AXT Inc (AXTI) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the AXT Inc. second quarter 2008 earnings release for July 30, 2008. I would now like to turn the meeting over to Dr. Phil Yin, Chairman and Chief Executive Officer. Please go ahead, Dr. Yin.

Thank you. Good afternoon, everyone, and welcome to AXT's second quarter 2008 conference call. I am Phil Yin, Chairman and Chief Executive Officer. I would like to thank you for taking the time to be with us today. With me today is Wilson Cheung, our Chief Financial Officer. Wilson will take you through a detailed financial overview of our second quarter results and then I will give you my perspective on our markets and future opportunities. Following the conclusion of my comments, Wilson will provide forward-looking guidance and then we will open up the call to your questions. Wilson.

Thank you, Phil. 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 and our ability to maintain profitability, growth in our customer base and expansion of our adjustable markets, increasing market share, progress in our product qualifications with customers, our ability to resolve technical issues resulting in increased shipments, growth in our gallium arsenide and germanium substrate businesses and continuing demand for new and existing customers as well as other market conditions and trends. We wish to caution you that such statements deal with future events, are based upon management's current expectations and are subject to risks and uncertainties that would cause actual events or results to differ materially.

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 and available online by link from our website for additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at axt.com through July 30, 2009. Also, before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the second quarter. This press release can be accessed from the Investor Relations section of AXT's website at axt.com.

Now, turning to our financial results. The revenue for the second quarter of 2008 was $19.9 million compared with $19.6 million in the first quarter of 2008. Gallium arsenide substrate revenue was $13.1 million for the second quarter of 2008 compared with $13.7 million in the first quarter of 2008. Specifically, six inch diameter wafer sales were $5.5 million for the second quarter compared with $5.9 million in the first quarter of 2008. Phil will explain the shortfall of the six inch later in the call. Indium phosphide substrate revenue was $500,000 for the second quarter of 2008 compared with $478,000 in the first quarter of 2008. Germanium substrate revenue was $1.4 million, same as the first quarter of 2008.

Finally, sales of raw materials, primarily 99.99% pure gallium, were $4.9 million in the second quarter of 2008 compared with $4 million in the first quarter of 2008 as we shipped more orders to customers to avoid transportation restrictions prior to the commencement of the Beijing Olympics. We expect sales of raw materials to return to about $3 million to $3.5 million in the third quarter. In the second quarter of 2008, revenue from North America was 27%, Asia Pacific was 53%, and Europe was 20% of total revenue. Two greater than 10% customers generated a combined 22.7% of our revenue during the second quarter while the top five customers generated 34% of our second quarter revenue. Gross margin was 32.3% of revenue for the second quarter of 2008. This included a benefit from the sale of approximately 735,000 in fully reserved wafers which positively affected the quarterly gross margin by 3.7 percentage points. By comparison, gross margin in the first quarter of 2008 was 31.7%. This included a benefit from the sales of approximately 620,000 in fully reserved wafers which positively affected first quarter gross margin by 3.2 percentage points.

Excluding stock compensation expenses, selling general and administrative expenses were $3.5 million for the second quarter of 2008 compared with $3.5 million in the first quarter of 2008. On July 3, 2008, we entered into a new lease agreement with the landlord to be effective December 1, 2008. We expect the new lease will save us approximately $2.6 million over a seven-year period. Also, excluding stock compensation expenses, research and development costs were $540,000 for the second quarter of 2008 compared with $472,000 for the first quarter of 2008 as we continue with more product testing and R&D.

Total stock compensation expense was $151,000 for the second quarter of 2008 of which $10,000 was in cost of revenues, $112,000 in SG&A and $29,000 in R&D. Income from operations for the second quarter of 2008 was $2.3 million compared with $2 million in the prior quarter. Net interest and other expense for the second quarter of 2008 was $925,000 compared with net interest and other income of $552,000 for the first quarter of 2008. Our second quarter 2008 other expense of $925,000 included foreign exchange losses of $593,000 primarily due to AR collections from Yen denominated customers and from our China joint ventures who sell raw materials denominated in US dollars, and the loss and sale of investment up $133,000.

Our first quarter 2008 other income of $552,000 included a gain on the sale of investments of $459,000. Our tax provision for the second quarter of 2008 was $635,000 compared with $560,000 for the first quarter of 2008. The increase was due to a higher percentage of revenue and a net income contributions from our China joint ventures. Due to the impact of the foreign exchange loss of $593,000 plus the loss and sale of investment which made up approximately $0.025 EPS, our net income in the second quarter of 2008 was $737,000, or $0.02 per diluted share. By comparison, in the first quarter of 2008, we reported net income of $2 million or $0.06 per diluted share which included approximately $0.015 to $0.02 EPS from our gain and sale of investments.

Let's now look at our cash on the balance sheet. Cash and cash equivalents with maturities less than three months, short-term investments and other investments in high-grade debt securities with maturities of less than two years, including restricted deposits, were $43.4 million at June 30, 2008, compared with $46 million as of March 31, 2008. As I mentioned last quarter, we have notified the bondholders to pay down our debt and accordingly on July 1, 2008, we paid down $6.4 million and released all of our restricted cash. Accounts receivables net of reserves was $13.6 million at of June 30, 2008, compared to $16.7 million at of March 31, 2008. Day sales outstanding was at 62 days for the second quarter compared with 77 days in the prior quarter. Net inventory was $38.9 million at of June 30, 2008, compared to $29.1 million as of March 31, 2008.

As we noted last quarter, we continue to build inventory of raw materials prior to the commencement of the summer Olympics to avoid transportation restrictions. Also, we increased our work in process inventory for higher production based on higher sales forecasts for the remainder of 2008. And finally, we increased our finished goods inventory as we shipped out more to customers on consignment. Our cash use and operations for the second quarter was approximately $100,000. Depreciation and amortization in the second quarter was $507,000 and capital expenditures were at $2.5 million. As of June 30, 2008, the Company, including consolidated joint ventures, had 1200 total employees, of whom 965 were in production. This concludes our financial review. Let me now turn the call back to Phil.

Thank you, Wilson. Despite the near-term setbacks to our gallium arsenide revenue results in the second quarter, our business as a whole performed very well. We experienced strong growth in several key accounts and we made significant progress in qualifications with tier one customers across all of our major product lines. The ongoing diversification that we have achieved over the last two years allowed us to weather three unexpected events, meeting our revenue goals and exceeding our operating target in the second quarter. Further, the market for our products has remained solid with the exception that some cost and continued to provide opportunities for growth in Q3. But let's begin by giving you a little more color on the events that affected our second quarter revenue.

As Wilson mentioned earlier, we had three primary issues in the second quarter that collectively impacted our gallium arsenide revenue causing an overall net decline of approximately $400,000 from the prior quarter. The first event was a major US customer closing its operations during the second quarter resulting in a loss of revenues from them for six inch gallium arsenide substrates. The second issue we face was that a major non-US customer shut down its operations for two weeks for routine annual maintenance. And, finally, we also encountered a parametric issue with six inch substrates with the same customer due to a change in their application of our substrates during the second quarter. While we're working closely with them to reach a solution and our shipments of six inch substrates have already begun to resume in the third quarter. We expect our shipments to continue to ramp over the balance of 2008.

While the pause in our growth was disappointing, especially given our momentum in recent quarters, we believe that most of the revenue will come back over the next few quarters. Further, the impact to our revenue from these issues belies excellent progress at several other accounts. We significantly increased our shipments to another US-based company responding to very positive growth in their business. Further, while the handset market showed pockets of weakness, we continued to benefit from solid growth at a number of key suppliers. We believe that this is the result of certain market share shifts at the handset level that have favored our customer base. Also, the handset market sales mix currently seems to reflect the higher percentage of video and smart phones and successful new offerings from Apple, Samsung, LG, RIM, Nokia and others. The increased feature sets and functionality of these devices drive gallium arsenide content.

We believe that sales of these types of phones will continue to increase as customers are demanding more robust and intelligent mobile computing devices for enterprising grade mobility and portable entertainment. Further, we noted last quarter we believe that our growth is also coming from our own market share gains as we have continued to expand our production capability to support our customer's needs have made meaningful progress with high priority accounts that have done limited or no business with AXT in many years. In fact, based on some of our major customers' future forecast requirements, we're in the process of implementing a 27% expansion of our six-inch semi-insulating gallium arsenide capacity to be completed in Q4 of this year. We believe that this expansion will increasingly be beneficial as we continue to see major industry trends toward large diameter substrates.

Strategy analytics is now estimating the merchant demand for four inch material will decline by more than 20% by 2009 as demand shifts to six inch material which will increase from 63% of the total market revenue in 2007 to 76% in 2012. This shift is very positive for AXT as we have the facilities necessary to accommodate this growth in demand and the capability to build our own growth crystal growth furnaces at a significant discount versus commercially available furnaces. In total, we believe that our gallium arsenide business is very solid and we will see resumed growth in the third quarter.

Let's turn to semiconducting gallium arsenide. We continue to see a proliferation of LED devices and an increasingly broad array of applications. In particular, shipments to general illumination, automotive, flat panel TV, and signage and display applications are expected to show strong growth over the next five years. We continue to selectively pursue opportunities that allow us to penetrate these and other high-volume applications while preserving our gross margin performance. We're pleased to report excellent progress in our qualification of two major LED manufacturers and look forward to completing the process in the second half of this year. We're also pleased to report that we will begin moving to more automated processing of our small diameter substrates in Q3 to further enhance our quality and improve our manufacturing efficiency and cost control.

Turning to germanium substrates, we continue to see strong worldwide interest in photovoltaic technology. Europe continues to lead the rest of the world with the greatest number of installations in Spain and, in addition, government subsidies in the US, Asia and Australia are promoting the development of technology around the world. Concentrated photovoltaic comfortably holds the record for conversion efficiency of solar energy delivering near 40% compared with less than 20% for silicon. In fact, strategy analytics recently reported that they expect the germanium-based market for terrestrial photovoltaic materials to grow by approximately 133% through 2012 to reach approximately $3.5 billion. Further, expect the concentrated photovoltaic segment of that market to increase from the current 1% to reach about 10% by 2012.

In terms of our own revenue from germanium substrates, following a very strong first quarter where our revenues doubled from the quarter before, our second quarter revenues were approximately flat at that higher level. We are currently in volume production with two customers and we have a third customer in the final stages of qualification. We also have three other customers in qualifications and expect to see continued growth in our germanium substrate revenues throughout the year. With the worldwide focus on alternative energy such as wind, biofuels, nuclear, and other sources, solar energy with all of its various technologies maintain its robust growth well into the next decade. In fact, we're seeing many of our customers that have excess [epi] capacity not only requests pricing for our germanium substrates, but also forward pricing for an expected industry conversion to six inch diameter.

Turning to our raw materials, revenues in this area were a bit stronger than normal in Q2 as a result of accelerated shipments from our joint ventures due to the potential transportation restrictions on shipments leading up to and during summer Olympics. As we reported last quarter, we have built some raw materials inventory of our own in order to protect ourselves from the likelihood that we may not be able to transport raw materials from our current ventures to our manufacturing facilities during this time frame. We believe that these precautions will be sufficient to ensure smooth shipment schedule of our production throughout the quarter. In general, we see pricing for raw materials and arsenic beginning to stabilize as expected in our joint ventures continue to sell to their capacity creating positive gross margins upside for us. Demands for [4N] pure gallium arsenide continues to be so strong that our joint ventures implementing approximately 50% capacity increase, bringing it up to 30 metric tons of raw materials supplied by the end of the year.

In conclusion, although the macroeconomic environment remains somewhat uncertain, we believe that our growth is more related over the short and long period to the industry trends that are converging in our favor in the market share begins we continue to make. The US market is an important end market for many of our customer's products and weakness here has prompted us to continue to be conservative in our planning and outlook but the gallium arsenide market will continue to grow both as handset and LED applications push the demand for higher efficiency and low power devices. Further, the drive towards alternative energy is an entity with a long road for growth ahead. Therefore, we feel that we have significant competitive advantages to address a growing market and that opportunities will only strengthen as economic backdrop improves. Wilson.

Thank you, Phil. We estimate our revenue for the third quarter will increase to between $20.1 million and $20.5 million. Also, we estimate our net income per diluted share will be between $0.03 and $0.05. This concludes our prepared comments. We're now happy to answer your questions.

Thank you. (OPERATOR INSTRUCTIONS) The first question will be from Richard Shannon from Northland Securities. Please go ahead. Your line is now open.

Hi, Phil and Wilson. How are you?

Ok, Rich.

Good. I guess first question about this major Asian customer you mentioned in the script as well as in your press release. The language in the press release was a little bit uncertain to me. Are you actually returning to shipping the six-inch wafers to them already in the third quarter or is that something you expect to do at some point?

Let me be a little bit more specific. First of all, I just want to make sure that people understand that this is not an issue with our quality or consistency of our wafers. The issue really arose when the customer really changed the application of our product and that was used, therefore, it affected the epi process. Basically, our substrates are not performing that well on this new process and once they resolve this issue and move to a new reactors, which is where our product performs better, we expect the volumes to regain again.

Ok. And remember back in -- I think it was the third quarter last year, where you talked about a spec mismatch. Is that similar to the situation you're describing just now?

That was last quarter?

I think in the third quarter of last year.

No, that was a different issue.

Ok.

Yes, that was different.

Ok. Is this customer, is this for semiconducting or semi-insulating?

Semi-insulating.

Ok, great. I guess second question related to the foreign exchange losses. Do you consider this to be kind of a one-time issue or is this something that's continuing? And I took at look at your last couple of Qs and noticed didn't you have any foreign exchange contracts in place as of the end of the quarter. I'm curious as to how you look at this.

Richard, we're actually looking into this matter right now and I can tell you that we do have foreign exchange gains and losses every quarter. But this quarter in particular is a little higher because on our AR, we actually have a higher percentage of the AR that are Yen denominated where it is a mark to market. In fact, in Q1 of last quarter, we actually recognized a gain when we do the mark to market. So, one of the things that we're looking at right now is we want to determine what is the overall cost versus benefit to do a hedge. We also have to look at the internal bandwidth, how much it costs us and also the disclosure requirements on FAS 133 whether we're going to do the hedge or not. So we're doing all that. There is another approach that we're looking into it, where we'll talk to customers to see how open they are in setting the contract price in US dollars. That remains to be seen.

Ok. Next question for me, specifically in gallium arsenide six-inch wafers, you talked about a resumption of growth in the third quarter here. Kind of get a sense of where you think that number could come out in the third quarter. Is that something you can get to the level you saw in the first quarter or above that? I kind of want to see how you feel about that number.

Richard, I think there will be a combination. One is regaining the volume that we had in the previous quarter from one of these customers that we have the issue with. And new customers completing qualifications and ramping up their schedule. Let me also add by saying that if you look at our guidance for Q3, as I mention on the script, we're only expecting raw material sales to be between $3 to $3.5 million. So, even with my overall revenue guidance to over $20 million, we're really talking about over $2 million in incremental revenues mostly coming from the six inch.

Okay. Perfect. That helps out a lot. The last question for me specific to your revenue guidance for the quarter, a little bit higher than last quarter. Love to get the sense of how you're looking at the discrete categories like gross margins and OpEx to get down to that bottom line number of $0.03 to $0.05 in GAAP. What do you think of those general numbers?

I can tell you that as far as the $20.1 to $20.5 million, we're really expecting the gross margin range only to be between let's say 29% to 30%. As you go down to the P&L, I think R&D and SG&A would probably stay at the same level. Income taxes, that always varies quarter by quarter but in my modeling guidance, I only put about between $500,000 to $600,000 per quarter for the income tax provision. That gives me between $0.03 to $0.05.

Ok, great. I will jump out of line. Thanks, guys.

Thank you.

Thank you. The next question will be from Pierre Maccagno from Needham and Company. Please go ahead. Your line is now open.

Hi, Phil and Wilson.

Hi, Pierre.

Could you talk a little bit more about the collective impact the three events -- what was the total impact and also could you talk about each of them, could you say which one was from more important to less important?

Well, specifically, one is -- you probably know who it is, an entire fab closed down in the west coast. That was a big hit. That was all six inch. And the other two that I just mentioned, I mean the total -- the total hit was around $1.6 to $1.7 million and net-net wise we made most of it up. Really, it is only 400K. So we made that up but the total hit was about 1.6 to 1.7.

I see.

We made that up with other customers.

I see. So, this was totally unexpected.

Absolutely. Especially the shutdown and then the applications, they used our materials for a different applications which they didn't tell us. When they did tell us, through discussions, we found out that's what was the case.

Ok. So, you could have had a much -- a very impressive --

It would have been a very, very -- We would have blown it out of the budget, correct.

I see. Could you give us what would be the pro forma EPS if you don't include the options expense?

The option expense wasn't that much. We're only talking about 151,000. That's about half a cent. But if you also take into account the non-operational items like the foreign exchange losses of $593,000, if you also take out the loss of sale of securities, that's what, $133,000, both those two it is already close to $0.02. So, that could be added back to our GAAP EPS number.

Ok. Ok. Great. And your expectation for EPS of $0.03 to $0.05, that's pro forma?

No. That's a GAAP number.

If it were pro forma?

Well, we don't really give pro forma numbers but I can tell you that as in the past, stock compensation expenses would be around $200,000. We also put in fully reserved wafers. We only expect about a quarter million per quarter. So, you can do the math and take those out when you collect your former number.

Thanks very much.

Thank you.

Thank you. The next question will be from Michael Bertz from Kennedy Capital. Please go ahead. Your line is now open.

Thanks and good afternoon, gentlemen.

Hi, Mike.

Just a quick question for you on the inventory patterns. Obviously you built some ahead here. Where would you expect that to trend over Q3 and Q4?

That's a good question. I can tell you that we have been stock piling on raw materials for the last few quarters in anticipation of the Olympics. So, I would say that from the raw materials perspective, you should actually start to see that peaking in Q3. In terms of finished goods, the ups or downs for that would really depend on whether we have any other tier one customers that may want to do consignment arrangements with us. If we, for example, get another customer that actually we were talking right now to sign us to consignment inventory, that finished good portions may not come down. But I would expect the raw materials portion to come down.

So, in terms of an absolute overall number, would you expect that to come down or come down in days?

Absolutely.

Mike, keep in mind, some of our tier one customers, if their ramp or volumes increased, the consignment is going to increase, too. It is in proportion.

Got it. It is not like you're carrying a ton of inventory. That's okay. I was curious what the pattern would look like. Also, in terms of the gross margin question on Q3, do you think that's more pretending to mix in terms of that sort of trimming a little bit, couple hundred bits down or something or is that something where you could say okay, we have some production that we have accounted for in Q2 that we're not going to have quite as much production in Q3. How should I think about that?

Well, I think a combination of two things. One is product mix because we, as I said earlier, we expect the raw materials revenues to come down which we normally enjoy a high percentage of gross margins. But at the same time, Phil has been talking about the fact that we're buying some of the raw materials, for example, germanium and even gallium, we're buying those at the higher prices in the last few quarters. So, those raw materials that we bought, they actually came in at a higher cost, the new manufacturer will be using the new cost in calculating the gross margins for the sales for Q3 and Q4.

Okay. I know we've talked about this a little bit before. It begs the question with the costs going up, is there a cost where you can get any pricing power to pass it on or are you pretty much kind of squeezed?

I guess as a general outlook right now, I think six inch has basically stabilized in the semi-insulating the small diameter meaning two inch, especially two inch and three inch, semiconductor material, we still, I think the entire industry is still getting price pressure on that. And the major reason for that is the LED manufacturers are trying to compete with the incandescent fluorescent lights so they have to get their costs down.

Ok.

So basically solid state lighting is what's driving it.

Ok. Understood. Thanks, gentlemen.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) The next question will be from Peter Trapp from [Defrost] Fund. Please go ahead. Your line is now open.

Yes, good evening, Phil.

Hi, Peter.

I was listening to a call yesterday that -- where they talked about the gallium arsenide outlook being extremely strong, same for gallium nitrite I guess as well. As I listen to your comments about your sales and qualifications, I'm assuming that you must be getting pretty close that you can start to somehow estimate or project that some of this extremely strong that they were talking about yesterday is that you're going to get a piece of that. Can you comment on that?

Well, when you say strong, you're saying the entire gallium arsenide market? Or you --

The people that were saying it were --

I mean what is the specific application for handsets?

Handsets among others, yes.

Well, yes, I mean we are already in qualifications in -- as I mentioned, in several of our customers that we haven't done business with in several years. I know that -- well, ok.

Is that close enough that you can say that third or fourth quarter you think you're going to get a piece of that?

Absolutely.

Or next year's potential?

Yes, we are already now.

Oh, ok.

In some of them. Yes, definitely in the third and fourth quarter, some of these guys will ramp up and will be coming on. They're at various stages.

All right. The other question I had just very quickly, on the 4X losses, I'm assuming that's a mark to market. So, therefore, it is a noncash issue?

It is mark to market but it is a timing issue.

Yes, I know but I mean to the extent that you had to prepare statements as of 6/30. I'm assuming that on 7/1 and 7/30 or whatever date it happens to be that that number could be either larger or smaller.

Correct. I think by the time when we collect the AR, if the exchange rates changed again to our favor, then I would be collecting more. So, you're correct.

So, my guess is if the dollar strengthening, this amount of money that you had to report as a loss will actually start to -- will actually start to decline.

Actually, then we would have to report back again.

Yes, ok. Now, the other question I have on the 4X is do you have in place some kind of method whereby if a 4X loss goes over X, it sets off a red light or something because that is a rather large swing to have gone from positive, let's say 250,000 to minus 500,000 in the course of one quarter.

We're definitely discussing that within management and the board.

Ok. Because what happens is even though it is non-cash, it creates obviously some significant volatility to your earnings and volatility is normally repaid in the market by a compressed multiple. So I just point that out.

Your note is well taken.

Yes. And then the other question I wanted to ask you is with the cash sitting on the balance sheet, and I understand how important it is to be conservative in these difficult times, are you any further along with conversations on JVs or increased participation on JVs? I mean how is that going along? Can you give us any comments on that?

The only comment I can give you, Peter is we're continuing to discuss.

Ok. All right. I'll jump back in the queue.

Ok. Thank you.

Thank you. We have a follow-up question from Pierre Maccagno. Your line is open.

I noticed, Wilson, that your gross margin, its pro forma base would have been 36%. Am I right there? And if so, that's a dramatic increase from 28.6% last quarter.

No, if I take out the impact on the fully resolved wafers, I only have a ten basis point difference. If you read the press release, we basically said that the gross margin was 32.3% and the fully reserved wafers made up 3.7%. You can take 32.3 minus 3.7 to come up with your pro forma number. Last quarter was 31.7% and you can minus the impact of 3.2 percentage points to get the pro forma number for last quarter. And I believe if you do the math right, it is only about a 10 basis point difference. Ok. Thank you.

Thank you. We have a question from [Matt Reiner] from Adirondack Funds. Please go ahead. Your line is now open.

Hi, guys. Going back to inventory, can you give us a little more quantification as to how much of the increase was the raw materials build-up versus the, as you said, possible finished goods increase?

Sure. I can tell you that the majority of that increase in the last quarter, I would say between $5 to $6 million was raw materials. We have a little increase in whip and maybe another 1 or 2 million in finished goods which is mostly due to the consignment arrangements that we have with the customers.

Ok. Great. That's all I had. Thanks.

Thank you.

Thank you. There are no further questions -- I'm sorry. We do have a follow-up question from Peter Trapp from [Defrost] Fund Your line is now open.

Hi. Wilson, I noticed that accounts payable were up from $4 million to $14 million.

Yes.

Could you just give us some commentary. That seems like a rather large increase percentage.

Yes. This is mostly due to timing because we placed the orders to purchase raw materials so we have increased my inventory and also increased my AP so over time, we got to pay the inventory without cash on the accounts payable.

Ok. That's all it is then. It is just the materials.

Yes, the majority of the increase in the AP was due to the raw materials purchases.

Ok. In your cash and cash equivalents, and then in your short-term investments, is there anything in there that requires taking a little extra look at in the sense of maturities getting pushed out or liquidity issues or are you all ok?

We always look at that on a monthly basis.

Ok. But there hasn't been any need for any concern is I think what I'm hearing you say.

Well, none at this point. I think we do have enough for working capital purposes. If anything, other than working capital then we got to rethink our strategy. But at this point, nothing concerns us.

Ok. Thank you.

Thanks.

Thank you. There are no further questions registered at this time, gentlemen. So, I would like to turn the meeting back over to you.

Well, thank you, everyone, for participating in our conference call. And during the third quarter we'll be visiting investors in several cities around the country and we look forward to seeing you there. Talk to you next quarter. Bye-bye now.

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.