Ladies and gentlemen, thank you for standing by and welcome to the Trimble Second Quarter Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today’s call is being recorded. [Operator Instructions] I would now like to hand the call over to your speaker for today Mr. Rob Painter, Chief Executive Officer. Please go ahead.

Good afternoon everyone. Before I get started, a quick reminder that our presentation is available on our website, and we ask that you please refer to the Safe Harbor at the back. Despite difficult circumstances in the second quarter, our team rose to the occasion. I’m deeply grateful for the ingenuity and commitment to outcomes demonstrated by my colleagues and our worldwide network of partners over these last few months. What I said on our call in May remains true today. That is, we will get through this crisis. We are well-positioned to endure the macroeconomic shock. And we will emerge stronger on the other side of this. Our belief in our long-term strategy remains undiminished. Slide two lists the five key messages we want to convey today. First, our resilience, the quality of our strategy and the strength of our financial model enabled us to outperform our own expectations in the second quarter. ARR, at $1.21 billion, adjusted EBITDA margins at 25.7% and deferred revenue at $531 million were clear highlights. Our shift to a more hardware connected, software-centric, and recurring revenue business model is paying off. Second, the decisive financial and strategic actions we took in March have put us in a position to restore employee pay as of August and senior executive pay shortly thereafter. I thank all my colleagues for their professionalism and demonstrated commitment. These last few months have strengthened our culture. Third, we take our responsibility to address racial injustice and climate change seriously. Speaking personally, I have a heightened sense of awareness that has strengthened my resolve to leverage our platform to lead Trimble to a different place. We have been public in our stance against racial injustice. We established a diversity equity and inclusion working group, representing both senior leadership in Trimble…

Thank you, Rob. Let’s start on slide three, with a review of second quarter results. Second quarter revenue was $735 million, down 14% on a year-over-year basis. Currency translation subtracted 1%, and acquisitions and divestitures added 2%, for a total organic revenue decrease of 15%. Gross margin in the second quarter was 58.9%, up 200 basis points year-over-year, driven primarily by improved revenue mix. The introduction of higher margin new products and lower discounting also had a positive impact. Adjusted EBITDA margin was 25.7%, up 250 basis points year-over-year, driven both by improvements in gross margin and strong cost control. Operating income margins also expanded 260 basis points to 23.1%. Net income dollars decreased by 2% on a year-over-year basis, while earnings per share fell by $0.01 to $0.52 per share. Moving to slide four, our second quarter cash flow from operations was $147 million, demonstrating the strong cash flow generation of our business. Operating cash flow exceeded net income in the quarter. Free cash flow was $135 million. We paid down over $140 million of debt in the quarter and the net debt to adjusted EBITDA ratio fell to 2.2 times. At the end of the quarter, we had $1.2 billion available on our revolving credit facility and approximately $200 million in cash. In addition, we have no scheduled principal payments on our debt until July 2022. Our access to liquidity therefore remains strong. Given our strong and improving capital structure we are open to acquisition opportunities that will accelerate the implementation of our strategy. We anticipate continued prioritization of debt reduction in the allocation of free cash flow, but will consider a modest return to share repurchases. Now, turning to slide five that highlight some of the key metrics we are following. First, I want to note that…

Let me close by talking about key elements of Connect & Scale 2025 and our progress in the quarter, which I will describe in four elements. First, connecting solutions across our industry lifecycles; two examples here. In Transportation, we announced further integration with Kuebix between shippers and the Trimble carrier network. In construction, we press released a win with SNCF in France to manage railway construction assets and building construction data. Second, delivering breakout innovation that connects the physical and digital worlds. We launched a couple of analytics offerings in our construction business, leveraging our content and project jobsite data to enable customers to optimize project delivery. Near and dear to me, the Government of Nepal completed fieldwork for measuring Mt. Everest’s height using Trimble GNSS equipment. Third, accelerating our business model transformation. In Transportation, we began offering hardware as part of subscription bundles. In our Utilities business, we announced an IoT Solutions-as-a-Service offering for remote monitoring of water and wastewater infrastructure. And here in the third quarter, we will introduce our machine control Platform-as-a-Service initiative, which we announced earlier in the year at ConExpo. Fourth, we are taking actions that enable us to efficiently and effectively scale our business. We divested a small seismic business in the quarter, we have shrunk our real estate office footprint by 30 offices year-to-date, and we have increased our spend and focus on our digital fulfillment systems initiative. With that, I would like to thank everyone for taking the time to be with us today and a special thank you to our global Trimble colleagues. Operator, let’s please go to Q&A.

[Operator Instructions] And your first question comes from the line of Ann Duignan from JPMorgan. Your line is open.

Yes. Hi, good afternoon everybody. Just a couple of clarifications. You ran through the Q3 guidance so quickly, I find myself scrambling. Could you restate what you said about your expectations for ARR into Q3 versus nonrecurring revenue? And then putting all the pieces together, given lower gross margin, lower -- higher operating expense, would you expect adjusted earnings to be down quarter-over-quarter in Q3?

Hi Ann, David Barnes. So, yes, we expect ARR to continue to grow in the back half of the year and in the third quarter, because those businesses are resilient and the conversions continue. Non-recurring revenues will be down, so that results in the total being down lower than -- but not down as much as in Q2. Gross margins probably won't come in, in Q3 as good as Q2. Operating expense will go up a little bit. So, Ann, we're not certainly signaling increasing dollars operating profit.

And why would you expect gross margins to be down in Q3 if ARR is going to continue to grow?

Well, gross margins will be up year-on-year for a lot of reasons, none big, but many cumulative. As you've seen, Q2 was a very high gross margin period. So, we do think gross margins will be above prior year, but probably not higher than Q2.

Okay. And then just as a follow-up on the Transportation side, could you just dig into that segment a little bit more and tell us what do you think is are cyclical issues versus are there any structural issues that we need to be concerned about? I mean, ELD has been a weight on Transportation for a while now. How should we think about that maybe beyond this year and into 2021?

Hi Ann, this is Rob. So, when I think about the macro of the end markets we serve, I would say, transportation, particularly -- specifically North America, transportation is certainly the most challenged at the moment. There is, I think, as you know, a supply/demand imbalance, which is creating pricing pressure on the carriers. And that actually started in 2019 and was playing through to the beginning of the year. I think the market probably expected balance to come back there on the pricing side and then the pandemic set that back. So, I look at the macro backdrop in transportation and I put at least half of the delta to that macro backdrop and that also includes trucking companies idling some assets. And so if you're idling some assets that could have adverse impact on our units serving those trucking companies, at least in the near-term. So, let's say, a view forward for some quarters or the couple of quarters or maybe the next year. So, that exists that backdrop. And then just to reiterate a couple of points from the prepared remarks. In our Enterprise business, so the back office software or transportation management system, we are intentionally engaging in a model transition, so moving from perpetual to a subscription offering. And that is emphatically the right thing to do for the business, for the market, for the customers, and as we all know, has short-term negative impacts to the P&L. So, we're offering -- we are offering both models, and we're seeing almost two-thirds - actually, it's above thirds of our new bookings are coming from subscription offering. So, the more we're driving that subscription offering, the subscription bookings, that does create a near-term -- a near-term drag. And then the last bit I talked about was the Kuebix acquisition, which takes us to the shipper side of the transportation market, which was when we announced it in February, we did announce it as a dilutive deal. So that hangs heavier in a market that is down. So, those are the majority factors. And then yes, we also talked about ELD itself and continuing to work our customers through the migration. And now Canada ELD comes after the U.S.

And the ELD issue should be resolved by end of this year? And then I'll leave it there. Thank you.

Yes, I think it would be fair to say that from the end of this year and I mean it will probably bleed into the beginning of next year as well, working through those -- working through our product commitments.

Okay. Thank you. In the interest of time, I'll leave it there. Thanks.

Thanks Ann.

And your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.

Hi, good afternoon everyone.

Hey Jerry.

I'm wondering if you could just update us on the performance of e-Builder and Viewpoint since you folks -- ownership. Can you just talk about the growth in logos that you folks have delivered? What kind of win rate for new logos has the team delivered? Can you just frame the performance for us over the past year plus and especially over the past quarter?

Yes. And for those who may not know, Viewpoint and e-Builder are two acquisitions from a couple of years ago that are in our Buildings and Infrastructure space. They continue to perform very well. So, very pleased with the respective management teams and what they're delivering since they've been a part of Trimble. To give you a bit of quantitative to overlay that qualitative. In the second quarter, ARR grew in the mid-teens for both of those businesses. So, I would say that's emphatic demonstration of the strategy working and the business model working. When we look at new logos that those businesses have driven in the last couple of years. If we look at e-Builder, about two-thirds of the ARR growth has been through new logos. So, it's also a good sign of driving new growth since being part of Trimble. And then on the Viewpoint side, it's been about one-third new logo and two-thirds from existing customers, and that makes sense because we are transitioning the model there to a subscription model, whereas e-Builder was already a subscription model. And then to connect the dots to that, if you look at new logo wins, it's around our RFP type win ratios, they're around 50%. And the majority of times when we don't get a deal, it's from a no decision. So, hopefully, that gives you some color, Jerry.

I appreciate it, Rob. And then what stood out was the growth in deferred revenue this quarter, was that because bookings were stronger than ARR? Can you talk about that or was there any acquisition impact in the quarter?

Yes, there is some acquisition impact in there, Jerry, but the bigger portion of that is the ARR growth and the health of the recurring businesses, both subscriptions and maintenance and support.

And then it was nice to hear about two-thirds of the Transportation back office customers signing up for the subscription offerings. Can you talk about growth in the addressable market that you're seeing? Obviously, not a lot of orders in April, but I'm wondering any conclusions that we could draw from what's going on in June, July in terms of how much the subscription offering is helping you folks expand the tail, so to speak?

Yes, it's a good question. What we can see and what we've learned from other businesses where we've made the transition is it certainly does expand the addressable market. I'll use our SketchUp business and construction as an example, and we had another quarter of over 50% year-on-year unit growth. And that, to me, is a tremendous sign of -- and a clear sign of expanding the addressable market. If we look at Transportation, the fundamentals there would be taking us predominantly from the larger carriers into the medium-size carriers who are not going to want to have a, call it, a custom implementation. So, they're going to want more of a standard configuration out of the box offering. So, there's a logic to it. And so we do see ourselves reaching a set of customers that we weren't reaching before. But I'd also say that the largest subscription bookings we've had in the last, I think it was three quarters, was from a very large carrier. So it does seem to be attractive to both segments.

Appreciate the discussion. Thanks.

And your next question comes from the line of Jason Celino from KeyBanc Capital.

Hi, thanks for taking my questions. To build off the subscription offerings, it sounds like you also announced another as a service offering for your Utility segment. But for those two new announcements you made, what's been kind of the feedback from customers? And then for those particular products, how should we think of pace of kind of the -- that transition?

Sure. I'd say it's pretty early days to give a quantitative view of how they are performing in the market. I can say qualitatively, they were customer-driven initiatives that we made to make the move to the subscription, the subscription offering. And I use them as an example to show really, across the board at Trimble that we're looking to the business model conversion. I mean, one, in a down market, we all know moving from CapEx to OpEx has a financial advantage. We talked on the last question about the expansion of the addressable market that we believe that we can see through this. And then there's the pursuit of our -- the connect part of the Connect & Scale strategy. being able to connect the data, being able to connect stakeholders across the industry continuums, we really believe in the pursuit of the strategy that to connect the data, which is really where we think there's huge optionality going forward as you connect the data a business model transition and is an enabler to be able to get data back to the cloud. And so there's both strategic and financial reasons that have us very motivated and committed to this. And so yes, I was wanting to show examples from parts of the company, you don't often hear us talking about or elements such as hardware of changing the business model that we haven't talked about before as signals of just how serious we are about this. So, time will tell on customer pickup and so we can certainly come back to that in future calls.

Okay, great. And one quick follow-up, if I can. A lot of other software companies have been talking about their customers accelerating different digital investments. Was the strength in Viewpoint and e-Builder this quarter due to that or why couldn't the construction end market see this also?

I have to say, you're very faint. It's hard to hear you, so I missed the question.

Okay. Let me try to speak a little louder. A lot of other software companies are talking about customers accelerating different digital investments. Was the strength in the quarter from Viewpoint and e-Builder due to that? And then why couldn't the construction end market see that also?

Got you. Well, for sure, at a secular level, we believe there's an acceleration of digital. And it's and you look at what we do as Trimble, the connection of the physics solutions that connect the physical and the digital worlds, and really the in essence, we're digitizing markets such as construction, agriculture, transportation. So, we believe at a secular level that we're in the right place. We've seen some of the -- I'll use Viewpoint as an example, some of the acceleration in that ARR. And then the bookings we had this quarter were customers who had on-prem -- on-prem software, weren't able to get connectivity they wanted. And so we actually did some lift and shifts during the quarter to help our customers. And that has a side benefit of course, once they've seen how the software operates in the cloud, we've seen them, by and large, want to stick to that delivery method. Now, in the short-term, we have the disruptions of being able to actually access customers. And so I would separate the very near-term from the mid to long-term in terms of the digitization secular. So long-term, I think it's there. In the short-term, new logos have certainly been harder to reach from the new bookings that we've had. And again, that has a certain logic to it. And we saw new bookings trends in the quarter and the second quarter move from quite negative at the beginning of the quarter and progressively move better through until the end of the quarter and here into July. So, hopefully, it gives you a little bit of color how we see it on both sides.

Great. That's very helpful. Thank you.

And your next question comes from the line of Rob Wertheimer from Melius Research. Your line is open.

Thank you, operator. Hi guys. Rob, just following on your last answer there. I think you're through the quarter progress on new logos or new customers was construction related. Transportation obviously had a tough quarter. Could you talk about the non-hardware side through the quarter there? And whether there's any of that similar digital push really taking hold?

And you mean specifically in transportation, Rob?

Correct.

In our -- in the Enterprise Business, we saw bookings progress better throughout the quarter. Well look, that's software -- software-oriented, of course, in the enterprise business. I would say a bright spot there. I think if we look at the -- kind of elevate back a second, when we look at some of the macros, which I know you know well, whether it's truckload line haul indices or shipment indexes or Class eight unit sales, those were all pretty negative in the quarter, maybe even historically negative. Now, by the end of the quarter in June, it looks like those indices may have bottomed. We saw spot rates increase. If you look -- compare April to July, Class orders were up in June. And so if we see that freight demand coming back, then let's -- we feel like the market's got at least an incrementally better backdrop than it did in the first couple of months of Q2.

Okay. And if I can just ask maybe a different one, but you took a really prudent approach to this economy, which is highly uncertain. How is your appetite, if an acquisition appears? I mean, do you feel like that just is on hold because, who knows how the world works out over the next year or so? Or is Trimble actively looking? I mean, what's your current feeling on willingness to do that? Thanks.

Sure. Well, from a financial perspective -- a financial strength perspective, you look at the net debt to EBITDA, and we're in a strong and healthy position. You know the working capital was less than 1% of revenue in the quarter, producing strong cash flow, over $500 million of deferred revenue on the books. So, we have the financial wherewithal to pursue an acquisition. If I move to the -- that's a financial answer. From a strategic perspective, it really is a function of not pursuing acquisitions for the sake of acquisitions, but really in the pursuit of executing the strategies. And so what I would signal is that we have an openness to it, but it's also not meant to be a signal that you're about to hear something meaningful or big, given what we -- the commentary we had in the last call about pulling back on acquisitions and buyback. We just wanted to be transparent that given where we see ourselves now and we saw Q2 as the trough of the revenue decline, that we would be open. And so we are open in the context of, particularly, I'd say, in the construction space, number one, in the overall segment. Secondarily, would be, I'd probably say in the agriculture space, but there's not actually really too many deals, I would say, to be done in that space.

Thank you.

And your next question comes from Colin Rusch from Oppenheimer. Your line is open.

Thanks so much guys. Can you give some more granular sense of what you're seeing in construction? I really love to get a sense of public projects versus private projects as well as buildings versus infrastructure. We've seen some softening in June and July. Just would love to get some color on that from you guys as you move into 3Q.

Sure, hi Colin. So, if we look at -- I would break it down by type of projects on one dimension and the other current and future. And the punchline is we see current work coming back online, and much of it never went offline and what went offline has, by and large, come back online. And then from a future perspective, we see customers with some concern about the 2021 pipeline. And we're all watching to see what happens with infrastructure, what happens with the FAST Act, will that get renewed in September, or will it be continuing resolution, that pushes that out, what will be -- will there be a backstop on state DoT funding or there's a number of factors that are impacting the view on the future that hopefully get resolved here shortly. If I then look at the type of construction, let's take residential, non-residential and civil, I would say, non-residential, the data would show that's been hit the hardest. And if we look at civil, that's been impacted by about half of what the non-res numbers have been impacted by. And so when we look at the segments that we serve across the value chain and construction, if we looked at a market such as architecture and design, we would look at the ABI data and ABI data would tell us that the number of the June stabilized after the April, May decline. So, that does look more positive. Now, multi-residentials look more positive than commercial and industrial, which, again, that also makes sense. And I would note that in our SketchUp business, we grew units over 50% year-over-year. So it didn't play into -- whatever the number was, that didn't play into our business. And if we look at general contractors in that…

That's incredibly helpful. Thank you. Just a follow-up just briefly on customer engagement through the pandemic response, are you seeing more of your non-software customers showing interest in discussing some of the enterprise solutions? And I'm just trying to get a sense of that migration and how much of that is even more of a push effort and how much is a pull effort from the customers?

Well, one indicator, especially when we have our SaaS businesses, we can measure the intensity of the usage of the software and at the beginning of the quarter in Q2, not surprisingly, we saw large dips from late March into April. And then we saw -- and we've seen since then, quite intensive usage. And that's important for us. It also plays through by the way, through the net retention we've seen in ratio and a number of the software businesses. And hey, I think maybe the work at home is positively impacting the usage of the system because we have remote access to be able to continue to do the work. In terms of engaging new customers, I mean, like most companies -- or all companies, we're certainly shifting the nature of digital engagement and how we reach customers and we're all learning new ways of sales and marketing. And I'd say, so far, we've seen some really nice pockets of success. I'll give you one example. In Brazil, we did a virtual trade show a few months ago that had 3,000 attendees. And we would never get 3,000 attendees in an in-person demonstration, and we did it for a couple of thousand dollars. I mean, that's an incredible ROI from a digitally engaged. I will say on some of the hardware solutions, there are aspects of seeing is believing and the ability to be out there in the field is important. Now, there, we luckily have a worldwide network of dealer partners and our hardware predominant businesses. And they have been up and running. And really, while it's still difficult, let's say, to operate in the restricted environments, that's fundamentally different than if we were having -- if that was all direct sales, and we had to be on airplanes to do it because we wouldn't be able to be out there. So, having that channel in the hardware business is proving at the moment to be, yet again, very positive for us.

Thank you so much.

And your next question comes from Richard Eastman from Baird. Your line is open.

Yes, thank you. Thanks for the question. Rob, could we just talk for a second about the op profit in B&I and Geospatial. What I'm kind of looking at is, in B&I, the op profit was up $25 million quarter-to-quarter on flat sales, so from Q1 to Q2? And Geospatial was kind of plus $8 million op profit on flat sales in Geospatial. And is that -- could you just perhaps suggest to us or give us some feel for what the cost takeout or just cost control did sequentially versus the mix there?

Well, if we look at the costs, and David can add on to this, as you know, we did the pay reductions in the quarter. But actually, if we look at the fundamental drivers of the cost delta in the business, we saw travel and entertainment was the largest drop, not surprisingly and that was across the board. We saw things like health care expenses go significantly down, not surprising. People weren't going to the doctor. So, those played in to the overall numbers. So, now if we're looking specifically within the reporting segments, okay. So, there are some nuances there. And I think you're asking, Rick, about ND&I compared to Geospatial OpEx, the sequential down Q1 to Q2?

Yes, I just again, I'm just looking at the dollar increase in op profit versus the revenue being flat quarter-to-quarter? And it's pretty substantial in the B&I business, $25 million more in profit on flat sales from Q1 to Q2. And obviously, there would be a cost component to that. But again, quite frankly, I'm just thinking for modeling purposes. As we move forward, we have more of a software recurring revenue mix there. I would think year-over-year, certainly, but sequentially, it's a rather significant increase in op profit.

Yes. And there's an element that's going to play through with the gross margins being higher, so on -- even on flat revenue, that's going to be a help in both of the businesses. And then after -- and there's about an 800 bps delta in the gross margins between those segments. And then from an OpEx point of view, David, do you want to add to that?

Yes, I'll just add to what Rob said. So, we -- obviously, for the whole company, gross margins went up Q1 to Q2 and up year-on-year. And that's more pronounced in Buildings and Infrastructure, where the hardware pieces of the business were weaker and the software were stronger for all the factors Rob mentioned. But that phenomenon occurred in Geospatial as well. We had a really positive revenue mix. So, what you're seeing on the operating margin line in those two segments is the positive confluence of improved gross margins year-on-year and meaningful reductions in operating expenditure across every category. It's people, no one went to the doctor, travel basically was zero, as I'm sure is true in many of your companies and really across the board, operating expense was low. So, as we indicated, the operating expense levels, as you think forward and after Q2, they can't be sustained at that low level. So they will gradually go up, albeit not to the pre-pandemic levels.

Okay. Okay. And then just a second question on the BIM business, could you just characterize how Europe performed in the BIM business in the quarter?

Really quite similar to the Rest of the World. I wouldn't say there's anything that particularly stood out in Europe. And we do have a bit more of a Nordic and a U.K. concentration. Nordic did better, not surprisingly.

Okay. Okay, very good. Thank you.

And your next question comes from Andrew DeGasperi from Berenberg. Your line is open.

Thank you. I just wanted to ask a question, again, on transportation, particularly the weakness. Could you maybe elaborate if any of that was due to competition? We know that Samsara has been particularly aggressive. I'm just wondering if that played a role in the weak -- in the downtick in revenues.

Well, I would -- the way I'd characterize it is go back that there's the element of the macro impact but let is at least half of where we see the delta. But let's talk a little bit about the nature of the market right now. And so the ELD mandate certainly attracted a lot of capital to the industry. And I would say not all of that capital was with smart capital, and we've seen some early shakeout in the market with some of the technology providers, whether they've exited the market or there's been reductions in force from some companies. So, now you apply that and you look at the customers themselves and if you got a pricing imbalance that's pinching carriers at the moment; that is going to increase some of the competitive pressure. And the nature of how we've seen some of the competition in the market shift is really -- I'll give you an example -- a product example is the bundling of the hardware with the software. And by and large, that is now how the market has moved because you have companies, like ourselves, but I'll say, other companies, younger companies, wanting to get the long tail subscription growth. And so that is certainly -- I've been talking about this for a few calls, that certainly negatively impacted the competitive environment, the hardware margins and it has that wrapping it now into the subscription. And so one of our announcements was that I had in the press release was moving hardware as a subscription offering. So, we do have that available to our customers. And in aggregate, that does have some net impact on the cash flow of the business because instead of taking that hardware revenue upfront, we'll wrap it into the subscription over time. Now, on a cumulative base, it'll also be fine over time to have a cumulative cash flow growth. That's ultimately even a better measure than ARR, cumulative cash flow.

That's helpful. And just a follow-up on your -- on the Hardware-as-a-Service. Can you tell us what the duration is of that subscription on average?

Typically three years. I mean, you can have one year or three years, but we typically are aiming for three years.

Great. Thank you.

And your last question comes from Rich Valera from Needham & Company. Your line is open.

Thank you. One more question on Transportation, if I could. So Rob, the quarter-over-quarter decline in Transportation was obviously pretty severe and abrupt, about $20 million down quarter-over-quarter. And from what I'm hearing, it sounds like you're expecting a gradual recovery, perhaps just a little bit in Q3. And I would assume that looking out over the next several quarters, that's the way to think about it, that we're not likely to get back any of that revenue in chunks to the upside and that we should think about this as more of a gradual recovery, perhaps from the what I would think is the trough in Q2.

That's a good way to think about it, yes.

Great. And then just one more, if I could, on the OpEx, which you have talked about. So, that was -- so OpEx was down a very impressive almost $20 million, I guess, quarter-over-quarter, Q1 to Q2 and understand that's not sustainable. But any color at all on how much of that we kind of think we give back in Q2? I mean do we give back half that, a third of it, any color on that at all, it would be appreciated. Thank you.

Yes, this is David. That depends a little bit on how the market evolves and the virus and everything. I think it's safe to say, OpEx will be up, but nowhere near by the amount that it was down in the second quarter. Many of the factors that constrained OpEx on travel and a number of discretionary spending areas will continue to be meaningfully down. So, it will be up -- I'd say, up modestly from Q2 to Q3.

And in addition, we would also see some FX.

That's right. The U.S. dollar has weakened considerably. So, just the FX rates, a lot of our cost is outside the U.S. So that will put upward pressure on OpEx.

Got it, okay. Thank you gentlemen. Appreciate it.

And we don't have any further questions at this time. I will now turn it over to Mr. Michael Leyba, Director of Investor Relations.

Thank you, everyone, for joining us on the call. We look forward to speaking to you again next quarter.