AXT, Inc. (AXTI) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon everyone and welcome to AXT First Quarter 2019 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer and Gary Fischer, Chief Financial Officer. My name is Sarah and I will be your coordinator today. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Please go ahead.

Thank you, Sarah and good afternoon everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the Company, market conditions and trends including expected growth in the markets we serve, emerging applications, using chips or devices fabricated on our substrates, our product mix, our ability to increase orders and succeeding quarters to control costs and expenses, to improve manufacturing yields and efficiency, to utilize manufacturing capacity, the schedule and timeliness regarding the relocation, the growing environmental health and safety and chemical industry regulations in China, as well as global economic conditions and political conditions including trade tariffs and restrictions. We wish to caution you that such statements deal with future events are based on management's current expectations and are subject to risks and uncertainties that could cause actual events or results to differ materially. These uncertainties and risk include but are not limited to overall conditions in the market, markets in which the Company competes, global financial conditions and uncertainties, potential tariffs and trade restrictions, increased environmental regulations in China, market acceptance and demand for the Company's product, the financial performance of our partially owned supply chain company, the impact and delays by our customers on the timing of sales of their products. In addition to the factors that may be discussed in this call, we will refer you to the Company's periodic reports filed with the Securities and Exchange Commission and available online by link from our website for additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at axt.com through April 24, 2020. Also before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter. This information is available on the Investor Relations portion of our website at axt.com. I would now like to turn the call over to Gary Fischer for a review of our first quarter results. Gary?

Thank you, Leslie, and good afternoon. Total revenue for the first quarter of 2019 was 20.2 million. This compares with 22.2 million in the fourth quarter of 2018 and 24.4 million for the first quarter of 2018. Of our total revenues, substrate sales dropped modestly to 16.8 million from 17.2 million in the prior quarter. Revenue from our raw material joint ventures was 3.4 million in Q1, compared with 5.0 million in Q4. During Q1, we made two important changes to our raw material joint venture portfolio. I'd like to discuss the first change now and the second change in a moment, when I cover below the operating line items. The first change we made in Q1 was to reduce our ownership in one of the consolidated partially-owned companies by selling a portion of our interest to our investment partner who was a landlord of this company. The co-owned company produced the raw gallium and has been struggling for some time, primarily as a result of the industry wide drop in raw gallium prices. Our partner in the business has now become the largest shareholder with our ownership dropping to 39%. As a result, we will no longer using accounting method of consolidation to bring the results of this company to our consolidated results including our revenue line. Instead, we will use the equity method of accounting where our ownership will impact to the below the operating numbers in the line called equity in earnings/loss of unconsolidated joint ventures. The net result that investors will notice is that we will consolidate two raw material companies rather than three. And our revenue from raw material joint ventures going forward will likely be in the range of 3.5 to 4.5 million per quarter as it was in Q1. Turning back to our results, in the first quarter 2019, revenue for North America was 13%, Asia-Pacific 65% and Europe was 22%. In the first quarter, two customers reached 10% of revenue, and the top five customers generated approximately 35% of revenue. Gross margin in the first quarter was 33.1%, up from 26.3% in the prior quarter. This improvement was primarily the result of product mix as well as good manufacturing disciplines and favorable raw material pricing. Total operating expenses in Q1 were 6.1 million, compared with 6.5 million in Q4. Total stock compensation expense for the first quarter of 2019 was $558,000. Operating income for the first quarter of 2019 was $629,000, compared with an operating loss of $638,000 in the previous quarter, and an operating profit of 3.9 million for Q1 of 2018. Interest and other income in the first quarter was a net change of 1.5 million. This number consists of three categories. Number one, net interest earned about 95k. Number two, foreign exchange loss and other expenses of 134k. And number three, equity accounting on our unconsolidated joint venture companies, which was a charge of $1.5 million. As I mentioned, we made two important changes to our raw material joint venture portfolio in Q1. This is the second change. The equity accounting on our unconsolidated joint venture companies in Q1 included the complete write-down of our investments in a germanium mining company, of which we own 25%. The charge totaled 1.7 million. This combines the quarterly loss assigned to AXT of 600k plus an impairment write-down of 1.1 million. As many of you know, this stayed on mining company has been underperforming for some time and has been a headwind for the collective financial contribution to our joint venture portfolio. In early April, we learned of its continuing difficulties and have a forecast for losses throughout all of 2019, which are large enough to reduce the asset on our books to zero. After careful review, we determined this to be an impaired asset and we rolled off the remaining asset of 1.1 million. Beginning in Q2, the net result that investors will notice from this change is at the equity accounting on our unconsolidated joint venture companies is likely to be breakeven or a little better as a germanium mining company has been the single largest underperforming investment in that portfolio. Income tax for the first quarter of 2018 was a charge of 166,000, compared with a benefit in Q4 of 173,000. As expected, Q1 results included approximately 145k in tariffs as a result of the 10% tariff charge on importing wafers into the United States from China. For Q1 2019, we had a net loss of 1.1 million or loss a $0.03 per share. By comparison, we had a net loss of 1.1 million again or $0.03 per share in the fourth quarter of 2019 and a profit of 2.9 million or $0.07 per diluted share in Q1 of 2018. It is worth noting that for Q1 of '19 were not for the germanium company charges of 1.7 million we would have been profitable for the quarter. The share count in Q1 was 39.35 million shares. Cash, cash equivalents and investments closed at 34 million as of March 31st. By comparison at December 31st, it was 39 million. The primary reason for the decline is the new facility and equipment. Depreciation and amortization in the first quarter was 1.5 million and capital expenditures were 4.2 million. Account receivables, net reserves were 19.5 million at March 31st, compared with 19.5 million at December 31, 2018. Net inventory at March 31st was 63.0 million, compared with 58.6 million in the inventory at December 31. Ending inventory consisted approximately 41% of raw materials, 53% in work in progress, and only 6% in finished goods. As we noted last quarter, the reduction in inventory is a focus for us in 2019, with relatively low revenue, we decrease inventory by almost $1 million in the quarter, with the rest of the decrease resulting from not consolidating through our gallium company. With our programs we have in place, we would expect to be able to drive it below 50 million and perhaps a bit more over the coming year. Before we conclude, let me briefly discuss the use of cash in 2018. Our primary expenditure will be focused on the completion of the facility related items for which we expect to spend approximately 21 million over the course of the year or additional $60 million over the balance of the year. Some of this cost will be offset and our cash balance by reduction in inventory is I've discussed as well as our expectation of returning to positive operating cash flow. Also as a reminder, the current facility in Beijing has considerable value that we will be able to monetize in the future. Okay, this concludes the financial review. I’ll now turn the call over to Dr. Morris Young, for review of our business. Morris?

Thank you, Gary. The demand environment in Q1 was largely what we expected as a result of general economic slowdown around the world including semiconductor industry plus the combination of trade retentions, weakness in the LED market, a slowdown in the growth in the data center market as well as inventory rebalancing at several of our large customers. In short, the demand environment was weak. During this time, we used opportunity to focus on the fundamentals of our business and concentrate effort where we believe we could make meaningful improvements that will provide, both short term and long term pay-offs. As I noted last quarter, we have four priorities. First, to drive improvement in our gross margin. In Q1, despite a sequential decline in revenue, the positive shift in product revenue mix coupled with good discipline in our manufacturing group enabled us to achieve better results. Going forward, we believe that is more leveraged in the model. We will have increasing depreciation, but our underlying markets are expanding and we believe this will lead to a higher production volume that can absorb this increase. Second, we're committed to discipline use of our cash. As Gary mentioned, we will continue to reduce inventories, scrutinize expenditures and again, align our capacity expansion with market conditions. Third, we continue the improvement work of assigning, assisting and supporting our customers through the transfer of our production to our new facilities. I'm pleased to report that the relocation is on schedule. In addition, the vast majority of our customers including all our large customers are now qualifying our Dingxing facility. The next important phase is working with them on a schedule to ramp up their acceptance of shipments from our Dingxing facility over the course of the year. Our goal is to have a large majority of the customers' revenue for gallium arsenide and germanium coming from the new facility by the end of the year. Our first focus is innovation. As we said many times, we continue to set the pace in our industry for low-EPD characteristics in both gallium arsenide and indium phosphide. In fact, we have been unrelenting in our pursuit of tighter specifications for those materials. In Q1, we saw a meaningful return on that investment. We believe our competitive advantage in our low-EPD indium phosphide contributed to our winning a large order related to 5G telecommunications infrastructure. I will talk more about this order in a moment, but I want to emphasize here that among our peers, there is a tangible difference between vendors. And in applications where low-EPD is a critical spec, AXT continues to differentiate itself. Now, let me turn to our markets. Q1 was a solid quarter for indium phosphide. In fact, it was the second largest indium phosphide revenue quarter in AXT's history. It is also the first time that indium phosphide surpassed gallium arsenide as our largest sales contributor. As I mentioned, we received a large order from a customer in Asia that we believe relates to 5G telecommunication infrastructure. As many investors who follow us know, historically, the vast majority of our indium phosphide revenue has come from data center connectivity and passive optical networks. 5G represents a sizable new opportunity for indium phosphide, which is broad used in multiple points across the network including small cells, fronthaul, backhaul and the data center. As with any emerging technology, the industry drive towards 5G will likely to be lumpy. But it is driven by significant global economic impact, with crazy projected to enable more than $12 trillion in economic output worldwide, but year 2035. As such, this is yet another technology application trend underlying our business that promises to be meaningful and prolonged. Most important for AXT, it has begun. Further, we are in a strong position to be able to grow alongside the commercial adoption of 5G. We have the ability to add capacity quickly and more cost effectively than other substrate provider in this limited competitive field. In the data center market, we continue to see some inventory adjustments going on, but we expect this contribution to grow modestly in Q2 over to Q1. Customer are expressing optimism about the continued adoption of silicon photonics technology in cloud and large enterprise data centers, as well as the transition overtime to 100G or 400G technologies. In addition, the commercial adoption of 5G is likely to fuel data center upgrades. With new data intensive services, 5G networks will need to be able to move increasing amount of data between locations, resulting in greater performance of the requirements from interconnects throughout the entire architecture. In total, indium phosphide remains a strong driver for our business. The application as I mentioned as well as others on the horizon, such as house monitoring, lidar, HBTs for 5G wireless devices, provide a strong and diversifying foundation for current and future opportunities. As always, we believe that growth in our indium phosphide business will be incremental and the application that we sell into will fluctuate in strange quarter-by-quarter. But collectively, we believe that we're building a powerful portfolio of opportunities tied to some of the most significant and transformative in technology trend of the next decades. Turning now to gallium arsenide. Our revenue for both wireless and LED applications have been -- have seen setbacks in the recent quarters and as expected were soft in Q1. This was related to both a weak global demand environment and customer-specific challenges. As we head into Q2, we're taking a cautious view regarding our near-term expectation for our products. However, neither market is going away. The LED market is sizable and we have Tier-1 customers in Japan, Europe, Korea, and Singapore. Though, it is difficult to predict exact timing of a recovery, LED devices are fundamental to a wide variety of infrared sensors and the high-end lighting applications. In addition, semiconducting gallium arsenide wafers are used in VCSEL proximity sensing. The introduction to Android phones with this capability could provide us our first entry point into laser-based sensing late this year or in 2020. Now, before I hand the call back to Gary for Q2 guidance, I want to say a few words about raw materials. As Gary mentioned, in Q1, we took steps to reduce our majority ownership in Ji-Ya, a gallium-based raw material company. We also rolled off our partial ownership of Tongmei, a germanium-based raw material company. Both of these companies have faced significant business headwinds over the last several years. As a result of depressed market conditions have seen a drag on our overall results. In addition, both are partially stay owned in China, which means that we didn't have the same level of influence in making changes that could have resulted in their improved performance. All our joint ventures have strategic importance to our business in providing a source of essential raw materials, visibility, as well as from price protection from market fluctuations. But it is also important to us that, they contribute positively to our results. We believe that actually we talk in Q1 will be beneficial to our business moving forward. In closing, Q1 was an important quarter for AXT. We're building a strong fundamental foundation for growth in our indium phosphide business this year. In addition, our technology innovation continues to position us well for strategic applications across our portfolio. We also continue to execute the relocation of our facility unscheduled and with positive customer qualification results. Finally, we're taking opportunity to strengthen our financial structure by reducing inventory, being careful of our spending, focusing on gross margin improvement and making appropriate adjustment in our joint venture portfolio. We're excited by the significant technology trends that are likely to drive growth in our business overtime. And we believe that also our on fundamentals of our business model today will provide positive returns as the demand environment improves. This concludes my prepared comments. I will turn the call back to Gary for our second quarter guidance. Gary?

Thank you, Morris. As we discussed, we do expect a moderate improvement in business conditions in the second quarter. As such, we expect to see revenue in Q2 of between $23.5 million to $24.5 million. We believe our earnings per share in Q2 will be in the range of $0.02 to $0.04 based on $40.0 million diluted shares outstanding. Okay, this concludes our prepared comments. Morris and I will be glad to answer your questions now. Sarah, the operator.

Thank you. [Operator Instructions] Our first question comes from the line of Richard Shannon with Craig-Hallum. Your line is now open.

Let me ask the first question around the guidance here. I just wanted to make sure I caught the revenue numbers here, 23.5 to 24.5, is that correct, Gary?

Correct.

You call that moderate improvement. It seems like fairly significant one I guess. So I guess I'm wondering, if you could help us understand the moving parts within the segments you talked about both, not just substrates or raw materials, but understanding indium phosphide and gallium arsenide? It seems like you’re talking of indium phosphide quite positively, but less so on gallium arsenide and it'd be hard to kind of fit those, especially given that we’ve lost some revenues from raw materials given your accounting change in the joint venture. So, help us kind of fit those together, if you would please?

So, Rich, let me chime in here. I mean, so first of all, you got to understand what happen to us in Q1. The Q1 was every segment was down, germanium was down, gallium arsenide for both LED as well as wireless was down and raw material was down, big time. Only shining star was indium phosphide, okay. So, going forward for Q2, indium phosphide, we expect it to be strong again. Gallium arsenide in LED, we start to see some movement. I think it’s going to be better than Q1. Wireless, it’s going to be about the same, but germanium is not because the market is down because in Q1, don’t forget, we have a Chinese New Year. And so, we have a shutdown possibly for the quarter. And so, I think germanium should return to normal, but it should be better than Q1 for sure.

Okay. I mean, it seems based on that, that indium phosphide has to grow significantly relative to the other ones to make the fit. Is that a fair statement? Or is gallium arsenide growing more than I would guess?

Indium phosphide should grow very nicely.

Okay. Well, impressive, good to see the indium phosphide is doing well. How should we think about gross margins for the second quarter? Revenue growth in indium phosphide doing well suggest that it should improve nicely. I haven’t tried to fit it, fit the EPS number to where revenues up, but it seems like you’re implying it won't grow that much. Wondering, if you can give us some help there please?

Yes, we see it trending up, but the volume is still sort of below our run rate for most of last year.

Indium phosphide.

No, no. But I mean the whole overall manufacturing volume, yes. So, yes, we can do to improve it's going in the right direction. But we don't see it, as a huge jump, we wouldn't suggest people to expect a big step up, but it will trend up.

Let me go into a couple of other questions here. I guess first of all on the facility qualification. Again, you made some comments regarding that. If you give us a bit more detail about that, especially given relative to your major customers and for the gallium arsenide one specifically and the extent to which those qualifications can help you get into the 3D sensing market in the bigger way next year?

That's two separate questions, I think. You know, 3D sensing has a market demand issue. I think, we think it's not as robust as we expect it to be or the market was not very strong demand. And obviously, with all new facilities in place that should help us to benefit accounts. But I think our new facility qualification, I should say, all our major customers have received qualification samples. And they have, so far so good it's no venues. And in fact, a few of those largest customers have already qualified. They just want to see a good ramp up. In other words, they want to take a portion of their production from the new facility and the remaining few from our old facility and hopefully that we can hold your hands and over the next quarter or two. If you're more comfortable with our given the new product and the new facility, and it will shift all to our new facility. That's our goal.

Maybe I'll ask a number question here more quantifying that trend here. Can you just give us a sense of how much your output, your sales was coming from the new facility? And then, what kind of percentage we should expect in the year?

Well, right now, the percentage of revenue coming from the new facilities is relatively small, it's probably 15% to 20%.

Okay.

We expect, we hope that the vast majority of our customers will take our product from the new facility by the end of the year. But that's not totally in our control, I must say. I mean, we've given them samples long time ago and nobody has given us the bad results. So, they just have to go through their rigorous quality menu. So, they have to do the testing and they feel comfortable and deliver as much as we can from the new facility and we'll reduce our costs, because now we're operating from both sides. But nevertheless, the other silver lining out of this slow move to our new facility that we will never fail our customers. In other words, we have to reissue our customers, if you for whatever reason your quality manual doesn't allow or you don't feel comfortable, we always support you for our president facilities in Beijing.

Last question then I'll jump out of line related to your large order. I'm not sure, if I should characterize this as a telecom oriented or 5G. But maybe, if you can tell us a little bit more about the specific device that its function that it's supporting and whether this is in order to getting spread at it over multiple quarters that we see in the second quarter at all. Just kind of little more details there, please?

We think it is a telecommunication related and is related to 5G. And this quarter, it should help us in Q1, in small portion and also in good portion in Q2. But whether we're going to have continued order in Q3 or Q4, it's too early to tell.

Thank you. Our next question comes from the line of Catharine Trebnick with Dougherty. Your line is now open.

Hi, this is Chase Bunnell on for Catharine Trebnick. So, I just got a couple of questions here. So, we saw a better margin improvement that is obviously good. Could you explain some of dynamics around the improvement on the quarter?

Sure. A good factor in the improvement is product mix. As Morris out, this is the first time in the Company's history when indium phosphide revenue was greater than the aggregate of the gallium arsenide revenue. So, let me switch back and forth as we go forward because gallium arsenide was much lower than normal in terms of last couple of years on a quarterly basis. So, we like indium phosphide because we have little bit higher gross margin from that product line. And som it helps to lift the Company and because of this, not only the 5G order, but in general fast side was strong for us than that helped in terms of product mix. Secondly, raw material prices have been jumping around a bit, but in general a couple of products particularly germanium, we saw the raw material price come down some. And that again helps our margin. And thirdly, we have been working with our manufacturing managers on reducing inventory, but that also had a spillover effect where they've just sort of had a higher consciousness level about utilizing the Company's materials and assets and goods. So, they will pretty efficient in Q1 on their spending rate. So, those are the three things that allowed us to see the margin go up, so…

And other one kind of on 3D sensing business, I know you talked a little bit about it. But you said that there is not as you still feel like it's not as robust as you expected. Are you seeing any improvements with customers at all? Or any improvements in kind of the business in general with customer dynamics or relationships that you're perusing at all? Or is that something that still is you're struggling with?

We know that 3D sensing is horizon a lot of Android phones makers, but if you look at some of the product launch that both Samsung and Huawei sort of presented to market. I see only a few models which carry this 3D sensing full face identification. So, I'm not really that optimistic the 3D sensing is going to come on very strongly. However, 3D sensing not only can do face ID but also for augmented realities to measure up your furniture or your hardware, world-facing pixel. That could bring a strong opportunity, but we believe that development is still in its infancy. So, the market I think is developing slowly than we expected.

Okay.

But let’s not just say that we don’t think it will be significant as we go forward, it’s just taken. It’s not because of AXT necessarily, but the whole 3D sensing VCSEL market, it’s been kind of disappointing to enter within the food chain including AXT. But Morris does believe and of course since he’s my boss I believe him too, but it’s going to be significant contributor to AXT. It’s just taking longer for the market to get there. But we’re ready, we’re locked and loaded, we’ve been working on low EPD, we have very good OEPD. And so, we think this is kind of going to be a significant element of our business story if you will in the future. Right now it’s little bit of a waiting we see.

And then, what kind of other than just technology catching up, what are their mile stones would you like to see in that area that you can talk about?

You mean in terms of 3D sensor?

Yes.

Well, I mean, we are on the bottom of the food chain. We don’t make a decision on what each cell phone maker are emphasizing their development on. We understand from this bigger fruit company in Silicon Valley, they see 3D sensing is going to be a main focus of their future development and we took their words. And there’s a lot of market study saying, 3D sensors is going to be used in augmented reality, virtual reality as well as artificial intelligence and…

Car sensors?

Yes, the car sensors, autonomous vehicles, and I believe those studies are correct. It’s just the timing of the adoption. We didn’t expect this 5G coming onto our life so quickly. We see we know this will come, but we cannot predict when and we don’t know how big the market is going to be, because we are on the bottom of this food chain. But we have made the fundamental depend soundness in our business models that where this opportunity comes we’ll capture.

You’re kind of asking a cosmic question, which is when will 3D sensing catch on fire? And what we like to see is milestones as it become more popular, more demand, lower pricing because it maybe started up causing too much on the one phone. But we know what happened, it’s just, no one disagrees in the food chain. It’s just taking longer.

Thank you. [Operator Instructions] Our next question comes from the line of Hamed Khorsand with BWS Financial. Your line is now open.

Hi, sort of first off, could you just talk about this 5G order and whether this was the cause of having an extra 10% customer in the quarter? And given that you're going to have less raw material revenue, is that also the cause of why your revenues still significantly higher in Q2 and by what magnitude?

Yes, it will be our 10% customer I believe. But what's your second question?

In Q2, because you're going with less raw material revenue, right, because of this whole transition in your reporting?

Well, actually, it's relatively small. I mean, your contribution to our revenue in Q1 was only 200,000, I believe. So, if we don't consolidate them, it's not going to make a whole lot of difference.

But history historically was greater.

Yes, historically.

But in Q1, it wasn't that big.

So, yes, you're right. I think substrate is recovering nicely I belive.

So, I am also trying to get as look, how much of this is growth as indium phosphide is coming from data center customers? Or is some of this growth coming from other 5G and telecom orders that you're seeing tacked on to this?

Yes. So, I think as I said before, I mean, to answer the question, you got to understand what happens in Q1. And as I said, Q1 in every category was bad. To me something was not so good because of the Chinese New Year, they have less 7 re-launches and demand is resolved. And Q2 is going to see me covering. Wireless, Q1 was soft, Q2 we think it's going to be modestly proof, but not a whole lot of improvement. For LED, we're cautiously optimistic, I think LED, we feel maybe our range recovery. So we project that Q2 should be better than Q1 for LED gallium arsenide. Yes, indium phosphide will be much better than even Q1 is. So, I predict indium phosphide should have yet on a record quarter in Q2.

I understood that I was asking this is really just all related data center demand coming back.

No, actually we model it. The data center is actually to be sort of flat compared to or improved slightly within Q1. But the majority is actually coming from this 5G infrastructure. And the other phenomenon we also observed was that because of these order from Asia, for 5G infrastructure build, we now seeing a number of other customers are buying indium phosphide related product and they are -- they all putting rush orders. So, we think they are probably related to this infrastructure bill. Although, it's our customer and it's customer's customer, so we don't know whether they are definitely related to this particular customer or is just 5G is…

Taking off.

Taking off.

And then lastly, on the inventory comments. Are you reducing your finished goods? Or is this all raw materials that you're expecting to come down?

There's not a lot to reduce in finish good because there's only 6% of the inventory in the recent of the March 31st. But, yes, the main dial is to reduce the raw material that we bring in. So, we're working with our guys and sort of MRP type fashion to plan the resources needed as a little bit more tightly. So -- but secondly, we're not giving any hard numbers, but we do have a bit of an optimistic. We think things are going turn up in terms of volume. So, it's much easier to reduce inventory, if you're building a lot and because you can use step up. So, those are being the reasons, yes.

And thank you, we have not further questions in the queue at this time. I would now like to turn the call back to Dr. Morris Young, CEO for any further remarks. End of Q&A:

Thank you for participating in conference call during 2Q. We will be presenting at the B. Riley FBR Annual Investor Conference in Los Angeles on May 22nd as well as the 16th Annual Craig-Hallum Institutional Investor Conference in Minneapolis on May 29th. We look forward to see many of you there. As always, please feel free to contact me, Gary Fisher or Leslie Green, directly, if you would like to meet with us. We look forward to speaking with you in the near future.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.