Sierra Wireless Inc

TSX:SW

Welcome to the Sierra Wireless Fourth Quarter and Year-end 2021 Conference Call. I will now turn the call over to David Climie, Vice President of Investor Relations.

Thanks, and good afternoon, everybody. Thank you for joining today's conference call and webcast. On the call today are Phil Brace, President and CEO; and Sam Cochrane, our CFO. As a reminder, today's presentations are being webcast and will be available on our website following the call. Before we get started, I will reference the company's cautionary note regarding forward-looking statements.Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements within the meaning of securities laws. These statements include our strategy, goals, objectives, expectations and commentary regarding the outlook for our business. Our forward-looking statements are based on a number of material assumptions, which could prove to be significantly incorrect. Additionally, forward-looking statements are based on our management's current expectations, and we caution investors that forward-looking statements, particularly those that relate to longer periods of time, are subject to substantial known and unknown material risks and uncertainties that could cause actual events or results to differ significantly from those expressed or implied by our forward-looking statements. I draw your attention to a longer discussion of our risk factors in our annual information form and management discussion and analysis, which can be found on SEDAR and EDGAR as well as other regulatory filings. This presentation should also be viewed in conjunction with our quarterly earnings release.With that, I will now turn the call over to Phil for his quarterly update.

Thanks, David, and thank you, everyone, for joining us on the call today. Total revenue in the fourth quarter was $149.9 million and we generated $7.3 million in adjusted EBITDA ahead of our guidance. Adjusted net earnings was $1.1 million in the quarter, positive for the first time in 2.5 years. We shipped more devices in the fourth quarter than any quarter in the preceding 3 years, excluding the automotive business that was sold in late 2020. In Q4, the Sierra team worked diligently with customers, partners and suppliers as we delivered 24% year-over-year revenue growth and 82% sequential growth, enabling us to finish a challenging year on a positive note.Before I turn the call over to Sam to provide more details on the fourth quarter and year-end financials, I'd like to update you on our current manufacturing and supply chain situation, and our view of the current end-customer demand environment. From a manufacturing and a supply chain standpoint, we said during our last conference call that we plan to add additional manufacturing capacity to achieve production diversity and manufacturing resiliency. We accomplished that by adding capacity to an existing facility and ramping up new production on the site in Mexico.The manufacturing lines of the Mexican facility are running at capacity, and we are building our 4G and 5G enterprise routers there so that can be quickly shipped into the U.S. market. Combined with our existing Vietnamese facility, we now have 3 manufacturing locations, giving us improved flexibility with multi-factory production. This was the key factor in allowing us to build and ship product in Q4 for our customers globally.Regarding the industry's tight supply chain environment, we decided last year to use our strong balance sheet and play offense, investing in parts and components to secure raw material supply. Our procurement team did an exceptional job with our partners and suppliers in the fourth quarter, which enabled us to respond to our customers' strong demand.Going forward, our strategy remains the same as we continue to make the necessary investments in parts and components so we can convert them into finished goods. That said, we continue to see long lead times for chips and components, and we believe the tight supply environment will be with us through 2022. COVID outbreaks continue to be a watch item, but we believe we're in a much better position with improved geographic diversity to mitigate the potential impact of the pandemic.Now regarding the current demand environment, we entered 2022 with the strongest backlog in company history, and we continue to have solid demand for our devices and our services. We are seeing more customers wanting to add intelligence at the edge and doing more IoT monitoring in industrial, enterprise, energy and public safety markets. In modules, we're seeing great demand for our LPWA products, particularly the infrastructure space with applications in smart meters, public lighting and asset management. We're also seeing traction with our 5G modules in enterprise applications and industrial networking.In Enterprise Solutions, we are seeing strong demand across the board for our products in public safety, energy and industrial IoT markets, including our RV gateways, our newest 4G, 5G XR Series, which is tracking to be the fastest ramping product line in our history. And demand for our flexible Smart SIM connectivity offering is strong, with customers deploying IoT solutions in applications such as industrial monitoring, asset tracking, transportation and security. I believe strongly that we are at the front end of a wave of demand as these markets will continue to grow for years to come, especially as more 5G applications emerge.At Sierra Wireless, we have a unique and strong position in the IoT market with modules, routers and connectivity services. Given the current trends in IoT, combined with the current record backlog and our strong balance sheet, we are confident that we can grow profitably going forward.With that, I will turn the call over to Sam for his review of the fourth quarter and year-end results.

Thank you, Phil. Good afternoon, everyone. Note that we report our financial results in U.S. dollars and on a U.S. GAAP basis. We also present non-GAAP results to provide a better understanding of our operating performance. A full reconciliation between our GAAP and non-GAAP results is available on our website.Total revenue in the fourth quarter was $149.9 million, up 24.4% compared to $120.5 million the same period last year. Looking at our 2 reporting segments, IoT Solutions revenue was $104.5 million in Q4, up 28% year-over-year. Enterprise Solutions revenue was $45.4 million, an increase of 17% year-over-year.In the fourth quarter, product revenue grew by 29% year-over-year to $113.6 million. And connectivity, software and services revenue was $36.3 million, higher by 11% compared to Q4 the prior year. The improved performance in the fourth quarter was primarily due to continued strong demand, coupled with the increased manufacturing capacity as we brought on additional production at 2 manufacturing facilities as well as improved sourcing of raw materials, parts and components. Gross profit in the fourth quarter was $48.7 million, up 12% year-over-year. Gross profit margin in Q4 was 32.5%, up 320 basis points compared to Q3 2021.Non-GAAP operating expenses in the fourth quarter were $45.5 million, down $4.6 million or 9.2% compared to Q4 of the prior year. This reflects our ongoing cost efficiency initiatives that we've been undertaking throughout the company. Sequentially, OpEx was up slightly, primarily due to the additional product certifications that were moved from Q3 into Q4. As mentioned in our last call, we continue to manage our OpEx and CapEx tightly across all areas of the business.In Q4, our adjusted EBITDA was positive $7.3 million compared to adjusted EBITDA of negative $2.9 million a year ago. For the full year 2021, total revenue was $473.2 million, an increase of 5.5% over the previous year. For the full year, adjusted EBITDA in 2021 was negative $7.8 million compared to negative $34.9 million the prior year.Moving to the balance sheet. We ended the fourth quarter of 2021 with $76.9 million of cash. Cash flow from operations in Q4 was positive $7 million and CapEx was $4.1 million in the quarter. During the fourth quarter, we continued our strategy of investing in inventory to secure a stable supply of parts and components to support our growth.In mid-January, we announced the company had secured a new debt facility with CIBC and BDC for approximately USD 50 million. This debt facility currently has an attractive interest rate and strengthens our balance sheet, giving us greater flexibility as we grow and operate the business going forward.Regarding guidance for the first quarter, the impact of the COVID-19 pandemic on our global business continues to remain uncertain. While we continue to experience and evaluate the effects on our business, the overall severity and duration of adverse impacts related to COVID-19 on our business, financial condition, cash flows and operating results for the remainder of 2022 and beyond cannot be reasonably estimated at this time. As Phil mentioned, global demand for our products remains very strong. Given this environment, we are guiding a revenue range in the first quarter of the year of $135 million to $150 million with a midpoint of $142.5 million.With that, I will now turn the call over to questions. Operator, please open the lines.

[Operator Instructions] Our first question, we have Scott Searle from ROTH Capital.

Nice call guys, an excellent job on the quarter. Sam, maybe just quickly for clarification, I was wondering if you could quantify the gross margin impact of various component costs and any expedite or freight or otherwise. And then given where we are in the first quarter and your guidance, I was wondering if you could give us some idea of what the gross margin profile looks like and maybe sequentially, the different business units, how you're thinking about things, given that we've got another 5 weeks left in the quarter? And then I have a quick follow-up.

Thanks for your questions. So we're not going to give gross margin guidance, but I'll give a little bit more color on it. What we're seeing is we're obviously in a very inflationary period right now. So we're seeing pressure from increased component costs. On the other side of it, we're seeing very strong demand in modules which is exciting in one part, but on the other part that does put a little bit of pressure on gross margin as well. So I do expect that gross margin flattened out in Q3 as discussed previously and we'll see it to continue to rise over 2022, but no sort of sharp uplift in the near term given those 2 pieces I just discussed.

Got you. Very helpful. And Phil, if I could, I know it's still early, but I guess we're almost 200 days in at this point in time. Tremendous turnaround in the module side and enterprise side of the business, right, I think enterprise is back to near peak levels. Modules, as I said, I think it's up the highest level it's seen in 3 years. I'm wondering, looking at the businesses today, if there are some guidelines that you could give us in terms of the module business, what that gross margin profile could look like in a normalized environment, what those targets are going to be? And the big snapback that we've seen this quarter, which was tremendous, is that just a snapback, is it sustainable at these levels? I know it's subject to component availability, but just to kind of better understand the supply-demand profile, is this a snapback or is this a sustained level that we think about building as we enter a more normalized environment for the supply chain?

Yes. Thanks. Let me try at best to answer that. I mean we kind of mentioned that we have basically a record backlog. We do have record backlog, not basically record backlog across our product lines. So demand for the products is very good. We have seen, as I think I mentioned in Q3, Q3 was uniquely kind of impacted our module business. This is where we were underwater the most in terms of some of the volume. Having said that, right, so we did see a bit of a snapback there in Q4 and certainly into -- reflected in the guidance in Q1.Having said that, demand for those products is very strong and so the competitive dynamic in that market tends to lend itself to slightly lower gross margins than we have on average of the company. But frankly, I'm working to keep the cost down, continue to work on our supply chain and continue to drive improvements there as well, such that we should see continued leverage in the model and frankly, continued good growth and good growth in profit. That's really what I'm trying to do.In terms of the 3 businesses, obviously it's -- modules are on the lower side. Enterprise and connectivity are on the higher side. So that's kind of how that shapes out going forward. In terms of is this sustainable? I mean, look, right now, we're going to be -- I anticipate being in a supply-constrained environment through all of 2022 at this point. So we are continuing to fight for components. Demand is very strong. We have the manufacturing capacity in place to meet that. It's all going to be just -- can we get the parts and turn them into finished goods.

For our next question, we have Mike Walkley from Canaccord Genuity.

Congratulations to the team for the return to non-GAAP profit. It's great to see. Just following up on Scott's questions on the supply demand, historically Q1 is a low point for revenue, but obviously when a different environment does a record backlog. Given the tightness of components, any thoughts on seasonality for the year? I know it's tough to get components. I'm just trying to get a feel for catch-up demand versus your ability to get supply to keep these type of run rates for the next couple of quarters.

Yes. I think as you point out, I think any kind of focus on seasonality, any sort of data, historical perspective on seasonality is certainly distorted in the current environment. And frankly, we've got more demand that would blow through any seasonality than we would have anyway. So I think that we really don't have any good guidance on seasonality. I would just say that the backlog has continued to grow, and we've been continuing to try and recover as much as we can given bringing online more of our facilities globally and securing components. But I think that any sort of historic -- what you see now reflected in our guidance really doesn't have to do with seasonality, historic seasonality. It's really around what we think we can -- the range of stuff we can get out in the quarter.

Great. That's helpful. And Phil, just a follow-up for you. Your predecessor committed Sierra Wireless to these longer term targets, I believe, probably back in June 2019 of about $200 million or $400 million on these LTARR targets. Is it still relevant to see how you run the business and if not, what metrics do you think investors should focus on as I did notice you changed the way you report some of the line items?

Yes. Thanks for that question. Obviously, at the current run rate, it's not realistic to assume that we'll hit those targets. And frankly, as you point out, I think that focus on those things resulted in confusing metrics like LTARR that very few people, including myself, really understood. And frankly, I think to pursue those new targets required us to run losses and make poor decisions.So my goal is to grow this company profitably both in the short term and the long term. We're seeing very strong demand for our products. I'm going to be focused on profitable growth. Having said that, I do believe that building a recurring revenue business will be an important part of the strategy. But I do not believe those long-term targets that were set 3 years ago are currently valid and I'm going to be focused on growing the company holistically and growing it profitably going forward.

Great. One last question for me and I'll pass the line. I appreciate the answer to that question. Sam, just for you, it's great to see Sierra Wireless using their strong balance sheet to pick your components. A lot of your competitors are really struggling in that area. How should we think just about combining that over time in terms of working capital and cash levels? Or another way to ask it, should we assume kind of the high levels of inventory for the next couple of quarters?

Yes, good question. So there's 2 competing things happening, right. There was the Q3 shutdown, which led us to build up inventory, right. That is starting to normalize, but that's going right into very, very strong demand on both our modules and our gateways and routers. So while we've done stuff like raise prices to protect our margins, and we continue to look at that, the demand remains very strong. So we're having to continue to invest in components to meet our customer demand. So I would think that inventory will stay sort of in line with where it is right now over the next few quarters. I don't see any big movements in it. But as you kind of see that play out over the year, depending on how demand metrics play out in the second half, you'll kind of see us go up and down on inventory, and that will obviously impact free cash flow. But as Phil said, our goal is to grow this company, grow it profitably and ultimately deliver that free cash flow.

Great. That makes sense. And congrats to your procurement team as, like I said, you guys seem to be doing better than others out there getting the components.

For our next question, we have Josh Nichols from B. Riley.

Good to see a lot of the company's cost improvement initiatives taking hold here, pivoting back to free cash flow generation. On that note, how should we think about OpEx for '22 relative to 4Q to show some additional opportunities to make some cuts there and does the firm expect to remain free cash flow positive throughout the coming quarters?

Yes. It's a good question. So I'll grab that and Phil, if you have anything to add, please add it. The way we're looking at OpEx, and I think I've said this before, is sort of flat is the new up. So OpEx will be flat, at most up in the 2% to 3% range, call it sort of some small wage inflation and these sort of things. But we expect to get a lot of leverage out of this model, which means growing revenue at a much higher pace and keeping OpEx flat. So that's the comment on OpEx.Now free cash flow, again, is going to go into our continued very strong demand and good visibility into demand is having us to invest in our working capital to meet that demand. So depending on those sort of working capital items, we will be in a position to deliver continued profit growth and free cash flow with an eye on those working capital numbers. Does that make sense?

And then I know you mentioned, I mean, record backlog, right? Anything you could do to kind of quantify that a little bit as far as like the dollar value or book-to-bill. I'm just curious how much visibility you have, at least from a demand backdrop on the revenue opportunity for this year? Do you have orders that are going out through 3Q, 4Q? What does that look like now?

So go ahead, Phil.

Yes. We started to take orders, not to say we have started to have customers start placing orders into 2023 at this point.

Okay. And then last question for me. I guess, historically, you mentioned that seasonality is a little bit different this quarter, but I know the first quarter is usually a little bit softer than in the fourth quarter. I think that's kind of how bad it shakes out. But with the inventory build and the backlog that you have, is it fair to assume that like there's a good chance that the company is going to be able to kind of continue to grow the revenue base as you progress throughout the year and if so, like I mean that would imply that you could probably be doing somewhere around like $600 million potentially of sales this year. Is that kind of in the ballpark of how you're thinking about the business?

Sam, do you want to take that one or do you want me to take a crack at it?

Yes, sure. I can jump in on that one. So yes, good question. Like we do see sequential growth throughout the year. If you look at Q1 guidance, that midpoint of $142.5 million, that -- the seasonality is a little bit odd this year because we still are seeing impacts from the Q3 shutdown. It wasn't all into Q4, some of that is going to go into Q1 as well. So you mentioned $600 million, I mean that's a little bit hot. But if you sort of do a little bit of basic math of $142.5 and you add a little bit of sequential growth through there, you start to get pretty close. So I think you're thinking about it close to accurately, maybe a tiny bit hot, but about right.

For our next question, we have Derek Soderberg with Colliers.

So Phil, in your prepared remarks, you talked about a growing need for software and connectivity. I just want to touch on monthly recurring revenue exiting the year. I guess with the strong quarter in hardware and sales, I guess, from prior quarters, I guess I would have expected that number to grow a bit more. I guess could you just explain some of the puts and takes going on in there. Is it a lower attach rate, lower data consumption but more devices? Anything would be great.

Yes, that's a great question. Look, overall, that grew 10.5% year-over-year. It is going to continue to be an important part of our business there. Having said that, there are lots of pieces in there, as you know, that a lot of that segment is combined with lots of acquisitions that were made historically. So there's some stuff that's going up, there's some stuff that's going down. And frankly, as I kind of implied before, I'm in the process of doing a little bit of a deeper dive in that particular area to go there. There may be some businesses in there that aren't strategically aligned with where we want to go. Just because something has MRR doesn't mean it's necessarily right for us. So building recurring revenue is going to be an important part. I'm going to continue to look at it. There's kind of various different puts and takes in there, and I'll be continuing to evaluate that going forward.

Got it. And then just off that, with those product lines that are sort of declining, I guess, is there a timeline for when those sort of base out?

Look, we're trying to -- I'm trying to actually figure out overall how to focus, grow the business holistically. So it's a little premature to comment on kind of what's in and out of there. I think what you need to walk away with is, I and the management team got both hands on the wheel. We're going to drive to grow this business profitably and make sure that we're allocating capital to the right areas that have the best ROI for the business.

Got it. And if I could just squeeze in another one. You, Phil, again you've sort of went through this hiccup in Q3 when you joined. You sort of laid out these near-term strategic initiatives. Curious if on 2022, what sort of are your updated initiatives? Like what do you want to see for the year? Divestitures, acquisitions, growing profitably, I think you mentioned. Any initiatives you can point to for this year?

Yes. I think it's fair to say that we've had a pretty turbulent first 6, I think Scott mentioned 200 days. I mean it feels like a lot longer than that. I mean, what I'm trying to do is actually put the company on stable footing right now. I think that we've actually done -- the team has done a great job of kind of navigating some, frankly, unprecedented areas. What I expect to see going forward is a continued focus on minimum double-digit revenue growth with expanding profit margins and expanding EBITDA margins as we go throughout the year kind of holding OpEx flat.I will likely, when we think about the future going forward, I'm going to be pursuing some evaluation of the portfolio and taking a look to see kind of what makes sense, what not. I think that consolidation in the industry, there's a lot of talk about that. I do think that's inevitable out there. And I do think there are some interesting opportunities in the industry. But right now, for me and for the company, I'm focused on taking the portfolio of products we have and making sure that they operate as best as we can.

For our next question, we have Todd Coupland from CIBC.

Just a point of clarification and then I had a question. So the $36 million the connectivity solutions business that grew 11%. Is that also being defined as recurring revenue or MRR? Are those interchangeable? Because I think there's some services in the market as well.

Yes, basically right. There's a small amount that doesn't get included a very small amount, but essentially that divided by 3 is close to the number you see there for MRR.

Okay. And that's the piece that grew 11%. And how -- and the prior question, the commentary around some puts and takes, acquired businesses, not sure all of it fits, et cetera. That's all around the MRR you'll keep as a metric and then the long-term LTARR stack, et cetera, gets -- is not relevant. That was the point there, right?

That's correct. Yes. So Phil, sort of trying to make it clear that his focus is to grow the whole business holistically, grow profitably without sort of myopic view on just services. So I think that's the point I just trying to get across there.

Yes. I didn't get that. Then I'll start saying we're no longer going to be talking about that period. So it was a bunch of stuff there.

That was a hard metric for us to reconcile regardless. So I'm not surprised to hear.

Yes. And then just thinking about the growth in the business. I know there's been lots of questions about pull forward versus sort of secular demand. Like how much of -- like if you were to think about the business, 5G plus other trends, like how much of a tailwind is that right now? Like I thought 5G was sort of slowly coming on. Then you referenced a number of times in your prepared comments. Is that actually kicking up in a material way? And maybe what are the other 2 or 3 factors as we think about qualitatively beyond the pandemic, what's pressing the business?

Yes, let me try that. One of the things, I guess, I'm excited about, I think 5G, as you point out now, I mean it's a nascent, small part of the business, but it's starting to grow. And when I think about having a decade or some long number like that of deployments behind us -- or excuse me, in front of us, I just feel great. Low power LPWA is great, private networks, all of our enterprise business -- I mean what I get excited about the long-term growth opportunities is just the number of things that we have that are tailwinds from when you just think about smart infrastructure, smart meters -- of this whole idea of work from home in the IT space, this is just being now translated into the infrastructure energy space, right, and I think that -- I think there's some tremendous growth opportunities here, not just in 5G, but 4G, LPWA, routers gateways, managed connectivity. I think this whole -- to go back to the pandemic when I look at the pandemic impact, for us it was around impacting our manufacturing recovering from that. When you think more globally, this whole idea of being able to remotely manage and monitor things, I think that's only going to accelerate that trend.

Okay. Yes, that's helpful. And then when you think about, again, people have often thought about this business a little bit commoditized. Can you sort of characterize what you think are Sierra's strongest competitive advantages that can drive that double-digit growth you're talking about?

Yes. Look, I think that, honestly, every market that we participate in has got some competitors, and we want to compete vigorously. I think there's a very valuable role that we can play as a trusted western provider in this space. And I think that when we look at in modules, for example, some of our RF capabilities, performance, low power are very, very key there. Our router space, our new 5G products are getting very good reviews in the marketplace for their performance, the ruggedized space. They're really targeted at a more industrial use case, which I think is great. And then on the managed connectivity side, the ability to build and deploy solutions that can go anywhere in the world and connect up to the best network and have that manage appropriately is also a value proposition that's resonating with customers. So I feel good about our competitive position. That is not to say, however, that we don't have a lot of work left to do. I mean, frankly, I mean, 6 months or 200 days, there's a lot more things we can do to be a lot more competitive here. And certainly, my team and I are going to be focused on that.

Okay. And last question for me. You signaled sector consolidation. Some have speculated on sort of Sierra's place in that as a consolidator or now with your focus on cost and cash flow, whether Sierra Wireless perhaps is consolidated. Can you just sort of clarify your stance in the market and commitment to the strategy and all that, just help us understand where you're hoping to take the company?

Yes. I mean, obviously, it's -- my #1 focus is to grow the company, grow the company properly and frankly build some equity value and that's really what we're looking to do. I am more likely to clean up the portfolio and do a divestiture prior to me doing an acquisition because I think one of the things -- the challenges we have with Sierra, frankly, is that it was a confusing story and it has been a confusing story. We're doing a lot of things. And so I'm more likely to clean up some of the smaller businesses and perhaps divest them prior to an acquisition. However, long term, right, I think it's pretty clear. There's a number of players in the space, including Sierra, whose bigness as you could argue, would benefit from the scale for which consolidation provides. So I think that is likely at some point in time. But right now, I'm kind of focused on building the businesses that we have, returning them to profitability and profitable growth. I'm likely to do divestiture prior to acquisition, and then we'll see where we go from there.

For our next question, we have Paul Treiber from RBC Capital Markets.

In regards to Q4, $150 million in revenue and then also the outlook for Q1, it doesn't sound like demand is a constraint for either of those. Was manufacturing capacity a constraint for Q4 and then now the constraint for Q1 is component availability, am I getting that -- characterizing that right?

I mean, gosh, I guess I don't have really -- Q4 was kind of a turbulent time because we were just coming out. We were bringing back up with our partners. We're bringing back up Vietnam. We were starting to ramp Mexico. So I guess I would say that Q4 was likely manufacturing constraints and then Q1 is probably a component constraint. I think that's probably a fair statement to make. But, it -- yes, I think that's probably okay at this point. It's not perfect, but is enough -- more dominated this way, it was more dominated by our own manufacturing and Q1 is more dominated by component supply.

Okay. That's helpful. And then as you look out through '22 or '23, I mean, obviously, the short-term focus is probably on component -- securing component supplies. But at what point would manufacturing, would you look to expand the manufacturing footprint further?

Yes, that's a great question, and we've talked about it. We have made some targeted investments in some particular product lines that are at the beginning part of their ramp and we believe strongly that the demand is there in the years. I think that what I don't want to do is bring on extra capacity and then be stuck when we can't get the supply. So I think it's going to be a combination of -- we're going to be cautious on that. But look, if we got more visibility into a stronger supply line in terms of components and our demand remains solid, then clearly, we'll be looking at that. And I think that's one of the things that our strong balance sheet enables us to do should that opportunity be there. But I've -- like many of you, I've been around the block a few times, rights so I'm pretty cautious on adding extra fixed capacity that we'll sitting idle if I can't use it.

And then with record backlog, obviously, it looks like demand is outpacing supply. Can you help us understand like the demand is it perishable and if it is or it is not? Like what are customers doing if they're not able to secure supply from you? Are they just delaying shipments, not including connectivity and can you help us understand what's going on there?

That is a good question. And a question I ask my -- the customers when I talk to them a bunch. The good news is, is that oftentimes we are not the only supply[Audio Gap]dealing with. I think in Q3, when we were dealing with our own major situations, I mean, we were a much more significant bottleneck, which is why we're really scrambling to recover from that. I never want to be in a situation where we're blocking our customers. So I think right now, we're trying to do our best to meet our customers' minimum quantities to make sure that we are not the blocker in their situation. And I think what they're seeing is just like what we are seeing in our own supply, I think just in general, what our customers are doing is lead times for products are going up, right so lead times are going up and that's what they tend to do is just reschedule it at later in time is what I'm saying.

Presenters, you don't have any further questions at this time. Please continue.

Okay. I think at this point, we're done with the call. I would like to take a moment and express my appreciation for all of our employees, suppliers, partners, customers. It's been a challenging -- certainly a challenging 2021, and I appreciate all the partnership and collaboration we've got across the board. To close the call the future is very bright, the demand is very strong. We are going to execute well and grow this company profitably going forward. Thanks for everybody's support and joining the call today.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.