PDF Solutions, Inc.

Good day everyone and welcome to the PDF Solutions, Inc. conference call to discuss its financial results for the first quarter conference call ending Monday, March 31, 2025. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1-1 on your telephone. As a reminder this conference is being recorded. If you have not yet received a copy of the corresponding press release it has been posted to PDF's website at .pdf.com. Some of the statements that will be made in the course of this conference are forward-looking including statements regarding PDF's future financial results and performance, growth rates, and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled risk factors on pages 16 through 30 of PDF's annual report on form 10k for the fiscal year ended December 31, 2024 and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now I'd like to introduce John Cabarian, PDF's president and chief executive officer and Ed Nonraza, PDF's chief financial officer. Mr. Cabarian, please go ahead.

Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the first quarter, please go to the investor section of our website where each has been posted. As we entered 2025 we expected a customer environment where some would be recovering from a relatively weak 2024 while others would be continuing momentum into this year. Given our strong products which align well with the trends of 3D processing and advanced nodes, complex packaging and test flows, and increased use of AI to stream IAM operations, we anticipated growth of 21 to 23 percent for the year, albeit with growth being lumpy quarter over quarter due to e-probe sales model driving more variability in revenues. Consistent with our expectations, the first quarter was a strong start to our year with the second largest revenue quarter in our history topped only by Q4 of last year which benefited from an e-probe sale. Significant bookings in the quarter were primarily for enterprise-wide solutions. SAP's manufacturing hub Enterprise, which is designed to connect enterprise applications such as SAP, MES, and engineering analytics drove a meaningful percentage of bookings as a large customer moved from a pilot that began in 2024 to a contract for full deployment. Accenture bookings were driven primarily by Fabless and OSATs for offline analytics and test operations. The trend of more complex test flows and advanced packaging are strong drivers for this solution. Symmetric bookings were strong as equipment vendors utilize more runtime licenses as they increase shipments, particularly of our more advanced tool control and communication modules. Securilize, which closed late in the quarter, contributed less than one month of revenues. Gainshare drove the IYR revenue growth as new fabs and process nodes under contract began to deliver revenues. We expect IYR revenues to continue to improve during this year overall based on this trend. With respect to DFI, we previously talked about shipping at least four e-probes tools this year, with some of them contributing to revenue in the year. In fact, this past quarter we shipped two tools, which is a great start to exceeding our goal of four system ship. We anticipate one of those ship systems has the potential to contribute incremental revenue growth this year. Overall, demo, install, and engineering activity with customers is at a very high level, and we anticipate meeting or exceeding our goals for DFI this year. In the quarter, we also completed the acquisition of Securilize. Now with just about two months of two months operating together, things are going well. We have been meeting with equipment companies, Stabilis, Foundries, and OSATs to discuss Securilize and how we believe it fits into our overall platform. Based on these meetings and our internal discussions, we are refining plans for integration with our platform. In particular, customers see benefits of integrating Securilize with our DEX notes at the OSATs, as advanced packaging and test requires more collaboration between OSATs, Stabilis, Foundries, and equipment vendors. Customers also want to see tighter integration between Symmetrix and Securilize, so equipment vendors can more easily enable collaboration and manage AI ML systems in the field. Overall, it's a strong start to the year, both in terms of our interaction with customers and our product development. Now I'd like to make a few comments about our view on the industry and opportunities for our business going forward. Since the start of April, tasks have taken center stage. Semiconductors have been a focus of many governments around all over the world for the last few years, so the industry leaders have become accustomed to adjusting to frequent shifts in the regulatory environment. So far, we have not seen any noteworthy change in customer behavior with us as a result of tariffs. Most of our software business, including SaaS, is generally not impacted by tariffs. For the E-probe, tariffs could impact the cost of components shipped into the US. However, at this point, we believe it will have only modest impact on financial results. Given our progress in Q1, and despite the macro uncertainty, we reconfirm our revenue growth estimate for the year to be in the range of 21 to 23 percent when compared with 2024. I want to thank all the PDF customers, employees, and contractors for their efforts during the first quarter, including our new Securilize colleagues. Now we'll turn the call over to Adnan, who will review the financials and provide his perspective on our results. Adnan?

Thank you, John. Good afternoon, everyone. Good to speak with you again today, and I hope all of you and your families are well. We are pleased to review the financial results for the first quarter of 2025. As mentioned, our earnings release and a management report are posted in the investor relations section of our website. Our Form 10Q was also filed with the SEC today. Please note that all of the financial results we discussed in today's call are on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. We are pleased with multiple important milestones achieved during the quarter. We announced and closed the $130 million acquisition of Securilize and signed a large deal for Sapiens Manufacturing Hub Enterprise platform with a new customer as a result of our continued partnership with SAP. As John said, on the Accentio side, our bookings this quarter also came from many customers spread across multiple Accentio software modules. On the equipment side, Symmetrix products continue to be strong, and we benefited from less than one month of Securilize revenues as well. Our backlog ending this quarter was approximately $227 million, growing slightly compared to the prior quarter. Total revenues for the first quarter were $47.8 million, up 16% versus the same quarter of last year. Analytics revenue came in at $42.5 million, an increase of 10% -over-year, and was lower compared to the prior quarter mainly due to the e-prop sale in Q4. On a -over-year basis, our Q1 IYR revenue was up meaningfully by 86% or $2.5 million, driven by the start of a new gain share from a customer engagement we completed during the quarter. Overall, when we think about our business over the last few years, we are pleased with the progress towards establishing us as the leading independent data analytics platform, optimized for the semiconductor industry. Our customer base is spread across three key areas of fabless, fabs, and equipment companies. We serve these three customer groups with optimized solutions respectively mapped to a product portfolio, addressing existing nodes, leading edge nodes, and connectivity software. We have built our offerings on top of a robust, scalable, and secure analytics platform. Specifically designed for the semiconductor industry, and are making the platform smarter with machine learning and AI offerings such as MlHops. Our gross margin for the first quarter came in at 77% versus 72% in the prior quarter, and 72% for the same quarter of last year, driven this quarter by increased strength in gain share. Our cost of sales this quarter were also lower compared to prior quarter wherein we sold an eProbe machine. Our operating margin for the first quarter came in at 18%, versus a similar 18% for the prior quarter, and 12% for the same quarter a year ago. We are pleased that on a dollar basis, we generated $8.6 million of operating profit this quarter compared to $8.8 million in the prior quarter that had the benefit of the eProbe machine. Compared to the last quarter, we grew our R&D slightly by 1%, and our STNA by 6% this quarter, with an increase in STNA driven by increased sales and marketing from customer pre-sales activities. Net income for the quarter totaled $8.1 million, or $0.21 per share, compared to $5.7 million, or $0.15 per share in the same quarter a year ago, or up approximately 40% for each of net income and EPS on a -over-year basis. Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and short-term investments of $54 million, compared to $115 million at the end of the prior quarter, with the change primarily driven by approximately $61 million for the SecureWise acquisition, $8 million for CAPEX, primarily for eProbe machines, and offset by positive operating cash flow of $9 million for the quarter, even after the annual bonus payout, which happens during Q1. In terms of balance sheet changes to finance the SecureWise acquisition, besides the aforementioned approximately $61 million of cash from our balance sheet, we took on bank debt of approximately $70 million, via a combination of a revolving credit facility and a term loan, both structured for a five-year term. As we look to the rest of the year, we remain committed to our prior guidance of revenues for this year to grow in the range of 21% to 23% on a -over-year basis, which is ahead of our long-term growth rate target of 20% annual revenue growth. With that, let me turn the call over to the operator for Q&A. Operator?

Thank you, Mr. Raza. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If you are using a speakerphone, please lift your handset before

asking a question. Please stand by for our first question,

which comes from the line of William Jellison of D.A. Davidson & Company. Please go ahead, William.

Great. Thanks for taking my question. It was great to see the overall revenue guidance maintained for the year. I was wondering if you could give some more detail as to moving pieces potentially between IYR and analytics or even within analytics, or if expectations are across the board pretty in line with where we last published them.

Thank you, Will. Overall, it's pretty in line with where we started the year. We do expect meaningful growth in IYR just because it was off a very small base and had declining for the last couple of years. So a jump of a couple million dollars really on a percentage basis is a big deal, but in terms of the total business, it's just under 10%. Overall, analytics growth is a few things that are going on. In general, we do see increased effort from our customers on the advanced node capability. We do expect that to be growing this year from a booking standpoint, and that will be impacted also by eProbe sales. Then on the analytics, as I said in my prepared remarks, it's more and more the customers on the enterprise side. So the state-based manufacturing hub, larger deployments of Accentio, Accentio with the test and ML capability. We will be announcing our user conference at the end of this year, and some of that is going to show how this is really all one integrated platform. State-based manufacturing hub uses the Accentio database and the data schema, common ML ops capability across the entire platform. So we'll start showing how these are really all just different components of the same platform. As Adnan said in his prepared remarks, we do target the foundries and equipment vendors, but they all, more and more what each of them experience is different parts of that platform brought out to them for their applications. And that enables the collaboration that we think the industry overall needs, which is where SecureWise and the things we're doing with Dex come into play, because they, increasingly, fabulous companies need to know what equipment companies are doing, and collaboration across that entire supply chain is necessary, particularly with respect to complex marketing.

Great. Thanks, John. And then, Adnan, in your prepared remarks, you mentioned the step up in sales and marketing expense, both in dollars and in percent of revenue due to higher pre-sales activity. I'm wondering if you could give, you or John, could give any more detail about where you're putting that money to work and where you're expecting growth to come from those investors.

Yeah, I'll take a first answer at it. And of course, John can add. Look, I mean, I think the beauty of the product portfolio that's becoming wider and wider for us is that we see continued engagement across a wide variety of product offerings with the customers, right? It's not just the three themselves, but it's also the cross correlation, like John said, the equipment guys versus the fabulous guys all wanting to exchange or no data from the other side as well. So look, we're finding opportunities across the board, and therefore, we have spent the last few years of sales and marketing and will continue to align it with the opportunities that we're seeing. I'll talk a little

bit on top of that. I think, you know, whether it's the E-Probe or SMH, you know, Stippitt's Manufacturing Hub, we've done a lot of R&D over these last couple of years. And now, as evidenced by the large enterprise contract last quarter for Sapience, the activity with the E-Probe activity with Accentio Test and MLOps, we've got a lot of ongoing pilots with customers, some of which are starting to convert into bookings like the South SMH enterprise last quarter. And that's where, you know, some of this like the digestion of your previous years R&D.

Great. Thank you, both.

Thank

you. Our

next question comes from the line of Blair Abernathy of Rosenblatt Securities. Please go ahead, Blair.

Thanks. Nice quarter, guys. I'm just just wondering if you can give us a little more color on the SecureWise integration plan, sort of from a technical standpoint, you know, -a-vis what are sort of the what's the low-hanging fruit and what do you kind of see this, I guess, the longer term, particularly in light of the Symmetrix product you have? And then also, from a -to-market standpoint, where do you see sort of maybe some of the best potential revenue synergies or cross-selling opportunities with the new product line?

Sure. Okay. So that's a great question, Blair. So first of all, as we met with customers, I would say, number one, customers really love the security it provides, its adherence to the standards like the ISO standards and emerging standards in Europe, and the fact that it can operate around the world. PDF has, you know, an even bigger footprint, a much bigger footprint in Taiwan, in Korea, in China, all around Asia than SecureWise did. So I think leveraging PDF infrastructure in Asia is a value to the customers, and combining PDF's attention to security, which as always, you know, as you can imagine from a database and system side, because of the kinds of data customers store in our systems, and their ability to transit data and engineering activity around the world in a secure manner, putting those two things together is a big interest for the customers, number one, on security. Number two, as I said in my prepared remarks, this was used, SecureWise is used by the most sophisticated equipment companies in the world with the most challenging equipment bring-up and production control, et cetera. And, you know, the assembly world was always kind of like an afterthought in our industry, but as more and more process complexity is going in there, into assembly and advanced packaging, the, you know, equipment vendors see value in the SecureWise platform being out there. Moreover, if you look at our engagement with the equipment, with these OSAT facilities, it's primarily on the test floor for AI ML models and rules at the test edge. But when we talk to our Fabless customers, they would like to ship more than rules and data around. They would like the engineers to be able to collaborate with their equipment and OSAT vendors interactively with the engineering. Moreover, one of the applications SecureWise supports is, you know, when an equipment vendor wants to upgrade software on an equipment tool, it can be done in a secure manner and the Fab can run the proper virus checks and scans on it as it comes in. You know, if you remember, six or seven years ago, there was a large foundry that had a huge problem where someone brought in on a memory stick an upgrade to an equipment, a piece of equipment, I think it was an Etcher, and caused a huge virus in the Fab and took down an entire Fab for a chunk of time. Well, SecureWise has handled that very well in Fab. Now if you just think about the OSAT world, more and more your Fabless customers want to bring models, AI models into your facility. You'd like those virus scanned and checked out and SecureWise has that infrastructure as well. So, you know, first thing we did was demonstrate we could put SecureWise on a DEX network at an OSAT and you could interact with it. This is something we'll expand on. Technically, that interaction of PDFs, AI modeling, PDFs connections to the tools, and SecureWise, myriad of ways of enabling communications and collaboration much richer than what we provided with DEX is one of the big low-hanging fruit that you described. And then business-wise low-hanging fruit, obviously, additional equipment vendors, helping equipment vendors get to the advanced packaging world where they all want to get connectivity. And then even, you know, we've had dialogue with customers within, you know, foundries and IDMs, collaboration between the equipment teams. You know, everyone's, especially in a world of the geopolitical situation where everyone's standing up Fabs all around the world. So a lot of our customers are needing to support Fabs in many parts of the world and equipment expertise, whether it's at the equipment vendor or it's at the foundry or IDM, is scarce. So you really want to be able to have a secure way an engineer in one location can also interact with a tool in a different location. And we're starting to have dialogues with customers around that as well. So, you know, overall, it's just a great fit with the, you know, the platform we're building out. We do think, you know, with the trends of additional ML and AI, it enables a number of security features that customers will really want. And I think we're very excited to see that we were bringing to our ML ops capability.

That's great, John. Thanks for the explanation. That's really helpful. And I just wanted to ask the on the Sapient side of things, how is the pipeline building there? It's great to see a deal this quarter, but how is this kind of, is it starting to pick up? I know you've been working with SAP for a couple of years on this, but just kind of wondering if you're starting to see a bit of a shift in adoption?

Yeah, we do see additional, we do expect to close additional contracts this year for SMH Enterprise. You know, and, you know, again, some of that new capability, you know, enables new workflows. And so we like to make sure we help the customers with new workflows and AI workflows. A big motivator for moving to something like this, because they have more accurate data from the facilities is important to enable better AI at the enterprise level. So, yeah, we do expect more business this year on SMH. And we do think that there's a growing set of ways that we can help customers get more value out of it, which will create, I think, incrementally, beyond this year, additional opportunities.

Great. Thanks very much.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from the line of Gus Richard of Northland Capital Markets. Your line is open, Gus.

Yes, thanks for taking the question. John, you mentioned you shipped two DFI systems in the quarter, one potential revenue. I was just wondering if you could provide a little bit of color on that. Is that a new customer? Is that an existing customer? You know, is it Logic, DRAM, you know, and the other system, you know, in the color and with Alan White?

Yeah, so these are both Logic customers, both existing customers. And as I said, you know, in the last call, we do anticipate shipping for DRAM applications as we get through this year. We remain committed about that. We do see that opportunity as well. And, you know, maybe this is, you know, we're going to take a digestion pause as we digest these machines, and the other ones that we've stood up recently. But we do expect in the second half of the year to ship again and exceed our goals for the year.

Okay. And just out of curiosity on the, you know, hope to recognize some revenue, this is existing customers and, you know, an additional tool. What, you know, what's the hesitancy or what's the delay in Revrec?

So one of them, you know, basically new capability that we're demonstrating for the customer. It's a new configuration machine that does some new things.

Okay. And then, you know, you were very popular at a recent event, made an appearance on stage. And I'm just wondering, you know, is that signaling, you know, a strengthening of that relationship and perhaps an opportunity for, you know, additional VFI or other services at that customer or, you know, any sort of color around a potential opportunity?

Yeah. Yeah. So, you know, we never really speculate on specific customers, Gus. I mean, we were very honored to be able to be on the stage and talk about our collaboration with them over the years. We hope to be able to extend that. And we think that there's a lot we can do together. And their roadmap is very interesting for a lot of our customers too. But, you know, it would be speculative for me to kind of go on and say what that meant other than it was just a nice opportunity to get up on stage.

Okay. I understand. And then last one for me, the analytics business, you know, grew 10%, you know, year on year. The growth rate appears to have flown a bit. And I'm just wondering, you know, what are the challenges to picking up the growth rate of analytics?

Yeah. So, you know, overall, Gus, I think we've done a lot on R&D. It kind of comes to that sales and marketing spend that I think was maybe Blair that asked us about. You know, new innovation takes a while to get digested. And so that's, I think, an effort for us. Things like our SMH product, it's quite a complex deployment, right? So that pilot we did last year was very small, right, on the order, you know, of a couple million dollars, and, you know, that just takes a year, right, to then get to the point where they can go and say, wow, this is useful. I think I'll make a more substantial booking and actually deploy. So a lot of it, I think, as it extends to an overall analytics platform becomes more and more enterprise-wide system. I do think that the way we sell needs to evolve. We're spending more money to get better at that. Yeah, I don't, I wouldn't give us an A. I don't think I'd give us a B yet. Yeah, I think we're still a C student. Yeah, but we'll work at it and try to become a better student at it. I still think our effort is, as we get new technology out,

how do we get it into the hands of customers and show it really works and show them the value? To us, that's what's most critical, to drive growth.

Got it. And then, Adnan, just, you know, with the acquisition, can you give us a little bit of color on, you know, how would you think about gross margin and OPEX going forward? You know, what, you know, what is the incremental spend and in which lines?

Yeah, absolutely. So look, I mean, I think we'd be announcing acquisition as well. We talked about how we expect the acquisition to be accretive to our earnings, so we still believe that. It should also be accretive to our operating margins as well, although there, you know, as you acquire the company, you also have some thoughts around the additional spend it might need, given that it's a carve-out situation and it wasn't a fully functioning organization by itself. So there are pieces of spend that we would add to this. I would say overall, think of us as a combined company, still marching towards our long-term gross margin targets and the operating margin targets that we had set in the fall of 2023. What we need to see is do we get all the way there or are we just under? So that's the math that we look into to study as the year goes on. But overall, very pleased with the acquisition and the results that we're seeing already, like John said, in the two months of working together and the one, less than one month of results that are incorporated into our numbers.

Okay, that's it for me. Thanks so much. Thanks, Gus.

Thank you. Our next question comes from the line of Christian Schwab of Craig Hollam Capital. Please go ahead, Christian.

Thanks. So guys, you know, it's good to see that, you know, previous announced partnerships such as SAP has led to contracts, you know, in hand. Could you give us an update? You know, you have numerous partnerships and then thinking of the band test in particular, is there any other, you know, pilots that have been ongoing that we should anticipate could turn into contract revenue over the next year?

Sure. Yeah, we, you're right about, we have a number of other partnerships with respect to AdVentus. We have ongoing revenue from the AdVentus engagement that includes both mutual selling, joint selling at customers where customers use our product integrated with, you know, so it works with some of their hardware, enabling more dynamic testing, more, you know, model-based testing. And they also are a customer of using our systems on-premise. We anticipate that relationship continuing and pieces of it will grow over time. Some of it will, you know, some of it will not grow. Some of it will stay relatively constant. Some may shrink a little bit, but overall we expect to have a relationship with AdVentus on an ongoing basis. You know, there's numerous other ones, but, you know, that's Siemens or IBM. Most of them were involved with some joint selling. A lot of times it's, we show how our stuff works with their stuff. We sell our stuff. They sell their stuff. That's like in the case of SAP. Even, you know, most of the work we do with AdVentus is like that as well. So, you know, I would say overall we've learned a lot about how to run partnerships effectively. We still believe in the activity of integrating our solution with theirs. We think customers want that. But a lot of times we will do the selling of our solution, you know, our part of the solution on our own, like we do with SAP, as it's, you know, we're better able to speak to its specific value and in effect, you know, capture the opportunity that's there working in collaboration with them.

Great. No other questions. Thanks, guys. Thanks, Christian.

Thank you. Our next question comes from the line of William Jellison of D.A. Davidson and Company. Please go ahead, William.

Thanks for taking the follow-up question. I wanted to ask, you know, John, at the very beginning of the call you mentioned how this year started with some of the industry who was relatively soft last year hoping for better performance this year. You mentioned in the Q&A that advanced nodes would likely remain strong this year as well. So with that in mind, you know, I'm curious how you think about your trailing edge customers and where they sit right now and your perspective on their relative strength or perhaps still waiting for their recovery?

Yeah, I mean, what I've noticed about the customers that are referred to mostly as merchant seminar to customers, they're some of the most aggressive at reforming their business operations, driving more AI in the way they operate, trying to get more productive on the way they respond to the market. So the SAP activity, the MLOps opportunity, some of the things we're doing on the enterprise-wide Accentio database capability, we find a lot of interest from the customers in that part of the world. I think in part because our industry is, you know, as I said in my preparo remarks, we've always been very good at dealing with an uncertain environment, whether that was due to just supply and demand or regulatory issues or otherwise. And they want to get to a higher degree of nimbleness or flexibility. And so I think that, you know, some of what PDF can offer is a value to that customer base right now. For our leading edge customers, you know, the train for 2 nanometer or 1.4 nanometer or, you know, the 1X or the 1Y layer of DRAM, that train leaves no matter what. So they need to either be on that train or not on that train. And that always is an impetus for customers making decisions fast for the stuff on the leading edge when it comes to enterprise-wide business process evolution. You know, obviously that can always take an extra quarter for them to make a decision to some extent. There's always timing issues there harder to predict. But I think for that merchant customer really, nimbleness is the name of the game. They're all looking to achieve more of it. We hope to help them with that and what we're bringing with our enterprise-wide solutions. You know, that's kind of what we see in space right now.

Great.

Thanks,

Tom. Thank you. Our next question is a follow-up from Blair Abernathy of Rosenblatt Securities. Please go ahead, Blair.

Thanks. Just to add on, just a quick question on capital allocation. And so you've taken on a $69-70 million debt. You haven't bought back any shares

this year.

Blair, are you still there?

You're very

faint.

So can you hear me? Is that better? Perfect. Okay. Just in terms of capital allocation, how should we think about, you know, over the next couple of years, your prioritization -à-vis debt reduction, share buyback, and so forth, given that you should be cash flowing fairly strongly?

Yeah, good. Well, first of all, thanks for that confidence in the last part of your question. And yes, we certainly believe so as well, particularly with the businesses. We've said in our prepared remarks and John said in the Q&A answers as well that the business is starting to show diversity. Now finally, from the Gainshore side as well. So look, I mean, that is a necessity when we were looking at the acquisitions, so hence we put in place. Obviously, with John and Kim and as the founders of the company, you've seen us not carry any debt. So our objective high up on the list is going to remain how fast and how soon can we, you know, start to pay off that debt. That said, when the opportunities arise, are we going to look at buybacks? Yes, we absolutely will as well. But at the same time, it's going to be the balance of how much mint cash we want to carry on the balance sheet. So I would think of it as debt and then coupled with some buyback. Obviously, the last couple of quarters, as you can imagine, with the announcement of the deal, it puts you in a situation where you can't really go and buy in the market. And then a few years ago, you saw us buy back larger chunks of shares when the large blocks become available. So we'll remain opportunistic and balance it with the desire, number one, of reducing the debt amount as well as then when the opportunities arise to buy back the stock.

Okay, great. And just one other one, if I could, on secure wise. Adnan, what's the gross margin profile look like of that business? And is it mostly a subscription revenue base or is it a maintenance base? Yeah, great question.

Yeah, great question. So I'll answer in the flip order just to put the context around it. So the business is highly recurring, in fact, nearly all recurring. And it's got multiple pieces of it that constitute to the recurring nature. So as we have explained the business at the time when we did the acquisition, as John has also explained it today, there's obviously a license component that the end customers will pay to have access to the secure system. That's one. Second, you also get an opportunity for some of the contracts to build them on the data usage that's flowing through the system. Both of those together along with other pieces tend to make this business a highly recurring nature business. In terms of gross margin, look, that was one of the attractive things to us. We don't break it out separately, but let me just say it is accretive to our gross margin. So over the long term, particularly balanced with some of the spend that we alluded to earlier that we do need to make because it's a carve out situation, we net net still expect to be a positive for us for the year. And hence our earlier comments as well that we remain committed to our target margin models that we had set of 75 and 20% in the long term. I mean, back to the question that I think Will had asked also on the increased spend on sales and marketing. Look, yes, we will optimize that spend and sometimes increase it, sometimes decrease it, but rest assured we remain committed to making sure to solve for the 75% gross and 20% operating margin as our North Star.

Great. Thanks very much.

Thank you. Once again, to ask a question, please press star 1-1 on your telephone. And at this time, there are no more questions. Ladies and

gentlemen, this concludes the program. Thank you for joining us on today's call.