Don Duda - President and Chief Executive Officer John Hrudicka - Chief Financial Officer Ron Tsoumas - Controller and Treasurer

Christopher Van Horn - FBR Capital Markets Greg Palm - Craig-Hallum Joe Vruwink - Robert W. Baird Jimmy Baker - B. Riley & Company

Welcome to Methode Electronics fiscal year 2017 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. This conference call does contain forward-looking statements which reflects management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise. Forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause these actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission such as our annual and quarterly reports. Such factors may include without limitation the following, dependence on a small number of large customers including two large automotive customers; dependence on the automotive, appliance, computer and communications industries; investment in programs prior to the recognition of revenue; timing, quality and cost of new program launches; ability to withstand price pressure, including pricing concessions, currency fluctuations, customary risks related to conducting global operations, ability to successfully market and sell Dabir Surfaces; continued economic challenges in Europe including the exit of the United Kingdom from the European Union; dependence on our supply chain; income tax rate fluctuations; ability to withstand business interruptions; dependence on the availability and price of raw materials; fluctuations in our gross margins; location of a significant amount of cash outside of the U.S.; ability to keep pace with rapid technological changes; a breach of our information technology systems; ability to avoid design or manufacturing defects; ability to compete effectively; ability to protect our intellectual property; ability to successfully benefit from acquisitions and divestitures; the recognition of goodwill impairment charges; costs and expense due to regulations regarding conflict minerals; and the effect of any material modification to NAFTA and other international trade agreements. It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Thank you, Christine and good morning everyone. Thank you for joining us today for our fiscal 2017 third quarter financial results conference call. I am joined today by John Hrudicka, our Chief Financial Officer, and Ron Tsoumas, our Controller and Treasurer. Both John and I have comments and afterwards we will take your questions. Year-over-year fiscal 2017 sales increased 6% in the third quarter but only slightly when comparing the first nine months. Net income increased 37.8% in the third quarter and 12.4% for the nine months due mainly in both periods to higher sales in the automotive and power products segments, a favorable currency impact on material and labor expenses, an international government grant as well as lower travel and selling expenses. Partially offsetting these factors in both periods were lower sales volumes and an unfavorable sales mix of data solutions products in the interface segment. In the third quarter we saw copper prices swing to a negative effect. This adversely affected net income. Compared to last year's third quarter, consolidated gross margins improved 150 basis points, positively influenced by a favorable currency, impact on materials and labor and partially offset by the unfavorable commodity pricing I just mentioned. In the nine month period, consolidated gross margins improved 180 basis points year-over-year driven by favorable commodity pricing and a favorable currency impact on materials and labor, as well as overhead cost reductions in the power products statement. The first nine months were also positively impacted by commodity pricing adjustments and the reversal of a customer commercial issue in the automotive segment. Gross margins in both periods were negatively impacted by an unfavorable sales mix of data solutions products. Year-over-year selling and administrative expenses decreased $1.8 million in the fiscal 2017 third quarter, affected by lower legal and other professional fees as well as decreased travel and selling expenses. However, selling and administrative expenses increased $4.5 million in the nine month comparison due to higher stock award amortization expense as well as increased costs for legal and professional services, partially offset by lower travel and selling expenses. Year-over-year fiscal 2017 third quarter operating income was $29.1 million compared to $21.5 million last year. For the nine months, operating income was $84.8 million compared to $78.4 million last year. Third quarter operating margin was 14.9% this year compared to 11.6% in the fiscal 2016 third quarter. For the nine months, operating margin was 14.2% this year compared to 13.1% in fiscal 2016. Last quarter we announced the award of an international government grant for maintaining employment levels at one of our international manufacturing facilities. The grant was for $1.5 million with the opportunity to earn an additional $3 million in the second half of the fiscal year. We are pleased to announce we received an additional $1.5 million of the grant in the third quarter. There remains the opportunity to receive an additional $1.5 million in the fourth quarter. I again congratulate our team on this very notable effort. Moving on to review of our segment results, Automotive segment sales increased 8.6% in the third quarter and 1.9% in the nine months compared to last year. In both periods we experienced higher sales for the General Motors center console and our transmission lead frame product, partially offset by lower Ford center console program volume and pricing concessions. Year-over-year Europe was negatively impacted by lower ignition switch product volumes in both periods as well as an unfavorable currency rate fluctuation in the third quarter and decreased customer funded tooling in the nine months. However, we did experience improved integrated center panel and steering wheel switch product volumes in both the third quarter and nine months. In Asia, sales of our transmission lead frame assembly and switch assembly products improved in both periods. Year-over-year automotive gross margins improved to 29.8% from 26.9% in the third quarter and to 29.5% from 27.5% in the nine months, positively affected in both periods by a favorable currency impact on materials and labor. However, while third quarter margins were negatively impacted by the unfavorable swing in copper prices I just mentioned, nine month margins benefited from the favorable commodity pricing of raw materials we received through the first six months. Nine month margins were also positively impacted by commodity pricing adjustments and a onetime reversal of accruals. For fiscal 2017, we are still targeting automotive gross margins in the high 20% range. Moving to Interface. Year-over-year segment sales decreased 14.4% in the third quarter and 9% in the nine months, driven mainly by lower data solution product sales and to a lesser extent reduced appliance and electronics sales volume. As we announced in our release this morning, sales in our data solutions group are projected to be approximately $10 million lower than last year and we anticipate the prolonged weakness will extend into our next fiscal year. Compared to last year, interface gross margins declined to 22.8% from 23.6% in the third quarter and to 21.6% from 23.8% in the nine months. In both periods margins were negatively impacted by lower sales, specifically in data solutions, partially offset by a favorable currency impact in material and labor expense. In the nine months margins were positively impacted by favorable commodity pricing of raw materials and the absence of costs associated with the move of manufacturing from the Philippines to Egypt. For fiscal 2017, we are targeting interface gross margins in the high teens to low 20s. Hetronic litigation costs were $1.8 million in the third quarter versus $2.8 million last year. For the first nine months these costs were $9 million this year versus $6.9 million last year. The bulk of these expenses were related to discovery costs with respect to the litigation with the former distributor. To reiterate, we believe it is critical that we protect the Hetronic brand, prevent unfair competition and protect our path to market in the industrial space which is a key component to our five-year growth plan. Year-over-year, power Products sales increased 36.3% in the third quarter and 2% in the nine months, due mainly to higher PowerRail and bus bar volumes. Fiscal 2017 third quarter also saw improved bypass switch product sales in Europe. We still anticipate approximately $9 million from PowerRail sales for fiscal 2017. In the third quarter Methode was awarded production of a battery pack bus bar for Tesla's Model 3, in addition to those we have in the Model S and Model X. Production is slated to begin in our fiscal 2019 with average annual revenue in the $3 million range and a program life of approximately three years. This award continues to show our capability and expertise integrating power electronics in the automotive market. Year-over-year segment gross margins improved to 26.6% from 19.5% in the third quarter and to 26.3% from 18.4% in the nine months, due mainly to higher sales and a favorable currency impact on material and labor expense. Third quarter gross margins were negatively impacted by unfavorable commodity pricing of raw materials due to increased copper prices. However, nine month margins were positively impacted by favorable commodity pricing of raw materials through the first six months as well as overhead cost reductions. For 2017, we are targeting power product gross margins in the mid-20% range. As we announced in the release this morning, we revised fiscal 2017 guidance for sales in the range of $810 million to $820 million due to prolonged weakness in our data solutions group, slower than anticipated customer product launch of our 10-gig copper transceiver, and lower than anticipated revenues in our European automotive segment. To expand further, sales in our data solutions group as I mentioned a moment ago, are expected to be $10 million lower than originally anticipated. Additionally, sales of our 10-gig product which we had initially estimated to be $9 million, are now projected to be about $1.5 million this year. Finally, automotive sales in Europe are expected to come in lower than originally anticipated for a number of reasons. Reduced sales of passenger cars, delayed launches which have now commenced, and reduced ignition switch sales likely to be $3.5 million lower year-over-year and expected to continue lower into our fiscal 2018. We did, however, increase guidance for income from operations to the range of $115 million to $120 million from the previous range of $102 million to $117 million and earnings per share in the range of $2.45 to $2.54 from $2.30 to $2.45. The guidance range for fiscal 2017 considers several factors which will affect our sales, income and earnings. Additionally, they are based on management's expectations regarding a variety of factors and involve a number of risk and uncertainties which have been detailed in this morning's release and Form 10-Q. Now let's move on with an update on Dabir. Over 7,000 surgical procedures have been completed with no reported tissue injury. Nearly half of these cases relate to a cardiovascular research study being conducted at a major Midwest teaching hospital where findings will be submitted for journal publication. Initial public disclosures are expected to take place in early to mid summer. It is important to note that this research is being conducted independently of Dabir. In addition, two other hospitals are also following suit given the same clinical success of zero reported pressure ulcers or pressure injuries since adopting Dabir. One has submitted an abstract for poster presentation at this year's Association of periOperative Registered Nurses conference in Boston in early April. This particular hospital adopted Dabir for long duration head and neck cases over 15 months ago and is currently expanding adoption into other operating rooms. The second hospital has realized the benefit of using Dabir in over 1,350 cardiovascular cases and has recently indicated they are planning to analyze their data further as part of a larger initiative. Bottom line, patient outcomes remain positive in every instance where Dabir has been implemented. On the education front and similar to the Dabir Integrated Healthcare Symposium held at Northwell Health in New York City last fall, Dabir will be hosting an education event at this month's National Pressure Ulcer Advisory Panel Conference in New Orleans. The focus of this event will be educating attendees on the prevalence of pressure ulcers, the negative impact to patients, the financial impact and the solution that Dabir can provide to their respective organizations. Speakers will be Dr. Aamir Siddiqui of Henry Ford Health System and Dr. Elizabeth Ayello of Excelsior College School of Nursing. Three other educational events are also in the works too in early to mid-summer and one in the fall. Switching to product development, the next generation system designed to support non-surgical market expansion is nearly through the design phase and beginning to transition into prototyping for system testing and early customer focus group feedback. This next-generation system is also being validated to support direct to consumer sales into home health, an area in which we frequently receive inquiries for purchase by family members for loved ones. Commercially, we have seven hospitals in various stages of product evaluation and additional four paying hospitals who have voiced intent to expand Dabir's use. Finally, adoption of Dabir has taken longer than we originally anticipated and our ability to successfully market and sell these products depends on acceptance by the medical community. We will, of course, continue to develop scientifically based evidence of Dabir's clinical viability. However, with Dabir's efficacy becoming fairly well proven and as we discussed on the last call, we are stepping up our efforts to educate nurses, doctors and hospital executives on the numerous benefits of using the surface. To this end, in the quarter we brought on board seasoned medical sales and marketing professionals as well as retaining a notable medical marketing firm to assist us with our messaging. Now I will turn the call over to John who will give further details regarding our financials. John?

Thank you, Don. I just have a few brief comments on the quarter and nine month period. Good morning everyone. The effective tax rate for the nine month period was 20.8%, slightly above our six month rate of 20.3%. The lower tax rate is due to increased utilization of investment tax credits, in part offset by more income in higher tax rate jurisdictions. We expect to be at the low end of our guidance range of low to mid 20s. Turning our attention to SG&A. You will note in the third quarter SG&A as a percent of sales was 12.4% compared to 14.1% the prior year, or nearly $2 million lower. This is primarily due to a decrease in legal and other professional fees. For the first nine months, SG&A as a percent of sales was 13.1% compared to 12.4% the prior year, or $4.5 million higher. This was primarily due to $5 million in higher stock award amortization and $1.8 million increase in legal and other professional fees, offset in part by $1.5 million in lower travel and lower selling expenses of $0.8 million. Moving to capital expenditures in the first nine months of fiscal 2017, we invested $13.2 million. For fiscal year 2017 we expect capital investment to be at the low end of our guidance range of $18 million to $22 million. Expense for depreciation and amortization for the first nine months was $17.6 million. For fiscal year 2017 we expect depreciation and amortization to be between $23 million and $25 million. Shifting to EBITDA. For the nine month period it was $105.3 million or 17.6% of sales. We expect EBITDA to be in the 17% to 18% range or between $135 million and $145 million for the full year. Lastly, free cash flow for the nine month period was $74.1 million. Based on our guidance and capital spending estimate, we expect fiscal 2017 free cash flow to be between $90 million and $100 million. Don, that concludes my comments.

Thank you, John. Christine, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Christopher Van Horn with FBR. Please proceed with your question.

Quick question, you mentioned in the press release around, you saw strength in the GM center console including production of new platforms. Would you be able to highlight some of those new platforms? Is it within GM or is it just various trim lines within the existing program?

We launched two programs internationally, one for South America and one for Thailand.

Thailand and Brazil.

And those are all derivatives of the K2.

Got it. It is the same scope of work?

Yes, absolutely.

Okay, great. And then the strength that you saw from the transmission lead frames, is that with a diverse set of customers, was that just, was one customer out sizing growth versus another?

We are tier 2 to Continental on that and the major upside there was for the transmission controller for General Motors for their T 76 transmission.

Okay, great. And then along those lines, could you talk a little bit about what you see in the pipeline? Congrats on the Model 3 win. Are there other electric vehicle opportunities for you using that bus bar technology? Are there other center console opportunities in the pipeline that you could comment on?

Generally for competitive reasons we don't comment on what's in the pipeline. We have a number of -- as we always do, we have a number of initiatives we are pursuing both in center consoles and in automotive switch products in general and then also in power for bus bars that go in the electric vehicles but nothing that we can discuss at this point. We would hope that in the future we would be able to announce more wins.

Okay, got it. And then on the 10G, bringing down expectations a little bit. Can you just comment what's happening in the marketplace? Is it market driven? Is it there a little bit more development on the product delaying, the timing? Any color there.

Okay. The product is fully launched, performing exactly the way it's supposed to. We have been qualified by a number of customers. HP is probably the most notable one, but we have seen customers delay their own launch of the product which has hampered us a bit. But I don't see anything that indicates that the product won't be accepted as needed in the industry. It's a step up in speed from the 1 gig we offer today but I think I had said in my prepared remarks, it's just the customers' launches have been a bit slower.

Our next question comes from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Hi, it's actually Greg Palm on for Steve. Good morning, thanks for taking the questions. On the margins, great job on growing those sequentially. You gave us some implied guidance for Q4 but if we look into next year, what's your confidence level in being able to sustain these type of levels or even grow from this sort of 27%, 28%?

That's going to largely depend on what happens with raw material pricing. As I noted on the prepared remarks, we've seen copper go up and it went up quite a bit in the third quarter. We will have to see what that does. Currency fluctuations are always an effect. But we have seen the cumulative effect of all of the cost reductions our teams have put into place and we would expect that to continue into our next fiscal year. But I would also caution that we will have to see how the [SAR] [ph] develops into our fiscal '18, then, obviously, volume will have an effect as well.

Got it. Okay. Switching gears to power. Can you tell us how much PowerRail contributed in the quarter and just remind us what that product was at peak a few years ago in terms of revenue?

We look up the revenue number -- in the quarter, the PowerRail sales to what we call our big data customers was about $5 million and at its peak two years ago, I want to say $30 million was at the peak. So if you run rate that, which I would caution not to do because the customer is not as predictable perhaps as others, we're getting two-thirds of way back to that.

And you are only selling to one customer currently, is that correct? And then what's your expectation? Do you have an update on how that ramps over the next six, 12 months?

We don't. For modeling purposes I would expect that it may very well be similar to what we have seen but very unpredictable customer. And that is a capacity build out, so when they are done as we saw in our fiscal 2016, it stopped. So they are adding capacity now. That doesn't mean they necessarily continue over the next 12 months. As far as other customers, we do have other customers for PowerRail but just not to that extent. This is a large cloud computing firm that much like we see with GM, they can use a lot of product very quickly. Now, those are also notable that we have seen in power which was very nice to see, is we did see mil/aero demand uptick as well. A bit overshadowed by our PowerRail, but still it was very nice to see. And as we talked about in the past, once power gets to a certain sales volume, you start to see the numbers churn quite nicely.

Got it. Okay. In terms of OpEx, you came in modestly below I think what we were expecting. Is this mid-20s level a good way to think about this going forward? Just kind of curious where are we in the Hetronic proceedings? What is the expectation for litigation expense and then as you ramp up Dabir, how are you thinking about spend next year?

I will just answer Dabir first. When we built the manufacturing line initially, we built in enough capacity certainly for next year. I would hope we would have to add more next year, but we have. I don't see us spending a lot of capital on Dabir. Dabir spending is around $8 million this year. Depending on how we approach the expanded marketing and sales efforts, we may increase that spend. We haven't made that decision yet. The Hetronic litigation, that could settle at any time but we always assume that it goes to trial. So I would expect if that does then expenses will be similar to this year, more in some quarters than others as we get into the deposition phase of litigation it tends to kick up a little, it will slow down until we go to trial.

Okay. Lastly, I know you won't provide formal guidance until you report the Q4 results, but any initial thoughts on what your expectations are for fiscal year '18? I think if I recall, there is additional auto awards that are still ramping up, but it sounds like there is some end of life stuff, every year there is continuing weakness in data solutions. So it would be helpful if you could just walk us through the puts and takes there.

As we said, data solutions, we think that weakness is going to continue into next year. As we also pointed out, that our ignition switch business in Europe is likely to continue to be down, although we have more launches in Europe and we are expecting growth in, given a normal [SAR] [ph], we would expect Europe to be up. The one caution that we always give is that there are price concessions that need to be baked in. Even though the team does a very good job and we seem to have it in our margins of making those neutral to the bottom line and actually in looking at margin improving it, those do come off the top line. The other factor that I can point out is that our customers have, our biggest customer has negotiated lower display pricing and that will, given the same volume as this year, that's $21 million, really a pass-through reduction. Again, it's neutral to our bottom line but it does come off the top line. And the contrast this past year was $13 million. So those are things to take into account. We are still doing the budgeting process. I would expect Hetronic to be better year-over-year. It's a little unsure exactly how appliance will shake out at this point.

Our next question comes from the line of David Leiker with Baird. Please proceed with your question.

This is Joe Vruwink for David. A few questions on profitability, and specifically for the automotive business is where I'll start. So in thinking about gross margin being up 300 basis points year-over-year, is it possible to segment the improvement between a normal volume contribution, the benefits of currency, obviously there's a headwind from copper prices, and then maybe it's a net productivity figure your ability to offset your price downs? Just any way to segment the year-over-year improvement?

Well, the quick answer to that is no. There is a lot of moving factors there. You can look at the change in COMEX on copper, that is one way of looking at it. That is really difficult to answer. We do say the effect of currency on revenues but not on profit. That's a long...

We tend to capture that at an aggregate level as opposed to breaking it down to the segment -- I mean we [can] [ph].

Okay. Maybe I will focus in on commodities because it's been a while since we had to worry about higher copper prices. Can you remind us how much of your buy you are able to pass-through and any lag on the pass-through? Because when you look at copper pricing, it really spiked within your quarter, which typically you get price cost mismatch. It's better if it's gradual. So I'm just wondering if the impact from commodities, the negative impact, if that actually would moderate because your pass-throughs are going to catch up with real time pricing over the next few quarters.

To some degree, both on copper and resins, we have our purchase order commitments made to our suppliers, none of them made to us. So that does not necessarily have an immediate effect. But let's talk about pass-through. Our ability to pass-through material increases is always a very lengthy discussion with the automakers. There are no material adders in our contracts. So if we had -- if copper swung even further in price then there would be a prolonged discussion on receiving compensation for that. And that always will lag. In times past that's lagged six to 12 months, probably closer to 12 months. I mean if I understood what you are asking correctly.

Yes. That's takes care of one thing. And then do you have any sense historically, I guess it would be your success rate with what you need to purchase as opposed to couldn't quite get it covered and so you ended up stomaching the burden?

If it's affecting all suppliers, which copper would, then we have been successful in the past. It's very hard to predict. But we are fairly persistent and it depends on what the swing is, too.

Yes. And then last question, I'm not expecting you to comment on future wins for bus bars aimed at electric vehicles, but can you give a sense of the current business. So maybe when you see RFQs for this type of product, the win rate in what you've gone after. Maybe typical content associated with this product? And then within the five-year plan, maybe a rough framework for how much this was expected to contribute. Because there's, obviously, a lot of third parties out there. There's the customer you won with that has very ambitious volume expectations for electric vehicles, and if Methode goes along for the ride that would seem to be pretty positive for your power division.

Talk about the five-year plan, and I think I have said this in the past, we're in the bus bar business, we're in the automotive business, so it's very logical for us to supply EVs but we're not expecting it to move Methode's needle appreciably. There are ambitious plans for this one customer and others, but we've seen, as we saw in the Nissan Leaf, we were sourced on that and those volumes were significantly less than we had produced. So it has the potential to positively affect our power group. In terms of our win rate, it usually comes down to do we want to take the business at a certain margin, and if it meets our margin criteria we are certainly well qualified to produce the product. And sometimes the margin is below our criteria and if the volume isn't there then we are just spending a lot of engineering manufacturing resources for very little margin dollars. So it really depends, I think our track record is quite good.

And just to be clear...

I hope these expectations are right. That will be a nice upside.

And just to be clear, it's early days of an industry but it's been an industry where a lot of your competitors aren't necessarily price focused. So I would imagine the fact that an OEM like Tesla has ultimately looked at those, circled back and is now using Methode, would imply you have a discernible competitive advantage in talking about just performance at the right price point?

Let me answer it this way. You can buy battery bus bars from any number of people. It's very difficult once you start to ramp to get automotive quality, which is critical. This is a battery. And so Methode is somewhat unique. We do have competition, but we are somewhat unique in that as you get Methode's quality and a competitive price. We are not the lowest, we know that. But you do get, knock on wood, a darn-near flawless product and delivery from us ad that's not lost on these customers as they ramp volume. If you are doing a prototype or you are doing a couple thousand vehicles, maybe that's not as critical. But when you get into more mainstream automotive where Tesla is certainly headed, I think Methode's reputation helps us get the business. Assuming we are within a reasonable ballpark, we can't be 30% high.

[Operator Instructions] Our next question comes from the line of Jimmy Baker with B. Riley. Please proceed with your question.

Great quarter. Most of my questions have been answered, I just have a few follow-ups. So the $13 million and going to $21 million display pass-through reduction, that's incremental to the annual price down on that contract, correct?

That's correct.

Okay. And can you just remind us then if you were to sort of exclude that, the aggregate annual price down in your portfolio not just for K2 but in auto in total, is that still in the 2% to 4% range?

Yes, I think we've said 3% to 5%. But it's the normal price downs and, again, the team has worked hard to make that neutral to the bottom line.

Sure. Understood. And then I don't know if you have mentioned this earlier and I just wasn't writing fast enough, but can you frame the content per vehicle on the Model 3 win? I just think there's obviously varying expectations for production there. Just want to have a sense for your ability to participate or the dollar value of your participation. And then any update on your torque sensing technology and opportunity to get that into transmissions at any major automakers?

Sure. We don't have, at least in this room, we don't have the average sale price on those bus bars. But if you took the $3 million we talked about and divide it by the volume they are anticipating, you would come close. And we can also get you that number, that's fine. But we just don't have that. I have the total annual but not the individual on Tesla. And in terms of torque sensing, again, we have nothing to announce but I recently had a review with our sensor team and the number of opportunities that they are pursuing across several automakers has increased with customers paying for prototypes, which is always a good sign. But, again, nothing to report at least from a booking standpoint. We continue to book business on electric bikes. That is turning into a bunch of very nice business for us and demonstrates the capability of the technology. We have seen the stability control, the sensor we are doing for that. We have seen that carried over onto some additional models. Nothing large yet but that continues to proceed. So while we are disappointed that we are not on a transmission yet, we have made progress and we do have more customers looking at it. And the product itself performs extremely well. We are well past any technical issues with the sensor. So, again, we are just waiting to get on that first transmission. And if that was announced in the next six months, that's probably model year '21 launch, would be my guess since the transmission.

Sure, understood. Okay. And then just following up on your 10-gig comments. Those delays at your customers, are those incremental to what you talked about last quarter? Or is this really just more of the same and you've formalized in the guidance what you saw and signaled last quarter?

Yes, it's the same.

Okay, understood. On the Dabir front then, switching gears, the hiring of this marketing firm and some of the other commentary that you made about investing in awareness and so forth with nurses. Should we take -- and doctors -- should we take those as incremental to your planned spend that you increased last quarter? Does that change the run rate going into next fiscal year?

I think we've said we were going from about a $7 million spend to about $8 million and that's contemplated in that number. What we will have to decide is do we spend more next year and we are still evaluating that. I want to see how our work with the marketing firm comes out and what their recommendations are. But it is truly an education process. We get approached, in fact, I think in every instance we've been approached by the hospitals about using Dabir and you would think if somebody approaches you and they have a problem and you have the solution, your path to getting sales would be fairly quick. It's not because that's just one individual or maybe two or three within a very large organization. So it has become an education process for us. As I said in my prepared remarks, we will continue to do more clinicals and prove the efficacy of Dabir but we are really moving beyond that to just simply educating the medical community and this solves a major problem.

Sure, sure. Makes sense. And just lastly...

Jimmy, I'd rather be there than trying to solve a technical issue we have. We've proven that we have the solution.

Right. Sure. Just lastly, and then I will pass it off. On the M&A front, can you just speak to how active your pipeline is? Do you feel like you are getting closer to anything or alternatively, are either you or sellers holding off until there is little bit more clarity on tax policy?

We have seen in the last, let's say six months, we've seen a pretty good pipeline of opportunities to look at. Nothing, obviously, that we've executed. But I have been pleased that we are finally getting to the point where we are seeing executable deals that maybe fit our criteria. Again, nothing that we've, obviously pulled the trigger on, and both in medical and other areas. So that's probably the biggest change that I've seen there. Tax policies and so on aside, we will have to evaluate that when we get closer to actually making an acquisition.

Mr. Duda, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Very good, Christine. Thank you and I will thank everyone for listening and for the questions. Good day now.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.