Q2 2021 National Instruments Corp Earnings Call
Yeah.
And thank you for standing by welcome to the Q2 and he kind of 1 and a T I earnings conference call.
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Thank you.
Afternoon, we appreciate you joining our Q2.
<unk> 2021 earnings call I'm joined today by Eric <unk>, President and Chief Executive Officer, and Karen Rapp, Chief Financial Officer, We will start with an update on our performance and the second quarter before opening up for your questions.
Our discussion today will include forward looking statements, including without limitation those regarding revenue earnings.
Earnings gross margin operating expenses capital allocation targets and future business outlook and guidance, including supply chain constraints backlogs and the potential impact of COVID-19 on the company's business and results of operations and we wish to caution you that such statements are just predictions and that actual events or results may differ.
Italy and could be negatively impacted by numerous factors. We refer you to the documents that the company files regularly with the Securities and Exchange Commission, including the company's annual report on form 10-K filed on February 23rd 2020, 1 and our quarterly report on form 10-Q filed on May 3.2021.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward looking statements. We assume no duty to update any forward looking statements to confirm the statements to actual results or changes and our expectations. A reconciliation of our non-GAAP financial measures disclosed in this call to the most directly.
Correctly comparable GAAP financial measures or related disclosures are contained in our press release and on Ni Dot Com Flash natty.
Reminder, to Mark your calendars, we will host our virtual Investor Conference on August 17th at 10 Am Eastern time at this event, our executive leadership team and I will share a deeper dive into our growth strategy.
Secular growth drivers, we believe will accelerate progress toward 2020.3 financial model and how we intend to enhance our already differentiated software position. Please visit and dot com slash natty for linked to livestream.
With that I will now turn the call over to Chief Executive Officer, Eric start cloth. Thank.
Thank you Marissa and good afternoon.
Everyone really appreciate you joining us today, we had a great Q2, and I'll share some color on the quarter and then I'll discuss progress through our growth strategy before I hand, it over to Karen to dive into the financial details.
We were very pleased with the strong results and Q2 as momentum continued across the business with very high customer demand.
Afternoon rate execution.
<unk> and constraints continue to be a headwind, but were in line with our expectations coming into the quarter. Our teams were able to adapt quickly to the situation, helping us to exceed our revenue expectations. We believe our results are proof that our strategy is working and our continued market focus is paying off.
This was.
For a quarter of records with results exceeding our expectations, most notably Q2 revenue exceeded the high end of our guidance and was an all time record for a second quarter.
We achieved record orders for Q2 up 33% year over year with double digit order growth across all industries and all regions and Q2, we also achieved record.
And non-GAAP operating income up 38% Q2, GAAP operating income was up 50% year over year.
In addition, we achieved record revenue and non-GAAP operating income for the first half of 2021, and we're entering the second half with a very strong backlog position.
At the Investor Conference, we will talk in more detail about.
Our software strategy for growth and in Q2 software growth year over year outpaced the company and year to date represents 21% of total revenue.
We're also pleased with the progress on our channel transition. So far this year, we have set clear goals to achieve higher efficiency and our broad based business of over 30000 accounts.
Record, where scale and leverage can be achieved through both e-commerce and global distribution and these customers represented approximately 30% of our Q2 orders and reported record year over year order growth. We believe our strategy to serve these customers with ecommerce and distribution will ultimately improve customer experience lower our cost of sale.
Count and improve our reach.
The leverage and this portion of our business will also allow us to continue to afford to invest and higher growth opportunities and focused accounts are focused accounts include approximately 2500 accounts that we believe have the highest potential to expand our system level offerings and increase our share of wallet. These customers.
And as represented approximately 70% of total Q2 orders.
Now turning to our results by industry.
Our semiconductor and electronics business reported strong results with year over year order growth of 35% and Q2 we.
We were quickly able to leverage the optimal plus technology for our connected lifecycle and analytics solution.
I'll put us up new ways to support the needs of our customers throughout their product development and flow, allowing them to use software to derive predictive data insights.
Our transportation business continued to benefit from the recovery and vehicle production with year over year order growth up 46% and Q2, representing an all time record quarter for orders.
We are encouraged.
Courage by these results after 2 years of challenging headwinds as.
And as discussed previously we expected and imminent recovery of vehicle production, which would then fuel increased investment and the key areas of electrification and active safety systems.
The portion of this business focused on electric vehicles, and <unk> continued to significantly outpace the rest of the business.
<unk> and now represents approximately 30% of our transportation orders.
Order growth remained steady and aerospace defense and government for Q2 with year over year order growth of 15% over an already strong 2020 Q2, representing record orders for our second quarter. This has been a solid growing business over multiple.
<unk> for years, a testament to our ability to accelerate system level value for customers through software and services, we are confident and our ability to capitalize on the steady defense spending environment. In addition, we continue to win highly innovative opportunities and new space applications and we've been excited to watch multiple customers reached significant milestones.
And the past few months.
Our portfolio of business reported year over year order growth of 42% and Q2.
This represents the third consecutive quarter of order growth for this business. We believe these results are indicative of a stronger macro economy as well as our intentional strategy shift to better serve our broad based business to E.
Multiples and global distributors, and we will share more at our Investor Conference about our strategy to grow our portfolio of business and making them more resilient through economic cycles.
Our global execution remains strong as we continue the journey to meet or exceed our 2023 financial model and we're committed to these goals with a priority to accessories.
e-commerce growth and a passion to win with.
With that I'll turn over the call to our Chief Financial Officer, Karen Rapp before I close with a few comments, thanks, Eric and thanks, everyone for joining us today C&I team delivered another outstanding quarter, we continued to see strong momentum and the second quarter with GAAP revenue of $347 million.
15% year over year and above the high end of our guidance. We were pleased to see increased customer demand for our unique software connected solutions across all regions and industries as.
As expected our backlog grew to about 4 weeks, giving us more visibility into Q3, while still providing very competitive lead times to our customers.
For Q2 focused accounts continue to see strength with orders up 28% year over year and up 30% over 2019, as we continue to see benefit and aligning resources to high growth opportunities.
And for a broad based business orders were up 49% year over year and up 5% over 2019 led.
And our digital channel and global distribution initiatives will also benefit benefiting from the continued macro recovery.
We reported strong year over year order growth across all regions and the second quarter and the Americas orders were up 22% year over year, and EMEA orders were up 51% year over year, and and Asia Pacific orders.
By 636% year over year.
Non-GAAP gross margin in Q2 was 74, 8%.
We continue to see about 50 basis points of impact from additional costs related to COVID-19 that began in Q2 of last year and we expect these costs to continue throughout 2021.
As I've mentioned previously we.
Orders were for used the percentage of variable pay for our employees and tied it to the revenue and profit performance of the business.
In line with stronger financial performance and 2021, we expect variable pay to increase this year and Q2, our variable pay expense increased $10 million year over year.
While we continue to invest and areas of critical importance.
<unk> our focus on driving scale is making our business model more resilient and we remain committed to the execution of our growth strategy, while also improving our profitability in order to ensure our priority of maximizing shareholder value.
We delivered record non-GAAP operating income up 38% year over year for the second quarter we.
For Q2, GAAP net income of $17 million and diluted earnings per share of <unk> 13.
Q2, non-GAAP net income was $47 million and diluted non-GAAP earnings per share was 35 at the high end of our guidance and an increase of 37% year over year.
Our balance sheet remains strong we ended the quarter with 2.
$265 million and cash and short term investments.
For Q2, our cash flow from operations was $22 million, we expect cash flow from operations as a percentage of revenue to increase and the second half of the year.
We continue to have a balanced approach to capital allocation and clear priorities, we plan to continue to invest and.
We reported and technology to disrupt our space through systems and enterprise software to fuel the market opportunities that Eric referenced and.
And Q2, we paid $36 million and dividends the Ni board of directors approved a dividend of 27 cents per share payable on August 32021 to stockholders of record on August 9.2021.
And we view our strong cash position is not only a way to provide returns for our shareholders through dividends and share repurchase, but also for inorganic investments to accelerate long term growth or.
And our M&A funnel is focused on opportunities that are aligned to our strategy, where we can leverage additional technology across the business and acquire industry specific technology our expertise.
Yes.
Both serving and strategic accelerators to help us achieve our 2023 financial model faster.
Our intent is to continue to execute across these capital priorities. However, in any given quarter our growth strategy may cause us to prioritize 1 over others.
Now shifting to guidance for Q3.2021.
We're encouraged by accelerating demand and our ability to deliver to our customers and the second quarter and expect this efficiency to continue into the third quarter for the third quarter of 2021, we currently expect GAAP revenue to be and the range of $355 million to $385 million at the midpoint. This represents 20% year over year revenue growth.
And with versus Q3, 2020, and 7% sequential growth.
With the strong macro environment and accelerating customer demand. We also expect to grow backlog and the range of $30 million to $40 million and Q3.
In line with our strategic focus on systems and due to the continued supply chain constraints, we expect lead times and the range of 3 to.
And 5 weeks as we exit the year.
We expect slightly better than normal seasonality from Q3 to Q4 for revenue.
We expect GAAP diluted earnings per share will be and the range of 10 cents to <unk> 24 cents for Q3 with non-GAAP diluted earnings per share expected to be and the range of 31 to <unk> 45.
Which is an increase of 60.
5% year over year at the midpoint.
Our strong results. This quarter are a testament to the hard work and adaptability of all our employees globally.
I believe this is also indicative of the stability provided by our broad customer base and industry diversity, the value customers see and our innovative platform and the strength of our operational efficiency.
As we look forward, we remain focused on achieving our long term financial model targets and believe our goal of delivering a compound annual growth rate of 9% revenue growth with 20% operating margin by 2023 is achievable and we believe our strong balance sheet puts us in a position of strength to capitalize on inorganic investments to help accelerate growth.
And I'd like to turn the call back over to Eric for some closing comments.
Karen.
We continue to focus on delivering on our goals in 2023 and beyond we remain confident and our ability to accelerate both growth and profitability. The strength, we've seen across the business this year and our ability to execute further increases my confidence and these goals.
As we look ahead I remain inspired by our opportunities and the impact that we've been able to make with our customers globally I want to recognize all of our employees for their perseverance execution and dedication not just in Q2, but in the years of work. We've all done to put us in this position with that we'll now take your questions.
At this time I would like to remind everyone in order to ask your question you meet current star.
1 on your telephone keypad.
Kindly limit yourself to 1 question and 1 follow up and come back to <unk>. If you have any additional questions.
For just a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of <unk> <unk>. Your line is open. Please go ahead.
Hey.
Thank you hi, and good afternoon and Eric.
So I guess I wanted to start with asking you about autos and just given the home.
And we had a year ago I guess, most of the autos and on a year over year basis.
Looks like you're getting some very strong increases over the last year.
And ill give us a bit more color on the order trends maybe sequentially. What are you seeing relative to what Q. It does look like they're strong, but particularly if you can give us more color on the sequential.
And should we be says.
And the segments like what are you seeing and some ease and what are you seeing the most strength and and debt related auto just to give us some more and.
More sense on a sequential rather and the euro.
Because some of the comps might be kind of a weird.
From a year ago.
Yes, yes, I understand the question and thank you for.
Yeah, I'll give you a couple of perspectives on this 1 is we look at and the year over year of course, we also look at over a 2 year time horizon, because that tends to normalize out some of the the.
And the disruptions that we saw last last year of course, and and I would just say that I'll start there and then I'll give you some sequential comments from a 2 year point of view.
In line with our long term expectations. So just from our industry point of view the strongest performance over 2 years remains and semi and electronics.
And the.
The next areas are and Atg and transportation, which are both over 20% on a 2 year basis.
And 2.2 different stories there.
It's really as I mentioned is kind of steady growth over growth and that's kind of the nature of that business. It's a very important part of our portfolio because of that transportation was down for 2 years and then has recovered very strongly and so I mentioned that the orders and this quarter were an all time record for any quarter and transportation and so it's very very encouraging and it's.
It's driven by the areas that we're focused on within the space and so that also is encouraging that the areas. We're focused on receiving the most growth and then and then lastly portfolio. Similarly that was down over the last couple of years and it's recovered very strongly it's up 15% up approximately over 2 years, so very very strong growth and the quarter looks look more normal to our.
And our atg when you look over and over 2 years and then finally from a sequential point of view the way I would characterize the order growth is that it has continued to accelerate so Q2 saw an uptick and order growth over Q1.
And then based on the guidance that we gave if you look at the midpoint and some of the expectations.
We're setting on backlog, we are expecting order growth to continue to strengthen we've had a very a very strong start to the quarter and we expect it to continue to strengthen in Q3.
Okay got it and.
Eric I guess, if I heard you guys correctly, you expect backlog.
And I'm just.
Strata claimed and get a sense is there is there a limitation on the supply that you're seeing that's may be constraining some of your ability to deliver.
Day level to the strong demand and are you seeing what are the latest on the supply side outside of the headwinds and the cost that you called out how much of a constraint does that and on the revenue side.
Yes, Amit this is Karen and I'll I'll take that 1.
And it's exciting because we're actually still seeing order and growth continue to outpace revenue growth.
So the way we're looking at it is.
<unk> seen some of the supply issues stabilize but not but not to a point, where they are back to where they used.
At this point, so and we.
We are planning to build $30 million to $40 million of additional backlog in Q3, which will put us at about a 5 week lead time coming out of Q3, which isn't still incredibly competitive and the space that we're and the other thing that that does for US is continues to give us visibility into.
For the quarters going forward and.
And our space, maybe it's important to note that we tend to see very minimal cancellations and even when youre looking at a 4 to 5 week lead time, and we're still able to ship that product really quickly. So it gets it out the door.
And then.
Right after the end of the quarter basically to start.
To be into customers.
And I'll just add briefly to make that 1 thing I was really encouraged by is that the.
The supply chain constraints sort of met our expectations in Q2, if you go back a couple of quarters. It was pretty unknown, how this would play out.
Now at a point where at least for.
And getting it was relatively predictable or met our expectations and so that's a I'd say a good sign but it still remains.
Headwind and net were as cash.
And said, we're growing orders faster than than revenue.
Thanks, Thanks, Eric Thanks, Carter and particularly thank you. Thanks for me.
Q2. Your next question comes from line of John Marchetti. Your line is open. Please go ahead.
Thanks, very much Eric I'd like to go back to your comments around the 2 year view I mean, obviously when comparing against the Covid struggles of last year, certainly some of that growth was inflated but over the 2 year basis. It sounds like all of these segments.
<unk> are are really starting to come back into a more of a growth mode can you talk a little bit about her.
How much of that you think might be share gains or how much. You think is based on what you've done to the portfolio versus how much of it is just more of the cyclical nature of some of these industries coming back more towards a growth trajectory.
Yeah, No John Good question and so yes, the order growth is up and the low twenty's over 2 years just to put I gave those sort of industry color when I when I answered <unk> question. The way I would think of it and of course, it's hard to tease out exactly that certainly it's a strong macro environment, we see that we see that and across the business, but if I compare things like.
Our portfolio of business, which has been more tied to economic indices like PMI and the past or if I look at our our smaller accounts, what we call our broad based accounts and that's a good baseline and those are up sort of 10% to 15% over that 2 year period, and then I look at the areas of focus whether it's through our focused accounts or the areas within the.
Is that I that I described of the focus areas and 5 G on electrification and Adas within transportation et cetera. Those are.
Ours are growing much more strongly.
Focused counts were up 30% over over 2 years and those areas of focus are up either strong double digits for some of them are up.
B, you triple digits, and and so that's quite encouraging and I think that's the part that is based on our strategy and where.
We are leaning into to share gains above the base strong demand that we see across the business.
Great. Thank you and then Kevin maybe for you you mentioned that the 10 million.
And so the incremental expenses associated with the variable pay should we expect you know given the growth that you're talking about here and hi.
Should we expect that continue and the second happened and how do we think about maybe second.
And second half non-GAAP opex versus first half.
Yes, John that's ex.
Uh huh.
Good question.
Absolutely at this point with what we're looking at from a midpoint of guidance and kind of debt.
The way, we're looking at Q4 being returning to normal seasonality plus.
That kind of outlook for the year would imply that you should keep that kind of increase and variable pay built into the second half of the year.
Oh Wow.
Beyond that it's.
It's going to be kind of normal seasonality and the core of what we're doing from a from an opex standpoint.
Great and then maybe if I can just sneak 1 last 1 in here.
When you talked about expecting to exit <unk> and sort of 5 weeks, if we look out.
Out 12, or 18 months from now Youre anticipating getting back to the very low levels that you had from a backlog perspective, historically or do you think maybe just given some of the changes and what's going on globally and.
And some of these markets net youll actually be maybe somewhere between.
The 5 weeks that you're gonna exited and we get.
<unk> historically.
And I think with the with the long term strategy that we have we've talked about this before but as we lean in more and systems. Those will center around a 4 week kind of lead time for systems and general and so our goal is going to continue to be to have several weeks and backlog I talked about going out of the year. It kind of a 3 to 5 week.
And their lead times somewhere in that range and I think will center around that most likely in 2022 is what I'd be expecting.
Great. Thank you.
Thanks, John.
Your next question comes from the line of maybe Husseini. Your line is open. Please go ahead.
Yes, thanks for.
And my question a couple of follow ups just for.
The team can you remind me what your backlog was and the ups.
Sorry for all of 2017.
Oh, I'm, sorry, I don't know the numbers back and 17, but Lee.
They were typically pretty small comparatively so we would.
But the center around a week or so of backlog most of the time, but that would give you an approximation.
That's fine and I was just trying to get a.
Cage.
Increase in the backlog.
Your credit for.
Portfolio more diverse and.
Youre over the for the supply chain disruption due to Covid. So backlogs are certainly longer compared to 2017 day last cycle right.
Oh, yes.
And they've gone up quite a bit this would be the.
The largest we've had but to karen's point Theres. These 2 elements. There is the supply chain of course, which is causing the increase in backlog day as she mentioned they remain quite competitive when you look at a typical backlogs and our industry and then Theres also we've said before strategically as we have more systems business.
That is going to.
And to have the impact of increasing backhaul over time give us more visibility as well into the forward looking business and we view that as a positive thing.
Sure.
And is there.
And any.
Particular products or end market.
The lead times are longer.
And then let's see.
Yes.
Or is it actually.
And.
The way, we leverage because of the way we leverage the platform.
And we're seeing very similar across all industries and all regions.
Right, Okay, and then the loss items for me is.
Date on.
Average your efforts to penetrate the 5 G.
And my understanding debt that would hinge on millimeter wave, but I'm just wondering if theres an update there.
Yeah, Bob So <unk> continues to be a growth driver, particularly in our semi and electronics business Thats, where most of our <unk>.
It's not just millimeter wave for most of the business today is in sub 6 we characterized it before is about half of our semiconductor business and that's a similar so it's continues to be a growth.
Driver.
And is particularly strong and I would say in Asia and APAC.
And not surprisingly and then we.
And millimeter wave is still a.
Our long term growth opportunity, it's an area. We serve now as as we've said before that the opportunity in terms of the scale of ramp up of millimeter wave has tended to push out and time.
And into kind of next year for the larger volumes and millimeter wave, but for now we've.
Do viewing steady performance of 5 G, primarily and sub 6.
And at sub 6.
Mostly this is for <unk>.
Volume manufacturing right.
Well, it's about our business, including a 5 day, it's about 50.50, <unk>, so it's about half and in labs.
And automated labs, and about half and high volume manufacturing, So we view that as a.
1 a nice healthy balance for the resiliency of the business.
And also to our customers, we're delivering value because of the commonality of those systems, but it's split pretty evenly across those 2.
Okay got it thank you.
Sure.
We've been thank you.
Your next question comes from the line of Mark Delaney. Your line is open go ahead.
Yes, good afternoon, and thanks very much for taking the questions for.
First on the operational environment I realize the company has a facility in Malaysia, where unfortunately, there has been some increased.
Creased Covid cases, and as a result of that I think that the government has some.
And restrictions on the.
And the number of people and some facilities obviously the company was able to still come in above the high and if its guidance, but I was hoping you could talk a bit more on the operational challenges. The company may be encountering and specific to your Malaysia facility, where <unk> been able to do to overcome those.
Sure Mark this is Karen.
We've not had any operational impact and our manufacturing facilities, both in Malaysia and and hungry.
1 other things that really need to see and Malaysia. This quarter was a partnership and with Intel to help our employees get access to vaccination and we were able to.
Yeah enables our employees to bust them over to the Intel facility and.
And we were really pleased with the number and plays that we're able to participate in that and as well as their families and.
The support staff and the factory, but we've been able to keep operations running fully operational and we have not had any impact throughout COVID-19.
As a result of any other limitations so far.
And Mark if I could just take the opportunity since you teed up for question and I'll just say, it's just been remarkable our employees not just in the factories, certainly and the factories and the resiliency they've had the show, but as you highlighted.
Beside this COVID-19 pandemic.
Does it has created the need for a lot of adaptability across our business and as you noted it's not it's not time, yet we have to show that adaptability I've just been.
Really overwhelmed with how well we've been able to run the business and reached very successful and financial milestones, despite that including being able to operate as.
And that makes it and both of those factories.
And something you may I have a follow up there Mark go ahead and I did sorry, thanks for the for for the comments there and that's very good news.
And in terms of the orders I understand.
And there is a component debt.
Due to some of these structural opportunities and.
And particularly growing areas, perhaps the company has been picking up some market share but.
Given how tight the supply chain has been lead times are short, but are a little bit extended how do you guys think about the potential risk that there is an element of the order strength that is perhaps double orders and.
And the risk of.
Karen.
And some cancellations so we used a portion of the orders.
Yes. This is Karen again.
We have an interest in business, where because of the lead times are still only about 4 weeks coming out of Q2.
For the most part the order ship right away as soon as the quarter ends and so historically we've seen.
Very minimal cancellations, we've been watching that given this current situation and we haven't seen any increase and the level of cancellations. So we continue to see very minimal we ship, 90% plus of.
The backlog that we come into a quarter with right away.
So we're feeling really good about the strength of that back.
Backlog and how solid it is to turn into revenue.
And then I will just say that double ordering phenomenon that happens and the semiconductor supply chain generally doesn't hasn't historically happened and our market capital equipment and that's generally not been an issue.
That's helpful and if I could sneak 1 last 1 and you just in terms of the comments that you.
Seen here and on fourth quarter revenue and the potential to be slightly better than typical seasonality.
It looks like and.
And most years revenue is up mid to high single digits sequentially. So it seems like youre, implying up high single digits or perhaps up low double digits, but if you could clarify what your interpretation or calculation on.
Current seasonality is that'd be helpful. Thanks.
Yeah, Mark your numbers and the same as mine and looking at a 7% to 8% normal sequential from Q3 to Q4, and I think it'll be slightly higher than that and the visibility we have right now.
Thank you.
Okay.
The next question that you have from that Nathan go ahead. Your line is open.
Yes, good afternoon.
And.
Hey, Eric.
1.1 quick question just on backlog.
Hot topic.
I think the expectation coming into.
And what are Eric was that.
Karen you would build about $40 million to $50 million, but just given the way you're out of backlog.
And the way you outperformed is that was that still the case in the quarter sales quarter.
And that's exactly the number I believe that's about $50 million of backlog and Q2, just like we expected.
Okay. Okay.
Eric.
And you're about to annualize or maybe just have annualized the optimal plus acquisition I was curious if you could just give some thoughts as to.
And now that you've owned that a year.
How that.
Has been integrated into the business and.
And also how did it contribute.
Tribute.
As you came through.
This most recent quarter.
And having owned it about a year just in terms of maybe the revenue contribution how is contributing and I think primarily due to the semi electronics business and just your your take on that overall.
Sure rounded to Europe.
Yeah, absolutely so.
The integration has gone very very well very smoothly. We reached all the integration milestones that we had very pleased I was actually just over in and Israel, a few weeks ago, where a large number of the employees and the R&D center is for optimal plus.
Which was fantastic to be able to be over there in person and that those employees for the first time.
And.
So first of all just a great fit in terms of the people and that technology the.
And the comment I'll make is that 1 we.
We are very pleased with the pipeline of business and the opportunity expansion that we see and the synergy with the channel.
And then the second is that this is an area and I alluded to it but it's an area where we're looking to expand.
<unk>.
Our investment over time, and this area generally speaking of data analytics and product data analytics, both both building off of that platform and it'll it'll it's an area for organic and inorganic pursuit for us so.
So that's probably the the biggest statement as debt.
After a year it's.
It's an area that we want to do more in and we see as a potential.
Long term driver of growth, maybe I can give us.
And we just did our customer conference this week and I connect and Theres a more there that you can see about customer testimonials and really just understanding what that looks.
Moving forward as we continue to lean in on that space, So pretty exciting event with great turnout.
Alright, great.
And last question.
Karen just on the third quarter guidance should we still be thinking gross margin adjusted gross margin and the mid 70 range.
And then around.
Like for Mike.
Quick back of the envelope math was maybe the midpoint suggest your operating margin is.
As flattish sequentially and operating expenses up.
8% or so 7 and 8% sequentially is that.
Is that.
The case.
Uh huh.
Round Europe, I didn't yet will be in line with our long term trends and it.
Flex is a little bit as revenue goes up so there's some a little bit of additional efficiency that we get with higher revenue and gross margin typically.
From an opex standpoint.
Continuing to kind of see the normal baseline that you would see from a Q2 to Q3.
And then plus the variable pay on top of that is the way I'd look at it Rob.
Okay very good.
Okay.
There are no question and session. This time I would like to third and I called it will for it back to our speakers.
Thank you all for joining us.
As today, we look forward to seeing you on August 17th at the Investor Conference have a good day.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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