Earnings Call: Q3 2018

Oct 31, 2018

Thank you and welcome everyone to FormFactor's 3rd Quarter 2018 Earnings Conference Call. On today's call are Chief Executive Officer, Mike Slesser and Chief Financial Officer, Shay 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 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, foreign exchange rates, business momentum, business seasonality, the anticipated demand for products, customer requirements, 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 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 31, 2018, 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. As we anticipated during last quarter's conference call, form factor delivered 3rd quarter results comparable to our 2nd quarter on the top and bottom lines. The expected gross margin reduction due to product mix was mostly offset by good operating expense control enabling us to deliver non we expect a modest sequential increase in 4th quarter revenue. Given the volatile industry backdrop in a quarter that is often seasonally weak These healthy results and outlook are a direct demonstration of our leadership across attractive served markets in advanced probe cards and engineering systems. A primary driver of our financial performance is the structural demand for form factors products and technologies. As we've described in the past, probe cards are a consumable that is specific to each and every new IC design. As a result, we benefit from both no transitions and the release of new designs on existing mature nodes. With the stalling of Moore's law, our opportunities on mature nodes are especially important, providing demand even when new nodes are delayed. An event we saw twice with major customers wrong example of this demand for probe cards on existing nodes as our largest customer released several new designs on their 14 nanometer node. Which is now nearly five years old. This new design activity resulted in 3rd quarter volumes that returned to the levels we delivered in the first half of 2017. And in the current quarter, we expect a strong 14 nanometer activity to continue. We also benefit from node transitions of course, and we expect to generate demand as our largest customer transitions to 10 nanometer production. An event which we continue to expect in 2019. More immediately, we are currently benefiting from other customers node transitions in Foundry And Logic, with our fourth quarter outlook supported by initial 7 nanometer production volume at the world's leading foundry. As we discussed in the past, the cornerstone of this expanding relationship is form factors proprietary MEMS based probe technology and the differentiated advantages it provides, especially in advanced packaging applications like integrated fan out. We will continue our R and D investments in MEMS probe leadership to further differentiate and increase our share as more silicon is integrated using advanced packaging. Turning to memory, amidst the high degree of noise around customer investment plans, the 3rd quarter saw sustained volumes probe cards for both DRAM slightly different node transition and design release cadences, helping to stabilize and smooth overall probe card demand from quarter to quarter. In addition, our opportunistic flash strategy continued to pay dividends as we won several high end designs where form factors MEMS technology has a substantial performance and quality advantage over our competitors. Another exciting component of form factors opportunity set the broadening in early development Increasingly, these products are in the form of optical electronic. As the industry innovates in sensors, displays and other devices, to rely on a combination of electrons and photons. Our team and products have been supporting development and initial production of such innovative devices as VCSELs, micro LED displays and Silicon Photonics. In the Silicon Photonics application, we have partnered with the Instrumentation Leader Keysight, to produce a turnkey integrated system that dramatically reduces the time to data for our customers, accelerating their time to market increasing their profitability. Although still an emerging application, we are excited by the recent momentum in Silicon Photonics, as evidenced by the expansion of our installed base Consistent with the well recognized weakening of customer investment in both DRAM and NAND Flash, we expect memory probe card demand to reduce in the fourth quarter. As a reminder, our lead times are approximately half a quarter, so our visibility beyond that is limited, especially in the current environment. Accordingly, we continue to manage our business with the knowledge that we operate in a cyclical industry, relying on our broad and diversified opportunity set to generate demand, while maintaining a disciplined and flexible approach to our cost structure. The second half of twenty eighteen offers some nice proof points of these In particular, the 4th quarter strength in foundry and logic is expected to offset weaker memory demand compared with the operating expense control demonstrated in the third quarter is combining to deliver solid profitability and cash flow. In summary, we remain excited about our As the share leader in our served markets, we are not immune to short term industry demand volatility, but we are demonstrating an ability to weather this volatility. Our engagements in early customer innovation in R&D through our Engineering Systems business transitioning into production volumes with our consumables probe card business is a powerful model that sets the stage for continued leadership driven by growth in advanced packaging, mobile data and automotive applications. With that, I'll hand the call over to Shay for further details on our third quarter and to provide insight into FormFactor's 4th quarter financial outlook. Thank you, Mike, and good afternoon. As you saw from our press release and heard from Mike's comments, our third quarter results were comparable to our 2nd quarter. Phone factors revenues for the third quarter of 2018 were $135,000,000, basically flat with the 2nd quarter. Prob card segment revenues of $111,600,000 and systems segment revenues of $23,400,000 were both comparable to the Q2 levels. Within the club card segment, we also saw very similar revenue levels in each of the markets we serve. Foundry and Logic revenues of $61,200,000 decreased less than 2% compared to our 2nd quarter. And were 45% of total company revenues in the 3rd quarter, slightly down from 46% in Q2. DRAM revenues were $37,400,000 in Q3, down 0.7000000 dollars or 1.8% sequentially. In both Q2 and Q3, we experienced sustained DRAM demand as our customers released new designs for data center and mobile application. DRAM revenues were 28 percent of total company revenues in the first quarter, consistent with the second quarter. Flash revenues of $13,000,000 were $1,600,000 higher than in the 2nd quarter, a 14% increase. We continue to see stronger demand for our technology due to stringent test requirements for high layer count 3 demand. We are being opportunistic and capitalizing on winning additional flash designs where we have a technology advantage. Approximately $8,000,000 of the flash revenues in Q3 were from NAND flash applications. Looking ahead, we believe Flash will be a single digit percentage of our revenue in the mid and long term. GAAP gross margin for the third quarter of 2018 was $53,000,000 or 39.2 percent of revenues, down 2.3% compared 41.5 percent in the second quarter. Similar to Q2, Q3 cost of revenues included $6,000,000 of GAAP to non GAAP reconciling terms, which we outlined in the reconciliation table available on the Investor Relations section of our website and in our press release issued today. On a non GAAP basis, gross or 43.7 percent of revenues, down 2.2% from the 45.9% in the 2nd quarter, and slightly above the midpoint of our outlook range. As a reminder, product and customer mix, including mix within the different markets we serve have the biggest impact on our gross margin. And the decrease in Q3 was primarily due to a less favorable product mix in the third quarter as compared to the second quarter. Our probe card segment gross margin was 42.7% in the 3rd quarter, a decrease of 2.6% compared to Q2, due to the product mix factor I mentioned before. Our Q3 Systems segment gross margin was very similar to Q2 at 48.1%, 0.5% lower than Q2 on slightly lower revenues. Our GAAP operating expenses were $43,600,000 for the third quarter, $1,300,000 lower than the second quarter. The 3rd quarter operating expenses included $6,100,000 of GAAP non GAAP reconciling items. Non GAAP operating expenses for the third quarter were $37,500,000, or 28 percent of revenue, down $2,100,000 compared to Q2. The decrease is mainly due to employee related costs, including lower performance based compensation and benefits and discipline spending. Company non cash expenses for the third quarter included $7,500,000 for the amortization of intangible assets, $4,500,000 for stock based compensation, and depreciation of $3,600,000. Amortization of intangibles and stock based compensation were both slightly higher than in the second quarter due to timing of annual stock grants and updates to the amortization schedule. The non GAAP effective tax rate for the first quarter was 7.1%, similar to the 7.5 percent for the 2nd quarter. We entered 2018 with over $240,000,000 of remaining U. S.-based NOLs. As such, we continue to expect to have a non GAAP effective tax rate of 5% to 8% while we utilize our US NOLs. GAAP net income was $7,700,000 or $0.10 per fully diluted share for the 3rd quarter. Compared to net income of $9,100,000 or 3rd quarter non GAAP net income was $19,600,000 or $0.26 per fully diluted share compared to $20,400,000 or $0.27 per fully diluted share in Q2. Moving on to the balance sheet and cash flows. We generated $13,000,000 of free cash flow in the third quarter compared to $16,800,000 in Q2, taking our total cash to $143,000,000 at the end of the quarter. The $3,800,000 decreased in free cash flow in Q3 as compared to Q2 is primarily due to an increase in inventory to meet Q4 customer demand. We spent $13,200,000 on principal and interest payments on our term loan during the quarter, including $5,000,000 of prepayments. Going forward, we expect to repay the term loan principal based principle based on the original amortization schedule. Our total cash balance exceeded the balance of our debt by $71,000,000 at quarter end, an increase of $12,000,000. In line with our annual capital spending plan of $16,000,000 to $20,000,000, we invested $3,800,000 in capital expenditures during Q3. Turning to the 4th quarter non GAAP outlook. We expect Q4 revenue to be in the range of $132,000,000 to $140,000,000, and non GAAP gross margins to be in the range of 42% to 45%. Non GAAP earnings per fully diluted share is expected to be in the range of $0.23 to $0.29. A reconciliation of our GAAP to non GAAP Q4 outlook is available on the Investor Relations section of our website and in our press release issued today. With that, let's open the call to questions. Our first question comes from the line of Craig Ellis from B. Riley FBR. Your line is open. Thank you for taking the question and congratulations on the steady results and what was very dynamic environment in the third quarter. Mike, I wanted to go back to your points on the foundry and logic business and just see if I could dig into some of the details that we have coming up. Performance from your U. S. Customer. The question is since they've been public in August with their 3 year roadmap with a late 2018, late 2019 2020, 2014, 2010 transition. What does that mean for for that part of foundry logic. Does it mean it should be steady from levels we're seeing in the back half of the year? Or is there an opportunity to grow that part of that business? Thanks for the question, Craig. Obviously with that customer, it's been a very volatile year, starting with the 10 nanometer delay at the beginning of the year. And as you've seen, we're pretty pleased with the growth of that business as they've transitioned some products into 14 nanometer and generated probe card demand on these new designs. I think as you say, the cadences going forward of continued 14 nanometer designs and then, transitioning much of the wafer start volume to 10 nanometer is something that the customer has been fairly transparent publicly about their plans in 2019. And we continue to stay very, very close in from planning perspective with them to make sure we're prepared to make that transition and lockstep with them. They're there may be some upside associated with a 10 nanometer transition. As we've discussed in the past, typically, no transitions have higher test intensities, given that the bulk of our volume right now is on 14 nanometer, there is some potential upside to 10 nanometer. But I want to caution people that it's also not purely additive. It's not going to be 10 nanometer on top of 14 nanometer. There will largely be a substitution factor there with maybe a little more test intensity. Got it. That's helpful. And then switching gears to to Taiwan Foundry. That's been a nice growth story for you. And it sounds like there's good 7 nanometer traction that customer seems to have a growing customer base itself. So can you talk about the potential for that business as you look out over the next, 3 to 4 quarters to provide growth and what are the prospects that business can provide solid year on year growth in 2019 versus 2018? Yes. So you're absolutely right. That is one of the nice growth stories, in our business in 2018. I think there's 2 components to it. First of all, our opportunity in serving this foundry is really associated with 10 nanometer, 7 nanometer integrated fan out. So as we see more of that foundry's wafer starts and more fabless customer designs moving to those nodes and the advanced packaging technologies that grows the opportunity for us. We've said in the past, we expect long term this opportunity to be comparable to the business we have with our largest customer. And nothing we've seen so far has has changed us, has changed our view on that. We continue to make good progress towards it. And I think you'll see us having gained share in 2018 over 2017 at that customer, growing the business and we expect and are planning to do the same thing in 20 18 as we grow towards, again, the magnitude of business we have with our largest customer. That's helpful. And then, Shai, I'll flip it over to you two clarifications. One, with respect to gross margin, it seems like gross margin is performing well. You've got certainly volume working more at your favor. Can you give us a sense for just the gross margin gives and takes in the 4th quarter. And sticking with the middle of the income statement, were there any one time or special items in the meaningful decrease in the 3rd quarter's operating expense? And is that an operating expense level that is sustainable going forward? Thank you. Thanks for the two questions, I think, Craig. I'll start with gross margin. And so as I said in my remarks and we said before, mix is the biggest impact on our, on our gross margin. And, we saw that evident in the difference between Q2 and Q3, and gross margin and Q4 gross margin is expected to stay in the same level because of these changes of the mix. And that this has been consistent. No surprises there. When it comes to OpEx, we have communicated before range of $36,000,000 to $39,000,000 of quarterly OpEx. We are within that range in Q3 and Q4. No special one time items that we saw. We continue to monitor our OpEx. We remain discipline. And we are keeping our expenses and that's our plan to keep our expenses in line with our revenue going forward. Thanks, gentlemen. Your next question comes from the line of Edgar Roche from Sidoti And Company. Your line is open. Thanks. And I'll add my congrats on a very steady quarter. On that theme, I wanted to ask because your guidance implies you'd have kind of three quarters in a row right around $135,000,000, $136,000,000. If you use the midpoint for Q4. So wanted to ask if the pacing of revenues within the quarter also was pretty evenly distributed or if you saw any kind of fall off and then acceleration towards the end of the quarter or vice versa? Any color would be appreciated. Sure. Thanks, Ed. I think I'll start by summarizing that although the top line results Q2 to Q3 to our midpoint view of Q4 are very similar at sort of this mid-one hundred and thirty's stretching to 136 in Q4 are very similar to each other. There are an awful lot of moving parts underneath there. In the fourth quarter in particular, we're expecting to see a substantial shift from memory to foundry and logic. And inside each of the markets we serve, there's quite a bit of variability. In between each customer and individual designs and some of the cadences they go through on even a week to week basis. So, the ebbs and flows, both from a mix perspective and from a timing perspective within the quarter, are much more dynamic than the top line results would lead you to believe. Okay. I appreciate that. And then, your business touches a lot of different aspects of the industry here. And I was just wondering if you could provide any kind of color on the issue of tariffs and whether you're if you can even offer some general comments on any kind of change in behavior or demand modification that you're that you've borne witness to, maybe not in your own business, but that you would say you've seen as a result of some unfair issue. Your next question comes from the line of In particular, the tariff issue for us is pretty squarely focused as I think it is for most people on China. We've had a significant footprint in the region for more than a decade, and has been investing fairly heavily in that business as the indigenous Chinese Semiconductor industry, sort of bootstraps itself up, especially in memory to full production. Just to benchmark people, it still typically represents less than 10% of our revenue in any given time period. But we do view it as most other suppliers in the space do as Okay. And then one final question. Engineering Systems, revenues year to date are pretty flat. Pretty flat year over year. The original intent seems like that might be an interesting area to solidate. I was wondering if the viewpoint on that industry is still pretty consistent. And once you get your balance sheet where you want it, maybe get a little more active on that front? Yes. And maybe Ed, I don't know whether we had some technical difficulties there, but, I wouldn't mind finishing my thought on the tariffs issue. No, no problem. We have seen a few, discussions with mostly with suppliers where we're importing from the region. I would say limited impact to our customer engagements at this point, but it's something we're monitoring and evaluating pretty closely because, I think we, along with most suppliers operating in the global industry, have a hard time viewing this as being positive. So moving then Grip priority, we've talked about continuing to delever being a useful use of being a use of our capital. We applied essentially all of our free cash flow to delevering in the third quarter, but we continue to be pretty active in prospecting and building an M and A funnel, around the themes of electrical test and measurement in some of these emerging growth year markets. So I'd agree with you. I think there are some opportunities there. We're still in the prospecting phase and debt reduction, de levering still remains our top priority. Our next question comes from the line of David Duley from Steelhead. Thanks for taking my question. You mentioned that you've done well with a Taiwan Foundry, but when we look at your breakout of results in the quarter geographically, Taiwan is down pretty strong. Could you just elaborate a little bit more on the timing of your business there? And as a follow on, with a lot more people adopting 7 nanometers with that foundry than at 10 nanometer would you expect that business to smooth out or be less first half loaded? Yes. And I think the second part of your question hits on the core issue. Our historical even through the middle part of 2018 engagement with this customer has been pretty focused and concentrated in, essentially a handful of application processor projects. And part of what we're trying to convey about the fourth quarter is we see, for the first time, us having a significant 4th quarter contribution from that customer as we broaden the relationship, as we generally gain market share there, but also as the relationship extends and we serve more customers and more designs, we do expect it to start to smooth out as we move through the fourth quarter and into 2019. Excellent. And then, did you have 10% customers during the quarter and what percentages were they? Yes. This is Shai. We had, our largest customer Intel as, let me give you the percentage, second. At 24% in the quarter and Micron was number 2 this quarter at 12%. Excellent. And then the flash revenue that you're capturing now and that you've seen growth in versus last year. I think you mentioned it had to do with higher layer counts. Would you expect your Flash revenue to perhaps ramp up with 96 layer flash parts or is that is there some correlation between this or or what is the driver to this business to grow further? Thank you. Yes. It's a very good question, David, and one that we, debate a lot internally. Certainly, our flash business to date is we've opportunistically gone after designs and parts of the market where we really have a differentiated advantage. Have been pretty strongly correlated to higher layer counts. They've also been correlated pretty strongly to higher densities and higher test speeds, associated with certain customers and their test strategies. So I'm not sure I draw 1 to 1 correlation between 96 layer flash and form factor flash growth. I think it's one of the components that certainly helps us as it drives up complexity in the required performance at the wafer test step where we participate. And I guess one final question for me is along those same lines, it sounds like not only the higher layer counts help, but that these flash parts have higher speeds, so longer test times And so my question is, do you see an increase in test time intensity with these flash parts? Maybe you could share with us what that increase in intensity is? And then just to double check, in the past, I think you've mentioned that, advanced packaging such as info are roughly 20% or 25% more test and intensive and probe card intensive. I was wondering if that is still the view or if that's the accurate view. Thank you. Sure. So generally on test intensity and test time increases associated with different things. It's a pretty complicated function of a whole bunch of variables. Not the least of which is what the yield of the native die are. I think the ballpark estimate associated with advanced packaging being 20%, 25%, more test intensive, more test intensive than if you like a plain silicon dye, I think is a reasonable estimate. And that's been triangulated by, I think, a couple of other test suppliers as well. 3 d NAND is a little bit more complicated because it goes to, the yield ramps, the layer counts, And then of course, the individual architectural decisions that each of the customers are making and their test strategies, where they choose to spend their test dollars, whether it be a wafer test or final test. So that one's a little more variable. It does seem to be more test intensive as you go up in layers. And certainly as we see die stacking and advanced packaging moving into some of the regions of nonvolatile memory, that offers the opportunity associated with Advanced Packaging Your next question comes from the line of Patrick Ho from Stifel. Your line is open. Thank you very much and congrats on the nice quarter and outlook. Mike, maybe as a follow-up to Dave's comments about test intensity on the memory side. If we can look at DRAM for a second, obviously the industry is undergoing a lot of no transitions, which helped you on the design base. But talking to people in the industry, test intensity for DRAM is also becoming higher with the higher speeds and bandwidth and things of that nature. Can you comment on how that potentially can increase, I guess, the market opportunity, especially the near term as you're going through several node transitions in the industry? Yes. So similar theme to the last question, as you noted, Patrick, I think DRAM, because of the node transitions that all the major customers are going through, we do see generally the test intensity going up Anytime there's a move to a new node, higher densities, and higher speeds, this does demand increased test intensity to make sure customers are resolving their yield challenges and ramping effectively. That's part of form factor's value proposition for them. I think the other thing I'd like to highlight though in DRAM is a theme that you've seen in our DRAM business in 2018. And that's high bandwidth memory, which is one of these advanced packaging applications. Each of those die, as we've discussed in the past, that goes into the stacked die HBM or high bandwidth memory package requires significantly higher test intensity essentially to make sure that it doesn't kill its neighbors in this stack. And so that's one of the other big drivers associated with test intensity in DRAM. Is the innovation associated with advanced packaging like HBM driving the need to ensure maybe not quite known good dye, but pretty good pretty close to known good dye. Great. That's helpful. And maybe go into the engineering systems business for a bit. There's, I guess, multiple applications and multiple products which you have, whether it's on way for advanced packaging. Is it any one of those segments or any one of those segments, I guess, outperforming in the near term? Are you seeing more advanced packaging applications? More so than the others? Or is it pretty balanced? I think overall, what we're seeing is something I tried to convey in the prepared remarks. A lot of our engineering systems business, both the interaction with customers and the development and shipment of systems is really starting to shift towards photonics applications. Whether they be, sensors like VCSEL or CMOS image sensors, some of the stuff we're doing with next generation play like MicroLED, we're seeing that be a fairly strong segment, both from an activity perspective, but also from a business it's starting to impact our results in a pretty significant way, which is why we tried to draw attention to it, in particular, the Silicon Photonics example, driving and installed base now of more than 10 systems, which for an engineering business is a significant footprint worldwide. Great. And final question, maybe for Sean, in terms of the free cash flow and CapEx needs, given that were a few couple of years from the Cascade Microtech deal. As your free cash continues to grow, I guess where are some of the priorities? Is there a need to increase CapEx at some of your product and market markets grow, where were we looking at putting that cash to use? So specifically about CapEx, our planned in the last couple of years and going forward will be to invest between $16,000,000 to $20,000,000 a year on capital expenditures. I see that we I see ourselves staying in that range next year as well. And regarding capital how we deploy our cash. We said before, our first priority is to deleverage our balance sheet and repay the loan. We've been prepaying our loan in the last few quarters. Q3 of twenty eighteen will be the last quarter. We're going to do advanced prepayments on the loan. Going forward, we are going back to the regional and motivation schedule. And moving into our second priority, which is to expand our SAM through an M and A, as Mike discussed before, we believe it will can create more value to our shareholders. Great. Thank you. Your next question comes from the line of Christian Schwab from Craig Hallum. Hi, this is Tyler on for Christian. Congrats on the quarter. And thanks for letting me ask a couple of questions. So first, your largest customer moving to 10 nanometer, as you spoke about their timeline, has been pretty well. Transparent. But I was just wondering if you could remind us what's the timeline for your business in relation to that customer's 10 nanometer products? Sure. Thanks, Tyler. Well, I mean, as we've said about this node transition, transition to 10 nanometer, historical comparisons have led us astray a couple of times. But if I do If I do rely on some of the historical node transitions we've been through as a 4 generation supplier with this customer, typically, I'd expect us to lead, their broad market launch of products by a quarter or 2, maybe 3. So we see this to put a different way as long as they stay on track with the late 2019 production release they've talked about publicly, we see this probably being a mid-twenty 19 event where you'll start to see significant activity for us. Now that's true, more generally throughout much of our customer base. There are some projects in RF that have shorter cycle times or lead times between probe card delivery and customer shipment. But by and large, you'll see us our business leading our customer our customer product releases by a quarter or 2, sometimes 3. Great. And then a second one, on the memory side, on DRAM side, this quarter, your DRM business was pretty stable. I believe you guys noted due to largely due to some new devices. So I was just wondering As we go into this next year and memory customers make the transition to this next node, how what's the magnitude of that or what's the expected magnitude of that at the DRAM business? Versus normal new devices, on the current node? Well, that's also a situation that been pretty dynamic, over 2018 and even over the last couple of years. It used to be 4 or 5 years ago. That our business was purely driven by node transitions. But as nodes have shrinks have gotten tougher as node transitions have been drawn out, We've tried to draw people's attention to the fact that we also derive significant demand from new designs on existing nodes. And currently, there's an awful lot of our DRAM revenue that's supporting new designs on existing nodes. I think if we expect the some of the node transitions to, things like 1Y in the 1st part of 2019, maybe the first half 2019. Off the 4th quarter levels, again, reminding you that we're seeing a little bit of weakness off the 3rd quarter levels going to 4th quarter in our DRAM probe card demand. We see those node transitions kick in, I think you could see it come back up to the Q2, Q3 levels. Your next question comes from the line of Craig Ellis from B. Riley FBR. Your line is open. Thanks for taking the follow-up question. Mike, I just wanted to cycle back. You've touched a number of times in different comments on the automotive opportunity and mobility and advanced packaging. But I just wanted to go back to the 130 dollars opportunity that you see longer term there? And can you just catch us up on where you think the company is in terms of harvesting some of the growth that exists in those 3 areas? Sure. So, again, everybody on the same page, we've talked about these 3 components, advanced packaging, mobile data and automotive, and essentially being the constituent growth drivers that get us to our target model. Which delivers $650,000,000 on the top line and $1.50 of non GAAP earnings per share. As I break down the 3 of those, I think far and away, the leader from our perspective in executing against those opportunities is advanced packaging, whether it be HBM in memory, which we've talked about previously and a little bit on this call or integrated fan out, which is one of the key drivers for our expanding foundry business at 107 nanometer. Advanced Packaging, we're probably 2 thirds, 3 quarters of the way there to achieving the opportunity that we laid out, but we see more headroom beyond that with advanced packaging. This is a very exciting trend for us. Mobility, with the pullback in handset growth over the past year or so, anybody who follows the industry knows that I think RF components growth has slowed a little bit. But I think that's offset going forward, especially here in 2019, by some really exciting 5G projects. We're working now on 1st silicon with all the leaders in the industry. As they build not just the filters, but the modems and some of the 5G unique beam steering silicon that's really going to be part of what gives 5G the inherent advantages. So we're still probably early in our achievement of the incremental mobile demand. And automotive, I know there's been customers talking about the weakening of that market continues to be pretty steady eddy for us. A business that's not growing as fast as the other 2 opportunities in advanced packaging and mobile data, but we continue to see some solid performance out of that. That's a real helpful summary. And Shai, maybe I can just get your commentary. I don't as we look at the target gross margin, level of 46%. How can we think about bridging the gap between where we are today with gross margins around 43.5 up to another 250 basis points to 46%. If we broke that down into 3 or 4 buckets, how would we get from where we are now to 46? So first, I want to remind you that in prior quarter, we have reached 45.9 right? So gross margin. So that was a great, you know, indicative for us that we can reach that target model. And we one of the things that will impact improving our gross margin at the target model is, of course, the volume. 650 $1,000,000, we can achieve more leverage and that will contribute to the increase. And mix as I mentioned before, we'll continue to have a big impact on our business. And operational execution. It's also something that we focus a lot on improving yields in our factories And we think we can also achieve more, more leverage by cost initiatives that we're taking with our company wide initiatives such as ERP integration that we made in our progress this year when we're going to continue to invest in next year. Plus specific BU initiatives, cost reductions in specific areas. I am showing no further questions at this time. I would now like to turn the conference back to Mike Great. Thank you everyone for joining today, and we'll talk to you again in the quarter. This concludes today's conference. You may now disconnect.