AXT, Inc. (AXTI) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon, everyone and welcome to AXT’s Second Quarter 2021 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer and Gary Fischer, Chief Financial Officer. My name is Leah and I will be your coordinator today. [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 of AXT. Please go ahead, ma’am.

Thank you, Leah 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 in 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, COVID-19 and other outbreaks of contagious disease, potential tariffs and trade restrictions, increased environmental restrictions in China, market acceptance and the demand for the company’s products, 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 July 2022. Also, before we begin, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the second quarter of 2021. This information is available on the Investor Relations portion of our website at axt.com. I would now like to turn this call over to Gary Fischer for a review of our second quarter results. Gary?

Thank you, Leslie and good afternoon everyone. We are pleased to report that total revenue for the second quarter of 2021 was $33.7 million, up from $31.4 million in the first quarter of 2021 and up 52% from the $22.1 million in the second quarter of 2020. Our revenue results were well ahead of our guidance, driven by continued growth in indium phosphide, gallium arsenide for LED applications and raw materials. Of our total revenue, substrate sales were $24.9 million in Q2, compared with $23.4 million in the first quarter of 2021 and $16.9 million in Q2 of 2020. Revenue from our two consolidated raw material joint venture companies was $8.8 million in Q2, up from $8.0 million in Q1 of 2021 and up from $5.3 million in Q2 of 2020. In the second quarter of 2021, revenue from Asia-Pacific was 73%, Europe was 19% and North America was 8%. In the second quarter, no customers reached 10% of revenue and the top 5 customers generated approximately 31% of total revenue. This is now the second consecutive quarter where we had no 10% customer. This means that revenue growth, breaking through the $30 million level, is not overly dependent on one large customer and this diversity is a good thing. Gross margin in the second quarter was 36.3% compared with 36.8% in Q1 and up from 30.6% in Q2 of last year. The increase was primarily driven by product mix and increasing revenue volume. Total operating expenses in Q2 were $8.3 million, up from $8.0 million in the prior quarter, and $6.3 million in Q2 of 2021. R&D is one of the drivers creating the increase and as a result of two major R&D programs that are going on. We also have initial expenses associated with going public in China, as well as increased employee stock compensation expense and bonuses. Total stock compensation expense for the second quarter of 2021 was $975,000. Operating profit for the second quarter of 2021 was $3.9 million, compared with an operating profit of $3.6 million in Q1 of 2021 and an operating profit of $478,000 in Q2 of last year. Other income and below-the-line items including a tax provision and minority interests for the second quarter of 2021 was a net gain of $500,000. Especially noteworthy in Q2 is a net profit of $1.5 million from the partially owned companies in AXT supply chain that are accounted for under the equity method. The market for raw materials has tightened up and raw material pricing has increased. The tax provision was $900k. Our 2Q results included approximately $280,000 in tariffs as a result of the 25% tariff charged on importing wafers into the United States from China. For Q2 2021, we had a net profit of $4.4 million or a profit of $0.10 per diluted share. By comparison, we had a net profit of $3.4 million or a profit of $0.08 per diluted in the first quarter of 2021 and a net profit of $361,000 or a profit of $0.01 per share in Q2 of last year. The share count in Q2 was 42.727 million shares. Cash, cash equivalents and investments were $58.5 million as of June 30. By comparison, at March 31 it was $66.9 million. The decrease included the one-time payment of approximately $3.7 million for shares in Tongmei that we purchased which were previously held by minority interests. In addition, inventory increased $4.2 million, accounts receivable increased $5.1 million and AP only increased $2.7 million. Depreciation and amortization in the second quarter was $1.7 million and capital investments were $7.4 million. Okay, this includes the discussion of our quarterly financial results. But let me give you a brief update and comments about our plan to list our company in China on the STAR market in Shanghai. We are working closely with our China investment banker and our China law firm handling the IPO transaction for us. They have some experience in this, as they are also helping another NASDAQ-listed company. The STAR market authorities and the China SEC have raised the bar for companies wanting to go public. Their focus includes semiconductor companies and material companies, and we qualify in both of those categories. We believe we are a world leader in our fields. We, of course, have healthy revenue and growth. We also have a strong customer list and have partial ownership of 10 raw material companies located in China. And we have over a thousand employees in China that are citizens and pay income taxes there. We were advised that our company going public on the STAR market should be an attractive offering. The bankers have informed us that we are on track and that our teams are responsive and professional. The process is time-consuming, but our teams are taking it in stride and doing a good job. We hope to be ready to file late this quarter or in the fourth quarter. In conclusion, it has been a busy, but very good quarter, with solid customer traction and new opportunities unfolding. I will now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?

Thank you, Gary. Good afternoon, everybody. Our Q2 results demonstrate that the momentum in our business continues to build as a renewed need for compound semiconductor substrate drives market expansion. Historically, we have had a number of quarters where certain product categories were performing well, while other categories languished. Today, it feels like our business is firing on many cylinders. We ended Q2 expecting our revenue to be approximately flat, following strong growth in Q1. However, we continue to see increasing demand in both gallium arsenide and indium phosphide substrates as well as healthy growth in our raw material business. This allowed us to deliver solid gross margins and increasing profitability. It is clear from the market demand that our new factory and capacity expansion were built at exactly the right time. With them, we are now able to support current and emerging customer requirements across growing applications such as 5G telecommunications and its related technologies, data center connectivity, LED-based sensing and display and a variety of new consumer-related devices. I am pleased to report that in Q2, we qualified with another Tier 1 customer who plays an important role in the supply chain for major end customers in many of these areas. This was a very extensive qualification process, and we believe it can open new doors of opportunities for us in the coming quarters. It also underscores the value of our investment in our manufacturing and business processes, in-house expertise and product development. We believe we are now in a strong position to win market share and expand into key new emerging applications. Now, turning to product categories, indium phosphide set a new revenue record in Q2, and once again surpassed gallium arsenide as our single largest product category. This year, we are on track to grow our indium phosphide revenues by more than 35%, with demand being driven by a number of customers across a diversified set of applications. Once again, we believe this indicates an acceleration of some big trends in the technology landscape. In particular, we saw continued strength for 5G and its related technologies. At the substrate level, it can be difficult to distinguish between optical connections specifically for 5G equipment and those for related technology like passive optical networks that supports 4G and 5G functionality. For our perspective, any modernization of telecom infrastructure that utilizes indium phosphide is positive for our business. Demand continues to be strong and we have been able to scale up our manufacturing to keep customer delivery times as flexible as possible. Datacenter connectivity demand remains steady and at a positive level. As a result of the overall growth in adoption of silicon photonics in the datacenters, silicon photonics technology provides a number of advantages, such as lower power consumption and increasing bandwidth and data transfer capabilities. We completed the direct qualification of a Tier 1 customer in Q1, and we believe we are now selling indirectly into another major player in this space. We are also very pleased to report that we are beginning to ramp volume for a new customer device that we believe is now moving into production. We expect the ramp for our substrate related to this application to be gradual over the coming quarters, adding incremental growth to our business. Our qualification into the supply chain for this customer is the result of many quarters of collaboration with both the end customer and its supply chain partners. Turning to gallium arsenide, we are seeing signs that market supply is tightening. Our revenue for LED applications grew by more than 20% in Q2. Demand was driven by high end applications, including automotive and lighting and display. As expected, revenue from wireless application declined modestly in Q1. As we move into Q3, however, wireless revenue is expected to grow nicely from Q2 levels as a result of broad-based IoT application demand. Our success for development of 8-inch gallium arsenide wafers for LED applications such as microLED and LiDARs is setting the stage for a new wave of growth. Among the many benefits, we believe 8-inch gallium arsenide will help to enable the scale and the efficiency required for very large volume applications. Industry news and customer interest suggest that microLED are likely to become the next major volume driver for gallium arsenide chips. MicroLED can support higher brightness, higher dynamic range and a wider color gamut while achieving a faster update rate, wider viewing angle and lower power consumption. Their application extends from wearable devices and handheld devices to very large screen, like high-end televisions. Tier 1 players are driving the development of this technology, and we believe that our wafers are already being used for early-stage activities. The level of customer activity and general industry excitement gives us confidence that microLED will come to market and it’s also a factor in our motivation to deliver the 8-inch gallium arsenide waffers. Now turning to germanium substrates, as expected, revenue from germanium substrate decreased modestly in Q2. However, the satellite solar cell market looks to be healthy in the second half of 2021, and we expect to see growth this year. Finally, I want to touch on our raw material business, which grew another 10% sequentially in Q2 after a 45% sequential growth in Q1. As you may recall, we recently consolidated two joint ventures, BoYu which manufactures high-temperature pBN crucibles and pBN-based tools for OLEDs and JinMei which is a diversified industrial high-purity material supplier. In 2020, both companies relocated to our campus in Kazuo, enabling them to expand capacity in response to strong market demand. Today, JinMei is processing approximately 12 tons of material per month, which is more than 25% of the world’s yearly consumption of gallium. Its robust growth has been made possible by the new state-of-the-art facilities that not only allows it to handle more demand, but also attract new customers and open up incremental business opportunities, such as material recycling and recombination. Coming into Q2, we expected the raw material portion of our business to come down a bit from a record number in Q1. However, continued expansion, coupled with a recovery in pricing of raw materials such as raw gallium, has allowed both companies to continue to grow. The improvement in commodity pricing also enabled the joint ventures, which would account for using the equity method to perform very well in Q2. We saw another meaningful increase in their contribution during the quarter. We believe the demand environment should remain healthy this year and that their performance will continue to be positive to our results. In closing, this is an exciting time in our business. The investments we have made over the past years in our facilities, our team and our business processes are producing solid returns in our results. We are participating in several major technology trends, and we are now in the supply chain of some of the most prestigious companies in the world. Further, our growth and record results underscores the expanding number of major applications for compound semiconductor infrastructure as well as our strong competitive position. As we look ahead in Q3, we expect this momentum to continue. I will now turn the call back to Gary for our third quarter guidance. Gary?

Thank you, Morris. As Morris discussed, the demand environment remains healthy in Q3. Indium phosphide, coming off a very strong recent quarter, we believe will see continued growth. We also expect growth in gallium arsenide revenue. Germanium substrates and raw materials are expected to be consistent or about equal to the results of Q2. As such, we expect to see revenue in Q3 of between $34.5 million to $35.5 million. We believe that our net profit will be in the range of $0.10 to $0.12 with a share count of approximately 42.8 million shares. This concludes our prepared comments. Morris and I will be glad to answer your questions now. Leah?

[Operator Instructions] And your first question comes from the line of Richard Shannon from Craig-Hallum. Please go ahead sir.

Thanks Morris and Gary for taking my questions and congrats on the very nice numbers here. I guess my first question is on your comments regarding the Tier 1 qualification. I am wondering if you could give us a little bit more color on who this company is? Are they an OEM or supplied to somewhere in the supply chain? Can you talk about applications? And specifically, which substrate material and size that it was on?

Well, obviously, we cannot name customer names, as you understand. But this customer we have been working with for the last almost 2 years. And the category of materials we are working with them are indium phosphide material. And they have an interest in 3-inch and 4-inch, and they also have a future interest in 6-inch indium phosphide as well. So, they are a true Tier 1 customers in the United States and supply into major consumer demands.

Okay. That is helpful. Let’s see, a quick question, looking back on your second quarter numbers, your gross margins at a healthy level in context here over the last couple of years, but down a little bit here even though indium phosphide was strong. And I think if I am reading my numbers right here, the raw materials are also very good. You said that’s a positive mix shift, but it was a bit down here. Maybe you can help delineate the drivers here, Gary, please.

Yes. It’s no single thing. It’s some job variances from within the manufacturing unit. It’s some increased pricing for raw materials. And there is one other thing I can think of. Let’s see. And we have some gallium arsenide orders from a long-term friendly customer that didn’t have the company average gross margin. But we want to keep working with that customer because we have been with them for years. So – but we – a couple of quarters ago, you guys were asking, can we get back to 35% and we said, yes, we think so. But let’s wait until we get there, before we become overly confident. We still have room to grow. There is some low-hanging fruit that we can identify, plus just some good hard work. But I still want to stay right in the mid-30s, 35, 36, until we prove that we can do better. But we are not settling for where we are at. We will see what we can do.

Okay. Fair enough. Last question and I will jump out of line here, kind of a multi-partner here. Obviously, your guidance here is very strong and you are calling out indium phosphide first as a driver here. Wondering if you can delineate the drivers here last quarter, you talked about 5G and related technologies. To what degree is that and/or datacom, the strength here versus some of these new applications for which last quarter you said could drive as much as 5% to 10% total indium phosphide for the year? Can you help us understand it a little bit better, please?

Yes. I think I am certainly watching the 5G demand. I read 5G was sort of – than expected for the first quarter. And it does – it is expected to ramp up nicely in the second half. However, we are seeing our sort of PON related business to be very strong in the first half already. So, if it’s going to grow nicely in the second quarter, then that should add more fuel to the fire, so to speak. I mean as we said, our datacenter business was steady. But it didn’t really have a very strong growth in the first half. But we also saw our customers’ announcement saying that the second quarter is going to grow nicely. So, we hope that’s going to help us. And we also qualify with the other silicon photonics customer. I think noticeably, I think we have been very excited about this new application that we qualified, and we believe is in the process of ramping into production, and we would just have to wait and see how much more it will give us when they ramp into full-scale production going into the second half of the year. And we have some other iron in the fire, so to speak. So, I think to distinguish indium phosphide, let’s say, back in 2014 and ‘15, we had very nice growth, but that was the main growth engine was PONs business. And then we have the silicon photonics coming on strong. But now we are seeing multi-point of growth. They are not necessarily related with each other, but they also are connected to the benefit of using indium phosphide either for the wavelengths they produce, which can transfer data very quickly within a fiber optic transmission line, or their specific wavelengths can monitor health parameters in a specific application. So, I think those are very exciting fields. I think we should see continued growth for many years to come.

Yes. Let me just link that to one of the comments I made in my prepared comments, that we didn’t have any 10% customers for the second quarter in a row. So, that’s another way to illustrate the diversity of the applications for indium phosphide. It’s kind of a renaissance for indium phosphide, just lots of interesting things happening. And one of the benefits, the things that we like about the business model is once you get into an application, it can have a long trajectory in terms of the useful life. It can last a long time, so. Next question…?

That’s it for me. Thank you all. Thank you, guys.

[Operator Instructions] And your next question comes from the line of Hamed Khorsand. Please go ahead. I am sorry, from BWS Financial. Please go ahead sir.

Hi, Gary and Morris. Gary, could you just talk about the inventory going up so much and your accounts receivable going up so much the last quarter? Is there something you are planning as far – from your customers that your inventory has soared so much versus revenue? And the same thing with receivables, I guess, are you providing extending out credit terms or is revenue just coming in towards the very end of the quarter?

Yes. Well, let’s stick on AR for a second. The AR did – it expanded for two reasons. One is increased revenue, which – that’s fine, of course. But the second is that the day sales outstanding shifted in the wrong direction. So for the previous quarters, the last – from the last previous four quarters, if you average the DSOs by quarter, it comes to 81.75 days, which isn’t a great – it’s not a great DSO. It’s never been a strength for us. Part of that is because we have so many sales in Greater Asia. And just frankly, in case people don’t know, but there is a lot longer time to pay in China, Korea, Japan. So the DSO went up by 8 days to 90 days, which would be worth about $3 million into the accounts receivable. So if we had stayed with the previous four-quarter average, the AR would have gone – would not have gone up as much. It would have still gone up because of sales, but it would have been $3 million less. As regards – so I’m not – there is no extended terms. There is no special deals. There is no – we’re not aware of anyone that is going to become bad debt. We don’t have any of those kind of problems, generally. It’s just – it’s stretched. And it’s probably also, and I didn’t have time to do the analysis. But if we ship sort of in the second half of the quarter, then we’re not going to collect in the same quarter. So in the case of Greater Asia, if we ship any time after the first 20 days, we probably won’t collect it in the same quarter. So as for inventory, there is a couple of things going on there. Number one is we’re growing and our production and management people and schedulers tend to stock up when they see growth on the horizon, which they are. We have a weekly production control meeting, which Morris attends. And so everyone’s tied into what’s happening in the company and the opportunities and the things that we’re addressing. The second thing that’s happening is we did buy ahead on raw materials because we have visibility about raw material. That’s one of the benefits of owning all these companies. And we could see as the year progresses, that the average selling prices are not going to come down. They may stay firm or maybe inch up a little bit more. But if they inch up, we didn’t want to delay buying. So we bought ahead a little bit. So as a businessperson, Hamed, I’m okay with both of these. I wish our AR was a faster time, cycle time, but it’s just the nature of these customers in Asia that they are slow pay. It’s not 30 days, for sure. So Morris, do you have any other comments about inventory or AR?

Well, my comment is this, I mean, look, I mean, the revenue grew by 52%. Our inventory didn’t grow 52%. We do have a larger inventory than your normal silicon industry because we deal with many different products. We deal with different parts. And our product cycle is longer than normal. But if you look at AXT’s history, we normally carry a larger inventory. So that’s the nature of the business. So I’m glad to see inventory goes up, because that means our business revenue is growing up.

Okay. And then in Q1 earnings call, you talked about a Tier 1 customer being – qualifying you for manufacturing of substrates. Now you have a second Tier 1 customer. When do we start seeing this in the revenues, if we haven’t already as far as mass production goes? And is there quite a bit of difference between the two as far as their indium phosphide demand and ordering would look like?

Yes. These two are two different customers. But I think they are both heavily into indium phosphide. And they are in two different fields. The first one is already in production. We’re delivering. The second one we just qualified, but we think the revenue should start to come in gradually in the next couple of quarters.

Okay, great. Thank you.

Thanks, Hamed.

And we have a follow-up question from the line of Richard Shannon from Craig-Hallum. Please go ahead, sir.

Alright. Let’s see here, a couple of questions, guys. First of all, I guess, one for Gary on CapEx here. What should we expect for the second half of the year? And then how would we think about it beyond this? I know at some point, we’re going to see the investment sunset in the new facility here, but obviously, we may see some pick-up here with some Tier 1s coming in here. So, if you can give us a sense, quantitatively or qualitatively, what we should expect in CapEx here going forward that would be great?

Yes. Well, I would say, a year ago, I expected that CapEx for this current year would be lower than it actually is. So but what’s happened is there is so many interesting opportunities that we’re addressing. And so we’ve added more equipment, for example, indium phosphide furnaces. We’ve added more expensive test equipment, like surface scanning equipment at the request of some of these Tier 1 customers that they want us to have the very best in their opinion. So I think it’s going to stay at this level, at least through the rest of this year. It’s going to be a mixture of equipment, but also some facilities. The Kazuo government is giving us a bargain deal on a site adjacent to our current site. There is already a building there, and we will be fitting that building out as we look towards microLED. So Morris, do you want to add any more comments?

Yes. I do want to chime in here. I think obviously, we are in a very interesting time. We already attracted a $49 million investment from China invest TE fund. And we are gearing ourselves up for the STAR Market, with expected market cap that we do expect from them. Then we should have – very well-funded. But look, also with the demand for 8-inch gallium arsenide for microLED, as well as very strong demand for indium phosphide, I don’t think we can afford to slow down on the expansion of our facilities. Because 8-inch gallium arsenide is not expected to become a major revenue generator until 2024, second half. But by then, the addressable market by then is about at least $250 million. So we’ve got to build to that end. But of course, we’ve got to do it gradually. We’ve got to do it cautiously. We’ve got to make sure that we win the customer’s trust and PO before we commit big time. But there are things that we’ve got to do the preparation, such as R&D in terms of feasibility and the yield and the increase of growth. And we also need to do the preparation for the facilities that we need to build for the microLED expansion. So I think I’d much rather see that the demand environment requires us to spend more money to build more capacity for our future business.

Great. Morris, you kind of answered part of my intended next question, so I’ll ask it directly and you can fill in based on what you just said here. But just speaking specifically to microLED here, you talked about it for a while as being the potential biggest opportunity you have in front of you. And you just mentioned major revenues in 2024, second half of that year. What things have to happen between now and then? And like when would you have to start with a major CapEx spending? When would you have to start a building or retrofitting a building or whatever? When would you have to have confidence that you’ve won this customer in order to do those things?

Yes. Absolutely, Richard. The business doesn’t just jump up in 2024, second half. I mean, I think the customer, we already started to deliver sample quantities to them last quarter, and we will continue to deliver sample material to them. Well, it’s not a sample anymore. It’s going to be pilot productions. And it’s going to start to ramp. But meaningful revenue is going to start to come in probably as early as 2023, but not to the very large, they call it, pilot production, volume production and very large volume production. So the very large volume production is defined in 2024 second half, okay? So but we definitely need to do R&D for sure and we need to build some facilities to house some of the development work that we need to do such as crystal balls as well as wafer processing in Kazuo. And that’s – we need to spend money on those, okay? So you can see the R&D expense is going to go up, but we need to also do some design and some facility improvement, we’re going to need to build in Kazuo in the next year, I would say. But we will obviously need to meter or control the spending until we start to see the orders start coming. In other words, there are three big spending into microLED. One is R&D that we need to do the investment now, okay? The second part is the facility improvement in crystal balls but as well as wafer processing, but they are in parallel lines kind of development. So we don’t need to spend big money, but we need to see that these processes will fit into be qualified into the customer’s line. And then once we got that, then we should have parallel line purchase order from our customers as well. And then in the next – in 2023, second half, I believe we need to spend big money in terms of buying more equipment and buying more – build out the facilities in order to fulfill the orders. Because don’t forget, these are addressable markets in hundreds of millions of dollars. So it’s going to triple – double – at least double our gallium arsenide facility capacity, if not triple and quadruple. But we need to know the demand environment. And so first things first is, do the R&D first, and then we need to invest in some facilities as well.

Okay. That is great perspective, Morris. That is all from me. I appreciate the time, guys. Thanks.

Thanks, Richard. Next question?

And we have a follow-up question from Hamed Khorsand from BWS Financial. Please go ahead sir.

Hi, I just saw this filing that you guys are proposing a $60 million shelf. Does this have to do with what Morris was just talking about? And why do you need this cash? This is the first time you’re doing a shelf in 5 years.

Well, the old shelf expired. The previous shelf was, I think, the third shelf that the company has had in place. So I view it as prudent to have a shelf in place. It is because of the growth, and it gives us an option to finance the growth. We wouldn’t probably do $60 million, if we did anything at all, but it would be modest. But it’s one more tool in the fire for how we get all this stuff done. And it’s being driven by very strong demand for indium phosphide, a good demand for gallium arsenide and then on the horizon, gallium arsenide doubling or tripling in terms of the TAM. So that’s why I used the word renaissance earlier. There is just a lot going on. So that’s why we put the shelf in place.

Okay, thank you.

Yes. You are welcome. Good to hear from you. Next question?

And I’m showing no further question at this time. I would like to hand the call back to Dr. Morris Young. Please go ahead, sir.

Thank you for participating in our conference call. In August, we will be participating in the 13th Annual BWS Financial Growth and Value Summer Investor Series as well as the Jefferies Semiconductor IT Hardware Communications and Infrastructure Summit. We hope to see many of you there. As always, please feel free to contact me, Gary Fischer or Leslie Green directly if you would like to set up a meeting or call with us. We look forward to speak with you in the near future.

Thank you. Have a good afternoon, everybody.

And this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.