Steelcase Inc.
Q4 2011 Earnings Call Transcript

Published: 24 Mar 2011

[Operator:]

Good day, everyone, and welcome to Steelcase's Fourth Quarter Fiscal 2011 Conference Call. [Operator Instructions] For opening remarks and introductions, I would like to turn the conference call over to Mr. Raj Mehan, Director of Investor Relations.

[Raj Mehan:]

Good day, everyone, and welcome to Steelcase's Fourth Quarter Fiscal 2011 Conference Call. Here with me today are Jim Hackett, our President and Chief Executive Officer; Dave Sylvester, our Chief Financial Officer; and Mark Mossing, Corporate Controller and Chief Accounting Officer. Our fourth quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast, and presentation slides that accompany this webcast are available on ir.steelcase.com, and a replay of this call will also be posted to the site later today. In addition to our prepared remarks, we will respond to questions from investors and analysts. Our discussion today will include references to non-GAAP financial measures. These measures are presented because management believes this information is used to monitor and evaluate our financial results and trends. We believe that this information is also useful for investors. Reconciliations to the most comparable GAAP measures are included in the earnings release and webcast slides. At this time, we are incorporating by reference into this conference call and subsequent transcript the text of our Safe Harbor Statement included in yesterday's release. Certain statements made within the release and during this conference call constitute forward-looking statements. There are risks associated with the use of this information for investment decision-making purposes. For more details on these risks, please refer to yesterday's release and Form 8-K, the company's 10-K for the year ended February 26, 2010 and our other filings with the Securities and Exchange Commission. This webcast is a copyrighted production of Steelcase Inc. With these formalities, I will turn the call over to our President and CEO, Jim Hackett.

[James Hackett:]

Thank you, Raj, and good morning, everyone. I think it would be appropriate to start by acknowledging our sadness and concern that we feel for the nation of Japan given the tragedy and the events of their recovery. Our colleagues and friends who live there are doing well, but as we all know, it's been quite a challenge. We're optimistic about the country's recovery and of course, doing whatever we can to help in that course. When Steelcase took its first step towards becoming a global company and this is more than 30 years ago, Japan was one of our first International outpost. The core of our Asia Pacific businesses shifted to Hong Kong, but we still have a strong team in Tokyo. And as I said, they're all doing well. We continue to assess the impact on our revenue and supply chain there. But mostly, our thoughts and prayers are with everyone who's trying to restore some sense of normalcy in Japan. So let me turn now to our quarter and full-year results, and again this quarter, we've been working closely with customers to demonstrate the knowledge and insights in influencing how they think about work wherever it happens. Our quarter four was another solid quarter with organic growth of 24%, and that even though we're reporting organic growth of 12% for the full year. A year ago we told you we had protected our strategic initiative so that we would come out of the recession in a stronger position, and I'm certain that we're seeing evidence that our strategies are gaining traction. I'll talk about some of that evidence in a moment. But first, I want to call out a few of the headlines and what turned out to be a very active quarter for the company. As we previewed at the end of the last quarter , we completed the IDEO ownership transition, which generated $30 million of cash and resulted in a nice gain for our stakeholders. Even better news, we have an ongoing relationship with IDEO, and it's as strong as ever, and they're going to continue to collaborate with us on some key insight LEED activities. We also sold a couple of properties during the quarter, which generated nearly $30 million more and resulted in some additional gains. When Dave reviews these and some other pluses and minuses in the quarter, you're going to quickly note that we had a strong quarter even though these items are now factored out. I wasn't pleased with the small creep in the spending this quarter, that incremental growth in operating expenses is not indicative of a new run rate. So we remain committed to improve the fitness in our business as I've talked about before. Now to that point, we made two very important announcements in January aimed at better serving the growing pool of global customers and continuing to make improvements in the industrial model. What we did is we brought together the customer-facing functions for the Steelcase brand in the Americas and our region that includes Europe, the Middle East, Africa or what we call EMEA. This includes product design, development, engineering, marketing and sales. And Jim Keane, who had been President of the Steelcase Group and was in charge of the Steelcase brand in North America will lead this new collective team, and he's building an organization that reflects the breadth of talent and ideas around the world. This will allow us to be more responsive to big companies that are doing business globally and that will accelerate the development of a product development strategy that leverages global platforms when that's appropriate and helps us bring innovative solutions to market more quickly. We also announced our intention to close three more plants in North America as part of our journey to continually improve the fitness of our industrial system, which means that we have to take steps like this even during the recovery. We also improved our ability to manage through future business cycles. And the events in the news from Japan as I mentioned and also in the Middle East, remind us that we really can't anticipate all the forces that might affect the business. Good news is a lot of positives happened in the quarter as I've said. For example, we have a North American dealer conference last month. It was very encouraging to me. We hear from some of our dealers who are following our strategic path. Many told me this was the best dealer conference they have been to in a decade. They're investing in new capabilities to go after adjacent markets like education and healthcare, and they're focusing on the fitness of their own businesses. This additional evidence that our strategy to diversify and strengthen the top line is working as well. Our Asia business was profitable in the quarter. This is a big achievement, and move closer to profitability for the full year, which is even more amazing. As Asia-based companies grow, they're facing similar challenges as are customers in other parts of the world. In other words, there's a greater need for collaboration because of the way organizations are now distributed around the world. We believe this creates an opportunity for Steelcase to differentiate itself based on our insights of how that can happen. We're also happy about short-term successes and we will continue to invest in the long term in this region and focus on China and India in that investment. We continue to believe that our product line called media

[David Sylvester:]

Thank you, Jim. I will start with a few high-level comments about the fourth quarter results and balance sheet, provide some additional color commentary around our order patterns and outlook for the first quarter, and then we'll move to your questions. Again, as Jim mentioned, we are pleased with the results of the fourth quarter. Revenue exceeded our expectations as order patterns remain very strong through December, which drove revenue higher than we anticipated. As it relates to earnings, our fourth quarter results were consistent with the estimate we provided last quarter as incremental operating income from the better-than-expected top line was offset by an impairment charge related to an asset held for sale, as well as other operating costs, which were modestly higher than we anticipated. Compared to the fourth quarter of last year, which marked the bottom of the recession for Steelcase, adjusted operating income improved by $39 million, largely due to operating leverage associated with the organic revenue growth in the quarter, which totaled $120 million or 24%. We also realized benefits of previous restructuring activities, specifically in the Coalesse business, the Asia Pacific region and at PolyVision, but these benefits were offset by three things

[Operator:]

[Operator Instructions] Our first question comes from Chad Bolen from Raymond James.

[Chad Bolen:]

If I could start out, I just want to make sure that I understand all the moving parts, and I guess, specifically in the North America segment. So on a reported basis, you had $11.9 million of operating income x the restructuring that was $11.8 million, but that still includes the $4 million impairment charge, $3 million of variable comp expense associated with the Canadian gain and then another $3 million of comp expense associated with the IDEO transition?

[David Sylvester:]

That's right.

[Chad Bolen:]

So if I want to normalize for all those items, I get to normalize operating income of about $21.8 million?

[David Sylvester:]

I think that's fair.

[Chad Bolen:]

And so with the $4 million of variable comp associated with the IDEO transition gain, the $3 million of that's in North America, the remaining $1 million is split between International and Other, is it about half and half? Can you tell me specifically what it was for each segment?

[David Sylvester:]

I don't know off the top of my head, but there will also be some in the corporate bucket.

[James Hackett:]

It's probably closer.

[David Sylvester:]

It's spread across those three. You're not going to be far off, even if you just take a third, a third, a third.

[Chad Bolen:]

And Dave, I think in your commentary, you said that pricing was favorable on a year-over-year basis, but by a lower amount than the commodity inflation piece. Could you quantify that for us specifically? And I guess, what pricing assumption is embedded in your Q1 guidance?

[David Sylvester:]

Well, I won't be able to quantify it specifically. It's a pretty hard one to pin down and to predict. But I'll use the term modest. So we believe we had modest benefit in our results in the fourth quarter from the price adjustments that took effect in the fall. We certainly had a little bit of year-over-year discount erosion as well, so you could call that a push, almost. And then when you get into the first quarter, we would expect the fall price adjustments to continue to provide a little bit more incremental benefit and then a modest benefit from the announcement that would go into effect in May, but very little. Simply because it doesn't go into effect until new orders, that will go in to May 16. So there isn't a lot. There's a little bit, but not a lot.

[Chad Bolen:]

And you said a modest kind of erosion in the level of discounting. Could you kind of give us your sense of just, I guess, the competitiveness of the pricing environment? Are we starting to see things get a little bit better from your perspective, what are you seeing?

[David Sylvester:]

I just say what we've said for the last several quarters that certainly in the bottom of the recession, the level of competition has increased as companies compete for fewer large projects, but it hasn't. I'm not aware of it moving in one direction over the other from there.

[Chad Bolen:]

And I guess, one last question. You guys had about $10 million of share repurchase in the quarter. That's the most I've seen in a few years and also raised the dividend. And given kind of the strength of the balance sheet, the improvements in profitability that we're seeing, just kind of refresh us on your thinking about using this cash going forward?

[James Hackett:]

It's the same script that the company takes the position that really strong balance sheet is an important sign of its health. The second thing is that we're thinking priority of investment first in the business. And so we constantly are scanning for opportunities. If you look backwards over the last few years, many of the deals that kind of presented themselves weren’t accretive we think in the industry, so we were disciplined about the use of that. But we can be opportunistic and we have strategic ideas, and then returning value to shareholders through dividends and share repurchases, that's the goal.

[Operator:]

Our next question comes from Matt McCall with BB&T Capital Markets.

[Matthew McCall:]

Jim, you started out one of your early points that you were not pleased with a small creep in spending. And I think Dave, when you went into some of the specifics, you mentioned specifically, two specifics there, but you mentioned International spending, you mentioned a dealer conference. I think the question is, Jim, those were broken out, how were you surprised by the creep? I guess, what was the surprise, and what was it that you were not pleased with?

[James Hackett:]

What happens at the end of the year, there's kind of a miscellaneous roundup, and that's the thing that -- as that happened, there were things that happened at the end of the year that I hadn't expected. And I think the more important part of that comment about the surprises is that the rigor and discipline the company has put against both in spending has been coming back to us here in our culture. And think of it as this kind of consistent quest for trying to keep the company as competitive and as fit as possible. So we've really done a great job over the course of these two downturns in the last decade, and as a matter of practice watching that. So it was a way to remind everybody with the few choice communications that we haven't -- just because we've come out of the downturn doesn't mean that all that discipline and rigor went out the window, and we've got a good team that's highly responsive to that kind of direction. So as we said in the report, we think we’ll have it under control.

[Matthew McCall:]

And then in the release, the Wood division was mentioned, I think it was a strong performer. And then in your comments, you talked about Polyvision having a very strong year. I know one of the things you talked about in the past that Wood and PolyVision, were both, I think, losing money at the peak of the last cycle and so to understand today, where do those businesses stand from a profitability perspective, and talk about what the expectations would be through the cycle? I know we're not talking margin targets yet, but how do we look at those businesses relative to the losses that they were reporting last cycle?

[James Hackett:]

I'm going to let Dave take the bulk of these just because I want to credit Dave, the reason I want to speak first. The CFO has an important role in the business. I'll tell you what Dave did for me. Over the last downturn, he helped get focus on the businesses that needed this attention that were kind of margin robbers, so to speak. And so we made a lot of progress as you noted. And two quick insights is that the education market has become an important part of our business and has a lot of opportunity. And this category is key to the applications that we're embedding now. So I'll just leave it at – if you were here in our facilities, here in Grand Rapids, we've been, opened a new classroom of the future that we show educational customers and higher ed and there's a lot of interest in that. Wood business, perennially has been a challenge and the guy running that business has done a fantastic job. In fact, got a promotion for turning it around, and is running one of the newer business that's a fledgling start up. And so both of those businesses are in good shape relative to where they were. But I'll let Dave give you his opinions because he's put so much time in this.

[David Sylvester:]

, Matt, we've talked about Wood and PolyVision in the past and then over the last several quarters, I threw a couple of other businesses into the mix of the discussion as well, one was Asia Pacific and the other was the U.K. In Asia, it was obvious that it wasn't necessarily a business problem, it was about us investing aggressively for the long term. And therefore, because it was operating expense investment, it had a revenue, it was showing up as a loss. And you heard Jim's comment on Asia Pacific, they broke through and had a profitable quarter...

[James Hackett:]

End of maybe the year.

[David Sylvester:]

And closed for the year. So that's a big deal, but we also -- Jim was quick to remind everybody that we are going to continue to invest for the long term. So don't expect that to be largely accretive in the near term. On the U.K., that's been a business that was plagued by the fact that it was largely an import model from the eurozone and with the pound weakening against the euro, that's put our business model a little bit upside down. The team has done a fantastic job to get us moving in the right direction, and with the recovery, we think we'll break through the breakeven line here in the near term, but we haven't quite gotten there yet because the recovery hasn't quite shown up in the U.K. like it has in other parts of Western Europe. But when I was talking about orders in International, I said they were up nearly 30% everywhere with the exception of France, which have modest growth, and that included the U.K. So we think we have pretty good prospects there. And then on Wood and PolyVision, it was two or three quarters ago that we, I think, we officially declared PolyVision out of the penalty box and they have remained out of the penalty box, largely due to them shedding the low margin businesses and restructuring their business and launching a fantastic product in eno. And on Wood, they're in a similar spot to the U.K., not because their business model is upside down from a currency perspective or anything like that, but more that it requires the recovery to continue to gain traction. And as it does, we believe they're going to consistently break through that breakeven line. They were pretty darn close for the full year of this past year.

[Matthew McCall:]

So back all the 14%, the guidance for growth is 12% to 17% there may be some year ago comp differences. But is that the case or that you're expecting or experiencing stronger trends through the first part of this quarter? You're expecting some order pull ahead in advance to the price increase, help me understand the delta there that you can get the 17% growth?

[David Sylvester:]

17% is the top end, and it gives a little bit of recognition that we've been surprised to the positive the last few quarters. We could see some pull ahead in advance of the price increase, but the effective date is May 16. So I doubt any of that will really shift in the first quarter, anything of significance. So it's more a recognition of we believe the recovery is sustaining itself and we could see a little bit upside. What order patterns tend to do, if you look back over the last several years and I guess you excluded some of the recessionary periods, is they tend after the seasonal decline in January and February, they tend to rebuild in the March and early April before falling off a little bit, and then rebuilding in the summer. And if we see that same pattern, I think we could be in the middle or high end of the guidance. And if we see something different, who knows?

[Matthew McCall:]

So for the March and April period, that's what you're saying, March and April we'll see that normal seasonal pattern. So the normal seasonal pattern assumption would get you to the 14% to 17% side of that maybe. Is that what you're saying?

[David Sylvester:]

Yes, it would put us towards the middle or maybe towards the higher end of the range. The other thing to keep in mind is we did grow in the first quarter of last year. It was 1% organic growth, but it was 1% organic growth, and I don't remember exactly what the industry did, but I do recall some players in the industry posting organic declines in that same period.

[Operator:]

Our next question comes from the line of Andrew Light with Longbow Research.

[Unidentified Analyst:]

On the SG&A expense control, it goes without saying that's pretty impressive, but I guess turning to gross margins, how did you feel about your gross margin performance in the quarter? And then also, just kind of looking ahead, how should we think about gross margins looking into fiscal 2012?

[David Sylvester:]

I would say we felt really good about our gross margins. It's always a tough quarter because we go from being just swamped in the factories in the month of December to a much slower period in the months of January and February. So it's always a significant challenge for our operations team, and they did a great job, as usual, of managing through that. So we are happy with the fourth quarter margins. And I think on go-forward basis, what you should continue to expect from us is this pursuit of operating income contribution margin in the neighborhood of 30%, if we can hold our fixed costs both in the factories and in operating expenses relatively flat while revenue continues to grow, we should be able to achieve close to that 30%. And if we see that, if we see growth and we are able to sustain that contribution margin, then the margin should improve. Inflation is the big challenge, and that's, for a couple of quarters, that's going to pinch us.

[Unidentified Analyst:]

I guess, looking at the mix of project versus day-to-day activity. I know you said that at least in North America that project activity grew slightly stronger or slightly higher, I guess, than the day-to-day business. How does that compare with what you were expecting for the quarter? And then just also looking ahead, how do you expect that to sort of trend going forward?

[James Hackett:]

I would say it was reasonably consistent with our expectations. I mean, again, we feel like we're in the recovery and what would continue to confirm that for us is that day-to-day business would stay at the level that it's at, and that project activity would continue to come back online like it has been.

[Operator:]

Our next question comes from Todd Schwartzman with Sidoti & Company.

[Todd Schwartzman:]

First, if in fact discounting has come in a little here, how does that play to the relative intensity of pricing in the government, public versus private sectors?

[David Sylvester:]

Well, the Federal Government is always the most competitive and it always has the lowest margins because of the favored nations pricing requirement under GSA. But it remains highly competitive.

[James Hackett:]

You've got a new dynamic, which is that the state and local governments a year ago were -- the stimulus package kind of kept them buoyant. Now as we can sit here in the Midwest and observe Ohio and Wisconsin and Michigan all deal with shortfalls in their budget and mandates that they have to have balanced budgets. You will likely see some of the demand in that segment ease up a little bit versus where it was a year ago and stay more competitive.

[Todd Schwartzman:]

And in the quarter sequentially from Q3, what was the -- was there any change in the relative degree of discounting?

[David Sylvester:]

Not that I'm aware of, Todd. I don't sit in all of the pricing/decision-making meetings, but if there was a trend one way or the other of significance, I think, we would hear about it.

[Todd Schwartzman:]

So this spread is pretty much constant from Q3 to Q4?

[David Sylvester:]

I don't know that because I don't sit in all the meetings. But I haven't heard any significant noise. And when I stepped back and I do the roll forwards of operating income sequentially or year-over-year, there's just not a bar in that waterfall chart that stands out of significance associated with the pricing or discount erosion.

[Todd Schwartzman:]

And with respect to the SG&A leverage, it looks like, adjusted probably the best leverage in a little more than two years. If we were to strip out the IDEO expenses going away, as well as maybe the accelerated severance, what were the other major factors that you would highlight for that improvement?

[David Sylvester:]

Of us being able to hold fixed cost relatively flat. I mean, it really gets back to a strategy that Jim started pushing even before the downturn, which is around shrink growth. We just stopped at trying to add to SG&A and started focusing on how can we reprioritize our existing spending. And then you go to a downturn and you take a bunch of costs out and you continue your shrink growth strategy. What we supplemented the strategy with in the downturn is we added shared service centers in different parts of the world. So we now have a service center in Monterrey, Mexico, Kuala Lumpur, Malaysia and we have a long-standing relationship in Eastern Europe. And what we look for the organization to do is that there is pressure to add that cost as they look to those lower cost shared service centers first as revenue is growing. It's not going to be an easy task. It hasn't been an easy task because we have, frankly, a lot of good growth ideas that constantly surface in the business. And so there's always pressure to want to fund those. And what we go in the next meeting is about, "Okay, what should we reprioritize and try to shrink in order to fund that new idea."

[Todd Schwartzman:]

You had referenced that the quarterly OpEx is not indicative of the new run rate. What can you tell us about your perception of the new run rate?

[David Sylvester:]

Well, it's just that they saw a little creep. If you get into the segment details from Q3 to Q4 and you factor out the variable compensation that we disclosed, I know a lot of you guys do some of this detailed analysis, you'd say boy, the base level OpEx seems to jump a little bit more than you would've expected, especially in the EMEA or International part of our business. And as Jim said, it was largely some miscellaneous items and some year end things versus kind of a new run rate. So it wasn't a big deal in the quarter, but we know that you all are watching closely our contribution margin on incremental revenue, and we wanted you to know that we're watching that as closely, if not more closely, and continuing to push this shrink growth strategy.

[Todd Schwartzman:]

And on the Customer business, what's going on there with respect to the A&D fly-ins? Is it still facing challenging part of your comps?

[David Sylvester:]

Well, there's three things going on with the customers. They were down in the quarter, fourth quarter versus last year, and what's affecting the comps continues to be one more quarter of these fly-ins, A&D fly-ins that we were doing during the downturn. So we had a number of those last year. And we also, as I mentioned in the comments last quarter, we had one of our aircraft was off-line at the end of November, and that continued into the end of the quarter as we were going through routine maintenance. And then frankly, the weather that we all experienced here in the Midwest and on the East Coast caused a number of cancellations and movements of customer visits into later quarters.

[Todd Schwartzman:]

And on the Asia Pacific, I do know that Hong Kong really is the biggest piece of that. But just to get a sense of your exposure to Japan, maybe if you could quantify your exposure there, revenues, assets, facilities and so on?

[James Hackett:]

I'm not going to get into the specifics of quantifying Japan. What I'll tell you is that to Steelcase Inc., we don't expect the situation in Japan to have a material effect in the near term on our top line or bottom line. What we're still sorting through is the consequence of what's going on in Japan to our global supply chains. There could be some domino effect that we're still trying to assess. Don't expect it, but we're still nevertheless going through the due diligence trying to understand where there might be some potential cascading effect.

[Operator:]

Our next question comes from Mark Rupe from Longbow Research.

[Mark Rupe:]

Just wanted to follow up on some of Andrew's questions earlier. On some of the growth investments that you made over the last 18 months or so, you had the big showroom a couple of years ago, [indiscernible] and I know it takes a while for some of the products to get into the system and then installed to the system. Just curious to see how that is going. I'm assuming they're kind of full on right now as it relates to kind of the upcoming show, any kind of thoughts on some new product initiatives that you had met?

[James Hackett:]

Well, I think in my comments the emphasis I was trying to make is that those kinds of investments showrooms and platform like c

[Mark Rupe:]

On the Wood business, I know that that there have been obviously some cost-savings actions there, and it was really came down the volume to get margin back up to where kind of the corporate margin. Is that where it's at now? Or is there still some incremental leverage or above, I guess, corporate incremental leverage, still ahead of this?

[James Hackett:]

The thing that will help there a lot, so this is why the reason of managing through recessions is always been the best picture. But Dave, you might...

[David Sylvester:]

That's exactly right. I mean, the variable margins in that business are quite good. We need volume to cover the fixed cost of the facility.

[Operator:]

Our next question comes from Patrick Kirksey from Perimeter Capital.

[Patrick Kirksey:]

Given all the facility consolidations and plant closings that you're doing over the next year, what level or revenue run rate on an annual basis do you think you can run at once all that consolidation is complete before you would need to kind of increase spending to expand your capacity and infrastructure?

[David Sylvester:]

Significantly higher.

[Patrick Kirksey:]

So would it be fair to say that once all of these is said and done, not that you're guiding to this, but you could handle $3.5 billion in annual revenues?

[David Sylvester:]

It would depend on the product mix. I think it would probably be pretty close. There might be a factory here or there that could feel some stress. But we're still not averaging two shifts in our operation. I imagine [indiscernible]. So there's definitely a lot of capacity availability in the system. If you get back to $3.5 billion and we started to feel -- and that wasn't evenly spread, it could potentially put a little pressure on the product line here or there. But would I see us having the need to add a factory, it's hard to imagine.

[Patrick Kirksey:]

Well, keep up the good work on the tight controls on the operating expenses, because I don't think we're going to get any relief on the commodity cost anytime soon.

[James Hackett:]

We have a shared view of that. That's exactly right.

[Operator:]

[Operator Instructions] And next in line, we have Jeff Matthews with Ram Partners.

[Jeff Matthews:]

I wondered if you had already talked about, I apologize, but I wondered how the Healthcare initiative is going at this point?

[David Sylvester:]

It's going well. As I mentioned in my comments about the order patterns in the quarter across vertical markets, it was one that I highlighted as being one of the stronger ones along with IT or Technical/Professional and Federal Government. Healthcare was up there as well.

[Jeff Matthews:]

And do you see strength in the Federal Government being maintained?

[David Sylvester:]

Well, our Federal Government percentage of our revenue is relatively low. I think it was a mid-single-digit percentage of our North America volume that we disclosed in the 10-K last year. That may have moved a little bit, but certainly not into a double-digit kind of percentage. And so our comps are not as difficult, maybe as some of our competitors where the Federal Government is a larger percentage of their revenue. But I don't see, for at least the next few quarters, the comps of Federal Government being that difficult. Beyond that, it will be interesting to see what type of spending the Federal Government has in general. But for at least the next few quarters, I don't see it as a big challenge for us.

[Raj Mehan:]

Jeff, just a small correction that Dave said, it was the Federal Government represented mid-single-digit of Steelcase Inc. revenue.

[Jeff Matthews:]

And then finally, we have sort of shades of the 1990s in Silicon Valley with all the hiring and social media companies and companies taking off facilities out there, and I assume that's part of the strength you're seeing, number one. Number two, are you doing anything special about it or do you have product lines to fit their needs?

[James Hackett:]

It's a great question and the answer is yes. We are doing something about it, and yes, we've got product that they need. We've got a great presence in that market, it was a fantastic dealer. Because of the IDEO connection, it's a place where we're there a lot. And I know a lot of people that are in those businesses. But it's still very competitive and challenging to get as much business as we can. But I think your observation that it's an exciting time there again is right on.

[Jeff Matthews:]

And do you think you'll get your fair share, whatever that may be?

[James Hackett:]

I do.

[Operator:]

At this time, I'm not showing any further questions. I'd like to turn it over to Jim Hackett for any closing remarks.

[James Hackett:]

It's just again a moment to reflect on people going through a lot of trials and tribulations, given the challenges in Japan. So thank you for allowing me to comment on that. We're proud of the quarter as we discussed. And of course, we're now in the beginning of our new fiscal year, and so we look to reporting even better results. Thanks for your attention today.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.