AXT Inc

Good afternoon, everyone, and welcome to AXT's second quarter 2023 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. My name is Jessica, and I will be your operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Leslie Green, Investor Relations for AXP.

Thank you, Jessica, 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 the 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 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 expectations, and are subject to risks and uncertainties that could cause actual 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, the financial performance of our partially owned supply chain companies, and the impact of delays by our customers on the timing of sales of their products. 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 August 3rd, 2024. 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 second quarter of 2023. 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 Fisher for a review of our second quarter 2023 results. Gary?

Thank you, Leslie, and good afternoon to everyone. Revenue for the second quarter of 2023 was $18.6 million. down from $19.4 million in the first quarter of 2023, and down from $39.5 million in the second quarter of 2022. To break down our revenue in Q2 by product category, antiphosphide came in at $4.6 million, reflecting the expected market softening, particularly in data center, consumer, and telecommunications infrastructure. Gallium arsenide was $5.4 million, reflecting a modest improvement across a number of applications, particularly in China. Germanium substrates were $1.0 million. Finally, revenue from our two consolidated raw material joint venture companies in Q2 was $7.6 million, which is up from the prior quarter. In the second quarter of 2023, revenue from Asia Pacific was 75%, Europe was 16%, and North America was 9%. The top five customers generated approximately 24% of total revenue, and no customers over the 10% level. Non-GAAP gross margin in the second quarter was 9.8% compared with 26.9% in Q1 and 39.4% in Q2 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the second quarter was 9.2% compared with 26.3% in Q1 of 2023 and 39.1% in Q2 of 2022. There are three key drivers affecting the gross margin. One is total volume. Last year's Q2 revenue was $39.5 million. The second key driver is mixed. Last year's Q2 indium phosphide was $15.7 million. This recent quarter, it was $4.6 million, which we believe is the bottom of the decline, by the way. The third key driver was that our raw material business had lower gross margins due to the fact that they were working through higher-priced inventory in Q2. This was especially impactful because raw material sales made up more than 40% of our total revenue. As we look ahead to the coming quarters, we believe we will see improvement in our gross margin as a result of several factors. In the near term, we expect to see improvement in the gross margin contribution from our raw material joint ventures, as they have worked through much of their higher-priced inventory. We're also pleased to report that we expect Gen May to begin production in Q3 on our new gallium arsenide recycling program, which, like our Indian phosphide recycling program, should have a positive impact on gross margin. Further, we believe that Indian phosphide revenues have bottomed out and should begin to recover over the coming quarters. Beyond the near term, we remain confident that we can get back to the mid-30% range as the environment strengthens through higher overall volume, a recovery in Indian phosphide mix, and the benefits of our recycling programs, along with continued efficiency improvements throughout the business. Moving to operating expense. With reduction in overall revenue, we have continued to take steps to reduce our operating expenses to align with the current environment. Total non-GAAP operating expense in Q2 was only $7.8 million. This compares with $8.7 million in Q1 of 2023 and with $9.1 in Q2 of 2022. On a GAAP basis, total operating expense in Q2 was $8.6 million, down from $9.5 million in Q1. For comparison, total gap operating expense was 10.1 million in Q2 of 2022. Our non-gap operating income for the second quarter of 2023 was a loss of 5.9 million compared with the non-gap operating loss in Q1 of 3.5 million and a non-gap operating profit of 6.4 million in Q2 of 2022. For reference, our gap operating line for the second quarter of 2023 was a loss of 6.8 million compared with an operating loss of $4.4 million in Q1 of 2023 and an operating profit of $5.3 million in Q2 of 2022. Non-operating other income and expense and other items below the operating line for the second quarter of 2023 was a net gain of $1.8 million. The details can be seen in the P&L included in our press release today. For Q2 2023, we had a non-GAAP net loss of $4.2 million or $0.10 per share compared with a non-GAAP net loss of $2.4 million or $0.06 per share in the first quarter of 2023. Non-GAAP net income in Q2 of 2022 was $6.7 million profit or $0.16 per share. On a GAAP basis, net loss in Q2 was $5.1 or $0.12 per share. By comparison, net loss was $3.3 million or $0.08 per share in the first quarter and gap net income in Q2 of last year was $5.5 million, or 13 cents per share. The weighted average basic shares outstanding in Q2 of 2023 was $42.6 million. Now let's look at the balance sheet, which favored in the trends were favorable in several areas. Cash and cash equivalents and investments were $49.6 million as of June 30th. By comparison, at March, it was $53.6 million. The reduction in cash was primarily due to a repayment of a bank loan totaling $7.2 million. This was offset by a favorable reduction in our inventory at $4.6 million. As such, several key working capital items trended favorable in Q2. Appreciation and amortization in the second quarter was $1.8 million, and CapEx was $750K. Our stock comp was $0.9 million. As I mentioned, net inventory came down by $4.6 million to $87.1 million at June 30th. 44% of the inventory is raw materials and WIP was 52%. Finished goods makes up approximately only 4% of inventory. We continue to do well on recycling of Indian phosphide and believe that this will be an important cost advantage for us as the market recovers. Okay, this concludes the discussion of our quarterly financial results. Let me turn to our plan to list our subsidiary Tongmei in China on the star market in Shanghai. We are making progress on the approval process with the China Securities Regulatory Commission, known as the CSRC. Shortly after Chinese New Year, we were asked to address two primary issues and we believe are close to a resolution with them. We remain optimistic that we will get CSRC approval in the coming months. We're excited to move into the next phase of the IPO process and believe that Tang Mei is an excellent candidate for this listing. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?

Thank you, Gary. Before I go to a review of our business, I wanted to give you an update on China's recent export control regulations. As noted in our July 3rd press release, the regulations pertain to the use of accounting materials that are exported out of China. They do not impact the export of any phosphide products or sales of any products to our customers in China. Since the announcement of the regulations, Tongmei, our subsidiary in China, has moved quickly to prepare permit applications on behalf of customers who may be impacted. The permit process open for applications on August 1st. We have not been given a timeframe for the expected length of the permitting process, but we are hopeful that we can resolve it quickly. We have been in close contact with our customers through this time and are working with them to minimize any disruption. Now turning to our business. As expected, our Indian Phosphorite business reached what we believe is the bottom, with consumer and data center applications showing the greatest decline. In consumer, we've been selling into two applications, one of which we continue to ship into. The second, a mobile device application, is not expected to be designed into the next generation platform. However, we believe that these applications validated our Indian classifier as a material of strategic importance in consumer products, and validated AXT as a world-class supplier to Tier 1 companies. We also believe that there is a significant development work underway for a number of consumer-related devices across multiple customers for use in case of retinal tracking, health monitoring, LIDAR, and more. With our track record of being the dominant commercial supplier for consumer product applications, we are well positioned for current and emerging applications. Turning to data center applications, in the first half of 2023, we saw considerable inventory digestion and believe that it is still ongoing. However, if we look beyond the immediate environment, We believe that indium phosphide will play an important role in increasing data throughput and enabling the widespread adoption of AI. Optical interconnects and technologies such as co-packaged optics powered by indium phosphide represent a game-changing approach to meet the evolving demand for artificial intelligence workloads. for integrating optical interconnects directly into the processors or switch packages, co-packaged optics, minimize latency, increase bandwidth, and reduce power consumption, and enhancing the overall performance of the data center network. As a result, we believe that AI will drive strong industry-wide growth for indium phosphide, likely ramping in 2024 and beyond. Further, with our proven performance in optical devices for the data center, we believe we're in an excellent position to benefit from this growth. In telecommunications applications, including passive optical networks or PAN, demand appears to have stabilized around the current level. We're encouraged to see some improvement in China, and if China moves forward, with the National Stimulus Program, as has been discussed, it will likely provide a catalyst for an upgrade cycle in the country's telecommunication infrastructure in 2024 and beyond. In gallium arsenide, we saw continued modest improvement in Q2 as key applications such as high-power lasers and IoT devices continued their recovery. particularly in China. As you may recall, gallium arsenide was the first of our material to experience the micro downturn beginning in Q3 of last year. We're also pleased to report that we're making significant progress with our 8-inch gallium arsenide development program for which micro LED will likely to be the first application. We believe the performance of our material is very competitive in the market, and that we will do well in the formal qualification process that is expected to begin in the second half of this year. We continue to innovate in our crystal growth process to deliver higher and more consistent yield, and we are excited to apply these learnings to our six-inch diameter products. Turning to our raw material reasons, sales increased in the quarter with both increased demand and rising prices. Since relocating to our casual campus, both supply chain companies have been able to increase capacity to meet demand. Regarding the impact of our export license, Jingmei exported outside of China represented only a small portion of their sales in Q2, less than 2%. So we do not expect a meaningful direct impact to our revenue from the new regulations. As we move forward, we will have a better understanding of what the direct impact may be, if any. As Gary mentioned, We're pleased to report that our galleon oxide recycling program will move into production in Q3. This will allow us to drive growth margin improvements and support our ongoing ESG efforts. In closing, though the microenvironment will continue to impact growth near term, the trend that have been driven our revenue and customer expansion remain very much impact. We continue to excel in our technical capabilities and we are ready our business to support new applications in AI and consumer products that are likely to drive future growth. Further, we continue to work hard on improving our efficiency and we are focusing on accelerating our return to profitability. I will now call, turn the call back to Gary for our third quarter guidance.

Thank you, Morris. We expect Q3 revenue to be between $16.5 million and $19.5 million. Product mix is likely to include growth in gallium arsenide substrates, but continued weakness in indium phosphide. We expect our non-GAAP net loss will be in the range of 11 to 13 cents, and our GAAP net loss will be in the range of 12 to 15 cents. Share count will be approximately 42.7 million shares. This concludes our prepared comments. Morris and I would be glad to answer your questions now. Jessica, operator?

Great, thank you. Just as a reminder, if you'd like to ask a question, please press stars and the number one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster. And just as a reminder, if you'd like to ask a question, it is star one on your telephone keypad. Our first question comes from the line of Richard Shannon with Craig Hallam. Richard, your line is open.

Great. Thanks, Morris and Gary, for taking my questions. I guess the first big picture obvious question here is trying to understand your guidance in the context of the export licenses. I think you said you're starting to apply but haven't been awarded yet. And so I'm wondering if you're baking in or you expect any or I guess explicitly taking out any upside or further sales from the rest of the quarter into this guidance or just kind of give us some guidance here on how you're thinking about that and constructing that, please.

Sure. I think the first reaction we got from, you know, we started to apply applications actually on August 1st, which is two days ago, because China is one day ahead of us. And we got a fairly quick response, but we still got more questions to be answered. So we don't know how long the actual process is going to be. So the lower number range, assumes that we cannot do any export shipping for the month of August and September. And the higher number means we could do some shipping in September, the last month of this quarter. That's why the range is so large for this quarter.

Okay. Well, that certainly makes sense. Maybe just looking at other elements of the guidance here, I think you said gallium arsenide looks to be improving in the indium phosphide week. I'm not sure if that means it's going to be flat or slightly down. Also, in indium phosphide, I think you declared it to be at the bottom. I'm assuming that would be in the third quarter then. So if you can delineate that, then probably a couple of follow-ups after that.

Yes, I think you're right. Because I think, as we said, we noticed gallium arsenide was the first product to go into a downturn. And emu phosphide actually still had a pretty good shipment even in the first quarter of this year. And it started to decline about six months ago. So we expect that to continue a little bit more. But gallium arsenide, we actually already seen two quarters of the improvement, although very, very slight. We hope it will start to accelerate goes forward.

Okay. And I guess maybe just on the topic of any phosphide bottoming out, I just want to get your sense of where that confidence comes from. Are you expecting any sort of meaningful bounce off the bottom, or you just think it's not going to go any lower?

Well, because we still have one more quarter to go, so I don't know whether it's going to have a strong bounce or not, but if you listen to the customer's They are not coming back with very large order requests at this point yet. But we think some of these, especially data center customers, their product shipment is almost like only 25% of what we did last year. So we expect that to bounce back towards the fourth quarter. And that should be a meaningful bounce and of course, I think the pounds market in China, I think if there's any stimulus package worked into, you know, given China's economy is very depressed. So if there is any stimulus package towards infrastructure improvement, that should go into some of the optical network improvement in China.

Okay. Fair enough. Let me ask one more question, and I'll jump out of line. And that really goes to the spending here, specifically in the OPEX that Gary mentioned. And it's clear to see a fairly good cut from the first quarter, which is great to see. Wondering to what degree these are sustainable and structural versus one time in nature. And then how do we think about going forward and specifically in the third quarter?

Well, I think it might tick up a little bit in the next quarter. one or 200 K, but in general, I think it's going to be in this neighborhood, uh, through December 31st. We haven't done a grounds up, uh, going forward after that yet, but so I think, I think, you know, flatter up a little bit, but, uh, I'm, I'm very encouraged. It's just, you know, I think the team's really pulled together. Uh, it's, you know, this is a, it's, it's a good illustration of how leadership, uh, affects company culture and, you know, Morris is back from China now, but he's been in China for a number of months. And it's easy to make the team there and the team here is responsive to leadership. So, you know, we put the word out that we're tightening up and it's helping. So it's a great illustration of company culture stuff.

Let me add one more point. I think, you know, um we are trying to make ourselves ready for the age uh program although the official ramp in production probably comes in the fourth quarter of 2024 but uh in preparation for the official ramp we got to make some still a few equipment purchase to to make it ready Because once we get qualified, that process will be frozen and we'll be ready ourselves for the ramp. So we need to spend a little bit more money for the micro-LED program.

Okay. I guess I lied here when I said I was going to be done here. Since you brought up the topic of micro-LED here, I didn't want to hit on this one here. So it sounds like you're going through a call process. Sorry, Morris. Going through the call process here in the second half, and you gave a very specific timeframe of ramping in the fourth quarter of next year. So I guess I want to get a sense of where that specificity comes from and any sense of scale of this, you know, when it does start to ramp up.

Yeah, although I think I'm happy to see that finally MicroLED is, you know, confirmed. Because I think we, including myself and a number of analysts, really believe there's a lot of obstacles ahead of MicroLED. But I think the customers are showing confidence and they're moving ahead. And then we have a scheduled qualification going. And we expect it to be finished before the end of the year. And we believe that our position is pretty good on it. As far as the ramp into production is concerned, we do have some number from customers. I would say it's about $4 million to $5 million next year and could double that by I didn't mean to interrupt, Morris.

Please continue.

Yeah, that's assuming that you can get 50% of the market.

Okay. Okay, excellent. That's great detail. I will jump on the line. Thank you.

Thanks, Richard.

Our next question comes from the line of Charles Shi with Medium. Charles, you may go ahead.

Hi, I'm Morris. Gary, just the first question. When ever, I mean, over the past two, three years, whenever the U.S. government puts on export restrictions on China, the companies got impacted, actually saw a pop in the near term to the revenue numbers. But Apparently, we're not seeing you are going to have a pop. I was kind of curious, why is that the case? Because I would have thought ahead of the August 1st deadline, some of your overseas customers outside China may probably wanted to accelerate some shipment, especially given that you have relatively high inventory can turn things around very quickly. Why are we not seeing that pop? That's my first question.

Well, we did. We have a bit increased shipment in July, but there are two restrictions on that. One is that the order came in fairly late. We got the notice in July the 3rd, and even we start cranking out a lot of production is still we are limited on how much we can actually produce in the month of July. And the second is that although the official restriction come in July, not until August 1st, but China custom actually put sort of the delay tactics on most of the shipment in July already. Okay. So, you know, we do have, I would say, a good... uptick on the shipment in July, and that sort of alleviated some of the missing shipment revenue we can recognize in, let's say, August and part of September. That's why it's a flat quarter. If we're missing out two months out of the quarter, then you would expect the revenue to be down substantially. But it's not. So it's a fact of, you know, we overship some in July.

Another factor, Charles, is that several customers outside of China do operate under a consigned inventory program where we, just to explain to people that may not be familiar with the concept, but we ship to them, but we continue to own the inventory on our books until they pull it. And so... In a couple cases, they've got enough to stay in full production with their schedule for August and September, even if we don't ship to them in August and September. So now they could have an issue in October, November if we're not shipping by then, but by then we think we will be shipping.

Charles, you didn't ask this question, but let me try to explain some of the dynamics in this restriction. or asking for applications for permit to export. As far as we're concerned, we are a substrate maker, so it's easier, I believe, for us to identify the specific application and specific customer need, and we believe it's more transparent, whereas our competitor, in making gallium oxide substrates, they need the raw material of gallium, which is a bit more difficult because then they need to explain to who their ultimate customer is and in what portion of that shipment of gallium to those customers are, which I believe, I think the worst case scenario we would have been even in terms of comparing to our competitors. But if there's any tilt towards caution in terms of China's restriction in supplying galleon to the world, then I think we may gain some advantage of shipping, you know, because our permitting process is probably more clear and easier to get than our competition. That's the way I analyze the situation.

I got it, Maurice. Actually, that was my second question, but you already answered it. Thank you very much. Thanks, Charles.

Your next question comes from the line of Matt Bryson with Wedbush. Matt, go ahead.

Thanks for taking my questions. First one is just within the emphosphate, it seems like normalized revenue run rate before COVID, before you added those consumer applications, was somewhere between $9 and $10 million per quarter. I guess now, do you have a feel for what normalized revenues might look like when inventories get worked down?

You put the number right there. I think it's going to be 9 or 10. I think that normalized run number, I would expect. Without the increased demand, which I do believe is going to come, once the first line of increased demand is AI, you need more calculation and more processing, but eventually the data has to be fed in and taken out. And I believe that's the second wave. That should increase the demand for data center and telecommunications.

And I know you don't have a ton of visibility into kind of how much inventory is beyond you, but any idea at all that you can give us in terms of what inning we're in and seeing that inventory get worked down? in terms of those revenues getting back to normalized levels?

I think I will put it the first quarter of next year because I think, you know, you would say it normally takes about a year to digest all the inventories. And, you know, we did check with the customers. I mean, they're still saying, Q3 is still not good. But Q4, we really don't have much visibility yet. But I'm quite sure our customers are happy with us. I mean, they just got inventory in their hand, so they need to work that down. And also, during a more recessionary kind of period, Everybody wants to control their inventory, including ourselves. We want to work down our inventory. So, you know, we got customers and we got customers' customers. Everybody wants to work down on their inventory. And we are on the bottom of the totem pole. So I think the inventory probably start to hit us more than normal. But I think once they come back, then they should come to us too. You know, from a bigger picture. Go ahead, Matt.

No, sorry, Gary. After you.

I was going to say, from a big picture point of view, one of the unexpected consequences of COVID was that there was a lot of supply chain disruptions in 2021. And so a lot of companies, including us in 2022, bought instead of just in time, we bought just in case. So the overhang is probably more than a normal cyclical thing. It was probably accentuated to be larger than normal because of that. But it's going to work through, and we're seeing it on our own balance sheet, and we're in good communication with the customers, so it's just going to take a bit more time.

Yep, no, understood there. I guess for you, Gary, in terms of getting back to those mid-30% type gross margin levels, is there a certain revenue number that we should be thinking about

Well, we probably have to be close to or above 28 to 32 million, somewhere in that range. But, you know, the volume is, you're asking correctly, Mac, and you know, I mean, I know you know this, but the volume is a critical factor. But an equally strong variable is the mix. So if the mix is heavily weighted in one direction, meaning probably indium phosphide, then somewhere maybe 28, 29 million should be fine. But if it's weak, then I got to be 32, 33 million. So there's somewhere in there. But again, what I would say is we're going there. There's no doubt in our mind. And there's some stuff that Morris has been working on while he's in China in the supply chain system and some things that we've done that's going to contribute. The whole recycling program is Pretty new. You know, it's strong with the indium phosphide, but now we're just on the threshold of going with gallium arsenide. If that goes the way Morse thinks it's going to go, that's going to help. So we're very optimistic about some of this stuff. You know, we haven't been sitting around sleeping during this slowdown. We've been working hard.

No, completely understand. I guess that's my last question, is that when you're thinking about those mid-30s levels, um does that assume that the recycling program in gallium arsenide is successful um as the one in indian phosphide um or is that offer some potential that you can again get up into the high 30s 40 range i guess do you need something else there other than just to lift volumes um get mixed back to normal

Yeah, I think we probably counted that recycling program in there. We do have quite a few of these programs. And we've been working on it for almost last year, year and a half. So I think there's no question in my mind those will work. But I think we did count it. We cannot have it. It's factored in. But we're excited about it.

Okay, understood. Thank you so much for the answer. Thanks, Matt.

Yep, good luck to you.

Your next question comes from the line of Richard Shannon with Craig Hallam. Richard, go ahead.

Great, thank you. A few follow-up questions here. I think I'll throw one, the obligatory one out here on the STAR listing process. I think your prepared remarks are related to a couple of questions comments you're still responding to. I wonder if you can tell us the nature of those comments and how fast you think those will be responded or kind of completed and then any other steps. I think late last year you thought it would be completed early this year and we're obviously quite a bit past that point so I'm sure you feel a little snake bitten about trying to predict things too closely but want to get your sense of you know as an example do you expect to be done this year or not necessarily?

Yeah, I don't want to overpromise and end the lever. I think that's what we're assuming. And, you know, because this is a process which is now, we're not very familiar with it. And we really rely heavily on our bankers in China. And we were surprised to see that these two little questions took so long to get, you know, the authorities to be comfortable with our answers. We think we provide the good answers, but, you know, I've been telling my board that I expect it next week, but don't count on it. But we only have one question to be answered. I think if they're comfortable with it, and then we should go, you know, have it go through.

Yeah.

Okay, sure enough, a couple more quick ones.

Yeah, so to answer your question, it could be as quick as next month, but yeah, I think so. And if not, definitely towards the end of the quarter.

Okay, that was more specific than I was expecting, but good to hear. Let's hear a couple more questions. Gary, on cash flows, obviously absent any sort of debt dynamics as what you had in the second quarter here, but what are you expecting for cash flow here, positive or negative? Obviously, net income will be negative, but I'm even trying to generate cash from inventory. I want to get your sense of what the second half of the year looks like.

Well, yeah, we know we start with a P&L loss on a non-GAAP basis to take out some of the We take out all the stock comp, take out the depreciation, and the loss on the cash basis is less, which is what happened this quarter, by the way, so for Q2. So I think we will still be able to bring inventory down and work on some of the other working capital accounts on the balance sheet So if it's a negative cash flow, it'll be hopefully similar to what we had this recent quarter. Now, by the way, take note that if we hadn't paid that bank loan off, which was $7.2 million, cash would have gone up, not down, because it only went down by $3.9 million. So I think we're in what I would call noise level, and I think we can manage it okay. And then, as Morris pointed out, we expect that the cash balance is going to change significantly at some point, hopefully this quarter.

Is that a reference to the star listing, Gary? A vague and veiled lesson. Yeah, a reference.

Okay, that's what I figured. Last quick question for me. I'll jump out of the line again. Kind of following up one of the Immediately prior questions here regarding gross margins and getting to that 35% level of revenues required for that, which I think you said was centered around $30 million a quarter. What do you think your OPEX would be in that case? I mean, you obviously had a nice drop down here talking about tightening expenses. Are you going to continue to keep those tightened down even as you approach that revenue level or open up the spigot, or how should we think about that?

Well, we're going to have to open it up some, so we shouldn't pretend that we can magically flap it. You know, we're looking at going on a gap basis what it looks like for next year, and, you know, we'll probably get into the maybe 9.3 to 9.6 million a quarter by the middle of next year. I'm hoping we don't reach 10, and I think that we need to try and keep a lid on things to keep it going. added below $10 million a quarter by the end of next year.

Okay, perfect. That is all from you guys. Thank you.

Thanks, Richard.

Thank you for your questions. At this time, I will turn the call back over to Dr. Morris Young, CEO, for closing remarks.

Thank you for participating in our conference call. This quarter, we will be presenting at Needham virtual semiconductor conference, the Jefferies Semiconductor Communication Technology Summit, and the Northland Capital Market Institutional Investor Conference. As always, please feel free to contact me, Gary Fisher, or Leslie Green directly. If you would like to set up a call, we look forward to speaking with you in the near future.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.