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Viasystems Group (NASDAQ:VIAS)

Q3 2012 Earnings Call

November 07, 2012 11:00 am ET

Executives

Kelly E. Wetzler - Vice President of Corporate Development and Communications

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

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

Analysts

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

Jiwon Lee - Sidoti & Company, LLC

Steven Bryant Fox - Cross Research LLC

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Viasystems Group's Third Quarter 2012 Conference Call. [Operator Instructions]

I would now like to introduce Kelly Wetzler. Ms. Wetzler, you may begin.

Kelly E. Wetzler

Thank you, Mimi. I'd like to welcome everyone to the Viasystems Investor Conference Call for the Third Quarter of 2012. If you need a copy of today's earnings press release, you'll find it at viasystems.com. We've also prepared some slides, which you'll find on our website.

Our presenters today are Viasystems' Chief Executive Officer, Dave Sindelar; and our Chief Financial Officer, Jerry 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 provisions 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.

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

David M. Sindelar

Good morning, everyone, and thanks for joining the call. When we are through with today's discussion, I hope you conclude that we had a very solid third quarter, but I also hope that you take away a basic understanding of some of the obstacles we are facing in the coming quarter.

Turning to Slide 4, I'll begin my comments on our third quarter operating results. As you recall, we completed our acquisition of DDi during the second quarter, so our most recent quarter is the first time we're reporting the full combined operations, but to help you understand trends all my comments are comparative sales in prior periods, assumes a pro forma combination of the 2 businesses going forward.

Our last call, we projected third quarter sales range of $325 million to $335 million. Actual net sales for the 3 months ended September 30, fell inside this range at $327 million. But I think we would've been a little closer to the upper range had it not been for the September 5 fire in one of our China facilities. I'll talk a little bit more about the effects of the fire later in my remarks.

Our reported $327 million in net sales is down about 5% compared to the pro forma net sales of $345 million in third quarter 1 year ago, and about 4% down from the pro forma second quarter sales of $341 million.

Our PCB sales, segment sales declined about 7% pro forma year-over-year, and about 5% pro forma sequentially, 200 -- to $269 million. However, our Assembly sales in the quarter were the highest we have seen since the economic downturn in 2008, increasing about 6% year-over-year and about 2% sequentially to $58 million.

We reported an overall 20% gross margin for the third quarter. But we do estimate that we lost about 1% -- 1 percentage point of margin through inefficiencies caused by the fire. It is difficult to determine the actual effects since we've had to shift production between plants and have to essentially reschedule all of our Asian facilities to meet our customer demands.

Our adjusted EBITDA was $41.2 million for the quarter, or 12.6% in net sales. Again, the fire related inefficiencies also cost us about 1 percentage point at the EBITDA line.

Our adjusted EPS was $0.27 per share for the third -- for the 3 months ended September 30. As usual, Jerry will provide more color commentary on adjusted EBITDA and adjusted EPS in his comments.

Before I talk about each of our end markets, I wanted to take a couple of minutes to update you on the significant events listed on Slides 5 and 6. The first 2 topics are updates from our prior call and the third topic is the fire that occurred during the quarter.

First, in July and August respectively, we completed the wind down of our Qingdao and our Huizhou facilities in China, and we now have successfully transitioned all production requirements from those sites into our other factories in China. Both closures went about as smoothly as we could hope for. We're able to accomplish these transitions with no disruptions to our customers and little downward pressure on our margins. We've also completely exited -- we've already completed, excuse me, we've already completed -- completely exited the small Qingdao facility but we have a small team continuing to remove equipment and perform final cleanup in our Huizhou factory prior to surrendering that back to the landlord.

Secondly, we've made significant progress on the integration of our latest acquisition. By the end of September, we had completed steps to capture cost synergies that had us on an annualized $8 million savings run rate. And I believe, we are still on track to meet our target of $10 million in savings by the end of this year.

While we completed the acquisition in a very short period of time, earlier this year, I'm happy to say we have so far, encountered few surprises in our integration activities.

Moving to Slide 6. The third item we're dealing with, as indicated in this morning's news release, we're able to continue to meet customers' shipping requirements after the Guangzhou factory fire and through the -- throughout the -- through the end of the quarter.

We used finished inventories produced prior to the fire and we outsourced some of the Guangzhou fire affected processes to other sites. We are also continuing to work with customers on rescheduling products in the affected areas.

At this point, we have a portion of the processes restarted, while we're waiting the arrival of replacement equipment in order to recover the full capacity of the affected areas. We're working closely with our insurance adjuster to minimize both the insured damage claim, as well as the insured business interruption claim. Jerry will comment later on these matters that affect our reporting and projected results.

Turning to Slide 7, I wanted to take a few -- make a few comments about our revenue performance in each of the markets.

Year-to-date, Automotive continues to be the largest end market, but at $93 million for the third quarter, Automobile sales temporarily fell to the second largest compared to our I&I sector. Third quarter billings declined about 10% sequentially and about 19% versus the same quarter last year.

We are seeing the headwinds from several directions including the much discussed slowdown in Europe, the return of a competitors flood damage capacity in Thailand and decisions by certain customers to seek second sources from some of our productions in place -- displaced by our Huizhou factory closure and our Guangzhou fire. At this point, I'm not sure I can predict how Automotive demand will shake out for our fourth quarter, but the progress we have made on the factory expansion in our primary -- primarily Automotive site in Zhongshan, puts us in good position to recover from both the temporary and continued pressures in this market.

More than $95 million I&I top the list of end market revenue for us in the quarter. I'm sure you recalled that I&I is kind of the catchall category, that also includes wind and solar energy, medical, locomotion and others. Despite a modest pro forma sequential decline, this sector grew almost 9% pro forma compared to the same period last year. Unfortunately, on top of the global economic softness, we're also seeing a quick retreat of the wind energy demand for the final quarter of the year, which will affect our E-M Solutions business in the final quarter 2012. We have seen -- what we have seen is that customers accelerated orders into the earlier part of the year to beat the lapsing tax credit deadlines that -- late this year.

Computer and Datacom customers represent 18% of our total sales for the third quarter. Net sales of nearly $58 million in the quarter represented a pro forma sequential increase of 3% and a pro forma year-over-year increase of 7%. To the first 9 months, we're about 17% ahead of the first 3 quarters of 2011. Telecom customers again represented about 15% of our total sales in the quarter. Sustained demand for E-M Solution products led to solid performance, but we're now seeing significant slowing as we approach the year-end holiday season.

The Mil/Aero market held steady sequentially and made up about 10% of our sales in the quarter. Demand is modestly down compared to the same period last year and the effects of the potential sequestration are still unknown at this point.

Turning to Slide 8. As we look ahead for the fourth quarter, it will be affected by many of the things I just discussed. We have historically seen slowdown as we head closer to the year-end. I believe this is going to be exaggerated by the current global softening. The timing of bringing Guangzhou back to production levels will obviously affect the revenues and production. Additionally, as we -- as a result of the current slowdown, we will have a headcount reduction at Guangzhou plant, so as to match cost with revenues. Jerry will cover this in more detail.

So as you can imagine, the third quarter and fourth quarter have had a lot of things going on and will result in a weaker fourth quarter revenue when compared to prior years in the third quarter this year.

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

Gerald G. Sax

Thanks, Dave, and the good morning, everyone. I'll begin my comments on Slide 9 or the first table included with this morning's press release. That table compares our reported results year-over-year and sequentially. The net sales for historical periods in this chart are actual, rather than pro forma figures, which Dave covered, so both comparisons reflect top line growth.

As Dave mentioned, our reported gross margin for the quarter was 20%. The silver lining of softer market demand is that we have not suffered last year's pace of cost increases for materials and Chinese employment, and we did not see any meaningful energy rationing over the summer period. So absent the effect of the Guangzhou fire and the planned factory consolidations in China, I think we have a pretty solid quarter and in line with our expectations.

Dave mentioned that we're taking charges for the fire inefficiencies in the period. Our claim for business interruption insurance will not be reported as the upside to that until our claim is finalized and we received a cash. So we will see a mismatch of timing of the expenses in the recovery from insurance.

Echoing Dave's earlier comments, the continuing effects of the fire on the fourth quarter on top of the seasonal and other market-driven demand declines will make for a very challenging fourth quarter.

When we talked last quarter, we projected approximately $28 million of normalized quarterly SG&A cost, excluding noncash stock comp expenses.

Our comparable actual third quarter spend was about $25 million, and in achieving this favorable comparison, we realized some acquisition synergies savings ahead of plan. We cut back on spending in line with the softer market demand and we reduced our charge for incentive compensation.

As I highlighted last quarter, we are still working to finalize determination, the fair values of all of the fixed assets and the intangible assets we acquired from DDi, all in accordance with GAAP purchase accounting rules.

We've made no adjustments to the preliminary estimates that we used in our second quarter reporting. Based on a full quarter's results, compared to DDi's historical depreciation and amortization expense rates, I estimated that the third quarter effect of the valuation write ups of those fixed assets and intangible assets resulted in an incremental $700,000 of depreciation expense and an incremental $1.3 million of amortization expense.

Restructuring expense in the third quarter includes about $2.1 million related to the factory relocation projects in China. About $6.9 million related to the Guangzhou fire and headcount reduction actions taken to compensate for the market conditions that Dave mentioned earlier, and about $500,000 related to the acquisition integration.

Last quarter, we had set our estimate of total 2012 restructuring costs for all matters at a value up to $20 million.

As we neared the conclusion of this year, we still believe that total cost is a reasonable estimate, though we have now re-earmarked part of that total cost for employment terminations related to the softening market conditions.

Dave already mentioned that our adjusted EBITDA was $41.2 million and that our adjusted EPS was $0.27 in the quarter. The reconciliation of those metrics to their GAAP counterparts appears in the supplemental slides of today's presentation materials and on the final 2 tables in our earnings release this morning.

In both tables, you'll note that the restructuring cost that I just talked about are a significant element.

Interest expense and amortization of financing costs were in line with our projections for the quarter. And income tax expense was a bit lower than the recent run rate as a result of incremental costs in the quarter.

Slide 10 reflects our quarter-end balance sheet. And there are only minor changes from our previous quarter. So I'm not spending any time on this call to repeat the changes from our pre-acquisition year-end balance sheet.

Moving on to Slide 11 then, if you compared last quarter's report, you'll note that more than half of our cash provided by operations was generated in our third quarter.

Going down to the cash used in investing activities, the only meaningful activity in the quarter was for capital expenditures. I want to highlight that of the $29 million spend in the third quarter, about $4 million was spent at the sites that we acquired from DDi.

And as we noted in this morning's press release, breaking down that $29 million of total CapEx, about $18 million for our third quarter spend was dedicated to special projects, leaving about $11 million as recurring or maintenance CapEx.

Substantially, all of the cash flows from financing activities on this slide happened in prior quarter, so I'll not repeat my commentary on those activities on this call.

With that, I'll give Dave control of the mic.

David M. Sindelar

Great, thanks, Jerry. I think we're ready for Q&A. So I'll turn it back over to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Matt Sheerin of Stifel.

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

So first question regarding your outlook. You didn't put a specific number on it, but are you looking at basically, every subsector to be down? Because in previous years, you've had some seasonality in Auto. That sounds like that's not going to happen in some other areas, there is some seasonal slowdown. So are you looking at -- are we talking like, what? Mid-to high single digits in most of the segments sequentially?

David M. Sindelar

Yes. The difficulty, Matt, and knowing that's the question, I'll try to be as specific as I can. The difficulty is that we are a little bit dependent on when the equipment comes in and when we can get Guangzhou back up and running. As you can imagine, we had some production in the pipeline, which kind of helped us ship in the last 3 weeks of September, to kind of finish the quarter up. That pipeline dries up and now we're re-shifting and we're shoving product around to each one of the plants to meet our customer requirements. And we're gradually bringing it up week by week, our capacities back up. So it's a little bit different to get -- a little bit difficult to get specific about each one of the markets coming out of Guangzhou. We pretty much hit on all of the markets, so we're shoving some of it to Zhongshan, some of it to Huiyang. And then we're actually producing some boards in North America as well just to keep our customers going. So it's kind of -- it's a more difficult discussion on these specific markets. Now if you look overall, and again, we haven't had a history of giving revenue guidance, but with all the noise going on, the fourth quarter revenue probably could be at or slightly below about $300 million as we go into the quarter. Now obviously, a lot of that has to do with the production that is kind of getting rebuilt and it should be temporary. But it's kind of -- at this juncture, kind of the best look as I can see it.

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

Okay, under $300 million. Okay, and then just on the Automotive, it sounds like there's some share shifts. You talked about that some competitors bringing capacity back online. We also talked about, and in the press release about some customers basically, going to competitors because of your -- because of the price increases that you put in 1 year ago. So talk to us about share shifts. How much of that business is gone? How much do you expect to get back? And whether you need to be more price competitive to get some of that business back?

David M. Sindelar

Yes. As you mentioned, a lot of those decisions were made over 1 year ago and are now kind of coming up on a year-over-year comparison. And it's always a balancing act between what you can make a decent margin for versus what you want to put capital and invest capital, and we've been pretty effective in keeping our plants pretty full. And as you can see from our capital spend, we've been pretty good with the capital spend as well. So I don't -- my honest opinion is, is that right now, I don't think we need to be overly aggressive on the price side. And we're kind of going through a bit of a transitional period. We had a couple accounts that for whatever reason, because of more long-term contracts, the pricing was set and it was basically, I guess, more of a -- as much of a sticker shock than anything else than what we were trying to get from a price perspective. But as we go forward, depending on the vibrancy of the market, depending on our ability to fill-up our facilities, we will -- we'll look at price, but that usually is the last thing we look at just because of the nature of our product, which typically goes into high reliability, hostile kind of application environments. So we think the pricing is warranted.

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

Okay. And then on the SG&A, Jerry, you talked about the reasons behind that $25 million number, which was better than expected. Sounds like there's a couple of one-offs there. So should that creep higher a little bit next quarter? Or some of these synergies that are kicking in, is that going to help and get it down back to 25-or-so?

Gerald G. Sax

I think, that at least for the near term, I expect it to stay around that $25 million level. There's nothing in what we're seeing on the top line that would suggest that it's time to loosen the purse strings again. As I said, it was a synergy related and reduction of other costs. We are hopefully not going backwards on the synergies as we move forward. So I think that's going to be a permanent saving. And I've still got a pretty tight grip on what we're spending. It may be up a little bit, just based on timing and we'll be flying around doing the budget reviews and things as we move through the end of the year, just kind of seasonal related things, but I don't expect it to bounce back to the $28 million that I was looking at last quarter.

Operator

Our next question comes from Jiwon Lee of Sidoti & Company.

Jiwon Lee - Sidoti & Company, LLC

Just I think it might be helpful in terms of your near-term outlook, to kind of look at the DDi side. I'm wondering whether your sequential revenue expectations fare to be down as much as the rest of the business? Or is that really the Automotive, I&I and the Telco hurting your sequential revenue view?

David M. Sindelar

No, the DDi kind of legacy, DDi revenue has been holding pretty stable. And most of our weakness quarter-over-quarter, year-over-year is coming from either, kind of the overall demand of the production in China. The fourth quarter is going to be affected. As I mentioned in my comments, the weakening in the wind power sector because of the tax credits, so you're going to see that come down. You're going to see the Automotive being a little bit weaker and you're going to see the effects of the fire, just not being able to produce as much as we had in the past. So hopefully, and again, I'm not a predictor of what the U.S. government's going to do or not do from a tax standpoint, but hopefully, that will kind of stabilize as we move into 2013. The fire should stabilize and then we just get back to the normal ups and downs of the various markets.

Jiwon Lee - Sidoti & Company, LLC

Okay. And could you talk about how far below 1 your book-to-bill ratio was?

Gerald G. Sax

Our book-to-bill in the quarter was about 0.9.

Jiwon Lee - Sidoti & Company, LLC

And what was it quarter ago?

David M. Sindelar

It's about the same.

Gerald G. Sax

About the same. Although, there was -- Jiwon, there was a little bit of confusion by de-booking some orders at Guangzhou and rebooking them at our other factories. I would not say that our 0.9:1 this quarter was as clean as I would like to see it. Directionally, it's accurate, but there was a lot of noise at the end of the quarter.

Jiwon Lee - Sidoti & Company, LLC

And just wonder, what the near-term gross margin profile would look like, in conjunction with kind of the revenue outlook that you put out?

David M. Sindelar

Yes, I think with the -- with the Guangzhou plant and the shifting around and the inefficiencies created as a result of that, we ended the third quarter with about -- with 20% gross margins. We could probably see a 1 or 2-point degradation in the fourth quarter as we bring the production back up and kind of get things balanced kind of in that range.

David M. Sindelar

And as I mentioned in my comments, Jiwon, we have to -- under GAAP rules, we have to report all of those expenses in the period, even through, we believe some of that is recoverable under a business interruption claim. The expenses hit now, the upside of the claim will be out in the future periods.

Operator

Our next question comes from Steven Fox of Cross Research.

Steven Bryant Fox - Cross Research LLC

Just trying to understand the demand environment a little bit more. You guys talked about seeing some significant slowing on Telecom and, I guess, if I ex out some of the company-specific issues on Auto, there too. What give you confidence that things stabilize from here in Q4? Is there something you're seeing in sort of the order patterns in those 2 areas that would suggest -- the year, next calendar year to get at least, represent the bottom, and you're not going to continue to see push outs? Any color there would be appreciated.

David M. Sindelar

Well now, I think the -- and I -- a lot of different things that I'm trying to kind of organize within my head. A lot of things have happened in the fourth quarter as I mentioned in my comments. I mean, we had the full shutdown of the HZ facility, we had the fire, we had, overall, total demand on the Automative side is weakening and then we have our normal kind of -- it seems like it's a repeat of the old story in Telecom. As we get into the fourth quarter, everybody starts pulling back and they don't seem to spend nearly like they do throughout the year. So we're having this convergence of all of these things, kind of hitting us at once. So as I kind of go through and pull those things out, the fire is a onetime event, the plant shut down is a one-time event. And it's hard to say, when you announce the plant shut down and you shift production around, whether customers get concerned, whether the transfer is going to go right, were they increased bookings, whether we build safety stock, they build safety stock. So I think there's some of that built-in to our fourth quarter numbers. Now, so -- and then, the Telecom is a typical fourth quarter kind of a phenomenon, at least it seems that way for the last 3 or 4 years. So if you kind of take those temporary things off, then you kind of hit into the overall economic environment. And I guess, I'm not planning for a real vibrant 2013. I mean, we're kind of going through that planning process now and our budgeting process will probably end sometime mid-to end of December, to make sure we have as much information as we can from our customers. My personal opinion as I look out in the overall economy, I mean, Europe is struggling, U.S., there's pockets that are doing well and there's pockets that aren't. So I'm kind of looking at the United States as kind of being just stable. And then as you look at the Asian markets, how ever Europe and U.S. goes, in my opinion, that's pretty much how China goes. So to me, that's kind of -- I think, from a planning standpoint at the moment, we may wake-up in a week and all of a sudden, we have this vibrant recovery and everybody's running and buying and booking orders. But I'm not sure that I'm currently seeing that. So I'm not seeing the falling off a cliff, I just don't see any real positive strength momentum going forward.

Steven Bryant Fox - Cross Research LLC

That's helpful. And just to be clear on sort of the end of the calendar year slowing that you discussed, I mean, are any of the Auto OEMs talking about plant shutdowns and -- the last couple of weeks, from a Telecom demand standpoint, are people sort of anticipating limited activity?

David M. Sindelar

We have, for whatever reason, for about the last, like I said, 3 or 4 years, all of a sudden somewhere about November, December, the Telecom guys seem to wake-up and they say, "Oops, let's not buy it until next year." That trend seems to be happening again. From the Automotive to plant shutdowns, I haven't heard yet of a lot of plant shutdowns. I've been reading the papers and this plant shut down and that, they're going to -- slowdowns and different things but nothing of any significant shift.

Operator

Our next question comes from Franklin Jarman of Goldman Sachs.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

I guess, just to think a little bit more about parsing out the 4Q revenue discussion. You talked about a $300 million number for 4Q and that's down about 10% on a year-over-year basis and -- I'm sorry, on a seasonal basis, and when I think about your prior seasonality, it's been sort of like down low single-digits heading into 4Q. So is there sort of an amount that you guys can quantify that specifically related to kind of a weaker demand environment versus normal seasonality, versus what's going on with regards to the plant issues in China?

David M. Sindelar

Yes. And as you can imagine, when we look at our order book, it's kind of like a scrambled egg. We only get to see it when we go in and kind of make some educated guesses. But I -- kind of -- and obviously, nothing works out this perfectly, but it's probably 1/3, 1/3, 1/3. If you look at Guangzhou as a facility, Guangzhou in the first half of the year is probably on a run rate to do about $300 million worth of revenue. And when you take that out, or you take a big piece of it out and you're running at 20%, 30%, 40% of your normal capacity, it has the ability to kind of kick you in the shins. And now -- and what that does is, we don't accept an order unless we can confirm a delivery date. So if those orders are coming in to Guangzhou where they've been coming in to for the last 5 years, and we can't ship the production to one of our other facilities, we don't accept the orders. So when you look at our book-to-bill, the book-to-bill is not only -- is not necessarily indicative of the actual demand out there. It's the actual demand that we can produce. So again, to try to get all of those pieces and stack them up and kind of come to you and say, "3.2% of this, and 1.8% of this." It's really difficult. But kind of generally speaking, it's the normal year-end stuff. We've seen some weakening in the overall market. And then the fire is -- we're right now, while I think our team has done a marvelous job of meeting customer demand and making sure that we're hitting all the hotspots, we're sitting here today with probably 30% of our prefire capacity in Guangzhou. So that's the kind of the stuff that we're dealing with, and that's going to be affecting our bookings and eventually, our billings so...

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Got it. That's very helpful. And so just talking a little bit more about the fire, you indicated that you guys are waiting for some additional equipment to be shipped in. And if you're at 30% capacity today, of sort of where you were prefire, is there any type of trajectory you can help us think about in terms of getting back closer to full capacity there?

David M. Sindelar

Yes. We -- And I think we probably tried to touched on it as specifically as we could. By the end of this year, we should be kind of at prefire production levels. So we are -- and again, that's going to be dependent on equipment coming in, cleaning things up, installation, tests and doing all the different things. So it is a -- obviously, a fairly aggressive plan. But we should be, by at the end of this year, kind of at preproduction levels. So between now and the end of the year, we should gradually -- every week, we've got plans of bringing in more equipment on, more equipment installed and capacity coming up. So by the time we get to the first quarter, we should be pretty much where we were.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Okay. So then as I think about 2013, in 3Q, you called out sort of a $5 million to $7 million revenue impact. 4Q, you're sort of implying that it could be $10 million to $12 million impact. So as I think about 2013, all else being equal, you should potentially have, we could think, sort of a $20 million revenue tailwind, just as you're back up to speed. Is that fair to assume?

David M. Sindelar

Yes, I think, that's true. And again, I don't want to continue to give you qualifications and different things. But just as -- to make sure that you understand, first quarter is the quarter where we have Chinese New Year, which is -- which has a little bit of a blip. And I mean, it's a -- and I don't want to make this seem like it's a Rubik's Cube, but I just want to make sure that you keep those -- keep our normal seasonality in mind as you go off and do your estimates.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Got it. And then, I guess, just thinking about the insurance proceeds, is there any type of number you can help us think about in terms of what the amount is that you're seeking to cover the damage, as well as the lost revenues, and what the timing on that recovery would be?

David M. Sindelar

At this juncture, it's probably too soon to completely know and that we're out -- it's one of those -- if you describe it, it's very simple but when you get into the details, it becomes very complex. You try to figure out what are the costs, and what are the -- we're taking production and we are moving it from Guangzhou to meet our customer needs, and we're moving into Zhongshan. And if inefficiencies as a result of jerking their production schedule up are going to be part of this or not, we're kind of go on through it all. From a pure capital standpoint, I don't think the write-off of -- the cost associated with the damaged equipment is not that significant. And it really kind of just comes down to the plant being inefficient and shut down. So we said in the quarter, it was about a 1% effect related to the fire, so that -- mathematics would tell you that was about $3 million, $3.5 million. It was down for basically, the month of September. So whether or not we can equate that through the business interruption into a claim, I guess I would say, I would hope I can do that. But again, insurance is a -- and then the timing of it is -- it could be 6 months, it could be 18 months depending on how hard each side decide to argue. But it is fairly lengthy, lengthy process.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Got it. That's very helpful. The last question I have for you guys was just thinking about the cash flow, you talked about, obviously, a more challenging quarter in 4Q and not a lot of visibility into 2013. And if we're in sort of a flattish environment for 2013, how do you think about: Number one, working capital in 4Q in terms of either build or use and into '13, as well as secondly, just your CapEx plans over the next 6 to 12 months?

Gerald G. Sax

In terms of the working capital, I think, historically, we've been very disciplined in making sure that we harvest the cash as business goes down. And in my comments, I noted that more than half of our total cash flow from operations, so far through the first 9 months, happened in the third quarter, and a lot of that, as you can imagine, will come from working capital. As we see business going down, or as we see business go up, we invest modestly in working capital. As we see it come down, we make sure that working capital turns into cash on our balance sheet. So that's a long roundabout answer to I expect positive cash flows from working capital for the fourth quarter. In terms of CapEx, I noted in my comments that we've been on sort of a $10 million, $11 million, $12 million recurring or maintenance CapEx run rate. I anticipate that we'll continue that. The special projects that we've been working on, in particular, the capacity expansion at the Zhongshan facility is still on pace. A lot of the equipment that we ordered will be delivered in the fourth quarter and so I anticipate that, that won't slow appreciably from where we've been over the past couple of quarters, at least. As we go into '13, we still have a sufficient time to make decisions whether to pull back or continue to invest. Today, we're probably more cautious than aggressive and so, I'd probably lean closer to our maintenance CapEx levels for 2013 with an opportunity to chase some capacity if upside occurs.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Got it. Just to be clear, I mean, maintenance CapEx, you said $11 million per quarter. So I mean, if you're thinking about maintenance CapEx for '13, that would effectively be about $55 million below what you spent in 2012, and maybe, you had a little bit of capacity. But is it inconceivable for me to think that CapEx could be back down in like, the $60 million range for 2013? Does that sound about right?

Gerald G. Sax

That's one possible future. And yes, it could be in the $50 million $60 million range if the whole world continues to just squander.

Operator

[Operator Instructions] I'm showing no further questions from the queue at this time. I'll hand the call back to the management for closing remarks.

David M. Sindelar

Well good, well thanks, everybody, for taking the time and effort to dial in and listen and ask the questions about Via. We really do appreciate your support. We look forward to talking to you in February. Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.

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