Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by a conference call will begin momentarily until that time your lines will be completed an old. Thank you for your patience.
Good afternoon, ladies and gentlemen, and welcome to the Smart Global Holdings fourth quarter fiscal 2019 earnings call.
At this time all participants are in they listen only mode.
Later, we'll conduct a question there aren't a session and instructions will follow what that's fine.
You should look like assistance during the conference. Please press Star then the numbers you're on the telephone keypad.
As a reminder, this conference call is being recorded I.
I'd now like to turn the conference I went to host. This is Dan Smith, you may begin the call now.
You operate or good afternoon, and thank you for joining us on todays earnings conference call to discuss Smart Global Holdings fourth quarter and full year fiscal 2019 result.
Hi, Jay Shah Chairman and Chief Executive Officer will begin the call with a discussion of the market in the business.
Followed by Jack Pacheco, Chief operating and financial Officer, who will review the financial results in more detail and provide the forward guidance after which we will open the call to your question.
As a reminder, our earnings press release and a replay of today's call can be accessed under the Investor Relations section of Smart website.
Smart G.H. dot com.
We encourage you to go to our website throughout the quarter for the most current information on the company, including information on the various financial conferences, we'll be attending.
Before we begin the call I would like to know that today's remarks and the answers to questions may include forward looking statement.
Any statements that refers to expectations projections or other characterization characterizations of future events, including financial projections and future market conditions.
Is it forward looking statement.
Actual results may differ materially from those expressed in these forward looking statements.
More information please refer to the risk factors discussed in the documents we file from time to time with the FCC, including our most recent Form 10-K and Form 10-Q .
We assume no obligation to update these forward looking statements, which speak as of today.
Additionally, during this call our non-GAAP financial measures will be discussed reconciliation for those directly comparable GAAP financial measures are included in today's earnings press release.
With that I will now turn the call over to chairman and CEO RJ shot.
Thank you Suzanne and and welcome to everyone on the coal.
Fiscal 2019 ending August .
31st was an amazing you on the junior transformation for Smart Global Holdings.
We're making great progress since we started to school 29 team as we predominantly memory products company with 62% of fiscal 2018 revenue generated primarily from sales of standard memory products in Brazil.
In contrast, today, we're more balanced comp company, but 32% of revenue from Brazil.
30% of our revenues coming from a new vertical called specialty computing and storage systems.
While 38% of our revenues are generated from our specialty memory products business during our fiscal Q4 that we just concluded.
Along the way, we freestone, a turbulent market, especially in the second half for fiscal 2019 as commodity memory component prices fell by over 60%.
Significantly affecting our Brazil memory product selling prices.
We also faced although macroeconomic headwinds related to trade and capital spending affecting our overall business conditions in old business areas.
Finally.
Changes in the way local manufacturing regulations the implemented in Brazil created uncertainty is for our customers early in calendar 2019.
However, since then we've been able to navigate through these and be emerged much stronger.
With a clear long term business model.
Outstanding efforts by our team at Smarted resulted by year end in a broad portfolio businesses.
Much larger served markets and the revenue decline of only 6% year over year.
Which is considerably better than the overall memory and semiconductor markets.
We also completed two key acquisitions and are on a way to integrating them to drive growth profitability and diversification.
Away from commodity memory products and from our business in Brazil.
We accomplished all of this while reducing total debt.
Adding 67 million in cash to our balance sheet.
And having paid $75 million approximately.
In cash from operations towards both of these acquisitions that we made in the last quarter.
During the fourth fiscal quarter of 29 team, we completed the acquisitions, both artisan embedded computing and enforce computing.
We achieved non-GAAP operating profit, 36% higher than the previous quarter.
And non-GAAP earnings per share 50 cents, which was 47% higher than the previous quarter.
Importantly, we generated significant operating cash flow of almost 50 million as we further reduced inventories by another 11% in the quarter.
And ended the quarter with 98 million in cash and short term investments.
Our balance sheet is strong and we remain well positioned to continue to execute on our growth strategy.
Let me know comment on the main factors impacting our financial results in the fourth fiscal quarter.
Our supply chain services business, which we report under specialty memory products.
Came in well below expectations.
Late in the quarter, we saw this business impacted because of the weakness in some of our OEM customers.
Resulting from adjustments to their inventory positions.
We believe that our supply chain business has bottomed out and are currently anticipating a modest improvement in the first fiscal quarter.
Now, let me turn to review of each of our three main lines of business for the fourth quarter.
Beginning with our specialty computing and storage business.
Which represented 30% of our net quote the net revenue in the quarter.
Oh from 15% in the prior quarter.
And totaled approximately $84.6 million.
Earlier in the quarter as mentioned, we completed these two acquisitions of artists and enforce computing.
The enforced business, which we renamed is Oh wireless computing line of products.
Had sales of roughly 15 million in the trailing 12 months pre acquisition.
And is expected to more than doubled in fiscal 2020.
Benefiting from synergies in the Smarts OEM sales force and its operations strengths.
In addition, we saw our Penguin high performance computing business grew strongly from the prior quarter as the fourth fiscal quarter is the seasonally strongest quarter in the government segment.
We are excited about the prospects for continued growth.
In this area driven by robust backlog and pipeline for new business across our targeted markets.
We're making excellent progress with the integrations are both artisan embedded computing and enforce computing.
Improving margins and operating metrics.
As we have previously said these acquisitions will both be accretive immediately in the first full quarter of operation, which is Q1 that quarter. We currently Irene.
Turning now to our specialty memory products business, which represented 38% of net revenues.
And approximately 104.6 million in revenue.
The business performed well as revenues were higher than prior quarter. Despite the weakness of our supply chain services business that I had referred to earlier.
On a full year basis, net sales were 5% higher than the previous fiscal year.
While the markets suffered significant price declines.
In addition to our outstanding set of tier one customers, we've been investing in more channels through which to sell a greater variety of products and we continue to execute well on this strategy.
Looking ahead, while the majority of the inventory corrections appeared to be behind us. The overall environment is still cautious and customers are trying to maintain minimum inventories and ordering with short lead times.
Moving on finally to our Brazil line of business, which represented 32% of total company revenues.
In the in the Q4 period compared to 43% in the quarter prior.
In total approximately 89 million compared to 100 in 1 million in the previous quarter.
Due to can memory component prices continuing to decline.
Although at a slow a quick pace in the past quarter.
As we indicated last quarter falling memory prices impacted our business while unit volumes have continued to increase.
The new rules regarding local manufacturing based on that point system.
Came effective on July one this year.
And I would like to discuss our Brazil business in more detail and give you our perspective on the market dynamics in that region.
Let me focus you on three key points first.
The Brazilian government remains very much in favor of local manufacturing given that it supports over 100000 jobs in the Brazilian I T industry, and it's a long term policy objective.
Our Brazil business remains solid.
And we continue to maintain our leadership position in the memory market.
As we said on our last quarterly announcement, there is no change in our business expectations are in Brazil.
And secondly.
The new point system.
Both our customers in ourselves flexibility in the way, we run our businesses, while the old system required customers to purchase a fixed amount of each type of component locally.
The new rules allow customers to mix and match different locally manufactured components to meet the minimum requirements for their tax.
Benefits.
Under the new rules.
Memory provides by far the highest amount of points to our customers in mobile phones, desktops, and notebooks, which are our largest target markets in Brazil.
As we see these new rules are positive, but now allow us to run out of Brazil business as we would any other line of business.
And third since the uncertainty over the new rules has been lifted.
Our customers are now, giving us increased visibility into their requirements, we're seeing higher bookings and for fiscal Q1, which is the first full quarter under the new regulations.
We are confident our Brazil business, we grow sequentially over Q4.
As our customers evaluate their choices.
Our analysis shows that memory products offer some of the lowest cost per point.
Towards meeting their local manufacturing requirements as compared to other locally sourced components.
Jack will go into more details on our expectations going forward.
So let me turn the call over to Jack will review of our financials and guidance Jack Great. Thank you all Jay overall gross revenue for the fourth fiscal quarter was 422 million well net sales were 278 million.
As a reminder, the difference between gross revenue and net sales is related or supply chain services business, which is accounted for on an agency basis.
And then we only recognize a net sales the net profit on our supply chain services transaction.
Our breakdown of net sales by end market for the fourth fiscal quarter was as follows.
Mobile and PC, 20%.
Networking telecom, 22%.
Servers and storage 11%.
Industrial Aerospace defense another 39%.
Now moving to the rest of the income statement non-GAAP gross profit for the fourth quarter was 53.4 million compared with last quarter's 43.7 million.
Due primarily to higher sales of specialty memory, along with specialty compute and storage products.
non-GAAP operating expenses for 35.4 million compared with 30.5 million in the previous quarter.
The increase was primarily due to the recent acquisitions.
non-GAAP net income for the fourth fiscal quarter was 11.9 million or 50 cents per diluted share compared with 7.9 million or 34 cents per diluted share in the previous quarter.
Adjusted EBITDA totaled 25.2 million compared with 19.2 million in the prior quarter.
For the full year fiscal 2019 net sales totaled 1.2 billion.
Compared with 1.3 billion in the prior year.
Gross profit on a non-GAAP basis for fiscal year, 2019 totaled 240.6 million compared with 293.6 million in the prior year.
non-GAAP net income for fiscal year, 2019 was 70.3 million.
Our $3.34 per diluted share compared with 147 million or $6 and 36.
Centsper diluted share in the prior year.
Turning to working capital our net accounts receivables increased to 233.4 million from 230.2 million last quarter and our day sales outstanding increased to 50 days for this quarter compared with 47 days last quarter.
Inventory levels continue to decline and totaled 119 million at the end of the fourth fiscal quarter.
Compared with 133 million at the end of the third fiscal quarter.
Inventory turns remained approximately same as the previous quarter at 12.5 times.
Consistent with past practice accounts receivable days outstanding and inventory turnover are calculated on a gross sales and cost of goods sold basis.
Which are 422 million and 370 million respectively for the fourth fiscal quarter of 2019.
After using 76 million in cash for the two acquisitions in the quarter, we ended the quarter with $98 million of cash and cash equivalents compared with 126 million at the end of the third quarter and 31 million at the end of the prior year.
Fourth quarter cash flow from operations increased to 49 million.
Compared with 46 million in the prior quarter.
And now let me touch on some of the financial dynamics.
For specialty compute and storage, we continue to make excellent progress in the transformation of Penguin to more value as supplier as we exit the year with gross margins over 19%.
In line with our expectations Penguins accretive to our EPS in the fourth quarter.
Integration activities are ongoing for both embedded computing and enforce.
We will have inforce transition to our Sep system this month and embedded computing by the end of this year.
We're also in the process a migrated manufacturing from China to Malaysia for embedded computing.
And expect to have that completed by the end of this fiscal quarter.
We will make our first production shipments for embedded computing for Malaysia during this quarter.
For specialty memory as Jay mentioned earlier, the product side of this business significantly outperformed this quarter driven by a broad portfolio products that we ship every quarter, which again top 600 different unique skews.
Regarding our supply chain services business.
I'd like to take a few moments to discuss this in more detail.
Remember this is not a product business. It is the fulfillment business, which can be impacted by memory pricing as we transact more standard commodity memory products in this business.
Our customers are continuing to work through their inventory issues that in turn impacted our financial results for the quarter.
We source product for multiple suppliers based upon our customer specific sourcing strategy and we manage inventory across all of their different facilities contract manufacturers and configuration centers.
And we have been doing the successfully for over 20 years.
This is a business that drives our gross revenue, which was down by $20 million from Q4, even there are a net sales grew by four grew by 42.7 million from the previous quarter.
With that as a backdrop, let me now turn to our guidance for the first quarter fiscal 2020.
We currently estimate that our first quarter fiscal 20 net sales will be in the range of 275 million to 285 million.
We expect mobile member units increased by greater than 20% for Brazil.
Leading to an increase in revenue by the mid single digits from Q4.
Specialty compete will also increase in Q1 as well how the full impact of embedded computing and enforce for a full quarter.
Gross margin for the quarter is estimated to be approximately 22% plus or minus 1%.
3% from Q4.
This increasing gross margins is being led by our new acquisitions.
GAAP earnings per diluted share is expected to be between 30 to 40 cents.
On a non-GAAP basis, excluding share based compensation expense acquisition related expense and intangible asset amortization expense.
We expect non-GAAP earnings per diluted share will be in the range of 68 cents to 78 cents.
The guidance for the first fiscal quarter does not include any view on the foreign exchange gains or losses.
And includes an income tax provision expected to be in the range of 8% to 12%.
The number of shares used to estimate earnings per diluted share for the first fiscal quarter is 23.9 million.
Capital expenditures for the first fiscal quarter are expected to be in the range of 6 million to 10 million.
As we will add equipment to facilitate the manufacturing move embedded computing to our factory.
Please refer to the non-GAAP financial information section and the reconciliation of non-GAAP financial measures to GAAP result, and the reconciliation of GAAP net income to adjusted EBITDA tables.
In the earnings press release for further details.
Operator, we're now ready to take questions.
Sure, Sir ladies and gentlemen, if your questions at this time. Please press Star then the number one on the telephone keypad. If the question. So I wish to it will be cellphone. The Q on Q again at Star One last question.
Our first question comes from the line the Rad deal from Needham <unk> Company. Your line is open.
Yes. Thank you for taking my question just on the on the guidance around the Brazil.
So just doing the math, you're basically saying the units for mobile going to be up 20% and Brazil mobile revenue will be up mid single digits. If I heard that correctly. So that meet asps are still coming down.
Decently can can you talk a little about the pricing environment in Brazil mobile.
Segment.
Yes, I mean, we still expect.
Piece to be down somewhere between.
10% 10, 15% in Q1 as well so units are up at Sps are going down. So the revenue is not growing as fast as it would if.
Hey, Asps are flattening out.
And then on in terms of.
You are in the specialty memory, the customer working down the inventory issues. The Oems is there a specific area vertical.
Within specialty memory is it on the server storage is on the networking side.
And you mentioned that.
You expect the bottom in that area.
What's giving you confidence on on that.
So the answer is yes.
Okay, all the above or have had.
Over inventoried out in their channels and this this references really into the supply chain part of the business, which.
We are dealing with the customers and more there were there their products are going through channels and stuff is a lot of channel inventory out there for them and so we.
Looking at signals from our customers, we expected that business will start to slow recovery here in 2020 as they start working down there on channel inventory issues.
Last question on that on the.
A lot to.
Discussion uncertainty around the new points system.
You mentioned that.
You view this actually is a positive for your business.
Eliminate.
Well first eliminate the uncertainty now the new over lifted.
But it gives customers like Samsung mobile LG mobile more flexibility.
The mix and match I was wondering if you could kind of go over the points system in terms of how many points memory is.
As a percentage or or as part of the total points that are needed for mobile phones, and and just to kind of frame that discussion.
And then you're kind of your discussion about customer who are giving you increase visibility now.
Could you maybe talk about that as well thanks.
Sure.
Yes, I think you maybe alluded to in your question the points are different for different areas. So for example of mobile phone, which is I think the area that you.
For two.
Mobile phone.
The way the system is defined as I think there's a gross total of 161.
And the.
Customers are required to achieve 57 points.
If you look at memory memory makes up.
So 45.
And in addition batteries make up another eight points.
Them to achieve 57 points.
They would you know by the way off the 151, many many of those items as simply not available from local Brazilian manufacturing so.
The choices of far fewer.
And so which is why we have been of course in contact with all of our major customers.
And they understand that memories of big part of what they would required to be.
Two by.
To meet their points for mobile phones and.
Then of course that by itself, while is a they could buy more and say cables or they could.
Two other things.
The choices are limited.
As a result of which.
Our customers are giving us clear forecasts and orders not just.
Sort of a directional thing.
That give us confidence that memory is going to be a big part of.
They're ongoing requirements in terms of local content.
And not only are we talking about this in some theoretical fashion, that's what we're saying is happening right now.
So if you look at.
Our.
Projections for Q1.
Our projections for Q1.
You know amazingly for a increase in revenue.
Because the units are going up so sharply.
And you know as Jack mentioned earlier in the mobile phone area units.
Expected growth is about 20%.
Slightly above 20% actually.
And the overall revenue growth is in the mid single digits. So I'm not only are we talking about this in terms of how the system is designed to work.
But more specifically in terms of how it's working.
No. This is not some theoretical.
Discussion so I know there's been the.
So a lot of speculation around this and we can walk through whether it's mobile phones or notebooks desktops and we can.
Clearly have.
Understood this and have been.
Looking with our customers for four months.
And.
We have.
You know as a result.
In talking to them about.
How they could simplify their overall supply chains.
By focusing most of the purchasing on memory in the long term basis. So.
You know you referred to.
And I referred to comments that we think this is a positive in the past.
You know take again mobile phones customers really good.
You know had no benefit in buying more than 50% of their requirements.
Local manufacturing.
However, now they can fulfill much more.
They can buy much more than 50% if that's what makes sense for them.
And I had referred to a metric called cost per point and we analyze this carefully because we look at all the different choices that our customers have.
And we look at the point that they would get from that and we look into premium that they would pay compared to international prices.
And based on that memory is.
Very much.
What are the most attractive ways for them.
To capture the points they require.
And for the lowest premium if you will over international prices.
And that's really.
So a big part of why we are seeing <unk> forecast to be going up.
And you know that's really why we have confidence that our business model.
As we said before is completely intact and one could argue.
He gives us greater flexibility and is better.
Any.
I know Brazilian you know regulations can be a little bit of a challenge for.
You know clear understanding and so I'm trying to spell it out as well as I can.
In a phone call like this.
Thank you.
Okay.
Our next question comes from the line about Blayne Curtis from Barclays. Your line is open Hey, guys. This is Tom O'malley owned for Blayne Curtis.
Just a quick question to own artisan enforcing the August quarter could you guys breakout how much they contributed to revenue in the quarter.
This is a partial quarter.
Sorry, I didn't catch in it but the.
Tom.
This is a partial quarter. So it's not meaningful what we did in the last period because.
These acquisitions Didnt close to somewhere approximately mid July .
So.
But but what we have said.
Is that for the quarter.
Yeah or for the year.
These acquisitions, we think on a run rate basis will be around a 100.
Million 90 to 100 million is the numbers if you.
Oh provided in the past and I've also said in my comments.
That inforce.
I had trailing.
12 month revenue before we acquired the company of about 15 million.
And.
So we're expecting a based on design wins and very you know because the these.
Inforce products don't.
They are design win products. So once they designed in and it takes a certain amount of time for that to ramp up and based on modeling that we are expecting.
Both a very accretive as well as a significant.
Business coming from there.
Okay, I guess, a better way to ask the question that is just from a penguin exclusively perspective clearly this is a seasonally strong quarter can you just give some color on how that performed in the quarter, what kind of design traction are you seeing and.
If you could give us some year over year commentary that'd be great as well if you can.
You pick wouldn't have as expected a strong quarter.
Oh, and particularly driven by federal because this is a.
Seasonally a high period for ER.
Federal business.
And you know so the company came in.
You know more or less that expectations, but that business came in more or less at expectations.
And so.
You know if we look at it year over year growth.
You know we acquired the company only in June of 2018 so.
There was a partial quarter.
And so if we look forward now.
We think the business and the quarters at different price they were on a calendar quarter calendar year end and we were on a.
On August uterine, but when we try to compare roughly we would say that the growth rate was in the mid teens.
Okay.
Our next question comes from the line of Sidney Ho from Deutsche Bank. Your line is open.
Great. Thank you I want to go back to the implied guidance I think you said you expect Brazil mobile revenues to be up mid single digit in both specialty computing and service businesses are also up but I don't think me call you given range, but the overall guidance is roughly flat does that mean the the other.
This is meeting Brazil memory, and the special team members outside of supply chain services will be down.
Kind of 90, Sheila you thinking and within specialty computing.
I know you have invoice and.
And audits and being a full quarter should we expect the penguin side of things to come down last restaurant corner.
Yes real quick so on the Brazil piece, it really we expect Brazil's a whole will be up.
The single does not just Brazil mobile memory mean that was.
It's really all Brazil's if there's a whole as a whole group of business is going to be up in Q1 over Q4.
Specialty compete we said we'd be up Q4 over Q1, so that would imply that.
Yeah, we've talked about our supply chain business being weak that we continue that we expect that to can continue to be weak in the.
The Q1 time frame.
And that's at a high level and then.
I get the first part of the question City, what was the second part.
Yes, it's more about that especially computing if you exclude.
Thank you I mean, you Gotta remember Penguins Q4 is are seasonally high quarter, and we always expect that that business will drop off somewhat in Q1 s. We expect that same phenomenon happened this quarter. It will drop down by you know.
Certain percent, but as a whole than we have the four quarter artisan enforce which will which combined will make that segment grow somewhat from Q1 Q4 to Q1.
Okay, that's fair.
Thanks Al and follow up question is on the the Brazil business.
Hey, you talk about the new rules in place since July you said, you seeing a rebound in forecast as volumes how should we think about the revenue opportunity going forward for this let's say the entire Brazil business is the 90 to 100 million dollar range. The right. We're thinking about it or do you think this is going to continue to grow as well.
Well Sidney I don't know if you are in the business of forecasting memory prices, but that's what we would need to be.
Doing to really give you a.
That's a that's precise.
Right now we're we're somewhere in that neighborhood. We are currently based on our forecast of some but not as significant decline in memory prices.
Looking at you know that that growth continuing to maybe Q2 is a seasonally weak period, even in Brazil, because you have the calendar year end and that tends to be many factory shutdown for four weeks. So Q2, if you look back.
In our history is always been seasonally a little weaker.
And then Q3 in Q4 are stronger so that's the kind of behavior, we expect.
In Brazil, and based on our model of memory prices and icon claim that we have a fantastic model because that's not our business.
But based on all model, we think that Q2 will be.
Sequentially.
Small decline and then Q3 in Q4 will be.
Stronger up in terms of revenue.
Okay, and that's based on as I, just want to caveat again based on our model of what prices are going to do.
It's unfortunately, we don't have a crystal ball that.
This facility.
Perfect, but I haven't figured out who does so.
Right.
Alan will have one more question I'll go away, but did you looking at the local manufacturing calculation in new rules.
How often are those calculation being assessed and do you think will see periods, where customer purchases that low and then followed by a period of catch up because they have to make the quota anything that that will skew the linear radio optimism.
I think the short answer for right now is we don't know.
Because these rules as I.
Said earlier came into place July one.
We are.
We know that.
Earlier, we had said that we expect the second half of calendar.
19 to be stronger than the first half of calendar at 19.
And that will see certainly in units.
Even right now even in revenue dollars.
And so that seasonality, we have a decent idea to predict.
But as to how the new local content rules.
We will impact.
The seasonality is a little early to tell to be honest.
Okay, great. Thank you.
Our next question on the line as promised Suji de Silva from Roth Capital. Your line is open.
Hi, Jack can you talk about.
Digital business, you talked about lifting <unk> rule changes you can now run the business like your other segments can you elaborate on that what that might mean for maybe the cost structure in Brazil. The capacity, how you might adjust that central profitability improvement anything you could get there would be helpful. Yeah. It's a good question I I think that.
When we say that what we're saying is see before you had a ceiling, 50% and you had a floor 50%.
So.
You know you would I'm talking specifically about mobile memory mobile.
It's different in different business. So I, just want to clarify that before I keep going.
Somewhat accuses me of having Miss led everyone.
The.
Coming back to your question so if we add.
Our in them in a mode, where we work with a partner as you know we have allowed semiconductor company that's a partner.
And we want to increase our penetration in memory.
We are able to adjust pricing accordingly, and get customers more excited about buying greater amounts of memory and there's no ceiling at 50% I.
Meanwhile.
On the other hand.
There are shortages and maybe a availabilities tighter for whatever reason.
We might take the approach that might instead try to.
Optimize the value from the units we do have.
So you can.
Like every other business.
You can you can use a you know.
Strategic aspect of.
You know a availability pricing products supply chain you know what we never talk about is we enable for many of us, particularly PC and mobile customers the ability to configure memory of the very last minute and they can take advantage of.
Price declines in that way because we offer a much much shorter lead time with a local manufacturing. So that's yet another metric that we can employ like any other business I mean, so I don't know if I'm, a if I'm not clear enough. Please let me know because I'd like to make sure that I explain myself well.
No I think the point about not having to ship, 50% no matter what is very clear I guess it gives you a lot of flexibility.
So that part helps for sure and then I'm going to this the supply the supply chain services, Oh, I'm, sorry, the especially good business.
The 90 800 million from the acquisitions in fiscal 2008, roughly a forecasting what's the linear already if that is that backend loaded are fairly even and did the acquired businesses have similar seasonality to penguin in the coming here are just in general.
Yeah, We don't think the seasonality is quite the same because penguin has a significant federal component, which has this particular seasonality.
However that payment is a big part of that especially compute said in the segment for us.
And so we will see that variation.
Weaker Q2 again because.
Thats when the federal.
Businesses that its low point.
And then a a stronger Q4.
Our the business, we acquired from artists and does have some.
Some.
Decent size military component as well so that tends to have a slightly.
Or higher Q4, it's not as much.
You know for peak, so we would see somewhat similar behavior, that's just a little bit more modulated compared to eglin, which has a somewhat more extreme seasonality.
Okay I appreciate the color. Thanks.
And ladies and gentlemen, if you have questions at this time seem to press par that number one telephone keypad again thats far one asked the question.
[noise] Yeah. My next question on Bleier from Jeff That's Benjamin.
Oh, sorry, we have the battery probably from Jefferies. Your line is open.
[noise].
Sorry, we didnt hear a question yeah.
Oh, Hello, Jvs, Hello, Hi, Hi, this is the here.
I'm speaking on behalf of my question Real quick question here I wanted to Andy Sandy.
And now our understanding where detailed pass along business essentially you by making point anything you.
Put them together in tandem hip can you help me understand how adult memory price more mentality.
How does it affect your profitability in.
Yes that is it if memory basis going up profitability goes out is it something like that.
Okay.
Yes, I mean, so there's two ways, we talked about demand. So of course on this business we'd have different ways, we charge our customers for services. Some of the services, we charge of customer churn out flat dollar rate, let's say per unit. Other parts of the services may be a percentage of the total value of the memory product for buying.
It really depends on the customer over doing for that customer so of course of memory prices, let's say fell.
We could get less percentage of that but then that also if you look at the density of memory Goodbye to sometimes the density of memory doesn't drop I mean, they buy higher density memory, because it's cheaper. So you may not get as much of a memory price impact on the business.
But basically there's two ways, we either charge per unit are going to charge percentage of the total value of the product in that business.
Yeah Kevin.
Thank you okay.
This concludes our Q any session and now I would like to turn the call to add to show he will company.
Thank you operator, and thank you also joining us and we look forward to reporting on our progress in the coming months.
Once again.
Thanks for joining us on this call this afternoon Goodbye.
Ladies and gentlemen, this concludes todays conference. Thank you for your participation and have a wonderful day you may all disconnect.