Q1 2024 Silicon Laboratories Inc Earnings Call

Yeah.

Operator: Thank you for standing by. My name is John.

Jonathan: Thank you for standing by my name is Jonathan and I will be your conference operator today welcome to the Silicon Labs first quarter fiscal 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on.

Operator: I will be your conference operator today. Welcome to Silicon Labs' first quarter fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again

Jonathan: Your telephone if your question has been answered and you'd like to remove yourself from the queue simply press star one again at.

Operator: As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Giovanni Pacelli, Silicon Labs' Senior Director of Finance. Giovanni, please go ahead.

Jonathan: As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Giovanni Porcelli Silicon Labs' Senior director of Finance Giovanni. Please go ahead.

Giovanni Pacelli: Thank you, Jonathan. And good morning, everyone.

Giovanni Pacelli: Thank you Jonathan and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at Investor Dot <unk> Dot.

Giovanni Pacelli: We're recording this meeting, and a replay will be available for four weeks on the investor relations section of our website at investor.scilabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs President and Chief Executive Officer Matt Johnson and Interim Chief Financial Officer Mark Maldo.

Giovanni Porcelli: Dot com.

Giovanni Porcelli: Our earnings press release, and the accompanying financial tables are also available on our website.

Giovanni Porcelli: Joining me today are Silicon labs, President and Chief Executive Officer, Matt Johnson, and interim Chief Financial Officer, Mark Malone, They will discuss our first quarter financial performance and review recent business activities.

Giovanni Pacelli: They will discuss our first quarter financial performance and review recent business activity. We'll take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement.

Giovanni Porcelli: We will take questions. After our prepared comments and our remarks today will include forward looking statements that are subject to risks and uncertainties.

We basically forward looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future.

Giovanni Porcelli: We encourage you to review, our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward looking statements.

Giovanni Pacelli: Additionally, during our call today, we will refer to certain non-GAAP financial information. Reconciliation of our gap to non-gap results is included in the company's earnings press release and on the investor relations section of our website. I'll now turn the call over to Silicon Lab's Chief Executive Officer, Matt Johnson.

Giovanni Porcelli: Additionally, during our call today, we will refer to certain non-GAAP financial information.

A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website.

Giovanni Porcelli: I will now turn the call over to Silicon Labs', Chief Executive Officer, Matt Johnson, Matt.

Matt Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs reported solid first quarter results, with revenue and EPS exceeding the midpoint of our guidance. We are confident that Q4 represented the trough for us, and we expect revenue growth to accelerate from Q1 into Q2. Based on a sampling of our top customers, we believe they have made further progress in reducing excess inventory this quarter. We also continue to see steady improvement in our weekly booking levels, although still below the level we'd like. On a unit basis, channel inventory remains very low, decreasing again in the core.

Matt Johnson: Thanks, Giovanni and good morning, everyone.

Matt Johnson: Silicon Labs reported solid first quarter results with revenue and EPS exceeding the midpoint of our guidance.

Matt Johnson: We are confident that Q4 represented the trough for us and we expect revenue growth to accelerate from Q1 into Q2.

Based on our sampling of our top customers. We believe they have made further progress in reducing excess inventory in the quarter. We also continued to see steady improvements in our weekly bookings levels, although still below the level, we'd like to see.

Matt Johnson: On a unit basis channel inventory remains very low decreasing again in the quarter. We are working closely with our distribution partners and key customers to manage lead times and increased order visibility as the demand environment begins to improve.

Mark Maldo: We're working closely with our distribution partners and key customers to manage lead times and increase order visibility as the demand environment begins to improve. I'm also incredibly excited about the senior leadership announcements that I will cover later in the call. Now I'll hand it over to Mark for the financial update. Mark

Matt Johnson: I'm also incredibly excited about the senior leadership announcements that I'll cover later in the call.

Matt Johnson: Now I'll hand, it over to Mark for the financial update Mark.

Mark Maldo: Thanks, Matt, and good morning, everyone. First quarter revenue came in at $106 million, above the midpoint of our guidance and up 23% sequentially. Revenue is up for both The industrial and commercial business ended at $65 million, up 9% sequentially, with the broad industrial category experiencing the largest increase in the quarter. Home and life revenue was up 51% sequentially at $41 million, driven by a rebound in smart homes, particularly in home security applications. We are well positioned in the home and life markets as market initiatives such as Matter-Enabled Ecosystems and Connected Health gain further traction.

Mark Malone: Thanks, Matt and good morning, everyone first quarter revenue came in at $106 million above the midpoint of our guidance and up 23% sequentially.

Mark Malone: Revenue was up for both business units the.

Mark Malone: The industrial and commercial business ended at $65 million.

9% sequentially with a broad industrial category experiencing the largest increase in the quarter.

Mark Malone: <unk> revenue was up 51% sequentially at $41 million, driven by rebounded smart home, particularly in home security applications.

We are well positioned in the home and life markets as market initiatives, such as mattered enabled ecosystem and connected health gaining further traction.

Mark Maldo: Overall, AHPs were about flat compared to the prior quarter, and unit volume was up. Our regional revenue mix was also consistent in the quarter, with EMEA and the Americas slightly outpacing APAC. Distribution revenue mix was about 66% for the first quarter, up from last quarter, but still below our typical level. Channel inventory decreased to 61 days. On a unit basis, channel inventory was down almost 25% sequentially and 50% year over year. As Matt mentioned, we're working closely with our distribution partners and customers to bring order patterns within our standard lead times to improve demand visibility as the market recovers.

Mark Malone: Overall, asps were about flat compared to the prior quarter and unit volume was up.

Mark Malone: Our regional revenue mix was also consistent in the quarter with EMEA and the Americas slightly outpacing APAC.

Mark Malone: Distribution revenue mix was about 66% for the first quarter up from last quarter, but still below our typical levels.

Mark Malone: Channel inventory decreased to 61 days.

Mark Malone: On a unit basis channel inventory was down almost 25% sequentially and 50% year over year.

Mark Malone: As Matt mentioned, we are working closely with our distribution partners and customers to bring order patterns within our standard lead times to improve demand visibility as the market recovers.

Mark Maldo: Non-GAAP gross margin ended in line with guidance at 52%. As expected, customer mix was the largest headwind on our gross margin, along with the impacts of fixed costs over the lower revenue level. We expect gross margin to increase toward the targeted model as revenue further recovers. Non-GAAP operating expenses of $94 million were better than expected, largely due to slower than expected hiring and discretionary spending. The non-GAAP operating loss was $39 million, and our non-GAAP effective tax rate was 20%.

Mark Malone: non-GAAP gross margin ended in line with guidance at 52% as expected customer mix was the largest headwind on our gross margin along with the impact of fixed costs over the lower revenue levels. We expect gross margin to increase toward targeted model as revenue <unk>.

Mark Malone: Recovers.

Mark Malone: non-GAAP operating expenses of $94 million were better than expected largely due to slower than expected hiring and discretionary spending.

Mark Malone: non-GAAP operating loss was $39 million and our non-GAAP effective tax rate was 20%.

Mark Maldo: Non-gap loss of $0.92 was at the top end of our guidance range, mainly driven by the OPEX favorableability. On a gap basis, gross margin ended at 52%. Gap operating expenses were $114 million, which was also better than expected. Gap's operating loss was $59 million for the first quarter. Gap loss per share was $1.77 for the first quarter, above the top end of our guide. Turning to the balance sheet, we ended the year with cash and investments of $333 million.

Mark Malone: non-GAAP loss of 92 cents was at the top end of our guidance range, mainly driven by the Opex favorability.

Mark Malone: On a GAAP basis gross margin ended at 52% GAAP operating expenses were $114 million, which was also better than expected.

Mark Malone: GAAP operating loss was $59 million for the first quarter GAAP loss per share was $1 77 for the first quarter above the top end of our guidance.

Mark Malone: Turning to the balance sheet, we ended the year with cash and investments of $333 million.

Mark Maldo: We repaid the $45 million outstanding on our revolving credit facility in the quarter and have no outstanding debt. Our DSO was approximately 30 days, and we continue to see no customer credit concerns. Our internal inventory was up slightly in Q1, at $198 million. However, inventory turns ended at one time, and we expect this represents our peak inventory level for the year. Importantly, the Dibank inventory we strategically built over the past year positions us to address the channel efficiently as in-market demand improves.

Mark Malone: We repaid $45 million outstanding on our revolving credit facility in the quarter and have no outstanding debt.

Mark Malone: Our DSO was approximately 30 days and we continue to see no customer credit concerns.

Mark Malone: Our internal inventory was up slightly in Q1 at $198 million inventory turns ended at one time and we expect this represents our peak inventory level for the year.

Mark Malone: Importantly, the die bank inventory, we strategically built over the past year positioned us to address the channel efficiently as end market demand improves.

Mark Maldo: Before returning the call to Matt, I will cover guidance for the second quarter. We expect revenue for the second quarter to be in the range of $135 to $145 million. We anticipate both business units to be up sequentially. We expect non-GAAP gross margin in the second quarter to be approximately 53%. The gross margin for this quarter continues to reflect a temporary customer mix shift away from the channel and toward direct customers as distribution partners work to further reduce their inventory.

Before returning the call to Matt I'll cover guidance for the second quarter.

Mark Malone: We expect revenue for the second quarter to be in the range of $135 million to $145 million, we anticipate both business units to be up sequentially.

Mark Malone: We expect non-GAAP gross margin in the second quarter to be approximately 53%.

Mark Malone: The gross margin for this quarter continues to reflect a temporary customer mix shift away from the channel and toward direct customers as distribution partners work to further reduce their inventory.

Mark Maldo: We expect non-GAAP operating expenses in the second quarter to be approximately $102 million, and the non-GAAP effective tax rate to be approximately 20%. Our non-GAAP loss per share for Q2 is expected to be in the range of $0.58 to $0.70. On a gap basis, we expect gross margins to be 53%. We expect GAAP operating expenses to be approximately $125 million, and GAAP loss per share to be between $1.45 and $1.61. I will now turn the call back over to Matt.

We expect non-GAAP operating expenses in the second quarter to be approximately $102 million and the non-GAAP effective tax rate.

Mark Malone: To be approximately 20%.

Mark Malone: Our non-GAAP loss per share for Q2 is expected to be in the range of 58.

Mark Malone: <unk> 70.

Mark Malone: On a GAAP basis.

Mark Malone: Gross margins to be 53%.

Mark Malone: We expect GAAP operating expenses to be approximately $125 million and GAAP loss per share to be between $1 45 to.

Mark Malone: To $1 61.

Mark Malone: I'll now turn the call back over to Matt.

Matt Johnson: We continue to gain share in both home and life and industrial, commercial, and consumer markets with our industry-leading power efficiency, security, and RF performance, as well as our leadership position in matter. Last quarter, in our home business, we highlighted the release of Matter 1.2 by the CSA, which expands Matter's reach to include smart TVs, white goods, and gateways. Matter 1.2 also extends Wi-Fi connectivity to a wide array of home devices, such as appliances, home security systems, and automation products, including battery-powered cameras, switches, sensors, and window shades. As consumer interest and interoperability intensifies, more customers are embracing matter-enabled e-commerce.

Matt Johnson: Thanks Mark.

Matt Johnson: We continue to gain share in both home and life and industrial and commercial end markets with our industry, leading power efficiency security and our performance as well as our leadership position in matter.

Matt Johnson: Last quarter in our home business, we highlighted the released a matter one dot to buy the CSA, which expands matters reach to include smart Tvs white goods and gateways.

Matt Johnson: Another one that too also extends Wi Fi connectivity to a wide array of home devices, such as appliances home security systems, and automation products, including battery powered cameras switches sensors in window shades as consumer interest in interoperability intensifies more customers are embracing matter enabled ecosystems silicon labs.

Matt Johnson: Silicon Labs remains a trusted partner in this rapidly expanding market. Our commitment to building matter infrastructure has well-positioned both Silicon Labs and Thread technology moving forward. As an example of this, we are actively working with 24 of the 26 major ISPs in North American and Europe that are integrating Matter into their solutions. Earlier this month at Embedded World, we continued to build out our Series 2 platform with the unveiling of the XG26, our most advanced multi-protocol wireless device family yet. Engineered to future-proof IoT technology, this new family ensures that manufacturers' current designs can keep pace with the escalating demands of sophisticated IFT applications.

Matt Johnson: As a trusted partner in this rapidly expanding market.

Matt Johnson: Our commitment to building matter infrastructure is well positioned both silicon lab and thread technology moving forward.

Matt Johnson: As an example of this we are actively working with 24 of the 26 major Isps in North America, and Europe that are integrating matter into their solutions.

Matt Johnson: Earlier this month at embedded World, we continue to build out our series two platform with the unveiling of the X gene <unk>, our most advanced multi protocol wireless device family yet.

Matt Johnson: Engineered to future proof, our Iot technology.

Matt Johnson: This new family ensures that manufacturers current desire to keep pace with escalating demand a sophisticated Iot applications.

Matt Johnson: The SG26 enhances performance with advanced compute capability, embedded AI ML acceleration for energy-efficient battery-powered devices, top-tier security, 2.4 gigahertz wireless connectivity, twice the flash and RAM, and support for wireless protocols such as MATTER, Bluetooth Low Energy, multi-protocol, and Thread. Additionally, with Amazon Sidewalk moving through its initial rollout phases, we are driving partnerships with manufacturers to facilitate their wireless development within this growing ecosystem. Though Amazon Sidewalk is still in the very early stages, we secured a design win in the quarter with one of North America's leading hot water heater manufacturers, providing a Wi-Fi dual-band solution with Matter and Amazon Sidewalk capability.

Matt Johnson: The $2 26 enhances performance with advanced compute capabilities embedded AI ml acceleration for energy efficient battery powered devices top tier security two four gigahertz wireless connectivity twice, a flash and Ram and support for wireless protocols, such as matter Bluetooth low energy and multi protocol.

Speaker Change: And Brett.

Speaker Change: Additionally, with Amazon sidewalk moving through its initial rollout phases, we're driving partnerships with manufacturers to facilitate their wireless development within this growing ecosystem.

Speaker Change: So Amazon sidewalk is still in the very early stages, we secured a design win in the quarter with one of North America's leading hot water heater manufacturers, providing Wi Fi dual band solution with matter and Amazon sidewalk capability. This win was directly related to our being a key Amazon partner on the development and rollout of sidewalk, enabling.

Matt Johnson: This win was directly related to our being a key Amazon partner in the development and rollout of Sidewalk, enabling us to leverage our technology leadership as the Sidewalk ecosystem continues to expand. In our life business, we are excited to see further global expansion of our continuous glucose monitoring solution. As an example, we have secured additional APAC design wins in the quarter for more than a dozen total design wins in the region, a few of which are starting their ramps this quarter. In the industrial and market, the integration of machine learning at the edge is proving essential.

Speaker Change: As to leverage our technology leadership as the sidewalk ecosystem continues expanding.

Speaker Change: In our life business, we are excited to see further global expansion of our continuous glucose monitoring solution.

Speaker Change: As an example, we have secured additional APAC design wins in the quarter for more than a dozen total design within the region, a few which are starting to ramp in the quarter.

Speaker Change: In the industrial end markets the integration of machine learning at the edge is proving essential as a reminder, we have multiple wireless esso season production with industry, leading integrated AI and ml capabilities.

Matt Johnson: As a reminder, we have multiple wireless SLCs in production with industry-leading integrated AI and ML capabilities. Our customers are enhancing the efficiency of connected equipment with wireless connectivity for applications such as predictive maintenance. We recently secured a design with a leading connected equipment provider in the construction industry to facilitate real-time data analysis and location tracking. Similarly, AI ML at the Edge is boosting efficiency in HVAC systems in smart buildings using motion sensing, while also enhancing vehicle safety with rear seat monitoring technology.

Speaker Change: Our customers are enhancing the efficiency of connected equipment with wireless connectivity for applications such as predictive maintenance.

Speaker Change: We recently secured a design win with a leading connected equipment provider in the construction industry to facilitate real time data analysis and location track.

Speaker Change: Similarly, AI ml at the edge is boosting efficiency and HVAC systems, and smart buildings using motion sensing, while also enhancing vehicle safety with receipt monitoring technologies.

Matt Johnson: In the smart access sector, Chamberlain Group, a global leader in intelligent access, has chosen our F228 device for its 11 million plus MyQ users because of its superior compute power and greater performance that delivers a more reliable user experience. Our position in Smart Cities remains strong, particularly in the metering sector, where wireless communication is making electric grids more efficient and sustainable. We are actively involved in developing solutions for load disaggregation or non-intrusive load monitoring that maintain our leadership in smart media across various regions.

Speaker Change: And the smart access sector Chamberlain group, a global leader in intelligent access has chosen our FY 'twenty eight device for their 11 million plus <unk> users because of its superior compute power and greater performance that delivers a more reliable user experience.

Speaker Change: Our position in smart cities remained strong, particularly in the metering sector, where wireless communication is making electric grid more efficient and sustainable.

Speaker Change: We are actively involved in developing solutions for low disaggregation or non intrusive load monitoring that are maintaining our leadership in smart metering across various regions.

Matt Johnson: In the commercial domain, we are tapping into retail automation trends such as electronic shelf labeling, where emerging technologies like shelf cameras and standalone sensors are used. While the overall market penetration for electronic shelf labeling is still nascent, our multi-protocol solutions and design wins in this area reinforce our belief that this market will be an additional growth engine for us, driven by expanding deployment globally.

Speaker Change: And the commercial domain, we are tapping into retail automation trends, such as electronic shelf labeling where emerging technologies like shelf cameras and standalone sensors, while the overall market penetration for electronic shelf labeling is still nascent or multi protocol solutions and design wins in this area reinforce our belief that this market.

Speaker Change: Would be an additional growth engine for us driven by expanding deployments globally.

Matt Johnson: Looking ahead, we are strategically allocating resources to initiatives that bolster our long-term growth and scalability. The rollout of Series 2 continues to progress well, like the XG26 that we just announced, and is contributing significantly to our current and future growth. At the same time, the development of Series 3 continues in parallel, helping position us for an even stronger future. We will begin sampling Series 3 to Alpha customers this quarter. Series 3 introduces industry-leading wireless performance, compute, and scalability on a multi-radio platform and a unified code base that will support over 30 new wireless SoCs.

Looking ahead, we are strategically allocating resources to initiatives that bolster our long term growth and scalability.

Speaker Change: The rollout of series two continues to progress well like DXP 26 that we just announced and has contributed significantly to our current and future growth.

Speaker Change: At the same time the development of series III continues in parallel helping position us for an even stronger future.

Speaker Change: We will begin sampling series three to alpha customers this quarter.

Speaker Change: Sirius III introduces industry, leading wireless performance compute and scalability on our multi radio platform and a unified code base that will support over 30, new wireless associates.

Matt Johnson: I want to thank Mark for stepping in as interim CFO during the CFO transition, and I look forward to Dean Butler joining us on May 15th. We also announced two additional leadership appointments. Bob Conrad, a longtime industry veteran, is stepping down from our Board of Directors to become our SVP of Worldwide Operations.

Speaker Change: I want to thank mark for stepping in as interim CFO during the CFO transition and I look forward to Dean Butler, joining us on May 15.

Speaker Change: We also announced two additional leadership appointments.

Bob Conrad a longtime industry veteran is stepping down from our board of directors to become our SVP of worldwide operations Bob.

Matt Johnson: Bob's expertise in rapidly scaling semiconductor businesses will be critical as we position to scale even faster. Additionally, Radhika Chennakeshavula joins Silicon Labs as our new Chief Information Officer. Radhika will oversee IT operations, enterprise applications, data analytics, and critical digital transformation initiatives. I would also like to thank Sandeep Kumar for his role in leading our worldwide operations team for the last 18 years. Sandeep has been pivotal in leading Silicon Labs' operational strategies, including during the recent supply chain crisis.

Speaker Change: <unk> expertise in rapidly scaling semiconductor businesses will be critical as we positioned to scale even faster.

Speaker Change: Additionally, radical <unk> of Lula joined Silicon labs, as our new Chief Information Officer.

<unk> will oversee operations enterprise applications data analytics and critical digital transformation initiatives.

I would also like to thank Sandeep Kumar for his role in leading our worldwide operations team for the last 18 years Sandeep has been pivotal in leading silicon labs operational strategies, including during the recent supply chain crisis.

Matt Johnson: I would also like to express my gratitude to Karuna Anna Bajala for her leadership in our IT organization over the last four years. Looking ahead, we remain laser focused on executing on our new Series 2 and Series 3 products, driving design wins, and continuing to accelerate our position. As excess inventory at our customers corrects, and our design with ramp and end market demand improves, we're well-positioned to drive revenue and profit growth throughout 2024 and beyond. I'll now hand it back over to Giovanni for Q&A. Thanks.

Speaker Change: Also like to express my gratitude to Corona <unk> for her leadership and our IP organization over the last four years.

Speaker Change: Looking ahead, we remain laser focused on executing on our new series, two and seriously products driving design wins and continuing to accelerate our position.

Speaker Change: As excess inventory at our customers correct, our design wins ramp and end market demand improves we are well positioned to drive revenue and profit growth throughout 2024, and beyond I'll now hand, it back over to Giovanni for Q&A.

Giovanni Pacelli: Thanks, Matt. Before we open the call for Q&A, I'd like to announce our participation in J.P. Morgan's Global TMT Conference in Boston on May 21st and Stiefel's 2024 Cross-Sector Insight Conference in Boston in early January. We'll now open up the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question and one

Giovanni: Thanks, Matt before we open the call for Q&A I'd like to announce our participation in JP Morgans Global TMT conference in Boston on May 21.

Giovanni: In Staples 2024 cross sector insight conference in Boston in early June.

Giovanni: We will now open up the call for questions to accommodate as many people as possible before the market opens I ask that you limit your time to one question and one follow up.

Giovanni: Jonathan.

Operator: Certainly. One moment for our first question, and our first question comes from the line of Matt Ramsay from TD Cowan. Your question, please.

Speaker Change: Certainly good moment for our first question.

Speaker Change: And our first question comes from the line of Matt Ramsay from TV Cowen Your question. Please.

Matthew D. Ramsay: Yes, thank you very much. Good morning, everybody.

Matthew D. Ramsay: Yes. Thank you very much good morning, everybody.

Matt Johnson: Matt, I wanted to, I mean, we're obviously going through the bottoming and now the beginning of the recovery. And you made some, I think you guys made some comments in the script about maybe a little bit more mixed toward direct sales versus the channel for this interim period. And I guess that makes sense as the customers that are supported by the channel drain their own inventory. So I guess my question is, in the past few months, how much more visibility have you gotten into customer-level inventory that is supported by the channel?

Matthew D. Ramsay: Matt I wanted to I mean, we're obviously going through the bottoming and now they're at the beginning of the recovery and you made some I think you guys made some comments in the script about.

Matthew D. Ramsay: Maybe a little bit more mix towards direct sales versus the channel.

Matthew D. Ramsay: For this interim period, and I guess that makes sense.

Matthew D. Ramsay: Customers that are supported by the channel drain their own inventory. So I guess my question is.

Matthew D. Ramsay: Sure.

Matthew D. Ramsay: Prior few months, how much more visibility have you gotten to.

Speaker Change: Customer level inventories that are supported by the channel and I don't know if you could give any anecdotes as to what youre hearing by either by end market or by Geo as to how the direct sort of the customer inventory behind the channel is trending that'd be really helpful. Thanks, Yeah sure. Thanks, Matt So.

Matt Johnson: And I don't know if you can give any anecdotes as to what you're hearing either by end marketer or by geography as to how the direct sort of customer inventory behind the channel is trending.

Matt Johnson: That'd be really helpful. Thanks. Yep, sure.

Matt Johnson: Yep, sure. Thanks, Matt. So, the quick answer is that end customer inventory and channel distribution inventory are both moving in the right direction and down is the fastest way to say it. In terms of end customer inventory, you know, our approach has been to sample, you know, our top customers, and pretty extensively now, given what we've been through, and we see a consistent trend, Matt, is the fastest way I can say it, that, you know, from December to January, January to now, we've seen both the average of excess inventory working down, as well as the count of customer inventory, as well as the average of customers who

Speaker Change: So quick answer is.

Speaker Change: And customer inventory and channel or distribution inventory.

Speaker Change: Both moving in the right direction.

Speaker Change: Now as the <unk>.

Speaker Change: Fastest way to say it in terms of end customer inventory.

Speaker Change: Our approach has been to sample.

Speaker Change: Our top customers.

Speaker Change: And pretty extensively now given what we've been through and we see a consistent trend is the fastest way I can say that.

Speaker Change: From December to January January to now.

Speaker Change: We've seen both the average of excess inventory working down as well as account of customers who have excess inventory. So.

It is not.

Matt Johnson: So, it is not, you know, fully corrected, and, you know, the easy way to say that is this revenue level that we're guiding is not indicative of our consumption, but we continue to see it moving in a good direction, and we like the progress we're seeing, and the same for DISTE inventory. I'd say DISTE inventory is, you know, I don't think we want that to go lower now. I'd say that's fully corrected, but end customers are moving in the right direction, but they are not there yet.

Speaker Change: Fully corrected and easy way to say that is this revenue.

Speaker Change: New level that we're guiding is not indicative of our consumption, but we continue to see it moving in a good direction and we like the progress we're seeing and the same for this the inventory I would say just the inventory is I don't think we want that to go lower now I'd say that that's fully corrected, but the end customers moving the right direction, but no.

Speaker Change: Not there yet.

Matthew D. Ramsay: I don't know that there are a couple of things in follow-up here, Matt. I think the first one is, Do you feel like coming out of this, you'll... have built maybe deeper relationships, more visibility of relationships that you might have, the company might have over the next two, three, four years, whatever, more visibility into customer levels, inventory levels behind the channel. I don't know.

Speaker Change: Got it.

Speaker Change: A couple of things and follow up there, Matt I think the first one being.

Speaker Change: Do you feel like coming out of this.

Speaker Change: Youll.

Speaker Change: <unk> built.

Speaker Change: Maybe deeper relationships more visibility of relationships that.

Speaker Change: You might have the company might have over the next 234 years whatever.

Speaker Change: More visibility into customer level inventory levels behind the channel.

Speaker Change: I don't know Im just trying to figure out if this whole thing you guys going through with your partners.

Matt Johnson: I'm just trying to figure out if this whole thing, you guys going through it with your partners, has led to any permanent difference in visibility. And I guess my last question, completely. You mentioned you might sample Series three to a few lead customers in the quarter. Any thoughts or anecdotes about which industries or what type of applications or anything like that that we could get some insights into because that's a pretty big milestone? Thanks.

Speaker Change: Led to any permanent difference in visibility and I guess my last question completely unrelated you mentioned you might sample series III, a few lead customers in the quarter.

Speaker Change: Any thoughts or Randy goes about which industries are what type of applications or anything like that that we could get some insight too.

Matt Johnson: Yep. So the first piece, Matt, quick answer is absolutely yes on stronger relationships and more visibility. The easy way to say it is, you know, going through these things, you know, it's been a tough cycle, and that builds the relationship. I guess it can also work the other way, but what we've seen, whether it was the supply chain crisis or this inventory crisis, relationships got stronger, and those partnerships got stronger.

Speaker Change: Big milestone.

Speaker Change: Yes.

Speaker Change: The first first piece Matt.

Speaker Change: Quick answer is absolutely, yes on stronger relationships and more visibility easy.

Speaker Change: Easy way to say it is going through these things.

Speaker Change: It's been a tough cycle and that builds the relationship I guess it can also work the other way, but what we've seen whether it was the supply chain prices or just inventory prices relationships got stronger and those partnerships got stronger so that I can say that was the high confidence and I hope I can say with high confidence are.

Matt Johnson: So I can say that with high confidence. And I also can say with high confidence our, you know, approach and visibility to understanding end customer inventory has improved. As you all know, there's not an easy approach there or a report like we can do with, you know, obviously internal or distribution inventory. But, you know, we've learned a lot through this cycle, and we've gotten, I think, much better at being able to see it, understand it, and, you know, navigate it. So the quick answer there is yes.

Speaker Change: Approach and visibility to understanding and customer inventory has improved.

Speaker Change: As you all know there is not an easy approach their report.

Speaker Change: Like we can do with obviously internal or distribution inventory, but we've learned a lot through this cycle and we've gotten I think much better at being able to see it understand it and.

Speaker Change: So quick answer there is yes.

Matt Johnson: Series 3, we're not sharing with those customers. We are sampling, which is exciting. It's a big milestone, but I would encourage people to remember that Series 2 is still relatively early days in its cycle and ramp. And at the same time, we're already introducing our next generation. So, you know, it's going to be, just to be blunt, Matt, it's going to be a difficult message for our investors that both are doing really well and both are progressing, and that, you know, the game is long for both. But at the end of the day, the combination positions us extremely well, and we're happy with the progress.

Speaker Change: Series III, we're not sharing those customers we are standpoint, which is exciting it's a big milestone.

Speaker Change: I would encourage people to remember that.

Speaker Change: Series two is still relatively early days in this cycle and ramp and at the same time, we're already introducing our next generation. So it's going to be just to be blunt, Matt is going to be a difficult message for our investors that both are doing really well and both are progressing and that's.

Speaker Change: The game is long for both but at the end of the day the combination positions us extremely well and we're happy with the progress on both.

Matthew D. Ramsay: Thanks very much for your time, Matt; I appreciate it.

Speaker Change: Thanks, very much for the time I appreciate it.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Gary Mobley from Wells Fargo Securities. Your question, please.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Gary Mobley from Wells Fargo Securities. Your question. Please.

Gary Mobley: Morning, guys. Thanks so much for taking my question. Matt, you're on record in a public venue back in March as saying that you think your end customer consumption level, I think, related to the first quarter was about $160 million. So perhaps you undershipped the channel by $50 million. And hopefully, that $160 million end consumption level is a target that's moving up and to the right. So my question is, based on the June quarter revenue guide of $140 million, by how much are you undershipping end customer demand in the current period? Yeah,

Gary Mobley: Good morning, guys. Thanks, so much for taking my questions.

Gary Mobley: Matt you're on record in a public venue back in March.

That you think your end customer consumption level taken related to the first quarter was about $160 million. So perhaps you under ship channel by $50 million.

Speaker Change: And hopefully that $160 million and consumption level is.

Speaker Change: Target, that's moving up into the right and so my question is.

Speaker Change: Based on the June quarter revenue guidance of $140 million by how much are you under shipping and customer demand.

Speaker Change: Current period.

Matt Johnson: Yeah, thanks. Thanks, Gary, for reminding me of that record. So the quick answer is what we said was we see consumption at least 160 as a data point there. But we didn't say it was at 160. We said it was at least at that number, so that was the data point we provided. So an easy way to think about it is, as I said earlier in the previous question, we are seeing revenue at 140 is not indicative of consumption.

Speaker Change: Yeah. Thanks, Thanks, Kerry for reminding me of the record.

Speaker Change: So the quick answer is what we said was.

Speaker Change: We see consumption at least $1 60 as.

Speaker Change: Data point, there and we didn't say it was at $1 60, we said it was at least at that number. So that was that was the data point. We provided so is the way to think about it.

Speaker Change: As I said earlier to the previous question.

Speaker Change: We are seeing revenue at 140 is not indicative of consumption and.

Matt Johnson: And as we said in that conference, we think it's higher or at least 160 as an easy way to think of it. So I don't think you can get to the math based on that of exactly what consumption is and exactly how much end customer inventory remains. But easy way to say it, they're going in the right direction. End inventory is going down, revenue is going up, and they are getting closer to consumption, but still a ways to go.

Speaker Change: We said in that conference, we think it's higher or at least $1 60, as an easy way to think of it. So I don't think you can get to the math based on that of exactly what consumption is and exactly how much and customer inventory remains but easy way to say it theyre going in the right direction and inventory is gone.

Speaker Change: Down revenues going up getting closer to consumption, but still a ways to go.

Speaker Change: Got it thank you.

Gary Mobley: and as a way to get a supporting metric for future revenue growth. Hopefully, you have this number at your fingertips, but I'm curious what the measure of lifetime value of design wins captured from the first quarter may have been, and then embedded within that, you know, what the pricing trends were like in those design wins on a like for like product basis, or maybe even considering any sort of ASP shift associated with Gen 2. Uh, sure.

Speaker Change: And as a way to get a.

Speaker Change: Supporting metric for future revenue growth.

Speaker Change: Hopefully at this number at your fingertips.

Speaker Change: Curious what the measure of lifetime value of design wins captured from the first quarter may have been and then embedded within that.

Speaker Change: What the pricing trends.

We're like in those design wins on a like for like product basis, or maybe even considering any sort of asp's shift associated with gen. Two.

Matt Johnson: Sure, yeah, I don't have all that off the top of my head. Quick answers, I think, on, actually, in the, correct me if I'm wrong, guys, in the quarter, I think pricing on a life-or-life basis was basically flat. On design wins, no changes there, good progress, and on track. And in terms of pricing for design wins, you know, as we've communicated, no changes there, but that's where we see, you know, more pricing pressure is on new business, not on existing business, and we expect that to continue.

Speaker Change: Sure I don't have all that off top my head quick answers I think on actually in the correct me if I'm wrong guys in the quarter I think pricing unlike realized basis.

Speaker Change: Basically flat.

Speaker Change: On design wins no changes there good progress.

Speaker Change: And on track and.

Speaker Change: And in terms of the pricing on design wins.

Speaker Change: We've communicated our no no changes there, but that's where we see.

Speaker Change: More pricing pressure is on new business not on existing business and we expect that to continue but what we're seeing there is what I would define as more typical unexpected and it almost looks Gary I mean, I'm jumping ahead, a little bit, but we're kind of getting back to kind of.

Matt Johnson: But what we're seeing there is what I define as more typical and expected, and it almost looks scary. I mean, I'm jumping ahead a little bit, but we're kind of getting back to, you know, pre-pandemic type of behaviors on pricing, which means low to mid single-digit pricing pressure on an annual basis, which is what we've always had. And we've always offset that with new products, new features, and differentiation. So I wouldn't say we're there yet. But that appears to be where things are headed.

Speaker Change: Pre pandemic type of behaviors on pricing, which means low to mid single digit.

Speaker Change: Pricing pressure on an annual basis, which is what we've always had and we've always offset that with new products. New features differentiation. So I wouldn't say, we're there yet but that appears to be the where things are going.

Speaker Change: I appreciate it.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Tore Svanberg from Stiefel. Your question, please.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Toy Svanberg from Stifel. Your question. Please.

Tore Egil Svanberg: Yes, thank you. And congratulations on the continuous recovery here. So, Matt, obviously, consumption is a number that, you know, we analysts have to decide at some point. But I just want to sort of understand, now that you've gone through the up cycle and down cycle, you know, and as we think about the consumption number, you know, is the thought here that the business would grow about 20% going forward, longer term, just to sort of make sure that nothing's really changed, you know, with the up cycle and the down cycle fundamentally.

Tore Egil Svanberg: Yes, thank you and congratulations on a continuous recovery here.

Tore Egil Svanberg: Obviously consumption is a number that we analysts have to decide at some point, but.

Tore Egil Svanberg: Just wanted to sort of understand now that you've gone through the up cycle and down cycle.

Tore Egil Svanberg: And how should we think about the consumption number.

Tore Egil Svanberg: Is the thought here that the business will grow about 20% going forward longer term just wanted to make sure that nothing has really changed.

Tore Egil Svanberg: The up cycle in the down cycle fundamentally.

Matt Johnson: Yeah, sure. So, the sort of quick answer is no change. Our commitment to the 20% compound annual growth in our revenue has not changed. That is our target, our model. We see the path to doing that, and we feel really good about that. So, that's the quick answer.

Speaker Change: Yes, sure. So for a quick answer is no change to our commitment to the <unk>.

Speaker Change: 20%.

Speaker Change: The compound annual growth on our revenue has not changed that is our.

Speaker Change: Our target our model, we see the path to doing that and we feel really good about that so that's that's the fast answer.

Matt Johnson: A couple of things worth mentioning. We're not doing a victory lap at a 140 guide. We are doing the things that we said we'd do, growing revenue, improving gross margin, and improving profitability. That happened in Q1, that's going to happen in Q2, and we can continue doing that, but we're far from out of this at 140. There's still a big gap between our consumption levels, and we also need to see a lot of design ramping, which is starting, which is encouraging, and we need to see the end market show more strength.

Speaker Change: A couple of things that are worth mentioning.

Speaker Change: We're not doing a victory lap, but a $1 40 guide right.

Speaker Change: We are doing the things that we believe we said we do that we can grow revenue, we're improving gross margin and improving profitability.

Speaker Change: That happened in Q1, that's going to happen in Q2, and we can continue doing that but we are far from out of this at 140 <unk> right.

Speaker Change: Still a big gap to our consumption levels and.

Speaker Change: We also need to see.

Speaker Change: A lot of design wins ramping which is starting which is encouraging and we need to see the end market show more strength. So we're trying to.

Matt Johnson: So, we're trying to reflect. We're very encouraged by the process, progress. Things are going in the right direction. All signs are encouraging, but we're still in a pretty big hole, and we've got a ways to go. So, we're not celebrating 140. We'll be celebrating it at much bigger numbers.

Speaker Change: Reflect we're very encouraged by the process progress things are going in the right direction. All signs are encouraging, but we're still in a pretty big hole and we got a ways to go. So we're not celebrating one florida will be celebrating as much bigger numbers.

Speaker Change: Great and as my follow up beyond the cyclicality stuff you've sort of highlighted.

Tore Egil Svanberg: And as my follow-up, you know, beyond the cyclicality stuff, you've sort of highlighted, you know, at least three big growth engines this year. You mentioned some of the other script, right, but the glucose meter, the smart meter, and also the shelf labeling. Any more details you could add on those three, as far as, you know, ramps, you know, types of customers, regions, and so on and so forth Yeah, sure. So

Speaker Change: At least three big growth engine. This year, you mentioned some of them the script right, but the.

Speaker Change: The glucose meter the smart meter and also the shelf labeling any more details you could add on those three as far as <unk> ramps.

Speaker Change: Types of customers regions, and so on and so forth.

Speaker Change: Yes sure so.

Matt Johnson: Yeah, sure. So nothing meaningful beyond what's descriptory, except I'd say, to be clear, all three of those segments are ramping for us in 2022. That's important. And that's encouraging, because that gives us growth beyond inventory stocking and whatever the end market demand dynamic ends up.

Speaker Change: Nothing meaningful beyond what the script Tory, except I would say to be clear all three of those segments are ramping for us in 2024.

Speaker Change: That's important and that's.

Speaker Change: Encouraging because that gives us growth beyond inventory destocking and whatever the end market demand dynamic ends up being.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Speaker Change: Excellent. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Thomas O'malley from Barclays. Your question. Please.

Thomas O'malley: Hey guys, good morning, and thanks for taking my question. Just a model square away first, and then a question off that. What was the percentage split between the two businesses in March? What are you guys assuming for June?

Unknown Executive: Hey, guys. Good morning, and thanks for taking my question.

Unknown Executive: Our model squarely first and then a question off that just what was the percentage split between the two businesses in March.

Unknown Executive: What are you guys assuming for June and then can you talk to the linearity, obviously it looks like the <unk>.

Giovanni Pacelli: And then can you talk about the linearity? Obviously, it looks like the Disney channel is getting a little bit, Disney's getting better, the channel's getting better, even with customers improving. Can you just talk about the linearity of what you see right now in terms of revenue as you progress on throughout the year?

Unknown Executive: <unk> is getting a little bit just as getting better channels getting better even in customers improve it and can you just talk about the linearity of what you see right now in terms of revenue as you progress on throughout the year. Thank you.

Giovanni Pacelli: Tom H. Giovanni, I'll take the first part. Revenue as between the BUs for Q1, so it was $65 for the industrial and commercial business unit, about $40-41 for home and life, and I'll let Mark pick up on the linearity as we get through the year.

Speaker Change: Tom Hanks Giovanni I'll take the first part revenue between to be used for Q1 was 65 for the industrial and commercial business unit about $40 41 for home and life.

Speaker Change: And I'll, let mark pickup on the linearity as we get through the year.

Giovanni Pacelli: Well, I think we said in the script that we would expect both business units to continue to grow during the year. We're not providing specific guidance for each business unit for the second quarter. Yeah, I mean

Mark Malone: Well I think what we said in the script I think we expect both business units.

Mark Malone: Continue to grow during the year, we're not providing specific guidance for each business unit.

Matt Johnson: Yeah, I mean, maybe a way to think about it, Thomas, is, you know, in general terms, I'd characterize home and life as further through the cycle. Industrial and commercial, still absolutely going in the right direction, but not as far through the cycle. I think that's important. And then, in terms of inventory, I would definitely say that Q1 represents the peak for us in internal inventory that we have intentionally built to be ready for what's coming as we move forward from here. So that's one.

Mark Malone: The second quarter, Yes, I mean, maybe a way to think about our promises.

Mark Malone: In general terms, I'd characterize home and life as further through the cycle industrial and commercial is still absolutely going in the right direction, but not as far through the cycle I think that's important and then in terms of inventory.

Mark Malone: I would definitely say that Q1 represents the peak for us and internal inventory that we have intentionally built.

Mark Malone: To be ready for what's coming in as we move forward from here.

Mark Malone: So thats, one and as we've said external inventory at our distributors and other and customers is working down.

Matt Johnson: And as we've said, external inventory at our distributors and at our end customers is working down and continues to work down. So I think the next piece is DISD inventory. You know, we've assumed that that's going to be flat, but at some point, distributors are trying to work it down. At some point, that's going to start coming up as we see increases in demand in the channel, as their end inventory works down, and as they just start to ramp up new designs and market strength continues. But we're not assuming that in our guidance right now.

Mark Malone: <unk> continues to work now so I think the next piece is this the inventory.

Mark Malone: We've assumed that that's going to be flat, but at some point distributors are trying to work it down at some point, that's going to start coming up as we see increases in demand in the channel.

Mark Malone: Is there and inventory works down and as they just start to ramp new designs and market strength continues, but we're not assuming that in our guidance right now.

Thomas O'malley: helpful. And then just on the gross margin side, as you see a normalization of your percent sales to kind of just be indirect with direct coming back a bit down, how much do you have baked in for that normalization in the June quarter? And how quickly do you see that happening? Obviously, it's a tougher thing to kind of understand it, but there are a lot of different customers. But just in your base case assumption, we're kind of at the midpoint of your margin guidance, which is up, I think 80 bips. What do you think that split is? Yeah, it's tough to say.

Speaker Change: Helpful. And then just on the gross margin side as you see a normalization of your percent sale to kind of just indirect with direct coming back a bit down how much do you have baked in for that normalization in the June quarter, and how quickly do you see that happening obviously, its a tougher thing to kind of understand that there's a lot of different customers, but.

Speaker Change: Just in your base case assumption, where kind of the midpoint of your margin guidance, which is up I think 80 bps.

Speaker Change: What do you think that that split looks like.

Matt Johnson: Yeah, it's tough to call because part of that includes calls on the market, which is not good business. So I think the way to think about it is we have been, you know, absolute in our commitment to our gross margin model, as well as our total model for the company, going through the peak and the trough of this cycle. You know, we didn't increase our gross margin targets at the peak, and we're not decreasing our gross margin targets at the trough.

Yes, it's tough to call because part of that concludes call on the market, which is not good business. So I think the way to think about it is we have been.

Speaker Change: Absolute in our commitment to our gross margin model as well as our total model for the company going through the peak and the trough of this cycle.

Speaker Change: We didn't increase our gross margin targets in the peak and we are not decreasing our gross margin targets in the trough.

Matt Johnson: And what we've said is that as we go through each quarter, as revenue increases, gross margins will increase. That's what we saw in Q1. That's what we're sharing that we expect to continue in Q2. And we expect, you know, simply said, as revenue increases, gross margins will continue to increase back to those levels that we all know and love. So that's an easy way to think about it. It's also worth mentioning that as revenue goes up, the, you know, component of the fixed cost absorption goes down.

Speaker Change: What we've said is as we go through each quarter of revenue increases gross margins will increase that's what we've seen in Q1, that's what we're sharing that we expect to continue in Q2.

Speaker Change: And we expect simply said as revenue increases.

Speaker Change: Margins will continue to increase back to those levels that we all know what law. So that's the easy way to think about it. It is also worth mentioning that as the revenue goes up.

Speaker Change: Component of the fixed cost absorption goes down so we're seeing that and right now the predominant factor is the mix and.

Matt Johnson: So we're seeing that. And, you know, right now, the predominant factor is the mix. And, you know, that's what we shared in the script. And that's what we're looking at right now. So easy way to think about it. Each quarter that revenue increases, you'll see that gross margin increase with it.

Speaker Change: What we shared in the script and that's what we're looking at right now so easy way to think about it each quarter as that revenue increases you'll see that gross margin increase with it.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Quinn Bolton from Needham and Company. Your question, please.

Speaker Change: Thanks, Matt.

Matt: Thank you one moment for our next question.

Matt: Okay.

Matt: And our next question comes from the line of Quinn Bolton from Needham <unk> Company. Your question. Please.

Nathaniel Quinn Bolton: Hey guys, thanks for taking my question. I just wanted to follow up first on that mix issue for gross margin. You kind of said that the mix shifts more to direct here in the near term. And it sort of feels like you're implying that that's a gross margin headwind. Just wanted to confirm that the DISTI sales do carry higher margins than direct sales. And, you know, not sure if you will, but I'll ask if you could quantify how much of an impact that channel mix is having on near-term gross margins. And then I've got a second follow-up question.

Nathaniel Quinn Bolton: Hey, guys. Thanks for taking my question I just wanted to follow up first on that but the mix issue for gross margin you've kind of said that.

Nathaniel Quinn Bolton: The mix shifts more to direct here in the near term.

Nathaniel Quinn Bolton: And it sort of feels like youre, implying that thats, a gross margin headwind just wanted to confirm that the just the same.

Nathaniel Quinn Bolton: Sales to carry higher margin than direct sales and not sure. If you will but I'll ask if you could quantify how much of an impact is that channel mix, having on near term gross margins and then I've got a second follow up question.

Matt Johnson: So yeah, Quinn, this is Matt. A quick answer is, you know, generally you do see channel or distribution gross margins as higher than direct. That's fairly typical. And for us, you know, what we've also said is mix is now the major driver or predominant driver of the gross margin being at the levels it is versus where it should and will be. So those are the two answers to your question, I hope they are helpful.

Speaker Change: So Colin this is not a quick answer is generally you do see.

Colin: Channel or distribution gross margin was higher than direct.

Colin: It's fairly typical and for US what we've also said is mix is now.

Colin: A major driver of the predominant driver of the gross margin being at the levels It is versus where it shouldnt be so those are the two.

Speaker Change: I think answers to your question are hopefully helpful.

Nathaniel Quinn Bolton: Got it. Yeah, I know that helps.

Speaker Change: Got it yes, no that helps and then I guess I know you guys, obviously aren't arent getting beyond the current quarter, but given that you've stated.

Nathaniel Quinn Bolton: And then I guess, you know, I know you guys obviously aren't getting beyond the current quarter. But, you know, given that you've stated that that consumption level of, you know, 160 or higher, I guess, you know, kind of looked out to the second half of the year. The streets got, you know, revenue close to 190 in September 220 plus in December, that's significantly higher than that consumption level.

Speaker Change: That consumption level of.

Speaker Change: 160, or higher I guess kind of look out to the second half of the year The Street Scott.

Speaker Change: Revenue close to 190 in September $2 20, plus in December that's significantly higher than that consumption level and so I guess.

Nathaniel Quinn Bolton: And so I guess, you know, these aren't your numbers, but what has to happen for business to get back to kind of where the streets look in the second half of the year? Do you think consumption can increase at that rapid of a pace? Is it really the three growth drivers you talked about, the smart metering, glucose monitoring, and the electronic shelf labeling that gets you there? Or, you know, just any sort of thoughts on that second half?

Speaker Change: These arent your numbers, but what has to happen for the for the business to get back to kind of where the street is looking in the second half of the year do you think consumption can increase at that rapid of a pace is it is it really the three growth drivers you talked about the smart metering glucose monitoring.

Speaker Change: The electronic shelf labeling that get you there or.

Speaker Change: Just any sort of thoughts on on sort of.

Matt Johnson: Sorry, Clint, can you just say the key question is what are the drivers for the... Yeah, I mean, obviously, you've kind of stated that this consumption number of 160, and I know that that's a, you know, kind of a floor, not necessarily where you think consumption is, but the street numbers for the second half have revenue in September up at like 190 and 220, and I know these aren't your numbers, but Is it you think consumption can get up to that kind of level in the second half?

Speaker Change: That second half.

Speaker Change: Sorry can you just say the key question is what are the drivers for the year.

Speaker Change: Obviously, you've kind of stated this consumption number of 160 and I know that that is.

Speaker Change: Kind of.

Speaker Change: Floor, not necessarily where you think consumption is but the street numbers for the second half have revenue in September up at like $1, 90, and $2 20, and I know these arent your numbers, but I guess to the extent the company were to hit that kind of revenue in the second half what has to what drives that is it do you think consumption.

Speaker Change: Can get up to that kind of level in the second half is it driven by some of these new product opportunities that are ramping this year I mean, just whats.

Matt Johnson: Is it driven by some of these new product opportunities that are ramping up this year? I mean, just, you know, how would you, you know, get there in the second half, given that 160 million consumption number you've discussed? Got it, got it.

Speaker Change: Yeah.

Speaker Change: How would you.

Speaker Change: Get there in the second half given given that $160 million consumption number.

Speaker Change: Got it got it okay. So a couple of things I mean, obviously the first starting point is.

Nathaniel Quinn Bolton: Okay. So, yeah, a couple things. I mean, obviously, the first starting point is, you all know this, we don't guide beyond the current quarter, but I can definitely talk about some dynamics that might be helpful towards that end. And just a reminder about the 160 number, that was to give people context around, you know, kind of what we were going through our off X reductions last year, you know, that was kind of a rough estimate of a break even point.

Speaker Change: We all know this we don't guide beyond the current quarter, but I can definitely.

Speaker Change: Talk about some dynamics that might be helpful towards that end and just a reminder, on on that $1 60 number that that was to give people context around kind of what we as we were going through our opex reductions last year.

Speaker Change: That was kind of a.

Speaker Change: Rough estimate of a breakeven point and obviously.

Speaker Change: Our point was you do your reductions around.

Nathaniel Quinn Bolton: And obviously, you know, our point was, you do your reductions around something that you believe was, you know, indicative or better of our consumption. You wouldn't make off X reductions on what you thought your go-forward steady state was if you were losing money there. So that's important.

Speaker Change: Something that you believed was.

Speaker Change: Indicative or better of our consumption.

Speaker Change: You wouldn't make opex reductions on what you thought your go forward steady state was.

Speaker Change: If you are losing money there so that's important.

Speaker Change: But to your question so easy way to think about it is.

Matt Johnson: But to your question, so an easy way to think about it is, you know, if you oversimplify the three major buckets, you have the de-stocking phenomena where there's excess inventory at customers, you have design wins ramping, and end markets. You know, right now, the bulk of what we're seeing in Q1 to Q2 is really destocking. You know, there's some ramps in there, but it's not the primary driver.

Speaker Change: You oversimplify the three major buckets.

Speaker Change: The destocking phenomenon, where there is excess inventory at our customers.

Speaker Change: You have design wins ramping and market.

Speaker Change: Right now.

Speaker Change: The.

Speaker Change: Bulk of what we're seeing.

Speaker Change: Q1 to Q2 is really destocking.

Speaker Change: There is some ramps in there, but it's not the primary driver so.

Matt Johnson: So, you know, as we've said, even at 140, that's not indicative of consumption. So there's still a ways to go, which is encouraging. And we see that destocking continuing. And there are two other factors there, which are the design wins, which I just shared earlier that we do see, you know, good design win progress and ramps this year on, you know, some pretty major trends and areas, including CGMs, electronic shelf labels, metering, where we have strong positions and those are ramping.

Speaker Change: We said even at 140, that's not indicative of consumption. So there is still a ways to go which is encouraging and we see that destocking continuing there's two other factors there.

Speaker Change: Which are the design wins, which I just shared earlier that we do see.

Good design win progress in ramps.

Speaker Change: This year.

Speaker Change: On some pretty major trends in areas, including CGM electronic shelf labels metering, where strong positions and those are ramping so that gives us an additional lift in addition to revenue approaching consumption.

Matt Johnson: So that gives us an additional lift in addition to the revenue approach and consumption. The end market piece, end demand, is more difficult to call. You know, there's just a lot of uncertainty out there in the marketplace. There's, you know, conflicting signals, and, you know, not for sure not trying to call that. But if and when that does improve, that's an additional tailwind. But obviously, you can't bank on that or assume that, at least right now.

Speaker Change: The end market piece and demand is more difficult to call.

Speaker Change: Theres just a lot of uncertainty out there in the marketplace, there's conflicting signals and not.

Speaker Change: For sure not trying to call that but.

Speaker Change: If and when that does improve that's an additional tailwind.

Speaker Change: But obviously you can't bank on that or assume that at.

Speaker Change: At least right now.

Operator: Understood. Thanks, Matt. Thank you. One moment for our next question, and our next question comes from the line of Srinivas Pajjuri from Raymond James. Your question, please.

Speaker Change: Understood. Thanks, Matt.

Speaker Change: Thank you one moment for our next question.

Shrink Pressure: And our next question comes from the line of shrink pressure from Raymond James Your question. Please.

Srinivas Reddy Pajjuri: Thank you, good morning, guys. Matt, on the bookings front, I think you said the weekly bookings are getting better. So I was just hoping you could give us some additional color as to whether the bookings improvement you're seeing is fairly broad-based, or if it's, you know, if one particular end market is doing better than the others, and also from a geography standpoint, if you're seeing any, you know, noticeable differences in terms of the bookings improvement.

Shrink Pressure: Yes.

Shrink Pressure: Thank you good morning, guys.

Shrink Pressure: On the bookings front I think you said the weekly bookings are getting better. So I was just hoping you could give us some additional color as to whether the bookings improvement youre seeing is fairly broad based or if it's.

Shrink Pressure: If one particular end market is doing better than the others and also from a geography standpoint, if youre seeing any.

Shrink Pressure: Noticeable differences in terms of the bookings improvement.

Matt Johnson: Yep, understood. A quick answer is bookings are improving at a pretty broad and consistent pace. And so what I mean by that is, you know, this isn't one or two or three good weeks. This is many weeks and months of consistent improvement, which is what you'd want to see. But, as I mentioned, it's not at the levels we want to see to say, you know, we're fully on the other side of this

Speaker Change: Yep understood quick answer is.

Bookings have are improving and a pretty broad and consistent pace and so what I mean by that is.

Speaker Change: This isn't one or two or three good weeks. This is <unk>.

Speaker Change: Many.

Speaker Change: <unk> in months of consistent improvement.

Speaker Change: Is what you would want to see.

Speaker Change: As I mentioned, it's not at the levels, we want to see.

Speaker Change: To say, we're fully on the other side of this but the trend is undeniable and encouraging.

Matt Johnson: But the trend is undeniable and encouraging. To your other point, definitely broad by technology, geography, and application space, which is what you'd want to see. As I said, I think, you know, the home of life is a little bit further along than industrial and commercial, but we're seeing improvement in strength in both. And the last thing is just a caveat to all of that, maybe the exception is China, where, you know, to be clear, we're, you know, APAC, we're seeing improvement, but in China, we're seeing encouraging signs in terms of design and activity, So that would be the one place, and we're not, we haven't baked it in, we're not assuming it improves. So there are some encouraging signs, but no, it's not coming out in the results.

To your other point definitely brought.

Speaker Change: By technology, Geo application space, which is what you'd want to see.

Speaker Change: As I said I think.

Speaker Change: <unk> life is a little bit further through than industrial and commercial but we're seeing.

Speaker Change: Improvement in strength in both in.

Speaker Change: And the last thing is just a caveat to all of that maybe the exception is China.

Speaker Change: To be clear.

Speaker Change: APAC, we're seeing improvement, but in China, we are seeing encouraging signs in terms of design win activity.

Speaker Change: Signaling that there is improving strength PMI, improving all of that but we're not seeing that manifest in terms of revenue yet so that would be the one place and we're not we haven't baked it in we're not assuming it improves.

Speaker Change: So there are some encouraging signs but.

Speaker Change: No, it's not coming out in results yet so.

Srinivas Reddy Pajjuri: Yeah, yeah, great. Thanks for the color.

Speaker Change: So hopefully that's helpful. Yes, great. Thanks for the color and then.

Matt Johnson: And then you also kind of talked about ASPs kind of returning to, you know, pre-pandemic levels, or at least the trends in terms of annual ASP declines. I just want to kind of, you know, given your new product, you know, pipeline, of course, the market does what it does, but can you talk about, you know, in terms of as we go from Series 2 to Series 3, and there's a lot of talk about, you know, Edge, AI, et cetera, having your own ASPs on a mixed adjusted basis.

Speaker Change: You also kind of talked about ASP.

Speaker Change: Returning to the pre pandemic.

Speaker Change: Levels or at least the trends in terms of.

Speaker Change: ASP declines.

Speaker Change: I just wanted to kind of given.

Speaker Change: Your new product new product.

Speaker Change: Pipeline of core.

Speaker Change: The market does what it does but can you talk about in terms of as we go from surface to the series three and Theres a lot of talk about edge AI et cetera have your own ASP fees on a mix adjusted basis.

Matt Johnson: I guess what I'm trying to get at is that as we look out to the next, you know, 12 to 24 months, should we kind of bank on unit growth, you know, to model your revenue growth, or do you see kind of, you know, content increasing for you as well? And if content is increasing, what are the end markets, and what are some of the applications that will drive that content? Thank you.

Speaker Change: I guess, what I'm trying to get at is that as we look out to the next 12 to 24 months and it.

Speaker Change: It should be kind of bank on unit growth.

Speaker Change: To model your revenue growth or do you see kind of content increasing for you as well and if content is increasing what are the end markets. What are some of the applications that will drive that content. Thank you.

Srinivas Reddy Pajjuri: Sure. So, you know, the big, big, big picture. If you step back, Series 2 is obviously helpful for us from a, you know, gross, gross margin perspective and a pricing perspective in that these are new products with new features and new capabilities that are, you know, in demand. And you know, easy way to say it: we mentioned AIML, so Artificial Intelligence Machine Learning. So, you know, having products that are in production that have the ability to very efficiently provide machine learning inference at the edge on a battery-powered device is a pretty powerful capability and feature.

Speaker Change: Sure.

Speaker Change: No.

Speaker Change: Big Big Big Picture, if you step back.

Speaker Change: Series two is obviously helpful for us from a.

Speaker Change: Gross gross margin perspective, a pricing perspective in that these are new products with new features new capabilities.

That are in demand.

Easy way to say as we mentioned.

Speaker Change: AI ml, so artificial intelligence machine learning, so having products that are in production.

Speaker Change: That has the ability to very efficiently provide machine.

Speaker Change: The machine learning inference at the edge on a battery powered device.

Speaker Change: Is a pretty powerful capability and feature and obviously helps us in terms of being differentiated and driving.

Srinivas Reddy Pajjuri: And, you know, obviously helps us in terms of being differentiated and driving value with our customers. So Series 2, as it continues to come out with features and capabilities that are best in class, that is obviously helpful against that dynamic. And to be clear, that's not a new trend or dynamic. That's always how we've operated and traded, but Series 2 is still introducing new products, even in the last few days and in the last few months. So that helps.

Speaker Change: Value with our customers so serious too as it continues to come out with features capabilities.

Speaker Change: And that our best in class that is obviously helpful against that dynamic and to be clear that it's not a new trend or dynamic that's always how we've operated in traded but.

Speaker Change: Its series two is still introducing new products even in.

Speaker Change: In the last few days and in the last few months so that helps.

Matt Johnson: And then the second piece is Series 3 obviously will, as we've shared, bring new capabilities, features, and performance, which will again allow us to, you know, you know, work on that dynamic. But I do want to set expectations accordingly or appropriately, you know, that won't be an ASP list in the next couple years. I mean, that, you know, Series 3 will ramp up, you know, over, you know, years. And, you know, I wouldn't look there for an ASP list.

Speaker Change: And then the second piece of series three obviously, we will as we've shared bringing new to industry capabilities features and performance, which will again allow us to.

Speaker Change: <unk>.

Speaker Change: Work on that dynamic, but I do want to set expectations a quarter appropriately.

That will be an ASP lift in the next couple of years.

Speaker Change: Seriously will ramp over years.

Speaker Change: I wouldn't look there for an ASP lift I look more to the series two and how is that doing and then series three is more of a mid to long term play, but both held.

Srinivas Reddy Pajjuri: I look more to Series 2 and how's that doing? And then Series 3 is more of a mid and long-term play. But both help with differentiation, performance features, and give help on ASPs and gross margins. Got it. Thanks, Matt.

Speaker Change: On differentiation and performance features which help on Asps and gross margins.

Speaker Change: Got it thanks, Mike.

Speaker Change: <unk>.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Cody Acree from The Benchmark Company. Your question, please. Yeah, thanks guys for taking my questions. Just a quick thoughts on operating expenses as you're heading off the

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of <unk> from the Benchmark Company. Your question. Please.

Benchmark Company: Yes, Thanks, guys for taking my questions just a quick thoughts on operating expenses as you're heading off the bottom here.

Matt Johnson: Yeah, sure. So, a reminder for everyone, as we were going through this cycle, as revenue was decreasing, we decreased our OPEX every quarter along with that. And then, you know, as we've shared, as revenue starts going up, we will increase our OPEX, although not at the same level moving forward. And, you know, some of those changes last year were structural, right, with reductions that we've shared in prior calls. That being said, the increase from Q1 to Q2 would be faster than that, and part of that is just one-time dynamics.

Benchmark Company: Yes sure.

Benchmark Company: <unk>.

Benchmark Company: Reminder, for everyone.

Benchmark Company: As we were going through this cycle as revenue is decreasing we decreased our opex every quarter, along with that and then as we.

Benchmark Company: Shared as revenue starts going up we will increase our opex, although not at the same level moving forward.

Benchmark Company: And some of those changes last year were structural right with reductions that we've shared in prior calls.

That being said the increase from Q1 to Q2 would be faster than that.

Benchmark Company: And part of that is just onetime dynamics for example, as we've added Andrew.

Cody Grant Acree: For example, as we've added, you know, an annual merit cycle back for our employees, that drives increases from Q1 to Q2. And then some of the temporary things from last year that have to come back, such as bonus accruals or travel, that's driving an unusually high increase as well. But, you know, to be clear, as revenue is going down, we reduced OPEX every quarter. As it goes up, we will increase it at a lower rate, Q1 to Q2 a little bit higher than normal because of those one-time dynamics. Thanks for that!

Benchmark Company: Annual Merit cycle back for our employees that drives increases from Q1 to Q2 and then some of the temporary things from last year that have to come back such as bonus accruals or travel.

Benchmark Company: That's driving.

Benchmark Company: Usually high increase as well.

Speaker Change: To be clear.

Speaker Change: As you know.

Speaker Change: Revenue is going down we reduced opex every quarter as it goes up we will increase it at a lower rate Q1 to Q2, a little bit higher than normal because of the onetime effects.

Speaker Change: Thanks for that and maybe just continuing on there what were the processes that you went through as Youre going through the Opex reductions during this cuts to make sure that you Werent impairing revenue growth.

Matt Johnson: And maybe just continuing on there, what were the processes that you went through as you were going through the OPEX reductions during the cuts to make sure that you weren't impairing revenue growth? Oh, yeah, sure. That's so big, the big picture. That's, that's hard. And not easy to do if we're being honest about it. So what we've done is some of the changes were things, obviously, prioritization, where you take, you know, classic things, things that are at the bottom, and you do less of those and make sure you're feeding the things at the top that have the biggest impact, biggest return.

Speaker Change: Oh, Yeah sure.

Speaker Change: So big Big picture.

Speaker Change: It's hard.

Speaker Change: And not easy.

Speaker Change: Do with if we're being honest about it so.

Speaker Change: So what we've done is some of the changes were things, obviously prioritization, where you take <unk>.

Speaker Change: Classic things things are at the bottom and you do less of those and make sure you're feeding the things at the top that have the biggest impact because returns. There is also good.

Matt Johnson: There's also, you know, going after shifts when using the environment as difficult as it is for doing strategic initiatives and shifts where you need to reshore or move resources from one geo to another or do leadership changes. So as an example, we shared the CIO announcement with Radhika. That was one of the changes that came out of last year where we said, "strategically, how do we approach IT differently?".

Speaker Change: <unk> after.

Speaker Change: Shifts when using the environment is difficult as it is for doing strategic initiatives of shifts where you need to reassure our move resources from one to another.

Speaker Change: Or do leadership changes so as an example, we shared the.

Speaker Change: The CIO announcement with radical.

Speaker Change: That was one of the changes that came out of last year, where we said strategically how do we approach it.

Matt Johnson: So there's employees moving across geographies as part of that, but also leveraging, and rebalancing internal and external capabilities and making versus buying, as a classic way to say it. So it's the combination of all those things saying, look, it hurts, and it's difficult to make these decisions, but look at it through the lens of managing the portfolio and how do we use this difficult environment, not just to cut and have less revenue, but to cut and use it to transform and restructure, and change how we approach things. Because the easiest way to say it, Cody, is if we do these cuts and we don't, we come out the other side and say, let's just add them back the same way. Horrible inefficiency.

Speaker Change: Differently, so there's employees moving across geos as part of that but also.

Speaker Change: Leveraging.

Speaker Change: Rebalancing internal external.

Capabilities make versus buy as a classic way to say it. So it's the combination of all those things.

Speaker Change: Look it hurts and it's difficult to make these decisions.

Speaker Change: Look at it through a lens of managing the portfolio and how do we use this difficult environment, not just cut and have less revenue, but to cut and use it to transform.

Speaker Change: And restructure we change how we approach things.

Speaker Change: Because.

Can you just way to say it is if we do these cuts and we don't we come out the other side and say, let's just adding back the same way.

<unk> inefficiency.

Cody Grant Acree: The motto and approach is to make these difficult changes and use them to make us better, use them to transform, to reconstitute our capability. And that's the approach we've taken. So I really do see that this will be transformative, even though it was difficult. But obviously, it's too early to see the signs of that. But you're starting to see early things like the CIO announcement. Great.

Speaker Change: The motto and approaches make these difficult changes and use them to make us better use them to transform to reconstitute our capability and that's the approach we've taken so I really do see.

Speaker Change: This will be transformative, even though it was difficult, but obviously, it's too early to see the signs of that but you're starting to see early things like the CIO announcements.

Operator: Thank you. One moment for our next question, and the next question comes from the line of Peter Punk from G.P. Morgan. Your question, please.

Speaker Change: Great. Thanks Bill.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Peter Peng from Jpmorgan. Your question. Please.

Peter Punk: Hey, good morning. Thanks for taking my question. Just want to follow up on the China point where it seems like you guys are not seeing any improvement. How important is China's recovery to that 160 million number that you guys, you know, talked about?

Peter Peng: Hey, good morning. Thanks for taking my question just wanted to follow up on the China point, where it seems like you guys are not seeing any improvement how important is China recovery to that 160 million number that you guys talked about.

Matt Johnson: Now, the quick answer is it's not in there. China, I think, right now for us, is roughly around 13% of our revenue, and we are supporting the region. As I said, good design and activity, but revenue hasn't meaningfully moved, and we're not assuming that it will. So if it does, that's fantastic, but not baked into an assumption of recovery for us.

Peter Peng: Quick answer is its not in there.

Peter Peng: Is.

Peter Peng: China I think.

Peter Peng: Now for US is roughly around 13% of our revenue and we are supporting the region.

Peter Peng: As I said, good design win activity, but the revenue hasn't meaningfully move and we're not assuming.

Peter Peng: That it will so if it does a fantastic, but not baked into an assumption of recovery for us.

Peter Punk: Got it. Thanks. And maybe just some of these new design ramps we talked about, you know, actually coming in the second half, maybe even help us understand maybe the size or the scope of these ramps and how meaningful they are to us in the second half of this year. So we have...

Speaker Change: Got it thanks.

Speaker Change: And.

Speaker Change: Maybe just on some of these new design win ramps can you talk about potentially coming in the second half maybe you can help us understand maybe the size or the scope of these brands and how meaningful is it to revenue.

Second half of this year.

Speaker Change: So we haven't provided that contact and we're not guiding beyond the current quarter, but easy easy way to think about it is we've shared over previous quarters.

Matt Johnson: So we haven't provided that context, and we're not guiding beyond the current quarter, but an easy way to think about it is, you know, we've shared in previous quarters, all of these ramps are one, not single customer, they're in market across multiple customers, and they are meaningful end segments for us in ramps. And I would characterize each of them also as relatively early phases for us in terms of their ramp and potential.

Speaker Change: All of these ramps are one not.

Speaker Change: Not single customer.

Their end market across multiple customers.

Speaker Change: And.

Speaker Change: They are meaningful and segments for us and ramps and I would characterize each of them.

Speaker Change: Also as relatively early phases for us in terms of there.

Ramp and potential.

Matt Johnson: But they will all ramp up this year, which I think is important, and will give us a tailwind, as I said earlier, to whatever, you know, whatever that consumption number is. As we approach that, it gives us lift beyond that. And then, as I said, the end market as well, when we see strength there. But no, no more color on the actual magnitude or size of those that we haven't provided.

Speaker Change: They will all ramp this year, which I think is important and will give us a tailwind as I said earlier to whatever whatever that consumption number is.

Speaker Change: As we approach that it gives us lift beyond that and then as I said the end market as well.

Speaker Change: When we see strength there.

Speaker Change: But no no more color on the actual magnitude or size of those that we haven't provided that.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Joe Moore from Morgan Stanley. Your question, please. Great, thank you.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Joe Moore from Morgan Stanley. Your question. Please.

Joseph Lawrence Moore: Great. Thank you.

Joseph Lawrence Moore: Hi Joe. I don't think it's consistent that, you know, most of the industry market has been behaving as you'd expect in this type of market environment. You know, as we said, we did see one competitor who was, we thought, being more aggressive, and that hasn't changed. But he wasn't signaling anything there, not trying to convey anything. I just wanted to answer with integrity, which is why I called it in.

Joseph Lawrence Moore: And then last quarter, you had talked about one competitor.

Joseph Lawrence Moore: I think it was isolate anything of a competitor that had been pricing a little bit more aggressively.

Joseph Lawrence Moore: Can you give us an update there and any changes that just the new normal or is there anything to report there.

Joseph Lawrence Moore: Hi, Joe.

Thank you.

Speaker Change: I think thats been consistent.

Speaker Change: Most.

Joseph Lawrence Moore: Most of the industry market has been behaving as you would expect in this type of market environment.

Joseph Lawrence Moore: As we said we did see one competitor who has we thought being more aggressive and that hasnt changed.

Joseph Lawrence Moore: But not signaling anything they're not trying to convey anything just wanted to answer with integrity, which is why I called it out.

Speaker Change: Okay Alright.

Matt Johnson: Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Giovanni Pacelli for any further remarks.

Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Giovanni for any further remarks.

Giovanni Pacelli: Thank you, Jonathan. And thank you all for joining our call this morning. This concludes today's call. Thanks.

Giovanni: Thank you Jonathan and thank you all for joining our call. This morning. This concludes today's call.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Giovanni: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Giovanni: [music].

Giovanni: Yes.

Great.

Giovanni: [music].

Giovanni: [music].

Giovanni: [music].