Stratasys Ltd. (SSYS) Q2 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Q2 2019 Stratasys’ Earnings Conference Call. 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] As a remainder, this conference call is being recorded. . :

Thank you, Ashley. Good morning, everyone, and thank you for joining us to discuss our 2019 second quarter financial results. On the call with us today are Elan Jaglom, Interim CEO, David Reis, Vice-Chairman and member of our Board’s Oversight Committee, and Lilach Payorski, CFO. I remind you that access to today’s call, including the prepared slide presentation, is available online at the web address provided in our press release. In addition, a replay of today’s call, including access to the slide presentation will also be available and can be accessed through the Investor Relations section of our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements including, without limitation, those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes and other future financial performance, and our expectations for our business outlook. All statements that speak to future performance, events, expectations or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed in Stratasys’ Annual Report on Form 20-F for the 2018 year, as well as our report on Form 6-K and the related press release concerning our earnings for the second quarter of 2019, the latter two of which we are furnishing to the SEC today. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today’s call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Certain non-GAAP to GAAP reconciliations are provided in the table contained in our slide presentation and in today’s press release. Now, I would like to turn the call over to our Interim CEO, Elan Jaglom. Elan?

Good morning everyone and thank you for joining today’s call. Our second quarter results reflect continued strong performance in the Americas, our largest market, where we saw revenue growth across systems, consumables, and services. In-line with our long-term strategy, we continue to invest in developing new products that we believe will expand our addressable markets and generate accelerated growth beginning 2020. Over the coming two years, we anticipate multiple major product introductions of new systems, platforms and technologies, subject to R&D timeline. Our focus on operational efficiency has allowed us to continue generating earnings and profitability even as overall revenue growth remains relatively flat after excluding divestments. We believe we are well positioned to continue expanding in manufacturing, rapid prototyping and photo-realism design, as well as in our target verticals of aerospace, automotive, healthcare, and dental. Additionally, our emphasis on innovation and select partnerships over the last several years is opening new incremental opportunities that along with our healthy balance sheet will support our accelerated growth plan beginning in 2020. We are excited about the market response to the new products that we have recently launched, and about several additional announcements we plan to make later this year and in 2020. Our positive America top-line results in the second quarter were offset by our disappointing performance in EMEA. We believe that our sales are being affected primarily by the significant economic weakness in Europe that is impacting capital investments and general spending in the European automotive and industrial machinery markets. Our results were also unfavorably impacted by foreign exchange rates in Europe and Asia-Pacific. Despite the revenue weakness we are experiencing in Europe, we continue to see high levels of customer engagement and are encouraged by the interest in deploying our solutions there. We believe that we are well positioned to return to growth in that region once conditions improve. I will return later in the call to provide an update on our search for a new CEO, and David will provide more details regarding the quarter and other items. But first, I will turn the call over to our CFO, Lilach Payorski, who will review the details of our financial results.

Thank you, Elan, and good morning, everyone. Total revenue in the second quarter was $163.2 million, compared to $170.2 million for the same period last year. After adjusting for the sale of our divested entities during 2018, total revenue decreased 2% for the quarter and decreased 1% after also adjusting for constant currency. GAAP operating income for the second quarter was $0.8 million, compared to a loss of $1.9 million for the same period last year. Non-GAAP operating income for the quarter was $9.1 million, compared to non-GAAP operating income of $10.6 million for the same period last year. GAAP net income for the quarter was $1.2 million or $0.02 per diluted share, compared to a net loss of $3.6 million, or $0.08 per diluted share for the same period last year. Non-GAAP net income for the quarter was $8.5 million or $0.16 per diluted share, compared to non-GAAP net income of $8.1 million or $0.15 per diluted share for the same period last year. Product revenue in the second quarter was $110.3 million, a decrease of 7%, compared to the same period last year. Excluding the divested entities and on a constant currency basis, product revenue decreased by 3%. Within product revenue, system revenue for the quarter decreased 10% and decreased by 6% after adjusting for the divested entity and on a constant currency basis, compared to the same period last year. Consumables revenue for the quarter decreased by 4%, compared to the same period last year and decreased by 1% after excluding the divested entity and on a constant currency basis. Service revenue in the second quarter was $52.8 million, an increase of 2%, compared to the same period last year and an increase of 3% after excluding divested entity and on constant currency basis. Within service revenue, customer support revenue increased by 2%, compared to the same period last year and by 4% after excluding divested entity and on a constant currency basis. GAAP gross margin was 49.7% for the quarter, compared to 49.1% for the same period last year. Non-GAAP gross margin was 52.5% for the quarter with no change, compared to the same period last year. GAAP operating expenses decreased by 6% to $80.4 million for the second quarter, as compared to the same period last year, primarily due to the impact of the divestments. Non-GAAP operating expenses decreased by 3% to $76.6 million for the second quarter, as compared to the same period last year driven by a continued focus on administrative cost control and the impact of divestments. The company used $3.8 million of cash from operations during the second quarter, as compared to $13 million of cash generated in the second quarter last year, primarily due to proactive steps to increase inventory levels in order to improve fulfillment time and support product demand. We ended the second quarter with $366.3 million in cash and cash equivalents, compared to $367.8 million at the end of the first quarter of 2019. To recap, we are pleased with our year-to-year growth in Americas systems, consumables, and service revenues, which were offset primarily by the impact of the economic condition in EMEA. Our results reflect continuation of strong non-GAAP earnings, demonstrating the success of our ongoing effort to maintain operation discipline and expense management as we continue to improve profitability. We continue to enjoy a healthy balance sheet and are well positioned to take advantage of opportunities moving forward. I will now turn the call back over to Elan.

Thank you, Lilach. Our search for a new CEO is moving ahead and we continue to meet with excellent candidates around the world from various industries and backgrounds. These candidates have the requisite experience as public company leaders with strong track records of growing their businesses and delivering shareholder value and we are being duly deliberate in our decision-making process. As a reminder, our current Oversight Committee consisting of our Board Members, David Reis, Dov Ofer and Scott Crump continue to work closely with me and with our management team. I look forward to bringing this process to its conclusion and advising you of our decision at that time. I would now like to ask David to provide more detailed information regarding the results of the quarter, David?

Thank you, Elan. Our second quarter results reflects the continuation of the trends we observed in the last several quarters with systems, consumables and service growth in Americas, our largest market where we continue to observe increased adoption of our target verticals of aerospace, automotive, healthcare, and dental. For example, in North America aerospace segment, we are seeing strong sales of our production-focused 3D printers and materials, as well as encouraging early adoption of our recently launched Aircraft Interior Solution. We believe that our ability to meet the strict requirements of the aerospace industry is clearly demonstrated by our NCAMP qualification from NIAR, which we discussed on our last call. As the aerospace industry in general increasing its investments into additive manufacturing, we believe that Stratasys is uniquely positioned to provide the OEM’s and their entire supply chains with our solution. In addition to large deals with several top aerospace OEMs in Q2, we are seeing increased adoption by Tier-1 and Tier-2 suppliers, specifically for jigs, fixtures, and tooling applications. We made several announcements at the Paris Airshow further demonstrating our focus and traction in the aerospace segment. After two years of rapid adoption for both RP and tooling applications, we extended our Boom Supersonic partnership by seven years to span well into their development program and also showcased tooling and end-use parts application that Marshall Aerospace and Defense is addressing with our FDM technology. Additionally, at the Aircraft Interiors Expo in April, Diehl Aviation highlighted their adoption of Stratasys FDM technology, specifically showing a printed curtain header for their Airbus A350 XWB, which is reportedly the largest 3D printing part to be made for passenger aircrafts. As we noted at the beginning of the year, we are focusing on bringing to market innovative new systems, materials, software, and application-specific solutions that leverage our deep knowledge of additive manufacturing and customer requirements to create new, incremental revenue opportunities. The new systems being developed include major developments across our existing technology portfolio of FDM and PolyJet, our upcoming Layered Powder Metallurgy metal platform or LPM, as well as new offerings that will broaden the range of solutions we bring to the markets. As a brief update, we have shipped two Early Bird LPM systems, one to a large metal-focused service bureau and the other to a world-leading automotive OEM. We are pleased with the early market interest in the new products we introduced this year including the F120 and the V650 and expect to see the impacts ramping in H2 2019. Additionally, in the back half of 2019 and into 2020, we intend to make several additional announcements including more details on our LPM metal platform, progress on our High-Speed Sintering platform developed in partnership with Xaar, as well as exciting new advancements both in FDM and PolyJet. We continue to expect at the beginning in fiscal year 2020, on the strength of our R&D and sales and marketing efforts, we will begin seeing accelerated revenue growth. I would now like to turn the call over to our VP of Investor Relations, Yonah Lloyd, who will provide greater details on our 2019 financial guidance. Yonah?

Thank you, David. We are providing full year guidance for 2019 as follows: Revenue guidance of $670 to $700 million. We currently believe that revenue will be closer to the low-end of the range, depending primarily on economic conditions in Europe. GAAP net loss of $17 to $3 million or $0.31 to $0.05 per diluted share, compared to previous guidance of a GAAP net loss of $22 to $12 million or $0.40 to $0.22 per diluted share. Non-GAAP net income of $30 to $38 million or $0.55 to $0.70 per diluted share; non-GAAP operating margin of 5.5% to 6.5%; Capital expenditures projected at $30 to $45 million, compared to the previous guidance of $45 to $60 million. Non-GAAP earnings guidance excludes $23 million to $24 million of projected amortization of intangible assets; $22 million to $24 million of share-based compensation expense; reorganization expenses and other of $1 to minus $1 million and includes tax adjustments of $2 million to $3 million – or minus $2 million to minus $3 million on the above non-GAAP items. The estimated non-GAAP tax rate for 2019 is impacted by the ongoing non-cash valuation allowance on deferred tax assets that we expect to record throughout the year on U.S. losses. Given the expected ongoing negative impact of not recording a tax benefit on U.S. tax losses on our net income, as well as significant quarter-to-quarter variability in our non-GAAP tax rate, the company believes non-GAAP operating income is the best measure of our performance. Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of our press release and slide presentation with itemized detail concerning the non-GAAP financial measures. Operator, we would now ask if you would please open the call for questions.

[Operator Instructions] Your first question comes from Greg Palm with Craig Hallum Capital.

Hi, good morning. Thanks for taking the questions. Just on the Europe weakness, do you have the revenue number or do you have, I mean maybe the revenue decline? Just kind of curious how bad it was?

Hi, good morning, Greg. It’s David Reis. We are not disclosing the exact number and it was significant. What we see t his quarter, it started towards the end of last year in Q1. But what we see – what we saw in Q2 is a very significant slowdown in industrial activities, specifically with automotive industry, which will impact us in a very significant way mainly in Germany, France, also in maybe The Netherlands and other parts of – this part of Europe. And what was interesting both – is interesting about this slowdown that it include both the decline in CapEx spending, which is impacting our [Indiscernible] sales in the – but also significant cut from the – on the OpEx spending, which impacts directly our consumable sales. Now, if you look at the overall picture, just to expand on your question, and we said it in the script and in the press release, we saw nice growth in all our growth engines in the U.S. in all of them. Asia did okay and the declines that we saw with as we’ve seen in the numbers are coming mainly from Europe.

Got it.

That was the reason I mentioned.

Yes. And then, we’ve heard the term accelerated growth used a lot this morning and just want to be sure that we are still targeting that kind of high-single-digit, low-double-digit growth starting next year. I mean, given some of the recent macro developments, are you still comfortable with that or?

Okay. We could disclaim that we will see in the end, we are on our plan and in some areas even better than our plan on our R&D and the process of introduction of products it’s a continuous effort that started around one or two quarters ago with F120, now the V650 will continue in the coming 1.5 years. And as we said, we expected in 2020, we will start seeing the results of it and growth would be and we hope and we expect in the high-single, low double-digits. And the disclaimer is that they – that we are seeing earlier is of course is R&D, there are some risks, the plan looks good. But we are always cautious about those things and – but this is a current expectation. As I said, we were doing even little bit better than what we expected.

Fair enough. All right. I’ll hop back in the queue. Thanks.

Your next question comes from Troy Jensen with Piper Jaffray.

Hi guys. This is Allan on for Troy Jensen. So I was wondering as – talking about and I was wondering if you guys could comment on whether you guys have been seeing any potential weakness coming from industrial softness as a result of trade?

I hope I understood the question correctly. You ask that if we are consumer and we see – we are expecting to close the U.S. as far as the trade tariffs and so, right?

Yes, just in general if you guys are seeing weakness in the quarter coming from that.

So, we are following, this issue obviously for the rest of the world very carefully. At this point of time I don’t – we don’t expect a significant impact on our U.S. results in the coming quarter, as far as this is concerned.

Okay. So, in Q2, you wouldn’t say as you guys have seen any softness due to trade?

No, again, we don’t there is – we operate globally and we manufacture and move products globally. So there are minor impacts, but they are not significant and as I said earlier with a strong quarter in the U.S. the growth in all parameters of the business and we don’t expect at this point of time a change in this trend in the coming few quarters.

Okay. Understood. And I just want to touch on, I know you highlighted your segments were very positive in the quarter. But I was just wondering if there are any segments you want to call out but then, quite meet your expectations or anchored results anyway such as potentially Boeing’s issues are affecting aerospace, just being an example?

Can you please repeat the questions? It was very difficult to hear. I apologize.

Yes, I was just wondering if there are any segments that didn’t quite meet your expectations or anchored down by things such as whether Boeing’s issues potentially affected aerospace as an example?

No, we don’t expect any such changes or impacts.

Okay. Great. And lastly, just one more thing I wanted to touch on. You guys talked that gross margins to grow going forward through the second half of the year and in 2020 as these new products are released and t he V650 ramps up?

We don’t guide on gross margin, but I hope you can appreciate the fact that despite, I will say – is a quite tough market conditions in some parts of the world. We are quite good in holding our gross margin impact. But nevertheless we don’t guide going forward. Gross margin is widely impacted in our case, not so much on the average selling price, but on the product mix and this is very, very difficult to project.

Okay. Understood. Thank you very much.

Your next question comes from Brian Drab with William Blair.

Good morning. Thank you for taking my questions and first question is just on the guidance. And that’s helpful to know that you are thinking about the low-end of the guidance and when I look at the low-end, that represents a 10% sequential increase for the second half of the year versus the first half. And historically, over the last three years, it’s been 3% sequential increase, second half from first half. Are you expecting the same type of seasonality you typically see in the third quarter, largely, I think that’s been associated with the August vacations in Europe? Is this 10% sequential increase realistic given all that? Thanks.

There are two parts to the answer. First of all Q3. Q3 typically is a slow quarter, by the way not only the Europeans they are going on vacations. This is combined with the slowness in Europe which is significant. You should not underestimate it and again, I am not trying to project how it’s going to change. But it’s definitely not going to fully recovered in the next and the coming quarter. So, Q3 is typically a slow quarter impacted also by the European slowdown, which I mentioned already significant. On the other hand, Q4 is typically a strong quarter. We expect the continuous trends in the U.S. Some of the products that we launch and products that unfortunately I cannot talk about and that would be launched towards the end of the year will have positive impact in Q4. Therefore, the expectation today is that in Q4, if everything goes well, it would be better than the average seasonality effects that you are used to see with Stratasys and this will be impacted by the new products. So we put all this together, which is bringing us to the low side of the range that we discussed earlier.

Okay. And the new products that you are talking about are products that have not been launched yet, or are you also talking about the F120 and the V650 ramping up?

We have three significant products that were launched until today. One is the V650, which is just starting now to get to market. The F120 that we believe will have bigger traction in Q3 and Q4. And there is also a very important product on the – which is called the – which is progressing well and will have also impact I hope in Q3 and Q4, mainly in Q4. And of course that product that we can obviously close which are going to be released in Q4.

Your next question comes from Jim Ricchiuti with Needham & Company.

Hi, thank you. Are you able to tell us what the growth rate was in the Americas? It sounds like you have seen a pretty good – you had a pretty good quarter. Can you give any more color?

We are not quoting, but what I can say that it was, how to describe it, good single-digits and in all parameters of the business.

Okay. And across the verticals, so, what we are seeing or hearing about in automotive is also it’s impacting conditions in the U.S. automotive. Are you seeing any signs of weakening in that market? Or is that just you have more exposure in the European automotive market?

We see those – some of the weakness in the U.S. auto segment, but it’s market leader significantly what we see in Europe.

Okay. And the follow-up question is, as you prepare for this reacceleration in the business next year, how should we be thinking about your operating expense? Because, you’ve done a real nice job in containing OpEx. What should we be thinking about in terms of the new product launches and the support you are going to have to provide from an OpEx standpoint looking out to 2020?

It’s very, very early stages pertaining to 2020. But I think this is the past few quarters and I hope going forward we are becoming and trying very hard to become more efficient. Obviously, with the launches of new products there would be some additional expenses on the introduction of the product, some market expenses. But I hope the way it looks now it would be offset by increase in the revenue. Okay, so, there would be increase in expenses on the SG&A side of it. But I don’t think it’s going to be something dramatic. Our operation is quite big today and we can handle more products.

Okay. Thank you.

Your next question comes from Shannon Cross with Cross Research.

Hi, thank you. This is Ashley Ellis on for Shannon today. Lilach, I was wondering if you could talk to the increase in inventory and I know you said it was to improve fulfillment time and support product demand, but you also increased inventory about $8 million last quarter for those reasons. So, do you feel comfortable with the levels you are at now and then, how much are the new products contributing to that increase? And then I have a follow-up.

So, the increase in the inventory was planned it was something that happens okay. And the rationale behind it was two-fold. We felt that we want to make sure that we are able to surprise mainly hardware but also consumables for sure around the world to everyone and on-time. So we don’t lose anywhere the opportunities because shortage of hardware that we check in before number one. Number two, we believe that by increasing inventory, we will increase at the end of the day the efficiency of our logistic operations. And just to give you an example, by holding higher inventories, you can use your shifts on air shipments to sea shipments, which is very significant on the pure net – a very important impact on gross margin. So, we think that the cash spend is well spent. It was planned. It’s not something happened by mistake. And when we think we have the impact going forward on our operational efficiencies.

Do you feel comfortable with the levels you are at now? Or do you think you will need to sell some more inventory into the channel?

I think we are always looking to reduce inventory. So we are working on it. I don’t know if it’s optimal number but it’s probably very close to the number, but we are consciously looking to reduce the inventory. It could be in other places in Boom or products which are in process, we can become more efficient lining our factories, but the current level, we feel comfortable with it. Just to remind you, we are a consumable – major consumable supplier to our customers. We need to make sure consumables are available globally always. So we felt it’s right level. We think it’s important to highlight to disclose that this increase of $17 million was planned to the dollars. It’s not something that kind of slipped and grew up.

Okay. Thanks. That’s helpful. And then, I was wondering on the metal system you placed – two of your first systems. Was this to plan with the details you provided in November? How is this system progressing overall? Do you still expect that you could commercialize it maybe sometime in 2020? Any update on the product will be great. Thank you.

They will choose us, well there is – last few weeks and so, we just concluded the installations and starting to working with the customers and it’s we call it early bird. It’s a print data machines. The R&D plan is progressing well and according to plan. Regarding the specific launch dates, again it’s a major project and I’ll be cautious to quote a date to it.

Your next question comes from Wamsi Mohan with Bank of America.

Yes, thank you. Good morning. I was wondering if you can just give a little more insight into some of the macro-driven weakness around auto and industrial. What is the behavior that you are seeing at customers? Is it primarily that they are not purchasing new systems? Or are they pulling back on usage of consumables? And if so, like what sort of magnitude of pullback are you seeing which could be temporary and could reverse into the next several quarters? Thank you.

Maybe the best way to demonstrate it is to give you the [Indiscernible] and again, I can’t quote the name of the customer, but a major automotive customer in Europe, subsidiary of a major. We had instructed these employees to stop doing photocopies in color, okay.

Only black and white.

Only black and white, okay. So, what we see is a – I think there is a two from what we read, again, we are not part of the auto industry. We read that there are both macroeconomics issues that had to do with the global economic situation which impact the industry in Europe including the relationship with China. The other elements in Europe has to do with a major R&D and direction decisions that are being taken today by the auto industry respect to the next generation of electric and autonomous cars. So between those two major, major events, what we see on our side from a very narrow perspective of the industry is, a very strong slowdown in capital equipment purchase, which I think coming both from the financial reasons, but also from the slowdown on R&D and the lack of R&D decision of where to go, where the industry is going. By the way from the report I understand this issue is almost a result, but I think you should ask the people from the auto industry regarding the direction. This is one part of it and because of it, because of the slowdown, there is also a halt on OpEx spending which is impacting actual number of prints and number of jobs for example which are being forwarded to service bureaus which are using our equipment and supporting the auto industry in Europe. So, we see the auto industry is slowing and the infrastructure around the auto industry which is used in Europe is also slowing because of them. This is the story.

Thank you.

Your next question comes from Ananda Baruah with Loop Capital.

Hi guys. Thanks for taking my question. A couple if I could for both Elan and for David. Just sticking with Europe, Dave it almost sounded like in your prepared remarks that you are suggesting, you thought it can spread or maybe intensify at least in this quarter, maybe in September quarter, is that an accurate interpretation on your comments to just a lot of a little more context around that? And I have a follow-up.

So, first of all, it’s a big macroeconomic question and that we see a very narrow perspective with it. But I do not indicated I think that the Q3 or Q4 are going to be worth than Q2. I don’t think it will be the case. But Q2 was very good, okay. And the impact of the entire results of Stratasys, okay. Is it the bottom or it’s close to the bottom, it’s very difficult to say. If you ask, you know, my feeling or what I see today, it’s probably nothing to be worst, okay. But I don’t know if it’s prepared. It’s too early.

That’s helpful. That’s very helpful. I appreciate that additional context. And then, my follow-up question is, just with regards to sort of the – as we get into fiscal year 2020, the beginning of the revenue pickup, could you provide a little more context about what is underpinning the forecast there? You guys have been consistently talking about for six months now. Is it directly, I guess, how much is tied to what’s going to be the introduction of new products, so that through the second half of the year, I know there is the F120 and V650 and I know there is the method. But how much of is it tied to new products coming through the year? How much of it tied to sort of R&D plans that you guys have? And then how much might have been tied to conversations or are there visibility which you have currently right now? Just trying to get those as keen as sense as I can as to how you guys are thinking about it. And I appreciate it. Thank you.

Unfortunately, I will repeat what I said in the last quarter. We introduced two new products in the last two quarters and there is string of introduction of new products/new platforms in the coming 1.5 years, okay. A significant number of products and I – going back to my disclaimer, everything is subject to our ability to conclude R&D on time and to deliver on time. At this point of time, we are cautiously optimistic that plans looks good and in some places even better than what we expected. Now all those products, some within the significant products, obviously come with the projections of revenues and profitability. And we said it many times, we will start seeing the impact in 2020 and it will accelerate during 2020 and I think it will be very significant in 2021, okay. This is the current plan. I cannot add more and I cannot disclose obviously what the products, because, the nature of the way we operate.

Your next question comes from Hendi Susanto with G. Research.

Good morning and thank you for taking my questions. In light of weaknesses in Europe, solid demand environment in Americas and lower revenue expectation for the full year, how should we think about the annual operating margin? Do you assume a leaner cost structure that will enable you to maintain that target range? Or should we anticipate full year operating margin guidance in the lower part of that range? And then, additionally, do you expect pricing environment to see some pressure in light of weaknesses in Europe?

Hi, good morning. In terms of operating income, we do not expect to see any changes compared to what we disclosed previously on the guidance, this is the same level. Operating income, although we lower our guidance on a slightly – on a revenue perspective, but we do have the ability to address the expense side in a productive way and we believe that we will be able to maintain the guidance that we provided. Can you please repeat on the second question for me?

The second, whether or not we should expect some pricing pressure in Europe?

I don’t think that in the current situation in Europe, I don’t think that reducing prices would change the overall picture. So, I expect that – that’s – like we said, there we are experiencing a good – despite the situation, a good gross margin. And I don’t expect pricing pressure. We don’t have, as far as it sounds funny, we don’t have too much competition. And the gross margin would be affected on the product mix and on the ASP.

I am showing no further questions at this time. I would like to turn the conference back to Elan Jaglom for closing remarks.

Okay, good. Thank you for joining today’s call. We look forward to speaking with you all on our next quarter. Thank you.

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