Middleby Corp (MIDD) 2008 Q2 法說會逐字稿

Good morning, my name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Middleby second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn the call over to Tim FitzGerald, CFO. Sir, please begin.

Good morning. Thank you for attending today's conference call. I'm Tim FitzGerald, CFO of the Middleby Corporation. Joining me today is Selim Bassoul, our Chairman and CEO. I have some initial comments about the company's 2008 second-quarter results, then we'll open the conference call to questions and answers.

We were pleased to report our 26th consecutive quarter-over-quarter record net earnings. Second-quarter results included the impact from six acquisitions completed during the last 12 months, including Carter-Hoffmann on June 30, 2007; MP Equipment on July 2, 2007; Wells Bloomfield on August 3, 2007; Star Manufacturing on December 31, 2007; Giga Grande Cucine on April 22, 2008; and FriFri, on April 23, 2008. Net sales increased 53% to $173.5 million as compared to $113.2 million in the second quarter of 2007. Sales from the acquisitions completed over the last 12 months amounted to $60.2 million in the quarter. Excluding the impact of the acquisition, sales were flat with the prior year second quarter, and were comprised of a 3.4% growth in sales of commercial food service equipment, offset by a 15.4% reduction in sales of the food processing group. The increase in sales at the commercial food service group included a 12% increase in international sales, which were boosted by growth in emerging markets with the US and international restaurant chains, and growth in new products, including the new combi oven line from Uno. Lower sales at the food processing group reflect reduced capital expending at certain food processing customers and the timing impact of large orders, which causes quarter-to-quarter variability for this business.

Gross profit increased from $44.9 million in the second quarter of 2007 to $67 million in 2008 on higher sales volumes, but the gross margin rate decreased from 39.6% to 38.6%. The gross margin for the quarter includes a $500,000 charge to adjust inventories at the new Giga and FriFri acquisitions to fair market value. The gross margin rate reflects the dilutive impact of acquisitions completed in the last 12 months as gross margins at these companies continue to improve. The newly acquired companies had an average gross margin of 33%. Excluding impact of these recent acquisitions, gross margins would have been approximately 40% during the quarter, despite the continuing challenges of rising steel costs.

Selling expenses increased $4.7 million to $16.7 million, and general and administrative expenses increased $5.5 million to $6.1 million. Of the $11.6 million increase, in selling and general and administrative expenses, approximately $9.2 million was attributable to the recently acquired companies. General and administrative expenses also included a $1 million increase in noncash stock compensation costs.

Interest and deferred financing costs increased from $1.3 million in the second quarter of 2007 to $3 million in the second quarter of 2008 as a result of higher debt balances associated with the recent acquisitions. Other nonoperating expenses of $561,000 is primarily comprised of unrealized foreign exchange losses. And the provision for income taxes of $11.8 million was reported at a 41% effective rate as compared to $8 million of a provision in the prior year at 39% effective rate. The increased tax rate reflects an increase in tax reserves associated with FIN 48 primarily for increased state tax exposures. These increased reserve requirements are due in part to growth of the company through acquisition.

Net earnings for 2008 second quarter increased 36% to $17.1 million from $12.6 million in the prior year quarter. And diluted earnings per share increased 32% to $0.99 per share from $0.75 per share in the prior [year] quarter.

Now turning to the balance sheet and cash flows, the net changes in the balance sheet from the year end reflect the impact of the 2000 (sic) acquisitions of Star, Giga, and FriFri. These acquisitions added $23.6 million to accounts receivable, $19.4 million to inventory, $8.8 million of property plant and equipment, $12.2 million of accounts payable, and $5.2 million of accrued expenses. Additionally, we recorded $110 million of goodwill and $75.4 million of other intangible assets associated with the acquisitions. Other changes in the balance sheet accounts primarily reflect normal variations driven by seasonal working capital needs.

Cash flows provided by operating activities for the first six months amounted to $43 million as compared to $22.4 million in the prior year first half. Noncash expenses adding back in calculating operating cash flows included depreciation and amortization of $6.9 million and noncash share based compensation costs of $5.5 million. Depreciation and amortization includes $3 million of depreciation, $3.7 million of amortization related to the acquisitions and $200,000 of amortization of deferred financing costs.

Operating cash flows for the year were utilized to fund the acquisitions of Star for $188.2 million, Giga for $9.9 million, and FriFri for $3 million. The company also had capital expenditures amounting to approximately $2.7 million during the first half, which included $1.2 million associated with purchase of manufacturing facility for our recently acquired Carter-Hoffmann division and $1.5 million for the replacement and upgrade of manufacturing equipment. The company also utilized cash to repurchase 210,000 shares of common stock for approximately $12 million during the quarter. Future share repurchases are limited by the company's credit agreement which allowed for the repurchase of up to 15% of the company's trailing [four] quarter EBITDA.

Total debt at the end of the 2008 second quarter amounted to $274.6 million as compared to $272.7 million at the end of the first quarter and $96.2 million at the end of 2007. We were also pleased to report the continuing progress made at the four acquisitions completed during 2007 and remain on track with our profitability objectives at these companies. Gross margins have improved to over 30%, up from 20% at the time of acquisition. Additionally, operating margins have more than doubled, approaching 15% for the second quarter, and we anticipate continued improvement and anticipate these companies will improve to operating margins in excess of 15% as we move into the second half of 2008.

We are also pleased to report progress at the Star acquisition completed in 2008. As previously reported, Star at the time of acquisition had approximately $100 million of revenues with a 20% EBITDA margin. We have completed integration initiatives associated with this transaction, and as a result, EBITDA margins improved to 30% in the second quarter with operating margins of 25%. We believe we will continue to track at those margin levels for the remainder of this year. And we are now focused on the integration of the Giga and FriFri operations and anticipate improvements moving into 2009. Now, Beth, can you please now open the call for questions?

(OPERATOR INSTRUCTIONS) We'll pause for a moment to compile the Q&A roster. Your first question comes from Peter Lisnic with Robert Baird.

Good morning, Tim, and Selim if he's there.

Hi, Pete.

Good quarter. I was wondering if I could ask a question on organic growth. Looks like for the first half of the year we're basically running at flat. And if I'm I guess reading in between the lines a little bit, in the press release and what you've said at meetings and all that, it -- I would guess that there's more of a new product ramp in the second half of this year, which could benefit organic growth comparisons in the back half of the year. I'm wondering if you could maybe run through, A, what the industry looks like in the back half of the year, and B, what sorts of new products you've got coming on line and how that sort of plays into first-half organic growth versus second-half organic growth?

I'm going to answer that, Pete. One, we all know that it continues to be a very challenging environment. We are facing a very challenging environment. I believe that the second half will be similar to the first half in term of organic growth. However, our new product introductions are starting to make significant inroads. That's one of the reasons why we showed a 3.5% growth in commercial food service, and a lot of our customers are focusing on our equipment on our new product, which is now over 25% of our sales and growing pretty fast based on energy saving, labor saving, and food savings. So we're seeing a lot of the tests that I've talked about. You remember two quarters ago in my conference call, I talked about the number of tests that we're having in our product. And many of those tests have come to fruition. They've been very successful. Customers who started testing our new products have come up to be very pleased with them. And I think you're correct in your statement about the second half -- we'll see a lot of the new products with higher margins being introduced in many of the chains that we've been testing the last six to eight months.

Okay. And then if I guess the second part of that question would be -- it seems like a lot of the weakness is contained to food processing. So can you give us a sense as to what the back half of the year there looks like? Are you seeing any of the capital dollars being led by companies in terms of capital expansion for some of the initiatives there?

I think we see a lot of our customers are -- those are more expensive pieces of equipment so the capital budgets are more restricted there. And we're seeing some deferral in some of the orders, but that being said -- and we anticipate that that business will most likely continue to be down the second half, although we expect it to maybe not be down as far as it has in the first half. Some of that is driven by new products.

I'm wondering if there are any cancelation that are coming through the door in food processing or in the core cooking equipment business?

We haven't seen cancelation. I mean, there's orders that we're quoting on that maybe not coming through because capital budgets aren't getting approved. Or in some cases, we've had deferrals. We had orders in hand and they pushed it out from, let's say the second quarter into the first quarter of next year.

Okay. Last question if I could, just the -- Tim, the comments that you made on the acquisitions in terms of margins tracking where they were in the second quarter and the back half of the year, did I understand that right, or -- or just maybe give us an update on what acquisition margins might look like in the back half of the year?

Well, as I mentioned, we're approaching -- well, I'll pull Star out separately because we've integrated that very fast. And the management team there has done a great job. So we're basically tracking at the 30% EBITDA margin, which was our objective when we bought the company. So we're basically at the run rate that we anticipate moving forward. There may be some gradual-type improvements there, but the significant gains were realized. With the acquisitions that we completed in 2007, there's still some ongoing initiatives. I would say we've realized the significant portion of those, but as I mentioned, there's still some improvement that we anticipate in the back half of this year. They're approaching 15% operating margins, and we think we can take that north of 15%.

Your time --

This is Selim Bassoul. I would like to make a comment for those investors who are -- and analysts attending this conference call. One way for you to be able to understand our business little bit better, we have posted -- we have been posting on our home page on our website a -- our most recent investor presentation that I did on a recent road show. And it could give you a lot of breakdown of our business. It gives you also a breakdown of our menu changes versus our replacement, and new store opening. It might be worthwhile if you go on our website and be able to view our most recent investor presentation. It gives you a great idea of the breakdown of business.

And I have to tell you while we're facing -- we're facing several short-term challenges, our business is in a very strong position. For people new to the story and people who have question about our business, I have to tell you that while the rest of the industry is facing challenges, keep in mind that we have positioned ourselves in the past five years in the highest gross [restaurant] end markets. We have aligned ourselves with the fastest growing segments. And you can see that there is a slide in the presentation that shows you what those segments are. And that's simply -- some restaurants are going to defer some equipment purchases, some might also delay, but overall Middleby provides mission-critical products that offer a less than two-year payback on all our new products. We represent a small piece of the customer's cost structure, 1% of total cost. So if you think of the saving that we generate on energy and labor cost and food cost -- when you look at the purchase of a new piece of equipment from Middleby, it's more an operating expense than a capital expense. And we've been -- our equipment and the new products have been targeting savings in those three areas. Energy saving, and we've been a leader of that since the year 2000 -- our labor costs through our automation and many of the self-cleaning features we've put in on our equipment. And we've been targeting in many instances some food cost saving in some of our new product innovation. And we are not dependent on one customer or one category or geography.

Let's take an example, which I -- is on everybody's mind. Let's take the recent failure or bankruptcy of Bennigan's, which is in the casual dining. We had no exposure to that chain. First of all, that chain was not really doing any menu changes. They were not changing either their atmosphere or menu changes. And they did not set themselves apart from the rest of the pack. So while we're going to continue seeing some casual dining chains going out of business, our customers tend to be the people who are making very innovative solutions to their businesses. And over the last five years, we've aligned ourselves with those type of customer who come to Middleby seeking menu changes or energy saving. And the companies that are not stagnant are not looking at Middleby. We're one, the highest priced product, who are very much about change, and we're very much about innovation. So this is why when you look at some of our segments, we do not see some of those failing chains affecting us.

If you look at the breakdown of our business, if you go end market by end market, you will realize that you are not in any one category restaurant. We are in a bunch of independent categories with different drivers. For example, institution, which makes up 10% of our total sales, are definitely not impacted by the economy. The school cafeteria, the college industry, the nursing home, the correctional, are all still updating the cafeterias and still putting out equipment bids in the marketplace. You look at the fast casual business, which has been growing more than 13% in '07 and double digit in '08, we are a dominant player in that business, and that will represent 20% of our business.

If you look at sandwich shop that continues to do well -- while they are dealing with rising wheat prices, there is continued growth potential in breakfast, with breakfast opening earlier and a continued emphasis on bread for hot and cold sandwiches. For example, our customer Subway is expanding both internationally and domestically and expanding its delivery concept on the East Coast for tests and considering the expansion in other markets. In our (inaudible) supplier Subway, and Subway and us have been working on energy saving to introduce some new products to our [new view] company division. And we are just a new approved oven with Subway that was just put in place through the Subway convention in July which uses less energy and water than the previous model that was used at Subway.

So restaurants need to add equipment and make menu changes to keep up to date and attract customers. And you've seen in the current economy, restaurant owners may be tempted to cut corners. In a good [contract with] franchisee, don't look for short-term economic benefit. They continue investing in equipment because they know it will bring long-term success and they need to keep current customers happy. So we continue working with them on updating the new equipment kitchen with new technology, new energy savings, and we're seeing that trend most probably accelerating in the second half of this year.

If you look at casual dining which is probably under the most impact and threat, which is 9% of our business, I could argue that, yes, we might continue to see the casual dining facing challenges. But it's only 9% of the Middleby revenues. You look at the international food service, which is internationally 20% of our business, that business is not slowing down. We've been growing double-digit growth and expect that to continue in the second half this year.

You look at basically the pizza business, I think we're working with many of the pizza chains to introduce new energy-saving equipment in approving the wall oven. Now the wall oven is approved in five of the top pizza chains in the world. You look at the rocket frier, which is now being tested with a major chain. So we feel very strongly that in the long term we are in a very, very strong position.

You look at our replacement business, which is one-third of our business, it's a very steady part of our business. It's a recurring parts of our revenues. We also view menu changes as part of being recurrent. In a challenging environment, restaurants are forced to update their menu in order to remain competitive.

On the new store opening, which is the last one-third of our business, the replacement is one-third, menu changing is one-third of our revenue, and new store openings. The majority of our store openings are in the international arena. And it's a great opportunity where, for example, we are working with Yum. We are rolling out new equipment internationally and continue seeing international markets doing very, very well.

This gives you a little bit of an understanding of where the position long term is for Middleby. And this was very much witnessed of how the second quarter came through. Now Beth, we can resume back the questions.

Your next question is from Tony Brenner with Roth Capital Partners.

Thank you. I have three items. Number one, Tim, you indicated the acquired businesses added $19.4 million to inventories. Was that year over year or versus inventories at the end of 2007?

No, it's versus at the end of 2007. So those are inventories were acquired. So it wasn't that Middleby increased their inventories -- it's just that inventories that were added to the balance sheet as parts of the acquisition, I wanted to distinguish that from organic or working capital-type changes.

I see. Secondly, in the seven companies that you have acquired since last April, I believe, how many facilities or plants have been closed among those seven companies where operations were consolidated into an existing Middleby facility?

We've consolidated one, and we're in the process of consolidating operations at the second. Which is largely completed already.

All right. Last question is regarding the food processing equipment service. It would seem to me that that business should be less sensitive to consumer behavior rather than more sensitive, especially as people are reportedly eating out a little less and eating in a little bit more. Given your projection of little change going forward, it seems that the timing of orders is a very minor factor in this decline. And I guess I'm failing to understand why this business is so much weaker apparently than the food service equipment business.

Tony, I think it purely has to do with the size of the order. Selim described that on the commercial side, a lot of the spend is really an operating spend. When -- the equipment that goes into a restaurant, the pricing might be buying an oven for $3,000 or $4,000, or a fryer system for $10,000, versus some of the equipment that we saw in the food processing side could be $1 million type capital spend. So the financial groups are more involved with looking at budgets and involved in some of those decision-making processes. So, it purely becomes the timing issue of some of these companies managing their cash flows.

Don't some of the new product introductions in this side of the business, which I believe you have in place, have the same impact? From a return on investment standpoint --

Yes, they do. So -- and I think we have some new products there, and we believe that those will start to gain some traction because there is definitely -- the sales team is pitching the effect of the payback because of labor savings and --

Yield and energy saving. We've been focusing very closely, we've introduced a lot of new products in the food processing on food safety, which is a big thing for food processors at this time. So we are introducing two or three products that address food safety, whether it's in packaging or in cooking, and that has been -- that will have some significant yields for us and throughout the next, I would say, 18 months as we roll out those new products. And as customers can see that those are measurable. Very measurable results. When we talk about food safety, we're almost saying that we increase the safety of the food by tenfold. Or when we talk about yield, more yield in the cooking process, it is being measured.

Yes. But Tony, it is a more volatile -- there's more variation in that business. I'll give you some examples. In the first half of last year, we had an order with one customer that was an $8 million order. So the timing of getting an order like that from quarter to quarter can change. And this year, we had roughly, I mentioned the deferral of orders, we had roughly $6 million of orders that were placed, but the timing of them got deferred to -- until basically first quarter of next year. So a couple of orders like that has a significant impact on the growth rate from one quarter to quarter over quarter. But we feel that those businesses are still very well positioned. They're leading brands -- they've got a lot of new, exciting products coming up. We think as you roll four quarters together over time, we expect those businesses to grow.

Okay, thank you very much.

Thank you, Tony.

Your next question is from Joel Tiss with Buckingham Research.

How you doing?

Fine, how are you, Joel?

Fine. I'm not asking for guidance, but I'm just wondering if you could help us layer in some of the acquisitions and the new products -- like just how they're rolling out for the third and the fourth quarter? Just to help us with our modeling a little bit.

Okay. Well, let me talk about margin improvement first. I think that while we don't give any guidance, I have always talked about a long-term goal of a 20% earning per share. And we ought to focus on increasing our margin, believe we can take our operating margin to the mid-20's over the next five years. We see operating margin expansion for the foreseeable future.

Let's talk about some of the things we see. In the press release, you've seen scale efficiencies, and we are in the early innings of realizing the benefits of being a significantly larger company. So we have increased the size of the company by over 50% the last two years, and are just starting to realize many of the scale efficiencies and sales in manufacturing distribution. Our operating leverage will focus on growing our top line in excess of our fixed cost. And we see the opportunity to drive margin expansion from this. Our margin will expand as we are able to integrate the nearly $200 million [revenue] in our newest company. I believe this improvement will allow us to generate significant value.

So let's go back to the specific question you asked us. How would you see the acquisition? Approximately $200 million. I think we see continuous improvement in the second half of this year in margin expansion. As a new [start] with a 25% in the second quarter, I think we're seeing an additional improvement by 1% or 2% points extra on that as we continue doing that. But then I'm seeing -- totally we're seeing the acquisition to continue moving to almost Middleby level EBITDA margins, I would say within the next 12 months or less. So if you want to time those, I would say take 12 months and say the gap between the Middleby and those acquisitions will be between today and 12 months from now.

The new products also are carrying higher margins than our existing products. As I mentioned before, we priced new product based on the value as they provide versus our costs, and know that as long as customers are getting significant paybacks, with effective value it is a win-win. And those new products continues to be accelerated as you go forward in the second half.

One of the things I think we need to talk about significantly in our business -- while our organic growth this year is going to be less than it will usually be, while we've done over the past several years, we've done 7% organic growth, this year will be the most challenging for us. Our free cash flow is truly doing extremely well. Our net free cash flow yield is around 5% or so, and we see the ability to generate EPS growth slightly above this. And we've been buying back stock, we've been pursuing accretive acquisition and paying down debt. So we continue to see -- how does the short term fits in the long-term goal? While we continue to get pressure on our organic growth, over the long term, we still view ourselves at the 20% EPS growth target. And beyond that, Joel, that's the most -- we've never been willing to give more than that in terms of guidance.

That's extremely helpful. And then just a followup question. Can you give us a little bit of sense of the outlook for continued acquisitions? And maybe if Tim can chime in and just from a balance sheet and even from a management being stretched standpoint. There's a lot on the plate. Can you talk about some of the constraints on acquisitions? Just over the next, say, three quarters or so, thank you.

Sure. The acquisitions continues to be a strategy of Middleby, as we've consistently said. The pipeline has been strong, obviously all of last year and continues to be strong. So we continue to look at leading brands and leading technologies. So that is a continuing focus of the company. We have been able to integrate the acquisitions relatively quickly and have had some strong management teams that have come with those businesses. So because of that, we've -- we've been able to I guess manage them without stretching ourselves too thin, because we do have strong management teams locally and we've been able to integrate them quickly.

No worries from a balance sheet standpoint?

Well, I think the company's -- we'll continue to manage the leverage, but the company's got access to both debt and equity markets. And I think depending on what acquisitions come up, we'll evaluate what the right capital structure should be.

Okay. Thank you. Thank you very much.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) Your next question comes from Gary Farber with CL King.

I just had a couple of questions. Can you quantify the pro forma revenue growth from the acquisitions in this quarter versus last year, what they're running at on a pro forma basis? Can you talk about currency benefit on the restaurant side of your business? You were up I think 3%. How much is there currency involved in that? Lastly, can you talk about the revenue contribution this quarter from acquisitions? Should that be sort of the assumed quarterly run rate from the acquisitions? Do you think it will uptick?

Okay. So we don't have reported quarter-over-quarter growth on the acquisitions. Some of the historical information on that is maybe not readily available. So that -- and that's not something we've reported in the past. Plus, in a lot of cases, it's not a very meaningful number, because as we complete an acquisition, one of the first things we do is we'll go in and we'll eliminate unprofitable SKUs and call those out. So there's a lot of movement in what's going on in the [top line]. That's not something we've viewed as meaningful in the past. from the currency impact, there's not much of a currency impact. Most of the sales that we have internationally are sold in US dollars. While it makes our pricing somewhat more competitive, but we haven't had kind of quote unquote Significant built-in gain in revenue that's driven by currency.

And on the run rate contribution in this quarter, is that the expectation going forward for the back half of the year that that's what they'll be able to contribute?

Yes. I would say order of magnitude, that's in the ballpark.

Right. Okay. Thanks again.

Your next question is from Greg Halter with Great Lakes Review.

Good morning, guys. Hope all is well there. Wondering if you could delineate how much steel hurt the gross profit margin in the quarter, and what your outlook is for steel going forward?

We think that steel is -- has a 1% to 2% margin impact of where -- we would have been had we not had 30% type steel increases year over year. It's difficult to predict where it's going to go in the back half. I think some of the higher grades of steel, the pricing is actually flattening or softening even a little bit, and some of the lower grade of steel is going up significantly. So we're having a mixed impact on steel costs right now. I think we're anticipating that that's going to be a continuing challenge moving forward. But it's the challenge that we've had over -- since October of 2005, and we're going to -- we believe that we can continue to manage it.

And given the scale that Selim mentioned relative to steel, is that giving you any benefits in terms of volume purchasing ability?

Yes. Clearly, with each acquisition, one of the synergies that we anticipate and have realized has been purchasing. And steel is clearly one of our biggest purchased items. So we have gotten savings in each acquisition as we've rolled those into our company.

And I don't know if you called this out specifically, but how much did the acquisitions add in your estimation to second-quarter earnings per share?

That's not something that we're reporting on.

Okay. And I think, Tim, you did mention that the acquisitions did hurt the gross profit margin in the quarter. Any indication on -- was that 100 basis points or 5 basis points?

It's closer to 100 basis points.

Okay.

I didn't mention that pro forma without the acquisitions, we would have been at about a 40% gross margin, and we reported 38.6%.

Given the Manitowoc and Enodis situation, do you see yourselves involved in any potential divestitures that they may have to undertake?

Greg, we have indicated we're an acquisitive company, but we don't comment on any specific acquisition opportunities.

All right. Thought I'd give you the chance.

We appreciate it. But we'll pass on that one.

Relative to the share buyback, Tim, you had mentioned that there's a limit for the credit agreement. What is that limit currently on how many shares or dollars you could buy back?

Well, it's 15% of rolling four quarter EBITDA.

Okay.

So the share repurchases that we have done would be more than half of what would be possible. And the board -- it's a Board decision and they approved a small share repurchase in the quarter.

That was basically under your July of 1998 program?

That's correct.

Okay. And one last one for you. Just given this environment that's challenging as has been characterized numerous times. Are you cutting price to get sales at all?

I'm going to answer that, Greg. We have not been. I've learned from previous experience that once you start cutting prices and when the economy gets better, you will never be able to raise the prices again. You will have conditioned the customers to -- especially if it's a major price discount. And we found out that the pressure of cutting price in an environment like this, you will only get the business that you already were going to get. The people who can't afford to give you business -- it doesn't matter at which price you're going to go back down. They are not going to give you the business. The only way you're doing of cutting your own margins with business is with companies that are already willing to give you that business. So that has been one scenario that we have not been willing to do.

The number two is we've been willing to talk about new products with features and payback. We walked away from price. Number three, the last nine months, Middleby has been out there talking -- one of our [strengths] is while everybody else has been hunkering down, we've been adding rainmakers. What I call rainmakers are people that are very strong sales professionals. And in fact there have been several press releases to that effect of people we've added to the organization strengthening our selling organizations. We've added people both on the national account level, domestically, we've added people on the regional level, both on the East and West Coast, and we recently made an announcement on Douglas Dunn, who is a fabulous professional internationally. So we've had -- and internationally we've beefed up our organization. We have significant number of people out in our organization, we've hired people in Asia, we've added people in Europe, and we are in the process of continuing to explore additional rainmakers as we speak. So this is our number-one strategy in attacking growth organically. We have not shied away. One of the things when you look at the second quarter -- the second quarter does not include significant cuts where we're doing it to make the numbers. We've in fact invested in our business significantly. We have invested in marketing, we've invested in training, we've invested in test units, we've invested in rainmakers.

Thank you.

Thank you, Greg.

At this time, there are no further questions. Gentlemen, do you have any closing remarks?

No, that's all for today's conference call. We thank everybody for attending and look forward to speaking with you next quarter.

Thank you.

Thank you for participating in today's conference call. You may now disconnect.