Methode Electronics Inc (MEI) 2008 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Methode Electronics first quarter 2008 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded. This press release contains certain forward-looking statements which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under securities laws. The Company undertakes no duty to update any forward-looking statement to conform to the statement to actual results or changes in the Company's expectations on a quarterly basis or otherwise.

The forward-looking statements in this press release involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in the Company's filings with the Securities and Exchange Commission, such as our annually and quarterly reports. Such factors may include, without limitation the following: Dependence on the automotive industry; dependence on a small number of large customers within the automotive industry; intense pricing pressures in the automotive industry; increases in raw material prices; the successful integration of acquired businesses; dependence on appliance, computer and communication industries; the marketability of our intellectual property; the seasonal and cyclical nature of some of our businesses; and customary risks relating to conducting global operations.

It is now my pleasure to introduce your host, Mr. Don Duda, President and Chief Executive Officer. Thank you, Mr. Duda, you may now begin.

Thank you, Tanya. Good morning, everyone. Thank you for joining us today for our fiscal 2008 first quarter financial results conference call. Today I'm joined by Doug Koman, Chief Financial Officer, [Ron Zumis], Methode's controller and Joey Iske, director of investor relations. Both Doug and I have comments today and afterwards we will be please to do take your questions.

Methode completed the first quarter of our 2008 fiscal year with net sales of $125 million and net income of $8.3 million or $0.22 per share. For the first quarter sales improved due to the addition of our TouchSensor business unit, which we acquired in March of this year. Europe and China automotive operations also increased sales but were partially offset by decreased sales from U.S. automotive operations. Automotive sales in China increased compared to last year's first quarter, mainly due to higher production volume from General Motors and Mitsubishi.

Methode launched product for several new automotive programs in the first quarter. Products included steering wheel switches, steering angle sensors, ignition lock housing and clock springs across several models. We also increased switch content on two Mazda platforms. One is sold in Asia and the U.S., while the other is intended for the Asian and European markets.

In Europe, a VW program that commenced last year is also increasing sales as the program ramps up production. We launched a program for Maserati on the new M145 Quattroporte. While volume is not large on this vehicle, Maserati is a new OEM to Methode, and we look forward to potential new programs with this premium auto maker.

Additionally, our domestic automotive operation is launching a steering torque sensor, featuring our magnalastic technology on a new three-wheel motorcycle, which is quite unique in that the cycle has two front wheels. MDI developed this product to enable tight control of the steering mechanism on this unique motorcycle. Per our business model, once mass production is required for MDI product the launch and volume manufacturing takes place in one of our automotive production facilities. For an interesting view and more information on how this unique technology can be integrated on a motor vehicle, visit the web at opentheroad.com.

New Automotive program wins during the first quarter, spanning our three global markets. In North America, Methode will have several products on the new Ford Taurus in 2010 and an integrated center stack on the GM Hummer H2 launching in 2011. Europe's new program wins include ergo and hidden switches for Fiat Alpha and a steering wheel switch for General Motors Brazil. Program wins in China feature switches for Chery, [Lujau Auto] and Southeast Motors. These wins in China are key as they serve to expand our customer base, providing further penetration into the evolving Chinese automotive market.

Turning to Methode's Interconnect segment, our TouchSensor business concluded its first full quarter request Methode, thus establishing a significant increase in the sales base for this segment. As mentioned before, TouchSensor is progressing through several new product launches during this year with anticipated ramp-up over the next two years. In addition, our North American Automotive businesses have been working closely with TouchSensor to implement Lean manufacturing practices. Personnel from both AST and AEC have been assigned to assist TouchSensor with their Lean activities. We expect TouchSensor to gain manufacturing efficiencies in the months and years ahead, as they obtain valuable lean manufacturing skills from our Automotives team's significant experience in this area.

During the first quarter, TouchSensor was also successful in winning new business including fluid-level sensors and user-interface panels, not only with current customers in the appliance market but with new OEMs in new markets such as point of sale. The point-of-sale application is for a vending machine user interface panel which will not only be very robust but innovative in its styling.

Our ExpressCards and CableCARDs are ramping up production in China. We are beginning to notice an up-tick for ExpressCard quotes as demand increases for this new standard for laptops. As anticipated, PC Card programs are slowing as ExpressCard projects replace the legacy product. Our dual adapter cradle is expected to bridge the transition to the new ExpressCard standard allowing their use with existing laptops. In addition, we have won our first new business in Asia with a large Chinese OEM to produce ExpressCard cases and adapter cradles.

We have made good progress with our business plan for our Power Distribution segment. Much of our higher volume busbar production for mid-range servers and routers has now been transferred to China. As anticipated, the sales and profit increase in China during the first quarter was partially offset by lower sales in the U.S. The product transition to China will free up time and resources to enable our U.S. team to assist in the development of new business in Europe, as well as pursue additional domestic wins.

In fact, new busbar business for rail applications and large motor drives has been won by our European sales team in collaboration with our U.S. design team. These new busbars will be manufactured in China for the European market. In addition, our U.S. operations are focused on several military and aerospace programs, which are anticipated to commence production in 2008 and 2009. We're very pleased that our Power Distribution segment is truly becoming a global business.

To further our expansion in power distribution, Methode acquired Value Engineered Products, or VEP, on August 31st. VEP is a thermal management solutions expert, manufacturing heat syncs and related products for high-powered applications. These components complement Methode's power distribution product offering. VEP is an exciting step for our Company, providing Methode Electronics the ability to broaden our presence in areas such as the transportation and industrial markets, while providing meaningful expansion opportunities in Europe and Asia.

I would like to take this opportunity to welcome the employees and managers of VEP to the Methode family of companies.

Looking forward, we are maintaining our previously-announced fiscal year guidance for sales between $455 million and $475 million and earnings per share of between $0.65 and $0.75.

At this point I'll turn the call over to Doug for his financial review.

Thanks, Don. Let me review the sales and gross margin activity for our reportable segments. The Automotive segment had first quarter net sales of $82.9 million compared to $74.1 million last year, an 11.8% increase in automotive sales. In the quarter we had increased sales from operations in Europe and China that exceeded the decrease that we saw from North American operations. The weaker U.S. dollar also contributed about $1.4 million or 1.9% to the sales improvement. Gross margins for the Automotive segment were $16.4 million compared to $11.4 million last year. This is primarily the result of shifting U.S. production to lower cost regions in Europe, Mexico and Asia. Additionally, we have not pursued our traditional lower-margin legacy business produced in the U.S.

The Interconnect segment had net sales of $31.4 million in the first quarter, which is up from $17.8 million. That's a 76% increase from last year. The increase is primarily attributable to sales from TouchSensor, which was acquired on March 1st of this year. Currency translation increased net sales by a couple hundred thousand in the quarter, not material for this segment.

Gross margins in the Interconnect segment were $7.6 million compared to $5.5 million last year. This is primarily the result of the TouchSensor acquisition. As a percentage of sales, gross margins decreased, since the TouchSensor business currently has a higher cost-of-products sold than the other businesses in the segment. We also, in this segment, saw lower sales from our data installation business and higher costs related to the rollout of the PC Card Adapter product during the first quarter.

The Power Distribution segment sales were down in the quarter, with sales of $9.1 million this year compared to $10 million last year. The decrease relates to certain projects for a customer that reached end of life in the quarter. Gross margins, however, increased to $2.6 million in the quarter from $2.4 million, as we have shifted production to China from the U.S. The other segment had first quarter sales of $1.7 million in the quarter, which is the same as last year's quarter. Gross margins decreased slightly to $200,000 this year compared to $400,000 last year. This is primarily the result of continued development initiatives in our torque sensing business.

If you turn to the financial highlights in the earnings release I will walk you down the rest of the income statement. Selling and administrative expense in the quarter was $16 million. This is up from $13.8 million last year. As a percentage of sales, however, this was down at 12.8% compared to 13.3% last year. As disclosed in the earnings release this is the result of overall higher sales and efficiencies gained from the transfer of manufacturing from Scotland to Malta. Interest income net was about $400,000 for the quarter compared to $800,000 last year. This is primarily the result of lower average cash balances compared to last year and that we were more heavily invested in tax-free vehicles this quarter than compared to last year's quarter.

The change in other net, which was about $100,000 negative swing in the quarter, is primarily the impact of currency fluctuations on our foreign operations, again mainly sales in U.S. dollars in Euros that trade exchange rates sensitivities. The effective tax rate in the quarter was 25.3% compared to 37.3% last year. Last year's first quarter tax rate was high, primarily due to the establishment of valuation a allowance for potentially non-deductible stock-based compensation. Both years, however, do reflect utilization of investment tax credits and the effect of lower tax rates at the Company's foreign operations.

Looking at the balance sheet, cash is up to $72.3 million compared to $60.1 million at the end of last fiscal year. A comment on cash in more detail when I get to the cash flow statement. Accounts receivable balance is $71.9 million, down from $79.2 million at fiscal year end. This is primarily the result of decreased sales in the quarter in the Automotive and Power Distribution segments compared to coming off of last fourth quarter.

Inventory is $59.8 million. This is up from $54.5 million at year end. The increase is primarily due to the usual build up of inventory as we come off of a lower sales quarter into a higher sales quarter, as we have with Q1 looking forward into Q2. We also saw an increase in inventory at our Power Distribution operation in Shanghai. That business continues to ramp up, and our European operation built up inventories in advance of the expected summer vacation shutdowns.

Other current assets are $18.4 million, up from $15.7 million last year. This is primarily due to prepaid insurance for some recent renewals and advanced payments to suppliers for expansion projects in China and Malta.

Property, plant and equipment is at $87.3 million, up from $86.9 million. The increase primarily reflects our investment in paint and laser etch capabilities in our Automotive segment in Europe. Goodwill is at $52.2 million. This is up slightly from $51.5 million at year end. This primarily relates to networking capital payment on the TouchSensor acquisition and an earnout payment related to the Cableco acquisition. Intangible assets are $42.7 million, down slightly from $43.7 million at year end. This is due to normal amortization.

Other assets are $21.6 million, are up slightly from $20.2 million primarily due to balance sheet reclassification of tax accounts relating to the adoption of FIN 48 at the beginning of the quarter. Accounts payable are down at $38.1 million versus $41 million at year end. We would typically expect payables to be up as we come off of a lower sales quarter into a higher sales quarter as we have with Q1 to Q2. However, we ended up the quarter on a cash disbursement cycle, which reduced payables from the balance we saw at year end.

Other current liabilities are $34.9 million, and are up from $31.4 at the end of the year, primarily due to a customer prepayment for certain products to be delivered over the remainder of this fiscal year, and an increase in income taxes payable. These were offset by a decrease relating to balance sheet account reclassification due to the adoption of FIN 48.

Last item on the balance sheet, the other noncurrent liabilities at $21 million are up from $15.1 million at the end of the year. Again, this is primarily due to the FIN 48 balance sheet reclassification.

On the cash flow statement year-over-year cash provided by operating activities increased $4.3 million. This is primarily due to increase in net income, a customer prepayment, and working capital account changes. The increase in cash used in investing activities is primarily due to a higher capital spending this year compared to last year, a dividend payment on our joint venture, and in last year's first quarter we had made the last deferred payment related to the acquisition of our Passive Occupant Detection business. Lastly, the decrease in cash used in financing activities is primarily due to fewer stock options being exercised this quarter compared to last year.

Don, that concludes my remarks.

Thank you, Doug. I have a couple of additional comments before we take your questions. We have identified the date for our 2007 investor day. It will be held on Thursday, November 8th at our headquarters here in Chicago. Joey will be sending out invitations by mail in the next couple weeks and will follow up by e-mail. For those of you planning to attend the Baird Industrial Conference on November 6th and 7th, our event will be held the following day. We look forward to hosting our second investor day and showcasing Methode's broad capabilities in the breadth of industries served.

Tanya, we are ready to take questions.

Okay. Okay, thank you. (OPERATOR INSTRUCTIONS) Our first question is from Kevin Sarsany from Next Generation Research. Please state your question.

Hello, can you hear me.

Yes, we sure can. Good morning, Kevin.

Good morning. You gave the gross profitability. Is there any way you can give the segment EBIT?

Kevin, we don't have that information prepared in that level of detail, no.

Okay. So I guess is there any way that you can help me understand -- I mean, the gross profit went up, and I assume that profitability in Europe is going up and China going up as you fill the plant. What's the profitability like in North America? Is that declining faster than the sales numbers?

Profitability of Automotive in --?

North America. As you prune or -- as you prune does that help the profitability even though sales are going down? I'm just trying to get a feel for the direction of the profits in the different segments. Europe seems to be pretty strong. You're filling up your plant in China. If we could fill up the plants in North America, you're putting up some pretty good increase, just wondering as we go forward with the programs and the ramp-ups, just trying to figure out where this can go.

In North America you really have to look at the profitability by product line. For example, items like clock springs are still profitable, although they're at a much lower sales level because of the price decreases over -- literally over ten, 15 years. Occupant sensing is very good for us, but when you get into things like multi-function switches, which are attempting to exit over time, those are not profitable. Overall, I guess in the quarter North American operations -- I won't say they treaded water. They were better than -- they were certainly not as good as they were three years ago, but not in the red.

Okay. Was there any paid tooling in the quarter?

There was, Kevin. We didn't really highlight it this time because of the change in the way that we account for the tooling and its amortized over the life of the product. Those variances year over year are just not that significant any more.

Okay. And what was the friend in ASP? Is that flattish or is that declining at this point?

Slightly declining.

Okay. And I guess how much did TouchSensor contribute in the quarter?

We don't comment, Kevin, usually on specific businesses. So I guess that the way we discussed maybe answering that is that obviously for the Company as a whole we would have still had a very good quarter, I think, even without TST, but TouchSensor did obviously help the sales growth. If you look at the Interconnect segment, we did have -- I think I commented 76% increase year over year.

Okay. And new programs, what was the number of new programs and how does that compare to last year? I know that's tough to do because they come in different flavors, but --

I don't know, Kevin, I'd want to try to compare it to last year. The trend over last year is we're seeing more program wins than we've had and probably in the past two quarters. Some of it is just cyclical on how the automotive companies revamp their auto lines, so it was a good quarter in Europe, and China's new, but those wins probably in China we ought to say those are small. They're not huge as compared to Europe or the U.S.

Okay. And --

In general, I would say that the trend has increased.

Okay. And last couple questions, where do you think you're operating capacity utilization in China right now?

We will -- it will be necessary for us to -- we've actually leased additional space to expand the plant in China to accommodate the wins that we have, both from the Chinese auto makers, GM, and Mitsubishi if they're volume continues. But that's as per plan and we will have additional capacity in the new facility.

So when I look at your numbers, China is operating at what you would call average or sustainable operating profits?

That's a fair assumption.

Okay. And then you add capacity and then hopefully volumes fill that up and you get ramp up on profitability of that. CapEx, is it going to continue at this rate or are you done spending there?

We've got some programs we're evaluating, but I wouldn't look for anything extraordinary in CapEx spending over what we've done in the past.

Okay. And I don't know if you mentioned D&A and your tax rate going forward, and then I'm done. I appreciate it.

Last year we ended up with a tax rate that was, I think, just under 28%. We'll probably be somewhere between 25% and 28%, I think, if you just want to pick a number in between there.

Okay. And D&A in the quarter?

Depreciation and amortization was about $6.4 million.

Okay. All right, thank you. I will follow up this afternoon or later this morning.

Very good. Thank you.

(OPERATOR INSTRUCTIONS) Our next question is from David Leiker from Robert W. Baird. Please state your question.

This is Keith Schiker calling in for David.

Hello, Keith.

First as the consensus estimate, you guys were well above that. I was just wondering if you could comment on prior to the quarter your expectations for the quarter and how that differed from the actual results here. Is this a case where we came in ahead of expectations or your internal expectations for the quarter?

Auto was better than we expected, but again, we stopped the practice of giving quarterly guidance, and I don't know that I want to get back to that. We were obviously pleased with the quarter. Auto in the U.S. was not -- about as far as we had expected it, but the other areas were right where we wanted them to be. Going forward, again, it is very difficult to forecast what the U.S. auto makers are going to be doing. There is not a lot of good news coming out of Detroit.

That's the only question I had. Thank you.

All right.

Our next question is from [Girish Neir] from Thomas Weisel International. Please state your question.

Good morning, gentlemen, can you hear me?

Yes, we can.

Congratulations on a great quarter, gentlemen.

Thank you very much.

First question is can you give more detail on your acquisition as to what price you paid for it?

By agreement with the owner we didn't publish that information in the earnings release, but we will disclose that in our 10-Q, so I would rather not comment on that right now, but later today we will file our 10-Q and that information will be available.

Okay. That would include also the sales figure for the company that you acquired?

Yes, it would.

Well, in the press release we indicated that the trailing earnings were about $6.7 million.

Okay. That's the earnings?

The trailing earnings? No, we did not comment on the earnings.

No, all you said is that it will be EPS accretive if I am not wrong?

That's what we said, correct.

Oh, okay, okay, (inaudible) Sorry, sorry, I see that, it's $6.7 million. Sorry about that. Okay. And what percentage of your auto sales came from USA?

What was the question again?

What percentage of your automotive sales came from USA -- United States? I'm basically trying to understand how much was the percentage decline year over year or quarter on quarter for the automotive sales. How much of it is -- out of your total sales how much is U.S. auto contributing? And I mean sales in U.S.

Are you looking for the percentage of sales?

Percentage of total sales [if you want to].

Okay. Is that unconsolidated and that's just -- In the Automotive segment the U.S. sales -- sales from U.S. operations are about 50% -- 59%.

Okay.

And that's of the Automotive segment.

Okay. You're saying 59% of automotive sales?

I'm sorry?

59% of Automotive sales comes from the U.S., that's what you are saying?

From U.S. operations, North American operations. We do have some sales that originate in Europe and Asia that are sold into the U.S., but that's -- we don't have the geographic breakdown available at this time.

Right. Basically where I'm coming from is I'm try -- you've been stating that your growth in China and Europe has offset the growth in U.S., so -- the sales decline in U.S., so I was trying to understand how much percentage drop in U.S. was and how much percentage rise in Europe and China. The numbers, can you quantify them?

Let's see. If we look at last year's percentage -- yes, last year the -- that would have been about 68% compared to 59% this year. Again, of this segment.

Okay. And the other thing, the next question that I have is that you have had two strong -- two very strong quarters, and you have an EPS-accretive acquisition right now but still you haven't up -- I would have expected that you would upgrade the guidance, so what's holding you back?

That's a very good question. As we look at domestic automotive, primarily the sales to the big three and if you look at the news coming out of Detroit. August was -- I think one analyst at it as a dismal sales month for automotive. GM is slowing down and furloughing plants on the -- producing the 900 platform. Ford had -- I read something that said it was 12% to 14% decline year over year. Chrysler you have to put a big question mark next to.

If this was a normal automotive time period then we may have increased guidance, but with the uncertainty in Detroit -- and that's really the reason we stopped giving quarterly guidance is it's becoming very difficult to predict what used to be a very predictable business model out of Detroit.

So -- and we're one quarter into the year, one quarter was a good quarter and certainly we've had two good quarters and many of the actions we've taken over the past couple years are starting to bear fruit. But the big unknown is auto, and that's really the reason we've not changed guidance and we'll take another look at it at the end of the second quarter, but we really want to see what auto does -- domestic auto does as we progress through really the end of this calendar year and into January.

(OPERATOR INSTRUCTIONS) Our next question is from [Patrick Kurtz] from Perimeter Capital Management. Please state your question.

Good morning, gentlemen. I was wondering if you could comment a little bit on the linearity in the quarter? I know that the domestic auto data was really weak in July, particularly from the June and even the earlier month. Can you -- how were your sales linearity in the Auto segment in the U.S.?

(inaudible) How do they track with the reported sales of the -- of Detroit, is that what you're saying, Patrick?

Exactly, in terms of just the order flow? Did it really tail off very strongly in July?

Not necessarily, but historically that's not -- they don't track one or one. You've really have to look at inventory, and now inventories are high, and they have been high, but they've reached some significant numbers. So we turn the track and provide our forecast based on the releases we have from the auto makers and a little bit of history with the platforms, and then look at inventory. And to us inventory's a good measure of what kind of quarter we're going to have. If inventory's high, you know, at some point your releases will slow down.

Yes, great. And that was basically the next question that I had is did you have a read on the inventories at your OEMs. And is that based on their finished goods or is this based on your read of their component -- your component inventories at your OEMs?

Actually both, and then you have -- our planners have discussions with the automotive planners and if we're the tier 1 but also the -- if we're a tier 2 we can -- the planners discuss what they're seeing coming down the pike.

And then can you comment a little bit on the inventory situation in your European OEMs and over in China?

Again, the -- typically we see inventories building up, Patrick, as we move from -- into -- out of Q1 into Q2 that's typically what we see every year, but specifically we saw an increase in Asia, primarily in our Power Distribution where that business is wrapping up -- ramping up rather nicely for us, so there's quite a bit of product in the pipeline. I think a significant portion of that is probably work in process. And then in Europe, just at the end of July there's a typical increase in inventories because of the significant amount of vacation time that's usually taken then around that time into July and August, so we're always watching inventory. We have a feeling it's higher than it should be, but the -- as a trend this is not unusual for us.

And one of the down sides of manufacturing in China is you do have a longer supply time and that does increase inventories.

Yes.

Right. And then moving on to the Interconnect segment and a lot of the technology, hardware supply chain guys from the EMS guys to the distributors are seeing a pickup in demand. Have you seen an acceleration or a channel fill in your TouchSensor products?

In TouchSensor they're not dealing with the -- the word I'm looking for, not the manufacturers, but the [contract to manufacturers], they're for the most part selling direct to the Whirlpool's and so on of the world. Aside from TouchSense, Interconnect does do a lot with the contract manufacturers, and we've seen, I would say, a slight uptick there. I wouldn't say significant, just the increased quoting. Typically there is some build for the Christmas season going on, PC Cards and ExpressCards and so on, but I wouldn't call it noteworthy.

Okay. And then just lastly, looking at the Power Distribution area having the down year-over-year revenues due to the one contract wrapping up. The backlog both in the United States and over in Europe and some of the emerging markets for infrastructure grid upgrades is very robust. Do you have a multi-year positive outlook on that space? Just in general, I'm not talking about huge ramps, but just a favorable general outlook given the backlogs?

Yes, absolutely. That is a segment that we positioned to take advantage of those emerging markets as well as the upgrades. I mentioned in my opening comments we're very pleased that the Power Distribution has become a global business three years ago. It was -- it had a good domestic business, but it had no business in China, didn't have a plant there, and very limited -- less than $1 million sold into Europe, and I think I'm probably being generous on the $1 million. And yet we knew that there were opportunities beyond the U.S. that the group has positioned itself to take advantage of. And I think we're going to see -- we know we'll see increased business as we move forward.

We would like to stay on a growth curve this year but you can't replace a huge program overnight, so that -- that's per plan and we understand that, and I think we'll continue to produce. And we added VEP. We wanted to get into heat syncs for a number of years. We thought about doing a greenfield, and we were very fortunate that the timing worked out for VEP that we could add that because that allows us to add another product portfolio to Power Distribution, which is also needed for that infrastructure.

All right. Great. Thank you very much, gentlemen.

Thank you.

We have a follow-up question from Girish Neir from Thomas Weisel International. Please state your question.

Sorry. I got cut off from the phone earlier and so I couldn't ask my question, I wanted to ask, could you walk me through what is the typical sales cycle for your auto business, in terms of what's the times -- the lead times and all that?

It varied a little bit by auto maker, but you've probably got a -- anywhere from 18 to 24-month cycle depending on how -- where the auto makers stands in its program, does it have six months to do its sourcing exercise? If it does, it will take every bit of the six months to get the best price. Is it a refresh of a program? Is it a mid-year change? Some of those might shorten the cycle. But from the time we put pen to paper to put a proposal in to the time you're launching product is an 18 to 24-month cycle. And in certain instances it can be longer. We've had it shorter where there's been a need for a quick replacement product, but I think that's a fair timeframe.

Yes. This is, I think, for your new products, right? What I was asking was in terms of -- let's say if Ford has produced, let's say, 20 Taurus [vehicles] in September, then when would they place the order with you for those?

Oh, for -- okay, I'm sorry. I misunderstood your question. You would -- you would start to see releases for the new models in -- well, you'd be filling the pipeline in the April, May, starting to timeframe July, go do the switch over, and then ramping into August and September. September's usually a pretty brisk month for new programs.

And again, if it's a carry over product where you have already engineered the product, there may be very little inventory that the [delta] left behind. It's just an existing switch or component. But it's usually through the summer months that you would see that, from spring on, and again with a little slowdown in July. In fact, a significant slowdown in July.

Okay. Thanks.

Thank you. Mr. Duda, there is no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, Tanya. With that, we'll wish everybody a pleasant day and thank you for calling in.

Ladies and gentlemen, this does conclude today's teleconference. Thank you. You may disconnect your lines at this time. Thank you for your participation.