Bel Fuse Inc (BELFB) 2012 Q3 法說會逐字稿

Good day, and welcome to the Bel Fuse third-quarter 2012 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Dan Bernstein. Please go ahead, sir.

Thank you, LaToya. I'd like to welcome everybody to our conference call to review Bel's third-quarter 2012 results.

Before we start, I'd like to hand it over to Colin Dunn, our Vice President of Finance.

Thanks, Dan, and good morning, everybody. Before we begin, I'd like to read the following statement. Except for historical information discussed in this conference call, the matters discussed in today's press release, including this conference call, including the statements regarding the anticipated impacts of the Fibreco and Powerbox acquisitions.

The possibility of Bel's effecting another acquisition and the remaining costs to be incurred in, and anticipated savings from, Bel's corporate restructuring program, are forward-looking statements that involve risks and uncertainties. Actual results could differ materially from Bel's projections. Among the factors that could cause actual results to differ materially from such statements are the market concerns facing our customers; the continuing viability of sectors that rely on our products; the effects of business and economic conditions; difficulties associated with integrating recently acquired companies; capacity and supply constraints or difficulties; product development, commercializing, or technological difficulties; the regulatory and trade environment; risks associated with foreign currencies; uncertainties associated with legal proceedings; the market's acceptance of the Company's new products, and competitor responses to those new products; and the risk factors detailed from time to time in the Company's SEC reports.

In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will, in fact, prove to be correct. We undertake no obligation to review or revise any forward-looking statements.

Now, turning to the results. First of all, business acquired during the third quarter -- Bel completed the acquisition of Fibreco Ltd., based in the UK, on July 31, 2012; and Powerbox Italia, and its subsidiary based in Italy, on September 12, 2012. The results of these two companies have been included in our consolidated financial statements since their respective acquisition dates. However, except as I will note in my comments, they have not yet had a material impact on our results.

First, turning to sales. Sales for the third quarter of 2012 were $76.1 million, up slightly compared to the $75.9 million in the third quarter of 2011, and up 3.9% sequentially from the $73.2 million that we reported in the second quarter of this year. Third-quarter sales 2012 in our four major product groups were as follows. Magnetics -- $29.8 million, up 29% over the third quarter of 2011, led by an increase of more than 45% in integrated connector module sales. Interconnect -- $28.4 million, an increase of 4.5% over last year's third quarter. Circuit protection -- $2.5 million, essentially flat from the prior year. And modules -- $15.4 million, which is 34% lower than sales in the third quarter of 2011.

As we told you in Q2, the module's product group continues to be affected by a change in the ordering pattern of two major customers. Of the above amounts, Fibreco contributed $700,000 of revenue to the interconnect group; and Powerbox contributed $200,000 to the modules product group.

Turning to cost of sales and net results. During Q3 2012, our gross margins improved slightly in comparison to the third quarter of last year, mainly due to improved product mix, including a large proportion of sales of magnetic and interconnect products. We also began to see savings resulting from various overhead cost reduction measures that are being implemented at our facilities in Asia.

The previously announced closure of our Cinch manufacturing facility in Vinita, Oklahoma and relocation of a major portion of its operations to a new facility in McAllen, Texas, is on target for completion by the end of this year. The combined Asian and North American restructuring programs are expected to reduce operating costs by approximately $5.5 million annually, once fully implemented by the end of this year. We currently estimate up to an additional $2.9 million in pre-tax expenses associated with these steps in the fourth quarter of 2012.

Selling, general and administrative expenses during the three months ended period ended September 30, 2012, included $657,000 of acquisition-related expenses associated with Fibreco, Powerbox, and ongoing acquisition activities. Excluding these expenses, SG&A as a percentage of sales for the third quarter of 2012 was 12.1%, down from the 13% of sales during the third quarter of last year.

Also during the third quarter of 2012, after continued decreases in the in the market share of Pulse shares, we recorded an additional pre-tax impairment charge of $297,000; or $185,000 after tax, to write down an investment in Pulse shares through the September 30 value of $0.82 per share.

Taxes -- Bel recorded and income tax benefit of $1.8 million for the three months ended September 30, 2012, compared to a tax expense of $1 million for the three months ended September 30, 2011. The large tax benefit in Q3 of this year reflects nearly $1.5 million of the net reversal of tax reserves due to the finalization of a multiyear IRS audit and the expiration of certain statutes of limitations.

Excluding this large benefit, the Company's effective tax rate -- which is the income tax provision as a percentage of earnings before income taxes -- was a negative 43% for the three months ended September 30, 2012, down from a positive 51% for the same period of 2011. The Company's effective tax rate fluctuates based on the geographic segment in which the pretax profits are earned.

Of the geographic segments in which Bel operates, the US has the highest tax rates; Europe's tax rates are generally lower than the US tax rate; and Asia has the lowest tax rates. The very favorable effective rate in 2012 was primarily due to a combination of a pre-tax loss in the US and lower earnings in Europe; which resulted in tax benefits and strong earnings in Asia, where the tax rates are lowest.

In 2011, we earned pre-tax profits in the US and Europe; while [litigation] charges and other factors resulted in losses in Asia, with minimal income tax benefit.

On an unaudited GAAP basis, Bel reported income from operations of $1 million, and after-tax net earnings of $2.6 million for the third quarter of 2012. Last year, we reported income from operations of $1.9 million and after-tax net earnings of $1 million for the third quarter of 2011.

To state these results on a comparable basis, non-GAAP income from operations for the third quarter of 2012 was $3.9 million compared to non-GAAP income from operations of $2.4 million for the third quarter of 2011. Acquisition costs and restructuring, re-organization, and severance charges have been excluded from non-GAAP income from operations for the third quarter of 2012, while litigation charges have been excluded from the comparable 2011 non-GAAP income from operations.

The increase in third-quarter 2012 versus 2011 non-GAAP operating income is primarily attributable to the favorable sales mix and the reduction in SG&A expenses described above. A reconciliation of GAAP to non-GAAP measures is included in our press release that was issued this morning.

Turning to the balance sheet -- cash and equivalents -- at the end of September 2012, our cash, cash equivalents and investments securities were $74.8 million, which was $19.2 million less than a December 2011 balance of $94 million. The decrease in cash resulted primarily from the combined net payment of $19.2 million for the acquisition of Gigacom Interconnect in Q1, Fibreco and Powerbox Italy in Q3; $3.4 million of capital expenditures; $1.7 million for the repurchase of common stock; and $2.3 million in year-to-date dividend payments, partially offset by earnings and favorable operating cash flows.

Receivables and payables -- receivables, net of allowances, were $46.5 million at September 30, 2012, compared to $39.1 million at December 31, 2011, an increase of $7.4 million. Approximately $3.8 million of this increase resulted from the inclusion of accounts receivables of acquired businesses.

Our accounts payable at September 30, 2012, were $20.5 million, an increase of $2.1 million from December 31, 2011. Approximately $1.7 million of this increase resulted from the inclusion of the accounts payable of acquired businesses.

Inventories -- at the end of September, 2012, our inventories were $56.3 million, up $2.9 million from the December 2011 level. Approximately $1.1 million of this increase resulted from the inclusion of the inventories of acquired businesses.

Goodwill and intangible assets -- the allocation of the purchase price of Gigacom, Fibreco and Powerbox Italy had not yet been completed. Accordingly, as of September 30, 2012, $18 million has been reported as combined goodwill for these three businesses. We expect a portion of this amount to be reclassified primarily to intangible assets, as well as smaller amounts to tangible assets upon completion of the purchase price allocation exercise.

Stock buyback -- the Bel Board of Directors had approved the buyback of up to $10 million of Bel's Class B stock in the open market. During the three months ended September 30, 2012, Bel repurchased 89,991 shares at a total cost of $1.7 million.

Other balance sheet comments -- our capital spending for the three months ended September 30, 2012, was $1.1 million; while depreciation and amortization was $2.2 million. Our per book share value at September 30, 2012, was $18.87 including goodwill and intangibles. And when we exclude the intangibles and goodwill, our per-share value was $16.08.

Just a little brief outlook comment -- we are continuing our plan to reduce costs worldwide, although the majority of these actions will be in the fourth quarter of 2012. These plans involve significant expenses and cash outlays during the second half of 2012. Some of the benefits will begin immediately, but will likely not be fully realized until 2013.

In addition, we are exploring several potential acquisitions representing over $60 million of additional revenue, on which we expect final decisions commencing in the fourth quarter of 2012.

That's the end of my comments. Now I'll hand the call back to Dan.

Yes. LaToya, if possible, can we open up the call for questions, please?

(Operator Instructions). Chris Godby, Stephens Inc.

Good morning, and thanks for taking my call. Can you give us an idea how much in annual revenue did Fibreco and Powerbox represent?

Just a minute. Powerbox, I would say about $4 million; and Fibreco is around $7 million.

Great. That's very helpful. Thank you very much. And then, how should we think about taxes going forward? Obviously, you had the reversal there that added to -- that led to a nice benefit. How should we think about your tax rate going forward?

Well, finally, just to cut through what I said before -- there are two major issues going on. We've had some significant expense in North America with the shutdown of the Vinita, Oklahoma operations and the relocation of the manufacturing to McAllen in Texas, primarily.

We will have more of those expenses in the fourth quarter. And they, of course, will flow through to the P&L; and will, in fact, impact the tax rate. So that will be a significant expense that will lower the North American tax rate, which is quite high.

When we go to Asia, we've made some cost reductions there also. They were -- the first round of those were very much completed by the end of August, so we're starting to see that benefits there. We've also done a better job of streamlining operations and continue to work on those [efforts of] streamlining. And so, what's happening there is we're getting more profit in Asia at a much lower tax rate, so that's going to continue.

We're not going to have the release of any more expiring tax provisions, if you will, or FIN 48 changes; significant FIN 48 changes for the rest of this year. Going to 2013, I think a lot is going to depend on how the market holds up. But we will expect the tax rate -- I would expect the tax rate to be more back around the -- around about the 20% -- or under 20% rate. We'll just have to wait and see. It's really very hard to pin down a number.

Certainly, certainly, and thanks a lot for the color. And then also, turning to margins. On a pro forma level, we continue to see nice margin improvement there. And, obviously, a lot of that is due to your cost reduction initiatives. But can you give us a little bit more color into what's driving that, and what your expectations are going forward?

I think what's really driving at, again, is the change in the product mix, also. Again, we had a substantial decrease in modulars, where these are value-added products where the bill of materials can go up to $500. So those products went down in sales; and we had a hard, hard sales in the magnetic area.

So I think in the magnetic area, when you're dealing with components that have a lot of labor, and with material costs aren't that high, our margins tend to get substantially greater. So that, I think, as much as the cost savings, the product mix really had a great factor into it.

Okay, great. And then on an operating level, is there a specific target that you guys are striving to hit?

From a margin point of view?

Correct.

Well, we'd like to have operating income up in the 6% and 7% range. If we normalize it at the moment, it's a little under 5%. So we've got a ways to go to get that up there.

Okay, great. And one cleanup question, and I'll let you go. You mentioned this, but I missed it. What was the contribution of Fibreco in the quarter?

Fibreco was -- I've got it on another chart, so that if the number is slightly different from what I just gave you a minute ago, I apologize. Fibreco, we had -- in the quarter, we had sales of $740,000 and earnings of about $116,000.

Just a note, when we acquired Fibreco, Gigacom, Powerbox -- again, we weren't really buying them for their sales. We're buying them for that -- again, the growth potential and the technology. Again, with Fibreco and Gigacom, they really have positioned Cinch more into the fiber technology, expanded beam technology, and getting away from our dependence on copper connectors.

So, again, we look at both Fibreco and Gigacom as a major growth opportunity for Cinch Connector in the coming years going forward.

That's very helpful. Thanks a lot for taking my call.

I appreciate your questions.

Sean Hannan, Needham & Co.

Yes, good morning. Can you hear me?

(multiple speakers) Not well, but yes.

Nice job on the margins. Wanted to see, Colin and Dan, if we could get a little bit of color around what you're seeing for order rates thus far, a few weeks into the December quarter.

Our backlog is, I think, slightly up; but there's just so much uncertainty in the marketplace -- a, due to the elections; and, b, due to the uncertainty in Europe. Even looking at other companies, the visibility out there is just nowhere -- basically, everything -- I think durable equipment is flat. I think at this point, everybody is basically sitting on their hands.

One of the things that concerns us -- and we are putting out a memo -- that we hope that people start preparing for Chinese New Year and put their orders in the a lot quicker. So, this way, it gives us a lot better chance to plan our labor situation in China. But at this point, still very, very limited visibility out there. And we just see a -- none of our customers are overly positive. However, they're not overly negative. No one can see past January.

Okay, Dan. And to dive deeper into that for a moment, lead times and backlogs for the quarter, and how that has changed?

As we mentioned, our magnetic sales are up, and a large part of that is the ICMs, the integrated connector modules that are very labor intensive. So because of that product and the labor that's involved with it, yes, lead times are stretching out on that product. And, also, I think there might be some uncertainty in the marketplace regarding Pulse engineering. And then, maybe some of our customers are looking at maybe pulling business away from Pulse.

Okay. So are we talking 16, 18 week range, or --?

I think we're averaging about 8 to 12. And I think, now, we're edging up from 12 to 16.

Okay, that's helpful. Part of what I think has happened here, and you talked about this a number of quarters ago -- there was an intentional shift on your end to really mix it up to the -- higher complexity MagJack, then terms of product availability through your customers. It seems like some of that has been -- continues to -- that effort continues to be successful.

Just wanted to get your color around how long you think that effort is sustainable before some larger competitors elbow into that a little bit more in terms of volume? Any perspective there would be helpful.

I think the so-called -- we call it MagJack, our share of the business -- I think, still, even though our sales increased, it's not as profitable as it once was. We believe very strongly there has to be consolidation in the industry, with the total -- we believe the total available market for this product line, probably $450 million -- anywhere from $400 million to $500 million.

And we really don't believe that it really can support the suppliers that are out there today. So, again, I think where we are going to see greater opportunity, I believe, is in consolidation, not in product development.

Okay.

I think what you're trying to say -- hey, Dan, you're developing all these new products -- when are we going to see the sales? And are you going to see competition? And I'm saying, I think before that happens, I think we're going to see consolidation in the industry. And with that consolidation, that's going to affect the pricing more than anything in new product development.

Yes, different angle than where I was going, but still helpful. That's still helpful.

Okay.

In terms of -- I just want to make sure I have the right perspective on the charges you excluded from the non-GAAP results. What should we expect for acquisition-related costs at the end of the quarter? And should we expect something similar in 4Q as to what we backed out in the September quarter?

Well, we had $2.3 million in restructuring, severance, and related charges in Q3.

I apologize, Colin, I'm actually focused more around the legal and the acquisition-related costs.

Oh, the legal and acquisition.

I think if we have another acquisition in the fourth quarter, it should be the same or a little higher. And I think if we don't have an acquisition in the fourth quarter, it should be a lot less.

Yes, we're not running a lot of legal costs on non-acquisition stuff at the moment.

Okay. And then, in the terms of the $5.5 million annualized savings, based on the charges you've already incurred and what you're starting to see, how much did you actually recognize of those savings in 3Q? And how much of the pie do we accomplish by the time we exit 4Q?

We had a fairly significant restructuring in Asia, but that was completed at the end of August; and, basically, we only had one month in August. And North America, we only issued the one notice, is on one of the restructuring about 30 days ago, or less than that. That's going to run through the end of the quarter.

And the way those [trusts] get, they get amortized from the date of notice through the time of layoff. So that's going to be -- by the end of the year. So most of those -- we're going to continue to run those costs through most of the rest of the year? So we're really not going to see anything significant in the fourth quarter.

And I think what he is saying, also, we didn't see an overabundance of our profitability coming from --

Restructuring.

Restructuring in the third quarter. And, again, we probably won't see it in the fourth quarter, because we are running two operations doing the same thing -- one in Vinita and one in Texas.

Very helpful. Okay, thanks so much for your color, folks.

Lenny Dunn, Freedom Investors Company.

Good morning. I took about 45 minutes to read your report before I could thoroughly understand it. And as a large shareholder -- or, representing a lot of large shareholders -- we are forced to do this. But somebody new looking at this is not likely to want to buy stock until they have a clearer picture.

Now, will this quarter that we are in be the last time that we have substantial restructuring charges?

No, we're going to have substantial restructuring charges in the fourth quarter (multiple speaker).

(multiple speakers) currently, I understand. But going into calendar 2013, will we --?

Our goal, if at all possible, is to clean up our situation as much as possible by the end of this year. The only thing that we do not know about is possible acquisitions, where there is opportunities to consolidate.

That I understand, and you --

Okay. So, again, our goal is to clean up everything by the fourth quarter.

That would be very good, because I think that you could get newer investors interested in this, once you have cleaner reports.

Sarbanes-Oxley doesn't help us out too much when it comes to this stuff. It was a lot easier before.

I completely understand. Now, there's been kind of an allusion to -- I shouldn't say there's been kind of -- there's been an allusion, regularly, to a large acquisition as a rationale for not raising the dividend, and we keep seeing it put off to maybe the next quarter. Certainly, in the current interest rate environment, it would seem like there would be room to do both; raise the dividend slightly, which sends the message out there that the future is bright, and still do a serious acquisition.

And I've mentioned it to you, and you keep telling me that the Board will consider it, but I don't see anything really done, other than (multiple speakers) go ahead.

Lenny, I think what the Board has done, again -- and we're a lot more active buying back the stock. We look at -- with our surplus of cash, looking at acquisitions; looking at dividends; looking at buyback, I think for the Company to make a major move in buying back stock and being very active, we thought that was a better way to go than dividends.

And that was just put in play in the last -- on our last quarter. So I think what the Board would probably, most likely like to see is how the cash buyback is working out, and then review the dividend again.

And as I mentioned to you, as a large shareholder, I'm all for dividends. So you don't have a problem with me on that one.

Well, again, agreeing with me and getting it done are two different things. I'm certainly glad that you're buying back stock, particularly the B stock. Because in the past, the A stock seemed to be the only thing that you guys bought back. And I said we encourage the $10 million buyback; and hope that, when that is completed, if we're still trading at around book or below book, that you authorize another. And, hopefully, we won't be trading there, where it would make less sense.

Lenny, the only thing I can tell you is that when we're trading below book, around book, I think it's a very undervalued opportunity. And I think if the Company doesn't have faith in Bel, then why should shareholders have faith in Bel?

I agree with you. We're definitely on the same page there. I'm not against the buyback; I'm all for it. I think there is room for buyback, acquisitions, and a small increase in the dividend. In this current interest rate environment, the cash is of negligible value on the balance sheet. And even if you had to borrow a slight amount of money short-term, at the current interest rate, that would not harm the Company.

You are making that b-word. Be careful there, Lenny. You were doing good until you mentioned the b-word. No, we understand. I think we're a lot more active. I think with the buyback, we've been very aggressive buying what we are allowed to buy, every day, permissible by law.

Okay. Now we don't want to sell you any -- but with share buybacks, if somebody did call you to buy back away from the market, could you buy more shares that way?

Yes. I think we're open for anything, but we do have rules and regulations. To be honest, it just has to be done properly through our SEC lawyers.

-- that we would put you in touch with -- where were we running the program, and it varies from time to time, we would put you in touch with whoever the appropriate group were. (Multiple speakers).

I have no desire to sell you shares. I'm just asking if some institution out there wanted to sell you 100,000 shares, obviously, that's more than you can buy on the open market on any given day -- would you have that ability?

Yes.

Okay, that's all. And I don't mind having this on the call, because if somebody's listening and wants to sell you the shares at these prices, it would make me happy.

It would make us happy, also.

Okay. Well, again, I do -- after careful reading -- understand the quarter, and understand that I'll have to do some careful reading with the next quarter; but hopefully, starting in 2013, it's an easier read.

Hopefully it will be, Lenny. I had the same problem you had, too.

Okay, thank you very much.

Mike Cikos, Sidoti & Company.

Hi, Dan. Hi, Colin. The first question, more housekeeping -- I know, Colin, that you had given the number out, but could you please repeat the accounts receivable balance you guys had at the end of the third quarter?

Sure. Accounts receivables, net of allowances, at the end of the third quarter, were $46.5 million.

Okay, terrific. I know you gave the [18] in inventories, so that was what I was missing. And as far as the restructuring plans that you guys are working on right now, I just want to make sure I'm thinking about this properly. As of the third quarter, we started seeing some savings out of your Asian operations and facilities, but nothing substantial.

And even in the fourth quarter, we're not looking at any substantial savings either; because that's where you're going to be taking care of most of the US cost savings that you're looking at, correct?

And we're running redundant operations as we speak today. And those redundant operations, I'd say 95% of them should come to an end by the end of the year.

Okay.

And in Asia, so you have perspective, I think we have 110 people have left the Company, which is, I think, probably 90 from China and maybe 10 from -- 10 or 15 from Hong Kong. And in addition to that, a lot of people that do leave China -- because we do employ a lot of people, the indirect -- we're not replacing them.

As we look out to 2013, we're saying -- at least your goal is to have all those restructuring costs out of the way by the end of 2012. There might be some restructuring costs in 2013 based on any potential acquisitions that you make. Is that fair?

That is my strongest goal, and that's the message I put throughout the Company.

Okay.

So if you have any kitchen sinks in the closet we want to get rid of, let's throw those kitchen sinks out now.

Sure. Now, my other question for you is, if we're looking to have all these restructuring efforts made by the fourth quarter of 2012, when do you think we'll start seeing the full-fledged impact of that $5.5 million savings on an annual run rate? Should we expect that, let's say, second, third quarter of 2013? Or will it be sooner or later than that?

We're hoping we'll pretty much there by the first quarter.

Okay.

The only other thing that we have mentioned is this acquisition that could possibly throw a little monkey wrench in there.

Okay. And with this -- I guess my last question is regarding the acquisition. With this target that you're looking at currently, are you guys continuing to focus been on building up your fiber optic product offering? Or is this going in a different direction, compared to what you guys have been buying up over the last couple of targets you've made?

I think this is going in a different direction, and I don't want to say any more than that.

Okay. Great. Thanks a lot, guys. I appreciate it.

(Operator Instructions). Ted Moreau, Knight Capital.

Yes, good morning. Thanks for taking my question here. I just wanted to, Dan and Colin, get back to that margin question that was asked earlier. Obviously, recovery in volume and the significant cost containment and restructure are going to be major drivers on operating leverage to get to your margin targets. How much would new products contribute to that? And what might be the timeline there?

And also, do you need an acquisition to reach your margin targets? Or might that allow you, if it's an accretive, favorable situation, to maybe even exceed those margin targets?

I don't think -- certainly, acquisitions are going to help with the overheads, and it all adds to it. We really believe that the target I threw out earlier on our operating margin as a percentage of sales is achievable from the current business we've got, if we continue in the direction we're heading at the moment.

And with those new products, do they help the margins? Are they going to be higher-margin products? Or, sometimes, when you first introduce --

We've got to hope so. We're hoping they are, and it seems to us that we're doing a lot of work in [10 gig] that these margins are a lot better. But the sales won't increase as rapidly. So I think now, our product mix is getting so broad, it's difficult to determine. Historically, in our industry, a new product comes out; you tend to have pretty good margins for the first 6 to 18 months, and then after that they get beat up pretty bad.

Is the timetable for new products over the next 12 months, would you say, or is it out longer?

To be honest with you, they're constantly going on. There's no -- all of a sudden, we come out with another basket of widgets. The only way that happens -- and our modular group, where we really look at, maybe, five customers we work with -- that all of a sudden we hit our one product, we can pick up $5 million, $7 million in sales.

So that's the only group that -- when we look at new products, that it really can have a great effect from a sales standpoint. The only problem with the modular products -- because the materials content is so great, generally the margins tend not to be that high compared to our other products.

Right, great, thanks. One other thing on the acquisition, I know you -- and the ones you made -- I know you can't say much, but is the motivation behind it customer acquisition; new markets or new products; or all of the above? Is there any driver besides (multiple speakers)?

I think that two drivers we have is -- we realize that the network and telecommunication industry is very price-sensitive. We understand clearly through the Cinch acquisition that the aerospace-military, even though they are going to have cuts with the -- whoever is in -- what happens in the states; but at least you have the long-term viability of quality delivery service. It plays a lot greater factor with those customers than the telecommunication customers, networking customers that we deal with.

That's why we have spent a tremendous amount of time with the Cinch, looking at how we can strengthen them. In addition to that, we feel strongly now with the acquisition of Powerbox, allowing our DC-to-DC converter group having the abilities also to sell AC to DC, that there is tremendous amount of opportunity within our customer base to grow that business.

So we are pretty well set, I think, on both options. However, when it comes to focusing, I think there's two areas we're really focusing on now. One is any piggyback we can have with the Cinch that help us with Cinch, supporting the Boeings and the Airbuses out there. And the second focus is, are there any competitors out, in any marketplace, that can help us with our overhead structure.

With the price demands we have out in the industry, there's no way we can meet those price demands internally. I don't think anybody can meet those price demands internally. And the only way you can do it is by consolidating of the industry. So, again, focusing on Cinch family of products; and any competitor that can offer us opportunities to synergy, we will look at it.

And is the domestic market versus the international market a motivation at all? Or is it just wherever your OEMs happen to --?

When you look at Powerbox -- if you asked me a year ago, would you be looking at buying a company in Italy for power, I'd say you're absolutely nuts. What would I want to be in Italy for? But then again, once we looked at the company, and they had -- Powerbox was a part of a company that had six operations throughout Europe, and we were able to pick off the Italian group. Three of my top three customers are located, for power, in Italy.

And we met the group, and they were great people. And we felt that they could help us design products for American customers. We just look for the best opportunity. And if that's in Asia, or if that's in Europe, or if that's in North America, we really don't care.

Thanks. Thanks for taking my questions.

There are no further questions in the queue at this time.

Thank you, LaToya, and I thank everybody for joining our call. We do appreciate your time. And we look forward, hopefully, to sharing better results next quarter. Thank you.

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.