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Executives

Matt Skluzacek – IR

Frank Russomanno – Vice Chairman and CEO

Paul Zeller – SVP and CFO

Analysts

Chuck Murphy – Sidoti & Company

Glenn Hanus – Needham & Company

Imation Corp. (IMN) Q3 2009 Earnings Call Transcript October 20, 2009 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Imation announcement of the Q3 earnings conference call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Matt Skluzacek.

Matt Skluzacek

Thank you, Devin. Good morning everyone and welcome to our Q3 results teleconference. I am joined today by our Vice Chairman and CEO, Frank Russomanno; and our Vice President and CFO, Paul Zeller. Before I turn the call over to them for their comments, followed by your questions, I want to remind everyone that certain information discussed on this call that does not relate to historical information may be deemed to constitute forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from any projected results. Risk factors that could cause results to differ are outlined both in the press release we issued this morning, as well as in our filings with the SEC. With that, I would like to turn the call over to Frank Russomanno.

Frank Russomanno

Thank you and good morning. I want to make a few comments on the quarter, and then turn the call over to Paul. First, let me say that we are encouraged by the solid results Imation delivered in Q3. You will recall that last quarter, we reported that Imation had returned to operating profitability. This quarter’s results show our profitability and cash flow continuing to improve, despite the ongoing challenging economic environment we are facing, both in our commercial and consumer businesses. Our Q3 operating income was $9.2 million, adjusting for the impact of restructuring and other charges. Specific to our storage businesses, we saw the rate of decline in optical storage moderate from recent quarters. We continued to deliver very strong gross margins and maintained our Number 1 global share, reflecting the success of our optical brand consolidation strategy. Our magnetic storage business continued under pressure, with decline rates similar to previous quarters.

In our Blu-ray disc business, we saw a continued revenue growth in Japan and strong margins. We also made good progress in the other new storage categories, including removable hard disk drives, led by the RDX format where we continue to supply two leading server OEMS. External USB hard disk drives show revenue growth on a small base with continued margin challenges. We continued to make progress on our consumer electronics business model where we have seen steady margin improvement through the first three quarters of this year. As expected, overall revenues are down in this business, reflecting the challenging retail environment and our selective approach to this category.

We saw ongoing benefits of restructuring and cost containment actions, Imation has taken to manage through the current economic challenges. SG&A was down 27.7%, from Q3 2008. The results of ongoing restructuring and cost control actions reduced litigation expense due to the Philips settlement and some one-time benefits and expense deferrals. Paul will talk more about SG&A in his comments in a moment.

We are seeing very positive improvements in our cash flow, strengthening our financial position by generating more than $20 million of cash in the quarter, ending Q3 with cash and equivalents of $111 million. This was despite an outflow of $20 million associated with the settlement with Philips. Now that I have talked about some of the financials, I would like to highlight progress we have made in our product areas especially in Imation’s data protection umbrella of offerings. These offerings are designed to help companies protect their critical, archived data and meet increasingly important security and regulatory requirements.

In August, we announced Imation Secure Scan product, which is the first locking and diagnostic product for LTO tape formats that enable customers to assess, manage and predict problems with their tape libraries before they occur. This product offers a unique locking feature ideal for added security during offsite storage and transportation of media. Secure Scan joins our DataGuard family of tape security products as we continue to address data protection needs of our customers. In fact, through Q3, we have captured more than 15 multinational Fortune 100 companies’ business, including Visa, Lloyds Bank, and Siemens with our DataGuard rf Tape Tracking System, which is an RFID-enabled system, which helps companies track every cartridge in your libraries to prevent loss or theft.

And next month in Europe, we will unveil a new GPS-enabled DataGuard system that takes the concept even further, with global satellite tracking capabilities to ensure that customers can track tape in transit in air or underground, further supporting the regulatory and security needs.

The data protection example is just one of several focused product development areas we are addressing. In August, we also announced that Imation is the first and only licensee of the next-generation Ultrium LTO-5 magnetic tape format. This is the world’s first multi-terabyte magnetic tape, with 1.6 terabytes of native capacity, which doubles the capacity of existing cartridges. This important milestone underscores Imation’s commitment to MP tape technology and to LTO. We have already begun the qualification process of the multi-terabyte tape and expect to begin shipping in Q1 after the drivers are in the market.

Momentum for our RDX storage business is also very good. This past week, we announced that our internal RDX team is the winner of our company’s annual Genesis Award for new Imation product that has made significant contributions to the company and has made an impact on the industry. From a very small base, this business has grown quickly in 2009, and we expect significant growth in the fourth quarter.

Across each of our brands, Imation’s Memorex, TDK Life on Record and XtremeMac, we are currently analyzing, refreshing, and improving our product portfolios. And heading into our traditionally busy Q4, our teams for consumer electronics and accessories are busy with retailer line reviews and preparations for the upcoming 2010 Consumer and Electronics Show. Each quarter, I like to share an update on the progress we are making on our company’s transformation as we expand our brand and product portfolio.

Last quarter, I described some of the rescaling we have done by adding key marketing and operations leadership to our organization. We have been able to retract significant talent to our organization with the skills we need to succeed going forward, and these people are already making a difference in our business. At the same time, we are also focused on transforming our business operations, and improving new processes we use to manage our business globally.

As I mentioned earlier, we are seeing good progress in our consumer electronics business model. One of the enablers to this improvement has been a very structured new product lifecycle management process that we have implemented that gives us full visibility and control for all aspects of our product lifecycle, from concept through development and product launch to end of life, to ensure that we move quickly and maximize profitability for our products in today’s fast-changing landscape.

Another operations improvement focus involves our sourcing capabilities, where in the past months, we have established sourcing centers of excellence in both Hong Kong and Taiwan to ensure we source sufficiently and competitively across our portfolio of electronics accessories and optical products.

As we mentioned in our press release, we are also very focused on improving our working capital. Teams are working diligently on all aspects of working capital improvements and we are seeing some benefits. We have much work to do in this area to fully realize the opportunities. In all areas of our companies, our employees are striving to operate with a sense of urgency. In all functions and regions of the world, our employees are encouraged to identify opportunities for improvement in what we call the three S of our business, simplicity, size and speed.

We are simplifying in streamlining our business processes to operate more efficiently. We are sizing our business appropriately, focusing on fewer but high impact areas to execute more effectively, and we are acting with speed to respond faster to our partners, customers, and changing business conditions.

In summary, I want to reiterate that we are encouraged with our quarter’s results. We are confident that we are taking the right steps. But clearly, we have more work to do. As we move into Q4 and beyond, we remain focused on improving our profitability and working capital efficiency in order to drive cash generation [ph] across all businesses.

Now, let me turn the call over to Paul who will provide more details on the quarter.

Paul Zeller

Thanks Frank, and good morning everyone. As Frank mentioned, we are encouraged by our third quarter results. Not only did we deliver our second consecutive quarter in the black prior to charges, but we also generated significant cash during the quarter. We are fully not out of the woods yet from an economic standpoint, but we are beginning to see benefits from the actions we have been taking to improve results and stabilize our business.

In terms of our quarterly results, let me start with some housekeeping. With the settlement of the Philips litigation announced in July and the related wind down of our Global Data Media joint venture with Moser Baer, GDM will now be treated as a discontinued operation. As such, our current and prior-period GDM results have been re-classified to discontinued operations, which is presented on a net basis below continuing operations in our income statement. This means that revenue and operating income comparisons exclude GDM in all the periods we are presenting today.

For your reference, GDM revenues totaled $71.4 million this year today, with operating income of $2.7 million. We have also included a supplemental schedule in the earnings release package that we sent out today that shows our quarterly results for 2008 and 2009, reflecting this GDM re-classification.

Now, we will get into the quarter, starting at the top with revenue, which was again soft this quarter with year-over-year decline rate of 15.7%. This was however somewhat better than the 19% to 20% rates of decline we have seen in the last three quarters since the onset of the global recession. In dollar terms, our revenues totaled $401.3 million in the quarter, a little changed from the two earlier quarters this year. Our revenues from optical products declined 10% to $182.9 million. This rate of decline was measurably lower than the recent quarters, which have averaged about a 20% decline. We believe we are benefiting from our consolidation strategy as evidenced by several retail wins in recent quarters.

Optical products represented 46% of revenues in the quarter. Magnetic product revenues declined 29% to $109 million, that’s a similar rate of decline as we have seen in the last several quarters. This category of storage media has been declining at faster rates due to the exposure we have to the financial sector in our tape business. Magnetic represented 27% of revenues in the quarter. Our electronic product segment revenues were down 16%, driven primarily by video products where we have intentionally lowered our exposure to the higher risk LCD TV category this year compared to last. This is a slightly lesser rate of decline than we saw last quarter. Electronic products represented 13% of total revenues in the quarter. In the remaining product categories, the most notable result was in hard disk, which grew 40% in the quarter. Though this category is still relatively small, we are encouraged by the momentum we are seeing especially in removable hard disk as Frank just mentioned.

From a regional standpoint, our declines were broad-based, with particularly weak results in Europe where our business is more tape-centric. When we look at our overall 15.7% decline in revenues, it can roughly be split into a 3-point impact from lower volumes, which was a bit better than we saw in the first half of the year and a 11-point impact from price erosion, about the same level as the first half, and a 2-point impact from negative currency translation, that’s improved by several points from the penalty rate we saw in the first half with the weakening [ph] of the dollar recently.

Our gross margins in the quarter were 16.1% of sales, down four-tenths of a point from last year’s third quarter as expected. This was driven by product mix families from having a lower mix of magnetic tape revenue this year compared to last year. Sequentially gross margins were up slightly. Our optical gross margins were up both sequentially and year-over-year. In magnetic tape, our margins came down in the quarter, driven by a planned slowdown in manufacturing to improve inventory levels. In consumer electronics, our margins continued to improve and we have seen sequential increases in each of the last three quarters. This steady improvement trend is encouraging and reflects the actions we are taking to improve our business. We are being more selective about the business we take in improving our business discipline.

In our remaining categories, we saw a sequential improvement in both flash and hard disk margins. Our operating expenses totaled $55.3 million in the quarter. That’s down nearly $20 million and over 26% from third quarter last year, driven by our restructuring actions and cost control, as well as by lower legal costs after settling the Philips litigation in July of this year. As a percent of revenue, OpEx was 13.8% in the quarter, down a full 2 points from last year, and down a similar amount from last quarter. We are pleased with the results we are seeing from our cost of actions. It is important to note however that we have been very focused on cost discipline, which has included deferring some spending in certain areas, and we have also benefited modestly from some one-time items in the quarter. Given this, a normal seasonality especially in Q4, we do not expect go-forward OpEx run rate to continue at quite this lower level.

Our worldwide employee count ended the quarter at approximately 1,230. That is down 3% or 40 positions in the quarter, and down about 30% or 530 positions from a year ago. These reductions are driven by both manufacturing, restructuring actions, and more recently our operating expense restructuring program. In terms of restructuring, our total charges were $7.5 million in the quarter and were associated with our structure realignment we announced in November last year. The largest portion of this quarter’s charge related to pension restructuring actions outside the US. As a reminder, in the program announced last year, we are targeting annualized cost eliminations of greater than $40 million, and once fully implemented, and these actions have been implemented overtime with a vast majority completed by the end of this year, and we are now seeing a significant portion of these savings in our current run rate. We anticipate absorbing up to $40 million in total charges when finally complete.

Including restructuring and other charges, our operating income was $1.7 million in the quarter, and if we exclude those charges, operating income was $9.2 million for the quarter, representing a $3.9 million improvement over the operating income of last year’s third quarter calculated on the same basis, that being excluding restructuring and related charges. Non-operating costs totaled $2.2 million in the quarter, about flat with the same quarter last year.

Our tax rate was 40% in the third quarter. This is higher than our expected rate given the impact of restructuring charges and the overall mix of income by region. We would expect our normalized tax rate to be lower than this. On a per share basis, we had a net loss of $0.01. However, if we adjust to exclude restructuring and other charges, this was net earnings of $0.14 per share, up $0.03 in the prior year calculated on the same basis.

Cash and equivalents ended the quarter at $111 million, up $21.8 million from last quarter. This strong result was driven by improved earnings, with EBITDA at $13 million in the quarter as well as by improvements in working capital. We generated this cash despite making initial $20 million [ph] payment associated with the Philips litigation settlement. Capital spending for the quarter was $2 million and depreciation and amortization totaled $10.9 million.

So, in summary, we are pleased to encourage by both our earnings and cash flow improvements in the quarter. We believe our actions to improve our business model and right size our cost structure are the right ones and are bearing fruit. At this point, we would be pleased to take your questions, thank you.

Question-and-Answer Session

Operator

(Operator instructions) And sir, our first question comes from Chuck Murphy from Sidoti & Company

Chuck Murphy – Sidoti & Company

Good morning guys.

Paul Zeller

Hello Chuck.

Frank Russomanno

Good morning Chuck.

Chuck Murphy – Sidoti & Company

Few questions for you. First, Paul, could you go back through what kind of the non-recurring reductions in SG&A were?

Paul Zeller

Well, I would put it in sort of two categories. One is just a general sort of –

Chuck Murphy – Sidoti & Company

Seasonality?

Paul Zeller

Well, that a little bit, but more so just be cost conscious. I mean, all year along, we have been deferring non-essential spending, whether that’s travel or some advertising that’s not so directly tied to revenue generation. And then just to modest general benefit accrual adjustments in the quarter. Nothing significant, but I think overall, maybe SG&A down a little lower than we had anticipated.

Chuck Murphy – Sidoti & Company

Okay. So nothing specific though?

Paul Zeller

No.

Chuck Murphy – Sidoti & Company

Okay.

Paul Zeller

But no individual item was dramatic, I think just an overall lower trending and probably would be appropriate going forward.

Chuck Murphy – Sidoti & Company

Got you. Okay. And the gross margin at least personally was better than what I was expecting and you usually don’t have that sequential improvement in the third quarter. Was that mostly the optical margins that you are talking about?

Paul Zeller

Yes, I think we normally expect a little seasonal mix penalty in third quarter and we have got a little of that, but it was offset by better optical margins overall and that’s good news. And I think overall, even in some of the other smaller product categories, we have, you know, a better quarter, whether that’s HDD or Flash, CE margins improved as well and have each quarter since fourth quarter of last year. They are not quite to where we want them to be, but we made some really good progress and we are pleased with that.

Chuck Murphy – Sidoti & Company

And what were you doing differently that got you the better margins?

Paul Zeller

Specifically where, Chuck?

Chuck Murphy – Sidoti & Company

I guess to start with optical.

Paul Zeller

I think the overall strategy we have had kind of beats the consolidator in this industry and having multiple brands and our presence in every region of the world with a Number 1 or Top 3 kind of brand position, I think gives us a better position, whether that’s with a supplier base or with a channel. And I just think overtime, that along with the fact that optical has become more stable as a marketplace versus several years ago where we had a lot more price volatility.

Chuck Murphy – Sidoti & Company

Got you. So, I mean, should we –

Frank Russomanno

Hi Chuck, this is Frank. There is another issue, too, and that is if you look at the brand consolidation, that’s a big piece of it, but if you look at our strength globally, just take for example, Japan, we have the Number 1 share in Japan. And Japan has become a very strong market for us with optical, and we didn’t have that three years ago or even two years ago. So, it is directly attributed. So, all the benefits that come with the brand consolidation strategy.

Chuck Murphy – Sidoti & Company

Got you. And do you think that you can maintain the 16% or so gross margins or how should we think about that, especially given that the gross margin is usually lower in the fourth quarter?

Paul Zeller

Yes, I think there’s generally some volatility in our gross margin and it’s been not so volatile in the last couple of quarters. I don’t think that’s something you can extend forever and assume as an absolute – for sure, fourth quarter tends to have a mixed penalty attached with it as we grow CE at a greater – it’s a greater percent of the total in the quarter and we have talked about that in the past. So, that has been a trend traditionally. You know, there’s a lot of moving pieces in our gross margin and some of the improvements we have seen in some of our products are helping. We do continue to face some pressure on the magnetic tape side. We did especially so in the quarter, and you heard in my remarks that we consciously kind of took down our manufacturing volumes a bit to right size our inventory and it helped quite a bit, but that gave us a little penalty in the quarter. And so, there’s a lot of moving parts and mix is just one of them.

Chuck Murphy – Sidoti & Company

Okay. I don’t want to – I will turn it over to somebody else, thanks.

Operator

Our next question comes from Glenn Hanus from Needham & Company.

Glenn Hanus – Needham & Company

Good morning guys. So, just following up on the last question. As you kind of look over the next four or five quarters on the gross margin, do you think we are kind of at a steady state sort of level here or should we see further decline, or do you think there’s room for improvement? Can you just maybe, just sort of directionally give us a sense of unchanged up-down factors there?

Paul Zeller

You know, I think I believe we have said this before, Glenn. We are very focused on improving our operating earnings, and exactly how we get into relationship between gross margin and OpEx ratios does move around from time to time. I think we are taking all the right actions, we are rationalizing our manufacturing, we talked about that, I think that’s helping. And we continue to focus on improvement efforts in CE, and really like what’s happening in our optical business. And we are not obviously providing guidance and being real specific about how that margin moves around.

You know, it is dependant to a degree on how much CE business we give in a given quarter and some of the other mix impact that can affect us. We are focused on the bottom line. Gross margin is really critical, and we liked the fact that as you have seen it’s stabilized to a great degree from where it had been in the past, and we think that’s a positive and it’s something that we are counting on looking forward.

Frank Russomanno

Glenn, having said all that, that Paul just gave you, we still need a couple of quarters to see how we do in optimizing different parts of our business, and like Paul said, at least twice already. This is a pretty complex business model with a lot of moving parts, and we are about trying to optimize each of those parts and how it all comes together, we will see over the next, probably two or three quarters.

Glenn Hanus – Needham & Company

On the operating expenses, it sounded like from your commentary, we expect a little slight uptick this quarter, and then you have gone through most of the restructuring benefits you said kind of by the end of the year. So, as we kind of look out into next year, you know, are we sort of close to a steady state operating expenditure level?

Paul Zeller

Yes, what I would say there is, first of all, (inaudible) we probably have some upward pressure we are expecting as we look into fourth quarter. And you know, I don’t think we will ever say we are done looking at optimizing our operating expense structure. We are sort of at the very tail end of our restructuring program, and the majority, the significant majority of those benefits are reflected in our run rate. So, that is true. But I think we will continue to always look for opportunities around the world and up and down the P&L for efficiency gain. And so, I will never say we are done with that, but we are sort of at the tail end of the prior program.

Glenn Hanus – Needham & Company

Just from a macro perspective, how are you guys sort of seeing your sense of demand out there across your businesses that you kind of look into the fourth quarter and next year? Maybe just give us a little more color on what you are seeing from a demand perspective?

Frank Russomanno

Once again, Glenn, we will try to break it into relatively large chunks. From our magnetic media business, we continue to see the impact of economic slowdowns, very tight IT budgets and distress in the financial segment. So, that hasn’t changed very much at all. We look for glimmers of hope or something to change at, but it still looks pretty tight to us. On the optical side, we are working hard on this consolidation piece. We are most successful with the consolidation piece in the US, Japan and other parts of the world. An area of emphasis for us is Europe. That’s where we need to really work this consolidation model.

On the consumer electronics side, this is not a bright spot for the industry as most consumer electronics categories are down this year, and we are being selective on top of that as to where we would like to participate. Whether or not there’s going to be a loosening up this year, we will see. I just saw a report that came through here, and it doesn’t look as if consumer spending at least in the US is going to break loose, it might be closer to what it was last year. So, we are very cautious going into 2010. And we will have a lot better indication after we get through this fourth quarter. There are areas though where we see some really strong bright spots, and one is that RDX. We can’t talk enough about RDX.

The removable hard disk market is a real bright spot. Our partnerships with two key OEMs are critical for us going forward, and we really like that business and we like that business model. So, we do see some positives there. I would also say that, you know, you look at other growth areas or supposedly growth areas, but in today’s economy, they are all being moderated is in Flash and removable external hard disks. We seemed to have made some progress last quarter. We like to keep doing the things we are doing and trying to continue that progress. So, we need to see this on a quarter-by-quarter basis before we say we feel that things are improving out there.

Paul Zeller

You know, one comment I would make, Glenn, is that we are taking a cautious view, not counting on a major turnaround and staying very focused on improving earnings and especially driving cash flow. And if we see a nice turnaround, we think we will be very well positioned with that kind of approach, but we think we continue to want to focus on earnings and operating income improvements, and the revenue will come when the markets improve, and we are still going to have some nice incremental opportunities. You know, when we are coming up to the first quarter, when you kind of compare against the prior year after a lot of the changes happened. So, I think a lot of companies are going to see what the reality of the go-forward environment kind of looks like when you get a sort of apples-to-apples comparison.

Glenn Hanus – Needham & Company

How about pricing? Was pricing a little bit tougher this quarter than you anticipated, and what are you anticipating now for maybe the fourth quarter?

Frank Russomanno

You know, we have seen a pretty consistent overall pricing realty in our markets, 8 to 12%, and we were in that range. We were at a very similar rate to what we saw last quarter at about 11%. We saw it in the same places we always see it, in LTO for sure, in external hard disk, in some of the Flash categories, no real surprises I would say on the pricing front in the quarter. And our expectations are, you know, at this stage no real changes from that model going forward. We always get a reset to a degree in the pricing in LTO with the new format release and we anticipate that early next year, that’s always helpful. But on an overall basis, I think we are seeing what we have seen in terms of the pricing environment.

Glenn Hanus – Needham & Company

And then, on Philips, this $20 million was this quarter, what do you expect for the next few quarters there, I guess you have a $50 million total liability?

Frank Russomanno

Yes, the payments are set, and they will happen in early third quarter each of the coming three years. So, they will be a little over $8 million in early third quarter of 2010, another $8 million to $8.5 million in the same time period in 2011 and then $16.5 million in the same time in 2012. Between now and then, we anticipate, there will be a modest amount of cash released out of an escrow that comes back to us of about $3.5 million and that would bring the $20 million this year down to the $16.5 million that we described when we discussed the settlement.

Glenn Hanus – Needham & Company

And then Moser Baer, can you tell us roughly what the impact was this quarter, I guess that’s all done, any impacts there or all done now?

Frank Russomanno

Yes, the joint venture if you will, has substantially wound down by this stage. There is just a very small amount of revenue and cost that will continue for a short period of time. In the quarter itself, the amount of revenue that was generated as it wound down was just short of $14 million, and that isn’t in our topline because it is netted down in discontinued operations, and it was about breakeven on the P&L in the quarter, slight loss actually, and that’s down in discontinued operations.

Paul Zeller

Earlier in the year, we are experiencing revenues more in the $28 million to $30 million per quarter, and earnings $1 million to $1.5 million per quarter, and those amounts have all been moved down into discontinued operations.

Glenn Hanus – Needham & Company

Okay, thank you.

Paul Zeller

Thank you, Glenn.

Operator

And next in line, we have a follow up from Chuck Murphy.

Chuck Murphy – Sidoti & Company

Hi guys, could you just remind me what’s included in the interest expense line, is it mortgages or –?

Frank Russomanno

Well, there’s any expense on debt outstanding during any particular quarter. We tend to dip in and out of our facility a little bit, we did a little bit this quarter.

Paul Zeller

Not much. There’s an expense for the amortization of our facility costs that comes in, and then there’s some imputed interest on the Philips outstanding amount because those are recorded at a present value. So, in other words, there is $53 million that is being paid overtime. We recorded a $49 million charge, and then we impute interest to bring those numbers together.

Chuck Murphy – Sidoti & Company

Got you. Okay. And what about the other expense line, what’s included in there, is that mostly currency?

Frank Russomanno

Yes, currency flows into there, sometimes we have had investment gains or losses in there, we had a very small amount of investment loss in there this quarter. In the quarter, you may notice it was much larger and we wrote off an investment – an equity investment during first quarter.

Chuck Murphy – Sidoti & Company

Okay. Those would be my question. It looks like it’s – for the first nine months, it’s been pretty substantially higher than it was last year. I was just kind of wondering what we should look at, is the run rate for that line?

Frank Russomanno

Yes, I would say, overall when you bring interest expense and other – and the whole non-operating together, I think it’s sort of [ph] $1.5 million plus or minus. You know, it will trend higher if we have some currency costs, could be lower if we have some currency gains. We tried to mitigate those currencies, but we can’t hedge every currency, and you can never precisely mitigate all the currency movements.

Paul Zeller

And we did have some currency costs earlier this year in that same, in that other line that was also part of why it’s trending higher this year.

Chuck Murphy – Sidoti & Company

Okay, that’s all I had. Thank you.

Paul Zeller

Thank you, Chuck.

Operator

And so, I am showing no questions in the queue.

Frank Russomanno

Then, I would like to close this call by thanking everyone very much for attending. I also like to reiterate what Paul and I have said earlier, we are encouraged by the quarter’s solid results. As we move into Q4 and beyond, we intend to remain very focused on improving our profitability and working capital efficiency to drive cash generation. We look forward to talking to you next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program, you may all disconnect. Everyone have a great day.

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