Ultralife Corp (ULBI) 2014 Q2 法說會逐字稿

Good day and welcome to the Ultralife Corporation second-quarter 2014 earnings release conference call. At this time for opening remarks and introductions, I'd like to turn the call over to Ms. Jodi Burfening of LHA.

Thank you, Matt, and good morning, everyone. Thank you for joining us this morning for Ultralife Corporation's earnings conference call for the second quarter of fiscal 2014. With us on today's call 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, and if anyone has not yet received a copy, I invite you to visit the Company's website at www.ultralifecorp.com where you'll find the release under Investor News in the Investor Relations section.

Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. These 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 reports on Form 10-K.

In addition, on today's call, management will refer to certain non-GAAP financial measures that are considered to be useful metrics and 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'll start by making some overall comments about our second-quarter 2014 operating performance. Then I'll turn the call over to Phil who will take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2014 revenue initiatives and then talk about our full-year expectations and financial outlook for 2014 before opening up for questions.

For the second quarter of 2014, our communication systems business revenue grew year over year by 16%, and our battery and energy product commercial business grew by 19%, both driven by new product development sales. However, these positive revenue gains were more than offset by a 17% year-over-year revenue decline in the battery and energy products government and defense business, leading to a total company revenue decrease of 12%.

Both business teams performed solidly on the operational elements within their control. We also continue to tightly control costs and made some adjustments to right-size our staffing to reflect weaker demand from our government and defense customers, particularly in the area of US tactical communications and accessories, while we continue to fund vital new product development.

As a result, operating expenses were reduced 13% year over year, and when combined with 150 basis points of gross margin increase, narrow the prior-year operating loss by over 29% to a loss of $1.3 million in Q2 2014.

In a few minutes, I'll talk more about our 2014 revenue initiatives and outlook, but first I would like to ask Ultralife CFO Phil Fain to take you through additional details of the second-quarter 2014 financial results. Phil?

Thank you, Mike, and good morning, everyone.

Earlier this morning, we released our second-quarter results for the period ended June 29, 2014. Consolidated revenues for the second quarter totaled $15.2 million, representing a $2.1 million or 12% decline from the $17.3 million for the second quarter of 2013. Revenues from our battery and energy product's segment were $12.2 million, a decrease of $2.5 million or 17% from last year. The decrease is fully attributable to a steep drop in government and defense sales which overshadowed gains in commercial sales. The latter increased 19% over the second quarter of 2013, primarily driven by shipments of our new medical card power systems and new products specifically designed for medical devices.

Sales to government and defense customers declined 53% from the second quarter of 2013. The mix of our battery sales for the second quarter of 2014 was 72% and 28% to commercial to government to defense versus 50%/50% for the second quarter of 2015. As a further point of reference, the split for the 2013 full year was 47% commercial and 53% government and defense.

The domestic to international split for our battery sales was 49% and 51% for the second quarter of 2014 versus 61% to 39% for the second quarter of 2013. The split for the 2013 full year was 59% domestic and 41% international.

Sales classified as domestic include shipments to US-based primes, which in some cases served international projects. Communication system sales of $3.0 million increased by $0.4 million or 16% from the prior year. The increase reflects the fulfillment of a large order for our recently introduced Universal Vehicle Adapter to a large US prime.

Continuing the trend that started in the second quarter of 2013, we continue to see delays in the final signoff and purchase order issuance of several large high margin projects which impacted our second-quarter sales. The underlying programs are all active, and we continue to expect to fill these orders in the future.

Our consolidated gross profit was $4.2 million compared to $4.5 million for the 2013 period, reflecting the lower sales for 2014. As a percentage of total revenues, consolidated gross margin was 27.7% versus 26.2% for last year's second quarter. The primary driver of the 150 basis point increase is the overall mix of the higher-margin communications systems revenue to total revenues, which increased from 15% in the second quarter of 2013 to 20% in 2014. Gross margin for our battery and energy product segment was 23.6%, a 20 basis point decrease from the 23.8% reported last year.

The year-over-year decrease was due to a less favorable product mix, which offset ongoing productivity improvements resulting in the elimination of virtually all labor and material manufacturing variances.

For our communication systems segment, the gross margin was 44.0%, the highest gross margin we have ever reported for this business and representing a 470 basis point improvement over the 39.3% reported last year. The increase is reflective of the higher mix of new products and continued productivity improvements for our lean process.

Operating expenses totaled $5.4 million, a reduction of $0.9 million or 13% from the $6.4 million reported for the second quarter of 2013. This reduction highlights our continued tight control and close monitoring of all discretionary spending. As a percentage of revenue, operating expenses represented 36.4% compared to 37.0% for the year earlier period.

We reported an operating loss of $1.3 million, reflecting lower gross profit of $0.3 million, offset by the $0.9 million reduction in operating expenses when compared to the operating loss of $1.9 million for the 2013 second quarter.

Second-quarter non-cash operating expenses including depreciation, intangible asset amortization and stock compensation expenses amounted to $1.1 million, consistent with the year earlier period. This brings us to adjusted EBITDA defined as EBITDA, including non-cash, stock-based compensation expense of negative $179,000 versus negative $802,000 for the second quarter of 2013.

Other expenses primarily comprised of foreign currency translation and interest expense netted to $5000 of income versus $41,000 of expense in 2013, primarily reflecting fluctuations between the US dollar and pound sterling, and our tax provision was $57,000, primarily reflecting the timing of deferred taxes. Our tax provision was $53,000 for the 2013 second quarter.

Net loss from continuing operations was $1.4 million or $0.08 per share compared to a net loss of $2.0 million or $0.11 per share for the same period last year.

The Company's liquidity remains solid with cash on hand of $17.2 million, no debt, working capital of $45.0 million and a current ratio $5.1 million. By comparison, the cash on hand at the end of the second quarter of 2013 was $11.6 million, and the current ratio was 4.0. Our strong balance sheet continues to provide us with flexibility in evaluating and executing our strategic capital allocation plans.

As disclosed during our first-quarter earnings release and investors call, our Board of Directors had authorized the repurchase of up to 1.8 million shares of our common stock over the next 12 months. Given low trade-in liquidity, we did not repurchase any shares during the second quarter. We reiterate our continued commitment to the share repurchase program as a key element to balance our continued investment in revenue growth, including new product development and acquisitions while returning capital to our shareholders. Balance is the key word here as we remain committed to making synergistic acquisitions that will provide scale while further leveraging our business model.

While we are dissatisfied with our second-quarter operating loss, we continue to drive our growth and productivity initiatives to improve our gross margin while maintaining strict controls over discretionary spending. This will help ensure greater leverage to our business model and profitability when the results of our efforts to grow the business both organic and through acquisitions are realized.

I will now turn it back to Mike.

Thanks, Phil. Throughout the year 2014, we've continued to create new products and value propositions that result in gross margin rates capable of supporting profitability improvement, while also funding continues new product development and diversification initiatives. The expansion of our new product basket and the diversification of our served markets give us the best shot at controlling our own destiny in the face of decreased government defense spending. By controlling operating expense spending levels as a function of revenue, our established [35,5,10=10] lean business model also has enabled us to ensure business flexibility by maintaining solid liquidity and a strong balance sheet.

Regarding our revenue growth initiatives, the focus remains on three core elements: expanding our market and sales reach, developing new products, and acquiring complementary businesses. In Q2 2014, communications systems continued to expand their market and customer reach. Our current direct and OEM customer base and C4 market have shown an increasing interest in expansion of our products capabilities within the special operations forces arsenal.

In addition to our core ground soldier modernization products and activities, we are also getting more engaged in larger communication networks and intelligence surveillance and reconnaissance applications.

Over the last few years, we have been developing a robust pipeline of large program activities such that when one is contracted, we can make a significant contribution to our revenue and operating profit. As each new opportunity requires a lengthy new product development and testing cycle, we try to allocate our limited resources to projects with our strongest customer relationships and the best opportunities for near-term, large revenue captures.

In light of the slow government spending, we've learned how difficult it is to predict which projects will ultimately make it all the way through contacting and hence make an effort to remain an opportunistically diverse yet finite number of large projects on our screen at any given time.

On the global front, communications systems products are currently undergoing final testing and evaluations in three separate NATO countries, and we continue to grow our distributor base to cast a wider global net. We currently operate in 44 countries with 30 plus distributors, in each case supporting global special operations forces and/or our key OEM prime customers.

And lastly, our communications systems business development activity is focused on strategic partnerships that will provide our customer base with a more complete C4I solution set from one supplier.

Our intent is to provide customers integrated communications systems, which leverage the latest technological advancements to improve their user capabilities while mitigating the need for excessive nonrecurring engineering expense in the present budget environment.

In terms of communications systems new products, in Q2 we shipped $1.9 million of our latest new product to MRC Universal Vehicle Adapter through a major prime to SOCOM. The UVA is a small lightly cost-effective method for installation of primary handheld radios into vehicles of all sizes. It carries a list price of approximately $3500 per unit, and we continue to actively pursue other new opportunities for this product.

In our core amplifier product line, in Q2 we produced the first sales of the latest in a long line of our successful 21 amplifiers, the A320 B3 and our latest 50 to 75 watt amplifier, the A7500 with small orders bookings for each. These products with approximate list prices of $6,400 and $8,300 per unit, respectively, represents the latest amplifier technologies supporting all currently implemented radio waveforms.

And finally, we continue to support the US Army's NEI 14.2 network integration evaluation at Ft. Bliss with our Rifleman Radio applique known as the VIPER system. Our VIPER system integrates a radio amplifier and accessories with a vehicle adapter enabling the operator to use the same radio in the vehicle or during dismounted operations. At list price, the Viper is approximately $13,000 per unit.

We're also currently working under -- with a major US Army prime contractor with our VIPER solution to support NEI 15.1 scheduled for later this year. As you may recall from the previous call, we are partnered with one of the four prime contractors who were recipients of a 10-year $988 million U.S. Army ID IQ award for soldier radio waveform vehicle applique systems. Under this contract, ultimately several thousands of the VIPER units could potentially be purchased.

Consistent with the last several quarters, communications systems revenue continues to be driven by new products less than or equal to three-years-old. In Q2, new products revenue represented approximately 66% of total revenue, demonstrating the clear importance of new product developments during this present period of difficult government defense budgets.

To expand our market and sales reach in our battery engine products business, the primary approach has been to diversify outside of our core US government defense market, and as such we have redirected a large portion of our sales efforts towards the commercial and international markets. US distribution of our recently launched medical cart battery system continues to gain traction, and our channel partner has contract with an additional medical cart manufacturer building on earlier successes. We will continue to expand the total available market for those innovative solutions and are reaching the completion of certification of a new version to release later this month, covering the range of international applications from 200 volts to 240 volts.

As a reference point, total B&E international revenues were up 7% in Q2 2014 and represented 51% of total B&E sales.

The investment in our multi-kilowatt module or MKM as a large format battery building block for a larger energy storage solution is starting to pay dividends. In July, we received one of our largest quantity MKM orders to date, valued at approximately $1 million for several hundred MKM units to support silent watch on border security. And with the MKM at the heart of the sister product, the new portable power system, we are currently working on a number of customer projects that would incorporate our portable power systems solution tied to clean, solar renewable energy and expect it to ship over the next several quarters.

In each case, the customers are telling us that they chose Ultralife's lithium battery solutions over lead acid batteries due to advantages in size, weight and cycle life.

We continue to be pleased with the diversification of our B&E revenue stream into commercial markets. In Q2, commercial revenue was up 19% versus the prior year, fueled by the new product introductions into the medical devices market. The battery engine products business will continue to be focused on growing our commercial business while refreshing and uplifting our G&D portfolio to be positioned with the latest technologies when more favorable G&D market conditions return.

Looking at a quantitative update on some of the new products the battery energy products business have launched over the last three years, for the multi-kilowatt MKM large-format battery, we now have 26 different customers for which we've shipped 159 units, including those used in our new portable power system by disaster response teams for which 11 customers have purchased or are evaluating 20 units, and the recent several hundred MPM unit award mentioned earlier that we'll ship over the next few quarters.

Regarding our new high capacity 5390 and 2590 series land warrior batteries and our advanced lithium hybrid batteries themselves, we've now shipped over 7,750 units to 126 customers, including a recent 2,800 piece order for our new CSX D cells. And separately, we continue to receive small but steady delivery orders under our five-year IDIQ daily contract for legacy 5390 batteries as consumed battery inventories are being replenished after a long period of overstock after the Iraq and Afghanistan war drawdowns.

Regarding other new product developments, we're starting to get traction. Our lithium power 12 volt batteries were recently introduced as a drop-in fit, form and function direct replacement for lead acid batteries that are flexible enough to be charged on existing lead acid charging infrastructure while offering a longer life and lighter weight. Two new models were added to lithium power range in July with 12 volt 50 amp power and 12 volt 100 amp power capabilities targeted at mobility, uninterruptible power supply and renewable energy needs.

And lastly, our high-capacity CFX blend capital cells are providing interesting alternatives to our commercial customers with double the energy density of lithium sulfur dioxide and a 40% increase over our legacy lithium manganese dioxide.

Our military CFX batteries have been tested by U.S. Army's Communication Electronics Research Development Engineering Center or CERDEC establishing a new standard for the non-use phase of batteries with the 5790. And in July, we received the first formal request for supply side information from a DLA.

In the second-quarter 2014, revenue from new products that were less than or equal to three-years-old represent over 50% of the total B&E revenue. It was up 16% sequentially from the prior quarter. Once again showing a slow but steady impact new product development is having on growing our revenue stream.

Regarding the financial outlook for 2014, despite the Company's commercial sales momentum, given the reductions in global government and defense spending to date that are likely to persist, we now expect revenue for the year to be approximately 10% below last year. As a result of the revised outlook for revenue, we now expect a slight operating loss for the year in the range of 2% to 3% of sales.

With regard to communications systems revenue expectations for 2014, after a slow start to the year, we were pleased to see double-digit year-over-year revenue growth in the second quarter driven by the $1.9 million contract for our Universal Vehicle Adapter to new products. We are continuing to pursue several other similar sized contracts and a few much larger opportunities. However, the realities of a government defense budget and lessons learned over the last few quarters about the current slow pace of conversions from opportunities to contracts would suggest that some of these projects are likely to be delayed into 2015.

Therefore, in the absence of some catalysts increasing government budget or contracting speed, we are forecasting revenue for communications systems in 2014 to be down approximately a third year over year.

Looking longer-term, our communications systems business is more active than it has ever been in a wide range of special operations groups and military branch-driven programs and global opportunities.

The value propositions for our new products continue to resonate with our customers as indicated by our strong margins, and our engineering and sales team are very adept at helping customers to refine their needs in developing products using the latest technologies to serve them. As such, we remain very optimistic about the long-term revenue growth prospects at communication systems.

For battery and energy products, we are encouraged by the double-digit growth rate year over year in our commercial business, which is being driven by the broad-based interest and tangible traction of our new products, including but not limited to our new higher capacity core rechargeable battery charger products, our new primary batteries, the new medical car battery system and the various portable and standby power battery solutions. This new product-driven diversification into commercial markets is crucial for us to offset the continued government defense, revenue decline.

We're making progress against the goal of returning to total year B&E sales growth and now expect that 2014 our B&E revenues will be within 2% to 3% of prior year's revenue.

In closing, we are pleased to deliver 16% revenue growth in Q2 in communications systems yet remain cautious about the timing of closing transactions throughout the year. In the meantime, communications systems is well positioned with advanced technology products in several large projects that continue to incubate, and we continue to actively fund the new products required to add to this pipeline such that we can make a greater impact to the P&L from capturing more large projects as the market conditions improve.

At battery and energy products, our new product development-based diversification into the commercial market underway over the last three plus years is now delivering a clear majority mix of the total B&E revenue and has grown by double digits the last two quarters. Although we will continue to fully support our government defense OEMs and end-users, the continued diversification into commercial markets will allow us to better control our future. The present challenging market conditions have provided a landscape for each of the business teams to sharpen their operational skills, leading to improved gross margins despite lower volumes, much lower operating costs and a solid balance sheet and liquidity. When taken together, the above items give us tremendous flexibility and capability to create organic revenue growth opportunities to new product development, aggressively seek out and integrate bolt-on acquisitions and enhance returns to our shareholders through stock repurchases.

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

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

In terms of the forecast, Mike, the implication, I guess, is that you're going to have a better second half than the first half? And I guess it works out to about maybe $17 million to $18 million per quarter or at least for maybe the $35 million for the back half versus $30 million in the first half, if I've got the numbers correct. I think you did $75 million last year. So if sales are going to be down 10% and that gets you to $65 million, we have $30 million in the first half. Is that about right?

Gary, we did $78.8 million last year. So that's the base we are working off of. And some quick math. You'll see in the financials and the 8-K filed earlier today, we did $30 million in the first half so you are correct. We are looking at approximately $40 million in the second half, which would be flat with the second half of last year.

Okay. And roughly 50% in the third and fourth quarter of that 40%, or is it more of 40% or 45% and then 55% kind of thing percentagewise?

It's more in the line of 45%, 55%.

Okay. And then if we extrapolate that to what you're projecting for the bottom line, 2% to 3% of sales lost, so that loss for the year sounds like it will be about the same or a little less than the loss for the first half. So it sounds like you're projecting breakeven to slight profitability in the back six months.

Well, there is profitability in the second half of the year. You'll see in our financials that the operating loss is $2.4 million in the first half of the year. So profitability in the second half, and you'll see in the details the impact of the China relocation as well, bringing that second-half profitability down just a bit.

Second half -- I'm sorry, the China relocation, were there expenses for that in Q2?

No.

Okay. Just explain to me what you mean by that.

Yes, you'll see full details broken out in our Q. The China relocation that we mentioned in the first quarter 10-Q is going to occur in the second half of the year, and there will be expenses associated with that that we have included in our forecasts.

Okay, okay. But notwithstanding that, you are talking about a $40 million back half in profitability for the back six months?

That is correct.

Okay, super. Are you going to -- will you be able to pull out the China relocation expenses as a one-time expense so they don't hit the operating line?

Unfortunately not. The generally accepted accounting principles won't allow us to do that, but it is a disclosure item that will just make -- the investors certainly will be aware of.

And does the relocation make the plant more efficient? Does it reduce costs going forward? What's the rationale behind it?

Yes, it will do other things. Our lease was up, and the facility government has jurisdiction over the area that we are in and is doing some overall development. We're using this opportunity to go to good new facility, a more modern facility, a better laid out facility. So we're looking at actually to improving operations with the move, and I think we have a world-class team that's done product line and facility moves before, and we have got our eyes all over it from the standpoint of planning and execution. And we're not really -- wouldn't necessarily want to move if we didn't have to move. But to the extent that that's really something that's out of our hands, we're using it to improve our operations in China.

Super. Okay. What gives us the sense -- what gives you, Mike, the sense that you can hit this $40 million in the back half? I know we are seasonally stronger in the back half of the year. I know the government's fiscal year end is in the back half, so there could be a budget flush. Can you give us some reasons why think you can get to that $40 million run rate in the back half?

Yes, I think in the case of B&E, just as we look at the overall revenue stream as we articulated in the prepared remarks, as those continue to progress and in the case of com systems, we've really derisked some of the larger projects and from that standpoint looking at where those individual transactions are in their lifecycle to be converted into orders and purchase orders. We feel comfortable that we've got a pretty conservative view of that.

We take changing our guidance very seriously. We want to be as transparent as we can possibly be to the investor communities so they can make judgments on what we are doing and how we are performing. But at this point, we feel we fairly well derisked the back half of the year, given the current reality of the government defense budgets.

Okay. Super. So yes, that is the conservative projection in light of what we've seen so far this year. And despite the conservative projection, do you still expect to be profitable and cash flow positive? Could that possibly indicate we've seen the bottom? I mean we've certainly -- you called out a quarter or two ago that maybe we saw the bottom on the battery side. And we've had, you know, I mean, if we were only a commercial business, having 19% growth would be spectacular in this environment compared to most public companies. But it's the government that's been holding us back. So is that sort of a sense that maybe things have already bottomed for us with these two losses in the first half?

I think that the reason we have more comfort in the ultimate bottoming of the revenue is just the larger percentage of the commercial business versus the government defense business. So much the other way around, and it seems like so much of that is out of your direct control in terms of funding.

In the commercial area and first of all there was a broader amount of customers you can talk to, you can really sell your value propositions. I think a better indication of when contacts will be led or not, and to the extent that that's a larger percentage of our overall revenue stream, we feel encouraged by that, and we're not as -- I don't think we have as much risk as we may have had a couple of years ago where the overall majority of our business was government defense.

Got you. Super. And in terms of M&A, so you have been looking, I guess, for about a year now since you got the line of credit and cash has doubled or tripled over the past couple of years, and we're seeing a ton of M&A out there in the real world. Not to push it to do something because you would do something if it made sense, but a lot of transactions are going down. Are you not seeing enough, or are the prices too high? But can you give us a little color on your M&A efforts?

We're still extremely active in M&A activity both from a farming perspective, as well as hunting for new opportunities. It is a high priority of us. We want to use the best -- our cash to the best extent possible. We want to make sure that the transactions we do make sense. We worked really hard to get our operational efficiencies to where it is at this point. We worked hard to generate the cash and to have the cash balance to be able to deploy it either in purchases or M&A.

So when we look at acquisition opportunities, we look very, very closely, and we plan for them becoming a very successful part of our enterprise long-term. So we're not looking for necessarily the perfect company. We all understand that every company has its ups and downs. We're trying to be very selective because we know how important it is that we do a good one.

Okay. But you are seeing companies, and are there any negotiations going on and you just haven't met on price? Not that it is eminent, but are there any things in possible process?

You know, I can't comment on that, Gary, but the second we get to the point where it's something we would disclose, we would disclose it freely.

Okay. And then a balance sheet question, inventories were about flat sequentially, and on a $15 million quarterly run rate, granted you're going to improve that in the back half of the year, but $27 million in inventory seems kind of high at a $15 million to $16 million run rate. Can more be done there?

It certainly can be, Gary. The situation that we're currently in is the timing between receiving an order and shipping an order based on some of the items that are backlogged in contracting for com systems has caused our inventory to creep up just a little bit over the end of last year. But our target going forward is not to carry $27 million of inventory. It's to bring that down rather significantly.

Super. Okay. So if the back-half improvement in revenues and profitability comes true, we should see the inventory over the next six months decline a bit?

Yes, in the 10% range.

Beautiful, okay. And then on the buyback program, I know liquidity has been challenging on the stock. But aren't there -- I don't know if they are called 10B1s or 10B5s, I'm not sure, but there's certain programs which not only allow you to buy stock during quiet periods where it's ongoing, but maybe allow you to buy some stock in the market and not just respond to blocks. So in other words, if no blocks are ever offered to you guys, even though the volume is miniscule on a daily basis, but you can do something.

Well, we're very familiar with those programs and all the minute details that go into that. But trading volume over the quarter, the 8,000 to 10,000 range daily going into a program of only results in just a couple thousand shares at this time.

Isn't that better than nothing? I mean you did nothing in a whole three-month period. So even if you're only getting a couple thousand shares a day, it'll add up, and with a $4.15 book, where the stock is now at $3.60 bid, it seems like it would be a smart move.

Well, that certainly is debatable, and we can certainly discuss that further.

Okay, okay. So is it something that could be looked at?

Oh yes. We consider -- reconsider our positions over time depending on the overall capital allocation needs of the Company, but it certainly is something that isn't a decision made and not really looked at. Believe me, we look at it several times a day. Like you Probably. (laughter)

Yes, I just want to go over just to make sure I'm right on the value proposition here. So we have a book over $4.00, which is a pretty solid book. You have almost $18 million in cash, just about $1.00 share. The NOL, Phil -- is the NOL $20 million or $30 million?

Yes, it is. The NOL, Gary, is $60 million plus. You'll see that disclosed in the 10-K. It's around $65 million to $70 million overall.

Okay. And even if you take 20% of that, 20% to 30% of that is another $1.00 a share. So there is a $1.00 in cash, $1.00 possibly in NOL value to an acquirer and/or to shield future earnings, and certainly working capital beyond cash, you're building your land, etc. So there's at least $4.00 or $5.00 in solid value valuing the business at zero.

So all that being said, I would just encourage you to be a little bit more aggressive on the buyback there.

Gary, I think we look at things very similarly, so I appreciate the comment.

Hey, thanks, guys, and good luck in the back half.

Gary, thank you.

(Operator Instructions). And with no further questions, I would like to turn the call back to Mr. Popielec for any additional or closing comments.

Okay. Well, great. Thank you once again for joining us for our second-quarter 2014 earnings call. I look forward to meeting up with several of you or talking via phone over the next few weeks or so and to sharing with you in the future our quarterly progress during our future earnings calls.

Thank you very much for your time today.

Thank you, sir, and again, that does conclude today's call. Thank you for your participation.