Good day, ladies and gentlemen, and welcome to the Advanced Energy Industries First Quarter 2012 Earnings Conference Call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Annie Leschin of Investor Relations. Please proceed.

Thank you, operator, and good morning, everyone. Thank you for joining us this morning for our first quarter 2012 earnings conference call. With me on day's call are Garry Rogerson, Chief Executive Officer; Danny Herron, Executive Vice President and CFO; Yuval Wasserman, President of the Thin Films business unit; and Gordon Tredger, President of the Solar Energy business unit. By now, you should have received your copy of the earnings release that was issued yesterday. For a copy of the release, please visit our website at www.advanced-energy.com or contact us directly at (970) 407-4670. This quarter, Advanced Energy will be participating in the Barclays Global Technology Media and Telecom Conference on May 22 in New York and the BofA Small and Mid-Cap Conference on June 6 in Boston. As other events come up, we will make additional announcements. I'd like to remind everyone that except for the historical financial information contained herein, the matters discussed on this conference call contain certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believes, expects, plans, objectives, estimates, anticipates, intends, targets or the like should be viewed as forward looking and uncertain. Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the industries we serve, the timing of orders received from our customers and unanticipated changes in our estimates, reserves or allowances, as well as other factors listed in our press release. These and other risks are described in Forms 10-K and 10-Q and other reports filed with the SEC. In addition, we assume no obligation to update the information that we provide you during this call, including the second quarter guidance provided today and in our press release. Guidance will not be updated after today's call until our next scheduled quarterly financial release. I'd now like to turn the call over to Garry Rogerson, CEO of Advanced Energy.

Welcome, everyone, and thank you for joining us this morning. I will begin today with a few comments on the quarter, provide an update on our cost reduction efforts and then discuss the next stage of our strategic plan, getting closer to customers and maximizing growth. Starting with Slide 4, first quarter performance met our expectations. Sales of large-scale inverters were in line with their seasonally weak first quarter. In Thin Films, most of our markets remain at near-cyclical lows with the exception of semiconductors, which were stronger than anticipated, reflecting the industry momentum. Total revenues declined 6% sequentially to $106 million, and we achieved non-GAAP earnings per share of $0.06. Although we exceeded our profitability target this quarter and improved Solar Energy margins, Thin Films operating margins were lower due to a one-time occurrence that pressurized gross margins. We ended the quarter with almost $151 million in cash, having generated nearly $30 million, excluding stock repurchases. We ended 2012 with annualized cost reductions of $12 million, a redesigned compensation plan in effect and a new allocation of corporate expenses to each business unit. As you can see on Slide 5, we again lowered our operating cost this quarter, adding another $14 million annual cost savings and bringing our cumulative total to $26 million. Specifically this quarter, we exited several facilities relating to our Solar Energy business and completed an agreement to sell the remaining portions of our Aera Mass Flow Controller business to Hitachi. The deal will close either in Q2 or Q3. Utilizing our manufacturing in Shenzhen, we also began qualifying our sub-assemblies. These sub-assemblies should be incorporated into our products and start shipping in Q2. Our breakeven is now below $100 million, mainly due to the measures we have taken to reduce our operating expenses. In parallel…

Thanks, Garry. Beginning with Slide 9, Thin Films revenue increased 11% sequentially to $60.4 million or 57% of total sales, driven by 42% sequential growth in sales to the semiconductor capital equipment market, while the rest of our Thin Film markets stayed at near-cyclical lows. Semiconductor sales were exceptionally strong, benefiting from several fab line conversion projects as manufacturing lines were retooled for other IC applications and accelerated by high upgraded -- related activity with the OEMs. Both resulted in a changing tool mix and strong HNP CVD sales. Thin Films operating income decreased from $7.4 million last quarter to $3.1 million, leading to a 5.2% operating margin. Despite a strong revenue performance, operating income was impacted primarily by the allocation of corporate overhead to each business unit, which began as of January 1, as well as a non-recurring item from our purchase of discontinued parts for long-term inventory which, as you know, happens from time to time in our industry. Turning to Slide 10. We entered the quarter having lowered our breakeven to less than $50 million. We took another step this quarter to reduce our operating costs with the sales of the remaining assets of our Aera Mass Flow Controller business. As part of the original sales to Hitachi Metals, we agreed to maintain manufacturing and service for a limited period of time. This quarter, we began to transition the flow service operation to Hitachi, resulting in the closure of our North American flow service facility. Additionally, Hitachi decided to take over our lease space for mass flow control manufacturing and acquire our manufacturing assets in Shenzhen, which they will continue to operate utilizing the existing team. As a result, we further consolidated our footprint in China and North America by approximately 19,000 square feet, saving the associated…

Thanks, Yuval. Turning to Slide 12. Revenues in our Solar Energy business declined 22% sequentially to $45 million this quarter, reflecting our first quarter seasonality and the slowdown of installations in the winter. We shipped 179 megawatts versus 223 megawatts in the previous quarter, driven primarily by commercial and utility scale products over 250 kilowatts. Despite our lower revenue, we achieved breakeven with operating income of $528,000 as a result of our ongoing cost-reduction efforts. And turning to Slide 13. In just a few quarters, we have made significant improvements in our cost structure to reach breakeven of $45 million, but our efforts to reduce costs are not stopping there. For example, during the quarter, we completed the closure of 2 warehouses in Bend, Oregon and Fort Collins, Colorado to streamline our footprint. Second, we began qualification of sub-assemblies produced at our factory in Shenzhen ahead of plan this quarter and expect to complete the qualification process during the second quarter. Third, while initial savings from the manufacture of our sub-assemblies in Shenzhen will further decrease costs. More meaningful savings will come through low-cost sourcing and outsourcing sub-assemblies from lower-cost areas as we ramp production. This effort will be spearheaded by the experienced Director of Supply Chain Management we hired recently. With his experience working in the region, we expect to be running our supply chain almost exclusively through our Shenzhen facility during the second half of the year. Specializing the management of our supply chain will reduce are costs and also allow us to serve our markets worldwide more efficiently as we expand and accelerate our revenues. This quarter, we began to broaden our reach by expanding our efforts in our existing North American market and by entering new geographies with growing demand for large-scale solar inverters. First, we…

Thank you, Gordon. During the course of my remarks, I'll refer to both GAAP and non-GAAP results. Non-GAAP measures exclude the impact of the restructuring charge recorded in the first quarter. A reconciliation of non-GAAP income from operations and per-share earnings is provided in the press release tables. Turning to the highlights of the quarter on Slide 15. Total revenues were $105.8 million, a decrease of 6% sequentially and 23.1% annually. Excluding restructuring charges of $2.6 million, non-GAAP EPS was $0.06 a share. During the quarter, we repurchased 2 million shares at an average price of $11.09 per share. We ended the quarter with a strong balance sheet, including cash of $150.7 million, a $7.5 million increase even after repurchasing $21.9 million of stock. Turning to Slide 16 and the breakdown of revenues. We saw a stronger-than-expected increase in thin-film semiconductor revenues during the quarter, balanced out by the seasonal slowdown in the Solar Energy business and trough levels of non-semi-thin-film markets. In total, Thin Film revenues grew 11% sequentially to $60.4 million, contributing 57% to total sales. Revenue was driven by 42% increase in semiconductor sales to $38.3 million, a 66% decrease in flat panel sales to $1.3 million, a 27.4% decline of solar equipment to $3.1 million and roughly flat service revenue of $12 million. Solar energy revenues fell 21.8% from last quarter to $45.4 million. On Slide 17, you can see that our cost-reduction efforts and ongoing expense controls continued this quarter, leading to a total operating expenses, excluding restructuring, of $36.5 million, a decrease of 3.5% both on a sequential and annual basis. R&D decreased 4.7% year-over-year to $15.4 million or 14.3% of sales during the quarter. SG&A decreased 4% year-over-year to $20.1 million or 19% of total sales. Beginning this quarter, we allocated all of…

[Operator Instructions] And our first question comes from the line of Joe Maxa with Dougherty & Company. Joseph A. Maxa - Dougherty & Company LLC, Research Division: I wanted to ask a little more about the solar market. You talked about increasing competition or potentially coming to North America, given what's happening in Europe. What are you seeing right now and what are you expecting as the year progresses?

Joe, we're very comfortable with the prospect list that's out there for us so not much problem there. Yes, there are companies coming in, but as we've said last time, they are really not designed for the U.S. market yet so they're having a difficult time. Gordon, do you want to add anything?

Yes. So, I guess, the one thing I would say to clarify is, we are focusing on the utility segment in the high end of the commercial market. So we aren't seeing too much of what's going on in the residential market right now, but we are feeling very comfortable with the prospects that we have going forward in those first 2 segments. Joseph A. Maxa - Dougherty & Company LLC, Research Division: So as they come and get more experience in North America, are you anticipating stronger pricing pressure? Are you seeing anything yet?

Well, we'll have new products with lower costs. So I'm sure we'll be in a good situation. Joseph A. Maxa - Dougherty & Company LLC, Research Division: Okay, I understand. I wanted to ask on the operating expense line, Danny. It does look like your operating expenses x restructurings and what-not, and I think there was some bad debt maybe the last quarter. It looks like your OpEx has increased over the last couple of quarters on the lower revenue.

So what you have -- Joe, what you have now is you do have anticipation of ending our plans for the year, which causes us to accrue bonus compensation, which was a big reversal in Q3 of last year and was non-existent in Q4. That's the primary thing if you took that out, you'd get a good apples-and-apples reduction comparison. Joseph A. Maxa - Dougherty & Company LLC, Research Division: I see, okay, that's helpful. And then I just wanted to get a little more clarity on your Thin Films market segments, you're expecting some basically flat [indiscernible]. Were you thinking that for Q2 or the rest of the year? What are you -- what's your outlook on that?

So -- this is Yuval. Our Q1 was very strong and in comparison to Q1, we see a slight decline in Q2 but that's coming off a very, very strong Q1. We expect for the rest of the year to behave just like the market, and we don't see right now any pressure that will impact that assessment. Joseph A. Maxa - Dougherty & Company LLC, Research Division: So it's fair to assume most of the revenue growth in Q2 is coming from the Solar piece?

On the Thin Film business?

On the Thin Film business, you're going to see a little bit of growth from flat panel display. Joseph A. Maxa - Dougherty & Company LLC, Research Division: I'm sorry, I switched gears on you. I meant your Solar SBU, a little -- a lower margin.

We're certainly going to see some growth in Solar but I think we said it's going to edge forward throughout the year. So we've got a good prospect list at the high end in commercial and utility. We feel quite comfortable that we can grow this next quarter from a low third quarter, Q1, as we said before, it's always relatively low. So we're in good shape.

And our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch.

One of the things I wanted to find out is when you start looking at getting into inverters outside the U.S., can you talk a little bit about what the priorities for like the India and the Asian customers are? Is it more in terms of reliability service? What are you looking at? And how should we think about the pricing outside U.S.?

Well, I think it's fair to say that India is the first market that we focused on, and what we're seeing there is actually a market that's in its fairly early stages. There's certainly pricing pressure, but there are a lot of customers that we've talked to that see that value in a reliable product and in a company that can stand behind its warranty.

So the warranty is similar to the U.S. warranty?

I think the market is bifurcated, really. There's a really low-cost market in India which, obviously, we don't want to play and we want to play in. And there's a quality market there that wants the product that will last a long time. So we're clearly not going for the cheapos. We're going for the quality product and the quality customer. And that's what we do across the world, of course. We do that in the U.S., and we do that now in India. So yes, there's a low-cost market there. We don't want it. We like the other people to go and get that one. We give it to them.

And then just a final question from my end, given the moved to Shenzhen and if you bake in potential pricing decrease in the inverters side or pricing pressure, what do you think is a good gross margin -- long-term gross margin for inverter business? Would it be in the low 30s? Or do you think it can get beyond that?

That's an outstanding question. I mean, the Shenzhen facility -- we're really fortunate to have that facility and we're moving very quickly, as the sub-assemblies are already being built into our product to a certain extent. So we're moving quickly there, and we will get the costs out. And we will start to see that probably in Q3, Q4. Then of course there's pricing pressure that could take a little bit of that away, but we expect to have gross margins over longish period of time to creep up slowly.

And our next question comes from the line of Weston Twigg with Pacific Crest Securities.

I just have a couple of questions here. On the Thin Film operating margin, it was pretty low this quarter, I know there was one-time expenses and some changes in terms of corporate allocation, but the cycle peak goal is 23% to 35% op margin and I'm just wondering since arguably we're at a cycle peak range for the semi-business when you might expect to get there? And maybe, would you get there later this year?

Yes, it was a good question. Obviously, if you add back the additional allocations and you add back the one-time end-of-life buyer, you're back up to 13% or so that we showed in Q4. And that's on a revenue basis of $60 million and if you recall back during the peak last year, our thin film unit was delivering about $100 million of revenue so if you took another $40 million of revenue and used an appropriate gross margin, you would be right up into the cycle peaks that we've talked about.

Okay, I get it. And then, just moving over to the inverters side, what do you think the op margin might be by Q4 this year?

We haven't disclosed that, as you know, but we had given you what we hope in the 3-year period. And we hope to be getting to about 10%.

All right. And then just finally, related to the inverter piece, on the Canadian manufacturing, so just to clarify, you have an outsourced manufacturing partner. You're moving away from that and establishing your own facility for manufacturing. And if so, does that then get away from your plans to manufacture everything in Shenzhen? Is it a little bit of a change in plans?

No, not at all. We have a facility already in Canada and we're utilizing that facility. We're not increasing our square footage and we are doing assembly in countries where we're required to do assembly. So that's what we're doing there.

And our next question comes the line of Timothy Arcuri with Citigroup.

This is Kevin [ph] calling in for Tim. I just had a couple of questions on the inverter market. What is your revenue breakdown by geography? Do you give that, maybe just roughly Europe, Asia, North America?

Actually, we -- can I just correct the question I answered before? I said the Solar business, we're getting to 10%. It's between 10% and 15%. Over the 3-year period is where we hope to be. My apologies for screwing up. Our Solar business is mainly U.S. It's not really worth dividing up by geographies at the present time. It's mainly the U.S., noise-level everywhere else.

I see, and do you have... I see. And then, do you have any interest in entering Japan? Is that a potential market for you in the second half of the year?

We love Japan. Yes. I mean, Japan is a good market. I mean the -- the obvious ones are Japan, India and China. I've already told you, we would not go into China. It's not worth the bother. But we will -- we are going into India, and we will try to get a way -- find a way into Japan. Great question. Other area is, of course, Latin America and South Africa.

And then lastly, I noticed ASP is still trending down a bit, do you have any guidance maybe in terms of percent, in terms of what you're expecting in Q2?

Yes. The ASP math that you're referring to is just what shipped in revenue dollars. And remember, the revenues have different balance of system parts in there than they used to have. So it's really not a good measure over time.

And our Services business is continuing to increase as well.

Okay. So you're seeing more stability than from last quarter to this quarter, Q4 to Q1, ASP-wise?

We're always seeing pricing pressure, but we have been doing an effective job of maintaining our ASPs.

Again, just to repeat there, we're not going after all the business. We're only going after what we think of as the good business. I mean, as you know, as you look backwards with us, we haven't made money. We are pleased that we've got over the breakeven last quarter, and we're still seeking out customers that fit our product line. We're not going for anything at all. And that's probably why we don't see these European competitors who are coming in at the low end, because we're actually just going for the, I'll call them the Rolls-Royce companies.

And our next question comes from the line of Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: So first question I have is on the restructuring. How much of that $26 million annualized saving that you have achieved here total so far? How much of that is reflected in your first quarter result? And how do you kind of think about that -- the cost model going forward beyond the first quarter?

Yes, Edwin, this is Danny. The $26 million has all been structurally put in place. But I would say, of the $12 million in compensation that added this quarter, $6 million of that is short-term incentive and since there was no short-term incentive paid out last year, accruing for that would actually be an increase year-over-year but structurally, the program has been redesigned to pull the $6 million out. On the long-term incentive, structurally, it's been redesigned to pull out the $6 million. But because we have a tail of options and RSUs that are previously granted, those will wind down over the next 3 years. So you'll see a decrease in amount each quarter, but it will take 3 years for the tail to wind down on the long-term incentive. The rest of it is in our run rate today. Edwin Mok - Needham & Company, LLC, Research Division: So your stock comp jumped to $5 million this quarter? Or it was just a -- it's going to stay at that level.

That's right it did, but that's because of the wind-down of the tail on the new program that was put into place this year. When the tail is totally eliminated, our stock compensation will be over $6 million less annually, and the dilution will be down to 1.5% from what was previously 4%. Edwin Mok - Needham & Company, LLC, Research Division: Okay, [indiscernible]. So are you saying that, that will start -- you'll start to see that in the second quarter? Or does it take a few quarters for that to...

It will take a few quarters for you to see it. You will see little change in 2012. You'll see more of a change in 2013 and the tail is totally unwound in 2014. Edwin Mok - Needham & Company, LLC, Research Division: Great, that was extremely helpful. And then, on the mass flow control business you guys talked about, was it just a facility sell or was there any, actually any revenue that was tied to that?

Edwin, this is Yuval. We basically transition the whole business and the recent agreement we came to with Hitachi Metals is that they will assume the lease of the space that was used for manufacturing for mass flow controllers in Shenzhen. We'll hire all the employees, and we'll continue to run the operation with the current team. The main driver was the flood in Thailand that changed our plans. We are now on track to transition our service of the flow business to Hitachi Metals that would be concluded in Q4, and we'll do it a country at a time.

So the good news -- I mean, the good new story here is that we're not having to close down a facility. They are taking the facility from us, and the good news for our people, thank goodness, is that they're taking our people. So the employees continue to work. But they just continue to work for Hitachi and the floorspace just goes to Hitachi. So it's actually good news for us, good news for our people. It could have been that we would have had to close the facility ourselves. So the saving for us is the cost saving. It's the shutting things down. So it's a win-win for everyone, actually, that story.

And the customers continue to enjoy high-quality continuous supply with the same team and the same systems. Edwin Mok - Needham & Company, LLC, Research Division: Great, that was very helpful. Lastly, I have is regarding your guidance, right? So if I assume just a modest growth in the Thin Film business, that would imply like 20 percentile growth for your Solar business sequentially. Can I ask what is driving that growth? Is it the U.S. market? Is it the international expansion you talked about? Was it just your share gain within the U.S. market?

Well, I think we've always said that Q1 is a seasonally weak quarter for us. In Q2, we would be back to a more normal revenue that we would see tracking for the rest of the year.

But we have got good traction in the U.S. So we're not -- we spoke about India. But India is a project, it's a long-term project. At the moment, we're enjoying the U.S. and that high-end commercial utility spot, where there's a lot of business to be had. I know we were reviewing the prospects last night. And they're extremely good. Clearly, we have to win them and that's the risk but we are in a good position with our products and services, and the customers are there for us. So I think we are in as good a position as you can get. Edwin Mok - Needham & Company, LLC, Research Division: Can I make a quick follow-up question on that? So in terms of, maybe you think about -- one way to think about it is [indiscernible] or how much of your business is booked for the quarter. For the second quarter, at least, in both -- well, they're both Solar and Thin Film, right? How should we think the business is booked? I mean, you're at one month of the quarter that is behind us, right?

That's a very good question and as you know, we don't answer it. But we're very comfortable for the quarter, very comfortable. At the present time, that's where we are, we're comfortable.

And our next question comes from the line of Jim Covello with Goldman Sachs.

This is Mark Delaney calling in for Jim Covello. I was hoping you could help me understand a little bit more on the restructuring activity that you're putting in place. I know that there's been a lot of work done and exceeded the initial goals. And when I look at the operating expenses going forward, if revenues are going up, I mean, should we assume that OpEx is going to be flat to up but just at a slower rate? Or can it still come down on an absolute basis?

Mark, all the programs we put in place and as I commented in my remarks, they've been put into place with the intent of them not going up when we return to higher run rate levels. That will be a difference from what we used to do as a company. We've cut our workforce to the right size to be able to be profitable in the trough, and we don't expect to add costs as we increase in revenue.

Okay, that's helpful. And then I was hoping you could talk on the inverter -- the Solar Energy business unit in the United States or actually just maybe more broadly. The breadth of the customer base, I mean, if you looked at your top, say, 2 or 3 projects, maybe what percentage of your overall Solar Energy revenues are coming from those larger projects?

We don't disclose that, but there are a lot of large projects going on at the present time. So this is very much black and white. You win or you lose. But we seem to be in a good position.

Yes. I mean, the majority -- we said the majority of our businesses and the category that's above 250 megawatts -- or kilowatts, sorry. And we're very confident in the projects that we're executing now and the ones that we have lined up as prospects.

I mean, Mark, I know your concern is on concentration. But if you think about it, the largest solar project in the U.S. was the Zachry project down in Southwestern Arizona and that was 150-megawatt project. So -- and that was over 18 months. So you can think about that, that's only -- if you divide that out, that's 20 megawatts of concentration in one year. It's also in...

Where you're describing as concentration, internally, we call it focus.

That's helpful. Lastly, I mean, if you assumed, say, an even mix of Thin Film and Solar revenues, what sort of overall top line number would you need to get to, give it the fourth quarter this year in order to have a 10% or greater operating margin?

I would have to think about that, Mark, and do some math instead of spinning it off the top of my head. I -- if you look at this quarter, if we held our cost constant and you just grew from where we are, you can do the math to get to the 10%. Because you really aren't going to have any cost increases, other than growing the margin.

And our next question comes from the line of Mehdi Hosseini with Susquehanna International.

One for Yuval, if the semi cap, especially the front end, were to be flat this year, would you expect your components sell into that market to grow?

In general, maybe, the answer is yes. We have one significant design wins during the last 2 quarters, and we continue to launch new products to the market for both 2x nanometer technology nodes and beyond, and we have started shipping products to those specific application spaces. So if we assume that everything stays the way it is, our main business will continue to track the industry and a new business will be generated by capitalizing on those design wins that we have landed recently.

Got it. And then on the flat-panel display, you talked about increased activity. LG last week talked about building another factory. Is that what you were referencing?

Not necessarily. We -- right now, we see an increase in 2 areas. The first wave, if you may, is driven by technology migration, and there's a lot of investment driven by the AMOLED displays, for which we have a significant leadership position in the etch applications. We expect Samsung to follow that investment cycle. And after that, we expect to see an additional investment in capacity. When exactly, it's still murky. But we are really well positioned to benefit from that wave as well.

Got it. And then one question for Danny. What kind of a tax rate should we use for the rest of the year since it was 33% for Q1?

Well, actually, the 33% is a result of how you do the restructuring and the tax impact on that. Our full year tax rate is still expected to be in the 25% to 27% range. Actually, overall this quarter, it was 26%, right in the middle of that range. The one thing out there and I think we've discussed this before, and that is congress still hasn't passed the R&D Tax Credit for 2012. And if it is passed some time before the end of the year, it will have a favorable impact of 1 to 1.5 points on our tax rate.

And our next question comes from the line of Colin Rusch with ThinkEquity.

Can you talk about how many deployments you have on the ground in India at this point? And if you don't have anything up and running there yet, when do you expect to have something connected to the group?

We said in the opening remarks that we do have our initial installation completed there.

Okay. And how big is that?

It was 1 megawatt.

Okay. And you've actually done a pretty good job of being disciplined on your ASPs. Can you talk a little bit about the customer dynamics, in terms of volumes of bookings? And what you're saying yes and no to and then what criteria you're really using to just say yes and no to those customers?

I assume you're talking overall here and not just about India.

Yes.

Yes. I think what we've said is that what we're looking to do is develop relationships with customers and develop sources of profitable, sustainable growth. What we're doing right now is we're continuing dialogue with customers. As I've said, there's pricing pressure on us all the time, but we're selling the value of the products that we deliver and the services that we provide. And I think, as we go along, there's obviously these situations where there are customers that are motivated by sort of rock-bottom prices and most of the deals that Garry is talking about, where we've decided on occasion, we'll just walk from those.

Okay. And can you help us understand what the booking's run rate was for the first quarter?

Well, we don't disclose that, as you know, but we're very comfortable with this quarter at the present time. Q1 is seasonally weak, as we've said, and we're looking forward to a pickup this quarter. So at the moment we're in good shape.

And our next question comes from the line of C.J. Muse with Barclays Capital.

This is Olga calling in for C.J. Just wanted to touch base on the outlook for the inverter market. I think in the last call you had talked about your expectations for TAM to grow 22% for the year. If I factor in your results in the first quarter and the slight increase in 2Q, it seems like you could really need to get to a $65 million run rate in the second half of the year. Do you believe that's currently achievable based on your customer conversations?

Well, that's your calculation, not ours, yes? What we've said is we can grow north of 20% this year and that's what we expect to do.

So, so far, the conversations that you've had with your U.S. customers still suggest that, that growth rate is still on track?

Yes, we're very comfortable with that growth rate at the present time. There's nothing that we can see at this moment that would make us change our mind to that growth rate.

We were up in the first quarter over the first quarter of last year in excess of 20%. We were $37 million last year in Q1 and $45 million this year, which is over 20%. And to achieve 20%, we've just got to do that every quarter so...

And then on the operating margin side, if you do see some level of growth maybe in the high 60s, low 70s on the income side in the second half of the year, what kind of operating margin should we be modeling in based on the cost-cutting that you're expecting to execute through the end of the year?

Well, you should hold the operating expenses relatively flat and just grow based on your gross margin assumption that you have in your model for the 2 business units. I would assume operating expenses stay relatively flat.

So I guess the other way to ask is, how much gross margin and leverage can you get as we exit through the year?

Well, I think we've sort of answered that question. I mean, we are going to hold our costs down as much as we can, and you should see the gross margin flow through the bottom line as the year proceeds, on the assumption we grow.

Ladies and gentlemen, in the interest of time, this does conclude our question-and-answer session today. I would now like to turn the call back over to Mr. Garry Rogerson for closing remarks.

Well, thank you very much for being here and listening to us today. We look forward to seeing you, I guess, at the Barclays Conference in May. Thank you. Bye-bye.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.