ADTRAN Holdings, Inc. Q1 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. And welcome to ADTRAN’s First Quarter 2021 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management’s best judgments based on factors currently known. However, these statements involve risks and uncertainties, including the continued spread and expense of the impact of the COVID-19 global pandemic, the ability of component supplies to align with customer demand, the successful development and market acceptance of our products; competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ending December 31, 2020. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN. Please go ahead.

Thank you, Christine. Good morning, everyone. We appreciate you joining us for our first quarter 2021 conference call. With me today is ADTRAN’s CFO, Mike Foliano. Following my opening remarks, Mike will review the quarterly financial performance in detail and then we will take any questions that you may have. We had a strong first quarter and we expect this to be an exciting year for ADTRAN. We grew revenue 11% year-over-year, increased non-GAAP EPS by $0.18 year-over-year and recorded the highest product bookings for any quarter in our history. This success was primarily driven by the demand for our fiber-based broadband solutions, continuing the positive momentum from the second half of last year. If we look at the market, there are several key indicators that provide a positive outlook for our business. On the consumer side, we continue to see increased demand for fiber-based broadband access paired with premium cloud-managed Wi-Fi in the home. From a funding perspective, governments are prioritizing high-speed broadband connectivity to all residents more than ever. In the U.S., President Biden has proposed $100 billion to future proof broadband as part of an eight-year infrastructure plan. He referred to high-speed broadband as the new electricity that’s a necessity for all Americans. The U.K. Government has also pledged $7 billion in funding for gigabit capable broadband for hard-to-reach areas. Similar multibillion-dollar investments are being committed in the EU to accelerate high-speed broadband connectivity across its member countries. In addition to government spending, we continue to see increased investment from private equity, municipalities, utilities and others to fund the build-out of fiber access networks for high-speed broadband and future 5G connectivity. From a technology standpoint, refresh cycles around 10 gig fiber access, mesh Wi-Fi 6 and cloud-based services are driving increased investment in our growth products. Finally, supply chain diversification and vendor risk mitigation initiatives are also accelerating vendor selection programs across our target customer base. With our strong presence in key growth markets, including the U.S. and Europe, along with our trusted vendor status and differentiated portfolio, we are well-positioned to take advantage of the major investment cycles that we see ahead of us. Taking a closer look at our key growth areas of fiber access, in-home servers, delivery platforms and software, you will see several highlights that reinforce our success in these areas. In fiber access, Dell’Oro’s Q4 2020 market share report noted ADTRAN as the fastest growing PON OLT vendor in both North America and EMEA in terms of year-over-year market share gains. For our in-home service delivery platforms, Q1 was the record revenue quarter with growth being led by cloud-managed mesh Wi-Fi gateways. On the software side, our growth was led by our cloud-based SaaS offerings where we have grown our customer base by 66% in the past year. As we look at the Q1 financials, revenue for the quarter was $127.5 million with 42% gross margins. Network Solutions accounted for 89% of total revenue at $113.8 million, while Global Services contributed $13.7 million. During the quarter, we had two customers that contributed 10% of revenue, both distribution partners. These distribution partners serve hundreds of Tier 2s and regional service providers in the U.S. with a mix of broadband access, connected-home, and enterprise solutions. This reinforces the success we are having with both customer and portfolio diversification. We continue to make good progress toward our customer acquisition and diversification efforts in Q1 with the addition of 26 new service provider customers. We expect to continue to grow our customer base as our 10 gig fiber access solutions, connected-home solutions, and software platforms are adopted by customers that are upgrading their networks due to favorable government regulatory and technology factors. Much like the second half of 2020, the growth that we saw in Q1 was led by our success with regional broadband operators in both the U.S. and Europe. In the U.S. market, revenue from regional broadband operators was up a combined 48% year-over-year, while European regional operators were up a combined 70% year-over-year. We continue to see increasing demand for our fiber access, connected-home, and cloud-based offerings. Our fiber access and aggregation business grew 51% year-over-year, in-home service delivery platforms were up 94% year-over-year, and SaaS offerings increased 32% year-over-year. The growth in these areas more than offset the decline in our traditional copper access business. For the previously announced Tier 1 fiber access projects, we continue to make great progress and expect to exit the lab for each of these around the middle of the year. In addition to these previously announced awards, we are still on track with several Tier 1 projects globally and we are also experiencing growth in Tier 1 MSO customers with our 10 gig fiber access portfolio as they begin to transition to more full fiber network deployments. Inventory levels remain higher than normal due to the increased lead times from the global chip shortage and COVID-19 related logistics issues. We continue to see lead times extend and expect that this will continue for some time into the future. We are taking the necessary steps to mitigate these challenges to the best of our ability, but the supply chain constraints do present risks in the near term or midterm. From an organizational perspective, we continue to maintain a disciplined approach to our operational expenses. The structural changes that we implemented over the past year continue to improve our operational efficiency. We have reduced our non-GAAP quarterly operating expenses by 9% year-over-year through disciplined expense management. As we secure additional Tier 1 wins, we do expect to see a slight increase in R&D expenses. On the product side, we introduced several key advantages during the quarter. In our fiber access platforms, we announced several new products that will simplify the deployment of fiber-based gigabit services in low-density areas for RDOF recipients. For in-home service delivery platforms, we have begun to ramp deployments of our cloud-managed mesh Wi-Fi 6 gateway. As mentioned previously, Q1 was a record revenue quarter for our in-home service delivery platforms, especially in mesh Wi-Fi, and we have very strong order bookings going forward for this growth area. On the software side, we have two primary areas of growth. In the SaaS category, we are seeing increased demand for our cloud-based tools that proactively optimize end-to-end performance for broadband access and in-home networks, while providing actionable insight to the operations and marketing teams. As noted earlier, we grew our customer base for SaaS offerings by 66% year-over-year. SaaS projects are typically pay-as-you-grow multiyear programs that will continue to increase over time. In addition to our SaaS solutions, we also offer leading-edge access domain orchestration software that simplifies the programmability of open multi-vendor networks. We have seen an increase in customer additions, including multi-vendor integrations in this category as service providers modernize their IT and OSS processes. In our enterprise gateway portfolio, we very recently launched our low-end IoT gateways. We have a growing backlog of demand for these products that simplify the connectivity of large-scale IoT sensor networks to cloud-based IoT cores. These IoT gateways are the latest additions to our updated enterprise portfolio that consists of fiber access routers, business-class Ethernet switches, and business Wi-Fi, all to support the next generation of industrial automation applications. Continued investment in our portfolio, coupled with the success we are having in our growth products has us well-positioned for additional success throughout the year. This will also enable us to continue to meet our customer and portfolio diversification objectives. On the Q1 call last year, we first spoke of COVID-19 and its impact on our company. I want to say I am extremely proud of how our employees continue to weather the storm. They have remained flexible and resilient throughout this difficult time and I want to thank them. With that background, Mike will now provide a review of our financials, following his remarks, I will be happy to answer any questions that you may have.

Thank you, Tom, and good morning to all. I'll review our first quarter 2021 results and provide our expectations for the second quarter. During my report, I’ll be referencing both GAAP and non-GAAP results with reconciliations presented in our press release and supplemental financial schedules on our Investor Relations webpage. The supplemental financial schedules on our webpage also present certain revenue information by segment and category, which I’ll be discussing today. ADTRAN’s first quarter 2021 revenue came in at $127.5 million, compared to $130.1 million in the prior quarter and $114.5 million in the first quarter of 2020. Subdividing this across our operating segments, our Network Solutions revenue for the first quarter was $113.8 million versus $114.1 million reported for Q4 of 2020 and $97.4 million in Q1 2020. Our Services and Support revenue in Q1 of this year was $13.7 million, compared to $16 million reported in the fourth quarter of 2020 and $17.2 million in the first quarter of 2020. Across our revenue categories, Access & Aggregation revenue for the first quarter of 2021 was $69.1 million, compared to $79 million in the prior quarter and $66 million in Q1 of 2020. The revenue for our Subscriber Solutions & Experience category was $54.6 million for the quarter versus $45.4 million for quarter four of 2020 and $42.2 million for quarter one of 2020. Traditional and other products revenue for the quarter was $3.9 million, compared to $5.8 million for quarter four of 2020 and $6.4 million for quarter one of 2020. Looking at our revenues geographically, domestic revenue for Q1 2021 was $86.5 million versus $95.8 million reported in quarter four of 2020 and $79 million in quarter one of 2020. Our international revenue for quarter one of 2021 was $41 million, compared to $34.3 million in Q4 of 2020 and $35.5 million in the first quarter of 2020. As Tom stated, in the first quarter, we had two customers that contributed 10% of revenue, both domestic. Our GAAP gross margin for the first quarter of this year was at 42%, as compared to 41.1% in the prior quarter and 45.1% in the first quarter of 2020. Non-GAAP gross margin for the quarter was 42.1%, as compared to 41.3% in the prior quarter and 45.4% in the first quarter of 2020. The quarter-over-quarter improvement in both GAAP and non-GAAP gross margins were driven by product and customer mix in both our products and services segments. The year-over-year decreases in both GAAP and non-GAAP gross margins are attributable to both domestic and international product mix, partially offset by higher volume manufacturing efficiencies. During the quarter, we experienced extended component lead times, which we expect to continue, potentially affecting component availability and also component and logistics costs. Total operating expenses on a GAAP basis were $54.9 million for the quarter, compared to $56.8 million reported in the prior quarter and $56.5 million for quarter one of 2020. The quarter-over-quarter decrease was driven by reduced restructuring expenses, market-driven decreases in our deferred compensation expense, and lower legal expenses, partially offset by increases in employee benefit expenses in both R&D and SG&A and higher R&D project-related expenses. The year-over-year decrease in operating expenses was a result of lower labor expenses in both R&D and SG&A and lower travel and marketing-related expenses, partially offset by market-driven increases in our deferred compensation expense and contract services costs. On a non-GAAP basis, our first quarter operating expense was $51.4 million, compared to $49.5 million in the prior quarter and $56.7 million in quarter one of 2020. The increase in quarter-over-quarter non-GAAP operating expenses was primarily due to increases in employee benefit expenses in both R&D and SG&A and higher R&D project-related expenses, partially offset by decreases in legal expense and other planned SG&A expense reductions. The year-over-year decrease in non-GAAP operating expenses was a result of lower labor expenses in both R&D and SG&A and lower travel and marketing-related expenses, partially offset by increases in contract services costs. Operating loss on a GAAP basis for the first quarter of 2021 was $1.3 million, compared to an operating loss of $3.3 million in the prior quarter and an operating loss of $4.9 million reported in Q1 of 2020. Non-GAAP operating income for quarter one of 2021 was $2.4 million, compared to $4.3 million in the prior quarter and an operating loss of $4.6 million in quarter one of 2020. The quarter-over-quarter GAAP improvement in profitability was attributable to a more favorable gross margin mix and reduced operating expenses. The year-over-year decrease in GAAP operating expenses was driven by higher sales and reduced operating expenses. Other income on a GAAP basis for the first quarter of 2021 was $3.3 million, compared to other income of $3 million in the prior quarter and a loss of $9.4 million for quarter one of 2020. Our non-GAAP other income for the quarter was $3.3 million, compared to non-GAAP other income of $1.7 million in Q4 of 2020 and a non-GAAP loss of $7.5 million in quarter one of 2020. The quarter-over-quarter increases in both the GAAP and non-GAAP other income were related to higher realized foreign currency exchange gains, partially offset by reduced returns in our investment portfolio. The company’s tax provision for the first quarter of 2021 was an expense of $1 million, as compared to a $6.5 million tax benefit in the prior quarter and a $4.4 million benefit in the first quarter of 2020. The current quarter’s expense was primarily driven by tax expense from our international operations as the deferred tax benefits generated by our domestic operations continue to be offset by additional changes in the valuation allowance. GAAP net income for quarter one of 2020 was $900,000, compared to $6.1 million in the prior quarter and a net loss of $10 million for the first quarter of 2020. Non-GAAP net income for the first quarter of 2021 was $6.3 million, as compared to $5.2 million in the prior quarter and a net loss of $2.2 million in quarter one of 2020. Earnings per share assuming dilution on a GAAP basis were $0.02 per share, as compared to $0.13 per share in the prior quarter and a loss of $0.21 per share in the first quarter of 2020. Non-GAAP EPS assuming dilution for the first quarter of 2021 was $0.13 per share, compared to $0.11 per share in the prior quarter and a loss of $0.05 per share in quarter one of 2020. On the balance sheet, unrestricted cash and marketable securities totaled $123.2 million at quarter end after paying $4.4 million in dividends for the quarter. During the quarter, we generated $10.7 million in cash from operations. Net trade accounts receivable was $103.2 million at quarter end resulting in DSOs of 73 days, compared to 70 days in the prior quarter and 69 days at the end of the first quarter of 2020. The variability in DSOs quarter-over-quarter and year-over-year is mainly attributable to the timing of shipments during the quarter, customer mix, and sales volumes. Net inventories were $122.9 million at the end of the first quarter, as compared to $125.5 million at year end 2020 and $99.5 million at the end of Q1 2020. While inventories were down slightly quarter-over-quarter, we continue to carry higher inventory levels in preparation for new product ramp-ups and strategic inventory buffer purchases designed to aid in supply continuity. Looking ahead to the next quarter, the continuing effects of the COVID-19 pandemic, the ability of component supplies to align with customer demand, the book-and-ship nature of our business, the timing of revenue associated with large projects, the variability of ordering patterns from the customer base, and fluctuations in currency exchange rates in our international markets may cause material differences between our expectations and the actual results. Keeping that in mind, we expect that our second quarter 2021 revenue will be in the range of $136 million to $146 million. After considering the projected sales mix, we expect that our second quarter gross margin on a non-GAAP basis will be in the range of 41% to 43%. We also expect non-GAAP operating expenses for the second quarter of 2021 will be about $52 million to $53 million. And finally, we anticipate the consolidated tax rate for the second quarter of 2021 on a non-GAAP basis will be in the low to mid-20s percentage rate. We believe the significant factors impacting revenue and earnings realized in 2021 will be component availability, the macro spending environment for carriers and enterprises, the ongoing effects of the COVID-19 pandemic, the variability of mix and revenue associated with project rollouts, the proportion of international relative to our total revenue, professional services activity levels, the adoption rate of our broadband access platforms, potential changes in corporate tax laws, currency exchange rate movements, and inventory fluctuations in our distribution channels. Once again, additional financial information is available at ADTRAN’s Investor Relations webpage. Now, I’ll turn it back over to Tom.

Great. Thank you, Mike. Christina, at this point, we’re ready to open up for any questions people may have.

Thank you. Your first question comes from the line of Rod Hall from Goldman Sachs. Your line is open.

Hey, thank you for taking my question. I wanted to explore the visibility of Tier 1 suppliers in the U.S. We've heard from other suppliers that visibility is improving somewhat as concerns about supply chain disruptions or shortages arise. Are you seeing the same trend? How do you feel about Tier 1 visibility as we approach the second half of the year? I also have a follow-up question.

I think we’re feeling pretty good about it. I do think that some of the carriers understand the supply constraints better than others. And typically, the larger ones are really coming on board and trying to at least, if not place purchase orders, at least place serious forecasts that are things that have been maybe a little more sure than they have been in the past. So I would say visibility across the board is better and that’s not just with Tier 1, that’s pretty much across the board.

Thank you, Tom. Another increasing concern is inflation affecting various sectors, not just semiconductors but also steel and freight. Can you provide some insights on what you're observing in this area? Are you experiencing upward pressure on costs, and do you believe you’ll be able to pass those costs on to customers, or do you expect it to impact margins? What is your perspective on inflation at this point?

If I look at the situation without considering semiconductors, we are still managing to reduce overall purchasing costs. In some ways, I view this as a semiconductor-related cost increase. However, if these trends continue or even intensify, it seems likely that we would need to transfer some of those costs to our customers.

Okay. All right. Thanks a lot.

Okay.

Your next question comes from the line of George Notter from Jefferies. Your line is open.

Hi, everyone. Thank you very much. To start, Tom, you mentioned record bookings at the beginning of the call. Can you provide a book-to-bill number or a backlog figure to give us an idea of where bookings stand currently? Additionally, following up on an earlier question, are customers simply providing you with more visibility or longer-term purchase orders, and do you believe that the rate of consumption in the end market is increasing? Thank you.

We typically don’t provide a book-to-bill number, but I can say it was a strong booking quarter. This strength includes an uptick in bookings from the early part of last year when COVID started affecting things, and it was actually better than that. Overall, we feel positive about our bookings. As for the breakdown of this quarter versus longer-term commitments, we try to analyze that too. If we exclude the bookings scheduled far into the future—those are mostly customers looking to secure shipments for later in the year—it was still a very strong quarter. However, I can’t specifically say whether customers are trying to stock up their inventory or if they’re just keeping it with us. We can’t accurately gauge that. What I can tell you is that the demand increase we’ve seen over the past three quarters is quite typical, with a lot of that growth coming from Tier 3 customers, and the order demand from them is consistent with our previous observations. That segment is growing very robustly.

Got it. And I think last quarter you guys gave us a percentage of sales coming from that Tier 3 customer set. Is there a percentage of sales number you could give us here for Q1?

I’m not sure if we provided a percentage of sales, but I believe it was over $50 million or $60 million, and it has grown both sequentially and year-over-year. So it’s above that figure now, of course.

Great. Okay. Thank you very much.

Okay. And one other thing, I know you’re not on the phone anymore, but we discussed the growth in that segment too. So you might be able to derive a number from that perspective.

Okay.

Okay.

Your next question comes from the line of Michael Genovese from West Capital Park. Your line is open.

Great. Thanks. Hi, Tom. Hi, Mike. It’s WestPark Capital. My first question is about the nature of the business. Has it completely changed? You used to always refer to it as a book-and-ship business. Is there no longer any room for book-and-ship orders, and is it now entirely a year-ahead planning business? That's my first question.

No, in some ways it would be nice if it was, but no. We still have a large amount, I mean, the majority of our orders come in and they want us to ship them within a two-week period of time. However, the highest runner pieces and selected parts are items where if you’re not placing orders right now for six months or even a year from now, you’re likely to face a real supply constraint. So I would say it’s definitely shifted more toward a longer-term perspective, but still, the majority of our orders come in and they want us to ship them within the quarter and typically within the month.

Great. When you look at your Tier 1 business for the second half of the year, do you feel like you’re managing to balance supply and demand for those projects, or is there a supply shortage or potential demand shortage? How are you thinking about that?

We believe we are generally well-equipped on the Tier 1 front, especially from an infrastructure viewpoint. It's essential to consider the specifics of each product type. The Tier 1 business anticipated in Europe has been projected for some time, and we have already arranged our supply chain to accommodate the expected growth in the latter half of the year. Similarly, this holds true for the U.S. However, challenges arise when there’s inconsistency in forecasts from customers, often seen with items like RGs and O&Ts. In terms of end-user devices, we face challenges because the demand for these products is exceptionally high, having surged around 94% year-over-year. We did not predict this increase as our customers weren't forecasting it either. Despite being able to keep pace, this type of product does present more difficulties.

Does that include Wi-Fi 6 devices? Is that a meaningful part of your business? What percentage of your customers buy Wi-Fi from you?

A significant portion of our customers purchase Wi-Fi from us. Wi-Fi 6 is relatively new for us, so it’s just starting to gain traction. Going forward, we need to stimulate demand. We believe we have a good understanding of the forecast for the chips necessary for that. However, we have consistently exceeded our forecasts on the O&T and RG sides. The main challenge we face is that some of our vendors are pulling out. When you have orders confirmed, but then suddenly can't rely on them, it creates significant issues. We're continuing to address that challenge.

Is the Wi-Fi stuff growing at a similar or faster rate than the O&T stuff?

I don’t have the actual breakout of those SKUs, but I would say it’s probably leading the charge.

And my final question is, I appreciate all this information. Is this a point of gross margin outperformance in the quarter? You guided in line, but the quarter you beat, so where do you attribute the better performance in Q1 to?

Mix. It was a mix.

You mean domestic mix or mix or that would be domestic mix?

No, it could be. The answer to your question is yes. If you consider the growth we saw, Tier 3s are significantly increasing, and much of that is due to the infrastructure business. It was simply a favorable mix.

Thank you.

Okay.

Your next question comes from the line of Tim Savageaux from Northland Capital. Your line is open.

Hi. Good morning and congrats especially on the bookings. One question and then a follow-up, I think it’s been a while, maybe a very long while, since you’ve had a quarter without any 10% service provider customers, I think, last year you had two or three. And I wonder if you could characterize your U.S. business in terms of the growth, assuming your historic Tier 1 was over 10% last year and was under this year. I wonder if you have any comments on U.S. growth, excluding that customer. And then more broadly speaking, do you expect some of your historic Tier 1s to re-attain 10% customer status as we move on in the year?

That's a great question. Let's discuss the Tier 1s in the U.S., which can also include recent developments in Mexico. We're noticing two main trends. Firstly, we're expanding our market share for PON among these Tier 1s and seeing increased PON shipments. However, at the same time, our copper business is declining, which many tend to overlook. This copper segment, considered a legacy business, impacts our overall growth. Without it, our growth figures would be significantly higher. Currently, fiber accounts for over 70% of our business, compared to less than 50% a year ago. This shift highlights the declining copper business alongside substantial growth in fiber, affecting the Tier 1s. I'm not sure if that fully answers your question, but…

Yeah. That’s great. Just to follow-up, with regard to the booking strength. I don’t know if there’s any, if we could just assume that’s similar to what you saw in revenue-wise in overall broadband and what’s or whether there’s any sort of different character to what you saw from a booking standpoint? And can you comment on whether that booking strength has continued into Q2 and whether perhaps adjusting for some CAF II services we might reasonably expect a record revenue quarter at some point fairly soon after seeing a record bookings quarter?

I didn’t finish my answer to your previous question, so let me complete that. We did win a Tier 1 award, which is a sole source award for XGS in the U.S. We expect to start shipping this in the second half of the year, which should positively impact the trajectory of the Tier 1 business. Regarding the strength in bookings, our main issue right now is supply; bookings are not the problem. The timing of achieving that record will largely depend on when we can actually deliver. We ended Q1 with a significant number of orders that customers wanted to fulfill in Q1, and this trend will continue in the current quarter and into Q3. However, I don't have a clear timeline for when the supply situation will improve. Therefore, it heavily relies on our capability to provide the product.

Okay. Thanks very much.

Okay.

Your next question comes from the line of Paul Silverstein from Cowen. Your line is open.

Thanks guys. Tom, first off, and I apologize if you already said this, but did you address when you expect RDOF to have an impact and to what extent?

No, we didn’t. I think there’s a good chance we’ll start seeing some RDOF in the second half of this year. I don’t have a clear view on the ramp-up of that. However, I would be surprised if we didn’t start seeing it. I am not entirely sure, but we may have already seen it with some of the smaller customers. For the larger customers, there’s a particularly large one in the U.S. that we’re the incumbent for, and we hope to see some shipments starting in the second half of this year.

So do you think it's too much to say it’s a given that will have a meaningful impact next year or do you have a confidence level as to what...

Yeah. It should have a meaningful impact. Yeah. It should have a meaningful impact next year. They have a longer time to build, of course, as you know, but it should be a nice tailwind next year, yes.

All right. Mike, I know I've asked you this every quarter, and I apologize for repeating myself, but I'm going to ask it again. Looking at long-term gross margins, you've been clear about your expectations. Historically, you've indicated that you expect the model to remain in the low 40s. Considering the potential impacts of significant projects with large Tier 1 clients, assuming they deliver on volume as projected, will that drive margins lower? Some of these projects, particularly the non-U.S. ones, may have lower margin structures, as has been the case in the past. Or do you believe the long-term model will remain stable for us?

No. Paul, I think it’s still the same as what I’ve said in the past. It’s low-to-mid 40s. So I can take the middle of that range. And if you start looking at those Tier 1s, I think, the additional volume that it’s driving through gives us a little bit of a tailwind as well. So I think there’s really no change to our plans going forward, still in that same model.

I would also add, Paul, that there are two additional factors impacting us. One is the predatory pricing that was occurring in Europe, which has somewhat diminished. As a result, we have sustainable business margins from Europe now, compared to the past. Additionally, we have a positive trend that we haven’t quantified yet. Our SaaS customer base, primarily in the Tier 3s in the U.S., is showing a year-over-year growth of 60% to 66%. This will eventually contribute to significantly improved gross margins, although we haven't forecasted that impact yet.

Got it. And one last quick question, if I may. It’s only 90 days further on. But Tom, is there any incremental insight with respect to these large projects in terms of them panning out to the extent that the particular customers have projected to you? I mean…

Yeah. Yeah. Yeah. There’s still no real changes there. I mean everything is still, we’re planning on getting to start shipping in the second half of this year and then seeing them ramp from there. So there’s no material change.

I appreciate it. Thanks, guys.

Okay. All right. At this point, we’re going to end the call. I appreciate everybody for joining us and I look forward to talking to you next quarter at this time.

This concludes today’s conference call. Thank you for participating. You may now disconnect.