Q3 2023 Infinera Corp Earnings Call
Okay.
Hello, My name is Chris and I'll be your conference operator today at this time I'd like to welcome everyone to the Infinera Corp, Q3, 2023 earnings call.
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After the Speakers' remarks, there'll be a question and answer session.
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Thank you on the top actually head of Investor Relations you may begin.
Thank you, Chris and good afternoon, everyone welcome to <unk> third quarter fiscal 2023 conference call.
A copy of the press release issued by Infinera today is available on the Investor Relations section of the website.
Additionally, this call is being recorded and will be available for replay from our website.
Today's call will include projections and estimates that constitute forward looking statements, including but not limited to statements related to the accounting and financial matters referenced in the press release current form 8-K notification of late filing that was filed today.
Our business plan product development and growth opportunities, including progress against strategic priorities, including with respect to vertical integration.
Painted benefits trends competition and customers.
Furthermore, expectations regarding the macroeconomic environment expectations regarding your inventory levels and industry wide capex dynamics expectations regarding a sub systems group.
And its impact on our financial results expectations regarding potential governmental funding projected year over year drivers of our key financial performance metrics expectations regarding our future performance revenue growth margin expansion generation of cash flow from operations and EPS expansion and preliminary financial outlook for the fourth quarter.
Of 2023.
These statements are subject to risks and uncertainties that could cause infinera as a result to differ materially from management's current expectations. Actual results may differ materially as a result of various risk factors, including those set forth in our annual report on Form 10-K for the year ended on December 31, 2022 as filed with the.
SEC on February 27, 2023, and in our quarterly report on Form 10-Q for the quarter ended July one 2023 as filed with the SEC on August nine 2023, as well as subsequent reports filed with or furnished to the SEC from time to time.
Please be reminded that all statements are made as of today and Infinera undertakes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
Today's conference call includes references to non-GAAP financial measures pursuant to regulation G. We have provided a recon of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings press release for this quarter, which is available on the Investor Relations section of our website.
And finally as a reminder will allow for plenty of time for Q&A. Today. So we ask that you limit yourself to one question and one follow up please.
I'll now turn the call over to our Chief Executive Officer, Debbie Ferre, Hey, Thanks, Amitabh good afternoon, and thanks for joining us today I'll begin with the highlights from our preliminary third quarter results and then turn the call over to Nancy to cover the preliminary financial details of our third quarter performance and the outlook for the fourth quarter and the items referenced in the press release and form 8-K, we filed earlier this.
Afternoon.
Before I jump into the details of the quarter I want to pause take a step back and focus on our quarterly accomplishments at a high level.
Overall, the third quarter was another solid quarter for us and which.
All financial preliminary financial metrics revenue gross margin operating margin and EPS are expected to exceed the midpoint of our outlook range. We delivered strong bookings with a book to bill ratio above one we continue to land new tier one design wins for our systems business. We won additional orders for our sub systems.
And that's in our shipping our first vertically integrated Metro systems this quarter.
All while we expanded profitability on a year over year basis. Furthermore, as we look ahead to Q4, we're forecasting growth to be generally in line with the consensus view.
While capital markets and macroeconomic conditions have been challenging we've been keeping our heads down and remaining focused on executing our plan for the full year of 2023. We currently project that we're still on track to grow revenue and deliver our sixth consecutive year of revenue growth expand operating profit and EBITDA and drive greater.
Then a 25% improvement in earnings per share, which would represent our fourth consecutive year of significant EPS expansion. These accomplishments directly reflect reflect a strong execution against the strategy. We laid out in our past two analyst days and add to our track record of doing what we say we're going to do.
Getting into some of the specifics of the quarter Q3 marked the 14th quarter out of the last 15, which we believe we have met or exceeded our outlook range bookings in the quarter were up sequentially and on a year over year basis with the moat with most of the sequential growth driven by customers in EMEA and the Americas on a year to date basis through Q3.
And compared to the same period last year, we expect to report growth in revenue expanded gross margin increased operating margin and improved EBITDA traction across our portfolio remained strong in the quarter and I'd like to touch on some of the highlights starting with our systems group <unk>.
First we won new strategic deals globally, including wins with two tier one service providers in Europe, several subsea consortium and an award to modernize and expand our nationwide network for a tier one operator in Asia Pacific the wins in Europe, and subsea are especially noteworthy as either new customer logos, where we have no income.
FNC.
We continued our momentum with U S. Hyperscale is with year over year growth in both revenue and bookings.
The strength in this customer.
Customer segment was broad based spanning multiple customers applications and infinera products and finally, we booked our first set of orders and recognized revenue from the Metro when we referenced during last quarter's earnings call. As a reminder, this is a turnkey award with a major U S service provider, which includes our gx met.
Pro platform, along with our software suite and support services.
In our subsystems group a few notable accomplishments were first both the CFP two in Q U S. F. P. D. D versions of our 400 gig <unk> are now commercially available. These two form factors give us flexibility of integrating our <unk> and our own metro platforms as well as in third.
Party hosts like routers and switches in Q3, we received our first set of vertically integrated orders for our <unk> <unk> and are in the process of shipping our first metro systems with our own plug of <unk>. This quarter. This is a significant milestone and accomplishment for us and is consistent with the XP.
Patients we laid out in our Investor day, we expect margin benefits from our own vertically integrated metro platform to begin in 2024.
We remain on track to deliver the highest performing and lowest power 800 gig plausible that are leveraged three nanometer technology and enable our customers to reach greater distances and unmatched performance and economics, which also has landed us our first set of 800 gig component orders and lastly, we're.
<unk> for new members of the open XR forum in the quarter.
We built a solid pipeline for both plausible and components and received additional purchase orders spanning the entire portfolio as our subsystems business expands we expect to benefit from higher margins from both the vertical integration of our metro portfolio as I described earlier.
And from the incremental operating leverage as we ramp the sales of external <unk>. In addition, we are continuing to pursue government funding available at both the state and federal levels via programs like the chips Act to continue to supply the U S made optical semiconductors to secure critical supply chains.
These issues are increasing importance to our customers and as a company with U S based optical semiconductor fabrication and advanced test and packaging. We believe we are well positioned for this opportunity in closing my confidence in our strategy portfolio and execution remains high as evidenced by our market share gain.
And financial progress over the past few years in the short term our customers are still going through a period of inventory digestion and remain cautious about spending in a recessionary environment. Our job in this environment is to focus on the highest priority spend areas.
Which our broad fiber deployment data center build outs and new applications inside the datacenter, while taking more than our fair share of orders and managing spending tightly.
And the long term demand for bandwidth continues to grow as Hyperscale is accelerate the rollout of artificial intelligence and machine learning workloads and service providers drive fiber deeper into networks, pushing 100 gig to the edge 400 gig in the Metro and 800 gig in the core it's apparent that the growth inside the data center over the.
Few years is creating new opportunities for our business clearly coherent optical technologies and vertical integration are becoming more important than ever our guiding principles for the company remain unchanged and centered on continuing to expand market share and our systems business across long haul subsea and metro vertically integrating our metro.
Portfolio with our own plausible switch will expand margins ramping up external sales of our plug a bulls driving operating leverage in our business model and meaningfully expanding earnings per share I'd like to thank the infinera team and their dedication and unwavering commitment to our customers and one another and for continuing to deliver on it.
Innovation that matters I'd also like to extend my thanks to our partners customers and shareholders for their ongoing support.
Finally, my thoughts and prayers go out to the people of the Ukraine in Middle East who are suffering through these very unthinkable times I'd now like to hand, the call over to Nancy to cover the preliminary financial details of the quarter and our outlook Nancy.
David Good afternoon, everyone I will begin by covering our preliminary third quarter results and then provide a preliminary outlook for the fourth quarter.
<unk>, we have included a GAAP to non-GAAP reconciliation of our preliminary financials in our press release.
As a reminder, any financial commentary our metrics provided today are based on our preliminary non-GAAP results.
Before I review, our third quarter results I'd like to provide some context on why we are providing ranges today.
Three of our 10-Q as well as noted in the Q SEC filings in late this afternoon.
During Q3, our external auditors in Florida, as a routine PCA Ob inspection of their work.
It randomly included their audit of Infinera 2020 financial statements late.
Late in the third quarter, our auditors asked about our method of revenue allocation between product and services.
Our documentation related to our quota to cat.
Cash and inventory cycle.
As a result in connection with the quarter end close process, we reexamined the revenue recognition methodology, we had been using historically as well as our internal control documentation processes.
Subsequently, we identified two material weaknesses in our internal control over financial reporting and have concluded that they were present as of December 31, 2022 and through the first three quarters of 2023.
Based on our initial evaluation, we expect any adjustments to revenue will be shifts in allocation between revenue that is deferred and revenue that is recognized upon delivery and expect that there will be no lost revenue only shift in revenue between accounting periods.
In addition to providing preliminary ranges for Q3 on our call today, we will also be providing our preliminary outlook for the fourth quarter.
The information we are providing reflects our expectations regarding the allocation of revenue under our updated methodology.
The scope of this review is limited to the matters I described based on the progress we have made in addressing them in a compressed period of time, we would hope to file the 10-Q reasonably promptly.
Turning to the performance in the quarter I am pleased with the continued momentum in our business preliminary revenue of 378 million to $392 million is expected to come in above the midpoint of our outlook range. This performance was primarily driven by strength in the Americas and EMEA.
With both ICP and service provider customers.
Geographically, we derived approximately 60% of our Q3 revenue from domestic customers a level generally consistent throughout the year.
There was one ICP customer that accounted for over 10% of our revenue in the quarter.
Q3 preliminary gross margin of approximately 40% to 42% is expected to be above the midpoint of our outlook range and up on a year over year basis compared to the prior year gross margin in the quarter benefited from higher vertical integration continued relief and supply cost product.
Mix and ongoing cost improvements and quality initiatives.
Overall I'm encouraged by the gross margin trend in 2023 with gross margin progressing toward our goal of 40% for the year.
This margin expansion supports my confidence in our ability to deliver continued improvement in 2024 and beyond as we vertically integrate our metro portfolio and ramp up our external comparables revenue.
Preliminary operating margin in the quarter was 4.6% to 8% and above our outlook range on a year to date basis, we expect to deliver higher operating margin compared to the same period last year.
Sitting primarily from higher revenue and gross margin.
Operating expenses in the quarter of $134 million were below our outlook range of $139 million to $143 million as we tightly managed quarterly spending while continuing to make substantial investments in our subsystems business.
The resulting preliminary diluted EPS is expected to be three to eight.
Also above our outlook range.
Moving onto the balance sheet and cash flow items, we ended the quarter with $127 million in cash and cash equivalents with no amounts drawn on the ABL.
From a cash flow perspective, the primary use of cash in the quarter with inventory as we prepare for client deliveries in Q4, and Q1 of 24, while reducing our overall purchase commitments. We believe Q3 marked a peak for our inventory in this cycle and we plan to generate cash from operations in Q4.
Let me now turn to the outlook for the fourth quarter of 2023, despite the near term challenging macro and industry environment. We are planning for sequential revenue growth in Q4 in line with consensus expectations, our preliminary outlook range for the fourth quarter is revenue of 412.
The 1 million to $451 million gross margin of 38% to 41%.
Operating expenses of 138 to 142 million and operating margin of five 5% to five to nine 5%.
Okay.
Below the operating income line, we assume approximately $7 million for net interest expense and approximately $3 million for taxes.
Finally, we are anticipating EPS of <unk> to 13 <unk> per share assuming a basic share count of approximately 230 million shares and our fully diluted share count is profitable of approximately 260 million shares.
Furthermore, at approximately the midpoint of our outlook range for Q4, the implied expectations for the full year are generally consistent to slightly better than our commentary on last quarter's earning call.
So typically for the full year and compared to 2022, we expect to deliver revenue growth expand gross margin operating margin and EBITDA and expand non-GAAP EPS by at least 25%.
As I close today I would like to reiterate that I am pleased with our performance year to date, especially considering the industry wide slowdown that we have been experiencing for the past few quarters, our strategic initiatives are on track and we should be on.
On pace to deliver our sixth consecutive year of revenue growth and expand gross margins toward 40% for the year and drive a greater than 1000 basis points of operating margin expansion since 2019.
Furthermore, we have proactively strengthened our balance sheet by refinancing the majority of our 2024 notes ahead of the continued increase in interest rates. We currently have approximately $19 million of the 2024 convertible notes due upon maturity in September of 2024, we remain lay.
We're focused on continuing to drive meaningful EPS expansion and generating free cash flow in the quarters and years ahead.
I would like to thank the Infinera team as well for their continued commitment to innovation and execution and our partners customers and shareholders for your continued cooperation and support.
I'd now like to open up the line for questions.
Yes.
Thank you as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Reuben warning with Stifel. Your line is open.
Hi, Thank you for letting me ask some questions Nancy.
And just reading the press release and the comments from the auditors is there change in your pricing methodology. That's required here and also with your comments regarding Q4 on the guidance.
Would the guidance have been different without the kind of change in accounting.
First there is no change in our pricing approach our pricing approach has been consistent.
Josh for many years now in terms of how we sell our products sell our technology and work with our customer base.
As far as Q4, I mean the range.
<unk> is where we see the range today. It does include.
The new methodology that we mentioned, but if you look at our preliminary range for Q3, you can see the magnitude of impact from that adjustment is.
I would say limited so I feel.
We feel good about the Q4 outlook range to that.
That's great. Thank you and as a follow up David.
Great to hear about the subsystem progress.
That progress.
There is of course sort of the naysayers and this concept of Metro Dci cannibalization.
From possible is essentially that's essentially et cetera, and I was wondering if you have an updated thought on how you see that clearly there are reached limitations.
The potential benefits is not a simple one to one replacement, but would just love to hear update updated thoughts as you get closer to ship.
Sure.
Not every service provider and it certainly doesn't follow the same strategy and neither do web scalar. So our strategy has always been build the world's best transponders, whether they're in an embedded solution to service long haul subsea or <unk>.
Metro high capacity inside an optical system or whether that transplanted.
Monitors miniaturized inside plausible that is able to provide metro reach.
And quite frankly over time some of some of the.
Some of the same functionality isn't in the embedded so we're on both sides of the equation. They all come back to our core confidence building vertically integrated transponders with their own optical semiconductors.
Got it thanks for the detail.
The next question is from.
I apologize. The next question is from Alex Henderson with Needham Your line is open.
Thanks.
Just to be clear there is no impact on the margin structure at all no changes in the gross margin.
As a result of the accounting change I'm looking at the guide for the gross margins for the third quarter to fourth quarter. It looks.
You mean like Theres not much.
Real improvement in that.
Margins sequentially and I would think that that would be the case given.
The ramp of your.
Chip production.
Yes, so a couple of things if there is an adjustment to revenue it would be at.
100% margin right. So it would flow straight through to the bottom line.
But youre right. There is no change to our overall margin structure.
Our target business model remains unchanged and we're really pleased with the progress we've made in Q3 I'm getting to a four in the handle of gross margin is something we have been driving to for quite some time. So we're very happy to see that in terms of Q4, yes. There is a certain mix of customers and products, but youre right. There is also the ramp up.
The new technology, so it's a combination there.
Okay.
Can you give us any.
Thoughts on whether you are going to be stepping up hiring or.
Do some hiring as we go into 2024 I realize you haven't done your budget, yet, but any commentary alone.
Granularity around that would be very useful.
Yes, I think from an expense and investment perspective, Alex you've seen over the last couple of quarters, we've really been holding tightly and expense through this kind of climate.
It's a little early to be talking about 'twenty four but certainly we think 'twenty four we will have a bit of a lighter for enhanced heavier back half we still believe we will grow.
And the market will grow and we will grow faster than the market.
I don't think were going to go crazy in terms of adding lots of resources, we're going to continue to try to drive efficiency to really ensure we're getting operating leverage.
Great. So we'll give you.
A bit more profound detail around 2024 in terms about what our top line expectations and the expectations for margin and bottom line. Good news on the margin front is we're really seeing the impact that these things can happen as the <unk> continue to ramp up.
They will continue to help that margin profile in the early days as you. Just suggested you are at pre entitlement periods and for the first quarter or two.
Those are not hitting at the same volume potential that they will at scale.
Okay. Thank you.
Thanks Alan.
The next question is from Simon Leopold with Raymond James Your line is open.
Great. Thanks, Thanks for taking the question.
It looks to me like your.
<unk> business year to date is up something on the order of 30% plus.
And so I.
Sort of a lumpiness quarter to quarter.
Im trying to get a better sense of how to think about that particular vertical over the next several quarters next year. However, you want to frame it.
When I see sort of two opposing forces one is the tough comparison, but to what sounds like favorable trends in terms of that group of operators and they're spending you help me with that.
Yeah, I think I can but again I'm not going to lay out complete 24 look I think that.
For the first time in our history, we are engaged with all the major hyperscale or in some way shape or form.
In sum on multiple technology fronts, some unplug, a bowl as well as embedded technologies in software and line system. So.
I would expect that when I look at their capex not just from what Theyre publicly announcing but what were <unk>.
Planning with them for that segment to continue to be robust, although again lumpy in how they rollout quarters, but for full years to be robust in 'twenty four and.
25.
And I just want to get a little bit maybe clarification on the accounting weakness that was identified.
Just wanted to get an understanding of what what might have changed was there something that changed in the accounting team something that changed that triggered the review.
Sort of the why now.
So yes, I mean first of all no nothing has changed in terms of the team.
And we've been as you've seen continuing to improve our processes over time. This was a and inspection of our auditors by the PCA Ob that was randomly impacting infinera, meaning they had an inspection infinera kind of name was drawn so to speak.
The methodology that we use they had questions about in terms of.
Our approach to how we allocate between hardware software and services.
We reviewed some of their questions some of their suggestions and we agreed that we needed to make a change to that methodology, but that simply changes quarters in which revenue was recognized it does not change in total but the revenue amount that we will recognize over the life of the contract and as you can see from the range we showed in.
Q3 is limited in scope I mean in terms of the absolute magnitude you can think of it is.
A quarter as a percentage up to maybe a few percent in any particular period, but we don't expect it.
To be something that.
That slows us down we're continuing to execute and operate we are working through the remaining work that we have to get done with our auditors.
And we will drive to file our 10-Q as quickly as possible.
Why we are comfortable with the ranges, we put out and putting out our Q4 guidance, but obviously given this has brought late in the process Nancy's team has to work through this with the auditors to file the 10-Q so.
That's where we're at.
Thank you.
Thanks Simon.
The next question is from Mike Genovese with Rosenblatt Securities. Your line is open.
Hey, Mike.
Hi, David I mean, really really nice results and nice outlook.
Particularly with the book to Bill being above one in the third quarter. I guess my question is I mean, particularly as you mentioned.
With competitors or others in the industry.
Weaker trends you guys coming through here.
I'm just wondering.
And the 110% customer being a web scalar.
Where are the orders.
More than normal weighted towards towards web scale or are you also seeing this sort of strength from share gain with <unk>.
For traditional telco customers as well.
Thanks for asking the question. So yes, well certainly were doing very well that we've covered with the web scale.
I will tell you we want a couple of new tier one levels in Europe.
We had never had before and so that's those are nice wins for us as well as in the Metro you see we continue to make big progress in gaining share when I look at our G. 40, G 30 platform, our Dx platform and I look at the year over year comparable to what we're doing there in terms of.
Product bookings as well as product billings they are a profoundly.
So we are making inroads with service providers in different Geos, we talked about India in our last call in Europe.
As well as you saw nice strength in both Europe and Americas This last quarter. So.
Again, the strategy, we laid out at our analyst day.
That API four by one is winning in the core winning in the Metro and then driving to the edges, we got our heads down and we're executing to.
Okay sounds good.
Then on on this.
Statement.
Project I mean, it sounds like Youre, saying, the Q will be filed.
Relatively on time, which to me suggests.
This month is that is that reasonable.
Yes.
This is not we are not indicating a restatement.
So we are still doing our work we are highlighting the range preliminary range for Q3 and Q4.
Do have work still to complete.
As why we filed the extension on our cube, our objective is to get it done.
As soon as practical so you could probably think of that in.
Weeks versus anything longer than that.
Okay, Great and then finally.
Really happy to hear about.
The refinancing of the convertibles and that Theres only $19 million due in September of 'twenty four I think that's great news, but since we don't have the Q.
Just curious.
Is everything now beyond that are the maturities in 2007, and 28 and beyond or do we have.
He was coming due in 'twenty five 'twenty six.
There's $19 million due in September 24, and we did file at the time of that refinancing you can see the details there in <unk> and then the next set of maturities you are right. Our in 27 28.
Okay, Great Fantastic and what was the effective interest rate with us.
Our average right now is three 3%.
Okay great.
Great sounds good thanks.
The next question is from Dave King with B Riley Your line is open.
Thank you and good afternoon, yes.
Hi.
Just regarding bookings I think last quarter, you said that you expect bookings to increase throughout the second half should we expect bookings to be up once again in fourth quarter sequentially.
That's the only area, we don't actually report.
David We don't forecast bookings, but I think what we said is that we thought that bookings would continue to accelerate in the back half. There is some lumpiness in bookings, but overall, we see a trend both in Q3 and Q4 versus the first half that is up.
At this point, Okay got it.
Okay, and then also last quarter, you said, you know tier ones more.
Building, an inventory correction mode, while the smaller service providers.
Seem to be doing better.
Have they changed.
You know.
Since our since 90 days ago.
No I think you've heard in the industry everybody is very tight with the capital dollar with interest rates and the economy in externalities geopolitical forces at play, but that's what you heard my prepared remarks said our goal is to win more than our fair share and to ensure that the priority of the orders, which with the service providers is rolling.
Out fiber deeper into the edge of the network to get these applications built and.
And the service.
Web scale or is that we're dealing with are building out AI infrastructure and that is is fueling demand.
So we're focused on every order dollar thats up and available and our job is to take more than our fair share.
Got it thank you.
Thanks, Dave.
The next question is from meta Marshall with Morgan Stanley. Your line is open.
Hi, This is kron on for mortgage for a meter.
So you sort of mentioned inventory being a source of cash next quarter I guess, just generally what gives you confidence in that and maybe just how much of a source of cash can it be for next quarter and maybe across the year next year.
Yes, I mean, we have been.
Using working capital over the last several quarters.
This period of time of the inventory adjustment. We think inventory is peaked in Q3 I will say, though we've been sharing with you that our total commitments. If you look at both the inventory on our books as well as the <unk>.
Commitments to our.
Our CMS is actually down.
Q3, Q Q2 to Q3.
And then we expect to reduce inventory and the inventory commitments total again in Q4, so that cash flow will start in Q4 and flow into Q1.
It gives you a real magnitude at this point, but more.
More to just say that the trend is now turning in the right direction there.
Yes, so I think in the quarter, our inventories were up close to $40 million ish.
In Q3, and our overall obligations purchase obligations plus inventory, we're down 20%. So despite the inventory being up total net liability down 20% and.
We expect that to peak and then again given the nice book to Bill and what our outlook is for Q4 and projects from backlog for Q1, we expect that to go down.
Okay got it that's helpful. And then just a quick follow up on the service provider side.
<unk> from continued strength there I guess just generally in terms of.
Customer conversations are you getting any pushback on the pricing front during sort of this pause.
We always get pushback on the pricing front, but our job is to make vertically integrated products that.
<unk> provides a price performance not just by reducing the price tag, but actually the effective dollar per bit and will end.
<unk> per bit so.
And I do want to correct when I say service provider strength do not write that up.
There are pockets of strength based on priority of spend overall there is still.
You did environment of conservatism around Capex dollars and I expect that our team is in planning mode and out with our customer base now and we're in the process of locking down our plans for 2024 accordingly.
Perfect. Thank you I appreciate it.
The next question is from George Notter with Jefferies. Your line is open.
Hi, Thanks, a lot guys I am curious about the mix of IL six as a percentage of product sales and then also.
The mix of vertically integrated sales as a percentage of product sales do you guys have those numbers.
We do.
<unk> was just under 30%.
The vertical integration was at 57 ish percent.
Got it Okay, and then as I think about.
Driving those numbers forward, obviously, the X P M and gx.
Redesigns are kind of the key the key elements there.
Can you tell me, where you guys are on that I think you said one of those products is going to be available by year end for revenue.
Obviously your customers also have to test those products how long do you think those testing processes will take what do you think it looks like in terms of really turning those those numbers upward in terms of vertical integration.
Products.
Yeah, the bookings of the Gx series are up significantly and we should probably put that out in our next earnings cycle to show.
Percentages of that and what's the embedded base of <unk> is growing on the top so we will do that George but those products are ready the software the OS everything we've done over the last years to make them.
Did from Metro long haul and aggregation. So that's great. What we talked about George was we were shipping the first one to a customer that not only have the gx, but had the our own plug the holes in them and so that will actually go out.
Going out right now this quarter and thus will either revenue in this quarter or in Q1.
Thus the start of the vertical integration. So now all of our gx platform that are out there.
I have used.
Our merchant.
CFP two are applicable and are able to incorporate our plausible and we're going through various stages of integration testing with those clients. Obviously, if we can provide them better price performance.
They're eager to have us implement.
So we will try to make sure George going forward in 2024, I think thats a good metric for us to start looking at.
And then total vertical integration.
Sorry go ahead.
So I was just going to ask that the mix of vertically integrated product.
Obviously, we're looking for that to step up as the year goes on next year like.
What do you think is doable in terms of that mixture.
Okay.
Again, I don't want to get too far ahead of the skis and into 2024, but I think what we said was that we thought over 60 and over time that that could approach 70. So.
Great. Okay. Thank you.
Thanks George.
The next question is from Christian Schwab with Craig Hallum Capital. Your line is open.
Thanks, Jeff.
Thanks for taking my questions just two quick ones and we don't want to talk about 'twenty four but I missed some of the prepared comments.
Did we reiterate our outlook for $1 a share in earnings in 'twenty five 'twenty six.
Yes.
We did not but we have not pulled off that and I think when you see the I think what we said in our last earnings call is that we've continued to expand EPS. This year in 2023 by 2000.
5% and a big goal of ours next year isn't just the growth in the topline look we're super focused on growing our bottom line and that EPS percentage.
We are not falling off that at all.
Perfect and then.
<unk>.
As far as you know last quarter, you guys talked about a lot of different growth opportunities in India.
Could you give us an update on <unk>.
Those growth opportunities are going in.
What's your future expectations are geographically for the deal.
Sure I'll start with overall just growth expectation. So we talked in the prepared remarks about landing a couple of tier ones in in Europe, we continue to extend it with the hybrid killers.
And overall, we had a book to bill above one which was nice to see again after Q1 and Q2 being below one.
So I think overall, we feel very good it's probably the best we felt across our customer segment about our engagement now that being said we're in a in a tough economic climate for them. So what's important to do in these times is engage understand their needs.
Things forward that help them drive the priority of their capex spend at the lowest dollar per bit lowest what prevent.
Best ease of use because theyre going to be as you've seen they tried to limit their operational personnel a lot of them have become thinner in the field.
We can help that.
That's where we want to be.
Great no other questions. Thank you.
Thanks Richard.
The next question is from Alex Henderson with Needham Your line is open.
Super Thank you.
A lot of companies that are.
Yet through the supply chain issues.
So a fairly large increase in backlog.
Which then.
It allowed them to produce.
<unk> shipped.
Shipments.
As a result of the supply chain, allowing them to ship more product.
Against that backlog.
Number of them have talked about.
Significant.
Comparison challenges because of it.
As one example, if you look at that five they had up 45% growth in the second quarter.
And ADC as a business is flat to declining so they obviously have a tough comp can you talk whether you have a.
Comparison issue in any of the upcoming.
In the next four or five quarters as a result of that and.
And whether that is playing a role to the improved shipments and.
On your book to Bill, it's nice to get you above one in the third quarter were you above one to the year.
Thanks.
No we have not been above one for the year.
But back to your I think your key premise I think if you look at our operating results over the last three years, you don't see wild swings in terms of us growing 25% one year flat another.
Do you see kind of high single digit to double digit growth in topline.
And this year, it's been a bit more muted given the economic climate, but so far for the first three quarters, we were looking good.
We didn't have that big spike.
As the share taker.
In our position as long as the market continues to grow we will grow.
Our our pilgrim inches to grow ahead of that market and to continue to really expand.
EPS growth.
Great. So simple answer Alex no. We don't have this tough compare I think given we've kind of been steady Eddie.
There are no further questions at this time I will turn it back to the presenters for any closing remarks, yes.
Yes, no I appreciate the thoughtful questions and again.
In this environment overall, we delivered another strong quarter with projected sequential revenue growth strong bookings and higher margins.
Getting that.
40%, we've got the right strategy and are executing our plan our portfolio is in the best shape, it's ever been and we are winning customers globally across the segments. We do appreciate the support of our customers employees and shareholders and now we're going to get back to work continuing to execute a very sound investment strategy and focus on.
<unk> EPS expansion, thanks, again for the call to <unk>.
And take care.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Please wait the conference will begin shortly.
Okay.