Rogers Corp (ROG) 2010 Q2 法說會逐字稿

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation second quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Bob Wachob, you may begin your conference.

Good morning, ladies and gentlemen. With me are Dennis Loughran, Chief Financial Officer; Deb Granger, Vice President, Corporate Compliance and Controls; Robert Soffer, Vice President and Secretary; Ron Pelletier, Corporate Controller; and Bill Tryon, Manager of Investor and Public Relations.

First, Dennis will dispense with the formalities, and then we will get right down to business.

Thank you, Bob. I would like to point out to all of our listeners that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in Rogers' operations and environment. These uncertainties include economic conditions, market demands and competitive factors.

Such factors could cause actual results to differ materially from those in any forward-looking statement. I will now turn it back over to Bob.

Thanks, Dennis. Q2 was better than we anticipated it would be and certainly a dramatic turnaround from Q2 2009. Most of our markets were strong during the quarter, especially the three megatrend markets of the Internet, mass transit and sustainable energy.

We expect these three markets will continue to grow. We already have solid positions in most of these application areas, and they remain the key focus for additional product and market development efforts.

In these market areas, we are currently involved in over 490 customer projects. We have over 40 programs that have gone into production this year. And in addition, we have more than 55 design wins, which we expect will go into production in the next 18 months.

In total, across all our markets, the number of customer projects is growing, and the average size of the projects is increasing. Customer project activity is generally a positive sign for the future.

Our Other reporting segment, while usually a positive cash generator, is now generating positive operating profit due to significant productivity improvements and cost reductions during the last few years.

In summary, we had a strong second quarter and first half and remain cautiously optimistic going forward. Dennis, turn it over to you for all the details.

Thank you, Bob, and good morning again to everyone. For the second quarter of 2010, operating leverage continued to be the major positive story for Rogers. In 2009, we established a significantly lower breakeven point and developed an infrastructure that was poised to support significantly higher levels of sales.

In 2010, we are providing the evidence that the business structure we put in place can deliver on the promises made. In the second quarter, we delivered gross profits that were up 69% on a sales increase of 43%. At the same time, our SG&A overhead, excluding performance-based incentive compensation supporting that $29 million increase in sales, went up only $2 million, or just 7% of incremental sales. We remain committed to retaining that leverage going forward as we focus on driving growth in both top line and profits.

Now, a little more detail behind our financial performance. Second-quarter 2010 sales of $96.6 million represented an increase of $29.2 million above last year's recession-driven levels, with all of our businesses performing at improved levels. Second-quarter 2010 results included sales of $8.3 million from our PLS and you Utis operations, which were included in our consolidated results for the first time this quarter.

High Performance Foams and Printed Circuit Materials contributed the strongest levels of growth, as they led the way to Rogers' overall 43.3% increase in sales.

Rodgers reported GAAP profit of $0.52 per diluted share for the second quarter of 2010 compared to a GAAP loss of $4.31 per share for the same period in 2009. Excluding one-time items, Q2 2009 non-GAAP results were a net loss of $0.02 per share. The quarter-over-quarter non-GAAP increase of $0.54 per diluted share represents a significant improvement, driven primarily by improved sales and excellent operating leverage.

Those factors also contributed to our second-quarter 2010 gross margin of 38.6%, setting an all-time record for our Company for the second straight quarter. Margins for the second quarter of 2009 were 25.3%. Similar to our overall earnings, this improvement was driven primarily by the positive impact of our significant operating leverage and higher production levels, combined with a favorable sales mix, as most of our increase came from two of our three core strategic businesses, High Performance Foams and Printed Circuit Materials.

Selling and administrative expenses for the second quarter of 2010 and 2009 were $23.7 million and $18.8 million, respectively. The 2009 figure includes $2.1 million of one-time costs associated with the product liability claim of $1.9 million and integration of our MTI acquisition at $0.2 million. Excluding those charges, the resultant increase of $7 million in SG&A expense was attributable primarily to the inclusion of performance-based compensation costs of approximately $5 million in 2010 that were not incurred in 2009, as well as approximately $2 million in increased costs associated with our higher sales volumes. We expect our S&A run rate to be in the range of $22 million on a quarterly basis for the remainder of 2010.

Research and development expenses were $5.9 million or 6.1% of sales in the second quarter of 2010 as compared to $4.2 million or 6.3% of sales in the second quarter of 2009. For 2010, we continue to expect spending equal to our long-term target R&D spending level of 6% of sales.

Rogers' 50%-owned joint ventures had second-quarter sales totaling $22.9 million compared to $23.2 million in the second quarter of 2009. The 2009 figure included $4.4 million of sales from our former 50-50 joint venture, PLS, which became a wholly-owned subsidiary in March 31, 2010, and is now included in our consolidated results. Therefore, the 2010 result actually represents an increase of $4.1 million, primarily related to sales of Flex products through our Taiwanese joint venture and sales of High Performance Foams through our Chinese joint venture.

Overall equity income in our unconsolidated joint ventures in the second quarter of 2010 was $1.8 million as compared to $1.6 million for the second quarter of 2009.

Other income and expense, which includes income from royalties, commissions and other fees, less other expenses, amounted to income of $1 million in the second quarter of 2010 compared to a loss of $0.2 million in last year's second quarter. The net improvement is primarily related to a net favorable foreign exchange impact of $1.8 million due to the appreciation of the US dollar against the euro, offset by the elimination of $0.6 million of commission income from our PLS joint venture, which now reports its results in operating income as a wholly-owned subsidiary.

The effective tax rate for the second quarter of 2010 was 20.3%. This rate was benefited by a favorable mix of earnings in lower tax jurisdictions, as well as the benefit from the consummation of certain international tax planning strategies. For the full year 2010, we believe our tax rate will be in the range of 23%, lower than our previous estimates, due mostly to more earnings being generated in lower tax regions than previously anticipated.

Rogers ended the second quarter with a cash and short-term investment position of $44.8 million as compared to $42.9 million at the end of the first quarter of 2010. During the quarter, we had redeemed at par approximately $2.7 million of auction rate securities, leaving a par value of $40.2 million outstanding at the end of the quarter.

Capital expenditures were approximately $1.8 million in the quarter. For 2010, we expect capital expenditures to be approximately $17 million, down slightly from our previous estimate as a result of slight differences in project timelines. All key strategic projects are on track, particularly the completion of our laminate production facility in Suzhou.

Our balance sheet responded to increased operating levels during the quarter with a net increase in working capital of approximately $10.1 million related primarily to higher accounts receivable and inventory. In accounts receivable, days outstanding stayed relatively stable at 57.2 days compared to 56.7 days at the end of the previous quarter. Inventories increased by about 13.8% or $5.4 million during the quarter to $44.8 million, with the increase primarily related to increased raw material inventories to support higher forecasted production levels in 3Q. We maintain our inventory at approximately 9.8 weeks of supply, slightly above our targeted levels on a trailing basis, but in line to support projected 3Q sales levels.

Overall our current assets ended the quarter at 3.4 times current liabilities, and we continue to have no outstanding long-term debt and have no current needs to borrow.

That concludes my remarks, and I will now turn it back over to Bob Wachob.

Thank you, Dennis. Now we would be pleased to answer any questions you might have.

(Operator Instructions) Fred Buonocore, CJS Securities.

Very nice quarter.

Thank you, Fred.

Just in the past you've kind of given us some color, Bob, on initiatives and new programs and awards within your three megatrend markets that you have been talking about. Can you break that out for us, please?

Sure. Within the Internet, we have this year three programs that have gone into production on the wireless side, and we've had 18 design wins that we would expect to go into production sometime in the next 12 to 18 months. And in addition, we have 77 active opportunities we are working on with our customers.

In the antenna area, which is really new for us, we have two programs that have gone to production. We have another spec in, and we have 59 active programs. This is really tied to 4G, which is clearly just beginning in the US and really hasn't started anywhere else.

In the mobile Internet devices, we've had 22 programs go to production this year, 10 more spec-ins and 148 active opportunities.

So that whole area is going very well, and on the wired side, we continue to have the evaluations go on. None of them have been completed, and it is probably another six months before any of them are. These are very long-term evaluations as the people who make these very expensive pieces of equipment are very cautious and want to be sure that they have absolute reliability. But we are very optimistic that we will have some success here; just have to be patient.

On the mass transit side, we've had seven programs go into production this year and some major wins in China. Those were delayed. They turned out to be second-quarter rewards when they had been planned to be first quarter. So that bodes very well for Power Distribution Systems in China in the second half of the year. We expect that business to grow quite rapidly in the second half, at least in Europe.

And in addition, we have 101 active opportunities within the mass transit for trains and 11 design wins.

If you look at sustainable energy, hybrid electric vehicles, I believe the first one to go to production will be -- I believe later this year. And the announcement I heard recently was that the customer intends to make twice as many as he was going to make before. So that is a very positive thing for us, as we have both the polyurethane foam and silicone foam used as battery separators and case sealers. That is a pretty significant opportunity for us.

In addition, we've had eight design wins during the course of the year and 49 active opportunities. That area is increasing quite quickly. We still see it as mostly a 2012 and beyond opportunity, which you win today and then you have to bide your time.

Wind energy, I have some concerns about that in Europe. It seems to have pretty much dried up in Europe. Some of that has been transferred to China, but in total, China is very, very active in the wind energy, and we've had one program go into production, six more spec-ins during the course of the first six months and 26 active opportunities.

So all told, we think this whole area is continuing to grow very nicely and the opportunities continue to expand for us. And at this point, we are in the neighborhood of 40% of our sales is in this area, with certainly the majority of our growth.

That was very helpful. Thank you.

You are welcome.

And then secondly, can you give us a sense for your recent SK Utis acquisition, the kind of penetration that that may be gaining with some of the large mobile communication device OEMs that the core Rogers business previously hadn't had much of a presence?

Yes, that business is going quite well. We are now at capacity. We expect by the end of the third quarter to have increased capacity by between 40% and 50%. We have multiple design wins that will be going into production at the beginning of the fourth quarter, some of which are major tablet programs in Korea, and certainly several smart phone programs with both of the major players there. We are very pleased with that acquisition, and of course it was immediately accretive and is meeting all of our projections.

Thank you very much.

Avinash Kant, D.A. Davidson.

A few questions. Once again, actually for Dennis first. So, Dennis, when you talk about -- how should we think about gross margins going forward, especially -- specifically in terms of your guidance for the September quarter, should we expect margins to be incrementally better on higher revenues?

We have -- we have a planned increase in sales. The production levels should be at least as good or slightly better. And we've seen that incremental business does bring slightly better contribution. So we are -- I think our third-quarter guidance would have comparable to slightly improved margins at the upper end of the guidance range.

It looks the record margins that you have been seeing could pretty much be a sustainable model here. There is nothing one-time.

Absolutely. And out into the future, 2011, when we bring on the laminate facility, there will obviously be a slight increase in overhead related to that facility for our Circuit Materials business. But there are no other major facility expansions foreseen for 2011. Obviously, we are going to use up capacity at some point and have to add facilities. But we have a lot of floor space in our facilities around the world, in the US and China, and so we expect incremental equipment to be less of a burden than putting those facilities in place would cost.

And maybe as an extension of that, could you talk a little bit about what's your capacity utilization in most of the segments overall, if any?

Sure. In the High Performance Foams area, we are working six days a week here in the US and five days a week in China. So we have capacity remaining. Our joint venture is working five days a week in China and in Japan is only working two shifts. So there is significant capacity remaining there. And I mentioned the SK Utis. That acquisition, it is at capacity. However, we are adding 40% to 50% within the next few months.

In high frequency, we are at six days a week in the US and at five days a week in Europe. And of course at the beginning of next year, we will be adding a very significant amount of capacity there.

Our distribution system business has plenty of capacity remaining, if they've not grown all that much. So we're in pretty good shape capacity-wise, at least for a while here. This won't go on forever. Eventually we do have to add some, but not near-term.

Okay. So would that mean that CapEx in 2011 could be higher, given you are going to be (inaudible) some capacity?

The capacity for Circuit Materials will be completed. They will be testing and evaluating in the first quarter. So that was an approximately $19 million CapEx that will be completed with about $4.5 million in 2010. So next year, we would expect sort of normal capital levels, --between that $14 million, $18 million to $20 million level, is where we've sort of been at in terms of needed increments annually.

That would be -- okay, so $14 million to $18 million dollars, roughly?

That's sort of a ballpark guess for -- we've always said about $12 million to $14 million of maintenance capital. And anything above that would be sort of incremental capacity expansion.

Right. Okay. What was the depreciation and amortization in the current quarter, and what should we think of it for the year?

$4.1 million for the quarter and nothing too dissimilar to that for the rest of the year.

Okay, and then for Bob, of course, you do talk about the opportunity for HEVs. Now I believe you mentioned two segments there. One was the battery separator, and then some stabilizer. Could you explain a little bit where are those materials going into?

Yes, the polyurethane foam is used in the -- between the individual cells of the lithium-ion battery. Those cells need to be separated, and they also need to have a constant pressure on them to maintain their contact. The reason they need to be separated is that they expand when they got hot and they contract when they get cold. If they are allowed to touch each other, then you will have friction, and eventually you will wear a hole, and that of course then generates a fire. So they need that separation, and they need a material like our polyurethane that doesn't take a compression set so that it has a constant force. Whether it is -- the cell has expanded or contracted, the foam makes up the difference there.

And the other application in the electric vehicle that is going to go into production soon is in the -- is for the silicone foam that actually seals the case that the separators -- the battery is in. And that needs to be silicone because it is such a wide variety of the chemicals that could come in contact with that case and they don't want any failures.

Right. And you talk about one customer -- are you designing to only one customer or more than one customers?

No, we have eight design-ins so far. Some of those are for thermal management systems for one customer -- they have one customer at the moment, but that customer has three hybrid electric car programs in Europe. And then in the foam side, there are multiple programs going on now both in China, US and Europe.

Okay. But the earliest production -- you have been talking about the customer, that's the US-based customer?

Yes, it is. I believe they announced recently that they were going to production sooner, and they were going to double their projected build.

There is one more major car expected to be introduced later this year, other than the one that you are talking about. Are you in those -- that vehicle, too?

I can't answer you because I don't know what vehicle that is.

Okay. But the opportunity per vehicle here is roughly how much?

On the foam side, it is in the neighborhood of $50. On the Thermal Management side, it is between $100 and $150. And when you get to the all-electric vehicles, then the power distribution opportunity is between $100 and $200. As -- we currently have one active program that is in production with a small US-based company, where there are several hundred dollars' worth of busbars being used in the sports car, and a larger amount in the planned sedan that is coming out later.

Okay, got it. Thank you so much.

(Operator Instructions) Jiwon Lee, Sidoti & Company.

Just a couple of quick questions, please. Could you give us a little more color on what kind of a mix was assumed in your third-quarter revenue guidance?

We assume that it would be a fair amount of growth in the Power Distribution Systems. Also some growth in High Performance Foams. And a little growth in the High Frequency Printed Circuit Materials area.

Okay, so when you talk about a little bit of a growth in the High Frequency Circuit Materials, what sort of a submarket would drive that growth in the third quarter?

It is more a general economic situation around the world, where our business has picked up dramatically from last year in Europe, the US; China is pretty much the same as it was. So we see some continued growth there. Certainly in the defense and high reliability area, we are seeing some growth in that area. I expect that fourth quarter, we are going to begin to see some benefit from the India rollout as they plan to light up some of their systems in the first quarter.

Okay, and --

That is really a fourth-quarter event, not a third.

I see. And could you talk a little bit more about the logic for delaying the China laminate capacity into the early part of next year, especially if you're anticipating some of the growth coming out of Asian side later in the year?

We are trying to time it so that we don't have it onstream too early. Because if we do, then we are absorbing all the depreciation, other overhead and labor costs associated with that facility. I don't really believe this is a delay. We've always thought of it as a start-up during the latter part of 2010 and actual production in first-quarter 2011.

That's fair enough. And you talked a little bit about your auto business and the potential tied to that. How should we be expecting that side of the business, with the multiple products going in, sort of the ramp rate, when we think about perhaps into next year?

Next year, we will benefit from the two programs that will be in production. The real increase occurs in 2012, when there is multiple vehicles being introduced, and we would expect to get some -- of course some revenue associated with those in the latter part of 2011. Because even though they call it 2012, they do start shipping -- in most cases, they start shipping in 2011. Some Europeans actually do have a calendar year.

Okay. Until then, how do you feel about your sort of pipeline on the mass transit side?

Well, with 101 active opportunities in trains and 10 in commercial aircraft, we feel pretty good about what we have going on there, and we continue to gain market share. And in fact, I just heard yesterday that some business that one of our competitors had is coming back to us because they don't seem to be able to deliver. Sometimes the lowest price isn't the best thing.

Good. And lastly, for Dennis, what was the operating cash flow during the quarter?

Let's see. With the working capital, we were pretty much flat in terms of operating cash flow.

Okay, great. I'll step aside for now. Thank you.

Dana Walker, Kalmar Investments.

When you talk -- Bob, when you talk about opportunities, you've mentioned over 100 for mass transit and over 100 for some other of the end markets that you address. Are we talking about transit systems or some type of a local assembler or manufacturer? What are we talking about?

That would be individual programs. So on the train side, for example, that would be 101 different train programs. Certainly it's with not 101 different customers for us, but 101 different end users around the world.

So if Italy had a program going in, is Italy a program, or are we talking about whoever is making the end product for Italy?

Italy would be the program, because trains are all custom. It is surprising. They have a basic design, but then every single program is different. Therefore we have different busbars.

If there is a common manufacturer, though, or someone who you sell to who then makes the product for the transit system, the transit system is the opportunity.

Yes, yes.

Which tends to gross up the number of seeming opportunities compared to some other end markets that you might address. Is that a fair statement?

Yes. A good example would be in the wireless base stations. There, we are dealing with just the manufacturer. So it is a smaller number of programs. However, some of them have custom also. That's why we ended up with 77 opportunities; there are 77 different designs going on today. It seems surprising to me, actually, but apparently every system operator has a little different set of requirements.

When you describe how you have 59 active programs in the antenna market, are there truly 59 assemblers or manufacturers of those types of products?

No, there are not 59 manufacturers of antennas. There are 59 different programs, named programs, which would relate to operators.

If -- as a hypothetical, if you were to sell to the three telecom -- wireless telecom companies in China, those could be three active programs?

Yes.

That's the way to think about the math?

That's the way to think about it. If it was 2G, for example, then there could be six. So it depends on how many -- which technology is being used.

Switching gears, in the hybrid electric vehicle market, in the short term, your revenue opportunity is with foam, primarily silicone, and in busbars, and somewhat further out it's with your Thermal Management products.

Yes, the foam is both silicone and polyurethane. Actually, polyurethane is a bigger opportunity.

Okay. How awkward is it to talk about specific programs that you address?

Well, since all these people make us sign agreements that we won't say that we are doing business with them, it's pretty awkward.

So when the Leaf and the Volt are the two that seem to be very front and center, we can just generally point in the direction of the fact that there are programs and that they are scheduled for certain times and some of those you will be on?

Yes.

Can you, however -- is it possible to contrast -- if we look at a vehicle like the Prius, which is an earlier stage product, versus the Volt or the Tesla, how are those different, and how, hypothetically, would your product either apply or not apply?

Prius, we have nothing in the Prius. Prius, the people in the know would say that it is a joke, as far as being a hybrid vehicle. It is really an extremely efficient gasoline engine with a little battery that allows them to call it hybrid electric.

As you move up in power, that is when -- power of the battery, that is when we begin to play. And we play the most when it is all-electric, because when you get to all-electric, you are dealing with a large amount of power.

Then there is what is called full hybrid, which there will be all kinds of variations there as far as how much of the energy for the automobile or other vehicle will come from electricity and how much will come from the gasoline engine. It becomes very difficult to get real specific here because every designer has a little different idea. And in some ways, that's really good for us, because everything is different. There is no commonality, and therefore, it is really hard to think of things as commodities. Of course we like that.

Understood. Your Thermal family, as you work your way into making product, where is your plant going to be?

We have -- the facility is in Chandler, Arizona, and we are establishing a finishing operation in Suzhou. So the labor part will be in China, and the technology part will be in Chandler, Arizona, in an existing building.

What type of invested capital will be necessary to support a business of what size?

Currently we have the capability of making $6 million worth of product a year with our existing equipment. We have a program that, if successful, will allow us to go past $25 million or $30 million worth of capacity with the existing equipment and probably a minor investment, less than $1 million.

Given the segmentation that you intend to roll out related to Thermal and the renamed Durel or the follow-on elements of Durel, how would -- in what timeframe would you expect that business to go from how it would look today to a contributing part at the bottom line?

2012 should see profitability on an operating profit.

Final question for me will be, if we were to look at Durel today, what does it look like from a P&L standpoint, and how would you expect that to play out, whether it is with the smartcard program or other things, cars or other markets that you might address?

Currently, it is about breakeven cash flow wise, and it has a relatively small operating profit loss. Should we have some success, whether it be in the batteries or some of the other areas we are looking at, then I expect it could quickly become profitable, as we have all the manufacturing capability is in China and a very small staff here in the US.

And the battery opportunity continues to look positive. We are making good progress. But by the same time, Visa has introduced a card in Europe, as has MasterCard, which [Olicorp] is a part of. And they also have a significant order from the company that makes an accelerometer that is used for -- to qualify people for CPR training. You need to be qualified every year. There is an issue with most people do not press the chest far enough. And by using this little battery-powered device, you lay it on the chest and it lets you know if you have depressed the chest enough, and can also certify you once a year. And that is a few million units per year.

So we see them making good progress, and we and they together on the development project are making good progress also.

Thanks for the review.

Fred Buonocore, CJS -- excuse me -- he came out. Your next question will be coming from Ralph Reese. He is a private investor.

Can you break down the $5 million increase in compensation?

That is our annual variable incentive compensation. We -- when you look at our performance of basically on our targets for 2010, we have to accrue each quarter based on our annual estimate of the payout. So that would represent the second-quarter accrual as well as catching up any first-quarter adjustments that we would have had to get to our annual estimate.

Is that all for management, or is that --?

It has incentive comp and stock comp for the management team, exactly.

It also has for every single employee a profit-sharing plan that is pretty significant. It is -- could be as much as 6% on people's income. This applies to hourly also and does not apply to management.

When can we expect for the shareholders to get some return in the form of a dividend?

The Board reviews on a regular basis whether or not they should declare a dividend, and it is their opinion at this point in time that a dividend is not appropriate.

It has been that way for 40 years.

Yes, it has.

Thank you.

[Greg Weaver], Invicta Capital.

Could you just flesh out the Thermal Management? I see you highlighted it here in the press release. What is the application you're talking about with the two IGBT guys?

Well, there is a multitude of applications. One very large one would be in trains. It is the IGBTs that switch the electrical power in trains at sometimes 3000 to 3500 volts and up to 1000 amps. But also in variable frequency motor controls. Think of them as the motors that control heating, ventilation and air-conditioning systems in office buildings. Those are giant systems, use huge amounts of power. And that power is switched by IGBTs, and when you go to a variable frequency drive, you save about 30% on the energy, versus the old type which, in effect, stuck a resistor in the line; you continued to use power whether you run it slow or run it fast.

Okay, but from an automotive perspective, there is the opportunity there in the near term.

No, we are producing for automotive now, but they are pre-production type of things. And again, IGBTs are used in electric vehicles. They are also used in full hybrid electric vehicles, as they have to step up the voltage to 650 volts and then convert it to AC power, because they naturally run off of AC, but of course the batteries only generate DC. And they use the IGBTs to do that.

What we've contrasted is that the company that we currently have an order that they valued at $25 million over a five-year period is for automotive, and they are buying the IGBTs and assembling their own drive system that is being sold to the automobile manufacturers. Whereas the IGBT makers themselves also sell a module that goes into all kinds of applications, like, as I mentioned, motor controls in trains and anything else that has to switch large amounts of power. IGBTs are used in wind turbines. They are used in solar farms. These are devices that have some pretty high growth rates at the moment in the whole sustainable energy area.

Okay, but in your mind, though, the near-term opportunity is probably not automotive-related but eventually will be?

Well, 2012 is when the planned production for three vehicles occurs, which means there will be some business in the latter part of 2011. And in the short term, it is certainly trains and wind turbines and variable frequency motor controls. And that is why we've mentioned that the two biggest manufacturers in Europe have now approved our systems and placed orders.

Got you. Okay. Thanks, Bob.

Avinash Kant, D.A. Davidson.

Quick follow-ups. Bob, of course, in terms of the visibility that you have related to businesses and from what you have seen at your customers, have you lately seen any kind of pushouts or cancellations or any weakness in the body language?

Actually, things seem to be going along pretty steadily. We continue to have at the beginning of each month about 40% of what we ship eventually for the month in backlog. That gives you a clue about our visibility. It isn't all that good, mostly because our leadtimes are between five and seven working days. So people don't place orders way ahead of time, and even the busbars are down to several weeks, which is probably the one place we have the best visibility.

But we see everything going along pretty smoothly. As I had mentioned, we have many more orders than in the past. They are smaller, which to me is an indication that no one is building inventories, but instead is ordering as they need it, which is a good sign, because that means we don't have to deal with an inventory reduction at some point.

What has been the typical seasonality for the fourth quarter?

Let's see. Typically, the second quarter is the lowest, but that wasn't the case this year. Third quarter is the largest, and the fourth quarter is less than a third, pretty much similar to the first.

So third quarter is generally our best quarter. We are a little cautious this year since the second quarter was so good. It makes us wonder if we are going to have as big a change in the third quarter as normally we do, or is it going to be smaller, and we forecasted smaller change than norm.

Okay. And at some point, you did say that the revenues from the three key segments that you talk about were close to 40%. Was that for the year or the quarter?

For the quarter.

For the quarter?

Yes, and I expect a similar number for the year.

So would you be able to give us something, as sustainability seems to be the one where you have the most near-term traction, how big a percentage do you think coming out of that for the year?

I can't remember. Sorry, that isn't a number that I have. I have the total. I don't have in my head the individual ones.

Okay. Perfect. Thank you so much.

That concludes our question-and-answer session for today. Please continue with any closing remarks or further comments.

In closing, I would just like to remind all of you that we work very hard at laying a foundation for faster growth and increased profitability, especially as the world economy continues to revive. We continue to invest in new product development and look for opportunities to diversify into new markets. We think we are having some significant success here.

Thank you very much. Goodbye, everyone.

This concludes today's conference call. You may now disconnect.