AXT (NASDAQ:AXTI) Q3 2020 Earnings Call

0:00 Good afternoon, everyone, and welcome to AXT's third quarter 2020 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Mr. Gary Fischer, Chief Financial Officer. My name is Joanna, and I will be your coordinator today. At this time, all participants are in a listen-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 zero on your touch-tone telephone. Another reminder, this conference call may be recorded. I would now like to turn the call over to Ms. Nessie Green, Investor Relations for AXP. 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, including expected growth in the markets we serve, emerging applications using chips or devices fabricated on our substrates, 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 schedule and 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

1:33 and restrictions. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual results 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 Contagious 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 in Their Products.

2:19 In addition to the factors that may be 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 at AXT.com through October 28, 2021. Also, before we begin, I want to note that shortly following the close of market day, we issued a press release reporting financial results for the third quarter of 2020. This information is available on the investor relations portion of our website at AXT.com. I would now like to turn the call over to Gary Fischer for a review of our third quarter results. Gary?

3:10 Thank you, Leslie. As many of you are aware, Morris and I spend a considerable amount of time in China on behalf of AXT. But this year, because of the pandemic, we have been Zooming instead of flying. However, we are both currently in our Beijing offices, and it is about 4.30 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 COVID tests and all the rest was stressful. but 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 AXT. So it's been a good trip and we're not leaving yet, we're still here.

3:57 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 more than 28% increase from $19.8 million in the third quarter of 2019. Of our total revenue, 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 that's a good step up. Revenue from our 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 of 2020, revenue from the Asia Pacific was 70%, Europe was 17% and North America was 13%.

4:48 An interesting aspect of the Q3 revenue is that even though revenue grew 15% quarter to quarter, we had no customer that reached 10% of revenue in Q3, which speaks to the diversification of our revenue base. The top five customers generated approximately 29% of total revenue. Gross margin in the third quarter was 34.6%, up from 30.6% 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.

5:39 Over 100% of the increase over Q2 is connected to some of the development work that we are conducting. SG&A actually decreased in Q3 by 124,000 and R&D increased by 480,000. Total stock compensation for the third quarter was 648,000. Operating profit for the third quarter of 2020 was 2.2 million compared with an operating profit of 478,000 in the previous quarter. Operating loss in Q3 of 2019 was $478,000. Other income net for the third quarter of 2020 is a charge of $59K. This includes a net profit of $45K from the partially owned companies in AXT's supply chain, accounted for under the equity method.

6:26 This is noteworthy because it means that collectively these joint ventures turned profitable in Q3. We had a foreign exchange loss of $135K, a net gain of $31K in net interest income and expenses. Income tax for the third quarter of 2020 was a charge of $637K compared with a charge of $920K in Q2. Our Q3 results included approximately $320K 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 $991,000 or a net profit of $0.02 per diluted share. By comparison, we had a net profit of $361,000 or a profit of $0.01 per diluted share in the second quarter of 2020 and a net loss of $900,000 or a loss of $0.02 per share in Q3 2019.

7:18 The share count in Q3 was 40.979 million shares. Let's look at the balance sheet briefly. Cash, cash equivalents and investments were $29.8 million as of September 30th. By comparison, at June 30th, it was $32.5 million. This is a decrease of $2.7 million, but actually operating cash increased by about $200K, and let me explain why. You may recall that last summer, we took out a $5.8 million bank loan in China. That loan has now been renewed, but the bank requires that we pay back the loan, and then they reissue it again. That's customary in China. So we paid the full amount back in Q3, but the bank issued half back in Q3 and the other half in October, which is our Q4.

8:08 Our cash decrease would have been offset by the amount of 2.9 million that slipped into October and we would have been cash positive for the quarter. As a result, we continue to feel good about our cash management and our cash balance. Depreciation and amortization in the third quarter was 995K and CapEx was about 5.7 million. Net inventory at September 30th 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% in work in progress, and 4% in finished goods. These portions stay 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.

8:56 Morris? Thank you, Gary. Thank you. We're pleased to report solid third quarter results with revenue and earnings above our guidance range. Our indium phosphide sales increased over the prior quarter, exceeding our expectations, and again surpassed our total gallium arsenide revenue. This was driven by meaningful growth in strategic applications such as 5G telecommunications, where we believe that indium phosphide is being used in the 10G laser interconnects and will also be used in the emerging 25G laser interconnects for 5G base stations.

9:42 In a related application, we also saw strong growth in passive optical networks, or PAN, that deliver broadband network access to the end user. The PAN market is currently robust and seems to be reflecting the momentum of 5G adoption in many parts of the world, particularly China. With the build-out of new 5G services and capabilities, the ongoing increases in bandwidth requirements and the acceleration of cloud adoption demand for indium phosphide in hyperscale data centers continues. Remote work has also accelerated the migration of workloads from on-premise data center to cloud.

10:35 Some cloud providers have cited as much as 30% increase in data usage. Our revenue from data center connectivity has been steadily steady at the healthy level throughout 2020. We believe we're benefiting from both the overall growth in adoption of silicon photonics in the data center as well as our transition from having a direct indirect sales relationship with a 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.

11:20 We believe that this is a validation of our capability to serve strategic high volume applications and to meet the need of some of the most prestigious and exacting companies in the world. While market news is indicating that Q3 may be a softer quarter for the data center connectivity applications, we expect ourselves in this space to be relatively steady through Q4. Looking ahead, as hyperscale data centers transition to faster more reliable and scalable infrastructure, high capacity connectivity will continue to be essential to keep pace with the ever expanding number of users, devices and applications.

12:14 Some believe that the transition from 100G to 400G will happen faster than the move to 100G. We believe this is a great news for the entire supply chain for data center equipment providers, including AXT. As we have discussed, the low defect density and other key specifications of our indium phosphide substrates make them particularly well-suited for a number of applications. To support what we believe will be a growing demand in 2021, we're investing in our own technology advancements. As Gary mentioned, We have substantial R&D efforts underway to bring this to the market of our six-inch indium phosphide substrates.

13:05 AXT has long set the pace in our industry for the advancement 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 this advancement will enable the market to ramp higher volume applications. We're also investing in our manufacturing processes with increased automation and many other capability that will further improve our quality and consistency. All of these investments will benefit our ability to serve customers in our core applications of 5G, Palm, and Data Center. We're also positioning ourselves positively in the new application in categories such as healthcare monitoring, consumer product, and LiDAR.

14:09 Turning to Gallant Hotspot, we had another solid quarter with sales growing from Q2, driven by improving LED revenue from automotive and other applications. This growth spans multiple customers, some of whom are building volume with us once again, now that our move is largely completed. We also saw continued demand from wireless applications, driven by a variety of IoT applications, including Wi-Fi devices. As we mentioned last quarter, it is difficult to predict The Enduring Strengths of the Increased Demand, but we do believe that Gyalengasana is going through a resurgence of development activities.

15:03 Collectively, Gyalengasana applications appear to be poised for substantial growth in the next couple of years. New applications may include world-facing cameras, augmented and virtual reality, automotive sensors, biosensors, and more. On the horizon, microLED may follow as the next major volume driver for Jiangyang-style chips. MicroLED, which should not be confused with miniLED, use one red, one green, and one blue LEDs for each pixel. The modular nature of the microLED is expected to allow them to scale from wearable devices and handheld devices to very large screens like high-end television of the future.

16:02 They will consume less power, provide sharper contrast, and produce brilliant lighting and colors. This is an exciting space that will add significant new value to the LED market in 2024 and beyond. Tier 1 players are already driving this development, and we believe that our wafer are being used for early stage activities. Similar to Indy Phosphine, customers in several gallium arsenide applications are also expressing real interest in larger diameter substrates. As such, we also have a significant R&D effort underway to bring 8-inch gallium arsenide to the market.

16:50 Once again, our VGF technology is highly suitable for the requirement of producing larger diameter substrates, and we look forward to reporting our progress to you. With the amount of growth opportunities across our portfolio, our capability to expand our manufacturing capacity has never been more valuable or timely. I'm very proud of the continued ramp of our Kajou and Dingxin facilities, which have now become significant competitive differentiators. In Q3, we had other important milestone in the transitioning of our manufacturing to these locations.

17:38 One of our largest Gangli On-site customers who has been ramping its volume from Dingxin since early this year is now taking 100% of its volume from our new facility. Customers such as this one and others that continue to ramp are reporting an improvement in quality and consistency as a benefit of our new state-of-the-art lines. With this significant milestone, we're confident that we will have approximately 75% or more of our Gaon and Asnet revenue coming out of the new facility by the end of Q4.

18:23 In addition, another tier one customer conducted a week-long visit to our AXC and visited our Beijing site, KaZuo site, and Dingxin site, our two new manufacturing sites. They have employees in China So international travel and quarantines were not an 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, BoYu, which manufactures high-temperature PPN crucibles and other products, continued to see healthy growth.

19:13 Jing Mei, our Garland Arsenal joint venture, is also positioning improving sales results as Garland Arsenal continues to increase in its following. In addition, as Gary mentioned, we're pleased that joint ventures for which we account using the equity method also collectively contributed positively to our net 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 are now taking shape. The materials we produce are proving to be essential part of many of the technologies that will define advancement in telecommunications, networking, healthcare, consumer product, and other verticals for many years to come.

20:16 In addition, we're making a concerted investment of time and resources to elevate our business and manufacturing processes to meet the rigorous standards of several ongoing and qualifications that are expected to provide incremental opportunities in 2021. With our organic asset manufacturing relocation 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 differentiation. We believe we have positioned ourselves for an exciting new year ahead.

21:03 This concludes my prepared comments. I will now turn the call back to Gary for our fourth quarter guidance. Gary? Thank you, Morris. As Morris discussed, the demand environment remains healthy with the 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 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, do you want to handle the Q&A, please?

21:49 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 touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, you may press star once to ask a question. Once again, if you would like to ask a question, you may press star 1 on your telephone keypad. We have a question coming from the line of Richard Shannon from Craig Allen. Your line is open. Well, hi, guys. Thanks for taking my questions, and Gary and Morris, thanks for getting up so early in China.

22:40 Maybe I'll probably ask a question I can probably guess most of the answer, but on the fourth quarter guidance here, we're expecting revenues – You know, maybe flat and perhaps slightly up here. Can you kind of give us a sense by your substrate types and raw materials, how we're expecting things to move sequentially? I'm guessing indium phosphide will be up, but I'm wondering if you could help us with the other dynamics. Yeah, I think indium phosphide will be up. I think wireless is probably going to be down slightly, and the semiconducting LEDs will be up, and raw material is going to be flat. and Germanion is going to be down slightly. So any phosphide is going to be up. Okay, that's helpful. Maybe a couple other quick questions on the guidance here as we get down to the bottom line. You're talking about one to three cents here.

23:32 Any help you can give us on gross margins here? I would assume we could probably see gross margins flashed up from the third quarter and then you talked about OPEX being a bit up here. I think 6.6 million up a bit from last quarter and the trend here recently. are you expecting continuing investment in the R&D for these new manufacturing processes to sustain for a while? Yeah. So a couple comments. First of all, on gross margin, you know, we made a good step up. We've been saying, you know, most of this year that we think we can get back to the mid-30s. I think it's probably wise to just sort of keep it flat from Q3 to Q4. You know, don't get carried away. But we're pleased with the mix and the yields and things like that.

24:20 So it's definitely coming into line with what we expected. OpEx will be a bit higher for a couple more quarters. So 6.6, 6.7 is somewhere in that range, I think. And then we'll try and unwind it a bit going forward. But not right now, so. This is all because of R&D, so it's a good thing that's happening, so that's good. Richard, any more questions? Yeah, quite a few, but I'll just ask a couple more and step out of line for others. A question for Morris, kind of looking into the fourth quarter here, you're talking about Datacon being steady, and you're also talking about a transition from an indirect to a direct relationship with your customer there.

25:13 Can you talk about kind of the raw demand that's coming from this customer versus any sorts of inventory puts and takes that might obscure what the real demand environment looks for you right now? Yeah. From our perspective, I think we've seen the demand sort of being steady, but as we sort of redirect their supply line from indirect to direct. If we put the summation together, it is sort of steady. But as we see the order book, Q4 is still steady.

26:02 But as far as the inventory is concerned, we don't have that much of a visibility because that company is a very large company so they could build inventory or they could be depleting that inventory so we don't really know that. Okay, that's fair. Maybe a couple more questions for me. We haven't asked for a couple quarters but wanted to get your sense of what you're thinking about in terms of 3D sensing. Obviously it looks like you're making some good progress moving customers into the new facility and some even entirely there. What do we think about 3D sensing as we get into next year, either for the Android or possibly the Apple ecosystem? Yeah, I think we're excited about the new facility. I think all the reports, we have more than one customer telling us that their device yield rate is actually higher from the new facility than old one.

26:56 We are still collecting data and see which specifics have made the improvement and we're going to further do more improvement. And also our manufacturing yield actually is better for our new facility than the old one. And so with this new set of information, we definitely will use that as a very strong data point to knock on doors of the VIXO 3D sensing opportunities, yeah, going into the next year, definitely. Okay. Fair enough. Last question, I'll jump out of line here. You talked about it last quarter and obviously again this quarter about, you know, working to improve your statistical process control for manufacturing here. You talk about some new customers that may emerge next year. Can you describe for us or allude to us what material you're specifically talking about and any hints on the application that might emerge from these customers who are asking for this new manufacturing quality process?

27:54 Yeah, actually, you know, this process is going on with both Galen Austin as well as Indy Phosphide, interestingly. I mean, one large Indy Phosphide customer that we're dealing with, we have set up direct lines from our technical support to their purchasing guys. who really 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 our research and development to that or buy extra metrology equipment to see what exactly what they can see out of their yield. So that will help us a lot, and we expect several machines that we're purchasing will be online shortly, and that also increased our research and development budget.

28:55 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 tier one customers. and they, when they know that we are doing exactly what, you know, we're developing with the existing customer, they're excited and that we will be sort of solving the problem ahead of the schedule for their product brand. So the answer is, it's both gallium arsenide as well as indeed phosphide. Yes. Okay. Appreciate the perspective. I will jump to the line. Thank you, guys. Thank you, Richard. Thank you. Your next question comes from the line of Gus Richard from Northland.

29:42 Your line is open. Yes, thanks for taking the question. Just in terms of gross margin in the fourth quarter, it sounds like you're going to have a more favorable mix of indium oxide plus, you know, flat up volume. Can you just give a little bit of color on that? puts and takes on gross margin in the fourth quarter. I would expect, based on your commentary, it should be flat to up. Yeah, I think you know us well, so you're right on track. I just want to keep the expectations modest, because that's kind of how we are.

30:27 But Richard, so let me try to jump in here a little bit. I think I'm excited about seeing better results from our new factory, which actually also help us our own yield. I think, you know, on the crystal growth end, we are doing the same thing, but because the crystal growth is sort of a longer range, I mean, it takes longer to grow, and when you tweak things, it takes longer. because in wafer processing, you know, each cycle probably only lasts a half hour. So you can probably get to the point that you want quicker. But as far as crystal growth is concerned, it takes a little bit longer. So I think there are more improvement we can gain, you know, further on crystal growth, I think, going into the future.

31:20 and of course, you know, product mix does make a big difference to us as well, yeah. So those are probably the two big differentiators. Also, I would also argue or suggest that as we start to steady our labor force, you know, we had a lot of inefficiencies when we are manufacturing from two or three sites, now we're more concentrating on moving to the new site and the labor force more steady, I think we can gain some efficiency there as well. Would you agree, Eric? I agree, yeah. That's good color. So moving into 2021, I think your margins a couple years ago peaked in the high 30s, close to 40.

32:10 Is a thought of mid- Did the high 30s reasonable guess for next year? We've been so busy, Gus, that we haven't really done any hard numbers in detail for next year. There will be some puts and takes, so I'm happy to give more color when I feel more knowledgeable, but I think I would encourage people in your side of the business to, you know, not get too aggressive. I think it's – but let's wait and see, yeah, so.

33:01 Okay, and then just final on ending the hot slide, it sounds like it's going to be up sequentially in the fourth quarter. Is that driven more by PON or more by, you know, silicon photonics? is definitely more than a fun part. We were seeing very strong demand out of the part. Okay, got it. All right, I'll jump back in line. Thanks. Thanks, Gus. Thank you. Your next question comes from the line of Hamed Korsan from BWS Financial. Your line is open. Hi, I just wanted to understand. You were talking more about the larger diameter substrates. Is that going to lead to a higher CapEx spend next year, and how far along are you on those projects?

33:55 That's a good question. I think, you know, in our CapEx, I think it's more concentrated towards facilities. You know, DIY water, clean room, building, and I would argue most of those are behind us, and we have built more than enough. And so as far as equipment is concerned, I think the incremental is not as large. And I think the equipment also has a benefit. We will only buy the equipment when there's a business, once we finish the development. Yes, so to be specific, again, we haven't done hard numbers yet, but...

34:40 We believe CapEx will trend down next year and it'll switch. It's going to be less facilities related and more equipment and tuning up related. We are excited about some of the things that are on the list. There's some metrology stuff, some surface measurement things that we're investing in at the request of some of the larger customers. and our whole team is excited to take these steps. But it's not going to make CapEx be higher than 2020. Right. And we're also doing a lot of automation. I think that will help us. I mean, maybe we're spending a little bit more money in the front end buying automated equipment, but on the delivering side, we have better quality and more consistent quality.

35:33 I think that will help us on the back end. Okay, and then going direct to a 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 not we driving it. Yeah. The key thing to understand is... What enables the specific customer we're thinking of to do this is that they have their own EPI capability. So if a customer doesn't want to do EPI, then they're not going to probably buy direct from us. They're going to buy from the EPI houses.

36:20 Okay. All right. That's it for me. Thank you. Good to hear from you, Ahmed. Good luck on your stuff. Thank you. Joanna? Joanna? Yes, sir. We have another question from Ilon Gushan from Nanopap Growth Fund. Your line is open. Hi, guys. Excellent quarter. Good to see you're making progress, growing revenues again. I have a question with regards, have you made any progress or continued exploring a possible listing on the Star Exchange in China yet? Well, we have looked at that, Alonzo, and it's a topic that we're aware of.

37:07 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 very interesting topic. I don't think I can say very much about it yet or now, but I'm glad to share more as we learn more. But yes, I know you've mentioned it, several other people in the fund management space, have pointed out that the star market's available, and it's something of interest. 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 indium phosphide or gallium arsenide, is there a second source other than you that would be possible that could be reach the kind of specifications they would require, or are you the only other possible second source that could be available to them in the future?

38:13 I think, let me see how I answer that question. I think, you know, we think we're world number one in terms of market sharing in phosphide. We believe we have a lead over our competitor in terms of quality 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 phosphate capability. And now we've developed a six-inch capability. I think we're ahead of the pack. As far as the customer choice, whether they want to use multiple customers Suppliers, I think we try to do the best we can to attract them to come to us, but we're always very keenly aware of where our competition is. Yeah, we want to compete with our competitors.

39:14 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 the company communicating with the street other than through analysts on what's really going on during these time periods. Is there anything new that you plan to do to increase awareness of the company and the uniqueness of your business? Yes. Yes, there is. And again, several people from your community have suggested that we be more proactive. We actually have a number of, a couple of things that we've been working on, and to be honest, it kind of got sidetracked when we came to China.

40:01 So the opportunity to come to China arose because they, a new set of visas, we always have visas to go to China, but they're all suspended. So So we had to go through a pretty long process to get the visas. We had to do COVID testing, and then we had to do quarantine. And we've extended our time here. Morris and I are both going to be here for a couple months. So anyway, it's just been a lot going on. But we do think we have a lot to communicate and promote, and we have a path to do that. And you'll be seeing some of that coming up. Yeah. Yeah, our traditional style is, you know, how many times you can announce a six-inch in a phosphate, right?

40:51 And yet, you know, if we announce a larger diameter, that product will last for a long time. But we do hear you. I think we do need to promote ourselves a little bit better, and we are working on it. Okay. Okay. Thank you. I appreciate it. But we appreciate your spirit, and we accept the challenge, and we're going to do more. Okay. We will. Thank you. Good luck in your business. Good to hear from you. Thank you. We have a follow-up question from Richard Shannon from Great Harlem. Your line is open. Hey guys, just one quick question on a follow-up on CapEx. Gary, can you give us a sense of what you're thinking about for CapEx for a fourth quarter? And then you said you don't expect it to be higher in 2021.

41:38 Can you give us a sense of what you're thinking here? And then kind of longer term, if you look before 2017, you're kind of averaging, you know, low to mid single digit millions per year in CapEx. When do we get down to that level again? Yeah, I think Q4, you know, current Q4 is, won't be greater than Q3. It'll probably turn down a bit. And I think it'll keep trending down. When do we get back to single digits? 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 www.inc.com We may hit some of that, but I think we can get below double digits maybe in 2022, but I can't say that I've done a grounds-up analysis yet.

43:01 Let me try to chime in here. I think you're right. In normal terms, we had several years Our CapEx, I think, is in the five to six million dollars a quarter range. A year. A year, right, a year. And then we stepped up, of course, with the new factory. But I would say, you know, if our CapEx keep on going, that must mean that our customer is coming. And with the new facility already built ahead of the time, so the more CapEx means more machines that actually would increase our capacity. I think it's good news rather than bad news. Yeah, I think it's, let me underline this again, but especially what Elam was just saying, are we explaining clearly our vision, but the fact that we're the only company that's significantly invested in state-of-the-art facilities gives us an advantage. The fact that we can now add capacity quickly is 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, then CapEx will probably be higher than our historical run rate, but it will be for good reasons, and we'll all celebrate. Okay.

44:27 Appreciate the perspective, guys. That's all for me. Thank you. All right. Good luck to you. Joanna? Yes. Yes, sir, 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 17th. As always, please feel free to contact me, or Leslie Green directly if you would like to set up a call with us. We look forward to speaking with you in the near future. Thank you, speakers. Ladies and gentlemen, this concludes today's conference call.

45:18 Thank you all for joining. You may now disconnect.