Good everybody, why don't we get started with the next presentation? I'm Ross Seymour, U.S. Semiconductor Analyst here at Deutsche Bank, and we're very honored to have the management of NXP Semiconductors up on stage with us. Kurt Sievers, the President and CEO, and then Bill Betz, the EVP and CFO. So Kurt and Bill, thank you very much for coming. I want to start off with some higher-level macro questions first, and then we'll kind of narrow it down to the NXP-specific ones. But in the semiconductor world, we've been going through a little bit of a challenging cyclical time, but it's a little bit of a rolling cyclical correction. You guys, I think as, as of late, talked about the second half being better than the first. Other companies are shaped differently than that.
What gives you the confidence to have the second half better than the first?
Yeah. Thanks, Ross, and thanks, first of all, for having us. Gorgeous place, by the way. Nice to be here. I'd say there are two elements which probably differentiate us from, from the wider, competitive space. One is clearly our market, exposure in terms of what segments we are serving. Having a large exposure with 50%+ to Automotive and a significant exposure to the Industrial space, gives us obviously a more favorable market mix than, companies which have more of a consumer compute, well, type of, exposure. That's one, but that's widely known. Now, if you zoom into competitors which have a similar exposure, I think we are still faring differently for one single reason, which is how we've been dealing with the avoidance of building excess inventory. And that itself has, again, two elements.
One is the channel, and we've talked a lot about that over the past six quarters already. That right from the start of when the demand came down, we have avoided to build excess inventory in the channel by keeping the months of inventory in the channel very, very strictly to 1.6, which is very low. It's actually almost a full month below our long-term target, or say, $500 million underneath. Which is something where we have orders, we could ship, we have the product, but we have resisted from doing this in order to not suffer from the later adjustment, which typically bites you then. But that's not the only one. The other one is, of course, the other 50% of our revenue, which is with direct customers.
Here, I think this whole concept of NCNRs, which has become very widespread in the industry this year, is something which we have probably handled a little bit differently to some competitors, in such a way that we have not had, right from the start, a brutal enforcement policy. Well, let me clarify more specifically. We had a number of customers which with whom we had NCNR agreements for this calendar year, coming to us already as early as in Q1 and saying, "Well, we signed up for 100, but it looks like we only need 85 or 90. What do we do?" Now, what we have not done is say, "Go to hell, you signed up for it.
Just take it." But we tried to find commercial bridge solutions to accommodate the lower take rates, since we knew that it would only become a problem later. I mean, you can enforce it in the first place, but enforcing NCNRs does not create demand. It absolutely doesn't create a single piece of demand. So what we've done is we leveraged that to get better pricing or get future design win awards, or find any other commercial agreement with that customer in order to accommodate. So doing these two things, staying very low on the distribution channel inventory and being flexible on the NCNR enforcement handling, I think is something which differentiates us from our peers. It's also what I'm hearing from customers, actually.
Which means integrally, we probably all ship the same, just that we haven't shipped it in the first place, not that much, and are now, for that reason, going more smoothly and more softly, the landing of this.
So the management through the cycle, I agree, NXP has done a superb job of it. If we talk a little bit about the geographic differences, China's been an area that's been a little bit of a problem. Not so much that it's gotten worse, but people expected it to get better, and that hasn't happened. Talk a little bit about what you guys have seen in China, and any sort of updates, if you wanted to provide it on kind of near-term trends.
Yeah, China for NXP is 30%, 30%+ of-- doesn't matter. But I have to highlight that only half of 30% China for China revenue, the rest is... But it's still 15% government than by local demand. Yeah, I completely agree, Ross. We, thank God, in hindsight, we were pretty thoughtful and cautious in the... You might remember we said that already. We are not that optimistic at all about China. And indeed, it has-- there has been no rebound. We don't see a rebound at this stage, so I dare to say also through the end of this year, no massive rebound in sight, I say. Now, for us, it's still-- I would put it into two pieces.
The Automotive side of China is actually in good shape, and that has to do with the success of Chinese EV companies, and certainly led by BYD. BYD has incredible volume success currently, and since we have a big exposure to China, I'd say the Automotive side of things in China is in good shape. Isn't problematic at all. However, the more consumer-oriented businesses which we have in China, which is the Android Mobile business and IoT business. They are very slowly, gradually improving from what we think was the trough in Q1. So it looks sequentially kind of okay. Q2 was above Q1, and the guide for Q3 above Q2. But from a year-on-year perspective, double digit down, and again, we don't see a sharp rebound.
And also none of the numbers which we've given you in guidance for further out directional statements contemplate any rebound. Now, when it comes, it's great, but it's not part of our.
Great. A couple of more high-level questions for you. Talked a little bit about NCNR. That's something that's relatively new for certain subsegments of this industry after the shortages that we had during the pandemic, et cetera. Pricing is an aspect of that, that you mentioned as well. I think two years ago, your pricing was up 2%. Last year was up 14%. You only update it one time a year, so I'm not going to ask about this year. But conceptually, if supply is coming online, do you think pricing normalizes? Is it something where you took a big step up and now you're going to take a big step down, or do we just fade off of that higher level-
Yeah.
-in more of a traditional slope?
Yeah. I completely agree with you. In my 30 years in semiconductors, I haven't seen a in a non-commodity business, such sharp price increases ever before. So it's clearly something which also makes the understanding of the current cycle a bit harder than past cycles, because this pricing component element. And yes, two years ago, we increased 2%, last year, 14%. I can say with good confidence today that also when we will exit this year, we will have increased again this year, less than the 14 of last year, but also materially more than zero. There will be a solid, solid increase price again this year. Now, I think it's important to understand the root cause for the pricing. It—at least the way how we have handled it. It was not about padding our margins because of supply shortage.
It was about passing on the increase, and the increased input costs have been and continue to be a direct consequence of the industry's desire to catch up with the demand, with their, their supply capability in place. So all of the CapEx, which is being spent with us, but also with our foundry partners, is depreciating, and that's actually the surprising. There is another source of it, which unfortunately we also have to deal with, which is this geopolitical resilience strategies. Which essentially means that the industry is now building semiconductor factories in not the most economically optimal place, sadly. So building semiconductor factories here in the U.S., building them in Europe, we just announced this, this baby with Germany, is done because customers, for good reasons, are requiring resilience, political turmoil environment.
But the cost structure of these factories, despite the CHIPS Act, is higher than had done it in Taiwan, for example. And also that drives has to be paid for. So we passed it on to our customers, and the way we do it is very simple to understand, very transparent. We pass on the input costs, increase our price, keep our gross profit percentage whole. So the only target we have, the gross profit percentage, protected from these pricing or costing. So how is this going to continue? That's your question. I, I think early indications for next year, in the short term, are that the foundry cost from the Tier 1 foundries is not coming down. I don't know how much it's going to be increased.
That's still in negotiation and under discussion, but directionally, I have to say it looks all like foundry cost again is gonna come up somewhat. That's the biggest single cost block which we have, which would also lead us to possibly have to increase prices again. How much and how that all works, I don't know. Longer term, Ross, I absolutely don't think, and I make that comment only for the markets which we serve. I don't think we will ever revert back to the prices ahead of all of this. So if you think about 2020, which was the starting point, it's just impossible because the whole industry is facing higher costs. I mean, nobody could digest that.
But yes, I do think that it's gonna, it's gonna saturate from a price increase perspective, and maybe then over time it will come back to a more normal, year-on-year, small single-digit price erosion, but on that higher level. So think about 2020 starting here, then going over three, four years up, and from that new level, it will go back to what it used to be from a year-on-year decline, but not revert back to the original level.
Why don't we pivot over to the Automotive side a little more specifically? You know, it can be 50%-60% of your sales, depending upon the year we're talking about. You guys have done a great job. I think you grew 25% last year and, and on pace for the better part of 10% again this year. A big concern investors have is the cyclical correction that's been rolling across the industry, eventually hitting Automotive. Talk about why you would be concerned about that or why you're not.
I'm not, or I would rather say we are in the middle of this correction. So the—a part of the correction is what we had anticipated with keeping the channel inventory low. And I mentioned the channel now because 40% of our Automotive business is going through the channel, and we keep constraining that. So I mean, we could ship more, but we haven't done it. So part of the correction is kind of priced in, if you will, through the channel.... The other part is the inventory adjustment on the NCNRs, which I mentioned with direct, direct customers, which is ongoing. I mean, I don't have it exactly in my mind now, but I think the Q3 guidance for our Automotive business is only a 5% year-on-year growth, which is actually too little, I have to confess .
Why is it? Because it does adjust for some of these inventory elements with the direct customers. So we are right in the middle of this. I think it's all completely behind us through the end of the year, but it's soft. So it will not be a cliff. You will not see a cliff. And again, I talked earlier about why maybe some peers see more of a cliff. They've just done this more aggressively. They've driven it harder in the first place, so they have to fold on harder in the second place. Integrally, I guess, if you look over two, three years growth, we will all be the same other than market share gains, which are company specific, which I hope we have. But from an inventory management perspective, it's just a matter of do you take it earlier or later?
You mentioned about the EV side in an answer to a prior question about that still being strong in China. There's actually some concerns arising about excess supply building in the EV supply chain, whether that's because that's what the OEMs are choosing to build for any number of reasons, or because the pricing of those have gotten to be high enough that, and with interest rates, that the demand has dried up a little bit. It doesn't sound like you're seeing that. So what do you see happening in the EV market right now, whether it be China-specific or more broadly?
I clearly see very positive momentum in China, and that goes at the expense of Western companies. To be very clear, I mean, BYD, as an example, is winning over Volkswagen. So that's the one is winning, the other one is losing. So the total dynamic, if you look at the total market, remains equally strong, but the deck of cards is changing between players. Which for us is good because companies like BYD have a significantly faster design cycle, so they develop a new EV in two to 2.5 years, where a traditional car OEM from the Western world takes four to five years. That matters to us massively because that means they much faster pick up our newer products, and our newer products have typically higher ASPs than the older ones.
So on average, a BYD car has a higher silicon content from a dollar perspective than a Volkswagen, GM, Toyota car. And that only has to do with the age of the products. It's the same sockets, but it's higher value products, which is why for us, that dynamic is a positive one, that China is winning currently over, over the rest of the world. Secondly, the overall penetration of EVs, yeah, I also read this, yeah, as it's slowing down a little bit. I mean, we have reached now, I think this year, 34%, 34%, 35% of the global car being EV or hybrid. That is a materially high level already, so I think it's just mathematically normal that that curve starts to slow a little. But it's not bad news because if you look at absolute numbers, it's still, it's still huge numbers.
No, I would not say I'm concerned. What certainly is happening is that some of the Western companies will have a hard time to compete.
When you talk about the EV side of things, you guys play in that in a number of different ways. There's the direct drivetrain ways, and then there's just the higher content that tends to go along with them. Why don't we talk about the drivetrain side first and your BMS products? Talk a little bit about the unique approach that NXP has and what the competitive environment looks like, and maybe even if I back up for a second, out of your Automotive business, how much do you think is EV to begin with?
It's as you say, we can be relatively specific how much is EV relative to the drivetrain, because there is a specific product, which is gate drivers in inverters and battery management solutions, which Bill, I think $600 million next year. Is that the number we gave for the-
I know we say $500 million.
We are running ahead, so.
We did double.
Yeah.
We're at $400 million.
So, but we clearly see a trend that other electronic features, and that touches then radar and several of our microprocessors, are also being featured much richer in EVs than in combustion engine cars. So that EV trend has, for us, a double impact. It drives very strongly the drivetrain-related product, but also almost all of our other portfolio, because an EV typically has a higher electronic content across the board. For example, in radar, we just really statistically found out that EVs have a much higher radar penetration than combustion engine cars. It's just that the OEMs are choosing to feature those cars higher because apparently consumers expect more electronic capability. How much that really is, we don't know. We just see it's trending much higher than on the combustion side.
So I would say that if you look at the drivetrain only, we have the capability in the portfolio to go after 50% of the silicon ton, which is offered in the electric drivetrain. Other 50%, which is the high voltage, high power products like silicon carbide, IGBTs, is what we don't do. And I mean, it's widely known, I guess, that NXP took a conscious choice to not enter the battle in silicon carbide because we believe it is not margin accretive, but actually margin dilutive to NXP, given a number of reasons. More recently, by the way, I think the fact that China has now aggressively entered the silicon carbide arena doesn't make it easier at all. So that 50% we don't do.
The other 50% of the content in electric drivetrains, which is about logic and analog mixed signal, is where we play a leading role. Now, battery management, specifically? I think the uniqueness of our approach is a system solution, because we are offering the high precision analog front ends, which are sitting on each of the battery cell and the microcontroller, which is organizing and steering the cell balancing. So a battery management system is a pretty simple build-up. You have a microcontroller in the middle, and that microcontroller is connected to a analog front-end chip on each of the battery cells. And the microcontroller, the algorithm on the microcontroller makes sure that we call that cell balancing, that the discharge speed of the cells is very even across all cells.
None of our relevant competitors has that capability, because our most relevant competitor, which is actually even a bit bigger than we are through acquisitions, doesn't have microcontrollers, so they only do the analog front-end chips, so they don't have a system approach. The advantage of our approach, I would say, is largely playing in with emerging customers because they want system solution. Now where are these emerging customers? They are in China. So I'd say directionally, it's not black and white, but where we've been winning massively share in BMS and growing faster than anybody is actually with the China EV companies, because they like this system solution approach. Otherwise, they have no chance to hit their 2.5-year design cycle time. In the Western world, I think it's a more even position against our competitor.
Given that the EVs in China have such a run currently, that has been very favorable for us.
You said earlier that China is about, you know, 30% or so of your revenues, total company, and only half of that is actually for China.
Yeah.
-properly.
Yep.
Is that, is the Automotive side higher or lower than the corporate average?
I don't know, but I'd say directionally, it might be higher.
One thing you and I have talked about over the last couple of years is the relationship between chip companies and the auto OEMs, with the Tier 1s in the middle, and how that's changed. If we go back to 2019, nobody wanted any chip inventory. They said, "The chip guys, you know, you guys are useless. Nothing." 2022, they're your best friends. They want everything they can get. They're willing to pay up for it. This time is different. Where are we today? What's been a structural change versus just a cyclical reflection?
Yeah, I think the most important structural change is the established collaboration, which we have with OEMs, not only on the supply and logistics side, but also on the innovation side. So where this has morphed into is from a painful tactical fighting about each piece into a more structural relationship where innovation, in our case, largely the compute architecture of the car, this whole software-defined vehicle infrastructure thing, is being discussed all the way up to CEO level. And clearly, we didn't have this before. I had no access ahead of 2020 to any of the OEM CEOs. That was just not existent. But also on the logistics side, we are now in a position that we have signed direct deals, partially innovation, partially logistics in nature with OEMs.
So I would declare that now, where we are in the second half of 2023 already, as a structural change. There is another battle left in all of this, Ross, which is the size of inventory being kept by the Tier 1s. So that is a bit of a mess currently. OEMs have a very clear position. They would want the Tier 1s to hold higher semiconductor inventory. There was a simple model, never right, but it's approximately okay, which is keep a quarter of a year of inventory, and you are protected from the worst because that equates more or less the manufacturing cycle time of a chip. Now, given the thin profitability of the Tier 1s and their cash flow issues, they don't want to do this.
So I don't know where it is in each case because partially we know, partially we don't know. There is a lot of discussion currently going between those two parties in how to govern this going forward. So there, I would say clearly the OEMs take a strategic stance, which is learning from the past. That's why they urge for that. Why the Tier 1s, under the pressure of their short-term financials, take a more tactical stance and tend to forget history and just try to survive in this. Where this plays out, I don't know, but I can give you one nice example.
So one OEM, for example, has now made it mandatory that any new design award they give to a Tier 1, the Tier 1 has to sign up for keeping a certain amount of semiconductor inventory of that design going forward. So it's for new business because they can't change the running business, but if there is a new platform, they say: Okay, Tier 1, you can only win this piece of business if the microcontroller in there, you keep, say, eight weeks of stock, some more catalog, analog products, maybe you only keep five weeks of stock. But it is, it is clearly ruled. That's one way of doing it. Now, that will take time because it's only for new business. So until all of this is settled and, and established, of course, a couple of years will go by.
Great. I should have mentioned this earlier, but if you have a question, just raise your hand. We do have microphones. I'll see you eventually. Just raise your hand. I'm going to keep firing away questions, but if I see a question, go ahead. There's one already, Amy. That was quick. Thank you.
Amy Sutter, Deutsche Bank. One of the things that's been really impressive in this cycle, I think for you guys, which I'm not sure I clearly understand is how you've been able to keep your gross margin so high, even when, I think people have all just expect to see that correction, and I'm assuming it's some mix, but when you're not shipping as much and your utilization is lower, you've been able to hold your gross margin. So if you could talk about that a little bit more, it'd be great.
So I, I let Bill explain the detail. It's clearly having huge attention from us because we indeed think we can differentiate in performance against the peer group by sticking in a very resilient way to the high end of our, our gross margin funnel, which is the 58% bracket. Just one thing before Bill goes into the detail, mind you, that we have significantly reduced the amount of fixed costs in NXP. Only 40% of our revenue is internally from our, from our own factories. So the impact of underloading, which we do currently, we are in the low 70s, is much less than with a lot of peer companies, because 60% of our wafer volume comes actually from third parties where we don't have that impact. But Bill, maybe you also explain the impact of the mix into that question.
Absolutely. So let me break out gross margin short term. So think one, two quarters, medium term, think 2024, and then longer term, what happens after that? In the short term, we do have a couple headwinds. Utilization, as Kurt and yourself just mentioned, running in the low 70s, and Kurt is correct, having that lower fixed cost reduces the variability. Now, I would say the other headwind that we have that we don't really talk about is our mix. Again, we've been purposely, with clear discipline, putting the inventory in the channel at this 1.6. You have to remember, this is the richer part of our business.
This business, this $500 million that we talk about, Kurt talked about in the beginning of the call, is from going from 1.6 to 2.4, is $500 million, but there's a mix side of that which also adds improvement to our gross margin. And so how this balances out, and this is what's going on in the short term, is utilizations are low, at that 40%, and we're improving the distribution sell-in, matching the sell-through, which is offsetting that underutilization. Now, as we think about 2024, these become tailwinds. So the utilization, when we bring it back to the sweet spot of 85% for our factories for 8 in, that seems to be the ideal place to run the factories. So that becomes a tailwind.
When we think about replenishing the channel, this year, we have no plan or outlook of doing that. So for the rest of the year, most likely we'll stay at 1.6. But when the market does improve, we're very well prepared to turn on and churn that inventory that's sitting in die bank very quickly through the back end and optimize that additional $500 million, which is richer mix. So that becomes a tailwind to us. Furthermore, we have ambitions to grow. So you take the growth over that 30% fixed cost that Kurt talked about, that is also a nice fall through for the company that we anticipate to size appropriately from the CapEx that we are investing in our current fab facilities. Now, more longer term, what structurally changed the gross margin is our new product introductions.
That takes time. So think about three years ago, what's ramping now is the investments we made three years ago, and that margin hurdle target was around 55%. That was the corporate gross margin back then. So those are coming into the mix today. As we look longer term and all the investments we're making today, we have a hurdle rate of the corporate average of 58%. So think about three or four years from now, that mix comes into the picture and structurally continues to bring the gross margin up for the company.
So bottom line, we are very conscious about this differentiation of resilient margin through the turbulent environment now. But going forward, nothing stops us actually to go above 58%. I mean, if you listen carefully to what Bill was saying, there are a number of good arguments why things could edge up higher once we pick up the growth again.
We'll go in a second over to Peter, has a question, but one quick follow-up. You talked about mix being positive, Bill, DC versus direct. What happens if, you know, Automotive side and core Industrial is high as a percentage of your mix versus historical times? If that reverses and some of the IoT and Mobile side becomes bigger, is that accretive, dilutive, or it doesn't really matter?
It doesn't really matter. In the past, it did, but with our discipline in how we invest in our new product introductions, it's a hurdle right across our entire portfolio. So you always have mix changes below the segments, but the segments are all very pretty close to the corporate average today.
Great. Thank you. Peter, go ahead.
You talked about the BMS systems and the fact that you won in China because you're taking a systems approach. Kind of when I think of Tier 1s, they're, you know, supposedly bringing together a lot of parts and creating a system for the OEM. So you're, in a way, almost leapfrogging them. And I'm curious, is that a high structurally higher margin opportunity for you? And, you know, how do you balance those margins?
There is two great elements in your question. The one is, well, you say leapfro gging the Tier 1s. I wouldn't, I cannot use that language, but,-
Since they're your customer.
Part of the way to speed up the design cycles in the new Automotive world is actually to use a model where a lot of the designs are done directly with OEMs, and then ODMs are building it, which is not the classic Tier 1 way. Clearly, the success of China is very much accelerating the trend. I agree with you. That's also one of the reasons why we have exactly that success in China. I'd say from a margin perspective, what applies is what Bill was saying. We are trying with every new design to hit a higher hurdle rate than what we had in the past, and that falls into the same bracket.
But I also wouldn't promise miracles on this, because clearly, the Chinese Automotive market, with its enormous growth potential, is also very competitive. I mean, there is a lot of pressure and so therefore, I'd say it helps us going forward, but it's not like a springboard function to jack up everything to a much higher level. But it fits the envelope of the higher hurdle rates.
If there's any other questions, raise your hand. Go ahead.
Yeah. You briefly touched on software-defined vehicles and zonal architectures. It seems like all the companies in this, in auto semi see this as a positive because you have fewer higher-value processors. But isn't it the case that a lot of the low-value ECUs will be losers from this transition? And are you sure that it's a net benefit for everyone, whether it's Renesas, yourselves, Infineon, STM? Thanks.
No, I'm sure it's not. But no, let me demystify one other thing you mentioned there. I don't think centralization of compute power is reducing the overall number of controllers. More or less, the structure as it's gonna be is on the top, you will have a vehicle computer, which is a very high-performance gateway type of device, which is also connecting to the outside world for the over-the-air updates. Next level is a number of domain computers, three to five or six. Then you have zonal computers, which are more physically located in certain parts of the car. And then underneath, you still have the edge nodes, which could be a simple little microcontroller, which runs a window lift or a seat adjustment, et cetera. And if you add that all up, it's just more performance, but it's not less controllers.
It's just more structured. Where I think the differentiation comes, and we are very much playing on that card, is that what OEMs badly need is software compatibility across this whole performance range, because they want to reuse code across the board, both horizontally but also vertically. So I think the winners in Automotive compute in future will be those companies which can offer as broad as possible portfolio, from a very high-end chip to a relatively low-end chip with the same software environment. Now, we have now just taped out, and I think we talked about it last earnings, a 5 nm chip for the high-end, which is a four-billion-transistor, very, very high-performance microprocessor. While we still do 180nm high voltage edge node microcontrollers, which are mid-single-digit dollar products, while this 5 nm device is 10x the ASP.
Here is where some competitors, I think, will have a much harder time to compete, which is all of those incumbent microcontroller suppliers, which cannot do microprocessors. Some of the key names which are competing with us today in microcontrollers have no capability to do microprocessors, at least not as of today. Some of the high-end microprocessor people who are coming in from the side, from Mobile and compute markets, which have great products, but they cannot scale down. So our real offering and our real differentiator is to have that breadth of the portfolio, and that's, that's what we are building. And if you ask me, I think this is the single biggest growth opportunity of NXP in the second half of this decade. Exactly that compute space.
Now, we are already the number one compute supplier to the Automotive space today, but I think given the higher ASPs because of the higher performance, this has a massive growth curve coming up second half of this decade.
So in a massive 20 seconds we have left, one for Bill. Cash returns. You started buying back stock again last quarter. Just remind us what your policy is on that front and fold it into paying down debt as well, because I think you guys have been a little more conservative on that front.
Oh, absolutely, Ross. Nothing's really changed with our capital allocation policy. We plan to return 100% of our excess free cash flow back to the owners. What I'd say is, from a buyback standpoint, we are actively buying back the stock and will continue to buy back the stock. No change in our dividend. We recently increased it by 50% two years ago, 20% last year. If I look at the total shareholder return in the quarter, I believe we did 102% on a trailing twelve months with 80%, and I expect that to increase further as we go ahead. So we're very consistent, I would say, with our capital allocation policy. And related to the debt, you know, we have some debt due in 2024.
We built some buffer up on our balance sheet, to possibly, use that cash to, delever the company as well. So that, that's obviously an option. The rate of that debt is right now, it's $1 billion at a coupon rate of 4.875%. Clearly, we're generating, more return of holding that cash with today's interest rates, so we'll probably make the decision as we get closer to it. But, at the end of the day, the number one priority is continue to invest in the business. We didn't talk about it here, but ESMC, the joint venture, was clearly one of those options that we believe building up that supply assurance, with our customers was very important to us. So that gives us access to that capacity in the future.
You could see some of that type of cash being used to make sure that we have access to future supply.
Perfect. Well, guys, we are out of time. Kurt and Bill, we really appreciate you making the trip out here. Thank you.
Thank you.
Thanks, Ross.