Kopin Corp Q4 FY2020 Earnings Call

Good day and welcome to the Kopin Corporation Fourth Quarter and Full-Year 2020 Earnings Conference Call. Today’s conference is being recorded. At this time, I like to turn the conference over to Chief Financial Officer, Richard Sneider. Please go ahead sir.

Thank you, operator. Welcome, everyone, and thank you for joining us this morning. John will begin today's call with a discussion about the market environment that we see and our progress in executing our strategy. This includes the sales activity and technology development. I will go through the fourth quarter results at a high level. John will conclude our prepared remarks, and then I will be happy to take your questions. I'd like to remind everyone that during today's call, taking place on Tuesday, March 2, 2021; we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, projections, beliefs, and estimates, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks include, but are not limited to, demand for our products, operating results for our subsidiaries, market conditions, and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. The company undertakes no obligation to update the forward-looking statements made during today's call. And with that, I’ll turn the call over to John.

Good morning. Thank you for joining us to discuss our fourth quarter and 2020 results. I'd like to start by expressing our hope that you and your families continue to stay well and safe during this pandemic. We are delighted to have finished 2020 with very strong results in both our top and bottom lines, with full-year revenue growth of 36% year-over-year and increased efficiencies in our operations. Our fourth-quarter 2020 revenue growth was particularly strong, going up 60% from a year ago to $13.9 million. We also made great progress in streamlining our cost structure, along with increasing our product use and production efficiency, resulting in a net income of $1.3 million for the fourth quarter of 2020. We are very proud of this achievement. While the company worked hard to achieve these wonderful results, our focus is on the longer term. As demonstrated by the increase in R&D spending, which we believe will position the company well for the coming era of AR and VR. This could be one decade of growth and radical transformation from handheld devices to hands-free devices. Now, let's return to a more detailed discussion of our business. Our business was strong across multiple segments, led by our defense product revenues, which increased 112% in the fourth quarter of 2020 compared with the fourth quarter of 2019. This significant increase was driven by our two production programs: the display sub-assembly system for the FWS-I thermal weapon sight program and displays for the F-35 fighter jet program. As announced in September 2020, we were awarded a $22.9 million follow-on contract for the FWS-I program, with shipments scheduled through the third quarter of this year. We expect these two production programs will continue to generate strong revenue in the coming years. We are also on track this year to transition three more products, out of a dozen programs currently in development, to initial low-rate production, with revenues expected to begin ramping in the second half of this year. We believe these programs will provide accelerated growth momentum for 2022 and beyond. Our active pipeline of development programs includes using our advanced display products in armored vehicle targeting systems, rotary-wing aircraft helmets, automatic and semi-automatic rifle day scopes, and targeting systems, among other applications. These programs are related to AR/VR and are all using our advanced microdisplays, increasingly utilizing our sophisticated optical systems, electronics, and dust-free assemblies. We believe we are the sole source supplier to most of these programs. In the fourth quarter, we saw solid growth in our industrial wearables, led by sales to RealWear located in Washington State along with sales to 3D metrology applications. The ability to collaborate with remote experts is showing increasing activity in this segment. For example, in Q4, we announced that Iristick, a European company, designed macro display optical modules for their smart glass products. For 3D metrology applications, our unique ferroelectric FLCoS microdisplays are suited for industrial 3D automatic optical inspection equipment. Due to the increasing quality requirements of the complex tri-circuit box using the coming generation of electric vehicles and 5G form, 2D AOI inspection machines are now being replaced by 3D inspection machines. This market is still in its early growth stages. Our main competitor in these applications is Texas Instruments' DMD, digital micromirror device. The two market leaders currently have similar market share. With their industrial wearable revenue at 3D metrology, we expect continued growth in 2021 and beyond. However, revenue from sales of our products for public safety applications were down in the fourth quarter of 2020, which we believe was attributable to the negative impact of COVID-19 on municipal budgets. We expect this segment will recover in the second half of this year. We also recently announced that HMDmd located in San Diego, California, and Kopin have entered into an agreement to develop a specialized precision surgery headset for a major medical technology company. These are initial entries into the expanding use of AR headsets for medical applications. In the fourth quarter, we received our first production order and began shipments of our 720p patent-pending duo-stack, ColorMax OLED microdisplays, with high brightness and color fidelity, combined with low power consumption. High brightness and color fidelity are critical for high-performance AR and VR headsets. We also announced our writing, 2.6K micro OLED display microchip. We incorporated it into Panasonic VR glasses, which you should see in 2021. The Panasonic VR glasses are the world's first high-dynamic-range capable ultra-high-definition VR eyeglasses, offering stunning lifelike images. The glasses feature a remarkably small form factor. Thanks to our advanced 1.3-inch display and our proprietary slim pancake optics developed by 3M and Kopin, making them much smaller and lighter than the large bulky headsets traditionally and commonly used for VR. The glasses feature integrated ultra-high fidelity audio, which combined with a super-high-resolution micro OLED display creates an amazing sensory experience for viewing sports content or games. We are very excited about our products and believe all these wins in defense, industrial, medical, and consumer AR/VR will grow in 2021 and beyond. Kopin has always been an innovative company. We continue to be a leader in the next generation of microdisplay technology. An example of this is our recent announcement of a multi-year agreement with Jade Bird Display to develop super-bright monochrome LED microdisplays. Jade Bird Display, based in Shanghai, China, is a leader in microLED displays. Under the collaboration, Jade Bird Display will provide the LED wafers and hybrid bonding service on Kopin-designed and supplied silicon backplane wafers for monolithic 2K x 2K LED 1-inch diagonal microdisplays. This will be the most advanced microLED display in the world. MicroLED displays provide the promise of super-high brightness microdisplays, especially useful for many AR applications. We have five red color maps for LED and our microLED displays now being developed. With this key enabler, we see a coming wave of AR/VR products in defense, enterprise, and consumer applications. Kopin offers the largest range of leading microdisplay technology in the world for AR and VR. As expected, this system is adopted by 30 different industrial enterprises, medical, and consumer applications. Almost all of our developed programs are related to AR and VR applications. We have made great progress in executing our strategy to improve performance in all aspects of the company. Rich will cover the financial details of the quarter and the full year 2020. However, I want to end by sharing how pleased I am to match our strong revenue growth with significant quarter-line improvement while still significantly increasing our R&D activities. In fact, in the fourth quarter, we achieved the possibility of generating cash, blackballing revenue by 50%. I want to convey that we will remain profitable throughout 2021. As we are ramping up several new defense protection programs, we will continue to invest aggressively in our microLED and micro OLED displays, as well as their optics and specialized electronics. It is very encouraging to see the progress we have achieved across the board in our technology, operations, and financial strength. We look for this trend to continue. Now, I will return the call to Rich to reveal the financial details.

Thanks, John. Beginning with the results for the fourth quarter of 2020. Total revenues were $13.9 million, compared with $8.7 million in the fourth quarter of 2019, a 60% increase year-over-year. Product sales for defense customers increased in the fourth quarter of 2020 compared to 2019, due to an increase in shipments of our Family of Weapon Sight Individual or FWS-I program. FWS-I revenues increased in 2020 over 2019 by 177%. Cost of sales for the fourth quarter was 65% of product revenues, compared to 81% for the fourth quarter of last year. The product revenue decreased as a percentage of revenues in 2020 compared to 2019, due to higher volumes and improvements in the production process. R&D expenses in the fourth quarter of 2020 were $4.4 million, compared with $2.7 million in the fourth quarter of 2019, a 65% increase. Funded R&D expenses for the fourth quarter of 2020 increased 87%, compared to the fourth quarter of 2019, primarily due to an increase in the number of defense-related contracts we've been awarded. SG&A expenses were $2.4 million in the fourth quarter of 2020, compared with $4.5 million in the fourth quarter of 2019, a reduction of 47%. SG&A for the fourth quarter of 2020 decreased compared to 2019, primarily due to a decrease of $1.2 million in professional fees and $0.5 million in bad debt expense. Other income was approximately $286,000 in the fourth quarter of 2020, compared to an expense of $3.7 million in the fourth quarter of 2019. In 2020, we recorded approximately $300,000 in foreign currency gains, compared to $200,000 in foreign currency gains in 2019. In the fourth quarter of fiscal year 2019, we recorded non-cash $600,000 on equity investments that was offset by an impairment charge of $5.2 million on an equity investment. Turning to the bottom line, our net income attributable to controlling interest for the quarter was approximately $1.3 million, or $0.02 per share, compared with a loss of $7.3 million, or $0.09 per share for the fourth quarter of 2019. Now, looking at the full year, total revenues for 2020 were $40.1 million, compared with $29.5 million for 2019, a 36% increase. Product sales for defense customers increased in 2020 compared to 2019, due to increased shipments of products to the FWS-I program and the Joint Strike Fighter program. FWS-I and Joint Strike Fighter revenues increased in 2020 over 2019 by 167% and 139% respectively. Cost of goods sold for 2020 was 75% of product revenues, compared with 103% of product revenues in 2019. Cost of product revenues decreased as a percent of revenue from 2020 compared to 2019, primarily due to improved yields from our manufacturing process. In addition, 2019 was our first production year for the FWS-I program and we experienced initial low yield on the program. R&D expenses in 2020 were $13.7 million, or a 13% decrease compared with $13.3 million in 2019. Funded R&D expenses for 2020 increased compared to 2019 primarily due to an increase in the number of defense-related contracts. Internal R&D expenses for 2020 decreased compared to the prior year primarily due to the licensing of certain products being curtailed. SG&A expenses were $11.8 million for 2020, a 45% decrease compared with $21.3 million in 2019. SG&A for 2020 decreased compared to 2019 primarily due to a decrease of $1.2 million in non-cash stock-based compensation, $2.9 million in professional fees, $1.3 million in bad debt expense, $1.6 million for product promotion and marketing expenses, and $700,000 for travel and related expenses. Other income for 2020 was $361,000, compared to an expense of $2.9 million in 2019. In 2020, we recorded $300,000 in foreign currency gains, compared with $200,000 in foreign currency gains recorded in 2019. In 2019, we recorded a non-cash $1.4 million gain on equity investments, along with an impairment charge of $5.2 million on an equity investment. Our net loss attributable to controlling interest for 2020 was approximately $4.4 million, or $0.05 per share, compared with a net loss of $29.5 million, or $0.37 per share for 2019. Major customers for 2020 included DRS Network Imaging Systems LLC at 35% and Collins Aerospace at 25%. Fourth quarter and year-end amounts for depreciation and stock compensation are attached to the table at the year-end press release. In the fourth quarter of 2020, we issued 1.9 million shares of our common stock under our at-the-market equity program for $4 million in gross proceeds, or $2.05 per share prior to broker expenses of approximately $100,000. The net proceeds from the sale of the common shares are used for general corporate purposes, including working capital. In January 2021, we sold 2.4 million shares of common stock for gross proceeds of $16 million, or $6.66 per share before deducting broker expenses of $0.5 million. This completes our ATM program. The amount discussed above is based on our current estimates and listeners should review our Form 10-K for the year ended December 26, 2020 for any possible changes and additional disclosures. And with that, operator, we will take questions.

Thank you. We'll take our first question from Glenn Mattson from Ladenburg Thalmann.

Hi, good morning, and thanks for taking the question and congrats on the results.

Thank you.

So, here is first on the defense business for the FWS-I, you mentioned the $23 million award that's going to ship through Q3. But was there a bit of a budget flush related to that deal? Can you give us a sense of how much is left as we go into 2021 from that contract?

No, I don't think we'll disclose the actual balance due. But we have a shipping schedule through October under the current deal.

Okay, great. And then as far as you highlighted three programs that you think are likely to begin ramping in the second half and then beyond. Can you give us a scope? You've said it before, but maybe just refresh us on how big collectively they are and it seems like maybe the day scope would be the biggest. Can you give us a reminder of just what the size and – the general size of that program could be?

Well, as it affects 2021 results, they'll come into the second half of the year and it's going to be low-rate initial production. So, I understand you asked about the total program, just to give you the 2021 results. So we're not expecting significant revenues from those programs, with the exception of one. One possibly could be meaningful this year, but they'll all be low-rate initial production to start. And there – as John said in a press release and prepared remarks, they're really designed to propel our 2022 growth. Now, turning to the specific programs, if you use FWS-I as kind of benchmark, the day scope could be significantly bigger, and then the other programs are probably slightly less.

Yeah, hi, this is John. I would like to make a comment on this, is that our programs are really divided into several areas. For the avionics like F-35 or our rotary aircraft pilot's helmets are very sophisticated and very expensive. The performance is quite low for those. However, for the day scope or FWS-I for soldiers, their quantities are, in many ways, similar to the quantities for the enterprise applications. They are talking about tens of thousands of units a year. So, these are very significant quantities. The types of kinds would be lower. I will assume it is lower, but typically, very large. So, we have to pick ourselves, so there may be high-quality samples for avionics and also high volume samples for soldiers. And that allows us to learn both sides of the equation.

Great, thanks for that, John. And then perhaps shifting over to the industrial consumer side, you highlighted industrial wearables and 3D metrology. And obviously, that would presumably come before consumer, right? But it does seem like perhaps we're at a moment where there's a consumer – I guess when I look at the Oculus device, I know you're not in that, but it does feel like that VR headset has made significant inroads with the consumer. What has impressed me the most with it is how many games, how many programs have been written for the device, and just, in general, the quality seems to have taken a step up for a bit. So, I guess my question is, John, do you see this as maybe like a significant shift in the market and a significant moment where maybe kind of like an iPhone moment where over the next few years, there will be a lot of devices coming out and the VR market could really take off from here?

Yeah, correct. It's a very good question. I think the time to really align our strategy is worthwhile, it's really the market right now. They first were used in defense. It's all AR and VR related. They were paid higher prices, but they want high performance. Then with the enterprise like RealWear and a whole bunch of smart glasses, including Google Glass. And then we assume medical, intending to keep specialty medical AR glasses. People will also build because, you know, we have a good display in electronics and optics, but we also know about economics. But now we see – begin to see the replacement, but not replacement, but I will say, high-end type of Oculus glasses. Panasonic is a very good example. The Oculus Quest 2 is a very good device, I’m actually amazed at how good they are. They’re just selling quite a lot. I think they sold about a million units last quarter, in the fourth quarter. But they have problems, too. I mean, they are too heavy and too big. It has good image. Basically, people want better images. It is pretty fast but still has latency. Okay, so there are other things out there. And obviously, they're going to improve. But I think Panasonic and several other companies now are trying to make a leap forward. The market will undergo a quantum jump; the numbers will be very large. That's why we are targeting it now. And I don't think it's that far away. My prediction is, maybe next year you will see the leap – maybe at the end of this year or beginning next year. Panasonic is definitely going for that. So, a game-changer will come.

That's great color, John. Thanks. I'll step back in the queue.

All right. And we will take our next question from Kevin Dede from HCW.

Good morning, gents. Thanks for taking my questions. I think the big elephant in the room, John, is – and I think I understood you correctly regarding where you think Kopin will be positive for the balance of this year, did I hear that correctly? Could you add some more color to that and maybe give us some revenue boundaries on how you expect that to happen given that most of the new stuff you're speaking to, the three new programs, are coming on to bolster second half 2021 revenue?

Yeah, I only have a few comments, then I will leave it to Rich to talk about it. We have three new programs coming in, and based on our experience we have on the FWS-I, which really ramped production last year in 2020. There is a learning curve to be paid. So, we are now putting in new equipment and new processes there. First, responding to the question that Glenn asked. That AR/VR adoption cycle, especially for consumer, has really been brought in this year due to the pandemic. So accordingly, we have actually increased our R&D. We've communicated that to everyone. All these factors will make for a better year – we feel much better, and we continue to make progress against last year. I think Rich would take more comments on that. Rich.

Yeah, and just to clarify, John indicated that he was not expecting profitability for the year. That's not in our forecast right now. Surface-wise, it’s a little light on Q4 where the revenue came out very, very strong. But I understand that it is a bit light on the P&L. R&D revenue was very strong, and as we've announced, we have a number of collaborations going on to develop the technologies for the new products. One issue with that is that it's pretty expensive. These are customer-funded development programs, and most of them are, since it was year-end, we had a number of vendors creating a significant number of invoices. Frankly, their revenue was a couple of million dollars higher than we probably would have expected. But that was mainly from our contractors. We do get a margin on that number which could help profitability inflation. So, that was one of the factors that drove our profitability. The risk margin improvement was a result of our efficiency efforts. And according to John’s point, the learning curve on FWS-I tells us to be partners with the learning curve on these new programs, especially under this pandemic situation as we still have to continue to work with our supply chain. We actually have the same type of issues that we saw a year ago. From time to time, we do get a notice that some supply is slowing down. This makes our results even more impressive that, during the pandemic, we were able to produce results that we did. So, we're being cautious. And as John indicated, we are still investing significantly in MicroOLED and MicroLED because that's where the big money will be in the future.

Yeah, I think a good point to make is that MicroLED is one of the hottest things right now people are pursuing. We're obviously involved in some R&D on it. And we efficiently get through. We also have many contractors developing these tools that are putting out.

Okay, John. And thanks for the color. I apologize for misunderstanding the prepared remarks. Could you dive in a little bit on the yield improvement? Obviously, it's tied into your commentary regarding FWS-I. But I'd like to understand a little bit more about that and how you expect that improvement to translate to some of the other programs you're working on, primarily on the enterprise side. Because I think I've lost track of which technology you're using there.

Yeah, I think it’s a very good question. FWS-I is really different from the F-35 program. The F-35 program primarily revolves around the displays. The FWS-I is a full eyepiece, basically. We have the display, optics, and so forth from assembly. We have to go to a whole different type of profit, R&D control, and this unit is also very different. F-35 makes a few thousand per year. Now, we spend a thousand per year for FWS-I. So, we have different types of processes to be done. The mystery color coming in, are similar to the FWS-I. So, we have learned these lessons, but they are different products, and none are the same. We believe in testing and learning curves today, but we have to also focus on the FWS-I. It's valuable to test the product by design.

Okay. Is FWS-I based on LCOS technology? I guess that's maybe the best way to get to where I was going.

Yeah, the FWS-I is using our proprietary advanced technology.

Okay. Can you talk a little bit about more – sorry, John, I'm a little curious to know more about Jade Bird. I understand MicroLED, but what makes you feel or why do you feel so strongly about that technology emerging as maybe the foremost in the industry? And how do you see it supplanting MicroLED?

It is also a very insightful question, Kevin. Looks like the situation we're in now. Okay, again, this is my personal view. My feeling is that AR/VR will be consumer-focused, with the most immediate applications in VR. The Oculus Quest 2 indicates this clearly. In the case of VR glasses, the display requirements heavily favor the use of MicroOLED. Our MicroOLED activities, including duo-stack and ColorMax, are on the rise. I believe that once you go to AR, especially when outside, it must be light and color efficient for consumers. The highest brightness levels may be a challenge for MicroOLED. There’s a lot of market activity as Facebook and others continue to push hard into space. Our technology is well-positioned for the future growth of AR applications.

Okay, that helps, John.

Yeah.

So, are you at all concerned about – I mean using your backplane ICs in that environment, are you concerned about maintaining control over your intellectual property?

Well, as you may know, Kevin, once you make a design for an integrated circuit and process it, you deliver the designs to people to deposit layers on it. There's no easy way to extract the design. That's why people like to do that. That's why all foundries do it.

Right. Right.

In the United States, it was even designed outside of the United States.

Okay. Yeah. You know, thank you for reminding me. I wasn’t exactly sure, you know, you had intended to make the wafers there. I get it, so thank you for clarifying. Can you give us an indication on how you see that development path going? How long do you think it’s before you'll have maybe, you know, beta displays that you could ship to customers for tests?

For the LED? Yeah. For micro-LED, it's a very interesting thing. I mean, we see the programs that take about five years, we have customers who demand that we provide products sooner. This is why we have increased our activities. We had to pass some of the functions that we were thinking about doing ourselves to panel makers to pass on time. So, this should ideally speed up the whole thing down to the last two years or so.

Wow. Okay. Well, congratulations on that. I think the – sort of the other thing is just sort of general demand within the enterprise. I mean, you talked about public safety being down on account of municipal budgets. Do you think that's sort of a post-pandemic resurgence or do you think that doesn't come back until the second half of this year as well?

We think that – so, I think that the major account we have, which I can really cool people right through here, it slows down, I think they're selling domestically and the municipal budget has obviously been hurt. But they predicted it would come back up in the second half. We're seeing other activities for other countries – other companies. So, I think this will continue to grow, especially by 2022 and beyond. So, this is still a very good segment to focus on.

Okay. I'm going to give you a break, John. Last question from me. Can you talk about some of the end products, the RealWear is designing and the success that they are having in the end market and how you see their projections?

What you do is just contact RealWear to talk about their business.

Yeah. They are very active on their website and newsletters. They're obviously very successful right now and we work with the supply chain to them. We know they're good right now. Let's cheer for them.

Okay. Fair enough. Thank you very much, gentlemen. I appreciate you entertaining my questions.

Yes.

Thank you. And we'll take our next question from Denis Pyatchanin from Needham & Company.

Good morning. Thank you for taking my question. I wanted to ask a few on behalf of Raj Gill. Regarding the AR and VR initiatives in progress, you mentioned that the first group of adopters would be in industrial, enterprise, and medical sectors. If you had to choose one of these three, which do you think would be the most likely to adopt first, and what kind of applications would they use these products for?

Sorry, can you repeat the question? I just want to make sure I answer exactly right.

Sure. So, I think you mentioned in the press release that regarding the kind of AR and VR first adopters of the technology, you would be focusing on industrial, enterprise, or medical customers. If you had to pick one out of those three, which one do you think would be the most likely big first adopter of the AR and VR technologies and what kind of applications would they use them for?

Okay. So, I will answer AR first, okay? The AR application side RealWear is definitely the first one. There, we provide productivity for mobile workers. That application is definitely coming in first and Google Glass is also focused on that. Yeah, you're all aware that we are the display supplier for Google Glass. The second one I would think is medical. There is a need there, and I couldn't believe how surgeons really desperately want it. So, don't be surprised, there are some FDA-type requirements there, so we don't know how long this certification process will go. The advantages are definitely there, okay? So, I see that developing further. Now, for the consumer side, I honestly do not see that happening yet until maybe later. Hopefully, Apple will do something for us. On the VR side, it's very clear. We have always used that for training. Okay? We are focusing on military training and also education. But my soft spot is to games. Sports content, watching IMAX theater-type experiences are definitely the big consumer applications after enterprise and training in the military. I really think it's a game-changer. We have not just a mobile device in hand; it's time for wearable technology. We are helping in this transformation and it has many applications. You'll love it.

Great. Is there – could you provide a little bit more color on exactly what kind of applications surgeons will use the AR products for? Is there anything specific that you can talk about?

Well, I cannot talk about that specifically due to proprietary reasons.

What we can tell you, though, is that a lot of medical applications involve the doctor looking up at a monitor. The idea being that wearing a head-mounted system allows the doctor to look directly at the patient while using the mounted system for specific tasks.

Well, all new technology will focus on functions that were previously unavailable. You can have something designed to satisfy all in medical, especially medical surgical.

Understood. Thank you for all that. That was helpful. And then, I guess, the last question that I have is, are you able to provide any color on your gross margin profile by category? So, kind of like, you know which of your categories is above the corporate average? Which is below or any details like that?

Military, when the programs reach steady-state, historically our margins are at 40% or better. Industrials are in the mid-30s, and then consumer can really vary from the low-20s to 30s. It depends on the size of the market segment. Consumer defense essentially boils down to absolute dollars versus percentage-type scenarios. You take a lower percentage, but the absolute dollar is so much greater.

With Apple, the situation feels changing. It is very interesting. This is still a new area, like transitioning from handheld to hands-free. At the beginning, there are lots of technologies at play. You try different approaches; some may not yield. But over the last five years, we’ve gained clarity. What we aim to do is not create the final device — even in a medical surgical headset — but we design for others who market it and sell it. Many people have approached us wanting to build the whole thing but still requiring use of our displays.

Got it, John. Thank you for that. So – and Richard, just a follow-up really quickly. So, would R&D or the licensing work be almost all pure margin, around 90%-plus?

The royalty is pure profit. There are margins on the R&D contracts. The margin varies by contract. We look for contracts that fit our technology roadmap. Sometimes, as long as the contract pays for itself, that's good enough for us since it's providing valuable technology. In most cases, we retain the rights to what's developed. Essentially, we're getting it funded for free.

Yeah.

Got it. Perfect. That's exactly what I was looking for. Thank you, gentlemen.

Yeah, I think we've established our business model. As we continue, we'll see more people asking for our design assistance. Our focus is on R&D and royalties. We often have equity arrangements along with selling products to them.

Got it. Thank you very much.

Hello, John. Operator here. I just wanted to clarify that we will now wrap up the questions.

Thank you very much for joining us today, and we look forward to the next meeting with you. Thank you, all.

Thank you. And that does conclude today’s call. You may now disconnect.