Q2 2019 Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the second quarter 2019 Advanced Energy Industries earnings call. At this time all participants are in a listen only mode. If anyone needs assistance during the conference Prostar NCR the retailer and operator later, we'll have a question and answer session and instructions will follow at that time now it's my pleasure to turn the call to Edwin Mok, Vice President of strategic marketing and Investor Relations. Please go ahead.
Thank you good morning, everyone welcome to Evans Energy's second quarter 2019 earnings Conference call.
With me today are you all walkman, all president and CEO , Paul Oldham, Our executive Vice President and CFO and Brian Smith, our director of Investor Relations.
If you have not seen our earnings release, you can find on our website at IR Dod advance Dash energy Dotcom. There you will also find a slide presentation to follow along with discussion today before we begin I would like to mention that in the coming months events energy will buttons Veda Investor conference holes by Keybanc Needham and company Jefferies' da Davidson and city as artery events occurred we will make additional announcements.
And now let me remind you that today's call contains forward looking statements, which are subject to risks and uncertainty that could cause actual results to differ materially are not guarantees of future performance information contain these risks and uncertainties in our filings with the FCC and can be found in today's press release as well as our presentation.
All forward looking statements are subject to management's estimates projections and assumptions as of today August six 2019, and his company assume no obligation to update them. In addition, long term targets operational goals present today should not be interpreted as in any respect guidance. Today's call. Also includes advance energy non-GAAP financial measures an explanation of these measures as well as reconciliations between GAAP and non-GAAP measures are contained in our press release in our presentation with that let me pass the call to L., President and CEO Youve all Wasserman Yuval.
Thank you Edwin.
Good morning, everyone and thank you for joining us on this call.
Our results in the second quarter reflect solid operating performance was strong earnings sequentially higher cash flow and revenues in line with our guidance range.
We are executing effectively in an increasingly challenging market environment, optimizing our cost structure, while investing in strategic technologies and product development programs.
The adoption of these technologies into our customers' next generation products has already started to generate results and I believe our pipeline of new technologies is positioning AG to deliver a strong future revenue growth across our portfolio.
Lastly, during the quarter, we announced the agreement to acquire artisan embedded power, which we believe will provide larger diversified platform for more balanced and steady earnings growth going forward.
Let me start with a quick update on the outpatient acquisition.
Teams at both AG and others and have made great progress towards closing.
We have secured all necessary regulatory approvals.
And the artisan team is on track and executing on a carve out plan.
Based on our current plan and progress we are confident the acquisition will be closed at around the middle of the second half of 2019.
As we indicated when we announced the deal.
The addition of arts and embedded power will transform a from a predominantly semiconductor power company into a highly diversified industrial technology powerhouse.
Our addressable market will triple to about $7.5 billion.
And with the expanded capabilities across critical power technologies in telecom five G datacenter hyper scale industrial and medical markets, we expect to deliver significant value to all of our stakeholders.
We are extremely excited about the opportunities for the combined company to create a platform for accelerated earnings growth.
Turning now to a summary of the second quarter.
In semiconductor our Q2 results and outlook reflects further softening of demand from in memory Fabs as expected.
With continued softness in memory prices and push outs of capital investments by device makers many of our OEM customers continue to work down the excess equipment inventory.
That said.
Total sales through our two largest customers were sequentially stable in Q2.
And in recent weeks, we have seen increased orders related to near term investments in foundry logic.
We believe this is a further sign of our semi business, reaching a more stabilized level.
Despite the continuing expected decline in memory, we believe that our semi business in Q3 will be flat to the Q2 level driven by our contents in foundry logic and early revenues from recent share gain in RF.
Our continuing investment in advanced power solutions is differentiating AG.
As our customers develop next generation manufacturing tools processes and solutions the adoption of our technologies is increasing across the industry.
Using a east technologies, our customers have started to ship next generation beta equipment to semi fabs for qualification in advanced etch and deposition for leading edge memory and logic processes.
In last quarter's call.
With disclosure critical design win for RF matching networks.
This win.
He has already started to drive incremental revenue for AG, allowing us to grow our RF met shells to this leading customer by more than 30% from the second half of 2018 to the first half of 2019.
In addition, we see expanded opportunities in RF as this win and other more advanced development with our customers confirm the increased importance of advanced power control such as dual frequency RF matching.
More broadly there is an increased focus on new memory device architectures and materials, including AMRAAM phase change memory and Reram as the industry looks to these emerging technologies to address challenging requirements for AI and cloud applications.
We see these technology inflection expanding a ease opportunities as our OEM customers create new deposition and etch processes that typically come with new and complex power delivery and control requirements.
For example, this quarter, we won a new power delivery solution for a next generation tool designed for new memory technology development.
Finally, we continued to gain momentum in Korea, securing six new design wins across multiple OEM customers applications and device types during the quarter.
Combined we believe these wins clearly illustrate ease technology leadership, particularly.
In next generation application, requiring advanced process power solution.
Overall.
These programs are already delivering early revenues and should enable you to grow our market share and maintain our technology leadership for years to come.
Turning to our industrial business.
While the second quarter came in largely as we had expected it revealed at our industrial business is not immune to the overall macro environment and the industrial sector.
Consumer electronics related investment in flat panel displays and hard coating further weekend in Q2 and macro headwinds in certain geographies, most notably Europe pressure demand for some of our products.
Solar remains a bright spot in our industrial market as we see some of our customers accelerate investment during the quarter.
Looking forward.
We now expect the industrial revenue in the second half of the year to be similar to the first half level and more Q4 weighted.
Macroeconomic headwinds continue to limit growth in several of our industrial market, partially offset by recovery in display investment and ramp up of several new design wins later this year.
Most notably we secured a new project for Smart City security system that utilizes our unique compact custom power supply.
Our combined portfolio of high and low voltage offerings also enabled the two in multiple designs across medical and industrial applications.
Moving onto service.
Despite the divestiture of the Central Inverter service business in May revenue was flat sequentially in Q2 and up year over year. However growth was constrained by lower fab utilization signs of delayed upgrades and some memory fabs beginning to convert capacity to other device types. As a result, we expect service revenues to be down slightly for the second half.
And excluding the solar inverter business full year growth to be in the mid to high single digits.
Long term, we continue to target greater than 10% annual growth rate driven by our expanded global footprint, new service offerings and growing install base.
In summary, we continue to operate in challenging market conditions and with low visibility.
Im pleased with our performance and believe that we are executing well in our core markets and that our strategy to expand into new power related markets and applications were paid significant dividends in the future.
We believe our continuing focus R&D investments are delivering results as we enable our customers technology roadmaps, while increasing our position as a critical technology partner.
Lastly, I'm very pleased with our progress towards closing the acquisition of artisan embedded power, which will expand our addressable market broaden our portfolio penetrate new vertical and unlock significant shareholder value.
I'd like to thank our customers shareholders partners and our valued employees for your support and look forward to seeing many of you in the upcoming quarters with that let me turn the call over to Paul Paul.
Thank you Paul and good morning, everyone.
Before I begin let me note that this quarter had a couple of special items in the financial results.
The first is that we sold our US based central inverter service operation in exchange for assumption of our initial and long term warranty obligations.
The financial effect of this transaction on our GAAP results was a non cash gain of $11.5 million net of tax in continuing operations and another $8.6 million and discontinued operations.
Second we recognized $1.8 million in restructuring costs, consistent with our guidance last quarter and $1.5 million in costs related to the artist and acquisition.
Excluding these items as well as stock compensation that amortization, our non-GAAP earnings were 45 cents per share.
In addition, we recognized a discrete credit to tax expense this quarter, which contributed approximately five cents to our non-GAAP earnings.
As a result on a normalized basis, our non-GAAP earnings per share was at the high end of our guidance range with revenues at the midpoint due to good expense control that favorably impacted both cost of goods sold and operating expenses.
Total revenue for the quarter was 134.8 million down 4.2% from last quarter and 31.2% from our peak revenues a year ago.
Product revenue fell 5% sequentially to $106.2 million and service revenue was flat at $28.6 million.
Looking at product sales by market semiconductor revenue in the quarter was $65.1 million down 3.6% from last quarter and 48.9% year over year.
If you combine our semiconductor product and service revenue, our total sales into the semiconductor market declined 1.5% sequentially and 39.8% compared to last year, which was about as expected.
Looking deeper into our quarter product revenues at our two largest customers increased sequentially offset by lower revenue from Korea and China.
Looking forward, we expect semi product revenue to be approximately flat in Q3 with further weakness in memory investments largely offset by near term demand for logic and foundry related investments and early benefit of recent RF share gains.
In general this dynamics supports our view that our semiconductor revenues will continue to fluctuate around these levels in the near term.
However, based on industry forecast the timing of recovery in memory appears to be pushing out into the second half of next year.
Which could put additional pressure on demand over the next few quarters.
Industrial technologies revenue was $41.1 million, a decrease of 7.8% from the first quarter and down 2% from last year.
Our sales into advanced materials processing applications were impacted by continued softness in flat panel display and consumer electronic coatings as well as a weakening overall industrial environment.
This was partially offset by another solid quarter in solar.
Looking forward, we expect the ongoing macro headwinds to continue into the third quarter.
As a result, we expect our industrial business to be down sequentially, but improve in the fourth quarter on shipment of new design wins and timing of projects in solar.
Service revenue for the quarter was flat sequentially and up 6.8% year over year.
As we discussed earlier in the quarter, we divested our U.S solar inverter service business, which contributed approximately $1.9 million of revenue in Q1 and approximately 600000 in Q2.
We also began to see the effects of lower fab utilization the power outage at a leading Japanese NAND chip maker and capacity reductions or reallocations in the memory sector.
Which we expect to have an increasing effect over the balance of the year.
As a result, we now project our service revenues to decline modestly in Q3 and remain at similar levels for the next couple of quarters as our programs to grow share and new service offerings, partially offset the slower environment.
Gross margin for the first quarter was 47.6%.
On a non-GAAP basis gross margin was 47.7% compared to 47% last quarter.
Gross margins increased sequentially largely due to our operations team driving efficiency in the face of lower volumes.
Looking to Q3, we expect adjusted gross margins to be in the 47% range.
GAAP operating expenses in Q2 decreased sequentially to 53.1 million largely due to lower stock compensation expense.
In addition, as I mentioned, we incurred $1.5 million in acquisition related costs and $1.8 million in restructuring costs, primarily related to the integration of previous acquisitions, including the consolidation of our limits since operation into existing facilities and ongoing efforts to improve efficiency.
non-GAAP operating expenses came in at $47 million, which was up from $45.8 million last quarter, but at the low end of our quarterly target range of $47 million to $48 million.
As a result of our efforts to manage discretionary and other costs.
Looking forward, we have lowered our non-GAAP operating expense target for the remainder of 2019 to be between 46 and $47 million per quarter, while continuing to invest in strategic programs.
GAAP operating margin for the quarter was 8.2% compared to 8.4% last quarter.
non-GAAP operating margin was 12.8% compared to 14.5% in Q1.
In Q2, we recorded GAAP net tax expense from continuing operations of $3.2 million, reflecting a 12% tax rate.
On a non-GAAP basis, the effective tax rate was 5.8% well below our model due to the credit I discussed previously.
Longer term, we continue to expect our GAAP and non-GAAP tax rate to return to our normal range of around 15%.
On a GAAP basis earnings per diluted share from continuing operations for the second quarter or 61 cents compared to earnings of 40 cents last quarter and a $1.17 last year.
The sequential increase was driven by the gain.
From the sale of the inverter service business.
non-GAAP EPS for the quarter was 45 cents above the high end of our guidance range due to better than expected gross margins lower than expected operating expenses and the tax benefit.
This compares to 58 cents in the first quarter and a $1.25 a year ago.
Turning now to the balance sheet.
Operating cash flow from continuing operations was $11.5 million.
And our cash and marketable securities balance rose to $360 million.
Overall net working capital was down for the quarter, our receivable balance decreased by $9 million as Dsos fell to 62 days.
Inventory decreased by $6 million, which included approximately $4 million related to the sale of our service and Burger business.
And turns were 2.9 times.
Capital expenditures for the quarter were $6.4 million and depreciation was $2.3 million.
The higher capital spending was primarily related to our expanded footprint in Colorado, the new manufacturing facility in Malaysia, and our new service and engineering lab in Israel, which we opened this quarter.
We expect full year 2019, capex to be within the range of $16 million to $20 million.
During the quarter, we did not repurchase any shares.
Now, let me turn to guidance.
For the third quarter, we expect revenues to be $128 million, plus or minus $5 million on relatively flat semi and sequentially lower industrial and service revenues.
We project Q3, non-GAAP earnings at 33 cents, plus or minus five cents per share.
In summary, our team executed effectively in a difficult environment, improving our cost structure, increasing cash flow and delivering non-GAAP earnings at the high end of our range.
These improvements allow us to increase our near term gross margin target by 100 to 150 basis points, even with the lower volume.
And reduce our operating expenses target for the remainder of the year.
Further we have a rich set of opportunities both in semi and industrial markets and our pipeline of successful design wins gives us the confidence that we have the right products and technologies to compete and win.
Finally, the addition of artisans embedded power will diversify his end markets expand our product portfolio and provide a platform to deliver accelerated earnings growth going forward.
With that we will open the call to your questions operator.
Oh.
Carl.
Uh huh.
[laughter].
Hello, operator, Hello commentary there.
And ladies and gentlemen, if you have a question at this time just press Star and then number one can you have your touchstone telephone. If your question has been answered or you wish to be removed from the Q press the pound key.
And our first question is from.
Amanda Scarnati from Citi.
[noise].
Hi, Amanda are you there.
Amanda just press star in one place.
Yes sure so.
And your line is open Amanda.
Hi, Good morning can you hear me.
No we can hire going into how are you. Good morning, [laughter] how are you.
[laughter].
Just a quick question first on the non semi side of the business.
Yeah. So you mentioned seeing somewhat of a a macro pause or concern would be that the macro environment do we need to see some sort of resolution on trade in order for that business to pick up or do you have enough Ah you know insight into the December quarter to really be confident about docket, that's picking back up again in December .
So as you can from you may observed what's happening right now globally, it's more than one driver that drives the behavior of our industrial business.
It's it's up it's first of all very lumpy business the combination of macro economical in new drivers, including trade wars, including tariffs, including various aspect of industries in regions like Europe in Asia that affected the mix of.
You know products and applications we serve.
We as well as we said earlier, we expect the second half to be similar to the first half which means to Q4, we expect to see an increase in our industrial business.
Okay.
And then on the semiconductor side of the business.
You mentioned that you were talking stability with your top two customers in front me yet you were still down a little but is the expectation that we're still sort of bouncing around the bottom, but hope not you know that what we're seeing in logic and foundry Hall.
Advanced energy against its peers in the space, just because you have a little bit more exposure online versus memory.
That is correct Amanda our exposure is very diverse and we have high content in foundry and logic as we have in memory.
Aided by recent market share gain in RF.
That transition to significant revenue incremental revenue generation.
All helped us in.
The revenue projection that we have talked about especially.
In North America.
Obviously, we see a difference in dynamic between North America and Asia. Both in terms of projected revenue and in terms of the current level of inventories that the Oems have.
So inventories are now a little bit more normalized on Europe .
I think the I can't analyze our customers' inventories, but I think the inventory levels are depends depends on mix. It's a mix of IC devices, our customer service and the mix of customers are served for that reason it to non uniform picture, we cannot make a comment that all the inventories level behave the same.
They are strongly dependent on the device mix.
End user mix and the level of finished goods inventory our customers have.
Perfect. Thank you.
Thank you. Our next question is from Mehdi Hosseini with ESI Gene Your line is open.
Yes, thanks for taking my question.
Couple of follow ups I, just want to reconcile your commentary about the memory market. I'd you mentioned that you don't see a recovery until second half of next year is that your customers.
Shipment pickup that you're referring to or is that.
He is expected rebound just trying to figure out.
Hi made it this is based on high made it. This is based on information we gather from various resources in the market in or just general I would say in general market consensus.
We do not we do not analyzer, our customers business and would not try we're not trying to be to be industry forecasters.
We'll be saving a fee based on the common consensus in the market. This is what we observe.
Sure. So if the if memory spending would pick up in the second half of next year.
Should we assume that your customer with a start ramping building systems.
Buyers like June of next year.
If if memory will start recovering the second half next year I assume that what you said is correct.
Okay.
And.
In terms of the lower Opex.
That you guided to I believe you said 46 to 47 million for the second half of 19.
Is that how how should I put this into context of cost synergies associated with artisan is a part of that or is that additional cost savings or cost cuttings that you are.
Pursuing.
Yes. This is this is essentially efficiencies and improvements in the cost structure for a prior to the artisan acquisition. So any artisan synergies would be in addition.
To those numbers and.
You know we think as it is you've all stated we continue to.
Accelerate the integration of our current acquisitions to work on efficiency I think those actions are you are you are seeing the benefit of those despite our continued investment in.
New products in some capabilities as you noticed in getting closer to the customer things that we think will drive growth in the long term. So we're actually offsetting and even some small increases in investment with these actions to deliver a better cost a little better cost structure in this environment.
Okay got it thank you.
Thank you.
Thank you. Our next question is from Quinn Bolton with Needham and company. Your line is helping.
[noise].
The mix towards foundry logic, many of the Oems that have half or more of their business to foundry logic have actually started to guide up for the September quarter, and knowing that you are skewed a little bit more to foundry logic, I guess I'm surprised you're not seeing better strain on that side of the business I know, it's helping you to offset continued weakness in memory, but I guess.
Some of the Oems have actually been able to guide up.
Im wondering if the reconciling factor is just continued inventory corrections at some of the Oems, perhaps on the more memory driven equipment and then a related question you mentioned that your top two Oems.
Or up in the June quarter, but Korea, and Chinese customers were down are the Korean and Chinese customers more memory, driven and then I've got a couple of follow ups.
Yeah, It's a really good question Quinn.
Memory is is the larger part of our of our business is larger part of our exposure. If you recall, we are about a third in the third and a third exposed to NAND DRAM and.
And foundry logic. So clearly we're seeing some recent uptick in foundry logic memory is weaker and I think thats consistent kind of.
You know broadly across the industry and so it is having an offsetting effect rather than us guiding up if we were 50 50 or even higher foundry logic in it it could be up but that clearly we're seeing that us and your commentary is right.
The Asian competitors are essentially memory heavily memory concentrate our customers' customers our customers are heavy memory concentrated and thats why.
They they are moving down, whereas we're seeing where we have more balanced exposure, even more of an offset and within the within the memory landscape Quinn, we see a different level of inventories among different Oems.
Got it okay that makes that makes sense.
The second question about the industrial strength, just trying to put some rough numbers around September of semi business is flat. The service business is down slightly it looks like industrial is probably down 10% or more to get to the mid point of the guided range and so if I then look forward to the fourth quarter, where you're saying the industrial business will be flat half over half. If my numbers are right, it's implying about a 30% increase so the high $40 million range in the December quarter, and you talked about that business being affected by the macro and clearly the macro I think with trade uncertainty is uncertain and so it seems like you must have some.
Design wins that are ramping to production to give you that confidence and just wondering one if you could confirm that my math is in the right ballpark and to give us a little bit more color on some of those industrial programs that ramp for you in the fourth quarter.
Yes, I think your math is broadly right and obviously, it's directional but we we said in our prepared remarks that the business is lumpy in particular timing of solar projects and make a difference here and the timing of ramp of design wins.
Which that's the timing that we see that happening so its not so much conditioned on a recovery. If you will to your question and Tim and his early question is more related to timing of projects as we see things right, now, which which could move a little bit but thats, how we see them today, Yes. Quinn Directionally. You are correct. You are correct Directionally a lot of it has to do with timing of some significant projects that.
Could materialize in Q4 and will drive the.
The rate did you mention.
Did you say those were solar projects, mostly in Q4 or is it much more diversified as design on design wins design wins and solar projects.
Not only so great.
And then my last question certainly be the pain, the Guy who asks but MKS on their call talked about winning a third.
Design win in conductor etch for critical application I know you guys have addressed some of these.
Claimants from your competitor in the past just wanted to give you the forum to address this latest design win claim is if you if you care to comment.
Yeah sure why not that it's always fun to have this being phone game.
We secured all meaningful design win positions in conductor edge.
Our design wins are significant.
And in General if you look at our behavior right now in terms of revenue projections.
Into the future you will notice that our.
Revenue projection is semi.
Is different than peer companies the key drivers are too.
Our content.
In foundry logic, and the incremental revenue, we generate from design wins in RF and we have generated significant RF design was that.
With our basically materialized to incremental revenue right now. So obviously, we operate in a business that is a design win business and all players have design wins.
And design losses, right, we win all the significant important revenue generating design wins.
Thank you.
Thank you.
Next question is from Krish Sankar with Cowen and company. Your line is open.
Hi, Thanks for taking my question I have two of them close to one.
There was no buyback in the quarter was it tied to more dependent on as an acquisition or something else going on.
Yes, it's a good question Krish, we have essentially paused our buyback program. It's an opportunistic program that we turn off or on it anytime given the circumstances, but our view right. Now is we have a large acquisition pending.
And we'd like to see that through.
It's also that somewhat uncertain environment. So.
It will be a little bit cautious and we'll monitor the environment as we go forward certainly we want to be opportunistic with that program and we have the capacity and flexibility if needed to repurchase shares that is that for the quarter. It we put it on pause.
Got it got it and then.
This is a follow up.
My understanding was that you got a relatively speaking on the block from you guys had more sense than conductor edge.
Well were data could get if that's true and B. If so then foundry logic comes back better than memory would that benefit you are the better for dollar tree good sponsor plasma. Thank you.
So.
Chris you're right historically, our content and leadership in conductor Etch was was really.
Vast.
And our position in the market was a strong leader in conductor etch, we have presence in that epic edge.
In multiple locations, but the lion's share of our etch revenue is related to conductor etch.
We expect two to benefit.
From.
The foundry logic.
Recovery not only because of the fact that we have content in conductor etch.
Just because of the fact of we have content in foundry logic across multiple multiple applications etch deposition ion implantation inspection metrology et cetera, So our our footprint in terms of application presence is very broad.
As is and as you see the recovery that we see right now.
In foundry logic.
Was one of the reason we project.
A much better profile into our semi revenue projection for the future.
Thank you all.
Thank you.
Our next question is from Tom Diffely with D.A. Davidson.
Yeah. Good morning out it's essential that Frank on for Tom and Thank you for letting us I have some questions.
I'm, a little bit on the competitive environment or touching on Quinn's question earlier, I, Jennifer Lowe several design wins, especially on the semi side.
How could you perhaps talk about.
Oh, what is enabling this lands and are they this placements or simply never fun for you guys. Thanks.
Well in general.
Design wins in general happen when an opportunity occurs when a socket is open at a customer new tool or an improved tool.
And the design win.
Usually.
Is is that as an effort to win against one or two competitors usually.
So what happens in design wins, it's rarely that you have displacement of a supplier in a current.
Product offering most likely design win occurs when a socket opens in a new tool an application.
And and you win the socket.
That's basically the dynamic.
In our case.
The recent incremental revenue growth that we saw in.
Semi in North America, with a projection continuing growth.
As a result of a design win in the RF match business.
That obviously was was won over a competitor.
But will generate incremental revenue, we did not have before.
I hope that helps you.
And it that thanks for the color and then secondly on Doris acquisition and you have talked about the 40 million dollar incentive fees. They expect to realize over time, but are you seeing any revenue synergies that could come from this acquisition line once it closes.
Absolutely first of all we need to close the <unk> acquisition is right now between signed and closed but as we presented and talked about this opportunity publicly.
We expect to see.
Revenue synergies coming from two areas.
One area is taking orthos in products, which is obviously power supplies into the semi industry, where we have great presence.
And the other is developing new products, which is a combination of AG RF technology and artisan low voltage technology to advance medical applications. These are just two example, we're very excited about the opportunity, but right now as we look at these opportunities. We did not include them in our model when we talked about this business. We did not include any revenue synergies. This will be an upside and it's going to be an exciting upside.
Oh I exciting times. Thank you and then I could do perhaps talk that.
Last question from US could you perhaps talk about distribution agreement are they signed with downtime in the quarter for Europe , and what sort of opportunities you are seeing from there. Thank you.
I'm, sorry, I didn't understand westridge.
Yeah, we did sign a distribution agreement in Europe , the easier for our.
Some of the existing low voltage products that we have today.
We have very nice portfolio in some of the medical and other applications and this supplements that channel. It's also very complimentary as we look forward to the channel that artisan brings for similar types of products.
Okay. Thank you.
Thank you and our next question from Pavel Molchanov with Raymond James.
Thanks for taking the question at the time of the artisan announcement in May.
You set out some expectations for what revenue would be and so on.
Given the industrial headwinds that you've observed in your existing business since that time I'm curious if your expectations for artisan have similarly.
Hi, diminished or or moderated.
Yeah. That's a good question Pavel in General you know, we're not updating any expectations relative to the artisan acquisition at this time.
But if you look at the markets that the artisan is exposed to data center telecom industrial and medical type markets.
You can kind of look at the market data around those and in some of those areas, we haven't seen meaningful deterioration. So.
You know, we'll give an update as we get closer to the actual close.
But at this point, we haven't given any update to the artisanal.
Okay.
Any thoughts on I guess more granularly when it's going to close so you said second half of the year or is it.
Do you think it's going to be by the end of September .
Yeah, we said in our prepared remarks that we expected around the midpoint of the second half so.
I guess, if you just did pure math that would be roughly the end of September early October .
We feel confident in that in that timeframe.
Okay and then.
One last one.
One of the previous questions about share buyback.
Hi, it's there.
Target for de leveraging that you would want to see both for reactivating or resuming the buyback effort.
As we've said our priorities for capital allocation continue to be the same number one is continue to grow the company through.
Strategic M&A or acquisitions and number two then to opportunistically repurchase shares within that first one. We've also said that our near term priority would be to focus on de leveraging we haven't given any specific targets for that but in general I would say the answer is yes, we would look to.
Over time, the leverage more quickly.
Then.
As a priority from a capital allocation perspective doesn't mean, we wouldn't do opportunistic share repurchases if that made sense in a quarter, we've left ourself financial flexibility to do that.
But those would be our priorities first deleveraging as part of kind of the big upfront investment in M&A ongoing M&A and threes opportunistic share repurchase.
Okay clear enough appreciate it.
Thank you.
Thank you.
Thank you and this concludes the Q and a session for today I would like to turn the call back to use all Wasserman President and CEO for his final remarks.
Oh, thanks, everybody for joining us today interesting times for sure an exciting time for us as we look into the future I am looking forward to seeing many of you over the next few weeks. Thanks.
And with that ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect have a wonderful day.