ADTN - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to the Adtran Holdings Incorporated third quarter 2024 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. During the course of the conference call, ADTRAN representatives expect to make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the risks detailed in our earnings release, annual report on Form 10-K, and our filings with the SEC. 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. We undertake no obligation to update any statement to reflect the events that occur after this call. In addition, the financial measures discussed during the course of this conference call are preliminary estimates. They consequently remain subject to the company's internal control and procedures and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end adjustments. Finally, during the course of today's call, we will refer to certain preliminary non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are also included in our investor presentation and our earnings release. The investor presentation found on ADTRAN's investor relations website has been updated and is available for download. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of Adtran Holdings. Sir, please go ahead.

Thank you, Rochelle. Good morning, everyone. We appreciate you joining us for our third quarter 2024 earnings conference call. With me today is Adtran Holdings CFO, Uli Dopfer. Following my opening remarks, Uli will review the quarterly financial performance in detail, and then we will take any questions you may have. We executed according to plan in Q3 and made improvements across several key operating metrics. During the quarter, we continued to grow our non-GAAP operating profit and generated positive free cash flow for the third consecutive quarter. Our quarter-over-quarter performance was driven by further improvements in our non-GAAP gross margin as we maintained our reduced cost structure and grew revenue. During the quarter, we also saw signs of further improvement in customer activity and bookings. Geographically, 55% of our revenues were generated outside of the U.S. as we experienced higher demand from both our EMEA and APAC regions. Both the U.S. and non-U.S. regions benefited from a 10% sequential increase in large service provider sales. Diving deeper into the portfolio details, Optical Networking Solutions added 13 new carrier customers this past quarter as we continue to introduce our optical portfolio to our fiber broadband customer base. As we have previously noted, we had expected our optical networking revenue to bottom in Q3, and we continue to believe that that will have been the case. While revenue was in line with our expectations, bookings continue to accelerate, supporting our optimism. In our access and aggregation solutions, we began shipping products to 12 new carrier customers. Revenue in our access and aggregation solutions was up outside of North America. However, it was down slightly in the aggregate due to slower sales in the U.S. We expect revenue from our access and aggregation solutions to increase in the upcoming quarters. Our subscriber solutions category increased 9% quarter-over-quarter. This growth was driven by an increase in sales of our residential ONTs and RGs, which were up 25% quarter-over-quarter and a strong 102% year-over-year. Within this category, we added 11 new customers to our latest SGG series of WiFi platforms. As demand for fiber broadband continues to grow, we expect to continue to increase our revenue and customers in this category. In addition to residential broadband, we continue to see strong demand for our carrier Ethernet CPE solutions as carriers connect more businesses with higher-speed fiber services. Looking ahead, you may see in our recent press releases announcing customer trials to bring 50-gig PON connectivity to the market. As customers begin to realize the value of converging residential, business, and mobile backhaul into a single network, the breadth and power of our open disaggregated networking platforms will further differentiate Adtran from our competition. While 50-gig access technology is still in its early stages, we remind listeners of the ascendency of XGS PON, which has quickly become the preferred access technology for PON deployment. The adoption of these higher-speed access technologies is an ideal match for our broader fiber networking portfolio. As service providers deploy higher-speed access networks, they must upgrade their backhaul networks with a mix of 100, 400, and 800-gig coherent optical solutions. We currently offer edge-optimized transport solutions to address this need. To support these new access technologies, we have a full suite of in-home networking platforms, SMB solutions, and Carrier Ethernet CPE to address the full range of subscriber connectivity needs. This complete solution offering from the core to the customer premise is managed by our Mosaic software suite and covers everything from optical networking automation to proactive in-home network monitoring. With it, we partner to help service providers deliver best-in-class subscriber experiences as they automate the scale of their fiber networks. Transitioning to our operational performance, we continue to make progress with the program we launched last year to improve our profitability and operating cash flow. The results can be seen in our non-GAAP gross margins over the last nine months of 2024, which improved from 38.6% last year to 41.9% this year. This improvement was directly related to operational efficiencies and lower overhead costs that were driven by both site and product consolidation. This past quarter's performance, paired with our improved outlook, reinforces our confidence in our long-term operating model of gross margin percentages in the low to mid-forties and operating profit percentages in the low double digits. We continue to move forward with our capital efficiency program as we are working to monetize non-strategic assets. We hope to update you next quarter on tangible results as we continue to progress. In summary, we had a successful quarter in terms of improving our financial positioning while growing our customer base and investing in our strategic platforms as major opportunities in the U.S. and Europe are still ahead of us. While we remain confident in our long-term outlook, we expect more meaningful growth in the current quarter. We will continue to take a cautious approach with our forecast and operating model given the relatively cautious spending we still see from our service provider customers. This approach has proven to be successful over the past few quarters, and we have stabilized our results in a difficult macro environment. We expect meaningful improvements in profitability once market conditions improve. With that, I will turn things over to Uli to provide a review of our financial results, and following Uli's remarks, we will answer any questions you may have.

Thank you, Tom. And thank you to everyone on the call this morning. I will first walk you through our Q3 2024 financial performance, and then I will discuss our expectations for the fourth quarter. Revenue in the third quarter was $227.7 million, a sequential increase above the midpoint of our guidance. Our network solutions segment delivered $181.5 million, accounting for approximately 80% of total revenues in Q3, compared to 79% in the prior quarter. Our services and support segment delivered $46.2 million, or 20% of total revenues in the quarter, compared to 21% in the prior quarter. From a product category perspective, access and aggregation delivered $67.1 million, or approximately 29% of total revenue, which was down 4% sequentially. Our optical networking solutions were $70.5 million, or 31% of total revenues. This was also down 4% sequentially. Subscriber solutions were $90.1 million, or 40% of total revenue, and this was up 9% sequentially. We had one customer represent more than 10% of our revenue in the quarter. Non-GAAP gross margin during the quarter was 42.1%, an increase of 17 basis points sequentially. The improved gross margin is reflective of our ongoing efforts to optimize our supply chain and supply-related processes. Non-GAAP operating expenses in the third quarter were $93.3 million, in line with levels in Q2 2024. For the third quarter of 2024, our non-GAAP operating profit was $2.5 million, or 1.1% of revenues, which was again above the midpoint of our guidance range. This compares to a non-GAAP operating profit of $1.5 million, or 0.7% of revenues in Q2 2024. The increase in operating margin and profitability was attributable to improved gross margins and stable OpEx. Non-GAAP tax expense for the third quarter of 2024 was $1.1 million. This is a result of the nondeductibility of impairment charges and losses for which no tax benefits can be realized. Including the $2.4 million dividend attributed to the minority shareholder interest of Adtran Networks SE, as well as a $3 million credit related to an adjustment to the redeemable non-controlling interest, the non-GAAP diluted loss per share was negative $0.05 compared to a negative $0.12 in Q2 2024. Turning to the balance sheet and cash flow statement. During the quarter, we continued to improve our working capital by $33.9 million. Trade accounts receivable were $172 million at quarter-end, resulting in DSO of 70 days. This compares to 75 days in the prior quarter. Our inventories were down to $282.9 million at the end of the quarter. Accounts payable were $173.4 million, an improvement of DPOs of seven days. The improved working capital resulted in operating cash flow of $42 million compared to $19.9 million in Q2 2024. Consequently, we generated $23.2 million of free cash flow in Q3 2024. At the end of the quarter, cash and cash equivalents were $88.5 million, a quarter-over-quarter decrease of $22.7 million. This decrease includes the scheduled annual dividend payment to the minority shareholders of Adtran Networks SE of $10.1 million and $17.4 million in repurchases of Adtran Networks SE shares that were processed during the quarter. In summary, we have made significant strides in our operational performance and execution. Revenue increased on a sequential basis, we expanded gross and operating margins, and we generated positive free cash flow during the quarter. We are seeing improvements in each of our key end markets and are growing our customer base. The continued trend to increase fiber access and optical transport globally is a catalyst we believe will help us to drive accelerated profitability and increased cash generations. Turning now to our outlook for the fourth quarter. We expect revenues to range between $232 million and $245 million and non-GAAP operating margin between 0% and positive 4% of revenues. Once again, additional information is available on Adtran's Investor Relations webpage at investors.adtran.com. And finally, I would like to welcome the addition of our new Vice President of Investor Relations, Peter Schumann. Many of you may know Peter, and he is here today with us. He will be ramping up his new role. Please reach out to him for any investor relations inquiries. This concludes the prepared remarks portion of the call, and I will now turn the call back over to the operator to begin the Q&A session.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. The first question comes from George Notter with Jefferies. Your line is open.

Hi, guys. Thanks very much. Nice to see the improved results and free cash flow generation. I guess I would like to start just by, you know, is right now. I know that the optical business, I think, was the area that has most recently been struggling with excess customer inventory, but can you give us an update on where that is and when you think that inventory will be gone and when you expect the business to improve?

Yeah. So I think, you know, I mentioned in my notes, George, that we did see a pickup in bookings in the quarter, which was good to see because, as you know, bookings have been dropping for a few quarters now. So I think that is directly related to inventory situations at customers. We still have a customer—I am not saying that there are not other smaller ones—but, you know, a customer in Europe that has an inventory hangover that we think will last through probably the first part of the first quarter, but I think our expectations are that the—and what we are already seeing from that customer, you know, they do not have everything of everything. So we are already seeing pickups there, but that is kind of the last big overhang that I would say is notable. And on the CPE side, I mean, we have, you know, had some pretty strong growth there. So that seems to have worked itself out for the most part. And the same thing on access and aggregation.

Got it. Okay. Great. And then I was also curious, by the way, when you talk about that particular customer in Europe, I think you are referencing more optical inventory as opposed to the other product lines?

Yeah. That is correct. Now the other, you know, the other product lines are—I will not call this optical. Let me be clear about—I mean, inventory, but let me be clear about this. We have large customers that buy in chunks. Right? So they will buy a big block of equipment and then they will deploy it over two to three quarters, then they will buy another big block of equipment. I would not consider that inventory. I consider that just how they operate. But that is an ongoing phenomenon that will always be there.

Got it. Great. Okay. Thanks. And then also wanted to ask about sort of the real estate update. I know you guys said you are going to give people a bigger, I guess, disclosure next quarter, but anything you can say? Obviously, you guys are in the process on the north and south towers. I think there was a sale-leaseback option here on the east building. I am just curious about where that is now.

I would just say it is moving forward. I mean, we have interested parties, more than one. I think that the financing of different things, for instance, the sale-leaseback environment has gotten better as well. So, you know, we are hopeful we can actually dig into more detail on the next call.

Great. Okay. I will pass it along. Thanks very much. Appreciate it.

The next question comes from the line of Michael Genovese with Rosenblatt Securities. Your line is open.

Alright. Great. Thanks so much. It is nice to see the better results. I agree with that. And I want to dig in on the sustainability of the better trend. So this is kind of a broad question, but can you get—because I want to ask about, you know, both North America and EMEA. And the big opportunities that you are saying, you know, in front of you both for existing business, so the kind of key drivers of the existing business, and then the new wins that you, you know, are going after. So I know that is a lot of questions in there, but I would love to hear your comments.

Yeah. And I think it is both. So we have some customers, as you are aware, that are just ramping up. So I would call those existing wins. Some of them are operationalized, not at all. Right. And then some of them are, as I mentioned before, we expect to be operationalized right around the beginning of the year. And now that operationalization happens in—sometimes we are talking about a national carrier that is just very country-specific, and, you know, Germany is an example, the UK is an example of that, albeit both of those have all carriers as well. But then we also have some multinationals that we are bringing online. So those are coming on country by country. I mentioned, I think, on the last call that, you know, Sweden is one of those larger countries where we have kind of a wholesale swap out that is going to be happening, although we are already selling to, I think, three countries with that carrier, we have another country that is yet to be online. So we have several of those that will be coming online in the first half, with some of them happening right around, let us say, January, February. And then we have new carriers that we have won that are not yet—one of them, I am just now getting into the lab with. That is a multinational carrier. I expect that the first country there to be deployed will probably be in Spain. And that will happen later on in the year. So it is really a mix. And then you have, if you, you know, to really complicate things, you have BEAD coming in, which is also a mix. We have carriers that are current plans or that they are going to be deploying and accessing BEAD funds, and those are existing customers. And we have, you know, quite a mix of those that you are aware. And then we have new customers that are just going to be popping up left and right out of—some of them are, you know, very new municipalities or whatever that may actually jump into that mix. So I think it is a broad mix of different customers.

So if we could kind of summarize those. So, I mean, the guidance is, you know, the best approach for growth for a while in the fourth quarter.

Yeah. That is generally the best growth. Yeah. That is generally—I mean, what we are seeing right now, it is still—well, it is the—let me see if I can summarize it a different way. Our existing customer base is improving. And I would say that the majority of what we are seeing right now in order activity is with our existing customer base. Right? And so now, I would consider what we do in the UK as existing customer base. Consider what we do in Germany as existing customer base. So yeah. That is really where you are seeing that improvement. And I think that is just a matter of inventory drawdown. There is, without a doubt, a big push on fiber deployment. For most of the customers I talk to, their fiber acceptance rate when they are the first one in the community is very strong, and we are seeing that in our subscriber business. So I would say, I think your question is new versus old, and I think really, if we are talking about in the near term, it is going to be heavily driven by existing customers.

Okay. That is super helpful. Two more for me. You know, is there—you, I think you said you had 13 new optical customers in the quarter. Are you seeing any impact from the announced acquisition in the space? The company that is getting acquired did not seem to do any better at their service provider business. So, you know, is shared gain from them happening now, or is that more in the future?

I do not think it is moving the needle now. I think I know that there are RFPs that have been generated that we are in a more favorable light because of, you know, the potential disruption and, you know, what happens when you try to merge product lines. But I do not think it is—it is not near—it did not materially move that customer base. You know, the add-on customers that we have.

And then as a final one for me, you know, is—I guess in this scenario, if BEAD were to just not happen, I mean, first of all, do you think that that is a possibility now given, you know, the election this week? And then secondly, how much would that impact you? You know, how important is BEAD? You know, would there be other drivers in the U.S. market that could, you know, replace some of that if BEAD were to go away? What do you think about that?

Yeah. There are multiple drivers, not just in the U.S., but around the world. And, you know, the fundamental driver is people want fiber. And if so, if there is an end-user demand, it is typically satisfied, you know, to the extent that it is not a very rural area. And, you know, you have got carriers today—some of them have been public about it—that are setting up their capital structure to deploy fiber, and you even got private equity coming in to help bolster that capital structure. So I think it is going to be built. Now you can argue about the elongation of the timeline depending on how rural you are. But this phenomenon that we are getting into right now is not a BEAD-driven phenomenon. I think BEAD just adds fuel to that fire.

Okay. Great. Thanks so much for the questions.

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

Hello?

Okay. Yes, sir. About that.

Yep. Can you hear me?

Yep. Okay. Great. I want to focus on the uptick in guidance for Q4 as well. But maybe along a couple of different lines. It sounds like given the commentary on bookings and your previous comments on optical, you might expect that to grow in Q4, but anything to call out there from either segment perspective in terms of what you see the potential to drive that sequential growth?

We are also stronger internationally than in the U.S. with optical. So, I mean, without a doubt, Europe is growing. We expect some growth here in the U.S. too, and that is—we have added some, we will call cross-sold customers here in the U.S. We have started to add those, and they are starting to come online. So there will be some there. But to be honest with you, what is driving that optimism is just we have seen an increase in the booking rate. And that is pretty much across the board.

Yeah. That is where I was going to follow up there. So you would expect similar types of increases across segments, I guess, is what you are saying, maybe a little more biased toward Europe.

Yeah. But yes. Well, the answer is yes. I mean, if I had to—and you are asking me to. So with knowing as little as I know right now, I—yeah. I would expect all of the segments of the business to be up in Q4.

Great. And I want to follow up. I think you made a comment about Q3 about large carriers increasing 10%, and I would like to get a little more color on that. Is that commentary across segments, I guess?

Yeah. That is across segments. That is total business.

Oh, okay. And you mentioned the access and aggregation down in the quarter in the U.S. So I think that large carrier commentary is probably also international focus.

Yeah. It is literally—if I look at the large carrier segment, I think every geographic region, you know, that we serve was up. Just some were up more than others.

Did you get that?

I did. Thanks.

Yeah. I was trying to take notes and mute and unmute here. Sorry. Okay. Last one for me. And I think you kind of answered this to some degree. With the existing customer. But you are adding a pretty substantial number of new customers. So for looking at either a quarter or quarter of the outlook, to the extent that is existing customers, you know, are we looking at 2025 growth drivers more so than in the year?

Yeah. That absolutely. Yes. The new growth drivers are heavily weighted. Yeah. They will be in 2025. I mean, the whole key to us is getting—you know this, been following the business for a while. It is all about how long does it take you to get through the lab. I mean, that is the hardest part, and that is the hardest part to forecast. You know, having said that, we have got a few that are really, you know, at the very tail end of that, that will, you know, that should happen in the first quarter, and then they will just be, you know, coming on after that. Did that answer your question? Not sure if I did.

It does. Yep. Thanks very much.

Your next question comes from Bill Dezellem from Tieton Capital. Your line is open.

Great. Thank you. Tom, you have essentially touched on this with your answer to several different questions, but I want to very specifically ask you to discuss the meaningful deployments that are ahead of you. And I think that is a phrase that you used in your opening remarks. Would you dial into that as much as you can, please?

Yeah. So, you know, as you are probably aware, I believe we have to be a little bit customer-sensitive here. But we have talked about a multinational that has multiple countries that we are already deployed in three of those countries. Sweden will be the last one that will be coming on hopefully towards, you know, in the first quarter of next year. We have another very recent win—I do not think it has been publicly announced—that will be coming on. It is hard to give a time frame on that because it is a very large carrier. Our first deployment, our first country for deployment is Spain. And then they have properties throughout the world, including South America. And so that is one that will be, you know, now we have to compete in each of those areas, but that will be one that I think in aggregate, it will be a very good customer. We also have another carrier that I spoke to before that we expected to be through the lab at the end of this year. That is a tier-one carrier, multinational tier-one carrier that I think is progressing really well. In fact, we may already be through the lab, and now we are into an FOA. Those are the biggest ones. We have some carriers both in the UK and in the U.S. that are kind of at a different tier, but they are still material carriers. We have one that is here in the U.S. that has started rolling out with the SDX. That has very good growth plans, kind of recapitalized and are moving forward. Obviously, we have two of those here in the U.S. that are doing that. And the driver for one of them is it is basically going out and just being first in market. And they are, without getting too much into names, I mean, they are very well known for the activity that they have been doing. And then we have another one that has been in market for a long time, a very large tier-two carrier that is looking to go and upgrade their network to ten gig. And all of those are opportunities that will come to fruition in 2025. So it is a broad mix. And then you have BEAD that just, you know, just a—it is kind of hard to—the number of customers. We have a very large MSO that, you know, hopefully will be participating in a meaningful way in BEAD, and then we have a bunch of other carriers as well as tier ones, right, in the U.S. It is hard to give you a complete list. But in general, I would say, you know, 2025 is looking good.

So, Tom, can you have followed you all for a long time. And the number of deployments that you are talking about seems significantly greater than what we would normally think of in the past. Is that a fair perspective? And so, essentially, we are now transitioning from this difficult drought, if you will, due to the inventory reduction that is taking place across the industry to almost the opposite where the monsoons are coming with many, many deployments. Are we thinking about that right?

I hesitate with the term monsoon because I am just such a—I tend not to like to trade. But in general, I agree with your sentiment. Yeah. I mean, we have never had this many opportunities where we have—this is not opportunities that were in RFP. This is opportunities that we have won. We have never had that many come online. I mean, if you look at all the opportunities that we have talked about over the last year, year and a half or so, right, one of them is really in full deployment. One of them has just started in full deployment, and all the rest are at the, you know, at different stages, including some that were at the tail end of getting into. So I would say, absolutely, yes. In the U.S., I think we have been through somewhat of a slow period. And you have gone through kind of a recapitalization period with some of these carriers, and now they are out. And their whole mission in life is to deploy fiber. And, you know, as you—if you follow the industry for any period of time, we have never seen such a wholesale move towards a new, you know, access technology ever. Right? It has just never been there. And you have government stimulus that may or may not come. I think it is going to be really, really hard to unwind. But I would not say it could not be unwound because things that you think cannot get done get done sometimes. But it does not all change the, you know, underlying driver, which is people want fiber connectivity, and they will pay for it. So I think the premise of your statement is correct. I hope it is a monsoon. I would love to go out and sit in the rain.

Sounds terrific. Thank you for the complete answer. Really appreciate it.

Your next question comes from the line of Ryan Koontz with Needham and Company. Your line is open.

Hi. Thanks. Most of my questions have been answered, but maybe Tom, one last swing at the U.S. broadband business, and let us call it your run-rate business. Not new customers, not BEAD-related. But just think about 2025. With your existing customer base, what is your view on that? Are there some setbacks there? Are there, you know, still some of these tier twos that are going through a recap or going through a PE acquisition, that are still sounding like soft for next year, or do you think your run-rate business from 2024 to 2025 looks pretty stable and can see some growth?

Alright. So taking BEAD out is kind of the being take out because it is hard to know how much of the environment is being impacted today by BEAD anticipation. It is so—it is kind of an unknown probably weight that is on the market. That if BEAD does not happen, then that weight goes away. Right? So I do think you have people that are thinking, hey, let me figure out what BEAD opportunities I am going after and how aggressively I have to bid before I kind of set in stone my entire capital plan. So that weight is on there today. So if you take BEAD out and say that BEAD is gone and that weight is gone, I guess maybe the easiest way to answer it is I do not know of any customer today that is a material customer to us that I would expect to be softer.

Yeah.

I do not see softer.

Yeah. There may be some right under the goes away, but it certainly could be delayed, right, with changing and it could move out—it could move completely out of 2025 in a heartbeat.

It could. It could. But I will, you know, I think—I do believe, and I could be wrong here, but I do believe the BEAD weight on capital spending is already in place. So softer would be difficult. And you can only be softer for so long before you have a problem. You can—at some point in time, somebody is going to build that.

Right.

And this is a really rural area. Right? I think there is just a demand driver that is somewhat of a kind of constant pressure on getting something built.

Yeah. And of that run-rate business that you have in the U.S. this year, how is it kind of roughly split between tier one, tier two, tier three? For you, can you remind us?

This year has been definitely more tier two, tier three. Less tier one.

Yeah.

Yeah. I think you understand the reason.

Yep. And then on the optical side, can you remind us where you are seeing the most traction for the products that you acquired through Adva, like, where is your wheelhouse? If you look at that big optical business, what applications are you seeing the most traction with? Is it more like Metro?

It is Metro. It is Metro Edge. There is some growth on the enterprise side for Secure Optical, but it is Metro Edge, large enterprise. And in Metro Edge, I would lump backhaul of aggregation networks. So that is our sweet spot. We are strong in pretty much all of Europe, including, you know, large carriers. And then it is being introduced into the tier three, and we are seeing, you know, positive movement in the tier three space here as people start to figure out how they are going to backhaul their number.

Great. One last question here. Can you update us on your thinking around the minority shares in terms of where you are, where that is now on the balance sheet, and what your thinking is forward? Are you seeing redemptions and, you know, another—what can you comment that you can share with investors about what your plan is there?

Yeah. I mean, so, you know, there is a bunch of shareholders. There are some fairly large ones that we stay in contact with. I do not think the mindset on those investors has changed. The typical redemptions—we do see redemptions from time to time. We did see redemption, but it was a very unique case this last quarter. Really no change. I mean, right now, our mission with our capital plan, to be honest, is to pay down our debt. When we pay down the debt, we have the ability then to figure out, you know, what we want to do over time. We plan on taking those shares and taking them off the market, but that is—I mean, our first thing right now is just to get rid of our debt.

Got it. No problem. Thanks. Thanks, guys.

Do you have another question from the line of George Notter of Jefferies? Please ask your question.

Oh, hi. Thanks. It is just a quick one. I noticed that your DSO calculation was down, I think, five days. Is there an improvement in linearity here, or is there an improvement in collections, or which of that? Thanks.

It is just essentially, it is customer mix and then, you know, and then, of course, we put a lot of effort into collections also, but it is just, you know, the result of how customers fall in, how our shipments fall. You know, sometimes, you know, in our industry, it is usually quarters are pretty much back-end loaded, and, you know, sometimes it moves the needle in one or the other direction.

I think linearity probably got a little bit better, George, but I do not think it materially changed. I think it is still back-end.

Fair enough. Thanks a lot.

Okay. Alright. It looks like we are at the end of the questions. Thank you very much for joining us on the call this morning, and we look forward to talking to you.