Ultralife Corp (ULBI) 2015 Q2 法說會逐字稿

Good day and welcome to this Ultralife Corporation second-quarter 2015 earnings release conference call. At this time for opening remarks and introductions I would like to turn the call over to Jody Burfening. Please go ahead, ma'am.

Thank you, Melanie, and good morning, everyone and thank you for joining this morning for Ultralife Corporation earnings conference call for the second-quarter of fiscal 2015.

With us on the call this morning are Mike Popielec, Ultralife's President and CEO, and Phil Fain, Ultralife's Chief Financial Officer.

The earnings press release was issued earlier this morning. If anyone has not yet received a copy, I invite you to visit the Company's website at www.Ultralifecorp.com where you will find the release under investor news in the investor relations section.

Before turning the call over to management, I would like to remind everyone some statements made during this conference call will contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties which include potential reductions in US military spending, uncertain global economic conditions and acceptance of the Company's new products on a global basis.

The Company cautions investors not to place undue reliance on forward-looking statements which reflect the Company's analysis only as of today's date. The Company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Ultralife's financial results is included in Ultralife's filings with the Securities and Exchange Commission including the latest annual report on Form 10-K.

In addition on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics that differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures.

With that I would now like to turn the call over to Mike. Good morning, Mike.

Good morning, Jody, and thank you everyone for joining the call this morning. Today I will start by making some overall comments about our second-quarter 2015 operating performance, then I will turn the call over to Phil who will take you through the detailed financial results. After Phil is finished, I will provide an update on the progress against our revenue initiatives for 2015 before opening it up for questions.

For the second quarter of 2015, we were pleased to deliver a third consecutive quarter of total Company profitability and positive EPS generating an operating profit of $0.8 million on revenues of $19 million or an operating margin of 4.3%. This represents a year-over-year improvement in operating profit of $2.1 million on an increase in revenue of $3.8 million again illustrating leveraged earnings growth on increased revenue in the execution of our business model.

Commercial revenues for our Battery & Energy Products business grew by almost 7% year-over-year driven by continued strength in our 9 Volt product line used in smoke detectors and growth in shipments of our rechargeable batteries for medical device applications.

Government defense revenues for Battery & Energy Products almost doubled year-over-year driven by sales to OEMs and a DLA which led to an overall Battery & Energy product sales increase of 31%. Although our Communications Systems business revenues were roughly the same as last year's second quarter, the composition of revenue improved with sales of a broad range of new products to our OEM channels and a more consistent day-to-day flow business.

Led by the momentum in our Battery & Energy Products business, total Company revenue increased by approximately 25% from the prior year, the second consecutive quarter of double-digit year-over-year revenue growth.

Total Company gross margin rate in Q2 2015 increased year-over-year by 320 basis points to 30.9% driven by favorable mix as well as volume leverage. Achieving 30% plus total Company gross margin remains a key starting point in our stated 30, 5, 5, 10 equals 10 business model equation which guides us in allocating funding for revenue initiatives such as new product development and market reach expansion while targeting an initial 10% operating margin rate goal.

We also continued to tighten operating expenses while continuing to fully fund revenue growth initiatives. Reducing operating expense 9% in the face of increasing year-over-year revenue improved our base cost as a percent of sales by 980 basis points.

Adding it all up in Q2 2015, the combined effect of increased revenue, improved gross margins and reduced operating expenses led to a 1300 basis point favorable swing in total Company operating margin rate year-over-year demonstrating significant leveraged earnings growth.

Now I would like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the second quarter 2015 financial performance. Phil?

Thank you, Mike, and good morning, everyone. Earlier this morning we released our second-quarter results for the period ended June 28, 2015. Consolidated revenues for the second quarter totaled $19 million representing a $3.8 million or 25% increase from the $15.2 million for the second quarter of 2014. Revenues from our Battery & Energy Products segment were $16.0 million, an increase of $3.8 million or 31% from last year reflecting growth in both government and defense and commercial sales.

The year-over-year growth of 94% in government and defense sales was driven by higher sales of batteries to a large international prime defense supplier and shipments of primary batteries to the US government's Defense Logistics Agency for the third consecutive quarter.

Commercial sales for the second quarter of 2015 increased 7% over 2014 with higher shipments of 9 volt batteries to large global smoke detector OEMs and rechargeable batteries into medical channels. Commercial sales were up 14% sequentially over the first quarter. As a result, Battery & Energy Products sales were split 58/42 between commercial and government and defense compared to 72/28 for the 2014 period.

Communications System sales of $3.0 million slightly decreased by $51,000 or 1.7% from the 2014 period. The second quarter of 2014 benefited from the fulfillment of a $1.9 million order for our universal vehicle adapters shortly after its market launch to a large US prime. Nevertheless for the 2015 period, we experienced more broad-based sales as well as increases in our order flow reflecting increased demand from system integrators in support of US Department of Defense programs and international projects.

On a consolidated basis, the commercial government and defense split was almost evenly balanced at 49/51 versus 58/42 for the year earlier period. Our consolidated gross profit was $5.9 million compared to $4.2 million for the 2014 period, an increase of 39%. As a percentage of total revenues, consolidated gross margin was 30.9% versus 27.7% for last year's second quarter, a 320 basis point increase.

The improvement in overall gross margin as compared to the sales growth for the period highlights the leverage of our underlying business model and strategy to introduce higher-margin products and further substantiates the 31.4% and 31.7% gross margins achieved in the first quarter and the fourth quarter respectively.

Gross profit for our Battery & Energy Products business improved by 58% reflecting the leverage from the 31% sales increase for the period. Gross margin for this segment was 28.4%, a 480 basis point increase from the 23.6% reported last year. The improvement reflects the higher production volumes increasing the absorption of our manufacturing overhead, the more favorable margins associated with commercial sales and continued lean productivity gains for the business.

For our Communications Systems segment, gross profit was essentially flat with 2014 and gross margin of 44.2% improved by 20 basis points over the 44.0% reported for last year's second quarter. This improvement reflects both product mix and higher production volume.

Operating expenses totaled $5.0 million which was $0.5 million or 9% below the $5.5 million reported for the 2014 second quarter. The 2015 operating expenses reflect our continued efforts to contain discretionary spending while continuing our investment in new product development.

As a percentage of revenue, operating expenses represented 26.6% compared to 36.4% for the year earlier period. The 980 basis point improvement further highlights the leverage of our business model.

That operating leverage compounded with increased revenue resulted in an operating profit of $0.8 million for the 2015 second quarter compared to an operating loss of $1.3 million for the 2014 period.

The year-over-year improvement in operating profit of $2.1 million consisted of a $1.0 million contribution from the 25% increase in sales, a $0.6 million contribution from the 320 basis point improvement in gross margin and $0.5 million from lower operating expenses.

Operating margin improved from negative 8.7% in the second quarter of 2014, a positive 4.3% for 2015, identical to that reported in the first quarter.

Second quarter non-cash operating expenses including depreciation, intangible asset amortization and stock compensation expenses amounted to $0.9 million compared to $1.1 million for the year earlier period. This brings us to adjusted EBITDA defined as EBITDA including non-cash stock-based compensation expense of $1.7 million or 9.1% of sales versus negative 179,000 for the first quarter of 2014.

Our improved operating performance has resulted in the generation of $6.2 million of adjusted EBITDA over the trailing 12 month period representing 8.4% of sales for that period.

Other expenses primarily comprised of foreign currency translation and interest expense netted to $28,000 of income versus $5000 in 2014. During the 2015 period, we converted a large portion of our euro and pound Sterling denominated cash into US dollars as favorable rates to reduce the potential unfavorable impact of the strengthening of the US dollar going forward and our tax provision was $71,000 primarily reflecting income taxes for our profitable China operation and the timing of deferred taxes. Our tax provision was $57,000 for the 2014 second quarter.

During the second quarter, we received formal notification from the IRS that they had completed examinations of our 2011, 2012 and 2013 US federal income tax returns confirming our accounting for certain matters resulting in an increase of our US NOLs of approximately $20 million.

With solid operating performance and through our actions to minimize foreign currency exposures, net income was $0.8 million or $0.05 per share compared to a net loss of $1.4 million or negative $0.08 per share for the same period last year.

Our weighted average shares outstanding of 16.557 million reflects the repurchase of 1.4 million shares during the second quarter and waiting the timing of these repurchases. The reduction in average weighted shares outstanding from 17.533 million in the second quarter of 2014 accounted for $0.26 of EPS improvement.

The Company's liquidity remained solid with cash on hand of $15.9 million, no debt, working capital of $42 million and a current ratio of five. By comparison, the cash on hand at year-end 2014 was $17.9 million. The $2 million decrease in cash from year-end reflects our 2015 share repurchases of $5.8 million and operating cash flow.

The goal of our capital allocation plan continues to be a balancing of longer-term investments in revenue growth including new product development and acquisitions with enhancing shareholder returns in the near-term.

During the second quarter, we repurchased 1,398,454 shares and the total number of shares repurchased under our 3.4 million share repurchase program through July 29, 2015 is 1,941,691 shares at an average purchase price of $3.88. Our common shares outstanding are now 15,635,904.

In summary, the actions we have taken to optimize our business model while preserving our strategic investments in building a strong balance sheet are once again demonstrated in our second-quarter results. We started the year well and remain intent on driving sales growth through organic initiatives and acquisitions to unleash the full leverage potential of our business model.

I will now turn it back to Mike.

Thank you, Phil. With respect to our revenue growth initiatives, in 2015 we remain focused on three core elements -- expanding our marketing sales reach, new product development and pursuing acquisitions.

In our Battery & Energy Products business, our commercial diversification strategy continues and in Q2 commercial market sales represented 58% of total Battery & Energy Products revenue. Our core 9 volt lithium battery demand remains solid and was recently bolstered by some new mandated requirements for smoke detectors particularly in Europe. Nine volt sales represented 25% of total B&E Q2 revenue and were up 31% year-over-year.

Also noteworthy from an operational standpoint, the short-term OEM volume increases we saw earlier in the year were a good test of the lean manufacturing flexing capability of our China facility and team who met the demand spike without major cost additions or otherwise inefficient disruptions to the operations.

With our Ultralife thin cell technology providing the highest capacity lithium 9 volt battery on the market today and regulatory criteria driving longer life smoke detector capability, we remain well-positioned for serving the global smoke detector market.

Also after a lengthy in-country business development cycle with several key customers, we are starting to get some good traction with our own locally manufactured final chloride primary batteries in China for automobile toll pass applications.

In the global medical market, battery and charger sales to OEMs of respiratory devices, infusion pumps, AEDs, medical carts and diagnostic devices represented 18% of our business and were up almost 45% year-over-year.

We continue to develop new commercial revenue streams from close collaboration with other OEM device manufacturers and application serving not only medical but also safety and security, asset tracking and portable energy storage markets.

The investment over the past several years in new products and the accumulation of these diversified new commercial revenue streams are key drivers of the solid organic revenue growth we have been posting.

In addition to our new product development driven commercial market strategy, we have also upgraded many of our military battery and charger solutions such that as demand returns we are able to capitalize on our technology position. We continue our active participation in several DLA multiyear IDIQ solicitation processes for our core and lithium and high-capacity lithium CFX hybrid batteries along with the proprietary batteries we make for specialized tactical communications networks.

As our Battery & Energy Products government business slowly recover, we are positioned for topline revenue growth as well as more business model driven leveraged earnings growth.

Regarding B&E new product development, we have been quoting a revenue realization metric for contribution from products less than or equal to three years old as an illustration of the vitality of our new product revenue streams. Having reset this new product development tracking metric after Q1 for some of the new products such as our next-generation 9 volt lithium battery that have now graduated from this distinction in Q2 2015, revenue from products less than or equal to three years old represented 10% of Battery & Energy Products total revenue.

With new product development a fundamental part of our growth strategy, we expect this new product development contribution mix to continue to grow throughout the end of the year into next as several new contracts and products start to ship.

This includes Battery & Charger systems developed for the medical space, asset tracking and locating devices and in government defense, OEM battery packs, vehicle and bolt chargers, conformal batteries and new battery chemistry blends.

The Communications systems domestic business continues to be driven by special forces customers supporting both vehicle and dismounted soldier requirements. Based on years of customer interaction, user trials, design iterations and firsthand battlefield experience, the Comm Systems team leverages its latest technology equipment and integrated systems expertise to better manage size, weight, power and costs for the customer. By taking commonly used commercial off-the-shelf items and software, they create tightly integrated systems that offer users maximum flexibility where current developmental items can be added without system reconfiguration. These new systems are radio, platform, [bare] and software agnostic that minimize the training burdens while leaping technology forward in a rapidly deployable system and requiring minimal start up.

Additionally, our team has created novel ways to add flexibility through modular capabilities that are easily customizable to fit specific user needs.

In Q2, the team hosted a weeklong event for key US SOCOM stakeholders in the C4ISR space to demonstrate and discuss new capabilities that bridge the communications gap amongst US special forces, conventional forces, NATO forces and the user feedback has been resoundingly positive.

Regarding Communications Systems international business, our team continues to cultivate business prospects in the Middle East, Far East, Latin and South America and Europe. Up to this point the primary focus has been on extensive user product trials on multiple continents in support of larger program opportunity global pipeline creations. While the international efforts tend to have very long sales cycles, we continue to maintain selectivity to ensure that our time and resource investments are targeting prospects showing realistic short and long-term growth potential.

In Q2, we brought onboard new talent to intensify the capture focus of large program opportunities in the Americas.

For new product development at Communications Systems, in Q2 2015 new products represented over 38% of total Communications Systems revenue. Of special note was the delivery of the first 180 units of our new MRC audio recorder unit which provides in-line tactical radio communications audio recording capability between the air and the warfighters on the ground including time and location stamping for documentation as well as turning purposes.

We also continue to see consistent new product development sales of our A-301-150 satellite combiner, our MRC universal radio vehicle adapter and our updated legacy 20 watt amplifier products. It should be noted that unit sales of our core power amplifier products have almost tripled year to date year-over-year.

As mentioned previously, we work closely in a collaborative environment with program executive offices, program managers and customer engineers and in conjunction with both small and large industry business partners. Our industry partners have supported our efforts by equally investing their precious financial and human resources to engineer solutions that integrate well with our product technologies that are currently fielded by the special forces.

Over the past year, we have been working closely with several global industry partners to demonstrate these capabilities to our collective customers. One example is an industry partner specializing in design, production and integration of command and control and sophisticated Communications Systems who has enabled us to further expand our integrated system portfolio while we jointly develop new capabilities.

As a result of this industry partner activity, Comm Systems has recently introduced some new cutting edge open architecture modular communication product lines. The MRC MC4 3 and 2 family of robust radio, waveform and bare agnostic Communications Systems extend the distribution of voice, video and data communication simultaneously throughout the battlefield. These products address the latest radios, waveforms, amplification, [Man A], ISR, networking computing and data storage technologies in streamlined and well integrated flexible packages that can be utilized in vehicles, forward operating bases, tactical operation centers and base stations.

Our customers have been very receptive of subsystems and demonstrations are underway. We are excited to have the opportunity to work with such focused industry teams that bring the latest technologies to market and share in our passion to support the warfighters.

We will continue to work closely with our global industry partners on new capabilities and will be jointly displaying our technologies at upcoming global exhibits.

In closing, in Q2 we are pleased to finish the first half of 2015 by achieving a third consecutive quarter of profitability and a second consecutive quarter of double-digit revenue growth again validating that our strategy, business model, operational execution are leading to more consistent profitability and the potential for total year topline revenue growth.

As the Company maintains its solid balance sheet and liquidity, we have the flexibility to create more organic revenue growth opportunities through new product development and market reach expansion, seek out and integrate bolt-on acquisitions and enhance shareholder return through stock repurchases.

The Battery & Energy Products business continues to diversify and build new revenue streams from new products, customers, markets, geographies and globalization, softening its historical dependence on government defense revenue to achieve revenue growth. With a growing commercial business, expanding and evolving product lines, proven business model and some ongoing government defense recovery, we are gaining more visibility of the potential to achieve revenue growth and profitability for Battery & Energy Products in 2015.

For Communications Systems as we come to the end of the US Government fiscal year, we have seen a noticeable uptick in our flow business activity level and at the end of our first half of 2015, Comms Systems revenue was up more than 33% year-over-year.

Several of the larger military programs fielding our products are maturing and appear to be moving slowly through the procurement process. Predicting the timing and converting some of these larger opportunities into sales revenue remains difficult. Given our strong presence with the global special operations forces, our OEM customers, industry business partners and the current world dynamics, we remain optimistic about the revenue growth prospects for our Communications Systems business.

Operator, this concludes my prepared remarks and we would be happy to open up the call for questions.

(Operator Instructions). Gary Siperstein, Eliot Rose Asset Management.

Good morning, guys. Congratulations on a wonderful quarter. You hit it out of the ballpark on just about every metric. It really seems like it is coming together tremendously.

Just a couple of follow-up questions. Mike, you mentioned a new product, I think you said auto toll pass in China or is that for the 9 volt and can you just explain what the opportunity is?

Yes, Gary. This is something we have been talking about over the last couple of years where we provide either a thin cell battery or the final chloride primary cell for the toll pass devices used throughout the roads in China. It has taken several years through lots of different trials and now we are starting to see shipments in the hundreds of thousands of levels versus the past maybe it has just been for samples. So we like that because in addition to the 9 volt product which is manufactured in China, we have spent some investment over the years to increase our capability and productivity of our tooling and to see the toll pass business come to fruition after a couple0 of years of work is quite exciting for us. It helps diversify that operation so we are not just solely dependent on the 9 volt product in our China operations.

So that is not something on the come, you actually had some revenues in Q2?

That is correct and it continues to grow.

Super, okay. In terms of the medical, are we at a point now where I guess sequentially that is stagnant in terms of the four or five or six different applications or is that increasing? Like were there three new applications maybe three or six months ago that we were shipping on and now there's five applications or seven? Can you give me a little sense of the cadence?

That continues to grow as well. I mentioned in my prepared remarks that we had some product development and some FDA approvals that we expect to happen through the end of this year and into next year which would add to that revenue stream of medical device products. So I would say it continues to grow. It is slow given the nature of it in the improvement cycle but it has in no way really hit a top. I think there still opportunity for growth there.

And also the smoke detector, can you give us a sense of that cadence as well? You said mostly Europe, is that expanding from country to country due to these new mandates, is it a multi-year opportunity? How do you frame it?

I believe it is a multi-year opportunity. The demand surge that we saw in the early part of the year was what I referred to in the comments of the OEM spike and how the China team responded to that was resolved in some legislation in a particular European country where there was a mandate for smoke detectors which heretofore wasn't in place. In the past calls we have talked about that due to fire department associations and various movements with municipalities in a provincial level and even maybe nationwide, there is a desire to have longer lived batteries in sealed smoke detectors such that when those batteries wear out people don't disable those smoke detectors because they haven't replaced the battery. So we are watching a number of different areas for continued growth. It is difficult to predict when it is going to happen. Honestly I feel like some of the stuff that happened in Europe early in the year caught a couple of people by surprise, not just us but quite frankly even some of the device manufacturers.

So we still think that dynamic of longer lived less user interfacable and using or not using smoke detectors, I think the legislation is trending more toward that being an opportunity for us to grow our 9 volt business on a worldwide basis.

And you mentioned in Communications Systems the sequential improvement, the better mix and more broad-based orders so can you tell me what really what that means? In other words, is it maybe last quarter, the first quarter the revenue level perhaps was four or five customers and now it is eight or 10 or is it different products? What do you mean by broad-based orders?

Different products, different products and I tried to make reference in my prepared remarks about the power amplifier business which is still one of the core product lines for the Communications Systems business. What we saw after the wars in Afghanistan and Iraq which were quite intensive from the standpoint of needing of amplifiers due to the terrain, we know that there was a huge demand as the military buys well in excess of current demand so they don't run out. And so after the repatriation occurred from both the Iran and Afghanistan wars we knew that there was a surplus of some of our core 21 amplifiers out in the field. And so as time goes on now and technology continues to evolve and there's a consumption of some of those, that residual supply chain we are starting to see a nice pickup in demand of our core product line. So not only do we have the revenue that we are getting from our integrated solutions and some of the vehicle adapter products but we are also starting to see a little bit of a recovery in our core power amplifier business and we view that as positive for the Communications Systems business.

Okay, that is clear. Let me ask you -- it seems like and I know you are equally frustrated but the big comm order that we had been hoping for has been gestating for I don't if it is two years or four years now, I lose track but for a while there was four or five or six potential significant orders, announcable orders that were moving through the procedures to get an actual award. Can you give us any color on that? Have we lost any to the competition, have any been awarded or they are all alive and active, it is just the slowness of the government?

They are still alive and active. I am not aware of any of those major opportunities that we may have alluded to that we have lost but priorities change. The military has a precious amount of funding they are spending on different products and different capabilities and there's various requirements from different branches of the service. We get ourselves extremely well aligned and sometimes the money goes to some other project and not ours.

So we are still very optimistic about what the opportunities are with some of the longer range larger programs for Comm Systems. What has been very positive is that our Battery & Energy Products business continues to do well which is giving us P&L cover if you will to continue to invest in some of those longer-term opportunities for Comm Systems. So we have been able to throw out over the last two or three quarters some good profitability, some good topline growth organically while still continuing to position ourselves for some of those larger program opportunities for Comm Systems.

I think we are all frustrated that they haven't happened sooner but we are 100% behind our Comm Systems team and fully supporting their efforts with the customers because ultimately we believe in what they are doing and we want to continue to support the warfighter.

And I think there was, recently in the last 90 days, I think Harris and maybe one of Harris' competitors both qualified for I think it was an IDQ and it was over $1 billion. I think it was communications radios or things like that. Is that something -- do we supply Harrison that and do we supply the competitor as well?

We don't comment on specific relationships with specific radio manufacturers but our strategy is to support whomever comes to us for products to help support their efforts to win and just really deploy a strategy. It is good to be wanted by everybody and not have to try to pick winners and losers so we work closely with each of the individual OEMs. We maintain the professionalism in keeping things separate but whomever comes with us and wants to collaborate with us on a product offering or solution, we want to do everything we possibly can to help make them win.

Okay. In terms of the inventory with sales increasing and outside of Facebook and Google, there are not many public companies that have been increasing sales lately has put you in that category. But with sales increasing, we are still seeing moderation in your inventory so is that a good place where we should maintain at around $24 million even though sales are increasing?

My position on that, Gary, is a definitive no. We feel that there continues to be additional opportunity to reduce inventory, to increase inventory turns and we are going to continue our efforts through the lean process and through sound business management to take advantage of this very cheap financing alternative for the Company.

Okay. Phil, I couldn't dig it out, I tried to dig it out earlier. I couldn't find it. What did we do in Q3 last year and Q4 last year?

As far as EPS goes, Gary?

Yes, sales and EPS.

Sure. EPS in Q3 last year was negative $0.02; Q4 of last year was positive $0.05.

And do you have the revenue figure for Q3 and Q4?

Yes, Q3 last year was 16.1; Q4 last year was 19.9.

Okay. So congratulations again on three profitable quarters in a row and I'm not really asking you to comment on this but historically I think the back half of the year has been a little stronger. I don't know if that is seasonal budget flushes or the government's fiscal year ending in the back half of our calendar year. But if one were to say that you could possibly repeat the Q2 and Q3 with a nickel and then have a little better in the fourth quarter, we have a situation where we could do $0.20 this year and all of a sudden on the bid side of the stock we are under 20 times earnings and still under book with the share buybacks, with the reduced denominator. I think book is [405], [410]. And then if we could add to some growth next year even just $0.025 a quarter next year gets you to $0.30 and then at $4 dollars, we are only 13 times.

So we seem exceptionally cheap, we are still not discovered by the Street. With that spectacular quarter today, the stock has only traded 3200 shares.

So I'm not asking you to comment on my earnings projections and possibilities but it seems like with the leverage in the model, it is very, very possible to have a real significant ramp in EPS in the back half of the year and into next year.

Therefore the stock under book, under one time sales with a low teen multiple seems excessively cheap. And then in light of the volume today, it shows to me that we are really still not followed by anyone. Normally a company, people were expecting a couple of cents in earnings and you do $0.05, there is volume, there is a beat and a raise, people start to think.

So I know your head has been down in the business and I am not telling you to necessarily raise your head but being a public company, most companies do both, they run the businesses and they do the investor relations to get some attention. So can you tell us how you are going to get attention while you continue to deliver good numbers to get analyst coverage, to increase the volume in the stock, etc.?

I agree with your and understand your point of view on this and becoming more active in terms of investor marketing is certainly on the table. As we continue to build sustainable topline growth, we expect to be more positively disposed to telling our story to prospective investors.

Okay, so with three black quarters in a row going into the seasonally strong period, you are going to get out there a little more and maybe be a little more proactive than reactive on the IR side of it?

That would be the intent.

Okay. Would you guys consider a nominal dividend to again differentiate yourself and there are certain institutions that can only by dividend paying stocks. Even if it was just a penny a quarter with your significant cash generation capabilities and the leverage in the model, the fact that you can make so much money and generate so much cash on such a small level of revenues could put us on the screen for a lot more potential buyers.

And the only reason I'm mentioning this, Mike, is because we have talked about acquisition for a couple of years now and nothing has come to fruition. And I'm not pushing you. Obviously I would rather you do nothing than a bad acquisition so I know it takes time, etc. But since we don't know if we are going to make an acquisition for sure and we have the excess capital in addition to the buyback program, even a penny a quarter dividend doesn't cost you much but it might again help attract attention to the improving story.

Gary, thank you for your thoughts and I will just share with you that management and the Board are continuously evaluating capital allocation and the best opportunities to maximize and sustain shareholder value. That is a topic that we are continuously discussing and very important to us. We are going to do what we feel is best for the Company going forward.

Sounds good.

Gary, if I can talk about acquisitions really quickly, it is still extremely high priority for us. We have a disciplined process, we have talked a little bit in the past about our pipeline and some of the things we've come across. The other key point I think I would make is that as our results become more attractive I think we become a more attractive potential buyer. And we were having some struggling quarters in the middle of a turnaround I think sometimes it is more difficult to have some of the really good candidates out there take you seriously and now not only having the financial capability but the fact that I think we are more of an attractive company for another team to join up with, I think we will have some other opportunities for some solid acquisitions.

And just remind me is the line of credit was it 25 with a flex or a bubble to $35 million?

Gary, it is $20 million with a flex to $35 million.

Okay, got you. Thanks so much and congratulations on a spectacular quarter.

(Operator Instructions). It looks like we have no other questions at this time.

Thank you very much everybody for joining the call for our second-quarter 2015 recap. I look forward to sharing with you our quarterly progress on each of our quarter's conference calls in the future. Thank you and have a great day.

This does conclude today's conference. Thank you for your participation.