Circor International Inc (CIR) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CIRCOR International's Second Quarter 2007 Earnings Conference Call. Today's call is being recorded. (OPERATOR INSTRUCTIONS.) I will now turn the call over to your host, Mr. Dan Peoples from the Company's Investor Relations firm. Please go ahead, sir.

Thank you very much, Kim, and good morning, everyone. Welcome to CIRCOR International's second quarter 2007 earnings call. Our objectives today are to review the Company's recent performance and provide an updated outlook on the full year 2007 with David Bloss, the Chairman and CEO of CIRCOR; Bill Higgins, the Company's President and Chief Operating Officer; and Ken Smith, its Chief Financial Officer. After their comments, we'll then go to a question and answer session.

Before we start, two administrative items. First, the slides we will be referring to on today's call are available on CIRCOR's website, circor.com, under the link Quarterly Earnings on the Investors 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 risk factors, we advise you to read about them in the Company's Form 10-K, which also can be viewed on the Company's website. Of course, actual results could differ materially from those anticipated or implied from today's remarks.

Now let me turn the call over the CIRCOR's Chairman, Mr. David Bloss.

Thank you, Dan. Good morning, everyone.

It's certainly nice to report another quarter of record results. EPS was $0.63, excluding special charges, up 58% year-over-year. Revenues were $166 million, up 15% over last year. Orders increased 18% over last year, and backlogs ended at $374 million, up 28%.

Market conditions are generally strong across the board, allowing us to raise our expectations for the second half. The energy markets remain very active, although order patterns in the North American markets are being affected by wet weather conditions in places like Texas, Oklahoma and Kansas. High day rates are happening for rigs in Western Canada. And distribution inventory levels, which are catching up to demand.

But, in spite of this, the fundamentals remain strong and the international project activity is healthy. And our aerospace, steam and general process instrumentation markets are trending up steadily.

Our earnings performance was led by a great mix of product shipments within our Energy segment, and the improved productivity of our operations in Oklahoma City, China and Italy.

In the Instrumentation and Thermal Fluid Controls segment we're showing an uptick in operating results, partly due to favorable sales volume and mix. The rest due to what I call stabilization of our manufacturing processes. We still have a lot of work ahead of us to get our performance where we believe it should be.

Bill will fill you in with more details later, but I can tell you that we have a lot of talented people working extremely hard refining and revising our operational processes. A lot of these people are new to our organization and have come to us because of our commitment to operational excellence. Others have been with us a long time and have been willing to learn new ways of identifying and solving issues that have been around even longer.

While it's way too early to claim victory, I can tell you that I've never been more confident in our business leaders and their teams to get the job done and take us to a new level of performance, first in the eyes of our customer and then ultimately in the eyes of our shareholders.

Now, I'll let Ken and Bill take you through the details then we'll answer some questions after that.

Thanks, David, and I'll be referring to our presentation slides, starting with slide number three, which shows the consolidated results for CIRCOR.

And as David stated, we had a very good quarter, with record levels in quarterly orders, earnings and (inaudible) backlog. We had double digit growth in both revenues and earnings, showing significant margin expansion.

For the quarter, the revenue increase was led by our energy products, followed by aerospace and thermal fluid products, each benefiting from higher volume and price realization.

Regarding operating income, we had very good margin expansion, particularly in our Energy products segment, which drove the majority of the improvement. And instrumentation and thermal fluid products segment had quarterly improvement compared to Q2 2007, excluding this year's special charge for a plant closing. And while not shown in the slide, it also had a higher margin this quarter compared to Q1 2007.

Regarding diluted earnings per share, we had significant double-digits increases compared to the 2006 periods. And this quarter's result, excluding special charges, was $0.07 over the top end of our guidance that we provided in our May 2, 2007 earnings call, principally due to the timing of higher than expected project related shipments.

And free cash flow was positive this quarter, and was the direct result of increases in our profitability compared to the periods in 2006.

And I will turn to slide number four, which details the P&L in a bit more detail. Bill will discuss the significant rise in the segment's operating income in later slides, so I'll add color on the other larger categories of special charges, corporate expense, interest expense, non-operating expenses and income taxes.

First, special charges. We had no special charges in the 2006 periods. However, in 2007, the special charges related to our Instrumentation and Thermal Fluid product segment, closing a small U.S. plant in Connecticut that manufactured components in its Hoke product line. In Q1 we recorded severance and certain related costs and, in Q2, we record the related facility closing costs as we vacated the property. And that facility closing is but one result of our actions to raise the operating margin of the Instrumentation and Thermal Fluid product segment.

Second, regarding corporate expenses, we increased a bit. Essentially all of the increase in 2007 periods were related to corporate development costs directed at potential acquisitions.

Regarding interest expense, it was lower in the 2007 periods for two reasons. First, we paid off in October of 2006 the fixed rate debt which carried an 8.25% coupon. And secondly, we paid down a good portion of our revolving credit line during the second quarter of 2007.

The non-operating expense was largely the recognized and unrecognized net losses on certain inter-company transactions as foreign currencies became stronger during 2007.

And regarding income taxes, the slide shows a larger increase for the quarter and year-to-date periods. We earned a lot more money and thus we incurred a higher tax expense in 2007. And our tax rate for the full year 2007 is expected to be 32%, which was also the rate that we used in the first half of 2006. And the 32% tax rate for the full year '07 is an increase from the full year '06, when the rate was 30.6%, and this increase in '07 reflects the loss of a U.S. tax deduction for export sales that expired at the end of 2006 for all U.S. taxpayers.

Now, to slide number five, cash flow. In the cash flow from operations and free cash flow categories we had similar sources and uses of cash for both periods, except for the marked increase in our profitability in 2007.

Working capital continues to be a use of cash as our orders rates and backlog have continued to increase significantly.

Now to slide six, the balance sheet. As you can see, it continues to be very healthy. We had decreased debt in 2007, and our debt to cap remains a very conservative 13%.

And now Bill Higgins, CIRCOR's President, will speak about our segments' performance.

Thank you, Ken. And now slide number seven, our Instrumentation and Thermal Fluids segment results. This segment performed better this quarter, as we had expected and communicated last quarter. We believe we've turned the corner and will continue to make improvements and deliver better results as we go forward.

Regarding orders, the end markets served by this segment continue to be positive. Compared to 2006, orders are up this year for each product group inside this segment, led by some large military aerospace orders booked in the second quarter of '07.

Revenues have grown solidly in our Instrumentation and Thermal Fluids product businesses. The increase in revenues benefited from higher volumes, selling price across the segment's three major product groups compared to the 2006 time periods. And our Lean Manufacturing initiatives are helping us improve our factory performance and us responding faster to customers, resulting in reduced late shipments and faster revenue conversion.

Regarding operating margin, our result of 8% this quarter was as expected and as we indicated last quarter. That margin includes special charges worth 70 basis points for exiting the U.S. facility that Ken referenced as we closed it in March 2007. And although not shown on the slide, the second quarter '07 margin reflects an increase from Q1 2007, a sequential improvement of 80 basis points on higher volumes, price realization, and improving factory productivity.

For this segment this year, we're driving multiple improvement actions across the businesses, specifically in our Hoke Instrumentation products. We have actions underway to increase outsourcing and foreign sourcing to lower the cost of goods sold. We have actions to achieve a more linear and efficient production, to optimize the use of capacity and actions to insure a predictable flow of inventory from global suppliers.

As we noted previously, during the first half of 2007 the one plant we closed was within our Hoke Instrumentation products. And its production is now being sourced from low cost Asian suppliers. This plant closing incurred costs in 2007 of $1.2 million, of which $600,000 was recorded as special charges in each of the first two quarters this year. The savings from this closure and the foreign sourcing benefit is expected to be approximately $1.7 million per year.

Other actions underway in this segment include the further building of low cost off-shore supply of materials to offset material inflation, continuing to rearranging our factories for better flow of product. We're training our workforce in the tools of Lean Manufacturing and Six Sigma, and improving our supplier management and factory planning and execution capabilities.

As Dave mentioned, there's still a lot of work to do. WE have a lot of work underway and great teams in place that are making progress, and we expect the progress to continue.

Now, to slide eight, our Energy Products segment. The oil and gas end markets served by this segment continue to be very healthy for both the large international project business, as well as domestic production and distribution. Although the half year comparison in orders was small, it reflects a modest quarter intake in Q1 2007.

At least half of this segment's new orders come from large projects, and the timing of the awards are lumpy. And although not shown on this slide, Q2 2007 orders were 27% higher compared to the first quarter of '07.

And as Dave mentioned, we're watching order activity in North America due to the recent wet weather conditions. We're watching a higher inventory levels in the distribution and the activity in Canada. Overall, the energy market for us continues to be very strong, and particularly the large international projects.

Revenues are a mirror of the significant order growth we've seen. This quarter's increase in revenues compared to Q2 2006 was the net result of nearly $11 million for large international projects and fabricated systems in North America, plus an incremental $4 million from more standard products sold through distribution.

With this segment's record level backlog of $243 million heading into Q3, we expect a solid 2007. As for profitability, this segment turned in a record quarterly operating margin. Its margin performance came from a number of factors, including the higher unit volume driven by the market demand, into which we've been able to increase prices, win some share gains.

We've improved factory and supply chain performance from our Lean Manufacturing improvements in North America and China and Italy, enabling efficient capacity expansion to meet rising demand. Plus, we've had the benefit of expanding our production in our China manufacturing plant, which serves as a key supplier to our North American customers and provides us with a lower cost of goods sold.

Now let's turn to slide number nine. On this slide we point out our assumptions for key end markets that we serve. Nearly all our businesses are expecting a positive 2007. We've previously described the expected strength of our oil and gas exposure.

In our other segment, Instrumentation and Thermal Fluid Products, we're still anticipating solid order rates from aerospace, power generation globally and other general industrial sectors, with some near term order softness in sales to the maritime market.

Now, let's turn to slide number 10. Our expectations for revenue and margins in 2007 are cited here. We have changed some of the numbers on this slide for revenue growth compared to what this slide showed on our May 3rd 2007 earnings call. We've raised the revenue growth for both segments. As you'll recall, Instrumentation and Thermal Fluid Products had been 5% growth, and the Energy Products segment previously was 9% to 11% growth. The revenue growth increases we've made were made on the basis of growing backlogs and a strong level of quotation activity.

Regarding operating margins, and in particular our Instrumentation and Thermal Fluid Products segment, we will continue to make progress improving our supply chain, strengthening our operations and material planning roles, including the other improvement activities I've already mentioned.

And as I've stated before, this is no small task. It's taking time, a lot of hard work and, as Dave mentioned, by very talented teams out there. We have much stronger management teams in place and we expect to see a continued progress in this segment.

Our expected margin for this segment remains unchanged from our May 3rd earnings call at 9% to 9.5%. That full-year range is an improvement over full-year 2006 and is comprised of sequential improvement during 2007.

We've raised the margin estimate for our Energy Product segment. In our May 3rd call we expected to have 13% to 14% margin this year. So now we feel the upper end of that range is likely.

And although not shown on slide 10, we have provided EPS guidance in our earnings press release for the third quarter of 2007 of $0.53 to $0.56 per diluted share, with no anticipated special charges. The range of $0.53 to $0.56 is favorable to the third quarter of 2006 when we reported $0.45 per share, which included a $0.02 special charge for pension curtailment costs.

The estimate for Q3 2007 is lower than the second quarter of 2007 due to a less favorable mix of product revenues within the Energy Products segment, partially offset by higher operational performance expected from our Instrumentation and Thermal Fluid Product Controls.

Regarding cash flow from operations, we've lowered this year's expectations from the May 3rd call when we cited a range of $55 million to $60 million. The lower estimate now reflects the even stronger backlog level and the related continued investment in inventories to support our customers, plus increased receivables related to our higher revenue expectations.

So, to summarize our outlook, we have good end market conditions, healthy backlogs, stronger management teams in place. We're driving improvement on multiple fronts to grow the top line and improve performance on the bottom line. We are deploying Lean Manufacturing methodologies globally at all cites to develop a culture of operational excellence for the long-term benefit of our customers and shareholders. We're rationalizing product lines and consolidating facilities to fix and reduce fixed costs. And we will continue to reengineer our supply chains, particularly globally, to take advantage of lower costs of foreign supply.

In summation, this gets us to the full-year guidance that we've shown on slide number 10.

So with that, we'd like to open up the lines up for any questions you might have.

(OPERATOR INSTRUCTIONS.) Mike Schneider, Robert Baird.

Good morning, guys.

Morning, Mike.

Very nice quarter and amazing margins in Energy. Maybe just starting in the instrumentation business first. You walked through Hoke and the closure this quarter. I don't know if you guys can give us at least some qualitative sense, but when you talk about production metrics are improving, foreign sourcing percentages are rising, can you give some -- at least a qualitative feel as to where you believe you are as far as your ultimate goal? That is, what is your goal for foreign sourcing percentage? Where are you today? Production metrics, where do you hope to be and where are you today?

Production metrics, as part of our -- let me take that part first -- as part of our Lean deployment globally, we're working through all of our facilities, but particularly in the Hoke business. As we mentioned before we've got a really strong management team in place there. We're working through the facility and, really, across the whole supply chain, putting metrics in place to drive and improve the business.

We're seeing the improvements. We're seeing the improvements first in the places you would expect to in a Lean transformation. That has to do with the flow-throughs, assembly and how material flows work and process inventories flow across the facility. That drives us back further through all of our machining and supply of material. We're working the improvements around the planning and scheduling and execution of that supply into the assembly processes and aligning that with our customer demands.

So, we're -- we've still got a lot of work in front of us, but there are parts of it that are very much improved. The teams know one of the next steps to work on and we're going to keep working through that.

Regarding the foreign sourcing, we have outsourced, foreign sourced the facility we've referenced. We are continuing to look at lower costs, forms of supply, and we'll continue to outsource either domestically or globally as it makes sense. There is a plan in place of how much of that we expect to do in the rest of this year and as we head into 2008. How far along we are in that, we're into it but I wouldn't say we're halfway through it yet.

Could you share with us what you expect to ultimately foreign source and where you are today?

Ultimately -- what we expect to foreign source from what standpoint?

Just percent of cost of goods sold, units, dollars, however you measure it.

Yes. We had very little foreign sourcing if you went back a year ago. We probably foreign source maybe 20% or 30% of basic material supply. We'll probably double that again over time.

And we had talked historically about your goal of improving -- or expectation of improving margins I believe 50 basis points every six months. Is that still a realistic achievement and is this quarter and the 80 basis points sequential improvement, is that indicative of what's to come?

I think as we look at 2007 we still have that expectation. We still expect to get to the end of the year and complete the year getting into the above 10% on a run rate basis. If we get 8 points in one quarter that doesn't mean we're going to get 8 points in the next quarter. But, I expect that that 50% level sequentially makes sense, is still our plan.

Okay. And the aerospace wins this quarter, I presume that was some of the landing gear business? And are margins in that business favorable to the mix or dilutive to the mix as you go forward?

Your assumption's correct and, yes, favorable.

Favorable. Okay. And then just -- I'll get back in line, but one question on energy. The distribution levels you mentioned you were watching, do you -- are you indicating there then that, because of the unfavorable weather in the U.S. that inventory at the -- in U.S. distribution is too high, or your inventory's too high? Just some more color there, please.

No, I wouldn't say our inventory's too high. I'd say what's happening in that market space over time is that everybody's been racing to catch up with the demand. And I think that a lot of companies have caught up with the demand. The inventories have been replenished and the system -- the flow is still flowing, the activity's still fairly strong. So we're watching it, I guess, is the best way to describe it.

Okay. Fair enough. Thank you and congratulations again.

Thanks.

Charles Brady, BMO Capital Markets.

Hi. Thanks. Good morning, guys.

Good morning.

On the project work that you guys indicated you booked a little bit, it sounds as though you were inferring that some of that got pulled forward into Q2 from second half expectation. Is that a correct assumption?

Yes, it is.

And is that the reason -- when I look at your guidance on the back half of the year for margins for energy products, given what you did in the first half to what your guidance is at 14%, it implies kind of down margins in the second half, which would be surprising given the underlying strength of the market. Can you just comment on sort of the rationale on that?

Well, the -- our strongest right now what we think of the four quarters this year, our strongest margins for energy would -- will be in the quarter that just finished, largely because we had some pull-ins, but also some of the unexpected shipments were some fairly profitable margins and contribution margins on them which benefited the second more than would have otherwise been in the second half, third quarter or second half of '07. And that is primarily the biggest factor.

Plus, as we have distribution inventories getting adjusted here in the next couple months, the proportion of our distributions sales will be a little less. Actually carry greater margins than what we're currently earning on our projects and fabrication business. So, a combination of really rich pull-ins, plus a little shift in the mix here in the second half means that we'll have around 14% margins here for the next two quarters and what we're expecting.

Okay. And on the MRO business, I mean, what sort of visibility do you have on your order flow for MRO product? Because I can't imagine it's very long.

About 45 days, something like that.

Okay. And so your guidance sort of implies, again, just so I understand it, you've got your channel inventories levels have been replenished on the MRO side.

Right.

And so, is it fair to say that, given that and the short window sort of visibility you have, that that has something to do with what I would consider to be conservative guidance?

Well, it doesn't allow us to be as bold and it adds an element of risk in the forecasting process. So, we naturally tend to be a little bit more conservative when there's that type of risk in our analysis.

Fair enough. Fair enough. My second question, on the instrumentation side, you mentioned some of the orders in the quarter, military aerospace orders. Presumably those are pretty high margin type business. When would you expect to ship those and recognize the revenue and, more importantly, the high margins on that business you booked in Q2?

The aerospace orders go out into next year. They'd be shipped in 2008, those recently booked aerospace military orders. They're longer lead orders.

Isn't the military a shorter lead time booked in -- recognizing in '07 then?

No, no. The--.

--Is military and aerospace sort of one and the same? Is that what you're--?

It's a military segment of aerospace--.

--Okay--.

--They were booked -- our landing gear business is primarily supporting the Boeing Chinook Helicopter program and the foreign users of the same helicopter programs. Those orders tend to be long-lead items.

Very good. Thank you.

John Franzreb, Sidoti & Company.

Good morning, guys. I'm thinking about the backlog in the Energy business and what you said about the higher margin product flow-through. With thinking forward, how much of that backlog has a similar type of margin contribution?

Similar as to what?

The high margin (inaudible) that we had in the second quarter.

Well, it's $243 million, the large projects. Within that backlog are certainly a mix of product. And I'd say it'd be more consistent with what we will experience for the full year of 2007.

So, this is kind of a one-time event, this high margin contribution, that the backlog isn't similarly filled with similar profit levels?

Well, there's a mix. There's some -- because of unique alloys and specifications, parts and specifications from customers that would carry higher margins on. And some that doesn't have quite the rigorous specifications will have lower contributions.

Okay. Right. What I'm looking for is how much of that backlog has the higher margin contribution? A third?

Well, it's a tough calculation for us to go through. But, you also have to take into consideration the question that Charlie Brady just asked about our lookout window. That backlog has maybe 45 days of distribution orders, but a year to a year and a half of project orders.

Right.

So, the mix of the backlog isn't really consistent with our quarterly shipments, or what you could expect us to ship as a mix. If you see what I mean. Did I explain that--?

--Yes--.

--Correctly?

How about maybe if I try a different way.

All right.

How much of the mix is long-term projects?

Oh, it's a large portion of our backlog.

Okay.

It is a vast majority of it.

About 70%.

70%. That's what I was going to guess off the top of my head, 70%, and Ken just confirmed it.

Okay. That helps.

Yes.

Okay. And one last question. The Hoke reorg. How long is that going to take before that process is kind of completed?

I guess it depends on your definition of completed. We're going to keep making progress. We're going to keep improving it. We have a very aggressive plan for 2007 that takes us into 2008.

I think the bulk of it should be -- start -- we should be in pretty good realization of the bulk of it by the end of '08, I would think.

I was going to say, we -- maybe -- I'm not trying not to answer the question, but we have a plan in place that takes us out into the middle of 2008.

Yes.

Okay. Thank you very much, guys. Good quarter.

You're welcome.

Ned Armstrong, FBR and Co.

Thank you. Good morning.

Hi, Ned.

Good morning.

My question involved acquisitions. You had noted that there was some spending at the corporate level on acquisitions. And I just wanted to know a couple things in that respect. One, if your focus on specific areas of interest has shifted or expanded? Second, how you're seeing the environment out there given all the noise that we hear about private equity, etc. And then third, if you're risk-return parameters are the same or if they've shifted as a result of that.

Okay. I can take that. First of all, the spending levels that Ken referred to, we go -- you go through some of these deals and, as hard as you try not to start spending money on lawyers and accountants and so forth doing the work and traveling and so forth, sometimes you get pretty far along before you find out that the competitive environment, the product line, just didn't match what you originally thought it would be. So, we pulled back away from a couple of deals that just -- we were pretty close to and spent a lot of time and effort on, but decided not to pursue.

The activity levels are strong. Our focus continues to be on the aerospace side and the energy side. Until we get a better handle on the instrumentation business you won't see us getting back into it too much. Maybe some technology acquisitions of a small nature.

But, our major emphasis has been, and will be on the aerospace and energy. And a little bit on steam and related process, industrial control valves and those types of things. So, our basic mix hasn't changed.

Concerning private equity, some of these larger deals may or -- I guess there's some question in the market on private equity deals being able to be financed. But, we aren't competing in that arena. In fact, the arena that we do compete on is clearly below the $100 million mark at this point.

So, there's really been nothing that's cascaded down?

And we really haven't seen them active in that level of -- and we've dealt with private owners primarily. A couple of auctions going on that you may see some private equity money going after. But, I don't think that's going to influence us, and it has not influenced our return parameters and our modeling and valuation of these businesses.

Okay. And my other question really dealt with your aerospace business. Away from the landing gear order, has your military business remained pretty solid, or have you seen softness? I've heard mixed reviews from different companies in that respect.

I think it is a mixture. I think if you look at -- across military, I think there is a mixture. The aircraft that are getting used with regard to the war are the ones that are receiving more funding from the military standpoint. So, we see a little bit of impact in a couple of places that are not highly used aircraft, or in our -- we supply some switches and other ordnance type products in the aerospace that -- there's a little bit of softness there but, I the mix overall, we're healthy. But, I think there's been just a shift in the spending.

Okay, good. Thank you.

You're welcome.

Mark Grzymski, RBC Capital Markets.

(OPERATOR INSTRUCTIONS.) Mr. Grzymski, your line is open.

We'll take a follow-up from Charles Brady, BMO Capital Markets.

Thanks. Just on the corporate expense line in your guidance for [16.8]. Obviously, it implies a decent pick up in the second half. Can you just discuss a little bit more of what's going on there in the second half? What's driving that increase in corporate expense?

Largely attributable to variable compensation programs and some anticipated corporate development costs. Those two are driving that modest increase of 300 grand.

Thanks.

Mike Schneider, Robert Baird.

I notice on the market assumptions you still have North American rig counts as a positive factor. Just curious what your outlook is there, because rig counts were down 1% in the second quarter in North America. I think they're basically similar plus or minus year-to-date as well. Is it really a positive factor going into the second half?

We think so. I mean, that's a modest decrease. And we think once this weather dries up in the central plains -- and we are seeing day rates, rental rates coming down a bit from the peaks that they had a couple months ago. So, we're anticipating that that'll continue to be -- it's really not a soft spot.

Yes. It's still at pretty good levels, relatively.

Okay. And then in the HVAC market, have you seen an acceleration, deceleration in some of the commercial construction projects you're involved in, or just MRO spending by the various cities? Just any color on that market because there's a raging controversy as to what direction commercial construction is headed.

There is -- there are some indications out there that there are certain parts of the country that have slowed down while other parts of the country are strong. Overall, it looks okay to us, but I think the middle part of the country, maybe an automotive economy effect. I'm not sure. But, we've seen a little bit of softness in the very central part of the United States where the West, the East, the South seem pretty strong.

Okay. And then, when you look at the project shipments out of Energy, Pibiviesse, presumably most or all of it, can you give us a sense now of what pricing is contributing to the growth on that? And actually before you go there, maybe you could just tell us what the two sides of the business were up during the quarter, just so we get a sense of what's contributing to the 24% revenue growth this quarter.

Well, on the revenue piece of that question, Mike, the -- I think Bill quantified it in his remarks. We had an incremental -- out of that $59 of incremental revenue--.

$11 was project.

$11 was out of our projects and fabrication business, so that also includes Sagebrush. And then we had an absolute amount of $4 million of the quarter-over-quarter improvement coming out of our distribution business. So, proportionately, the projects which -- and fabrication work, which includes Pibiviesse, was the large -- the predominance of that absolute increase.

Okay. And the price versus unit mix now out of that project business?

I would say it's more unit growth that fueled that $11 million, although with some pricing elements.

It's hard to compare because every project is almost a custom project.

But, do you sense that the global supply now out of yourselves and some of your key Italian competitors is actually stretched? Or, is pricing actually becoming -- well, is your pricing power less strong as this cycle ages?

There -- on the distribution business, there is some pricing because of the inventory levels in distribution. And competitors seem to have caught up on their own inventory levels. So, we see some sharper pencils on project bids outside of the Middle East region. But, on other parts of our business in Energy, the pricing's holding pretty steady at the moment.

Okay. Thank you.

And it appears there are no further questions at this time. Mr. Bloss, I'd like to turn the conference back over to you for any additional or closing remarks.

Nothing much more to say except thanks for calling in and we'll see you next quarter, and we appreciate everybody's attention and attendance on this call. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect at this time.