AXT, Inc. (AXTI) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to AXT's Third Quarter 2022 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer; and Gary Fischer, Chief Financial Officer. My name is Andrea and I'll be your coordinator today. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Leslie Green, Investor Relations for AXT. Please go ahead.

Thank you, Andrea, 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 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 or outbreaks of other contagious disease, potential tariffs and trade restrictions, increased environmental regulations in China, market acceptance and 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 and their products. In addition to the factors that may be 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 27, 2023. 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 third quarter of 2022. 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 to everyone. Revenue for the third quarter of 2022 was $35.2 million that's down from $39.5 million in the second quarter of 2022 and is up from $34.6 million in the third quarter of 2021 from last year. To break down our Q3 '22 revenue for you by product category; indium phosphide came in at $17.7 million, gallium arsenide was $8.1 million down from Q2 by about $4 million and reflects the overall slowdown in the marketplace. Germanium substrates were $1.1 million. Our germanium substrate revenue was down by about $2.7 million from Q2. Part of this is the general slowdown we observed and part is due to the payment issue we described last quarter. We expect to resolve that situation in the near future. As of today, we're not shipping to the customers in question, so. Finally revenue from the two consolidated raw material joint venture companies in Q3 was $8.3 million. In the third quarter of 2022, revenue from Asia-Pacific was 67%, Europe 14%, North America 19%. Top five customers generated approximately 41% of total revenue and one customer was over the 10% level. Non-GAAP gross margin in the third quarter was 42.2% compared with 39.4% in Q2 of 2022, and 33.8% in Q3 of 2021. For those who prefer to track results on a GAAP basis, gross margin in the third quarter was 42.0%, compared with 39.1% in Q2, and 33.3% in Q3 of last year. As you can see, we continue to execute well on gross margin, despite lower volumes in Q3, our favorable product mix, improved yields, and new indium phosphide recycling program, all contributed to strong results. Total non-GAAP operating expense in Q3 was $9.2 million. This compares with $9.1 million in Q2 and with $7.7 million in Q3 of 2021. On a GAAP basis, total operating expense in Q3 of 2022 was $10.2 million, compared with $10.1 million last quarter. For comparison, total GAAP operating expense was $9.1 million in Q3 of 2021. Non GAAP operating profit for the third quarter of 2022 was $5.6 million compared with non-GAAP operating profit in Q2 of 2022 of $6.4 million and $4.0 million in Q3 of 2021. For reference GAAP operating profit for the third quarter of 2022 was $4.6 million compared with an operating profit of $5.3 million in Q2 of 2022, and an operating profit of $2.4 million in Q3 of 2021. Non-operating other income and expense for the third quarter of 2022 was a net gain of $2.7 million. This includes a gain of $2.0 million from the unconsolidated raw material companies. The full breakdown is in our press release. For Q3 of 2022, we had a non-GAAP net income of $6.8 million or $0.16 per share, compared with $6.7 million, or $0.16 per share in the second quarter of 2022. Non-GAAP net income in Q3 of 2021 was $5.4 million or $0.13 per share. On a GAAP basis, net income in Q3 was $5.8 million, or $0.13 per share. By comparison, net income was $5.5 million or $0.13 per share in the second quarter of 2022, and $3.8 million or $0.09 per share in Q3 of 2021. The weighted average diluted shares outstanding in Q3 was $43.0 million. Cash, cash equivalents and investments were $48.2 million as of September 30. By comparison, at June 30, it was $57.2 million. Depreciation and amortization in the third quarter was $2.1 million and capital investments were $4.7 million. Most of this is facilities related. Stock comp was $1.0 million. Net inventory at September 30, was at $88.5 million, 50% of the inventory is raw materials, 46% is WiP and finished goods makes up 4%. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary Tongmei, in China on the star market in Shanghai, let me just give you a brief update. As previously reported, our IPO application was approved by the Shanghai Stock Exchange in July, and was then submitted to the China Securities Regulatory Commission, often we refer that as the CSRC in August for the next step in the review process. We have had feedback from the CSRC in the form of questions, and our advisors believed the questions were normal and customary. We hope to get CSRC approval soon and Tongmei soon hopes to accomplish the offering as early as Q4 2022. This has been a long process, but we remain very enthusiastic and optimistic. We have posted a brief summary of the plan and the process on our website. Before I turn the call over to Morris, I want to take a moment to address to the topic of export control restrictions with China, since some of you have asked. We have extensively studied the new restrictions and guidance, including consultation with our legal experts. As such, we and our attorneys have concluded that the new restrictions are not applicable to our products, equipment or manufacturing process. We do not expect to experience disruption as a result. Okay. Well, with that, let me turn the call over to Dr. Morris Young for a review of our business and markets. Morris has been in China and is there right now. So he got up very early in the morning and it still is early in the morning there. Morris, go ahead.

Thank you, Gary. And well, good afternoon, everybody. Though a softening of the microenvironment reset our growth trajectory, the trends that have driven our revenue customer application expansion remain very much intact. Despite this setback, our Q3 results demonstrate several key things. First, indium phosphide is expanding and becoming an increasingly strategic material across the landscape of. Second, AXT has continued to make meaningful sustainable progress in driving our gross margin performance. And third, we are successfully supporting the business technical and quality requirement of some of the most discerning Tier 1 companies in the world. These three factors underscores our firm confidence that our business has reached a turning point. The tide of innovation that is driving the expansion of applications for all materials we created is lifting our baseline opportunity. Even in the softer demand environment, we more importantly, AXT is thoroughly positioned as a leader. Our product quality and technical capability have created a standard of excellence that is increasingly difficult for competitor to match as is evidenced by our market share gain in the indium phosphide. Our Q3 indium phosphide revenue grew 12% over Q2 to set a new high for quarterly revenue. This is also a 48% increase over Q3 of 2021. Driving our growth was the ramp of two consumer applications that contributed meaningfully to our results and in line with our expectation coming into the quarter. As we mentioned previously, the first is the proximity sensor for audio devices and the second is the endo-gas sensor for high end headsets. We're shipping into both applications and production quality. The strong performance in consumer was offset by a weakness in power and telecommunications applications, particularly in China. The data center market was also moderately weaker than we expected going into the quarter. The majority of the revenue shortfall in Q3 came from gallium arsenide. Industrial lasers, LEDs for automotive and wireless handset applications were all down in a meaningful way. Much of this related is to China where customer conservatism towards future demand coupled with COVID and weather-related shutdown within the supply chain resulting in a steep drop in orders. We're confident this is not a loss in market share as we are not seeing customer canceling orders more commonly they are delaying or placing orders in place. In other cases, this is to get a better picture into future demand. In the other cases, it may be the result of shortage within the supply chain. We see this issue persisting through Q4, but because of the rapid decline in the second half of 2022, improvement in the demand environment or the supply environment could result in a relatively quick recovery in FY '23. This is also important to know that we continue to see a meaningful amount of development work happening for new applications in both indium phosphide and gallium arsenide. Customers are highly focused on new innovation, we believe that this will contribute to some exciting new use case for our substrate in the coming fiscal year. Including consumer and healthcare monitoring a bit further out microLED applications are growing increasingly more promising. We would not be surprised to see noticeable revenue in FY '24. In terms of our own innovation, I'm pleased with the progress we are making in both 8-inch gallium arsenide and 6-inch indium phosphide material. Our R&D investments are allowing us to ensure that we are ready to meet the market when application for this larger diameter move closer to production. Finally, revenue from our two consolidated joint ventures were about $8.3 million in Q3. We expect the softer demand environment to bring sales down in Q4, mostly from GMA. That is as a result of raw material prices coming down and ongoing customer conservatism. [Boy Yoo] who makes PBM crucibles is likely remain steady. In closing, despite the setback of a weaker environment, we have made enormous progress in our business and we are well positioned to weather the near term softness. Today, we are the world leader in indium phosphide and we are the company that Tier 1 customer, come to when they are bringing new innovation to market. We continue to raise the bar our technical capability and our quality creating clear differentiation with our competitors. Further, we have worked hard to improve our efficiency and as a result, we are delivering solid profitability. Over the coming quarters, the environment will do what it will. And though we will diligently manage our business through it, our eyes are on the horizon because the massive trend that will continue to transform the landscape of technology are not going away. An AXT will be the leading supplier of many of these materials. I will now - turn the call back to Gary for our fourth quarter guidance. Gary?

Thank you, Morris. That said, we expect Q4 revenue to be between $26 million and $29 million which reflects our view that the inventory corrections will continue during the quarter. As such, we expect our non-GAAP net profit will be in the range of $0.03 to $0.05 and GAAP net profit will be in the range of $0.01 to $0.03. Share count will be approximately 43.0 million shares. Okay, this concludes our prepared comments. Morris and I will be glad to answer your questions now. Andrea please go to Q&A?

Thank you [Operator Instructions] Our first question comes from Charles Shi with Needham and Company. Please go ahead.

Hi, good morning, Morris, good afternoon Gary, Leslie. Maybe first question, I want to ask you how to reconcile what we heard from your number one customer at the epi house in Taiwan. That particular company recently said they are quite bullish about the 5G and fiber rollout in China next year. And they think 2023 will be a growth year for them. What is your thought on business going into '23? I know fourth quarter '22 seems like that the correction will continue, but into '23, are you seeing a similar trend as your number one customer and especially on the telecom and the data com side? Thank you.

Let me take this first, Gary. Yes, Charles. I think indeed we think indium phosphide will continue to grow. Although I think Q4 is taking a slight dip, I think but I think the trend of indium phosphide growth is going to continue. And I think not only telecom, datacom is going to be growing into 2023, but also the consumer product, I think is going to not only continue to grow. Hopefully, we're going to pick up one or two more new consumer product applications, which as you know, could be quite accelerating growth because it's a new product.

Yes I'll add it that, that particular company is a long-term customer of ours. And we feel very strong with them, and we expect to continue to serve their needs.

Got it. So maybe the second question through the consumer business, how -- what's the total revenue opportunity you're seeing for the current -- the one you already have, the second consumer application. What does the end customer tell you? What's the total size of the revenue opportunity through this smartphone cycle? And do you see any changes to the forecast that they provided to you over the recent weeks or months because I hear you, you said that the trend of indium phosphide growth will continue, but it kind of makes me wonder you did guide down your Q4 growth back quite a lot and wonder whether that second consumer application has a little bit change in terms of how fast the ramp can be in Q4.

Yes, I don't think there's a slowdown in the demand for the second consumer product in Q4. I believe the slide down tick in indium phosphide demand mainly from our other China customers. Which unfortunately we don't know exactly what they are doing. It could be data count, it could be the pounds market, etcetera. But definitely this particular customer is not slowing down. In fact, if I may add, I think they are only using on the high-end of the whole market in their first launch this year and hopefully later on they're going to use it in the whole spectrum of product offering. So we do expect perhaps the demand for this product on the second product is going to go up next year.

Yes. So maybe just to clarify, this is going to be my last question. To clarify, you are optimistic about two more consumer applications. Thus, the proliferation of the indium phosphide based dispenser into the - well, that's their low end product, but in the market, probably considered mid to high-end. Is that accounted as a third application or you're talking something completely different when you talk about the two more consumer application there?

No, that's not considered a new win. We think that's probably going to increase the demand. But we haven't talked to the customer yet in terms of how much they want us to prepare because this is still early for next year demand. But I'm talking about possibly we can pick up one or two more new consumer product applications. As you know that we have at least two products is sort of in the queue but we are not sure, especially with the world economy shaping up like this, where are they going to introduce this new product.

Thank you very much.

Thanks, Charles.

Thanks, Charles. Next question.

Thank you. Our next question comes from Richard Shannon with Craig-Hallum Capital Group. Please go ahead.

Well, thanks, Morris and Gary for taking my questions. Let me ask just very specifically on the fourth quarter guidance here. You obviously talked about EBITDA down a bit. The overall number here at the midpoint is down a little bit more than 20% . Can you delineate the other categories how they're doing relative to the kind of that midpoint. I'm assuming gallium arsenide and maybe raw materials are down more than average, but maybe Gary, if you could delineate that a little more closely, that'd be great, please.

Yes. Well, we're trying to be conservative first of all. Secondly, we're uncertain about when the market is going to bounce back. But I don't think anyone on this call or in the tech business thinks it's going to bounce back in Q4. So therefore, we've forecasted all of the products to be down. A big and a big drop in raw material. So, raw materials have been running about $8 million and that alone will be down to at least 25%. And I think it's just reflective of the overall slowdown in the markets. So, as I said to our team, it's a good thing we're grown up because it is what it is. We can't change the whole marketplace. And it shifted on us. I wouldn't say overnight, but it was very dramatic and rapid shift during the summer. And we don't know when it will bounce back. Hopefully, it will be in Q1, but we'll have to get closer to Q1 before we'll know for sure.

Gary, I want to add to the point is that, I don't think we're losing market that's very important to underline. And our underlying strength the future remains solid. This new factory adding capacity, low EBD and response signals, as you can see that in the past five for the second the new consumer product, we ramped our production very successfully. We didn't lose a stride. And I think they are really making good marks to our most demanding customer. And so we think we are stronger and better than any time we are in the industry, but semiconductor unfortunately is difficult. When people are worried about supply, they buy a lot and when they say scares or recession coming through, then everybody wants to use their inventory. I mean the same thing for us. You see we build some inventory, it's going to take us the quarter or two to bring it back. And then we're not going to buy from our customers. So the nature of the business, I would say.

That's very fair. Thanks for that commentary. My second question is on gross margins. I want to talk more about both about the third quarter and then kind of the view into the fourth year. So you've talked in the past about volume being a fairly important indicator of gross margins and you obviously had a shortfall in your best gross margins ever. Clearly indium phosphide mix is helping a lot maybe you could delineate any other drivers here in the third quarter that helps you? And are there any things that can help you further such as recycling or yield things that you've improved on, do those have more likes to grow out? And then as we look forward here, particularly with the much lower volumes, how do we think about gross margins here, can we look back at quarters of the similar revenue and see it in that range or how do you help. Gary, can you help us think about - where to think about gross margin truly out in the fourth quarter?

Sure yes. Well, for our business model, the way the company operates it's not usually like one single thing that makes the gross margins swing up or down. I refer to it as several small dials instead of one big dial. But clearly product mix is a key factor. And that's one of the first thing comes to mind when you say why is gross margin improving. Another is the new indium phosphide recycling program. Whereas we've described before, we developed last year a way to reclaim certain scraps that are a result of this production process that was in, I would call, beta test in Q4 of last year and early production level in Q1 of this year. Then I would say general production level in Q2, And again in Q3 and in fact it was Q3 it was a little - financially it was contributed a little bit more than it did in Q2. So that's good for gross margin. It's also good for ESG kinds of concepts that we're learning how to recycle some of this stuff. So a third factor is that we generally had our yields improve. And in general, I think we're seeing more manufacturing efficiencies. I mean, Morris talked about our strengths and we're really - the team is really a good team. So I've used the phrase with some of you before that I think we've been going through a settling in process at the new sites. And I think it's -- we're improving in that. It's more stable and that's helping the efficiencies and the yields. And to be straight about it for Q3, we had a quarter where a lot of the numbers seem to be pointing north that is in a positive direction. That doesn't happen very often. And sometimes when it - it could be pointing south, but in this case, every number on the board was helpful. So and that will enable us on a GAAP basis to be at 42% percent. So then Richard secondly, then what do I see going forward? I think we have some more ground to gain on both on mix and on yields and on manufacturing efficiencies all the things I just described. We have some other recycling ideas that we're not ready to share them yet either with you guys or with our competitors. But - and we have some I think some other things that we can do to keep the gross margin relatively high. Yes, it's not going to be in the 40% for Q4, because the volume is going to be lower. And I think somewhere in the 37% to 38% range is achievable. And I haven't really had - haven't taken a look at it yet gross margin for next year. But I do - I can say and I say this with confidence that we have some good ideas that are being implemented now and it will help us next year. So next question, Richard?

For me, I reported a 10% customer is this a new customer or one you've had as a 10% in the past?

It's one that we've had before. And we expect that there could be 10% going forward, they'll continue to be strong they are servicing the consumer application that we've touched on so.

Okay I figured that was the case. Okay that's all for me. I'll jump on the line, thanks.

All right, thanks, Richard.

Next question?

Thank you [Operator Instructions] Our next question comes from Hamed Khorsand from BWS Financial. Please go ahead.

Hi, my first question was how are you adjusting the business given the decline in revenue, but your inventory has been increasing quite a bit now. And how are you going to adjust for that and to generate some free cash flow?

Well, first of all, let me assure you that we're very aware of what's happened to the inventory. It evolved because we were running really hard to keep up with demand and we're deliberately building inventory and then things shifted pretty dramatically. So but we're very aware of it. Let me point out again that in our inventory right now, 50% of it is raw materials and 46% is WiP. So only 4% is finished goods I'm not worried about having to write-down the inventory or anything like that. And the way we're going to have to bring it down, which we will is several things. Number one, I've already been communicating with my teammates in China and informing sort of a SWAT team, if you will, to monitor inventory closely. Of course, we'll stop purchasing as much, because we have too much now. And I think we can bring it down over the next couple of quarters, but I - and it will help on cash, yes. So unfortunately, I think we're mirroring what we've seen in our own customers. They're trying to manage their inventories also, so they stop buying as much. And we're actually in the same position. So but we're definitely on it. We've been talking about it and it's not my first rodeo. I've been in these situations before and, you know, there's a saying that I use, she want to change something, measure it, So I'm looking at different ways to measure different things in the inventory and communicate that to the team and get everybody's attention. So I feel it's an achievable goal to bring it back down.

Okay. I think - what I'm trying to get to is also how are you adjusting to this environment? Because in Q2, you were doing something in the realm of 40% or 50% more in sale - revenue per month than what you're guiding to now. So that's quite a bit of an adjustment you would have to make. Are you putting people on leave or how are you just doing the manufacturing there?

We're not putting people on lease. We're not hiring anybody either. But you know, I think it would be detrimental to our mid-term in the future if we start, jettisoning employees. So we expect the market is going to come back. And when it does, we're going to be ready. So but in the meantime, we'll try and trim expenses we'll try and improve on efficiencies. And we have a lot of dry powder of things that we can do to manage the business. So but - we've considered should we do layoffs, but at this point, no, we're not going to.

Yes, one of the things we obviously are doing is, as you know that during the very busy time, we were asking people to take a lot of overtime and forfeit their vacations, et cetera. So now we're now in a slower time we -- on the slower segments such as gallium arsenide and germanium, we either shift them part of them to work in indium phosphide, because that's still quite busy. We're still building future capacity for the expected demand increase next year, but also we do encourage people to take their -- any vacation, any lead time as much as possible so ready for the next run up to the high demand later.

And my last question is, how would you describe the clarity that you have in the business right now?

You mean about the marketplace in the picture?

Yes, I think we are as clear as we can. I mean, although market is down, but as we said, I don't think we're losing market share. Customers are out there. In certain segments, the demand is still strong, but we're covering a lot of business. For instance, everybody -- I think nobody is happy to see that our guided revenue going forward is going down so much. But on the other hand, part of it could very well be the gallium price erosion. I mean gallium price came down almost 20% and it's still going down maybe 110% and one of our joint venture, JinMei, who sells gallium, they did buy and sell gallium. So first of all, if the gallium price is low, then their revenue comes down. So that really has nothing to do with revenue coming down so much because -- but we are clear when our revenue was up, we are clear to report to everybody, hey, part of the increase in revenue is really because raw material price is going up. So this is coming down the other side. But it doesn't hurt us because we -- in JinMei's business, we are refining it to high purity. And so it doesn't really hurt our business. And in terms of -- and also add on to it is when price go down, people don't want to buy because they don't want to step into it's going down further. So why do I buy it a month later? So maybe this is working [technical difficulty] to bring down inflation, so to speak. But as far as the rest of the factory, I think we are holding our heads up quite a bit. And we're busy, very busy preparing for the IPO process. And also we still have a lot of R&D work. They're working very hard on doing 8-inch gallium arsenide and 6-inch indium phosphide development. And I think the team spirit is high that I can say.

I agree.

Okay. Thank you.

Thanks Hamed.

Thank you. Please standby for our next question. Our next question comes from Richard Shannon with Craig-Hallum Capital Group. Please go ahead.

Okay, guys. Thanks for getting me back in the queue here. I guess two questions. First of all, Morris, you talked about microLED and you could imagine a scenario where it picks up in calendar '24. Can you give us more detail on what you're hearing and what you're engaged with the customers. And my understanding is if that picks up nicely or you green light something there, you probably have to have some more capacity. How far in advance do you need to know about this before you get your capacity in place for such a build in that year?

Yes. I think we're increasingly more optimistic because it's shaping up nicely. I think the customer is -- are making their commitment. And so as you know, one of them is building a very large factory down in Malaysia. And yes, indeed, we are seeing the demand curve really start to pick up in 2024, and we're making all the preparation for it. And the demand in volume demand is fragile. I think it's going to start by several hundred wafer per month in next year. And we are already delivering some samples to our customers already. And they are evaluating the performance of it. We expect between the two of us, I mean, our customer has asked to tweak the specification that they want. And indeed, it would take us some time to build a new factory for the capacity to deliver that expected increasing demand. So we are working on it and we expect to be able to deliver in the neighborhood of, let's say, something like 5,000 wafer per months with the middle of next year. And we expect it to further increase it to close to 10,000 or 12,000 wafer a month in early 2024.

Okay, perfect. And just a quick follow-up on that topic, Morris. When do you expect your 8-inch wafers to intersect with that opportunity?

What do you mean? I mean, we're building a capacity for 8-inch.

Yes. Are expected for 8-inch.

The numbers are 8-inch wafers.

Got it.

Those are 8-inch wafers.

Okay, perfect. Thank you. My second and last question here is on indium phosphide. I think you've talked about type capacity here and while the revenue seem to be going down a little bit in the fourth quarter. You've got some positive comments about new applications or additional volume in current applications in consumer space? Where do you sit in terms of utilization of your capacity and do you need to build more in the near term or next year?

Yes. This is still fairly tight and maybe Q4 is going to give us a little bit breather. We are still building capacity and anticipation for the volume ramp up next year. We could be overbuilding, I mean, I would say, I mean, a lot of this buildup in capacity is in our own initiatives because we have to anticipate what customer really wanted. And they usually don't give us, I mean, most of them give us at least three months advanced notice. But some of them, for instance, one of the customers, they tell us they're doing parallel. And they expect results back in, I think, last time we talked to them, it's about in six months in the middle of next year. But whether they're going to come successful asking for more product on that? Obviously, we're going to be very close half with them. And as time goes closer, but for us to increase indium phosphide capacity is not as easy as gallium arsenide. It's more complicated. So it takes a little lot of time. We need about six months to get all the things together. So we are doing a little bit more in advance of the products coming in. And last year, as you know, these two products our consumer products, I think we did a very nice job in expanding our capacity meeting all the demand from our -- most demanding customers. So I pat myself on the back and say, good job, Morris. Hopefully, it's the same thing for the next consumer product ramp. But right now, I cannot promise you. I mean, they are not coming in with the order yet.

Next question?

I'm not showing any more questions right now, actually. I would like to turn the call back to Dr. Morris Young for closing remarks.

Okay. Thank you everybody -- in participating in our conference call. And let me see what other conferences we'll be attending. This quarter we'll be presenting at Craig-Hallum's Alpha Cellular Conference in New York in November -- on November 17, and we will be participating at the Needham Conference in New York City on January 11. We look forward 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 call, we look forward to speaking with you in the near future.

Thanks everyone.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.