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Executives

David G. Tacelli – President and Chief Executive Officer

Mark J. Gallenberger – Vice President and Chief Financial Officer

Analysts

Bryan Lee – Citigroup Smith Barney

Patrick Ho – Stifel Nicolaus & Company, Inc.

Vernon Essi, Jr. – Needham & Company

Mike Crawford – B. Riley & Co.

[Sean Chapman – Shelter Roth]

Joy Mukherjee – State of Wisconsin Investment Board

LTX Corporation (LTXX) F3Q08 Earnings Call May 20, 2008 4:30 PM ET

Operator

Welcome to LTX Corporation’s third quarter analyst conference call. (Operator Instructions) Speakers for today’s call will be David Tacelli, Chief Executive Officer and President, and Mark Gallenberger, Vice President and Chief Financial Officer.

At this time I would like to turn the conference over to Mark Gallenberger.

Mark J. Gallenberger

Welcome to LTX Corporation’s third quarter fiscal year 2008 conference call for the period ended April 30, 2008. Joining me on today’s call is Dave Tacelli, CEO and President.

After my introductory comments, Dave will discuss the company’s performance for the third quarter and discuss the business outlook. Then I will provide further details on the company’s financial performance during the third quarter of fiscal year 2008 as well as provide guidance for LTX’s fourth quarter of fiscal year 2008. We will take you questions after our prepared remarks. Today’s call will last approximately one hour.

A replay of this call will be made available through June 12 by dialing 888-286-8010 and the passcode is 38911773. Or you can visit our website at www.ltx.com. As a reminder, the only authorized spokespeople for the company are David Tacelli and I.

Now for our Safe Harbor statement, during the course of this conference call we make projections or other forward-looking statements regarding LTX’s business outlook or the future financial performance of the company and we wish to caution you that these statements such as projected revenues, earnings per share, operating expenses, and gross margin are only predictions and actual events or results may differ materially.

The guidance provided during this call represents the company’s estimates as of this day and the company assumes no obligation to update this guidance. Please refer to our Safe Harbor Statement in our earnings release for important factors that could cause actual results to differ.

David G. Tacelli

Last quarter we commented on expanding customer base for X-Series products and how we expected those new customers to make the transition from engineering development to volume production. As expected, we started to see the positive effects of this transition in our third quarter, with revenues at the high end of our guidance and return to profitability.

While we continue to grow our opportunities with our number one account, our plan of diversifying our customer base is on track as we expect expansion of new customers well in to fiscal year 2009.

A run of our accomplishments for the third fiscal quarter were as follows. For the first time in many years, a different customer took the top spot in driving total revenue for the quarter, through both direct purchases and purchases by a subcontractor. Revenues grew 27% quarter-over-quarter, leading a return to profitability. We received the highly coveted Supplier Excellence Award from Texas Instruments for the second time in the last three years.

We won multiple RF wireless benchmarks during the quarter against mature and what has been described by our competitors as next-generation RF products. We have made significant momentum in the RF wireless space, especially with those customers focused on high performance RF tests at the lowest cost, and we continue to expand a range of devises tested by the X-Series and several new instruments and key market segments begin to win benchmarks against our top competitors.

Now we will review the third quarter. Revenue was $39.3 million, toward the higher end of our original guidance of $37.4 million. Our business model results were in line with expectations and delivered a profit of $0.03 per share. The business model continues to perform well, and as expected, the leverage of additional revenue drove profitability and substantial positive cash generation.

Cash generated during the quarter was $7 million, or 18% of revenues. Incoming orders for the quarter were $36 million.

For the first time in several years we had a new name as our top customer driving quarterly revenues. Also, there were three greater than 10% customers responsible for our revenues in the quarter and four customers greater than 10% of our bookings.

This is significant for multiple reasons.

First, it validates our comments over the past several quarters regarding multiple customers making the transition from engineering development into volume production. One in particular customer’s production capacity requirements were for the MX to test disc drive controllers in our RF devices.

Another customer began to order capacity for the high-speed communication and complex converter markets. And a third expanded their base of RF capacity in the transceiver and wireless PA market. These are just a few of the opportunities that will drive LTX’s growth well beyond fiscal 2008.

Of the $8.3 million in revenue growth from the second quarter to the third quarter, 90% came from customers outside our largest account. The X-Series has proven to have broad appeal across customers and market segments and is a key component of our long-term efforts to reduce customer concentration. While RF wireless remains a key market segment for our business, our management, mixed signal, base span, and automotive have also become primary business drivers over the last year.

Second, while our historically largest customer was replaced by another customer in the top spot this particular quarter, we believe our position within the company remains solid and we see a very strong opportunity for growth.

We announced in a press release earlier in the quarter our receipt of the coveted Supplier Excellence Award from Texas Instruments. This was the second time in three years we received this award and speaks to LTX’s ability to support a top-ten semiconductor manufacturer with best-in-class products, service, and overall lowest cost of ownership. We also announced the shipment of the 300 test systems to this customer, an important milestone for us.

And finally, we won several critical benchmarks during the quarter covering a wide range of RF wireless and complex analog devices. In one case the benchmark was head-to-head competition against one of our competitive next-gen RF options. Our X-Series RF solution won the evaluation with both superior RF source and measuring capability as well as lower overall cost of test.

In its evaluation, the competitor’s previous generation RF test platform was the incumbent. So this win demonstrates the strength and competitiveness of our RF solution and also represents a significant market share shift, given this customer’s position in the RF wireless market. We expect this business to drive double-digit tester purchases within the next six months.

In three other RF benchmarks during the quarter, against multiple competitors, we consistently demonstrated better performance and lower cost of tests. Even as some of our competitors have introduced new RF options, the RF test capability of the X-Series continues to be proven as the best price performance solution available on the market. And this combination has led to continuous share gains for LTX.

In the next several months we will be launching a new RF solution that extends our technology lead while we continue as the undisputed leader in cost of tests for wireless tests.

In addition to the RF wireless area, we have a steady stream of new instruments and capabilities that will be formally introduced over the next couple of quarters. These instruments continue to broaden the range of devices tested with the X-Series and in several cases provide LTX with a distinct technical competitive advantage. These instruments are in market segments we currently sell into today, as well as open up new areas for growth in the future.

One of the instruments we will be introducing allows LTX to effectively compete in the high performance converter market. LTX has already built a growing presence in the market, due primarily to this new disruptive capability.

So to summarize, the X-Series momentum in the marketplace continues to strengthen as new significant customers adopt the product line for a wide range of end markets. Our position at our largest customer remains strong and our efforts to diversify our customer base are progressing according to plan. We continue to win new customers that will drive significant volume once their products are released to production. The transition from engineering to volume production for several key customers continues and overall we see opportunities for growth during the calendar year.

For LTX, we continue to emphasize three things. Focus our efforts on customers that can add the most to our top line growth develop test solutions and deliver the applications support our customers require, and continue to drive a lean business model that can deliver profits across cycles.

In closing, we remain optimistic that LTX’s business will show improvement through the calendar year. And while growing, we will maintain our discipline on the business model. Over the next several quarters we will be introducing a steady stream of new instruments and capabilities which will extend our position and open up new markets for us. The LTX product is enjoying a strong adoption rate among IBM’s Phanthoms companies and is recognized as a leading solution in a wide variety of markets.

I would like to now turn the call over to Mark for his detailed comments on the quarter.

Mark J. Gallenberger

Total incoming orders were $36 million. Revenues for the quarter were $39.3 million, which is up 27% from last quarter’s revenue of $31 million. Gross margin was 51.9%, which is up sequentially due to higher revenue volume and better than our guidance of 51%.

Operating expenses were essentially flat from last quarter as we’ve maintained tight controls over all expense items. R&D spending was $11.8 million, which includes $337,000 in stock-based compensation expense.

SG&A was $6.6 million, which includes $737,000 in stock-based compensation expense. Net income for the quarter was $2.2 million, or $0.03 earnings per share on a GAAP basis.

EBITDA was a positive $6.2 million or 16% of revenue for the quarter. The EBITDA calculation excludes depreciation of $3 million, net interest income of $194,000, stock-based compensation expense of $1.1 million, and $34,000 in tax expense.

Next I will provide a breakdown of bookings and revenue for the quarter. 66% of bookings were from IBMs, while 34% came from subcontract tests and fabless companies. 78% of bookings for the quarter were for product and 22% for service. In terms of revenue, 70% came from IBM, while 30% came from subcontract test and fabless companies. 82% of revenue was for product and 18% for service.

Now, on to the balance sheet, for the quarter net cash increased by $7 million, or 18% of revenue. We ended the quarter with gross cash of $70.5 million and net cash of $51.7 million. The increase in cash was driven by positive EBITDA and improvements that were from capital. As a result our receivables DSO was 49 days versus 72 days in the prior quarter.

Inventories decreased from $24.7 million last quarter to $23.4 million this quarter due to tight controls over the manufacturing build plant. Net capital expenditures were $1.3 million for the quarter, primarily driven by capital testers and spares that support the worldwide install base.

Depreciation expense was $3 million. Accounts payable was down $3.4 million to end the quarter with a balance of $10.3 million. Stockholders equity increased $3.3 million to end the quarter with total equity of $116 million.

Now, our backlog summary, we started the quarter with a backlog balance of $48 million. During the quarter we added $36 million in new orders and shipped $39.3 million to customers. We had $1 million in management adjustments so therefore our ending backlog is $43.7 million with about 2/3 shippable over the next six months.

Guidance for Q4 is as follows. We expect revenues to be in the range of $36 million to $40 million. Gross margin is expected to be 51%. The GAAP reported net income per share is projected to be in the range of $0.00 to $0.03 and that assumes 63 million shares. We expect net cash to be flat to slightly up.

In summary, our business model is performing very well, with 65% of the revenue growth dropping through to net income in the April quarter, which demonstrates the strong profit leverage we have built into our model. Our manufacturing move to Malaysia continues to be on schedule for August and will provide additional margin improvement once fully complete.

This concludes our prepared remarks and at this time we will take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Bryan Lee - Citigroup.

Bryan Lee – Citigroup Smith Barney

First off, you’re essentially guiding revenues flat but it looks like gross margin will be down a smidge. Is this conservatism on your part or are there some moving parts here as you ramp into Malaysia over the next few months?

Mark J. Gallenberger

Well, no, there’s really no moving parts. We give the approximate gross margin basically at the midpoint, so if you look at the revenue range of $36 million-$40 million, the midpoint is $38 million. And so when you look at it from that perspective it’s consistent with the profit margin that we had, or the gross margin that we had for this quarter, for the April quarter. So there’s really nothing going on there.

Bryan Lee – Citigroup Smith Barney

So the mix assumption would be relatively similar to what you had in Q3?

Mark J. Gallenberger

That’s correct.

Bryan Lee – Citigroup Smith Barney

And looking at your guidance, I would have thought that revenue guidance would have been higher, given new bookings in Q2. Because if I just average the past two quarters of bookings, including this quarter, it’s about $45 million. Can you give some color as to why revenue guidance is well below this level at $38 million at the midpoint?

Mark J. Gallenberger

One of the things that happens, Brian, is in our Q2, which is the January quarter, it’s a significant quarter for service bookings as well. So the orders we reported last quarter had, I believe, about $15 million worth of service annual contract renewals. So even on product orders, we’re higher in the second quarter. It’s not as significant a drop quarter-over-quarter from a product standpoint. And that’s the reason why the revenue we’ve targeted for Q4 to be at about flat. So you’re not building it off the higher number. Its service orders that happened in Q2.

Operator

Your next question comes from Patrick Ho - Stifel Nicolaus.

Patrick Ho – Stifel Nicolaus & Company, Inc.

First off, in terms of your growth going forward over say, even next quarter and maybe the quarter after that, what do you see as the main drivers for, or what are the main catalysts for the growth? Is it going to be some of these new customers that you’ve garnered over the last few years or will it be back to your traditional lead customers that you’ve had in the past?

David G. Tacelli

It’s interesting, Patrick. If you look over the past three years, customers outside our top account have grown on an annual basis 12% compounded. If you take the comments we’ve made in the last couple of conference calls about the numbers of devices that customers have committed to the platform, it continues to grow.

I would expect that our growth over the next couple of quarters will come from outside our top account. That’s not to say that our top account isn’t buying or isn’t committed to the product, it’s just with the level of diversity we now have, across, four to five other major customers, that’s where I see the growth coming from.

I also expect that our top customer will continue to order and I would look at them picking up in maybe the back half of this year and early part of 2009 as well.

And all of that I would say is subject to overall economic environment. If the overall economic environment improves faster, I would expect a second accelerator to where we are today.

Patrick Ho – Stifel Nicolaus & Company, Inc.

Mark, I know you’ve been dealing with the transition to the overseas manufacturing with Jabil. In terms of that transition, given that there is always the potential for surge in business in the way that the test business is generally run on a higher level of turns business, do you feel that you have the capacity ready to meet any surge in demand or are you going to have to maintain a level of duplicate costs in the interim just to ensure that you don’t loose business?

Mark J. Gallenberger

Well, the way we’ve designed the plan is to try to minimize any duplicate costs, or what I call internally the bubble cost, and so what we’ve done is we’ve planned this out before we even started the plan, was try to do a ramp down and a ramp up and minimize any bubble costs whatsoever.

So if we had any redundant costs we would have started to see that already in the financial results because this product has been going on for about a year now. And so as we’ve been ramping the Jabil Penang facility, we’re already incurring those costs. And I think it’s safe to say it’s been fairly seamless, from everyone’s perspective.

And it’s also the second or third time we’ve gone through transitions in terms of manufacturing. And so we feel like we’ve got a pretty good handle on that. So you shouldn’t have to see any duplicate or redundant costs.

Patrick Ho – Stifel Nicolaus & Company, Inc.

I did see a little bit of a tax charge this quarter, as you returned to profitability. Any idea what is going to carry into fiscal 2009 if you maintain that level of profitability?

Mark J. Gallenberger

Yes. We’re always going to have the NOLs because that’s actually a fairly large number which is the deferred tax assets not reflected on the balance sheet. But as we are profitable we will take more on the balance sheet to offset any tax liabilities that are created inside that quarter.

However, there are AMPs involved and so there’s always going to be some level of minimum tax we need to pay and there’s also foreign tax exposures, as well.

They’re not large numbers as you can see. I think this past quarter was only $34,000. So for modeling purposes if you want to model something there, it’s probably not going to be zero. Maybe it’s 1%-2%.

Operator

Your next question comes from Vernon Essi - Needham & Company.

Vernon Essi, Jr. – Needham & Company

Just a quick question on the interest income line. Obviously interest rates are coming down. Should we be looking at that? To decline sequentially into July on a material basis or should it just be level going forward?

Mark J. Gallenberger

Well, we are growing cash balances so that’s a bit of an offset to declining interest rates. The other thing to keep in mind is that net interest expense line also takes into account the interest expense on the debt. And that’s a variable interest rate. So, as the prime rate declines, so does the interest expense. They move in tandem with one another.

But there will be, since we’ve got a greater cash balance than debt balance, there will be a slight erosion. In the past what you’ve seen is about $300,000 of net interest income. Now that’s down to about $200,000. I don’t see that really declining much beyond this point.

Vernon Essi, Jr. – Needham & Company

And then just so I understand, when you break out your bookings there, you had, obviously, a sharp decline in your IBM bookings on a sequential basis, if I’m looking at this correctly. Should we assume that the bulk of that was services based or was that a pretty healthy mix between product and service?

Mark J. Gallenberger

Well, we had [inaudible] larger installed base tied to the IBMs. And so the service orders and service revenue tends to follow the install base. So, I’m not sure what analysis you’re doing, Vern, but there was a bubble of service orders in the January quarter that obviously did not repeat. And then what we saw this quarter with respect to the order flow is that we actually saw, on a percent basis, a larger proportion coming from the non-IBMs, or the subcontract test and fabless world. And that obviously was driven by some new customer wins that are driving demand into the subcons in Asia, which is from our perspective a pretty good positive for us.

David G. Tacelli

Vern, the one thing I would add to what Mark just said, is in the past one of the key customers that we sold into was predominantly an internal test and assembly house and over the past year they’ve started to move some of that capacity to a subcon model. And that became very evident for us in the past quarter. But I would say about 30%-40% of the purchases that they would have made in the past actually were purchased at subcon.

Operator

Your next question comes from Mike Crawford - Riley Assessment Management.

Mike Crawford – B. Riley & Co.

I noticed the DSOs were way down to 51, which is great. I was wondering if the shipments were early in the quarter or was there anything changed with respect to terms to your clients.

Mark J. Gallenberger

No change to terms, obviously a lot of it had to do with customer mix and also it has to do with what you had alluded to, Mike, which is really that the shipments within the quarter. And I think in our April quarter it was a little bit more level loaded. It wasn’t as much of a hockey stick, if you will, from that perspective. So we had, at least the ability, to ship and collect a fair number of testers that we shipped in the February/March time frame. And so that helped the DSO performance.

DSO performance is obviously just a snapshot in time. The thing you’ve really got to focus on is the aging of your receivables to really understand what trend lines are. So that’s a better view versus just a snapshot of DSOs.

Mike Crawford – B. Riley & Co.

It sound like those didn’t age.

Mark J. Gallenberger

Actually, aging over 90 has gone down so there’s no issues there. It’s actually going in the right direction and looking pretty solid.

Mike Crawford – B. Riley & Co.

And you mentioned that you are unveiling a new generation RF solution in a few months. Is that something that is expected to provide a big jump in performance over what you offer now?

David G. Tacelli

No, the way I described it is we’ll be rolling our next series in the technology of RF and RF wireless. What it does, it allows for additional speed, additional capability, and in some cases lower test time, depending on the group of devices. For us, unlike some of our competition, it’s fairly seamless.

All of it today will plug naturally and seamlessly into the products we offer, whether that be the EX, MX or CX product. It’s just the next level of performance.

LTX has been at the RF game for many years now, where some of the competition is looking at their first, second, or third generation, this is our seventh generation of our capabilities. So it’s just a natural extension of what we’ve currently done.

Mike Crawford – B. Riley & Co.

You mentioned some disruptive capability that was helping you build a presence in the high-performance converter market. Is that what you said?

David G. Tacelli

That is correct. We’ve been able to benchmark the technology at several different accounts, that benchmarking has helped us win some business at some key accounts, and that instrument is right now in the alpha state of being lease of full volume production. It will go to beta and then be not only shipped to these customers but used in other benchmarks in other accounts that actually supply high-performance converters.

It will also be used for other types of technologies that this instrument can help in. And help LTX grow, outside of the current markets we’re in today.

Mike Crawford – B. Riley & Co.

And what is the disruptive capability?

David G. Tacelli

If you know the converter market, it actually allows us to test beyond 18-bit converters, up into the 20-22 bit, and actually allows us to do it with a far reduced test time. Because it’s an integrated instrument inside the tester versus most of our competitors are doing it with circuitry on the existing load board for the device.

Operator

Your next question comes from [Sean Chapman - Shelter Roth].

[Sean Chapman – Shelter Roth]

Just a quick question. I know that you’ve given guidance for one quarter out. But you’ve alluded to longer-term growth, in the calendar year and into 2009. If you look out over the cycle you’re running at about a $40 million run rate for the quarter and in the last cycle you’re at about $60 million. You said if the economy stays the same you’re expecting growth. With the visibility you’re now seeing and some of these new customers coming on, is that what you’re talking about if you’re looking out, say three or four quarters? Getting back to those levels?

David G. Tacelli

Well, one of the things, if you look over the last couple of cycles, and the way we define cycles, I want to try and be clear on the call, is looking at up cycles, down cycles, so from an ’04 through an ’06 time period, two year period, we actually average in the $47 million-$48 million range, not in the $60 million. I think the peak was a little over $67 million. The trough at that point in time was somewhere south of $30 million.

So if you look at the average of $48 million, what I’m saying is over the next growth period we’re trying to get not only back to that cross-cycle average, but to exceed that cross-cycle average, based on the number of accounts we’ve won, the revenue dispersion that we now have with some key accounts, and with the follow-on devices.

There are many customers today that have committed a significant amount of new devices to LTX’s production. And my comment about the economic condition not affecting LTX, overall the economy will affect every company. But what’s going on with LTX is because we have so many different products, so many different customer products in design on our equipment, given a steady state of economy that we should continue to see some level of growth through the calendar year. And I expect that as the economy gets better across all market segments, we should see a second accelerator.

I don’t know that’s far beyond me to call when the economy is going to pick up. I’m mainly focused right now on where our customers and as our customers launch products into their individual markets. So, I see this growth period as more customer-specific, not economic-specific. I see the next level of growth being more the economy.

Operator

Your next question comes from Joy Mukherjee - State of Wisconsin Investments.

Joy Mukherjee – State of Wisconsin Investment Board

I was hoping that you would provide us with some view on your view on the cycle at this point.

David G. Tacelli

It’s interesting; I think the tail end of my last comment is where I think the cycle is right now. We haven’t seen any meaningful upset across all markets. What I’ve seen is there are some specific markets where you’ve seen some growth and then if you take it down another level it’s really some of the specific customers we’re dealing with in those markets.

If I also look at LTX’s revenues, if I look over the past four quarters, LTX is starting to build up to a new base. We’ve been, over the last few quarters stuck in this $30 million-$33 million run rate. This quarter we jumped up to $39 million and we’re talking about roughly flat next quarter.

But we haven’t seen the accelerator. We say, okay, you’ve going to see 10%-15% growth on a quarterly basis. And I’m really looking for what the accelerator is going to be in the economy over the next six months, just to help us do that.

So, from a cycle standpoint, I haven’t seen any broad-base recovery at all. I’ve seen either specific customers, inside specific markets, is the way I categorize it. And for us, I think we’ve actually come off the bottom to I’ll call it a new level, hopefully as the economy does turn, sometime in the near future, we’ll see another pick up in business across multiple market segments in multiple other customers that we’ve already delivered to.

Joy Mukherjee – State of Wisconsin Investment Board

From a competitive standpoint, are you seeing any new products that are being introduced?

David G. Tacelli

It’s interesting because I’ve heard a lot and then I’ll speak specifically to the RF market because a lot of our competitors have been very, very focused on discussing their new, next generation technologies in RF. And I have to say first that I haven’t seen anything disruptive that they’ve actually put into the marketplace.

What I’ve seen is more of a repackaging of existing technologies that they’ve tried to put into their existing products from a cost standpoint. It doesn’t really provide any fantastic performance, super multi-site tests, and better lower cost test on the test plane basis. If you look at, and I keep drilling on RF, if you look at the complex nature of the analog and RF test market, really in order to penetrate and differentiate yourself, you’ve got to bring some technical attribute to the game. And the technical attribute could be an attribute that really drives down the cost of tests.

So from a competitive standpoint, I haven’t seen any of that. And the only thing I can tell you to demonstrate the truth behind that is we’re in constant benchmarks that a lot of different accounts of cross devices like collar amplifiers, transceivers, complex SOC devices, Bluetooth, GSP, and the list goes on. And in all of those situations our current generation product continues to win the benchmark for test time, cost of test, and lowest capital entry point. So, on the RF side I haven’t seen anything significant.

I have seen some other competitors make penetration into different digital markets, which we haven’t been as focused on in the past. Either providing very dense digital channels to go after low-cost digital or in some cases, continuing to move up the curve with really high-performance digital in a liquid-cooled environment, chasing the graphics, microprocessor market, which we’re really not focused on. But I have seen advances in technology there.

And on the analog side, as I’ve talked about some of the other instruments we’ll be rolling out, we’re really focused on expanding our base in power, power management. We’re focused on expanding our base in what I call standard analog and providing a full suite of instrumentation to that whole market. I won’t call it the low-end discreet market, but I would call it the standard analog market.

That’s going to be LTX’s position is to take our base, continue to develop instruments, and instruments that can plug into the existing boxes that we sell so once the instrument is available it’s readily deployable across a customer base.

Joy Mukherjee – State of Wisconsin Investment Board

What is your cash and marketable securities invested in?

David G. Tacelli

If you want to ask a direct question, we don’t have any auction-rate securities. Is that enough, Joy?

Joy Mukherjee – State of Wisconsin Investment Board

Yes, that should be fine.

Operator

Your next question is a follow up from Bryan Lee - Citigroup.

Bryan Lee - Citigroup

Just had a quick follow up on the NOLs. Mark, what is the NOL value today on a per share basis, if you were to add it back to the balance sheet?

Mark J. Gallenberger

Well, the total amount is about, the NOL is about $430 million, the asset that would actually go onto the balance sheet is about $230 million, so divide that by 63 million shares, you’re just under $4.00 a share.

Bryan Lee - Citigroup

And just to remind us again, what are the criteria for when that comes up for discussion again, to add back, potentially?

David G. Tacelli

Like anything in this world, it’s not black and white, but typically you have to show consistent profitability and look back in about a three-year period and show that you’ve had consistent profitability during that time period and then you would be into a discussion with your auditors about to what extent would you start adding back some of that deferred tax asset.

Bryan Lee - Citigroup

In your case, given that we could be at the cusp of an upturn here and you obviously have a much more profitable business model than what you had on average over the past three years. Would that change the discussion as to how quickly you could maybe put that back on?

David G. Tacelli

I think it really depends on the strength of the next up cycle and how much profitability we’re asked to generate. So I think that’s what you really need to look at. This has been our first quarter of profitability in about a year, so I don’t think we’re going to be actively engaged in those discussions, probably for at least the next 12 months.

Operator

I will now turn the call back over to Mark Gallenberger for closing remarks.

Mark J. Gallenberger

Thank everybody for participating with us today and we will be presenting at the Friedman, Billings, Ramsey Tech Conference next week, next Wednesday, in New York City, so I hope to see you there. If not, I may see you on the road.

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