Good day, everyone, and welcome to the Vicor Earnings Results for the Third Quarter Conference Call hosted by James Simms, Chief Financial Officer; Patrizio Vinciarelli, Chief Executive Officer; and Phil Davies, Vice President of Sales and Marketing. My name is Annie, and I'm the event manager. During the presentation, your lines will remain on listen-only. Operator provides instructions. I would like to advise all parties this conference is being recorded. And now, I would like to hand over to James. Please go ahead, sir.

Thanks, Annie. Good afternoon, everyone, and welcome to Vicor Corporation's earnings call for the third quarter ended September 30, 2020. As stated, I'm James Simms, CFO. And with me here in Andover, Massachusetts are Patrizio Vinciarelli, CEO; and Phil Davies, Vice President of Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the three months ended September 30. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com. We also filed a Form 8-K today related to the issuance of this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements and our capacity expansion as well as management's expectations for sales growth, spending, profitability, all are forward-looking statements involving risks and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct. Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 1A of our 2019 Form 10-K, which we filed with the SEC on February 28, 2020. We presented certain updated risk factors regarding the COVID-19 pandemic and our current construction project in our Form 10-Q for the second quarter filed with the SEC on July 31, 2020. Both of these documents are available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Thursday, October 22, 2020. Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call. And you should not rely upon such statements after the conclusion of the call. A replay of the call will be available beginning at midnight tonight through November 6, 2020. The replay dial-in number is (888) 286-8010, followed by the passcode 78499292. This dial-in and passcode are also set forth in today's press release. In addition, a webcast replay of today's call, along with a transcript, will be available shortly on the Investor Relations page of our website. I'll start this afternoon's discussion with a review of our Q3 financial performance, after which, Patrizio, Phil and I will take your questions. As we did last quarter, I'll begin with a discussion of Vicor's response to the COVID-19 pandemic. Beginning in Q1, Vicor took steps to protect the health and safety of our employees following federal and local government guidelines for employee well-being. Using masks and practicing social distancing from the onset of the pandemic, we have continuously operated three shifts at our Andover manufacturing facility. With only a few exceptions, our engineering, sales and administrative personnel returned to our Andover offices in early Q2. I refer listeners to our pending Form 10-Q filing, which will set forth updated details regarding our response to the pandemic and the impact it has had on our operations. We are monitoring changing circumstances closely and may take additional actions to address COVID-19 risks as they evolve. Because much of the potential influence of COVID-19 is associated with risks outside of our control, we cannot estimate the extent of such influence on our financial or operational performance or when such influence might occur. I'll now turn to consolidated results. As stated in today's press release, Vicor recorded total revenue for the third quarter of $78.1 million, up 10.4% from the prior quarter. Advanced Products revenue rose 25% sequentially, reflecting higher shipments of power system solutions for AI acceleration and an increase in demand for our 48-volt direct-to-CPU solutions. Brick Product revenue rose 2.7% sequentially as shipments to China and an increase in our custom systems revenue offset continued weakness in North America and Europe. Shipments to stocking distributors rebounded for the quarter after the COVID-related decline of Q2. Turns volume declined sequentially. Exports increased as a percentage of total revenue to approximately 73% of the total, reflecting booking trends. For Q3, Advanced Products share of total revenue rose for the fourth consecutive quarter to 39%, with Brick Products share correspondingly declining to 61% of total revenue. Our expectation is that Advanced Products sales will soon cross 50% of total revenues, given the high-growth profiles of segments we are targeting, in contrast to the maturity of the segments we serve with Brick Products. Due to the ongoing impact of the pandemic on our supply chain partners, product mix challenges and high tariffs, our gross margin percentage for the quarter at 42.7% did not improve sequentially despite higher unit volumes. Gross margin dollars did rise 10% sequentially. I'll now turn to Q3 operating expenses. Total OpEx declined 3.7% sequentially, but the Q2 figure included a one-time noncash compensation charge of $1.2 million for accelerated recognition of stock option compensation. As such, operating expenses were essentially flat quarter-to-quarter. The amounts of total equity-based compensation expense for Q3 included in cost of goods, SG&A and R&D, were approximately $296,000, $846,000 and $498,000, respectively, totaling $1,640,000. We recorded operating income of $6.1 million, representing an operating margin of 7.8%. Turning to income taxes. We recorded a net provision for Q3 of $651,000, representing an effective tax rate of 10%, which is in line with our expectations for the full year. Net income attributable to Vicor for Q3 totaled $5.8 million. GAAP earnings per share was $0.13 based on a fully diluted share count of 43,743,000 shares, which includes 1,579,000 exercisable options. Turning to our cash flow and balance sheet. Cash and equivalents totaled $203.6 million, a sequential increase of 3.5%. Accounts receivable net of reserves totaled $41.1 million at quarter end, down trade receivables at 38 days, down from the prior quarter's 45 days, a level reflecting payment delays due to the pandemic in the prior quarter. All balances are current. Inventories, net of reserves, rose 4.6% sequentially to $58.2 million as we further increased raw materials in support of our outlook for increasing production. Annualized turns remained at 2.8. Operating cash flow totaled $11.6 million, reflecting a favorable swing in working capital. Capital expenditures for Q3 totaled $8.1 million, representing the value of equipment placed in service during the period. At quarter end, we had construction in progress balance of approximately $13 million and a total of $76 million of approved capital projects. Our factory expansion is progressing on schedule as evidenced by the level of approved projects and the construction activity. I'll now address bookings and backlog. Q3 bookings totaled $90.5 million, a 3.4% sequential increase. The overall book-to-bill was 1.16 with Advanced Products at 1.18, and Brick Products at 1.14. Bookings for Advanced Products with Asian contract manufacturers were robust and notably so for Taiwanese CMs benefiting from the transfer of programs from Mainland China. Demand for brick products in China was sustained, reflecting the sharp recovery of Chinese industry. North American bookings recovered after two consecutive quarters of decline with balanced order flow across both Advanced and Brick Products. Conditions in Europe remain uncertain. At quarter end, one-year backlog totaled $140 million, an increase of 9.8% sequentially. Only a small portion of this backlog consists of orders rescheduled from Q2 into Q4. Turning to the outlook for the fourth quarter. We expect continued revenue growth, given our backlog and production outlook. We are making progress in addressing the sources of past gross margin pressure and are forecasting improvement in product-level profitability. Further, we do not anticipate any meaningful increases in operating expenses. As such, as shown this quarter, we expect incremental profitability to flow to EPS given the scalability of our operating model. With that, Patrizio, Phil and I will take your questions. I ask that you limit yourself to one question and related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Annie?

Operator provides instructions. The first question is coming from Richard Shannon. Please go ahead, sir.

Maybe I'll address the bookings commentary. I think you said there were some increasing breadths within bookings for Advanced Products. Maybe you could help us understand where that's coming from and categorized by source like HPC or AI accelerator or hyperscale or, if you'd like to detail it, but I'd love to understand the extent of that breadth.

So Richard, it's Phil. So the increase in bookings on Advanced Products came across the market segments, actually, that you mentioned. So we started to see bookings start to begin now for our HPC customers here in North America. They've been delayed by the COVID virus, but that's really starting to pick up. So we got some bookings in Q3 for those new programs. We expect that to ramp in terms of bookings numbers for Q4 and beyond. And then on the hyperscaler side, hyperscaler customers have been relatively quiet in Q1 and Q2 but came back quite strong in Q3 for a new higher-performance Intel processor that they were transitioning to. So we had increased bookings there in Q3. And then just in the GPU, if you like, the AI side of the business, we saw increased bookings there as well. So basically, across all three market segments that you mentioned in the cloud area, if you like.

Okay. I appreciate that, Phil. And maybe a follow-up for me — sorry, I've got a cold. In terms of gross margins here, we saw another tick down here in kind of the low levels we've seen last year. And obviously, we're going through a manufacturing transition, which I assume that the supply chain dynamics is what you're referring to. Can you help us out in understanding the time frame by which you expect those supply chain issues to kind of get over with and sunset for good? Is this something that's going to happen this quarter or early next year? Help us understand the time frames to think about there.

So with mix as well as supply chain issues, Q3 was challenging. We expect Q4 to be less challenging, with average selling prices (ASPs) for some of the products trending up. Yields are getting better with respect to those Advanced Products that were ramping and initially challenged in the start of mass production. So all of those factors play into what we expect to be improving gross margins. Economies of scale are also going to be a factor. As we get to higher capacity on these actions even before we get to the expanded factory and the vertical integration in that expanded factory, we're going to see improvements in margins.

Operator provides instructions. The next question is coming from Jon Tanwanteng. Please go ahead, sir.

Great job on the quarter there. If you could, I was wondering if you could talk about how bookings are tracking so far in October and where you might think they end up by the end of the year and if there's a mix component in that as well?

So, this is Phil. So the bookings are remaining strong. We see another good quarter ahead of us right across the board, basically. I think that data center AI continues to grow. And we're also getting some really nice penetration in the mass market with some of our other Advanced Products that we don't talk about so much. So I think that we're not just a one-trick pony. It's not just data center. We've got a lot of new design-ins in robotics, in UAVs and order...

Pony with too many tricks.

Right. So I think there's a lot of stuff that we've been working on for a couple of years that really now is starting to come through. So I think on the bookings front, I still think Q4 is going to be a good quarter for us.

Great. And then just as a part of the gross margin issues that you've been having, you've been talking about tariffs a lot. Obviously, there might still be more issues in terms of U.S.-China relations. First of all, can you talk about the ability to claw back tariffs that you've already paid, number one? And number two, how you're kind of positioning yourself for future tariffs and/or regime change, if that does happen in the White House and the Senate?

So the cumulative tariffs paid are substantial, over $10 million. We expect to be able to claw back about two-thirds of that. We have been in queue to get attention. As you can imagine, we're not alone with respect to this kind of an issue. And the responsiveness with respect to the government agencies that take the money and have to give it back is a big seller. But we have seen some progress recently and expect to be getting close to starting to get some of our money back. I'm told that once the initial claims are processed, the rest should flow relatively quickly. Most of the challenge has been, in effect, getting set up with the proper processes and procedures to account for all of the relevant tariffs that we paid on components that ended up being exported outside of the U.S. So that's fundamentally the fraction of total components for which we're entitled to refund. Regarding how we are protecting ourselves from uncertainties relating to further tariffs, as I suggested in earlier meetings, we have been pursuing other sources outside of China and have been making good progress even though it is a challenge. It takes time. For some of the key components that represent significant portions of our bill of materials, we're beginning to see more significant progress. I would say that this process is not going to come to full fruition for probably another year. But I think some conversion outside of China will begin to bear fruit in the interim. And needless to say, we can't forecast what may happen in general with respect to the Chinese market. Demand there is quite robust. Our products, generally speaking, don't fall into categories that are subject to severe importation restrictions. The new products that provide advanced product performance are attractive enough and unique enough in terms of the technical merits that Chinese sources, even if available, are not going to be available at scale for a long time. So we think we are positioned relatively well given the general challenges and uncertainties in that part of the world.

Operator provides instructions. The next question is coming from Quinn Bolton. Please go ahead.

Congratulations on the results. First, just maybe a clarification on the Advanced Products, it looks like Advanced Products bookings might have hit a quarterly record. Wondering if you could confirm that? And then within Advanced Products, as you look into calendar '21, can you give us an update on the progress you're making with the vertical power delivery package opportunity? And then I've got a follow-up.

Yes. So I'll take the second part of the question first, and then maybe Phil can give you some comments on the first part of your question. On vertical power delivery, we're making progress on three fronts with three key customers. Vertical power delivery products represent the very forefront of technology. They are complex products. In one case, they involve stacking of two layers of converter stages. In two other cases, they involve the stacking of three layers. So our packaging technology, which is quite unique when it comes to this, handles these vertical power delivery products through manufacturing processes. They entail the separate manufacturing first of each of two or three layers, stacking at the panel level followed by single action. These developments are complex; I would say this is the most complex implementation of our technology. And not surprisingly, we've had some challenges bringing it all together. But we're getting there. We recently got initial functional yields for triple stacks, which bode well for not just other triple stacks with other customers and applications, but also for the relatively simpler double stacks. So in terms of a production ramp for these products with a couple of the customers of the triple stacks, the forecast is for ramps somewhere in the middle of 2021. The third one is a bit more uncertain. But generally speaking, the demands of ASICs as voltage nodes in lithography get finer and voltage nodes get lower and currents get past 1,000 amps, drive this kind of technological development. We are in a unique position with respect to it. We were pioneers in developing this technology. We have a multiplicity of patents, some issued and some pending — one actually just recently within the last few days allowed with additional claims — and we look forward to having a very strong position in that market.

Quinn, that was a great question. That keeps me on my toes in remembering quarters gone by. Actually, if you look back to Q3 of 2018, we had quite a large Advanced Product quarter there. And I think it was the ramp of one of the big GPU guys. We got a very big order in that quarter to set us up. But this quarter, we've been consecutively climbing on the Advanced Products. So this quarter is only about $4 million or $5 million off that great quarter we had back in Q3 2018. So that's going to continue to trend up. So I think we'll — maybe next quarter, we'll get to that.

So the last time around comparable levels, we did not have the — it was a very strong dependency on one or two unique projects. Now we have a more diversified base of applications and customers in complementary portions of the cloud market and computing. So both in terms of the makeup of the bookings and the progression, we see this as sustainable. That's the reason why we anticipate before too long having Advanced Products cross past the 50% mark as a percentage of bookings as a whole, while Brick Products hold their own in their mature markets.

Great. And then I guess the follow-up question is the last couple of quarters, I think your bookings were $87.5 million and $90.5 million sequentially. I think in the past, you've kind of said that bookings lead revenue by one to two quarters. I'm just wondering if I might be able to put any kind of range for expectations of revenue growth in December. Do you think we could see revenue up 5% to 10%, which would seem to be sort of supported by the orders you've seen in the June and September quarters? Or can you make any further comments about revenue expectations in December?

Yes, I would say that without getting pinned down too specifically at times where we still have to worry about COVID and all kinds of unpredictabilities, I think a reasonable expectation would be for a step-up in revenues on a percentage basis, commensurate with what happened in the last quarter. The bookings more than supported, to your point, they lead the revenues. And the book-to-bill has been very strong. I think in the past quarter, it was 1.16. So we see bookings this quarter being higher than the prior quarter, and we see revenues stepping up to catch up with the bookings.

Operator provides instructions. The next question is coming from Hamed Khorsand. Please go ahead.

I just wanted to talk a little bit more about the gross margin. In last quarter, you were talking about the inefficiencies were diminishing. Were there new challenges that you saw in Q3? Or was this in the gross margin purely reflective of just getting rid of old inventory and then the gross margin starts to move up as now you have better yields going forward?

So I would say that the third quarter was to a significant degree characterized by a major ramp with a program that has a significant multiplicity of different chips. It's not one device; it's a number of different devices each presenting their own unique tooling and process requirements. They're not all the same, and each involves outside processing and other partners. As you may recall from our power discussions, we have embarked on an expansion of the factory to vertically integrate these processes. We're still six to nine, in some instances for a minor portion, maybe 10 to 12 months away from the level of integration that is going to shorten cycle time and improve efficiencies and avoid some of the bottlenecks that we've had to work around, particularly in Q3. We're not done with those kinds of challenges, but we see that over the next three to six months there's going to be significant progress. Part of it is just getting to a high level of maturity with respect to these individual products that are ramping in very high volume. Part of it is getting yields into the 90s and high 90s that are appropriate for mass production devices. And part of it is getting further along with the production rates of these kinds of products, where over the last several quarters we've made major strides. So to some extent, the challenge with margins has had to do with inefficiencies associated with the mix of products. These are all advanced products — what we call chip or converter-hosting packages — that have plating steps that were performed through a partner/supplier. Those have been somewhat painful from the cost perspective. But we're making good progress. There's going to be further progress in Q4 and as we get closer to beginning to benefit from vertical integration. With respect to some of the process steps, in particular for vertical power delivery, in this morning's report we referred to it as early as the end of April. We're going to be able to install in our expanded facility the equipment necessary to manufacture VPD products. And that in of itself is going to provide a great deal of relief to the operations team that has had serious challenges with manufacturability and production ramps on new products.

Operator provides instructions. The next question is coming from Alan Hicks. Please go ahead.

On the new facility coming up, when do you expect production to begin there, mid next year?

On VPD products, we expect to be in power production in the second quarter. The equipment is going to be installed in April, and we expect to start vertical integrating those processes toward the end of Q2.

So a new facility will be producing in Q2 of next year?

I think that's where the vertical power delivery products will start. It's a time frame where they're going to start. As I suggested earlier, the team has had challenges working remotely with a far-away partner, particularly in the time of COVID where there have been a variety of issues. So the second quarter activity isn't going to amount to significant production either in terms of number of units or revenue. It's going to be power production in our own facility with VPD products, leading the way by the third quarter for mass production for other products, what you might view as more mundane chips still involving plating steps but on a single layer as opposed to involving two or three layers.

And how quickly do you expect that to improve gross margins once it gets up and running?

To be clear, we expect to see a significant uptick in margins this quarter and then another one next quarter. We're not waiting for vertical integration in a new facility to bring about relief on the margin front. I think a variety of initiatives, starting with much better yields that we're now getting and involving, again, greater utilization of our capacity, amortization of these costs, that's having an impact. I think what we saw in the third quarter, where margins were essentially the same, slightly lower than the prior quarter, was the bottom. I expect to see an upward trend that will be significant starting this quarter and become more significant as we get to leverage the efficiencies of vertical integration with respect to our very advanced packages.

Operator provides instructions. The next question is coming from Gus Richard. Please go ahead.

I just want to understand on the Advanced Products. Is that a high mix, low volume? Or is it still dominated by a couple of customers? And sort of the follow-on to this is how much customization is required for each customer in implementation? Are there some standard products? Or is it a unique process flow for each customer?

Yes, those are very good questions. So, there is a considerable number of different devices that are involved, both in some instances with one customer, one application, and across the multiplicity of customers and applications. As you might have heard from prior discussions, the packaging technology affords a great deal of scalability and configurability. Historically we've leveraged that to be able to support unique requirements. More and more, we are focusing with further advances in the technology, particularly with the structure of our current multiplier cell getting more advanced, more dense and more efficient. We're looking to leverage that through an array of standard product offerings that leverage the cell methodology, where instead of engineering a device for every application, we deploy a multiplicity of cells that best suit that application, both from the electrical and engineering perspective, from design, from test methodology, from the operation perspective in terms of the types of components to be used and, in particular, in terms of the builds and materials and multiplicity of components to be sourced. That brings about scalability and efficiency that will play into improved margins and facilitate giving customers the range of capabilities they need without burdening our operational teams with an overly complex mix of products. As you might have heard me say in the past, chips are made in panels. One of our greatest flexibilities — and this is a very proprietary aspect of our technology that brings to power converters the economies of scale, scalability and flexibility of semiconductor wafer processing — is that just as with semiconductor chips that are made on a certain wafer size with a certain set of processes and might involve, depending on the particular requirement, a larger or smaller multiplicity of chips within the wafer, likewise with our converters housed and packaged in a panel or, in the case of vertical power delivery, multiplicity of two- or three-stack panels, we have a consistent process flow where these devices are made. Depending on their size, they are produced in a different multiplicity but using the same power methodology. So they go through the same process steps. On that basis, we can manufacture, let's say, a converter for a 50-kilowatt automotive application on a panel just as well as a multiplicity of 50 or 60 relatively low-power, much smaller devices. So to some degree, there is complexity to the packaging technology and what it implies throughout the enterprise, from engineering to operations. But in other ways, there is inherent scalability that we have carried over from the precedent of semiconductor fabs and wafer processing. As we get further along with respect to scale — the number of panels we process per week — and as we've been rapidly escalating, the more efficient we're going to be. We're getting yields now in the 90s with products that are in mass production. We'll be able to enjoy the benefits of flexibility and broad support for customer requirements with the scalability, repeatability and predictability necessary to deliver strong financial performance.

I understand. I appreciate it. And then just in terms of the Advanced Products, how much is the customer base diversified?

So I would say the diversification really started about two years ago when we started to introduce the lateral power delivery technology. Many of the companies that compete with NVIDIA in the AI space across North America and also in Asia and even in Europe and Israel — there are a number of companies developing some very impressive AI chips. That diversification started a while ago. Today, we're at 10-plus customers into this and growing. For example, in Asia we've got a new list of customers of about eight to ten new ASIC/GPU start-ups that are working on technologies for that region. So yes, it's been continually growing, and it's going to be very strong into the future. Moving to vertical power delivery that Patrizio talked about, those companies will transition there eventually as their current levels increase in their products.

We're still scaling, and there are more design-ins and engagements coming this quarter. Customers have been investing substantial NREs to get chips to their requirements, and thus far they've been extremely impressed. Our prototypes have performed well in their systems. We have one European customer that has assembled systems with tens of kilowatts of power capability and is extremely impressed with the ability to configure an array of our modules to support those kinds of power requirements with great efficiency and power density. That reduces weight and volume in the vehicle and can reduce redundant battery systems by enabling the converter to handle necessary safety boundaries and communication, simplifying a complex landscape and reducing heavy wiring that takes up volume and weight, particularly compared to legacy 12-volt systems.

Operator provides instructions. The next question is coming from John Dillon. Please go ahead.

Congratulations on a great quarter. Really good to see. My question is geared towards Phil, and it's on autos. Phil, I'm just wondering, are you shipping any small production runs to some specialized auto companies currently? And then how many different companies do you have engineering engagements with? And how many do you have design wins with?

Good question. So we're not shipping production units yet to the big automobile industry. We have some niche plays in different markets. In terms of that particular activity, we've seen continued success. We have three engagements right now with three major companies around the world: one in Japan, one in Europe and one in North America. We're engaged with eight others on putting together proposals for products that are going to be required. We're at the A-sample stage with those three customers — we shipped our first A-samples — so we're not yet at production, but those are exciting developments.

We're still a couple of years away from mass production in the automotive mainstream, but we do have design wins and strong engagements. These companies have invested significantly in NREs and have been impressed with our prototypes and performance in system-level tests.

That's a great answer. It's really exciting. The follow-on would be, I understand that your Gen 4 front-ends would be used in autos but also in other applications. So, I'm just wondering how the Gen 4 front-ends are coming along.

It's coming along quite well. We have developed a controller that is fully functional. We have powered up the power stages. We have a lead customer in the very high-end computing realm, where we've been supplying a first generation of MCM-type solutions. For that customer, we are developing and have obtained first functional units of a triple-stack DCM to, in effect, double the current capability for each of the rails across a large multiplicity of rails. For that same customer, we've been developing a front end which in increments of 20 kilowatts would provide a much more compact, efficient and flexible front-end power system. So we expect to ship initial samples of that front end, which is a Gen 4 front end using proprietary topologies and power system technology, toward the end of Q1.

Operator provides instructions. We have one more question on the line. This is the last one. It's coming from Richard Shannon. Please go ahead.

Just one question for me, again, on the topic of the gross margins. Based on the last answer, you're kind of looking at the two-stage gross margin improvement cycle here over the next several quarters, one being more mix and manufacturing when we get the new equipment into the new fab here. I guess, I'm wondering if you could quantify the degree to which we'd see gross margins without the supply chain issues that we see today. If we look at the model here, last year gross margins were in the mid-to-high 40s; now we're down to the low 40s. Would we be in that 46%–48% range without these issues? Or can you help us just kind of understand where we'd be without those?

Even before we get to the new factory and vertical integration and the benefits that will bring in terms of manufacturing efficiencies, we see an opportunity for several points of margin improvement resulting from the factors described earlier. First, major improvement in yields — like tens of percentage points on yields for Advanced Products as they transitioned from early production to more stable production rates. ASPs have been going up. That's a factor. So before we get to the new wing and new equipment — and the new equipment will need to be depreciated, so that needs to be taken into account — we keep close track of how each process step and equipment in the new factory factors into our cost per panel, which is, again, the counterpart of wafer processing. We see very favorable trade-offs there, meaning with vertical integration we're going to be able not only to make life easier for our operations teams, but we're going to see, for many of the process steps, a reduction in cost per panel. Let's save those opportunities for later because, as discussed earlier, they're not really going to come about until Q3 of next year. I wouldn't expect that in the first quarter of production in the new facility we're going to have instant economies; there will be an initial phase where it will still be somewhat inefficient. But leading up to that, in this quarter and the next couple of quarters — while we're still dependent on outside sources for some of the key process steps — there are several points of improvement in margin that are, I would say, low-hanging fruit that we believe we will capture starting this quarter.

Okay, thank you very much for that detail.

But to your question — yes. Just one final comment. I think it's good to look at the margin opportunity as comprising two phases. There's a near-term phase between now and about this time next year, and then there's another phase after that.

Thank you so much everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.