Onto Innovation Inc.

Good day, and welcome to the Onto Innovation First Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Schaefer. Please go ahead, sir.

Thank you, Connor, and good afternoon, everyone. Onto Innovation issued its 2021 First Quarter Financial Results this afternoon, shortly after the market closed. If you have not received a copy of the release, please refer to the company's website where a copy of the release is posted. Joining us on the call today are Michael Plosinski, Chief Executive Officer, and Stephen Ross, Chief Financial Officer. As always, I need to remind you of the safe harbor regulations. Any matters today that are not historical facts, especially comments regarding the company's future plans, products, objectives, forecasts, and expected performance, consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These estimates, whether expressed or implied, are based on currently available information and the company's best judgment at this time. Within these is a wide range of assumptions that the company believes to be reasonable. However, it must be recognized that these statements are subject to a range of uncertainties that can cause the actual results to vary materially. Thus, the company cautions that these statements are no guarantees of future performance. Risk factors that may impact ON2 Innovation's results are currently described in ON2 Innovation's Form 10-K report for the year ended December 2020, as well as other quarterly filings with the SEC. ON2 Innovation does not update forward-looking statements and expressly disclaims any obligations to do so. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. I will now go ahead and hand the call over to Mike Plosinski. Mike?

Good afternoon, everyone, and thank you for joining our call this afternoon. Earlier today, we announced first quarter revenue of $169.3 million, which exceeded the high end of our guidance range, without any revenue associated with the pending approval of our license applications by the U.S. Department of Commerce. We also raised our expectations for the second quarter, which at the midpoint represents 32% growth year-over-year and is well above our commentary from last quarter. In total, these positive revisions imply 26% increase in revenue for the first half of 2021 over the prior year, and we expect revenue in the second half of the year to be even stronger. Our better results and outlook reflect the strengthening market demand in our core markets, but also the exciting progress we're making to expand our served markets. So let's begin with highlights from the first quarter, starting with our advanced node customers. Demand for our optical CD metrology systems by multiple logic customers more than doubled over the fourth quarter to support expansions below the 7 nanometer node. At these nodes, the complex interaction of shrinking geometries, new materials, and the introduction of new 3D transistor structures is creating the need for additional metrology steps and additional measurements per step. We believe this increase in capital intensity will favor onto innovation's proven metrology performance at optical speeds, which are orders of magnitude faster than X-ray. We see this value extending through the three nanometer node and have already received requests for second additional systems at a partner using our latest platform to develop that three nanometer process. We believe our platform's configurable performance and cost ratio was a key factor in the decision by a top three logic manufacturer to select onto innovation for optical metrology of the critical interconnect layers in the back end of the line. This selection over an entrenched incumbent is for our customer's next generation product ramp, and we expect shipments to begin in the second half and carry through to 2022. In addition to expanding our opportunities in existing markets, we are making great progress expanding our available markets, including the estimated 400 million planar films market. After shipping the first of our planar film systems in the fourth quarter, we've already booked an additional seven tools for shipments to that customer in the second and third quarter of this year, with follow-on orders expected in the second half of this year. In addition, Three more customers placed orders for our thin film solution, with deliveries in the second half of 2021, and with further expansions expected by all four customers in 2022. Similar advances are being made in the advanced packaging and specialty markets, which continue to experience strong growth from multiple well-documented drivers in 5G, high-performance compute, and AI. As we guided last quarter, we saw incredibly strong demand from advanced packaging customers, which resulted in growth of nearly 50% over the fourth quarter, offsetting an expected pause in the 5G expansions we experienced in the fourth quarter. The majority of the packaging growth was to support high-performance compute and memory devices where our inspection systems integrated with our AI classification software is proving to be a critical combination for process control. Our unique ability to leverage proprietary AI software to transform process control data streams into actionable intelligence has migrated from the mission critical automotive market to these leading edge devices where faster and more accurate decisions are crucial to not only detecting but also resolving process issues before impacting production. Similarly, Our StepFast solution for panel lithography has demonstrated a 2x gain in productivity while simultaneously improving yield by employing sophisticated machine learning algorithms to optimize stepper performance. In the first quarter, we received a repeat order for our StepFast solution in excess of $6 million for delivery in the fourth quarter of this year. This order brings our backlog for lithography to over $20 million with additional orders expected in the quarter. In addition to the strong demand in our currently served markets, we're encouraged by the progress we are making in two new specialty device markets. In the first quarter, we received several repeat orders ahead of plan from a top three CMOS image sensor manufacturer to support the ramp of their latest imaging device. We're seeing this demand because existing systems were unable to detect critical defects associated with the more advanced process. For the year, we expect orders from multiple top-tier CIS suppliers totaling in the double digits. Likewise, progress with our newly acquired overlay metrology business is also going very well. We've already integrated our proven run-to-run software into the latest overlay product, which shipped to multiple compound semiconductor customers in the first quarter. This new overlay solution will be fully released in the second half of the year and not only optimizes the lithography process, but also has the potential to improve cell productivity, a significant value proposition in an already constrained market projecting a CAGR of 25% growth through 2025. Now, I'd like to turn the call over to Steve to discuss the first quarter financial highlights. Steve?

Thanks, Mike, and good afternoon, everyone. As I mentioned on our last call, we closed on the inspectrology acquisition after our fourth quarter book close. So the first quarter of 2021 is the first quarter that includes the results, includes their results in our numbers. However, the overall amounts were not material to the quarter. As Mike mentioned, our fourth quarter revenue was $169.3 million above the high end of our previous guidance, up 21% year over year and up 9% from the 2020 fourth quarter. Breaking down the revenue by market, 42% of sales were from our advanced nodes market, with strength coming from Logic, which more than doubled over the previous quarter. We also saw a strong growth from DRAM customers, but that was offset by a weakening in NAND. Advanced packaging and specialty devices represented 37% of revenue in the quarter, but was essentially flat overall with the previous quarter, And finally, software and services represented 21% of revenue in the quarter. Our close margins continued to stay strong at 54%, consistent with the fourth quarter. Product mix did impact the quarter, with over half of the sales volume increase over Q4 coming from established product lines. We expect to see continued improving margins in our new products, providing enhanced value to our customers, and the supply chain synergies that we've implemented from the merger begin to impact our product costs. First quarter operating expenses were $49.2 million, an increase from $46.3 million in the fourth quarter. The increase was primarily due to operating expenses of inspectrology operations and the reset of compensation-related expenses, such as payroll taxes, that occur at the beginning of the year. While we did experience an increase in operating expenses, our strong financial model resulted in an increase in our operating margins, 25%, well within our long-term operating model for these revenue levels. Our effective tax rate for the first quarter was 11% due to a higher than anticipated discrete tax benefit in the quarter. We also expect several other discrete tax benefits to reduce the tax rate in the second quarter to between 8 and 10%. With the reduced Q1 and Q2 effective rates, we now affect our full year effective tax rate to be somewhere in the range of 12 to 14%. In income increase in the first quarter, and was 36.3 million or 73 cents per share and above the high end of our guidance. In the 2024 quarter, we reported net income of 35.6 million or 72 cents per share. Fourth quarter earnings was impacted by a benefit from the benefit of a low 5% effective tax rate, mainly due to a closure of an IRS audit. Moving to the balance sheet, which is on a GAAP basis, we had strong free cash flow of 47 million for the quarter, or 28% of revenue. We ended the quarter with a cash position of $393 million, up $19 million from Q4, and that's after approximately $26 million in cash used for the inspectrology acquisition. Accounts receivable decreased in the quarter on higher revenues and better collections, improving our DSOs, and ended at $142 million. Our inventory increased in the quarter to $201 million on the inclusion of inspectrology's inventory, an increase in purchases for higher forecasted sales volume, and an increase in the systems and finished goods awaiting shipment to China that require licenses. Now turning to the second quarter guidance, we expect revenue to be in the range of 173 million to 184 million. Earnings per share in this revenue range is anticipated to be between 76 cents and 85 cents per diluted share. We also expect that within this range, gross margins will be between 54 and 55%. Operating expenses, we have active recruiting plans in place for the strong growth we are seeing. We are also seeing an increase in other variable compensation expenses and currently anticipate operating expenses for the quarter to be between 51.5 and 53.5 million. Even with this new increased level of OpEx, we are confident we will continue to be operating within our long-term operating model as we grow towards our next benchmark of 800 million revenue. With that, I'd like to turn the call back to Mike for additional insight into Q2 in 2021. Mike?

Thank you, Steve. I'd like to note that the guidance Steve provided for the second quarter does not include over $25 million in bookings that are pending license approvals from the U.S. Department of Commerce. Due to the uncertainty of timing of these licensing decisions, we will leave them out of future discussions until we have greater clarity. So clearly the demand for semiconductor technology is strong and broad-based. The increasing number of connected smart devices drives both chip volume and data center growth to support explosion in data being generated by each device and enable greater remote work life experiences. These data centers are becoming digital gold mines and they are increasing the demand for high performance compute engines to mine that data and transform it into valuable information. The value of this information to the consumer then drives higher product adoption, thus creating a virtuous cycle. OntoInnovation sits at the center of this virtuous cycle, providing comprehensive process solutions to challenging metrology problems from 3D transistor formations to 3D and heterogeneous packaging, which is a key enabler for future product innovations. To that point, in the second quarter, We project the strongest growth to come from advanced packaging and specialty customers. We see expansions from 5G and packaging customers leading that growth. We expect DRAM revenue to increase for the fourth straight quarter and NAND revenue to hold steady while logic revenue declines following a 2X surge from the first quarter. In summary, we see solid growth within our existing markets and we're making great progress expanding into new markets such as the planar films, and the CMOS image sensing market. In addition, we're beginning to realize revenue synergies through our broader sales channels. For example, we currently expect to add over eight new customers for our optical metrology suite by the end of 2021, simply by leveraging our existing inspection channels into the specialty device markets. Likewise, we're beginning to see the potential for revenue synergies with our overlay products and inspection systems outside of the compound semiconductor markets. Each of these dynamics, many in the early stages of realization, contribute to our positive outlook for next year and into 2022. It's certainly an exciting time to be a part of Onto Innovation, and I want to thank the entire team for their continued dedication to our customers' success. I also want to call attention to our first annual Corporate Social Responsibility Report for 2020, which is available on our website. The report outlines several of On2Innovation's ESG initiatives and our commitment to have a positive impact on our communities, the environment, both local and global, and our dedicated employees. Thank you. And Connor, we can now open the call for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will pause momentarily to allow everyone an opportunity to signal for questions. And we will take our first question. This will come from Craig Ellis with B Reilly Securities.

Thanks for taking the question, and guys, congratulations on the strong execution in the first quarter. Mike, I wanted to start just by following up on one of the points you made early in your remarks and then came back to or in your conclusion, you talked about an even stronger second half. And I was wondering, you know, in the past, you've sometimes characterized your growth over a period encompassing two quarters like you've done with the first quarter of this year. Any color on magnitude of increase in the second half, either half on half or year on year? And And if you look at the second half, would you expect revenues to rise sequentially through the year? Or for different dynamics that you see, would you expect things to potentially peak in the third quarter? So that's the first question.

For what we see right now, we believe revenues will rise sequentially throughout the remainder of the year. So we expect Q4 to be stronger than Q3. And we expect Q3 to be stronger than Q2. So that's what we're seeing right now. Contributing to that is not just the general market dynamics, but also the expansions that we're making into some new markets for us, where we're seeing, like I mentioned earlier in the planar films, additional adoption there. We've also mentioned the increasing backlog in lithography. which we begin shipping those systems in the second quarter, in this quarter, and, you know, start to see revenue impacting in the second half. So, yeah, so that's what's giving us the confidence in our statement, which has improved since the last time we spoke in the second half, in the strength of the second half. As far as magnitude, you know, I won't give you that, but...

Yep. Okay. Had to try. And nice to see the broadening customer traction in the thin film market. Just real nice momentum there. And then, Steve, for my second question, I'll ask one to you. So I just wanted to understand some of the dynamics that are leading to what looks like potentially a 70 basis point gross margin increase quarter on quarter in the second quarter. Is that more from inter-segment mix, say, more of a sequential gain in software and services versus the first quarter of things going on inside of some of the segments, intra-segment mix, and then any color on what we should expect with gross margins as we look to the back half of the year in that strong demand environment that has good potential to grow quarter-on-quarter, as Mike just described?

Yeah. Yeah, I would say there was, again, when I To go back to my remarks, when you analyze Q1, we did have, you know, we had obviously a nice growth quarter. But when you look at it, I think some of it was, you know, people expanding in line. We had existing tool sets, which is some of the newer products that we've talked about that I think would add, you know, add some incrementally to the gross margin. So it did have a kind of incremental revenue was impacting with some older product lines that, you know, have healthy margins, but maybe not as good as we're anticipating with some of the newer stuff. Going forward, for sure, I think you'll see just the growth in the product mix. We do have the lithography tools that Mike talked about that we'll be starting to ship in Q2 forward. So, it'll be a give and take. We'll add a little bit of pressure on the margin there, but again, we'll have increased volume, so I think we can offset that and stay within our model. I'm pretty comfortable if you look at our model in these ranges up to $800 million, you're talking our continuing model between $54 and $55 through $800 million, through the beginning of $800 million. And I think we feel pretty comfortable that we're going to be in those margin ranges.

Sounds good. Guys, thanks very much. I'll hop back in the queue.

We can take our next question. This will come from Patrick Ho with Stiefel.

Thank you very much, and congrats on a nice quarter on Outlook. Mike, maybe first off, in terms of some of the advanced packaging opportunities you're seeing both near-term and over the long term, can you discuss whether some of the upside you're seeing right now is coming from, quote, increased capacity expansion plans from existing customers versus wins that you've gotten on new applications, whether they're on the high-performance computing side. You mentioned heterogeneous packaging. Can you just, I guess, kind of provide a little bit of color of kind of the mix of increased capacity expansion versus new application wins on your end?

It's a little bit of a mix, and I don't have the exact split. But by new, in the last – so a lot of the growth is what I would call new – but it's not wins in a quarter or two. It's wins from last year, even 18 months ago, where we were installing systems to help customers develop some of these more advanced processes, help them develop them, yield them, and then work them into product designs. So that's what now we're starting to see in both the DRAM and the advanced logic markets. And in the last few quarters, we've tried to highlight that with the share gains that we've anecdotally put together and described to the investors about our growth within the, let's say, the five IDMs, where they're driving a lot more dollars and a lot more R&D into advanced packaging, such as heterogeneous die, such as 3D die stack, sorry, heterogeneous or fan-out packaging, substrates, manufacturing or panel packaging, as well as 3D stacking for high-bandwidth memory and TSVs. So we're seeing a lot of the expansions coming there, and we're seeing more devices being applied to that. So, for instance, some of the foundry customers, they're having more demand for that advanced packaging technology also running through, and that's adding to our growth trajectory as well.

great that's helpful and maybe as my follow-up question for Steve you guys generated really good cash flow during the quarter and your working capital management was particularly sharp you know given a lot of the constraints in the environment can you discuss I guess some of the the supply constraints maybe in the ecosystem and how that's impacting one your ability to build inventory and and also just ensure that you're able to deliver to the higher demand that's out there right now by your customers.

Yeah, thanks, Patrick. I mean, it's clearly something that's industry-wide we're looking at. We're keeping a pretty good pulse on the overall supply chain. From that perspective, we are seeing – Kind of vendor time stretch a little bit, especially in actually transportation side of it more than cargo things that come on cargo ships. We're starting to see. Expand a little out a little longer to get here, but we're working that into our plans. So, right now, we don't see a supply constraint. With what we're doing, but we're obviously planning for the fact that we see. a longer time stretching on some key components, especially coming from overseas. So, yeah, we're working those with the growth we're seeing, and we're planning accordingly. And we've got them built into the plan, so we don't expect any support at this time.

Great. Thank you very much, and congrats again. Thanks, Patrick.

Our next question will come from Quinn Bolton with Needham & Company.

Hey, guys. Also, all for my congratulations. Mike, I wanted to start on the planar films traction you talked about in the script. It sounds like you're seeing multiple systems at multiple customers. Can you just sort of give us a sense of the total number of planar films systems you expect to ship in 2021 or perhaps a dollar basis? How significant is this to the overall business?

I think it's still in the early stages. So as far as significance I would say it's less than 10%, certainly less than 10% of revenue. I think for us right now, we're encouraged by that rapid adoption from the first top three customer, but then also the seeds that we're planting and the adoption we're seeing with other customers, that's all going to mean more expansions in the following year, 2022. So I think For us, it's all about we're seeing a lot of growth right now just from the markets. We're planting a lot of seeds for future growth, and then we'll see that become a much more significant part of our revenue stream. Just a reminder, we said that the overall market is $400 million in size, split between some critical films and then some more common films. And it's the common films we're going after right now, so roughly $250 million or so. And so

know 20 of that is another 50 million we would hope we can achieve maybe a little better than that going into 2022. great uh thank you for that additional color and then the second question i had is um i think in the press release you talked about the inspection business growing roughly 20 quarter on quarter so um the back end advanced packaging certainly feels like it's seeing good momentum Your main competitor in that space sort of talks about seeing 80% growth in its inspection business in the first half of 21 versus the first half of 2020, so perhaps a different time base. But wondering if you could give us your thoughts on just overall market share position in the inspection segment of the market. Do you think you're keeping pace with your largest competitor there in terms of market share?

I think it depends on how you segment the market. So we're certainly extending our position at all of the leading edges. We've talked about that multiple times. I think we've got plenty of data points there. Where we're certainly struggling is in China. And I think that's an area that the competition is taking advantage of. With the restrictions we have, we've talked about significant amount of orders, pending licenses. That's what we have in hand. There's also the dynamic where many of the second-tier suppliers prefer to work with a non-U.S. option, a non-American company as an option. So there's some low-hanging fruit that the competition is taking care of there. I think that that's a temporary dynamic. I believe that what we're seeing from the Commerce Department, what we're seeing from Gina and the communications, that there's a desire to find a way to work and not punish the U.S. equipment industry, which is so critical to the overall growth and success of SEMI over the last several decades, really. And so I think that that's going to turn around. But we're happy with where we are and how we've been gaining share at all the leading edge and critical devices and the specialty markets as well.

Thank you, Mike.

And we will take our next question. This will come from David Dooley with Steelhead Securities.

Hello, thanks for taking my question. Mike, I just want to clarify one of the statements you made earlier on. I think Craig was also asking about it. You mentioned the growth in the first half of the year versus the first half of last year, I think, was up 26%. And you made a reference how the second half growth would be stronger than the first half. Do you mean that the second half of this calendar year will be up more than 26% versus the second half of last year? Or just help me understand what you mean by stronger than up 26% in the first half.

Sorry, that's a good question. So what I meant is it'll be stronger than the revenue in the first half. So we see the second half as stronger than the first half of 2021. Okay.

And as far as, you know, when you look at your, you know, I guess front end wafer business and metrology business, you know, is it kind of, you know, we've heard, from the big wafer fab equipment companies that, you know, the market's going somewhere around 30% in calendar 2021. Do you think your metrology business will grow at a faster rate or a slower rate than that?

Uh,

I think we're growing around that rate. I think there's opportunities for us to grow faster. It depends on timing of some of the adoptions of the new products we've talked about. Certainly, we're seeing some activity in the 3D NAND, which could drive accelerations in aspect, our channel homotrology. that we, you know, right now we're not seeing a huge impact in this year, more for next year. That could pull in and that could change. But I think right now that's a, you know, the 30% number is reasonable.

Okay, excuse me.

And then I think generally people have talked about unit volume growth of 12 or 14% this calendar year. and I suspect that that will continue given all the big wafer fab equipment investments we're seeing. If 12% or 14% is kind of the unit volume growth, what would you expect kind of annual growth to be for your back-end business?

Well, last year our back-end business grew over 20%, and we think it's going to continue at those kinds of levels. Back-end, what we're seeing for demand for our advanced, You know, the advanced equipment is, you know, it's pretty strong. And it's driven by a lot of different products, but also by those top IDMs that are migrating and now competing on the advances they're making in packaging. And you can hear it from nearly all of them. TSMC has talked about it. Intel has talked about it. Samsung has talked about it. So, you know, that's helping to propel this forward. you know, massive transition or demand we see for our advanced systems. And, you know, part of the advanced systems isn't just can we see the defect and measure it. It's also what do we do with that data. And customers want fast decisions. They want that actionable intelligence that they can make adjustments to the process right away. And that's what we're providing and have been providing to the automotive industry for, you know, better part of a decade. And now that whole value proposition is resonating very well with the advances in the high-end here and more traditional semiconductor.

Okay, final question from me is, could you just elaborate a little bit more on your lithography business? You mentioned, I think, that you picked up another order and that your backlog is now greater than 20 million. Could you talk about the shipment of those tools and what is – What is the reason, so to speak, that everyone all of a sudden wants to take ship delivery of panel lithography tools? What has changed in the development processes of your big IDMs that has all of a sudden, you know, that they're starting to order panel lithography tools?

Well, one thing we talked about is there's some, and the reason, you know, we've had orders and been driving a backlog is there's, There's customization. There's some new features and capabilities that we'll be announcing as part of these systems. So that's one thing. That's opening up the doors and capabilities into another aspect of panel where we're seeing, you know, tremendous amount of not just interest, but ramping of volume production. And that production is what we talked about early this year, that we could see and count to volume moving, not just in 2021, but through the next several years, 2022, 2023. So we're seeing nearly, well, every major logic, all the high-performance compute engines that we're seeing are moving towards this this type of technology, this panel-level packaging technology.

As a follow-on to that, you know, it sounds like you kind of have a broad base of customers that are going to take systems. You know, the largest customer in this segment is the big foundry in Taiwan, and they did mention on their conference call, obviously, they've raised their CapEx like three times in three or four months, but that they're going to spend 10% of the CapEx budget on the back end, which is roughly $3 billion. Do you see them adding a bunch of capacity in FanOut, which will require a bunch more lithosystems this calendar year?

From a panel side, I would say they're not leading. But from the FanOut, you know what the info process and some of their other advanced packaging co-ops, They're certainly investing heavily and gaining more customer demand for those products.

Thank you. Yep.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad now. We can take our next question. This will come from Tom Diffley with DA Davidson.

Yeah, good afternoon. First, Mike, a question on the $25 million of bookings that were booked but not shipped going to China. Have those been built and they're in inventory right now, or are they in process?

Some have been built and are in inventory. We didn't expect such long delays. We did foresee a lot of growth and didn't want to, you know, double up in particular quarters, so having a whole influx hit all at once. So we did build some. Now we're working with customers to manage through the build, so it's not the full amount, but I did mention it's over $25 million.

But those could be reconfigured for other customers, worst-case scenario?

Worst case scenario, yes, and we also got, you know, payments up front because of the uncertainty. Okay.

Excuse me. So, Steve, you talked about lead times and supply challenges. Have your lead times changed at all for your tools going to customers?

No, not really, Tom. Okay. Yeah, we've only just started to see some of this new commentary on shipping dates from the incoming, but we're ramping for the volumes we're seeing, and we're not stretching out our lead times anything per se.

Okay, that's encouraging. And then finally, when you look at the software and services space, when you look at the projected growth over the next few years, Is it more heavily weighted to software side or the traditional services side? And what might that mean for the margins?

So I would say some of that, the growth is probably more on the services side and software. Software is going to, I think, as you recall, I kind of consider it a steady Eddie. It's got this nice, you know, progressive growth. But unlike the days prior to the merger, you know, software isn't, it isn't as big as the overall, you know, the overall was to Rudolph. So its impact on the margins, while helpful, clearly, it doesn't really, it moves, it doesn't move the needle as much as it used to. So, I mean, I expect software to continue to grow. I think it'll continue to enhance the margins, but we're talking, you know, percentage, you know, percentage of a percentage point impact on the overall margin. On the service side, I think we've seen some steady growth in the service over the last, you know, if you actually track back a year and a half, Services is continuing to grow. We expect that to continue to grow, obviously, in this environment. And our service business overall is a pretty healthy margin business.

Okay, and then I guess finally, is the services business more leveraged to the advanced node products or the advanced packaging products?

Yeah, yeah. So more of the advanced nodes, obviously, is a bigger piece of our business, so yes. All right, thank you. I would now like to turn the call back to Mike Schaefer.

Thank you. We'd like to thank everyone for participating in the call today and for your interest in ON2 innovation. That concludes our remarks for the call. Connor, please wrap it up. Thank you.

Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.