Q4 2019 Earnings Call
Ship that occurred in Q1 of 2019.
In the fourth quarter of 2019 revenue from North America was 10% Asia Pacific, 68% and Europe, 22%.
In the fourth quarter, two customers reach 10% of revenue and the top five customers generated approximately 42% of revenue.
Gross margin in the fourth quarter was 21% down from 29% in the prior quarter.
Approximately 4% of this decline or half the decline was due to lower manufacturing efficiencies and yields primarily related to the ramp of two new products since indium phosphide substrates and a new six inch germanium product configuration for large customer.
Both products address new market opportunities for XT that we believe will contribute positively to our business later this year and for years to come.
Further we view this decline in efficiency as temporary larger diameter substrates are inherently more challenging we were already taking steps to refine the processes and expect to show improvement in the coming quarters.
The balance of the gross margin declined in Q4 came from the following we had lower gross margins in each of our two consolidated raw material companies in this accounted for 1.5% of the decline in gross margin.
We also had a negative swing in adjustments to inventory at excess and obsolete, which accounted for 2.2% of the change from Q3.
These items are formulated driven and the lower revenue impacted formulas negatively.
As we look into Q1, we expect to show incremental improvement in the gross margin and we'll be focused throughout the year on improving our manufacturing efficiencies across all of our product lines.
Total operating expenses in Q4 were 6.7 million up from 6.2 million in the prior quarter. As a result of ended the year bonuses for employees at our raw material joint ventures, Ginnie Mae employees that are part of our supply chain.
These will not repeat in Q1.
But we are seeing increases and other generic DNA areas, such as insurance payroll taxes and legal.
Q1, Opex will likely be in the 6.4 to 6.5 range.
Total stock compensation expense for the fourth quarter of 2019 was 637000.
Operating loss for the fourth quarter of 2019 was 2.8 million compared with an operating loss of 477000 in the previous quarter and an operating loss of 638000 for Q4 of 2018.
Interest income net of the fourth quarter for the fourth quarter 2019 is a gain of 770 8-K.
This included a de Minimis gain in net interest income a net loss of 226000 from the partially owned companies in excess supply chain accounted for under the equity method.
A foreign exchange gain of 230 6K, and other income of 760 6K.
The 760 6K includes two grants totaling 800 Kaye from provincial government agencies for relocation, we expect us to continue in Q1 with a grant for approximately 1.1 million.
Income tax for the fourth quarter of 2019 was a benefit that has a favorable adjustment at year end of 241, k. compared with a charge of 23 K in Q3.
Q4 results included approximately 251, K. and tariffs as a result of the 25% tariff charged on importing wafers into the United States from China.
For Q4, 2019, we had a net loss of 2.0 million or a loss of five cents per share.
By comparison, when a net loss of.
0.9 million or a loss of two cents per share in the third quarter of 2019 in the net loss of $1.1 million or three cents per share in Q4 of 2018.
The basic share count in Q4 was 39.636 million shares.
Cash cash equivalents and investments were 36.3 million as of December 30, Onest by comparison at September 30, It was 38.5 million.
A more interesting comparison is through December 30, Onest 2018, when cash cash equivalents and investments were 39.4 million.
It means that our net cash burn in 2019 was only 3.1 million, even though we spent almost 21 million on the relocation in 2019.
This includes a bank loan of approximately $5.8 million in China, which we secured in Q3 2019.
We also have a line of credit at Wells Fargo Bank, which we have not utilized we expect to spend approximately $5 million capex for gallium arsenide in 2020, and we're considering additional investments in indium phosphide.
Depreciation and amortization in the fourth quarter was 5.5 million and capital expenditures were just south of 7 million.
Accounts receivables net of reserves were 19.0 million at December 30, Onest 2019, compared with 17.4 million at September Thirtyth 2019.
Net inventory at December 30, Onest increased slightly by $81000 to 49.2 million compared to 49.1 million in inventory at September Thirtyth.
Again, the more interesting comparisons is with December 31, 2018, when inventory was at $58.6 million.
This is a reduction in 2019 of 9.4 million.
Part of this reduction approximately $5.8 million was the result of no longer consolidating Jia one of our raw material supply chain companies. The remainder 3.6 million is a result of operations and a focus on reducing inventory.
Our goal is to averaged 1.0 million.
A quarter during the year, we've got close to that end given the lower revenue. It is a good result, ending inventory consisted of approximately 42% in raw materials, 51% in work in progress and only 7% in finished goods.
This concludes the discussion of our quarterly financial results. Let me now briefly highlight the fiscal year for the fiscal year 2019 revenue was 83.3 million compared with one or 2.4 million in fiscal year 2018.
It is important to keep in mind that our raw materials business declined by approximately 6 million in 2019 from 2018. The majority of this decline is attributed to the changes in our ownership positions in Q1 of 2019 that resulted in our consolidating two rather than three of the joint venture Robert.
Sure companies in our revenue results for 2019.
The balance of the decline came from gallium arsenide and germanium wafer substrate sales.
Gross margin for fiscal 2019 was 29.8% of revenue compared with 36.2% of revenue for fiscal year 2018.
Net loss for the fiscal year, 2019 was 2.6 million or seven cents per share compared with a net profit of 9.7 million or 24 cents per diluted share for fiscal year 2018.
Okay. This concludes the financial review I'll now turn the call over to Dr. Morris Young for review of our business Morris.
Thank you Gary.
Q4 capped off a turbulent year in the geopolitical and macro economic climate.
Overall, the result was a weakening demand environment in 2019 that had a negative impact throughout the year on key applications.
And customers with the fees gallium arsenide engineered businesses.
This impact made up the majority of our year to year revenue decline.
Despite these more challenging conditions, our premium Fox by business exceeded our expectation in Q4 at finished 2019 with modest grows over.
Over the prior year.
In fact 2019 was the first year history at total indium phosphide revenues task total gallium arsenide revenue.
Why is important.
The fact that we saw growth any phosphorite units down year.
Substrate market.
Demonstrate the gathering momentum in a train driving Hindi cost by demand.
These trends such as datacenter connectivity Fiveg telecommunications optical network expenses are powerful a substantial India developing as we speak.
In addition.
Our significant new trend visible on the horizon involving the Fox our base sensors for new applications in healthcare.
Automotive and more.
Collectively these efficacious position indium phosphide as one of the most important material of these.
The decade.
Akcea developed considerable expertise industry leader.
For these highly specialized substrate.
We're setting the pace in all market for technical innovation, and we are expanding facilities in additional equipment.
Now will allow us to keep pace with market demand.
As Gary mentioned, we operate also bringing to market larger diameter indium phosphide accessories.
This is that capability at both current and potential new customers are asking for.
While the launch contributed to our gross margin decline Q4, we believe this new capability will be essential to emerging to emerging large volume applications for indium phosphide.
We'll also provide new barriers to entry for substrate manufacturers looking to move into this space.
As we look ahead to two year, Tony 20 and beyond.
We are excited by the opportunity, we see and we believe we are well situated to realize that benefit of the economy market expansion.
In Q1.
Oh, aiming phospholipid revenue is off to a good star.
We believe our sales in the quarter will include a mix of applications, including data Center, Tom and Fiveg telecommunications.
Our customer relationships ships remains strong and we hope will get built upon our customer list.
More this year.
Now turning into gone and last night.
Our business weathered a difficulty hearing 2000 2019.
The global demand environment in key applications, such as led lighting automotive lighting and other high performance applications was challenging.
Those serving customers were predicting a pickup in Q4 it did not materialize.
Wireless applications was also down from the prior year.
Throughout the year, we focused on the completion of our live relocation of our galileo's their manufacturing.
Good news.
And we'll be traits morbidities flow company.
Our new facilities gives us tremendous kits capability and see the overall manufacturing. So now we are ready to meet requirements of this new decades.
The relocation to be seen in Cogs oil was involved in and at times challenge.
It is a process.
Now, we'll be taxing even two companies much larger than a exceed.
We have trial alter achievements of our team.
In executing it successfully and why supporting the need of all customers.
During Q4, we may we made a major milestone.
Completing the relocation of all gallium arsenide crystal growth Chicago.
Which opus money new doors for 16.
These facility was designed and built by us from the ground up.
And is optimized for innovation and best practice manufacturing.
Q1 also marks another important milestone ill relocation of our galileo's that wafer wafer processing.
We are making good progress with several customers regarding site qualification and results thus far at being positive.
Was finding signing off expected later this quarter.
We'll be able to begin ramping our manufacturing DC to volume production.
We also expect to be able to drive additional customer qualification in coming months, we believe that demonstrating our capability for volume production is a key to our success with both new and continuing customers have a exceed.
The timing of our volume ramp in casual and being seeing is positive.
While gallium arsenide, a difficult year in 2090 Inc. 2019.
It is poised for renewed growth in 12 year to 2020.
And beyond.
This is likely to be driven by a recovery in our traditional applications of high performance Ltd.
Use for example in automotive lighting.
And lasers as well as a number of new and promising applications, such as Mindy and micro Lsbs laser based the sensing and overtime Fiveg wireless.
We're excited to be able to open the doors, our new facilities at a time when galyon snakes experiencing it next wave of innovation new applications expansion.
Turning to germanium substrates.
Coming off of a strong year during 2020 918, our sales.
Okay meaningful step back.
2090.
It is solved in a softer demand environment, particularly in China.
As we move into 2020.
Satellite solar cell market is poised for improvement.
With the number of satellite launches expected to increase were why.
We expect we will participate in that improvement.
Sale, we believe that we end this drove to market for germanium substrate.
As we talk to our customers over the last several quarters above their current and future requirement. We came to belief that our ability to offer a new configuration of our 60 Binney wafers can open up new opportunities for XT.
It is a natural expense extension of our current capability and will allow us to support our high volume demand.
We're highly focused on driving manufacturing efficiency with this larger diameter product and believe that we'll be able to bring the gross margin up to more normalized level in the coming quarters.
Before we conclude.
I want to give you update on the precaution.
ICSI is taking critical role of Iris.
Today, we are grateful that no XT employees have becoming yield from this virus.
All three of our facilities he operation.
And have strong local management teams providing oversight.
We continue to be able to meet customer requirements and have that benefit of inventory.
Manufacturing redundancies.
Our locations should the need arises.
Although the Corona virus has added outer layer to the fear uncertainty and doubt that characterize virtually all year 2000 2019.
The demand environment today is not as weak as we might have expected.
Customers seem to be making a combination of caution with that said that they have to return to running and growing their business.
Having said that.
It is clearly a fluid situation.
We are winding our guidance range as a precaution.
The biggest challenge we face currently.
Are the travel restrictions.
Those tool and from China and also within China.
These restrictions make it more difficult for leadership to address certain issues that benefit from the headcount problem solving.
Just manufacturing efficiency and yield.
Launch of our larger diameter substrate.
As a result, we expect to rate of improvement, maybe a bit slower than it would andr normal circumstances.
We also limited in the number of employees that are allow to being the factory.
Given day.
Such productivity may not be quite as high and two of the government mandated restrictions are lifted.
Regarding health and safety precaution fall employees, we are accruing to all local laws have implemented a number of personnel policies and procedures to limit employee risk of exposure.
These include employee temperatures screaming everyday.
Protected years, including face masks.
Limited group meetings.
Changes in our cafeteria food provision.
Among other precautions.
The safety of employee.
He is our number one cancer.
In closing.
Tony all of the challenging year increase we get whether it's one of the most difficult demand environment in recent years the end align end market.
Needs for hours wafer substrates are strong.
Compelling and growing.
As a result.
Fees poised for growth and improvement in our financial results.
Our Amy plus by business is healthy.
With exciting ex applications contributing to today and new wins on the horizon, our gallium arsenide germanium businesses I expected benefit.
Recovery Inc. 2020.
We're excited to drive volume and better utilization and our new facilities. We believe our dynamic end market, we'll open the door to incremental business opportunities for four from our new and continue customers.
This year will be a laser focused on efficiency and delivering improvement.
In our financial structure.
I see has come.
A long way and overcome many challenges in the last several years, we believe that Twentytwenty is lining up to be a beginning of the new chapter.
One that delivers on opportunity for growth.
End of success, we've been working towards.
This concludes my proposed prepared comments.
Im now turning the call back to Gary for our first quarter guidance, Gary. Thank you Morris.
As most discussed we believe that 2020 will be a year growth for XT.
We are taking at appropriately modest view of Q1, given that the market is recovering slowly.
We're also widening our typical revenue range a bit to allow for unanticipated effects in the supply chain.
From the Kuroda virus.
As such we expect to see revenue in Q1 between 18.5 million to 20.5 million.
Believed that loss per share in Q1 will be in the range of three to six cents based on 39.78 million shares outstanding.
This concludes our prepared comments and merchandising, we'll be glad to answer your questions operator Prince.
Ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove result from the Q. Please press the county.
And our first question is from Richard Shannon from Craig Hallum. Your line is now open.
Hi, guys. Thanks for.
Taking my questions.
Let's see here a couple of among all jump into first here Gary your commentary on sales growth for for this year, even kinda kind of spike out what you think between the the revenue bucket steadily.
Materials versus substrates, but also within the substrate business. If you could differentiate the revenue growth, maybe the path and the path and speed of recovery. If there are different between the substrate businesses.
Okay I'll take a first crack adding more is probably is going to add a lot more color too, but let's assist cover raw materials for further listening audience CNO and in 2018 going backwards, we had three raw material covenants that we consolidated.
First part of 2019, which we convert a one to the equity method.
So we have to know that we consolidate and they're both doing quite well. So their revenue will definitely grow in 2020, I don't know by how much but.
There there are end markets are strong and.
The company's are in good shape so.
That that should be an upward arrow.
If you look at the substrate business.
We definitely think any thoughts by will grow.
We think germanium will grow.
Among the going up to more sick type in terms of the timing its.
I'm not sure what we're a bit cautious at the Q1 because of the fear uncertainty and data out there and in the food chain due to the Corona virus.
But we do.
We do a hope in I think the experts predict that that should even out in Q2.
Is it April Onest service in June Thirtyth, two redetermined, so more sort of comment sure.
I think as I said in the.
Prepared script.
Q1.
Demand actually cut turns out to be fairly strong.
We are seeing.
Customers have a increased demand.
On pounds market.
Actually the pounds substrates is at all time high right now.
And when we talk to customers. They are saying is basically coming from the fiveg.
Base station Buildout.
So we think that's very good news, we've seen data center demand is sort of flat, but poised to grow we're talking to occur our customers and they're saying you know the switch to 400 Gee I still to come.
When that comes that should.
Help us.
Substantially and we we also see other new applications on the horizon.
Kelly asked and I think.
Ladies shoe see at our other recovery, however to what extend over to what speed. It is it's difficult to predict especially with this corona virus on horizon.
Dumanian, we definitely believe that it should be better than 2000.
19 so.
I didn't say anything qualitative I think you know in our own budget, we think that indium phosphide is.
Is offering the best growth opportunity for us and no galyon size, specifically wireless is probably going to say flat LCD is going to recover nicely and so is remaining.
Okay, great. Thanks for that question on gross margins.
You talked about some issues in the fourth quarter field with a couple of products are these products actually shipping in any real volume.
And if not one when you expect that to happen.
Not.
So much on the indium phosphide, we spend a lot effort on any phospholipid then not shipping is a large volume, but there's a great demand for it and we are gearing up to speed up our development and but unfortunately, we don't want all Fortunately, we don't break out dive into R&D. So we buried into.
The gross margin.
Germanium, yes were shipping and you know, we we have a six inch germanium product, but because of the.
The big volume search we undertake.
In Q4 held last year.
And we had a stumble in our startup and mainly because well we we increased the volume.
Substantially in the quarter.
As well as as you remember that we have to move our crucial rose from to May two casual and that's sort of split our menu management attention to the crystal growth yield issues. So we had a bad quarter as facility is concerned.
But we do expect.
Well, we I want to say, we do expect to improvement, but on the other hand because of this travel restrictions in China because of Corona Myers, maybe the improvement is still be a slower than we expected, but it's not going to be a a persistent you hit or.
Margin it for us.
Okay Fair enough last question for me ill jump on line hurting the a the new customer qualifications, maybe you can give us a sense a few different things.
You know how long has the qualification and going on that you expect to finish this quarter.
You're talking about major customers, how what kind of what percentage of your customer base could this potentially a qualify for and then is just giving you any visibility into the rest of your customer base eventually moving to the new facility.
On the lancet growth question I think you know.
No.
I think we're poised to qualify.
In the first quarter in fact, we're seeing that people are giving us the goods signal, but as far as a percentage of the customer who will qualify teaching facility is concerned I think we have to lend some numbers I believe it could be as much as.
A good 50% to 60% by the end of Q1.
Okay.
And then timeframe for the rest of the Oh customer service to move over how fast do you think that could happen.
We think we could happen by 80, 85% by the end of June but provided we have to hope and pray that this corona wireless doesn't spread in Europe.
It was a extra hiccup.
Yes, that's fair enough.
I think that's all my questions thanks for taking them.
Thanks, Richard Bangor Richard.
Next question.
Next question, it's from Gus Richard from Northland. Your line is now.
Yes, thanks for taking the question.
In terms of gallium arsenide demand going into the back half of the year.
Do you expect any demand the come from that so or display application.
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Yes, I think so I think scared opportunity is absolutely brightens of more four year 2020, with our new facility opened up.
We are discussing with quite a few of our number of customers.
However, you know.
We are trying to get into this market I don't believe the volume will be with substantial for 2020, but we believe that we should be able to getting to the official market in 24, the yes.
Okay.
And then I think you mentioned.
Are you doing larger indium cost side wafers is there are specific application that is targeted corn can you talk about what it might be.
Yes, as you know.
The usual suspects for larger diameter actually is 40 electronic applications. You know most of the electronic such a cell phone launch bts et cetera, and people were demanded larger diameter because the processing line just fits perfectly for logistics. Each however, we believe.
Steve This application is for optical applications, so thats sort of a.
A big surprise to us because optical usually the devices was is smaller.
But this particular device fund at least from our customers telling us. This device is fairly large we think these some kind of a photo detector, but we don't quite know at this at this point what specific application that is but they definitely did required.
Hi of quality low defect density material, which fits our forte extremely well as you know that VGF can produce very low LPD material. So it's not only the larger diameter, you can deliver which will fit the customer requirement, but also the very low NPV and low so.
During a low.
Mm defect density, which is required so I think that's fits you know our.
Capability very well.
Okay, and then just shifting to the sort of complexity of the.
The operating environment, China at the moment can you just give us a sense of how much of your material is consumed in China, how much is shipped.
External external to China, and then which is more difficult shipping intra.
Countries or trying to get things in and out.
We go habits supply issue you know we saw with gallium we started with us they get just hours in the past find so.
The logistic of supply really there's not a issue.
We do have an issue about a full adding that face masks.
Because you know he China right now if you don't provide employees was face mask for but health protections you unlock to operate.
As far as our customer is concerned I believe that we have around 15%.
Details volume to China customers know ethic, I'm I'm doing it for memory, but we do put it into the 10-K because as required it it's it's little bit north of 30% in China are really okay. So yes.
But no shipping.
Broadened yes, we do have some logistics in shipping because a lot of allies are cutting off a you know there transport place to China. So we may expect the cause of shipping to go up but so far we still get ship our product out.
Okay, and I guess the final one for me is I think you mentioned a.
Health application for any past side can you talk about what that might be.
Well I haven't public discussion or it's a lot of public discussion.
No in the Photonics west.
People there are multiple session is talking about using.
Infrared lasers to detect.
Glucose in blood, but it's very speculative.
And the because the way flies ranges from 1.5 nanometer went to apply micron us up to 2.1 Micron saw 2.2 microns and that's a range that indium phosphide fit very well buy so we were expecting I mean, there's a lot of discussion about it thats a lot of public.
You know speakers and people are focusing on it but.
We don't know whether is let's early resource estimation it will source of information.
Got it got it alright. Thank you. Thank you for.
Thanks for your time.
Next question please.
I can ladies and gentlemen, if you have a question at this time. Please press star and then the number one on your touch.
Touchstone telephone if your question has been answered already weve through rigorous not from the Q. Please press the pound key.
We have a question from Dave Kang from B. Riley FBR. Your line is now open.
Thank you good afternoon.
The question is.
Very I missed your comment about the number of shares for first quarter and also how should we think about tariffs for the current quarter.
The number of shares.
In the first quarter.
The first quarters that you're asking about yes on 39.78.
And then going on tariffs.
Terror suit was about 250 k. in Q4.
ER that actually was a little bit higher than normal so I'd say that 200 Kay.
Probably.
Decent gas.
So.
Got it and then on the your productions status.
Can you tell us what that was like maybe you can give us like utilization.
Before the outbreak and what is it now and what do you think that will be maybe in three four weeks, where maybe you know April.
Sure I'm you know we came back to work.
Almost two weeks ago. So we were there will not have earlier in his name change after Chinese new year when will we actually closed off for Chinese new year celebration. So we came back to her work early and we will very well prepared we have all the procedures that the government improves.
So once they they okay without procedures there so they allow us to work however.
That's not to say that you can operate food tourist because.
The travel restrictions for he says you know if we have a employee who went back to home.
To visit their part relatives during the holiday when they came back they have to have to the observed a 14 days quarantine.
So such that you know.
Our three locations, although they are operating.
But I would estimate the average operating percentage is around 60% to 65%.
As far as going forward by April.
Kevin those [laughter] I cannot predict I think you know a you know.
I wish I watched the news as much as you do and I think you know from from from the Chinese published.
New infections is significantly better I mean seems to be declining and there's a hope that with a higher temperature in screen you know the virus will decline, but on the other hand.
The other publications, which saves you know this thing is tougher to to eat M&A, So and they let me mention one thing is that eve.
At the reduced.
Uh huh.
Utilization rate that Morris quoted.
We still think that we can.
Meet the revenue goals, Okay now.
On the other any if our if we if we thought we could do 28 million in the coming corner.
We then it might be a little bit trickier, but because of revenue isn't as high as we wanted to be in there has been passed.
Even at this and utilization rate, we should be okay.
Got it actually I'm kind of thinking about how to think about actually second quarter. So I'm trying to figure out how much you know are you assuming full for the first quarter how much are you.
Leaving on the table for first quarter, there will be shifted to second quarter. So are you, assuming maybe 1 million impact there could be there will be shipped at the second quarter. How should we think about that how should we think about second quarter actually.
And do you guess IRI actually we are shippings shifting some of the demand to second quarter.
Ah onez because of the customer shifting it well some of its Brian right some of them because we stretch it but then on the other hand, you know our second quarter. The visibility is not that great I mean.
You know I think you know, what's what's challenging I think is to say that the Fiveg base station I think that's a very pleasant surprise resi alone that the two each demand for China market is almost like all time high.
As far as we said however, the data center, we haven't got a signal from a customer yet I mean, there seems to be as steel on the sort of level.
Demand level, whether they're going to bump up in second quarter or not it's yet to be seat.
Actually my final question is on that Fiveg.
China, Fiveg because I've heard.
Or yeah from from multiple sources that.
Fiveg.
Deployment has been pushed out or delayed because of the outbreak, but yet you are seeing pretty strong demands our customers does kind of building ahead in anticipation of.
Whenever the ramp happens, whether second quarter or third quarter.
Well actually you know from our perspective, we always see and because we categorize as upon because a certain size in the certain specification. So we think thats part because status and they usually you say other type of specification for that Apple for that market. So so we.
Yup reasonably sure his full time, but whether it serves to China market or market elsewhere.
We don't know.
For that matter because they could just make the pan for the worldwide market.
Got it thank you.
All right.
Thanks, Dan.
And we have a follow up question from Richard Shannon from Craig Hallum. Your line is now open.
Hi, guys couple of quick numbers questions I'm curious on your Opex line here, you've you had a number for the fourth quarter was.
No multiyear high I guess as far as back as I can see if you're guiding to probably close to a similar level for for the first quarter I guess, so if you look back in the history here and understanding your your factory move here. It's I think you've talked about some duplicative expenses. So I'm wondering to the degree to which we're seeing kind of in near term near term high versus a new level.
And should we expect the opex to come down as we as we move all the customers in the new facility.
Well.
We do we do think that some of the duplicative expenses will continue to diminish.
However, as we as we took a solid look at what's going on for it for 2020.
We see at the beginning of the at least for Q1, we had some bigger legal expenses.
We also saw or do you know insurance like many other companies or go up.
Payroll taxes start over because you pointed pencil security and all that kind of stuff. So.
So.
Oh.
Our our expectation as we should we should at least settle down 6.5, but we would hope that we can get into south of that that's still a credible but right now it's.
For Q1, and they were pretty sure it's going to be around 6.5, Yeah. You know, obviously, a new expenses as CEO territory, Gary, but I would guess you know us we move.
Our factory and we would just consolidate.
More towards our new factory things should decline right, but I don't think he's going to happen very quickly.
Okay, I I would expect it you know the d. the expenses to be around that number but it doesn't increase but hopefully that all revenue can more than you know client faster Diane.
Well definitely as we get back into revenue growth.
We do not see reciprocal growth in Opex.
You know so you know.
We will benefit when we entered that space.
Okay Fair enough <unk> last question on Capex, Gary I think your remarks, you mentioned like $5 million for gallium arsenide, possibly some for indium phosphide side, if we exclude the indium phosphide should we think about Capex, just a little bit more than 5 million soon with some maintenance on top of that or should it be higher than that level.
Maybe five to seven but.
Yeah the.
The big punches instrument, finishing up all the little suffered for gallium arsenide. So.
Okay.
That's fair enough and Thats all from you guys. Thank you.
Thanks Richard.
I'm showing no further questions at this time I would now like to turn the conference back to Dr. Morris Young Chief Executive Officer.
Thank you put the participating our conference call as always please.
Please feel free to contact me, Gary Fischer, our Leslie Green directly it will give you would like to meet with US we look forward to speaking with you in the near future.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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