Good day and welcome to the Lantronix Inc. 2020 Q4 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Amber Tinz.

Please go ahead..

Good afternoon everyone and thank you for joining the Lantronix's Fourth Quarter Fiscal 2020 Conference Call. Joining us on the call today are Paul Pickle, Lantronix's President and Chief Executive Officer; and Jeremy Whitaker, Lantronix's Chief Financial Officer. A live and archived webcast of today's call will be available on the company's website.

In addition, a phone replay will be available starting at 8:00 p.m. Eastern, 5:00 p.m. Pacific today through September 17 by dialing 877-344-7529 in the U.S. or for international callers, 412 317-0088 and entering passcode 10146169.

During this call, management may make forward-looking statements, which involve risks and uncertainties that could cause our results to differ materially from management's current expectations.

We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website and in the company's SEC filings such as its 10-K and 10-Q.

Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Furthermore, during the call, the company will discuss some non-GAAP financial measures.

Today's earnings release which is posted in the Investor Relations section of our website describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. With that, I will now turn the call over to Jeremy Whitaker, Lantronix's Chief Financial Officer..

Thank you, Amber. And welcome to everyone joining us for this afternoon's call. I'm going to provide the financial results as well as some business highlights for our fourth quarter of fiscal 2020 before I hand it over to Paul for his commentary.

Please refer to today's news release and the financial information in the Investor Relations section of our website for additional details that will supplement my commentary.

For the fourth quarter of fiscal 2020, we reported a record high of $17.4 million in net revenue, an increase of 71% when compared to $10.2 million for the fourth quarter of fiscal 2019. Sequentially, revenue was up 5% compared to the $16.5 million reported in the third quarter of fiscal 2020.

The year-on-year growth was primarily driven by contribution from our acquisitions despite continuing disruptions in supply chain and customer demand related to the COVID-19 pandemic.

Gross profit, as a percentage of net revenue was 37.7% for the fourth quarter of fiscal 2020, as compared with 56.6% for the fourth quarter of fiscal 2019 and 44.7% for the third quarter of fiscal 2020. While product mix always affects gross margin, we had two issues in the fourth quarter, which lowered gross margins below recent leasing levels.

In the fourth quarter, we took a charge for excess and obsolete inventories for certain end-of-life, classic product inventories. This plus increased logistics expense as a result of the COVID-19 pandemic accounted for the majority of the quarterly decline.

While we will continue to see elevated logistics expenses as a result of the ongoing pandemic, we expect them to decline sequentially. Given these two factors, we expect gross margins to improve substantially in the upcoming September quarter.

Selling, general and administrative expenses for the fourth quarter of fiscal 2020 were $4.7 million compared with $3.6 million for the fourth quarter of fiscal 2019 and $5.6 million for the third quarter of fiscal 2020.

The year-on-year increase in SG&A was primarily due to additional headcount costs, related to the recent acquisitions and an increase in share-based compensation.

Research and development expenses for the fourth quarter of fiscal 2020 were $2 million, compared with $2.2 million for the fourth quarter of fiscal 2019 and $2.7 million in the third quarter of fiscal 2020.

Non-GAAP operating expenses as a percentage of net revenue decreased sequentially from 42% in the third quarter of fiscal 2020 to 32% in the fourth quarter of fiscal 2020.

And we're down from 50% of net revenue in the year ago fourth quarter, as we continue to capture synergies and take advantage of the operating leverage we created from our recent acquisitions. In the upcoming quarter, we expect non-GAAP operating expenses to increase sequentially due to the timing of R&D products and annual financial statement audit.

GAAP net loss was $1.7 million or $0.06 per share during the fourth quarter of fiscal 2020, compared to a GAAP net loss of $1.5 million or $0.06 per share during the fourth quarter of fiscal 2019. Non-GAAP net income was $0.04 per share or $1.2 million for the fourth quarter of fiscal 2020.

This compares to non-GAAP net income of $722,000 or $0.03 per share for the fourth quarter of fiscal 2019 and non-GAAP net income of $611,000 or $0.02 per share for third quarter of fiscal 2020. Now turning to the full year results. Net revenue for fiscal 2020 was $59.9 million, an increase of 28% from $46.9 million in fiscal 2019.

Gross profit as a percentage of net revenue for fiscal 2020 was 44.9%, compared with 56% for fiscal 2019. The decline in gross margin was primarily due to the two acquisitions we completed during fiscal 2020 and the resulting change in product mix.

It is worth noting that during the fourth quarter, we exited a single-digit low-margin product line assumed in the Maestro acquisition. It represented about $2.5 million in revenue in fiscal 2020.

And while the exit of this product line represents a small revenue headwind going forward, we expect to see an improvement in gross margins as a result in fiscal 2021. Operating expenses for fiscal 2020 were $37.4 million, compared with $26.8 million for fiscal 2019.

The increase in operating expenses were primarily due to $8.2 million of costs related to our recent acquisitions of Intrinsyc and Maestro and our efforts to integrate and take advantage of synergies of the combined companies.

Non-GAAP operating expenses for fiscal 2020 were 42% of revenue, compared to 49% of revenue in fiscal 2019, as we began to see the benefits of our integration efforts and leverage in operating model.

For fiscal 2020, we reported a GAAP net loss of $10.7 million or $0.42 per share compared to a GAAP net loss of $408,000 or $0.02 per share for fiscal 2019. Included in the 2020 GAAP net loss were approximately $8.2 million of acquisition and severance-related costs.

Non-GAAP net income was $2.5 million or $0.09 per share for fiscal 2020 as compared to $3.7 million or $0.16 per share in fiscal 2019. Now turning to the balance sheet. Cash and cash equivalents were $7.7 million as of June 30 2020, compared to $7 million as of March 31, 2020.

Cash grew by approximately $700,000 from the prior quarter, as we generated operating cash flow of approximately $900,000 during the fourth quarter of fiscal 2020. Working capital was $18.7 million as of June 30, 2020, as compared with $26.7 million as of June 30, 2019.

The decline in working capital is primarily related to the use of cash for the two acquisitions that we made during fiscal 2020. Net inventories were $13.8 million as of June 30, 2020, compared with $10.5 million as of June 30, 2019. Now I'll provide some guidance on the upcoming quarter and fiscal year.

In light of the ongoing uncertainty created by the COVID-19 pandemic, we will not be providing specific quarterly guidance. And we'll transition to providing annual operating growth targets for revenue and non-GAAP EPS. That said, we expect revenue for our first quarter of fiscal 2021 to be flat to slightly up and non-GAAP earnings to increase.

For fiscal 2021, we are targeting revenue growth of 20% to 25% and non-GAAP EPS growth of 120% to 160%. I'll now turn the call over to Paul..

Thank you, Jeremy. While we still operate in a world hampered by the COVID-19 pandemic, I'm pleased to report our results to shareholders today.

Results which included a record revenue quarter with record year-over-year revenue growth, a significant increase in operating margin cash flows resulted efficiencies related to the realization of synergies in our acquisitions, and guidance for 20-plus percent revenue growth in fiscal 2021, while earnings are expected to more than double.

Looking back at our first full year here at Lantronix, we have accomplished much of what we set out to do. In terms of inorganic growth, we executed on two acquisitions in fiscal 2020. Adding highly strategic cellular mobility, asset tracking, and intelligent edge computing solutions to our product portfolio.

With these acquisitions on board and despite a challenging year for our classic products, Lantronix was able to grow 28% year-over-year in fiscal 2020.

We continue to pursue additive and accretive acquisitions to increase our SAM and bolster our capability within the IoT stack, while remaining focused on the integration of already completed transactions. Realizing synergies and delivering accretion through improved operating efficiency for our shareholders.

Since fiscal Q4 2019 our non-GAAP operating expenses have fallen from 50% to 32% of revenues as of this most recent quarter and we did this with revenues growing 71% year-over-year over the same timeframe. All-in, our IoT product lines contributed $14.6 million in Q4, up 5% sequentially and 75% year-over-year.

Work-from-home initiatives at many of our customers have strengthened backlog and we believe we are still in early innings of a massive shift toward a remote management model at many of our customers.

We are looking for a strong year from our intelligent edge computing solution products, driven by a number of design wins from top-tier videoconferencing customers.

Design work has already begun on multiple projects and while COVID has led to stretched lead-times for the processing components we use, we expect to see an increasing ramp of revenues as the fiscal year progresses.

We also saw good billings and bookings activity from our out-of-band and remote management products as well as our Wi-Fi solutions for medical applications and our cellular connectivity solutions offset in part by ongoing weakness in our telematics solutions which are tied more heavily to a weaker European and Asian business environment.

Our remote environment management previously referred to as ITM product revenues totaled $2.7 million, up 10% sequentially and up 62% from a year ago. Software continues to validate our efforts and bolster our long-term prospects. Interest in our newly integrated single pane of glass SaaS solution continues to grow.

Customers are validating the solution. While the annually recurring revenue software revenue and licensing revenue is still expected to be relatively small at approximately $750,000 annually we see a steep ramp in these revenues over the next three years. As I hope you can discern from my comments demand for many of our solutions is growing.

While we still face some disruptions in our supply chain due to the pandemic, the situation is improving and we see the effects dissipating over the next two quarters at which time we expect our business could grow in line with demand untethered by our supply chain.

In aggregate, demand for our products has strengthened and we are increasingly optimistic about our prospects in fiscal 2021. With that, that completes our prepared remarks for today. So, I will now turn it over to the operator, Brent, to conduct our Q&A session..

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Rich Valera with Needham & Co. Please go ahead..

Thank you. Paul I was wondering if you could drill down into some of the areas you're seeing strength in particular videoconferencing.

Can you give us a sense of how big that's been recently for you? I know you've been mentioning it more but it sounds like you've got a number of design wins there just how big kind of that could be? And then on the -- just previously referred to as the IT management company, the out-of-band products it sounds like maybe there's sort of a sustainable tailwind there due to COVID.

You put up a real nice quarter and it sounds like the bookings and pipeline are quite good there. So, I was wondering if you could talk about maybe the sustainability of the strength you're seeing there as we move beyond this next quarter? And then finally, any other areas that are really notable from a strength standpoint? Thank you..

Okay. Sure. I suppose disappointingly this is a plus and a negative for us. Videoconference really, it's been a lot of activity. It's been design wins, but we've really been kind of betting on the come in terms of revenue. The orders are in, but we haven't really been able to realize that revenue because we're just waiting on products.

So the actual contribution has been fairly small so far both from a services and a hardware standpoint. And it's pretty well back-end loaded in the year, but it's something that we definitely have some visibility for.

So one of our customers that kind of launched their product in January and ramped and videoconferencing They had -- they were expecting about -- on the order of 5,000 units to be shipped out first half of the year that doubled then it tripled.

And of course, once we get into that territory, we just weren't able to ship it as we're just waiting on some 25 to 28-week lead time components. And those have kind of stretched out through the March and June quarter. So I guess the positive is we haven't really seen it yet. We see it in the demand. We see it in the bookings.

We see it in the backlog and it should be realized in the second half of the year. So the real contribution is to come in the second half. Some of those -- we've got some additional design wins from a contract standpoint.

So we've gotten those contracts in-house, signed and are starting the services work on those videoconferencing applications, but we really haven't build for those quite yet. So those are kind of milestone based and then the hardware comes after the fact.

So even though some of the new wins since January time frame, even those have yet to really show up in a billings -- from a billing standpoint. ITM or remote environment management, definitely we saw a nice increase this quarter. It has always been a bit of a lumpy business for us, but we're definitely we've seen the activity ramp up.

I will say that the salesforce is forecasting to have a good year. I think that's in part largely because of this push to remote management. So that is something that I do expect to continue. It was not something that we had in the original plan to see significant growth kind of really let's call it low single digits.

But we're a bit more optimistic than that at this juncture. And then another area that I'd highlight, Wi-Fi was really strong for us. That was primarily driven by medical and industrial applications. In medical -- medical also bolstered some of the serial to Ethernet products that we have. So overall that was pretty strong.

Cellular did come back, but telematics does remain a little bit soft. So that's some color on the various areas that we're seeing..

No, that's great. I appreciate that, Paul. And then Jeremy on the write-down you took to inventory that hit COGS.

Can you give us a rough sense of the magnitude of that? And I'm presuming that won't reoccur in the first quarter, is that a correct assumption?.

Yes. They're not expecting that at this point. A number of years ago a decision that was made to purchase some materials for some of -- a couple of end-of-life products that we had. And the demand didn't materialize at the level we expected it to a few years ago when those purchase decisions were made.

And so based upon that, we needed to write-down some of that inventory. Between the write-downs and the increased logistic-related expenses that's close to 400 or 500 basis points between the two of those. So pretty significant impact on this quarter's gross margin, which we wouldn't necessarily expect to see on a go-forward basis..

Got it.

You expect to recover most of that in the first quarter, is that fair?.

Correct..

Got it. Perfect..

Yes. The other is somewhat -- the other thing we're going to see a benefit from going forward is we exited a really low-margin business that we acquired in the Maestro acquisition. That's a low single-digit margin business doing about $2.5 million a year. So that also on a go-forward basis should help us on the gross margin front. .

Yes. We've previously announced that we're going to exit that business. And so this past quarter, we finally fulfilled all our obligations. So there is no business -- none of that business in the numbers going forward. .

Got it.

Can you say how much that business contributed in the fourth quarter? Was it below that on a run rate basis? Was it below the $2.5 million annualized run rate?.

It was just in line with that slightly above it, slightly, yes..

Okay. Got it. Okay. That's helpful. And then just on the OpEx. So, obviously very nice OpEx decline in the just reported quarter. And it sounds like you're expecting them to move up a bit in 1Q.

Can you give us Jeremy any sort of sizing on the expected increase and how we should think about OpEx trending in the balance of the year?.

Yes. Usually what -- from a spending standpoint, the type of spending that is usually varies from quarter-to-quarter relates to some of our different R&D projects and some of the hard costs we have related to those such as product certification costs and other outside costs related to the development of the products.

And then we also, I mentioned, have our annual audit. So, between those two items that could be anywhere between $300,000 to $500,000 fluctuation in spending in a given quarter..

Got it. great. Okay. Those all my questions. Thanks very much gentlemen..

Thank you..

Our next question will come from Jaeson Schmidt with Lake Street. Please go ahead, sir..

Yes. Thanks for taking my questions.

Just curious if you could comment or provide some additional color how order patterns have been since quarter end? And if you've seen any meaningful changes in the lead times you're seeing from customers?.

Yes. I mean, from a supply chain standpoint, we definitely -- we talk about long lead time components. I think most people would attribute those to COVID and current macro environment. I think from our standpoint, we do have some processors that have been in production that we're waiting on that do have some long lead times associated with those.

But there are some new processes coming out that also have some lead time detection is just really kind of the nature of being a new product introduction. So, some of the new programs that we have new revenue that's coming on board is related to the 865 processor release from Qualcomm.

And naturally there's a little bit of delay early allocation that takes place. So, overall ordering patterns from our customers, we've always been a high turns business. We do book and ship a good portion better than 80% of the quarter in the quarter.

And so, if I look at March and June and kind of look at those two quarters we did have significant seven-digit delinquency numbers to demand. So, we did have a lot of products in the quarter that we weren't able to ship.

I expect to exit September improving on that just a little bit, but not quite there and probably won't truly clean it up probably until the end of December. We also are kind of juggling between build locations.

We're utilizing at least three to four actually, five right now just to make sure that we can get enough products and stage it, and then freight allocation is also a continuing issue. So it's – customers, they seem to be -- in some cases, they're giving us forecast, but they're placing orders well inside our cycle times.

And so that's producing some of the delinquencies, but at the same time they know they need products. So we're getting the forecast. They're just managing their business appropriately as well.

So it's a little bit disjointed at the moment, but we have the benefit of kind of seeing some of the longer-term projections that are coming out of our customers..

Okay. That's helpful. And now that some more time has passed, I know it's a little bit challenging with COVID.

But could you just comment on if the two acquisitions have kind of played out as expected or if there have been any significant surprises, positive or negative now that you've had more time with them?.

Yes. So the first acquisition that we did really the first year was right on the money of what we expected. There really wasn't any surprises there.

I think if I discount for the March quarter, so there was some Asia-based business that just went to 0, I should say near 0 at the end of it because just got turned off in the March quarter with COVID with China largely shutting down. So if I account for that it still came in just about where we had expected for the first year.

Second year looks to be a little bit better than we had originally projected in our financials. Second acquisition it's really quite early innings still. This is our first full quarter with them. So we just closed that in January.

And I'll say largely as we look to the first year I'd say the first calendar year that we looked at a little bit disappointing given March and June.

If I normalize a little bit for what was done on their watch in December, I think things kind of coming in right around where we expect our first fiscal year though they're expected to exceed expectations. So, a little give and take but no real surprises no huge impact.

And quite honestly the team is making a more significant contribution than we accounted for initially. So really pretty excited about that one as well..

Okay. And then the last one for me and I'll jump back into queue. I know you mentioned software is still going to be a small contributor.

But could you just talk about customer feedback, or how would the pipeline as far as the customer engagement has tracked over the past few months?.

It's been really quite solid. I think we've learned a lot. We had a thesis when we started off Jon came in -- Jon Shipman came in. We had an operating thesis that we needed to move well beyond hardware sales. And we knew software would be an intimate part of our strategy.

The way we were doing software development was a bit disjointed that largely was improved. Fathi Hakam was really kind of taking the range there ahead of engineering. We've consolidated and merged those developments into a single software platform back-end. We have regular code drops at this juncture.

We have a roadmap with software features that are in line with what our customers are asking for over the next six months. And so it's really been in conjunction with our customers' feedback.

That's the part that has me kind of excited that when they kind of talk hardware and software they're really kind of talking solutions and they must have that software being intimate part of that hardware strategy. And so right now the feedback has been pretty solid. So the engagement is good. The pipeline is filling up.

We definitely have signed people up for the promise of features that are to come and they're starting that ramp now. We went through with Medtronic adding some of their devices that they have already deployed and we're putting that into their single pane of glass.

And then as the product features roll out those will be things that we can sell on top of the subscriptions little micro services that we'll offer. So overall like where we're headed I still want to say though that it's early innings. At this juncture it's $750000 approximately annual contribution.

Over the next three years -- three to five years we'd like to see recurring revenue be at least 10% of our revenue. So we're definitely focused on driving that..

Okay, appreciate the color. Thanks a lot guys..

Thank you..

Our next question will come from Scott Searle with ROTH Capital. Please go ahead..

Hey good afternoon. Thanks for taking my questions. Hey real quick Paul just to clarify some earlier remarks. In terms of some of the supply chain issues, could you quantify how that impacted the June quarter sales and the immediate September quarter outlook sounds like -- it sounds like it starts to get alleviated post that.

But is there a dollar number you could put around that?.

I could. I'd hesitate to break that out, but I'll give you a rough order percentage wise. I think if we had all the product that we needed to shift to a customer's forecast we'd probably do a little bit -- for September, we'd probably be on the order of 5% to 10% higher than where I think we're going to come in at..

Got you. So if I take that figure of 5% to 10% higher there's another $600,000-or-so of the terminated product line at Maestro as well that produces a little bit of sequential headwind.

So it would look even better?.

At least that..

Okay. Hey, looking at the pipeline, could you provide a little bit of color in terms of the size of deals that you're starting to see now? Given the two acquisitions in the past 12 months, the product portfolio and the module portfolio has expanded, you've got cellular, you've got Wi-Fi, you've got Ethernet.

You bring now the edge processing component with Intrinsyc.

So, are the dollar amounts that you're talking about there getting larger with each customer that you're starting to engage with? And, I guess, are things like out-of-band getting pulled in as well? And how is that, the overall channel kind of shaping up in terms of how you're attacking those opportunities?.

That's a really good question. So the engagements are much, much larger. For certain product lines, they kind of lend itself to that. So when we pull in design services contract, it might be $750,000, for instance. There might be another one out there for $1.2 million.

But then on the back of that is always a hardware sale that runs several million dollars. And so, if I contrast that to where we were a year ago without the acquired businesses, Lantronix largely had, I think, our largest customer was on the order of $250,000 thereabouts, but most of them falling below that.

So we don't have a risk of significant customer concentration, but we are talking to much, much larger players. We're going to end up having a $3 million to $5 million a year type customer. And then, we need to look to see if -- make sure that we grab the next generation and the generation after that. So our engagement is much broader.

We're able to talk about a lot more pieces of the solution, which definitely makes the opportunity a bit larger..

Got you. Great. And maybe if I could just quickly on CBRS, the auctions concluded a couple of weeks ago, quite a bit -- an attractive mid-band spectrum, which is also being talked a lot about both, for the shared spectrum capabilities for private networks, but also some enterprises were out there bidding as well.

So I'm kind of wondering if CBRS is playing in at all into some of the dialogue that you're having and opportunities in and around private networks, as you're starting to engage with customers..

So, that's something that -- that's a conversation that we've had and definitely something that we've looked at in the industrial market. I think, industrial market in particular, if you look at automated warehouses they're rather large. They're somewhat crowded. Assembly lines and assembly plants are unbelievably crowded in the 2.4 gig spectrum.

I think, being able to implement something in the 3.5 gig range would be phenomenal. Most of them are trying to implement all new deployments in the 5-gig space. So I think CBRS has the promise of giving them some optionality.

We're asking the question as a lot of these -- when we get a seat at the table, in terms of what it is that they're trying to implement. For us, we don't really care what network they implement, but I haven't seen a lot of guys move towards more of a private LTE type "LTE implementation on CBRS." To me, it kind of makes sense. There're some benefits.

But in those working environments, there're some specifics that they need in terms of roaming specs, handoff and they don't like to deal with the latency. So at the moment it seems like Wi-Fi is still a great solution for them or some proprietary network protocols.

But it's something that we're definitely looking at and keeping in mind as we go forward. To me, it seems -- I like it. Personally, I like 3.5 gig, because it means that you get to use a lot of readily available inexpensive hardware to implement it, private network solution. But, I think, we just have to kind of monitor it a little bit more.

And I'm not so sure it's that big of a concern..

Okay. Thanks. And Paul, lastly, if I could, just on the M&A front, I know without getting specific, but you had a pretty active pipeline I think in terms of opportunities that are out there.

I'm wondering, how the current environment with COVID is impacting those discussions, both in terms of a sense of urgency with potential targets, as well as valuation parameters that are starting to be thrown about? Thanks..

Yes. The conversations are still happening. I think, it's easy to have those conversations. I think the operating thesis that we're better together still works really, really well. I think, what's tougher for us in terms of picking a target, COVID made apparent a lot of -- some businesses are definitely impacted, profoundly impacted.

And you have to sit there and guess what the recovery actually looks like for them. So it could be a fantastic deal but they end up being negative contribution in the short-term.

And so we're just -- if this is making any sense we're trying to be careful to make sure that we can continue picking up good businesses that have great fundamentals that will contribute in the short-term and then have outsized performance in the long-term. So I have the benefit of being patient at the moment.

Right now we've got several quarters of growth I think in front of us. And so we have the benefit of being patient, showing the financials and we need to make sure that we find the right target that's going to be at the right price and going to contribute.

So we're being a little selective, but the pipeline is still very healthy and the conversations are still happening. And so we just need to make sure that we find the right deal..

Great. Thanks so much..

Our next question will come from Harsh Kumar with Piper Sandler. Please go ahead..

Yeah. Hey, Paul, good to be talking again. I had a quick question, a basic question actually. If you could summarize for us what total capabilities do you have at this point in time strategically speaking? And then what capabilities do you want to have in the next three to five years? And then I had a follow-up..

Okay. Harsh, I got a smile when I heard your voice. It's good to hear from you again..

It's been a while, yeah..

One, I think, we definitely have enough capability in-house to be able to address just about anything our customers could throw at us. There might be some specialties – specialty services like algorithms, AI analytics that we would end-up plugging tools into our own solution. We wouldn't necessarily develop those in-house.

So I don't know that, we need to strategically go and acquire those, because a lot of those are definitely available. But if there's a piece that we're missing, where our customers loses a little bit of that traction, or beholding to us, because we don't – they need to farm something out we want to make sure that we bring that in-house.

We want to be viewed as our customer’s extended R&D arm.

So does that give you a little bit of color – too much color?.

Yes. No. No. No. This is great. And then I had a follow-up. I just kind of ask this to understand, your long-term revenue targets or – not long-term revenue targets, but your full year revenue target of 20-plus percent growth and much more significant like 4x of that, 5x of that in EPS growth.

Those are all – I have to ask is, I assume it's organic correct. That doesn't include anything – okay..

They were all organic. We definitely have some targets for inorganic, but right now we only talk about the organic target..

No, I think that's fair.

And then in terms of OpEx, what kind of synergies can you see going forward? Like where do you think you can take out some more as you have done so well so far?.

I think we're probably always going to be on the order of about 35% OpEx to revenue, as a percentage of revenue over this next year definitely driving to 10%. Do I think that we can go beyond that? I think, the answer to that is yes. I'd like to believe that, we can drive it closer to 15% op margin numbers.

And what we need to do is we need to – right now we're going through an exercise where we're going back through everything that we have done. We're looking at sustaining engineering that we allocate to certain product lines. We're looking at whether or not we continue certain programs.

And so it will be more of a refinement and prioritization in terms of where we allocate our capital and our investment for the future. Software is definitely going to remain a pretty high component of OpEx spend, R&D spend especially.

And then now that Roger's come in Roger Holiday came in we've got a pretty good handle on some of our sales investments that, we need to make. And so this next year, I think got a good allocation attached to that.

I don't think it needs to really grow, but a little bit of refinement in terms of where we invest, but maybe if we can add another 5%, if we look two years up..

Great. Always a pleasure talking. Thank you..

Likewise. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Paul Pickle, CEO for any closing remarks..

Thank you, Brent. I appreciate you guys attending today and hope you have a great evening. Thanks..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..