Federal Signal Corp (FSS) 2010 Q2 法說會逐字稿

Good day Ladies and Gentlemen, and welcome to the second quarter 2010 Federal Signal earnings conference call. My name is Jasmine and I'll be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today to Mr. Bill Barker, Senior Vice-president and CFO.

Thank you. Good morning and welcome to Federal Signal second quarter 2010 conference call. I'm Bill Barker, Federal Signal's Chief Financial Officer. Joining me on the call today is Bill Osborne, our President and Chief Executive Officer. We'll be using some slides in the presentation. The slides can be found by going to our website, clicking on the Q2 investor call icon and selecting the webcast. We will also post the slide presentation to our website after the call.

Before we get to the business review I would like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities & Exchange Commission. These documents are available on our website, www.federalsignal.com. We will file our form 10-Q shortly. Now I'll turn the call over to Bill Osborne.

Thank you, Bill. There's a lot to discuss regarding the second quarter of Federal Signal. We continued to see strong order growth across most of our businesses, but we also felt the impact of European debt crisis. We improved our gross margin versus last year on flat revenues and are well-positioned for further gross margin improvement in the second half of the year.

We created a new operating group, Federal Signal Technologies, or FSTech for short. We also completed an equity offering and we took a charge for restructuring actions that will enhance our future profitability. Let me start with our Q2 orders.

As we reported in our earnings release earlier today, total company orders increased by 23% versus last year, with orders for our existing businesses, those which we have owned for at least one year, up by 16%. In particular we are encouraged by the continued strength in our industrial and FSTech markets.

We achieved order growth rates in excess of 20% in several of our key businesses. PIPS ALPR cameras, Federal APD parking, our Industrial Safety and Security business, the Guzzler industrial vacuum trucks and Vactor sewer cleaner businesses. We also achieved 17% order growth in our Jetstream water blaster business. These businesses combined account for roughly 40% of total company revenue.

However, our European focus businesses were impacted by the debt crisis and its impact on European municipal and government budgets. As an example, second quarter orders for our Bronto Skylift business were 37% below the order rate in Q1 and were down 6% versus last year, and this is after being up more than 50% in the first quarter. More specifically, Bronto's average monthly order rate in Q1 was about $10.5 million. But in June monthly orders were only $4 million.

Similarly, Q2 orders for Vama, our European light bar and siren business, were 34% lower than in the first quarter. There continues to be a high level of uncertainty around European public sector spending as indicated by the recently announced austerity programs in several European countries. We expect the lower second quarter order rate will likely result in lower revenues in the second half of 2011 than we had previously expected. I'll talk a little bit more about our expectations for the second half of the year and 2011 in a little bit.

Turning to our gross margin for the quarter, we began to see the benefits of our product cost reduction efforts and our emphasis on growing our higher margin businesses. Our gross margin for the quarter was nearly a point higher than last year on flat revenue. We expect this trend to continue in the second half of the year with our Q4 gross margin higher than what we achieved in the second quarter.

We reported Earnings Per Share of $0.02 from continuing operations for the second quarter. This includes a $0.04 per share impact from restructuring charges. Adjusting our EPS calculation to exclude the impact of the $3.7 million restructuring charge would yield an adjusted EPS of $0.06. Bill Barker will go through the financials in some detail in a moment, but I'd like to explain the restructuring actions.

As we discussed, we created a new operating group, FSTech, during the quarter. When we formed FSTech we moved two of our existing businesses, the PIPS ALPR camera business and our Federal APD parking business from our Safety and Security group to FSTech. The creation of this new group structure caused us to re-evaluate our business support needs at both the group and corporate levels.

We're reducing head count, outsourcing some support activities, and sharing resources across the groups. We believe that the restructuring actions will provide more efficient support for our business and will result in lower costs. We expect the annualized savings from these actions to be roughly $5 million, with $1.5 million of savings recognized in 2010 and the balance to be realized in 2011.

Turning to our outlook for the second half of the year, our revenue expectations have been lowered due to the sequential decline in orders and the uncertain outlook for our European focus businesses, Bronto and VAMA. Our current forecast for the second half of the year is for EPS from continuing operations to be in a range of $0.18 to $0.23 with Q4 being the larger of the two remaining quarters.

This second half outlook incorporates the $0 .05 per share dilutive impact of our recent equity offering. Looking to next year, our prior outlook for 2011 was $0.70 to $0.80 per share. The dilutive impact of the equity offering is about $0.12 per share in 2011. So adjusting our prior outlook for the equity offering would have generated a 2011 EPS estimate of $0.58 to $0.68.

However, our view of 2011 has also been negatively impacted by the outlook for European public sector spending. Our prior estimate for 2011 assumed growth for Bronto and VAMA in the second half of 2010 and in 2011. It now appears unlikely that those growth assumptions will be realized. Given the uncertainty around the European situation, we won't give a detailed update to our 2011 outlook until later this year.

In response to the change in our European revenue assumptions, we are intensifying our cost reduction effort to achieve manufacturing efficiencies, eliminate waste, and streamline our product offerings. In addition we are ramping up our efforts to enter new markets to drive revenue growth. I'll now turn the call over to Bill Barker after which I will share some thoughts about our expectations for the new FSTech group.

Thanks, Bill. I'll give a fairly brief review of our financial result for the quarter which are included in today's press release. Looking at our P&L for the quarter, orders were $187 million, which was up 23% versus last year as Bill mentioned. Sales of $199 million were flat to last year.

Our gross margin was 27% up about a point from last year due to a combination of cost reductions and an improved product mix. Operating expenses, excluding restructuring charges, were $44 million, and we incurred $1 million of acquisition and integration costs in the quarter.

Operating income excluded restructuring charges was about flat to last year. Reported EPS from continuing operations which includes the $3.7 million restructuring charge Bill referred, to was $0.02 for the quarter. Adjusted EPS, as Bill described, was $0.06 for the quarter.

The EPS comparison versus last year is impacted by the higher number of outstanding shares as a result of the equity offering we completed in May. On slide four we show the results by segment for the quarter. For purposes of comparability we have excluded restructuring charges on this slide. A reconciliation of the numbers as shown on the slide and as reported in the restructuring charges can be found on our press release.

The segments shown reflects our new operating group structure and prior years have been restated for the transfer of the PIPS and Federal APD parking businesses from SSG to FSTech. Our Safety and Security Group, or SSG generated $7.6 million of operating income in the quarter resulting in a 13.3% operating margin. SSG's operating margin improved 1.5 points from last year driven primarily by lower overhead costs. Future orders and revenue for SSG were flat to last year.

Bronto, our fire rescue business, had a slight decline in orders versus last year following a 52% increase in the first quarter. As bill mentioned, Bronto's Q2 order rate was 37% lower than what we achieved in Q1. Sales were lower than last year due to a low order backlog at the end of Q1. Bronto's order backlog at the end of Q2 stood at $56 million. Although operating income was down due to the sales decline, Bronto's operating margin was about flat to last year as cost reduction efforts offset the margin impact of lower sales.

Our Environmental Solutions Group, or ESG, had a strong quarter. Orders were up 21%, driven by continued strength in orders for our Vactor and Jetstream businesses. Sales were up slightly versus last year and operating income increased $1.3 million due to an improved operating margin. ESG's operating margin improved by 1.4 points driven by a 1.0 point improvement in gross margins.

The gross margin improvement was driven by a combination of cost saving actions and an improved product mix due to strong sales of our Jetstream water blasters which increased 39% versus last year. ESG's order backlog was $74 million at the end of the quarter. A new operating group, FSTech, generated $36 million of orders and $27 million of revenue in the quarter. The comparison versus last year is not particularly meaningful as last year's numbers do not include the results for the acquisitions of Diamond, Sirit, VESystems nor any group level costs for FSTech.

However as mentioned previously we saw growth in excess 20% for our existing FSTech businesses, our PIP ALRP cameras and FAPD parking. Due to the amortization associated with the acquisitions, FSTech reported a slight operating loss for the quarter. However, we are focusing more on FSTech's EBITDA results which we believe better reflect near term financial performance.

FSTech EBITDA margin was 5.5% for the quarter which was in line for our expectations for the group's initial quarter. We expect margin expansion at FSTech in 2010 and 2011 which will be driven by continued market growth in the Intelligent Transportation market, as well as revenue and cost benefits we will realize as we continue to more fully integrate the FSTech businesses. Bill will discuss FSTech in more detail in a moment.

Corporate expenses from the second quarter were lower by $1.1 million versus last year. On slide five we show our year to date cash flow. Operating cash flow for the quarter was a positive $2 million, but year to date we show a negative cash flow from operations due to seasonal increases in working capital, and increased working capital associated with the acquired businesses, and the timing of payments of accrued expenses and liabilities associated with the acquired companies which are captured in the other line.

Year to date depreciation and amortization was $9.2 million, and for the year we expect depreciation and amortization to be roughly $20 million. Year to date CapEx was $6.5 million, and we expect a full year number of about $16 million. Clearly the biggest driver of our net cash flow so far this year was the $97 million cash outlay associated with the acquisitions.

We expect to continue to improve our cash flow from operations as we move through the year with improved profitability and improved levels of working capital. Given the expectation of strong operating cash flow, the Board recently approved another quarterly dividend of $0.06 per share to be paid in October.

Turning to the balance sheet, our good will and intangible assets increased significantly since year end due to the acquisitions. And our equity increased due to the equity offering we completed in May. We had $13 million of cash on hand at the end of the quarter and had $70 million of availability under our credit agreements giving us available global liquidity of $83 million at the end of the quarter.

During the quarter we repaid $31 million of scheduled private placement note maturities which reduced the outstanding balance of private placement notes from $98 million to $67 million. We have another $8 million of notes coming due in December of this year, and a total of $9 million coming due in 2011. We intend to repay these maturities from operating cash flow.

As shown on slide seven, we are in compliance on each of our key debt covenants, net worth, debt to capital and EBITDA interest expense coverage ratio. That wraps up the financial summary. I will now turn the call back over to Bill Osborne.

Thanks, Bill. As a reminder, our strategy at Federal Signal consists of two key components. Continuously improving our margins and cost structure, and driving growth through our public safety and technology platforms. Our improving gross margins and our restructuring actions to reduce future costs speak to our continued focus on our cost structure. While we spend a lot of time externally discussing our new FSTech group, we spend a significant amount of time and effort internally on cost reduction initiatives and margin improvement actions. As I said earlier, we expect to build on our Q2 gross margin gains as we move through the second half of 2010 and see the benefits of our product cost reduction initiatives.

Now, turning to FSTech, we've been talking about the concept of FSTech group for quite some time, and now it has become a reality. We have assembled a powerful leading technologies with application in electronic toll collection, electronic vehicle registration, parking, asset tracking and supply chain management. Some of our recent contract wins highlight the potential of this group. FSTech won the contract to supply Sirit RFDI tags and readers and PIPS ALPR cameras to support the National Electronic Vehicle Registration Program in Thailand. Similar programs are scheduled to be rolled out in Brazil, Mexico and other countries around the world. FSTech also won a contract with the US Department of Defense to support their warehouse management system with RFID tags indicating the potential opportunities for FSTech beyond the Intelligent Transportation markets that we usually discuss.

In the second quarter, FSTech generated $27 million in sales which equates to an annual run rate of $110 million. Our expectation is to increase FSTech's revenue in the second half of the year to annual run rate of $120 million to $130 million and to set the base for double digit growth in 2011 and beyond when the five businesses will be fully integrated across all functions. As Bill mentioned, FSTech's EBITDA margin for its initial quarter was 5.5%. We expect to improve that margin in the second half of 2010 and into 2011 as a result of continued market growth. The benefits of our integration activities.

Recent market growth in the Intelligent Transportation market has been in the 15% to 20% range and growth is forecasted to remain at that level. We have begun the process of integrating the businesses and some of the actions include cross-training our sales force to enable them to sell all of FSTech's products, integrating the products themselves. In addition to integrated tolling solutions, the FAPD parking, Sirit RFID technology and VESystems software businesses are working on integrated products for the parking industry.

Leveraging the cross-selling opportunities with existing customers and bids. The Thailand DVR contract win was an example of PIPS cameras being brought into a bid that Sirit had initiated. And finally, leveraging Federal Signal's financial resources to bid on larger opportunities and explore new markets in places such as Southeast Asia, South Africa, and India.

I believe FSTech is off to a good start on these initiatives, considering that five businesses have been functioning as a group for one quarter. I remain firmly convinced about the attractiveness of the global market opportunity for Intelligent Transportation Systems as well as the opportunity for FSTech to go beyond the ITS market.

So, as I said at beginning there was a lot to discuss regarding our second quarter. Despite the challenges of the European situation, the long term drivers of our growth remain strong. The need for infrastructure investment around the world, the increasing global mandate for high-quality safety and security systems, and the global growth of Intelligent Transportation markets.

However, I can tell you that we are not satisfied with our Q2 results and we are taking steps to offset the revised outlook for our European focus business. As I mentioned, we've intensified our efforts to improve prove our manufacturing efficiency, we are accelerating new product development, and we are accelerating our efforts to expand our market presence around the world. That concludes my prepared remarks. And operating, could you please open the call now for questions.

(Operator Instructions) . Your first question comes from the line of Ned Borland with Hudson Securities. You may

Good morning, guys. Just if we could stick with FSTech here. First if we could get in some housekeeping on the deferred retention payments? Can you help us think about those? That you mentioned that affected margins?

Yes, Ned, it's Bill B. When we acquired Diamond, part of the acquisition agreement instead of being an up front purchase price was about $3 million of deferred payments to the owners of the company as a retention incentive for them to stay with the company for two years. That's about a $1.6 million deferred expense that hits the business in 2010 and 2011. It will go away after that point.

Okay. And then I guess now that we're getting a look at the profitability of FSTech, we know that it's out of the core safety business, I'm wondering if you could kind of provide your thinking about the profitability for both segments now that they're broken apart. And I think that the core safety segment as both businesses were lumped together we were kind of thinking it was a 10% to 15% operating margin business. But can you help us think about what normalized profitability would be in those businesses?

If you take a look at SSG in the quarter they achieved operating margins I think of about 13% on what is historically I would call less than average revenues. So I think you can clearly see that SSG is in the range of a 12% to 15% operating margin business.

FSTech is still in its infancy. Some of the costs in the quarter are related to formulating the group, for example, relocating executives into a central location. We're launching an initial sales training activity to train our people to cross-sell. Some of those costs don't reflect FSTech's long-term margin potential. We see those margins expanding into 2011. Right now I would suggest that you should be looking at FSTech with its long term profitability in that 10% to 15% operating margin range.

Okay. So long term you see the profitability of these businesses being equal to what you get out of safety or perhaps a little better?

Our plan is for them to be a little bit better than what we see in safety.

Okay. And then over to Bronto, do you have an exclusivity arrangement that expires here in the states shortly. I'm just wondering, what that can do to offset some of the pain you're seeing in Europe.

Well, our plan is to grow Bronto in the US. Bronto is in a position now of seeking an US distribution partner. And until we get that deal signed, I'd like to reserve my comments on Bronto's prospects in the US.

Okay. Fair enough. Finally, I guess the orders from ESG, another strong quarter particularly in the US. Can you reconcile why those orders remain so healthy, whereas the orders for Safety in the US are starting to feel the sting of slower state and municipal budget spending?

Part of it again, is the comparison point. Last year with the challenging economy ESG took a much bigger hit than SSG did, so we're seeing more of a bounce back in the Vactor business in particular.

The Jetstream business we're seeing good growth. I think that's more of a growth business for us both domestically and internationally. But the comparison to last year Q2 was sort of the low point for ESG in their order patterns. So we're overlapping some pretty weak numbers from last year.

Okay. Thank you.

Your next question comes from the line of Charlie Brady with BMO Capital. Please proceed.

Hi, thanks. Good morning.

Hi, Charlie.

Bill and Bill, just in reference to your commentary on your 2011 guidance, and I realize we're a long way from that being completed, but the fact of the matter is you guys did put guidance out there and the deal not withstanding it certainly seems as though that guidance would be lower than even the deal-adjusted range would be. I'm just wondering, can you provide any kind of commentary, kind of what were the growth outlook for Bronto that was embedded in some of that previous guidance that maybe is not going to happen now? How much of a swing factor was that on the guidance?

Charlie, it's Bill B. I'll take a first crack at it and let Bill go with it. There's two things to consider. We had projected about a 5% growth rate for next year for Bronto. But the other thing is the 2010 basis come down quite a bit. As Bill referred to, the order rate in the first quarter on an average monthly basis is about $10.5 million, that was $4 million in June. And because of the length of the order to revenue cycle at Bronto, pretty much what we get in the third quarter will determine what the 2010 revenue is going to be. So we're expecting revised flat for next year but it's coming up a lower base because of the hit in order we took in the second quarter.

Okay. That's helpful. I mean, as we're going through July have you seen -- granted July in Europe is slow so it's not really a fair comparison, I suppose, but have there been any sort of rebound, if I could use that word?

Well, there's been an improvement off the June low. As I said, we only got about $4 million in orders in June. July is closing out it looks like at about $8 million which is about flat to last year. But still not in line with our earlier expectations.

So I think given that those numbers and the uncertain outlook for public sector spending we're being very cautious in our Bronto model for next year. And as Ned mentioned, we are taking other actions, though, to try to offset the weakness that we see in Europe. We're entering into new markets. We'll have more to say about that later in the year. We just took a major restructuring action that we think will yield about $5 million of ongoing cost savings on an annualized basis. And we're ramping up our efforts to reduce design costs in our Safety and Security Group. So we're reacting very aggressively to this situation. And as I said, the European situation is uncertain, but our goal is to control our own destiny by taking control of our costs.

Great. Thanks. I'll hop back in the queue.

Your next question comes from the line of Walt Liptak with Barrington Research. Please proceed.

Hi, thanks. It's Barrington Research. Good morning, guys.

Good morning, Walt.

I guess I'm a little bit less familiar with the guidance you guys put out there for 2010-2011. During your commentary you ran through it pretty quick. I was wondering if you could just review what the full year EPS guidance is in the back half of the year.

Sure. It's Bill B. What we put out there previously before the impact to the equity offering was $0.38 to $0.43 for 2010.

The equity offering was about $0.05 dilutive. So if you adjusted that down that gets you to about $0.33 to $0.38. We are now forecasting $0.18 to $0.23 for the second half of the year. That would get us to a range of about $0.21 to $0.25, I believe. And that's with the restructuring in there. So without the restructuring it takes up a little bit.

For 2011 we had originally said $0.70 to $0.80 before the impact of the equity offering. That's about $0.12 dilutive to next year. So all else being equal, that adjusted forecast would be about $0.58 to $0.68.

Okay. And Bill's commentary was you're sticking with the $0.58 to $0.68 at this point?

No. We're not in a position to confirm 2011 at this point. What I mentioned, Walt, is that we'll update you on that later in the year. But as of today we're not in a position to confirm 2011.

Okay. Got it. I wonder if we can switch gears back to the FST segment. And just help us understand the average size of the deals that you're getting in the year-to-date orders up 26%. What's the average size of an order?

Well, it varies business by business. So for example, the Thailand deal was on average for both Sirit and for PIPS going on the order of about $3 million to $4 million a year. Both deals have an aggregate sum of about somewhere between $10 million and $12 million. And they stretch out over a roll out period of about three years. So those are the size of deals that we're going after in emerging markets and things like vehicle registration.

For national tolling contracts or state tolling contracts, the size of those deals are bigger. We'll be in a better position to go after those deals when we complete our integrated lane solution, and that's part of the integration process. We're working on an integrated product for state and national tolling applications. And we expect to have that product rolled out by year end.

This is Bill B. To add to that. That's a question we get a lot and it's very hard to answer. Because we're bidding on things like national programs in countries where we also have contract renewals for the parking contract at a small regional airport, or VESystems to some back office software for a particular highway or port security. So it's an extremely wide range there.

Okay. And you probably get this one a lot, too, but your FST is in an emerging market, right, because of the new technology and interest in traffic congestion, and more efficient tolling registration. What's the market opportunity that you're looking at for these businesses? If you're doing $110 million, $120 million now, what's your potential?

Well, we've stated on many occasions that the global ITS market is in the range of $3 billion to $4 billion and growing somewhere between 10% and 15%. We expect to keep up with if not exceed the growth rate of the industry. So my assumptions is that on a pretty solid $125 million to $135 million revenue base that you should expect to see strong double-digit growth over the next several years. And those are our base assumptions for the business.

Right. I mean because if you look at the profitability, the valuations on EBITDA that you paid were very high. So you had to I guess rationalize the deal on the potential going out.

Yes. And the potential is like I said, we're working on integrated lane solutions for the tolling industry. That will be a new that will be a new product that we will be able to roll out by the end of this year. That solution is a product that none of these individual companies would have had the ability to offer before they were brought together. So we're basing our long term growth prospects on going after much larger orders than the individual companies would have been able to obtain on a stand alone basis.

Okay.

So that's the rationale for the aggressive growth assumptions.

Okay. And that's fine. But we're coming off a base of a 5.5% EBITDA margin. And there's a big difference between that and getting to 10% to 15% EBIT margins.

Well, you know, some of those costs though in the quarter, Walt, are associated with the initial formation of the group. Like I said, we're going through a very large cross-training effort within the sales activity. We've had to relocate executives. There are some costs in there in the quarter that we don't believe will be long term recurring costs.

As was brought up in the earlier question, the retention payments things to the Diamond owners, $1.6 million a year. So that's also a relatively near term impact to the margin, at least for 2011.

Okay. Well, can you help us with 2011 EBITDA margin that FST could get to?

Yes. Our target is to certainly get it into double digits. We're at 5.5% now. We expect to see an improvement over that by the end of the year. So we certainly expect to be into the double digits for next year.

In 2011 we should see double digits?

Yes, sir.

Okay. All right. Thank you.

Yes.

(Operator Instructions). Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed.

Hey, good morning, guys.

Hey, Steve.

Can you tell us about the size of some of the projects you might be quoting on in FSTech right now, stuff that you might have in the pipeline coming up? Maybe the potential timing of some of those orders dropping?

Let me take a look. The sales pipeline, basically indicates a lot of significant projects I think in the range of $10 million to $15 million. And a number of those key tolling projects will likely be awarded in 2011.

I mean when you say a number of significant projects, are you talking two or three or six or eight or how many -- I mean, how rich is the near term environment?

Well, you know, in orders of that magnitude we have at least a dozen projects in the pipeline.

A dozen. And from a timing standpoint, do you expect that those dozen projects could be awarded in a year?

They'll likely be awarded over the next 18 months.

So $120 million to $180 million of potential transportation projects in the next 18 months.

Well, those are the large projects. There's clearly other smaller projects in the pipeline as well. You asked about some of the larger projects.

Yes. It's a fair point. So that suggests that at the high end of the range there's more than $180 million of projects that you could see in a year and a half.

That we are actively bidding on.

Steve, just to be clear, those projects would be multi year installations in most of them. So you're not going to get all the revenue in year one.

I understand. I mean we talked about $3 billion to $4 billion end market opportunity but I'm trying to narrow that down to what's really visible in the near term because that what's going allow you to get to that double digit EBITDA margin, right?

That and some of the synergies that we're already working on.

And I think if I heard right in the prepared comments, Bill Osborne, you had said that not only are you focusing on ITS but there were other opportunities outside of transportation. Anything beyond the ITS segment that you're looking at right now?

Well, I mentioned the supply contract that we got with the US Department of Defense. And obviously we're working on other initiatives including a retail initiative that we have in Europe, Sirit has about 500 readers deployed through metro stores in Europe. That's the largest retail opportunity. We also expect that the country of Brazil has announced the launch of a program called Brazil ID. And that program is designed to launch RFID tagging on all retail goods transported through Brazil.

Right.

Sirit is well-positioned on that one. And I think you heard just recently there was a front page article in the "Wall Street Journal." Wal-Mart has announced a plan that -- RFID tag apparel in its stores. Those kinds of opportunities speak to where FS Technologies can grow outside of the ITS business. And we plan to pursue those opportunities most appropriately through some high-level partnerships with potential distributors and technology partners in the retail space.

Are those discussions already underway?

They are.

And if you think about a Wal-Mart-type opportunity or the Brazilian deal, how big potentially is Federal Signal's market opportunity relative to those projects?

Well, I don't want to quote numbers on Wal-Mart or Brazil ID. Those are things that we're not in a position to verify the size of that opportunity. What we can tell you is it's huge. But our plan is to pursue those opportunities through partnerships with high-level distributors and technology partners that would interface directly with Wal-Mart and the Brazilian government.

Right. And if the current run rate is $110 million, or you exit the year at $120million in FSTech and you're talking about projects at the high-end of what you're talking about over 18 months, $200 million just on the ITS side, then a 15% growth rate, as long as you're effective in monetizing this stuff is pretty conservative.

Well, we think it's a reasonable target to achieve. And from our standpoint, we think we've got great technology. We've got a number of activities going on around the world quoting new business, for example, in South Africa. We're preparing to ramp up an effort to quote in India. We do think it's achievable.

I know this is hard to quantify, but let's say you got a couple of those big projects and you were to exit 2011 at $180 million versus $120million. So a nice sizeable run rate increase. Will you give us an idea of where you think operating margin in that segment could be at that time?

Well, I mean, I think for that kind of revenue base you're talking operating margins clearly above the 15% range.

Perfect. Okay. Thanks. I'll get back in line.

Your next question comes from the line of Charlie Brady with BMO Capital. Please proceed.

Okay, thanks. I don't know if you mentioned this, are there more restructuring charges that we should expect on a segment basis in the second half of 2010?

Not in the second half of the year, no.

Okay.

We don't have anything that we're currently working on.

Okay. And in terms of the orders, did you break out the currency impact if any on the orders?

The currency impact versus last year was about $2 million in the order line so there wasn't a big impact currency from Q2 of last year to Q2 of this year there wasn't all that much of a change.

Okay. Thank you.

At this time there are no further questions. I will turn the call back to Mr. Bill Osborne for closing remarks.

Well, thank you for your questions. I want to re-emphasize that although we were not completely satisfied with our results in the second quarter that we are reacting aggressively. We are intensifying our efforts to eliminate waste, drive efficiency, ramp up new revenue opportunities around the world, and streamline our product offering. We'll have more to say about 2011 later in the year. And I thank you for your participation.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.