Federal Signal Corp (FSS) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the Federal Signal Corporation's second quarter 2012 earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Bill Barker, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Federal Signal's second quarter 2012 conference call. I'm Bill Barker, Federal Signal's Chief Financial Officer. Joining me on the call today is Dennis Martin, President and Chief Executive Officer, and Jennifer Sherman, General Counsel and Chief Administrative Officer. We'll be using some slides in the presentation. The slides can be found by going to our web site, www.federalsignal.com, clicking on the investor call icon and selecting the webcast. We'll also post the slide presentation to our web after the call.

Before we get to the business review, I'd 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 and Exchange Commission. These documents are available on our web site. We expect to file our Form 10-Q shortly. Now I would like to turn the call over to Dennis Martin.

Thanks, Bill. Thanks to those on the call for joining us today. I am pleased with our second quarter results, which reflect a continuation of our progress toward achieving our business and financial objectives. For the quarter, sales, operating income, and operating margin from continuing operations were all well above last year. In addition, our orders remain strong, and our order backlogs at the end of the quarter were very healthy.

Bill will go through the financial details in a few moment, but to give a high-level of summary of our results from the continuing operations, we generated strong revenue growth of 16% versus last year. And we grew revenue in each of our three continuing business groups. Q2 operating income increased nearly 50% versus last year, and our operating margin increased from 6% to 8%. Earnings per share from continuing operations were $0.15 for the quarter, compared to $0.09 last year.

Our orders remain strong at $208 million, which was equal to last year. And we are overlapping a very strong Q2 from last year, when orders were up 37% versus the prior year. Our order backlog at the end of the quarter was $322 million, which represents an increase of $87 million versus a year ago. So as you can see, we are delivering good results on our key financial metrics, and our strong order backlog positions us well as we head into the second half of the year and get ready for 2013.

Regarding the spending sale of our FSTech business, we are working closely with 3M to close the transaction in a timely manner, and we expect to have the transaction completed by year-end. As we have discussed, the transaction will enable us to transform our balance sheet and refinance at a lower interest rate early next year. In addition, we'll be able to focus our resources and efforts on driving sustained profitable growth from our core businesses of industrial missile equipment and Safety and Security solutions. I will give you an update on some of the profitable growth initiatives after Bill goes through the financial summary.

Thanks, Dennis. I'll give a fairly brief review of our financial results for the quarter, which are include indeed today's press release. Our financial results from continuing operations have been restated to reflect FSTech as a discontinued operation in all periods.

Looking at our P&L for the second quarter, sales of $204 million were up 16% versus last year. Currency had a negative impact of about 2.5 percentage points of a revenue growth in the quarter. Gross margin increased one point to 24%, and our SG&A ratio was reduced by a point versus last year, from 17% to 16%, as our top line revenue growth enabled us to leverage our SG&A base.

Operating income for the quarter improved by $5.2 million versus last year, which represented a 49% increase, and our operating margin improved by two points from 6% to 8%. Currency had a negative impact on our operating income versus last year of about $400,000.

Interest expense was $5.4 million for the quarter, versus $4 million last year, due to the higher cost of our new term loan. Our interest expense has been adjusted for accounting guideline, which state that interest expense associated with mandatory debt repayments related to the sale of a business will be allocated [to] discontinued operations. Our debt agreements state that net asset sale proceeds of up to $75 million are required to be used to repay our debt. Thus the interest on $75 million of debt has been allocated to discontinued operations, with the interest on the remaining debt reflected in continuing operations.

Our tax rate was quite low in the quarter, due -- primarily due to stronger domestic results. Due to our tax situation, we effectively pay no tax on domestic earnings, while we are taxed on our foreign income. Our reported EPS from continuing operations for the quarter was $0.15, compared to $0.09 last year.

Slide four shows the impact of restating our Q1 results. We had previously reported a loss of $0.01 for Q1, which included a $0.03 impact for non-cash debt settlement costs, and a $0.01 impact restructuring at SSG. As we discussed during our Q1 call, adjusting a reported EPS for these two items yielded an adjusted EPS of $0.03 for the first quarter.

The next column on the slide highlights our Q1 EPS from continuing operations, restated for moving FSTech to discontinuing operations. Reported Q1 EPS from continuing operations is now $0.05. Using the same adjustments for debt settlement costs and restructuring yields and adjusted EPS for Q1 of $0.09. And as we have mentioned, for Q2 our reported EPS from continuing operations is $0.15.

On slide five, we show the results by segment for the second quarter. Our Environmental Solutions group, or ESG, had another very strong quarter, with continued growth in revenue and a significant increase in operating profits and an improved margin. Revenue was up 18%, operating income increased by 35%, and operating margin moved up to 11%.

Although ESG orders in total were down versus last year, primarily due to a reduction in orders for street sweepers due to unevenness in the muni markets, ESG's backlog remains strong at $192 million, [which is] $64 million higher than a year ago. Given the strong ESG order backlog and the continued double digit growth of the jet stream business, ESG is well positioned to be a steady driver of profitable growth.

Bronto's orders were up 33% versus last year, as the Bronto team continues to have success in non-European markets to offset weakness in Southern European markets. Bronto's stronger backlog enables revenue growth of 35% in the quarter, and operating margin increased from 3% last year to 5% this year.

Although Bronto's margin is not yet at the level we expect, it is moving in the right direction. Bronto's strong backlog and steady order trends, combined with continuing progress on the manufacturing efficiency initiatives, gives us good confidence that Bronto will achieve a double-digit operating margin by the end of the year.

Our Safety and Security Systems group, or SSG, generated order growth of 5% in the quarter, with strength in our alerting and notification and industrial system segments, offsetting weakness in European police markets. Revenue was also up 5%, and SSG's operating margin was flat to last year at 11%.

We expect to see an improved marketing margin driven higher revenues in the second half of the year. SSG's order backlog was up to $40 million at the end of the quarter, versus $23 million ad year ago, and we continue to see robust demand in markets for Safety and Security Systems for industrial plants, nuclear facilities, campus environments and outdoor warning environments.

Corporate expenses in the quarter were $4.7 million, compared to $5.6 million last year.

On slide six, we show our cash flow for the year-to-date. Operating cash flow from continuing operations for the six months was $9.5 million, compared to $2.5 million last year. Our cash flow has been impacted by an increase inventory since year end, as we prepare to fulfill our order -- our sizable order backlog. As we worked down our backlog, we expected to see an improvement in working capital in the second half of the year.

CapEx remains relatively low at $4.5 million net for the first six months. We expect to generate positive cash flow for the balance of the year.

Turning to the balance sheet, which has been restated to reflect FSTech as a discontinued operation. As I mentioned, our inventories have increased versus year end as a result of our strong order backlog, as we prepare for shipments in the second half of the year. Our net debt is higher than at year end, as we used our revolver to fund $6 million in debt costs associated with February refinancing as well as year-to-date operating losses at FSTech. In addition to the debt reduction we will -- that will occur as a result of the FSTech transaction, we expect to further reduce our debt with the positive cash flow in the second half of the year.

As a final point, the company will not pay a dividend in the third quarter. The Company will review the dividend each quarter. That wraps up the financial summary. I'll now turn the call back over to Dennis.

Thanks, Bill. As I said at the beginning of the call, I am pleased with our results from the second quarter. And I believe we are well positioned to drive significant profitable growth as we move forward.

In terms of our outlook, we are confirming our second half EPS estimate, excluding charges, of a range of $0.15 to $0.20. Consistent with prior years, we expect the fourth quarter to be a bigger quarter. This estimate excludes the impact of a non-cash charge of about $0.03 per share, related to debt settlement cost we will incur when we repay a portion of our debt with the net proceeds of the FS transaction.

I would like to point out that we're estimated a 15% to 20% EPS run rate in the back half of the year, excluding debt charges while we are still paying 12% interest on our term loan. We expect to be able to refinance our debt on the first quarter of next year at considerably lower rates.

As we discussed on our call announcing the agreement with 3M to sell FSTech, we are focused on multiple drivers of profitable growth for Federal Signals to move ahead. We have several high-growth businesses with strong margins, and these businesses have developed plans to continue their profitable growth. Combined, our Jetstream water blaster business and our industrial securities business accounted for about one fourth of our revenue from continuing operations in the quarter.

And both orders of revenues for these combined businesses grew by 24%, versus last year. And they delivered a combined operating margin of 20% in the quarter. We believe we can continue to generate double-digit growth at good margins for these businesses. Jetstream's growth is driven via international expansion through expanded applications for their product, and by opening more rental centers to better serve and expand their customer base. For the first six months of the year, revenue from Jetstream rental centers grew 55% versus last year.

Our industrial security businesses are benefiting from the increased global demand for high-quality, high-performance security and warning systems across a variety of markets, including nuclear plants, campus environments, industrial manufacturing sites, outdoor warning systems, and the mining industry. As is an example of the breath of the market opportunity for these businesses, we have recently received sizable orders from the cities of Denver and Cincinnati, from the US Navy, from customers in countries of Italy, UK, Spain, and Qatar, and from the domestic nuclear industries.

The key for our next group of chassis-based businesses, including our Vactor sewer cleaners and hydro-excavators, our Guzzler industrial vacs, and Bronto Skylifts, is to continue drive efficiency from a manufacturing facilities, which will available us to monetize our order backlogs and improve margins and shorten order to shipment cycle.

We have taken steps to increase our production capacity for Vactor Guzzler business in response to continued strong orders and a sizable order backlog. We have increased staffing at the plant by 28% over the past ten months, which did cause some short-term production inefficiencies as the two -- new team members were integrated and trained. And now the team is running smoothly and is taking steps to address some production bottlenecks in the plant. Vactor Guzzler production is up 34% versus last year, and the operation is running well as we start the third quarter.

At Bronto, the team has been working to streamline the production process, and now they're starting to realize the benefit of these process improvements. Labor hours per unit are down 20% versus last year, and final assembly cycle time is down 30%. As Bill discussed, we expect Bronto's improved production efficiency will lead to margin and cash flow improvements in the second half of the year.

At our Elgin street sweeper business, we are focused on leveraging our strong dealer network to enhance our market leading position. Productivity enhancements and stronger order backlog have enabled Elgin to improve its operating margin and inventory turns in the first six months of the year, despite uncertainty in the municipal markets.

Finally, we are taking steps to improve the margins in the public safety and light bar siren business. We have segmented the business to bring more focus on each market, and we have lowered both the product costs and the SG&A in the business. And we are [putting] 80/20 analysis to streamline the product offering and to improve working capital usage. In addition, the pace of delivery new police vehicle models in the US has begun to increase, as police fleets are in the process of replacing their much older vehicles. This should generate revenue improvements in the second half of the year.

As I said in our last call, I think we have got a good combination of businesses that can generate top-line growth and improve the operating margins. I'm committed to delivering the margin targets for each of our three business groups, as I have discussed previously for. Both ESG and Bronto, the operating margin target is a range of 10% to 12%, and for SSG the operating margin target is a range 14% to 16%.

Due to the lumpiness of some of our businesses, I don't expect that we'll hit the margin target for each business group in each quarter. However, I'm confident that we can deliver the target margins on average every time. So as we move into the second half of 2012 and get ready for 2013, I feel we have the strong portfolio of businesses that are performing well, that are poised to perform even better. And our strong operating performance should be enhanced by lower interest expense, after we refinance our debt the first part of next year.

Well, thanks for your time this morning. At this point I would like to open the phone line for questions.

Thank you. (Operator Instructions). We'll go first to Matt McConnell with Citi.

Good morning. Thanks for taking my question.

Hi, Matt.

So Bronto volume was up nicely in the quarter, and you're still in the mid-single digit margin range. So to get to the 2012 target, is more volume you need to get there? Or better pricing in the backlog? I know you called out the production improvements, but is there anything else that's getting that second half ramp-up?

No, it's really a matter of getting the production to flow through the plant. We've made major steps, as well as brought back a lot of new employees in the last six months, and they're now up to speed. So we do have the backlog, and we do have the production capacity in place. And we also redesigned some of the products that were in the production backlog that were taking a little more time to build. And we've got those reengineered enough now, Matt, so they'll flow better. So we're feeling very confident that we're going to get the kind of margin targets we're talking about.

Okay. Great. Sounds good. How does currency impact that business? Because I think most of the production is in Finland, and it sounds like it's really Asia and Australia driving the growth. So are your costs and revenues matched in currency there, or --

Yes, they are. Matt, it's Bill. We tend to invoice in euros, so there's not a lot of currency exposure for the Bronto business. Obviously when you translate those results back to US dollars, there's an impact there. But for the Bronto business, they tend to invoice in their local currency.

Okay. Great. Thank you. And is there -- was there any change in the expectations for the FSTech close? I think some of the metrics on the June call were based on a September 30 close? Now you're saying year end. I don't know if that's intentional, or did anything change?

No, as we have spoken about this, we've left in the last half of the year, because there's complexity when you try to close a deal like this. I will say that nothing has changed. I will say also that 3M is extremely professional and diligent, and our team and their team are working through all the action items required. And that we're making the progress that would be expected to have the transaction closed, as soon as possible, but clearly in the last half.

Yes, Matt, on the last call I think it may be the September 30 date as an example what the debt and our interest expense might look like if it closed on that date, which was the mid-point of the second half. But nothing has changed from the second half target.

Okay. Great. Thank you very much.

Yes.

(Operator Instructions). We'll go next to Brad Evans with Heartland.

Well, good morning. Thanks for taking the questions.

Good morning, Brad. How are you?

I'm doing well. How about yourself?

Good.

Great. Bill, can you just walk through -- do you have an update on the debt side should look like, assuming the transaction closes.

Sure. So our expectation is we will have about $150 million of debt after the transaction. And at that point we would be somewhere in the 2.5 times debt to EBITDA ratio. By the end of the year, we expect to be 2.5 or maybe a little bit below 2.5. So when we go to refinance in the first quarter of next year, that will you be the metrics that we'll probably be putting out there.

Okay. It sounds like -- just to be clear, it sound like the fourth quarter close is more likely than a third quarter close. Is that a fair assumption?

It will be sometime there, Brad. We want to do it as soon as we can. They want to do it as soon as they can. As you know, these things with all the details, it's just hard to pin a date.

What's the big impediment to getting the deal closed at this point?

Just normal transactional reviews and approvals and things like that. We had some things pop up in the UK we didn't expect, just as far as approvals. But nothing outside the ordinary.

Okay. Did I hear you correctly that I expect earnings in the back half of the year to be at a $0.15 to $0.20 run rate? Is that correct?

No, that's total second half.

That's total second half.

That's the same thing -- that's the same number we had the call about the FSTech transaction, so we haven't changed our forecast for the back half of the year.

Ok. What tax rate are you using for the second half?

Tax rate is probably in the high teens.

What would explain the step-down in profitability from the second quarter to perhaps third and fourth quarters?

Yes, the third quarter tends to be a lower quarter for us, just because of our European business, because of the holiday schedule over there. I think -- and again because of the lumpiness of the quarter. If you look at the first half of the year, when you adjust Q1, we're at $0.24. The back half is $0.15 to $0.20. So it's a little bit of a step-down.

Part of that is we're assuming stronger results from Bronto, which does carry some more tax with it. So our mix of domestic and international will be a higher tax rate. Also we've got some expense in there assumed for once the FSTech transaction does close, there are some costs that are currently being allocated to that business that will stay with the entity. So that will be a little bit of a drag on the second half until we figure out how we're going to deal with that.

Okay. I'll hop back in the queue. Thank you.

Thanks.

(Operator Instructions). And we'll take a follow-up from Matt McConnell with Citi.

Hi, guys. So I know you're not going to have the dividend in the third quarter, but what are the metrics that you look at. When you go about determining when to resume that, are you going to look at debt to EBITDA or interest coverage? What are the markers we should pay attention to for that?

We'll look at every marker, Matt, really. One thing that we have we're restricted from doing at this point because of the financing. And we assume that as soon as we can get to a normal operating run rate of expected profit levels, we'll look at all the metrics involved with that. We'd prefer to have a dividend, but we need to do it at a time when that's the best use of the cash, rather than investing in the business and getting back on track. So we're not projecting a date when we would to it. Our Board of Directors considers it and will consider it at every one of our meetings. And we'll do what's best for the shareholders when we can.

Okay. Great. Thanks. And are there -- there was a $10 million use of cash and discontinued operations in the quarter -- or year-to-date. Is FSTech expected to be a user of cash over the next few quarters, or is there any big cash change there before the deal closes?

No. There shouldn't have been any big -- from operations there. Obviously there will be some expenses with the transaction, but that will be netting the cash from the transactions. So it shouldn't mean anything big. I think they'll probably continue to run about where they've been running. We did have some costs there associated with some of the actions related to the transactions. But that shouldn't be a big crash trend I don't think.

Okay. Great. Thanks very much.

Thanks, Matt.

And we'll go next to Steve Barger with KeyBanc Capital Markets.

Hey, good morning, guys.

Good morning.

Kind of a forward-looking question, but as you think about the three segments settling into normal operations, plus or minus, what do you think the right CapEx range is, just up from a maintenance basis?

I think actually pretty close to what we have been operating at. We've spent a lot of capital between 2008 and today to really enhance our important growing plans. So we think it will be a pretty stable run rate.

Yes, Steven, I would say somewhere to believe between 10, 15. Maybe 12, 13. We spent a lot of in 2008 and 2009. We expanded the Bronto plant and the Vactor plant. And as we sit down and go through our strategic plans, as we look for growth opportunities, we might put some more back in there. But I don't think it's going to jump up -- I don't see it above 15 and probably more in the low teens.

But we are strategically adding advanced equipment in our Jetstream business and Vactor business for production capacity. So we're pretty comfortable in that range.

Okay. And as you think about -- again kind of forward-looking, but getting to your margin targets over time and where you think the revenue can grow to, just from a range standpoint how should we think operating cash flow? Is this -- is there a lot more working capital to come out? Can you reduce inventories from current levels? I'm just trying to get an idea of where -- what the cash generation of the business can be once you kind of settle into a normal rhythm?

Yes, I think we can -- we'll certainly stabilize working capital and hopeful bring it down a little bit. So I don't think it will continue to be, as it was in the first half of the year, a user of cash. So I think it should be neutral to slightly positive going forward, depending on what growth we get. And then as we talked about, we think the margins that we've put out there are pretty achievable for next year.

On a revenue growth standpoint across the business, because we have a wide range of things, I think probably in total mid-single digits are a reasonable number. As Dennis said, we've some businesses are growing much faster than that. Some of the muni businesses, we shouldn't expect a whole lot of growth out of there. So I think that's a reasonable number for now.

With our backlog, Steve, we have a large amount of inventory, as you can imagine. Larger than we would expect. So we will see some of that convert to cash obviously as the backlogs go.

Right. Well, and to that point, you talked about some of the improvements in the manufacturing efficiencies. Where are you in that process, based on the actions you've taken. Are you halfway to where you think the plant should be running, or better than that or worse?

I'd say if you had to put a percentage, I'd say more like three-quarters to where we need to go. One of the issues we have is in our chassis-based businesses, the chassis is so -- it's such a large part of the product that inventory and productivity -- you can't do a lot of changing the chassis. So our efforts have been on internal operations on both Bronto, Elgin and Vactor, and we're well along the path on those. So we're at this point getting the people back in place, getting the operations stabilized.

At Vactor we had a 28% increase in unemployment, but it bumped more positions than that, the way it works within the business there. So getting the workforce stabilized and getting the productivity going, we should see improvements in margin, but I think it term of the flow, there's always more you can do, but we're probably three-quarters of the way there. At SSG we have more to go, and we are working on that one. And that's coming along nicely.

Okay. And anymore at the detail on the domestic muni orders in Safety and Security? Does it feel like you're getting to a turn in the spending environment? Or is it just continuing to be lumpy and no visibility?

I think if you read our comments -- or read into what I said about it, it's more spotty on the sweeper side. We did see a bump-up as demands -- some back -- pent-up demand was called out the last six or eight months, but those are very large spends and a lot of munis aren't doing much better. So we think that the sweeper business will probably kind of bump along, and maybe a little bit of will of an increase, but bump along where it is.

The muni business on the police side in the US, the new cars have finally been released, and that was really one of the hang-ups. And we think that there will be an upside on that as we go through the third and the fourth quarter. And we have some international things that are working pretty well for us on the police light and siren and fire business. The European police business, though, is just devastated right now.

They're in Spain. They cover Spain, Italy, France, the whole Southern European thing. And as you know, the finances and budgets in Spain and Europe -- all of Europe are really not good. So our team has done an excellent job maintaining profit margin levels while they're in a very demanding and shrinking market. So we think we're going -- we don't want to overstate improvement in the muni market in any way.

Right, I hear you. And just for a forecasting standpoint internally there, do you just look at tax revenues as kind of the leading indicator for you? Or is there any way to really gauge when that might turn?

Our teams look a lot of things. We don't really look at tax rates-- or tax revenues. We look more at what is the activity with the police vehicle registrations, fire vehicle registrations. We have very close contacts with the large municipals and in the -- in case of fire, the OEMs in the fire market. So we try to -- reading politics and budgets doesn't help. It's really much more of what the general trends within the cities are and what their outlooks are.

We're seeing some good activity in places like New York City and Los Angeles. Some of the smaller cities are certainly struggling. Chicago is a little more active now. So really it's market by market, but it's really much closer than just general tax revenues.

That's great. I appreciate the time.

Thank you.

(Operator Instructions). We'll go next to Brad Evans with Heartland.

Yes. Just a couple of follow-ups. What was the corporate charge in the quarter?

Sorry, say again?

What was corporate in the quarter?

Oh, corporate was $5.7 million. I'm sorry, no. $4.7 million versus $5.6 million last year.

Okay. Is there -- do you have the ability to further take action on the SG&A line? At $33.5 million this quarter, I mean, is that a good run rate? Do you have an opportunity to bend that down a bit?

No, I don't really think we do have an opportunity there, Brad. We're running fairly lean on the marketing and those things, and I think from a sales point of view, we're probably at about the dollar one rate. The percentage should get better obviously as we increase the sales out the door, but there's not a lot of room there to do a that. We've taken down costs in Europe already. The SG&A at Bronto is more direct. It's a percentage commission basis. A lot of our businesses we pay reps as they sell, rather than high expenses. We always look at it. We have made some improvement on SSG. But I don't think there's a lot of room there.

Okay. Dennis, just across -- with the bookings trends that you see right now, I know it's a point in time when things can change, but as you look out to next year, do you feel like the end markets are such that with the internal improvements you made, that you should be able to get to those operating margin targets for the respect divisions in 2013?

I think as we're sitting here, we can see that, yes.

Okay --

The US muni market and certainly the European muni market are the two wild cards, right? But as it appears now, the Vactor business is being driven, the security business is being driven by market demand. The Bronto business globally is good, which replaced the bad business in Europe. So we don't see any reason -- we don't see a major turn now. Our only caveat is we don't expect a big bump-up on the muni.

Right. Well, I guess the surveys that I've seen, show that municipal -- both sales tax and income taxes at the state level are drastically improved. Maybe to exclude California. And maybe Illinois. But generally speaking the health of the states is much better today.

Right. And what we're seeing is, even in the case of sweepers, where they're not buying as many sweepers, Brad, they're buying parts. So they're still doing a lot of overhauling of existing sweepers, which is good for us as well. So it's just really hard to call.

So what -- assuming you close the transaction, what is the right leverage ratio for the Company longer term do you think, on a debt to EBITDA basis?

We've talked in the past about a range between two and three times. I think we'd like to get it closer down to two. But I think we'll be comfortable at that level.

And if I just [play with] -- I know we're not forecasting next year yet, but if you just play with the numbers -- I know this, again, this is a point in time and things can change obviously in this volatile world we live in. But you forecast a little bit of growth next year across the -- modest growth maybe across the three divisions and you get the margin improvement that you articulated. You can be -- I guess an $80 million to $90 million EBITDA number is -- there's hope I guess. And you get that debt down as you -- what's that?

That's the fun with math, Brad.

I understand. But I guess you get the debt down, you're looking at about one and a half turns of debt to EBITDA if you are able to execute what you've articulated.

Yes, and we are really pushing hard on growth, profitable growth, good margin growth. And so all those things are with the realm. And that's really -- we're so excited to be able to focus back on profitable growth and not as we've been focused for the last year.

Well, I appreciate that, Dennis. We support that. Hey -- but I guess the question is, I think we support the dividend claim back, but with the free cash you could generate and where the stock is today, why not put a buyback in place at some point? I realize we have to get the deal closed and refinance the debt, but buyback at this level would seem to make a lot of sense?

Let me answer it this way. As a Board of Directors, we're looking at all of our options. We do on a regular basis. And you're right, when the cash starts to flow, then you have all those options. We can expand product lines. We can think about acquisitions. We think about dividends, stock buybacks. There's lots and lots of options open to us, and it's exciting for us in the first time since I've been in this seat to have that in front of us.

Okay. Well, good luck. Thank you.

Thanks, Brad.

And it appears we have no further questions in the queue.

Well, I want to thank everybody. We appreciate the questions. It helps us articulate our strategy and our excitement, and we thank you for joining our call.

Again that doing conclude today's presentation. We thank you for your presentation.