Kaiser Aluminum Corp (KALU) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Kaiser Aluminum fourth-quarter 2012 earnings conference. Just a reminder, today's call is being recorded. At this time I would like to hand the call over to Ms. Melinda Ellsworth. Please go ahead, ma'am.

Thank you. Good afternoon, everyone, and welcome to the Kaiser Aluminum's fourth-quarter and full-year 2012 earnings conference call. If you have not seen a copy of the earnings release please visit the investor relations page on our website at www.kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chairman, President and Chief Executive Officer, Jack Hockema; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer; Neil West.

Before we begin I'd like to refer you to the first two slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific risk factors that could result -- could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Company's earnings release and reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2012.

The Company undertakes no duty to update any forward-looking statements to conform to actual results or changes in the Company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most-comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. At the conclusion of the Company's presentation we will open the call for questions. I would now like to turn the call over to Jack Hockema. Jack?

Thanks, Melinda. Welcome to everyone joining us on the call today. Our record 2012 results were a step change improvement from 2011 and reflect value created from the investments that we have made to increase capacity, expand our product offering, enhance our capabilities and improve our manufacturing efficiencies.

We're in the early stages of realizing the potential of our existing platform to generate long-term growth for our business and value for shareholders with numerous new record results in 2012, including value-added revenue up 14% year over year, adjusted EBITDA up 56%, EBITDA margin up six points and adjusted net income up 76%.

As we look ahead, our long-term growth proposition has three important building blocks. The first is commercial aerospace. Commercial airframe deliveries in 2012 were a new record and net new orders exceeded the record build rate, further expanding the robust backlog to a record high level. With airframe manufacturers striving to work down the high backlog, we expect continued growth in commercial airframe build rates into the next decade.

Second building block is automotive. We expect North American build rates should continue to grow over the next few years and we expect that our automotive sales growth will exceed the automotive build rate growth as we continue to benefit from increasing aluminum extrusion content in automotive platforms. Third is operational efficiency. We're confident that we can continue to achieve increasing manufacturing efficiencies with increased operating leverage, focused capital improvement projects and our Six Sigma continuous improvement initiatives.

Overall we're bullish about our long-term outlook building from the step change 2012 results. Our Board's recent decision to increase our quarterly dividend by 20% underscores our confidence in the Company's prospects for the future. I'll now turn the call over to Dan to provide further insight into the fourth quarter and the 2012 results and then I'll provide additional color and context regarding our outlook for 2013. Dan?

Thanks, Jeff. As Jeff mentioned, we posted record results in the 2012. Adjusted consolidated EBITDA improved 56% to a record $174 million. This was on record value-added revenue of $736 million, which was a 14% improvement over 2011, and our 12-month EBITDA margin as a percent of value-added revenue was a record of 23.6%, up from 17.3% in 2011.

Investments we made for capacity, quality and efficiency enabled us to serve robust growing demand for our aerospace and automotive products. Our record 2012 results were driven by stronger shipments in most product categories, an improved pricing environment, greater operating leverage and better underlying cost performance.

Focusing on our end-market applications, aerospace and high strength-value added revenue was also a record for the full year, increasing 20% over 2011 on strong demand and higher utilization of our aerospace plate capacity additions. The increase in value-added revenue also reflected improved pricing and a lower contained metal costs on some of our high value-added products.

Value-added revenue for automotive extrusions was also a record for 2012, increasing 14% over 2011, primarily reflecting improved pricing on some of our automotive products. And despite a slowly recovering general economy and a business climate marked by uncertainty, our general engineering products showed full-year improvement with 2012 value-added revenue up approximately 10%.

On slide 8 we show other key consolidated financial metrics for 2012. Adjusted for non-run rate items, consolidated operating income, adjusted net income and adjusted EPS were all record results for the full year of 2012. As reported, consolidated operating income was $166 million, which included $19 million of non-run-rate gains that are shown in detail on slides 27 and 28.

Adjusted consolidated operating income of $147 million for the year was a 71% improvement over 2011, reflecting improved pricing environments, stronger shipments across most end-use categories, greater operating leverage and improved underlying cost performance. Reported net income for the year was $86 million, or earnings per diluted share of $4.45. Adjusted for non-run-rate items, 2012 net income was $74 million, or adjusted earnings per diluted share of $3.82, which compared to 2011's adjusted net income of $42 million, or adjusted earnings per diluted share of $2.20.

Our effective tax rate was approximately 38.5% in 2012 and at year end our net operating loss carry forwards totaled $787 million. As we apply these net operating loss carry forwards and other tax attributes to our pretax income, our cash tax rate remains in the low single digits.

Slide 9 shows the strong cash generation of our business and the overall financial strength of our Company. After funding all operating, investing and financing cash requirements during the year, our record adjusted EBITDA contributed $90 million of cash. Including the net proceeds of the capital raised in the debt offering in May, we ended the year with a cash position of $358 million. As a result of our strong earnings and cash flow generation, our variable contribution to the two [VEVAs] with respect to 2012 reached the annual cap of $20 million. These VEVA payments will be made during the first quarter of this year.

With strong liquidity and cash generation we have the financial strength and flexibility to pursue attractive capital spending projects, as well as potential value-creating acquisitions to complement our business. And while we continue to pursue initiatives for long-term growth of the Company, we believe returning cash to our shareholders in a disciplined manner is important, as our recent 20% increase in our quarterly dividend demonstrates.

Turning to slide 9 and commenting briefly on the quarter, the fourth quarter reflected the weakest results within a year of very strong financial performance. On a sequential basis, automotive and general engineering value-added revenue were down 10% and 20% respectively. This was at the low end of the range we indicated in our third-quarter earnings call, reflecting soft market conditions in addition to the seasonal weakness.

We also saw some destocking of aerospace extruded and drawn products, which may be an indication of temporary inventory overhang. However, aerospace plate shipments were a quarterly record, as we benefited from the Phase IV capacity expansion, which came online during the fourth quarter.

Adjusted EBITDA in the fourth quarter of 2012 was $36 million and EBITDA margin was 20.8%, reflecting the seasonal and destocking impacts mentioned previously, as well as lower operating leverage on lower volume and higher planned major maintenance that we had anticipated. While it was the weakest quarter within a very strong year, the fourth quarter adjusted EBITDA was an 18% improvement over the prior-year fourth quarter, which itself was the best quarter in 2011. And it was also higher than the adjusted EBITDA of any quarter prior to 2012, demonstrating significant improvement in our business and our performance.

Now I'll turn the call back over to Jack to discuss industry trends and our business outlook. Jack?

Thanks, Dan. While we do not expect a repeat of the demand surge that we experienced for aerospace and automotive applications last year, we do expect continued demand strength for these applications in 2013. However, we're less confident about demand for general engineering and other industrial applications.

Looking more specifically at each of the end-market segments, commercial airframe build rates are a significant demand driver for our aerospace and high-strength products. We expect that, similar to 2012, build rates will grow at a double-digit rate in 2013 before slowing down to single-digit growth rates in future years. It bears repeating that demand for our products precedes airframe deliveries by six to 12 months, and while we anticipate that our demand growth will continue to be strong it will not be quite as vigorous as what we experienced in 2012.

With the recent completion of the Phase IV expansion of our heat treat plate capacity, we are well-positioned to continue to grow our plate shipments as end-user demand continues to expand. We're also well-positioned to continue to grow with increasing long-term demand for our other high-strength products. However, as Dan indicated, we experienced weak demand for these products during the fourth quarter and we expect that this pattern will continue during the early months of 2013.

We attribute the short-term weakness to an apparent inventory overhang in the supply chain that may have resulted from an over-reaction to the OEM rate readiness initiatives and the double-digit build rate increases. We expect it'll take a few more months for the supply chain to come into balance for these products.

The long-term outlook for automotive demand growth is bright, although we do not expect to replicate the 17% increase in North American builds in 2012. We do expect that North American light vehicle build rates will increase a modest 2% in 2013 and that single-digit build rate increases are likely to continue for the next few years. We also expect that aluminum extrusion content will continue to grow approximately 5% per year. Combining the growth in builds and content, we anticipate annual demand growth for our automotive products in the high single digits over the next few years.

The outlook for general engineering and other industrial applications is more problematic. In each of the past three years, industrial demand was weak in the second half after a strong start in the first half. While the general economic outlook remains uncertain and service centers remain wary, we do not anticipate that 2013 will follow the pattern of the prior three years with robust demand in the first half.

That could be good news. The premature exuberance at the beginning of each of the prior three years has created an unhealthy boom-bust cycle every six months. With extremely lean inventories in the supply chain, the situation is poised for a robust expansion when confidence in the US economy stimulates a meaningful economic recovery. The more modest start in 2013 could lead to a steady and strong expansion over the longer term.

Turning to slide 12 and commercial airframe applications, for the seventh time in the past eight years net order intake for Boeing and Airbus in 2012 exceeded their deliveries of commercial aircraft. The record backlog continues to hover at approximately eight years, an excessively long lead time for airlines seeking to purchase new aircraft.

It is this persistently high backlog that is driving commercial airframe manufacturers to continue boosting production to record levels in an effort to reduce the backlog and to shorten delivery lead times. And it is this high backlog that is the foundation for our confidence in the outlook for continued demand growth for aerospace into the 2020s.

The recent grounding of the Boeing 787 creates some uncertainty about the resolution of the issues with that airframe; however, Boeing remains resolute in ramping up build rates for the 787 and we do not expect any near-term implications from the issue, nor do we expect any long-term impact, as the strong demand for airframes is evident from the order rates and the backlog.

Shifting to our short-term aerospace and high-strength outlook on slide 13, we anticipate that continued strength in demand for these products will drive further growth in our aerospace plate shipments as we leverage the additional heat treat plate capacity from our Phase IV expansion at Trentwood.

As indicated in my remarks, regarding the 2013 outlook we anticipate shipments of our other high-strength products in the early months of 2013 will lag demand growth as the supply chain rebalances, but we still expect strong demand in the second half of this year as the supply chain comes into balance and adjusts to meet the needs from steadily-growing airframe build rates.

Turning to slide 14 and the short-term outlook for auto applications, we anticipate that build rates in the first half will be essentially the same as the first half of last year and we anticipate that as the year progresses our content will steadily increase.

As we have mentioned and as further illustrated on the graph on slide 15, US manufacturing stalled in the last three quarters of 2012 after an encouraging start in the first quarter. This trend was magnified in our order patterns by significant inventory restocking early in the year, followed by significant destocking during the last half of 2012. At this point, the ongoing economic uncertainty continues to cloud our visibility for demand for general engineering and other industrial applications.

Slide 16 summarizes our short-term outlook. Overall, we anticipate total value-added revenue in the first half of this year will be comparable to or slightly better than the first half of 2012, depending upon general industrial demand and supply chain inventory adjustments. We also anticipate the first-half adjusted EBITDA margin will be similar to or slightly better than the prior-year period.

While the very short-term outlook is for flat or slightly improved year-over-year results coming off the step change 2012 results, we continue to be very optimistic about the second half and the long-term outlook. With excellent prospects for long-term demand growth in our aerospace and automotive markets plus opportunities to continue to enhance our manufacturing platform, we envision organic investments averaging approximately $70 million per year over the next few years.

On that note, in 2013 we expect capital spending of $50 million to $80 million depending upon the timing of the Phase V expansion of heat treat plate capacity at Trentwood. Our largest single investment in 2013 is a $35 million project to install a new casting unit to expand Trentwood's in-house rolling and casting capacity.

The investment, which by the way is not part of the Phase V expansion, will address the significant inefficiency inherent with external sourcing of rolling ingot. And we plan to invest in equipment to support new automotive extrusion products and programs in addition to ongoing investments to improve quality and efficiency and sustain our operations.

Slide 18 is a summary of our remarks today. We're very pleased with the record 2012 results that were a step change and illustrate that we are in the early stages of realizing the significant potential of our existing platform. We're well-positioned to capture further growth in our aerospace and automotive applications as a result of our investments in Kalamazoo and Trentwood and we continue to evaluate additional investment opportunities to support the growth potential in our end markets.

Longer term, we have the financial strength and flexibility to pursue additional capital-efficient investment opportunities and potential value-creating acquisitions and we will leverage these if, when and where appropriate. We will now open the call for questions.

(Operator Instructions).

And our first question today comes from Steve Levenson, Stifel.

Dan mentioned that you're getting some efficiencies from the increased capacity utilization of the aerospace plate. Could you give us the percentage of capacity at which you're operating right now and where do you have to be to make a decision on Phase V and if you have a clue as to -- I'm sorry, an idea of when you might get there, that would be good too -- forgive the wording there, excuse me. (laughter) I'm looking for the clue.

We operated last year pretty much at capacity in heat treat plate and we expect the same will be true in 2013. We continue to evaluate when and if to pull the trigger on the Phase V expansion. Obviously we've not yet made that decision. The fact that we included it as a potential in this year's capital spending says that it is a potential that we would pull the trigger this year but it's not a certainty that we'll pull the trigger.

Okay, that's good. Thank you, that helped a lot. In terms of M&A you've got that nice cash balance and I know you're not letting it burn a hole in your pocket, but given what some of the other companies in the space are doing, not necessarily companies in the same exact line of business as you, are you looking to add integration where you would go downstream? I don't think you want to go upstream, but would you go downstream or are you looking for something more adjacent to current operations?

More likely adjacent. The most significant opportunities in our horizon right now are adjacent, but we have looked at opportunities downstream and would consider those, although it's more likely it'll be adjacent.

Are there any due diligence or legal expenses included in the M&A -- related to M&A included in fourth-quarter G&A?

No.

No, okay. Great, thank you very much.

(Operator Instructions).

Next up is Timna Tanners, Bank of America-Merrill Lynch.

So, yes, high-quality problem that you have there. Looks like with the cash generation as it has been at least you could be financing your growth organically without having done the debt deal you did, so if you could remind us, taking a step back, of how you're looking at prioritizing different uses of that cash?

Obviously the debt issuance is something we accessed when the market was apparently attractive. The idea was that we do have significant growth opportunities in both organic but also potential acquisition opportunities. And if we were to prioritize our use of cash in general it is for growth in the business first with an eye to maintaining the liquidity of the Company in all circumstances that we could envision and also making sure that we're liquid in the case of debt maturities that would be coming. And then beyond that we want to make sure we have ongoing dividends with increasing dividends as the EBITDA supports it, as we did in t he first quarter this last year -- of this year. And then finally, if there is excess cash after assessing all those other opportunities, we will return it to shareholders.

Okay, that makes sense. As you look at -- you gave a great amount of detail into what you're seeing in the market. It sounds like there's quite a bit of uncertainty, particularly in the general engineering and products. What gives you any confidence that that can change as the year goes on? Can you give us a little bit more color as to what your customers are saying on that, or is it just destocking? What's the basis of that uncertainty?

Well, the uncertainty is the same as the uncertainty in the economy as a whole, and I think you've heard that on a lot of other earnings calls, as well, which is we see inconsistency in the order patterns here and we haven't seen the robust order increases in the first half of the year like we did the prior three years. But as I said in my comments, frankly I think that's good news because I think the cart got ahead of the horse all three years and we've been in a boom-bust cycle here. So I'm not sure that this year's much different from the prior three years when manufacturing growth has really been in the 2%, 3%, 4% per year. We may see the same kind of thing as this year unfolds but if it is stuck in that meager 2%, 3%, 4% range, hopefully it'll be more consistent rather than booming in the first half and then everybody destocks and we have to cut way back in our plants in the second half.

That's a fair point. If I could ask one more. One of the -- back to my first question, I know you've talked about possible M&A but with the amount of cash that you have and with still pretty nice NOL value, do you get -- are you concerned that you could be an acquisition candidate? Can you remind us about how you think being approached, or your views there?

We don't spend a lot of time thinking about that. We think we have a really good platform here. We think we've got great growth opportunities and that's how we run our business.

Okay. Thank you.

Next up we'll hear from Phil Gibbs, KeyBanc Capital Markets.

I'm hopping on the call it a little bit late so I apologize if this question was already answered. But Jack, relative to how you guys were viewing the world in late October versus what you see now, did the fourth-quarter results miss your expectations, were they in line with your expectations, or if they weren't, where were the deltas?

The results were pretty much at the bottom end of what we said on the last call. We said we were going to have high major maintenance costs, which we did, and the revenue in general engineering and automotive came in pretty much toward the bottom end of the range. So we certainly weren't shocked at what we saw in the fourth quarter, but it was at the low end of what we thought the fourth quarter might look like.

Okay, and did that accelerate as the quarter went on? Did you see more weakness as the quarter went on, or were you looking for more of a turnaround in order patterns as the quarter went on --

Phil, I may have even said it on the last call, I say it in the fourth quarter just about every year that I close my eyes and hold my ears when we get to November because you get around the holidays and you can't really tell anything from order patterns, it's crazy. And, frankly, the same holds true in the first few weeks of January. We had people ready to slit their wrists in the first few days of January. You just can't tell around the holidays. It's still been a little sporadic here although it seems to have picked up here in the last few weeks but it's -- there's just a lot of uncertainty right now and it relates to all the things we hear coming out of Washington and just the economy in general.

If I could ask a follow up. As far as the investments that you outlined in your press release -- and again, I apologize if you already talked about this -- but the upgrade to the caster and the growth spend there, what are you looking to accomplish from a potential cos -- is it a cost savings standpoint, is it just a capacity expansion? How should we think about that?

Good question, that did not come up yet, Phil, and I'm glad you're asking, gives me a chance to elaborate a bit. In the remarks I said that it is not part of the Phase V. This is not an expansion of our shipping capacity, but it is a cost reduction and an efficiency initiative. We're rolling ingots short at Trentwood, so for the past several years we actually have been purchasing outside ingot, and as our volume ramps up that's become a larger and larger quantity. So this is really an initiative to put additional rolling ingot capacity in Trentwood that replaces an inefficient value stream purchasing the ingot on the outside, but it also improves Trentwood's flexibility by shortening the supply chain so it enables them to react more readily to mix changes and those type things. So it's imminently justified on the cost savings just from producing in-house versus outside, but we also expect that we'll get additional benefits downstream at Trentwood beyond the cast house.

Do you get the cost savings from that investment this year, and if so, what's the payback?

No, it doesn't come on stream until right at the end of the year or early next year, I think it's actually early next year as I recall. And from a return standpoint, conservatively this project has returns equal to or better than our expansion projects.

All right. Thanks a lot, appreciate it.

(Operator Instructions).

We'll next hear from Edward Marshall, Sidoti & Company.

So we were talking about Kalamazoo early in 2012, about seeing additional cost savings coming out of that facility. I think it was on the nature of $15 million in EBITDA savings as we move into -- that you didn't get in 2011 that was originally planned for. My -- I'm curious, with some of the markets conditions and so forth that you experienced in 2012, I'm wondering if any of that got leaked into 2013, or did you actually realize a good portion of that $15 million in EBITDA?

Kalamazoo was a significant contributor to the improvement that we saw in 2012 compared to 2011 and we're on a nice curve of ramping up the performance there. We're very optimistic that we'll see continued improvements out of Kalamazoo in 2013 and, frankly, for several years to come. We think it'll be the gift that keeps giving.

Is it going to be at the same rate that we saw in 2012, not that I could quantify it based on the details provided, but --?

Order of magnitude, yes, that's what the projections are now. We'll see how well we execute there, but we're seeing good execution coming out of Kalamazoo so we're very optimistic. We're also in the process of shifting the first tranche of automotive products into Kalamazoo. Some of those will start shipping out of Kalamazoo, I believe, in the second quarter and we'll be transitioning some of the ABS products into Kalamazoo qualifying later this year and into next year. So we'll have a pretty significant migration of good automotive products into Kalamazoo, as well, over the next year or two.

I was wondering if I could discuss the cadence of your CapEx for the year. You give a wide range of about $50 million to $80 million, is it -- should I assume that $30 million variance is Phase V, or --?

Yes, that basically is what it is.

Okay. So that decision will be made some point this year, so $50 million, so I would assume the run rate roughly $12.5 million the first half of the year each quarter and then stepping up if we see Phase V bumping in somewhere throughout the remainder of the year, is that the right way to think about it?

It's probably going to be more backend loaded.

Backend loaded? And as I think about the casting facility that you're adding and you're bringing up some downstream capacity and some of the destocking that you referred to, would it surprise you if that Phase V expansion did slip into 2014?

Sure, it could easily slip into 2014. That's why we said we'll be $50 million to $80 million this year depending on when and if we decide to pull the trigger on Phase V. We've not yet made that decision and we may not make it until 2014 or 2015 or 2016. I don't want to commit to Phase V yet. We think it'll come at some point but it may or may not come this year.

Of the -- last question. Of the 225 million pounds of aerospace material that you shipped in 2012, how much of that -- absent general engineering plate -- how much of that is heat treat plate?

Well, we don't break out the plate. You're talking about the total aerospace pounds? We don't break out the plate versus other products and never have, actually.

I tried, thanks. (laughter) Thanks, guys.

(Operator Instructions).

And we will take a question from Tony Rizzuto, Dahlman Rose.

Hi, folks, how are you?

Good, Tony. We thought you were on vacation there for a minute, we didn't --

You did? I was just surveying what the other questions were going to be like today. (laughter) I've got a couple follow ups here. I wanted to -- you mentioned, Jack, major maintenance costs in Q4, I wonder if you could quantify those for us a little bit?

We talked about this in terms of percentages of the EBITDA margin and I think we said was a couple percentage points last -- would be expected to be a couple percentage points in the fourth quarter vis-a-vis the average for the year and I think it came in out in that territory.

Okay. And the aluminum extrusion weakness that you guys alluded to, is this primarily Alexco and is it at all related to the Boeing 787, or is it more auto?

No, the weakness that I talked about really is not the just extrusions, it's all aerospace and high-strength products other than plate. And we've got -- we have some anecdotal evidence, some pretty concrete statements that there is excess inventory in certain parts of that supply chain, but that's really validated by the fact that we've seen that across the spectrum. We're seeing it in the Alexco, in the aerospace extrusions, but we're also seeing it in drawn tube, we're seeing it in the cold finished bar out of our Tennalum facility and we've even seen it in sheet out of Trentwood.

So it's really everything that we supply in aerospace other than plate where we're seeing this phenomenon occur. And my hypothesis on this -- I had it in my prepared remarks and I think there's some credibility to this, Keith Harvey and I have talked about it a lot -- there's a lot less discipline and it's a lot more fragmented supply chain other than plate. The OEMs keep very tight control on plate throughout their supply chain and, in fact, a lot of machine shops and their providers are actually under the umbrella of Boeing and Airbus in terms of their purchases. So the OEMs have strong control and oversight of what happens in plate ordering, but the same is not true in all of these other products, so it's more the wild west out there.

And that leads to my hypothesis -- and we've seen this many times in the past -- that we had the OEMs out there for the last two years beating on all of their suppliers about rate readiness and about the ramp up and we've seen a double-digit increase in airframe build rates last year and projected again this year. And my hypothesis is we've just gotten an over reaction out there in the wild west of those other products and have some surplus inventory. We don't think it's anything near what we went through with plate a couple years ago where it lingered for quarter after quarter. Maybe it will last a while longer but -- maybe a few more months but we think we'll be back to normal here by the time we get to the second half.

That's very helpful insight, Jack. I appreciate that. So when I listened to your comments initially in 2012 a step change and obviously we saw it into the EBITDA margins that were up on average 500 to 600 BPS and your comments about early stages of realizing your platform of investments. You made the comments earlier about Kalamazoo and that the kind of gift that keeps on giving for the next several years you're anticipating, and it seems to me with the operational efficiencies and my sense is even though you may be operating your heat treat capacity, your plate capacity at close to full, you've got the other investments and obviously the other phases potentially down the road. You're talking about the casting, which obviously makes a great deal of sense and obviously timing, you indicated that that's more of a 2014 type of situation. But can we expect that there is still a lot more fire power in terms of the margins that we could see Kaiser generating over the medium term?

I don't know what your definition of median term is, but my answer is yes. I'll go back to the comment we've made for -- been making for a while here, we really believe that this platform has the imminent potential to have EBITDA margins in the high 20s, well into the high 20s, and value-added revenue well into the high 800's. And I don't think we're going to see the step change like we saw last year with almost a 20% year-over-year increase in VAR, value-added revenue. We think we're going to see that growth on a more steady basis here over the next few years. But we're very optimistic that we're going to see continuing top-line growth and continuing margin growth as we move forward over the next few years.

That's all I need, Jack. Appreciate that. Thank you for all your comments.

Ladies and gentlemen, that does conclude the question-and-answer session. I'll turn things back over to Jack Hockema for any additional or closing remarks.

Thanks, everyone, for joining us on the call today. Good questions to elaborate on some key points here and we look forward to updating you again on our first-quarter conference call in April. Thank you.

Again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.