Circor International Inc (CIR) 2003 Q2 法說會逐字稿

Good day, everyone, and welcome to the CIRCOR second-quarter 2003 conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Ed McDonald of Makinson-Cowell. Please go ahead, Sir.

Thank you very much and good morning, everyone, and welcome to our second quarter earnings call. Our objectives today are to review the Company's recent performance and provide an updated outlook on the remainder of 2003, including guidance for the third quarter with David Bloss, the Chairman and CEO of CIRCOR, and Ken Smith, the CFO. After their comments, we will then go to Q&A.

Before we start, two administrative notes. First, the slides we will be referring to today are available on CIRCOR's Web site at www.CIRCOR.com under the link of Quarterly Earnings from the investor's page. Second, today's discussion contains forward-looking statements that identify our future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, we advise you to read about them in the Company's 2002 form 10-K which also can be viewed on the Company's Web site. Of course actual results could differ materially from those expressed or implied from today's remarks. Now let me turn the call over to CIRCOR's Chairman -- David Bloss.

Good morning and thank you, Ed. Before we discuss the slides, I have some opening remarks to share with you. Because, I'm sure you're hearing from others, market conditions haven't changed a great deal over the past three months although a little improvement is showing up in selected markets. As our earnings release indicated, we continue to enjoy the strength of the international oil and gas project activity, but domestic MRO work is still slow. Our HVAC and process steam markets reflect the same phenomenon with somewhat healthy activity in Europe and slowness continuing domestically. However, we do expect our Navy and Marine business to pick up as our fleet returns from prolonged active service although that should happen later this year we hope.

Meanwhile our Aerospace and general industrial Instrumentation markets have shown only slight movement from the slowness they've experienced over the last 18 months. Regarding our second-quarter financials, we continue to show improvement in spite of our market situation.

Ken will take you through the details but the headlines are that revenues came in at about $89.2 million, up 8 percent for the quarter. About a little over 4 percent excluding acquisitions -- and these revenues are about 24.4 percent up sequentially.

Orders were at 93 million, up 10 percent for the quarter although acquisitions played somewhat of an effect on it -- excluding acquisitions, orders were up 6.1 percent. And we're down about 1 percent for the quarter sequentially.

Backlog stands at 85.1 million which is another record for us. It's up almost seven percent versus last year, excluding acquisitions. And up almost 5 percent sequentially so backlogs are fairly strong.

Earnings came in at 28 cents a share -- 4.4 million. That's above our April estimated range for the second-quarter of the range we gave you was 23 to 27 cents per share. These earnings are up 14.5 percent compared to last year, including the absorption effects of inventory reductions which takes me to the last but not least point -- our free cash flow year-to-date at $25 million. That's equal to three times net income. Last year was about 1.8 times net income so we've made good progress on working capital primarily inventory reduction.

From a market perspective within the petrochemical business, the international oil and gas projects remain strong - the order rates activity, the quotation activity. We talk about North America, we separate that between Canada and the U.S. and the Canadian oil and gas activity was down from seasonally strong first-quarter but it's up 10 percent from last year. We expect things -- once the weather and the ground dries up out there -- that to be not a bad second half for us.

The U.S. oil and gas and industrial activity is still sluggish. There's little change with the decrease in project activity. Although the fundamentals for increased business in the second half seems to be present for the oil and gas sector.

Within the instrumentation and thermal fluid control markets, steam orders were down a bit from last year's second quarter and seasonally down from the first quarter by 4 percent with surprisingly strong activity continuing in Europe. Regarding our domestic activity we have the benefit of the copper program and the completion of the carrier USS Ronald Reagan last year that helped us out.

And then within the instrumentation sector of this segment of ours the aerospace orders were down 14 percent from first-quarter rebound which were up 40 percent, if you recall. And the orders for aerospace were down 6 percent from last year. Still a lot of shakeouts going on. You can read the Wall Street Journal every day and word of cancellations and postponements of commercial aircraft are going on.

The industrial processing markets for instrumentation were pretty flat overall - with some continuing strength in Europe. And then from a performance standpoint the earnings were respectable, given that our sales increase came from our lower margin petrochemical segment and included unabsorbed manufacturing cost due to our inventory reduction activities.

The second half should show some continued improvement of profitability for petrochemical as we now have transitioned much more of our inventory into lower cost components as part of our foreign sourcing program. Cash flow improved dramatically and our balance sheet is extremely strong with only 3 percent net debt to net capitalization. The market trends continue to be difficult to predict but we still expect some modest improvements in the second half.

I will have other closing remarks but Ken Smith will take you through further explanations of our results. Now let me turn the call over to Ken.

Thanks, David. To begin slide No. 3 and slide No. 4 provide the reconciliation from U.S. GAAP results that were reported in our earnings release to the operating results that I will be discussing on slides 5 through 10. And slides 5 through 10 exclude special charges which is a line on our P&L that historically we have used for facility consolidation. And on slide No. 4, there were special charges in the second-quarter 2002 which amounted to 292,000 pretax or nearly $200,000 after-tax, related to closing two small North American facilities and their consolidation within the petrochemical segment.

So now I'll move to slide No. 5. Regarding worldwide orders, our results were net of four general factors.

First: favorable foreign exchange rates, specifically the stronger euro and Canadian dollar. Second: the addition of two small acquisitions in October 2002. And third, the continued strength of large oil and gas projects particularly in the Middle East and Europe and all three of these positive factors more than offset the fourth factor, which is the continued soft economic conditions in many of our markets served which Dave began his remarks with. Our order rates from these collective softer markets have really been sustained since 2002.

Regarding backlogs, they are at an all-time high with international oil and gas projects inside that backlog number as of June 30, 2003, accounting for 50 percent of the total Company backlog. Just to underscore the importance of that growing market.

Regarding revenues for the quarter, the same four factors that drove the order levels also drove our revenue results and these four factors are noted on the slide. Regarding profitability, the operating margin decreases -- noted on slide 5 -- reflect the net results of several items including the favorable and positive contribution from last fall's acquisitions, our success serving the large oil and gas project market, and the petrochemical segment's cost reduction efforts.

Nonetheless, these three favorable factors were offset by volume decreases and the product mix change in other markets. Such as selling less of higher margin products into commercial aerospace, OEM, medical, HVAC markets, etc. Plus the dampening effect of unabsorbed manufacturing cost that could not be avoided with our efforts to sell existing inventory and successfully lowering our inventory levels.

Earnings per share increased as improvements in nonoperating expenses such as interest expense and FX gains helped offset the operating margin factors. And free cash flow -- well, we have another very good quarter. Most importantly, working capital is reduced as our business continue to reduce inventory this past quarter. And I'll add more color when I discuss later slides.

Moving to slide No. 6 of note are two nonoperating categories -- net interest expense was lower this quarter due to our principal payment of $15 million last October, 2002, as scheduled. And the other income category was favorable this quarter primarily from FX gain (indiscernible ) the euro and Canadian dollar were stronger.

Turning to slide No. 7, cash flow from operating activities and free cash flow was again very good not only for the second-quarter but the first half too. For the first half of the year our January through June 2003 results were the best since our spinoff. And inside the working capital, receivables were at 58 days of sales as of the end of June 2003 up 1 day from March 31, 2003, but still lower than 62 days where we started this year.

And with our proportion of international sales, we're feeling pretty good about 58 days sales (indiscernible).

Regarding inventory, we continued to lower them here in 2003. We generated $5.3 million of cash in Q1 and another $4.8 million in cash this quarter for a six-month total of over $10 million generated from lower inventories.

For CapEx, we now expect this year's total investment will approximate $7 million -- this amount will include our recent decision to increase manufacturing capacity of our joint venture in China. That capital investment will appear in Q3 and Q4 results and will be closed at $2 million.

Now slide No. 8. The balance sheet. Our balance sheet continues to be underleveraged with net debt to net capitalization now at 3 percent. We have not prepaid any significant amount of debt due to high May coal (ph) requirements on our senior notes. And other debt such as industrial revenue bonds carry some very low variable rates. And cash balances rose again on the strong performance this quarter.

So what will we do with $65 million in cash? Our first priority continues to be acquisitions. And, currently, the pipeline of prospects is pretty reasonable.

Now to slide No. 9. Our instrumentation thermal fluid segment results. Starting with orders, the stronger euro and the acquisitions in October 2002 have been offset by the sustained general weakness in our other industrial markets. And this order weakness has continued from 2002 as Dave previously spoke. Backlog change for comparisons of both Q2 over Q2 and, sequentially, from Q1 resulted from us having delivered key orders for U.S. Navy related to (indiscernible ) products as well as shipments to commercial aerospace and medical OEM customers.

Revenues were net of good news from both stronger stronger FX rates and the $3 million provided by the acquisitions of Tomco and Paraplate last October. Plus the revenue decline in other markets -- general and industrial, commercial HVAC, medical OEM and Power Gen. Meanwhile military spending for HVAC-related product has remained steady and we have had a small increase in (indiscernible) product sales in Europe. Although not represented on slide No. 9 second quarter order revenues increased nearly 4 percent -- or $1.8 million from the first quarter -- including higher shipments to aerospace and medical OEM customers.

Regarding operation income and margins, these declined from last year. We were impacted by several factors which offset the 2 improvements of FX and last October's acquisitions. These factors being order weakness from end markets which have involved products with higher margins. We also had unabsorbed manufacturing costs as inventories were reduced again this quarter and (indiscernible) inventory reduction in second-quarter generated $3.3 million worth of cash in the segment. And $6 million of cash generated since the first of the year in the segment from inventory reduction.

In addition, selected competitively bid products shipped this quarter, carried some lower pricing and, therefore, lower margins.

Looking ahead to the second half of 2003, we have not made any significant improvement in market conditions into our guidance that we will discuss a moment. In the meantime, we continue to evaluate further ways to reduce our cost structure including consolidation.

Now to slide No. 10, our petrochemical segment. The order strength and the high backlog for this segment both reflect the continuing strength of global CapEx spending for large oil and gas projects. The Middle East and North Sea regions are continuing to release projects and our Italian business unit -- PBBSC (ph) is generally acknowledged by customers to be the premier global supplier in the large size (indiscernible). Large project CapEx spending is predominantly for natural gas applications for known development sorry -- for development of known reserves both in land and subsea plus the expansion of distribution pipelines and also for liquid natural gas production.

Short cycle MRO orders from the North American markets continue to be soft. Revenues for this segment increased year-over-year, a part from the positive effect of the stronger euro exchange rate and additional revenue increase from the large international oil and gas projects sourced out of our PBBS unit. As for operating profit in margin our petrochemical segment continues to do hard work to consistently deliver 10 percent operating margins.

While this quarter shows improvement towards its critical objective compared to last year up from Q1 2003 we're continuing in critical transition towards a higher proportion of inventory being foreign sourced at lower cost.

Overall operating margin improved on the net basis as improvements such as higher margin projects and higher sales volume more than offset the domestic order softness and the unabsorbed manufacturing cost as we lower production to decrease inventory levels.

As an aside, this petrochemical segment's inventories have been reduced since the first of the year, generating $4 million of cash.

Looking ahead for our petrochemical segment we expect further reductions of inventory affecting underabsorption. This will dampen our profit somewhat in the whole year of 2003, which is why we're expecting a range of 9 to 10 percent operating margin for the full year 2003.

Let's now turn to slide No. 11. On this slide we point out several of our assumptions for key end markets and other factors that we expect to influence the degree of our success in the second half of '03. In the instrumentation of thermal fluid controls segment, we expect certain markets of our steam products will steady while many of the industrial markets it serves will continue to be soft.

Within the petrochemical segment, North American drilling rigs have risen over 20 percent in the first half of '03 vs. the average count for the first half of '02. So that particular fundamental is encouraging. Nonetheless, day rates for rig rentals have not increased nor has the usual associate spending for such items as flowlines, tank batteries, (indiscernible) stations where many of our products and sold. So we're cautious about an improving second half.

Looking at the international project site of petrochemical, we expect international orders to continue at (indiscernible) strong level.

And concluding with slide No. 12, translating our second half 2003 market assumptions into our updated business assumptions for '03, we factor in the following points: FX rates and our October 2002 acquisitions are aiding our 2003 results while most of our end markets are soft. Inventory inventory reduction remains a priority for us and that means some effect on operating margins as we will have some unabsorbed manufacturing cost.

In CapEx we now -- we continue to have new product in cost-saving spending along with the aforementioned capacity expansion of our Chinese joint venture that will raise this year's investment in CapEx to about $7 million.

And with that, I will now turn the call back to David.

As we indicated in our press release and our comments today we're not looking for much improvement in our markets for 2003. In fact, with the uncertainty that exists today in many of our markets and general economic conditions, our ability to see beyond a few months is pretty difficult. Our view of the third quarter is -- of 2003 is that we should come in at about 27 to 31 cents per share, excluding any special charges.

Now we will open up the lines for any questions that you have.

Thank you. If you'd like to ask a question at this time you may ask it by pressing the star day followed by the digit 1 on touchtone speaker -- on your phone. If you're on a speakerphone please turn off your mute function to allow the signal to reach our equipment. Again that will be star 1 if you have a question.

We will go first to Richard Glass of Morgan Stanley.

First question is in terms of moving some production to China when are we early going to see a (indiscernible) from that and is that just from the petrochemical? And then, along those lines, in terms of the petrochemical margins, is that all the foreign sourcing we're talking about their in terms of -- or are there going to be other improvements and you mentioned consolidation potentially. Is that something that you're exploring further or just thinking about?

Let me respond to that -- this is Dave. First of all, on the foreign sourcing side, we have a dedicated team of people that coordinate our foreign sourcing program throughout all of our operations with some significant experience, many years of experience of dealing in the foreign sourcing arena. And they are identifying working with each one of our operating units more and more opportunities to source components from lower cost regions of the world. And we're very excited about the future benefits that that holds for us continuing forward. So we haven't seen the full effect of that yet, even from an identification standpoint. That's a continuing process.

The joint venture in China is focused entirely on the petrochemical segment in producing finished valves and components for those markets. And as we are sourcing more and more of that from our joint venture, obviously, we're busting out at the seams as far as capacity utilization.

So, we need to expand that. And as we do, we will be getting even greater benefit as we move forward.

So, as far as timing of when we're going to see what is in the rest of that,it is going to be a continuing process. You're going to see some in the third quarter, you're going to see some more in the fourth quarter. And as we continue to identify more opportunities you're going to see it through 2004 as well.

Okay. And I guess you're talking about 9 to 10 percent petrochemical margins for the second half of the year.

That is a yearly average so (MULTIPLE SPEAKERS) we're expecting the second half to be stronger marginalized in the first half.

Can you quantify at all -- how much of the -- I'm a big fan of your free cash flow you guys are doing a great job there but can you quantify at all how much the inventory reduction are hurting the bottom line? Is there any way to size that for us so if we're trying to get an idea what a real earnings number might be?

Let's say the operating margin is dampened by one or 2 percent. (MULTIPLE SPEAKERS)

For the whole company.

-- particularly weighted to petrochemical.

That's pretty meaningful, then.

I'd say both segments

Both segments have the equivalent factor there. Their petrochemical -- their foreign sourcing to a greater degree and manufacturing maybe a little less than the other segment we have a higher proportion of fixed cost in some of our high-volume shots which means when you take your production down a little bit you can sell your inventories lower -- has a bigger impact. So both segments are really affected and (indiscernible) equivalent.

(indiscernible) did you guys answer the consolidation question at all?

No, I was just getting to that. On the consolidation front it's -- we do have some ideas that we are finalizing our thoughts on and, within the next six months, we should be at a point of making decisions and announcements if we do proceed with those so they just aren't ideas that we're starting on. They're serious and we've done some work on them and we need to do more to make sure that this is the right step to take. And we should be completed with that process, ready to make announcements if they do happen within the next six months.

Okay. That sounds good. And then on the acquisition front, are you seeing more deals less deals -- is pricing getting more reasonable? It didn't sound like you guys had anything that was too hot and heavy right now.

We don't -- we try not to comment too much about acquisition opportunities. As you know they're opportunistic and at the last-minute deals fall off for various reasons but the deal (indiscernible) I can comment on and that has improved quite a bit. Especially -- well, I would say on small and medium sized acquisition opportunities. So there's a lot to choose from, more than I've seen in the last 18 months to 24 months. Now the pricing on those -- they're coming off lower EBITDAs even obviously with their markets all suffering a little bit like we have. And the multiples seem to have come down slightly so I think the stars are lining up correctly and I'm hoping that we can see some success.

My last question, and I'll get off, is sequentially the corporate expenses were up, it looks like 11 percent. Is that from insurance or health-care costs or what went into that?

Sequentially. We have -- we're off to a pretty good start this year so we had a little bit more variable comp to record this quarter and with Sarbanes Oxley corporate governance rules come into more effect, we've recently started up an internal audit capability and some other pieces of a variable nature like that have raised the spending just a tad. Up about (indiscernible) 190,000.

Just a reminder (CALLER INSTRUCTIONS). Michael Schneider at Robert W. Baird.

First, I guess on the working capital, Ken, you mentioned in your guidance that you're looking for a 12 to 15 million as a source out of working capital this year. And if you look at the first-half cash flow you are already there or even a little better. Just netting (indiscernible) receivables payables inventory. Wondering if that is too low or indeed do you expect to actually build a little inventory?

Working capital source on slide 12 are open from 18 to 22 million.

Sorry, I was looking at an old slide, you're right so you're 15 -- already, 15 to 16 so presumably the impact for the inventory reductions in the second half will be lesser?

Well -- we're working hard. Working hard to underpromise and overdeliver. So we're keeping the pedal on inventories to the extent that we get some rise in order rates and sales. Certainly could peel back some cash for receivables and investment and inventory. But we're trying to take -- give you a reasonable look at the second half of (indiscernible).

And then the Petrochem side, got record backlog now -- 49 million. Certainly currency benefited, but the step up in margins in the second half is going to be pretty steep to hit the guidance. Just wondering: is the margin profile of the projects that are being shipped now significantly higher -- and you're starting to see the benefit of the better pricing that has been going on for about the last 12 months?

Mike, this is Dave. You're right there. As we look at our backlog today, we feel pretty good about the margins going forward. Especially now that we're getting more and more of a foreign sourcing in-house and installed in the product base. The change in the costing of that improves our margins in our backlog and coupled with that is the PBSSC business which as good businesspeople do, as capacity reaches its limit, you only go after the higher margin project orders and they have done that there quite nicely. So we're quite proud of what they've been able to accomplish as well. The combination of those two things gives us confidence in that projection.

And I don't know if Alan is there but could you give us some sense of reuse than your goal of foreign sourcing for the PetroChem Group and where you're headed?

Alan is not here today but things are progressing quite well and that's why we have to increase the capacity and add our (indiscernible) joint venture for petrochemical. We still have I think Alan last quarter (indiscernible) all components for petrochemical and doing that by early next year and we're still on that target.

And the investment in the joint venture just give me a sense of how much incremental investment is? Just because this is a cyclical cyclical business and it seems to me you're raising the capacity of the business which only maybe enhances the variability in a down cycle?

It's interesting to let you understand the structure of the joint venture, we have 65 percent ownership in that joint venture -- 60 percent -- and that's been accumulating cash for us and making profits even though we manage that business as a manufacturing joint venture where our joint venture partner is a publicly traded (indiscernible) company in China -- they get 40 percent of the capacity if they can utilize it and we get 60 percent of the capacity. It's been generating cash and we -- and that cash, rather than split it out as a dividend between us we decided to take that cash and reinvest it into equipment. So CIRCOR is not making an additional investment into the joint venture. It's implementing or redeploying existing cash into the joint venture into more capacity that CIRCOR will probably get the major benefit of.

And the savings are so compelling on a cost reduction basis, Mike, that certainly makes this investment easy to decide. At the same time, on the flipside of which I think is your point, as we -- because it's producing a lot of the common most commonly purchased end product (indiscernible) that as we get subsequent variability and demand even with or without that variability, we're going to be probably investing less and decommissioning machines and domestic plants as that shift takes place. So net net net (ph) we think is a very wise investment for a base of business that won't go away.

So use the up cycle to deploy money into the Chinese joint venture but in a down cycle you presumably attack the higher cost areas of your structure? (MULTIPLE SPEAKERS) And just drilling down into Telford. Everybody's trying to figure out where the chemical market is going. I believe that's your most sensitive business in that segment. Could you give us some sense as to what you saw during the quarter? We have heard some other players say things deteriorated during the quarter and our data shows things will probably get worse in the second half -- just some color there?

Just to clarify, Mike, Telford is our Canadian operation and it's 90 percent oil and gas related. Our closest business to the -- is Contromatics to the chemical processing industry -- used to be the Watts Industrial Products Division. We renamed it after (indiscernible) Contromatics and we continued to see softness in that market just like everybody else. It doesn't represent a big number for us, however. That segment of the market looks to be about $20--$25 million and that's our exposure on the petrochemical segment segment through the chemical processing side.

We do have exposure to chemical processing on the Hoke business as well in the industrial instrumentation side of that chemical processing market. And that has been pretty ugly for quite some time as you know. We have been fortunate to have captured some global contracts and market share over the last 12 months to 18 months which have helped us offset or feeling the full effects of other people who haven't been so lucky as they suffer through the downturn. Now what's going to happen in the second half, I continually espoused that the chemical processing sector structurally is changed permanently, as more and more processing is done offshore supporting where production is going, manufacturing is going and that's going to continue to be the FX that everybody I think us included are going to see. We are focusing more and more on the European and Asian markets and supporting our customers that have global presence, who are spending money overseas in the chemical sector. To help offset that.

And when I was down at Hoke in June it seemed clear they're winning more and more global contracts, and renewing the existing contracts with even greater presence. Does that explain mainly why you're not down as much as your competitors in that chemical and petrochem segment?

I would hope so. It's hard to ferret it all out, as you know, when you are continually are on a quest for more information with your distributors and so forth but I think you're right.

Okay and maybe if you could just us a sense -- the quarter itself you beat your own range by a penny. What came in better than you would've expected during the quarter?

We -- I think volume was a little bit up for us than we had originally anticipated overall -- some sales volume was a little bit better for us. Little higher than what we had estimated for the quarter. Those are the 2 major elements, Mike.

And then the range of that, it is quite large (indiscernible) do a sensitivity on the guidance to the low and high end of the range you end up with $1.05 to $1.28. Why the big disparity and what gets you to the low end? What gets you to the high end?

I think in your calculations you're using all of the lowest numbers that we gave you and the high-end you're using all the highest numbers and that is going to be a combination of the two. And so that's one of the issues that we're faced with in trying to predict what is going to happen for the second half. There are so many variables that could occur we just -- we can see pretty well into the next quarter, obviously. And that's why we give a tighter range for the next quarter to you.

The one that strikes me on the guidance and I promise -- my final question -- is just the petrochem guidance of 10 to 11 percent on the margin -- I'm sorry -- 9 to 10 on the margin. It seems to me you know the backlog now in that business and you know the margin profile of the backlog. Can you say with any certainty that you'll be at the high or low end of that margin?

Except the backlog on petrochemical has got a two-part component to it. The largest piece of that backlog being PBBS's long leadtime item. Some of these will obviously be delivered in Q3 Q4. But there's a growing proportion that is now going to be delivered in '04 because some of these larger valves take six to seven months to procure machine and deliver. So there is a fair portion of revenue for this segment that we can size out for the second half, but when we talk domestically, which is a higher piece, higher proportion of the revenue numbers, there's a shorter -- shorter window. Backlogs have come down for that domestic business and the headlights don't go out as far as they used to for what (indiscernible) have in hand right now. And that's the most challenging to predict.

And of course some of that can be quite lucrative. The confinement sales that grow with that domestically come in generally with higher margins.

Obviously, Mike, we're pushing for the high end of that spectrum.

Brad Evans at High Rock Capital.

Strong results, gentlemen. Just curious on the North American MRO site could you just talk about what you saw there, linearity in that business in the quarter and what you're saying here in early July -- you mentioned the rig count is up over 20 percent year-to-date just curious if you've seen anything there that gives you at the margin little bit more confidence or enthusiasm with regard to that business?

The fundamentals are there. We haven't seen it in orders at all yet. In fact, we've seen some softness quarter to quarter sequentially in the North American MRO markets. And so, we've driven down through our major distributors in fact, in the last seven days, to check their temperature for the second half activity. And they're telling us what we told you basically that the fundamentals are there, they're looking for improvement in the MRO business for the second half. There's not much more we can add to that.

Gentlemen, I am showing nothing further at this time. I will turn the call back over to Mr. Bloss for any additional or closing remarks.

We really don't have much to add. We try to be very thorough in our comments and to give everyone a good picture of what we're seeing and we're hoping for, obviously, a better second half, but we're not counting on markets to take us there. We are driving for cost reduction and continuing our cash flow focus. So, hopefully, you will be seeing more of that from us. Once again we appreciate your dialing in and listening to our conference call and we'll see you next quarter. Thank you.

Thank you for your participation in today's conference and you may disconnect at this time.

(CONFERENCE CALL CONCLUDED)