Circor International Inc (CIR) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to CIRCOR International's fourth-quarter 2014 financial results conference call. Today's call will be recorded. At this time, all participants have been placed in a listen-only mode. There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions).

I will now turn the call over to Ms. Jamie Bernard from Sharon Merrill opening remarks and introductions. Please go ahead.

Thank you, everyone. On the call today is Scott Buckhout, CIRCOR's President and CEO, and Rajeev Bhalla, the Company's Chief Financial Officer. The slides we will be referring to today are available on CIRCOR's website at www.CIRCOR.com on the Webcast & Presentations section of the Investors link.

Please turn to slide 2. Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, the Company advises you to review CIRCOR's Form 10-K and other SEC filings. The Company's filings are available on its website at CIRCOR.com. Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the Company's views as of today, February 18, 2015. While CIRCOR made may choose to update these forward-looking statements at a later date, the Company specifically disclaims any duty to do so.

On today's call, management will often refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS, and free cash flow. These metrics exclude any pretax special charges and recoveries, restructuring inventory reserves, and intangible impairments. The reconciliation of CIRCOR's non-GAAP metrics to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website.

I will now turn the call over to Mr. Buckhout.

Thank you, Jamie, and good morning, everyone. We ended the year by growing the fourth-quarter top line by 6% organically and delivering adjusted EPS of $1.08, up 14%. On the top line, we saw growth in most of our Energy segments. Our fourth-quarter adjusted operating margin came in at 9.6%. We dealt with a difficult situation in Brazil, resulting from the impact of the Brazilian government's ongoing corruption investigation at Petrobras. Two of our larger Brazilian engineering and construction customers filed for bankruptcy, resulting in a charge for overdue receivables of $6.5 million, a 300 basis point margin impact in the quarter. Adjusting for this charge, CIRCOR's operating margin would have been 12.6%, 100 basis point increase over the prior year's fourth quarter. This charge also reduced adjusted EPS by approximately $0.34 in the quarter.

Rajeev will provide more detail on the drivers of our GAAP and adjusted GAAP numbers in just a few minutes.

For the full year, revenues were $841 million, down slightly versus prior year with adjusted operating margin at 10.2%, up 30 basis points. Adjusted EPS grew 16% to $3.72, and full-year free cash flow was 115% of net income.

As we have previously discussed, two of the pillars in our strategy include positioning CIRCOR in markets that offer the best opportunities for growth and simplifying the Company to remove complexity and costs. In line with this strategy, at the end of last year, we divested two businesses, Sagebrush Pipeline Equipment Company, from our Energy group, and Cambridge Fluid Systems, from our Aerospace & Defense group. Neither business fit our strategy of playing in attractive markets with differentiated products. The divestitures will simplify CIRCOR and allow us to focus on areas of the business that offer the most growth and margin opportunity going forward.

Now I would like to take a few minutes to discuss our Energy end markets given the dramatic drop in oil prices during the past few months. As background, about 37% of our consolidated revenue is in the upstream oil and gas segment. This includes most of our distributed valve and international projects businesses, as well as part of our instrumentation and sampling business. In our short cycle distributed valve business, bookings were up double-digits in the fourth quarter; however, we started to see quoting activity and orders decline as we enter 2015. A significant portion of this business is tied to North American rig counts, which have dropped by about 30% since the beginning of December.

Consistent with what we experienced in past down cycles, we expect to see a revenue impact from lower end customer demand and distributor destocking. With our long cycle project business, we expect orders to be affected by lower global CapEx spending, which is anticipated to be down approximately 20% in 2015. Depending on our first quarter order intake, there could be a drag on our revenue in the back half of this year after we ship our current backlog.

While we expect revenue from our upstream oil and gas businesses to be negatively impacted by oil prices, we anticipate differing levels of growth in the other 63% of our portfolio. For the large projects business, some regions are more sensitive to oil prices than others. We are seeing good quoting activity for upstream projects in Asia and midstream projects in the Middle East where schedules are currently staying on track. We continue to see good quality activity for LNG projects. Power generation in Asia is showing strength. In North America, our sales team is spending a larger share of its time developing mid and downstream opportunities where market trends are more favorable.

In Aerospace & Defense, we see increased production rates on both commercial and military fixed wing platforms. However, we don't expect this growth to offset the headwind from the exit of the structural landing gear product lines last year. Given the expected headwinds we are facing from the oil price decline, weakness in Europe, and turmoil in Brazil, we are implementing a broad-based cost reduction program. This program will include restructuring actions to mitigate the impact of market dynamics on our earnings and to align our businesses with lower near-term demand.

Accordingly, earlier this quarter, we started taking actions expected to generate approximately $8 million of annualized savings. We expect to complete these actions before the end of the second quarter.

In addition to our restructuring actions, we will continue to implement our simplification strategy and operational excellence initiatives. We are making progress on many fronts, including customer on-time delivery, supplier delivery and quality, material savings, and factory productivity.

Before I turn the call over to Rajeev, I would like to note that we are excited to welcome a new Group President for CIRCOR Energy. Erik Wiik was formerly the Executive Vice President and Regional President of Aker Solutions North America. During Erik's 24 years at the company, he demonstrated a strong commercial orientation, consistently driving organic growth across multiple product platforms. Erik will join us on March 5, and we are look forward to his contributions during this important time for our Energy Group.

I would also like to take a moment to thank Wayne Robbins for his nine years of dedicated service to CIRCOR and wish him well in his retirement. Wayne's industry knowledge and business advice were invaluable to me as I transitioned into CIRCOR in 2013. We all appreciate his many contributions.

With that, I will turn the call over to Rajeev.

Thanks, Scott. Let's move right to the segment results, starting with Energy on slide 5.

Energy sales of $172 million increased 6% over the prior year or 10% organically. This was primarily driven by double-digit growth in our North American short-cycle businesses and high single-digit growth in our large international projects business. Foreign exchange reduced revenues by about $7 million in the quarter.

Energy's adjusted operating margin decreased 280 basis points to 14.3%, primarily due to the $6.5 million charge associated with the financially troubled Brazilian engineering and construction customers. Absent this adjustment, Energy's adjusted operating margin would have been 18%, up 90 basis points over the prior year, driven in large part by better pricing and the benefits from restructuring and productivity actions taken earlier in the year.

For the Aerospace & Defense side, please turn to slide 6. Aerospace & Defense revenues decreased 10% or 7% organically from the prior year to $46 million. This was primarily due to lower sales as we exited the structural landing gear product lines, partially offset by higher volume from our UK navy business. Aerospace & Defense adjusted operating margin of 5.3% was in line with the expectations we outlined in our third-quarter call and was 310 basis points lower in Q4 last year as we continued to manage the operational challenges in our California and French businesses.

The savings from our restructuring actions helped mitigate the costs associated with the exit of the structural landing gear product lines. We expect margins to improve as we put these issues behind us.

The impact from foreign currency was less than $2 million in the top line and not significant on the bottom line.

Turn to slide 7 for selected P&L items. Let me discuss the tax rate for a moment. During the year, we have been working to make operational changes to help increase our foreign source income and utilize foreign tax credits that have accumulated on our balance sheet. We were successful in the fourth quarter, resulting in a net benefit to our tax rate and a benefit to EPS of $0.21. This benefit took our all-in tax rate to negative 8.2% for the quarter and 20% for the full year. We have utilized all of our existing foreign tax credits in the quarter. Further tax rate reductions will require that we generate new foreign tax credits in the future.

So, as a result, our first-quarter 2015 tax rate is expected to be in the range of 26% to 27%. Corporate expenses were $1.4 million lower, due in large part to lower compensation costs, as well as cost control actions.

In the quarter, we took $12.9 million of special and impairment charges, including restructuring charges of $2.6 million, a loss on divestitures of $4.1 million, and a legal settlement of $6.2 million. For Q1, we anticipate special charges related to restructuring actions to be in the range of $3 million to $3.3 million or $0.12 to $0.14 per share.

Adjusted earnings per diluted share were $1.08 compared to $0.95 in the prior year. If you further adjust for the two significant items -- the Brazilian accounts receivable adjustment and the foreign tax credit benefit -- our Q4 2014 adjusted EPS would have been $0.13 higher at $1.21, which is 27% higher than the prior year, reflecting the strong operational performance from our Energy segment.

Turning to our cash flow and debt position, on slide 8, during the fourth quarter, we generated $22.3 million in free cash flow, which brings us to $58 million for the full-year 2014 or 115% of net income.

In December, our Board of Directors authorized a share repurchase program of up to $75 million of outstanding common stock. Depending on market conditions, we will initiate the buyback when permitted under SEC rules and expect to complete the program this year.

That brings us to our guidance. Given the number of moving pieces, let me provide you with a baseline for comparison purposes as shown on slide 9.

For the first quarter of 2014, the divested businesses generated $13 million of revenue and breakeven operating profit. In addition, if you take the current exchange rate, especially for the euro, the year-over-year impact on the top line is an additional $12 million or $0.10 per share of headwind. So on a pro forma basis, Q1 2014 would reflect revenues of $186.2 million and adjusted EPS of $0.68 per share.

Now, for the first quarter of 2015, we expect revenue to be in the range of $155 million to $170 million, reflecting the impact on our short cycle businesses of the current market conditions we discussed earlier. We expect adjusted EPS in the range of $0.60 to $0.70, reflecting the earnings impact from lower revenue, offset by margin expansion from simplification and productivity.

With that, I will turn it back over to Scott for a summary.

Thank you, Rajeev. Let me sum up my leaving you with a few key thoughts.

First, as we proceed into 2015 during a time of high volatility in some of our Energy end markets, we are focused on those things that we control. We are focused on managing our cost base and executing on our operational excellence and simplification initiatives. We expect that these efforts, which are transforming CIRCOR from a holding company to a world-class operating company, will yield better than pure organic growth and further margin expansion, both now and when we come out of the cycle.

Second, we are managing the business for the long-term. We will continue to invest in organic growth initiatives throughout the cycle. We remain committed to the go-to-market initiatives launched last year, including regional expansion and making CIRCOR easier to do business with.

In addition, we will continue to invest in new product development in line with our long-term strategy.

Our strong balance sheet and available financing facility could allow us to capitalize on attractive M&A opportunities in this market as well. The senior leadership team is spending more time exploring potential M&A opportunities.

Overall, we will be striving to outperform our peers and effectively manage the business through the cycle. We view the current downturn as an opportunity to structurally address our cost profile and take share from our competitors. We fully expect to exit the cycle as a more competitive and better positioned company.

And, finally, we have a strong and experienced team that is committed to delivering on our objectives, regardless of where we are in the cycle. We remain focused on creating shareholder value through growth, margin expansion, strong cash flow, and disciplined capital deployment.

With that, Rajeev and I are available to take your questions.

(Operator Instructions). Nathan Jones, Stifel.

Obviously, a pretty difficult environment from an end demand perspective at the moment. Can you talk about the current restructuring program that you are putting in and give us a little more specifics to the extent you can? And then, talk about what of that is structural costs versus temporary costs for when demand comes back that costs might need to be taken back in?

Sure, Nathan. Let me start off with that. The restructuring program involves both groups here. So, as Scott mentioned in his opening remarks, it is broad-based. So it does cover both the Energy group, as well as the Aerospace group, and it will involve looking across the board at the demand and associated capacity and, therefore, the workforce that is required to kind of meet that lower demand.

From a specific question relative to volume versus structural, it is about half/half. It is 50/50 -- 50 kind of volume driven and 50 structural driven -- and the key thing to keep in mind is, what our plan is that when the cycle does turn, that we have a much leaner, more efficient operation that can drive that incremental volume through without adding a lot more heads. So that is a key driver here.

I see you all never waste a good crisis, right?

Bingo.

Thinking about -- I mean, obviously, everyone can map rig count straight down to demand. Can you talk about the impact you are expecting to have from destocking in the channel to the extent you are aware of where your distributors' inventories are and what they might need to be taken down and what impact you are expecting from that?

Yes. I think -- maybe this is -- I will start one level up from that, and then I will get to directly answer your question.

If you look at our upstream business in general, it is roughly -- say, directionally, around $300 million goes into upstream. About two-thirds of that is in North America where we are expecting the impact of oil prices to be much more severe in North America than what we see outside of North America.

And then, in particular, in short cycle, which is where you're going. When we look at what is happening, we look at past cycles, back in 2008/2009 timeframe and we try to gauge rig counts, well counts, and what that means for our own volume and on demand, we get a pretty wide range of what could happen.

So, as we look into Q1 right now and the trajectory we are looking at right now, we are expecting our short cycle North American business to be down on orders, not necessarily revenue, but on orders in the range of 20% in Q1.

I would be reluctant to go out beyond that, Nathan, because we just -- things can happen so quickly here. I think we are all trying to understand exactly what is going to happen. But, I think for us, we are expecting about a 20% reduction in orders for Q1 based on what we are seeing. And that would be the destocking and just the end demand -- the combined impact.

I think it is totally fair to not want to go out further than Q1 at the moment, given how rapidly things are changing. If we just move over to the Aerospace business for a minute, I know there has been some issues there. Can you talk about how close we are to getting through those issues and to a point where the Aerospace business can begin to grow again?

Yes. So -- yes, I can talk about that. If you look at Q3 and Q4, we were absorbing the impact of exiting the structural landing gear business. And there were lots of things happening kind of underneath the surface, but we were certainly taking a reduced margin in the back half of last year as a result of this exit.

We've largely completed the exit of that business in the fourth quarter last year. The impact of the exit of landing gear, our margins would have been high single digits. Instead, you see margins mid-single digits.

So, as we come into 2015, you should expect to see our margins improve here in Q1 and beyond. So I would expect, say, mid to high single digits in Q1 for Aerospace & Defense in total. And then, as you know from our Investor Day, we think this is a mid-teens business. And so that is ultimately where we are headed here.

Just to add to that, Nathan, just keep in mind we do see a little bit of top line headwind year over year given the exit of the landing gear business here. So we had it for the first six months of 2014, and so you're going to have a little bit of a tougher compare in the first quarter here.

Kevin Maczka, BB&T Capital Markets.

Can I just continue on the Aero question? So we have exited landing gear. We know about that. We have a divestiture here. Is that about $30 million all total for the year of revenue that we don't have in 2015 that we did have in 2014?

Yes. You are looking at about $15 million or so relative to the landing gear year-over-year impact, and you are looking at about another $12 million or so from the divested business.

Okay. And so your view on the -- excluding those two items, the underlying business, you have got the new programs that you won that are ramping, some other things going on that you mentioned. What kind of growth is reasonable to expect in the underlying Aero top line?

You should see some growth there as we start to ramp up on some of those programs, like the A350 and also on the military side. But we are looking at kind of low single digits at this point.

In aggregate.

In aggregate, yes.

Got it. And then, shifting over to Energy, rigs are down 30% off the peak. You are expecting your orders to be down 20% in Q1. Scott, did I hear your comment right that even the long cycle -- the project business, you are looking at CapEx trends down 20% in the new year and you think your business ought to track that as well? Is that fair?

So I wouldn't say it that way. We are expecting that global CapEx would be down 20% for the full year. I don't think you're going to see a deterioration in our orders in Q1 for our large project business. And, in fact, you might even see a little bit of growth in large projects.

We will -- we do expect -- we are not going to escape the downturn of the market overall. But, I don't think that we are going to see a significant drop in orders here in the first quarter. In fact, I think you will see a little bit of growth.

We are seeing some favorable trends that we are capitalizing on that so far we are pretty successful here, and that is in Southeast Asia. We are having some success in midstream. We are having some success in power. So we feel pretty good about the first quarter for large projects, but we are trying to be cautious here, knowing that the overall environment will eventually catch up to us. So we are expecting that we will see some delays after this quarter.

And, also, just to add to that, when you look at the Middle East, a lot of those projects are, at this point, staying on track, and that is midstream, as well as some of the downstream side.

So Scott talked about orders on the top line. We would expect the same kind of -- if I look at it year over year, Kevin, from a large project standpoint, flat to slightly up is what we would expect because, obviously, we are delivering the backlog.

Rajeev, that is the first-quarter comment -- flat to slightly up where the backlog is still supporting in the first quarter?

Correct. Yes.

Okay. And then what about on price, both on short cycle and in projects? Because last downturn, I think there was some pretty meaningful compression there.

So I will start with projects. So far, we are starting to feel the pressure of the anticipated downturn. So we have not been -- I mean, there are certain -- there are multiple levels of pricing pressure.

Right now, we are seeing pressure on new projects. They are more competitive. We are being asked to quote more times. But the activity is still pretty good, and we have been able to navigate our way into some situations where it is not as much pressure as in some areas than others.

We are not being asked to re-quote any business that we have won. That hasn't happened yet but could as things evolve here.

So we are seeing new projects. We are seeing some pricing and increasing competition.

On the distributed valve, the short cycle business, we are not seeing the pricing pressure yet, but we are anticipating that we will start seeing that soon.

Great. And just finally for me, anybody else that you are worried about in terms of customer bankruptcies, whether it be in Brazil or even elsewhere?

Yes. I mean, clearly, the Brazil situation is a difficult one, Kevin. At this point, we feel that we are appropriately preserved relative to the exposure on the balance sheet for Brazil. But we are watching that very closely day to day. The other parts of our business look fine at this point, but it is something that we are watching.

Charlie Brady, BMO Capital Markets.

Just with respect, I want to make sure I am clear on something. On one of your comments about the short cycle Energy business into Q1, expecting orders to be down around 20% but not seeing a similar revenue decline, I guess I am just trying to square that up given the short -- by definition, short cycle nature of that business. Is it because some of that stuff is actually stretching beyond that into Q2 so you are not feeling the impact but it comes later, or can you just kind of square that up for me?

Yes, sure. I mean, we do have a wide range of lead times, all of them relatively short compared to our engineered valve business. We could be shipping product next day, or we could be shipping product three or four months later.

So when you average it out, we do enter the year with a decent backlog. If you look at our book to bill in our short cycle business in Q4, it was significantly over 1. And so we will be burning off a lot of that in Q1. So that is why you see a bit of a lag between revenue in Q1 and orders in Q1.

So you are 20% on orders, and we are thinking it is probably 10% to 15% on the top line relative to the short cycle North American business.

Okay. Good. That's helpful. And then, just on respect to the Aerospace business, on a pro forma basis for the divested businesses, the exited business, Q1, apples to apples, would you expect Aerospace & Defense revenues to be up year on year?

On that apples to apples, it should be flat.

Okay. That is all I had, guys. Thanks.

Joe Radigan, KeyBanc.

First, on the Energy business, you talked about a little bit of pricing pressure that you are seeing on the project side. How is the margin profile of the orders that are being booked in the backlog today relative to what is in backlog already? I'm just trying to get a sense for how we should think about the margin progression in that Energy segment.

So, if you look at our backlog, the backlog that we booked in Q4, it is more or less in line with what we have been seeing over the last year, year and a half. So no material change to margins booked in the backlog, and I think even quarter to date, we haven't seen any change to margins in that business.

Having said that, we are anticipating we will see the pricing pressure, and we will have an impact on margins as we move further into 2015. But, as of this point in time, if we just took a snapshot, our margin and backlog is more or less the same as it has been over the last year, year and a half.

Okay. And then, on the short cycle valve piece, I believe that is one of the areas where you invested in expanding the sales force. Have you adjusted plans there at all or considering the current market conditions, or do you view that as an opportunity to continue to invest and perhaps take some share there?

So it is the latter. We will continue to invest in growth through the cycle. We are more than offsetting investments in growth with cost reduction elsewhere, both structural and volume-related costs, but particularly on the structural side. So it is certainly not one for one, but, yes, we are not going to pull back on the growth investments that we started last year. And, in fact, there are some new investments that we are going to be making this year. So we really are focused on exiting the cycle much stronger taking share, and we are focused on the long term here.

Just to add to that, Joe, we are going to fund it. This is going to -- we are going to make sure, from a restructuring and cost reduction perspective that it is affordable. Because if it isn't affordable, we will just adjust accordingly.

Okay. And then, last question. In terms of M&A, you have talked about wanting to do some inorganic -- grow inorganically. Can you talk about the pipeline there? Are you seeing seller expectations come in at all given sort of the dislocation in the market, or is that putting everything on hold?

Well, we are a lot more active externally now than we were 12 months ago, than we were even six months ago. We are -- I would say the pipeline is -- I am personally spending a significant amount of my time on this.

In terms of expectations, I would say it varies. Some companies, I think the closer they are to upstream, the more adaptable they are in terms of expectations. But, we are still early in the cycle as well, and some of the others that we find interesting haven't changed their expectations in the least bit.

So I don't want to overplay expectations here, but other than to say we are spending a decent amount of time on this, and we do see it as an opportunity to use the balance sheet that we have got and make some big strategic moves that could be interesting for shareholders.

Before we take the next question, I just wanted to clarify a comment that Charley -- hopefully, you are still listening here. When you were talking pro forma with respect to Aerospace & Defense, I should have noted that we are actually going to be down given the fact that we got out of the landing gear business, especially the Chinook contract. So to just correct what I said a few minutes ago, it is not going to be flat. It should be actually down pro forma to pro forma, Q1 to Q1.

John Franzreb, Sidoti & Company.

Regarding restructuring actions, can you just remind me, if we have completed all the prior ones and the new ones that you announced today, that is all that we have in place at this point?

Yes, John. Sure. So yes, the answer is yes. All of the 2013 actions are done, and the 2014 action with respect to the cost takeout is done as well. And, if you recall, the 2014 actions, we are reinvesting that money, and that is largely done as well.

So, as I look at the run rate for the 2014 actions, the savings and the investment offset. With respect to the 2015 P&L, recall that when we talked about the 2013 actions, it was a total $9 million of annualized run rate savings, of which we realized $7 million in 2014. So there is an incremental $2 million that falls into 2015. And then, as you look at the announcement we just made now for the $8 million, there will be about $5 million of that that falls into 2015. So you should expect restructuring benefits in the aggregate of $7 million.

Okay. And none of those previous benefits were part of divested operations?

Correct. Correct.

Okay. And I might have missed this. How much exposure do you have in total to Brazil?

From a revenue standpoint, it is small. It is less than $20 million.

With Milan though. It actually varies a lot.

Oh, that's a good point. I was looking at just specific in Brazil. But, obviously, our Milan business sells into Brazil as well. So that would be a little higher there.

So the Brazil for Brazil is around $20 million, and then it is really hard for us to give you an exact number because a lot of large -- well, I wouldn't say a lot. Some large projects that we sell go into Brazil as well. So, say, the base is $20 million. It could be as high as $30 million, depending on how many projects we sell into Brazil.

Okay. Now, Scott, I think you referenced 2008 and 2009 as when you were looking back to see the severity of the downturn. From what I recall, the order intake fell rather significantly back then, and then it kind of gradually moved north quarter by quarter. But it took off a year. It seems to -- you seem to be suggesting that you don't expect that kind of a meaningful drop off in this cycle turn. Am I just mishearing what you are saying, or should we be looking for maybe that big drop off in the coming quarters?

We are anticipating -- right -- I don't want to try to predict the future here. This is difficult. But we are anticipating that it will be as steep as it was back then, as steep down, and we are also expecting and maybe we should say hoping that it will recover faster as well.

I think, if you look at how quickly capacity is coming out of the market in North America, I think it can come back into the market just as quickly if and when prices get to the right level.

So, in terms of the downturn instead of the curve, if you will, of orders and revenue going down, we are assuming it will be just as bad as it was back in 2009.

(Operator Instructions). Nathan Jones, Stifel.

So, Rajeev, on the Aerospace business, you are saying it would have been flat if we excluded the landing gear business from what you lost last year.

Yes. That is what I was trying to correct. There were too many pro forma adjustments there, Nathan, so.

Yes. No worries. Just wanted to make sure everybody was clear on that.

So on the International Energy business, you talked about Q1 being flat to slightly up, supported by the backlog. You have got at least a couple of quarters of revenue in that backlog. Does Q2 in that business that you do have visibility in there continue to hold up in that kind of flat range into the second quarter, and you wouldn't expect to see the drop off in that business until at least the third quarter?

Well, I think maybe the way to answer that is -- I mean, you know the lead times. We have talked about that in the past. So our backlog supports a significant portion of the revenue in the first quarter and the second quarter. And we would say that the current backlog starts to take a significantly less -- lower portion of the revenue that we hope to have in Q3 and Q4.

Okay. That's helpful. And then, on the Brazil customers that have gone bankrupt, did you have any contracts to supply them in the future, or is there nothing in the backlog that would have gone to them?

We did and we adjusted it out of backlog. So there were some orders that were in backlog that I took out. So the year-end backlogs have been adjusted with respect to those customers.

So there is no exposure in the backlog there at the moment?

Correct.

There are no further questions at this time. I would like to turn the floor back over to Mr. Scott Buckhout for any additional concluding comments.

I would like to thank everybody for joining the call, and we will look forward to talking again soon. Thank you.

Thank you.

Thank you. Ladies and gentlemen, this does conclude our conference call. Thank you for joining us today.