Q3 2021 Silicon Laboratories Inc Earnings Call
Okay.
Hello, My name is Sarah and I will be your conference operator today.
I'll come to Silicon Labs' third quarter fiscal 2021 earnings call.
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I will now turn the call over to Austin being Silicon Labs Investor Relations manager Boston. Please go ahead.
Thank you Jeremy.
We're now recording this meeting and replay will be available for four weeks on the Investor Relations section of our website at Sai labs forward Slash investors. Joining me today are silicon Labs', Chief Executive Officer, Tyson Tuttle, Matt Johnson, President and John Hollister, Chief Financial Officer.
We'll discuss our third quarter financial performance and review recent business activities. This information along with accompanying financial tables and the earnings press release is available on our website.
We will take questions. After our prepared comments and our remarks today will include forward looking statements subject to risks and uncertainties.
We base. These forward looking statements on information available to US as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review, our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward looking statements. Additionally.
During our call today, we will refer to certain non-GAAP financial information a reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs' website.
For clarity all information detailed in the call today, we will forward to results from continuing operations any references to discontinued operations will be explicitly noted.
I'd now like to turn the call over to Silicon Labs', Chief Executive Officer, Tyson Tuttle Tyson.
Thank you Austin.
I'm excited to announce the achievement of record quarterly revenue for Silicon Labs, we recorded a $185 million in third quarter revenue, a 9% increase from our previous high achieved in the second quarter of this year.
I am very proud of how our team has executed in such an unusual and at times challenging environment.
First John will provide further details on our financial performance, then Matt will discuss our execution and accomplishments for the quarter.
I'd now like to turn the call over to John Hollister.
Thank you Tyson.
I am pleased to report excellent results for the third quarter.
Iot revenue for Q3 ended strong at $185 million, which is above the high end of our guidance range and represents a growth of 39% year on year we.
We saw strong growth in both of our primary end markets during the quarter, industrial and commercial and home and life.
Key areas of strength in the quarter were in home automation and security smart retail portable medical and sports and fitness.
Our wireless Iot solutions continue to be the primary driver of revenue growth and share gain.
Wireless products delivered robust, 48% year on year growth during the third quarter and we saw increases across all our wireless Iot protocols, including Bluetooth Wi Fi Z wave zigbee thread and proprietary.
By geography, we saw the greatest strength in the third quarter in the Americas, and Europe, which were up significantly APAC was up slightly dip.
Non-GAAP gross margin exceeded our expectations for the quarter at 59, 4% with favorable mix.
Earlier this year, we implemented price increases to recoup cost increases from our suppliers and we are seeing positive effects the.
The supply situation remains dynamic with tight supply and rising costs across the manufacturing landscape.
We expect to continue to pass along supplier cost increases to our customers to preserve our gross margin performance.
In doing so we remain committed to applying our pricing strategy and an equitable and constructive manner to maintain our strong customer relationships and long term growth in the Iot market.
Given the variable timing associated with cost and price increases we are experiencing greater volatility in gross margins and expect that to continue in the near to mid term.
As expected our non-GAAP operating expenses increased significantly in Q3 to $93 million.
Primarily due to increased investment in our pipeline of new products, which brought R&D expenses to $57 million.
SG&A expenses were up slightly on higher variable compensation with upside business performance and costs associated with our works was developer conference.
In its second year the conference drew nearly 8000, Iot customers partners and prospects.
Non-GAAP operating margin for Q3 was better than expected at 9% non-GAAP earnings per share from continuing operations were 34 cents above the high end of our guidance range, our non-GAAP effective tax rate was approximately 8%.
Turning to our GAAP results. Our gross margin was 59, 2% GAAP operating expenses from continuing operations were 119 million with R&D at $73 million in SG&A at $46 million.
In addition, GAAP expenses included stock based compensation of 14 million in amortization of intangibles at $12 million for the quarter. As a result, we generated a GAAP operating loss from continuing operations of $9 million.
We closed on the divestiture of the infrastructure and automotive business in Q3 and recorded a one time gain from the transaction of $2 $1 billion during the quarter.
As a result, our total GAAP earnings per share inclusive of discontinued operations was $46.76.
Turning now to the balance sheet, we ended the quarter with $2 7 billion in cash and investments we had strong operating cash flow from continuing operations in Q3, bringing our year to date total to $48 million cash flow from discontinued operations was $2 8 billion, primarily due to the divestiture transaction.
Accounts receivable declined in the third quarter to $73 million on solid collections, representing D. A DSO of 35 days.
Despite the supply chain challenges, we are experiencing our team delivered both upside revenue in the third quarter and growth in inventory to $59 million or turns of five one times, we expect our inventory balance to decline in the fourth quarter.
Shortly following the closing of the divestiture in Q3, we completed a modified Dutch auction tender offer under which we repurchase approximately $640 million of common stock at a price of $160 per share.
This retired about 4 million shares or 9% of our Q2 ending fully diluted share count. Furthermore, we supplemented the Dutch auction with additional open market repurchases, bringing our year to date total on the open market program to $54 million out of $150 million authorized.
As a result, the total share repurchases completed through the end of Q3 is nearly $700 million.
We also expect to enter into an accelerated share repurchase agreement today pursuant to our board authorization to repurchase an additional $400 million in shares.
This accelerated share repurchases. The next step in our capital deployment program and demonstrates our continued commitment to deliver value to our shareholders through a prudent capital allocation strategy.
I will now cover guidance for the fourth quarter.
We expect revenue for the fourth quarter to be in the range of $195 million to $205 million, we expect non-GAAP gross margin to be approximately 59, 5% we.
We expect non-GAAP operating expenses to be around $95 million, we expect the non-GAAP effective tax rate to be about 8% and non-GAAP earnings per share to be in the range of 50 to 60.
On a GAAP basis, we expect gross margin to be around 59% GAAP operating expenses to be $126 million and GAAP loss per share to be in the range of 41 to a 31 cent loss.
I'm happy to report record revenue in Q3, we are on a path to sustained growth and continued leadership in the wireless connectivity market, while achieving our profitability model.
We have grown nearly 40% since Q3 of last year, which is remarkable.
We've also captured greater design win lifetime revenue in the first three quarters of this year than we did in all of 2020.
In the third quarter Silicon Labs became a pure play Iot company and we're excited by the early results. The team is energized and laser focused to capture the significant market opportunity that providing the wireless connectivity for the internet of things represents.
We achieved nearly 50% growth year on year in our core wireless business despite supply chain constraints.
We saw gains across all product lines in particular, our Wi Fi revenue more than doubled from the third quarter last year. The first full quarter after the <unk> acquisition.
Supply remains a challenge as we work to meet customer demand and do the right thing for our long term business.
We were able to build inventory slightly but we're still not at what we'd consider a normal operating range.
In addition to strong financial results, we executed well across the board now I'd like to share some of the highlights.
In September we held our second annual works with developer conference. The response from our ecosystem was incredible we June nearly 8000, registrants and increase of almost 20% over last year.
We featured multiple keynotes, including industry leaders like Amazon, Google Ikea Lantus in gear and Schneider electronics Bye.
By popular demand. We also expanded the conference to add tracks in rapidly growing markets like smart retail smart industrial and portable medical.
We estimate that works with 2021 helped us identify more than 500, new opportunities with the potential for more than $1 billion in lifetime revenue.
In Q3, we also announced the <unk> 23. The latest addition to our award winning series two wireless platform the.
<unk> 23, as a sub gigahertz wireless SFC brings an industry, leading combination of wireless range energy efficiency and security.
This new solution can operate over a mile for more than 10 years on a coin cell battery, while supporting our industry, leading secure vault security features.
And because it's from Silicon labs, the xg twenty-three supports a wide range of protocols, including Amazon sidewalk, My O'dea wireless Embus Z wave and proprietary Iot networks. It's the optimal feature set for a growing number of smart city and industrial deployments as well as home and commercial building automation.
Next we announced our unified software development kit or unify SDK, which is bringing brings a new level of interoperability between industry protocols silver.
Silicon labs is committed to simplifying wireless connectivity by.
By making it easier to connect devices, we are paving the way for wireless ubiquity.
The unify SDK provides ready made software for gateways and application processors that enables translation between wireless protocols with unify SDK IFC developers can designer solutions with confidence knowing they can easily bridge to support multiple protocols, including matter once it arrives.
This kind of enter our interoperability brings us significantly improved consumer and developer experience to the industry.
Finally, we announced our custom part manufacturing service or see Pms.
Silicon Labs is the first in our space to allow customers to customize their devices in the final stages of manufacturing before the products lead the facility.
This secure provisioning service enables greater security simplified supply chains, and greater product differentiation for our customers.
This is a big deal Cpm's offers customers, a trusted and economical way to add unique part numbers custom markings and application specific programming as well as highly advanced security features such as secure boot secure debug encrypted over the air updates.
Private and secret keys and secure identity certificates.
The world is facing an increased need to protect against security breaches intellectual property compromises in counterfeiting our customers are moving to implement more secure device protection and this service is available at a great time for our industry.
I'm really proud of what our team has accomplished we brought the industry together delivered significant innovation and drove record revenue all while navigating a uniquely challenging environment.
Now I'd like to take a moment to recognize Tyson and his decade as CEO of Silicon labs.
Yet a clear vision for the potential of smart connected devices to transform the world is leadership and passion for innovation brought us to where we are today Silicon labs is a leader in a thriving and fast growing market. The internet of things this year and the impact is being felt in homes cities and industries around the globe.
<unk> commitment to employees customers partners and the communities. We live in has been deeply felt and we'll continue to be a part of our values as we move forward.
It's no surprise that the Austin business Journal awarded him there 2021, CEO Legacy Award.
Thank you Tyson for your leadership and support I'm excited to pick up the baton and carry it forward and now I'd like to hand, it over to you for a few words.
Thank you Matt.
I joined Silicon Labs in 1997 is the 10th employee and I am so proud of what we've accomplished over the last 25 years.
And a great honor and a privilege to lead the company for the last decade as CEO driving our transformation into a pure play leader of secure intelligent wireless connectivity for the large diverse and fast growing Iot market.
Throughout this time, we have stayed true to our values and one of those values is to hire the best I want to thank all the employees past and present, who help turn the vision of a smarter more connected world into a reality.
Going forward I'm excited about the future of Silicon labs to thrive as connectivity becomes ubiquitous in our lives and throughout the economy.
As I pass the torch I have full confidence in mass ability to carry forward, our values and culture and under his leadership I know the team will continue to build on Silicon Labs' strong foundation to capitalize on the opportunities ahead.
Okay.
Finally since this is my last earnings call I want to thank all of you for your time and attention through the years and sometimes patients I've enjoyed sharing silicon labs' vision for the industry are stories of innovation and the great work of our engineers with you all.
And with that I'd like to turn the call back over to Austin.
Thank you Tyson.
And thank you for joining Silicon Labs, Q3, 2021 financial and business update I will now open the call for questions to accommodate as many people as possible before the market opened I ask that you limit your time to one question with one follow up inquiry if needed operator.
Thank you.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble IRA.
Our first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
Hey, guys. Thanks for taking my question and congratulations both Tyson or Matt on the next chapters of your lives and careers.
Congratulations on a putting an exclamation point on the finish to the fiscal year.
And that's where I wanted to start with my question.
What extent is this roughly.
9% revenue upside that you posted here in the second half of the year being driven by.
Better wafer supply.
Using up the supply chain in general and to what extent is it being driven by demand upside what I'm really trying to get to some of the forward looking demand metrics like you're ending backlog or your book to bill ratio for the quarter.
Yes, Gary this is Matt Thank you.
I guess the way I'd like to answer that is what we're seeing is continued constraints in the supply chain in the coming quarters with that being said, we see the opportunity each quarter to increment up on our supply and at the same time as we see costs coming in from our suppliers.
We're passing those on to our customers.
But only to the extent that.
It makes sense and trying to maintain our margin model.
That being said looking forward, we see that.
Supply will continue to be constrained and demand is continuing to increase widening that gap moving forward. So even though we're incrementally up our supply demand continues to increase at a faster rate.
Thank you for that my follow up question's, a bit boring, but important nevertheless, John could you share with us what you would expect the share count to be following this.
$400 million ASR that you're I guess, concluding this week roughly $37 million.
Shares outstanding.
Yes. Thank you Gary the estimate there would be around $39 million.
<unk> shares for the fourth quarter.
<unk>.
That's really what is in the.
And in view right now so that's what that's what I would suggest you think about.
Got it thank you guys.
Our next question comes from Matt Ramsey with Cowen. Please go ahead.
Thank you very much good morning, guys.
First off Tyson Congrats it's been a hell of a run and I think most importantly, the culture you belt there is.
Something that we can certainly observed from the outside so.
Just wanted to for my question kind of touches on a couple of things that Gerry mentioned.
In his first question.
But what I wanted to touch on is pricing in the environment that youre seeing there is a lot of companies talking about.
Some being really successful maybe slightly less so.
Passing along increased input costs, given the tight environment that were in through to their pricing.
Obviously, the big upside that you guys showed in the back half of this year folks just kind of kicking the tires to see how much of that is units how much of that is supply how much of that might be pricing and how durable any pricing upside might be as you work through the next several quarters. Thanks guys.
Yeah.
Hey, Matt This is Tyson I'll start off and then I'll, let Matt.
Continue to comment on that but I appreciate the kind words, it's been a great ride and we've had.
A lot of success in building building, the Iot business and I couldnt be happier for Matt to take take over the reins here and take it to the next level.
Just a few comments on the on the.
The revenue upside here and what thats going to look like going forward.
We have substantial pricing power in the Iot markets strong demand I mean, certainly in a supply constrained environment youre going to have.
Pricing power.
We're also seeing some some increased costs coming in from our suppliers and we've seen some of that this year and expect that to continue to a certain degree and we are passing on those.
Those price.
Cost increases in terms of price.
As we go forward and we can't get caught in the middle of <unk>.
<unk> got a got a hold our margins and we're taking that as a.
As a goal but.
Anytime you don't want to damage, our long term relationships with customers, who want to do this in an equitable way.
In a way that.
As sustainable going forward, we don't want to create headwinds in the future.
And we want to maintain our relationships with customers. So there is there's a real balanced with that I'd also say that the team has been putting substantial effort into increasing supply both with our existing customers with our existing suppliers.
As well as bringing on new.
New supply.
In the future.
Putting R&D into increasing supply as well as driving the roadmap and we see that.
In terms of securing additional supply going into the new year, but really as we go through 'twenty, two and into 'twenty three making sure that we can support our long term growth for the company.
That we've got the supply to do that so it's really a <unk>.
Combination of things in a very good execution very good.
Ability to.
To manage our cost in our pricing.
And increasing the supply going forward.
For our growth.
Yeah.
Okay. Thanks, Thank you for all that Tyson I really appreciate it.
As my follow up.
I guess, that's from both Matt and John.
When when the deal got announced.
The divestiture to Sky works I think that the Iot franchise was somewhere in the low single digits from an operating margin perspective and timing.
The fourth quarter guidance and adds about 10 points to that I think we're at 12% in the fourth quarter.
Really really early to ask about the long term model I get that but just.
I wanted to make sure that you guys are still comfortable with the leverage you forecast out in that medium term model that was announced with the deal. It looks like you might be running a little ahead of that so just any commentary you might have now that you've had of a quarter or two with the business running standalone would be really appreciate it thanks guys.
Yes, you bet this is John.
Our committed to the model and are really guiding our actions to to deliver on that and we are pleased that we are running ahead of it right now.
Good start.
No no change to that longer term outlook at this time and that remains our goal to grow the business and drive the profitability model that's exactly what we're focused on here.
Thanks, very much guys.
Our next question comes from tore Svanberg with Stifel. Please go ahead.
Thank you congratulations on the strong results and Tyson congratulations on your retirement, we're going to Miss you greatly.
First question is on the Cps program.
Can you do I know you just elaborate a little bit on that what is what exactly does it does it move.
As far as continued share gains.
Is there any way that you could tie it into financials.
Territory. This is Matt.
<unk>, a little bit more detail on what it is and how it works.
This is a service that we give our customers access to that allows them to basically program and add customization in the late stages of our manufacturing before it leaves the facility.
And in doing so it allows them to as I said earlier really simplify their supply chain. They don't need to send devices somewhere else for flash programming for any customization and it also really helps with the security as well as the security configuration can be done before it's shipped out.
Sending it somewhere else.
Multiple places in some cases to add those security configuration.
So this is a capability that we're really excited about because the timing is right in our industry, whether it's the supply chain challenges the whole industry is seeing or the cyber security and security threats. In general. This is something our customers are really looking for and the ability to further differentiate their products as well.
So it's an awesome combination.
The service that we charge for and it's really a good economical value for our customer base. Because these are things they have to pay in multiple stages of complexity in their supply chain to accomplish today.
This is a capability that we just announced that works with and so far the reception has been really strong yes Troy.
Troy This is Tyson I'd just like to add.
Custom test platform, that's really targeted at the broad.
Market. It enables us to do this customization in a very efficient way. It also saves the customers a lot of work in other words, they don't have to program up the parts.
As they.
Go through their manufacturing flows it also protects them from.
Switching a different type of part.
Into the <unk>.
It's custom for them and that allows us we are charging for this it gives us a premium pricing model.
And it's kind of a good Ellen.
Element of agility that we get because of the way we've done.
Manufacturing I would also say that that has also given us some advantage in the supply prices.
Our custom test platform enables us to scale the back end very very efficiently without having to acquire.
New big Iron testers, and things like that and that has proven.
A big advantage for us so we see the advantage and the <unk> program.
Kind of even widening that further going forward.
Plays into the margin and pricing model that we have.
Last thing I would add towards just to make it real imagine if a customer wanted to customize top marketing or part numbers for their own.
Manufacturing schemes.
They wanted to do their application programming at that phase or they needed to inject certificates in support of multiple wireless standards like Wi Sun our matter. They can do that there as well as.
Adding their secure keys. So all of that can be done there through a secure portal, which really allows them to simplify their supply chain and increase their security. So it's pretty cool, we're excited about being able to do that across a broad range of customers youre talking the ability to do this over thousands and thousands of customers.
As a unique capability for Silicon labs, no touch on our part.
Yes, that's great context. Thank you for that just one quick follow up for John.
John when you did the divestiture you talked about gross margin.
56% this year, but sort of moving to mid <unk> longer term. Obviously, you are quite a bit ahead of that.
Now.
Does that mean that.
Gross margin should be higher over time or are you still sticking to the mid fifties gross margin longer term.
Yes.
We're seeing favorable mix here in some cases price increases.
To recoup cost increases are contributing there and the timing of that is an important thing to think about of exactly when costs and price increases are being implemented to coming into effect no change in the longer term outlook.
And.
It is an unusual time in the industry, we will see what comes in the future, but we do not have an update for the long term model today.
Okay Fair enough. Thank you Scott.
Our next question comes from sorry need for Jerry with.
We see equal Securities. Please go ahead.
Thank you good morning, guys and Tyson congratulations on your retirement. Thank you.
So just on going back on pricing.
John maybe you can help us understand how the mechanics work actually here. So I think it'll be it'll be helpful to understand what percent of your business you have.
Already implemented this price actions and how much more is left and the other thing I want to understand is that you know.
Some of this cost increase this may not be permanent so I'm kind of trying to figure out.
You know the industry kind of normalizes whenever that is and some of this cost come down should be worried about pricing coming down as well.
Yes.
We're not going to get into really precise detail here, but suffice to say we are.
We're seeing price relief from cost increases that we've realized more may be coming as we head into next year as Tyson alluded to.
So there may be there may be more work to do in this area.
And.
As we said at the beginning our objective is to not get stuck in the middle and to leverage the pricing power we have to that end.
But also to maintain the strong customer relationships that we have and ensure that our long term growth.
We will be there for us so we will see what the future brings in terms of normalization of industry conditions, but those are the principles that we're operating from.
Okay makes sense and then.
I can also hold on just one SEC.
Just in terms of the cost increases in the dirt durability of that I think that we are we're going into kind of a new phase of the semiconductor industry where.
We've got Moore's law, and advanced nodes, becoming more and more expensive.
And you've got mainstream technology now full and it used to be that the digital guys would move out in the N minus one and minus two and minus three nodes wood.
Those would be fully depreciated fabs that you would move into we have now reached a point where.
The mix the ratio between advanced and mainstream.
Causing fabs TSMC and others to build new mainstream technology.
And that means that those fabs are not fully depreciated. So a large element of the cost increases that the industry is seeing right now is because of the additional capex that is having to be put in to build new capacity across the nodes not just at the advanced nodes, but across and so if you look at the cost increases that we're seeing in other.
It's across the industry. There is a certain element of that that's durable overtime and so this is a step function.
In terms of the cost structure of the industry to match the demand that we're seeing in the increasing content.
Electronics throughout the economy and the acceleration of demand that we've seen through the pandemic has really.
Push that forward and driven us into the supply constraints, we will work through that but to work through that is requiring a lot of capex and thats got to be recouped and Thats got a flow upstream.
From our suppliers to us to our customers and Thats, what youre seeing right now.
Makes sense, thanks, Tyson and John quickly on the.
Channel inventory if you could.
Give us.
What.
Whether that went up or down and also I think last quarter. You said bookings were stable at about six months or so and if you could give us some color on that that'd be helpful. Thank you.
Yes channel inventories relatively stable.
And the bookings have remained consistent we've continued to have an elevated booking level.
And as Matt indicated actually the strength and demand is.
Not only persisting, but widening a bit in terms of our supply chain and that's why we're working on all the things types of talked about to expand our ability to supply.
Got it thank you.
Got it and if you'd like to ask a question. Please press Star then one our next question comes from <unk>.
<unk> with Needham and company.
Paul.
Yes, Thank you and congratulations and thanks and best of luck for the future.
Question on the demand landscape.
Demand for Iot across all these end markets is extremely strong.
Back in July you talked about total booking hitting.
Hitting about $1 billion plus in the last nine months, but obviously appears to be increasing.
Wanted to get a sense of whats.
What's driving the demand this year relative to previous years are there specific end markets that youre seeing that are kind of outliers that are better than what you anticipated that that's driving the growth.
And it's a similar question on the wireless component.
Grew almost 50% year over year on Wi.
Wi Fi, obviously is helping as well as this.
Particularly protocol that you are seeing or end markets that are pulling in the adoption of wireless components as well.
Sure This is Matt.
I'll answer that coming from a few directions.
First of all in terms of.
How we're seeing the demand come in.
Strong across technologies and it's strong across.
Markets and applications.
So there is.
Always bright spots each quarter, but all in all it's a very broad strength, we're seeing in the overall Iot market.
If you take a step back if you looked at our design win trajectory.
Trajectory over the last few years.
It really started seeing an acceleration in design wins.
That we're seeing coming through now and a lot of these applications and customers.
And it's.
I think another way to look at it is we're seeing an acceleration or pull in multiple markets and applications that were expected to grow and take off and now we're seeing that happen very broadly and across the board.
And.
We probably have the most insight into this that we've had in a while because of the supply constraints, we've had to spend a lot of time with customers understanding.
What's driving the ramps.
<unk> ability of the ramps and why we're seeing those.
<unk> increase as we move into 2022.
So that's where we see it it's broad it's across technology and application and we do expect it to persist in the Iot space given what's driving these.
Yeah, Thanks for that insight, Matt I appreciate it just shifting to the supply component of the equation. So your Iot revenue is on track to do over $800 million.
Our previous annual guidance.
700, so youre surpassing that.
You mentioned that you are getting incremental capacity from TSMC, but the gap is going to still why why it's still pretty wide when you're looking at can you give us a sense in terms of the capacity commitment that TSMC has given you in 2022.
I think that's going to be important for investors to focus on next year's capacity and how that capacity commitments.
Correlate to your long term Iot growth rate of 20%.
In other words.
Some see secured capacity for you to make you feel comfortable that youre going to continue to grow.
At least 20% in your Iot business next year and going forward.
Sure So I won't speak to any specific or individual supplier, but we are spending a tremendous amount of time working to secure additional supply moving forward through multiple angles.
<unk> using some of our development resources towards that end as well.
And as a result of that we're able to as we're seeing now drive incremental supply each quarter and we expect that to continue.
Well into 2022, where we will be able to increment up supply each quarter moving forward.
So that's something that we are happy to see and proud.
Given this environment, but with that being said to my previous comments at the same time, we're seeing demand increase much faster than we're able to ink.
Increment up supply.
I do feel good that we've been able to increase our supply next year.
And that's going to help our customer base significantly.
But.
Gaps continue to widen given the dynamic that we're seeing in the industry right now.
You are very good and just last question John on the gross margins, obviously, it's a moving target you mentioned, it's a bit volatile.
Running above target.
The price increases.
Pass along those are those are contributing but you also mentioned.
Favorable mix shift.
Can you maybe elaborate a little bit further when you're talking about a favorable mix shift within Iot are there specific end markets protocols at a higher margin and how do you see that going forward.
Yes, and I think we'll see normalization there.
Rajiv you've got.
Certain product lines carry a bit higher margin than others.
A way to think about that as more proprietary based technologies versus standards based technologies for example, but.
Over time, we think that that is comprehended in our in our various modeling goals that we've put forth.
I appreciate it congrats again.
Thank you.
Okay.
This concludes our question and answer session I'll now hand, the call back to Jonathan.
Thank you Sarah.
Yeah.
And thank you for joining the.
Q3 earnings call I.
I remember you can find our financial information at <unk> Dot com forward Slash investors, we look forward to discussing our business further during our participation in several upcoming conferences.
Sarah you can now conclude this call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.