NVE Corporation (NASDAQ:NVEC) Q2 2024 Earnings Call Transcript

NVE Corporation (NASDAQ:NVEC) Q2 2024 Earnings Call Transcript October 18, 2023

Operator: Hello, and welcome to NVE Corporation Conference Call on Second Quarter Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to Daniel Baker, President and CEO. Sir, you may begin.

Daniel Baker : Good afternoon, and welcome to our conference call for the quarter ended September 30, 2023. This call is being webcast live and recorded. A replay will be available through our website, nve.com. I'm Dan Baker, and I'm joined by Accounting Manager and Principal Financial Officer, Daniel Nelson. After my opening comments, Daniel Nelson will present our financial results. Then I'll cover marketing and new products, and we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through the SEC's website, our website, and on X the platform formerly known as Twitter.

Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments in the industries we serve, risks and uncertainties related to future sales and revenue and risks of credit losses as well as risks listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2023, as updated in our quarterly report on Form 10-Q for the quarter ended June 30, 2023. Actual results could differ materially from the information provided and we undertake no obligation to update forward-looking statements we may make.

We're pleased to report strong earnings and cash flow despite decreased revenue from a record quarter a year ago. Daniel Nelson will cover the details of our financials. Daniel?

Daniel Nelson : Thanks, Dan. Total revenue for the quarter ended September 30, 2023, decreased 33% to $7.13 million, compared to $10.7 million for the quarter ended September 30, 2022. The decrease was due to a 32% decrease in product sales and a 92% decrease in contract R&D. The decrease in product sales was against a tough comparison to last year when product sales increased 59% and a reflection of the semiconductor industry downturn. The good news is that forecast are for a strong industry [technical difficulty] is projecting a 20% increase in semiconductor sales after a 12% decrease this year as demand rebounds for most application lines. The decrease in product sales was primarily due to decreased purchases by existing customers.

Product sales to defense markets were especially weak in the quarter. This was related to the timing of procurement cycles, and we expect these sales to recover in coming quarters. The decrease in contract R&D revenue was due to the completion of most contracts. But we have new active contracts and contract R&D is expected to strengthen later this fiscal year. Total expenses decreased 17% for the second quarter of fiscal 2024, compared to the second quarter of fiscal 2023, primarily due to a $202,926 credit loss provision reversal, partially offset by a 2% increase in R&D expense. The provision for credit loss reversal was due to a reassessment of our allowance for credit losses based on payments and debt customer information as of September 30, 2023.

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Interest income for the second quarter of fiscal 2024 increased 46% due to higher yields on securities purchased after September 30, 2022. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes decreased to 8% for the second quarter of fiscal 2024 compared to 19% for the second quarter of fiscal 2023. The decrease was due to the reversal of $202,926 credit loss provision and changes in the amounts and timing of tax deductions and credits. Our effective tax rate can vary from quarter-to-quarter. Our effective tax rate in subsequent quarters will likely be higher than the effective tax rate in the quarter ended September 30, 2023. The 22% decrease in net income for the second quarter of fiscal 2024 compared to the prior year quarter was primarily due to decreased revenue, partially offset by decreased expenses, increased interest income and a lower effective tax rate.

Net margin was remarkable -- was a remarkable 65% of revenue. For the six months -- for the first six months of fiscal 2024, total revenue decreased 12% to $16 million from $18.1 million for the first six months of the prior year. The decrease was due to a 10% decrease in product sales and a 68% decrease in contract R&D revenue. Net income for the first six months decreased 11% to $9.13 million of $1.89 per diluted share from $10.2 million or $2.12 per diluted share for the first half of fiscal 2023. Net cash flow provided by operating activities increased 11% to $10.4 million for the first half of fiscal 2024 compared to $9.35 million for the first half of fiscal 2023. The strong operating cash flow more than cover our dividend so far for this fiscal year.

And cash plus marketable securities increased from $53.3 million to $53.8 million. Now I'll turn the call back over to Dan Baker to cover the business. Over to you, Dan?

Daniel Baker : Thanks, Daniel. I'll cover products, marketing and our shareholders' meeting. NVE's line of the world's smallest DC to DC converters recently qualified for the prestigious CE mark, under an EU declaration of conformity, which includes safety, electromagnetic compatibility and reduction of hazardous substances. Our distributors have told us the mark could enable additional sales in Europe. The key to qualifying for the mark was rigorous testing the International Standards for Radiated Emissions. Unlike most conventional DC to DC converters, our parts pass the test with no external components for electromagnetic compatibility compliance. Also in the quarter, we officially renewed our ISO 9001 certification. The new certificate is valid until October 2026.

ISO certification is a seal of approval from a third-party governing body that NVE meets the international standards of excellence published by the International Organization for Standardization, or ISO. ISO 9001 helps ensure consistent quality. Trade shows are an important part of our marketing strategy. Our distributors exhibited at several shows in the past quarter. We exhibited under our own banner at the Medical Design and Manufacturing Trade Show last week in Minneapolis, part of the advanced manufacturing event. Minnesota is a healthcare industry hub and medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power and superb reliability. The nearby show was also a chance for some of our employees who don't usually go to trade shows to interact with customers and prospects.

We demonstrated our new high-field tunneling Magnetoresistive sensors, which have a unique omnidirectional capability and they can detect the high fields from MRI to enable MRI-tolerant medical devices. We showed our new ultra-high sensitivity tunneling Magnetoresistive sensors, which are ideal for catheter position detection and navigation. In these applications, an array of sensors on a catheter form a miniature compass using an externally generated field to determine the position of the catheter. Our sensor's small size allows them to be used in small diameter catheters and their precision improves positional accuracy, enabling more effective procedures. We also featured a new chessboard to demonstrate the wide operating latitude and power efficiency our sensors provide in medical and industrial applications.

Demos are also on our website and our YouTube channel. We held our Annual Shareholders Meeting in August at a nearby hotel. Unlike many companies, we returned to in-person meetings after the COVID-19 pandemic. Proxy advisory firms recommend in person annual shareholders meetings for good governance. All of our directors and officers attended along with our auditors. We had a chance to meet our shareholders and answer questions. Our shareholders could see and try out hands-on product demonstrations. In the formal meeting, each director was reelected. Named executive officer compensation was approved. Shareholders voted in favor of annual say on pay votes and the selection of our independent registered public accounting firm was ratified. We filed the final vote counts in a current report on Form 8-K shortly after the meeting.

There's a replay of the meeting with slides and product demonstrations on our website and YouTube channel. Now I'd like to open the call to questions. Tawanda?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Jeffrey Bernstein with Silverberg Bernstein Capital Management. Your line is open.

Jeffrey Bernstein: Hi, Dan. How are you?

Daniel Baker : Good, hi, Jeff.

Jeffrey Bernstein: So a couple of questions for you. Just wondering, have you delivered now all the backlog that had built up during COVID?

Daniel Baker : Well, we don't formally call it backlog because backlog has a gap meaning -- but we do look at order flow and orders in the system, and we continue to have orders in the system. So while we've recovered from some of the shortages that plagued many in the semiconductor industry during the pandemic, we continue to have strong order flow and orders that we're continuing to fulfill.

Jeffrey Bernstein: So in terms of your lead times, have those changed at all?

Daniel Baker : They have. It depends on the part, but our lead times are shorter. We have many parts in stock now that we didn't have in stock. We've always been better than most in the industry, we believe, during the pandemic because we are uniquely positioned in that we have integrated production here at NVE. We have front end, back end and control over most of our processes. So we're in better shape than most in the industry. And now we're in even better shape because some of the shortages have abated. We've increased our capacity with capital investments. We've increased our staffing. And so we can offer shorter lead times or parts in stock in many -- for many of our parts.

Jeffrey Bernstein: Yeah. Okay. And then can you just talk a little bit about the design pipeline sort of versus pre-COVID times? Is there a significant difference in the number of designs that you guys are working on?

Daniel Baker : Yeah, that's an interesting question. I think it's more, but I don't know that we have data that could support that. It's just a feeling that we've had more interest as companies are less worried about just getting parts then now they're looking also with new designs and longer-term things. The shortages of personnel, including design personnel, that plagued the industry during the pandemic seem to have abated, at least somewhat. So we're very optimistic also based on the feedback that we've gotten on some of our specific products, including our DC to DC converters, some of our angle sensors and I mentioned navigation sensors that are in particular, useful in the medical business. So our design activity is high.

Jeffrey Bernstein: Got you. And then in terms of just the overall number of customers who are ordering from you versus pre-COVID, what does that look like?

Daniel Baker : We think it's increased. Well, it has increased. We picked up some customers during the pandemic, during the shortages, and we've retained them by and large. So we have more customers than we had before the pandemic. We continue to pick up customers. But as we've said before, they sometimes came for the lead time, but they stayed for the quality product and the support that they get from NVE.

Jeffrey Bernstein: Got you. That's great. And then I'm just wondering, in terms of any design wins that you've had over the last couple of years, that you think will move the needle at some point as they ramp up? Or are the sort of individual designs just never going to be that important?

Daniel Baker : Well, we see some especially important areas where we've had design wins. And two, that I would highlight include charging stations for electric vehicles which is a major thrust to build out the infrastructure required to support the expected increase in use of electric vehicles. And we have a design win there that we've talked about before. We also have a design win in power conversion for energy storage systems, which is important for the conversion to green energy because green energy electricity -- mostly electricity has to be stored because the wind doesn't always blow and of course, solar energy goes away at night. So being able to store that locally is important. So these are growing markets that we see as having tremendous potential long-term potential. So those are design wins we pleased with any design win. But those, of course, are important because they address large, fast-growing markets where we have a convincing benefit proposition.

Jeffrey Bernstein: That's great. Thanks for the help today.

Daniel Baker : Thanks, Jeff.

Operator: Thank you. Please standby for our next question. Our next question comes from the line of Chris Jankosky [ph]. Your line is open.

Unidentified Analyst: Hello, thank you for taking question. I want to ask you on your YouTube channel you have an example for using your chips for a DFI device and for a driver for an electric bike? Do you think those -- like your prices are practical to enter these markets?

Daniel Baker : So you said for -- I think you said for driving electric bike motors, yeah. So we have a YouTube video where we demonstrated several of our parts, our isolators and our DC to DC converters for power conversion to drive an electric motor. In that case, it was for -- it was an electric motor that was used in electric bike. And that particular market is an interesting market for us, for the power conversion there. And we do believe that we have a competitive proposition where we can improve the efficiency of those types of systems. We can decrease the size and we believe that it's cost effective. There's a broader market for power control of all kinds of motors. So motors use a significant portion of the electricity that's used in the world, as you might expect.

And increasing that efficiency can -- even a little bit, can significantly help the overall challenge of converting to electricity and to carbon-free energy sources. So we see that as an excellent opportunity, the general category of motor control.

Unidentified Analyst: Can you give us some kind of a neighborhood figure as to how much efficiency gain you would have or kind of like an average industrial motor?

Daniel Baker : Yeah, that's -- it's difficult to come up with an exact number because it depends on the motor and the application. As you can imagine, it's not like it's going to change from 50% to 99%, though. Those sorts of changes -- those sorts of improvements and efficiency have been rung out in the past. But even slight improvements, a percent or even less than 1% are significant because they get multiplied by a number of motors and it turns into a lot of electricity that can be saved. So it's difficult to quantify it, but we can offer higher efficiency than conventional electronics, and that's important to our target market.

Unidentified Analyst: Okay. That's good to hear. And higher efficiencies because you -- you can say that, generally speaking, you do better current sensing than the existing systems.

Daniel Baker : Exactly. Yeah. Part of it is current sensing. And then part of it is the efficiency of our DC to DC converters. And then the other part of it is the speed of our isolators, which provide an interface between the controls and the power switching transistors. And the reason that's important is because these transistors are very efficient when they're either on or off, but when they're transitioning they can -- they burn electricity. So that's a major source of inefficiency. So the faster that one can switch those devices, the more efficient they become and our devices are extremely fast.

Unidentified Analyst: Okay. That is good to hear. And are you -- and this is something I always ask, but are you making inroads in kind of like more wide broader market industrial applications like this?

Daniel Baker : We are. So the question was broader markets. So you mean our traditional industrial control market and the industrial Internet of Things. And we continue to have a strong position there. We've highlighted -- we would highlight some of our smart sensors, which are used in robotics for industrial control and highly connected robotics. Those parts have been -- we've been pleased with the reception for those parts. We continue to make isolators that provide the nerves of those systems and the sensors that provide the eyes, if you will, of the robotics that go into industrial control systems. So that remains a strong market for us.

Unidentified Analyst: Okay. And another YouTube video was about using your -- again, your current sensors for -- for GFI, which is kind of the safety plug you have in your bathrooms. Is that a market you can enter?

Daniel Baker : I see. I missed your -- I missed that the first time you asked it. So what you were talking about would be GFI or ground fault interruptors or sometimes it's called GCFI ground fault circuit interruptors. And we have a demonstration on our website and on YouTube that shows how to do that. So that's an interesting market for us. The home market, which would be in things like bathrooms and kitchens is rather commoditized. But there is an industrial market for such devices, which we are looking at. And more importantly, we're demonstrating the extreme sensitivity and very wide range of our current sensors. And as you correctly pointed out, current sensors are important for controlling motors and doing it efficiently.

So that allows motors to become more efficient in the system. And also our sensors use very little power themselves. So conventional current sensors might use a significant amount of power so to measure the current in order to control the current in order to improve the efficiency, you're spending some of that savings with the current sensor. And our current sensors use very little power. So we see that as a demonstration for a particular application, but also of the broader applicability of those parts in low power, high sensitivity, wide dynamic range current sensing.

Unidentified Analyst: All right. And for general, just the couple of days, there's been news out of Taiwan that the inventory correction is ending clients ordering more chips. Are you -- have you seen this in the last week or so?

Daniel Baker : We've seen [technical difficulty] until a recovery of the semiconductor industry, as Daniel alluded to in the prepared remarks, and so that gives us reason for optimism for the coming quarters.

Unidentified Analyst: But have you seen it in your own order at your own kind of requests for inbound interest requests including…?

Daniel Baker : So you mean purchasing from foundries.

Unidentified Analyst: Well, I mean you're just client inquiries and client orders you seem like -- cyclical uptick?

Daniel Baker : We are seeing some improvement. It's been gradual. It would be difficult to point to a particular week and say that we saw improvement. But in general, we've been seeing an improvement in the order flow, and that makes us optimistic about the future.

Unidentified Analyst: All right. That's it for me. Thank you for your very detailed answers and good luck.

Daniel Baker : Thank you, Chris.

Operator: Thank you. Please standby for our next question. Our next question comes from the line of Steven Lewis with Lewis Capital Management. Your line is open.

Steven Lewis: Good afternoon. I had a question about your bond portfolio. Have you had any change in the way it's been managed in the last three to six months? You're showing a small a small valuation difference of only $1 million plus versus cost?

Daniel Baker : Yeah. So what we were showing for the unrealized losses in the bond portfolio, which I think is what you're referring to, is what's been happening is that in general interest rates have been increasing. And so that results in unrealized losses in our bond portfolio. So unrealized losses, meaning that while the value when we look them up and -- in the bank statement or we look them up online, the value is lower, but we still expect them to pay the face value or par value of the bonds. But the flip side of that is that interest rates have -- with interest rates increasing, is that it significantly increased our interest income, as you can see on the income statement. And that's because we've been able to reinvest our bonds as they mature in higher interest securities than the ones that they were originally invested in.

Steven Lewis: That's what you're doing now?

Daniel Baker : Yes.

Steven Lewis: In the higher rate. Okay?

Daniel Baker : Yes. So when we reinvest in a bond that matures so we have bonds that mature occasionally, and then we reinvest them and the interest rates are typically higher with the reinvestment with the new bonds than the old bonds. Some of our bonds might be several years maturity -- and so when we bought them several years ago, interest rates were lower. When we -- when those bonds mature in we can roll them over into higher interest rate bonds than our interest income increases.

Steven Lewis: Assuming you can forecast your cash flow near term, do you think you will eradicate the difference between cost and fair value by the end of the year?

Daniel Baker : Unlikely by the end of the year because the maturities of the bonds are longer. So we typically invest in multiyear bonds because we have strong cash flow and we don't expect to need the funds immediately. But -- so when the bonds mature, they -- we expect them to pay their proper value. So if we have $1 million bond, the book value might be lower now, but we expect it to pay off $1 million. But that will be over the term of the bond where the value will tend to converge on the par value and then the loss will decrease.

Steven Lewis: Thank you. Regarding the average hearing aid business, there has been a lot of publicity about the ability to buy cheaper hearing aids without having to go through the doctor. I haven't checked to see but has any comments on their call today. But -- is that business holding up versus your estimates?

Daniel Baker : The hearing aid business continues to hold up. It's an important part of our market. The broader market that you referred to about over-the-counter hearing aids and hearables is an excellent market for us. Hearing aids are a large underserved market. The estimates are that only 20% of those that could use a hearing aid seek help as you implied that many are discouraged by the cost as well as the inconvenient dispensing. So having over-the-counter hearing aids and lower cost hearing aids, we believe, will expand the market, and we have a convincing benefit proposition in hearing aids. So we see that as a good long-term opportunity.

Steven Lewis: Have you secured an OTC backlog?

Daniel Baker : We have talked about some design wins in that space and the broader hearables market, which would be things that would go in once a year but may not necessarily be a hearing aid. It's a relatively small market now, but we expect it to grow.

Steven Lewis: You said you are pleased with the solid earnings for the quarter and the six months. Does that mean that the actual results for the quarter September were within 3% to 5% of your estimate going into the quarter, so to be pleased?

Daniel Baker : Well, we were pleased under the circumstances of the industry downturn and the -- as Daniel mentioned in the prepared remarks that we have a defense business that can be lumpy and can be somewhat volatile. And it wasn't -- it was down significantly in the September quarter, but we expect it to recover in coming quarters. So in the context of the industry and the particular effects of the defense and the particular lumpiness of the defense business for us. We were pleased with the results. We were certainly pleased with the cash flow and the profitability that Daniel mentioned in the prepared remarks.

Steven Lewis: So you were please that the results were what you expected earlier at least three months?

Daniel Baker : Well, we don't provide, as you probably know, we don't -- like most companies, we don't provide forward-looking guidance, so there's not much to compare to, but we look at it and say, how did we do given the environment and given the difficulty of the fair. So yes, we were pleased with how our folks executed and delivering orders and bringing in new business. And the profitability, the efficiency and the execution that our team had for the quarter.

Steven Lewis: You're pleased with the back log?

Daniel Baker : We're pleased with the order flow, given the industry conditions, but the industry is improving as we touched on in other questions. And we expect the expectations are for a much stronger semiconductor market in the coming year in calendar 2024.

Steven Lewis: Thank you very much.

Daniel Baker : Thank you, Steven.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Pete [Indiscernible]. Your line is open.

Unidentified Analyst: Hi, Dan, with the significant patent portfolio the company has, do you see any opportunities to license some of those patents to create additional revenue streams?

Daniel Baker : We've looked from time to time at the possibility of licensing. And in particular, we talked about licensing our MRAM portfolio. We were a pioneer in MRAM, which is spintronic memory but our target market for that technology is in high-value low-density memories where we can build the type of fab that can be used as opposed to the multibillion-dollar fabs that make large-scale memories. So there's an opportunity for potentially licensing. It's a long-term opportunity. And then we have other ways of monetizing our intellectual property. We're very proud of our portfolio of intellectual property. And one way we can monetize that is private label sales, where we sell our products under another company's brand name.

So we're still manufacturing it. We're proud of our manufacturing capability. And so licensing the technology and not making it means getting that up. And it's also, in some cases, we've invested quite a bit in the technology and in the infrastructure, and it's not that easy for somebody else to build it. But we do explore opportunities to leverage our intellectual property portfolio in other ways than simply selling parts under our own brand.

Unidentified Analyst: Great. Thank you very much.

Daniel Baker : Thanks, Pete.

Operator: Thank you. Please standby for our next question. Our next question comes from the line of Collin McBirney with Topline Capital Management. Your line is open.

Collin McBirney: Hi, Dan. Thanks for taking the question. I was wondering on the -- in the past, you've talked about the lumpiness in defense. Could you maybe just comment like outside of if you kind of set aside defense, maybe either for the quarter or for the first half? Like is the business outside of defense, like flat? Or just to get a sense for kind of the run rate?

Daniel Baker : Yeah, that's -- we don't break down precisely our defense versus non-defense business, but defense was a major influence on the most recent quarter on the September quarter. And as I mentioned in response to a prior question, we were pleased with the results, setting that aside for the non-defense business. It has been a slow industry and that affects us. But the defense was a particular -- there was a particular drag on revenue in the most recent quarter.

Collin McBirney: Got it. And then on the defense business, are those orders placed by like the U.S. government like the DLA or something? Or are they typically placed by a prime contractor? And then maybe you could just like touch on like maybe how many like customers you have in defense, like is it one that places an order for a couple of million dollars? Or is it like 10 of them and they kind of come in lumpy -- it sounds like it's very lumpy. But is that because there's like one customer, the U.S. government or something or yeah?

Daniel Baker : The customers are typically prime contractors, defense contractors. And it's not one, but it's not large number either. There's a relatively small number of large defense contractors. And so the lumpiness tends to be tied to defense procurement cycles and our products that we sell into the defense industry are primarily anti-tamper products, which are used to protect electronic technology in large systems. So those tend to be tied to particular procurement systems for the large defense system. We can't say what types of systems they are, and we often don't know for obvious reasons, but they tend to be things that take a while to build and the -- so we get big orders when the systems are starting to be built and then they can sometimes drop off. And that's what happened in the September quarter.

Collin McBirney: Got it. Okay. And then do you have a sense for -- without getting any specifics, I mean, are some of the equipment used in Ukraine and/or kind of Israel's response to your recent terrorist attacks like -- I mean it seems like the environment for defense spending over the next year is as good or better than it was a year ago. And I guess, how do you kind of triangulate that in terms of the kind of go-forward expectations versus where things have been?

Daniel Baker : Yeah. That's a good point, Collin. We would certainly hate to have to say that those conflicts are good for business, but what the government has said publicly what the Defense Department has said is that it's important to protect electronics for systems that are going to foreign sales to allied sales because those tend to be especially vulnerable to reverse engineering and falling into unfriendly hands. So -- in that sense, I suppose it's a positive environment for our defense sales these are relatively long procurement cycles. So it's not something where if a defense system is shipped, we're immediately gaining revenue from it. We do look at it, though, that we're proud to do our part, a small part but an important part of protecting the U.S. technology and protecting ours in our Allied war fighters.

Collin McBirney: Okay. Great. That makes sense. And obviously, personally, I fully support the U.S. military. It is -- and maybe last one I had, just on -- I think if I -- I know it's going to serve me correctly. I think sometimes you guys said that kind of fiscal '24 -- your fiscal '24 revenue would be somewhat similar to your fiscal 2023 revenue. Obviously, the first half was kind of started a little bit lower? I mean, that would sort of imply something closer to like $11 million a quarter for 3Q and 4Q each. I mean is something like that potentially feasible? Or is there kind of a change in maybe the outlook or maybe I misunderstood previous comment.

Daniel Nelson : Yeah. Collin, I think the comments we made before about revenue being the same was within the context of anti-tamper sales. So we were actually discussing -- talking about the lumpiness of the anti-tamper sales business, and we -- the comment we made was specifically related to that we did not expect to see a significant difference in the lumpiness of that business. And not particularly revenue for the -- for full fiscal 2024. So yes.

Collin McBirney: Okay. Got it. And so it's presumably the kind of the positive lump in into kind of 2Q '23 and then the positive lump in 4Q '23, those were both from the defense. So assuming that comment still holds you would have kind of a couple of positive lumpiness to match last year's lumpiness?

Daniel Nelson : We expect anti-tamper sales defense sales to increase. We expect defense sales to recover in the remaining quarter of fiscal 2024. But as far as the timing is hard to say, again, because of the lumpiness of this part of our business because as Dan mentioned in his comments, sales are tied to defense procurement cycles and defense contracts, which can be terribly difficult to predict.

Collin McBirney: Got it, understood. Okay, great. Well, thank you guys. Appreciate it.

Operator: Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Daniel for closing remarks.

Daniel Baker : Well, thanks, everyone. We were pleased to report strong earnings and increased cash flow despite the challenging conditions. We look forward to speaking with you again at our next earnings call in January.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.