Wolfspeed Inc (WOLF) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Cree Inc.

third quarter FY16 earnings call and webcast.

(Operator Instructions)

As a reminder this conference call is being recorded.

I would now like to turn the conference over to in the Raiford Garrabrant, Director of Investor Relations.

Please go ahead, sir.

Thank you, Abigail and good afternoon.

Welcome to Cree's third quarter FY16 conference call.

Today Chuck Swoboda, our Chairman and CEO; and Mike McDevitt, our CFO will report on our results for the third quarter of FY16.

Please note that we will be presenting both GAAP and non-GAAP financial results in our remarks during today's call which are reconciled in our press release and posted in the investor relations section of our website.

Today's presentations include forward-looking statements about our business outlook, and we may make other forward-looking statements during the call.

These include comments concerning trends in revenue, gross margin and earnings, plans for new products and other forward-looking statements indicated by words like anticipate, expect, target and estimate.

Such forward-looking statements are subject to numerous risks and uncertainties.

Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially.

Also, we'd like to note that we will be limiting our comments regarding Cree's third quarter of FY16 to a discussion of the information included in our press release.

We will not be able to answer any questions that would involve providing additional financial information about the quarter beyond the comments made in the prepared remarks.

Consistent with our previous conference calls we are requesting that on only sell side analysts ask questions during the Q&A session.

Also, since we plan to complete the call in the allotted time of one hour, we ask that analysts limit themselves to one question and one follow-up.

If you have additional questions please contact us after the call by email or phone at 919-287-7895.

Now would like to turn the call over too Chuck.

Thank you, Raiford.

As we previously announced, fiscal Q3 revenue declined to $367 million, which is below our previously announced target range to primarily to lower commercial lighting revenue.

LED and Power and RF revenue were in line with our targets for the quarter.

Q3 lighting revenue was $188 million, which is in line with our pre-announcement, but lower than we originally targeted for the quarter.

The lower orders were driven by three primary factors.

Customer service disruptions related to our ERP conversion, new product delays and weaker market conditions than forecast.

Q3 non-GAAP gross margin was 30.6% to the lower lighting margin resulting from lower lighting factory utilization and an inventory writedown on LED tubes.

The LED business continued to execute well with margins in line with our targets while Power and RF margins were on the lower end of their target range due to an unfavorable product mix.

Operating expenses were lower than targeted due primarily to lower variable sales costs, and our tax rate was also lower.

This resulted in Q3 non-GAAP net income of $16.9 million or $0.17 per diluted share.

This is higher than the range we provided on April 5, primarily due to the catch-up impact of the reduction in our estimated tax rate for the fiscal year.

Company backlog for Q4 is slightly ahead of this point last quarter, led by incremental growth in commercial lighting orders.

I believe we have addressed the root cause of our recent lighting business challenges but recognize it will take time to rebuild sales momentum.

We improved customer responsiveness in March and new product momentum is off to a good start in fiscal Q4 with the release of several new commercial lighting products and two new LED products.

I will now turn the call over to Mike McDevitt to review our third quarter financial results in more detail, as well as our targets for the fourth quarter of FY16.

Thank you, Chuck.

I will be providing commentary on our financial statements on both a GAAP and non-GAAP basis, which is consistent with how Management measures Cree's results internally.

However, non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies.

Non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

A reconciliation of the non-GAAP information to the corresponding GAAP measures for all quarters mentioned on this call is posted on our website along with a historical summary of other key metrics.

For the third-quarter of FY16 revenue was $367 million which was in line with our preliminary results announced on April 5. GAAP earnings were breakeven for the third quarter of FY16 and non-GAAP earnings were $17 million or $0.17 per diluted share.

Non-GAAP earnings exclude $17 million of expense net of tax, or $0.17 per diluted share from non-cash stock-based compensation, amortization of acquired intangibles, a gain on the sale of equipment related to our LED restructuring and net changes associated with our Lextar investment.

The non-GAAP earnings per share were higher than our pre-announcement range due primarily to the catch-up impact of the reduction in are estimated tax rate for the year.

FY16 third-quarter revenue and gross profit for our reportable segments were as follows.

Lighting products revenue was $188 million, a decline in 26% sequentially and in line with our revised outlook.

Gross profit was $49 million or 26%, which was a decrease from Q2 due to lower factory utilization, an inventory writedown on LED tubes and a higher relative mix of consumer sales.

LED products revenue was $150 million, a decrease of 2% sequentially and in line with our targets for the quarter.

Gross profit was similar sequentially at $52 million or 34.7% for the quarter.

Wolfspeed, our Power and RF products revenue was $29 million, a 6% sequential increase in line with our targets for the quarter.

Gross profit was down 6% sequentially at $13 million, or 46.4% due to an unfavorable mix with new products ramping up.

In determining gross profit for our segments, we do not allocate certain employee benefit costs, stock-based compensation and acquisition related costs.

These non-allocated cost total $5 million for the third quarter of FY16 and are included to reconcile to our $109 million GAAP gross profit.

Q3 GAAP gross margin was 29.7% and non-GAAP gross margin was 30.6% which excludes $3 million of stock-based compensation.

Operating expenses for Q3 were $114 million on a GAAP basis and $96 million on a non-GAAP basis, both of which were below our targeted range for the quarter primarily due to lower variable cost on a lower lighting sales.

Non-GAAP operating expenses exclude approximately $12 million of stock-based expense and $7 million of amortization expense of acquired intangibles which were partially offset by a gain on the sale of equipment related to our LED restructuring.

Our non-GAAP operating income was $16 million and in line with our pre-announcement estimate.

Our GAAP and non-GAAP tax rate benefited from the catch-up impact of our revised FY16 pretax earnings forecast.

As a result, our Q3 GAAP tax rate was 104% and our non-GAAP tax rate was 3%.

Our revised FY16 non-GAAP tax rate is 16% and our GAAP tax rate is 45%.

We ended the quarter with $620 million in cash and investments, a $3 million increase sequentially.

During the third quarter we generated $15 million of cash from operations, borrowed $20 million on our line of credit and received $6 million from common stock issuance and fixed asset sales which were mostly offset by spending $18 million to repurchase an additional 600,000 Cree shares and $21 million of capital expenditures.

Through Q3 we have spent $150 million to repurchase 5.8 million Cree shares and have 350 million remaining on our share repurchase program.

Our capital spending decreased in Q3 as planned.

For FY16 we are targeting capital spending of $120 million, plus or minus, and approximately $70 million in free cash flow.

We ended the quarter with $225 million outstanding on our line of credit.

Day sales outstanding were 44 days as compared to 38 days at the end of December and at the lower end of our targeted range.

Inventory days on hand were 104 days as compared to 84 days at the end of December.

This increase was lighting related and puts us in good position to service customers in Q4, post-ERP system implementation.

We target inventory days moving back and line with our 90 day, plus or minus, target range over the next several quarters.

At this time we target Q4 revenue in a range of $370 million to $395 million which takes into account lighting being incrementally higher as commercial sales growth more than offset lower targeted consumer sales, LEDs in a similar range to slightly lower and incrementally higher Wolfspeed sales.

We target Q4 non-GAAP gross margins to be 31.5%, plus or minus, and GAAP gross margins to be 30.7%, plus or minus.

We target incremental gross margin improvement in lighting and Wolfspeed.

These Q4 targets are based on a number of factors that could vary including overall demand, product mix, factory execution and the competitive environment.

While we believe the lighting ERP implementation issues are mostly behind us, we believe near-term commercial orders will take time to fully recover as we're regaining our customers' confidence.

Our GAAP gross margin targets include stock-based compensation expense of approximately $3 million where our non-GAAP targets do not.

We are targeting Q4 non-GAAP operating expenses to be approximately $98 million, a $2 million sequential increase due primarily to variable sales costs associated with a target of higher commercial lighting sales.

We are targeting Q4 GAAP operating expenses to be approximately $117 million which includes approximately $12 million of non-cash stock-based compensation expense and $7 million of amortization of acquired intangibles.

For Q4 we target sequential improvement in our non-GAAP and GAAP operating profits due to improved gross margins in operating leverage.

Q4 non-GAAP operating profit is targeted to be $22 million, plus or minus, as compared to $16 million for Q3.

Q4 GAAP operating profit is breakeven plus or minus as compared to a $5 million loss for Q3.

Q4 non-GAAP net interest income and other is target to be $700,000.

We target Q4 GAAP tax rate to be 19% and our non-GAAP tax rate to be 16% based on our revised FY16 forecast.

As a reminder, our Q4 and FY16 tax rates will fluctuate based on our overall earnings, the tax jurisdictions on which our income is actually earned, tax credit and other tax benefits that may or may not become available to Cree in future periods.

We target non-GAAP net income for Q4 to be between $16 million to $22 million.

Based on estimated 101 million diluted shares outstanding, our non-GAAP EPS target is between $0.16 to $0.22 per diluted share.

GAAP net income is targeted to be between a $3 million loss to $3 million of income, excluding any net changes associated with our Lextar investment.

Our GAAP EPS target is between a $0.03 loss to $0.03 per diluted share.

The low end of our Q4 net income and EPS targets are below Q3 due to the benefit we recognized in Q3 related to the year to date tax rate catch up.

Our non-GAAP EPS target excludes amortization of acquired intangibles, net changes associated with our Lextar investment and non-cash stock-based compensation in the amount of $0.19 per share.

Thank you and I will now turn the discussion back to Chuck.

Thanks, Mike.

As we enter our fourth fiscal quarter, we remain focused on taking advantage of the growing market opportunities in lighting and Power and RF while continuing to adapt our business to the evolving LED competitive environment.

We have demonstrated over the last seven years as we built the fastest-growing lighting company in North America that our strategy of leading with innovation works.

We pushed the technology to deliver products that redefine what is possible and deliver new capabilities.

Sometimes the development takes longer than expected.

But this is one of the risks of being the innovation business.

As I said earlier this month, we believe we have turned the corner on lighting new product momentum.

In the last several weeks we have released expanded family of RSW streetlight products, the Essentia by Cree track and downlight product line and SmartCast managers for our new PoE intelligent lighting products.

Over the next two months we're scheduled to release performance upgrades and product line extensions for our XSP streetlight, CPY canopy lights and OSQ aerial lights.

We also target releases for SmartCast LN for suspended fixtures, next-generation high bay fixtures and a trough for performance upgrades in the quarter.

We recently released our next generation XLamp XP-G3 platform which delivers 31% more lumens than our previous generation as well improved lumen density, voltage characteristics and reliability.

We have upgraded LED performance in Q3 with new versions of our XP-L and XP-G2 products that incorporate SC5 technology.

We released a new family of XLamp CXA2 high density LED arrays that double lumen output and deliver the most lumens in the industry for their lighting-emitted surface size.

We recently announced TrueWhite Plus technology which will be available in upcoming LED components as well as new high-end lighting products.

The first products are being shown to customers this week at LIGHTFAIR and take our industry-leading TrueWhite color technology to the next level by optimizing the spectral content of the light.

The technology sets a new standard for what is possible with LED light.

We remain focused on promoting future growth in our Wolfspeed Power and RF business to enable Cree's shareholders to better realize the full value of this business.

Revenue improved in fiscal Q3 due to higher demand and we target additional growth in fiscal Q4.

We target incrementally higher overall sales in Q4 as total Company backlog is slightly ahead of this point last quarter.

Factory execution in all three businesses continues to be critical to achieving our target.

Based on current backlogs, forecasts and trends in the business, we're targeting Q4 revenue in a range of $370 million to $395 million, which is comprised of lighting sales incrementally higher as growth in commercial lighting, partially offset by lower consumer sales, as we ramp down the current generation products in advance for a new bulb family launch in the fall.

LED sales in a similar to slightly lower range as competitive market dynamics offset typical seasonal demand improvement and Wolfspeed sales incrementally higher than Q3 driven by growth in both Power and RF product lines.

We target Q4 non-GAAP gross margin to improve to 31.5%, plus or minus.

This target is driven by incremental margin improvement in lighting and Wolfspeed and LEDs in a similar range.

We target Q4 non-GAAP operating expenses at $98 million, primarily due to higher variable lighting related sales costs.

We target operating margins to improve driven by higher revenue.

As a result, we target non-GAAP earnings in the range of $0.16 to $0.22 per diluted share.

The LED and lighting markets continue to evolve.

Our LED business has performed well over the last several quarters, but we need to continue to innovate and expand the number of applications for our high-powered technology to help offset a very challenging competitive environment.

The commercial lighting business lost order momentum in Q3, but I believe we have addressed the delivery issues and new product momentum has started to improve.

Our consumer lighting put is working on a new generation of premium LED bulbs that are targeted for release during the fall lighting season.

As lighting technology continues to advance, the art of the possible is expanding and the overall business opportunity is growing.

Innovation drives our ability to access this opportunity.

It sets Cree apart in a crowded lighting market that is still dominated by traditional players.

They have history, experience and years of relationships with the channel on their side.

We bring something new and different to the market such as truly intelligent lighting with Cree SmartCast and SmartCast PoE products.

We offer unrivaled lighting quality, optical control and color temperature capability for outdoor with our RSW street light and market-leading efficiency, optical control and cutting edge form factors with our IG parking and LN for suspended fixtures enabled by our WaveMax technology.

We're early in the development of the LED lighting industry and in many cases, the technology is ahead of demand.

But customers are starting to recognize that LED means more than just lower cost and energy savings.

We are focused on bringing them better light.

Light that makes your environment better and is intelligent by design; light that enables you to see better, feel better, and do more.

This is how we plan to win in the market and grow our business.

We will now take analyst questions.

(Operator Instructions)

Our first question comes from Brian Lee, Goldman Sachs.

Hey guys, thanks for taking the questions.

Just first one quickly, can you quantify the impact on front-end utilization from the lower sell-through in commercial lighting in the quarter?

Just trying to get a sense for the interplay between your component's segment and what it feeds into your captive commercial lighting business.

And related to that, just curious if you did see some inventory build in chips here recently, given the softness in lighting, and then I had a follow-up.

Sure, Brian.

I think there's a relatively minor impact on the chip business from the lighting slowdown.

I am sure there is very slightly incremental, but the reality is that since we restructured the business last summer, that business is pretty well-balanced and really driven much more by our external customers than it is by the internal ones.

So I would say it is minor at most.

Then I would say as far as inventory goes, there really wasn't any build in inventory in the LED business.

In fact, if anything, I think overall in chips were actually down a little bit quarter over quarter.

What you are really seeing is raw materials and whip is really the vast majority of that inventory.

It's in lighting and it is really as we were rebuilding a supply chain targeting a higher number, and that's really what drove that quarter to quarter.

Okay.

Thank you, that's helpful.

And the follow-up for you, Chuck, you mentioned during the prepared remarks one of the three drivers of the shortfall this quarter was the weaker-than-expected market conditions.

Can you remind us which end-markets or vertical this was concentrated in and then how you are seeing those markets trend near term.

Whether there has been just a temporary shift in the business environment or if there's been something more structural going on there.

Brian, what I would say is there is the three items, the ERP, the new products and the market conditions, ERP was the majority of it.

New product secondary and market conditions was really a third order problem.

I would say that the combination, one of them it's a ForEx issue, so we saw some weakness in Mexico and Canada, and that's really more about exchange rate than it was overall demand.

Those were delayed projects.

As far as the weakness, what we saw is that some of our retrofit business more oriented towards what I would call their industrial segment is where we saw some softness quarter over quarter.

So it was really limited more to one part of the business than overall and really didn't see -- the project side of the business seemed to be pretty darn healthy.

So it seems to be retrofit and within retrofit more of the industrial piece.

But again, think of it as a third order of the gap, most of that piece was really ERP and new products.

Our next question comes from Vishal Shah with Deutsche Bank.

Yes, hi.

Thanks for taking my question.

Can you talk about your consumer lighting business?

You mentioned that you were working on some advanced optechnology.

What kind of margins do you envision in that segment once you launched the product?

And also you've got $350 million of buyback authorization left, can you talk about your plans around share buyback into the balance sheet items?

Thank you.

On the consumer, we are working on a next generation bulb that should be launched in the fall.

Don't want to give away too much before we get the product out there.

But it's really designed around reinforcing our premium-market position and really builds around the idea of better light.

In terms of its financial model, I think we would be better off waiting to share those as we get a little bit closer and give you some targets.

But I would expect it to be at least as good, if not slightly better, than where we are today.

As far as the buyback goes, we do have about $350 million left and we're going to continue to evaluate the opportunities in the market and I would expect that depending on various market conditions we would continue to target to be active in the market there.

Harsh Kumar, Stephens

Hey, Chuck, question for you.

Now that the ERP issue is resolved and you said you're seeing some positive signs from your customers on the commercial side, I'm curious what your expectation is with regards to getting back to the level that you were at.

How long do you think it will take to get all of that business back and then start to be on that 20% CAGR number you guys talked about for commercial lighting?

Harsh, look, I think that we saw the improvements start in March and it has continued in terms of customer service levels as we get into April.

I feel like the day-to-day blocking attack line is back on track.

I think we've seen the order rate start to get better in March and it looks reasonable here in April.

But again, it's going to take a couple of quarters, I think, to get back to the levels we were.

That being said, I think the new products over the next couple of quarters are also going to help.

So I think it's really two things.

As we get the customer service levels back up, that comes back over couple of quarters, plus the new products should start to drive the growth in the business.

I don't have a specific quarter for you because honestly, in my mind, it is not when do we get back to the level we were at, but how do we drive it beyond that.

As we head into FY17 we're going to target fairly healthy growth.

I think it's going to take three things.

It's going to be the products, we also have to do things like Essentia by Cree to expand that business overall.

I think if we do those two things we will be at a reasonable growth rate and then we're going to still look to see if there are some strategic opportunities that could be complementary.

We are not in a hurry there, but that would be the other piece I would think about as we get into FY17.

Got it, and as my follow-up, I think I hit upon something that was maybe asked a little bit earlier.

You talked about some pressure on the LED side.

It is just been four or five months since the reorg was completed there, is it just commentary that you're providing relative to the market and you feel like you're well-positioned, or is it actually hurting you guys on the LED side?

Harsh, as you saw, I think honestly our LED numbers probably are a little better than people expected in Q3.

We started the restructuring last year and ended June, early July, so it has been nine months.

I would say last quarter things came in as good, maybe even a little better than what the expectations would have been.

The commentary is really just to provide the dynamic that it remains a competitive marketplace.

We're going to keep focusing on innovation, that's what drives that business.

But at the same time, I think it's important and we're just acknowledging the market remains very competitive.

Edwin Mok, Needham.

Great thanks for taking my question.

First question on margin on your guidance of 31.5%.

If your LED business has flattened down and I think you said margin is flattish, that implies your lighting margins bounce quite a bit.

Does that all come from just no inventory write-down this quarter, or what is driving the lighting margins to rebound?

And how much was the inventory side?

Look, on the margin side, what we would expect is, is that if LED is in a similar range and as we start to get additional volume in lighting, that is going to give us some incremental margin.

And we're then we're going to also get some better factory utilization.

So keep in mind that one of the headwinds in last quarter was when we had less overall revenue in lighting.

There is some incremental factory under-utilization and that when that revenue starts to come back on commercial we are going to get at least most of that back in the quarter.

So that's what's driving that probably more than anything else.

I'm not sure what your question on inventory or how you want me to address that, is I didn't get quite the full question there.

Sorry.

You guys mentioned there were some inventory write-down last quarter.

How much was that?

Did that impact your 3Q gross margin?

Edwin, we didn't break in out specifically.

I would tell you the margin was more factory under-utilization than anything else.

But the write-down was incremental on top of that.

Obviously if we don't have that, that would help us as well, but the bigger swing factor in the numbers is getting the utilization back up in the lighting factory.

Great.

If I can squeeze one in there just on OpEx trend.

When I go back, I noticed that your OpEx has been bounced around, is, call it high $90 million to low $100 million range, right?

Assuming business improves and your new products start to take off on lighting do you think you can maintain this range of growth OpEx even if let's say your revenue is up quite a bit from here?

Edwin, what I'd actually tell you is I think that if you look at over the last four quarters, OpEx has actually come down from the Company.

I think we've actually done a pretty good job.

I think was up in the low $100 million and now this quarter it is below $100 million.

I think we've actually make pretty good progress on the expense side.

As we go forward, what I would expect is there will be some variable increase in OpEx.

As commercial lighting goes, there is variable costs on the OpEx side related to that.

But in a bigger picture, if you just put OpEx aside, as we think as we think about FY17 we're thinking, overall we're hoping to get some operating margin leverage.

So that net-net between the combination of what we can do on the gross margin side and managing operating expenses, the combination of those two combined with what we target is some revenue growth specifically in the commercial lighting side.

We would target, at least preliminarily operating leverage for next year.

Our next question comes from Krish Sankar, Bank of America Merrill Lynch.

Hi, thanks guys, this is Andrew Hughes on for Krish Sankar.

Someone touched earlier on the LED restructuring.

Just curious, is there more margin tailwind or upside left on that program, or do you think most of that is baked in with margins in that segment essentially starting to recover a little bit?

I would actually say that it is relatively neutral at this point.

I think early on in our Q1 we got some benefits, probably most of it from the restructure.

We got some incremental benefits in our Q2.

At the same time, Andrew, we were actually reducing inventory in the channel, so we were somewhat offsetting that.

I think Q3 is a relatively reasonable estimate of how the business flows, I don't think there's a big swing factor one way or another in that quarter.

Q4 if demand hangs in there and the market conditions are roughly the same, I would expect it to be in a similar range, plus or minus, no real tailwind our headwind at this point.

But again, the market is dynamic and so we will just have to adapt to what's going on there.

Great, thanks for that, Chuck.

And then just in terms of those market dynamics, can you just give us a little commentary on pricing trends you are seeing in both the high-power and medium-power categories on the LED product side?

Obviously we're a lot more focused on the high power, that's where the majority of our business is.

I think the best thing I can say is that right now this quarter and last quarter were similar to the previous two.

So it hasn't gotten better but it hasn't changed or gotten significantly worse either in the last few quarters.

I would say that trend continues to be competitive, price continues to come down sequentially, but plus or minus a similar range as we've seen for the last few quarters.

Mid power, I would say it has been also similar over the last several quarters.

I'm sure there's some fluctuation up and down, and I know that it ebbs and flows a little bit with demand in terms of what the backlighting market is doing.

But I would say overall they have both been trending in a similar range for the last few quarters.

Again, I'm sure there's quarter-to-quarter variation, but if you look at it over a three or four quarter, I would say they're both similar trend lines.

Colin Rusch, Oppenheimer.

Thanks so much.

Can you talk about your historical experience with cycle time on product uptake, both for the commercial lighting as well as with the new bulbs?

How long does it typically take from introduction to really seeing a meaningful ramp on the revenue line?

Colin, what I would say is on the bulbs, you put a new bulb on the market and it's pretty much a pretty quick reaction.

It's on the shelf and that's what consumers are generally buying.

I would say that impact will be, if we launch in the fall, we will start to see the effect of that probably in our Q2.

I would say as far as -- but keep in mind, I think we're thinking about a premium bulb positioning there.

So the way I would characterize that is we want to be the best bulb out there on the marketplace.

We're not trying to make -- that's not intended to be a significant revenue growth driver year over year.

The commercial lighting side, typically what we see is for a brand-new platform that is breakthrough, it is going to be two, three quarters before you get significant uptick.

There's obviously some near-term projects that you can get early on, but it takes a little while to get those spec'd in.

The more of a specification product, think of it as a two, three quarter.

The more it's a contractor grade product or something that can be used in a variety of jobs, then you can probably pull that in a quarter.

An example I would give you is that some of our newer stuff, it's more of a Q1, Q2 type phenomenon.

And Essentia by Cree, I would a expect to even start seeing some incremental sales from that in this quarter and early next quarter is how I would characterize it.

And then in terms of incremental operating margin on those lighting products, is there a target margin that you guys are looking for on those things, and how should we think about the incremental growth and how that drops down to the bottom line in the model?

I don't have a specific number for you, what I would say is, is that as we grow the business, there is probably variable, call it sales-and-marketing costs to support the larger business.

So that will scale more likely with the revenue line, and I would imagine we'd get leverage on the G&A and a little bit on the R&D side as well.

We'll want to continue to invest more in R&D, but not as fast as R&D.

So I would say think about leverage on those two sides, and sales and marketing, give a little bit, but it will have more of a variable component.

(Operator Instructions)

Our next question comes from Sven Eenmaa with Stifel.

Yes, thanks for taking my questions.

First question, I wanted to ask about the visibility on the LED products business, how does it compare to the same quarter last year?

So, as last year, Sven, I would say that I do not have a great answer for you right now.

I would say that for the last couple of quarters it's pretty similar.

I would say at this point of the quarter, LEDs is roughly about the same place plus or minus as we were sitting in Q2 and Q3.

And a second question I had is in terms of your new product introductions, how do you think using high-power chips packages you produce versus using third-party mid power?

Is there a place for mid power in your new product introductions as well, or you remain focused on in-house production?

Yes, actually, so maybe there's a misunderstanding.

We have been going with the right product for the right application in our lighting business here for a couple, probably almost two years now.

So while many of our high-end products are high-power driven because it gives us some unique advantages, there are other product lines where we have utilized both mid power, we have products based on the array technology.

And so I would say we are open minded.

We really believe that where the technology drives a system advantage we're going to do it.

And when it is better to provide system advantages through other things other than the LEDs, we do that as well and I would say that's already part of our overall lighting product strategy.

I'm showing no further questions at this time.

I would like to turn the call back to management for closing remarks.

Thank you for your time today.

We appreciate your interest and support and look forward to reporting our fourth-quarter results on August 16.

Good night.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect, everyone have a great day.