General Dynamics Corporation
Q1 2013 Earnings Call Transcript

Published: 24 Apr 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q1 2013 General Dynamics Earnings Conference Call. My name is Sue, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Ms. Erin Linnihan, Director of Investor Relations. Please proceed.

[Erin Linnihan:]

Thank you, Sue, and good morning, everyone. Welcome to the General Dynamics' First Quarter Conference Call. As always, any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risk and uncertainties. Additional information regarding these factors is contained in the company's 10-K and 10-Q filings. With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

[Phebe N. Novakovic:]

Thank you, Erin. I hope to be reasonably brief this morning. The press release and related charts are pretty straightforward and tell a rather compelling story. We reported revenues for the quarter of $7.4 billion, operating earnings of $824 million and overall operating margins of 11.4%. This resulted in diluted EPS of $1.62 compared to consensus of $1.50. Free cash flow was fairly strong across the business, particularly for a first quarter, at $429 million or approximately 75% of net income. This was considerably better than the cash performance in the first quarter of 2012 and considerably more than we had anticipated in our plan. Given the defense market environment, this quarter compares favorably with the first quarter last year. Revenue is down modestly 2.3%. Operating earnings are essentially flat. Margins are up 10 basis points. Net income is up $7 million, and diluted EPS is up $0.05 or 3.2%. On a sequential basis, there is significant improvement even if we look at the fourth quarter before nonrecurring charges. On a non-GAAP basis, without charges, the operating margins in the first quarter were 10.1% compared to 11.4% this quarter. Let me give you a little bit of detail on the results of our operating segments and, hopefully, provide you some color. First, Aerospace. Aerospace revenue was up $155 million, almost 10% against the year-ago quarter, and profit is up $39 million, 14.4% on a 70 basis point improvement in operating margin. I am pleased to report that jet aviation made a contribution in the quarter. In short, nice operating leverage. From a market perspective, we're seeing adequate interest in both new and existing product lines. The backlog and orders in the quarter make me comfortable with the revenue projections I gave for Aerospace for the year. We have some opportunity to outperform our guidance. So far, so good. At Combat Systems, revenue declined $358 million against the year-ago quarter, but operating earnings were up $12 million, almost 6% on 13.8% margin. However, it is well remembered that there was an accounting charge in the year-ago quarter for this segment. On a non-GAAP basis, ignoring charges, margins are flat. Sequentially, even after the fourth quarter non-GAAP adjustments, margins improved by 130 basis points. From my perspective, a very good operating performance despite reduced revenue and continued struggles in Europe. With respect to backlog, the significant international order activity we expected in the first quarter had flipped to the right. We are still actively negotiating these transactions and have confidence they will close. We expect Combat Systems revenue to improve steadily during the year quarter-over-quarter, but still fall short of the revenues guidance I gave you at the beginning of the year. On the other hand, operating margins will be better than my earlier guidance. Margins for the year should be in the range between 13.5% and 13.8%, but could be somewhat lumpy on a quarterly basis, depending on the timing of further restructuring charges in Europe. Marine group. The Marine group continues to perform effectively. Compared to the first quarter of last year, revenue was up $21 million, 1.3%, and earnings and margins are down, as expected, as a result of the conclusion of the highly profitable T-AKE Program last year. In all other respects, program earnings held steady or are up slightly. Operating margins are at a respectable 9.8%. This group is expected to be highly consistent during the remainder of the year with respect to both revenue and operating margin. At IS&T, revenue is up modestly, $7 million, but earnings are down against the first quarter last year on lower operating margins. This was as planned. The operating earnings at 7.6% represent a significant improvement over the fourth quarter last year on a non-GAAP basis, ignoring the charges. We are working diligently to pursue -- for improved margins and expects stronger margins in the second half of the year. Our order activity remains good with a book to bill of 1

[L. Hugh Redd:]

Well, thank you, Phebe, and good morning, everyone. I'd like to cover a few miscellaneous items before the question-and-answer period. First, net interest expense was $23 million for the quarter versus $39 million in 2012. For 2013, we expect net interest expense of approximately $90 million, reflecting the full impact of the debt refinancing completed late in 2012. At the end of the quarter, we had only $165 million of net debt, down about $450 million from year end. The effective tax rate was 30.7% for the quarter, which reflects the impact of the retroactive extension of the R&D tax credit for 2012, which was recorded in the first quarter of 2013. For 2013, we still expect an effective tax rate approaching 32%. Finally, with respect to pensions, we continue to expect cash contributions to the plans to approximate $600 million for 2013. The bulk of the funding is expected to occur in the second half of the year. That concludes my remarks. And, Erin, I'll turn the time back over to you for Q&A.

[Erin Linnihan:]

Thanks, Hugh. [Operator Instructions] Sue, could you please remind participants how to enter the queue?

[Operator:]

[Operator Instructions] And your first question comes from Joe Nadol, JPMorgan.

[Joseph B. Nadol:]

On the Aerospace side, I was wondering, Phebe, if you could give us an update on the market demand as you're seeing it and really honing in on the 550 and 450 where backlog is today, and just color as you see demand going the rest of the year. I mean, how are you thinking about production in that context?

[Phebe N. Novakovic:]

Joe, as you all know, our book to bill has been below 1

[Operator:]

And your next question comes from Carter Copeland, Barclays.

[Carter Copeland:]

Just -- I'm going to resist the urge to ask about the Aerospace margins and instead ask a bigger picture question, Phebe. You've now had another quarter under your belt here to do business reviews, think about what you want to do with the company from a strategic perspective. And I wondered if you might share with us your perspectives on risks and opportunities you've identified over the last quarter or how things are shifting in your mind, and just your general sort of high-level thoughts on what direction you want to take the company in.

[Phebe N. Novakovic:]

Let me answer that by giving you sort of an overview of how I see our portfolio and businesses developing through the long-range planning process. Gulfstream will grow significantly in that timeframe, and their margins will have improved. Marine group will grow on increased revenue in submarine market throughout that period. IS&T has obviously significant margin opportunity. And for Combat, we have sufficient international interest to bridge to a more robust army spending when the army needs to recapitalize. So in general, I like where we -- I like the offsetting cyclicality that we have embedded into our businesses. And in all respects, we see a very clear way forward. Does that answer you?

[Carter Copeland:]

Yes, it does.

[Operator:]

And your next question is from Jason Gursky, Citi.

[Jason M. Gursky:]

Just a couple of quick questions. One on the sequester and just generally talk about your thoughts on sequester. And then secondly, on cash deployments and update us there on your thought.

[Phebe N. Novakovic:]

Well, I think that there is a enormous amount of specificity in the press about sequester and the machinations that are going on in Washington. So there isn't much specifics that I can add other than give you some clarity about our business. Getting the full year FY '13 funding bill was a major upside event for our planning. That said, the final sequester impacts by program have not been communicated to us by our customer. If I think about where, at least for 2013, we're likely to see some impact, it would be in Combat Systems' shorter-cycle programs. And that's why I think that revenue may be a touch softer than I had anticipated. But in general, we do not see sequester as a significant threat to '13. Most of our sales are in our backlog. Cash deployment. Thanks, Erin. I think about cash deployment in 3 basic buckets. Dividends -- and this is for this year, dividends, share repurchases and strengthening our balance sheet. In March, the board announced a 10% dividend increase, the 13th consecutive year of dividend increases that yielded a 3% yield. I think that was very wholesome. And with respect to dividends, what you need to expect from us is consistency, predictability and sustainability. I think that that's important. Share repurchases, you're going to see us, throughout the remainder of the year, act accordingly in shareholder-friendly ways with respect to share repurchases. And then given the charges in the fourth quarter, we need to strengthen our balance sheet a touch. I don't see any acquisitions on the time -- on my current time horizon, but that doesn't mean that there's something small and in our core that we wouldn't be interested in looking at it. But at the moment, I've got nothing, and that's fine. We continue to want to focus internally.

[Operator:]

And your next question is from Yair Reiner, Oppenheimer.

[Yair Reiner:]

Well, I can't resist asking about the Aero margins. Can you talk about the puts and takes in the quarter? Obviously, a very strong performance there. And then how we should think about the trends sequentially for the balance of the year?

[Phebe N. Novakovic:]

There were 2 primary drivers of our performance

[Operator:]

And your next question is from Doug Harned, Sanford Bernstein. We'll take the next question from Robert Stallard, Royal Bank of Canada.

[Robert Stallard:]

Actually, I thought I'd rather follow up on Joe's earlier question on Aerospace and the demand environment. I was wondering if you could comment on the pricing, particularly for the 450 and 550 and also, what your sort of lead time is for an order today, because I think in the past, you said you'd feel comfortable with an 18-month lead time on those jets.

[Phebe N. Novakovic:]

Our pricing is holding up nicely on both the 450 and the 550, and we have sufficient visibility into the year to be very comfortable with our production rates. And as we move into next year, we've got to assess where we are in terms of the 450, 550. But today, we're very comfortable. So we're slightly underneath that, the window of 18 to 24 months, but not materially and not to any extent that would make us concerned. As I mentioned earlier, it's really the mix, and we analyze that portion of the backlog in order to determine our production rate. So, so far, it's steady as she goes.

[Robert Stallard:]

Has there been any improvement on the G280 pricing?

[Phebe N. Novakovic:]

We have some improvement as we begin to move that in -- that airplane into the market more robustly. We've got a fair amount of demand there, and we like where we are. G280 is generating an awful lot of interest as we expected it would.

[Operator:]

And your next question is from Robert Spingarn, Credit Suisse.

[Robert Spingarn:]

Phebe, if we could go back to Jet for a moment, I'm wondering with all the restructuring there, if you can frame for us what the business looks like today, the mix of business between corporate jet MRO and completions and relative size versus what it looked like when you first acquired it and how that should then trend going forward so we have a better understanding of that -- how that's supposed to look.

[Phebe N. Novakovic:]

Sure. So Jet is a smaller business than when we acquired it, primarily because we failed to integrate Jet in a timely fashion. We have now solved all of the underlying performance issues, particularly -- and not on the MRO side, but particularly on the completion side. So the mix of business going forward, there is -- this is how I think about it. There's always a fair amount of volatility, particularly in Europe, with respect to maintenance, and you saw that we restructured that maintenance business to reflect the demand. And so far, the demand for service is holding up fairly well, given our expectations. So going forward, the issue for us is completion both of the corporate jets and then the large-body and narrow-body major completion projects that we're perfectly capable of executing. And now that we've got the Gulfstream discipline embedded and inculcated throughout Jet, we're likely to perform very well on. So I'm optimistic about where Jet sits. [Indiscernible]. Go ahead.

[Robert Spingarn:]

I was just going to say, is there a way to think about the mix of completions versus MRO? Since you bought the business, clearly, some of the other corporate jet manufacturers have gone elsewhere, but you still have your captive business, you still have the heavy Jet business. And so...

[Phebe N. Novakovic:]

Yes, we do. And I think you'll see completions becoming a larger part of the backlog going forward, and that has addition -- I like that because we've got additional margin and cash-generation opportunities. So as a mix, we're likely to move more into completions and with the steady undercurrent and undergirding of service, which I -- the service industry or the service business, which I think we have rightsized appropriately.

[Robert Spingarn:]

When do you think you'll hit your target margins there?

[Phebe N. Novakovic:]

Well, I think we've got to bring in the -- some additional revenue. And when we do that, we'll -- probably in the next year or 2, we ought to be able to see some real upside.

[Operator:]

And your next question is from Noah Poponak, Goldman Sachs.

[Noah Poponak:]

Phebe, I wanted to try to dive into Combat a little further. Perhaps you can walk us through the major moving pieces that drove the larger-than-expected revenue decline in the quarter. And then when you sit back and look at the longer-term view on the segment, it's come down somewhat significantly off the peak, but is still a much, much larger business than it was a long time ago. When you consider all the different inputs to the scenario analysis, maybe you could share with us sort of a range of potential outcomes for where you think this business bottoms, given what could happen with sequestration and what you're expecting internationally, et cetera.

[Phebe N. Novakovic:]

Yes. So revenues for the quarter-over-quarter or the year, quarter -- first quarter '12 versus first quarter '13 were lower. But I have to tell you, that was well within our expectation. And with respect to both earnings and revenue, Combat Systems outperformed their plan. So our plan was built on a presumption of softer orders and sort of softer sales in the first quarter and then building through the year. I've -- I have factored in now the impact of sequestration into Combat estimates, and so we may see a touch lighter overall sales for the year, but not much. So I think we have stabilized with respect to our current order book. And the key for us is executing and delivering into our backlog some of the large international orders that we're continuing to work. Once we get those in, then it will be a little bit easier to give you some additional view and others some additional clarity around the long-term prospects. But Combat, we're not going to chase revenues, and I think I mentioned that to you all on the last call. And we will rightsize our business to the revenues that we have currently, hence, our good margin performance. What we'll promise you all is margin expansion and cash generation, and you got to meet market where the market is. That said, we haven't -- we have very, very nice and robust international orders that ought to bridge until the army begins to recapitalize.

[Operator:]

And your next question comes from Sam Pearlstein, Wells Fargo.

[Samuel J. Pearlstein:]

Just quickly, I guess, on the Combat is -- I just wanted to ask a question. You haven't explicitly said it, but I assume you're still comfortable with your current earnings outlook that you provided back in January. And when you say a touch lighter for Combat, what -- how does that vary to the minus 6% you talked about back in January? And then I just wanted a little clarification on the international order, because I thought it was really one order. But the way you referred to is multiple transactions. So can you help us think through some of what you're pursuing there?

[Phebe N. Novakovic:]

Sure. We're looking at about -- perhaps around an 8% versus 6% decline for the year, and I'm very comfortable with that estimate. I think we derisked with respect to sequestration. If you recall, it was not part of sequestration, and the impact of it was not part of our original guidance. But operating margins are expected to be higher, and so it's going to leave us pretty much on track with respect to our operating earnings. The -- we have a series of transactions, international transactions that we're continuing to work the Ts and Cs on. And while I'm a little reluctant to give any specificity on when we expect to have them closed, we see no reason that they won't close. And hopefully -- and most probably, it'll be in the second quarter.

[Operator:]

And your next question comes from George Shapiro, Shapiro Research.

[George Shapiro:]

I wanted to pursue Gulfstream a little bit more, a little more detail. I assume there weren't any -- wasn't any forfeiture income this year and if you could compare the jet profit to what it was last year. And then I'm guessing the book to bill was above one, if you just looked at it for 450s and 550s. And then just if you could tell us how many 650 deliveries there were.

[Phebe N. Novakovic:]

We had fewer defaults in this quarter than we did in the first quarter of '12, which then reduced our liquidated damages for this quarter, which is a good thing in my mind. The 450 and 550 continue to be at around 1

[George Shapiro:]

Yes. And then the other part of the question was how did Jet's perform compare to last year's first quarter, the completions business? How much better was it?

[Phebe N. Novakovic:]

Outstanding. We were breaking even last quarter. And this quarter, we made considerable amount of money, so -- for Jet. So I'm very pleased with where they are [indiscernible] just to keep it going.

[George Shapiro:]

You don't want to quantify considerable anymore?

[Phebe N. Novakovic:]

No, sorry.

[Operator:]

And your next question comes from David Strauss, UBS.

[David E. Strauss:]

Phebe, on sequestration, you obviously talked about 2013 not much of an impact, because most is in backlog. It would look like you still got about 25% that you have to secure through the course of the year that could be subjected to sequestration, if you could comment on that. And then as we think about 2014, any initial thoughts on what we could be looking at in terms of a -- the revenue environment for the defense businesses, given sequestration?

[Phebe N. Novakovic:]

Sure. First, for '13, I have given you my estimate of the impact from sequestration. While we haven't had a lot of specificity from our customer, what we've been able to see is we've got a touch softness in Combat. We -- but if you step back, both with respect to IS&T and almost the entirety of our platform businesses, the sales are in backlog. So '13 is looking solid, and I don't see much of a risk to that at all. With respect to '14, the President's Budget Request was good for us in several respects. All of our shipbuilding programs were well supported. And the support for Stryker, the double-V hull exchange over the next 5 or over the 5-year plan, was especially encouraging. Also, the army's communication network modernization appears to be budgeted at a higher level than it has in the past. So while there is no way to estimate the extent of sequestration or additional budget cuts, since who knows how that's all going to play out, but as we stand now, we like what we saw in the President's Request. And I'll tell you something. When I think back -- putting my old budgeteer hat on, there are 2 kinds of programs that tend to be impacted in a down environment, a revenue-constrained environment. Those are troubled programs and developmental programs. And in -- with respect to both, we are in very good shape. Our programs are all green, very, very good solid performance, and that's frankly the best antidote to the budgeteer's scalpel. And in addition, new starts, we are comfortable where we are in the programs that are moving from development into production. And so I've got to tell you, I think we're pretty well positioned. As I said, performance sells.

[Operator:]

Your next question comes from Cai Von Rumohr, Cowen and Company.

[Cai Von Rumohr:]

Yes. So to get back to the Aerospace margins, I mean, pretty clearly, you had -- while you didn't give us the numbers, you're going to have had more deliveries in the 3 G650s you did, so you have had an adverse mixed shift. And just kind of backing through an estimate of the numbers, it looks like profitability would have been better year-over-year, the large biz jets. Maybe give us a little more color. Has that -- given you -- presumably you're in the midst of rework there on the G650, I mean, it looks either the 450 and 550 margins improved for the fourth quarter or the G650 was considerably better. Is that correct, and maybe...

[Phebe N. Novakovic:]

Yes. Let me walk you through some of that. The 450 and 550 are mature programs that we're continuing to reap the benefits of process improvements. So our margins will continue -- they have increased and they'll continue to increase. With respect to the 650, we're moving down the learning curve in the green manufacturing process, which is exactly what we anticipated. And the uncertainty where we don't have great clarity yet is what is the running rate on margins and completions. But with respect to 450, 550, margins were better. And the 650, on the green deliveries, we're coming down that learning curve, very, very nicely. And then we'll stabilize going forward as we work that retrofit imbalance through the completions process.

[Operator:]

And your next question comes from Peter Arment, Sterne Agee.

[Peter J. Arment:]

Yes. I guess my question was very similar to Cai's. I guess another way to characterize it is, I guess, when your rework in balance is completed in the second quarter, should we think that -- and not to get ahead of ourselves on margins, but the mix in the second half of the year should look better than the first? Is that fair?

[Phebe N. Novakovic:]

We will build through the course of the year, yes. But I'm not -- I don't want to get you guys there until we've really worked through this retrofit, because there's still risk out there. We're confident that we'd work through the majority of it. No surprises. But until we rebalance green with completions, we're just not ready to give you a higher -- or change our guidance. We'll take a look at doing that at end of the second quarter.

[Peter J. Arment:]

I appreciate that. If I could just squeeze in one last one. Just on -- unrelated, but is -- what is left on the share buyback authorization?

[L. Hugh Redd:]

9 point...

[Phebe N. Novakovic:]

9-point-something million shares.

[Operator:]

Your next question is from Bill Loomis, Stifel.

[William R. Loomis:]

Phebe, so just to be clear, the $6.60 to $6.70 guidance you gave, which did not have sequestration in January, that that's post-sequestration and the impact, which you said is mostly some of portion of Combat, that now that would include sequestration?

[Phebe N. Novakovic:]

Yes. Because as I pointed out, the softness was in -- is in revenue, but our margins will expand in Combat. And so our earnings will be -- operating earnings are going to be right on mark.

[William R. Loomis:]

And then on the IS&T side, on some of the shorter-cycle-like services business, you don't see a sequestration impact or any pullback in business on that short-cycle services side?

[Phebe N. Novakovic:]

No. And in fact, our services business is running better than 1

[William R. Loomis:]

Okay. And then -- fine. Just a quick one on Combat. You said a portion of Combat is going to be impacted by sequestration. Obviously, not the longer cycle stuff. What -- can you just give us a little more detail on which -- what is that portion that might get impacted by sequestration that you're concerned about?

[Phebe N. Novakovic:]

It's going to be in the shorter-cycle products, some that fluctuate with the demand for the war. Those tend to be more at risk if the supply is in excess of the demand. But as I say, it's not material and does not affect our overall performance and operating earnings.

[Operator:]

And your next question is from Myles Walton, Deutsche Bank.

[Myles A. Walton:]

I was -- I'm hoping you could give us some color maybe on the sequential pattern of revenue to the course of the rest of the year, just so we're on the same page. I think the top line is something we've been struggling with for a few quarters now. Maybe just to baseline what the profile, in particular, of Combat is through the course of the year to get to that $7.4 billion. And then secondly, Phebe, is it fair to think that you're now comfortable with the portfolio and with what sequestration's impact is so that share repurchase would really get restarted here with more aggressive fashion?

[Phebe N. Novakovic:]

So with respect to Combat, we are, as I mentioned in the first quarter, above our revenue plan and our earnings. And what we had anticipated performing to throughout the course of the year was a building quarter-over-quarter of revenue. You may see some lumpiness in margins as we take the rest of our restructuring charges in Europe, but we'll see a nice solid build quarter-over-quarter. With respect to where we find ourselves in the cash and the balance sheet and the risk in the environment, as I said, we had anticipated a very light order for cash. It came in much stronger but toward the end of the quarter. Once we were comfortable that the cash was being generated, as we were anticipating toward the end of the quarter, then we ventured back into the market but fairly late in the quarter. So going forward, I think you can expect us to participate in share repurchases in a shareholder-friendly manner.

[Operator:]

And the next question is from Ron Epstein, Bank of America Merrill Lynch.

[Ronald J. Epstein:]

Maybe a bigger strategic question around Gulfstream. You had lot of questions, so far, on that. When you think about the 450 and 550 line. as you probably know, there's been some noise that there's been some discussion about updating those planes or replacing those planes with something. How do you think about that? I mean, when's the right time to do it? And -- I mean, if you can give us any color on how you think about that challenge.

[Phebe N. Novakovic:]

Well, as you know, we, several years ago, instituted a fairly disciplined R&D program to refresh and replace our platforms, our airplanes as we move forward. We'll continue -- we are continuing that. And we will make announcements about any potential new planes when we're ready, when we know that with great certainty that we can give you clarity around what it is and, more importantly, when it'll be available. And that's -- and we're not there yet and I'm not going to speculate. I don't think that does anybody any good.

[Ronald J. Epstein:]

Yes. No, sure. And then maybe just one last question. On the midsize right, this quarter you delivered 5 compared to 2 last year. Can you give any description around what Gulfstream is seeing in the midsize market? Is there any pickup? Is it just happen to be timing and a little bumpy and that's why we got more? What's going on there?

[Phebe N. Novakovic:]

No. I'll tell you, the 280 is generating an awful lot of customer interest. It is a great airplane that fills that niche. And frankly, we're -- got very, very robust sales pipeline, and we like what we see. So I anticipate 280 is to grow throughout the year.

[Operator:]

And your next question is from Howard Rubel, Jefferies.

[Howard A. Rubel:]

You resized the corporate staff, cut it by about 10%, and we've seen 1 or 2 other business units that have followed suit. Do you expect most of the other business units to take this mandate and run with it as well? I mean, could you kind of elaborate a little bit on what you're doing on the cost side to make the business more affordable?

[Phebe N. Novakovic:]

Both at the corporate headquarters and throughout our businesses, each one of our businesses, we have an obligation to -- through a continuous improvement and some restructuring internally to drive costs out, and we've done that at the corporate headquarters and fairly significantly. Many of our business units are already in the process of undertaking efficiencies in their back-office functions, as well as in their production line. But overhead -- going after overhead is critical to margin expansion in a down environment. So you can believe -- you can better believe that we're going to be very, very focused on taking costs out. And we've done it, and we'll continue to do it.

[Howard A. Rubel:]

Just a follow-up on that. Does that lead to more business opportunities? And maybe you could highlight 1 or 2. Or does it end up just showing up on the bottom line?

[Phebe N. Novakovic:]

Well, I think it's both. It clearly helps margins. But the extent to which you can bring down your prices, you're increasingly competitive. And we have done that across every one of our portfolios, across all of our portfolios in almost all of our lines of business. So I see cost cutting and continuous improvement efficiencies as central to our ability to win more business and increase our margins and, frankly, provide a superior product to our customer.

[Operator:]

Your next question comes from Neal Dihora, Morningstar.

[Neal Dihora:]

I guess my question is more of long term. But I think GD is one of the few companies that sort of has headcount reductions over the last 5 years. And I guess -- just wondering if the next 3 to 5 years is going to be materially different from that perspective.

[Phebe N. Novakovic:]

We reduce headcount in response to the business environment that we're faced with. So I certainly won't preannounce any restructuring, but you can rest assured that we will tackle our -- all aspects of costs as we go forward.

[Erin Linnihan:]

Thank you, everyone, for joining our call today. If you have additional questions, I can be reached at [phone]. Have a great day.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Good day.