Good day, everyone, and welcome to the Mercury Systems First Quarter Fiscal 2020 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to the company's Executive Vice President and Chief Financial Officer, Mike Ruppert. Please go ahead, sir.

Good afternoon, and thank you for joining us. With me today is our President and Chief Executive Officer, Mark Aslett. If you've not received a copy of the earnings press release we issued earlier this afternoon, you can find it on our website at mrcy.com. The slide presentation that Mark and I will be referring to is posted on the Investor Relations section of the website under Events & Presentations. Please turn to Slide 2 in the presentation. Before we get started, I would like to remind you that today's presentation includes forward-looking statements, including information regarding Mercury's financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are subject to future risks and uncertainties that could cause our actual results or performance to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements on Slide 2 in the earnings press release and the risk factors included in Mercury's SEC filings. I'd also like to mention that in addition to reporting financial results in accordance with generally accepted accounting principles or GAAP, during our call, we will also discuss several non-GAAP financial measures, specifically adjusted income, adjusted earnings per share, adjusted EBITDA, free cash flow, organic revenue and acquired revenue. A reconciliation of these non-GAAP metrics is included as an appendix to today's slide presentation and in the earnings press release. I'll now turn the call over to Mercury's President and CEO, Mark Aslett. Please turn to Slide 3.

Thanks, Mike. Good afternoon, everyone, and thanks for joining us. I'll begin with the business update, mike will review the financials and guidance, and then we'll open it up for your questions. Mercury delivered strong results for the first quarter of fiscal '20, extending the momentum from fiscal '19 with record revenue, backlog and net income. The industry environment is positive, and our business model is performing extremely well. We continue to execute strategically by investing in our people, technologies and capabilities, growing organically and supplementing organic growth with strategic M&A. Given the strong start to the year, we're raising our fiscal '20 revenue guidance. In addition, we now expect to deliver 11% to 12% organic growth for the year. Turning to our Q1 financial highlights on Slide 4. Our revenues are growing faster than the industry average. Total revenue for the first quarter increased 23% from Q1 of fiscal '19, exceeding the high end of our guidance. Organic revenue was up 17% compared with 6% growth in Q1 last year. Our largest revenue programs in the quarter were next-generation missile system, SEWIP, Filthy Buzzard, E-2D Hawkeye and CPS. Q1 was another very strong quarter for new business. Total bookings were up 21% year-over-year to $216 million, leading to a record backlog and a book to bill of more than 1.2. Our largest bookings programs in the quarter were PGK, Filthy Buzzard, P-8, Patriot and Filthy Badger. But we also delivered strong levels of profitability. Adjusted EBITDA was up 16% from Q1 last year, exceeding the high end of our guidance. As expected, free cash flow came in at 40% of adjusted EBITDA, reflecting year-end bonus payments as well as our acquisition integration and growth investments. Turning to Slide 5. For an operational perspective, we're making great progress integrating prior…

Thank you, Mark, and good afternoon again, everyone. Mercury started fiscal '20 with strong first quarter results. Total revenue, adjusted EBITDA and adjusted EPS were up from Q1 last year. We delivered solid bookings growth and concluded the quarter with record backlog. Mercury's revenue outperformance gives us the flexibility to continue making growth investments in the business while still exceeding our expectations for adjusted EBITDA. In addition to delivering strong financial results in Q1, we completed the acquisition of American Panel Corporation, which we funded with cash on hand. We remain active on the M&A front, and as Mark said, our pipeline remains robust. Our acquisition integrations remain on track, and we're continuing to realize the forecasted cost and revenue synergies. Given Mercury's strong performance in Q1, we're increasing our full year fiscal '20 guidance for revenue, adjusted EBITDA and adjusted EPS. This guidance includes approximately $2 million of operating expenses related to the custom microelectronics initiative in Phoenix that Mark discussed. For the remainder of the year, we expect to continue investing in the growth of the business while still delivering record results. Turning now to the metrics on Slide 8. Mercury's revenue and bookings growth continued to translate into solid profitability in Q1. Total bookings increased 21% year-over-year, driving a 1.22 book-to-bill ratio. We ended the quarter with record backlog of $711.8 million, an increase of 40% compared to Q1 of fiscal '19. Backlog expected to ship within the next 12 months increased 32% from Q1 last year to $499.2 million. Total revenue increased 23% from Q1 last year to $177.3 million, exceeding our guidance of $160 million to $170 million. Organic revenue was up 17% year-over-year, and as Mark said, we now expect 11% to 12% organic growth for the year. Gross margin for Q1 was 44.2%,…

[Operator Instructions]. And our first question comes from the line of Sheila Kahyaoglu from Jefferies.

Good quarter. Mark, in your prepared remarks, you mentioned the LTAMDS win. You were called out with Raytheon. Can you talk about that contract, what the OTA structure means for you and just how the Mercury team is part of that contract?

Sure. So we're obviously very excited that Raytheon won the program. We've been working with them on a number of years, and we've actually invested quite significantly our own internal R&D. From the program itself, actually, it includes some of Mercury's most advanced processing capabilities. So yes, we're thrilled to be a part of the team and the success that they've had. Clearly, it was the clean-sheet design, and I think that was a large part of the win. And I think we contributed from a technology perspective. To put it in context for Mercury, we actually think it's potentially the largest single program that we've won in our history.

Is there any way to kind of size what it means in terms of a content value or a lifetime program value for you?

Well, maybe the best way of thinking about that is that, in the third quarter, we're expecting a large booking, around about $30 million, which equates to a portion of the $384 million that Raytheon is going to get for the 6 radars that they're on the contract to deliver. So if you kind of do the math, yes, we've got significant content on the program. And listening to Tom on the call, he expects that, conservatively, it's $20 billion program for them upgrading around about 250 systems that exclude the potential for forward-deployed radar. So it's a very, very large opportunity for Mercury over time. And our content on the program is significantly larger than what it was on the predecessor, which is the Patriot system. So we're pretty excited, Sheila.

Awesome. And then maybe just one on the CapEx, how we see it normalize into next year and if maybe you could give any color on the capacity utilization and how we should be thinking about it.

Yes, Sheila, sure. So we don't guide CapEx beyond this year, as you know, but this year, we have expansion investment, we said 6% to 7% of revenue and CapEx associated with the Phoenix build-out and some of the integrations, including the West Coast facility. The capacity utilization and what we're building out in Phoenix for the microelectronics strategy that Mark discussed, I'll let him discuss that a little bit.

Sure. Yes. There's really two things [indiscernible] in parallel. The first is that we're coming to the end of the build-out of our West Coast RF facility, where we're basically going to consolidate other RF locations into that 1 plant. That sets us up for continued growth in RF, and we're seeing some nice opportunities that we feel pretty good about the facility that we're building. The way to think about the investment in the trusted microelectronics facility in Phoenix is basically about being able to build the capability set. So we're actually expanding the scope as the source of trusted devices that we can manufacture there. And so we're obviously in the early phases of building out that clean room as well as the manufacturing equipment. But we do think that, that's a substantial opportunity for us in the longer term.

And our next question will come from the line of Seth Seifman from JPMorgan.

Nice quarter. If you guys could talk a little bit about the gross margin in the quarter. It's kind of in the range of what we've seen for the past year but maybe a little stronger at least than I have been expecting coming in, and some of the mix headwinds or tailwinds you faced and kind of how to think about where we go from here in terms of the cadence.

Sure, Seth. It's Mike. So for the quarter, we did overachieve the gross margin. We had guided around 43.5%, came in a little higher than that. We don't talk profit by program, but it really was just program and product mix during the quarter. So going forward, as we look and you look at the annual guidance, we think that the gross margins are going to be similar to what we guided last quarter, a little bit higher but no fundamental changes in the business overall.

I think we also benefited a little bit, Seth, from some of the integration activities that we have underway with the integrations of Themis and Germane.

Okay. Great. And then anything to be aware of in terms of the direction of -- the Pentagon has been fairly high-profile recently about acquisition reform changes that they're making. Any way in which you guys see that this affects Mercury?

Yes. So I mean, clearly, we're seeing more use of 804 and OTAs. The LTAMDS award was an OTA contract. I think what they're looking to do is to be able to develop new technologies more quickly and deploy them more rapidly as well and then also get industry to participate in the funding associated with that. So the use of OTAs and, in particular, the use of nontraditional defense contractors plays very nicely with kind of our position in the industry as business that's spending anywhere between 11% to 13% of its revenue on advanced R&D capabilities and are able to do things more quickly and more affordably, which is one of the major reasons that more work has been outsourced. So we think that contracting reform actually benefits Mercury as we saw in the LTAMDS award.

And our next question comes from the line of Pete Skibitski from Alembic Global.

Nice quarter. Guys, in the past, under continuing resolutions, I think Mercury's revenue has been a little bit inconsistent. I guess for the second quarter, you should have a CR for virtually the entire quarter. So are you feeling, for some reason, because of backlog maybe or just because of the stage of the cycle we're in, that this time, the CR will have less of an impact on 2Q in fiscal '20? Or are you still a little bit of concerned in terms of how long it could last? Just want some color on that.

Sure. So given the strength of the current backlog, we actually don't expect any major impact to our 2020 financial outlook based upon the CR as it's described today, which ends on the November 21. We're assuming that the actual CR itself could last 6 months or less, and we don't believe that there's material risk to our guidance and our ability to deliver the numbers that we've just outlined. And obviously, as the year progresses and we get better visibility as to what happens with the defense appropriations bill, we'll update our guidance, but for now, we feel pretty good about our position, Pete.

Okay. Sounds good. And then, Mark, can you talk a little bit more about Bill Conley and electronic warfare? I mean it's obviously kind of a big push, I think, in terms of the peer threat right now in DoD, and you've got a strategic hire. Can you talk maybe about how R&D efforts might change with Bill coming on board? And I know he's got a lot of ideas I read about. Just would love for you to kind of expand on what that could mean to Mercury.

Yes. So I mean Bill is obviously a very well-known guy and trusted in the industry. He was pretty excited to come to Mercury given the business model. And I described that we're really at the intersection of the development -- of the commercial development of high technology for the use inside of the DoD. And so Bill's background, although he ran EW strategy for the last 4 years, he's touching a whole host of other areas, including microelectronics strategy, AI and various other initiatives. And we're obviously participating in many of those areas in various ways. And so he was pretty excited to be able to join a high-tech commercial company that's operating inside of the defense industry and bring his knowledge to bear. We don't think that it changes our business model or our investment levels or, really, focus right now. I think he's got a pretty good perspective on what we're focused on, and he believes that we're investing in the right areas.

And our next question will come from the line of Jon Raviv from Citi.

On the silicon effort, you clearly made a decision here to make a sizable investment to expand that capability set. So what's your view on the profitability and return of that sort of business? Is that -- is there any -- just how does that impact your target range, the 22% to 26%?

Yes. So we haven't been very specific, Jon, other than to say that the current microelectronics business that we have that we acquired as part of the Microsemi Carve-Out acquisition back in 2016 has more than doubled in size, and we've been able to increase the level of profitability in that business over the last 3 years. And the custom microelectronics business that we currently own is actually the most profitable product line that we have inside of the company. So it's a nice area. We see the potential of significantly innovating in the space. And we do think it has the potential of continuing to provide profitable organic growth over the longer term.

But I would add, Jon, that it is in the preliminary phases. And if you look at fiscal '20, just to highlight it, I mentioned in my prepared remarks that we don't have any revenue associated with this effort in FY '20, and we do have $2 million of OpEx. So that's in our guidance, take a look at that. But as Mark said, the probability should be nice as it ramps up, but it's not a near-term item.

Great. And then on the organic revenue growth long term, big picture, can you just clarify -- I think on your prepared remarks, you said double-digit organic revenue growth over the longer term. I think, historically, you talked about high single, low double -- sorry to nitpick. Any change there? Or should we take this as a double-digit organic grower going forward?

Yes. So we've averaged, on average, over the last 5 years, 10% organic growth. So whether it's high single digit, low double digit or, on average, over time, double digits, we feel good about those numbers. I think we're seeing a tremendous amount of opportunity based upon the markets in which we're participating, which appear to be areas that the DoD is focusing in on. So we feel pretty good about our potential to keep that high level of organic growth going, Jon.

And our next question will come from the line of Ronald Epstein from Bank of America.

It's Kristine Liwag dialing in for Ron. Mark, you've mentioned this $15 million capital investment a few times, and it sounds like it's a very profitable business line. Can you expand more on what you're providing that the market currently does not have here to make it so profitable for you? And also, what specific capabilities are you building out? And how vertical -- vertically integrated will you be?

Yes. So our goal is that we're seeking to create secure and trusted chip-scale open architectures, so basically defense applications, using the best commercially available silicon that's being developed in the high-tech world. So we're not necessarily doing the ASIC design, but we're taking chiplets from other companies and -- to basically do the engineering design and manufacturing of those devices specifically for defense applications.

Helpful. And then if you're taking these designs from other companies, what -- how do you assure that the company that you're acquiring from don't have suppliers that come from unsecured suppliers like Chinese suppliers, for example?

Because we're actually getting access to the best silicon. And the companies that we are teaming with have trusted processes in place. And we're doing the packaging of those trusted devices here domestically in DMEA certified facilities.

I see. And when you think about -- when you're finished with this CapEx and you've already invested this money, do you have programs you've already won to fill in capacity for this plant? Or will you have to win new business in order to fill this capacity?

So clearly, at the initial stages, what we're doing is we are focusing on building out the clean room, we'll be qualifying the manufacturing processes, and in parallel, we're actually designing the prototype devices that are targeting the initial application, which I won't go into. And we're already in discussions with multiple customers on that initial application. So it's early days. Obviously, we're going to need to get the initial devices working. And the LRIP doesn't begin until Mike -- as Mike said in his prepared remarks, until our fiscal years '21, '22. So we've got plenty of capacity to begin with, and we're investing in the business for future growth, Kristine.

And our next question will come from the line of Peter Arment from Baird.

Mark, when you put up 17% organic growth this quarter and, obviously, double-digit plan for the year, have you -- are you able to quantify kind of what you're picking up from the growth -- incremental growth from outsourcing, just given the contact structure that was mentioned on LTAMDS and some of the other aspects of it? Just seems like you're really well positioned. Are you able to quantify that?

Not quantify specifically, Peter, but yes, I can tell you that we're seeing increased levels of outsourcing really across the board. I think I talked about winning radar enterprise processing architecture last quarter that was mentioned on one of our customers' calls in the last -- over the last week or so. The last time around, they did the work in-house. On LTAMDS, we picked up more content that was previously done in-house. So the outsourcing trend is clearly alive and well. And given the level of investment that we're making and the shift to secure and trusted processing architectures, we're exceptionally well positioned, Peter.

Yes. And, Mike, just on the adjusted EBITDA margin. For this quarter, 20.7%, 20.8% for the next quarter, sort of your -- the way it implies your guidance, you're going to have a much stronger second half [indiscernible]. Is that just driven by mix? Are you seeing the benefits of synergies? Maybe just some color there.

Yes. You're right, at the highest level, if you look at the midpoint of our guidance for Q2, it's 20.8%. Midpoint for the year is 22%. So we are expecting, on an EBITDA basis, the second half to be stronger. That's the combination of slightly higher gross margins, but then also we're, on the flip side, investing in the business as I mentioned in my prepared remarks. So yes, the second half is looking to be better from an adjusted EBITDA margin perspective because of that.

We also said, Peter, that we expected the year, from a revenue perspective, was slightly more back-end-weighted in the second half than the first. So we've got extra volume there in H2.

And our next question will come from the line of Michael Ciarmoli from SunTrust.

Nice quarter. Mark, just to go back on the continuing resolution, no impact on the fiscal '20 revenue plan. What do you think -- does anything change here in the near term on the bookings side of the equation? I mean you guys have had a string of very strong bookings quarters. I mean if we do operate on a CR for the next 3 to 6 months, do you see a scenario where bookings might slow down?

We don't, actually. We feel pretty good about our bookings potential. The pipeline looks very strong, Mike, and we're expecting a continued positive book to bill.

Got it. And just going back to Kristine's question on the build-out in Phoenix. I mean have you guys already secured design wins for these initial devices that you're working on, that don't go into LRIP until '21 and '22?

Well, the devices don't exist, right? Yes. So we better go do the design as well as the actual prototype and get through the build-out of the manufacturing facility. But we have had, with a couple of our teammates, pretty detailed discussions around what it is that we're trying to do in the very specific applications that these devices are targeted for. There's a very high level of interest. So although we haven't technically got a design win the way in which we would score that, there's significant interest out there, Mike.

Got it. And are there presumably going to be all digital systems on secure chips? Is that what we're kind of referencing here?

So it's a mixed signal devices that include security IP. And obviously, we have invested heavily in embedded security, and we've got a tremendous amount of intellectual property there. That's combined with our ability to do trusted manufacturing as well as system-level design at chip scale, with the clearances that we have and the trust in the cleared facilities really puts Mercury in a very unique position.

And can you give us a hint without maybe just general broad strokes, which end market? I mean is this more electronic warfare? Does it have to do with any of the emerging hypersonic opportunities out there?

So I think the application is obviously going to evolve over time, but it's targeted at the markets in which we're currently participating, so radar, EW, missiles, ammunitions. But the capability set, as it evolves, will allow new applications such as AI, machine learning and autonomy for edge processing applications, and I won't go too much further than that.

Got it. And then just last one. You mentioned a couple times, I think, working capital efficiencies. What should we specifically look for as you guys start to undertake more of those actions? I mean should we see improvement in inventory? Or what specifically should we pay attention to on that front?

Yes. So I mean if you look at working capital, we're already starting to see some of those efficiencies. So working capital as a percentage of revenue was down 3 points -- over 3 points year-over-year. So we build out the manufacturing facilities. We're obviously in a multiyear journey to now try and improve the asset utilization, the efficiency from a working capital over time, but it does take time. We are starting to see some benefits.

And our next question will come from the line of Jonathan Ho from William Blair.

Congrats on the strong results. As you add more capabilities and broaden the portfolio, are you seeing the primes come to you more often? And basically, are you participating in nearly sort of every program design opportunity going forward?

So I mean I think we're viewed, Jonathan, really, as a trusted partner, and we have really leaned in and invested heavily in R&D, particularly in the secure and trusted processing domain. And one of the biggest trends that we see is that -- is these new architectures or compute or processing architectures, whether it be the C4I applications or whether it be Sensor and Effector Mission Systems processing. That shift to secure and trusted systems is something that we're seeing a lot of opportunity around. And I truly believe that we're a leader in the space. So yes, I think we're getting pulled into a lot of opportunities, Jonathan.

Got it. And then just relative to the faster or accelerated development cycles, does that then help widen the gap in terms of your capabilities relative to competitors? And can you maybe help us understand a little bit better why you're able to do this faster and better than others?

Yes. So look, I think it's a great question. And so if you look at the LTAMDS as an example, Raytheon took a different approach. I think they took a clean-sheet of pavid design for the LTAMDS radar and wanted to demonstrate to the Army that they have next-generation technology not just on the -- in the gun level where they've invested heavily for quite some time but in other parts of the system, obviously, in which Mercury participated. So they fielded a very advanced radar, and they invested in that, we invested in that. They were able to develop and to demonstrate that -- those capabilities at the [indiscernible] and the radar performed extremely well. So the fact that we're willing to fund high levels of R&D, we can do things quickly, we can do things more affordably than our customers were able to do it in-house or [indiscernible] into the use of 804 and OTAs.

And our next question comes from the line of Noah Poponak from Goldman Sachs.

Mike, just on the organic growth calculation itself for the quarter, you -- obviously, you had the 1Q actual and the 1Q '19 actual, and then you gave us the $19 million of revenue from everything acquired in the last 1 year. If I stripped that $19 million out of the 1Q, I get 10%, not 17%. And it may be coincidental, but if I leave the partial Germane in 1Q '20 but take it entirely out of the year-ago, that does get me to the 17%. Is that the calc? Or what am I missing there?

Yes. No, the calculation is we consider something organic once it's been part of Mercury for four full quarters or more. At that point, it gets rolled into the organic calculation. And so this quarter still unacquired would have been Germane, GECO, Athena, Syntonic and a very, very small amount of APC, which we own for just a couple of days. But once that is -- once they are with us for 4 more -- 4 full quarters or more, then they are considered organic. So I can walk you through the actual calculation later if you want, but that's the fundamental calculation we're doing.

In the back of the press release, in the tables, we actually show the calculation, Noah, period-to-period. And when we do the period-to-period, once it flips from acquired to organic, we obviously restate prior periods. So you can truly get an apples-to-apples comparison.

What are you restating?

The prior period where it was previously organic.

Oh, I see, I see. Okay. Got it. The backlog and the bookings behind that, that revenue growth, have obviously been moving along pretty quickly here. You mentioned earlier some things that may go in it in the middle of this year. Curious if you have any thoughts for us on where backlog or bookings growth could end the year for you.

Yes, we don't actually guide either backlog or bookings, but we do expect a positive book to bill, Noah.

Okay. Mike, last one. Just on the cash flow, you've got the elevated CapEx for the year, and you had it in the quarter. If I kind of just cut that in half to 2.5% or 3% of revenue, you would have had over that 50% conversion of the free cash into EBITDA. But you also had a pretty sizable working capital headwind in the quarter. So I guess how did you do that? Or what else -- was there something else helping you that we should be expecting to reverse? Or what's behind that?

No. I mean first of all, I think your math in terms of the target for the year, if we had been in a normalized CapEx, might have been above 15%. I think the answer there is, yes, it could have been. When we talked last quarter on last earnings call, we said that we were expecting CapEx to be about 5% of revenue, so that did include some expansion CapEx, but that we were still targeting 50% of free cash flow to adjusted EBITDA. So if CapEx had been lower than that 5%, we would have had the opportunity to overachieve. Now with the additional CapEx associated with the trusted microelectronics strategy of $15 million, but now we're targeting 40% for the year. From a working capital perspective, you've got to remember, Q1, we have bonus payments, and you see some of the items there that make working capital a little bit more of a use of cash in Q1. But otherwise, working capital as a percentage of sales is looking good. And for the year, we feel good about where we stand from a cash flow perspective.

In Q1 also, no, we actually completed the acquisition of APC, which brought the inventory -- although we only own them for a week or so in the first quarter. So we got the benefit -- the impact on the balance sheet but not really the income statement.

Yes. It's an important point, making sure you're looking at the cash flow statement or use the working capital around the balance sheet.

And we have a follow-up from Pete Skibitski from Alembic Global.

It looks like you guys got active in the quarter on the repurchases, I guess, coincidence with the shares coming in. Is this something we'd expect to see more consistently going forward if the shares kind of lag here at this level?

Yes. So just to clarify the dynamic on that, we do not have a share repurchase program in place. What that was in Q1, a lot of our restricted stock vest in Q1. And to settle with the tax payments associated with that, we net settled the shares, and that's the use of cash for us, and that's what you see there. It's not a capital allocation strategy.

Okay. Got it. Last one, maybe more for Mark. Mark, you had mentioned a while back that you guys have been approved to make radiation hardened electronics by several OEMs, I think, for LEO satellites. And DoD has this new space architecture that's kind of evolving pretty fast, it looks like. I think that emphasizes smaller satellites. And then, of course, we have the commercial side that's out there with a lot of big plans. Can you talk about kind of maybe the size of that business for you guys right now, plus sort of how big it could get midterm, the opportunities there?

Yes. So it's small today, Pete. We're not a major participant in that other than in rad-tolerant storage devices for LEO applications. And that part of our business is small, but it's actually growing quite rapidly. And we had another design win actually in the first quarter for a classified application. So it's small. We're not really participating in the space too much other than in those areas. But it's something that we'd like to longer term, and maybe it's an opportunity for M&A.

And we have a follow-up from Jon Raviv from Citi.

Just on the free cash conversion down to 40% this year from what I understood. Is there a reasonable path back to 50% in the near term? Or how long do you think it will take to get back there? You mentioned a multiyear process for the build-out.

So we're only guiding for the year, Jon, in terms of what we see, the expansion CapEx is largely associated, as Mike said, with the build-out of the new capabilities in Phoenix as well as our integration activities. So we'll have more to say about what we expect in terms of future CapEx and normalization and free cash flow as we guide in the outyears.

Jon, I would just add, when we put the 50% free cash flow to adjusted EBITDA target in place, that is a long-term goal based on maintenance CapEx levels.

And we have a follow-up from Noah Poponak from Goldman Sachs.

Mike, you mentioned pretty briefly in the prepared remarks that the M&A pipeline looks robust. Maybe you could just expand on where it is compared to 3, 6 months ago, just how robust. Would you be surprised if you didn't have another deal by the end of the year?

Yes. I mean the M&A market continues to be very active. And our pipeline of acquisitions that fit with us and our strategy is very strong right now. So there's a lot of activity. That's why we did the equity offering early in the year, so we could deploy that capital on M&A. We're seeing a lot of the proprietary deals that we've looked at over the last couple of years. Those are becoming actionable. We're seeing significant deal flow coming to auction. APC is a good example of that. So a lot of activity out there. We continue to be disciplined in our approach to M&A. But it is our number one capital deployment or use of cash. And so we expect to continue to be active on the M&A front.

All right. Thank you. And Mr. Aslett, it appears there are no further questions. Therefore, I would like to turn the call back over to you for any closing remarks.

Okay. Well, thank you very much for listening. We look forward to speaking to you again next quarter. Thank you.