Mercury Systems Inc (MRCY) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Mercury Computer Systems Incorporated fourth quarter fiscal 2008 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 Leslie Shaeffer, Manager of Financial Planning and Analysis.

Please go ahead, ma'am

Good afternoon and thank you for joining us.

With me today are our President and Chief Executive Officer, Mark Aslett, and our Senior Vice President and Chief Financial Officer, Bob Hult.

If you have not received a copy of the earnings release you can find it on our Web site www.mc.com.

We would like to remind you that remarks that we may make during this call about future expectations, trends and plans for the company and its business constitute forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated.

Additional information regarding forward-looking statements and risk factors is included in the press release we issued this afternoon reporting the company's fourth quarter and fiscal year 2008 results and in the company's periodic reports filed with the SEC.

We caution listeners of today's conference call not to place undue reliance upon any forward-looking statements which speak only as of the date of this call.

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

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we will also be discussing nonGAAP financial measures adjusted to exclude certain charges which we will specifically identify.

Management believes these nonGAAP financial measures assist in providing more complete understanding of the company's underlying operational results and trends.

And management uses these measures along with their corresponding GAAP financial measures to manage the company's business, to evaluate its performance compared to prior periods in the marketplace and to establish operational goals.

However, they are not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP.

A reconciliation of the GAAP to nonGAAP financial measures discussed in today's conference call is contained in the press release we issued this afternoon.

I am now pleased to turn the call over to Mercury's CEO, Mark Aslett.

Thanks, Leslie.

Good afternoon everyone and thank you for joining us.

I'll begin with a review of the quarter and the full year followed by an update on the business.

Bob will then review the financials and discuss our guidance for the first quarter.

At that point, we will open it up to your questions.

We continue to execute against our turnaround plan this quarter, making measurable progress operationally and delivering financial results at or near the top end of our guidance range.

We saw the profitability we expected in the economic core of our enterprise, ACS Defense, which posted another good quarter of performance.

However, as we anticipated, this growth was partially offset by the continuing revenue decline in the ACS commercial coupled with losses in our noncore businesses.

This strategy we're executing is aimed at eliminating, or where possible reversing, these losses and unlocking the fundamental value of Mercury's core.

We are working to rationalize our portfolio of unprofitable and noncore businesses and redirect the resources towards strengthening ACS and developing the new products we need to drive growth.

The enterprise must be sustained while this takes place and to do that we need to take costs out of the business, improve operations, improve our profitability and increase our cash flow in the near term.

In just a moment, I'll discuss the progress we made this quarter in each of these three areas.

First looking at our financial results total revenue for the fourth quarter was $55.2 million.

This compares with $55.4 million in the sequential third quarter and $57.8 million in the fourth quarter of fiscal 2007.

Please note all historical figures have been adjusted for the discontinued operations relating to the sale of our imbedded systems and professional services business as noted in the press release.

For the full FY total revenue declined by 3% to approximately $210 million.

This decline was driven by a $30 million drop in the ACS commercial business by divestitures and by lower revenue in Visage Imaging than had been previously anticipated.

As mentioned in last quarters call, we expected our book-to-bill to be below one for Q4.

At [inaudible] book-to-bill was below our expectations largely due to delays in some expected defense program bookings in ACS, and lower than expected bookings in V.

I.

On a positive note, however, for all of fiscal '08 our book-to-bill was 1.04, ending above one for the first time since fiscal '05 and we ended fiscal '09 with a slightly improved backlog.

Operating expenses in Q4 were down by $4.3 million from the fourth quarter last year.

Operating expenses for the FY declined by $12.1 million or 9%.

NonGAAP operating profit in Q4 was up slightly over Q3 and for the full year was $560,000, which represents an improvement of $16.9 million from fiscal '07.

NonGAAP EPS from continuing operations came in at $0.01 per share, which is at the high-end of our guidance range.

For the full year, nonGAAP EPS from continuing operations improved by $0.52 to $0.15 per diluted share.

By tightening up our operating processes and improving the underlying operations of the businesses, we generated $2.5 million of positive cash from operations in the fourth quarter, building upon a strong result in Q3.

For the FY, operating cash flow was $13.7 million, a $24 million improvement from fiscal 2007.

Year-over-year our overall cash bonds increased by $9.4 million.

Our working capital position is also improved substantially.

Inventory for the fourth quarter was down by $3.9 million quarter-over-quarter and DSOs declined from 60 to 54 days due to improved cash collections.

We also made it a priority to ship, to improve shipment linearity, and overall we continue to make progress in this regard.

We also now have better integration between operations and sales, which should improve our inventory position as well as on time customer delivery going forward.

During the fourth quarter we completed a cost reduction in ACS and corporate, which should take approximately $7.5 million out of operating expenses on an annualized basis in fiscal '09.

This reduction includes the decision to shut down our ACS facility in Carlsbad, California, additional cuts at the executive level and further rationalization of our commercial activities.

We expect these initiatives to improve our profitability and cash flow in the near term.

To improve in these areas on a longer term basis, we need to rationalize and optimize the return from our portfolio of noncore businesses.

In Q3, we effectively shut down the business of AUSG, our commercial avionics and unmanned aerial systems group, and in Q4 we closed on licensing AUSGs intellectual property to Honey well for $3.2 million.

We also completed the sale of ES/PS, a small legacy professional services unit within our Visage Imaging business.

Selling ES/PS cleared the way for us to consolidate VI's facility in Germany, which we expect to complete this month.

These consolidations will take additional costs out of the business for fiscal '09, improve our focus in VI and essentially create a pure play 3D advanced visualization medical imaging software business.

Looking specifically at VI's operations in the quarter, revenue was up 36% from Q3 albeit up off a small base and was driven by sale of our new CS line of integrated packs in 3D - 4D client service software.

VIs nonGAAP operating loss declined from $3.9 million in Q3 to $3.3 million in Q4.

From a product perspective our new CS software was very well received at the Stanford chute out show in Las Vegas in May and we now have 22 design wins to date.

However, the sale cycle is longer than we originally anticipated and we still have more work to do in order to grow the top line.

That said our CS sales pipeline continues to expand and on bonds, we continue to feel good about VI and its prospects.

I prefaced my remarks by saying that Mercury's noncore businesses have masked the value of the core of our enterprise, which is ACS.

And particularly the defense business within ACS.

Our mission is to unlock this value, which gives rise to our third strategic objective, strengthening and growing ACS.

ACS continued to perform well this quarter and was in line with our expectations despite lower bookings and slightly lower revenue than in Q3.

ACS revenue represented 89% of Mercury's total revenue in the fourth quarter, decreasing sequentially by $1 million to $49.3 million.

Defense revenues were up slightly quarter-over-quarter and now represent 74% of ACS's total revenue.

For the FY ACS defense revenue increased 17% to $130.2 million from $111.2 million in fiscal 2007.

The growth in defense was offset by continued weakness in ACS commercial where revenue in the fourth quarter declined by $2.2 million, or 15% sequentially, and $30.3 million, or 34% year-over-year.

ACS nonGAAP operating income declined slightly in Q4 due to lower revenue and product mix issues.

For the full year, however, operating income increased by approximately $19 million and was slightly over 10%.

Our book-to-bill in ACS declined to 0.81 to 1.12 last quarter due to delays in some expected defense program bookings.

For the full FY, however, ACS book-to-bill was 1.04 compared with 0.85 in fiscal '07 driven by some great growth in defense bookings.

Year-over-year defense bookings increased by $35.7 million, or 33%.

The areas of the defense electronics business where we've participated historically are high-end radar and signals intelligence and add-on platforms as well as naval radar and sonar.

Looking at our improved top line performance in ACS defense over the past few quarters, it's clear that we are solidly positioned and are taking advantage of the near term growth opportunities in these markets.

Q4 was another strong quarter for design wins.

Of the 12 total wins, nine were in defense.

The five-year value of our design wins in fiscal '08 also improved on a year-over-year basis increasing by 37%.

Looking forward, we currently expect the favorable trends in the defense electronics marketplace to continue driven by platform upgrades as well as greater electronic content and new platforms.

We are now in the early stage of implementing a more formalized and effective sales and business development process designed to capitalize on this potential.

However, long time to production revenue is always a factor in the defense market and from a product perspective, we still have a lot of work ahead of us before we can fully penetrate these opportunities.

We continue to enjoy success from products introduced in prior years, but if we want to succeed in a market driven by design wins we need to introduce new products and we need to bring them to market faster with better R&D leverage than we have historically.

Improving our performance in these areas will be crucial not only in defense but also in commercial business within ACS where the top line continues to erode.

We are fast approaching the end in our legacy medical business in ACS commercial and we continue to see challenges in the semiconductor space which is a cyclical industry in the midst of a downturn.

In commercial telecommunications we have and are likely to continue to face headwinds in the single board computing part of that business.

Our plan for the commercial segment in ACS is therefore to retain existing customers through current design win cycles and to continue with highly selective new business pursuits where we can leverage our existing products or planned product roadmap.

At the same time we will continue to redirect our efforts toward defense where there are opportunities for high margins and growth going forward on a more sustainable basis.

Looking at ACS longer term, our success will depend on penetrating growth opportunities that are more strategic in nature.

We see two ways of doing this.

First, ACS today is focused on imbedded signal processing and high performance multi-computing.

But it's still primarily a hardware-based business in term of revenue dollars.

Our challenge here is to grow the software and services part of our business in ACS and to exploit the adjacent market growth opportunities around the ACS defense core.

Our Mercury federal business was launched to address this latter point.

Merc Fed made progress this quarter building out its operational infrastructure as well as expanding its new business pipeline.

However it remains in early stage of development and will likely not be material to our financial results in fiscal '09.

Second and most crucial for the long run, we plan to move up the value chain within the imbedded defense computing and signal processing market.

We believe that the next-generation of ISR platform architectures will be designed around cohesively networked sensor processing, multi-computing storage and communications assets that can provide multi-sensor capabilities on a scalable common architecture.

Our long-term vision is to position Mercury as the world leader in this space by evolving our technology, product roadmap and business around a common converged sense of networking architecture.

We are now in the process of laying the ground work for this, developing this architecture, not only in terms of our technology and roadmap, but also in terms of our team and employee base.

Over the past eight months or so, a number of senior level arrivals and departures have significantly changed the composition of our executive group.

In addition as we announced last week Jay Bertelli has decide to do step down as the Executive Chairman of the Board of Directors and has retired his employee status at Mercury.

Jay will assume the role of nonexecutive Chairman until the annual shareholders meeting later this year when he also retires from that roll.

Since I joined the company as CEO last year, Jay's support and dedication to Mercury have been essential as we have worked to position ourselves for renewed profitable growth.

We are glad that Jay has agreed to support us on a consultant basis going forward in order to maintain an orderly transition.

We understand that realizing our new vision for Mercury will require intensive effort over the longer term at every level of the company.

For this reason, initiatives to improve our organizational focus and alignment from the bottom to the top will remain key to our strategy going forward.

Fiscal 2009 will be a pivotal transition year for Mercury as we execute against this strategy.

In terms of improving the underlying operations of the business we are driving to restore Mercury to greater profitability during the year.

In term of the portfolio, our goal is to exit fiscal '09 as a much more focused entity having divested all noncore businesses.

On the product side our goal is to refresh important elements of our imbedded signal processing and multi-computing product lines while building the foundation for a new converged sense of networking architecture.

We believe these activities coupled with the continued focus on working capital will allow us to exit fiscal '09 a much more focused and profitable business and reposition us for renewed and sustained growth in fiscal 2010 and beyond.

We look forward to reporting our progress in the quarters ahead and with that I will turn it over to Bob for the financial review.

Bob?

Thanks, Mark.

And good afternoon, everyone.

I will review revenue for the fourth quarter and full FY of 2008 including details by business unit, discuss company operating performance, balance sheet, and cash flow results, and then finish with a discussion regarding the outlook for the first quarter of fiscal 2009.

I will discuss the numbers on both a GAAP and nonGAAP basis.

In the fourth quarter, Mercury's subsidiary, Visage Imaging, sold its imbedded systems and professional services businesses.

All historical statements have been adjusted to reflect this discontinued operation.

Fourth quarter revenues were $55.2 million, at the top end of our guidance range of approximately $53 million to $56 million.

And approximately flat with the third quarter revenues.

GAAP operating losses were $21.0 million.

These losses include $18.0 million in goodwill impairment charges, $17.4 million of which relates to our Visage Imaging business, and $0.6 million relating to our AUSG avionics and unmanned systems group business.

These losses also include a $3.2 million gain relating to the sale of our AUSG intellectual property and associated inventory to Honeywell.

Given that the sale of AUSGs assets did not qualify for the discontinued operations accounting treatment, nor did it reflect the business unit's typical revenue activity the gain was recorded as a contra operating expense.

The GAAP operating losses also include stock-based compensation expense of $1 million, amortization of acquired intangibles of $1.8 million, and $3.7 million in restructuring costs pertaining to a June 2008 workforce reduction, the AUSG deal and the closure of our first Germany office.

The GAAP net loss from continuing operations from the fourth quarter was $19.5 million, ruling in a loss per share of $0.90.

The miss from our guided range of a loss of $0.30 to a loss of $0.22 cents is attributable to the $18 million goodwill impairment charge as noted previously.

On a nonGAAP basis for the fourth quarter, operating income was $331,000.

NonGAAP operating income excludes stock-based compensation expense, amortization of acquired intangible assets, the goodwill impairment charge, the gain relating to AUSG, and restructuring charges.

We used a nonGAAP tax rate of 30%.

NonGAAP net income from continuing operations was $184,000.

The nonGAAP diluted EPS for the fourth quarter were $0.01, at the top end of our guidance range, primarily due to lower operating expenses.

The nonGAAP gross margin for the quarter was 56.8%, slightly below our guidance range of approximately 58 to 59%.

Gross margins were adversely impacted by a change in product mix within the quarter.

Our nonGAAP operating expenses for the quarter were $31 million, below our guidance of approximately $33 million due to the June restructuring action and the slow down of research and development expense given a change in R&D priorities.

The book-to-bill ratio for the quarter was 0.8.

The book-to-bill for the full FY however was a 1.04.

Backlog including deferred revenue was $87.1 million, an $8.5 million increase from the same quarter last year, but a $10.9 million sequential decrease from the third quarter of this FY.

Of the ending backlog, $80.6 million or approximately 92% relates to shipments expected within the next 12 months.

Fully fiscal 2008 revenues were $209.9 million, a 3% decline from revenues of $217.2 million in 2007.

Remember that these revenues exclude ES/PS discontinued operations of $3.6 million as reported in FY 2008 and a $6.5 million exclusion as reported in FY 2007.

The nonGAAP gross margin was 60.7% versus 56.4% for the full year 2007.

Now I will discuss our business by segment for the fourth quarter and the full FY.

Advanced Computing Solutions or ACS, which consists primarily of our defense, semiconductor, communications and legacy medical businesses, reported revenues of $49.3 million, or 89% of the total corporate revenues for the quarter, down approximately 8% from the year-ago period.

The decline is the result of a year-over-year drop in ACS commercial revenues from approximately $20.3 million to approximately $12.7 million.

This drop reflects a decline in the sales of commercial communication applications, semiconductor solutions, and legacy medical systems.

The drop was partially offset by an increase in year-over-year defense revenues from approximately $33.1 million to $36.6 million.

Sequentially, ACS revenue decreased $1 million, or 2% from the third quarter of fiscal '08.

ACS book-to-bill for the quarter was 0.81.

For the full year, this segment had revenues of $188.5 million or 90% of total company revenues, a decline of approximately 6% from last year.

The full year mix was 31% commercial and 69% defense.

The full year ACS book-to-bill was 1.04.

The full year defense book-to-bill was 1.1 versus 0.96 last year.

The full year commercial book-to-bill was 0.91 versus 0.71 last year, which is a function of the significantly lower fiscal 2008 revenues.

For the fourth quarter, Visage Imaging which is our wholly-owned subsidiary that focuses on the 3D medical imaging market reported revenues of $2.5 million, or 5% of total corporate revenues, up approximately 45% from the year ago period.

Sequentially, V I revenues increased $655,000 from the third quarter.

VI's book-to-bill for the quarter was 0.92.

For the full year, VI had revenues of $8.7 million, approximately flat with last year.

Again, all historical figures are adjusted for discontinued operations.

The combined revenues for Mercury's other business segments totaled $3.4 million.

Our visualization sciences group, or VSG, which sells development tool kits and visualization applications to geo-sciences, engineering and manufacturing and other markets, reported $3.1 million in revenue for the fourth quarter of fiscal 2008, up approximately 25% from the year ago period.

The combined revenues for our other emerging businesses totalled $324,000.

For the full year, the combined revenues for Mercury's other business segments totaled $12.7 million, with VSG representing $11 million of this $12.7 million.

Turning to the balance sheet and cash flow statement: cash, cash equivalents and marketable securities at the end of the fourth quarter totaled $166.5 million, representing a $4.3 million increase from the end of the third quarter.

This increase includes a net operating cash inflow of $2.5 million, $4 million relating to the divestiture proceeds, $1.6 million from capital expenditures within the period, and a $900,000 unfavorable market-to-market adjustment of our auction rate securities.

Included in the Company's $166.5 million cash, cash equivalents and marketable securities balance is $47.2 million of student loan auction rate securities, $50.25 million at par.

As discussed last quarter, these debt securities are all highly rated investments with AAA ratings.

Since mid-February 2008 auctions for all of the company's auction rate securities have continued to fail.

We believe that the current illiquidity of these investments is temporary in nature.

It is our expectation that these ARS investments will eventually be liquidated through successful future auctions or called redemptions at par plus accrued interest.

We are sure that we have the financial ability and intent to hold these investments until successful liquidation as described above.

The combination of our cash reserves, future cash flows from operations, and proceeds from portfolio divestitures will be more than adequate to fund the Corporation's cash needs over the next few years and to meet the potential put to the company for repayment of the outstanding $125 million Mercury convertible debenture in May of 2009.

We have increased our margin loan facility to $23.7 million with UBS, who manages our cash investments.

Fourth quarter DSO were 54 days.

Accounts receivable declined from $38 million to $33.1 million, driven by improved shipment linearity and collections within the quarter.

Inventory turns were 3.8.

Inventory decreased $3.9 million during the quarter from $28.6 million to $24.7 million.

At the end of the quarter, our total employee population excluding contractors was 670 employees versus 745 at the end of Q3.

Guidance.

As previously mentioned we will no longer be providing full year guidance.

I would now like to move to first quarter fiscal 2009 guidance.

For the first quarter of fiscal 2009, we currently expect a revenue range of between $47 and $49 million.

We anticipate the Q1 gross margin to be approximately 58% to 59%.

Operating expenses are currently anticipated to be approximately $30 million on a nonGAAP basis.

The GAAP EPS are currently expected to approximate break even for the first quarter of fiscal 2009.

GAAP shares are projected to be approximately 22.8 million.

The impact of stock-based compensation costs for the first quarter will be approximately $1.6 million.

The amortization of acquired intangibles will be approximately $1.4 million.

And restructuring charges are estimated to be approximately $200,000.

The restructuring charges include remaining AUSG and FERC closure adjustment.

The nonGAAP tax rate is 34%.

The rate is increased from our historical rate of 30% due to significantly lower R&D tax credits.

The nonGAAP diluted shares are projected to be approximately 22 million.

As a result, first quarter fiscal 2009 nonGAAP per share estimates are currently expected to be in the range of a loss of $0.07 per share to a loss of $0.03 per share.

Capex for the first quarter is projected to be approximately $2 million.

Depreciation will be approximately $1.6 million.

With that, we will be happy to take your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS) We will take our first question from Stephen Levenson with Stifel Nicolaus.

Thanks, good afternoon Mark and Bob.

Hey, Steve, how are you?

Okay.

Thank you.

Nice to see the progress that you're making.

In terms of the delays on some of these defense items, is this something that you think is going to be sort of a permanent push out to the right or is it more likely that there will be some catch up along the way?

I think the push is grouped into two categories, Steve.

One was, two of the pushes that we saw were due to funding delays.

We expect that those deals should come in during FY '09.

The other was to do with a program that we believe that we are a part of that was contested.

So that one is a little bit uncertain at this point because we don't know exactly what's going to happen with the results of the protests.

So.

I'm going to guess that that's broad area marine surveillance?

That would be correct.

So that contest is withheld and the timing is a little uncertain.

If the contest is turned down then we should proceed here shortly.

Okay.

Thanks.

And secondly, within the last few days there are some reports coming out that the Department of Defense is looking to reprogram about $1.3 billion to intelligence surveillance reconnaissance projects and programs.

How or do you think that might help you and if so how?

Yes, we think probably yes.

We have a focus on that part of the market going forward.

The concept that we are working on around the converged sensor working architecture is really directly targeted at the ISR space.

So hopefully we will benefit from the funding redirection on a go forward basis, Steve.

And is that something you think you could see that could add to revenue in 2009 or do you think it's more likely to take more time?

Hard to tell at this point.

My gut would say it would probably take a little bit longer than that.

Okay.

Thanks very much.

Thank you.

We will move on to our next question.

We will hear from Jonathan Ho with William Blair.

Good afternoon, guys.

Hi, Jonathan.

Hi, Jonathan

So, first of all, with regard to the book-to-bill, this seemed to come in a little bit lighter than what you guys had talked about.

Can you just talk about maybe the shortfall relative to your expectations and where that took place?

Yes, sure.

We thought last quarter and we said on the call that we expected the book-to-bill to be below one.

It did come in slightly lower than expected at 0.8.

However, as we said-- I think if you kind of step back and you look at the big picture the book-to-bill for the year is 1.04, which is the first time it's been above one since FY '05.

The reason behind having the book-to-bill at the 0.8 level is really primarily due to the program bookings in defense that I previously mentioned being pushed out.

Have you guys seen any of those comments since that's taken place or is it still kind of hanging out there at this point?

The two that were funding related pushed further into FY '09.

As I say the one, the program that was contested it's a little uncertain as to the timing yet because it's really outside of our control.

But at this point we believe it's going to be within the FY '09 financial year.

Okay.

Just taking a look for a second at the discontinuation of some of the businesses, can you sort of walk us through what you think is the timing for that and exiting '09 what those expectations are at this point?

We haven't set specific timing, Jonathan, regarding some of the remaining noncore businesses.

What we said is that we expect to exit the full year FY '09 as a much more focused business.

We think we have a couple of assets here that have got value and we are going to run a systematic process for those but saying much beyond that we don't think is prudent at this stage.

Okay.

With regard to VI, what type of traction are you guys seeing there with the arrangements that you have?

And what's sort of the visibility at this point of the accelerated ramp in revenue?

So I think we are definitely making progress with V I.

Revenues were up, as we said over 30% on a quarterly basis.

That is very much driven by our new client server software, the CS product line.

In addition the pipeline continues to grow.

We feel good about the growth in the platform.

I think the uncertainty is around the conversion of that pipeline to revenues and the timing associated with that.

It appears that the timing of getting some of the deals through the pipeline is taking us slightly longer than what we originally anticipated.

But overall I think we feel good about VI's prospects and the direction in which its heading.

Okay.

And finally on gross margins.

They came in a little bit weaker than we were expecting even though we saw higher defense revenue.

Was there any sort of a mix issue or anything within sort of the ACS space that might have impacted margins this quarter?

It was purely mix related.

Again, I think looking at what the product mix was and the mix of programs, it dictates really where we were going to end up at the gross margin level.

If you look at where we were in Q4 and what we are projecting in Q1 we are expecting to bounce back here a little bit.

Great.

Thank you.

We will hear next from [Jim McCary] with David J.

Green.

Good evening, Mark, Bob.

Hey, Jim.

Nice job generating some cash, Bob and I wanted to follow up with two questions in that regard.

In terms of the restructuring charges for the year could you tell me how much was cash restructuring?

Well, the total restructuring for the year was 3.7 there.

Cash outlay, I mean it's all about half cash, a couple million.

It's not all, it did not all hit in the June quarter.

Some of it will hit here in the September quarter.

Roughly half is a cash outflow.

Okay.

And then as we look at working capital, how are you thinking about that for the upcoming FY?

From my perspective, Jim, it's certainly an area of focus.

I think if you look at what we've done over the last couple of quarters we've had, we've made some pretty significant progress.

In Q4, inventory was down quite substantially.

We got the DSOs down by improving the linearity and having a pretty intense focus on cash collections.

We are going to continue that operational discipline going into '09.

So we believe that we are going to be able to sweat additional cash flow out of the working capital.

But it's probably going to be a lower rate than what you've seen in the last couple of quarters combined.

Right, right.

It's not as, you've made some progress so it's tougher going forward?

Correct, yes.

Very good.

Thank you.

It appears we have no further questions.

(OPERATOR INSTRUCTIONS)

Okay.

Well, I guess there's no more questions.

So I'd like to thank you all very much for listening and we will see you again this quarter.

That does conclude today's presentation.

Thank you for participating and have a great day.