JBT Marel Corp (JBTM) 2009 Q3 法說會逐字稿

Good morning.

My name is Kerry, and I will be your conference operator today.

At this time, I would like to welcome everyone to the JBT 2009 third quarter earnings conference call.

(Operator Instructions).

I would now like to turn the conference over to Ms.

Cindy Shiao, Director of Investor Relations.

Thank you.

Ms.

Shiao, you may begin your conference.

Thank you, Kerry.

Good morning, and thank you for joining us to review JBT Corporation's third quarter 2009 financial results.

With me on the call are Charlie Cannon, Chairman and CEO, and Ron Mambu, Vice President and CFO.

During our call, any comments or references to 2008 earnings per share are to pro forma earnings per share, reflecting our spin-off from FMC Technologies effective July 31, 2008.

Reconciliations to GAAP earnings per share may be found in the attachments of the earnings release issued yesterday.

Before we begin, I want to remind everyone that this call may contain certain forward-looking statements that are subject to the Safe Harbor language in yesterday's press release and 8-K filing.

Both documents are available on our Investor Relations website.

I also refer you to our disclosures regarding risk factors in our Annual Report on Form 10-K filed with Securities & Exchange Commission.

Now I will turn the call over to Charlie.

Thanks, Cindy.

Good morning, everyone.

I'll begin with a brief discussion of our third quarter performance, followed by a market update for our two segments, and wrap up with our expectations for the fourth quarter 2009.

Ron will then cover the financials in more detail.

We are pleased with our third quarter.

As expected, our results reflected the normal seasonality of JBT FoodTech and continued weak demand in our AeroTech ground support product line, resulting in a 23% year-over-year revenue decline.

Despite the continued challenging environment, our team delivered another solid performance, demonstrating our ability to manage costs down to match the demand we see.

Gross profit margin expanded year over year and was up sequentially.

Diluted earnings per share from continuing ops of $0.29 were flat compared to the pro forma diluted earnings per share in third quarter last year.

While we're not seeing green shoots everywhere, many of our markets have stabilized, and we are seeing some of those markets beginning to improve.

We believe the rate of decline for AeroTech's ground support and automated guided vehicle product lines is leveling off.

Nonetheless, we implemented some further staff reductions to respond to the continued lower inbound levels.

Turning to another important driver of our business, our traditional aftermarket revenue remains solid.

While it was down slightly on a constant currency basis for the third quarter compared to last year, the decline was principally driven by the weakness in AeroTech.

Overall, aftermarket margins are holding.

Now let me provide some market commentary on each of our segments.

First, FoodTech.

As I mentioned earlier, many of our markets appear to have stabilized.

Activity in Western Europe for our freezing and protein processing product lines is improving.

Although it's still below our historical average, we are seeing an uptick in activity in the UK, France and Spain.

Demand in Eastern Europe and Middle East continues to be strong.

Asia-Pacific remains a bright spot, as we have received a number of orders, and activity levels remain high.

In Latin America, however, activity remains at a low level.

Several of our large customers are involved in major M&A activity, and, as a result, capital decisions are being postponed.

For our smaller food processing customers in this region, access to financing continues to delay projects.

We do not expect the Latin American market to recover until second half of 2010.

Turning to North America, the weak economic conditions at home are impacting our JBT FoodTech product lines differently.

As consumers trade down for less expensive food items and prepare more home-cooked meals, demand for our in-container sterilization product line is projected to be in line with last year's level.

However, the impact on our freezing and protein processing product lines has been more significant.

Although market conditions have generally improved and poultry processors are reporting higher earnings, our customers remain cautious with their capital spending.

The lack of larger plant expansion projects translates into smaller size orders and lower inbound volume.

We expect this trend to continue into the first half of 2010.

Our FoodTech year-to-date aftermarket revenue was flat in constant currencies versus 2008, and we expect this to continue for the fourth quarter.

Moving over to JBT AeroTech, as we've communicated in the last few calls, ground support equipment has been the most severely affected by the global economic downturn.

Demand continues to be very soft, but the good news is that we believe we are at or near the bottom.

Third quarter inbound improved slightly from second quarter, the first sequential increase since the onset of the financial crisis.

However, orders, again, are smaller and taking longer to finalize.

Although many of our airline and air freight customers reported better than expected results in the last few weeks, the recovery of the global economy remains fragile, and our customers' financial conditions continue to be challenging.

We expect this market to recover at a much slower rate compared to our past experience in previous recessions.

Staffing levels for our ground support product line are now 43% lower than the beginning of 2008.

Activity for our US automated guided vehicle product line has also been impacted negatively by the general industrial downturn.

Staffing levels for this product line are now 21% lower than the beginning of 2008.

Turning to gate equipment, order activity for our passenger boarding bridges remains healthy, as airport authorities are continuing to invest in airport infrastructure.

In fact, we recently announced a contract award by the general contractor of the San Francisco International Airport.

We have a number of active bids outstanding and expect the full year activity to be better than that of 2008.

As for airport services, we were awarded additional outsourcing contracts at two major US airports and are pursuing a number of other opportunities.

To summarize for AeroTech, we expect demand for ground support equipment and automated guided vehicles in the fourth quarter to recover slightly but to still remain significantly lower compared to historical levels.

As for the rest of AeroTech's product lines, we are anticipating volume to be flat to slightly up relative to 2008.

For this year, with our solid year-to-date performance and improving market activity in Europe, we have narrowed our full year EPS guidance range to $1.07 to $1.15 per share.

Looking forward, we expect the recovery period to be extended and fairly modest.

In this slower growth environment, we are committed to managing costs aggressively and focusing on generating positive cash flow.

That being said, the challenging market conditions also provide investment opportunities, and we are continuing to assess acquisitions that would augment our product offerings and our global presence.

These efforts should position us for sustained growth as the global market recovers.

Now I'll turn it over to Ron Mambu.

Thanks, Charlie.

I'd like to add financial comments regarding our third quarter performance, and then I'll open the call for questions.

The global recession continued to impact our third quarter results.

Revenue of $196 million declined 23% from the third quarter of 2008, and segment operating profit of $15.9 million declined 35%.

Gross profit margin expanded versus the prior year quarter due to favorable product mix -- that is, a larger proportion of aftermarket sales -- cost reductions, and our largely variable manufacturing cost structure, and, finally, foreign exchange gains.

The declining US dollar resulted in mark-to-market gains of $4 million related to foreign exchange-denominated sales contracts.

I'll provide more detail on foreign exchange as part of my comments on corporate items.

Diluted earnings per share for the quarter of $0.29 matched the level achieved last year.

Additionally, we produced another strong cash flow result for the quarter.

We generated $5 million from operating activities after making a $12 million contribution to our US pension plans.

Our net debt of $133 million was unchanged from the second quarter of 2009.

Turning to segment performance, first, FoodTech revenue of $114 million for the quarter was down 20%, or $29 million, versus the third quarter of 2008, primarily due to continued softness in Western Europe and Latin America for our freezing and protein processing product lines.

Partially offsetting were higher sales in North America, reflecting shipment of a large order received last year.

FoodTech operating profit was $10.4 million, and operating profit as a percent of sales was 9%, essentially even with the prior year level.

Inbound orders for the quarter were behind the prior year level by 6%.

This unfavorable comparison is primarily driven by three large projects received in the prior year quarter.

As Charlie mentioned, the order sizes have become smaller, and the absence of large plant expansion projects has resulted in an unfavorable comparison versus 2008.

However, inbound orders improved 14% sequentially, with increased orders in Europe, the Middle East and Asia-Pacific.

FoodTech backlog was 6% lower compared to the third quarter of 2008, but up 13% sequentially, reflecting our normal seasonal pattern.

In our AeroTech segment, revenue declined 32%, or $37 million, reflecting continued soft demand for ground support equipment and lower shipments of gate equipment.

AeroTech operating profit was down 52%, primarily from the steep volume decline experienced in AeroTech's ground support equipment product line.

Lower expenses from cost reduction initiatives, improved profitability in our gate equipment and higher earnings from our military product lines helped offset some of the decline.

AeroTech inbound orders were down $26 million versus the prior year quarter.

However, inbound improved 6% sequentially, reflecting increased activity in ground support equipment and automated guided vehicle product lines.

Now to the corporate items, our effective tax rate for the year-to-date period was 33.9%, down slightly from the June year-to-date rate and in line with our prior guidance of an underlying rate of 34% to 35%.

Total corporate expenses, excluding interest, were favorable compared to the prior year period due to favorable foreign exchange.

As we've communicated previously, our policy is to hedge all foreign exchange transactions over $200,000.

We have elected not to use hedge accounting for our foreign currency derivatives except for some minor legacy positions still outstanding from the spinoff.

Therefore, we recognize all mark-to-market gains or losses on our foreign exchange derivatives in current earnings.

As we are economically hedged, functional currency amounts are assured.

In the third quarter of 2008 we incurred foreign exchange losses associated with the spinoff from FMC Technologies, our former parent, and a mark-to-market loss, primarily related to JBT FoodTech operations.

Due to the recent weakening of the US dollar during the third quarter, we recorded $4 million in mark-to-market gains, again primarily related to JBT FoodTech operations.

We have consistently recorded these movements as corporate items so as to report our segment results on a spot exchange basis.

For the fourth quarter of 2009, we expect corporate staff to be in line with our year-to-date run rate and for other income and deductions to be an expense of approximately $2.5 million to $3 million.

This does not assume any significant foreign exchange movement.

Year-to-date capital spending and depreciation and amortization were $14.5 million and $16.5 million, respectively.

Annualizing our year-to-date capital expenditures and D&A is probably a good estimate of the expected level for the full year.

Finally, year-to-date cash flow from operating activities totaled $33 million after $15.4 million in contributions to US pension plans.

Net debt was $133 million, a decrease of $9 million from the December 2008 year-end level.

I'm anticipating that we will make some further net debt reductions by year end.

We believe we have more than adequate liquidity, with $13 million in cash on hand and about $126 million in available and undrawn credit lines.

As you can tell from my preceding comments, we believe we will generate sufficient free cash flow this year to meet all of our anticipated operating needs.

In September, we announced a freeze of our US defined benefit plans for non-union employees as of December 31, 2009.

We've estimated an aftertax net expense reduction of $2 million for 2010.

While it's difficult to predict future cash funding requirements, this action bodes well for the long term and for a fully funded plan.

Finally, we plan to file our 10-Q later this week, so there'll be more detailed information readily available for your review.

In summary, we are pleased with our third quarter performance.

We are encouraged with the increased order activity, as inbound for both segments increased sequentially.

We continue to produce positive cash flow from operations, and we've narrowed the full year EPS guidance to $1.07 to $1.15 per share.

With that, we'd like to take your questions, so, operator, please open the call for questions.

(Operator instructions).

And your first question comes from Jason Ursaner, with CJS Securities.

Good morning.

My first question, on FoodTech you had mentioned smaller orders, kind of larger quantities but smaller orders.

I know on the Q2 conference call you talked about a few larger orders that you expected to ship in Q4.

Do you still expect those to go out, and how would we think about margins for the quarter on larger orders, if they did ship?

Yes, Jason, Charlie, good morning.

Yes, you're right, I did say that, and you're also right, we will ship in the fourth quarter.

In fact, two of those three big orders were the ones Ron mentioned we got in the third quarter of last year.

So they will ship, and there probably will be a slight -- as you know, new equipment carries a little bit lower margin than our aftermarket, so that mix will go the other way on margin as a percent.

And the only thing I'd add to that, Jason, is you can see that in our inventory position as of the end of September, as well.

So that includes some preparations for our fourth quarter shipments.

Okay.

And then boarding bridges, you had talked about a lot of active bids outstanding.

Can you talk a little bit about the price environment?

I know that the announcement for the San Francisco airport, the price seemed to be about 22% lower dollar per bridge than the Hawaii announcement in Q2.

So can you talk a little bit about the mix?

Is it a mix issue, or is it just a tough pricing environment?

Yes, it's really hard to look at a total contract award and divide it by number of bridges and come up with a price for a bridge, because each contract is so specific to the airport.

So Airport A may have a major installation component, Airport B maybe the general contractor's doing that piece, Airport C maybe there's 10 preconditioned [air units] thrown in.

So it's really difficult to parse that.

I would say in terms of pricing environment, it's a very competitive business, but I don't sense that it's any more competitive today than it was two years ago.

Okay.

Great.

And for Q4, I think the -- you back out the range, it's kind of a $0.29 to $0.37 range.

What type of assumptions for GSE are embedded within this?

Well, I think you're exactly right, we made the bottom of the range so that the fourth quarter would be equal to the third.

Obviously, our normal seasonal pattern in FoodTech would imply that we would do better in the fourth quarter than third.

And you're also right that the thing we're watching very, very closely is AeroTech.

I've told you many times over the last year that we have three to four months visibility in some of the AeroTech product lines.

Well, given the current situation with ground support equipment's backlogs, let me put it this way, if you call me after the call and order a deicer, I'll ship it next week to you.

So our lead times are obviously much closer.

There's a lot of activity we're chasing even as we speak.

And so some of that swing will either pop November, December or not, and that provides some of that range.

So AeroTech is the swing factor.

Okay, great.

Thanks a lot.

I'll jump back in the queue.

Your next question comes from Gary Farber, with C.L.

King.

Yes, good morning.

Good morning, Gary.

Just two questions, one on acquisitions.

Can you discuss what you're seeing from people who are interested in possibly selling their properties?

Are multiples coming down?

And are there any particular areas you're interested in?

And then, just lastly, back on your cost takeout program, is that largely complete, or there's still room to take out costs, do you think?

First, on the acquisitions, I don't know whether you can generalize from my anecdotal comments, but when you read in the papers today, other than Warren Buffett's big deal, I mean, there's not a lot of deals going down.

And I think part of that is sellers are hesitant right now in this environment to lower price to a price we're willing to pay.

So I would say there's a teeny bit of frustration on Ron and my part that we wish we had done more bolt-ons than we've done, and some of that has been due to price expectations in sellers.

So, I mean, some of the -- what you're really looking for in this environment to do a transaction is somebody that needs liquidity, which we have, and we need to find good bolt-ons that we can get at a reasonable price.

As far as cost reductions, we've largely bragged over the last year about how our costs are variable and how we can match costs to demand.

I mean, clearly, we've taken a significant amount of costs out.

There's probably going to be some more cost-cutting going forward, but we don't have any major programs that we're looking at right now.

Okay, thanks.

Your next question comes from Rob Wertheimer, with Morgan Stanley.

Hey, good morning, everybody.

Good morning, Rob.

Two questions to start with, one, obviously your gross margins have been very strong and very good all year.

Can you split that into the aftermarket versus new effect, or maybe just give us the aftermarket mix versus new mix this year and last, just to have a sense of how much of what you're done is structural and how much is cyclical?

Cindy is going through the notes so I don't give you a wrong number here on mix.

But real quickly I will say that there's -- the two effects you've hit are the two big effects.

One, we have done significant cost cutting, both cost avoidance versus plan and real cost cutting.

And also the mix of aftermarket.

And I guess here's the number.

Aftermarket, and now I'm not talking recurring revenue like I do sometimes on that slide, this is just the traditional aftermarket in 2008 was 22% of total revenue.

Year to date through the third quarter it's 27%.

So you can see that's an impactful mix shift.

Okay.

And then how much, if any, has been just declining materials, it's bounced around but have come off?

Let me just add one more thing to that last question, because Cindy just handed me the recurring revenue.

You recall recurring revenue is not just the aftermarket but also my leases and our airport services business, which are multiyear contracts.

Recurring revenue in 2008 was 36% of our revenue.

Year to date through '09 it's 46% of our total company revenue.

So that's a pretty --

(Inaudible) point shift.

-- yes, it's a pretty impactful positive for margin percentages.

And I missed your last question, Rob.

Sure, just, it was just a question on steel and materials, whether that's been a significant contributor to the margin on the gross margin line or it's really just the first two factors of mix and --.

It's mainly the first two factors.

Okay.

And a different sort of line of questioning, I mean, you guys have very strong competitive positions in a lot of markets.

Have you seen smaller competitors start to struggle?

Have you maybe, numerically, maybe or just gut feel, have you been winning more of the bidded contracts you've got out there, especially, I guess, on the FoodTech side?

Well, I mean, I guess you'd call this anecdotal, but you recall that we're the world's leading freezer manufacturer, and we have a host of competitors in every little country, one in country and one in a freezer type.

We just heard yesterday, and I haven't confirmed it yet, but we heard through our food solutions division that our German competitor declared bankruptcy this week, a company called Heinen.

And I'd better caution and say that's been reported.

I have not confirmed it outside yet.

Okay.

I mean, do you feel like you're winning more, a bigger percentage of the bids?

And you said pricing's been okay.

I don't -- yes, pricing's been okay -- I don't sense any major shifts in share.

We typically, as I said before, we lose the orders to the real price, super price-sensitive people, but the people that value what we offer, we're hanging in there with our shares.

Great.

Thanks.

Your next question comes from Liam Burke, with Janney Montgomery.

Good morning, Ron.

Good morning, Liam.

Hi, Liam.

Charlie, I know you've got limited visibility when you're talking about the product side, but in AeroTech you've been announcing some nice contracts on the outsourcing services side.

How's the visibility and how's the pipeline in that particular line of business?

I guess our difficulty projecting there is, as you know, it's a brand new market driven by this outsourcing trend by airport authorities and airlines, and so sometimes it feels like two steps forward and then a little pause.

And so as people tentatively outsource for the first time it's hard to predict how much goes.

We have had a couple of major US airlines ask us for proposals to quote a significant amount of activity, and you never know how much of that's real and how much of that's due to their own internal union negotiations, etc.

So I would say we continue to be happy with our growth in this marketplace.

We think this trend is in place and will be for the next several years.

Whether it's a straight-line growth or whether it's a little lumpy it's hard for me to predict.

Sure.

And I know it was touched on before, but Ron mentioned that there was some pickup in ground vehicle orders, with sequential improvement.

I know year over year it's been fairly low.

Is there any signs of life there, or is it just basically bumping along the bottom?

Well, I mean, it was a very encouraging sign for this quarter to me that as we would expect our inbound to pick up in FoodTech seasonally it did, 14% sequentially from the second quarter, and it was really encouraging to see ground support equipment, although not up gigantically, it was the first sequential increase in inbound orders we've had since over a year ago.

So now the question is, which is what you just asked, are we going to bounce along the bottom right here?

I mean, the good news is we can't go much lower.

Or do we start picking up a little bit?

I think the thing we're missing in ground support equipment, typically the year -- I say typically in a non-recession environment, we called -- we had a big European order in '07 that we shipped in '08, and then there's big freight shipment orders, and we normally have a couple of big projects in ground support equipment, not projects, but like multiple equipment orders, like big orders, and we don't have that right now, and there's just a lot of individual customer activity that we're chasing, and this onesie, twosie everywhere.

We think all our competitors are seeing that, as well.

Great.

Thanks, Charlie.

Thanks, Liam.

Your next question comes from Dick Ryan, with Dougherty.

Good morning.

Say, Ron, I missed what you were talking about.

You had a $2.5 million to $3 million item for Q4, and I thought that was related to staffing, but I needed to get you to clarify that.

I wasn't sure what you were --

Yes, so what we were saying for Q4 is if you look at our corporate items, we show them as corporate expenses, which are staff expenses.

And I was saying there that I think the fourth quarter will run -- will be kind of at our run rate.

But what I was really trying to do was to give you some guidance on the other income deductions line, because that has moved around.

And for the fourth quarter we think that'll be an expense position of around $2.5 million to $3 million.

Okay, great.

Say, Charlie, you mentioned the M&A activity in Latin America, the two large food companies, when that gets -- when the dust settles on that, is that more of an influence of what can happen or when your business can pick up in Latin America, or is it general economic issues down there?

Well, I think I hinted it's both.

The economic is hitting some of the smaller customers.

I mean, if history is any guide, we've seen a lot of consolidation in the food sector over the last 10 years, and the way it normally works is both these companies are a good customer, but if two of our customers merge, typically what we see is it goes quiet for a year, year and a half, as the management teams try to figure out their integration plan and which plants they're going to run and how they want to sort of organize their new footprint.

So we typically hit a stall when it happens in terms of customer orders.

What happens normally after a year to two years, we then all of a sudden are sitting in the conference room trying to figure out their three-year plan to rationalize, shut down, expand new products, and so it can lead to good business years following that -- their planning.

That's typical.

I'm not -- there's no guarantee that will happen here, but that's what we've seen with other customer mergers.

Okay.

How much is Latin America as part of the overall FoodTech side?

It's minimal this year, I would say less than 10%.

Yes, probably about 5%.

I think we say in a good year it can be maybe 15%.

Great.

Thank you.

You have a follow-up question from Jason Ursaner, with CJS Securities.

Hi.

Charlie, I was just wondering if you could maybe talk a little bit about the change over time from a heavy fixed cost structure with heavy machine tooling to a more -- the current variable structure and what percentage of COGS is now variable and how levered the business would be to an eventual recovery.

Well, I've been associated with FoodTech now over 20 years, but in the old, old days, I mean, going back to the '80s, we had big machine shops and NC programming and five-axis machine centers and big manufacturing (inaudible) departments, etc.

That, as the world changed and people started outsourcing more, there was a general trend that we were starting to outsource more parts and not making as many detail parts.

And the only thing that slowed that down was where we had key intellectual property, where we have still have some machine tools, for example, where we -- in Brazil, where we actually machine some key extractor components that we do not want to get outside the walls for intellectual property reasons.

I think the big breakthrough for us was the acquisition of Frigoscandia in '96, and there they had an almost 100% outsource model, where they actually had some products that were being totally even assembled.

So when we saw their model and how wonderful it was on both capital and working capital and flexibility, we kind of -- we moved more and more that way.

We pulled them back a little bit.

We think keeping assembly in-house is critical, because you lose know-how over time if you totally outsource.

So our preferred model is to outsource piece parts, fabrication, subassemblies, so engineer, assembly and test.

Now, we're not perfect on that model in every location for the reasons I've said earlier.

We've got a couple of little machine shops where we have key intellectual property to protect, and in a couple of cases we still do outsource the total assembly.

But that's, in general, that's our preferred model.

I forget the second question you asked me.

Yes, he was asking about the percentage of costs, and it varies by product line, but it can be 75% to 85% of costs of goods sold are variable costs, materials and direct labor.

The only costs (inaudible) out, and that's the number we've been saying over the last year, given the amount of cost cutting we've done and given the lower level we're down, I don't know if we need to go back and look at that, but at some point, you know, Ron and I are still here, we've been on the payroll all year, so we're clearly fixed.

But I think in general that's been the number we've used, 75% to 80%.

Okay.

And in some of your previous presentations you have a chart with a whole bunch of well-defined verticals and horizontals.

Are any of those more attractive opportunities to you right now than others, or is it just more about timing and evaluating what's available?

Yes, I mean, that's part of the marketing strategy work you've got to do.

Not all segments, horizontals or verticals, are attractive.

I mean, they can be unattractive if there's no competitive differentiation through technology or service or both.

And so that's part of the homework you do when you start to grow a vertical or you want to acquire a new horizontal.

I mean, just conceptually, if I was going to buy another horizontal, the thing I would be doing in my due diligence is what's the strength of their patent portfolio, what's the strength of their technical differentiation, etc.?

If you're buying a vertical, it's what's the strength of the key process steps that they -- in terms of their market share?

So not all verticals and horizontals are attractive places in the food industry where we'd like to go.

But are any of them more attractive currently?

Yes, I wouldn't care to comment on any individual one, because we're in the middle of doing strategy work and looking at acquisitions, but, yes, currently some are more attractive than others.

But we would do an acquisition based on long term, not on short term outlooks.

Okay.

Thanks a lot.

You have a follow-up question from Rob Wertheimer, with Morgan Stanley.

Hi, again.

Just wanted to ask real quickly, Charlie, what is your sort of personal focus for the next 12 months?

Is it, I mean, is it acquisitions where you see the biggest opportunity for the time you spend?

Is it cost cutting, process improvement?

What are you really focused on?

Well, I think in August, at our August board meeting, we kicked off with the board kind of a sort of a total strategy review for the Company, so we've begun that dialog with the board, and I think I see that playing out over the next 12 months as one of my top priorities.

We just had a strategy meeting yesterday with our business units kicking off process teams, etc., looking for our best growth avenues, both -- not just acquisitions of product offerings, but also our global presence around the world, where we need to strengthen it, so the whole gamut of internal development, acquisition and regional development.

So that activity at a high level will be probably my top priority over the next 12 months.

Having said that, and I don't know, I don't want to mislead with my tone here, because we are very happy with our third quarter, I think.

We held up profits despite declining sales.

We had inbound that was higher sequentially.

We had great cash flow.

And, really importantly, our aftermarket continues to hold up.

So we were very pleased with the quarter.

Having said that positive stuff, I still thing it's dicey times right now, so while we're doing our strategy work we're probably going to stay a little conservative in terms of watching our costs and watching these markets.

It's -- Ron and I have been through a bunch of recessions, but I think globally this is kind of the weirdest economic situation I've ever -- we've ever lived through, and I think prudency would require to be a little cautious going forward.

Have you seen any or many bankruptcies in your supplier chain?

You mentioned maybe one competitor.

Has that been a major concern or focus for you?

No.

We've got enough supply chain flexibility that we're not too worried about that.

We do have a couple of sourcing things where we have key components that we monitor kind of closely to make sure if we had a supply interruption we wouldn't have a problem, but pretty much we're in control of those ourselves.

So as far as the external supply chain, I don't feel much risk there.

Do you, Ron?

No, I agree.

I think some of the key elements we're still manufacturing ourselves.

Perfect.

Thanks again.

(Operator instructions).

At this time there are no further questions.

This concludes our third quarter conference call.

A replay of our call will be available via phone or our website early this afternoon.

If you have any further questions, please give me a call.

Thank you again for joining us today.

This concludes today's conference.

You may now disconnect.