Benchmark Electronics, Inc. (BHE) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Benchmark Electronics First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Lisa Weeks. Please go ahead.

Good morning, everyone. I would like to extend a warm welcome to the Benchmark Electronics Earnings Call for the First Quarter of 2014. I am Lisa Weeks, Benchmark's Vice President of Strategy and Investor Relations. Thank you for joining our call today. Earlier, Benchmark issued a press release describing our financial performance for the first quarter of 2014. If you did not receive a copy, you may obtain it from the Investor Relations section of our website. This call is being webcast live and a replay will be available on our website following the call. Gayla Delly, our President and CEO; and Don Adam, our CFO, are with me here this morning. After their prepared remarks, we will open up the call for your questions. For your information, Gayla and Don will be using a slide presentation, also available on our website. The company has provided a reconciliation of our GAAP to non-GAAP measures in today's press release, as well as in the appendix of the presentation slide. During our call today, we will be discussing forward-looking information. As a reminder, any of today's remarks that are not statements of historical fact are forward-looking statements and involve certain risks and uncertainties that are disclosed in the Safe Harbor section of our earnings release and SEC filings. Actual results may differ materially from such statements and Benchmark undertakes no obligation to update any forward-looking statements. Please turn to Slide 3 in the presentation deck. And I will turn the call over to Don Adam, Benchmark's CFO.

Thank you, Lisa, and good morning to everyone. I appreciate you joining us for today's call. The first quarter was an excellent start to the year for Benchmark. Our continued focus on the growth opportunities in the nontraditional markets and our operational excellence is serving us well and resulted in a good quarter. We generated revenues of $639 million, which were within our guidance of $630 million to $660 million. As expected, revenues were down in the first quarter due to normal seasonality. Also, we saw a level of softness somewhat greater than forecasted in the computing sector. Quarterly revenues increased $97 million or 18% from the same quarter last year. Organic growth in the first quarter was up 6% year-over-year. Our net income was $19 million for the quarter compared to $11 million last year. Our non-GAAP earnings per share were $0.35 versus $0.22 in the first quarter of last year, a 59% increase. Our GAAP earnings per share were $0.35 in the first quarter compared to $0.21 in the same quarter last year. As planned, SG&A expenses were down $1 million sequentially from last quarter, with initial progress made on the integration of our acquired sites. Our non-GAAP operating margin was 3.6% compared to 2.7% during the first quarter of last year. This increase shows that the leverage in our operating model and evidences the improvements we are implementing. Our strong productivity improvements, cost controls and the favorable nontraditional mix contributed to earnings above our guidance. I would also like to highlight that the net impact of our restructuring and other nonrecurring items was not significant in 2013 or 2014. The first quarter non-GAAP effective tax income tax rate was 16%, which included a $1.2 million discrete tax benefit for China. Our expected tax rate is 20% to 21% for the second quarter. The diluted weighted average shares outstanding for the first quarter were 54.3 million. Please turn to Slide 4 to review our revenue by industry sector. Our computing revenues represented 20% of first quarter revenue. Typical -- computing typically has the highest level of seasonality when comparing Q4 to Q1. We saw this again with a 47% quarter-over-quarter decrease, which was slightly softer than we expected. Year-over-year, computing was down 5%. Revenues from our largest customer were 10% of total revenue in the first quarter compared to 20% in the fourth quarter. This is most impacted significantly by seasonality and softness in the computing hardware market and is not attributable to share loss. Industrial Control revenues were 29% for the quarter. This was down 7% sequentially from the fourth quarter, which is typical for this sector. Year-over-year, Industrial Controls were up 19%. Telecom revenues were down 6% seasonally from the fourth quarter. As we discussed previously, our fourth quarter Telecom revenues benefited from a delayed program ramp. Telecom revenues were up 22% year-over-year. Our Medical revenues were flat quarter-over-quarter and up 5% from the first quarter of 2013. Finally, Testing and Instrumentation revenues were up 36% sequentially and notably up 96% year-over-year. Our strong performance in the first quarter was driven by new program ramps. Note that one customer has been reclassified from Industrial Controls to Testing Instrumentation industry sector for each period presented to better reflect their end market participation. We are pleased that our focused expansion in the nontraditional markets is working. Now turning to Slide 5. Our cash balance at March 31 was $394 million, $58 million of this was in the U.S. During the quarter, we generated $61 million in cash from operations. Capital expenditures were $14.6 million and depreciation and amortization expense was $10.8 million. With our recent and planned capital expenditures, we expect depreciation and amortization expense to increase to approximately $11.5 million in the second quarter. To meet the increasing demand in the Americas, we have expanded the capacity of our Guadalajara operations. A portion of our CapEx in the first quarter, as well as our planned capital spending, is to support this expansion. We anticipate capital expenditures for the full year of 2014 to range between $40 million to $50 million. Our accounts receivable balance was $465 million, a decrease of $95 million from the last quarter, and our accounts receivable days were 65. Inventory at March 31 was $443 million, an increase of $47 million from the last quarter. Inventory turns were 5.3x. Inventory has increased, as we have invested to support new program ramps expected in Q2 and into Q3. In the first quarter, we repurchased 196,000 common shares at a cost of $4.5 million. And have $42 million remaining in our authorized share repurchase program, which we expect to complete over the next 12 to 18 months. Our share repurchases for the quarter were somewhat tempered based on working capital and CapEx investments to support our organic growth. Please turn to Slide 6 to review our guidance. We expect revenues to range between $665 million and $700 million. At the midpoint, this represents an approximate $75 million increase over the same period last year. Diluted earnings per share, excluding restructuring and integration costs, are expected to range from $0.35 to $0.40. Estimated integration costs of approximately $2.5 million are excluded from our guidance. At the midpoint, the guidance reflects a 3.8% margin as we continue along the path to achieve a 4% margin target in the second half of 2014. Now, if you will go to Slide 8, I will turn the call over to Gayla.

Thank you, Don, and good morning, everyone. In addition to our strong operational performance, I am pleased to share with you another quarter of strong bookings. During the first quarter of 2014, our bookings included 38 new programs, with 8 of these being engineering projects. These programs have an estimated annual revenue run rate between $135 million and $165 million. Our bookings come from new outsourcing opportunities, as well as new program wins with existing customers. Many of these have come from our targeted nontraditional market efforts. We are continuing to fill our pipeline with new opportunities resulting from the strong design and manufacturing solutions that we offer to our customers. Now let's turn to Slide 9, where we will discuss our perspective on the markets we serve. Beginning with computing, we expect to see low single-digit growth for the next quarter. Within this sector, we see a mixed outlook across server, doors and high-performance computing with softness in existing products being offset primarily by new program ramps. We currently expect computing to remain around the 20% level of our revenues for 2014. We see over 20% growth in industrial controls for the upcoming quarter. We have new programs ramping in industrial automation and controls for the transportation, refining and building infrastructure industry. We also see strength in commercial aerospace. In medical, we expect Q2 and the subsequent quarters of 2014 to remain stable and see a return to growth in early 2015 based on the estimated timing of regulatory approvals being received for some of our new program ramps. In test and instrumentation, for the second quarter, we expect revenue to be down in the high single digits after we ramped several new programs in Q1. Overall, in test and instrumentation, we see some level of moderation in new order pattern. In telecom, we expect mid-single digit increases in demand. Again, in this sector, growth is coming primarily from new product introductions and new program wins supporting the cellular infrastructure and networking space. In summary, please turn with me to Slide 10. As Don indicated, Q1 was an excellent start to what we expect to be a very good year for Benchmark. We are maintaining and growing our share in our targeted market while continuing to improve on our overall profitability. In fact, we expect year-over-year growth in 4 of the 5 segments we serve. Our operating margin results evidence the improvements we are making. We expect to benefit from further leverage in our operational excellence activities and from the integration of our recently acquired sites and the implementation of our operating systems. We have been through some very important transformational periods while achieving great strides in the diversification of our revenues and maintaining the focus on profitability. For Benchmark, this is our time. Growth opportunities in the nontraditional markets are outpacing that of traditional markets. Our heritage and our expertise developed over the years uniquely positions us to win in these markets. We have the infrastructure, the talent base and the business systems to be the solutions provider of choice. To reiterate, our top 3 priorities remain portfolio management, operational excellence and customer focus. We have refined our focus on portfolio management. In this regard, we have intensified efforts in higher growth areas and outsourcing sectors in the nontraditional markets of industrial, medical, test and instrumentation and certain segments within the telecom market while continuing our long-term commitment to serve the more complex needs of computing customers. Some of our customers in this sector were, in essence, the sponsors and pioneers of the outsourcing industry. For the last several years, we have increased our investments and expanded our capabilities in design services, precision machining and complex assembly, as well as increased our microelectronics capabilities. Each of these areas have allowed us to expand the service model we offer in support of the growing need for outsourcing solutions for our customers and targeted markets. We are pleased with the results of our efforts to date, to grow the nontraditional portion of our portfolio. In fact, for the first time, this portion of our portfolio exceeded 50% of our quarterly revenue. Our second strategic priority is operational excellence. Achieving the growth in our markets is made possible because of this priority. Operational excellence is the key to driving consistent results and operating margin improvement. Last year, we supported a record number of successful new program ramps, and I am challenging our team to beat that number again this year. Another aspect of our operational excellence involves ensuring our acquisition integration plans are effective and efficient. We are on plan for our integration activities. And in some areas, we have accelerated our integration plan. Against the backdrop of many moving parts, our teams are continuing to execute on our initiatives, gain efficiencies and identify yet further opportunities for improvement. True evidence of having a continuous improvement culture. Benchmark has always been a strong operator with a keen attentiveness to cost management. Our teams remain committed to this aspect of our culture. This is simply a part of our DNA. Importantly, our team's zest for operational excellence is driven by a passion and commitment to the best customers, our customers, which brings us to our third strategic priority customer focus. When I meet with customers and hear their story, I hear consistency and the challenges and opportunities they face in their diverse and dynamic end markets. These very diverse and dynamic end markets have a common ground of cost headwinds, stringent quality and delivery requirements. To manage these, our customers are seeking partners who can assist them in managing the complexity of their ever-changing business model, and we are excited about helping our customers win in their chosen market. We remain committed to delivering solid outsourced manufacturing and design solutions to our customers. The investments in our enhanced customer focus programs continue to manifest results in increased bookings and improved realized profitable growth. Simply stated, our strategy is working and we remain well on path to achieving our near-term 4% operating margin targets in the second half of 2014. Benchmark continues to deliver consistent and reliable results, and we are well positioned to meet the challenges in our industry. We currently have an impressive pipeline of opportunities and look forward to the upcoming launches to support our new customers. In closing, I want to recognize and thank our Benchmark employees who are dedicated to our customers and our success. Our team is invigorated and ready to move forward with our customers jointly, aligned to meet the challenges ahead. We remain steadfast in our commitment to them and thank our customers for putting their trust in our solutions. And we also want to say thank you to our shareholders for their continued trust and investment in Benchmark. And now, operator, I'd like to open the floor to questions.

[Operator Instructions] We have a question from the line of Jim Suva with Citi.

A couple of questions for you. If I read your press release and your financials and the presentation correctly, I think it looks you've got about $58-ish million or $60 million of cash in the U.S., and the rest of it would be international. Benchmark has always had the situation -- a good situation, a lot of extra cash or a lot of cushion. Can you help us understand the planned allocation or use? It seems like a lot of that is international. Would you be looking to repatriate that back to do more things in the U.S.? Or I guess the tax implications within that may make it less favorable, so would you be looking a lot of the international cash for acquisitions? Or how should we think about it? Because it seems like it tempered the amount of stock buyback you could do this quarter because you didn't want to repatriate back into the U.S. Or am I just reading that wrong?

So Jim, our first and ultimate goal is to continue to invest in our operations and our possible growth initiatives internally, and that is in support of growth. Second, we continue to look at M&A opportunities, clearly putting that cash to use overseas. In and overseas acquisition would be very advantageous. And third, as you said, the opportunity in a most cash-efficient manner repatriate or have funds available to do additional buybacks would be the third area where we would look at. We do have $42 million remaining and we do have cash in the U.S. And this past quarter, we were really focused on as you saw -- we spent over $14 million on CapEx supporting growth, as well as our investment in inventory. So we're really focused on the organic growth opportunities we had in front of us this quarter, and we'll continue to execute on our buyback and then look at the next level plan that we need to put in place accordingly. But to your point, we would look for the most advantageous method to repatriate cash if we were to bring cash back.

Great. And then my follow-up question would be regarding your organic expansion. It sounds like things are going quite well from your bookings rate and things like that. Or I assume a lot of your expansion would be outside the U.S. such as Guadalajara. And so if that's the case, I assume in Guadalajara, and I don't know the tax rules, but you're able to use international cash in places like that as opposed to the need to take cash from the U.S. out, is that correct?

Yes, sir. You are correct.

We now have a question from the line of Amit Daryanani at RBC Capital Markets.

Yes -- sorry. I guess, starting off, just looking at the working capital working metrics. Looking at the inventory numbers, it was up quite a bit, I think, sequentially year-over-year. Could you just talk about what drove that inventory spike? And if we should actually help or we should see that inventory dial down over the next few quarters which would actually help your cash flow generation for the rest of the year.

We did have a significant level of inventory increase associated with supporting our new program ramps, and are currently flowing those ramps through the revenue now. And you see the increased revenue outlook that we have provided, that is a primary reason for increase, currently. As we go through the remainder of the year, we would expect that the increase would not be at that level. But do expect that, as revenue increases, we would continue to have investment and inventory to support it. Clearly, going from the first quarter to the second quarter is our largest step up over the last few years.

But I guess, Gayla, the inventory tone should improve and get back to that 6, 7x range from was it a 5 that I think you guys did in March now?

Absolutely. I mean, clearly, it's impacted not only by the ramp that we have coming in Q2, but also by, clearly, the calculation given the one quarter reduced level of revenue that we see in Q1.

Got it. And just as follow-up, the computing segment was down a lot more than even what you guys saw last quarter -- last year in Q1 and versus your historical trends. It seems it was really driven more so by a biggest customer versus the rest of it. Could you just maybe talk about like, what do you see is going on there? And what's the comfort that -- I realize you guys are not losing share as you guys mentioned with the largest customer, but what's your comfort that you've hit some level of stability and you won't see these revenues consistently decline for the rest of the year?

We had, as we announced last quarter, an end-of-life program that would -- impacted us in a year-over-year comparison. So we had a program that was about $30 million, and so that is a significant impact in the numbers comparison. Outside of that, we do see that the general marketplace in computing is challenged. But we believe, based on the programs we support, the customer relationships we have announced that they have that we will continue to see overall computing at about a 20% level.

We now have a question from the line of Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Your testing and instrumentation business was particularly strong this quarter effectively and doubling year-over-year, and I know you're guiding for high-single digits down sequentially. But again, year-over-year, it should be double. And I'm just curious, I guess, if you could dig into that a little bit, what specifically is driving that? And how much of that is organic? Because I think CTS is probably influencing that to a degree.

No, most of it is organic. And as you recall, we've been investing in that market space and making sure that we had the capabilities and the geographic footprint to support that marketplace and have seen the benefits of those investments really begin to ring through. So we do and as well it is, it is a stronger marketplace in test and instrumentation. So I believe our investments are paying off. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And then just on the new wins. You guys have been pretty consistently in that $150 million range per quarter, give or take, which is comfortably up from the last couple of years. It sounds like you're pretty confident that you can sort of sustain that level of wins. I was just curious if that's the case, if you're still confident, you can maintain at these levels?

Yes, I am pretty confident about. Although I do want to note that it does ebb and flow, it's not always a quarter-on-quarter level of stability or up and to the right. It does have -- it is impacted by timing of decisions. And therefore, we would expect it from time to time to have variability. But in general, the funnel size we see and the focus we have on our business development efforts is really keeping us around that $150 million. And as you noted, that is a good level of increase as compared to some of our prior year win level. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And just a final one on computing. I know you said you expect it to be around 20% of revenue for the year. What would you sort of anticipate your largest customer would be within the context of that 20%?

I don't have guidance specifically on that, Brian, simply because I don't think that we get a full year credible guidance that I would want to lend to -- for any given customer, not just our top customers, but any customer. We see the blend overall. But I don't think in that space specifically, anyone would feel very comfortable giving guidance for a full year out or 3 more quarters, if you will.

We now have a question from the line of Todd Schwartzman from Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: [indiscernible] Given the recent weaknesses in computing, which is kind of maybe if you would discuss other factors too, what are the gross margin puts and takes to consider when modeling Q2 and the rest of the year; in fact, relative to that 8% number in the first quarter?

Generally speaking, Todd, what you typically see is the computing sector will generally have an overall margin less than the average, and then the nontraditional markets are typically a little bit higher. So you saw that benefit this quarter in terms of the overall operating margin. If you look at our guide, we were probably -- midpoint was about 3.3%, with the favorable mix in computing only being 20%. We're at the 3.6%, so it should drive the margins up with less computing.

As you see in our Q2 guidance, our midpoint of guidance is about 3.8% for next quarter of our operating margin. Todd A. Schwartzman - Sidoti & Company, LLC: Are there additional cost synergies to be realized with respect to CTS? Just kind of looking at the OpEx number.

Yes. And that's -- those are -- those synergies are incorporated into our guidance. Todd A. Schwartzman - Sidoti & Company, LLC: Got it. And what was the earnings contribution from CTS for the quarter?

In terms of the overall margins for the CTS, the acquisition, it was pretty consistent with our base level of existing operations. It was not a drag on the margins for the quarter. Todd A. Schwartzman - Sidoti & Company, LLC: Right. What about new outsourcing opportunities? Could you maybe -- could you give us some color on the industries if there has been any? Or do you expect to see any concentration where these might be clustered?

We believe that the industrial sector is the one that's showing the most growth opportunities. This industry, as a group, is probably newer to outsourcing. And as they see the cost pressures, the success factors of the non -- of the traditional market, as well as affording them the benefit of a geographic footprint that allows them to gain access to new customer bases, I believe those are the factors that are driving the growth in industrial outsourcing opportunities, and we do see that. I don't know if that's a closure [ph]. Because clearly, that is a very diverse industry in and of itself. And as I've said to in my prepared comments, it runs the gamut from the oil and gas infrastructure, transportation. It really has a very broad spectrum of industries within industrial that is served. And clearly, we're seeing the focus on outsourcing being an important area for them to drive some of the synergies and support the profitable growth initiatives that many of those customers have.

We now have a question from Sherri Scribner from Deutsche Bank.

This is Krippi Scheppi [ph] calling on behalf of Sherri Scribner. I actually just wanted to get an understanding again, going back to compute. So last quarter, the company saw an upside from compute. Whereas this quarter, you've noted some softness driven mostly by seasonality, but you also mentioned the computing hardware market. So I just wanted to get an understanding of what are you seeing in the hardware market. What kind of trends, customer confidence and things like that?

I would say we see consistent with what you read in the marketplace that there are some good opportunities with some new product introductions and there are also challenges likely brought about by things such as cloud computing and data rooms that are really providing alternatives to some of the traditional computing solutions that large entities selected. So I believe that the marketplace demonstrates some challenges probably on -- specifically on the hardware side. And there are obviously some software solutions being brought to the market that probably further challenge the hardware. But given that, I believe, the focus on driving very strong solutions and identifying opportunities for growth within our computing customer base is very strong, and they are investing heavily in R&D to ensure that they have very good participation in this space going forward.

Okay, great. A follow-up question. In the past you've indicated long-term plans to reach a 5% op margin. Is this still you'd go? And if so, then what revenue levels do you consider necessary to attain that growth?

We've always committed to gaining the 4% as our near-term goal. We believe that committing to a goal that far exceeds what we are currently achieving is just is -- is not relevant. So our near-term goal has been 4%. As we achieve that, we would tick it up once again in the vein of continuous improvement. But I would say that we would first move towards a goal of 4.5%, 4.5%. I don't believe we have held it out there. Clearly, internally, we want to drive to 5%. But to guide to expectations of that in the near-term when we haven't yet solidified our 4%, it doesn't seem like a real expectation to set forth. So our expectation that we provided is to get to 4% first by the second half of this year. And after we achieve that, we'll be looking towards guiding and looking towards moving that needle forward.

We now have a question from the line of Sean Hannan from Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Just from a very broad high-level perspective, I want to see if I can get your perspective here, Gayla. I think over the course of the last week or so, we've heard some fairly decent reports from some of your competitors and there have been some aspects of encouraging commentary that we've received from some of the management team in terms of characterizing the state of the environment for their business in EMS right now. It seems that there are a number that are feeling there is some cautious optimism and also slightly modestly improving tone from customer bases. Can you lend your perspective on that, not only what you're seeing within your business but your perspective on what you're seeing within the EMS space?

Thank you, Sean. I think that's an excellent question. Basically, we do see some modest improvements in overall demand and outlook with some nice and some stable improvements and the messaging and the forecast that customers are giving. As you indicated, I think that, that is being put in moderation. It isn't a level of exuberance, but it is some forward movement and some greater confidence as customers introduce new products and new solutions. They are gaining some ground and are meeting, and in some cases, exceeding their expectations. But it's still mixed. As we've said, that's, in some industries, you're seeing more strength and yet you're still seeing challenges as we noted in computing. So I would say it's clearly not across the board. But overall, I would say it's more positive than negative at this point in time. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay. And just kind of a follow-up on an aspect of that, you've mentioned and talked to some of the challenges related to computing, some of those are environmental. However, from your viewpoint, you guys are still looking at maintaining kind of 20% as a piece of your mix. So if you're growing your business from a dollar perspective, then you're still going to have perhaps an opportunity to grow that business so it shouldn't be a major headwind. Or is there anything that I'm missing there?

Actually, you're correct. And every Q1 -- well, not every, unless there are new program ramps that stand against the headwinds of a normalized seasonal Q1 impact, computing is down and down dramatically over Q4. The only time we've seen that not to be the case is when there's a new program launched in Q1. Now -- so we do believe Q1 is kind of the seasonal low point in the year, and expect to see kind of the return to a more normalized pace of revenue for the remainder of the year as well. We do have some new programs in that area, so we do see that coming back to a more normalized level. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay. That's helpful. The last question here for a moment. Can you maybe discuss a little bit with us what you've learned so far in terms of the CTS acquisition? What this is perhaps doing to your visibility model versus what you anticipated when you entered the deal. Now -- so I think you had indicated this is now margin-neutral with the rest of Benchmark and want to get a better understanding of how that can continue to progress through the year.

We're very pleased with how our acquisition and integration activities are progressing. We are very excited about some of the team members we added, as well as the expansion of the footprint into some geographies that we were not represented in previously and the industries they serve that are very complementary to the industries that we see huge growth opportunities in. And so, overall, very excited and pleased to have them on board. And clearly, a part of our overall Benchmark family now and working towards supporting our profitable growth initiatives. So the integration has gone very well.

We now have a question from the line of Wamsi Mohan from Bank of America.

Gayla, I was sort of struck by your comment on increased outsourcing in the industrial space. Maybe you could share some color in terms of what you're seeing. Is it sort of increased confidence at existing customers and they're outsourcing more deals? Or is it sort of more outsourcing from folks who haven't done it before? And are the sizes of these deals, if you look over the last few years, are the sizes increasing, or is it the number of deals increasing but the size of, actually, of those deals getting smaller?

Great question, Wamsi. We are seeing more and more sizable opportunity in these marketplaces. And what I believe is, in that zone, it really has to do with 2 or 3 factors. One, it has to do with the growth opportunities that they see in the global marketplace, that they may not have the right manufacturing footprint to support. Two, the cost pressures that are out there in marketplaces that may have been able to enjoy margins heretofore that did not compel them to outsource which, again, is exacerbated now by the need to be in a different geographic footprint, so it compels them to put brick-and-mortar in the ground in locations where they may not exist today. And then third, it is absolutely witnessing the success that others have had in outsourcing, that kind of puts them over what I would consider the fear factor of not being able to outsource. And that has to do with the systems, the tools processes that we have in place that are supportive of these more complex businesses, more complex industry of being successful in outsourcing. So yes, we see more opportunities. Yes, they are larger in size and it has to do with kind of arising from the infancy and sticking their toe in the water of outsourcing, if you will. But it's becoming more common in some of those industries to entertain outsourcing.

Don, I was looking at the historical restatements here on the revenue re-class, and it looks like those, maybe some movement between the -- which you alluded to, between the industrial control and test and instrumentation in the $5 million to, maybe, $8 million range or so. Was it a similar amount in this quarter as well?

Yes. The net impact of the movement didn't really have any -- I think the net change as a result of the movement was basically the same with or without the change.

The negligible impact we do see it as growth opportunity. So we wanted to reposition it currently because we do see it as a growth opportunity, and it's something that we wanted to get in what we believe is a more appropriate category currently.

Okay. And how many 10% customers did you have in the quarter?

One.

One.

[Operator Instructions] At this time, we have a follow-up question from the line of Jim Suva with Citi.

A quick follow-up. Can you help us with the organic versus total company sales growth? I know that CTS, I'm sure, influenced the year-over-year growth rate for Q1. Can you help us with what the organic growth would have been for Q1 and also for the full year, now that you have some visibility? Can you help us understand kind of what you're looking at, so people don't have to get ahead of themselves for this year for -- either company-wide and/or organic for this year?

Jim, for the first quarter, it was -- the organic growth was 6%. And keep in mind, last quarter, I believe, it was 8%. So I think, generally for the year, that's probably a pretty good average for our organic growth.

We now have a follow-up question from the line of Sean Hannan with Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Just to clarify some thoughts on the 4% operating margin target, is that -- I just want to make sure is that for a 4Q result, or is that simply in position exiting 4Q? Or -- and I know that, generically, you've talked about this as kind of second half. So if I look at how you been progressing in the guidance for the June quarter, it seems you should also be in position to do that in the September quarter. Or is that a stretch based on what you're seeing today?

No, Sean, that is correct. We anticipate to be in a position to have 4% operating margin in Q3. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay, great. All right, that's very helpful. So basically we have a scenario of healthy wins. You've got an improving environment. We're on good track for 4% operating margin in the back end of the year. I guess you guys are probably pretty surprised to see the stock down, but I guess we'll leave that for the rest of us.

Thank you. We thank you, everyone, and operator. We will be in our office today and have follow-up calls with any questions. And thank you very much for joining our call today.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.