Ducommun Incorporated (DCO) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Third Quarter 2016 Ducommun Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this call maybe recorded. I would like to introduce you to your host for today’s conference Mr. Chris Witty, moderator. Please go ahead, sir.

Thank you. And welcome to Ducommun’s 2016 third quarter conference call. With me today are Tony Reardon, Chairman, President and CEO; and Doug Groves, Vice President, Chief Financial Officer and Treasurer. I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the Company’s expectations and beliefs concerning future events that involve risks and uncertainties and may cause the Company’s actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations are disclosed in this conference call and in the Company’s annual report and Form 10-K for the fiscal year ended December 31, 2015. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call. I would now like to turn the call over to Mr. Tony Reardon for a review of the operating results. Tony?

Thank you, Chris. And thank you everyone for joining us today for our 2016 third quarter conference call. I will begin by providing an overview of our operations, including some market color, after which I will turn the call over to Doug Groves to go through our financial results in detail. The third quarter demonstrated our ability to continue on the course charted over the past year in which we streamlined our operations, divested non-core businesses, and cleaned up our balance sheet. We achieved 19% gross margins this quarter and earnings of $0.44 per diluted share, a solid performance given the lower revenue versus 2015, which speaks to our improved structure, enhanced margin profile, and reduced interest expense. Revenue was lower year-over-year, mainly due to the closure of our Houston operations along with the divestiture of our Pittsburgh facility in Miltec. Net of these, our core ongoing business was down just slightly this quarter, versus 2015 as gains in commercial aerospace were offset by lower military sales. That being said, we believe that the military shipments timing along with growth in the commercial aerospace platform should drive overall revenue expansion in the fourth quarter and 2017. This is underscored by our strong backlog of $566 million at the end of Q3. We also paid down $10 million of debt this quarter adding to the $55 million eliminated earlier this year, as we continue to strengthen our balance sheet to bolster our growth profile and provide increased financial flexibility. We expect to reduce debt further in the fourth quarter, as Doug will review in a moment. Now, let me provide some additional color on our end-markets, products and programs. I’ll begin with our commercial aerospace business. We’re pleased with the results but see plenty of room for additional growth. Quarterly revenue was $66 million, in line with the second quarter and roughly $4 million above the prior year period. Sales were solid across all areas of the business with a nice uptick in our Airbus revenue. We did however experienced some timing delays with regard to the shipments for the Boeing 737 and 787 platforms, which we now expect will positively increase the fourth quarter’s top line. Our commercial aerospace backlog stood at $280 million at the end of this quarter, not only a record but an increase of more than $40 million over Q2. We expect this backlog can expand further based on our strong position on the Boeing 737 and 787 programs as well as the Airbus A320, A330 and A350 platforms. We remain on track with investments to support higher demand for titanium composites and electronics, particularly on new platforms like 737 MAX and the A320neo. In support of this growth strategy, we’re expanding our Parsons, Kansas facility by approximately 70,000 square feet. The Parsons operations specializes in titanium thermal-forming technology, and we expect demand to ramp up dramatically over the coming years. Given the new applications on platforms of the Spirit, Boeing, Airbus and [indiscernible] and also driven by our increased content for shipment. Turning to our military and space sector, revenue fell to $54 million this quarter from $70 million last year, which reflects the Miltec divestures as well as budget curtailments and changing platform requirements. Given our military revenue in Q2 of $51 million, we believe that we’re at the base run rate for this side of our business, but expect to see sequential improvements next quarter as well as in 2017, reflecting higher sales from new and follow-on program awards this fiscal year. We anticipate stronger shipments of our radar racks during the fourth quarter on platforms such as the F-15 and the F-18 along with higher missile system revenue and slightly better helicopter sales. Our military backlog remains relatively stable at just over $260 million, and we continue to target additional applications for our proprietary technologies, and remain ready to address any demand changes that may take shape once the new administration takes place. With that, I would now like to turn the call over to Doug to go through our financial results in detail.

Thank you, Tony and good day to everybody. Revenues for the third quarter of 2016 was $132.6 million compared to $161.7 million for the third quarter of 2015. The change in revenue year-over-year primarily reflects $18 million of lower sales within the Company’s industrial end-use markets due to the divestiture of Pittsburgh in January, the closure of our Huston operations last December. We also saw $15.6 million in lower revenue within the Company’s military and space markets, mainly due to the divestiture of the Miltec business in March, as well as some program schedule slides and budget changes that reduced demand for certain platforms and pushed out deliveries. The impact of such item was partially offset by $4.5 million higher revenue in the Company’s commercial aerospace markets, reflecting added content on a variety of programs. Ducommun’s backlog rose to $566 million, the highest ever excluding the divested operations. This was driven by a record setting backlog in our commercial aerospace business of nearly $280 million, clearly pointing to the strength of the market and our position in it. Moving on to gross profit, our gross margin was 19% in the third quarter versus 12.4% in last year’s comparable period. The higher gross margin was primarily due to the lack of $10 million forward loss reserve charge booked in 2015 related to a regional jet program. That said, the current year margin improvement also benefited from lower material costs as a percentage of sales, which decreased 2.1% year-over-year as a result of the Company’s ongoing supply chain initiatives and improved operating performance. SG&A fell on Q3 to $17.2 million from $21.2 million in 2015. And this reflects our divestitures and cost-cutting initiatives as well as the decrease in compensation and benefiting costs. Operating income for the third quarter of 2016 was $8.1 million or 6.1% of revenue compared to an operating loss of $1.2 million in the comparable period last year. The increase in operating income was primarily due to the higher gross profit and lower SG&A previously mentioned. Interest expense decreased to $1.9 million in the third quarter of 2016 compared to $3.4 million last year, primarily due to lower outstanding debt balances and reduced interest rates as a result of the Company’s refinancing in July of 2015. Our effective income tax expense during the quarter was $1.2 million or 20% rate compared to a benefit of $6.9 million or 42% in the comparable period last year. The higher tax year-over-year reflects the impact in 2015 of the forward loss reserve charge I mentioned, as well as a loss on extinguishment of debt of nearly $12 million related to our refinancing last year. Going forward, the tax rate for the full year of 2016 is still expected to be approximately 29%. We reported net income of $5 million or $0.44 per diluted share compared to a net loss of $9.5 million or $0.86 per share in the third quarter of 2015. The increase in net income year-over-year primarily reflects the impact from a forward loss reserve charge and loss on extinguishment of debt previously mentioned, as well as lower interest expense. Adjusted EBITDA for the third quarter of 2016 was $14.9 million or 11.2% of revenue compared to $6.6 million or 4.1% of revenue in the comparable period in 2015. Now, let me turn to the segment results. Our Structural Systems segment posted revenue of $60.9 million in the third quarter of 2016 versus $64.2 million last year. The decline was primarily due to $3.4 million in lower military and space sales, reflecting program schedule slides and budget changes, which impacted schedule deliveries on certain fixed wing and helicopter platform. Structural Systems operating income for the third quarter was $5.9 million or 9.7% of revenue compared to an operating loss of 6 million last year. The increase in operating income year-over-year primarily reflects the 2015’s $10 million forward loss reserve charge related the regional jet program, as previously mentioned. Adjusted EBITDA was $8.9 million for the current quarter or 14.6% of revenue compared to negative $3.3 million for the comparable quarter in the prior year, reflecting the issues already discussed. Turning to the Electronic Systems segment, our Electronic Systems segment posted revenue of $71.6 million in the third quarter versus $97.5 million in the prior period. These results reflect an $18 million decrease across our industrial end-use market due to the divestiture of the Pittsburgh facility in January and closure of the Houston operation last December, as I previously mentioned. In addition, Electronic Systems saw $12.2 million year-over-year decline in military and space revenue, reflecting the divestiture of Miltec in March, as well as general programs schedule slides and budget changes which reduced deliveries across several platforms. These negative factors were partially offset by a $4.3 million increase in commercial aerospace revenue, reflecting added content with existing customers. Electronic Systems posted operating income for the third quarter of $6.6 million or 9.2% of revenue compared to $8.6 million or 8.8% of revenue in the third quarter of 2015. The decrease in operating income was primarily due to lower segment revenue even as margins climbed, reflecting improved product mix and operating efficiencies. Adjusted EBITDA was $9.8 million for the current quarter or 13.3% of revenue compared to $13.3 million or 13.3% of revenue last year, reflecting the issues disused. Corporate, general and administrative expenses CG&A for the third were $4.4 million or 3.3% of Company revenue compared to $3.7 million or 2.3% of revenue last year. The increase in CG&A expenses were primarily due to higher compensation and benefit costs of approximately $0.6 million. Turning to liquidity and capital resources, we generated $15.4 million of cash from operations in the third quarter of 2016 compared to a use of cash of $5.5 million in 2015. We remain diligent in effective working capital management and expect our net cash profile going forward to reflect our historical seasonal patterns. We also paid down additional $10 million of debt this quarter, as Tony mentioned, and now reduced our debt by $65 million thus far in 2016. We expect to pay down approximately $10 million more debt by the end of this year, as we continue towards our goal of delevering to a target of 2.25 to 2.5 times debt to EBITDA by the end of 2017. Capital expenditures were $5.1 million in the quarter and we expect CapEx to be in the approximately $18 million to $22 million range for the full year as we continue to invest in new programs and prepare for the next generation platforms in 2017, as Tony mentioned. In closing, the quarter played out much as we expected and benefitted from many of the steps taken this past year to streamline our operations and focus our core business while enacting supply chain initiatives in tandem. We believe that future quarters have higher revenue along with solid bottom line results, and we’ll continue to pay down debt and strengthen the balance sheet leaving us in good shape for 2017 and beyond. I’ll now turn it back over to Tony for his closing remarks. Tony?

Thank you, Doug. Before turning the call over to questions, I wanted to add to Doug’s last comments about the future of Ducommun. While obviously pleased with our overall performance this year, particularly the bottom line results, we definitely see upside going forward. By streamlining our operation and focusing on our core competencies, we’ve brought a real sense of stability to the Company. We have excellent customer relations and due to our excellent decent structural components, titanium assemblies, and aerospace electronics, we’re on some of the best platforms in the industry with years of backlog and build rate set to accelerate starting next year. That’s why we’re investing in our Parsons, Kansas facility which we expect to provide an excellent return going forward. On our military side, we’ve cut costs to manage the current low run rates. But given that the defense spending can be rather unpredictable, we can rapidly expand production if necessary and are on some of the endearing programs today including the Black Hawk Helicopter. The bottom line is that our stronger balance sheet, solid backlog and right-sized operations, we’ve built the company ready for the phase of growth. We want to close 2016 on an up note and believe 2017 will continue the momentum that we’ve achieved. We’ve got great customers, excellent employees, and we look forward to improving returns for our investors. With that Christie, we’d now like to open it up for questions.

Thank you. [Operator Instructions] Our first question is from the line of Edward Marshall of Sidoti & Company. Your line is open.

I wanted to ask about -- you talked about some push outs, especially in the military you talked about increased rack sales in the fourth quarter, maybe some military systems. I wanted to get a sense from you as to sort of order of magnitude as the predictability on the military has been a little bit tough, wonder if you can give us any kind of thought process, what kind of level of sales you’re looking forward in Q4 from those particular programs coming in?

As we look at the fourth quarter, on our defense sales, we expect those to sequentially increase, I’ll say $3 million to $4 million off of where we are at in Q3, eventually getting back in the long run to roughly a $60 million range in a couple of quarters. So, we’ve got some nice orders in the backlog and seeing quite a bit of activity particularly on the missile defense front with Raytheon who as you know is one of our biggest customers.

Sure. Now, the rack and the missiles run through technology but when you say 3 million to 4 million, do you mean across the entire business but mainly driven by the technology piece of the business, not the structures?

That’s correct.

That’s correct.

I wanted to get a sense too. I’m looking at the margin, you guys have done a pretty good job in the individual business. I guess from the consolidated results, I would have assumed with the divestitures of say Miltec and the industrial business, I would have assumed that we would have been off, I mean you have seen some more leverage off last year’s run rate but we’re at the average run rate for 3Q. Can you give me a sense is there re-characterizations in there and maybe some one time things that maybe drove that number up a little bit higher in this particular quarter, and do you expect that kind of subside as we move forward?

Ed, let met repeat your question to make sure I understand it. So, are you talking about the segment margins or the overall margins?

The corporate expense line that runs through the businesses. I would have assumed that would have come off especially with the divestitures and less business in there. But it’s running at the average from the four quarters of the last year, at the annual run rate. So, I’m trying to get a sense as to why that didn’t come off, even though you’ve divested a few business and the cost structure from the corporate should have declined, just it had?

So, what rolls into that CG&A line is a lot of what it sounds like corporate expenses. So, these are public company costs that don’t necessarily scale in direct relation to some of those businesses that were divested off. So, we’ve been in the $3.5 million to $4 million run rate for that. And there is little variability but wouldn’t expect a ton of that. Obviously though it doesn’t increase with the top line growth either because they’re semi-fixed. So, we will get more leverage through the P&L if the volumes picks up.

To your point around four, was there anything in one time in nature in any particular quarter that might have run through the corporate one…

Third quarter.

Or just timing of that action?

Exactly, yes.

Okay. You talked about the investment in Parsons with the titanium business, I guess two questions on that. One, I guess it looks like folks [ph] kind of talked about going away from titanium a little bit and some of the business programs, of course you’ve heard that. Secondly what’s the capital requirements necessary for the investment of the square footage increase, and Boeing, any particular contracts that you’re building to?

First of all, let me address -- I guess there is three questions, right? So, Boeing is looking at I think long-term and trying to reduce the uses from titanium, and in some cases we’re working with them on those applications. But not to the extent that -- of the manufacturing type that we do. So, actually, we’ve seen an uptick on that side of coin. And I think the second question was the capital. So, we don’t differentiate the capital that we spend in one particular facility, but we’ve up-ticked our capital this year by about $5 million on an annual run rate for I think between 2015 and 2016. And then we’re predicting that 2017 is the same. So, we’ll be at a run rate, annual run rate 18 million to 22 million in capital. And that pick up there, some of that, or majority of that this year would be going to the Parsons facility.

And are you building out for a particular award or contracts or backlog that you already have or is it a build it and they will come type scenario?

No. We don’t have build it and they will come type scenario. So, this is long range contracts that we’ve been awarded on a number of platforms 737 MAX, A320 is all driving that growth and we have the solid projections going forward.

Okay. And then you won life of the program or are you three to five year kind of awards?

Well, hopefully on the life of the program, but you are on multiyear contract. Yes. Different contract lengths with both case. But we think we’re pretty solid going forward.

Thank you. Our next question is from the line of Ken Herbert of Canaccord. Your line is open.

I just wanted to first ask about the free cash flow. I mean, good third quarter; obviously last year wasn’t a good indicator. But I think you mentioned either one of you in your prepared remarks that you expect the similar seasonality this year and typically you generated really nice cash flow, very high percentage of the full year number in the fourth quarter. So, fair to assume that that’s going to continue and probably put you on pace for maybe a better free cash flow year than you’ve seen over the last few years as a percent of sales or net income, or is there anything one-time perhaps you saw in the third quarter or that you might have see in the fourth quarter around the cash flows?

I don’t think -- there is no one-time in the third quarter. And we do expect the seasonality again in the fourth quarter. So, we’re looking for a stronger fourth quarter and that’s our general pace as you -- if you just look at the cash flow through the year, you’d see we were down to flat in the first quarter and then pick up a little bit in the second quarter, and then solid third and fourth. So we expect the fourth quarter to be very strong.

And as you head into 2017, I know it’s early, but do you see anything in particular either positive or negative that might impact free cash flow into 2017?

The only changing and different than in the past is going to be us taking [ph] capital. So, we would expect the capital to be at the same run rate as this year, maybe just slightly higher in 2017, but that’s the only other change. But other than that the cash flow is going to be on par.

And you called as well the 2.1% savings from the supply chain. I think it’s the first time I’ve seen you particularly call that out. Is that a bigger number you saw this quarter than in prior quarters? I know it’s -- supply chain has been an area you’ve been looking at from a cost standpoint for a while. And is this something we should see start to accelerate moving forward or maybe just to put that number in context would be great?

Sure. Actually we have had this number in our MD&A in the last couple of quarters. And we continue to work that and we see there is still some room to go on that. But I think the further we get into it, obviously the harder the compare gets, because once you get the savings out to continue at the same rate, it’s a little bit tougher as you go into the second year of it, which for this year will be -- next year will be the second full year for us. So, we still have a little more ways to go, but we think that we’ll continue to see some nice material savings as part of that.

And what we’re really seeing, Ken, is we start to see it flow through at the bottom line. So, we’ve achieved the savings on the purchase side and we’re starting to see it come through in the margins.

And is that primarily from consolidation of the supply chain or does it reflect pricing or anything in particular that you point to?

It’s all the above. So, I think we’ve talked in the past especially on the electronics side that we reduced the number of distributors from 180 down to about 8. And we’re working with our suppliers -- as a result of that, we were able to reduce cost, and expense and terms. So, I think we’re working that side of the fence real hard, we’ve been successful overall on machining. So the supply chain has been a very important initiative for us in the last year and a half, and we’re starting to see the fruits of that.

And then just finally, continued strong growth in the commercial aerospace backlogs, and obviously you are starting to see some of the top line. I know you called out a number of programs, are there any particular programs that you point to that are maybe a bigger swing factor there? I know you specifically talked about some win both with Airbus and on the 737 but anything in particular you point to from a program standpoint as maybe a bigger factor in the backlog growth within commercial aero?

I think it’s been kind of all the above. So, we picked up solid orders on Boeing 737 program as well as on Airbus. So, none of them really stand out higher than the other, but I think it’s been pretty solid growth both sides.

And just one final question on that is this growth you’re seeing, is it may be doing work to that Boeing or your customer typically would have done in-house; are you taking share from another supplier or does it represent perhaps second sourcing on any of these work scopes?

So, it does -- in some cases, it’s taking work share from the OEM that they’ve been doing; in other cases it’s due applications on the newer generation aircraft; and in some cases it’s second sourcing.

So, all of the above. And I guess part of the two is leveraging obviously you’re taking capacity?

That’s correct.

Thank you. Our next question is from the line of Christopher Van Horn of FBR and Company. Your line is open.

Hi, everyone. This is Dan Drawbaugh on the line for Chris. I just wanted to get your sense from a margin perspective, when you look at the backlog, is there anything in there that gives you confidence to say that we’re tracking at about this nine plus level in structures, maybe that could go higher over the medium term?

Yes. I mean, we’ve said that the structures business gets back to 9% to 10%, and we’re seeing nice uptick in the backlog in structures specifically with all the commercial aerospace work. So, as we get more volume through those structures plans, we could see some margin expansion in structures as these programs really come to fruition. But that’s -- we still got a little ways to go because a lot of this is new work on new platforms which we’ve got a learning curve to overcome. So, it’s not going to be anything immediate but over the longer term, the short answer is yes.

Then on sort of the industrial side, do you have any sense of where that will be shaking out in terms of quarterly run rate? I guess it was down a little bit sequentially this quarter, if I’ve got the number right. I think in your presentation, you say that’s sort of a flat growth rate looking ahead?

Yes. So, I would say that where we’re at the end of the third quarter is close to the run rate. And if you look at our backlog, it’s a smaller percentage of the total backlog that what it historically has been. We did have a small business that we did actually then post at the end of Q2, so that’s not on the Q3 but it wasn’t a lot, and would clearly be reflected in the Q3 run rate now.

Thank you. Our next question is from the line of Mark Jordan of Noble Financial. Your line is open.

A question on potential debt reduction in 2017. Given the continuation of high level of CapEx, if you look just the core business, and I come out with a free cash flow generation and excluding changes in working capital in the range of 22 million to 24 million, which is well below, say the 10 million per quarter debt reduction you’ve been doing recently. Should we think of next year, the debt reduction should be more in the realm of 20 million to 30 million versus the 40 million, you have got or that’s 10 million per quarter run rate that you’re currently operating at?

No, I think that’s the right characterization of it. I mean we would look at somewhere around 7.5 million a quarter in debt reduction, given where we’ve been. There were quarters, as you know, in the past where we got up to 10. And so we continue to balance the investment in the company which is our number one priority along with debt reduction as the another primary use of our cash.

Looking again, should we assume a continuation of that trend line tax rate in the end of 2017 of that 29%?

Yes. So, we’re still looking at a 29% for the full year and into next year; this year in the third quarter, we had a slightly better tax rate due to some reserves that go adjusted but we’re still looking at 29% for the full year and into next year.

And lastly year, you obviously took a charge against regional jet program you were working on. I assume that should be coming to fruition relatively soon. Will you be retaining that business at better margins or is it going away?

That business is going away, it will be at the end of next year.

[Operator Instructions] Our next question is from the line of Mike Crawford of B. Riley & Company. Your line is open.

You mentioned some timing delays related to 737 and 787 shipments in Q3 and also said that that might positively impact Q4. So, what is precisely happening there?

Well, it’s two things. The 737 is actually flat, its’ been flat for the year. So, we had some initial deliveries that were schedule for it right at the end of the third quarter that got pushed into the following week. And then, on 787, we should see an uptick on a couple of the applications that we’re in development on. So, I think that those programs will pick the sales up for us.

Okay. And then 737 production is slated to increase, I think from 42 to 47 units a month next year. Is that something that you expect to happen in Q1 or?

It’s stagnant and I think that what we see is all depends on where the application is that we have and we have multiple applications on there. So some come in early and then some are delayed. So, I think through the year, I think you’ll see that ramp up.

And then what -- of the increased 18 and 22 million CapEx for the year, how much of that is related to the Parsons expansion?

It’s about a third of that that came in this year. If you look at our normal run rate in CapEx, we’ve historically been $14 million to $15 million. So, when we look at incremental difference, it’s largely this investment that we’re making in the Parsons facility.

Okay. And then, given that you seem to be on your planned capital structure deleverage path down below 2.5x leverage by the end of 2017; does that mean that you already turn up the process to start working on bolt-on acquisitions or is that something that you would wait another year before you start to do that?

There are two things Mike. First of all, we haven’t started any official process until we get our sales well below the three level. But we’re always mindful and in the market looking. So, the process is always ongoing.

Thank you. Our next question is from Edward Marshall of Sidoti & Company. Your line is open.

Yes. Where is your revenue of the titanium and where was it a year ago as a percent of total sales I guess?

Yes. We don’t really [ph] disclose that. So, I’m sure that that would be appropriate to do that.

Okay. I thought you gave the number before. Maybe you can talk about from the profitability of this segment, say versus maybe core [indiscernible] how do I look at that from a perspective, from a margin profile?

When you look across the structure business, I think the titanium has a slightly higher margin profile, but it’s generally in line with the rest of the business.

Got it. And if you can increase in aggregate -- did you give a percentage of the increase in square footage? I know you said 70,000 square feet, but did you talk about what that does to your capacity?

The facility right now is about 120,000 square feet. So, we’re going to go to close to 190,000 square feet.

Okay. And so when you can add -- it sounds like, you’re putting into that $10 million of investment there in what arguably your strongest margin business. As a follow-up to I guess the question that was just asked, I mean what can you acquire that would give you that type of return to the business overall with that little of investment?

Well, I don’t and know that we’ve run that analysis, but there are businesses out there that generate return, so that you would look at, that would be complementing to our business. But right now, our focus is on investing in the growth activities that we have and driving the strategy that we have in place for growth. So, you’ll see our investments going there first before we go outside to look at acquisitions.

I want to make sure I hear you’re saying, you’re saying that you have plenty of growth opportunities inside that that’s more relevant for your capital than outside the business?

That’s 100% correct.

Finally, when I look at the payables in the particular quarter, I mean it seems it ran a little bit high, and maybe has been so for quarter or two, and I know they ran a little bit lower before, so maybe it’s rebound, but is there anything I should think about with that? It just seems like it ran a little bit higher in the particular quarter, I think it’s around 60 million or so?

It’s really just another tenet of our supply chain initiative besides getting better pricing, we got better terms with a lot of our suppliers. So, again, we’re starting to see that really bleed through now in the balance sheet and we’re looking at our DPO of now getting north of 55 towards 60 days, which is higher than it historically had been but it directly linked back to that supply chain initiative we’ve been talking about.

Are you trying to put it in line, say kind of how are you thinking about it?

Exactly.

Thank you. And that concludes our Q&A session for today. I’d like to turn the call back over to Mr. Tony Reardon for any further remarks.

Thank you. I just want to thank everybody for joining our call today and we look forward to talking to you in the fourth quarter. Thank you very much. Bye now.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program, and you may all disconnect. Everyone have a good day.