CTS Corporation (CTS) Q3 2014 Earnings Report, Transcript and Summary

Please stand by. Good day, everyone, and welcome to the CTS Corporation Third Quarter Earnings Call. Today’s conference is being recorded and 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’ third quarter 2014 conference call. The following are the key takeaways from today’s call. We continue to deliver improvement in margins and EPS. We also have continued progress in our effort to simplify and focus our business while strengthening the foundation for our future. Our focus on execution is well aligned to our strategic plan. You can expect greater clarity on our future growth, direction in the second half of 2015, as we reshape and complete our branding works to further clarify our future identity. Our strategy to invest in sales and marketing and R & D globally, is succeeding as we focus on growth and adding new customers. This is the most important focus for us going forward as we continue to simplify and manage our operating expenses. Joining me today is Ashish Agrawal, our Chief Financial Officer. Ashish will take us through the Safe Harbor statement. Ashish?

Before beginning the business discussions, 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 be found in the company’s SEC filings. To the extent that today’s discussions refer to any non-GAAP measures relative to Regulation 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 for the EMS segment, which was divested in the fourth quarter of 2013. I will now turn the discussion back over to our CEO, Kieran. Kieran O’Sullivan: Thank you, Ashish. Yesterday, we reported our third quarter 2014 financial results. Sales were $100 million, down 3.6% from the same period last year. Our sales to automotive markets were down 3.1% year-over-year. However, included in the sales for the third quarter of 2013 was a onetime special order shipment up $3.9 million to an automotive OEM. Excluding this shipment 2014 sales to automotive markets were 2.9% higher than the same period last year All other sales were down 4.5% year-over-year a softness in shipments of our frequency products were offset by an improvement in shipments of HDD and other piezo products. Frequency products which were soft in the second quarter 2014, have improved sequentially. We continue to strengthen our front end sales and are making progress towards refreshing our product portfolio. We’re focused on reference design wins and we’ll also release our new low power OCXO product in the first half of 2015. Our gross margin and operating margin improved year-over-year. Gross margin improved to 32.5% in the third quarter up 160 basis points compared to the same period last year. SG&A costs were 13.9% in the third quarter down from 17.2% in 2013. We are on track with the manufacturing footprint consolidation. Third quarter GAAP earnings from continuing operations were $0.24 per diluted share compared to earnings of $0.16 per diluted share for the third quarter of 2013. Adjusted net earnings from continuing operations in the third quarter of 2014 were $0.29 per diluted share compared to $0.18 per diluted share in the third quarter of 2013. Controllable working capital was 11.9% in the third quarter, an improvement from 17.2% in the same period in 2013. Debt to capitalization ratio is at 20.5% up slightly from 20% last quarter. New business awards in the third quarter were $88 million as we continue to strengthen our relationship with existing and new customers. The majority of the wins were in longer cycle businesses including three Asian Paddle wins, a [Shaffy Right Hide] win with a North American OEM and various censor wins in China, Europe and North America. Piezo added a new customer in medical and another sonar program. In frequency we secured a significant award and we are in the qualification process with a North American OEM. We continue to invest in high performance RF filters and obtain funding per samples with an Asian OEM which we expect will generate revenue by the end of 2015 or early in 2016. Keep in mind the automotive wins we secured today represent a great stride to drive future growth but they will not generate revenue for three to four years. For the quarter, we returned $2.7 million to our shareholders from the combination of dividend and share repurchase programs versus $1.9 million in the same period last year. As I mentioned, in my opening comments we will be updating you in the second half of 2015 and how we plan to reshape our company identity, this work has been running for some time and is in close alignment with our board. As we finalize the future shape we will clarify how we invest for future growth in terms of sense, connect and move. As we progressed into refinement of our core competencies, the value we provide for our customers and work through iterations of strategic and operational cycles of learning. We see a clear linkage across our product lines. For instance in our automotive and piezo components we provide solutions that only sense but also deliver actuation or motion. Our other electronic components support connectivity such as base stations, our other wireless applications. Our world has become more digitized and it’s continuously connected. Under the framework of sense, connect and move, we can further refine our areas of growth organically and inorganically. We continue to review acquisitions that fit our strategic plan but also at the appropriate price. Our strategy is delivering results and we continue to build the foundation for innovation to support organic growth. As mentioned last quarter, near-term growth and EPS improvement will be more modest given the greater part of our future revenues to-date are driven by automotive cycles. We remained excited by our progress and the tier milestones we’ve identified in our strategic plan will continue to guide our focus and actions. Our strategy has not changed. As noted in the earnings released last night, we are maintaining our sales guidance for the full year of 2014 at the lower end of our range from 400 million to 415 million. We remained cautious and continue to monitor signs of potential weakness in various markets primarily Europe. The adjusted earnings per share for 2014 are expected to be at the lower end of our guidance range from $0.96 to $1.2, a significant improvement over 2013’s performance. While we’ve demonstrated continues improvement in EPS every quarter, this year we expect the fourth quarter EPS to be softer than the third quarter. We are seeing some OEM inventory changes for piezo customers and for a few automotive customers. This will combined with timing of certain expenses and some one-time benefits in the third quarter lower our fourth quarter EPS. I will now turn the call over to Ashish Agrawal to provide some additional comments on our results. Ashish?

Thank you, Kieran. Third quarter 2014 sales were $100 million, down 3.6% compared to the same quarter last year from continuing operations. As Kieran mentioned, we filled the special order to an automotive customer in 2013, which accounted for $3.9 million in the third quarter of 2013. This puts pressure on our year-over-year growth. Sales declined 2.9% sequentially from the second quarter to the third quarter. Gross margin for the third quarter of 2014 was 32.5% versus 30.9% in the same quarter a year ago. Similar to last quarter, margins increased as we continue to achieve efficiency gains and implement material and labor productivity projects. We are also realizing margin improvement from our restructuring projects as anticipated. Operating expenses in the third quarter of 2014 were 21.3% compared to 23.6% in the same period last year. Operating expenses for the third quarter of 2014 include 1.6 million in restructuring charges compared to 900,000 in restructuring charges and 800,000 in CEO transition costs in the third quarter of 2013. Providing some breakdown on the operating expenses, SG&A expenses were $13.9 million, down $3.9 million from the third quarter of 2013. The main drivers for this reduction are savings generated from restructuring and cost containment actions and a reduction in pension expenses and CEO transition costs that were recorded in 2013. As discussed previously, we continue to enhance our sales and marketing capabilities which resulted in higher selling and marketing costs in the third quarter and year-to-date for 2014 compared to last year. However, the increase in sales, selling and marketing costs were more than offset by the reduction in general and administrative costs. R&D expenses were $5.8 million in the third quarter of 2014 compared to $5.7 million in the third quarter of 2013. R&D expenses are slightly higher than last year and higher sequentially as we make progress in repositioning our R&D resources and investing in new products to drive organic growth. In the third quarter of 2014, other income was $700,000 favorable by $600,000 versus the third quarter of 2013. Net interest cost was lower than the third quarter of 2013 due to lower debt and higher cash balances. In the third quarter of this year, we also recorded a bad debt recovery and some foreign exchange favorable foreign exchange impact related to the appreciation of the Chinese Renminbi, which was partially offset by the unfavorable impact of the depreciation of the Euro versus the U.S. dollar. Effective tax rate in the third quarter was 32%, which includes the impact of restructuring charges and some one-time items. This was about one point lower than the third quarter of last year. The one-time items improved our third quarter 2014 EPS by a little over $0.01. For the full year 2014, we still expect our effective tax rate to be in the low-30s range, excluding the impact of restructuring and one-time charges. In the third quarter of 2014, our GAAP earnings were $0.24 per diluted share compared to $0.16 per diluted share in the same period last year. Included in the third quarter of 2014 earnings were $0.05 in restructuring and related charges. Excluding these items, adjusted earnings per diluted share were $0.29 in the third quarter of 2014. Included in the third quarter of 2013 were a $0.01 charge for restructuring and related expenses and $0.01 charge for CEO transition expenses. Excluding these items, adjusted earnings per diluted share were $0.18 in the third quarter of 2013. Now I’ll spend a movement on the balance sheet, cash and cash equivalents were $131 million at the end of third quarter 2014 compared to $124 million at the end of 2013. Our debt balance was $80.3 million as of September 28 versus $75 million as of December 31, 2013. Controllable working capital, comprised of accounts receivable, plus inventory, minus accounts payable, was 11.9% of sales in the third quarter compared to 17.2% in the same quarter a year ago. The improvement reflects the impact of the EMS divestiture and ongoing working capital initiatives. Inventory reductions and an increase in DPO were the main drivers for this improvement. Operating cash flow was $5.3 million in the third quarter of 2014 versus $15.3 million in the same period last year. Capital expenditures were $3 million in the third quarter of this year and $2.5 million in the third quarter of last year. Operating cash flow was $15.3 million for the first three quarters of 2014 and capital expenditures were $9 million year-to-date. We repurchased 288,000 shares of CTS stock for $5.1 million during the first nine months of 2014. Including dividend payments, we have returned $9.1 million to shareholders so far this year. We will continue to buyback additional shares during the year as part of our share repurchase program. This concludes our prepared comments. We would be glad to take your question at this time. Thank you.

Thank you. [Operator Instructions] And we’ll go first to John Franzreb with Sidoti & Company. John Franzreb – Sidoti & Company: Good morning, Kieran and Ashish.

Hi John. John Franzreb – Sidoti & Company: I guess I like to start with the top-line during the quarter. It seems to me that in years passed, your automotive business would outperform general trends in automotive production due to capturing new business via new platforms or increased penetration within an existing platform. Starting to – it seems like it’s starting to deviate from that historical trend with even axing out the onetime item only up 3.1% in the quarter. It looks like production of North America was roughly 7% in the quarter. Could you talk a little bit about that and explain what’s going on? Kieran O’Sullivan: Yes, John, maybe at a macro level what we are seeing is obviously U.S. running well. You can see the numbers out there for the market. Europe soft and then Asia is up but it depends on Asia, which especially in China which JV is your weapon there and that’s a pretty important part of the equation. The other thing to think about is revenues today in automotive are what you booked to back in 2010 and 2011. So obviously that’s why we said we are in a transition period. On previous calls, we said we are increasing the order intake and we’ve been pretty clear in terms of saying, hey, we are in transition in 2013 and 2014, refining the portfolio, refining it little bit. You can see some of that around the component side not the automotive side. But we really increased the order intake goals and as I said in the opening comments that’s really the big focus for us. We settled the foundation. We are improving the operating efficiency, but our big focus is order intake, how we’re booking and getting that investment in sales and marketing, and the investment in R&D in the right shape. And we are making incremental steps; incremental improvements and I will tell you I’m satisfied that even though we’re as you said flat lined and not as strong as you like to see at the moment, we are taking the right steps to fix that for the future. John Franzreb – Sidoti & Company: Okay. So has there been – I guess in the 2010, 2011 timeframe, which is translating to revenues today, do you think that from, might have lost market share and its products in the auto side? Kieran O’Sullivan: To be honest with you John I haven’t focus on going backwards I focus in going forward and really getting the expanding the customer base and that’s really what we’re at. I don’t have all the granularity on that I mean I’m really focused on what we do now. John Franzreb – Sidoti & Company: Okay, all right. Also on regarding the topline you said that HDD was up year-over-year but frequency products were down I imagine [ph] whether sizably. Could you talk a little bit about what’s going on there in frequency? Kieran O’Sullivan: Yeah and I’ll give you little bit of color on HDD as well which you mentioned. First of all, we have been down on frequency sales and you heard me mention in the report out that we are launching some new low power OCXOs and other products for that area in the first half of 2015. But we are softer by few million we don’t guide in that area in terms of revenue, but what I will tell you is when you look quarter-over-quarter we really brought this issue to highlight in the last quarter. Sequentially we are up and we’re starting to trend in the right direction. On the HDD side of it we talked about that at the end of last year about some adjustments with some of the customers is going to impact us in this year, we were down on a significant basis in Q2. But I would tell you that we are rebounding strongly in the Q3 and we expect that to continue in Q4. John Franzreb – Sidoti & Company: Okay. Kieran you mentioned or you alluded to maybe you’ve been reassessing your R&D dollar spends. Do you think that the programs that was previously spent were maybe dollars misspend or you changing maybe the return metrics on those R&D dollars for new programs. Can you talk a little bit about how that assessment is being approach too and will you targeting R&D towards going forward? Kieran O’Sullivan: Yes, I am and I really talked about in terms of going forward. For me the focus with the team is how much are we spending on products in development? How much are we spending in some innovation or advanced development with customers that we know is got a good chance a really high percentage chance of converting into revenue? And then to some other pieces that we’re looking at that could be a little further out in our revenue cycle, but not looking for some shiny things, looking at the things that really make sense and are practical. So I would say, the real answer to your question is, we’re rebalancing the R&D spend across two or three buckets to make sure we have that right mix of funding to make sure that future is solid and that’s really what we’re all about. John Franzreb – Sidoti & Company: Okay. One last question and I’ll jump back into queue. I think you mentioned in regards to the fourth quarter of this year, one-time benefits in 4Q, could you just elaborate what that statement meant?

John, did you mean one-time benefits in the fourth quarter or in the third quarter? John Franzreb – Sidoti & Company: The fourth quarter.

We talked about one-time benefits in the third quarter. John Franzreb – Sidoti & Company: Okay. I could have swung when you were talking about the guy to say, have you enclosed one-time benefits in 4Q?

No – one-time John, in third quarter, we had some collections of bad debt receivables, old customers as well as some one-time tax benefits. The combined impact of those two is just about a little over $0.02 per share. John Franzreb – Sidoti & Company: But it’s nothing expected in the fourth quarter there?

Correct. John Franzreb – Sidoti & Company: Okay. Thank you. I’ll jump back in queue.

Thank you, John.

Thank you. We’ll go next to Lisa Thompson with Zacks Investment Research. Lisa Thompson – Zacks Investment Research: Good morning.

Good morning, Lisa. Lisa Thompson – Zacks Investment Research: Hi could we talk a little bit about margins each quarter you seem to be ticking up a little bit more in operating margin given what’s going on when do you think you’re going to pick out on those?

Lisa we are continuing to realize benefits from the restructuring actions that we initiated last year. And as we have highlighted in the previous calls we are slightly ahead of our expectations on that. We expect somewhere between 70% in the range of 70% of the expected margin improvement to be realized this year and the balance coming in next year. Lisa Thompson – Zacks Investment Research: So we’ll see it first few more quarters, the second half should everything flatten out or?

Just from the restructuring actions yes but there are offsetting factors like product mix as well as various business actions that we do to in terms of volume that will also have an impact on the margins. Kieran O’Sullivan: Lisa, overall when we talk about the business model and the mix we said you expect gross margins to be in the low 30s and obviously we’re obviously trying to improve that and focus on it but that’s where if you want model that’s where you can expect this to be. Lisa Thompson – Zacks Investment Research: Okay. And when do you think could be an end to restructuring costs in the quarters?

We have restructuring actions that are already announced that go through the middle of next year. Lisa Thompson – Zacks Investment Research: Okay.

But Lisa, we will continue to look at how we improve efficiency of our cost structure going forward. So as if new ideas are emerging and we take action on those we will be making those announcements as we get to that point. Lisa Thompson – Zacks Investment Research: Okay. And then I tried to understand the business a little, so obviously next year’s automotive is related to 2012 sales or bookings or whatever. So how does if a client, say I mean I read about China having weakness because of the new emission standards and things so I would think that delays production. How does like current events change your orders?

Lisa, if you look at North America as an example or you can pick China, you’ve got yield, number of units being shipped over 16 million or 16.5 million in North America, higher than 22 million in China, if those volumes potentially go up or down, that can impact our number of units shipped to vehicles. Europe is a little softer for us and that’s one thing we are focused on in terms of driving growth in that region. And if you look back to the prior quarters, we are not guiding on 2015 at this stage, but we’ve been very clear that you can expect modest growth now in earnings and EPS, as we target higher growth rates in ‘17 with the revenue focus we have today. And we’re trying to get much more focused between organic and inorganic growth in the ‘17 period of 10%. Lisa Thompson – Zacks Investment Research: Okay. And finally let’s talk about the cash, you have 130 million, I know it’s almost all overseas, so we’ve nearly [indiscernible] hole in the pocket. But are you getting any closer or are you seriously going through list of potential acquisitions to reduce some of that cash?

We are evaluating acquisitions at, on a regular basis and most of these acquisitions have pretty diverse geographic footprint that we look at. So our expectation is to utilize a good portion of the cash that’s oversees to make acquisitions. And also as we grow the business organically, there will be some pockets of CapEx requirement to fund that growth. Kieran O’Sullivan: And Lisa, I would tell you, we’re very curious in terms of what we want to do in that area. And we’re a lot deeper on it than we were two quarters ago so and we’re working in pretty hard. Lisa Thompson – Zacks Investment Research: Okay. And what’s the – kind of the game plan on acquisition, are you looking for compactable product lines or is it looking for market share and products you already have, are you looking to diversify out of automotive like what’s kind of – what’s the general thinking? Kieran O’Sullivan: Longer-term, if you look at transportation in our portfolio, it’s about high 60s %, we’d like that to be a little bit lower. We’ve certainly been very curious on the regional aspects of our business that we’d like to focus more internationally, and look at M&A internationally as well given our cash situation. But when you break it into the details that we have, and we don’t talk about all of this under strategic plan, we have certain key things into each of the product lines that we want to achieve. It might be a technology we want to pull down in one area, it might be some new customers in another area, it might be a core technology relating to auto in another area. So we’ve got very define plans. And I will tell you, in alignment with our leadership team and Board of Directors, we look at that on a regular basis. Lisa Thompson – Zacks Investment Research: Okay. Great. Thank you. Kieran O’Sullivan: You’re welcome.

Thank you. We’ll take our next question from Hendi Susanto with Gabelli & Company. Hendi Susanto – Gabelli & Company: Ashish, in the Q2 call, you mentioned the CTS had some front-end sales performance and execution on working with OEM and channels, are those issues behind us now?

Good morning, we’re making good progress there. We’ve actually been moving people into the different regions, beeping up in the area, not just in sales and marketing, but R&D as you mentioned. I would say we’re 50% away through some of the things we want to achieve, but made good progress and we’re tracking with a little bit more to do. And we’re also in the early stages, but we’re seeing some good traction for some of that, and I hope to talk to you about that in the next quarters as well. Hendi Susanto – Gabelli & Company: Okay, got it. And then Kieran, I wonder whether you can give more insight into which end markets contributed a weakness in your frequency products, and whether they are – whether it’s a mix or whether you’re still seeing of some pockets of strength in certain end markets in frequency products? Kieran O’Sullivan: I would tell you probably the biggest thing is, when you look at telecom and the capital investment in telecom, that’s really where some of the softness has been at a high level. On the flip side, we’re repositioning some of the products in the portfolio. I would tell you as an example, some of the winds that we had this quarter were much more towards test and measurement, some of them are still in the telecom area. What we’re really trying to diversify a little bit and we’ve just taken the right time here to move it in the right direction. But telecom is probably the bigger part. Hendi Susanto – Gabelli & Company: And then when you said telecom, may I know what the root cause, is it make lower capital spending in general, or there is more to that? Kieran O’Sullivan: I would say there’s a little bit of it on capital spending, but the other pieces, and you mentioned this in our comments today, is we’re repositioning some of the products in the portfolio, some of the products were, from my perspective, a little bit more aged. And as we looked at with the business, we said let’s move in this direction, reshape where we’re going here a little bit. And that’s what the team are working on and they’re really working it pretty hard. I will tell, you that group that is leading that part of the product line is doing a nice job making the corner turn. Hendi Susanto – Gabelli & Company: So, is it reasonable to think that part of it is to know product line? Kieran O’Sullivan: Yes, I would (inaudible) say, we had some aged products in the portfolio, but they’re not big huge dents to ones that we need to maneuver and move forward on. I’ll give an example, even in the telecom area; we booked a nice order in the quarter. I didn’t talk about it too much, but it’s for revenue next year with a significant customer and its few million dollars. So it’s moving in the right direction. Hendi Susanto – Gabelli & Company: Okay and Kieran, considering the ongoing restructuring and your plan to shift your best cost manufacturing location. Could you share about the current manufacturing footprint, where you would like to see it, let’s say like one year from now and what kind of utilization [indiscernible] CTS is operating? Kieran O’Sullivan: Yes Hendi, we’ve made good progress, you know the restructurings we’ve announced and obviously we’re taking a lot of time to get that right to protect our customers and make sure the quality and the delivery is not interrupted, that’s extremely important to us. And it’s one of the things, I said our biggest focus is growth, but that’s right there beside in terms of protecting our customers. We see that next year being in the 80% best cost of the target we have and we’re on track to achieve that. And we don’t disclose utilization figures, but we are improving quarter-over-quarter. Hendi Susanto – Gabelli & Company: Got it. Thank you, Kieran and thank you, Ashish. Kieran O’Sullivan: You’re welcome. Hendi Susanto – Gabelli & Company: Thank you.

Thank you. We’ll take our next question from Brad Evans with Heartland Brad Evans – Heartland: Gentlemen, good morning. Kieran O’Sullivan: Good morning.

Good morning. Brad Evans – Heartland: Thanks for taking the questions. Kieran, can you just expand a little bit further upon the optimism you have into the second half of ‘15 it sounds like you’re feeling optimistic. Perhaps some of the fruits of your labor, both in terms of new design win activity as well as may be a reflection of the lower cost base where it really start to become more evident in the second half of ‘15, can you just expand upon that a little bit please? Kieran O’Sullivan: Yes, Brett. And really, and I think the message we talked about in terms of a new framework for identity in the company. And I’m being very open when I say it’s, we haven’t spent time even looking at our website. If you go to our website we’d talk about it is inside the company. It’s pretty old, it’s pretty dated, and we’re trying to reshape the identity. And what we’ve gone through is, I mentioned the cycles of strategy and operational cycles of learning. And we’re giving just a glimpse into the future in terms of; we’ve got a framework where we’re going to start building the investments around and we’re already obviously doing that. So, you get a lot more color on that in the second half of ‘15, I know it’s a long way away, but we wanted you to know we’re working on it. And there is … Brad Evans – Heartland: Well, they’re only almost – they’re only seven months away, so not that far way, but so I didn’t misinterpret your comments today (inaudible) correctly based on what you’re intimating? Kieran O’Sullivan: Yes. That we’re actually shaping the identity a lot more and the focus a lot more, absolutely, that’s what we’re doing and that will become more evident. Brad Evans – Heartland: So, just to be clear, so your confidence level accelerating organic growth and margin expansion is we should start to see that in the second half of ‘15, is that correct? Kieran O’Sullivan: No, I would tell you that what we’ve been very clear Brad is, you’ll see more modest growth and earnings and sales in ‘15 and ‘16. The real improvement and more significant improvement will come in ‘17. Brad Evans – Heartland: I heard you say that 10% growth in ‘17, so I caught that but, I’m speaking just to the return to organic growth? Kieran O’Sullivan: I think what you’ll see Brad is on the automotive side, you’ll start to see signs of that ‘16, but certainly into ‘17 because of the longer revenue cycles. On the other product lines, we’re pushing real hard and actually we have some good stories in there. We’re getting some good organic growth on some of the product lines and that will continue to strengthen. So definitely that will be seen a little bit before. Brad Evans – Heartland: So long as the economy, the macro environment, does that hurt you too badly than organic growth should return in the second half of ‘15? Kieran O’Sullivan: Yes, I think you’re going to see improvements, but you’re not going to see real high-digit improvements. We’re seeing steady improvement, steady steps not big jumps. Brad Evans – Heartland: Okay. You’ve got to walk before you can run I guess, so return to organic growth in the second half on a lower cost basis in the second half of ‘15?

That could be a reasonable way to think about it, Brad. Brad Evans – Heartland: Okay. I’m sorry, how much of the cash now is in the United States?

Almost all of it is overseas. Brad Evans – Heartland: Okay. And just kind of thinking outside the box, I mean, over half your sales are international, is it there a strategic transaction that would be beneficial to CTS where perhaps you could re-domicile outside of the U.S. to have access to your cash and maybe also facilitate a more attractive tax rate. Can you contemplate it for me along those lines? Kieran O’Sullivan: You know, we’re really looking at it from the strategy perspective as to what we want to do, and we have a very clear plan aligned with the board by quarter at 17, 18. If some of those things happen to be international, it’s a nice fit for us and that would be perfect, but it’s really driven by the strategy. Brad Evans – Heartland: Did my comment – does my question, is it clear to you though in terms of, it would make sense that perhaps if there will be a transaction that would allow you to have a headquarters or domicile that would allow you to have access to your balance sheet without punitive tax consequences. That would seem to make sense and it would lower your tax rate as well. I mean, are there transactions out there that could achieve that type of benefit for shareholders? Kieran O’Sullivan: Certainly we wouldn’t have any aversion to that, and there are tractions out there but, I mean you know what it’s like working through transactions, you’ve got to work and get the right fit. But I mean again, it’s right back to the strategy, if it fits in our strategy, that’s really what we want to do. Brad Evans – Heartland: Yes, it’s just we applaud what you’re doing, we think you’re doing all the right things, it’s to be able to not have more access to your cash to buy back stock at your current valuation relative to where you are valued relative to private market value is frustrating to say the least, I’m sure it’s frustrating to everybody. And I imagine since the measurement specialties transaction and we know what’s happening in the semiconductor space, multiples are very high. So I mean transactions, I imagine the multiples are we see it everyday multiples are very high for transactions, I’m sure you’re seeing that as well? Kieran O’Sullivan: Yes but we are very clear Brad in what we want to do and I fully understand your questions and your line of thinking here, but we are very --you’ll hear us talk again and again that we know exactly what we want to do in each of the different product lines. It’s got to be the right fit, but it’s also got to be at the right price. And I’d tell you we’re not going to do something that’s way often price. It makes no sense to us either. But we’re looking to get those right fits into different regions that can really help us. Brad Evans – Heartland: Okay. Keep up the good work. Thank you. Kieran O’Sullivan: Thank you Brad.

[Operator Instructions]. And with no further questions in the queue, I’d like to turn the program back over to Mr. O’Sullivan for any additional or closing comments. Kieran O’Sullivan: I just want to thank everybody for joining the call today. We’ve had our strategy, we have been very clear on it to simplify focus and grow. And as I mentioned on today’s call, you’ll get a lot more color going forward in the second half of next year around those segments of growth. But to be very clear that’s something we’re already working on. And I thank you for your time. Thanks, again. Bye, bye.

That does conclude today’s call. Thank you for your participation.