Church & Dwight Co., Inc. (CHD) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Church & Dwight First Quarter 2013 Earnings Call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial adjusted and forecast. These statements are subject to risk and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Jim Craigie, Chairman and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Good morning, everyone. It's always a pleasure to talk to you, particularly when we have outstanding results to report. I will start off this call by providing you with my perspective on our first quarter business results, which you've read about in our press release this morning. I'll then turn the call over to Matt Farrell, our Chief Financial Officer. Matt will provide you with his perspective on the financial details of the quarter. When Matt is finished, I'll return to provide some more detailed information on the performance of our key brands and to discuss our earnings guidance for the year. We'll then open the call to field questions from you. Let me start off by saying that I'm very proud of my company for the first quarter business results that we achieved. Despite headwinds from weak consumer demand, the first quarter results reflect solid organic revenue growth on top of a very high year-ago base, a triple-digit increase in gross margin versus year ago for the third consecutive quarter, higher marketing spending, which supported share growth on 7 of our 8 power brands, record quarterly operating margin of almost 22%, a 15% increase in earnings per share versus year ago, and strong free cash flow. In addition, I'm pleased to report that the integration of our most recent acquisition, the Avid Health Company, is off to a great start, driven by double-digit sales growth and better-than-expected cost synergies. This strong start to 2013 makes us feel very confident at this point in time towards the achievement of our aggressive annual EPS growth target of plus 14% versus year ago. I'll now turn the call over to Matt to give you more specific details on our first quarter results, and then I'll return to provide some further insights on the outstanding results of our key brands and provide additional details on my outlook for the year.

Thank you, Jim. And good morning, everybody. I'll start with earnings per share. First quarter earnings per share was $0.76 per share compared with $0.66 in 2012, and that's up 15% from a year ago. Our reported revenues were up 12.8% to $779 million. Organic sales were 2% over the prior year's high organic sales growth of 8.4%. The 2% organic calculation excludes the Avid acquisition, foreign exchange rate changes and it's also net of a 1% reduction due to the estimated impact of our SAP implementation which took place on January 1, 2012. Of the 2% organic growth, approximately 2.4% is due to volume with 40 basis points of negative product mix and pricing. And once again, volume is driving our results. Now let's review the segments. Consumer domestic's organic sales increased by 1.4%, primarily due to higher sales of ARM & HAMMER Liquid and unit dose laundry detergent, OxiClean laundry additives, Trojan products and FIRST RESPONSE diagnostic kits. These increases were partially offset by lower sales of ARM & HAMMER powdered laundry detergent and Kaboom cleaners. Volume contributed approximately 1.8% to organic sales, partially offset by 40 basis points negative effect of product mix and price. It is worthy to note that our domestic business is copying a 10% growth rate in Q1 2012. Our international business increased organic growth by 5.2% in Q1 due to higher sales in Mexico, the U.K., and Australia. And this increase is driven by a 6.2% higher volume and is offset by 1% negative price mix. For our Specialty Products Division, organic sales increased by 80 basis points, with favorable product pricing contributing 1.2%, offset by 40 basis points volume decrease. And we expect to deliver organic sales for the company of 3% to 4% in Q2, and for the full year.…

Thanks, Matt. I'll finish up our call today by adding a little color to the outstanding first quarter results, which Matt just took you through, and my outlook on the year. Those of you who've heard me speak before know that I've been a long-term pessimist about the business environment. The latest forecast of weak GDP growth, continuing high unemployment, and weak same sale stores growth by our major retailers provide little hope for near-term improvement in the U.S. economy. In fact, of the 13 categories that Church & Dwight operates in, 7 incurred lower category dollar sales in the first quarter. Now all consumer packages companies are fighting these headwinds. As I've told you many times before, I believe that no other consumer packages company is as well-suited as Church & Dwight to deliver exceptional performance in a tough environment. There are 7 key factors that support that statement. First, we have the most unique product portfolio within the consumer package goods industry. It consists of both premium and value brands, which puts us in a position to thrive in any type of economy, as exemplified by our ability to deliver double-digit EPS growth for 12 consecutive years. In particular, our value brands representing about 40% of our revenue base have experienced strong growth in this recessionary economy. As consumers are generally making smart choices by switching to, and staying with, our high-quality but lower-priced brands. A great example of this is our value-based laundry detergent business, which consists of 2 brands: ARM & HAMMER and XTRA. This brands sell for 1/2 to 2/3 less than premium-priced brands and deliver exceptional cleaning performance. Consumers love our value laundry detergent brands, as proven by the fact that more U.S. households buy a value brand than premium or mid-priced laundry detergent…

[Operator Instructions] Your first question comes from the line of Ian Gordon, S&P Capital IQ. Ian J. Gordon - S&P Equity Research: Yes, I guess, I just wanted to ask, you gave some color on the Avid market shares, I think, and maybe it has gone a little bit fast, the contribution to sales in the quarter was, I think, 12.8%, a tad lighter than it was in Q4. Would that be seasonality or any potential slowdown? And can you give any color and sort of the underlying year-over-year growth rates that Avid's experiencing as we think about how that will contribute over the first 12 months, and then as it goes into organic sales?

Yes, the fourth quarter is typically the strongest quarter of the 4 quarters of the year for the vitamin business, and no, there's no slowdown year-over-year in Q1. So we called double-digit growth rate for Avid for 2013 versus 2012. And we're well on track for that, not only in the first quarter, but for the full year. And the comment with respect to consumption being up 38%, remember, that excludes the club class of trade which is obviously a significant piece of the business as well. You may recall, when we announced the acquisition, that we had 4 customers that accounted for about 3 quarters of the sales, and club Costco would be one of them.

Your next question comes from the line of Michael Stevie [ph], Crédit Suisse.

Jim, can I ask a follow-up question on your comments with regards to the laundry segment. You made references in the past to increase distribution of the laundry brands, in particular, gaining more shelf space. To what extent was that a driver at the moment behind the continued growth despite the weaker category growth that you mentioned?

Well, Michael, in the first quarter, it had very minimal effect. Most of the distribution gain occurred right at the end of the first quarter, and in fact, it's still occurring early in the second quarter. So the second quarter though, much bigger impact from that than the first quarter, and then even a little bit more in the third quarter when the full distribution is out with all the accounts. So as I said in my presentation, this is the biggest year of distribution increases in my 9-year history here. And it reflects the retailers adding shelf space for our brands because of their very strong and continuous share growth.

Your next question comes from the line of Jason Gere, RBC Capital Markets.

I guess I want to talk a little bit about the cost of doing business, because one of the common themes we've heard during earnings season is that driving that top line is costing a little bit more than usual. The big dog, as you refer to them, is saying the promotional environment has not really changed and we're hearing otherwise. So I guess, one, I wanted to see if you can just flush out a little bit more about sampling, promotional spending that's out there, with innovation, and obviously, without innovation? And then second, how do you feel about your cost savings program in order to drive some, I guess, for reinvestment back into the marketing line? So I guess I just wanted to get a little bit more color on that first.

Well, Jason, I would tell you, our cost-saving program have been a long part of the history of this company and it's a terrific program. I mean, we're already looking at cost-saving programs 3 years out right now and working and planning on them. So this isn't some sort of new culture at Church & Dwight, this has been part of our culture for a long time. As far as you said, you've, I think, made comments about the pricing environment out there or the activity out there. I would say we're seeing maybe a little uptick in the merchandising activity out there by some competitors, but nothing significant.

Okay. And then, I guess, secondarily, I mean, when you look at your price mix, it was negative in the quarter. So as we think going forward, is that going to be -- I mean, just how much is that going to have to increase though in order to keep driving the volume? Do you feel comfortable that it's going to be just a modest uptick or is this just more of what we've seen just out there?

Hey, Jason, this is Matt. Historically, our organic growth rate has been driven by volume. And as you point out, in the first quarter, we had a 2.4% volume growth and 40 basis points of that negative price mix. Remember, that 2.4% is also adjusted, at least, impacted by that 1% SAP adjustment which though is appropriate. But we do expect, going forward in the future, that volume is again going to be driving our results. The only business has had been hurt on a volume basis, historically, has been our specialty products business, that's driven more by price than volume. But on the consumer side, both domestic and international, we expect volume will continue to be the driver of organic growth, consistent with the past.

Okay. And then just the last question and I'll hop off. When you talk about the marketing spending for the year, and obviously, you have the step-up you're doing on Avid as well. I mean, can you talk a little bit about in terms of the second quarter, because again, similar to what we saw in the first quarter, I think street expectations are coming down because I think you guys are talking more about the marketing spend this quarter, thankfully, you guys came in better than expected. So I guess I'm trying to contextualize the marketing spend in this quarter. When you say significant, how significant? And then for the full year, are we thinking about marketing spending that's back at 2011 levels?

Okay. Well, in the first quarter, the marketing expense was 10.1% of sales, and that's up 30 basis points year-over-year. So I wouldn't characterize 30 basis points as significant as an increase year-over-year. So obviously, Q2 is going to be significantly greater than that on a year-over-year basis. And remember that our historical algorithm as a company is that as we expand gross margin, we spend it back on the marketing line. So just as we held our EPS call for the year, yet we're saying that on a full year basis, we're going to have 25 to 50 basis points expansion gross margin. At the same time, you would expect then that the marketing line would again expand at a similar rate on a full year basis.

Your next question comes from the line of Joe Altobello, Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: I just wanted to start with category growth. You mentioned, I think, earlier, that of your 13 domestic categories, 7 were down in dollars. So just kind of back to the envelope, it sounds like you're assuming roughly flat category growth this year. I'm just trying to put that 3% to 4% organic growth into some context, that's all.

Yes, Joe, honestly, we don't have an exact prediction of category growth going out there. I'll just tell you, we're doing everything possible to drive category growth because I told you, 7 of our 13 categories we track were down in the first quarter, and that's 6 of the 8 of our power brand categories. So it's something that concerns us. So the good news is that we're going to be launching -- the innovative new products we launched were terrific and we're going to be increasing marketing spending behind it. I would say the early signs are terrific. We mentioned, on gummy vitamins are -- consumption growth was 38%, and that's supporting an 8% category growth. Tooth Tunes had a first quarter consumption growth of 12%, which is helping drive its category up 12%. Orajel's single-dose cold sore was up 45% consumption in the first quarter, that helped its category grow 16%. In the Oxiclean Dishwashing Booster, another one of our major new products, has now achieved a 10% share in its first year, and it's helping drive a 10% category growth. So we are very concerned about the environment out there with consumers and the anemic category stuff and we view it as our role to launch innovative new products and support them with strong marketing support and get these categories growing. And also, I didn't mention, our biggest one of all is our effort on liquid laundry detergent. We're launching a new Ultra Power laundry detergent product, that's the new next level of concentrate, we call it 4X, terrific product, it's a win-win-win across-the-board. It's a win for consumers, it's easier to handle for consumers in store, and it's environmentally friendly. It's more versatile than PODs, but our consumers going to adjust the usage to loads, both…

No, I would tell you, Joe, it's a little bit of good news and bad news. The bad news is that PODs is clearly driving the decline in the laundry category, and the second big factor is the price decline by our friends in Cincinnati in powder. The good news is that PODs penetration of laundry has flattened out at 8%. It was 8% in Q4 of last year, and it's 8% in Q1 of this year. Other piece of good news is we'll shortly be lapping the launch of PODs, that was started in Q2, Q3 last year. And so that will -- that impact would be behind us. And we feel proud of the fact that our laundry detergent, liquid laundry detergent brand, ARM & HAMMER, was the only one that launched a unit dose form that didn't suffer lower sales going out there. So we feel we're in good position, we're glad, hopefully, that POD impact is shortly behind us. And again, we're going forward to focus on something that brings attention back to the liquid category, which is 77% of the market.

Your next question comes from the line of Bill Schmitz, Deutsche Bank.

If you look at the Nielsen data, it looks like sales kind of accelerated throughout the quarter. And then, the latest April data looks actually really good. So what's driving that and does that trend kind of continue? I mean, when did Walmart come in with new shelf space? Lou should be really proud of the way that set looks, and is that helping the incremental sales also? How should we kind of read forward on that acceleration as the quarter progresses?

Well, Bill, as we kind of said, the new distribution and the new products both came on very late in Q1. So yes, I do think you're seeing a little bit of acceleration of our share results and some sales results. Then again, merchandising's lumpy. Sometimes, you have a lot of merchandising in one month and then a month, you don't have it, then a month, back. So it's somewhat of a combination of the new distribution of new products and new merchandising. And yes, we've had some very, very strong results in April, but that doesn't mean it's going to be every month like that. But overall, we feel very confident now that, that will deliver the 3% to 4% sales growth that we have. And that's -- in the old days, that would've been an okay number, but when you're doing 3% to 4% against category growth that's really basically flat, that's even a more terrific result.

Great. And then, Matt, when you look at the gross margin change versus your previous guidance, is that more the base business or is Avid's gross margin coming in better than you thought?

Yes, the base business is starting off really well, there's no doubt about that. And it's also true that Avid is improving faster than we thought. With respect to Avid, just to kind of refresh your memory, we had targeted $15 million of synergies by mid-2014. And that synergies, those were both COGS and SG&A. Now the thinking right now is that we still see $15 million. Well, we feel really good about $15 million by mid-2014. But $9 million of that is going to be in 2013, $6 million in '14. And the way that, that would split out is the $9 million this year, I think, half and half, half is COGS, and half is SG&A. And then in 2014, that $6 million would be all COGS.

Okay. And how much have you gotten so far?

Oh, as you know, we don't -- for competitive reasons, we don't talk about gross margins with respect to our brands and products.

Is it more or less than $9 million?

It's less than $9 million. And the other thing too, with respect to gross margin and thinking about the second quarter, we're up gross margin Q1 110 basis points, and marketing was up 30. So you can expect that the reverse is going to happen in the second quarter. So gross margin's not going to up as much, but marketing is going to be up quite a bit. And the impact there is, as Jim pointed out, we've got some super new distribution, so we got higher slotting, that'll happen in the Q2. And then we have lots of couponing going on as well behind our new products as well. So that's kind of -- Q2's kind of an inverse of Q1.

Your next question comes from the line of Caroline Levy, CLSA Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: I just hopped on the call, so I don’t know which questions have been asked or not because there's an overlap with Estee. But did you already elaborate on the laundry business?

Yes, we did.

Your next question comes from the line of Christopher Ferrara, Bank of America Merrill Lynch.

Can you, I guess, clarify a little bit, the strategy on concentration? So on this new round of compaction that you guys are running. Do you guys need this to end up driving another round of traditional compaction? Or is this product, you kind of happily have this product exist as sort of a niche product that maybe you can gain -- you have gained incremental shelf space, but maybe you gain a little bit more. Like how do you think about it over the long term, does it need to drive another round?

Chris, our desire would be we'd drive another round of compacting all liquid laundry detergent products out there. Again, that was a huge proven winner 4-plus years ago, drove the category up, and it's a great win. I mean, it's great for the environment, it's great for sustainability, as they call it. So the consumer wins, the environment wins, the retailer wins by saving money on distribution costs and gets better shelf return to get more bottles on the shelves, so we're fewer out of stocks. And in this case though, in this case, something new, as we passed some of the savings on to consumers, we put 20% more loads in the bottle. So consumers, the size getting easier to handle in store and helping the environment, less waste out there, they get 20% more loads. So this does drive the category out there, and consumers do love liquid, it's still 77% of the business, they can adjust how they use liquid, you can't adjust the PODs, you can pre-treat with it, you can -- it only makes sense, consumers have little loads, big loads, heavily soiled, lightly soiled, you can't -- we have the versatility of liquid out there. So we're trying to bring the attention back to the big dog in the category, which is liquid, and do something which we think will be good for, again, the consumer, the retailer and the manufacturers in this category. And we're taking the lead to show everybody and hopefully everybody else will realize this, they should, history proves it, the bleach guys are proving it right now out there, that's been a win-win-win. And so we decided to take the lead even though we're not the big guy in the category.

And I guess, I mean, is it realistic to think something like that could happen while unit dosing is running its course? And I guess, as a follow-up to that, like at an 8% share, where do you think retailers are? And I know you had the view that retailers are going to kind of look up and see that the category growth rate is suffering. Do you still think that 8% is too small and this product will go by the wayside and do you need that to happen for anyone to realistically think about another run at compaction?

No, no. PODs is here to stay. But as I told you earlier, it's flattened out. It was 8% in Q4, it's 8% of Q4 last year, and 8% of this year. So it's serves the need, it's a nice product, all the major brands have their version of PODs. So it's out there. I will tell you, it's over-shelved, it's about 20% of the shelf space, so I think retailers ought to bring it back to about 8% of the shelf, in line with its reach onto the marketplace. And just go forward, it's been a nice little addition to the category, but it's only 1/2 the size of powder, about -- almost 1/9 the size of liquid. So let's put the focus back in the category and most of the big part of the category is to get this category growing again.

And then just trying to like -- with Procter bringing on new capacity in PODs and probably likely to launch another flurry of promotion and advertising in that, just for the format of unit dosing to begin with, I mean, would you -- you got to think that 8% is going to go higher, no?

Well, Chris, I don't understand something. 2 years ago, they predicted this category, this PODs will be 30% of the category, 2 years later, it's 8%. So why are they out of capacity?

Your next question comes from the line of Bill Chappell, SunTrust.

Just to start off, looking at the commodity outlook and kind of what you're seeing now, maybe where you're hedged and what ability you have with, I would think, more tamed commodity environment to be -- do any additional pricing this year?

Yes, Bill, we have -- there are 8 inputs that account for most of the volatility in our COGS. And we're 65% hedged at this point. And I think most people know that commodity headwinds have abated. So I think that's one of the reasons why if you look at what's happened to us in Q1, that lot of our productivity efforts have dropped through because we have less of a commodity headwind. And so going forward, certainly, for the remainder of the year, we're not expecting that commodities are going to restart to climb higher. And as everybody's read, that a lot of people think the big cycle on commodities could be ending.

And then in terms of looking at the gross margin, you may have touched upon this, but do you expect gross margin to be up every quarter? And was there any incremental benefit this quarter from just timing of slotting fees year-over-year?

Yes, second quarter is what's going to be impacted by slotting and couponing, Bill. So what I said earlier is that in the first quarter, gross margin's up 110 basis points. And we don't expect the second quarter to be nearly up that amount because of slotting and couponing behind the new products and the distribution, et cetera. As far as calling each quarter individually, a little bit too early to do that.

Okay. And then just last one. I think, it sort of in these past 2 or 3 years, you've kind of made some movements with your cash balance in the first quarter, be it a share repurchase or stepping up the dividend or what have you. Is the thought now, post Avid, you want to just kind of build up the cash balance for a while and look at other acquisitions or would you look to do other things at these levels?

Yes, when we announced our earnings in the first week of February, we raised the dividend, so we're committed to maintaining a 40% payout. At the same time, we generating lots and lots of cash here, so we did pay down $50 million of our debt. But as you know, we expect to generate $400 million-plus of free cash flow on an annual basis. So we are always in the hunt for new acquisitions. As you know, we're not regarded as a shopper, but we're regarded as a buyer. It's kind of we are aware just about everything that does come to the market. And we continue to look, but we wouldn't comment on any activity that we're engaged in with respect to M&A.

Your next question comes from the line of Lauren Lieberman, Barclays.

I just wanted to talk about marketing spending. So first off, does it surprise -- in the quarter, because I thought just simply the mix of having Avid in the P&L would make marketing expenses look like they were lower the percentage of sales, and yet they were up. So did you increase on the base business that much this quarter or was it just you started already accelerating the spend on Avid? That's one. And then 2, on the same topic is just, the last couple of years, this gross margin was a little tougher because of commodity cost, on a flip side, was trimming marketing, and top line held up great, clearly wasn't an actual issue, but that is the dynamic we saw on the P&L. This year, you're going to do the reverse. So I guess what's the incremental benefit you're thinking you'll get from the higher marketing spending while the top line's already been so solid with you kind of pulling it back to lower level?

Lauren, this is Jim. Let me take the second one first. You're exactly right, we're now showing gross margin improvement. And as Matt said, we'll be spending back roughly 1/2 of that of the marketing line, so increased our marketing support. Old days, you would say, that would help in that revenue line, but what we're facing now that we haven't faced before is weaker categories. So with the weaker categories, we need to be spending more money to get to our 3% to 4%, or in the past, that wasn't absolutely necessarily to get there. So that's the story on that one. As far the A&P on Avid, we have increased it, but no, we've spent more on the base business, that's helped out. So Avid is going to increase, we doubled the spending on that business, so it was pretty low before we got it, but we're going to get it up in the double-digit range on that to drive its sales.

Okay. Great. And then just quickly on unit dose. I know I missed most of the conversation, I think, on laundry. But I was curious if you think there's much substitution going on that maybe some of the drag you're seeing in your powder business is people switching to your unit dose product because your unit dose looks and smells like powder in a capsule. And that maybe some of it is just cannibalization within your own portfolio. Does that make sense?

No. Yes, it does. I can see where you could make sense of it. But it's a good question. 90% of our business -- of the unit dose sales are coming from liquid, which is more in line with the fact that liquid's 77% of the category. So our results, market research, show it's highly cannibalistic of the liquid business for all manufacturers.

Your next question comes from the line of Alice Longley, Buckingham Research.

I apologize if you've given out some of these numbers, so you said your categories have slowed, what is their growth this year versus maybe what it was last year and what is the category growth for detergents overall? And when do you think detergents growth gets better?

Yes, Alice, we quoted the fact that 7 of our 13 categories were down in the first quarter. We don't really call a number on the year, we just feel in our hearts that given where the economy is going, we're not going to see much improvement out there in the categories and that's the reason behind, with the gross margin improvement, we're going to be spending back about 1/2 of that to help drive stronger share gains and the share gains will help us get to the 3% to 4% revenue growth out there. In liquid, the liquid -- the laundry detergent category overall, liquid powder unit dose was down about 4% in the first quarter, liquid was down 10%, so not a good situation going on. And as I've told some people, we're going to be working hard with spending more money in the category and launching the new Ultra Power form, which is the next concentrated form to try to get the focus back on the 77% of the business, which is liquid, and drive better results in that category.

In the second quarter, could you tell us what your share was, up or down in the first quarter, and then how much you think it will be up, I'm hoping, in the second quarter? And what will drive that the most, will it be the concentrate, will it be the incremental shelf space? What drives your share change into the second quarter?

I don't have the -- both ARM & HAMMER and XTRA shares were up in the first quarter, a couple of tenths. And I can't give you that -- I think it was 9.1% in ARM & HAMMER and I don't remember the exact number on XTRA. In the second quarter, we will drive our business, there's a combination of things, Alice. We do a more distribution out there in a lot of major retailers and we have the new products out there in the form of the Ultra Power. So we expect that to drive some continued strong share gains. I'm not going to call a number, but we do -- we expect share gains -- we need the share gains to help deliver our -- the business results we expect.

And do you think it's the incremental shelf space that's helping more or the innovation?

Both.

Your next question comes from the line of Jon Andersen, William Blair. Jon Andersen - William Blair & Company L.L.C., Research Division: Sorry if this has already been discussed, I just jumped on. I wanted to ask about the international business, which strengthened from a top line standpoint on a tougher comp in the quarter. Just a little more color on where you're seeing strength there, what's driving that? And how you're thinking about the organic sales growth for the full year in that part of the business?

Our international business historically has grown in a similar fashion as the domestic business. We have a 3% to 4% algorithm and they've been able to meet or exceed that historically every year. The businesses that are doing well in the quarter are 3 countries. One is the U.K., there is Mexico and the third is Australia. I'll start with Mexico since that is probably the biggest winner. We've been making great inroads down there with respect to our household products within ARM & HAMMER south of the border. In Australia, Australia has historically been our fastest growing business, and if you look at any of our prior year earnings releases, you'll see Australia is almost always one of the drivers and we got some terrific products over there. Curash is a local brand that's been growing year after year which is a children's rash brand, as you could probably guess. And finally, the U.K., U.K. has some success with respect to pricing and pulling back some trade spend without losing any of our volume. And by the way, you're probably also familiar with the Batiste brand, which is the dry shampoo, which we bought over in the U.K. And it's been growing very, very rapidly and continues to drive results in the U.K. Jon Andersen - William Blair & Company L.L.C., Research Division: That's the one that's about 6% share of the hair care category, is that right?

That's correct. Jon Andersen - William Blair & Company L.L.C., Research Division: Okay. And second question, just on Victorville, is where are we in terms of the benefit from that facility in terms of gross margin? I mean, have you hit kind of run rate in that plant or is there more to come there?

I think, there's more to come out in Victorville. But generally, we build the plant, this plant has been going full blast since July of 2012. So once you get into a full year, you're pretty much rocking. And we have put more capacity in there and it's to the extent that we're able to leverage our fixed cost, it'll obviously drive our gross margin.

And there's no further questions at this time. Sir, do you have any closing remarks?

I just want to thank everybody for taking the time to listen to our call today. And like I said in my first opening, I'm very proud of my company, we had a great quarter, and we're looking forward to having a great year. So thank you very much.

Thank you for joining today's conference call. You may now disconnect your lines.