Synaptics Inc (SYNA) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Synaptics first quarter conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time throughout the conference, for an operator please press the "star" followed by the "zero".

As a reminder, this conference is being recorded today Thursday, October 23rd of 2003. I would now like to turn the conference over to Alex Wellins of the Blueshirt Group. Please go ahead, sir.

Good afternoon and thanks for joining us today on Synaptics first quarter fiscal conference call. This call is also being broadcast live over the web and can be accessed from the investor relations section of the company's web site at www.synaptics.com. With me on today's call is Francis Lee, the company's President and CEO and Russ Knittel, CFO.

We would like to remind you that during the course of this conference call, Synaptics management will make forward-looking statements, including projections and estimates and will involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the company's forward-looking statements.

We refer you on to the company's Form 10-K for the fiscal year ended June 30, 2003 and final with the SEC. For important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.

Now I would like to turn the call over to Francis Lee.

Francis?

Thanks Alex and thanks everyone for joining us on the call today. I am going to start off by giving you some highlights from our first quarter results. We are very pleased with our first quarter performance. We achieved record revenues of $29.6 million with growth of roughly 5% from the preceding quarter and 33% over the same period last year.

After normalizing for the spike in non-revenue in the June quarter resulting from the trial production shipment in the China (inaudible) applications, revenues were up close to 9% on a sequential basis. GAAP net income for the quarter was $2.3 million or 9 cents per diluted share compared at $2.6 million or 10 cents per diluted share in the prior quarter.

Lastly, reflecting the impact of our approximately $400,000 of restructuring cost related to acquisition of Hong Kong based NASM at the end of the June quarter. We are making quick progress with the simulation of this new Hong Kong office which is currently looking position of Hong Kong base NSM at the end of the June quarter.

We are making quick progress with the stimulation of this new Hong Kong office which is currently working with our customers in Asia Pacific region to provide improved sales, operation and engineering support services.

Risk quarter shipments in our nook of market were better than forecast. Increasing significantly over last quarter and (inaudible) our fourth consecutive quarter of record unit shipment.

We experienced strong bookings in end of September with a record backlog of $19 million. Looking at general chance within a PEC market, we continue to see our products mix ship toward single pointing solution. As (inaudible) market demand continues to be driven largely by consumers aided by lower pricing and wireless features.

Today we have not seen any notable pickup in commercial demand and (inaudible) optimism, increase IT spending, there continuous to be a lack of consensus regarding the timing and magnitude of every fresh cycles.

During the quarter, approximately 9% of our total revenue was related to non applications. (inaudible) shipments into the MP3 market. As you know we have been keenly focused on the (inaudible) market as a sustainable new revenue driver as Napex. Introduction and expansion of legal online music downloading site is driving significant (inaudible) of portable music devices.

Apple, with its hi-portrayer and items on line music stall is an excellent case in point. We exited to be participating in this (inaudible) segment and expect to continue to capitalize on this very promising revenue opportunity going forward.

I will now talk about some of our specific progress during the past three months starting a knoop of market. First, during the quarter we attended several thresholds and host of private technologies with a (inaudible) and WP Expo Japan. During this event, our marketing and sales team met with our ODM and OEM customers to demonstrate both new and future concept products.

The new products include a illuminated touch pad, which we enhance in September and a new (inaudible) which introduces new sporading feature functionality pocketed for consumer knoople (ph) Customer and media response was very positive.

Second, we continue to be in a development state with NXT. Working to integrate the flat Panospeaker technology in its anaptic touch care. Customer interest in this new concept remains high and we are excited about the potential of our future design wing.

Third, as I mentioned last quarter, we continued to see the growing interest in our touch pad and the plastic solution. We are pleased to enhance the new touch pad and plastic design is now shipping HP pavilion Revi 7,000 series. We continue to see strong interest in this product, customers and look forward to updating you on additional design in the future.

Finally, we expect to see revenues from a second design wing for integrated fingerprint TouchPad modules next quarter. We are also continuing to make solid progress in a new market during the September quarter. As I mentioned earlier the demand for portable music players continues to be strong and we excited about the interest expressed by the device manufacturers in integrated Synaptics technology to enhance the user experience. In addition to the Apple icon design (inaudible) production, product development for other design wings is progressing nicely and we expect to see a new flash base device using our capacid technology in the market giving the December quarter.

Moving on to the handheld market, we continue our development work with customers who express interest in using our technology in both generation, in both mixed generation cell phones and PDAs.

In summary, development work with customers who express interest in using our technology in both generation, in both mixed generation cell phones and PDAs.

In summary, with a great quarter highlighted by both record revenue and unit shipment, our business model continues to withstand a change in micodynamics (ph) within the industry and we successfully increase our leadership position in the Knoople (ph) market while keeping margins within our target range. We are encouraged by both strong demands by shifting products and the lab work design activities for future product offerings.

We are optimistic regarding the momentum owing the December quarter and a well position to meet the demand requirements of our customers. With that, I now turn over the Knittel Russ who will review our detail financial results for the first quarter and provide some guidance on our business outlook.

Thank you Francis. Unless I specifically note otherwise all the numbers I discussed regarding our quarter results of the GAAP basis. The revenue for our first fiscal quarter was $29.6 million, a sequential increase of approximately 5% of our last quarter's $28.2 million and reflecting more than 10% revenue growth from note book shipment. Partially offset by the expected absence of the repeat shipments into the china pape (ph) on application this quarter.

Revenue was up 33% compared to the $22.2 million during the comparable quarter last year reflecting increased unit shipments for both notebook and new market applications. We are pointing revenue for the quarter trended down as anticipated and was approximately 27% of total revenue compared to 31% of total revenue in the June quarter.

As you know our 2004 target for this segment of 20-30% of overall revenue reflects the continued product mix ship toward single pointing solution based on both consumer oriented demand and the impact of competitive solutions in the dual pointing segment.

Now notebook revenue for the first quarter represented approximately 9% of total revenue compared to more than 14% of revenue in the June quarter and as I mentioned earlier this decline is primarily attributable to the production file shipment, which occurred last quarter to the china pape (ph) on application.

Gross margins of 41.1% for the September quarter are within our target range and compared to 40.9% in the preceding quarter at 43.9% in the same quarter last year. Margins at the low end of our range primarily reflect a product mix weighted towards single pointing solutions.

Total operating expenses for the quarter increased as expected and totaled $8.7 million compared to the $7.7 million in the preceding quarter, included in total spending were one time cause of 432,000 associated with transition in certain functions from our Cynoze (ph) and Taiwan offices, two our new office in Hong Kong. Non-cash charges related to the amortization of intangibles and deferred stock compensation in the first quarter totalled a $137,000 essentially unchanged from the June quarter.

R&D cost of $5.1 million were up from $4.8 million in the prior quarter primarily reflecting the impact of our annual physical performance review cycle as well as higher product development and project related expenses. SG&A cost were $3.1 million compared to $2.8 million in the prior quarter again primarily reflecting the increase compensation cost correlated with our annual focal review process. Total head count at the end of the quarter was 178 an increase of two from the June quarter.

Net interest income which comes primarily from investments and tax exempt issues was $192,000 for the quarter down sequentially primarily reflecting lower average interest rate and related fixed income portfolio.

GAAP net income for the quarter was ahead of our expectations that are approximately $2.3 million or nine cents per diluted share primarily reflecting our higher than expected revenue level. This compares to $2.6 million or 10 cents per diluted share in the immediately proceeding quarter and $1.2 million or five cents per diluted share for the comparable quarter last year.

Pro forma net income for the quarter was approximately $2.7 million or 10 cents per diluted share compared to $2.7 million or 11 cents per diluted share in the prior quarter and $1.3 million or 5 cents per diluted share for the comparable quarter of last fiscal year.

Now I would like to touch upon a few items related to our balance sheet. We ended the quarter with total cash and short term investments of $79.6 million, up from $77.5 million at the end of the preceding quarter. Cash flow from operations was approximately $1.5 million. Capital expenditures for the quarter were approximately $132,000 and capital depreciation was $299,000 in the quarter. Receivables at the end of the quarter were $16 million compared to $13.2 million last quarter. DSOs at the end of the quarter were 49 days compared to 42 at the end of the June quarter primarily reflecting an uptick in September shipment.

Inventory total $5.1 million at the end of the quarter compared to $6.4 million at the end of the June quarter. Inventory turns for the quarter were 14 compared to 10 last quarter reflecting the combination of lower inventory levels and the higher shipment in the quarter.

Regarding our current business outlook and the business environment as Francis mentioned earlier, we ended the December quarter with a record backlog of $19 million dollars, which is up more than $6 million from this prior quarter and indicates continued strong unit demand going into the holiday season.

As it has been the trend over the past several quarters, we believe that current demands for (inaudible) being driven largely by consumers and small businesses, aided by aggressive ovium pricing and strong interest in wireless features offered by the Intel's and Treno Platform.

It is true that Treno has been gaining share and many (inaudible) believe that Treno will be in the majority of notebook sold in the December quarter.

Looking at revenues for the fiscal second quarter, we are forecasting the sequential increase of 8-10%. This reflects anticipated seasonally strong unit shipment, evidence in our customer support cast and our backlog going into the quarter, which continues to point to a product mix weighted towards single pointing solution.

Keeping with the seasonal trend, we expect the March quarter to be sequentially down with the magnitude dependent on self two rates in the December quarter. We expect to be able to maintain our gross margins within our target range of 40-45% and based on our backlog we expect gross margins to be similar to this quarter. We expect operating expenses excluding the one time restructuring cause we incurred in the September quarter to be flat to slightly up in the December quarter.

Based on our current outlook, we expect our tax rate for the year to be around 37%. GAAP net income for diluted share for this December quarter is expected to be about 11 cents. Non-cash expenses related to the amortization of intangibles in deferred stock compensation are estimated to be approximately 140,000.

In closing, our business fundamentals remained strong and we continue to make progress across our key objectives. Despite the competitive pressures in the market place, the company's technical innovation and product differentiation continued to set us apart like standing our global footprint with new local support centers, we have enhanced our ability to service our customers in (inaudible) geographic region.

We remain confident in our efforts to augment our business with sustainable new revenue sources overtime and as in the past we will continue to prudently manage expenses and evaluate ongoing cost improvement, which will allow us to maintain a flexible business model as we leverage our core technology into new growth area.

That concludes our formal remarks and we now turn the call over to the operator to start the Q&A session.

Thank you, sir. Ladies and gentlemen at this time we will begin the question and answer session. If you have a question, please press the "star" followed by the "one" on your push button phone. If you would like to decline from the polling process, press the "star" followed by the "two".

You will hear a three tone prompt acknowledging your selection and your questions will be polled in the order that they are received. If you are using speakerphone equipment, you will need to lift the handset before pressing the numbers.

One moment please for our first question. Our first question from Mr. Rob Stone. Please state your company affiliation, followed by your question.

It's SG Cowen Securities. Congratulations on great start to the fiscal year guys.

Thanks, Rob.

Thanks, Rob.

Perhaps if I didn't quite catch what you said on the subject of music players, there is a second one going into production I think, but I was not clear on when that would be and any color on the scope with additional designs that might be in the pipe line.

What I said in my discussion there was we expected to see a new flash base device using our capacities, technology in the market during the December quarter Rod.

OK, so that's a flash as opposed to -- old of the (inaudible) device.

Correct, correct, correct.

And with respect to potential pipeline behind that.

Rob, as my comments suggested you know obviously product development is still progressing nicely, but is not at a point you know where we feel that there is anything we can discuss on that.

OK. Do you feel like that's a product that there is sort of any entry point once a year around the holiday season or would you expect to see that ramp along with the interest in the new legal download services.

I think there is a number of a factor. I think both of what you said is actually true in terms of the holiday season as well as additional way of doing it. I think that's is also a third dimension. You know, with this particular sector, you know record is possible. Digital entertainment, MP3 music certainly is one of the way of entertainment if you look at few weeks ago, Apple and Sony talk about all the other media content as available in devices like this. This is no longer music online service hardware only.

So the next version that they have (inaudible) comes out you know talks about they actually have voice recording as well as using it for digital photo storage. Those are many different kinds of application using that the same form factor that I find it to be very exiting, I have talked about it, about you know our previous discussions with you and with other potential investors and I think is finally coming in the floatation.

So I think both of what you said are correct and then I am actually eagerly looking forward to help some add new functionality into (inaudible).

With respect to the fingerprint TouchPad designs; this should be two in production shortly. What do you get sense of his drawing or impeding the wider adoption of that, I would think with all the concerns around corporate IT security that there might be faster uptake of something so convenient.

Well, I mean (inaudible) Rob think about this thing here. I think, number one, during the discussion that we have with potential OEM customers, there has been a great deal of interest expressed (inaudible) few is agreed to interest in expressed it in this application.

However, corporate IT spending has not been as you know, you know pretty big or any other going forward in how that is going to play itself out remains to be same, as well as pricing, you know for this kind of application as mark up and OEM you know is not probably at the Swiss part of the pricing, right, so I think there is a lot of (inaudible) you know in that kind of application has not turned into sales volume yet Rod. I'm still confident that you know that is the application that the corporate guys will want to see, just like what you were talking about.

Great. Finally last one for Russ. Can you share any light on pricing trends in the quarter?

I would characterize the pricing trends in this most recent quarter as being pretty much unchanged from the prior quarter. Pricing in the single pointing solutions has been pretty much along with the historical trend lines and I haven't seen our major competitor become anymore aggressive in the dual pointing segment. So I think quarter-to-quarter things were pretty much status cue.

So when you say pricing unchanged that employed some sequential erosion on particular designs but you are introducing new things like the illuminated, round and plastic and so forth to start new stuff at a higher level.

That's correct Rod. As you know when designs with the OEM'S are upfront. we actually negotiate forward and your quarterly pricing list over the life of the Notebook. so that just ends up being big until our results and the forecast that we put out there.

Great, thanks very much.

Thank you.

Our next question is from Mr. Andrew Neff. Please state your company affiliation, followed by your question.

Bear Sterns, and the question relates to the (inaudible). Could you represent again if you could Russ.

I'm sorry, Andy. it s 9% of non-PC.

The margins for that business continue to be better that the PC business as I continue to just go over above the corporate average I guess that's what you put it.

Well again Andy, we don't comment on that specific segment given that we don't have a real broad customer base there yet. I am surprised to say that the businesses were seen there allows as a company to continue to forecast the blended growth margin and that's in our target range of 40-45%.

OK, and then just in terms of the, as well as in the backlog issue, would you have, since your product is generally being delivered by others in many cases, what does backlog mean in this case and are you preventing customers from shipping products or what is that backlog number mean.

Well the backlog number that we quote to you represents scheduled ship dates within the 90-day period that were coding, so when we give you backlog coming out of the September quarter at $19 million. That's all scheduled to ship within the December quarter.

During the quarter, you know we didn't see uptick in demand in the last month, but as far as I know we met those requirements through the extent that we could and didn't certainly take anybody down in terms of their production requirement, so things did get a little tight occasionally, but we always made it, and again I think having $19 million going into this quarter is really a reflection of what everybody is anticipating will be a very strong holiday shopping season.

OK, thank you very much, nice quarter.

Thank you.

Our next question is from Mr. Matthew Curtis. Please state your company affiliation, followed by your question.

Kenny Securities. Good afternoon Russ and Francis.

Hello

Hello.

That's fine. Good to talk to you guys, again congratulations on a good quarter here.

Thanks.

You mentioned in your press release your record unit shipments that you realized in the past quarter just as a point of clarification. Do you all regard dual point solutions as a single or a double unit?

As a single unit.

OK. Do you have any updates that you could give us some more color on how the CD 1 project is progressing there?

Sure, I meant, Matthew, it looked like we have talked to you about last quarter and you know and also we mentioned earlier in (inaudible), we ship, you know a reasonable amount of revenue and unit volume into our customer in China and they are going to have to pick that and turn it into a trial run, OK, and certainly from a response in the market stand perspective is doing (inaudible) Matthew.

And from our perspective, it looks like I talked about it in the last quarter, we are taking it as a potential up size, you know if it comes it, you know what have been likely we have certainly, you know have been excited about the opportunity and we look forward to continue a success there, but that is kind of our hand at this time.

I understand, so there has been no marketing update from CD-1 as how it is progressing?

No, they are still trying to rule it out in china.

OK. Since you are expecting the new flash MP3 player to begin production in December, I believe that means that Apple was your only customer that had an MP3 player actually in production its last quarter, is that correct?

Correct.

Russ, the account stable line had a little bit of drop there about a million bucks, was there anything in particular that led that out?

No, that's just the timing of what things couldn't do. We as a company we don't play with that at the end of the quarter trying to either increase or decrease cash balance. It just timing of what things are do and just normal operating.

I understand, and the long those lines on the balance sheet with the inventory, did the demand of this last quarter just catch you guys off guard as I will cause the drop over you bringing inventory levels down a little bit.

Well demand this last quarter was stronger than we expected going into the quarter bookings, I think, progressively stronger throughout the quarter and as a result we did end up with the (inaudible) being lowered than we would normally target, then as a result we have increased our (inaudible). So I would expect to see that go back up next quarter.

OK, and then finally does the backlog jump was there a kind of - was there heavy weighted back end of this quarter ordering pattern lies then you normally see or is this general increase the main deal for all.

No, I think quarters get up across the quarter, we didn't see any one spike in any one period to discuss aggressively strong as we move towards the December quarter. And again I think that it reflects is just broad anticipation that this holiday shopping season is going to be really strong.

OK. Thank you very much guys. You gave a nice quarter.

Thank you.

Our next question is from Mr. Satya Chillara, please say your company affiliation, followed by your question.

W.R. Hambrecht. Good afternoon Francis and Russ. Nice quarter. Couple of questions here, Francis. Let me take it from the top. So with the increased shipments and so on in the notebooks, is this changing your view in terms of notebook penetration, in terms of percentage of notebooks as overall computers in terms of percentage you normally show from IDC, is that changing, is that inching closer to, may be let's say 27% or 30%?

As Synaptic is already done so, if you look that September IDC dater. OK, I think the percentage of the notebook computer is already close to 25%. So I recall correctly the least 1.5% price higher than the previous numbers. There has been actually has been people like Salomon Smith Barney that actually have proposed pretty aggressive mixture of notebook in of the best half in their cases, they are projecting and talking about you know several years from now, that they may even get the parity and the exit parity.

I think personally that is public too optimistic, but I think the trend is certainly showing that the percentage of notebook in the PC sector is connecting territory increase. And that's something that I've been talking about you know for the last over years and I continue to believe that.

Right: particularly what I want to focus Francis is for 2004, you have a number in mind apart from what the market research firms are all forecasting because you dominating in this market I am assuming you have a number in mind.

No, I really don't. You know, I mean I know that as I look at those figures last year, like I told you guys, I think those are very conservative numbers in terms of that and now they are forecasting it to be bit higher but I really don't have the specific target in what it looks like. I think a lot of that frankly such as associating on how much of the debt copy is going to pick up, you know in specially in like developing countries right.

So I think it's like too moving hard as that you are trying to get to here. I am still really optimistic about the penetration of the notebook not because only because of the price point and consumers but also because of the features, you know it's features that people really like to have at the right price point.

And in terms of market share, any exiting calendar Q3 any market share number that you can share?

No typically Sachet, we don't discuss market share on a quarter-to-quarter basis because of the you know certain IDC information as we lack at. Now we feel pretty comfortable to tell you that we feel our market share have gone up.

OK, now with regard to revenue break down touch pad is in the range of what 57% of your revenues?

Oh again, if you look at our revenues for the quarter the non-notebook stuff was approximately 9% and dual point in was about 27%. And the rest of it predominantly would have been touched that.

So it declined dual pointing is declining continuously right.

It was down. Rest of it predominantly would have been touched that.

Right.

So does it declined jewel pointing is declining continuously. If t downs roughly 4 points, our overall next quarter to quarter and as said in our call last quarter we expected that the dual pointing will continue trend down and it would in fiscal 2004 somewhere in the 20-30% range.

that's amazing. So in spite of that you are able to guide 8-10% growth in calendar Q4 so that's,-- do you expect the dual pointing to pick up probably to mid 30s or somewhere in 30s in December quarter.

well again, our due of the world is that low-end notebooks are still driven the man. And low-end notebooks typically do not have dual pointing solutions in them.

OK. Interesting. Francis, I didn't quite understand when you said flash based devised using capacitor touch pad. I wanted to understand the product. Is it a USB drive, what is this product?

No, basically, when you look at the MP3 music player out there are two kinds of a storage medium. Its is basically flash as well as the floppy drive. You know, I thought these are hard disk drives medium and basically my comment is just a flash based medium. just that is only the distinction.

OK, I understand. So it's an MP3 player with flash. OK., got you. So thanks very much.

Gentlemen, our final question comes from Ms. Michelle Gutierrez, please say your company's affiliation followed by you question.

Hello, congratulations on a great quarter again. I have a question for Russ. Last quarter you had guided to 1% growth for revenues in September and December. And you are coming in advices on this quarter end a 9% excluding the one time in - 1 and then 8% to 10% growth in December. What are the terms of issues? Is it just slope of demand, is that the only delta?

It's a combination, I think of better visibility and increased to beyond expected come back to the notebook segment and the MP3 segment.

you know the shift from dual point to single point, are you not seeing anything more aggressive on upfront? I that giving you better visibility as well?

Once again if we look at the design activity that adopted today, there's much more going on in single pointing areas than they are in the dual pointing areas. Which again had totally suggested to us that demand is coming from the low end of the market. Which predominantly reflects consumers and small businesses play under that as well.

So I am just going back to our previous questions from I think it was Russ. You said that single point is falling a normal historical trend line. What kind of trend line is that is that year over year it declines about 8-9%?

Historically somewhere between 6&8%

OK, and in the last quarter you also said that the dual point which used to be 2 x time better then the single point had contracted to about 1.4 or 1.5 times. Is that still at that 1.4 or 1.5 times that of the single point version?

Again the last quarter related almost to the price point we were seeing for new design activity. We don't have any dual pointing solutions, that we are shipping today, that are backlog. I think things that will continue to shipping today into the market place are within the $9-12 price range. The comment relative to the one that have multiple had to do with new design activity some of which we had worked away from it with indicated on the call based on that price point and the fact that we don't believe that it also makes any money at that level.

OK, and then your growth margins actually improved this quarter despite this mix ship towards the single point. How are you able to get more growth margins offsets (inaudible)?

Well there is a couple of things, one is that you know we continuous have cost improvement programs that we focus on internally, the second is as you recall on the last earnings call I indicated that we did have some manufacturing inefficiencies in terms of higher than expected yield losses and that we had recovered from that and had gotten the process back into control and (inaudible) it is a combination of those two things but again, I mean it is a slight increase quarter to quarter, I would not read anything into that.

OK, and any guidance of shipments, I think you said that shipments were up this quarter, I didn't catch the (inaudible), the unit shipment.

We didn't give a percentage but it was up more than 20%.

OK great. And just one last thing on your handset opportunity, you know, you have also been talking about our handset opportunity for quite sometime. Can you talk about the kind of things that they are working on designs, working as a touch screen fingerprints solutions for your handset.

(inaudible) that we are targeting is to do text entry using our technologies. I mean, will be observed is today, you know one of those application (inaudible) message. People use the keypad, you know using the number of pad, using protective tacks, you know, we feel we have a solution here where we announce people to end the tacks tentatively in a native language breathing it either with a finger or with a pen.

So that is still our approach and we have got in very favorable responses from (inaudible) customers that would be dealing with and because it is a new technology into an established application even as a (inaudible) application, there is a number of hurdles the (inaudible) go through to get this, so you know we have (inaudible) guidelines and will be (inaudible) so we have not been really coming out and cross the hurdle (inaudible) but I continue to be you know pretty optimistic about what is happening and as you know a month and (inaudible) you know anytime you cause any major (inaudible) we will communicate it. But that is the application.

Thanks (inaudible) you will be able to announce something.

We don't have any specific timeframe in mind (inaudible) but I can tell you is things have continued to move nicely OK, we are solving problems, we are going through studies and as you know different hurdles and stuff like that. I am quite pleased with overall progress.

OK, thank you.

Thank you (inaudible).

Gentleman, that concludes our question and answer session. Please continue.

Thank you for being on a call with us today, and then we look forward to update you again in the next quarter. Bye.

Ladies and gentleman, that concludes the Synaptics first quarter conference call. If you would like to listen to a replay of today's conference, please dial 303-590 3000 or 1800-405-2236 and the system will ask you for a pin code, please enter 555 350 followed by the "pound" sign.

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