Franklin Electric Co Inc (FELE) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Franklin Electric Q4 2011 earnings conference call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Patrick Davis. You may begin, sir.

Thank you, Kevin. And welcome, everybody, to Franklin Electric's fourth-quarter 2011 earnings conference call. With me today are Scott Trumbull, our Chairman and CEO and John Haines, our CFO. On today's call, Scott will review our fourth-quarter and annual business results, and John will review our fourth-quarter and annual financial results. When John is through, we will have some time for questions and answers.

Before we begin, let me remind you that any forward-looking statements contained herein, including those relating to market conditions or the Company's financial results, costs, expenses, expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth involve risk and uncertainties. These risk and uncertainties include, but are not limited to, general economic and currency conditions, various conditions specific to the Company's business and industry, new housing starts, weather conditions, market demand, competitive factors, changes in distribution channels, supply constraints, effective price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company's accounting policies, and future trends and other risks which are detailed in the Company's SEC filings and are included in Item 1A of part 1 of the Company's annual report on Form 10K for the fiscal year ending January 1, 2011, Exhibit 99.1 attached thereto, and in Item 1A of part 2 of the Company's quarterly reports on Form 10-Q.

These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available and, except as required by law, the Company assumes no obligation to update any forward-looking statements. I will now turn the call over to our Chairman and CEO. Scott?

Thank you, Patrick, and good morning. The fourth quarter provided a solid ending to an outstanding year for Franklin Electric. During the quarter, our earnings per share increased by 47% and by 35% after adjusting prior year's EPS for some unusual items. Our fueling team led the way in terms of earnings improvement during the fourth quarter.

Fueling sales represented about 23% of our total Company sales and increased by 11%, and adjusted fuel and operating income grew by 80%. Our fueling team has done a masterful job integrating the Petrotechnic acquisition. When we acquired Petrotechnic, their operating income margin was about half of the margin level in our existing fueling business. As a result, when we consolidated Petrotechnic, our overall fueling operating income margin fell from its traditional level of about 19% to about 14%. Since then our margins have steadily recovered as the fueling team has achieved their synergy targets. During the fourth quarter 2011, adjusted fueling margins were 21%, about 800 basis points higher than the prior year and better than our typical preacquisition level. In addition, sales of our fuel pumping system and fuel management system product lines were particularly strong during the quarter.

During the fourth quarter, our water systems sales increased by 6% and our operating income grew by 4.5%. Our fourth-quarter water systems business was characterized by strong results in the Americas, which more than offset weaker results in Europe, the Middle East and North Africa. During the fourth quarter, our water system sales in North and South America represented about 50% of our consolidated sales and grew organically by 9%. Throughout 2011, our year-over-year sales of pumping systems for irrigation and industrial applications grew by about 25% in North and South America, and they continued increasing at this pace in the fourth quarter. We believe that our irrigation and industrial sales growth can be attributed to a combination of favorable weather conditions in North America, strong crop prices and market share gains.

In the fourth quarter, we also achieved double-digit sales growth for residential and light commercial groundwater and waste water pumping systems in the Americas, primarily due to strong replacement demand for these products in the US and Canada. Product margins in the Americas grew in spite of significant increases in raw material costs experienced throughout 2011. As our sales have continued to grow, our Americas water systems management team has done a good job of achieving operating leverage on these sales by driving down their converting costs on the factory floor and holding the line on fixed spending increases. Our water sales in EMENA, which is Europe, the Middle East and North Africa, represented about 14% of our consolidated sales and increased by 13% during the quarter.

However, our EMENA sales declined by 6% when you remove the impact of the Impo acquisition and foreign exchange fluctuations. Product margins in EMENA declined during the quarter for two principal reasons. First, we experienced more rapid raw material inflation in our European factories than in our North American plants. This is partially explained as raw material inflation in North America was offset by hedging certain raw materials with forward purchase strategies that we have only recently been able to implement with our suppliers in Europe.

In addition, we had favorable fixed price contracts with raw material suppliers in Europe which expired midyear, and when these contracts expired, several of our European suppliers implemented catch up price increases. As a result, our fourth-quarter raw material costs as a percentage of sales in Europe increased by 410 basis points compared to the fourth quarter 2010. Second, our sales growth in EMENA was curtailed by weak economic conditions in Europe and political turmoil in portions of the Middle East and North Africa. So, we were unable to generate operating leverage on revenue to offset the lower contribution margin caused by the higher raw material costs. We are increasing prices in EMENA during the first quarter. We believe this price action combined with easier year-over-year raw material cost comparisons should enable us to close the margin gap in EMENA during the second quarter of this year.

Overall, 2011 was an outstanding year of accomplishment for Franklin people worldwide. Financially, we achieved record sales and earnings, our consolidated sales increased by 15%, our adjusted EPS increased by 42%, our year-over-year margins improved each quarter. We continue to invest in our future by increasing our RD&E spending by 23% during the year. Our balance sheet remains strong, and we were able to increase our dividend payment for the 18th consecutive year. While these financial achievements are satisfying, we were particularly pleased to have made significant progress on several of our key strategic goals during 2011.

We continue to increase our sales base and high growth developing regions. Our developing regions sales growth -- sales grew by 18% in 2011 and now represent 36% of our consolidated sales. During the year, we completed the Impo acquisition, which gives us the leading position in the large and growing Turkish market and a low cost base for growing throughout the region. We furthered our quest to continue improving our quality and cost position as we consolidated more of our production into our a world-class Linaris, Mexico production complex, and we laid the groundwork for the construction of a new manufacturing facility in Brazil. We continued to gain share in the North American water systems pump market. We've only been in the North American groundwater pump market for six years, and we have already achieved the leading position. But we still have great head room for growth as we convert more and more contractors to installing the Franklin brand as we expand our product line.

Finally, we've furthered our strategy of introducing new products that provide our customers with a prepackaged system solutions. From our customers' perspective, these prepackaged systems can reduce cost, simplify installation and offer a better warranty. From our perspective, these systems can feature more proprietary Franklin technology and significantly increase our revenue per installation. We initiated beta testing on two new packaged systems product lines in 2011, a system to deep water oil and gas wells and a solar powered water well system. We plan to launch these products commercially later this year.

While 2011 was a great year, it is behind us, and we are fully engaged in pursuing the opportunities and challenges that are confronting us in 2012. As we look to the first quarter, we are expecting our global water systems sales to increase by 6% to 8%, despite our assumption that foreign exchange effects will reduce our global water sales by 2% to 4%. We believe that our first quarter water systems sales growth will be led by increases in the US and Canada and the Asia-Pacific regions. We are currently implementing price increases across most of our global water systems product lines, and while these increases will not be fully effective until the beginning of the second quarter, we are anticipating that water operating income will increase by 11% to 14% compared to the first quarter of 2011.

The first quarter is seasonally the slowest for our global fueling business, and sales levels are difficult to predict because they depend upon whether our distributors start stocking up for the summer construction season in March or during the second quarter. At this point, we believe our first quarter fueling sales will grow by 3% to 6%, and we believe that fueling operating income will grow at a similar pace. We expect foreign exchange translation impacts will reduce fueling sales and operating income growth by about 2%. We are also increasing prices across most of our global fueling product lines during the first quarter. Overall, we are expecting our consolidated earnings per share to increase by 10% to 13% compared to the first quarter 2011.

Now I will turn the call over to John Haines, our CFO, who will provide some additional information regarding our financial performance.

Thank you, Scott, and good morning. Our fully diluted earnings per share were $0.50 for the fourth quarter 2011, an increase of 47% compared to the 2010 fourth-quarter fully diluted earnings per share of $0.34. As we note in the tables in the earnings release, there were non-GAAP adjustments in the fourth quarter of 2011 and 2010 that impacted operating income or EPS that were not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual performance -- operational performance of the Company.

In the fourth quarter of 2011, there were no non-GAAP adjustments impacting EPS. Therefore, the EPS of $0.50 is the same as the fully diluted EPS. In the fourth quarter of 2010, non-GAAP adjustments impacted EPS by $0.03, and our adjusted EPS after these non-GAAP adjustments was $0.37 versus the reported $0.34. For the full year 2011, fully diluted EPS was $2.65, an increase of 61% versus the fully diluted EPS of $1.65 in 2010. After adjusting EPS for non-GAAP items in both years, the 2011 adjusted EPS was $2.70, an increase of 42% versus the adjusted 2010 EPS of $1.90.

Fourth-quarter 2011 sales were $187.2 million, an increase of 7% compared to the 2010 fourth-quarter sales of $175 million. Full-year 2011 sales that were $821.1 million and were $107.3 million, or 15% higher than full year 2010 sales. 2011 full-year organic growth was 9%, foreign currency translations increased 2011 sales by $18.8 million, or about 3%. Water systems sales were $143.9 million in the fourth quarter 2011, an increase of 6% versus the fourth quarter 2010. The Impo acquisition completed in the second quarter 2011 contributed $4.9 million, or about 4% to sales.

Excluding acquisitions, water systems sales grew by 2%. Foreign currency translation rate changes decreased sales by $3.2 million, or about 2% compared to sales in the fourth quarter of 2010. The US dollar strengthened against many international currencies in the quarter, including the euro, Brazilian real and South Africa rand. As Scott indicated, sales growth in the fourth quarter was led by the US and Canada where demand for industrial and irrigation pumping systems remained robust. And in Asia Pacific, which experienced strong, broad-based growth in Australia, Japan, Taiwan and South Korea. Water systems operating income after non-GAAP adjustments was $18.6 million in the fourth quarter of 2011, an increase of 4.5% versus the fourth quarter 2010. The fourth quarter operating income margin after non-GAAP adjustments was 12.9% and decreased by 20 basis points compared to 13.1% in the fourth quarter of 2010. This decrease was primarily the result of higher raw material costs.

Fueling system sales were $43.3 million in the fourth quarter 2011 and increased $4.4 million or about 11% from the fourth quarter 2010. All of the fueling system sales in the quarter were organic, with the most significant sales increases occurring in the United States, Latin America and China. Sales of fuel management and pipe and containment systems increased by over 20% in the fourth quarter. Fueling systems operating income after non-GAAP adjustments was $9.2 million in the fourth quarter of 2011 compared to $5.1 million after non-GAAP adjustments in the fourth quarter of 2010, an increase of 80%.

The fourth-quarter operating income margin after non-GAAP adjustments was 21.2% and increased by 810 basis points compared to the 13.1% of net sales in the fourth quarter 2010. Operating income improvements in fueling systems were driven -- were primarily driven by higher sales volume, favorable mix and lower selling, general and administrative expenses. The Company's consolidated gross profit was $60.9 million in the fourth quarter of 2011, an increase of $5.3 million, or about 10% from the fourth quarter of 2010 and a record for any fourth quarter in the Company's history. The gross profit as a percent of net sales increased to 32.5% for the fourth quarter of 2011 from 31.7% for the fourth quarter of 2010. The gross profit margin improvement was due to leveraging fixed costs on higher sales, offsetting higher material costs.

SG&A expenses were $44.4 million in the fourth quarter of 2011 compared to the $42.3 million from the fourth quarter of 2010, an increase of $2.1 million, or about 5%. In the fourth quarter 2011, increases in SG&A attributable to acquisitions were $1 million. Additional increases in SG&A costs during the fourth quarter of 2011 resulted from increased costs from marketing and selling related expenses and increased information technology related expenditures for acquisition integrations.

The effective tax rate for 2011 was about 27%, which the Company believes is also a reasonable estimate for 2012. The projected tax rate is lower than the 2010 tax rate before discrete events of about 30% and the statutory rate of 35%, primarily due to the indefinite reinvestment of foreign earnings and reduced taxes on foreign and repatriated earnings after the restructuring of certain foreign entities. The Company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations, current cash on hand, and available credit.

At the end of 2011, the Company's cash balance was $153.3 million, which was $13.3 million higher than the end of 2010. The Company generated about $100 million in net cash flows from operating activities in 2011 versus about $95 million in 2010. Major uses of cash during 2011 included acquisitions and additional consideration for prior acquisitions of $40 million, additions to property plant and equipment of $21.8 million, stock repurchases of $13.9 million and dividends of $12.9 million.

During the fourth quarter of 2011, the Company substantially completed the purchase of the remaining 25% of the outstanding shares of Vertical SPA, an Italian pumping component manufacturer, for $7.1 million. The Company had previously purchased 75% of the Company in the first quarter of 2009. On December 14, 2011, the Company entered into a $150 million unsecured revolving credit facility that replaces the existing $120 million unsecured facility entered into on December 14, 2006. The credit agreement allows the Company to request an increase in the aggregate commitments by up to $75 million, not to exceed a total commitment of $225 million.

All of the Company's present and future material domestic subsidiaries unconditionally guarantee all of the obligations under and in connection with the new facility. The new agreement provides for a maximum leverage ratio of 3.5 to 1 and an interest coverage ratio equal to or greater than 3 to 1. The Company had no outstanding balance on its revolving debt agreements at the end of 2011 or 2010.

This concludes our prepared remarks, and we'd now like to open the call up for questions.

(Operator Instructions) Our first question comes from Matt Summerville with KeyBanc.

Good morning.

Good morning, Matt.

Just a couple questions here. With regards to Impo, it looked like, unless I am mistaken, that, that business contributed roughly $10 million in sales to your Q3, roughly $5 million in Q4. Why would that business have experienced that kind of sequential decline? And is that normal? Should we think about that going forward?

Matt, I think in the Q3 number is high. Impo's Q4 -- it's the North American water systems business, so they do have some seasonality. But their sales in the fourth quarter were -- the fourth quarter sales for Impo consistent with the seasonal pattern of the third quarter.

Yes, it is mainly seasonality, Matt. The third quarter sales were significantly higher, about $9.8 million. The fourth quarter sales were right amount $5 million, and as a Scott is saying, it is entirely due to the seasonal nature of their business.

Okay, and then, can we walk through your raw material versus pricing dynamics again in Europe? I want to make sure I am clear. It sounds like right now you have about a 4 percentage point kind of gap you need to close, and how around the timing in which that actually gets shut. And are these contracts you have with your suppliers here, and if so, when do those get renegotiated? Can you just walk through what happened there in more detail?

Okay. In the -- raw material cost as a percentage of sales in the fourth quarter in EMENA was higher by 410 basis points than it was in the prior-year. A significant part of that had to do -- or a part of it had to do with the timing of the runoff of fixed price contracts that we had with suppliers. And when the -- those fixed price contracts ended, then our -- several of the suppliers brought their prices back up to the market level. So, we had a fairly significant run-up in prices, and those prices then take 4 months or so to finally start showing up, 4 or 5 months in some instances, to start going through cost of goods sold. And so the peak impact of the higher cost materials year on year, we think is flowing through in the fourth quarter and early in the first quarter of this year and that the comparisons, as we look at what happened to raw material costs, as a percentage of sales as we go into the second quarter, the raw material cost as a percentage of sales in EMENA was higher in the second quarter then it was in the fourth quarter and in the first quarter. And therefore, the comparison, looks like is going to get easier.

And we are getting 3% to 4% price increases across much of our European business that will start kicking in the second quarter. These price increases are being implemented during the first quarter of this year. So, we think the combination of the fact that prior year raw material cost as a percentage of sales are higher in the second quarter than they were in these last 120 days or so. And the fact that we will have the benefit of the price increase that will largely close this 410 basis point gap that we had in the fourth quarter of this year.

Got it. And then with regards to your southern hemisphere business which is currently --

Just a little more color on that. Our business is influenced so heavily by operating leverage with contribution margins in the roughly mid-40s. If our volume is solid, then our operating income margin, with that formula that I described, higher raw material cost plus price plus volume, will have higher margins. I think that the key variable will be what happens to the volume in the EMENA region.

Got it. With regards to your southern hemisphere business, can you compare what you are seeing this season, if you will, versus last season and how your comps there look?

We think Latin America is, exclusive of foreign currency effects, going to grow at a double-digit pace again this year. Our business in Brazil looks solid. Our business elsewhere in the southern cone looks very solid. We think that our distributors are optimistic with another good year in Mexico. So, we think Latin America looks like it is in pretty good shape from a demand perspective, and the issue will be what happens to the current season. In the fourth quarter, our sales in Brazil were impacted by about 8% or -- due to foreign currency translation effects due to the stronger dollar relative to the reais.

And then what about southern Africa, Australia, some of the other markets?

Australia looks very strong. It is coming out of the period where, while we benefited from both Australia and southern Africa, in both of those markets, while we benefited from weather conditions in especially the US and Canada, dry weather leading to unusually heavy industrial and irrigation sales, our sales in Australia and in southern Africa have been negatively impacted during most of the season this year by relatively wet weather conditions. Recently that started to change, so we are optimistic that we are going to have -- the weather is going to be our friend instead of our enemy in those markets this year. And we are optimistic that we are going to have a pretty solid sales performance, especially in Australia.

Last question, Scott. On -- what would your assessment be of channel inventories in North America? It was there any sort of a stock up or pre-buy ahead of these price increases? And then, your level of confidence in Franklin's ability against increasingly tough comps to grow the ag piece of the business of this year?

Well, the ag business -- - our ag business to last year was up 25% in the US and Canada. That business grew for three reasons. One is that the weather conditions were favorable, and when weather is dry, then people are running their systems harder and there is a larger replacement demand. The second was more macroeconomic factors that impacted the farm economy. The demand for food and the higher prices of grains typically resulted in farmers being willing to invest more heavily. Now the weather, we don't know -- and then the third is, we gained share. There is no question in our mind that we gained share last year.

And I think that there are distributors who are right there with the farmers in their local communities, are optimistic that there will continue to be pretty strong investment in order to improve yields, in order to get more props out this year. And that -- we believe that the share gains we got last year are going to stay with us. That -- and -- so at least two of the three are fairly confident that we will continue to see strong demand -- will benefit from strong demand on those fronts. And the issue of the weather is, it's pretty difficult to predict that, but I think that, Mike, we're we are going to see another strong industrial -- or excuse me, Matt, we're going to see another strong agricultural and industrial year for us. We are certainly not predicting another 25% growth, but we think it will -- should be pretty solid. And we've seen -- we continue to see pretty good growth in our residential business and our waste water business. The US/Canada market is pretty solid right now. Not just in I&I, but the residential and light commercial water and wastewater product lines as well.

And then Scott, your assessment of channel inventory business?

Mike, I don't -- we are getting no indication from our distributors that they are stocking up. At the end of the year, most all of our distributors last year had a really good year, and at the end of the year, they did not have to stretch in order to hit sales targets. And so they didn't, and if anything, they deferred purchases because each year we ratchet up the targets. So, they didn't want to add to their sales at the end of the year. So, there was no real -- from our distributor base, no real inventory build or incentive for inventory build at the end of the year. And we are not seeing that they are building inventories at this stage other than the normal seasonal pattern. They normally build either in March or April for the upcoming construction season just to prepare for the season. So, other than the normal inventory build that we see every year, we're not -- we don't think the channel is overloaded at all.

Got it. Thanks, Scott.

Okay, Matt.

The next question is from Mike Halloran with Robert Baird.

Good morning, guys.

Good morning.

So, if you look at the water margins, it sounds like all of the pressure was really because of the European, North Africa region. A little color on the North America margins. It sounds like those are progressing pretty well. Are you still seeing any sort of mix impact that you think is it maybe a little bit above norm? It didn't sound I get from your ag outlook commentary there. And then just any more color on how you think those margins in North America look now, and progression from here. Qualitatively, that is.

Okay. The North American business has grown nicely this year. And again, we've done -- the management team there, because we have been consolidating facilities, we moved Oklahoma City into Linares over the course of the year, and as we have consolidated down to a smaller and smaller manufacturing number of facilities in North America, we are able to take out a good deal of fixed costs. Or -- even though we increased our RD&E spending and some of our sales of spending, our overall fixed cost base in our North American operations was relatively flat last year. And so when we get sales growth, a lot of that incremental contribution margin goes straight to the bottom line. And that - I would say that dynamic, more than mix, has accounted for the margin improvement that we have seen in our US/Canada water systems business over the last year.

Having said that, a portion of it is also because the irrigation and industrial business tends to be modestly more profitable than our residential and light commercial business. And so our most rapidly growing end use was also one of our higher profitability end uses. But I think the primary driver of margin improvement has been operating leverage, and we believe that we are going to be successful at holding the line on fixed cost increases well below the rate of increase of sales in North America and that we will continue to see operating leverage generated margin improvements in that business.

That makes sense. And then, on the North America market in general, talked about the ag side already, maybe you can give a little thought on what's underpinning your 2012 expectations on that side, if you're starting to see something beyond the replacement demand side. A little color would be great.

Okay, you're talking on the residential side?

Residential, light commercial.

Okay, yes, I -- we are benefiting by a modest uptick in the housing starts. We are coming off the bottom, and some of our products that are really new home construction related products are starting to pick up a little bit. But I think 80% of our demand on the residential light commercial side or more is still replacement demand for residential or light commercial water well systems or residential light commercial sump sewage and affluent pumping systems. So, I would say replacement continues to be the vast majority of our shipments on that side of the business.

And do you expect that to change? Not drastically, obviously, because replacement is always going to be the bulk and lion's share of what you guys are pushing through, but are you expecting that to shift a little bit more in 2012? How healthy of a backdrop are you looking at for residential?

We really aren't expecting it to shift very much in 2012.

Okay, that makes sense. And then as far as the new product introductions go, could you talk a little bit more about the prepackaged system solutions you're putting in the marketplace? Specific end markets, geographies that you are pushing through, and then what makes it unique relative to what the market place is selling right now?

Okay we have two systems that we are introducing. Both are in beta test and will be until the fourth quarter. These a pumping systems, particularly that involve water and water well, we don't like to introduce them until we have done very extensive life testing of these systems. And so the two systems that we are excited about right now are called number 1; a system for dewatering oil and gas wells. The technology for extracting oil and gas, not always, but frequently involves removing groundwater from the well site, relieving pressure in the formation and allowing a gas to flow to the surface. Or removing water that contains oil mixed with it from the ground, putting it in some storage system and letting the gas and oil separate. The oil is stripped off, and the gas is reinjected -- or the water is reinjected. And so we -- there are literally hundreds of thousands of wells that are really operating to extract natural gas and oil that are really just really deep water wells. And up to now, our Company has not focused on operating at those depths.

Our systems are really designed for extracting water for irrigation or personal consumption or industrial uses and typically go down to no more than 500 to 1,000 feet where the depths that we need to go to for the oil and gas market is frequently 1,000 meters or more. So, what we have -- but what we have found is that the systems that are being used at those depths are very expensive and are subject to replacement frequently on a 1 to 2 year cycle. And we were convinced that we could develop a system for extracting water at those depths that would have the same kind of reliability that we have in our traditional systems, and certainly more reliable than what is out there now in terms of mean time between failure and would also be available at a much lower cost. And so we have developed a system that uses the -- a progressive cavity pump technology that we employ in Africa, which our progressive cavity pump can handle great pressure, in other words, great depth, at relatively low flow rates.

So, we have combined successfully a progressive cavity pump with a beefed up Franklin motor. And this is the system that we're -- and Franklin drive and control technology, and we believe that this system will be very attractive to many oil and gas companies because we believe that with the results of our testing and the evidence that we will be able to present, we will be able to demonstrate that these are robust systems that are going to be available at a very competitive cost. So, we are excited about that -- the prospect of building a meaningful market in the oil patch with this product line. We have about -- we have a number of these systems installed in North America and in Africa now. We will have them in the next 60 days in beta test in Australia as well where there is a very large investment plan on the part of a number of large oil and gas companies for the extraction of coal bed methane using this technology. So, we are happy with the way the beta tests are working out, and we think we've really got something.

In addition, on the solar side, there are a lot of places in the world where water is required, but electricity is not available, and a lot of it is in agricultural or ranch settings. Some of it is at mining sites, and some are just rural villages. And these water systems with no electricity are being run on diesel generators. And the -- they work, but you've got to keep going out to these very remote locations to replace -- to refill the generators, and that adds cost, and it frequently results in running out of water.

And on the other hand, if there was a reliable and very robust solar pumping system, it could solve that problem. And combined with a monitoring system, they could just a monitor the water level in whatever storage facility they are working from and make sure the system is still running. And so the main advantage, there are these types of systems out there now, the main advantage is that the system we've designed has got Franklin durability built-in. The environmental conditions in these places is very difficult, and the system that we've designed is -- the differentiating factor will be it's robustness. That it can be installed, it can withstand the most difficult environmental conditions and keep operating effectively. And we have compared ourselves to the other systems that are out there and feel that that's -- that will be a major consideration in the minds of our customers. So again, this product is in field trials in Africa and in Australia, and we've been happy with the results, and we would expect in late in the third quarter to introduce that commercially as well.

Great. I appreciate the time, gentlemen.

I am not showing any further questions at this time. I would like to turn the conference back over to the host for closing comments.

Kevin, thank you, and thanks everybody else. Appreciate your time today.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.