Gentex Corp (GNTX) 2014 Q2 法說會逐字稿

Good morning ladies and gentlemen, welcome to the Gentex second-quarter financial results conference call. Today's call is being recorded. I would now like to turn the meeting over to Mr. Kevin Nash, Chief Accounting Officer. Please go ahead, Sir.

Thank you. Good morning welcome to the Gentex 2014 second-quarter earnings release conference call. I'm Kevin Nash, Vice President and Chief Accounting Officer. Thank you for joining us today. In this call, we will provide an overview of the Gentex 2014 second-quarter business followed by questions. I'm joined on the call today by Mark Newton, Senior Vice President; and Steve Downing, Chief Financial Officer. This call is live on the Internet by way of an icon on the Gentex website at www.Gentex.com.

All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor Statement included in the Gentex reports second-quarter 2014 financial results press release from earlier this morning and, as always, shown on the Gentex website. Your participation in this conference call implies consent to these terms.

Now, here's Steve Downing, the Company's Chief Financial Officer with the second-quarter 2014 financial summary.

Thank you, Kevin. For the second quarter of 2014, the Company's net sales were $338.4 million, up 18% compared with net sales of $287 million in the second quarter of 2013 led by strength in market penetration for our newly acquired HomeLink applications, inside and outside electrochromic mirrors as well SmartBeam and Driver Assist camera systems. Despite the headwinds created by the previously announced rear camera display losses.

The gross profit margin in the second quarter of 2014 was 39.7% compared with the gross profit margin of 35.8% in the second quarter of 2013. The improvement in the gross profit margin is due to the impact of the acquisition, improvements in product mix, purchasing cost reductions and the Company's ability to leverage fixed overhead cost which were partially offset by annual customer price reductions. Net income for the second quarter of 2014 was $76.8 million up 47% compared with net income of $52.1 million in the second quarter of 2013. Earnings per diluted share in the second quarter of 2014 were $0.52 an increase of $0.16 or 44% compared with earnings per diluted share of $0.36 in the second quarter of 2013.

During the second quarter of 2014 the Company benefited from incremental research and development tax credits related to its amended tax return filings for calendar years 2010 through 2012 in the amount of $5.5 million. As a result of the effective tax rate in the second quarter of 2014 decreased to 27.4% and the incremental impact of earnings per diluted share for the quarter was approximately $0.04. Additionally in the third quarter of 2014, the Company expects to complete further studies relating to the 2013 calendar year and estimates the effective tax rate to be approximately 30.5% to 31.5% for the third quarter which is based on current tax laws and the incremental benefits associated with research and development tax credits not originally included in the 2013 financial results.

Automotive mirror unit shipments in the second quarter of 2014 increased 12% compared with the second quarter of 2013 primarily due to increased unit shipments of both the Company's interior and exterior auto dimming rearview mirrors in all of the Company's primary markets. As a result, automotive net sales in the second quarter of 2014 were $329.6 million up 18% compared with automotive net sales of $279.8 million in the second quarter of 2013. Other net sales which include dimmable aircraft windows and fire protection products were $8.9 million in the second quarter of 2014, up 24% compared with $7.2 million in the second quarter of 2013.

Now, Kevin Nash will provide some more details in regards to the Q2 2014 financial results.

Thanks, Steve. ER&D expense for the second quarter of 2014 increased 7% to $20.2 million compared to the second quarter of 2013 primarily due to increase staffing levels which continues to support growth and development of new business as well as personnel additions that were part of the HomeLink acquisition.

SG&A expenses for the second quarter increased 17% to $14.2 million compared with the second quarter of 2013 primarily due to incremental employment costs, and amortization expense related to the HomeLink acquisition as well as increase professional fees related to the previously mentioned work on the research and development tax credits. Other income for the second quarter was $5.8 million an increase from $5.5 million in the second quarter of 2013 which was driven by slight increases in realized gains on sales of equity investments.

Now to the balance sheet. Cash and cash equivalents were $391.6 million up from $309.6 million as of December 31 primarily due to cash flow from operations. Cash flow from operations for the second quarter was $44.4 million compared with $74.6 million in the second quarter of 2013. It was driven by $24.6 million increase in net income but it was more than offset by changes in working capital. Compared with the second quarter of 2013, inventory in accounts receivable increased by $19.6 million due to the acquisition and increase sales levels. While accounts payable and accrued liabilities decreased by $35.7 million primarily due to month and timing and the timing of certain tax and wage payments versus the second quarter of 2013.

Year to date cash flow from operations were $142.1 million versus $172.3 million also driven by increases in net income but was more than offset by working capital changes. Accounts receivable, as I mentioned, increased $35.2 million versus December 31, 2013 primarily due to the higher sequential sales level as well as timing of the sales within the quarter. Inventories were $125.2 million up from $120.1 million as of December 31 primarily due to increases in raw materials.

Long term investments were $109.8 million up from $107 million as of December 31, 2013 primarily due to increased unrealized gains on sales that were reinvested in the Company's equity investment portfolio. Accrued liabilities were $73 million up from $63.5 million as of December 31, 2013 primarily due again to timing of certain tax and wage payments. Capital expenditures for the second quarter were $13.8 million compared with $11.4 million in the second quarter of 2013.

The Company continues to estimate that capital expenditures for calendar 2014 will be in the $75 million to $85 million range. In the second half of 2014, the Company is planning to begin construction of a new manufacturing and distribution facility. Total cost of this project is expected to be approximately $30 million to $35 million of which approximately $5 million to $10 million will be spent in 2014. Depreciation and amortization expense for the second quarter was $19.8 million compared with $13.8 million in the second quarter of 2013 primarily due to amortization related to the HomeLink acquisition. The Company continues to believe that depreciation and amortization for calendar year 2014 will be between $80 million and $85 million. Lastly, on July 18, the Company paid a quarterly cash dividend of $0.16 per share to shareholders of record of the common stock at the close of business on July 8, 2014.

And now, over to Mark Newton for a product update.

Thank you, Kevin. We're very pleased in 2014 to be emphasizing new products and in the second quarter in our annual shareholders meeting in May, we announced these new products. We announced the new CMOS Imager, a new camera chip, our fourth generation camera chip. Gentex SmartBeam camera systems has always had a Gentex design camera chip in a Gentex design camera system where Gentex design algorithms and software running the system, all Gentex. This new CMOS Imager was developed specifically for automotive vision system applications requiring high dynamic range.

High dynamic range is the ability to capture seen details in bright light and in a dark conditions. This new Imager allows us to see more in the camera picture and was designed specifically for the increasing requirements of new automotive safety applications. With this new CMOS Imager we then announced a new SmartBeam camera system with an expanded feature set made possible by the high dynamic range of the Imager. This camera's ability to see more allows for new SmartBeam features in this new SmartBeam product includes a large family of application options including High-Beam Assist, dynamic forward lighting with high beams constantly on, LED Matrix Beam headlamps and a variety of specific detection applications including tunnel detection, fog detection, road type, object detection and collision detection.

Also with this new CMOS Imager we announced a new Video Camera system designed for today's advanced automotive display application requirements. Our first Video Camera product announcement. In video applications, this camera system can present more detail in a video display. You can see more in the video display because the camera sees more detail in the picture.

We also announced a new HomeLink product, a battery-powered HomeLink using a long life multiyear battery. The limiting factor in adding HomeLink to a vehicle is getting the vehicle electrically wired to power it. A process that generally requires a vehicle model change with a significant lead time. We want to grow that business faster than waiting on a model changes so the first Gentex design HomeLink product since the acquisition is one that does not need to be electrically wired into the vehicle for it to work. HomeLink is the industry preference in communication between a vehicle and the home. The Company's goal is to increase penetration and take rates outside of the normal automotive vehicle launch cycle and is battery-powered HomeLink product allows us to do that.

We announced a new automotive interior mirror styling called Frameless. At last after all these years, finally an upgrade, to inside rearview mirror styling that allows for advances in electronics and displays more consistent with what you see on the latest smartphone and tablet devices. An entire product upgrade opportunity bringing with a new and exciting applications for our mirrors in the market. Those were our second quarter announcements for product, new SmartBeam camera, new Video Camera, new HomeLink and a new generation of interior mirror styling.

Now today on this call, we would like to announce more new products, specifically HomeLink for applications outside of automotive the Company has been very active with the HomeLink product line since the acquisition in September 2013. Working to establish new marketing channels in accessory and aftermarket and inventing HomeLink products. HomeLink for non automotive applications expands beyond automobiles to all other vehicle types: all-terrain, off-road, sports vehicle, agricultural, construction and more. Things like motorcycles, mopeds, snowmobiles, tractors, combines, lawn mowers, loaders, bulldozers, road graders, backhoes, even golf carts. All making use of a standardized application of the new HomeLink 5 system of communication to the home, door locks, garage doors, gates, lights, security systems and an increasing array of home automation products.

We have been awarded business contracts for this new technology. Our public product statement now reads that the Company is in the development and launch of new technology in all product areas. Inside and outside mirrors with frameless and curved glass applications; advanced mirror features including HomeLink compass, interior lighting, microphones, telematics displays; SmartBeam camera systems, driver assist camera systems; also HomeLink modules and other areas of the vehicle outside the mirror; and now HomeLink for non-automotive applications. There is more to come, we look forward to further product announcements.

Now back to Steve Downing for future guidance.

Thank you, Mark. Based on the July 2014 IHS production forecast and current forecasted product mix, the Company estimates that net sales in the third quarter of 2014 will increase 15% to 20% compared to the third quarter of 2013 and estimates the gross profit margin to be 39.5% to 40%. The Company estimates that ER&D expense for the third quarter of 2014 will increased 5% to 10% compared with ER&D in the third quarter of 2013.

SG&A expense is estimated to increase approximately 10% compared with the third quarter of 2013. As we have previously stated, the Company has been working over the last year to be more strategic about its approach to its equity investment portfolio. After a year of solid gains in rebalancing the portfolio were the Company realized gains of approximately $22 million, our current expectation is that the realized gains will likely return to historical levels based on the current balances in the portfolio, market conditions and the remaining unrealized gains in the portfolio. The Company estimates that other income in the third quarter of 2014 to be in the range of $2 million to $3 million depending on specific market conditions.

As a Company, one of our main priorities is to maintain and grow our culture of humility but on the heels of the Company's 40th anniversary we would like to spend just a few minutes to reflect on our history, the ups and downs but most importantly our successes as a business. In the second quarter of 2012, the Company reported quarter-over-quarter revenue growth of 15% but gross margins of 33.1% and operating margins of 20.5% that were at historical lows consistent with those seen in the recession of 2008 and 2009. This became a significant moment for the Company and became an inflection point because the data and trends show that we needed to improve. The Company has worked very hard over the last 24 months and we are very proud of the improvements we have made in the topline and bottom-line results of the Company.

To put this quarter's performance in perspective, we looked over the last 10 year period in the Company's history and coincidentally the second quarter of 2004 was the last time that the Company posted profitability measures that were similar to the most recently completed quarter. In the second quarter of 2004, the Company announced an 11% increase in revenue to $129.6 million on a quarter-over-quarter basis, gross profit margin of 42%, operating margins of 30.9%, net income of $28.9 million and earnings per diluted share of $0.18 post spilt-adjusted. Contrast that with the most recently completed quarter were the Company announced an 18% increase in revenue to $338.4 million on a quarter-over-quarter basis, a gross profit margin of 39.7%, operating margin of 29.5%, net income of $76.7 million and earnings per diluted share of $0.52.

Please keep in mind that all the numbers presented in our financials are in compliance with generally accepted accounting principles but in 2004 the Company was not required and did not report the effect of stock option expensing in its income statement. What we are trying to illustrate today to the shareholders of the companies is that throughout our Company Gentex has remained largely profitable that only in times of great growth but also in times of slow growth. The Management team is very excited that we have the tools in place and most importantly the track record of specially over the last two years to show that regardless of sales growth, we are focused on driving innovation and profitability in order to provide return on your continued investment in the Company.

These successes are due primarily to the creativity, hard work, ingenuity and dedication of all of our associates worldwide and would like to thank all of them for their hard work. We can now proceed with questions. Thank you.

(Operator Instructions)

David Leiker, Baird.

I want to start and talk about the gross margin improvement. You called out HomeLink mix purchasing and then the operating leverage. Can you give us some context of the relative contribution of each of those items?

It's approximately 100 to 150 basis points each. I mean, you saw the improvement in the HomeLink step up on a year-over-year basis, so that slightly larger. But the rest of the factors are 100.

If we look at the next comment, looks like interior mirrors are up 11 and exterior was up 13. Usually that's what is driving the mix comparison they're relatively close together. Is that the cost of an impact or is it something else that is become a factor here?

No, when we talk about mix, we're talking about not only the relative mix between inside mirrors and outside mirrors, but also the mix of what type of inside mirrors are being shipped. Those two factors combined are what we are talking about when we talk about the mix improvement.

One last item here, if we look at HomeLink, can you talk about what the performance of HomeLink has been since you purchased it, relative growth rate, new business wins, any additional color in that regard?

Sure, like we said when we made the acquisition we were not going to provide product specific financials but what we have been talking about communicating is when we made the acquisition, we gave a revenue range of $125 million to $150 million.

We've been running at the high end of that range over the last few quarters on an annual run rate and what we would say is that the profitability information that we provided in post acquisition and follow-up in the public communication, we've been pretty consistent with that financial performance. It's been in line to slightly ahead of the gross profit margin, as well.

Do think going forward that grows at the same pace as your automotive mirror business?

Yes, in fact one of the things we talked about is we thought we could get that to a low double digit growth rate in terms of the HomeLink product for the next forseeable future.

John Murphy, Bank of America Merrill Lynch.

This is a Robbie Johnny in for John Murphy. Just a couple quick ones, one, it has been a couple of months now since the NHTSA's ruling has passed, so I am wondering if you are seeing any change in your quoting activity or new business bookings now that OEMs have had some time to adjust to the ruling and also see how it impacts their production schedules going forward?

Good question, thank you. This is Mark.

Our position publicly is the same as what we announced at the time when this occurred in the first quarter, and basically it's this. On March 31, 2014 with the National Highway Traffic Safety Administration issuance of the final ruling requiring rearview video systems in US light vehicle by may first 2018, with the phase in requirement of 10% of vehicles after May 2016, 40% of vehicles after May 2017 and 100% of vehicles after May 2018, NHTSA also included an estimation that we confirm to be generally accurate that 57% of model year 2014 vehicles in the United States today, 57%, already have a rearview system even without a final rule, 73% of vehicles sold in the United States would have already included a rearview video system by 2018.

With that, the NHTSA ruling, as those percentages generally indicate, does not provide an immediate opportunity for new rear camera video display applications. Customer opportunities may exist by the time the 100% requirement is in place, but no new material guidance is available from us at this time.

Companies' rear camera display mirror application meets all the technical requirements of the NHTSA's final ruling when installed in a vehicle and appropriately paired with OEMs specified camera. We are basically still at that point in this. If you've noticed in our -- we also did with our shareholders mid-May an updated product video. That was in reply to other questions related to what technologies we had in development and in it, at the end of that video shown on our website you will see new advances in displays, including a full display electric chromic advanced feature mirror in that.

We've had this technology for basically over six years in availability, and our intention with that video was to give indication that we also have applications will be defining materially coming in the future. There are advances in the technology coming with video displays. We just announced a video camera designed specifically for increasing applications in this space. We do have new technology applications coming forward, but nothing materially that we will add today.

One quick one on the balance sheet, you said on the last call that you would reevaluate your capital allocation for the second half of the year once we got here. So now that it's a July, how do you think about allocating capital between paying down debt or potentially accelerating some share repurchases in the second half of the year?

Sure, like we stated before, that was in our planning process for the second half, so really what we're here to talk about today is the first half results and that's what we summarized so far. So that is still in the works for the second half of this year in terms of our position on capital allocation.

Rich Kwas, Wells Fargo securities.

Mark, just on the new camera technology, new camera technology and then the additions here in HomeLink, what's the timing of launches here? When should we think about this actually hitting revenue, and how material should we be thinking about it in terms of contribution to the overall company over the next few years?

Excellent question. On the new CMOS imager camera system-enabled SmartBeam and driver assist camera system products, we will be beginning shipment near the end of this year in those applications. The video camera, when we announced it in May, we pointed out that we had actually been shipping it, it was selected as top-performing product by Audi and we began shipping that in 2012 on development vehicles in so that product is shipping on developing vehicles now. It is not a materiality point where we will be defining it, but we went ahead and added more emphasis to it in that announcement, because we do have the potential opportunities will be announcing, targeted at 2016 model year basic applications.

On the new HomeLink products our primary story and what we announced in May at the shareholders meeting for battery-powered only, and we what we just announced in this call with the application space outside of our automotive this is an effort we have in place to make more use of the technology availability. We immediately, as part of the acquisition, always intended to right away expand it to more markets. HomeLink 5 as a product works and ships and -- today, so we wanted to immediately work to address new markets and so we created right away after the acquisition formally a Gentex OEM accessories aftermarket channel in the business.

We then immediately did an active sales and engineering effort to new customers outside of automotive in this space. What we are signally today is that we have been successful in that. And so, shipping this would begin effectively in the second half of 2015, from what we are emphasizing right now. However the capability in the product exists to be applied potentially even quicker. And so, those are basically our start dates we are engineering launch on these developments.

On materiality, we will look forward to begin to quantify that in the future. This year we wanted to try to do a better effort in response to a lot of input from people like you, talking to you more about what we are doing in product development earlier in the process.

You listed a number of different areas where HomeLink can be applied to outside auto. Can you give us any on these two contracts, where we should be thinking about of that list that you provided?

The varying applications right now do apply in areas of motorcycles and other agricultural vehicles effectively as a starting place to give you a general idea without giving any specifics before we are ready to specifically announce the beginning of production.

Could you take a step back with the video and the camera technology. Now with Mobileye will be going public here shortly, and I know that you have camera technology, and they have camera technology, so how do you -- when you look at the competitive landscape right now going out, how do you characterize your product and what should we be thinking about in terms of opportunities for you considering some of the competition out there?

Outstanding question. As we previously publicly announced, we had been shipping for the past two years Mobileye integrated into our rearview mirror. The Mobileye product uses a commercially available camera, video camera together with Mobileye algorithms and software applications that are the same for all competitors that integrate using Mobileye.

We have an increasingly growing business where we do Mobileye at customer request, and those all are customers that also use our Gentex SmartBeam project for highbeam assist if they're not using the Mobileye multiple function camera application. As we introduce the new CMOS imager, our new camera, we have increasing capability and are now adding features that also can apply in that driver assist space. Mobileye solution is a widely-applied industry solution, the same from all integrators who supply it to automakers, us and everyone else.

And ours, we specifically are the only one that integrates it with the mirror, with the Mobileye camera integrated with our mirror mount and the electronics that control it inside our mirror. Everyone else who competes in this does this in a separate electronics box on the windscreen. We do it in the mirror, that is our primary differentiation, the rest of his basically functioning the same. With our imager, our algorithms and software, our optics, our system, the SmartBeam product, we have continually in SmartBeam added features through the life of the product.

With this new camera that we have, what we go to production this year on, we had more features and than those features include the basis for driver assist, which is object detection and object detection is roads, lines, lanes, trees, vehicles, pedestrians. Those kinds of capabilities are things we increasingly have also in this. We have basically a multi pronged approach as to how were doing this to satisfy customer requests, because we have such a high market share of electronic mirror applications and such a long and successful history with our SmartBeam product, our SmartBeam customers come to us and we have competed and we have been in production on Mobileye for higher end systems.

Is important to point out that still today, in spite of increasing amount of press that we see on autonomous driving and increasing applications of driver assist, the multiple function drivers assist applications are still a high-end, very costly option package in this and it has a take rate that's considerably lower than what our SmartBeam application is, since we're doing both. We're a little unique in that we are working to satisfy our customers either with our customizable solutions or with Mobileye when we are requested to do so.

Just on tax rate, should we be thinking about this lower tax rate in future quarters into next year and beyond?

No, what you are looking at, is you are seeing basically work that we have done to go back and clean up some prior year periods. What we would guide to longer term is our historically average tax rate, and obviously there's always federal laws and policies that can affect that. But for the most part we expect it to be in the range of our norm.

Beyond Q3 we should go back to the 32.5%?

Yes, assuming that there has been no, the government has not passed the research and development tax credit law for 2014. So if that were to come into play in the fourth quarter than you would you -- we see a variance but were not guiding to that. That is one thing that would be different potentially in the fourth quarter.

Steve Dyer, Craig Hallum.

As it relates to ASP, ASP for the core mirror products has been trickling down the last several quarters. I was wondering as you talked about the additional functionality on the mirrors, is there a point where you see that being able to grow again in excess of the price downs each year?

The big thing we talked about in the reason why we went away from using ASP as a relates to guidance is because is not something we actively managed to here internally. The reason for that is a couple things.

First, if you look at outside mirrors they typically are below average ASP they tend to do very well in the margin side. One of the things we look at is we don't want to send the message to the market that we confuse things. Growing outside mirrors is an absolute goal and objective of the company and a if we are successful in growing our outside mirrors faster than the rest of the business that will drive down ASPs. And that is what you've seen of the last few quarters, is that outside mirrors have out paced inside mirrors in terms of their increases and when that happens are going to see lower ASP.

The other factor there is that, the loss of RCD that we've been going through for almost 12 months now has been a very negative impact on ASPs, as well. Behind the scenes, what you are not seeing because of those two bigger trends is that we do have pickups in the rest of our inside mirrors that have improved ASP, but they are being overwritten by those two previous trends.

As a relates to gross margin, looking forward, you seem to be pretty comfortable in that 39.5% to 40% range. Is that a sustainable level? Can you grow from there as some of this HomeLink, some of these additional products come on? Or how do you think about the longer-term trajectory there?

We look at that, look at anything in the 39% range or above as in a sweet spot for us. It's really tough once you get the above, to try to get about that level. We view it as, if you look at -- as we mentioned in our comments, if you look at the two-year period is over the last two years especially where we move from 33% to 39%, we believe we've accomplished most of what we can see in terms of margin improvement inside of that 6.0%, over 6.0% improvement range.

Were not looking out beyond this year saying, we see 41% or 42%. We just don't see a path to get the right now with the current volume and product mix that were shipping. But like I did mention, anything above 39% we feel comfortable with, and we feel like we can manage the business in and around that range.

Last question, as a relates to operating expenses, I think X HomeLink it looks like you are growing somewhere in the mid to high single digit range. And OpEx has grown in that range or faster over the years generally, even though you've historically grown revenue faster. If you net out in that 5%, 6%, 7% revenue growth range in a flattening star, how to think generally about the operating leverage in the business in terms of can you keep OpEx flat or close to flat or will that still grow high single digits to 10%?

Our goal is always to try to keep our operating expenses in line with our sales growth levels and what mark and I talked about over the last two years in particular, that is what were referencing, is the discipline it takes to try to control that OpEx expense at or below the sales growth level. That's not always possible, especially when you're launching new programs that may not hit revenue for a couple of years, but that is always our goal.

Chris Van horn, FBR Capital Markets.

Could you provide any color around some of the programs or brands leading the sales growth, and then as an add on to that, any kind of regions around the world that you can point to as really driving the growth here?

Historically if you looked over the last few quarters what we've been seeing is a lot of strength in our foreign market. So for us, we refer to that as our European and Asian customers. But if you look at this last -- in Q2 this year, what you see as a strength in North American segment, as well, for us, especially in our outside mirror portion of our business. They roughly consistent between North America and Europe and Asia.

When we look at the last year, let's say, we've seen a lot of growth in Europe, especially, and in Asia. When you look at this quarter in particular, we're actually pleased with our growth in all regions.

Shifting to R&D, how should we think about the future spending in R&D and is it more product enhancement, is a continuing to work on new products, is it a split between the two? How do you guys think about the spend in R&D?

It is all of the above. One of the things we are focused on like Mark mentioned in his product comments, is making sure that we take these two product concepts, that we engineer them for production and get them ready for the programs that we have. That's a portion of the R&D spend, obviously. Additionally to that there's always, in Gentex culture, there's always a strong trend towards working on new products, new concepts and new things that we haven't announced yet. So that will, has been and will continue to be a portion of our R&D spend.

Finally, since you cited it, could you give me general sense of how the tone of your customer price reductions have been going and what you have been seeing there? Not specific numbers, but general how those conversations have been playing out?

Sure, you know the industry, it's pretty well known what OEMs request. Pressure hasn't dropped at all it changes geographically from time to time, and depending upon which OEMs are leading the charge in terms of pressure.

What I will say from a numbers standpoint, historically, over the last several years we had been running probably -- we had always guided in that 3% to 4% range. We've actually updated the guidance in the last 12 months to be more in the 2% to 3% range. And we would plan -- look at our forecast in our plans and what negotiations we have going, we believe we are solidly in that range.

(Operator Instructions)

With that then, we want to thank everyone for participation today. I know we have scheduled a number of direct calls with analysts and investors after this and we look forward to those. Thank everyone very much and have a good day.

That does conclude today's conference. Thank you for your participation.