Synopsys, Inc. (SNPS) Q1 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Synopsys Inc.'s Earnings Conference Call for the First Quarter of Fiscal Year 2011. [Operator Instructions] At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Thank you, Beth. Good afternoon, everyone. With us today are Aart de Geus, Chairman and CEO of Synopsys; and Brian Beattie, Chief Financial Officer. During the course of this conference call, Synopsys will discuss forecasts and targets and will make other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our annual report on Form 10-K for the fiscal quarter ended October 31, 2010, and in our earnings release for the first quarter of fiscal year 2011 issued earlier today. In addition, all financial information to be discussed on this conference call as well as the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information can be found in the current report on Form 8-K that we filed today, our first quarter earnings release and our financial supplement. All of these items are currently available on our website at www.synopsys.com. With that, I'll turn the call over to Aart de Geus.

Good afternoon. I'm happy to report that we started off fiscal 2011 with a strong first quarter, putting us well on track towards meeting our objectives for the year. This is all the more promising against the backdrop of a healthy semiconductor industry. Because Synopsys benefits from a clear industry leadership position, we continue to drive state-of-the-art technology in traditional EDA, and we have achieved a meaningful scale in high-growth adjacencies, such as IP. From a financial perspective, we delivered revenue of $364.6 million and non-GAAP earnings per share of $0.44. The run rate of the underlying business grew and the outlook for Q2 looks promising. Brian will give you more details in a minute, but let me first make some comments on the current customer landscape. Overall, our customers communicate a healthy outlook. This confidence is visible in the increased capital expenditures by all the large foundries and IDM, as well as an exciting end market. The wave of new products continues across the board, from consumer goods, such as tablets and smartphones, to new offerings in the industrial, automotive, communication and networking domains. Simply stated, we have entered the age of smart everything, and electronics will become still more pervasive, offering good growth opportunities for Synopsys. The quest for leading edge silicon to drive advanced products is also visible in the urgency with which our leading customers are driving to new process nodes. 32/28 nanometer designs are ramping quickly, and 22-, 20-nanometer and below developments are in full swing. The complexity and cost of these efforts translate into continued opportunity for Synopsys as they require both advanced EDA and IP. Against this backdrop, our stated growth objective for the next few years aims at achieving annual high-single digit earnings per share growth. We plan to achieve our objective with five strategies: one, drive organic revenue growth in the low- to mid-single digits for our traditional EDA products; two, achieve double-digit organic growth in our IP and systems adjacencies; three, continue to explore M&A opportunities that broaden our total available market; four, focus on corporate efficiency and allocate resources towards the growing segments in our market; and five, maintain a roughly flat diluted share count of around 151 million shares. In Q1, we executed well on all strategy, and we are well on the way towards our EPS objective for the year. Let me briefly share some highlights starting with the traditional EDA part of our business. In Q1, we saw a strong demand for our products. Both our contract renewals and a number of incremental sales led to positive growth of our business run rate. Specifically, adoption of our physical implementation solution around IC Compiler is growing with yet another customer deciding to migrate to us after having experienced difficulty in achieving closure with competitive tools. We also made excellent progress with a top graphics company moving to Synopsys for its next advanced chip design. Overall, we continue to deliver very well from a technology point of view. The summary of our physical design solution achieved a 50% runtime improvement for IC Compiler while adding a powerful new optimization technique for large hierarchical designs. We delivered significant advances in analog simulation, including multicore features, resulting in notable performance improvements. The upcoming DCS simulator release is designed to deliver an amazing 2x speed up in runtime. And in manufacturing, we shipped a new release of Yield Explorer, which achieved higher productivity by being tightly integrated with our physical design solution. In custom design, we continue to see gradual adoption. One European customer selected Synopsys for both simulation and design after a significant competitive evaluation, and another technology leader chose us for the development of IP for their 20-nanometer process node. Finally, IC Validator, our integrated physical verification solution, continues its customer base expansion with qualification for TSMC 40- and 65-nanometer processes and excellent adoption by customers. Now let me turn to our high-growth adjacencies, which continue to deliver strong business for us. The IP and systems area will represent about 20% of our revenue in 2011. Thus, reaching scale that is meaningful in driving top-line growth. IP had another excellent quarter as we continue to integrate the Virage acquisition from last year and systematically deliver high-demand IP titles. More and more customers are actively seeking to outsource what are, for them, non-differentiating but still very sophisticated IP blocks. Our broad, proven portfolio, ranging from libraries to memories to digital and analog interfaces, responds perfectly to this trend. In Q1, we again saw a strong demand for our cores with USB3.0 and PCI Express leading the way. Memory IP had a good quarter as well with releases of the latest DDR digital controller and analog-Fi, and we received our first order for use in 20-, 22-nanometer designs. In the related systems space, our primary focus is on the intersection of hardware and software design with a powerful prototyping solution. Prototyping is the most efficient way to accelerate embedded software development and system validation. Engineers design with a system-level model of the chip or chips long before the design is completed or manufactured. In practice, this enables software delivery six to nine months earlier. In Q1, our FPGA-based prototyping did pretty particular well as we have evolved the product to better meet high demand. Good progress also was made on the software-based prototyping side, notably opening up new opportunities in automotive and industrial. Mazda, for example, adopted our virtual prototyping solution, enabling them to save significant time and cost in verifying complex systems such as their electronic control units. Moving on to our continued focus on gradually broadening our TAM. The integration of our recent Optical acquisition is progressing well, and the results achieved in Q1 are an excellent start to a good integration into Synopsys. In conclusion, we executed quite well in Q1. We released strong technology, saw good growth, and we see a positive outlook for Q2 and the full year. Overall, we are solidly on track towards our objectives for fiscal '11. With that, let me pass it on to Brian, who will give you the detailed financial perspective.

Well, thank you, Aart, and good afternoon, everyone. In my comments today, I'll summarize our financial results for the quarter and provide you with our guidance for Q2 and the full year. As a reminder, I'll be discussing certain GAAP and non-GAAP measures of our financial performance. We have provided reconciliations in the press release and the financial supplement posted on our website. In my discussions, all of my comparisons will be year-over-year, unless I specify otherwise. Now Synopsys delivered very solid first quarter results meeting or exceeding all of the quarterly financial targets that we provided in December. Additionally, we achieved solid growth in both revenue and non-GAAP earnings, repurchased $65 million worth of Synopsys shares and exited the quarter with more than $860 million in cash. Total revenue was $365 million, an increase of 10% compared to a year ago and well within our target range. We delivered revenue growth across all product groups, with particular strength from our IP and systems products. One customer accounted for slightly more than 10% of first quarter revenue. Turning to expenses. Total GAAP costs and expenses were $318 million, which included $17 million of amortization of intangible assets, $15 million of stock-based compensation and $2 million of acquisition-related costs. Total non-GAAP costs and expenses were $280 million, an expected year-over-year increase due mainly to our acquisitions but still at the low end of our target range. As a result, non-GAAP operating margin was 23% for the quarter. Turning now to earnings. GAAP earnings per share were $0.31, down $0.88 from a year ago. Recall that Q1 of FY '10 earnings included the onetime impact of a $92 million or $0.61 per share GAAP-only tax benefit, which was associated with the IRS settlement for fiscal years 2002 through 2004. Non-GAAP earnings per share increased 7% to $0.44, exceeding our target range, driven primarily by a lower than expected tax rate and to a lesser extent, higher than expected other income and expense. Our non-GAAP tax rate was 21% for the quarter, well below our target due to certain onetime tax benefits, driven primarily by the reenactment of the federal R&D tax credit during the quarter for fiscal years 2010 and 2011. The Q1 tax rate includes a onetime benefit of $5 million for fiscal year, FY '10. As a result, we now think that a non-GAAP tax rate for 2011 of between 25% and 26% is a reasonable estimate, reflecting the benefit of the R&D tax credit for FY '10 and '11. Greater than 90% of Q1 revenue came from beginning of quarter backlog, while up-front revenue was approximately 7% of total. This is well within our target range of less than 10% up front. The average length of our renewable customer license commitments for the quarter was approximately 2.5 years. As Aart mentioned, we had a number of incremental sales of additional technology in the quarter. These tend to be shorter in duration than the large contract renewals, and we continue to expect average duration over time to be approximately three years. Now turning to our cash and balance sheet items. Our balance sheet remains strong with $867 million in cash and short-term investments. Of our total cash balance, 33% is onshore and 67% is offshore. As expected, there was an operating cash outflow of $40 million in the quarter. This was due primarily to the timing of payments of annual incentive compensation to our employees related to FY '10 performance. We are raising our operating cash flow target for the year to $230 million to $250 million. Now continuing on with our cash and balance sheet items. Capital expenditures were $10 million for the quarter. For the year, we expect capital spending of approximately $50 million to $55 million, which includes planned expenditures to increase our computing and network capabilities due in large part to our fiscal 2010 acquisitions. During the quarter, we purchased 2.4 million shares of Synopsys stock for $65 million, and we have approximately $250 million remaining on our current authorization. Fully diluted share count was $153.6 million for the quarter, at the high end of our target range, as a result of higher stock price and increased employee stock option exercises. However, I'd like to reiterate that our current approach is to manage our stock repurchases to keep share count roughly flat at around 151 million shares over time. We expect to increase our buybacks from what we had originally anticipated to help us meet this goal. Continuing on with the balance sheet items. Q1 net accounts receivable totaled $169 million, and DSO was 42 days reflecting a high quality of our AR portfolio. Deferred revenue at the end of the quarter was $602 million, and we ended Q1 with approximately 6,575 employees. This was down from fourth quarter headcount of 6,700 due primarily to the completion of the projects by our transition employees from last year's acquisitions. Now let's address our second quarter and fiscal 2011 guidance. Our GAAP targets exclude any future acquisition-related expenses that may be incurred in Q2 and beyond. So for the second quarter of FY '11, our targets are: revenue between $386 million and $394 million; total GAAP cost and expenses between $319 million and $338 million, which includes approximately $12 million of stock-based compensation expense; total non-GAAP cost and expenses between $292 million and $302 million; other income and expense between zero and $2 million; a non-GAAP tax rate between 26% and 27%; outstanding shares between $150 million and $155 million; GAAP earnings of $0.26 to $0.31 per share; and non-GAAP earnings of $0.43 to $0.45 per share. We expect greater than 90% of the quarter's revenue to come from backlog. Now our fiscal 2011 outlook. We reiterate that we expect revenue between $1.5 billion and $1.525 billion; a growth rate of approximately 8.5% to 10.5%; other income and expense between $1 million and $5 million; a non-GAAP tax rate between 25% and 26%; outstanding shares between 149 million and 154 million; GAAP earnings per share between $1.03 and $1.20, which includes the impact of approximately $52 million in stock-based compensation expense. And at this early point in the year, we're maintaining non-GAAP earnings per share of $1.67 to $1.77. R&D tax credit benefit I discussed earlier will be partially offset by expected higher taxes in other geographies with the remainder of the benefit primarily used to offset higher share count. However, our Q1 overachievement gives us even more confidence in this range. And as I mentioned earlier, we're targeting cash flow from operations of $230 million to $250 million. Now finally, to help you with your modeling, let me provide some additional 2011 commentary for expenses and revenue. For the balance of the year, we expect a fairly linear expense profile through Q3 and Q4, while the revenue profile is coming in just slightly lower than what we expect in Q2. For all of FY '11, we expect total non-GAAP cost and expenses to increase generally in line with our targeted revenue growth, give or take a bit. In summary, we're very pleased with our very good first quarter results highlighted by top- and bottom-line growth and continued solid operating margin. And with that, I'll turn it over to the operator for questions.

[Operator Instructions] And our first question will come from the line of Paul Thomas with Bank of America Merrill Lynch.

Just in terms of the guidance for Q2 and for full year, I guess, if you sort of take the midpoint of the numbers you laid out, you kind of get flat half-over-half. Could you talk a little about what you expect in second half and why we wouldn't see any of the momentum from the first half carry over and maybe also, what in particular is going on in Q2 with respect to that, that seems like it might be reversing in the second half?

Yes, let me cover that one. Again, it's fairly early in the year, right? We just completed our first quarter, and we're very happy with better than expected results against all of our key metrics. Q2, with the visibility we already have, as you know, coming in with more than 90% of the quarter's revenues in hand shows a very strong quarter materializing for us. And as we look at the profile ahead for the rest of the year, we just guided in a way that says, "Look, we've got a good first half up and coming, a good performance." We're still in the middle of integrating our acquisitions. It's early in the year. And so again, we just had a good start to both revenue and the EPS targets that we set. So again, expense will fluctuate quarter to quarter, and overall, we're happy to say we're still on track.

Then maybe with respect to the 2Q expenses, I guess. So 1Q was up from comp expense a little bit, and Q2 revenue was a little bit higher. So are there other expenses that are a little bit higher seasonal in Q2?

Yes. It's just a seasonal -- if you look at our performance from Q1, typically, the accrued expenses are lighter than the rest of the profile for the year and then it picks up to a more normal path. And that's where I was giving a little bit more clarity around expenses to be roughly flat each quarter for the rest of the year. So again, just Q1, it's very typical to be a little bit lighter and then the rest of the year comes through since we do those accruals regularly over the year.

Just one last one on the license duration. You talked about the shorter duration this quarter, because you had some contracts come back in. Could you talk a little bit about that during the quarter, maybe with respect to the last few? Was that quite a bit more customers coming back in? And sort of any sense for the magnitude of that, that you saw in 1Q versus maybe the second half of last year.

In general, I wouldn't pay too much attention to that. On average, the license duration is pretty much the same. Q1 tends to be a smaller quarter, and moreover, we alluded to the fact that we had a few deals that were sort of not necessarily renewals but more additions. And they tend to be shorter, because somebody buys something until the end of their contract, or they may buy some additional IP or so. In general, though, we do not see a fundamental change in the business practices for us, and we remain very solidly centered around the three years.

And next, we go to the line of Raj Seth with Cowen Incorporated.

This is Simran Brar calling in for Raj Seth. I have a couple of questions. Firstly, Aart, could you talk a little bit about the progress in your analog offering? And secondly, how are you thinking about core EDA industry growth for the year? And are you seeing any material share shift in your business segments?

Okay. On the outlook side, we have, of course, a fairly broad analog/mixed-signal business. And in that business, we have a strong position in all the verification side. We have a emerging position on the implementation side. In addition, there are interesting connections between that business and the digital tools, as well as the IP. And on all fronts, we're actually making very good progress. I highlighted the fact that on the verification, we had just fielded some very good speed improvements. On the implementation, we have a number of customer adoptions. This is still a very small business, and obviously, we're playing in a field that has been completely dominated by one competitor for many decades, but the solidity of what we have is actually starting to make some marks. And overall, the fact that we have all of these technologies at hand as we develop the most advanced analog/mixed-signal IP is turning out to be a very good value for us. Regarding the growth rates for what we would call sometimes core EDA or traditional EDA, we've told you that what we're banking on is low- to mid-single digit growth, and that appears to be on track so far. It's only our first quarter. We're in the right direction.

[Operator Instructions] Next we'll go to the line of Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC: Aart, sounds like the IP business is doing quite well. Can you give us an update on the system level business, and particularly, how the integration of the various assets there is going and kind of where you see that market?

Sure. And as you probably know, this is a business that is very much aligned with the IP, because fundamentally, it's predicated on the fact that with much, much larger designs, people are both moving up in terms of how they assemble these large designs out of many IT blocks. And as they do that, they get confronted with the reality of there being a lot of software there. And so for those of you not familiar with our path, as much as we have had a few tools, literally, for 20 years at the high end, it is really the last two, three years that we've put a major emphasis on investing both internally and acquiring a number of technologies, all with the objective to provide people an opportunity to model their system or prototype their system, be it in software or in hardware. With the acquisitions of last year, we are in full integration mode right now. And what is exciting is that we've been able to find a good pathway that allows us to both integrate into a new, much more integrated and more powerful version while sustaining and supporting all the existing customers, because the various products we bought also came with a set of customer relationships that are quite broad in terms of the nature. And being able to continue to support them is very valuable, because they are providing us the feedback on where to go with this. So my expectation is that later on in this year, we will be rolling out the first round of integration. There will be multiple rounds. And so far, the customer response is very positive. Richard Valera - Needham & Company, LLC: Are there any specific products we could look for as that integration rolls out this year?

Yes and no, but I don't think that we're quite ready to give the specifics, because there are always people that are very worried about, "Oh, well, is it mine? Is it the other one?" And the reality is we have found a pathway that actually creates sort of a superset of the best features of each one of the tools. We will give a bit of an update already in March at our next Users Group meeting. But in general, I think you should anticipate hearing more, I would say towards the end of the summer, roughly. Richard Valera - Needham & Company, LLC: Okay, so not quite that time frame?

Well, yes, I'm not sure. Frankly, I don't know if we -- I'm sure we'll talk to customers at DAC as well, and all of these things are sort of work in progress. And because we're so much involved with many customers on different fronts on this topic, there's actually a lot to talk about. And I don't know if we, specifically, will roll out a product or not at that time frame. Frankly, that for us is not all that meaningful given that our own conferences are so extremely well attended and in aggregate, attract more people than DAC. Richard Valera - Needham & Company, LLC: Brian, a couple of questions just clarifying the guidance. Can you clarify your comments about the revenue trajectory in the back half? Are you suggesting that there might be a little sequential downtick from the second quarter as you moved into the 3Q, 4Q?

Yes, that's right. We're showing a very strong increase in our second quarter from our first quarter just looking at the profile of the way the revenue's going to be recognized and then at this point in time, anticipate just a very slight decline into Q3 and Q4 from the second quarter. All of it, again, built into our total year numbers which are between 8.5% and 10.5% revenue growth year-over-year. Richard Valera - Needham & Company, LLC: And again, following up on the question from before about sort of the flat EPS, first half and second half. Seems like as you sort of integrate Virage, you should be recovering some of that loss deferred revenue from the purchase accounting, and I would think that would drive some incremental profitability for you in the back half, at least that say relates to Virage. Can you just sort of talk us through where -- how you see that happening? I'm assuming it's baked into your guidance but kind of would have thought it might have drove a little bit more EPS in the back half?

Yes, that's correct. Our deferred revenues, you do take a pretty significant haircut up-front on that, and that was certainly the case with Virage. So typically, you start out -- it's our first full quarter with our Virage financials built into that and then over time, you'd anticipate seeing some of the growth in there. So yes, exclusively in that category of the Virage, it anticipates seeing growth quarter-over-quarter. But then putting that in the context of the $1.5 billion overall top-line revenue growth and where the contracts are specifically outlined, as you know, one of the elements of our business model is having a very high level of visibility, and so elements are going to go up. Some of the elements will get variations based on when cash is due, when the collections are expected to come in. And that's just that slight variation that we're seeing right now.

[Operator Instructions] Next we'll go to the line of Tom Diffely with D.A. Davidson. Thomas Diffely - D.A. Davidson & Co.: Maybe just one more question on the revenues in the second half. Typically, there's a bit of seasonality, and your fourth quarter provides a nice little uptick in the revenues. Is that not historically the case? And if it is, what's different this year?

Tom, I think the seasonality is mostly in our orders. Just because compensation and the workload of much of the sales team tends to want to end at the end of a year, what happens is that in the fourth quarter, a lot of things tend to get closed. For all the renewals, that fundamentally has rarely much impact on revenue. It may have impact on expenses, because the commissions are due for some of these deals, and it may pull in a few things that are sort of add-ons, a la IP or things that were in the works anyway. I think that the last two or three questions seem to be all centered around the fact that, "Well, are you worried that the second half is worse than the first one." No, we're not. I think what we're just saying is that the first quarter and the second quarter happened to be particularly strong. There were also a couple of areas where there was a bit of almost an overhang in demand in prototyping that we're able to execute very quickly on, and many of those tend to be less renewals but more spot sales in the moment. Overall, the business picture is just quite solid for us. And as Brian has said, we have such a good insight in all the renewal deals with their unevenness. Now don't think that the sum of all the deals that we have is an exactly perfectly flat line. The reality is never quite that simple. But it is true that with 80% to 90% in hand entering the year, we do have a substantial amount of insight. And that's why with the particularly strong Q2 guidance, we assume, "Hey, maybe Q3 and Q4 won't quite be that strong on a continuation," But so far, so good.

And, just early in the year. And with one quarter behind us, we are pleased with the results. And we'll update you again next quarter as Q2 materializes, and we'll have even more visibility in the second half. Thomas Diffely - D.A. Davidson & Co.: And maybe just another question on the operating margin side. Where do you see those trending over the next few years? It seems like if your IP is ramping and the industry fundamentals are getting stronger, we should see an increase in the operating margin line as well, but it seems like we're kind of stuck here between that 23% to 24% range.

Well, there's a reason why you would come to that conclusion, because we have shifted our main financial objective a little bit. And we have shifted it to say our objective is to grow earnings per share. And as you well know, there are fundamentally only three variables, which is revenue, expenses and share count. And to make it simpler, we are trying to remove the share count out of this altogether by holding it flat with buybacks, notwithstanding that any given quarter may have some fluctuation. And so then you quickly come to the revenue versus expenses balance, and the key for us is to really hit the right balance, because if we see the opportunity to grow the top line a little bit more, we want to do that. And in that sense, we're using our expense money right now, already entirely focused on 2012 and beyond in order to maintain good earnings per share growth. If we see that, for whatever reason, the top- line growth is more difficult, we will immediately revert to a higher pressure on the operating margin so that we stay with our top objective of earnings per share growth. Thomas Diffely - D.A. Davidson & Co.: And then just finally, has there been any changes in the legislation, as far as being able to bring your foreign cash back into the U.S.? Any update there?

Unfortunately, I don't think there's an update. There are sort of waves of debate in Washington, as you may know. And I wouldn't be surprised if this debate will keep coming back as every government in the world right now is looking for money. In that context, it's just completely unpredictable, and therefore, we don't want to count on that. Obviously, having the cash is a good thing, but we don't want to count on being able to repatriate it at this point in time.

Next, we'll go to the line of Saket Kalia with JPMorgan. Saket Kalia - JP Morgan Chase & Co: Saket here for Sterling. Just a couple of questions from our side. So first, understand the downtick in the second half. But in terms of modeling it, should we be taking that out of the up-front revenue, I guess, part of the top line? Or should it be kind of coming from both time-based license and up-front and services?

Well, our average balance, as I said, is to have less than 10% up-front activity. And even with the significant level of new acquisitions last year, we're still well within that range of less than 10%. This quarter came in at 7%. So just relative to modeling, if it was a little bit of each, I think it's just the appropriate way in a generic sense of how to look at the profile going forward. Saket Kalia - JP Morgan Chase & Co: And then can you give us -- and I know we talked about the technology purchases, the incremental technology purchases in the quarter relative to the renewals, but can you comment at all on the contract renewals in the first quarter in terms of run rates? And maybe any qualitative commentary on what your outlook is for renewals the rest of the year.

Sure. Well, we actually made, I think, a little comment in the preamble saying that the contract renewals that we had were actually quite good in that we were able to increase our run rates. And as you know, while this is somewhat of a fuzzy number, because it's actually extremely complex to calculate and it's not audited, it is still a metric we use in-house to judge the overall quality of our business. And in that context, first quarter was quite good in that regard. Secondly, we said while there were a few additions that were sort of one-off, so to speak, and I think those are all indications that our customers are looking for some additional technology from Synopsys or some additional capacity, and that bodes well. Going forward, we do see a good pipeline of renewal, and so far, all indications are that we're well on track with that.

And we have a follow-up question from the line of Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC: Aart, you mentioned strong prototyping sales. I was wondering how much of a factor that is in the second quarter bump up in revenue? And is that maybe why the margins aren't quite what we might expect given that big jump in revenue?

I don't think it is that big. I think it's a healthy, healthy business, but relatively speaking, it's small compared to the overall picture. It's just one of many things that appear to be going well. If there's one thing that I think characterizes, not only Q1 but so far, as we can see, Q2 and as a matter of fact, the whole year, is I think we're executing particularly well on many strategies that are actually coming together. And many people realized that last year, we've made many acquisitions. We put many things in movement. We're in full integration of all of this. This is actually a substantial multiyear task, and things are coming together. We're fixing issues and making things better, more efficient, and the response from the customer base on all of those is actually quite positive. But that response has to be earned with every new product and with every new way of doing business. And so it's almost more that many pieces feel like they're coming together very nicely and that we're executing just quite well.

Thank you. At this time, I'll turn the conference back over to our host and presenters.

Well, we appreciate your attending today. Obviously, this was a quarter that was strong and had a good outlook. And that's probably the reason why the call is also fairly short, and so all the more we appreciate your questions and attending. And as usual, Brian and myself will be available a little bit later this afternoon for any follow-ups. Thank you.

Ladies and gentlemen, that will conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.