Q2 2023 Arteris Inc Earnings Call
Okay.
Good afternoon, everyone and welcome to the Arcturus second quarter 2023 earnings call.
Please note this call is being recorded and simultaneously webcast.
Trio contained in the webcast is sole property and copyright of our cherished Inc. With all rights reserved.
For opening remarks, and introductions I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Thank you and good afternoon with me today from our terrorists or Charlie Janick, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer, Charlie will begin with a brief review of the business results for the second quarter ended June 32023.
Nick will review the financial results for the second quarter, followed by the company's outlook for the third quarter and full year of 2023.
We will then open the call for questions before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated and you should not place undue reliance on forward looking statements additional.
Information regarding these risks uncertainties and factors that could cause results to differ appear in the press release, our terrorist issued today and in the documents or reports filed bioterrorists from time to time with the Securities and Exchange Commission.
Please note during this call we will stay at certain non-GAAP measures, including non-GAAP net loss non-GAAP net loss per share and free cash flow, which are not measures prepared in accordance with U S. GAAP.
The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance.
These non-GAAP measures should not be considered in isolation from a substitute for or superior to financial measures prepared in accordance with U S. GAAP.
A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended June 32023.
In addition.
For a definition of certain key performance indicators used in this presentation such as annual contract value.
Firm design starts.
Give customers and remaining performance obligations. Please see the press release for the quarter ended June 32023.
Listeners, who do not have a copy of the press release for the quarter ended June 32023 may obtain a copy by visiting the Investor Relations section of the Companys website.
Now I will turn the call over to Charlie.
Thank you Erica and thanks to everyone for joining us on the call. This afternoon.
We're excited to report a strong second quarter with annual contract value plus trailing 12 month royalties of $58 2 million up 21% year over year when adjusted to exclude dji as discussed in previous calls.
Driving our growth in the second quarter was the addition of 12 new customers in 'twenty.
22 confirmed design starts with strong adoption of our <unk> products by companies ranging from innovative startups to established market leading system houses.
In the second quarter five of the top 10 largest technology companies.
The aged without tariffs.
As we have stated previously we believe as the volume of logic and IP cores continues to increase.
Does the overall associated complexity and the ability to effectively connect all of the underlying parts.
Established companies, who today developed and license the bulk of IP are increasingly looking to outsource system IP connectivity needs to commercial vendors such as our tariffs.
We are seeing an emerging confirmation of this trend in our customer base.
In the second quarter, we closed deals with three of the top 10 global semiconductor companies, who have historically used internal system IP solutions.
These wins demonstrates the willingness of major semiconductor companies do increasingly deploy commercial system IP products from commercial vendors such as our tourists.
Deals in the second quarter were driven by strong demand across all our core market segments, and particularly with design wins in enterprise computing automotive and consumer electronics, often driven by addition of artificial intelligence and machine learning or AI ml logic onto the chip.
We also closed a modular associate integration automation deal with a top 10 semiconductor company.
AI ml technology infusion into chips continues to significantly increase their size and complexity across all vertical markets and particularly in enterprise computing.
This in turn is driving the increased adoption of our <unk> products.
As previously discussed one of the major enterprise computing AI ml design wins in the second quarter was 10 storied who has licensed both EMCORE cache coherent interconnect and flex knock knock on your interconnect based on superior performance power consumption and flexibility.
Led by Jim Keller than store and develops a high performance computing and data center, a risk <unk> and triplets.
This is an example of our ability to support AI ml high end computing as well as the emerging risks cloud ecosystem.
Another enterprise computing win driven by AI ml use was highlighting was in a major hyperscale system company.
Top 10 of the largest global technology companies.
AI ml, so increasing the complexity of autonomous driving electronics, together with a functional safety needs and electrification driving tourists adoption for automotive electronics.
Our continuing focus on the automotive supply chain and our strong relationship with many OEM manufacturers.
Continuing to pay off again in the quarter.
We added 17 automotive deals across semiconductor companies tier ones and Oems Spa.
Specific to automotive Oems in the second quarter, we signed five contracts directly with Oems three of which were expansion of our <unk> technology use and two were new customers.
We also added a new tier one customer.
This level of automotive activity demonstrates the continued rapid adoption of our <unk> system IP by leading players in the automotive electronics industry.
As an example, one of the new automotive semiconductor companies is Pos semiconductor.
Selected <unk> flex not network on chip IP, along with its automotive safety technology to be the autonomous driving chips communication backbone, while also deploying our <unk> software to speed up and automate Soc integration.
Advanced <unk> require best in class network on chip technology for low power and safe productivity. So we remain excited the Ontario products continue to be a leading choice for innovative solutions in the automotive market.
Another emerging opportunity in the AI.
In the semiconductor space is generally the AI.
GPT for in particular is quite expensive in terms of computation.
One of the generative AI imperatives is to reduce the cost of queries, which can partially be accomplished through specific ASIC and accelerated hardware.
As an example of a generative AI cost optimization approach.
One major Jerry's AI ASIC utilizes our turret system IP and is ready for mass production this year.
Generative AI at GPT for in particular require movements of very large amounts of data inside Soc semiconductors and represent another leap in complexity and value of system IP.
Or terrorist is continuing to pursue additional generative AIA secret et cetera opportunities and close collaboration with numerous companies, which are trying to develop innovative soc.
That lower the cost per query.
Turning to our product portfolio, our Terry's delivered the production version of new Flex knock five physically aware network on chip or knock IP toward the end of the quarter.
This new flex knock five knock IP product addresses the problem that engineers designing a soc two or 16 nanometer processes can design perfectly good logic data handling architectures that can be difficult to implement doing physical design potentially leading to numerous revision cycles and schedule delays.
Flex now five with its physical awareness allows customers to analyze physical constraints during the development of logic architectures, and essentially turnover physical verified design, replacing raw groups or physical layout contractor companies in order to accelerate physical design schedules and minimized change.
Anders.
In the first month of shipment of our new flex knock five IPV signed several production evaluation license deals.
Additionally, we are pursuing numerous flex knock five licensing opportunities and expect broader adoption to start in the second half of 2023.
Additionally, during the quarter, we released new versions of EMCORE cache coherent interconnect IP quota cash less level cash IP in both <unk> and CSR copilot Soc integration and automation software delivering on multiple customer requested enhancements, which will be applicable both to our existing customer base in particular.
With new customers going forward.
Certain macroeconomic headwinds, including geopolitical uncertainties in global recessionary concerns remain in place as discussed on our previous call.
We also continued to be impacted.
By the USB ice restrictions with respect to China U S trade as well as tightening credit conditions globally.
We believe there are terrorists serving customers operating in areas of exciting and rapid innovation and growth, including automotive and enterprise computing communications consumer electronics, and industrial applications, leveraging innovations such as AI ml, including generative AI autonomous vehicles and machines.
<unk>, an emerging risk five ecosystem, which are driving the need for increased use of commercial system IP.
With that I'll turn it over to Nick to discuss our financial results in more detail.
Thank you Charlie and good afternoon, everyone.
As our view on our second quarter results today. Please note I will be referring to non-GAAP metrics.
Reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website.
In the second quarter, we implemented a change to Src integration automation software deals, formerly referred to as IP deployment, but now enables terrorists to recognized revenue rapidly as the contract aligning with treatment with that network on chip IP deals.
With this change we now expect a significant majority of our revenue.
Contracts to be recognized rapidly going forward, providing better visibility and reduced period to period fluctuations.
This also defers the recognition of revenue to future periods, resulting in significantly higher remaining performance obligations or OPO.
As John mentioned earlier, we signed a substantial multiyear SFC integration automation software deal late in the second quarter.
As a result of this change in timing of revenue recognition. The substantial majority of revenue derived from this deal will be recognized in future quarters.
In part driving the $7 8 million increase.
<unk> in the second quarter.
Consequently, total revenue for the second quarter was flat year over year of $14 7 million, but up 12% sequentially.
This exceeded the top end of our guidance.
At the end of the second quarter annual contract value or HCV <unk> trailing 12 month royalties and other revenue was $52 $8 million.
21% year over year, when adjusted to exclude Dji, Charlie mentioned earlier.
Earlier.
6% higher sequentially.
Gross profit in the quarter was $13 $5 million.
<unk>, a gross margin of 92% non-GAAP gross profit for the quarter was $13 7 million, representing a gross margin of 93%.
Total GAAP operating expense for the second quarter was $22 $2 million compared to $19 million in the prior year ago period.
non-GAAP operating expense in the quarter was $17 9 million compared.
Compared to $15 7 million in the prior year ago period.
$77 million.
And the best quarter, representing a sequential increase of zero point $2 million.
The year over year increase was primarily driven by continued R&D investment in next generation IP.
Obviously integration automation software products.
Together with ongoing investment in sales and marketing to support strong customer engagement.
Customer development.
And strategic partnerships.
Finally, we continued to achieve significant operating leverage in G&A expenses.
GAAP operating loss for the second quarter was $8 $7 million compared to a loss of $5 $4 million in the year ago period.
non-GAAP operating loss was $4 $2 million or 29% compared to a loss of $1 $9 million in the year ago period.
Net loss in the quarter was $9 $2 million or diluted net loss per share of 2000.
<unk>.
non-GAAP net loss in the quarter was $4 $7 million.
Diluted net loss per share of 13.
Based on approximately 35 3 million weighted average diluted shares outstanding.
Turning now to the balance sheet and cash flow, we ended the quarter with $68 million in cash cash equivalents and investments.
Cash flow used in operations was approximately $1 $6 million in the quarter, which benefited from strong working capital in the form of early payments from certain customers.
Free cash flow, which includes capital expenditure was approximately a negative $2 $2 million.
The amount of guidance.
I would now like to turn to our outlook for the third talk from full year of 2023.
For the third quarter, we expect ACB trailing 12 month royalties or $57 billion to $61 million.
And revenue of $12 5 million.
$13 $5 million.
non-GAAP operating loss margin of <unk>.
42% to 62%.
Our non-GAAP free cash flow margin of negative 10, 6% to negative 35, 6%.
So it's only our guidance is as follows.
We expect revenue of $54 million to $56 million lower than our prior guidance as a result of the change in the timing of revenue recognition for our associate integration automation software deals.
ACB plus trailing 12 month royalties remains unchanged to exit 2023 at $60 4 million to $65 4 million.
non-GAAP operating loss margins of 34, 5% to 49, 5%.
And non-GAAP free cash flow margin of negative 10, 5% to negative 25%.
Reflecting the anticipated overall improvement in the second half and 2023.
With that I will turn the call over to the operator to open it up for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will here with me Tom Paulson knowledge and you have a question.
Speaker phone please lift the handset before pressing any Keith.
First question comes from Matt Ramsay from TD Cowen. Please go ahead.
Yes. Thank you very much good afternoon guys.
My first question Charlie you use in your script you read off some stats around five.
The top 10 largest tech companies engaged with our T rates for sort of internal chip development and three of the top 10 global semi companies and I mean, some of those <unk> had relationships in the past and it seems like some of them might be new so.
Maybe you could expand upon that a little bit.
It's primarily in the AI ml space, where folks are looking to do.
More complex ASIC designs.
A lot of work being done on in France for Gen AI and the like I'm, just trying to understand the scope of those engagements and the application areas.
That you are working with some of those larger companies on thanks.
Yeah in terms of.
The 10 largest semiconductor companies, where we're starting to see I think we discussed on prior calls that.
Some of the the system IP is becoming much more complex.
And that it's.
Eventually going to be outsourced to the commercial vendors right at least a two.
To certain extent and we're starting to see some of that right. So.
Two of those companies have been in prior years, almost 100% internal and they are essentially going with our terrorists four.
Some of their most complex projects right and.
So we're starting to see the beginning of Oh, Oh that trend.
In terms of applications.
It's kind of a fairly broad.
Some of those are.
Automotive advanced automotive Adas projects. Some are one of those deals are two of those deals where magill them. One was a new modular customer was a reorder.
And.
We're also seeing a fairly good.
Adoption.
The large companies also for for machine learning projects.
Particularly for generally they are where the amount of data out there has to be moved inside those types of chips is very very large.
Got it no that's helpful color I guess as my.
Follow up question Nick.
The accounting change and you mentioned it a few times in your script.
Maybe you could expand on it a little bit the reasons for the change what sort of percentage of deals or revenue or whatever metric makes the most sense that this change effects and then you mentioned that the full year revenue guidance had come down due to that change would if you hadn't made the change.
With the revenue outlook be the same as it was before up a little bit down a little bit if you could give us that color that'd be really helpful. Thanks, guys.
Yeah.
Hi, Matt.
Ken.
Yes.
Youre going to be the first person to ask that question. So.
I hope I can answer it properly.
So the question in terms of.
Why.
I think you know we've talked about it many times in the past that.
We didn't really like the idea of having.
Our mixed revenue recognition model.
About a third 30% of our business was.
Point in time and the other 70% was.
<unk>.
Because it's very hard for investors to understand.
And Thats my answer even for us to plan for.
Because the point in time tends to be a little bit lumpy and very bright, but some to Q2 that's up.
And so we've been working with for a while.
There are a lot of moving pieces to get to the endpoint. So.
We have to align.
Legal customers.
Ill.
Our financial people.
And so on to get to a point, where we could.
Get a change in the deal structure that was sufficient to have at.
All of the.
<unk>, which is a new acronym.
Imagine a moment.
And semi all combined treated rapidly going forward or largely ratable going forward.
So that was the goal was to Gabe predictability.
And more visibility on the.
So we're much more like a cadence or synopsys now in terms of that.
Revenue model.
So that's the why the how.
Much question.
So to give you a rough feel.
The the <unk> so the Q2 number.
Was would've had about another two and a half to $3 million of.
Revenue under the old model, which is now.
In our Apio.
Just to give.
Give me a sense for how Q2 was actually the $14 seven would have been another two and up three higher if we had stayed on the point in time basis.
Enter into perspective.
2023.
Overall as it is somewhere in the region by the way. This is kind of a one time event, we don't want to get through.
The weeds on this every time we have on earnings.
The important change that we need to give you some sort of guidance right now.
So somewhere between four and a half from $5 million of 2023.
Is the <unk>.
Down draft from going from point in time to ratable.
So.
You can see in our guidance came down by mid point down by about three.
So four five of that was just because of the accounting treatment change. So the underlying business was one two.
If you were if you would.
So apples guidance.
And then just to complete the picture.
Which I'm sure is would it be your next question.
Is that what does that do to 2020 explored it.
It's somewhere in the region of four to 5 million.
Lower as a result of moving to.
Point in time, but you can see the impact on <unk>, which is one of the other big beneficiaries of moving to this.
Just the visibility you have.
It went up by $7 8 million in Q2.
And we will continue to do so over the next.
So up to end of 'twenty 'twenty, four will be up between $9 million to $10 million.
Which we like.
Got it.
That's really helpful. Nick I just have one brief follow up and then I'll jump back in the queue.
Yes.
The time duration on the right ability of these.
Of these deals in this part of it but Mike you said about a third of the business could you kind of walk through that.
Shortest the longest than just what the typical.
<unk> is now in the new ratable format. Thanks.
Sure Yeah, so so shortest would be somewhere around a.
Yeah.
But those are.
Bit of a bell curve.
As you can imagine.
There aren't many of that.
Duration.
Loan guess would be four to five years, but again not many of that duration the sweet spot is.
Is around two to three with a midpoint of around where media is about two and a half yes.
Well, what I would say, it's also Matt just little bit of extra color.
It's not going to be an instant conversion, we think it's going to be a rapid conversion.
But no there will be some customers that are on some customers who are grandfathered in them.
<unk>.
Old terms or contract structures.
But we think that's the.
That's the not majority minority.
Alright.
Thank you very much Nick for all the detail thanks, guys I'll jump back in the queue.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from Gus Richard Northland. Please go ahead.
Yes, thanks for taking the question.
The town.
Ratable revenue rec.
Happy with other companies that followed.
There has been a.
<unk> fall off in revenue is there.
A bunch of renewals that you were expecting.
Or is it.
Smaller impact over the next.
Two and a half years.
Yes, I mean, it's a good question.
Look I'll, let comps who've done this when they made the change.
The Philadelphia is much sharper.
I think the differences for those people that they've been looking at a wholesale change.
Two to <unk> at some point in time and we've done that.
The impact would have been much more dramatic because we are already making two thirds to 70% of our business is already ratable.
Maybe as much as sort of a 70, 173% when you count.
Support and maintenance, which already was on a rational basis.
It's a less of a direct impact to us, but it's still material still.
Sort of five ish million.
In Egypt.
2023, and 'twenty four.
Got it.
Super hubs, that's Super helpful. And then Charlie you mentioned Youre working with five of the five of the 10 largest tech companies as it.
Can you put a little bit of arms and legs on sort of where those.
Companies are with what they do.
Yes.
All of them are very large semiconductor companies that previously were 100% in internal.
So those are the new new customers barrel was.
Very large fairly large.
Reorder for Magellan.
Our Soc integration automation software.
So yeah. So it's a it's kind of all over the place, but it just shows that the.
Strong demand for our for our products, but.
The kind of thing that makes me most glad he's dead.
We're starting to see several companies.
That have previously been internal are starting to be little bit more open to licensing outside our system IP solutions.
Okay got it and then just your.
Royalty variable revenue was.
Up nicely the last couple of quarters.
Is that a trend we can expect and.
Sort of do you see.
After losing the cell phone guys.
And Qualcomm.
In the past you know do you expect to see that that line kind of.
So with revenue going forward or how are you thinking about about that part of the business.
Alright.
No amount of sure why go ahead go ahead.
Yes.
Jackie it linked with the royalties team about that as you can imagine.
Really if you look at.
If you take out all the upticks so.
The sort of the compliance space.
Which you comps.
Guarantee.
Time to time.
And the nice when they come but there is nothing and we had a large order it actually and in.
Benefit in Q2.
So the one in Q1.
Exclude those which is.
So at a reasonable amount of the total.
Still if you go back to the.
Strip out high Silicon the trend has been great.
Hi, Silicon really died from a royalty perspective in Q1 of 'twenty two.
And so if you take those out royalties has been steadily growing.
Throughout and so.
In general.
We would expect the.
Right.
Oh royalties growth to be.
Some five percentage points.
On license growth.
Roughly what is trending to be at the moment.
Sorry, say, it again about 5% higher than than royalty growth.
So five percentage points, yes. So if you look at our guide for example for 'twenty three full year overall.
On the on sort of licensees is around 20% year over year.
We would imagine.
Probably a good long term metric.
We looked at.
Royalties KBR was more like 25% to 30%.
Yes.
Got it perfect.
Out of the queue. Thanks.
Thank you. The next question comes from Brian Chen at Jefferies. Please go ahead.
Hi, Thanks for taking the question just wanted.
I wanted to revisit some of what we've been discussing over the past earnings calls, so I've mentioned, China headwinds as well as.
The macro headwinds as it relates to royalties around $5 million.
This year.
Provide an update.
Where we are with that that'd be great.
Yes, I mean.
We continue to see orders out of China.
So.
But.
Sure.
Essentially have the headwinds with with B I S.
Same.
That there is increased.
Difficulty in Chinese.
Chinese startups are raising capital.
So you would expect a bit of a slowdown in new venture formation.
And so it continues to be a very attractive market.
But it's not gangbusters as it was.
A year or a couple of years ago.
But nothing but no no no no no inflection change I would say.
Exactly and I was looking at the data this morning, Charlie in the.
The data for China, specifically in APAC generally.
Remains very robust.
We still in the first and second quarter.
Still seeing a good number of license wins and a good number of design starts.
Very healthy.
No reduction.
So I think really it's indicative of the fact that the.
The target markets for us.
China in particular in APAC generally.
I'm not that tight.
Suffering from from <unk>.
Capital.
So I think automotive thank you Mel.
And.
Then you've got an idea.
Got it and.
Two other things so our PEO.
$8 million quarter over quarter could you help walk us through I guess.
The drivers of that again.
I heard you $2 million to $3 million was from the Rev Rec change and perhaps.
Any commentary.
What drove the remaining with that and then.
Free cash flow could you confirm that breakeven.
Through the last three quarters this year again and some of the puts.
Kick around that.
Yes, yes sure.
Take those in order.
So in terms of the IPO, the some point 8 million as you say.
Just call it.
It's eight 3 million of that came from.
From the change away from.
But the time to profitability.
The rest of it was just a very strong quarter.
We are in the RPM grows as you as you get bookings that reduces as you recognize the revenue.
We just had a very solid quarter.
And there was no one particular area.
Area.
<unk> stood out.
In terms of either vertical or region.
It was pretty much across the patch.
A strong quarter, so or the other.
$4 million to $5 million of the increase.
Absent those the non sort.
Basketball.
Change.
Impact.
Okay.
Free cash flow.
And on the free cash flow. Thank you for reminding me.
So yes, we are.
There's two kind of aspects to free cash flow.
This quarter, one is and so it wasn't very healthy quarter.
As I'm sure you saw.
The.
In essence the.
We had a 3 million pick up.
From a bit like we did in December if you remember back to the December quarter.
We had a couple of customers major customers who.
Decided to pass before the end of the quarter and sell it when they want to.
So we had a sort of a $3 million.
Tailwind on free cash flow in the quarter and so that will reverse we had actually forecast some some.
5 billion unchanged, but free cash flow negative in Q2 ended up being 2 million in change.
We.
Western capitalism as you'd know is always a flux.
It always.
It doesn't change the direction it just changes the cadence between two quarters.
$3 million will reverse and Thats why you are saying.
Hey, guys.
For the for the <unk>.
Negative three.
Which is that three that was advanced paid absent batch.
Therefore, <unk> would've been neutral.
Full year should be.
Positive, it's always our strongest free cash flow quarter, because that's when we have the.
The majority of bookings.
Opex for US is relatively flat in terms of cash opex relatively flat cycle yet.
Free cash flow is therefore, driven more by the bookings cadence bookings is strongest in <unk>.
So we've had a sort of a negative.
Q1, as you know.
We have had a negative.
In Q2, but a much smaller one.
Then by the time, we get to the end of the year, we will have.
So the offset.
Two of Q2, three and four to zero.
We expect so overall for the year will still end up somewhere around the $8 million.
That's why we're sticking with that guidance.
Okay perfect. Thank you for all the details that can Charlie.
Sure.
Sure.
Thank you once again, ladies and gentlemen should you have any questions. Please press star one now.
Next question comes from Kevin Garrigan at Westpac Capital. Please go ahead.
Yeah, Hey, Charlie and Nik Nice speaking with you guys again.
Just a quick question, so with with flex knock five being full production in Q2 would you say that.
Helped at all with winning design starts with some of the top technology and semiconductor companies.
Yes.
We sold a couple of licenses right away as soon as it became available and there is a very robust pipeline for that product.
Because it solves a very valuable problem, which is that you are now with some.
Some of these complex deep Submicron Soc.
So you'll have to concern yourself with physical effects relatively early in the design cycle.
And so so this product has a lot of interest and.
It also raises the ESP and we are expecting that this is going to be the the main flakes knock version.
And generate significant uptick.
In the second half.
Okay.
That it was going to help we predicted was going to help in and Theres nothing that we see that there would not make that prediction come true.
Okay.
Okay got it that makes sense.
And then just a quick follow up so I I know you guys are really strong and and and.
With radar vision cameras.
Et cetera.
I think there still are a couple of kind of hate us semiconductor company that.
You don't have as customers right now so just one other large semiconductor and tech companies. So what are you guys kind of think it would take to get get them over the hump and capture these adas semi companies as customers.
Yeah. So.
So we're not sure where we're going to get all the people that we don't have because there is you can count them on a finger on one hand.
So.
Yeah, I don't even know what a named the ones that we do not have but.
In the quarter, we did.
Did get two companies Hum for automotive.
We're not previously are terrorists users and both of those were essentially in the Adas area.
So I would say that our automotive penetration continues.
I would say unabated.
But we're not saying we're going to get everyone.
Yes, Okay got it that makes sense, okay. Thanks, guys.
Thank you there are no further questions I will now turn the call back over to Charlie <unk> for closing comments.
Yes.
We would like to thank.
Thank you for your time and interest in our tariffs and we look forward to meeting with you at the upcoming Investor conferences and that we're participating in are due in the next couple of months and we look forward to updating you on all of our business progress in the quarters to come thank.
Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask you. Please disconnect your lines.
[music].
Good afternoon, everyone and welcome to the Arcos <unk> second quarter 2023 earnings call. Please.
Please note this call is being recorded and simultaneously webcast all material contained in the webcast is sole property and copyright of <unk> terrorists, Inc. With all rights reserved.
For opening remarks, and introductions I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Thank you and good afternoon with me today from our terrorists are Charlie Janick, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer, Charlie will begin with a brief review of the business results for the second quarter ended June 32023.
Nick will review the financial results for the second quarter, followed by the company's outlook for the third quarter and full year of 2023.
We will then open the call for questions before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated and you should not place undue reliance on forward looking statements additional.
Information regarding these risks uncertainties and factors that could cause results to differ appear in the press release, our terrorist issued today and in the documents or reports filed by our terrorists from time to time with the Securities and Exchange Commission.
Please note during this call we will state certain non-GAAP measures, including non-GAAP net loss non-GAAP net loss per share and free cash flow, which are not measures prepared in accordance with U S. GAAP.
The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance.
These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U S. GAAP.
A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended June 32023.
In addition.
For a definition of certain key performance indicators used in this presentation such as annual contract value.
Firm design starts active customers and remaining performance obligations. Please see the press release for the quarter ended June 32023.
Listeners, who do not have a copy of the press release for the quarter ended June 32023 may obtain a copy by visiting the Investor Relations section of the company's website.
Now I will turn the call over to Charlie.
Thank you Erica and thanks to everyone for joining us on our call. This afternoon.
We're excited to report a strong second quarter with annual contract value plus trailing 12 month royalties of $58 2 million up 21% year over year when adjusted to exclude dji as discussed in previous calls.
Driving our growth in the second quarter was the addition of 12, new customers 22 confirmed design starts with strong adoption of our <unk> products by companies ranging from innovative startups to established market leading system houses.
In the second quarter five of the top 10 largest technology companies engaged with our tariffs.
As we have stated previously we believe is the volume of logic and IP cores continues to increase.
So does the overall associated complexity.
Ability to effectively connect all of the underlying parts.
Established companies, who today developed and license the bulk of IP are increasingly looking to outsource system IP connectivity needs to commercial vendors such as our tariffs.
We are seeing an emerging confirmation of this trend in our customer base.
Yeah.
In the second quarter, we closed deals with three of the top 10 global semiconductor companies, who have historically used internal system IP solutions.
These wins demonstrates the willingness of major semiconductor companies do increasingly deploy commercial system IP products from commercial vendors such as tariffs.
Deals in the second quarter were driven by strong demand across all our core market segments, and particularly with design wins in enterprise computing automotive and consumer electronics.
Often driven by addition of artificial intelligence and machine learning, our AI ml logic onto the chip.
We also closed at Magellan associate integration automation deal with a top 10 semiconductor company.
AI ml technology infusion into chips continues to significantly increase their size and complexity across all vertical markets and particularly in enterprise computing.
This in turn is driving the increased adoption of our <unk> products.
As previously discussed one of the major enterprise computing AI ml design wins in the second quarter was 10 storied who has licensed both EMCORE cache coherent interconnect and flex knock knock on your interconnect based on superior performance power consumption and flexibility.
Led by Jim Keller 10 store and develops a high performance computing and data center, a risk <unk> and triplets.
This is an example of our <unk> ability to support AI ml high end computing as well as the emerging risk five ecosystem.
Another enterprise computing win driven by AI ml use worth highlighting was in a major hyperscale system company in the top 10 of the largest global technology companies.
AI ml, so increasing the complexity of autonomous driving electronics together with a functional safety needs in electrification driving tourists adoption for automotive electronics.
Our continuing focus on the automotive supply chain and our strong relationship with many OEM manufacturers.
Continuing to pay off again in the quarter.
We added 17 automotive deals across semiconductor companies tier ones and Oems.
Specific to automotive Oems in the second quarter, we signed five contracts directly with Oems three of which were expansion of our toast technology use and two were new customers.
We also added a new tier one customer.
This level of automotive activity demonstrates the continued rapid adoption of our <unk> system IP by leading players in the automotive electronics industry.
As an example, one of the new automotive semiconductor companies is Pos semiconductor.
We selected <unk> flex knock network on chip IP, along with its automotive safety technology to be the autonomous driving chips communication backbone, while also deploying our <unk> software to speed up and automate Soc integration.
Advanced <unk> require best in class network on chip technology for low power and save connectivity. So we remain excited Terry products continue to be a leading choice for innovative solutions in the automotive market.
Another emerging opportunity in the AI.
Semiconductor space is generally of AI.
GPT for in particular is quite expensive in terms of computation.
One of the generators AI imperatives is to reduce the cost of queries.
Or should we be accomplished through specific ASIC and accelerated hardware.
As an example of a generative AI cost optimization approach.
One major Gerry <unk> utilizes our turret system IP and is ready for mass production this year.
Generative AI GPT for in particular require movements of very large amounts of data inside Soc semiconductors and represent another leap in complexity and value of system IP.
Our terrace is continuing to pursue additional generative AIA seeking et cetera opportunities in close collaboration with numerous companies, which are trying to develop innovative soc that lowered the cost per query.
Turning to our product portfolio <unk> delivered the production version of new Flex Doc site physically aware network on chip or knock IP toward the end of the quarter.
This new flex knock five knock IP product addresses the problem that engineers designing Soc.
There are 16 nanometer processes can design perfectly good logic data handling architectures that can be difficult to implement during physical design potentially leading to numerous revision cycles and schedule delays.
<unk> five with its physical awareness allows customers to analyze physical constraints during the development of logic architectures, and essentially turnover physical verified design, replacing raw groups or physical layout contractor companies in order to accelerate physical design schedules and minimized change orders.
In the first month of shipment of our new flex knock five IPV signed several production evaluation license deals.
Additionally, we are pursuing numerous flex knock five licensing opportunities and expect broader adoption to start in the second half of 2023.
Additionally, during the quarter, we released new version of EMCORE cache coherent interconnect IP coda cash less level cash IP in both <unk> and CSR compiler Soc integration and automation software delivering on multiple customer requested enhancements, which will be applicable both to our existing customer base and <unk>.
New customers going forward.
Certain macroeconomic headwinds, including geopolitical uncertainties in global recessionary concerns remain in place as discussed on our previous call.
We also continued to be impacted.
By the USPI as restrictions with respect to China U S trade as well as tightening credit conditions globally.
We believe there are terrorists serving customers operating in areas of exciting and rapid innovation and growth including automotive.
Enterprise Computing communications consumer electronics, and industrial applications, leveraging innovations such as AI ml, including generative AI autonomous vehicles and machines electrification in the emerging risk five ecosystem, which are driving the need for increased use of commercial system IP.
With that I'll turn it over to Nick to discuss our financial results in more detail.
Thank you Charlie and good afternoon, everyone.
As I review, our second quarter results today. Please note I will be referring to non-GAAP metrics.
A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website.
In the second quarter, we implemented a change to Src integration automation software deals, formerly referred to as IP deployment, but now enables all terrorists to recognize revenue rapidly over the contract term aligning with treatment with that network on chip IP deals.
With this change we now expect a significant majority of our revenue.
Contracts to be recognized rapidly going forward, providing better visibility and reduce the period to period fluctuations.
This differs.
Defers, the recognition of revenue to future periods, resulting in significantly higher remaining performance obligations or OPO.
As John mentioned earlier, we signed a substantial multiyear SFC integration automation software deal late in the second quarter.
As a result of this change in timing of revenue recognition.
Central majority of revenue derived from this deal will be recognized in future quarters.
Driving the $7 million to $8 million increase.
In the second quarter.
Consequently, total revenue for the second quarter was flat year over year to $14 7 million, but up 12%.
Sequentially.
This exceeded the top end of our guidance.
At the end of the second quarter annual contract value or HCV, plus trailing 12 month's royalties and other revenue was $52 $8 million.
21% year over year, when adjusted to exclude Dji, Charlie mentioned earlier.
Earlier.
6% higher sequentially.
Gross profit in the quarter was $13 $5 million.
Resenting, a gross margin of 92%.
Gross profit for the quarter was $13 $7 million, representing a gross margin of 93%.
Total GAAP operating expense for the second quarter was $22 $2 million compared to $19 million in the prior year ago period.
non-GAAP operating expense in the quarter was $17 $9 million.
<unk> to $50 7 million downloads in the prior year ago period.
$77 million in the best quarter, representing a sequential increase of zero point $2 million.
The year over year increase was primarily driven by continued R&D investment in next generation IP.
<unk> essentially integration automation software products together with ongoing investment in sales and marketing to support strong customer engagement.
Customer development.
And strategic partnerships.
Finally, we continued to achieve significant operating leverage in G&A expenses.
GAAP operating loss for the second quarter was $8 7 million compared to a loss.
$5 $4 million in the year ago period.
non-GAAP operating loss was $4 $2 million or 29% compared to a loss of $1 $9 million in the year ago period.
Net loss in the quarter was $9 2 million or diluted net loss per share of <unk> exchange.
non-GAAP net loss in the quarter was $4 7 million.
Diluted net loss per share of <unk> 13.
Based on approximately 35 3 million weighted average diluted shares outstanding.
Turning now to the balance sheet and cash flow, we ended the quarter with $68 million in cash cash equivalents and investments.
Cash flow used in operations was approximately $1 $6 million in the quarter, which benefited from strong working capital in the form of early payments from certain customers.
Free cash flow, which includes capital expenditure was approximately a negative $2 2 million.
That's what amount of guidance.
I would now like to turn to our outlook for the third cohort from full year of 2023 from the third quarter, we expect ACB trailing 12 month royalties or $57 billion to $61 million and revenue of $12 5 million to $13 $5 million.
non-GAAP operating loss margin.
42% to 62%.
Our non-GAAP free cash flow margin of negative 10, 6% to negative 35, 6%.
So the full year guidance is as follows.
We expect revenue of $54 million to $56 million lower than our prior guidance as a result of the change in the timing of revenue recognition for our associate integration automation software deals.
ACB plus trailing 12 month royalties remains unchanged to exit 2023 at $60 4 million to $65 4 million.
non-GAAP operating loss margin of 34, 5% to 49, 5%.
non-GAAP free cash flow margin of negative 10, 5% to negative 25%.
Reflecting the anticipated overall improvement in the second half 2023.
With that I will turn the call over to the operator to open it up for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one on your Touchtone phone you will hear today, Tom Paulson analogy you have a question.
You are using speaker phone please lift the handset before pressing any keith.
First question comes from Matt Ramsay from TD Cowen. Please go ahead.
Yes. Thank you very much good afternoon guys.
My first question.
You in your script, you read off some stats around five.
The top 10 largest tech companies engaged with our tier rates for sort of internal chip development in three of the top 10 global semi companies and some.
Some of those <unk> had relationships in the past and it seems like some of them might be new so maybe.
Maybe you could expand upon that a little bit is this primarily in the AI ml space, where folks are looking to do.
More complex ASIC designs.
A lot of work being done on in France for <unk> AI and the like I'm, just trying to understand the scope of those engagements and the application areas.
That you are working with some of those larger companies on thanks.
Yes.
<unk> of <unk>.
The 10 largest semiconductor companies were.
John to see I think we discussed on prior calls that.
Some of the the system IP is becoming much more complex.
And.
That it's.
Eventually going to be outsourced to the commercial vendors right at least.
To certain extent and we're starting to see some of that right. So.
Two of those companies have been in prior years, almost 100% internal.
They are essentially <unk>.
With our tariffs for some of their most complex projects right.
So we're starting to see a beginning of <unk>.
Of that trend.
In terms of applications.
It's kind of fairly broad.
Some of those are.
Automotive advanced automotive Adas projects. Some are one of those deals are two of those deals where magellan.
One was a new manager of customer was a reorder.
And.
We're also seeing a fairly good.
Adoption in the large companies also for for machine learning projects.
Particularly for generative AI, where the amount of data out there has to be moved inside those types of chips is very very large.
Got it.
For color I guess as my follow.
Follow up question Nick.
The accounting change.
And you mentioned it a few times in your script.
Maybe you could expand on it a little bit the reasons for the change what sort of percentage of deals or revenue or whatever metric makes the most sense that this change effects and then you mentioned that the full year revenue guidance had come down due to that change would if you hadn't made the change.
The revenue outlook be the same as it was before up a little bit down a little bit if you could give us that color that'd be really helpful. Thanks, guys.
Hi, Matt.
Meet you again.
Yes.
You're going to be the first person to ask that question. So.
I hope I can answer it properly.
So the big question in terms of.
Hi.
I think you know we've talked about it many times in the past that.
We didn't really like the idea and we're having.
Our mixed revenue recognition model.
About a third 30% of our business was.
Point in time and the other 70% was <unk>.
<unk>.
It's very hard for investors to understand.
And Thats my answer even for us to plan for.
Because the point in time tends to be a little bit lumpy and very bright, but Q2 puts up.
So we've been working for a while.
There are a lot of moving pieces to get to the endpoint. So.
We have to align.
Legal customers.
Our.
It is a financial people.
So on to get to a point, where we could.
Get a change in the deal structure that was sufficient to have.
All of the SMA, which is a new acronym.
Not at the moment.
And semi are all combined.
It rapidly getting portal largely renewable going forward.
So that was the goal was to give predictability.
More visibility on the.
We're much more like a cadence or synopsys now in terms of our.
Our revenue model.
So that's the why.
How much question.
So to give you a rough feel.
The the 'twenty so the Q2 number.
Walls would have had about another two and half to $3 million of.
Revenue under the old model, which is now.
In our Apio.
Just to add to.
Give you a sense for how Q2 was actually 14 seven would have been another two in <unk> III.
And stayed on the point in time basis.
Enter into perspective.
2023.
Overall is somewhere in the region by the way. This is kind of a one time event, we don't want to get through.
The weeds on this every time we have on earnings.
The important change that we need to give you some some sort of guidance on it now.
So somewhere between four and a half from $5 million of 2023.
Is the the down draft from going from point in time to ratable.
So.
You can see our guidance came down by mid point pinned down by about three.
So four five of that was just because of the accounting treatment change and so the underlying business was one two.
If you will.
Those do apples guidance.
And then just to complete the picture.
Which I'm sure is would it be no next question.
Is that what does that do to 2020 explored.
It's somewhere in the region of four to 5 million.
Lower as a result of moving to.
Point in time, but you can see the impact on <unk>.
One of the other big beneficiaries of moving to this.
The visit.
Yes.
When raising up by $7 8 million in Q2.
And we will continue to do so.
Next.
So up to end of 'twenty 2024.
Between $9 million to $10 million.
Which we like.
Got it.
That's really helpful. Nick I just have one brief follow up and then I'll jump back in the queue.
The time duration on the right ability of these.
Of these deals in this part of it but Mike you said about a third of the business did you kind of walk through that.
Shortest the longest than just what the typical.
<unk> is now in the new ratable format. Thanks.
Sure, yes, so shortest would be somewhere around.
A year.
But those are.
Sort of a bell curve.
As you can imagine.
Many of that.
Duration.
Longest would be four to five years, but again not many of that duration the sweet spot is.
It's around two to three.
Pointing to around where media is about two and a half years.
Well, what I would say, it's also Matt just little bit of extra color.
It's not going to be an instant conversion, we think it is going to be a rapid conversion.
But no there will be some customers that are on some customers who are grandfathered in.
Oh.
Old terms or contract structures.
So we think that's the.
That's the not majority minority.
Alright.
Thank you very much Nick for all the detail and thanks, guys I'll jump back in the queue.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from Gus Richard at Northland. Please go ahead.
Yes, thanks for taking the question.
Pounds.
Ratable revenue rec.
Happy with other companies that followed.
There has been a.
<unk> falloff in revenue is there.
Until renewals that you were expecting.
Or is it.
Smaller impact over the next.
Two and a half years.
Yes, I mean, it's a good question.
Look I'll, let comps who've done this when they've made the change.
The Philadelphia write as much shelf plus I think the differences for those people.
<unk> been looking at a wholesale change.
Two to <unk> at some point in time and we've done that.
The impact would have been much more dramatic because we're already making.
Two thirds to <unk>.
The percent of our business is already ratable.
Maybe as much as sort of a 70, 173% when you count.
<unk> maintenance, which already was on a ratable basis.
It's a less of a direct impact to us, but it's still material.
Sort of five ish million.
Chip.
2023 and 'twenty four.
Got it.
Super hubs, that's Super helpful. And then Charlie you mentioned Youre working with five of the five of the 10 largest tech companies as it.
Can you put a little bit of arms and legs on sort of where those.
Companies are with what they do.
Yes.
Some of them are very large semiconductor companies that previously were 100% in internal.
So those will be new customers.
There was.
Very large.
The other large.
Reorder for Magellan.
Soc integration automation software.
So yeah. So it's.
It's kind of all over the place, but it just shows the.
<unk>.
Strong demand for.
Our our products, but.
The kind of thing that makes me most glad is that.
We're starting to see several companies.
That have previously been in <unk>.
Carnal are starting to be little bit more open to licensing outside system IP solutions.
Okay got it and then your.
Royalty variable revenue was.
Up nicely the last couple of quarters.
Is that a trend we can expect and.
Do you see.
After losing the cell phone guys.
And Qualcomm.
In the past do you expect to see that that line kind of.
So with revenue going forward or how are you thinking about about that part of the business.
Alright.
No amount of sure go ahead go ahead.
Yes.
Jackie it linked with the royalties team about that as you can imagine.
Really if you look at.
If you take out all the bumps.
<unk> so.
The sort of the compliance space.
Which you comps.
Guarantee.
Time to time.
And the nice when they come but there is nothing and we had a large order it actually.
Benefit in Q2.
So the one in Q1.
Exclude those which is.
So at a reasonable amount of the total.
Still if you go back to the.
Slipped out high silicon the trend has been great.
Hi, Silicon really died from a royalty perspective in Q1 of 2020.
And so if you take those out royalties has been steadily growing.
Throughout and so.
Yes in general.
We would expect the.
Right.
Royalty is growth to be.
Some five percentage points.
On license growth.
Roughly what is trending to be at the moment.
Sorry, say, it again about 5% higher than than royalty growth.
So five percentage points, yes. So if you look at our guide for example for 'twenty three full year overall.
On sort of licensees is around 20% year over year.
We would imagine.
Probably a good long term metric.
We look at.
Royalties kagan rose more than 25% 30%.
Yes.
Got it perfect.
Ill jump out of the queue. Thanks.
Thank you. The next question comes from Brian Chen at Jefferies. Please go ahead.
Hi, Thanks for taking the question.
Wanted to revisit some of what we've been discussing over the past earnings calls so.
In China headwinds.
The macro headwinds as it relates to royalties around $5 million.
This year.
Provide an update.
Where we are with that that'd be great.
Yes.
We're continuing to see orders out of China.
<unk>.
But.
You're essentially have headwinds with wood.
We're seeing.
That.
There is increased.
Difficulty in.
Chinese startups are raising capital. So you would expect a bit of a slowdown in new venture formation.
And so it continues to be a very attractive market.
But it's not gangbusters as it was.
A year or a couple of years ago.
But nothing but no no no no no inflection change I would say.
Exactly and I was looking at the data this morning, Charlie in the.
The data for China, specifically in APAC generally.
Remains very robust.
We still in the first and second quarter.
Still seeing a good number of license wins and a good number of design starts.
Very healthy.
No reduction.
So I think really it's indicative of the fact that the.
The target markets for us.
China in particular in APAC generally.
The tight.
Suffering from <unk>.
Capital.
So I think automotive thank you Mel.
And.
You've got an idea.
Got it and.
Two other things so our PEO.
Quarter over quarter could you help walk us through I guess.
The drivers of that again.
Herb you $2 billion to $3 billion was from the Rev Rec change and perhaps.
Any commentary.
What drove the remaining with that and then.
Free cash flow could you confirm that breakeven.
Through the last three quarters. This year again on some of the puts and takes around that.
Yes, yes sure.
Those in order.
So in terms of the IPO, the some point 8 million as you say.
Just want to say.
<unk> 3 million of that came from.
From the change away from.
But the time to profitability.
The rest of it was just a very strong quarter.
RPM grows as you as you get bookings that reduces as you recognize the revenue.
We just had a very solid quarter.
And there was no one particular.
Areas that.
Stood out.
In terms of either vertical or region.
It was pretty much across the patch.
A strong quarter, so or the other.
$4 million to $5 million.
The <unk> increase.
Was absent those.
Don.
Right.
Change.
Impact.
Okay.
Free cash flow.
And on the free cash flow. Thank you for Monday.
So yes, we are.
There's two kind of aspects to free cash flow.
This quarter, one is and so it wasn't a very healthy quarter.
As I'm sure you saw.
The.
In essence the.
We had a 3 million picks up.
From a bit like we did in December if you remember back to the December quarter.
We had a couple of customers major customers who.
Decided to pass before the end of the quarter and so when they want to.
So we had a sort of a $3 million.
Tailwind on free cash flow in the quarter and so that will reverse we had actually forecast some some five.
5 billion unchanged.
Free cash flow negative in Q2 ended up being 2 million in change.
We've got western capitalism as you know is always a flux.
It always.
It doesn't change the direction it just changes the cadence between two quarters.
$3 million will reverse and Thats why you are saying.
A guide.
For the for the <unk>.
Negative three.
Which is that three that was advanced paid absent batch.
Therefore, <unk> would've been neutral.
And full year should be.
Positive, it's always our strongest free cash flow quarter, because that's when we have the.
The majority of bookings.
Opex for US is relatively flat in terms of cash opex relatively flat cycle yet.
Free cash flow is therefore, driven more by the bookings cadence bookings is strongest in <unk> sorry.
So we've had a sort of a negative.
Q1, as you know.
We have had a negative.
In Q2, but a much smaller one.
And then by the time, we get to the end of the year, we will have.
So that offset.
Sue.
<unk>, two three and four to zero.
We expect so overall for the year will still end up somewhere around the $800 million makes it.
We are sticking with that guidance.
Okay perfect. Thank you for all the details that can Charlie.
Sure.
Sure.
Thank you once again, ladies and gentlemen should you have any questions. Please press star one now.
Next question comes from Kevin Garrigan at Westpac Capital. Please go ahead.
Yeah, Hey, Charlie and Nik Nice speaking with you guys again.
Just a quick question, so with with flex knock five being full production in Q2 would you say that.
Helped at all with winning design starts with some of the top technology and semiconductor companies.
Yes.
We sold a couple of licenses right away as soon as it became available and there is a very robust pipeline for that product.
Because it solves a very valuable problem, which is that you are now with.
Some of these complex deep Submicron Soc.
<unk> you have to concern yourself with physical effects relatively early in the design cycle.
And so so this product has a lot of interest and.
It also raises the asps and.
And we are expecting that this is going to be the the main flakes knock version.
And generate significant uptick.
In the second half.
Yeah.
Okay.
That it was going to help we predicted was going to help and and there is nothing that we see that there would not make that prediction come true.
Okay.
Okay got it that makes sense.
And then just a quick follow up so I know you guys are really strong in <unk> and.
In automotive radar vision cameras.
Et cetera.
I think there still are a couple of kind of hate us semiconductor company that.
You don't have as customers right now so just one other large semiconductor and tech company. So what are you guys kind of think it would take to get get them over the hump and capture these adas semi companies as customers.
Yes so.
So we're not sure where we're going to get all the people that we don't have because there is you can count them on a finger appropriate one hand.
So.
Yes, I don't even want to name the ones that we do not have but.
In the quarter, we did we did get two companies.
For automotive that were not previously.
Terry its users and both of those were essentially in the Adas area.
So I would say that our automotive penetration continues.
I would say unabated.
But we're not saying we're going to get everyone.
Yes, Okay got it that makes sense, okay. Thanks, guys.
Thank you there are no further questions I will now turn the call back over to Charlie <unk> for closing comments.
Yes.
So we would like to.
Thank you for your time and interest in Honduras, and we look forward to meeting with you at.
Upcoming investor conferences, and we are participating in during the next couple of months and we look forward to updating you on all of our business progress in the quarters to come. Thank you.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask you. Please disconnect your lines.