Frequency Electronics Inc (FEIM) 2015 Q3 法說會逐字稿

Greetings and welcome to the Frequency Electronics third-quarter fiscal 2015 earnings release conference call. (Operator Instructions). As a reminder, this conference is being recorded.

Any statements made by the Company during this conference call regarding the future constitute forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the Company's press releases and are further detailed and the Company periodic report filings with the Securities and Exchange Commission.

By making these forward-looking statements the Company undertakes no obligation to update these statements or revisions or changes after the date of this conference call.

It is now my pleasure to introduce your host, General Joseph Franklin. Please go ahead, sir.

Thank you very much, Leticia, and thank you all for joining us this afternoon. We appreciate you taking this time out of your schedule as busy as you are to be with us and we'll look forward to your questions when we are finished. This of course is our third-quarter fiscal year results and I'm joined of course by Martin Bloch, our Chairman.

No, President.

Our president, and Alan Miller, our Chief Financial Officer. Alan will start the conversation, folks. So hang on and we will look forward to your questions.

Thank you, Joe. For the third quarter of fiscal 2015, revenues were $18.4 million compared to $18.2 million in the year ago fiscal 2014 third quarter. Satellite revenues continue to represent approximately 60% of consolidated revenues, similar to the ratio in the prior year.

Revenues from non-space US government DOD programs including sales by FEI-Elcom and FEI-Zyfer, accounted for one-fourth of consolidated revenues and are up about 25% over the third quarter of last year. This growth in revenues reflects FEI-Zyfer's continuing sales related to the US government's critical secure communication program to prevent GPS jamming and multipath.

All government end use revenues which include US government DOD non-space and US government satellite programs account for more than half of third-quarter revenues and approximately 45% of consolidated revenues year to date. Revenues from network infrastructure and other commercial products that are recorded in FEI-NY, Gillam-FEI and FEI-Zyfer were 15% of consolidated revenues for the quarter and approximately 20% for the nine months year to date which is about the same rate as the prior year.

Overall, we anticipate that total consolidated revenues for fiscal 2015 will exceed the revenues of fiscal 2014 primarily due to strength in our space and US government non-space business areas.

Our gross margin was $5.9 million compared to $6.1 million last year yielding a gross margin rate of 32% in fiscal 2015's third quarter compared to 34% last year.

During the third quarter, we incurred increased costs associated with further expanding our production capacity. Along with product mix, these costs reduced our gross margin and our gross margin rates. After this current fourth quarter, we expect these additional costs to be reduced as we achieve our capacity objectives and this investment should result in fiscal 2016 gross margin rates that are closer to our target.

SG&A expenses were $3.6 million as compared to last year's $3.5 million both of which are 19% of revenues. This level of SG&A expense is very much in line with our target and should be sustained for the balance of fiscal 2015.

Internal R&D spending in the third quarter of fiscal 2015 was $1.3 million or 7% of revenues compared to last year's $1.4 million or 7.5% of revenues. Our R&D efforts include investments and products for space, US government DOD and other commercial applications but do not include any R&D that is funded by our customers. Our total IR&D spending is expected to remain at less than 10% of fiscal 2015 revenues.

Our operating profit then for the third quarter was $997,000 or 5% of revenues compared to $1.3 million and 7% of revenues in last year's third quarter.

Other income which generally consists of investment income offset by interest and other expenses netted to income of $81,000 in fiscal 2015 as compared to $370,000 in last year's third quarter. Other income last year included a $300,000 gain on the sale of marketable securities. We had no similar gains during the fiscal 2015 period. This yielded pretax income of $1.1 million for fiscal 2015 compared to $1.6 million last year.

During Frequency's third quarter, Congress finally reinstated the R&D tax credit which reduced not only the current fiscal year tax provision but also reduced our tax obligations for our fiscal 2014, the tax return that was filed just this last January. This resulted in a third-quarter adjustment that reduced our tax provision to only $200,000 and our year-to-date effective tax rate to 33%.

Net income then for the third quarter of fiscal 2015 was $878,000 or $0.10 per diluted share compared to $1.2 million or $0.14 per diluted share in fiscal 2014.

During the third quarter, we generated positive operating cash flow of $1.7 million thus for the last two consecutive quarters, we have generated a total of $4.9 million in positive operating cash flow. Now based on the timing of the achievement of our contract milestones and collection of receivables, we expect to generate positive operating cash flow for the full fiscal year.

Our backlog at the end of January 2015 was about $41 million compared to $48 million at the end of fiscal 2014. Over three-fourths of our backlog is in long-term satellite programs split about equally between commercial and US government programs.

Frequency continues to maintain a healthy balance sheet with a strong working capital position of $80 million.

I will now turn the call over to Martin and we will look forward to your questions a little later.

Good afternoon, everybody. I want to start out by what was the challenge for FEI in fiscal 2014 so far. The most important item that we had to demonstrate is that we have increased our capacity to deliver hardware because that was the concern of all our main satellite customers. And we have done this by investing in automatic test equipment, add capital equipment in thermal vacuum to simulate space and other electronic test equipment, train NASA skilled assemblers which is a key important building block on it, added five engineers to our staff to be able to respond faster to the cycle time demands and this has drastically put enormous amount of stress from typical cycles of 26 to 36 months. Most of the new commercial satellites have a cycle time of 13 to 15 months.

We've also added a night shift which helps enormously in throughput because testing can continue 24/7.

For space, we have developed this year some exciting new products. One is a state-of-the-art quartz oscillator which has outstanding short-term stability to fulfill very challenging missions for military as well as scientific satellite programs.

We improved our EPCs for manufacturability and reliability, completed almost all the work on a Ku/Ka-band converter product line which we are now trying to market very aggressively to all of the satellite manufacturers.

We developed and delivered space synthesizers with enormous reduction in size to address in addition to the geosynchronous market the large emerging Earth satellite where size and weight is a premium and performance is just as important as a Geo satellite. We have also completed the development of the GPS III atomic clock to address the GPS satellite program and we are going through the final validation with all the necessary paperwork that requires for such an assistant.

Continued the process of changing frequency from a tribal environment to a documented manufacturing capability. We could build anything under the sun. That was our specialty but it took very senior people with great experience to do it. We have in order to decrease the cycle time and increase the throughput, we have to do all the necessary documentation and processes to be able -- ordinary people to be able to manufacture and test our product.

We've developed a new system for secure communication which is a very exciting product line. We are demonstrating it this month and the objective of the system is to fill a gap that has been very critical in providing secure systems with an independent mode of operation not depending on GPS since GPS has become very vulnerable to jamming and multipath and actually spoofing which is even the most serious type of GPS behavior.

We have lots of outstanding proposals on this and I just want to indicate if any of you are reading Space News on January 12, 2005 (sic) publication, they have the amount of satellite contracts that have been awarded in 2014 and there were 30 which indicates that we are addressing a large market and it's well within the projected quantities that we have always stated as our market objective.

We also are doing significant pioneering work in addressing the very large emerging Earth orbiting satellites since the quantity is increasing significantly and their mission is becoming more and more critical.

I just want to make my last remark with respect to backlog which is 40 versus 48 a year ago. That's just one satellite job of just the critical timing areas. With all our expertise, I'm looking forward to a very bright and exciting future for Frequency Electronics.

I'd like to open now for answers and questions.

(Operator Instructions).

Operator, could you please ask them to address the question to either General Joe Franklin, Martin Bloch, or Alan Miller, so we know who will answer it?

(Operator Instructions). Tristan Thomas, Sidoti & Company.

How's everyone doing today? Can you hear me?

Yes, we can hear you loud and clear.

Perfect. First question is directed for Martin. Could you maybe provide a new timeline on when you expect to win new contracts for some of your new products? And then also second part, if it has maybe been pushed back, is that on the government end, is that on the satellite manufacturers and maybe give us a little context on what's going on behind the scenes?

Well, we have many outstanding proposals and we expect to negotiate our new satellite contracts pretty much on a monthly basis with our major four commercial customers and governments. So the timeline continues. It's not something that we are waiting for like as an example, we are right now negotiating contracts on three satellites to do the basic development and we hope to conclude this negotiation before the end of March.

Okay. Hypothetically if you do conclude negotiations by the end of March, how soon would you begin recognizing some revenues from that hypothetically?

How soon we would get revenue?

Yes, just to try to maybe give a little bit of context (multiple speakers).

Typically on this on percent complete, Alan, we would actually get revenues in the -- start getting in the first quarter of fiscal 2016.

Okay.

And by the way, the proposal that we have outstanding addresses our existing product line plus our new products especially the Ku/Ka-band up/down converters and those specialized synthesizers for the Earth-orbiting environment.

Okay, great. Once again, I just wanted to be clear. That was a hypothetical question depending on what happens. I know you mentioned that Zyfer was accretive to earnings during the quarter. What is going to take to get Gillam back to a similar level where it's actually profitable?

Again, Gillam? A miracle.

Any --

But basically as they have a couple of exciting products and that's what we're watching to see if they take traction and this is basically they develop some RTUs for the French electricity companies and that has a large market potential. There are like 60 to 150,000 slots for it just in France. And they and one other large, Schneider, are the only two people that have so far submitted acceptable remote terminal units for that program.

And the other is the buildup of the wireless network by French Telecom. That's their two big opportunities and if this doesn't happen soon we'll have to do something more drastic.

Okay. Two questions for Alan. I might have missed it if you mentioned it. SG&A, do you expect that to normalize in the fourth quarter or are we still looking for a little more costs related to some of the production buildup?

As far as SG&A is concerned, it has been running right around the $3.5 million a quarter and I don't (multiple speakers)

I apologize. I meant gross margin in relation to (multiple speakers)

Gross margin, okay, that makes more sense. Yes, I think we anticipate that our gross margin rate will probably be somewhat similar to what you've seen for the first nine months of the year. We were hoping for an improvement as some of these costs get behind us but I can't predict that we will be 100% finished.

Okay. And then just one question just regarding the tax rate. You mentioned your R&D credit. Is that something we should model moving forward or is that a one-time event?

Again, somewhat it is dependent upon the amount of gains and losses that are incurred in our foreign subsidiaries which don't get tax affected but I would say someplace in the 32% to 35% rate would be the effective rate for the full year.

Okay.

Marcel Herbst, Herbst Capital Management.

Hi. Good afternoon and thanks for taking my question. Martin, in the PR you spoke about rationalizing our segment assets and operations. Can you talk a little bit about what exactly that means and give more color on how you are doing that?

Again I'm sorry, I'm a little bit thick this morning. Could you repeat the question?

In the PR, you spoke about rationalizing our segment assets and operations. I was wondering what that means and maybe get a little bit more color on how you are doing that?

Well, we are examining our subsidiary especially Gillam and see how they fit into our future and see if we can employ their assets to the better benefits of shareholders' value and we are examining it very, very carefully to see and see what to do about it.

Oh, I see. Okay. On the last call, you gave it about a 7 or 8 likelihood to get a Ku/Ka-band contract before April 30. I was wondering how do you see that now?

It is any minute. We are in negotiation right now.

All right, that's good to hear. Regarding your small Earth orbit payload opportunity that you mentioned earlier, can you tell us how close are you to adding to the backlog on this and what kind of annual revenue potential does this product line have?

Okay, I'll tell you what is right now and the wildcard that nobody can fully define. Right now, we are participating on about a half a dozen military classified Earth-orbiting satellites plus of course we are supplying all the up/down converters and timing for Iridium NEXT, as you probably know.

Those Earth-orbiting satellites for DOD and the classified mission are becoming more urgent and more numerous in the area and at that time they require better performance on timing and frequency and phase noise at the same time significant reduction in size and weight because the satellites are smaller and they are more numerous. And we have developed and demonstrated some key building blocks for that arena. So we are starting to get business and we probably have a couple million dollars right now in the backlog for development for this military Earth-orbiting satellite.

And some significant contract -- they are still considered Earth-orbiting but in a slightly different orbit which are for military and secure end use. The most wildcard is that new view Earth opportunity that we are all looking at. If that goes, there is going to be 920 satellites. It's a new Teledesic and we have submitted proposals --

WorldView the name of it (inaudible)

They are listed as VU and it's well-funded. If it goes, we will have a significant opportunity in satellite. The challenge over there is to build something very reliable and very inexpensive. But the opportunity is there.

You said there's $2 million in forward development contracts.

At least $2 million.

How long is the development phase until you go to qualification and production orders?

It's a very fast track, very similar, you know that the new Earth military satellite have the same type of urgency as Geo commercial. They want from cradle to grave to get done between 12- to 18- month cycle.

So it sounds like that this is an opportunity in the eight figure type of size once this gets going.

Very true. It's a very exciting market because the quantity is large. And good or bad, the Earth satellites don't last long in orbit.

Okay, thank you so much. That's all for me.

Thank you.

[Michael Idner], a private investor.

This question is for Martin Bloch. You mentioned in the --

He is not here, Michael.

Yes you are. How are you?

Okay, Michael.

You mentioned in the press release to get you towards your capacity objective. What is that objective?

I don't know what you are referring to.

What is the objective b b

To what type of volume.

What type of volume can we handle?

Well, we are looking for infinity but our immediate role is to be able to handle approximately 1.5 to 2 times our present satellite volume.

Okay. How many people do you have on the night shift now?

We have a dozen plus but we actually shift in bb we have been reasonably successful in shifting some of the day operators in at night whenever we need them so we can test satellite hardware 24/7 which is very important to reduce the cycle time.

Do you think by the end of the fiscal year you'll be ready to meet all your capacity?

There's no such thing as meeting all the capacity because hopefully it to continuously increasing cycle. We are trying to demonstrate very successfully to our major customers that we can meet the present demands for capacity in shorter cycle time. It's a two-edged sword. Not only is there more hardware but the cycle time is significantly reduced which means in addition to the equipment and training and people, we are also investing in long lead parts because sometimes a $10 part can be 70 weeks and it screws up your whole schedule on $1 million or $2 million box. So all of this is being put in place to meet their response time. Response time is number 1, 2 and 3.

Okay. I was going to say bb are you going to be able to announce any of these contracts if you get something by year-end, by fiscal year-end?

Well, I will have to check on this. Some of this Earth-orbiting satellites are sensitive and our customers really don't want any publicity so I'll have to check, Michael. Whatever we can announce we will announce.

Well, like the Ku/Ka, that's stuff you can?

On the Ka/Ku, we definitely can and will because those are negotiations on commercial satellites.

Okay , thank you very much.

You are very welcome.

Sam Rebotsky, SER Asset Management.

Good afternoon, Martin, Joseph and Alan.

Good afternoon.

So it looks like you said in the new year April 1, we should have the up/down and everything going. Are we negotiating with more than one contractor?

Yes.

Okay, okay. And so we expect say by the end of March one contractor or two contractors?

Well, I didn't say end of March. I said in this quarter of this item. I don't control the set date. We are in the process right now negotiating with a couple of contractors on the Ku/Ka-band and our other type of up/down converters. It's imminent but if it happens in a week or three weeks, that I have no control of.

Okay, okay.

But it is short term.

Okay. So do need to get more inventory or do you have plenty of inventory to ship?

We have plenty of inventory on this. We need a few critical parts which we have put on order, the long-lead electrical parts that are hard to get and require a lot of screaming. But that's peanuts and this is in the works.

Right. So at this point everything seems to be ready to go and all these contracts that you are bidding on are funded and how much do you expect to do per satellite now in the new year?

More than we did in the past year. You know that our policy is not to give guidance on exact numbers.

No but you are doing $5 million to $10 million now, so you've been talking about doing $25 million?

Oh you mean per satellite?

Per satellite.

We are proposing a system that are in the $20 million range.

$20 million range, all right. Look, you should get a couple of orders soon.

Well, that's subjective.

Yes and start shipping.

Well, first you've got to get the order and then you have to do the [crush] development and then you ship.

All right, good luck, Martin. I'm waiting for the orders.

Ryan Levenson, Privet Fund.

Good afternoon, gentlemen. I have a question --

Good afternoon.

In the press release the statement about backlog, there's a sentence that says satellite backlog to date does not include orders for the Company to satellite payable microwave receivers converters product line. If you were to include that, what would be $41 million backward number go to?

Well, we tried to emphasize Ryan that we haven't received those orders yet.

So then why are you including that statement in there?

Because there are people who were anticipating that for the last call that we would have some by now but we have not received any orders at this point, as Martin indicated. We are still negotiating with our potential customers on that so at this point the backlog does not conclude anything for new orders -- for new product I should say.

Okay, so I'm just confused as to how the backlog has declined so much over the last couple quarters.

I'm sorry, could you repeat the question? I didn't understand it.

I can move on. So Tristan, your first caller, mentioned something about three satellite -- I mean I guess asked a theoretical question and Martin you were kind enough to respond to something a little bit more tangible. I'm just wondering the size of the three satellites that -- the contract size of those three satellites that you were talking about that you have proposals out on (multiple speakers)

We are negotiating. I'm sorry but those are very sensitive and both the hardware and the dollar value are not -- are not disclosable for public domain but they are great starts and those satellites have lots of tails so we are very excited about that opportunity.

Okay can you give us an order of magnitude on that?

(multiple speakers) it's about in the $5 million to $10 million range.

Okay, it's in that bucket that you've been bidding for the last few quarters?

So the last thing I want to ask about is a timeline on Gillam. You mentioned it would be a miracle for Gillam to turn around. I'm just wondering what internal action is being taken and what aside from examining it what kind of timeline we can get on that?

Okay. Well me and Olie Mancini are planning a due diligence trip to Gillam sometime this summer and we will examine. I will again stop by at French Electric Company and try to obtain a timeline from them because last time when I talked to them a year ago, they said they would start ordering production in calendar year 2015. But we haven't seen any orders. So that's one of my missions.

And the other is also to meet with French Telecom and see what their plans are for building up and at the same time we will see if there are any alternative solutions for Gillam. If those products once are not going, then they don't have a mission anymore in our family and we are obligated to deploy those assets in a better direction.

Okay. So what's the drop-dead date?

2015.

Calendar of fiscal?

Calendar. Fiscal is only six weeks.

I know. Just the last, I have just one more about the General's acquisition comment. Can you maybe elaborate on that a little bit? He said, looking ahead, our focus will remain on potential corporate transaction opportunities.

Well, it's something we've talked about at our various conferences as well is that as we are looking potentially for other acquisitions that could be tuck-ins for frequency but are also open to other avenues of approaching partners that could help us to enhance our products. So we are looking at the potentials to partner up.

To merge the Company with another company or a joint venture of some kind?

Both on this. Basically we have a great strategic asset in this time and secure communication and we are looking very carefully to see if we can explore it up with somebody that has more muscles than we do. That's what is getting a lot of attention.

Okay. Thank you.

You are welcome.

[George Marima], private investor.

Yes, hi, thanks. I'll ask my question to Joe, not to be lonely over there. If you could, in the call you talked about 2015 versus 2014 that you expect revenue to be higher but that implies -- all that implies is more than $14.2 million in the fourth fiscal quarter. I am assuming you are not expecting a big drop-off over this quarter are you?

No. (multiple speakers)

Okay, I think Alan has the details. I think is more qualified to answer it. Go ahead, Alan.

I don't see in my notes where I referred to anything about our revenues for the next quarter. But go ahead, Alan.

No, no, but you said you expect bb all you said is you expect revenue in 2015 to be greater than 2014 but that doesn't say much.

We appreciate that. In fact, we're already $5 million ahead of last year's run rate and we expect to see that maintained. Last year we did $71.5 million. We are certainly on track to well exceed that number.

Okay, so expect somewhat of a sequentially similar quarter I assume all the way around?

Well, we don't comment on specifics but yes in general.

Give or take (multiple speakers)

That's a good assumption.

Not a big drop anyway, okay.

No, no, we don't expect any drop.

Got it. Okay so back to capacity, well first of all, are you still hoping for 2 to 3 sort of Ku/Ku deals in 2015? Is that the hope?

In calendar or fiscal?

No, calendar 2015.

Definitely.

Okay. It sounds like your capacity, the way you said it, about 1.5, 2 times is -- you could be a $100 million to $150 million revenue size company. As you look beyond -- I know a lot of these things are time -- these things have to move in and out of the shop quickly. As you look out I guess the only way to expand would be to do it through an acquisition, either you buy somebody or someone buys you to get above that level, yes?

There's quite a few ways that we are exploring and one of the things is that we are working with quite a few companies to do outsourcing because that's a big portion and there are now some qualified people that do assembly and test for space and we are working with them to see if they can handle our product line and we are doing a lot of automatic testing in order to get the throughput.

To give you an example, on the Iridium NEXT, the automatic test equipment that we have instituted, reduced the test time from 108 touch hours to 24 touch hours. So automation is a big part of increasing throughput and putting machines to work which are more accurate and of course they don't take coffee breaks and they work 24/7. So that's the areas both outsourcing and additional automatic equipment at FEI. And the night shift which is key because of the continuous test time, you don't want to interrupt the test time which is imperative to achieve a good cycle time.

Okay. And on this new military government satellite opportunity, is that project -- the government project, is that called WorldView?

No, WorldView is commercial. WorldView is if you are old enough to remember about 15 years ago, was it Teledesic, I think 15, 20 years ago, Teledesic was formed and they acquired the bandwidth in an Earth-orbiting satellite to supply basically Internet to every place on the globe. That program at that time could not be implemented because there wasn't enough [guardium] arsenite in the process to be able to do it and the satellites were too expensive to do.

Right now this program is getting rejuvenated. And it has been funded with a couple of billion dollars to see if it can be done and VU is one of the companies that is on showing that they bought the Teledesic bandwidth and they are right now out for proposals from three or four of the major satellite manufacturers to see what they can come in at a cost to be able to build about 900 to 1000 satellites.

This military program, is there a name for it?

Yes there is but that's not something that I'm at liberty to tell you.

Okay.

And if I told you you wouldn't recognize it because it has -- the military programs are being given funny names just to make sure they are difficult to identify.

So somebody couldn't follow the news -- okay, got it. On Zyfer, the cyber security opportunity, is there -- I'm not quite clear -- I understand on the cyber threat -- I forget the name of the product but on this cyber threat solution you have, is there an opportunity for increasing revenue in 2015 calendar versus 2014?

Absolutely, absolutely.

And how do I look at that opportunity? I'm not quite clear on that.

Well what happens, a lot of it depends on the government schedule. We are going to demonstrate this equipment as a matter of fact next week to the government. And at this point in the schedule, the program, the initial phase of the program is funded. How fast they are going to move out unfortunately I don't have control of it but it's a major breakthrough to be able to operate for many many hours in case GPS disappears, jams or spoofed. So that significantly increases the security of critical communication assets.

Is your solution the only one or are you competing against others for this deal?

At this time we are fortunate that we have been given the task of sole-source. Eventually when this program gets expanded to land ship and air, I'm sure that the government will insist on having some other major players because the quantities will be very significant. Being on the ground floor gives us a lot of traction.

I'm not quite clear if -- let's say the next six months a miracle happens and you land the French deal and you land this government deal and you land three four Ku/Ka, are you (multiple speakers)

I will be very busy.

Are you going to be able to handle that though?

Say that again.

Are you going to be able to handle that kind of rush of capacity if it all comes at once?

It is going to be painful but we will handle it and we are looking right now to see if we can affiliate ourselves with partners that will be able to enable us to do it. It's going to be a job but it is going to be a lot of fun.

Okay. Go get it done, thank you.

Okay.

Thank you, George.

Ryan Levenson, Previt Fund.

Hey just one more. Can you just elaborate on what you mean that you are looking for partners to affiliate yourself with? Just provide a little bit more color around that statement.

Well, I'll give you this. We are looking for people that can add to our technology and also for people that have a lot more capacity and visibility that our technology can enhance their product line and their ability to push those programs forward bigger. We are just -- we have great technology but we are a small company and we don't have the muscles to push some of these programs to the next giant level on this.

You are talking about critical assets that need to be upgraded and the first are in the hundreds and the next level is in the thousands and the third level is in the ten thousands. So we will need to partner up with people who have a lot more muscle is the best way to describe it. Or merge with them where our technology has great strategic value.

Okay, I will be satisfied with that answer. Thanks.

Okay, I am surprised.

George Marima, a private investor.

Hi again. That last caller prompted a further question about this. I don't know your space very well. What are some like names or types of firms that would quote unquote have muscle to align yourselves with? Who would be some examples of it?

Well, the major the DOD contractors would be the list. You know there are about 10 of them that are considered as major contractors and are defined. Starting on the top of Lockheed Martin to on the down last is probably I can't mention the down -- that's a name occurred to me but people who are now in the business of supplying this major type of systems and integrators.

Okay. To say this as politely as I can, the management team at FEI is not exactly spring chickens. I could see how it would make sense for an exit strategy would be to sell to a larger company that you guys provided a strong -- some strong things you bring to the table along with some big muscle partner. That does make a lot of sense.

I want to comment on the spring chicken. I went recently to -- I won't mention the company but it's a $2 billion operation run by an 82-year-old and somebody said, what your succession plan and he says what do you think I'm ready to die?

No, we have a very diversified team. It's true that some of the senior people are no spring chickens but we have a lot of life left in us and we have a very active next-generation team that is being groomed and are doing a great job.

Excellent. Okay, thank you.

You are welcome.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

Okay, thank you very much, Leticia. We really appreciate you taking care of us today and thanks to all of you who listened in and for your questions which we most appreciate. We want it to be as clear as possible to everyone who is looking at us what we are doing, where we are looking and what our potential is to get there.

Thank you all for tuning in. We will be back again at the end of the next quarter in July and hope you all have a very pleasant start to your summer. God bless you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.