Today and welcome to the ESCO third quarter 2016 conference call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO, Gary Muenster, Vice President and CFO, and now, to present the forward-looking statement, I would like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.
Thank you. Statements made during this call regarding 2016 and beyond EPS: EPS as adjusted, EBIT, tax rates, future growth, profitability and revenue, operating margins, cash flow, orders, success of new products, sales, acquisitions, implementation of the company's capital allocation strategy, the costs, benefits, and timing of restructuring and cost reduction initiatives, the results of recent acquisitions, corporate costs, and other statements which are not strictly historical but forward-looking statements within the meaning of the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward-looking statement. Due to risks and uncertainties that exist in the company's operation and business environment, including but not limited to, the risk factors referenced in the company's press release issued today, which will be included as an exhibit to the company's Form 8-K to be filed.
We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, during this call, the company may discuss some non-GAAP financial measures in describing the company's operating results. As a reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Vic.
Thanks, Kate, and good afternoon, everyone. Before I give my perspective on the quarter, I'll turn it over to Gary for a few financial highlights.
Okay, thanks, Vic. At the start of the year, we identified certain restructuring actions being implemented throughout 2016 related to our lower margin international operations, primarily in the test business. We described and quantified these actions as well as identifying the annual cost savings anticipated once the process was completed. The restructuring costs were excluded from our original FY16 guidance provided in November, and we communicated that we would be presenting our quarterly and annual results for FY16 on both an EPS as adjusted basis and a GAAP basis. Our restructuring actions are substantially complete as of June 30, and I'm pleased to report that we have remained on schedule and below budget, and the few remaining items are expected to be completed in Q4. With the restructuring essentially complete, we are now positioned to begin realizing the identified cost savings and operating benefits that we anticipated.
I believe our Q3 results in the test business appear to be reflecting those benefits. Turning to a few specifics noted in today's release, I'm pleased to report that our Q3 results came in above the top end of our adjusted earnings guidance as communicated during the May release, which means we have now delivered several quarters in a row where results have met or exceeded our internal expectations both from an earnings and a cash flow perspective. Additionally, I'd like to point out that the first five months of Plastique's performance was consistent with our acquisition model, and the growth opportunities that we identified as part of the acquisition continue to materialize. During Q3, we reported EPS as adjusted of $0.49 a share, which was 20% higher than the $0.41 of EPS from continuing operations that we reported in Q3 of 2015.
The $0.49 also is $0.04 above the top end of our previous EPS as adjusted guidance range of $0.40-$0.45 a share. Our nine-month year-to-date EPS as adjusted was $1.36, which is also above our original year-to-date expectations we established last November. Compared to our May guidance, the increased earnings came from every operating unit, with the exception of Doble, whose sales continue to be impacted by the timing and volume of utility customer hardware sales. Filtration, Technical Packaging, and Test Q3 earnings all exceeded our previous expectations, and our Q3 and year-to-date cash flow continues running $several million ahead of plan. The $398 million of orders year-to-date reflect the continued strength of our commercial aerospace business and, in particular, the A350 program. This is coupled with the order strength we generated in Technical Packaging as well.
While the test business orders were below expectations, we are encouraged by the level of bid and proposal activity we are currently addressing. Given the size and volume of these opportunities, we are confident that the current order softness is project timing related due to the lengthy sales cycles on larger projects. Here are a few additional highlights from the release to allow you to better understand the underlying results. Q3 consolidated sales increased 4% or $6 million compared to Q3 of the prior year. The increase was driven by technical packaging, where sales doubled from prior year, reflecting the strong performance from TEQ and the contributions from Fremont and Plastique. Filtration sales increased 10% with strong performance both in our aerospace businesses and at VACCO.
As I noted earlier, Doble sales decreased as a result of the hardware softness, and this was partially mitigated by higher software and service revenues. Test sales decreased due to the timing of revenue recognition on several large projects. Corporate costs were higher than last year, primarily due to the timing and volume of spending on professional fees and the additional amortization of intangibles from our recent acquisitions. On the balance sheet, we continue to maintain a very favorable debt level, with $46 million in net debt outstanding as of June 30. We remain firmly committed to our capital allocation strategy, which includes share repurchases and dividends. During the first nine months of the year, we spent $4.3 million to repurchase 120,000 shares, and we spent $6.2 million on cash dividends, which brings the total shareholder-related cash outlay to $10.5 million as of June 30.
Being this close to fiscal year-end, we also confirmed our full-year EPS as adjusted guidance of $1.95-$2.02 a share. As you recall, we raised our full-year guidance back in May. This annual guidance results in a Q4 outlook for EPS as adjusted to be in the expected range of $0.59-$0.66 a share. Finally, commenting on our longer-term view, we continue to see meaningful sales, EBIT, and EPS growth across the business segments, consistent with our previous expectations and earlier communications. Also, I'll be happy to address any specific financial questions when we get to the Q&A, and with that, I'll turn it back over to Vic.
Thanks, Gary. I'm really pleased with our Q3 and year-to-date results from a lot of perspectives. In addition to being on track with our earnings, cash flow throughout the business, I continue to be impressed with the management team at Plastics and the way they're working together with tech on integrating the business into our technical packaging group. Additionally, I'm pleased with the way the test business restructuring actions have gone given the complexity of these actions, the various geographies involved, and the costs being incurred. Our teams on both sides of the Atlantic are doing a very professional job of managing this process to successful completion.
Gary covered a lot of the financial details in his commentary, so to tie this off, I'll share with you that I remain confident that all of our businesses are in solid financial condition with known and quantifiable growth opportunities, and we're well positioned to hit our EPS outlook for the balance of the year. As I shared with you during our last earnings call, we're not immune from the economic headwinds many industrial markets are facing today. But with that said, I strongly believe the breadth and diversity of our end markets and the specific niches that we operate in provide us with the protection to mitigate this pressure. While we're not without challenges, I like the position we are in across our various businesses and end markets. Our core strengths provide me with the confidence to say that the various economic issues we're facing today appear manageable.
Furthermore, and to help offset these economic issues, we continue to identify some solid upside opportunities that we can capitalize on as we head into next year. I'll move on to a few specific thoughts and comments on the business. In filtration, this segment really continues to perform above expectations, and our year-to-date earnings, cash flow, orders, and outlook for the balance of the year remain strong. Given our solid position across several large platforms, including the continued upcycle in commercial aerospace led by the A350, our growing product contributions in space on the SLS program, and our unparalleled technology on Navy submarines, which are critical to our national security, I'm confident that our future growth in filtration will be strong and sustainable. Our technical packaging group's future remains bright as we now have a meaningful scale and market leadership position across several growth markets and geographies.
With the addition of our recent partners, we are now well positioned in this global market to provide highly engineered products to customers in medical, pharmaceutical, and consumer markets. I'm confident the opportunities we're seeing set us up nicely for the future. While feeling the pressure of utility capital budgets, Doble still reported a solid Q3 delivering adjusted EBIT margins of 22.5%, and we continue to see additional growth opportunities in our service and software applications. To help further mitigate this hardware impact, we are seeing additional opportunities with our new products, such as the M- Series, doble PRIME, and our DUC. We're also increasing Doble sales and marketing efforts on the international side to focus on expanding our global revenues. The combination of our new offerings and the breadth of our software and solutions bode well for our outlook.
Within test, with the restructuring activities winding down, it's great to see that this has taken place without any negative impact on the rest of the business. Most importantly, we're now seeing the cost savings materialize as anticipated. Our reduced cost structure and ongoing operational improvement initiatives support our earlier communicated EBIT margin expectations in test. I feel good about the growth opportunities we have across all of our businesses as we wrap up 2016, and I can see tangible avenues for additional growth in 2017 and beyond.
Acquisitions remain a key component of our ability to meet our longer-term growth targets, and we're currently reviewing additional opportunities. We certainly have the balance sheet capacity and the management bandwidth to handle this additional growth within our current operating infrastructure, and we will remain disciplined in our approach. Wrapping up, we have a strong first nine months of the year, and our outlook for the balance of the year remains solid. Our focus remains constant to improve our operational performance and execute on our growth opportunities, both organically and through acquisitions. I'll now be glad to answer any questions you have.
Ladies and gentlemen, if you have a question at this time, please press the star and then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, to ask a question, please press star one now. Our first question comes from a line of Jonathan Tanwanteng of CJS Securities. Your line is open.
Questions. Nice quarter.
Thanks, John.
Can you just talk about the impact of the push outs at Doble? I saw in the press release that the timing fell into July as opposed to June? What was the magnitude of that?
It's about $2 million.
Okay. On a revenue basis?
Correct. Correct.
Okay. Okay. And then can you just go over what happens at your customers when we see headlines about airlines talking about delaying orders on commercial jets? Would you guys have a large dollar content on, say, the A350? Do other airlines simply move up to take their place? How does that play out in planning and how you think about the next year?
Yeah. We get a lot of questions about that. The reality is there's a large backlog there, multi-year backlog. What happens is you have one airline pulls out, everybody else goes up in a queue. We've not gotten any indication from our customer that the schedule for the next several years may be impacted at all. It's a large program, and I think it's typical for people to kind of change their mind, get out of the queue, but people do take that up.
We're fortunate in that, yeah, A350 is certainly a big driver. I mean, we get good content on that, but we also own a lot of other aircraft. Even if there are movements within that, it's not going to have a major impact on our business because of the large number of airframes that we're on. But the A350 specifically, we don't see any impact to our business.
Okay. Great. And then just finally, an update on the M&A environment. What are the valuations you're seeing? Any update on how far you're willing to lever up to go after some stuff and just a general temperature of targets and opportunities?
Sure. Sure. So let me answer the leverage question first before I forget. I get into more general things. But we always talk about our willingness to go to 3-3.5x levered. We don't see that changing for the foreseeable future. The overall market, the aerospace multiples remain high. There's a couple of guys out there that really pay up for these things. And we think, though, that some of those businesses are getting so big that the areas where we look, the businesses in $20 million-$100 million in sales, those are probably too small for some of the larger businesses because it simply doesn't move their needle. That being said, the valuations are still pretty strong, but they're within, say, striking distance for us.
There's a good bit of activity, not just in the aerospace business, but we're seeing some things in our other businesses as well. So the activity, it feels like there's more going on than there was maybe six months ago. The issue always is timing, though, and if people, they're going to make a decision quickly and then their ability to get through the process. So I'm encouraged that some things will be happening over the next three to 12 months, but it's really hard to control the timing of those. The facts are, we're really going to stay disciplined because anything could be creative, but we really need to make sure that we're able to get a good return on those as well.
Last one. Just given the valuations that are out there, does it make more sense to be repurchasing more stock, especially if you can't get one done by the end of the year?
Well, we'll continue to look at that. And I think we've always talked about doing that opportunistically, and that certainly is one of the utilizations of cash that we continue to look at. But our preference right now is to make some acquisitions, and we think we'll be able to get some things done there. Certainly, the acquisitions that we've made in the technical packaging business this year, we got done at very reasonable multiples and are really paying the dividends that we thought they were. So they're out there. I think we just have to kind of keep fighting the fight to make some of these things happen.
Great. Thank you very much.
Bye.
Thank you. Our next question is from the line of Jim Giannakouros of Oppenheimer. Your line is open.
Hey, guys. Congrats on the good quarter.
Thank you.
On the quarter and, I guess, the guidance that you had set for the second half and the implications for, I guess, the ramp that you had foreseen for the second half, I guess I'm trying to understand. I mean, you guys maintained guidance. You beat by about $0.04 from the high end. Where are you incrementally cautious in your fiscal forecast? Or is it just there's plenty of wiggle room just in the range that you provide? I'm trying to understand where I should be thinking about if it's temporary or permanent pressures, whether it be in test, because I'm not hearing anything that I should be concerned about in Doble or filtration.
Sure. So I think the easiest answer is the timing with our business sometimes is hard to predict. And so while we had three strong quarters and above expectations somewhat, some of the things that we anticipated being delivered in the fourth quarter actually got done in the third quarter. And so that's why you didn't see us go out and say, "Okay, we're going to raise our guidance as a result of that," because some of the things simply just got pulled in the third quarter. As far as the ramp in the fourth quarter, I believe there still is a decent ramp in the third quarter and fourth quarter. I feel very confident in that. Obviously, we've put something else out. But Gary and I were just in all the majority of the operating units last week and talked to the rest as well.
And obviously, spent a lot of time talking about the fourth quarter because with that kind of ramp, we want to have confidence that we're able to execute that. I'll say that the business is there to matter getting it out the door. So we feel good about our ability to make that ramp in the fourth quarter. As you know, anybody that's followed us over the years knows that our fourth quarter is always our strongest quarter.
And so this time is a little different. And in fact, if you look within some of the businesses, the fourth quarter ramp is not as high as it was last year. So we feel good about that. But I wouldn't have any concern about the test business either. You mentioned that we've got some good opportunities, as I mentioned in my prepared comments, with some larger projects as we move into next year. So I'd say overall, things are looking very solid.
Got it. Okay. And then to understand, I guess, the dynamics of that pop-in forecast, I mean, one has been historically just the deliveries that you have in Doble. To better understand where you guys are currently in your mix that's impacting your margin progression there, equipment versus software services, how should I be thinking about that? And is that shifting for 2017 and 2018?
Well, I'll defer the commentary on 2017 and 2018 just until we get a little further or a little closer to that. But just Jim, relative to sequentially, let's start there, Q3, what we just reported and how we look at Q4. As John asked, what was the sales move between? And the indicator was $2 million. So you're going to see a sequential Q3- Q4 at Doble of at least $2 million, and then you get the normal fourth quarter stuff. So we fully have rationalized that step up. So moving that thing up $2 million- $3 million- $4 million, Q3- Q4, the nice part of that, it brings along a lot of margin through that as well. So that addresses that.
On the test side, as Vic indicated, looking at what we're doing Q3- Q4, it's very consistent with what we did last year. Fourth quarter carried probably 33% of the volume. But one thing I think we did to be prudent is to make sure that we didn't outsize ourselves on expectations in Q4. So if you get through the math, you'll see that we're presenting Q4 in test to be slightly lower than Q4 last year. And that certainly appears rational based on the last three or four years of our Q4 performance. So I'll comment on that one because you're going to see a clean quarter in test. And while you see kind of adjusted 13% EBITs there, it's going to be north of 14% in Q4 just because that volume carries a lot of overhead absorption through it. So we feel pretty good on that.
On the filtration side, we always indicate that the Virginia Class Sub, the largest manifold that we sell, the majority of that product ships in Q4. And so of our big step-up in filtration revenue, if we peg that in round terms at $10 million, eight or nine of that comes from VACCO, primarily between the Navy business and the space. And that as well pulls additional margin through. So that's a bunch of narrative around the sequential aspect of how we see Q4 playing through being prudent.
I don't like the word conservative because that indicates something else. But I think we're being very prudent because this is all real-time, live for us. So that hopefully gets you comfortable on Q4. And then again, I'll defer the conversation on 2017 and 2018 until we get through September. Everything that we've indicated in our prepared remarks where we say the growth opportunities are tangible and presentable, I think it's reasonable to take that as we have comfort.
Fair enough. Thank you.
Thank you. Our next question is from Ben Hearnsberger of Stephens, Inc. Your line is open.
Hey, thanks for taking my question. I have a question on test margins. Historically, if we look back, it looks like they've peaked in kind of the 11%-12% range. Is that an appropriate level to think about longer term for the test business?
I think after we've taken these actions, I mean, we're looking more 13%+ margin in the test business. I mean, this was between taking cost out with the two international operations. Some of the initiatives that we have underway to reduce cost at our domestic locations and some of the things we're doing in our plant in Austin, I think we have a very clear path to a sustainable 13%-14% margin in that business.
Assuming the top line shows up in that business next year, we can achieve 13%-14% as early as next year, or that's on the come at a higher revenue run rate?
I think if we were able to get some growth this next year, we should be able to hit those types of margins in 2017.
Okay. And maybe another question on 2017. I know it's early, but we've got a ramping commercial aero pipeline. The packaging business looks very promising. Is it fair to think about growth in 2017, or is it fair to think about seeing more top-line growth in 2017 relative to what we saw in 2016?
I'd have to go back and look and see exactly how much growth we've got here. But we certainly will see growth over what we have this year, I mean, just based on the things that we have, the fact that we're going to have Plastics for a full year. So I would say that we'll see some growth going into 2017. I really don't want to talk about how much yet because we spent all our time recently talking about the fourth quarter. And so we get everybody back together in late August, early September to talk about 2017. Obviously, we're talking to them about that. We're getting an early sense of that. But at that time, we'll kind of firm up what our outlook is going to be for 2017, and we'll talk about that on our next call.
Okay.
But the thing I will say, Ben, I mean, I feel really good about some of the actions that we've taken to get our cost in line. If you look at the fact, I mean, it's obvious everybody's sales aren't as strong as maybe anticipated this quarter even. But the facts are, we've really done a good job. The company's done a good job controlling costs, making sure that's in line. So the great thing about that is we go into next year, the growth that we get, we should be able to leverage pretty significantly. So that's one of the things that's very encouraging to me, the hard work that they've done this year. We should get additional benefits going into next year.
Okay. That's helpful. And one last question for Gary. Free cash flow conversion was really strong in 3Q. As we think about it longer term, what's an appropriate free cash flow conversion rate? Or I guess, how do you think about it over time?
Yeah. Well, we have to address it across each of the businesses, unfortunately. I think within the filtration business, it's very quick. And we don't have a big capital appetite in filtration. All the stuff we need is done. So the conversion rate there is in the high 80s, the low 90s, relative to its EBIT contribution, again, because we carry the tax burden at corporate. So I'd put that in the high A+ bucket on how they quick-turn that. Plus, the customers we have, the Airbuses and Boeings, believe it or not, pay on an efficient basis. So the conversion is really quick. In test, it's kind of an anomaly because on some projects, you get advanced payments. And then on other ones, you have retention on the back end until everything's certified.
So you might get 20% of the cash upfront, and then you might run eight months with no cash, and then you get 60% at completion, and then the other 20% upon sign-off of the contract. So that's a real hard one to predict because it's really a function of what projects you have running through the pipeline. And then I'd go to the plastic or the packaging business. That's kind of somewhere in between because we have these long runs of programs, things like CAS that we get paid quickly on. And some of the medical ones where you're running that program for 90 days, and you really don't bill the customer till the 91st day, and then you collect a little after that. So I'd put the filtration in the 90% bucket. I'd put test in the 40 or 50% bucket on a conversion.
Again, it's time-phased. Then the plastic or the packaging group, I'd put probably in a 75% conversion because there is a capital appetite there relative to the efficiency we get off the machine. So there's a little higher capital appetite than the other places. I'd say Doble's conversion rate can range from 50%-90% because even though we're a critical customer to them, utilities don't always pay as quickly as you think they would. Again, we have some leverage over them, but we choose not to use it. So you bring all that stuff. I'm sorry?
Particularly international.
Particularly international. And then when you bring that all together, I would say if you were just picking out one number and said 75% would be the conversion across the platform, that would be the right way to think about it. And so while that's, again, a lot of data, you really need to understand the four components of that before you say, "Well, 75% is not very good.
Okay. That's really helpful. And I actually had one more question. On the DUC product of the universal controller, you guys cited in the press release as a potentially meaningful contributor. Can you frame that up at all and give us a sense for how big of a product it could be?
What these really are are ruggedized computers that have a very specific application. So the specific product itself is not that expensive, but typically, you tell these you're going to buy enough of these to outfit a large number of their field engineers. So this is something I think it's in kind of the initial forecast at $7-$8 million a year after we get it up and running, which we should be up and running late next year.
So we're getting a really good adoption rate on that. And so we think it's got a good future. And the biggest reason, I mean, it's a great product, first of all, because there's a lot of regulatory pressure for utilities in a certain area, which is satisfied. And that kicks in in April. I think a lot of people are going to be charging around last half of next year behind this equipment.
Okay. That's helpful. Thank you, gentlemen.
Thank you.
Thank you. Our next question is for Sean Hannon of Needham & Company. Your line is open.
Yeah. Thanks for taking my question, folks. Just going back to a comment that you had made, Vic, to make sure that we acknowledge that you folks certainly aren't immune from any slowdown on the industrial or within the industrial markets. If possible, if you can give us a perspective from your vantage point, where within your businesses do you see the most risk that you're monitoring? How should we think about that? Thanks.
Okay. So again, I'll do like Gary and I talk about each of the businesses. With the fluid flow business, I don't think there's really a big issue there at all. So I think we're most comfortable with that. The packaging business, probably the same way. I mean, we've got good longer-term contracts there, good backlog, good insight into what the customer wants. With Doble, it's a solid business. We have seen some pressure on the hardware side. The utility budgets are just a little tighter than they have been historically for a lot of reasons. What we tried to do to address that are a couple of things, and we've been working on that the last couple of years. One is developing new products, which we just talked about.
So this may be a very temporary thing as some of these new products kick in, our M7000, which we introduced last year. We're way ahead on sales on that product versus where we thought we were going to be going at this point in the year. So it's not like all hardware sales are soft. So anyway, new products on the hardware side. We've really expanded our offerings on the software side, and it's been partially through internal development and partially through acquisition. The SSD, there's no sort of acquisition we did a couple of years ago has been a real success that's fully integrated both within our hardware and some other people's hardware. So that's been a great thing for us as well as the ARMS product. And then the other thing is the service side of it.
And the service side that does something else, we've emphasized a lot of times what you'll see with utilities. If they don't have hardware budget, they may have service budget. And while they may not be able to buy the equipment, they still need the test done. And so they'll reach out and work with us on that. So while our hardware sales have been a little soft, the other pieces of it have been stronger. So net and net, I think we'll be fine. And then the other thing is, I mentioned in my prepared remarks, it's really a renewed focus on the international business, and that's something we're working on as well. And so that leaves the test business. And always, the test business is the one that is probably the toughest to predict.
Having said that, if you look at the orders that we had this year, we've really not had any big orders. And so the biggest orders we had are $3-$4 million. As we sat here today, we're bidding a number of larger projects going into next year. So you'd anticipate that we'll continue to get the type of orders that we've gotten this year. In addition, some of these larger projects may come in. But those are the most susceptible, obviously, to some of the budget constraints that are out there. So short answer is a little bit of concern at Doble, a little bit of concern at test. But we think we understand those, and we think there are other opportunities to offset what we're seeing. The other two businesses, I think we're pretty solid in.
Okay. That's very helpful. And then my next question, can you folks update us in terms of where you are with some of the business that you have in Doble related to the Middle East? There are some hardware stages that are, multiple stages, but having been completed, can you talk a little bit about where we are, the ability to expand that in some of the opportunism you might be able to capture within that market or any other perspective? Thanks.
Sure. So just in a way of background, we're coming up toward the end of year two of the Saudi contract, which is the largest contract we have there. They're exceptionally happy. In fact, we have two people there today working on the extension of the third year of that contract. We completed a job at Marafiq, which is another Saudi utility. We had Paul Griffith, one of the guys that is responsible for that area over there, I think it's about two months ago. And he had probably eight meetings with eight different utilities and a lot of interest in what we're doing. I think as we get through this process with Saudi and people see the results they're able to get, that we'll continue to get good traction. So it's a big opportunity for us.
Obviously, Saudi is very well-respected in the region as far as what we're seeing on the utility side. And then kind of the kicker with that as well, everything we're doing today is primarily services. We have sold them maybe $2 million of hardware as well. As they go into the next phase, more and more equipment will be sold to support their ongoing operations. Because what they're really trying to do is kind of get a baseline and then bring a lot of that in-house. And for them to be able to do that, they'll need to have the equipment that we're using to complete our piece of the process.
Okay. Great. Thanks so much for the feedback.
Thank you. Our next question is from Sean Nicholson of SBH. Your line is open.
Hey, guys. Just one quick question. I know you guys talked about it earlier in the call about the M&A pipeline. Just curious, you guys focused a lot of attention on the deals out there and clearly different stages come and go. Any indication on where you're at, any more processes more mature further along and kind of probability of getting something done by the end of your fiscal year? Or are we still in that in terms of just the pipeline is pretty much just waiting for timing something to shake loose? Thanks.
Yeah. Obviously, I'd be a little careful what we say, but we're pretty far along on one opportunity. There's probably three others that we know are coming to market that we're very interested in over the next four or five months.
These range in that $20 million-$100 million, roughly, size?
Yes. Correct.
Okay. Thank you.
You bet.
Thank you. That does conclude our Q&A session for today. I would now like to hand the call back over to management for any further remarks.
Okay. Well, I do want to make one clarification. I guess we talked about the DUC. And I said it's a ruggedized computer. Obviously, it is that from a hardware perspective, but what really drives it is our software that we put on that. So it's not like we're just reselling somebody else's computer. We're really putting a lot of intelligence into that product. So with that, I'll just thank everybody for the participation. I look forward to talking to you in the next call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.