CECO Environmental Corp (CECO) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2012 CECO Environmental earnings conference call.

My name is Chantilay and I will be your facilitator for today's call.

At this time all participants are in listen-only mode.

We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Benton Cook, interim CFO.

Please proceed, sir.

Good morning.

Also joining us on the call this morning will be our Chairman Phil DeZwirek and our CEO Jeff Lang.

Before we begin I would like to caution investors regarding forward-looking statements.

Any statements made in today's presentation that are not based on historical fact are forward-looking statements.

Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.

Actual future results may vary materially from those expressed or implied by the forward-looking statements.

We encourage you to read the risks described in our SEC filings including our annual report on Form 10-K for the year ended December 31, 2011.

Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today whether as a result of new information, future events or otherwise.

Before I turn the call over to Jeff I want to make a few brief comments on the quarterly results.

As you can see from our earnings release, CECO operational results both on a quarter-to-quarter and year-over-year basis continue to be favorable.

And now a brief review of a few key results for the quarter and nine months.

For the third quarter of 2012 net sales were $33.1 million as compared to $32.9 million in the same period of 2011.

Gross profit increased by 8.6% to $10.5 million compared to $9.7 million in 2011.

Gross margin increased to 31.8% compared to 29.4% for the same quarter in 2011.

Operating income increased to $4.3 million in 2012 as compared to $3.3 million in 2011, a 28.4% improvement.

Operating margin increased to 12.8% from 10%.

Net income was $3.3 million compared to net income of $2.3 million.

Net income per diluted share was $0.19 compared to $0.14.

Bookings increased by 17.4% to $41.8 million compared to $35.6 million in 2011 same quarter.

Cash and cash equivalents remain strong at $24.5 million compared to $12.7 million as of year-end December 31, 2011 and we continue with no bank debt on our balance sheet.

Backlog as of September 30, 2012 has increased to $67.6 million compared to $54.9 million as of year-end December 31, 2011 and compared to $55.3 million as of the quarter end September 30, 2011.

Financial highlights for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 include net sales decreased slightly by 0.7% to $100.7 million as compared to $101.4 million; gross profit increased by 16.3% to $31.3 million compared to $26.9 million in 2011; gross margin increased to 31% from 26.5%; operating income increased to $12.3 million in 2012 as compared to $8.6 million in 2011, a 43.3% improvement.

Operating margin increased to 12.2% from 8.4%; net income was $7.8 million compared to net income of $5.5 million; net income per diluted share was $0.47 compared to $0.34; and year-to-date bookings have increased by 10.7% to $113.4 million compared to $102.4 million in 2011.

And now I will turn the call over to our CEO, Jeff Lang.

Thank you, Benton.

Good morning, everybody, and thank you for joining the CECO Q3 earnings call today.

We appreciate your interest in CECO Environmental.

CECO had a good quarter for our shareholders and our employees.

As Benton mentioned, $0.19 EPS for Q3 and $0.47 year-to-date EPS -- looks like we will be exceeding our income framework for the year.

We continue to execute on our core strategies that we have been focused on for several years -- profitable growth domestically and globally; operational excellence in all that we do; building a more recurring revenue model along with our Engineered Equipment base; acquisitions and developing our talent.

We are very pleased the CECO team is heading in the right direction and we are very motivated to continue growing and improving our business.

And as we have mentioned in many calls before, we are striving to become the clear leader in the air pollution control sector and product recovery markets that we serve.

A couple comments about activity, we see our quotation activity strong as our RFQ activity intake is as strong and as consistent as it was in Q2.

So that is positive indicator for us.

Regarding our sales focus, the teams have reinvented our sales engineering dashboard processes to make sure we have tremendous focus on all our quotation activity and we improve our close rate.

We are calling it sales management intensity and I'm very pleased that our business development leaders across the Company have really found a new gear to help CECO bring in business.

Regarding bookings, we booked $4 million in Q3, which is about 17% ahead of last year.

We also booked $40 million of bookings in Q2.

So that seems to be a very nice trend for us and we are very focused on doing that in Q4.

Along with the $40 million in bookings we are seeing some nice gross profit and the Company is doing a really good job getting more price and a little more value for the great technology and brands that we have.

So there are some more positive trends on the gross profit front.

Now I'd like to talk a little bit about our businesses and the divisions.

Our parts group -- our parts business is having a very good year, nice growth and nice margin expansion and the outlook is solid.

This is a recurring revenue business that we are committed to growing at a very fast rate and this business targets the large general industry domestically.

Our utility business, Effox, is having a good year and had a good Q3 with nice growth and nice margin expansion and the outlook is very strong from our Effox team as we turn into Q4 into next year.

At the same time our natural gas utility business, the Flextor segment, is having a good year and we are very keen on growing that business both organically and through acquisitions to build that business up to the same size as our Effox division.

Our contract engineering services business is having a good year, they had a very strong Q3.

Their activity is strong, they have made significant improvements in their operating margins and their gross profit this year and we have added some positions in that group and we are seeing tremendous quotation activity here going into the fourth quarter.

Our cyclone technology division is doing solidly.

Our Fisher-Klosterman cyclone business is seeing an uptick in activity; they target principally petrochemical markets, gasification, metals and some consumer goods sectors.

Our other cyclone technology division, Buell, which targets the refinery markets globally, is having a good year.

They saw a little flatness in Q3 in bookings, but I think the activity going into Q4 is starting to pick up to see some growth there.

CECO China is doing well, activity is good, bookings are up.

We are entering our eighth year into China.

We have a great team in place there, roughly 60 employees and growing.

And we continue to add sales engineering capacity -- engineering capacity and introduce new products into the China market.

And we are very excited about continuing growing in China.

Lastly our CECO filter business is doing well.

We are expanding that business and we are adding sales engineering capacity into that business as we see it growing and the outlook is favorable.

Just a comment on the overall markets that we serve.

We serve seven or eight very large markets, it is diverse markets, they are global markets and we are very pleased in how that is going because it balances our portfolio.

We are not tied to just one principal industry or one principal market; the team has done a very good job diversifying our market segments.

To name a few -- refineries; utilities; the growing natural gas segment, large industries like petrochemical, mining; also the large automotive industries are doing well; and metals and some other specific consumer goods.

So we are excited that our markets are diverse and that is a positive fundamental strategy about CECO.

Along with the fact that we are building more of a reoccurring revenue business along with her Engineered Equipment business, we think we are around 30% parts and service today and 70% in Engineered Equipment technology and we continue to expand that at a good pace.

Regarding Q3, bookings were excellent and I would like to mention a few orders that we received in Q3 to give you a little color around the types of orders that we are receiving and the regions of the world.

Our Flextor division received a $3.5 million damper and diverter and expansion joint order for a large petrochemical plant in Australia.

Our filter business teamed up with our Contracting Services group and was awarded a $1.8 million order for a large asphalt chemical plant here in the US.

Our Fisher-Klosterman cyclone division, again with our contract services group, was awarded a $1.6 million order for a scrubber upgrade and installation for a large metals plant here in the US.

Our Effox team landed a $1 million damper diverter order for a China utility plant, which is exciting because that team is executing on their strategy and expanding into the Asian market.

And we see more activity in Q4 and Q1 that we could bring in regarding that model.

The Flextor group landed a $500,000 order for a Canadian mining application at good margin, so that was exciting.

And lastly, CECO China landed a Fisher-Klosterman cyclone order for about $850,000 for a polysilicon chemical plant in China.

So those were a few orders to give you a flavor for the types of business we are pursuing both domestically and globally to expand our business.

Some comments regarding operating metrics and things we focus on to drive our business from an operational excellence perspective.

Again, we -- year to date we hit $0.47 EPS which is in the neighborhood of a 38% increase from the previous year.

Gross profit is now tracking well into the 30s -- well above 30% I should say, that is an important metric for us.

Operating margins, as Benton pointed out, are now tracking well above 10%, close to 12%.

So we are starting to see those types of operational metrics come on a consistent basis and we are pleased with that.

Cash flow from operations improved from a roughly $5 million to $13.5 million, so some nice operational excellence in cash flow.

And we saw similar improvement in the working capital this year from last year to this year, almost a $4 million improvement.

So the team is doing a good job with their meticulous attention to project management, working capital and running our business day to day.

With $24 million in cash we see a nice pick up there and that again positions -- we feel we are positioned very well for smart accretive acquisitions that we continue to make process step towards to help expand the CECO portfolio.

Our backlog is at a three year high at $67 million, so at high gross margins.

So we hope to see a nice revenue pickup in Q4 and Q1 given the high backlog.

Bookings are up 11% for the year.

Our book to bill is over 1 so that is a nice trend.

Year to date we are at 31% tax rate, last year we were at 29%, so we continue to do the things to improve that.

We pay particular attention to our research and development tax credits to improve our tax rate.

We picked up a net gain of about $500,000 benefit in Q3 and we continue to look at those areas in Q4 to make sure we are doing all we can to bring our tax rate down as well as to grow our business globally where we have lower tax rate countries.

In summary, we are confident about our outlook, we are confident about our backlog and our activity and we are excited about the future.

I want to thank our employees for doing a great job executing on our strategy.

We have a lot more to do and we appreciate all that they do for us.

So with that I would like to open up for any questions you may have.

(Operator Instructions).

Rob Stone, Cowen.

Nice job on the operating trends.

I wanted to ask you, Jeff, a little bit about your quarterly seasonal pattern.

We saw a pretty strong sequential uptick in fourth-quarter sales last year.

Is there a tendency for some of these customers to want to bring in big projects towards the end of the year?

I know you are not guiding for sales per se, but if you'd just give a little commentary on how we might think about the sequential trend in the fourth quarter given the strong bookings and backlog.

Yes, exactly.

Q4 is typically our strongest, so that plays out.

So we are anticipating a very solid Q4 given our backlog and given the nature of our business.

Typically our customer base tries to get things wrapped up in Q4 and concludes their budgeting process.

So I think everything you said is correct.

So we are encouraged about Q4.

Okay.

My follow-up question is on gross margins.

If you could put a little more color on that in terms of -- I know there are a number of different things that are driving that.

Any highlights you might want to mention from this quarter in terms of mix or what is lifting the margin.

Thanks.

Yes, Rob.

Mix is having a significant impact on our gross margins over the past couple years; we are focused on the higher gross margin products.

But I think we have been doing a really good job getting more gross margin for our products and technology.

I think the great brands that CECO has; we are starting to get more value for that.

And I think the sales organizations are driving a lot of that.

I think our project management is becoming very good; we like to call it project management precision, so when we start a project at one margin we finish it slightly higher.

A lot of divisions have strong metrics around that.

So, I think we pay attention to it.

The mix is better.

We are selling at a higher gross margin and the team is doing a very good job executing on projects.

So -- and these are things we have been working on for several years now.

Great.

My final question is on the operating expense trend, you've managed to hold that pretty flat sequentially.

As we think about finishing the year with revenue probably up quarter on quarter, is that likely to follow sales or are you still trying to control expenses at a certain level?

Right, we talk about that a lot.

We are streamlined and we pay attention to that subject.

We think we are going to be pretty close to that, where were we last year, $25 million to $26 million range.

So there could be a few things that could pop that up.

We are looking to add a couple more sales engineers in some of our divisions, so we could see a little bit there to take on the growth that we are seeing.

But all in all I think we should be pretty close.

If not we should be within the zip code of that, but we should not exceed it too much.

But specifically are there items that would hit in Q4 as part of your year-end process, or is it just the run rate of people and revenue that you have going there?

Actually our run rate and the way we have accrued expenses is quite -- has done much better this year than the past couple years.

So I don't see anything hitting us in Q4 above the normal run rate.

Great, thanks much, I will hop back in the queue.

Dale Pfau, Cantor Fitzgerald.

Congratulations, booking trends are very powerful here.

A couple of questions.

How much was China in terms of revenues and backlog, if you could give us that?

I typically don't break that out at this time.

I'm sure we might show that in the Q. But China's bookings are up, the metric I have been using is China was 20% of our operating income last year and our goal is to keep growing that from an operating income perspective.

But their bookings this year are up; I don't have that number in front of me.

Okay.

And in the past you have given us at least your top industries and your backlog, could you do that?

Yes, sure.

Power, utility, refining, metals, chemical and petrochemical and I'm sure large automotive is going to work its way up there pretty soon too, Dale.

Okay.

And the bookings trends have been pretty consistently up across when you say that the quotation activity is strong.

Yes.

And how much of this do you elude to just a general uptrend in manufacturing and industrial activity and how much of that is -- would you characterize as perhaps market share gains or improved awareness by your customers out there?

Definitely we see the market picking up so that is a piece of it, Dale.

I also see the businesses and the divisions and our sales teams doing a better job creating leads and developing markets, expanding market coverage, getting more business globally.

That probably has a lot to do with the way the teams are being more aggressive with taking share and creating market coverage opportunities.

Probably a blend of both would be the answer.

Okay.

And in the quarter your parts business you said was up 30%.

Yes, we looked at it -- if you look at our parts business from our OEMs, our pure parts business from our ducting and our components parts business and then our contract services, if you look at all that we think that piece of it is about 30% of the total.

Now, you also said that 70% of engineered services -- is there any contracting revenues at all?

Are there any contract services revenues at all in that mix?

Yes.

Yes.

In the 30% reoccurring revenue and 70% Engineered Equipment, yes, Contract Services makes up some of that 30%.

But if you look at -- if you break out the divisions in the total, Contracting Services is about 20%, the parts business in itself is 25% and then the Engineered Equipment is 55%.

Okay.

So, parts alone stand-alone is still about 20% and you get the extra 10% if you count probably the stuff going into your Contracted Services business, is that correct?

Exactly, you got it.

Okay.

How much more upside do you have on the margins, how much can you squeeze out in terms of operating or is that going to have to do with mix in the various contracts?

You know, we study that question a lot.

We want to grow our business; we have aspirations to get into that $250 million range and 10% operating income and $1 EPS in the next couple, two and a half years, that is our mid-term goal.

But having said that, the team has done a really good job growing margins.

A few years ago we were at 22% to 23%, this year we will end up well north of 30%.

So I would like to say we are going to be a 30% or better gross profit business.

But at the same time we want the ability to pursue all kinds of business that makes sense.

So if we want to pursue business that is a little bit below 30% we want the ability to do that.

So, the simple answer is I'd like to view us as a 30% gross profit business in general.

And one last question.

How should we think about bookings trends in the fourth quarter?

It has been mixed over the past couple of years in terms of bookings trends in the fourth quarter because normally we have a seasonally down first quarter.

What are you expecting in the fourth quarter this year?

Well, our aspirations are to continue our trends.

We don't give specific guidance in that area.

But we had $40 million in Q2, we had $40 million in Q3 and our aspirations are to continue that.

But -- that is how we feel about that.

Okay, thank you very much.

Steve Shaw, Sidoti & Company.

I got cut off, so forgive me if I get redundant.

I know you mentioned the tax credits.

Can you provide some more color on those and how we might account for those going forward?

Sure.

We applied for 2011 research and development technology tax credits.

We received a tax benefit of around $500,000 in Q3, that includes the cost to pay for the tax credit as well as the tax benefit.

So we picked up $500,000 in Q3.

We have aspirations to continue focusing on R&D tax credits in Q4 and we are hopeful of picking up some in Q4 but we can't say for sure.

What was the --.

I think, Steve, I would also recognize and that amplifies the R&D and the technology that CECO has.

And I think that's a nice vote of confidence for CECO's great technology.

Right.

And what was the primary driver for cash?

Cash flow?

Yes.

Well, the business is improving, income is improving, receivables are coming down, we are managing our inventory better, our gross profit is increasing.

So we are -- can you hear me okay, Steve?

You cut out for a minute.

Hello?

Steve, can you hear me?

Now I can.

I think we may have had a phone issue.

Can you guys just repeat what you said about the cash flow, please?

Yes.

Well, first off, the business is performing at a higher level.

We are generating more cash, the gross profits are higher, the operating costs are coming down slightly.

We're just managing our inventory better, receivables are improving.

So all those things that improve working capital and cash flow are generating more cash and we are not spending it.

Do you guys have a plan or anything in mind what you might spend that cash on right now or --?

We do.

We are very -- as we said, Steve, for several years now we have a great team focused on acquisitions.

And there are several acquisitions that we look at every quarter and there are several that keep moving forward that we are looking at.

So, yes.

If we find a nice acquisition we will use the cash for that.

Okay, thanks, guys.

Shawn Severson, JMP Securities.

So, in listening to a lot of other calls and commentary, talking with companies through the third quarter and into the fourth quarter here, there has been a lot of volatility, let's call it, push outs and it has been a difficult environment.

And I am just wondering if you have seen that at all, I mean would bookings be better, could they be better?

I mean are you seeing these types of push outs or has it been more business as usual for you because of the lifecycle or stages I guess of the business you are booking?

Well, Q2 and Q3 were good bookings quarters for us -- a 17% improvement in Q3 and 20% in Q2.

However, I do think bookings could be better.

We have seen some bookings in China that pushed out from Q3 to Q4.

So I do think bookings could be better.

And is at that -- and I guess just general economic conditions is the cause of that in your opinion.

Or are there some special situations with those projects or is it, again, is general economic hesitation I guess the right way to look at it?

You know, quite honestly, Shawn, I cannot give you one reason why some of those projects were pushed out.

It is just the nature, the gestation process of buying Engineered Equipment.

I think it takes a little bit -- a little more time in China.

But our quotation activity is very good in several of our divisions, probably modest in a couple divisions and way up in a couple.

I spoke with our business development group last night and we looked at our sales dashboard and went through those.

So, some of our businesses are needing to add resources and sales engineers to keep up with the RFQ activity.

So when we get to that point I know our quotation activity is strong and we are going to make those investments.

But I do think our bookings could be better.

Specifically in China obviously with the power change coming, a lot of talk about a China stimulus program coming in over the next few months.

Have you guys been hearing much about that or specifically from the field in terms of projects that are kind of in the waiting, so to speak, that might pick up or have you not gotten that sense that there is sort of some pent up demand there?

A little bit.

Yes, we are operating under -- the China ministry has put down legislation and regulatory -- enacted regulatory statutes that they have got to clean up their air and clean up their water.

So we are operating on what they launched several years ago with plant air improvement.

And so our product recovery technology is in significant demand and some of the other products that we introduced into China.

So I don't think the stimulus is helping or hurting us.

But I think the air pollution regulatory improvement in China is what is driving some of our activity.

Great.

And then just lastly on to the acquisition front, I know it is an important part of the growth going forward.

Has there been any change in the level of activity or pricing or anything new on that front over the last month or so?

Nothing new other than it is a priority.

We continue to make process steps towards our goals and it is a priority to get to where we want to be.

Okay, great, thank you.

Michael Lew, Needham.

Just a quick follow-up on the tax credits.

Jeff, you mentioned you applied for more; if you got it would it provide roughly the same magnitude of a benefit in 4Q as it did in 3Q?

Possibly, yes.

And you had also commented on -- just commented on China bookings being pushed out a bit.

How much of it was pushed out into the fourth quarter?

Like, in other words, how much of an impact did that have on the revenues in the third quarter?

There were just a few bookings that were pushed out to Q4, nothing substantial.

But we hope to pick that up in Q4.

Okay.

And you've highlighted the strength in Effox and also Fisher-Klosterman.

Can you give us an idea of how much Effox is up quarter -- in sales for the quarter and also year on year?

And what percentage of sales is it now?

I probably can't give you a specific answer, but as you look at our bookings, we are up 11% for the year; Effox is up at least that or perhaps more.

Okay.

And how about on Fisher-Klosterman?

They are on track to have a similar -- they will track with the Company, but their current activity is very good.

Got it.

And lastly, you also mentioned Buell was a bit sluggish, but you do expect improvement in this current quarter.

Is there a lot of pent-up demand that gives you the confidence that the business -- or you have already closed deals currently that the business should return to growth in 4Q?

You know, Mike, we look at our -- we have a very rigorous sales dashboard that is updated every week by all the divisions.

So we look at the data, what quotation activity is coming in, what quotation activity is funded for purchase, what quotation activity is not yet quite funded.

So we let that data drive our outlook.

Buell FCC, they're one of the top three cyclone providers for refineries in the world.

They are having a good year, but in Q3 their bookings were soft.

But as we look at their sales dashboard for Q4 it is improving.

So they had a soft spell in Q3, but we are seeing some nice activity out of the Buell group today.

Okay, well, thank you.

Ajay Kejriwal, FBR Capital Markets.

So, nice gross margins in the quarter.

You have now had three quarters above 30%, [30% and] 32% this quarter.

Maybe share your thoughts on the tradeoff between top-line growth and margins.

I mean where would you want to be?

Would you like to see gross margins trend up higher than where they are or would you rather have better top-line growth?

The answer is both.

Of course.

The answer is both, Ajay.

No, the business leaders -- the general managers who run the business are very focused on growing their business, growing the top-line.

We certainly will not walk away from revenue opportunities at lower margins, particularly if we can bring a project in at slightly lower margin and through project management execution improve it.

But we are very focused on growing our revenue and we are very focused on improving our gross profit.

But we are not going to jeopardize one for the other.

It is a blend and I probably can't give you one short answer for everything.

But we recognize getting our top-line up to a bigger place is a priority for the Company.

Got it.

And then the way to think about gross margins is 30% is kind of where you want to be and anything above that will depend on the projects in the quarter?

Yes, that is a good summary.

We want to be a 30% gross profit business.

We think to be best in class and be at the top of the peers you need to be there, but we also recognize you have to give up a little bit of that to pursue certain businesses in certain markets and we will do that.

But I think you have it covered, Ajay.

Good.

And then you talked a little bit about Flextor and opportunity in natural gas.

And all what we read and hear about what the utilities and what the plans are for natural gas that sounds very impressive.

But so maybe thoughts on where do you think you could be expanding -- I mean obviously Flextor has good products there, but then just big picture thoughts on the natural gas industry.

Where do you think there would be opportunities for you?

If we look at our natural gas quotation activity through the Effox-Flextor group, it's strong.

Most of it is globally, it is around the world.

Some of it is domestically.

But our natural gas sales dashboard is robust.

And we have strategic selling partners that we work with to help measure that.

So we see that business growing into the future significantly.

We see when a new utility plant is added around the world it is probably going to be natural gas and we are going to be a big player in that business.

We are adding resources organically to grow Flextor and we have a few things on the acquisition studying side that will help us there.

So it is a part of our -- it is one facet of our growth strategy for the next few years.

Good.

And maybe just one last one for me on the tax rate.

Could you clarify what is the expectation for the year?

I mean you are trending at 31% year to date, is that a fair rate to use for the full year?

Good question.

And the team here studies that regularly.

In 2010 we were at 37% effective tax rate; last year we improved it to 29%; currently we are at 31%.

You know, Ajay, our aspirations are to bring that down as best we can.

As we pick up more revenue in China, which we are very proactive on, that is going to bring that blended tax rate down.

Given our great technology we are going to continue applying for R&D tax credits which we have some in the Q that we are moving along, so that would bring that tax rate down.

So -- and then other activities around the world also have a lower tax rate.

So in summary, we are doing all we can to bring that tax rate down.

And we would like to see it below -- we would like to see it equal to or better than last year's numbers, but a lot of things have to happen before that takes place.

All right, good job.

Thank you.

Rob Stone, Cowen.

Just a follow-up on -- sorry to beat the dead horse here on taxes.

It looks like adjusting for the $500,000 benefit from the R&D credit the tax rate still would have been trending a little lower this quarter.

Did you see that you -- as you were accruing that your full-year rate was going to be lower than previously planned?

To some degree, yes.

Benton and Jim recognize that.

We saw that to some degree.

And we want to keep doing the tactical things to bring that down.

Okay.

And my final question is a housekeeping one.

I guess you have the option to call these convertible notes with the stock where it is lately, is that the plan?

The Board will be voting on that here at the right time and there is a probability that that could happen, Rob.

Okay.

Thank you much.

[Sam Bayman], Bay Asset Management.

I guess there is nothing wrong with being at the end of the line.

A couple questions.

You had a nice bottom line; top-line was a little bit less than I expected.

Why was the top-line sequentially down from the second quarter, which I believe was at [34.2%]?

Well, I think the short answer is the bookings keep growing and the backlog keeps growing.

We are at $67 million.

So it appears some of that solid backlog did not get translated into revenues for the quarter and our aspirations are to do that in Q4 and Q1.

Were there any delays in any projects that were supposed to be finished and shipped after the quarter was complete?

No.

No, okay.

And in terms of visibility, can you say that the first six weeks of the fourth quarter are getting similar bookings that the third quarter has gotten and is robust, or is there any change that you see?

The two quick things that we would look at, Sam, are -- A, the activity today is just as strong as it was a quarter ago.

And our business development and sales teams are feeling the same about Q4 as they felt about Q3 and Q2.

And last question.

In terms of acquisitions, I know that was mentioned and it has been mentioned in the past.

Accretive acquisitions, are you currently speaking to anybody and negotiating with any parties?

I know you certainly can't talk about it, but are two people at the table talking about an acquisition at this particular time?

Sam, probably the best way of for me to answer that is M&A, both on acquisitions that are accretive to our model and helpful to our technology and global reach, are a priority, just as much of a priority as operational excellence and gross profit and other facets of our business.

So the Board and I are very focused on M&A and when the time is right we will make an acquisition and make the announcement.

But I probably can't say -- I can't say more than that at this stage.

Because getting into $250 million in two to three years would require an acquisition of substantial size, perhaps in the $50 million a year run rate.

And that hasn't occurred yet and I know you are being very cautious, which is great.

But organically how far do you think you could grow the revenues in the next couple years without an acquisition?

You know, 10% to 15% a year given the sales footprint that we are building globally and the markets that we are trading in.

But the larger question is, yes, as we become a $250 million revenue company M&A will need to be a part of that.

And the Board and I are well aware of that and we are rolling up our sleeves and we have got a lot of things going on in that area.

Sounds great.

Thank you very much.

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