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Good morning, and welcome to the Fourth Quarter 2019 Presentation from Nordic Semiconductor. Welcome also to everyone listening on webcast. So we had a record strong quarter, is all-time high revenue for Nordic at $83.1 million, is up 36% year-on-year. It's a good margin, 51.6%. It basically shows that all the effort we spend on the investment we gained here 1 year ago on the lab to get early products up at a high yield at -- as early as possible, have really paid off. Our BLE revenue ended at $65.5 million, is up 63% compared to the same quarter year before. Exiting Q3, we had a strong backlog. We almost carried the same backlog with us exiting Q4. And exiting Q4, we go into the Chinese New Year quarter. And obviously, there is a couple of weeks less production. So it's a very strong backlog, indicates good for Q1, but there is some other issues which we will discuss a little bit later regarding Q1. But the backlog, as you see, is 52% up compared to the same period last year. And we finally see that some of our Tier 1 customers are contributing to building this backlog. And one thing that's really good when you get the Tier 1 customers, they have a more predictable production and a longer order backlog. But saying that, this backlog is basically covering, I think most of it is into the first half of the year and very little for the second half. We still are the undisputable leader in Bluetooth Low Energy. If you look at the certification levels for 2019, we ended up with a market share of 41%. If you look at 2018 versus 2019, we have 110 new design wins that can generate revenue for -- in 2020, which we didn't have in 2019. Number is good, 110, was -- maybe it's even better is the quality of these customers and the potential volume behind each customer. We've been talking a lot about the excitement, and we really like to excite developers. We had over 34% growth in kit shipment in 2019. We shipped close to 50,000 kits the second half of this last year. And if someone remember 2 years back, there was a lot of discussion whether Nordics should have a lower cost ship that could basically go into the ultra-low-cost market. We said no, we want to do a more advanced ship, we want more advanced features. And we countered that with the 52840. And if you go behind the numbers here, in kits shipped, there's a heavy contribution from 52840, more features, more complex, higher ASP, it's a great chip to sell. And being, frankly, less competition, which is also important. Seller is gaining traction with the Nordic team. We have shipped totally 5,600 9160-related kits second half last year. It's not that it's around 5,600 individual engineers sitting playing because with this part, there is also some that buy more to test out sort of applications, but there's a huge number of customers behind these 5,600. There has been some product launches with Nordic this quarter too -- or last quarter also. We have a leader currently in tracking system, it's called Tile. They've made asset tracker with the 52811. Another asset tracker company, called APS Detector, is using 52840, the advanced thing -- product. And for those of you that went to CES, you might have seen an extremely cool wall, was a wall of Colgate toothbrushes. It's 52832, was a wall of 52832, you saw. We as a company that I really fancy, is called Meshtech, is using Bluetooth for local communication, mesh communication and then it use our LTE chip to go to cloud. And we're going to see another example where this technology is used. And we see independent companies doing their own LTE boards. There's a company called Actinius, they are doing a kit where they also offer to do the software for the customers. So basically, like software-as-a-service based on Nordic chipset. For those of you that saw the presentation we made for Capital Markets Day, we said we are well positioned for the Smart home. And why do we claim we are well positioned for a Smart home because we have multiple customers compared to any others. We are absolutely the leader on the broad market. There is millions of Nordic devices out there, which these platforms can hook up to. We are far #1 here. And as we start seeing now that our partners that -- delivering the platforms are focusing more on Smart home, Nordic will become the natural choice, if we provide the solutions that make it easy for both you as a customer and you as a developer to make innovative products. That's what we're doing and working for every day. So what's important when it comes to Smart home is intermobility, coexistence, security. What do Nordic have? We have Bluetooth, we have Zigbee, we're offering Thread, we also have LTE. We do have the protocols that's going to be the preferred ones in these solutions. And when you have basically collected the information at home, we can help you bringing it to the cloud with our LTE products. And we see now that there is not only those 2 that I showed you here that are using a combined solution with Bluetooth locally and Nordic LTE up to the cloud. There is starting to become infrastructure among our customers. Some of you might have heard about the connected home over IP. There were some major companies that made this initiative and we have been a partner of this working group since January this year. And Nordic's broad range of multiprotocol, again, is really compatible with this new standard. And it's going to be a benefit for consumers. I don't know if some of you remember, early days, when you bought a Bluetooth headset and want to connect it to your phone, it was hard, but not before it was easy to do it. Ease of use is important for volume. This is going to bring volume for Smart home up relatively quick. We have talked a lot about hardware. But what we've been working a lot about -- a lot on is software. I mean, we have to have a complete solution from the PCB to the board. And our scalable software for next-generation of IoT devices are fantastic. It's a unifying software platform. We support all of our ICs, support all of our wireless technology and it's modern. What we see is that all new engineers coming out today require RTOS integration. They like to use open source and they want to have a modern development and distribution module. If you start working on something, and you want to have a model that somebody else have done previously, you would like to speed up time to market, take this open source module and put it into your software. Nordic software kit enables that. I think it's a great job done by the guys that have done this latest software. It's scalable, it's really what a modern designer likes to see. And mix that with all our parts. I said it support all our Nordic ICs. We have high-end down to low end. And we might even do even lower end, but it's still going to be advanced features. And we spoke a lot about the road map on the presentation we had for Capital Markets Day. I just want to bring out a couple of products. The 5340 is the world's first System-on-Chip with 2 Cortex processors, is a really leading microcontroller. It supports all the expected standards. It's also been extended to industrial temperature range because we see some of these Smart homes will be outside commercial temperature range. So we have given it test up to 105 degrees. If you look at the right-hand side here, you see the 2150 (sic) `, is a front-end module, is our first power amplifier. Basically, we see that some applications, you want to have a longer range of your signal. If you put this between your antenna and the output of the radio, you can, for example, out or we can do kilometers of transport of radio signals with the 2150 (sic) ` in front of the antenna. If you do inside, you're talking about hundreds of meters. So this is something that usually accompany the PCBs that we see our customers are producing. This 2150 (sic) ` will be seamless interface to all our radios, is a natural choice to put beside your radios. So now we are, for the first time, delivering a product but it's not connectivity, which is closely linked to connectivity, is going to bring revenue in a new segment for us. We're becoming a real semiconductor company, not only connectivity company. We really enjoy all our products. The important thing is what does customers say? That's the #1. But also, what does the total community, how do you appreciate Nordic product. We won the GSA, Global Semiconductor Alliance Award, for the most respected emerging semiconductor company, December this year, for the second year running. We also, in tough competition with a lot of other Nordic and Norwegian technology companies, we won the Annual Tech Award for our 9160, and you really see that the communities see the value of our LTE product. And in China, we got IoT Innovation Award for our Thingy:91, our cellular IoT platform. So more people understand the value of the products we are bringing to market. If you look at the 9160 or the Thingy:91, since the first day we shipped them, we have reached now the 10,000 units. Remember, I did -- we did something like 5,000 this year, but we have totally shipped 10,000 units, and we have had some releases to do on the software, and the software releases we have done now in Q4 is very well perceived with customers. It's been really an update that has take us to the next level. And I say here that the acknowledgment of disruptive lead and power consumption, if you take a 9160 chip and start measuring and comparing it to competitors, it's a significant improvement. It's so significant that I want to use the word disruptive. Important thing when it comes to seller is that we need to ensure that we get certified. In Q3 2019, Verizon certified the Nordic chip. Q4, we got Deutsche Telekom certification. And it's not related to Q4, but I'm so pleased to see that in Q1, we also got Vodafone certification. And there is more to come in this quarter. In addition to that, we have a GCF, Global Certification Forum, approvement. So if you look at the map and see where can you use our Nordic chips of today, is pretty well covered. We take advantage of that. We had earlier said, there is a lot of verticals that we're working in. And we see now some of these guys are placing orders, and we expect that we're going to see a result of this in Q1.We are still working on the same verticals, and I think some of the ones I've been talking a lot about for pet and livestock trackers. That was the first, but now we see more industrial applications starting to appear, and one of them comes here. It's a company called Apricity, it's a water heater controller for real-time demand-driven utility load management. Basically, if you are somewhere where you and everyone has full power on the water boilers and there is 40 degrees, and you also want full power on your air condition, this will shut down your appliances. They are going to use the 52840 on the local grid and then send it up to the cloud and shut off the total energy users.It's talking about sustainability. I mean, basically, some of countries have dirty power plants with coal. If you can avoid taking those dirty solutions in use, using a most clean energy by controlling energy consumption, this is a great product. And I think it's a specially great product because it's 2 Nordic technologies in there, has the Bluetooth for mesh and then it has the 9160 for connecting to the cloud. So now I want to hand over to Pål, who is talking about the numbers.
Thank you, Svenn-Tore. I'm going to go through the financials for Q4 2019, and then I'm going to hand over to Svenn-Tore who will do the guidance at the end of the presentation. As Svenn-Tore mentioned, we exceeded our revenue guidance in Q4 2019 and ended at $83.1 million. This strong number was driven by end customer demand, but also a strong pull-in prior to the Chinese New Year that came earlier in 2020 versus 2019. Bluetooth, a growth rate of 63% compared to last year. This came as a result of strong customer demand, but also a very strong end customer pull compared to last year, and then finally, some easing of the trade tensions that we've talked about during the last months. The growth rate looks dramatic compared to 2018. But just remember that 2018 was influenced by the same trade situation and also inventory adjustments in the entire value chain. Proprietary underlying $0.07 decline in the quarter, more in line with what we've been guiding for on the proprietary business. Earlier this year, it was a larger decline, but that was impacted by the same inventory adjustments, as I just mentioned. For the full year, revenue ended at $288.4 million, an increase of 6.4 percentage points year-over-year. We think that that's a good number because we had a very weak start of the year. We managed actually to do a 22% growth on Bluetooth Low Energy compared to 2018. I'm going to talk about the individual markets. Of course, when the total number shows the growth rates we do, each individual market will be positive, but I want to pinpoint a few interesting areas. First of all, our largest market, which is the Consumer Electronics, they've always been the biggest market and continues to be, a growth rate of 36%. Remember that the Bluetooth decline of -- the proprietary decline of 7% actually is in this number. So the underlying Consumer Electronics figures are good. We see a lot of new designs, also a conversion from proprietary, that ends up in the Consumer Electronics markets. However, the biggest growth rate we see in the Wearables with a 72% growth. Wearables shows a very positive development, mainly driven by new nRF52 designs, especially in the high-end Chinese domestic markets.Another area that's interesting is the Building and Retail, a lot of the Smart home solutions that Svenn-Tore mentioned earlier in the presentations will fall into the Building and Retail markets.On the negative side, we have Healthcare. We do have very high aspirations for this market. And then we do have some very interesting design wins that we're working on. However, this market, there is some products that are in between generations. So this will impact the growth in 2019.Turning to gross margins. It exceeded our targets of 50%. Actually, the full year of 2019, we were above -- just above 50% in gross margins. The main reason for the favorable gross margin is the product mix. We did have a high number of the high-end products in this quarter. Also, as Svenn-Tore mentioned, we did invest a lot in facilities, lab equipment, to get new products passed up to the right yield levels. And I commented in Q3, that we had introduction of new products that were slow on the yield. This has been solved in Q4. So they are back on track. Finally, both product mix and new product introductions will vary from quarter-to-quarter. So we reiterate the medium-term gross margin range of 48% to 50% for the short-range business. Of course, the long-range business has another gross margin level. I'd like to sum up our operating model performance. The combination of high revenue growth and strong gross margins left us with a gross profit of $43 million, up 0.6 percentage points compared to last -- or sorry, the gross margins, but the gross profit had a very strong increase.R&D in the short range was slightly down compared to last year, whilst R&D on long range was up $2.6 million. This, of course, shows that we're now going into the commercialization phase of this project and are investing more money here.SG&A, absolute numbers are more or less the same year-over-year. Although we're continuing to invest in order to capture future growth, we do see at these revenue levels we are actually getting some operational leverage out of our business model. EBITDA at $12.2 million, which is a 14.7% margin.I'll now turn to the cash operating expenses. These are the costs adjusted for capitalized R&D expenses and equity-based compensation increased by 4.8% year-over-year or to $33.4 million. A large part of this increase is in salaries, where we actually increased number of salaries by 12% year-over-year. This increase came from most areas, both short- and long-range R&D, but also the teams to develop and commercialize the products. Although we have a 12% increase, as I said, the underlying number of cost increase was less. This is, of course, the fact that we have a very favorable FX development with weakening of the Norwegian krona.Other OpEx relatively flat shows that we do have a base level of OpEx to cover the increase in investments that we do in the business. As previously discussed, the cellular business is only an investment case currently. So we do want to show our EBITDA margins, excluding the long-range business. From a tough start of the beginning of the year, we've now had 3 consecutive quarters with margins well above the 20% level for the short range business. Actually, for the year, we are above 20%, which is the target that we communicated at the Capital Markets Day. CapEx for the quarter was $5.3 million, so a little bit above the $4.5 million guidance we had. The reason it's higher is that we did some final investments in the build of the new R&D lab in Trondheim to speed up the development and testing of new products. Total for the year, we ended at just around $20 million in CapEx. Q1 guidance is a little bit back to what we guided for Q4, so $4 million to $5 million. The lab is now completed. We're now going to invest more in increasing equipment for capacity utilization in Asia. Annual CapEx to remain around current levels in absolute terms, but of course, compared to revenue, they will go down. Finally, I'd like to turn to cash flow. We had a positive cash flow of $3.9 million in the quarter, which is strong, given that we had the strong growth in the quarter and really reflects the disciplined cash strategy that we have in the company. It came as a result of keeping net working capital stable. It did increase from 22.6% last year to 24% this year, but this should be seen in context with higher revenue, but also the higher backlog and of course, bigger requirements for inventory at the end of the year compared to last year. Cash flow for the total year was a slight $13 million negative, mainly driven by the high CapEx and investments we do in the business. So Svenn-Tore, I'd like to hand over to you to do the final comments before we do the Q&A.
Thank you, Pål. So we -- as we've gone through today, is there was a strong Q4. Both revenue and gross margin above the guidance, we had good cost discipline and positive cash flow. And as you see here on the slide, we have a wider revenue range for Q1 that we normally would have had. There is only one reason for that is that there is some uncertainty due to the coronavirus outbreak in China. We have seen some push out lately. And we just have to monitor the situation. But according to what we have of input this morning, we have made a revenue range of $64 million to $71 million for Q1. When it comes to our midterm outlook, nothing has changed. If it's changed, maybe to the better. So we expect 20% to 30% annual growth of Bluetooth Low Energy and our multiprotocol solutions. We expect to be around the 50% gross margin for short range, and we will continue to invest in R&D. We have an opportunity now which we really are taking and are investing -- co-investing with larger companies to make sure that infrastructure for short-range and long-range connectivity is going to grow in the years to come. It's really a good time for us to do this investment. So this ends our presentation. Maybe you'll come back again, Pål, and we do a Q&A session.
Henriette Trondsen, Arctic. First congrats with strong Q4 report and also especially strong short-range growth. First, on your Q1 guidance, you have a quite wide range. Could you quantify more what is needed to reach the midpoint of your guidance. This year, for instance, your current backlog support the low end of your guidance? And also would be appreciated if you could give any color on the split between Bluetooth Low Energy and proprietary in your guidance for Q1?
If you look at our backlog, it's spread between Q1 and Q2, mainly. So obviously, it's -- has a very strong support for reaching our guidance we -- if there is not going to be more complications with CMs in China. I mean, what we get a feedback today is that most operations will start again, coming Monday over this weekend. Maybe some few that's going to extend this another week. But if the implication is that it's been stopped this week, and most of them start again next week, we feel very good about our guidance. If things get escalated from this level, we don't know, but if it does, obviously, we will have to inform and the world will know anyway. You wanted to know the split on proprietary versus Bluetooth. I think basically, we have guided on the proprietary, and we don't see that we need to do any changes on the guiding. So it's going to be around where it is today, I believe, it's not going to drastically change. But obviously, Bluetooth is going to drive this revenue growth. We will also get some addition from our new products, LTE in Q1.
So yes, in Q1 and LTE, just a follow-up on that. When do you expect to see any inflection points here in commercial deliveries from cellular, second half Q3, Q4?
We did a major update on software in Q1, we will start seeing customers applying this update and start producing with 9160 module during Q1, and we have not guided in the presentation, and we're just going to say that you're going to see some revenue in Q1.
And last one for me. The Bluetooth SIG announcement on the new audio [indiscernible], in your partnership with Cirrus Logic, can you give any color on when we can expect commercial deliveries from this partnership and what kind of product?
In the report, the full report, we say you won't see much revenue from the audio product in 2020. So that means that you're going to see it later.
Christoffer here from DNB Markets. So on the cellular IoT, again, just following up on Henriette's question. Could you just elaborate a bit on what has been the problem on the software side and kind of how many customers have been placing these orders, which are now being postponed, it seems, due to the software?
We can do -- add some few comments. The one that started at a very early with our products did have, unfortunately, a more mature software than we were fully aware of when we started shipping it out. As customers start designing with the product, obviously, we get aware of the challenges we have, and it's been basically in 2, 3 areas. Remember, this complete software is more than 2 million lines. So debugging such a software package takes time. And maybe the most important is qualifying these debugs takes the same amount of time. So the release we managed to bring to the market in Q4 is very promising. So we expect to see some customers. I will come back to these customers in Q1 presentation. Apricity is one of them.
And then on the front-end module, if you could just help us understand what is kind of the ASP potential on that one? How it affects the gross margin and also how many of your customers today are -- you're seeing a similar solution from a competitor? So kind of the penetration that you expect to see on that?
We have made a part that's going to be competitive in the market. And we are not discussing margins today. We are selling it in. We're checking out the market to see what is the right cost to be at and we are sure we can satisfy the customers' need; one, on the technology side, basically, quality side; and the second thing is also on cost. So we come back to ASP and price leverage later on.
I think I can answer it. There's quite a few customers who already use this solution from competitors, as you said. We haven't given that number, but it's a quite interesting number.
All right.
And obviously, we have designed this when we had been in very close contact with some major Tier 1 customers and the standard way for Nordic to do specifications is to listen to customers and see what can be sold for you is the customer. I don't think we've done any different in this product. So we have great expectation for the 2150 (sic) `.
And then last one for me before I jump back in the queue. One of your new kind of significant customers, Tile, on the -- which you mentioned on the asset tracking side, a few weeks ago, testified before Congress in the U.S. that they are afraid that Apple's new product, AirTag, will put their future at risk, basically because they think it will be such a great product and have a real advantage over, for example, Tile. Should we be afraid of your kind of the volumes coming into Nordic as well due to this risk for Tile and the other tracking companies that are very important customers of yours?
I cannot comment on customer, except from what we've done already. So we don't comment on individual customers. But we can comment on the market. I think it's very exciting. They will get more trackers onto the market. It's a good opportunity for Nordic. It's a market we lead, and we're going to continue to lead.
Yes. Aksel from ABG. Congrats with a great set of numbers. So you're right in the report that the timing of the Chinese New Year, which came 10 days earlier, impacted you positively in Q4. Is it possible to quantify that positive effect? How much impact did that have?
Yes, we went out the guided range, and we also expect it to slow down a little bit at the end of December, but it was more cool end of December than we expected. And I will say, if you look at the range between our guidance and what we achieved is the surprise.
All right. And next, with regards to the push out of orders that you have seen, have those been pushed out in terms of you expecting them to come in Q2? And in that case, how much are we talking about?
We don't want to quantify it. It's not -- I mean, if you look at our guidance here, it includes the consequence of coronavirus on Nordic. And obviously, we believe that it will be, as of this morning but there could have been 1 more week of production ongoing. And if most of the CMs are back next week that's the good scenario. If there's going to be any change on that, it's going to be less good scenario.
Good. And then it's positive to see the variable category growing so strong, up 70%, more than 70%. You say it's driven by win in the high-end Chinese applications.
Yes.
Is that because the category is expanding in China into -- with new applications? Or are you winning from other competitors?
It's both.
Both.
And then, yes, on Healthcare. So Healthcare, we are seeing you win a lot of designs across different applications, but the revenue from Healthcare is sort of flattish.
Actually, the revenue from Healthcare is a bit down. But I'm really appreciating that you see the wins because we do see a lot of wins. And we also see that there is major companies that have good market share with the product. So we are still very positive towards Healthcare.
Yes. But -- so my question was, do you expect Healthcare to sort of be a positive drag force in 2020? Or will it take longer?
2020.
2020. Yes. Finally, on gross margin. So when you are growing now more with Tier 1 customers, and at the same time, the gross margin is super strong, can you sort of explain the potential correlation between those 2? You have previously said, I think, that Tier 1 customers have about the same margin as others. But how is this for Q4?
There is a mix. I mean, we have had more customers. You remember, I said we had 110 new design wins in 2019 on BLE. So we have had more customers doing production in Q4. Some of them are medium-sized, smaller size. And then we also had some higher volumes from our new Tier 1s. And it seems like our tail-end businesses have kept their margin up. So it's all a balance between how much contribution come from high-end, lower-cost customers versus high volume, smaller customers. And this quarter, it balanced in the right direction.
Actually, a follow-up on that. Christoffer from DNB.
I would also like to add another comment to the previous question. Don't forget also, there is a third component, Pål talked about, that was cost reduction. And when we do cost reduction, we are -- and when we do production in all the sector, all this wafer empty into the packages and sent to the market. As we now empty out all the wafers, getting newer wafers, packed and shipped, we see the effect there also. Yes.
Yes. So on that topic as well. Should we kind of see the development in the gross margin as an indication that a lot of these Tier 1 customers that you have been talking about is just in the backlog but not yet in the revenues? And significant not?
They've not been into their peak volume revenues -- contributing to revenue.
Okay. And then on the backlog, it's been growing 60% for a few quarters now. Is that kind of indicating that 2020 will be kind of a year coming off an easy comparable in 2019 where we should expect to see kind of growth at least in the upper range of your kind of medium-term target range?
Basically, what we've done is that we've given a guidance on Capital Markets Day, and we stick to that guidance. And everything about that will be communicated as we achieve it.
Of course, on the backlog, it's also important to know when the overall semiconductor is in the positive trend, customers want to put in orders to make sure that they get deliveries on time. So you see a better visibility in the market. I think is important.
Look, also, there is another factor. When inventory distributors, inventory are more aligned with customers' demand, you also get the more better and optimized logistic flow.
We've a lot of time left, I see, so I can do more. On the CapEx side, you say that it is going to stay at kind of roughly the same level, the nominal level. Don't you expect that to kind of grow as the business grows to kind of keep investing in future opportunities?
But we've been investing around 6%, 7%. I think that's a little bit high in the running basis. So we talked on the Q -- on the Capital Markets Day that we want to get that down to 3%, 4%, but absolutely, yes, absolute numbers will be at these levels.
And Christoffer, remember, we're taking a huge lift in investment in lab equipment. And we need to do all this ahead of revenue. So I think we have been equipping the Nordic labs, the Nordic facilities with state-of-the-art equipment and can basically only supplement going forward. We don't need to make any major investments.
And then on the investments, you mentioned co-investments with other companies, is that kind of the typical work that you're doing towards the chip project? Or is that -- can you just elaborate on what that means?
I didn't say co-investment, if I recall right, but we are cooperating with guys. And we are investing, I would say, design activity, but we're not doing any financial investment with other companies.
Then one last one. On the guidance range, some of your peers and your suppliers are trying to handle this coronavirus situation, they keep the guidance, they say it's dependent on no further deterioration, while others are just taking a whole range and put it down. So you kind of just lowered the bottom of the range? Or are you taking the whole range out what was originally there and then moved it down?
We have adjusted the range.
The whole range?
Yes.
Yes. So I have a follow-up question on cellular. So that seems to be at that point now where there exists some uncertainty with regards to timing. And you write in the report that software delays, the delivery delays impacted a ramp-up. This is fixed now in Q1, and you will get a positive effect from that in Q1. Can you just elaborate on that? How did the software delays affect the customers? Did it affect all the customers -- or all the lead customers, when was it fixed? And just...
I can -- we can start with the last. When was it fixed during Q4 when we did the last release of the software. It does affect customers that have been in early design phase with early software versions. For customers starting as of, I would say, mid-January, are doing a different track than customers started before mid-January. So those who started mid-January onwards, have no sort of issues. The older ones, we have to support a bit to get up to the same level as the new release from beginning.
And now that it has been fixed, how sort of agile is the process? How much lead time is there? Is it such that we will see some effect in Q1, but more effect in Q2? Or are they a...
Yes. This is a brand-new product. So you will see some business trickling through in Q1 at a higher level than Q4. And it will most probably continue like this into Q2 as more customer comes on board, and we expect gradually to see the revenue building up through the next 3 quarters we have ahead of us. Great. Thank you for coming and the ones on the webcast, thanks for listening, and look forward to talking to you in 3 months' time.