Mercury Systems Inc (MRCY) 2005 Q3 法說會逐字稿

Good day and welcome everyone, to the Mercury Computer Systems Incorporated third quarter fiscal 2005 earnings results conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Vice-President of Investor Relations Ms. Diane Basile.

Please go ahead ma'am.

Thank you.

Good morning everyone and welcome to the Mercury Computer Systems third quarter 2005 earnings Conference call.

If you've not received a copy of the earnings release, you can find it on our website, www.mc.com or on the FirstCall Network.

We'd like to remind you that remarks we may make during this call about future expectations, trends, and plans for the company and its business constitute forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigations Reform Act of 1995.

Forward-looking statements involve risks and uncertainties, that could cause actual results to differ materially from those projected or anticipated.

For a discussion of these risks and uncertainties we refer you to the company's reports filed with the Securities and Exchange Commission including the company's quarterly report on Form 10-Q for the quarter ended December 31, 2004.

Further information regarding forward-looking statements and risk factors is included in the press release we issued this morning reporting the company's third quarter 2005 results.

We caution listeners of today's conference call not to place undue reliance upon any forward-looking statements.

We speak only as of the date of this call.

We undertake no obligation to update any forward-looking statements.

I am now pleased to turn the call over to Mercury's President and Chief Executive Officer Jay Bertelli.

Good morning everyone as you probably read in our announcement this morning, we had a great quarter.

Mercury posted results within the range anticipated by our guidance of the community.

Q3 represents our strongest quarter ever in terms of revenues.

We did it again.

Operating income was 17.7% of revenues.

Third quarter revenues were at 63.4 million, another record revenue.

Net income grew by 29.4% to 8.2 million.

Earnings per share were at $0.34.

Cash flow from operating activities were 13.6 million.

Cash and marketable securities balance at the end of the quarter was 226.1 million.

That's a quick summary of the financials.

Now I'm going to turn it over to our CFO Bob Hult to provide the details for the quarter.

Thanks, Jay.

Good morning, everyone.

As you heard from Jay, our third quarter results reported earlier today again represented strong performance for both our defense and commercial business units.

Our objective this morning is to provide the business context surrounding the results of the quarter and then to review assumptions behind our forward guidance as an aid to the development of your own models.

I will review revenue including details by business unit and then discuss company operating performance, balance sheet, and cash flow results.

I'll then close out with a discussion regarding the outlook for the fourth quarter.

First let me summarize total company third quarter results as reported this morning.

Third quarter 2005 revenues were 64.3 million, which was again a new quarterly revenue record.

Third quarter revenues grew by 19 million or 42% over the same quarter last year and grew 5 million sequentially.

Operating income for the third quarter was 11.4 million or 17.7% of revenues.

Earnings per share for the third quarter were $0.34.

At this point I would like to drill down into operating performance beginning with revenue, detailed by business unit.

We will provide comparisons on both a year-over-year basis and also note the sequential change.

As an OEM supplier to our commercial markets and a commercial off the shelf cost supplier to our defense customers, customer delivery requirements are a primary driver of quarterly revenue fluctuations.

Customers specify the delivery date requirements that coincide with their need for product.

And an order that falls within one quarter generally does not indicate a trend for future orders.

Additionally, order patterns of one customer do not necessarily correlate with the order patterns of another customer.

Therefore it's generally difficult to identify short-term sequential trends, even within a business unit.

I think what that translates into our line of sight tends to be primarily driven by what we know about our design wins, our customers' requirements over a longer-term basis, and of course the very strong backlog that we tend to have entering any given quarter.

So revenue by business unit, our defense electronics business unit reported revenues of 36.5 million, or 57% of total corporate revenues for the third quarter, up approximately 37% from the same period last year.

Within the three application areas, defense application areas radar, signals intelligence, and defense technologies, the group experienced particular strength in signals intelligence as well as defense technologies.

As we noted in the press release defense related revenues grew sequentially by 3.3 million.

Our imaging and visualization solutions business unit, part of our commercial group, revenues for the third quarter were 11.4 million, representing 18% of total corporate revenues and up 22% from the same quarter last year based primarily on contributions from our TGS acquisition.

This is the company we acquired approximately a year ago where we picked up primarily 3D software technologies.

While this represented a sequential decrease of 3.8 million from the second quarter revenues of 15.2 million, quarterly variations due to customer order patterns are again part of our OEM business model.

A quick note, our IBS solutions business unit here continues to be on plan for the full year.

Our OEM solutions business unit third quarter revenues were 14.2 million or 22% of total corporate revenues up 53% from the same quarter last year.

Sequentially revenues for this unit were up 3.8 million.

Growth for the OEM solutions business unit was primarily driven by applications serving the semiconductor market, which accounted for approximately 90% of this unit's revenues.

Growth continues to be driven by design wins moving into production and the strength of the semi-conductor market.

As a result, we experienced increased shipments of our systems to semi-conductor capital equipment OEMs for integration into their inspection and mass generation systems.

Total company book to bill ratio exceeded one for the third quarter.

Directories total backlog at the end of the third quarter was 110.4 million an 8.2 million increase from the end of the second quarter and an increase of 19.2 million from the beginning of the fiscal year.

Of the ending backlog, approximately 91% or 100 million relates to shipments expected within the next 12 months.

Gross margin was 66.1% for the quarter, within our operating model expectations.

Total operating expenses comprised of selling, general and administrative, R&D, and amortization of intangibles were 31.1 million for the quarter.

Within operating expenses SG&A expenses were 17.2 million for the quarter.

Research and development expenses were 13 million for the quarter or approximately 20% of revenues.

Amortization of intangibles and in-process technology charges related to acquisitions were $900,000 for the third quarter.

Operating income of 11.4 million represented 17.7% of revenue from the third quarter.

Net income of 8.2 million was 12.7% of revenue.

Turning to the balance sheet, operating cash flow was 13.6 million in the third quarter.

Operating cash flow was comprised of 8.2 million in net income, 3 million of depreciation and amortization, 2.4 million in other and non-cash items and a slight decrease in overall working capital requirements.

As to the details behind our working capital drivers, day sales outstanding of 48 came in modestly above our long-term target of 45 days.

This DSO performance represented an improvement of eight days from the same quarter last year and three days compared to the second quarter of this year.

Inventory returns of 4.7 for the third quarter were down from 5.1 turns in the second quarter.

This level of performance is not within our target range.

We continue to actively invest in new supply chain initiatives.

As you know, we currently utilize two contract manufacturers, Jaybel and bench market, as our out source partners.

We remain committed to our longer inventory turns goal of eight times.

Capital expenditures were 2.8 million for the third quarter.

Cash and cash equivalents were 226.1 million at the end of the quarter, up 3.4 million from the second quarter.

At the end of the third quarter our total employee population was 733.

Turning now to fiscal 2005 outlook, which primarily is focused on the fourth quarter here, as you saw in our earnings announcement we have tightened our revenue and earnings guidance to the top end of the range.

I will discuss that in greater detail in a moment.

First I'd like to provide some operating context to help in your business model development.

An important data point I would ask you to keep in mind when developing your models is the nature of our OEM business model that our customer order requirements can drive significant quarterly revenue variations.

These assumptions regarding quarterly revenue patterns are an important determinant of quaterized operating profits and earnings.

Accordingly on the top line we expect to deliver 66 million in revenue for the fourth quarter, another record revenue quarter for the company.

For the full year revenues would therefore be 245 million.

By business unit, we continue to project the full year revenue mix to approximate 60% defense and 40% commercial applications.

Moving through the P&L, we anticipate fourth quarter and fiscal year gross margins to be approximately 66%.

This assessment is based upon the projected program and business unit mix.

We anticipate operating expenses to remain relatively flat for the fourth quarter.

We expect operating margins to approximate 17% for full year fiscal 2005.

For the 30% tax rate and no change to average shares outstanding, we would therefore expect earnings per share of $0.37 for the fourth quarter and $1.21 for the full year.

In terms of working capital, we expect to drive improvements, continue to drive improvements in our DSO towards our goal of 45 days and our working capital initiatives are expected to deliver progress on our inventory turns towards our longer-term goal of eight times.

Capital expenditures for fiscal 2005 are projected to be approximately $10 million.

Depreciation and amortization will be approximately 11 million due to the increase in amortization from tangible assets.

In summary, for the full year we project revenue of 245 million or 32% growth over fiscal 2004.

We project gross margins of approximately 66%, resulting in our full year guidance for operating profit of approximately 17%.

In closing, our balance sheet is strong.

We have the cash reserves to support our strategic growth initiatives and to finance organic growth in our target application areas.

The strong third quarter performance again demonstrated the Mercury capability to turn revenue into profit.

We remain focused on leveraging this skill set and we are committed to maintaining appropriate levels of spending relative to growth projections.

We are currently engaged in our annual strategic planning process as well as the development of our fiscal 2006 operating budget.

We will complete these processes during this quarter and provide additional details regarding that 2006 outlook on our year-end conference call near the end of July.

Over the longer term, our goal of achieving a 25% sustainable growth rate on the top line through the combination of organic and acquired revenues remains intact.

Additionally, we remain committed to our timeless business model objective of maintaining 16% to 18% operating profits.

At this point I'd like to turn the call back over to Jay for industry comments and some additional context regarding our business outlook.

Thanks, Bob.

Over the past several quarters we've reported to you on our work to position Mercury for significant long-term growth.

Today as the numbers demonstrate I'm pleased to tell you that I believe we are on that growth path.

Much of the growth is fueled by our determination to continuously strengthen and build our core competencies..

Our strategy of open (ph) innovation is to seek out the best ideas within the Mercury walls and beyond.

In order to sustain our leading edge in our share market and to forge new opportunities where we add value with our architectural and computing systems solution expertise.

As for external acquisitions, we have an active pipeline, which is fueled by our business development team as well as the ideas that come from the business units themselves.

We review for appropriateness and fit along multiple dimensions.

This remains an element of our growth strategy.

Another important element of our growth strategy is our focus on major defense programs such as FCS, Future Combat Systems which is at the heart of the rejuvenation of the modernization of the Army.

Billions of dollars are expected to be spent on this initiative over the next several years.

Our applications knowledge combined with our computing systems expertise positions Mercury to participate in this major program.

In our Imaging and Visualization Solutions Group we are exploring potential opportunities within the TGS customer base, TGS is the company that we acquired just a year ago, to extend our 3D imaging software from applications in the sciences to commercial use.

This would enable us to provide a cost effective delivery vehicle for production environments such as seismic and simulation, data processing, and visualization.

More on this later.

During the quarter we had some significant announcements across our markets.

From a radiologist image slice to a Geophysicist work station to a fighter pilot's radar screen, Mercury is enabling our OEM customers to accelerate sensor and image data processing, analysis, visualization, interaction and understanding for their customers.

The initial results from our partnership with the Massachusetts General Hospital and NVIDIA, which we announced in March are a prime example.

We achieved a 60 X performance increase in DBT Digital Breast Tomosynthesis imagery construction and facilitated the advancement of this 3D mammography technique from a research tool to a commercially viable imaging solution.

As we reported to you on our first quarter conference call, DBT was developed by Mass General and it involves a 3D (indiscernible) reconstruction from a series of 2D projection images that requires vast amounts of computation.

Mercury worked with mass general to decrease the computation time and implemented our unique image processing solution using enhanced NVIDIA quadro professional graphics processor technology.

That was a mouthful.

The results show breakthrough performance in imagery construction time from five hours to five minutes.

Initial findings strongly indicate that DBT will improve the accuracy of breast cancer screening and enable physicians to find more cancers earlier.

The enhanced technique also gives radiologists more control to choose any point of view they want to image and analyze in real time reducing imaging costs.

In the oil and gas space, there's growing need in seismic data processing and analysis for better visualization and interaction with increased data volumes.

So, as to manage the extraction of oil from the reservoirs.

Companie Generale de Geophysique, or CGG, our principal supplies of geophysical products and services to the worldwide oil and gas industry selected our 3D visualization software for the latest version of its Geo cluster seismic processing software.

Integrated as a standard in CGG's geophysicist desk tops and interpretation work stations open inventor for mercury, and volume Vis (ph) large data management and visualization components acquired from TGS enable high image quality and smooth navigation of very large data sets for CGG's application developers.

We continue to innovate our product offerings to address changing requirements as well as to provide more of the solution for our customers.

Many of our customers require single processing solutions that use FPGAs or field-programmable gate array hardware.

During the quarter we announced the release of our FPGA compute node developer's kit.

FDKA 2.0 is a comprehensive suite of software tools combined with Mercury intellectual property, which includes the patent pending race-on-chip high bandwidth interconnect and design consultation.

It is designed for rapid prototyping and development of FPGA based applications so as to provide our customers with a high bandwidth interconnect while reducing project risks and speeding time to market.

Building upon the success and performance of our ensemble Advance TCA development platform we incorporated feedback from customers and enhanced our product offering for next generation Telecom infrastructure development and deployment.

Announced in February, Ensemble2 is the first high speed serial RapidIO development platform that is expected to provide OEM's with cost efficiency and time to market advantages.

Ensemble2 is designed to be a fully integrated system and provide seamless interoperability with the latest silicon from leading manufacturers including TI, Freescale, Xlinx, Altera, Tundra Semiconductor, and Intel.

In conjunction with Ensemble2 we announced our E2-MTI Advanced Mezzanine Card, which is based on the new Texas Instruments TCI 6482 digital signal processor with serial RapidIO.

Working in close collaboration with silicon and software partners, we designed the E2-MTI to provide connectivity for a broad range of Data Plane Applications including base stations, radio network controls, and media gateways.

This is another example of Mercury working in close collaboration with silicon and software partners to develop a system solution that will provide our customers a quicker route to production.

Our ongoing commitment to supporting industry standards is evident in the succession of product introductions that incorporate serial RapidIO technology.

The most recent of which is our silicon IP core.

The core is designed to reuse an optimize for performance in embedded communications and networking applications and is a significant offering in the growing RapidIO ecosystem.

Mercury is an important part of synthetic aperture radar or SAR technology for the F/A22 tactile fighter program.

U.S. and allied aircraft across all service branches are currently being upgraded to include SAR technology for improved airborne intelligence, surveillance and reconnaissance capability.

Onboard Lockheed Martin's F/A-22 Raptor fighter jet, Mercury's RACE++ series multi computers process vast amounts of ground image data as part of an (indiscernible) permanent source system and turned it into actionable information that can be accessed in real time by network soldiers and military personnel around the globe.

This recent selection expands our relationship with another improvement and positions are conduction through (indiscernible) official products by having earning markets.

So as you can see we've had some pretty exciting news to report those are commercial and defense markets.

To sum up before we take your questions, mercury management is pleased to report another strong revenue quarter with solid operating profits.

Our results this quarter in this year are dividends are that currently are on a path to growth to achieving our long-term objective of 25% top line category.

We're confident that our potential and look forward to updating you on our progress.

With that, we'll open up the call for questions.

Thank you.

Today's question-and-answer session will be conducted electronically.

[Operator Instructions]

We'll go first to Steve Levinson, Ryan Beck (ph).

Good morning.

Jay, Bob and Diane.

Good morning, Steve.

In relation to Momentum Computer, can you tell us how you are as far as satisfaction goes and what you see going forward?

We are currently very satisfied with the progress we have made.

Not only in the integration but how the pieces are coming together to fit in with the overall strategy that drove us to acquire Momentum.

It's opening up opportunities for us, not only as a stand-alone revenue generator but opportunities that are going to get us into markets that we hadn't previously been able to participate in.

So to date I'd say that it's fulfilling the strategy.

Okay.

Thank you.

Second, there have been a flurry of some UAV orders recently for predator and global hawk that we're aware you're on.

Is there anyway you can give us an approximate content per unit or at least a little additional information on where you stand with those programs?

Well, we're still the processor of choice for the synthetic aperture radar system on both of those UAV's.

From the time the order gets release the budget comes through for these until it flows down to us there's a -- there's a period of time in there, I can't tell you how long it's going to take, before we see any orders as result of what you're referring to.

Okay, and as far as content per aircraft?

I don't know if we've released that information previously, Steve.

So while we certainly know what it is, I don't think I'm ready to give it out today.

I understand.

Thanks.

Lastly, on your buyback, where do you stand on the authorization and what are the plans for that?

And of course how the treatment of options might be addressed going forward as well.

OK.

Steve, it's Bob.

We've pretty much completed our buyback program for the fiscal year.

So we bought back another 300,000 shares during the -- during the quarter.

Brings the total to just under 900,000 shares.

We spent about 25 million on the program.

So we're done with that program.

And as far as treatment of options?

Well, like -- I think like every other company, we're in the thick of doing our homework right now, trying to understand what our alternatives are going forward.

You know, I think the place that most companies are starting is not with the accounting side of it.

That's relatively straightforward and determined.

The question that everyone's faced with is what are these programs going to look like going forward which is causing everyone to spend I think a fair amount of time with compensation consultants.

We're certainly using one, one of the more reputable firms here in the Boston area, to help us understand how we're going to approach the equity side of our compensation packages going forward.

So we're -- as you know, we're going to be one of the first guys.

We're a June ending company, so it's going to -- it's going to impact our Q1 reported results, our September quarter reported results.

We have to have our compensation side, the philosophy side completed here by the end of the June quarter.

Is that what you were after?

Pretty much.

Thanks for all the information, and I'll talk to you again soon.

Thank you.

We'll go next to Mark Kelleher, Adams Harkness Financial.

Thanks.

I was just wondering if you could talk a little bit about the strength over in the semiconductor space.

It seems a little bit stronger than maybe the semiconductor test equipment market is.

Where do you think we are in the cycle there and what do you -- what do you attribute that strength to?

Well, we can attribute the strength directly to the strength of the customer base that we have in that space and the fact that they are clearly the market leader and as their futures go, so go ours.

So the business, the overall semiconductor industry seems to be fairly strong.

They're benefiting from it as we are.

Okay.

Did you have any 10% customers in the quarter that you can tell us about?

We had two.

Okay, thanks

We'll go next to Bill Benton, William Blair.

Good morning, guys.

Good quarter.

Let's see, on the backlog growth strong and I guess somewhat unexpected given you guys had a nice uptick last quarter as well.

Can you talk at all about how maybe the composition of the backlog is changing?

Is it more commercial and less defense or is it about the same as it has been historically there?

It's always been predominantly defense, Bill.

Right

Continues to be that way.

I think if you

No measurable shifts either way?

No.

It's, for us, the defense business; it's our defense business, which is comprising the majority of our backlog.

The business characteristics of the commercial side you know, it's more traditional in terms of the flow to the customers, more of a forecast model

Right.

As it opposed to a backlog model.

And we do have backlog on our commercial businesses, but, it's measurably smaller percentage wise in terms of what we're chasing for the very next quarter.

Right.

Okay, as having said that, I mean, I know you're saying 60/20/20 in terms of still the outlook for the revenue for the year.

That's right.

You said about 66% gross margins.

It does seem to imply that defense would be a larger portion of the total revenue in the fourth quarter.

That would tend to suggest that gross margins would typically expand in the fourth quarter as they have historically.

Is there any reason why you might be suggesting more of a flattish gross margin picture there?

No, I think your pencil is a little too sharp on that point.

You know, we are sticking with that 60/20/20 split for the full year.

Defense may be a bit stronger in the fourth quarter.

You know, if you compare directly to the quarter we just completed, the third quarter, but it's not measurable.

So when you get variability program to program, customer to customer, you know, our sense is that the 66% blended gross margin rate is a pretty good number for where we're going to come in.

Okay, and then just a couple of balance sheet questions.

Sure.

Inventories, is there anything specifically?

I know you mentioned some of your contract manufacturers there, is there anything specific that is going on there that may have changed your year-over-year in terms of why is that, it has become a bit more difficult in terms of managing that line?

And then on the deferred revenue front, if you could just that's been growing over the past several quarters and I guess I should have asked the question probably earlier.

So I'll just ask it now, what's actually going on in that deferred revenue line?

Okay, let me start with the -- your questions or comments around inventory.

You know, the big thing that's going on this year compared to last year is growth.

We're going to bring this year in at greater than 30% growth for the total company.

Last year 186 million was remarkably like the 180 the year before.

So growth is certainly putting some pressure on our supply chain capabilities.

I mentioned benchmark in Jayball (ph).

I think in a way to assure everyone that we've got some pretty strong partners there at our side, assisting us to execute in the supply chain dimension.

If you step back from it, we are not a fully out sourced operation.

Jayball and benchmark are doing probably two thirds of the work for us and we're doing the other third.

So we're still involved in systems integration, we're still involved in some test activities and we are still handling the customer phasing size side of supply chain.

So I mention Jayball and benchmark to offer assurances that we've got the right partners and our belief is we're going to scale up here to handle this growth story as it unfolds.

Having said that, if you've been tracking our inventory turns, you've seen that we've kind of come off the six or so level that we had been performing at for awhile and we've been pushed down probably a full turn to five.

On a longer-term basis, we think we're aiming at something eight, if not better.

Deferred revenue I'm going to ask Joe Hartnett, our controller to handle that one if it's Okay with you.

That's sound great.

Thanks, Bob.

Let's start with what's in the balance.

So one of the components is maintenance contracts.

We're seeing some growth in that with the acquisitions, primarily TGS. which is a traditional software business The other major component is shipments to customers to satisfy their needs that we can't take revenue on.

So it's a customer satisfaction issue.

So the growth is primarily two pieces, the acquisitions with an increased maintenance business, the health of Mercury in trying to satisfy our customers.

So we don't view it as an unusual item but more of a fact of growth.

Okay.

Thanks guys.

Good quarter again.

Thanks, Bill.

We'll go next to Rob Stone, SG Cowen.

Jay, I'm very intrigued by the work you're doing in the medical imaging area around the NVIDIA collaboration.

Can you give us a sense of the time line for that mammography application to be commercialized?

I'll give you a sense of it, and without anything specific.

Where we are with that currently is that that application must now move through clinical trials.

And one of the major diagnostic imaging companies is currently planning to do just that.

And so we would expect to participate in some number of trials and I honestly can't tell you at this point with any level of accuracy as to how long it's going to take before we get through that process and when that will start to result in some production revenues for us.

It's just part of the process that one has to go through.

With respect to medical imaging overall, it seems like you had a pretty good splash at RSNA last year and some other collaborations touching on tax systems and so forth.

Are there other areas within medical where you would expect to see a nearer in commercial opportunity that would not require clinical trials?

The answer to that is yes.

There are, you know, something like I believe I reported previously 30 or 40 leads that we generated out at RSNA, names that we had never seen on a prospect list before.

We've been aggressively pursuing them, as you would imagine.

It takes a while to conclude an OEM sale.

I think you can appreciate that.

And I would say that the -- I'm satisfied with the rate at which we are aggressively going after these opportunities and hopefully we'll have some announcements to make in the not-too-distant future.

Okay.

And finally, just a housekeeping item with respect to, thinking about finishing off fiscal '05 here.

I recognize that after an acquisition is folded in it's a bit arbitrary to talk about organic versus acquired growth, but can you give us a sense out of the full year revenue growth that you're expecting how much of that is the purchase accounting treatment of acquiring businesses like Momentum?

You want to handle that, Joe?

I think if you take a look at the 32% growth that we're forecasting, Rob, about 5% of that growth is from acquisitions.

Does that make sense Rob to you?

Okay, So the --

If all the acquisitions were off the table, instead of 32% growth we'd have 27, 28.

Okay.

So that would suggest that you talked about making progress towards your goal of sustainable 25% growth.

Yes.

But in fact, if that calculation you just mentioned is accurate, then you're already running above that goal for this year.

We're running above that goal organically, yes.

But, you know, again, I want to remind you that we're kind of taking a longer term, 3 to 5year CAG review with that 25% revenue growth goal.

Some years we're going to have more organic content.

Other years more inorganic.

That will also affect the overall business model.

So but I we're looking right at what you're looking at.

We're also thinking we should pick the pace up here a little bit on the inorganic side, too.

So we're pressing on both fronts Rob.

Okay, very good thank you.

[Operator Instructions]

We'll go next to James Capello (ph) Kern Capital.

Good morning guys, just want to know more of the reasoning behind the imaging and visualization solutions being down sequentially.

Being done sequentially?

There is no reason other than that's what our customers wanted in terms of product.

The timing of the orders, if you will.

I could go back to the December quarter and remind you that we have got a of couple large OEM's in that space and for them that was year-end.

So of course you could assume that what they were asking for product at the end of their fiscal year, the end of the calendar year there, you know, good guess that they will push in for product from us.

This would be for those guys their first quarter, so I think what I'm describing here is characteristic of a lot of businesses.

Push at the end of the year, it lightens up a bit in the first quarter.

So do you perceive a sequential increase in the June quarter?

No.

I think we just did 64 here.

We're positioning 66 for next quarter.

We do understand that that's 2 up.

But generally speaking, our businesses are going to be pretty much flat quarter-to-quarter, slight uptick on the defense side.

So that would suggest that our commercial businesses, the two combined, would be slightly below where they came in this quarter.

Okay, Thank you.

[Operator Instructions].

And there appear to be no further questions at this time.

Okay.

Well thank you all for joining us today and we'll look forward to our next call, which will be early August.

Goodbye now.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.