Viavi Solutions Inc

NASDAQ:VIAV

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Viavi Solutions Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded.[Operator Instructions]

I would now like to hand the conference over to Bill Ong, Head of Investor Relations. Thank you. Please go ahead.

[Bill Ong, Head of Investor Relations]

Thank you, Chris. Welcome to Viavi Solutions second quarter fiscal year 2020 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Oleg Khaykin, President and CEO; and Amar Maletira, CFO.

Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from current expectations and estimations. We encourage you to review our most recent Annual Reports and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance we provide during this call are valid only as of today. Viavi undertakes no obligation to update these statements.

Please also note that unless we state otherwise all results except revenue are non-GAAP, we reconcile these non-GAAP results to our preliminary GAAP financials and discuss the usefulness and limitations in today's earnings release. The release, plus our supplemental earnings slide which include historical financial tables are available on Viavi's website. Finally, we are recording today's call and we'll make the recording available by 4:30 PM Pacific Time this evening on our website.

I would now like to turn the call over to Amar.

[Amar Maletira]

Thank you, Bill. Viavi delivered another quarter of record breaking performance. Record revenue in fiscal 2020 second quarter of $313.7 million grew 2.2% year-on-year and exceeded the revenue guidance range of $292 million to $312 million. Both NSE and OSP delivered strong performance. Viavi's record operating margins at 21.6% expanded 80 basis points year-over-year and exceeded the guidance range of 18% to 20% also recorded record EPS at $0.23 also exceeded the guidance range of $0.18 to $0.20 and reflects a 4.5% growth from a year ago levels.

Now moving to our reported Q2 results by business segments starting with NSE. NSE revenue at $234.2 million grew 4.7% year-over-year and exceeded the guidance range of $216 million to $232 million. Within NSE, NE revenue at $203 million grew 3.8% from a year ago levels driven by strong performance in and Fiber, Wireless and Cable products. SE revenue at $31.2 million grew 10.6% year-over-year driven by strength in our Data Center products from improved market conditions and execution.

Our Growth Assurance products also saw year-on-year growth which more than offset the expected revenue runoff in our Mature Assurance products. Mature Assurance products currently represent less than 10% of SE revenue. NSE gross margin at 66.4% increased 110 basis points year-over-year. Within NSE, NE gross margins at 66.4% expanded 210 basis points year-over-year due to higher revenue volume and favorable product mix. SE gross margins at 66.7% was down 530 basis points from a year ago.

Last year's SE gross margin at 72% reflected favorable product mix from more software content and the higher margin Mature Assurance products. NSE's operating margins at 16% increased 130 basis points from a year ago levels reflecting the gross margin improvement and favorable operating leverage. This is also a new NSE record and exceeded the guidance range of 12% to 14%.

Now turning to OSP. OSP revenue at $79.5 million reached the high end of the guidance range of $76 million to $80 million and declined 4.4% year-over-year. This decline in revenue is a result of the expected decline in the core OSP business partially offset by growth in 3D sensing from increased demand. OSP's gross margins at 54.8% expanded 460 basis points due to efficiencies and higher absorption of manufacturing overhead. Operating margin at 38.2% exceeded the guidance range and expanded 80 basis points year-on-year reflecting the higher gross margins levels partially offset by increased investments in growth areas.

Now turning to the balance sheet. Our total cash and short-term investment ending balance was %556.9 million. Operating cash flow for the quarter was $38 million. In Q2 we repurchased approximately $9.2 million of Viavi stock at an average cost basis including commissions of $13.93 per share. Of the $200 million authorized share buyback announced during our September 2019 analyst day event, we have repurchased to date approximately $10.7 million of Viavi stick. We plan to continue to repurchase Viavi stock opportunistically to offset earnings dilution from stock based compensation.

Now on to our guidance. We expect fiscal third quarter 2020 revenue for Viavi to be approximately $278 million plus or minus $10 million, operating margins at 15.5% plus or minus 1% and EPS to be in the range of $0.13 to $0.15. We expect NSE revenue to be approximately $212 million plus or minus $8 million with operating margins at 10.5% plus or minus 1%. We expect OSP revenue to be approximately $66 million plus or minus $2 million with operating margins at 32% plus or minus 1%.

Our tax expense rate is expected to be approximately 17% to 18%. We expect other income and expenses to reflect a net expense of approximately $2 million. Share count is approximately 240 million shares.

With that, I will turn the call over to Oleg.

[Oleg Khaykin, President and Chief Executive Officer]

Thank you, Amar. I'm pleased with our strong performance in Q2 resulting in a record quarter across many key metrics and breaking the prior year's record. Our non-GAAP operating profit of $67.9 million was up 6.3% from the prior year's record of $63.9 million. Business strength came from our three major growth drivers; 5G, Fiber and 3-D sensing. We expect 5G lab test demand to remain robust throughout calendar 2020 driven by continued investment by leading NAMs and 5G R&D.

The demand for 5G field test instruments is expected to start ramping in late calendar 2020 or early calendar 2021. We expect fiber demand to remain robust throughout 2020 driven by continued network densification. In Q2 we also benefited from year-on-year growth in cable. The increase in cable spend has begun in Q1 and continued into Q2, driven by follow-on DOCSIS 3.1 upgrades at both North American and European cable providers. That said, we expect cable spend to moderate for the remainder of fiscal year 2020.

SE revenue came in better than expected at $31.2 million driven by improved demand in enterprise and Data Center and good acceptance by service providers of our Growth Assurance products. In OSP 3D sensing revenue increased significantly year-on-year driven by increased penetration and adoption of our 3D sensing products. We expect 3D sensing revenue to decline seasonally for the remainder of fiscal year 2020 but be up year-over-year reflecting increased customer diversification.

We expect 3D sensing to continue its growth momentum driven by the continued technology adoption. Viavi is a technology leader in 3D sensing optical filters and diffusers with a strong IP portfolio. In January we announced settlement of several IP claims regarding our optical filter patents, including an agreement with LG Electronics and LG Innotek as well as our licensing agreement with Sunny Optical.

We are pleased with our enforcement efforts to date and continue to pursue our fee claims against multiple companies in several countries. Anti-counterfeiting revenue came in as expected driven mostly by banknote reprint demand. We expect this trend to continue for the remainder of fiscal 2020. The banknote redesign pipeline remains robust, however there is limited visibility for major currency redesigns launches over the next several quarters.

Lastly, in December Viavi went live with our new ERP system. We have been working on upgrading our ERP system for the past two years as part of our continuous operational transformation. Improving operational effectiveness combined with strong secular growth in 5G wireless, fiber and 3D sensing positions us well to continue growing our topline and expanding profitability.

In conclusion, I would like to thank my Viavi team for another quarter of strong performance and express my appreciation to our customers and our shareholders for their support. I will now turn the call over to Bill.

[Bill Ong, Head of Investor Relations]

Thank you, Oleg. This quarter we will be participating in Morgan Stanley TMT Investor Conference on March 04, taking place in San Francisco.

Chris, let's begin the question-and-answer session. We ask everyone to limit discussion to one question and one followup.

[Operator]

[Operator Instructions] Your first question is from John Marchetti with Stifel. Your line is open.

[John Marchetti, Stifel, Nicolaus & Company]

Thanks very much. Oleg I was hoping maybe you could spend a minute and just talk about some of the geographic trends, just looking at the numbers that you reported it seemed like Europe was actually up pretty strongly on a sequential basis. You had APAC down almost about the same amount. I'm curious if you could just spend a little bit of time on some of the different growth categories and how you're seeing that play out a little bit geographically right now?

[Oleg Khaykin, President and Chief Executive Officer]

Yes, so I think generally our geographic mix that we're driving is about kind of [indiscernible] although I'd say U.S. North America has been up stronger like in a high 30s. Last quarter Europe was also in the mid to high 30s and Asia was down. I think it is really driven by the timing of some of the major orders.

In Asia we sell a lot less, what I would call, service provider test instrumentation. Most of our Asia sales are on only in the seaside our level production and there we kind of - we go with the cyclicality of procurement by our major NAM customers as well as some of the major fiber optic module suppliers.

The other thing is also is, how our sales get booked on the anti-counterfeiting and where the orders are coming from. So I wouldn't read too much into the regional volatility, but I would just say a few big orders coming in, in Europe can sway the European mix and next quarter you may see a big order in Asia that will reverse the trend. Aside from that, I wouldn't read too much into the regional mix.

[Amar Maletira]

And just to add, very quickly here, on the Asia you see 12% growth on a year-on-year basis, to Oleg's point that also includes trends in our 3D sensing business because we typically ship it to the Asian supply chain there. So that is reflected in that - in those numbers.

[John Marchetti, Stifel, Nicolaus & Company]

Great, and then Amar, just maybe on the guidance itself, just curious if there's any expected impact or something built into that guidance from the coronavirus stuff that's going on now in China and how that may be your impact either your ability to meet demand or some of the demand that you're seeing out of China right now with the - at least with the extra week of the shutdown for New Year's? Thank you.

[Oleg Khaykin, President and Chief Executive Officer]

So this is Oleg. I'll start and then Amar can continue. So in terms of our guidance, clearly we now have good three weeks, three to four weeks of visibility into all the health issues going on in Asia. So at this point, our forecast and guidance pretty much includes up-to-date information on any potential cost impacts as well as some of the revenue impacts.

Now in terms of the revenue topline, China is not a major customer for us for service provider instrumentation. It is mostly anti-counterfeiting as well as the 3D sensing and level production. In that respect the impact on the revenue there at this point is somewhat limited because a lot of the demand can be met with the inventories.

Obviously if Chinese supply chain shutdown gets extended for a longer period into the next one or two weeks, we may see some potential disruption in the supply chain for various components. And obviously even though we - our supply chain is not going to be impacted, the customers end demand may get impacted. So at this point, I'm not going to speculate what might happen. I'll just say that everything that we know up to date today is factored into our forecast.

Now on the cost side, we are expecting to see a bit more of a under absorption in our factories in China given the extended shutdown after Chinese New Year, but as I said, that's also factored into our gross margin guidance for this quarter. Amar?

[Amar Maletira]

Yes, I think you've covered it well, so a little bit on the revenue side. We have factored in the revenue impact up to about maybe 1.5 to 2 percentage points of the total revenue given our exposure in China. As Oleg mentioned, we do not sell lot of field instruments into China, it is mainly on the NSE side it is mainly lab, so high-end, highly differentiated products that go into lab and production. And then to the extent our business on the OSP side will get impacted on 3D sensing, we have factored that in too. But mainly I think the bigger impact will be on under absorption and that's already baked into the guidance.

[John Marchetti, Stifel, Nicolaus & Company]

Thank you, very much.

[Operator]

Your next question is from Alex Henderson with Needham. Your line is open.

[Alex Henderson, Needham & Company, LLC]

Yes, so I was hoping you could help us out a little bit with some of the OSP numbers excluding 3D for a second, so was that fairly flat? I know you don’t want to break out the exact number, but the trajectory would be very helpful.

[Amar Maletira]

Yes, so Alex sequentially it was slightly up, but for the full year of fiscal '20 we still expect it to be averaging about $50 million a quarter, so $200 million the baseline business is still intact in the core OSP business. On the, yes go ahead.

[Alex Henderson, Needham & Company, LLC]

Yes, if I could, so do you see in the calendar '20 timeframe do you – I mean that's kind of baseline without any major prints I'm assuming, so are we assuming at some point there'll be some prints in the back half of the calendar year?

[Amar Maletira]

Yes, so this assumes, so the first half of the calendar 2020 we are assuming the normal reprint volumes which is the baseline business, and for the second half to the extent we have visibility into the funnel for the redesigns, we do expect some redesigns in the second half and I think we should be updating you guys when we announce the results for our March quarter. So I think that's where we are. We do expect some redesigns, but at this point in time the visibility is not very clear.

[Alex Henderson, Needham & Company, LLC]

If I could just ask one last one really quickly, the SE business spiked up quite a bit, is that seasonal or how should we be modeling that? How should we be thinking about that the next couple of quarters? Should we assume that that success continues, but with a seasonal decline and then a seasonal rebound and the seasonally stronger [indiscernible] or any kind of trajectory would be very helpful. Thank you.

[Amar Maletira]

Sure. I think we did have a record performance in the SE business for the first time since, I think since Viavi was formed. This is the first time this business actually grew 10.6% year-on-year. Two things happened there, one is as you recall we mentioned for our Data Center business in our September quarter we did see some push out of orders into our December quarter, market conditions improved, our execution was really good, and we were able to capture those orders. And so it was a very strong quarter for our data center business.

Similarly for our Growth Assurance business we also saw the business executing quite well and we were able to get some acceptances. So that's how you saw a sequential growth from a low of $20.9 million to $31 million plus in our fiscal Q2. Now going forward, I think our guidance for SE business is the same. We believe that this business on an average quarterly basis should be roughly about $25 million per quarter for at least fiscal 2020 and this is fiscal 2020 should be considered as a year of stabilization before we pivot this business to grow in fiscal '21.

So in fiscal Q3 which is our March quarter I expect it to sequentially go down from the $31.2 million that we posted in the December quarter to roughly about $25 million in the March quarter. So it will be down close to about 20% sequentially.

[Alex Henderson, Needham & Company, LLC]

Perfect, thank you very much.

[Amar Maletira]

Yes.

[Operator]

Your next question comes from Mehdi Hosseini with Susquehanna. Your line is open.

[Mehdi Hosseini, Susquehanna Financial Group, LLLP]

Yes, thanks for taking my question. A couple of follow-ups, I want to dive into the 400 gig upgrade, how do you see the market evolving and how do you see that trending into the second half, should we expect a material pickup from the first half calendar year into the second half? And I have a follow-up.

[Oleg Khaykin, President and Chief Executive Officer]

Sure, you know, we've been selling a lot of our 400 gig gear to the lab at the NAMs customers for now several years. We are now starting to see demand being very robust for the production equipment for both modules as well as the equipment. So we do see strong demand from customers emerging and I would imagine the 400 gig is going to continue to gain momentum throughout the calendar year and we will see, we have a robust pipeline of orders for both production as well as the continued lab test and measurement.

[Mehdi Hosseini, Susquehanna Financial Group, LLLP]

Great, and as a follow-up, I imagine the same would be with some of your field test instrument especially as the installed 5G base stations turn on, so I imagine the second half you should have a much –should we see some growth in unit shipment, so in that context, given the fact that maybe there is some under utilization happening in the first half. Should we see operating margin nicely rebounding into the second half and perhaps hitting your targeted range from the first half into the second half?

[Oleg Khaykin, President and Chief Executive Officer]

Well I think generally for us it is the first September and the March quarters are the weaker quarters and the December and June quarters are the stronger quarters. So we always get more operating leverage in the December and June quarters. Right? Now in terms of the 5G we have a pretty good demand pipeline for 5G lab equipment and as we've been telling for now quite some time in terms of field deployment we were more conservative, into our outlook how the operators will deploy 5G infrastructure and I think largely given the latest updates from major carriers, we are – it is very much in line with our expectations.

So we do expect to start seeing 5G field instrumentation demand starting to ramp in the second half of the calendar year or towards the end, I mean or early next calendar year. Because I think that's kind of the timing when actually physically many carriers will be able to do any kind of meaningful infrastructure deployments. So I would say the rule of thumb, we get more operating leverage December quarter as well as the June quarter, less operating leverage in the March and September quarter.

[Mehdi Hosseini, Susquehanna Financial Group, LLLP]

Great, thank you.

[Operator]

Your next question is from Tim Savageaux with Northland Capital. Your line is open.

[Tim Savageaux, Northland Securities Inc.]

Pardon me, hi good afternoon. I wanted to start focusing on the growth you are able to show really in any of your – in the Comcast business in general, clearly you were working on a tough comp last year with a pretty significant either catch up or budget flush type spend and yet you were able to kind of grow on that even in the NE business. I am wondering if you could talk about what the drivers were there, where the unexpected strength might have been, did you in fact see some degree of budget flush in the quarter or from a product standpoint whether it is a 5G or fiber, did you see something more than you expected?

[Oleg Khaykin, President and Chief Executive Officer]

So, I will start and I'll let Amar continue. So I think, listen, I mean there were some puts and some takes. I mean for example, I mean clearly December quarter last calendar year was a very strong quarter, but also remember the September quarter in the prior year was very weak. This time around we had a very strong September quarter and very strong December quarter. So some of the revenue that we normally would have may be taken in December might have fallen into the September quarter. So that alone I think overall if you look at the half on half, the growth is much more meaningful than just purely compare quarter on quarter.

Also last December quarter we had a very strong demand for anti-counterfeiting which this time around was more or less baseline. But that was fairly compensated by higher demand for 3D sensing. So if I would look at it, what really drove our December quarter this time around, it was really a multifaceted strength across all our major markets, the fiber, the 3D sensing and 5G. So there was no one I'll say blue bird that's kind of carried away.

And I'd say the other thing I would add is the – we did have some uptake on the cable, but there was more of a - not a major wave, but like a secondary wave where some of the North American and European customers came in and placed secondary orders for the upgrade of their DOCSIS 3.1. So that kind of helped us a bit to push the revenue a bit higher. As to any kind of budget flashes, I really don’t believe this year we saw anything that I would qualify as a budget flash.

Pretty much everything that we ship to us in our pipeline I classify budget flash as something that we did not expect to be in the quarter and it appeared during the quarter, most of the revenue this quarter was pretty much, I mean December quarter was pretty much the revenue that we had in our pipeline. [Indiscernible]

[Amar Maletira]

Yes, I think you've covered it well. So you know, we – when you look at the beat I think Tim, that's where you are also going versus that expectation at the beginning of the quarter. We did a good beat both in the NSE business and within NSE, it is also SE contributed to it. The Data Center business as I mentioned, we did see push out of deals from - from say fiscal Q1, which is September quarter into December quarter, and we were able to go execute and the market conditions improved.

And so SE also contributed to that - to these - to the beat, in addition to NE. In NE, we are seeing strength; clearly we are seeing strength in lab and production on the optical side, as well as on the lab wireless side. And as Oleg mentioned, cable products were also strong, but again, this is probably the secondary wave.

[Tim Savageaux, Northland Securities Inc.]

Got it. And if I could just follow up quickly on that, there has been some concern out there given reports from various component system suppliers about some sort of pause in 5G spend or deployment, given your results in the quarter, and I guess likely your outlook as well as your comments about calendar '20, you don't seem to be seeing that. I wonder if you might be able to kind of help us reconcile some of these conflicting data points?

[Oleg Khaykin, President and Chief Executive Officer]

Well, I don't think there is a conflicting data points. I think if you kind of recall in all our communication, we were always consistently more conservative as to how the 5G rollout is going to happen, and we've guided accordingly. So as a result, it's all comes down to what you expect - what were your expectations and what you've communicated. So I think we are pretty much in line with what we were saying, and it's pretty much playing out pretty much along the scenario that we have laid out. In other words, we didn't overwrite it.

[Tim Savageaux, Northland Securities Inc.]

Yes, understood. Thanks and my congrats on the strong quarter. I'll pass it on.

[Operator]

Your next question is from Michael Genovese with MKM Partners. Your line is open.

[Michael Genovese, MKM Partners]

Thanks very much. Earlier today, a company that's in the 3D sensing supply chain talked about world facing as an opportunity for early fiscal '21, and I'm just curious to what extent does that add to your TAM and to your expectations as we get into second half of the calendar year?

[Oleg Khaykin, President and Chief Executive Officer]

Well, clearly depending what the timing will be, I'm not going to speculate on the timing. But if it does happen earlier, it will be an upside. If it gets delayed, it will - it will get delayed. So I think Mike, I'm not going to speculate on any particular timing. Because I mean remember, if you're talking about lasers, customers may buy lasers several quarters in advance of the major ramp. We are supplying much more just in time. So we get the orders when the business materializes.

[Michael Genovese, MKM Partners]

Okay. But all I guess, if we were to go from one 3D module per phone to two, does that double your TAM or does it add 50% to it at that customer or how should we think of that?

[Oleg Khaykin, President and Chief Executive Officer]

Well, I think it really will come down to what the margin looks like. So the sensors in like world facing are somewhat smaller, so it's a smaller area. So the ASPs in that area are smaller. So it wasn't - I won't say double, but it increases meaningfully. But also you have to then run into assumption of how many models were deployed. Right?

I mean, so if it's only one model and it's a high end model, then the incremental volume and revenues are not going to be that significant. If it's across the board, the whole pallet of products clearly, then it's meaningful.

So you've got to look at it, the ASP, which is driven by the area of the world facing module, but then also what assumptions you're making on how many models and what volumes of those model is going to be built. So I mean listen, I would take if I was a kind of betting man for the second half of this year, I think it's going to be an upside, but I don't think it's going to be a huge upside.

[Michael Genovese, MKM Partners]

Right. That's very helpful way to think about it, thanks. And then just finally - finally from me, you could - since you've mentioned it on previous calls, 800G just I don't think is a lab test opportunity in optical and fiber. Just - are you - I think you mentioned it one or two quarters ago, is there anything, any update on that business or is it…?

[Oleg Khaykin, President and Chief Executive Officer]

Well, I think that's a very, very much advanced R&D. Right? So that's really something that people are still playing in our lab. So it's far from production. But it's - we start - remember, we were shipping 400 gig about five years ago. So it just tells you only now a lot of it is becoming a reality. So I would say 800 gig would put you somewhere in line for 2016 in terms of the demand.

[Michael Genovese, MKM Partners]

Great, thanks very much.

[Operator]

Your next question is from Samik Chatterjee with JP Morgan. Your line is open.

[Samik Chatterjee, JP Morgan]

Hi, thanks for taking my question. Oleg, I just wanted to start off with asking for your thoughts or how you view the opportunity for Viavi around some of the forced vendor changes in the network. So for example, if the U.K. decision on Huawei forces some changes in the vendor landscape there, do you see it as an opportunity as some of the 5G vendors as well as 4G vendors get reworked?

[Oleg Khaykin, President and Chief Executive Officer]

Well, I think the - I mean we work with all companies in various capacities. In case of the 5G wireless, pretty much everybody with exception of Huawei is largely a merchant customer. Right? They buy their test systems. In many cases, companies like Huawei, our biggest competition there is internal sourcing.

And so in that respect, we don't have much exposure to Huawei 5G spend. So to the extent there is more restriction rather than less restriction, and one of the other customers picks up more business, I'd say it's marginally positive for us.

[Samik Chatterjee, JP Morgan]

Got it. And if I can just follow-up on, you've already talked about the visibility on the 5G wireless field deployment and the timing being late calendar 2020. Just kind of wanted to see if you can give more details as to what the service providers are seeing, why the service providers are feeling more confident about the timing at this point, which is kind of improving your confidence in that and kind of how you're thinking about which geographies go first and that kind of timing?

[Oleg Khaykin, President and Chief Executive Officer]

Well, listen I've been talking about it for many quarters. I mean, let's separate the hype versus reality. Everybody has got their marketing story on 5G, and then there is a real physical story of deploying 5G. As we were saying all along, 5G is a vastly different technology with a different topology.

So before you go deploy it and spend any money, all the operators, they are very financially astute. They're going to take all the vendors and they're going to apply a principle of show me. Basically you - here is your test market, go deploy it and show me all the benefits that I will be able to get, show me how my customers are going to benefit, and most importantly show me the economics of this solution.

Now on the other hand at the off field, they've got to show something, so there is a - going to be an element of being able to put a check mark that they have a 5G product available. So then comes a story, clearly there is an economic wise, it's a interesting technology and it could open new revenue streams for many operators. But then comes a point of physical deployment, that means you've got to have physical people, physical trucks, physical equipment, get provisioned in the field, connected in the field, installed, calibrated, so on and so forth.

When you start talking about that whole thing and then you take into consideration that 5G ultimately will have five to six times as many locations, sites as 4G, you start realizing just how big an undertaking it is. And my view is that operators will roll it out within the - with a certain level of cadence that allows them to maintain their current level of operations and not expand their network operations significantly or increase their headcount. So that's why, I'm more skeptical at the speed and velocity of 5G spend by operators and how quickly it all gets deployed.

[Samik Chatterjee, JP Morgan]

Got it, thank you. Thanks for taking my questions.

[Oleg Khaykin, President and Chief Executive Officer]

Sure.

[Operator]

The last question is from Meta Marshall with Morgan Stanley. Your line is open.

[Meta Marshall, Morgan Stanley]

Great, thanks. I just wanted to kind of get into the 3D settlements or kind of settlements that you guys had on the filter business during the quarter. And just kind of what use cases were you able to go after those for and just kind of what was the process of settlement? And then maybe just kind of speaking to the success that you guys have had in kind of pulling through additional kind of test measurement sales on kind of to the wireless carrier [technical difficulty]

[Operator]

[Technical difficulty] Ladies and gentlemen, this is the operator. We are currently experiencing technical difficulties, please remain on the line. Thank you. [Technical difficulty]

Ladies and gentlemen, this is the operator. We have decided to conclude the call. We do thank you for your participation, and you may now disconnect your phone lines.