Standex International Corp (SXI) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Standex International's First Quarter 2018 Earnings Conference Call. (Operator Instructions)

It is now my pleasure to turn the floor over to Ryan Flaim from Sharon Merrill Associates to begin.

Thank you, Laurie, and good morning, everyone. Please note that the presentation accompanying management's remarks can be found on Standex's Investor Relations website at standex.com. Please see Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's recent SEC filings and public announcements for a detailed list of risk factors.

In addition, I would like to remind you that today's discussion will include references to EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, acquisition-related expenses and onetime items. We will also refer to non-GAAP net income, non-GAAP income from operations, non-GAAP net income from continuing operations and free operating cash flow. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Standex's first quarter news release.

On the call today is Standex Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer, Tom DeByle.

Please turn to Slide 3 as I turn the call over to David.

Thank you, Ryan, and good morning. We began fiscal 2018 with a strong first quarter, highlighted by broad-based organic growth across our 5 business segments. Overall revenues increased 19.4% to $214.4 million with organic sales up 5.8%.

Operating income was up 1.9% and adjusted operating income increased 20.8%. GAAP EPS of $1.10 per diluted share was down 1.8%, primarily due to acquisition-related costs and restructuring activities, which are essential to position Standex for higher incremental margins in the future. Adjusted EPS grew 18.4% to $1.35 a share.

We had a net debt position of $130.6 million at the end of Q1, which was $27 million higher than the prior quarter, primarily due to the acquisition of Piazza Rosa in July.

Chief among the key quarterly business highlights is the fact that our organic sales growth was broad, with all businesses showing growth. In addition, our organic backlog shippable under 1 year grew across all 5 business segments, up a total of 13.5%. All 3 of our recent acquisitions, Horizon Scientific in Food Service, Standex Electronics Japan and Piazza Rosa in Engraving, contributed sales growth and margin expansion in the quarter; a meaningful demonstration of our ability to identify, acquire and effectively integrate strong businesses that drive value for shareholders.

Another top strategic priority for Standex is advancing the restructuring of our Food Service Equipment's standard products, and we made progress with these efforts during the quarter. We continue to expect a benefit from the restructuring of this business beginning in the second half of the fiscal year.

During the quarter, we brought together the leadership from our 5 business segments and our corporate leadership team to strategize on how we can most effectively implement our Value Creation System and collaborate across the organization to fulfill our mission of becoming a best-in-class operating company. This meeting was productive and reaffirmed that we have a very special culture at Standex and a bench of dedicated and talented leaders. I'm very proud of the progress that our team has made enterprise-wide this quarter, and I'm excited for the year ahead.

With that, Tom will review our first quarter results. Tom?

Thank you, David, and good morning, everyone. Slide 4 shows our historical trend of adjusted earnings per share and sales on a GAAP basis as well as on an adjusted basis. On a trailing 12-month basis, adjusted earnings per share were $4.74 through September 30, 2017, versus $4.39 through September 30, 2016, which is up 8%.

Sales on a comparable basis were $790 million as of September 30, 2017, versus $719.6 million in the prior year period, up 9.8%.

The chart on the bottom of the slide shows our revenue and earnings performance on a quarterly basis. The arrows in the chart reflect our seasonal trends. Generally, our sales and earnings are the highest in our Q4 and Q1 during the heavier construction season. We experience lower sales and earnings in Q2 and bottom in Q3, as cold weather slows activities during those quarters.

Please turn to Slide 5, which details our revenue changes by segment. Overall, organic growth was up 5.8%, with our Engraving and Electronic businesses having double-digit organic growth. The acquisitions of Horizon Scientific, Standex Electronics Japan and Piazza Rosa contributed 12.7% to our sales growth, and foreign exchange had a positive impact of 0.9%. We anticipate continued growth in the second quarter, as order rates have increased and backlogs are up.

Please turn to Slide 6, which summarizes our first quarter results on a GAAP and adjusted basis. Sales growth was 19.4%. Operating margin was down 160 basis points on a GAAP basis and up 10 basis points on a non-GAAP basis. Earnings per share was down 1.8% on a GAAP basis and up 18.4% on a non-GAAP basis.

Please turn to Slide 7, which is a bridge that illustrates the impact of special items on net income from continuing operations. Tax-affected special items include restructuring charges of $2.3 million, purchase accounting expenses of $0.2 million and acquisition-related costs of $0.8 million. GAAP net income was down 2.4% and adjusted net income was up 17.4%.

Please turn to Slide 8. There were 3 key restructuring activities underway in Q1. In our Food Service business, we initiated our margin improvement program focused on organizational structure and optimizing costs for our standard products. In our Brazil Engraving business, we closed our engraved and mirror roll business and downsized that organizational structure. And finally, in our Engineering Technologies business, we completed the consolidation of our Ohio facilities. We invested a total of $3 million in these programs in the first quarter, and we anticipate spending another $5 million to $6 million in the balance of the fiscal year, with the majority of the benefit occurring in fiscal '19 and beyond. We are targeting payback on these programs to be 2 years or less. Implementing these programs and making these investments are important steps to drive higher incremental margin performance over the long term.

Turning to Slide 9. Net working capital at the end of the first quarter of fiscal 2018 was $178.8 million compared with $146.6 million in the prior year. The year-over-year increase in working capital was primarily driven by sales volume and $16.2 million from the acquisition of Horizon Scientific, Standex Electronics Japan and Piazza Rosa. Working capital turns decreased slightly to 4.8 compared with 4.9 in the year-ago period.

Slide 10 illustrates our debt management. We ended Q1 in a net debt position of approximately $131 million, an increase of $27 million since the fourth quarter, reflecting higher working capital needs and the Piazza Rosa acquisition. We define net debt as funded debt, less cash. Our balance sheet leverage ratio of net debt to capital was 23.4% compared with net debt to capital of 20.2% last quarter.

Slide 11 summarizes our capital spending, depreciation and amortization trends. Our capital spending was 4.1% of sales during the quarter and was the heaviest in Engraving and Electronics, which is aligned with our strategy to focus our spending on the fastest-growing, highest-margin businesses. This included continued investments in laser technology and the move of our Suzhou, China facility in Engraving.

In our Electronics business, we invested in seal machines to increase our reed switch capacity.

In 2018, we now expect that our capital spending will be in the range of $31 million to $32 million, above prior expectations. This is due to the capital requirements to support Engraving growth as we roll out the new technologies acquired as a result of the Piazza Rosa acquisition. We expect depreciation in the range of $19 million to $20 million and amortization in the range of $8 million to $9 million.

Slide 12 details a reconciliation of operating cash to free cash flow. Conversion of operating cash flow was negative for the quarter. The lower free cash flow conversion was primarily impacted by higher working capital needs, restructuring investments and higher capital spending. Historically, we have shown free operating cash flow in the -- a negative free operating cash flow in the first quarter. In fact, 4 of the last 5 years show negative free operating cash flow driven by lower accounts payable in the first quarter. We anticipate improvements to our free operating cash flow in the coming quarters and target 100% of net income.

With that, I'll turn the call back to David.

Thank you, Tom. Please turn to Slide 14, and I'll begin our segment overview with the Food Service Equipment Group. Sales for this segment increased 11.3%, led by scientific sales growth, with strength in the legacy business as well as our Horizon Scientific acquisition. The Horizon Scientific team has successfully leveraged sales channel synergies with our legacy Nor-Lake business to drive sales growth and build momentum that is expected to continue as we move through fiscal '18. The team is conducting market tests to explore attractive adjacencies and identify new innovative products to bring to the marketplace.

In Refrigeration, revenue increased 3.2% and backlog remained at an all-time high, as spending for national accounts, including large chains, continued to ramp. Refrigeration margins for the quarter declined and margins for sales in the standard products in our backlog remained lower due to the fundamental changes in market dynamics that we've spoken about previously.

In Cooking Solutions, sales were down 8.7%, mainly due to shipment delays from an ERP system implementation within this business's standard products plant. We are encouraged that daily shipments are already returning to normal levels, and we expect this dynamic to right itself in the second quarter. From a longer-term perspective, the ERP system is a critical building block for the transformation and health of this business, and once fully implemented, is expected to lead to improved sustainable performance.

Our Specialty Solutions continued to perform well, with sales up 9.9%, driven by strong growth in the beverage business. In addition, display merchandising was strong as we began capitalizing on a healthy pipeline of new business opportunities.

Looking ahead in Food Service, we remain focused on converting our strong backlog. Backlog shippable within 1 year is up 23.6% and excluding acquisitions, shippable backlog is up 17.5%.

Top priorities also include growing differentiated product sales through expanded market tests and growth laneways. At the same time, we are executing on our restructuring efforts to optimize our standard products businesses in Refrigeration and tabletop Cooking Solutions, while reducing costs.

Turning to Slide 15, Engraving. Sales increased 22.8%. The Asia Pacific region was up 11.4% and Europe grew 25.1% as new program launches fueled growth.

Operating income, which included a $200,000 negative impact of Piazza Rosa purchase accounting, was up 0.3% compared with last year, with an adjusted operating income margin of 23.2%.

Mold texturizing sales were up in all regions, as automotive OEMs ramped up what is expected to be a record year of new model introductions. During the quarter, we closed our Piazza Rosa acquisition, which performed slightly ahead of our top line expectations, contributing $2.5 million in sales. This was partially offset by a decrease of $1 million in sales from our Innovent business, which had a significant customer project last year.

As I noted earlier, our efforts in investments to develop growth laneways in Engraving have been successful with increased top line contributions from several programs this quarter. In fact, new technologies sales grew $3.5 million in the quarter.

Looking forward, our 2018 priorities remain focused on driving sales and operating growth. We will be rolling out tool finishing services, leveraging the expertise of the newly acquired Piazza Rosa business across our 43 global sites. All sites will focus on supporting the record level of automotive model introductions worldwide that led to a 29% bookings growth.

In addition, we are committed to executing on growth laneway programs in new technologies and conducting market tests to identify additional potential growth opportunities.

Please turn to Slide 16, our Engineering Technologies Group, where overall sales grew 8.3%. In aviation, sales were up 20.5% or $1.7 million on lipskin sales and a newly awarded development job. Space sales increased 20.2% from the prior year quarter, driven by dome sales and continued work on developmental jobs. Margins in this segment were negatively impacted by plant consolidation inefficiencies, price pressure on legacy engine parts and a slower ramp-up of new programs.

We remain focused on completing key space development programs for repeatable production. In addition, we'll continue to ramp up to deliver on long-term aviation programs for next-generation aircraft and completing cost actions on legacy platform parts.

Please turn to Slide 17, Electronics. Sales increased by 52.8%, powered by organic growth in all regions and by our Standex Electronics Japan acquisition, which continues to perform very well. European sales continued to show strength and increased by double digits, driven by the meter industry. Organic growth was particularly strong in the sensor and reed switch product lines. Sensor sales increased by 20.2%, including the acquisition of Standex Electronics Japan, and grew 13.7% organically across all regions. In reed switches, we benefited from the increased capacity of our Japanese acquisition to serve a tight global supply of reed switches. We continue to see great momentum in the integration of our new Standex Electronics Japan acquisition. The potential for Standex Electronics Japan cost synergies are already bearing fruit as we've identified operational improvements for all 3 reed switch plants through the sharing of best practices across our management teams. In addition, we have begun to implement a new sales structure to leverage synergies between Standex Electronics Japan and our legacy business to sell up the value chain and secure Asia Pacific sensor opportunities.

Looking ahead, we're focused on leveraging this new sales structure to grow our sensor business, identifying further synergies to reduce costs and capitalizing on our active pipeline of new business opportunities in magnetics, including LED sensors, reed relays and fluid level sensors to deliver growth.

Please turn to Slide 18, Hydraulics. The 5.1% sales increase in Hydraulics is primarily the result of the dump truck and trailer markets beginning to recover as we expected in the latter half of calendar 2017. We continue to believe our markets are fundamentally sound, and we are optimistic for a good fiscal 2018 in Hydraulics, as we focus on converting our strong project pipeline and solid backlog, which increased 52.4% over the prior year period.

Further, we expect demand to grow as the improved macro environment continues.

Before we go to questions, let me leave you with a few key thoughts. Our strong performance this quarter was bolstered by organic growth across all Standex businesses. Scientific, Electronics, Engraving, Engineering Technologies and Hydraulics, in particular, are expected to remain in this growth path in FY '18. In Food Service, we are focused on executing on the restructuring initiatives to improve the profitability of our standard products. The progress made today gives us confidence that we will see the benefit of these actions begin to take hold in the second half of the fiscal year. Our recent acquisitions are performing very well, with all 3 contributing to sales and margin growth this quarter. Capitalizing on bolt-on M&A opportunities like these is a key component to future growth and profitability. As we continue to transform Standex to be an operating company of profitable niche businesses, serving attractive differentiated markets and solid growth prospects, we're committed to constantly improving upon the Standex Value Creation System. It's through streamlined processes, operational excellence and talent management across all 5 business segments that we're setting Standex up to deliver predictable sales, profitable growth and sustainable value for shareholders.

And finally, as we look ahead, our balance sheet is well positioned to fund the CapEx, organic growth and acquisition initiatives that will support our growth aspirations.

With that, we'll be happy to take your questions.

(Operator Instructions) Your first question comes from the line of Chris Moore of CJS Securities.

Yes, maybe can we just start on -- just want to make sure I understand the specifics on the Food Services. So there's $3 million in restructuring in Q3, $5 million to $6 million in the balance and that also includes Engraving and Engineering. So how much of that $8 million to $9 million do you think is going to be on the Food Service side?

So on the Food Service side, basically it's about $6 million this year.

Okay, got it. When you look at the margins in Food Service, kind of between the specialty and the standard, are you looking at that on a blended basis? Or kind of discreetly when you're going for the kind of 15% target EBIT margin? Or do you think you can get to 15% on the standard as well or just more on a blended basis?

Well, the 15% is the blended target. So the differentiated products will be above that and the standard products below.

Got you, okay. That makes sense. Anything else -- I know it's kind of organizational structure is one piece of it, given that there is some kind of challenge fundamentally on distribution, et cetera, are there product lines or product areas that potentially make sense to sell? Or kind of how do you look at that?

Well, we've been actively rationalizing the product line in the last few years. And in recent quarters, we've -- gosh, in Cooking, there was as much as $2 million a quarter impact with some of the rationalization of the lower-margin product lines. That's pretty much coming to an end on the Cooking side. In Refrigeration, the standards products in Refrigeration, the key challenge there is the move of our traditional products through lower-margin channels where we have more and more of our business that is rebate-eligible and more highly discounted. So there our actions are more on optimizing our plants and doing the best job we can to negotiate the deals we have with the dealers and buying groups to move the focus to those products where we really add value and are more differentiated. On the operations side, we have done something relatively new. We mentioned this in the last quarter. We brought in some outside firms that are really experts in operational improvement. Even the best firms that are -- that lead the industry in application of lean principles regularly bring in outside firms that do it all the time to bring in some new ideas and help raise the level of the organization. So we've got a group working with our Cooking standards plant and with our Refrigeration standards plants to drive layout changes, that go in through cell by cell with kaizens to improve the operations. And through the first quarter, we're happy with the progress we're seeing there.

Got you, terrific. Just on the Electronics, obviously, terrific quarter, operating -- EBIT margin is 21.9%. It seems like, given what's going on with the OKI acquisition, that there's still a lot of upside there. Is there still a lot of room on the margin side for the Electronics?

I wouldn't build any margin into the model. Over time -- if you think over time, and this is probably multiple years out, as the balance of our sales move to sensors and more high value-add, there probably is some margin expansion, along with some volume. In the near term, though, I think low 20% operating income is a good margin range for this business. If you look historically, it's in the high end of where it's been. It got there in part because of volume, but also because of the higher value we're selling. And you can see now in this quarter, we've got a full quarter of OKI running through the results. This is a good representation of how the business will perform.

Got you. Last question, on the Engraving side. Obviously, you've talked about the new models increasing 30%. I'm just trying to understand the visibility with Engraving. I mean, do you have a good sense of where you'll be, is it 6 months out, a year from now? What's the visibility look like on the Engraving end?

You have followed the business for a while. So you know that from quarter-to-quarter, it can get kind of lumpy as model rollouts get pushed in or out. We think our visibility over a 12-month period is pretty good. Because when the OEMs commit to roll out on model, it can move a quarter, maybe 2, but it's going to come out. So if you kind of maybe take a 12-month running average, we're confident of our visibility over the 12-month period.

Your next question comes from the line of Liam Burke of B. Riley FBR.

David, on the Engineering side, you mentioned that legacy engine parts are creating a margin drag. Is there anything that can be done about that in terms of pricing or anything related to that?

Yes, well, we knew there's pressure coming early in the year. We started working with our suppliers to reduce our cost position. We've identified the actions that will get that done. Those actions will be in place starting in Q3. So we'll start to see that, so that gap will be closed in Q3.

Okay. And staying on Engineering, do you have a sense of timing as to when some of these contract ramps will begin to absorb these upfront costs you've incurred?

Yes, this is something that's really critical to the long-term forecast of this business. As we started to get into aviation, where we won the lipskin awards, first with the geared turbo fan, then the LEAP, the expectation was those would both ramp to full volume, which is about 60 aircraft a month, by the end of 2017, early 2018. With the well-understood challenges of geared turbo fan ramp-up, those ramps are being pushed out at least a year into late 2019, 2020. In fact, just in the last month or so, we've learned of this pushout. And that has more to do with supply chains, with the supply base and the availability of engines for Airbus. So these orders in the business aren't going away, they are just getting pushed out. I mean, Airbus still has a record order book. They're on the hook to deliver these aircraft, and when the engines are built, our parts will go into them.

So if I'm looking at your current margin rate on the Engineering side, that's pretty much how it's going to look until the ramp hits? Or will we see any sort of sequential improvement?

You'll see sequential improvement. I mean, this quarter -- in the last couple of quarters, we talked about consolidating the 2 plants that came with the Enginetics acquisition. That was completed in Q4, but there were some operational inefficiencies that were kept on the balance sheet and those flowed through in Q1. That's a onetime deal. The cost pressure from the legacy parts, I told you that will be -- that gap will be closed in our Q1. The slower ramp of the legacy products, that pushes things out by a year or so. But you'll see margin improvement in Q3, Q4, as those onetime issues are behind us.

Okay. And then lastly, you had -- the Cooking revenues were down year-over-year. How much of that was just the elimination of unprofitable product?

We didn't see that breakout, but there's $0.5 million or $1 million probably in that. But there is about a $2 million impact from this ERP system implantation. So sales would not have been down if it weren't for the hiccup in the quarter from the ERP.

(Operator Instructions) Your next question comes from the line of Chris McGinnis of Sidoti & Company.

I just -- I guess, just to follow up on that ERP equipment, you just mentioned that. Can you just update us, is that a new initiative? I apologize, if it isn't. And then just maybe, when you think about the 5 segments, would you run into another ERP issue when you look across the rest of the businesses?

Okay, Chris, I'll take the ERP question. Basically, when we bought AAI back in January of 2007, we had a -- let's say, a SYMEX system, which was really a developmental system that we just carried on, and we've always been planning on putting in Epicor, which is our standard across Food Service. And we were well aware that we were going to do this, and we've been planning this for, let's say, even a couple years. And we just had a couple of small glitches as when you do turn on ERP systems, so that we couldn't print serial numbers on our shipping labels and stuff like that. So that's behind us. We're confident that we're going to catch up on that.

So just really a one-off kind of implementation, just for a catch-up here?

Yes, exactly.

Okay, okay. Cool. Thinking about the -- Piazza Rosa across the supply chain and on your global platform. How hard is it to bring their offering across that platform? And how long does that take? I think you mentioned you're working on it right now.

I missed the first part of the question. Chris, you're breaking up.

Sorry, just on the Piazza Rosa acquisition. Did you...

Piazza Rosa, right. Yes, so when we laid out our plans, we thought the first 3 to 4 months, we're just going to focus on integration, getting people paid and integrating our financial flows. And despite that, we had several hundred thousand dollars of synergy business that came about. Business will come into our -- mostly in Italy, was coming into our Italy site and then our Italy manager would realize, "Hey, Piazza Rosa can complement this order," so we'd expand the billable content for each order. And on Piazza Rosa side, they did the same thing. I would tell you, our global organization is very excited about this. In China alone, our China manager has hired 15 people to be polishers and are being sent to Piazza Rosa to be trained in the coming quarters. So we will start to see a ramp, probably Q3, and -- we'll report on it as it advances quarter-to-quarter.

Great. And then just lastly, just on the Electronics and the integration or the acquisition. To move up that value chain, can you just talk a little bit about how you go about that, since it's a big part, I think, of that acquisition? Additionally, who competes in that end of the market in that region? And how could they limit you, at all -- if at all possible, to moving up that value chain?

Right, great question. And this was a major consideration as we looked at this, would we alienate any customers as we did this. What we've discovered is -- as we mentioned in previous quarters, that this is something that OKI Electronics had wanted to explore, but was unable to for a variety of reasons, with their other corporate priorities and things. Now that they're part of Standex, the way -- we had planned that the opportunities for sensors would start to ramp up next year. We didn't really plan on anything in the first year. Because we wanted to get to know the channels and the markets, but we know it was out there somehow. In fact, we have a healthy list of sensors who're already quoting. And the reason this works, it's happening so quickly, Chris, is the Standex Electronics Japan, the company we acquired, nearly all of their sales go through distributors. And distributors in the countries -- imagine a distributor selling a reed switch that goes into a level sensor. They're selling a $0.07 switch to a small sensor company that designs this sensor. And that sensor business, then, is selling, say, at $2 a sensor to the OEM. Our distributors now, as they hear about opportunities out there, if they ask us to quote this sensor, so they have an opportunity to sell a $2 sensor instead of a $0.07 switch, so we're finding our distributors are bringing us a lot of sensor opportunities, because their incentives are aligned with our priority. So we're -- I was out there just last month and was pleasantly surprised to see how rapidly this list of sensor opportunities is growing.

Great. I appreciate that. Sounds, obviously, exciting. Lastly -- and I know you guys are pretty tough on this, but just thinking about the organic growth that you saw in the quarter, any reason that, that should kind of slow down as we go through the rest of the year? Just thinking about the trends, obviously, surprisingly strong. So I just want to -- maybe, a little more color about how you feel about that throughout the rest of the year?

No, we feel -- as I mentioned in the script, we think that, that continues. We're restraining our growth expectations on the standards business in Cooking and Refrigeration, because they have to focus on operations and on restructuring. But as I mentioned, we expect organic growth trends to continue in all the other businesses.

Your next question comes from the line of John Cummings with Copeland Capital.

I'm curious on the Engraving side to hear, maybe, your thoughts on what's driving the big increase in the number of new car models? And is this a strategy change from the car OEMs? I'm just trying to understand how sustainable the growth is there.

Well, the -- so we get our data from various organizations that monitor the industry. So the IHS data in particular, for years -- for several years, have identified FY '18 as being the historic high-water mark for new model introduction. So, this has been known and planned for in the industry for some time. So wouldn't say it represents a change in strategy at all.

So I guess, is this more of a cyclical -- is FY '18 more of a cyclical peak? Or is it -- or is it a secular trend to have more car models out there? That's what I'm trying to understand.

Well, that's a great question. The current view is that FY '19 will modulate, it will be flat to slightly down. FY '20, it's a little hazy with what happens out there. As you know, our business is driven by new model introductions, not by SAAR. So the question is what will happen if SAAR starts to decline? Will auto OEMs compete more fiercely with new model introductions to gain share, which would be a good market for us? Or will new model introductions follow the SAAR? And we don't have clarity on that, just yet. But I would say, one of the things we're doing to prepare for that is this investment in tool finishing, the investment in the other services that contributed $3.5 million of sales in the quarter. So we're building other revenue streams so we can compensate for any future decline in new models.

Okay. And then I guess, this big jump up in FY '18 in the number of new models, it seems like it's planned. What is driving that? Why was -- why is FY '18 so strong?

Boy, you'd have to ask -- that's a -- I suppose -- all the -- we go to all the auto shows around the world. And there are small specialized shows where the designers of all the OEMs get together. And they talk about design trends and fashion trends and how customers' lifestyles are changing. And they're all listening to the same information. And going back 3, 4, 5 years, their strategic plans all laid out the need to refresh their models at a rate that culminated in an overlap this year. You have to go, I guess, to each of the OEMs to get their specific reasons. Oh, yes, Tom just made a note to this. There's also a new phenomenon. In China, there are almost 50 companies that are designing electric vehicles right now. So there are players around the world that see this move to electric vehicles as an opportunity to enter the auto industry. So that's driving new models as well.

Okay. And then one question on the food service side. I think you mentioned maybe 1 quarter or 2 ago that there's some execution issues in Refrigeration in terms of, I think, you mentioned foam. Are we through that now? Or is there any other execution issues that you guys have run into there?

No. No, we're through that, and now, the restructuring and operational performance -- improvements there, we're focused on just resetting our business model to the current market dynamics, which has more business flowing through these lower-margin channels.

I'll now return the call to David Dunbar for any additional or closing remarks.

We're very happy with the quarter we just delivered. We're excited about this year, and I look forward to coming back to you in a quarter to report on our next fiscal quarter. Thank you.

Thank you for participating in Standex International's First Quarter 2018 Earnings Conference Call. You may now disconnect.