CTS Corporation (CTS) Q2 2014 Earnings Report, Transcript and Summary

Please stand by, we’re about to begin. Good day, everyone, and welcome to the CTS Corporation Q2 2014 Earnings Release Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to Mr. Kieran O’Sullivan. Please go ahead, sir. Kieran O’Sullivan: Thank you. Good morning. Thank you for joining us today and welcome to CTS’ second quarter 2014 conference call. The following are the key takeaways from today’s call. Significantly improved EPS expanded to gross margins while free cash flow improved. Our top line sales were below expectations and I will outline how we are addressing this challenge. We remain committed to our strategic plan to simplify, to focus and drive profitable growth while we move to this transition year. Joining me today is Ashish Agrawal, our Chief Financial Officer. Ashish will take us through the Safe Harbor statement. Ashish?

Before beginning the business discussion, I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued yesterday and more information can also be found in the company’s SEC filings. To the extent that today’s discussion refers to any non-GAAP measures relative to Reg G, the required explanations and reconciliations are available in the Investor Relations section of the CTS website. On this call, we will refer to 2013 financials on a continuing operations basis, excluding results of the EMS segment which was divested in the fourth quarter of 2013. I will now turn the discussion back over to our CEO, Kieran O’Sullivan. Kieran O’Sullivan: Thank you, Ashish. Yesterday we reported our second quarter 2014 financial results. Second quarter sales were $103 million, down 2% from the same period last year and up 2% versus last quarter. Our sales to automotive markets grew 3% year-over-year. All of our sales were down 12% year-over-year as we experienced continued softness in shipments of electronic components mainly frequency and HDD products. While we expect the softness to continue throughout the remainder of this year, we’re addressing the challenges in three areas. First, our leadership transition recently announced that add strong industry experience and expertise. Secondly, we continue to strengthen our frontend sales by being more focused regionally and adding channel and OEM frontend talent. And finally, we are selectively refreshing the product portfolio to enhance our product offering. As you may have noticed, we announced the leadership change during the last quarter. The second quarter GAAP earnings from continuing operations were $0.19 per diluted share compared to a loss of $0.31 per diluted share for the second quarter of 2013. Adjusted net earnings from continuing operations in the second quarter of 2013 were $0.25 per diluted share compared to $0.22 per diluted share in the second quarter of 2013. As we transition our business profile, you can see our operating margin strengthen and emerge from low single-digit performance last year to consistent low double-digit levels this year. We continue to make progress towards improving our cost structure. Gross margin improved to 32.8% in the second quarter, up 210 basis points compared to the same period last year. SG&A costs were 15.4% in the second quarter, down from 16.3% in 2013. Operating expenses in the second quarter of 2014 were 23.2% compared to 28.4% in the same period last year. Operating expenses for the second quarter of 2014 included $2.7 million in restructuring charges compared to $7 million in restructuring charges and $0.8 million in CEO transition costs in the second quarter of 2013. Debt to capitalization improved slightly to 20% from 20.2% last year. Controllable working capital was 11.1% in the second quarter, an improvement from 17.9% in the same period in 2013. And with free cash flow of $12.9 million, we improved from $10 million in the same period last year. Now moving to new business. New business awards in the second quarter were $89 million. We received a new contract for our piezo product line for application in medical imaging. CTS’ ceramic duplexer was selected as a reference design for LTE [ph] base stations with production starting in 2015 while we expanded our contract with one distributor to include CTS’ frequency products. On the automotive products, we extended our lifetime sales in smart actuators by securing new winds and pedals and sensors with American and Japanese OEMs. Our chassis right [ph] height sensor platform was selected by an American OEM. For the quarter, we returned $4.6 million to our shareholders from a combination of dividend and share repurchase programs versus $1.6 million in the same period last year. We will continue to pursue our strategic plan at simplifying and focusing on the core while driving profitable growth. We’re on track with our manufacturing footprint consolidation. And more recently made some final adoptions in our cost structure as we substantially completed the transition service agreements in relation to last year’s sale of the EMS business. We continue to increase our investment in R&D and in sale support for organic growth. As part of our transition, we have managed through several talent upgrade. This strengthening of our talent pool will enhance our ability to execute, to add new technologies, to add new products and position us to address organic growth initiatives and suitable inorganic opportunities to reach our targeted growth levels. We are committed to our strategic plan and have gained greater granularity on our business. Our strategy is delivering results and we expect to continue improvements in profitability as we build the foundation for innovation to support organic growth. Near term growth will be more modest as we focus on accelerating organic projects. We remain excited by the progress and the cure milestones we’ve identified. In our strategic plan, we’ll continue to guide our focus and actions. As noted in the earnings release last night, we are lowering our sales guidance due to the lower demand for electronic components products. As I already mentioned, we’re addressing our issues. Whole year of 2014 sales are anticipated to be in the range of $400 million to $450 million. And adjusted earnings per share are expected to be at the lower end of our guidance range from $0.96 to $1.02. I will now turn the call over Ashish to provide some additional color on our results. Ashish?

Thank you, Kieran. Second quarter 2014 sales were $103 million, down 2.3% compared to the same quarter last year from continuing operations. Sales grew 2.3% from the first quarter to the second quarter of 2014. Gross margin in the second quarter of 2014 was 32.8% versus 30.7% in the same quarter a year ago. Gross margin also grew sequentially, up 240 basis points from 30.4% in the first quarter of 2014. Margins increased as we continued to improve performance in certain product lines, achieve efficiency gains and implement material and labor productivity projects. We are also realizing margin improvement from our restructuring projects faster than our earlier expectation. SG&A expenses were $15.8 million, down $1.3 million from the second quarter of 2013. This reduction in cost is the result of savings generated from restructuring actions and a reduction in pension expenses. Consistent with our strategy and earlier communication last quarter, we continue to enhance our sales and marketing capabilities by adding resources closer to our target customers. This resulted in higher selling and marketing costs in the second quarter as well as in the first half of 2014 compared to the same periods last year. This cost increase was more than offset by the reduction in general and administrative costs. R&D expenses were $5.3 million in the second quarter of 2014 compared to $5.8 million in the second quarter of 2013. R&D expenses were lower year-over-year due to restructuring and timing of expenses as we streamline and reposition our R&D resources. We remain committed to investing in new products for organic growth. In the second quarter, net interest and other expenses were unfavorable by $100,000 versus the second quarter of 2013. Our net interest – – due to the structuring and timing of expenses as we streamline and reposition our NDV sources [ph]. We remain committed to investing in new products for organic growth. In the second quarter, net interest and other expenses were unfavorable by $100,000 versus the second quarter of 2013. Our net interest cost improved compared to last year primarily due to lower debt. However, this favorability was offset by unfavorable foreign exchange impact in the second quarter of 2014. The effective tax rate in the second quarter was 34% which includes the impact of restructuring charges and onetime items. For the full year 2014, we expect our effective tax rate to be in the lower 30s range excluding the impact of restructuring and onetime charges. In the second quarter of 2014, our GAAP earnings were $0.19 per diluted share compared to a loss from continuing operations of $0.31 per diluted share in the same period last year. Included in the second quarter of 2014 earnings were $0.06 in restructuring and related charges. Excluding these items, adjusted earnings per diluted share were $0.25 in the second quarter of 2014. Included in the second quarter of 2013 were a $0.32 charge related to cash repatriation, a $0.19 charge for restructuring and related expenses and a $0.02 charge for CEO transition expenses. Excluding these items, adjusted earnings per diluted share were $0.22 in the second quarter of 2013. Turning now to the balance sheet, cash and cash equivalents were $127 million at the end of second quarter compared to $124 million at the end of 2013. Our debt balance was $76.2 million as of June compared to $75 million at the end of December 2013. Controllable working capital comprised of accounts receivable plus inventory minus accounts payable was 11.1% of sales in the second quarter compared to 17.9% in the same quarter a year ago. The improvement reflects the impact of the EMS divestiture and ongoing working capital initiatives. Inventory reductions are the biggest driver for the improvement. Operating cash flow was $10.1 million in the first half of 2014 compared to $10.2 million in the first half of last year. Capital expenditures were $6 million in the first half of 2014 and we expect higher CapEx in the second half of the year due to timing in various projects. We repurchased 211,000 shares of CTS stock worth $3.7 million during the first six months of 2014. Including the dividend, we have returned $6.4 million to shareholders through June 2014. We will continue to buy back additional shares during the year as part of our share repurchase program. This concludes our prepared statements. I would now like to open up the call for questions.

Thank you. (Operator instructions) And we’ll take our first question from John Franzreb with Sidoti & Company. John Franzreb – Sidoti & Company: Good morning, guys.

Good morning. Kieran O’Sullivan: Good morning, John. John Franzreb – Sidoti & Company: I really like to start at the top line. I personally was a little surprised with the year-over-year growth that we saw and the components and sensors size or the sensors and mechatronics side of the business. So given what I thought is a relatively strong automotive market, can you talk a little bit about what’s happening there, why the relatively soft growth year-over-year? Kieran O’Sullivan: Yes, John, first of all, as I mentioned in the prepared remarks that we had a leadership transition. Actually we have had huge changes in the business. And we’re working on improving our frontend even coming into this year and from what we talked about last year. In the company overall, we’re not satisfied with our frontend both in terms of regional presence, in terms of how we’re interfacing with the OEMs and working with the distributors. We need a better competence in that area. And on the product side of it, specifically two things. HDD, we talked about in the last call, we said that we’d have some softness there, we saw that softness. It has impacted our earnings as you can see – at our sales I should say, as you can see. On the flip side, we’ve seen the forecast now two or three times for the second half of the year. So we see that coming back. We’re pretty confident in that. So that was one area of softness that we have on the component side. The second area was o the OCXOs in particular. Traditional OCXOs are used in base stations. What we’re seeing that demand for those products is declining a little faster than we expected. And what’s really happening there is to go to smaller solutions and using our combination of software and GPS in the base stations to get the – fulfill the requirements they need. So what we’re doing is we set for transitioning the product portfolio. We’re going into lower power solutions, for more portable applications. That could be in the military. It could be in marine and sonar. So we’re working through that transition. But they’re the two big points we think that impact us. John Franzreb – Sidoti & Company: Okay, Kieran, I’ll stick with what you said then. You said that the HDD looks like it’s going to come back in the second half of the year. When you’re looking out, the adjustment he made to the revenue guidance, okay. Are you still neutral on the component side versus what you were three months ago or you’re down on the component side? And is the driver all the OCXOs? Kieran O’Sullivan: Let me give you a little bit more color. And we’re looking to the quarters ahead, we’re looking to sequentially small improvements in that area. We’re not looking for dramatic improvements. But I will tell you, even with those two areas that HDD forecast looks very good because they burned off the inventory. It was the inventory we were dealing with and the transition of the enterprise platforms of those customers. So we’re feeling pretty good about that. But on the flip side, I will tell you we’ve added four new customers in the quarter in that area. And even outside of HDD, our growth in HDD piezo products is very strong. And obviously that’s something we’re investing in longer-term, not just something you want to see this year, but with that strong performance in that area too. John Franzreb – Sidoti & Company: Okay. So does that suggest the weakness that you’re seeing in the top line is more of on the sensor side of your business? Kieran O’Sullivan: No, more than the component side we’d call it, just like HDD. John Franzreb – Sidoti & Company: All right. Kieran O’Sullivan: And what we said with the OCXOs, some of those products. John Franzreb – Sidoti & Company: Right, right. I’m just trying to reconcile – the biggest reason you’re pulling down your revenue expectations for the year as well as HDD. Is there any other big nuts there that we have to think about? Kieran O’Sullivan: I’ve given you the main two things and we haven’t actually gotten into the second half results yet. John Franzreb – Sidoti & Company: Right. Kieran O’Sullivan: The one thing that’s – because I talked about having more granularity on the business, in the second half, other than those two points, there’s one other thing, last year, we had a onetime order in the second half of the year with one OEM on the automotive side that won’t reoccur. It was for a product they needed and it was in the range of $3 million to $5 million and that won’t repeat in the second of this year. John Franzreb – Sidoti & Company: Okay, all right. You mentioned the R&D expense that you’re going to maintain developing new products. If you look at this maybe in a longer cycle here, the company started picking to spend in the R&D roughly four years ago, are you satisfied with how the money is being spent on the R&D? I thought we would have maybe more of a benefit from of those test dollars in today’s revenue profile which seems that it’s been spot in in realizing some of those benefits. Kieran O’Sullivan: But John, I’ll be frank with you here. I’m not going to comment on the past. What’s done is done. And we obviously moved into smart actuators. We continue to grow in that area. So that focus actually continue to improve. We’ve always talked about margins in that area. We continue to improve it. And actually, we have extended order winds in that area up to 2020. So feel pretty good about that. And on the flip side, there’s no magic when 65% of your business if automotive, you can’t turn the ship overnight. What you win back in 2011 and ‘12 is your revenue today. So the one good thing we feel very positive about is that in 2013, we had extremely strong new business wins which you won’t see until the ‘17 timeframe or somewhere beyond the ‘16. And if you look at what we report in new business wins, even in the first half now of this year, we’ve reported $225 million. So if you look at our revenue run rate, it’s 10% almost above that. So we’re doing the work now that’s going to help us in the out years. And obviously, 65%, although you can only turn it so quickly, we’re going to turn some of the places a little faster. John Franzreb – Sidoti & Company: Okay, great. And one last question. Ashish, I think you mentioned that you’re starting to realize the benefits of the facility and consolidations earlier than anticipated. From my reckoning, I think the number was supposed to be $0.15 to $0.20 EPS benefit in 2015 because it was supposed to be fully completed by the end of this year, 2014. I guess my question is, how much of the EPS guidance that you now have out there, how much of that benefit is embedded in that guidance?

John, the announcement from June last year talked about a benefit of $8 million to $10 million on an annualized basis. And we were anticipating getting roughly half of that in the second half of this year on 2014 and the remaining half in the first half of 2015. And we think the savings that we realized in 2014 will take into account 60% to 70% of that number with the remaining coming through in 2015. John Franzreb – Sidoti & Company: Perfect. Thank you very much. I’m going to get back to the queue, guys. Thank you. Kieran O’Sullivan: Thanks, John.

And we’ll take our next question from Lisa Thompson with Zacks Investment Research. Lisa Thompson – Zacks Investment Research: Hi, good morning. I was wondering if you could – Kieran O’Sullivan: Good morning. Lisa Thompson – Zacks Investment Research: Hi, there. Could you talk a little bit about the third and fourth quarter given what you’re seeing now is – are they going to be similar with the June quarter or is there any seasonal variation in what’s going on? And then also, can you talk about the computer as a part of the entire revenue for the company? I know you said 65% light vehicles, what happens to computer now? Is that still like 10% of the business or has that kind of dropped off? Kieran O’Sullivan: Here, I’ll address the first part of your question. Maybe Ashish should take the second part. When it comes to – we don’t really guide by quarter, we guide for the year. So we kept the guidance at 400 to 415 for the year. We feel comfortable with that guidance. No big changes expected. Obviously, we’re trying to make every effort we can to accelerate organic improvements but we’re limited in terms of 65% being automotive. In terms of the computer side, I presume you’re referring to HDD – Lisa Thompson – Zacks Investment Research: Yes. Kieran O’Sullivan: – and that’s real sales in that space. And Ashish, did you want to add to anything to that?

Yes. So Lisa, the computer which is primarily HDD represents little less than 10% of our total sales. And in the second half of the year, we are expecting some rebound in the HDD volumes, as Kieran already pointed out. It’s not going to change the landscape materially for the entire – Lisa Thompson – Zacks Investment Research: Okay, so it’s –

– sales in the computer industry. Lisa Thompson – Zacks Investment Research: Okay. So it’s going to be a lot similar to 2013 this year even though there’s weakness?

For the full year, yes, it’ll be relatively similar to 2013 sales. Lisa Thompson – Zacks Investment Research: Okay. And if we wanted to look at the end user products, things that go – what were the biggest drivers in your revenues? Is there something we can look at other than light vehicles that say, oh wow, this is going great, that means it’s got to be good for CTS? Kieran O’Sullivan: So I think you got a few things, Lisa. First of all, it’s light vehicles but also commercial with some of the smart actuators. As Ashish mentioned, when it comes in to communications or computing, that’s really around two things – HDD on one side of it and our components products on the other, piezo products feed into sonar, marine applications defense but also into industrial. So –

And medical. Kieran O’Sullivan: And medical. So the industrial side is another large portion for us, maybe 10%, 15% range. So they would be the end markets I’d be looking at. Lisa Thompson – Zacks Investment Research: Right, okay. But the biggest drivers, you had to pick two things, what would be the two that I should look at as the biggest drivers?

Lisa, automotive is by far the biggest. And then I would point to the – Lisa Thompson – Zacks Investment Research: Because the –

Sorry, go ahead. Lisa Thompson – Zacks Investment Research: And that’s –

It’s about two thirds of our – Lisa Thompson – Zacks Investment Research: – primarily concentrated to any –

– net [ph]. Lisa Thompson – Zacks Investment Research: Right. And that’s non-U.S. would be more important than U.S., right?

I think while sales – we haven’t publicly broken out the geography by market segments. But automotive sales are fairly widespread throughout the various regions. Kieran O’Sullivan: So Lisa, if you’re looking beyond automotive, the two bigger markets I’d look at are communications and industrial. Lisa Thompson – Zacks Investment Research: Right. Okay, thank you. Kieran O’Sullivan: You’re welcome.

(Operator instructions) We’ll go next to Hendi Susanto with Gabelli & Company. Hendi Susanto – Gabelli & Company: Kieran and Ashish, good morning. Kieran O’Sullivan: Hi.

Good morning, Hendi. Hendi Susanto – Gabelli & Company: Yes. I would like to understand the magnitude of the decline in your guidance. You mentioned that you are expecting HDD sales to come back in the second half, so I guess it represents like delayed sales. And I would like to understand the remaining of the GAAP you mentioned that the [indiscernible] product was weaker. But I think it will be helpful if you can give some insight on like what is the – like what drives the guidance to be lower besides the HDD sales and it will be helpful if you can probably share some colors on that part. Kieran O’Sullivan: Yes. Hendi, HDD obviously was very soft in the second quarter and again, we mentioned that in Q1. So we see that bouncing back. But we can’t make up some of the losses that we had in the second quarter as they burned off inventory and transitioned now a bit later than we expected to some other enterprise platforms. So that’s the first piece of it. The second piece of this more on the electronic components part of it, OCXOs. And I mentioned the OXCO is an example where we’ve seen demand decline on base stations as newer solutions are found using GPS. But we’re pursuing other expansions in that area and it will take a little bit of time. It’s not as long as automotive obviously, but we’re transitioning some of the portfolio. So they are the two big things. And there’s other pieces moving in the equation, but I would highlight those two. And I do want to reemphasize again that even though we have that softness in the HDD, we’re very strong in other non-HDD piezo products. We’ve added four customers. And obviously, you remember from the previous calls, right, they’re driving growth, being closer to the customers not just in North America but in Europe and Asia, increasing our spending in sales and marketing and our lead while we manage our G&A to offset that increase. So it is what it is and we just got to work our way through it at the moment. Hendi Susanto – Gabelli & Company: Okay, yes. And then, Kieran, do you have updates on your strategic field on streamlining your product portfolio in terms of where CTS will be in 2015 timeframe? Kieran O’Sullivan: First of all, the strategy hasn’t changed, just to reemphasize that. We’re still committed to the simplified focus and drive profitable growth. The EMS divestiture was the big divestiture. We’ve nothing new to say in terms of changing that. But what I will tell you is we are working very clearly on the execution plans by quarter. We’re making some very clear investments on some products in the components area. I’ll give you an example. RF is an important component for us as well as non-HDD. We see ourselves expanding into other verticals using the HDD side of it. And of course, on the automotive side of it, we’re focused on sensors and mechatronics. But we want to get as much better international traction. Some of those things takes one to two years to win the business and then another two years through the development cycle. But hopefully, that gives you some color. As I said, we’ll have modest growth and now near term. But we’re still targeting 10% growth overall with organic and inorganic initiatives that we have. Hendi Susanto – Gabelli & Company: And then last question for me. Are you actively looking for potential acquisitions at the moment? Kieran O’Sullivan: Yes, we are very clear in terms of what is a fit and not a fit. We’ve nothing to report on this call. But we’re much clearer with every passing month and quarter. We’re obviously working in that area. But we’re not going to rush it. If we find the right thing, we can act quickly, provided again it’s the right fit to the strategy and of course at the right valuation and price so we maximize return for shareholders. Hendi Susanto – Gabelli & Company: Thank you. Kieran O’Sullivan: You’re welcome, Hendi.

(Operator instructions) And we’ll take a follow-up from John Franzreb with Sidoti & Company. John Franzreb – Sidoti & Company: Yes, Kieran, it seems like everyone’s kind of struggling here with the revenue outlook and reconciling that. So my question is, is there any change in your expectations in the automotive/transportation market versus what it was three months ago? Kieran O’Sullivan: On a macro level, the auto industry is if you look at it in terms of the quarter, 21 million to 22 million, there are some shifts out there. I would say, some customers are doing better in the market than others. And in one or two areas, we may have a little bit of exposure. But we factored that into our guidance. And so no dramatic shifts, but I will tell you to be very clear, we are specifically targeting certain investments in those areas. And we won’t just invest in every product line that we have. There are certain ones we want to be very strategic on because we’re thinking when we think auto, we think what the revenue is going to be in ‘17, not in ‘14 or ‘15. The things we’re doing today will impact ‘17 and ‘18. John Franzreb – Sidoti & Company: Not the investment side, on the top line side, is your expectations today the same as what they were three months ago?

They are not materially different, John. John Franzreb – Sidoti & Company: Okay, all right. So that would suggest that the adjustments to the guidance on the revenue is clearly the lost revenue opportunity largely on HDD and the OCXO’s product lines. Am I understanding this properly? Kieran O’Sullivan: You’re correct in terms of stating that HDD and that was the component side, OCXO have been the major one. John Franzreb – Sidoti & Company: Okay. Kieran O’Sullivan: They’re where we’re getting this toughness. John Franzreb – Sidoti & Company: Got it. I just – right. It just seems like everyone is kind of bouncing around. But it seems like – I just want to make sure I understand it properly. Okay. Kieran O’Sullivan: [Indiscernible]. John Franzreb – Sidoti & Company: No, it’s perfect. Okay. Secondly, cash is starting to build. There’s this question about potential M&A. Two things on cash. One, how much is it domestic versus overseas? And two, can you prioritize your uses for cash going forward? Kieran O’Sullivan: So as we’ve stated before, the majority of our cash is overseas. You link it a little bit to maybe what we’re looking at going forward. We’re looking obviously on the M&A side for potential fits. International ones would be really nice. It would help our cash position. And Ashish, you can answer to the second part.

John, can you repeat your second part of your question? John Franzreb – Sidoti & Company: Well, yes, what’s the percentage of cash overseas? And two, prioritize the uses of cash?

So substantially, all of the cash is overseas, John. John Franzreb – Sidoti & Company: Okay.

So in terms of the use, cash that’s sitting outside the U.S. will be primarily looking at using it for M&A and to fund our investments related to the organic growth in terms of product development, R&D investment and some investments in sales and marketing resources in our strategic locations as we are thinking through being closer to our customers. John Franzreb – Sidoti & Company: Okay. Would that necessarily take a repatriation of the cash again like you did a year ago?

That’s not anticipated at all at this point. John Franzreb – Sidoti & Company: Okay, all right. One last question, could you talk a little bit about what the developments in North Carolina, the Supreme Court decision. Do you have any kind of incremental legal cost that’s associated with that, that we should be aware of in the P&L? Kieran O’Sullivan: So I think, John, we will be filing our 10-Q later this week. And you should read note G in that. But based on available information relating to any environment matters that could impact CTS. Adequate provisions have been made at this point in time. John Franzreb – Sidoti & Company: Okay, so there’s no incremental cost associated with it that we should be cognizant of in the quarter? Kieran O’Sullivan: From everything we’re aware of, we’ve done and met the right provisions and I encourage you to read that note in the queue. John Franzreb – Sidoti & Company: Okay. Thank you, guys. Kieran O’Sullivan: You’re welcome, John.

And that does conclude our question-and-answer session. Gentlemen, I’ll turn the call back to you for any additional or closing remarks. Kieran O’Sullivan: Just give it one more minute in case there’s another question and otherwise, we’d wrap it up.

(Operator instructions) And we do have a follow up question from Hendi Susanto with Gabelli & Company. Hendi Susanto – Gabelli & Company: Kieran and Ashish, I have questions about the dividend policy, at what point you may consider like diverting the cash for dividend for investment or for paying down debt on your balance sheet?

So Hendi, we are generating enough cash domestically to not only fund the dividend but also the share buyback. I don’t anticipate us actively looking to divert funds from dividends for the purposes that you stated. And between the management team and the board, we constantly keep taking a look at what is the most optimum use of cash we are generating both domestically and outside the U.S. and how we deploy those funds. Hendi Susanto – Gabelli & Company: Okay, thank you. Kieran O’Sullivan: Okay, maybe you should –

And gentlemen, there are no further questions at this time. Kieran O’Sullivan: Okay, just to continue the call, first of all, thanks again for your participation. I want to just reaffirm and despite the softness in sales, we’re dedicated to our strategy to simplify, to focus and drive profitable growth. We’re very clearly away – we’re at the biggest challenge that we have, our sales growth. We’re actually very focused on the simplification all the work we’re doing in terms of manufacturing, corporate consolidations and making sure we’re protecting our customers and at the same time, we’re preparing the investments that we’re doing to improve our organic growth as we move ahead. With that, this will conclude the call. Thank you for your time.

Thank you. And that does conclude today’s conference. Thank you for your participation.