CPS Technologies Corp (CPSH) 2019 Q3 法說會逐字稿

Good afternoon, everyone, and thank you for standing by.

I would like to introduce our first presenter today, Mr. Chuck Griffith.

Sir, please go ahead.

Thank you, operator, and good afternoon, everybody.

I'm joined today by Grant Bennett, our President and CEO.

Before we begin the business portion of the call, I'd like to point out to all of you that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in CPS' operations and environment.

These uncertainties include economic conditions, market demands and competitive factors.

Such factors could cause actual results to differ materially from those in any forward-looking statements.

Now I'll turn the call over to Grant to offer his perspectives on the third quarter's results.

Thank you, Chuck, and welcome, everyone.

As described in our press release, revenues for the third quarter were $4.4 million, with an operating loss of $479,000.

This compares with revenues of $6.1 million and an operating loss of $19,000 for the third quarter a year ago.

Revenues were down in the third quarter due primarily to decreases in revenue from AlSiC products, partially offset by an increase in revenues from hermetic package sales.

The decrease in AlSiC revenue is not the result of changes in underlying market demand but was at least partially the result of negotiating strategies of certain major customers, and in one case, the result of a major customer significantly reducing their inventory of baseplates during the quarter in order to meet a fiscal year-end corporate inventory target.

As a management team, we did take action during the quarter to mitigate the effects of this reduction in demand, while maintaining the ability to increase production quickly as demand returned, which it has already begun to do.

As stated in our press release, although disappointed in the third quarter financial results, I want to highlight 3 developments, which occurred in the quarter, which we believe will have a very positive impact on our performance going forward, beginning in this, the fourth quarter.

First, we've concluded negotiations for new contracts with our 3 largest customers, signing one 1-year contract and two 2-year contracts.

These contracts provide for materially significant price increases.

Most price increases begin in the fourth quarter of this year, some begin in the second quarter of 2020.

In addition, these contracts provide for increased unit sales volumes from all 3 of our largest customers.

And those increases for some products begin in this, the fourth quarter.

And for other products, some begin in the first quarter and some in the second quarter of 2020.

We've -- I've talked in the past about what I call aberrations in the competitive environment.

These include false claim relating to patent infringement and the price war in Europe.

We're pleased that these conditions appear to truly be in the past.

And our assessment is the current competitive environment appears to be more rational.

This has allowed market pricing to rise to a more appropriate, healthy and sustainable level.

We will begin to see the positive impact of these materially significant price increases in the fourth quarter.

And as mentioned, in addition to raising prices, we've achieved higher volumes contractually at our major customers.

Secondly, as part of an ongoing strategic initiative to increase margins.

We continue to make and did make in our third quarter, improvements in our product mix.

Over the past year, the lowest-priced product we've sold is around 10 -- just under $10.

Our highest-priced product we sold is approximately $35,000.

Now there's a real difference in -- between those 2 numbers.

We are improving our cost measurement systems to more clearly identify where we make money and where we're not making money, and we're raising prices of products within appropriately low margins.

And if these price increases are not acceptable to our customers, we work with them to define an acceptable schedule to stop production.

This takes time.

We're in the business to delight our customers, not frustrate them.

But essentially, each quarter, we are making -- each quarter, we will be making less of lower-margin products and more of higher-margin products.

Thirdly, during the third quarter, we replaced our line of credit.

The new line of credit has a $2.5 million cap compared to the $1.25 million on the previous line of credit.

The new line of credit allows us to include essentially all of our foreign receivables in the borrowing base, and that creates much more availability under the cap.

The previous line only allowed some of the foreign receivables to be included and those that were included only at 50% level.

Again, the new line of credit allows us to include all of the foreign receivables in the borrowing base.

We had more unused availability under our new line at the end of the third quarter, namely $1.3 million, than we did total availability under the previous line.

This has allowed us to now end our early pay discount offers, which will have a positive impact on our top and bottom line.

To be a little more specific.

Some of our European customers have payment terms of 60, 90 or even 90 days end of month.

We have -- for the past couple of years, for cash flow reasons, we've offered, for example, a 2% discount to a large European customer for payment in 30 days.

With a higher cap on the credit line and the inclusion of essentially all of our foreign receivables in the borrowing base, we have, as of this quarter, the fourth quarter, stopped offering these discounts.

This will have a direct positive effect on both our top and bottom line.

The interest we're paying on the line of credit is obviously significantly less than offering a 2% discount for earlier payment of 30 days.

With that, let me turn the time over to Chuck for more details on our third quarter results.

Thank you, Grant.

Revenues again for the quarter totaled $4.4 million.

This was a 20% decrease versus quarter 3 of last year, and the decrease was due to the reduced sales of AlSiC products and partially offset by increases in hermetic package sales.

Gross margin for the quarter amounted to 5% of sales compared to 11% in the third quarter last year.

The largest factor affecting this difference, this percentage difference, was sales volume.

Reduced sales volumes results in fixed manufacturing costs becoming a larger percentage of total manufacturing costs, thus the unfavorable effect on gross margin.

Selling, general and administrative costs totaled $702,000, significantly less than last year's $983,000, a reduction in sales commissions, both due to reduced sales volumes as well as reduced commission rates, accounted for the bulk of the change.

Additionally, we reduced our use of outside professionals, which also had a significant impact on the reduction of SG&A expenses.

The company experienced an operating loss for the quarter of $479,000 compared to a loss incurred in quarter 3 of 2018 of $19,000.

Turning to the balance sheet.

We ended the quarter with about $470,000 of cash and $413,000 of borrowings against our line of credit.

This net cash of $57,000 reflects a substantial reduction from the minus $638,000 of net cash that existed at the end of the last quarter.

This increase in net cash was primarily due to the collection and reduction of accounts receivable.

Accounts receivable at September 28, 2019, totaled $2.9 million (sic) [$2.8 million] compared to $4.1 million at June 29, 2019.

Our days sales outstanding totaled 57 days at the end of the quarter compared to 58 days at the end of the second quarter.

Inventories totaled $2.8 million at September 28 compared with $2.9 million at June 29.

The inventory turnover in the most recent 4 quarters was 6.2x the same as the 6.2x for the 4 quarters ending June 29.

Finally, you'll note that our property -- net property, plant and equipment was down slightly from last quarter, reflecting that we spent less in capital expenditures than we incurred in depreciation during the quarter.

Turning to the liability side, you'll see the $413,000 drawn on our new $2.5 million line of credit.

Payables and accruals in total of $2.2 million, down from $2.5 million at June 29.

And finally, at the end of the quarter, our current ratio was 2.3, up slightly from 2.2 at the end of the second quarter.

At this point, I'd like to turn the call back to Grant for a few additional comments.

Grant?

Thank you, Chuck.

Let me comment on an irony.

In our second quarter this year, we reported revenues and profits were up and they were up for a very positive reason, an important design win and shipments into a new military program.

However, some of you indicated you sensed at least caution and perhaps even pessimism from me regarding the near-term outlook.

We were just beginning our annual negotiations with our major customers at that time.

This quarter, revenues and profits are down.

However, if you sense anything from me today.

In some sense, I hope it's the opposite of what some of you felt you sensed last quarter.

As stated in our press release, the developments I described earlier strongly suggests improved performance on both the top and bottom line in the fourth quarter of this year and throughout 2020.

For example, just regarding pricing, if we were to recast the third quarter financials, the period just ended, using the pricing that has now taken effect in Q4, we would have been profitable in the quarter, even at the reduced volumes we experienced in this past quarter.

This improved performance should provide us with the resources necessary to continue to expand our customer base and increase our sales volumes and margins.

We're excited about our current customers, about their growth potential and about the improved pricing environment in the marketplace.

Several of you sent Chuck or me, either by e-mail or U.S. mail, information and articles about potential new applications, current or potential customers and new technologies.

Please keep that information in those articles coming, we sincerely appreciate them.

In the past few weeks, you sent information regarding Cree, ST Microwave, Delphi, China Rail and BorgWarner, for example.

I have a file that I keep these as they come in and cross-reference them with our own sales and marketing efforts.

We have called on all of these customers, in some cases, for years, and we have orders -- we have had orders in the past or we have current orders from all of these companies, except one.

Just today, we received a follow-on order for AlSiC baseplates from one of these companies to be used by them in C stage samples for a new silicon carbide die module for electric vehicles.

C stage is the stage immediately preceding volume production.

In our opinion, the most significant technical conference and exhibition for power electronics in the world is called the Power Conversion and Intelligent Motion conference, or PCIM for short, which is held each year in Nuremberg, Germany.

At this year's conference, the conference awarded the best paper to ABB for a paper titled, High-Power Module Platform for Automotive Traction Applications.

That paper features an AlSiC baseplate.

Let me just say that ABB is a long-term CPS customer, and we're working together with them on several projects.

I refer to anecdotally to these 2 topics, namely, receiving just today, an order for a baseplate for a module from a prominent company that you're following to be used in C stage samples based on a silicon carbide die for electric vehicles.

And the fact that one of the leading companies in power electronics, they move into the automotive area, is doing their development on AlSiC baseplates.

I use these to indicate that we're excited not only about our current customers' potential, but we're excited about our pipeline of new products and design wins that we have achieved but are moving through the pipeline in a systematic way.

At this point, we are -- operator, we're ready to take questions.

(Operator Instructions) Our first question comes from the line of [Aaron Benson].

I'm trying to understand why the sales are down.

I'm not really getting it.

It sounds to me like you have a limited amount of customers, where the change in orders on just a couple of customers could have made that difference?

The short answer is yes.

Your understanding is correct.

Our customer base is relatively concentrated.

And not a small difference but a meaningful difference in their purchasing patterns on -- in any one quarter can affect us.

We, of course, are seeking to broaden our customer base and some of the new entrants into the power module business, in particular, as they grow, the importance of any one customer is -- will be diminishing, as they're a smaller part of our total revenue.

But, yes.

Fundamentally, to be real -- to be a little more explicit.

In one case, a customer who holds several weeks of safety stock inventory had a requirement coming down from their corporate office to reduce their level of inventory as of the end of the third quarter, which is the end of their fiscal year.

And so they essentially stopped taking delivery of products in order to consume their inventory.

And in at least 2 other cases, where, as we were negotiating a 1-year or a 2-year contractual agreement, the customer held off placing purchase orders until they understood the contours of the agreement.

Understood.

But the thing is that if they're not taking inventory because they want to clear out their own inventory, we could run into the same problem in the fourth quarter also.

And another question I have, if you don't mind, if I just throw a couple at you, is I understand the business concept of just having a few main customers.

But I thought from my research that you service transportation, automotive, energy, computers, telecommunications, aerospace, defense, oil, gas.

So it sounds like you have a whole array of customers, unless these are all somehow compounded.

I'd just -- I'd like to understand, if you don't mind?

Sure.

We ship -- if we look over the last 2 or 3 years, we shipped to approximately 75 to 80 different customers each year.

And they are -- you described many end applications and we have customers from all of those end applications.

And it's purely a function of what are the volumes coming from those customers.

And so for example, we -- to take a little bit of an extreme example, we have some products that go into satellites and the shipments are in the low hundreds.

And we have customers in the -- in what we call the traction market, which is the -- our largest portion of our business, where the volumes are in the hundreds of thousands of pieces a year.

So yes, we're -- in terms of revenue, we're more concentrated than we would like.

And again, the solution to that is to grow other customers.

And that's certainly what we're trying to do.

You asked if the same dilemma could impact us in the fourth quarter.

In reality, if you look at -- they're inherent with a concentrated customer base will be the potential and, in many cases, the actual quarter-to-quarter volatility.

But let me just say that we -- in the agreements just signed, there are minimum quarterly purchase requirements that we believe will help mitigate that.

But the ultimate solution is to grow other customers.

Right.

No, that's what I was thinking is that -- I just -- I apologize, I just -- I don't feel confident that there was an answer.

You guys seem to be optimistic about the future.

I'm not certain where I see the future changing.

And I recall I was listening in a few months ago to the other conference call you had.

And I remember that the person who's asking the question was pushing very much the idea of getting out there more.

And it's interesting because you mentioned that your management team was on this issue about 10 minutes ago.

And I thought it was interesting that you said your management team and not your sales team.

Because when somebody mentions -- I wanted to mention that somebody, even in the defense sales world, you have to [want it] yourself.

Wouldn't the most optimistic thing to be, if you're going to have fewer customers to be working on defense contracts or something like that.

I mean I'm not trying to tell you how to do your job.

[I'm not, I think,] exactly sure.

I'm just an investor, but I'm trying to get an idea of when you realistically would see yourself as becoming profitable.

I just -- I'm throwing a few thoughts to you at once in the hopes that you'll catch where my thought process is going with all that.

We're -- yes, we -- of course, we appreciate your questions.

I want to make sure others have a chance to ask questions.

The -- as it relates to profitable, let me say, soon.

Let me just make one -- this comment, which is we have a high-technology or one might use the word specialty material, a metal matrix composite.

And the value it brings differs from market segment to market segment.

And our growth path is to identify those market segments where we bring value and then to be the predominant supplier.

And generally, that means the most responsive and ideally the lowest cost supplier in each one of those segments.

And what we have today, really, is one segment that we refer to as the traction segment or the IGBT module segment, we use those terms to mean the same thing, really, the high-voltage, high-amperage power module market, customers who build the modules that go into trains, subway cars, wind turbines, high-voltage industrial applications.

That's the market generating the greatest revenue and the greatest unit volume.

There are other markets, like the automotive EV market, that are less clear in terms of there's no one standard solution, whereas there are literally even standard sizes in the traction market.

But it's very clear to us that they are very significant opportunities, and our job is to be present and very active in the design considerations at those major players.

And then there are many markets that may never be real large but -- and they're long lead time markets, and I'm referring here to specific defense programs, for example, but which, in total, in sum, certainly can be very, very large.

In other words, what I'm saying is an individual satellite program or a -- we have some parts on the F-35, we have some parts on the F-15.

We have parts on several Airbus.

And in total -- or each one of those individual programs are relatively modest, but over time, the total that we'll have going into the aerospace industry will be significant.

Our next question comes from the line of [Randolph Redback].

I wondered if you could give us an update on sort of what's going on in the aerospace and defense sector, both in armor and also in electronics.

Certainly.

On the electronics front, the crisp answer is that we are quoting -- literally, I was just -- just in a meeting as we were reviewing a very important quote for a defense electronic hermetic package application just an hour or so ago.

But we have a full-time salesman, a very capable salesman on the West Coast, living in Los Angeles.

And he addresses the West Coast defense contractors.

We address the East Coast contractors here up and down the Atlantic Seaboard out of our office here near Boston.

And we're knocking on lots of doors.

And we're holding lots of what we call lunch and learns, where you invite the engineering staff in and educate them regarding the benefits of our material compared to traditional materials, and we're booking orders.

So we -- I've talked about this a few times that we really have had a concentrated effort to pay much more attention into the defense electronics.

The lead times are long.

And so it can be frustrating.

But we are gaining more and more business.

And we indicated in the second quarter call that there was a program that moved quite quickly and generated a couple of hundred thousand dollars of revenue in a relatively short period of time at very attractive margins.

And we continue to be calling on those -- we continue to be seeking those kinds of programs.

On the armor front, the -- again, I used the word irony earlier.

We received about a month ago, just absolutely enthusiastic report from a contractor to the DoD, contracted by them, to do ballistic and environmental testing of an application that we've been working on for a number of years, actually.

And the tactical performance is just truly outstanding.

And the application that we're targeting, simply the funding has not been provided for the adoption of our material yet.

And so in that particular case, we are contributing to the sales effort in the sense of we're working with our contracts -- our contacts in the DoD, supporting and advocating and providing information.

And really, the funding is up to them.

So that is moving slower than we would hope, I guess, is a real honest answer.

And technically, the results we're getting are very positive.

And the ultimate funding source, where our focus has been on vehicle armor, is the DoD.

And so far, although funds have been provided for testing and evaluation, they haven't been provided for procurement.

Okay.

But it doesn't sound like you're really seeing any change out there competitively, other technologies or anything like that.

It's just kind of a funding cycle issue?

Yes, that would be an accurate answer.

That'd be an accurate answer.

Okay.

And then shifting gears, kind of my last question is, are you seeing any changes in terms of visibility, sort of in the EV or the hybrid EV space as far as that market?

We see a little more clarity.

And what I mean by that, and I've mentioned this example to 1 or 2 of you who have called.

But the automotive market, in total, is extremely cost-driven.

They'll kill for a fraction of $0.01.

And the -- if you look at -- if you had perfect information of every hybrid vehicle and every electric vehicle, what you would see is that, in the early stages -- even the Toyota Prius, the very first model of the Toyota Prius had an AlSiC baseplate in it.

It was not made by us.

It was made by someone else, who's since gone out of business.

But the automotive industry, in general, has moved to the lowest cost solution, which will meet their minimum requirements.

And in many cases, that is an extruded piece of aluminum as a heat sink.

Now on the other hand, just like you can buy you can buy a Toyota Corolla or you can buy a high-end Lexus, because we work with the automotive companies, we're working with a company now that is introducing a power module with the same set of integrated circuits.

They're introducing one version on an aluminum baseplate where they electronically control the performance of the module, and they're introducing another version on an AlSiC baseplate that they're providing both higher performance.

And they indicate that they're guaranteeing longer reliability.

So when I say there's a little bit of clarity, we are at the high end, but we solve all of their problems.

And those -- by that, I mean coefficient of thermal expansion, thermal conductivity, weight, stiffness, AlSiC is just indisputably, technically better than aluminum or copper, it's simply much more expensive than an extruded piece of aluminum.

So there is definitely -- there will be a role for us, just like there is a role for the higher performance cars in the marketplace.

And as I mentioned, we're shipping products now into a company that's getting a lot of press for spending, let me say, billions of dollars on fab and infrastructure to serve the EV market, and we'll see how successful this particular product is.

And there are several products in our pipeline in the automotive area.

Our next question comes from the line of [Lenny Dunn.]

Good afternoon.

I want to make a quick statement and then I have some questions.

I'm glad to see that you're finally looking for ways to win rather than reasons to lose.

So that's the statement.

Thank you.

Yes.

Well, the question is, why did it take you this long to figure out, that that's what you needed to do?

That's a very appropriate question, and it's going to cause a little bit of introspection here.

I will just say that we're dealing with very large, very capable, very aggressive and very sophisticated end customers.

And in some cases, it's taken them some time to really understand the value that we bring.

And in some cases, it's taken us a little bit of time to really understand and -- the value that we bring to them.

So let me leave it at that.

Well, I would have thought -- because you guys you didn't just start the business 3 years ago, that you would have a realization that that's who you're dealing with and that your salespeople and your senior management's job is to make sure that your customers realize the value-added that you're bringing, not just the price that you're selling something at.

So I'm glad you're doing that now.

And I think that if you continue to act in this manner going forward, we'll have a very profitable company.

And obviously, the expansion of the people that you're going to sell to is a very good idea, but it was also a very good idea prior to this year, but I'm glad you're doing it.

And the fact that you have a larger credit line is good, to an extent, but I don't know that, that was what was holding you back, because if you're profitable you don't need as large a credit line.

But I'm glad you have it.

I mean it doesn't hurt to have it, to fall back on.

But my preference would be for you to generate enough cash flow that you don't need much of a credit line because you always -- at least were generating cash in the past.

So anyhow.

Amen.

Amen.

Because that's -- I'm giving you honest comments.

We've been very patient shareholders now for a few years.

And just complementing you, doesn't help you or me.

So I'm trying to be frank on all my comments.

Yes, yes.

You've -- I like your crisp summary.

I like your crisp summary.

Well, that -- things can be reduced to things that sound simplistic, but they're not really.

And the actions that you have to take can be complex.

But they're doable and you got to keep doing them continuously.

And a successful business is continuously, to some extent, reinventing itself.

I don't think that, that you have to do any total reinvention, but you'd have to do some on a day-to-day basis.

And you have to have your salespeople do more than beat the bushes.

They have to get sales.

So you have a little more closing is necessary.

And the fact that you're focusing now on things that are profitable, not the $10 item that you can make $0.40 on, but the $30,000 item that you could make a pretty nice margin.

We don't have to discuss the exact margins, but it's very clear that a higher-margin product brings in a lot more revenue.

And some people who understand the value that you bring, they're going to continue buying.

And I do agree, though, that the automotive industry is in an extremely difficult industry to sell into.

It's cutthroat, and these guys do try to shave everything down to the nickel.

So I think maybe your focus should be in other areas.

But if you can get a whole lot more of business and a reasonable profit margin, great.

But just to get it, to say you have it, I don't know that it makes any sense.

So those are my comments.

Right, Right.

We agree with that.

We really do agree with that.

So anyhow, I've given you what I consider constructive criticism and a succinct distillation of my thought processes.

But...

Thank you very much.

Thank you.

I can think -- I don't mean to be too academic here, but as we go into a new -- we are not only knocking on doors, but as we educate and convince, persuade someone to really consider -- take a look at what our material brings, I think we're getting smarter at being able to determine fairly early in the process whether we bring a compelling advantage or simply an incremental advantage or no advantage at all.

And we -- that's an important consideration for us.

I described it earlier that in a custom manufacturing business, obviously we have costing tools and cost models and means of determining what standard costs should be.

But we're improving those tools so that we can tell much more clearly where we are making money or where we're not making money.

And we are going in.

And there's nothing like raising the price to get a real reading on what value you really bring.

So that's a powerful tool to get a fairly quick answer.

And where it doesn't work, you go on to the next potential client.

That's exactly right.

[indiscernible] continue to beat your head against the wall with somebody.

And they -- you may be pleasing them with cutthroat pricing, but you're not doing your shareholders any service.

Yes.

That's exactly right.

Our next question comes from the line of [Stephen Sulty].

Grant, it's [Steve].

I think the last -- if I recall, last conference call, you talked about the general international trade environment was kind of negative for you.

Do you have any update on that?

And on -- if there are specific effects on your business?

Sure, to be very specific, the trade war with China has essentially shut the door on our activity in China in the sense that we were targeting and, in fact, essentially qualified at China Rail as a baseplate supplier.

But our product is now subject to the punitive 25% tariff, and they are buying from our Japanese competitor where there is no tariff.

So the China-specific issue is -- it is what it is.

The -- although these are sort of subjective feelings.

But just as we interact with customers, the European and Japanese customers, long term, is China going to be a supplier for them?

Are they shifting their attention from U.S. companies to Chinese customers?

Well, the -- even as recently as a quarter ago, as we spoke with our customers, they would be talking about doing business in China.

And recently, I think there's a little more heightened concern about China, about the stability of China, about what the government may or may not do.

So lots of uncertainty there.

But a short crisp answer is I don't believe the overall environment is affecting us, except in China itself.

Do you have any comments on that, Chuck?

No, I think you're absolutely right.

I think it's really just -- I mean we know that much of what we sell to Germany, for example, end up in China.

But it's just the impact of us selling it directly.

That's an issue.

Yes.

Our last question comes from the line of [Mike Hyde].

Grant, you all hear me?

Yes, we can.

Hey, listen.

I'm very surprised no one has talked about what to me is the best news on this conference call, which is that you've got, what, one 1-year new contract win or extension or renewal and two 2-year contract wins and extensions/renewals.

And I just wondered if you could characterize because I think you said 3 largest customers.

Yes.

So if you...

Historically, that is 3 largest customers?

Well, I think we all, or at least those who've followed, pretty much know who those are.

And yes, there may have been some negotiating involved.

But it seems to me, extraordinary that they would have all gone ahead and, if you will, not drag things out any further.

[Mike], I agree completely with you.

And I've used the terminology that the marketplace has kind of returned to a more rational behavior.

And I've talked in the past about our patent dispute with Denka and the fact that they significantly reduced prices in Europe and so forth.

But let me just say, we fundamentally said, what is the appropriate margin for this product in this marketplace.

And we simply said, "If you want to buy from us, this is what it is." And the customer, after some pretty hard negotiating, but essentially said, "We do want to buy from you, we will pay that price and we want to buy more next year than we did last year."

And I simply think that the overall players in the market, and I guess I'm primarily referring to Denka, are behaving more rationally as opposed to trying to put us out of business.

And I think that the -- certainly, there are Chinese potential entrants.

And frankly, we try and keep track of all of them.

And in the last year, I visited 2 of them.

And they're working hard but they're not yet at a level where they can be qualified, in our opinion, at any of the major players.

So we're very encouraged.

The traction market, we believe, absolutely is growing.

And as we've talked about before, it's not only trains but, increasingly, these modules are used in the power grid.

And we're looking forward to -- we think these 3 contracts, 2 of which cover a 2-year period, give us just a very strong foundation.

Can I assume that of those three contracts, one was the customer that did have the significant inventory reduction ordered from above that resulted in decrease in revenue in Q3?

Yes.

Yes.

Okay.

Yes.

That seemed pretty obvious, but I just wanted to state it and settle out on the conference call.

And lastly, Denka.

Is Denka doing anything new, groovy in terms of quality, technology, et cetera, the way they're going about what they have to offer competitively, either in Europe or China or anyplace else, here in the United States for that matter, that you see is -- as a new threat?

Or is it pretty much same old from Denka?

It's pretty much same old from Denka.

It's pretty much same old from Denka.

You know the -- let me use the analogy of the automobile.

A car that you would buy today for $25,000 if you compare it with a $25,000 car that you bought 10 years ago, the car today really would be better made, the fit and finish would be better, it would be tighter, it would have lots of features that it didn't have a year ago.

So even though this is the same old AlSiC, in reality, the specification, the surface finish, the dimensional control on the dome.

And thus, the voltage levels, et cetera, have all progressed.

But we're not aware of anything -- they've all progressed.

And -- but we're not aware of any -- have any meaningful technical advance that would be a competitive threat.

We are working on some things ourselves that if we're successful, we think would make an impact in the power module in particular.

But we're not aware of any fundamentally new developments.

And I think it's fair to say that if one of our major customers was getting something much better from Denka, they would come to us and say, "Can you do this, too?"

No doubt about that.

Yes.

Right.

So yes.

Sure.

Well, one last thing.

I see we've been running an hour here and I don't want to keep rambling.

But it seems to me on the increase in the foreign receivables being allowed under your -- the terms of your new credit line.

That the real issue isn't what I've heard, it's that, in fact, if you did get a big new order from an overseas customer and your delivery times and terms and so forth are such that you've got to get rolling on that more immediately, that that's a huge advantage.

Absolutely.

Yes, absolutely.

That's correct.

Grant mentioned that we just had a couple of accounts that the old line of credit was giving us 50%.

And now we have -- it's actually 80% of all of them.

So -- well, virtually all of them anyway.

So it is a huge advantage.

Yes.

Well, I'm not saying the orders are going to come in rolling in from all over the globe, although that would be nice from Japan or China or Europe or any place else, but it just seems to me that if you've got a larger order than you've been used to delivering, you're going to need a bigger credit line.

Yes.

Yes.

Working capital, yes.

Absolutely.

Okay.

Thank you.

We very much appreciate your participation in the sales call -- in this call, excuse me, investor call.

And as usual, I invite any of you who may be in Boston or near Providence, Rhode Island, to swing by and let us show you what we do.

Thank you very much, and we look forward to speaking with you at the end of the year.

With that, we'll say goodbye.

Ladies and gentlemen, this concludes today's conference.

Thank you for joining.

You may now disconnect.

Thank you very much.

Thank you.

Bye-bye.

You're welcome, sir.