Allient Inc (ALNT) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2012 Allied Motion Technologies, Inc. earnings conference call. My name is Deanna and I will be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Ms. Sue Chiarmonte, Vice President, Secretary and Treasurer. Please proceed.

Thank you, operator. Welcome to Allied Motion's conference call to discuss the quarter and nine months ended September 30, 2012. We appreciate you all joining us for this call. We distributed a press release yesterday, and a copy is available on our website at www.alliedmotion.com.

Today's call is being broadcast live on the Internet and will be available for replay immediately after the call for 90 days. To access the Internet broadcast and replay, go to the Company's website and click on the webcast icon. As a reminder, please note that the Safe Harbor statements included in our press release also apply to all comments made on the conference call.

I will now turn the call over to Dick Warzala, President and CEO of Allied Motion Technologies.

Thank you, Sue, and welcome everyone to our third quarter 2012 conference call. First off, on behalf of our entire company, we'd like to express our best wishes, thoughts, and prayers to all affected by Hurricane Sandy, and to a speedy return to normalcy.

Here's the plan for today's call. I will begin with a brief review of the third quarter financial results, discuss some key items that impacted the results, and look out into the future and go behind the numbers to provide you with some insight as to the significant activities and opportunities for the future. After that, Dick Smith will provide a detailed financial review and I will follow that with a brief summary before opening the mics for questions.

Let's begin with the overview of the results for the third quarter and year to date through September. Sales in the quarter decreased 11% to $24.3 million from $27.3 million in quarter three of 2011. Sales year to date decreased 5.9% to $78 million from $82.9 million year to date 2011. Geographically, quarter three sales decreased 7.8% in the US and 15.2% in the rest of the world. And year-to-date, sales in the US were flat where sales in the rest of the world are down 12.7% when compared to 2011.

Net income for the quarter decreased 15.2% to $1,321,000, or $0.15 per diluted share, compared to $1,557,000, or $0.18 per diluted share in quarter three of 2011. Net income year to date increased 1.1% to $4,296,000 compared to $4,251,000 year to date 2011.

Orders were $20.2 million compared to $34.4 million in 2011 quarter three. As we've stated previously, many of our orders are received as blanket orders covering 12 to 18 months of demand, and the timing of such has a tendency to skew incoming levels on a quarter-to-quarter basis. For the trailing 12 months, incoming orders are $98 million.

Comparing our served markets for the third quarter 2012 to the third quarter of 2011, all of our markets were down. On a year-to-date basis, medical and vehicle are up, while all other markets are down.

Next, I'll provide an outlook for the remainder of 2012 and into 2013 to discuss some of the key activities and actions that we will focus on to drive growth for the Company in the future. As stated in our PR, with all of our operating units and all of our served markets experiencing decreased levels of business in the quarter, it is our opinion that the results reflect a broad-based economic decline, and as a Company, we were not immune to the impact of that decline.

With regard to our outlook for the remainder of 2012, we see more of the same. That is, we don't expect market conditions to change significantly. With regard to the decrease in bookings compared to the same period last year, the decrease is primarily the result of the current market conditions and the timing of blanket order placements. While we've discussed this several times in the past, we would once again like to remind you that many of our larger customers place blanket purchase orders for a 12- to 18-month period of time, and these blankets have a tendency to skew the numbers on a quarter-by quarter-basis.

Looking beyond 2012, we do expect our market to stabilize and we will continue to execute our strategy for the long-term growth and development of our Company by designing innovative motion solutions that change the game and meet the current and emerging needs of customers in our served market segments.

During the conference call last quarter, we took time to discuss our strategy and provide our shareholders with an understanding of what to expect if market conditions changed for the worst. Given that our markets did turn down this quarter, we believe it is even more important to remain focused on our strategy and to execute for the long term and not the short term. By understanding our strategy, it is then possible to predict how we will respond to changing market conditions now and in the future.

In short, our strategy is clearly a growth strategy, and that is how we will remain focused for the long-term. A growth strategy means that we set aggressive targets for our Company to grow and we will align and focus our resources to ensure we meet those targets.

First and foremost, we invest in our people as we believe that attracting and retaining the right people is the most important element in our strategy. With the right people, they will lead us to the right markets, the right customers, the right technologies, the right solutions, and the right products.

Our strategy defines Allied Motion as being a technology/know-how driven company. And over the years, we've invested in and have continually improved upon what we call our areas of excellence; that is, the key resources required to successfully execute our defined strategy. Our areas of excellence include design engineering, applications engineering, sales engineering, systems engineering, and lean engineering, and we will protect these assets at all costs as they are critical to the long-term success of the Company.

Our strategy also defines the critical issues or actions necessary to meet the stated long-term goals and objectives of the Company to take us from where we are today to where we want to be in the future. Given that we are focused on growth, it is no surprise that the majority of the critical issues are focused on the growth initiatives within the Company.

Earlier, I mentioned that we must select the right markets. Two of the markets that we have selected as targets are medical and vehicle, and it's important to note that within both markets we did experience growth for the nine months and trailing 12 months of 2012 compared to the same periods of 2011.

You've also heard us discuss our strategy to develop product line platforms, whereby we preplan what products are required by our served target markets and then develop those products to meet the emerging needs of those markets. Our platform development emphasizes a combination of technologies to create increased value solutions for our customers.

While a significant investment has been made to prepare for these platforms, in early 2013 we will be launching initial platforms through a program we call Quick Ship. Quick Ship utilizes the resources within the solutions center, an investment we also made in 2012, to enable Allied Motion to be first on scene with a solution at new customers and/or opportunities. Platforms, Quick Ship, and solution centers are all important elements and an integral part of our growth strategy for the future.

Although growth in China has slowed from previous levels, we believe that in the next 3 to 5 years, China will still continue to lead the growth curve when compared to other geographic markets as internal demand within China continues to expand for our type of products. We are moving forward with our capital investments to install production lines in China that change the game and change the game in the way products are produced and are capable of meeting the demands of our existing customers and new potential customers within China as well. As we are doing in the US and Europe, we will invest in the development of a solutions center in our facility in Changzhou, China, to support the growth demands of the region.

Within Allied Motion, our technology units design and produce products and solutions that change the game to meet the emerging needs of our customers in our served market segments. Sales development, including the channels to bring those products and solutions to market, is led by our One Team sales force and our solution centers. Again, Allied Motion continues to invest in these key resources that will drive growth now and in the future.

And last, but not least, we are taking our commitment to AST to a new level as we have invested in additional resources as part of our operational excellence team. As always, we will continuously utilize AST to improve efficiencies and eliminate waste throughout our Company. AST is critical to and helps create the path to success in all regions of the world.

Now, I will turn the call over to Dick Smith, who will provide a detailed review of the financial results for the first quarter and year to date 2012. Dick?

Thank you, Dick. As Dick just indicated and as was reflected in our press release that we put out yesterday, the Company achieved net income of $1,321,000 or $0.15 per diluted share for the third quarter ended September 30, 2012, and that compares to net income of $1,557,000 or $0.18 per diluted share for the third quarter last year.

Revenues for the quarter decreased 11% to $24.3 million compared to $27.3 million last year. Of this 11% decrease in sales, 74% of that decrease was due to lower sales volume and 26% was due to the dollar strengthening against the euro and the Swedish krone. The 11% decrease in revenues is due to lower sales in almost all markets with the exception of our vehicle market, which experienced flat sales for the quarter against the same period of the prior year.

Now, 58% of the Company's sales were to US customers, compared with 56% in the third quarter of last year, with the balance to customers primarily in Europe, Sweden, and Asia. Now, the 11% drop in sales is a result of a 7.8% decrease in sales to our US customers and a 15.2% decrease in sales to customers outside of the US as we continue to see sales into Europe affected by the weakening European economy and due to the strengthening of the US dollar.

For the nine months ended September 30, 2012, the Company achieved a 1% increase in net income on a 6% decline in revenues. Net income for the quarter was $4,296,000 or $0.50 per diluted share compared to net income of $4,251,000 or $0.50 per diluted share last year. Revenues for the first nine months were $78 million compared to $82.9 million for the same period last year. This is a decrease of 6% or $4.9 million in sales, and 50% of this decrease was due to lower sales volume and 50% was due to the dollar strengthening against the euro and the Swedish krone. The 6% decrease in sales reflects lower sales into the industrial distribution, electronics, and aerospace and defense markets, partially offset by increased sales into the medical and vehicle markets. In addition, the 6% decrease reflects flat sales to US customers as compared to last year and a 12.7% decrease in sales to customers outside of the US, again, primarily in Europe, Sweden, and Asia.

The results for the nine months ended September 30 included two partially offsetting non-recurring items that occurred earlier in the year, and both of which we have previously disclosed in prior press releases. The first is a $301,000 net gain, which is $222,000 after tax, realized from a former landlord for early termination of the company's building lease in Sweden, and that's a net of expenses incurred to move to a new facility. And the second is a pre-tax warranty charge of $238,000, which is $178,000 after tax that was recorded to cover the expected cost of replacing certain products in the field due to an incorrect electronic component in a printed circuit board supplied by one of the Company's subcontract suppliers. Excluding these two items, net income for the nine months of 2012 would have been $4,252,000, or $0.49 per diluted share, compared to $4,251,000, or $0.50 per diluted share.

Backlog at September 30, 2012 was $33.2 million, and that was down 20% from the same time last year and down 9.5% for the quarter. The decline in orders reflect the current market conditions as well as the delay of certain annual blanket orders, as Dick talked about earlier. Timing of these annual orders can cause backlog to fluctuate significantly.

Our gross profit margin was down 1% for the quarter and nine months to 29% this year compared to 30% for last year. This 1% drop in margin primarily reflects less fixed overhead absorption due to the lower sales and for the current nine months the margin was also reduced by the $238,000 warranty charge that I just discussed. The variable margin percent for the nine months stayed approximately the same as the same period last year, despite the drop in sales, which reflects that we reduced our variable cost (technical difficulty) in line with the drop in sales.

Total selling, general, and administrative and engineering expenses were reduced 12% or $696,000 for the quarter, and were reduced to 8% or $1,489,000 for the nine months, as compared to the same periods last year. These operating expenses, as a percent of sales for the third quarter, remained at 21% for 2012 and 2011, and for the nine months the operating expenses dropped by 1% to 21% of sales for this year from 22% for last year. The reduction in expenses is largely due to lower incentive compensation expense and some headcount reductions.

Depreciation and amortization expense decreased $158,000 for the quarter, from $539,000 last year to $381,000 this year, and decreased $270,000 for the nine months from $1.6 million last year to $1.4 million this year. For the nine months, interest expense was down $56,000 to a total expense of $12,000, due to the decrease in debt outstanding.

EBITDA decreased 15% for the current quarter to $2,325,000 and from $2,722,000 last year and decreased 5% for the nine months to $7.4 million from $7.8 million last year. EBITDA for the trailing 12 months is $10.3 million, excluding the $1.1 million gain recorded in the fourth quarter of 2011 to adjust the earnout paid for the Ostergrens acquisition that was completed in the fourth quarter of last year.

We had $2,021,000 of capital expenditures during the first three quarters of 2012, compared to $1,339,000 last year. The Company used $466,000 of cash during the quarter and the Company ended the quarter with over $6.2 million in cash and $158,000 in bank debt or a net cash and debt position of $6.1 million, which compares to a net cash and debt position of $9 million at December 31, 2011, and $4.5 million at September 30 of 2011, or the same time last year. The increase of $1.6 million from September 30, 2011 to this year reflects the Company's strong cash flow over the last 12 months, which is net of the final payment of $1.4 million for the Ostergrens acquisition and $652,000 that we have paid for the partial implementation of a new ERP system, both of which were paid out in the first three fiscal quarters of 2012.

Our net stockholders' equity at September 30, 2012, was $40.9 million or $4.73 per share, and our tangible net book value is $32.9 million or $3.80 per share. Our trailing 12 months EPS is $0.82 per share compared to $0.69 per diluted share or -- I'm sorry. It was $0.82 per diluted share, and it is $0.69 per diluted share if you exclude the $0.13 per share resulting from the earnout adjustment recorded the fourth quarter. So it was $0.82 as reported, but if you take out the nonrecurring $0.13 item, it was actually at $0.69.

Our Board of Directors just declared a $0.025 per share cash dividend that is payable November 23 for shareholders of record November 12.

I will now turn the meeting back over to Dick Warzala.

Thank you, Dick. I have to apologize for the noise that we hear coming on the line. We're not sure what's causing that, but hopefully we won't have any more of it.

To summarize, sales in the quarter decreased 11% overall, with sales in the US down 7.8%, while sales in the rest of the world were down 15.2%. Sales year to date decreased 5.9% overall, with sales in the US flat and sales in the rest of the world down 12.7%.

Diluted earnings per share were $0.15 per share in the quarter compared to $0.18 in quarter three 2011, and EPS were unchanged at $0.50 per share year to date this year versus year to date last year.

Orders for the trailing 12 months are running at a $98 million annualized rate. The decrease from prior levels is primarily the result of current market conditions and the timing of blanket orders placed -- blanket order placements whereby many of our larger customers will place blanket purchase orders for a 12- to 18-month period of time, and these blankets have a tendency to skew the numbers on a quarter-by-quarter basis.

Our platform product development is underway with several new products currently being developed to change the game and meet the emerging needs of our target market segments. We are all very excited about the opportunities these new product platforms will bring to Allied Motion in the future.

We are focused on improving our margins by both increasing the value of our sales and by improving our cost structure by utilizing our AST toolkit to affect the changes necessary in all aspects of our business.

In summary, while we have been impacted by the economy in the short term, we will act prudently to changing market conditions while we remain focused on our growth strategy to ensure the long-term success and growth of the Company in the future.

And with that, operator, we'll open the mics for questions.

(Operator Instructions) [Nick Peters], Milwaukee Private Wealth.

Good morning, gentlemen.

Good morning, Nick.

Where was the reduction in the headcount?

Well we had some -- obviously, our -- most of our headcount reduction was in the manufacturing area, but we did have some headcount reductions in the sales area, primarily over in the -- our Swedish operation where we're doing some restructuring of the sales organization. So -- and then, we've had some positions that -- where there's been some vacancies and we've had -- that haven't been filled at this time.

So it's in sales. I think in one case there is an engineering position that was not filled and so.

Do you think this will hurt your ability to win sales going forward?

No. No. It was a temporary reduction, and, again, we are actually strengthening these sales organizations in both North America and Europe. That will not be an issue for us.

I can elaborate on that a little bit further. As we mentioned, those are areas that we don't touch and, unfortunately this year, we did have an individual who died of cancer. And that position has just been filled this quarter.

And we also, as Dick mentioned there, with the acquisition in Sweden, there has been a restructuring of territories and shuffling some people. So there is a hire that was made again late in the quarter, so those are areas that we really don't touch. But, unfortunately, sometimes things happen and we do have to come back and do something, and there's a delay. So we don't believe it. We're still building that.

Okay. Sounds good. Thank you. And then my second question is, what are your intentions with the pension liabilities? Do you plan on paying money into them?

Well, we are continuing to fund it to keep it to the level that's required by the ERISA laws and so forth. We do have, on the pension obligation, it is somewhat capped because there's no new individuals going into the plan. So it is sort of a capped obligation, but we will continue to fund it as required. It's not going to be a significant funding issue for us. And obviously, it depends on how the investments -- the assets that make up the pension plan -- perform as well.

Okay. Sounds good. I'll jump back in the queue. Thank you.

Thank you, Nick.

(Operator Instructions).

Okay, operator, while we are waiting, we did have some questions that were e-mailed to us.

First question that we received is that basically, you mentioned that blanket order timing has a tendency to skew bookings on a quarter-to-quarter basis. Can you expand further on that statement? And I think, sure, we can do that.

The reason for the blanket orders placements that we receive from customers is typically, what they're looking to do is secure a pipeline of material and to enjoy preferred pricing by giving us an outlook for what their demands are going to be in the future.

So when we receive those demand -- we get the demand from -- we receive those demands from the customer, it's a forecast of what the future is going to be. And as we've mentioned, they can range from 12 to 18 months. As time gets closer, the forecasts are updated and we'll see either delays or deliveries or pull-ins, and we've seen them both. So when business starts to tick up, then they start to accelerate their demand and the blanket order is consumed in a shorter period of time.

When the economy has an impact -- it takes a downturn, it does the opposite effect and it pushes demand out, which means it extends the period of the blanket purchase order. And that's really what we're seeing. We had some major blanket orders that came in in the third quarter of last year, and some of those we would have expected to have by now. But as we mentioned, as demand goes down, it pushes those out. We haven't lost any business there from customers. It is a timing issue so.

We recognize that and we've had several discussions regarding that and we do believe we're going to make a change to the way we record the blanket orders in the future. We'll have to footnote that because backlogs will have changed, and if we're not doing it the same way. We actually handle it differently in North America than we do in Europe and, as we acquired companies, we just retained their normal policies that they had. But we do think that it seems to be coming up more frequently now and there's a better way to deal with it and we will talk to you about that again in the future. Okay?

That was one question. I'll just wait and see if anybody else has any other questions, and there is a couple more if we don't have anything.

Nick Peters, Milwaukee Private Wealth.

Yes, good morning. This is actually Jeff Geygan in Nick's stead here. Dick Warzala, you mentioned that you attempt to select the right markets and identified medical and vehicle. Can you talk a little bit about the margin on those sales and trend-wise margins improving about the same or worse than, say, retrospectively 3, 6, 12 months ago?

Sure. Typically, when we say vehicle, I'll clarify that. And when we talk about medical, we actually sub-segment our markets to a great deal. Medical is huge, as you know, and it could be many, many things. Medical could be a cane and it could be a very sophisticated surgical robot.

So we sub-segment and we look at certain segments that provide us an opportunity to add more value to the solution. And when we say more value, we mean additional products. So typically in the past, Allied Motion was a motor company and we would offer a motor as a solution. Now, Allied Motion has motors, many types of motors; has gearing; has feedback elements or encoders; it has electronics, controls, and drives. So what is happening is we are increasing the value of the sale and also, as we add some higher-level technology in there, the margins in those sales are going up. Now, we do have -- and I would say that that's occurring in medical -- primarily in the medical marketplace.

In the vehicle markets, we are looking at our new markets there because we service a broad range of different off-road equipment, construction equipment, agricultural equipment, and our focus has been on electric type vehicles. And that doesn't mean cars, electric hybrid cars or anything, because we are not, again, focusing the mainstream automotive market. We are looking at the vehicles that are automatically guided. And, again, they bring a more complete solution from us. So those margins and those sales -- the average selling price per unit are going up. And we have several new applications in both of those areas that we expect we have secured.

We go through a seven-stage -- what we call seven-stage selling process, initial lead inquiry into the decision process. And we have quite a bit in our hopper that we feel confident is going to break in the next year at that point. And they are higher value sales, higher margin sales. Does that help?

Yes, it does very much. I appreciate it. With respect to your -- describing your areas of excellence, it was design application, system sales, lean engineering, I would think that that engineering competency lends itself to other vertical markets like medical and vehicle. What other markets do you have in mind, if any?

Well, we service a broad range of markets, Jeff. And when we mentioned -- typically, we come up with major categories in medical, vehicle, industrial, electronics, and aerospace and defense. We have another category that we call distribution and we sell through agents or distributors, which primarily covers all of those markets, but in various stages.

So, for example, if you take a look at industrial, we'll sub-segment that and we have what we call power transmission, industrial tools, pumps, machine tool, fluid power, material handling, industrial automation, HVAC or heating, ventilating, air-conditioning, commercial cleaning. So as I'm saying to you, so we'll give you the master category of industrial, and then we sub-segment like crazy down there and focus on those particular sub segments. Okay?

And so it's not that we aren't focusing on those, but that, for example, we go to electronics and we say semiconductor equipment. That's an area that we do some business in. And as we know, that that's pretty cyclical. That market, this year, is down significantly. When I say significantly, 38%. Okay? All kinds of instrumentation that is used for test equipment and so forth, and that market is sometimes very sophisticated. And that's holding in there. It's down slightly, but it's --.

So we'll take your -- you're right. You're absolutely correct. We take those products and those platforms that work and we feel we have -- they are emerging and growth opportunities for us and we will then apply them to other verticals. Absently correct.

I appreciate the color. Finally, and a very brief final, if you selected the right markets in medical and vehicle, what percentage of total revs do those represent today and where do you see that potentially in the future as a percentage of total revs?

Let me give you a more accurate number. The two markets that we're talking about -- medical and vehicle -- represent about 45% of our overall sales. Okay? And the timing is good for the question because we have just gone through our -- putting our plans together, and as we look at all of our plans, those two areas are both growing. So I would suggest to you that they would be more than 50% of our sales in the future. Now, that's 50% of, of course, higher sales across the board in our plans.

Well, we are wishing you lots of success in growing your total revs so that 50% makes up an even bigger absolute amount. Thank you for your time.

You're welcome. Thank you.

And there are no more audio questions at this time.

Okay. Just, then I have another question here that was e-mailed in that we -- again, we encourage you to do this because we will respond to them.

The question was that -- I think we have answered this, but we'll just go over it again. Can the revenue decrease be attributed to any particular geographic market segment?

Basically, we've discussed it two ways. We break down geographic sales and we break down our market segments. I think we've covered market segments enough here in the questions that Jeff has asked. And as far as the geographic segments, we did discuss that too and we said that for quarter three, we saw a dip in the US. We haven't seen that up until the third quarter. And we also mentioned that we've seen all markets -- geographic markets and segments in the third quarter -- being down. And, again, I have to say it's kind of a first for us, other than the collapse that we saw in 2008, 2009. So that has us a little bit concerned by saying that it is an economic impact that we're feeling because, normally, as a Company, as we look through the Company, you don't see on a year-to-year -- year-over-year basis where all of our companies and all of our markets are down at the same time. We have enough diversification that usually we don't see that.

So we have seen that, and that's why we do feel that business conditions in the third quarter of this year, 2012, are worse than they were in the third quarter of 2011.

Now, we also said we expect that to stabilize and what happens here, as new projects, onboard, we will generate the growth with some new opportunities and new projects. How much of an impact is it delaying new project introduction or new product introduction from our customers? That's hard for us to really predict, but we do ask all the time. And I can say that they are there and those opportunities are coming. Right now, the markets, geographic and served markets, as we mentioned, in the third quarter certainly took a downturn compared to last year. For the year, the US is flat. And we said it's down in the third quarter, but it's flat for the year, basically no growth. And for the rest of the world, it's down 12.7%.

The other question, and I'll hit this really quick, that was asked was how was your ERP system installation proceeding? And we didn't mention hardly much of it, and Dick just talked about cost. And, actually, we are very confident it is going along very well. The first implementation will go live in one of our companies in Europe in December and then we'll be following with the rest of the Company next year. All of our entire team is excited about it. We are excited about it. It gives us the type of visibility we need to operate much more efficiently and to sell our total value solution in the marketplace. So it's moving along. We are very confident that we're going to hit our implementation schedule and, for the sake of saying how do ERP implementations go, I think we are on track.

Okay, operator, I'll just see if there are any other questions. That's all we have that were e-mailed.

There are no more audio questions at this time.

Okay. Well, before I close here, I do want to mention that this is the last call that Dick Smith will be on as the CFO of the Company. I'm not saying that we might not invite him in later as a Board member, but Dick has been with the Company for many, many years. I won't tell you that; he can tell you if he wants. But I would really like to turn the call back over to him so he could close this call and give his thoughts on where he sees the company today versus several years ago and the future of the Company.

So, Dick, first off, we want to thank you for all the years of service. And our new CFO is onboard, is being trained -- and when I say trained; I shouldn't say trained, but working with Dick on the transition and it's coming along very well. And Dick will be with the Company as an active employee until the end of March next year. So, Dick, thank you.

All right. Well, thank you very much, Dick. Yes, I have been with the Company for a long time and I have seen the Company change substantially over this period of time, but I would say that my optimism and my enthusiasm about the direction of the Company has never been at a higher level. Even though we are going through a period right now where results are down, sales are down, we are obviously addressing this temporary downturn to mitigate the effects of the downturn as best we can. And I think we're doing a very good job of doing that, as you can see from the small reduction in profit compared to the drop in sales.

But I think the more important thing, and looking to the long-term -- and, again, we've always talked about the long-term of the Company as opposed to focusing on the short-term. But the long-term aspects of it is that we are really building a very strong foundation. And one of the reasons that we continue to talk about strategy and products and so forth is because we want to try to emphasize to the shareholders the focus that we've given to building that foundation. And that foundation is really built on innovative products. And we've talked about reorganizing the Company to develop these solution centers. Instead of being a component supplier, we really want to be a systems solution provider because it just -- it builds value. We're going to be selling higher-value products, margins will improve. It's more difficult for competitors to compete with you when you are at that level. So doing those types of things is doing nothing but building a very strong foundation.

And then, internally, we have continued to strengthen the internal organization by making it more efficient through the adoption of Allied Systematic Tools. We've continued to talk about that, and I think that is so important that we are making that investment. And also, we're also going to embark on some new capital expenditures that will improve efficiency and help reduce costs. We're going to become more automated in certain areas of the Company. So we are really building a strong foundation that -- we'll get through this short-term downturn, but I think it's very encouraging to see the effects that this foundation is going to have in helping us grow in the future.

So I'm very optimistic and, again, I have enjoyed my time with the Company. I'm going to enjoy the retirement as well, but I'll still be involved with the company and with Dick and the management team.

So thank you very much and, operator, I guess that concludes the call.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you once again for participating. You may now disconnect and have a great day.