Methode Electronics Inc (MEI) 2017 Q4 法說會逐字稿

Welcome to Methode Electronics Fiscal Year 2017 Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

This conference call does contain forward-looking statements which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

Forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause these actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission such as our annual and quarterly reports. Such factors may include, without limitation, the following: dependence on a small number of large customers, including 2 large automotive customers; dependence on the automotive, appliance, computer and communications industries; investment in programs prior to the recognition of revenue; timing, quality and cost of new program launches; ability to withstand price pressure, including pricing concessions; currency fluctuations; customary risks related to conducting global operations; ability to successfully market and sell Dabir Surfaces; dependence on our supply chain; income tax rate fluctuations; dependence on the availability and price of raw materials; fluctuations in our gross margins; location of a significant amount of cash outside of the U.S.; the effect of a catastrophic event or significant business interruption at one of our facilities; ability to keep pace with rapid technological changes; a breach of our information technology systems; ability to avoid design or manufacturing defects; ability to compete effectively; ability to protect our intellectual property; ability to successfully benefit from acquisitions and divestitures; the recognition of impairment charges; and costs and expense due to regulations regarding conflict minerals.

It's now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Thank you, Brenda, and good morning, everyone. Thank you for joining us today for our fiscal 2017 fourth quarter financial results conference call. I'm joined today by John Hrudicka, our Chief Financial Officer; and Ron Tsoumas, our Controller and Treasurer. Both John and I have comments, and afterwards we will take your questions.

As you saw in our press release this morning, we were very active on the acquisition front during the fourth quarter and thus far into this fiscal year. On Monday, Methode and Procoplast, an independent manufacturer of automotive assemblies, entered into a stock purchase agreement for the acquisition of Procoplast. Located close to the Belgian-German border, Procoplast is in proximity to several key automotive customers. Its brand-new facility includes automated assembly equipment, injection-molding and test and measurement equipment. The company produces high-volume products for Bosch, Kiekert, ZF-TRW and others. The acquisition is expected to augment our highly successful transmission lead-frame business. The transaction is expected to close in the second quarter of our fiscal 2018 and is subject to customary conditions, including, but not limited to, regulatory approvals. In the Guidance section of our release, we indicated that if the acquisition closes as expected in our second quarter, we anticipate approximately $17 million in revenue, which represents approximately 7 months of Procoplast revenue.

The agreement to acquire Procoplast is a transaction with a private company, and the selling stockholders have requested that the purchase price not be discussed publicly. But I can tell you that Methode is paying approximately an 8x EBITDA multiple. And further information regarding the pending transaction is available in our financial statements released this morning.

Additionally, we incurred $1.5 million of expense related to an acquisition we choose -- we chose not to make in Asia. The company's end markets were primarily in automotive but also in medical with revenue of approximately $100 million.

We also announced in this morning's release that in the fourth quarter, we exited Connectivity and Active Energy Solutions. In fiscal 2017, combined, they represented approximately $20 million of revenue. In connection with the exit of these 2 reporting units, we incurred $2.3 million of expense in the fourth quarter.

Now moving on to review our financial results. The year-over-year fiscal 2017 sales increased 3% in the fourth quarter and just under 1% for the full year. Net income increased 1.8% in the fourth quarter and 9.8% for the full year, due mainly in both periods to higher sales in the Automotive and Power Products segments, a favorable currency impact on material and labor expenses, an international government grant as well as lower income tax expenses. Partially offsetting these factors in both periods were lower sales volumes and unfavorable sales mix of data solutions products in the Interface segment, the exit costs I just mentioned as well as M&A expense of $1.5 million from the potential acquisition, which I just mentioned, that we elected not to undertake.

In the fourth quarter, net income also benefited from lower compensation, legal and professional and selling expenses. For the full year, net income benefited from lower sales and travel expenses as well as onetime commodity pricing adjustments and the reversal of accruals related to a customer issue in the Automotive segment. These benefits were partially offset by higher stock award amortization expense and increased legal and professional fees. Compared to last year's fourth quarter, consolidated gross margins declined 350 basis points, driven mainly by the exit costs, sales mix in Interface and Automotive, partially offset by favorable currency impact on material and labor.

For the full year, consolidated gross margins improved slightly by 40 basis points year-over-year. Gross margins benefited from onetime commodity pricing adjustments and the reversal of accruals related to a customer issue in the Automotive segment, favorable currency impact in materials and labor as well as overhead cost reductions in the Power Products segment. However, these were mostly offset by the exit costs.

Year-over-year, fourth quarter selling and administrative expenses decreased slightly in fiscal 2017 fourth quarter. We did experience lower compensation, legal and professional and selling expenses, but these were mostly offset by the M&A expense. For the full year, selling and administrative expenses increased 4.4%, driven by higher stock award amortization expense, increased legal and professional fees and the M&A expense, partially offset by lower travel and sales expenses.

Year-over-year, fiscal 2017 fourth quarter operating income was $25.9 million compared to $31.4 million last year. For the year, operating income was $110.8 million compared to $109.7 million last year. Fourth quarter operating margin was 11.8% this year compared to 14.8% in the fiscal 2016 fourth quarter. For the year, operating margin remained consistent with fiscal 2016 at 13.6%.

Moving on to a review of our segment results. Automotive segment sales increased 5.6% in the fourth quarter and 2.9% for the year compared to last year. In both periods, we experienced higher sales of the General Motors center console and our linear position sensor product, partially offset by lower Ford center console program volume, pricing concessions and an unfavorable impact -- currency impact in Asia.

Year-over-year, Automotive gross margins declined to 27.4% from 28.7% in the fourth quarter but increased for the year to 28.9% from 27.8%. Both periods benefited from a favorable currency impact on material and labor. The fourth quarter was negatively affected by sales mix and price reductions. For the year, gross margins benefited from onetime commodity pricing adjustments and the reversal of accruals related to a customer issue as well as a favorable -- as well as favorable commodity pricing of raw materials we received through the first 6 months. For fiscal 2018, we are still targeting automotive gross margins in the mid-20% range.

Moving to Interface. Year-over-year, segment sales decreased 11% in the fourth quarter and 9.5% for the full year, driven mainly by lower data solution product sales and, to a lesser extent, reduced appliance and Hetronic sales volume. Compared to last year, Interface gross margins declined to 18.8% from 22.2% in the fourth quarter and to 20.9% from 23.4% for the year. In both periods, margins were negatively impacted by lower sales, specifically in data solutions as well as the exit costs. Excluding the exit costs, fourth quarter gross margins would have been 22.2% and full year margins would have been 21.7%. For fiscal 2018, we are targeting Interface gross margins in the high teens to low-20% range.

Hetronic litigation costs were $2 million in the fourth quarter versus $3 million last year. For the year, these costs were $11 million in fiscal 2017 versus $9.9 million last year. The bulk of these expenses were related to discovery costs, depositions and document review with respect to the litigation with the former distributor. Discovery in the case is actively progressing, and we expect discovery to be concluded by the end of October. We anticipate Hetronic litigation cost to be $6 million in fiscal 2018, but depending on events, it may approach last year's level. To reiterate, we believe it is critical that we protect the Hetronic brand, prevent unfair competition and protect our path to market in the industrial space, which is a key component to our 5-year growth plan.

Power Products sales increased year-over-year by 13.9% in the fourth quarter and 5.2% for the year, due mainly to higher PowerRail and bus bar volumes. Year-over-year, segment gross margins in the fourth quarter declined to 28% from 43% due to a onetime adjustment which favorably impacted the fiscal 2016 period. Excluding these adjustments, gross margins would have remained the same year-over-year. Gross margins for the full year increased to 26.8% from 24.3%, positively impacted by a favorable currency impact in material and labor as well as overhead cost reductions. For 2018, we are targeting Power Products gross margins in the mid-20% range.

As we announced in the release this morning, Methode anticipates fiscal 2018 sales in the range of $807 million to $827 million; income from operations in the range of $114 million to $127 million; and earnings per share in the range of $2.43 to $2.63. Fiscal 2018 guidance considers: the exit of Connectivity and AES representing revenue of approximately $20 million last year; approximately $6.5 million of price reductions for which at this juncture, we've been able to offset via cost reductions, with approximately $2 million to $3 million occurring in the first quarter; no anticipated international grant money from a foreign government, whereas $4.5 million was received in the fiscal 2017; the expected closing of the Procoplast acquisition in the second quarter and associated deal costs; anticipated increased 10-gig copper transceiver sales in the latter half of fiscal 2018; anticipated successful commercialization of Dabir in the latter half of fiscal 2018.

The guidance ranges for fiscal 2018 are based upon management's expectation regarding a variety of factors and involve a number of risks and uncertainties, which have been detailed in this morning's release and Form 10-K. While we don't provide quarterly guidance, it is important to note that in Methode's first quarter, we anticipate less tooling profit; the accelerated price reductions I just discussed; lower sales and related profit from our PowerRail customer who modified their releases based on a recent inventory review; and acquisition costs for an overall potential impact to net income of approximately $4 million to $6 million. Methode's first quarter can also be affected by automotive plant shutdowns in July, and our first quarter is typically a weaker quarter.

Moving to new business wins. In our Automotive segment, we were awarded an overhead console program with a North American OEM for their SUV platform. The 5-year program begins in our fiscal 2020 and represents average annual revenue of $20 million. As with the 2 previous overhead console works with another major North American OEM, this OEM wanted to enhance its overhead console with additional electronics content and styling. We were also awarded an integrated center console program with a major North American OEM for 3 years, with average annual revenue of $6 million beginning in fiscal 2020. Moreover, we received 3 additional integrated center console programs through our relationship with Harman for Subaru, with average annual revenue of $6 million over 3 years beginning in fiscal 2018.

In Europe, we were awarded various programs for Jaguar, Land , Renault and Ford, with average annual revenue of $8 million combined beginning in fiscal 2020. Combined, all these programs represent new average annual revenue of $40 million in our Automotive segment in fiscal 2020.

In Interface, we were awarded an extension of one of our programs with Whirlpool for a Maytag-branded front-load laundry program with an expected 6-year program life. This new award represents approximately $13 million in annual revenue beginning in fiscal 2019.

Now let's move on with an update on Dabir. Over 8,500 surgical procedures have been completed with no reported tissue injury. Patient outcomes remained positive in every instance where Dabir has been implemented. As we've discussed on previous calls, nearly half of the surgical procedures currently utilizing our Dabir service relate to a cardiovascular research study being conducted at a major Midwest teaching hospital. Initial public disclosure of their preliminary findings is expected to take place at a respected wound care conference in early fall.

Very notably, this same teaching hospital has also informed us they intend to initiate a separate blue-ribbon clinical trial with intent to publish in medical journals upon successful completion. Again, this -- all this research is being conducted independently of Dabir.

Of the hospitals currently evaluating Dabir, 2 are moving to commercialization. Also notable is that these 2 opportunities went from initial phone contact to pending purchase orders in just 6 months. In addition, we are working with these 2 hospitals to sell product not only to the specific departments which originally evaluated Dabir, but also to other departments where pressure injury and patient discomfort are a concern.

In addition to the long duration of cardiovascular surgeries, this would include head and neck, neurovascular, radiology and electrophysiology. It would also include bed and gurney applications such as intensive care units, long-term care, dialysis, oncology and emergency departments of these institutions. This level of interest also confirms that the Dabir continuity-of-care marketing and sales approach has recognized value.

Switching to product development. Our next-generation system to support nonsurgical market expansion is on track for rollout in the first quarter of next fiscal year. As we mentioned last quarter, we retained a notable medical marketing firm to assist us with evaluating the Dabir opportunity. Boston Strategic Partners was originally brought in to verify the business plan assumptions of the Dabir surgical solution. Importantly, Boston Strategic concluded the following: The market value of Dabir is likely much larger than originally expected due to its continuum-of-care approach and its significant potential beyond the operating room; that Dabir addresses a significant patient safety risk and has the potential for meaningful financial benefit for hospitals and other care providers alike. Slow hospital adoption rates of new technology and speed-to-market of next-generation products will be our primary challenges.

We are now working with Boston Strategic to develop an app-based business value calculator that will have the ability to predict the financial impact for hospitals in advance of adopting Dabir. The app will utilize real-time publicly available data from third-party hospital quality and safety transparency sources to predict savings and outcomes for individual institutions when using Dabir. And Boston Strategic will create marketing materials, refine sales tools and assist with sales and training events for the Dabir team.

Now I will turn the call over to John who will give further details regarding our financial results.

Thank you, Don. I have just a few brief comments in the quarter and fiscal year. Good morning, everyone.

The effective tax rate for the fiscal year was 19.8%, just slightly below our guidance range of low- to mid-20s. The lower tax rate, when compared to prior year, is due to a $4 million tax benefit recorded in Q4 for foreign investment tax credits, $1.2 million related to more income in lower tax jurisdictions and $1 million representing the change in other deferred tax assets, in part offset by a tax expense of $1.7 million recorded in Q4 on a dividend between foreign entities. For fiscal year '18, we expect the effective tax rate to be in the range of low- to mid-20s.

Turning our attention to SG&A. You will note that in the fourth quarter, SG&A as a percent of sales was 13.4% compared to 13.9% the prior year, basically flat in terms of dollars spend but on higher sales. We incurred an increase of $1.5 million related to M&A expense from an acquisition we elected not to undertake, neutralized by lower compensation, legal and professional fees and selling expenses.

For the full year, SG&A as a percent of sales was 13.2% compared to 12.8% the prior year or $4.3 million higher. This is primarily due to $5 million in higher stock award amortization, $1.6 million increase in legal and other professional fees and $1.5 million in M&A expense, as mentioned previously, offset in part by $2.3 million in lower selling expenses and $1.5 million in lower travel.

Moving to capital expenditures. In fiscal 2017, we invested $21.8 million. For the fiscal year 2018, we expect capital investment to be between $20 million and $24 million.

Expense for depreciation and amortization for fiscal 2017 was $22 million. For fiscal year 2018, we expect depreciation and amortization to be between $20 million and $24 million.

Shifting to EBITDA. For fiscal 2017, it was $139.5 million or 17.1% of sales. We expect EBITDA to be in the 16.5% to 18.5% range or between $135 million and $150 million for the full year.

In terms of free cash flow, for fiscal 2017, it was $95.4 million. Based on our guidance and capital spending estimate, we expect fiscal 2018 free cash flow to be between $90 million and $100 million.

Lastly, I just want to bring everybody current on both our share repurchase program and credit facility. For our share repurchase program, inception to date, we have purchased 2.3 million shares for a total of $71.8 million, leaving $28.2 million outstanding.

Our credit facility outstanding balance is $27 million. During fiscal 2017, we had no borrowings but had principal payments of $30 million. We have $123 million available to borrow under this credit facility, which does not include the option to increase the principal amount by $100 million.

Don, that concludes my comments.

John, thank you very much. Brenda, we are ready to take questions.

(Operator Instructions) Our first question’s come from the line of David Leiker with Robert W. Baird.

Don, on Procoplast. I guess, the question here in terms of the mode of the acquisition. How much of it was a function of the product and product line extension as opposed to -- sometimes you make acquisitions that is an effective way of expanding the capital base for capacity. What are your thoughts on that?

Sure. Some background. Our European operation has, for quite a while, felt they needed a base of operations in mainland Europe, particularly in the area where Procoplast is located. We're operating in Malta. We're operating in Egypt. On larger components such as the active stability control where we're magnetizing a portion of the steering arms or stability arm, that -- while logistically we can handle it, it really doesn't make a lot of sense to ship it out of Germany and to one of the other plants and then back. So we were looking for where can we have a facility to handle larger products. Maybe we're making some of the components in Egypt or Malta. But final assembly, from a logistics standpoint, we felt, in certain instances, needed to be done mainland Europe. And we've felt this for quite a while and had been looking and maybe greenfielding a plant, which we've done in the past. Egypt was a greenfield operation, but that takes you 3 years or so to do that. So we also started to look at potential acquisitions. What Procoplast does for us -- and the reason we're excited about it is, one, it has a brand-new plant that they moved into less than 1 year ago. Well equipped. I've been there. Again, good location. So it -- and they're capable of doing the magnetization that we need to do as magnetoelastic starts to expand. We think they'll be able to handle that. They also do complex insert molding, which we do some of that in Malta, but they do that for the customers we mentioned. And if you look at the customer base, the competitor to Continental is Bosch on transmission controllers. So with Procoplast, we'd pick up those customers. So for a variety of reasons, it made sense to do the acquisition. We did not need -- if we wanted to add capacity, we could add it in Malta or Egypt. It's -- regionally, it made sense to us and then also the customer base. So it was a very smaller acquisition, but it really fit into our plans.

Great. That sounds like a great addition. And then just this -- the only -- the other question I have right now is just on the exit of the 2 business units. Just some of your thoughts behind exiting those operations.

We do a review of all our units at least once a year. And we have been talking about that we felt that, particularly in the Connectivity business area, that because of cloud computing, that model probably didn't make sense anymore. We had a very slight loss last year because we were able to curtail expenses. But going into this year, revenues were going to be further down, and we were going to be in the red. So that just -- it's just do -- us doing -- what we're expected to do is to look at those units and make the appropriate adjustments. On Active Energy, that market was just developing slower than we like. We bookshelfed the technology, and we're very aware that managing businesses like that take management time. So where should we be putting the management time? And we elected again to bookshelf the technology and close the operation.

The comments you made on Connectivity, some would argue, are -- would look at your 10-gigabit transceiver and -- why would -- why do you view that as being a different situation?

Very good question. Whether it's in cloud computing or data centers, the need to go from 1 to 10 gig is still there. The switches can operate at 40 gig. So that's not an expansion. That's really more of an upgrade to existing data centers. So I won't say that it is totally or mutually exclusive, but it's close. I'm not particularly concerned about that. Plus 10 gig, we're starting to see traction there. We're -- we have -- our major customer for 1 gig has tested the product, and we're discussing commercial terms now. It's been through their labs. HP is -- continues to buy product at an increasing rate. So not completely different but enough that we're optimistic about 10 gig.

Our next questions come from the line of Steve Dyer with Craig-Hallum.

Don, you mentioned within Auto, a couple of awards would start in your fiscal '20. Just curious. I know there's been sort of a large one that's been lingering out there. Wondering what you can say about that. Has that been resolved or awarded? Or is that still a potential for you guys here in the next couple of years?

That is -- if you're talking about the opportunity with our other large customer, that is still pending, and we would anticipate that they're going out for bid here sometime this year. I can't confirm from when, but that is still very much an opportunity for us.

So we're likely, would you say, at least a year off from an award there?

It's up to the customer. No, I think we'll see that in this calendar year.

Okay. Got it. Any comment, I guess, around that as to how you feel you're positioned presumably fairly well given some of your other successes and relationship?

It depends on how the customer decides to bid it. With GM, the screen is involved. With this customer, it usually isn't. So it depends on what the package looks like from the customer. I know they're still evaluating exactly what the configuration should be. And every time I get asked this question, I don't want to say too much because it's a competitive situation. We have to be conscious of the customer's wishes as well. So it's about all I can say.

Okay. Got it. And then I guess, just last question for me. A few years ago, you laid out you have kind of a target and the compensation package, around 9% to 10% EBITDA CAGR through 2020. Is that still a goal that you think is achievable? Or has anything kind of puts or takes moved around there since that was initially sort of laid out?

Well, first of all, we very much believe it's achievable. And certainly, the awards we announced this morning certainly help that. I've said in the past, Dabir is a factor in that; not heroically, but it is a factor. So that's something that has to happen. Now we never had Connectivity or AES in for big numbers for 2020, but they were in there. But we had also at one point -- in fact, in the original plan, we had taken our appliance business to 0 because of Whirlpool's change to more of an in-house design and then go out for a build-to-print to contract manufacturers, which we generally don't participate in that. But what has changed since then, and you saw the -- or heard the award we announced this morning, we now feel that we'll continue to have good business with that customer. They've changed their approach. So while some things have gone out, that's actually a rather large one that has come back in. Plus, in the interim, while we were maybe in a lull with that customer, the group refocused on commercial cooking and also on vending. I drew a blank there, sorry. And so we see that growing as well. And so a number of ins and outs, but we're still very enthusiastic about that. And I can't really talk -- say anything more about the acquisition we didn't make. We weren't quite at the altar, but we were in the church because we have been through a good portion of due diligence. That also would have contributed to 2020. So we are enthusiastic about it. We are planning on that. We are obviously incentivized to that.

(Operator Instructions) Our next questions come from the line of Jimmy Baker with B. Riley.

So your guidance assumes about a $0.12 headwind to earnings from the litigation spend. I guess, it's a little less than half the fiscal '17 headwind, right? So should we take that to imply you're optimistic about a resolution midway through this year? But if it does go to the full year, then that's when the language. You mentioned, I think, that it could approach fiscal '17 levels. Then that number, that $11 million spend, would come back into play.

Jimmy, I make the attorneys nervous whenever I comment on litigation. So if you don't mind, I think I'll just stick with my prepared remarks there.

Okay. Fair enough. Just switching gears then over into Interface. So I was just hoping you could speak a little bit more about what could pressure the gross margins there into the high teens. That's pretty low for that segment, which, I guess, is counterintuitive if you've exited a fairly unattractive business.

That was a good question. We are taking a little bit of a wait-and-see approach. 10 gig is -- well it's gaining momentum. That's going to be latter half of the year, although we are encouraged with what I talked about earlier with our prime customer for 1 gig and then HP as well. So that's a factor there. That's probably more of us just being cautious. That's -- let's see how 10 gig goes. Appliance is -- lately has been up, not every month, but Whirlpool has had some good, good success. They had help from tariff. And also the quality problem with one of their competitors, that has helped us. And then we really want to see where Hetronic goes in the first half of this year. So I don't want to say that there's conservatism in that, but there's probably some room.

Okay. And I just wanted to go back to the 2020 plan if we could. So you talked about your conviction in that target still. Can you -- and I understand that there are many puts and takes and there are various scenarios that can get you to that level. Help us understand in terms of just the automotive backdrop. Is there a SAAR level where if we're below, is it $16 million, is it $14 million, where you feel like at that point or below, it's really compromised your ability even if some other things go very well for you?

I don't know that we relate it to a SAAR level. But obviously, in 2020, if there's a downturn in automotive that affects our key platforms, which would be pickup trucks and SUVs, we're going to be affected by it. And that's a risk that we knew when we initiated the plan, and we could also be in a full-blown economic recession at that time, which could -- which is going to affect everybody. Both of those events would affect certainly anybody that's in the Automotive segment. So when we look at that plan, we -- don't look at SAAR so much as we look at what is LMC showing for the platforms that we're on. And given those projections -- and LMC doesn't take into account any type of a downturn. And given those projections, we feel comfortable in our Automotive -- the contribution that our Automotive group will give to the plan. Now if there is a downturn in auto and Dabir is where we expect it to be, that could be offsetting. If we do an acquisition, that could be -- not Automotive acquisition, that could be offsetting. So we run those scenarios, but it's still several years out. And that is definitely out of our control, other than what can we do in our other businesses to potentially off something -- offset something like that.

Okay. Got it. Just lastly, more of a housekeeping item. What's assumed in the guidance in terms of the average full year share count? And any discussion with the board in terms of increasing that share repurchase plan?

Share -- Jimmy, share count is 37.5 million. And what -- and I apologize. What was the other part of your question?

Just if you've had any conversations with the board about adding and expanding to that share repurchase program. You're, I think, about 3/4 of the way through it at this point.

We have -- well, we have discussions every quarter on that. And at this juncture, we didn't do any -- last quarter, we were looking at a larger acquisition. So from that standpoint, we didn't go any further. We still have a little ways to go on that. And then so if we're -- if we continue to look at acquisitions, it really depends. If we make an acquisition and then a larger one, then maybe we won't expand it. If we don't, I think we will ask the board to continue it. We're sitting in a very good cash position. And it makes sense if you're not going to use it for an acquisition or expansion within the company that we do something like that or with the dividend. And then I just wanted to clarify what I was reaching for before. Commercial food service, not commercial and vending, where our touch sensor group is pursuing them. They also are pursuing controls for gas pumps, putting our touch sensor technology there. So that's another area they're working on. And so we do also gain from Whirlpool. So we're feeling very good about touch sensor as we go into our 2020 plan.

Our next questions come from the line of David Leiker with Robert W. Baird.

Don, you just created a backup -- a follow-up question for me. You said commercial food service, and what's the other one?

Vending.

Vending?

Vending. So putting touch sensors on...

Oh, vending. Got it. My ears figured it out. The -- yes, because you've talked for a long time about a soda machine product, right, or a...

Yes. In fact, we have been -- we are on a small program that Coca-Cola is coming out with. So the team has made some progress. I just want to clarify. I said commercial cooking. And that was...

Yes. Yes. And vending, is this in restaurant or like a dispensing machine?

Right now, it's in restaurant, but it could also be on Coke or Pepsi machines. HighPerTouch technology allows us to work with vending in that it doesn't require any -- or allows for space in between. The typical touch cell has to be in contact to the A surface. HighPerTouch doesn't require that. So that's why we've gone back to the Coca-Colas and the Pepsis on that. And then the gas pump application, if the 3 select buttons are a large warranty issue for the pumps and the gas stations, we have demonstrated our ability to make them very robust using our touch technology. So in the lull, while we were trying to figure out where Whirlpool was, where they were headed in their vendor base, the team was redirected. So what we think now is that you've got Whirlpool back in the fold, if you will, and plus these other applications.

Okay. My real follow-up question was General Motor's full-size pickups. There's a lot of discussion about the model changeover there, the closing down the plant to retool and then the switchover. What are your thoughts in terms of what you can share on the timing of that and the impact of that for you over the course of the next year?

David, I have to be very, very careful on what we say there in that it's up to the automaker to announce when they're going to launch the product. That's probably more of a fiscal '19 effect than it is here in '18. But again, I really can't say too much about that because I have to respect the customer's wishes.

Do you -- let me ask it this way: What kind of a revenue impact you have -- well, it doesn't sound like there's much of an impact in 2018 for you?

That's correct. Yes. Yes. Exactly.

This concludes our question-and-answer session. I'd like to turn the floor back over to management for closing comments.

Thank you, Brenda, and we'll wish everyone a pleasant summer. And we'll talk to you in the fall. Thank you so much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.