DXP Enterprises Inc (DXPE) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to DXP Enterprises, Inc., fourth quarter and year end results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). I will turn the call over to Mac McConnell, Senior VP of Finance. Please go ahead, sir.

This is Mac McConnell, CFO of DXP. Good evening, and thank you for joining us, welcome to DXP's fourth quarter and full year results conference call. David Little, our CEO will also speak to you and answer your questions.

Before we begin, I want to remind you that today's discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can different materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis contained in our SEC filings, but DXP assumes no obligation to update the information. Our fourth quarter press release is available on our website at www.dxpe.com. I will begin with the summary of DXP's four quarter 2008 results. David Little will share his thoughts regarding 2008 results and then we will be happy to answer your questions.

Sales for the fourth quarter increased 14.7% to $193.6 million from the fourth quarter of 2007. Excluding fourth quarter of 2008 sales of 18.4 million from businesses acquired in 2007 and 2008 on a same-store sales basis. Sales for the 2008 fourth quarter increased 3.8% from the 2007 fourth quarter. Sales for Supply Chain Services decreased 4/10s of a percent to 37.1 million compared to the 2007, fourth quarter. The sales of innovative pumping solutions products decreased 28.7% to $24.3 million. We recorded a $12 million sale of innovative pumping solutions project in the fourth quarter of 2007, which accounted for the decline in the innovative pumping solutions sales. Sales of MRO products by our Service Centers increased 35.6% to 132.3 million. Excluding sales of acquired businesses, sales of MRO Products by our Service Centers increased by 16.8% of a same-store sales basis.

First profit for the quarter increased 22.7% from 2007. Gross profit as a percentage of sales increased to 29.4% from 27.5% in 2007's, fourth quarter. The increase in gross profit is primarily the result of the three businesses acquired during the 2008 having a higher gross profit percentage than the rest of the DXP. SG&A increased 24.1% compared to the 14.7% sales increase and the 22.7% gross profit increase. Excluding the $4.7 million of SG&A expenses associated with the businesses acquired in 2007 and 2008, SG&A increased $3.8 million on a same-store sales basis. This increase is primarily the result of increased payroll related expenses. These expenses increased primarily as a result of increased profits, which increased incentive compensation and due to hiring more personnel for the purpose of increasing sales.

As a percentage of sales, SG&A increased to 25.5% from 20.8% for the fourth quarter of 2008. The majority of this increase results from the effect of sales to certain Supply Chain customers declining during the quarter while incurring cost to support new Supply Chain customers, combined with the $1 million increase in expense from amortization of intangibles. Interest expense increased 21.9%primarily as a result of increased debt incurred to fund acquisitions. [PFI] increased 25.6% and pretax income increase 18.5% compared to the fourth quarter of 2007. Net income increased 23.1%. Diluted earnings per share for the fourth quarter of 2008 increased 21% to $0.51 per share from $0.42 per share to the 2007 fourth quarter.

For the full year 2008, sales increased 65.8% to [$736.9] million from 2007. Excluding 2008 sales of 233.8 million from businesses acquired in 2007 and '08 on the same-store sales basis, sales increased 13.2%. Sales for our Supply Chain Services increased 122% to 162.7 million compared to 2007. Excluding sales of acquired businesses, Supply Chain sales increased 2.5% for the year. Sales of innovative pumping solution products increased 13.7% to $99 million per year. Sales of MRO Products by our Service Centers increased 67.2% to $475.2 million. Excluding sales of acquired businesses, sales of MRO Products by our Service Centers increased 15.7%.

Gross profit for the year increased 64.7% from 2007. Gross profit as a percentage of sales decreased to 28.1% for 2008 from 28.3% for 2007 primarily as a result of lower margins on sales by Precision which was acquired in September of 2007. SG&A for 2008 increased 69.3% compared to the 65.8% increase in sales and the 64.7% increase in gross profit. SG&A for 2008 includes 6.4 million of amortization of intangibles compares to 2.7 million of amortization of intangibles for 2007. Excluding the 48.9 million of SG&A expenses associated with businesses acquired in 2007 and 2008, SG&A increased $16.1 million. This increase is primarily the result of increased payroll related expenses. These expenses increased partially as a result of increased profits which increased incentive compensation and hiring more sales people for the purpose of increasing sales. As a percentage of sales, SG&A increased to 21.5% from 21.1% for 2007. This increase is the result of the 3.7 million increase in the amortization of intangibles.

Interest expense increased 83% primarily as a result of increased debt to fund acquisitions. Total long-term debt including current portion, increased $62.4 million during 2008 primarily as a result of the acquisition of Rocky Mountain Supply in the first quarter of 2008 and PFI in the third quarter of 2008 and Falcon in the fourth quarter of 2008. Total long-term debt including current portion increased by less than the $74 million we spent on acquisition in 2008. Long-term debt including current portion at December 31, 2008 was $168.6 million.

Working capital increased $37.6 million as of December 31, 2008 compared to December 31, 2007. Availability under our bank lines of credit increased $19.8 million as of December 31, 2008 compared to December 31, 2007 primarily as a result of increased accounts receivable in inventory which allow us to borrow more under the asset test. On December 31, 2008, we had $37 million available to be borrowed under the most restrictive covenant of our credit facility. During the fourth quarter of 2008, we reduced long-term debt including the current portion by $5.6 million despite spending approximately $4 million on acquisitions.

In connection with the current economic environment and this part of our ongoing goal we are working to reduce debt as we go forward in 2009. EBITDA increased 59.7% during the year and pretax income increased 46.3% compared to 2007. Net income increased 4.2%. Diluted earnings per share for 2008 increased 39% to $1.89 for $1.36 for 2007.

Now, I would like to turn the call over to David Little.

Thanks, Mac and thanks to all you guys on the conference call today. I also want to give a big thanks to our DXP people for their dedication and accomplishments, our customers who have supported us and believe in our strategy to reduce their total cost of ownership of being experts, our suppliers who make quality products at competitive prices and shareholders who have supported our top line growth of 65.76%, bottom line growth of 49.24% and EBITDA growth of 59.69%. 2008 had its disappointments as Precision and Vertex Distribution did not perform as we had expected yet we still had a good year.

Okay, 2008 was great, in fact, since 2002, every year it has been significantly better than the previous year but what is our plan for 2009? We recognize that 2009 and most of our existing markets will consume less of our services than products. So to have a great 2009, we must find new markets, sell more in different products and services to our existing customers and find new customers. In other words, take market share which we are good at, based on our growth rate over the last six years. We are looking at 2009 as a great opportunity to gain market share because our gross strategies will be more desirable to our customers and easier to execute because of weaker competition.

Let's revisit these growth strategies and look at why we feel they will work better in a down economy. First, let's review innovative pumping solutions, IPS and Vertex Distribution, as both will gain market share, this year, but sales will be down. Vertex Distribution has experienced a significant decline in volume and a decline in commodity prices. 7 Lead times have also declined from countries like China that have shorter deliveries, sales have declined, and this combination has resulted in increased inventory levels. This is obviously not good for cash flow. The good news is our goal for this Company, Vertex is to increase their service levels. The number one customer complaint in two different surveys is that their fill rate is only 60%. Increased fill rates should increase market share. Then we will maintain these fill rates and reduce inventory by putting them on our excellent inventory management system which should be completed by April, by the end of April.

Our goal is to decrease their inventory levels and increase fill rates resulting in increase cash flow and increase market share gains. Innovative pumping solutions, IPS, they perform pump repair services and fabrication of pumping systems, which are capital projects related to the gas pipeline industry, utilities, refineries and oil and gas production. Capital projects are down; which is evident by our backlog which is not at 15 million versus 35 million a year ago. IPS is quoting large jobs for major oil companies every day and the shop is down to one shift, but they are staying busy on smaller every day business. The real bright spot is the he repair and service business which is picking up. Their back log has also stabilized and could increase as some of the large projects we are working on with major oil companies turn into orders. We are planning, however, for these two entities to be down 20% on the top line and 30% on the bottom line. As oil prices seem to have stabilized and projects are currently on hold and could be turned loose, our up side could be better than our plant. Plus, I believe we will be stronger as we focus more on additional markets. For example, the utilities and refineries for repairs. And new pumping systems for new power plants.

Our next strategy of Supply Chain Services, which is now called Precision Supply Chain Services should perform excellent in this down economy. Customers are looking to save money and Precision Supply Chain Services can guarantee cost savings for these customers who are willing to outsource procurement services. The only small problem is that existing SCS customers are currently buying less. This means we need to add new customers and market share faster than old customer contract -- as our old customers contract and we have plans to do this. We have $55 billion of new business to implement with more to come and we expect booking additional revenues from this by approximately 33 million, minus existing customer contraction or less consumption gives us growth of 26 million for an increase of 16% this year.

In the third quarter SCS had 66 locations and in the fourth quarter we have 71 locations and that's growing. Please note that we have combined DXP Supply Chain Services into Precision much larger supply chain services group, which DXP has now branded the combined entity, Precision Supply Chain Services, under the leadership of Chris [SEPCO.] The combination makes us much stronger and reduces our overall cost structure. At the same time, Precision's Supply Chain Services was created and we moved all the Precision Service Centers to DXP by putting them in our original structure. In addition, we created three new regions, East Coast. West Coast and North Central. All of the regions now report to John Jefferies, Senior Vice-President of Sales and myself, wearing the hat of Senior Vice-President of Operations. Everyone is charging ahead and agree with the logic that Precision was much better at closing and killing large deals through their supply chain services and DXP is better at running Service Centers and creating Super Centers. The next steps are to eliminate inefficiencies in the back office, which will happen as soon as we put everyone on the same computer services. This project is in process as it relates to Precision Service Centers being first.

Our next strategy, DXP Super Centers, continues to grow and take market share away from the smaller competitors. In the third quarter we had 119 Service Centers and the fourth quarter we have 121. Having experts from a large group of product categories and a local service center is efficient and provides cost savings for our customers because we can offer them one invoice, one shipment slash delivery, one stop shopping, plus product expertise in helping them apply the product correctly. We feel very strongly about our ability to improve Precision Service Center profitability. Their Service Centers have a great group of customer service people that need to better understand the value to the customer. They have the high service part down, we are all working hard to get the high margin part accomplished. High service, high margins and be worth it is our model of building Super Centers. In the third quarter, we had 21 and in the fourth quarter we had 23. In the third quarter we had 10 Service Centers under construction, of those 10, two are now Super Centers and in the fourth quarter we added four more to the list for a total of 12 Service Centers under construction..

Service Centers grew organically 15.74% last year during a marginal economic year. We currently were not hitting on all cylinders. It was our goal this year that we could capture new market share faster than existing customers were buying less and grow approximately 2%. Through January, we were down 11% year-over-year and we had gone to plan B. February has shown some improvements and March should be better, giving us what we think though is the bottom in an upward trend. Plan B, is to reduce the number of what I call bets. I want us to grow so we always have bets on the table, just not as many. DXP is highly incentive driven company so everyone takes a pay cut based on performance. We have reduced our people count by 70, we have reduced work hours and eliminated base salary increases. We are still hiring DXP people in the geographical areas that are growing especially in the Precision Supply Chain Services for new agreements and customers. Gross profits are holding and we expect improvement at the Precision Service Center level.

Overall, the January was the bottom and February and March are the trend. And it looks like we can expect to be less than 20% down for the year. I am now done and open for questions.

Thank you, sir. Ladies and gentlemen, we will begin the question-and-answer session. (Operator Instructions). First question is from the line of Matt Duncan with Stephens, Inc.

Hey, Matt.

I want to make sure I get clarification on the last thing you said. You would be 20% down for the year. Were you talking earnings or revenue. Okay.

You are talking both. Okay. Both.

Is that, so that's total sales can be down 20%.

Yes.

Organic or the whole company. That would be -- I am just trying to make sure I got this right. (Inaudible - technical difficulty). You were talking about growth and Supply Chain Services and IPS being down and you sounded like you were talking about Super Centers being kind of flattish to up and trying to figure how we get down to 20.

Well, basically, I can understand your question. The, we think that we will start with sales first. IPS and we think they are going to be down 20%. Vertex by the way happens to be really inside the IPS group. And so, that's 20% there. We expect Supply Chain Services to be up 16%. And we expect the Service Center parts to be down approximately 11%. And all of that doesn't add up except for the 11%. Is a year-over-year calculation. So. February is trending up. And March is trending up. Which is a good thing. We really still have to overcome the fact that we had, a pretty substantial growth year.

When you say February and March are better than January. And January was down 11. Are you talking about the revenue number or the growth of the change in revenue. So if that was done 11%. What would be the overall change in February.

Well, first of all. They were for January. And it is a total basis for about the same. It is the same as January of a year ago.

Okay.

But, you have to understand that included in that, is Vertex and then included in that is I guess a company we hadn't talked me about is Falcon. Which is a little pump acquisition that we did. When I talk about the Service Centers being down 11% year-over-year, I am talking about the MRO piece.

Okay.

And I didn't tell you per se what innovative pumping solutions was down and Supply Chain Services was down or up. So I didn't give you the whole picture. But the big disconnect is that we are kind of giving you a number that -- we started where we were in January. And each month, we had, what did we grow? I will say this. It is 57%. And we have got, now, we have got to keep pretty close track to that. Or we are going to be down.

All right. I want to make sure I hear you correctly. Total company sales including the full year impact of Vertex, when you had it for five months last year and you got it -- well, 4.5 months, last year. And got it for 12 months this year. Total company sales could still be down 20% or is that organic or not total. Or something I am not hearing correctly?

Well, I am going to have Mac check my numbers. But when I looked at it --

Okay. I just want to make sure. It is important that we get this right to know -- so what you guys are thinking 2009 could look like. Maybe take a step back and instead of looking at a total number, maybe we can refocus on what you are saying each piece can do. So IPS is down 20%, Vertex down 20% from what they did last as a stand alone company but not what they did for DXP. Then Supply Chain Services up 16% and what did you say your expectation is for Service Center for the full year '09, just for the Service Center piece. Yes, about flat.

Well, no, I think, it is okay.

Service Center, you said down 11%.

Exactly.

That takes them to account the impact of new Super Centers, David?

One of the things we are getting a little mixed up. I am getting a little mixed up budget job. And you are right, we put Vertex in there as if it was there for the whole year. Okay. So, they did 60 some odd million. And we think they are going to be down 20%. So that may be distorting my number a bit.

I don't they had to look at the whole company could be down 20% because your number assumes that Vertex was there all year. And it was not; right.

Right.

Okay. I just wanted to make sure I got it right.

It came from the -- (inaudible) and if January is the bottom and we stayed the same. Then we could be down 20% for a year. (Inaudible - technical difficulty).

Yes. (Inaudible - technical difficulty).

If this then - (inaudible - technical difficulty).

Okay. Moving on then, Mac, I wanted to make sure I heard a couple of the numbers correctly for the fourth quarter. (Inaudible - technical difficulty). Maybe you can run through the numbers? Maybe you can go through that?

Precision Supply Chain Services was down 40 basis points, year-over-year, so 37.1 million for the fourth quarter of 2008.

All right.

Innovative pumping solutions was 24.3 million which is down 28.7% from a year ago. And a year ago in the quarter we had that one $12 million drop. MRO was 132.2 million up 35.6% from -- (inaudible).

I just want to make sure, looking at Vertex, number one, what were their sales for the quarter and number two, was it accretive or diluted to earnings?

Earnings were break-even and they were less than a $0.01 of accretion. Their sales for the quarter, were $14 million.

Okay.

On the nose, 14.0 mil (inaudible) was 13.97.

All right, fair enough. On the Super Centers, you said you had 23 of those today. Give us some incite of how that conversion process is going? Easier or harder time finding sales guys right now? You have 23, 14 or 12 under construction today and if you take a guess at the end of 2009 how many Super Centers DXP will have, what would you guess that number might be?

I'd like to think that there is two things going on. I call them bets. And what I mean by that, we don't want to have more than 12, plus or minus a couple -- under construction at any one time because it is going to be a big drain on expenses for some period of time so if we converted all of those and then had another 14 -- or 12 under construction. I would be happy with that.

Okay. Kind of at the end of the year having 35 and 12 more under construction. All right that's helpful. Last thing here and I will jump back in queue. Mac, can you give us the cash and debt balances as of the end of the year and then talk about what your plan use of cash for 2009.

The balance was 5 million something. 5 million 7. Total debt including current portion was 168.5 million, 168.6 million.

Okay. The planned uses of cash during 2009, was that paying down debt?

Yes. It is paying down debt, if business is going to slow then I would assume receivables and inventory will go down -- instead of typically receivable and inventory are going up we would be collecting those and paying down debt.

Okay. Thanks guys.

Your next question come from the line of Ray Rund with Shaker Investments.

I had a lot of questions answered in that. And I am just wondering, can you give us any sort of a sense of what your plan is for the year in terms of get reduction looking out, you said that was going to be a priority.

I mean, -- we are an inventory receivable intensive company as a distributor. The more business goes down, the more inventory and receivables are reduced than the more we pay down debt. If business increases, were not going to pay down nearly as much debt, we are going to be investing in inventory and receivables to support growth.

Okay.

So, there is not. Our focus is not -- if our business is going down our focus is on reducing debt.

Right. In terms of your gross profit margins. You have pretty good increase in the quarter. Will you be able to maintain that level overall or are you seeing a lot of pressure from your customers, in terms of pricing pressure?

I believe we have had very few suppliers reduce their cost to us and we have actually pushed back on some that have tried to increased it so we have really just had zero that have increase their product cost, this year also. And yes, we are having some push back from the certain industries on pricing. And to the extent that we go to back to our vendors and we are able to negotiate better pricing, we pass on the savings to the extent that we can or the supplier is just not going to do it, then we don't. There is -- to say -- there is customer push back -- saying that commodity prices are down. So, therefore they want a price reduction. But we are typically, they really kind of understand that we are the distributor and we make a spread between what the manufacturer charges us and what we charge them and so, we are not, we are not giving up any of that spread.

So you think you will be able to hold your gross margins in the same range that they have been?

It is my hope that we, as we have gotten control of the Precision Service Centers that we can get their margins up. To the extend that we can hold everybody else's margins and get them up. We could see some incremental -- and we have $800 million company, let's say and their Service Centers are about 150 million so if we got the margin up 1% we would be happy. And that is pretty diluted across the whole company.

All right. Last question, can you give us any guidance on the tax rate going forward?

I think, 39%, 39 to 40. It might get a little higher.

Okay, thank you very much.

Thank you. (Operator Instructions). The next question is a follow up from Matt Duncan. Please go ahead.

Hey, guys. Just want to look at margins for a second, if we could. Back to the question about gross margins, 29.4 stands out as quite a bit higher than normal, I'm sure a lot of that is the impact of Vertex and their higher gross margins on your business. When we are thinking about modeling 2009, you want us to use a gross margin that high or safer using a number below that?

What is it for the year, 28.1?

28.1.

Which is down to 28.3.

Yes, but you had Vertex for a full quarter in the fourth quarter so it is different than the rest of the year.

I would say 29 to 28.5.

Okay. 28.5 to 29, then if I look at SG&A as a percent of sales. I tell you what, we will look at the hard number. It is 43.6 million. And that's up about 4 million from the September quarter. How much of that increase is the number one, a full quarter of SG&A from Vertex and number two, the full quarter of amortization from Vertex. If you put those two pieces together, how much of that increase is explained by the whole Vertex for the whole quarter?

You should add Falcon into that equation.

When was Falcon acquired, David?

December 1st.

What are their annual revenues?

About 10 to 12.

Okay. And do you expect it to be accretive in 2009?

Yes.

All right.

I came up with the fourth quarter SG&A, 4.7 million of it was acquisitions.

Is that, well, is that 4.7, the difference between the piece of Vertex you had in the September quarter? I am trying to figure out how much of the increase from September to December was a full quarter Vertex and the addition of Falcon, just so I can get back to --

You are comparing, I missed that. You are comparing third quarter to fourth quarter.

Maybe, the easier way to ask this is 43.6 million a new base to use going forward. It sound like your revenues are going to be down in the first quarter to what they were in the fourth quarter. Do you feel like you will be able to get your SG&A expenses down as well? And I am just trying to figure out how we need -- I have a better picture of gross margins and as far as SG&A. It is 43.5 million new quarterly base it will move around depending on revenue and the incentive copies of that. And was there anything one time in nature in the SG&A expenses in the fourth quarter?

Not particularly.

Okay.

It might be a little.

Okay. But that's a new base to use and it is going to move around but there is some variable cost in there that is depending on your sales level?

The SG&A, the new SG&A for Vertex, fourth quarter is $3 million.

Okay. Now, you had only a 1 million of that in the the September quarter because you only had it for the month of September; right?

Correct, and Falcon is less than 200,000 in SG&A. Per month.

Okay. The difference between the third and fourth quarter that is explained by acquisitions, if I am hearing you correctly, is a little over $2 million?

Yes.

Okay.

Well, and Matt, as you know, we are very incentive oriented, extremely so. So, to the extent that sales are down and profits are down some what. And there is compensation expense that comes out.

Then, just the last thing, I want to try one more time to make sure we got this sales thing clarified, '09 versus'08. If you look at the 736.9 million you did in '08, you are clearly not expecting that number to be down 20%, because you have got a full year of Vertex, versus the year before. And in your worse case analysis. If I look at that number, how much and the worse case analysis that you referred to that included a full year of Vertex.

What was the worse case analysis?

It is all based on January.

Yes.

I just want to make sure I am hearing you correctly on what the expectation is for your 2009 revenue.

I heard what David said was, you take January and multiply by 12, we could be down, worse case 20%.

So the dollar number you had in the month of January.

And that was acquisition. And we hadn't done any in January.

Okay. But you have made acquisitions, right.

Not in January.

Okay. I got you. The dollar number.

No acquisitions. They are all there.

All right. Okay. It is making a lot more sense now. As you said, February was better than January and March is looking like it is better than February.

Right.

So, 20% is the worse case and I don't know if you don't want to answer this. And what do you think is the realistic case for the revenue? It is a down 5% organic and down a little bit total. Sort of more realistic. Or is that still too aggressive. What is the baseline we ought to be thinking of, not in the worse case.

There is not a lot of clarity on what is happening in the economy. We told you, you multiply January by 12 and February and little bit of March look a little better. So, it is better than that.

Okay. All right. I think that's it. Thanks, guys.

Your next question come from the line of James Gentile with Newland. Please go ahead.

There is some issues with the revenue bill as we comp Vertex at a lower level for the balance of the first half of 2009 and through September, you add the new Falcon acquisition and the underlying MRO piece was up in double-digits, organically. It seems like the under lying revenue number is something slightly higher, '09 versus '08 regardless of any sort of organic decline. Taking that a step further, for averaging Vertex, I don't know, 10, 12 million a quarter. And that is additive year-over-year for the first half, at higher gross margins and again, you have another kind of a 4 or $5 million from the Falcon business. Yes, I just wanted to help clarify what Matt was trying to hammer home, the fact that, if you blend the three key items in the model together.

You are still seeing in the mid-point and say at the low end -- if your January number comes to fruition you are looking at a $1.55 on the low end, and frankly flattish with some margin degradation. It is closer to two. And that would assume that the largest pieces of your business, articulated by share gain. And, at least stabilize. And I think that the true, you know, total company guidance by my kind of revenue map. Assuming obviously that Vertex is added to the first half. And you don't see any incremental margin appreciation. You are looking in the 750 or so $1 million range, in 2009, in my model. I already had a negative 20 in IPS business. Understanding that it is a lumpy situation. And helped out by the replacement piece of the business. But it still gets us somewhere, kind of in the mid range, $1.50 to $2. And is that a fair way to look at it. And just help us out with regard. You did have some nice growth and some of your MRO businesses suggested. So, let's break that out again. We have to assume Vertex is completely added versus the first half of 2008. Excluding any non-cash type items, correct?

The question is whether Vertex is going to be accretive.

No, no, no, the question -- accretive to sales.

They are going to have sales.

Exactly. You suggest your worse case type revenue number for the full year.

(Inaudible - technical difficulty) and then we (inaudible) have to add Vertex to 2009. This is 2009 and we have continue or $12 million from the Falcon deal and you have some level of flat, up slightly down. (Inaudible - technical difficulty) and supply type business.

So help me out with the sales number.

I think what we have said that our January sales. If you did the math given all the pieces and (Inaudible - technical difficulty). What occurred in January, the math doesn't work. If we can assume that every month that we have the same volume that we had previously, then ourselves would be the same. In other words, they were the same in January.

Right.

They are going to be the same in February. So in terms of absolute dollars. Absolute dollars. I mean. Organic (inaudible - technical difficulty) and different conversation.

Okay. Fair enough. It is clearer now.

And then I think it is unrealistic to think sales are again, 736, what ever that number was. And we had more entities producing that 736, so our bottom line is not going to be this good. (Inaudible - technical difficulty). The 736 to put it plainly, that you reported in the 2008 period exclude approximately. Call it $35 million from the Vertex acquisition and another $12 million the Falcon acquisition. I under the cost structure you have added underneath the sales. I wanted to clear up the fact that we will be solidly over 750 million regardless of some cyclical, organic variations that you would see in your core business. That's very possible.

Very good. Thank you very much. Good job.

All right. Thank you.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We thank you for your participation. At this time, you may disconnect. Have a nice day.