Q2 2019 Earnings Call
I would like to welcome everyone to the CNN fiscal second quarter 2019 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key. Thank you Gregg Lampf, Vice President of Investor Relations you May begin your conference.
Thank you Lisa.
And welcome to <unk> 2019 fiscal second quarter view.
Today is Gary Smith, President and CEO , and Jim Moylan, CFO , Scott Mcfeely, our senior Vice President of global products and services will join us for the Q&A portion of today's call.
In addition to this call and the press release, we have posted to the investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter.
Our comments today speak to our current view of the market environment and our industry position, our fiscal second quarter financial performance as well as our guidance for the fiscal third quarter and an update to our revenue outlook for fiscal 19.
Before turning the call over to Gary I'll remind you that during this call, we'll be making certain forward looking statements such statements, including our guidance and any commentary about our long term financial targets are based on current expectations forecasts and assumptions regarding the company and its markets that include risks and uncertainties that could.
Cause actual results to differ materially from the statements discussed today.
These statements should be viewed in the context of the risk factors.
During our most recent 10-Q filing and in our upcoming 10-Q filing which is required to be filed with the SEC by June 13th and we expect to file by that date.
Today's discussion also includes certain adjusted or non-GAAP measures of <unk> results of operations. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today's press release.
Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information.
<unk> events or otherwise that I will turn the call over to Gary.
Thanks, Greg and good morning, everyone.
Today, we reported a very strong quarter across all of our financial and performance metrics.
This included revenue growth in all major product segments and customer verticals.
This reflects our balanced growth and continued market share gains.
Order flow significantly exceeded revenue in the quarter, giving us strong visibility and increased confidence across our business.
This performance is driven by the combination of our outstanding execution of a very deliberate and long term strategy.
As well as favorable competitive dynamics.
Specifically, we consistently achieve technology leadership across our portfolio.
And continue to build a diversified customer base in high growth markets.
All at global scale, and with deep customer relationships.
As a result, we continue to outpace the competition across multiple dimensions.
And we believe that we represent the strongest and most stable partner to customers around the world.
This combination in turn is driving consistent and differentiated financial performance.
Including better than expected performance in Q2.
And is enabling us to significantly increase our revenue outlook for the remainder of the year.
Over the past few years there've been several notable shifts happening in the communications industry include.
Including evolutions and network design and technology as well as changes to the profiles of the customer base on the competitive landscape.
Our Q2 results illustrate the very positive impact on our business of how these shifts are playing out today for Sienna.
Specifically demand for capacity in its various forms remains robust across our customer segments geographies and market verticals.
And we are intensely focused on executing and delivering on this robust demand.
Also the industry structure continues to currently we defined really by a flight to quality.
Where customers are more intently seeking out vendors, who offer leading innovation and engagement models.
And do have the financial strength and sustainability to deliver on these over the long term.
Other industry dynamics also continued to occur, but with perhaps less of an effect overall on our business.
In particular customers in certain geographic markets continue to evaluate rebalancing their network spend in the face of an overdependence on certain Chinese equipment vendors.
Although the benefit of this to our business directly is difficult to discern. It has been a dynamic that has been in place for some time.
And we believe it to be relatively minimal impact on our business at this stage.
Yeah.
As we have said consistently in addition to these favorable industry dynamics it.
It is also the strong execution of our strategy to deliver the industry's leading innovation, while diversifying our business and leveraging our global scale that is underpinning our success.
With respect to innovation leadership.
Our competitive position continues to strengthen particularly.
Particularly given our focused investments in optical packet and blue planet automation software.
And our strong financial results are a direct reflection of the fact that the market firmly believes Siena has the strongest offering today and the most credible roadmap for the foreseeable future.
Our current portfolio as well as our roadmap, including feature sets and the timing of market introductions of frankly unmatched in the industry today.
As we head into the second half of the year demand for wave logic AI continues to grow.
And we will further extend that optical leadership with our wave logic five program, which remains on track to deliver single wavelength 800 gig systems.
This year.
Just as importantly, this innovation and time to market leadership is enabled by our significant investment capacity, which.
Which ensures that we have the depth and flexibility in our development to remain ahead of the competition.
Moving to diversification Q.
Q2, frankly was yet another great illustration of the breadth of our customer base and the benefit it provides to our business.
We had a strong showing from north American tier one service providers web scale players and in Asia Pacific.
Pacific specifically, Japan.
With North American service providers, we continue to benefit from their spending on Densification initiatives Metro access and aggregation build outs and ongoing long haul investments.
In Q2, both of our 10% customers were North American tier one service providers.
The breadth of our web scale business is expanding and our relationships with these customers are deepening.
This is driving differentiated growth and continued share gains in this important vertical.
Once again in Q2 three of our top 10 customers were web scale companies, including one that was just a fraction under 10% of total revenue.
We are also accelerating share capture and landing new wins with service providers globally, including in Asia Pacific Beyond India.
We expect these three customer groupings to be among the significant drivers of our business in the second half of fiscal 2019.
And finally with respect to the market advantage, we have with our global scale.
Because of how we have strategically grown our business around the world, including within key customer segments, and with well resource and focused innovation agenda aligned to their priorities.
We essentially have strong exposure to higher growth markets.
That combined with our World class go to market organization, including the largest optical sales team in the industry.
Positions us to foster the deepest and broadest customer relationships that exceed those of any other vendor.
In summary.
It is the confluence and continued execution of these multiple elements together.
Together with favorable industry dynamics that are enabling us to deliver outstanding financial performance.
And continued share gains.
With that I'll ask Jim to take us through the Q2 results and our higher outlook for the rest of the year Jim.
Thanks, Gary Good morning, everyone.
We delivered a very strong topline performance in Q2 with revenue of $865 million.
Representing 18% growth year over year.
Some highlights in our Q2 revenue include packet revenue of $73 million up 15% from Q2 of last year Blue.
Blue Planet automation software and services revenue of $12 4 million keeping us on track to achieve our fiscal 19 target of $50 million to $60 million.
With respect to Q2 revenue across customer verticals, non telco revenue was $295 million up 17% year over year.
<unk> web scale revenue contributed revenue of $167 million up 31% year over year.
And subsea revenue was $63 million up 23% year over year.
Moving to gross margin our Q2 adjusted gross margin was 43, 9% above our estimated range due to higher cost reductions than expected and a confluence of favorable mix factors.
Q2, adjusted operating expense was $269 $7 million above our guidance range.
The increase in operating expense was related to the timing of certain R&D projects as well as slightly higher variable compensation given the strong quarterly performance.
Year to date, we are essentially on plan for Opex, except for the higher compensation expense just mentioned.
With respect to profitability measures in the second quarter, we delivered adjusted operating margin of 12, 7% adjusted net income of $76 $2 million and adjusted EPS of <unk> 48.
In addition in Q2, our adjusted EBITDA was $131 million in cash from operations was $104 million we.
We ended the quarter with approximately $818 million in cash and investments.
Finally, we continue to execute on our share repurchase plans during the second quarter, we repurchased approximately one 2 million shares for $45 million. We are on target to buy back approximately $150 million in share value by the end of our fiscal year.
Before I move onto guidance I want to comment briefly on two current geopolitical matters impacting markets in general and potentially our industry.
First regarding U S. China trade tensions and overall relations, we have not seen any substantive impact on our business to date.
There are many elements to this situation given the global nature of supply chains. It is important to note that unlike many others in our industry, we have almost no revenue exposure to China.
Second regarding the potential for tariffs on imports to the U S from Mexico. The situation as late breaking it's very fluid and we can't be sure. What if anything will ultimately put in place we put in place and for how long.
For now we are evaluating a range of alternatives and mitigation strategies to address the potential effects on our manufacturing and distribution operations in Mexico.
If the initial 5% tariff is put in place next week as proposed our preliminary analysis, which reflect several conservative assumptions around our ability to mitigate indicates that it could impact our Q2 gross margin Q3 gross margin by as much as 1% I emphasize that this is a preliminary and.
Very conservative number.
The situations with China, and Mexico are highly uncertain at the moment and we will continue to monitor them carefully.
Fortunately for you we have not factored into our outlook today any significant potential effects of either of these matters and we do not believe they will fundamentally our alter our competitive position or the benefits yielded by our innovation leadership diversification and global scale.
Looking ahead in fiscal third quarter 2019, we expect to deliver revenue in a range of $915 million to $945 million.
And adjusted gross margin in the 42% to 43% range.
Given our strong results in the first half of fiscal 19, and our projections for the second half of the year. We are in a position to increase our revenue guidance for the full fiscal year, specifically, we now expect to achieve annual revenue growth. This year in the range of 13% to 14%.
As I said before we are on plan for Opex year to date, except for some variable compensation expense booked in Q2.
And we expect to be essentially on plan for the rest of the year, except for the potential for higher compensation expense, if we perform to our revised expectations.
With our new guide, we anticipate incurring higher compensation related expense of approximately $10 million per quarter in the second half of the year.
With that we expect operating expense in the third quarter to be approximately $270 million.
In closing we posted a very strong set of results today for our fiscal second quarter, including continued market share gains in every vertical and.
In addition, our strong visibility gives us increased confidence for the fiscal year reflected in our higher revenue outlook for 2019.
In a market that continues to grow in the low to mid single digits range.
<unk> execution of our strategy and a strong set of industry dynamics are positively influencing our business and enabling us to advance our competitive position.
With that Lisa we'll now take questions from the sell side analysts.
Thank you at this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Yeah.
And our first question comes from the line of Paul Silverstein from Cowen Your line is open.
Good morning, Doug.
First a clarification.
42% to 43% gross margin guidance.
We have incorporated the potential for the 1% adverse impact.
Oh no. It does not no 42 to 43 is our range of gross margin that we believe we will see for the third quarter and the rest of the year for that.
So if the Mexican preclude 5% proposed tariffs put in place.
Just one one percentage point at book.
Yes, yes.
Alright.
I'd emphasize that that's a very conservative number.
Now for the question.
Gary and Jim It sounds like.
Yes.
Pretty decent he changed in your outlook.
Web scale folks.
Joe you were talking about that group of customers Green softer the second half of the year.
Customer growth you just put up.
The comment that you are expecting a strong second half of the year out of that group and obviously, we're all aware of the investment community of your peers that have cited issues one stroke or another.
Give us some insight what's going on there.
One related question on the 600 gig versus 800 gig concern.
You've now got competitors shipping 600 gig platforms and the risk that it does.
So that's having an impact but if you could address those two issues.
Let me start Paul just to be clear, we never spoke of weakness with respect to the web scale. We said that we were going to have a good year with web scale.
But that we were not going to grow for this year as much as we grew last year remember, we grew 140% or something in that vertical last year. We said we were going to have a good year and we're going to grow all of the comments about weakness in our web scale business came from other places not from US I will now let Gary address the other questions.
So specifically, we still think the web scale market is growing in the single to low double digits.
And we're going to grow above that market rate basically we're going to continue to take share.
And that's driven by two elements one the technology and innovation leadership that's appreciated there.
On the embedded relationships that we have with them as well but.
To be clear the growth that we're talking about in the second half.
Is multifaceted it is not just web scale with them very well in web scale and we have a good visibility to that but service provider business in North America very strong the wins that we've had with global tier ones are also beginning to play through.
Specifically markets like Japan, very strong so.
It is a balanced.
Growth strategy that we've been pursuing and we're seeing the benefits of that in a broad based.
Projections that.
Frankly are going to be better than we had anticipated going in based on those set of dynamics. Scott you want to talk about the 600 gig and Paul It's Scott in terms of the competitive dynamics I would say this.
In Q2, we had a record quarter in terms of demand and shipment for our existing wave logic product portfolio as we look in the second half of the year that is accelerating off of that record.
Record height.
So thats.
Our window into the competitive dynamics, if you like the couple that with our announcement around <unk> five and the market leading innovation that that brings and the fact that we're well on the execution path of that.
As we thought we would be when we made the announcement, we're very comfortable in terms of our competitive position, but more importantly, I think if you look at the second half guidance. We have here, that's backed up with great visibility and demand across that portfolio.
Thank you.
Ask you to clarify the web scale and apologize opposed speaking loosely.
The flattening that you've previously referenced relative to the explosive growth that you've enjoyed.
Can you give us insight as to what you expect in terms of growth from the customer base in the second half of the year.
We were up.
31% for the quarter.
I'm not going to comment on the growth rate, it's going to be good this year, but.
It's not going to be 140% it'll be strong we're going to take share.
In the past Paul I think as we move the spend.
In our space that the web scale players do market perspective.
Our perspective is that that was growing.
On year high single digits low double digits, we haven't changed that perspective, and if you look at our growth rates that Jim referenced it's clear that we're taking share in that space.
I appreciate it thank you thanks Paul.
Our next question comes from the line of Simon Leopold from Raymond James Your line is open.
Great. Thank you very much for taking the question.
As if you are putting a lot of emphasis on sort of the non telco, but I'm, hoping maybe you could double click on the the majority of the business its telco and maybe give us a little bit more detail.
Sure.
Upside surprise in the quarter.
Typically I am trying to get a better sense of whether.
Your traditional north American customers or whether that.
Evidence.
Traction in Japan, you did highlight that but I.
I imagine will be a decline in Japan growing so if you could help us understand really the sources of this.
Rank versus your guidance. Thanks.
Yes, so I mean, I would I would sort of start with answering this around.
Overall, what I would call the flight to quality that you're seeing amongst the global service providers.
And that is multi dimensional it's around innovation the technology the relationships the scale and the sustainability I think theres a lot of concern around the global service providers, the big tier ones around the sustainability of many competitors and also the technology and the ability.
<unk> to sustain that roadmap and I think overall, you're seeing those dynamics.
Very favorable towards CNS so.
That's the sort of macro market dynamic, it's not brand new we think it's accelerating though this year.
Showing up by now.
And our results in terms of the geographic elements to that.
North America, we had very strong quarter and order flows and we have a good strong forecast for the remainder of the year, that's with the big Tier one service providers cable I would say is stable I think probably be a little bit of growth for us this year with new logo wins that we have.
In that space.
Internationally, we grew most of the regions EMEA was up for the year.
Asia Pacific seeing good growth, India, given the election and the rest of it is kind of will be I think sort of flat for the flat for the year, but I think it talks to our broad based growth strategy. We've got other markets that are picking up the.
The load Japan in particular, very strong growth out of Japan, and again I.
I think that also is about the flight to quality and the concerns around the longevity of their indigenous vendors as well and we're well placed to take advantage of that so Simon that's how I'd summarize it it's very broadly based we're also getting some of the benefits of the tier one wins that we've had over the last 18 months now beginning to come.
Revenue.
That.
It gives us good visibility into the into the second half of the year with the service providers, we feel very good about service provider business in 2019.
What would you what would you consider the single biggest surprise for you in terms of these results.
I think really the advancement of the competitive position Scott Scott talked to this.
And I think the.
Desire for wave logic in its various forms.
I think has been extremely robust we expected it to be good for the year, but I think it does talk to.
The competitive position that we have.
Great well, thank you very much for taking the question.
Simon.
Our next question comes from the line of Jay <unk> Banca.
<unk> attached from UBS Securities. Your line is open.
Thank you I have another question on the sources of strength.
I have my math right. It looks like your North America revenue outside of Quebec Web scale, AT&T and Verizon grew about $25 million year over year, particularly strong. So I'm curious if you could comment a bit on that.
Yes, I'd say that we're doing well with a whole set of customers. In addition to AT&T and Verizon.
And we're in the enterprise market, we had a good enterprise results for the quarter and for the half.
Tier.
Smaller tier ones and tier twos, we're doing well and so it's very broad based take us we're doing very well.
And government excuse me.
Got it thank you and then al.
Your comment on <unk>.
AT&T expectations for for this year.
Could look like versus historical patterns.
As we said at the beginning of the year, we expect a year of growth out of AT&T, we've been sort of flattish to down and AT&T for several years that had more to do with their spend on optical than certainly any loss of share on our part we expect a good year out of AT&T there they are buying they buy.
Much everything off the truck.
Thank you.
Thank you.
Our next question comes from the line of Rod Hall from Goldman Sachs. Your line is open.
Yeah, Hi, guys. Thanks for the question.
Nice job on the execution here.
I guess I wanted to start with the wave logic five product and just ask if you guys are still on track to deliver that by the end of the year and then more importantly are you expecting to ship it in volume at least on the wave server in the 6500 platforms and.
The March quarter and the first question. The second thing I wanted to ask about was Opex just to clarify your comment there.
The R&D numbers, I mean, im assuming that what you mean.
Jim when you talk about the R&D that you should still see that growing slower than revenue, but I just wanted to be sure about that.
And then maybe one follow up to this as well.
Yes.
I'll address the Opex piece first and then Scott or Gary will talk to.
Your revenue question.
On Opex.
The timing of R&D spend is can be somewhat volatile quarter to quarter, because we do projects. We do in R&D, we do lots of things, which happened during the quarter and can either inflate or deflate. The opex number the important thing to notice we gave guidance at the beginning of the year that we were going.
To be running opex between $255 million to $260 million a quarter, we're on track for that.
We will spend a bit more on compensation expense for this year, if we deliver the guidance that we gave you.
And rod on the question on <unk> five the short answer is yes, so we announced it.
The marketplace back in calendar Q1, we said it would be available at the end of the year and we will be shipping on wave server products and 6500 products in volume in calendar Q1 next year and that's all on track execution of the program has been bang on from our expectations.
Could you guys just on the logic side could you just talk about maybe give us a little bit of color on what youre hearing back, particularly from the Dci market on that.
Back to the 600 gig versus 800 gig question. It just seems like.
If that's available in volume, it's hard to believe that.
That people wouldn't pretty rapidly shift over to that technology, but I don't know maybe the price per bit is going to be significantly higher than that would keep people buying 600 gig that just a little bit of color maybe on how you see competitive dynamics. They are developing particularly in Dci early next year as you start shipping that in volume.
Yes, I'd say I'd say it this way.
The <unk>.
800 gig versus 600 gig is the tagline for the comparison, but it's really a performance that every application in the network.
And.
If you look at it the specs on wave logic five it outperforms anything that is advertised from the competition now or in the foreseeable future at every application space. So.
We have execution in front of US no question.
We've got a great track record of doing that and we're confident about that but we're very very confident in terms of the competitive spec on that and by the way as I said in the past we deal with a very sophisticated set of buyers and they buy not only existing stuff on the roadmap, but they're also buying the roadmap and they're very aware when we say we've got.
Very robust demand in the second half of the year for our capability set it's partially with visibility of those roadmaps as well.
Could you guys also does it would be my last one but could you just comment on the North America trends I know you've already said a few things, but we were surprised to see year over year growth there accelerating so much in April .
Just wondering whether.
Do you think that is a particularly good quarter as we look out the next couple of quarters or do you think that.
North America, because the project visibility you guys just going to continue to be as strong or stronger than what you saw in April .
The answer to your question is yes.
We continue to expect North America to be strong both in terms of existing relationships and a strong visibility into that the order backlog some of the new wins that we've had there's a couple of tier ones as well that are now there.
We've got a fair amount of publicity that will now be ramping up in the.
In the second half so we've got very high degree of confidence and a strong North America, and I think rod it talks again to not necessarily.
Whether the total capex increases or not it's who they spend it with and I think that being way more discerning around their desire to have a sustainable player in there than ever they have been before.
Okay. Thanks, guys. Thanks, Gary I appreciate it thank you.
Our next question comes from the line of Michael Genovese from <unk> Partners. Your line is open.
Yeah.
Alright, great. Thanks.
And could you help us understand how you beat the second quarter gross margins by as much as you did software was not particularly strong and packet was sort of in line. So what was the dynamic there behind those gms.
Yes, Mike as we've said before.
It's gross margin is difficult for us to call within a very.
Narrow band because there are a lot of things that impact gross margin in a given quarter customer mix early stage of projects specific projects, which have good margins are less and good margins and so what I would say generally speaking you will note that services had a higher gross margin than in Q.
Two then Q1 and that had some.
Sort of unusual things in both quarters, which accentuated the differences.
And then generally a favorable mix and cost reductions. So that's what I can tell you I still think we're a 42% to 43% gross margin company today as we said I think we're going to go up from that range next year.
I think we're 40% to 43.
So I want to follow up on that.
Because it sounds like 42, 43 is conservative, but it would be even more conservative to assume that these Mexican.
Win rates this year.
I think.
Couple of comments that I would have on it to make is whilst this is getting a lot of publicity. Obviously right. Now. This is a dynamic frankly that we've that has been in play for a couple of years.
And I think it's it's driven by you know a number of elements not least of which is just the large market share that these Chinese vendors have taken within certain customers and customers are.
I'm very aware of that very sensitive to it and are looking to decrease their dependency.
We began to see some of these dynamics come into play about two years ago difficult to discern exactly which which customers, which revenue et cetera, but I think it is it has been a factor over over a period of time here and I also think it plays into this overall sort of.
Flight to quality pace that I talked about.
Earlier so.
It's difficult to discern exactly what the impact has been to us, but definitely there is a concern amongst a number of large carriers, particularly in Europe . They just actually have an overdependence on Chinese vendors and they're looking to mitigate that over time adjust.
And just to be clear the there's another element to this whole U S China situation, which is.
Prohibition on American <unk>.
Component makers selling into Chinese vendors, which would be a serious problem. There's security concerns that the U S is talking with companies around the world about.
At AT&T and Verizon you've got.
You know a number of positive tailwind is all kicking in to give you growth way above historical trend lines. I guess my question is to what extent do you think some of those start to reverse against the tougher comparisons as we get past the.
The next couple of quarters, and we're looking at tough comps in.
Your growth rate.
For the three year period is 6% to 8% how should we think about.
This so far above trend line that it starts to revert back to it.
Oh.
Or is there so much pipeline built because of the things you've just talked about in terms of share gains versus Huawei and other weakened competitors that this continues.
If you could put some thoughts into around five <unk> into that I would appreciate it.
Yes.
No are you must be referring to beyond this year, because we've given guidance for this year.
Just for some context to that we're in a market, which is growing we believe low to single digits.
And.
Low to mid single digits I should say.
That's been the case for the last eight or nine years in that context.
Have.
Grown.
Two to three points above that range and we've taken about a point of share.
Per year until the last couple of years when as we've said we've had a confluence of factors, which are really driving our growth rate up beyond what we think we can sustain so our belief is beyond this year, we will revert to 6% to 8% now that will be off a much higher base. So our <unk>.
<unk> are going to be higher than your numbers should be higher.
And I'd also say that our EPS growth. We think we can continue at 20% a year, although maybe.
Just run our guidance out and if we achieve it we're going to be above 20% EPS growth rate this year.
One more question if I could.
Again longer term clearly 800 gig is.
Going to be a big cycle.
Yes.
400 to 800 is a nice round.
Feed into it so that always helps the dynamics.
As we start getting past 800 gig are we moving away from.
Your line is open.
Thank you our great quarter. Thanks for taking my question, one clarification was that 34% of total revenue for non telco Jim.
Yes, yes, it was okay.
And then the other question is.
I've heard some chatter during the quarter that there was an organizational change in North America and could you address some of.
That chatter if you wouldn't mind thanks.
Where we're sitting here wondering what you might have heard that.
Always having changes in our organization, but there were no major changes at the you know what.
Senior executive positions.
Aware of unless Gary knows something I don't know.
[laughter] declared to be fair I it was around.
AT&T that there've been some change in leadership around AT&T to be totally fair.
Okay.
Yes, yes.
Yes.
It's part of a larger.
The restructuring of our go to market group in which we have just changed how the organization works.
The fellow who runs who ran the AT&T account is still active in the account.
He's taken another position.
A revised organization.
There's nothing to see here not to worry.
Having a great time with AT&T.
Okay. Thank you very much.
Thanks, guys. Thanks, Kevin.
Our next question comes from the line of Fahad <unk> from Cowen Your line is open.
Yeah.
Hi, guys. Good evening, Thank you Jeremy.
Yes, yes.
My question was on your North American commentary can you provide us a little bit of detail as to what's driving the outlook. Other than you said AT&T is going to be flat, but growing.
So what's the other growth driver.
So that scale, that's fueling your outlook is it.
New footprint wins with Centurylink, that's fueling your outlook can you just help us understand what's happening in the North American market.
I would describe it as share gains across the board it's tier ones.
It's new tier ones you mentioned Centurylink.
New logos into the cable space as well.
Strong tier two tier three performance web scale government.
Enterprise business as well so it really is very broad based in North America.
And we think it's we think it's sustainable obviously, given the visibility that we have into.
And so the second half of the second half of the year. So it's extremely broad based.
Okay, and how much of these new footprint wins do you have.
Relative to your previous wins.
How much of the how much is the software content is it is it larger than previous.
Bids that you've had recently.
I would say, it's sort of consistent.
[music].