Park Ohio Holdings Corp (PKOH) 2014 Q2 法說會逐字稿

Greetings and welcome to the Park-Ohio second-quarter 2014 results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Edward Crawford, Chairman for Park-Ohio. Thank you, sir. You may begin.

Good morning, ladies and gentlemen. Welcome to the second-quarter 2014 Park-Ohio conference call. I would like to introduce Scott Emerick, our CFO. And he will cover the Safe Harbor statement. Scott?

Thank you, Ed. Good morning, everyone. Thank you for joining us today. If you have not received a copy of our earnings press release, you can find it on the investor relations section of our corporate website at www.PKOH.com.

I want to remind everybody that that certain statements we make on today's call, both during opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the Company's 2013 10-K filed with the SEC on March 14, 2014. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Additionally, the Company may discuss as-adjusted earnings and EBITDA as defined. As adjusted earnings and EBITDA as defined are not measures of performance under generally accepted accounting principles. For a reconciliation of net income from continuing operations to as-adjusted earnings and for a reconciliation of net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the Company's recent earnings release. Any references we make to earnings per share are on a fully diluted basis. Back to you, Ed.

Thank you, Scott. Now, I would like to turn the meeting over to Matthew Crawford, the President and COO of Park-Ohio. Matthew?

Thank you very much and good morning, everyone. Overall, our second quarter was a little stronger than we had originally forecasted in our internal model. We reported net income attributable to Park-Ohio common shareholders of $12.4 million or $1 per share for the second quarter of 2014 compared to $12 million or $0.98 per share for the second quarter of 2013. This represents a 2% improvement in earnings per share as reported in our US GAAP financial statements.

In our press release we have reconciled net income from continuing operations to as-adjusted earnings. Our as-adjusted earnings in the second quarter of 2014 include $0.02 of acquisition-related costs associated with the Apollo and Henry Halstead acquisitions. As a result, our as-adjusted earnings increased 3% from $0.99 in the second quarter 2013 to $1.02 per share in the second quarter of 2014.

Net sales increased 12% in the second quarter to our quarterly record revenue of $343 million compared to $307 million in the prior year. The revenue increase is attributable to volume increases in the supply technology segment and the assembly components segment, slightly offset by volume declines in our engineered products segment. On a sequential basis revenues increased 8% compared to the first quarter on good momentum in all three segments in each of the primary business units within each segment.

Gross profit increased $3.5 million to $61 million in the second quarter. The gross profit margin percentage was 17.8% in the second quarter, which is a 90 basis point reduction compared to 18.7% gross profit margin in the second quarter of last year. The decline in gross margin percentage is largely due to a change in the sales mix between comparable periods as the higher-margin engineered products segment revenues declined year-over-year and were a smaller percentage of consolidated sales in the current year.

Consolidated SG&A expenses of $34.7 million increased $2.2 million or 7% compared to 2013, but SG&A expenses as a percent of net sales decreased 50 points to 10.1% in 2014 as compared to 10.6% in 2013. The increase in SG&A expenses is primarily attributable to the $1.8 million of incremental SG&A costs associated with acquisitions.

Interest expense of $6.8 million is comparable to the prior year and our effective tax rate for the second quarter of 2014 was 33.8% and approximated the second quarter of 2013 effective tax rate of 34.2%. We are still forecasting our full-year 2014 effective tax rate to come in at approximately 34.2%.

Now, let's look at the segments. First, supply technologies -- supply technology segment revenues represented 41% of consolidated revenues during the second quarter of 2014. Revenues increased 17% over the prior year and totaled approximately $142 million. Approximately half of the revenue increase over 2013 is attributable to the fourth-quarter acquisitions of Henry Halstead and QEF and the June acquisition of Apollo Aerospace. Other half of our growth in the second quarter, however, was very strong organic growth which contributed 8.3% of the year-over-year revenue increase. This growth was driven by power sports and recreational equipment, which increased 25%. Heavy-duty truck was up 9%. Semiconductor -- which was up 48%. In addition, our fastener manufacturing division generated organic revenue increases of 6%. Not only were these key markets up year-over-year but most of these markets were up sequentially compared to the first quarter as power sports and recreational equipment increased 23%, trucks 6%, and our fastener manufacturing division 4%. We are very, very encouraged by the continued growth and momentum in these well-diversified markets and our supply technology segment.

With the increase in net sales, segment operating income increased $1.3 million or 14% to $10.6 million. Segment operating income margin was 7.4%, which was a 30 basis point reduction compared to the prior year's second-quarter segment operating income of 7.7%. The reduction in margin is primarily attributable to increased professional fees and overall customer and product mix swings in the second quarter of 2014, slightly offset by increased operational leverage as a result of our overall sales growth.

Next, I will talk about assembly components. Assembly components revenues increased to -- excuse me, represented 36% of consolidated revenues. Net sales increased 16% to $122 million in the second quarter of 2014 compared to 2013. Almost all of the growth in this segment is attributable to the organic growth in our aluminum business, which increased 55% when compared to the prior year. In particular, the Jeep Cherokee has performed very well for Chrysler and is a key driver to our revenue growth. In addition, we benefited from one or more months -- excuse me, from one more month of acquisition impact from the Bates Acquisition in late April 2013, but this favorable revenue growth at this fluid routings solutions business was offset by the expected reduced volumes in the fuel filler business as programs came to the end of their life cycles in the second half of 2013.

Segment operating income grew $1.4 million to $12.2 million, which was 13% improvement over the prior year. Segment operating income margin was 10%, which approximated to 10.2% of the prior year. More importantly, the segment operating income margin increase sequentially 250 basis points from the first quarter of 2014. The aluminum business is the driver of this improved profitability in the improved margins. As we projected, margins are improving in the aluminum business as the new programs for the 2014 vehicles have moved past their initial launch phases.

Now, let's look at the engineered products segment. Engineered products revenue represented 23% of the consolidated revenues of the business. Net sales decreased 2% to approximately $79 million in the second quarter of 2014 compared to 2013. While our forging business bounced back nicely from the weather-constrained first quarter to outpace prior-year revenues by 4%, our industrial equipment revenues lag 2013 levels by 3%.

As we have discussed on previous calls, the industrial equipment business can experience volatility in the timing of completed jobs and the associated revenue recognition related to the percentage of completion accounting based on the jobs' complexity and size. This year is no exception. There are some large jobs in the queue, especially in our pipe threading business, and the exact quarterly timing of revenue and earnings recognition can be difficult to predict.

However, based on strong order bookings momentum that continued into the second quarter of 2014 for the industrial equipment business, we continue to remain optimistic that 2014 will be a very strong year for this business. Specifically, order bookings in the capital equipment portion of this business have increased 53% for the six months -- first six months of 2014 compared to the first six months of 2013 and backlog at June 30, 2014 is 49% greater than June 30, 2013. In addition, we should also note that we saw 3% aftermarket growth in the industrial equipment business in the second quarter of 2014 compared to 2013. Segment operating income increased 3% to $10.7 million. In addition, segment operating income margin increased 60 basis points to 13.6% in the second quarter of 2014 versus 13% in the second quarter of 2013.

Next I would like to take a moment to highlight cash flows for the first half of the year. As June was our strongest sales month of the year for the Company, we built working capital and accounts receivable at June 30. Accordingly, operating cash flows were only $14.7 million for the first half. The quality of our receivables, though, remain very strong as DSO improved 1.8 days in the second quarter of 2014 compared to the second quarter of 2013 and improved to 2.6 days sequentially compared to the first quarter.

Based on the projected timing of second half revenues and the projected impact on working capital, we are forecasting cash flows from operations to be approximately $65 million. Net capital expenditures were $9.1 million in the second quarter of 2014 and $12.3 million in total for the first half. We are forecasting full-year capital expenditures to total approximately $26 million.

Within our business we continue to see positive trends for North American manufacturing, the growth prospects in supply technologies, automotive industry momentum, and strong backlog in the capital equipment business and the resiliency of our forging business that bounced back nicely after a challenging start to the year. We remain confident that we can achieve earnings results in our range of our March earnings guidance.

I would like to close by mentioning two important events that were completed in July. First, we amended and restated our credit agreement in July. We were able to increase our credit facility to $230 million, extend the maturity date to July 2019, lower the cost on the revolver by 25 basis points, lower the cost on the $16.1 million term loan by 75 basis points, and create additional flexibility to increase the credit facility to match our trajectory of growth.

Second, we announced our second quarterly dividend of $0.125, which will be paid in the third quarter of 2014.

Thank you, and I will turn it back over to Ed.

Thank you, Matt, for a very clear and succinct evaluation of activities in the Company in this particular quarter. I would like to now turn over the phone lines to any questions on the performance of the first quarter, year to date, and hopefully peek into the future. So let's begin with questions.

(Operator Instructions) Ajay Kejriwal with FBR Capital Markets.

This is Dan Shapiro filling in for Ajay. So it was nice to see you reiterate the full-year guidance. But given that you did about $50 million in operating income in the first half, I'm just wondering what gives you the confidence that you will see a ramp in the second half to meet that guidance.

No, there is no mystery here. I would point out that our initial conference call indicating our annual guidance anticipated a little bit of a back-ended forecast for the year from an earnings perspective. The key here, I think, is the businesses by and large have performed very well. Given the timing and the size of the backlog in our most profitable segment, which is engineered components, it is not unusual for them to have some volatility. And we would expect this year, given the bookings that are currently being worked on and accounting rules around percentage of completion, in particular, to suggest that the latter half of the year will be a good time for the engineered Products group and would suggest that, given the margins in that group, that we should be able to achieve our goals.

Dan, let me answer that question a little differently. It might appear that our engineered silo is behind expectations. That is not case. And I want to take a peek at some of Matthew's previous comments, take a look at the second quarter, the third and fourth quarter and into 2015. This is historically our most profitable silo. And we are talking about EBIT margins on an ongoing basis of 15%. And when you look at this in a very narrow concept is just $20 million in sales in engineered products moved from one quarter to the next, just $20 million with that EBITDA of 14.9% represents $0.15 earnings per share. We've got 12,400,000 shares outstanding. This is the largest single and most powerful, profitable part of the business as a silo. Backlogs, as Matthew mentioned, are up 49%, 50%. Orders taken in the first half of this year are up almost the same.

So when you think about revenues of $600 million in the first half of the year and just add $20 million to it, just $20 million in this particular silo, it would extend out to be $0.15 a share. So it seems to be a little behind, if you look at it in the reality. We are very optimistic. And I'm trying to answer your question -- that's why we believe and that's why we have confirmed the guidance for 2014 as we began the year. Nothing has changed that we feel will affect our ability to accomplish that goal.

Got it. That's very helpful. I just had a quick one on corporate expense. I saw that came in a little light, at least versus our model. And I was just wondering if that was spending related to acquisitions or other factors and maybe how we should think about corporate in the second half.

Yes, our corporate expenses were up year over year, primarily for some professional fees in a variety of areas, compliance, accounting fees, some acquisition activity. In addition, our payroll costs were slightly up, too, for some of our stock plans in the quarter. I think you will see some of the discretionary spending decline in Q3 and Q4. So I think it would be fair to model a reduction in spending.

Got it, thanks.

Steve Barger with KeyBanc.

Matt, in your prepared comments you said 2Q was stronger than you had modeled internally. Can you tell us what that expectation was? And specifically, did engineered products come in the way you expected on that internal plan?

It was really modestly above. I forget what the exact number was but call it high 90s. So it was modestly above. The mix from our original plan is a little bit different than we have anticipated. I would tell you that in general the businesses are performing very well in terms of business activity. The only notable exceptions have and that sluggish start, mainly due to weather at forge, which we've recovered from principally, and then also the timing of some of the build and backlog at the equipment group, which has forced some of that revenue into the third and fourth quarter. But in general I would tell you that the business is performing quite well across the board in terms of demand. Some of the revenue and profits have shifted a little bit to the second half in the engineered components group. But we had anticipated that at the beginning of the year. So we had felt that our second quarter would be a little less than $1. And it came in about $1, so modestly better.

Got it.

I think, Steve, the point that we don't want to get lost here is engineered products does have some volatility relative to revenue recognition and accounting rules. But when you look at the entire business and the demand for the products, things are -- proved really good across the board. So, I don't want to suggest that accounting gets in the way of demonstrating business activity. But this is, I think, pretty good news relative to for we are in the year.

Well, I would agree. The numbers you gave for order intake and backlog are impressive. I guess the question for us as outsiders is how should we think -- in order to hit the low end of your guidance you have to put up about [250] the back half. Are the deliveries more weighted to 3Q or 4Q or will be evenly spread, or just how should we think about the cadence, just so we don't run into surprises as we try and model out what two half 2014 looks like?

Steve, that's -- there is some magic to trying to figure out timing of customer receipts and the timing of vendor receipts relative to key subassemblies. So this business has some inherent volatility that certainly we've experienced in the past. Having said that, we feel we've got a good grip on a bottoms-up look at the second-half forecast and have a high degree of confidence.

So it is a tough business to forecast. It's just tough. And as Dad mentioned, given the nature of the margins it can move the needle pretty quickly when there's only 12.3 million shares. So I don't want to suggest that's different. Having said that, our forecast is bottom up and has -- we feel pretty comfortable with where we see the ship dates relative to the latter half of the year.

Okay, and just one more question on engineered -- as you think about the mix in the backlog, can you give us any insight as to which of the business units are really driving some of this order activity and where you will see those deliveries come from that give you the confidence on that back-half story?

Yes. I think that business activity has been and quoting activity has been pretty robust across the board. I will tell you that the theme now for six to nine months has been significant improvement in the induction part of the business. There are, as we have discussed in the past, because of the relative softness in the steel market we have seen a little bit less of this huge orders but we've seen a significant return relative to the monthly activity in midsized orders really throughout the world. So, I think that has been a positive. And virtually every month bookings have been incrementally better than 2013.

So I feel like it's relatively broad-based. It's a little bit more in the induction. But as I mentioned in my comments, there is some activity at pipe, too, and the oil and gas segment continues to contribute in meaningful ways and in very large orders when it comes.

Steve, let's not overlook the long-expected strength in the aluminum business. Okay? We've been talking about this for years. It's finally starting to come home. So, we anticipate getting some help also from that particular segment.

Steve, I want to go back and say one more thing that may help you. I know this isn't going to give you a tremendous amount of comfort. But if you were to look back historically at the earnings over the last couple cycles -- I'm not saying the last couple quarters; I mean a good cycle and a half or so -- this type of volatility and quarters of significant strength, often on the heels of ones that are perceived weakness, given the nature of the accounting around these jobs, is not unusual. So this is something that we've endured in the past and we have to do our best to forecast for you. But it's not unusual.

Understood. And it sounds like -- I guess the encouraging takeaway is that it sounds like your commentary around customers in general is that their willingness to increase CapEx dollars is there and that's what's driving the business.

That's true, there is some of that. As you all know, we typically have targeted a 50% ratio, 50-50 ratio between equipment and aftermarket. I think that aftermarket is always an important part of the equipment group and continues to play an important role, particularly because of the margins. So yes, we are seeing some increased activity on new equipment. It does appear people have loosened the purse a little bit. But I would never demean the importance of the earnings and business activity on the aftermarket side.

Got it. And so, Ed, I will ask a question on assembly. Given the seasonality of the auto industry, should we think that assembly component revenue will be down sequentially in 3Q? Or will the program ramps offset some of that seasonality?

Well, I wish I could look into the crystal ball about the auto industry. Obviously, we have the holidays and so forth. But I would characterize the volume the second half to be up.

Okay.

In other words -- keep in mind we -- we all should remember we started the first platform of the $200 million-plus in sales was, in fact, to be the Dart, which was an absolute blow out and really hurt us, really hurt us earlier this year. But the Jeep Cherokee and other platforms have picked that up. And it was literally running door to door on a couple of the platforms. So all in all, I'm pretty optimistic that the second half, quite frankly, should be better.

Steve, I would mention that while the driver over the last four quarters has been new business activity, that still is fundamental to the sequential trend here at the revenue line. So I think we can continue to see some benefit there, although it is becoming less of a factor as we get deeper into the year. So, I think when we think about the second half as being robust, it's still somewhat impacted at the margin by new business activity and things getting up to speed.

Steve, let's not ignore what we feel is the positive pressure in the class A trucking. Okay? And how that is starting to percolate. So there's some -- and that particular -- trucking does affect us and we feel good about that. So, we are talking beyond the balance of 2014. We're talking about 2015 now.

Right. I'll ask one more and then I'll get back in line. In the quarter for assembly, revenue increased about $16 million year over year but I think operating income was only up around $1.4 million. So the conversion on those incremental sales dollars was at a lower rate than the margin of the base business. So any specific commentary about why you didn't get a conversion on that improved volume?

Steve, I would only comment -- and this is a bit off-the-cuff but, I think, grounded in some experience. The fuel filler business that rolled off at the end last year for high-quality earnings, sort of the end of the lifecycle achieving very strong earnings. And I think that while we've seen significant improvement in the aluminum margins, and I don't want to not reiterate that, they probably don't match up as well as we might like with what was rolling off last year in the fuel filler business.

Okay, thanks very much.

David Olkovetsky, Jefferies.

My first question relates to the bonds, actually. You guys brought the debt a few years ago when you were doing $63 million of EBITDA. Now I think your guidance is essentially $135 million to $140 million or so for this year, so it's more than a doubling. And it's pretty expensive debt. As I look at your call schedule, the first call is at $104 and change in April 2016. I just wonder if you thought about that call schedule yet, if you have thought about potentially taking them out -- the bonds, that is -- ahead of, potentially, that first call date.

Well, let's begin with the bonds. The most recent trade on the bonds was $109 yesterday, I believe. But there's not a lot of thought given to acting along lines of trying to time the need for capital to buying them in in restructuring them. So we have got plenty of cash flow and we feel comfortable. We will just wait that out. It might be -- you think it's a high premium, but it's still seven years left. So we are not uncomfortable with that position.

I would only add -- this is Matt. We have a stated goal of growing the business through 2017 at roughly 12% to 12.5% a year. The business is growing organically very nicely right now. We believe we can continue to augment that with our kind of acquisition strategy. So, while in a vacuum I understand your question, our balance sheet needs and capital structure are always going to be driven by what the perceived needs are and uses in our growth strategy.

Clearly. And just to follow up on that growth strategy, I understand that you guys are looking to grow at a fairly rapid clip. Would it potentially make sense, if you are, in the current interest rate environment, which is quite attractive, and given the bonds are trading at $109.50, to yield 4.5% -- it seems to me like the market is telling you something, that you could potentially refinance at significantly lower rate.

We wouldn't pay the call premium now. Are you suggesting we would?

Yes, that's what I'm looking at. Obviously, right now the call premium is quite high. It would probably be about 14 or 15 points over par. But certainly we can talk about that maybe a little bit off-line.

But if I could just ask a different question, it sounded like, Matt, you said something like cash flow or cash flow from operations of $65 million. Was that correct? I thought in the prior quarter you guys had indicated $70 million. I'm wondering if that is driven by one of two things -- one, either an increase in working capital or, two, a slight reduction to your EBITDA forecast?

I just wanted you to know it was a swing in our working capital projections based on the timing of activity for that $5 million drop in operating cash.

Okay. Perfect.

I'm going to be in New York tomorrow at 1:30 at your conference, speaking. So I hope you will be there and come up and introduce yourself. And maybe I'll try to give you a real clear view of where we might go. But borrowing money is one thing. Using it properly is another.

Yes, I know. I totally agree. Thank you very much, guys. I appreciate it. Great call.

(Operator Instructions) Jay Harris with Axiom Capital.

So far this has been a great call.

So far? (laughter)

I'm about to ask a question.

Well, Jay, that's why when you begin with so far I have to sit back in my chair here and get ready. All right, go ahead.

In your game plan for the year, can you share with us the geographic distribution of those revenues?

Even with the acquisitions that we've layered on here recently in Europe, with the organic growth we've had in North America we are still probably in the 80%-plus range of North America dominant, geographically.

How much would Europe be?

Let's just say the number is 26% outside North America, at this time.

I was hoping you would breakup Europe from the rest of the world. But I guess you are not going to go there.

We do it annually. We don't do it on a quarterly basis, Jay.

No, I'm not interested in quarters. I mean for the year, annually.

Well, let us pull that information together so we are accurate. And I will have Scott get back to you after the call, and we will give you specific data.

That would be very good. Just going over engineered products again, you mentioned oil and gas industry. Could you just review a total profile of the industries that buy those products?

Our significant exposure into the oil and gas space are in the induction applications and in the finishing applications related to drilling pipe and couplings. So, as you may be aware, there has been a lot of activity, clearly, in terms of total rig count for oil and natural gas, both domestically and internationally. Generally, the rig counts imply a certain amount of activity, which in the short term will impact our aftermarket business to support that, tube-making capabilities, and in the long-term will support the need for additional capital equipment. There has been some additional activity over the last couple years relative to legislative activity as the US government has created a positive investment environment here in the United States after putting tariffs on -- some antidumping tariffs on pipe coming from China and, I believe more recently, Korea. But if you want to know what drives the business, per se, it is in our induction and our finishing equipment and aftermarket services, which globally service the pipe business.

What other industries are ordering engineered products?

Steel is a significant industry as well. And then on a more indirect basis many infrastructure industries that require heating and melting and hardening activities. Some of those would include forging, casting, more indirectly automotive, train, all the transportation industries. The nature of the technology, Jay -- and I can explain it more to you off-line, if it would be helpful. But the nature of the technology, particularly induction, is to harden and liquefy metal to improve the process of the chemistry related to a hardening, melting, or galvanizing process, for example.

And has there been any softening in the steel-related opportunities?

The steel market has been soft for a while and is an opportunity, I think, as it improves. There has not been very good -- not been very solid trends in capital investment in the steel industry recently, with the exception of some investments by steel companies that make pipe for oil and gas drilling, which we have benefited from.

All right. And so the oil and gas activities have been more than offsetting the weakness in steel? Is that a reasonable conclusion?

I don't know that. I would say that steel has been somewhat offset by activity that has driven the automotive sector in things like hardening of product or galvanizing of product, along with pipe, has maybe help offset some of the steel softness. But that steel business when you look accurate the last cycle, which ended in 2008, early 2009, we had some massive orders that were related to increasing capacity at steel mills. Those are nonexistent right now.

Thank you, guys.

Steve Barger, KeyBanc.

Just a question on Apollo -- I know it's small, but can you talk about the EBITDA margin as it stands now, where you think it can go, and what you saw in that business that made you pull the trigger?

Sure, Steve. First, we are not going to get to specific here other than to tell you that it is -- we felt it was strategic because it was providing what we felt were world-class supply chain services in the style with which supply technology does to the aerospace industry, most notably in the Airbus supply chain. So, we felt that strategically dipping our toe into the aerospace sector, which we hadn't been in before, was valuable. It is a relatively small entry point and one in which we've got some work to do to make it meet. The business is on a pretty good growth pattern in terms of the expectation, and with some of the booked business -- once again, the Airbus supply chain. But it's going to take some work relative to instilling some of our cost processes combined with getting some of that incremental book business to become even a little bit more meaningful to our overall earnings picture. But -- it's a work in process. But it's one where strategically extremely excited about. It is really not meaningful relative to any of our financial results.

Got it. Will that stay aerospace focused, or will you use that to leverage the existing supply technology relationships through the European expansion as you go?

That will stay aerospace focused and is a separately managed business unit of supply technology.

Got it. And last question -- just any update on acquisition pipeline in general?

Yes. I think you can anticipate the completion of certain acquisitions that fit directly into current silos. The queue is quite heavy but we are, as you know, very careful buyers. But we really believe that where we add between now and the end of the year will definitely increase the runway of the revenues for 2015. It just seems these transactions take longer in the queue. Every year I think it's pushed back, and where we used to try to do transactions by the second quarter it has now been pushed into the third quarter and the fourth quarter.

But there's a some exciting news underway. And there's no lack of opportunities for the Company. It's a matter of picking the right ones. And we think we have two or three wonderful opportunities that exist. Hopefully we can close, but we are very deep in the process.

As you look at that pipeline, can you tell us what the average size of the -- from a revenue standpoint, the average size of the property you are looking at and maybe what some of the larger deals might look like, just so we can start to think about potential impact down the road?

Well, it's unlikely that we would do -- from a revenue viewpoint we are not looking at anything right now at $100 million-plus. It's less than that. It's more strategic. It's really beautifully crafted bolt-on's. We don't feel the urge to make a big transaction. As I said, we are not going to buy a hotel chain. And if we have to continue growing this thing by adding companies at $25 million to $50 million or $75 million directly onto current silos, we will go that route.

But we are out their against private equity. They are drunk with their availability of capital right now, and they have made things very pricey. So, we have to look at where we have an edge. And that edge is -- the companies we look are -- strategically fit perfectly with companies we have today. The people selling -- these are privately held companies and they are not private equity selling to private equity. So we have to be careful. But we've been doing this a long time and we are very patient. But I believe we will come through with things that will delight everyone when they hear about them because of the nature of combining that with the current business.

Appreciate the color. Thanks. Have a good day.

Well, thank you. I think that's the end of the queue. We look forward to reporting back at the end of the third quarter. And we, again, feel comfortable about our guidance. We know it's -- it appears to be an uphill climb. But we have all the orders and all the opportunities. And it's about shipments. So the Company is in a good state at this point, and now it's about execution. But we are looking forward to the balance of this year and achieving our goals and looking into 2015 in a very positive way. Thank you for your support. And have a nice day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. And thank you and have a great day.