AXT, Inc. (AXTI) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon, everyone and welcome to AXT’s Third 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 Ann and I will be your coordinator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to Leslie Green, Investor Relations for AXT.

Thank you, Ann, 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 efficiencies, to utilize our manufacturing capacity, the schedule and timeliness regarding our relocation, the growing environmental health and safety and chemical industry regulations in China, as well as global economic 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 risks include but are not limited to overall conditions in the 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 companies and the impact of delays by our customers on the timing of sales of their products. In addition to the factors that maybe discussed in this call, we refer you to the Company’s periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain 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 October 30, 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 third 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 third quarter results. Gary?

Thank you, Leslie and good afternoon everyone. Total revenue for the third quarter of 2019 was $19.8 million. By comparison, revenue in the second quarter of 2019 was $24.8 million and revenue in the third quarter of 2018 was $28.6 million. Of our total revenue, substrate sales was $16.0 million compared with $20.6 million in the prior quarter. Revenue from our raw material joint ventures was $3.9 million in Q3, compared with $4.2 million in Q2 and $5.8 million in Q3 of 2018. Morris can give you some color on overall revenue, but just as a reminder, last year we were consolidating the results as three of the raw material joint ventures as of this year we are consolidating only two companies into our quarterly results. In the third quarter of 2019, revenue from North America was 9%, Asia Pacific was 66% and Europe was 25%. In the third quarter, one customer reached 10% of revenue and the top five customers generated approximately 40% of total revenue. Gross margin in the third quarter was 29.0%, down from 34.3% in the prior quarter. This decline was primarily the result of lower volume and product mix. Total operating expenses in Q3 were $6.2 million, approximately flat from the prior quarter. Total stock compensation expense for the third quarter of 2019 was $584,000. Operating loss for the third quarter of 2019 was $478,000, compared with an operating profit of $2.3 million in the previous quarter and $4.3 million for Q3 of 2018. Interest income net for the third quarter of 2019 included interest income of $41,000, and net loss of $0.2 million from the partially owned companies in AXT Supply Chain accounts for under the equity method and a foreign exchange gain and other income totaling 0.2 million. Income tax for the third quarter of 2019 was a charge of $29,000, compared with the charge of $597,000 in Q2. Our Q3 results included approximately $234,000 in tariffs as a result of the 25% tariff charge on importing wafers into the United States from China. For Q3 2019, we have a loss – a net loss of $898,000 or a loss of $0.02 per share. By comparison, we had a net income of $1.5 million or a profit of $0.04 per diluted share in the second quarter of 2019 and the net income of $3.9 million or a profit of $0.10 per diluted share in Q3 2018. The base of share count for Q3 2019 was 39.466 million shares. Cash, cash equivalents and investments increased to $38.5 million, as of September 30, by comparison. At June 30, it was $37.5 million. We also have a $10 million line of credit with Wells Fargo Bank, which we have not utilized and this quarter established a bank loan of approximately $5.8 million in China. We expect to spend approximately $5 million on our relocation in Q4 in line with our expectation for the year of approximately $21 million. Depreciation and amortization in the third quarter was $1.3 million and capital expenditures were $4.6 million. Accounts receivables net of reserves were $17.4 million at September 30, 2019 compared with $18.2 million at June 30, 2019. Net inventory at September 30 decreased by $1.2 million to $49.1 million, compared with $50.3 million in inventory at June 30. Ending inventory consists of approximately 47% in raw materials, 46% in work in progress and only 7% in finished goods. As we noted previously, the reduction in inventory has been a focus for us in 2019. This concludes our financial review. I will now turn the call over to Dr. Morris Young for a review of our business. Morris? Morris Young Thank you, Gary, and good afternoon everybody. Despite a promising beginning, Q3 turned out to be a particularly challenging quarter for us. Visibility was proven to be quite poor and the demand environment weakened consumer leads in July and September. Revenue from every one of our product categories came in lower than expected indicating broad based market declines. We saw a negative shift in customer sentiment regarding expected second half improvement in applications across our portfolio, such as datacenter connectivity, power, LED lighting, lasers, and satellite sources. Geographically, the U.S. market for compound semiconductor substrates was particularly hard and possible impact of retentions. Amidst this backdrop, we continue our strong focus on the execution of our relocation in China and made important progress. After a lengthy process, I am very pleased to report that we have reached a significant milestone in completing the necessary permitting requirements for both our Beijing and Chaozhou locations. In addition, we now have sufficient capacity outlying in both facilities to be able to handle large volume production. What is particularly exciting for us is that these are state-of-the-art facilities and they are the newest in our competitive landscape. They are built to China’s exactly environmental standards and optimized for best practice manufacturing processes for crystal growth and wafer processing. methodical: We are encouraged by the quality of talent we are being able to attract and retain and believe we now have all the essential components in place to meaningfully ramp up production in both locations over the coming quarters. As such, that we are prepared for renewed growth when the demand environment improves as expected in 2020. Now turning to our end-markets. 2019 has proven to be a challenging year given the turbulent geographical, geopolitical and global economic conditions. In 2018 you may recall that the demand environment in Q2 for datacenter connectivity and PON applications was weak by comparison to the prior year as a result of business and macroeconomic challenges. However, our revenue results in Q2 were strengthened by the completion of a large order from the telecommunication customers in Asia. That we did not expect to repeat in second half. Coming into Q3, our customers in datacenter and PON markets were predicting a improvement in the demand environment which would have resulted in renewed growth in demand for our substrates. However, this improvement in demand environment did not materialize. Datacenter was particularly soft compared to expectations which maybe a result of again U.S. China trade tensions. Ultimately, our Indium phosphide substrate revenue for datacenter and PON remained fairly steady sequentially in Q3, but we were not able to make up for the absence of the telecommunication order that we had in Q2. Despite these near-term challenges in environment, we remain optimistic about underlying large-scale technology trend that build the demand for our products. The datacenter upgrade cycle is well underway to accommodate massive growth in bandwidth requirements at hyperscale and large enterprise datacenters. We believe that the silicon photonics market will continue to grow driven by the technology transition to 100G and beyond to that 400G. Related to the datacenter upgrade, it’s the nascent 5G infrastructure roll up and the continued build out and upgrade of massive optical network worldwide. The increase in video streaming, new services enabled by 5G and strong growth in data-intensive cloud-based services will continue to drive increasing demand for optical components that will require indium phosphide substrates. Turning to the gallium arsenide, LEDs and lasers have been slow to recover from the down trend of recent quarters. Automotive applications have been particularly hard hit and continue to be weak in Q3. Wireless applications are holding steady at their reduced rates. As we look ahead however, the gallium arsenide market holds significant opportunities. We believe that our traditional applications will recover in 2020, so that we see great promise in applications such as power lasers for industrial welding and cutting, big shows for variety of customers, industrial and automotive aggregations and micro LEDs which use gallium arsenide for the red portion of the rare green blue light spectrum. Gallium arsenide is not going away LED, it has a diverse and broad number of applications. Turning to germanium substrates, our sales took a step back in Q3 in the softer demand environment. It is expected to remain soft in Q4 as excess inventory at certain customers is digested. Overall, the satellite solar cell market is expected to grow in the coming year with a number of several launches increasing worldwide. Long-term we are also sequentially down in Q3 by about 8% compared to Q2’s revenue. The sluggishness in the substrate market appear to have a negative ripple effect on the raw material companies that we consolidate. Now in closing, this is a difficult quarter in a difficult market environment. But despite the near-term market softness, we are confident that the underlying technology trend fueling the applications that drives our success are intact. In the mean time, we are taking the opportunity to effectively execute our relocation and we are pleased to have net significant milestones with permitting and volume production readiness. These will allow us to support the expected customer volume add over the next couple of quarters, as well as new business opportunities when the demand environment stretches. This concludes my prepared comments. I will now turn the call back to Gary for our fourth quarter guidance. Gary?

Thank you, Morris. As Morris discussed, the demand environment remains challenging and is not expected to improve in Q4. As such, we expect to see revenue in Q4 of between $19.5 million to $20.5 million. WE believe our loss per share in Q4 will be in the range of $0.06 to $0.08 based on the 39.467 million shares outstanding. This concludes our prepared comments. Morris and I will be glad to answer your questions now. Ann? Operator?

[Operator Instructions] Your first question comes from the line of Joe Flynn from Craig-Hallum. Sir your line is open.

Hi guys. I was wondering if you could just walk us through the puts and takes of the different businesses within the guidance there. And maybe comment on, it looks like lower gross margins that you are seeing on flat to slightly up revenue. Anything you could offer would be great.

Yes, I think that, lower gross margin, it’s probably coming from the lower volume that we have, as well as some of the product mix changes that we had. I mean, remember, we had a very strong quarter in Q2 of Indium phosphide business and the volume then was bigger than what we have this quarter. So, both are compounded giving us lower gross margin this quarter. And what was your other part of the question? Other business environment?

Yes, like, if you have any visibility or like do you see any key market or like product group in particular being able to recover faster than the others or as this sort of uncertain right now?

As we guided, for the next quarter, our revenues probably going to be flat. So, in business, probably we will expect LED, gallium arsenide to be a little bit stronger in Q4 than Q3. While this is probably be flat, germanium is going to be stronger in Q4 than Q3 and indium phosphide is going to take another step down in Q4 than Q3.

And Joe, we have a lot of visibility out into 2020, so.

Yes, however, I think, we do expect indium phosphide to bounce back. We do see – there is some – issue in the pipeline and – currently and we do see that one other customer was telling us they are having a product transition, so they want to bleed out the priceless inventory to build new products. So that new product start to ramp we expect to increase the demand on that. So, I think, yes.

And just quick follow-up on that comment. So it sounds like these are all orders like almost largely, like if RGB plays until the customers’ first quarters do you think the solar be pretty significant on couple of baked high volume orders that would get us back to kind of the nice growth that we are seeing before?

Well, obviously, we don’t have that kind of visibility as I said. I think, we go through one quarter at a time. But obviously, we are in constant contact with our customers and as I said, I think we are disappointed about the pro formas of this quarter and the visibility we see next quarter, it doesn’t look that great from what we can see now. But, on the other hand, if you look at the reason why we are down in terms of revenue, it’s mostly I think it’s because of business other than, for instance the market is intact and datacenter is still going to grow. I mean, there is a lot of fiber optics new business is going to ramp. But at this particular moment, there is a softness. But on the other hand, we are talking to for instance, customers and they are telling us, you know, we expect next year to be volume of such. But as you know, that kind of prediction we will never want to compete until it start to materialize. One example was datacenter, I think everybody was expecting second half to be much stronger in demand against the first half. I don’t – also we see from our customers as well as from analysts view. But it just didn’t materialize and you cannot say, hey, you know, you give us the projections, but that can you really do that.

Okay. Thanks. That’s helpful. And then, we are wondering if you could expand on the milestone of the permit that you mentioned on the call. Maybe just talk about the significance of this and any other details that you can provide that would be helpful?

Yes. Yes, we are very pleased to report that we have finished all the milestone getting all the necessary permits for volume production I want to emphasize. That when we finish a construction of a project, usually in China they allow you to do parallel production and that’s how we start to send samples to customers and see if they – we need to do any improvement. But when you do start to do volume production, then they want to make all the checks of whether your water is clean, your air is clean, I mean, is you are making all the construction according to cold. Those are more significant checks that the government requires. And I also want to emphasize, China is now government is placing a lot of emphasis on environmental protection. So, as we are starting to get our new factory built, especially that we are dealing with gallium arsenide which is classified as toxic material, poisonous. So, we have to really very carefully cross the T and dot the I and we are very pleased that those facility has now getting the permit to do I want to emphasize volume production. I think that’s a very, very important remark.

And how is – just any current feedbacks be going through customers or they are maybe more open to now – as opposed, I don’t know, back few months ago when there was construction but getting half their inventory for after wafers in two spots.

Yes, let me try to explain, we obviously have a very diverse customer base. Some customers we usually say they don’t probably care, especially they are small customers and some customers will look at your qualification with this. They don’t see any reason why they were not – they will start to accept the wafers from that new location that’s fine. However, there are certain customers who are especially large volume customers, they are more particular. I mean, so, for instance, they want to make sure, they want to qualify, they want to – they don’t want to have a mixed product. In other words, if you grow crystal from new location, then they want the wafer to be finished processed in new location, as well. Okay, so, but then, our ability to do, let’s say crystal growth in all facilities and new wafer process and new facility, that mix bag will be accepted by a lot of customers, but major customers or some customers, especially their volume is large, they don’t like to do that. Now, both facilities have all the permits and we are ready for volume production. So, that gives us all the incentive or we can set the milestone and goals and negotiating with our major customers as we speak now, we have two major customers that we are working with and say, you know, look, all the worries and we are ready for you to ramp up the volume at new locations. So, we hope to do that volume shift to new locations in the next quarter or two.

Okay, great. That’s all for me.

Thanks, Joe.

Thank you. Your next question comes from the line of Hamed Khorsand of BWS Financial. Your line is now open.

Hi, so just on that the move to locations, I mean, in the prior calls, you’ve been talking about some activity at those facilities. Is that still ongoing? Or was this permitting preventing you from ramping? So, could you just provide a little more insight to that?

Hamed. I think as I explained, I think – so I think customers need actually is slightly different. Some customers are very particular. They want – they don’t want to quantify to us. So they say, I can look at your product and I can sort of qualify it. But when you ramp up in volume, I want to make sure you have the volume to support me. And so, when you talk about volume, that freeing a lot of the permit is a prior requisite. So, I think I want to differentiate this as, when you are selling qualification samples, the requirement and it’s a little bit different on the full permitted facilities. I think what’s the difference is now, we have all the permits and we now have utilized the time to build up the volume capability of both facilities. So we are ready to ramp and as I said, we are working with two particular large customers to shift demand from the new locations in the coming quarters. Although deposits will still take time because they don’t want to shift everything right away. They will still want to go in stages. But I think we are now much more confident that we can push set our goals and the timeline to be able to shift the production to the new facilities.

Okay. And then, just given the current environment that you are reporting that no visibility, how certain are you that you haven’t lost any customers or any orders?

That’s a very good question. I think we can probably look at different product categories. We are very confident that we are not losing in the Indium phosphide. In fact, when we were talking to our sales people, they even saying to me that we are gaining market share. But Indium phosphide in particular is that, certain customers are in one – well, the excuse whether they are having product transitioning to new product, they want to deplete their old products cold and then ramp up in the future for new products. So they are using inventory. And one other was that, they said they have inventory in their pipeline they want to deplete it. And some of them are telling us they are – really the issues and I can also comment the other thing is about PONs market in China. Usually the PONs market can go very crazy. I mean, when the volume comes, it’s like big swap. But China market the economy is sort of coming down. So that’s – and I don’t know how much is affected by the Huawei and ZTE, because you know, fiber optic devices are great portion of it is made in China. So, the end-markets start to crimp and the demand could be delayed. But I think the good thing that we view is that, no matter what if you are going to make a PON, if you are going to make a datacenter fiber optics, you need indium phosphide. There are only three of us in the world making indium phosphide. We have the best product. We have the best quality and we check which all customers they are not telling us that we are not giving this order to you we are going to somebody else. Okay, so that’s indium phosphide. I think Germanium, I don’t think we are losing market share either there. I mean, again, the China economy is getting soft is now helping us. We have yet all the European customers who jut called us yesterday and actually told us, well, jee, we have too much inventory. We don’t want you to ship in November, December. But they are not telling us they are buying for somebody else, okay. That’s for sure. LED is particularly impacted by the slowdown in China. And – but I think we are seeing it coming back. We think that the LED market is coming back. Actually, it’s going to be stronger in Q4 than Q3, okay? Wireless, I think, the market has been down. But I don’t think we are losing market share but we are not a major, major supplier in the wireless market. We are probably having 15% to 20% market share. But I don’t think we are losing market share. But I think is that we are holding that demand environment is just visibility is poor. Okay, I do want to make one other comment is that, I think we are impacted somewhat by the relocation, because there are some customers who is taking extra long time and they want to make sure our product is qualified. So, some of the customers are buying less from us because we have a relocation issue and for instance, we also had – we’ve been telling everybody, we are missing the opportunity of qualifying to – business because, our customers are telling us, you are going to move in the next year. We don’t want to qualify you in the old location. We want to qualify you in the new location. Now we are ready, okay. So, I think we can remove that hindrance ahead of us too. So, I think if you say are we losing any market share of the business, I think the location definitely in the past has making a negative impact to us hopefully by finishing up the relocation, we can remove that obstacle too.

And this is, Gary. I would add with something that, in our business model, because of the nature of what we are producing and delivering is technical with specs. And because the competitive surface is pretty small, we are pretty closer to customers. Our sales guys are very closer to customers and so, there is a not lot that’s withheld. There is not a lot of secrets or admittedly, their estimates sometimes are not very accurate as we experienced severely in Q3. But they are not like lying to us or deceiving us. So, if there is an issue, we pretty much are confident we know about it, because we are closer to customers, so.

Well, their accuracy, for getting is not, they are liking, but the customer can change their money. And as we always say, they give us order but they kind of will say, hey, hold your shipment and they don’t take product from us.

And if they are – we are not selling to the end-application, we are selling through the food chain. So, their visibility isn’t always as good as we want it to be.

Okay. Thank you.

Yes, thanks, Hamed. Next question please?

The next question comes from the line of Drew Brick from [Indiscernible] Financial. Your line is now open.

Yes, good afternoon. Could you first off, just start off by addressing intermediate to longer-term plans in Beijing. I mean, clearly, three facilities is the drag on gross margins and could you kind of quantify what amount of the gallium arsenide business in Q4 shipped from Beijing versus Dingxing?

Okay, let me try that. I think the new facility, I probably want to separate this into two parts. One is, crystal growth and the other wafer processing. And as you know that we take gallium arsenide and synthesize into polycrystal and then we grow crystal. Once it’s become a single crystal, now according we will process it according to the customers back. And as you know that Chaozhou was mostly crystal growth facilities that we are ramping up very rapidly and I am – as we speak, most of the crystal can come from Chaozhou, okay? Dingxing, I think we are processing about maybe up to 20% of customer demand from Dingxing facilities and in the next quarter or two we are going to start to qualify major customer requirements from Dingxing facility. So, I think by the end of Q1 of next year, it’s hard for me to give a real number, but I definitely expect that two major customers to complete the shift of taking the products on the new Dingxing facility in the next two quarters, okay. And those are very significant large customers. I think, also, if these benefit a lot of customers, once they see a very busy, you have really lot of activities and that will also encourage other customers to believe that, you are okay, you are very steady. We can trust the quality coming from the new facilities. So as far as cost is concerned, savings is concerned, I think I want to probably give it to Gary to comment. But from my perspective, I think, we definitely include some extra cost I know in operation. For instance, we have new operators we hired from the new facilities. When we train them in the beginning, we want the training in Beijing. So, we actually provide them real name boards. As you know, those are not key and so they called out our Beijing facility to the trade. But that’s necessary, right. So, now the new facilities open up, then they could go home and see they’d be still be operator and so, right away, you remove the extra cost of room and door and also we can start to think about reorganization in our Beijing facility which start to ramp down in the Beijing labor force, as well as costs. Gary?

Well, on the operating expense, as Morris just summarized it, it did get pushed up a bit because of what he just described. Now more recently it’s trending back down and so, we are pleased to see that. On the overall manufacturing process, we haven’t taken any of the footage in Beijing out of service yet. And when we do that, then you stop depreciating it. But that’s not going to begin to happen until 2020. And then, gradually over the course of the year, we will – maybe several years, but we will take various portions of the facility out of service. And we are already in the process of sort of, I would say, beautifying when I go over there, I was walked both sides of the street and check out how we are doing. As we said publicly before, essentially we want to monetize all or some of the Beijing sites. We don’t have anything in the works right now. It’s premature, because we are not ready and then we will ultimately, we may wish to just retain even the vacant side and so we can bundle that with the occupied side and have in the theory that one big lot will be more valuable than just selling it off in two installments. So, we will have extra cost, because of this. We are looking closely. One of the things that happened because of the relocation is, we had to make decisions about which equipment to move and not move and the result of that is according to the rules of accounting principles, periodically you should review your useful life estimates and we’ve always been very conservative on that. So we would depreciate sets for over five years, but indeed, some of it’s less 15 or 20 years. So, we are looking at ways to realize the useful life estimates which will have a mathematical benefit as well. I think we can be more specific on this going forward. But we are right in the cusp of sort of having hard numbers and drilling down, so.

Fair enough. Thank you. And then, secondly, do you have anything you didn’t comment during the call at all about big sell opportunities and there maybe still a lot of talk in the marketplace about various new big sell opportunities out there. Is there anything you can add there? And then, my third sort of market-related question is, with regards to this recently announced $10 billion win in the Jedi program going surprisingly to Azure instead of AWS. Does that have any impact on you that you can talk about.

Last one was the Microsoft Azure new cloud award for the government.

I see.

And will that give us any opportunities, so.

Yes, I would tend to think it’s very much new from our immediate customers. I mean, I think, we are the material supplier, I mean, you got to look at who is supply into the device with doing that be. And so, we are the material provider. So, as long as there is lot of datacenter activity built, eventually, they all need to indium phosphide, especially when they go from coaxial cable more towards fiber optics. Then that’s good demand for indium phosphide material. And we are probably the largest shareholder of a market share of indium phosphide substrate. So, we should benefit from it. But specifically, which customer wins that business, I think it’s very much removed from us that we don’t have much visibility. So, what was your other question?

The other question, yes, the second question?

VCSEL, any – in VCSEL if there has been one talk.

I guess, maybe we are intentionally trying to avoid that question. I mean, VCSEL obviously is a disappointment for us, to me at least. I think, we believe that we have the good product. The EPD requirement we can fulfill very easily. But for one reason or the other, for one, was that we hear customers are telling us we don’t want to look at your product, because we are in the process of moving to new locations. This product, it definitely needs qualification, why we want to qualify you twice, okay? But we are – yes, we are busy engaging customers and we want to – now we have our facility built. We definitely will try to be knocking on doors like, we are going to say, hey, this us and qualify our new facility product. And so, I think, that will review our, I mean, that’s if next year, that’s my – one of my target goals that we want to get into the VCSEL market. I think the other thing I want to comment is, I think VCSEL actually was sort of slow to start. I mean, it didn’t grow to the expected volume and in the beginning, we thought, hey, this business on face ID is going to ramp up and it’s going to go to world facing. So the demand is going to increase dramatically. So, when the volume goes up very rapidly, maybe it’d be easier for us to getting included into the market participation. But that didn’t happened. But I think, if you read overall, the automotive applications and we are engaging with number of different customers. So, I think, the answer is, in the short-term, we don’t have anything good to report. We are not getting to a lot of VCSEL business. But I think the good news is now we have moved the last obstacle. We now have the new facility. We can start to qualify from the new facilities. Gary?

Yes, just one other comment, it was two, as we said before, even though it’s a slow start, we think VCSEL is going to be a game changer for gallium arsenide. And it inevitably will spillover not only to AXT, but also Try Burger. So, right now, assuming to a more sort of carrying all the weight. Second comment is that, Leslie passed me a note, but she reminded me that, Intel is a supplier to Azure. It’s a good customer for them. So, while no one has called us up, informed us that there is some upside because of this announcement if indeed Intel remains the good supplier to Azure, then, that’s going to be positive for AXT, so.

Is Intel a good supplier to AWS?

I don’t know.

Okay. Thank you for that.

I am not sure, so. Okay, thanks Drew.

Okay. Thank you very much.

Thank you. I am showing no further questions at this time. I would like to turn it back to Dr. Morris Young for any further comments.

Okay. Thank you for participating in our conference call today. During Q4, we will be participating in 10th Annual Craig-Hallum Alpha Select Conference in New York on November 12. We look forward to seeing many of you there. As always, please feel free to contact me, Gary Fischer, 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, this concludes today’s conference call program. Thank you for participating and have a wonderful day. You may all disconnect.