Innovative Solutions and Support Inc (ISSC) 2010 Q2 法說會逐字稿

Please stand by, we're about to begin. Good day, everyone, and welcome to the Innovative Solutions and Support Second Quarter 2010 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Geoffrey Hedrick. Please go ahead, sir.

Good morning. This is Geoff Hedrick, Chairman and CEO of Innovative Solutions and Support. I'd like to welcome you this morning to our conference call to discuss the second-quarter 2010 results, current business conditions and outlook. Joining me today in our Exton headquarters are Roman Ptakowski, our President; and John Long, our CFO.

Before I begin, I'd like to ask John to read our Safe Harbor statement. John.

Thanks, Geoff, and good morning. I'd like to remind our listeners that certain matters discussed in the conference call today, including operational and financial results for future periods, are forward-looking statements that are subject to the risks and uncertainties that could cause actual results to differ materially, either better or worse than those discussed, including other risks and uncertainties reflected in our Company's 10-K, which is on file with the SEC.

I'll now turn the call back over to Geoff. Geoff.

Thanks, John. Results for the second quarter demonstrate the successful accomplishment of our goal to achieve sequential progress in the first half of this year. Despite the most challenging industry cycles in recent memory, fundamentals strengthened in our second quarter.

Our book-to-bill ratio exceeded 1:1. Gross margins rebounded from the first quarter. We were awarded a new STC to upgrade Eclipse aircraft, and we continued to invest in research and development budget and product enhancements, certain to create additional revenue and growth. This positions the Company with a much stronger second half.

While the awarding of large contracts for the major fleets tends to lag the economy, the book-and-ship business tends to respond more quickly to changes in the economy and economic conditions were significantly better in the second quarter of this year than they were a year ago. Consequently, this routine business is becoming a larger portion of our quarterly revenue and is not reflected in our backlog.

We continue to broaden the platforms on which we are qualified; therefore, we foresee steady growth of our routine book-and-ship revenue from our growing base of military, commercial air transport and general aviation customers. We also anticipate steady releases of existing backlog throughout the balance of this year.

Revenues increased sequentially and margins increased approximately 45% in the second quarter. We continued strong investment in product development and although we lost $0.04 a share, we preserved our balance sheet through focus on working capital management. While John will go through the numbers in more detail in a minute, let me just say I believe our key financial metrics clearly indicate that we have set the stage for continued improvement during the second half of fiscal 2010. In a recovering economy, we expect to see aircraft owners focus new spending on retrofits to their existing aircraft to bring them up to current standards.

We have historically done well in these markets. As of today, our outstanding proposals are still in excess of $100 million. At the same time, we were adding to our potential as operators gained confidence in the economic recovery and bring new opportunities to market. To capitalize on these opportunities, we are improving the features and functionality of our products.

This quarter, we were awarded an STC for the Class 3 Electronic Charts and Satellite Weather on the Eclipse 500 aircraft. Eclipse took their planned deliveries of hardware and software functionality at the beginning of Q3. Supporting our cash management, Eclipse has provided payment for all shipments to date. This is a good example of the new product features and functionality we expect to introduce throughout our product lines this year. We've also strengthened our sales and marketing efforts as a means to increase the sales in key markets. And I believe there is still opportunity for additional growth.

All of our success to date can be traced back to our initial STC, which we have leveraged into more than two dozen additional platforms for which we are now qualified. For instance, our opportunity in the military market is currently quite significant. This is a large market where spending remains robust. There is however considerable pressure from the administration to control cost and seek better value. It is also a market in which our track record of providing dependable, high-quality products at competitive prices has led to strong relationships with both domestic and international agencies.

Roman will review our opportunities in military and other markets in more detail. But clearly, we have a great opportunity to grow both in existing markets where we already have a presence as well as tapping into new markets that value a competitively priced quality product delivered on time and on budget.

Let me turn over the call over to John Long for more detail of our financial performance.

Thanks, Geoff, and thank you for joining our call this morning. Revenues in the second quarter were $5.4 million, up nearly $1 million sequentially from the first quarter. The sequential recovery in revenues this quarter is consistent with our expectations that the effects of the depth of last year's global economic slowdown will roll through our numbers early this year, with revenues showing incremental sequential improvement during the second half of our year. In the second quarter of last year, revenues were $10.5 million.

As Geoff indicated, the steady growth of the number of platforms we serve is contributing to an increasing proportion of quarterly book-and-ship orders. From a product standpoint, Flat-Panel Display related revenues in the quarter were approximately $4.2 million, while Air Data product shipments in the quarter were about $1.2 million or around 21% of total shipments.

Gross margins in the second quarter were about 45.2%, a strong rebound from the first quarter. The -- this sequential improvement illustrates a leverage in our model, as margin recovery was significantly above revenue recovery in the second quarter. Margins in the quarter also illustrate the success of our commitment to our basic manufacturing infrastructure, as the skilled workforce we have retained through the volatile market remains a key to sustaining the efficiency and productivity improvements implemented over the past couple of years.

The total operating expenses for the quarter were $3.3 million. Research and development expense internally funded was approximately $1.4 million in the quarter, up from $1.2 million in the first quarter, reflecting our continued investment in new products and in some product enhancements as Geoff described.

Though R&D represented over 25% of revenues in the quarter, we are committed to sustaining a minimum amounts of level of R&D spending to achieve our growth objectives. We could have easily cut R&D spending to improve short-term results, but this would be detrimental to our long-term objectives to offer market-leading technology and versatility.

Sales, general and administrative spending in the quarter totaled $1.9 million, down nearly $300,000 from the first quarter, primarily a result of the Company's continued focus on cost containment efforts. For the quarter, we incurred an operating loss of approximately $850,000, which is down by almost half from the operating loss of nearly $1.6 million in the first quarter.

In the quarter, the net loss was $745,000 or $0.04 per share. Improvement in the bottom line though was affected by a significantly lower tax benefits booked in the second quarter as compared to the first quarter. Year-to-date effective income tax rate is approximately 18%.

Our balance sheet remains strong with nearly $36 million in cash and no debt. Our goal is to deliver operating cash flow consistent with our profitability as we go through the balance of this year.

The Company did repurchase 5,200 shares of common stock at an average price of $4.20 per share under the previously announced share repurchase program. And the program does remain active with slightly less than 1 million shares remaining and authorized to be repurchased.

I'd now like to turn the call over to Roman for some comments on the current market conditions and new product and business developments. Roman.

Thanks, John. As we have reported before, the Company's business development efforts are focused on the commercial air transport, military, and business and general aviation segments to allow us to better capitalize on the unique opportunities in each of these markets. Our commercial air transport efforts continue to be centered on delivery of our Flat-Panel Display systems to the major airlines and package carriers. We resume shipping product to existing customers as they complete their aircraft retrofits and had a need to replenish their inventory. We believe commercial air transport remains a very large market opportunity for IS&S and so we continued to enhance our product through the introduction of additional capabilities and functionality.

On the last call, we discussed functions such as RNP, Required Navigation Performance, and ADS-B, Automatic Dependent Surveillance Broadcast. These allow pilots and air traffic controllers to see and control aircraft with more precision and over a far larger percentage of the Earth's surface. We have now introduced the Class 3 Electronic Flight Bag for the B757, B767 platform. The addition of Class 3 EFB functionality demonstrates the ability of the cockpit IP to evolving -- demonstrates the adaptability of the cockpit IP to evolving and future requirements.

The EFB architecture incorporates the server unit integrated into an IS&S Data Concentrator Unit to minimize the addition of extra components to the airplane. Understanding the limited real estate available in the cockpit, IS&S developed the solution that utilizes the navigation display for presentation of EFB data. The IS&S approach displays information directly in the forward field of view of the pilot, as well as minimizing the cost of integration of the EFB into the flight deck.

The electronic flight bag displays terminal charts, approach flights, moving maps, satellite weather, video images and custom modifiable electronic checklists. The user-friendly human machine interface design reduces crew workload; at the same time, it provides more information.

We have growing demand in the military market. Presently, we have approximately $73 million of outstanding proposals pending with various military and defense agencies. We have quoted a number of large programs to Boeing, Marshalls and other integrators. These have involved the new proposals and a refresh of existing ones where requirements have firmed up. EIDS, our Engine Instrument Patient Display System has been selected for installation on various C-130 aircraft operated by international customers in New Zealand, Canada, the Netherlands, Algeria and Pakistan. In 2007, IS&S's EIDS was installed by BAE Systems on the United States Coast Guard HC-130H aircraft. This latter program is now being expanded to retrofit the entire cockpit, and not just the engine instrumentation portion.

In the general aviation segment, we have been regularly meeting with our Cessna counterparts to accelerate the adoption of the AdViz platform by Citation owners. A number of marketing efforts are underway. This week, Cessna held its Annual Citation Customer Conference in Wichita, Arkansas. As part of the conference, Cessna featured the AdViz cockpit. Cessna and IS&S have produced a video titled `AdViz Avionic System: A Pilot's Report,` touting the benefits of the retrofit. In addition to a mailing to the owner-operators, the video can be viewed on the IS&S website. A special introductory marketing promotion offering significant functional capabilities of the savings has been made available to early adopters.

The AdViz system is certified for the Cessna Citation 500, 550, S550 and 560, and is available in two or three 10.4-inch display unit architectures that provide enhanced situational awareness, increased functionality, reduced crew workload and weight savings. Options include Electronic Charts, XM Satellite Weather, Wide Area Augmentation Systems or WAAS, and enhanced vision system infrared displays.

We continue to grow sales for our Pilatus PC-12 program by now offering WAAS LPV approaches and RVSM certification. These benefit the operator by respectively further ensuring on-time arrivals, even at secondary airports, and the use of optimal in-transit airspace. We successfully certified XM Satellite Weather and Electronic Chart functionality for the Eclipse E500 Very Light Jet. Shipment of this additional capability to Eclipse Aerospace has commenced.

Backlog at the end of the first quarter was $35 million, up slightly from the previous quarter. There are $73 million of military and $39 million of general aviation, commercial air transport proposals outstanding. The value of the outstanding proposals in the latter segment was reduced due to the referral of a large upgrade program by a commercial air transport customer. However, the total has now still increased to over $110 million. Our outlook is for improving performance throughout the year as deferred shipments start up again, as our business in general aviation programs accelerate and our offerings to the government and military are increasingly accepted.

I'd now like to turn the call back to Geoff. Thank you.

Thanks, Roman. Demand of the -- demand in the Company's end markets remained flat during the first half of the current fiscal year, although orders, orders' rates appear to be strengthening as our proposals transitioned into contracts. For the balance of fiscal 2010, we anticipate continued quarterly sequential increases in revenue, gross margins, and positive operating income.

Our ability to forecast specific targets ranges remains challenging as a result of the current economic climate. The sequential revenue growth in the second quarter is consistent with our expectation that volumes were going to ramp as we progress through the year. While there is certainly challenges remaining, we believe there is an opportunity for those businesses that can offer their markets a strong value position, like both the military and the commercial marketplaces and have demonstrated an ability to deliver.

Over the balance of this fiscal year, we believe we will achieve our objective to strengthen the Innovative Solutions & Support [transition] all of our end markets to grow our businesses and create value for the shareholders. As an example, the electronic flight bag for the 57/67 will offer increased safety and operating on the ground with better situational awareness to avoid runway intrusion.

Operator, would you please open the call for questions? Thank you.

Yes. Thank you. (Operator Instructions) We'll take our first question from David Campbell with Thompson, Davis, & Co.

Good morning, everybody.

Good morning, David. How are you?

How are you doing, David?

Good. Thanks. Thanks. Roman, you talked about the $39 million of commercial business and so forth backlog and then something about that's down because [they deferred] of a large transfer customer, can you explain that? I didn't quite understand that.

Right. We had reported on previous calls that we were approximately over $50 million of proposals in that segment, we're down to $39 million of proposals in that segment because one customer decided to defer till next year. So we took it out of our proposal backlog. We didn't lose the business. And we just didn't want to account it out there. When they go to refresh that, we will put it back into our proposal.

And so, it is deferred as interest for at least a year?

Right. Meantime, they are doing other things. We're doing business with this customer and continue to be successful.

Are there any orders for the electronic flight bags yet from commercial customers?

Again, David, yes, we do have initial orders already. We are demonstrating the product to the FAA. We have an open project status with them and that will be certified.

We have a contract commitment with quarterly deliveries defined to the electronic flight bag for the Eclipse 500 and [not a] several hundred systems, so -- and that is being installed and being flown, as we speak, very successfully.

I was referring also then to 757, 767 and Geoff is correct also already on Eclipse, we're successful with the product offering.

And Geoff, how do you think about the Eclipse finances ability to pay? Someone mentioned that they are paying immediately or something on deliveries, what -- can you explain all that?

No, what I said was specifically I said, we delivered this quarter, Q3, already delivered both hardware and software functionality and we've already been paid. So, they were responding to our desire to focus on our cash management and they were responding very positively. So, there are no outstanding invoices to Eclipse. And we delivered almost $1 million worth of equipment.

Okay. But none in the second quarter?

None of that is reflected in the second quarter at all. It's all -- it was the beginning of this quarter, we just started -- we just got the STC. Our STCs are moving along quickly and we are actually in the process of -- have applied for and expect to get it designated something called an ODA, which will allow us to substantially manage and create our own STCs. And that authority will be delegated to us by the FAA. And frankly, it's a tremendous achievement by our quality department.

And--

And significantly cut down the time to get STCs, significant cut.

I can go to the website, but is Eclipse actually delivering -- selling airplanes?

No, they are not delivering airplanes, but there are 250 airplanes out there and -- with this functionality but there is a couple of things there. They are upgrading existing aircraft that they have. They have airplanes that they are actually delivering, I'm sorry, I'm wrong. They are actually delivering aircraft from their inventory and are installing new Avio NG hardware and the new functionality software, which gives them both the Electronic Charts and the Weather Satellite, Weather Radar. And these are both significant safety features and huge functionality.

We've been focusing, as you know, on expanding the functionality of our product line and it's actually -- the demand is and our customers are responding very positively to it. We have recently offered the same thing at Cessna as well, with a on-ships position where the pilot can actually see the aircraft both as he taxies on the runways and in the air.

Right, right there. Are there any -- but you really can't predict the second-quarter revenues given the fact that I guess the deliveries have resumed to your commercial transport customers, they've resumed and you've got the new Eclipse business?

You mean the second half, yes. The second half, right. We finished the second quarter.

Well, I mean really the quarter -- the June quarter, you mean you are through?

The June quarter, that's correct.

I mean you had --

What we all know that the airlines, all of the airlines are in a difficult situation, they are losing money and they tend when they are losing money to stretch out their programs. We have -- we're confident that there is not a cancellation because we've delivered a substantial number of systems and they've been installed in aircraft and are working extremely well. But all the airlines are very carefully managing their cash flow when they are losing money and the deliveries tend to slip out to the right and we keep -- and that sadly continues to be sort of an ongoing situation as the recovery is slower than anybody anticipated. Well, not anybody, but say the administration have anticipated.

Where we do see some real strengthening is in the military because we -- you know that the pressure on the military as you can see as that -- when they're talking about trying to save money in other programs, they are obviously focusing on the military and there, they are looking for value. The competitive price is now becoming more and more important and we are very competitive in the marketplace. And we're seeing more and more programs where they're upgrading existing aircraft while new aircraft, many new aircraft are being cancelled or not exercised [than others].

Okay. But the commercial guys, they are still not taking deliveries of flat panels?

Well, I mean FedEx is obviously taking deliveries of flat panels. And by the way, the very positive news that we got out of FedEx is they are looking at even expanding their 757 fleet beyond the initial expectations. We don't have an exact number, but it's -- so the program is going to end up being substantially bigger than we expect. They're very focused on the aircraft and very pleased with it, and we are a cockpit upgrade for all of their 757s. As they purchase them and modify them for cargo, we get our equipment put on board. And they are still taking those.

But American has deferred -- still deferring.

American has slowed down, yes, absolutely. We still are delivering now, but they are looking forward prudently, I think is an appropriate comment.

Well, thanks. I'll let somebody else ask some questions.

Yeah. Go ahead.

Thank you, David.

Thanks, David.

(Operator Instructions) Our next question comes from Michael Ciarmoli with Boenning & Scattergood.

Good morning.

Hey, good morning, guys. Thanks for taking my questions. So, Geoff, I guess, Roman, last quarter, you talked about a goal of having four-year revenues kind of flat with '09, is that still the case?

That's [terribly] tough to do, we obviously are going to try, but we don't know yet. Obviously, the movement with -- the movement out of -- or the potential delay in American Airlines shipments and a few other programs could impact that. So we're being very cautious about that. So, yes, your perspective is probably accurate.

So, is that the only thing that changed the American Airlines that's going to cause you to have a part-time meeting?

That's a significant. Right now, we haven't lost any programs and we haven't had any other deferrals. But we are being very cautious, Michael, because since the economy is -- we had hoped would respond a little bit more positively, we expected a little bit more enthusiasm in the second half and we haven't yet seen it. So, we're approaching it cautiously and we're watching our own expenses carefully so that we can control our profit.

What -- I mean what specifically--?

The answer is I don't know if we can meet and -- the promise that I made or the expectations I had in the last call. Since then, American Airlines is talking about deferring deliveries and that will impact the year significantly. Secondly, the first half of this year although we're pleased that we're coming out of it has not been as strong as we had hoped for the same reason that we had no deliveries to American.

Right. But what were you guys -- I mean listened to virtually every aerospace company from B/E Aerospace, Honeywell, Goodrich, I mean everybody sees -- I mean every metric has improved. Traffic growth has been up. Everyone is talking about a recovery in the second half and then the data points are there. So, what exactly were you guys baking in? You said the economy hasn't kind of rebounded as quickly, but yet there is a lot of positive signs and it looks like aftermarket especially from the short cycle businesses, you're going to take higher, what exactly didn't materialize aside from the American that you guys are hoping for?

I think American lost $0.5 billion and that impact obviously makes them appropriately look at deliveries of new hardware and the upgrades to their fleet, which are not just ours and it's obviously impacted Honeywell as well because those deliveries on these -- on that program have delayed. Yes, we still see a -- we do see a strengthening, we do see strength in FedEx selectively and -- but we're cautious about going forward. We were optimistic until American had some of the difficulties it's having. And I guess that's not unique. Delta has deferred procurements and upgrades to many of its fleet for the same reason and I think they're waiting until -- the numbers I'm hearing are more into 2011. So, we're being very cautious about our predictions, Michael.

Okay. And then just ADS-B, there has been some press about that. I mean is that a near-term catalyst for you guys or still too far out? I think the goal is 2015 or so.

We actually -- yes, the fact is that although it is -- implementation is 2015, the electronic flight bag and that portions in the system, they can use today and it enables them to implement the 2015 ADS-B on their displays. So, yes, it's starting -- their awareness of this, the interest in doing it is actually having some stimulating effect and we are getting interest because we're looking at that broadly.

As I also mentioned, we are in the process of coming up with a flight management system and expect to get that STC in the next couple of months and that will have a significant impact broadly across our product line. We have changed some strategy in engineering such that products developed previously, I think developed for specific products and market areas are now being developed in such a way that they can be applied across military, commercial and air transport. So that's a very [positive at this stage]. We also have just [-- oh! my word, have been] selected for a major military Homeland Security program and expect -- and we'll be in negotiations for that contract and we expect that to come in, in the next month or month-and-a-half.

So already --

We're seeing some positive signs, Michael. I'm just trying to be a little improved in my expectations.

All right. Thanks a lot, guys.

Thank you, Michael.

And our next question will come from Sanjay Shetty with BOE Securities.

Good morning, guys. Thank you for taking my call.

Good morning.

Good morning.

Good morning.

Right. So my first question is for Geoff. Geoff, in your comments, you mentioned about -- for existing and new markets, can you elaborate on the new markets that you mentioned? What is the timeline and what are those markets?

I'm sorry, would you ask that again, just to be clear of your question?

Yeah. Geoff, in his comments, he mentioned about like developing existing and the new markets, I was wondering what are these new markets, can you elaborate on that?

Without being specific, what I was addressing is new markets for some of our products, including as an example, we just announced a pretty comprehensive electronic flight bag and frankly a functionality for some -- the next-gen aircraft control system for our 757/67 upgrade and that is a significant new opportunity we see it. For the functionality of the equipment, which is, we obviously charge for. And to enhance or make the equipment itself are more attractive.

When we talk about some new markets and we're seeing new markets on 747 now and we're seeing some new markets in the military without going into detail. So, those are the new markets. We are -- again our product line is now being developed in such a way that we can take that technology and address all market segments with a single technology, which is new for the Company.

Okay, okay. And second question is regarding your prospects to contracts, you mentioned there is a lot of proposals that you have submitted. Like what kind of movements you are seeing given that -- like what kind of movements that you've seen so far in kind of the beginning of second quarter -- or third quarter, I should say, about that on that front, like from prospects to contract, the conversion?

The conversion rate tends to be the same. I mean, it takes time; the larger the contract, obviously the longer people take. But what we see as positive signs is that some of the earlier proposals, our customer base has asked us to refresh it, they've firmed up their requirements, so the timetables are more specific and we would expect to see some of those begin to close here in the third and fourth quarter.

As we've talked about, we'll see and growth in orders and consequently backlog and then in revenues in turn. So, the growth largely has taken place in the military segment. We feel very good about those proposals that we've got very competitive offerings and we'd like to see that our -- the other piece we did talk about is that we do see a lot of intra-quarter business, the book-and-bill, the book-and-ship within the 90-day quarter period that we see people meeting that and we're able with our manufacturing capability to respond in short order and support those types of requirements.

Let me talk for a moment, address another program. We have an agreement with a company in Singapore to offer a 737 cockpit upgrade into the Pacific Rim. We think that's a new opportunity and the beautiful part of it is, it leverages the 757 and 67 package utilizing about 85% and 90% of the hardware and technology. So, this will be another wonderful new opportunity we hope utilizing existing development costs.

Okay. And this is like a proposal that you already submitted or it would be in works?

We've already agreed with them and they are now actively -- that company in Singapore is actively pursuing the market in the Pacific Rim.

And that's not reflected in our proposal value at this point.

It's not our proposal value because it's not a formal proposal. It is an agreement we have with the company.

Okay, okay. And the backlog number that you guys gave, like how long does it take to typically to convert to revenue and do you think it's taking longer or shorter time right now?

When one is taking longer because [obviously] a large portion of that backlog was a major air transport program that got slipped to the right. The good news is that that slippage is not forever, there is a finite date by which 100% of the contract has to be delivered and that finite date is about a year-and-a-half away. So, we know that that will happen, it's just a question of when it happens and as it pushes to the right, obviously the volume goes up, but the timing is slower. But we still see it as a very strong profit and revenue generator.

Okay, okay. That will be all it from my end. And thank you very much for answering the questions.

Thank you.

Thank you.

(Operator Instructions) We'll take a question from David Campbell with Thompson, Davis, & Co.

Hey, John. What should be used for tax rate the last two quarters? Obviously it depends I guess somewhat on your profits, but assuming there are profits, what do we use? 18% like the first six months?

Exactly. On the [ATV-28] the effective tax rate for the year is anticipated at 18% at this point, David. So that would be a good rate to use.

Right. Right. Okay. And gentlemen, you talk about the book -- ship to book -- book to ship is up, is that primarily you're talking about Air Data? Air Data equipment, is that right?

No, it includes everything. I mean we're actually doing some book-and-ship even in the flat-panel marketplace. We're actually -- we're seeing a broader and broader demand for the flat panels.

And any news from Europe with regard to your contracts?

No, except that we aren't -- we're not bidding to Greece or Portugal right now.

I don't know as of [maybe you try to] sell more, they need more of your planes right here. Anyway --

I think every time -- David, every time we think we've stepped up the ladder and things have cleared out, we get another little surprise and maybe things like Greece and Portugal were a huge surprise to everybody. It certainly is a good news and it's difficult. So, every time we think we're on a strong recovery, I think we get shaken back to reality and that's why, Michael, if you're still there, I'd love to be more direct and more accurate in my answer, but the uncertainty leads me to just be prudent and be a little bit more conservative.

Let me ask you this. How about April? I mean April is almost done. Does April look like one-third of the first quarter or is it better than one-third of the March quarter?

We can't. I mean look, we haven't even closed a month. So --

Yes.

I mean we wouldn't give you that -- we wouldn't feel comfortable in giving you those kind of numbers. But we can tell you that we're looking strongly to grow in the second half, not go down. So --

Right.

That I can reassure you there, but we're not going to measure the second half by whatever we do in the first month of this year. I will tell you one thing though, and we are investing in product development, at least the engineering department assures me that it's an investment, but we're definitely spending money in that area. And we are seeing some wonderful productivity out of it actually; I'm very, very pleased.

Right. And John, one last question on the SG&A, it was down in the quarter from last year and previous quarters, is that sustainable at that rate or was there some unusual credits in the March quarter?

It's sustainable, David. The only thing that may counterbalance it a little bit here is as we actively market and get out there and drive sales, I mean, there could be a show or an opportunity that way that we may engage in.

You may see some blip, but not huge.

Nothing significant. We're trying our best to counterbalance that and look at SG&A very hard so that if we need to put money into business development, we find it somewhere else.

Okay. Thank you very much.

Thank you, David, appreciate it. I thank you very much for listening today. Call us if there are any other questions you need [outdoor] for today. Thanks again for calling in. Bye-bye.

Thank you. That does conclude today's conference call. We do thank you all for your participation.