Q3 2020 AXT Inc Earnings Call
Morris Young Chief Executive Officer, and Mr. again be featured Chief financial Officer, and making sure why now I will be argument or to be at this time. All participants are you know they said only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please press star deal.
On your Touchtone telephone as a reminder, this conference call may be recorded I would now like to turn the call over to me, it's nothing Green Investor Relations for XT Ma'am the floor is yours.
Thank you Joanna and good afternoon, everyone before we begin I would like to remind you that during the course of this conference call, including comments made in response to your questions. We will provide projections or make other forward looking statements regarding among other things the future financial performance of the company market conditions and trends.
With the expected growth in the markets, we serve emerging applications using chips or devices fabricated on our substrate our product mix, our ability to increase orders in succeeding quarters to control costs and expenses to improve manufacturing yields and efficiencies to utilize our manufacturing capacity the sketch.
The only timeliness regarding our relocation the growing environmental health and safety and chemical industry regulations in China, as well as global economic and political conditions, including trade tariffs and restrictions we wish to caution you that such statements deal with future events are based on management's current expectation.
And are subject to risks and uncertainties that could cause actual results or or events or results to differ materially. These uncertainties and risks include but are not limited to overall conditions in the markets in which the company competes global financial conditions, and uncertainties COVID-19, and other outbreaks of container.
This disease potential tariffs and trade restrictions increased environmental regulations in China market acceptance and demand for the company's products. The financial performance of our partially owned supply chain companies and the impact of delays by our customers on the timing of sales and their products. In addition to the factors that maybe.
Discussed in this call we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website.
<unk> X T dotcom through October 28, 2021.
Also before we begin I want to note that shortly following the close of market today, we issued a press release reporting financial results for the third quarter 2020. This information is available on the Investor Relations portion of our website at <unk> Dot Com I would now like to turn the call over to Gary Fischer for a review of our third core.
The results Gary.
Thank you Leslie.
As many of you are aware, a morse and I spend a considerable amount of time in China.
That makes teeth.
However, we.
We are both currently in our Beijing offices and it is about 430 in the morning. So we went through the mandatory 14 day quarantine when we arrived which was a unique experience and the whole thing of getting the visas and getting the required cobot tests and all the rest was stressful.
We want our shareholders to know that we are glad to do it because we're excited about what's happening and about the opportunities that we see for X T. So it's been a good trip and we're we're not leaving yet we're still here. So now let's turn to the results of Q3 total revenue for the third quarter of 2020 was 25.5 million an increase of more than 15%.
From 22.1 million in the second quarter of 2020 and.
And more than 28% increase from 19.8 million in the third quarter of 2019.
Our total revenues substrate sales were 20.3 million in Q3, compared with 16.9 million in the second quarter and 16.0 million in Q3 of 2019 so.
So that's a good step up revenue from a raw material joint ventures was 5.2 million in Q3 down slightly from 5.3 million in Q2 and up from 3.9 million in Q3 of 2019.
In the third quarter 2020 revenue from the Asia Pacific was 70% Europe was 17% and North America was 13%.
An interesting aspect of the Q3 revenue is that even though revenue grew 15% quarter to quarter, we had no customer that reach 10% of revenue in Q3, which speaks to the diversification of our revenue base. The top five customers generated approximately 29% total revenue.
Gross margin in the third quarter was 34.6% up from 30.30, 0.6% in the prior quarter.
The improvement in gross margin was due to a combination of higher revenue product mix some improvements in manufacturing as well as strong performance from one of the two consolidated raw material companies by comparison gross margin was 29.0% in Q3 of 2019.
Total operating expenses in Q3 were 6.6 million up from 6.3 million in the prior quarter.
Over 100% of the increase over Q2 is connected to some of the development work that we're conducting.
C N a actually decreased in Q3 by 124000 and R&D increased by 480000.
Total stock compensation for the third quarter was 648000.
Operating profit for the third quarter of 2020 was 2.2 million compared with an operating profit of 478000 in the previous quarter.
Operating loss in Q3 of 2019 was 478000.
Other income net for the third quarter 2020 is a charge of 59 K. This.
This includes a net profit of 45 K from the partially owned companies and X T supply chain accounted for under the equity method.
This is noteworthy because it means that collectively these joint ventures turned profitable in Q3.
We had a foreign exchange loss of 135 K. and.
Net gain of 31, K. and net interest income and expenses income.
Income tax for the third quarter of 2020 was a charge of 637 k. compared with a charge of 920 K in Q2.
Our Q3 results included approximately 320 K in tariffs as a result of the 25% tariff charge on importing wafers into the United States from China.
For Q3, 2020, we had a net profit of 991000.
Or net profit of two cents per diluted share.
By comparison, we had a net profit of 361000 or a profit of one cents per diluted share in the second quarter of 2020, and a net loss of 900000 or a loss of two cents per share in Q3 2019.
The share count in Q3 was 40.90979 million shares.
Let's look at the balance sheet briefly cash cash equivalents and investments were 29.8 million as of September thirtyth.
By comparison at June Thirtyth, It was 32.5 million this.
This is a decrease of 2.7 million, but actually operating cash increased by about 200 K.. Let me explain why you may recall that last summer, we took out of $5.8 million backbone in China.
That loan has now been renewed but the bank requires that we pay back the loan and then they re issue it again.
Thats customer in China, So we pay the full amount back in Q3, but the bank issued half back in Q3 and the other half in October which is our Q4.
Cash decrease would have been offset by the amount of 2.9 million that slipped into October.
Would've been cash positive for the quarter.
As a result, we continue to feel good about our cash management and our cash balance does.
Depreciation and amortization in the third quarter was 995, Okay and Capex was about 5.7 million.
Net inventory at September Thirtyth decreased by 1.2 million.
In the quarter and ended at 48.4 million. The decrease was the result of increased sales.
Ending inventory consisted of approximately 48% in raw materials, 48% of work in progress and 4% in finished goods. These portion stay a fairly constant in our business model.
Okay, I know I spoke fast, but this concludes our financial review and now I'll turn the call over to Dr. Morris Young for a review of our business of course, Thank you Gary.
We're pleased to report solid third quarter results with revenue and earnings above our guidance range our.
Oh, indium phosphide sales increased over the prior quarter exceeding our expectations and again surpassed our total gathering is that revenue.
This was driven by meaningful growth being strategic applications, such as Fiveg telecommunications, where we believe that any boss why is being used in the 10 G laser interconnects and.
Well also be used in the emerging 20, Fiveg laser interconnects full fiveg base stations.
You know related Okay application. We also saw strong growth in passive optical networks Oh Paul.
That deliver broadband network access to the end user.
Oh market is currently robust and seems to be reflecting the when went in a five g. adoption in many parts of the world, particularly China.
With the build out of new Fiveg services and capabilities that ongoing increases in bandwidth requirement and the acceleration of Col adoption demand for indium phosphide Hyperscale data centers continues.
Remote work.
Has also accelerated the migration of workloads from on premise data center to crop.
Some cloud providers have sided as much as 30% increase in data usage.
Our revenue from datacenter connectivity has been steadily steady at a healthy level throughout 2020.
We believe we're benefiting from both the overall growth in adoption of Silicon Photonics and data center as well as how the transition from having a direct indirect sales relationship. We said tier one player to a direct sales relationship.
As a result of our ongoing qualification effort.
We are excited to report that we began ramping up our direct sales in Q3.
We believe that teaches the validation of our keep <unk> ability to serve strategic high volume applications.
We and to meet the need of some of the most prestigious exacting companies in the world.
Well market news is indicating that Q3, maybe a softer quarter for the datacenter connectivity applications.
We expect our sales in this space to be relatively steady.
To Q4.
Looking ahead.
As Hyperscale data centers transition to foster more reliable.
And scalable infrastructure.
Hi capacity connectivity will continue to be essential to keep pace with the ever expanding number of users devices and applications.
So I believe that the transition from one hundredg to wander GE will happen faster than the move to one hundredg.
We believe this is a great news for the entire supply chain for data center equipment providers, including a ICSI.
As we have discussed the low defect density and other key specifications of our indium phosphide substrates, making particularly well suited for a number of applications.
To support what we believe would be a growing demand in 2021, we're investing in our own technology investment.
As Gary mentioned, we have substantial R&D efforts underway to bring these to market of our six inch indium phosphide substrates.
Actually he has strong has lost at the pace you know industry for their investment towards larger diameter substrates and we are excited about our progress.
Equally important we're encouraged by the strong level of customer interest in larger diameter substrates. As we believe these advancements will enable the bucket to grab higher volume applications.
We're also investing in our manufacturing processes.
We see increased other nation and many other capability that will further improve our quality and consistency.
All these investments will benefit our ability to serve customers seeing our core applications of Fiveg Paul.
Paul and data center.
We're also positioning ourselves positively in the new application categories, such as health care monitoring consumer products and light.
Turning to a gallon last night.
We had another solid quarter with sales growing from Q2.
Driven by improving L.E.D. revenue.
From automotive and other applications. This gross spaz multiple customers some of whom are building volume we saw us once again.
Now that our move is largely completed.
We also saw continued demand for wireless applications, driven by a variety of I O T applications, including wildfire devices.
As we mentioned last quarter it is difficult to predict the enduring strength of the increased demand but.
But we do believe that Galliani nice going through a resurgence of development activity.
Collectively gallianos applications appear to be poised for substantial growth in the next couple of years.
New obligations may include we're facing cameras augmented and virtual reality.
No motive sensors biosensors and more.
On the horizon.
Michael I'll, let me follow.
The next major volume driver for Galileo OSAT chips.
My core Ltd, which should not be confused Swiss mini Ltd use one rad when green and when Blue L. These each pixel.
The mall did module of nature of the micro only DHX bucket to allow them to scale from wearable devices and how handheld devices to very large screens to like high and television of the future.
They will consume less power.
Provide shopper contrast, and produce really in lighting and colors.
This is an exciting space that will add significant new value to the LNG market in 2024 and beyond.
Tier one players are already driving these the parliament and we believe that our wafer are being used for early stage activities.
Similar to indium phosphide by customer in several galileo's fabrications.
Also expressing real interest in larger diameter substrates.
As such we also have a significant R&D effort underway to bring eight inch gallium arsenide to the mark.
Once again, Oh, VGF technology has a highly suitable for the requirement of producing larger diameter substrates.
And we look forward to reporting our progress to you.
We spent a lot of growth opportunities across our portfolio, our capital ability to expand our manufacturing capability capacity has never been more valuable or timely.
I'm very proud of the continued ramp of our cultural and thinking facilities, we job now become significant competitive differentiators.
In Q3, we.
We had another important milestone in the transitioning of our manufacturing to these locations.
One of our largest calling us that customers, who has been ramping it's falling from thinking.
Since early this year is now taking a 100% all of its volume from the from our new facility.
Customers such as this one and others that continue to ramp a reporting and improvement in quality and consistency as the benefit of our new state of the art lives.
With this significant milestone we're confident that we will have approximately 75% or more of our gallium arsenide revenue coming out of the new facility by the end of Q4.
In addition, and all the tier one customer conducted a week long visit.
Two hour X C and visit our Beijing site College, all site entrenching side out to new manufacturing sites. They are.
They have employees in China, So international travel and corn changed when now the issue.
And finally, turning to raw materials.
We have two companies that were consolidating our revenue sales from these companies were approximately consistent with the prior quarter in particular.
Our joint venture ball, you, which manufactures high temperature PBM crucial Bose and other products continue to see healthy growth.
Joining me Oh gallium arsenide joint venture is also poised positioning improving sales results as galling honest I continue to increase its falling.
In addition, as Gary mentioned, we are pleased that joint ventures for which we're called.
Using the equity method. So also collectively contributed positively.
And that results in Q3.
In closing.
We are excited to see so many of our applications and customers opportunities for which we have been preparing for over the last two years now I'd now taking shape.
The materials, we produce a proving to be essential part of Monday of the technologies that will do fine assessment in telecommunications networking healthcare consumer products and other verticals that money for many years to come.
In addition, we're making a connected.
Concerted investment of time and resources to elevate our business and manufacturing processes to meet rigorous standards of several ongoing and qualification that are expected to provide incremental opportunities in 2021.
With a whole galliano manufacturing location now largely being behind us and the success of our effort clearly evident in customer acceptance. Our new facility are now poised to be a cornerstone of our growth and market depreciation.
We believe we're positioned now sells for exciting new year took ahead.
This concludes my prepared comments I will now turn the call back to Gary for our fourth quarter guidance, Gary. Thank you Morris.
As more skus the demand environment remains healthy with a number of growth drivers leading the way.
While Q4 is typically a seasonally down quarter for us we believe that we can achieve results in line with or even a bit better than Q3.
As such we expect to see revenue in Q4 of between 25.0 million to 26.0 million.
We believe that our net profit will be in the range of one to three cents share count will be approximately 41 million shares.
Okay. This concludes our prepared comments Morris and I will be glad to answer your questions. Joanna you want to handle the culinary please.
Sure. Thank you so much ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself into Q needs press. The pound key once again, you May press star one to ask a question.
[noise] [noise] once again, if you would like to ask a question you May press star one on your telephone keypad, we have a question coming from the.
Line of Richard Shannon of Craig Hallum. Your line is open.
Hi, guys. Thanks for taking my questions in Nigeria, and worse, thanks for getting approval in China.
[noise] maybe.
Maybe I'll probably ask a question I can probably guess most of the answer but on the fourth quarter guidance you were expecting revenues.
Maybe flat to perhaps slightly up here can you kind of give us a sense by your substrate types and you're in raw materials, how we're expecting things move sequentially I'm guessing it be possibly be up but if you could help us with the other dynamics.
Yeah, I think Amy possibly be up I'd wireless is probably going to be down slightly and semi conducting l. These will be up.
And raw material is going to be flat and germanium is going to be.
Slightly so any thoughts why it's going to be up.
Okay. That's helpful. Maybe a couple of quick questions on the guidance here as we get down to the bottom line you're talking about one three cents here any help you can give us on gross margins here I would assume we could we could probably see a gross margin flats up from the third quarter and then you talked about opex being a bit up here I think that 6.6 million.
Up a bit from last quarter and the trend here recently are you expecting continued investment in the R&D for these new manufacturing processes to sustain for a while.
Yeah.
So a couple of comments first of all in gross margin we.
We made a good step up yes, we've been saying no. Most of this year that we think we can get back to the mid Thirtys. Yeah. I think it's probably wise to just sort of keep it flat from Q3 to Q4.
Yeah.
Don't get carried away.
But but we're pleased with the you know the mix and the yields and things like that so it's definitely coming into line with what we what we expected.
Opex will be a bit higher for a couple of more quarters or so 6.66 0.7 is there.
Somewhere in that range I think and then we'll try and.
Unwind is a bit going forward, but I'm not you know it's not right now. So this is all because of R&D. So.
You know it's a good it's a good thing that's happening so thats good so.
Hi, Richard Richard any more questions.
Oh, yeah quite a few but I'll just ask a couple more instant buy one for others.
A question for Morris I'm kind of looking at the fourth quarter here, you're talking about Datacom being steady and you're also talking about a transition from an indirect to a direct relationship with your customer there.
Can you talk about kind of the kind of the.
The broad demand you know that's coming from this customer versus any sorts of inventory puts and takes that might.
Obscure what that real demand looked environment looks looks for you right now.
Yes folks from all perspective, I think we seen the demand sort of being steady but.
As we saw the re direct their supply line from indirect to direct you know if we put the the summation together is sort of steady.
But.
As we see the order book Q4 is still steady.
So.
But as far as inventory is concerned.
We don't have that much of the visibility because that companies are very large company. So they could build the inventory or they could be depleting. The inventory. So we don't we don't really know that no.
Okay. That's fair maybe a couple more questions for me.
I wanted to just kind of have an extra couple of quarters, but wanted to get your sense of what you're thinking about in terms of the threed sensing obviously, it looks like you're making a good progress moving customers into the new facility and some even entirely there.
What do we think about a three D sensing as we get into next year, either for the Android or possibly the Apple ecosystem.
Yeah I see we're excited about the new facility I think all the reports we have more than one customer telling us that their device a yield rate is actually higher from the new facility that no one.
We are still collecting data and see which specifics have made improvement and we're going to for the do more improvement and also our manufacturing yield actually is better follow new facilities that no. One is so with this new sets of information would definitely we use that as a very strong.
Datapoints to knock on doors all of the the big So three D sensing opportunities going into the next year definitely.
Okay.
Last question I'll jump out of line here, you talked about last quarter, and obviously again this quarter about working to improve your statistical process control for manufactured guaranteed talking about some new customers that may emerge next year can you can you describe for us or alluded to us what material, you're specifically talking about money in some of the the application that might emerge from these costs.
Because you're asking for these this new manufacturing and quality process.
Yeah actually you know this process with its going to always boasts golly ASI as was seen the boss Black Interestingly I mean, one large indium phosphide customer that we're dealing with we have set up a direct wise from our technical support to their part.
As you can guys who.
Really tell.
Tell us exactly what they need us to do and so that you know we both improve our visibility in terms of what they really wanted out of the quality of our product and so that we can either direct go research and development to that goal by ultra metrology.
Equipment to see what exactly what they could see out of their yield so that will help us a lot and we expect several machines that were purchasing will be online shortly and that also increased our research and development budgets.
So I think we're all excited about it and we're paying ahead in the front end, but I think you know the new customer that we're developing they're all a tier one customers and they when they know that we are doing exactly what a you know with developing with existing customer Dax.
I did and that we will we will be sold.
So the solving the problem ahead of the schedule for their product right.
So the answer is yes, Bose gallium arsenide as watching the busway yes.
Right.
Appreciate the perspective I will jump in the line. Thank you guys.
Thank you Richard.
Thank you. Your next question comes from the line of Glass, we tried from Northland. Your line is open.
Yes, thanks for taking the question in terms of gross margin in the fourth quarter. It sounds like you're going to have a more favorable mix of indium ASI plus.
Plus you know flat to up volume.
Can you just give a little bit of color on on you know puts and takes on gross margin in the fourth quarter or I would expect based on your commentary should be flat to up.
[noise] yeah.
I think your your.
And you know us well so that you are right on track.
Just want to keep the expectations you know modest.
Because that's.
Kind of how we are [laughter], but Richard So let me try the jumping here a little bit I think I'm excited about seeing better results from our new factory, which actually also help us all yield I think you know the on the Crystal growth and we are doing the same thing but.
Because the Grace Crystal growth is sort of the longer range I mean, it takes longer to grow and where you tweak things it takes longer.
Because being weak for processing.
Each cycle, probably only last half hours. So you can probably get to the point that you want quicker, but as far as crystal growth is concerned. It takes you a little bit longer. So I think they are more improvement we can we can gain.
No for the Kristalose I think going into the future and of course, you know product mix does make a big difference to us as well yeah. So those are probably the two the big Differentiators also I I was also argue or suggest that as we start to two.
Steady our.
Labor Force you know, we had a lot of any efficiencies where manufacturing from a two or three sites now more concentrating you know moving to the new sites and the Labor force more steady I think we can gain some efficiency there as well.
Yes, I agree yeah, that's that's good color so.
So moving to.
2021, you know I think your margins couple of years ago peaked in the high Thirtys close to 40. It is you know the use is a thought of of mid.
Mid to high Thirtys, a reasonable guess for next year.
I.
I haven't we.
Weve been so busy guests that we haven't really done any hard numbers in detail for next year.
You know there will be some some puts and takes a.
So I'm happy to give more color, what I feel more more knowledgeable, but yes, I think I would encourage <unk>.
People in your in your side of the business to not get too too aggressive so I think it's.
But let's wait and see so okay.
Okay, and then just one final one on Indian Pos side, it sounds like it's going to be up sequentially in the fourth quarter is that driven more by pawn or more by.
Silicon Photonics.
It is definitely more the iPhone pop we were seeing very strong demand out of the past.
Okay got it all right I'll jump back in line. Thanks.
Thanks, guys.
Your next question comes from the line of a man of course, then from VW and financial your line is open.
Hi, I just wanted to understand you were talking more about the larger die diameter substrates is that going to lead to a higher capex spend next year and how far along are you on on those.
Projects.
Oh, that's a good question I think you know the.
In our Capex.
I think that is more concentrated towards facilities.
Hey, water clean room building.
And I would argue most of those are behind us and we have build more than enough and so as far as the equipment is concerned.
I think the incremental is not others as large and I think the equipment also has a benefit we will only buy the equipment and when there's a business.
Once we've finished that develop yes, so to be specific.
Again, we haven't done hard numbers, yet, but we believe capex will trend down in next year.
And it will switch, it's going to be less facilities related and more equipment and tuning up related so.
We are excited about some of the things are on the list Ah Theres, some metrology stuff subsurface measurement things that we're investing in at the request of some of the larger customers.
And our our whole team is excited to take these steps, but it's not going to it's not going to make capex be higher than 2020, right and we're also doing a lot of the automation I think that will help us I mean, maybe spending a little bit more money in the front end a buying other than maybe the equipment, but.
On the delivering site, we have better quality and more consistent quality I think that's also help us on that.
Becca.
Okay, and then on the <unk> going direct to customer is that going to be a.
Normal event for you are you going to go after other larger customers directly instead of going through.
Middle people.
No that is not our initiative, it's customer specific they wanted it. It's it's not we're driving yeah. The key thing to understand is the <unk>.
What enables to specific customer we're thinking of to do this is that they have their own epee capability. So if the customer doesn't want to do Epee, then they're not going to probably buy direct from us they're going to buy from the F.B. houses.
Okay, all right that's it for me thank you.
Good to hear from you how good a good good luck on your stuff so.
Thank you Joe and again, if you would like yes, right and we have another another question from Matt.
I longer Shang tremendous capital funding.
Your line is open.
Hi, guys excellent quarter, good to see you are making progress growing revenues again.
I have a question with regards have you made any progress or a continued exploring a possible listing on the star exchange in China.
Well, we have looked at that a lot and it's a it's it's so it's a topic that we're aware of.
Several people in your community have mentioned it to us and I've spent a considerable amount of time looking into it.
It's a it's a very interesting topic I don't think I can say very much about it yet or now, but I'm I'm glad to share more as we learn more so but yes as you know.
Yeah, I I know you've mentioned it several other people in the in the fund management have pointed out that the star markets available.
And it's something of interest so.
Okay, and then in terms of a large company like Apple, who I'm, assuming probably uses sumitomo to supply them with some of these high purity of indium phosphide either gallium arsenide is is there another fair a second source other than you that would be.
Possible that could reach the kind of specifications. They would require a are you. The only other possible second source that could be available to them in the future.
I think let me see how I answered. The question I think you know Oh, we think we're all number one in turn so market share gain in phosphate we.
We believe we have a lead over our competitors in terms of quality and and most importantly, I think capacity and ability to meet their demand. If they were to ramp up their production I think we're very proud of our indium phosphide capability and now would develop 66.
Teach people believe that I think we are ahead of the pack as far as the customer choice, whether they want to use multiple 'cause suppliers I think you know and we try to do the best we can to to attract them to come to us, but but we will always very keenly aware of.
Oh, where our competition is yeah, we want to compete with all kinds of competitors.
Okay, I appreciate that and lastly on the Investor Relations front.
I think three months have passed and we haven't seen a single press release or anything really you know the company communicating with the street other than through analyst.
You know on what's really going on.
Yes. During these time periods is there any thing new that you plan to do to increase awareness of the company and the uniqueness of your business.
Oh, yes, yes, there is and again several people from their community have suggested that we'd be more proactive.
We actually have a number of a couple of things that we've been working on and to.
To be honest it it kind of got sidetracked, when we came to China. So the the opportunity to come to China.
Arose.
Because they.
A new set of visa sweat, we always have visas to go to China, but there are suspended. So so we had to go through a pretty long process to get the visas, but didn't do covert testing and they way to quarantine and and we've extended our time here. We know we've been Morris and I are both going to be here for a couple of months. So that's so anyway, it's just been a lot going on but.
But we we we do think we have a lot to to communicate and promote and we have [noise].
The path to do that and you'll be seeing some of that coming up so yeah. Our traditional style is you know.
How many times you could announce the six inch but [laughter] and yet you know we announced the larger diameter.
That probably will last for a long time, but we do we are you know I think we do need to put moved ourselves a little bit better and we are working on.
Okay.
Thank you I appreciate it.
But we appreciate your spirit and we we accept the challenge that we're going to do more so it's okay well.
Yes. Thank you good luck in your business good to hear from me.
Thank you.
To follow up question from Richard Shannon complete Allen Your line is open.
Hey, guys. Just one quick question follow up on Capex.
Can you give us a sense of what you're thinking about for Capex for fourth quarter. And then you said you don't expect it to be higher in 2021 can you give us a sense of what you're thinking here and then kind of longer term. If you look at before 2017 year kind of averaging low to mid single digit millions per year in capex, when do we get down to that level again.
Yeah, I think Q4 specific current Q4 will be greater than Q3, it probably turned down a bit so ER and I think it'll keep trending down.
When do we get back to single digits.
No.
I haven't studied it but.
Probably not next year I think next year will still be low double digits, but I would say that the year. After it could be single digits. Then Richard However, we have to take into account the the market trends that Morris.
Indicated earlier, if if they.
If they bear fruit for US then we're going to need more stuff and also that level of customers that were thinking about it.
Specifically for example.
We were buying a machine that a customer asked us to buy.
And so we may get some of that so but I think we can get below double digits, maybe in 2022, but.
But but.
I have to say I can't say that I've I've done that grounds up analysis, yet so yeah, let me try to chime in here I think you're right I mean in normal terms, we had several years Oh Capex I think you see five to six making us a quarter, yeah, a range a year a year right a year.
And then we stepped up of of course with the new factory, but I would say if our capex keep on going at that must mean that our customer is coming here and with the new facility already built a ahead of time so the more.
Capex means more machines that actually will increase our capacity I think is good news and bad news Yeah, I think it's a let me underline this again, but.
Especially.
What if I was just saying are we.
Explaining clearly our vision, but.
The fact that the we're the only company that significantly invested in state of the our facilities.
[music].
Gives us.
An advantage. The fact that we can now add capacity quickly, it's going to be very appealing and interesting to large customers, who have a vision for their own demand going up so if that all converges than capex will probably be higher than our historical run rate, but it will be for good reasons and we'll all celebrate so.
Yeah.
Okay I appreciate the perspective guys. That's all for me. Thank you.
Alright, good luck to you John.
Yes.
Okay, I am showing no further questions at this time I would like to turn the conference back to Dr. Morris Young CEO.
And thank you for participating in our conference call. This quarter, we were taking part in 11th annual Craig Allen Alpha Select conference on November 17.
It was always please feel free to contact me, Gary Fischer or Leslie Green directly if you would like to set up a call with US we look forward to speaking with you in the new future.
Thank you speakers, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
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