Advanced Energy Industries Inc (AEIS) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Advanced Energy fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would like [introduce to] this conference call Annie Leschin, Investor Relations. You may begin, ma'am.

Thank you, operator, and good morning, everyone. Welcome to Advanced Energy's fourth-quarter 2015 earnings conference call. With me on today's call are Yuval Wasserman, President and CEO; and Tom Liguori, Executive Vice President and CFO.

By now you should have received a copy of the earnings release that was issued yesterday afternoon. For a copy of this release, please visit our website at advancedenergy.com.

Before we begin, I would like to mention that AE will be presenting at the Morgan Stanley Technology Media and Telecom Conference on March 2 in San Francisco. And we'll also be presenting at the Susquehanna Semi, Storage & Technology Summit on March 10 in New York. As other events occur, we will make additional announcements.

Now, I'd like to remind everyone that except for historical financial information contained herein, the matters discussed on this call contain certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believe, expect, plan, objective, estimate, anticipate, intent, target, goals, or the like should be viewed as forward-looking and uncertain. Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the markets we serve, the timing of orders received from our customers, and unanticipated changes in our estimates, reserves, or allowances, as well as other factors listed in our press release.

These and other risks are described in Forms 10-Q, 10-K, and other forms filed with the SEC. In addition, we assume no obligation to update the information that we have provided you during this call, including our guidance provided today and in our press release. Guidance will not be updated after today's call until our next scheduled quarterly financial release.

And just as a reminder in today's call, we will refer both to GAAP and non-GAAP results. Non-GAAP measures exclude the impact of stock-based compensation, the amortization of intangibles, restructuring charges, and other non-recurring items. A reconciliation of non-GAAP income from operations and per share earnings is provided in the press release table.

We'll be referring to earnings slides posted on our website as well this morning in the events investor relations section. And with that, I'd like to turn the call over to Yuval Wasserman. Yuval?

Thank you, Annie. Good morning, everyone, and thank you for joining us for our fourth-quarter and full-year conference call. With the completion of the inverter wind down in the fourth quarter, I would just like to mention that all references to financials reflect the continuing operations of our core precision power business.

Following three years of consecutive double-digit compounded annual growth rates in revenue and operating income, 2015 was a strong year for Advanced Energy. Total revenues grew by 13% created by record annual semi revenue, and GAAP diluted EPS from continuing operation climbed 20% year over year even as the semiconductor industry took a collective pause in the fourth quarter.

Our solid cash flow allowed us to accomplish a number of key initiatives during the year including launching and substantially completing a $50 million accelerated share repurchase program and completing the wind down of our inverter business. We are now solely focused on precision power solutions going forward.

In the fourth quarter, total revenues decreased 21% from last quarter mainly due to softness in the semiconductor wafer fab equipment market. The decline in semi was moderated slightly by service revenues, which reached their highest fourth-quarter levels a core precision power service all but negating the typical seasonality, and industrial revenues, which remained consistent with last quarter.

In total, fourth-quarter revenue was $87 million. Non-GAAP profitability was $0.32 driven by solid operating margins for our core precision power business. We put our cash to work during the quarter through the ASR and ended the year with a cash balance of $170 million.

2015 was a strong year in design win activities across our served markets. We made significant inroads in applications for our RF technology in semiconductors and we increased our SAM in a variety of markets. Our success in winning new designs reflects our ongoing commitment to maintaining our leadership in precision power technology and products by investing in R&D and extending the application of our technology into adjacent and new markets.

In the fourth quarter, we won the vast majority of the semiconductor design wins we pursued. Similar to last couple of quarters, we had multiple wins in advanced memory applications including 3D NAND and DRAM.

The industry's transition to 3D devices is generating increasing demand for RF parts, supplies, and accessories. The growing number of steps associated with deposition and etch processes is driving an increase in the number of process chambers for fab and higher content of more advanced power solutions per chamber.

As etching processes become more challenging due to increasing aspect ratios in advanced 3D devices, more advanced RF technology that includes pulsing and increased control in instrumentation is needed. We are capitalizing on these trends and providing a broader range of more complex combinations of RF power and frequencies and launching more capable matching networks to manage and control and deliver power.

In industrial applications, we remain focused on taking our products to new applications and world regions. In our coating applications, we continue to expand the presence and scope of our Solvix product line in important new markets outside of EMEA. This quarter, we won all of the hard coating contests in which we competed, increasing our penetration into Asia and North America where we outpaced our projections for the quarter and the year.

In architectural glass, we won all the design wins we pursued this quarter. As part of our strategy to accelerate growth by providing new technology for retrofitting existing glass lines and allowing the end users to reuse and repurpose their capital equipment, we saw both new coater and retrofit wins in the quarter. We also had success in securing wins in Europe and North America in decorative film supposition and roll-to-roll coating applications.

In the high voltage market, we made gains across an array of industries ranging from defense to analytical equipment. In keeping with our strategy to expand our SAM, this quarter we targeted N1 designs in key applications such as mass spectrometry and industrial x-ray where we had a notable win in Japan and outpaced our projections for the year. In our PCM business, in addition to our US partnerships, we realized initial revenue from our second industrial automation partner in Europe.

Now let me turn to our quarterly results. The fourth-quarter marked what we believe was a temporary but substantial dip in the current semiconductor cycle. Driven by delay in the migration to next-generation technology into mass production and inventory adjustment from memory overcapacity, revenue from semiconductor applications fell 31% from last quarter.

Even as the semi-equipment industry experienced this pause, the megatrends of mobility, connectivity, and the cloud continue to increase demand for higher density memory, high-speed logic devices, and lower power consumption. Capital spending across the industry should lend itself towards major trends including the move to next-generation technologies such as 3D devices both FinFET and NAND, 3D packaging, and multi-patterning in logic and foundry, supported by the initial ramp of 10 nanometers.

These areas are driving a significant expansion of the market for etch and deposition steps. With our exposure to these areas and our recent win rates in advanced RF applications, we expect to grow faster than the wafer fab equipment market. In the first quarter, we looked for a significant double-digit recovery in our semiconductor revenues as logic and foundry buying resumes and investment in memory upgrades continues.

Revenue from industrial applications remained at similar levels to last quarter with a change in mix. Our new retrofit strategy to extend the life of older glass coating machines with a new bipolar DC technology drove significant increases in architectural glass revenue. This helped offset the decrease in flat panel display in the quarter.

General industrial applications remained flat in the quarter with mixed results across a variety of applications. Importantly, we saw increased penetration in high voltage industrial x-ray with several new projects including our first win in Asia.

Furthermore, as we grow our sales channel and broaden our reach into various markets such as industrial thermal applications, we are starting to see power control module revenue from our industrial automation partnerships. Looking into the first quarter, we expect to see a softening in industrial applications driven primarily by lower demand for architectural glass and hard coatings after a strong fourth quarter.

Excluding the remaining service associated with inverters, core precision power service reached a fourth-quarter high offsetting normal seasonal declines. The business fundamentals continue to work in our favor as we believe that the recent focus on total cost of ownership among leading fabs is resulting in a significant push towards higher quality global maintenance and service organizations such as AE.

As companies see the increased value of higher uptime resulting from fewer repairs and timely upgrades of their equipment, we are gaining market share. In conjunction with new service offerings in upgrade and retrofits, we expect to see steady sustainable growth in our service business.

Finally this quarter, we began to execute on our capital deployment strategy to effectively utilize our cash and return value to our shareholders. During the quarter, we launched and completed a $50 million accelerated share repurchase as part of our three years $150 million share repurchase program announced in September. This initiative is part of our overall capital deployment strategy also announced in September to utilize approximately 70% of our future free cash flow for organic and inorganic growth investments and 30% for share repurchases.

In summary, even during a cyclical downturn, the strength of our business model remains evident. While revenue performance in the fourth quarter was hampered by investment delays in semi, the diversity of our applications allowed us to reduce the effect of the cycle. Our financial model generates strong profitability in cash at the peaks as well as the trough of the investment cycle.

After the fourth-quarter pause, we expect to see an improvement in first-quarter revenue as investment in semiconductors return. With our focus solely on precision power moving forward, we are better positioned as a leader in the industries we serve. We remain committed to accelerating revenues both organically and inorganically, driving targeted operating margins, effectively deploying our cash, and returning value to shareholders.

I would like to thank our customers, partners, shareholders, and our valued employees for their support. Thank you for joining us, and we look forward to seeing many of you in the upcoming quarter. I would now like to turn the call over to Tom. Tom?

Think you, Yuval. Before I begin, let me just remind everyone that as of the fourth quarter, all inverter revenues, costs, assets, and liabilities are reported in discontinued operations. The Company's financials have been recast for the prior two years to show the core precision power business.

On slide 13 of the fourth quarter highlights of our continuing precision power business, the financial results were in line with our expectations. Revenues were $86.9 million. Non-GAAP operating income from continuing operations was 20.7%. Non-GAAP earnings per share from continuing operations were $0.32.

During the quarter, we completed a $50 million accelerated share repurchase program as part of the $150 million three-year repurchase program announced in September. Including the ASR, we ended the quarter with $170.4 million in cash and marketable securities. Sales by market are shown on slide 14.

Semiconductor sales were $50.2 million, a decrease of 29% year over year and 31% sequentially due to the industry-wide pause in the fourth quarter. Industrial sales were essentially flat from Q3 at $21.2 million moderating the decline in total revenues. Service revenues of $15.5 million were flat sequentially and decreased 9% year over year.

The decline is associated with a small piece of inverter service business that we are continuing in order to support our customers' installed units. Going forward, total inverter service revenue is expected to be slightly over $1 million per quarter. Excluding that portion, service revenue from core precision power was the highest the Company has experienced in a fourth quarter.

Turning to slide 15 and the non-GAAP information. As a result of the fourth-quarter decrease in revenues, non-GAAP operating income and EPS also declined sequentially and year over year due to the lower volumes.

We continue to make progress toward our goal of reducing by half the $8 million to $10 million of stranded shared corporate overhead costs. To date, we have implemented steps that we believe will reduce these costs by approximately $4 million annually, putting us well ahead of our timeline to achieve these reductions by mid-2016.

On slide 16, our Q4 tax expense was 20.8%. For 2016, we anticipate our normalized tax rate for the business will be approximately 15%, assuming existing tax regulations. The difference between our Q4 rate and 15% was primarily tax valuation allowances associated with the wind down of the inverter business.

On slide 17, we ended the year with $170.4 million in cash and marketable securities, at a sequential decrease of $23 million after utilizing $50 million for the accelerated share repurchase launched in the fourth quarter. We completed the wind down of the inverter business on schedule and budget. All production and customer shipments were concluded in the fourth quarter.

Cash costs for the wind down in Q4 were $2 million bringing the total for the year to $14 million, well below are estimated range of $20 million to $30 million. Total restructuring costs in Q4 were $32 million, bringing the total for the year to $260 million, at the low end of our original estimate of $260 million to $290 million.

Finally, our 2015 results are on slide 18. Despite the dip in the fourth quarter, we achieved double-digit growth in revenues, operating income, and EPS from continuing operations. We increased our cash balance by over $45 million during the year, even after the cash cost to wind down the inverter business and the accelerated share repurchase.

Overall, we have created a strong highly profitable model around our precision power business that continues to drive sustainable growth through industry cycles. Our leading position in a number of high margin applications, including advanced memory and semiconductors, and a variety of industrial markets to drive solid margins and continue to differentiate our operating model from our peers. With our healthy cash flows, we plan to execute on our capital allocation plan to organically and inorganically grow revenues and profits while also repurchasing shares to meaningfully lower our share count and provide value to our shareholders.

Turning to slide 19 detailing first-quarter 2016 guidance. We anticipate a return to capital spending by our semiconductor customers, offset somewhat by some of our industrial markets as they digest recent large purchases. Our streamlined cost structure should allow us to generate non-GAAP operating margins within our target range.

This concludes our prepared remarks for today. Operator, I'd like to open the call for questions.

(Operator Instructions)

Edwin Mok, Needham & Company.

Congrats for a good quarter. First question, I guess, just generalized question in terms of visibility in the semi-cap, you mentioned that you had solid double-digit growth for the quarter. I think mid-point maybe around what, 15%, 20% growth this quarter? Do you think that level is sustainable beyond this quarter and do you think we could see more growth beyond that?

We expect to see a double-digit growth from Q4 to Q1. We expect to see -- right now from our vantage point in looking at the key drivers, talking to the market stakeholders, customers, partners, we expect to see a continuing growth but not at the same level throughout the year. And if you look at the -- the way we view 2016, compared to 2015, is a moderate growth in semi-wafer fab equipment. We expect to see different mix of products between the first half and the second half. But, overall, we expect a moderate growth between the years.

I see, okay. Good, thanks. And then, on the industrial side, you mentioned about a number of wins which is helpful, but overall in terms of overall revenue, we haven't seen much growth over the last few quarters, right? I was wondering if you can kind of give us some general sense when would those wins convert into revenue. In terms of how do we count -- any way we can now quantify it or give a sense in terms of how big each one of those [how some say munlight], or architectural glass, flat panel display, hard coating, or the other industrial, if you can quantify roughly how big are each sub-segment within this whole industrial group that you are reporting?

Okay. Let me start with design wins. Normally, in the semiconductor equipment business, the transition between the design win and mass production, mass volume, can take up to two years, and sometimes even longer. Depends on the application. Depends on the adoption and the position in the market to the end-product ramp. So, a lot of the growth that you see today coming from, for example Q1, revenue that is driven by foundry investment and next year is transition into a more 3D devices, this design wins were made 18 months ago to 24 months ago. Some of the design wins that we continue to win are a different application, different mix, and different world regions and obviously are affected by the mix of the revenue generated by those OEMs. That's for the semi.

On the industrial world, it's a very, very mixed and we don't break it down to its components. We have some cases where design wins take longer than normal industrial, similar to the semi world, especially in highly regulated industries like defense, aerospace, medical. In other industries or applications, design wins can take a few weeks and convert immediately to revenues. It's a very -- it's a mixed bag.

I see. Okay. That's helpful color. On the 1Q guidance with the revenue recovering -- your total revenue recovering, should we assume gross margin will get back to that low 50%s level that we have seen over the last few years? And then, as your volume increase, assuming, like you said, semi continuing overall, right, how do you think about gross margin longer term? Any way you can give us some long-term yardstick or target as volume increase?

I will ask Tom to answer about profitability.

We focused on operating margin, and we think of it terms of 20% to 25% on a non-GAAP basis. The 20% would be at lower volumes more when we are closer to $80 million of revenues in the quarter, and as we approach $100 million, it would be the 25%. If we exceed $100 million, or if we had very good product mix, then we can also be over the 25%. We tend not to look at gross margin operating expense because through our movements between the two and the true measure of profitability that we've geared everybody inside the Company is on our operating margin. Make sense?

Okay. Okay. That's helpful. Lastly, just cash and balance sheet, you guys always have quite a bit of cash on your balance sheet and you have a capital return program but you also talk about reinvesting, so I assume M&A is still on the table, at least acquisition is still on the table. Any way you could kind of give us some sense in terms of how you think about acquisition, does it have to be accretive, is this all pretty margin target -- high-level target you look at when you look at a business to acquire?

Two pieces to the answer right now. We're looking right now at target acquisitions that will allow us to diversify and expand in growing new adjacent markets in new markets and applications. Obviously, opportunistically, if there are acquisitions that are in our current space that meet our very rigorous screening process, we can entertain those as well. We do manage a healthy pipeline of opportunities, but the important thing is, we have a very, very rigorous process of screening and measuring, and making the right decisions when we pursue an acquisition.

In the Precision Power Product groups, during the last 2.5, 3 years, we acquired four different product lines or companies and all of them were accretive very quickly. All of them contribute and continue to contribute, and continue to grow in new world regions and applications. So we are very happy with the track record of the Precision Power Product group, and we are very rigorous in the way we approach those in terms of making the decision and executing on the integration and acquisition. Tom, do want to add anything to that?

I think that's a good description. Financially, we have targets short term and long term; they're guidelines. In the short term, we would like any acquisition to be really equal or better than a share repurchase, and overall long term, we want them to be greater than a 15% return on our investment. Those are guidelines. That's how we filter and decide which acquisitions to take to the next steps.

Okay. Great. That's all I have. Thank you.

Thanks, Edwin.

Joe Maxa, Dougherty & Company.

On the industrial side, you talked about a bit of softening in Q1. I understand that the different moving pieces, but how do we look at it moving through the year and are you seeing any macro concerns related to the segment?

Good question. The softness we expect to see in Q1 in the industrial is driven by the fact that we had a strong Q4, and some of the large investment made in glass and hard coating are being digested by our customers. In 2016, we are going to be exposed to macro economical forces, and one of the areas that will affect our glass business is what happens in China, for example. As the market declines in terms of investment in infrastructure, we expect to see softness in glass forming and glass coating applications, but at the same time we are driving to compensate for that by going back and retrofitting old glass coating lines with new technology. So, we are addressing the market by allowing the end-use customers to repurpose and upgrade their capital equipment. In large, you can look at our industrial market as driven by GDP.

I see. Okay. That's helpful. And then, just on the solar inverter-related service revenue, you said $1 million going forward per quarter. Is that -- how long do you expect that to continue? Is that -- it just sounds like a long, several-year --

Sure, that will continue well into the future, beyond 2016.

Okay. That's all I had. Thank you.

Thank you, Joe.

Mehdi Hosseini, SIG.

I want to go back to your commentary on the thin film semiconductor. Over the past couple of years, your quarterly revenue has peaked in the low $70 million and your OEM customers have talked about a flattish WFE spend this year. Because the background, would you be able to hit those peak quarterly revenue given what your customers have communicated over the past couple of weeks?

I'm not sure I understand, Mehdi, the question. (Multiple speakers.)

Let me rephrase. If you look at the past two years, your semiconductor revenue has peaked in the low $70 million per quarter, $70 million to $72 million, and you're starting 2016 with a very strong sequential growth. And since your customers have talked about a flattish WFE expand environment, I'm trying to understand if you would be able to hit the prior quarterly revenue run rate of $70 million to $72 million.

Okay. I understand the question. Thank you, Mehdi. Two things. Number one, if you look during the last three years, from 2012 to 2015, we have demonstrated a growth rate that is higher than the wafer fab equipment market. So, we continue to deliver on our mission to grow faster than the market we serve. Now, the main driver -- there are a few drivers for that, right? Obviously, our concentration around power solutions that serve the deposition and etch market allow us to serve an application space that grows faster than the market because of the migration to new technologies. We also added new applications over the last three years, applications that we never had before.

The high voltage power supplies that go to ion implantation, to wafer metrology and inspection. These are applications we did not have historically which basically created an incremental growth and incremental space or serve available market for the Company. In addition to that, we expect through the combination of a higher event than the market growth in deposition and etch, higher RF content in these specific applications, combined with market share gain in some areas, that we will continue to grow faster than the wafer fab equipment. So to the question is, do we believe we can go back to the historical levels that we had in the past, that is our plan, and exceed that.

Okay. Got it. My takeaway is that you should be able to hit those historical trends, given increased application for your products. Now, question for Tom.

We plan to meet or exceed the historical levels.

Got you. Okay. Thanks for detailed color. And the question for Tom, you mentioned operating margin target of 20%, 25%, I want to better understand the drop-through, especially if your overall revenues exceed $100 million. Can you quantify what would happen for every dollar of revenue to the operating profit as you exceed $100 million run rate? I'm asking you for operating drop-through, not a specific margin.

I would -- rather than quantify it, Mehdi, I think if you look at 2015, you look at some of the quarters where we were over $100 million, you'll see that we were 26%, 27%. I think, one quarter, we were at 30%. There's a lot of leverage in our model, which we are very excited about. That's the way to think about it.

Anything above $100 million, should I assume at 30% operating drop --?

No. No. Anything over $100 million, you should -- assuming we have good product mix, or similar product mix, we should be over 25%. And my reference to 30% was that, in one quarter, no, we had very good revenues and we had a very good product mix and we did hit 30%. So when you look at what is possible, yes, on a very good quarter, 30% is possible. But I would tend to look at -- for modeling, look at our last four quarters. We track it. In fact, I think posted on our website is our last investor relations presentation, and we show you the last eight quarters and the operating margin. And you can get a pretty good feel for, model-wise, where we would be at different levels.

Got you. One last item. What is the CapEx spending for this year?

Think of our CapEx spending between $4 million and $8 million. We are a company that doesn't take a lot of capital to grow, which is really a good thing.

Yes, very low capital.

And, if you looked at -- if you take our balance sheet and look at our return on equity, for 2015 continuing business, it was 31%, I believe. We have very good profits, very good generation, plus we don't use a lot of capital. So when you look at return on our shareholders' equity, it's quite high.

Got it. Thank you.

Thank you.

Pavel Molchanov, Raymond James.

One more on the M&A front that you guys already addressed. You reference some of the stress in some of the industrial value chains -- certainly China comes to mind. In that context, are you seeing potential M&A multiples coming down? Or is there still a bit of a bid-ask spread, let's say?

It's a great question, Pavel. What we saw this year, and currently, in comparison to recent acquisitions we have completed in 2014, we see that the multiples right now are significantly higher. We can't predict what will happen going forward into 2016, but I can tell you that, if you look now, on average, in the industrial world, we see typical multiples of 8 to 10 times EBITDA for industrial acquisitions compared to much more than that, that we paid when we acquired the companies we did. So, there is a higher, more frothy multiples right now.

I really cannot predict what will happen in the future, but that's the picture right now. Obviously, as we apply our very rigorous evaluation process, we are very careful to look at, as Tom suggested, we are looking at the short-term and long-term return, and we're very diligent about that.

Okay. And then, on broader uses of cash, now that you're a pure precision product, semi-cap focused company, and many of your peers, of course, pay dividends as it stands, are you at all open to initiating a dividend?

We are always reviewing our capital deployment plan. And, right now, we are focused on share repurchases, bring down the share count meaningfully, and completing the $150 million authorized program. So, that's not a no. That's, right now, we are focused on repurchases and getting through the program. And we think that has a lot of shareholder value. But we continually evaluate and we're open to alternatives.

All right. Appreciate it.

Thank you.

(Operator Instructions)

Weston Twigg, Pacific Crest.

Just real quickly, following up on Inverter services. It looks like some of the numbers have been shifting around on past quarters. Q3 maybe we added a couple million dollars. How much was in services related to inverters in Q4 just for reference?

About $1.5 million.

$1.5 million? Okay. And that just drops to $1 million moving forward? Got it.

Yes.

Then, looking through the operating model, R&D was really low in Q4. Is that same kind of a low number a good number to use moving forward, or does it fluctuate with revenue moving forward?

That's a really good question. Let us explain that. If you look at our 2015 full-year income statement, and look at operating expenses, what you should expect in 2016 is that there are additional cost reductions in the G&A, which you see as SG&A, and the G&A will come down by about 100 basis points. Our intent is to reinvest just about all of that into R&D, and sales and marketing, to expand our presence for the industrial markets. So, you will see a shift of lower G&A, and clearly higher R&D spend, and higher sales and marketing spend in 2016.

We're investing for our growth, Wes.

Got it. That's helpful. I want to come back to this operating margin target of low to mid-20% range. It feels like it's the wrong number given that, last year, I think you are showing something like 25% to 27% ex-inverters you're tracking ahead. Even on a really low quarter, last quarter, and you gave us some more color on the call, but you were still over 20%. Moving forward, is that -- should we really be using something in the 25% to 30% range moving forward, or is there something that's holding you back from going that high?

This quarter, we're at 20.7%. I think you do see that we are -- we use that range.

Fair enough. But you have had a lot of quarters over $100 million and it feels like --

We clearly have upside, and we have potential for over 25%. That's very true.

Got it. All right. Thank you.

Weston, it is strongly dependent on the mix. And, as you know, in our industry, we have changes in volume and mix quarter by quarter. Especially now as semi becomes more concentrated and investments are more lumpy. And that mix will impact, obviously, our operating income, and both volume and mix will affect that. Do we have the opportunities in the future to exceed 25%? Yes. Should we bank on that as a standard? I wouldn't suggest that.

Helpful. Thank you.

Edwin Mok, Needham & Company.

Quickly on foreign exchange impact, I guess a two-part question. Given that most of your manufacturers are in China and the weakness of the Chinese yuan, does that help you in gross margin? And then, secondly, I noticed in the fourth quarter you guys have a pretty large interest in other expenses. Was that foreign exchange impact and should we expect that to continue and go into the new year?

Yes, a couple of things. In general, foreign exchange for Advanced Energy, it really hasn't been material and I would expect that to be the same in the future. As with respect to gross margin and China, yes, it does help. But keep in mind a lot of material is in US dollars anyway, so it's not -- again, it's not a material help in interest expense. Yes, there's a piece of FX. There's also amortization of our credit line costs in there. So, overall, Edwin, the way our contracts are structured with our customers, the way we price, the denomination of some of our cost of sales, it hasn't been a material swinger and we expect it to remain stable in our income statement.

Great, that's all I have. Thank you.

I'm not showing any further questions at this time. I would like to turn the call back over to Yuval.

Thanks, everyone, for joining us this morning. We had an exciting 2015. We're looking forward to a better 2016. Looking forward to seeing most of you in the upcoming quarter. Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.