Teledyne Technologies Inc (TDY) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne First Quarter Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given to you at that time. If you should require any further assistance, please depress "*" then "0." And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Jason VanWees. Please go ahead.

Good morning everyone. This is Jason, Director of Corporate Development and Investor Relations at Teledyne. I'd like to welcome everyone to Teledyne Technologies first quarter earnings release conference call. As everyone saw, we released our earnings earlier this morning before the market opens. Joining me today is Teledyne's Chairman, President and CEO, Robert Mehrabian; Vice President and CFO, Dale Schnittjer; and Senior Vice President, General Counsel and Secretary, John Kuelbs. After remarks by Robert and Dale we'll ask for your questions.

Again however, before we get started, our attorneys have provide me to tell you that all forward-looking statements made this morning are subject to various assumptions and risks and caveats as noted in this earnings release and our SEC filings and of course actual results may differ materially. And then also in order avoid potential selective disclosures, this call is simultaneously being webcast and the replay both by a webcast and dial-in will be available for about a month. Go ahead Robert.

Thank you, Jason and good morning. Since our first quarter's earnings release was issued earlier this morning, I won't go through all the details but I would like to make a few introductory comments. Despite continued headwinds in pension expense and aircraft product liability insurance cost, earnings per share increased year-over-year for the ninth consecutive quarter. Furthermore, we believe the significant negative comparisons that we've been caged with over about several quarters in both pension income and aircraft product liability insurance cost will moderate this year.

Turning to our strategy for Teledyne, our strategies is focused on two things, first to significantly enhance the strategic position and growth prospects of our existing businesses in electronics, instrument and systems engineering by pursuing synergistic acquisitions. And second to improve operating margins through operation of extra initiative such as lean manufacturing.

Our goal to increase the pace and size of acquisitions was demonstrated during the first quarter of 2004. We completed two bolt-on acquisitions in our electronics and communication segment, one in defense electronics and other in instrument. And on April 8th, we announced our anticipated acquisition of Isco incorporated. At $80 million in net consideration, Isco will be our largest acquisition to date. The acquisition of Isco, would add leading technology in the wastewater and water analysis market, as well as add significant clinical math to our environmental instrumentation businesses. Along with our previous four environment and instrumentation acquisitions, we will now serve four targets of end markets in which we have significant market share. These are Ambient air monitoring; gas emissions monitoring, trace organic compound and inorganic elements detection in water and now with Isco, wastewater sampling, flow and analysis.

Adjusting for the planned acquisition of Isco, our instrumentation businesses would contribute approximately $200 million of annual revenue up from just under 50 million in 2001. And will include approximately 130 million of annual sales directly related to environmental monitoring markets. Returning to the first quarter, Teledyne made significant progress, both in earnings and revenues. Overall, year-over-year revenue grew 11.4% and GAAP earnings per share were 18 cents compared to 17 cents in the first quarter of 2003. Earnings per share, excluding pension income and expense increased 10% compared to last year.

In 2003, the first quarter was a cash usage quarter for us but in the first quarter of 2004, we generated positive cash flow that is cash from operation less capital expenditures of 4.9 million. After completing two bolt-on acquisitions for a total consideration of $20 million, we ended the quarter with 24 million of cash on hand.

In the remainder of my comments I'll elaborate on the operating performance of our business segments. Dale Schnittjer will then discuss more details about our financial performance and comment on our outlook for 2004. Turning to our business segments. First quarter sales in our electronics and communications segments increased 12.4% compared to last year and reported operating income increased 9.6% compared to last year. Excluding pension expense in both periods, operating margins were essentially flat compare to last year. However; the first quarter of 2004 included about to 250,000 of transition expenses related to relocation of the acquired electronic Solid State operation into our existing microwave facility in Mountain View California.

As I further discuss our electronics and communication businesses, which had a total annual revenue of approximately $475 million, I'll break up my comments into three separate market categories. Defense electronics, which currently represent approximately 35%; Electronic instruments, which currently represent approximately 25% of the segment revenues; and avionics and other commercial electronics, which currently, contribute approximately 40% of the segment's revenues. First, as a reminders our defense electronic products and services range from traveling wave tubes for electronic warfare satellite communication and radar applications to contract manufacturing of military electronics subassembly.

After approximately 25% organic growth in the first quarter of 2003 and full year 2003, year-over-year comparisons of our defense electronics businesses have now become a bit more difficult. In the first quarter of 2004, sales of defense electronics increased approximately 4% compared to 2003. However, excluding the acquisition of the electronics solid-state businesses, sales in the first quarter decreased slightly compared to 2003, primarily due to lower sales of electronics manufacturing services to our defense customers. Nonetheless, organic growth in key areas such as the defense microwave components and adjacent C sequencers (ph) continued into the first quarter of 2004.

In the first week of 2004, we completed acquisition of certain assets of electronic solid state for $12 million and by the end of the quarter, as I mentioned earlier, we successfully relocated the business into our Mountain View California microwave facility. As a reminder, solid-state designs and manufactures customized microwave subassemblies for electronic warfare, radar and military applications and shares customers with the remainders of our business in defense electronics. We believe this acquisition would increase total revenue in defense electronics by approximately 10% for the full year of 2004 compared to 2003.

Turning to our instrumentation businesses, in the first quarter of 2004, year-over-year sales of electronic instruments increased almost 30% compared to last year, primarily, as a result of acquisition of Tekmar in May of 2003 and Leeman Labs at the end of February 2004. In addition, organic sales were higher by approximately 4% in the first quarter driven in part by higher sales of geo-physical sensors used in the energy exploration market.

Our acquisition strategy in electronic instruments, which we've identified as one of our growth platforms, is focused in our products and technologies that are first complementary to our existing businesses and second participate in markets which we below -- believe will grow faster than our traditional industrial process controls markets. As evidenced by the planned acquisition of Isco, we continue to target regulatory driven end markets such as air and water quality monitoring, as well as, seek to expanding to food and beverage quality control and higher growth drug discovery and biotechnology market.

Furthermore, the acquisition of Leeman labs in the first quarter of 2004 augments Teledyne's existing laboratory and process monitoring instruments using environmental applications and more precisely shares the laboratory with a quality market with Teledyne TechMart (ph). With Teledyne Leeman labs and Teledyne TechMart, we are now able to market the equipment for the detection in order of both inorganic compound such as mercury embed in addition to organic compounds such as benzene and trichloro ethylene. As with our other environmental instrumentation businesses, we believe the long-term outlook for these businesses is attractive in both the US, as well as, internationally.

Finally I'll discuss our avionics and other commercial electronic businesses. In the first quarter of 2004, sales for these businesses collectively increase approximately 9.5% from the first quarter of 2003. Organic sales excluding the acquisition of Aviation Information Solution Business, known as AIS, at the end of the second quarter of 2003 were flat in the quarter. Avionic sales on an organic growth basis decreased approximately 20% compared to the first quarter of 2003. However, we believe the outlook for this market is turning around because orders in the first quarter were 40% greater than sales.

We continued to increase our share of data acquisition system on new airbus Single Aisle and Long Range aircraft. As example, in the Single Aisle aircraft, our market share currently is at approximately 55% compared to only 5% in 2001. In addition, orders for our latest ground link and gate link wireless radar acquisition systems for commercial airlines and our telephonic systems for business jets were stronger than we expected. In other commercial electronic market, sales of broadband wireless assemblies for cellular backhaul applications continued to grow as a result of increased demand from large international customers. Sales of Relays using wireless infrastructure, networking equipment and semi conductor test equipment also increased during the quarter and orders for Relays were at the highest level since the second quarter of 2001.

Turing to our government systems engineering segment, in the first quarter of 2004 revenues in this segment increased 4.2% compared to last year's and operating profit increase 7%. In addition, orders compared to last year increased 18%. In addition to sustained growth in our core defense and space program, we continue to see a recovery in our environmental solutions business. For example, at the beginning of the quarter Teledyne Brown engineering was awarded with a 13.7 million environmental contract from the US army to continue its operation of the US army non-stockpile chemical material program rapid response system. This is a mobile on-site system used to destroy hazardous chemicals.

While the profitability of our engineering systems -- engineering segment was outstanding this quarter as it was in the past to a full year periods. We do not anticipate maintaining these margins in the remainder of 2004. A large piece for work performed on certain contract as well as the mix and timing of certain government programs have boosted sales and profitability and in the remainder of 2004, we expect profitability to return to more normalized level of 8 to 9% of sales.

Turning to our aerospace engines and component segments, sales during the quarter of 2004 for our aircraft system engine business increased approximately 5% relative to last year and resulted from increase sales to both OEM and the after market. Operating profit however decreased compared to last year given the substantial negative comparisons in insurance expense following the 75% increasing costs, which occurred in May of 2003. Our current product liability policy will expire at the end of the May this year. While we fill a currency reviewing placement and structuring alternative we do not anticipate at this time a significant increase in the total cost of our aircraft product liability issue. As we have mentioned previously, we're continuing to also work with Honda Motor Company in evaluating a new engine primarily targeted at segment of the market not strongly served by our existing piston engine business

In turbine engine, sales increased 85% in the quarter primarily due to higher revenue from joint ASO service stand of (inaudible) as well as improved ITOB (inaudible) engine. Finally in our energy systems segment, revenues in the quarter increased by over 60% compared to first quarter of last year and operating profit was positive this quarter. Given the substantial multi-year government programs, we won last year. We continue to expect that this segment will achieve greater than 50% growth in 2004 and remain profitable. In the energy technologies marketplace, we believe that we posses a unique business one which encompasses both a growing base of long term government contracts as well as a portfolio of tangible commercial energy technology product such as fuel cell test stations and hydrogen refueling systems.

Finally I would like to emphasize that we remain committed to our focus on operations excellence as we continued to seek acquisitions in and related to our core electronics instrument and systems engineering businesses. I will now turn the call over to Dale Schnittjer.

Thank you Robert and good morning. I will first discuss some additional financials for the quarter not covered by Robert plus add some full year highlights when warranted. Then I will give an update on pension cost and discuss our 2004 outlook. In the first quarter, cash provided from operating activities total $8.2 million compared with the cash used by operating activities of $1.8 million for the same period of 2003. The primary difference was due to an aircraft product liability settlement payment in 2003. As well as improved working capital management in 2004 and positive operating cash flow from acquisitions made last year.

As Robert mentioned, after paying approximately $20 million for the two acquisitions in 2004, we continue to be debt free for $24 million of cash in the bank at the end of the first quarter. We plan to access our revolving credit facility in order to complete the anticipated acquisition of the Isco, which we expect to close in June subject to approval of Isco's shareholders and other conditions. Adjusting for the Isco transaction and the net cash consideration of approximately $80 million. Pro forma debt will be approximately $60 million still less than one times EBIDTA. Thus, we will still have significant borrowing capacity to continue accelerating our pace of acquisitions.

Capital expenditures for the first quarter of 2004 were $3.3 million compared to $2.9 million for the same period of 2003. For 2004, we continued to see depreciation and amortization expense slightly above capital expenditures of approximately $20 million. As we have said before, declines in the capital markets in prior years and adjustments in pension assumptions, have resolved it in an increase in pension expenses and our requirement to make pension contributions. In the first quarter of 2004, pension expense was $2.2 million or negative earnings per share impact of 4 cents compared to pension expense of $1.7 million or negative earnings per share impact of 3 cents in the same period of 2003.

Pension expense of for 2004 is expected to be approximately $8.7 million or a negative earnings per share impact of approximately (audio-gap) 16 cents. As mentioned in the press release, anticipated pension expense in 2004 reflects 15 basis point reduction in discount rate from 7% to 6.5%. As of January 1st, 2004 new hires have being added to enhance the define contribution as a first to the company's existing defined benefit plan. Additionally, we currently anticipate making a pension cash contribution in 2004. The after-tax cash impact is currently anticipated to be approximately $3 million.

Subsequent to November 29, 2004 the company will be able to begin recovering certain pension costs from the US government under various government contracts. Based on our current pension assumptions, we expect pension expense net of recoverability to begin moderating after 2004.

Now let me turn to our 2004 outlook. Although our 2004 outlook is somewhat uncertain, management believes that the 2004 GAAP earnings per share in the second quarter of 2004 will be in a range of 20 cents to 22 cents. The full year 2004 earnings per share outlook is expected to be in the range of 84 cents to 88 cents an increase from prior guidance of 80 cents to 86 cents. We expect that earnings per share in 2004, excluding pension expense of approximately 16 cents will be in the range of $1 to $1.4 cents per share as shown in the release. I will now pass the call back over to Robert.

Thank you Dale. We would now like to take your questions. Leah (ph), if you're ready to proceed with the questions and answers. Please go ahead

Thank you. Ladies and gentlemen, if you would like to ask a question, please press, "*" then "1" on your touchtone phone. You will hear a tone indicating you have been placed in queue. And you may remove yourself from this queue at anytime by pressing the "#" key. The first question is from the line of Mark Jordan from AG Edwards. Please go ahead.

Good morning gentlemen. We'll like to hear your updated comments as to what your strategy is for the aircraft engine business? We've had couple of years on a row now of marginal profitability a best, despite a group that was very positive performer through the 90s. What strategies are you looking at to, try to return that business to some reasonable returned on investment and or realize what the value that should be there?

Good question, Mark. Good question. There are two parts to the interim operating and expense perspective. There are two components to the aircraft engine business. One of them is not to do without manufacturing and there we are trying to reduce cost continuously by modernizing of our fast study and I think we've made lot of progress in that area. The second part has to do with our insurance. The liability insurance: The liability insurance really market has have been significantly since 9/11. On the other hand, I think the market is now getting more stable then it was, right after 9/11. The consequence of that worst effect that we're restructuring was insurance program. We think they increases there would be very modest in the coming year. Having said that, I should note that if you add the premium that we take for liability insurance and the reserve that we have to take for the portion of the insurance that we have first dollar coverage on, that is a significant number, within the upper $20 million. So, moderating that is a key element of improving our profitability. In terms of the larger picture of strategy for the engine business. Currently, it would be very difficult to sell that business and realize, what we think that business is worth to us and in the marketplace, when the market is at a more triumphant (ph) from a insurance perspective period. We think, we have to wait on that a little while. At the same time, I think, it's important that we introduce new product to gain market share and we're doing that. First, the fastest growing piston engine aircraft manufacturer is Cirrus, and they have been capturing market share from their competitors and we're the sole supply of engines to them. We've also introduced electronic controls for piston engines, which improve of course, the gas usage of the engine. And finally, we're really looking forward to our program with Honda to see, if we can introduce a whole new line of engine in a market in which we've not currently participating. I guess, the short answer to that is, we've got a whole decors for a while longer until that market improves. At that time, we can make a decision whether we maintain this business or we divest it.

Okay. Another question on the pending acquisition of Isco, could you say -- are you expecting any meaningful profit contribution from that acquisition in the current year and what might be sort of a longer-term accretive impact of this transaction? I mean, is there a difference between so in the near-term impact in the longer-term?

Yeah, the Isco transaction -- Chris, let me start by saying, it is going to be accretive both in the short, intermediate and intermediate-term and we think this year because of the fact that we're going to take it and we're going to integrate it slowly. We're not going to see a very large pickup this year, primarily because by the time we get an arm to integrating, it's going to be late summer. And we may have also some costs associated with adopting odd financial systems and combining it with theirs as well as making sure we have a as so for '04 compliance in that operation. On the other hand, we think in the long-term, we ought to be able to realize some significant pickup from that business. It is - it should be returning margins in the range of 10% and maybe a little better, if we can get more synergies from it. We think, at the present time that business while, it's profitable, it does have some very high cost especially in this CMA, where it's closest to 40% our FRSCMA cost are closer to 20 to 25%. So, there are some synergy opportunities that -- so I think, in the long-term this is going to contribute significantly through our bottom line.

Okay. On the acquisition front, you've obviously done number of up transactions into your bank line for the first time, how comfortable are you or what would be your strategy in terms of further utilization of the bank line or do you see some other capital access that will be desirable to you?

The bank line, first, as you know Mark, we have a line up to $200 million. We're currently in negotiations to renew that bank line, which we think will happen sometime in the next couple of months. So, we have still quite a bit of room in that bank line. Having said that, we're at the same time looking at what other alternatives we have and there are a number of alternatives for raising further capital, as well as at some point if possible -- if mortgage buying is -- of a key ratio that's comparable to us and it won't be too diluted to use our equity. Having said all of that, even with Isco, our multiple of EBITDA to borrowing would be one to one. Essentially we generate as much EBITDA as we're borrowing and we've room to go three- to-one in the short-term..

Okay. A product question relative to the Peusole technologies, do you have any specific plans as to how to accelerate or kind of exploit some unique technology you have there, or is this just something that's going to continue to evolve profitably but more in frontline with what's been going on until we get, sort of, quicker development?

Well, obviously what we've said before Mark, that we -- its our intention to find a way to monitize that or bring value to our shareholders more than just keeping the best part of our own portfolio. Having said that Teledyne enjoys long-term contracts, six to seven year long contracts that should average in the mid-tens of million of dollars in revenue plus commercial contract in hydrogen and its one of the -- that is one of the few Peusole hydrogen generating business as that we know that's profitable in the market. Unfortunately for us the ideal market in that domain has kind of gone south. There have been some encouraging signs recently, there have been at least two follow-on offerings that were made in this quarter that we are aware of. And so, its possible we'll be able to do something, of course, the alternatives are from a strategic alliance or take it out by ourselves. But the market is really not conducive to taking it out by ourselves at this point.

Okay. Thank you.

Thank you, Mark.

And we move on to the line of Seth Tutlis from Sidoti. Please go ahead.

Hi. Good morning. I'm afraid, can you, Robert, add some color to the operating environment for the after-market, as Chris mentioned after-market? And maybe talk about, last quarter you mentioned that you were -- you announced some price increases for your OEM engines, can you discuss that a little bit?

Yeah, Seth. First, let me just address the price increases. We announced an 8% price increase on our engines and that -- of course the market, they don't appreciate it as much as we did. But it's stuck, and so we have that under our belt. The after-market has actually been pretty good, our engine after-market's up. The problem we're having in that business is that, as we mentioned previously, our insurance costs last year in May starting in June went off a $1 million a month. So, in the first quarter of 2004 versus the first quarter of 2003, we paid $3 million of insurance -- additional insurance which comes right off our bottom line. And I think this restructuring of our insurance, which we're working on, very well now, is going to be a very important part of our full attempt to address the issues in that business. In terms of the market itself, the market has not been that bad, our revenues are up.

Okay. And just moving on to the systems engineering. Can you more specifically, you know, obviously you had that big margin jump and you know similar to the -- you are posting your margin similar to what you did last year. What specifically was embedded in the, award payments or where are they stemming? And can you talk a little about specifically what the timing of certain projects?

Yeah. What had -- what happens there is that historically at the end of -- we have subcontracted to a time obviously. Historically, we set our fees a year after the performance approximately for example on the national missile defense we had fees for 2002 and 2003 that we got near at the end of 2002. And regard to little bit of a little bit of fee increased this quarter. But the fee the up in fees for this quarter have more to do with the mix up businesses as opposed to just an MD fees. We think this business in the long term is going to be in the 8 to 9% range. We think that's what's going to happen the rest of the year. We've been a spot offers 13% last year this quarter and we would have on 11 to 12% but we think it's looking at his business and were cost structure is what we can serve for the government it is a 9% business.

Okay. And then well just one last kind of housekeeping question here. Corporate expense had that tick -- uptick slightly this quarter, is this a more normalized run rate for the rest of the year. Can we expect that to move up a little higher when you start upgrading its scale? Can you talk about that?

Let me --nice question -- if you could answer that please.

It was just sort of the timing of some of the expense that we incurred for the quarter, we are experiencing little more costs associated with our SO4 (ph) '04 effort that we don't expect that to continue, it's just an uptick in the quarter, we're not looking for to carry on in the future period.

So in terms of a year-end number something closer to 15 million rather than 16.

No. Probably it goes up to the 16.

Okay.

Yeah. As that they have said, one of the things, these components that they have -- almost all public company is SO4 '04. We're adding some people there and we have to spend the money to reassure that we are compliance.

Okay. Thank you, John (ph).

Thanks, Seth.

And we move on to the line of Chris Quilty with Raymond James and Associates. Please go ahead.

Good morning, gentlemen. Just a follow up on that earlier line-up question on a system doing hearing business. Can you discuss for us any either existing or up coming contract that may be coming up for bid or re-bid.

Good morning, Chris. I think our NMD (ph) contract obviously we come up because the money's are being shifted form R&D to deployment -- we are always targeting to insure that those funds pay the level that we have today other than that I think they match our contracts after the presidents announcement for deep space probes there has been some concern that some of the micro gravity contract that we have which is a long term contract as you know almost a 10-year contract. We base a little concerned the action of those plans will be shifted to the new programs that the president announced, so while there are no renewals, there is some type of some cuts there. So far it's been manageable but it's out there. The contacts that come up for renewal more often are in the environmental domain were we do semi-cold warfare distribution was there a destruction of chemical weapons, as well as, we make canisters for nuclear waste disposal. But I think those should be again relatively stable. We look to this segment to have a fairly stable art outlook. There are some potential new contracts that we have bidding on that might change things for the better but it's too early to tell about this especially with the budget time session even the budgets being in the state of marks that they are.

Okay. And is there any impact having mention this with the continued delay and the launch day for shuttles (ph) or so does that have a significant impact?

We haven't seen that so far as you know the shuttle flight is now scheduled for March of 2005 and just to get from here to there and we are ready for those slides and as well as the experiments in the space station, the international space station. I think those programs are going to remain relatively looking very healthy.

Okay. Shifting gears over to the electronic side of the business did you give a number for the medical business, it's like the defense of our correctly had sort of seen some flatting in the last quarter?

Yeah. In the difference business -- the difference business was up and we -- I'm just trying to get you a better number that it was up by about 10 to 12%. On the other hand I must note that we have two power cells of ammenten (ph) in the medical business one part of it has to do as you know, with the microelectronic, which deals with microelectronic component or defibrillators and pacemaker that was up. We also have a second part that deals with making circuit cards assemblies and medical for the film list for medical diagnostic and making equipment such MRI type scan, x-ray systems and that business was okay most of it that was up in one our facilities. So, overall I think medical business will estimate in the microelectronic part in the $10 million range and the manufacturing part being in the 20s. I think overall those are healthy.

Okay. And in the general commercial short cycle contact manufacturing end of the business. You had -- if I remember correctly, seeing some marginal increase leading up into this quarter?

Yeah. We -- in the components business primarily we are seeing all that increases. To give you an example in relays we make high frequency of relays that going to semiconductor test equipment, as well as telecom markets -- those relay market we are seeing orders -- increased orders compared -- that we haven't seen in two year. We are seeing orders from Europe, that we are seeing orders from customers that have been gone for a couple of years, they are suddenly beginning to order. So we had -- we are positive about that business. Now we -- and maybe the other increase as you recall we have done is -- we've cut the costs in that business so our breakeven for that business has gone down -- breakeven point has gone down. So, we have to make some money in that business as we saw those keep coming in.

Okay. And the data acquisition business. I know you said you are still looking to expand your market share in the DOIO (ph) aircraft but your goals for increasing your airbus penetration, are they still on track?

Yeah. As I have said in the -- just stay with the single line for example aircraft or airbus. In 2004 this year, we anticipate enjoying about 55% market share. In 2001, we had a 5% market share. So, that's being good for us when the whole market has been declining that's being good for us. The other thing that is good for us is that, we've enjoyed a number of new products, one of them is GroundLink, which is a product that as you acquire data as you know, on an aircraft when you get to the gate you can download that data using cell phone line, download it to the operating system intranet of the airlines so they can use it for maintenance. People have begun taking -- adapting that in different aircrafts. We've also had some long, large contracts with providers like Ryanair, that's a low cost carrier, as you know, the fastest low cost carrier in Europe, where we did end-to-end delivery of not just data, but as well as, analysis of the data for Veritas (ph) fleet. So, that's been positive. The final process actually surprised us. It is the strength we're seeing for our MagnaStar's telephony system in Business Jet. We kind of have experienced a real downside on that but now we're suddenly seeing some pickup in that business, which is frankly a positive occurrence for us. And lastly just this whole idea of being able to take some of our commercial products like the Quick Access, Optical Recorders and using them in the military market, like in the C17 and P-130 (ph) using the -- our other data acquisition products, communication products. That's also positive for us. So, that in addition to acquiring AIS (ph) we see that business beginning to pick up again this year.

Okay. It is only the biz jet telephony solutions or also the datalink solutions?

In the biz jet, we basically have the telephony, but you're going to of course use the telephony solutions for doing other things like fax an information. But in the data acquisition, it's primarily in the commercial aircraft. We do the -- on the commercial larger aircraft, we have our major data acquisitions systems, then we have a smaller version of that for the regional aircraft. And all are those things we're picking up for us.

I'm sorry Robert, I meant not the data acquisition, but the data transmission Inmarsat in-flight data transmission systems?

Now, that's high-speed datalink. I think that's what you're referring to. The high-speed datalink business has not picked up, as we had anticipated. People are still happy with the rates that they're getting on our telephones and not probably willing to pay the high cost of installation or the usage for the high-speed data lines. We've not seeing that yet.

Okay. And your -- I guess I would assume also that your Smart Cabin initiative, is also something that's still on hold here?

Yes, to a certain extent but you know the fact as we're able to put more MagnaStar units on board and use some other technologies like Bluetooth technologies and others that make it more attractive. So, people that are not (inaudible) to the telephone. They can pick it up and walk around the cabin and do other things and have multiple phones communicating at the same time.

Great. So much for me to do in flight naps. All right, thanks gentlemen.

Thanks Chris.

And we have no further questions, you may continue.

Thank you very much, Operator. I would now ask Jason to conclude the conference call.

Thanks again everyone for joining us this morning and of course, you can always call me on the release -- the number on the release rather, if you have follow-up questions. Thanks everyone. Good-bye.

Good-bye.

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