EMCORE Corp (EMKR) 2007 Q4 法說會逐字稿

We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation we'll open the floor for questions. (OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to Victor Allgeier.

Thank you and good morning everyone. Yesterday before the opening of the markets EMCORE released its fiscal 2007 fourth quarter and year-end results. By now you should have received a copy of the press release. If you have not received the release, please call our office at 646-290-6400. With us today from EMCORE are Reuben Richards, Chief Executive Officer, Dr. Hong Hou, President and Chief Operating Officer, and Adam Gushard, interim Chief Financial Officer. Adam will review the financial results and Ruben and Hong will discuss business highlights before we open the call up to your questions. Before we begin we would like to remind that some of the comments made during the conference call and some of the responses to your questions by management may contain forward-looking statements that are subject to risks and uncertainties as described in EMCORE's earnings press release and filings with the SEC. I'll now turn the call over to Adam.

Thanks, Vic, and good morning to everyone. Today we're reviewing the results of our fourth quarter and fiscal year ended September 30, 2007. Just as a reminder, EMCORE sold its Electronic Materials and Device division in the fourth quarter of fiscal 2006. All financial information related to the division has been excluded from operations for comparison of financial performance.

Starting with the P&L, fiscal 2007 was another excellent year for revenue growth. Consolidated revenue for our fourth quarter ended September 30th exceeded $47 million. This represents an increase of 33% when compared to last year, and an increase of 6% when compared to the last quarter. Consolidated revenue for the year exceeded $170 million. This represents an increase of 18% or $28 million when compared to last year. On a segment basis, Fiber Optics revenue for the quarter totaled $31.2 million. That's an 11% increase when compared to last year and a 13% increase when compared to last quarter. On an annual basis, Fiber Optics revenue increased over $5 million when compared to the prior year, exceeding $110 million. In fiscal 2007, our Fiber Optics division experienced significant demand for cable TV products.

We also had increased revenue from our FTTx products and video transport products from our acquisition of Opticomm Corporation that occurred in April 2007. Also, despite lower revenue from our legacy datacom products, we achieved sequential revenue growth in our Fiber Optics sector. Some more good news is that during the fourth quarter we experienced a 10% recovery of datacom revenue and expect fiscal 2008 datacom revenue to return to historical levels based on recovery of market share and sales of new product launches that Ruben will elaborate on during his operational update.

Photovoltaics revenue for the quarter totaled $15.8 million. That's 116% increase in revenue when compared to last year. However, it also represents a slight decrease in revenue from last quarter. As mentioned in yesterday's release, the sequential decrease in quarterly revenue was due to the timing of certain order shipments. Photovoltaics revenue in the first half averaged $13.5 million a quarter and in the second half of fiscal 2007 it increased to $16 million a quarter, On an annual basis revenue from our Photovoltaics segment exceeded expectations. Annual Photovoltaics revenue increased 54% to an approximately $60 million. That's an increase of $21 million when compared to the prior year. The annual increase in revenue was primarily due to the increased demand of solar cells and solar panels for commercial satellites, government engineering programs, and our new emerging business involving sales of concentrator solar cells for terrestrial power applications. As a percentage of total consolidated revenue for the Company, Photovoltaics revenue for the year increased from 27% in fiscal 2006 to 35% in fiscal 2007.

Moving on to gross profit and margins, consolidated gross profit for the quarter totaled $8.3 million. That's almost 100% increase in gross profit when compared to last year. On a GAAP basis, gross profit decreased $1.4 million from last quarter, which was primarily due to an inventory valuation adjustment in our Fiber Optics division. Consolidated gross profit for the year totaled $30.7 million, which represents an improvement of 18% when compared to last year. Consolidated gross margin for the quarter was 18%. This represents a gross margin improvement from the 12% reported last year, but down slightly from 22% gross margin reported in the prior quarter. Excluding our year-end inventory valuation adjustments and noncash stock-based compensation expense, consolidated gross margin for the quarter would have been 21%.

Reporting margins by segment, excluding our inventory adjustment and stock-based compensation expense, Fiber Optics gross margins were 22% for the quarter. This represents an increase from 14% when compared to the prior year and flat when compared to the prior quarter. As discussed on previous calls, overall Fiber Optics gross margin on an annual basis was affected by unabsorbed fixed overhead due to lower datacom revenue when compared to last year and changes in product mix. Also, EMCORE's recently-launched FTTx components have thin margins. As we gain market share, we experience higher revenue, but our margins get pulled back slightly. Looking forward, as FTTx revenue increases, positive gross margins with low overhead costs should fall to the bottom line. Also with the recovery of datacom revenue we expect to see Fiber Optics gross margin improvement on a quarterly basis in fiscal 2008.

Photovoltaics gross margins were 19% for the quarter and 18% for the year ended September 30th. For the quarterly period, Photovoltaics gross margins increased from 6% gross margin reported last year and decreased from 22% gross margin from the last quarter. The decrease in Photovoltaics gross margin was simply due to lower revenue and changes in product mix involving sales of lower-margin satellite solar cells. I should mention that even at reduced revenue and gross margin, our Photovoltaics division was net income profitable for the quarter. Actions designed to improve our gross margins continue to be the principle focus for us, through products, mix improvement, cost reduction associated with product transfers, maximizing production yields on high performance devices and quality improvements. In May 2007 we announced the opening of our new manufacturing facility in Langfang, China. We have passed quality testing controls, transferred cost-sensitive [opulatronic] devices to this facility, and have started shipping product this quarter. This facility should enable us to improve our cost structure and Fiber Optics gross margins.

Operating expenses totaled $23.7 million for the quarter and $86.8 million for the year. As mentioned in yesterday's release and disclosed in the non-GAAP tables, a significant portion of the quarter-over-quarter and year-over-year increase in operating expenses was due to expenses associated with our investment in the Company's new terrestrial Solar Power Systems division, professional fees incurred associated with our view of historical stock option granting practice, and restructuring, severance and patent litigation-related expenses. Also in fiscal 2006, operating expenses included a one-time impairment charge related to goodwill and IP of $2.2 million. Now excluding these types of expenses, adjusted operating expenses totaled $14.3 million for the quarter, and $52.4 million for the year ended September 30th. Adjusted operating expense increased slightly from the prior quarter due to ramp-up expenses incurred at our new China facility, in addition to reasonable SG&A expenses expected to be incurred due to the increase in Fiber Optics quarterly revenue.

Lowering operating expenses was another area of management's focus in 2007. Focusing on bottom-line profitability, we continue to take steps to increase gross margin and improve overall operating performance. In fiscal 2007 we consolidated our North American Fiber Optics engineering and design centers to our main operating sites. EMCORE's engineering facilities in Virginia, Illinois and Northern California were consolidated into larger primary sites in Albuquerque, New Mexico, and Alhambra, California. The consolidation of these engineering sites should allow EMCORE to leverage resources within engineering, new product introduction, and customer service. By consolidating facilities, EMCORE expects to realize annual cost savings of approximately $7 million.

Operating loss totaled $15.3 million for the quarter and $56 million for the year. Excluding non-GAAP adjusted expenses and the year-end inventory adjustments, our adjusted operating loss for the quarter totaled $4.3 million and $19.1 million for the year ended September 30th. On an adjusted basis, this represents a significant improvement to operations and to our bottom line on both a quarterly and annual basis. In yesterday's announcement I provided information in the non-GAAP table that highlights greater than a $0.10 per share improvement on a quarterly basis when compared to the prior year. Our net loss for the quarter totaled $16.2 million, or a $0.32 loss per share, and $57.3 million, or $1.12 loss per share for the year-ended September 30th. Excluding adjusted expenses and the year-end inventory adjustments, our adjusted net loss for the quarter totaled $5.2 million, or a $0.10 loss per share. For the year ended September 30th, our adjusted net loss totaled $20.4 million, or $0.40 loss per share. As a reminder, in August 2006 EMCORE sold its Electronic Materials and Device division for $16 million in cash and its [GelCore] joint venture with General Electric for $100 million in cash.

Moving on to a few more P&L highlights for our business units, our Photovoltaics division, excluding our new terrestrial Solar Power division, posted positive earnings for the last three quarters. For the first time in EMCORE's history, our Photovoltaics business unit obtained positive earnings on an annual basis. The 54% increase in annual revenues played a big part. Also as a reminder, in October 2006 we consolidated our solar panel manufacturing to a state-of-the-art facility located in Albuquerque, New Mexico. This is adjacent to our solar cell manufacturing fab. This decision has significantly reduced overall manufacturing costs in 2007. In the fourth quarter our broadband business achieved a record revenue level to move its operational performance into profitability. We expect continued improvement from this business unit on a quarterly basis in fiscal 2008.

In fiscal 2007, we developed brand new technology consisting of concentrating Photovoltaics components and systems powered by our industry-leading, highly-efficient compound semiconductor-based multijunction solar cells. In fiscal 2007 we incurred approximately $2 million per quarter on product development. In 2008, as revenue is earned on products developed by our new terrestrial Solar Power Systems division, labor and overhead, and operating expenses will be offset by revenues earned and expenses will shift from R&D to COGS. This shift significantly lowers OpEx as a percentage of revenue in fiscal 2008 when compared to fiscal 2007.

Now, turning to the balance sheet, cash and cash equivalents and marketable securities at September 30, 2007 total $41.2 million, a decrease of $7.1 million from the prior quarter. The decrease was primarily due to CapEx spending. Capital expenditures totaled $5.3 million for the quarter and $10.1 million for the year ended September 30th. Fiscal 2007 CapEx spending, which was used to increase manufacturing capability and capacity, was also more heavily weighted toward our Photovoltaics division. Also on average, depreciation totaled approximately $2.5 million a quarter. The annual increase in receivables was in line with our year-over-year fourth quarter revenue increase and the inventory increase relates our raw material buildup in order to improve manufacturing lead times for our broadband customers.

Investments includes our $13.5 million investment in WorldWater & Solar Technologies, listed on Nasdaq as WWAT.OB. Now, WorldWater is a leader in solar electric engineering, water management solutions, and solar energy insulations and products. This investment represents EMCORE's first tranche of its intended $18 million investment in return for convertible preferred stock and warrants. At September 30, 2007, EMCORE held an approximately 27% equity ownership in WorldWater. We intend to complete the $4.5 million tranche B investment soon, which will occur at a purchase price of $0.40 per share, with 25% warrant coverage at the same price. As a reminder, our investment in WorldWater resides in our balance sheet at our original cost of approximately $13.9 million and value based on a $0.27 per share price. Our balance sheet does not reflect the significant appreciation in equity value based on WorldWater's current market price. In April 2007, we redeemed 11.4 million of convertible subordinated notes due in May 2011. As a reminder to all, these notes are redeemable, should EMCORE's common stock price reach $12.09 per share for at least 20 trading days within a period of 30 consecutive trading days.

Moving on to order backlog, as discussed in the last call, our order backlog is significant, which supports projected revenue growth for the Company. Because of our order backlog, we are more confident regarding our financial performance in fiscal 2008. As of September 30, 2007, EMCORE had an order backlog of approximately $149 million, as compared to a backlog of approximately $48 million from the prior year. This is slightly higher than the estimated number I reported in early October. The September 30th order backlog is comprised of $22 million for our Fiber Optics segment and $127 million for our Photovoltaic segment, of which approximately $45 million is scheduled for shipment after calendar year 2008. Backlog at September 30, 2007 does not include any terrestrial Solar Power System orders since these purchase orders were not assigned to us as of that date.

Reporting backlog by segment, our Photovoltaics gigs continues to experience significant demand for its space solar cells and panels and government-related contracts, as well as our new terrestrial solar cell receiver and power systems. Within our Photovoltaics segment, $57 million relates to our satellite power business and $70 million relates to our terrestrial solar power business. Backlog in our satellite solar power business is largely due to a long-term solar cell supply agreement we have with a large satellite manufacturing company with shipments scheduled out several years. Backlog in our terrestrial solar power business consists largely of orders for concentrator solar cells and receiver components. In August we announced we were awarded a follow-on production order from Green and Gold Energy for three million solar cells. This 105-megawatt purchase order was a follow-on order to an initial five-megawatt order placed earlier in the year. Ruben will discuss details of our recently announced solar power system contract wins in both Canada today and South Korea.

As are headlined in the earnings release dates, we plan on raising revenue guidance for fiscal 2008, since these contracts are significant and should exceed the $25 million originally forecast in fiscal 2008. We are still reviewing the production requirements, supply change matters and delivery dates for these CPV system orders. After that, we'll be able to identify periods for revenue recognition and be prepared to announce increased revenue guidance. Regarding Fiber Optics backlog, a majority of our Fiber Optics products typically ship within the same quarter when the purchase order is received, so therefore the Fiber Optics backlog of $22 million at September 30th is not necessarily indicative of actual revenue or the level of orders for any subsequent period.

And finally in closing, on November 1st we completed our review of our historical stock option granting practices, and filed our 2006 Form 10-K and fiscal '07 quarterly reports. As all of you know, this is a complicated, time-consuming and expensive process. Obviously we would have preferred to have our financial restatement completed before September 30th. Unfortunately, we continued to incur significant expense in quarter one of fiscal 2008. We also expect to incur an additional $3 million to $5 million in additional noncash stock-based compensation expense related to the modification of stock options issued to former employees. On November 12th we received a letter from the NASDAQ stating we have complied with all listing standards for continued listing on the NASDAQ stock market. Unfortunately, the filing delays discussed above has not allowed sufficient time for the completion of our fiscal 2007 audit within the prescribed time period. On December 14th we filed a Form 12 B-25, notification of late filing with the SEC, and we anticipate that we will be able to file our fiscal 2007 Form 10-K within the 15-day extension period, or December 31, 2007.

And with that, let me turn the call over to Reuben for his operational update.

Thank you, Adam, and good morning, everybody. Clearly there have been some major business developments in our terrestrial solar division in the past week as we booked over $300 million worth of new business, as well as the acquisition of Intel's telecom unit announced today. So I will briefly touch on the trends impacting our business in fiscal fourth quarter and fiscal '07 and then move to a discussion around the acquisition and the new orders -- new terrestrial solar orders, which are both very positive developments for the Company. For the quarter, as Adam has pointed out, revenues increased 30% -- 33% year over year and 6% quarter over quarter to $47 million, which was above guidance -- or ahead of guidance of the original $46 million for the quarter. Gross margins were 21%, flat with the prior quarter on an adjusted basis, due to product mix. Fiber Optics increased 13% quarter over quarter. Gross margins were 22% on an adjusted basis, flat quarter over quarter. We expect to see sequential revenue increases this quarter, with gross margin improvement as well to the 24% to 25% level.

From an industry trend perspective, in our datacom business we saw an end to the customer-managed inventory issues that had negatively impacted the previous three quarters. Our LX4 product lines unit volumes and revenues have rebounded significantly and the Company has regained market share to be the dominant supplier in ten gigabit ethernet for this application. On the telecom side we saw increased customer traction around the new XFP product lines, and have started the first commercial shipments in Q1 2008. Additionally, significant new purchase orders for the Company's ten gig optical back planes for Cisco's CRS 1 router have begun this quarter, and we expect that to be a big revenue generator for 2008. On the broadband side we saw the eighth consecutive quarter of increased revenues. We've often stated that we are in year two of what is a five-year capital spend cycle in this space and the consecutive revenue growth over eight quarters driven by both cable television and fiber-to-the-home markets underscores this. Further, this division was net income positive for the quarter and we expect that to continue on through '08.

Moving to Photovoltaics, for the year Photovoltaics revenues, as Adam pointed out, increased 54%, accounted for a big percentage of the year-over-year gain. The division was net income positive every quarter and has an order backlog of over $127 million, as Adam pointed out, not including the new system orders, which I'll get into in a second. On that point, recently we have received two substantial contracts on the Company's terrestrial concentrator Photovoltaic systems. The first, from Pod Generating Group in Ontario, Canada, is a three-year contract covering 60-megawatts to be deployed, as I said, over three years. And the recently-announced Korean deal, which is a total of 20-megawatts in 2008 and 15-megawatts a year thereafter in terms of purchase commitments. In total, initial orders, not including the follow-on 15-megawatts a year transactions, value at over $300 million in terrestrial PV orders.

In addition to these orders, the Company is in negotiations with -- or has signed memorandums of understandings, which are not yet public, in three categories of projects. In the category of less than one megawatt, recently [Eastfolk] in Spain announced a number of awards on CPV projects. EMCORE received 300-kilowatts and will be supplying cells to most of the other system providers. Secondly, there is about 2.5-megawatts of projects with New Mexico-based utility co-ops, each totaling less than one megawatt, but New Mexico is an ideal location for the CPV technology, given its direct normal radiance on an annual basis. The second phase is the initial midsized solar projects with follow-on orders, both to Korea and Canada. Contracts fall into this category. There are several more projects located in Spain, Asia and Southern California that are close to closing.

The third and last category is memorandum of understanding, which the Company has entered into for large scale solar deployment. One is in southern Europe covering Spain, Italy and Greece, covering over 100-megawatts. The second is in Southern California for over 200-megawatts. These contracts are being negotiated and take sometime due to the changing environment in both the U.S. and Europe, as to feed-in tariffs and tax credit. As Adam pointed out, of the $300 million in commitments to date, we are working on supply chain and manufacturing logistics and will be raising revenue guidance for the Company based on this for 2008 and we will be giving 2009 indications based on delivery timing, and we expect to be able to do this shortly.

On the acquisition of Intel's telecom unit, this is the Intel tunable platform, tunable laser products, which include tunable lasers with integrated modules, 300-pin, and fixed wave length and a number of products that fall out of that, going from ten to 40 gig in applications. The reason for the acquisition are this is the second in -- with regard to the telecom market, this is the second year of a five-user capital spend cycle. The tunable market is the fastest growing segment of that market. The telecom's move to agile networks depends heavily on tunable products. With the additional -- with the addition of a tunable platform, EMCORE has a complete portfolio with its 850 [victal] line, its long wave length 1515 and 1310 digital and analog platforms, and with the tunable platform, it is a complete portfolio of ten to 40 gig applications, and each platform is a market leader.

The acquisition, as we said in the press release, will broaden the Company's product portfolio, allowing for greater percentage of -- to capture greater percentage of the customer spending, and the acquisition will accelerate the Company's achieving EPS profitability. Gross margins are expected to be above corporate average and the larger revenue base will allow for product cost reductions across all of EMCORE's product lines. Calendar year revenues are expected to be $65 million, with $45 million to $50 million, depending on the closing date, falling into EMCORE's fiscal year forecast. And as we update what percentage of the $300 million in terrestrial Photovoltaics will fall into '08 and '09, we will update revenues to include the Intel asset.

Lastly, in discussions at the board last evening, it is expected that the acquisition of Intel's telecom fiber optic business will bring about a major impact on the scale of our fiber business, as well as its profitability. Merger of the Intel unit with our existing fiber capability will create a unit large enough to function on a stand-alone basis. And in addition, recent contracts awarded to our terrestrial solar business and those projects in the pipeline, which I discussed, underscores the growing interest in advanced high-efficiency gallium oxide-based renewable energy solutions. It is estimated that the need for those solutions will produce a multi billion-dollar marketplace, and given EMCORE's unique patented position in that business, the board of directors will give careful examination to the question asking whether shareholder value might be maximized by separating the two businesses into two completely separate companies. The board will evaluate that possibility in detail during 2008, as business conditions dictate.

And with that, I will turn it over to Q&A.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from John Lau from Jefferies & Company.

Yes, hi. Reuben, a quick question with regards to the technology. You mentioned terrestrial solar is using gallium oxide. Can you give us your intellectual property status with regards to that technology and the CapEx that's required? It seems like it's -- it's not as significant as the silicon investment. Thank you.

Sure. The metric we use, right now I think we have 150-megawatt capacity at a fab level. That's at a solar cell level. We got about a 50-megawatt capacity at a panel level. And the metric for adding capacity is $7 million to $9 million for every 30-megawatt increment -- yes, $7 million to $9 million. So in order to double our capacity it would be probably in the $9 million to $10 million CapEx range and that would be at the front end from a cell generation standpoint to -- all the way through the back end of the fab to receiver manufacturing through system deployment. So, $10 million to double capacity is not a huge -- not a huge investment to do that. From an intellectual property standpoint, the total patent count right now in this space is about 30. We have about 20 --

We have over 20 patents. We also license from Sandia National Laboratories, the national renewable energy laboratories, Together with the licensed patents and internally-developed patents, we have a portfolio of about 30 patents.

Yes.

And that's at a very high barrier for industry. We (inaudible) there are some recent [pricing] that some companies announced the intention to get into this area for concentrator solar cells, but I can tell from my first patent experience, it really takes years to get to the level of our design and process maturity. I think the barrier's pretty high.

Yes, and I would have answered the question the same way. It's -- when you look at gallium arsenide solar cells, the two companies that represent almost all of the IP in this space are the division of Boeing, Spectra Lab, and EMCORE and it is a heavily patented area. I think it would be -- take an extraordinary long time to be able to get into that market on an IP-free basis.

You mentioned that the $10 million CapEx for a significant capacity, the final add on is how long does it take to put on that capacity, and is it easily done in an expeditious time frame? Thank you.

There are two -- two aspects of that. One is some of the CapEx is routine capability, like a fabrication. It's really typically lead time about three months or so. So that's -- you can add to the capacity pretty quickly. The other aspect is pushing for the new capability; for example, the testing. In order to [catch] the solar -- the millions of solar cells, and we have to work with our vendors to develop that capability. That took a little longer than we expected, but still we are able to wrap it up. So that process took about six months. I think in the future on an ongoing basis, adding to the fab capacity takes about average between (inaudible) to the testing, average about four months. Adding to the system capacity, we're probably less than three months.

Yes. So in other words, in less than six months we could double capacity.

Great. Thank you very much.

Thank you. Our next question comes from Jed Dorsheimer from Canaccord Adams.

Hi, Reuben, Hong and Adam. Couple questions. Starting on the Intel, is this accretive first right from the start? I know the first year you mentioned that it was accretive. I'm just curious if it's accretive right from the get-go.

From the -- sorry. Let me -- let me reference this. I believe from the June quarter --

(inaudible) in fact, from the first quarter--

Well, because -- yes. -- it will be accretive. From the second quarter on, so in other words from June on, and it will be accretive, Jed. Q1, we won't have a full quarter in -- in the March quarter.

Got you. And then as you -- as you start to grow critical mass in both disparate businesses that you have, on the component side, do we view the Intel as a signal that EMCORE is looking to consolidate the components market?

Interesting question. I think on that -- on that side, we viewed the addition of the tunable platform as filling the one significant product gap we had in our datacom/telecom business. As you know, we spent the last couple of years on the broadband side, made half a dozen smaller acquisitions, and built that into a pretty dominant player in the broadband marketplace. On the datacom/telecom side, we had this great capability at 850 victals to long waves and (inaudible) the one platform to penetrate markets on datacom/telecom was that we didn't have with the tunable platform, and that platform extends us in from the existing ten gig product lines to 40 and above.

So, I think the industry needs consolidation. I think -- by definition, I think we're very happy with the portfolio we have right now. I don't think we see any need to make any other acquisitions, but never saying never, but it is at this point, we're very happy with the -- with the tunable platform. It gives us the market reach we wanted to get in telecom, so this was a very targeted strategy to fill -- to be able to get a platform, to get into that market space, so we're thrilled to be able to do this deal. I don't think we see the need to make any other additions.

All right, fair enough. The reason that I ask is it would appear as if several of the acquisitions that you've made, the markets that you have dominant market share, you actually have pretty healthy margins and overall in the components business it seems like the areas where margins are quite a bit weaker, where you have many small players that don't seem to understand business economics and continue to drop pricing, so that's why I asked the question.

Yes. I don't think we want to clean out those guys just to -- to help margins. I think we've got -- with regard to this tunable platform, I think we've got a very clear strategy on how we're going to reduce costs and be very competitive in that space.

And then just moving -- two questions, and then I'll jump back in the queue, but two questions on the solar. The first one, you have a lot of balls up in the air right now. I think in some previous commentary expectations were on the -- on the satellite side that there may be one or two additional contracts that are signed by year end. Have you seen that flip at all into the March quarter, or do you still expect that to happen? And then second question, on the terrestrial Photovoltaic, as this becomes more meaningful, I was wondering, it might be helpful if you can outline a road map. Where do you see costs getting to on a module level over the next, say three years? Thanks.

Sure. On the first issue, yes -- and I probably should have addressed this on the call, but we're right now -- on the satellite side of the market, there are what I'll call five major government programs that have been announced. The awards were expected -- are expected this month. That can easily slip into January. But we think -- we think that will be awarded shortly and the -- and announceable shortly. The -- and I think we like where we sit competitively with regard to those programs, so I would say it's not too much longer.

All right.

On the module, where we see the module going -- you're talking about terrestrial, right?

Yes.

At a module level, we have a product road map, Jed, where we've announced a 39% sale will be -- we expect to release a 40% sale very shortly. This takes the cost per watt down from -- call it 37% is -- or 36% is, 36% or 37% is $3.50 a watt. 39% is closer to $3 a watt. The 40% is $2.75, and as you trend up to 43%, which is where we -- 43% efficiency, which is where we expect to be in calendar '08, you get down to sub-$2.50 and then at 45%, which we expect to hit in 2010 -- and by the way, these are all cells based on a new cell platform called the IMM, inverted metamorphic structure, which we have developed and demonstrated in space applications, so in fairly harsh operating environments and just need to transition it to terrestrial -- we think we will be at sub-$2 a watt.

And also just from another aspect, the manufacturing cost reduction road map, in the beginning, the assembly and testing of the modules and system integrations is going to be done in the U.S., and as we develop a business internationally, we'll establish local manufacturing in sourcing some noncritical parts from local markets. For example, we announced the joint venture agreement in Korea with our partners would not only give us better support to the customer base through the local presence, but also will allow us to source some of the noncritical parts as a lower cost. So with that, within two and a half years we'll see the costs will be reduced more than 50%.

That's helpful. Thanks. I'll jump back in the queue.

Thank you. Our next question comes from John Harmon from Needham & Company.

Hi, good morning, and congratulations on buying the Intel assets.

Thanks.

I guess just a couple questions about that. Sounds like from what you've been seeing about accretion that you can infer that the Intel business is profitable. Is that true?

By the time -- there is a -- it was not profitable at Intel, but the cost base that we will be transporting over to EMCORE will be significantly lower with much lower overhead charges and it is -- (inaudible) out of -- just for instance, the staffing at Intel was about 120 people. We'll probably take less than half that number. So it's just a much lower infrastructure cost and I think in a Company like Intel for a business that small, I think it's tough to be -- generate much in the way of profits. I think they developed a market-leading technology. They should be congratulated on the business and customer relationships. They were first to market and it's a terrific asset. It's just too small to be at Intel -- or to be meaningful there. And in an environment -- much lower fixed cost environment like EMCORE, we expect it to be profitable one quarter out.

Thank you. What do you have to do to integrate the business? Do you have to move out of an Intel facility, and what kind of a fab are they using? Can you move manufacturing to Alhambra?

John, the integration is probably going to be the easiest. Intel over the years have transferred their manufacturing into their overseas contract manufacturers. By the end of this calendar year, in a few days, they will be all consolidated into one place, the largest [optically] electronics manufacturer in Thailand. So as you know, we do a lot of manufacturing in there. On a consolidated basis, we are probably one of the largest customers of this contract manufacturer and that will have some leverage for the overall cost reductions. But the integration side from manufacturing point of view is really more a systems side from the ERP system, all the way from outer entry to the pack (inaudible)generation point of view. We are intending to leave the key engineering manufacturing -- engineering team where they are in the bay area. That's also very close to the majority of the customers that [have designs] in that particular engineering center. So the marketing sales team that's the front line interface with the customers we intend to continue at this.

As Hong pointed out, given the fact we manufacture at the same CM, the transition, I don't think could be easier. So it is -- it's a matter of really driving cost reductions. Interestingly, the fact that being the same CM we expect to see margin improvement at our broadband and other datacom products, as well, on the basis of economies of scale at the CM. So it's going to benefit all of our businesses.

Thank you, that's good news. And finally, you mentioned 40 gig. Is Intel shipping 40 gig transponders, or do you have a technology from them that you can develop into a commercial product?

John, the asset we're purchasing from Intel is -- in a way it's vertically integrated, had tunable lasers, which can be used for ten gigabit and has been used for 40 gigabit in some customer places and has been demonstrated for 100 gigabits applications. The tunable laser itself can be used for anything greater than ten gigabits and we had a competitive advantage because of narrow bandwidth and the stable wave length. And the other products -- and more higher level integrated products include a fixed wave length 300-pin transponder and a tunable ten gigabit 300-pin transponders. Intel's -- currently they haven't shipped the ten gig -- 40 gigabit transponders yet, but their lasers have been used for 40 gigabit applications. There I think their lasers really have strong competitive positions compared to other suppliers.

And it gives -- but it clearly gives us the opportunity to integrate up to the box level at 40, so that's certainly part of our thinking.

Great. Thanks, and congratulations, again.

Thank you.

Thank you. Our next question comes from Ramesh Misra from Collins Stewart.

Good morning, gentlemen. Can you hear me?

Yes.

Okay. So first my question was in regards to the Intel acquisition. Reuben, can you talk about the terms related to it? I mean, clearly -- at least according to the press releases out there it's going to be $65 million acquisition? I'm not sure if you actually talked about it on the call so far, so how do you propose to finance it --?

Sure, yes. The -- I'll just answer, because I don't want to go beyond what we publicly said. The transaction -- the Intel assets, which will generate $65 million in revenues, the transaction value is $85 million, stock and cash, and we haven't said anything more about it than that. As we said in the release, we expect it to accelerate on the basis of -- accelerate our profitability, (inaudible) our profitability by as much as a quarter because Intel -- the product line gross margins and contribution are higher than corporate average, the scale will allow us to reduce product costs across the board and improved gross margins. So that's what we said about it to date, and that's what -- so we're -- we're pretty excited.

Okay. In regards to near-term guidance, I understand there are obviously a lot of moving parts to your fiscal '08 story, but can you help us get a sense of where your first quarter should come in -- come in at and maybe even fiscal Q2?

Sure. We should probably take the quarter -- quarter by quarter stuff offline, but in general we're saying $65 million for the calendar year. They'll do about $14 million in the -- in Q1.

Oh, yes, I meant overall, Reuben, for EMCORE.

Oh, sorry.

In total.

For EMCORE, calendar year revenue $65 million was about -- depending on the closing date, whether this is a January or a February or a March close, because it has to clear regulatory hurdles, the -- we're saying $45 million to $50 million.

We have [until September to recognize the revenue] (inaudible) Assuming we meet February closing, the Intel piece will contribute $35 million to $40 million revenue because we only have until September.

Right. Because we'll only have -- I'm sorry. We'll only have really two full quarters, you're right, you're right. So $36 million -- $35 million to 40 million in -- and I apologize, I added one extra quarter. The -- to fiscal year '08 revenues. I apologize for that. I was assuming at sort of beginning of the quarter close.

Okay. And can you talk about EMCORE's revenues in the December quarter?

Yes, what we did in the -- in the narrative was we said the Fiber is trending ahead of plan and we've given you guidance. Fiber's trending ahead of plan, and Photovoltaics, because of the contract revenues you don't know until the last minute.

I see.

So that's (inaudible).

Okay. In terms of gross margins, particularly on the Photovoltaics side, how do you see that trending? I know that some of your government plans have been the costs up front and so as a result, gross margin on some of the government programs have not been as good as they could be. But how do you see your profitability -- your gross margin trending as revenue ramps up on your PV business?

I think on the PV business, let me just -- let me go through and maybe this will help you see. When we look at -- each of our revenue streams in PV have a very different gross margin contribution. On the -- and they're almost the inverse of each other. On the satellite side, the government business tends to -- when we're shipping product, tends to be in the 30, mid-30s in terms of gross margin, but that's a higher level of integration. That's typically panels.

On the cell side for commercial applications, the -- and again, this was in part reflected in Adam's comments about gross margins for Photovoltaics in Q4. The more commercial applications, meaning the more cells for commercial satellites, those gross margins are 18% to 20%, and so below corporate average. On the, on the terrestrial side, the cell and receiver business is in the 35% or better range and then the pan - the system business is in the mid to high 20s. So it really -- Photovoltaics revenues, Ramesh, going forward depend greatly on product mix, but as we pointed out, even in the Q4, we have -- even despite lower gross margins in Q4 because of product mix, it was still net income positive. So it's a -- again, product mix is going to determine gross margin going forward. I think that regardless of gross margin mix, we expect to be profitable in that division.

That helps quite a bit, Reuben and Hong. In regards to your WorldWater stake, clearly that has worked out very, very well for you. Now, what's required, or how -- what are the steps required for you to be able to capitalize upon that?

We -- from an ownership standpoint, you mean in terms of monetizing the investment.

Exactly. I mean, it's a preferred share that you have right now.

Right. It's -- we've held it for longer than a year. We are 144 eligible, so if we wanted to sell under 144, we could do that today.

Okay. All right, great. Thanks very much, and congratulations on your announcements.

Yes.

Thank you. Our next question comes from Michael Coady from B, Riley & Company.

Thanks. Good morning, Reuben. Good morning, Hong.

Good morning.

The gross margin guidance, Reuben, you provided 24% to 25%, that was for the Fiber optics division?

Right.

Okay, thanks. And then just wanted to jump to some of the CPV stuff. I thought it was interesting, you talked about direct sunlight being the key -- or the best area for the CPV and yet this contract in Canada is -- is Canada an ideal place for concentrator Photovoltaics using (inaudible)?

Not -- not as good as New Mexico or Southern California or southern Europe. The -- but again, it is -- it all comes down to a cost per watt, Michael. So it -- the pricing we get in the southern regional areas is going to be better than the pricing we could get in an Ontario kind of environment. Interestingly enough, the Korean DNI, direct normal radiant, is about the equivalent of Southern California.

(inaudible) Southern California, but in other economic terms start kicking in. For example, in Korean market, the treaty and tariff is about the highest, 680 Korean [yen] divided by an exchange rate of $1 equals 920 Korean yen in the 75 U.S. dollars -- U.S. cents per kilowatt hour range.

Also, the deployment is going to be in the south end side of the peninsula, the direct sun hours exceeding 1,250 hours a year, and we have done this calculation and they have done their calculations. It's going to be more cost effective also because Korea recently imposed an 8% import tax for any silicon panel they imported from outside. When we have the local manufacturing, they only import the key component, which is solar cell concentrated receivers. They can source metals and housings and plastics and (inaudible) locally to not have the import tax. So all in all -- and they have done a very comprehensive cost analysis and concluded that the CPV is more cost effective for mid and large-scale utility-size applications.

Right. So I guess the point is DNI is one of the, one of the --one of the reasons I had Hong addressed that was DNI is one of the indicators. There are other economic incentives at play in both these locations, which make CPV the most cost-effective approach.

Okay, thanks. And then when you talk about you might substitute other solar technologies as well as CPV, is it too early in the process to determine what percentage you might use of CPV for (inaudible) versus silicon and what that would do to the economics?

Yes, again, it is a little premature. We are -- we're doing the evaluation right now, Michael. It is somewhat land constrained, meaning we are limited to the amount of other technologies we could deploy other than CPV. But we don't -- we're in the midst of that calculation.

Okay, thanks. And just to ask -- to reask a question that was asked earlier, I'm not sure if it was answered. Someone was asking about guidance for the December quarter, not including Intel, but just EMCORE's overall business, you said that the Fiber Optics will increase sequentially and it's just too early to tell on the Photovoltaics side?

Yes, the Photovoltaics has -- there are the government contract and you got to add up the hours and the work done and I'm assuming all of that's on track, but we won't know until January.

Okay. And then just a quick question for Adam, I missed what the inventory adjustment was in the September quarter?

About $1.2 million.

Great.

On the Fiber Optics side.

Great. Thank you.

Thank you. Our next question is from John Lau from Jefferies & Company.

Yes, thank you. I wanted to get a follow up to you. Reuben, in terms of your CPV and the implementation on terrestrial side, can you give us some of the quick metrics of the economics for that and the -- I guess the road map or the path that you can lower the cost and continue to lower the implementation costs on a dollars per watt basis and what are the target goals for that as compared to silicon? Thank you.

Sure. Again, I'm going to ask Hong to address this, because we've talked about what the product road map is for EMCORE. We expect to be at 40% shortly in terms of efficiency on the solar cell, 43% at the end of '08, 45% by 2010. We have a very clear, well articulated product road map with regard to the solar cell. And it's -- and its impact on the cost per watt, assuming system costs remain the same, go along the lines that I talked about earlier; from $3.50 down to $2 a watt. Hong's going to address -- one of the strategies we've been deploying is embodied in both the -- or the Canadian, as well as the Korean deal, where we develop a local manufacturing and sourcing, which reduces cost of system deployment and -- so a big part of reducing the cost for a -- an additional part of reducing the cost per watt is system material cost reductions, and I'll let Hong address that.

As Reuben said, really the cost reductions for the system level primarily through two different avenues. We -- on the solar cell side, just by increasing the efficiencies we got the biggest leverage. If the efficiency increased on a relative scale by 10%, say, from 36% to 40%. and a 10% more power are generated through the same system, therefore the dollar per watt basis is reduced by 10%. So we continue that route. We have a very solid product road map to continue the improved -- the solar cell efficiency. The second one is probably more important, because of material costs from this -- for the overall system, solar cell receiver only accounts for about 20% of the total system costs. The rest of them are the cost of the metals, the housing, the [tractors], the plastic optics and integration and taxing costs.

So the business model we are setting up right now for the international market. For the overseas market, we're going to be setting up the local manufacturing for assembly and taxing and sourcing of noncritical components. Not only we'll be able to leverage the low costs for those noncritical materials, but also will be to get local economic incentives. So should that -- for example, a number of conversations we had in Korea, in China, in Spain, we believe the 85% -- 80% of the other costs for the system can be reduced by 50^ to, in some cases, 70%. So by doing that we'll be able to bring the overall system costs a lot more effective from the current about -- say U.S. based, we go to the market at about $3.80 per watt [PV] level to three years less than $2 per watt PV levels.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from [Enker Woodlawn] from Roth Capital Partners.

Good morning, guys. Just wanted to know -- get this -- you had an agreement with [D. Semicon] in Korea for system CPV. Can you give me some clarity as to how much you guys would be having them manufacture CPV systems?

Yes. This is probably more detailed than we want to go into, but bottom line is the initial purchase order for 5.7-megawatts will be delivered in all probability out of Albuquerque to Korea and production will start as quickly as we can get supply chain in gear. The follow-on order of 14.3-megawatts is the starting point for the formation of the joint venture. They are -- once that LOI is turned into a fully-licensed and financed purchase order, we then deploy the manufacturing in Korea. We're expecting all of that to happen in a quarter or two -- well, call it two quarters from now. And all of the 14 -- the systems, the way this works is EMCORE will provide the optical components and not just the optical, but the other components to Korean. The Korean factory will convert it to -- conversion costs to systems, which will be provided back to EMCORE, so we provide the warranty and performance aspects. So basically we're matching assets and liabilities.

The feed-in tariff is in Korean Wan, so we want to -- so the revenues in Korean Wan so we want as much of the cost space to be in Korean Wan as well. So it's a prudent strategy to deploy that locally. Also, I think it's quite possible that some of the components that they source in Korea will be lower cost than we would be able to do in the United States. Certainly the conversion costs, i.e., the labor, is lower as well. So we expect that to be a very cost effective manufacturing environment, particularly on that kind of a scale. And part of the agreement calls for an annual purchase -- purchases from the Korean market to support that business of 15-megawatts. So it's not just the 14.3. It's an ongoing business that we expect out of Korea.

So this is one of the first major contract where you have -- to manufacture -- manufacture like something like in Taiwan and China. So is this the first one on the CPV, and going forward are you looking at outsourcing the CPV systems to manufacturers outside and what does it mean for your gross margins, because on the CPV system, isn't gross margins above the -- for the terrestrial, it's above the Photovoltaic as such?

Let's see. The -- again, you should probably expect to see us in foreign countries have some degree of local manufacturing, because it makes sense to have our costs denominated in whatever the local currency is from a system level. Also, I think from a sourcing and supply chain basis, you eliminate a lot of what I'll call -- a lot of the tax environment around doing that. So -- and there are economic incentives the local governments provides for you to do this kind of a manufacturing strategy. So, going forward, you should expect local manufacturing for local markets.

So should we look at system level gross margins in the mid-20s, like mid-20s to high-20s? That is what you expect on the CPV system side? Is that inclusive?

Yes, I think that's what we're saying today. I think we expect to do better than that, but for right now, yes.

Okay. And then can you -- on the, Cisco [nintengy] products that you are getting into Cisco's CSR 1, can you give me some color as to how much of an impact that would -- you would see in fiscal '08 of that, because you said it's a big revenue generator?

Sure. You know, the CRS 1 has received a lot of purchase orders and it's a -- it's a box which routes large amounts of telecom traffic off the lan, so the customers are the telcos, the ISPs and so on. And I think you've seen a number of end customers, AT&T, Verizon and others talk about telecom spend and network traffic increasing, and it's, again, one of the reasons we've moved into the tunable space. But it's -- telecom traffic -- telecom spending is up, expected to be up for a while in this cycle, and the CRS 1 is one of the solutions in the telecom space that does that. I think annually -- or historically this is a business -- and Hong, correct me if I'm wrong -- they're are purchases historically in this space have been somewhere between $20 million and $30 million annually, but given the larger business base, there's a good probability that spend can go up.

Yes, this -- their flagship big router and switches have been developing and marketing for years I think really see the first deployment and serious deployment happened last year. On even though you -- on an ongoing basis is going to be more project driven, so to us, what we see is a lump of purchase orders and then maybe quiet a little bit, but overall trend is going to be increasing and it is hard to put a number around it yet. But as Reuben said, we were told last year the total demand for the product we shipped was about $20 million, $30 million. We do expect that trend to continue as the router and switch is being accepted and ordered by more telecom service providers.

And on the backlog side, the $149 million doesn't include any of these two new 60-megawatt system contracts, that --?

No, no, it doesn't. It -- the backlog that Adam reflected in the call is off the September period.

Okay. So it -- it includes more of Australian GGE, is that --?

Yes, more of the receiver revenues.

More of the receiver revenues. All right, guys, thank you.

Thank you.

Thank you. Our next question is from Jed Dorsheimer from Canaccord Adams.

Hi, guys. Just a quick follow up. The convertible provision at the $12.09, Adam, how many shares would convert (inaudible)?

[About] 12 million.

12 million?

Yes.

And is there a call provision?

Yes.

And what price is the call provision?

$12.09.

Oh, that's it, $12.09. All right. Thank you, guys.

Thank you. Our next question is from Sam Dubinsky from CIBC World Markets.

Hi, guys. Just a couple of quick house cleaning questions. You said that pro forma gross margin this quarter was 21%. That includes $1.2 million of inventory charge, plus about $0.5 million of options, is that correct?

Yes.

Okay, and maybe could you guys give us an update on what the pro forma R&D is going to be for next quarter and R&D, SG&A for December? Maybe even what it was this quarter, if you can break it out excluding --

I don't see any significant increases or decreases to that number from this quarter to the next quarter.

I'd say flat, right, Adam?

Yes.

Are you guys going to continue to pro forma out the startup costs for solar? Are those eventually going to go away?

No, I think -- the only reason we did that was because we didn't have any of those expenses in '06, and now we got those in '07 and then as we move into '08, it's more apples to apples and we won't be breaking that out anymore.

Okay. And then could you maybe just give -- oh, and one more follow up on the solar business. When the products shipped today for terrestrial solar, do they have those mid-20s percent gross margin, or is that sort of on the horizon?

The system we sell today is probably not at that margin level and -- but we -- in the horizon will be better than 20%.

Okay. Have you guys thought about setting up a margin target for the combined company? I know there are a lot of moving pieces. Where do you think the combined company can go from a margin perspective?

Sure. I think -- you know what? When we come back with guidance on '08, we'll revise the margins for you.

All right. Also, this quarter, what was terrestrial solar?

You mean --

In this September quarter in revenue terms?

Off the top of my head, it was $1 million or $2 million. Yes?

$1 million to $2 million.

Okay. Thank you.

Thank you.

Thank you. our next question comes from Cristoph Longiaru from Sidoti.

Hi, gentlemen.

Hi, Chris.

Hi, Chris.

Just a couple things. First of all, you said that there were some delayed PV orders in the quarter, so I would imagine that those would go into Q1, is that correct?

The delay we had in the fourth quarter was more -- it was pulled into the third quarter. I talked about where the revenues in the Photovoltaics were about $13.0 million when you look at quarter one and quarter two, and I tried to break that in the release because then you see that huge increase in that group going up to about $16.5 million, so for the later half.

Okay. So there should be no fall over, it should be just around a little above $16 million for the December quarter?

Yes,--

Correct?

Yes, that's the forecast.

Okay. Let's see. As far as the, the orders in Canada at PGG, is there any further timing on this thing? I know that you said it was going to start in the middle of '08, but is there any -- as to how many megawatts you're going to ship, anything along those lines?

You know what, we're working that out right now. Again, that's going to be part of the guidance when we come back.

Okay. The only other thing is would you say, with paying for the acquisition for Intel, basically do you have any idea what the breakdown would be between stock and cash at this , or is that still under

We haven't announced that yet. Okay. All right, that's all I have. Thanks, guys.

Thank you. Our final question comes from Tim Savageaux from Merriman.

Hi, good morning. Can you hear me?

Yes.

All right, great. I'll add my congratulations with all the good news of late. Couple questions. First, with regards to near-term [results and guidance] in your current Fiber Optic business, and secondly, a little bit more on the Intel acquisition. In this broadband business --and you talk about a continued recovery in datacom and you were able to grow that business double-digit sequential here in the September quarter -- would you expect that general rate of growth to continue, or when you talk about being ahead of plan or what have you, I wonder if you could quantify that a bit more? And then maybe I can move on to the other question.

Sure. I mean the -- on the digital side, yes, we're looking at another 10% increase similar to what we just experienced in the fourth quarter.

Okay.

Yes, I think, I think this is a trend that we're seeing kind of quarter over quarter and we expect it to continue.

Right, great. And then moving on to the proposed acquisition -- and I may have missed something up front and I'm not sure if the CRS 1 discussion was with regard to the current Intel customer base and Cisco being that significant in terms of the $65 million, but more broadly speaking, if you could discuss the customer and competitive environment on the tunable laser front and some of the growth metrics that you're seeing in the market, or the Intel business has seen, and broadly speaking, what kind of market dynamics that you're entering here? I think you got a pretty large and growing market and to the extent those revenues are all tunables, you're probably -- that's probably a unit that's vying for market leadership in tunables and I wonder if you can address your share position and just generally discuss the dynamics around what looks to be a pretty significant acquisition?

Okay. So Tim, to answer your first question, the CRS 1 discussion we talked about is related to what we call the parallel optics products, based on [pixel arrays and] (inaudible) it's not related to (inaudible) Intel products. As for the Intel assets that we announced to acquire [as a top third], it consists of two major product lines. One is tunable lasers. They, of course, supply the tunable lasers internally for their transponders, but they also sell tunable lasers in integrated assemblies to other transponder customers. In that space, certainly Intel's position, as we understand, is the position itself, as a high-quality and high-performance suppliers. There's some other good suppliers in that area as well. Our understanding is the market size is growing and think should have some room for everybody. We do expect that asset and that product line will grow with time. There are probably two or three other suppliers in the tunable laser space as well. Each one has positioned themselves in a different way, but I think the -- for Intel assets, they are good for ten gigabits, they are good for 40 gigabits. I'm not sure of the other suppliers, their products are positioned the same way.

From the overall market, as you know the tunable market is probably the fastest growing sector of the telecom product. We were told, and also the data shows from the research report, over 25% year-over-year growth. In a tunable transponder market, there's leading integrators, probably two or three of them, and I think Intel is one of the leading integrators. I think certainly they are in the top three from our view. The competitive landscape is pretty settled. There are 70 players wanting to get into the market, but the telco -- as you know, the qualification cycle is very long and Intel has established themselves as a very established suppliers -- supplier to almost every leading equipment manufacturers, so their customer base has been very strong. Their product portfolio has been pretty broad and they have been very well positioned.

In addition to tunables, you mentioned two major product lines in Intel?

Yes, tunable lasers and then tunable transponders.

Lasers and transponders, okay.

And then the third one is a fixed wave length transponder, which in a way, even a ten-gigabits but is viewed as more -- a (inaudible) product. Right now for agile networks, people like the tunability and give them the flexibility for the network configuration.

Okay. Thanks very much.

Thank you. I would now like to turn the conference back over to Ruben Richards.

Well, thank you, everybody. As we said earlier in the -- in the conference call, clearly this is a -- the last couple of weeks have seen some major business developments on -- particularly on the terrestrial division, which got its first major order. We're very optimistic about what the pipeline looks like there and the business overall. And the Intel telecom unit, clearly a positive for the Fiber business, completes the product line and supports overall profitability targets and sell rates overall profitability targets and we couldn't be more pleased to have the Intel asset as part of -- part of EMCORE's product portfolio as well as to have the quality of the Intel people join us. So we're -- we're very positive on our outlook in that market space. And with that, we'll conclude the call. Thank you.

Thank you. This does conclude our teleconference for the day. You may now disconnect.