Sanmina Corporation (SANM) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's First Quarter Fiscal Year 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator instructions]. Thank you. Miss Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Thank you, Rob. Good afternoon, ladies and gentlemen, and welcome to Sanmina's first quarter and fiscal year 2018 earnings call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on the call today is Bob Eulau, Chief Executive Officer.

Hello everyone.

And Dave Anderson, Chief Financial Officer.

Hello, everyone.

Following their prepared remarks, we will open the call up for questions. Let me remind you that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results of operations may differ significantly as a result of various factors, including adverse changes to the key markets we target, operational or other inefficiencies, risks arising from our international operations, competition that could cause us to lose sales, reliance on a relatively small number of customers for majority of our sales and other factors set forth in the company's annual and quarterly financial filings with the Securities and Exchange Commission. You'll note in our press release and slides issued today that we have provided you with statements of operation for the three months ending December 30, 2017, on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense, and certain other infrequent or unusual items to the extant material. Any comments we make on this call as it relate to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income, and earnings per share, we are referring to our non-GAAP information. I would now like to turn the call over to Dave Anderson.

Thanks, Paige. Please turn to Slide three. Overall, as Bob mentioned during our pre-earnings call last Monday, we are extremely disappointed with our first quarter results. Revenue was challenged late in the quarter by cancellation and push outs, primarily in the communication segment. Revenue ended the quarter at $1.74 billion, down 0.6% from Q1 and up 1.4% from the first quarter of last year. From a GAAP perspective, we reported a net loss of $154.9 million, which resulted in a loss per share of $2.60 for the first quarter. This was down compared to last quarter by $2.49 per share. This resulted largely from a non-cash tax charge of $2.27 per share that was driven by the enactment in December of 2017 of the US Tax Cuts and Jobs Act, otherwise known as the Tax Act. The $2.16 loss per share was also impacted by restructuring costs of $0.33 per share that related primarily to our recently announced consolidated restructuring plan. I will discuss the impact of the Tax Act and our consolidated restructuring plan in more detail in a few minutes. My remaining comments will focus on our non-GAAP financials for the first quarter. At $112.5 million, gross profit was down $13.9 million from the prior quarter. Gross margin came in at 6.4%, which was 80 basis points lower than we reported in Q4. Operating expenses were flat with the previous quarter at $65 million or 3.7% of revenue. At $47.5 million, operating income decreased by 22.4% from the prior quarter and 33.8% from Q1 of last year. Operating margin was 2.7%, which was down 80 basis points from last quarter. Other income and expense of $3 million was basically flat when compared with last quarter and down approximately $1 million from the first quarter of last year. The tax rate for the quarter was 18% of pretax income, which was higher than our expectations of 14.5%. Our tax rate came in higher due to the change in geographic distribution of our expected profit for the year. We earned $36.5 million in net income, with non-GAAP EPS of $0.48, which was down 24.7% from Q4 and 35.4% from Q1 of last year. This was based on 75.5 million shares outstanding on a fully diluted basis. As was mentioned during our call last Monday, non-GAAP EPS for the first quarter was impacted by a number of challenges, including a new program ramps that had engineering changes, under absorption of overhead due to higher anticipated production levels for these programs, which were primarily in the automotive and communications sectors, supply constraints and an unfavorable program mix. In addition, we were also impacted by customer pushouts and cancellations that we experienced late in the quarter, primarily in the communications sector. The timing of these push outs and cancellations did not allow us enough time to realign our cost structure to the decreased revenue level within the communications sector. Please turn to Slide four where we are providing more information on our IMS and CPS segments. The Integrated Manufacturing Solutions segment represents printed circuit board assembly and test, final system assembly and test, as well as direct order fulfillment. As you can see from the graph on the left, the IMS segment revenue was down $11.5 million from last quarter at $1.429 billion. Our gross margin decreased by 0.7 percentage points from Q4 to 5.8%. This gross margin decline was largely driven by unfavorable program mix, high fixed costs associated with new program ramps that were impacted by continuing customer design changes, and slower than expected yield improvements, as well as ongoing supply constraints that impacted the number of our IMS plants. To the right is our second segment, Components, Products and Services. Components include printed circuit board fabrication, backplane assemblies, cable assemblies, enclosures, precision machining and plastic injection molding. Products include computing and storage products, defense and aerospace products, memory and SSD modules, as well as optical and RF modules. Services include design and engineering, as well as logistics and repair services. In aggregate, the revenue for this segment was down $7.8 million to $357 million, with gross margin down 0.4 percentage points from Q4 to 8.4%. The CPS segment gross margin was down primarily as a result of our oil and gas business, which is part of components. Our products and services gross margins increased sequentially. On slide five, we're showing you key non-GAAP P&L metrics. Revenue was down 0.6% from last quarter and up 1.4% over Q1 of last year. Gross profit decreased 11% from last quarter to $112.5 million. Gross margin at 6.4% was down 80 basis points from last quarter. Our operating profit decreased 22.4% from last quarter to $47.5 million, and this led to operating margins of 2.7% and non-GAAP EPS of $0.48. In addition to our previously announced consolidated restructuring plan, we are taking additional actions to optimize our cost structure across the company. These actions include scrutinizing our materials cost for immediate savings opportunities, reassessing our capacity investments for ways to further optimize our equipment and people utilization, in line with our current revenue base, and scrutinizing every discretionary spending item in every operation and department globally. Revenue in the second quarter is expected to be in the range of $1.6 billion to $1.7 billion, primarily driven by seasonality in the industrial sector and by continued softness in the wireless portion of the communications sector. While revenue may - will be down sequentially, we expect that the immediate cost optimization actions we're taking, will help improve our gross margins 20 to 60 basis points from Q1. I will talk more about Q2’s guidance in a few minutes. Now I'd like you to turn your attention to the balance sheet on Slide six. Our cash and cash equivalents were $405 million. Cash was basically flat with the previous quarter. Accounts receivable were up $12 million and inventory was up $28 million. We'll talk more about inventory in a moment. Our deferred tax assets declined by $120 million, which was primarily driven by the non-cash charge we recorded in Q1 for the impact of the US Tax Cuts and Jobs Act. I will talk more about this shortly. From a liability standpoint, we had a decrease of $20 million in accounts payable during the quarter. Our short term debt was up $81 million from last quarter, and we purchased $34.3 million worth of common shares. Specifically, we repurchased approximately one million shares at an average share price of $33.62. As of the end of the quarter, we had $392 million in long term debt and our gross leverage was approximately 1.6. Overall, our balance sheet and capital structure remain in great shape. Please turn to Slide seven where we will review our balance sheet metrics for the fourth quarter. Cash was very consistent with prior quarters. Cash flow from operations for the quarter was positive at $8.4 million and net capital expenditures for the quarter were $48.4 million, which was in line with our expectations. This led to negative free cash flow of $40 million. Inventory dollars were up last quarter by $28 million, ending the quarter at $1.08 billion, with inventory turns coming in at 6.1, down 0.1 of a turn from Q4. Inventory turns continued to be a challenge, largely driven by the new product ramps and material shortages as we saw lead times continue to extend out on certain commodities such as memory, capacitors and discrete semiconductors. In Q1’18, we saw the number of parts with lead times over 100 days move from 13% to 19% over the past quarter. We’re seeing component manufacturers adding capacity, but not at a rate in line with industry demand, and some component manufacturers are indicating that certain component constraints will continue through the second half of calendar 2018. As our new program ramps move to volume production, we expect fewer customer design changes, which should help to alleviate the need to get certain component parts within a supply constrained environment, and ultimately improve our inventory over the balance of FY’18. In the lower left quadrant, we're showing cash cycle days, which combines our cycle time for inventory, accounts receivable and accounts payable. Overall, cash cycle time increased from 42.8 days last quarter to 46.1 days. This change was mainly driven by an increase in our accounts receivable days sales outstanding and inventory days. Finally, pretax ROIC declined to 14.9% from the prior quarter. This decline resulted from the reduction in annualized operating profit, combined with the increase in net invested capital. On slide number 8, we have provided additional details on our share repurchase program. During the quarter, we repurchased approximately one million shares for $34.3 million at an average share price of $33.62. Since FY’14, we have repurchased $531 million of shares at an average price of $24.02. At the end of Q1’18, we had $290 million remaining on our board authorization for future purchases. As I mentioned during last Monday's call, we are executing on our share repurchase plan on an opportunistic basis and will continue to do so for the remainder of fiscal 2018 and beyond. We expect to continue to generate cash in the coming years, which is the driving force behind our ability to invest in our business through capital equipment, fund small strategic acquisitions and repurchase equity. We remain focused on creating value for our shareholders with the cash that we generate. Please turn to slide nine where we're outlining the impact of the Tax Act on our business. We very supportive of US tax reform and think the Tax Act will immediately improve the competitiveness of the US. We welcome the opportunity to participate in incremental manufacturing initiatives that our existing and new customers may invest in within the US as a result of the Tax Act. With the enactment of this Tax Act, we were required to record a non-cash GAAP charge of $162.4 million, which translates to a GAAP loss per share of $2.27. This noncash GAAP charge was mainly related to the estimated reduction in the carrying value of our net deferred tax assets that resulted from the reduction in the corporate tax rate from 35% to 21%. We do not expect to be impacted by the mandatory repatriation tax, which is commonly referred to as the toll charge. We do not have any immediate plans for any significant incremental cash repatriation as we already have an effective business model in place that allows for the efficient repatriation of our cash. We usually have over 50% of our cash in the US, with Q1 ending at 52%. For the remainder of fiscal 2018, we expect the US capital tax rate will be lower in prior years due to - than in prior years due to the reduction in the corporate tax rate to 21%. We do not expect the US GAAP tax rate will increase slightly, or we do expect the US GAAP tax rate will increase slightly in our fiscal 2019 as a result of the global intangible low tax income provision, as well as the disallowed executive compensation section of the act that applies to Sanmina’s 2019 fiscal year. We do not expect the non-GAAP tax rate of 18% to be impacted in fiscal 2018 or for any years within the immediate future as a result of the enactment of the new Act. While we do not expect any additional material non-cash GAAP charges for the balance of fiscal 2018 related to the enactment of the Tax Act, the company will continue to analyze the full effects of tax reform on our financial statements, taking into account the SEC’s guidance for refining our estimates during the one year measurement period. Please turn to Slide 10 where we are providing more details on our consolidated restructuring plan. While we are working through the various constraints on our revenue level, we made the decision to optimize our cost structure across the company in support of our long term strategy. On January 12, we adopted a consolidated restructuring plan that impacted three of our manufacturing facilities, which we announced on January the 19th. As we mentioned on last Monday's call, one facility is in Owego, New York and two facilities are in China. The driving force behind the restructuring decision for the two Chinese facilities, was the landlord's decision not to renew the leases for these facilities. This drove one customer to move their business in house. However, we expect to be able to move our remaining customers production to other facilities in China. As a result of this consolidated restructuring plan, we expect to incur cash restructuring charges of approximately $35 million that are expected to be paid throughout - through calendar 2019. During the first quarter, we recorded a charge of $23.3 million that consisted of severance and retention pay for affected employees that will be paid over the period of the consolidated restructuring plan. We expect to be in a wind down mode over the next year and a half, with the customer in our Chinese facility that is moving their business in-house, which will negate any incremental cost savings from the restructuring of this facility. For the other Chinese facility, we do not see any significant incremental cost savings from its relocation. As we wind down the Owego, New York operation, with production expected to be finished in June, we do anticipate incremental cost savings in the range of $2 million to $4 million, which we expect to flow through our financials, beginning in Q4 of fiscal 2018. As I previously mentioned, we are taking additional immediate actions to optimize our cost structure across the company. We expect these actions will start to provide some benefit to our gross margins in Q2, and combined with the expected recovery in our revenue levels in the second half of fiscal 2018, will deliver - help us deliver gross margins in the second half that are significantly better than the first half of fiscal 2018. We remain focused on getting the optimal cost structure in place to support our long term profitable growth strategy. Please turn to Slide 11. I would now like to share with you our guidance for the second quarter of fiscal 2018. Our view is that revenue will be in the range of $1.6 billion to $1.7 billion. On a non-GAAP basis, we expect that gross margin will be in the range of 6.6% to 7%. Operating expense should be $64 million to $66 million. This leads to an operating margin in the range of 2.7% to 3.1%. We expect that other income and expense will be in the range of $5 million to $7 million, and our tax rate should be around 18% due to the expected geographic distribution of our profits. This non-GAAP tax rate should be used for the remainder of the year. We expect our fully diluted share count to be around 75 million shares, plus or minus 0.5 million shares. When you consider all of this guidance, we believe that we will end up with non-GAAP earnings per share in the range of $0.40 to $0.50. Finally, free cash flow modeling, we expect that capital expenditures will be around $35 million, while depreciation and amortization will be around $30 million. Overall, while we are disappointed with Q1's results, we believe that the second half of the year will be stronger than the first half from a revenue, gross margin and cash flow perspective, as we work through the constraints on our revenue levels and start seeing the benefits of our various initiatives to optimize our cost structure across the company, in keeping with our long term profitable growth strategy. At this point, I will turn the discussion back over to Bob for more comments on our target markets and our overall business priorities.

Thanks, Dave. Good afternoon everyone. As we announced last week, our short term results are disappointing. We are confident these are short term challenges and the second half of fiscal 2018 will be significantly better. Please turn to slide 13 as I would now like to provide a few additional comments on our end markets for the first quarter. Industrial, medical and defense was 46% of our revenue, or $796 million, up 4.9% sequentially and up 2.3% from the first quarter last year, driven by broad based growth, with each segment up quarter over quarter. This was in line with our expectations for the quarter. Communications Networks was 39% of revenue or $679 million, down 4.9% sequentially and up 5.6% from the same period a year ago. Our Communication segment continues to be impacted by softness in the wireless area as a result of the transition from 4G to 5G. Optical products represent over 40% of our communications revenue, and in aggregate, those customers were down about the same percentage as communications overall. We have new programs in the optical area and we continue to work with our customers to get their products into production. I mentioned last quarter that 400 gigabit products are now shipping. While revenue is still small, this area is growing. The communications market continues to be an important market for us as we focus on leading edge technology with our customers. Embedded Computing and Storage was 15% of revenue or $270 million. This segment was down 4.4% sequentially and down 9.9% year over year. This segment missed our expectations. While automotive as a segment was up for the quarter, it was up less than we expected as new programs are ramping slower than anticipated. This is an exciting and growing market and we are well positioned for continued growth in automotive. Our set top box business was up nicely during the quarter, driven by seasonality, but offset by a decline in our storage market. In the first quarter, our top 10 customers represented 54.4% of revenue, and we had two customers greater than 10% of revenue. Please turn to Slide 14. I’d now like to discuss our outlook for the second quarter by end market. For Industrial, Medical and Defense, we expect to be down sequentially for the second quarter as we forecast Industrial to be down seasonally and Medical to be flat, while Defense will be up nicely, but not enough to offset the weakness expected in our industrial sector. We expect this segment to grow in the second half of the fiscal year and to be up year over year for the full year. The Communications Networks, we expect to be down sequentially as a result of continued softness in wireless, which is consistent with what we have been seeing. We are positive on Optical as we are working on leading optical programs, including 400G. We expect the networking and optical businesses will continue to get better as we move through the year, driven by new program wins. Lastly, for Embedded Computing and Storage, we're forecasting this market to be flat sequentially and up for the full fiscal year as we ramp a number of new programs in the automotive business that will move to volume production in the second half of the year. Automotive is a growth opportunity that aligns well with Sanmina’s strategy of providing value added services to customers, with stringent quality and regulatory requirements. Please turn to Slide 15. In summary, clearly the first half of fiscal 2018 is more challenging than we expected. Our profitability in Q1 was very disappointed - disappointing as we dealt with several issues, including a poor business mix, late cancellations and slower than anticipated program ramps. Supply constraints continue to be a challenge in the first quarter. The second quarter is typically a seasonally soft quarter, and that is what we are expecting this year. We expect material constraints to continue at least for the next couple of quarters, but the impact should be lower as design changes on new programs are finalized. As Dave mentioned, optimizing our cost structure this quarter is a top priority. Now, I make a few comments on the second half. We are excited about the new programs we have won. Based on new programs moving to volume production, a solid pipeline of new business and the current forecast from our customers, we are confident the second half of fiscal 2018 will be stronger than the first half. In spite of the slow start this year, we're expecting that we will grow slightly for the year. We expect that operating margins will be significantly better in the second half based on a higher revenue level and after addressing our cost structure. Our long term strategy is unchanged. We continue to win business and diversify our markets, with a focus on mission critical products where we provide more value to our customers. We view this current period as a trough, and we're excited about the opportunities ahead. We look forward to reporting better results soon. Thank you for your continued interest in Sanmina, So at this point Operator, we're ready for questions.

[Operator instructions]. And your first question comes from the line of Sean Hannan from Needham. Your line is open.

Yes, thanks. Good evening folks. So Bob, I was looking to see if now that we've conveyed the conviction again around a stronger expectation for the second half of the year, is there a way if you can elaborate on where we're going to see that strength come through in terms of new programs in your segments on a relative basis? I'm sure you'll probably have some degree of broad based set of ramps, but I'm sure it doesn't work out all perfectly. So any characterization would be helpful.

Yes, Sean. I mean one of the frustrations is we actually have a number of new wins across multiple markets. So when look in Industrial, Medical and Defense, we actually have new programs coming on in each of those areas in the second half. So we feel good about that. As I mentioned, on the Communication side, we have program ramps, both in the traditional networking as well as on the optical side. And then I mentioned automotive as well, which has been a good area for us and we expect to get even stronger in the second half. So it's not just one particular vertical where we're seeing a lot of opportunity in the second half. So it's a matter of working our way through these ramps, getting the yields up and getting the cost structure in place, and I think we'll see a nice second half.

Okay. And then on the automotive front, just to clarify and then I've got a follow up question. Where is it specifically that you folks are focusing within automotive in terms of the new programs that you're bringing on or that you're starting to ramp?

Yes. We’ve traditionally been very strong in infotainment and that continues to be a source of strength. And now we're getting into other subsystems in vehicles, like chronic subsystems within traditional cars as well as in electronic vehicles. It’s - again, I'd say we're diversifying within the automotive market as well, although infotainment is probably still the biggest piece the next few quarters.

Okay, that's helpful. And then last question here, jump back in the queue. So oil and gas was an issue you called out for the quarter. I mean that precision tuning that you’ve been doing there has not really been delivering huge numbers for a while now. So I'm just trying to understand how that’s been kind of ebbing and flowing and why it was specifically called out. I'm not sure if I really comprehend that, and how do we think about kind of a comeback or recovery relevant to that piece of your business. Thanks.

Sure. Yes, I'd say in general, we view oil and gas as sort of bumping along the bottom right now. It’s - as you know, we focus on the long term and we think eventually it will be a good market for us, but in the short term we’ve had a lot of challenges in terms of both customer demand, as well as our own profitability. So it's a matter again of making sure we have the right cost structure in place in the oil and gas arena, like a couple of other areas in the company. In terms of how the market's going, I mean we are seeing some signs of life. Our engineering business was up on the oil and gas side last quarter, and we're hoping that’s a little bit of a early indicator. But again, it's still pretty small and we're seeing order rates get a little bit better in oil and gas. I think this year will be better than last year. But we're - to be honest, it's still a challenge and we've got a lot of work to do to improve our profitability there.

Okay. Thanks, folks. I’ll follow up more offline.

Your next question comes from the line of Ruplu Bhattacharya from Bank of America Merrill Lynch. Your line is open.

Thanks for taking my question. Just first question on the communications side. I think you said that for fiscal 2Q, you're still seeing some softness in wireless. Does that imply that the networking part and the optical part is back to the normal level that you would have seen? And you've had good growth in optical over the last couple of years. How should we think about the growth rate in optical based on new programs that you have, when you look out let’s say over the next year or two years. Do you think the growth rate in optical maintains or does it get stronger or weaker? How should we think about the growth rate there?

Okay. Yes. A couple of questions in there. First, in terms of communications overall, I would say seasonally this first calendar quarter usually is a bit soft, and that's what we're seeing again. We are seeing as I mentioned, some program transitions on the networking and on the optical side, and I think that will continue to occur over the next three quarters probably. So I think comm will get better in the second half of the year. From an optical standpoint, it's actually the second quarter in a row where we saw sequential decrease in optical revenue, and that's obviously a disappointment coming off a couple, probably even longer, probably three years of really solid growth on the optical side. We think sequentially optical will probably start to get better even in the next quarter, but we definitely think that we'll see optical stronger in the second half of the year.

Okay. that's actually quite helpful. Maybe for my second question, if you can help us kind of bridge the gross margin improvement between 1Q and 2Q. I think you mentioned like a 40 basis point improvement in gross margins sequentially. I was trying to understand, I mean what is driving that? Is that - and how should we think about the improvement? I mean is it more on the CPS side or the IMS side? If you can give us any color that would be great.

Well, I think Ruplu, what we mentioned was that the improvement would be in the 20 to 60 basis point range from Q1 to Q2. And we don't specifically call it all out, but we would - we are seeing that in the CPS, there's some improvement there on a quarter over quarter basis that we're seeing and some slight improvement as well in the IMS piece, even though as Bob mentioned, we - on the IMS piece, we have the impact - bigger impact of the seasonality of the communications segment. So we’re expecting that on the margins quarter over quarter, as we start to find some of these savings that we're looking at and the optimization of our cost structure, that they will start to take effect, not fully in Q2 but some level of it. I don’t know, Bob, if you want to add anything to that.

No, I think that's a good summary I mean and we're making - I might add, we're making the margin improvement with pretty significant revenue headwind. So we’re - as Dave said, we're addressing the cost structure. We are - we do expect some of the programs to move up and absorb more overhead and we are taking a lot of actions to try and improve the business short term while not sacrificing the opportunities we have in the second half.

Okay. Thanks for that. And then just my last question, I think you had mentioned some weakness in fiscal 1Q in automotive. Any color on that? Was it any region specific or was it program specific? And is that weakness now gone in fiscal 2Q and do you expect strength in automotive in fiscal 2Q?

Yes. I think what I said was that automotive was in Q1, although not up as much as we anticipated. So we definitely are still seeing growth, even in a disappointing quarter from an automotive standpoint. We are absolutely expecting growth in the second quarter and we expect more growth in automotive as we move through the course of the year.

Okay. Thanks for taking the questions. Appreciate it.

Your next question comes from the line of Jim Suva from Citi. Your line is open.

Thanks very much. One question is, on the earnings for share guidance, it looks like the range is closer to $010 and then previously it looks like it was like five to six range. Is that due to the underutilization you have or lower visibility or the recent disappointment? I’m just trying to figure out why the bigger range.

Well, I think the reason why we put a wider range is it's also tied into the wider range that we have on the revenue is a $1.6 billion to $1.7 billion. We’re basically including here, taking into account the - our ability to get through the constraints we’ve had on our revenue. And so that's why we put a wider range on this.

Okay. Then my second and follow up question would be, you mentioned in your press release and your prepared comments about an improvement in sales in the second half of the year. Can you help us understand about that improvement? Is it fiscal year, like second half of the fiscal year compared to the first half of the fiscal year, or are you talking calendar year? Are you talking like year over year for Q3 and Q4?

Yes. So Jim, this is Bob. So yes, the reference was really to our fiscal year. So as I mentioned, it's been a challenging first half of the fiscal year, and we're doing everything possible to improve the situation here in the second quarter. And then we definitely expect the second half of the fiscal year to be stronger than the first.

Okay, thank you very much and thanks for the additional details.

Yes, thanks, Jim. So we have time for one more question.

Your next question comes from the line of Mitch Steves from RBC Capital. Your line is open.

Hey guys. Thanks for taking my question. One, and then just one small nuance. So basically for the Optical segment, that's 40% of the Communications business. How much of that is China Optical?

Well, we don't know exactly where our customers are shipping product. So we build product in multiple places in the world. We’ve got a very good optical footprint and pretty diverse actually geographically. And we don't know exactly where the customers are shipping those products. So it's a question I probably can't answer.

Okay, got it. And then just one small nuance. For the share count, you said $75 million plus or minus half a million?

Yes. We said 75 million plus or minus half a million.

Okay. That assumes no share repurchases, correct?

Correct.

Okay. Perfect. Thank you.

All right. Thanks, Mitch, and thanks again everyone. We really appreciate your time and look forward to talking to you next quarter. Thank you.

This concludes today's conference call. You may now disconnect.