Richardson Electronics Ltd (RELL) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal year 2010 first-quarter earnings release conference call. My name is Deana and I will be the coordinator for today. At this time, all participants are in a listen-only mode. However, we will facilitate a question-and-answer session toward the end of this conference.

I would now like to turn the presentation over to your host for today's call, Mr. Ed Richardson, Chief Executive Officer. Please proceed.

Thank you, Deana. Thank you for joining our conference call to discuss our first-quarter results. Joining me today are Kathy Dvorak, Chief Financial Officer, and Greg Peloquin, Executive Vice President and General Manager of the RF, Wireless and Power Division.

During the course of this call, we will be providing certain forward-looking information. We refer you to our press release and SEC filings for the forward-looking cautionary statements that we have included there.

Our agenda for today is as follows. I will provide a brief update on the general market and how the market conditions are impacting our business; Kathy will discuss the details of our financial results; Greg will discuss the highlights of RFPD's performance; and I will then conclude with commentary on EDG and Canvys. After that, we will take your questions.

Q1 was a good quarter for the Company for a number of reasons. While we were still down year-over-year on a sequential basis, our sales decline is less than it has been in prior quarters. We are starting to see some signs that market conditions are getting better. Also, our gross margin rate is improving and our expense dollars are down over $5 million in the first quarter compared to the prior year. Our balance sheet remains strong and we have adequate liquidity to run our business. We continue to focus on generating positive cash flow.

Sales in the first quarter were $109.5 million, which is about where we expected to be for the quarter. Our first-quarter sales are typically less than our fourth quarter. Our fourth-quarter sales were down 26% compared to the prior year's quarter, and our first quarter is down 21%. While sales are well below last year's levels, we are starting to see some signs of stabilization and market recovery.

The global economy continues to struggle, leading to unpredictable demand for our products. Each of our three businesses has been affected by the economy in varying degrees. We certainly are not alone in facing these challenges, as many of our competitors, customers and suppliers continue to experience the same trends.

Our number one priority has been to improve our operating leverage. We've taken aggressive cost actions and are down $5.2 million in SG&A for the first quarter alone as compared to the prior year. We are also on track to be below $95 million in SG&A for the year, significantly below the $110 million for fiscal 2009 and $125 million from fiscal 2008. We believe we will be able to maintain this expense level and reap the benefits of improved operating leverage as market conditions and revenue recover.

We incurred about $200,000 of severance expense during the quarter. Our head count continues to decline and is now at about 765 employees. As I have mentioned on previous calls, we are pursuing efficiencies in every corner of our business and we are making permanent fundamental changes to the way we operate.

Now let's turn to the broader market environment as it relates to each of our business units. I will begin by discussing the market for the Electron Device Group, or EDG. EDG primarily supports the aftermarket for power tubes used in steel, automotive, textile, plastics, semiconductor and broadcast industries. As spare tubes have been depleted in these industries, the power tube business has improved sequentially each month of the first quarter. We are the largest channel to market in the industrial tube business. I'm confident our tube business will recover quickly as the economy improves.

Moving on to the Display Systems market, Canvys, as well as many of its competitors in the display business, continues to be challenged from a sales perspective. Canvys provides customized display solutions for OEM equipment manufacturers, health-care facilities, hotels and casinos and many other markets. Toward the end of the summer, our OEM customers began to indicate that demand for equipment was slowly ramping up. This is a positive sign, as economic conditions that have virtually eliminated capital expenditures are now improving.

Digital signage as a concept continues to generate a lot of opportunity in our industry. While advancing technology is helping drive ownership costs down, many companies are still taking a cautious approach to launching or expanding their networks. We expect the market for Canvys solutions to see more improvement during the second and third quarters of this fiscal year.

Turning to the RF and wireless market, the trends are similar, but not as severe. The buildout of infrastructure in Asia is expected to continue and should lead to a stronger second half in this fiscal year. In the other geographic regions, we are confident that we are not losing market share but just experiencing lower volumes due to the decline in overall demand for products that use our technology.

Given the market dynamics, we anticipate that our second-quarter sales will be down in the range of 10% to 15% from the prior year. Even at these lower levels of sales, the actions we have taken and will continue to take should enable us to show improved bottom-line performance and generate positive cash flow.

With that, I would like to turn the call over to Kathy for our financial discussion.

Thank you, Ed, and good morning. As you can see, our operating results this quarter show that we are making progress toward our goal of reaching our annual SG&A target of $95 million. Although sales declined by over 21% versus last year's first quarter, our operating margin remained flat at 3.2%.

Market conditions are beginning to show some signs of improvement, as the rate of our sales decline has shown sequential improvement. We also believe we are well positioned to report significantly improved bottom-line performance as market conditions improve and sales growth resumes.

Moving on to our first-quarter financial performance. Sales for the quarter were down 21.2% compared to the prior year's first quarter. It is too early to forecast demand recovery, and therefore, we anticipate that sales for all three business units will see modestly improving sales trends as we progress through the fiscal year.

Gross margin improved to 24.2% from 23.5% during the prior year's first quarter. The increase in margin reflects the fact that our mix of business between product lines and geographies was more favorable, partially offset by a shift in mix of business between our strategic business units. Our higher-margin businesses, namely EDG and Canvys, represent a smaller percentage of the sales mix in this year's first quarter when compared to last year.

SG&A was $22.9 million, or 21% of net sales, compared to $28.2 million, or 20.3% of net sales, in last year's first quarter. Our SG&A is down over $5.2 million when comparing this quarter to last year's first quarter, which reflects our cost reduction efforts. Included in the first quarter's SG&A expense is about $200,000 related to severance. Head count is down to 765 employees compared to over 900 employees at this time last year. As we improve processes and streamline our operations, we are finding additional opportunities to further reduce our head count. This includes making permanent changes to the way we are running our business.

Operating income for the first quarter was $3.5 million, or 3.2% of net sales, compared to $4.5 million of operating income, or 3.2% of net sales during the prior year. Foreign currency translation had an $818,000 negative impact on earnings in the current quarter compared to a $998,000 benefit in the first quarter of last year. The significant volatility of foreign currencies relative to the US dollar continues to affect us. The foreign exchange loss of $818,000 during the first quarter included foreign exchange loss recognized on US intercompany balances with our foreign legal entities, as well as US-denominated cash we have in our overseas bank accounts.

We transact business in many currencies and continue to work to minimize our foreign currency risk when we are able to do so.

During the first quarter, we closed several open tax years and we are no longer required to maintain the related reserves for uncertain tax positions. As a result, we had a $300,000 tax benefit rather than a provision requirement. Total-year tax expense is anticipated to be about $1.5 million.

During the first quarter of 2010, net income was $1.9 million, or $0.11 per diluted common share, compared to net income of $3.7 million, or $0.20 per diluted common share, during the first quarter of last year. We continue to focus on our balance sheet, which includes cautiously investing in working capital and minimizing our debt levels. Consequently, we had no borrowings outstanding under our revolving credit facility at the end of the first quarter, and our long-term debt was approximately $52 million. We also had approximately $126 million of invested working capital.

Our cash position at quarter-end was about $42 million compared to $40 million in the prior year's quarter. Net debt, which is total debt less total cash, was further reduced to about $11 million compared to prior year's first quarter.

Our accounts receivable balance as of August 29 was $87.6 million versus $92.5 million at the beginning of our fiscal year. Excluding the impact of foreign exchange, our receivables decreased by about $5.8 million. Our allowance for doubtful accounts was 2.4% of accounts receivable for Q1 compared to 2.6% of accounts receivable at year-end.

Our days sales outstanding declined 1.5 days since the start of our fiscal year due to our credit and collection efforts. Our inventory was approximately $83.6 million compared to $81.2 million at year-end. Excluding the effects of FX, inventory increased by $1.8 million. We do exercise caution with our inventory investments in a period of declining sales. However, as a distributor, we have to manage to significant lead times and we want to be well-positioned to respond to customer needs as the industry recovers.

Excluding the effects of foreign exchange, our accounts payable balance declined by approximately $7.7 million. This significant use of cash represents the timing of payments with our vendors.

Cash flow used by operating activities during the first quarter was a modest $2.2 million compared to $1 million during the prior year's first quarter. We are confident that we will be able to generate positive cash flow from operations for fiscal 2010.

Capital spending of $280,000 for Q1 was significantly below current depreciation of $1.1 million. Capital spending should be under $2 million for the full fiscal year, and depreciation and amortization should remain at or slightly below Q1 levels for the balance of the year.

While Q1 continued to be challenging from a sales perspective, we are encouraged by our expense trends. As we previously stated, our goal for fiscal 2010 has been to lower our cost structure to enable us to achieve improved profitability, even without a market recovery. We continue to make a lot of progress with improving our gross margin percentage. This includes focusing sales on our higher-margin products, reducing freight costs, minimizing inventory obsolescence and reducing unabsorbed overhead costs.

In addition, annualized operating expenses on a go-forward basis should be under $95 million. This compares to annual operating expenses of $110 million and $125 million during fiscal 2009 and fiscal 2008, respectively.

We believe we are well positioned to benefit when the market recovers, as we should experience significant expense leverage across a growing sales base. From the balance sheet perspective, we are diligently working to improve our operating cash flow, while keeping in mind the need to carry inventories so that we are positioned to capitalize on sales opportunities as the market recovers.

We also continue to focus our efforts on negotiating better terms with our customers and suppliers to generate positive cash flow from receivables and payables.

We are pleased with the progress we are making with the controllable aspects of our business. We continue to find both opportunities to permanently reduce costs by finding operational efficiencies throughout the Company. We are clearly moving both our financial and operating performance in the right direction.

Now I would like to turn the call over to Greg to discuss our RFPD business.

Thank you, Kathy. On the revenue side, RFPD finished the quarter at $79.5 million, down 18% compared to prior year's first quarter. While this decline is disappointing, we are going against a very tough comparison, as last year's first quarter was extremely strong and up 15% at $96.4 million.

After finishing the year down 5.6%, our sales in Q1 were down sequentially only 5.7%. This is a positive sign, as historically, our Q1 sales average 9% below Q4 sales.

In addition, RFPD continued to contribute to the significant cost reductions reflected in our financial results. We are pleased with the progress we are making in terms of reducing SG&A by redeploying resources to grow areas of the world where there is more opportunity for market growth. Specifically, we have added sales engineers in China and India to support these growth areas.

Now let me turn to some of our key markets. Starting with the infrastructure market, as many of you are aware, the infrastructure rollout in China continues to be a major driver for RFPD sales growth. As I mentioned at our year-end call, our sales growth as it relates to the infrastructure rollout in China did slow down during the first quarter. We anticipate that demand will increase in Q2 and Q3 as China WCDMA rollout gets underway.

We are seeing some positive signs in Korea as they move to LTE. In addition, there are some bright spots in Japan as they roll out LTE. LTE stands for long-term evolution, which is 4G. This helps us forecast light growth in the second half of 2010.

On networking, well, networking is still feeling the effects of a slow recovery. We have definitely seen the bottom, as bookings have been over one the last two quarters and are currently exceeding prior-year levels. We are seeing customers who have cut back on their inventory to very low levels now running into material shortages, especially in broadband, CATV and WiFi.

Our Defense, mainly radar and communications and ISM market, which stands for Industrial, Scientific and Medical, are becoming more significant to us, since the markets themselves are growing steadily and migrating to newer technologies. We have added an increasingly broad portfolio of active and passive suppliers to offer to these customers.

Design cycles are very long in these areas, so the ramp-up is gradual, but we expect steady growth long-term due to our design wins. In fact, we booked nearly $2 million on two radar programs just in Q1.

Within alternative energy, we are seeing excellent growth in Q1 in China and India for their alternative energy applications. One of the main reasons China is doing so well is the China government is heavily compensating companies who invest in alternative energy technology and application.

Within our power conversion group, the percentage of business based on alternative energy applications has increased 11% in Q1, an increase of over $5 million in bookings and billings.

As the other markets are showing a much slower recovery, we will continue to invest and grow market share using our global niche model to optimize this strategic imperative.

Looking at Q2 and fiscal 2010, as I mentioned in July, we believed that the overall market would decline by about 6% to 9% in the first half of our fiscal 2010, and then begin to experience modest growth in the back half of our fiscal year. There are always growth opportunities in niche markets throughout the world, and as a leading global RF and wireless distributor, we are identifying those areas and ensuring we grow market share for our suppliers and increase profits for our shareholders.

While a return to top-line growth is a priority, we are focusing on managing our working capital through continued improvements to our inventory management processes throughout the world. We are committed to holding our expense line, and therefore, we will continue to redeploy resources to support both areas.

We are excited to announce that the state-of-the-art website featuring Engineered Focused Navigation went live in mid-August. This new site offers the potential for new business growth, increased customer base and provide improved service to our customers and markets.

In summary, our customers and suppliers support RFPD's global model of focused distribution. We are gaining market share, improving our operating efficiencies and reducing costs. We are a powerful force in the marketplace with our global sales team of engineers and infrastructure. Based on backlog, we are beginning to see positive signs for growth in the second half of the fiscal year. In the meantime, we will continue to rightsize the business to position ourselves for improved profitability as the market recovers.

Again, in this recessionary period, not too bad for a global value-added distributor. With that, back to you, Ed.

Thanks, Greg. Now let's turn to our other two businesses, starting with the Electron Device Group, or EDG. The sales for EDG during the first quarter were down 25%, showing improvement from the 38.5% sales decline in the fourth quarter. During the past year, customers have been cannibalizing tubes from used equipment that was out of service to support equipment that was running one shift at best.

It appears our customers' inventories of spare tubes have finally been used up, and the aftermarket business is recovering nicely. In August, EDG booked $7 million, the highest month in bookings that we have experienced in 12 months. In addition, the semiconductor wafer fabrication industry has picked up, and the number of design opportunities is at its highest level in over a year. With both sales and bookings continuing to increase in August and September, it appears that [EV] business is slowly recovering.

Canvys, our visual technology division, is also starting to show signs of recovery. Canvys sales were down 34% this quarter compared to 43.5% reported during the fourth quarter of fiscal 2009. This division is experiencing the greatest impact from the global recession. Capital spending on new projects within the healthcare and medical OEM sectors are just starting to show signs of improvement.

Our book-to-bill ratio at the end of the quarter was the highest it has been since December 2007, and backlog continues to grow each month from new business, as well as increased blanket orders from our OEM customers.

We continue to work closely with our suppliers to find the right opportunities and to engineer and produce custom solutions for the end users. At the same time, we are developing new customer relationships that will help us expand our sales channel for interactive digital signage solutions. We are also promoting our full range of support services as customers keep products longer.

Gross margin for Canvys was about 25% in the first quarter. We believe we will be able to maintain this margin rate as a result of ongoing operational process improvements. Our focus remains on identifying those customers that value the customized products and services that Canvys offers, and to ensure we are getting paid for our engineering and consulting expertise.

Canvys has made great strides in reengineering its business model and is well positioned as market conditions improve.

In summary, while our sales trends are unfavorable, we continue to tightly manage our costs. This has enabled us to deliver improved bottom-line performance. We are encouraged by signs of stabilization in some geographic regions and in the markets we serve.

As sales pick up, we are confident that we will see the benefits of greatly improved operating leverage. As Kathy indicated, our balance sheet is in good shape and we are focusing on cash flow.

Once again, I would like to thank you for your support of Richardson Electronics as we build a stronger Company for the future, and now let's open the call up for questions. Diana?

Christian Schwab, Craig-Hallum Capital Group.

Great, thank you. Ed, Kathy, what type of revenue growth range would you anticipate, the second half being stronger than the first half?

In our comments, we said we thought that Q2 will be about 10% to 15% -- in the range of 10% to 15% below the prior year.

No, that is not my question. The question is you guys referred to that you would expect this fiscal year, that the second half of the fiscal year would be stronger than the first half. And I guess I am asking what type of range would you expect the second half to be stronger than the first half.

I would say single-digit growth, Christian.

Single-digit -- if I take the back half of the year versus the first half, you would expect revenues in the back half to be up 4% to 8% type of range versus the first half. Is that fair?

Something on that order.

Okay. What needs to happen in each product line for you guys to kind of recover to that $135 million plus quarterly run rate?

Let's start with EDG, or the Electron Device Group. As you know, the majority of the -- the two businesses, aftermarket business and existing equipment. And what we've seen, particularly in industries like the automotive industry and the welding markets, steel and plastics, is equipment that was running three shifts now is running one shift. So we have seen a pickup in the aftermarket business. As I mentioned, these inventories of tubes have been depleted, replacement inventories. So we are seeing a lot of demand on a same-day basis, and that business is picking up.

But for it to really get back to normal levels, we need to see the equipment working more than one shift a day. You know, industrial tubes last about a year in constant service, and it is a direct correlation to the aftermarket as to whether they are used one or three shifts. So it is a factor of improved economy for sure.

Greg, do you want to touch on RFPD?

Yes, there is a handful of things, but we are seeing some positive trends, as I talked about, in terms of bookings and backlog, even as of -- into the second quarter.

But, Christian, I think from the networking side, which is a large part of our business, we are going to have to see the infrastructure buildout in terms of homes and buildings, etc., to put the CATV and WiFi products in, which is a large part of our business.

The infrastructure rollout in terms of 4G, I mentioned it -- Japan, Korea putting in LTE as a version of 4G in the second half of our fiscal year. And then see more investment -- we are seeing it in China and India -- by the governments to subsidize the rollout of alternative energy. We are seeing it greatly improve in North America and the backlog and bookings are coming, and that is why we are confident that we are going to have increased sales in the second half of our fiscal year.

Great. What type of sales could you exit the year at? I mean, could we recover to something in the 90 plus million range?

Our fourth quarter?

Correct.

We will be back to the 90 plus million dollar revenue numbers in our -- knock on wood -- third quarter, but fourth quarter for sure.

Perfect. And then given the book-to-bill add being the strongest since you've seen in Q4 of '07 in the digital signage business, can you help us visualize what that could be on the top line, what kind of quarterly run rate recovery that could come back to? It was still very depressed at 11 and some change this last quarter.

I will say that we are seeing the most design opportunity and activity in that area that we've seen in at least a year. Also, our backlog in Canada, the display group is at its highest level as well.

What really has to happen, it is very much a project-based business, and we have to see some of this capital spending turned loose and take projects where we actually have design wins and turn them into production.

But I think that overall, we expect the Canvys business to get back up to well over the $50 million revenue run rate by the end of the year, something like that.

Right. So when you guys talk about -- I'm kind of confused in the backlog/billing. So I could see how the book-to-bill would be extremely strong, given the fact that revenues were $11 million, right?

But your comment about backlog being extremely strong would kind of suggest to me that possibly there is an opportunity to get into the high teens quarterly revenue run rate. Am I thinking about that wrong?

I think that is high right now. We would be really happy to see it in the mid teens for sure.

Okay. Perfect. Thank you.

Mark Zinski, 21st Century Equities.

Good morning, everyone. Ed, I was wondering if you could speak to the gross margin improvement in the EDG business. What caused that and is that sustainable?

Sure. What has happened is we have seen these inventories deplete the aftermarket. And as the aftermarket inventories are gone, the customers are forced to get deliveries in a hurry, and they have very little time to go out for competitive pricing. So this works well with our inventory levels.

And we pushed hard to see that our gross margins go up and that we are paid for stocking the inventory and doing the engineering that we do. Our margins in EDG alone in the first quarter were 38% plus, and we've seen that actually go up a little bit in September. So the need for instant delivery on replacement parts is the reason why we've been able to push the margins up.

Okay, great. And Greg, can you speak to what you are seeing in terms of the US wireless industry in terms of adding capacity? Obviously, the RFPD business has been doing nicely in China, but are you seeing any uptick in the US market?

On the infrastructure side, there's the selling of the 700 MHz, and people are announcing investments. But we haven't seen the -- we're working on some engineering projects, but we haven't seen the time frame or a very strong forecast of when they are going to actually invest the money to roll out our version of 4G in North America.

So right now, in North America, for us, it is alternative energy and the defense market. We just booked a very large contract with a major customer on a defense communications contract. And that is really where the upside is I see, even in our fiscal year 2010.

Okay, thanks. And then, Kathy, just a couple quick housekeeping questions, I guess. Number one, I just want to confirm that on a trailing 12-month basis, the one-time charges you have incurred is roughly -- I've got $22.2 million. Does that sound about right?

Correct.

Okay, great. And you are still targeting the gross margin of around 24.5%?

Yes. As you model, kind of hold it constant for the year.

Okay. And then just lastly, you feel comfortable that there are still some cost-cutting opportunities that can come out of the business?

We are working on it every day, and yes, I do still see opportunities.

Great. Okay. That is it for me. Thank you very much.

(Operator Instructions) (Inaudible).

First off, let me just say, in these times, I just want to congratulate you and the team for making what I imagine were pretty hard choices to rightsize the Company. I think what you have done there is, frankly, really impressive.

I think Kathy and the whole staff deserve a lot of credit in that area. Frankly, if you'd told me when we were running at $125 million in SG&A, that within 18 months we could be at $95 million, I wouldn't have believed it. And here we are.

I hate to admit it, but I probably would have joined you on that bit. But, hey, I am a believer now.

So, in that spirit, let me just move on to -- Kathy, you just mentioned the gross margins kind of staying roughly where they are. I am curious just as you look for the business to come back, given the low levels that EDG and Canvys have come to and the fact that they're generally higher gross margin, wouldn't you expect them to bounce back faster or further, and therefore driving the mix back in a positive direction, kind of beyond the gross margin levels you are as of the last quarter?

Yes, but I also prefer to stay on the conservative side for now.

Okay, fair enough. I guess maybe another way to ask that same question is is there -- I mean, the RFPD business sounds like it is ticking up as well. I am just curious, particularly as you look to the second half of the year, would you expect all of the businesses to grow similarly from first to second half, or would you expect one of them, given the backlog you are seeing, to bounce much further and faster from where they are now?

I think the bounce will be fairly similar, from what we are seeing.

Canvys is very much project-based. So as some of these larger projects come through, you might see a larger bounce there; but it can go the other way as well. I don't think we have the visibility as to when these projects will be released.

EDG is a very predictable business. Even though we are carrying a lot of backlog, a great deal of the business for EDG is shipped the same day we receive the order. And RFPD is more predictable as well in that it's a components business primarily.

But Canvys is very much a project-based business, and if some of these big projects turn loose, it could be very nice growth. But we just don't have much visibility as to when that will happen.

Is that -- the Canvys business -- is that going to be driven by hospital budgets or the healthcare segment, or is it more marketing budgets for digital signage? I mean, where are you looking for those big things to come from?

Well, it is a combination of both. Certainly one of the big declines that we've seen is in healthcare, particularly in the PACS environment, the Picture Archiving and Communication Systems. When they were first rolled out in diagnostic imaging applications, we saw a lot of need for our engineering services at hospitals to design and complete systems.

And most of those systems are in, and what we are seeing now is the replacement business is -- for grayscale monitors -- is very much a commodity business. And it is an area where the mass merchandisers have gotten into the business. And at the same time, the capital budgets in healthcare have been cut. So that has created a marked decline in the healthcare side.

And of course, digital signage is probably the fastest or the most exciting concept in the display business, but that is very capital intensive. So we've seen lots of projects where customers are interested, but at this point, they are just wait and see; the prices continue to come down; nobody wants to spend capital. We have a number of design wins in that area, but we can't tell you when they are going to turn loose.

Okay, terrific. And, Kathy, just one detail question. Can you help me understand in terms of the FX translation effect. I would think you have accounts everywhere and a weak dollar would be good for you guys. But that doesn't seem to be the case. So how should one model that, how should one think about that?

From a P&L perspective, as the dollar weakens, because we hold US dollars in overseas accounts and we have the majority of the cash overseas, we will continue to see P&L FX impacts. And (inaudible) the same thing; the euro continues to strengthen versus the dollar.

I see. Okay. All right. Thank you. Thank you very much, guys, and again, good luck and good work.

Christian Schwab.

Greg, you can speak, besides to WCDMA, what technologies in China are leading to your increased visibility, I guess, in other words, for Q2 and Q3 revenues in China to recover from where they were in Q1? And are there any specific vendors that you work with or you represent that are seeing the greatest strength?

Last year, we saw the huge rollout of TD-SCDMA, which was China's, in essence, homegrown technology to support their initial rollout of infrastructure.

The second protocol that is coming out now, although much smaller, but it is a new rollout, is the WCDMA. And so we are working with ZTE and Huawei directly, but we are also exclusively involved with the subcontractors that are building amplifiers for them for their base stations.

So it is the same players. We have by far the best line card in the industry. Freescale's LDMOS products are a huge attribute to support that growth and those applications and that technology. ATC, [Anarin], Anadigics, Maycom, they are all involved, one portion or another, with both of those rollouts.

Great. Thank you.

There are no more questions at this time. I would like to turn the call back to Mr. Richardson for any closing remarks.

Thank you, Diana. Well, Richardson Electronics has undergone a very necessary downsizing to reduce our cost structure and become a leaner and more efficient organization. I am extremely pleased with how quickly our organization has adopted cost control as a way of life, and I would like to thank you for your patience and support as we structure the Company to achieve a positive long-term operating and financial performance.

We look forward to reporting improved progress in January. Thanks for your time today and for your continued support of Richardson Electronics.

Thank you for participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day.