Methode Electronics Inc (MEI) 2016 Q2 法說會逐字稿

Welcome to Methode Electronics FY16 second-quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

This conference call does contain 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 the Securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

Forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause these actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports.

Such factors may include, without limitation, the following: dependence on a small number of large customers, including two large automotive customers; dependence on the automotive appliance, computer and communications industries; investment in programs prior to the recognition of revenue; ability to withstand price pressure, including price concessions, currency fluctuations, timing, quality and cost of new program launches; dependence on our supply chain; dependence on the availability and price of raw materials; customary risks related to conducting global operations; income tax rate fluctuations; fluctuations in our gross margins; the recognition of goodwill impairment charges; ability to keep pace with rapid technological changes; ability to compete effectively; ability to successfully benefit from acquisitions and divestitures; ability to avoid design or manufacturing defects; ability to protect our intellectual property; location of the significant amount of cash outside of the US; ability to withstand business interruptions; a breach of our information technology systems; and costs and expenses due to regulations regarding [conflict] minerals.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Thank you, and good morning, everyone. Thank you for joining us today for our FY16 second-quarter financial results conference call. I'm joined today by Doug Koman, our Chief Financial Officer and Ron Tsoumas, our Controller and Treasurer. Both Doug and I have comments and afterwards we will take your questions.

Revenues for the FY16 second quarter decreased 9.3%, and in the first half declined 8.1%, with lower sales in all segments, most notably on Power Products. Net income decreased in both periods, affected mainly by lower sales in the corresponding manufacturing inefficiencies, but was also impacted by increased legal fees particularly related to Hetronic, as well as higher professional fees, wages, benefits, severance, stock award compensation and amortization.

The first half was also negatively affected by cost and inefficiencies due to the transfer of Interface manufacturing from the Philippines to Egypt in the first quarter. Probably offsetting these unfavorable factors in both periods were lower bonus expense, a lower effective income tax rate, favorable foreign currency translation for raw materials and labor costs, favorable raw material commodity pricing and increased production in Egypt.

Consolidated gross margins as a percentage of sales declined 180 basis points in the second quarter, but improved 70 basis points for the first half. In both periods, gross margins were negatively impacted by manufacturing inefficiencies related to decreased sales, while the first half was also affected by the transfer of Interface manufacturing from the Philippines to Egypt during the first quarter.

Consolidated gross margins were positively impacted in both periods by favorable currency impact in raw materials and labor costs, favorable commodity pricing in raw materials and increased production in Egypt. Year-over-year second-quarter and first-half selling and administrative expenses were negatively affected by higher legal, professional services, severance, wage, benefit stock award compensation and amortization expenses, partially offset by lower bonus expense.

On a dollar basis, selling and administrative expenses decreased in the second quarter and remained positive in the first six months, but increased as a percentage of sales in both periods due to lower revenues. Second-quarter operating margin was 12.7%, compared to 15.2% last year, while first half was 13.8%, compared to 14.1% year over year.

FY16 guidance has been revised to sales in the range of $805 million to $825 million, income from operations in the range of $104 million to $110 million, and earnings per share in the range of $2.06 to $2.18. Based on this guidance range, our FY16 operating margin target is in the 12.9% to 13.3% range.

As detailed in the release this morning, we expect earnings in the third-quarter will be lower than in the fourth quarter, due to the effect of the holidays and continued weakness in our non- automotive businesses. We anticipate fourth-quarter earnings to be in line with the second quarter.

Our decision to revise guidance is due to several factors. First, as I said, we believe the softness in our non-automotive segment and markets will continue through the second half of the fiscal year. Second, legal expenses associated with the litigation related to [Tronic] are anticipated to be higher for the year than we originally expected. While we generally do not comment on our ongoing litigation, we believe this litigation is necessary to protect the long-term interest in value of our Hetronic subsidiary.

Finally, we plan to increase our spending on Dabir in the second half of the fiscal year. I will talk more about this after I review our segment results.

Compared to last year, automotive and segment sales declined 3.1% in the second quarter and 2.6% in the first six months as a result of lower volume for center-console program, lower steering angle sensor product volumes, as well as pricing concessions. These improvements were partially offset by [dermal motor] center console and transmission reframed assembly product volumes, improved tooling sales and increased [hidden] switch product volumes in our European operations, as well as higher linear position and interior lighting product volumes in our Asian operations.

In the second quarter, automotive gross margins improved to 26.9% from 25.9% and in the first half to 27.8% from 24.4%. In both periods, favorable currency impact on raw materials and labor costs and favorable commodity pricing of raw materials were partially offset by pricing concessions. For FY16, we are still targeting automotive gross margins in the mid- 20% range. The first half benefited from the import duty refund of $1.2 million as well as higher favorable currency in raw material. The second half gross margins will include contractual price reductions for the GM center-console program.

Moving to our Interface segment, year-over-year sales decreased 11.8% in the second quarter and 17.6% in the first half. In North America, lower appliance and data solution product volumes were partially offset by improved radio remote control volumes. In Europe, year-over-year radio remote control product volumes fell in the second quarter, but improved in the first six months.

Compared to last year's second quarter, Interface gross margins increased to 26.3% from 25.9%, due to sales mix and decreased raw material and direct labor costs, partially offset by manufacturing inefficiencies due to lower sales. In the first six months, gross margins decreased to 23.7% from 26.7% due to costs associated with the transfer of manufacturing from the Philippines to Egypt and reduced sales. Without the costs associated with the relocation of manufacturing, Interface's first half gross margins would have been 25.1%. For FY16, we are targeting Interface gross margins in the range of 23% to 25%.

Moving to Power Products. Net sales decreased 45.4% in the second quarter and 25.1% in the first half compared to last year. In both periods, we experienced significantly lower sales to our big data customer, as well as reduced crossbar and cabling products volume in our Asian operations. Our second quarter was also impacted by lower bypass switch and busbar product lines in our European operations.

Looking forward, we are anticipating revenues in this segment, which is typically one of our highest margin businesses, will continue to be considerably lower than we originally expected for the remainder of this year. However, we do anticipate return of our big data customer late in the fourth quarter, albeit at a substantially lower revenue than last year.

Year-over-year segment gross margins decreased to 9.3% from 31.9% in the second quarter and to 18.4% from 29.4% in the first six months, due to lower sales in the corresponding manufacturing inefficiencies. Based on the lower anticipated revenues for the segment, we reduced our FY16 target gross margin for the power product segment to the mid-teens.

Before moving on to an update on our new business awards in Dabir, I am pleased to announce that during the second quarter Methode purchased $22.8 million or over 700,000 shares of its outstanding common stock at an average purchase price of $31.99 under the Board of Directors' authorized $100 million repurchase plan.

Now on to new business. In Europe, we were awarded the power module assembly for electric power steering with [Hansburg]. Production is currently set to begin next fiscal year with sales ramping to $3 million annually by our FY19. The power grid assembly utilizes the same technology Methode developed for its transmission lead frame products, which includes complex overmolding and welding of layered inserts, most notably the products included our magnetoelastic [torque] sensor.

We were also awarded a magnetoelastic [torque] sensor for Boss's next-generation [evite], with production set to begin in FY17 and average annual sales of $5 million. With this award, Methode will become a direct supplier to Boss.

Power Products was awarded a custom of busbar program from a [milla-aero] customer. This is the first production build for a program that will run 10 years and is expected to generate $18 million in revenue over that time. While this is not a major award, we are beginning to see increased opportunities in this end market.

Moving on to an update on Dabir. As I mentioned earlier, we plan to increase spending on our Dabir Surfaces Group and its pressure ulcer prevention technology in the second half of the fiscal year. Through the first half, we spent $2.1 million and plan to spend another $3.4 million in the second half. Indicators to date show positive market receptiveness and the potential for Dabir to become a transformative solution to an industry in need of a better approach to pressure ulcers.

First, let me remind you of Dabir's market potential. Nationally, hospital-acquired pressure ulcers are estimated to annually cost the acute-care industry over $2 billion and as much as $11 billion total from an overall healthcare perspective. Considering Medicare providers alone, we believe the available market size is very large, with nationally over 39,000 hospitals, rehabilitation and skilled nursing facilities, home health medical equipment providers, hospice and dialysis centers.

Only a small penetration in this market would contribute significantly to Methode's results. Although applicable in virtually any immobilizing patient setting, to date we are focused on longer duration surgical procedures. Our service has been used in over 800 procedures ranging from 4 to 22-plus hours in duration, as well as expanded continuity of care usage in the hospital ICU beds.

The procedures to date have produced favorable results with improved comfort and request for continued usage, even after the patient's hospital stay ends. Additionally and most importantly, surgeons and hospital staff have reported no adverse interference from our surfaces during procedures.

Compelling. We have received over 800 leads from our sales and marketing activities and attendance at trade shows, a convincing indicator to us that there is an interest and a need for our solution. While some of these leads are simply requests for information, others are potential early adopters who have requested test services, as well as (inaudible) of the product for specific applications. Currently we are tracking approximately 25 qualified opportunities with some already conducting in-house trials and, as I said, may become early adopters of the Dabir Surface.

Additionally we have focused on national sales channel development, which includes a heavy mix of direct selling and medical reps for ongoing account support, as well as engagement from numerous industry experts to help navigate potential barriers to entry. As we move forward, a key component of our success will be the collection of independently verified clinical data, as well as the strengthening of our internal resources and development of additional products. Anecdotal evidence, as well as the knowledge gained by our teams' clinical interaction with the medical community, has driven our decision to proceed with independently qualified scientific research to substantiate formal claims.

To this end, we have hired internal resources to manage and produce the proper research protocol if necessary to verify patient and caregiver value. We are also strengthening our design and development activities for expansion of the Dabir family of products that will further accommodate a patient's needs outside the OR and ICU environment.

On the clinical study front, we are active engaged for formal research at four major teaching hospitals involving over 7,000 patients, including control groups. Our initial study will begin this month at the Henry Ford Health System and will focus on continuity of care in preoperative to postoperative environments. In parallel, two other studies will target cardiovascular surgical procedure outcomes, with one of these expanding into postoperative intensive care hospital beds and [ceded] applications.

Before studies, though, are being configured. Studies are scheduled to be completed in the fall of 2016 with peer publications shortly thereafter. In addition to clinical studies, we currently have evaluations underway at three hospitals with another three starting within the next 30 days, including one in the UK.

In parallel to this formal research, we will continue our data-gathering efforts, the publishing of white papers, and are currently reviewing the potential expansion of the product in the pediatric and bariatric care. Additionally, our Dabir group is working with the Veterans Administration with two VA beta site hospitals already identified.

Internationally, product evaluation requests are coming in from several hospitals. We continue to be very optimistic that Dabir Surfaces will contribute to Methode's continues success, while also providing a more predictable revenue stream from our nonautomotive business. In conclusion, our strong balance sheet and cash generation capabilities provide us with the ongoing opportunity to improve shareholder value through our share repurchase program and the continued development of new products.

Now I will turn the call over to Doug who will give further details regarding our financial results.

Thank you, Don. Good morning, everyone.

Looking at the after-tax rate for the six-month period, the tax rate was 22.7%. This is lower than the 23.9% used in the first quarter and this is due to our updated guidance and the change in the amount of expected taxable income at each of our jurisdictions. For guidance purposes, the annual effective tax rate is in the low to mid 20%s, dependent upon where the taxable income is expected to be generated at each end of the guidance range.

As Don mentioned earlier, we repurchased and retired just under 711,000 shares in the second quarter at the average price of $31.99. The $22.8 million used for the repurchase came from borrowings under our credit facility.

In the six-month period, the reduction in shares resulted in less than 4/10 of 1% improvement in EPS. If there were no further repurchases made during the fiscal year, the expected benefit to full-year EPS would be just under $0.02.

In the second quarter, the Company awarded performance-based RSA and RSUs to key employees. While included in our original full-year guidance, the amortization expense during the first half of FY16 was $800,000, all of which occurred in the second quarter. During the last six months of FY16, we expect the expense related to these RSAs and RSUs will be about $4.7 million and that would be nearly $0.05 per share in each of the third and fourth quarters.

The first half of FY16 we spent $9.5 million for capital expenditures. For the full year we expect capital spending to be between $20 million and $25 million. This is down $5 million at both ends of the prior estimate.

Depreciation and amortization expense in the first six months was $12 million. For the full year FY16 we expect depreciation and amortization to be between $23 million and $25 million. This is in line with our prior estimate.

EBITDA for the six-month period was $69.3 million or nearly 17% of sales. Based on our FY16 guidance, we expect EBITDA to be in the 16% range and be between $128 million and $134 million for the year. Lastly, for the six-month period, free cash flow was $47.2 million. Based on our revised guidance, we expect the free cash flow for the year to be between $83 million and $87 million.

That concludes my comments. Don, I will turn it back to you.

Thank you, Doug. Manny, we are prepared to take questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Our first question is from Steve Dyer of Craig-Hallum. Please go ahead.

Thanks, good morning, guys. If you dig into Power a little bit, there certainly has been some pressure on the data center business, but can you give us maybe any indication of whether customers or end markets that are seeing pressure there? And maybe additional color if these are just order pushouts or if you have lost orders or how you think about that business going forward?

Okay. We have not lost business. I can't really point to any customer that has transferred the business to anyone. In the normal course of business you win quotes and you lose quotes, but in terms of a current customer deflecting someplace else, to our knowledge we don't know of any.

What we do know is our industrial customers and oil and gas are considerably down. And these are notable customers that have been in the press saying that their businesses are down, so it is somewhat across-the-board in power.

At this juncture, we know some of our peer companies and competitors and, for the most part what, we are seeing others are seeing. It is an industrial downturn, if you will, that's been talked about. We don't do business with Caterpillar, per se, but they have talked about this as well as others.

This is one of those where we make our infrastructure adjustments and the necessary cost reductions and this will be one we're going to have to weather. Because of our strength, we can be a little more aggressive in pursuing new business against, perhaps, some of our weaker competitors. We are going from a record year last year, largely because of our big data customer to a significantly down year.

I did mention earlier we do expect big data to come back late in the fourth quarter. Again, it's not going to get back to the number it was last year, but it is a return.

Great, that's helpful. As you hop over to Dabir, it sounds like a lot going on there in the testing and trials and so forth.

Has anything changed there in terms of when you put it all together, what do you expect for a contribution? I think initially the hope was for a little bit maybe at the end of this fiscal year. How do you see that ramping over the next couple of quarters?

For the next couple of quarters we are going to continue to invest in Dabir. We have increased the spend this year; likely to increase it for next year.

I am past the point of is this a viable opportunity? Yes, it is. It warrants us plumbing it appropriately.

Parably and conservatively, but we are seeing tremendous interest across really all of those segments I talked about. We are not going to pursue all of them, but we're going to expand the product offering beyond just the surgical and ICU area.

From a revenue perspective, we haven't said much on it, but we are targeting the group in our FY17 to have meaningful revenue, just to prove the business out. I think that comes towards the end of 2017.

The design end, I think we have said this before, does take longer, particularly when it is going into the operating room. Hospitals are very careful. So a four- to six-month time frame is what we're seeing now for adoption, but we are seeing hospitals -- more hospitals do trials. We're conservative, but we are optimistic on where Dabir is headed.

Okay. Finally, as it relates to the center-stack opportunity, what are you seeing out there in terms of bidding? Doesn't sound like any new awards on this call. Anything changing there?

No new awards this call, but we are tracking several opportunities. I won't say into the final rounds, but into the point where we are getting more confident of an award. We generally don't talk about them for competitive reasons until we actually have them, but I just had a review with our salespeople not too long ago and a number of good center-console opportunities are being tracked.

Anything sizable out there? Obviously there is not much in the realm of the K2, but are there things out there $20 million and plus you guys feel good about?

That's how I look at it. Once you get past the mega-programs, there's just not that many of them., $30 million -- $25 million, $30 million, $40 million is a good center-console win for us, and we are tracking several of those.

We have a pretty good hit rate. I don't want to count my chickens here, but they are out there for us. We are not going to get all of them, but we are going to get our share of them.

And then, finally, when you put all this together, does this impact your EBITDA CAGR guidance for the next five years? Is there anything that has deviated such that you don't feel like that is reachable anymore?

No. We remain very optimistic. Not just Dabir, but Auto continues to do well.

The Team does a great job of managing the launches and taking [crosses] out and we have been helped from currency and raw materials. But they continue to keep their scrap level low, continue to have, knock on wood, flawless launches. So continue to be optimistic about Auto.

I'll comment a little bit on Volkswagen. That's one area where we will probably see a couple-million-dollar effect on sales. They are not a huge customer.

That is one area that is, perhaps, a little weak, but made up by other opportunities in Europe. So Auto, we remain confident of.

We talked about Dabir, I won't repeat myself there. Our 10-gig product is out there, is being tested now by the customers. That is actually a major milestone in that customers put these transceivers into their test labs.

They are spending money to do that. We are optimistic there.

In general, Power is an issue. I'd be more concerned if it had some product issue or internal manufacturing. It doesn't.

It has seen a general market -- two markets that have seen a decline and also was in data and we've see a decline there. So there is nothing that changes my positive outlook for us going forward.

Okay, thanks. I will hop back in the queue.

The next question is from David Leiker of Robert W. Baird. Please go ahead.

Good morning, this is Joe Vruwink for David.

Good morning, Joe.

I wanted to follow-up on the 10G transceiver product. A few years ago when you started talking about it, I think you actually made a business announcement where you thought you would have around $30 million in revenue within a year or two of that product's introduction. Is that still the revenue number to be thinking about now that the product has actually launched?

Yes, that's correct.

And so we should think about Interface revenues over the next 12 months to 24 months, they should, in theory, be $30 million higher just related to that product?

That would be correct, but that will be erode our 1-gig product, so we will see some decline in that -- we have seen some of that already. That, it will be a gain. I want to see how many design ins we get before we give more detail on that, but there will be a -- certainly not a one-for-one offset. There will be some offset decline in our 1-gig product.

And we will give more detail as we get information from our customers. Once we get through the testing phase, then we will get more data from the customers what the revenue expectations are. I don't know what to say other than that.

Okay. That makes sense.

On your big data customers signaling some intent to spend again by the end of this fiscal year, is it fair to take that spending level and maybe think about a run rate in the FY17? And if I just extrapolate that for the overall Power business, does maybe FY17 fall somewhere in between FY16 and FY15's revenue levels and not getting back to peaks, but a better level than what FY16 was at?

At this point, it is probably a fair way of looking at it. This particular customer is noted for being somewhat erratic in its take rate. We could see a very strong first quarter of next fiscal year and nothing until the fourth quarter. So we need to be careful there, but right now, that is a fair assumption and we will have more color on that as we get closer to launching the product.

Okay great. My final question on the magnetoelastic technology, is there any way to frame the total market opportunity from all the different applications that product can go into?

I believe today you announced the first steering application. You've already announced roll stability. It sounds like transmission is viable. Have you thought about, in total, what a TAM or an addressable market dollar figure might be for magnetoelastic?

If you take out automatic transmissions, because that is -- it's a huge number. It is almost a business segment in itself of over a five- or eight-year period it becomes a standard and then you can just model the number of automatic transmissions produced and some penetration.

The non-automotive side, and let's take, in Hamsburg is an off-road application. That is a -- total available market from what we see, we just add up the customers and look at what we could sell to each. They are not $50 million type customers, there is $5 million here and $10 million there.

You're looking at, maybe on an available market that we know today, of about $100 million, of which we are the only game in town. So depending on price and the application, we could garner our fair share of that at very good margin.

But it's Evites. Let's take Evites for an example. That is turning into a $20 million-plus opportunity for us at very, very good margins.

It's hard to get a total handle on it. And that's just us adding up what would you get from each customer. There could be some other application out there that we haven't even thought of that would generate more, but again the Holy Grail is still the transmissions.

And what sort of progress have you made, just quoting with some of the Tier 1 transmission assemblies on maybe getting a little taste of what that product can do in the application?

I don't think we have anything to report other than what we have said in the past. We are waiting for our first RFQ and we will get a much better understanding of where that can go, particularly with one customer once we have that. Again, it is additive to the cost of the transmission, so that's a bit of a hurdle.

Fair enough. Thank you, guys.

Thank you.

(Operator Instructions)

The next question is from Jimmy Baker of B. Riley. Please go ahead.

Good morning, Don. Good morning, Doug.

Good morning, Jimmy.

Most of my questions have been answered. You've provided a lot of good color so far. Just one clarification, I guess.

Did you quantify the impact of legal expenses on your Interface segment? I guess I'm wondering how much of the $2.3 million jump there in SG&A was a function of incremental legal spend? And then what is the total full-year expectation for legal expense in that segment?

Of the $2.3 million, I don't think we gave the exact number, but a good portion of that was related to Interface.

And the full your expectation, if you have it?

We are looking it up. Full-year would be in the $11 million to $12 million range.

That could be less, depending on what happens in the proceedings.

Okay. And where would you have expected that at the beginning of the year? I guess I'm just trying to understand the impact to the guidance change.

We were modeling in the $7 million range at the beginning.

Okay, understood. From your earlier comments, Don, it certainly sounds like you're confident in Dabir is steadily rising here and you are demonstrating that confidence with the increased investment spend.

Could you maybe just clarify what specifically you're looking to accomplish with this increased spend? What mile markers we should look for. And did I hear you were going to take steps at this point to evolve the product for additional application?

We are. My milestones for the flag that gives us more confidence is really the adoption rate of the hospitals. I think from the last call and to this one we've talked about several more hospitals that are doing trials. That's what gives me confidence is more and more people adopting.

We are not completely there yet. Our first hospital has moved, in certain instances, in the ICU which we see very exciting and it is really the continuity of care. You can get through a surgical procedure with no pressure ulcer, but then be laying in ICU or in the hospital room and then generate a sore.

So hospitals are looking at continuity of care. All that starts to gel at more hospitals, I'm not talking 50 hospitals. I would be very pleased if three, four, five hospitals start to use this. And then I think I have said in the past, once you get a hospital conglomerate to roll it out, then the snowball is rolling.

That gives me confidence. The amount of interest -- we talked about 800 leads and then we whittled that down to 25. But there is a lot in between there that are being worked that are all very exciting. We are at the point where we have the data necessary to develop a product for outside of the hospital.

I wanted to wait -- I think I said this in the past, I wanted to wait until we had more data before we embarked on that. Actually, I've been thinking that was a decision we have to make next year, but we were able to make it this year and modestly increase our spend to start to develop products there. I think we've said the bigger market is that area, but again, we are collecting great data from the current procedures that are going on. We were up to now over 800 procedures.

That's helpful. I just had a couple follow-ups on Power Products.

You mentioned the business in the back half of the year is going -- the back half of the fiscal year is going to be quite a bit worse than maybe previously imagined. Are you expecting it to get sequentially worse on a revenue basis from what we've seen here in the fiscal second quarter?

Yes.

Okay. I guess in response to Joe's question on your expectation for FY17 revenue out of Power Product maybe coming between 2015 and 2016, those are some pretty wide uprights, it looks like. So I guess just given the volatility in that segment and how much of a variance driver that has been to your consolidated business, is there anything you can say to help better manage expectations there from a revenue and profitability perspective as we think about next year?

I realize those bookends, if you do the math, are quite wide. It's not a particularly predictable business. We've said that many times in the past. It's hard to predict one quarter to the next.

At this point, if we assume no further deterioration of its base business and with a return of its big data customer, to a degree, I wouldn't model that anywheres near what it ran in our FY15. We should see an increase in revenues over what we exited this year.

I'm reluctant to give any more color on that because oil and gas is down. I think it's safe to say it's going to be continuing to be down. We're really now just starting to look at where do we think that business will be in the next six to 12 months. So very hard to answer right now, Jimmy.

Okay. I appreciate the effort and thanks a lot for the time.

Thank you. The next question is from Bob Evans of Pennington Capital. Please go ahead.

Good morning. And I apologize if you have already answered this, but it looks like you generated strong free cash flow again this quarter and used much of it to buy back stock. I assume -- give us your thoughts, I guess, going forward. I assume you would continue to be more aggressive buyers of your stock in decline today?

Sure, we have a $100 million authorization and we have the ability to go that level. So we would certainly come in that.

Okay, thank you.

Thank you. I will now turn the conference back over to Management for any closing comments.

We will thank everyone for participating today and wish everyone a very safe and pleasant holiday season. Good day.

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