Earnings Call: Q4 2019

Feb 5, 2020

Greetings, and welcome to the MaxLinear 4th Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Brian Nugent. Please go ahead, sir. Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth quarter 2019 financial results. Today's call is being hosted by Doctor. Kishore Sindripu, CEO and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include forward looking statements within the meaning of applicable securities laws, including statements relating to our first quarter 2020, revenue, gross margin, operating expense tax expense, tax rate and interest and other expense guidance, as well as statements relating to trends opportunities and uncertainties in various products and geographic markets, including without limitation, statements concerning growth opportunities for our wireless infrastructure and connectivity markets and for improved revenues in our broadband markets. These forward looking statements involve substantial risks and uncertainties, including risks arising from competition, the outcome of global trade negotiations, export restrictions, potential supply constraints, our dependence on a limited number of customers, average selling price trends Risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect and numerous other risk factors outlined in the risk factors section of our recent SEC filings, including our Form 10 K for the year ended December 31, 2019, which was filed today. Any forward looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward looking statements. The fourth quarter 2019 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics including net revenues, gross margins, operating expenses, income or loss from operations, income taxes, net income or loss, and net income or loss per share on both GAAP and non GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non GAAP presentations in the press release available on our website. We do not provide a reconciliation of non GAAP guidance for future periods because of the inherent uncertainty associated with our ability to reject certain future charges, including stock based compensation and its associated tax effects. Non GAAP financial measures discussed today do not replace the presentation of MAC senior GAAP Financial Results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results a manner similar to management's analysis of our business. Lastly, this call is also being webcast and a replay will be available on our website for 2 weeks. And now, let me turn the call over to Kishore Sindripu, CEO of MaxLinear. Thank you, Brian, and good afternoon, everyone. Thank you all for joining us today. Our Q4 twenty nineteen revenue was $70,000,000, consistent with our guidance. Non GAAP gross margin improved 150 basis points sequentially and operating expenses declined on disciplined execution. We also delivered $28,100,000 in strong cash flows from operations, As a percentage of our overall revenue, our Connected Home business stood at 43% infrastructure was 29% and industrial multi market was 28%. We continue to successfully execute on our critical engineering and customer engagement initiatives in our strategic 5G wireless infrastructure optical data center and high performance analog markets. In the near term, we are solidifying our position with our Tier 1 hyperscale data center end customer and are also increasingly confident in the ramp of the industry's first 400 gigabyte PAM4 deployments in the second quarter of the year. Additionally, our 2nd generation TILRI PAM4 DSP SOC fiber optic portfolio optimized for single Lambda 100 gig PAM 4Q SFP NSFP modules is garnering significant traction. We believe single Lambda 100g, 400g PAM4 solutions will automate data center and 5G front haul deployments over the next several years. On the technology front, we are excited about taping out our first fine nanometer CMOS test chip, which sets the stage for our continued technology leadership in the optical data center and 5G wireless market. In the 5G wireless infrastructure market, we are excited to announce a second win with a large Asian customer in addition to the Tier 1 OEM design win we announced in the last quarter. We expect to realize initial revenue for our 5g wireless RS transceivers in this year, which will position us for strong growth beyond 2020. This design win momentum further confirms our traction in the 5G wireless massive MIMO RF transceiver market. Over the past of months, European operators are pushing aggressively towards 400 Megahertz Bandwidth 5g architectures. Our RF transceiver product is only industry solution designed to meet this requirement. More broadly, we are engaged with all Tier 1 OEMs and customer feedback continues to confirm that our 5G RF transceiver has the highest performance double the bandwidth and superior system level integration at up to 50% lower power consumption versus In 4G and 5G wireless backhaul, our RF SOC is the only solution to support channel aggregation with double data capacity in existing available spectrum for current and future 5g wireless transport networks. As a result, the broad adoption of our disruptive RFSOC continues, which will drive backhaul revenue growth in 2020 and beyond. In the near term, we are experiencing some impact due to supply chain trade restrictions related to China. We are looking forward to sharing more details about our 5G wireless and optical data center customer engagements and roadmap initiatives the Mobile World Congress later this month and at OFC in early March, respectively. Moving on to the connected home market, as expected during Q4, we saw a temporary pause in our new flagship MoCA platform deployments by our major telco operator and customer. Connectivity remains an important growth driver for this market and our MoCA and G. Origin solutions will benefit from that market dynamic. Our Cable Data business improved in Q4, though we expect operator deployments will likely be muted for the next couple of quarters. However, we do have improving visibility in this market and are confident in our positioning for the next wave of DOCSIS 3.1 deployments for North America and expansion outside North America. Overall, we are on track with our strategic diversification initiative to drive strong future revenue growth in 5z wireless optical data center and high performance analog power industrial markets, and establishing our 5 nanometer CMOS technology platform for continued leadership in these markets. With that, let me turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer, for a review of the Q4 business results and our forward guidance. Thank you, Kishore. I will first review our Q4 twenty nineteen results and then further discuss our outlook for Q1 20 20. On revenue of with step downs in MoCA due to the pause in a new product ramp and satellite, which has now deteriorated to an insignificant level. Our infrastructure business increased 2% driven by an uptick in our high speed interconnect business with other product categories flat to slightly down. Our industrial multi market business was down slightly sequentially, much like various peers in these markets. GAAP and non GAAP gross margins for the 4th quarter were approximately 52.3% and 64.6% of revenue, respectively. This compares to GAAP gross margin 4%. The improvement in the quarter was driven primarily by mix improvements during the quarter. The delta between GAAP and non GAAP gross margins in the 4th quarter reflects the amortization of $8,500,000 of purchased intangible assets from previous acquisitions and approximately 44 point rate charge during the quarter. GAAP operating expenses included amortization of purchased intangible assets of $5,700,000 and restructuring charges of $200,000. Non GAAP operating expenses were $30,000,000, which was down $700,000 sequentially and consistent with our non GAAP guidance of 29.5 to $30,500,000 due to continued discipline expense management. We have been successful managing the spend during the transitional period. After sequential reductions in the last four quarters, our quarterly non GAAP OpEx run rate was down 18% activities in the fourth quarter of 2019 was $28,100,000 versus $21,800,000 generated in the third quarter of 2019. Our loan balance remains at $212,000,000, but our net leverage ratio was reduced to below 1.5 times due to strong cash generation with priorities on debt paydown and acquisitions. Our day sales outstanding for the fourth quarter was approximately 66 days, is slightly above the prior quarter day sales outstanding of 64 days. Our inventory turns increased to 4.1 compared to 3.8 in third quarter. That leads me to our guidance. We currently expect revenue in the first quarter of 2020, to be approximately 65,000,000 We expect connected home revenues to be flat to down slightly quarter over quarter with video related products largely offsetting expected declines in DOCSIS demand. We expect infrastructure revenue to be down approximately particularly in China, as well as seasonality and other infrastructure categories. We expect our industrial and multi market to be approximately flat to slightly down as we navigate a market recovery. To 54% of revenue and non GAAP gross profit margins to be approximately 63.5 percent to 64 percent of revenue, down slightly sequentially due to the mix and negative leverage on lower revenue. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on product mix and other factors. Even as we are focused on reducing our run rate spend levels, we continue to fund strategic development programs targeted at delivering strong top line growth in 2020 and beyond, with particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business. We expect Q1 twenty twenty GAAP operating expenses to increase approximately $2,200,000 quarter on quarter to a range of $46,500,000 to $47,500,000, driven mainly by seasonal payroll increases and to a lesser extent tools supporting our product development roadmap. We expect Q1 twenty twenty non GAAP operating expenses to be up approximately $2,200,000 sequentially to a range of $32,000,000 to $32,500,000. And non GAAP tax rate of 6%. We expect interest and other expenses in the quarter to be $2,500,000 to $2,600,000. In closing, we are pleased to report continued progress in our infrastructure initiatives highlighted by our expanding product portfolio and design engagements in 400 gig data center market, engineering and customer milestones in our 5G massive MIMO transceiver platform. While China markets remain turbulent in the near term due to multiple issues, we are beginning to see stabilization in our connected home business. Particularly on the cable data side. We will focus on maintaining strong profitability and cash flow generation as well as executing on our strategic investments. These infrastructure initiatives and strong engineering execution combined with upcoming upgrade cycles in the data center and wireless markets position us well to deliver strong leverage in our business as many of our new product rollouts start to layer incremental revenue streams in 2020. With that, I'd like to open up the call for questions. Thank you. Our first question today is coming from Quinn Bolton from Needham And Company. Your line is now live. Hey guys, congratulations on the 2nd 5G, so other transceiver wins. Just wondering if you could give us a little bit more detail with that Asian customer is that a global or worldwide platform or will it be targeting geographies, specific geographies, say, China particular? And then I got a couple of follow ups. So, hi, Quinn. The second design we have just announced in this call, is a Asian OEM as we mentioned and the platform is universal. Having said that, They are not a Chinese OEM. And, but they do have a worldwide presence. They currently ship products into into 3G, 4G markets as well. So geographically speaking, they're present, in many places, primary focus is in Asia. Got it. Got it. Okay. And then second on the data center business, you've said now for a while, you think that that business starts to ramp in the second quarter of year. Wondering if you could just sort of comment across your portfolio. Is the ramp for both DR1 and Doctor. 4 modules, or will it start with Doctor. 4, Doctor. 1, and then you layer in the other over time? So currently, I just want to remind everybody that 400 gig PAM4 DSP is our first entry into datacenter interconnect products, right? And which is based on a single Lambda 100 gigabit technology. So we have 2 products that are primed for this market. One is a 400 gig PAM4 DSP with the integrated driver and a TiA companion chip set. And also, we are the only ones with an optimized 100 gigabit QSF the DSP solution. So both these initial ramps in these markets are going to be based on Doctor1 and Doctor4. We expect the other categories whether it's on the FR4 side to happen following this particular ramp, but the initial ramp and the ramp that is good to happen at this major hyperscale data center is based on Doctor1 and Doctor4. Great. Thanks. And then lastly for Steve, you mentioned multiple issues in China. Kind of wondering if you might be able a little bit more color. Is this still more trade related? Is it more coronavirus looking forward? Or a combination of both, or are there other factors affecting that China business? Yes, Quinn. I mean, actually, just mentioned multiple factors, both are probably influencing our business at this point. So as you're familiar, I mean, we've definitely had the export issues, but we've also seen a fair amount of slowdown just in the recent weeks around the coronavirus as well. So we wanted to highlight both. Thank you. Thanks. Our next question is coming from Gary Mobley from Wells Fargo. Your line is now live. Hey guys, thanks for taking my question. I wanted to focus a bit on the Connected Home business and think about different moving pieces and not mistaken, the 2 remaining most influential pieces that business should be the cable data and the MoCA business that you perhaps have, concentrated with Verizon. And so as we look back per your 10 K filed for the close that looks like your cable data business specific to your OneMain customer might have been down, what, 35% in 2019? As you think about how you have your trailer hitch to perhaps the right horse in 2020? How should we think about the diversity or growing diversity of that cable data business and what the growth prospects may look like in 2020? Yes, Gary. Not a problem. Yes, so we definitely have had our struggles with our largest customer over the last a year and a half, I'd say that we're in a much better position, as we sit here going into 20 20. I think we're much more confident, have much better visibility in kind of that as they ramp products and kind of reach gain share that they really lost in the previous year. So while it has been disappointing to date mean, I really do feel like things are improving and we'll see that get back on track in the current year. And also to mention that were the most significant contributors to the revenue step down in this category has been also the operator spend itself has come down. And that is a bigger contributor than our major customer specific issues related to acquisition and so on. Okay. As you think about your smoke of business, I believe we're perhaps in the middle correctly if I'm wrong of maybe some inventory digestion as your one main customer there sort of built to channel ahead of service launch and equipment launch, where do we stand on that front with maybe a return in that business? Yes, Gary. I mean, I think we've brought this up even ahead of time anticipating a much faster ramp. So what we've been pretty clear about, from our expectations and really where we see this today. I mean, we'll we think we see it moving sideways in Q1. And then we'll start to see some return to growth in Q2. Okay. And the infrastructure business somewhat starting in a hole in the 1st quarter with expected to be down 10% sequentially. Do you think this business can grow in 2020? And as we see a rebound off the Q1 base in addition to the the PAM4 ramp and maybe some contribution from the 5G RF transceiver. Are there other factors that will help drive the rebound as we look into the balance of 2020? So, yes, absolutely. I mean, so maybe just to get at your first question, I mean, do we expect to grow. Absolutely, we expect it to grow. I mean, I think it can grow on the order of 15% to 20%. That said, we've had a lot of challenges with China. And as you're familiar, we do have a couple of shiny owned more than a couple, but, several customers in China that make this up, but there have been some headwinds So, I don't think that comes as any surprise, but we do have these new products. We do expect to see them ramp in the coming year. We absolutely are Kishore mentioned earlier, confident in the PAM4 ramp for this year. So that'll start to contribute starting in Q2. And then you've got massive MIMO probably coming in the second half of the year. So yeah, we're we remain very excited about the infrastructure business and anticipating growing it nicely this year. Thank you. Our next question is coming from Toree Sandberg from Stifel. Your line is now live. Yes. Thank you. So first question on the Connected Home, sounds like maybe, it's gonna thought growing again sequentially in Q2. Kind of set a little bit of expectation on your infrastructure growth this year. How about Connected Home should we think about sort of down 5% to 10%? Any color there would be helpful. Hey, Tore, So I think our outlook on the Connected Home side, so we've been cautious. This has been a tough market to call for us. Clearly, as Kishore had commented on earlier, the operator spend has been the biggest challenge in 2019. We do anticipate that starting to move in the other direction. But that said, I mean, we expect it to be somewhat muted in the first half of the year. But I do expect to see improvements in cable data, but it's probably in the second half. Hopefully, we'll see the MoCA business, particularly at Verizon pickup as well. We've been very, fairly cautious here and saying that even if it kind of moves sideways, from the Q4 results throughout the year, that I think that'll be good progress towards stabilization. And I think that's what you've heard from us that we see this business stabilizing. And And I'm really optimistic that probably in the second half and into 2021, that operators spend picks up and we get back to some normal growth levels. That's fair. And as it relates to the 2nd design win, the Asian customer for the 5G transceiver, Will that start to generate revenues already this year or is that more 2021? To generate revenue towards the end of this year, I think definitely, provided their own production ramp is on track. We are ready to supply, so to speak. And, because it's a long lead time market, we were ready, we are ready much earlier than what these wire OEMs take to qualify and go to production. So we will have some revenue at the end of this year from this particular OEM. Sounds good. And last question, you mentioned 5 nanometer. So it sounds like you're doing a little bit of a leapfrog here. Not really working on 7 nanometer. Could you maybe elaborate a little bit on the sort of decision behind that lead front? So one of the interesting things about these markets is they take a long time to to bear fruit. They're a long lead type markets. In the meanwhile, the long ramp lead time, it does not track the rate at which the technology on the CMOS side has moved. So one of the things we have learned in this market is that the the incremental gains in changing the node does not really affect the data center decision making process. For example, there was a power limit at 16 nanometer, which was required to enter the market. And there's a range there. We were the first one to demo the product in 16 nanometer 400 gigabit. But then it seemed that the power differentiation was not, were not the only determinant of the situation, the maturity of the technology and readiness to product and need for multiple vendors, right? So going to the next node in 7 nanometer does not at all create a leap in power reduction. Now the latest bid is for data center companies wanting to go to the next leap in technology, 800 gigabit data rates. So the 7 nanometer is neither here nor there, right? It doesn't improve the power zemption and 400 gigabit, nor does it give you the kind of integration levels and power density reductions you need at 800 gigabytes. So it seems in my considered opinion, leapfrogging 1 technology node, going to alternate advanced It's a much better idea to have a roadmap where the products all converge generationally than being in the the immediate, what I call, incremental technology node. And the cost development differences between 7 nanometer, 5 nanometer, very marginal. At best. It's a 10% to 15% difference. So you would rather do one investment than do 2 separate investments simultaneously. And that would that would not fit well with their OpEx discipline philosophy. Thank you. Our next question is coming from Bill Peterson from JP Morgan. Your line is now live. Hi. Thanks for taking the question. Just wanted to come back. You said that in China, you obviously have trade issues and you mentioned coronavirus. Can you quantify at least to the extent that your guidance is take into account the coronavirus itself? And I guess more specifically, what areas would you see any potential weakness? Would this be the industrial and multi markets or infrastructure. If you can help, help us understand that better, that'd be great. Hey, Bill, this is Steve. So I don't know that, we can separate out that impact. So, we definitely see some impact there, but the trade situation in general can continues to weigh a little bit on the infrastructure markets as well as our industrial multi market. As you're familiar, I mean, the industrial multi market, just a much broader base of business and we've definitely seen weakness in China have some impact there. Covery on that particular business. On the infrastructure side, it's had a bigger impact. And then in some respects, seeing that customer base start to look for alternatives is another thing that we've been cautious about in our expectations and we've tried to be conservative in kind of our outlook as the potential for replacement is there. And the other thing is that, currently, the Chinese New Year keeps getting extended due to coronavirus. It's very, very hard to have meaningful dialogues with the customer base. So going into this call, we worry about how the pattern returns to bookings and backlogs and that sort of a thing. So did we can we quantify everything? No. Did we take a call approach? Yes. But have you been cautionary enough? That is a mystery, right? So, and I think that'll be true for all our peers as well. And because for us, for sure, it's pretty clear, all our manufacturing happens over Are we going to be a supply constraint or demand constraint is very difficult to guess right now. So we are being cautious, but we don't know if you have quantified that properly. Okay. That's fair. Thanks for the color there. Next question is coming back to the the, the optical business. Obviously, you know, you have your, your ramp up, your lead customer, and obviously, the other large U. S. Hyperscale has already ramped at 2 100 gig. I guess, we expect that Microsoft and and maybe Alibaba, I mean, I mean, one of your peers said that another US and a China would be ramping later this year than the rest of the big 3, 2 in China, 1 in the U. S. Next year. So I guess the question is, can you give us an update on what your traction is on the other, hyperscalers that you're working with, recognizing that revenue maybe later on, but just trying to get a feel for your design win pipeline with some of the other large hyperscalers. So, Bill, I just want to clarify here that we entered this market by leapfrogging on the 400 gigabit product, which is the next generation product. And at that point, we made a determination whether it was right for us to enter a 200 gigabit or 400 gigabit. And we chose 400 gigabit. So it's really not we're not in a position where we change the designs that are ramping now, but we are in a position to change the landscape on data centers that have not that have not made those decisions. So we are engaged with all of them. And we have our own unique value proposition and we are having very constructive meaningful dialects with them. But I do see the market split. And even if you fast forward 3 to 5 years from now, you'll have products that are at 400 gigabit, 200 gigabit, 100 gigabit. So I think it's going to be a colorful market in that sense. But we hope to have the entire product portfolio to have presence in all of these markets. So the timings would be very different when we come out with what. But there is room for us to do meet influential changes in the market directions and also parties been what's already set in the market. Okay. Thanks. If I can ask one more, can you help us understand how we should think about OpEx through the year? If there's any guess, other large tape outs that you anticipate in 2020? And just give us a feel for how we should think about that. Sure, Bill. I mean, I guess, without going quarter to quarter, I mean, we do have, some math cost. So the front half of the year is probably more heavily weighted. And then it starts to decline a little bit in Q3 and Q4, just as as we progress out the year. Thank you. Our next question is coming from Christopher Rolland from Susquehanna Financial Group. Your line is now live. So on infrastructure and the pace of the 5G rollout there, you guys talked about China if if I understand that correctly, maybe you're implying it's a a a 5 g push out in China. And do you believe that that's the case for for all OEMs in China right now or just the ones that you're exposed to? And maybe if you could talk about your customer exposure there and how that works into the ramp? Chris, we were not implying anything to do with 5G at all. We were referring to a slowdown related to supply chain impacts with the trade restrictions and other multiple factors, so to speak, which is, I don't want to bring up the wires every time. But the impact is more to do with our existing business that is already designed in ramping which is primarily related to our wireless backhaul, radio transceivers and some are some of our HPA our industrial multi market solutions that ship in China. So there was no difference in our mind to 5G. In fact, we believe that the we will be very correctly positioned for the big ramp in with our offerings, both on our 4 by 4 massive Memorial Transceivers and our soon to be offerings in 8 by 8 massive MIMOR if transceivers, we hope to be the first one in the world to make that happen too for the next generation leap in integration. So no, there is no qualification on the 5G ramp timing at all. We will be positioned very correctly for that. Great. Thank you for that clarification. And then, on the infrastructure side, again, the, the second OEM that you guys were talking about and even even the first OEM, you know, as we try to get our heads around the opportunity here in the economics. How do we think about it? Do we think about 100% attach rate per base station across their whole portfolio? Or is this just for a portion of their portfolio? And is there anything we can think about in terms of chips per base station and ASPs for those chips, just helping us to kind of broadly frame the opportunity per per OEM, if we know, roughly their share or number of base station shift, how can we as analysts kind of frame that opportunity better? That's a pretty big question, with lots of color there. But clearly, 5G itself is a fraction of what the worldwide base stations today are. The big place where the ramp is being strongly pushed is in China, then the other ones will follow, you know, America and Europe. So there is a time delay and it'll be U. S. And Europe. So it's going to come in waves. I don't expect the attach rate to be 100%. And secondly, you know, it's going to be a layered process of penetration, right? So if you really think about what happens in base station, it's much more than a base station, is the active antenna systems that are going to have a massive MIMO much more chips content. And that you should look at maybe $400,000,000 to $500,000,000 SAM in active antenna systems, in the next 2 to 3 years. You can, you can do a nice growth to get there. And then on top of that, you need to add the DAS systems, macro base stations, and small cell configurations. Or let's call them microcells, and you get to about $3,250,000,000 of addressable SAM on radio transceivers. And that's the market we're going to participate in. And then our competition at each OEM would be with yet one supplier. They are all choosing 2 suppliers to divest with a supply chain base. We hope to be the common factor given being the smaller, aggressive company. And there'll be a big, less aggressive company as the other supplier. And we hope to split the share with them at each OEM. Thank you. Our next question today is coming from Alex Zechi from William Blair. Your line is now live. Hi, this is Camille Meelcharc on for Alex. Thanks for taking my question. So, you've talked in the past about Pam for potentially being a $100,000,000 product line over the next 3 to 4 years. Can you provide some detail on the cadence of growth over that time and how eight Degee factors in? Thanks. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Wow. You're now talking about agent degee because I talked to a fine nanometer CMOS technology, I suppose. We live in this wonderful world where the richest people want the forest people to give them all kinds of candies. And that's the data center people, right? So we have to invest in 800 gigabytes to actually have them buy our 400 gigabytes, right? That's the way to look at the problem. So I don't, while the first samples of 8 100 gigabytes will happen, sometime in the next 15 months or so window without revealing our timelines to you by the way. So, so I would expect that agent gigabit really won't ship for until 3 years after today, let's say, maybe once again, our current Tier 1 hyperscale data center company will be the 1st to lead the charge on that. And that's what we are focused on really, really penetrate our relationship with them stronger, get closer to them. I think the bulk of the shipments will really be 400 gigabit, 100 gigabit. And 100 gigabit will permeate the entire data center space, the enterprise space replace existing 25 gigabit and 100 gigabit, the WDM markets, And, and there's a play for 200 gigabit that's going on right now. And those are the revenues I expect to be shipping for the bulk of the next 5 years, right? 800 gigabit would be starting to ramp during that window. So whatever revenues we have talked to you about getting to $100,000,000 over the next years or so time cadence in optical data center interconnect is really based off our 400 gigabit offering, 100 gigabit offering. And a few other things, but I would leave it there. It's helpful. Thank you. Follow-up. Your cash balance is now, I think, at a multiyear high. Can you talk about your cash capital allocation plans and share your thoughts around potential M and A? Thank you. Yes, sure. Actually, yes, cash flow during the quarter was actually very good. We're very pleased with progress that we're making on that front. With regard to our uses of cash, I mean, it remains the same, continue to look at acquisitions, as well as debt pay down. We're very pleased to see the progress on the leverage, getting it our net leverage down to 1.5 times. So we've really made nice progress on that over the last, say 18 months to 24 months. And so definitely want to build up cash so that we can look at acquisitions. So we're optimistic that we can get something done in 2020. That's great. Thank you, guys. Thank you. Our next question is coming from Tim Savageaux from Northland Capital Markets. Hi, good afternoon. A couple of questions. First on the PAM4 side, I guess the commentary early in the call, it was about increasing confidence in the PAM4 ramp. I'd ask what's driving that increase in offidences and as we get closer to it, any comments on the kind of initial magnitude of that ramp? So, hi, Tim. Have you not met before, but, look, this has dragged on for a long time. And as more information comes out, it's very clear that we're farther along in the maturity of the levels of interrupts and, and at the module level qualification and things like that. So we do feel that there are two vendors that are at the threshold of being fully ready to go. And so there are a few more things that need to happen in this quarter, but there's a lead time to order patterns here. And we're very hopeful that, that really results in a ramp in in Q2. And having said that, of the size of the ramp, obviously, that's a little bit mysterious. But we expect an initial spurt and then slow down and then pick up later on in the second half of the year. That's the usual way things play out. But please keep in mind, it's the first time we're entering data center markets. This is new for us, how it plays out, right? And we're also looking to see to be extra prepared in case the demand moves much faster than we think. Okay. Thanks. And if I could follow-up and maybe beat this China horse to death here, and really with a focus on trying to discern between kind of demand versus supply side impacts. I think if anything, we've seen pretty notable strength across the ecosystem, in terms of 5G, perhaps 5G driven a mobile front haul and back haul of late in China. And so, you know, with that in mind, I just wanna to get a better sense of whether you're seeing, changes in the demand picture or inability to supply demand. And just maybe as an aside, whether we might be seeing a shift from microwave to fiber in China that might be having an impact? Oh, I'll address the last one later, but first and foremost, the demand spikes your you're seeing, as you said, in front haul, there's a really legacy fiber optic solutions for the telecom market. They are not the new enhancement and bandwidth for transport market. So we are not participating in the older technologies. Our offerings in 5G are really for the enhanced bandwidth usage cases that is going to be a little bit later, right? So So I regarding the regulatory supply, we will be able to supply, but it's a careful balance between what we have to supply versus where which product the demand is, is noble, so to speak, right? So given that most of the customers are really holiday and there can be no consensus in terms of how their demands, are picking up and the return. We really cannot speak for what that plays out to be. But I want to address the last one which you said that is the world is China mowing from microwave back called the fibrotic? No, no, no, China was never a microwave backhaul country for trans It was always a fiber based country just like the USCs. But however, the Chinese OEMs are one of the biggest exposures of microwave backhaul transport technologies to the rest of the world. And, the rest of the world outside of the U. S. And China are very wireless call oriented. And those are the markets they ship into. And one of the biggest markets is India, which itself is is evaluating its options with your millimeter wave microwave, both of which we have solutions and we are the only provider for in both these cases as a merchant vendor for the silicon for millimeter wave and microwave backhaul. Thanks a lot. So with that, I want to wrap up this conference call here. So thank you, operator. We also want to let everybody know that we are participating in the Fig 9th annual technology conference in March 12 in New York. The 2020 ROTH Conference in Dana Point, California. And we'll also be hosting investor meetings at the Mobile World Congress on February 25, in Barcelona, Spain and at OFC on March 10th in San Diego, California. We hopefully will see many of you there. With that being said, we thank you all for joining us today and we look forward to reporting on our progress to you next quarter. Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.