Richardson Electronics Ltd (RELL) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fiscal year 2010 second quarter earnings conference call for Richardson Electronics. My name is Deanna and I'll be your operator for today. At this time all participants are in a listen-only mode. But later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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 for joining us on today's conference call to discuss our second quarter results for fiscal 2010. Joining me are Kathy Dvorak, Chief Financial Officer; Greg Peloquin, Executive Vice President and General Manager of the RF, Wireless and Power Division; and Wendy Diddell, Executive Vice President Corporate Development and General Manager of Canvys, our display group.

This call will include certain forward-looking information that involves risk factors. We encourage you to review the Safe Harbor statement found in our press release, and a description of risk factors in our SEC filings.

I will begin with a few opening comments, followed by Kathy's detailed discussion of our financial results. Greg will provide highlights surrounding RFPD's performance, Wendy will provide commentary on Canvys, and then I'll conclude with some highlights on EDG. After that we'll be happy to take your questions.

The second quarter was a period of progressive improvement in many areas for Richardson Electronics. While revenue was down year-over-year, our rate of sales decline is less than it's been in the past three quarters. In addition, we're seeing backlog strengthen in all three of our businesses and we're expediting in-bound shipments from our suppliers to meet the customers' needs as business picks up. We're also pleased to report that our gross margin rate is improving and expenses are down as compared to the prior year. Our balance sheet remains strong. We continue to have flexibility and adequate liquidity to run our operations. We generated positive cash flow for the quarter, and for the first six months of the fiscal year.

Sales for the second quarter were $115.9 million which is at the higher end of our projected range. Our second quarter sales were down about 12.5% versus the prior year, compared to 21% sales decline during the third quarter. While sales are below last year, we're encouraged by the sequential improvement.

Our focus remains on improving operating leverage. We continue to reduce our cost structure. SG&A was down $4.5 million for the second quarter, and almost $10 million for the first half of this fiscal year, compared to the prior year. We're on track to be below $95 million in total expenses for the year. We believe we can hold expenses at these levels and see the benefit of improved operating leverage as the market continues to recover and sales improve. During the quarter we incurred about $300,000 of severance expense. Our headcount continues to decline as we pursue efficiencies in every area of the business.

About five months ago we began to move to our new Hong Kong distribution center. The move is now complete and the execution was seamless from our customers' perspective. We're also pleased that we were able to settle some outstanding claims related to the sale of our security systems division, which took place in 2007. As a result, we recorded $1.2 million of expense as a loss from discontinued operations for the quarter.

Within our business units we're seeing signs the economy is improving. In the RF and wireless markets, we anticipate the build-out of infrastructure in Asia to begin to pick up again during the second half of this fiscal year. There are many other new projects on the horizon and we're experiencing renewed optimism as potential opportunities turn into solid orders. The market for the Electron Device Group, or EDG, is also improving. EDG supports the after market for power tubes and related products. These products are primarily used in the steel, automotive, textile, plastics, semiconductor, and broadcast industries. As companies are ramping up production and spare parts inventories have been depleted, the need for customers to replenish replacement parts used in production equipment has picked up nicely. We have strategically positioned ourselves to be the most important channel to market in the tube industry.

Canvys, along with many of its competitors, continues to be challenged from a sales perspective. Canvys provides customized display solutions for OEM equipment manufacturers, healthcare facilities, hotels and casinos and many other markets. While revenues continue to be below prior year, the gap is narrowing and our backlog is growing as our OEM customers place new orders in anticipation of increased demand. We experienced quarter-over-quarter sales growth and expect this trend to continue through the balance of the year.

Looking ahead, we believe that our third quarter will show the first positive sales comparison in over a year. We anticipate that sales will be up in the range of 5% to 10% from the prior year, which should be $115 million to $120 million.

Now let me turn the call over to Kathy to present our financial highlights.

Thank you, Ed, and good morning. It certainly is a pleasure to report this quarter's results when we executed well and had solid performance, represented by improved earnings, positive cash flow, and disciplined working capital management. Our operating margin improved to 4.6% from 3.7%, achieved in the second quarter of last year, and a 3.2% achieved in our first quarter of this fiscal year. Highlights of our second quarter include sales for the quarter were $115.9 million, which was at the higher end of our range of guidance. While sales were down 12.5% compared to the prior year second quarter, we expect to see positive sales comparisons for the balance of the year.

Gross margin remained at 25% this year and in last year's second quarter, compared to 24.2% during the first quarter of this fiscal year. The increase in margin from our first quarter reflects the fact that we continue to see a favorable mix of business between product lines and geographies. These positive margin impacts were partially offset by a shift in mix of business between our SBUS. Our higher margin businesses, namely EDG and Canvys, represent a smaller percentage of the sales mix in this year's second quarter, when compared to last year. SG&A was $23.7 million, or 20.4% of sales, compared to $22.9 million or 21% of net sales in Q1, and $28.2 million or 21.3% of sales in last year's second quarter. Our expenses are down $4.5 million when comparing this quarter to last year's second quarter. Based on current expense trends, we believe our annualized operating expenses for fiscal 2010 will be below $95 million, and we will see our operating expenses as a percent of sales drop below 20% as we exit the year.

Headcount is down to about 760 employees, compared to over 900 employees at this time last year. Process improvement is becoming a way of life which is allowing us to identify opportunities to simplify our business and permanently reduce our cost structure. Operating income for the second quarter was $5.4 million, or 4.6% of net sales, compared to $5 million of operating income or 3.7% of net sales during the prior year. One of the areas that experienced the greatest year-over-year impact was in foreign currency translation, as we transact business in many currencies. This year's second quarter earnings were unfavorably impacted by a $700,000 foreign currency loss, while the prior year benefited from a foreign currency gain of $1.5 million. This is a $2.2 million year-over-year swing when comparing the two quarters, which demonstrates how significant the volatility of foreign currencies affect us. The foreign exchange loss is primarily related to US denominated cash we have in our overseas bank accounts. We continue to focus on minimizing our foreign currency risks where we are able to do so.

During the second quarter, we recorded a net tax benefit of $620,000, which included the reversal of tax reserves related to uncertain tax positions that were no longer required, due to expiring statute of limitations. Total year tax expense will still be about $1.5 million, so you should anticipate a tax provision requirement in both the third and fourth quarters. During the second quarter of 2010, income from continuing operations was $4.3 million, or $0.24 per diluted common share, compared to income from continuing operations of $5.9 million or $0.31 per diluted common share during the second quarter of last year.

As Ed mentioned earlier, we reached an agreement to settle the pending working capital dispute related to the sale of our security systems division, as well as other related claims. As a result, we recorded $1.2 million of expense as a loss from discontinued operations for the second quarter. This brings closure to this outstanding issue.

Sales for the first half were $225.4 million, down 17%, compared to the $271.5 million in the prior year. Gross margin improved to 24.6% compared to 24.3% in the first half of last year. Operating expenses were $46.6 million, or 20.7% of sales, compared to $56.4 million or 20.8% of sales in the prior year. Operating margin reached nearly 4% versus 3.5% in the first half of fiscal 2009. 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 second quarter and our long-term debt was approximately $52 million. We also had approximately $126.5 million of invested working capital. Our cash position at quarter end was $50 million, compared to $40 million in the prior year's quarter. Net debt, which is total debt less total cash, was $2.4 million.

In mid-December, we provided notice to our 8% bond holders that we intend to call all 7.67 million of these bonds at par value. The redemption will occur sometime next week. The write-off of the deferred financing cost associated with these bonds will be around $150,000. In addition, we repurchased 850,000 of our 7.75% bonds during the month of December. I would also like to mention that in October, we announced that we would be terminating our employee stock ownership plan. As a result of the termination, approximately 300,000 common shares will be repurchased by the Company in a private transaction in the next week or so. Total cash to be used in all of these transactions will be around $10 million, and the accretive impact to earnings for the balance of the year is about $0.02 a share. In terms of share count these transactions together reduce the fully diluted shares by about one million shares. Therefore, the fully diluted share count for the balance of the year should be around 20 million shares.

Our accounts receivable balance as of November 28th was $94.1 million versus $92.5 million at the beginning of our fiscal year. Excluding the impact of foreign exchange, our receivables increased by about $4.8 million during the second quarter. Our allowance for doubtful accounts was 2.2% of accounts receivable for Q2, compared to 2.6% of accounts receivable at year-end. Our days sales outstanding declined 4.4 days, since the start of our fiscal year, due to our credit and collection efforts. Our inventory was approximately $77 million, compared to $83.7 million in the first quarter, and $81.2 million at year-end. Excluding the effects of FX, inventory decreased by $7.7 million, and $5.9 million during the second quarter and first half of this fiscal year, respectively. We do exercise caution with our inventory investment. However, given the significant lead times we are experiencing with our suppliers, we are becoming a bit more aggressive with our purchasing in order to ensure that we are in a position to support our customers and capitalize on the recovery. Excluding the effects of foreign exchange, our accounts payable balance declined by approximately $1 million during the second quarter. This reflects the fact that our inventory turns have slowed down as sales declined and we had already paid our suppliers for that inventory.

Cash flow generated by operating activities during the second quarter was $6.9 million, compared to $4.5 million during the prior year's second quarter. While our cash requirements will grow in the upcoming quarter, we are confident that we will be able to generate positive cash flow from operations for fiscal 2010. Capital spending of $214,000 for the second quarter 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 below Q2 levels for the balance of the year.

While the second quarter showed some very positive trends, we recognize that we still face an uncertain environment. Therefore, we continue to work to lower our cost structure where appropriate, and streamline our operations to put us in a better position to allow the business to grow. Our second quarter results have certainly demonstrated the expense leverage that we can realize as sales recover. From a balance sheet perspective, we will need to cautiously invest in inventories so that we are able to take advantage of opportunities when the markets and economic conditions improve. 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.

In summary, we must continue to execute on the controllable aspects of our business. While the overall demand climate has improved, we must continue our program in expense reduction. We are committed to this effort as we cannot afford to lose the tremendous momentum that we have worked so hard to achieve. Our top priorities remain to control our operating expenses, improve internal efficiencies, aggressively manage our working capital investments, generate strong cash flow and improve our capital structure.

With that, I would like to turn the call over to Greg to discuss some of the highlights and positive trends that we are seeing within our RFPD business.

Thank you, Kathy. And good morning everyone. On the revenue side, RFPD finished the quarter at $82.8 million, up sequentially 4.2% from Q1. However, down 11.4% compared to prior year. The most encouraging sign is the fact that our book-to-bill has been over 1.2 the last four months. Our bookings in Q2 were 19% over prior year. Our backlog now exceeds $100 million for the first time in 12 months. On the expense side, RFPD continues to contribute to the significant cost controls by redeploying resources to growth areas of the world in addition to strong inventory and operations management to support the Company's overall strong financial results. Based on our order backlog we are confident that we will be in positive territory in terms of year-over-year sales comparisons for the second half of 2010.

Now let's briefly discuss some of our key markets. Starting with the infrastructure market, for some time now we have discussed the infrastructure roll-out in China. Sales in our second quarter for China slowed slightly as the time line for the WCDMA rollout was pushed out. Japan is expected to have a complete LTE or 4G network in place by the end of calendar year 2010, to support a rollout in 2011. LTE requires new arc infrastructure, so this obviously is a very positive development for us.

On the networking side, WiMAX has been slow to develop. We will see a couple of months of increased demand and then a flattening out period. With $32 million of sales in FY '09 we are hoping for small growth in FY '10. In Asia, specifically Wi-Fi continues strong with (inaudible) level developments increasing again. Microwave radios which will have strong double-digit growth due to the increased data traffic from smartphones. In the US especially where 90% of the infrastructure backhaul s on leased phone lines, the market is expected to migrate in this direction. Our line card boasts the biggest players in this market. With the other markets in broadband and networking still showing small growth, this application will provide a strong growth opportunity for us in 2010.

Our Defense market remains stable with a compound annual growth rate of about 7%. However, we are experiencing double-digit growth ourselves globally. Broadcast continues to grow at a high single digit rate, as more countries go to digital TV. China has implemented a digital convergence mandate for 2015. And of course the increase in broadcasting to handsets. Our Industrial, Scientific and Medical, or ISM, market remains one of the fastest growing at around 11%. We have a very strong product offering to support this market.

And finally with alternative energy, Europe and North America have been slightly delayed due to the lack of capital investment dollars for startup costs. China on the other hand has installed new government regulations and business incentives to get new programs for wind and solar installations throughout their country. China has recently surpassed the USA with the position of having the most installed wind power energy systems in the world. Again, this is a strong growth market for us and we have a large organization there to support the opportunities.

Looking at Q3 and the balance of fiscal year 2010, as I mentioned in October we continue to believe that we will experience modest growth in the back half of the fiscal year. There are always growth opportunities in niche markets throughout the world and as a leading global RF wireless and power conversion distributor we are identifying those areas and ensuring that we grow our market share for our suppliers and profit for our shareholders. In addition we are closely managing inventory throughout the world. The RFPD team is managing for the long term finding proper balance between effective management, gaining market share and our ongoing commitment to support our customers. Without a doubt, RFPD global model of focused distribution is valued by our customers and suppliers. Through the efforts of our global sales engineers and product managers we are gaining market share, continue to be the world leader in this marketplace. Our backlog is growing. And with this, so is our optimism for the future. We are committed to sustaining a cross redeployment strategy within RFPD which will lead to significantly improved profitability as sales recover and grow in 2010.

And now I'd like to turn the call over to Wendy.

Thank you, Greg. Sales for Canvys, our visual technology division, were down 23% during the second quarter compared to the 34% decline reported during the first quarter. Canvys saw the greatest impact from a global recession during calendar year 2009, as capital spending on new projects within the healthcare and medical OEM sectors was pushed out and funding for digital signage projects was delayed. However, Q2 billings were significantly higher than Q1 billings. Our backlog continues to be healthy as we've won new projects and received increased orders from our OEM customers. We continue to work closely with our suppliers to design, engineer and deliver custom display solutions for the end user while at the same time we are focusing on new customer relationships in the industrial, military and medical display markets. We are focused on those customers that have high volume long-term requirements. In addition, we're promoting our full range of support services as customers keep products longer to maximize their ROI and extend product life.

Gross margin for Canvys is beginning to show solid improvement. We exceeded 27% in the second quarter. This reflects significant operational process improvements combined with permanent expense reductions. Canvys offers very unique engineering and consulting expertise to its customer base and the Canvys sales team is working with those customers that value the highlight customized products and services that Canvys offers. This model has allowed us to significantly improve working capital efficiency as well. While industry conditions are likely to remain challenging, we believe we are well positioned to capitalize on market growth opportunities and anticipate modest revenue growth in Q3 and Q4.

And now I'll turn it back over to Ed.

Thanks, Wendy. Now I'll conclude with a brief discussion of the Electron Device Group or EDG. Sales for EDG during the second quarter were down 9.4%, compared to a 25% decline in Q1. Gross margin continued to show improvement at nearly 37%, compared to 35% in the prior year. We're seeing improvement in the industrial markets as spare tube inventories have been depleted and production ramps up.

The aftermarket for replacement parts is recovering sequentially and we are also seeing a significant increase in business from semiconductor wafer fabrication customers. Semifab sales have increased over 18% sequentially for the last two quarters. The book-to-bill has exceeded one for the past four months. Bookings in total for EDG were nearly $10 million in November, the highest level in two years.

In summary, I'm happy with our performance this quarter. We've gone through a very long and painful process to reduce our cost structure and have positioned the Company for significant improvements to both financial and operating performance. As sales pick up, and we hold the line on expenses, we should see further improvement in operating income in the coming quarters. As Kathy indicated, our balance sheet is strong and our operations are generating positive cash flow.

Thank you for your support of Richardson Electronics as we continue to navigate through the economic downturn and capitalize on the opportunity to build a stronger company for the future. At this time, Kathy, Greg, Wendy and I will be happy to answer your questions.

(Operator Instructions) We have a question from the line of Christian Schwab, Craig-Hallum Capital Group. Please proceed.

Great. Thank you. Kathy, what is your goal for the reduced cost structure? I know we discussed less than $95 million but do you have a stated goal on an absolute dollar term basis for quarterly OpEx expense?

Christian, we don't have a stated goal. We're going to continue to work on it. We think there are still opportunities, so we think we'll be able to bring it down from the $95 million yet.

Okay. As you look to next quarter and the mix that you're assuming, do you expect gross margins to be flat? To be down? To be up? What's your thoughts on gross margins?

They're just about flat.

Okay. So if we do the midpoint of that, Kathy, and assume a return of paying taxes and no huge further negative surprises on the currency impact, when I play with my model I get to anywhere from $0.18 to $0.19 to $0.26 in earnings for next quarter. Is there anything I'm doing wrong there?

I'll let you do the modeling. You've got the sales and margin line. The only anomalies and expenses we'll probably have some additional severance expense in Q3, but other than that, your assumptions seem reasonable.

Great. And then Ed, as we look to the EDG business, in particular in the semiconductor wafer fab customers, can you remind us who your customers are there?

Sure. They're Novelis, Accellis, MKS Supply, all the big names in semiconductor equipment.

Right. And how much revenue did you do with them last quarter, roughly, as a group, the semiconductor guys?

I'm going to say about $7 million, but I can't tell you exactly.

Give or take. What do you think that average was last peak cycle, a quarterly average in 2007?

It was something like that.

It was $7 million back then too?

Around $25 million a year, somewhere in that area.

Okay. So you wouldn't expect any significant in quarterly revenue or do you have more design wins or more broad based footprint in the semiconductor wafer fab customer base today than you may not have had two years ago?

I think it's very similar.

Very similar?

Yes.

Perfect. No other questions. Thank you.

Thanks, Christian.

(Operator Instructions) The next question will come from the line of Mark Zinski, 21st Century Equities. Please proceed.

Good morning and congratulations on the quarter. Just wanted to touch on the RFPD division in terms of the US market. There's been a lot of talk about the cellular data traffic, congestion and how there's a real need to expand the network to accommodate capacity. Are you starting to see those needs filter down into your customer orders yet?

Not so much in the customer orders of the new infrastructure as they roll out their version of 4G, but like I mentioned, we're seeing an uptick in the need for microwave radios to take advantage of the increase in SmartPhones and in the data traffic. Instead of installing costly fiber, they're looking at using microwave radios and Ericsson and Nokia are focusing on that technology and we're starting to see a single digit growth in terms of people installing those to manage the backhaul on the cell towers for the phone lines.

Okay. Because generally there's speculation that the cell tower growth is going to be fairly robust over the next several years in the US. So would you generally expect, then, to benefit from that trend?

Absolutely. Over 50% of our business is in the infrastructure market, specifically in the power amplifiers that go into the cellular base stations, so when they roll out 4G in North America, we'll participate that to a very, very high level. We don't see that happening at the earliest to the late calendar 2010 and then we'll start seeing orders come in production and then the rollout sometime in early 2011.

Okay, great. And then just in terms of gross margin, Kathy, you had indicated that it was mostly due to product mix, and is that mostly related to the improvement in EDG and Canvys gross margin?

Yes, primarily between the two, and again, it's also a mix of geographies.

Okay. And then Ed, do you see EDG, that segment really seems to have stabilized and the margins have been going up nicely here. Do you feel that this is now a sustainable trend in terms of the gross margin and that the sales declines have pretty much stopped at this point?

Yes, I think you'll see sales improvement sequentially now every quarter going forward and I think the margins will be about the same. We have improved our margins substantially but they should be maintained at this level going forward but revenue will increase.

Okay, great. That's it from me. Thank you very much.

We have a question from the line of, [Shareen Kadri], Pilot Advisors, please proceed.

Thanks. Congratulations, it was really a pretty phenomenal quarter, I'm very impressed. Most of my question's have actually been answered so I wanted to hone in a little bit on Canvys. You talked about sequentially the revenues getting better. Just wonder if you would elaborate a little bit what kind of end markets are driving that and whatever color you can give would be great.

Again, one of the areas that was hit the most due to the economic crisis has really been in our North America OEM business and we're starting to see a real nice uptick there where the customers are either placing new orders or they're sending us some drop-in orders for that business. So we should see some recovery in North America that's really driving the top line growth. Europe has remained strong really over the past six months so we expect that to continue. And our healthcare business has actually been performing quite well for the past six months along with the European business. So as the North America OEM business recovers and we've won some new projects and as I mentioned there's been some delays in some of the digital signage projects that we've worked on, those are starting to come through and we're starting to see orders for those now.

Is it a diverse set of end markets in terms of where these wins are?

It's still in markets that we always participated in from healthcare and then the OEM and then the digital signage market. And, again, the growth will come primarily from the OEM sector and secondarily from the digital signage opportunities that we've been participating in.

Got you. Great. Thank you.

We have a question from the line of Russ Silvestri, SKIRITAI Capital, please proceed.

Good morning. Notable change, Kathy, since your presence with the Company, it's been very nice to have you there, and excellent job on the operating expenses. My question relates specifically to the lead times. You mentioned lead times are extending. I was wondering if you could put an order of magnitude on that and if you could also maybe talk about how those lead times may have changed over the course of the quarter.

Primarily it lies in RFPDs so we'll let Greg handle that one.

We feel we've done a very good job in managing inventory in the downturn and with all the data that we have in terms of forecasting in our SNLP process, we've done a good job taking hold of this uptick. But just like all of us have done, the suppliers have reduced their staffs, closed down fabs, consolidated, and so this uptick is being managed directly with them. But we've seen lead times, standard lead time for the largest selling part of our product offering is power transistors, go from four to eight weeks to 16 weeks to 24 weeks. It's product specific, but we think we have a good handle on it and we have the orders in queue to support the uptick in our backlog which has increased every month for the last four months. But it's mainly on the power transistor side and on the RF component side that the lead times are going out in some cases two to three months but we think we have a good handle on it, working directly with the suppliers.

If you looked across the entire product line would you say that the lead times have gone from, on average, call it seven weeks to nine to ten weeks kind of thing?

I would say from eight weeks to 12 weeks.

Okay, great, thank you.

(Operator Instructions) Next question will come from the line of Al Tobia from Sidus. Please proceed.

Kathy, just on the gross margin question, if you have a pickup relatively in Canvys and EDG, which are higher margin products, and the absolute sales grow, why wouldn't gross margin tick north of 25 or is that a level you would like to go back with lower prices to drive volumes?

Again, it's a function of mix overall, and a good portion of Greg's business growth comes from China. China on a weighted basis is a lower margin than the overall business. So you're absolutely right. As EDG and Canvys grow as a percent of the total, you would see some pickup in margin but there is an offset.

But the offset is a positive one meaning we're trading increased gross profit dollars for gross profit margin if RFPD grows faster.

Yes.

Okay. And then as I look at the balance sheet, what do you expect to do in terms of debt retirement? Will you just do it out of existing cash balances? Will you go into a letter of credit situation? How do we expect to look at the balance sheet if you decide to retire debt here? Because you're basically almost flat on cash versus debt now.

That's true. The issue is still we have a lot of cash overseas and we are in the process of developing strategies to be able to bring that cash back. And then it's a question of what do we do with that cash.

Right. But in terms of the effect --

(inaudible) cash on an opportunistic basis, and we also may even look at equity.

Right. Buying equity at this -- equity yield is more attractive than even buying debt here.

Right.

Okay. And if I look at the operating expense line, going forward where are the opportunities to reduce cost? Is it process or headcount related still?

I think the answer is both of those. As we streamline our processes, there are opportunities to reduce headcount.

Okay. Are there any processes that stand out that you haven't gotten to, whether it's CRM or certain systems? Or no, is it just basic day-to-day stuff?

It's pretty much across the board and we're evaluating each area, each function, and so there's nothing specific at this point that we could discuss.

Finally, just on tax rate, what do you have NOL utilization potential and what should your tax rate be guesstimate going forward?

Again, using tax rate is difficult for this business. We have a large US NOL. So basically our foreign tax expense will range between $1.5 million and $2.5 million. So it's easier to bake in a dollar amount rather than a tax rate.

Okay. And what's the US NOL, roughly?

$50 million.

How many?

$50 million.

Okay, thanks.

And there are no more questions at this time.

Okay. Deanna, thanks. Richardson Electronics has undertaken the necessary downsizing to reduce its cost structure and to become a leaner and more efficient organization. I'm extremely pleased with how quickly our organization has adopted cost control as a way of life. I would like to thank you for your patience and support as we continue to structure the Company to achieve positive financial performance in both the near term and the long term. We look forward to reporting on our progress in April. Thanks for your time today and for your continued support for Richardson Electronics.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and thank you for your participation and have a great day. Thank you.