Nova Ltd.
Q1 2010 Earnings Call Transcript

Published: 4 May 2010

[Operator:]

Good afternoon and welcome to the Nova Measuring Instruments' first quarter conference call. For your information, this conference is being recorded. At this time, I would like to turn the call over to Mr. Kenny Green, CCG Investor Relations. Please go ahead sir.

[Kenny Green:]

Thank you, operator and good day to everyone. I would like to welcome all of you to Nova Measuring Instruments first quarter 2010 results conference call and presentation and thank management for hosting this call. With us on the line today are Mr. Gabi Seligsohn, President and CEO and Mr. Dror David, CFO. I would like to draw your attention to the presentation that accompanies today's conference call. The presentation can be accessed and downloaded from the link on Nova's website at www.nova.co.il. Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements in the Safe Harbor outlined in today's earnings release. If you have not received a copy of the release, please view it in the Investor Relations' section of the company's website at www.nova.co.il. In addition, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing call operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release. Dror will begin the call with an overview of the first quarter financials, followed by Gabi with the business update. We will then follow with the question-and-answer session. I will now hand over the call to Mr. Dror David, Nova's Chief Financial Officer. Dror, go ahead please.

[Dror David:]

Thank you, Kenny and welcome everybody to our quarterly conference call. The first few months of the year were very exciting for us. We successfully concluded the follow-on offering, we saw record quarterly shipments and in parallel, we presented strong financial performance. Total revenues in the quarter was $16 million, up 5% quarter-over-quarter and up 179% over the comparable quarter of last year. Also, during the first quarter, we continued the transition of integrated metrology sales to direct sales model with an additional two customers. Looking at the product revenues, 50% of the quarterly product revenues were from the Memory segment and 50% were from the Foundry segment. Substantially most of the revenues came from the Asia-Pacific region and approximately 90% were for sub-65 nanometer technology node. Service revenues increased 19% quarter-over-quarter to $3.1 million as a result of customers returning to high level of tool utilization rate. Overall, gross margins increased 224 basis points quarter-over-quarter reaching record levels of 51%. This increase was mainly driven by the improvement in service gross margins, which increased to a record level of 22%, while products gross margins were stable at approximately 57.5%. Operating expenses increased to $5.4 million in the quarter. This increase was a direct result of our efforts to accelerate the introduction of new products, our efforts to enhance existing products and our extensive presence with new products and solutions at new and existing customer sites. Going forward, and in order to ensure we capture the available business opportunities, we expect operating expenses to increase modestly by an additional 5%. During the quarter, we reported net income of $2.7 million, similar to the previous quarter. We were able to maintain this net income level through the expansion of our revenues in gross margin, which offset the needed increase in operating expenses. Operating margins in the quarter was 17%, which is significantly better than our field group performance. GAAP EPS in the quarter was $0.11 per diluted share on share count of 24.2 million shares. Operating cash flow came in at record level of $5 million in the first quarter and approximately half of this sum is attributed to early collection of unrecognized revenue. Moving into the balance sheet key metrics, accounts receivable were $11 million, similar to the previous quarter, while DSO increased from 51 days to 64 days. We expect DSO levels to remain at the 60 to 70 days level in the coming quarter. As I mentioned before, during the first quarter, we continued the move to direct sales of integrated metrology with additional two customers. In some cases, this move changed the revenue recognition timing of systems from recognition achievement to recognition upon customer acceptance. The acceptance cycle in these cases is normally shorter than eight weeks, but acceptance timing may roll revenues from one quarter to the next. The impact of the unrecognized revenues related to such cases is also evident in balance sheet items such as inventory and deferred revenues, which increased during the quarter. Looking into inventory levels, we saw an increase from $4 million in the previous quarter to $6 million in the first quarter of 2010. This increase is comprised of the following three elements

[Gabi Seligsohn:]

Thank you, Dror and thanks everyone for joining today’s call. As Dror mentioned, the first quarter of 2010 was characterized by expense business and financial execution. With industry fundamentals continuing to show improvement and in light of customer needs to ramp production rapidly, the company made record shipments during the first quarter. These record shipments were direct results of several factors. First, a very strong position in Foundry and Memory with integrated metrology products. Second, continued proliferation of standalone tools to support capacity ramp up. Third, continued design wells for the 40 nanometer and below technology nodes. These high-end wins are especially worth noting given the fact that 60% of wafer fab equipment spending is expected to be made at the 40 nanometer and below technology nodes during 2010. Fourthly and finally, our well-managed operation, which allowed us to meet customer demand and support the steep ramp with tight delivery schedules. We are also pleased to see that our revised business model is paying off and leading to strong financial execution. Selling primarily directly to end users allows us to engage more closely with our customers as well as enjoy a larger portion of the value our products provide them with, ultimately leading to improved average selling prices. Given the return to high levels of capacity utilization rates at customer sites, we were able to increase service revenues and profitability levels. It is our intention to continue and improve service business results by offering our large installed-based customers several productivity enhancement packages. Over the coming months, we will be announcing these new products as they complete evaluations and are adopted in high volume manufacturing. Net profitability numbers are coming close to our long-term model and free cash flow from operations is at record high levels. With high-end manufacturing ramping up, we feel we are well positioned for further growth. Our Optical CD platform is really taking off on several fronts. First, the transition from CD-SEM technology to optical CD in high volume manufacturing during 2009 and in the beginning of 2010 has been happening at a must faster rate than previously expected. Second, our leadership of the copper metrology market continues to gain traction on both the integrated and standalone platforms in foundry and memory markets. The fact that we have played an active role in the development of copper processes in the last several years is now benefiting us as we see volume orders rolling in. Third, the fact that our customers are mostly from the Foundry and Memory segments is benefiting us especially in light of the fact that both these segments enjoy the strongest growth this year. Fourthly, the fast pace of technology shrinks requires a lot more wafer-to-wafer process control, which our systems make possible. Our Optical CD products are continuing to proliferate into more areas of the fab and the lithography and etch areas are playing a larger role than before. Our technology roadmap is very exciting and we expect to continue and add more differentiation to our products as the year progresses. Finally, and most importantly excitement in the company is at the highest level in light of the fact that new tool evaluation requests are exceeding our expectations. We believe that this is clear indication of the market recognition our technology has gained. Now let me turn to the industry outlook and also provide you with some insights into how we see our performance looking forward. Looking at overall industry fundamentals, the picture remains quite positive. First, memory price charts are opposite from what they used to be when looking at 65-week average. They are all up. Customers are generally reporting that consumer electronic component demand remains healthy and that demand for high-end devices continues to exceed supply capabilities. Also one gains further positive signs from capital intensity levels, which are at a same level of around 20% even in Memory where one remembers the days of 70% back in 2007. At such levels, our customers feel more confident that their ability to sustainably spend this year and next will continue. In recent months, we have counted as many as 15 new fab announcements for the coming three years, eight of which are starting this year. On top of all this indicators, we are closely following the demographic changes in the foundry space with more competitive manufacturers coming online and with the need to speed up transition to smaller technologies as well as creating an increased demand for more equipment. As for Nova, the sense of a prolonged upturn which our customers are sharing with us gives us an opportunity to do several things. It allows us to further solidify our market share gains through repeat orders; to successfully complete the several evaluation projects we are engaged in and lay the foundation for growth in 2011; to announce new products and capabilities, which our top gear customers are eagerly awaiting; to leverage our large installed base by supplying value-added solutions through our services group. Our ability to support fab efficiency improvements and extend the use of existing equipments where possible continues to create demand from our customers. And finally, to build more growth engines by expanding our products and technology portfolios. To summarize, the Memory side of the business is performing better than it did three months ago. In addition, we currently have better visibility, our new fab build out and expansions in both Memory and Foundry, and we believe we are very well positioned to address these opportunities. Based on these developments, we think it is appropriate to raise our revenue guidance for the year. The company’s revised revenue guidance for 2010 is $61 million to $66 million. Based on this revenue guidance, the company is also guiding to net profitability of 13% to 17% for 2010. And with that, operator, we would be happy to take questions.

[Operator:]

(Operator Instructions) We are taking our first question from Edwin Mok from Needham & Company. Please go ahead.

[Edwin Mok:]

My first question is just on bookings. On last quarter, you guys had made two announcements, so give us the grey visibility in terms of your bookings in the last quarter. Can you give us some color in terms of booking this quarter?

[Gabi Seligsohn:]

In general, during the first quarter we did some moderation of bookings. As we mentioned, the fourth quarter was an exceptional quarter, I think, for the entire industry. The strength of the fourth quarter as well as the continued orders that we got in the first quarter, lead to a very strong business situation right now, but indeed there was some moderation in the first quarter.

[Edwin Mok:]

Great. And than you mentioned that you have record shipments, I guess a part of that was for evals for new opportunities, is that a fair way of looking at that, which you might not recognize (inaudible) too late on this year. Is that how we should look at that?

[Dror David:]

Actually not. Most of the deferred revenues are from the integrated metrology segment because we moved to direct sales and there was some change in criteria so we do expect to recognize most of these revenues in the second quarter.

[Gabi Seligsohn:]

Just to explain, when most sales were happening through OEM, recognition was happening pretty much upon shipments. Now with the transition to direct sales, recognition takes place upon acceptances as Dror mentioned in his prepared comments, which takes up to eight weeks, sometimes less than that. And therefore, you may see situations in which acceptance may trail up from one quarter to the next.

[Edwin Mok:]

Great. Given that there are some deferred revenues, is it safe to assume in the coming quarter, we should see some revenue growth?

[Gabi Seligsohn:]

Well, we see a strong business performance continuing. As we saw and as we mentioned, we have raised our guidance for the year, so in general, we see strong momentum continuing. The momentum is related to a variety of things, which are all very exciting to us. Some of them are capacity build up to places that we were designed into previously, some are recent design wins. As we mentioned, we see a nice split between the Foundry and Memory side, which is very helpful and generally business continues to be quite strong into the second quarter.

[Dror David:]

And for as the year, as I mentioned overall, we see continued strengths and therefore the revised guidance for the year as a whole.

[Edwin Mok:]

So, one thing I want to ask you about the guidance. One of your largest customers, TSMC, had said last week that their CapEx going to be more than 60% is going to be front-end loaded this year. Do you see that potentially have some impact on your revenue in the second half of this year and how do we look at second half of the year?

[Gabi Seligsohn:]

First of all, definitely the exposure to the larger customers and our customer base quite well. It's very well helpful and when they decide to spend more money we are very, very positively impacted by that. The things that really influence us going forward are related, first of all, to the continued proliferation of the products and the existing products and also the fact that as I mentioned the number of new tool evaluations is continuously on the rise. Some of these evaluations are happening at very rapid processes, because customers want to go ahead and transition very quickly from development onwards into high volume manufacturing. So, those are good indicators as well. As far as the second half of the year and how we see it, in general, I think, sentiment in the industry has been that the year as a whole is up and up significantly. Right now there maybe some moderation in the second half of the year, but in general if you look on average at our behavior for this quarter and the previous one, we were talking about significant growth. What is happening now, which can help us I think even if the industry does spend a little bit downward in the second half, is the fact that we are in these penetrations right now and I think they help solidify our position, also into next year. So for now, I think there may be some moderation. On the other hand, as I mentioned in my prepared comments, we do see a lot of positive feedback from the customers. I think, as I mentioned, the capital intensity levels in Memory are something to be appreciated, that we would love to see continuing long-term. We think that makes for a more say in business that is able to support continuous ramp up. So I think those things are very hopeful. And the other thing is, there is arms race that’s going on the Foundry side. It's benefiting us simply because we are now at all the leading foundries in the world. And therefore, as they go ahead and struggle for position, we are positively impacted by that. So I think that kind of hopefully gives you a flavor of how we see all this playing out.

[Edwin Mok:]

I have two more questions and then I will jump off the queue. First one is on the standalone, you guys talked about in your prepared remarks as well. You said, (inaudible) the quantified number of 2s that you have placed in terms of evals and also number of sites that you have placed?

[Gabi Seligsohn:]

Well, I don’t want to talk specifically about the number of evaluations but the way we look at it is basically gaining customers. And as we stated in our presentation, our goal is to gain at least 4 or 5 more customers over the next 12 to 18 months. It could be more simply because more and more customers are coming, but that’s our goal right now, is to do that and also turn that into market share gains, which would basically imply repeat orders and design wins. But it's about a handful that I expect hopefully to be able to turn into our customers and show market share gains within the next probably 12 months or even less than that. And the list, what I am excited about and I mentioned the whole company being excited about, is that the list is actually growing, which for us is huge recognition of how customers perceive the new products. Everything by the way is focused on the new products when I talk about evaluations, which is a good indication to us that the technology decisions we made were the right ones for what the customers need now has the transition to the 4x, 3x and even the 2x technology node.

[Dror David:]

Great. I understand you might not want to provide too much specific on the eval, but that was helpful. It sounds like you did have incremental evaluations in this quarter, is that correct?

[Gabi Seligsohn:]

Ed, I am sorry, I didn’t hear the second half.

[Edwin Mok:]

It sounds like you did have new eval request as well as new shipment this quarter then on eval--

[Gabi Seligsohn:]

They are continuing quite rapidly indeed.

[Edwin Mok:]

That was helpful. And then lastly I think in the past you guys have touched on it but on standalones, your standalone was only for the Memory sector. I have noticed that you guys have mentioned a little more in this quarter than you have talked about in the past because I think in the past mostly was focused on the Foundry side or the logic side, if you will. Can you help us on the standalone side where are you guys are you seeing the most interest? Is that more for copper metrology or is it more of a CD-SEM replacement and also is it more NAND or DRAM, some way of quantifying it; that will be helpful. Thank you.

[Gabi Seligsohn:]

So, if the question is focused on Memory now, I will say that we are gaining a lot of traction now both in DRAM and in NAND. So, standalone is becoming unlike maybe where it was a year ago where there are only lesser customers for standalone on the Memory side, there is now more customers coming online for standalone. Indeed the copper side of it does take a part, but also as I mentioned we are already engaged very heavily in etch and lithography applications as well. So, I would say, it's both DRAM and NAND, its copper metrology, but also we see etch and litho becoming an interesting part of the activity on the standalone front.

[Operator:]

We are taking our next question from Arnab Chanda from Roth Capital. Please go ahead

[Arnab Chanda:]

I have two questions, one for Gabi, one for Dror. Gabi, if you could talk a little bit about qualitatively what you see going on in the Foundry market versus Memory? And how do you see that proceeding both in terms of utilization as well as demand from both sides? And then a question for Dror about operating margins, what do you think you are target model is? And if you have a qualitative idea about when you think you can get there? Thank you.

[Gabi Seligsohn:]

Okay, just to repeat the question for those who didn't hear, you asked about a qualitative assessment between Foundry and Memory and trends we are seeing there, and for Dror to speak about the long-term model for profitability. I will try to explain a little bit how we see it playing out between Foundry and Memory. I think on the Foundry side, we see two types of activity. One is repeat orders and volume orders from people that are duplicating and extending the activity in the 4x technology node and some evaluations in those high-end customers and activity for 3x and 2x because they are making announcements that lead them to start pilot production of 3x and 2x some time this year. On the other hand, we are saying in the Foundry space -- because as I mentioned the demographics are changing there. There are some relatively new engagements from people that are trying to attack the position of the leader there, and there again everything is very, very much technology focused. Foundry being mostly logic-heavy, the applications tends to focus a lot on the gate and the transistor level, so more complicated applications. They need to be measured and also, of course, the fact that there is a variety of products in each of these foundries. So I would say, technologically, the Foundry side is pushing very, very hard both on the technology node side, but also on the type of applications that need to be measured. As far as the quantity, as I have mentioned in Q1 revenues, it was 50/50. Last year Foundry was very strong, Memory is definitely coming back in a very, very big way. What we see in Memory right now is definitely a very significant capacity increases. I think there again the struggle, of course, as always between the different customers is for market share, but I think again the changes that we see there, for instance, if you look at the expanded Micron Group and the need for (inaudible) transition in order to meet the requirements there. The expansions that you see in Samsung, Hynix is pushing hard as well, also Elpida and its supporting fab in Taiwan, that kind of activity is mostly focused on moving forward and what has already been qualified and duplicating orders in order to increase capacity. So, that hopefully gives you a little bit of a feel on how we see between the two areas. It maybe that in a given quarter one side of the business, Foundry or Memory, will take a larger portion from what we are hearing right now. I think Memory is going to grow probably faster for us in the next quarter or two, but I think Foundry remains solid as well because of what’s going on between the five leading players all of which are our customers right now. Let me turn it over to Dror about the profitability levels.

[Dror David:]

On our target models for operating margin, the target gross margins that we have on the long-term model is around 52%; operating expenses are modeled assumes 30% of revenues. So our target operating margins is around 22%. In addition we believe that we may be able to reach that level on the quarterly revenues of around $20 million a quarter.

[Operator:]

And now we are taking a question from Robert Katz from Senvest. Go ahead.

[Robert Katz:]

I have a few questions, you talked about the 15 new fabs over three years; can you break out what is Memory and Foundry for Logic?

[Gabi Seligsohn:]

How much is it, both between Foundry and Memory? I don't have the list in front of me at this very moment, but I'd say that that we are seeing announcements actually coming from both sides. Just to mention a few, you see announcements coming from (inaudible) planning a new fab, you see announcements from GLOBAL FOUNDRIES which is building the New York fab, you see Samsung that’s talking about Line-17 right now and expanding the fab significantly in Austin, Texas. I am just giving some example off the top of my head right now, so IMFS in Singapore of course, is a very, very important project. So I think you are seeing it right now on both sides. There is also the phases in TSMC and in UMC phases 4 and 5 etcetera, which are perceived as new fab simply because they really are, even though they call them phases these days. And of course, what’s been talked about quite a bit is whether Toshiba will go forward with fab number 5. They are definitely focused on expanding fab number 4 and they have talked about fab number 5 coming online, hopefully, in the near future. I don’t know what that works up to as far as percentage. I don’t know the percentage points.

[Robert Katz:]

Have you had any success with Toshiba or still on an eval base?

[Gabi Seligsohn:]

I think that we are progressing rapidly there. I don’t want to talk in granular detail about that for obvious competitive reasons. But I think that we are proceeding quite rapidly over there and definitely that customer specifically is taking a very serious look at us right now. I don’t have anything to announce at this very moment, and if you don’t mind I will keep it as that again for competitive reasons.

[Robert Katz:]

Not a problem. Looking at these 15 fabs, what is your opportunity in these 15 fabs?

[Gabi Seligsohn:]

As far as the cumulative business for the company?

[Robert Katz:]

Yeah.

[Gabi Seligsohn:]

Well again these announcements talk about the next three years. As far as we look at that, the way we do our analysis internally is obviously on an account by account basis. But potentially, there is tens of millions of dollars worth of business in, and I will try to refer to as example we gave recently. We spoke about the addressable market for Nova in a specific example, if you remember, we spoke about let’s say a foundry at below 65 nanometers with 100,000 wafer stocks per month, that in itself represents an opportunity of $30 million to $35 million for us. So, there are several projects here that imply that and more. So for us this is an opportunity for the next several years, which is tens of millions of dollars. I think what matters, is to see the pace in which these things happen. We are excited to learn from the customers that about, I'd say, six to eight of those are going to start happening this year. And so I think we are going to see some equipment rolling in and that obviously influences the revised guidance that we had given, but it also leads us to get a positive feeling about our overall positioning that we play a serious role there. And also given the fact that activity now is with our customers is direct as part of the changed business model. We get much more engagement with the customers and get a better understanding of their plans and what amounts of tools and what kind of tools they are going to be needing when they ramp up.

[Robert Katz:]

And the $30 million to $35 million, that's a new, a greenfield or is that an upgrade? Was there a difference for you?

[Gabi Seligsohn:]

I would say that if it's an upgrade, there is a possibility it could be more, depending on what our installed base is in a given fab, but for a greenfield that's about right.

[Robert Katz:]

Okay. And on the Memory side, does that differ if you are going to NAND or DRAM to sub 40 nanometer or 30 nanometer?

[Gabi Seligsohn:]

It differs based on the extensive Optical CD Deployment. I think that in the case of DRAM and NAND, each customer is at a different stage right now. It's tough to generalize. I won't say that in many of these fabs, we're already positioned both for integrated and for standalone. It's still the case that most of the business in the Memory side is integrated, but what’s exciting now is that standalone is becoming part of that business. So it could be that it is somewhat less. The extent of the opportunity could be somewhat less than it is in Foundry. To give you a ballpark figure probably somewhere between I would say $20 million to $25 million, maybe a little bit more if we are really selected for as many processes that we think we can be qualified for.

[Robert Katz:]

And that’s per 100,000 wafer start?

[Gabi Seligsohn:]

Yes.

[Robert Katz:]

That’s good to know. In the current quarter, how many standalones did you recognize revenue on?

[Gabi Seligsohn:]

We have not generally given breakdown of the number of tools we either sell or recognize. At the end of the year, we give an analysis that talks about the products on a percentage point, how much of the revenue was from each product side, but on a quarterly basis because of the fact that it does tend to change from quarter-to-quarter, we have not provided that kind of information.

[Robert Katz:]

Okay. And was your book-to-bill positive this quarter?

[Gabi Seligsohn:]

You mean above one?

[Robert Katz:]

Yes.

[Dror David:]

In general, as Gabi mentioned before, we had very strong booking quarter in Q4, probably all the industry. So bookings in Q1 did moderate a bit. I think the right way to look at it is looking at both quarters together and book-to-bill if you combine both quarter together is still above one.

[Gabi Seligsohn:]

But it is also important to mention that the year has significantly improved, which has allowed us to raise our guidance. Even though there is some moderation within the quarter, overall we feel very strong about the business performance for the year.

[Robert Katz:]

And that new activity you said in Memory and Foundry, or is it mostly in Memory that you had increased?

[Gabi Seligsohn:]

It's both. It's both, Memory and Foundry, that we are seeing new activity in; a lot of it in Foundry and I think, some of it also in Memory.

[Robert Katz:]

Okay. And what is the fully diluted share count now with the offering behind you?

[Dror David:]

I think its 24.2 million.

[Gabi Seligsohn:]

Share count for the quarter was 24.2, for the next quarter it should be around 26.

[Robert Katz:]

26, that’s all I wanted.

[Operator:]

We are now taking a question from Andrew Kaplan from Harvest Capital. Please go ahead.

[Andrew Kaplan:]

I wondered if you can talk a little bit more about the percentage of your business is now coming from applications related to etch or lithography and whether in the eval or new business if you can just qualitative or quantitatively talk about percentage perhaps from applications related to that?

[Gabi Seligsohn:]

Percentage of what, I am sorry?

[Andrew Kaplan:]

The percentage of your business that comes from applications related to etch or lithograply, currently in know its growing and where you expect it to be perhaps in a year?

[Gabi Seligsohn:]

I think, etch and lithography side are growth opportunities for the company. It is the case that a lot of the activity on the LCD front has been in CMP. I’d say that right now the combination of etch and lithography probably is accounting application wise for about 20%, 30% of the activity. I think that it has the potential of raising to a higher level simply because the amount of applications in that area is very significant and the reason for that is both these processes are becoming more and more challenging with the advent of things such as double patterning. And also customers are wanting to characterize the profiles of trenches that the etch much more closely than they did before. Every little artifacts matters to them these days. So I think that etch and lithography side are going to be growing. At the same time, our strong position in copper CMP is continuing and the proliferation there is quite strong, and there we see it's both on the integrated and the standalone front. So, I think, hopefully, that gives you a little bit of a feel I think those two areas are definitely going to be seeing some growth.

[Andrew Kaplan:]

Right, but you are still seeing the number of applications related to CMP grow as well?

[Gabi Seligsohn:]

Yeah I think that the number of CMP applications is growing. Even within the copper area, there are certain applications. Also in the dielectric area of CMP, there is a lot of applications that are continuing to come online. Customers are wanting to control the CMP process more tightly and with that we are required to measure many, many more complicated applications. But right now, I would say it's probably 60% or 70% CMP related as far as applications are concerned and then probably about 30% the two others, the etch and litho together.

[Andrew Kaplan:]

Great. You had mentioned I think either on the call or in the press release about a 5% further increase in the operating expenses to get yourself to the level of what we really need to be in terms of support and new product development and so on. Does that imply that operating expenses (inaudible) were flat or can you put a little more color on as you go through the year?

[Dror David:]

Yes definitely we do expect up to 5% increase in the second quarter, and then we expect operating expenses to stay the same throughout the year.

[Andrew Kaplan:]

Great. I know you, what your guiding through in terms of revenue suggests relatively flat sequential revenues during the year at the mid point of your new guidance in the event that you are fortunate enough that revenue increases, you would be able to get operating margin leverage?

[Dror David:]

Yes

[Operator:]

(Operator Instructions) Gabi Seligsohn, would you like to make your conclusion statement.

[Gabi Seligsohn:]

Yes, operator, thank you. As mentioned, business fundamentals continue to be very strong. We are very happy to demonstrate the continuation of strong financial performance, which is the foundation of the business changes that we had made during last year, and we look forward to this improved business cycle and utilizing as much of the opportunities that are out there for us. We thank you all for joining and we look forward to speaking to you in the next conference call. Thank you very much.