can and part of our payments for these projects are based on achieving this milestone and.
For the remaining two regions, although the progression has been affected by the pandemic restrictions and table.
We do expect to finish the construction phase of these last two regions and early 2023 as we have discussed previously during the construction phase revenue from twin adult will vary quarter to quarter, depending on the percentage of the project completion and on receiving acceptance for the different regions.
To summarize the quarterly GAAP results, our GAAP gross margin was 28% compared to 19% in the same quarter last year and 31% in the previous quarter GAAP operating loss was $3 $7 million compared to operating losses of $10 8 million in the same quarter last year and operating income of 62.
7 million in the previous quarter, which included income related to the legal settlement with Comtech and it does really.
<unk> expenses of $64 8 million GAAP net loss and the first quarter was $5 $1 million or lots of nine cents per share compared with a net loss of $11 $8 million, but lots of 21 cents per share in the same quarter last year and.
Thank you for that.
On a GAAP net income of $62 $4 million and $1.12 and diluted earnings per share and this included the net income from the settlement with Comtech and now looking at our quarterly results on a non-GAAP basis non-GAAP gross margin was 28% compared to 19% and the same quarter last year.
And 31% and the previous quarter non-GAAP operating loss for the quarter was $3 8 million jealous and have an operating loss from the same quarter last year of $7 6 million and in the previous quarter. The operating loss was one $6 million.
I note that we had $16 two.
$2 million and operating expenses in the quarter compared with $16 5 million in the first quarter of last year and 15 million in the previous quarter.
Operating expenses were higher than those of the previous quarter, mainly due to the fact that we turned on stuffed full day work from the separate from December 2020, and also in Eugene and Syria dollar Shekel exchange rate and the dimension before we're investing significant efforts in R&D to ensure timely delivery as existing large project.
We have been awarded mainly and Leo and MEO constellations and also to capture additional significant opportunities, we see I, Ed and with non-GAAP net loss and the quarter was $5 $2 million.
On nine cents per share in the same quarter last year, we reported a net loss of $8 $6 million or 15 cents per share in.
And the prior quarter, we reported a net loss of $1 $9 million or three cents per share.
Adjusted EBITDA for the quarter of 2021 was a loss of $1 $4 million compared with an adjusted EBITDA loss of $5 million and the same quarter of last year in the prior quarter, we reported and adjusted EBITDA profit of $1 $1 million moving to our balance sheet as of March 31, 2021 on it.
Total cash and cash equivalents, including restricted cash were $75 $6 million a decrease of $40 4 million from that of year end 2020. The decrease was primarily due to the payment of a dividend to shareholders of 20 $35 million and the last payment in June on alone for me then.
From January 2021, I would like to point out that in the past two quarters. We have paid a total of $55 million for 99 cents per share special dividend to shareholders.
In terms of operating cash flow, we generated around $300000 from operating activities. After the end of the quarter, we received a payment of approximately four point.
$4 million and expect to receiving and the next few weeks additional payment on.
7 million $7 million in Peru, after achieving the milestone of the force network Dsos, which include our fixed networks and mobility solutions segments and exclude receivables and revenues of our terrestrial infrastructure projects segment increased to 77 days compared to 76 days in the previous quarter.
Our shareholders' equity at the end of the first quarter totaled $228 $1 million from vendors compared with $233 8 million at the end of 2020.
Looking ahead all in all we are encouraged with what is now our second quarter of a gradual sequential improvement in our revenues. We view 2021 is a year of recovery and which will emerge from the COVID-19 crisis. We look forward to continued sequential revenue growth and improved profitability for 'twenty two.
91, and much more so in 2022 that concludes my financial review I would like now to open the call for questions operator. Please.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment and kind of lift the headset before pressing the numbers and your questions will be pulled in the order. They are received please standby while we poll.
For your questions.
Yeah.
Yeah.
Yeah.
The first question is from Chris Quilty of Quilty analytics. Please go ahead.
Oh, good afternoon wanted to follow up real quickly on the terrestrial and contract awards are those booked as one time revenue or are they amortized over some period of time and what is that correct.
And both of those should come through in the second quarter.
Hi, Chris.
The rest three.
Our assertion is and.
From our perspective, the one time construction revenues.
And remind I remind you that we were awarded six regions in Peru around $550 million, which allow them to sell three other than the 30 million and though so on.
And one time construction revenues over a period of a C is for lease thrill formulas for each.
And the region. This is going to be and by the end of 2020 to maybe early 2023.
$222 million.
His operational revenues.
For Lucky racing and the maintaining the network for a period of of Daniel's now each region has dual network because one is the transport and the other one is access networks and the $220 million for operating only the access network.
For the hospital network.
On a tail of the government and need to issue a RFP on to awarded to be largely day on to operate the transport and.
Other potential for a lot of and there's several million dollars operation operational revenues Felicia region.
And I understand and the 50 million steady state would represent only the recurring revenues and non construction revenue growth.
We expect to reach this run rate I would say towards the end of next year.
Today, I think we are much more than half a way there just from from the projects, we have more than $22 million.
We signed.
Several months ago agree.
The agreement with the IPP interest total switch, which is a consortium of.
Telefonica and Facebook.
To support them.
Links through for.
<unk> deployments worldwide.
And so there's not one was in and out.
In the regions that we were awarded this is another more than $5 million.
And we have another site and terrestrial.
Getting revenues.
From all the projects that were awarded of another $5 million. So all in all we are more than 30 million today with the.
Recurring revenue run rate.
Great.
Just to follow up on the in flight connectivity business.
And when you look at.
Your current customers there in terms of hardware shipments have you gotten any indications that they're starting to.
And to lay out a roadmap of when theyre going to be accepting more and more equipment for installation.
Not yet we do is we do have a.
Conversation with them, we do see that Oh, they ask more questions, meaning that internally there's something is.
Starting to go into the right direction, but we Havent got the forecast and the order except here and there you know for maintenance.
And then related and and things like that but from our perspective and this segment is still.
Not recovered yet and.
We predict right now we believe that it will be towards the end of this year.
And towards the end of this year, you'll get back to the pre COVID-19 run rate or you think you'll start initial shipments beginning I think we will start initial shipments to return to pre COVID-19 run rate I would say that.
It should happen towards the mid next year, assuming you know the world will.
Cash flow from the COVID-19, we need to remember that in Israel, we it seems like the pandemic is.
Behind us and in the U S. It.
It seems there and the right direction, but other places in the world is still a.
Significantly affected by the pandemic Latin America, we see and the news what is going on and in India. So I think we are far from and recovering from the pandemic.
I understand and I know you've done this in the past, but can you review for for the mobility segment, what the breakdown and looks like there either in terms of you know.
By end market application or buy equipment.
And slash service revenues.
Net revenue bucket.
And mobility, we mainly sell.
Equipment.
And we do have around 10% on the revenue into service revenues, but it's mainly a maintenance post post contract support.
And by end market application, I mean, IFC is down and I imagine 80%.
Yeah.
For more from prior levels and.
Where are you seeing the continued revenue strength for or do you think you will see strength and the near term.
I'm not sure I fully understand the question can you please repeat it.
Well I'm, saying within the mobility segment, you've recently won some contracts on the maritime side.
And are there other either land mobility or government applications that would fall into that.
Mobility bucket that you might get the revenues moving before the core IFC business really comes back on line.
Yeah. So you know, let's recap for a second.
We have been on mobility and the mobility, we have IFC revenues we have.
The defense.
Revenues on the moving on the pause and we have our engineers, so and business.
So and and GSO business we.
We recently announced several orders we wave three more U S subsidiary.
Provide.
Solid state power amplifiers for the <unk>.
And just so gateways. So this business is increasing.
Increasing quarter over quarter.
On the.
Development of the empower and constellation is progressing and we our expectation is that towards the end of this year early next year to start seeing revenues right now it's on the development phase, we do see a lot of our pipeline and opportunities.
And with the defense and we'll do it in.
In Israel and worldwide, we do have some initial success, which will.
And we'd be able to announce it.
And as soon and we are on.
RFP process of several.
Large opportunities, which I believe.
And it would be able to win some of them.
And this revenue will come later on and do you feel and the next year.
And a follow up on the NGL so business.
You've done had several announcements of contract wins, but you know having a hard time sizing how much of those wins have been booked this year and what might land next year in terms of timing.
Can you give us a sense in terms of order of magnitude how much and GSO related revenues might be up next year.
And let's say, even in 'twenty, one versus 'twenty and again looking out and 22 I'm just trying to understand how that's going to stagger out overtime.
We are.
I think two or three months ago, we announced that a waste stream was awarded over.
Agreement of a more than $50 million for I guess this will be spread over.
Uh huh.
Two and half years and.
Oh, so before.
<unk> expansion.
And that empower.
We will disclose the amount, but its a potential of tens of millions of dollars of equipment and later on that Zalviso and this does not include <unk>.
And the modems and the expansion right now it's for around 10% of the of the concern constellation and so over there.
Michigan and potential and.
I would tell you that it's mainly a revenue will start next year because the satellite are not yet.
And you know they havent launched them yet so the potential over there is big.
And I believe that they will.
Rather than and quickly feel.
A large part of them and they will need to acquire more and more a visa.
In addition, and several opportunities both on the SBA and on the baseband and.
We are in other fee and bidding process and I believe we will be able to we installed and so I believe that and just always going to be a significant market segment.
We didn't get out several tens of millions every and growing.
Just to add one thing to what the day just said.
And if the order that we received already from empower and most of it will be already and delivered probably in 'twenty early 2020. Two are maybe even earlier, but are at least early 2022 and this is a day order that the.
Describe before.
Great so without giving specific percentages it appears.
2021 will be up.
Over 2020, and likewise 'twenty two will also be a growth year.
Going forward.
Yes, I think that's been based on that if you sum all the information and just gave I think the 'twenty two we'll see a significant growth of about 21.
Great.
One other IFC related question you you've done a lot of development work on your phased array antenna, which will become increasingly important as these N G S and it was come into service.
Where do you stand there in testing and and customer decisions.
So that's.
And that's a very good question.
And you saw on.
And one of the most all growth companies with our technology, we were able to demonstrate.
<unk>.
And even on a I think that the only is always no moving parts. It will demonstrate on a commercial flight.
And in flight.
But right now our customer decisions.
Far from being taken.
Most of them.
And then as the most expensive product and the solution and the right now.
The other trials.
Several opportunities, but I think we are far from having.
Having a customer decision to replace or to start a new project with.
Wish to reported that.
Additional significant development and.
We need to be tied with a customer decision based on the relevant.
Aircrafts, that's out there and it will be installed and.
I guess, maybe in two or three quarters, we will know more and.
And where we stand with that.
And the potential that we see.
Great and a final question you mentioned that you expect to announce or see some defense and border activity picking up too.
Two questions is that.
International in general or U S or I'm on.
You know what what markets are you selling into and second question.
Are there any unique products that you've had to develop for the D. O D market or are these simply.
Repurposing some of your commercial products, maybe layering on some cyber or encryption capability.
So.
We are walking and all the market segments L. A market the geographic market that you just mentioned less and the Dod although we have some opportunities over there.
And especially to a waste stream.
We are walking with and Israel of course, but.
In other places.
In the world.
And it's mainly Oh.
And stuff.
But the satcom equipment.
And then.
And.
Prototyping and our commercial.
Solutions too.
Defense and needs.
It needs.
And so all of that product position as you know R&D work that has been done or do you have a significant amount of work to do.
And these being done but as you know every day.
<unk>.
The Ministry of defense has their own <unk>.
And so almost every deal that.
But we see and saw in the past and the <unk>.
On the defense segment require some customization and localization and things like that.
Great. Thank you and congrats on the results.
Okay.
The next question is from Gunther Karger of Discovery Group. Please go ahead.
Okay.
Yes.
Washington and stuff.
And I've seen.
Uh huh.
And you'll have that time.
And fault with Gogo to supply it's on fire.
<unk>.
And one thing and say.
Yeah.
Oh go ahead, and I sold a provision to Intelsat.
Hum.
<unk>.
Plans for over to influence that or is that now and have to be on from scratch.
Our agreement with Gogo was moved to Intelsat.
And today, we are in discussion, both with Intelsat and the Gogo team under Intelsat.
I remind you that we will to Google and one of the largest if not the most labs largest.
Satellite.
And the network worldwide supporting a modem.
And 15 satellite I think and.
Hundreds of beams everything is managed by it with Gilad total network management system and everything was moving with a global commercial aviation on the interest from.
Thank you so it sounds like will that move and a handful of sites.
Being global and that actually could expand rather than contract would that'd be a correct assumption.
Correct I would believe.
And that.
And this will support to strengthen our relationship both with Gogo and Intelsat.
Thank you.
Thank you Rhonda.
Is there any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
There are no further questions at this time and is helping and would you like to make your concluding statement.
I want to thank you all for joining us on this call and for your time and attention. We hope to see you soon or speak to you and our next call. Thank you very much and have a great day.
Thank you. This concludes <unk> first quarter 'twenty 'twenty. One result conference call. Thank you for your participation you May go ahead and disconnect.
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