CNH Industrial N.V. (CNH) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Raven Industries Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Tom Iacarella, Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, operator. Joining me on today's call is Dan Rykhus, Raven's President and Chief Executive Officer. Before we begin, I'd like to remind participants that the information contained in this call is current only as of today, March 12, 2013. The company assures -- assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to the Safe Harbor disclaimer in today's press release. With that, I would now like to introduce Dan for a strategic look at Raven's fourth quarter.

Thanks, Tom, and welcome, everyone, to our fiscal fourth quarter and year-end conference call. I'll start off with an overview of our performance and talk about each of the divisions in more detail. And finally, speak to our expectations going forward. Tom will then provide you with a look at our financials, including a discussion of margins and the balance sheet. And after that, we'll open up the call for your questions. So let's begin with our performance. For the fourth quarter, sales were $89.6 million versus $96.3 million in the prior year fourth quarter. Our Applied Technology Division delivered a top line gain of 18%. This though is offset by continued softness in Aerostar and lower demand in Engineered Films, resulting in an overall quarterly sales decline of 7%. The full year presents a stronger picture. For the 12 months, sales reached $406.2 million, a 6% increase from last year's $381.5 million. Net income grew 4% to $52.5 million. We were able to generate record revenue and earnings for our 2013 fiscal year, topping the record set in fiscal 2012 and 2011. Over that period, the strong agriculture and energy markets provided opportunities for us to realize returns on the recent and aggressive investments made in our Applied Technology and Engineered Films Divisions, both of which turned in strong performances in fiscal 2013. Our targeted investments in new product development, capacity expansion and new market penetration were essential to our annual growth in those respective businesses. This performance was attained despite Aerostar facing reduced demand from the U.S. federal agency customers we serve and Engineered Films adjusting to more moderate energy market demand. As a company, Raven is well positioned for growth. We're financially strong with no debt and we have fantastic long-term prospects. One of the hallmarks of our proven business model is the ongoing investment in our business development pipeline. This is one strength that ensures our competitiveness and gives us the ability to grow our business and fulfill our purpose, which is to solve great challenges. Tackling these monumental challenges of developing technology that helps the world grow more food, produce more energy, protect the environment and live safely, while we aggressively expand and pursue new opportunities requires important capital investments. During the fourth quarter, we invested $9.4 million in research and development and capital expenditures to support our fiscal 2013 product and growth strategy. Tom will talk more about R&D and SG&A later. To attain our financial goals of earnings growth, annual dividend growth and delivering above-average returns on invested capital, we rely on our strong cash flows. I'm pleased to report that our cash balance at the end of the fourth quarter stood at $49.4 million. This was up from $25.8 million a year ago. Our continued commitment to cash flow returns on investment allowed us to raise our dividend 17% on a per share basis this year, while investing in our business model and increasing operating cash flows, both for the quarter and the full year. I'd now like to talk about each of our 3 divisions, starting with Applied Technology. Sales in Applied Technology grew 18% in the fourth quarter and operating income rose sharply by 40%. The bottom line gain stemmed from higher sales and was achieved amidst sustained investment in research, marketing and product development. Annual revenues for Applied Technology increased 18% and operating income grew 20%. Applied Technology continued to show strength in the fourth quarter. As our largest division, it comprised 42.9% of total sales. During the quarter, demand built for precision agriculture solutions, particularly Raven's advanced guided steering systems that increase crop yields and reduce operating costs. Domestically, OEM demand rose as we continued to enhance our product capabilities. International sales also were strong, particularly in Brazil, Canada, South Africa and Ukraine. Internationally, our success results from having the right products for the right market. For example, there is a pressing need for Slingshot and our steering systems in South Africa, while countries in Eastern Europe are demanding our basic guidance and control products. Emerging agricultural markets abroad are all at different life cycle stages and therefore, have different needs, and Raven has a breadth of precision ag products to meet those needs. On the OEM front, we're customizing product solutions, tailoring services provided and entering long-term agreements that provide stability and competitiveness for both Raven and our partners. This commitment is resonating with our customers globally and driving year-over-year gains. Looking at new products, we recently unveiled enhancements to our SmarTrax steering and Slingshot product lines. With the introduction of SmarTrax MD, growers now have a simple-to-install mechanical drive steering system that can seamlessly transfer the ability to steer automatically across a fleet of vehicles. Slingshot Online 2.0 offers users a more streamlined experience to help simplify the way they manage and share their data. We're driving innovation in precision agriculture, always keeping our focus on helping farmers feed our rapidly growing world population. The SmarTrax and Slingshot enhancements are influenced by customer feedback and are another example of the results of our research and development investments in ATD. Looking ahead, we continue to see strength in the agricultural markets, as well as positive trends in ATD, and expect to achieve solid growth in sales and profits. We anticipate that sales growth internationally will outpace growth in the United States. While we expect increasing demand across all major agricultural markets throughout the world, we see particular strength in Brazil, Russia and Ukraine, agricultural markets that are adopting precision ag technology at an aggressive pace. Moving on to our Engineered Films Division. Sales rose 6% and operating income increased 17% for the fiscal year. However, our fourth quarter was more challenging as we saw gains in agricultural and geomembrane films, while energy market demand softened but still held at solid levels. During the year, we completed a significant $11 million geomembrane reservoir project in Ohio, and we launched several new projects utilizing our geomembrane films. We also continued work on a research and development collaboration with Arizona State University related to biofuels. This project has led to several commercial opportunities that we are actively engaged in to help grow biofuels on large scales. On the product development front, we worked with our construction customers to introduce VaporBlock G. This is an innovative, under-concrete-slab vapor barrier produced with a layer of post-consumer recycled content. VaporBlock G is the first vapor barrier on the market to exceed ASTM Class A and qualify for LEED standards. For fiscal 2014, we expect continued growth for Engineered Films, despite a challenging environment. We will likely not exceed the exceptional first quarter fiscal 2013 sales and operating income levels, but we expect a solid full year performance. We continue to believe that geomembrane film sales will be a rising part of our market mix due to the critical need to protect water and other environmental resources. We also anticipate growth in agricultural films. Operationally, we expect to achieve efficiencies with the installation of our new reclaim production line designed to capture and recycle excess polymer material from internal manufacturing processes. This technically advanced system is capable of producing up to 15 million pounds of reprocessed resin pellets annually. It achieves a closed-loop recycling stream for our manufacturing facility by reclaiming excess production material through a fully controlled process from start to finish. This is but one example of further committing to sustainable business practices. Pounds of film rose about 3% in -- pounds of film sold rose about 3% in fiscal 2013 and we have extrusion capacity to further grow this business. We intend to do so through R&D investments and new opportunities, enhancements to our existing products and development of specialty films with value-added characteristics. Let's look at Aerostar now. Sales for both the fourth quarter and fiscal year declined more than we anticipated. That said, Vista Research exceeded our expectations for both the fourth quarter and year, delivering revenue growth and profitability. This helped moderate a $4.8 million fourth quarter decline in aerostat sales, as well as lower electronics manufacturing services revenues. In the fourth quarter and throughout fiscal 2013, Aerostar faced continued uncertainty and sluggish demand. Looking ahead, we are intently focused on building a strong pipeline of high-quality business development pursuits for fiscal 2014. This includes new initiatives for the secured communications market and several opportunities for aerostat systems in defense, government agencies and commercial applications, both domestically and overseas. We are also actively working on new opportunities for high-altitude balloon technology. Concurrently, we're committed to broadening our customer base. We see significant future potential with Vista, both here and internationally, as we work to sell into new markets and secure key contracts. At the same time, we recognize we are operating in an uncertain governmental spending environment. During the year, we will develop opportunities to add stability and mitigate volatility in Aerostar, ultimately driving longer-term growth with breakout potential, while continuing to manage the business responsibly. A brief aside and something we're particularly proud of, recently, a Raven Aerostar high-altitude balloon broke the duration record for a scientific balloon flown from Antarctica, part of summer experiments in the Southern Hemisphere between NASA and several major colleges, the Super-TIGER flight was studying the origin of cosmic rays. The balloon surpassed a duration record for a scientific balloon flown from Antarctica, flying for 55 days, 1 hour and 34 minutes aloft. At Raven, we solve great challenges. It's this purpose that keeps us grounded in markets and opportunities that have meaning, aligned with our values and provide profitable growth. Looking ahead to the first quarter, we continue to see positive trends in Applied Technology, though we are lapping a year earlier record quarter. Aerostar will again be impacted by a lack of aerostat orders. And within Engineered Films, we anticipate a challenging environment due to the condition of the U.S. economy. Therefore, we do not expect to grow earnings in the first quarter of fiscal 2014. Looking ahead to all of 2014, the quality of our pipeline is very robust and encouraging. We will build and nurture that pipeline; tangible results will be earnings growth from new product developments for our existing markets and key adjacent market expansions; potential acquisitions to support our overall product and growth strategy; capital expansions to address capacity and capabilities; and collaboration efforts with key partners throughout our markets where that makes the most sense. We do expect a return to historic earnings growth levels this year by leveraging the investments we've made over the last few years and will continue to make, and through disciplined execution of the Raven business model. Our expected financial performance and attractive balance sheet will support growth in our annual dividend and facilitate our overall growth strategy. Now I'll turn the call back over to Tom, and after that, we'll be glad to take your questions.

Thanks, Dan. Hopefully all of you have had a chance to review this morning's release. I will discuss our balance sheet changes and operating margins in more depth. And then, as Dan said, we'll take questions. First, the balance sheet. At quarter end, we had $49.4 million of cash and investments, up $23.5 million from last January. We have been able to sustain our strong cash position amid investments in production and infrastructure capacity and research and development. We reported operating cash flows of $76.5 million compared to $43.8 million last year. The $32.7 million increase was driven by improved working capital utilization, along with higher depreciation and net income. Inventories were down $8.6 million from the previous January. Inventory turns have held steady and inventory levels did decline during the quarter. Accounts receivable also were down $4.5 million from last January. Our average DSO was in line with last year's levels. Our current ratio was 4.74 versus 3.63 last year. We have a balance sheet that is a source of strength and stability, and cash flows from operations that can fund investment in our operations and dividend growth. Turning now to investments and capital spending. We continue our commitment to invest in Raven. Capital expenditures were more than $29 million for each of the past 2 years. Specific investments include expanding our Engineered Films extrusion and conversion capacity, including our new reclaim production line that Dan talked about; our corporate facilities renovation project; an expansion of the Raven Innovation campus in Sioux Falls; and setting up a state-of-the-art research center for Applied Technology in Austin, Texas to support growth in engineering and technology enhancements. We also continued to invest in our research and development capabilities, corporate finance, legal, compliance, information technology and human resource development. Spending in all these areas saw a planned increases over the prior year, and we are committed to sustaining those initiatives into fiscal 2014. Substantially, all the growth in R&D in the fourth quarter was in Applied Technology and Engineered Films. We're investing in the growth pipeline they require for future success. We believe that by improving our corporate infrastructure, we're providing the support our operating divisions require to drive their initiatives forward. We are also judiciously bringing on new talent. Examples include resources to help identify and integrate acquisitions, develop and focus our organizational efforts and improve the service level of our information technology, while supporting the increasing compliance requirements stemming from new regulation. Now I'd like to touch on operating margins. As a reminder, we repositioned Electronic Systems assets and people during the second quarter, and this fourth quarter segment information includes that realignment. For the fourth quarter, Applied Technology's operating margin was 32.1% versus 27% last year. Last year's fourth quarter margins were held back by the move to our new manufacturing facility during the quarter, and now our plant is operating at a high level of production. Engineered Films came in at 14.3% margin compared to 18% last year. Last year in the fourth quarter, we had unusually high demand for films, especially from the energy market, caused by anticipation of price increases. This year, we saw lower production levels and negative impact from our fixed cost base reduced operating margins. Compared with fourth quarter last year, pounds extruded were slightly below $17 million, down about 24% from the fourth quarter last year as we work to keep inventory in line with the lower sales levels. We continue to benefit from improved plant productivity and operating efficiency. For the fourth quarter, Aerostar reported margins of 11.9% versus 17.8%. Again, we're seeing the impact of lower sales on operating margins. Aerostar sales were down by 22% in the quarter. The lack of aerostat sales and the expected decline in EMS avionics business held on operating margins for most of this year. However, Vista Research was a positive contributor, as Dan mentioned. As you may recall, in the first quarter of the year, Vista was sustaining operating losses, and profitability improved throughout the year. The EMS sales pulled from ESD were down in the fourth quarter but did add about $11.5 million to Aerostar sales. Before I wrap up with the overall results, I wanted to comment on our fourth quarter tax rate comparison, which was 29% this year versus 33.8% a year earlier. Last year, the R&D tax credit expired on January 1, increasing our rate somewhat in the fourth quarter. In January 2013, the U.S. government renewed the R&D tax credit, and the lower rate reflects the reinstatement of that credit. Since the full year rate of 32.3% includes some carryover credits from last year, we think 32.5% is a good rate to use for fiscal 2014. Overall, our fourth quarter sales were down 7% and profits were relatively flat compared to last year's record level. While we did face some headwinds in the quarter, we're pleased with our record year and the outstanding returns on sales, assets and equity. For the full year, net income return on sales was 12.9%, our return on average assets was 20.3% and we delivered a return on shareholders' equity of 29.1%. These returns result from deliberately reinvesting profits back into our diversified businesses. With that, I'd like to turn the call back to the operator so we can take your questions.

[Operator Instructions] And our first question comes from Andrea Sharkey from Gabelli & Company. Andrea Sharkey - Gabelli & Company, Inc.: So I was just wondering, I mean, you guys had a great year in Applied Tech and ag is doing well. When you look at the margins that you guys produced this year and even this quarter was higher than I'd expected, how sustainable is that going into fiscal 2014? Should they be similar? Or are there going to be some pressures that we should be expecting?

Tom, go ahead.

Sure. Our overall strategy is certainly geared towards improving the top line growth and moving the company forward in that way. We've been deliberately reinvesting profits back into the business, and as a result, we're not looking for bottom line margin expansion over time. We think that 13% range that we've been in the last couple of years is a very strong overall margin and one that we'd be pleased to sustain. That being said, we certainly move towards more proprietary products and try and emphasize those products that carry higher gross margins that allows us to generate more cash that we can and turn around and reinvest in the businesses. Andrea Sharkey - Gabelli & Company, Inc.: But specifically, I guess on Applied Tech, just sort of that 34% to 35% operating margin that you've had for the past 2 years, is that kind of fair for us to expect going forward, or maybe think more low 30s? Just I don't know, cost go up, things like that?

Well, I think that, again, we're looking to sustain those margins. I think that if we can generate the sales growth, we will be able to sustain those types of margins, but we will continue to reinvest the necessary dollars back in the business. So I think it's a sustainable level but one that -- for the year. Obviously, the quarter was pretty strong.

Our next question comes from Andrea James from Dougherty. Andrea James - Dougherty & Company LLC, Research Division: So Dan, I know historically, you've talked about 10% annual earnings growth, and I noticed you're sort of backing away from giving a specific. Do you want to just get further into the year before you give some more clarity there? Or could you just give -- thinking about this more specific numbers maybe for your annual earnings growth?

Yes, it's pretty early in our year to give much detail beyond. We expect to return to our historic levels throughout the year, so that's about as much projection as I can give. We do expect to have a record year in our fiscal year '14, and we do expect throughout the year to return to our historic and goal growth rates of the 10% to 15%. Andrea James - Dougherty & Company LLC, Research Division: Okay. And then I got one more and then I'll hop back in the queue. Could we assume that the Q4 Vista contribution is sort of a going run rate? And can you talk more about what drove the strength there? And also the margins in that business and just sort of how you see those trending?

Well, I'll let Tom talk about the margins in Vista, but it's going to be lumpy. I wouldn't say fourth quarter is a real model building quarter to use. Fourth quarter was great for us. We delivered some product, some radar systems and we had some good service revenue out of Vista. But we have many, many projects in the pipeline with Vista. And I do want to make a point. One, so we made the acquisition back in January. And right away, we rolled up our sleeves to start to pursue ITAR Certification, which includes a design requirement to make our radar systems anti-tamper proof. And ITAR Certifications are given by country, by product. So we've got very aggressive throughout the last year spending our resources to open up new markets for us, and we've had great success with that and we've opened up several new markets around the world, mostly in the Middle East and other parts of -- in the Southern Hemisphere. So we feel good about it. But it's going to come in lumpy chunks, if you will. But over the course of the year, we expect Vista's going to provide some nice growth for us this year, and even more growth and better prospects further out than that. Now in terms of margins, I'll put that back to Tom to give you some sort of sense of margins that you might expect for Vista throughout the year.

Now Vista's a business that has really 2 separate components. They have their traditional business that they've been in for a long time, which was providing services to the U.S. government and other entities on a contract basis, and that, by its nature, carry some pretty low margins in the teens kind of margin or even lower in some cases. That's a business that we'll continue on at a certain level but probably not looking for much growth out of that. The main reason, of course, that we bought Vista was related to the radar systems that they can deliver for us. And those radar systems can deliver strong growth profits comparable to our other proprietary products in the 20%-plus range.

[Operator Instructions] Our next question comes from Marc Heilweil from Spectrum Advisory.

My first question is relative to international sales. Can you give us an idea of what percentage of Raven's revenues should be international over the next couple of years?

For the company as a whole?

Yes.

Let me think about that for a second. Is it Marc?

Yes.

Okay. So Applied Technology is going to, over the next couple of years, grow into the mid 30s and maybe beyond that if you take the tail out a little further. We do expect a lot of the Aerostar growth with radar systems as well as our aerostat systems, which can be sold together or sold separately, much of that growth is also going to come from international demand. So that being said, I haven't really thought about it in terms of our total company, but let me do a little figuring here. I'm going to say that we could -- it could easily be approaching 25% of our business depending on the length of time horizon. But certainly, we have a strong emphasis on international growth and it's -- we look at it more within each division than a roll up. And of course, films doesn't have as much international growth opportunity because of the cost of shipping, unless we were to make an acquisition in a part of the world with some manufacturing capabilities that we thought were additive to what we were doing for films. But one of the things that you have to remember is that this is a complicated and different growth strategy for Raven. Growing internationally takes other administrative expertise here. And as you look at our growth in our administrative expenses, a lot of that is due to this commitment to growing our international business. But yes, I guess, I'd also kick that over to Tom, if you want to comment on the overall 2- to 3-year time frame for overall international sales, Tom?

I don't really have anything to add there. I think you're right that we do look at it by division, and it's certainly an emphasis area for Applied Technology and will be for Aerostar as we go forward. But we'll be taking that over time and looking at how it grows on a division-by-division basis.

Fair enough. And my follow-up would be in terms of Aerostar. Could you give us a little insight into the competitive nature of -- you seem to be getting on a number of platforms. Do you have specific competitor, direct competitor in trying to get your products on the platforms? Or are you -- would you consider your position in the niche that you're serving that you're the largest player in that niche?

So which product line within Aerostar?

I'm talking about the global -- particularly global positioning and just general smart agriculture.

Okay. So you're talking about Applied Technology?

Right, correct. I'm sorry.

Okay. So ATD, we have a few competitors, Trimble is a strong competitor in this space, pretty solid GPS company that has a division that serves the agricultural market. And then, one of our very strong partners, John Deere, also has a proprietary line of products that they equip their vehicles with. Those would be the largest other players in the precision ag space and then there's lots of smaller players. John Deere is an interesting company for us. I've list them as a bit of a competitor, but they're also a wonderful customer and partner for us. About 3 years ago, I started to talk about developing our relationship with Deere, and this is an example of our pipeline. And when I talk about the strength of our pipeline, it isn't just things that we're working on today. The real strengths of the pipeline are the projects that we worked on 2 and 3 years ago. Deere is a good example of that. So we rolled up our sleeves and helped develop product lines to complement what they do themselves, and that's grown to be a $5 million chunk of business for us. So it's not huge, but it's gotten to be a level where we believe it's poised to continue to take off and provide nice growth going forward.

Our next question comes from Garo Norian from Palisade Capital Management.

I wanted to see if you could help me understand, I'm relatively new to you guys. But when you talked about kind of getting back to historic growth rates, what should I be thinking of, is that a top line comment? Only a bottom line comment? How to understand that?

We'd talk about growth in terms of earnings growth, so that would be in the 10% to 15% long-term annual earnings growth.

Okay. And is there any sort of top line assumption that typically underpins that?

It's pretty similar. We used to -- if you go back a ways, we used to believe that we would -- if we could grow our top line 15%, we'd get more on the bottom line. But those have come closer together. Sometimes it works that way, but not always.

Our next question comes from Andrea James from Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: So with Engineered Films, you do -- I know you've got these innovative films. Why not build or acquire some extruders in Europe or on another continent? I just wonder, is there some untapped -- is that like an untapped market for you?

Are you asking about Europe in particular, or about international growth as a part of the EFD strategy? Andrea James - Dougherty & Company LLC, Research Division: Either.

Okay. So Europe is a possibility. There's a lot of operators in Europe already. But there's other parts of the world, particularly South America, that are -- that have some film manufacturing capacity but may provide opportunities as those economies grow, and some of the activities that we're involved in supporting geomembranes and ag and mining and things like that continue to grow in South America. There could be opportunities. Nothing's imminent. I don't want to leave you with that thought. But we look at an international acquisition to support EFD as maybe third or fourth on the list of how we expect to grow that business. But it's part of the conversation. Andrea James - Dougherty & Company LLC, Research Division: And then, can you talk about the biofuels collaboration and how that translates to sales?

Sure. So a couple of years ago, we started to work with ASU on developing what we call photo-bioreactors, which use our -- the plastic film that we produce and we -- so we make the film and then we build that into a bag, if you will, with a lot of particular characteristics that support the production of algae, and this has led to a handful of commercial collaboration efforts that we have underway that are all under confidentiality agreement, so I can't talk to them specifically. But this is a long-term play for us. And again, when we talk about pipeline, we want to have business development projects that can deliver growth today; some that can deliver growth next year, and then some that, obviously, are higher risk but hopefully, have higher return potential that are out there in the 3- to 5-year range. So I would say that's how we would classify this one as a long-term commitment that we think leverages some of our core strengths of producing films with particular attributes that would be useful in the production of algae.

And our next question comes Garo Norian from Palisade Capital Management.

Just wanted to understand on the working capital on the inventory drawdown, can you give a sense by, I guess, segment? Who is the biggest contributor to that side of things?

Tom, go ahead.

It would have been our Engineered Films division that adjusted their inventory levels down to be more in line with the overall sales. And overall, I think most of the divisions were down over a year ago.

Got you. And then just on the Aerostar segment. What level of confidence do you guys have that fiscal 2013 will kind of prove to be the bottom on the profit trajectory for those guys?

Level of confidence. There's a lot of moving parts. Of course, there's the government environment, there is the general economy, so there's some headwinds to be sure. But again, we've made some commitments in terms of new product development and the Vista acquisition and the pursuit, so my confidence is high that this will be the bottom and that Aerostar will start to turn around this year and be that breakout potential that we've always positioned it to be. It isn't going to be a business that can grow in the same fashion that we look for films and ATD to grow, which is a consistent growth rate and within that range of what I talked to you about earlier is our historic growth rate levels. Aerostar plays a different role. They persist and provide profit, and it's going to be lumpy. But I think what we've gone through in the last year has been really tough to take the earnings down the way it has but we've made adjustments in our business model, we've invested in growth opportunities that we believe in and I think this year will be a decent year for Aerostar, and I think it'll be growth from here.

And our next question comes from Alex Yaggy from Cortina Asset Management.

Like one of the previous callers, I'm fairly new to the story, but you had mentioned M&A is becoming more important. You've hired up -- hired within that area. I just wanted to ask just a few questions related to that. And how important is M&A to the 10% to 15% long-term growth targets you have? And are they more likely to be additive to product lines, like Vista or geography, as you were discussing with the films? And then finally, just how you measure returns for your M&A, potential M&A?

Okay. Just a bit of a clarification before I get into the answers. I think what I was -- what I meant to imply when I talked about our growth in administrative expenses was the preparation for doing business internationally as one element of that growth. But that being said, M&A is a part of our growth strategy. We've always looked at it as a supplement to a primary organic growth strategy. So the first places we or methods that we look to grow are through new product development that we carry to our existing markets or adjacent markets. That being said, if you look historically, we've done an acquisition every couple of years, and they typically bring a technology into an existing division that we see as important to either our overall technology suite that we offer our existing markets or an adjacency play in the way of Vista Research, where that radar technology was very complementary to what we're doing with aerostats and even high-altitude balloons. Now more likely to get to your second question, our acquisitions would be -- would bring technology. We look first to find technology that's useful in our overall product strategy. Second, if we can get a geographic penetration play, that's another angle that we look at, and ideally, we get both. If you look historically back at Montgomery Industries and acquisition we made in Canada in 2005, that's a wonderful story for us, brought in spray boom technology. Leveling technology, that's been a great success for us over the years, and there was a ready channel into the Canadian market that we were able to exploit with the rest of our product line. So it's great when we get both. But sequentially, or in terms of priorities, we look first for technology; and second, for reach. In terms of our internal rates of returns, we want to believe that we can meet a 20% internal rate of return hurdle for an acquisition that we make, and we want to believe that based on reasonable assumptions, so we have a fairly high hurdle rate for our acquisitions.

And our final question comes from Andrea James from Dougherty. Andrea James - Dougherty & Company LLC, Research Division: I was thinking about what you said about Vista and getting the ITAR approval. And I was just wondering does that mean you're primarily going after international market there with those products, or is it just a combination of DoD and international?

It's really a combination. There's so many opportunities around the world now with border insecurity as it is that we just have to have that technology able to carry to those other areas of the world. But we still have great opportunities in the Southern border of the U.S., some opportunities with the DoD and even some commercial opportunities with the Vista radar system. So it's a mix. Andrea James - Dougherty & Company LLC, Research Division: Have you gotten the -- all of the export licenses that you've requested?

That's a good question. I'm not sure that we've received every one that we've requested, but we have a great handful of those certifications now. And I'm not aware that we haven't been able to receive one that we've requested at this point. So it's gone well. It's been a lot of work on our end, but it's gone well.

This concludes our question-and-answer session. I would like to hand the conference back over to Mr. Dan Rykhus, CEO, for any closing remarks.

All right, thanks. Thanks again for taking the time to join us on the call today and for the great questions. I really appreciate the questions today. At Raven, there is a singular purpose behind everything we do, and we call it solving great challenges, that's why we exist as an organization. Great challenges require great solutions, solutions that are driven by quality, service, innovation and peak performance, and this is what sets us apart from the other companies because it is our culture and it's woven into how we do business. We're continuing to invest in the company, expanding our fixed asset base and our portfolio of product lines. Raven's diversified business model enables us to weather near-term challenges while continuing to grow and build for the future. We look forward to updating you on our progress in the future. Thank you.