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Viasystems Group (NASDAQ:VIAS)

Q3 2011 Earnings Call

November 08, 2011 5:00 pm ET

Executives

David M Sindelar - Chief Executive Officer, Director and Member of Executive Committee

Kelly Wetzler - Vice President of Corporate Development and Communications

Gerald G. Sax - Chief Financial Officer and Senior Vice President

Analysts

Eric Reubel - Miller Tabak Roberts Securities, LLC, Research Division

David Sagalov

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Viasystems Group's Third Quarter 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce Kelly Wetzler. Ms. Wetzler, you may begin.

Kelly Wetzler

Thank you, Huey. I'd like to welcome everyone to the Viasystems investor conference call for the third quarter of 2011. If you need a copy of today's earnings press release, you'll find it at viasystems.com. We have also prepared some slides, which you will find on our website. Our presenters today are Viasystems' Chief Executive Officer, Dave Sindelar; and our Chief Financial Officer, Gerry Sax.

In the course of our discussion, we are likely to make forward-looking statements. I wish to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provision of the Securities Litigation Reform Act of 1995. The comments we will make today are management's best judgment based on information currently available.

Our actual results could differ materially from any forward-looking statements that we might make. The company does not intend to update this information to reflect developments after today and disclaims any legal obligation to do so. Please review today's press release and recent SEC filings for a more complete discussion of factors that could have an impact on the company's actual results.

Some of our discussion today will include non-GAAP measures, in particular adjusted EBITDA and adjusted earnings per share. These non-GAAP measures are reconciled with our GAAP results in today's press release and in our slide presentation. Management believes these measures are useful for analytical purposes and to assist in comparing results over time and across companies. But I remind you that adjusted EBITDA and adjusted EPS exclude certain material items and are not a replacement for the reported results under Generally Accepted Accounting Principles.

I'll turn the call over now to the CEO, Dave Sindelar.

David M Sindelar

Good evening, everyone, and thanks for joining our call. I will begin by referring you to Slide 4 in our presentation material. A strong backlog at the beginning of our third quarter, combined with the selling price increases negotiated during the prior quarter, has helped us achieve another record high level of sales. More importantly, we're able to offset the labor material cost inflation experienced in the first half through these price increases, enabling the rebound in our gross margin.

Our consolidated third quarter sales of $278.8 million grew 7.5% year-over-year and also improved 3% sequentially. Our PCB segment sales increased 7.4% compared to the third quarter of 2010 and by 4.3% compared to the second quarter of 2011. Our Assembly segment sales improved 7.9% year-over-year while declining 2.1% from a record high second quarter 2011 sales levels.

Total sales outpaced total bookings for the third quarter as we caught up on the accumulated backlog of orders that had built up over several previous quarters. Our overall book-to-bill ratio of 9.93:1 as total orders fell about 2% compared to the same quarter last year.

In the third quarter, we achieved a 250 basis point sequential improvement in our gross profit as a percent of net sales, resulting in gross margins of 21.4%. The PCB selling price increases, which we talked about during our last couple of calls, finally became effective for a full quarter to offset a large part of labor and material cost inflation we suffered earlier in the year. Sales volumes were offset a bit from the prior quarter by a mix of products sold -- but the mix of products sold improved.

Our adjusted EBITDA was $40.3 million for the quarter or 14.5% of net sales. Our adjusted EPS was $0.50 per share for the quarter. Gerry will provide more color commentary on adjusted EBITDA and adjusted EPS in a few minutes.

From an operational standpoint, our third quarter was comparatively uneventful. You may recall that most of our efforts to battle cost inflation and to pass on related selling prices -- price increases were undertaken in the first half of the year. The good news is that the inflationary effect on costs have abated for the time being, and virtually all of our selling prices took effect in the second and third quarters.

Our one significant project currently in process is relocation of our factory in Juarez, Mexico. During the quarter, we began modifications of newly leased, larger facility in Juarez. Approximately $1.7 million of our third quarter CapEx related to the leasehold improvements that were spent on this new site.

Turning to Slide 5. I want to review our revenue performance by end market. And in particular, I want to highlight the significant double-digit growth rates we achieved in both automotive and the computer/datacom markets, both year-over-year and sequentially.

In the automotive market, as we discussed on previous calls, demand has exceeded our capacity for several quarters as we built backlog leading up to our third quarter. Some of the new capacity that we launched last year was brought online in China early in July and allowed us to catch up on the backlog and to achieve a record $113.5 million of sales to the automotive customers in the quarter. This was 13% more than our previous record quarter, which was the second quarter of 2011 and was 25% of our third quarter of last year. Automotive sales made up 41% of our third quarter total sales volume.

Our telecom customers continue to talk about upsides from pending 4G LTE build outs. But I'm sure you are reading the same thing we are reading about continued pushouts and delays of these projects. Following a healthy rebound in the second quarter, sequentially our sales for the telecom customers declined 7% in the third quarter. The year-over-year decline is more dramatic and reflects the loss of a significant assembly program we were building last year, which the customer took back in-house for their internal manufacturing facilities. Telecom sales fell to just 17% of our total sales for the quarter.

Our industrial & instrumentation market represents 24% of our third quarter sales level. As I highlighted in my comments last quarter, we expected a slight dip compared to the record high second quarter I&I sales. But despite this anticipated decline, our I&I sales were up 8% over the same period last year. Some of our larger customers in this market segment are reportedly working through balancing orders and their inventories. We think much of the excess inventories resulted from possible advanced buying from disaster in Japan early in the year.

Sales in our computer and datacom market increased 11% sequentially and 22% year-over-year. This increase was a result of our successful cross-selling efforts of our E-M Solutions products to the previously PCB-only customers. The improvement resulted in this market growing to 14% of our overall sales for the third quarter, and orders taken in the quarter exceeded sales.

Turning to the Mil/Aero market. Very small changes sequentially and year-over-year held the sector at about 4% of our total sales. While orders exceeded sales slightly for the period, we are still working to gain momentum in this relatively new market for us.

Moving to Slide 6. Let's talk a little bit about what we're seeing from the coming quarter. Our fourth quarter is always impacted by holiday periods, including the Chinese national holiday period at the beginning of October and the western world holidays leading up to New Years. As I mentioned earlier, sequential bookings dropped to about -- dropped about 2% in the third quarter. With the combination of the slower bookings we experienced in the third quarter and the holiday effect, we would expect to see some sequential decline to our sales similar to the decline we experienced in the same period last year.

While unfortunate, the flooding in Thailand does appear to present us with some potential opportunities. We are in contact with some of our PCB customers who have sourced a portion of their PCBs from our competitors in Thailand, which unfortunately are now under water and without power. It is too soon to tell what the upside impact may be on our demand in the short term or long term, but we do expect to see some orders, which would have otherwise been sourced from the affected factories.

As we look at cost and efficiency trends, we are happy to see some easing of the global commodity metal pricing recently. But that has not yet translated to reduced cost of materials. Our experience is that some suppliers are much quicker to try to pass on along their commodity prices, cost increases than they have -- they're allowed as they decrease. As a result, I'm expecting stable material cost for the balance of this year, and we are yet to see any indication of the significant trends in 2012.

Labor cost in China have remained relatively stable, but we're trying to gauge where the PRC Government is trending for the next year. In addition, the Chinese energy rationing continues, which hampers some of our capacity at some of our factories. But we have -- and we have experienced frequent brownouts or lack of reduced energy -- electricity coming to our factories, but we'd expect that to be reduced in the coming months.

We've also begun to move into our new facility in Juarez, and I expect that move to be completed before the end of this year. We have not yet begun any moving activities related to the transition of our production from our HY PCB facility to our other PCB facilities in China, but the planning and preparation of these moves are continuing.

In summary, we expect to see lower sales activity during the next couple of quarters but in general, a stable cost environment.

With that, I'll turn it over to Gerry.

Gerald G. Sax

Thanks, Dave. I'll begin my comments by referring to Slide 7, which highlights sequential and year-over-year comparisons of our quarterly income statement. Dave already commented on the sequential increases in our sales and gross margin. Let me just add here that a portion of the gross margin improvement came from increased sales of premium-priced products.

Continuing down the income statement, we saw a corresponding increase in our SG&A costs related to higher sales activity and our variable incentive compensation plans.

On a year-over-year basis, you'll note that our SG&A costs were up about 3% compared to the 7.5% sales increase, which Dave highlighted earlier.

Operating income increased sequentially to $21.4 million or 7.7% of sales. Of course, the rebound in operating income was driven in large part by the rebound in gross margin.

Other income and expenses remained in line with the comparable sequential and year-over-year periods. As a result, income before taxes improved to $13.3 million compared to $6.9 million last quarter.

Based on projections for our tax profile through the end of this year, we've provided $5.9 million for income taxes in the quarter, which is a 44% effective rate for the quarter and a 37% rate through the first 9 months of 2011.

Income available to common shareholders improved sequentially to $6.9 million, and approximately 20 million shares resulted in GAAP earnings per share of $0.34.

Our two non-GAAP measures, adjusted EBITDA and adjusted EPS, are reconciled at the end of the presentation materials and also at the end of the earnings release.

As Kelly stated earlier and as a reminder, we primarily use GAAP metrics to measure our business performance. But we also monitor and report these non-GAAP measures to allow readers to make comparisons to others in our industry.

Adjusted EBITDA improved to $40.3 million or 14.5% of sales for the third quarter, After adding back our usual items, such as noncash effects of depreciation, amortization and stock compensation.

Adjusted EPS improved to $0.50 for the quarter after adding back such items as the usual noncash effects of stock compensation, amortization and noncash interest.

Moving on to Slide 8 of the presentation materials or the third table in the earnings release. You can see that cash provided by operations for the first 9 months of this year was $40 million. Of that $40 million, just over $22 million was generated during the third quarter. Looking to the investing activities, our year-to-date CapEx was $75 million and the pace of CapEx this year has been fairly consistent at approximately $25 million per quarter.

We've had very little cash movement from financing activities during the first 3 quarters of this year. Availability under our domestic and foreign credit facilities was approximately $90 million at the end of September, which complemented our quarter-end cash balance of $68.5 million. Overall, our cash balance has declined about $35 million during the first 9 months of 2011, driven primarily by increased investment in working capital to support our higher sales levels together with our capacity expansion and site relocation projects as Dave alluded to earlier.

With that, let me turn the mic back over to Dave.

David M Sindelar

Thanks, Gerry. I don't have any additional comments. So I will open it up for questions and answers.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question in queue is Matt Sheerin with Stifel, Nicolaus.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Just a couple of questions to start off. First, on the gross margin. It looked like, Dave, you had about 100% drop-through on the margin side in the quarter, COGS even -- So how much of that was related to mix versus higher ASPs. I'm just trying to get a sense of how much of that was related to the -- just the price pass-through. And I know that mix plays into it, but if you can give us an idea of unit increases quarter-on-quarter.

David M Sindelar

For the most part, we did have a positive mix. But I think for the most part, it was really kind of the price increase that fell through. As we had talked in the previous quarters, we started towards the end of the second quarter getting price in place to combat the costs, but we saw a pretty high inflationary cost period in the first and second quarter. So for the most part, it's price with a little bit of positive mix.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

And now that you're, I guess, probably several months after you started, putting price increases through, and now you've finally got the pass-through. Do you have any idea of what percentage increase that on a blended basis that has gone through? Is it mid-single-digits? Is it higher?

David M Sindelar

We haven't disclosed an actual amount. And one of the reasons is that as you as can imagine, while copper plays a big role, it's not necessarily the only role in it. But if you look at various products, it's a long drawn-out conversation with customers. And products would have heavy copper, tend to have higher percentage wise. And as a result, we haven't disclosed it. But it would -- it was a substantial increase relative to what we hear the market has been giving, but it -- essentially covered our costs.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

And so it sounds like your success rate was fairly good.

David M Sindelar

Yes, yes, it was.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then looking at the Assembly business. It looked like the operating margin there was down significantly. You came off of a very strong June quarter, I know. But what was the reason for the margins being low there? On the Assembly side.

David M Sindelar

On the Assembly side?

Gerald G. Sax

Matt, this is Gerry. If you recall, at the -- near the end of the discussion, last quarter, we talked about -- we expected some inefficiencies to start coming in through our Juarez operations and will begin to move it. That certainly played a part in this. There's also a little bit of mix in there as we move through the quarter, but it's principally those 2 two items.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

And is that Juarez principally an Assembly operation?

Gerald G. Sax

It is. We've got the 3 assembly operations in China. And Juarez is the one assembly facility we have in North America.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

And do you expect further margin pressure there because of that shift next quarter too? Like a headwind?

Gerald G. Sax

Yes. A lot of what we were doing was working on the planning and transitioning. As Dave mentioned, we're actually picking up and moving equipment in November. And so that there is additional disruption or just people moving from one factory to another. I suspect that we should be finished with the project by the end of the year. But it will take a little while to kind of get the whole factory back in working order.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

And does that impact both the SG&A line or the COGS or primarily the COGS because of the manufacturing?

Gerald G. Sax

Primarily COGS, as you would expect.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then, just lastly, and I'll get back in the queue. Just regarding the Industrial segment. I know that you've got some solar and alternative energy in that segment, correct? And that's been fairly lumpy. Was that -- is that something that you're seeing? What are the trends there that you're seeing there?

David M Sindelar

The trends on the -- and primarily on the wind side, the trends on the wind side continue to be -- and if you go back in history, it becomes pretty lumpy in the orders. And for whatever reason, the third quarter -- second quarter, third quarter seem to be the strongest and the first, and the fourth tend to weaken out a bit. So we would kind of expect that trends to continue.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Meaning being choppy or low?

David M Sindelar

Yes, being choppy.

Operator

Our next questioner in queue is Eric Reubel with MTR Securities.

Eric Reubel - Miller Tabak Roberts Securities, LLC, Research Division

Dave and Gerry, in your prepared remarks, you talked a little bit in the computing segment about cross-selling driving part of the upside there. Could you give a little more color on how that has been playing out? What you think the benefits have been for the Merix acquisition? And how should we be thinking about that opportunity going forward?

David M Sindelar

Yes. No, the -- one of the things that we thought was an asset as a result of bringing the 2 companies together is that historically, we've been able to cross-sell our customers, the Viasystem legacy customers. So if it started out as PCB, we were able to cross-sell some of the E-M Solutions business to them. We continue to push and plod along. And I think as we -- if you go back a year, a little over a year ago, we thought it would take somewhere in the neighborhood of 9 to 18 months to kind of start seeing some traction. And we are starting to see some traction on the computer/datacom side, which a big portion of the non-overlapped companies -- customers that we have, were in. So we're starting to see some benefits there. We're also seeing kind of across the board on the computer/datacom side, not only on the Assembly side but also on the PCB side. We're seeing kind of some nice strength across most all of our customers. So it's partly due to the cross-selling, but it's also due to some of the strength we're seeing on the PCB side as well.

Eric Reubel - Miller Tabak Roberts Securities, LLC, Research Division

And if I can follow up with potential strength on the PCB side there. You mentioned that the flooding in Thailand may provide some new revenue opportunities. Do you -- could you comment a little bit about on these types of programs? Do you have any expectation that they could be of the stickier kind? That could lead to a permanent sort of win? Or are they more on the commodity side that there are multiple providers for?

David M Sindelar

Yes, it's probably too soon to tell. And you never really want to prey on somebody else's disadvantage or harm. But what we're trying to do right now is we're trying to -- for our existing customers, we're trying to be a good supplier. And a good supplier steps up and does what it needs to do in difficult times. And so we're trying to fit in production when people need it on an emergency basis. Now from a strategy standpoint, if the business is sticky, we will probably do that more at reasonable, normal lead time kind of prices. Now if the business isn't sticky, then we'll probably move -- try to obtain some premium pricing for quick-turn like business, spot buy business. But at this juncture, it's really kind of hard to peg where it's at. The -- and with kind of a follow-on to that, which is not directly related to the sales side but from a component side, we have done an internal review. And our raw materials, our components that we use in the Printed Circuit Board side, we have yet to find one that is sourced from Thailand. So we think from a pure access to raw materials and components on the PCB side, we're good. On the E-M Solutions side, it's a little bit more difficult in that there's obviously a lot of components that go into the various assemblies we put together. And right now, there is -- it doesn't appear that there's a significant amount that will be affected. But we're continuing to look at what and how it might be affected as a result of somebody not getting a component that affects either our assembly or affects a component we ship that gets in assembled into a bigger product. But right now, we don't expect a large impact in the fourth quarter.

Eric Reubel - Miller Tabak Roberts Securities, LLC, Research Division

That's very helpful. One last question on the gross margin, if I could. Gerry, I noticed that there was sort of a pretty -- I know that the metrics were in line, as you mentioned, but working capital did increase on inventories in the quarter. Is that something that you think really contributed to the greater than 100% drop-through? And is that something that you intend to work down going into Q4?

Gerald G. Sax

It's a good question, Eric. Actually, it's 2 pieces related to the inventory increase. A part of it has nothing to do with kind of the manufacturing side or the manufacturing efficiency. It's really because of the Chinese holidays at the beginning of October that Dave mentioned during his comments that we pre-bought some raw materials into the factories to make sure that we didn't -- we weren't disrupted in our supply of materials coming into the factories during that holiday period. The other part is we've seen some of our automotive customers getting back some of the finished goods levels that we consigned to them. For a long time, we have been running very short on capacity and had run those finished goods inventories down a little bit. Of course, anything that threatens continuity of manufacturing in an automotive world is a little bit dangerous. And so we have seen those ratchet back up to historical levels. I think you'll see it even out a bit more toward our real historical trends as we move forward. But it's probably the raw materials piece that is not as evident in what you see just looking at the balance sheet.

Eric Reubel - Miller Tabak Roberts Securities, LLC, Research Division

So the really strong automotive orders that you had in Q3 took your inventories down -- lower than what you would want as normal, and you built this up a little, plus there were some other raw material increases?

David M Sindelar

Yes, I think I'd go back -- a better way to look at it if you go back and you look at the -- probably starting in the fourth quarter last year, first quarter, second quarter, if you looked at the demand versus the production capacity versus what we're able to ship out, they were drawing down there. Their consigned inventory or vendor managed inventory a little bit lower than they historically have. As a result of us getting our production capacity backup to more of an agreeable level compared to the demand, we're able to put a little more back into inventory. So if you look at inventory, the vendor management inventory, at the end of September, say versus, the end of June, June of 2010, we're probably at a more comparable level, and we actually saw a dip over the last 12 months.

Operator

Next questioner in our queue is David Sagalov with Jefferies.

David Sagalov

I just want to ask you regarding kind of the capacity, kind of the follow-up from the last question. The capacity you would have to take on extra orders from some of your competitors that are suffering right now in Thailand.

David M Sindelar

Yes, and that's a good question because it comes back to how you slice it by plant, by location, what's needed, what's not needed. And the short answer is, is that at some of our plants, there's not a lot of capacity sitting around. In some of the other plants, there is some excess capacity. And it becomes -- and that's one of the reasons why I can't give you a sharp clean answer that I think in the fourth quarter, the opportunity is x, because we have to figure out what they want. We have to figure out if we can get the material. We have to figure out which factory goes into. And the floods, while not happening just yesterday, it's not -- the floods aren't 3 months old, so we have a lot of time. Our customers have a lot of time figuring out where the bottlenecks are, where the risk areas are. So we're still kind of fitting through it. I think that there is a potential upside for the fourth quarter, but I don't believe it's $10 million. So it's somewhere between 0 and $10 million, but we're working to try to figure out what it is and what we can do.

David Sagalov

Great. And one last one, can you just talk a little bit about cash management in the fourth quarter and maybe next year as well as far as kind of cash balance, working capital?

Gerald G. Sax

It's probably more of the same. I don't anticipate that there's going to be a big change in our working capital structure. Of course, there's always some investment to support growth as we're expecting some decline in sales going into the fourth quarter and first quarter is always low because of holidays as well. We pretty closely manage those levels. So I don't see a big swing coming out of working capital. Capital expenditures, we've talked in the past about our capacity expansion programs, and we continue working on those things, continue to invest for like the transition to our new facility in Mexico. And we've talked in the past about the transition out of our Guangzhou factory, PCB factory in China. So we'll continue on those things. It's something that we are focused on, but I don't see a great change in trend over the coming quarters.

David Sagalov

Great. And as far as the balance sheet, do you see any need to draw the revolver for anything in the short term or anything else on the capital structure side of it?

David M Sindelar

No, I think on the revolver side -- I mean, we're sitting here, we sat at the end of September with $69 million of cash. Now that's split between United States, North America and China. So we have a nice balance of cash on both sides. So we don't foresee any significant drawings, if any at all, on the revolver. So with our debt -- debentures or bonds, they're pretty much not on call until next July. So I don't see any economic driving force for us to do anything with that till they become a little bit more cheaper to refinance.

Operator

Our next questioner in queue is Matt Sheerin with Stifel, Nicolaus.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

I just have a couple of follow-ups. Just on the whole issue of Thailand. Could you tell us what end markets were -- looking at the competitive landscape there, what end markets are most impacted by production issues in Thailand?

David M Sindelar

What we've seen so far is the ones that -- is our biggest market, which is the automobile market.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

So it is automotive. Okay.

David M Sindelar

Yes, and we have -- there's a couple of significant automotive PCB manufacturers over there. So that's where we're seeing most -- that's where we're getting most of the calls and most of the e-mails from.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Is that primarily Japanese competitors?

David M Sindelar

It has caused -- the Japanese earthquake, tsunami and this has caused the -- the earthquake and tsunami has caused a push of the Japanese customers towards the China producers. This has caused another push, but it's also western world companies as well.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Great. And then on the expense side, I know you mentioned that there were some compensation costs or incentives that went up in the quarter, but just trying to understand, Gerry, where you expect expenses to go, would you expect it to be down a little bit in the December quarter? SG&A?

Gerald G. Sax

I would hope to see it go down a little bit from the third quarter. I think with the sales level at a high and all of the activities, I would indeed expect it to go down just a bit.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then just looking at overall capacity in automotive, Dave, can you -- I know you've put some online this summer. Could you update us on where you stand with the capacity adds? I know some of that was based on -- the scale was based on how you felt about end market. It sounds like you feel relatively positive about automotive growth going into 2012. So where do we stand on the capacity?

David M Sindelar

Yes, the automotive capacity is kind of a 2-legged animal because we talked about the HZ plant shutdown. So we are scrambling around. An HZ plant shutdown is scheduled for the end of 2012. So we're scrambling to get additional capacity, and we're taking that plant and essentially slice it into 3 various-sized pieces. A piece is going to go to Zhongshan [ph], a piece is going to Guangzhou, and the piece is going to go to Wei Yang [ph]. So we have that capacity going in place. In addition, as we build the capacity to accept that plant shutdown, we're building some additional capacity for future growth. I mean, if you look at the industry expectations, and again, they change weekly, daily or whatever, but overall, you would expect to see kind of unit volume on the global automotive market to grow probably somewhere in that 6% to 6.5%, 6.7% range. That, coupled with -- we've seen a continual increase in the electronic components of a car, the more and more advanced stuff is getting pushed down into the less-expensive cars. So I think that we would expect the automotive markets to continue to grow, at least in that 6.5% range and maybe up to 8%, 9%, depending on what happens with the push down of the components. So we're out looking. And since we're pretty much a global player today, except for the Japanese automotive companies because they tend to buy from Japanese companies while we have been making inroads into that, but the rest of the world is showing those kind of growth rates. So we would expect to grow pretty much at those rates.

Operator

And at this time, I'm showing no additional questioners in the queue. I'd like to turn the program back to Mr. Sindelar for any closing remarks.

David M Sindelar

Great. I'm not sure I have any other prepared remarks. I just want to thank everybody for their time and effort, and I look forward to talking to you at the end of next quarter. Thank you.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude today's program. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.

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