Cognex Corp (CGNX) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your third quarter '08 earnings call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. Now it is my pleasure to announce your host, Richard Morin.

Thank you, and good evening, everyone. Earlier tonight we issued a press release announcing Cognex's earnings for the third quarter of 2008. For those of you who have not yet seen this report, a copy is available on our website at www.cognex.com. The press release contains detailed information about our financial results and, because of that, we are not going to repeat most of that material.

During tonight's call we may use a non-GAAP financial measure if we believe it to be useful to investors or if we believe it will help investors better understand our results or business trends. For your reference, you can see the Company's income statement as reported under GAAP under exhibit 1 of the earnings press release and a reconciliation of certain items in the income statement from GAAP to non-GAAP in exhibit 2. I'd like to emphasize that any forward-looking statements we made in the press release or any that we may make during this call are based upon information that we believe to be true as of today. Things often change and actual results may differ materially from those projected or anticipated. You should refer to the Company's SEC filings, including our most recent Form 10-K, for a detailed list of these risk factors. Now I'll turn the call over to Bob Shillman.

Yes. Thanks, Dick. Good evening, everyone. Welcome to the call. As you might see, if you have the press release in front of you, we reported revenue of $63 million for Q3 and earnings of $0.27 a share. Included in those earnings are $4 million of discrete tax items which added $0.09 to EPS for Q3 and excluding this benefit, earnings were $0.18 per share for the quarter. Now, let's turn first to the revenue and after that I'll address expenses.

Business in the semiconductor and electronics capital equipment market, which we call semi, continued the steady decline that began in early 2006. Semi revenue was approximately $10 million for Q3, which represents a decrease of 30% year on year and 20% on the sequential basis. We have low expectations for semi going into this quarter and, unfortunately, level of business proved to be even less than we had anticipated. From discussions with customers, the pickup that the industry hoped for in the second half of '08, did not materialize and our semi sales team is still working hard to win new accounts and our VisionPro software product is helping in that regard; however, there doesn't appear to be any light on the horizon in the near term in the semi business.

The opposite is true for the surface inspection market, or SISD as we call, which had a very good quarter in Q3. SISD's revenue was approximately $11 million for the quarter, which was more than double the amount we reported in Q3 of '07, and 16% over what we reported in Q2. Business as been very good for SISD in 2008, primarily in the metals industry in Asia where we have been gaining share. For example, we received a multi million dollar order from China Steel for seven surface inspection systems, all of which were shipped and the product revenue recognized in Q3.

And the third market that we serve, factory automation which is our largest market, we reported revenues of $42 million in the third quarter. The revenue in factory automation increased 19% year on year due to higher revenue from America, Asia and Europe. The largest increase in absolute dollars was from Europe and it was as a result of both increased customer demand and positive impact of foreign exchange rates.

On a sequential basis, factory automation revenue declined by 6% primarily due to the seasonality that we typically see in factory automation markets during the summer months. Demand from overseas was also somewhat softer as the slower business trends we experience in the US factory automation market in the first half of the year started to spread internationally.

Turning now to expenses. We tightened our expenses in Q3 as the factory automation market began to face stronger economic head winds. Given the recent financial crisis and its implications on the global economy and manufacturing spending, I now believe that it is prudent to plan for a deeper decline in business going forward into 2009. Because of that, we are taking a careful look at our planned expenses for '09 and less important projects will be put on hold and cancelled all together. However, we intend to continue to fund strategic initiatives for the long-term growth and health of the company. We're going to be taking this course of action, we have taken this course of action in the past and, as a result, we came out stronger than the competition when conditions improved.

Looking forward, our outlook is very cautious because of the high degree of uncertainty in today's environment. And our estimates for revenue in Q4, therefore, is between $53 million and $58 million, and that range of revenue we expect earnings will be somewhere between $0.03 and $0.10 a share. As I mentioned, we've been through tough times in the past and although the reasons for this current challenge aren't quite different from the past, we have a strong balance sheet and, most importantly, we have no debt and a business model that consistently generates cash and that will see us through to better times. At this point, I'll wrap up my prepared comments and we'll open it up to the phones for any questions that you might have for me or the team who is here.

(OPERATOR INSTRUCTIONS) Our first coming from Antonio Antezano from Macquarie Capital.

Good evening.

Hi, Anthony.

I was wondering in terms of your outlook for Q4 by each segment and now that we're at the end of October if you can give us a bit more color in terms of what you expect for semi factory automation inspection in Q4?

Actually, Antonio, we expect all three to be down. Semi is continuing to decline, we think factory automation will have -- we'll see some declines as well, and while SISD is doing well they had a near record quarter in the third quarter and we don't expect them to match that in the fourth quarter. They'll still have a good quarter, but not quite at the third quarter level.

When we think about what you just mentioned about controlling spending for next year, what will be the impact on R&D given that you had to focus on new product development and whether that would be also affected by this lower spending next year?

Well, we still expect some rather high spending as a percent of revenue in R&D, and it's quite likely despite the fact that revenue is going down, expenses will almost be flat.

We are, there are a couple of major areas that we're going to be looking to continue development and spend dollars in the IT market which has been very successful for us, and also division system on a chip. So those were a couple of the key strategic areas where we're going to want to continue to invest some of our R&D dollars.

Thank you, I'll go back to the queue. Thank you.

Thank you . Our next question is coming from Chuck Murphy from Sidoti &

Good afternoon, guys.

Hi, Chuck.

Could you just talk for a minute about currency, what its impact was on sales and operating profit in the quarter, and kind of what you expect the impact to be going forward?

Well, compared to the prior year and prior quarters, the foreign exchange rates during the third quarter gave us less of a pickup on the sales side or whatever. And I'm trying to figure out, yes, actually about net revenue foreign exchange compared to Q2 we lost about $1.3 million in revenues due to foreign exchange rates exchange rates, Q2 to Q3.

How much?

About $1.3 million in revenue.

And what about for operating profit?

Roughly 600K.

Okay. All right. And I would imagine with the Euro being so weak these days that that would continue if not be a little bit more of an impact?

Yes, I mean, it will probably continue in Q4 and Q4 might be more in line where Q4 last year was as opposed to certainly the beginning of the year and Q2 in early Q3 I think it hit the high somewhere around 157, or so.

Yes. Okay. And can you give us a little bit more detail on why the OpEx would be up sequentially in the fourth quarter?

Yes, we've got a couple of very specific projects that we're spending money on. VSOC, we've hired some additional engineering staff, and we have some outside contract services that we hope that the payment will be due and earned in the third quarter. The other thing, too -- fourth quarter, I'm sorry. The other thing is that we're expecting higher legal and professional fees due to we've got a couple of our lawsuits. One is going into discovery and another one is going to court. So that will increase the legal fees as compared to the third quarter. And the other thing, too, is our accounting professional fees, audit fees, will be going up in the fourth quarter because the auditors will be coming in and spending more time here doing their year, preparation for year-end testing and Sarbanes-Oxley testing, and whatever. It was mainly in the area of engineering, engineering services and legal and professional fees.

Okay. And I guess if you had to think about Q1, I mean, would it then go kind of back down sequentially or it is just too early to say?

It will probably come down -- we expect it to come down sequentially. I just -- I'm not yet sure as to what the scheduling will be on some of the lawsuits relative to some of them should be over the discovery would be over and you might be in a period of lower legal fees. That one I don't know but overall I would expect it to soften in the first quarter.

Okay. All right. And my final question for Bob. Any sense of there kind of being a base level for the semi business anywhere where it might bottom?

Yes, zero.

Okay. I mean, there is not kind of like a certain level that you feel comfortable that even in a downturn you could manage to get?

I got to tell you, and we have discussions with our customers all the time, most of them are in Japan, of course, and this is the worst they've ever seen in the past 20 years, I think. So I'm looking at the bookings now. It's the lowest it's been since -- oh, excuse me. It's the lowest it's been -- I can't go back far enough. Q1 of '03.

In '01, Q3 of '01 about the lowest was about $3.5 million, too?

Yes. That goes back a long way. I have it in front of me. I have the last five years and this is the low lowest booking quarter in five years and maybe more than that. This is not the loss of business to our competitors, and things like that. It is just to our capital equipment vendors are not selling.

Okay. All right. Well, I appreciate your honesty and I'll turn it over to somebody else. Thanks.

Thank you. Sorry for the bad news. The good news is that we're in more businesses than semi which is leading the Company.

Thank you. Our next question comes from Jim Ricchiuti from Needham & Company.

Good afternoon. I just wanted to follow up about the other comment about the businesses. I'm curious how you saw the demand began to change in September and October in the discrete factory area? Did you see much of a pull-back late in the quarter into Q4?

Well, typically what we see, Jim, I mean, as you know because you've watched us for a number of years, we typically have factory automation, we typically have a very slow summer and we start to see a major pickup in September and getting into October. And we really haven't seen that level of pickup this year. As a matter of fact, as we take a look at October, it's running a little bit lower than what the first month of the third quarter was, was July, or whatever. So we didn't get the big rebound that you typically see after the seasonal summer months.

Yes, I'm looking at the charts right here, Jim, for factory automation and for all of our different products, and it's not dramatic, but nevertheless, the start of Q4 for the past four weeks or so, are basically down from the run rate in Q3. So and it should be higher. Not dramatic, but it is not a good sign. It is in the wrong direction.

And, Bob, that's in each of the major geographies? I mean, you actually did a little better than I was thinking in Europe.

I have it by region. You're right. Europe is okay. Europe is okay for Q4, looking at geography. I'm looking at automotive. I don't have it by geography.

I've got it by geography here and essentially all geographies are down. But Europe is down less than any of the others. Although, no, the US is the lowest -[- is the best, if you will, in that regard than Europe. But Asia and Japan are down quite a bit or much more than the other two regions.

Okay. You alluded to taking other steps to curtail spending and I'm wondering at what level of -- are you comfortable with -- poor question. Poor phrasing of the question, but would revenues have to come down another 10% or so do you think before you took additional steps? I'm trying to get a sense of you don't want to cut too deeply at this point and I'm trying to get a sense at what point will you take other steps based on what you're seeing in the business?

Well, generally speaking, the sooner you take steps the better off you are and we have evaluated in a lot of the projects that we're doing and we're putting people, we're shifting people around to more productive aspects and things that will pay off in the longer term.

The sales and marketing side, Bob, you've been moving pretty aggressively to invest in Asia, particularly in China and Japan. Does that change at all?

Well, you are right except for Japan we have not invested heavily in sales in Japan. And we hope the relationship that we just formed with Mitsubishi will help us out there. No. We don't anticipate in cutting back on expending and building teams in the developing countries, primarily in Asia and eastern Europe, because I think we can get share. Even if business is way off we can get share and now is a good time to do it. We could maintain a tremendous level of profitability by cutting expenses dramatically, and I don't think that's necessary.

Certainly our profitability is going to fall if we maintain our expenses, but we've done this in the past and we can afford, given our high level -- our historic of high-level of profitability, and we can afford to continue to invest. Maybe not as heavily as we would have otherwise, of course, but we can afford to go forward with many, many fewer cuts, more programs intact and sales in particular into those territories. And, again, you're right, the economy even in those territories is soft but, nevertheless, if you build your team now it will be there when things improve and also if you have the right people in offices in those territories you will get share. So that's our plan.

Last question, just on Mitsubishi. Do you see much of a contribution from that relationship in 2009?

No. No. A couple million dollars, $2 million or $3 million would be okay. More than that would be great.

Okay. Thanks a lot.

Yes .

Your next question comes from Alexander Paris from Barrington Research.

Good afternoon.

Hey, Alex.

Maybe I should spend about a half an hour looking for something positive.

Why do you say good afternoon? Why is that? Positive news is we had a great quarter, we made a ton of money, right?

Market up a day and a half. When you were just talking a minute ago about Europe being pretty good, were you just talking about the factory automation or overall?

I was looking at the wrong slide and I didn't answer the question. It turns out automotive has been reasonably strong in Europe, much stronger growing actually in Europe whereas the US started to decline sort of in the second half of '05 and hasn't recovered from that, keeps on declining very low. But Europe has been holding up. That is what I was talking about. Europe automotive has been holding up.

But Europe automation has done extremely well this year. The start of the second quarter, however, is softer than the start of the third quarter.

Can you give me rough idea just on throughout the cycle kind of basis what factory automation is -- what part of -- what percentage of factory automation is in Europe? Fairly significant, isn't it?

Yes. My guess is 40%. Maybe more.

Not including surface inspection. Factory automation, let's see.

Europe.

Year-to-date in '08 , has been 41.5% of our fact factory automation business year-to-date bookings have come from

Does that worry you a bit with the Europe presumably going into recession here?

I'm sorry, I didn't get the question.

I said does that worry you that 41% in Europe with Europe particularly Europe and UK heading down?

Well, no, it still could be 41%, unfortunately, Alex, of a lower base. Of course it gives us concern, Jesus.

I mean more than in Burma.

Yes, yes, because if things go down when you were previously doing a lot of business, it is more painful than when things going down when you do zero business.

Is China a at a positive here? General revenue is it at all significant in China, yet?

I don't -- I don't know that I have the total here in China but it has been growing. It has been growing quite a bit. But I think what we're seeing so far in the fourth quarter is all of Asia is down compared to the third quarter. I don't have the details country by country available to me right here.

Just going to the semiconductor industry, I know zero is not a good target, low as possible, but it has been going on since early 2006, so this is two years old now, this downturn, as far as your end market in semiconductor?

I'm looking at the chart right in front of me and Q1 '06 was the high -- not the high end forever, but since Q1 '06 it has been on a downward trend. So almost three years.

I don't remember that before that that was a particularly -- I mean, they didn't go crazy with capital spending before that. I'm just wondering I know something has changed in the industry as far as your profitability, but are there some changes, people working with fewer fabs and using used equipment or is there some material change in the industry that would explain why it has been so bad so long?

I don't know. We have people in the company who could probably guess, and I could guess I think it has to do with lessening demand for the leading-edge products that require finer line widths and unless that happens, unless there is an increasing need for the leading-edge technology, for the next-generation technology, then there are plenty of fabs in the world who can make last year's stuff and you don't need anymore equipment.

The IT business is that still growing despite the factory automation may be slowing?

Yes, that is one -- that is a very bright area in our business is factory automation -- is IT.

I knew we could find something positive.

Yes, that's right.

How about the commercial products, you had one, got out of it, is there anything--

The good news is that it is no longer going down. Zero. We got out of that .

Very low base.

No, we got out of that.

No bright ideas of something just around the horizon?

No.

Okay.

No, the bright idea for the future is that there are two of them that seem to be shining and that is the ID business that we continue to win very nice orders and even automotive they're still buying ID and also our vision system on a chip which is still speculative, we have betas working and alpha chips working in the company and people are flying to it, and that will, we hope, be a breakthrough product for the Company and allow us to get into many different businesses, but you're not going to see revenue from that in '09 at all.

Given this environment, I would imagine the overall machine vision industry is probably having some trouble, assuming feds are not going to bail out any of your competitors, are there any acquisitions that can get you into new markets?

Well, it is an interesting question, we've never not done a deal because of price. A number of shareholders and people have told me, it must be a great opportunity to buy things. Well, we're always looking and price never stopped us, if we see something good, we buy it. So the fact that prices are down does not increase the number of companies we look at. Rob and I and (inaudible) spend a fair amount of time looking, but there are not that many things that fit our criteria which are rather stringent.

But there could be given the environment private companies that never thought about selling before my think about selling. Is there any technologies out there that you would like to buy that you don't have?

Nothing that we can talk about now. No.

It's possible?

It's possible . And we're always looking for new things. We have a nice balance sheet. We would rather buy things rather than spend the money buying back stock. That's okay, but buying companies is a better idea, buying new technology. And Rob and I are actively pursuing these, but I will tell you there is nothing on the front burner now. There is nothing on the front

As far as housekeeping, the tax rate for 2009, any guesses as to what it would be?

No, we're still working on pulling together our bookings' estimates by various regions of the world and putting together the final plan for '09, but if I were to give a guess right now, I would say it's probably going to be around the 26% level.

Okay.

But we'll fine-tune that in the next month or so.

Okay. And we'll find a couple of good things. Thank you.

You're welcome, Alex. Thanks for trying.

Thank you , our next question comes from [William Pike] from Pine Street

Hi, you've actually kind of answered the question. I just want to ask if your caution for next year, which is obvious in the environment, have you heard from customers saying forget any orders or we're pulling back or just absence of orders, or as you look forward are you getting hard specifics from people in factory automation, for example, saying we doubt we're going to do any business but we don't know yet. Can you give us color on that?

Sure. There are two reasons we're not talking around smiling today. One is that we see the average daily bookings for the start of Q4 below the run rate of Q3, and that shouldn't happen. That should be higher in Q4. So that's some really solid data. The average daily bookings are lower. The second reason why we're walking around with frowns is that we read the newspaper, as you do, and see the general situation in the economy going to hell in a hand cart. And the third reason that I'm frowning is that Obama's leading in the polls.

I happen to share that, too. But in terms of specific customers who buy factory automation equipment, have they told you to be cautious?

No, no, I don't think we have -- I don't think we have visibility to be honest with you with that level at corporations. We don't talk to the senior people at General Motors or Mercedes or Proctor & Gamble. We just talk to the factory floor, the manufacturing manager of a particular plant, and they may not even know. All right? Maybe the Board hasn't told them to forget any expansion plans. I don't know. So the answer is, no, we don't have any specific word from any of our customers about the future. But you don't have to be you don't have to be a rocket scientist to say let's get ready for tough times.

Right.

If it turns out not to be, then we'll be golden, right?

Right. Thank you.

You're welcome, Bill.

Thank you. Our next question comes from Antonio Antezano from Macquarie Capital.

Thank you. Just a quick follow-up. Last year in February-March, you launched a series of new products, I think between five and ten new products, and I was wondering for February, March of 2009 whether we should expect something like that or whether you can comment on that?

I'm sure, yes, we will be bringing a number of exciting high-growth products to market in the first quarter, yes, we will. Perhaps not as many as you saw last year, but certainly a number of them from which we do expect significant growth over the coming years.

Right. And could you--

And also we are going to introduce and we're beta testing a new product in SISD in surface inspection for different market segments that we are not currently playing in and that is a piece of good news that I didn't share with anybody, but we have three beta sites now which appear to be doing very well, and we anticipate rolling that product out the start of Q1.

And can you give us examples of applications for vision on a chip technology?

Yes. There are two broad kinds of things that we're looking at for vision on chip. One is to do things that can't be done with current chips no matter how much you're willing to pay for them. And the second group of things is things that require products or applications that require very small size and very low cost, so there are two different market applications that we're thinking of.

The first one, for example, is the ability to acquire and analyze images of very fast-moving parts and in order to do that you need vision system on a chip because even if you had one picture of the item going by, that picture may not be good enough or the right part of the object to analyze it. So the vision system on a chip currently running is about I think 300 frames a second and it will be up to 1,000 frames a second which means it can capture images many times while it is moving by, many different images and make sure to be able to analyze them to get the answer out. For competitive purposes, I'm not going to say what the application that we have in mind is, but we have a solid application that cannot be done with machine vision. It just cannot be done with the strobe lights or no strobe lights, it cannot be done with any commercially available chips. And it's a very interesting and high-volume application.

The second group of applications that we're talking about are applications that, as I mentioned, require small size, low power, and low cost, and those applications would be, for example, in automotive applications where they need high reliability. That means low interconnect and low part count and low power. And so this is a -- this chip including with our vision software libraries might enable automotive companies or Tier 1's to design the kind of things people are planning in the future for vision in cars. Vision in toys is a possibility.

We have spoken in the past to two major -- two of the leading toy companies about putting vision in toys. They continuously look for new opportunities to distinguish their products from other people and to have toys that do remarkable things, and vision is very exciting to them. But to do that the chips have to be very cheap and low power. So VSOC does that. Other applications that we're looking at are security applications that also very high volume. So, but it's well thought out where these chips can go in the future but, unfortunately, it takes a lot of time to put together all of the software to make it possible to turn this into a business. You can't just sell people these chips without a lot of software on top of it that makes it easy for them to program and we're talking about very sophisticated programmers using these chips.

Right. So we could expect some of those applications for 2010 and not in the near-term?

Yes, that's right. You might see us talking about the applications, beta sites in '09. We're certainly going to use one internally. We have a plan to come out with a product I hope in '09, second half of '09 based on VSOC, so that you'll hear about the applications and you'll see some revenue in '010. That's right.

Final question. Your ID business grew, I guess, 70% year-over-year if the math is right, and I was wondering to what extent that will be affected by the industrial downturn?

No, no, we think there is more legs to that business than to the other things we're doing and because there are mandates to put in product tracking that evidently have to happen at certain companies irrespective of their plans for capital equipment, and I think the product tracking, by the way, does not require new lines. It's not like a capital intensive. Unlike most uses of machine vision which they only start -- which they only put in when they're reconfiguring a line or building a new line, I think ID is added even after lines are built to build the track objects moving by. So it is less likely to go down than the others?

Just to add to that, Antonio, checking the comparisons of Q4 bookings to date compared to Q3 where we said that factory automation was down in all regions, sale of our DataMan ID product or whatever was up in all regions except for Asia so, as Bob said, there is better legs probably to the ID business.

All right. Thank you.

You're welcome .

Thank you. Our next question comes from Chuck Murphy from Sidoti & Company.

Yes, I think most of my questions have been answered but any other areas besides ID that you feel like could grow in a down-turn?

No.

And like China, or anything like that.

Inspecting beer bottles, maybe. I don't know. Look, a downturn, this is, we're basically in factory automation and downturn factories try to save money, right?

So you've been like--

On the other hand, I will tell you that surface inspection is very strong and we don't see -- we are not planning on any softness in that business right now. Those plants evidently, steel, we're doing very well. Evidently the budgets are in and approved, and so we hope that's the case.

So even like China you think would be difficult?

Yes, because China, well, except for our surface inspection business in China. But, yes, I think China is going to be difficult because Chinese factories are pumping out goods mainly that come to America? Right. If people aren't buying, then they're not going to be pumping out goods. So it's a real worry. It's a real worry. And I don't know how anybody is going to fix it. You could make it worse, but I don't know how to make it better.

Okay. Great. Thanks a lot.

Yes, you're welcome.

Thank you. (OPERATOR INSTRUCTIONS) And our next question comes from Jim Ricchiuti from Needham & Company.

Right. I'm surprised that the SISD business is holding up as well as it is. I mean, is this a situation where people are just going back and retrofitting some equipment that they had to replace? I mean, I wouldn't think there is a lot of new investment going on given the economy.

Nope, you're right. I believe most of our equipment I don't have the right people here to answer it in detail, but I believe that we are not looking at new plants, that these are now retrofits into existing plants and some are going into plants that didn't have an inspection system beforehand. So the plant has been up and running and they didn't have an inspection system. And a lot of this is happening in China where they're making. I'm not certain of this but I think it's true, they were making steel and galvanized steel without vision systems, without inspection, and now their customers are forcing them if they're going to buy from Chinese company or they want to because of the pricing, they're forcing them to inspect it and make sure it's the right quality. I don't know of any new steel or paper plants that are on line. It retrofits into existing plants that are either replacing existing equipment or plants that didn't have it.

You're having a good year in '08 in this area, but it seems a little unrealistic to see that business being up in '09? Could you see the SISD or maybe not being as down?

No, we would be happy with flat.

Bob, what about the new product in SISD. It's going to begin shipping Q1? Is there a long sales cycle? Anything you can tell us about the market?

We think the sales cycle -- it is a low-cost product which requires far less or zero integration on our part and fantastic, I am going to be visiting a plant that has it in a couple of weeks so I can tell you more about it. It is lower cost, higher margin, and does not cannibalize existing business. So we're planning on somewhere between $1 million and $3 million of revenue for that enterprise in 2009.

Okay. Thank you.

You're welcome . And that would be up over last year. By a dramatic

Thank you. Our next question is coming from Alexander Paris from Barrington Research.

Just one quick question. Could you give us a rough idea of your run rate geographically, US as opposed to the rest of the world? I guess what I'm thinking is if you listen to the TV, the whole world is falling apart. But if the US should happen to do better, for example, if their recession started and finished by the end of the first quarter, would that be significant relative to the rest of the world?

Are you talking about in total or--?

In total, right.

Oh, in total. Okay. All right. Okay. Let me take a quick look.

In other words, if the US looked a little bit better while Europe is belatedly is going down and China is going down, could you shift enough emphasis of marketing to the US to take advantage of that?

Year-to-date consolidated bookings the US has been about 34%, Japan 23%, Europe 31%, and Asia 12%. So the US combined still represents the, wait, I'm sorry. Looking at the US was 31%, Japan 22%, Europe 35%. Sorry, and Asia 12%. So I mean it's a big part of the business. Europe has been larger this year and part of that increase in Europe or whatever, was due to FX having an impact on it but, yes, if the US stops churning it is roughly one-[third of the business.

Thank you.

You're welcome.

No further questions in the queue at this time. I'd like to turn the conference back to your host.

Okay. Well, we're all hoping for a better times. My wife is doing her best to pump up the economy. She goes shopping just about every day. But if you listen to her, she's not spending a lot of money, it is always on sale. I don't know. Maybe I should tell her to pay list price. That's it from here. We hope to report better news at the end of Q4, and if I don't see you at various conferences, I want to wish you all good Thanksgiving and happy holidays.

Ladies and gentlemen, this does conclude your conference for today. Everyone have a great evening. You may now disconnect.