Commercial Vehicle Group Inc (CVGI) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Commercial Vehicle Group Earnings Conference Call.

(Operator Instructions) And as a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to Terry Hammett, Head of Investor Relations.

Please go ahead.

Thank you, Candice, and welcome to our conference call.

Joining me on the call today are Patrick Miller, President and Chief Executive Officer of Commercial Vehicle Group; and Tim Trenary, Chief Financial Officer.

They will provide a brief company update as well commentary regarding our fourth quarter and full year 2018 financial results.

We will then open the call up for questions.

This conference call is being webcast.

It may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost-saving initiatives and new product initiatives among others.

Actual results may differ from anticipated results because of certain risks and uncertainties.

These risks and uncertainties may include, but are not limited to, the economic conditions in the markets in which CVG operates; fluctuations in the production volumes of vehicles for which CVG is a supplier; financial covenant compliance and liquidity; risks associated with conducting business in foreign countries and currencies; and other risks as detailed in our SEC filings.

And now Patrick Miller with a brief company update.

Thank you, Terry.

And thank you, everyone, for joining our call this morning.

We delivered strong results for 2018, with revenues reaching $898 million, representing 19% year-over-year growth driven for the most part by increased heavy-duty truck production volumes and continued strength in the global construction equipment markets.

We also grew operating margins for the year, 330 basis points, driven by the completion of our restructuring and cost optimization initiatives, our operational excellence program and the higher revenue.

While we continue to experience some labor and material cost headwinds, we were largely able to offset the impact of these headwinds last year.

In February, we announced the reorganization of our business to align with our product segments versus industry markets.

I will provide some color in this in a -- on this in a moment.

This was a strategic move to position our business for accelerating growth while leveraging the attractive industry trends impacting on our markets today.

Let me quickly touch on the performance within our segments.

Electrical Systems experienced broad-based strength compared to a year ago, delivering an 18% increase in revenues and a 45% increase in gross profit.

We also successfully remedied a major capacity constraint created by labor shortage experienced in our wire harness operations in Mexico.

The resolution of this constraint taken together with cost control and cost recovery initiatives and the completion of the facility restructure in 2017 drove the substantial increase in gross profit and 66% in operating income in 2018.

Turning to Global Seating.

Our results reflect strong growth with revenues and operating income up 21% and 68% year-over-year, respectively.

The primary driver was strength in our end markets and cost containment and recovery initiatives we put in place to address rising material costs.

Tim will provide more details in a moment in his remarks.

2018 was one of the strongest years on record for the North America heavy-duty Class 8 truck industry with builds totaling 324,000 units in 2018, up 27% from 2017.

The build rate for medium-duty or Class 5 through 7 trucks increased to 272,000 units in 2018, a 9% expansion over 2017 levels.

Looking ahead, the February ACT research report expects North American heavy-duty Class 8 truck production to increase 335,000 units in 2019, while North American Class 5 through 7 truck production is expected to stabilize.

Furthermore, FTR's current heavy-duty Class 8 forecast is 342,000 units for 2019, and they also have a positive projection for medium duty.

We expect to continue to see strong construction markets in North America and Europe.

We have, however, seen China moderate somewhat in recent weeks.

While we are watching it closely, we feel it's too early to tell if it's a substantial shift in the market.

There are some potential mitigating factors, such as recent measures to stimulate the economy by the Chinese government as well as our new domestic China truck wins ramping in 2019.

With the record order backlog, we believe 2019 will continue to be a robust year for the North America heavy-duty truck industry.

We have good transparency with our customers who are bullish as indicators point to build rates exceeding the strong 2018 levels, assuming no unexpected disruptions.

Medium duty has trended upwards consistently through 2018 and is expected to be at similar levels in 2019.

In addition, general economic indicators, like GDP, low unemployment and manufacturer activity appear positive.

The freight environment is still solid, but we are seeing some balancing on supply-demand affecting pricing that will have an impact longer term although freight growth remains positive.

We are estimating the North American heavy-duty Class 8 truck production to be in the range of 330,000 to 350,000.

Before I turn the call over to Tim, let's talk a bit more about the recent reorganization of our business and our strategy moving forward.

As we announced last week, this strategic reorganization is the next phase for CVG to better position the company for accelerating growth.

By changing the structure of the company to align with product lines versus industry segments, we expect to leverage our strength in Electrical Systems to capitalize on substantial growth opportunities, driven by secular trends in the automation, digitalization and electrification of commercial vehicles and other products.

At the same time, we expect our Global Seating segment to enhance its core business in medium and large commercial vehicles and to capitalize on a growing business in Asia.

The Electrical Systems segment is comprised of the wire harness, interior trim, wipers and structures businesses.

Increasing digitalization of the vehicle and communication to itself and the rest of the world, including growth of electrification, power and data usage, will be key drivers of growth going forward.

We are well positioned to take advantage of these trends because wire harness has served as the information and power highway, while trim and cab bodies provide a physical structure for most of the Electrical Systems.

Through our core offering, electronic product integration and expanding capabilities, both organically and inorganically, this business presents an attractive and incremental growth opportunity for CVG.

We have 2 strong leaders that will drive Electrical Systems strategy going forward.

First, Rich Tajer will lead the wire harness business.

His background offers deep experience in electronics, instrumentation and components.

And second, CVG veteran, Dale McKillop, will continue to lead the trim, wipers and structures business.

He will be focused on growing the business by diversification, increasing our geographic footprint, integrating new technology-based content and driving synergies with Rich on the Electrical side.

Together, the Electrical Systems team is working to optimize their respective operations, ensuring alignment so that we have a strong foundation upon which to grow.

With regard to Global Seating, consolidating our seats business should give us a better cost competitive position over time, which is critical in this business, especially in established markets with more competitive forces at work.

We see growth opportunities in the mature Western regions and better growth potential in developing markets like Asia, where the trends toward higher quality seating with more optionality has been steadily increasing in recent months.

We referred earlier to our new wins in the domestic China truck arena.

This market produces more heavy-duty trucks than the rest of the world combined, and we are starting to gain more traction here.

Our seating has high brand recognition across the globe and by creating a focus business segment, we can take advantage of synergies to improve our competitive position and market penetration.

Our Global Seating segment is led by Doug Bowen.

Doug is an industry veteran and brings more than 35 years of Global OE and aftermarket experience to the role.

He most recently led our former GCAM segment.

And for the past 18 months, has delivered consistent positive financial results, along with further positioning the business for profitable growth.

Over the past 3 years, we focused our efforts on improving the financial performance and strengthening the balance sheet to put us in a position to invest prudently in strategic growth opportunities.

Building on this momentum, we developed a strategy team comprised of senior leaders and select individuals to push the envelope on innovation and growth ideas.

We've allocated resources toward a thorough review of our long-term strategy and how we can best position the company for growth.

Through this process, the strategy team has spent considerable effort delving into our markets, identifying future trends and considering how CVG can evolve and provide meaningful returns for shareholders.

With that, let me now turn the call over to Tim to discuss the financials in more detail.

Good morning.

Before I review our financials in more detail, let me first provide a quick overview of our realigned segments and our end markets.

Our segments, Electrical Systems and Global Seating drive approximately 70% of their sales from the global medium- and heavy-duty truck and the construction equipment markets.

In 2018, both of these markets performed very well.

We also sell into the Boston light vehicle markets, the specialty and recreational vehicle markets, the industrial market and other markets.

In terms of geographical presence, Electrical Systems sells into the truck and construction equipment markets, primarily in North America and Europe.

We sell wire harnesses into the construction equipment and other industrial markets, trim and structures into the truck market in North America and wipers into both markets, but primarily in North America.

Global Seating maintains operations in North America, Europe and Asia.

Within the segment, truck seating sales are primarily in North America, where we have a leading market position in Class 6 through 8 trucks.

Our truck seating business in Asia Pacific, particularly in China and India, is growing.

In the construction equipment markets, Global Seating participates in North America, Europe and Asia Pacific.

Majority of these sales are in Europe and Asia, where we believe we have a strong market position in medium- and heavy-duty construction equipment.

Turning to our results.

For the fourth quarter 2018, consolidated revenues were $223.6 million compared to $188.3 million in the prior year period, an increase of 18.7%.

This performance reflects a large part the performance of the medium and heavy-duty truck markets in North America, but also a strong global and construction equipment market.

Class 8 truck build in North America increased 25% in the fourth quarter of 2018 compared to the prior year period, and truck build for Classes 6 and 7 increased 13%.

For the fourth quarter 2018, Electrical Systems revenue were $127 million compared to $109.2 million in the prior year period, an increase of 16.3%, and Global Seatings revenues were $99.3 million compared to $81.2 million in the prior year period, and that's an increase of 22.2%.

Foreign currency translation adversely impacted fourth quarter consolidated revenues by $2.4 million or 1.3%.

Of this $2.4 million foreign currency translation impact on the fourth quarter, $1.7 million was in the Global Seatings segment, the remaining $0.7 million was in the Electrical Systems segment.

Turning to operating income for the fourth quarter 2018.

Consolidated operating income was $14.4 million or 6.5% of sales compared to $8 million or 4.3% of sales in the prior year period.

That's a 220 basis point improvement in operating income margin.

The Electrical Systems segment generated $13.3 million of operating income in the fourth quarter of 2018 or 10.5% of sales compared to $8.5 million or 7.8% of sales in the prior year period.

That's a 57% improvement in operating income for the Electrical Systems segment in the fourth quarter 2018 compared to the prior year period.

Global Seatings operating income also improved significantly.

Operating income for Global Seating in the fourth quarter of 2018 was $7 million or 7.1% of sales compared to $5.3 million or 6.5% of sales in the prior year period, a 32% improvement.

Fourth quarter 2017 results benefited from a $0.4 million gain associated with facility restructuring actions.

Net income in the fourth quarter of 2018 was $8.9 million or $0.29 per diluted share compared to a net loss of $7.2 million or $0.24 loss per diluted share in the prior year period.

Earnings in the fourth quarter 2018 benefited from $1.3 million adjustment to the provisional $11.2 million charge in 2017 associated with implementation of U.S. tax reform as well as the effect of the legislation's lower corporate tax rate in 2018.

Turning now that the full year 2018.

Consolidated revenues were $897.7 million compared to $755.2 million in the prior year period, an increase of 18.9%.

Revenues reflect near record 2018 heavy-duty truck production in North America, of 324,290 units, that's a 27% increase compared to 2017.

Classes 6 and 7 truck productions was also up in 2018 compared to 2017, up by 10%.

As previously noted, global construction equipment market was also strong in 2018.

Electrical Systems revenues for the full year 2018 were $512.8 million compared to $434.4 million in the prior year period, an increase of 18.1%.

And Global Seatings revenues were $397.5 million compared to $329.5 million in the prior year period, an increase of 20.6%.

Foreign currency translations favorably impacted consolidated revenues for the full year in 2018 by $8.1 million or 1.1%.

Of this $8.1 million foreign currency translation impact on full year 2018, $4.5 million was in the Electrical Systems segment, the remaining $3.6 million was in the Global Seatings segment.

For full year 2018 operating income more than doubled compared to 2017.

Consolidated operating income was $66.9 million or 7.4% of sales compared to $30.9 million or 4.1% of sales in the prior year.

Operating income margin for the full year 2018 improved 330 basis points when compared to 2017.

The Electrical Systems segment generated $59 million of operating income for the full year 2018 and operating income margin of 11.5% compared to $35.5 million in 2017 and operating income of margin of 8.5%.

Global Seatings' operating income improved significantly as well.

Operating income for Global Seating for the full year 2018 was $31.2 million, that's an operating income margin of 7.9% compared to $18.6 million or 5.6% operating income margin in 2017.

Facility restructuring charges and a litigation settlement adversely impacted 2017 results by $4.3 million.

The increase in sales in 2018 was a primary driver of improvement in operating income, but it also benefited from the completion of our North America facility restructuring plan late in 2017 and the resolution of labor shortage in Mexico in 2017 in our North America wire harness business.

On the other hand, there were a number of cost challenges in 2018 that somewhat offset the benefit of the increase in revenues.

Commodity prices primarily steel, resin and copper, began rising in late 2017 and generally increased throughout 2018.

Certain other material increases occurred during 2018, primarily reflecting tight material supply and some supply chain difficulties.

Furthermore, the global labor markets began tightening in 2018, also resulted in some modest margin pressure.

We saw this coming in 2017, and we're successful in managing away the 2018 impact of much of these increases.

A number of commercial activities focused on raw material cost recovery.

The continued global deployment of our Lean Six Sigma program, what we call, operational excellence, also reduced the adverse impact of the cost pressures on operating income.

We supplemented these cost control and recovery initiatives with cost discipline in selling, general and administrative spending.

Notwithstanding this cost challenges in 2018, operating income improved significantly.

In December of 2018, the Mexican government legislated revised minimum wages in an area running along and just South of the U.S.-Mexico border, so called free zone of the northern border.

The minimum wage in this zone was increased effective January 1, 2019, from MXN 103 per day to MXN 177, that's an increase of 72%.

Our wire harness facility in Agua Prieta is subjected to this new minimum wage.

Absent no effort by company to reduce the impact of this on 2019, our financial results would be adversely impacted by approximately $5 million.

Of course, we have a number of actions underway to reduce the impact of this increase in our labor cost on our 2019 financial results and are considering a number of commercial alternatives as well.

I size the impact of increasing labor cost on 2019 at $2 million to $3 million.

Net income improved dramatically in 2018.

Net income was $44.5 million or $1.46 per diluted share compared to a net loss of $1.7 million or $0.06 loss per diluted share in fiscal 2017.

This improvement reflects the improvement in operating income in 2018 as well as the effect on earnings of U.S. tax reform and the refinancing of the company's debt in 2017.

The legislation resulted in a 2017 write down of the net deferred tax assets to the new corporate federal income tax rate of 21% and are provisioned for the deemed repatriation of foreign earnings.

This amounted to an $11.2 million provisional income tax burden on fourth quarter 2017 earnings.

In the third quarter and fourth quarter of 2018, we adjusted this provisional 2017 income tax charge as the regulations governing the application of the new law were published.

This adjustment benefited the third and fourth quarters of 2018 by $2.9 million and $1.3 million, respectively.

Also benefiting earnings in 2018 was the refinancing of the company's debt in the second quarter of 2017.

Net of charges associated with refinancing in 2017, the refinancing resulted in less debt service in 2018 as compared to 2017 in the form of reduced interest expenses.

For 2019, we've modeled an effective tax rate in the range of 20% to 25%.

Depreciation and amortization expense in 2018 was $15.4 million and capital spending was $14.6 million.

We expect 2019 capital spending to be in the range of $16 million to $19 million.

At December 31, 2018, the company had liquidity of $134.2 million, $70.9 million of cash and $63.3 million availability from our asset-based revolver.

There were no borrowings under our asset based revolver at December 31, 2018.

Gross and net leverage was 2x and 1.2x trailing 12 months EBITDA, respectively.

That concludes our prepared remarks, Candice.

Turning it over to you now for Q&A.

(Operator Instructions) And our first question comes from Willard Milby of Seaport Global.

I wanted to go back to what you just said about the, I guess, the Mexican minimum wage increase there.

The headwind, I think, you called $5 million.

But I guess, you took some actions to address that and the run rate for 2019 is $2 million to $3 million.

Just wanted to clarify that real quick?

That's correct.

And I wouldn't necessarily say we've taken all of the actions, but Will, we're in the process of taking a number of actions that we believe will benefit us throughout the year.

And as you said, by my sizing, at least, ultimately end up impacting the year 2019 by $2 million to $3 million.

Okay, okay.

And wanted to talk a little bit about, I guess, the input cost headwinds and labor cost headwinds that, I guess, are still lingering to a bit.

I know you've taken some actions with the Mexican plants and training opportunities and various on-boarding initiatives to kind of retain employees and alleviate the situation there.

But I was wondering, a little bit -- maybe more in the cost controls and recouping elevated input cost, what actions are being taken there?

How the conversations with the customers go as you look to kind of offset some of your elevated cost?

And as you look at each individual segment, maybe what are the headwinds, if you can kind of slice and dice the numbers here, to the margin at each segment right now versus where -- what a more normalized maybe input cost level would be?

Okay.

So you have a lot of questions on your side there.

So we'll put...

We can take one at a time.

So the first thing is, how we're going about mitigating the pressure and the cost on -- labor availability is really what it comes down to, that's what's driving the inflation.

It's not in one region, it's actually spread out all over the globe for us, and so we've had challenges in most of the countries in which we operate in some level or another.

Couple of years ago, we really started an aggressive campaign to address and improve our work environment through employee engagement activities, through infrastructure development and investment in the buildings and the workspaces in which our employees operate.

We've always had a strong focus on safety, but these things really were more related to the various types of work they do.

We've been digitalizing our processes to make it more consistent and repeatable.

You can imagine when the volumes go up this fast, is what they've done in the last couple of years, it can drive some inefficiencies and some lack of standard processes inside our operation, which are kind of detrimental to the employee environment.

So we've worked really hard to improve that arena, and we've done that everywhere.

You mentioned the training, we've really got a broad-based set of training development programs that we've implemented.

We're doing things like language lessons and a volunteer language lessons for anybody interested in either in our Spanish-speaking plants, they learn English, in our English-speaking plants, they can learn Spanish and these type of things.

So we think those have had a positive effect.

You mentioned standardized on-boarding, when you really need people badly, it's -- it is enticing to just throw them into the operation and not treat them -- train them as well as what you normally would.

We've been very diligent about not doing that and what we've seen is a stabilization in most of these places on the labor turnover front.

It is still an ongoing challenge, and I would say it's still elevated compared to historic norms.

And when you look at the unemployment rates in the places where we operate, I think that would be to -- is to be expected.

As far as the cost-reduction opportunities to help offset that, part of what I just mentioned is actually tied into our cost-reduction activity.

So some of the training developments, employee engagement activities, I believe, are tied into our Lean Six Sigma program.

We have trained, I don't remember the exact numbers, thousands now, I think, it's 2,200 employees across the company, and it gives them an opportunity to continue to elevate their capabilities as part of that training involves implementing cost reduction projects that are -- follow the mantra and some of the protocols that the tools that we teach.

So we think those 2 things go hand-in-hand.

We're seeing as we get more employee engagement, we get more suggestions implemented from the people who are closest to the problems, what we see is an improvement in our efficiencies.

And as we have seen the volumes -- in addition to that, I think, the volumes as the ramped up, that's one scenario.

As they start to level out and run at these higher levels, it gives us a chance to really optimize our processes.

And so all of those things gone into helping to offset some of the wage inflation that we've incurred.

The last thing I think you referred to was related to commercially, how are we addressing some of these things, and you threw in some of the material side.

So there is historical precedent for being able -- with most of our customers being able to pass through material costs.

There is a variety of different methods and processes that we have to engage with the customers.

And certainly, they don't like to increase their costs either, so they're looking to minimize that impact.

And therefore, it can be a protracted negotiation.

I would tell you, in general, we've had pretty good interactions, some of them may take longer than we'd like, so there tends to be a lag.

But throughout those interactions in 2018, we've tried to leave behind where we didn't already have raw material mechanisms to help facilitate as those commodities go up and down, passing those 3 -- those things through on the top line.

And I think, in most cases, we have those things in place going forward.

I think you kind of alluded to what do we see as far headwinds in 2019.

On the commodity front, there is some potential -- there is a lot of volatility on petro-based materials today, tied to the oil and gas market.

And you probably know as much about that as -- and you read about that as much as I do.

But the reality is the resin market, we probably can see some minor inflation in our resin-based products through the rest of the year.

Steel, while it's up a little bit in the first part of the year, we tend to lockdown contracts.

And we see it softening probably later this year, but for the most part, not seen the enormous increases that we saw in 2018, so those have leveled out.

So I think the commodity market, in general, will be less impactful.

More importantly, I think, for us is ensuring that our supply chains can support higher volumes and run rates that we're at and that is an ongoing management exercise to ensure that we're getting all the product we need.

Now that's a mouthful.

I'm not sure I got everything, Will, that you asked.

No, I think, you got most of them.

I think I just wanted to ask on, I guess, maybe margin headwinds.

What do you think is possible, I guess, to be addressed within each segment?

Maybe what's the drag you're experiencing in each segment if you kind of spit it out that way?

And what you think can be addressed in 2019?

So Will, it's Tim.

I -- let me answer your question this way.

There is -- over this past 18 months or so when we've been dealing with these pressures and measuring them, there is -- just because of the nature of the business and the global nature of our company, there is a fair amount of, I don't know, art is a little bit of a exaggerated term, but it's not a precise science, okay.

Suffice to say that during the year, as Pat mentioned, that process we ran, that -- those measurements we ran, we believe by our reckoning that we have recovered the majority, the vast majority of these material cost pressures on our business.

There has been some leakage and there is some continuing efforts on the part of our commercial and to a lesser extent our procurement organization to recover those going into '19.

Now as regards to the impact on '19, I'm reasonably optimistic that we will to the extent we have some additional work to do on what transpired in '18, that we can saw some of that off.

I think, as Pat mentioned, the commodity pressures are easing moving into '19, so perhaps they won't be as challenging and the supply chain, I think, difficulties are abating a little bit.

So while there may be a little bit of additional improvement in margin associated with those recovery actions, there's also some additional risk.

So sort of having said all of that, the company's operating income margin in '18 was about 7.5% that's an EBITDA margin of 9%.

So I mean, that's -- those are pretty good margins for this business in this environment.

And we're quite happy with where it ended up and with our ability to manage these -- this margin compression, and -- we feel good about '19 in that regard.

Right.

I appreciate the color there.

I heard you mentioned, I guess, some recent slowdowns here and moderation, I think, was the wording in China in recent weeks and a strong North American construction markets.

But didn't hear too much on Europe or maybe I missed it.

What's your outlook or view on Europe right now and for 2019?

I've read some of the broader European news around some softening in their overall GDP.

For us, though what we've seen so far in the first part of the year is the volumes have been very strong.

Now we're trying to make sure we understand whether any that's related to some preparation in regards to Brexit.

As you know, we have operations in the U.K., a shift into Europe, and then we have operations in mainland Europe as well.

In general, we've seen a pretty healthy volume so far.

And we can see probably into the first half of 2019.

And at least, on the construction side of the business, I think there's been -- as you may know in our make up, we've got a little bit of light vehicle in Europe.

And some of that light vehicle has a little bit of softening, but the rest of the construction side and that side of our business has been pretty strong.

So we've not seen any detrimental impacts from some of the proposed softening in Europe.

Got you, got you.

Also kind of maybe sticking in Europe and pivoting maybe to wire harnesses.

I think Volvo had an announcement beginning of this year, making some fully electric lighter, I guess, construction equipment.

Does that -- I guess, for your business for maybe -- for your strategy, does that kind of business fit where you see your wire harness business going that lighter construction market?

And I guess, B, is that fully electric construction market something that, I guess, would butts up against your business well?

In general, is that something that you see maybe making some inroads in?

So we supply electrical wire harnesses today into electric drive powertrains.

And so as things move that direction, when we kind of look at the differences between the vehicles, there is pretty good content for us in that arena, and we don't have great concerns of any major transformation on that front.

I think some of those vehicles that Volvo unveiled, if you're referring to what I think, were around some of the mining applications, some of that kind of drone vehicles that will run around a large mining operation, those are certainly things that we can -- that we are and can be a part of.

And so that transformation, I think, in some cases has already happened on some of the markets we participate, and we're part of that.

So I think if I understood the gist of your question.

No, no.

That's great.

And also speaking about wiring harness, what's the current, I guess, penetration of those digital design boards within the business?

I think you had a handful, maybe within the last couple of quarters, but we're looking to significantly ramp your use of those.

Can you talk about the penetration of that technology and how that's grown margin within that business?

I'm trying to do the math here real quick.

I don't remember the exact number of boards.

But I would tell you that we've double down on the investment in that arena.

We probably are about little over 50% into the implementation of the newest round of investment.

As we've announced, we are -- we've made some investments in a new operation in Mexico to expand our wire harness capacity outside of the region that we're in today in Agua Prieta and new facility would be in Morales, Mexico.

We expect that operation will have predominantly digital boards.

I think those digital boards only make up probably, I'm going to estimate, okay, because I don't have the exact numbers, 20% once we get them fully implemented this first round of investment.

And we will continue to migrate those.

Now they're not going to work on everything, because there are some harnesses that are too heavy for the current structure.

We are evolving, so we're learning, and we've been able to add more and more things to the digital application.

But it won't be able to go across the board completely, I think, from the type of work we do.

And so that's kind of where I would tell you we are.

All right.

I appreciate all the comments.

Two quick housekeeping things, and I'll turn it over to -- back -- and I'll jump over in the queue here.

The interest expense in the quarter, a little bit elevated sequentially here.

Was there any kind of onetime lift in that?

Or maybe what's a good run rate as we should think about for modeling for 2019?

Well, you might recall that $80 million of our variable rate debt is fixed, we have an interest rate swap, an $80 million interest rate swap.

And so every quarter, we mark that to the market.

As you know, the interest rate environment relaxed a little bit recently, and so that mark turned a little bit against us, so it's noncash charge in the fourth quarter.

To your question about modeling going forward, absent some significant aberration in interest rates in '19, I think $4 million a quarter would be good for interest expense, absent any of the swap marks.

Got you.

Okay.

And lastly, with the reorganization of the business kind of thinking about just quarterly cadence.

Is there anything we should be aware of -- any -- maybe quarters, in particular, where there might be spikes or troughs in business that we should look for when kind of looking out 2019, 2020?

No, I don't think that our reorganized business will behave any differently than it has in the past with respect to the modest ebbs and flows during the year.

I mean, you go back and look, I mean, the fourth quarter is a little lighter on the sales generally because of the holidays and other activities going on.

So it should be a similar ebb and flow during the year.

(Operator Instructions) And I'm showing no further questions at this time.

I'd like to turn the conference back over to Patrick Miller, Chief Executive Officer, for closing remarks.

Well, we're energized by our new organizational changes, and we're optimistic about the coming year.

I want to tell everyone thank you for joining the call.

And we look forward to future discussions.

Have a good rest of the day.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone, have a great day.