Napatech A/S

OSE:NAPA

Earnings Call Transcript

[Raymond Smets, Chief Executive Officer]

Good morning, everybody, and I'm pleased to welcome you all to Napatech's Q1 2020 Management Statement Presentation Webcast. I'm Ray Smets, CEO of Napatech, currently in San Francisco. With me today from Copenhagen is Heine Thorsgaard, our Chief Financial Officer. Given the situation of the global pandemic, I truly hope you all are doing well. I'm happy also to report that our Napatech family is also well and staying healthy. Today's interim management statement for Q1 2020 was released earlier this morning on the OSE and is available on the Investor Relations page of our website at napatech.com. For your information, the recording of this webcast will also be available on the Napatech website later today. Next slide. Given that Heine and I are not in Oslo as normal, we'll do our best to foster an interactive live Q&A session following our presentation. So please have your questions ready. We will be taking your questions via text, which you can submit any time on the webcast page using the button below the presentation and we can take your questions live on the phone. If you would like to ask a question, please be prepared and follow the instructions on this slide. I will display this slide again when we're ready to take your questions. Next slide. Please note that this presentation contains forward-looking statements that are subject to a number of risks and uncertainties. Our actual results may differ from those discussed in the forward-looking statements. Next slide, please. During this presentation, I will present our Q1 2020 business highlights, including a summary of our key financial results for the quarter. Given the intense impact that COVID-19 has had on many companies and markets, I will provide a thorough perspective about how COVID-19 has impacted our business, how we have responded and what we can foresee in these unpredictable times. Heine will also provide a detailed review of our Q1 financials, and then I will close with our expectations of our 2020 outlook for our business. Next slide. Let's start with our business highlights. Next slide. Q1 was a strong start to 2020 for Napatech, meeting all expectations and demonstrating both the firm foundation and the resiliency of our business. When looking at the key financial results against what was a solid 2019 for Napatech, I think you will agree this is a great way to start the year. We delivered strong revenue growth year-over-year, amounting to an increase of 27%, helped by strong sales to existing and new customers and some benefits from foreign exchange as our revenue is generated in U.S. dollars. With this start in revenue for the year, we have a spring in our step and we feel good about momentum as we move into Q2. In addition to delivering solid revenues in Q1, we generated solid gross margins of 68.8% within our annual guidance. The next few metrics really please me and provide a perspective of the improved leverage we are creating in Napatech. After a full year of positive free cash flow in 2019, a first for Napatech since we went public in 2013, we again delivered free -- positive free cash flow in Q1. As we promised, we are keeping a close eye on expenses and cash, especially in the unpredictable times we are encountering with COVID-19. Consequently to these good results, both EBITDA and EBITDAC were positive and on track. This is a good preview of business stability and how we are moving closer to profitability. All of that said, we did this with the backdrop of the global pandemic, which is a feat of its own. And during this time, we launched an important new product we have been working on called Link Virtualization, focused on accelerating virtual switching applications in the increasingly virtualized network world. I am convinced that our expertise in FPGA software running on both the Xilinx and the Intel FPGA chips will give customers new ways to solve their ever-expanding problems of getting better performance from CPU-hungry applications that run on data centers -- on servers and data centers in the cloud. Next slide, please. To further punctuate our results using several key metrics, Q1 revenue was DKK 48.5 million or USD 27.2 million. In Norwegian kroner, by the way, that was NOK 67.7 million. Q1 revenue was sequentially down from Q4, which is normal and expected seasonality. But what is quite positive to note is the strength of our underlying business that we saw in Q1 compared to Q4 2018 and each other subsequent quarter in 2019.We are equally focused on cash flow as we are on revenue. As I mentioned briefly before, after a full year of net positive free cash flow in 2019, which was the first for Napatech since we went public in 2013, we delivered positive free cash flow again in Q1 even after we had to take some special costs into account for the new Danish Holiday Act, which impacted us in Q1.All in all, our performance in Q1 shows that we delivered better than we promised. We planned and we executed well. When Heine and I reported our last quarter's results in Oslo on February 27, we witnessed firsthand, the first major Oslo Stock Exchange market impact of COVID-19, just as the first cases of the virus were being reported there. And even with major distractions and concerns emerging around us, including the cancellation of Mobile World Congress and other major events for Napatech, the travel suspension that I put in place for employees and mandatory shelter-in-place orders in all places where employees live around the world, we focused on delivering great products to our customers. This is what good, focused execution looks like. Next slide, please. As I talked about in the shareholder letter in our annual report about the concept of optimistic realism, we needed to take a realistic view of what was happening due to the impact being felt from COVID-19, then do the work and planning to figure out how to react with an optimistic view so that we could thrive even in the toughest moments. Our COVID-19 preparedness is a sign of our ability to stay focused and execute. I wanted to cover 4 important areas about our COVID-19 preparedness and its potential impact on Napatech. These 4 areas are: managing the delivery of our products, strategizing on how we will optimize our supply chain and deal with the impacts, assessing the impacts of COVID-19 on our markets, and what is the risk for our ability to meet shareholder expectations. First, in terms of delivering our products, we are on track. We shifted into work-from-home mode for our global team quickly when this time came. We rapidly beefed up our internal network access, our VPN capacity and reinforced with instructions to our team for how to be connected. We wanted to be sure that even when working from home, we could assure Napatech productivity would be sustained, and we did not miss a beat. We were fortunate that we had no illnesses reported within Napatech, so everybody was working productively as normal.We created a communication plan to pay special attention to productivity, such as holiday -- holding daily standup meetings to discuss progress in engineering. We're holding frequent discussions in sales and customer engagement to fully understand their needs, level of urgency and any changes in forecast that may be forthcoming. We also held regular discussions to solve problems and communicate policies as needed with the global team. What happened at headquarters in Denmark was immediately known anywhere and everywhere around Napatech. I'm happy to report that all planned deliverables associated with software and hardware development remained on track as scheduled and, in some cases, we delivered earlier.Secondly, let's talk about hardware manufacturing and supply chain. Our primary contract manufacturer is based in the U.S., which is, under the circumstances, a blessing in disguise. As the U.S. began implementing its shelter-in-place orders, we were able to quickly petition and be granted essential business status because of the types of products we make and the customers we serve. That allowed our contract manufacturer to continue staffing our assembly lines and get ahead of the curve.Additionally, we read the tea leaves just right in January and started proactively deploying working capital to acquire component supplies from our suppliers, many of which are located in China, to assure that the receipt of them would be okay once we knew that the Chinese New Year holiday would be prolonged. To the best of our ability, we procured component supplies earlier than we normally would have done and partnered with our contract manufacturer to build products sooner, in some cases, paying their employees overtime to make that happen. So far, we've done a good job meeting the product demands of many of our customers as promised with quality. We are experiencing some delays of component supplies, but not to the level that would cause any alarms. In this case, as they say, an ounce of prevention is worth a pound of cure. Being proactive has reduced the risk level of meeting customer demand in the first half of 2020 for Napatech.Next slide, please. Thirdly, our target markets were under heavy impact and we needed to assess what this meant for Napatech. Our customer markets include telecom, mobile, network infrastructure, cloud and edge providers, network monitoring, cybersecurity and financial services companies. And we were all discovering what the impacts would be from the massive shifts in network and application demands supporting the shelter-in-place orders. Networks saw heavy and rapid shifts in demand. Applications' performance and availability were paramount as the workforce conducted business from their homes. We have consulted industry analysts about the impacts to our industry and developed an assessment of what the potential upsides and downsides could be caused by the pandemic. As far as we can see, our primary markets where most of our revenue is concentrated are maintaining plans and forecasts for the products in the near term. Lastly, we have prioritized customer demand. We estimate our risk level as low for meeting the needs of our customers, including delivering on revenue expectations in the first half of 2020. No one really knows what might evolve from month-to-month or quarter-to-quarter, but we are evaluating what might happen with customer needs in the second half of 2020. It is still too early to confidently predict how that looks, but we feel that we are prepared to deal with the potential impacts. As such, we are able to maintain our annual guidance with no change from what we projected at the beginning of 2020. Now I would like to share with you some industry data to build your level of confidence on where Napatech stands.Next slide, please. We often consult the experts and industry analysts to get an assessment of what is happening across the industries that we serve. We recently reported by Omdia, formerly known as IHS Markit, they say that there is a confluence of headwinds and tailwinds that will impact our space.The headwinds are potential reductions in IT spending due to customer revenues being impacted, data center operations that are unable to continue with projects or initiatives, unknowns of how long the pandemic might last and impacts to supply chain. However, there are tailwinds, too. We are seeing historic spikes in demand for applications and network capacity in different parts of the market, which spells an increase in demand for telecom, data center infrastructure and various applications.Next slide, please. To prove these points, the global lockdown has placed unprecedented demand on networks as users leverage networks to gain access to work, communications and entertainment while sheltering in place and other applications. Looking at examples of data reported by key industry players, Internet traffic has exploded across all global Internet peering points. Major players like AT&T and Comcast in the U.S. are reporting major spikes in core network traffic as peaks in traffic volume are high during new times of the day and in new parts of their networks.IDC is reporting that the tailwinds are benefiting companies and telecom services who are likely to weather the storm better than other sectors of the information and communications marketplace as COVID-19 is demonstrating the value of the connections and services these companies provide. Fortunately, for Napatech, our solutions sit inside of many of these networks supporting network management and cybersecurity use cases. Where telecom services players go, so they say, we follow. Next slide, please. In addition to major increases in network capacity and utilization, industry experts are offering a perspective that key applications are in greater demand. The greater dependency on these applications span in areas like education and remote learning, online gaming and content streaming, government website and other demand supporting social services, communications and, of course, telecommunicating -- or telecommuting. Case in point, Nokia reports significant growth in latency-sensitive applications like teleconferencing and gaming with session increases of 300% and 400%, respectively. Comcast in the U.S. is also reporting a jump in IP communications and teleconferencing demand with subsequent strains on VPN access. Next slide, please. All of this points the view of the potential outcome. Because demand and asset utilization are high, large players are deploying more capital to expand networks, data centers and cloud capacity with a higher percentage of their new capital going towards new technologies like 5G and cloud networks to support teleconferencing and streaming content. These are the tailwinds that can impact players like Napatech. Experts expect more capital to be deployed by telecom service providers to improve data center compute and networking infrastructure, and that is potentially a good sign for Napatech. Next slide, please. As we communicated on March 19 to the OSE, Napatech is benefiting due to the concentration of our revenue coming from areas that need more of what we make. Specifically, this concentration is within companies building networks and data centers that need them to operate more efficiently with greater performance at a lower cost during this unusual time. In that same OSE communication, we said that we expect revenues to be stable and less immediately impacted in the first half of 2020. Our solutions are deployed in a number of mission-critical areas of the industry, from network management and cybersecurity and to end-user application and government agency markets that require mission-critical applications to operate fast and securely.All of these areas are critical during a global crisis like COVID-19. The markets and industries Napatech's revenue is mostly dependent on include telecommunications, cybersecurity, network management, financial services and banking and various enterprises or government agencies. Napatech's revenue is not overly exposed to areas of the market that are most immediately disrupted by COVID-19, such as travel and hospitality, tourism, events and other areas in retail and consumer sectors. Of course, we are not all immune to the global impacts, which are yet to be fully understood. But from what we see today, our business is agile enough to find opportunities even in a world of uncertainty. Next slide, please. So stepping back from COVID-19 for just a bit and looking at our market positioning, Napatech sits at the crossroads of 2 major market forces. On the bottom of this slide is our physical addressable market, which is where networks are built at massive scale on low-cost commercial off-the-shelf servers and appliances. And in every one of these servers, network interface cards or NIC cards must reside. The industry data confirms that this server market is growing at a significant rate, and thus, NIC cards are also in greater demand. But not all NIC cards are created equal. It is the SmartNIC, which is what Napatech designs and sells, that delivers the higher performance and value to accelerate applications that need the extra horsepower. Consequently, at the top of this slide is a growing set of critical applications across a spectrum of areas like cybersecurity, network monitoring, financial services and mobile or in the cloud and edge. These application areas require more and more compute power to operate and perform fast and securely. The demand for higher-performance compute for these applications creates demand for SmartNICs. Napatech sits at a position where these 2 markets intersect. Our position is to play on the high end of this market where the FPGA technology is needed to run those mission-critical, compute-intensive applications faster, more efficiently and more securely with unmatched performance. That is where Napatech will focus its expertise to catch and grow future revenues. Next slide, please. One of my most favorite data points to report every quarter is what our customer base looks like, and this slide sums it up nicely. All of these logos represent customers from all over the world that ordered Napatech FPGA-based SmartNICs hardware and software in Q1 alone. Highlighted with the red circle around some of these logos, these customers bought Napatech products in the prior quarter, too.Here, you see large existing customers like Cisco and IBM, Corvil, Polystar, Facebook, Morgan Stanley, Citadel, Nokia, Airbus, TOYO Corporation, who bought from Napatech quarter-over-quarter. The other logos on this slide, and there's a whole lot more of them, are either new or existing customers who purchased in Q1, too. Some of these new customers, like the BME Stock Exchange in Spain or cPacket Networks or Axellio and the very interesting new use case at NASA's Artemis project supporting the next-man mission to the moon, are all interesting to note.These customers span use cases across key markets like cybersecurity, network monitoring, infrastructure, cloud and edge, mobile and financial. And in all these cases, they have open source or specialized applications and services that need to be accelerated. We expect that these customers will continue to buy more products since they deploy more servers in their data centers for key use cases we help them solve. It's a great slide, and I hope you got a lot from that. Next slide. We have been staunchly focused on a three-pronged plan of attack all throughout 2019 and now into 2020. It is the basis of our growth strategy focused on our unique core competency, leveraging our expertise in FPGA software, building new growth product lines and application acceleration for virtualized networks and cybersecurity solutions. We've been making good progress on all 3 of these attack vectors. The first is built on our FPGA-based SmartNIC leadership with our current packet capture solutions. This part of our business is rich with opportunity and maintains a stabilizing foundation for growth now and into the future. Second, we are evolving our SmartNIC leadership in packet capture to address new higher-growth areas for in-line use cases, including cybersecurity applications like next-gen firewalls and other firewall applications. We are essentially supercharging our FPGA solution for new firewall application use cases. Thirdly, we have worked hard building an innovative approach to accelerate virtual switching in order to find ways to win in emerging opportunities in the edge, cloud computing and 5G mobile space. We set our goal to announce a new product in this area in Q1, and we did just that. Next slide. Let me show you what we announced. We announced our new product called Link Virtualization, which is the centerpiece of our third prong of that three-pronged strategy. This new product is focused on emerging opportunities in the edge, 5G mobile and cloud networks. It addresses the growing demand for virtual switching acceleration as network technology is increasingly deployed as a software application running on commercial off-the-shelf servers in data centers or clouds. This new software product will be delivered to run on all of our FPGA-based SmartNICs.But we went one step further with this announcement. That silver SmartNIC in the middle of the slide is Napatech's newest SmartNIC product we call the NT50 and we are bringing it to market in combination with the Link Virtualization product. It is the smallest, most energy efficient, most powerful SmartNIC with the newest FPGA chip we have delivered ever. And that is not all. This new SmartNIC is the most ESG friendly, green and sustainable versions from Napatech's product line yet. With this product, our customers can build smaller server footprints by leveraging the increased horsepower on the SmartNIC while giving them an even more efficient cost structure at the same time. It is early days for our new Link Virtualization product and the NT50 SmartNIC card, but we are excited about the new use cases we can solve with this new product. Next slide. So despite the challenges brought forth by the pandemic, Napatech is off to a good start in 2020. I would now like to turn the call over to Heine Thorsgaard in Copenhagen to review more details about our Q1 2020 results. Heine?

[Heine Thorsgaard, Chief Financial Officer]

Thank you, Ray. Slide 20, please. Revenue in Q1 was up 27% to DKK 48.5 million compared to DKK 33.3 million -- DKK 38.3 million in Q1 '19. Gross margins in Q1 ended up at 68.8%, down 0.8 percentage point compared to Q1 '19. And gross profit in Q1 grew 26% compared to Q1 '19 to DKK 33.4 million in Q1 2020.Staff costs and other external costs amounted to DKK 33.5 million in Q1 compared to DKK 31.2 million in Q1 '19. The growth is primarily driven by a noncash impact in accounting costs related to the new Holiday Act in Demark. EBITDAC in Q1 amounted to plus DKK 0.1 million compared to minus DKK 4.6 million in Q1 '19. And costs transferred to capitalized development costs amounted to DKK 3.8 million in Q1 compared to DKK 3.4 million in Q1 '19, resulting in an EBITDA in Q1 of DKK 3.9 million and an EBIT of minus DKK 1.9 million compared to EBITDA of minus DKK 1.2 million and EBIT of minus DKK 7.6 million in Q1 '19. Let's turn our attention to the cash flow presented on Slide 21. Net cash flows from operating activities amounted to DKK 3.4 million in Q1 compared to DKK 4.1 million in Q1 '19. We managed to keep networking capital on a very low level in Q1 once more with networking capital end of Q1 2020 at DKK 17.8 million compared to DKK 22.8 million end of Q1 '19. Net cash used in investing activities in Q1 amounted to DKK 3.3 million compared to DKK 3.6 million in Q1 '19. And free cash flows in Q1 amounted to plus DKK 0.1 million compared to plus DKK 0.6 million in Q1 last year. Cash and cash equivalents at the end of Q1 this year amounted to DKK 63.7 million compared to DKK 42.7 million end of Q1 last year. Now back to you, Ray.

[Raymond Smets, Chief Executive Officer]

Okay. Thanks, Heine. Next slide, please. Now let's turn our attention to our outlook for 2020. Next slide. We remain committed to our previously stated goals for 2020, but we also remain realistic about the uncertainty that the global pandemic can inflict on our markets. We expect revenue to be in the range of DKK 185 million to DKK 205 million, which guides about 20% growth on the high end of the range. We expect gross margins to remain between 68% and 72% for the full year 2020. We are focused on cost optimization and maintaining our product value in the market. We will manage our operating expenses in 2020 to deliver in the range of DKK 125 million to DKK 135 million. And we will invest our capital prudently, guiding a range of DKK 15 million to DKK 20 million for transferred to capitalized development costs. With performance in the middle of these ranges, EBITDAC would be about DKK 6.5 million. EBIT would be DKK 1.5 million as we expect this to be a better-than-breakeven year. As we stated earlier in this presentation and to the OSE over the last few months, we remain vigilant about the impact being felt across many of the markets today due to the COVID-19 pandemic. We have shown what good planning and execution looks like in the face of these turbulent times, and we will strive to do the same in Q2 and for the rest of 2020. At this time, we believe we are managing our business impacts well, and we have low risk for Napatech fulfilling its goals in the first half of 2020. Next slide, please. In conclusion, we are a stable and growing company that values good strategy, technology leadership and solid execution. We have benefited with momentum from good performance in the last 6 quarters and we intend to deliver on our guidance in 2020 for you, our investors. You can be assured that we are a team of technology professionals who really do strive to improve our spot in the business world, solving real-world problems that just won't go away, but are solved with technology and expertise that we bring to the market. And in doing so, we build a good prospect for investment for our investors. We will not stop working hard to improve our business. We will always strive to give you a realistic view of what we can achieve and then we will commit ourselves to find a way to beat it. So now, we need to get that job done. Next slide. So now, I would like to invite Heine Thorsgaard to join me to take your questions. If you'd like to ask a question, you could submit it now on the live webcast page using the button below or you may dial into one of our phone numbers here on the screen where the operator will answer your call and place you into a queue. Please keep your questions to 1 or 2 per caller, and we'll do our best to respond to as many text questions we receive as possible. Operator, do we have any calls in the queue?

[Operator]

[Operator Instructions] Okay, there appear to be no audio questions at this time.

[Raymond Smets, Chief Executive Officer]

Okay, operator. I'll go ahead and answer a few questions that have been texted in. Heine, will you be happy to join me here? So thank you for listening to the call, and I've got a few questions here. The first one is from Peter, and the question is, how is Napatech's hardware value chain affected? Can you deliver in case of increased customer demand? I hope we covered that mostly in the presentation that we just went through, but it's a very good story for Napatech. As I mentioned earlier, a pound of prevention is worth of -- or an ounce of prevention is worth a pound of cure. So we began looking into the long-term supply chain for our hardware solution actually in mid-January just as the emergence of the pandemic was becoming clear. And we also -- because we source components from China, it was prudent for us to take an early view of what the supply chain outlook could look for us in case of an escalating issue. So we were actually quite proactive. And we were very good at securing supply chain through the first half of the year and even with some expectation into Q3, keeping in mind that in January, our visibility into Q3 is actually not quite that high. So we did deploy some working capital to make sure that we had sufficient boards and components. And generally speaking, we've received components as expected. We did a good job partnering with our contract manufacturer, and we've been very nimble to acquire components in small lots and large lots where necessary. We have had a few delays in our supply chain, but none that would raise any particular alarms in our ability to deliver on our forecast through the middle of the year. And we are currently working on Q3 and into Q4 currently.So we feel very confident that the risk is low for our ability to meet customer demand through the second quarter of 2020. And we're confident looking into the second half of the year that we have it well managed, even though we really can't truly predict what the outcome of this pandemic will do to our overall supply chain. But right now, it's well managed, and we're very happy about that. Operator, any questions from the phone? Otherwise, I'll take the next text question.

[Operator]

At this moment, we still have no audio questions.

[Raymond Smets, Chief Executive Officer]

All right. We had a second question, came in from [ Suite ]. Thank you very much. There is a question regarding the processor that we've selected to use on the NT50.We have manufactured the first version of the NT50 with the Xilinx FPGA. So that is the main processor chip that we have deployed on that new card. We're very excited about that card. It creates a lot of opportunity for us in terms of pricing, margins, and we're very excited to bring a product to the market that has a good green footprint. And our expectation is the NT50 will be a good runner for us, and we're very excited about getting that out to our first deployments. So that was a good question. Thank you.Operator, any phone-in questions? I have a few more texted questions we can cover.

[Operator]

Still appear to be no phone-in questions at the moment.

[Raymond Smets, Chief Executive Officer]

All right. So texting is the rule of the day here. There was a third question and it was regarding our product gross margins is, what drove the large change in product gross margin from Q4 to Q1?Heine, would you like to take that question?

[Heine Thorsgaard, Chief Financial Officer]

Yes. Thank you. Basically, difference is related to product margin. Product gross margin is due to product and product mix. In any given quarter, this changes from quarter-to-quarter based on buying patterns from our customers, so it's in typical quarters where our OEM customers are, let's say, covering and larger part of our revenue, the products they buy are typically on a lower margin. Q1 is typically a quarter like that compared to Q4 where we typically have product and product mix with -- betting to be of a higher margin. So comparing Q4 to Q1, this is a good way of seeing the changes in product mix that we typically have throughout the year.

[Raymond Smets, Chief Executive Officer]

Okay. Thank you, Heine. I think that covers the question. I have nothing to add. We have one additional question that's been texted in. What visibility do you see regarding Q2 pipeline in the results? Are you seeing typical linearity in Q2? That's 2 questions combined into one, and I'm happy to take that one. Heine, maybe you can comment if you like afterwards. We're about 1/3 of the way into Q2, obviously, at the end of month 1. So we are reporting earlier than we typically have in the past. We're happy to do that to get the message out as quickly as possible. And Q2 continues to shape up as expected. We don't typically disclose what our linearity is in the quarter, but we have 2 kinds of customers that emerge within the quarter. We have the OEM customer, which is a customer that takes our product and builds it into their solution and sells it to their end-user customers. We tend to have longer lead times and visibility into the pipeline from OEM customers. And the OEM accounts for the majority of our revenue.We also do business with end-user customers directly. These are customers that buy our products and actually deploy our products into their data centers to accelerate applications, et cetera. And we do see good visibility in Q2 for end-user customers as well, although we'll see more variability with those customers as the quarter continues to evolve. So at this moment, we have good visibility in Q2. We have -- as we've communicated, we feel like we have low risk in our ability to meet demand in terms of supply chain for those -- for the demand that we see in Q2. And we feel 2020 is off to a good start. Okay. We do have an additional question that has come in. I assume no phoned-in questions, operator? Okay. We'll continue. The next question is from [ Neil Forbough ]. Thank you very much for your questions. You've had a very good quarter. Thank you very much. Approximately 25% of the top yearly guidance. Why do you feel confident not to increase your yearly revenue guidance for 2020? And it's a good question, Neil. And the best answer I can give you at this moment is we feel good with our current guidance that we established before we knew anything about the global pandemic. And given that we really cannot predict, and really nobody can predict because we've been watching what other companies have been saying about the circumstances around the pandemic, we felt it was pragmatic and appropriate for us to give you our best confidence and stick with our current guidance. When we feel we've gotten to a point where we can increase our guidance, we certainly will do so. But I think with the unknowns that are given to us as related to the pandemic, it's more prudent for us to stick with our current guidance, which is what we believe is good, strong guidance for the year. And Neil, you also asked the second question. How does the pipeline for the NT50 look like in 2020? Also a very good question.And also, I'm very excited about the NT50. We are beginning to develop a pipeline for the NT50. It's a new product. We have not shipped it to any commercial use cases yet, so it's just coming off the assembly line. We've just announced the product, so we're just getting it into the hands of our customers and our OEM partners and our go-to-market partners. And we're beginning to see pipeline develop with the NT50. In terms of quantities, it's a little too early to call. It does -- it's early days with this particular product. But we're beginning to see the activity level with this product populate some of the opportunities in the pipeline through Q3 and Q4. I'll be happy to announce some of our initial wins with the NT50 once we get there. So thank you for your question, Neil. I don't have any other texted questions. Operator, any questions coming from the phone lines?

[Operator]

No questions on the phone lines.

[Raymond Smets, Chief Executive Officer]

Okay. Any comments from you, Heine, about any of the questions I've answered? Or we'll move on to the remainder of the meeting.

[Heine Thorsgaard, Chief Financial Officer]

No, I think you covered it mostly.

[Raymond Smets, Chief Executive Officer]

Okay. Well, first of all, I would like to thank all of our new and existing investors for your support and I would like to also give our employees a hearty thank you for a job well done in Q1. We are doing everything we can to maintain stability and productivity within Napatech. And you have our commitment to deliver to the best of our ability during these unusual times with the pandemic.With that, we're going to go get the job done. Thank you very much for your time and attention this morning, and have a great day. Thank you.