Q1 2025 PDF Solutions Inc Earnings Call
Good day, everyone and welcome to the PDF Solutions, Inc Conference call to discuss its financial results for the first quarter conference call ending Monday March 31st 2025.
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 this session you will need to press star one one on your telephone.
As a reminder, this conference is being recorded.
If you have not yet received a copy of the corresponding press release. It has been posted to Pdf's website at Www Dot P. D F dotcom.
Some of the statements that will be made in the course of this conference are forward looking including statements regarding pdf's future financial results and performance growth rates and demand for its solutions.
Pdf's actual results could differ materially.
You should refer to the section entitled Risk factors on pages 16 to 30 of Pdf's annual report on Form 10-K for the fiscal year ended December 31, 'twenty 'twenty four and similar disclosures in subsequent SEC filings.
Forward looking statements and risk stated in this conference call are based on information available to PDF today.
PDF assumes no obligation to update them.
Now I'd like to introduce John <unk>, Pdf's, President and Chief Executive Officer, and Ed Russell Pdf's, Chief Financial Officer. Mr. Berry. Please go ahead.
Thank you for joining us on today's call if you've not already seen our earnings press release and management report for the first quarter. Please go to the investors section of our website, where each has been posted.
As we enter 2025, we expected a customer environment, where some would be recovering from a relatively weak 2024, while others would be continuing momentum into this year.
Transcripts provided by Transcription Outsourcing, LLC.
Consistent with our expectations, the first quarter was a strong start to our year, with the second largest revenue quarter in our history, taught only by Q4 of last year, which benefited from an e-probe sale.
Significant bookings in the quarter were primarily for enterprise-wide solutions.
SAPS Manufacturing Hub Enterprise, which is designed to connect enterprise applications such as SAP, MES, and engineering analytics, drove a meaningful percentage of bookings as a large customer move from a pilot that began in 2024 to a contract for full deployment.
Accents of your bookings were driven primarily by tablets and OSATs for offline analytics and test operations.
The trend of more complex test flows and event packaging are strong drivers for the solution.
Symmetrics' bookings were strong as equipment vendors utilized more runtime licenses as they increased shipments, particularly of our more advanced tool control and communication modules.
Securalized, which closed late in the quarter, contributed less than one month of revenues.
Gainshare drove the IYR revenue growth as new fabs and process notes under contract begin to deliver revenues.
We expect I.Y.R. revenues to continue to improve during this year overall based on this trend.
With respect to DFI, we've previously talked about shipping at least four E-PROS tools this year, with some of them contributing to revenue.
in the air.
In fact, this past quarter we shipped two tools, which is a great start to exceeding our goal of four system ship. We anticipate one of those ship systems has the potential contribute incremental revenue growth this year.
Overall, demo install and engineering activity with customers is at a very high level, and we anticipate meeting or exceeding our goals for DFI this year.
In the quarter, we also completed the acquisition of Secure Life.
Now with just about two months of operating together, things are going well.
Based on these meetings in our internal discussions, we are refining plans for integration with our platform.
In particular, customer-seed benefits of integrating security with our DEX notes at the OSATS, as advance packaging and test requires more collaboration between OSATs, tablets, fondries and equipment vendors.
Customers also want to see tight integration between symmetric and secure-wise, so equipment vendors can more easily enable collaboration and manage AI ML systems in the field.
Overall, it's a strong start to the year, both in terms of our traction with customers and our product development.
Now I'd like to make a few comments about our view on the industry and opportunities for our business going forward.
Since the start of April , tariffs have taken central stage.
So far, we have not seen any noteworthy change in customer behavior with us as a result of tariffs.
Most of our software business, including SaaS, is generally not impacted by tariffs.
For the E-Prob, TAF could impact the cost of component ship into the US. However, at this point we believe it will have only modest impact on our financial results.
Given our progress in Q1, and despite the macro uncertainty, we reconfirmed our revenue growth estimate for the year-to-be in the range of 21-23% when compared with 2024.
I want to thank all the PDFs, customers, employees and contractors for their efforts during the first quarter, including our new secure wise colleagues.
Now I'll turn the call over to Adnan who will review the finances and provide his perspective on our results. Adnan. Thank you, John . Good afternoon, everyone. Good to speak with you again today, and I hope all of you and your families are well.
We are pleased to review the financial results for the first quarter of 2025. As mentioned, our earnings release and a management report are posted in the Investor Relations section of our website.
Our form, thank you, was also filed with the SEC today. Please note that all of the financial results we discussed in today's call are on a non-GAAP basis, and a reconciliation to GAAP financial s is provided in the materials on our website.
We are pleased with multiple important milestones achieved during the quarter. We announced and closed the $130 million acquisition of SecureWife and signed a large deal for Sapiens Manufacturing Hub Enterprise Platform with a new customer as a result of our continued partnership with FAP.
As John said, on the extensive side, our bookings this quarter also came from many customers spread across multiple extensive software modules.
On the equipment side, Symmetrics products continue to be strong and be benefited from less than one month of secure wise revenues as well. Our backlog ending this quarter was approximately $227 million, growing slightly compared to the prior quarter.
Total revenues for the first quarter were 47.8 million, up 16% versus the same quarter of last year.
Analytics revenue came in at 42.5 million, an increase of 10% every year, and was lower compared to the prior quarter mainly due to the E-Prob sale in Q4.
On a year-over-year basis, our Q1IIR revenue was up meaningfully by 86% or 2.5 million dollars driven by the start of a new Genshire from a customer engagement we completed during the quarter.
Overall, when we think about our business over the last three years, we are pleased for the progress towards establishing us as the leading independent data analytics platform Optimize for the semiconductor industry.
Our customer base is spread across three key areas of fabulous, fads and equipment companies.
We serve these three customer groups with optimized solutions respectively mapped to a product portfolio addressing existing nodes, leading edge nodes and connectivity software.
We have built our offerings on top of a robust, scalable and secure analytics platform, specifically designed for the semiconductor industry, and are making the platform smarter with machine learning and AI offerings such as MLHOPs.
Our gross margin for the first quarter came in at 77%, versus 72% in the prior quarter, and 72% for the same quarter of last year.
Driven this quarter by increased strength in Genshire.
Our cost of sales is quarter or also lower compared to prior quarter where envy sold and e-pro machine.
Our operating margin for the first quarter came in at 18%, where it's just a similar 18% for the prior quarter and 12% for the same quarter a year ago.
We are pleased that on a dollar basis we generated 8.6 million dollars of operating profit with this quarter compared to 8.8 million dollars in the prior quarter that had the benefit of the EEPR machine.
Compared to the last quarter, we grew our R&D slightly by 1% and our STNA by 6% is quarter with the increase in STNA driven by increased sales and marketing from customer pre-sales
Net income for the quota totaled $8.1 million or $21 cents per share compared to $5.7 million or $15 cents per share in the same quota a year ago or up approximately 40% for each of net income and EPS on a year-over-year basis.
Turning to the balance sheet, we ended the quarter with cash, cash equivalence and short-term investments of 54 million, compared to 115 million at the end of the prior quarter.
With a change primarily driven by approximately $61 million for the Securabytes Acquisition, $8 million for CAPEX, primarily for E-Prob Machines.
an offset by positive operating cashflow of 9 million for the quarter, even after the annual bonus payout which happens during Q1.
In terms of balance sheet changes to finance and secure wise acquisition, besides the aforementioned approximately $61 million of cash from our balance sheet, we took on bank debt of approximately $70 million.
We are a combination of a revolving credit facility and a term loan, both structured for a five-year term.
As we look to the rest of the year, we remain committed to our prior guidance of revenues for this year to grow in the range of 21% to 23% on a year-over-year basis, which is ahead of our long-term growth rate target of 20% annual revenue growth.
With that, let me turn the call over to the Operator for Q&A. Operator
Speaker Change: Thank you, Mr. Raza. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone.
Speaker Change: which comes from the line of William Jellison, of G.A. Davidson and Company. Please go ahead, William.
William Jellison: Great. Thanks for taking my question. It was great to see the overall revenue guidance.
William Jellison: I was wondering if you could give some more detail as to the moving pieces potentially between IYR and analytics, or even within analytics, or if expectations are across the board pretty in line with where we last pushed them.
Sure. Thank you, Will.
Speaker Change: Overall, it's pretty in line with where we started the year. We do expect a meaningful growth in IOR just because it was off a very small base and it had been declining the last couple of years. So a jump of a couple million dollars really on a percentage basis is a big deal, but in terms of the total business, it's just under 10%.
Overall, I'm Liddick's Growth.
In general, we do see increased...
Speaker Change: Effort from our customers on the advanced node capability, we do expect that to be...
Speaker Change: growing this year, from a booking standpoint, and that will impact also by E-PROB sales.
Speaker Change: and then on the analytics, as I said in my prepared remarks, it's more and more of the customers on the enterprise side so, you know, the statements manufacturer have larger deployments of Accentio, Accentio with the test and ML capability.
Speaker Change: and we will be announcing our user competency into this year and some of that's going to really just show how this is really all one integrated platform and more and more for you know statements manufacturing hub uses the Accentio database and the data schema
Speaker Change: Common MLOps, Capitolia, across the entire platform. So we'll start showing how these are really all just different components of the same platform. And as Adnan said in his prepared remarks.
Speaker Change: We do target establish the fondries in the equipment vendors, but they all, you know, more and more what each of them experience is.
Speaker Change: Different parts of that platform brought out to them for their applications.
Speaker Change: That enables the collaboration that we think the industry overall needs
Speaker Change: which is where secure lives and the things we're doing with DEX come into play because they, you know, increasingly fabulous companies need to know what equipment companies are doing and collaboration across that entire supply chain is necessary, particularly with respect to complex packaging.
Speaker Change: Great. Thanks, John . And then, Adnan, on your prepared remarks, you mentioned the...
Adnan: Yeah, I'll take the first answer at it, and of course don't get at it. Look, I mean, I think the beauty of the product portfolio that's becoming wider and wider for us is that we see continued engagement across a wide variety of product offerings with the customers, right?
Speaker Change: It's not just the three themselves, but it's also the cross correlation, like John said, they could've been guys versus the public guys all wanting to exchange or no data from the other side as well. So look, we're finding opportunities across the board, and therefore we have spent over the last few years on sales and marketing, and we'll continue to align it with the opportunities that we're seeing.
Speaker Change: A little bit on trouble, I just don't think you know.
with whether it's the E-Prob or SMH. [inaudible]
Speaker Change: We've done a lot of R&D every last couple of years and now as evidenced by the large enterprise.
Contract Class Court for Sabians
Speaker Change: with the E-Prove activity with Accentio Test and NLOPS. We've got a lot of ongoing pilots with customers, some of which are starting to convert into buildings like the Solopix and the H-100 price last quarter. And that's where, you know, it's some of this like the digestion of your previous years R&D.
But, thank you both.
Thank you.
Speaker Change: Our next question comes from the line of Blair Abernethy of Rosenblatt Securities. Please go ahead, Blair.
Oh, thanks. Nice quarter, guys.
Speaker Change: Just wondering if you can give us a little more color.
Speaker Change: on the Secure-wise Integration Plan for my technical standpoint, what's the low-hanging fruit and where do you kind of see this?
Speaker Change: I guess the longer term, particularly in light of the Bissometrics product you have,
Speaker Change: And then also from a go-to-market standpoint, where do you see some of the best potential revenue synergies or cross-selling opportunities with the new product line?
Speaker Change: Sure. Okay, so that's a great question. So first of all, [inaudible]
Speaker Change: Leveraging PDF infrastructure in Asia is a value of the customers.
Speaker Change: and combining PDFs, attention to security, which is always, you know, as you can match it from a database and system side because of the kinds of data customers store in our systems.
Speaker Change: and their ability to transit data and engineering activity around the world in a secure matter putting those two things together is a big interest for the customers number one on security.
Speaker Change: Number two, as I said, my prepared remarks.
Speaker Change: This is used by the most sophisticated equipment companies in the world with the most challenging equipment and production control, et cetera.
Speaker Change: and the assembly world was always kind of like an afterthought in our industry, but as more and more process complexity is going in there into assembly and advance packaging, the equipment and vendor C value and the secure wise platform being out there. Moreover, if you look at
Speaker Change: OSAT Facilities, it's primarily on the test floor for ML models and rules.
at the Test Edge.
Speaker Change: But when we talked to our fabulous customers, they would like to ship more than rules and data around. They would like engineers to be able to collaborate with their equipment and OSAT vendors.
Speaker Change: Interactively with the engineering. You know, moreover, one of the applications secure
is, you know, when an equipment vendor wants to upgrade...
Software and Equipment Tool
Speaker Change: It can be done in a secure manner, and the FAB can run the proper virus checks and scans on it as it comes in.
Speaker Change: 6 or 7 years ago, there was a large foundry that had a huge problem where someone brought in on a memory stick.
Speaker Change: Now if you just think about the OSATs world, more and more your fabulous customers want to bring models, AI models into your facility.
Speaker Change: Do you like those virus scanned and checked out? And Securallize has that infrastructure as well. So, you know, first thing we did was demonstrate we could put Securallize on a DEX network.
Speaker Change: PDSAI modeling, PDF connections to the tools and secure wise, myriad of ways of enabling communications and collaboration, much richer than what we provided with DEX is always a big low-hanging fruit that you described, and then business-wise low-hanging fruit.
Speaker Change: Obviously, additional equipment vendors, you know, helping equipment vendors get to the advanced packaging world where they all want to get connectivity. And then even, you know, we've had dialogue with customers within, you know, boundaries and IDMs.
Speaker Change: Collaboration between the equipment teams, you know, everyone, especially in a world of
Did the geopolitical situation weren't everyone standing up?
Speaker Change: Fabs all around the world. So a lot of our customers are needing to support fabs in many parts of the world and equipment expertise whether it's at the equipment vendor or it's at the fondry or IDM is scarce.
Speaker Change: and we are starting to have dollar foot customers around that as well.
Speaker Change: So, overall, it's just a great fit with the platform we're building out. We do think with the trends of additional ML and AI, it enables another security features that customers will really want.
Speaker Change: and I think we're very excited to see that we were bringing to R&L Ops Capability.
Thank you.
Speaker Change: That's great, John . Thanks for the explanation. That's really helpful. And I just wanted to ask the on the sapient side of things, how is the pipeline building there? It's great to see a deal this quarter, but how is this kind of is it starting to pick up? I know you've been working with SAP for a couple of years on this, but just kind of wondering if [inaudible]
Speaker Change: If you're starting to see a bit of a shift in...
in Adoption Inc.
Speaker Change: Yeah, we do see additional, we do expect to close additional contracts this year for SMH and a price, you know, and again, some of that new capability, you know, enables new workflows and so we like to make sure we help the customers with new workflows and an AI workflow.
Speaker Change: A big motivator from moving to something like this because they have more accurate data from the facilities is important to enable.
better AI at the enterprise level.
Speaker Change: Yeah, we do expect more business this year on SMH and we do think that there's a growing set of ways that we can help customers get more value out of it, which will create, I think, and fundamentally be on this year additional opportunities.
Great. Thanks very much
Speaker Change: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone.
Our next question.
Speaker Change: Comes from the line of Gus Richard of Northland capital markets. Your line is open Gus.
Gus Richard: John , you mentioned you shipped two DFI systems from the quarter, one potential revenue. I was just wondering if you could provide a little bit of color on that. Is that a new customer? Is that an existing customer? Or, is it logic, DRAM, and the other system? Any color on where that one went?
Gus Richard: So these are both logic customers, both existing customers. And as I said in the last call, we're anticipating for DRIM applications as we get through this year. We remain.
Speaker Change: A committee about that, we do see that opportunity as well, and maybe this is, we're going to take a digestion pause as we digest these machines, and the other was that we stood up recently, but we do expect from the second half of the year.
to ship again and exceed our goals for the year.
Speaker Change: Okay. Just data curiosity on me, you know, I hope to recognize some revenue. This is existing customers and, you know, an additional tool. What?
Speaker Change: You know, what's the hesitancy or what's the delay in Brevork?
So, one of them...
Speaker Change: Basically new capability that we're demonstrating for the customer. It's a new configuration machine that does some new things.
Okay, I'll leave that. And then, um...
Speaker Change: You know, you were very popular at a recent event, made a appearance on-
stage.
and I'm just wondering...
Speaker Change: You know, was that signaling, you know, a strengthening of that relationship and perhaps an opportunity for, you know, additional VFI or other services at the customer award?
You know, any sort of thing [inaudible]
Call Around of Potential Opportunity [inaudible]
Yeah.
Speaker Change: You know, your focus is very, you may never really speculate on specific customers or guests. I mean, we were very honored to be able to be on the stage and talk about our collaboration with them over the years.
Speaker Change: We hope to be able to extend that, and we think that there's a lot we can do together.
Speaker Change: Their roadmap is very interesting for a lot of our customers too, but it would be speculative for me to kind of go on and say what that meant other than it was just a nice opportunity to get up on stage.
Okay, I understand. And then last one for me, the anal levy exercises, you know.
Speaker Change: Group 10% year on year. The growth rate appears to have flown a bit, and I'm just wondering, where are the challenges to picking up the growth rate of analytics?
Speaker Change: Yeah, overall, I think we've done a lot on R&D. It kind of comes to that sales and marketing and getting spend that, I think, was maybe a player that asked us about it.
You know, new innovation takes while to get digested.
Speaker Change: And so that's, I think, an effort for us. Things like RSMH, product is quite a complex
Speaker Change: Deployment, right? So that pilot we did last year was very small, right on the order. You know, I have a couple of million dollars, right? And...
Speaker Change: You know, that just, it takes a year, right, to then get to the point where they can go and say, well, this is...
Useful, I think I'll make them more substantial.
booking and start and actually deploy.
Speaker Change: So a lot of it, I think, as it sends you an overall analytics platform, becomes more and more enterprise-wide system. I do think that the way we sell needs to evolve, we're spending more money to get better at that.
Speaker Change: Yeah, I don't. I wouldn't give us an A. I don't think I'd give us a B yet. Yeah, I think we're still a C student. We'll work at it and try to become a better student at it.
Speaker Change: I still think our effort is, as we get new technology out, how do we get into the hands of customers and show it really works and show them the value of cost. That's what's most critical to drive growth.
Speaker Change: Got it. And then, Adnan, just, you know, with the acquisition, can you give us a little bit of color on, you know, how would you think about the growth margin and op-ex going forward? You know, what is the incremental spend in which lines?
Adnan: Yeah, absolutely. So look, I mean, I think we'd be an out-of-the-acquisition as well. We'll talk about how we expect the...
Acquisition to BE
Equative to our earning, so we still believe that.
Adnan: It should also be occretive to our operating margins as well, although as you apart the company you also had some thoughts around the additional spend it might need, given that it's a car about situation and it wasn't a fully functioning organization by itself. So there are pieces of spend that we would add to this. I would say overall think of us as a combined company still marching towards our long-term gross margin targets in the operating margin targets that we've...
Headset, I watched in the fall of 20-23
Adnan: What we need to see is do we get all the way there or do we just under so that's the math that we look into to study as the year goes on. But overall very pleased with the accusations and the results that we're seeing already like John said in the two months of working together into the one less than one month of results that are incorporated into our numbers.
Thank you.
Okay, let's have it for me. Thanks so much.
Thanks, guys.
Thank you.
Adnan: Next question comes from the line of Christian Schwab of Craig Harlem Capital. Please go ahead Christian.
Christian Schwab: Thanks. So guys, you know, it's good to see that you know previous and else partnerships, such as SAP is led to
Contract, you know, in hand.
Speaker Change: Could you give us an update, you know, you have numerous partnerships and then thinking of the dentist in particular? Is there, is there any other, you know, pilots that have been ongoing that we should?
to anticipate could turn into contract revenue over the next year.
Speaker Change: Sure. Yeah, we, you're right about, we have a number of other partnerships with, with respect to Adnan Trust. We have ongoing revenue from the Adnan Trust engagement. That includes both
Speaker Change: Hicchual Selling, Joint Selling at Customers, where customers use our product, integrated with, you know, if it works with some of their hardware, enabling...
Speaker Change: more dynamic testing, more model-based testing, and they also are a customer of using our systems on-premise.
Speaker Change: That relationship continuing and pieces of it will grow over time. Some of it will not grow. Some of it will stay relatively constant. Some may shrink a little bit, but overall we expect to have a relationship with Adventist on an ongoing basis.
I've been tested like that as well so you know
Speaker Change: Yeah, I would say overall, we've learned a lot about how to run partnerships effectively.
Speaker Change: Activity of integrating our solution with theirs. We think customers want that. But a lot of times we will do the selling of our solution, you know, I'm proud of the solution on our own. Like we do with SIT, as it's, you know, we're better able to.
Speaker Change: to its specific value, and in effect, you know, capture the opportunities there, working in collaboration with them.
Great. No other questions. Thanks guys.
Thanks Christian.
Thank you.
Speaker Change: Our next question comes from the line of William Jellison of D.A. Davidson & Company. Please go ahead, William.
Thanks for taking the follow-up question. I wanted to ask
Speaker Change: You know, John , at the very beginning of the call you mentioned how this year started with some of the industry who was relatively soft last year hoping for better performance this year.
Speaker Change: You mentioned in the Q&A that advanced nodes would likely remain strong this year as well.
Speaker Change: So with that in mind, I'm curious how you think about your trailing edge customers and where they sit right now and...
Speaker Change: and your perspective on their relative strength or perhaps still waiting for their recovery.
Speaker Change: Yeah, I mean, what I've noticed about the customers that are, I call it referred to mostly as the merchants and seminars of customers.
Speaker Change: There's some of the most aggressive at reforming their business operations.
Driving more AI in the way they operate.
Speaker Change: trying to get more productive on the way. They respond to the market. So...
Speaker Change: The SAP activity, the ML ops opportunity, some of the things we're doing on the enterprise-wide
Speaker Change: Nimbleness or Flexibility. And so I think that, you know, some of what PDF can offer is a value to that customer base right now. For our leading edge customers, you know,
Thank you very much.
Speaker Change: for the stuff on the leading edge. When it comes to kind of price, enterprise-wide business process evolution, you know, obviously that can always take an extra quarter for them to make a decision to some exact as always.
Speaker Change: Timing issues, they're hard to predict. But I think for that merchant customer really nimbleness is the name of the game, they're all looking to achieve more of it. We hope to help them with that and what we're bringing with our enterprise wide solutions.
Speaker Change: That's kind of what we see in space right now.
Great. Thanks, John .
Thank you.
Speaker Change: Our next question is a follow up from Blair Abernethy of Rosenblatt Securities. Please go ahead, Blair.
Blair Abernathy: Thanks. Just a quick question on capital allocation and so you've taken on 69-70 million of debt. You haven't bought any back any shares this year.
You're very faint.
Blair Abernathy: So, can you hear me? Is that better? Oh, perfect. Okay. I'm just on terms of capital allocation. How should we think about, you know, over the next couple of years, your prioritization vis-a-vis debt reduction, share a buyback, and so forth, given that you should be cash flowing fairly strongly?
Yeah, good. Well, first of all, thanks for that confidence.
Blair Abernathy: in the last part of your question. And yes, we certainly believe so as well, particularly with the businesses. We've said in our prepared remarks and John said in the Q&A answers as well that the business is starting to show diversity, now finally for the Genshear side as well. So look, I mean, that is a necessity when we were looking at the acquisition, so hence we put it place. It's obviously with John and Kim and as the founders of the company, you've seen us not carry any tests. So are.
Objective.
Blair Abernathy: Hi up on the list, it's going to remain how fast and how soon can we start to pay off that debt. That said, when the opportunities arise, are we going to look at buybacks? Yes, we absolutely will as well. But at the same time, it's going to be the balance of how much min cash we want to carry on the balance. So I would think of it as...
Blair Abernathy: Dead, and then couples that some buy back obviously the last couple of quarters as you can imagine but the announcement of the deal it puts you in a situation where you can't really going by in the market and then
Blair Abernathy: A few years ago, you saw us buy back larger chunks of shares when the large blocks become available. So we'll remain opportunistic and balance it with the desired number one of reducing the dead amount as well as then when the opportunities arise to buy back the stock.
Okay.
Speaker Change: Adnan, what's the gross margin profile look like of that business? And is it mostly a...
You know it.
a subscription, revenue base, or a... is it a...
Yeah, a great question inside, but like-
Speaker Change: Yeah, great question. So I'll answer in the flip order just to put the context around it. So the business is highly recurring and fact nearly all recurring.
Speaker Change: and it's got multiple pieces of it that constitute to the recurring nature. So as...
Speaker Change: We have explained the business at the time when we did the acquisition as John has also explained it today.
on the data usage that's flying to the system.
Speaker Change: Both of those together along with other pieces tend to make this business a highly recurring nature business.
Speaker Change: In terms of gross margin, look, that was one of the attractive things to us. We don't break it out separately, but let me just say it is a creative to our gross margin, so over the long term, particularly balanced with some of the spend that we alluded to earlier that we do need to make because it is a carve-out situation. We net nets to expect to be a positive force for the year, and hence our earlier comments as well that we remain committed to.
Speaker Change: and our target margin model that we had set, of course, margin of 75% and 20% in the long term. I mean, back to the question that I think Will had asked also on the increased spend on sales and marketing. Look, yes, we will optimize that spend and sometimes increase it, sometimes decrease it. But rest assured, we remain committed to making sure to solve for the 75% growth and 20% operating margin as our North Star.
Speaker Change: Thank you. Once again, to ask a question, please press star 11 on your telephone.
Speaker Change: And at this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.
Speaker Change: [music].