Helios Technologies Inc (HLIO) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Sun Hydraulics third quarter 2008 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Rich Arter, Investor Relations spokesperson for Sun Hydraulics. Thank you, Mr. Arter, you may begin.

Thank you, Claudia. Good morning and thank you for joining us today. Allen Carlson, Sun's President and CEO and Tricia Fulton, Sun's Chief Financial Officer are participating in today's call. Please be aware that any statements made in today's presentation that are not historical facts are considered forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. For more information on forward-looking statements please see last night's press release.

We will take questions once we have completed our prepared remarks. It is now my pleasure to introduce Allen Carlson.

Good morning. We are pleased with the continued growth we saw in the third quarter. The incremental sales increase resulted in significant earnings growth. As stated in the press release, we saw business slowing in the third quarter and continuing into the fourth quarter.

Sun's products are tied to the capital goods industries, which is cyclical. We all know capital goods production is slowing all over the world and this will impact our fourth quarter results. However, we believe it's important throughout all phases of the business cycle to continue to invest and focus on creating opportunities for long-term profitable growth.

Delivering our products to customers when they want them has been and will continue to be a key contributing factor to Sun's market share gains. International sales will continue to be an important and larger part of our future growth. We are continuing to invest in product development, enhancing our product line and brand strength. Our balance sheet is strong and we have the financial strength to seize opportunities that we believe are consistent with our business and long-term vision.

History has proven that every economic expansion pauses and sometimes goes negative before expanding again. We know that the largest gains go to those who are poised and agile enough to participate in the cycle upturn.

Tricia will now discuss the specifics of the past quarter and we will then take questions. Tricia?

Thank you, Al. All comparisons will be to the same period last year. The moderating order rates throughout the third quarter translated to 7% sales growth. Net income was up 29%. There was virtually no effect from foreign currency on sales this quarter.

Basic and diluted earnings per share were $0.40, an increase of 25%. Comparing Q3 '08 to Q3 '07, we achieved sales increases throughout North America and Europe. Sales to North America increased 9% while sales to Europe increased 12%. A significant slowdown at a single Korean customer supplying products to a US manufacturer resulted in Asian sales decreasing 6%. Otherwise, business activity in Asia remained strong.

Please note that these numbers reflect sales to each region. The sales reported in the segment information of the press release represents sales from each geographic operating unit.

Gross profit increased 11% to $14.7 million. Gross profit as a percentage of sales was up 1 point to 33%. Margin increases were achieved largely by the additional sales volume. [SEA] increased 3.5% to $5.5 million. The increase was driven primarily by compensation and fringe benefit costs and professional fees related to the R&D tax credit study.

Our effective tax rate was 31.8% compared to 36.6%. The third quarter provision includes tax expense of $800,000 related to the repatriation of cash from Sun Germany and a tax benefit of $900,000 for R&D tax credits related to 2004 through 2007.

The tax benefit from the R&D tax credit was not included in Sun's third quarter estimate.

Net cash from operations was nearly $31 million, up $11 million from last year. The increase was due to higher net income of $6.2 million offset by working capital changes. Days sales outstanding were 38 and inventory turns were 10.5. Capital expenditures for the quarter were $2.5 million and our estimate for the year remains at $12 million. A quarterly cash dividend of $0.09 a share was declared in the third quarter and paid in October. Fourth quarter sales are estimated to be approximately $34 million, an 18% decrease from last year. Fourth quarter earnings per share are estimated to be between $0.20 and $0.22 per share compared to $0.31 per share last year. Given these fourth quarter estimates, we will end 2008 with sales of approximately $180 million, up 8% over 2007. Earnings per share for 2008 are estimated to be between $1.60 and $1.62.

Thank you. We will now open the call for Q&A. Rich?

Okay, Claudia, maybe if you can poll them and we can get our first question.

(Operator Instructions) [Chris Wetzler].

Given the sharp swings we have seen in currency recently, I just want to make sure I understand your currency exposure correctly. In addition to just the fewer translational effect of translating foreign revenue and earnings into US dollars, you also shipped product from Florida to be sold internationally. Are those sales priced in dollars, or local currency?

Those sales are priced in dollars. Anything that comes from Sun Sarasota to our sub in UK, Germany, Korea, and China are all sold in US dollars. So as the dollar strengthens, their cost of sales go up.

I see, but the actual end product to the customer is sold in local currency?

In most cases, not all cases. We have -- over half of our sales in the UK are actually made in US dollars. So they are somewhat self-hedged in that regard. But everything coming out of Germany primarily is sold in euros and Korea would be in won.

Okay, that is very helpful. And relatedly, does the sharp slowdown in your business you've seen throughout the quarter, does that change your pricing plans at all? I know you had a price increase expected to come into play in October. And does the strengthening of the US dollars change your international pricing plans?

The first part of the question is -- did it affect our pricing plans for October? No, we continued through with the price increase. It was a very modest price increase. In fact, significantly less than what others in our industry have done during the course of the year. And it was a catch-up price increase based on material cost increases. So we went forward with that. We are reviewing our plans for Europe and other parts of the world, but fundamentally I don't think we're going to change much. We might tweak it a little bit here, a little bit there.

We have been in the process of analysis of pricing almost during the whole year, what we were going to do. So I don't think there will be any surprises.

Have you seen any competitors getting any more aggressive with price yet?

Not really, no. More aggressive with price up or down?

Down.

No, up.

Up still, okay, that's very helpful. And then last one, wondering does the R&D tax credit affect the tax rate you expect going forward?

We know that the 2008 R&D tax credit was passed. There will be some effect of that on 2008, but it will be fairly small. As you can see, for four years it was about $900,000. So it's not a lot of money every year. So it won't have a huge effect on the tax rate.

Okay, but you expect to recognize a catch-up in the 4Q?

Yes, for 2008.

Joe Mondillo, Sidoti & Co.

Just to parlay off of the last question regarding currency, is there any guidance of currency -- or is there any currency in your guidance for Q4?

The fourth quarter estimates are based off of the exchange rates that we're seeing currently.

So how much would you say in your guidance, like EPS say, is currency in there? Do you have that number?

It really isn't at the EPS line. We use it to do just the translation. We don't base any foreign currency gain or loss into our forecast, just the translation portion.

Okay. In the press release, you cite -- we look at tightening our belts in the short term. What do you mean by that? How are you -- is that something to do with expenses? Could you elaborate on that?

There are a few things that we can do. One is related to expenses. Obviously you look can look at discretionary spending and cut out the things that you don't necessarily have to spend money on at this time. The other thing is related more on the labor side to overtime. We have reduced overtime in all areas where we can. There are still some areas where we need to work the overtime. But if we can, we have reduced people back to 40 hours.

A couple of other things that we have done -- recognizing in August that there was uncertainty in the future, we stopped hiring production workers. So today, some attrition has taken place which has taken our workforce down a slight amount, but we will continue to be very cautious with additional hiring, even when we take a look at an upturn, our production hiring needs. We're moving people around the Company, hopefully. Tricia has commented that we are not working overtime. We still have areas of the Company that are very strong, product-wise, and the way we've handled that is we have moved production workers from areas where we didn't have quite as much need to areas where we had higher need to balance out the workload. And our workforce is very flexible and agile and able to do that.

Could you just elaborate on how the quarter played out? Obviously your guidance is quite a bit of a cliff. Could you just tell us how the quarter played out in terms of month to month? Did things really fall off in September? And how is October looking in terms of orders?

Yes, throughout the third quarter we did see month to month orders declining. We are still seeing that a little bit into October, they are stabilizing somewhat off of the September numbers at this point. But September was definitely the lowest order month of the quarter, and those levels are continuing into Q4.

And then lastly, could you just tell us how this downturn is comparing to the last downturn that you've seen, how Sun is different, and if you guys will be able to weather any better than you did in the last downturn?

I think we weathered it quite well in the last downturn. We positioned ourselves for the last five years of growth both in terms of revenue and earnings. So our model is very much similar to what we did last time. While we were tightening our belts, as we said, it's on the expense side, we are continuing to invest in people and products and capital equipment. We do not intend to cut our capital equipment plan. We will position ourselves for the upturn. We're in a cyclical business, we know that, and we expect a downturn. This particular downturn was actually predicted by a number of people in the industry two years ago, that it was going to happen in late '08 and continue into '09. So this is not a surprise.

And, we will continue to follow the model we have used previously to invest in our business. It separates the difference between investors and speculators.

Alright, thanks a lot, guys.

I was going to just add on to Al's comments to Joe, that we're sitting very well with a very strong balance sheet at this point, a lot stronger than we did in the last downturn as well. And having a lot of cash at this point available to us and a good business model, and continuing to invest using the cash that we do have, will definitely help us through any downturn.

[Fred Russell], [Frederick E. Russell] Investments.

I have a number of questions. Your CFO just used that phrase, good business model. We hear that phrase a lot -- what does it really mean?

Well, I think that it means that we know that we have our fundamentals in place. We have a very good distributor network. We have good products. We continue to do business the way that has made us successful for the last 38 years. And a cyclical downturn happens every few years and you have to get through it. This isn't the type of business that is continued growth. And as long as you plan for the long-term throughout any part of the business cycle, I think you are going to come out better in the end and the people that make short-term decisions both on the upside of the market and down.

In your analysis, have you seen any changes in market share, good or bad and -- for Sun Hydraulics? And if so, in what areas and what do you attribute those changes to?

We've continued to see market share growth. We plot our sales relative to the industry statistics. And over the last two or three business cycles we have taken market share. We typically take the market share coming out of a downturn. It's in the upturn, but you prepare in the downturn for the eventual upturn, and that's when you take market share. What do I attribute it to? I would say, our ability to ship products on time to customer requests when business is strong.

During this last cycle, many of our competitors had problems shipping products and it created opportunities for us because we had taken those steps to be prepared.

So it's not -- would you say that your gains in market shares, and we would love to have some quantification of those -- would say your gains in market share can be attributed to more efficient delivery, more than the nature of the products? What do you think?

You didn't let me finish -- I had five points I was going to -- I got through number one.

Number two is our website. We have the ability to cast information around the world in a way that allows our customers and distributors to configure product 24-7 around-the-clock. Our website has been designed to take products to market.

Number three is our electrohydraulic products, it's taking us into new markets. And it's in concert with number four, our ability to take packages to markets with these electrohydraulic products.

And number five is our global footprint. Right now, 55% of our business is outside the United States. That is helping us. Many of the people in our industry are seeing a much more significant impact on incoming orders than what we are seeing. We are balanced in terms of having a strong footprint in Europe and Asia where the market still is strong.

You said that, in the last quarter some of your markets were very strong, and that might suggest that some of them were very weak. Could you give some indication, some details, on which were strong and which were weak, and why do you think that occurred?

First of all, the US market has been going down for quite some time. So I would say that US market of the three is the weakest. But it started slowing down, the capital goods market, probably right around the subprime era -- right after that. It has been a year, a year and a half. We were still strong throughout that period, but the market was weak. We had to work a lot harder to get the business we got. There was a very strong headwind in the US, has been for the last year and a half.

Europe has been strong up until I would say this quarter when we began to see a slowdown in Europe, but there are still opportunities in Europe.

Asia, except for, I think Tricia mentioned in her financial analysis, except for one customer that exports to the US in Korea, Asia is still quite strong for us.

Do you think that your dividend is safe?

Yes.

Do you plan to increase it?

That is a Board decision that hasn't been made or even been discussed at this time.

Do you have any projection on that?

No.

One question that was asked was this -- asked of your CFO -- where do you consider reducing your expenditures? And she gave an answer that I didn't understand. She said -- we are cutting out the things that are not necessary. How do you define unnecessary? And does that include executive compensation?

I think that what I said were things that were not necessary at this time. That would be defined as discretionary spending. There are things that we don't have to do right this minute but we eventually would like to do to further the business. Those are types of things like outside services when we have people come into help with programming. There are a lot of items that fall into that category. But I don't think that I meant to say or meant to infer that there were things that we don't really need to do that we wouldn't spend money on if we had more income -- that is not the case.

I didn't draw that conclusion. What I was looking for was some examples, some facts, some details.

Well, I think -- one of the biggest examples that I gave was outside services. When we have people come in and do consulting type services for Sun that we don't do internally, that is definitely discretionary spending. And most of the time they are projects that we would like to do and like to get done, but when we are tightening our belts, there are things that we look at probably a little closer than we would have otherwise.

Not that they are not going to get done, they are going to get done at a later date.

[George Prince], [Voyager] Asset Management.

Al, I am, I will call it impressed, at the tightness of your guidance going forward with what I would call a fairly large change. I'm curious as you how you get to such a tight number. Maybe you could explain a little bit of your building that number.

Sure. You're right, we had had a pretty long track record of being able to predict a quarter, and our guidance doesn't go beyond the quarter. Part of the reason for that is that we go back and take a look and when we miss it. Even if we miss it by a slight amount, what was the root cause and what corrections can we take for future projections? And our financial people have a model that they are using and they keep refining the model as they go forward with this root cause corrective action approach.

We also have to look at our book to ship rate is pretty close. So we don't have a lot of orders out there hanging that could be canceled and be a problem for us. So we're projecting right now, for example, the fourth quarter results. We are five weeks into the fourth quarter, but in terms of orders we are eight weeks, or maybe nine weeks into the fourth quarter. So our projections are based upon trends, trend analysis and root cause. When we miss it, even if it's a slight amount one way or the other, why did we miss it, and how can we improve the formula for the future.

So you would say this is very order-tied. You are not necessarily throwing out the kitchen sink here because you can have one rough quarter?

Correct.

And if things were to change, for instance, I was struck by the comment that August was weaker than July, September was weaker than August, but October and November seem to be stabilizing around September orders. If you were to see a pickup, would you announce that mid-quarter, or you would just wait?

We would just wait. Our approach is to not send signals and to not take short-term knee-jerk kind of reactions either up or down. If the wheels fell off or something dramatically happened, we might consider it then, but during the normal course of a quarter I don't think it's wise to look at the ticker minute to minute or hour to hour. And we've just got another big order so we're going to announce it -- I don't think that's wise.

And last question -- your input costs, have you seen a change? Can you incorporate a change? Is it helpful to you? Given what we see with commodity prices, we would think that you be seeing some tailwinds now.

We are seeing a little bit of a downtick in our material cost as a percentage of sales, but we also didn't see the huge uptick that other people saw. We had surcharges attached to some of our purchase parts which, we buy a lot of the purchased parts that go into the cartridges. We are seeing those surcharges go away now. But because we didn't see a large upside, we won't see as much downside either.

Thank you, and good luck.

Holden Lewis, BB&T Capital Markets.

A couple of things. First, just back on the pricing really quickly. I think originally weren't you talking about something like 3%-ish pricing? Is that the number that you ultimately went out there with, or did you scale back that price increased to a lower level?

3% approximately. It varies by product, but it's approximately 3%.

So basically, that went ahead as I would expect. You're not getting any push-back or anything like that? Or, you're not seeing -- doing any greater discounting or anything that might erode a bit of that at this point?

Actually, there is some erosion but not significant. And we had had discussions with many of our customers to explain that this price increase is relatively modest in the industry. Our costs have exceeded that. And what we're trying to do is to make up the difference between what we couldn't get out of productivity gain. So we really didn't pass all of our costs on through a price increased. We passed the portion on that we couldn't absorb through productivity.

Sure, okay. But when I look at your revenue growth, about 300 basis points of that is from price, or what is the total pricing contribution when you consider all of your actions?

In the fourth quarter, it will be right around 3%. It probably will be a little bit less than that -- maybe 2.5%.

And what was it in Q3?

The only effect on Q3 was from the price increase that we put into effect January 1, and that was somewhere around 1% at this point.

Okay, got it. And then looking for a little historical perspective, as recently as 2002 which of course was the end of the last downturn, all of your margins in all of your operating units were in the mid single-digit range. Now obviously, you have been, a lot of your business you've been doing high teens, even 20% some on. Is there some reason why we wouldn't assume that in the bona fide downturn that's unfolding, you would not return to those single-digit levels? In a world where the currency, where the dollar is now strengthening instead of weakening or demand is falling off, are we going to do a complete round-trip from the margins that we have been enjoying back to those mid single-digit levels?

I think as sales go down -- we talked about this on the last conference call -- as sales go down, we have a fixed cost base that has to be absorbed and you will see margins decline as sales volumes decline. But there's no reason to think that when sales volumes start to go back up in the upturn that we can't get back to very significant margins, especially with the measures that we take during the downturn to put productivity improvements in place, like we did the last time. I think if you looked back at the 2003 and 2004 numbers, you'd see a pretty quick uptick of those gross margins as the volumes increased. And, we saw the benefit of that even more in 2007, 2008. But it definitely causes margin erosion when you lose your sales volume, when you have the fixed cost based in place that we do.

Right, but I guess, there's no doubt that the margins would come off -- that would be expected. I guess I'm wondering about the order of magnitude. And I guess the question gets to -- you have long been a very solid operating entity. I think that was the case in the last downturn, I think it's the case in this downturn. Is there anything different about your business today versus the last downturn that might give us some comfort that, okay, if margins were in the mid-single digits before, maybe we don't need to go back to that level. Or do you view mid-single digits as being a cyclical norm?

I don't think that we can expect that what happened in the last downturn with respect to margins and the levels that they got to would happen this time. We are in a very much -- very high sales level compared to where we were then. So we know that there is already some margin that will be safe because of the additional sales volume now over what we saw in 2001-2002 time frame. So I wouldn't try to make that correlation. A lot has changed in that time, both in the equipment that we put into place and the processes that we put into place, and things are different.

I would add onto that, that our capacity utilization is much higher going into this downturn than it was during the last downturn.

Is there a reason to think that -- obviously utilization is going to get weaker, right? Is there a reason to think that utilization at the trough will be higher than it was at the last trough?

I guess you will have to tell me how long and how deep the trough is. But my bet is, yes.

Because I would guess that going into the last downturn, you would have said the same thing -- that utilization was very high.

No, we just completed a brand-new facility. We double our output. Remember, in '97, '98 time frame, we added another factory here in Sarasota, right at the heels of going public. And the downturn hit us before we actually had that capacity at all being utilized or being sold in the marketplace.

And at the time that Al is talking about, our sales were about a third of what they are now, which creates a completely different situation.

Last time around, weren't you also doing something with your IT systems?

Yes, preparing for Y2K.

Was that disruptive then? How should we -- that was an issue with respect to the margins during that period of time, is that right?

Sure, absolutely. It was an issue. We spent a lot of time and energy on a new enterprise software package, which we're using today. That's not going to be the case going forward.

And in terms of what happened with that -- was the disruption just because you were putting in place, or were there actually issues that arose when you implemented it, in terms of reducing productivity, sort of growing pains with those systems at that time?

Both.

Okay. The last thing I have is, when you think about the opportunities, your balance sheet and all that sort of thing, does this make you more interested in the M&A side of things, in expanding into maybe related but different product offerings? How should we view your interest in expanding your footprint, if you will, given your strength into a downturn?

Well, you know that over the last couple of years we have invested in two companies; one, White Oak, and the other High Country Tech, which provides us electronic products which are a companion to what we do. Some of the products we actually embedding into our own products, others are products that drive our products. So taking us into new markets, I think you will continue to see us making those kinds of investments. We look at M&A as a means to grow, but it's not our primary focus in growing, but it's another way to grow.

And we have the cash to make acquisitions if we find one that makes sense strategically and helps us to grow sustainably.

An are you seeing anything better out of that pipeline, or you're still opportunistic -- it's not what you are looking at, and quite frankly, you would not anticipate anything of that sort anytime soon?

I wouldn't say that.

[Great grazing] there.

I can't make any announcements right here.

Alright, thank you guys.

Jon Braatz, Kansas City Capital.

When I look at the broad spectrum of industrial companies reporting over the last 2.5, three weeks, it seems like your fourth quarter numbers are coming off a little bit more than what the group has. Obviously there are some that are down as much. Do you see something peculiar in your business, in the order flows that may account for that?

For example, what are the dealer -- distributor inventories like? Have they cut back their inventories? And what can you tell me about the sell-through of your product versus the inventory position of the distributors? I'm trying to get a sense as to why maybe your business appears to be, at least in my mind, appears to be a little bit weaker in the fourth quarter than some of the other companies.

What other companies would you be talking about, Jon?

Industrial companies. And, obviously, not companies that are identical to you, by any means. But, just the broad spectrum of industrial-related type of companies.

Okay, I will try to paint the picture for you on that as best I can.

Many of the companies that you perhaps have been looking at saw the downturn start earlier in 2008 than we saw it happening in August-September. So perhaps there's some of that, that -- ours was delayed. Dealer inventory is not an issue. Our inventory in the network is pretty much what it has been through the last cycle -- it hasn't grown to keep up with the sale. This has pretty much been stagnant -- because we are able to ship products when customers want them, our dealers haven't had to carry a lot of inventory.

I think if you look at what is going on in the market today, there are two segments of the markets we play in. One is mobile and one is industrial. And when I talk to some of the industrial people, and what I mean by industrial is products that end up in a plant somewhere without tires or wheels on them, that market still seems to be pretty strong. We are not seeing a big downturn yet in that market.

On the mobile side, anything that is due to construction, whether it's light construction or heavy construction, that market has slowed down significantly, in the US, beginning to slow down in Europe and hasn't yet affected Asia. So that's kind of what we're seeing.

I think that we tend to see cycle upturns and downturns pretty quickly, being a little further down the food chain. We saw it on the upturn faster than probably some of the companies that you are speaking of saw the upturn. And I think we're seeing the downturn a little quicker as well.

You mentioned, Tricia, that you had one customer in Asia that cut back significantly. Was that just temporary, and how much of an impact was that on revenue?

It was temporary. We don't know how long it will last. I don't think that they made any announcements of how long it will last. The impact to the Korean operation is somewhat significant. It may be 28% of their individual sales, so it's significant to them.

Was that a mobile-related product?

Yes, it related to aerial work platforms by a US manufacturer.

Okay. Secondly, obviously we are going to see some deleveraging of expenses in the fourth quarter. And if you back through the numbers, you can maybe come up with like an operating margin of around 15% for the fourth quarter. If sales sort of leverage off, will we see some growing benefit as we go into 2009 from some of the actions you're taking to reduce expenses? Or, going back to a lot of the margin questions, if we just see a stability from this point on, do we see margins? Are there enough actions out there that can be taken and are going to be taken that we'll see a stability in the margin at the mid-teen area?

I think that that will be completely dependent on where our sales volumes end up in 2009. And it's extremely difficult for us to see that. We don't have any visibility, so we don't now. We can only see what we have provided for the fourth quarter. Obviously, anything that you can do to benefit cost that would be carrying it forward will benefit you throughout the entire downturn. But we don't want to take any short-term, knee-jerk reactions to reducing expenses that would hurt us for the long-term.

Any sense on the magnitude of those as you would characterize discretionary expenditure that you could postpone delay? When you look at the universe of things that you may be able to do, how sizable are they?

They probably are not as sizable as the items that we have a lot less control over, like depreciation, property taxes, insurance -- all of those types of fixed costs. But anything that we can to, we know will help. We saw that in the last downturn. Just making people a little bit more aware of watching things helps on a grand scale.

One last question. From an attrition standpoint, you said you've lost a few people. What size labor force are we at now going into this quarter versus last quarter? How much attrition has there been?

Percentage-wise, there has not been a lot of attrition. We are somewhere in the US, a little below 700. I think we were maybe 15 or so people higher than that before. So it's very small numbers.

Okay, thank you very much.

Fred Russell, Frederick Russell Investments.

Would you consider buying back any stock now?

We've had ongoing discussions over the years with our Board, and at this time there are no plans for a stock buyback. But we talk about it on a regular basis. But there are no current plans.

But if you made an acquisition, what kind of -- would you use cash or stock? And, what areas are particularly attractive to you?

The areas that are attractive to us are areas like electronic controls, companion products to ours, products that perhaps would drive ours, would take us into new markets; systems integration capabilities, anything that will help to continue our international expansion would be useful.

Whether we would use cash or stock, probably we would use some of both.

Thank you.

Holden Lewis, BB&T.

Again, back to the margin question, within the quarter, most of your margins backed up sequentially with the notable exception being Germany which I think hit an all-time high in the quarter. What was different in Germany? What drove that?

Germany was a little unlike the rest of the business as far as where the orders and sales were coming in. They saw a dip in August, they saw it go back up in September. I think that their economy was just in flux at that point and had some up periods where the rest of them didn't.

Okay, so it was just a faction -- it was just an issue of when -- they just had better demand, I guess, and such, than some of the other places?

Yes.

Okay. And then, did you guys have any issues with shipping? We had one company -- they reported they said they had some issues of shipping stuff out of Sarasota. Did you have any shipping issues, given how much you do?

No.

Gentlemen, it appears we have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thanks, Claudia. We did have a couple of questions that came in over the Internet and I believe we have answered all of them, but I'm going to repeat them, a couple of them anyway, just to make sure.

The speed at which your markets turned down from your second quarter conference call to your third quarter conference calls -- is it normal cyclical pullback, or different?

We've been through a number of cycles since the Company was formed 38 years ago, and this particular cycle actually from a duration standpoint has probably lasted longer than many of our cycles. But the change from the peak down is probably very similar to what we have seen in past business cycles. It's not unusual. We are very close to the market in terms of lead time. So, when the market turns down, which it clearly has, the capital goods market, we are going to see it turn down quicker. But the good news is, we're also going to see it turn up quicker when it happens. So I think this is very typical.

The other questions I believe we have probably addressed. One had to do with revenue breakdown geographically and growth rates in different regions, which I think Tricia addressed in her script. Industry segments that are busy weakest -- I believe Al answered that. And the final question was regarding a buyback policy, and I think Al just answered that.

So we would like to thank you all for joining us. And Al, did you have some concluding remarks you wanted to mention?

Sure, just very quickly.

Clearly we are seeing headwinds in the market, and that's not new to Sun, that is new to anybody that is in the capital goods market. How long and how deep, how severe -- hard to say. But the downturn in the cycles that we are going through is not new to us. At the peak of the last cycle, which was 2000, 2001 era, we had grown to an $80 million Company. I think we commented earlier that, prior to that we were in the $40 million heading up to $80 million. But $80 million was the peak at the last cycle.

Immediately following that peak, we turned down very quickly in 2001. 9/11 was a factor, but it wasn't -- we were already heading down prior to 9/11. 2001, 2002 we stabilized at $65 million from the $80 million peak.

However, during the downturn of '01, '02, and perhaps even into early '03, we worked very hard at being prepared for the upturn. And the upturn, when it occurred, actually was over five years of continuous growth. We were able to take advantage based on the investments that we had made.

Our challenge is to be prepared for the upturn, and it will come. The question is all of us can't answer is to how deep or how severe. But we keep monitoring it. We provide you the best guidance we can and we will be ready for the next upturn.

Thank you, Al, and thank you all for joining us today.