Helios Technologies Inc (HLIO) 2004 Q3 法說會逐字稿

Good day, everyone, and welcome to the Sun Hydraulics third-quarter 2004 financial results conference call. Today's call is being recorded. And at this time, I'd like to turn the conference over to the Investor Relations spokesperson, Mr. Rich Arter. Please go ahead, sir.

Good afternoon, and thank you for joining us for Sun Hydraulics third-quarter results conference call. With me are Allen Carlson, Sun's CEO and President, and Dick Dobbyn, Sun's CFO.

We are also hosting an investor open house and have a roomful of guests that will be listening to the call and participating in the question-and-answer period. A few minutes ago, we made a brief presentation to introduce Sun to our open house guests. That presentation can be viewed as a PDF file at the "Investor Relations" section of the Sun Hydraulics website.

Once we have finished our prepared statements, we will open the lines for questions and answers. We will initially take all the questions from the dial-in participants and then take questions from the audience here.

As usual, before we begin the call, please be aware that any statements in today's presentation that are not historical facts are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. For more information on forward-looking statements, please see yesterday's press release. I would now like to introduce Allen Carlson.

Thank you, Rich. We've had another great quarter at Sun. We achieved our sales and exceeded our bottom-line forecast. Most importantly, we continued to maintain our high quality standards and at the same time, provide superior delivery performance to our customers.

While we're now sharing in the raw material cost increase experienced by our suppliers, our production unit costs for the quarter are unchanged. We recently announced a modest price increase on selected products effective the beginning of next year. And this will combat the rise of material costs as we continue to invest time and money to further improve our production processes.

We continue to enhance our marketing efforts through www.SunHydraulics.com. We recently added a new product configuration capability to the website that makes it easy to match cartridges and manifolds. And we're working on new tools that will expand this area. We continue to add new features and capabilities, including additional languages. The website needs to be as customer friendly and user-friendly as possible.

I'll now ask Dick to cover the financial results, and then I'll be back for the Q&A.

Thank you, Allen. Comparing third-quarter results to the third quarter last year, net income was 1.9 million or 8 percent of sales compared to 500,000 or 3 percent of sales.

Net sales was 24 million, an increase of 5.3 million or 30 percent. North American sales increased 34 percent. European sales increased 29 percent. And sales in Asia increased 15 percent.

Gross profit increased 56 percent compared to the same quarter last year. Gross profit as a percentage of sales increased to 30 percent from 25 percent last year. Sales volume and productivity increases more than offset the increased material costs we saw in the quarter.

Selling, engineering and administrative expenses were 4 million, an increase of 400,000 compared to the same quarter last year. The increase was primarily due to employee wage and benefit increases, higher off-site services, including further development on our website that Al referred to, and higher than usual travel and meeting expenses.

Looking at the balance sheet, cash from operations year-to-date was 11 million compared to 7 million for the same period last year. The increase was primarily due to the increase in net income, which was offset by the natural rise in accounts receivable due to higher sales.

Inventory was held at the same dollar level as last year, and a resultant increase in inventory turns of 20 percent. Days sales and accounts receivable were 33 days at the end of the quarter compared to 40 days last year.

Capital expenditures so far this year are 3.5 million, and are projected to be 5 million for the year. We continue to pay our quarterly dividend, and as Al mentioned, we increased it from 4 to 5 cents last quarter.

The outlook for the fourth quarter -- the order rate for October, the first month of our fourth quarter, showed a substantial increase over the rate we experienced in the third quarter. Fourth-quarter shipments are estimated to be 22 million, which would be a 25 percent increase over the same quarter last year. The majority of this increase is projected to be in the U.S. operations as the rate –- and I repeat -- the rate of growth internationally is projected to slow.

Net income per share on sales of 22 million should yield approximately 15 cents, which would bring net income per share for the year to $1. Thank you. Rich?

Okay, Millicent. If we could, we'd like to open up to questions from the dial-in audience.

(Operator Instructions). Our first question will come from Scott Mackey (ph) with Robert Baird.

First off, congratulations. Very nice quarter. First question relates to the materials costs you're experiencing. Maybe you can give us an idea of how to think about those or how to quantify those.

And the natural follow-up would be the types of productivity improvements that have taken place to offset those increased costs.

I'll take the first part of that question, Dick, and then I'm going to turn it over to you for some of the details on the numbers. We have taken a position at the very outset when we began to see material costs rise, specifically steel -- but there are other materials that we use that have gone up as well -- that we would work very closely with each of our major suppliers.

The challenge is for them, because of the higher unit volumes, they should be able to absorb some if not all of the material increases early on. Of course, as we went further through the year, we saw the increases escalate even further, and it wasn't possible for our suppliers to absorb it all, but they absorbed much of it.

The difference between what they could absorb and not, a lot of that difference was made by our own productivity gains. So it was a minimal impact to the bottom-line. That's been our approach; it's worked very well.

We have different situations with different suppliers depending upon the type of products they're making for us and the amount of steel, perhaps, that they use, and the types of steel. So it's difficult to sort of say it's a one number fits all. It's different with each supplier.

But we have worked very, very closely with our suppliers to keep material costs under control, and hopefully not have to pass it onto the markets. Because we would rather be in a position to take market share because of our productivity gains. That's a broad answer to the question. Dick, perhaps, can give us some details on what the numbers are.

In the third quarter, a rough approximation for the increased material costs is 100 to $200,000. And for the year, by the end of the fourth quarter, we're anticipating that to be 4 to $500,000.

The productivity gains that offset that, meaning the direct labor as a percentage of sales dropping while the material costs as a percentage of sales increases, is not due to any one particular thing in the quarter, but rather the continuation of the productivity improvements that we put in place over the past 3 to 4 years.

I would also like to add in closing that our suppliers have helped us with our productivity gains, because when they started seeing a 20, 30, 35 percent increase in the usage of our product, the most disruptive thing for a manufacturing company is to not get the materials they need to make shipments. And our suppliers kept pace with us.

And our on-time delivery, which is running in the high 90s, is much a result of our suppliers and working with us. At the same time, minimizing the material costs while at the same time cranking up their production. And Sun being a preferred supplier to many of our suppliers.

Sounds great. One follow-up if I may? And this relates to the price increase you did in the press announcement and earlier mentioned. You are planning on raising prices selectively.

How much of that incremental materials cost do you anticipate offsetting with the price increase? And maybe give us an idea of -- I don't want to say which customers -- but what sort of products may be impacted.

To the first part of your question, Scott, we estimate that that would offset a good portion or all of the anticipated material price increases, that our share of those price increases. As Al mentioned, our suppliers are also seeing the results of higher volume and improved productivity, so they are bearing a fair share of that.

As it related to the second part of your question, I think it's a little too specific as relates to giving out information to the competitive world that we're in.

Fair enough. I know you have got a roomful of interested investors there. I'll hop back in queue.

Scott, one other thing before you go in closing, we positioned ourselves by saying it was a price increase, and of course, it is. But we took the opportunity to take a look at each product category. And in fact, some categories stayed the same; a few went down; some went up. So it wasn't a broad-brush approach. We took the opportunity to look at each individual product line.

And our next question will come from Steven Lewis (ph) with Lewis Capital Management.

Good afternoon. I e-mailed in some questions about cash flow.

Yes, we have them here, Steven.

Yes, could you go through what I have there, please?

You bet I will, Steven. Dick Dobbyn here. The question from Steven is can you comment on cash flow projections, including depreciation and amortization versus capital expenditures, debt repayment, if any, and working capital needs, percentage of incremental sales, in quotes. And expectations for 2004 and '05. I am a prospective investor.

All right, there's several parts to that. The first part of it is, our projections for this year. I mentioned our depreciation -- excuse me, our capital expenditures would be about $5 million. And just looking at the run rate for the 3 quarters for our depreciation, that should end up around $5.5 million, so about the same amounts.

The debt repayment at a minimum, we'll pay $1 million down again in the fourth quarter. That would give us about $7 million of debt that we have repaid this year. And I'd like to say a little more about that.

We have approximately $5 million of cash that is in our overseas subsidiaries. And pending working out the details of the new Jobs Creation Tax Act that came out, we may be bringing a lot of that back, perhaps by the end of the year.

Working capital needs -- we track working capital without cash -- Accounts Receivable (inaudible) -- less cash as a percentage of sales. In 2003, for the whole year, that was 50 percent. For the 3 quarters so far this year, it is reduced to 35 percent of sales.

The main reason is that we have held our inventory flat while increasing our sales 35 percent. Also, we have had some improvement in our collections and lower days sales.

Going forward, looking into the out years, I would say that a conservative number would be to use 40 percent of our sales as the working capital requirements at any given point in time. Did we get them all, Steven?

Do you have capital expenditures for next year?

No, we don't.

A little bit too early?

We're looking at our needs now.

Thank you.

And we also have a follow-up from Scott Mackey.

Hey guys, I guess I'm back. A follow-up to one of Steven's questions. You mentioned possibly pulling some money back in based on the new Jobs Creation Act. Do you have any idea what that will do to your tax rate in 2005?

Yes. There's two parts of that tax act that affect Sun Hydraulics. If I just broaden out to the audience. One is getting tax relief on money coming back in from offshore. It's a onetime window that opens up next year. And that's what we're trying to take advantage of in moving cash.

Another big piece of it is a tax credit -- a deduction for manufacturing companies. And that deduction is going to be increased over the next 5 years, I believe, in 2-year increments. And I forget the exact number.

First of all, we have to get in and see, is all of our business qualifying for that deduction? And I think we are pretty much totally in that. So I think it works out to be 1 to 1.5 percentage points of sales next year. And then I think by the time it phases out over 5 or 6 years, our rate could move from 36 percent of sales for income tax down to like 33-point-something if I recall.

So that will be a true benefit for manufacturers and certainly a benefit for Sun. So I guess the stock price should go up immediately then. Are you all right with that, Scott?

Yes, what about on the first part that you mentioned, bringing cash back into the country? Will that specifically impact your tax rate?

I'm not sure. It would be nominal because we already have some monies based on transactions that we made historically, that we could bring back about half of that without any effect on the tax rate at all. And we're just looking at the other half of that, would be a rate -- I guess they talk about 5.25 percent of that money.

Do you have a dollar estimate of what you might bring back?

5 million.

Great. One follow-up, if I may? While we're talking about the international side, it certainly looked like the year-over-year sales growth was quite strong internationally. But the press release mentioned that you expect that rate of growth to slow. Maybe if you could add a little to the dynamic behind that.

I'll take a crack at that. We're beginning to see early signs that the economy in Asia, while it is still strong and is still growing, the rate of growth is slowing. And some of that is planned. You have all read the papers about what's happening in China and their approach to cool their economy down.

And China for the Asian economy is much like the U.S. is for the Americas economy, it is the engine. And, for example, our company in Korea provides a lot of products to companies that manufacture heavy equipment that ends up in China, as an example. The same goes true for Japan.

So we believe that the economy in Asia is still going to be strong, it's still going to be growing, but it's going to be at a reduced rate of growth. We probably won't see 35 percent growth next year, but we might see 20 percent.

So what we're trying to do is to say don't panic about Asia. It's still growing. It's just not growing quite as fast.

Fair enough.

And we'll take our next question from Brian Rafn with Morgan Dempsey.

Question for you. Can you kind of talk about some of the end markets maybe and some of the demand pull? You know, like agriculture versus construction versus general manufacture, aerospace defense, where you guys are seeing demand?

I'll take that. Sun supplies its products through applied engineering distributors worldwide. And it's very difficult for us to get a handle on the segments that the products are going specifically.

But to give you maybe a rule of thumb picture, we do know that mining equipment, for example -- Neil Martin from Australia, sales manager, Australia for Custom Tier, we talked about their growth in their market, it's heavy mining.

We know that construction equipment, companies like Caterpillar, are doing very well. Just a general, broad growth across all markets, probably being driven by some of the heavy people like Caterpillar and mining equipment companies. Dick? Rich, do you have anything you'd like to add to that?

No, I would support what you have said.

Okay. Of the 5 million property, plant and equipment this year, question for Dick. What would the component of maintenance property, plant and equipment expenditures be of the 5 million?

What does maintenance mean to you, Brian? Not be wise, but --

No, no, no, just X new projects, new developments, you know, funding different new machinery, just I guess replacement, repair, that type of thing.

Yes, I think if you -- let's call maintenance replacement of machinery or upgrading machinery. I think roughly it would be like half upgrading machinery we have, and the other half would be adding new machinery, roughly.

Okay, okay. Fair enough. What are you guys seeing in your markets down in Florida relative to wage and salary growth? I know you guys have a very unique culture. What's kind of employee retention, health-care benefit inflation, what are you guys seeing in that range?

We expect the health-care component is probably going to go up 10, 12 percent, the numbers that I've seen. Wages, salary and wages, probably looking at around 5 percent. But if you looked back over the last 4 years, we've had some freezes. And so some of it is catch up. I'd be looking about 5 percent.

Okay, okay. And did you guys have any material Sarbanes-Oxley 404 charges or expenses for the quarter? And what's kind of been the run rate for the year if you have had any?

The run rate for the year is almost nothing, Brian. We haven't -- we are exempted till next year to get all the Section 404. So that's all coming next year.

Yes. Dick, could kind of expound on that? Is that more as you guys look into '05, the Sarbanes or the 404 Section -- is that more a time problem for you guys in chewing up management time? Or is it just purely a cost issue?

I think it's both. And since I've had the benefit of attending many pity parties conducted by CFOs that are going through it now, it seems to be both.

Okay, all right. Excellent job, guys. Thanks again.

And at this time, we have no further questions standing by on our phone lines.

Okay, we're going to open up to anyobody in the audience who may want to ask a question here.

Can I ask what your exposure to foreign currency is; and do you do any hedging?

Rich?

Why don't I answer that?

I think you'd be great.

Very fortunately and not through any master plan, we comfortably self-hedge, in that in Germany, we're buying in U.S. dollars from the cartridges coming out of here. In Korea, we're buying in U.S. dollars. And right now, we're benefiting from the lower dollar to the euro and to the won.

In the UK, and this is where the self-hedging comes in, the UK buys in dollars and they actually sell even more in dollars. So even though the pound is stronger than the dollar was last year, the relationship, because they're buying and selling in dollars, they get a negative effect.

So just to quantify it for you, in the quarter, we had a positive effect on sales of about 150,000 and a positive effect on gross income of about 100,000. And year-to-date, it's like 300,000 in sales and about 300,000 in gross profit, is the effect. So we're getting a favorable effect. But it's not enough of a difference that we want to think about hedging. So we don't.

Okay. Any other questions?

There are 3 markets that I have a particular interest in -- energy, health-care, office products and information technology. Are your products used in any of those markets?

Energy, for sure, that's a large consumer of our products, both in terms of the production of current energy but new forms of energy -- windmills, wave energy.

There's many projects going on around the world right now which are in trial phases, but they could lead to large usage of hydraulic components and specifically Sun.

Are you in drilling as well?

We're in drilling as well, yes.

(Inaudible question - microphone inaccessible)

I almost lump drilling in with mining, because a lot of the drilling equipment is used in energy production, but it's also used in mining. Yes, we're in that component. The second part of it?

The second one is health-care products – (inaudible) medical equipment, (inaudible)?

I'm sure our products are used, but I wouldn't think it is a large component.

And office products, in such technology as computers, printers, things of that nature?

In the plants that manufacture, you will find injection molding machines and presses and that. So you would find hydraulics in use, but it's a small percentage of our products.

Are there any more questions on the phone?

(Inaudible question - microphone inaccessible) during last year, and a low of 676?

Could we explain that?

I'll start and then you guys can chime in. I think the 676 is like 11 months and 29 days ago. That will probably drop off very soon, and I think as a result of what the general economy was doing in 2002, 2003.

The latest upturn in business that we've seen in 2004 is actually kind of a surprise. It wasn't anticipated in January of this year that we were going to have as strong an economy. So I think that's a piece of it.

Another piece of it is our stock price is a reflection of a lot of things. It's partially what we do internally. We control that in terms of our own performance. We've been working very hard at being as productive as we can be to turn orders into cash, to be good to our suppliers, to be good to our customers. And I think some of that is being rewarded -- we're being rewarded in the market by our performance.

There are many things that are outside of our control -- probably don't even know what they are. So it's difficult to sort of say the performance of the Company is a direct or even an indirect correlation to what's happening.

So I think when it goes up, you look at it and you say that's wonderful. And if it goes down, you just keep working harder. Dick, do you want to add anything?

I really can't add anything. No.

Millicent, are there any other phone questions?

We do have a follow-up question from Brian Rafn.

Okay. Let's jump in there for a second.

Yes. Thanks. A question for you guys. You guys talked about order bookings, I think, being up 33 percent. Can you kind of give us a sense or a flavor of kind of bid quote activity? And what's the delta change? Is it as robust as it's been in '04? Is it accelerating, decelerating? And I think you guys kind of talked about Europe. But maybe with the U.S.

Okay. I'll try that. We saw, from the press release, a very strong third quarter, and it was pretty broad, U.S., Korea, Germany, all up significantly.

We mentioned that the October was equally strong if not even a little stronger than what we saw in the third quarter. This is not driven by any big project. It's like 1,000 little things happening out there that just come in through our applied engineering distributors. So it's not a big bang. It's just a lot of little things happening out there.

Okay. Can you kind of reflect on where you guys are, lead times? Say order booking versus delivery?

Sure, I'd be happy to do that. We, in 1998, changed our manufacturing style and approach and began taking all orders to customer request. That started in '98. We've continued through that in the upturn.

This year, our on-time to customer request is running in the 90, 95 percent category. It varies from week to week depending upon the mix of products. Our backlog has grown a little bit because we've got some orders that have been placed out longer than let's say 3 or 4 weeks.

But overall, our on-time to customer request -- and that's all we measure; we don't do any internal scheduling; it's all on-time to request -- I checked our past due this morning, and it amounted to about 4.5 minutes of production.

Okay. All right. And I jumped on the call a little late and may have missed it. Did you guys quantify the size of your price increases? I know you mentioned they were very selective. Can you give us a magnitude range of kind of what the price hikes are?

Well, we deliberately did not go into a lot of detail about that for competitive purposes, Brian. We did say as a general statement that we thought it would be enough to cover anticipated material cost increases.

Okay. Would you go out and say that that, from what you guys estimate, should cover material costs -- and obviously that's a guesstimate on your part -- into '05? Or are you really covering what you've absorbed in '04?

It's just to '05.

Okay. Okay. Thanks, guys.

And we also have a follow-up from Scott Mackey.

First off, I want to say that I didn't put Brian up to that question in any way, shape, or form. I just wanted to probably nag you about this every quarter. If there's any news on the electrohydraulic product on the Cat prototype?

We continued to work on that project with Cat. There are no known problems. It's an internal situation with Cat as to when they want to make it, where they're going to manufacture it, how many units. And I don't want to get into the details of Cat's plans.

But I would like to tie that maybe a bit to a question we received here. That is, are we involved in any energy projects?

That specifically -- that project is specifically energy-related. It takes a customer's piece of equipment, retrofits it, and saves about 40 percent fuel consumption on a major piece of equipment. There are units in the field that are being tested, and we're working as close as we can with Cat. That's all I can tell you, Scott.

That's fair enough. And then, you touched a little bit about growth in Europe, just looking at your year-over-year sales increases in Germany, up 32 percent, 47 percent, 46 percent, in the 3 quarters thus far this year.

Maybe if you could talk a little bit in more specifics about what you're doing out of that location and what sort of objectives you have for '05?

I'll take that as well. This is Al. In fact, it's a great question because I was in Germany last week visiting customers with our sales force. And there's a lot of things happening. It's not just one thing that's driving those numbers.

I'm going to start by saying that we have an excellent staff of engineers, technical people, customer support people, supported out of Sarasota with on-time deliveries. And I think that's where it starts. And our sales group in Germany is very enthusiastic about going after new business.

Having said that, where are they finding the new business? Well, we have a distributor in Italy that is, I think, up 50, 60 percent this year from a fairly big number. We've been very aggressive in the eastern part of Germany -- Bulgaria, Czech Republic, Poland, eastern Germany. In fact, I was in Dresden and Leipzig last week visiting customers and distributors.

I think it's kind of the same news that Sun in general has. It's not any 1 big project. There's just a lot of little things happening in the marketplace, and we're capitalizing on it.

Sounds great. Thanks

And we have no further questions at this time.

Okay. Any more questions? (multiple speakers) Yes, sir?

What's been your historic P/E range? And what would you consider to be your comparables in the marketplace, and what's been their historic P/E ranges?

I can take a stab at that. Obviously, the past 3 years, up to the beginning of this year, basically, the U.S. was in a manufacturing recession. And you saw the lines on that; shareholder returns, Sun was flat-lined. But that flat-line outperforms the NASDAQ composite market and the Dow and every other index. So we didn't go down.

But during that time, you're looking at P/E ratio that was about between 25 and 35, mainly, because there wasn't a lot of profit and the price held (ph). Okay.

Now, I cannot say what our P/E should be, because I wish I really new. Except that today, I'd like it to be higher. But in an industrial company, in a capital goods industry, one sees in the companies we compare ourselves to like 12 to 20, I don't know, generally speaking.

The types of companies that you can compare us to, small to medium-sized industrial companies that have a niche in the marketplace. And I don't know if you're familiar with these companies; they'd be the likes of Modine, NNN Vol (ph) and Rolla (ph), Leggett and Platt, and a very good company, Baldor Electric; all have niche products in the industrial market. And they're all 100 to $400 million range. So if you look at those kind of companies, we kind of fit into that.

Following on that discussion, I think you mentioned that one of your competitors (inaudible) Sterling. How is their (inaudible) performing? I am not interested in P/Es, but (inaudible)?

They're part of an investment group based in the UK. And so as a result, you wouldn't see any numbers yet.

Has your workforce changed in size over the past quarter?

No, it's approximately the same. We have in Sarasota about 540 employees. And it might have been 532 a quarter ago. So it's essentially the same workforce. And we're producing significantly more products with the same workforce. Therefore our productivity gains that you're seeing.

Worldwide we have approximately 700 employees, and that's been about the same as well.

You guys, as a public company, you have an employee stock ownership plan, an ESOP plan. Maybe you can touch on why you have that, and how that is important to the culture of Sun?

I'll start and then I'll turn it over to you for some of the details, Dick, if you don't mind. We began looking at an ESOP –- the possibility of an ESOP 2000, late 2002, 2003, because we felt it was a good way for our employees to participate in the ownership and the equity of the Company.

We've always had a 401(k) with 2 components. 1 component of the 401(k) was a match, based 1-on-1, based on the employee's contribution.

The second component was a discretionary match based on how the Company was doing. And the discretionary match could be dollar for dollar, or it could be nothing. During the last few years, it's essentially been nothing. Over the history of the 401(k), it's been approximately 55 cents on the dollar.

So we felt that taking the discretionary match, and turning it into an ESOP, and funding it with Sun's stock was a way for us to get employees in tune with what's happening with the Company and in the market. Dick, is there something you'd like to add?

Yes. From a financial point of view, going into the market to buy Sun's stock over time to collect for the ESOP improved the liquidity or the stock trading volume of the stock.

And then retiring that stock, and having the flexibility to then issue the stock, regardless of the restraints that the SEC had on trading, because you're issuing new stock, allows us to be flexible, in putting as much as, or as little or as much as we would like to at any given point in time.

So we increase the liquidity without any dilution to the shareholders, and allow flexibility about when we want to decide that we've had a good year and we should put that into the retirement plan for the employees.

There's 1 other thing I'd like to add, because it's the story of last week, of Marsh & McLennan. It's the story of Enron. What are you doing, giving the employees stock? You're a small company. A large Segal (ph) could blow the whole thing up or whatever.

What we have in the plan is that after 1 year, the employee can take that money out of the Sun stock and put it in any other fund that we have available within our 401(k) plan. It sits inside the 401(k) plan. And after 1 year, they can get out. Obviously, at 55 or whatever the age is, you can get out at any time you want.

So it's very flexible for the employees. Doesn't create high risk. It will be a smaller component of the total 401(k) benefit that the employees have.

1 additional financial impact is the U.S. government looks at ESOPs favorably, and is encouraging more and more companies to provide ESOPs for employees. And there's some significant tax advantages for the ESOPs.

Millicent, would there be any other phone questions there?

No, we have no other phone questions standing by.

Okay. Any other questions here? Yes, sir?

A question on orders from customers. What's a typical size, dollar size, of a customer order, if there is a typical one? If there isn't, tell me that too.

I'll take a shot at it. Fundamentally, there isn't one. But since there isn't one, I'll try and sort of segment some of our business.

We have one fairly large direct customer that we provide cartridges for fuel injection. And the type of order we would get there is probably a 4 to $500,000 order that would be spragged (ph) out over 10 weeks. And it would come in like that. That's unusual. We don't have many customers like that.

A typical order for a distributor would be like a weekly order, and it depends on the size of the distributor. One of our smaller distributors is probably $100,000, and so if you took $100,000 and divided it by 52, that's the type of order. You'd see lots of different line items; 1 of this, 2 of this, 6 of that.

Some of our larger distributors might be $4, $5 million. And their order patterns would be the same. They would have maybe twice a week instead of once a week orders coming in. But a lot of line items and products as they need it. We will not see significantly large orders like 20,000 pieces of something. That's unusual for us.

And in some respects, it's good and bad. The good news is, very, very broad-based. If there's a problem with one customer, it's not going to impact our total business. That's the good news.

The bad business is, we're manufacturing a lot of one-offs and taking orders for one-offs; and that's much more complicated to do. And to have quality in both the product and in the supply.

And manage your inventory while you’re doing it.

Any other questions here? Millicent, would there be any more questions on the phone?

No phone questions.

Well, okay. We'd like to thank you all for joining us on the conference call. I hope everybody heard this. This is the first time we've tried to broadcast one from a roomful of people. But from our side it worked great. I hope those of you listening out there were able to hear everything, and thank you very much.

Thank you for your participation on today's conference call. You may disconnect at this time.