Coherent Corp (COHR) 2013 Q4 法說會逐字稿

Welcome to the Coherent, fourth quarter and fiscal year end conference call hosted by Coherent, Inc. (Operator Instructions). I would now like to introduce Ms. Leen Simonet, EVP, and CFO. You may begin your conference.

Good afternoon, and welcome to Coherent's fourth quarter and fiscal year end conference call. On today's call I will provide financial information and John Ambroseo, our President and CEO will provide a business overview.

As a reminder any guidance and any statements in the call pertaining to future guidance, market trends, plans, events or performance are forward-looking statements and involve risks and uncertainties and actual results may differ significantly.

We encourage you to refer to the risk disclosures and accounting policies described in the Company's reports on forms 10-K, 10-Q and 8K as applicable and as filed from time to time by the Company. The full text of today's prepared remarks and GAAP and non-GAAP supplemental financial information will be posted on the Coherent Investor Relations website. Replay of this web cast will also be made available for approximately 90 days following the call.

Let me start by giving you the highlights of the quarter. We are pleased with the fourth quarter financial results. Both revenues and earnings were strong and exceeded our expectations. Revenues for the quarter were $213.1 million with corresponding pro forma earnings of $1.03 per diluted share. We ended the quarter with a cash balance of $250, reflecting a quarterly cash flow of approximately $49 million. Our pro forma EBIDTA percentage for the quarter was 18.8% compared to 17.3% last quarter.

Fourth quarter earnings per share reflects a benefit of approximately $0.08 per share from a lower than previously guided tax rate which is due to a more favorable distribution of profits in zero or lower tax jurisdictions.

The largest contribution originated from our two manufacturing operations in South Korea where we currently enjoy a limited duration tax exemption. Net sales for the fourth quarter declined slightly by $600,000, or 0.3% sequentially, and increased $24.5 million or 13% compared to the same quarter a year ago.

On a year-to-date basis fiscal 2013 revenues of $810.1 million increased $41 million or 5.3% compared to fiscal 2012. Our fiscal 2013 acquisitions added about $23 million to the Company revenue.

The backlog, shippable within 12 months, at the end of September was $286 million, and flat panel display applications represented approximately $80 million, or 28% of the total.

Service revenues for the quarter grew 22% sequentially and 27% year-over-year resulting in a year-to-date growth of 8%. The service revenue increase was mainly driven by higher flat panel display service revenues stemming from a growing install base. Fiscal 2013 service revenues represent 26% of the total Company compared to 25% last year.

Geographically, for the full fiscal year, Asia accounted for 51% of the Company's revenues, US 23%, Europe 19%, and the rest of the world 7%. We had one customer in South Korea, a integrator to large flat panel display manufacturers, who contributed more than 10% of the Company's 2013 revenues.

South Korea is now our largest foreign country revenue generator representing approximately 23% of the Company's fiscal 2013 revenues. With respect to annual revenues by major market applications we achieved double-digit growth of approximately 12% in Microelectronics and Materials Processing, which is in line with our stated long-term goal of 10% to 15%.

Although we saw solid growth in the advanced packaging submarket, the overall Microelectronics growth was primarily the result of shipping a larger number of flat panel annealing systems during the year. Growth in Materials Processing was mainly the result of an increase in higher power application revenues coupled with contributions from our recent acquisitions.

The OEM components and instrumentation market grew 4% year-over-year, principally from instrumentation and medical applications, partially offset by lower revenues for military uses. The medical submarket growth of 7% benefited from newly acquired products for cataract applications.

Not unexpected, our scientific revenues declined approximately 15%, mainly due to government funding reductions in several countries.

The Company sales by major application for the full fiscal year are as follows; Scientific $121.9 million, Microelectrons $416.5 million, Materials Processing $121.7 million, OEM Comp and Instrumentation, $150 million, for a total of $810.1 million. As a reference, the revenue contributions from the acquisitions is split as follows; 31% OEM components and Instrumentation, 30% Microelectronics, 27% Materials Processing, and 12% Scientific.

The fourth quarter pro forma gross profit, excluding $0.5 million stock compensation charges and $1.5 intangibles amortization was $87.1 million, or 40.8% of sales, an increase of 70 basis points from the 40.1 we reported last quarter. The increase is due to favorable product mix primarily resulting from higher service revenues as a percent of total revenues.

Our total pro forma operating expenses are 25.3% of sales compared to 26.4% last quarter. The decline mainly relates to the timing of variable compensation expenses.

Our cash and cash equivalents balance was $250 million compared to $202 million for the prior quarter. Approximately $157 million or 63% of the cash balance is held internationally. Cash flow from operations for the fourth quarter was $49 million bringing our fiscal year cash flow to approximately $116 million, a record for the company.

During the quarter we saw meaningful improvement in our working capital metrics, in particular the accounts receivable days sales outstanding. Day sales outstanding declined to 58 days from 62 days last quarter and 69 days at the end of fiscal 2012. Inventory returns of 3.0 at the end of fiscal 2013 compared to 2.8 at the end of last year.

Capital spending for the quarter $6.6 million or 3.1% of sales resulting in year-to-date spending of $22 million or 2.7% of sales which is below the previous guidance. We expect some of the spending to roll over to fiscal 2014.

Let me give you guidance for the first quarter of fiscal 2014. Our first fiscal quarter is typically shorter due to the many holidays. As a result, we expect our first quarter revenues to decline sequentially to a range of $190 million to $200 million. This represents roughly a growth of 4% to 9% when comparing to the same quarter a year ago.

Despite the decline in revenues, we estimate pro forma gross profits to be comparable to the fourth quarter. We are guiding to a range of 40.5%to 41% as margin improvements will be partially offset by a negative impact of a strengthening euro versus the dollar.

The GAAP cost of sales will reflect intangibles amortization of $1.5 million and stock compensation costs estimated at $0.6 million.

We project the pro forma period expenses to be in the range of 27.5% to 28% of sales, which is higher than last quarter, primarily as a result of the decline in revenues. The GAAP period expenses for first quarter will include intangibles amortization estimated at $1 million and stock compensation costs of approximately $4 million.

We are assuming an annual pro forma tax rate of 26%. The higher rate versus fiscal 2013 assumes that the government does not reinstate the federal R&D tax credit in calendar 2014.

We project our full fiscal 2014 capital spending to be approximately 4% to 4.5% of sales. And, we are assuming weighted outstanding shares number of $25.1 million for the first quarter.

I will now turn over the call to John Ambroseo, President and CEO.

Good afternoon, everyone, and let me add my welcome to our fourth fiscal quarter conference call. As you have already heard from Leen, we posted very good fourth quarter results and set records for service revenue and cash generation. I would like to commend my colleagues for having done a great job of delivering the products and services that our customers want.

Fourth quarter bookings of $200.3 million increased 5.9% sequentially and and 18.3% compared to the prior year period. The book-to-bill for fourth quarter was 0.94.

Scientific orders of $34.2 million were up 18.8% sequentially and 3.4% versus the prior year period.

The US market shrugged off the sequestration effects and displayed typical seasonal strength in our fourth quarter. The largest application for the quarter and year was ultra fast imaging using the Chameleon platform. Orders for big-tickets systems used in chemistry and physics have reverted to pre-stimulus levels. Many researchers are once again bundling funding to purchase high-performance systems. Short- and long-term funding remains uncertain as we await budget decision from Congress.

Orders from Europe were in-line with expectations and exhibited similar application trends to US. There are a few items to watch within the European market. The ELI, or Extreme Lightsource Project is a pan-European effort to develop high-intensity lasers similar to the National Ignition Facility at the Livermore National Lab. Horizon 2020 is a 7-year, $70 billion Euro program to drive innovation and global competitiveness. Imbedded within the Horizon program are two flagship projects to study the human brain and grapheme, a potential successor to silicon in microelectronics. These projects will create jobs and drive capital investment, some of which will flow through to the photonics industry.

Asia, excluding Japan, posted record scientific orders for fiscal 2013. The Pac Rim market was more balanced between the physical sciences and biological imaging. Bookings in Japan slower than expected due to delays in release of stimulus funding. Once the stimulus reaches end users, we expect to see funding skewed towards biological imaging since stem cell research is one of the key targets in the package.

Instrumentation and OEM components orders of $43.6 million were up 36.7% sequentially and 4.9% versus the prior year period.

Demand for instrumentation lasers was very strong during the fourth quarter, which is significant given the effects of sequestration on the research side of the instrumentation business. Two factors influenced these results. We continue to capture design wins for the OBIS platform, especially in flow cytometry. We also enjoyed success in the subsystems market for bio instrumentation. A subsystem or laser engine combines lasers with beam delivery technology to provide a plug-and-play solution. Given the ease of integration and performance flexibility, it is not surprising that customer interest in sub-systems is on the rise.

Medical OEM orders were also up significantly in the fourth quarter. A number of orders came from existing customers in the aesthetic and ophthalmic markets. This should not be surprising since consumer confidence has been generally good this year, notwithstanding the budget fiasco earlier this month. Our business in medical consumables, primarily single-use fibers for BPH and kidney stone treatment is doing well and we received an initial order for a new dental device that is effective for both hard and soft tissue treatment. If the initial deployment is successful, this could be a meaningful opportunity within this market.

Microelectronics orders $96.8 million increased 9.8% sequentially and 46% compared to the prior year period. Orders for semiconductor CapEx customers increased significantly in the fourth quarter due to new inspection and metrology tool introductions from leading customers. This is in line with expectations we expressed at the beginning of fiscal 2013. We are busily engaged with customers on next generation devices that will support nodes at 20nm and below. With regard to announced merger of Applied Materials and Tokyo Electron, we view this transaction as net neutral for us since the businesses are largely complementary.

The advanced packaging market began its seasonal CapEx slowdown despite high utilization rates among board manufacturers. This may stem from a subdued response to new smartphones. It may also be related to the privatization of Hitachi Via Mechanics, a leading supplier of PCB manufacturing equipment. Customers may we waiting to see what changes, if any, occur as a result of this move.

The flat panel display market remains very dynamic. Utilization rates for LTPS backplanes are high. The trend for new product launches in the smartphone is for full HD screens to place more process restrictions on the manufacturing equipment. This is good for service revenues, which Leen discussed in her prepared remarks.

Samsung announced the new Galaxy Gear smart watch that works with the Galaxy Note 3. It is the first product in a new segment of wearable devices. While it has a cool factor the small screen size will not consume very many LTPS panels. Don't let that stop you from getting your best Dick Tracy on.

Another important development is the release of the first smartphones to incorporate flexible displays including the Samsung Galaxy Round and LG's G2 flex. Flexible displays will cannibalize glass displays, but their robustness should drive an increase in demand across various applications.

There are some interesting developments in the TV market. The biggest potential mover for us would be the adoption of LTPS-equipped OLED screens. As previously announced, Samsung is trying to stimulate the market by reducing the price of their device to $9,000 in the US. This is a step in the right direction, but still limits the market size.

At the same time, 4k TV's are gaining traction due to their terrific clarity and more manageable price. This has led to resurgence in two laser-based manufacturing steps for light guide panels, which act as homogenizers for the LEDs and encapsulation or frit welding.

We expect to see incremental business during 2014 from these processes.

During last quarter's earnings call I mentioned we were working with customers on the next round of orders for ELA equipment. We received the first tranche during the fourth quarter for Gen 5.5 systems. The total order was for $15 million and we expect to complete delivery within fiscal 2014. We are actively engaged on a second tranche that we expect to close in the first or second quarter of fiscal 2014. In addition, our integrator partners have a robust forecast for customers across Asia.

Activity and glass cutting is also very high. Most of the development work is focused on edge strength of the processed glass and is key to broad adoption. We have also fielded a number of inquiries around sapphire cutting due to its wider use on camera windows, fingerprint sensors and potentially on full cover glass. The last point is dependent on the ability to fabricate very thin sapphire on the order of 30 microns, which would make sapphire cost competitive with other types of cover glass.

Material processing officers $25.7 million were down 36.3% sequentially and 9.2% versus the prior year period.

Orders in the fourth quarter were lower following a record-setting performance in the prior quarter and some softness in China. The year over year numbers are pretty healthy with bookings growth of 18%. Several factors contributed to these results. In general, demand for CO2 lasers for marking, packaging and engraving has been good.

Our recent introduction of the Diamond E-250, a new embodiment of CO2 technology, has created new opportunities. We have made steady progress in additive manufacturing with the Highlight direct diode system. We are optimistic about the longer term potential of additive manufacturing and will be releasing a series of new solutions to address this market. Although fiber laser orders are still at an early stage for us, they contributed a few percentage points for the full year.

As we begin 2014, we are in a great market position. We're the leader of three of four markets that we serve. We have secured design wins for a number of next generation applications and have a deep technology bench and product pipeline. There are opportunities to improve execution so as to achieve and sustain our the previously stated goal of 19% to 23% pro forma EBIDTA. We have done a good job of generating cash we will deploy some of it to accelerate our product market road maps or expand into new markets. We will also be reviewing other uses of cash in the context of driving shareholder return.

We are presenting at two upcoming investor conferences including the Deutsche Bank Small and Mid Cap conference in Coral Gables on November 19th and the NASDAQ conference in London on December 3rd.

I'll now turn the call back over to Patrick for the Q&A session.

(Operator Instructions) First question from the line of Patrick Newton, with Stifel. Please proceed, sir.

Thank you. Good afternoon. Thank you for taking my questions. Very nice quarter. First question John, for you, is just trying to understand the ELA equipment orders. You gave us the size of the first tranche and you talked about the second tranche. Was that by the second quarter of the fiscal year? Just to clarify.

The first or second quarter of the fiscal year, yes.

Can you help us understand the relative size of the second tranche relative to the first?

It is potentially larger. The exact size is a little tough to put my finger on. The reason is that we are discussing a wide range of possibilities with the customers based on what generation technology they want to play and other opportunities in terms of capacity as well as performance of the panels. What we have seen in this market recently they have gone to higher PPI, pixels per inch, that it is driving demands on the systems that no one had anticipated previously and how all of that ties and flows through capacity is a big part of the discussion. It is a very active discussion. I don't think there is any doubt in our mind the customer is going to place an order. The exact size and mix is what we are working to nail down to make sure at the end of the day the customer has the capacity and the performance that they need.

While still on the flat panel display subject,if a customer is placing orders today can you help us understand when deliveries would be received and given your current level of visibility and backlog and expectations of future orders can you help us understand if you think you will need to ramp capacity and if so, if you could help us understand the timing or how quickly you can ramp capacity?

The last question is easiest to answer. Ramping capacity is a relatively straight forward operation for us. We can either add shifts to existing facilities or pick up some additional space and we know that space exists in the local area. That is not going to be a rate limiter for us. In terms of when deliveries would occur. A lot is driven by the customer depending on where they are with respect to the facility preparation. Right now if a customer said give me the first delivery slot we could get them something in the third quarter of the fiscal year certainly in the fourth quarter of the fiscal year. If they ask for configurations or things we don't have slotted in, then it is negotiation as to when we would be able to make first deliveries. All in all, we can certainly ship against orders of standard products and get those to customers this year. In general, our timeline is not going to be the pacing item for the customer.

Shifting gears. Something I was pleasantly surprised by was some of the order flow in the OEM component side, and then the scientific and government, especially in the face of the budget stand off and sequestration. I am curious, do you see this as seasonality or are we starting to see the damn break with some pent-up demand for some of those impacted products?

There is a relationship between the two markets. They are different factors. In the instrumentation and components base they were driven more by clinical deployment than research deployment. That's why I made the comment that sequester has hurt the research side of the business we put up good numbers because the technologies we are providing are going to clinical labs which are revenue generating facilities as opposed to research facilities.

On the medical side where we had some pickup, some of that was timing of regular order patterns for customers. We did get a nice design in the dental market which if it works as it is billed by the company that has developed it, it looks like it could be a real winner. It is an interesting application. It been very difficult in the dental market to address both hard and soft tissue with a single device. Flipping to the scientific market, I suspect part of the bump in US bookings was not only seasonal because the fourth quarter typically is strong in terms of bookings.

It also represented pent-up demand. Perhaps researchers realized things weren't as bad as they had thought or they wanted to spend money before it ran out. Either way it was a good result for us. I don't think we have seen any fundamental change in the posture of the funding agencies however.

Two quick financing questions. I want to make sure that the 28% tax level is the level we should be expecting for fiscal year 2014.

I guided 26%.

26%, perfect. Thank you. I guess a big crux of why a lot of people want to own Coherent is the gross margin expansion. We've had mix issues, we've had some FX issues, we've had LDU utilization. I'm curious, if we look back at prior peak margin levels, if we're going to get back to that mid-forty's gross margin range, is that something you think is reasonable in the next fiscal year or two, and what needs to happen in order to facilitate that type of margin expansion?

Leen and I are having a stare off as to who is answering this. I would say let's just look at this from the 30,000-foot level. As I stated in my closing comments. It remains our goal to be 19% to 23% pro forma EBIDTA range. We are not going to get there by just shrinking operating expenses. Gross margin expansion has to be a part of that. The specific timing is tricky. You mention one of the effects this past year which was foreign exchange. I don't know how we can forecast that. That probably had 100 basis points. 50 to 100 basis point impact on the business. It is a real effect. It does impact the results but not one that we can effectively forecast or control. The things that we are working on right now we have always been diligent in trying to drive costs down, manufacturing costs.

Obviously as we continue to learn more and more about the LDU market and how these things are going to be used and we can drive improvements and cost of ownership, that benefits the customer and benefits Coherent as I have talked about numerous times in the past.

I think we are in a position where we know what levers to pull. The timing is a mix between things we can easily execute against, some things where we need to do some development work, and then there are extra market factors which we don't control but do have an impact on us. Do I think we can get back to the mid-40s gross margin in the next year? I would say a lot of green lights would have to happen for us to get there. Do I think there is gross margin improvement? Yes, I do.

Great. Thank you for the details. Good luck, guys.

Next question comes from the line of Larry Solow, with CJS Securities. Please proceed, sir.

Good afternoon. A few follow-up questions. The FPD market you touched on Korea and how it is benefiting the tax rates. Could you talk about your shift to manufacturing? Are you now making most of the LDUs there? Where do we stand with that?

The facility in Korea is a refurbishment facility only. The original tubes are manufactured in Germany where they are tested in systems before they are sent to customers. When they are in country and they have to go through a service visit, they go to the depot in Korea.

The refurbishment piece, is that fully ramped up? In other words, what percentage of consumables are new versus refurbishment? Can you discuss that?

I don't know that I understand the question, Larry.

The new lasers are made in Germany. Refurbished ones are made in Korea. Have we reached the point where the facility can now can handle all the capacity or the utilization for refurbishment?

We have a little more room to grow in Korea with the existing equipment that we have there. If the demand continues to rise we will have to add more test beds to the existing facility. We don't need to add facility space in this fiscal year. I mean 2014. We can put more test beds in and continue to ramp the business that way.

On that same vein on your other facility in Taiwan, the old hyper tronics facility, can you give us an update on that? Have you been moving over there? Has that been accretive?

Again I am a little bit confused. The hyper tronics facilities are in Singapore. They had an office in Taiwan which is gone because we exited the old business. It is not part of our portfolio any more. Singapore we do have some expansion space remaining. We are working to move more products over there in time. It has been a process where we want to move a product to make sure it is stabilized before we move another product. Too many things in motion at once, bad things can happen.

You mentioned the acquisitions. I think (inaudible) contributed $23 million in fiscal 2013. I believe they were supposed to be accretive by the end of the year. Is that the case and the what is the outlook there in general terms as we head into fiscal 2014?

Larry, it's Leen. The $23 million is lower than what we initially had mentioned. As a result the accretiveness is somewhat delayed. Although, in the fourth quarter, they are neutral but they will definitely pick up in the first quarter of fiscal 2014 and the metrics I referred to in my first quarter conference call, they are still valid for Q1 2014. High EBIDTA percentages, profits and (inaudible) results.

Any particular reason why the sales number was less than originally expected?

I would say that there were a couple of market opportunities that we had anticipated would move faster than they did. That is probably the biggest reason.

Just two more quick once. You touched on China a little bit and the weakness as it ties into materials processing. Are you seeing a general weakness in China as it relates to your other businesses as well?

It's not uncommon for materials processing to slow down this time of the year. If you consider that manufacturers are trying to put capacity in place ahead of the holiday shopping season, if they haven't done so it is probably too late to get equipment in and have it delivered to their factories and up and running in order to be producing products. There is seasonality to it. In general, the Chinese market has had a series of fits and starts. A lot of expectations when the new regime took over in the beginning of year. It has been, I guess the only way I would describe it is choppy, in terms of how they are investing, where they are investing and how they're going to drive growth. That is not unique to the materials processing market. That is a general statement on China.

Lastly, excellent cash generation. Anything in particular that drove the drop in days of sales outstanding? Is this a new level to build off of?

It has varied from the low 50s to almost 70. This is not uncommon for us to be at 58. However, it heavily depends on the timing of when the shipments happen. That is the way it works. I would expect fluctuations in the future. There is no guarantee this would be 58 for the rest of the year. It definitely is a good performance for us this quarter.

Excellent. Thanks.

Next question comes from the line of Mark Douglass, with Longbow Research. Please proceed, sir.

Good afternoon. John, on the pickup in semi, that is reflected in your orders, is that also reflected in sales guidance or is this more of a calendar 2014 for deliveries.

The orders that were placed were not 90 day orders. They were longer term orders. Some will hit in the first quarter. I suspect in many instances capital equipment deliveries around the holiday period are not the preferred method for a lot of these customers. There will be flow through in the second and third and I don't think to the fourth quarter. They will hit the second and third quarter numbers.

Then the API you said it's seasonal CapEx slowdown. That market, in general, still seems to be on a positive uptick?

From our vantage point the answer is yes. A couple quarters ago, or maybe it was last quarter, I talked about numbers we had seen that seemed unusually high for 2014. Some of that is going to happen. In general as you talk to people in the semi space, there seems to be a high level of exuberance for 2015, and it's always easy to be excited about something that's almost two years away, at this point. In the short term it does appear there is an uptick and what gives me more confidence is the conversations we are having with customers around next generation and what they need to do and how they hope for us to participate in that.

In general 2014 is looking up for you.

For the semi, I think the answer is yes.

Then the second tranche, you said a potentially larger order for ELA. Would any of that possibly deliver in 2014 or would that go into 2015? Could it be both?

It is going to depend on exactly what the orders are for. We are discussing a number of different options with the customer. Everything from standard products to new configurations that might be beneficial to the manufacturing processes. Until we finalize that order I can't give a definitive answer to that. With the pipeline, and I guess I should have mentioned this when Patrick asked the question earlier, given the pipeline we are seeing from the integrators, not a lot of concern about 2014. They seem to have a very robust outlook for business opportunities.

Back to the gross margin question. You said service was a tail wind in Q4. Are the material issues behind you largely as well as the yen issues?

The yen was mostly on backlog which, if it is not completely flushed, it has got to be close to being flushed. As far as the material issues, yes, I think some of those are behind us. I don't have a current update on a couple of topics. I will get those in a week or two. I can't tell you whether or not those are completely behind us. The short answer is yes, I think many of them are behind us.

Okay. On the fiber laser, high power fiber laser, any update on beta testing? Any delay in issues there? Are you expecting to shift volume in fiscal 2014?

We are in a position where we are shipping one kilowatt systems and we continue to get prototype orders from different customers we have been working with. We take that as a net positive. The feedback, performance feedback on the 3 kilowatt platform has been very positive. Dialogue with the customer is now at the stage where we are talking about we would like it to do this versus that. There are always going to be trade-offs. We are trying to avoid building custom products for individual customers. The trade off is, what makes sense for the broad customer and what ends up being specific to a customer. We want to encourage the former and avoid the latter. We are pretty much where we expected to be in the dialogue.

But does dialogue not necessarily delaying of the filling your expectations for when you can ship the higher powers.

For the two or three kilowatt lasers?

Right.

I don't think it will have any kind of meaningful impact because we have a date by which we want to move forward and we can't delay our entrance into the broader market for a particular customer or a small group of customers. So we will continue to march towards that date.

Okay. Thank you.

Your next question comes from the line of Mark Miller, with Noble Financial Capital Markets. Please proceed.

Congratulations on your results.

Thank you.

Just want to talk a little more follow-up about margins and the impact on the growing service contribution to your sales. I was under the impression that as the refurbishment opportunities ramps up that doesn't lower margins if anything it increases margins compared to your overall margins. Is this on target?

I think your statement was that higher service should benefit margins. The answer is yes.

In particular, the refurbishment facility in Korea. That should be at or above your overall margins.

Yes.

Getting back to semi-conductor, are the opportunities you're seeing there tied that we are going to 3-D flash (inaudible) for five years even though they just pushed back the 14 nanometer chip. Are you tied into this 3 dimensional type structures is that what is helping drive your expectations there?

We are providing test equipment that will certainly service part of that market. The answer is yes.

Finally, the government certainly was a hangover for some people this quarter. It looks like, certainly starting up next year is that an over hang in terms of US government spending in this current quarter?

Difficult to forecast. One of the first questions we were asking when the shutdown first occurred is what is going to happen on the export compliance side? Are there potential risks to revenue because you can't get a license to export a piece of equipment? Right now our view is that the shutdown occurred early enough in the quarter that it is probably not a significant risk. As far as how this is going to affect grants and other things, again, they have to compress 13 weeks of work into whatever it is, 10 or 11. It doesn't appear that is going to be a broad issue at this point. But again, it is a very thin data set we are drawing on. For our business because US Scientific is comparatively a small piece of the business, we think that it is going to be manageable regardless. With respect to business outside of the US, we are watching very closely what is happening on the processing of export licenses because that is an important issue for us. We haven't seen anything today to suggest that is a problem.

You mentioned OEM design wins. Anything notable in terms of share gain or losses in any of your segments?

It does appear within the instrumentation space that we are winning some stuff that we haven't been participating in previously. Part of the design work that I was alluding to in my closing remarks is we are looking at some new platforms to allow us to enter pieces of the instrumentation space which have been out of reach because of costs. We have new approaches we think can help us get there. Yes, some of it is design wins. In some of these markets our share is already pretty good. The wins are tougher to come by. We are somehow managing to do that.

Thank you.

At this time we have no further questions in queue. I will turn the call back over to John Ambroseo for any additional, or closing remarks.

I want to thank everybody for their participation. I look forward to catching up with you in a few months.

That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.