Ladies and gentlemen, thank you for standing by, and welcome to the SMART Global Holdings Third Quarter Fiscal 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Suzanne Schmidt, Investor Relations. Madam, please go ahead.

Thank you, operator. Good afternoon everyone and thank you for joining us on today's earnings conference call to discuss SMART Global Holdings third quarter fiscal 2020 results. On the call with me today are Ajay Shah, Chairman and Chief Executive Officer and Jack Pacheco, Chief Operating and Financial Officer. This call is being webcast from our website at smartgh.com. In addition, our website contains an accompanying slide presentation and the earnings press release. We encourage you to go through our website throughout the quarter for the most current information on the company, including information on the various financial conferences we will be attending. Before we begin the call, I would like to note that today's remarks and the answers to questions may include forward-looking statements. Any statement that refers to expectations, projections, or other characterizations of future events including financial projections and the future market conditions 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 the documents we file from time-to-time with the SEC, including our most recent Form 10-K and Form 10-Q. We assume no obligation to update these forward-looking statements, which speak as of today. Additionally, during this call, our non-GAAP financial measures will be discussed. Reconciliations to the comparable GAAP financial measures are included in today's press release. With that, I will now turn the call over to Chairman and CEO, Ajay Shah.

Thank you, Suzanne, and welcome again to our quarterly call. We are certainly living in some interesting times. Despite facing some disruptions to our business early in the quarter, we are pleased to report some strong financial results at the high end of our expectations for the third fiscal quarter, thanks to the efforts of our employees around the world who have come together to respond and adapt to current challenges, and also, to their dedication to our customers' success. Total net sales in the quarter increased by approximately 19% as compared with the year ago quarter, and were driven in particular by strength in our Specialty Memory business. With the operating leverage from our cost-efficient business model, non-GAAP net income and EPS were even stronger increasing by 116% and 106% respectively as compared with last year's third fiscal quarter. As we will review in more detail later in this call, we continue to see strong financial performance ahead. With new products and design wins in existing and new customers combined with our cost and capital efficiency, we are well positioned to take advantage of opportunities in this uncertain market environment. Turning now to a review of our different businesses, in the third quarter of fiscal 2020, approximately 45% of revenues came from our Specialty Memory products business, 33% from our Brazil business, and 22% from our Specialty Computing products business. Starting with the Specialty Memory products business which generated $127.7 million in revenue for the quarter or approximately 45% of the overall revenue, revenue this quarter was 15% higher than the previous quarter despite some headwinds from pandemic related slowdowns that have impacted some of our industrial customers. During the quarter, we announced a variety of new high performance, high density DDR4 module solutions for space constrained applications. These new module-in-package or MIP solutions increase memory capacity in industrial IoT, embedded computing, broadcast video and mobile router applications among others. We’re maximizing DRAM capacity within space constraints, our principal concern. For example, this MIP can be used instead of a standard DRAM module, or discrete DRAMs in order to double the memory density and to use as little as one fifth of the space required otherwise, a feature which is particularly appealing for certain industrial, consumer, military and aerospace applications. We also continued to make great progress against our stated goal of expanding our reach across new geographies and customers. On the DRAM side during the quarter, we began production shipments of an application specific DRAM module for industrial tester applications, as well as a new DDR4 base module for Edge Computing systems that enables secure access to cloud workspaces. We are also seeing good traction for our NVDIMM modules in the Enterprise Storage space. These products provide persistent memory with unlimited endurance and very low latency. In addition, our Ruggedized products are drawing increased customer interest from the industrial and defense markets, where we recently achieved new design wins for an application to be used by the U.S. Navy and a boot drive product to be used by the U.S. Army. Moving on to our Brazil business, which generated $92.7 million in revenues for the quarter, or approximately 33% of overall net sales, and met our expectations despite the issues with the pandemic related economic slowdown in the country, and the weaker Brazilian currency. Earlier in this past quarter, the work from home phenomenon resulted in stronger demand for our DRAM based modules for notebooks and PCs. At the same time, we saw lower sales of mobile memory as some of our smartphone customers' factories in Brazil were shut down for approximately three weeks. Since that time however, we have seen demand for PCs and notebooks return back to more normal levels. And meanwhile demand in our mobile memory business has recovered. The Brazilian smartphone market is forecasted to see a unit sales slowdown this year similar to other world markets; however, particularly in Brazil the average mobile memory capacity per phone has continued to increase steadily, and so have our ASPs along with the density increases, helping to meet overall revenue expectations and the performance of the business. Mobile memory capacities in smartphones in Brazil on average still lag world averages by a significant margin, so there's more room there. In our Q3 in Brazil we introduced a 7-die based eMCP or multi-chip package with 64 gigabytes of flash and four gigabytes of LPDRAM for use by our major smartphone customers, and have subsequently seen the steady growth of high-density mobile memory sales. Additionally, for the mid-to-high end smartphone market, our customers are now moving towards higher capacity products for delivery in the next fiscal year. These new products will have 128 gigabytes of flash and 4 gigabytes of LPDRAM and will utilize stacking of 11 dies in a package, including 4 flash devices, 4 LPDRAM devices and a controller, a very advanced package leading in packaging anywhere in the world. Our R&D team is working diligently on developing and qualifying these products, and we expect to introduce these high density products over the next few quarters. In this new environment as we've said before, the new points-based local manufacturing rules are very favorable to memory. In fact, so much so, that they're less favorable for other items such as batteries. We are therefore re-evaluating our efforts in the battery market in Brazil. Moving on to our Specialty Compute products business, which recorded revenues of $60.9 million in the quarter or representing approximately 22% of overall revenue. As you recall, some of this business is more heavily weighted towards the end of the government's fiscal year. This year due to the work from home situation, federal year-end spending looks to be delayed as many program awards are running behind original timeline. That said, we made significant progress across many aspects of this business. Earlier in the quarter, we launched a new system on module based on Qualcomm’s Snapdragon 660 processor. This compact connected computing module called the Inforce 6503 is designed for rugged display devices, and enables advanced visual computing, enhanced graphics and on-device machine learning capabilities. Ideal use cases include applications such as high-end industrial IoT, wearables and portable healthcare devices that require advanced imaging, connected cameras, all of which are fast growing areas that we can address with these new, powerful connected solutions. Also during the quarter, we announced that Penguin Computing has expanded its partnership with Intel and has now joined Intel’s Select Solutions partner program. Through this collaboration, Penguin will empower customers to leverage the potential of high performance computing and AI through reference designs and deliver a series of verified and quick-to-deploy infrastructure solutions optimized for high performance computing and AI/machine learning applications. This expanded relationship follows Intel's 2020 U.S. Partner of the Year award in which Penguin Computing was honored for demonstrating excellence in technology platform design and integrated solutions development. Additionally, during the quarter, Penguin has expanded its partnership with AMD to deliver HPC systems to several top tier universities for COVID-19 related research. NYU, MIT, and Rice will use a series of AMD processor-based Penguin Computing on-premises and cloud-based HPC systems to help accelerate research across a range of pandemic related topics, including genomics, vaccine development, transmission science and modeling. We are very proud of our contribution to this research effort and these systems will be offered by us over time to an even broader community of research and development projects. In summary, we've navigated this initial phase of the global health crisis with our business performing very well, and more importantly, with our global workforce safe and adapting extremely well to this new work environment, both in our own operations, and also in how we work with our customers and our partners at a time like this. We remain well positioned to navigate through this challenging time, and we'll emerge stronger as a result of our targeted and differentiated product offerings, our superior operating model and our strong financial performance. The primary markets that we serve all have growing requirements for additional capacity, and more complexity in their memory and compute solutions, which is exactly where we excel. We also continue to evaluate a number of opportunities to further leverage our operations strength with accretive acquisitions that both strengthen, diversify and continue to drive the future growth and earnings for our company. I'll now turn the call over to Jack Pacheco, our CFO for a more detailed review of the financials as well as our forward guidance. Jack?

Great. Thanks Ajay. Overall, gross revenues for the third fiscal quarter was $449.9 million or net sales were $281.3 million. As a reminder, the difference between gross revenue and net sales is related to our supply chain services business, which is accounted for on an agency basis meaning that we only recognized net sales and net profit on a supply chain services transaction. Our breakdown of net sales by end markets for the third fiscal quarter was as follows: Mobile and PCs 27%, Network and Telecom 25%, Servers and Storage 15%, Industrial, Defense & Other 33%. Now moving to the rest of the income statement. Non-GAAP gross profit for the third quarter was $55.9 million compared with last quarter's $52.9 million. As we transition our Embedded Computing manufacturing to our newer Tempe, Arizona location as well as managing expenses extremely well in Brazil during a turbulent quarter. Non-GAAP operating expenses were $35.5 million compared with $35.6 million in the previous quarter. Non-GAAP net income for the third quarter was $17.1 million or $0.70 per diluted share compared with $12.8 million or $0.52 per diluted share in the previous quarter. Adjusted EBITDA totaled $25.4 million compared with $22.3 million in the prior quarter. Turning to working capital. Our net accounts receivables totaled $223.2 million compared with $217.4 million last quarter. Our days sales outstanding decreased to 45 days for this quarter compared with 47 days last quarter. Inventory totaled $180.6 million at the end of the third quarter, compared to $161.4 million at the end of the second quarter as we now have fully transferred all of our embedded computing manufacturing from a U.S. contract manufacturer to our Newark and Tempe locations. This is fully in line with our forecasts for the quarter. Inventory turns remain flat around 9 for both quarters. Consistent with past practice, accounts receivable days outstanding and inventory turnover are accounted on a gross sales and cost of goods sold basis, which were $449.9 million and $395.7 million respectively for the third quarter. We ended the third quarter with $131.8 million of cash and cash equivalents compared with $141.9 million at the end of the prior quarter. Despite actually increasing cash in Brazil by R$60 million in the quarter due to the currency exchange headwinds, our overall cash balance was reduced by US$17.9 million on translation back to USD for the Brazilian real. Third quarter cash flow from operations totaled $13.6 million compared with $23.3 million in the prior quarter. On a trailing 12-month basis, cash flow from operations totaled $111.2 million. We exited our third quarter with a very strong balance sheet as well as a vastly improved capital structure, thanks to the convertible note and debt restructuring and repayment of debt that we executed last quarter. For those of you tracking CapEx and depreciation, CapEx was $7.5 million for the quarter and depreciation was $5.4 million. And now let me touch on some of the financial and operational dynamics we are currently facing. All of our manufacturing facilities across the globe continue to operate and service our customers. We are still seeing strong demand from our customers for our fourth fiscal quarter and our guidance reflects this current view of the quarter. As we discussed in our last call, we continue to closely analyze and assess our customers and their end markets for weakness or strength. In Brazil, as Ajay mentioned earlier, we qualified a seven-die multi-chip package in the quarter and are working on an 11-die multi-chip package, which are higher density products and they have a higher average selling price than our lower density solution. These products will help to drive higher density demand by our customers in our future quarters. With that as a backdrop, let me now turn to our guidance for the fourth quarter of fiscal 2020. We currently estimate that our fourth quarter net sales will be in the range of $290 million to $310 million. Gross margin for the quarter is estimated to be approximately 20% to 22%. GAAP earnings per diluted share is expected to be approximately $0.34 per share plus or minus $0.08. On a non-GAAP basis excluding share based compensation expense, intangible assets amortization expense and convertible debt discount OID and fees we expect non-GAAP earnings per diluted share will be in the range of $0.78 plus or minus $0.08, the midpoint of which represents an increase of 11% sequentially. The guidance for the fourth fiscal quarter does not include any view on the foreign exchange gains and includes an income tax provision expected to be in the range of 16% to 20%. The number of shares used to estimate earnings per diluted share for the fourth fiscal quarter is $24.5 million. Capital expenditures for the fourth fiscal quarter are expected to be in the range of $6 million to $10 million. Please refer to the non-GAAP financial information section and the reconciliation of non-GAAP financial measures to GAAP results and reconciliation of GAAP net income to adjusted EBITDA tables in the earnings press release for further details. Operator, we are now ready to take questions.

Thank you. Please stand by while we compile the Q&A roster. Our first question comes from the line of Blayne Curtis of Barclays. Your question, please?

Hey guys. Thanks for taking my question and nice results. I'm curious, could you just tell me when you look at the segment into August, it seems like you're expecting a recovery in Brazil. Just trying to understand the other segments: you were looking I believe last quarter for some pretty strong growth and especially said it pushed out. Is that business still going to be up, and I guess second part of it is, is that just pushed one quarter or is it going to kind of keep being pushed out by any amount? And just how long these push outs could be?

I’ll answer your last part first, which is unfortunately we're not able to figure out exactly how long the delays are going to be. I mean, there are projects and there are projects that have been defined, and even as you know from what we understand, assigned funding. I'm speaking particularly of government programs, and I think that's what you were asking about, right Blayne? And so, I have to admit that we don't have a clear idea of exactly when these programs will be finally released. However, in our third quarter and our fourth quarter, we have had a pretty strong commercial sale in our high performance computing business. So overall, the business continues, but yes, the year-end federal spend which is often linked to the year-end budget is not clear exactly as to how it's going to materialize this year, and when. You know because many of these contracts have, many of these projects have high security clearances and people can’t work from home on some of them, from what we understand.

Got you. And then maybe I guess, given that answer just the first part of the question is, just looking at the three segments, do you have any color directionally what you're expecting in that $300 million at the midpoint guidance? It sounds like pretty tight — what were your thoughts on those segments?

This still is up very modestly, especially computing is up. And so while we're not predicting — as we said, we're not predicting a significant number of federal order releases in this quarter, this quarter being the Q4 period we're in right now. We are continuing to see other projects. And so, especially computing does continue to improve actually meaningfully. Brazil steps up, but not significantly. And our Specialty Memory business continues to perform well. That's the forecast we're working with right now.

Yes, it could be low double digits weighing on the Specialty Computing growth in the quarter, so…

It just maybe delayed, it’s okay overall.

And then just finally on gross margins, I know you had to deal with shutdowns, so gross margins were a bit lower than I guess those modeling for May. Is there any other factors? And then as you look into August, if gross margin grows a bit, what is driving that?

I think what's driving the increase in gross margins is, you have a bit of a return to the higher margin specialties. Specialty is up a little bit, that adds some gross margin percentage to us. In Brazil, we have a higher mix back to mobile a little bit. I think you'll see gross margins up mainly because Specialty Computing is up in Q4 from Q3.

Okay. Thank you.

Thank you. Our next question comes from the line of Sidney Ho of Deutsche Bank. Your line is open.

Great. Thank you. My first question is, you guys talked about the memory content increasing in the May quarter and expect it to continue to increase. Can you quantify for us what the impact on the average selling price was in the last quarter? I think I heard previously that in the February quarter you said ASPs were up about 60% year-over-year. How do you think this trend in terms of memory content will go up in the next six to twelve months?

So I think on Q3, Brazil’s ASPs were pretty flat to Q2. We didn’t see these roll up or roll down. But I think we’re looking — we're probably looking for some kind of 15% to 20% growth maybe in Q4 in ASPs from what we’re seeing right now. And as we’re releasing new products — we had some really high density products being released — I would expect to see ASPs still moderately increase probably even if memory prices do fall.

That’s helpful. Maybe a follow up. I know you had disclosed this in your 10-Q, but how was the gross margin by segment in the quarter? And related to that, if I look back at the previous quarter gross margin for Specialty Compute has gone up a lot year-over-year which is what you guys expected. But the reverse was true for Specialty Memory which I thought would be more stable. I also don’t recall Brazil margin being in the mid-teens in the past; I always thought it was probably closer to 20%. I assume there are higher logistics costs and operational costs. But what needs to happen to get margins back to the kind of normalized range for those businesses, which I’ll call 20% or more?

Okay, so Brazil is near normalized margins; we ended at about 21% in Q3 for Brazil. Specialty Compute came down to 24%. Higher mix of commercial versus federal — commercial margins are lower — so that dropped it down to 24%. Specialty Memory dropped roughly to 16% in the quarter. In Specialty, where we've been going out aggressively to get share, we did lose a bit of margin and we introduced new products which tend to have a higher sales value but a lower gross margin percent in the quarter, so that impacted margins a little bit. But I think over time Specialty will get back to where it needs to be; Brazil's already kind of there in Q3.

Okay. Maybe if I can squeeze in one last one. Last quarter, you talked about DRAM lead times stretching to 12 to 15 weeks. Customers are placing orders early to make sure they get their parts and backlogs exiting the quarter were pretty healthy. Can you give us an update on those metrics in the current quarter?

Flash lead times are still out there at about 16 weeks. DRAM lead times have come down a little bit. But backlog is still very strong for this quarter. People are still placing orders out in the right amount of time and we're still expediting certain customers' parts trying to help them meet their quarters.

Great. Thank you very much.

Thank you. Our next question comes from the line of Kevin Cassidy of R. F. Lafferty & Co. Your line is open.

Thank you, and congratulations on making it through a tough time. I wonder if you could go into a little more detail on the significance of the 7-die device. Will this be — I guess it increases your density. Will there be more phones manufactured using this? And what do those phones do if they're not manufactured in Brazil? What module would they use?

So let me take that one. The 7-die device is with 64 gig of flash and 4 gig of LPDRAM. And that's going into some phones probably starting shipping this quarter. The 11-die device is by far the most complex product we've ever manufactured in Brazil, and is one of the leading products really up there with anything being shipped anywhere in the world. That's the 128 gigabytes of flash and 4 gigabytes of LPDRAM. These products are going into the mid-to-upper range of smartphones. The super high end of smartphones may well be imported but that's primarily the iPhone. The super high end of Samsung or Motorola or LG phones are mostly made in-country. So we do supply all of them.

Okay. Great. And on the Specialty Compute business, you've been saying that you're seeing a lot of opportunities and good bookings. Can you describe how those bookings are scheduled over time and released against the forecast? How much visibility do you get with both the Penguin portion and the embedded compute in the wireless products?

You're right to point out that they are a little bit different. Penguin Computing is more project-oriented, meaning it could be a project at a lab or often at a research department within a company or an analytics department within a financial services organization. Those are the kinds of applications where high performance computing systems go: modeling, weather and so on. Those tend to be more project driven. Our commercial business is actually holding up pretty well. Some of our government-related business, which tends to have this year-end concentration, is not seeing the push yet. We're hoping that some of these projects that have been lined up for a while will eventually come out into backlog, but they haven't yet. Meanwhile, our Embedded Computing business is doing well, and we have opportunities emerging in new areas and that business tends to have a somewhat longer backlog. Our wireless computing business, which has had a relatively narrow customer base because it's a young business growing fast, has gotten a lot more design wins over the last couple of quarters. As we look forward to fiscal 2021 we're expecting much more backlog-driven business similar to our embedded computing or specialty memory business.

Yes. That helps a lot. Thank you.

Thank you. Our next question comes from the line of Rajvi Gill of Needham & Company. Your question, please.

Yes. Thank you and I echo my congrats in a tough environment. In terms of the upside in the specialty memory market, you mentioned these new high-performance module-in-package solutions. Has that led to any outsized market share gain? I think you hinted that there were some share gains there. Do you feel confident that this new module-in-package DDR solution for space-constrained applications is going to be the norm in some of these applications over the next several years? Do you see a healthy attach rate, and what are your thoughts on overall end markets within specialty memory, particularly networking and enterprise server — how that's tracking?

Thank you, Rajvi. First of all, we don't look at our Specialty Memory business in the same way as a classic market-share exercise. It's very design-win oriented because we focus on non-mainstream applications. If someone is looking for a standard DDR4 module, our Specialty Memory business is not a good fit and we're not trying to compete in that middle. We tend to focus on differentiated applications across the curve. When we find applications that can use something particularly differentiated like module-in-package, Rugged Solutions and so on, we will sometimes be aggressive on pricing to win the design. What we need then is for that business to come back to our normal margins over time through cost improvements, which is typical for our business. We will occasionally accept lower margins to get a design win for a large opportunity. There have been a couple large opportunities we've been able to win as a result. We're confident we will get our margins back up to levels consistent with our historical performance over time.

Very good. And my follow up: seasonality in the business has been a bit volatile given the acquisitions and external events like the trade war and COVID. How are you thinking about seasonality going forward given the government spending delays and Brazil ASPs increasing? How should we think about seasonality across the year?

Let's use two words: seasonality and cyclicality. Cyclicality is an inherent feature of the memory marketplace, but we actually suffer far less cyclicality compared to classic memory-only companies. Our cyclicality is consistently muted. The only place where we see more pronounced cyclicality is Brazil. We don't really see much of it in our Specialty Memory business and certainly not in our Specialty Compute business. We do see some seasonality or unevenness across the year in our Specialty Compute business, particularly in project-oriented high performance computing. Brazil might see a little dip in fiscal Q1 because of holidays and festivals. But overall, our business is not that seasonal except to an extent in our HPC project business.

Typically our HPC business has a good Q4 because of budget flush. That part of the business is getting affected the most this year; we may not get the same year-end budget flush so Q1 might drift down. The COVID-19 issues are really affecting Penguin's defense and government business right now.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Brian Chin. Your line is open.

Hi, good afternoon. Nice job on the quarter. Let me start with Specialty Memory: revenue is back to within about 10% of your peak historical quarter, while the product NAND memory market is down a lot more from its peak. I was curious, from your perspective, is your design and sales momentum also reflecting any positive revenue synergies with the Specialty Embedded Compute business?

We were already a vendor to them before we acquired the businesses, so any incremental memory sales to those customers are modest. I don't think it's a very large effect in the numbers. We would be transparent if that were a material factor.

Got it. Understood. In terms of the Brazilian currency effects on the P&L and the business, Jack, can you quantify the EPS benefit to OpEx from your local operations in Brazil? Also, given the devaluation of the local currency, I might expect a negative shift in device mix locally. But you are expecting a meaningful tail in fiscal 4Q. Does that mainly reflect your strategic shift to support the higher density products?

It's not really a strategic shift per se; we follow the roadmap of our customers in Brazil — Samsung, Lenovo, Motorola, etc. When they announce they will build phones in Brazil needing higher density, we develop those products locally to support them. So it's driven by customer demand. Even if you lose some units, the higher ASPs on higher density products should be positive for revenue in fiscal 2021. Regarding Specialty Memory, we're winning design wins and some programs that have taken a year or more to qualify are finally ramping into revenue now, which explains part of the revenue increase you see.

We are performing well with new design wins. One thing that drives our Specialty Memory business is customers' need for differentiated solutions. If customers only wanted middle-of-the-road standard DDR4 modules they'd likely source from large semiconductor vendors. We're offering differentiated, application-specific products across a variety of memory technologies, including emerging ones like 3D XPoint and QLC Flash, and that fuller roadmap is giving us more opportunities to increase design wins and attach rates.

Great. Makes sense. Thanks so much.

Thank you. Our final question comes from the line of Mark Lipacis of Jefferies. Your line is open.

Hi. Thanks for taking my question. A few if I may. On Specialty Memory, you introduced a lot of new products. Is this a result of increased R&D effort or just products hitting coincidentally at one time? Can any of these new products be 10% or 20% of this business ultimately, or are they layered on? Do they have long life cycles or short life cycles? Can you characterize the Specialty Memory business from a diversity and size-of-opportunity standpoint?

The R&D investment began about four to six quarters ago, so the work behind these products started well before these revenue ramps. Those costs have been run-rate in our cost structure over the last year. We spend resources and expertise identifying opportunities both proactively and reactively when customers request specific form factors or capabilities. For example, we introduced an SSD in the EDSFF form factor for low-profile storage applications; we believe that has legs because people need more efficient footprints. By definition, our products are niche products; we don't operate in the high-volume middle. Each product will have a different market opportunity, and each is internally justified by expected revenue and margin contribution which drives our roadmap. Many of these products have long lifecycles and many require year-plus qualification cycles, so the revenue ramps can be steady and long-lived.

Yes, many of these products are long life cycle. The reason customers buy our products is often due to a long product lifecycle need, and as Ajay said, some of the programs we've worked on for a year or more are now ramping into volume.

On the sequential growth, some skeptics might say there's double ordering. What do you say to that? Is there any way to track that? How would you characterize inventories in the channel at your customers and contract manufacturers?

We have a supply chain services business where we have visibility into some large customers' inventory, and we've been monitoring customer inventories closely. We have been working tightly with contract manufacturers to ensure they're not building up excessive inventory. Many contract manufacturers are still reporting shortages and are asking for parts, which suggests they are not overbuying. We don't see evidence of widespread double ordering or significant channel inventory buildup at this time.

Fair enough. And then a question on the government business: historically there's been the expression 'use it or lose it' relating to budget flush. Is that still the case? Is there any talk with that customer segment about prepaying for systems or deferred revenue, or is that still a bit of a black box about what happens at the end of the budget flush?

Short answer: we don't know. This is not a normal year and it's hard to predict. It's not that government demand is zero; it's that some projects that normally would progress are delayed. These projects emerge over nine to 12 months: they get defined, budgets are assigned, solutions are quoted, and then they go through competitive award processes. Whether the year-end flush will be the same this year is unclear to us.

Last question if I may: you mentioned M&A as part of strategy. What has the pandemic done to the target environment for M&A? Are companies more willing to have conversations now? How does the private side look?

I think the target environment is more active than I initially expected. Early in the pandemic I thought transactions might freeze, but we've seen a surprising level of activity, including IPOs and M&A. With the stock market where it is, there are questions about valuations, but there are interesting opportunities where we can bring operational synergies to bear. We're not just a financial buyer; we're a strategic buyer that can contribute operations and other synergies. Also, in February we completed a restructuring of our balance sheet where we replaced shorter-maturity, higher-cost debt with a convertible note with a six-year maturity. That was meaningful: we now have a strong balance sheet, very little short-term debt, lower debt service costs and amortization, which positions us well to evaluate and act on opportunities.

Great. That's very helpful. Thanks for taking my questions.

Thank you. At this time, I'd like to turn the call back over to Ajay Shah for closing remarks.

Thank you. And thank you all for your interest in our Company. We look forward to speaking with you all again as we do our next quarter. We're pleased to have reported strong results and be able to guide strongly forward as well. We look forward to your support and your interest. Thank you all very much for attending our call today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.