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spk00: Good afternoon. Thank you for attending the Smart Global Holdings First Quarter Fiscal 2024 Earnings Call. My name is Victoria, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Suzanne Schmidt. Thank you. You may proceed, Suzanne.
spk07: Thank you, Operator. Good afternoon and thank you for joining us on today's Earnings Conference call and webcast to discuss SGH's first quarter fiscal 2024 results. On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Risby, Chief Financial Officer. You can find the accompanying slide presentation and press release for this call on the investor relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company. I would also like to remind everyone to read the note on the use of forward-looking statements that is included in the press release and the earnings call presentation. Please note that during this conference call, the company will make projections and forward-looking statements including but not limited to statements about the company's growth trajectory and financial outlook. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the press release and the earnings call presentation filed today, as well as in the company's most recent annual and quarterly reports. The forward-looking statements are representative only as of the date they are made, and except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements. We will also discuss both GAAP and non-GAAP financial measures. Non-GAAP measures should not be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance. A reconciliation of the GAAP to non-GAAP measures is included in today's press release and the accompanying slide presentation. As a reminder, at the end of calendar 2023, SGH completed the sale of an 81% interest in its Smart Brazil operation. Accordingly, Smart Brazil operations are classified as discontinued operations in the company's financial statements for all periods presented, and the following discussion of financial results relates to continuing operations, which excludes Smart Brazil unless otherwise noted. And with that, let me turn the call over to Mark Adams, CEO. Mark?
spk01: Thank you, Suzanne, and thanks to all of you for joining us today. I hope you all had a nice holiday season. We have made tremendous progress in our journey towards becoming a high performance, high availability enterprise solutions company. In our first quarter, as part of our continued transformation, we completed the majority divestiture of our Brazil-based consumer memory module business. We now have a much higher quality revenue mix than when we started this journey more than three years ago, as demonstrated by our record non-GAAP gross margins in the first quarter. And strategically, we believe that we are uniquely positioned to capitalize on the growing demand for high performance, high availability solutions that enterprise customers need in order to deploy AI on premise, at the edge, and in the cloud. In our first quarter of 2024, we delivered strong operating results. Revenues totaled $274 million in line with the midpoint of our guidance range, and we achieved record non-GAAP gross margins for the first quarter of 33.3% above the high end of our guidance range. Non-GAAP earnings per share was 24 cents, which is at the higher end of our guidance range. These achievements were driven by a greater mix of services revenue, which represented approximately 25% of overall SGH revenues, another record, and a demonstration of the value we provide our customers. We generated approximately $60 million in cash flow from operations in the quarter and exited Q1 with a strong balance sheet. Cash and short-term investments totaled a record $553 million. 2023 has been called the iPhone moment in AI. The year was defined by extraordinary advancements in AI, with hyperscalers and other early adopters investing heavily in this new computing paradigm. As we head into 2024, signs of market adoption of AI are expanding to include large enterprises with a focus on deployment. Most enterprises will need a trusted advisor in compute, software, and services solutions, and we believe SGH is uniquely positioned to play this role. In conversations with existing customers and in engagements with potential customers, we are seeing an increasing need to help companies manage the complexity of AI implementations at scale. This is true across a broad range of industries, including defense, finance, tier one and two cloud service providers, healthcare, energy, and education. Each of these sectors is reimagining its future through the lens of AI, and we can play a vital role in this developing ecosystem. At SGH, we provide enterprises with more than just hardware. We differentiate ourselves with our total solutions approach that encompasses design, deployment, integration and managed services we have helped our customers deploy some of the most scaled and innovative ai factories to date our strategy of combining a solutions and service mindset with a technology agnostic approach means that our customers needs are where they should be first now let me start our business review with the intelligent platform solutions group Our IPS team designs, builds, deploys, and manages a complete portfolio of hardware, software, and managed services solutions for HPC and AI applications on premise, at the edge, and in the cloud. In Q1, IPS revenue came in at $119 million, or 43% of total SGH revenue, making it the largest component of our business in Q1. In this era of technological transformation and AI proliferation across the enterprise, we are seeing growing interest in Penguin's AI factory solutions from both existing and potential customers. While we don't provide specific customer names for confidentiality and competitive reasons, we are seeing increasing traction across defense, finance, tier one and two cloud service providers, healthcare, oil and gas, and other major verticals. In addition, we continue to invest in next generation technologies so our customers can stay at the forefront of tomorrow's HPC and AI systems. To take one example, we are working with a leading energy conglomerate to develop and deploy a new emerging cooling system whereby computing clusters are immersed in recycled oil. This approach enables much lower and more efficient power consumption, something that is in and of itself a very positive outcome, while also lowering costs and allowing for increased compute density within the data center. We believe this is the first deployment in North America of oil-based immersion cooling for AI. During Q1, we also launched our next-generation fault-tolerant computing solution, the Stratus ZTC Endurance Server. This new platform delivers predictable, protected performance in the data center and at the edge, which enables our customers to run applications with targeted unplanned downtime of less than one minute per year. We believe this type of reliability is critical for enabling AI at the edge and our customers seem to agree. We have secured initial orders for Stratus ETC Endurance, and are actively expanding our pipeline, laying the groundwork for future growth. Our memory solutions group, which operates under the Smart Modular brand name, provides customers with high-performance, high-reliability memory solutions for specialty markets such as supercomputing, network and telecom, storage, data center, industrial, and other applications. For Q1, revenue came in at $86 million, or 31% of total SGH revenues. Sales declined from Q4 levels as expected, primarily due to elevated inventory levels at a number of our large customers, and visibility into future demand remained somewhat muted. At the same time, we are seeing early signs that the cyclical downturn in memory is abating, and we feel confident about our position. We believe DRAM and NAND ASPs have reached the bottom of the cycle, and in fact, we are starting to see prices increase for certain memory skews. While unit demand at some of our large enterprise customers has been affected by inventory bills, we are optimistic about the outlook for the second half of our fiscal year. Our confidence stems from the increased customer interest we are seeing in our next generation solutions such as Compute Express Link or CXL, enterprise SSDs with storage endurance tiering, and our Zephyr ZDIMM ultra high reliability memory modules for cloud service provider applications. Now turning to our LED solutions group, which produces application optimized LED products in markets such as specialty lighting, video screens, gaming displays, and outdoor horticulture and architectural lighting under our Cree LED brand. For the first quarter of fiscal 2024, LED revenue totaled $70 million, or 25% of total SGH sales, making this the third consecutive quarter of top line improvement. We expect to build on this revenue momentum over the course of fiscal 2024. That said, as we have stated in the past, Q2 tends to be a lighter quarter due to seasonality, so we expect revenue to be lower in the second quarter as compared to Q1. While we believe that the gradual recovery in the overall LED market will continue, we are proactively managing our Cree LED operating expenses in order to improve the profitability of this business line. This prudence in our short-term operating approach does not diminish our focus on shaping the future of LEDs by continuing to invest in pioneering technologies for our customers with emphasis on high-value specialty applications. As both a technology and brand leader with a robust portfolio of intellectual property, Cree is at the forefront of lighting innovation. We remain confident about the long-term performance of our LED business line, given improvements in the macro environment. I'll stop here and hand it over to Ken for a more detailed review of our Q1 financial performance and our guidance for next quarter. Ken?
spk03: Thanks, Mark. We completed the sale of 81% of our Smart Brazil operations at the end of our fiscal first quarter, receiving gross proceeds inclusive of working capital adjustments and less taxes paid of approximately $140 million. As a reminder, Brazil was classified as discontinued operations from the end of our fiscal 2023 and for all periods presented. Beginning in the second quarter of fiscal 2024, Smart Brazil will no longer be consolidated with the results of SGH. Given the completion of the majority sale of Brazil, I will focus my remarks on our non-GAAP results for continuing operations, which are reconciled to GAAP in our earnings release table and in the investor materials on our website. Now let me turn to our first quarter results from our continuing operations. Total SGH revenues were $274 million, and non-GAAP gross margin came in at a record 33.3%, above the high end of our guidance, primarily driven by improved product and service revenue mix. Non-GAAP diluted earnings per share was 24 cents for the first quarter, which was at the higher end of our guidance range. In the first quarter, our overall services revenue totaled $68 million, down from $75 million in the year-ago quarter. product revenues were $206 million. First quarter revenue by business unit was as follows, IPS $119 million, memory $86 million, and LED at $70 million. This translates into a sales mix of approximately 43% IPS, 31% memory, and 25% LED. Non-GAAP gross margin for SGH in Q1 was 33.3%, up from 31.3% in the year-ago quarter, primarily driven by IPS. Non-GAAP operating expenses for the first quarter were $64.6 million, down from $70 million in the fourth quarter of 2023, primarily due to lower variable expenses and cost reduction actions. Operating expenses were down from 71.4 million in the year-ago quarter. Non-GAAP diluted earnings per share for the first quarter of 2024 was 24 cents per share, compared with 75 cents in the year-ago quarter. Adjusted EBITDA for the first quarter of 2024 was $34 million, or 13% of sales, compared to $58 million, or 15% of sales, in the year-ago quarter. Turning to balance sheet highlights. For working capital, our net accounts receivable totaled $171 million, compared with $219 million last quarter. Days sales outstanding came in at 44 days, down from 48 days last quarter, primarily due to the timing of invoicing and collections. Inventory totaled $208 million at the end of the first quarter. up from $175 million at the end of the prior quarter. The increase in inventory was driven primarily by inventory growth in IPS to support upcoming bills. Inventory turns were 5.8 times in the first quarter, down from 7.5 times in the prior quarter. And consistent with past practice, net accounts receivables, days outstanding in inventory turnover are calculated on a gross sales and cost of goods sold basis, which were $383 million and $300 million, respectively, for the first quarter. And as a reminder, the difference between our gross and net revenue is related to our logistics services, which is accounted for on an agent basis, meaning we only recognize the net profit on logistics services as revenue. cash cash equivalents and short-term investments totaled a record 553 million at the end of the first quarter up 163 million compared with 391 million at the end of our prior quarter first quarter cash flows from operating activities totaled 60 million dollars compared to 38 million in the prior quarter during the first quarter Gross proceeds inclusive of working capital adjustments, less taxes paid for approximately $140 million from the 81% divestiture of Smart Brazil. And also for reference, in the beginning of our second quarter, we made a $50 million cash payment for the earn out of Stratus. During the first quarter, we repurchased approximately 825,000 shares of our common stock using $12.1 million. Since our initial 75 million authorization in April of 2022, we have used a total of $70.5 million to repurchase 4 million shares through the end of our first fiscal quarter under our share repurchase authorization. Today, we announced that the Audit Committee of the Board of Directors has approved another 75 million share repurchase authorization, bringing the total share repurchase authorization over the last two years to $150 million. And to remind everyone, our capital allocation strategy remains the same. First and foremost, we will continue to invest in our business as we see significant opportunities for further organic growth. Second, we will continue to evaluate acquisition opportunities in a disciplined manner, similar to our most recent acquisition of Stratus. Third, the incremental share repurchase authorization provides us flexibility to return capital to our shareholders in an opportunistic and price-sensitive manner. And finally, we would look to retire debt to keep our gross leverage at reasonable levels. For those of you tracking capital expenditures and depreciation, CapEx was approximately $4.6 million in the first quarter, and depreciation was $7.5 million. Now, let me turn to our second fiscal quarter 2024 guidance. We expect that revenues for the second quarter of 2024 will be approximately $285 million at the midpoint, plus or minus $25 million. Our guidance for the second quarter reflects the following. For IPS, we expect revenues to increase sequentially by 15% or more at the midpoint. For memory, we expect revenues to be approximately flat sequentially at the midpoint as we continue to see certain customers working through finished goods inventories. And for LED, we currently expect revenues to be down in Q2, primarily due to normal seasonality. Our gap gross margin for the second quarter is expected to be approximately 29.5% at the midpoint, plus or minus 1%. Non-GAAP gross margin for the second quarter is expected to be approximately 32.5% at the midpoint, plus or minus 1%. Our non-GAAP operating expenses for the second quarter are expected to be approximately $66 million, plus or minus $3 million, and in line with the prior quarter. GAAP diluted earnings per share for the second quarter is expected to be approximately negative 15 cents, plus or minus 10 cents. On a non-GAAP basis, excluding share-based compensation expense, intangible asset amortization expense, debt discount, and other adjustments, we expect diluted earnings per share will be approximately 25 cents plus or minus 10 cents. Our GAAP diluted share count for the second quarter is expected to be approximately 52 million shares based on our current stock price, while our non-GAAP diluted share count is expected to be approximately 53 million shares. Cash capital expenditures for the second quarter are expected to be in the range of $4 to $6 million. And beginning in 2024, we are utilizing a long-term projected non-GAAP tax rate of 28%, which reflects currently available information, including the sale of Smart Brazil, which was completed in the first quarter, as well as other factors and assumptions. While we expect to use this normalized non-GAAP tax rate through 2024, the long-term non-GAAP tax rate may be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or changes to our strategy or business operations. Our forecast for the second quarter of 2024 is also based on the current environment which contemplates the global macroeconomic headwinds and ongoing supply chain constraints, especially as it relates to our IPS business. This includes extended lead times for certain components that are incorporated into our overall solutions, impacting how quickly we can ramp existing and new customer projects. We continue to manage our operations in a prudent manner as we navigate a challenging environment while also continuing to invest in our long-term growth. Please refer to our non-GAAP financial information section and the reconciliation of GAAP to non-GAAP measures tables in our earnings release for further details. Now, let me turn it over to Mark for a few remarks prior to Q&A.
spk01: Thanks, Ken. As CEO of SGH, my confidence in our future is based on our past performance and our solid track record of execution. It is also grounded in the measurable advances we have made on our transformation journey. Consider the following milestones we achieved in just over three years. Gross margin expansion from below 20% in fiscal year 2020 to 33.3% in Q1 fiscal 24, a record. Cash on the balance sheet of over $550 million, another record. Diversification away from a memory module business to a provider of high performance, high reliability enterprise solutions. Memory has gone from 76% of revenue at the end of fiscal year 2020 to 31.3% in our current quarter. Successful M&A, as most recently demonstrated by our acquisition of Stratus in August of 2022. This acquisition both added scale for our services capabilities and also expanded our compute solutions to include future AI at the Edge fault-tolerant offerings. The vestiture of our consumer module business in Brazil at a valuation of greater than 1.2 times revenue based on the trailing year's revenue numbers, which is actually higher than our current revenue multiple for all of SGH, an incredible outcome. And most importantly, we have a clear strategy focused on providing differentiated solutions in the early innings of the AI era, on premise, in the cloud, and at the edge. Operator, we are now ready for Q&A.
spk00: Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.
spk04: Thank you. Thanks for taking my question, and congratulations on the strong results, especially the gross margin. Very impressive. The IPS, you're guiding that for up 15% quarter over quarter, which is great news, and But can you talk a little more about the visibility going into the second half of 2024 and, you know, even the mix that you're expecting to see, hardware versus software and services?
spk01: Hey, Kevin. Happy New Year. Thanks for the question. This is Mark. You know, as we articulated on our last call, we've really invested pretty heavily in the go-to-market piece of our business. We actually just brought in a new head of sales for Penguin. and driving a lot of good customer engagement. We're pretty optimistic about the funnel we're building in the business. We haven't really forecasted beyond a quarter in advance. The conversations are exciting. The models are evolving. What I mean by that is it's not just purely buy and sell. There's co-location opportunities for us. There's opportunities for us to help one new potential customer has come to us already bought competitive hardware and said they couldn't get it to work. And they know that our focus is on managed services, software, the likes. And so we remain pretty confident in a strong second half. And again, the difficulty is we're not trying to be evasive. The difficulty, guys, is that getting things lined up into 13-month periods for this business can be challenging. And so that's why we don't kind of give numbers, so to speak. We remain pretty confident. We obviously feel pretty strong about Q2 as Ken just guided. And in the midst of, you know, continued choppiness in LED and memory, IPS is going to, it looks, you know, we're forecasting a pretty strong Q2. And I'm going to leave it at that. But again, I'm excited about the opportunity. I've been out with the team in front of a lot of customers, including Super Compute. And I remain pretty bullish.
spk03: Yeah, and Kevin, on your first question in terms of the margins as well, it is a record for us, 33.3%. And just to add to Mark's comments earlier, you look at where the business was just a few years ago, that's a significant delta from three, four years ago in terms of where the business is. The other thing is mix, and that can move around. We had a significant mix associated with services this quarter at about $68 million of service revenue. That comes with it a higher gross margin. You can recall, based on our guidance for Q2, the guidance is slightly below at 32.5 at midpoint, and that's just a factor that we expect to have a little bit higher hardware mix relative to services mix in Q2.
spk04: Okay, great. Thanks for that extra comment. And maybe just to talk about the memory solutions group that Your specialty memory, a lot of that is, let's just say, five-year-old type of memories. And are you seeing prices changing on those? Or maybe the question would be, what percentage of your business would be affected by the increase in prices we've seen in the last month or so?
spk01: Kevin, we have Jack Pacheco here, you know, who runs the business. I'll have Jack comment first, and maybe Ken can follow up. Hello, Kevin. How are you?
spk02: Hi, Jack. I mean, we're seeing prices go up even on the legacy memory. I mean, we're seeing, you know, 5%, 10% kind of increases on certain types of legacy memory, you know, along with, you know, the leading-edge memory that's going up in price. But, you know, we'll see some revenue go up maybe over time as we start to ship, you know, products based on that memory. A lot of stuff we're shipping today is still bought at the, you know, the lower-priced memory that we're shipping to our customers.
spk03: Yeah, and, Kevin, I think if you looked at our commentary earlier in the prepared remarks, For the memory business, we're expecting that to be relatively flat here sequentially, Q1 to Q2. And that just relates to what we've discussed in the past, which is in Q1 and continuing here into Q2, not a surprise. Some of our customers are still working through some inventory that they purchased in the late summer timeframe. We hope that they start to work through that through Q2. And then as we head into Q3, Q4, we'll start to see a little bit of brighter skies out there.
spk04: Okay, great. Thanks, and congratulations again.
spk01: Thank you.
spk00: Thank you for your question. The next question comes from the line of Brian Chen with Stiefel. Your line is now open.
spk05: Hi there. Good afternoon. Thanks for letting us ask a few questions. Sorry, this one's kind of pointed, but maybe just to kickstart here. Relative to how you've worked with Meta in the past, and there's been a lot of articles and blogs discussing this relationship before, right? But you were a key partner, especially in their initial phases of the RSC build-out. And I guess the question is, do you generally see continuity in this relationship moving forward? And how do you envision this relationship maybe evolving over time on successive sort of projects? build out an expansion?
spk01: Yeah, let me take that one. First of all, I think Meta is a true innovator in the space of AI, and they've been at the bleeding edge. And I think if you ask me what company has innovated the most in terms of the commercial side of AI, where there's a lot of tire kicking, These folks have applications on AI running and generating profitability. I mean, they're at the forefront. They have used us in the past in certain situations where the complexity of the deployment outstrips their internal capabilities. And that led to some really amazing opportunities last year. We are still doing business with that customer. I'm not going to comment on the nature of the agreement, what have you. We still are providing support. We're still talking about expansion opportunities. We won't get everyone. I don't think that's possible, but the relationship is very good. We think they've been a great customer to us, and I think they'll still be a great customer to us this year. That's really all I can tell you.
spk05: Okay. Fair enough. Appreciate that. And then can you provide maybe a little bit more insight into the types of maybe AI-oriented applications that you're engaging the customers, you know, across the many verticals that you referenced earlier. Yeah, maybe any sort of helping us sort of understand sort of what's contributing to your optimism, you know, not just kind of fiscal second half of this year, but clearly in the out years as well in terms of the type of funnel that you're building.
spk01: Yeah, if you look at, by the way, my next comment isn't about stuff we've deployed today, but where we're seeing a lot of discussions around applications with customers. In the energy sector, things like oil and gas exploration. In the financial markets, we all know that the financial markets, you know, a tenth of a second is worth something in the trading world. If you think about healthcare and geomatics, you think about applications like retail and ATMs and decision around how to serve their customer. You think about social media and advertising and knowing exactly what your behaviors are and matching that to the buying opportunities out in e-commerce on the web. There's just endless applications that are in front of us and that's how we're working. By the way, I haven't even mentioned the federal opportunities around defense and the likes. I think what I do want to mention, by the way, and it rhymes with what we've said on the last call, is I think 2023, yeah, it was the iPhone moment, but people didn't really know how to use it until later, and that's true now. I think there was a lot of sales of GPUs to infrastructure people starting to lay the pipes, and I'm not even sure all the people who bought GPUs know how to use them. And I think 2024 and 2025, it's going to be the year where two things happen. A, businesses get a little bit more clear on what they're going to get out of AI. And two, they're going to realize that they need deployment and management expertise to make sure that these AI systems perform as they thought, as they invested in. And so I think that's going to play very well to us from our managed service and software approach.
spk05: Yeah, that's very helpful. Thanks, Mark.
spk01: Of course.
spk00: Thank you for your question. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad.
spk03: Operator, is there another question here in the queue?
spk00: Yes, of course. Yes, give me one moment. Sorry about that. Our next question comes from the line of Quinn Bolton with Needham. Your line is now open.
spk06: Hey, guys. This is Nick Doyle. I'm for Quinn. Thanks for letting us ask your question. Could you give a little more detail on maybe how much inventory is left in the end markets? I know you talked about inventory and memory solutions in the remarks and guide. Maybe... is there more in the channel versus end customer and then any detail on LED inventory? I mean, I know we're going into seasonality next quarter and, you know, China has kind of negative news coming out. So not surprising there, but are we still kind of pretty clean inventory on the LED side as well?
spk01: Yeah. So let me take the, kind of the market update on that piece, and I'll hand it to Ken for kind of the quantitative parameters. And the memory side, I'm sticking to what I said on our last quarter's call, that it kind of feels like spring at the earliest when we start to see the demand piece of memory contribute to the recovery. As I said last quarter, the dynamic going on now is just a little bit of game of chicken where pricing's going up on certain SKUs, There's inventory in the channel, and they're kind of like slogging it out a little bit in negotiation. I mean they, the big semiconductor guys. We're not impacted as much about the price, more on the demand. And I see that the inventory, I believe the inventory is like a spring calendar year timing to get back to regular levels. I think we can start to see some good, solid foundation in demand generation. On the LED side, it's actually been less of a – inventory in the channel dynamic and more of a end market demand. As a matter of fact, our channel is pretty lean. I'll let Ken talk to that. So I'll hand it over to him. But, you know, all in all, obviously our inventory, we feel pretty good about our own balance sheet, but the memory thing will play out. I speculate it's probably spring and the LED one, more demand generation and some things going on in the broader macro environment.
spk03: Yeah. So as Mark outlined and just to give you a data point on the on the LED side, If we look at the distribution inventory, we probably burned off north of $20 million, getting close to $25 million from in the last five quarters or so. And so we've leaned out. We're at now normal turns levels within the distribution channel, and that's essentially around sort of a fourth of four times. And so, as Mark highlighted, the inventory has leaned out in LED within the distributors and it's really a function of demand. Q2, however, just one way to think about it is we do have Chinese New Year, typically things shut down for the better part of one week to 10 days. And that's what we're seeing in terms of the impact of the business Q1 to Q2 in terms of sales. And the big driver as we head into Q3 and beyond is going to be demand.
spk06: Okay, that makes sense. Looking at IPS maybe a little different angle, you had this press release last November talking about a partnership with Google Cloud. Could you talk about how that relationship is progressing and maybe where you use that control plane technology?
spk01: Yeah, this is Mark. We remain in good partnership with Google Cloud. I think the interesting dynamic for us, and it's early, but the interesting dynamic for us is that It's becoming more of a two-way street, and the dynamic is, yeah, there are some companies that have their own on-premise environment, and they're looking for surge capacity out of Google Cloud and the likes. There are other companies who are just figuring this out and want to test some application environment in the cloud and eventually want to bring things back in-house and have a bit of a hybrid on-prem deployment. And in that situation, I think Google's pretty confident with our ability and our relationship that we can be the conduit between the cloud and delivering on-prem capabilities, as well as bringing some of our customer base into that environment. As I said, it's early stages of the model, but very happy with the relationship, and I think there's good opportunities to leverage that for future growth.
spk04: Thank you.
spk00: Thank you for your question. There are no additional questions waiting at this time. I would now like to pass the conference back to Mark Adams for closing remarks.
spk01: Well, thanks, everyone, for attending today's call. I know there's a number of events in January. We look forward to seeing you on the road. In the meantime, stay safe. Thank you.
spk00: That concludes today's call. Thank you for your participation, and have a good day.
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