Identiv, Inc. Q4 FY2024 Earnings Call

Good afternoon. Welcome to Identiv's presentation of its Fourth Quarter and Fiscal Year 2024 Earnings Call. My name is John, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Kirsten Newquist; and CFO, Justin Scarpulla. Following management's remarks, we will open the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP financial measures or guidance, including non-GAAP adjusted EBITDA, non-GAAP gross margin, and non-GAAP operating expenses. In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, projections or other characteristics of future events, including future financial results, future business and market conditions and opportunities, and future plans, strategies, opportunities, and goals is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC including the company's latest annual report on Form 10-K and quarterly report on Form 10-Q as well as our third quarter 10-Q once filed. Identiv assumes no obligation to update these forward-looking statements. I will now turn the call over to CEO, Kirsten Newquist, for her comments. Ms. Newquist, please proceed.

Thanks, operator. And thank you all for joining our quarter four and fiscal year 2024 earnings call. Quarter four marked our first full quarter following the sale of our physical security business, allowing us to focus on becoming a leading pure-play provider of specialty RFID and Bluetooth Low Energy (BLE) solutions. The proceeds from the sale significantly strengthened our financial position and enable us to fund future organic and M&A-driven growth of our specialty IoT Solutions business. During our last earnings call, we unveiled our Perform, Accelerate, Transform growth strategy and go-to-market plan, and I'm happy to share that we have fully shifted into execution mode. We have made progress building our team, moving several key initiatives forward, and ensuring we have plans in place to drive operational excellence. As we've discussed, the objective of the PAT framework is to strengthen and optimize the performance of our core channel business, accelerate our growth through focused key initiatives, and ultimately transform the business into a market leader in specialty IoT solutions. To drive the commercial aspects of the plan, we are excited to have accomplished business leader Kim Macaulay joined Identiv as the new head of our commercial organization. Kim will be integral to driving sales expansion in our core channel business within the Perform pillar and leading our business development initiatives in the Accelerate pillar. She has over 30 years of experience developing and implementing successful go-to-market strategies as well as creating and managing high-performing sales teams. Kim knows how to successfully scale a growth business, having previously managed commercial sales of $650 million at Avery Dennison, including supporting the launch of RFID. Her initial focus will be on strengthening the sales organization and implementing the tools needed to streamline communication and proactively manage our sales pipeline, positioning us to scale the business effectively. Another key aspect of our plan is the transition of RFID production from Singapore to our low-cost facility in Thailand, which remains a top priority and continues to progress very well. In December, we achieved our year-end milestone of transitioning roughly 75% of our current volume to Thailand. Of the four remaining customers in Singapore, one will be discontinued and the other three are expected to be transferred to Thailand by the end of quarter two. The customer we decided to discontinue is one of our lowest-margin customers. Once all production has been transferred and the Thailand team achieves productivity on par with Singapore, we expect it to deliver a non-GAAP gross margin in the previously stated range of 26% to 28%. Our long-term non-GAAP gross margin target remains 35%. Our new product development (NPD) pipeline plays a key role in driving our business growth. We are working on numerous active projects, both customer-driven and internally driven in response to evolving market needs. In the past quarter, we added several new customer-driven projects including a new smart label for the authentication of consumables for home appliances, a rugged Wiliot-based BLE device for use on metal and industrial applications, an InPlay-based BLE smart label for use in the pharmaceutical cold chain, and the new BLE design for integration into reusable plastic containers for transporting food. These new projects represent high-value applications. Last week, we announced a new strategic partnership with Novanta, a technology solutions provider focused on the healthcare industry. This collaboration brings together Novanta's reader modules and APIs with Identiv's inlay portfolio, streamlining the development process for OEMs to incorporate smart technology into their medical devices. It also allows us to offer a comprehensive consumable authentication solution to medical device and diagnostic OEMs. Our combined technologies are intended to help ensure that the correct consumables are used, properly calibrated, and correctly assembled into medical devices and diagnostic equipment, promoting accurate use and enhancing patient safety. In summary, 2024 was a transformative year for Identiv, with quarter four marking the beginning of the new streamlined Identiv. As a stand-alone pure-play IoT solutions company, we have established a clear strategic plan to drive future growth, continuing to build a solid foundation as we actively strengthen our team with experienced professionals. I will share more details on these ongoing initiatives following Justin's review of our fourth quarter and fiscal year financials. Justin?

Thanks, Kirsten. As Kirsten mentioned, 2024 was transformative for Identiv. Now a pure-play RFID company focused solely on IoT solutions, we've begun to execute our PAT strategic growth plan and are making good progress transitioning inlay production from Singapore to Thailand. Fourth quarter 2024 revenue was $6.7 million, exceeding the midpoint of our previously announced outlook by approximately $600,000. Q4 outperformance versus this revenue guidance was primarily due to one of our customers accelerating their delivery schedule from Q1 of 2025 to Q4 as a precaution ahead of transferring their production to Thailand. Although we do not anticipate any delays with our Thailand transition, this customer wanted to ensure that they had enough inventory on hand to mitigate any scale-up risk in Thailand. Fourth quarter GAAP and non-GAAP gross margin was negative 14.9% and negative 5.2%, respectively, compared to GAAP and non-GAAP positive gross margin of 16.2% and 19.5%, respectively, in Q4 2023. Factors impacting the decrease in gross margin included decreased utilization, the ramp-up of our Thailand facility ahead of the transition out of Singapore, and the customer that phased out their legacy program earlier than expected. The customer program resulted in a noncash inventory adjustment of $0.8 million and an additional $0.2 million attributable to the disposal of specific manufacturing equipment that cannot be repurposed for other customer orders. As we have previously communicated, completing the transition of RFID and BLE production from Singapore to Thailand remains a key priority for 2025. We have transitioned the vast majority of the customers and are making good progress on qualifying the last three customers to be transferred to Thailand. After multiple discussions with a low-margin legacy customer, we determined that continuing to support their business in Thailand is not aligned with our PAT growth strategy. By focusing our commercial and R&D efforts on higher-margin opportunities in healthcare and other high-value segments along with the full production in Thailand, we believe we can deliver a long-term target non-GAAP gross margin of 35%. GAAP and non-GAAP operating expenses for the fourth quarter of 2024, including research and development, sales and marketing, and general and administrative expenses, totaled $5.6 million and $4.1 million, respectively, as compared to $5.2 million and $4.1 million, respectively, in Q4 2023. The year-over-year change in our GAAP and non-GAAP operating expenses continues to reflect our focus on maintaining tight control over operating expenses. Fourth quarter GAAP net loss from continuing operations was $4.3 million or $0.19 per basic and diluted share compared to GAAP net loss from continuing operations of $3.3 million or $0.16 per basic and diluted share in the fourth quarter of 2023. Non-GAAP adjusted EBITDA for Q4 2024 was negative $4.5 million compared to negative $1.9 million in the fourth quarter of 2023. The year-over-year changes in GAAP net loss and EBITDA were primarily the result of lower year-over-year revenues, which resulted in the underutilization of our production facilities in Southeast Asia and the costs associated with the phaseout of our legacy low-margin customer project. In the appendix of today's presentation, we have provided a full reconciliation of GAAP to non-GAAP financial information, which is also included in our earnings release. Turning to fiscal year 2024 financials. Fiscal year 2024 revenue was $26.6 million, a decrease of $16.8 million compared to the prior year period, primarily the result of lower sales of BLE transponder and mobile products. Fiscal year 2024 GAAP and non-GAAP gross margin was 1.3% and 8%, respectively, compared to GAAP and non-GAAP gross margin of 13.8% and 16.6%, respectively, in fiscal year 2023. The decline in gross margins is largely due to the production transition to Thailand. For all of fiscal 2024, we had operations running in both Singapore and Thailand, versus both sites running in the second half of 2023. Additionally, we had to allocate significant resources in 2024 to Thailand ahead of this manufacturing transition out of Singapore. GAAP and non-GAAP operating expenses for fiscal year 2024, including research and development, sales and marketing, and general and administrative expenses totaled $28.3 million and $17.9 million, respectively, as compared to $19.5 million and $16.7 million, respectively, in fiscal year 2023. Included in the fiscal year GAAP operating expenses were $6.2 million in strategic transaction-related costs and $3.5 million in stock-based compensation. Fiscal year GAAP net loss from continuing operations was $25.9 million or $1.14 per basic and diluted share compared to GAAP net loss from continuing operations of $13.9 million or $0.66 per basic and diluted share in fiscal year 2023. Non-GAAP adjusted EBITDA for fiscal year 2024 was negative $15.8 million compared to negative $9.5 million in fiscal year 2023. The decrease was primarily the result of our lower year-over-year revenues and other factors, as previously noted. Now moving to the balance sheet. We exited Q4 2024 with $135.9 million in cash and cash equivalents and restricted cash, an increase of $111 million since December 31, 2023. In the fiscal year ending December 31, 2024, the $141.5 million net increase in cash from our investing activities was primarily attributable to the strategic transaction proceeds. This was offset in part by $13.6 million used in financing activities for the repayment of our credit facility, repurchases of our common stock and taxes paid on the settlement of RSU releases, and $15.4 million used in operating activities. In the fourth quarter of 2024, we used $9.8 million in cash and restricted cash of which $3.5 million related to tax payments related to our strategic transaction, $2.2 million in strategic transaction-related payments, and $1.9 million in share repurchases. This was offset by $1.3 million in interest income. Excluding payments made related to our strategic transaction and the repurchases of common stock and interest income, our Q4 operating cash usage was $3.5 million. Our previously stated expected net operating cash usage for the 12 months following the end of Q3 2024 remains in the range of $14 million to $16 million as previously disclosed. Our working capital exiting Q4 was $142.8 million. Our balance sheet remains strong, enabling us to pursue our organic and inorganic growth initiatives within the PAT framework. In our 10-Q filing, we will be providing a full reconciliation of the year-to-date cash flows. For completeness, we have included the full balance sheet in the appendix of today's earnings release. As we discussed last November, our capital allocation plan prioritizes organic growth, with a target allocation of 25% to 30% of net proceeds for strategic M&A, a 35% to 40% target allocation, and working capital at a 25% to 30% target allocation, in line with our PAT framework with $10 million allocated to a stock repurchase program. In the fourth quarter of 2024, we utilized $1.9 million from our stock repurchase program to repurchase approximately 464,000 shares of stock. Lastly, our financial outlook. For Q1 2025, we currently expect net revenue in the range of $4.8 million to $5.1 million. Our Q1 2025 forecast was impacted by the previously disclosed customer pull-in out of Q1 2025 into Q4 2024. This concludes the financial discussion. I'll now pass the call back to Kirsten.

Thanks, Justin. So with that financial context, I'd like to provide an update on the progress we are making under our Perform, Accelerate, and Transform strategic framework. Our PAT framework is anchored in several strong macro trends driving demand for digital identification, including RFID and next-generation technologies like BLE. Key drivers include the expansion of digitization and IoT, heightened security and anticounterfeiting measures, regulatory compliance and safety requirements, and the increasing focus on sustainability in the circular economy. RFID and BLE inlays provide for the digital identification of products, enabling physical assets to seamlessly link with the cloud and other digital solutions. This connectivity delivers compelling benefits such as real-time tracking and visibility, enhanced product security and authentication, condition monitoring and compliance, and more engaging customer experiences. Additionally, the data generated by RFID and BLE-enabled devices can feed into advanced machine learning and AI models, improving operational efficiency and decision-making in nearly every industry. Further strengthening RFID's value proposition. As the adoption of RFID-based solutions accelerates, new applications often require more advanced and complex solutions to ensure successful implementation and widespread market adoption. Identiv's engineering excellence, rapid prototyping capabilities, and agile manufacturing processes strengthened its position as a preferred partner to support these types of complex requirements. By executing our PAT strategic framework across several key verticals, we aim to drive revenue growth and expand gross margins and EBITDA. I'll now provide a brief overview of the three pillars of the PAT framework, highlight the work underway, and then introduce how we plan to measure our progress moving forward. First is Perform, which is focused on strengthening and growing our core channel business. To achieve this, we are prioritizing higher-margin opportunities with existing customers and channel partners, expanding gross margins by completing the transition to Thailand, and focusing on executing our NPD pipeline with discipline. Our goal is to consistently exceed customer expectations through exceptional support and reliable on-time delivery. Kim Macaulay, our new commercial leader, brings a strong customer-centric approach and recognizes the importance of building and maintaining strong relationships in our industry, knowing that outstanding service paves the way for future projects and growth. Our channel business thrives on strong industry partnerships as it takes multiple companies working together to develop opportunities for RFID solutions. Given the strategic importance of these relationships, we are enhancing our partner marketing program to increase awareness of our capabilities across the industry and develop new opportunities. While we have always worked closely with our partners to market our products, you should expect to see an expanded set of activities as the year progresses. We are pleased to have recently added two veteran Fortune 500 marketing leaders to our team, who will be driving these partner activities as well as building a strong brand and market presence for our IoT solutions business. We continue to advance the development of our NPD pipeline and implement our stage gate evaluation process with new projects. In addition to the quarter four projects we highlighted earlier, projects such as authentication solutions for surgical consumables, fill level sensing for drug delivery with auto injectors, and smart labels for top-shelf liquor brands continue to advance through the development stages. Additionally, two new HF product families were launched in December, ID-Safe and ID-Tune, both featuring NXP's new ICODE 3 IC. These new inlays are available in three different form factors and offer an enhanced NFC user interface, faster memory data read rates, streamlined programming capabilities, and strong anti-tamper functionality. Designed to support a wide range of use cases and applications, from healthcare and smart packaging to luxury goods and smart home devices, these product launches underscore our commitment to continuous innovation. We remain focused on delivering cutting-edge technology and advanced features to ensure the highest performance for our customers. Moving to the second pillar of our PAT framework, Accelerate. We have identified three specific initiatives to drive and accelerate our growth. The first initiative is focused on driving growth in three high-value and high-volume healthcare applications with a dedicated business development team reaching out directly to the OEMs who may benefit from these solutions. The healthcare team is pursuing three priority applications: medication adherence and drug delivery at home, consumable authentication for medical device and diagnostic test equipment, and temperature, humidity, and location monitoring for pharmaceuticals, clinical trials, and clinical specimens. We are pleased to have my former colleague, Deepak Prakash, recently join Identiv to lead our healthcare business development efforts, and as evidenced by our recent Novanta announcement, he has already hit the ground running. He is attending the HIMSS trade show this week in Las Vegas, meeting with potential partners and customers. Deepak was a member of my leadership team at Avery Dennison's medical business. He has spent his entire career in the medical device and healthcare industry, leading the successful launch and commercialization of many new products, and more recently has focused on leading digital transformation efforts. He is excited to drive our efforts within our healthcare vertical forward. The second growth initiative within Accelerate is focused on high-value consumer and logistics applications initially targeting three specific use cases: inventory management for plastic pallets and bins to support retailer-mandated recycling programs, smart packaging for luxury products to reduce counterfeiting and enhance user experience, and home device consumable authentication to reduce counterfeiting and ensure proper assembly and use. Like the healthcare initiative, a dedicated business development team is being assembled to pursue these opportunities directly with OEMs. We are making solid progress with this initiative, having recently signed an LOI with a global leader in the grocery logistics industry to develop and deploy BLE-enabled devices that monitor both location and temperature conditions during the transportation of produce and other food products through the supply chain. These devices will incorporate in-place IC and be integrated into their recyclable plastic containers, a pool numbering in the hundreds of millions. The BLE devices will be designed to withstand harsh handling, challenging environmental conditions, as well as rigorous cleaning processes. The demand for this solution is driven by large retailers mandating the use of reusable and recyclable plastic pallets and containers. We are excited about the significant buying potential and look forward to sharing more updates as we advance the development of this innovative device. The third growth initiative in Accelerate is the expansion of our BLE and multi-component technology platform. BLE is a next-generation technology for IoT, providing significant benefits for applications that are challenging to address with traditional RFID technologies. These benefits include lower cost reader infrastructure, ease of incorporating sensors for condition monitoring, secured data communication, and the omnipresence of Bluetooth-enabled devices like smartphones. We intend to continue expanding our BLE capabilities and technologies through our current NPD projects and partnerships with BLE IC partners InPlay, Wiliot, and other chip suppliers who are expanding into BLE. As you have heard, we have recently added several BLE opportunities to our NPD pipeline and are seeing growing interest across multiple market segments for solutions that will benefit from BLE. We are excited to welcome a new product manager and a new engineer to the team who will be supporting the critical work in this area. The third part of our strategic framework is Transform. This pillar focuses on driving significant business expansion and capability growth through M&A, which is intended to add scale and technical capabilities while expediting achieving EBITDA breakeven. Since our last earnings call, we have conducted a rigorous evaluation process, assessing over 100 potential M&A target companies. We have now refined our list to a select group of targets. Working closely with our financial adviser and our internal M&A committee, we are actively assessing and prioritizing the opportunities that best fit our growth strategy and acquisition guidelines and are financially accretive. Adding scale, expanding our product portfolio, and increasing utilization of our Thailand facility are our top near-term priorities. To monitor our progress across these three strategic pillars, we have developed several metrics, which we'll be reporting on quarterly, beginning with our quarter one, 2025 earnings call in May. We will be refining our learning as the year progresses, developing our baseline, and will establish targets for these metrics in 2026. The key metrics we will be measuring are: one, sales pipeline. This metric covers the number of opportunities in our sales pipeline and the corresponding conversion rate. The sales pipeline focuses on opportunities for our standard products and straightforward customizations, explicitly excluding NPD opportunities. Two, NPD projects. We will track the number of NPD projects segmented by customer-driven and internally driven initiatives, targeted markets, and the use of RFID and BLE technologies. The NPD pipeline encompasses projects involving the design of specialty RFID or BLE devices that are not addressed within our standard product portfolio; and three, NPD project completion. This metric captures the number of NPD projects completed within the quarter that will be moving into commercialization. We will continue to provide quarterly revenue guidance, and we'll be updating you quarterly on our progress towards reaching our year-end gross margin target of 26% to 28% and our expected operational cash use of $14 million to $16 million for the four quarters from quarter four, 2024 through quarter three, 2025. In summary, the long-term secular trends that are driving demand for RFID and next-generation technologies remain strong. We believe Identiv is well equipped with the right capabilities and RFID-related technology to capitalize on this growing demand. The transformative transaction in 2024 has provided the financial resources to support the execution of our Perform, Accelerate, Transform strategic framework, positioning us to drive meaningful returns and enhance shareholder value. As we continue to advance the implementation of our PAT strategy, we remain confident in Identiv's advantageous position to seize the exciting growth opportunities that lie ahead. With that, I'd like to open the call for your questions. Operator, please open the question queue.

The first question comes from Anthony Stoss with Craig-Hallum. Please proceed.

Thanks, Kirsten, Justin, and Sophie. Great detail on the prepared remarks. I liked it a lot. A question for you related to Novanta. Maybe can you expand a little bit on when you think you'll have your first revenues through that partnership? And maybe a broader question. When you look at these partnerships, is there a gross margin target range that you have in mind? Or is it more focused on revenue for scale? I just love to hear that, then I had a couple of follow-ups.

Our partnership with Novanta is focused on technology and business development. They possess a key technology necessary for integrating smart technology into medical devices, while we contribute another essential part. Together, we are merging our technologies to present a bundled offer to medical device and diagnostic test equipment manufacturers, facilitating a smoother integration process into their products. Although we do not expect direct revenue from Novanta, this partnership enhances our capabilities and they predominantly serve the healthcare medical device sector. This allows us to utilize their distribution channels to market our smart technology to their clientele, as well as our own. Additionally, in response to your second question, we are also establishing commercial partnerships aimed at selling our products. These partnerships will indeed have revenue and gross margin targets. Specifically for the medical sector, we expect these targets to be at the higher end of our margin expectations due to the inherent complexities associated with healthcare.

Got it. And then second follow-up would be related to your comments on the grocery store or device opportunity. When do you think that will impact? And then maybe if you wouldn't mind sharing or some kind of color related to the ASP. Is it above your normal corporate range ASP? Or what do you think the impacts will be from that device when it's launched?

We are very excited about this potential opportunity. The device is a BLE product and it comes at a higher price point compared to our usual offerings. We are working diligently to collaborate with our customers on the design. They are eager to move forward once we develop and scale it. As mentioned, they have hundreds of millions of plastic pallets that they want to integrate this BLE device into. The key focus is on product development, which is iterative. The environment where these inlays will be used is very harsh, so it requires significant effort to achieve the right design that can endure those conditions and meet the necessary performance standards. Additionally, we need to consider the scale required for production. Our hope is to launch some early volumes by the end of this year or early next year.

Got it. And then also, sorry for all the questions, but following up on that, are they using a different competitor's device now? Or is this greenfield where they've never done anything on the temperature side?

This is relatively greenfield; they've used other types of technology, but not BLE technology. So relatively for this solution, and this is the BLE device that we're designing is a really good fit for this application. So new for this particular type of technology.

Okay, just to confirm, you expect your gross margins for the December quarter of 2025 to be between 26% and 28%. If that’s not the case, would the full year align with that? Additionally, do you have any insights on operating expenses going forward? Will they remain flat compared to where you are in the December quarter? Any insights would be appreciated.

Sure. That is a Q4 margin estimate. We don't formally put it out as a target. It's a target at this point versus guidance. But yes, that's our Q4 target 2025 margin. And then on the OpEx, are you talking GAAP, non-GAAP, both?

Yes, non-GAAP or just if you think it's going to be kind of flattish with what you put up in Q4.

Yes, I think it will go up a little bit. We'll have our normal merit increases here in April for the employees that have been with us for a year. So there'll be some slight uptick in 2025 from 2024. And also, I think, as Kirsten's mentioned, we have brought in a number of key hires in December, January, and March within R&D, various strategic sales, biz dev, and some R&D. Not a big jump, but a little bit of a jump for 2025.

The next question is from Jaeson Schmidt with Lake Street. Jason, please proceed.

Yeah, thanks for taking my questions. Just want to start with that pull-in order. Can you quantify how big that was in Q4?

We don't provide that level of detail, but I indicated that it significantly contributed to the improvement compared to the consensus we had provided. So we surpassed expectations by about $600,000, primarily due to that customer pull-in. Publicly, we have communicated that for Q1, the consensus was around $5.3 million, while our range for Q1 is between $4.8 million and $5.1 million. I hope that helps you make sense of the numbers.

Okay. No, that's helpful. And then thinking about gross margin, I mean, obviously, you noted sort of that kind of mid- to high 20% in Q4. But thinking about the three customers that still need to transition, how should we think about the cadence of gross margin throughout the year?

I typically don't provide guidance beyond one quarter, particularly regarding revenue; that's our formal stance. I have reviewed the consensus on margins, and I believe we are generally aligned with that.

Got you. And then the last one from me, and I'll jump back into queue. I know this upcoming call, you'll be providing some more metrics on kind of the pipeline, et cetera. But I think just at a high level, just given what you currently have and the traction you're seeing with some of these new engagements, do you expect 2025 to be a growth year?

I don't think we can guide too much on that, but I will say we're excited about the projects that are coming our way. They largely will take some development in 2025, but we expect more of the growth associated with them towards 2026.

The next question comes from Craig Ellis with B. Riley. Please proceed.

Hi, this is Stacy Che substituting for Craig Ellis. Thank you, Kirsten and Justin, for the detailed breakdown. It's encouraging to see the progress you've made. Could you provide more insight on whether you anticipate reaching EBITDA breakeven in the next two years, and if there are any potential tariff risks or other challenges expected in future quarters?

Sure. We haven't formally established a timeline for EBITDA breakeven, so we aren't setting a two-year target for that. We'll assess that as we move forward. Regarding tariffs, we've consulted with several of our vendors and material suppliers in Thailand, and we believe we are in a solid position concerning tariffs.

Got it. As a follow-up, you mentioned the three customers that have been successfully transferred from Singapore to Thailand. Do we expect them to start generating revenue this quarter? And if so, are they on the lower margin side, as you indicated?

I can provide a couple of clarifications. The revenue from the customers transitioning in Thailand hasn't gone away. The revenue profile will remain consistent from 2024 to 2025. It’s mainly about where the revenue is being manufactured, whether in Singapore or Thailand. We expect a smooth transition with no disruption in revenue on a quarter-over-quarter basis for any of the three customers transferring over. We're currently in Singapore and are nearing completion. In the next six months, we anticipate having the remaining products fully manufactured in Thailand, which will position us well for gross margins moving forward. There won’t be a stop-start in revenue from 2024 to 2025.

Yes, I understand. My question is about the three remaining customers. Do they have lower gross margins compared to the other customers?

No, they are not.

We have reached the end of the question-and-answer session, and I will now turn the call over to Kirsten for closing remarks.

Thanks, operator, and thank you all again for joining us today. We appreciate the continued support of our customers, partners, shareholders, and employees. Please reach out to IR if you have any questions. And we will definitely keep you informed of any upcoming IR events. With that, I want to thank you again for joining us, and have a good afternoon and evening.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.