Fabrinet

Good day, ladies and gentlemen, and welcome to Fabrinet's Financial Results Conference Call for the first quarter of fiscal year 2020. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Daryl Sumajanian, Investor Relations. Sir, you may begin.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the first quarter of fiscal year 2020, which ended September 27, 2019. With me on the call today are Seamus Grady, Chief Executive Officer, and T.S. Eng, Chief Financial Officer. This call is being webcast, and the replay will be available on the Investor section of our website, located at investor.fabrinet.com. Please refer to our website for important information, including our earnings press release and investor presentation, which include our gap to non-gap reconciliation. I would like to remind you that today's discussion will contain forward-looking statements about the future financial performance of the company. Both of these statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in either new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-K, filed on August 20, 2019. We will begin the call with remarks from Seamus and Tia, followed by time for questions. I would now like to turn the call over to Fabriano's CEO, Seamus Graydon. Seamus?

Thank you, Garo, and good afternoon, everyone. We delivered a strong performance in the first quarter with revenue and earnings that were above our guidance. Demand trends appear to be stabilizing in most of the end markets we serve, and we're optimistic that we are positioned to deliver strong results in the second quarter. Revenue in the first quarter was 399 million, a slight decrease from the record fourth quarter as expected, but a 6% increase from a year ago. Non-GAAP net income was 86 cents per share, exceeding the high end of guidance as gross margins improved to 12% in the quarter. Looking at our business by end market, optical communications revenue of 302 million was was up about 2 million from the fourth quarter and represented 76% of total revenue. Within optical communications, telecom revenue of 230 million increased 7% from the fourth quarter and represented 76% of optical revenue. This growth is particularly notable considering we had expected telecom revenue to be flat at best. Further, we expect this momentum to continue in Q2. Datacom revenue was 73 million in the quarter, an expected decrease from Q4 of 15%. Datacom represented 24% of optical communications revenue. We believe this decline is primarily the result of broader industry trends and not due to execution or competitive issues. In fact, based on anticipated near-term demand, we believe Datacom trends could be nearing a bottom and we expect Datacom revenue to be roughly flat in Q2. By technology, Silicon photonics-based optical communications revenue decreased from the fourth quarter to 77 million and represented 25% of optical communications revenue. Revenue from QSFP28 and QSFP56 transceivers was 45 million, down slightly from the fourth quarter. By data rate, 100 gig programs continue to represent nearly half of optical communications revenue at 147 million. and products rated at speeds of 400 gig and above were up strongly from the fourth quarter at $38 million, or 13% of optical communications revenue. Looking at our non-optical communications business, revenue moderated sequentially, as expected, to $97 million from $105 million in Q4. As anticipated, revenue from industrial lasers declined from the fourth quarter and was $41 million, compared to $53 million in Q4. These same demand trends seem to be persisting, so we anticipate industrial laser revenue to be roughly flat in Q2. Longer term, we remain optimistic about our potential to further penetrate the industrial laser market as more manufacturers inevitably turn to outsourcing to better compete in this global market that is in fact larger than the optical communications market. Automotive and sensor revenue were both stable at $24 million and $3.5 million respectively. Finally, revenue generated from other non-optical applications grew 15% sequentially to 28 million, mainly from FabriNet West. FabriNet West has been a great success for winning business for our offshore volume manufacturing sites. We have seen numerous programs migrate from early prototyping in FabriNet West to volume production in Thailand. At the same time, Fabric West has been an enabler for us to win business in new markets and with new customers that might have otherwise gone to competitors. As such, we have been focused on establishing a similar model to Fabric West in Israel. We already have a number of customers there and we believe we have the opportunity to grow our business with these customers as well as attract new ones. We have signed a lease for a building in Yachnai, which is a former semiconductor manufacturing facility. It is already equipped with most of the infrastructure we need for a new product introduction center. We are currently in the process of setting up S&T lines, advanced packaging, and a failure analysis lab similar to what we have to support NPI in our Bangkok facilities. We have hired a general manager for Fabrinet Israel, and we are targeting to be up and running early next year. In summary, we believe we are off to a good start to the fiscal year with revenue and earnings that beat our guidance ranges. and return to gross margins that are within our target range. We're optimistic that our telecom strength will continue and that datacom trends appear to be bottoming. In addition, we're excited to have achieved important milestones towards establishing a second new product introduction facility at Travelers Israel. Combined with our continued leadership as a contract manufacturer for the most complex products, we're very excited about our future. Now let me turn the call over to TS to discuss the details of our first quarter performance and our outlook. TS.

Thank you Seymour and good afternoon everyone. I will provide you with more details on our performance by end market and our financial results for Q1 as well as our guidance for Q2 of fiscal year 2020. Total revenue in the first quarters of fiscal year 2020 was $399.3 million and above the upper end of our guidance range. Non-GAAP net income was $0.86 per share and was also above our guidance range even after a foreign exchange headwind of $1.9 million and a mark-to-market loss on interest-rich swap contracts of $1.7 million. Least losses accounted for approximately $0.09 per share. Now turning to the details of our P&L, a reconciliation of GAAP to non-GAAP measures is included in our Earnings Press Release and Investor Presentation, which you can find on our website. We were pleased to see non-GAAP growth margin in the first quarter improve to 12%, a 20 basis point increase from the fourth quarter, as efficiency more than offset the impact of merit increases. Non-GAAP operating expense was $11.6 million in the first quarter. As a result, non-GAAP operating income was $36.2 million and non-GAAP operating margin was 9.1% flat with the fourth quarter. Taxes in the quarter were $2.2 million and our normalized effective tax rate was less than 5%. We expect our effective tax rate to be 5% to 6% for the full year. Non-GAAP net income was above our guidance range at $32.2 million in the first quarter, or $0.86 per diluted share, as I indicated earlier. On a GAAP basis, which includes share pay compensation expenses and amortizations of debt issuing costs, net income for the first quarter was $25.9 million, or $0.69 per diluted share, also above the high ends of our guidance. Turning to the balance sheet and cash flow statements, At the end of the first quarter, cash, restricted cash and investment were $436.4 million compared to $444.7 million at the end of the fourth quarter. Operating cash flow in the quarter was $2.6 million and with cap tax of $6.3 million, free cash flow was an outflow of $3.7 million in the first quarter. During the quarter, our working capital increased to higher than normal level in support of major new program transfer. This will begin to sell correct in the second quarter as we start to consume the transfer inventory and collect receivables. We did not repurchase any shares during the first quarter. As such, 62.2 million remain in our share repurchase program and we will continue to evaluate market conditions to opportunistically repurchase shares when possible. I would now like to turn to our guidance for the second quarter of fiscal year 2020. As Seymour described, we expect a strong second quarter and anticipate that revenue will be between $408 million and $416 million. From a margin perspective, we are optimistic that we will see efficiencies continue to drive incremental improvements in non-GAAP gross margin within our target range of 12 to 12.5%. From an EPS perspective, we anticipate non-GAAP net income per share in the second quarter to be in the range of 91 to 94 cents, and GAAP net income per share of 74 to 77 cents, based on approximately 37.7 million fully directed share outstanding. In conclusion, we are excited with our strong performance in the quarter. We remain very positive about our long-term prospects for continued leadership in the marketplace. Operator, we would now like to open the call for questions.

To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line. of John Marchetti of Stifel. Your line is open.

Thanks very much. I appreciate you taking my question. Quick one first off, Seamus. I was curious if in this order there was any revenue associated with that transfer program coming in, and if there is some of that in the guidance for next quarter as well.

Hi, John. Yes, we had some revenue from the transfer program. As you may notice from our cash, we did burn cash in the quarter and in large part that was due to inventory that we purchased in the early part of the quarter and then our shipments, as you can appreciate with the big transfer like that, we did have some revenue but it was pretty much back-end loaded in the quarter. So we have some receivables that fell into this quarter. So yes, we did have some revenue in the quarter and we continue to get our guidance for this quarter as well. And we think it will be probably largely ramped, I think, by the end of this quarter. We're a little bit ahead of schedule. I know previously we mentioned we thought it would be out into Q3. We think it would be largely ramped by the end of this quarter.

So just to be clear, by the end of this quarter, you expect that whatever you're shipping for that program will be actually coming out of your production and not just out of inventory that you purchased?

Yeah, the only inventory we purchased was raw material. We didn't purchase any finished goods or semi-finished goods or anything like that, so Everything that was in our revenue last quarter was product we produced, and that will be the same this quarter. It's just that there will be hopefully a little bit more of it this quarter, and we expect to be fully ramped up this quarter.

And then if I can switch gears, you had a pretty significant sequential increase in the $400 and above. speed segment there. I'm wondering if you can talk about if that was with existing customers and is more demand-related, if there's some new customer activity mixed in there, just any color you can give us behind sort of that ramp that's fairly steep in the 400 and above.

It's a combination, John, of both existing and new customers. I would say the majority of that revenue came from existing customers. You know, as you can appreciate, any... Any volume from new customers will be small in nature, but the majority of the revenue increase on the 400 gig becomes temporary from existing customers.

And then lastly, if I can, just curious about your comments about the Datacom business getting a little bit better. You know, what sort of visibility do you have there, and I guess what's changed over the last quarter or so to make you feel a little bit better about that? Thanks very much.

No problem, John. I think, you know, we feel, I suppose, the Datacom business, we think, is, maybe bottomed out slash flattened. You know, it was down last quarter, as we said there, as expected, our Datacom revenue was down. And we think it's kind of bottoming out. So this quarter, we think last quarter was probably a low point, and we think it's flattened. So we're not, you know, exuberant, I would say. We're not guiding, you know, any huge increases on Datacom, but we do feel, I think our telecom business, we think, is quite strong and will be up, but our Datacom business, we think, is, you know, still a little bit flat, I would say. Thank you very much. That's really based on, you know, the forecast and orders we have from our customers. We have about typically 13 weeks, you know, rolling visibility. So we have some pretty good visibility, and so that's based on the visibility we get from our customers, John. Thank you, John. Got it. Thank you.

Thank you. Our next question comes from the line of Alex Henderson of Needham. Your line is open.

We can talk a little bit about this program that you're moving over from Berlin. Obviously, you've given guidance here for the full year, fiscal year, and in 20, that this could be 10% plus of your revenues. It doesn't sound like in the first half it's anywhere near that. Can you talk a little bit about the cadence of when you think it can achieve or exceed that target? that full year mark, but I would assume that at some point it has to cross over and be more than 10% to get to that level for the full year.

Yes, Alex, the 10% comment that we've made previously was in relation to Infinera as a customer in total, which would be the combination of the previous, if you like, existing Infinera business that we already have, plus the transferred business from Berlin. So the 10% comment was not related to the Berlin business alone, the Berlin business is in addition to the existing Infinera business. So that may explain the disconnect there. I'm not sure if that's helpful.

So I'm assuming that it still isn't over 10% at this point in time or anywhere close to it. So the comment still stands. When do you think that that program gets to the point where it's driving the type of revenues that would put them at a

Well, as you can appreciate, we just report the 10% customers at the end of the fiscal year. You know, we think we'll be ramped on the transfer business by the end of this quarter. And, you know, that should put us at that run rate, we think, for the full year.

All right. So a second question, if I could. On the Rotums versus ACO, DCO, there seems to be a shift, a fairly significant shift at that. between what I would call optical switching and transmission in several companies' commentary. Can you talk to what extent you have exposure to a flattening market in the switching market and to what extent you think the acceleration and transmission can offset that?

So Alex, this is TS. Again, as you know, most of the ROADMs, we build for one customer. And if you listen to the earning call, essentially they are saying for the short term, it's pretty flat. And in the long run, they still believe that it's going to go up. So basically, whatever they say applies to us because we only have one customer on the ROADM. Okay.

Right, but the question really was to what extent can you use transmission to offset that over the next couple to three quarters? Do you have enough visibility on transmission, and do you sustain your share of the business when it shifts between those two segments?

Alex, I think we do. I think the shift between, let's say, transport and transmission, we have a number of customers in that space that should help us offset that. But we don't have visibility two, three quarters out. We really just have that kind of rolling 13-week visibility. But we hope to be able to capitalize on that as that shift begins to unfold over the next few quarters. We have a good number of customers in that space, so we hope to be able to capitalize on that.

One last question, then I'll see the floor. You had indicated in past quarters that you were experiencing some lack of availability on some passive components and other fairly low cost but critical components that are part of your production sets. Has the supply constraints on those products ameliorated so that's no longer a drug or are we still absorbing that?

Yeah, I think that, you know, that if you like passive supply constraint that was plaguing the whole industry, if I go back maybe three quarters ago, something like that, that seems to have abated immediately at this stage. It's pretty much behind us, we think. There's always, we start every quarter with some challenges that our supply chain team have to go and secure, but that's just kind of normal course of business. But that overall, I think, industry-wide passive constraint that was there nine months ago, a year ago, That seems to have a basis at this stage. There's always, you know, certain charges here and there, but nothing of any significance.

Great. Thank you very much.

Thanks, Alex.

Thank you. Our next question comes from Sameek Chatterjee of J.P. Morgan. Your line is open.

Hi. This is Joe Cardoso on for Sonic Chatterjee. So for my first question, I wanted to dig in on the gross margins. I think last quarter you guys guided for a moderation from Q4 to 1Q. And so I was just curious if we can double-click there and just figure out what has changed and what the variance was in when you guys initially guided there and what changed from what you guys reported in the first quarter.

Hi, this is TS. For the first quarter, as in my prepared remarks, we say the efficiency is more than offset in a merit increase. Typically July, August, September, we start giving merit increase for the whole year. So that resulted about 20 basis points better than the previous quarter, June quarter. So June quarter we're 11.8, and then moving to 12. And moving forward Q2, we don't guide gross margin, but if you just walk backwards, based on the guidance, it still show improvement from the 12%. So we are very happy that we are back to the 12 to 12.5% range, and we'll continue to maintain that.

Yeah, let me just maybe add, so, you know, a lot of the good results we had on gross margin Q1, it's really down to very tight cost control and efficiency gains from our team. You know, our internal team, operations team, our supply chain team really do an excellent job keeping our costs under tight control and, you know, realizing efficiency gains. So it's mostly driven by like I say, efficiency gains and cost containment.

Thank you. And then for my second question, relative to your commentary on the industrial laser market, it kind of seems like you guys are suggesting a little bit more headwind or a continuation of the headwinds that have been impacting that market, while one of your biggest customers in the last earnings call kind of suggested that that market was chopping off, if not. actually improving. So can you kind of explain what you guys are seeing there? Are you guys expecting it to trough in December and then improvement after there or whatever visibility you can provide will be helpful?

Yeah, I think that's probably a fair assessment. You know, that industry is going through a tough time right now. The competition is fierce. Spending seems to be tightening up. So that whole industry is going through a pretty turbulent time. We have a number of customers. We have probably four customers in that space right now. one customer being our bigger one. And really, our shape and size in that market is a function of what's going on with our customers. So we're not immune from what's happening with our customers. So it's pretty flat, I would say. The laser market is pretty flat. Longer term, we do remain quite optimistic, as I might have mentioned in my prepared remarks. We do remain quite optimistic about the laser market because we think that some of the price pressure that the big companies in that space, the Western world companies, if you like, are feeling we believe that we'll turn to outsourcing as a way to offset that pressure and we'll outsource more and more because to a large extent, a lot of the companies in that space, they insource quite heavily. They don't outsource that much. So we think we're very well positioned with the capabilities and experience we have. We think we're pretty well positioned to capitalize as that industry looks to outsourcing. But overall demand, I'd say short term is kind of flat as some of our customers have indicated.

All right. Thanks, guys, and congrats on the results. Thank you. Thank you.

Thank you. Again, to ask a question, please press star 1 on your touchtone telephone. Again, that's star 1 on your touchtone telephone to ask a question. Our next question comes from the line of Tim Savageau of Northland Capital Markets. Your line is open.

Hi, good afternoon, and congrats on the results. Thank you, Tim. Yeah, first question is on the 10% customer side. Did you have any 10% customers outside of your traditional customer, large customer in the quarter?

Well, as we said, we only report the 10% customers at the end of the year. We think we're probably tracking, you know, we've mentioned Infinera will likely be a 10% customer. There's a chance there's another one or two who could become a 10% customer for the full year, but it's probably too early to start flagging that at this stage. But we certainly feel we'll have two by the end of the year, possibly three. Outside chances there will be four, but it's probably more like three by the end of the year. Okay.

Appreciate that. And looking at telecom growth in the quarter, especially in the context of seeing the Silicon Photonics line down pretty – I wonder if you could characterize that 7% sequential growth in telecom. And I'd also, I guess, I'd mention that in the context of your commentary on 400 gig growing so strongly and being mostly from existing customers. But can you characterize the sequential growth either in the results or outlook or both in the context of contribution from new programs, you know, your ramp with your new customer versus existing customers? business or existing customers?

Yeah, a lot of the growth in telecom in the quarter, you know, a lot of that did come from our new customers. A big portion of it did come from our new customer. 400 gig growth is predominantly from an existing customer. And then the decline in silicon photonics, you know, some of our silicon photonics businesses is telecom related, but some of it is actually datacom related. So the overall, I suppose the two are possible telecom growth and a decline in silicon photonics in the sense that the decline in silicon photonics is mostly, you know, for the data and the data comp customers.

Yeah. Right. Understood. And any – realizing you don't guide by these specific segments, but I wonder if you have any kind of anecdotal commentary as you look forward to that telecom growth continuing. Do you have any kind of similar thoughts around what you expect out of – as Silicon Photonics as you head into next quarter and throughout the year? Do you expect that to return to growth at some point?

Silicon Photonics, I think a lot of it, I think on the telecom side, we think it's going to remain strong, and also on the Datacom side with several of our customers. One or two of our customers have experienced a little bit of softness in the data center, so that does affect us on the Silicon Photonics side. But overall, we think, and again, we only guide a quarter at a time, but overall, I think the sentiment out there that we hear is that telecom will be quite strong and datacom is a little bit flat and will continue to be flat, we think.

Great. Thanks very much. I'll pass it on. Thank you, Tim.

Thank you. Our next question comes from Alex Anderson of Needham. Your line is open.

Thanks. I was hoping you could give us the geographic splice.

In terms of shipment, not much changes. North America is shy of 50% and the rest are split between China and the rest of the world. Southeast Asia is also a big portion. We ship quite a bit to Southeast Asia countries.

And can you tell me what you said about the growth going forward in telecom again? I'm not sure I got it right in my notes. What was your expectation for telecom growth sequentially into the CY4Q, FY2Q?

Well, we haven't guided specific growth for telecom. I guess the discussion was really more around overall sentiment. You know, the sentiment where we hear from our customers is that telecom will remain, we think, quite strong. But we haven't given specific guidance for our telecom revenue for what we think it will do in next quarter.

I see. And one more question, if I could. Around the Israel operation, when would you expect to be able to actually generate some revenues from that facility? Is that six, nine months out? Or how far out does that take?

I think we're targeting to be, you know, up and running and ready to rock and roll in the early part of next year, so the kind of January to March timeframe. So we'll be ready to do business. But, you know, it takes a little bit of time then to, you know, win the business, grow the business. But I think it should be contributing, you know, to a certain extent in the, I would say, in the June quarter. we would expect to see some revenue emanating from there in the June quarter. Maybe a little bit earlier, but that's what we're thinking right now, Alex. So right now we're fitting out the building, and we're kind of fortunate the building we got has a lot of the infrastructure, because it was a semiconductor manufacturing facility originally, it has a lot of the facility's infrastructure already in place, so that shortens the timeline for us. And we're planning to install the full suite of equipment, SMP equipment, optical packaging equipment, And very importantly for our customers, full failure analysis capability there. So we'll replicate all these on a smaller scale, the same set of capabilities that we have in Bangkok, actually.

Do you see that facility as being roughly comparable size to Fabrinet West?

It's a smaller facility. In terms of square footage, it's smaller. You know, the Fabrinet West facility, it's a great location. It's a great facility. You know, the building itself is probably a little bit bigger than what we would actually need. So it's a smaller facility. I think in terms of square footage, it's about roughly 20,000 square feet. So it's a nice size, actually, for what we need. And, you know, similar to Fabnet West, it's not going to be a huge revenue generator in and of itself. The main purpose of Fabnet Israel will be to win customers that we then transfer to Bangkok. So we try and replicate the success we've had in Firmament West in Israel.

I see. Can you give us any sense of what's going on in terms of your factory utilization in your facilities when you might need to start moving on the next facility? Can you give us an update on that?

So we continue to create additional space at our main campus in Pinehurst. and win new business in Chonbury. It's hard to say, Alex, really, because we've been very successful. We've probably surprised ourselves how successful we've been at gaining efficiencies and freeing up space in Pinehurst. So we're growing our Pinehurst facility, our Pinehurst revenue on the same footprint. We're adding our new business into Chonbury. It's really hard to say at this point when we'll be ready to, I'll put it this way, if everything we have in the pipeline lands, we'll be hurrying up. But not everything will land. So I think we're still very optimistic, I would say, about the need for us to grow Chanbury. And like I say, if everything we have in the pipeline lands, we'd have to get going quickly. But it's very hard to put a date on it. I'm not being evasive. It's just it's quite hard to put a date on it because, like I say, a lot of the growth with our existing customers will be in Pinehurst. whereas Chanberger will be more for the newer customers.

All right. One last question, if I could, since it sounds like you don't have too many in the queue. The 400 gig commentary, can you talk a little bit about whether that's on the telco side, whether that's 400 gig or 600 gig? I assume that that's mostly 600 gig product within that mix for telco. Is that correct?

It's a mixture of 400. Data comp. Yeah, it's mostly 400 gig.

In Datacom, that's 400 gig. But what about on the telecom side?

On the telecom side, yeah, there would be 400 gig.

Majority 400 gig, yeah. So, yeah. Excluding the 600 gig, the 1.2 terabyte, that's excluded from the number. Shamu just quoted.

All right.

Thank you. Thanks, Alex.

Thank you. Your next question is a follow-up from John Marchetti of Stifel. Your line is open.

Thanks very much. Seamus, if I can just follow up a little bit on that Israel site. It seems a little bit of a departure from the last couple of quarters where it seemed like you had actually been backing off a little bit on the expectation there. Curious if something changed in the environment or you just found an opportunity or even just the site itself that made sense to kind of move forward here. that sort of changed at least what I perceived to be the trajectory of that business. And then just secondarily, if you can comment at all about the mix expected in there. I'm curious if this is, you know, mostly non-optical type of revenue that you think you're going to, you know, go after in this market or if it's similar to the Faber-Dett West where it will be a little bit of a mix of everything.

Good question. I think on the timing, you know, on the trajectory, you know, we've always been, I would say – quite bullish on the need for us to bring up a facility in Israel. The hold-up really, John, was just frankly being able to find the right location. We think Israel is a great location. We have three or four existing customers there, so we'd be looking to service their needs and also grow our business there. And the customers we have, we spoke to them and they're very supportive of the idea. Our hold-up, if you like, was just literally finding the right location. There's a lot of, you know, let's say incentives, government incentives to build, you know, in locations that would not be ideal for us. We're, you know, if you look at what we've done in Farnet West, we're right in the middle of Silicon Valley. Location is very important and it's the same in Israel. So it was really about just finding the right location and we've done that now. We've managed to find the right location. As to the mix, I mean, our existing customers, let me just think for a moment, are all optical communications companies.

Multi-DataCom.

Yeah, and Multi-DataCom. Our existing Israeli customers are all active communications companies, Multi-DataCom. So we would be looking to obviously, you know, continue to grow our business with those companies and add other communications companies, but also other non-communications companies that are in our technology suite, if you like, of, you know, precision complex products. such as LiDAR and other applications. We're not limiting ourselves to opticals, but we are limiting ourselves to high-technology, complex infrastructure-type products that will transfer to Thailand. Thanks very much, James. Thank you, John.

Thank you. We have a follow-up question from Tim Salvaggio of North End Capital Markets. Your line is open.

Thanks. I wanted to focus back on your commentary on the pipeline, and I wonder if you can give us an update as to what extent kind of customers, OEMs, moving supply chains out of China is contributing to that pipeline. I guess, you know, in past calls you've characterized that as, you know, a tailwind but pretty far out. I wonder if now that another quarter has passed, you can give us an update on what type of opportunities you might be seeing from these kind of shifts in global supply chains. Thanks.

So I would say that's still a tailwind, but still quite slow to move. Some of the pipeline that I referenced earlier is, I suppose, a function of that, but it's really more a function of just continuing to grow our business with our existing customers and also adding new customers. You know, we have a few big, I would say, big opportunities in the pipeline. You know, and some of the things that we're quite excited about are some of the opportunities really moving up the food chain for us, moving up into the full system build, full network systems. You know, with the business we've transferred from Berlin, that gives us experience now with that full network system. We have some other business in that same space. You know, we think we're kind of uniquely positioned, I suppose, in our industry and that we're approaching the full system build from the, if you like, from the bottom up. We're producing the most complex high technology components within the network system. So we think it makes sense for us to move up the food chain, you know, and produce the modules and the full system that goes with that. So that's in large part what we're targeting, Tim. And, you know, like I say, we have some pretty exciting opportunities there that we're pursuing. Thank you.

If I could just follow up on that quickly. I imagine that comment, in terms of moving up to the full systems level, remains focused on optical communications, optical transport, or are there other parts of the networking universe where you see those opportunities?

It's mostly, as you said, the optical infrastructure equipment, the networking equipment. We're not planning to become if you like a general large system producer for let's say storage equipment or anything like that, that's just not in our sweet spot. It really only makes sense for us when we're producing a large portion of the high technology components and content that goes into those systems. And it also makes sense for us, let's say it doesn't make sense for us to produce large systems where we're not producing any of the content, if you know what I mean. So we would not see ourselves as just an assembler. We would see ourselves as a high-technology producer of the industry's most complex technology and components. Therefore, it makes sense for us to produce the whole system. Does that make sense, Tim? Sure does. Thanks very much. Thank you, Tim.

Thank you. At this time, I'd like to turn the call back over to Seamus Grady for closing remarks. Sir?

Thank you, operator. Thank you all for joining our call today. We're excited to deliver strong results and a positive outlook as we continue to position the company for continued growth and diversification over the longer term. And we look forward to speaking with you again soon. Thank you and goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.