Trimble Navigation Limited Management Discusses Q3 2012 Results - Earnings Call Transcript

Nov. 1.12 | About: Trimble Navigation (TRMB)

Trimble Navigation Limited (NASDAQ:TRMB)

Q3 2012 Earnings Call

November 01, 2012 4:30 pm ET

Executives

Willa McManmon

Steven W. Berglund - Chief Executive Officer, President and Director

Rajat Bahri - Chief Financial Officer and Assistant Secretary

Analysts

Jonathan Ho - William Blair & Company L.L.C., Research Division

Andrea James - Dougherty & Company LLC, Research Division

Ryan M. Connors - Janney Montgomery Scott LLC, Research Division

Michael E. Cox - Piper Jaffray Companies, Research Division

Operator

Good afternoon. My name is Pia, and I will be the conference operator today. At this time, I would like to welcome everyone to the Quarter 3 2012 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Ms. Willa McManmon. Ma'am, you may begin.

Willa McManmon

Good afternoon. This afternoon, we will refer to non-GAAP measures, which are reconciled to GAAP measures in our earnings press release and web tables, which are available on our website at www.trimble.com. We'll also make forward-looking statements, including our expectations for fourth quarter financial results. We wish to caution you that these statements are predictions and that actual events may differ materially. Periodic reports that we file report from time to time with the Securities and Exchange Commission, including the company's Form 10-K and 10-Q, discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking comments. A replay of this call is available by phone and on our website. Dial-in information is contained in our earnings press release.

With that I'll turn the call over to Steve.

Steven W. Berglund

Good afternoon. Third quarter results played out much as we anticipated despite an environment that remains challenged and uncertain. While it is impossible to be categorical about forecasting this environment, our general view is that it may best be described as workable, with great variations in robustness amongst regions and product categories. European demand continues to reflect the general malaise with few expectations of early recovery. On the other hand, U.S. residential and commercial construction seems to be entering the early phases of recovery, although it is too early to determine how robust it may be. Markets in the rest of the world are generally healthy and a basis for some optimism.

The other factor that generated significant commentary at the beginning of the quarter was the North American drought and the potential impact it would have on our agricultural sales. In the second quarter call, we described our expectation that any drought effects would be of comparatively short duration without lasting effects on the farm economy and that we did not expect them to affect normal seasonal buying patterns as long as weather patterns return to a more normal pattern later in the year. Actual results in the quarter confirm this view and, in effect, the drought proved to be something of a nonevent despite the commentary.

Trimble's quarterly results demonstrated significant progression. While acquisition boosted overall revenue growth, organic growth remained strong and, exchange-adjusted, was in the high teens. Margins also continued to improve and non-GAAP operating margins were above 20% for the third consecutive quarter. We were particularly satisfied with the operating leverage of 37% year-to-year. Although aggregate gross margin is not a definitive metric for us and can be somewhat volatile because of product mix swings, it does provide an indicative measure.

It is therefore worth noting that the non-GAAP gross margin of 55.4% represents an historical high for Trimble. This reflects the increasing value of Trimble solutions to the market and our ability and commensurate pricing. This value derives from both the increasing software content in our solutions, which carries typical software gross margins but also reflects the unique value of our bundles, which include hardware, software and services. In these cases, the hardware becomes the platform for software and, in effect, a node in the larger system. Applying a consumer analogy that assumes hardware is inevitably commoditized is overly simplistic in most cases.

Engineering and construction growth has been driven by heavy civil products which are demonstrating strong growth as adoption rates of technology accelerate. We also saw a greater contribution from vertical construction, which reflected some increase in North American commercial and residential construction, as well as greater penetration internationally. Survey products struggled in the quarter due in large part to European conditions. We do expect survey demand to revive based on a strong product introduction during October.

The Field Solutions segment generated meaningful growth with most of the growth coming from agriculture. Base line GIS revenue was up slightly. The fundamentals in agriculture remain relatively steady. We saw growth in all regions, including North America, which grew in double digits. We also saw a continuation of the trend in which the new information and flow controls products grew at a substantially faster rate than the mainline agricultural products.

The Mobile Solutions segment continues to make a major contribution to the year-to-year improvement in Trimble quarterly results. Although the year-to-year profitability improvement continues to be dominated by the PeopleNet acquisition, we are seeing revenue and profitability contributions from the other businesses within the segment as well, most notably in Field Services, which is the remnant of that road. Key to the improvement is the continuing redirection of the portfolio towards vertical markets, which will allow competitive differentiation, a higher value proposition and resulting higher gross margins.

The recent TMW acquisition is expected to continue the trend towards a richer financial model once the initial purchase accounting effects dissipate in early 2013. Looking forward, we face something of short-term paradox. Over the last several years, we have built strong strategic franchises that provide significant longer-term growth opportunities. However, the current confused environment makes it difficult to forecast how that potential translates into shorter-term growth. If the worldwide economic conditions do not worsen significantly from the current state, our current perspective is that we can generate double-digit organic revenue growth in 2013. However, we will not be more specific on total year prospects until at least the January call awaiting the results of the U.S. election, the political resolution of the U.S. fiscal cliff scenario and better insight into Europe.

Short of a 2008-like collapse, we believe our possibilities for growth in a down economic scenario are better than most. The factors providing this inherent resistance to the downside include portfolio and geographical diversity, which insulate us, to some extent, from singular vulnerabilities. More importantly, we saw productivity in that capacity. This productivity enhancement is becoming central to the success to more larger enterprises, which can not compromise their fundamental competitiveness by significantly cutting back their investment in economic down cycles.

Even in a more difficult economic environment, Trimble's focus will remain on aggressively penetrating these markets. Overall, we are facing significant macroeconomic and political uncertainty that may remain with us for some time. Despite this ambiguity, we believe we retain the capability to succeed whatever the environment.

Let me turn the call over to Raj.

Rajat Bahri

Today, I will cover only the non-GAAP numbers. The GAAP numbers are detailed in our earnings press release. Trimble had third quarter revenue of $504.8 million, up 21% as compared to the third quarter of 2011. Excluding the effects of foreign exchange, the organic growth was in the high teens. Third quarter 2012 non-GAAP operating income of $105.3 million was up 44% as compared to the third quarter 2011. Non-GAAP operating margin was 20.9% of revenue as compared to 17.5% of revenue in the third quarter of 2011. This represents an operating leverage of 37%, driven by higher gross margins as well as operating expense leverage.

Non-GAAP net income of $86.8 million for the third quarter of 2012 was up 32% as compared to the third quarter of 2011. Diluted non-GAAP earnings per share in the third quarter 2012 was $0.68 as compared to the diluted non-GAAP earnings per share of $0.52 in the third quarter of 2011. The tax rate was 19% for the third quarter of 2012 as compared to 9% in the third quarter of 2011, primarily due to the geographical mix of the pretax revenue and no federal R&D tax credit.

Third quarter 2012 E&C revenue was $287.2 million, up 19% as compared to the third quarter of 2011. Growth in E&C came primarily from sales of heavy and highway and vertical construction products and acquisitions, partially offset by the impact of foreign exchange. Geographically, there was growth across all major regions. Non-GAAP operating income in E&C was $71.1 million or 24.8% of revenue as compared to $45.2 million or 18.8% of revenue in the third quarter of 2011. The improvement in operating income was due to higher gross margin as a result of product mix and improved operating expense leverage.

Third quarter 2012 Field Solutions revenue was $103 million, up 13% as compared to the third quarter of 2011, due primarily to increased sales of agricultural products. Non-GAAP operating income in Field Solutions was $36.6 million or 35.6% of revenue as compared to $31.6 million or 34.7% of revenue in the third quarter of 2011, due primarily to improvements in agricultural product margins.

Third quarter 2012, Mobile Solutions revenue was $83.8 million, up 44% as compared to the third quarter of 2011, due to higher subscription revenue and the impact of acquisition. Non-GAAP operating income and Mobile Solutions was $8.9 million or 10.6% of revenue as compared to $3.2 million or 5.5% of revenue in the third quarter of 2011. The improvement in non-GAAP operating margins was due primarily to growth in subscription revenue and the impact of acquisition.

Third quarter 2012 Advanced Devices revenue was $30.7 million, up 13% as compared to the third quarter of 2011, primarily due to strong sales of timing devices. Non-GAAP operating income in Advanced Devices was $6.2 million or 20.3% of revenue as compared to $4.6 million or 17% of revenue in the third quarter of 2011. The improvement in non-GAAP operating margin was due to product mix.

In the third quarter of 2012, 52% of revenue came from North America, 22% from Europe, 16% from Asia-Pacific and 10% from rest of the world. The year-over-year growth rate by region was 23% in North America, 32% in Asia-Pacific, 12% in Europe, the rest of the world was up 15%. Growth in Europe was helped due to acquisitions.

Non-GAAP operating expense for the third quarter of 2012 was $174.4 million or 34.6% of revenue, down from 36.1% of revenue in the third quarter of 2011 due primarily to better operating leverage and higher revenue. Third quarter 2012 non-GAAP non-operating expense was $3 million, up as compared to a loss of $1.6 million in the third quarter of 2011, primarily because of a more favorable impact from foreign exchange transactions and better profitability from the joint ventures, partially offset by higher interest expense.

We finished the third quarter 2012 with $141.8 million in cash compared to $121.9 million in the second quarter of 2012. Our debt level was $643.1 million on a multiple of 1.5x trailing 12-month EBITDA. Cash flow from operations was $88.8 million versus $51.1 million in the third quarter of last year. Accounts receivable for the third quarter of 2012 was $320.9 million as compared to $317.3 million in the second quarter of 2012. Days sales outstanding in the third quarter of 2012 was 58 days as compared to 56 days in the second quarter of 2012 and 63 days in the year-ago quarter. Inventory in the third quarter of 2012 was 204 -- $234.3 million compared to $227.9 million in the second quarter of 2012.

Moving to guidance. For the fourth quarter of 2012, we expect revenue between $503 million and $508 million with GAAP earnings per share of $0.24 to $0.26 and non-GAAP earnings per share of $0.54 to $0.56. The non-GAAP EPS excludes amortization of intangibles of $31.6 million, anticipated acquisition cost of $8 million, and the anticipated impact of stock-based compensation expense of $8.1 million. We assume the tax rate will be between 15% and 17%, and there will be approximately 129.8 million shares outstanding.

Please note that this guidance also includes the impact of the TMW Systems acquisition, which is expected to be slightly dilutive to Trimble's fourth quarter non-GAAP earnings per share by $0.01 to $0.03 per share due to impact of a onetime noncash write-down on a portion of TMW Systems' deferred revenue. Trimble expects the acquisition to be accretive to its 2013 non-GAAP earnings per share by $0.12 to $0.14 per share. As mentioned at the time of the acquisition, we funded the TMW Systems through our existing credit facility. We expect the debt at the end of fourth quarter to be approximately $950 million. Which translates to approximately 2.2x trailing EBITDA.

With that, we will take your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] First question will come from Jonathan Ho with William Blair.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Just wanted to get a sense from you in terms of what you're seeing out there in the macro environment maybe on a relative basis. Are things getting worse right now from your perspective or have they stayed relatively flat in comparison with the prior quarter? And just any sense around sequestration and the potential impact there.

Steven W. Berglund

Sure. I think it's, again, hard to be specific and hard to being particularly articulate on the subject because I think there are an awful lot of moving parts. I would, in general, say that Europe, against a standard of 6 months ago or even 3 months ago, I think Europe has probably split a bit in terms of -- outlook is, I think, it's no longer just a southern European phenomenon. I think Germany and the Nordic countries, which have been relatively bouyant throughout are now starting to see, I think, more of a bout of uncertainty than necessarily hard recession. So I think investment decisions are being postponed, being deferred or being reconsidered, waiting for some clarity, clarity in terms of resolution of the euro crisis. So I think net-net I would say that Europe is probably a bit worse off than I would've said 6 or 9 months ago. U.S. I think is still very much frozen by uncertainty as well. I think the election is causing some degree of deferral of decision-making. I think the -- the fiscal cliff I think hangs over a lot of things and I think is affecting the investment environment. But I would say in general, for us, maybe not quite so macro, a little bit more micro. I would say is there are probably -- kind of discounting the possibility of the fiscal cliff and the knockon effects from that, I would say is that the U.S. is probably somewhat better than it would have been 3 or 6 or 9 months ago largely because I think that the early anecdotes of some revival in commercial and residential are now being supported by a little bit more data. And as a result, I think that, that provides some potential upside for us. Now, how robust that will be and how captive that will be to the larger bouts of uncertainty, I can't tell. And I would say the rest of the world is generally positive. I think that we've seen, let's call it, improved stability out of China. I think that China is -- we still regard it as both a short-term and long-term growth market. And I think there has been, let's call it, improved stability in China, and I would say, in general, pretty much every other geography has got a fairly positive story associated with it.

Jonathan Ho - William Blair & Company L.L.C., Research Division

And in your prepared remarks, you talked a little bit about some weakness in the Survey segment, as well as new product releases. Can you give us a little bit of additional color in terms of what your expectations are there and maybe what the impact was this quarter from the weaker Survey?

Steven W. Berglund

Yes. So I think that Survey -- without getting too categorical here since we don't disclose at that level. Survey year-to-year was comparatively flattish. And I would -- and a lot of that came out of Europe. And again it's the sense of uncertainty. People in Europe, and I would also argue in the U.S., are -- if they have a discretionary investment decision to make, they have a higher propensity simply to say, "I'll wait a month, I'll wait a quarter just to see if I can get a little bit more information before making that investment decision." So I think that's what we're encountering there. So I think offsetting that is we announced the new GNSS survey instrument at the Intergeo show early in October. That has been very well-received. So I think that we will bounce back in Survey starting in the fourth quarter. So again, I think it's simply a phenomenon of this uncertainty impacting individual investment decisions in a number of different geographies.

Operator

Next question will come from Andrea James with Dougherty & Company.

Andrea James - Dougherty & Company LLC, Research Division

So there's some global strength in mining and I was wondering if you can talk a little bit about that, if you're seeing that in your business or if you're playing a role in some of that?

Steven W. Berglund

Really in mining is -- first of all, in the quarter, we actually booked a comparatively -- booked and recognized revenue for a relatively large mining order. So it did have an incremental effect, a positive effect on us in the quarter. In general, I would say, mining kind of statistically, is a secondary market for us. It pales in comparison to construction. And in reality in terms of mining automation, we have typically used out of the joint venture, that is, typically use Caterpillar distribution to access the mines. So mining really is something of a secondary market for us, at this point in time. Now we also would view mining as an emerging market. So we are investing resources in terms of bringing new solutions to mining. But I would tend to put that in the future category more so than anything that is routinely playing a significant role in our financial results at this point.

Andrea James - Dougherty & Company LLC, Research Division

And then jumping over to Trimble Mobile Solutions. Can you talk about the competitive landscape there? There seem to be some emerging players, and I'm not sure if they're going after the high end as you are. So could you just talk about if you're bumping up against other folks?

Steven W. Berglund

Well, I think it varies according to category. So it is now, with the addition of PeopleNet and certainly TMW, what we would call the transportation and logistics market, what we're referring to T&L, transportation and logistics. Hence, be relatively focused in long-haul trucks. And so Qualcomm has been and remains the primary competitor in that realm. So I would say the competitive dynamics there are not all that dynamic. Now in regional fleets or maybe more focused, more local fleets, there are a number of startups or relatively early-stage companies that have announced solutions. Again, many of them are in what I would tend to refer to as kind of the track and trace or dot on the map sort of functionality, whereas we're quite aggressively attempting to integrate with the enterprise. So yes, towards the lower end of the markets, there's more competition. But in the niches, in the segments that we're targeting, I would say at this point in time, there really has been no net change in our competitive view in the last -- say, in the last year.

Andrea James - Dougherty & Company LLC, Research Division

One more quick one. Just about the storm that just hit the East Coast. Can you talk a little bit about whether that could have a material effect on your business, positively, negatively and just sort of how you look at natural disaster and the cleanup?

Steven W. Berglund

Well, generally, we're opposed to natural disasters. I guess this is our official statement. But I could argue this one either way and it's hard to tell what the net effect is. So clearly -- I would say probably for the next weeks, maybe a month, I would say that the effect will generally be negative simply because it's disruptive. It has disrupted our channel, has disrupted in the Northeast a lot of kind of activity that would be leading to revenue here in the next 3 to 4 weeks. So I would say in the short term, it's negative. In the longer term, there's certainly going to be a lot of rebuilding. There's going to be a lot of either insurance-driven or government-driven expenditures. A lot of that will pull demand for us. So I would say next month -- and this is largely supposition on my part. There's not a whole lot of science here. I would say for the next month, probably negative. After that point in time, probably positive. But real hard to say what the net effects will be for this quarter or really for the next 6 months. But probably, I would lean over the next 3 or 6 months as it being a positive effect. But again, not a whole lot of science in that view.

Operator

The next question will come from Ryan Connors with Janney Montgomery Scott.

Ryan M. Connors - Janney Montgomery Scott LLC, Research Division

A couple of questions on kind of the ag, the Field Solutions business, and then kind of a bigger-picture question. So first off, I wonder if you can talk a little bit about the OEM partnership landscape in the ag sector, and particularly how sales have progressed with Case New Holland, which had results out this week suggesting they maybe actually picking up some market share, which should be a good sign for you all. And then also whether there are other opportunities to add OEM partners, or is that an exclusive partnership?

Steven W. Berglund

Sure. So I'll be less than clear in terms of commenting specifically on kind of results coming out of the relationship with CNH. I don't feel like I can be that specific. But I would say is, to a fair extent, the fact that we had a relatively bouyant quarter in the third quarter would most likely be indicative of what's going on out of the CNH relationship. So I think the CNH relationship was reset in 2011 and extended and, in some ways, reinforced. But to your second question, that's relevant because out of that, we gained greater contractual access to other OEMs. So I think the one that's been public, been made public, is the alliance with CLAAS, which is an OEM arrangement there, and that is progressing quite well. So the answer is, by implication, yes. Things are going well with CNH. And more specifically, yes, we do have the ability to go out and seek other OEM partners, and CLAAS represents one visible outcome of doing that.

Ryan M. Connors - Janney Montgomery Scott LLC, Research Division

Okay. Great. And then also on the ag side, can you update us on Connected Farm and the adoption there, whether you're starting to see any material adoption yet? And also just comment on the competitive dynamics at that high-end strata telematics part of that market?

Steven W. Berglund

Sure. So I think, as I said in the scripted dialogue, that we're seeing, in terms of the elements that speak to the Connected Farm, particularly the [Audio Gap] products, those are -- the growth rates we're seeing, albeit from a relatively low dollar base, the growth rates we're seeing there are consistently out-running [ph] the growth rates of the mainline agricultural products, which is I think indicative. I think, from an organizational standpoint, is the Connected Farm aspects and kind of the information realm in agriculture is both strategically becoming more central. And then in terms of engagement with the channel, engagement with the end-user community, it's becoming more and more central. So I would believe that there's quite a bit of momentum that is being created fairly recently over the last 3, 6, 9 months. So it has become more central. Now as far as competition at that realm, without being too flip about that, I think it's a category that's in the process of being defined. And there are -- the market really hasn't formed out. Now obviously, you see that some of the equipment manufacturers making statements. You see some of the seed providers making statements about whatever the vernacular might be at that moment in time about the Connected Farm. But I think that the market is forming out at this point in time. I think there is the perception that there is really a very large market relative to providing advice, information and the like to the farmer. And I think that, over the next few years, the market will form out. But I think it's still early days in terms of who's competitor, who's collaborator. And -- but I think the market is forming out. We believe we would be central in the formation of that new market. But as yet, it's still early days to really be talking about kind of what the competitive mix is.

Ryan M. Connors - Janney Montgomery Scott LLC, Research Division

Okay. And then one last one, if I might. Just a bigger picture question. I mean one of the challenges in forecasting the company, I think, at this point in the cycle is that while your end markets are somewhat cyclical you've clearly shown that your growth story is more driven by adoption of technology rather than fluctuations in the underlying end markets per se. So with that in mind, can you kind of characterize 2013 for us around this scenario? I mean, let's just assume that the end markets are flat, that agriculture kind of plateaus and construction doesn't really rebound, just kind of keeps bouncing along. I mean, what rate do you view the company as capable of growing at on the top line in kind of a flat environment in the end markets, absent fluctuations in the underlying cycles?

Steven W. Berglund

Yes, so as I said in the scripted part of this, is that if we could freeze in time today, today's circumstances. Let's call it a weak Europe, kind of an indifferent U.S. and most other parts of the world bouncing along in reasonably good shape. I would see, given that, is I would see a double-digit organic growth year for us in 2013. Now we will get some acquisition lift from TMW and a couple of others during the course of the year. But I would definitely see 2 digits in the number. Now I think we're being a little shy in trying anything more specific on that simply because, if nothing else, the U.S. election and the resulting resolution of the fiscal cliff stuff, I think, is going to have some knock-on effects into 2013. So we're being a little shy about being terribly specific. But certainly, our internal planning at this point in time, with the assumption of kind of frozen conditions continuing into 2013, certainly reflects a double-digit growth number. So yes. But I would generally agree with the presumption that if the underlying markets are flat, if the underlying equipment markets are flat, we should be able to outperform them significantly. Because the other factor that I think is becoming more and more real, it grew during 2012 and I think will continue into 2013 quite persuasively, is that the players, whether they be contractors, construction contractors or whether they be trucking firms or whether they be farmers, I think there is a recognition that technology really is central to their ability to compete. We are seeing examples that we can't talk about. U.S. sugar for example, in agriculture is one we can talk about because there was a press release. They are saying technology is becoming central to their ability to compete. And as a result, is unlike prior periods where it was nice to have and may be early adopter phase sort of thinking, here I think it's becoming viewed as survival. It is becoming viewed as the only way to succeed in difficult markets. So I think from an adoption perspective, I see that the momentum for adoption of the technology is growing at a level that I've never seen in my 13 years at Trimble.

Operator

The next question will come from Michael Cox with Piper Jaffray.

Michael E. Cox - Piper Jaffray Companies, Research Division

My first question is on, I guess, a bit of a macro question as well, but you had noted that you would see Europe being weaker now than it was say 3 to 6 months ago. Have you seen that in your order trends? It seems that the revenue of Q2 and Q3 x acquisitions was fairly comparable. But I'd just be curious if you're actually seeing it show up in your results.

Steven W. Berglund

Again, it's spotty. We are seeing it. I'll let Raj speak to the European growth numbers, which -- because -- that were specific product categories. But go ahead.

Rajat Bahri

Sure. So Steve mentioned the specifically Survey business getting softer. So you don't see that in the overall numbers. There are couple of things going on. Tekla is doing very well and that's, Steve talked about the vertical markets doing very well. And that's helping Tekla. The ag business had a fairly decent quarter in Europe. So that's also helping Europe. But what is our biggest business, we could argue, the Survey business, and the E&C business, is soft in Europe. And then we had an acquisition also, a company called Plancal, that is also helping with the European growth rate. So Tekla is doing well. Plancal is doing well. Ag is doing well. But E&C is not doing well.

Michael E. Cox - Piper Jaffray Companies, Research Division

Okay. And SITECH is something that I don't think you've talked much about in this call, I'd just be curious if you feel you're now anniversarying that benefit. Or is it something that you still see as a driver as you look forward?

Steven W. Berglund

Well, the answer probably both at this point in time is that we're kind of in the final throes of building up the SITECHs. They are contributing at both, what I would call, the strategic level and in terms of financial performance. So I think at the strategic level, it is a powerful concept. I think it is helping us in terms of fundamental market positioning. I think it's difficult to competitively counteract the effect of the SITECHs because one channel that's branded commonly around the world that really is hopefully, over time, becomes synonymous with bringing technology into particularly the heavily civil markets out there. So I think strategically, it's not -- kind of building the channel has not been without pain, obviously. But I think we're seeing the benefits strategically. And then from a financial perspective, our continuing comparatively robust results in heavy civil, the heavy and highway type business. The underlying basis for that is what's called a highly capable channel, and we've got that in SITECH. So I would say is, it has contributed and I think that, going forward, we haven't reached steady-state yet. So I think there's still -- as we develop the concept, as we complete the buildout of it and as we become more proficient in the channel, I think there's still additional upside that we can achieve through the SITECHs, so...

Michael E. Cox - Piper Jaffray Companies, Research Division

Okay. One last quick question, your Asia Pac number was quite strong in the quarter and then one of your competitors last week pointed out some improvement in the China rail space. I'd just be curious, your thoughts on the China market and how the rail side is beginning to recover. Do you see that?

Steven W. Berglund

Yes. As I said before, last year was a difficult year for rail in China. Again we're back to comparatively a steadier state. I think the change in government probably has led to some conservatism in terms of buying patterns in China through the course of 2012. But I would say I don't know if it's back to normal, as defined in a 2010 sense or something, but I think rail is definitely a function again from kind of some of the problems of 2011. So, yes.

Operator

There are no further questions at this time.

Steven W. Berglund

In that case, thank you for attending. We'll talk to you next quarter.

Operator

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.

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