Earnings Call: Q3 2020

Oct 28, 2020

Thank you, and welcome everyone to FormFactor's 3rd quarter 2020 earnings conference call. On today's call are Chief Executive Officer, Mike Lesser and Chief Financial Officer, Shai Shahar. Before we begin, Jason Cohen, The company's General Counsel will remind you of some important information. Thank you. Today, the company will be discussing GAAP P and L results and then some important non GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non GAAP measures and other financial information are available in the press release issued today by the company and on the Investor Relations section of our website. Today's discussion contains forward looking statements within the meaning of the federal securities laws. Examples of such forward looking statements include those with respect to the projections of financial and business performance, future macroeconomic conditions, the benefits of acquisitions and investments, the impacts of the COVID-nineteen pandemic, the impacts of regulatory changes, the anticipated demand for products, our future ability to produce and sell products, the development of future products and technologies, and the assumptions upon which such statements are based. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10 K with the SEC, for the fiscal year ended 2019 and our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued today. Forward looking statements are made as of today, October 28, 2020, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor. Thanks, Jason, and thank you, everyone, for joining us today. FormFactor delivered 3rd quarter results at the high end of our July outlook range, nearly matching our all time record fourth quarter of 2019. Responding to continued robust demand for our products, and despite the challenges posed by COVID-nineteen, we steadily improved the efficiency of both our internal operations and external supply chain by adding capacity and increasing factory output in a safety focused and socially distanced manufacturing environment. This positive trajectory continues in the 4th quarter, as we finish customers. As we explained in our August Analyst Day presentation, a foundational element of form factor strategy is long term intimacy with a diverse group of top tier companies, spanning IDMs and foundries across logic, memory and specialty chips like RF. Revenue from these customers is Longer term, we're also working with each of them to understand and meet their next generation test and measurement challenges. This close dialogue helped shape our capacity investments and R and D span. And as a result, we stay synchronized with important customers who are at the forefront of our industry. As the 1st major 5G handsets ramp in volume, The growth of our Foundry and Logic probe card business is a great example of the value provided by these long term customer collaborations and associated R and D programs. Our multi year investments in both RF and high performance digital tests are now yielding dividends as customers utilize form factor differentiated market leading products to meet their highly complex test requirements for millimeter wave RF front ends, and next generation application processes. As we've discussed in the past, there are substantial increases in test complexity associated with together with 5G silicon, especially for millimeter wave RF. At the same time, 5G is also driving significant increases in test intensity, Recent comments by one of the major ATE suppliers indicate that test times for the chips in the 5G handsets are 60% greater than the chips in a 4G LTE phone. All else being equal, longer test times means more probe cards are required which grows the served which expands the number of probe cards required per wafer out and test complexity, which widens form factors competitive advantage, is a hallmark of not just 5G, but also of advanced packaging. As the industry's focus moves to post fab integration to offset the slowing of front end Moore's Law, wafer test and probe cards are taking a prominent role in enabling a variety of advanced packaging schemes like heterogeneous integration of chiplets, and HBM stacking of DRAM die. As we discussed in August, both advanced packaging and 5G are important long term growth drivers FormFactor's businesses and are at least partially responsible for the double digit growth rates we've delivered over the past 2 years. Turning to DRAM. As expected, form factors DRAM revenues returned to prior baseline levels in the 3rd quarter. After a first half twenty twenty digestion period by our customers. At present, we are experiencing steady demand in this market, with 16 gigabit designs, driving healthy and sustained new design activity across our customer base. As a reminder, probe cards are a consumable that is specific to each new chip design. And so demand is generated from not just node migrations but also the release Looking into the regional details, you'll see that our revenue from China reduced significantly in the third quarter, off record levels in the second quarter. Interestingly, this reduction is not directly due to the challenged U. S.-China Semiconductor trade relationship, but instead reflects one of our major multinational customers shifting production out of the region during the third quarter. As we noted in the past, our China revenue is primarily derived from Multinational Manufacturers who operate test and assembly facilities in the region. FormFactor's domestic China revenue has been a mid single digit percentage of total company revenue for the last several quarters. These domestic customers offer a growth opportunity for us, especially in applications where form factors technology provides significant performance and cost benefits, but we'll likely need at least a partial return to historical trade norms to fully capitalize on that opportunity. On the M and A front, as noted in our press release, following the close of the quarter, we acquired High Precision Devices, Incorporated. HPD based in Boulder, Colorado brings world class cryogenic thermal control and test expertise to augment form factors existing capabilities and products in this area. Operation and testing of devices at Temperatures from 77 kelvin or liquid nitrogen temperatures down to just above absolute 0 is a growing area of our systems business. Driven by applications such as low noise infrared detectors and the futuristic field of quantum computing. The ability is a strategic capability and semiconductor test and we're excited about the addition of HPD to form factors leading portfolio of engineering system tested measurement capabilities. Finally, with near record 3rd quarter results and a strong 4th quarter outlook, we're already making progress towards our new target financial model that delivers $2 of non GAAP earnings per share on $850,000,000 of revenue. Test and Measurement is becoming in more important and strategic place in the semiconductor industry, driven by trends like 5G and advanced packaging. Our leadership position in these attractive markets paired with our differentiated strategy and disciplined execution will drive continued growth and share gains as we progress towards our target model. Shay, over to you. Thank you, Mike, and good afternoon. As you saw in our press release and as Mike noted, our 3rd quarter revenue and gross margin or above the midpoint of our outlook range and EPS exceeded our outlook range. These are impressive results close to our record high results of Q4 twenty nineteen. Phone factors' 3rd quarter revenues were $128,000,000, a 13% sequential increase from our Q2 revenue Revenues increased 27% year over year and were near our quarterly record high revenues of $178,600,000 in Q4 'nineteen. 12 card segment revenues were $151,000,000 in the 3rd quarter, an increase of $17,000,000 or 13 percent from Q2. The increase was driven by higher DRAM and SaaS revenues partially offset by a small decline in foundry and logic revenues. System segment revenues were $27,000,000 in Q3, an increase of $3,000,000 or 13 percent from the 2nd quarter. Within the probe card segment, robust demand for foundry and logic continue. With revenues decreasing less than $1,000,000 from Q2 to $108,000,000, comprising 61% of total company revenues in Q3. Down from 69% in the 2nd quarter. DRAM revenues were $31,000,000 in Q3, an increase of $12,000,000 in the 2nd quarter and were 18% of the total quarterly revenue as compared to 12% in the 2nd quarter. After a couple of quarters with customers digesting purchases made in 2019. DRAM demand returned to what we believe to be a more normalized quarterly run rate. Flash revenues of $11,000,000 in Q3 were $5,600,000 higher than in the 2nd quarter. And were 6% of total revenues in Q3 compared with 3% in Q2. Some of the increase is attributed to the acquisition of the Adventist probe card assets during the quarter. The integration of this business is going well, but this does not change our expectations that Flash revenues will continue to be lumpy from quarter to quarter. Specifically in Q4, we expect Flash revenue to be back to mid single digit dollars. GAAP gross margin for the 3rd quarter was $77,000,000 or 43.1 percent of revenues, as compared to 41.9 percent in Q2. Cost of revenues included $6,500,000,000 of GAAP to non GAAP reconciling items which we outlined in our press release issued today and in the reconciliation table available on the Investor Relations section of our website. On a non GAAP basis, gross margin for the third quarter was $83,000,000 or 46.7 percent of revenues, 90 basis points higher than the 45.8 percent non GAAP gross margin in Q2, mainly as a result of higher overall revenue, higher system segment gross margin and slightly higher probe card segment gross margin. Our probe card segment gross margin was 46.2% in the 3rd quarter, a small increase of 20 basis points compared to the 46% in Q2. Our Systems segment gross margin returned to the anticipated range we have previously reported from high 40s to low 50s and was 49.8% in Q3 as compared to 44.6% in the 2nd quarter. The increase of 5.20 basis points was driven mainly by higher sales and lower warranty and E and L costs. Our GAAP operating expenses were $54,700,000 for the 3rd quarter, $11,000,000 higher than the 2nd quarter. Non GAAP operating expenses for the 3rd quarter were $48,400,000 or 27.2 percent of revenue compared to $41,100,000 or $0.26 of revenue in Q2. The increase of $7,300,000 is mainly due to higher performance based compensation, one time IT security remediation costs. The impact of annual salary raises and the addition of the business we acquired during the quarter. Company non cash expenses for the third quarter included $6,500,000 for the amortization of intangible assets and $5,500,000 of stock based compensation. Both at similar levels to Q2. Depreciation was $5,300,000, an increase of $600,000 from the 2nd quarter, as a result of recent investment made in capacity expansions and acquisitions. GAAP net income for the third quarter was $22,900,000, or $0.29 per fully diluted share compared to GAAP net income of $20,500,000 or $0.26 per fully diluted share in Q2. The non GAAP effective tax rate for the 3rd quarter was 12.7%, significantly lower than the 17.4% in Q2. This reflects new regulations issued in July with respect to global intangibles, low taxable income, also known as GILTI. The application of these new regulations resulted in a one time cumulative benefit in Q3 and will also result in the full year effect tax rate to be in the lower end of the 15% to 20% range we communicated in our previous earnings call. As a reminder, our cash tax rate is expected to remain at 6% to 8% of non GAAP pretax income until we fully utilize our remaining U. S.-based NOL and R and D credits. 3rd quarter non GAAP net income was $31,000,000 or $0.39 per fully diluted share, compared to $26,000,000 or $0.33 per fully diluted share in We generated $37,000,000 of free cash flow in the third quarter compared to $19,000,000 in Q2, taking our total cash and investments $244,000,000 at the end of the quarter. The sequential increase in free cash flow in the 3rd quarter reflects reduced capital expenditures. During the third quarter, we fully repaid the loan for the acquisition of Cascade Microtech in 2016. As of the end of the third quarter, we had 2 term loans remaining on our balance sheet, totaling $36,000,000. We invested $5,000,000 in capital expenditures during third quarter compared to $25,000,000 in Q2. The decrease in CapEx is the result of the $19,000,000 spent during the second quarter to complete the acquisition of the new lithium operation. As a reminder, our capacity expansion is expected to bring our 2020 capital expenditure $50,000,000 to $60,000,000. At quarter end, our total cash balance exceeded the debt balance by $208,000,000, a decrease of $6,000,000 from Q3 quarter end. The decrease is mostly attributable to the $35,000,000 used to acquire the Adventist probe card assets during the quarter. Given our substantial liquidity and our healthy and solid capital structure, we continue to invest in capital expenditures and M and A as important parts of our strategy. As Mike noted earlier this month, we completed the acquisition of HPD for $15,000,000 net of cash received. HPD's addition is not expected to have an immediate impact on our financial results. As further described in our press release issued today, our Board of Directors is authorized a 2 year $50,000,000 share repurchase program, 12 offset dilution from share issuances related to stock based compensation. Turning to the 4th quarter non GAAP outlook. As Mike mentioned, we expect the overall strong demand to continue with higher demand in foundry and logic and DRAM revenues at similar level similar levels to Q3, partially offset by a decrease in cash. These factors resulted in a Q4 revenue outlook in the range of 170 $190,000,000. Product mix is expected to be less favorable in Q4, resulting in non GAAP gross margins outlook for Q4 in the range of 44% to 47%. At the midpoint of these ranges, we expect Q4 operating expenses to be comparable to Q3. Non GAAP earnings per fully diluted share for Q4 is expected to be between $0.35.43. A reconciliation of our GAAP to non GAAP Q4 outlook is available on the Investor Relations section of our website and in the press release issued today. With that, let's open Since as you can imagine, we are not being the same. You. Our first question will come from the line of Ken Bolton from Needham. Your line is now open. Hey guys, congratulations on the nice results and the what appears to be a record quarterly outlook for the 4th quarter. Wanted to ask about the foundry logic strength, if you could give us a little bit more color, is that, fairly broad based across your large logic and foundry customers. And then a second question, obviously, tighter trade restrictions. Been announced during the third quarter. Wondering if you're seeing any impact on the tighter export controls around SMIC. And then I've got a follow-up question shy? Quinn, it's Mike. I'll handle that one. The foundry and logic strength is quite broad based as it was in the in the third quarter as well. If you take a look at our 10% customer list, you can see some nice strength across multiple leaders in the foundry and logic space there. We're seeing the same thing continue here in the fourth quarter. So it is a reasonably diversified nicely broad based. A lot of the drivers we talked about before. Certainly, 5G major 5G handsets launches are behind that. Infrastructure data spending, data center spending, some really nice robust trends continuing here through the back part of the year. On the China situation, we tried to give you a little more detail in the prepared remarks. The domestic China business for us has been sort of a mid single digit percent of revenue for the past several quarters. The majority of our China business is serving the multinationals in the region. As a consequence, you can imagine the major domestic foundry is not a really big business for us. Having said that, for sure as a U. S. Company, there have been some headwinds associated with serving them and other domestic China customers. And I think like everybody else, we're working our way through, investigating the different ways we can mitigate that, whether they be through licenses or other, compliance activities? Great. And then the other question for Shay, just you talked about a less favorable mix in the quarter. I guess I just look at foundrylogic strength with lower NAND and about flat DRAM, I would think that that mix would generally be positive for you. So, can you sort of walk us through within foundrylogic and perhaps the memory business, what in segment mix shift maybe going on that would sort of offset what I would have thought to be tailwind with the mix shifting towards foundrylogic? Thank you. Sure, Quinda. That's a good observation. We did say in the past that if you look at the different markets we serve, historically or maybe on average, systems has the highest gross margin followed by Foundry And Logic, than DRAM and then Flash. But a few things. First of all, there is some overlap. There are cases that you can have DRAM card with a higher gross margin than a foundry and logic card. And also the mix within these markets the product mix within these markets, even within the same customer can change. So it's true that if you look at the trend for Q4, Foundry and logic is expected to be higher and Flash is expected to be down, but the mix within these markets also has an impact. And that's why at the midpoint of the outlook range, we expect to, instead of a gross margin lower than in Q3, even though revenue is really high. Get it. And the Chad, I may have missed it, but did you give a quarter to quarter sort of guidance for what the systems business would do in the fourth quarter? We did not. We when we spoke about the 3 different markets. Hop back in the queue. Our next question will come from the line of Carlene Lynch from B. Riley. The line is now open. Hey guys, this is Carlin on for Craig. Two quick questions. 1, starting with you, Mike, you had talked, I think, previously about the Livermore plant asset purchase. If you could just give us an update on how that ramp is coming and what we can expect in terms of timing and production facility conversion, that would be great. And then I have a follow-up. Yes. I think we're still in the fairly early stages of To remind everyone, we bought, close to 100,000 square foot building, which is going to be utilized entirely for manufacturing capacity. Adjacent to our existing footprint in Livermore, California. We're still in the very early stages of outfitting that building. So in our current results, we're continuing to get more effective incrementally at manufacturing inside our existing footprint. Obviously still a lot of social distancing measures in place that are make us less efficient in side that footprint than we would have been say a year ago, but we are getting better at it. And as you can see from the Q3 results and the guidance, managing to squeeze more out of that existing footprint. We expect the new capacity to start to come online in the middle part of 2021. But it's going to be a gradual and incremental start as we continue to match our capacity to the overall customer demand. Got it. And then, with regards to the Avanta the $35,000,000 advanced technology integration. I guess if you could just provide a roadmap kind of integration update where we are in process, that would be great. And then, lastly, just really quick, did you guys see anything in terms of the SMIC bufferings and buffer stocking in quarter? Were there any signs that maybe people had started to pull, kind of pull orders in ahead of time? I know China was less so, less intense in the quarter, but any signs of buffer stocking there. Yes. Let me deal with that one. First because we did try and lay things out for people a little more clearly in the prepared remarks. So I'd refer you back to those as well. Our domestic China revenue is a relatively small percentage and a mid single digits of total company revenue. So the signal to noise on any inventory pull aheads and things like that are not going to be great for us. So a limited exposure probably in a few places, we did see some risk reduction. That's difficult to parse out from general strategies of buys associated with things like COVID that some of our customers are doing as well. So I wouldn't say we've got a real clean signal there. And in any event, it's not a really significant part of our revenue given the exposure footprint to the domestic China business. FormFactor has. On the Advantest acquisition, so we're about a quarter in. I think as Shay mentioned in the prepared remarks, things are going really, really well. We're very pleased with both the technology assets and the team that have come in to be a part of form factor. You can imagine in the technology integration, those are fairly long And so we're in the early stages of characterization rationalizing roadmaps where we can use some of these technology elements in form factors DRAM and foundry and logic probe card roadmap. As we talked about, that's one of the key pieces, the interconnect technology and the MEMS probe technology that this app was and brought us also brings us a better competitive position in Flash and there was a contribution although not huge, a contribution in the 3rd quarter, continuing to make some progress in increasing market share there. Doing some operational and manufacturing integration to see whether we can extract a little bit more share in the $250,000,000 served market with NAND Flash. Got it. All right. Thanks so much guys. Thanks. Our next question will come from the line of Brian Chin from Stifel. The line is now open. Hi, good afternoon. Nice results and thanks for letting us ask a few questions. Maybe first question for you, Mike, revenue from your largest customer does appear to be normalizing in 3Q of a very strong first half level. So I guess I was wondering if your strong 4th quarter outlook reflects any further normalization from this more as the rate of 10 nanometer capacity growth moderates? Yes, it's a good observation, Brian. So in the first half of twenty twenty and probably in fourth quarter of 2019 as well. Our largest customer was at revenue levels, that we viewed as above kind of a normalized run rate. And you do see in the 3rd quarter results, those coming back down to, as you call it, a more normal level, which should be expected from this customer. I think as I look at our fourth quarter outlook and more generally the mix of the business in the third quarter, You see a nice balance between some of these leading customers. Again, we had 4%, 10% customers in the 3rd quarter. Comprising some real leaders in the industry. And so I think that's indicative whether they're 10% customers in the specific quarter or not. That's indicative of the footprint of the customer relationship that we have and the overall diversification that we've managed to build in this business. In any given quarter, I would certainly expect any any one of these customers, whether our largest customer or working through the list of other major customers, they're going to fluctuate around the according to their design release roadmaps and their need for specific probe cards, whether they be for node migrations or new design releases. Okay. That's helpful. Maybe you can switch gears and this either for you Mike or for Shay, but more from a supply perspective, I'm definitely impressed you were able to you're capable of shipping towards the upper end potentially of your 4Q guidance range. Again, given the timing of your new capacity next year. I was wondering if you could elaborate more on some of the levers that you are able to exercise right now to increment up your revenue output in the near term. And maybe suffice to say, can you maybe touch the ceiling in terms of your capacity at the upper end of that revenue guide? Yes. It's Mike again. Maybe I'll take that at a high level. Again, as I said in a response to one of the previous questions, I think we're just getting better at operating in this environment. Obviously, as we went through the 1st part of the year, it was a complete reinvention of a lot of our on-site manufacturing and safety processes. Some of the things that we've done, for example, have been annexing engineering lab space as production space, incremental production space, and then having conference rooms turn into engineering labs, right? You can imagine there's not a lot of need for conference rooms among the G and A population these days. And so you've sort of pivoted and repositioned inside the existing footprint. I think as we get towards the high end of the fourth quarter outlook range, there's not much more beyond that in our existing footprint. Obviously, mix does play a role. There are more favorable mixes that bear more revenue per, if you like, square foot of manufacturing space. But we're getting pretty close to straining the existing footprint. Having said that, you've got yield improvement, the ongoing CIP that really has been a foundational piece of how form factors and improve gross margins and financial results. And those are things we'll be depending on as well. We get to the middle of 'twenty one and start to bring on loosen those reins and bring on some significant new capacity capability in the new building. Maybe one last really quick one, but if you think of foundries, for example, they seem to be running fairly tight capacity themselves and other folks yourselves included maybe in kind of a similar camp. You think that's giving folks yourselves, other folks in the supply chain, maybe a little bit better visibility even into early parts of next year? If I look at lead times, certainly, I would say on average, they have gotten a little bit longer than not dramatically. So right? We are still fundamentally running a turns business where, to start a quarter, we have a significant amount of designs to win and work to do to fill in the rest of the shipments and revenue for the quarter. But there are certainly cases because of the customer capacity situation where their wafer cycle times and design lead times are a little bit longer. And that's offering some measure of increased visibility, but it hasn't fundamentally changed the nature of business. Still a turns business and our headlamps only go so far into the fog. Okay, fair enough. Thank you. Our next question will come from the line of Tom Diffely from D. A. Davidson. Yes. Good afternoon. So, Mike, obviously, very good to see 4%, 10% customers, all the diversification in the quarter. On a go forward basis, would you expect the LogicFoundry customers or 2 large guys to be consistently in the 10% customer range while the memory players kind of come and go depending on their quarter? I think at any given quarter, and I tried to allude to this in one of the answers to Brian's question. I think you're still going to see some lumpiness in the 10% customer list, both in the memory or DRAM providers. Of course, one of those customers is both a foundry customer and a DRAM customer. But even as we build out our business and grow our business at the world's leading foundry, it's still going to be a little bit lumpy, much less so than it was even a year ago. As we are shipping multiple designs in high volume across both mobile, high performance compute and RF, but I would still expect some fluctuations around the 10% level that might cause them to move in and out of that list. Over the long term, we certainly expect them to be a 10% customer, a perpetual 10% customer for form factor. But over the over the short term, I think you could see them move on and off the list. Okay. That's helpful. And then going back to your answer earlier on the Flash, the NAND business. At this point, are you using the acquired technology on a go forward basis that might improve the margins in that space? Are you still opportunistically using your old traditional technology? Yes, it's a mix of both, Tom. So, the product we acquired as part of the EvonTest acquisition nicely positioned for mainstream Flash as we said, when we announced the acquisition qualified at 1 major NAND Flash manufacturer, we're working to expand that customer base across the worldwide form factor footprint, an example of maybe the revenue synergies that we can bring to some of these acquisitions. But there are areas of the high end of NAND Flash where we're still being opportunistic with our legacy technology. So a product strategy that has a lot of sub segmentation in it that's pretty usual given the design specific nature of the space, a very dense high performance piece of NAND flash, is going to need some of the legacy form factor technology, maybe more mainstream commodity NAND Flash product much better position. Okay. And then finally, Shai, when you look at the 500 basis point improvement in probe card margin year over year. Is that strictly just because of revenue or volume or has the mix towards more RF benefited that as well? Yes. I think when we talk about, product mix, then RS is a part of our foundry and logic. Which historically has a higher margin. And so that helps the increase in foundry logic helps with the margin growing up. And we are glad to show that we make progress toward our model of 47%. Higher revenue overall also helped the margin is to spread the cost over higher base, of course, both of them. Okay. All right. Thank you. Thanks John. The next question will come from the line of Amanda Scarnati from Citi. The first question I have is on TSMC. It's nice to see them finally crossing that 10% threshold. Can you talk a little bit about how large that cuff more can become and looking at it in a different way, is there a limit to how much business TSMC is willing to sort of outsource to form, or how do you look at that at the world's largest foundry is a key strategic element of where we're trying to take the company. That business really were competitive and used only at Advanced. And we talked about that being 10 nanometer and below. Obviously, with a bit of an amplifier if there's advanced packaging involved, because of the fundamental value form factors technology has As with most of our customers, it's a competitive business where we're competing against, other probe card providers. And so that caps it in some sense. But when you look at that foundry business in, in contrast everywhere else, there's probably still some upward momentum available because it's a leading edge node business as more of that foundry's wafer starts move to advanced nodes. If you like that piece of available market to us is going to continue to increase. We've talked about it in the past being, comparably sized, to the business with our leading customer. And I think that's a reasonable way to continue to think about it long term. You're not going to get there next quarter. And as I said, in response to some of the previous questions, expect them to move up and down a little bit around the 10% level. But long term, I think the growth trajectory that we've shown so far essentially going from 0, 3 or 4 years ago, up to a 10% customer, there's still some blanks left in that story. Great. And moving on to sort of the cryo test business, both the acquisition you announced today and then also the announcement that you made back in timber in terms of new technology capabilities. When could we expect to see any sort of revenue from cryo is this sort of more of a longer term technology trend, or are there some near term opportunities? I think in terms of significant revenue that would change your model or something like that, it's out there always, right? These are really that's we're making at the right hand end of our roadmap guided by some of our key customers who are driving applications like quantum computing that require very, very low temperatures, essentially approaching absolute 0. And so from a a significant revenue perspective, it's probably even outside the scope of our long term model to get $850,000,000 in 2023. Having said that, there are these businesses are bearing revenue right now. It's part of the reason why we have the confidence to invest in an acquisition like HPD and continue to invest R&D in it is customers are engaged with us But as I said, it represents probably a growth component for our next long term target model once we get past the 850,000,000. All right. Our next question will come from the line of Robert Martins from Cowen. Hi, this is Robert Mertens on behalf of Krish Stankar Cowen. Thanks for taking my question. Just one along the lines of probe cards for advanced packaging. Maybe you can give a little bit more clarity on puts and takes and how you see that business grow in over the next a year or so in terms of sort of the customer concentration and margin profile of that business? How you see that over the next year? Thank you. Yes, a good question and one that, maybe so everybody's baseline I'd encourage you to go back and look at our August Analyst Day presentation because we tried to frame it in some sense there. But if I look at things going forward, clearly the leaders in the industry are going to rely more and more on advanced packaging to fuel their innovation whether it's chiplets strategies, HBM in memory, there's some pretty compelling product differentiation that our customers can achieve by employing advanced packaging. We're still pretty early in that, but because it's relatively early, you're going to see it concentrated, I think, among the leaders. So people like the 10% customers that we've had in the third quarter are obviously going to be the people driving and innovating at the leading edge of those advanced packaging road apps and part of the reason why we're working so hard to stay engaged with those customers. We believe they're going to be the drivers of advanced packaging. Which is we've seen in a variety of other applications will then fan out to the rest of the industry, pardon the fund. So from a concentration perspective, again, it's going to continue to be with the leaders. I think from a margin profile, there's always competition. So I would not expect huge uplift in margins. Having said that, there are some elements of value that we provide in the advanced packaging applications whether they be much tighter densities or higher speeds enabling things approaching known good dye test? That do bear a higher gross margin, a higher price than say a commodity probe card. In a monolithically packaged part. I am showing no further questions at this time. I would now like to turn the conference back to Mike Fletcher. Great. Thank you everybody for joining us today. We've got a couple of IR events coming up to close the year, but if we don't talk to you during those, stay safe Stay healthy, and we'll talk to you again soon. Take care. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.