ATMI Inc (ATMI) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: ATMI Inc. (ATMI)

ATMI (NASDAQ:ATMI)

Q2 2013 Earnings Call

July 24, 2013 11:00 am ET

Executives

Troy Dewar - Director of Investor Relations

Douglas A. Neugold - Chairman, Chief Executive Officer and President

Timothy C. Carlson - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Krish Sankar - BofA Merrill Lynch, Research Division

Avinash Kant - D.A. Davidson & Co., Research Division

Jairam Nathan - Sidoti & Company, LLC

David Charles Fondrie - Heartland Advisors, Inc.

Operator

Good morning. My name is Kaila, and I'll be your conference operator today. At this time, I would like to welcome everyone to the quarterly financial results conference call. [Operator Instructions]

I will now turn the call over to Troy Dewar.

Troy Dewar

Thank you, Kaila, and good morning, everyone. Welcome to our review of ATMI's 2013 second quarter financial results. Joining me this morning are Doug Neugold, Chief Executive Officer; and Tim Carlson, Chief Financial Officer.

The press release we issued this morning, along with the presentation material which accompanies our remarks, are available on the Investor Relations section of our web page at investor.atmi.com.

As a reminder, comments made by any of the participants on today's call may include forward-looking statements within the meaning of U.S. Federal Securities Law. These forward-looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied. A more complete disclosure regarding forward-looking statements can be found at the bottom of our press release. We assume no obligation to update any forward-looking information.

Finally, I want to remind you of our Analyst Day on November 21 in New York. We're planning a full day of information sharing designed to provide you with a comprehensive look at our strategy and profitable growth plans. I hope you can all make it. Look for more details coming to you in the next few weeks.

With those formalities out of the way, I will now turn the call over to Doug.

Douglas A. Neugold

Thanks, Troy. As you can see from the press release we issued this morning, as well as the presentation materials we provided on our website, results this quarter were mixed.

As we've discussed for a while now, we have a strong franchise in electronic materials and, especially, electronic materials used in advanced devices, but we believe the growth opportunities are different than they had been historically. At the same time, we believe our technologies have application in other high growth markets and have been working to establish positions where we think we can.

In the quarter just ended, we have seen the present and are getting a glimpse of the future. The wafer start environment we encountered in Microelectronics remains challenging, and we are limited in our ability to achieve meaningful growth.

On the positive side, we achieved record revenues in LifeSciences and earned our first non-U.S. license fees for our electronic waste recovery solution, 2 important milestones and 2 important growth platforms.

Let me share a bit more about where we think things are and where we think they can go. I'll start with Microelectronics.

Last quarter, we spoke about wafer starts and felt they should meaningfully improve as we move through the second quarter. At a macro level, wafer starts growth didn't seem as strong as we thought it might be, probably a reflection of uncertainty in global markets for electronic devices. That being said, there are certainly areas of strength within our customer base, especially for the foundries with solid momentum around 28-nanometer production and 20-nanometer development.

Outside of these pockets of momentum, from our perspective, things are less robust. We saw meaningful wafer start reductions at some logic accounts, resulting in lower demand for our products. There has been commentary from many participants in the semiconductor supply chain regarding the challenges at the demand and manufacturing level across the mobile, tablet and PC markets. With all of these factors taken into consideration, we did not perform as well as we thought we would in Microelectronics. Based on our most recent discussions, we're planning for wafer start growth for the full year at or below the low end of our previous guidance of 3% to 5%.

In addition to whatever growth wafer starts provide, we also expect to see multiple advanced materials wins ramp more aggressively than we have seen so far this year, including plating and advanced copper cleaning chemistries and certain other deposition materials. We anticipate new product launches and improvements in flat-panel display markets as well, which will help us to achieve better growth in Microelectronics through the second half of the year.

Longer term, we continue to make good progress, working with our customers on development activities for advanced nodes. We should start to see more volumes for 20-nanometer over the next 2 to 4 quarters. And in addition to 20-nanometer, we are actively engaged with leading chip makers on 16-,14- and 10-nanometer node development.

Our technical capabilities and strong customer relationships give us opportunities to expand our market positions and partnerships to address the issues created, as material development plays an ever larger role in chip performance.

In LifeSciences, momentum for our single-use solutions is growing, as the industry adoption of the single-use technology approach proliferates. We've built a real business with leading customers based on differentiated and, in certain applications, disruptive technology.

Recently, we've had several customers in the vaccine space buy multiple units of our high-end bioreactors, a clear sign they are moving to high-volume manufacturing. We have biosimilar producers in the monoclonal antibody space placing orders to enable high-volume capacity. It was a very exciting time to be involved in the single-use trend, and we are beginning to see benefit from our investments in this space.

In the second quarter, we introduced a very innovative approach to testing the integrity of the assembled bioprocess vessels when manufacturing is completed and, most critically, at the end user's point of use. We call it helium integrity testing. This proprietary approach ensures leak-free bags and gives them assurance and peace of mind at the point in their process, where it is highly valued, currently not available and greatly needed. We expect to reach agreements to commercialize this innovative technology with customers and other industry partners in the second half of 2013 and beyond and see an impact in 2014.

As I've pointed out in previous conference calls, our future higher growth prospects are tied to secular demand trends outside of the semi market, relying on a core set of technical capabilities, which, in many cases, were developed for the semi market. I just spoke about LifeSciences, clearly an exciting opportunity.

The next solution on the path to commercial and financial impact is eVOLV, which is the deployment of our formulated chemistry capability to address the world's electronic waste problem. Compared with other approaches, we are able to recover more metals, non-precious and precious, at a higher purity level and in a more sustainable way using green engineering principles to develop a true zero-waste electronic waste recovery system. Interest in our technology is high and increasing. We've told you about our first agreement and promised more to come. Today, I'm happy to announce we have signed another agreement and now have partners in the U.S. and Asia focused on commercializing the solution, which demonstrates the value our technology brings.

Based on the 2 agreements we have in place and others in the work, we expect to earn additional licensing revenues during the second half of 2013 and see the beginning of meaningful royalty revenues in the second half of 2014, as customers begin running their plants and ramping to volume. A typical agreement enabling a license to process -- enabling a licensee to process 5,000 tons per year of electronic waste, could generate a royalty stream for ATMI of $3 million to $5 million annually. That 5,000 tons represents a very small percentage of the overall global market. We are at the point where, in addition to the growth expected in Microelectronics, several opportunities we have invested in are poised to make positive contributions to our financial results beginning this year.

Our LifeSciences business should reach breakeven by the fourth quarter of this year and continue to improve the single-use technology, notably high margin consumables begin to meaningfully ramp.

eVOLV is expected to earn additional licensing revenues during the second half of this year, leading to meaningful earnings impact during the second half of next year. While these things are happening on the growth front, there are actions we are taking to better align our organizational cost structures with the markets we serve and improve the profitability of our established business.

I spoke about several new product launches planned for the second half of the year, which typically produce a more favorable margin profile for us. Gross profit margin should improve with increasing volumes and more favorable mix, and we continue to evolve our organization to reflect the needs of our concentrating customer base.

Finally, I spoke with you during our last call about having and communicating a well-developed capital allocation strategy to further enhance the shareholder value we are creating. We've worked hard over the last several years to develop a portfolio of businesses, which consistently generate cash from operations and the resulting strong balance sheet. This is a valuable position, and we want to make sure we are deploying it in the most beneficial manner. We've considered many alternatives. Recognizing the dynamic nature of the markets we serve and the opportunities this creates, we feel that the best way for us to manage our excess cash flows at this time is through share repurchasing. Tim will share more details with you.

To conclude, we feel fortunate to have developed several very good opportunities to deploy our technologies into attractive end markets. We think these businesses should continue to grow profitably over the next few years. During this timeframe and recognizing the potential for more modest wafer start growth, ongoing pricing pressure and material efficiency gains, we still expect to see growth rates above wafer starts within our Microelectronics business. The growth platforms we have developed for LifeSciences and eVOLV are gaining traction and moving forward as we expected. A lot of value has been created for customers, and we are on the verge of seeing them ramp and creating new value for ATMI and shareholders.

Now let me turn it over to Tim to share more financial details.

Timothy C. Carlson

Thanks, Doug, and good morning, everyone. Our second quarter revenues were up 3% sequentially, but down 4% compared with last year.

Gross margins were up sequentially from the first quarter, but off last year's level as lower volumes and less favorable product mix kept margins in check. We anticipate that gross margins will migrate back above 50% and more favorable product mix.

Operating margins followed similar trends despite cost control activities that resulted in lower operating expenses.

During the second quarter, we realized a $1.5 million gain on the sale of investments. Microelectronics revenues improved slightly on a sequential basis, but were down 5% compared with the last year.

Overall wafer starts grew more slowly than we expected, as we saw significant weakness at some key memory and logic fabs. While implant growth outpaced the market, copper materials were impacted by customer's ongoing efforts to reduce their cost per wafer. We anticipate trends will improve during the second half of the year. Our market position in the advanced nodes remain strong, and we have several opportunities to expand our market share there. We also expect to launch several new products, which should help us grow sequentially. Finally, we anticipate improving demand trends in the flat-panel display industry, which has been down over the last several quarters.

LifeSciences, again, posted strong record revenue, coming in just shy of $12 million. We continue to see growing demand for our single-use technology product offerings, as we see the market leading up to industry adoption of this manufacturing approach.

We also benefited from the new product launch of our gen 3 LevMixer. To date, we have placed over 800 pieces of equipment, both mixers and bioreactors, and we anticipate a number of these will move to high-volume manufacturing over the next several years, which should benefit us through growing demand for higher margin consumables.

Our combined single-use technology offerings comprised 56% of total segment revenues and grew 8% year-over-year. Profitability was a little lower, as we invested in needed infrastructure to support the upcoming growth in revenues expected for the business. We remain confident that the business should achieve quarterly break-even profitability at approximately $15 million of revenue, which is expected in the fourth quarter of this year given anticipated customer wins and technology ramps.

Total cash and marketable securities dropped to $125 million during the quarter, as we consumed over $15 million in capital expenditures, primarily for our new Korea manufacturing facility; made $9 million of technology investments in the LifeSciences space; continued with our share repurchase program; and built working capital.

Inventory increased as we built SDS stock ahead of the transition to our Korean facility, and we purchased raw materials to support anticipated revenue ramps in LifeSciences. We expect cash from operating activities will improve through the balance of the year.

As I conclude, I'd like to share with you some thoughts on our capital allocation strategy. First, we look at sources of liquidity. Top of the list is cash generated from operations. Our target is to generate around $20 million on average per quarter in cash from operations. Next is the outstanding cash balance and debt capacity on our balance sheet. We are currently in a net cash position with no outstanding debt. Under the right circumstances and for the right opportunity, we'd be comfortable with our ability to raise sufficient debt. For us, the right circumstance for opportunity which would entice us to tap into the debt market would be for a strategic, significant acquisition to bring us complementary product offerings or allow us to expand geographically.

For uses of cash, our first priority is to keep cash on hand to fund internal investments in R&D, capital expenditures and working capital. Secondly, we want to ensure that we have ample cash on hand for smaller acquisitions or licensing opportunities. We currently expect that any excess cash will be used to repurchase shares under our existing share repurchase program. Our current program has about $34 million remaining, which represents approximately 4% of outstanding shares at the current share price. Based upon the associated trading volume restrictions, we anticipate it will take 12 months or more to complete the program.

In summary, while second quarter results were somewhat mixed, we see some very positive momentum in 2 of our main growth platforms, LifeSciences and eVOLV. Even with the tempered outlook for wafer starts, we anticipate each of our businesses will achieve sequential revenue growth each quarter for the balance of the year.

LifeSciences is on track to hit break-even profitability during the fourth quarter, and we expect additional license revenues from eVOLV during the second half. We're also on track to achieve 20% operating margins by the second half of 2014.

With that, I will turn the call over to the operator to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Krish Sankar.

Krish Sankar - BofA Merrill Lynch, Research Division

Doug, a couple of them. Number one, when you look into the September quarter, can you tell us how you see the wafer start environment for the industry and for ATMI, specifically?

Douglas A. Neugold

I certainly have some feelings. But semicon was an interesting place to talk to a lot of people. And obviously, there has been a lot of commentary about things that are going on. So we're planning, and I guess that's the best way for me to answer it. Right. I'm certainly not the person who's going to give you the finite on wafer starts. But we're planning that they'll be lower than we thought they would be last time we spoke. So we were thinking in the 5% range last time. For the third quarter, I think it's going to be lower than that. We're still planning on growth, though. So from our planning perspectives, we're sort of low-, mid-single digits range, Krish. And that's -- obviously, there's a lot of things that are being disclosed almost as we speak about what's going on in the industry. So we're cautious. We think there will be some growth to balance the downward things we've heard. We believe that one of our important customers is trying to do all they can to shift some logic capacity to memory. We're comfortable that there's a lot of 20-nanometer stuff intact that will -- it's not huge volumes, but it will be -- it will start in the second half of the year. We're going to see more wafers flowing through than we have. We'll -- we've talked about some other -- a little bit of memory growth in some areas. So there's a lot of counterbalancing things. But when all is said and done, for us, slightly more positive than negative. So low-, mid-single digit growth in the quarter is what we're planning around.

Krish Sankar - BofA Merrill Lynch, Research Division

Got it. That's very helpful, Doug. And also, obviously, the outlook has been tempered versus 3 months ago. At what point in Q2 did you start seeing your logic customer start lowering expectations?

Douglas A. Neugold

Yes. I don't know if it was lowering expectations as much as the discussions about uptake, right? Some -- a lot of our businesses are sort of returns-oriented [ph]. So I don't think there was a particular period. In retrospect, I think some of that logic slowness occurred in Q1, though it's often hard to see it in Q1, and carried over into Q2. So it -- there's a couple of people in particular, who's capacity -- utilizationally rates are kind of way down compared to where they had been prior quarter, prior year. So more a general thing that we've really kind of quantified as we move through the quarter.

Krish Sankar - BofA Merrill Lynch, Research Division

All right, helpful. And then, a final question for Tim. What should we model for CapEx for this year?

Timothy C. Carlson

CapEx for the year is going to be in the $40 million to $45 million range, primarily as a result of our investment in Korea -- our new facility in Korea. And then, we should ramp down next year to more historical levels.

Krish Sankar - BofA Merrill Lynch, Research Division

[indiscernible] $25 million to $30 million...

Timothy C. Carlson

Correct, correct.

Operator

Our next question is from the line of Avinash Kant.

Avinash Kant - D.A. Davidson & Co., Research Division

So I think, Tim, in your prepared remarks, you talked about sequential growth in most -- almost all segments. Are you talking sequential growth in Q4 compared to Q3 also?

Timothy C. Carlson

We've got quite a bit of momentum in our LifeSciences business and our eVOLV business, and we've got a couple of new products that are gaining traction within the Microelectronics space that we feel we'll see that [ph] growth.

Avinash Kant - D.A. Davidson & Co., Research Division

So Microelectronics...

Douglas A. Neugold

[indiscernible] a lot of discussion for us through the year, Av, has been in the copper business. I think we've always talked about the fact that, since it's mature now, there's all those obvious downward pressures around efficiencies and pricing, and the counter -- and we always expect that. What's been challenging for us is that we've been working on a couple of things in the plating and advanced cleaning space, and I would say they're 1 to 2 quarters behind where we thought they would be in the ramp to offset that ongoing pressure. So where we are right now? In the most recent discussions we've had, we think we'll start to see the effect -- the positive effect from some of that stuff in Q3 and moving into Q4. So that -- ours is a very -- we think there will be overall wafer start growth, and we think we'll see the new product effect as we move through the year.

Douglas A. Neugold

Yes, the new products out are primarily at the 20-nanometer node.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. So basically, typical seasonality would have called for Q4 to be maybe mildly weaker than Q3, but you think you can offset that given the new products you have...

Douglas A. Neugold

I think the seasonality will definitely be there. I think we have a couple of specific things in our product mix that will allow us to at least slightly offset that.

Avinash Kant - D.A. Davidson & Co., Research Division

Perfect. And eVOLV, of course, that's been a very new product. Could you give us some idea, what's your expectation for revenues this year? And I'm trying to figure that out because you gave us that you have 2 customer signed up. You gave us some idea of how much revenue could be generated given the level that they could at. So if you're thinking about year-over-year growth in 2013 versus '12 or 2014 versus '13, we need -- if we could get any baseline in terms of which level do you think eVOLV will be at this year. Maybe that will be able to help us.

Timothy C. Carlson

Yes, so happy to help. So this year's revenue will be licensing agreements. So the way our business model is evolving, we may co-invest in some places, but I don't need to talk about that now because there's nothing real in front of us. What we have right now are licensing agreements. And the licensing agreements can vary based on the expectations that the licensee has for, frankly, volumes. So we're negotiating all the agreements on a one-off basis. You should expect, I'll say, a couple to several million of licensing revenues in the second half of this year based on everything we know. We will probably have more licensing revenues in the first half of next year based on everything we know about the state of our agreements. So they're meaningful revenues. That's the way licensing agreements are, right? There's -- it's a good revenue to get. We have 1 customer who has spent the better part of the last few quarters building a facility. We expect them to ramp in the first half of next year and have consistent revenues through the second half of next year. Our other licensee is just getting started. We expect them to have a facility in place in the second half of next year, and the royalties associated with that license will ramp through the second half of next year. I think I've said in the comments that if you build a 5,000-ton-per-year capacity facility, depending on a few different considerations, the royalty to us based on increased precious metal recovery should be $3 million to $5 million. One of our licensees is in that 5,000-ton range, and we think one of them will be higher based on what we know now.

Avinash Kant - D.A. Davidson & Co., Research Division

So in terms of the timing, though, the first licensee has practically started paying you from middle of this year or has been paying you from Q1, so that we know that this could be doubling even if they stayed at the same run rate for next year?

Douglas A. Neugold

But we're not seeing any royalty payments yet from our first licensee. They've taken a bit longer to build their facility than we expected. But we assume it's unique to them, really, in terms of their project management. So I think it's...

Avinash Kant - D.A. Davidson & Co., Research Division

When do you expect that to come through? When do you expect the licensing revenue to start to come through?

Timothy C. Carlson

Midyear [ph] or next year. First quarter next year for the one that Doug mentioned and then the second half of next year for the one we recently signed. But your comment is fair, Avinash, that we should see a doubling year-over-year, if not more.

Avinash Kant - D.A. Davidson & Co., Research Division

Right. But then, this year, there's no revenue though from eVOLV?

Timothy C. Carlson

So this year, we've signed a $600,000 in the quarter, and we'll see a several million dollars in the back half from...

Avinash Kant - D.A. Davidson & Co., Research Division

[indiscernible] in Q2?

Timothy C. Carlson

Yes, $600,000 in Q2, and we should see $2 million to $3 million in the back half.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay, okay, okay. Perfect. That helps. And could you give us the headcount at the end of the quarter? How is the headcount?

Douglas A. Neugold

The headcount was actually up a bit. The headcount ended up at 850, and we had increases associated with our Korea facility, some LifeSciences adds and eVOLV adds as well.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. And, Tim, final question. You talked about the recovery in the margins, and you say it could go above 50%. When do you expect that to happen? Q3, Q4, next year?

Timothy C. Carlson

Avinash, it's entirely dependent on product mix. And, my apology, just given the vagaries in terms of mix of products within our portfolio and it should go up whether it's Q3 versus Q4 versus Q1. Now, I anticipate it in Q2, but I do anticipate it right now in Q3 and 4.

Avinash Kant - D.A. Davidson & Co., Research Division

So in Q3 and Q4, you still anticipate to get above 50%?

Timothy C. Carlson

Correct.

Douglas A. Neugold

And the other thing I would add, Av, regarding licensing -- and I went through it sort of quickly, but since you asked that question, on this helium integrity test, we're kind of pursuing the same model, which is that there is a lot of potential users for this. We intend to send some -- sell tools to end users. And as I said, we're working with other partners. So we'll probably see some license -- we'll see some licensing revenue from that in the second half of the year, as well, and more licensing revenue next year and royalty rates starting next year. So that's the same sort of contribution as eVOLV license.

Avinash Kant - D.A. Davidson & Co., Research Division

So just to follow up on this one, Doug, and then, broad question I'm trying to figure out. If wafer starts were to be a flattish on a year-over-year basis, given the growth you have in LifeSciences and what you expect in the eVOLV, just as a reference, you could grow, what, 5% if wafer starts were to be flat, or 3%? I don't know.

Timothy C. Carlson

It would be 3% to 5% depending on the ramp of the items we talked about.

Operator

The next question is from the line of Jairam Nathan.

Jairam Nathan - Sidoti & Company, LLC

I just had a question on your 20% EBIT margin goal for -- by the second half of next year. Can you help us walk -- walk us through that? Like, it does -- does it assume there's, like, no OpEx increases -- no significant OpEx increases going forward? It is currently at like 2.5.

Timothy C. Carlson

Yes. There are a couple of drivers to it. The first assumes revenue run rate of $120 million to $125 million on a quarterly basis. We've taken out about the $2 million of cost in the activities that we talked about in Q1. We believe there's another $7 million to $8 million on an annual basis that can come out of the Microelectronics business just given the reduced run rate of the revenues there, whether it be in the R&D line, R&D platforms or cost structures within our supply chain. In addition to that, there's a little bit of margin improvement associated with the product mix that we fully anticipate, which gets you to a gross margin in the 51% to 52% range and enough profit to level around 20%.

Jairam Nathan - Sidoti & Company, LLC

Okay. And with respect to LifeSciences, you guys seem to be pretty confident about hitting the $15 million by the end of this year. Like, what kind of visibility do you have? Is it -- do you have a contract and sense -- I, just wanted to kind of understand how comfortable you are with that.

Timothy C. Carlson

I mean, Doug can add to my comments, but we've got a funnel of opportunities that we look at in all of our key accounts, and the revenue opportunity that we see in both Q3 and Q4 is a fraction -- a small fraction of the total funnel that we have available to us. So the business has done quite well in terms of converting the funnel in the first 2 quarters in terms of our expectations and we expect that to continue. But obviously, that will be dependent upon any customer ramp timing.

Douglas A. Neugold

Yes. The only caveat is that -- which is people are ramping new processes and new technologies. So I wish I knew everything they were doing, but I think they wish they knew everything precisely as well because we see delays. We see the very rare pull-in, but we see more delays than pull-ins. So based on our recent reviews and an ongoing dialogue with customers because there's a lot of planning involved in shipping to them on time, we feel pretty good about what we've said about the second half. Our confidence is high, and it will be high until the moment they change their minds, let me say it that way. And at this point, we don't have a lot of negative indicators from them.

Jairam Nathan - Sidoti & Company, LLC

Okay. Thanks. And the last question, just on the LifeSciences cost structure. It looks like operating expenses are close to $6 million [indiscernible] for the quarter, it went up probably $900,000 further sequentially. Do you see any -- do you think -- do you see any significant time going forward once revenue levels kind of go above breakeven? Or do you think it's kind of -- that's where the level [indiscernible] that you can maintain it at these levels?

Timothy C. Carlson

Yes. I think we'll see a march-up, and the primary reason for the march-up is the expansion of sales and marketing capabilities in Asia. Today, we're very underrepresented in Asia. And we've got some activities that we're looking at to expand our business both in Southeast Asia and in India. And as a result, I think you'll see that tick up a bit in 2014.

Douglas A. Neugold

I think the phrase march-up could be misinterpreted, right? So we're managing the expense additions closely. Our intentions are that India is going to grow meaningfully. And we have great opportunities in China, and we want to expand some of the activities we presently have there. So I think we're working very consistently with what we see as business development opportunities in the region, and it's really in the sales and marketing area. It'll take a little bit for the orders to follow, but where we are today, hopefully, not too long.

Operator

Your next question is from David Fondrie.

David Charles Fondrie - Heartland Advisors, Inc.

Just a couple of housekeeping questions. One is, can you tell us what happened in other current assets? It increased about 15 -- $13 million?

Timothy C. Carlson

A couple of items had to do with a couple of prepayments we've made associated with an investment. There were some timing issues associated with our HPD platform. And then, we also had a settlement of an IRS activity, which caused an increase in deferred taxes.

David Charles Fondrie - Heartland Advisors, Inc.

Okay. And then, as you go forward, where does the licensing agreement income reflect in the income statement? Is it in other income, or does it flow through as revenue?

Timothy C. Carlson

It will flow through as revenues.

David Charles Fondrie - Heartland Advisors, Inc.

So the $600,000 that you recognized this quarter should flow through the revenue line?

Timothy C. Carlson

Correct. That was in the revenue line, correct.

David Charles Fondrie - Heartland Advisors, Inc.

And then, in the -- I guess -- I'm sorry, that was in the eVOLV. Yes, that was...

Timothy C. Carlson

Yes, eVOLV in the revenue line.

David Charles Fondrie - Heartland Advisors, Inc.

No, I said it wrong. Okay. And then, the gain on the securities, I presume, then, that did flow through the other revenue line?

Timothy C. Carlson

[indiscernible] through the other income line below operating profit.

Operator

I'm going to now turn the call back over to the presenters.

Douglas A. Neugold

Okay. Well, again, thanks for joining us this morning. As you can tell, we're excited about the future and our ability to generate profitable growth by deploying our technology to some very attractive growth opportunities. As we do, we'll be in a position to generate cash, which will enable us to continue to invest, build lasting shareholder value. We appreciate all your interest.

Finally, before I sign off, I want to remind you of our Analyst Day, once again, in New York on November 21, and we hope to see most of you there. So thank you very much for your interest.

Operator

That concludes today's conference call. You may now disconnect.

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