Koninklijke Philips NV (PHG) 2002 Q1 法說會逐字稿

Good morning. My name is and I will be your conference facilitator today. At this time I would like to welcome everyone to the Genlyte Group and Thomas Industry quarter earnings conference call.

All lines have been placed on mute to prevent any background noise. After each company's remarks, there will be question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your keypad, and questions will be taken in the order that they are received.

If you would like to withdraw your question, press star, then the number two.

I would now like to turn the call over Miss Laurie Lyons of Thomas Industries. Thank you Miss Lyons, you may begin your conference.

Thank you.

Good morning everyone and also a welcome to those of you listening to our Web cast on the Internet.

Today we'll begin with comments from the Genlyte Group Incorporated. Larry Powers, Chairman, President and CEO of Genlyte and Bill Ferko, Vice-President and CFO will be providing an overview of their first quarter results, followed by a question-and-answer session.

Immediately following, we'll hear from Mr. Tim Brown, Chairman, President and CEO of Thomas Industries and Phil Stuecker, Vice-President of Finance and CFO. Following their comments there will be another Q&A specific to Thomas Industries first quarter results.

Before we begin, let me remind that this morning's discussion may include forward-looking statements. These statements are based on our view of the world today and therefore are subject to risks and uncertainties, which are discussed in more details on both companies most recent Form 10-K. Obviously, actual future results may vary.

I'll now turn it over to Mr. Larry Powers.

Good morning everyone.

As I assume that most of you have already read, we were reasonably pleased with the overall results of the first quarter, although I do have some real concerns about the sales volume. We saw continuing decline in our sales volume throughout the first quarter with January and February begin much stronger than March. And the concern that I have is that I'm afraid that some of the numbers going forward over the next few months may continue at or near the levels that we had in March.

The overall commercial construction market remains very, very soft in those key markets that we serve, such as retail construction. I think most of you have probably read and heard about what's going on in retail these days. That business is relatively soft. There's just not much new construction coming out of the ground in new shopping malls these days, except for a few people like Wal-Mart and Target. We certainly do participate in some of the Wal-Mart business, but the type of business we participate in primarily is the higher-end retail people, such as Nordstrom's department stores, Barnes and Noble books.

We did however, recently get a very nice contract with one of the new fast food companies that will help us significantly and we've also had some real positive signs with our, an agreement that we have with Steelcase. In fact we wrote more business in the month of March than we've written with them for the full-year that we've now been involved with them. So that looks to be picking up some, even though the office constructions business overall is relatively soft. They do a fair amount of retrofit business and we're starting to get some benefit from that.

The overall hospitality business, which is another very large, and very key market to us remains very, very soft these days. We're just not seeing anything from the people like the Marriott's and the other high-end hotel type chains.

So I think the markets that, our primary commercial markets that we serve are going to remain soft at least for the foreseeable future.

Now what are we doing about this? We're trying to redirect a lot of our selling efforts towards the business that seems to be a little bit more robust, such as schools and other institutional type businesses. We subscribe to this sales force automation where we get an update almost every day on new constructions contracts that are being awarded around the country, and there's about 6,000 schools that are this list right now. And this is a business that traditionally we haven't been very strong in, because it's been some of the lower end fluorescent type business and we kind of shied away from it to some degree, but right now, it is one of those markets that is booming, and so we've gone out to our sales organization and we're trying to refocus them to spend more of their time with these schools.

As we mentioned to you earlier, we're also in the process of completing the, kind of the redo, the new construction and everything that we're doing on this facility down in Sparta, Tennessee, which will put us in a position to be able to compete more favorably in some of the white goods florescent business. We won't have that completed until probably late second quarter, early third quarter. Once we get that completed, we think we're going to be able to compete more favorably in some of this lower commodity type business.

But we are forced to try to go out and find business wherever we can and it's not easy to do today, because the markets where we're traditionally strong are pretty weak.

We have gotten some benefit from the continuing strength of the residential market. Most of you know interest rates are relatively low and that market continues to be a very healthy. In fact our Thomas residential division had a very good quarter this year, with sales up significantly. I think Lightolier, Capri, some of our down lighting companies are also getting some benefit from the residential markets. But again, our traditional commercial business where we're, you know, very strong represents, you know, 75 to 80 percent of our total markets, you know, is very soft.

Now we're continuing with an intense focus on cost control. We monitor on a daily basis our productivity numbers, our sales per employee. So we're watching that extremely careful and are taking our costs that we had to. We're down substantially in people versus a year ago, and if the business continues to be as soft as we've seen it over the last 30 days, we will continue to have additional cost reductions.

We do have some aggressive new product plans for this year, as we've had in all of the years. Our major industry lighting show is due in the early part of June. We'll be introducing several new products. Lightolier's got several new products. Gardco, Hadco, you know, most all of our companies have got major new products introductions that will be introducing at the Light Fair this year in San Francisco. I am somewhat concerned about the attendance at that show this year. I'm not sure that it's going to be as well attended as it was last year in Las Vegas. But we do plan to make a major showing.

I don't see our business certainly getting any stronger in the foreseeable future, and therefore, we're going to have to, you know, be very cautious with our spending and do whatever we can to protect our earnings. And we will do that.

And I think with that, I'll turn the time over to Bill Ferko and let him talk to you more specifically about some of the financial numbers, and then we'll be happy to answer any questions that any of you might have. So Bill, if you want to go ahead.

Thank you Larry and good morning everybody. As you saw from our release, first quarter sales of $232 million were 4.9 percent under the previous year's sales of 244 million. The thing that really concerns us is that the February sales, we're pretty please with. On a year-to-date basis we're only 2.6 percent below last year, but the month of March was a very disappointing month with sales being 8.4 percent below last year.

Now we've attributed some of that to the weather during the first quarter. Had a relatively mild January and February and then March was just unseasonably cold. In fact there was an article is this morning's "Wall Street Journal" where a construction, housing construction is remarkably robust. Housing starts for February were revised upwards; however, in the month of March, home construction feel 7.8 percent. And it's the largest monthly drop in two years. However the article goes on to say that in the month of March, it was the second coldest March in 22 years.

So whereas we had a relatively warm January and February, March was very cold and of course with our outdoor lighting projects and with residential construction, it affects those markets. However, our larger markets, which of course are the office construction and indoor retail is not as affected by the weather seasonality.

So we'll see hopefully April will not be as off, as far off as 8.4 percent, but it does give us some great concern when we see a drop off like that in the month of March.

Backlog and another thing that encourages us a little bit is backlog going into the second quarter is actually higher than it was last year. We're at 100, almost 114 million compared to 104 million last year, up 9.1 percent. Part of that again, may be attributed to push out for projects that just keep getting pushed out anywhere one to three months, and eventually it'll come through. We're not sure when that's, if it's all going to release as we had originally planned.

Orders for the quarter are 6.6 percent below last year at 259 versus 277 million. And so that gives a little better visibility in the longer-term trend.

The Canadian dollar affected us on the revenue line again. We had a pretty long period of weakening in the Canadian dollar and the impact for that, the sales is about $1.4 million and the earnings operating profit impact of that is about $147,000 U.S.

Moving into operating profit, first quarter operating profit of $20.4. It's 4.5 percent higher or about $879,000 more than last year. Much of this is attributed to the elimination of the goodwill amortization, which relates to the change in the new accounting rules, FAS 142. Last year's quarter included $1.3 million of goodwill amortization, and of course we don't have that this year.

We still have a couple $100,000 of intangibles amortization, which will not be going away.

The first quarter gross margin was relatively flat with last year, in the 34.6 percent range. Big benefit came this quarter in the EBIT margin from the SG&A expense reduction. Our first quarter EBIT margin was 8.8 percent or 80 basis points higher than the eight percent that we recorded last year in the first quarter. And even excluding the goodwill amortization impact, our EBIT margin last year would have been 8.6 percent. So we still had a 20 basis point improvement in our EBIT margin. Much of that is attributed to SG&A expense reductions as Larry alluded to earlier.

Freight expense is much more in line this year than the first quarter last year. We had a real problem with freight getting away from us, and we've done a good job bringing that in.

We've cut back in some of the more discretionary spending, particularly in the information technology and some of the R&D type of expenses.

And then in our factory, our productivity has improved, because of some of the staffing reductions that we've taken we've got fairly significant productivity improvements this quarter.

And then further, we've had further cost reductions in the area of salary freezes, travel reductions, cutting back on some of the spending for trade shows and increase use of such things like video conferencing and other technology tools that make our people more productive.

Net income for the first quarter of 8.7 million increased 13.2 percent then from the 7.7 million that we reported last year. And this marks our 29th consecutive quarter of net income and earnings per share growth over prior year quarters. And we're pretty pleased with that. It's going to be increasingly more difficult to continue that going forward.

First quarter net interest expense is significantly less than last year. This year our interest expense is coming in around $219,000 compared to $1.1 million last year. This is driven by, just the accumulation of our wonderful cash flow that we've had. Our net cash at the end of the quarter is $29 compared to last year at this time, where we had $63 million of net debt. So we had improved our financial capitalization significantly over the last year or so.

Earnings per share of 64 cents that we reported is 12.3 percent better than last year's 57 cents per share. Much of this as we indicated in the release is attributed to the goodwill amortization elimination, just over six cents, between six and six-and-a-half cents of the improvement is attributable to the goodwill elimination.

In the area of cash generation, we're very pleased with cash generation for the first quarter at 7.2 million of cash gen, compared to a use of 16.5 million last year. Working capital, working capital less cash and cash equivalents decreased to 12.5 percent of sales compared to, or decreased 12.5 percent to 16.6 percent of sales compared to 18 percent of sales last March. So we're very pleased with the way we've been able to bring in working capital excluding cash.

Capital expenditures for the quarter were $4 million, which is just under $2 million less than the five nine that reported last year. And it all adds up to some very favorable cash flow, but is in line with just overall coming back and preparing for some softening that we see in the next couple of quarters.

With that, I will open the line for questions and answers.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad.

Your first questions comes from of Wachovia Securities.

Hey guys, it's actually . How are you doing?

Good .

I had two questions. One is I'd like you guys to talk a little bit about what you're seeing in terms of pricing in the different segments that you guys are serving.

This is Larry. Bill and I unfortunately are in two different locations, so we'll kind of jump back and forth here. But it's extremely competitive in the low-end commodity type business, such as florescent and some of the down lighting type business and HID. But in some of our more specialized markets where we're a factor in outdoor, you know, landscape lighting and some of the street and area lighting, that kind of, we haven't really seen that much impact yet. And I don't think we will. But we will continue to see intense pricing pressure again on the commercial job type projects in down lighting and the commercial florescent type business. We've already seen it and I think it's going to get even worse before it gets better.

Fortunately for us, we have a smaller percentage of our total business in the florescent than some of our major competitors; and therefore, it doesn't have as big an impact on our overall financial performance as it has on some of our, you know, other competitors, at a high percentage of their volume and that is in their florescent and in the more commodity HID type business.

And how about for the quarter? Where you guys, do you know where you guys were on pricing versus last year?

Yeah I think Bill can comment also, but I think we were actually pretty close to where we were last year. I don't think we saw much, certainly our margins were about the same. We're continuing to focus very heavily on cost reductions and in order to protect our margins. Our margins were about the same. So we didn't really see any big deterioration. There's certainly some deterioration in the commercial florescent business.

Bill, you might?

That's correct. When you put it all together, we have not seen any appreciable change in overall pricing levels on a year-to-year basis. Probably a tenth of a percent or less if anything happens.

One comment I might make that we also made in the press release, you may have noticed. We do have some concerns over these import duties on steel, and they could have some real impact on us. Right now, we don't know what kind of impact we're, all of our purchasing people and that are working and scrambling to find out what's going to happen. But what most of the steel companies in the United States have come and said to people is that, you know, all of the contracts that we have are now null and void. We're not going to honor these contracts, because, you know, of all these changes. And we don't know what that's going to mean to us.

The biggest concern I have is not necessarily whether the pricing goes up, but how this is going to affect. Two of our major competitors, both and Cooper have major florescent facilities in Mexico. And I want to be sure that we don't get put at any disadvantage, because products are coming in, you know, can come in through Mexico into the United States without these tariffs.

Now, Fox, who is the President of Mexico, has been scrambling, and he's now threatened to put some tariffs on steel coming into Mexico to try to prevent that. He said we're not going to be the conduit just to bring steel into Mexico and then feed it on through to the United States. So it's too early for us to tell that, but that could have some negative impact on us if we got hit.

Now in my opinion, it could also have some positive impact on the overall market if in fact steel goes up the kinds of percentages they're talking about it going up, it should drive an overall price increase in our industry, which in my opinion wouldn't be all together bad.

We'll just have to wait and see how that's all going to sort out. Right now it's too preliminary to give you any detailed information.

All right. And on more of a housekeeping question for Bill. What was the tax rate for the quarter?

Tax rate if 38.6. Now that, part of the reason it's down from the 40 percent we reported last year is because most of the elimination of goodwill falls right through to the bottom line. It's not taxable. There some of the goodwill was taxable last year, or had a tax benefit actually. But things really didn't change that much in terms of the overall cash taxes that are paid.

And going forward?

We expect it to stay in that area, around 38.6.

All right. Great, that does it for me. Thanks guys.

Our next question comes from Steve Keane of Robert W. Baird.

Hello Steve.

Good morning. This is actually filling in for Steve.

Hi .

Hi .

I just had two questions. I was wondering how much do you think the lighting industry lags improvement in the economy? When, once the economy really starts turning around, when are we going to see it impact your bottom line?

I think it could be, you know, nine months to a year in the commercial construction, because if you look at the big retail people, and all these, they're actually on a construction cycle and typically this time of year they're out starting new buildings and that that they want to have completed by November 1, is kind of their magical drop-dead date, because they want to have everything ready for that Christmas season. And this year, we're going to almost, you know, we're going to miss most of that cycle. And that's obviously not true, you know, for every single one of them, but there's certainly a lot of them kind of operate on that cycle and you can usually figure anywhere from six months to as much as a year from the time commercial construction really starts picking up until we'll see a significant pickup in our business.

OK, also then, last quarter you mentioned you were bidding on some of the Wal-Mart business from the neighborhood stores. Can you comment on the level of sales that you have in that business?

Well actually, our business with Wal-Mart for the first quarter was actually quite strong. We had, still had some residual business from the old contracts that we had and these neighborhood markets are starting to kick in, particularly Gardco, one of our outdoor companies has done very nicely in the first quarter with some Wal-Mart business. I don't have, I don't know if you do Bill, I don't have off the top of my head, the exact volume with Wal-Mart, which we generally don't report. But we did have a pretty nice quarter with Wal-Mart. Their business is doing reasonably well and the combination of the residual, of the old contract we had and the new business we have from the neighborhood markets and that is doing reasonably well.

I don't have the exact numbers. Although as Larry indicated, I know that bills are higher than we expected, you know, going into the quarter.

OK, and then the last thing, did you mention what your depreciation was for the quarter?

No I didn't. Depreciation expense for the quarter is 5.6 million compared to 6 million 187 last year.

OK, thank you very much.

Your next question comes from of .

, , good morning.

Hi .

Hi, hey Larry, I just wondered if you could comment on Hubble's acquisition of USI Lighting. What impact that might have on the industry going forward.

I figured you'd probably ask that question . It's actually hard to tell in a way, but I personally think that it's good for the overall industry, because assuming that they do what we think they will probably do, which is consolidate the LCA and Hubble package together, it in effect takes out one major player in the industry. Instead of having five major companies out there bidding most all commercial jobs, we're going to have four. There's also a lot of excess capacity in our industry and down lighting and in florescent and we're assuming that once they do this and get it all completed that they will probably close some facilities and eliminate some excess capacity.

There's a lot of turmoil in the industry right now, because of the rep consolidation and I don't know if anybody, we don't know for sure what they're going to do. I don't know, at least I'm not aware that they've made any formal announcements. There's a lot of speculation that they're going to consolidate a lot of the reps.

And I think that could be a combination of good and bad. We could lose in some areas where they might want to come after a couple of our good reps and if they got more volume in that territory it could hurt us a little. But I think there's more upside potential, and I think we may gain a few good reps and selling organizations and/or some good people who may become available where we hire our own direct sales people.

And depending on how they execute, you know, they certainly could become and have the wherewithal to become a formidable company. Hubble is certainly a well respected, well financed, you know, very successful company and if they execute this thing really well, it could be a formidable competitor and a good company. They're still going to be significantly smaller than we are in the commercial business. We're certainly still be the strong number three player and I don't see it, for the most part, you know, doing much to hurt us. I don't know where that it would.

I guess you could always been surprised, but I think in essence we're going to have you know, four major companies now in the lighting business versus five. Certainly the fourth one will now be a stronger company than four and five were before, but all in all, I think it's probably a very good move for our industry.

We're still, you know, too many companies, we're still too fragmented. I think in the long run it will prove to be healthy for our business.

Thanks, and one other for either of you fellows. Could you comment on what kind of increases you're seeing your various insurance premium, workman's comp and what else?

Yeah, the, our, we got very lucky with this year, with our renewal on the insurance becoming effective September 1st. We're just getting into the planning stages for the renewal, which will take place this coming Sept 1st and as you might expect, particularly in the areas of general liability, we do anticipate some increases there. The, we have, fairly large reserves for workers comp and that type of thing. And we don't expect there to be too much of a change from the trend we've been seeing. On the other hand, for medical and workers comp type insurances, we've been seeing some double-digit increases in that area. And the general liability area, there's no doubt that there will be a double-digit increase. It's just a matter of how much. So stay tuned, I guess in that area.

Can you tell us just within a ballpark frame how significant insurance is as a percent of sales? I mean is it one or two percent or more?

Oh, boy, it's at least, if you include the medical insurance for the employees that are, you know, for their health and medical insurance as well as the workers comp insurance, and the, you know, the general liability insurances, it's in the, I don't have it exactly, but it's in the one percent of sales range.

Thanks a lot and good luck.

At this time there are no further questions.

I would now like to turn the call over to Mr. Tim Brown of Thomas Industries.

Thank you and good morning.

As you saw from our earnings release net income and earnings per share for Thomas Industries were a record for any first quarter; however the gain in profitability was largely achieved due to the benefit of not recording goodwill amortization that impacted net income by approximately $837,000 favorable, or five cents a share when compared to the prior years.

Last year's first quarter was the strongest quarter of the year for Thomas Industries, and while this year's first quarter after taking into account the five cents from the goodwill accounting change, 2002 is below 2001; however we are ahead of our planned budget for the year.

Larry commented on GTG's results for the first quarter, which we were pretty pleased with, considering a decline in sales of five percent and only a one percent, you know, decline in overall operating income. Obviously, GTG was favorably impacted with the accounting change from goodwill amortization. Nonetheless, I'd say pretty good performance overall.

For our pump and compressor business I do feel that we are operating in a tough, but improving environment. We still are not feeling a huge impact from improving economies around the globe. Now as I say that I think we've clearly seen improving order rates in the March to April timeframe, especially in North America, as well as Asia Pacific, although Europe is still a bit weak.

Also just when we thought that exchange rates wouldn't get worse, they did. As exchange rates did have a negative impact on us of about $794,000 on sales in the first quarter and about $200,000 on operating income.

For the first quarter, we got off to just a terrible start in January. It was really weak and then fortunately we did see some improvement mid-February through March in incoming business. I say that business generally across the board in the first quarter was relatively weak. And for example, some of our major markets, sales of compressors in North America for concentrators were off about five percent. Nebulizers were off over 20 percent. Some of our mobil applications with air seat and air suspension were all double-digit, and a number of our various environmental applications were all between five and ten percent, as well as laboratory was particularly weak.

But despite that, margins held up reasonably well on the sales downturn as we have been able to reduce costs in purchasing. We clearly continue to cost redesign and lower our cost or products while improving their overall efficiencies. We've had a number of head count reductions that we instituted primarily in the fourth quarter of last year. And we have had a pretty good hold on our capital expenditures in the first quarter. I think we only spent about a $1.3 million in the first quarter.

As business conditions improve and our sales increase, I think we'll be able to better leverage our cost and have a little bit better benefit from the expense reductions that we have put in place.

As always, we're working on many new projects, although to a great degree our overall success is dependent on our OEM customers coming through and being successful on their product introductions that incorporate our pumps.

The strong balance sheet, of course, we're out looking for acquisitions to enhance our growth, and obviously we have the ability to leverage ourselves considerably.

As we indicated, I think we expect to see improving conditions in our pump and compressor business as we move through the second quarter. And I think overall for Thomas Industries, again, pending the severity of the commercial construction markets that Larry and Bill talked about, the GTG's overall results, we do expect to see year-over-year improvement in the second half. Obviously, we're counting on some improvement in economies in North America, Europe, as well as Asia.

So with that I'll turn it over to Phil for financial comments and then be back to answer any questions you have.

Thank you Tim, and good morning.

As previously noted, our net earnings were the strongest for any first quarter in the company's history, primarily as a result of a change in accounting where goodwill is no longer being amortized. And when you look at our balance sheet, you'll see that the overall financial position continue to strengthen with our current at-work position of $243 million and debt-to-capital ratio of currently less than seven percent.

Cash flow as generated from operating activities for the first quarter, were up $1.8 million over the previous year's first quarter. At the end of March, our cash position was $21 million, down from December primarily due to our $7.7 million long-term debt payment made earlier in the quarter.

Our working capital at the end of March is $38.7 million and our current ratio is 2.2 to one.

The quality of our accounts receivable and inventories remain strong. Continuing to emphasize asset management and as a result, we have seen an improvement in a number of days in receivables with our current days running at 45. Our inventory turnover for a quarter has improved from the end of the year, but it's still running slightly less than five turns; however we do expect to see improvement over the balance of the year.

Our net debt position at the end of March is $3.8 million and we are essentially a debt-free company.

Capital expenditures and appreciation expense for the quarter were $1.3 million and $2 million respectively. Capital expenditures and appreciation expense for the year is estimated to be approximately $9 million and $8 million respectively

At this time, I'd now like to open up the conference call for any questions that you may have of Tim or myself.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad.

Your first question comes from of Robert W. Baird.

Good morning.

Morning.

I guess first maybe we can start on the markets, the medical market in particular. I'm curious, Tim you ran through some markets and demonstrated how tough things are out there, yet the top line was actually down seven percent, not the double-digits you, in some of the markets you identified. What was actually better than average in the quarter in terms of markets?

You know, I think you know, we continue to have some nice markets, such as sewage aeration. I think our distributor business was, you know, not impacted as much as what the overall decline in sales of seven percent.

I think we had some niche applications within the medical that were a pretty good, from foot massage applications and were recently strong in the month.

So I think while we did have, you know, some of our major markets were off, I think we did have some that offset that.

OK, and I'm curious about your comments on the automotive side. You've ramped the Hummer platform or the Hummer 2 platform, and the Seven Series platform, yet that market was down double digits.

I was talking, yeah, that was primarily on air seats and air suspension, actually the, I'd say the BMW was a little off in the quarter from what we'd expected and Hummer is really just starting to ramp up now.

OK.

And that should be good for us the rest of the year.

And why would air seats and air suspension be down double digits, given that the car build continues to surprise people on the upside?

I think in a lot of situations, our air seat business is actually on the farm implement , not necessarily passenger cars.

OK, fair enough. And the margins in the quarter, Phil the amortization exclusion, did that benefit the SG&A line or gross, or cost of goods sold or both.

It ran through cost of sales.

OK, and so that, if you exclude that gross margins would have been down from the fourth quarter. Is that fair?

Yes.

Although it's a pretty small number.

Yeah it's 120 ...

There's not much at all.

Yeah.

OK, so actually when I look at it now that's not true, gross margins would have still been up nicely. Maybe you can shed some light on what's happening in the cost of sales line in terms of production moves or global sourcing, any type of initiatives that you do have going on that we don't really appreciate.

I think, you know, we're continuing to take a look more and more at global sourcing. I think our people did a really nice job on some of the purchase cost reductions that we've generated. And I think, you know, the overall gross margins held up reasonable nicely and I think our people did a pretty good job here.

OK, and are you actually reducing production levels company-wide to draw down inventory further, or do you think you're at a normalized production level right now?

I think we're more normal today as we speak, you know, the second week of April. We've made some moves in terms of robotics in some of our plants. Now that generates more fixed costs, which impacts you when sales fall down, yet at the same time, I think we've improved our overall productivity.

OK, and then, Tim you mentioned the patterns during the quarter were favorable on a month-over-month basis, and it sounds like March and April were the best. Where do you, could you give us a guidance range for revenue in the second quarter? Do you expect it to be up sequentially just for seasonal reasons or does the order patterns also give you some confidence?

I'd say the order pattern is what gives me more confidence right now. You know, I think our, we should see an improvement in sales of, you know, I don't know the five and ten percent over the first quarter, certainly. Now it's a little different pending the timing of some of our customers order cycles, but no I think generally we should see, you know, at least that much improved second quarter over first quarter.

OK, and then gross margins presumably respond as well.

Yeah, I think gross margins should hold in there pretty good.

OK, I'll get back in line, thank you.

Ladies and gentlemen, at this time there are no further questions. Thank you for participating in today's conference call. This concludes the program. You may now disconnect. Have a good day.