Good day, ladies and gentlemen and welcome to the On Semiconductor Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to Parag Agarwal, VP of Corporate Development and Investor Relations. You may begin.

Thank you, Sonya. Good morning and thank you for joining ON Semiconductor Corporation's Second Quarter 2018 Quarterly Results Conference Call. I'm joined today by Keith Jackson, our President and CEO; and Bernard Gutmann, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com. A replay of this broadcast along with our earnings release for the second quarter of 2018 will be available on our website approximately one hour following this conference call, and the recorded broadcast will be available for approximately 30 days following this conference call. The script for today's call and additional information related to our end markets, business segments, geographies, channels and share count are also posted on our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are in our earnings release, which is posted separately on our website in the Investor Relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding future events or future financial performance of the company. The words believe, estimate, project, anticipate, intend, may, expect, will, plan, should, or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors which can affect our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-Ks, Form 10-Qs and other filings with the Securities and Exchange Commission. Additional factors are described in our earnings release for first quarter of 2018. Our estimates may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions, or other factors except as required by the law. As announced earlier, we will host our 2019 Analyst Day on March 8 in Scottsdale, Arizona. If you would like to attend the event and haven't received an invitation, please let us know. During the third quarter, we will attend Citi Technology [ph] conference in New York on September 6 and Deutsche Bank Technology Conference in Las Vegas of September 12. Now let me turn it over to Bernard Gutmann, who will provide an overview of second quarter 2018 results. Bernard?

Thank you, Parag, and thank you, everyone, for joining us today. We delivered yet another quarter of strong financial results which exceeded our guidance and street consensus on all key metrics. Near to midterm outlook for our business remains strong and overhand related to trade policy and theories has not had any meaningful impact in our business or outlook. Long-term outlook for our business continues to strengthen driven by our accelerating momentum in automotive, industrial and server markets. Our margin performance remains strong and continuing expansion in both gross margin and operating margins. Global macroeconomic environment remains stable and we are seeing strong demand for most geographies in the end market. Customers are upbeat about near to midterm outlook. However, the sustaining strong demand has strained the semiconductor industry supply chain. As we indicated in the previous call to further accelerate our revenue momentum and margin expansion, we are making prudent investments in our manufacturing infrastructure. Now, let me provide you additional details on our second quarter 2018 results. Total revenue for the second quarter of 2018 was $1,456 million, an increase of 9% as compared to revenue of $1,338 million in the second quarter of 2017. GAAP net income for the second quarter was $0.35 per diluted share as compared to $0.22 in the second quarter of 2017. Non-GAAP net income for the second quarter was $0.46 per share as compared to $0.36 in the second quarter of 2017. GAAP and non-GAAP gross margin for the second quarter was 38.1%. On a GAAP basis, our second quarter gross margin improved by 130 basis points year-over-year and on a non-GAAP basis, gross margin improved by 120 basis points year-over-year. The strong gross margin performance was driven by solid operational execution and improving mixed results from higher contribution from our automotive…

Thanks, Bernard. The second quarter of 2018 was yet another strong quarter for ON Semiconductor. We delivered strong revenue growth and robust margin expansion which culminated in strong earnings performance for the company. Our momentum continues to accelerate driven by strong traction of our products in automotive, industrial and server markets. Our design win pipeline continues to expand as customer increasingly engage with us for power, analog and sensor semiconductor solutions for the most demanding applications. We continue to strengthen our position as a key provider of enabling technologies for newly emerging and disruptive applications in automotive and industrial end markets. With tail ends from increasingly favorable macroeconomic conditions and strong momentum in our business, we continue to make strong progress towards our target financial model. While we are benefiting from our leadership in key segments of automotive, industrial and server markets, overall business conditions remain favorable and demand continues to be strong across most end market. Pricing continues to be benign as compared to historic trends. Overhang related to trade policy in tariffs hasn't impacted the demand environment in any meaningful manner and customers are upbeat about near to midterm outlook for their businesses. As I've indicated in recent earnings calls, our business today is driven by sustainable secular growth drivers in the fastest growing semiconductor end markets, as opposed to being driven by macroeconomic and industry cyclicality a few years ago. Through our investments over the last many years in high growth segments and in highly differentiated products in automotive and industrial end markets, we have radically transformed the nature of our business. Customers are increasingly relying on us as a key provider of enabling technologies for newly emerging and disruptive applications in automotive and industrial end markets. Along with strong revenue momentum, our execution on operations front…

Thank you, Keith. Based on product booking trends, backlog levels and estimated turn levels, we anticipate the total ON Semiconductor revenues will be $1.485 billion to $1.535 billion in the third quarter of 2018. For the third quarter of 2018, we expect the GAAP gross margin to be in the range of 38% to 39% and non-GAAP gross margin in the range of 38.1% to 39.1%. Factory utilization in the third quarter is likely to be flat as compared to that in the second quarter. We expect total GAAP operating expenses of $348 million to $366 million. Our GAAP operating expenses include the amortization of intangibles, restructuring, acid impairments and other charges which are expected to be $29 million to $33 million. We expect total non-GAAP operating expenses of $319 million to $333 million. We expect our non-GAAP operating expenses as percentage of revenue to decline from current levels during the remainder of the year. We anticipate third quarter GAAP net other income and expense including interest expense will be $32 million to $35 million, which includes non-cash interest expense of $9 million to $10 million. We anticipate our non-GAAP net other income and expenses including interest expense will be in the $23 million to $25 million. Cash pay for income taxes in the third quarter of 2018 is expected to be $11 million to $15 million. We expect our 2018 cash tax rate to be lower than 10%. We expect toll capital expenditures of $120 million to $140 million in the third quarter of 2018. We also expect share-based compensation of $19 million to $21 million in the third quarter of 2018, of which approximately $2 million is expected to be in cost of goods sold and the remaining amount is expected to be in operating expenses. This expense is included in our non-GAAP financial measures. Our GAAP diluted share counts for the third quarter of 2018 is expected to be in the $445 million to $447 million shares based on current stock price. Our non-GAAP diluted share count for the third quarter of 2018 is expected to be 432 million shares, based on the current stock price. Further details on share count and earnings per share calculations are provided regularly in our quarterly and annual reports on Form-10Q and Form-10K. For the full year of 2018, we expect to generate free cash flow of approximately $800 million. With that, I would like to start the Q&A session. Thank you, and Sonya, please open up the lines for questions.

Thank you. [Operator Instructions] Our first question comes from Ross Seymore of Deutsche Bank. Your line is now open.

Hi, guys. Thanks for letting me ask a question. Keith, first one for you. At a high level, demand sounds strong across the board and I know you talked about the secular drivers versus the cyclical drivers. But when you're putting this much CapEx to work, how do you think about the magnitude capacity you want to bring online and the duration of the elevated CapEx versus an industry that is cyclical and a macroeconomic expansion that a lot of people will argue with long in the tooth?

Understood. Yes. We have been investing specifically to match the growth we've had for the last couple of years looking in the high single digits, low double-digits. That has put a strain in our overall capacity and frankly, we're looking at economical ways to extend that capacity. So we're not getting ahead of things, we're certainly not putting capacity in place that we expect to be idling. The other piece of it is all of the work we've been doing is going to lead to further cost reductions overtime with more automation as we've been investing. So net-net, we're expecting at least another year of high single digit growth. We're investing for that and then we should return to a much more normal 6% to 7% growth.

Great. Thanks for that. And then as my follow up one for you, Bernard, on the OpEx side of things, you talked about the OpEx intensity falling through the back half of the year, obviously we can do the math on what you just guided to in the third quarter. But in the fourth quarter, typically your revenues go down a little bit seasonally. Is your OpEx guidance that you're actually going to be able to get better OpEx leverage even into the fourth quarter? And then how should we think about next year on that same metric?

The only clarification there -- thanks, Ross -- is on the fourth quarter, we have a few extra days. That is something that will have to play into the equation. But nevertheless, we still expect to be coming down from the 22% level we have last year and the 21.8% we had in the first half.

Thank you. And our next question comes from Chris Danely of Citi. Your line is now open.

Hey. Thanks, guys. Just a follow-up on OpEx. In Q1, that was at the high-end of the range you guide for and this quarter I think it was either the high end of the range or above it. So can you just talk about why it has missed the middle of expectations or I guess what has gone wrong so far and what you're doing to fix it going forward?

We have been within the range, we were also slightly below the high end of the range, but still within the range in the second quarter. We have targeted to increase our investments in R&D in certain areas that we have talked about -- things like a silicon carbide, LiDAR, all of the power discrete stuff, we have decided to invest a little bit more in that. We have also had strong higher mitigation cost. So in the third quarter, we expect in absolute dollars to still go up although as the percent of revenue will be coming down. Those are the main causes. It's mostly R&D investments.

Yes. And then on the tightness in the industry, can you just talk about what your lead times are doing or what lead times are doing at the competitors as well?

We believe lead times are extended across the board everywhere. We did have a slight increase ourselves in the last quarter. I'm not sure that that will continue to expand. I expect that it will start to normalize quickly as capital expenditures finally catch up in the second half.

Thanks, Keith. Just a clarification, can you just tell us what the lead times were and what is normal?

Normal is kind of low-teens and we are above that at this time.

Great. Thanks.

Thank you. And our next question comes from Vivek Arya of Bank of America Merrill Lynch. Your line is now open.

Thanks for taking my question and congratulations on good growth and execution. Keith, on the wafer capacity investment, is there something that helps you meet your 40% gross margin target? Or can you actually see that investment driving, beating off that target? I think we sort of know what the cost is of all these investments, but what, and when, and how much is the benefit on that they should see?

Yes. On the actual wafer growing side, it's offsetting a lot of increased costs, but frankly, we need that to handle increased demands right now. It's moderating the overall cost in the supply chain as opposed to offering real reductions in total, because again, we need all the capacity there.

Okay. And then when you started your top line growth was expected to be about 3% to 4%. You're growing closer to 9%. Is this macro? Is this your specific product cycle? Just how is your visibility to maintain this kind of growth over the next handful of quarters?

Yes. We're very encouraged and it's being driven by specific high growth applications in our target markets. So it's not just a strong economy, it's frankly the acceleration of electronic usage in automotive for safety and automation, and industrial for power savings and new applications to support things like charging stations in the market place. So very encouraged, it's a design win pipeline, it is accelerating faster than we expected and not just a strong economy.

And just last quick one clarification. Bernard, can you remind us how much is left in the buybacks and what would be the trigger to become more aggressive on the buy back side?

The buyback, we had for about $1 billion, we have used, we are still around $600,000 available. We did $40 million in the second quarter which we presented about $1.7 million. Now we are still also being down our debt. As we mentioned in the prepared remarks, we reduced our debt by about $80 million.

Thank you.

Thank you. Our next question comes from Shawn Harrison of Longbow Research. Your line is now open.

All right. Good morning and congrats on the result. Is there a way to maybe clarify how much margin press are you seeing right now from the input cost or profitability that you're living on the table that will begin to mitigate in the second half of the year?

We've had price increases on substrates from 25% to 40% increase year-over-year and then the lead frame area around 15% year-over-year. Those are very significant pressures. We've been able to partially offset that with some good pricing on our side, not having the declines that we normally see there. Being able to maintain that has partially offset that.

Okay. And then maybe a question for you, Bernard. Getting to the $800 million free cash flow for the year requires a big step up into the second half. Maybe if you could just speak to the components of the acceleration and free cash flow and knowing it's typically a little bit back end weighted.

Yes, Shawn. Thank you. Definitely, historical pattern shows us that the free cash flow generation is substantially back and low and that we expect that that pattern will continue. We did step up on our CapEx in the second quarter, even beyond 8% to 9% small lift, so expect that will be normalizing to that 8% to 9% and we have some investments as we talked about in working capital. Some of those will be slowing down in the third and fourth quarter. But we expect the operational performance will also help us lift those numbers.

Thank you. Our next question comes from Tristan Gerra of Baird. Your line is now open.

Hi, good morning. Just wanted to follow up on an earlier question. So you've mentioned price increases in substrates and wafers. What was the best impact on your gross margin? And what will be the percent of change-in your own ASPs embedded in the Q3 guidance?

Take in reverse order, our ASP expectations and the guidance is relatively benign compared to normal, not increasing. Still a slight decline, but not very much. As far as contributions or margin pressure in our results, the raw materials side of the equation represents roughly 40% or more of the costs for the products. So if you use the percentages I gave you, you'll get a rough idea of how much pressure there was.

Okay, great. And then could you tell us on the [indiscernible] that the point of sale was sequentially in Q2 and whether he percent of change embedded in your Q3 guidance?

Tristan, can you repeat the question, please?

I was looking at percentage change in point at sales, so the sell through in Q2 sequentially and...

Yes. Resales in the channel were substantially up and that allowed us to reduce in number of weeks of inventory. It was definitely higher up even than our own internal revenue print out.

And for Q3?

We expect it to be up and about seasonal.

Great. Thank you very much.

Thank you. Our next question comes from Chris Caso of Raymond James. Your line is now open.

Hi. Thank you. Good morning. The first question is on the communications base. It looks like that came in a little better than your expectations. Can you talk about what you're seeing in that space and the expectation as you move into the September quarter?

September quarter as you would guess cease new phone launches, which is the bigger piece of the revenue there. So we are expecting continued sequential increase there per normal. Again, year-on-year comparisons which we gave in our prepared remarks for Q2, certainly things were down. Q3 should see something returning to very similar levels to last year.

Okay, thank you. And just a follow-up, you mentioned in your prepared remarks, silicon carbide. Just a couple of questions on that. Can you talk about when that becomes material in terms of revenue? I guess the expectation that build the second half of this year into 2019. Maybe talk a bit about what you expect to differentiate in the silicon carbide space?

Basically, there it is performance-based. In most of our sales, we expect to happen in modules where we get to match performance with our full portfolio. So therefore, we do think there is going to be a competitive edge on total efficiency in the marketplace. That growth again starts here in the second half, but we expected it will accelerate significantly in 2019 and by second half of next year provide significant revenue.

Thank you.

Thank you. Our next question comes from Rajvindra Gill of Needham & Company. Your line is now open.

Yes. Thanks and congrats on good results and momentum. You talked about capacity gives strength and that has played the industry and one of other competitors as well. I was wondering if you could kind of explain why that is happening? Did the entire industry underestimate the level of demand that's happening? Any thoughts on the capacity constraint environment and one of the reasons?

Well, there's several levels of reasons for constraints. I think the raw material piece of it frankly is under investment that occurred in both silicon substrate markets and lead frame markets for the last number of years. Again, under-calling if you will, the future demands and that's creating a lot of pressure on the supply chain side and then frankly, on the product side, if you can get through that, some of the disruptive applications have taken off much, much faster than people expected. That combination has provided quite a few constraints in the market.

Bernard, you have mentioned that you believe you'll be able to reach your target model this year. Were you talking about with respect to gross margins? I believe your growth margin target was 40%, achieved in 2020.

We have basically say we are going to be good and nice progress towards it. The target model is still out for 2020 and we are working in accelerate -- and doing some good progress towards it, but do not expect it we'll need it in 2018.

Okay, thank you.

Thank you. Our next question comes from [indiscernible]. Your line is now open.

Good morning. Thanks for taking my question. In the prepared comments, you mentioned that industrial is expected to be down sequentially in the third quarter. Albeit up meaningfully year-over-year, is it just the effects of normal or typical seasonality? Or is there something else in play here?

It's mostly seasonality.

Okay, great. And then keeping on that track of seasonality, you referred from some other peers that in typical seasonality has been almost altered over the past couple of years. Have you seen that in your businesses as well, or are you still speaking to generally historical trend?

I think our company specifically with the M&A that we've done, we've had a change in profile, but directionally, that seasonality is still correct. I would say that in general terms, the Q2 to Q3 has moderated a little bit and it's now around 3% to 4%. It used to be more because you had more computing and consumer and combinations in the number. And now with automotive and industrial, it's a little bit more front-loaded, but hasn't changed materially.

Great. Thank you.

Thank you. Our next question comes from Craig Ellis of B. Riley FBR. Your line is now open.

Yes. Thanks for taking the question and congratulations on the execution, guys. Keith, I wanted to follow up on one of the Q&A comments. I think it was in response to Ross' question about CapEx. I think you mentioned that some of the investment that is being made now is because there's a view that high single digit growth could persist into 2019. I wanted to understand better where that visibility might exist across product groups and is that really related to the strategic groups like industrial and auto, or the business overall?

Yes. It's driven mainly by industrial and auto and the design wins that we have secured there enhanced strong visibility on. The server market, also same situation where we know what those design wins are next year and then in addition to that, I mentioned in the last call, we're getting long term agreements for supply and those are adding up quickly. So we have much more confidence than we normally would have, looking at a year ahead.

Thanks for that. Then the follow up is for Bernard. Just housekeeping item, Bernard. Tax rates, should we still expect 10% for this year and the next couple of years, or is it coming in lower than that?

I expect it for 2018 to be lower and that's why I said in the prepared remarks and for the 19%, 20%, 10% is still a good number.

Thanks, guys.

Thank you. Our next question comes from Christopher Rolland of Susquehanna International Group. Your line is now open.

Hey, guys. Thanks for the question. I know you guys in your prepared remarks said you didn't think there were any effects from tariff fears out there. But one of your competitors actually mentioned that in the white box market -- you guys have obviously done pretty well there -- but for them, they said that customers were reluctant to hold finished goods inventory. Perhaps you could talk about that? Are you seeing any sort of effects at all from that? And just talk about maybe tariff fears and how you view that more broadly.

We have not seen that in any of the businesses yet. The white goods piece, the tariffs got implemented on the consumer white goods some time ago, several quarters ago. So I'm not sure how that plays out and in the air conditioner market, we have not seen any of those concerns. Quite frankly, we've seen no lack of demand and no hesitation from customers ordering to their run rate.

Great, and one for Bernard. I noticed you changed your range, you narrowed it for a gross margin guidance and I was just wondering what gives you more confidence there? And should we expect that narrow range looking forward?

We were just looking at our historical patterns and we feel confident that we don't need as wide as a range for guiding purposes. Historical performance tells us that we should be able to within that range.

Thanks, guys.

Thank you. Our next question comes from Kevin Cassidy of Stifel. Your line is now open.

Thank you and congratulations on the great result. Keith, you have mentioned in your prepared remarks in computing higher power supply -- interest on higher voltage power supply. Are you seeing any trend at all? I know Google has mentioned of 48-volt coming into the data center for better power efficiency. Are you seeing...

Yes. Definitely planning around that, not a lot of revenue today.

Okay. With the same products that you're developing for automotive, be able to play into that?

Same technologies. The products are actually different, but the technologies are the same.

Okay. If I could ask one other. On the internal wafer, I think last quarter, you have said there was slightly less than 15% of your total usage. What's the target? How high of a percentage you expect to have internal wafers?

We're expecting to bring it up to about that 50% point and that's our target unless the industry continues to experience difficulties.

Thank you.

Thank you. Our next question comes from Mark Delaney of Goldman Sachs. Your line is now open.

Yes. Good morning and thanks for taking the question. My first question is a follow up on that same topic about the internal raw wafer supply. Are you seeing any benefit from increased internal supply in your Q3 '18 guidance and when would you expect to have that full 50% from in-house wafers?

Yes. The equipment doesn't really get up and running until the third quarter, which means those substrates won't fall through our P&L till the fourth. So we should start seeing benefits in the fourth quarter and full benefit by Q1.

It's helpful. A follow up question on the industrial market and the prepared comments. You mentioned shared gain and of the strong year-over-year growth, do you have a scent about how much is just product cycles and just on-demand and how much of it is coming from that shared gain that you guys spoke to?

You can look at the industry numbers to figure out what the year-over-year market gains would be and all the delta would be from shared gains. I don't know if it's half and half, but it's something in that order of magnitude.

Thank you.

Thank you. Our next question comes from Harlan Sur of JP Morgan. Your line is now open.

Good morning. Great job on the quarter -- the execution. ISG was down about 2% year-over-year when your industrial business combined, it's growing about 12%. I know that you guys have talked about some of the headwinds as you move out some of the more commodity segments of the market. That might be hiding some of the growth of the focus areas. I know you guys have previously talked about auto-image sensor market growing about 20% on longer term CAGR. Is that how fast auto ISG revs are kind of trending right now?

Yes, it is. They're better than 20% growth in the automotive sector and that was offset by getting out of the consumer and handset markets. It is somewhat masks at the total level, but we're getting the performance from automotive we expect.

Great. Thanks for the insights there. And consumer, there's been a break spot where it's been healthy driving a high single digit, year-over-year growth actually for the last few quarters and this is versus your long-term view of mid to high single digit year-over-year declines. Help us understand what's been driving the strong year-over-year growth rates and do the trends here and your design win pipeline suggest the better longer term outlook versus what you guys put out at your last Analyst Day?

Yes. Most of it has been driven by better-than-expected white goods. That market has been good for us and it looks like people there are going for a much more efficient solutions on a percentage of their total bills than they're used to be doing. So we're getting good traction on our modules there.

Great. Thank you.

Thank you. Our next question comes from Harsh Kumar of Piper Jaffray. Your line is now open.

Hey, guys. Congratulations on solid numbers and solid guidance. I had two quick questions. Your industrial business sort of exploited up to 14% growth year-over-year, coming down seasonally in Q3. I guess if you don't mind, giving us some insight into what's driving that, what drove that 14% growth and embeds a delta pod that's falling for you on Q3 guide and then I have a follow up.

Yes. It was that year-on-year stuff was driven by many factors. Mostly power products and being used for increased efficiency across the entire industrial market. One of the areas that this caused in flattening is a slowing down in the solar market. Particularly in China as some of those subsidies have been relaxed. So that's creating a little bit of the down, but in general, the market remains robust and we expect again very strong growth on the yearly basis.

Thanks, Keith. And then from our follow up, a couple other companies that have reported have basically given us some idea of how much of their product is manufactured in China, front and back end. Is there some way for us to think about or some color you can provide us to help us think about that number?

We do assembly test operations in China and I don't have specific numbers with me today, but it's probably in the third range on a dollar value of our total.

Thanks.

Thank you. Our next question comes from Craig Hettenbach of Morgan Stanley. Your line is now open.

Yes. Thank you. Keith, just a follow up question on lead time. You used to comment around normalizing quickly as capacity comes online. Do you think that's a Q3 or Q4 event in terms of lead times coming in?

No. I think the expansion will start slowing. What happened to us and I think has happened across the industry is that lead times or equipment expanded quite rapidly. So things you ordered last year just now coming into the third and fourth quarter. What I'm expecting is that that growth rate will be offset by equipment actually arriving. So I'm looking for a stop to the growth in the lead times in the third quarter with some opportunity for reduction towards Q4, Q1.

Got it. Thanks. And just a question on the computing market, just researching some growth there and you talked about data center. Any context in terms of legacy, Fairchild portfolio in terms of contribution there and as you see things going forward?

Well, a significant growth in the sever arena is really from the legacy, or not legacy, but from the Fair acquisition. There is a power stage that they developed or what's growing the fastest in servers right now.

Got it. Thank you.

Thank you. [Operator Instructions] Our next question comes from John Pitzer of Credit Suisse. Your line is now open.

Yes. Good morning, guys. Thanks for letting me ask a question. Can someone ask about the industrial guidance in Q3, relative to seasonal -- I guess I'll ask the same question on the auto, which I think is the only end market. You didn't reference relative to seasonal. I think two out of the last four years, it's been down, two out of last four years has been up, you're guiding up. How are you doing that seasonal versus content growth versus other drivers for September?

Yes. For us it's all content growth because most of the automotive makers take their lines down and convert them for the new models in Q3, which normally causes the disruption and the down part. And this year, the content piece has overwhelmed that.

That's helpful. And then Bernard, I just want to go back to the free cash flow question asked earlier. The full year guide of $800,000 just suggest that the second half is going to be up over 100% over the first half and I know there is some seasonality into your free cash flow, you should get some tailwinds from CapEx coming down in the back half of the year, versus what looks like a peak in the June quarter. But are there any other one-offs that we should be thinking about and just given the real acceleration and the free cash flow on the back half of the year, how are you guys thinking about use of cash in Q3 and Q4?

Indeed. There is no additional things except just P&L generated as well as moderating working capital as well as CapEx that will generate -- that will help us generate the $800,000. The use of free cash flow, we do have our share buyback program. We did $40 million in Q2 and we did pay $80 million of debt. We will continue along the same path with similar approach.

Okay. Thanks, guys.

Thank you. Ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Parag Agarwal for any further remarks.

Thank you, everyone, for joining the call today. We look forward to seeing you at various conferences during the third quarter. Thank you and bye, bye.

Ladies and gentlemen, thank you in participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.