Fabrinet (NYSE:FN) Q1 2024 Earnings Call Transcript

Fabrinet (NYSE:FN) Q1 2024 Earnings Call Transcript November 6, 2023

Operator: Good afternoon. Welcome to the Fabrinet Financial Results Conference Call for the First Quarter of Fiscal Year 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today’s call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, VP of Investor Relations. Please go ahead.

Garo Toomajanian: Thank you, operator, and good afternoon, everyone. Thank you for joining us on today’s conference call to discuss Fabrinet’s financial and operating results for the first quarter of fiscal year 2024, which ended September 29, 2023. With me on the call today are Seamus Grady, Chief Executive Officer; and Csaba Sverha, Chief Financial Officer. This call is being webcast and a replay will be available on the Investors section of our Web site located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our Web site for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown.

In addition, today’s discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our Form 10-K filed on August 22, 2023. We will begin the call with remarks from Seamus and Csaba, followed by time for questions.

I would now like to turn the call over to Fabrinet’s CEO, Seamus Grady. Seamus?

Seamus Grady: Thank you, Garo. Good afternoon, everyone, and thank you for joining us on our call today. We set new quarterly records for revenue and EPS in our first quarter, both of which were above our guidance ranges. Free cash flow also reached a new quarterly record. We achieved triple-digit year-over-year growth in datacom revenue, driven by next-generation optical interconnect for AI applications. This datacom growth more than made up for continued but diminishing sequential declines in telecom revenue as inventory absorption runs its course. Overall revenue was $685.5 million, representing an increase of 5% from the fourth quarter, as well as from a year ago. Recall that the first quarter of fiscal 2023 was a 14-week quarter, adding approximately $20 million to revenue a year ago.

Excluding this impact, revenue would have grown 8% year-over-year. Our strong revenue growth contributed to a record bottom line, with non-GAAP net income up $2.00 per share. Looking at the first quarter in more detail, optical communications revenue increased from both a year ago and the fourth quarter. Within optical communications, telecom revenue decreased sequentially, though by a smaller amount than anticipated. Datacom growth more than offset the telecom decline again, with sequential growth of 26% from a very strong fourth quarter, and year-over-year growth of over 160%. As in Q4, datacom growth was driven primarily by AI optical interconnect. In our non-optical communications business, revenue was relatively flat, as anticipated. A small sequential decline in automotive revenue was largely offset by growth in industrial lasers and other non-optical communications revenue.

Looking to the second quarter, we expect the industry-wide inventory adjustments in telecom to continue. We believe that datacom growth, particularly in AI will more than offset these headwinds again in the second quarter. In short, we are optimistic that the telecom inventory-related issues are temporary, whereas the demand strength in datacom is sustainable. In summary, our record top and bottom line results represented a strong start to the fiscal year, and we are confident that we remain well-positioned to continue delivering solid results as we look ahead. Now I’d like to turn the call over to Csaba for additional financial details on our first quarter of fiscal 2024 and our guidance for the second quarter. Chaba?

Csaba Sverha: Thank you, Seamus, and good afternoon, everyone. Revenue was above our guidance range at $685.5 million, up 5% both sequentially and from a year ago. Keep in mind that the first quarter of the prior year benefited by approximately $20 million due to an additional week. Our strong revenue helped to produce record earnings. Non-GAAP net income was $2 per share, which was above our guidance range. We have published additional details regarding our revenue breakdown in the investor presentation, which you can find on our website. So, in looking more closely at revenue, I will focus my comments on the most notable changes. Optical communications revenue of $533.3 million was a new quarterly record, very strong sequential datacom growth of 26% more than made up for a smaller than anticipated decline in telecom revenue of 6%.

Datacom growth is being driven primarily by 800 gig technology for AI applications. We believe there is still excess inventory in the supply chain, and in the second quarter, we expect datacom revenue to again more than offset telecom declines by a wide margin. Looking at optical communications revenue by data rate, growth in revenue from product rated 400 gig and faster was substantially greater than revenue declines from 100 gig programs. Non-optical communications revenue was consistent with the fourth quarter at $152.2 million and represented 22% of total revenue. Automotive revenue declined 5% from the fourth quarter due to some inventory absorption. This was partially offset by a smaller sequential increase in industrial laser and other non-optical communications revenue.

As I discussed the details of our P&L, expense and profitability metrics will be on a non-GAAP basis unless otherwise noted. Gross margin in the quarter was 12.6%. As anticipated gross margin declined seasonally by about 20 basis points from Q4 primarily due to annual merit increases which take effect in the first quarter. Operating expenses in the quarter were $14.9 million or 2.2% of revenue, an improvement of 10 basis points from the fourth quarter. We anticipate that operating expenses will continue to decline as a percentage of revenue as our business scales. Operating income was $71.7 million representing an operating margin of 10.5%, consistent with the fourth quarter. Our strong balance sheet again benefited our interest income, which was $5.9 million in the quarter.

Our gain from foreign currency asset and liability evaluations at the end of the quarter was relatively small at $0.4 million. Effective GAAP tax rate was 7.2% in the first quarter, which is above the mid-single-digit level we continue to expect for the fiscal year as a whole. Non-GAAP net income was a new quarterly record of $72.8 million or $2 per diluted share. On a GAAP basis, net income was $1.78 per diluted share. Turning to the balance sheet and cash flow statement, at the end of the first quarter cash and short-term investments were $670.8 million, up $120.3 million from the end of the fourth quarter. This increase was driven primarily by strong operating cash flow of $145 million wit CapEx of $11.4 million, free cash flow was a quarterly record at $133.6 million.

Our share repurchase program was not active in the first quarter. As a result, $100 million remained in our share repurchase authorization at the end of the quarter. Now I will turn to our guidance for the second quarter. As I mentioned, we expect inventory adjustment at our customers primarily in the telecom space to continue into the second quarter. We expect sequential revenue growth from high-data rate data from AI programs to, again, more than offset these telecom headwinds. We anticipate automotive revenue to decline sequentially, and expect industrial laser revenue to be relatively flat. In total, we expect revenue to be between $680 million to $700 million. From a profitability perspective, we anticipate non-GAAP net income to be in the range of $1.98 to $2.05 per diluted share.

In summary, we are happy to have exceeded our first quarter guidance by producing record revenue, net income, and free cash flow. We continue to balance consistent growth with improving profitability. We are optimistic that we can continue to execute well to deliver strong results as we look ahead. Operator, we are now ready to open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question is going to come from the line of Alex Henderson with Needham. Your line is open, please go ahead.

Alex Henderson: Great, thank you very much. I’ve got a quick question for you on the news that came out of Jabil about the Jabil purchase of the Silicon Photonics business over at Intel. I know Intel’s Silicon Photonics has been historically a customer of yours. And I was wondering how you think that will impact you over time, particularly given the difficulty of moving an existing line?

Seamus Grady: Hi, Alex. Yes, it looks like Intel wanted to exit that market for their own strategic reasons. Intel has not been a 10% customer of ours. We have been one of two sources on the programs that we’re involved with. We remain focused on being a manufacturer serving several customers in the market rather than selling our own products. So for us, we understand Intel have sold the business in its entirety to Jabil, including development of new products, supply of the products, et cetera. And that’s just not a business that we’re involved in. The immediate impact, it’s too early the say, the news only became official literally a few days ago, so we have to sit down with our customer and work out the transfer plan. And we’re confident that in these situations we provide a high level of service to our customers and, in general, we’ve become good at managing these types of transitions, and usually find a way to come out on top.

Alex Henderson: Great. And then do you think that this represents an increase in Jabil trying to get into the optical market or what’s your assessment of the competitive implications of it?

Seamus Grady: Well, it’s a different business, I guess, to the business we’re involved in. We manufacture other people’s products. We have no interest in having our own products. So, I would assume, for Jabil, it’s more of an own — I don’t want to speak for Jabil, but it appears to be more of an ODM-type offering that they’ll be providing. And that’s just not something that we’re involved in. So, I would see it as a different market to the market that we’re involved in. But we wish Jabil well.

Alex Henderson: I hope there’s not too much background, I just got out of a cab. But was hoping you could talk — one more question, if I could, and then I’ll cede the floor, about any potential pipeline activity or thoughts on how to get into the Ethernet side of the 800-gig AI opportunity? Thanks.

Seamus Grady: Well, we just really follow our customers’ leads, Alex. Whichever protocol the customers deem to be the one that they want us to work on we’re happy. For us, we don’t really mind whether the products are Ethernet or any other protocol, we don’t really mind. So, we work with our customers, and we’re working with, I would say, a number of customers in the space to make sure we continue to provide the products that they need in the volumes that they need. But we really don’t mind whether it’s Ethernet or InfiniBand or anything else.

Alex Henderson: Well, yes, but your current 800-gig customer is almost exclusively InfiniBand and NVLink. And obviously, over time, the world will shift towards Ethernet. So, the question is do you have a hook into that string?

Seamus Grady: We do indeed. We’re working with, I would say, a number of opportunities that we’re working on that will be both, again, InfiniBand, but also Ethernet-based products.

Alex Henderson: Great, thank you.

Seamus Grady: Thanks, Alex. Be careful crossing the road.

Operator: Thank you. [Operator Instructions] And our next question will come from the line of Samik Chatterjee with JPMorgan. Your line is open, please go ahead.

Samik Chatterjee: Yes, thank you. Thanks for taking my questions. I guess to start off, maybe I can follow-up on Alex’s question here. Seamus, as you move towards working with customers on the Ethernet side, what are you finding relative to the competitive landscape? Just from the outside in, from our perspective, looks like more companies are, in their manufacturing supply chain, in relation to Ethernet, but can you share your thoughts about what you’re seeing from a competitive aspect, and what’s the differentiation that you bring there into that ecosystem? And I have a follow-up. Thank you.

Seamus Grady: Yes, I think, Samik, for newer products, whether it’s 800-gig or higher speeds, we feel pretty confident that we’re well-positioned to support the customer’s need. I think for older-generation products, the competitive landscape, it’s much more competitive. But for new-generation products, for these kind of specific short-reach low-power low-latency applications, there’s really a handful of companies who are able to design these products. And we’re well-positioned, we think, to support them. So again, whether it’s InfiniBand or Ethernet, we just follow our customer’s lead, whatever they need from us we’re happy to help them with. And again, our focus is always on producing the current generation products, but also winning the next-generation products. So, we’re very focused on that with our customers in this space.

Samik Chatterjee: Okay, got it. If I can just ask as a follow-up on the guidance, going from 4Q to 1Q, you had a sequential increase of about $13 million or so in the revenue, with the increase in datacom easily offsetting the telecom decline. As you look forward, you’re carrying forward the same theme, where datacom does offset telecom, but the magnitude of it seems to be much lower just given the $5 million sequential increase at the midpoint that you’re guiding to. So maybe if you can help us with the puts and takes there, is telecom declining more than what we’ve seen from 4Q to 1Q or is that the datacom ramp is moderating just given that you are maybe reaching more capacity with a customer that you’re engaged with? Thank you.

Seamus Grady: I would say, first of all, in Q1, our telecom declined probably less than we thought it would. It declined about 6%. Going into the quarter, I guess we thought it might decline more than that. It declined about 6%, which was primarily driven by stronger demand than anticipated for certain telecom programs, especially DCI. So again, driven by the datacenter and the growth going on in the datacenter, but DCI products which we categorize as telecom, that’s the first thing. And then as we go into Q2, yes, we think our telecom business will decline further into Q2. As you know, we don’t guide beyond one quarter’s time, but in a general sense, we think telecom will decline, datacom will increase by more than that decline.

And then as we look at the future, again based on the intelligence we have from our customers, we think the telecom decline is set to continue probably until the middle of the calendar year, which would be the end of our fiscal year. So, further declines this quarter and the next quarter, and then we think it will begin to bottom out in the, call it, the June quarter. And then the rate of growth of datacom, I guess it should slow down at some point, that rate of growth. It’s been very strong for us, but it will inevitably begin to — the growth will begin to slow at some point.

Samik Chatterjee: Okay, thank you. Thanks for taking my questions.

Seamus Grady: No problem. Thank you, Samik.

Operator: Thank you. [Operator Instructions] And our next question is going to come from the line of Mike Genovese with Rosenblatt Securities. Your line is open, please go ahead.

Michael Genovese: Great, thanks. Hi, Seamus.

Seamus Grady: Hi, Mike.

Michael Genovese: Hi. Can you give us any commentary at all on performance breakout between 400G and 800GB datacom or new programs versus existing older programs? Is there any color we could get there?

Seamus Grady: Well, in general, we break out 400 gig and above, which, of course, at this point is a pretty large category. And at some point, we may want to revise how we do that. But for now, it’s really everything in that 400 gig and above category. So, 400 gig inside the data center, 400 ZR, DCI, 800-gig, AI, everything really in that 400 gig and above category, but the growth has been coming from primarily the higher speed, newer programs, older programs, and let’s call it traditional datacom products have not been as strong especially at the lower speeds, 100-gig, and the like. The growth for us, certainly, we don’t speak for the whole industry, but for us the growth that we’ve seen has been primarily on the higher speed, newer programs, mainly focused around these newer AI applications, 800 gig being the biggest driver for us there.

Michael Genovese: Perfect. Maybe I’d follow-up on that question, because I thought that the color you gave about telecom and DCI driving less, a decline in telecom, but less than expected, I mean, that was a great color. So, maybe comparing how telecom came in to how the older datacom programs, I mean, was there any surprise on the upside there, or did it behave, or downside, or did it behave as expected?

Seamus Grady: I think the traditional — we call it traditional datacom, I think, behaved pretty much as expected. Newer datacom has been just very strong, but for us it’s expected, I think, at this point. And then, like I said earlier, the strength in DCI was maybe a little bit of a surprise. We had expected telecom to be down. If you just took the guidance from our customers going into the quarter, and you just straight line that, we should have been down double-digits, probably 12% to 15% in telecom. Instead, we were down about 6%, so down a lot less than we thought we would be, again, primarily driven by DCI. So, even though it’s in telecom, it’s driven by the datacenter expansion that’s going on everywhere.

Michael Genovese: Got it. Okay, great. And then, finally for me, just could you, maybe Csaba or both of you, talk about just the decision to not buy back stock in the quarter and kind of going forward? What you’re thinking about with buybacks?

Csaba Sverha: Hi Mike, this is Csaba. Last quarter, as I mentioned in our prepared remarks, we didn’t buy anything back. We have, obviously, an OMR opportunity in the open window. In addition, we have a 10b5 plan in place. The 10b5 plan is rule-based and subject to certain prices. Obviously, it didn’t trigger last quarter. But, obviously, we are still committed to return surplus cash to our shareholders. So, obviously, we are revisiting the 10b5 plan from time-to-time. And subject to the new pricing and the market conditions, we will make amendments. And we continue to be committed to return the surplus cash we generate to shareholders.

Michael Genovese: Excellent. Great. Well, thanks for letting me ask the questions. I appreciate it.

Csaba Sverha: You’re very welcome, Mike. Thank you.

Operator: Thank you. [Operator Instructions] One moment for our next question. And our next question is going to come from the line of Tim Savageaux with Northland Capital Markets. Your line is open. Please go ahead.

Tim Savageaux: Hey, good afternoon and congrats on the results. A couple of questions, you previously described the AI connectivity opportunity, I think, at 800-gig or maybe just in general as in very early stages and a very large opportunity. Actually, maybe missing a few varies there.

Seamus Grady: Yes, I think at 1.5 maybe said very twice and got pulled off; very, very early stages.

Tim Savageaux: Well, I guess as we’ve moved forward a few months here into the end of the year, would you add or subtract any varies at this point? Or can you give us your current assessment of where Fabrinet is in terms of the ramp and how that opportunity is looking relative to what you were seeing previously?

Seamus Grady: I think we’re still very optimistic about, you can insert or remove as many varies as you like there, Tim. We’re still very, very optimistic about the market in general, I would say. The interconnect, the optical interconnect opportunity for artificial intelligence applications and really our position within that. We’re building the products for the leader in the industry. It’s their own design, their own product. And I know they have other choices but for now at least we believe they’re quite committed to sourcing from us. We’re still ramping, we continue to ramp up both the existing. Let’s say existing programs plural and there’s additional business that we’re looking at and getting qualified on this as we’re maniacally focused on executing the business that we’ve already won, but then I’m making sure we win the next generation programs the new products, so we’re working very, very hard on both of those same both on executing.

I think we’ve done a very good job there, may be a very, very good job executing and we’re also making sure we — when the next generation products and then execute very well on those, it’s the best way to stay ahead of the competition is just work like crazy to delight the customer and make sure we do a great job and win the next generation products, so that’s really our focus and we’re we see a lot of kind of runway ahead of us and we think it’s a really good opportunity for us.

Tim Savageaux: Great. I appreciate that and just a follow-up I know it is VR I think you’ve gotten within shouting distance of 10% of revenue for you guys before the latest inventory correction and I think it’s a great opportunity for us given that you’ve called it out it’s kind of the source of unexpected growth in the quarter maybe you can give us an update on kind of where that stands in terms of materiality of the overall business or the telecom or however you want to talk about it and I just got one more quick follow up after that?

Seamus Grady: Yes, I think ZR — 400 ZR is very strong for us. We haven’t broken it out yet in the separate category but it is quite strong for us and continues to grow, it doesn’t necessarily grow in a straight line, so there’ll be maybe still a little bit of stops and starts with 400 ZR, but we’re just very happy to be participating in it and it was a source of really most of that offset between the — what we would have expected last quarter that kind of down 12% to 15% the difference between that and where we ended up was primarily uh 400 ZR for DCI applications. So, we still think it’s early days, we have a number of customers and a number of programs there and we can we continue to ramp those and they’re not all at the same stage, some are ahead, some are just getting qualified, but we still think 400 ZR is a good has good runway left for us.

Tim Savageaux: Well, and this wasn’t going to be my question but now that you mention it well should we look at this sort of ZR thing is it kind of a blip that’s coming in and coming back down here you’re seeing weakness elsewhere across telecom as you look forward into your December quarter guide and continued growth in ZR?

Seamus Grady: Yes, I think we have, as I said earlier, we still see continued weakness in telecom generally. I think we’re not for 400 ZR. There will be even more weakness and that’s really in the traditional telecom products we see continued softness in the December quarter and I’m really out to the mid — probably out into the middle of next year and we think it will start to level out.

Tim Savageaux: Got it. And last question for me is given the growth that you’ve seen and the kind of metrics you’ve discussed in the past, where do we stand in terms of major additional capacity additions in this facility.

Seamus Grady: Yes, facility problem it seems in a funny in a way it seems crazy that we’re even that we’re even talking about it, but it is something we have to keep a close eye on as we ramp up it seems like at the blink of an eye ago that we opened Building 8 in Chonburi, it’s now completely full and Building 9 is off to a flying start, so we’ll be keeping a close eye on that. I think in all probability you could say well, if we pull the trigger too early what are the implications of that, they’re very, very small implications really. So, typically what we said in the past is once we get to 70% utilization in our last building, we’ll build another building whether we do that this time around or whether we pull the trigger a little bit earlier remains to be seen but I think we’re, I would say stay tuned over the next couple of quarters, it’s not going to take us 5 years or anything like that to get to capacity in Building 9, we’re off to a great start there, I was there last week and the facilitation that’s going on in Building 9 and the expansion is just amazing and it’s really encouraging to see and whether it was good look or good planning on our part I think our timing on building nine months as it turns out exactly right, little bit of luck I think never hurt anyone.

So, we’ll be keeping a close eye on that Tim and once we do make that decision we communicate it on this call and in due course but again the cost would be subject to Csaba correcting me, I would say if I put a range on $50 million to $60 million for another one million square feet and about a one year to 18 months time horizon. But yes, it’s something we’d be keeping a close eye on Tim.

Seamus Grady: Great, thanks very much.

Seamus Grady: Thank you, Tim.

Operator: Thank you and one moment for our next question. And we have a follow-up question from the line of Samik Chatterjee with JPM. Your line is open. Please go ahead.

Samik Chatterjee: Hi, thanks for taking the follow-ups. I’ll be quick I promise. Just Csaba, any color on I know you mentioned the gross margin moderated sequentially because of the merit increases. But as you embed that now into the cost structure, puts and takes on how to think about gross margin going forward and then Seamus either for you or Csaba, like the automotive revenue declining and you said it will decline modestly is that more of a temporary production led headwind or is this a fall-off of the legacy programs while growth is sort of continuing on the new programs? Thank you, any clarification on those two items?

Seamus Grady: Maybe I’ll take the automotive question first and then I will let Csaba discuss the gross margin. Yes, we saw some I would call it inventory digestion going on in automotive. This past quarter we think it’s primarily temporary, there may be another quarter or so of inventory digestion but nothing to get too concerned about. We remain optimistic about our EV charging business overall, but like any business that’s ramping, it’s a little bit of inventory digestion going on. If you look at our overall revenue, we’ve always said we’re around kind of the $90 million mark since we overcame the component charges a couple of quarters ago. So, it’s been pretty stable actually. If you look at the last few quarters in our Q3, we had $94 million of automotive revenue.

Q4 was $93 million and then Q1 was $88 million. So, not a huge amount of variation, kind of normal variability as our customers go through inventory, inventory digestion I would say. But overall we remain optimistic about that business.

Csaba Sverha: Regarding gross margin, Samik, obviously as you know there are lots of puts and takes in the gross margin and this last fiscal quarter we had a mild headwind as usually from merit increases and gross margin came in as we had anticipated at 12.6%. And obviously, we are working hard to make sure that we continue to execute well efficiently, provide cost reductions for our customers and also make sure that we manage the mix and mix of business to deliver industrially the margins. I think we have done a good job there in the last couple of years. Obviously, there are a couple of factors to be mindful that may resolve some seasonalities like the merit increases in the first quarter. It’s also subject to foreign exchanges which have been tailed in the past and then we managed to overcome of the temporary headwinds there as well.

So, there are lots of puts and takes but we are optimistic that we can maintain this middle 12.5 round about gross margin and above, working hard to make sure that we continue to deliver on the operating margins as we scale the business and accomplish our roadmap for growth.

Samik Chatterjee: Thank you. Thanks for taking the questions.

Csaba Sverha: Thanks, Samik.

Operator: Thank you. And one moment for our next question. And our next question comes from the line of Dave Kang with B. Riley. Your line is open. Please go ahead.

Dave Kang: Hi, yes, thank you. First question is regarding your 400 gig plus revenue of $322 million, what is the rough split between datacom versus telecom?

Seamus Grady: We typically don’t break out and provide that breakdown, but obviously as you appreciate what we have communicated in the past, datacom growth in that space have been obviously far more than the telecom growth. So, you would think datacom is going to be much stronger in that area, but we haven’t provided a breakdown on that.

Dave Kang: Right, and then on the telecom portion of that 400 gig plus, I mean is this growing or is it going to inventory question, any color on that segment?

Seamus Grady: I think we touched on that as well, that the traditional telecom business that’s not DCI as we typically would include that in the Telecom segment has been going through inventory digestion and has been there for a while and we continue to see a headwind there. But our DCI and 400G particularly have been very strong over the last couple of quarters and we continue to be optimistic on that space. So, I think again, the puts and takes there is traditional telecom still experiencing headwinds and the datacom, which is again driven by data centers DCI is going strong for us.

Dave Kang: Got it. And just quickly on the number of 10% customers you had or near 10% customers and new 10% or near 10% customers?

Seamus Grady: We are disclosing our 10% customers in our 10-K at the end of the year. So, obviously we have disclosed that in August. At that time, obviously had the 10% customers, but we are not disclosing this during the quarter. So, you will have to wait for another couple of quarters to see if any change is there.

Dave Kang: Got it. Thank you.

Seamus Grady: Thank you, Dave.

Operator: Thank you. And I’m showing no further questions and I would like to hand the conference back over to Seamus Grady for any closing remarks.

Seamus Grady: Thank you. Thank you for joining our call today. We’re very pleased with our first quarter performance, including record revenue, net income and free cash flow. We’re optimistic about the longer-term drivers of our business and our ability to continue to execute well to produce strong results. We look forward to speaking with you again and seeing those of you participating in the Needham Virtual Conference next week. Thank you and goodbye.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.