RBC Bearings Inc (RBC) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 RBC Bearings earnings conference call.

My name is Carol, and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode.

We'll be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr.

Adam Sigel with Financial Dynamics.

Sir, you may begin.

Good morning, and thank you for joining us today for RBC Bearings' fiscal 2011 second quarter earnings conference call.

On the call today will be Dr.

Michael J.

Hartnett, Chairman, President and Chief Executive Officer, and Daniel A.

Bergeron, Vice President and Chief Financial Officer.

Before beginning today's call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projected or implied due to a variety of factors.

We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the Company's future operating results and financial condition.

These factors are also described in greater detail in the press release and on the Company's website.

In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the Company's website.

Now, I would like to turn the call over to Dr.

Hartnett.

Thank you, and good morning.

I'm pleased to report that our second quarter of fiscal 2011 showed continued improvement in order volumes and sales in all market segments, especially in our diversified industrial products.

During the second quarter, our sales were $83.1 million, an increase of 30.5% from the same period last year.

Adjusted operating income was $14.6 million versus $8.5 million a year ago.

This was a 420 basis point improvement on a year-over-year basis.

Cash flow from operations was a strong $9.7 million for the second quarter fiscal 2011, compared to $4.6 million during the same period last year.

We ended the quarter with $47.4 million in cash and short-term investments and $31.4 million in debt.

The strength of our industrial markets continued through the second quarter with sales of our industrial products to the OEMs were up a remarkable 112% year-over-year, and sales to the industrial distribution segment were up 36.8% on the same year-over-year comparison.

Sales of industrial products in the period represented 54% of our total revenues this quarter.

Just as we mentioned last call, we remain encouraged by the strength of our industrial markets and the acceptance of many of our new products.

As a result, we expect to see continued strong demand for our bearings for large construction and mining equipment, industrial distribution, semiconductor machinery, military vehicles, and consumables for machine tool products that are produced in Europe.

Also, we expect to see increasing demand for our products in the oil and gas markets.

Relative to our aerospace and defense business, during the second quarter sales were off 2.7% from last year's equivalent quarter, although on a sequential basis quarter-to-quarter, we saw this sector grow by about 2.3%.

We see continued positive developments for these markets, along with the rest of the industry--expect to see real improvements in volumes next year.

The strong book-to-bill ratios shown by the aircraft OEMs this year combined with the announcement by Boeing to increase production levels of the 737 and 777 ships is really good news for RBC.

To date, we've seen little improvement in our sales to aircraft aftermarket distributors.

Sales to these customers are flat with last year and are running at about 60% of the high-water mark we saw in fiscal '09.

I think the reduction in business jet volumes, combined with the delay of the 787 production, have had the greatest impact on this sector.

We expect to see measured improvement over the next 12 months, as the volumes come back into this business, the 787 production becomes real, the excess material is--in the system is consumed and this sector gets back to normal.

Relative to Company margin performance, gross margin for the second quarter, on an adjusted basis, was 33.5% compared to 31.4% for the same period last year.

This is an improvement of 2.1 percentage points better than last year's second quarter.

As I said in our previous call, I expect this improvement to increase throughout the year to achieve more historic levels of gross margin performance demonstrated by RBC in past times.

Looking ahead, we expect the third quarter of fiscal 2011 to be close to the second quarter in terms of performance, perhaps a little bit lighter on the top line, mainly driven by fewer production days due to the holiday season.

On a year-over-year basis for the third quarter, we should see good leverage from our cost base with continued improvements flowing to the operating income line.

I'll now turn that call over to Dan, who can provide more color on this quarter.

Thanks, Mike.

Since Mike's already covered sales and gross margin, I'll jump down to SG&A.

SG&A for the second quarter of fiscal 2011 increased $1.9 million to $13 million, compared to $11.1 million for the same period last year.

As a percentage of net sales, SG&A was 15.6% for the second quarter of fiscal 2011, compared to 17.5% for the same period last year.

The increase in SG&A year-over-year was mainly due to a $1.6 million increase in personal-related items and higher professional fees and a $0.3 million increase in incentive stock compensation expense.

Other net for the second quarter of fiscal 2011 was a loss of $0.4 million, compared to a loss of $0.7 million for the same period last year.

This is mainly comprised of $0.3 million of amortization of intangibles and $0.1 million of restructuring costs.

Operating income was $13.9 million for the second quarter of fiscal 2011, an increase of 91.9% compared to operating income of $7.2 million for the same period in fiscal 2010.

Operating income excluding costs associated with the expansion to large bearing products and restructuring costs was $14.6 million, an increase of 71.9% compared to adjusted operating income for the same period last year of $8.5 million.

For the second quarter of fiscal 2011, the Company reported net income of $8.6 million, compared to net income of $4.4 million for the same period last year.

Diluted earnings per share was $0.39 for the second quarter of fiscal 2011, compared to $0.20 per share for the same period last year.

Adjusted net income was $9.3 million in the second quarter of fiscal 2011, compared to an adjusted net income of $5.3 million for the same period last year.

Diluted earnings per share adjusted was $0.42 for the second quarter of fiscal 2011, compared to $0.24 per share for the same period last year.

Turning to cash flow, the Company generated $9.7 million in cash from operating activities in the second quarter of fiscal 2011, compared to $4.6 million for the same period last year.

Capital expenditures were $2.5 million, compared to $1.8 million for the same period last year.

And total debt for the period ended October 2nd, 2010 was $31.4 million, compared to $63 million for the same period last year.

The Company ended the quarter with $47.4 million of cash and short-term investments on the balance sheet, which exceeds our total debt by $16 million.

I would now like to turn the call back to the operator for questions and answers.

Thank you, sir.

(Operator Instructions)

Gentlemen, your first question comes to you from the line of Fred Buonocore of CJS Securities.

Sir?

This is [Jared William] calling in for Fred.

Can you comment on your progress in pursuing acquisitions, and are larger targets still your focus?

Sure.

Well, I wouldn't say larger targets are our exclusive focus.

We like the smaller businesses if they're--if the fit is right.

So, our progress on acquisitions is--continues.

There's--the candidate list is significant.

There's a few large candidates on the list.

We're looking for businesses that are supportive of our market position or offer us access to markets that we don't have currently, but are strategically important to us, and/or we're looking for smaller companies that would be easy to assimilate into our existing plants.

And the outlook is good--favorable.

And the second question I had was, have there been any changes with respect to expectations for volumes from the Houston large bearings facility?

Yes--well, I think, not much.

We don't--we're not expecting too much in the short term.

I do think from what we're seeing I expect that business to start contributing in the second half of next year, but I don't expect to see much of a contribution from that business until then.

Okay, that's all I have.

Thank you.

Thank you, sir.

Gentlemen, your next question comes from the line of Edward Marshall of Sidoti & Company.

Please proceed, sir.

Good morning.

Thanks for taking the call.

The questions on the seasonality you normally see in the September and December quarters.

Obviously, this quarter, looking at the top line, bucked that trend a little bit.

Did you still experience--or the customers shutdowns typically happens in the September quarter, and if so, was the strength during the uptime that much stronger that led to the performance in the quarter?

You know, we didn't see the normal cycle of weakness in the second quarter, particularly in the industrial business.

A lot of the markets that we service today, Ed, are--seem to be constrained by a shortage of bearing products, and so we, in a lot of cases, had to work extra hours, and some of our plants run seven-day shifts in order to produce the demand.

And in some cases, to produce the demand is impossible, the demand has been so strong.

So, we certainly did not see the cyclicality.

And then, I guess, moving on to the leverage in the business.

It looks like you got a pretty decent drop-through rate in the quarter.

As we progress into the end of this year and into next, is that--can you sustain that kind of drop-through rate as sales improve or are there additional costs that are going to come back on and slow that down a little bit?

Well, Ed, I think as we said in Q1 that we--for this year we expect that we can get that gross margin number around that 32.5% range and that we can hold that SG&A number between 15.5% to 16%.

So, I think we will continue to see some leverage going into 2012 because we expect that we can get some more points on the gross margin line and still be able to hold that SG&A.

Excellent.

The distribution you touched about--talked in your prepared remarks being up 36%, can you kind of dive into that a little bit further and talk about what you're seeing there?

Are they stepping up purchases--well, they're obviously stepping up purchases, but is the strength accelerating?

What does it look like so far in October, and anything you can add on the distribution side of your industrial business?

Well, the--first of all, we did a little research to see--because we anticipated a question on are they--are we building inventory or are the distributors building inventory.

And to the best of our ability to measure that, what we're selling to the distributor is passing immediately through to the market.

So, there's nothing--there's no inventory builds going on at the distributors--at the major distributors that we could find for our products at least.

The--we see continued strength in October from that distribution segment, and I think, thanks to Mr.

Bernanke and his $600 billion that he's going to help the economy with, that sector responds really, really immediately to GDP growth.

And so, I don't see any other way for the GDP to go right now than up.

And that's just going to pull more volume through that sector.

So, we probably, if anything, need to tweak up our run rates to produce what's probably--what's going to be ahead in the next five or six months.

And, I guess, adding to that, then, is what type of capacity do you have in place, and how much more do you need to add in order to meet your projections or meet your potential growth coming forward?

Well, I think we have the capacity internally in terms of machine tool and source base.

I mean, that's not a constraint.

There may be more of a constraint in the population.

We probably have to add some population to our workforce.

That's not a big constraint in most places.

It used to be a constraint in some places when homebuilding was so strong, and we couldn't hire--everybody wanted to be a carpenter, but that's not the case anymore.

So, we don't have a constraint there.

The largest constraint that we probably have right now is going to be the availability of raw material.

And those raw material lead times are moving out, and the prices are moving up, and its availability is going to--in some cases, could be problematic, and so we're wrestling with those issues right now.

And, I guess, looking at the margin base at this point, you've been able to capture a lot of the price that you're using on the raw materials on the pass through.

Do you suspect that there'll be any issues going forward?

No, I think Mr.

Bernanke is going to get the inflation he's looking for.

Thank you very much.

Thank you, sir.

Gentlemen, your next question comes from the line of Peter Lisnic of Robert W.

Baird.

Please proceed, sir.

Good morning, gentlemen.

Hi, Peter.

Good morning.

I guess the first question, your comment about in some cases demand being impossible to make, can you give us some color as to where that is, and then just what the constraint is?

Is it indeed that--acquiring raw materials or materials to meet that demand, is that what's holding you back there?

Well, we see--Peter, we see the raw materials haven't been as much a constraint, yet, but they're something that we need to worry about in the future.

And we need to have the right plan in place to mitigate any exposure there.

It's just not going to work like it did in the past.

We see order volumes in some of our plants far beyond historical capacity of the plants.

And it's a day-to-day thing, sometimes it's a week-to-week thing.

Sometimes we see order volumes that are historically--beyond historic records, in the range of spectacular.

And you wonder whether or not you should expand your capacity to such a rate or is the rate going to normalize.

And so, it's not everywhere at RBC, but it is happening in some of our divisions.

And is there--can you give some color on exactly where, either from an end market perspective or a product perspective?

And then, I mean, it sounds like you're assuming that those rates normalize versus putting more dollars into the ground or more capacity in place.

Is that kind of what you're telling us?

Yes, well, I think it's mainly in the industrial products.

In a lot of cases, it's the industrial products that go to the distribution sector.

And it's a matter of adding--do we want to--how much plant staff should we add?

Should we increase our plant staff by 10% or 20% or 100%, and nobody thinks that adding--that doubling the plant staff is the right thing to do right now.

And nobody can believe that the economy is going to be that strong for that long.

So, we're trying to interpret what the market is telling us right now.

Now, at the same time, Ed, we're--or Peter, we're adding--we have certain initiatives going on in our field sales force, which have been positive and constructive and accretive to the demand issue.

And we have certain initiatives going in, in our industrial marketing sector on--for certain products in certain markets that have also been accretive and positive.

So, there's--it's not just the response of our core markets that are positive.

There's internal projects that we've been working on that are also, we hope, having an effect.

Okay.

And then, I guess along those lines, I would assume that there's probably some, maybe, nonrecurring or incremental costs that you're facing simply because you're stretched thin.

Is there any quantification as to any sorts of costs that you might be incurring that might go away as demand normalizes?

Nothing comes to mind immediately.

I think some of the costs that we're incurring now that dampens our gross margin performance have to do with manufacturing methods issues in the plants where we're improving the method or recapitalizing a certain line to produce it more efficiently.

And some of our margin expansion is coming as a result of that.

Okay, understood.

And then, last question, if I could.

Just--you had mentioned that you've seen, I think, some order improvement or some demand strengthening in the oil and gas sector.

I'm just wondering if you could give us a little color commentary on what's happening there with the business.

Well, since our--we have a big plant in Houston that's tooled to make bearings for the wind industry, and those sized bearings also go into the oil and gas business.

And there are big corporations in the oil and gas industry that use our kind of products.

It hadn't escaped us.

So, we have developed product lines that are appropriate for use in some of the big capital equipment that support the oil industry, and those product lines are being well accepted and endorsed and adopted today by some important OEMs.

And so, we're at the beginning of what we think is an expansion in our new product volume in the oil and gas industry.

We have old product volume in that industry as well, and we do see this--we do expect the price of oil to be headed north to the $90 to $100 a barrel range here next year, given what's going to happen to the US economy and demands of the economies in Asia.

So, we see increased--a ramp in demand coming from that industry next year.

Okay.

That is perfect.

Thank you for your time and help.

Thank you, sir.

Gentlemen, your next question comes through the line of Walt Liptak of Barrington Research.

Please proceed.

Hey, thanks.

Good morning, guys.

Good morning, Walt.

I want to ask about the spending at the large bearing expansion--or for the large bearing expansion.

I thought we were pretty close to being done with that plant down in Houston.

What are the expenses related to, and are they going to be recurring in the back half of your fiscal year?

Yes, Walt, most of that expense is just the cost of the factory now and our work that we're doing to qualify new customers and making sample bearings because there's just not a lot of volume on the wind side, obviously, what's going on in the market.

So, we expect the next two quarters to next three quarters that we'll still see that.

That's going to have a drag on gross margin, and that's why we break it out so everybody can see exactly what that drag is.

And as Mike said a little earlier in the call, we had expected to see that contributing by the second half of next year.

Okay, right.

So, this is largely D&A expense?

It's D&A and people and some overhead expense.

Okay, got it.

And I wonder about the--in the aerospace business, you talked about business jets.

Can you provide some color about how much business jets are down and how much--and where commercial jets are?

Yes, to--I think, probably, the best place to go is just to look at the latest releases out of Textron and where Cessna is going.

And Cessna's business is fairly weak, and we expect that sector to be weak, but strengthening, over the next year.

But, it's--I don't think it's going to see the--it's not seeing the kind of order book or demand that it saw in '07, '08.

So, I think that sector's going to be weak for some time.

The large commercial jet, currently that's kind of the flywheel of the industry right now.

And currently Boeing is running their production lines at--for the 737 at 32 a month, and they've announced plans to go to 38 a month by 2012.

So, those bearings will have to be made in 2011, obviously.

And they probably are going to announce in December that that 38 a month is going to be 40 a month.

So, that's what we're expecting to hear, so that's a 20% to 25% improvement in demand for that ship, which is kind of the flywheel of the industry right now.

And the 777, it was announced previously, they're almost going to double that production rate over that same time period.

So--and that's the same time period that the 787 should start to enter its production cycle.

And so, I think that the demand for product on the industry is going to be very good.

I mean, we're seeing that now in terms of contracts and proposals and requests for quotations and contract extensions.

At the same time, we have a lot of new products that we've developed that we'll--we expect to enter that market that will be significant generators of revenue for us, graduated over the next five years.

So, I think, we're feeling extremely good about where that industry is right now and its outlook.

Okay.

Was there any impact during the quarter that was positive or negative for the aerospace distributors?

No, it's--they're--I would say, if anything, it was positive.

We see--although our shipments to the distributors weren't materially larger than they were in last year's same quarter, we did see more order volume and more requests for quotations.

We do monitor their inventory levels.

They have certain turn objectives.

We're knowledgeable about those objectives and where their turns are right now, and I think that's turned the quarter--corner over the summer.

Okay, good.

And I wonder if I could ask one more for Dan.

The cash flow looked good this quarter and the cash--operating cash flow.

Where are your inventories at this point, and given the inflationary environment that we seem to be in for metals, how would you hedge that outlook?

Well, our inventories at the end of October were $137 million compared to year end of $136.4 million.

Okay.

And on the metal side, we hedge that exposure in lots of different ways.

We may bring on additional raw material if we have real long lead times in certain categories.

And we work hard to make sure that we have the ability to pass through these costs in our contracts and hand to them in price increases where we don't have the ability to pass it through on a contract.

Okay.

Okay, thanks, guys.

Thank you, sir.

Gentlemen, your next question comes from the line of Steve Barger of KeyBanc Capital Markets.

Please proceed.

Hi, good morning, guys.

Good morning, Steve.

I want to go back to the top line seasonality.

You've seen nice sequential revenue growth for maybe five quarters now, I think.

Sounds like order rates remain strong post-quarter end.

So, should we read your comment in the release about continued revenue gains to mean sequentially up in the third quarter, and then on into your typically strongest fourth quarter or was that more of year-over-year comment?

Yes, that was year-over-year comment.

The--I think the third quarter is going to be--it's going to look a lot like the second quarter in terms of just overall volume, with a little seasonality in there for the holiday period.

Right.

And then, we expect the fourth quarter to be its normal strong self.

Right.

It's just the way the accounting calendar falls.

There's just more days in that quarter, and there's many fewer holidays.

So, the MRP drives more production, and that's how it works.

Got it.

Yes, I just wanted to make I understand--I mean, you're going back to, presumably, the typical seasonality, even though you're getting some benefit from new products and that sort of thing?

Yes, that's right.

And to that new product question, what percentage of revenues on the industrial side came from new products?

It's probably a small amount of revenue right now.

I would hesitate to make a guess.

And one of the things that we like about the industrial business is it's a--it's a little bit like asking Coca Cola what their--do they like the revenues out of Classic Coke.

And so, we have a lot of classic products that we've been in production on for years, and people still love them and buy them, and that's kind of the flywheel of a lot of our revenues.

On the other hand, we try to make life lively and add new products, so that we can get some business expansion going into markets that are, maybe, a little more lively and interesting.

And I think, although that was probably a minor contributor in the second quarter--or our third quarter--our second quarter, I'm sorry--I would bet, though--what were our industrial sales in the second quarter?

Total industrial?

$44.6 million.

$44.6 million.

I would bet it's at least 10% of industrial sales.

And, presumably, that'll grow a lot faster.

I'm trying to think about--I mean, you're putting up such huge year-over-year comps on the industrial side.

That--at some point, that, presumably, normalizes as the comps get tougher, but then you're adding in a greater contribution of new products, which are growing faster than the base.

Is that right?

Yes, I said 10%.

I think that--it's probably closer to 20%, Steve.

And what's your expectation--as you introduce new products, what do you think that growth rate approximates for that stuff relative--as the comps on the legacy products start to slow down?

The new products in this industry, it takes a long time to develop them and work with the customer and sell them.

And so, there's a fair amount of cycle associated with getting it to the point where it's in production and it's generating revenues for you.

And so, this was sort of the--maybe the first six months here is--and maybe this entire year is the year of the industrial new product cycle.

Next year, for sure, will be the year of the aircraft new product cycle.

Right.

We have some really, really exciting new aircraft products which are in the final stages of approval which will add to our revenues next year.

And will that materially change your dollar content per airframe at Boeing, for instance?

Not material at Boeing.

It'll--it may change it a little bit at Boeing, but it will change it more on the defense side of the business and to a lesser extent in Europe.

Got it.

Gentlemen, your next question comes from the line of Vincent Damasco of The Colony Group.

Please proceed.

Thanks, gentlemen.

Thanks for the time.

I guess, yesterday, Joy Global talked of supply constraints in the load bearings for their mining equipment.

And I was just wondering if you guys currently serve that market, as well as if any of the capacity being brought online at Houston can be retooled and sold into the mining equipment market as well?

Yes, we serve that sector.

And that's--Vincent, that's one of the sectors that's extremely strong for us right now, where we've been running very hard to keep up to the demand.

Some of Houston is being retooled to service that sector.

That's a slower process associated with--you have to come up with a design, a bearing design, that's proprietary to you, and then you work with the engineers at the OEM to make sure that it fits their equipment.

Sometimes there's testing requirements, then it goes into some test cycle.

And after the test cycle, if all the boxes are green, there's an order cycle.

So, we're in the engineering part of the cycle on a couple of those programs right now.

So, I guess, from whatever retooling--are we referring to or maybe thinking that it's more of a 2012, '13 type of situation?

Some of it will show up in 2012 because we've been working on it for some period of time.

And it will certainly show up in 2013, 2014.

And would--Caterpillar are obviously going into the shovel market as well.

Would that be an end market that you guys could potentially--or a customer that you would be able to pursue or would they have just been one of the many on your hot list?

That would be one of the many on the hot list.

Okay.

Thank you very much.

Thank you, sir.

(Operator Instructions)

Gentlemen, your next question comes as a follow up from Edward Marshall of Sidoti & Company.

Please proceed.

This is a follow up to one of the earlier questions on the oil and gas business.

I think traditionally that runs less than, say, 10% of overall--I mean, $10 million of overall revenue.

My question is how large could that segment become for you as you're starting to retool some of your lines for that--for those large bearings?

Well, if you're using $10 million as the baseline number, it could probably triple.

Should I use $10 million as a baseline number?

I don't know, should--Dan, should he use $10 million?

I'll go back and look where we are this year compared to when you had that 10% from last year's number, but--and we can get back to you on what base to use there.

Okay.

Yes, it's probably not a bad number, but I think there can be a--there's going to be some real expansion for us in that area.

So, about a potential of about a $30 million market?

$30 million market participation.

Right.

And when can you ramp up to that rate?

We're currently in the process.

We're maybe halfway there.

Got it.

And then, the second question is on the supply chain that you talked about increasing lulls and the longer lead times.

And what's the situation of your supply chain?

How secure is it?

I know you buy from several sources.

Is it mill direct, is it through distributors?

Anything you could add there.

Well, you're right, we buy it from several sources domestically and overseas.

It's often mill direct, but it's just as often through distributors because of the size of the product or if we need it immediately or the chemistry of the product or the fact that we're making special bearings out of something with a special chemistry.

We would go to one of our distributors to buy products like that, but where we can we combine our buys, plan our volumes and buy from the mill.

And then, finally, on the reengineering of the Houston facility, are there any reversals of some tax credits that you've received or any potential triggers that could reverse some of those tax credits received by the government in previous quarters?

No.

I mean, the original capacity that we built for wind is still there.

Remember, when we built that big plant, a piece of it was associated to the old CBS/Coastal business that we acquired that we merged in with that business.

Okay.

Thanks, guys.

Thank you, sir.

Gentlemen, your next question comes as a follow-up question from Steve Barger of KeyBanc Capital Markets.

Sir?

Yes, thank you.

In response to an earlier question, you had talked about some large candidates that could be out there in the list of acquisitions that you're talking to.

Can you give us any range for some of the more active conversations?

Range in terms of--?

Size of the top line of the potential candidate.

In the $50 million to $100 million range.

That's great.

And typically right now for the kind of companies you're looking at, what kind of EBITDA multiple range are they falling into--you might not want to get that specific, but are you looking five to six or is it more like eight to nine?

Where are the negotiations?

Well, when you look at one of these companies that have trailing EBITDA and the purchase price is, let's say, 10.

Well, 10 would be a pretty hard number for us to get to unless we felt that there was some significant ways where we could improve the EBITDA performance either through their manufacturing or combining costs or that sort of thing.

So, I think, on a pro forma basis, we'd like to stay around six.

That doesn't mean on a standalone basis they--we wouldn't have to pay a 10 on their standalone numbers to get to a six on a reconstructed number.

Got it.

And are you--we've heard from a lot of companies that there's been a big gap between buyer and seller expectations.

Are you seeing that start to narrow?

No.

I think there's still a--that gap is still there.

I mean, these businesses right now are--seem to be very expensive and heavily marketed.

Got it.

Thanks very much.

Appreciate it.

Thank you, sir.

Ladies and gentlemen, this concludes the question-and-answer portion of today's conference.

I will now turn the presentation back to Dr.

Michael Hartnett for his closing remarks.

Sir?

Okay, thank you.

Well, in closing, I'd like to thank everyone today for participating in the call and for their interesting questions and comments.

And we are very encouraged about where the business is--how the business is performing for the first six months of our fiscal year and have an optimistic outlook for the balance of the year.

So, we expect to have another interesting session with you in February.

Thanks for participating.

Thank you, sir.

Ladies and gentlemen, this concludes your presentation, and you may now disconnect.

Have yourself a great day.