Modine Manufacturing Co (MOD) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Modine 2006 First Quarter Earnings Conference Call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to the head of Investor Relations and Corporate Communications, Ms. Wendy Wilson. Please go ahead.

Thank you, Miranda. Good morning, everyone, and welcome to today's conference call. Dave Rayburn, Modine's CEO and President, is with us today to give us some comments on the year and today's announcement, and he'll address any questions or concerns you might have. We're also joined by Brad Richardson, our Executive Vice President of Finance and Chief Financial Officer. Before we begin, I'd like to provide our usual caution that this morning's call may contain forward-looking statements such as forecast of business performance and Company results, and expectations about the Company's plans and future initiatives. Actual results may differ materially from those projected. For an in-depth discussion of risk factors that could cause actual results to differ from those mentioned on today's call, please see today's press release and our Form 10-Q for this quarter, which should be filed in early August. Also, you may reference the Company's annual report on Form 10-K for the period ended March 31, 2006. If you've not received today's release, it's available on our website, www.modine.com. Now I'd like to turn the call over to Dave.

Thanks, Wendy, and good morning, and thank you for joining us for our first quarter conference call. I assume you have had an opportunity to review yesterday's press releases, that's plural, and this morning's releases on additional repositioning activity. Yesterday we had our annual meeting here in Racine, and my presentation can be accessed on our website under the subject of Investor Relations. I will make some comments on the quarter, the full year outlook, and provide an update on our repositioning activities, and then Brad will follow-up with the financials.

In regard to the first quarter, we had record first quarter sales up 8.5%, driven by strong markets, especially in our heavy truck and off-highway businesses, plus our lease and acquisitions. Earnings of $0.51 a share were down year-over-year. Results were significantly impacted by higher material prices and selected customer price-down pressure. In addition, we incurred one-time repositioning charges of $2.1 million pre-tax. We did have the benefit of reduced tax expenses as a result of the acquisition in Brazil.

To respond to our commodity pressures, we have initiated incremental pricing actions over and above our agreements with many of our customers. We have increased, also, our aluminum hedging program which Brad will review in detail.

Fiscal '07 will be a challenging year, a year of transition, as we launch new business and aggressively implement our repositioning actions. Yesterday at our annual meeting I reviewed our response to the challenges we are facing, and some of those I would like to highlight now.

A key area for Modine is technology. It's a core competency that we've always had a tremendous positive reputation. New programs are being launched this year driven by new technology, developments that have made our next generation -- such as our next generation exhaust gas recirculation coolers. I really feel in the engine segment we are state-of-the-art. We currently are focusing on long-term as we pursue programs both in core business and new markets, like fuel cells. To demonstrate our capabilities we announced this week a new idle off system for heavy truck powered by a fuel cell APU, utilizing a CO2 air conditioning and heating system. We have a Class A truck quipped with this technology and are currently reviewing that with our key customers. I am confident, and many of our customers are, that Modine's overall technology is second to none.

Our second key area is accelerated cost reductions. We have multiple actions in this area, but the key one is purchasing. Sixty-one percent of our cost is materials. We have established a global organization versus a regional focus, and we will be increasing our low-cost country sourcing from 10% today to 20% by year-end, and 40% long-term.

The third major area is manufacturing. This is a key area for our repositioning. First, we are increasing utilization of existing plants. We have previously announced closure of our Taiwan facility, the closure of our technical center in Harrisburg, Kentucky, and this morning we announced the closure of a plant in Richland, South Carolina, which its production will become consolidated into our plant in McHenry, Illinois. We also announced this morning our intent to close a plant in Clinton, Tennessee. Also part of this activity we will be moving production and equipment from several facilities to increase utilization of our Harrisburg, Kentucky plant. There are additional actions under study to further consolidate existing facilities both here in North America and Europe.

The other segment of manufacturing is low-cost manufacturing. We previously announced the purchase of the remaining 50% of our joint venture in Brazil. We are planning to move some Legacy work from high-cost countries to Brazil over the next year. Plus, we'll be sourcing a new product, [Barplaque] oil coolers to support our powertrain cooling module business for trucks and off-highway for both North America and Europe. This is a natural for low-cost country sourcing utilizing a proven Modine European design but utilizing our low-cost manufacturing base and the product size, which makes it attractive because of the logistics cost often incurred in low-cost country sourcing.

Yesterday we also announced the construction of a new plant in Nuevo Loredo, Mexico, to support new business we have secured as a Tier 2, and more on that new business will be announced within the quarter. We are very excited about this new relationship that will be announced. We are also active in developing programs both in Eastern Europe and in India, and expect to have additional announcements for both regions within the third quarter.

The other major portion of our repositioning is a $20 million reduction in our SG&A cost. To date we have announced and implemented the 15% reduction in our Korean operations at Asan City, Korea. We also have in process an early retirement program in North America. We are also engaged in reviewing further actions in regards to our Racine and our European headquarters. We are looking at both business structure as well as the support departments. All of this coupled to drive the $20 million out of our SG&A cost.

The third key area is sales growth. We reiterated our new business wins of $300 million. As a result of new business wins, and I would reference a number of recent announcements that we have made. With a low-cost manufacturing base as we're driving and our excellent technology, we will improve our bid success rate and have targeted $150 million of additional new business over the next five years over and above the $300 million I mentioned earlier.

The last area that we've been very active in the last few years is acquisitions. This will continue to be a high priority, and given our balance sheet we can do that. We have made four acquisitions in the last two years with sales of over $400 million in incremental sales. Our priorities are footprint expansion, globalization, expanding systems capability still within the thermal region but expanding our systems capability.

The final area is building specialty HVAC, very similar to our Airedale acquisition that we made last year.

Finally, we have a deep study going on of potential new markets where we can take our thermal tricks and skills into new areas and drive potential sales growth and earnings.

I am very confident we will improve our cost structure coupled with further growth to meet our stated goals of 11% to 12% return on average capital employed through the cycle. This will happen. We just have to execute the plans we have.

We also announced yesterday two key executive programs. Tom Burke was promoted to Executive Vice President and Chief Operating Officer, and Bob Kampstra was promoted to Corporate Controller. So, with that, Brad, would you go through some financials?

Thank you very much, Dave, and good morning to everyone. As you saw from our announcement yesterday, earnings per share from continuing operations came in at $0.51 per share, which was down from last year's first quarter of $0.60 per share, respectable considering the pressures we have on our costs, in particular, raw material, and the selective price-down pressures we have experienced primarily in our automotive business. Consolidated results from continuing operations for the quarter included recorded revenues of $430.4 million, up 8.5% over last year. It is important to note that excluding the impact of acquisitions and foreign currency rate changes, underlying sales grew by 19 million, or 4.8%, with organic growth driven by exceptionally strong demand for our North American truck and global heavy-duty industrial businesses. We also benefited from numerous smaller product launches that have come on stream since last year.

Net earnings from continuing operations of 16.3 million declined from 20.7 million last year, primarily due to the deterioration of our gross margin as a percent of sales, as well as 1.3 million of after-tax charges related to our global repositioning actions. The gross margin fell to 17.7% from 20.2% last year, reflecting the impact of lower unit pricing, which had a $7 million negative impact in aggregate on the quarter results, and higher cost for aluminum and copper, which had a $5 million net of pass-through impact versus last year's quarter.

While we can't control commodity prices, there are things we can do to protect Modine against commodity price swings prior to passing through our cost that we have under agreements with our customers. To that end, as Dave mentioned, we implemented aluminum hedging strategy in April. We currently have hedged 30% of our annual requirements with plans to be at 60% by the end of this summer. We've chosen aluminum because it is the commodity used most in our products, and it certainly seems imprudent to launch a hedging program for copper given that it continues to trade at an all-time high.

With regard to SG&A, it was relatively flat as the percent of sales. It was up 4.5 million, but excluding acquisition, was up only 1.5 million. This was the lowest increase in SG&A in recent history, and the increase was driven by 500,000 of incremental stock-based compensation expense recognized with the recent adoption of FAS 123-R, which is the new stock expensing literature, and 400,000 of third-party expense incurred in the evaluation of our electronics cooling business.

Clearly, based on these results, we are already seeing some traction in our cost reduction program relating to SG&A. Our ultimate goal is by the end of the fiscal year to bring SG&A down $20 million on a run rate basis, or 10% on an annualized basis. Partially offsetting our costs and pricing pressure was the fact that we benefited from the use of previously untapped net operating losses resulting in a reduction of income tax expense totaling $3.6 million. I would note that these losses were made available as a result of the acquisition of RV in Brazil.

Let me now turn to the operating cash flow. Admittedly, it was not strong this quarter, coming in at 8.3 million due to increased working capital needs for inventory and accounts receivable. During the quarter we built inventory levels of products in advance of the upcoming heating season for our HVAC&R business, and further, we built inventory as part of our strategy to mitigate possible production disruption from labor negotiations that we ongoing in Korea.

On the receivable side, price increases that we have passed on to our customers have caused a delay in payments due to finalizing commercial negotiations with the customers and the procedural process of setting up new prices in their system for payment. Our conservatively managed balance sheet remains strong with total debt-to-capital ratio of 26.4%, which was up from 23.8% at the end of our fiscal year March 31.

In the quarter, cash requirements included the repurchase of nearly 300,000 shares, or $8.3 million. We also funded 18.1 million in capital expenditures for growth in support of the heavy North American product launch scheduled, in particular the 2007 model change-over in the truck business. Also, as Dave mentioned, we acquired 50% of RV that we did not own for $13 million net of cash, and this is clearly in support of our diversification goals and low-cost manufacturing goals.

Finally, we paid cash dividends which used a total of $5.7 million of cash in the quarter. We made a lot of progress towards our goal of global repositioning to stimulate business wins by being cost competitive, accelerating technology development, and repositioning our manufacturing footprint. In the quarter we reiterated our $300 million of net new business, supported by several new business wins announced in the quarter, including a $45 million three-year contract to supply exhaust gas recirculation coolers to Volvo, a $15 million three-year program to supply AGR coolers to the MAN Group, and a $35 million three-year program to supply engine components to International Truck and Engine. We also completed the acquisition of Radiadores Visconde in Brazil, and we announced the formation of a product focus group to support the heating, ventilation and air conditioning equipment needs of the truck and off-highway markets. In conjunction with that change we announced the closure of our technology center in Harrisburg, Kentucky, resulting in $100,000 of expense recorded this quarter, and a total expense for the fiscal year of $1.1 million.

Also in support of global repositioning, we announced an early retirement program for certain U.S. salaried employees, and again we incurred 400,000 of expense in the quarter for this program, and we anticipate total cost of $1 million to $2 million in our fiscal 2007. This is incremental to the early retirement program that was already offered to and accepted by our employees at Modine's South Korean facility. We also announced the closure of our Taiwan facility that manufactures heat pipes for the personal computer and laptop markets resulting in 1.6 million of expense in the quarter, and we expect the total for the year to be $2.5 million to $3 million for the entire fiscal year.

As well, as Dave mentioned, today we announced the closure of our Richland automotive facility and possible closure of our Clinton automotive facility. The Clinton facility closure is conditioned on the decision of a bargaining announcement that we have with the union at that facility. These two closures will result in the Company recording approximately $8 million of total pre-tax charges over the closure period, of which we estimate $3 million will be incurred in this fiscal year.

Let me close by saying we have the financial strength and the flexibility to remain committed to our strategy. We are taking steps to reposition the cost base with the primary benefit of increasing our win rate and therefore overall revenue growth for the Company, driving the return on capital employed, as Dave mentioned, up to 11% to 12% by the end of the 36-month repositioning period.

Operator, let's open this call up for questions.

Certainly. (OPERATOR INSTRUCTIONS) Our first question comes from Stephen Weiss with Excalibur Research.

Thank you very much. Good job, guys. I really like what I'm hearing. A couple of things. Regarding your customers, how are you guys streamlining the selling process to reduce some order inaccuracies, so now your customers will be able to better configure and price your product more efficiently?

I'm not sure I understand the question. I think, Stephen, I think you're brighter than I am, so he understands. No, I think what you're getting at is clearly, we did see the accounts receivables, as I mentioned, increase in the quarter and is due to the administrative process particularly in our customer base of actually updating their systems to accept the price increases. Again, the quicker we can get that worked out, the quicker it gets set up in their system and the quicker we get paid. So, you're hitting on the right point here. Believe me, there is concerted effort. We have our sales people, as well as our credit people working directly with our customers to expedite this process. This generally is a fairly smooth process, but given the amount of price increases, it's taking direct intervention.

I guess what I mean was when your customers are placing orders for component parts, what-have-you, how are you making the process easier for them in terms of configuring --

We're electronically attached through EDI with nearly all of our customers, so it's all done electronically.

What have you seen as some of the challenges in the marketplace that you're trying to address with making sure it's a seamless integration?

Actually, it is pretty seamless today other than price files. A few years ago there was some rapid changing of technology, and there was not -- everybody wasn't on the same page. There weren't the kind of standards that we have today that no matter what product you're using, they're all pretty similar in regards to format and being able to talk to each other. But a few years ago that was not the case.

What are you hearing in the marketplace right now or challenging customer and market needs that you're trying to address other than obviously raw material costs and things like that. What are some of the other challenges?

Well, with our customers, it's technology, and that plays to our strength. We are already talking, for example, with our off-highway customers in what's called Tier 4, which is the next emission change, in regards to how we can deal with the incremental emissions requirements which all creates incremental heat and some very corrosive products in recirculation. We're already talking with our truck customers in regards to even though the '07 product is just now being launched. In fact, I visited a little bit ago with one of our key truck customers and we were talking about 2010. So, in our business it's not technology; we turn into a commodity. And so we have to make sure that we absolutely stay upfront of our customers' needs and stay in front of our competition, and I think we do that overall pretty well. The key is getting the manufacturing cost base in line and couple of the two, then we win.

The other piece that we've done is where we may have a product gap and maybe one of the other suppliers in the marketplace has a product gap in order to be able to give a total systems approach, so we're partnering, for example, with BorgWarner in order to be able to bring those 2010 solutions and the '07 solutions, just a very robust solution in combination with our fans, our clutches and our thermal solutions. But it's all technology. Absolutely price has to be there, and we've got some short-term challenges in regards to these commodity prices, unprecedented commodity prices, but that will be dealt with.

Okay. And a final question. I like what I'm hearing. As CEO, as you go into '07, what is the top initiative that you would like to tell your shareholders that you're going to accomplish as CEO?

Well, absolutely the repositioning activity. You know, what I'm very pleased with is we've got a very good reputation on quality, we serve our customers well. We have a good technical image in the marketplace. We have a cost base issue that we're going to work very hard to create what I call blended manufacturing strategy. It's not on all low-cost manufacturing, because some products should be made in North America and Western Europe because of logistics costs and intellectual property, etc., etc. We're going to work very, very hard in having the right blended manufacturing costs, the right blended sourcing costs, and we've got to get our SG&A back in line to meet the market expectations through repositioning.

Thank you very much. I wish you continued success.

Thanks, Steve.

We'll take our next question from David Leiker with Robert W. Baird.

Hi, David.

Hi. It's actually Keith Shicker.

Hi, Keith.

A quick question about the tax benefits that we had here in the first quarter. Is this a one-quarter thing, or is this going to be a benefit for future quarters as well?

No, this is a one-time benefit that we recognized. As I mentioned, we had some net operating losses sitting in a subsidiary that we hold in Brazil. Those operating losses we were not able to tap those, but with the acquisition of the entire business in Brazil and through some tax restructuring that we will be doing, we're able to access those, and therefore we have recognized the benefit in accordance with accounting principles in the quarter. So it is a one-time benefit.

Should we think differently about the tax benefit for the -- or the tax rate for the balance of the year then?

Well, that certainly -- that's relative to our total income. That's certainly a large driver, and so I think from a full year perspective, the effective tax rate is going to be kind of in the low 30s.

Okay.

I do feel it's important, and Brad has a very competent staff in the tax area, to make sure as we become a global company that we understand all the tax nuances of not only from the North American perspective, but all of the 15 countries that we serve. And I would call that a core competence that we have internally.

Okay. Would the acquisition of the remaining 50%, would that have been accretive without this tax benefit.

Absolutely.

Absolutely, okay.

It's been a very good relationship we had. We've made the initial purchase of the first half about eight years ago. We have great partners. It was basically about a $40 million, $45 million business when we first entered it, and it was very, very strong in the after market, and we've grown very nicely down there in the OE side. It's now probably an $80 million business, and it's over half OE, so we're very thrilled with the local country sourcing that we're receiving, but we now see it as a great opportunity to do some low-cost sourcing back into North America and into Europe, where the logistic cost makes sense.

Okay. Sure. In Europe it looks like we had an increase in revenue, but operating income fell. Is this a volume issue over there or is it a cost issue?

I think Europe is -- what you're seeing again is the sales did increase. That was largely driven by the currency, but the overall impact on the profitability in Europe is really driven by the raw material issue.

Okay. And then Asia, revenue was slightly down in the quarter. Where are you guys in the synergy that you're hoping to get, or planning on getting from the Winia Mando acquisition?

Well, it's a great place for us to jump off into China, and we already have -- they already had a joint venture at a small site in Shanghai. With those two locations in China, we're already growing and we're sourcing product from the JV that we have, a 50/50 JV back into Korea. We're also expanding our operations already in Shanghai, and we'll be moving to a larger building. The synergy that we like already and it's actually ahead of the game is in Korea itself, where we're bringing our technology to our organization there, because they were basically an HVAC business for small commercial vehicles and cars. But we're bringing our engine technology and our power train cooling technology, and we're having some nice wins in Korea. The disappointing side in Korea is the local market is softer than we had originally projected, and certainly labor is a challenge over there, as anybody that operates knows that. The other side, which will be longer term, is taking their technology and their relationships into other regions. Because of the relationship, we've won some business and we're actually launching it right now to Kia for some charge-air coolers in Slovakia, and certainly we would like to pursue our relationship with high-end Kia to gain sales here in North America.

The last piece of the synergy is we have had some Koreans in Europe to support our HVAC business, and we'll be transferring some Koreans here to support our new initiative that Brad mentioned on HVAC for truck and off-highway.

Okay.

Keith, if I can just clarify, to make sure I was clear on the currency comment as it relates to Europe. Clearly you've seen an overall growth in the revenue for Europe, and that is despite the fact that the Euro has actually weakened vis-à-vis the dollar, and so, again, the overall impact of currency with a minus $7 million on the Europe comparison. So, you can see that there is strong underlying organic revenue growth quarter-over-quarter in Europe. Again, the profitability challenge that we have is primarily materials albeit there is some pricing also. Yes, I would say pricing, especially in the automotive side, has been pretty aggressive in the automotive side. We're particularly pleased with our off-highway business over there. That's been about a three, four-year journey of not only fixing some product problems and some reputation, but also growing the top line, and we're pleased with their bottom line growth. I mentioned earlier that we are studying very aggressively moves into Eastern Europe from a manufacturing base and, of course, it's close enough the logistics issues are more practical to deal with in Europe than out of China, and so, again, we'll have this blended strategy. The only thing you have to overcome short-term is the redundancy costs that that could create in Germany and other Western countries.

Okay. One final question. We've had three consecutive quarters here of declining operating income year-over-year. Are we going to see a positive comparison in 2007, or are we going to wait until 2008 for that?

This is a transition year and I'll tell you, who's got the crystal ball on materials? Brad mentioned that we don't hedge copper, and we actually talked about it in November of last year and December, and we said it would be crazy to hedge on copper and looked what happened to it. So, the real dicey thing this year is continuation of what's going to happen in materials. We're being aggressive in some price recovery, but there is obviously some lag there. I would call this year a transition. We are going to see some of the activity that we have going to the bottom line specifically in the SG&A area. The operating side, that takes you little longer and like Brad said, we've got some costs in order to do some of this repositioning, but we will have some positive impacts from Taiwan. It probably was something we've had on this call in the past is with the closure of Taiwan, that electronics business is now at break-even.

Okay, thanks.

(OPERATOR INSTRUCTIONS) We'll take our next question from Dennis Scannell with Rutabaga Capital.

Hi, Dennis. How's life in Boston?

Things are good, things are good, Dave. How are you doing, Brad?

Hi, Dennis.

Have you got that tunnel fixed?

No, no. We've got some more work to do there, so hopefully the next time you guys are in town you'll have a safe drive in from the airport. Just a couple of quick follow-ups. Can you talk a little bit more about the pricing? It sounds like that's something over and above the traditional pass-through contracts, which I know has been -- let's say a problem in terms of trying to get those actually realized.

Are you talking about the materials pricing?

Yes. Well, you mentioned, I think, overall customer pricing was going up. Is that --

Well, there are two elements here in pricing. There is the price-down, which they call productivity, and we do have -- I would say continuing and with some customers increasing pressure to reduce price. So, that is a never-ending battle on what I call productivity pricing, and selective push from some customers because of their personal situation. The other side is the materials pass-through, where with many or most of our OE customers, we do have a pass-through, but as we've said in the past, about a 10-month lag. With this unprecedented run-up in materials pricing, that lag effect, that 10-month lag just becomes unbelievably choking. So, we have gone out with some incremental pricing to shorten that cycle of 10 months and getting pricing quicker than what the contractual requirements would require. Does that help?

Yes.

Dennis, just to clarify, too, on what I quoted, the $5 million for the impact of aluminum and copper, that is a net impact. So, I've factored in the price increases that Dave was saying we were able to get through, which again did not offset the impact of commodities. So, I'm quoting a net number there.

Gotcha. Gotcha.

For price increases.

If we see let's say just some stabilization in the commodity prices, would we expect to recapture those increases in that -- in terms of your pricing to your customers looking out 10 months? Is that realistic, or --

Well, we had what we call a natural hedge, and so that has always been the logic of why we really haven't hedged material in the past, because we have a natural hedge in our pricing, but we've had this run-up that we just can't afford not to take a different direction. Also, with some of our customers where we have agreements and they have some difficult financial situations, some of those agreements have been challenged, so that ends up in commercial negotiations. Our diversification model allows us to say no or find a compromise at times where we're more dependent on specific customers who maybe wouldn't have the ability to negotiate as we have, when they push back on these agreements.

Gotcha, gotcha, okay. And then just a couple other points of clarification. On the 300 million of net new business, we're kind of thinking of that over the next three years or three to five years?

Five years. And let me just clarify, we're going to update that number in the fall, but we've taken a recent look. Last fall we used a $300 million number, and that included a product that we were launching last year, and that was about $50 million of business that we launched last year. So that would net to 250, and looking at it in this last month or so, we are very pleased that we've replaced that stuff that we've launched, so we're still holding to that $50 million -- or $300 million worth of incremental. In other words, we've been able to push it out one more year, but replacing what we've already launched.

Great. And when you say 50 million, that was from fiscal year '06, ended March '06?

Correct.

Okay.

The other pieces that we think with this new cost base, we're going to actually start quoting to this new cost base the kind of things that I talked about and the things that we're working on, so we can start winning at a higher rate. Our goal is an incremental 150 in this time period that we're going to pursue aggressively, not giving it away, but in order to be able to get the margin and return on capital that's appropriate with a better cost base.

Great. So that was my question. So, that 150 is incremental again over the next five years.

Yes, and we've got specific targets to work on and kind of making sure that we don't do anything for practice.

Terrific. One last thing just, again, a point of clarification. On the tax rate, Brad, were you saying that the full year March '07 fiscal year will be in the low 30s or the next three quarters will be in the low 30s?

No, I was trying to average for the full year. You know, taking in the fact that, again, the 3.6 million is significant in terms of the total for the year and therefore will bring the tax rate for the full year down into the low 30s.

Remember, Dennis, I mentioned that's a core competency, and I have expectations of Brad's finding the right opportunities we have globally on tax. It's just like you push a manufacturing [inaudible] --

Oh, absolutely.

-- we've got to do our part.

No, it sounds good. We as investors are probably stripping that out trying to get a normalized rate, but that's real money, and as shareholders we appreciate that. Thanks a lot.

You know, Dennis, it really is real money in that 3.6 million, when we did our calculation, internal rate of return calculation on the acquisition of the RV business, we did not factor in that we would be able to capture that. So, that's just upside to the overall turn from that investment.

Terrific. Thanks a lot, guys.

Too many people, I think, take those kind of things casually, and I think, like I said, if you've got the right people and the right focus, there's money to be brought to the bottom line in the tax side. I hate people when -- I hate it when people discount the tax management.

Completely agree. Thanks.

(OPERATOR INSTRUCTIONS) It appears we have no further questions.

Well, that's fine. We've got lots to do and the good news is, we've got a top line that continues to grow, and we're very pleased with that. We have an organization that's focused on the customer, and I'm very pleased that there's just not field issues and quality issues and warranty issues that have us up at night. The key focus right now is get this repositioning activity done as efficiently as we can and candidly as responsibly as we can with the employees that are being affected, so we can increase our win rate and get us back to that 11%, 12% that I think is clearly within our reach in the timeline that Brad gave. So, we'll be talking to you all next quarter. Thank you.

Thank you.

And that does conclude today's conference call. We'd like to thank you all for your participation. Have a great day.