Q4 2023 Infinera Corp Earnings Call

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Krista: Good afternoon, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the Infinera Corporation fourth quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Amitabh Passi, Head of Investor Relations. You may begin your presentation. Thank you, Krista. Good afternoon, everyone.

Krista: I'd like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question again press Star one. Thank you I would now like to turn the conference over to Avatar policy had ever Investor Relations you may begin your conference.

Speaker Change: Thank you Chris Good afternoon, everyone welcome to <unk> fourth quarter of fiscal 2023 conference call.

Amitabh Passi: Welcome to Infinera's fourth quarter of fiscal 2023 conference call. A copy of the press release issued by Infinera today is available in the investor relations section of the website. This call is being recorded and will be available for replay from our website.

Copy of the press release issued bank scenario today is available on the Investor Relations section of the website. This call is being recorded and will be available for replay from our website.

Amitabh Passi: Today's call will include projections and estimates that constitute forward-looking statements, including, but not limited to, statements related to the matters referenced in the press release and current report on Form 8K that the company issued today and our financial outlook for the first quarter of 2024. These statements are subject to risks and uncertainties that could cause Infinera's results 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 an annual report on Form 10-K for the year ended on December 31, 2022, as filed with the SEC on February 27, 2023, and amended on February 29, 2024, and in a quarterly report on Form 10-Q for the quarter ended September 30, 2023, as filed with the SEC on February 29, 2024, as well as subsequent reports filed with or furnished to the SEC from time to time.

Speaker Change: Today's call will include projections and estimates that constitute forward looking statements, including but not limited to statements related to the matters referenced in the press release and current report on form 8-K that the company issued today and our financial outlook for the first quarter of 2020 for these.

Speaker Change: These statements are subject to risks and uncertainties that could cause <unk> results to differ materially from management's current expectations.

Speaker Change: 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, that's filed with the SEC on February 27, 2023, and amended on February 29, 2024, and in our quarterly report on form.

Speaker Change: <unk> 10-Q for the quarter ended September 32023, as filed with the SEC on February 29, 2024, as well as subsequent reports filed with or furnished to the SEC from time to time. Please.

Amitabh Passi: 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. This conference call includes references to non-GAAP financial measures, except for revenue, balance sheet items, and cash flow from operations, which are each discussed on a GAAP basis.

Speaker Change: 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.

Speaker Change: Today's conference call include references to non-GAAP financial measures, except for revenue balance sheet items and cash flow from operations, which are each discussed on a GAAP basis.

Amitabh Passi: Pursuant to Reg G, we've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and investor slides – sorry, there are no investor slides this quarter – each of which is available on the investor relations section of our website. And, finally, as a reminder, we'll allow for plenty of time for Q&A today. But we ask that you limit yourself to one question and one follow-up, please.

Speaker Change: Pursuant to Reg G. We've.

Speaker Change: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and Investor slides, sorry, there are no investor slides this quarter each of which is available on the Investor Relations section of our website.

Speaker Change: 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.

David W. Heard: And I'll turn the call over to Chief Executive Officer David Heard. Thanks, Amitabh. Good afternoon, and thanks for joining us today.

Speaker Change: I'll now turn the call over to our Chief Executive Officer, David here.

David: Good afternoon, and thanks for joining us today I'll begin with the highlights for our preliminary fourth quarter results and then turn the call over to Nancy to cover the preliminary financial details of our fourth quarter performance and outlook for the first quarter overall, the fourth quarter was a strong quarter for us in which the mid <unk>.

David W. Heard: I'll begin with the highlights for our preliminary fourth-quarter results and then turn the call over to Nancy to cover the preliminary financial details of our fourth-quarter performance and outlook for the first quarter. Overall, the fourth quarter was a strong quarter for us, where the midpoint of our preliminary revenue, gross margin, and EPS ranges are all expected to come in above our outlook ranges. We delivered a book-to-bill of approximately one for the second quarter in a row, and we generated over $50 million in free cash flow.

Nancy: The midpoint of our preliminary revenue gross margin and EPS ranges are all expected to come in above our outlook range as we delivered a book to bill of approximately one for the second quarter in a row and we generated over $50 million in free cash flow. Furthermore, during the quarter, our gx systems portfolio performed strongly landing new to.

David W. Heard: Furthermore, during the quarter, our GX systems portfolio performed strongly, landing new Tier 1 design wins with global service providers and ICPs. It now represents almost 50 percent of our expected annual product revenue. And in subsystems, we shipped our first 400-gig ICEX coherent pluggables vertically integrated into our own GX metro platform.

Nancy: Your one design wins with global service providers and ICP. It now represents almost 50% of our expected annual product revenue and in subsystems. We shipped our first 400 gig <unk> coherent plausible vertically integrated into our own Gx Metro platform combine the third and fourth quarters of 2023.

David W. Heard: Combined, the third and fourth quarters of 2023 marked a strong finish to the calendar year. While capital markets and macroeconomic conditions were challenging throughout 2023, we kept our heads down and believe we've delivered on our commitments to you. For the full year 2023, we expect to deliver our sixth consecutive year of revenue growth, expand gross margins to approximately 40 percent, expand operating margins and increase operating profit in the double-digit percentage range, and deliver EPS in the 20 to 25 percent range, also consistent with what we committed to you on our investor day. And that EPS is up at least 70% year over year. From a portfolio and customer perspective, we continued to build on the momentum of the last few years as we landed new customers during the year and successfully expanded into new market segments and geography. Let me touch on a few of the 2023 highlights.

Nancy: Marked a strong finish to the calendar year, while capital markets and macroeconomic conditions were challenging throughout 2023, we kept our heads down and believe we have delivered on our commitments to you for the full year 2023, we expect to deliver our sixth consecutive year.

Nancy: <unk> revenue growth expand gross margins to approximately 40%.

Spanned at operating margins and increased operating profit in the double digit percentage range and delivered EPS in the 20% to 25% range.

Nancy: Also consistent with what we meant it to you at our Investor day and that EPS is up.

Nancy: <unk>, 70% year over year.

Nancy: From a portfolio and customer perspective, we continued to build on the momentum of the last few years as we landed new customers during the year successfully expanded into new market segments and geographies, Let me touch on a few of the 2023 highlights <unk>.

David W. Heard: First, we won new strategic deals with major service providers, including notable wins in the U.S., Europe, India, Australia, and several multinational subsea consortiums. Our win rate in the metro remains strong, with revenue in this segment growing to almost 50% of product revenue in 2023. An important part of our investment thesis and Forward Opportunity with the Huawei situation. Second, we had another banner year with U.S. hyperscalers and delivered our fourth consecutive year of 30 plus revenue growth in this segment. We've increased our market share with hyperscalers by approximately 1,000 basis points over the last four years, and our total exposure to them, including the indirect business that they drive through carrier service providers and subsea consortia, is approaching approximately 50% of our revenue. Third, we exceeded $10 million in bookings for our subsystem products and recognized initial revenue during the year.

Nancy: First we won new strategic deals with major service providers, including notable wins in the U S Europe, India, Australia, and several multinational subsea consortium our win rate in the Metro remained strong with revenue in this segment growing to almost 50% of product revenue in 2023 and important.

Part of our investment thesis.

Nancy: And forward opportunity with the Huawei situation.

Nancy: We had another banner year with U S Hyperscale and delivered our fourth consecutive year of 30 plus revenue growth. In this segment, we have increased our market share with hyper scaler by approximately 1000 basis points over the last four years and our total exposure to them, including the indirect business that they drive through carrier service provider.

Riders and sub sea consortia is approaching approximately 50% of our revenue.

Nancy: Third we exceeded $10 million in bookings for our sub system products and recognized initial revenue in the year. This was an important milestone for the company and consistent with the goals. We communicated at our March Investor Day to date, we have received purchase orders from 26 customers that span our entire <unk>.

David W. Heard: This was an important milestone for the company and consistent with the goals we communicated at our March Investor Day. To date, we've received purchase orders from 26 customers that span our entire subsystems portfolio. Additionally, membership in the XR Forum continued to expand in 2023, and the new list of members included Lumentum and Arista.

Nancy: Systems' portfolio. Additionally, membership and the exit our forum continued to expand in 2023 and the new list of members included Lou Mentum at Arista.

David W. Heard: And fourth, we announced the commercial availability of our 400 gigabyte XR pluggables and also shipped our first Metro systems with our own vertically integrated pluggables in Q4. The use of pluggables in our Metro systems will be a key driver of margin expansion into the back half of 2024. Our consistent performance over the past few years highlights that our strategy is working and that our portfolio is in the best shape it's ever been, as evidenced by our win rates. Our key growth and profitability financial metrics are trending up and to the right, and we feel great about the underlying long-term secular drivers in the business. However, in the near term, as we look at the first half of 2024, we're planning for a slow start to the year, consistent with what our peers in the industry are seeing and communicating.

Nancy: And fourth we announced the commercial availability of our 400 gig XR plausible and also shipped our first metro systems with our bone own vertically integrated plausible in Q4, the use of plug a bulls on our Medicare systems will be a key driver of margin expansion.

Nancy: Getting into the back half of 2024 or.

Nancy: Our consistent performance over the past few years highlights that our strategy is working and that our portfolio is in the best shape, it's ever been as evidenced by our win rates are key growth and profitability financial metrics are trending up into the right and we feel great about the underlying long term secular drivers in the business.

Nancy: However in the near term as we look at the first half of 2024, we're planning for a slow start to the year consistent with what our peers in the industry are seeing and communicating in Q1 in particular, we're experiencing a temporary low point in revenue and margin driven by two factors.

David W. Heard: In Q1, in particular, we're experiencing a temporary low point in revenue and margin driven by two facts. First, from a revenue standpoint, approximately $35 million of revenue has shifted out of the quarter, with roughly $10 million being recognized earlier in Q4, and $25 million of shippable backlog shifting from Q1 into future quarters. And second, from a margin standpoint, we expect gross margin to be approximately 400 basis points lower in Q1, due to a 300 basis point impact from the timing impact of higher line system shipments in Q1 associated with many of our global Tier 1 customer wins. This is ultimately a good news story in the back half of the year and for the longer term.

Nancy: First from a revenue standpoint, approximately $35 million of revenue has shifted out of the quarter with roughly 10 million being recognized earlier in Q4 and $25 million of shippable backlog shift shifting from Q1 into future quarters and second from a margin standpoint, we expect gross margin to be approximately.

Nancy: Actually 400 basis points lower in Q1 due.

Nancy: Due to a 300 basis point impact from the timing impact of higher line system shipments in Q1 associated with many of our global tier one customer wins. This is ultimately a good news.

Nancy: Our story in the back half of the year and for the longer term.

David W. Heard: And a 100 basis point impact from the combined effects of lower volume in Q1. The good news here is that our commercial wins and strategic deployments give me confidence that we remain on path to deliver a full year of revenue growth and expanded margins in 2024, with growth margins expected to return to 40% plus starting in Q2. The even better news is both the pace and scale of our design wins across the portfolio are accelerating in this quarter, Q1. This is especially true for hyperscalers, who we believe will continue to drive healthy levels of spending across the industry in the years ahead.

Nancy: The 100 basis point impact from the combined effects of lower volume in Q1. The good news here is our commercial wins and strategic deployments give me confidence that we remain on path to deliver a full year of revenue growth and expanded margins in 2024 with gross margins expected to return to 40% plus starting in Q2.

The even better news is both the pace and scale of our design wins across the portfolio are accelerating in this quarter Q1.

Nancy: This is especially true for Hyperscale or who we believe will continue to drive healthy levels of spending across the industry. In the years ahead already in the first 60 days of 2024, we've achieved major hyperscale influence strategic wins with our systems and subsystem solutions, including the following developments.

David W. Heard: Already in the first 60 days of 2024, we've achieved major hyperscale influence strategic wins with our systems and subsystem solutions, including the following development. First, as you saw from our press release this morning, we announced a new line system that puts our portfolio under the GX family. We've already landed wins with five service providers and hyperscalers that are expected to lead to significant revenue on margins with follow-on transponder sales, and we have a strong pipeline of additional customers. Second, we have won our first contract with a major hyperscaler for 800 gigabit 3 nanometers ZRZR plus pluggable.

Nancy: First you've seen from our press release. This morning, we've announced a new line system that puts our portfolio under the Gx family.

Nancy: We've already landed wins with five service providers and Hyperscale is that are expected to lead to significant revenue on margins with follow on transponder sales.

Nancy: And we have a strong pipeline of additional customers second we have won our first contract with a major hyperscale or for 800 gig three nanometers, ZR ZR plus plausible.

David W. Heard: This win has the potential to be among the largest contracts for the company, scaling to hundreds of millions of dollars over a three-year period beginning in 2025. This is the first of multiple contracts in this key market segment that we expect to land in 2024. These pluggable wins will drive additional volume through our U.S.-based semiconductor manufacturing assets and be incrementally accretive to the financial model. Third, influenced by traffic demands of hyperscalers, we continue winning managed optical fiber networks, or MOFN deals, in India, the Middle East, and Asia, with at least three wins to date in Q1 with three different hyperscalers. These private network builds are driven by hyperscalers and their preference for suppliers, along with service providers across the globe.

Nancy: This win has the potential to be among the largest contracts for the company scaling to hundreds of millions of dollars over a three year period. Beginning in 2025. This is the first of multiple contracts in this key market segment that we expect to land in 2024. These plausible wins will drive additional volume.

Nancy: There are U S based semiconductor manufacturing assets and be incredibly be incrementally accretive to the financial model.

Nancy: Third influenced by traffic demands of hyper scale as we continue winning managed optical fiber networks, our motion deals in India, the middle East and Asia with at least three wins order to date in Q1 with three different hyper scaler. These private network builds are driven by Hyperscale.

Nancy: <unk> and their preference for suppliers, along with service providers across the globe.

David W. Heard: Fourth, in addition to shipping our first Metro systems with our own 400 gigabit pluggables, we're also qualifying our 400 gigabit ICE-X pluggables with a major Tier 1 service provider and a major U.S. cable MSO for applications that include single-fiber Bi-Di and business-to-business PON overlay. And fifth, we've invested in producing the first test chips for inside data center applications driven by AI that will drive down power and leverage our US-based semiconductor assets. While these days are early, and architectures are still evolving, we believe our unique vertical integration and indium phosphide capabilities are competitive differentiators inside the data center. We look forward to talking to you about the progress as this further develops. Based on the stack-up of those strategic wins, my confidence in our strategy, portfolio, and execution is as high as it's ever been.

Nancy: In addition to shipping our first metro systems with our own 400 gig plug of bowls. We are also qualifying our 400 gig ice ex plugging holes with a major tier one service provider and a major U S cable msos for applications that include single fiber by di and business to business.

Non overlay.

Nancy: And fifth we've invested in producing the first test chips for inside the data center applications, driven by AI that will drive down power and leverage our U S based semi semiconductor assets.

Nancy: While these days are early and architectures are still evolving we believe our unique vertical integration and indium phosphide capabilities are competitive differentiators inside the datacenter, we look forward to talking to you on the progress as it further develops.

Nancy: Based on the stack up of those strategic wins my confidence in our strategy portfolio and execution is as high as it's ever been despite the short term and inventory digestion customers are going through and the timing of the mix impacts of laying down new routes in the long term demand for bandwidth continues to grow as hyper scalar accelerate.

David W. Heard: Despite the short-term inventory digestion customers are going through and the timing of the mixed impacts of laying down new routes, in the long term, demand for bandwidth continues to grow as hyperscalers accelerate the rollout of artificial intelligence, machine learning workloads, and service providers drive fiber deeper into networks. We believe we're uniquely positioned to gain with these customer segments. We look forward to diving deeper into our product and technology strategy at this year's Optical Fiber Communications Industry Show in San Diego, California, on March 27.

Nancy: The rollout of artificial intelligence machine learning workloads and service providers drive fiber deeper into networks. We believe we are uniquely positioned to gain with this with these customer segments. We look forward to diving deeper into our product and technology strategy at this year's optical fiber communications industry show in San Diego Cal.

Nancy: <unk> on March 27th.

David W. Heard: And as I close today, I'd like to thank the Infinera team for another solid quarter of execution and results and their continued commitment to our customers and one another. I'd also like to thank our partners, customers, and shareholders for their continued support. I couldn't feel better about our strategic position, and I believe we remain well-positioned to deliver our 7th consecutive year of revenue growth, expand margins by approximately 200 basis points, and deliver EPS growth of at least 25% in 2024. I'll now turn the call over to Nancy to cover the preliminary financial results of the quarter and our Q1 outlook. Thank you.

Speaker Change: And as I close today.

Speaker Change: Like to thank the Infinera team for another solid quarter of execution and results and their continued commitment to our customers and one another I'd also like to thank our partners customers and shareholders for their continued support I couldnt feel better about our strategic position and I believe we may we remain well positioned to deliver our seventh consecutive year of revenue growth.

Speaker Change: Expand margins by approximately 200 basis points and deliver EPS growth of at least 25% in 2024.

Speaker Change: I'll now turn the call over to Nancy to cover the preliminary financial results for the quarter and our Q1 outlook Nancy. Thanks, David Good afternoon, everyone I will begin by addressing our third quarter filings and then cover our preliminary.

Nancy Erba: Thanks, David. Good afternoon, everyone. I will begin by addressing our third-quarter filings and then cover our preliminary financials, followed by an outlook for the first quarter of 2024. For your reference, we have included a gap to non-gap reconciliation of our preliminary financials and Outlook in our press release to assist with my commentary.

Nancy: Followed by our outlook for the first quarter of 'twenty 'twenty four for your reference we have included a GAAP to non-GAAP reconciliation of our preliminary financials and outlook in our press release to assist with my commentary.

Nancy Erba: As a reminder, any financial commentary provided today for Q4'23 or the full fiscal 2023 period is based on our preliminary non-GAAP results. As most of you are aware, we filed our Q3-23 Form 10-Q on February 29th. This represented a tremendous effort by the Infinera team and our auditors over the past few months, given the intensive and time-consuming nature of the matters under review. I want to emphasize that despite the delayed review process, there were no adjustments to prior-period financial statements.

Nancy: As a reminder, any financial commentary.

Nancy: Today for Q4, 'twenty three or the full fiscal 2023 period are based on our preliminary non-GAAP results.

Nancy: As most of you are aware we filed our Q3 23 Form 10-Q on February 29th this represented a tremendous effort by the Infinera team and our auditors over the past few months given the intensive and time consuming nature of the matters under review I want to emphasize that despite the delayed review process.

Nancy: Yes, there were no adjustments to prior period financials, our results for Q3, where revenue of $392 million gross margin of 41, 9% operating income of 33 million and diluted EPS of eight cents all of which exceeded the midpoint of our original outlook range.

Nancy Erba: Our results for Q3 were revenue of $392 million, gross margin of 41.9%, operating income of $30.3 million, and diluted EPS of $0.08, all of which exceeded the midpoint of our original outlook range. However, since our efforts over the past few months have been directed toward completing the work necessary to file our Q3-23 results and other related SEC filings, our final results for Q4-23 and fiscal year 23 have been delayed. As a result, we are sharing preliminary, unaudited ranges today.

Nancy: <unk>.

Nancy: Since our efforts over the past few months have been directed toward completing the work necessary to file our Q3 twenty-three results and other related SEC filings. Our final results for Q3, Q4, 'twenty three and fiscal year 'twenty three have been delayed.

Nancy: As a result, we are sharing preliminary unaudited ranges today. We currently expect to have our year end audit completed and file our fiscal year 'twenty three 10-K in the next five to seven weeks or about mid April.

Nancy Erba: We currently expect to have our year-end audits completed and file our fiscal year 23 10-K in the next 5-7 weeks, or about mid-April, and plan to be back on our normal cadence in Q1. Turning to our performance in the fourth quarter, I am pleased with the strong finish we had to the year. The midpoint of our preliminary range of 435 million to 452 million is expected to be at or above our outlook range. This quarterly performance was primarily driven by strength in the Americas and with ICPs or hyperscalers. Geographically, we derived over 65% of our Q4 revenue from domestic customers, a level higher than normal given the strength of U.S. hyperscalers and service provider customers. We had one ICP customer that accounted for over 10% of our revenue in the quarter.

Nancy: And plan to be back on our normal cadence in Q1.

Nancy: Turning to our performance in the fourth quarter I am pleased with the strong finish we had to the year the midpoint of our preliminary range of 435 million to 452 million is expected to be at or above our outlook range. This quarterly performance was primarily driven by strength in the.

Because and with Icp's, our hyperscale or geographically.

Nancy: Geographically, we derived over 65% of our Q4 revenue from domestic customers a level higher than normal given the strength at U S. Hyperscale and service provider customers. We had one ICP customer that accounted for over 10% of our revenue in the quarter.

Nancy Erba: Turning to gross margin, we expect the midpoint of our Q4 preliminary gross margin range of 39 to 41 percent to be above that in 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 in supply costs, and ongoing cost improvement. Overall, I am encouraged by the trend in 2023, with growth margin expected to approach 40% for the year and be up approximately 300 basis points for the year. Preliminary operating margin of 5.7% to 8.3% is expected to be within our outlook range, while operating expenses of $145 million to $147 million are expected to be slightly above our outlook range. Our Q4 operating expenses included approximately $3 million of incremental spend as a result of the extended financial review I referred to earlier.

Nancy: Turning to gross margin, we expect the midpoint of our Q4 preliminary gross margin range of 39% to 41% to be above that in 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 costs and ongoing cost improvements overall.

Nancy: Overall I am encouraged by the trend in 2023 with gross margin expected to approach, 40% for the year and be up approximately 300 basis points for the year.

Preliminary operating margin of five 7% to eight 3% is expected to be within our outlook range. While operating expenses of 145 million to 147 million are expected to be slightly above our outlook range. Our Q4 operating expenses included approximately $3 million up.

Nancy: Incremental spend as a result of the extended financial review I referred to earlier, we expect this level of incremental spend to continue through Q1 and partially into Q2.

Nancy Erba: We expect this level of incremental spend to continue through Q1 and partially into Q2. In Q4, we also executed on a tax structuring initiative that allowed us to true up a $7 million tax benefit for the current year and the prior year. The resulting preliminary diluted EPS is expected to be $0.07 to $0.13, with the midpoint representing above our outlook range. Moving on to the balance sheet and cash flow items, we ended the quarter with approximately $174 million in cash and cash equivalents.

Nancy: In Q4, we also executed on a tax structuring initiatives that allowed us to true up our $7 million tax benefit for current year and prior years.

Nancy: The resulting preliminary diluted EPS is expected to be seven to 13 cents with the midpoint representing them above our outlook range.

Nancy: Moving onto the balance sheet and cash flow items, we ended the quarter with approximately $174 million in cash and cash equivalents, we generated over $50 million of free cash flow in the quarter and we benefited from higher net income the partial work down of our inventory and an improvement in shipment linearity.

Nancy Erba: We generated over $50 million of free cash flow in the quarter, and we benefited from higher net income, the partial work-down of our inventory, and an improvement in shipment linearity. Let me now turn to the outlook for the first quarter of 2024. As David mentioned, like the rest of the industry, we are expecting a slow start to the year as our customers continue to work down their excess inventory and manage CapEx prudently in the short term. Therefore, specific to Q1, we expect revenue to be in the range of $320 to $350 million, including the impact of approximately $35 million of revenue that shifted out in the quarter. Gross margin to be in the range of 36 to 38%. This lower margin includes a 400 basis point margin impact primarily from higher line system shipments with fill expected in the following quarters and from lower volumes in Q1. Operating expenses to be in the range of $143 million to $147 million, including approximately $3 million of incremental expenses related to support our fiscal 2023 audit, and an operating margin loss of eight and a half percent. Below the operating loss line, we assume Finally, we are anticipating a net loss per share of $0.18 to $0.10, assuming a basic share count of approximately 232 million shares.

Let me now turn to the outlook for the first quarter of 'twenty 'twenty four as David mentioned like the rest of the industry. We are experience we are expecting a slow start to the year as our customers continue to work down their excess inventory and manage capex prudently in the short term therefore specific to Q1, we expect.

Nancy: Revenue to be in the range of $320 million to $350 million, including the impact of approximately $35 million of revenue that shifted out in the quarter.

Nancy: Gross margin to be in the range of 36% to 38%. This lower margin includes a 400 basis point margin impact primarily from higher line system shipments with Phil expected in the following quarters and from lower volumes in Q1.

Nancy: Operating expenses to be in the range of $143 million to $147 million, including approximately $3 million of incremental expenses related to support our fiscal 'twenty three audit.

Nancy: And an operating margin loss of eight 5%.

Below the operating loss line, we assume approximately $8 million for net interest expense and approximately $4 million for taxes.

Nancy: We are anticipating a net loss per share of <unk> 18 cents to <unk> 10 cents, assuming a basic share count of approximately 232 million shares.

Nancy: As you heard from US. This afternoon overall, we feel great about our strategy and the strength of our portfolio as evidenced by the pace and scale of recent design wins across both our systems and subsystems portfolios.

Nancy Erba: As you heard from us this afternoon, overall, we feel great about our strategy and the strength of our portfolio, as evidenced by the pace and scale of recent design wins across both our systems and subsystems portfolios. In the first 60 days of the quarter, I am encouraged by our win rate deployment of line systems, setting us up for future margin expansion. I'm encouraged by the growth of our sales funnel and the margins on our bookings, which I believe puts us on a path to drive revenue growth of two to 3% for the full year and deliver on our second or seventh consecutive year of revenue growth, expand gross margin by approximately 200 basis points for the year, and earnings per share expansion with EPS growth of at least 25% in 2024. As I close today, I would like to reiterate that I'm pleased with our 23 performance for the full year.

Nancy: In the first 60 days of the quarter I am encouraged by our win rate deployment of line systems setting us up for future margin expansion I'm encouraged by the growth of our sales funnel and the margins on our bookings, which I believe puts us on a path to drive revenue growth of 2% to 3% for the full year.

Nancy: And deliver on our second our seventh seventh consecutive year of revenue growth.

Nancy: Expand gross margin by approximately 200 basis points for the year and earnings per share expansion with EPS growth of at least 25% in 2024.

Nancy: As I close today I would like to reiterate that I'm pleased with our 23 performance for the full year, we had several important milestones in the year with gross margin approaching 40% bookings exceeding $10 million for our subsystems products vertical integration in the mid 50 percentile for.

Nancy: For the company and we proactively strengthened our balance sheet.

Nancy Erba: We hit several important milestones in the year, with gross margin approaching 40%, bookings exceeding $10 million for our subsystems products, vertical integration in the mid-50th percentile for the company, and we proactively strengthened our balance sheet. Looking ahead, we remain laser-focused on continuing to accelerate revenue growth, drive earnings per share expansion, and generate cash flow in the quarters and years ahead. We plan to file our fiscal year 10-K in the next five to seven weeks, as I said earlier.

Nancy: Looking ahead, we remain laser focused on continuing to accelerate revenue growth drive earnings per share expansion and generate cash flow in the quarters and years ahead.

Nancy: We plan to file our fiscal year 10-K in the next five to seven weeks as I said earlier and we are back on track to file our Q1 10-Q on our normal cadence.

In closing I would like to take to take the time to thank the Infinera team, especially my finance team for their continued commitment to innovation and execution as well as to our partners customers and shareholders for your continued patience cooperation and support Christa I'd now like to open the lineup for questions.

Nancy Erba: And we are back on track to file our Q1 10-Q on our normal cadence. In closing, I would like to take the time to thank the Infinera team, especially my finance team, for their continued commitment to innovation and execution, as well as our partners, customers, and shareholders for your continued patience, cooperation, and support. Krista, I'd now like to open the lineup for questions.

Speaker Change: Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, we Jimmy ask that you limit yourself to one question and one follow up your first question comes from the line of Mike <unk> from Rosenblatt Securities. Please go ahead.

Mike: Oh great.

Mike: Thank you can you start by giving us more color on this.

Operator: Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. We ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Mike Genovese from Rosenblatt Securities. Please go ahead.

Mike: Major hyperscale win the the three nanometer ZR plus 800 gig plausible just.

Mike: More color on what that application is what that product.

Mike: Thank you sure Hey, Mr. Ron Johnson do you want to take that.

Ron Johnson: Yes, Thanks, David.

Ron Johnson: Yeah, Mike So we had a closed a contract with a major.

Michael Genovese: Oh, great. Thank you. Can you start by giving us more color on this? major hyperscale when the three nanometer zr plus 800g pluggable, just you know more color on what that application is, and what that product is. Sure. Hey, Mr. Ron Johnson, do you want to take that?

Ron Johnson: Major hyperscale or basically to deliver product.

Ron Johnson: Early 'twenty five with revenue expectation in 'twenty five.

Sure.

Application is an 800 gig PCF plug a hole.

Ron Johnson: Yeah, thanks, David. Yeah, Mike, so we had a close contract with a major hyperscaler basically to deliver a product early in 25 with revenue expectation in 25 and. The application is an 800-gig PCS pluggable that would go into multiple different form factors, QSFP, OSFP. CFPT 2 and provide the capability to optimize their power per, performance, and their cost per, and this will be interoperable in multiple parts of the network, effectively addressing all of their terrestrial applications.

That would go into multiple different form factors Joseph P O S. A b.

Ron Johnson: CFPB too.

Ron Johnson: And provide a capability to optimize.

<unk> power per bit.

Ron Johnson: Performance and their cost per bit.

Ron Johnson: This will be interoperable.

Ron Johnson: In multiple parts of our network.

Ron Johnson: Effectively addressing all of their their terrestrial applications. So in short point to point.

Ron Johnson: True Purion applications.

Ron Johnson: So in short, point-to-point, metro, peering applications, even long haul out there, there is an opportunity to drive lower power, lower cost for all of their trust. Hey, Mike, financially, it's from a contract standpoint, it is, it's kind of the largest contract potential that the company has dealt with in its history. So it really kind of helps launch the subsystem business that we talked about going forward with the kind of volumes that really spin the fab nicely for cost reduction that will help across the portfolio. Okay, great.

Ron Johnson: Even in long haul applications.

Ron Johnson: Okay.

Speaker Change: Me too.

Speaker Change: Lower power lower cost for.

All of their terrestrial networks.

Speaker Change: Financially it's.

Speaker Change: From a contract standpoint, it is a it's it's kind of the largest.

Speaker Change: Contract potential that the company has dealt with in its history. So it really kind of help launch the sub system business that we talked about.

Speaker Change: Forward with the kind of volumes that really spend the fab nicely for a cost reduction that'll help across the portfolio.

Speaker Change: Okay, Great and now it sounds like it's a it's it's Dci application.

Michael Genovese: And now it sounds like it's a DCI application more than a Datacom inside-the-data-center application. Correct. Is that correct?

Speaker Change: Then it datacom inside the data center.

Speaker Change: Okay.

Speaker Change: Is that correct.

Michael Genovese: Correct. Great. I would just say it's outside-the-data-center.

Speaker Change: Correct great.

Speaker Change: I would just say it's outside the data center correct, yes.

Michael Genovese: Correct. Okay, and then just my other question is, I guess just some color on gross margins as we move through the year. It sounds like you're calling for 200 basis points of gross margin improvement this year, if that's correct. But we're starting with a bad quarter in one unit for specific reasons.

Speaker Change: Okay and then just just my other question is.

Speaker Change: I guess, just some color on gross margins as we move through the year. It sounds like you're calling for 200 basis points of gross margin improvement. This year, if that's correct, but we're starting with a with a bad quarter in <unk> for some specific reasons. So.

David W. Heard: So we understand how things get a lot better later in the year. Yeah, look, the amount of line systems that we're laying out in the first quarter, and the cost of that, you know, is significant. It's just a heavy, heavy mix, which bodes well for the second half being heavy.

Speaker Change: We understand how things get a lot better later in the year, yes.

Speaker Change: <unk> looked at the amount of line systems that we're laying out in the first quarter and the cost of that.

Speaker Change: We had significant it's just that it's just a heavy heavy mix, which bodes well for the second half.

Speaker Change: Being heavy so while we start out.

David W. Heard: So while we start out, you know, we look at our inbound bookings and their standard margin rates, and we look at the forecast for the remainder of the year and the fill on those line systems, as well as additional line systems we still intend to deploy. And it gives us comfort around that 200 basis point, roughly a 200 basis point improvement year over year, just like we committed to last year and delivered last year. And the year before that, And the year before that,

Speaker Change: We look at our inbound bookings and their standard margin rates and we look at the forecast for the remainder of the year and the fill on those lines systems as well as additional life systems, we still intend to deploy.

Speaker Change: And it gives us comfort around that 200 basis point.

Speaker Change: Roughly 200 basis point improvement year over year, just like we committed to last year and delivered last year and the aircraft.

Speaker Change: Yes.

Speaker Change: Alright, it sounds good thanks a lot.

Speaker Change: Beckman.

Your next question comes from the line of Alex Henderson from Needham and company. Please go ahead.

Michael Genovese: Alright, sounds good. Thanks a lot. Thanks. Your next question comes from the line of Alex Henderson from Needham & Company. Please go ahead.

Speaker Change: Great.

Alexander Henderson: I was hoping you could help us bridge to 25% EPS growth on 2% to 3% revenue growth.

Alexander Henderson: Great, so I was hoping you could help us bridge to 25% EPS growth on 2-3% revenue growth. Nice, but still modest, 200 base points. Margin Expansion. Is it a fun, something, or is it below the line?

Alexander Henderson: Hum.

Alexander Henderson: A nice, but still a modest 200 basis points.

Margin expansion is it a function of some.

Alexander Henderson: Below the line is it a function of a.

Nancy Erba: Is it a function of... very tight OPEX costs or declining OPEX costs? How do we bridge to that? Yeah, I think it's a combination of all of those, right?

Alexander Henderson: Very tight opex cost or declining opex costs, how do we bridge to that.

Speaker Change: Yeah, I think it's a combination of all of those right. It's the growth growth rate on the top line.

Nancy Erba: It's the growth, growth rate on the top line, the expanding 200 basis points of margin, right? So, you know, knowing we're approaching 40%, I think approaching 42% for the full year, and then we will certainly keep our operating expenses in control. You'll see, you know, probably two areas.

Speaker Change: The expanding 200 basis points of margin right. So.

Speaker Change: Knowing we're approaching 40% think approaching 42%.

Speaker Change: For the full year and then we will be certainly keeping our operating expenses in control Youll see probably two areas think of it in the $15 million increase for the for the year in total some of which we talked about in terms of expenses on the audit and.

Nancy Erba: Think of it in terms of the $15 million increase for the year in total, some of which we talked about in terms of expenses for the audit and some catch up we have to do in the first half. But also the work that we're doing in R&D, in particular, and really investing in that growth. And as David mentioned, some of the chip development that we're doing inside the data center will, you'll see a small step up there. But net net, you know, it gets us into that 25% growth in EPS. Hey, Alexis, if I could just remind you in 23, right? If you look at the contemplated ranges, they will go 2% to 3%, and APS will be up over 70%. So the leverage is there in the model. Just to be clear, what is the drag that you're assuming relative to the accounting issues in the numbers in both the fourth quarter and in the 24? Sure, it's about $3 million in Q4. It's about the same $3 million, roughly, in Q1, and then it should temper from that in Q2 and get back to normal. Thank you so much.

Speaker Change: Catch up we have to do in the first half, but also the work that we're doing in R&D in particular and really investing in that growth and as David mentioned some of the chip development that we're doing inside the data center well, you'll see a small step up there, but net net you know it gets us into that 25% growth in EPS.

Speaker Change: Hey, Alex.

Speaker Change: If I could just remind you in 'twenty three right. If you look at the contemplated ranges.

Alex: We will go to 2% to 3% and EPS will be up over 70%. So the leverages during the model.

Alex: Yes, just to be clear.

Speaker Change: Is the drag that you're assuming relative to the.

Accounting issues.

Speaker Change: And the numbers in both the fourth quarter and 24.

Speaker Change: Sure it's about $3 million in Q4, it's about the same 3 million roughly in Q1, and then it should temper from that in Q2 and get back to normal.

Speaker Change: Thank you so much sure thanks, Alex Thanks, Alex.

Speaker Change: Your next question comes from the line of George Notter from Jefferies. Please go ahead.

Alexander Henderson: Sure. Thanks, Alex. Thanks, Alex. Your next question comes from the line of George Notter from Jeffries. Please go ahead. Hey, George. Hi, guys. How's everyone doing?

George.

George Charles Notter: Hi, guys How's everyone doing thanks very much for the question I guess I wanted to ask about.

George Charles Notter: We understand sort of the cadence on the top line here right. So.

George Charles Notter: Thanks very much for the question. I guess I wanted to ask you to help me understand sort of the cadence on the top line here, right? So really strong Q4, big step down in Q1. I would imagine there's a bit of seasonality here, but I think the narrative is really around excess inventory. And I guess as I think about it, the excess inventory issue has been around for a few quarters now, and you guys have been talking about it for a few quarters.

George Charles Notter: Really strong Q4 big step down in Q1, what do you think there's a bit of seasonality here, but I think the narrative is really around excess inventory and I guess as I think about it you know the excess inventory is issue has been around for a few quarters. Now you guys have been talking about it for a few quarters sure. So sure why are strong.

Q4, and a step down in Q1, and how does that mesh with this whole narrative around you know working off excess inventory.

George Charles Notter: Yes.

David W. Heard: So why a strong Q4 and a step down in Q1, and how does that mesh with this sole narrative around working off excess inventory? Thanks. Yeah, no, it's a good, very good question.

George Charles Notter: Very good question remember that when I talk our exposure as well I think most people think of the service provider exposure in our business and think the likes of Verizon AT&T BT Vodafone.

David W. Heard: Remember that when I talk about our exposure as well, I think most people think of the service provider exposure in our business and think the likes of Verizon, AT&T, BT, Vodafone, you know, if I just took those four as an example, that's probably less than 5% of our revenue in 2023. And when I look at our exposure from the web scalers, or ICPs, as we call them, both direct. I think in Q4, it was probably approaching 40%. For the year, it's probably a third of our business. When I take into account the managed fiber optic fields that they're influencing, it's close to 50%.

If I just took those four as an example, that's probably I'm a tub less than 5% of our revenue in 2023.

And when I look at our exposure from the web scale or ICP is as we call them.

George Charles Notter: Both direct I think in Q4, it was probably approaching 40% for the year, it's probably a third of our business when I take into account. These managed fiber optic deals that they are influencing its close to 50%.

George Charles Notter: So when I when we looked into Q1, we had some amount of shippable backlog between a few customers that moved from Q1, just scheduling wise out into Q2 and Q3.

David W. Heard: So when we looked into Q1, we had some amount of shippable backlog between a few customers that moved from Q1, just scheduling-wise, out into Q2 and Q3. And we were able to accomplish about $10 million worth of projects in Q4. So that does explain part of the step-down. We've been winning these long-term strategic deals in the quarter, but the book ship business has been a bit slower, as some of our customers, as everybody is aware of, are continuing to burn down inventory, which we think is about the end of the story as we get out of the first half, and are also being a bit cautious on setting their budgets. And Q1 is always, you know, in our industry and for our company, it is always our toughest quarter.

George Charles Notter: And we were able to accomplish about $10 million worth of projects in Q4, So that does explain part of the step down.

George Charles Notter: We've been winning these long term strategic deals in quarter, but the book ship business is a bit has been a bit slower as some of our customers. As everybody is aware of are continuing to burn down inventory, which we think is about the end of the story as we get out of the first half.

George Charles Notter: And they're also being a bit cautious on setting their budgets.

George Charles Notter: In Q1 is always in our industry and for our company is always our toughest quarter.

George Charles Notter: And.

Speaker Change: Here we go.

Speaker Change: Got it was excess inventory in issue then in Q4 as well.

Speaker Change: Yeah, I mean in terms of raw bookings, we did well in Q3 and Q4, having a book to bill of about one for those quarters, but you know it has not been a loose environment in terms of those dollars. It is beginning.

David W. Heard: And there we go. Got it. Was excess inventory an issue then in Q4 as well?

Speaker Change: Is segment by segment to be able to wear off and that's why I kind of like our exposure on the on the ICP front and I hate to say it I want more.

David W. Heard: Yeah, I mean, in terms of raw bookings, you know, we did well in Q3 and Q4 having a book to bill of about one for those quarters. But, you know, it has not been a loose environment in terms of those dollars. It is beginning, segment by segment, to wear off.

Speaker Change: Positive business with customers that I mentioned that our major tier one service providers, but they just they're not as significant of an impact to our business.

Speaker Change: Got you Okay. Thank you very much upside thanks George.

David W. Heard: And that's why I kind of like our exposure on the ICP front. And I hate to say it, but I want more positive business with customers that I mentioned that are major tier one service providers, but they just haven't had as significant of an impact on our business. Okay, thank you very much. More upside. Thanks, George. Your next question comes from the line of Simon Leopold from Raymond James. Please go ahead.

Speaker Change: Your next question comes from the line of Simon Leopold from Raymond James. Please go ahead.

Simon Matthew Leopold: Thank you for taking the question just first.

First David if you could clarify I think you made the point that direct plus indirect sales to hyperscale or Ips with.

Simon Matthew Leopold: Close to 50%, but what what was the value of the direct sales to Hyperscale is again, yes, it's about 30, but think of a third of our product revenues and in 2023.

Simon Matthew Leopold: Thank you for taking the question. Just first, David, if you could clarify, I think you made the point that direct plus indirect sales to hyperscale or ICPs were close to 50%. But what was the value of the direct sales to hyperscalers again? Yeah, it's about 30.

Simon Matthew Leopold: So any of Q4 in Q4, it was approaching 40%.

Speaker Change: So I guess one of the things I'm trying to sort of square here is the the full year growth outlook of 2% to 3% I would assume we'd expect fall through from that that hyperscale groups. So they they're growing much better than that 2% to 3%, which means something else is declining.

David W. Heard: Think of a third of our product revenues in 2023. And in Q4, it was approaching 40. So I guess one of the things I'm trying to sort of square here is the full year growth outlook of two to three percent. I would assume we'd expect follow through from that hyperscale group. So they're growing much better than that two to three percent, which means something else is declining. You have not guided us by vertical in the past, but maybe if you could help us unpack sort of the relative vertical movements to sort of square that.

Speaker Change: You have not guided by vertical in the past, but maybe if you could help us unpack sort of the relative vertical movements to sort of square that.

Yeah look I think the hyper scaler. If you look at the average capex are expected to grow in the double digits still in in 2024.

Speaker Change: Again, we're winning the line systems, the new line systems with both Hyperscale or bandwidth csp's, they will be laying those out is.

David W. Heard: Yeah, look, I think the hyperscalers, if you look at the average, CapEx is expected to grow in the double digits still in 2024. Again, we're winning the line systems, the new line systems with both hyperscalers and with CSPs. They will be laying those out if you know, based on the wins that we just had over the last 60 days, they probably won't probably lay those out in the back half of the year and begin to fill them. So you're right, some of the things we expect continued strength in hyperscale. The wholesalers are continuing to do well.

Speaker Change: Based on wins that we just had over the last 60 days they probably they don't probably they lay those out in the back half of the year and begin to fill so youre right. Some of the you know we expect continued strength in hyperscale. The wholesalers are continuing to do well subsea is continuing.

Speaker Change: To do well I think you're going to see a lot of these tier one wins that we have just not have the scale until we get into 2025.

David W. Heard: Subsea is continuing to do well. I think you're going to see a lot of these tier one wins that we just don't have the scale until we get into 2025. Great. And you also mentioned some very significant share gains over a period of a number of years with this group of customers. Who have you been displacing?

Speaker Change: Great and you also mentioned some very significant share gains over a period of a number of years with this group of customers.

Speaker Change: Who have you been displacing thank you.

Speaker Change: Yeah. That's you know that's a good question I'm sure.

Speaker Change: It depends on the situation and you probably know better than I do I'm not going to I won't comment into our particular competitors business.

David W. Heard: Thank you. Yeah, that you know, that's a good question. I'm sure are, you know, it depends on the situation.

David W. Heard: And you probably know better than I do. I'm not gonna I won't comment on our particular competitor's business. Appreciate it. Thanks, guys. All right. Thanks, Simon. Your next question comes from the line of Meta Marshall for Morgan Stanley. Please go ahead. Hey, Meta. Thank you. Hey, this is Karan on behalf of Meta.

Speaker Change: Appreciate it thanks, guys alright, thanks Simon.

Speaker Change: Your next question comes from the line of meta Marshall from Morgan Stanley. Please go ahead.

Meta A. Marshall: Thank you.

Meta A. Marshall: <unk> on for meta.

Meta A. Marshall: Uh huh.

Meta A. Marshall: Okay.

Meta A. Marshall: I just wanted to double click on sort of the $25 million that got pushed out into future quarters. Any maybe further detail on why that was pushed out or was it just simply timing of contracts and then.

Karan Juvekar: Hey, um, yeah, I mean, I just wanted to double-click on sort of the 25 million that got pushed out into future quarters. Any maybe further detail on why that was pushed out? Or was it just simply timing of contracts?

Meta A. Marshall: You made on sort of Q4 is still being impacted by inventory digestion. I guess is where do you feel we are in terms of service provider inventory digestion and sort of what you're expecting across the year with that.

Meta A. Marshall: Yes.

Meta A. Marshall: 25, no no I mean, that's it from backlog. So it's just scheduling in terms of timing of people putting projects in whether it's into a data center or whether it's out into our network.

David W. Heard: And then the point you made on sort of Q4 still being impacted by inventory digestion. I guess, just where do you feel we are in terms of service provider inventory digestion and sort of what you're expecting across the year with that? Yeah, on the 25 million. No, I mean, that's it from the backlog. So it's just scheduling in terms of timing of people putting projects in, whether it's into a data center, or whether it's out on the network. And that happens from time to time.

Meta A. Marshall: And that happens from time to time. Unfortunately, it happened in Q1 as people were laying out resources and our expectations to where our customers were there.

Meta A. Marshall: The second part of the question is look I think we have been saying consistently that we thought this year the front half would be softer than the back half because from our not from analyst reports from from our direct contact with both Csp's wholesalers Icp's cable operators, we do think is.

David W. Heard: Unfortunately, it happened in Q1, as people were laying out resources and our expectations for where our customers were. The second part of the question is, look, I think we have been saying consistently that this year the front half would be softer than the back half because, you know, from our direct contact with both CSPs, wholesalers, ICPs, cable operators, we do think, as we get into the back half, and look, based on some of the infrastructure wins we're getting now. We believe that the spend and the inventory situation will free up in the back half, and that's been consistent industry commentary, I believe, if you talk to the value chain in the industry. No, that makes a lot of sense.

Meta A. Marshall: We get into the back half and it looks based on some of the infrastructure wins, we're getting now.

Meta A. Marshall: We believe that the spend and the inventory situation freeze up in the back half and that's been consistent industry commentary I believe if you talk to the value chain in the industry.

Speaker Change: No that makes a lot of sense, and then maybe moving onto sort of operating margins.

Speaker Change: Q1, coming down a little bit, but I guess, just how youre thinking about operating margins throughout the year and maybe just in the back half of the year just how much of a benefit you think the pug both opportunity can be to margins. Thank you.

Speaker Change: Yeah on the operating margin right, you should see consistent improvement kind of quarter to quarter to quarter through the year as you see the revenue and the gross margin step up.

As I mentioned, you'll see some tapering off in terms of the unique unique spend we're doing right now within G&A.

Nancy Erba: And then maybe moving on to sort of operating margins, Q1 coming down a little bit, but I guess just how you're thinking about operating margins throughout the year and maybe just in the back half of the year, just how much of a benefit you think the pluggables opportunity can be to margins. Thank you. Yeah, on the operating margin, right, you should see consistent improvement kind of quarter to quarter to quarter through the year as you see the revenue and the gross margin step up. As I mentioned, you'll see some tapering off in terms of the unique, unique spend we're doing right now within GNA. In terms of gross margin, relative to subsystems, you know, it's going to be, you know, it'll be modest, right? There's not going to be a big step up that you'll see in 24.

Speaker Change: In terms of gross margin relative to sub systems.

Speaker Change: It's it's going to be it'll be modest right theres not going to be a big step up that you'll see in 'twenty, four but really as David mentioned with some of the wins that we see it's a 25 mm.

Speaker Change: The benefit to us as we start to see that revenue really step up and the opportunities that we're seeing are giving us more and more confidence.

Speaker Change: In particular in terms of the funnel that we see and then as I mentioned in my statement earlier.

Speaker Change: The margin on those bookings and the improvements that we're seeing there as well.

Speaker Change: Yeah, I would say just real quick let's differentiate between two things there. So the the external sales of plug Bulls liked to the web scalar that Ron went through very exciting.

Nancy Erba: But really, as David mentioned, with some of the wins that we see, it's a 25%, you know, benefit to us as we start to see that revenue really step up. And the opportunities that we're seeing are giving us more and more confidence, in particular, in terms of the funnel that we see. And then, as I mentioned in my statement earlier, the margin on those bookings and the improvement that we're seeing there as well. Yeah, I would say just real quick, let's differentiate between two things there.

Speaker Change: We don't expect that to positively impact margin because that's a 25.

Speaker Change: That's 25 impact for us the biggest impact is what we talked about before to the 200 basis points of margin improvement is really remember that huge increase in metro that we're getting this year will now be able to integrate our own plugs into that and so that will be a margin benefit.

David W. Heard: So the external sales of plugables like the web scaler that Ron went through are very exciting. We don't expect that to positively impact margin because that's a 25% impact for us.

Speaker Change: Leading to that 200 basis point improvement.

Our internal consumption.

Speaker Change: Okay. Thanks.

Speaker Change: Thanks Harvey Thank you.

Your next question comes from the line of Dave Kang from B Riley. Please go ahead.

David W. Heard: The biggest impact is what we talked about before about the 200 basis points of margin improvement is really remember that huge increase in metro that we're getting this year. And so that will be a margin benefit, leading to that 200 basis point improvement, or Internal Compound. OK?

Ku Kang: Yes. Thank you first question is regarding your vertical integration just wondering if you can provide what that was and how we should think about it first quarter and beyond.

Speaker Change: Yeah for for the year it was in the mid fifties.

Ku Kang: So and we should continue to see that expand particularly in 'twenty four as we just talked about with that trial coming online correct.

Karan Juvekar: Thank you. Your next question comes from the line of Dave Kang from B. Reilly. Please go ahead.

Got it and then on your.

Outlook for the year, how should we think about first half versus second half.

Ku Kang: Yes, thank you. The first question is regarding your vertical integration; just wondering if you can provide what that was and how we should think about it in the first quarter and beyond. Yeah, for the year, it was in the mid-50s, and we should continue to see that expand, particularly in 24, as we just talked about with Metro coming online. And then on your outlook for the year, how should we think about the first half versus the second half? Should we be thinking about something like maybe 40-60 or even more back and loaded? Yeah, I would say probably they're very similar to 22, so maybe 43, 57, 42, 58, kind of just to be safe. I mean, we typically tend to be 48-50. Was that roughly, Amitabh? We typically tend to be 47%, 48%. But this year, I would say it's more like 22 plays out.

Ku Kang: Should we think thinking about like something like maybe 40, 60 or even more backend loaded.

Speaker Change: Yeah, I would say probably very similar to 'twenty. Two so maybe 43 50, 742 58 kind of just to be safe.

Speaker Change: We typically kind of a $40 50 was that roughly Amazon.

Speaker Change: [laughter], where typically tended to be 47%, 48%, but this year I would say, it's more like 22 played out.

Speaker Change: Got it thanks.

Speaker Change: Thanks, Thanks, Dave.

Speaker Change: Our next question comes from the line of stomach Chatterji from J P. Morgan. Please go ahead.

Samik Chatterjee: Oh, hi, Thanks for taking my questions, maybe if I can start with the most one to sort of ask you to talk a bit more about your outlook on a more geographic basis, I know you mentioned, India and the wins.

Speaker Change: You mentioned who are we.

Samik Chatterjee: One of the drivers.

Samik Chatterjee: The growth outlook that you have I mean, I understand most of the ICB probably sort of.

Samik Chatterjee: Will it be reported inventory in the North America business, but when you think about EMEA and India region. How should we think about sort of what are you expecting in terms of growth in those two areas.

Nancy Erba: Got it, thanks. Thanks. Your next question comes from the line of Samik Chatterjee from J.P. Morgan. Please go ahead, www.youtube.com.uk www.youtube.com. No, it's good.

Samik Chatterjee: No. That's good it's good so obviously again very highly indexed on the ICP strength actually Alex Henderson brought this up I think four quarters ago about when you do the subsea or youre getting the terrestrial benefit.

Samik Chatterjee: We're just beginning to see that.

Samik Chatterjee: It's good. So obviously, again, very highly indexed on the ICP strength. Actually, Alex Henderson brought this up, I think four quarters ago, about when you do the sub C, are you getting the terrestrial benefit? We're just beginning to see that. So I would tell you, India and Asia.

Speaker Change: So I would tell you, India and Asia.

Speaker Change: It sounds like I think we're getting some static from your own stomach.

Speaker Change: Okay, Let me go on mute.

Speaker Change: Okay, that's better thank you perfect. Thanks.

Speaker Change: Again, I think India and Asia, we're seeing nice wins again already in the first 60 days with three different content providers doing those landed deals. So we do expect the Asia Pacific region. We've got some new leadership, there some new staffing theyre doing a great job. The funnel is full in the middle East, we see big opportune.

David W. Heard: Hey Samik, I think we're getting some statics from your end, Samik. Let me... Okay. That's better. Thank you. Perfect. Thanks. Again, I think India and Asia are seeing nice wins again already in the first 60 days with three different content providers doing those landed deals. So we do expect the Asia Pacific region, we've had some new leadership there, some new staffing there, doing a great job. The funnel is full

<unk> and our winning big opportunities both in subsea in terrestrial and the middle East. So that's been a nice growth area for us.

David W. Heard: In the Middle East, we see big opportunities and are winning big opportunities both in subsea and terrestrial in the Middle East. So that's been a nice growth area for us. I think you won't see it in the numbers in 2024, but you will see it in the wins in Europe with tier one service providers. We are winning in Europe.

Speaker Change: I think you won't see it in the numbers in 2024, but you will see it in the wins in Europe with tier one service providers, we are winning in Europe I expect it to see that really scale in terms of the numbers in 2025 and again as I as I said in the prepared remarks on the 400 gig plausible.

David W. Heard: I expect to see that really scale in terms of the numbers in 2025. And again, as I said in the prepared remarks, on the 400 gigabit pluggable front, we have North American cable providers that are, you know, we have a great application of that software to find pluggable fiber for fiber limited areas for bi-die, bi-directional, as well as pond overlay that allows them to use the same fiber. So I expect, again, design wins there and then for cable in 2025 to become a nice growth area for us because it's been way too small for us historically. All of these are consistent with what we said at our March Analyst's Day in terms of concentrating on these MOFIN deals in Asia Pacific, India in particular, and the Middle East. www.larryweaver.com. Sorry if they are still getting static. But just maybe a quick follow-up for Nancy, you're starting the fourth quarter... Keep the full year guide that implies you're exiting at a high rate. What does that tell us? I would say sort of.

Speaker Change: Front we.

We have North America.

Speaker Change: Cable providers that is we have a great application of that software defined plug a bull for fiber limited areas for by die by directional as well as PON overlay that allows them to use the same fiber. So I expect again design wins, there and then for cable in <unk>.

Speaker Change: 25 to become a nice growth area for us because it's been way too small for US historically all of those are consistent with what we said in our March analyst day in terms of.

Concentrating on these <unk> deals on.

Speaker Change: Asia Pacific on India in particular and on the Middle East.

Speaker Change: Got it got it.

And sorry, if this has been getting static.

Just for that but just maybe a quick follow up for Nancy just starting the fourth quarter at a lower gross margin than we envisioned.

Analyst: The keeping the full year guide that implies you're exiting at a higher run rate than we thought so maybe any color on where do you want to go where do you envision exiting the year in terms of gross margins and what does that sort of tell us in terms of vertical integration relative to where you probably sort of imagine exiting the year. Thank you.

Samik Chatterjee: Yeah, so I think you're right, right, it will scale up as we go through the year, and we'll have to exit the year, you know, close to mid 40s in order to hit the 200 basis point growth. And that is, as we mentioned, you know, very much tied to Metro VI, as well as the growth of our VI in general. So we should expect to be, you know, in the 60s in 2024, in order to hit that 200 basis point improvement. Thank you. Your next question comes from the line of Ruben Roy from CFL. Please go ahead. Hey, Ruben.

Speaker Change: So I think you're right right. It will scale up as we go through the year and we will have to exit the year.

Speaker Change: Most to mid forties in order to hit the 200 basis point growth and that is as we mentioned you know very much tied to Metro V I as well as the growth of our V. I in general So we should expect to.

Speaker Change: B in the sixties in 2024 in order to hit that 200 basis point improvement.

Speaker Change: Thank you thanks for taking my questions.

Speaker Change: Your next question comes from the line of Ruben Roy from Stifel. Please go ahead.

Ruben Roy: Hey, Robyn Thank you Hey, David.

Ruben Roy: Hey David, I had a question on 800K. Congratulations on the first of, I'm sure, many wins there. How are you thinking about that from, you know, sort of the perspective of the rest of the business? Meaning, is that incremental? Or do you expect any impact on the systems business? Any color there for 2025?

Ruben Roy: I had a question on the 800 gig congrats on the first as I'm sure many wins there.

What are you thinking about that from.

David: Yeah sure the perspective of the rest of the business meaning.

Ruben Roy: Is that incremental or do you expect any impact in the systems business.

Any color there for 2025.

David W. Heard: You know, the good news is the penetration of that in terms of the dollar value, one. The growth rates we see are pretty tremendous, again driven by AI and ML with the web scalers that we're currently in front of for 800 gigabytes, and we don't expect this to be the last. You know, this is the first and very, very large.

Ruben Roy: The good news is the penetration of that.

Ruben Roy: In terms of the dollar value.

Ruben Roy: One the growth rates, we see a pretty tremendous.

Ruben Roy: Again, driven by AI and ml with the web scale or is that that we're currently in front of it for 800 gig and we don't expect this to be the last.

Ruben Roy: This is the first and very very large second is we werent in a lot of these.

David W. Heard: Second, we weren't in a lot of these, this potential spend for the web scaler. So this is kind of net new for us, for the business, so it really doesn't cannibalize anything we've had. Did I get that right, Ron?

Ruben Roy: This potential spend for the web scale.

Ruben Roy: So this is kind of net new for us for the business. So it really doesn't cannibalize anything we've had.

Speaker Change: Did I get that right Rob.

Rob: Okay, Yeah I agree.

David W. Heard: Yeah, I agree. Great. Okay. Thank you. I appreciate the detail. And then, just to be clear, Ron would have disagreed if he had disagreed.

Speaker Change: Great. Okay. Thank you I appreciate the detail and then I mean, just to be clear rollout would have disagreed if he if he disagrees and I'm not just saying that yes.

Ruben Roy: Excellent. Okay, so either for you or Ron, David, you did mention a little bit about the 400 gigabit and the cable service, MSOs, et cetera, but just in terms of what we should think about.

Speaker Change: Excellent okay. So either for you Ron.

Speaker Change: David You you did mention a little bit about the 400 gig.

Speaker Change: And in the cable Msos et cetera, but just in terms of how we should think about.

Ruben Roy: You know, the ramps of 800 versus 400, it seems like 800 could be sort of faster ramps, bigger ramps, versus a longer tail, longer cycle for 400 gigabits. Am I thinking about that right? You are.

Speaker Change: The ramps of 800 versus 400, it seems like 800 could be sort of a faster ramp cigarettes versus longer tail longer cycle for 400 gig in my thinking about that right.

Speaker Change: You are so I think 800 is costco buying buying and huge swaths huge chunks.

David W. Heard: So I think, you know, 800, you know, it's Costco buying, buying in huge swaths, huge chunks, you know, defined product, defined application, because it's ZR, ZR plus, the 400 gigabyte one will consume it and continue to increase our consumption year over year in the metro for our own product. And then for these applications, you know, again, I mentioned we're certifying with the North American cable, but we're also certifying with another global tier one for an application. Look, because it's software defined, it ties into their network operations; they just take a little bit longer.

Speaker Change: Defined product defined application, because it's <unk> plus the 400 gig one will consume it and continue to increase our consumption year over year in the metro.

Speaker Change: For our own product.

Speaker Change: And then for these applications again I mentioned, we're certifying with the North American cable, but we're also certifying with another global tier one.

Speaker Change: For an application look because it's software defined it ties into their network operations. They just take a little bit longer, but I think you'll see a very long life cycle for that given the differentiation and the fact that as Ron says, it's a three legged stool drive lower cost per bit drive lower power per bit and drive the agility.

David W. Heard: But I think you'll see a very long life cycle for that given the differentiation. And the fact that, as Ron says, it's a three-legged stool, driving lower cost per bit, driving lower power per bit, and driving the agility up. And that 400 gig plug will allow you to move in 25 gigabyte increments, only using the power which you need.

And that 400 gig plug, but allows you to move in 25 gig increments only power, which you what you need and that's why we want some Green Awards for example, and in Europe with that product.

David W. Heard: And you know, that's why we've won some green awards, for example, and in Europe with that product. So yeah, longer life cycle, sorry. Got it. Understood. Your next question comes from Christian Schwab from Craig Hallam Capital. Please go ahead.

So yes longer lifecycle sorry.

Speaker Change: Got it understood. Thank you David.

Speaker Change: Sure.

Speaker Change: Your next question comes from the line of Christian Schwab from Craig Hallum Capital. Please go ahead.

Christian David Schwab: Great, thanks for taking my question. Given the headwinds that we're seeing, you know, structurally in the industry this year, but the big design wins and hyperscale that we talked about and further to come, I know it's late March of 24, but the strength that you were talking about in 25, you should be able to grow the top line double digit plus and Elinor Twente-Five, right? That was a trap.

Christian David Schwab: Great. Thanks for taking my question given the headwinds that we're seeing you know structurally in the industry. This year.

Christian David Schwab: But the big design wins in Hyperscale that we've talked about in further to come.

Christian David Schwab: I know, it's really March of <unk>.

Christian David Schwab: 24, but the strength that you were talking about in 'twenty five.

You should be able to grow the top line double digit plus.

Christian David Schwab: Calendar 'twenty five right.

Christian David Schwab: That was a trap well set well set.

David W. Heard: Well said. Well said. Look, certainly these are very, very large opportunities. You're right.

Christian David Schwab: Well look there's certainly these are very very large opportunities you're right. It's march of 2024, I'd be silly to give 2025 guidance, but I think what we said prior is passed this inventory digestion period, we're going to continue to put our heads down and get design wins continued to drive margin improvement and EPS expansion.

Christian David Schwab: It's March of 2024. It'd be silly to give 2025 guidance. But I think what we said before is past this inventory digestion period, we're going to continue to put our heads down, get design wins, and continue to drive margin improvement and EPS expansion. And if you remember our analyst day, we talked about, you know, we think steady state in the business. Once you get through these externalities, eight to 12 or eight to 12 percent was the kind of growth rate we said. This gives us great comfort, both in that and as well as in our business model from a financial perspective in terms of margin and EPS. But I'm not getting a number for 25.

And if you remember our analyst day, we talked about we think steady state in the business. Once you get through these externalities that eight to 12, 8% to 12% was the kind of growth rate we said.

Christian David Schwab: This gives us.

Christian David Schwab: Great comfort.

Christian David Schwab: Both the NAND and as well as in our business model from a financial perspective in terms of margin and EPS.

Christian David Schwab: But I'm not granting too.

Christian David Schwab: For 25.

David W. Heard: No, understood. Thank you for that. And then my last question is, you know, we've all been kind of waiting for the CHIPS Act money to be released. Do you have an update on where you think you're positioned in that process? Here's what I'd tell you.

Speaker Change: Yeah, No understood take you for that and then my last question is you know we've all been kind of waiting for chips Act money too.

Speaker Change: We released do you have an update of where you think youre positioned.

Speaker Change: You know in that process.

Here's what I would tell you that.

David W. Heard: Again, I think we've been very diligent over the last couple of years in our very good position, but we're not allowed by the actual rules of the CHIPS Act to give us status on where we are there. What I'm confident is that we're an excellent fit for the CHIPS Act and that as they go to push awards out, that should be something we see in the 25 timeframe as well in terms of the impact on the business if we are to be awarded. Great Thanks for answering my questions. Thank you. Your next question comes from the line of Alex Henderson from Needham & Company. Please go ahead. Oh, sneaking in with a second one, huh?

Speaker Change: Again, I think we've been very diligent over the last couple of years and are very well positioned but we're not allowed by actual rules of the chipset to give a status on where we're at there what I'm confident is we are an excellent fit for the chips Act and that as they go to push awards out that should be something we see in the in the.

Speaker Change: <unk> 25 time frame as well in terms of the impact to the business. If we are.

Speaker Change: To be awarded.

Speaker Change: Great. Thanks for answering my questions.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Alex Henderson from Needham and company. Please go ahead.

Alexander Henderson: Oh sneak it in with a second one out there yeah. Thanks, Dan Thanks for letting me in.

Alexander Henderson: There you go. Thanks for letting me in. So, I was hoping we could go back to this contract that you've got, this hyperscaler. Three years out, $100 million annual run rate. I would think that if the initial shipments are, First year, that would be fairly low, and then it would ramp probably double, and then hit that 100 million. Is that kind of the cadence of that ramp, 25, 50, 100?

Alexander Henderson: So I was hoping we could go back to this contract.

Speaker Change: <unk> got it.

Alexander Henderson: Its hyper scaler.

Three years out a $100 million annual run rate I would think that.

Alexander Henderson: The initial shipments or.

In the first year that would be fairly low and then it would ramp probably double.

Alexander Henderson: To save $50 million, and then hit that $100 million is that kind of the cadence of that ramp 25 5100.

I.

David W. Heard: No, I have what we said in the prepared remarks was the three-year contract is worth hundreds of millions of dollars, so we believe it will start shipping in 2025. Yeah, with this particular customer. And yes, things get more intense in 2627 than at the beginning of 28. And then we'll be on a new with that particular customer; you go from the 800 gigabyte pluggable to potentially a 1.6 T pluggable from there. So no, it's a number much larger.

Alexander Henderson: <unk>.

Alexander Henderson: What we said in the prepared remarks was the three year contract is worth hundreds of millions of dollars.

Alexander Henderson: So we believe it will start shipping in 2025 with.

With this particular customer.

Alexander Henderson: Yes get more intense in 'twenty six 'twenty seven and the beginning of 28 and then we'll be on the new with that particular customer you go from there.

Alexander Henderson: The 800 gig plausible to potentially a $1 60.

Alexander Henderson: Plug a hole from there should know it's the number is much larger.

David W. Heard: So it's larger than 2550 to 100. Yeah, it's hundreds of millions. Yes, it's hundreds of millions over a three-year period. Not like one or two or you know. I don't want to get too specific.

Alexander Henderson: So it's larger than $25 50 to 100.

Alexander Henderson: It's hundreds of millions, it's yes, it's hundreds of millions over a three year period.

Speaker Change: Not like one or two or I don't want to get too specific.

Ron Johnson: But we're it's the largest that we've seen. Just to be clear, that's all pluggable, are there additional? The sales associated with that are... So, with a lot of these deals, what I think you will see with a lot of deals in the future is that we will see us get a pluggable win for the pluggable, and then we will have to compete independently for the platform that that goes in, the GX platform and line system that that goes in. So in many cases, you know, we have the opportunity to not only win the pluggable but also win the platform that that goes in. So there has, that doesn't even count that dollar impact.

Speaker Change: But it's the largest that we've that.

Speaker Change: That we see.

Speaker Change: Okay.

Speaker Change: Just just to be clear that's all plug of bowls as there are additional equipment sales associated with that or is it.

Speaker Change: Is it more narrow than that.

Speaker Change: So with a lot of these deals what I think you will see with a lot of deals in the future as you will see us get a plausible win for the plug a hole and then we will have to compete independently for the.

Speaker Change: The platform that that goes in the Gx platform in line system that that goes in.

So in many cases.

Speaker Change: We have the opportunity to not only win the plug a hole, but also win the platform that that goes in so there has to be that that doesn't even count that dollar impact.

David W. Heard: Ron, anything to add there? I don't think I would add that it's an extremely compelling right for them to ramp this quickly because it's a significant improvement in Cost Per Bit and Power Per Bit for their next... So the other question I had for you is, you mentioned the managed optical... Transcription by CastingWords, in line with that.

Speaker Change: Ron anything to add there.

Speaker Change: Yes.

Ron Johnson: The only thing I would add is sort of.

Ron Johnson: It's extremely compelling for them to ramp quickly because.

Ron Johnson: It's a significant.

Ron Johnson: <unk> and cost per bit empower predict for their network.

Speaker Change: So the other question I had for years.

Speaker Change: You mentioned the managed.

Speaker Change: Optical.

Speaker Change: Lines that youre growing youre, winning and some service providers, particularly India.

Speaker Change: Can you talk a little bit about the mechanics, and the economics of that type of transaction, where youre actually.

Speaker Change: In line with it.

Ron Johnson: Ron, do you want to take that? Yeah, so you're referring to managed optical fiber networks, and these are, Effectively, opportunities where we work with the end customer who's a hyperscaler, and a service provider, providing the actual service, and then we agree on a, A Bespoke Network for them to consume and to use all on their own for their own specific application in that particular context, from a An economic perspective, it's very much like any other service provider when where there's a line system component, there's services, there's, responders or pluggables, depending on the application. It looks very similar to, to any big tier one service provider. So it's not a high management. Maintenance Contract, www.globalonenessproject.org, Classics.... .... .... ... ... .... .... .... .. .. .... .... , plastic systems with the maintenance contract. And the good news is we see the end demand because we're working with the web scaler. So they typically tend to build them bigger because they're looking to interconnect to data centers and terrestrial networks.

That business.

Speaker Change: Ron do you want to take that.

Yes, so you're referring to managed optical fiber networks and these are.

Ron Johnson: Effectively opportunities, where we work with the end customer who's a hyperscale.

Ron Johnson: And those service provider who's providing the actual service and then we agree on is.

Ron Johnson: A bespoke network for them to consume two to use all on their own for their own specific application.

Ron Johnson: Particular country.

Ron Johnson: And from a.

Ron Johnson: And economic perspective, it's very much like any other service provider win where there's a line system component or servicers.

Ron Johnson: Hum.

Ron Johnson: Transponders were plug a bulls depending on the application.

Ron Johnson: It looks very similar to to any big tier one service provider wins.

Ron Johnson: So it's a good news.

Speaker Change: Hi management.

Speaker Change: You know maintenance contract piece, it's just classic systems.

Classic systems with the maintenance contract and the good news is we see the end demand because we're working with the web scalar. So they typically tend to build them bigger because theyre looking to interconnect to datacenters in terrestrial networks.

David W. Heard: Great. Got it. Thanks. Thanks, Alex. And that concludes our question and answer period. I will now turn it back to Chief Executive Officer David Heard for closing remarks. Hey, thank you.

Speaker Change: Great got it thanks.

Thanks, Alex.

Speaker Change: And that concludes our question and answer period I will now turn it back to Chief Executive Officer, David heard losing remarks.

David W. Heard: 2023 was another great year for us. You know, we delivered on our commitments that we made during our Analyst Day, and I would say it was a pretty rough landscape. Through Q4 of 2023, we have met or exceeded our outlook in 15 out of the last 16 quarters. Our portfolio is in the best shape it's been. We're winning new customers globally with less than 25% of our products coming from legacy systems. I mean, it's a dramatic shift from where we were three, four years ago.

David: Thank you 2023, it was another great year for us.

David: Delivered on our commitments that we made during our analyst day, and I would say what it was a pretty rough landscape.

Through Q4 of 2023.

David: We have met or exceeded our outlook in 15 out of the last 16 quarters, our portfolios in the best shape. It's been we're winning new customers globally with less than 25% of our products from legacy systems. I mean, it's a dramatic shift from where we were three four years ago.

David W. Heard: Well, the front half of the year starts off a bit sluggish, which we called out last year, but as this inventory burns out, we are winning some major design wins in both systems and subsystems that build our competence, efficiency, and competence in the back half recovery and our ability to grow revenue, expand share, and increase margins and EPS. So we appreciate the support of our customers, employees, and shareholders. We're now going to get back to work and continue executing a very sound investment strategy and focus on continued EPS expansion. Thank you all, and have a nice afternoon or evening. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Please wait. The conference will begin shortly. Thank you for watching.

David: While the front half of the year start starting off a bit sluggish, which we called out last year as this inventory Burns out we are winning some major design wins in both systems and subsystems of build our confidence and the confidence and competence in the back half recovery and our ability to grow revenue expand share in increased margins and EPS. So we.

David: We appreciate the support of our customers employees and shareholders. We're now going to get back to work and continue executing a very sound investment strategy and focus on continued EPS expansion. Thank you all and have a nice afternoon or evening.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

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