Paige Bombino - Sanmina Corp. Jure Sola - Sanmina Corp. Robert K. Eulau - Sanmina Corp..

Steven Fox - Cross Research LLC Herve Daniel Francois - B. Riley & Co. LLC Mitch Steves - RBC Capital Markets LLC Jim Suva - Citigroup Global Markets, Inc. (Broker).

Good afternoon. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Fiscal Year 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I would now like to turn the call over to Vice President, Investor Relations, Paige Bombino. You may begin your conference..

Thank you, Mariama. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter and Fiscal 2016 Earnings Call. A copy of today's release is available on our website in the Investor Relations section. You can follow along with our prepared remarks and the slides posted on our website. Please turn to page two, the Safe Harbor statement.

During this conference call, we may make projections or other forward-looking statements regarding the future events or future financial performance of the company. We caution you that such statements are just projections.

The company's actual results of operation may differ significantly as a result of various factors, including adverse changes to the key markets we target, credit problems experienced by our customers, competition that could cause us to lose sales, consolidation among our customers and suppliers that could adversely affect our business, and the other factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission.

You'll note in our press release and the slides issued today that we have provided you with statements of operations for the three months and 12 months ended October 1, 2016, on a GAAP basis, as well as certain non-GAAP financial information.

A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website.

In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense, and certain other infrequent or unusual items to the extent material.

Any comments we make on this call as they relate to the income statement measures will be directed at our non-GAAP financial results.

Accordingly, unless otherwise stated in this conference call, when we refer to the gross profit, gross margin, operating income, operating margin, taxes, net income, and earnings per share, we are referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer..

Hey. Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome. Thank you all for being here with us. With me on today's conference all is Bob Eulau, our CFO..

Hi, everyone..

For agenda, we have for you that, first, Bob will review our financial results for the fourth quarter and fiscal year 2016. I will follow up with additional comments about Sanmina results and future goals. Then Bob and I will open for Q&A. And now, I'd like to turn this call over to Bob.

Bob?.

Thanks, Jure. Please turn to slide three. Overall, the fourth quarter was a solid finish to the fiscal year. Revenue of $1.67 billion was almost flat with Q3, but up 1.8% from the fourth quarter last year. Our gross margin came in at 7.9%, which was up 10 basis points from both the third quarter and the fourth quarter last year.

Operating margin at 4.2% was up 50 basis points sequentially and up 40 basis points from Q4 last year. Non-GAAP EPS was $0.72, which was above the high-end of our guidance for the quarter. This was based on 77.4 million shares outstanding on a fully diluted basis.

During the quarter, we used $28 million to repurchase a total of 1.1 million common shares. Cash flow from operations was $103 million and free cash flow was $68 million. I'll discuss cash in more detail in a few minutes. Please turn to slide four.

From a GAAP perspective, we reported net income of approximately $101 million, which resulted in earnings per share of $1.30 for the fourth quarter. This was up relative to last quarter by $0.92. The GAAP results included an incremental release of our valuation allowance against deferred tax assets.

The tax benefit recorded in this quarter totaled $96.2 million or $1.24 per share versus the benefit of $287 million or $3.45 per share, which was recognized in the same quarter last year. With this adjustment, we're now expecting to use all of our U.S. federal net operating losses prior to their expiration.

For the year, revenue finished at $6.481 billion. This was up by $106 million, while GAAP net income decreased by $189 million to $188 million, primarily due to a lower tax benefit being recognized this year. Accordingly, GAAP earnings per share for the year were $2.38 versus $4.41 last year.

The restructuring costs for Q4 were $1.2 million and were $2.7 million for fiscal year 2016. We expect these costs to be low again next quarter. As of the end of the year, we have about $20 million in real estate on the market at list price, after having sold around $120 million of property in the last seven years.

My remaining comments will focus on the non-GAAP financials for the fourth quarter and fiscal year 2016. At $131.6 million, gross profit was up $2.2 million from the prior quarter. Gross margin came in at 7.9%, which was 10 basis points higher than we reported in Q3. Operating expenses were down $5.2 million for the quarter at $62.3 million.

This was mainly driven by lower professional services fees. This represents a 30-basis-point improvement in operating expenses as a percent of revenue compared to Q3. At $69.3 million, operating income increased by 12% from the prior quarter and increased 12.3% from Q4 last year.

Operating margin was 4.2%, which was up 50 basis points from last quarter. Other income and expense at $4.4 million was down $700,000 when compared with last quarter and down $1.5 million or 25% from the fourth quarter last year. The tax rate for the quarter was 14.1% of pre-tax income, which was in the range we had expected.

On a non-GAAP basis, we earned $55.7 million in net income or $0.72 per share. Earnings per share were up 14.8% from Q3 and up 25.8% from Q4 last year. Please turn to slide five where we're providing more information on the segments that we report.

The Integrated Manufacturing Solutions segment represents printed circuit board assembly and test, final system assembly and test as well as direct order fulfillment. As you can see from the graph on the left, the IMS segment revenue was essentially flat with last quarter at $1.371 billion.

Our gross margin increased by 50 basis points from Q3 to 7.7%. This was driven by solid execution and a better mix of business. The second segment for us is Components, Products and Services. Components include printed circuit board fabrication, backplane assemblies, cable assemblies, enclosures, precision machining and plastic injection molding.

Products include computing and storage products, defense and aerospace products, memory and solid state drive modules as well as optical and RF modules. Services include design and engineering as well as logistics and repair services.

In aggregate, the revenue for this segment was also basically flat with gross margin down 1.1 percentage points from Q3 to 7.7%. This gross margin decline was driven by lower profitability for Products and Services partially offset by modest improvement in the Components businesses. On slide six, we are showing you key non-GAAP P&L metrics.

Gross profit increased 1.7% from last quarter to $132 million. Gross margin at 7.9% was up 10 basis points from last quarter. We've been very consistent with our quarterly gross margin ranging from 7.7% to 8.2% for over three years. Our operating profit increased 12% from last quarter to $69.3 million. This led to operating margin of 4.2%.

Please turn to slide seven. Here we are showing these same P&L measures on an annual basis. For fiscal year 2016, our gross profit was up $17 million to $519 million. Our gross margin was 8% for the full year. Our full year gross margin has been in the range of 7.9% to 8% over the last three years.

Our operating profit was $257 million for the year, which was up $11 million or 4.5% from fiscal year 2015. Operating income is up 37% since fiscal year 2013. Our operating margin for the year was up 10 basis points for the second straight year and up 80 basis points since fiscal year 2013, definitely trending in the right direction.

We are proud of these results but we believe we can do better as we continue executing on our strategy of driving a better mix of business. Now, I'd like to turn your attention to the balance sheet on slide eight. Our cash and cash equivalents were $398 million at the end of the year. Cash was down $12 million from the previous quarter.

Accounts receivable were down $26 million reflecting strong cash collections for the quarter. And inventory was up $33 million. We'll talk more about inventory in a moment. The additional release of the valuation allowance resulted in an increase of $49 million in the deferred tax assets over the prior quarter.

From a liability standpoint, we had a $10 million increase in accounts payable during the quarter. Our short-term debt was down $55 million from last quarter in spite of using $28 million to repurchase common shares. Specifically, we repurchased 1.1 million shares at an average price of $25.76 per share.

From a long-term debt perspective, as of the end of the year, we have $434 million, which has been fairly consistent throughout the year. At the end of the quarter, our gross leverage was approximately 1.3. Overall, our balance sheet and capital structure continue to be in great shape.

Please turn to slide nine where we will review our balance sheet metrics for the fourth quarter. Cash was down $12 million from Q3, but very consistent with prior quarters. Cash flow from operations for the quarter was very good at $103 million, and net capital expenditures for the quarter were $35 million. This led to $68 million in free cash flow.

Inventory dollars were up $33 million from last quarter at $946 million, while inventory turns were at 6.6x. Compared to Q4 last year, inventory turns were up 0.4x. We made progress this year on inventory management, but we think there is still plenty of opportunity for further improvement in fiscal year 2017.

In the lower left quadrant, we are showing cash cycle days, which combines our cycle time for inventory, accounts receivable and accounts payable. Overall, cash cycle time decreased from 42.6 days last quarter to 42.2 days.

This reflects improvement in accounts receivable days sales outstanding and accounts payable days outstanding, partially offset by the increase in inventory days. On a full-year basis, our cash cycle days improved by 2.4 days from 44.6 days in Q4 last year to 42.2 days in Q4 this year.

This reflects improvement in our cash collections and inventory turns. Finally, pre-tax return on invested capital improved to 23.7% from the prior quarter. Compared to the fourth quarter last year, pre-tax ROIC improved 280 basis points. This reflects better operating margin with solid working capital management. Please turn to slide 10.

I want to take a couple of minutes to reflect on our longer term cash generation and what it has allowed us to do over the last five years. Fiscal year 2016 cash flow from operations was excellent at $390 million, and our cash generation has been strong for the last five years.

In fact, in the last five years, our cash flow from operations was outstanding as we generated over $1.4 billion. During the same five-year period, our free cash flow was around $1 billion.

This cash generation is the driving force behind our ability to reduce our long-term debt, investing capital equipment, repurchase equity and fund small strategic acquisitions. In the pie chart on the right, we are showing how we invested the cash flow from operations over the last five years.

As we forecast the next few years, we expect capital expenditures to grow as the business grows. We do not anticipate any material debt reduction, but we do anticipate increasing share repurchases and funding small strategic acquisitions. Please turn to slide 11.

With all the progress that we've made in the last few years reducing our debt, the balance sheet is in excellent condition. This coupled with a strong cash generation has given us the opportunity to repurchase common stock over the last three years.

In fact, over the last three years, we've repurchased approximately 16.8 million shares at a total cost of $337 million. In September, the board of directors authorized an incremental $150 million program. This brings the total authorization to $213 million.

We expect to continue to generate cash in the coming years, and we remain focused on creating benefit for shareholders with the cash we generate. Please turn to slide 12, where we'll give you a little history on how our book value per share has evolved. As of the end of the fiscal year, our book value per share was $22.04.

This was up $2.56 since the end of last year. Over the last four years, our book value has grown from $11.81 to $22.04 per share. This was primarily the result of strong cash generation over the last few years. Our stock continues to trade at a low multiple of book value and provides double-digit free cash flow yield. Please turn to slide 13.

I would now like to share with you our guidance for the first quarter of fiscal year 2017. Our view is that revenue will be in the range of $1.675 billion to $1.725 billion. We expect that gross margin will be in the range of 7.6% to 8%. Operating expense should be $65 million to $67 million.

This leads to an operating margin in the range of 3.7% to 4.1%. We expect that other income and expense will be in the range of $4.5 million to $5.5 million. Our tax rate should be around 15% and we expect our fully diluted share count to be around 77.5 million shares, plus or minus 0.5 million shares.

When you consider all this guidance, we believe that you will end up with earnings per share in the range of $0.65 to $0.70. Finally, for your cash flow modeling, we expect the capital expenditures will be around $35 million, while depreciation and amortization will be around $30 million. Overall, we are very pleased with fiscal year 2016.

We executed consistently in FY 2016, and our diversification positions us well for the future. We grew revenue by 2%, though we were able to grow earnings per share by 15% and generate excellent cash flow. Growth continues to be our number one objective, but it is imperative that we grow with the right kind of business.

At this point, I will turn the discussion back over to Jure for more comments on our target markets and our business strategy..

Thanks, Bob. Ladies and gentlemen, I'd like to add a few more comments about our business environment for the fourth quarter and fiscal year 2016. And most importantly, we'll talk about the first quarter and the rest of the fiscal year 2017. So let me again recap fourth quarter, just add a few more comments what Bob said or put it my way.

I believe we delivered solid financial results for the fourth quarter. Good improvements in operating margin of 4.2% and EPS of $0.72. It is the best EPS earnings in the last 15 years, so we're proud of that. Also, we continue to generate strong cash flow from operations as Bob just talked about.

Operationally, we did a solid operational execution in spite of a flat revenue. Revenue was softer than forecasted for the quarter, driven by new project delays and softer demand in the mobile networks and embedded computing and storage. So, overall, good quarter. We also had a fair amount of new projects in this quarter, which was good.

For fiscal year 2016, we delivered solid financials and consistent results. We improved margins. EPS grew 15% year-over-year. We delivered strong operating cash flow of $390 million and free cash flow of $274 million. It's part of our key strategy that we focus on that every day.

Also during the year, we diversified our customer base and won some very important new programs and new customers. This helped us deliver best financial results in years, and again, very important that we positioned Sanmina for a better future. Now, please turn to slide 15.

I'd like to give you some highlights now for the breakup of our revenue by end markets. Our top 10 customers were 51.8% of our revenue. Book-to-bill for the quarter was positive 102 to 1. We added new projects during the quarter, and as we continue to diversify revenue by end markets and our customers.

The most important is that we are improving quality of our customer base, as we are putting a lot of focus here. As you can see Industrial, Medical and Defense now is our largest segment, up 46% in the quarter. That was nicely up 4.3%, driven by strong demand in Industrial, Defense and Medical.

Only segment that was weak, there was oil and gas and that continues to be pretty weak. For the year also Industrial, Medical was very strong, that was up 9.7% for the year. Communications Networks, as you can see, is 37% of our revenue, nicely up 1.5%.

I will say overall good demand driven by networking and optical product, but we did see some push-out during the quarter in our mobile networks, basically broadband product. For a year, that was down 2.8%. Embedded Computing and Storage, 17% of our revenue for the quarter, that was down 13%. We had a weak demand in our Embedded Computing.

We also had some push-outs in our Storage, some of our key programs. Automotive actually in this segment did pretty well. For the year, this segment is down 5.2%. Now please turn to slide 16. Now, let me talk to you about the revenue outlook by market segment for the first quarter of 2017. For the first quarter, we still see modest growth.

For Industrial, Medical and Defense, today, we are forecasting flat. We see Industrial to be still strong. We expect modest growth to continue. Medical, we see some push-outs on weaker demand during the quarter. For Defense, we see slightly up driven mainly by new projects.

Good thing is in this segment we still have a very strong customer base, a lot of good opportunities for Sanmina to continue to expand and grow in this segment. For Communications Networks, we're forecasting to be up for the first quarter. We're seeing some improvements in demand driven by networking and optical products.

We also have some new customers, especially in the IP routing products for data centers. Mobile network broadband, we expect to see some improvement during the quarter. And we're also starting to see fair amount of new projects in this Communications Networks segment.

For Embedded Computing and Storage, we expect computing and storage to see a better demand in the quarter, as we are working on some good new projects with some upside potential. For automotive, we continue to see stable demand and as we are working also some new opportunities during the quarter.

So now let me give you few more comments about the business environment for fiscal year 2017. Global economy, as you know, is very hard to predict at this time. But what we see today that the business environment is stable, and it's growing slowly. Overall, our customer base is still positive about the future.

Based on our visibility and forecast, we are confident that fiscal year 2017 will be another solid year for Sanmina. Pipeline of new opportunities is good, and these new programs are starting to ramp up. But let me give you some more information about the pipeline of these new opportunities that we see.

I can tell you that the pipeline is stronger for fiscal year 2017 than what we saw earlier in 2016. Sanmina reports in two business groups, Components, Products and Services and Integrated Manufacturing Solutions. So let me talk to you about each of these group. Components, Products and Services, as you can tell fiscal year 2016 was a flat year for us.

Also margins were down about 1%. This was mainly driven by oil and gas, very weak demand during the year. Mobile networks, we had a soft demand for our mechanical products, for our circuit board products and backplane products. We also saw softer demand in defense and aerospace market for our printed circuit board business.

Also we did a lot of new qualifications for components and products during the year for industrial, medical, defense, aerospace, IP, optical, network markets. This is good except that we spent a lot of money investing in these qualifications.

We also had some delays of the new storage products, for some key projects that we expected to ship during the year got pushed out into fiscal 2017. So on a good side, 2017 overall, we expect to see nice growth improvements from these new qualified projects that I just talked about in Components, Products and Services.

We also see defense and aerospace, what we call SCI Group, good forecast, and we see a potential for upside from new projects. Also from our internal new product releases for our storage system, optical modules, flash memory modules, we see upside. We're also seeing new growth that is planned in our Services group. We see a good potential there.

And for oil and gas, we expect to see some improvements. We are well positioned as this market improves. The bottom line is that the forecast looks a lot better for fiscal year 2017 for Components, Products and Services. Now let me give you a few more comments on Integrated Manufacturing Solutions group.

We have a good pipeline of the business, and we expect to continue to improve in this group. This is all driven by existing customer base, which is very strong, and good new opportunities with this existing customer base. We also developed and we should see some upside from our new projects from our new customers.

And we've continued to work for additional opportunities that should help us drive the growth in 2017. So overall, as Bob said earlier, the key focus for us, the quality of the business that we book, it must be sustainable and profitable for many years to come. Let me give you a few more comments on Sanmina's long-term outlook.

I am personally excited and very confident about Sanmina's future. Sanmina is in a great shape – best shape we've been for a long, long time. I can tell you that we are building a great company. Sanmina has a strong balance sheet and can adjust quickly to any economic environment.

But we still see and we are optimistic that the global economy will continue to improve. We have some solid structure in place, strong management team. We offer leading technologies to our customers and capabilities. I can tell you that our strategy is working. We've delivered right technology solutions for mission-critical markets.

We're continually targeting higher market margin businesses, and we've continued to invest in talent and right technology and services for the future. We have a lot of leverage in Sanmina's business model.

We have strong momentum in our key markets, and our goal is to deliver profitable growth and maximize shareholders value for our investors in whatever we do. Now, please turn to slide 17.

So in summary for the fourth quarter, we believe we delivered solid operating margin improvements, 50 basis points up quarter-to-quarter and 40 basis points year-over-year. The EPS exceeded expectations, up 15% quarter-over-quarter and 26% year-over-year. We've continued to deliver a strong cash flow.

For fiscal year 2016, as Bob mentioned earlier, we are pleased with our performance. EPS expanded 15% year-over-year, continued to deliver the solid cash flow from operations, $390 million this year and most importantly free cash flow of $274 million. In 2016, we've diversified customer base, the best customer base we had forever.

And we want new programs and positioning Sanmina for the future. For first quarter, we see stable demand driven by new projects, and for year 2017 as I mentioned, we are optimistic that fiscal 2017 will be another solid year for Sanmina Corporation. So, ladies and gentlemen, now, I would like to thank you for all your time you spent with us today.

Operator, we're now ready to open the lines for questions and answers..

Your first question comes from the line of Steven Fox with Cross Research. Your line is open..

Thanks, good afternoon. I was wondering if....

Hi, Steven..

Hi, Steve..

Hi. I was wondering if first off you could just dig into the gross margins a little bit. Specifically, you said on the IMS side that mix helped the margins go up quarter-over-quarter. And then on the CPS side, you mentioned Products and Services hurt margins while Components helped it.

If you could just sort of be more specific on those three topic areas and what (31:52) on there?.

Yeah, Steve. This is Bob. So, on the IMS side, I mean we're obviously very pleased with the mix of business, and I think it's what we've seen at times earlier in the year. If you remember in Q2 our gross margin was also 7.7%. So it's really continuing to do well in the businesses that we've invested in for a number of years.

Our strength in optical has really been important, and then the diversification into industrial has also been helpful for us. So it's at this point, we're very, very diversified, and so it's hard to point to any one area that drove it, but we think we're executing pretty well across the board on the IMS side..

And then....

And then on....

...CPS?.

Go ahead. Yeah. On the CPS side, it's a little bit of a different story this quarter. We were disappointed in terms of Products and Services. We had generally been pretty consistent in both of those areas throughout the year. As Jure said, we had some softness, we had a few execution issues.

And so we didn't do as well in those areas, which usually are pretty stable. And then we actually did a little bit better on the Components side. So we think we're beginning to turn the corner there. We've been hurt pretty badly as we've talked about throughout the year in terms of oil and gas and in the wireless base station business.

So we think that we're hopefully through the worst of that now, and we'll start to see progress on the Components side..

Is there anything on the Products and Services that you could call out specifically that hurt those margins?.

I don't want to get too specific, but I can tell you on the Services side, we believe it's a one-time event. And we think that we'll be able to recover pretty rapidly there. On the Products side, it's really a matter of continuing to drive the adoption of our product offerings..

Okay. And then just as a follow-up, you mentioned the storage push-outs a couple of times.

Was that related to customer product or your own internal development of your storage arrays?.

Well, it was really related to our new ISOs (34:03) product line..

Yeah. If I can add to that, Steve. As I mentioned in our prepared statement, we have some delayed – few key projects for our storage product. We believe those will be pushed in 2017. But it was really more driven by our customer requirement and some change in the specifications. But we are confident that these projects will be starting to ship soon..

Great. That's very helpful. Thank you..

Thanks, Steve..

Thanks, Steve..

Your next question comes from Herve Francois with B. Riley. Your line is open..

Hi. Good afternoon, guys..

Hi, Herve..

Hi, Herve..

Just on the – going back to real quick to the Components, Products and Services, and Bob, you've been talking about this for several quarters.

Do you see any improvement in that in the December quarter, your fiscal first quarter? Or is that still going to be hampered by it? Because I know that's kind of vertically integrated for you guys, so that's still hampered by the softness that you're seeing in the wireless base stations and oil and gas?.

Yeah. Just to kind of recap again, we did better this quarter on the Components side, and we think that we'll make even more progress next quarter, that's certainly our internal plan. Products is really going to be a question of marketed option and how our products do in the marketplace.

And we obviously are optimistic that we'll see some positive movement there. And then from a Services standpoint, as I mentioned, it's really a one-time event that we think will turn around pretty rapidly there..

Got it.

And then when you look at the mix of the business for what you're expecting in your fiscal first quarter, the December quarter, are you expecting kind of like your cash flow and your cash conversion cycle to be within the same neighborhood as you just reported for your September quarter?.

Yeah. It turns out the December quarter just because we have some annual payments have to be made, we have some interest payments that have to be made. It tends to be a little more challenging from a cash standpoint, but we still expect to generate solid cash in the first quarter, and we expect to generate solid cash for the year..

Got it. Thanks very much, guys..

Thanks, Herve..

Sure. Thank you..

Your next question comes from Mitch Steves with RBC Capital Markets. Your line is open..

Hello, Mitch..

Hi, Mitch..

Hey, guys. Yeah. Just a quick question I guess I'm going to focus more on the Communications segment. So there's basically two pieces that I heard mentioned there, a broadband push-out and then you said an optical push-out.

Can you talk about when you guys expect that to kind of come back, both of them separately?.

Well, I don't think I said about optical push-outs. Well, two things. First of all, my prepared statement in regards to the markets, we had a push-out in the mobile network, mainly broadband, but our optical actually performed pretty well, and we expect it to perform pretty well in this coming quarter..

Got it. Okay.

And secondly, getting back to the gross margins, just to make sure I heard this correctly, it's 7.7% to 7.9% next quarter, is that correct? And that should kind of work its way up to 8% potentially for next year?.

Well, I think we guided 7.6% to 8% for Q1..

Got it..

Yeah..

But Mitch, if I can add to that, as we improve our Components, Products and Services business as Bob mentioned, I think our IMS business is pretty solid. We got some really good programs.

We expect that – we drive our – to improve our margin, that's the key to us as long as the economy is cooperating, which we think it will, we expect to make nice improvements in 2017..

Yeah. We clearly have a lot of operating leverage in Components, Products and Services. And unfortunately, it's been a pretty challenging year with the mix of business there, but we believe things will get better in 2017..

Perfect. Thank you..

Thanks..

Your next question comes from Jim Suva with Citi. Your line is open..

Hello, Jim..

Hi, Jim..

Thank you very much. This past year, you made an asset transfer or an acquisition, however you want to say it, (38:48) that allowed one of your customers, I believe it was Motorola Solutions to shift production and plants to Sanmina, which I assume took a long time of negotiation and long-term talking.

Jure, in your outlook for next year 2017, you mentioned a lot of strengths and positives and such.

Do you foresee any additional actions or transactions like that happening as we look ahead for 2017?.

Well, the key to our strategy, Jim, we've been talking in the last few years is the quality of the growth, something that is sustainable, quality of the customer that we can be – as long as we're executing, we have a long partnership that we can build on.

And if you really look at the deals that we did with a few key customers in the last few years, and you mentioned MSI. It's a customer that yeah, it takes time to do this transaction, especially when you have to do it right and it's a commitment long, long-term. So those are great customers.

We will continue to add customers like that, but we are – they have to be very strategic and they have to be a long-term, good customer that will fit in our strategy. But we are excited what's in front of us. We have some great wins last year, and those should help us deliver more revenue and we're hoping better margin, so we're excited.

There's a lot of work left, but we are continuing to invest in different technologies that will drive the growth and expand our relationships with some of the great customers out there. So we're really excited. I think 2016 was a good year; I think position us for a better 2017..

Okay. Then my follow-up probably for Bob, it's CFO related (41:00). This quarter, the OpEx came in lower, and I believe you've mentioned lower than expected professional services.

I assume that's like internal professional services at a cost that are unrelated to revenues at all, maybe it's consultants or something like that? Is that close? And if so are these just delayed a couple quarters, or are we looking at a new expense rate that is (41:21) Thank you..

Yeah. So, couple questions in there. First of all, from a professional services standpoint, it's outside service provider, so it's not internal resources. We use external folks to help us in a number of areas, so it's probably going to recover back to that range of $65 million to $67 million this quarter that we set for operating expense.

And I would see their professional – outside professional services being at kind of a consistent level with what we've typically seen before. It was more of a one-time event..

Okay. Thank you for the details. Much appreciated..

Sure..

Thanks, Jim.

And operator, we have time for one more question, if anybody wants to ask?.

.

Okay. Ladies and gentlemen, first of all, we want to again thank you for your time you spent with us. Hopefully, we answered most of your questions. I think it was a good quarter, most importantly it's what we do next quarter and we are excited what's in front of us. So please stay in touch and looking forward to talking to you 90 days from now..

Yeah. Thanks, everyone. Have a good evening..

Bye-bye..

This concludes today's conference call. You may now disconnect..