Silicon Laboratories Inc. (SLAB) Q1 2011 Earnings Report, Transcript and Summary

Good morning. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to Silicon Lab's First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Ms. Shannon Pleasant. Please go ahead, ma'am.

Thank you, and good morning. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results. This call is being simulcast and will be archived on our website. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the Investor Page of our website at www.silabs.com. I'm joined today by Necip Sayiner, President and Chief Executive Officer; Bill Bock, Chief Financial Officer; and Paul Walsh, Chief Accounting Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following the presentation. Our comments and presentation today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings including the Form 10-Q that we anticipate will be filed shortly, that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Lab's GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Laboratories' Chief Financial Officer, Bill Bock.

Good morning, everyone. I'm pleased to report first quarter revenue was up 7% sequentially to $119.6 million. This return to sequential revenue growth sets us up with a good start to the year and is a better-than-typical seasonal result. While GAAP earnings are in a loss position due to acquisition-related charges, our non-GAAP earnings exceeded the high-end of our guidance range at $0.40. During the quarter, we successfully completed the acquisition and integration of SpectraLinear, a transaction we announced in January. Our GAAP results include approximately $11.7 million in charges related to the deal, as well as typical non-cash stock compensation charges, which totaled about $9.5 million in the quarter. GAAP gross margin was 60.3% for the first quarter, lower than usual due to a combination of product mix and $1.1 million of the acquisition-specific charges I just mentioned. R&D investment was up in the first quarter to $35.4 million, and SG&A increased to $31.9 million. These operating expenses are inclusive of $5.1 million in 1x charges for SpectraLinear. Our GAAP tax provision was also impacted by an acquisition-related charge of $5.4 million. This resulted in a fully diluted GAAP loss of $0.04 per share. Turning to our non-GAAP results. The revenue increase was due to sequential growth in all 3 of our main businesses but was led primarily as expected by our video ramp. Gross margin, therefore, was 61.6%, reflecting the greater mix of video products, which represented more than 10% of revenue in Q1. As I mentioned last quarter, we fully expect margins to improve throughout the year, and we are forecasting an increase of approximately 100 basis points in Q2 as we benefit from cost reductions in the video product as well as mix improvements as our Broad-based business growth accelerates. We continue to expect to be back to the midpoint of our target range of 62% to 65% in the second half of the year. We were able to make adjustments to our operating expenses during the quarter to reduce the total spend from our initial forecast. Operating expenses increased, therefore, by only about 1/2 the amount we originally suggested. Specifically, R&D increased to $29.7 million, and SG&A was about flat at $23.2 million. The result was a reduction in operating expenses as a percentage of revenue in the quarter that would typically exhibit a much more notable seasonal increase. Some of these expenses will roll over into the second quarter, and we will experience a full quarter of operating expenses associated with the acquisition. But in total, we now expect Q2 operating expenses to be approximately $55 million, well below what we had predicted previously and with all of the growth coming in R&D. We are working hard to return to model profitability, and we'll be seeking to get above 20% operating margins in the second half. For the first quarter, operating income was 17.3% of revenue and up slightly in absolute dollars at $20.7 million. Other income was about $800,000. Our non-GAAP tax rate was 15.3%, which is also favorable to our guidance due to an increase in the proportion of foreign to U.S. income. This is likely to continue, and the effective tax rate going forward should be between 15.5% and 16.5%. Net income was $18.2 million in the first quarter, or 15.2% of revenue. Resulting Q1 diluted earnings per share was $0.40, ahead of our guidance. Turning to the balance sheet. Accounts receivable increased to $58.5 million, or a more typical 44 days sales outstanding. We continue to have no known collection or bad debt problems. Inventory increased slightly to $41.1 million but with turns improving materially to 4.5 from 4.1 in the prior quarter. We will continue to work towards our inventory turns target of 5.5. Channel inventory in the quarter was up about 10%, ending the period at a comfortable 49 days. The decrease in our cash balance to $339 million reflected this growth in working capital as well as the payments to complete the SpectraLinear acquisition. Given these significant uses of cash, we chose to limit our share repurchase activity. We have $109 million remaining in our current share repurchase authorization, which we expect to utilize over the remainder of 2011. Let me end by saying this will be my final earnings call as CFO. I'll certainly participate in today's Q&A as well as Investor Relations activities in the months ahead. But as previously announced, Paul Walsh will become CFO in early July, and he will lead the financial portion of the second quarter call. You are in good hands, and I've appreciated the opportunity to work with all of you. Necip, I'll now turn the call over to you.

Thank you, Bill. It has truly been a pleasure. I'm very glad that you'll be rejoining our Board of Directors. I know we'll continue to benefit from your good counsel and leadership. And good morning, everyone. As Bill mentioned, video was the start of the quarter, so let's start there. Video represented more than 1/3 of the $42 million Broadcast business in Q1. The majority of the growth was from our silicon tuner product, although the modulator revenues doubled as well during the period. Adoption trends continue to be very positive. All of that TV makers are intent on expanding their use of silicon tuners. We're closing in on several mid-year model design wins and our R&D pipeline remains rich, giving us an increasing number of products to offer customers as we compete for 2012 models. Audio revenue declined sequentially as expected due to continued pressure on the FM business into handsets, as well as the typical seasonal drop-off in shipments into portable media players. However, our AM/FM product line recovered in Q1 as customer inventory issues abated. We expect the Broadcast business to be up modestly sequentially in Q2 as the growth in video and consumer audio is projected to overcome the handset headwinds. This headwind should be well behind us as we enter the second half of the year. Handset revenue will be about 5% of our total in the second half, and consumer audio growth will start dominating the revenue profile. As further evidence of the strength we are seeing, we secured 118 design wins in consumer electronics alone during the quarter. Our broad-based revenue increased again sequentially to a record high, growing 20% year-over-year and representing nearly 40% of the company's revenue. Growth in the quarter was driven by strength in both MCU and Timing products. In our MCU business, consumer-oriented applications remain seasonally weak, while communications and industrial demand were both healthy. The strength was specifically led by optical transceiver customers, where several meaningful design wins ramped. This continues to be a strong application area for us, where our integrated high-performance analog and small footprint are very highly valued. We experienced strength in embedded USB applications and also saw demand improve at a host of industrial customers. Development kit shipments were up by more than 1,000 versus Q4, and design wins were up by more than 50% year-over-year. In Q2, we expect this strength to continue, and we are seeing momentum build in both our low-power and wireless MCU families. The Timing business delivered record revenue for the tenth consecutive quarter. As Bill mentioned, we successfully integrated the SpectraLinear team and portfolio in the quarter, and are aggressively marketing more than 100 new devices through our channel in Q2. We also introduced a new oscillator family targeted at the lower end of the market. We are very pleased to report a number of greenfield opportunities emerging, which is a key objective of expanding the portfolio. We are now serving over 500 distinct customers with our Timing products. We expect that channeling both our newly acquired and newly developed low-end products through our global distribution partners will significantly enhance our market penetration. Rounding out the rest of the Broad-based products, isolation and wireless both grew in the quarter. These products have surprised us on the upside this year so far in terms of design wins, giving us increasing confidence that they will be meaningful contributors in the future. And finally, the Access business. Revenue was up slightly sequentially with slicks down, modems and PoE up. We continue to secure design wins in printers and point-of-sale terminals, while set-top boxes remain at declining end market for modems. We're making progress in the voice over cable segment while maintaining our dominance in voice over DSL. We expect Access revenue to hold steady in Q2. Mature products, which represented about 4% of revenue last year, declined to about $2 million in Q1. This category is expected to represent only about 1% of revenue for all of 2011. We continue to have confidence in the annual targets we set in January and view the Q1 results as strong progress towards those goals. We are well on our way to being back to record revenue levels in the second half of this year. We have a strong start to achieving 20% to 30% growth in our Broad-based business. We readily see a path to $60 million in video revenue, and Q1 is proving to be a trough in terms of gross margin. All is expected. I will say though, that we are viewing the macro environment more cautiously as we try to assess the second and third degree impact the crisis in Japan might have on the industry. In Q2, therefore, we expect revenue to be $124 million to $130 million. We're anticipating that Access will be flat, Broadcast will be up slightly and Broad-based will be up double digits sequentially. We expect gross margin to increase by about 100 basis points. We anticipate operating expenses to total approximately $55 million. On a GAAP basis, we are projecting earnings of $0.24 to $0.30. On a non-GAAP basis, excluding stock compensation expense, we expect $0.43 to $0.49. We're now ready to take your questions. Shannon?

Thank you, Necip. We will now open the call for the question-and-answer session. So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to one, with one follow up. Operator, please review the question-and-answer instructions for our call participants.

[Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel, Nicolaus. Tore Svanberg - Stifel, Nicolaus & Co., Inc.: Yes, thank you and congratulations on the results. First question is on gross margin. I recognized it's a trough here, and your getting it up 100 basis points. But with Broad-based being as strong as it will be in Q2, why wouldn't gross margin potentially even go up a little bit more?

So we will continue in Q2 to have the impact of the video business on gross margins, and it's a quarter in which we are continuing to work on cost reductions in manufacturing on that product line. So this is our best guess at the step function improvement of margins in Q2, then we expect to see a continued improvement into the second half of the year where we should get to something around 63.5. Tore Svanberg - Stifel, Nicolaus & Co., Inc.: And my follow-up question has to do with your revenue guidance. And I'm just trying to get a gauge of your conservatism due to the macro environment. If you look at that $124 million to $130 million, just from a coverage perspective, or even backlog or bookings, how should we feel about that qualitatively where we stand today? Thank you.

Perhaps I can provide some color on that, Tore. It is based on the data we are looking at today. The bookings as of late have been rather strong. Some of this we attribute to possibly customer behavior post the Japan quake. But the near-term demand remains strong. I think for the guidance range we've provided, I would submit that if there is no second or third degree impact from Japan, we continue to see good bookings and good terms particularly in our Timing business, that would gravitate us towards the high end of the guidance. If we see a slowing in bookings or the softness with which we started orders from Japan in particular persist throughout the quarter, that would gravitate us more towards the lower end. Tore Svanberg - Stifel, Nicolaus & Co., Inc.: Great, thank you.

Your next question comes from the line of Anil Doradla with William Blair. Anil Doradla - William Blair & Company L.L.C.: Yes, Necip, coming back to your Japanese comment, from a timing point of view, you talked about the second and third degree impact from Japan. Help us understand from a timing, when could you potentially see the impacts, if there are any impacts? And I have a follow-up.

So as far as our supply chain is concerned, at this juncture, we don't see any disruptions. We have secured, and our suppliers have secured for us, all the materials that is required to build products for us. However, for our customers to ship their equipment, they have to be able to secure all the components for that particular equipment. So if there's even a connector missing, they’re not going to be able to ship, and so won't we. So that's primarily was I referred to when I say second and third degree impact. And I think the suppliers have stated that they have adequate supply and inventory for the next 60, 90 days. That's been their stance ever since the quake occurred. So if there is such impact, I would personally expect these to emerge towards the end of this quarter and early next. Anil Doradla - William Blair & Company L.L.C.: Great. And coming back to your gross margins, obviously, there's lots of puts and takes, especially with some of the stronger things like timing and everything kicking in. If I were to focus just on your broadcast video product line, can you help us understand and deconstruct what is going on specifically? Clearly, the margins there are lower than your corporate-wide margins. There's a competitive angle to it, especially from the incumbency can tuner guys. So walk us through the dynamics and how quickly the pricing perhaps in that environment changes? And how would you look at it towards the second half of the year? From that product lines, gross margins, both from a competitive point of view and your next-generation product line, can you give us some color?

Sure. I think that the dynamic is that the video product line tends to be on a model-year basis. So we are currently shipping into 2011 television set models with the product that we were selling and marketing to our lead customers last year at this time. What's going on with margins currently is that, as you point out, Anil, the video product line is below our corporate average, and that mix is impacting gross margins in Q1. Because we have such a strong ramp, there were early startup expenses in manufacturing and lower test yields than we would like in an optimal situation, which contributed to the low gross margin performance in Q1. We will improve these manufacturing costs in Q2, and this will help drive the 100 basis point improvement that I have alluded to. In the second half of the year, this will continue to get better. And as Necip pointed out, we do have the opportunity in the second half to win some midyear models, and those may well include our latest generation product that is beginning to sample to the market today. The second half of the year, we'll enjoy both of those effects, and it improves our margin picture on video further. We're currently competing for 2012 model year television sets. And there we have the challenge of competing with viable competitors that will put pressure on ASPs. But we have the advantage of competing with our next-generation products, which are designed for improved cost. So I think the jury is still out on what margins will look like for video in 2012. But to the degree we can hold ASPs and enjoy our lower cost products, we will see improvement again. Anil Doradla - William Blair & Company L.L.C.: Great, thanks a lot.

Your next question comes from the line of Craig Berger with FBR Capital Markets. Craig Berger - FBR Capital Markets & Co.: Thanks for taking my question. Can you, first of all, just provide any insight into how much acquisitions are driving revenues, drove revenues in Q1 or are contributing in Q2 guidance?

There was about $2 million of revenue, Craig, from the SpectraLinear acquisition for the 2 months we had them on our umbrella. And in Q2, we should see approximately an incremental $1 million for having them for the full 3 months. Craig Berger - FBR Capital Markets & Co.: Thanks for that detail. Can you give us a little more detail on the FM tuner business? I know you said handsets going to be down 5% of revenues at the end of the year. Can you give us a little insight into how pricing is doing in your various segments and maybe how much AM/FM is of the total at this point?

So the 5% of raw revenue, that data point is for handsets only. And we continue to enjoy a good share for standalone FM tuners in that segment. But as you well know, the pie is shrinking due to both the effects of integration as well as ASP erosion. So we still enjoy a reasonably good share with our largest customer, but the overall volumes are going to continue to decline. So in the second half of the year, as I mentioned, that should not be more than 5% of our revenue. So you'll start seeing the consumer audio revenue to start dominating that profile. AM/FM has rebounded in Q1. Late last year as you'd recall, it had suffered from some inventory at customers that has not abated completely. And we are looking for growth in that particular product line into the second quarter, which should continue into the second half just on seasonal strength. We also would expect to see our portable media player revenue come up again in the second half just seasonally. So both of these factors are headed in the right direction. And as with the handsets declining to the level they are, I think you can start seeing the consumer audio revenue take priority. Craig Berger - FBR Capital Markets & Co.: Can you just help us understand how much of that consumer audio is AM/FM versus traditional FM and maybe how much goes into automotive segment? Thank you so much.

Yes, I don't have that split, Craig. But AM/FM has been steadily increasing. So I think there will come a point, especially with the inclusion of automotive, it will, both in volume and in revenue, be higher than FM. I just don't have the data in front of me to point to you when that will occur. Craig Berger - FBR Capital Markets & Co.: Thank you.

Your next question comes from the line of Arnab Chanda with Roth Capital.

Thank you very much. Before I ask a question, just wanted to thank you very much, Bill. Obviously, it's been a great experience and certainly, you've affected an amazing transformation obviously with Necip. So thank you very much. Just a couple of questions. First is, if you talked about your video business today, where do you see that? You said that you're starting to see your DMOD business start to improve here, and then certainly the tuner business. Are there any -- if you could describe that business a little bit, where do you see the DMOD business and kind of what kind of segments do you see success there? And then in the tuners, it sounds like the initial product was basically yield related and there's quite a big difference between the margins there versus your overall business. As we go through the second half of the year, is the next-generation business going to be able to dramatically improve that? Or is the pricing pressure going to offset that somewhat? I have a follow up please.

Sure. Let me address that tuner and the margin question first. As of today, we have been able to successfully improve the test time and yield to the point that we expected. So that will certainly be reflected in our margin results this quarter. And the next-generation product certainly provides us with a lower-cost basis. I think it's fair to say that the video business in general, compared to our other businesses, will always present a margin challenge to us. Our job is, obviously, to be able to keep the cost reductions ahead of the ASP erosion we expect to see in that segment. So there will be some improvement in the margin profile as the new generation device takes over. But the video business will always be measurably below the corporate average. As far as DMODs go, we do have a number of products. These have been targeted historically to Europe with the dV/dt flavors. And we've been able to combine it with satellite and cable to offer a highly integrated solution to our customers who want to have all of these in one chip. And that is indeed a device that is ramping in the first quarter along with the tuners.

Great, and then just a quick follow-up on microcontrollers. It seems like in terms of opportunity set, that seems like your biggest one. Could you talk how your -- the touch products, what we can expect from there, as well as what the trajectory is for your 32-bit, which you just announced? Thank you.

Yes, microcontrollers, we've seen an upside in the first quarter. And that appears to be one of the strongest product lines going into the second quarter here. The upside we've seen and we are seeing in the bookings is coming both from improved demand in existing customers, as well as ramp of new customers. I would roughly divide them to be 2/3 existing customer strength, 1/3 inclusion of new customers. We are seeing strength in optical transceivers. We have seen some design wins ramp back in motor control. USB continues to be very strong for us. So one thing that I noticed when I look at the bookings for second quarter in particular is that the strength and demand is very broad. It's coming from a variety of different product lines. So that gives us confidence that this will continue. 32-bit development is underway. Our target is to be able to sample our first product from that platform by the end of this year. And we're also making progress on the human interface front. We have just sampled a new release of a touch controller to our handset customers. A product that is optimized for use in handsets. And we are working with a couple of alpha customers, trying to win designs with that product.

Thank you very much, Necip. Thanks, Bill.

Sure.

Your next question comes from the line of Craig Ellis with Caris & Company. Craig Ellis - Caris & Company: Thanks, guys. And Bill, I just echo the congratulations on the real nice service over the years, and congratulations on the move back to the Board. Necip, In terms of the video ramp, you’d set a target going into this year at $60 million. It sounds like you're still on track for that. But is the linearity playing out the way you expected? And the design wins that are possible midyear, would that be upside to that $60 million?

The profile is working out more or less as we projected. The Q1 was a little stronger. So that might slightly modulate Q2. And there's potential that the second half profile will look better than we had indicated, especially if we are successful with the design wins we're working on for the refresh cycle midyear. I believe that will represent potential upside to our target. We're very confident with the $60 million revenue target at this point. Craig Ellis - Caris & Company: Okay, good to hear. And then with concerns recently about crystal supply availability, what has that catalyzed, if anything, in your customer base about the potential to move to a CMOS-based timing device like the one you offer either for communications infrastructure or for lower voltage, more portable solutions?

I think that resulted in a certain increased interest. I can't tell that any of the near-term strength is due to that, but we are certainly getting more increase from a customer base who have been using the oscillator modules coming from this one particular company who have been affected by the tragedy. So I think that just gave a reason to customers to look for diversification. And our short lead times have become obviously more attractive in that context. Craig Ellis - Caris & Company: Thanks, Necip. Good luck, guys.

Thank you.

Your next question comes from the line of Srini Pajjuri with CLSA Securities. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: Thank you, Bill. First of all, good luck with your future plans. I just want to start off with the OpEx. You've done a pretty good job in Q1 and guidance for Q2 looks solid. I'm just wondering how we should think about the second half of the year?

Well, in January, I suggested we'd see a step-up in Q2 and then OpEx would be relatively flat throughout the remainder of the year. Given the effort that we've applied to reducing operating expenses in the first half, I think what we will now see is a modest step up into the second quarter to the $55 million guide that we offered. Then probably another modest step up in 3Q, perhaps as a function of variable compensation as we improve the profitability of the business in the second half and then pretty flat into the fourth quarter. So in aggregate, our spending for 2011 will be lower than we had imagined in January. But the ramp will be slightly different. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: Okay, great. And then Necip, a couple of questions for you. Could you remind us the targets for different segments that you gave us in January? And kind of help us understand if all of them are tracking pretty much as expected? And if so, how should we think about seasonality in the second half? Thank you.

The short answer, Srini, is yes. We are tracking to all the targets we have established from a revenue standpoint in January. Broad-based, we said would be up 20% to 30% year-on-year, and I think we had a pretty good start to the year. And second quarter is looking very good. As I responded earlier to Craig's question on video, I think that $60 million target has a high confidence with potentially better results for the year. So I think things are going well in terms of revenue expectations. And we're doing all the right things with respect to managing the margins as well as the OpEx. So far, good progressive quarter. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: And then my final question, I think you gave us the total percent of sales for the legacy products, including the handsets and the modems and some of the mature products. I believe it was about 17%. And I recall you saying that it was going to go to 10% by the end of the year. Just wanted to get an update on that? Thank you.

Yes, I think that bucket would include FM tuners for handsets, which I indicated earlier would be about 5% of revenue. It would include mature, which we also said, about 1% of revenue. So the remaining piece is the analog modems for set-top boxes and so forth. And that, too, would be approximately around 5% of revenue I would project. So all in all, I think we are looking at roughly 10% of revenue coming from those product lines. And 90% is going to be in full growth mode. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: Thanks, Necip.

Your next question comes from the line of Terence Whalen with Citi.

Thanks for taking the question. This one is on the Timing business. As your mix of Timing business perhaps includes more portable or consumer timing devices, do you expect the gross margin profile of the Timing business to change into the second half or into 2012?

Not appreciably, I think. While the gross margin profile of the products that we acquired may not meet the very high margins of our solutions that we've been selling into the telecoms space, I think the mix still will be very favorable, and margins will be way over the corporate average.

Okay, terrific. And then I apologize if this is a little repetitive, but Necip, based on your commentary that video was already over 1/3 of the $42 million Broadcast, that puts us over $14 million on an annualized rate already, well over $60 million if you grow in the second quarter. Do you have insight whether the video business is going to decline in a specific quarter? Perhaps you could remind us of just TV seasonal builds? Will that decline in the fourth quarter? And then a little bit, looking more into 2012, can you talk about the next phases of growth for that business, whether you’re seeing the design traction to support good growth in '12 based on existing customers increasing their mix of your product in this second gen? Thanks.

Sure. I think the profile we had expected from the business suggested that the fourth quarter would be a down quarter over the third. And I think, for normal seasonality, that would still be what we expect. And that might be slightly different for us this year if we're successful in getting additional models won for half-year refresh, which also would have applied some upside pressure to the video number. For next year, as I mentioned in my prepared remarks, all the TV makers are intent on expanding their use of silicon tuners next year. Some of the TV OEMs have been reluctant to put a lot of their models on silicon tuners, and I think that's very quickly changing. And I think we are in a good position comparatively to continue to do well in this space against can tuners. There will be other competitors of silicon tuner suppliers that we'll have to compete with, but I feel good about our potential to increase our share against can tuners and grow the business in '12.

Thank you and congratulations again to Bill as well. Thank you.

Your next question comes from the line of Sandy Harrison with Signal Hill.

Yes, thanks. And Bill, I'll join the chorus wishing you luck going back to the Board. Just a quick follow up on some of the Timing questions. Timing continues to be an area of opportunity you guys have highlighted, including your recent acquisition. What are some of the drivers outside of your existing products that you see that are going to drive Timing above industry growth rates? Is it simply just greater adoption of silicon-based products? Or is there more systems things going on out there, specifically in communications that would give you some opportunity in the timing market?

Well, Sandy, as you well know, the adoption for 40 gig and 100 gig equipment is accelerating particularly in North America, specifically second half of this year. Those applications require -- put more stringent requirements on the timing solutions used in that equipment. So that sort of trend is favorable to suppliers like us who play at the high end of the pyramid. So we're looking to see some help, get some help from that macro. The network buildout in general to deal with higher data, higher bandwidth is also having a very similar effect. We're participating in the backhaul for the wireless infrastructure with our clocking devices. We are continuing to expand the customer base with the oscillators, and our new distribution partnerships are proving to be very instrumental in that regard. We've already surpassed the 500 mark in terms of number of customers. So I think that business is benefiting both from some of the macro trends, but also the proliferation of customers and our business with existing customers.

Great, and just my follow up. I mean, as you look at your product mix and some of the changes that you've seen over the last couple of years with your new product additions, including going after the TV guys and now Timing, the sales force, how is your sales force adjusted to different selling, different companies, different customers? And how has that evolved over time to meet the changes in the product as well?

Yes, it's been an evolution for the last several years. We have become a lot more distribution oriented. Now roughly 2/3 of our revenue is coming from distribution. So our sales force have evolved. Five years ago, from a team that's been calling on some large accounts to a sales force that is much more distributed and relying more and more now on our distribution partners and supporting them. As we introduce new products and go after new applications with our existing products, we are also commensurately increasing our sales channel and reach to a new set of customers. So I think it's been going well. Obviously, there's more work and more opportunity ahead of us.

Great, thanks for taking my questions, guys.

You're welcome.

Your next question comes from the line of Ian Ing with Gleacher & Company. Ian Ing - Gleacher & Company, Inc.: Yes, first of all, congratulations to Bill. First question is, could you give us a sense of which product lines could be most exposed to Japan impacts? It's interesting, you're guiding video intact for the rest of the year despite some headlines on LCD panel factories in Japan shutting down. Care to think of where there could be some bond shortages?

Well, I think we are capturing some of that caution in our guidance in 2Q. And as I alluded to the quarter started, a tad softer in terms of demand from our Japanese customers. And that particular customer base is most exposed to our broadcast business, both in video and audio. On the video front, some of the customers we have in Japan do have a significant portion of their manufacturing outside of Japan, but there can still be issues related to other components. But so far, with what we know and the data available to us, all of that has been incorporated in the guidance we've given for Broadcast business. I said it's a slight improvement in revenue over the first quarter, and that's one reason why. Ian Ing - Gleacher & Company, Inc.: Great, thanks. And given Japan, if you had to do anything to secure suppliers or capacity from your manufacturing partners?

Well, we've done what we can in terms of securing the raw materials. We don't have as much exposure to some of the raw substances that have made the headlines. But we've done what we needed to do, and in some cases, also have affected PCNs to have our customers qualify additional sources if the need arises down the road. Ian Ing - Gleacher & Company, Inc.: Great, thank you very much.

And your final question will come from the line of Brendan Furlong with Miller Tabak. Brendan Furlong - Miller Tabak + Co., LLC: Thank you, just a quick question on the gross margins in the back half of the year. Is the improvement to the 63.5% ?[indiscernible] purely TV related? Or is there some -- you're expecting some blended mix issues on the timing and MCU to help out the gross margin there? Thank you.

It's the latter. I mean, certainly, we do intend to see continuous improvement on the video product line. But the 20% to 30% growth rate in the Broad-based business will drive MCU and timing content higher in the second half of the year, which will also contribute to the improving corporate margins. Brendan Furlong - Miller Tabak + Co., LLC: Okay, great. Thank you. That's it.

I will now turn the call back over to Ms. Pleasant.

All right. Thank you very much for joining us this morning. This now concludes today's call.