Good day and welcome to the Aehr Test Systems' Third Quarter Fiscal 2020 Financial Results Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Jim Byers of MKR Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems' fiscal 2020 third quarter financial results conference call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson; and Chief Financial Officer, Ken Spink. Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items. This afternoon Aehr Test issued a press release announcing its third quarter fiscal 2020 results. That release is available on the company's website at aehr.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call are valid only as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks, Jim. Good afternoon to those joining us on today's conference call and also listening online. Ken, our CFO, will go over our third quarter financial results later in the call, but first, I'll spend a few minutes discussing our business and product highlights, including our continued progress with our wafer level and singulated die test and burn-in solutions. We'll then open-up the lines for your questions. Before I discuss our performance and financial results for the third quarter, I'd like to say a few words about the impact of the coronavirus and our response to this global pandemic. First, I'd like to express our heartfelt concern to all those who've been impacted and to everyone listening today, I hope that all of you and your family and friends are staying safe and healthy. As the COVID-19 pandemic continues to unfold, our foremost concern at Aehr Test is to ensure the health and safety of our employees, their families and our worldwide community. As of today, I feel fortunate to report that none of Aehr Test direct employees or their immediate families have contracted the virus. On March 19, 2020, the executive department of the State of California issued an executive order ordering individuals in the state of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors. Aehr is a global supplier to critical infrastructure, specifically companies in the I.T., communications and manufacturing sectors that require semiconductor components. As such, we're taking extraordinary measures to maintain continuity of our operations and to continue to safely operate with full capacity available in manufacturing and across the company to support the vital needs of our critical infrastructure customers, while complying with the local and state mandated shelter-in-place…

Thank you, Gayn. As Gayn noted, our financial performance for the third quarter included continued profitability and strong gross margins as well as lower operating expenses reflecting our cost containment measures. Net sales in the third quarter were $6.1 million, down 11% from $6.9 million in the preceding second quarter and up 93% from $3.2 million in the third quarter of the previous year. The sequential decrease from the preceding quarter reflects a decrease of $841,000 in wafer level burn-in revenues. The increase from Q3 last year includes an increase in wafer level global burn-in revenues of $3.4 million, reflecting an equal mix of system revenues and WaferPak and DiePak revenues, partially offset by a decrease in customer service revenues of $435,000. Non-GAAP net income for the third quarter was $452,000 or $0.02 per diluted share compared to non-GAAP net income of $456,000 or $0.02 per diluted share in the preceding quarter and a non-GAAP net loss of $1.6 million or $0.07 per diluted share in the third quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation expense, restructuring charges and write-down of excess and obsolete inventory. On a GAAP basis, net income for the third quarter was $245,000 or $0.01 per diluted share. This compares to GAAP net income of $251,000 or $0.01 per diluted share in the preceding quarter and a GAAP net loss of $3.2 million or $0.14 cents per diluted share in the third quarter of the previous year. The GAAP net loss in Q3 of fiscal 2019 includes the impact of approximately $1.4 million or $0.06 per share in one-time restructuring and inventory write-down charges taken in the quarter. Gross profit in the third quarter was $3 million or 49% of sales compared to gross profit of $3.2 million or…

Yes, sir. [Operator Instructions] We'll take our first question from Christian Schwab.

Sorry about that. I had it on mute. Guys, when we go into next quarter and if this lingers for multiple quarters, do we feel confident in our cash position? And given the fact that some customers you highlighted possibly were talking about pulling in orders to those large expensive systems that you'd have to put into inventory?

Okay. So there's a couple of jewels in there. Let me start with the latter one there, Christian. So I'll remind people it has been a great idea all along and now it seems even like a better idea. We do have policies in place with all of our large customers that systems and WaferPaks that are purchased from us we receive a 30% down payment upfront to secure the order. And that allows us a significant ability or the way to meet all cash flow requirements to be able to build, qualify and ship those products to those customers. So if we get customers and orders in for things that we don't have on hand in inventory, we're not needing to necessarily [indiscernible]. We don't need cash for that per se. Keep in mind that DiePaks and WaferPaks, although we do have subassembly that can be common or unique to them, but we've also done a substantial amount of work during the last nine months, actually something we probably should spend more time on getting their lead times down. So now we're able to meet lead times for WaferPaks and DiePaks by 8 weeks and less, which allows us to do a quick turn that includes the procurement assembly test of all of the material and out the door. So that minimizes the cash requirements for that. And keep in mind, we still get down payments on it. So the other question was just in general, if this thing extends, how are we doing for cash? You folks won't be surprised that we've spent a lot of time just looking at that understanding. If we need to hunker down after an extended period of time, what that looks like, I mean, one of the things that we're trying to…

In an optimistic scenario, I guess my last question and follow-up is, is there any new customers or new -- or new customer applications for existing customers that could lead to meaningful revenue in calendar 2021?

You mean from a longer term, are there some big deals out there, or is that kind of I’m over-simplifying?

Yes, I mean, Gayn, you highlighted a lot of opportunities in a lot of different verticals. I'm just wondering in a lot of customer engagements that you're having daily meetings about, I'm just wondering if some engagements will happen, others will not. But is there anything out there that you're like super excited about from a revenue perspective?

Yes. Okay. So, I mean, there's two things. One of them is a piece that is sort of I guess you wake up every day and read the news that it may be surprising is the number of engagements with people that are talking about things they want to ship into the summer or sooner or this fall or -- and so, you talked about 2021, I'm talking to you about customers talking about ramping and pulling things into this calendar year. Related to next year, yes, we actually -- we've talked about it before, we booked to deal with a our first FOX-CP customer, which is the integrated [indiscernible] version for what we were kind of elusive on, but it's a data storage application that is a enormously large unit volume that we believe they would start to kick in their production volume and need that - would drive capacity of FOX-CP test sales that right now we see could start towards the end of this year and via 2021, the start of the major ramp, if you will, then. We have engagements on multiple mobile applications that include, I think this summer, this fall lead next summer, there are some things that are potential there that have more upside than the recent couple of years that we're talking about. And then the silicon carbide customers that we're engaged with right now, you know the unit volumes around the silicon carbide, the long test and burn-in times and the yield implications, the improvements that we're able to give people seems pretty exciting that can move the bar. And of course, we spend a ton of time talking about the silicon photonics customers and everything related to 5G and the data storage. And that's probably the bulk of the number of companies that are saying, I want to pull and pull and pull in because they're actually being asked to put more infrastructure in place. Let's accelerate the stuff that's going on with the data servers or in the 5G infrastructure. So, there are -- there is a mix of things both this calendar year as well as next year that look very promising.

Great. No other questions. Thank you.

Okay.

Thank you. We'll take our next question from John [indiscernible]. Please go ahead, sir.

Yes. Hi, guys. Thanks for taking the call.

Hi, John.

First question is, this quarter was maybe below consensus, very least. And so, that the quarter ended in February was kind of pre-corona, still down sequentially. It sounds like things are going really well. It seems like things have been going really well, things have been trending in the right direction. Why the trend break in this quarter?

Well, I mean, just by the numbers, right, we ended up with a backlog of 3.6, is it Ken?

Yes, 3.6.

Yes. So we start off, March 1st with the backlog at 3.6. Clearly, if we don't get more orders, we would only have 3.6 to ship. Now we absolutely have systems, NP, XP, DiePaks, WaferPaks that can turn within the quarter. But as the quarter draws on, the question is, are they going to come in time to come in this quarter, or is it going to be moving into June? And customers are talking up a storm about eminent orders, but I'd like to see them. I mean, I think that's really where we [indiscernible] Board just a few days ago. And so what do you what do you do, how do you describe your end of year when you have things that can shift between May and June. And so we just said, let's just pull it off the table, people, I mean, to sit here and be extra bold right now would seem to be completely against the brain. Where we could still have a good quarter, this quarter and we could have [indiscernible] this quarter.

But for the quarter that ended in February, what was the weakness in that quarter? Because the question I'm trying to answer is, are you pulling guidance because of uncertainty over coronavirus, like you're saying? Was there already some softness in the quarter and in February that I should be concerned about, that's a red flag outside of the coronavirus uncertainty?

Yes, I mean, we certainly have had customers that we were expecting some orders in like late in the quarter for shipments in Q4, even some orders that potentially could have come in towards the end of the quarter that didn't come in. And we're trying to get our arms around, is it -- can we point to specific things that are coronavirus related? I would say no, nor can we specifically point to exactly why some of these ramps are shifting left or customers that were implying they’re going to place orders immediately didn't. I can't help but feel that, any CEO is wondering, is this something I absolutely, positively want to pull the trigger on now or can I just wait a couple weeks or something? The one thing that we're not seeing is that the ramps are going away. As I said before, I really felt we could be -- we’ve been in such a different place, I mean, I get -- we get weekly calls in some cases twice a week from key customers saying, you're still fine. Can you do a deep dive on your supply chain? Are all your suppliers still around? We're forecasting these needs through these ramps and you need to tell me you're going to be able to ship to me, right? And so you've got that going on at the same time that, obviously that orders haven’t come in that would be consistent with what our original guidance would have been to finish the year at. So I feel, I would say, it's not like we’re in a restaurant and people aren’t coming in to the restaurant because of coronavirus, you can't point specifically to that. But that seems to be a general cautiousness going on in capital equipment out there, that I feel like we’re feeling.

And so the caution -- the cautious guidance as opposed to be softer quarter is really your freight orders won't show up. It's not duty. If they all showed up, could you get it to them? It sounds like there's lots of activity, but …

Yes, I mean, I could shift more this quarter than last quarter still to this day if we had additional orders that showed up today. I have the inventory and material to be able to do that. So to give you an idea of the sensitivity. So it's -- but you gave -- you wait three, four, five more weeks and then we can't.

So, Gayn, can I just add little something here?

Yes, please.

Also the mix makes a difference. So keep in mind, DiePaks, WaferPaks are more -- a more custom product. The lead times are much, much longer relative to our systems that we have in-house and on hand. We actually even have a marketing lab that we've built up over the last several quarters that we could quickly turn a system order of any configuration very easily by the end of the quarter as long as that order came in.

Absolutely. Yes.

So it's more order in your business than it is …

Yes.

… your ability to deliver and that's not due to activity. It's just concern that activity might not turn into an order. Is there something concrete you can point to? Because it sounds like everything you say is jeez, we're on fire. We are pulling guidance. So we're all going to try and connect that we're on fire to that we are pulling guidance, whether it's cancellations or whatever it is, is there anything?

Yes, I mean, actually, that's a very specific question I want to answer. We have had no cancellations, right? We've actually have no pull push outs. Everything we have in backlog, the customers have called us and asked if we can ship faster. Now we are pointing out our backlog isn't very big. We even have customers that haven't given us the orders that are asking us to ship faster. A lot more competition. So, yes, it would seem inconsistent and we're just trying to give you as raw data as we possibly can. I -- we had anticipated having a really good part of this quarter. And so I can't help, but believe the only thing that really makes sense is that this cautiousness of people just trying to pull the wall to door on your own things. This certainly feels. I think we would believe that as we get through this thing, our business would come back just as strong as ever. And like I said it -- we tried to add the color behind it. I mean, we've had an uptick in customer engagements. In the last three weeks. I mean, I can probably think of four or five like, take where these guys are coming from. And I mean, there's certainly a sense that they have time on their hands, maybe. There is -- there are people that are saying, you know what? We've got to move towards this. So we've got to pull into this. We start seeing what can you do? Can you test these parts? And the answer in many cases is, yes. We're confident we can build it. We don't -- we had a customer say we can't travel. Can we do a video conference and give a demonstration of the equipment. We're getting pretty good at that step. That's kind of interesting.

Okay. Last question.

John, [indiscernible] super clear answers. Go ahead.

No, look it's not a super clear time, I understand. So your -- the linearity of this quarter. -- I mean I know you’re standard after business or something in the last month. I don't know if that's the right number, but I don't know any thoughts on linearity or bookings shift in the quarter and kind of when you'll know?

That one I will, fess up to. It has -- it is very typical for us to have a disproportionate amount of our bookings in the third month -- often more than half, okay? And then, it kind of repeats itself because we shipped everything we can before the end of the quarter. And then, manufacturing sitting around, tumbling in the first month. That was very true in this quarter.

In fact the timing of the, if you will, the stay at home directives have been almost unfelt by us. Need not have any restrictions yet. We actually don't have everybody in the office right now. But anybody who needs to be is there. And so that as we get towards May, we are already planning that the manufacturing floor is expected to be relatively full. And we've been re-distributing the -- our DiePak and WaferPak labs the other manufacturing plans to actually make room, so that we can keep our 6 feet distances. Well, talking to you, okay. How are we going to be creating that these systems in May when you know it takes two people to move a tool? And how well we think through that so that we can maintain social distancing at the same time that we are going to start -- see our manufacturing folks coming back and filling up the place.

Okay. Thanks, guys. Good luck.

Okay, John. Thank you.

Thank you. We will take our next question from Geoffrey Scott. Please go ahead.

Hey, Jeff.

Good afternoon, guys. It's been long time since we talked.

Hi, Geoff. It seems like forever.

It seems like forever, yes. Going back to the last quarter, you reported you had 20 silicon photonics customers in high volume production. Is it still three or have you added one?

So I think I might chosen the word production because some are higher than others. So I don't want to give [indiscernible] and let me just think through here. I have -- I still have I think we still -- I wish [indiscernible] were here. I think I know the three are still in production and I believe we have another one that might be shipping parts off of it now. So it might be a fourth.

Okay. Are all of those customers using the FOX to solve the same problem or are the problems unique to each of those three customers?

While they're slightly different, but because they listen and I want to be careful of that. So let me make it generic, though. They all are -- they all solve a similar problem of what we will call aging stabilization. So it turns out that all silicon photonics transceivers, the output laser itself. It during its first 24 to 48 hours of continuous use in operation, the output efficiency drops and the power. Therefore, for the input power, you get less output power. That's a big problem with multi-channel fiber optic communication transceivers. You can't have each of the four laser wavelengths. Think of colors and different power outputs. They all need to be balanced, okay? or else you lose bandwidth. And so they all specify the output power to be stable over time. But in order to do that, one of the manufacturing process steps is they need to stabilize the lasers, which our tool does. They've always had to do this. The traditional device though was done discreetly and it was burned in or aged in, in most cases, home grown test base in big rooms and they were hand placed in it. And 48 hours later, you would come back and the thing has aged. And then you test it and it really meets certain qualifications, you pick it out and you can't place it into these transceivers. Now, keep in mind, these transceivers for these high-performance ones were several hundred dollars, $700,000, $7,000 a piece. The real jewel, if you will, in silicon photonics that, FOX like the intel of the world, they are out claiming is the scalability basically taking a silicon wafer, creating all of the transceiver components on it and then effectively overlaying or attaching these laser processes so that the laser is directly attached to the silicon. The trick is those lasers still must be aged or stabilized. And what we do is we can stabilize them in wafer form. We test all the lasers on a single wafer, thousands of them in parallel which gives. It allows you to maintain the cost effectiveness in the scale of doing wafer level silicon photonics devices. So it is an enabling capability. So in all of our customers, we're doing the stabilization of those lasers. And when we talk about silicon photonics devices. Now each of our customers also buys slightly different things in terms of test and other types of functional infant mortality performance related to specifications that are unique to them. That makes our system more valuable to them. But they're all a little bit different.

But it's the stabilization process, which is kind of the most valuable problem that's being solved by Fox.

I would say that that's fair. And since the fact has this experiment, some capability to discern every single device good from bad. The customers are taking advantage of that. But it would be fair to say if it weren't for them using it for stabilization, they probably wouldn't have done that other test.

Okay. Fair enough. Again, in Q2, you said that you had a new customer for silicon powered by customer for automobile applications. That was high voltage, high temperature. Was that a onesy or was that the first of potentially more orders?

We believe that is the first of more orders and not less than 18 wafers system. So that tool itself has the ability to test 18 wafers at a time. And my beliefs, my understanding from last night's report is they're running 16 or 17 wafers at a time right now with a mix of wafer packs and they have more order and more planned.

Which means [indiscernible] forth coming.

That’s -- That was [indiscernible].

It's okay. In the business highlights today, you said that you shipped an additional FOX-XP, or silicon photonics. Was that to one of your original lead customers or not?

Yes, it was.

Yes, there was -- and the …

We had announced the order before. I just was trying to explain, where did the $6 million come from.

Yes. And the mobile sensors, again, was to a loop customer, right. It was WaferPaks and DiePaks. The order -- yes.

So big chunk of that order -- those orders practice and by the order, the order said yes. So a big chunk of that order -- those orders were shipped off and you could imagine that that would be something that we would be scrambling to be shipping right now because they are beating us up every day to give us how quickly they trend.

Yes, there we are merchants was not definite for fiscal 2020. It sounds like their activity has been accelerated. Is that fair?

We've actually -- they have been forecasting this for a while in anticipation of a periodic need that we think is pretty regular every single year. And it did come in. So in that sense, I wouldn't say it was certainly not a Blue bird. We were building dye packs for them throughout the fall. We were critically important. Every single order they've given us, they've been pressing us very as quickly as much possible. It is not the only engagements with them. There are more.

Okay. You said you were engaged with more than a dozen potential new customers. That is a continuation of the dozen new customers that you were engaged with a quarter ago, right?

I like to go through what the math is. But for -- I think to be fair all we have we only announced one or two new customers during the year. One of the customers is interesting. One of them that came back this last week had -- were engaged with last summer. And we had and often decided they were going to try and do it in packaged level instead, which we understand. We sell packaged systems too, but they came back. So I don't know how to do my math. I do force myself to count out loud. We do that part of the audit committee whenever we say that to country that there really are that, maybe -- I think it was 12 or something. I would say, it was like 14. So it was two more than what we’ve have said was greater than a dozen.

Yes. Okay.

[Indiscernible] I did validate that from our press release that there was more than 12 and I do have the list.

Yes. Sorry, Geoff.. Ken, gave it to you.

I know. Last quarter you talked about solar panels. Is there any activity in there?

No. I mean, the only thing that we specifically know that there's an application out there is that the silicon for -- I am sorry, silicon carbide devices are particularly good in the solar panel power conversion.

Yes.

So, typical device applications, one of the big ones everybody's heard about is, Tesla uses those in their electric cars. All the electric cars are going to be using silicon carbide motor control systems and power systems in for certain. But another one of the big ones is actually other solar car conversions. But that's it, we're not doing anything related to panels themselves or the electrical battery on the panel. We don't have anything like that.

Yes, I was just surprised to hear you talk about the last quarter. It kind of surprised me. Okay, that's all I have for right now. I'll let somebody else jump on.

Thank you.

Thanks, Geoff.

Thank you. We'll take our next question from Larry Chlebina. Please go ahead.

Good afternoon, gentlemen.

Hi, Larry.

Several customers are pulling in plans, does that include any systems or is that mostly consumables?

Both. Both.

Both?

Yes. I mean, I have one that's asking for WaferPaks and DiePaks and plan to use it on their point system. And now we have some better new customers, so there would be new systems and new WaferPaks and DiePaks.

So when you talk about that, it's that like pulling in within the next three months or is it still further out, or I mean how would you define?

I mean one for certain, I mean, we just signed all the NDAs and everything within the last 48 hours and they’re asking for eight weekly times. So what would that be? Would that be a system or a …

That was actually -- that was one of the packs. It was one of more of consumables. We have -- yes, I mean I have a customer that is been talking about that there and customers are pulling in some 5G structure requirements and increasing their forecasts for them. And they are, they have a ramp yet. So that it would be an example where they will absolutely need additional capacity of the systems and WaferPaks, DiePaks. I have both.

Did I just hear you correctly and saying your pipeline is 14 potential customers right now or I misheard them?

Yes, I mean, Just in FOX and FOX related I think I counted about 14 of them, more than twelve. That's how I wanted to make sure and has [indiscernible] couple more. There's a couple more. And then we actually have probably another half a dozen package part, because we haven't really been talking a lot about. Of those 14, how many of those would be in regards to silicon carbine?

You know, I don't have it in front of me, but I actually probably don’t want to do that. Because eventually, you go down to -- you're going to really ask me how many our memory. So actually, that was [indiscernible]. Okay. So I’m going to stay very generic right now because of all kinds of reason. But it is multiple of each. More than one or to every one of those categories.

Okay.

I know in the past you mentioned that in that pipeline you have three memory potential customers. But unlike in the past, you did announce as part of the 2.9 in total consumables recently that one included a WaferPak for a flash memory potential customer. So my spending [indiscernible] -- go ahead. Yes. Larry, I don't actually don't like EPR or particularly aware of buyer details or anything that I'm going to be a specific. So that was not for a customer. And that was a correct memory customer.

That was a -- one. It's one of our installed base customers. It's not one of the newest.

Okay. Where do you stand automating. I know your -- you said in the past that you're involved in designing automation, the automated [indiscernible].

Let me -- Larry, I want to let me jump in on that. Actually, I want to talk about the features on that at this point. As the pioneers with competitors and things like that, too. I will -- yes, I know that we have generically talked about at some of our public events and things like that that we absolutely see customers asking us to do more and more automation. And we and, how do we take our products that make them more production worthy so that they can even get a higher and higher volumes. And those are things that we are spending money on. I'm going to leave it that.

Okay. And the data centers are obviously working overtime with so many people at home, working from home and, burning up the Internet. Do you see -- maybe additional business from maybe existing customers on the silicon photonic side or maybe a -- maybe these [indiscernible]

That's what it feels like. I mean, I think I mean, I know very specifically there's 5G infrastructures and towers that is having fun. And are data centers, thanks. People are not coming back from this. So those are -- and that would bode well. And I think what we're seeing is, there's sort of the wild west of everybody and their brother rushing in to trying to do silicon photonics because it just at a price point, it stops it where shifting where it fiber optic bandwidth is as cheap as copper. It says, there's all you can build as best as I can tell, it is 100% supply limited. There's not enough silicon photonics out there. Every one of them being bought up. So there are people big and small do it, all kinds of things to try and put more to get more capacity out there.

One last thing on the memory. So you still have three active potential memory customers in that pipeline. Did I -- did you quantify that?

Hi -- we are actively engaged in this multiple memory suppliers on roadmaps related to Rachel. And is there deserve any kind of timeframe on that, where it might be kicked off. I would expect that would have to, build wafer packs to [multiple speakers]. I mean, I believe that this is something that would be for a -- this is like a 2020 product. And as we get a little closer engagement, we can kind of narrow in when that would be. We are actively spending money in R&D with respect to roadmap products this quarter -- each quarter throughout this calendar year.

All right. All right. That’s all I had. Good luck, guys.

I’m quite excited to sort of catch you off there on one of those, okay? I appreciate it. Thank you.

Okay. No problem.

Thanks, Larry.

Thank you. We'll take our next question from Tom Diffely. Please go ahead, sir.

Yes. Good afternoon. I'm curious what you're seeing on the supply chain right now. And if you were at full capacity, would you be having any kind of supply issues?

Yes. So we didn't really [indiscernible] about that as well. And for the most part, all the distributors and our sub contract manufacturers are all open. Let me be more specific. It's pretty much everybody is. We have a couple of small mechanical assembly guys who have asked us to provide them with links to our letter that we could have on the website related to our positioning as a critical supplier of the critical infrastructure to basically as part of their justification to keep shipping upon demand on everything. We've actually have little or no direct impacts related to this. Everyone that we have is able to ship within their steady lead times.

That’s great.

I mean the things are sort of confusing. But by the way, many of our subcons are -- when we’ve -- I talked to a picked up the phone, talked about this and we're directly involved with military. We are --, it wasn't even where our contract manufacturer to a capital equipment supplier to semiconductors that is important for IT, which is sort of a progression that's normal. They’re like the government is saying, you will stay open.

Yes. Sounds great. Yes, so Ken, I was wondering…

Hey, Tom, can I do one more. Can I just have one more on this. So the other thing is we have basically zero supply chain on the chart right now. All of our critical infrastructure require -- all of our critical components we have put things in place for dual sourcing long before this. And quite frankly, when the tariffs kicked in last year, we placed our last order with something out of China last February. So we actually as things got ugly, and of course now it's not -- we’re not talking about China. It's a worldwide crisis. But at that time, we were already had dual sourcing something. So we've been able to purchase things without a critical supply end time. Got it, Tom.

Okay. It's helpful. So, Ken, I was wondering, when you move to a distribution model for Japan and Europe, what does that do to your internal models? Does that impact margins, either gross or operating?

So it does give us a little bit more flexibility from a variable cost standpoint, from an overall margin standpoint. It's not going to make a difference. Those costs will hit in our operating expense sales and marketing area, but it really moves from a fixed cost structure to a variable cost structure, which I think will ultimately benefit our bottom line.

Okay. So even the rate that the distributor get was fairly similar with European internally then?

Correct.

Ok. That's it. Thank you.

Thanks, Tom. [Operator Instructions] I see there are no further questions at this time. I would now like to turn the call back to management for closing remarks.

Operator, wanted just to give anyone a second chance anyone else? Yes, sir. [Operator Instructions] Okay. If no one…. all right, well, thanks. I really appreciate you taking the time to listen in. We actually had a fairly long list and we appreciate everybody calling. If you have other further questions, I almost -- I think I've always ended this with if you’re a talent, stop by, that this will be the time, I will tell you, don't. so I believe, we'd happy to set up a video conference or something else. we've gotten exceptionally good at that and answer your questions as you need it. Everybody stay safe and healthy. Okay. Thank you very much. Bye, bye.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.