Dover Earnings Call Insights: Surprise Sound Solutions, OEM Launch
Surprise Sound Solutions
Shannon O’Callaghan – Nomura: So, Bob, I’ll start with the surprise Sound Solutions. Can you explain take another crack maybe a little more detail, you’ve got the Vienna facility of Sound Solutions. It’s very good at high throughput automation. You’ve got Knowles people who know how to do high flex automation very successfully and I know it’s slightly different what you’re trying in Beijing at Sound Solutions, but can you explain a little more detail why you think you’ve had such trouble with that, and why you can’t better leverage the knowledge base of those other parts of the Company to get the yields up?
Robert A. Livingston – President and CEO: Okay. Well, that’s about four questions, Shannon.
Shannon O’Callaghan – Nomura: That’s all on top.
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Robert A. Livingston – President and CEO: So, let me back up to about 15 months ago and just highlight what I would label as the three primary objectives we had as we enter the third quarter right after the acquisition of Sound Solutions. We knew we were dealing with the significant change in the marketplace with Nokia and a couple of other OEMs, but objective number one was, aggressively pursue design wins with new OEMs. I would say objective number two sort of goes to the heart of your question, which was a significant manufacturing transition in the Beijing operation with a focus on the high flex automation and the third objective would be to work that new designs quickly to drive yield improvements and value brand. Shannon, the execution on all the three of these objectives has been slower than I expect is slower than we expected and it has been disappointing. Your question about the capability we have both in Vienna, as well as the Knowles team is true. In fact, as we exited the second quarter early part of the third quarter, we did start to make some management transitions in Beijing. In fact, the General Manager of Beijing now, the Operations Manager, I think the Quality Manager and probably about five other key leadership positions have been changed since the end of the second quarter with Knowles China personnel taking over responsibility for these positions. So now let’s comment on the third quarter. I think we’ve learned a lot in the first six months of this year. I think those learnings along with the management transitions that we started to make at the end of the second quarter and into the early part of the third quarter, we have seen some progress. On the high flex lines we like what we have and we feel we made the right decision. We’ve had lots of learning between line one and where we are today, but I would also label that this high flex automation objective is no longer a challenge. Our yields continue to improve. We had significant improvements during the third quarter more in the latter part of the third quarter than we did in the early part and we will continue to make more progress in the fourth quarter. The volume has been lower than expected, but I also expect it to continue to increase. Shannon, I’d share one further comment and it has less to do about performance and more to do with sort of the outlook for this business. As focused as we have been in the last six months on bringing up the high flex automation and improving our yields, we are already working on several new designs for 2013 OEM product launches and actually a couple of the key designs are actually scheduled for first quarter qualification test and we’re on schedule.
Shannon O’Callaghan – Nomura: Then just one more from me just on balance sheet. I mean nice to see little over $4 million of share repurchases in the quarter. It sounds like you’re also feeling good about the acquisition pipeline. You have the free cash flow on the balance sheet to kind of doing both. How you’re thinking about those into the end of the year and next year?
Brad M. Cerepak – SVP and CFO: I’ll take that question. Again, I think at the price in the multiple on our stock right now we find it very attractive and therefore in the quarter we did go ahead as we’ve been saying and buyback ahead of dilution more so than we did even last year. That’s obvious at 4.3 million shares purchased. I would say we continue to make an assessment of what’s in our deal pipeline all the time and the price of our stock. At this time though, I would say, we would expect to continue with some modest share repurchases into the fourth quarter. We like making – we like what we’ve done in the second quarter and I think we will continue to do that.
Charles Brady – BMO Capital Markets: Just going back to Sound solutions for a minute, and I guess specifically on the OEM launch and some of the yields and some of the products going into that and I guess I’m trying to get a sense, and I know you’re not giving 2013 guidance, but at what – how much – what point is that problem linger into 2013, I mean at what point are you anticipating the yields getting up to a level that the product is acceptable to the customer and you can start shipping that product into that OEM?
Robert A. Livingston – President and CEO: We are there now Charlie. The yields on the new designs that we’ve been focused on bringing in to production and the ramp over the last three or four months, are being delivered to the customer. The customer is accepting them and is pleased with the yields, though I would also tell you we have further room for improvement on the yields.
Charles Brady – BMO Capital Markets: Just quickly on the Energy business, on the bookings, can you kind of break it down by the three end markets. I’m assuming that the booking on the drilling were not as strong, but maybe just give a sense of the three end markets there?
Robert A. Livingston – President and CEO: No. I actually don’t have the bookings data here for Recall Charlie. I think you go back to the comments that Brad shared with you and his comments on the three sectors with respect to revenue. My guess is that the bookings followed pretty closely to the revenue pattern. We didn’t have a lot of distortion in book-to-bill between the three sectors.
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