Novanta Inc. (NOVT) Q3 2015 Earnings Report, Transcript and Summary

Good afternoon. Thank you for standing by, and welcome to the GSI Group 2015 Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to hand the floor to Robert Buckley, Chief Financial Officer. Thank you, Mr. Buckley, please go ahead.

Thank you. Good afternoon and welcome everyone. Before we begin, we need to remind everyone on the Safe Harbor for forward-looking statements that we've outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. We may make some comments today both in our prepared remarks and our responses to questions that may include forward-looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our results to differ materially from our current expectations. Any forward-looking statements made today represent our views only as of today. And we disclaim any obligation to update forward-looking statements in the future even if our estimates change. So you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During the call, we'll also be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the financial tables included in our earnings press release. To the extent that we use non-GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we'll provide reconciliations promptly on the Investor Relations section of our website. And I'm pleased to introduce Chief Executive Officer of GSI Group, John Roush.

Thank you, Robert. Welcome everyone and thank you for joining our call. We delivered strong third quarter with solid growth in revenue and very strong execution across the whole company. As a result, we were able to expand operating margins while exceeding our own expectations with respect to profitability and operating cash flow. I'll briefly cover the financial highlights and Robert will go into more detail in his section. Q3 revenue came in at $92.3 million which is within our guidance range and represents 4% organic growth and 4% on an adjusted basis. Our book-to-build ratio in Q3 was 1.0 and is that 1.02% on a year-to-date basis through Q3. Adjusted EPS was $0.24 in the quarter and adjusted EBITDA was $16.1 million. Both figures are above our own guidance range and consensus. Operating cash flow was $10.9 million and our net debt at quarter end was down to approximately $29 million. To provide context on Q3, on the revenue side we were pleased to come in at $92.3 million, given the weaker market conditions we saw on the industrial side of the business after China devalued their currency in August. Frankly we had expected revenue to be slightly higher when we initiate our guidance – when we issued our guidance but we'd expect to keep it very well across GSI, supported customer deliveries and in the end, we do not lead demand on the table in the quarter. The medical side of our business largely held the line through the quarter and ended up where we had expected. In fact, we're extremely pleased that the JADAK business had record orders and a 1.35% book-to-build ratio in the quarter, which positions them for nice growth in Q4. The order strength occurred in both the core JADAK data collection products as well as in the thermal printing product lines which we integrated in the JADAK earlier this year. We also saw strength in other areas of our medical business such as laser scanning, where a medical revenue was up high teens in the quarter versus last year on strength in OCT retinal diagnostics and cataract surgery. Within our [indiscernible] motion business, we also saw our Q3 revenue with robotic surgery customers more than doubled versus a year ago. Most of the major product lines across GSI performed well in Q3, which enabled us to drive organic growth versus last year. During the quarter, we have 45 design wins across the company with annualized revenue of over $9 million. Most of these wins will not meaningfully impact our revenue until sometime in 2016, but we're encouraged by our progress and securing future programs with our OEM customers. So the challenge we really had to overcome in the quarter really came from the capital spending environment in the advanced industrial markets, which slowed the market leader in the later part of Q3. Beginning in late August we saw a number of industrial customers push out delivery dates, reduce quantities and delay placing new orders. In particular, we saw OEMs with end user demand driven out of China slowing their order rates. As I'm sure you all know, the China PMI index reached a fix year low of $47.2 million in September before rebounding slightly in October. This trend was most evident in our laser product segment. Sales growth was relatively positive, up 4% year-over-year on an adjusted basis and more than double that on an organic basis. But our book-to-build ratio for the segment came in below our expectation at 0.85% as a number of customers signaled they would have lower demand in Q4. Our Westwind air bearing spindles pipeline which primarily serves Printed Circuit Board via hole drilling markets. Also saw a number of customer push-outs and delays. Q3 Westwind revenue deteriorated by $1.8 million within the quarter relative to our forecast and book-to-build for spindles came in at $0.72. Based on these dynamics, we do see a somewhat software market outlook in the advanced industrial sector in Q4. Given that overall demand picture, we have implemented some tighter controls on discretionary spending and some targeted restructuring actions in some of the sites that are seeing lower volumes. So at this point, I'd like to provide some commercial updates on our progress across the company. I'll start with the Precision Motion segment. In Q3 we had 23% year-over-year sales growth driven by the Applimotion acquisition as well as mid-teens year-over-year growth in our optical encoder pipeline. This was driven by strong demand in robotic surgery, satellite communications and data storage. Integration of the Applimotion precision motor acquisition continues to go well with the business again exceeded our revenue expectations in Q3, as it sums all year long. As I mentioned demand for air bearing spindles slowed sharply in Q3 with sales down high teens versus a year ago. After the forecast deterioration within the quarter that I mentioned a minute ago. Sales to printed circuit board applications were down 50% year-over-year in the quarter. Non-PCB applications did grow in Q3, although it was off a smaller base and could not offset the decline in the PCB market. Based on the low book-to-build ratio in spindles, we expect their Q4 demand picture to be very similar to Q3, so we've reflected that in our outlook. Turning to the laser product segment, you may have seen that today we announced we have agreed to acquire Lincoln Laser for a $11 million in cash. This business supplies high speed laser beam delivery and optical scanning technologies which are complementary to our existing capabilities. Their technology is particularly well suited to ultrafast laser applications and increases our presence in strategically important application such as medical OCT and food and beverage processing. We expect this deal to close sometime in November and the business will be incorporated as part of Cambridge Technology within our laser product segment. I would also note that we have several other build on acquisitions in the pipeline, and so we're optimistic about completing additional transactions in the near future. So within the laser segment, we had 4% adjusted revenue growth. Organic growth was at least twice that number with both scanning and CO2 sources delivering similar growth rates. I will note that the impact with a stronger dialer has a more pronounced impact on our laser businesses and other product lines in the company. So the quarter was quite good for the laser business in many ways. The challenge we face was really with the order rates. As Q3 progress, our industrial laser customers became much more cautious in their order patterns. We ultimately saw our Q3 book-to-build ratio end up at 0.85%, with orders ending up about 10% less than our original expectation. The year-to-date accumulative book-to-build on laser is still 1.0% but we've factored the weaker Q3 order rates into our lower Q4 segment outlook. There certainly where areas of strength in laser. As I mentioned scanning products for medical applications, we're up more than 15% year-over-year and medical CO2 sales grew 10% go up with smaller base. Scanners for laser via hole drilling, applications delivered double digit growth and CO2 sources for laser cutting of non-metals grew over 20% a quarter. Both without a doubt there was significant slowing in some areas. Date coding applications slowed markedly from double digit growth in the first half of this year to being essentially flat in Q3. Engraving and converting applications were also down sharply in the quarter. More importantly, overall laser sales in China were down approximately 25% on a year-over-year basis. We have taken steps to control spending in the laser business and manage the cost structure to protect profitability while we continue to invest in these attractive and market leading franchises. We expect slower growth in Q4 and possibly into the early part of next year, but we're very confident in our ability to drive mid to high single digit growth in excellent profitability over the medium and long-term for the laser business. Now I'll comment on our Vision Technology segment. We're very encouraged by the strong order intake for this segment. Total Q3 orders increased 26% year-over-year with the book-to-build ratio of 1.18%. Data collection products within JADAK led the way with Q3 orders increasing 73% year-over-year and the book-to-build ratio at 1.38%. The overall sales in the segment were down 5%, we did see growth in several of the Vision product lines including RFID, thermal printers and color measurement. I'm encouraged by the strong order rates we have in Q3 and we are finally seeing hospital capital spending stabilize with some areas returning to growth. We also had a number of important new wins within the segment. The NDS surgical business one significant new programs at two major Asian endoscopic OEM that will contribute to increase revenue in 2016. In addition, a strategically critical medical partner in Europe has agreed to show case NDS's products in their booth at an upcoming medical trade show. And finally, the NDS's business won an ultrascopic application with a critical OEM customer. A positive market reaction to the new NDS's product introductions gives us confidence we're reaching a turning point with this business line. JADAK also had a strong quarter with 18 new program design wins with annualized revenue over $4 million. We now expect JADAK to be in a position to deliver low to mid teens organic revenue growth in Q4, which is a very positive moment for us. So now from an operational standpoint, overall performance was strong. We did not leave meaningful revenue on the table anywhere because of operational constrains. All of our manufacturing plants now run on a very tight system of KPIs, key performance indicators where we track a whole slate of critical metrics to drive performance improvements and corrected actions where necessary. Our operational leaders were all recruited to leading operational companies such as Danaher, Honeywell, [indiscernible] and Sensata. We're making great strides in the factories and seeing stronger results virtually across the board. In addition, our focus on productivity is beginning to pay off. As we have previously discussed, direct material is accounted for about 75% of our cost of good, so that’s the primary focus. From a material productivity standpoint, we had now seen a three quarter trend of achieving savings of $1 million per quarter. This equates to a productivity of 3.4% on direct materials. This is modest by most standards but it represents a significant step forward for this company, which essentially had zero experience prior to 2014 in driving any structured productivity programs. We now have very good data across the company on what materials we source, who we buy it from and what we pay. We now have five major commodity team setup across the company which accounts for about 50% of our total material spend. Leading commodity teams are coordinating across all of our factories and procurement organizations to drive strategic sourcing, strategies that leverage our total buy within the commodities. This approach is accounted for the bulk of our productivity savings this year. From a non-material standpoint, we have a separate set of projects and programs. In most cases these programs target reductions in labor hours and improvements in cost of poor qualities through implementation of lean principles. Here savings are running a bit behind what we had targeted for the year, but we're still on track to deliver about $1.5 million in overall savings were 1% productivity. Again this is quite modest relative to our ultimate expectation, but it represents meaningful progress for the company from where we started. I'm encouraged with the momentum we're building in our operational initiatives. We all recognize the company had no history of managing these kind of programs nor a track record of achieving and sustaining improvements prior to 2014. But now we deliver in the fourth quarter as we done year-to-date across both material and non-material productivity programs, but we'll achieve about $5.5 million of overall savings for the year. On our earnings call in March of this year, I indicated that we're targeting $6 million of savings with these program. So while we may fall short by a few hundred thousand dollars, we come a long way in the last year in building the capabilities and the processes we need to sustain productivity on ongoing basis. On the fur we convinced that our investment to build this capability and the company is going to stay up in a major way for the years to come. We've also undertaken a restructuring program to reduce cost and improve the overall efficiency of our site footprint. The moves in the program are designed to focus our operations around centers of excellence, for product groupings and to simplify the administrative support for these businesses. Robert will comment in more detail in his section, but in aggregate, the restructuring program is intended to save us in the range of $5 million per year and I think is a strong move forward for the company. So with that, I'll now turn things over to Robert to provide more details on the financial performance before we take your questions. Robert?

Thank you. I'm going to provide you with the financial summary of our third quarter results, highlight a few areas and give you an update to our financial outlook. We started the third quarter up strong which put us in a great position to neither exceed guidance despite a fairly meaningful slowdown in the broader industrial capital spending environment in the last week of August and into September. In addition as John noted earlier, the third quarter March period where many of our key medical applications return to growth and demonstrated at the medical capital spending cycles or unrelated to the industrial capital spending cycles. These unique mix of revenue on the back of our continuous improvement business system gives us confidence and a strong foundation to deliver a consistent and predictable profit growth, while deploying capital through an acquisition focused strategy to accelerate our strategic vision. GAAP revenue was $92.3 million down 3% from $94.7 million in the third quarter of 2014 due to the divestiture of the JK Laser business earlier in the year. However, adjusted revenue growth in the quarter which excludes the JK revenues for both periods was up 4% to $92.3 million from $88.8 million. Our organic revenue growth which excludes acquisitions, divestitures and the impact of foreign exchange was up 4%. From the segment perspective, our laser product adjusted revenue was up 4% year-over-year despite a fairly significant impact from foreign exchange. Our Precision Motion adjusted revenue was up 23% year-over-year, despite a roughly $2 million decline in our PCB spindle products year-over-year. And our Vision Technologies adjusted revenue was down 5%, but is now reaching a turning point in terms of its demand at the medical capital equipment market has finally stabilized. Overall, sales into industrial – advanced industrial markets which represents 60% of the company's revenue were up high single digits, despite the slowdown in industrial capital spending. Whereas sales in our medical market which represents 40% of our sales were down just under 2%. Our bookings strength in the quarter supports a better fourth quarter for our medical sales. Third quarter GAAP gross profit was $39.9 million or 43.3% gross margin compared to $39.7 million or 41.9% gross margin in the third quarter 2014. On a non-GAAP basis, third quarter adjusted gross profit was $41.1 million or 44.5% gross margin compared to adjusted gross profit of $39.5 million or 44.5% gross margin during the same period of last year. Overall gross margins were fairly healthy in the quarter. Our continuous improvement program provided us with significant benefits in the quarter, which allowed the businesses to make a number of difficult decisions. This included discontinuing a handful of all our margin products and rationalization of legacy products that simplify our manufacturing processes and better position us for continued margin expansion. As a consequence, we see and expect continued progress on gross margin expansion as our path to achieving the goal, up 20% plus adjusted EBITDA margins outlined in the our strategic Vision. GAAP operating expenses decreased nearly $2 million in the third quarter to $30.9 million or $32.9 million in the prior period. Research and development expenses were $7.7 million or 8.3% of sales, compared to $7.7 million or 8.2% of sales in the prior period. While R&D was essentially flat year-over-year, under the covers we have dramatically shifted our investments to maximize our resources and focus on the highest returning opportunities. As an example, we opened a new research and development center in Suzhou, China, focused on being delivery technologies and products more tailored for the China market. Not only it does this increase our effectiveness China, but it also enables us to do more with less. We also continued to invest heavily in the integrated operating room and medical data collection technologies through our Vision Technologies operating segment. As John mentioned previously, the fruit of these investments are beginning to pay off as evident in a number of large OEM customer wins achieved in the quarter. For our own internal capabilities and IP are very strong in this area, you can't expect us to acquire companies that accelerate our time-to-market and further penetrate this high growth application area. SG&A expenses were approximately $20 million, or nearly 21.7%. This compared to $22 million or 22.7% of sales for the third quarter of 2014. Adjusted operating income was $13.5 million or 14.6% of sales in the third quarter, compared to $12.5 million or 13.2% of sales in the third quarter of 2014. Similarly, adjusted EBITDA was $16.1 million in the third quarter, compared to $15.4 million in the third quarter of 2014. Net interest expense in the third quarter was down slightly year-over-year and sequentially at $1.2 million. The weighted average interest rate on our senior credit facility was approximately 3.1%. Other income was approximately $850,000 in the third quarter, the majority of this income was related to earnings from our equity interest in laser quantum. I will note that we continue to monitor our investment in this business and have no plans at this time to make any significant changes. However, we're also pleased with the continued financial performance and business performance of this business, particularly around the predominantly medical oriented OEM customer base. GAAP diluted earnings per share from continuing operations was $0.19 in the quarter, compared to $0.15 in the third quarter of 2014. Adjusted earnings per share were $0.24 in the quarter, compared to $0.23 in the prior year. Turning to the balance sheet, we finished the third quarter with approximately $107.5 million in total debt and approximately $80 million in cash. In the third quarter we adopted ASU 2015-03 which resulted as a reclassification of unamortized debt issuance cost related to the senior credit facilities from other assets to debt in the consolidated balance sheet. This had the effect of reducing our debt reported on our balance sheet at $1.9 million. Consequently, our calculated net debt in the third quarter was $27.4 million, however adjusting out this accounting change, I would consider our true net debt figure to be $29.3 million. Operating cash flow from continuing operations for the third quarter with $10.9 million and $25.5 million for the first nine months of 2015. Free cash flow which we define as operating cash flow after capital expenditures was nearly $9 million or 105% of adjusted net income. Capital expenditures were $2 million in the quarter, an uptick from the second quarter largely as a consequence of investments in our Oracle ERP system. As previously mentioned, we've embarked on a multiyear implementation plan to bring all businesses in size to a single instance of Oracle. We expect to complete this initiative by the end of 2017. Working capital in the third quarter did not meet our expectations and this was largely due to the late quarter drop in demand which resulted in the company holding more inventory than required and shipping product later in the quarter than we anticipated. That being said, we have now adjusted our processes and our business systems for this climate and expect to see a healthy improvement in the fourth quarter. During the third quarter of 2015, the company also repurchased approximately 77,000 of shares in the open market for an aggregated purchase price of $1 million at an average price of $13 per share. We will continue to be opportunistic with our share repurchase program, while always considering our acquisition deal pipeline in the cash needs associated with these investments. Finally, as a consequence of our operational maturity and the progress that we've made with our continuous improvement program, we announced in the third quarter and started to execute on a three quarter restructuring program, targeting annualized cost savings of $4.5 million to $5.5 million after the program that’s fully implemented. This program is focused on consolidating our manufacturing operations and administrative locations around centers of excellence, to better optimize our facility footprint and better utilize resources. While the bulk of the restructuring actions we'll initially focus on the Vision Technology's operating segment, we also expect that Precision Motion segment to capture some benefit as a consequence of reducing redundant cost identified by its productivity programs, as well as cost reduction actions to better align the business to reduce volume. We expect the overall program to incur cash charges of $3.5 million to $4.5 million and expect to be fully completed with our actions during the second quarter of 2016. In addition, while we are not ready to give financial guidance for 2016, we do expect this restructure program to position us very strongly to deliver solid earnings growth in 2016 compared to 2015, even if the industrial capital spending environment is fairly sluggish. As we look at the remainder of 2015, we remained well on track. For the last nine months, our organization has demonstrated an ability to generate profitable growth in a number of challenge economic clients. Their ability to react quickly to change and focus on the growth opportunities gives us the confidence to remain on our revenue and earnings guidance that we provided back in January of this year, despite the weaker industrial capital spending climate. For the full year 2015, the company expect adjusted revenue of approximately $365 million to $370 million. This compares to adjusted revenue of $343 million in the full year 2014. This guidance represents anticipated year-over-year adjusted revenue growth of 6% to 8% and year-over-year organic revenue growth in the 3% to 5% range. For the full year 2015, we expect adjusted EBITDA to be in the range of $60 million to $61 million, in addition we expect adjusted EPS to be in the range of $0.82 to $0.86. Adjusted gross margins for the full year expect to be in line with the third quarter of 2015. We do expect R&D expenses to finish the year and its current run rate of roughly 8.5% of sales. SG&A expenses are expected to be around 22% to 23% of sales for the full year 2015, as we build out our sales channels, strengthen our application engineering and invest in [indiscernible] of Oracle across our business lines. Interest expense have fairly significant acquisitions should finish the year around $5.1 million or flat with 2014. Our equity investment in laser quantum should finish the year at approximately $2.5 million to $3 million. And our non-GAAP tax rate is still expected to be around 36%, but I'd highlight that both our tax rate and adjusted EPS does not include any significant foreign exchange volatility which could impact both figures. I'd also highlight that this rate does not include the U.S. R&D tax credit which is currently under consideration of the U.S. Center, if this credit is renewed, it would have a favorable impact to our rate. Our fully diluted shares outstanding should be around $35 million. Restructuring expenses in the fourth quarter will climb to $2 million to $3 million as we build momentum on the 2016 restructuring program. Finally, the acquisition of Lincoln Laser company which was announced earlier today will be funded with cash on hand and is not expected to have a material impact to our financial results of capital structure in 2015. In summary, we feel very good about the state of our business and how effective we've been executing on our strategic and operational plans despite a challenging capital spending climate. We also feel well positioned to deliver profit growth in 2016 and believe we're on an accelerated track to achieving our strategic goals. This concludes my prepared remarks. We'll now open the call up for questions.

Thank you. [Operator Instructions] And your first question comes from the line of Lee Jagoda of CJS.

Hi, Lee.

So John, can you talk a little bit about the product offerings you plan to introduce at the various trade shows during Q4? And maybe contrast and compare those with ones you introduced last year and if you could even go a little further and provide a progress report on the products you introduced last year and how they sold into the OEMs?

Yeah, well I mean that’s kind of covering a lot of ground. So, the first one that I highlight is within the Precision Motion business, we have a couple of new optical encoder offerings that are really – I mean it's trade shows, but really it's just working with your launched customers, there is a whole [indiscernible]. And two different encoders that really open up the motion portion, one that helps us operate in more let's say a severe environment, non-clean environments, a lot of optical encoder struggle with the contamination some of the industrial settings. So we now have an encoder that gets around that and we think it's going to make a big impact for us. The second one is a more miniaturized, lot of the robotics applications you're trying to manage the motion control in the tight space in the joints on the robots. And we lead the way in the encoder space with having low profile and miniaturize encoders and we've taken that to the next level. So both of those products are reaching the market sort of Q4, Q1. They're in the hands of customers now in test and in designing effort. So that’s going to make a big impact for us in the motion business, and we did not have that a year ago. We really didn’t have significant launch with new products in motion. So, I think that’s the first thing I would say. When you go into the medical space, a number of things happening in the NDS and also on the JADAK business on the RFID side. It's not so much any new product for RFID, it's really just the breath of customers that are now working to adopt RFID. We've had the offering and so we've seeded that into a number of OEMs and you'll see more and more of the medical equipment launching RFID as a future of the equipment and it should really been used to do a lot of things but to track what's happening with parts of the system [indiscernible] consumables or surgical tools that are using the equipment and they're tracking that through RFID, so that’s one. And then in the NDS business, you're seeing a lot of different launches, they were probably the most critical one, it's a 27 inch radiant ultra. It's a very bright and higher resolution surgical display at the 27 inch size and it uses gorilla glass, it's a scratch proof, easy to clean, very robust display and it's a brighter and better display than anything on the market. And you're seeing a lot of interest in that. So we didn’t have that last year, we had a number of other launches, some of which are actually radiology products and they did contribute a bit this year, and we think that the products we have this year are going to make a more significant impact.

Let me add to that a little bit, U.S. coming up with a large trade show conference that we're having in Europe. We are planning on launching some new technology focused around the integrated operating room, specifically you'll see us launch with some new Wi-Fi enabled technology, ultra wide band Wi-Fi that’s called zero wire that will be marketed both on an embedded solution as well as a product that will be standalone. We're also be looking at a 4K display that comes out into the market and then different form factors around the new displays as John mentioned earlier. We have new connectivity devices as well as new informatics that were also launching, that really enable our OEM to start integrating and operating them in a very proprietary way. So, NDS business in particular is going to have a number of big launches and do have products to showcase in that trade show.

That’s all very helpful. Switching gears to the commentary around some of the deterioration in the industrial end markets or the advanced industrial end markets. I guess two questions there, one, how were October trends looking? And two, just to be clear, is it really just the end market or at all are we losing share, maintaining share where do we stand there?

Well, I mean you're seeing this primarily in two places as we mentioned this. It's in the laser businesses and it's not all the applications, it's more in the industrial side of laser and then it's in the western business. And in neither case that we track any cases where a customer is actually dropped us, it's just the volumes and the timing of orders in the ongoing programs. And I would say that when the October trend is still early days there, but I mean that’s factored into the way we guided it, so but still a couple of months on making the trend up or down that’s how we've got a $5 million range on the thing, there is room for it to kind of go in either direction and we tracked – we clearly look at order in shipment trends and then we'll revisit that. We think we've got it dived in the right way based on the way we seem to date.

Okay, great. And then Robert, one more and I'll hop back in queue. Any changes in your expectations for free cash flow for the full year given the order and capital movement in the quarter?

No, I was hoping to make up for some of the performance in working capital in the fourth quarter and I think things are around that trajectory. We got really what I would say is third quarter while it was good from an operating cash flow it should have been a lot better, but we got lots with receivables and we're held up frankly because of the sales linearity, so products went around later and so we can collect it within the quarter. And there are some higher inventory levels that will bleed down pretty dramatically in the fourth quarter and get it to the right levels. And solution make up [indiscernible], we have our operating cash flow back on the original [indiscernible] with patient.

Great. Thanks very much.

Yeah.

Thanks, Lee.

Thank you. [Operator Instructions] At this time, there are no further questions. I'll turn the floor for closing remarks.

Thank you, operator. And so I'll conclude today's call by saying we're pleased with the resiliency we showed with the company in Q3. As I said, we have very strong execution across the company and we had enough of our revenue base moving in the right direction to deliver organic growth, despite a challenging market on the industrial side of the business. We feel very good about our leadership team and our talent base that we build across the company. We're convinced we have the right strategies and initiatives in place to sustain profitable growth. As I said in our last call, our talent, portfolio of technology and strategic capabilities are all better than they were a year ago and I think that continues to be true. We clearly did see a bit of downward shift in the macro environment for advanced industry of technologies, particularly those tied to end user demand in China. The good news is we see a more positive near term vector in medical applications and that helps to stabilize our revenue base. Our strong execution capabilities as well as our productivity and restructuring programs give us a confidence we can drive improved profitability, even in the phase of the somewhat lower demand growth environment. Our balance sheet and our cash generation are strong and that gives us the flexibility to further improve the company through acquisition. All we're at set this up well to finish our 2015, with full year performance we'll be proud of in terms of revenue, organic growth, profitability, cash position and the ultimate strategic positioning of the company for the future. We're very proud of what we accomplish here at GSI over the last several years. We've taken a company that had numerous challenges and limitation. We fundamentally transform the talent base portfolio and the operating capability of the company. More importantly, we built – I would call a share set of values and visions for the future here. Our vision encompasses at GSI that’s much larger, more successful, more important to our customer base and more valuable to our investor base and is widely recognized as one of the most respected technology companies in our space. We're not there yet, there is still work to be done. But we're all excited by the progress we've made together and by the significant opportunities in our future. We're extremely focused on delivering on that vision. In closing, I'd like to point out that we will be presenting a four upcoming investor conferences, all of which will be in New York. First will be up at Stevens Fall investor conference on November 10, then the Stifel 2015 Healthcare Conference on November 17, the Needham Annual Growth Conference on January 12 and the CJS Securities Winter Conference on January 13. We hope to have the opportunity to meet with many of you at these events. But I appreciate your interest in the company and your participation in today's call, and I look forward to joining all of you on our fourth quarter earnings call in March of next year. Thank you very much. Today's call is now adjourned.

Thank you for your participation in today's GSI Group 2015 Q3 earnings conference call. You may now disconnect.