Compass Diversified (CODI) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to Compass Diversified Holdings 2012 First Quarter conference call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to David Burke of the IGB Group for introductions and for the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, and welcome to Compass Diversified Holdings first quarter 2012 conference call. Representing the company today are Alan Offenberg, CEO; Jim Bottiglieri, CFO; and Elias Sabo, a founding partner of Compass Group Management. Before we begin, I would like to point out that the Q1 press release, including the financial tables, is available on the company's website at www.compassdiversifiedholdings.com. The company also filed its Form 10-Q with the SEC last night. Please note that throughout this call, we will refer to Compass Diversified Holdings as CODI or the company. Now allow me to read the following Safe Harbor statement. During this conference call, we may make certain forward-looking statements, including statements with regard to future performance of CODI. Words such as believes, expects, projects and future or similar expressions are intended to identify the forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting the future results and conditions. Certain factors could cause the actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 2011, as well as in other SEC filings. In particular, the domestic and global economic environment had a significant impact on our subsidiary companies. CODI takes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Alan Offenberg.

Good morning. Thank you all for your time and welcome to our first quarter 2012 earnings conference call. We are pleased to report strong results for the first quarter of 2012 which exceeded our expectations. For the 3 months ended March 31, 2012, CODI generated cash flow of $16.6 million, an increase of approximately 16% from the year-earlier period. During the quarter, we maintained our focus on -- excuse me, taking advantage of the relative operating and financial strength of our subsidiaries, in order to gain a market share in their respective industries and, in certain cases, expanding to adjacent markets. Our results for the quarter were also positively impacted by favorable acquisitions, particularly our CamelBak subsidiary, which we acquired in August of 2011. We also benefited from the performance of our newest subsidiary, Arnold Magnetic, our fourth subsidiary acquisition over approximately the past 2 years. Based on the strong results across our diverse family of niche leading businesses and future prospects, we paid a cash distribution of $0.36 per share for the first quarter, representing a current yield of approximately 10.5%. Since going public in May of 2006, CODI has paid accumulated distributions of approximately $7.80 per share. With significant access to capital, we remain -- excuse me, committed to taking advantage of both organic and acquisition-related growth opportunities that create a long-term value for our owners while providing attractive cash distributions. In further strengthening our financial flexibility, we completed 2 additional transactions thus far in the second quarter. First, we expanded the size of our term loan facility by $30 million to $220 million -- $255 million and lowered the interest rate by 1.25%. Our amended term loan facility enhances CODI's financial flexibility and lowers the company's borrowing costs. By taking advantage of a more attractive pricing environment, we expect to significantly reduce future interest expense. We appreciate the continued support of our lending group, which we believe underscores our strong growth potential. Second, we made a strategic decision to sell our HALO subsidiary. The opportunity to monetize our interest in HALO increases our liquidity and supports our efforts to maximize value for our owners. With this transaction, we have further enhanced our position as an all-cash buyer of new businesses, a key competitive advantage in the current environment, while reinvesting in our existing subsidiaries to strengthen their future performance. I would like to note that our liquidity stands currently at approximately $290 million, positioning CODI well for the remainder of 2012 and beyond. I'd like to now turn the call over to Elias for an overview of each of our subsidiaries.

Thank you, Alan. I will begin by reviewing our companies alphabetically, starting with Advanced Circuits. Advanced Circuits met our expectations in the first quarter, as demand for our core quick-turn and prototype production services remained strong. The growth in our leading quick-turn and assembly businesses, offset the softness in the production of circuit boards for our defense and aeronautical customers, which has been affected by challenging conditions within the national defense contracting industry. Going forward, we will maintain our focus on leveraging ACI's #1 market position in the quick-turn manufacturing niche, while pursuing attractive opportunities to further consolidate the industry. Next, American Furniture performed in line with our expectations, as this business reported slightly better than breakeven cash flow for the first quarter. While AFM continues to be adversely affected by the soft retail environment in the furniture industry, we continue to aggressively manage the company's overhead and working capital requirements. Based on our restructuring efforts over the past year, AFM remains on track to generate positive cash flow in 2012. Turning to Arnold which we acquired on March 5, this business met our early expectations. We are excited by Arnold's attractive growth prospects as the company is a niche industry leader with a strong history of stable cash flows. We plan to drive future performance by further leveraging the company's superior reputation in the specialty and rare earth magnetic industry and capitalizing on the positive macro trends, including increasing demand from high-growth sectors such as alternative energy. At CamelBak, which we acquired in August of 2011, revenue increased over 23% on a pro forma basis in Q1, well ahead of our expectations. CamelBak's top line performance reflects the company's strong brand recognition as an innovator of best-in-class personal hydration products. We are pleased by the considerable progress we have…

Thank you, Elias. Today, I will discuss our financial results for the quarter ended March 31, 2012, including a review of the operating results of each of our subsidiaries. On a consolidated basis, revenue for the quarter ended March 31, 2012 increased to $232.4 million, as compared to $177.3 million for the prior year period. Net income for the quarter was $0.9 million as compared to a net loss of $6.6 million in the year-earlier period. During the first quarter of 2012, CODI reported approximately $4.3 million of transaction costs related to its acquisition of Arnold, and reversed approximately $1.5 million of its noncash supplemental for accruals. Now turning to our subsidiary results, beginning with Advanced Circuits. For the quarter ended March 31, 2012, Advanced Circuits revenue was $19.4 million, compared to $20.3 million in the prior year period, mainly due to lower long lead sales, partially offset by a higher quick-turn and assembly sales. The income from operations for the quarter was $6.2 million, as compared to $7.1 million for the same period in 2011, as a result of lower sales and promotional pricing in the long lead sector. Now I'd like to turn to American Furniture Manufacturing or AFM. For the quarter ended March 31, 2012, the AFM's revenues decreased to $30.3 million compared to $35.9 million of revenue, in the prior year quarter, as this business continues to be adversely affected by the challenging environment in the promotional furniture market. AFM reported $0.3 million of operating income for the first quarter of 2012, as compared to a loss from operations of $8 million, which included a noncash impairment charge of $7.7 million in the prior year period. Turning to our newest company, Arnold Magnetics, which we acquired on March 5, 2012. For the quarter ended March 31,…

Thanks, Jim. We are pleased by our strong start to 2012. The notable performance across our family of niche market leaders, combined with our balance sheet strength, bodes well for CODI's future prospects, as we remain on track to achieve modest year-over-year growth, in CAD for 2012, even after taking into account the recent sale of HALO. We plan to continue to invest in high-return organic growth initiatives and pursue accretive acquisitions of companies with a real reason to exist under favorable valuations and terms. We also intend to provide our owners with attractive cash distributions as we have consistently done in the past. I would like to thank everyone again for joining us on today's call. We will be happy to take any questions you may have. Operator, please open the phone lines.

[Operator Instructions] We will go first to Vernon Plack with BB&T Capital Markets.

And a couple of questions, just in terms of some more color on the controlling companies, if you can. I know that AFM's, the first quarter and including April is typically from a seasonality perspective, your strongest period. Just some thoughts in terms of what type of start they were off to this year? Tell me what that says for the rest of the year. So I guess what I'm asking, have we -- should we expect results to continue to trend down from here for the rest of the year, given that this is seasonally the strongest period?

Yes, Vernon, I think that your comments about AFM seasonality are accurate, and the first quarter is traditionally its strongest. The fourth quarter would be the next strongest, the second quarter would be the third strongest, and the third quarter would be the slowest quarter. We don't expect that those patterns should be different this year than it has been in previous years. I think the company had a really strong first quarter. Production was slowed due to the delay of shipments of kits from China this year that not only plagued American Furniture but plagued others in the furniture industry. We think that the delay in those shipments, did not allow us to satisfy all the demand that was available to us in the first quarter. So we remain very encouraged by the first quarter, particularly from a margin perspective, as the company begins to reap the benefits of the actions taken in 2011. So even with the decline in the revenue quarter-over-quarter -- sorry, on a year-to-year basis, first quarter versus first quarter, you saw the company is still able to maintain better margin this year, despite the sales decrease. We expect -- we believe American is positioned to deliver better margin performance than it has over the past several years. And so we -- as we mentioned in our comments, believe the company remains on track to generate positive EBITDA for the year. I wouldn't expect a difference in seasonal patterns from a revenue standpoint, as you described. And hopefully that addresses your question.

Yes. I guess what I'm asking is, if I look at the -- what EBITDA was for the -- let me -- let's ask it a different way. Just in terms of -- EBITDA for the first quarter was I think, $414,000. Can we expect the rest of the year to break even? Or are you expecting some slippage and essentially hoping to break even to be positive for the entire year?

Based on seasonal patterns, historical seasonal patterns, the first quarter should represent the highest level of EBITDA that the company generates. That's not to say that the company would not generate positive EBITDA in other quarters, particularly the fourth quarter. Again, based on historical seasonal patterns. So again, I think that's based on our comment that we believe the company to be on track to generate a positive EBITDA for the entire year, you may see in the future quarters, certain quarters that are certainly lower, or actually we would expect perhaps, all of the quarters to be lower than the EBITDA generated in the first quarter. But we do believe that we are on track to be positive for the balance of the year. So I -- again, I hope I'm answering your question. I'm just not...

No, you have. I was just looking for some color and obviously these are estimates so I understand. That's very helpful. And the second company I was hoping to get a little more color on, and this was explained a little bit by Elias, as well as Jim. But CamelBak was above expectations, and was it particular products? Was it the distribution, the expansion at the distribution channels? I'm curious in terms of why the upside, versus where you thought it would -- they were going to come in? As well as what this perhaps says about the type of year they'll have?

Yes, CamelBak really had strength across its packs both on the recreational users as well as military users, and bottles. So it was pretty broad-based. I would say that the pack performance and the bottle performance were ahead of our expectations, and it was just a particularly strong quarter with respect to both of those products. But I think that the pack performance probably exceeded our expectations, more so than the bottles. And I -- with respect to the rest of the year, Jim, I don't know particularly with respect to guidance, I don't know that -- we believe that CamelBak, the demand for their products, the product positioning, the distribution that they have presently, positions them to continue to have a strong year.

And we will hear next from Troy Ward with Stifel, Nicolaus.

Just a follow up little bit behind Vernon here, on the seasonality in the portfolio. Can you briefly speak of any seasonality, and then in some of the newer businesses? Some of the older ones, we're pretty familiar with. But if we can talk just about Liberty, Camel and Arnold, as we think about our models and seasonality in those 3 businesses.

Jim, do you want me to...

Sure.

Well, we'll split it, Jim.

Yes, start with CamelBak.

Sure. CamelBak demonstrates some modest seasonality, as you might expect, given the focus on hydration products. I think that the second and third quarters are typically their strongest quarters as compared to the first and the fourth quarters. But I wouldn't classify that seasonality as dramatic as say, AFM's seasonality. But it is a modestly -- have some modest cyclicality in those 2 quarters. While with respect to Arnold...

Just like -- maybe just to clarify that. Although the first quarter was very strong so, I wouldn't say the second, third quarters are going to be stronger than the first quarter results...

For CamelBak.

For Camelbak, right.

Yes, CamelBak had an unusually strong quarter. That's a good clarification, Jim. With respect to Arnold Magnetic, it doesn't really have cyclical business. There may be quarter-to-quarter performance differences based on normal business operations or certain quarters or certain customers, but it doesn't demonstrate a cyclical pattern like some of our other businesses. And the last business...

Liberty. Liberty is also relatively flat. Though, I would point out that the first quarter was heavily impacted by the startup costs, what I've mentioned for the new small safe line. It impacted the first quarter's operating results but...

On the margins.

On the margins, right but the revenue is somewhat flat.

Okay, great. That's very helpful color. And then as we think about the sale of HALO, a couple of questions. First, I know that it was coming up or just actually surpassed its 5-year anniversary, under CODI ownership. And so, first of all, you have a contribution-based profit allocation, baked into the supplemental put. Can you just talk about what changes, if any, are we going to -- we're going to see in the supplemental put, because of the HALO transaction?

Yes, that was a relatively small number, it's was about -- I believe it's like $600,000 -- $500,000, $600,000 for the contribution. Based on the results from April, on top of some sales bonuses that were paid to the management team, we'll virtually wipe that out in April. So we do not anticipate paying any profit allocation for HALO.

Okay. And then can you just speak broadly -- well, I guess first from all of my questions, you said there's a strategic acquisition, Candlelight Investment, I think was the name that was put out there, as the buyer. Can you just speak to who that is, and where in the industry they play?

I believe we referred to it as a strategic decision on our part. Still...

Oh, I'm sorry. So it's a financial buyer?

Correct.

Okay. And can you just kind of lead us kind of down the path of how you came to that decision and why? I guess to me it looked like HALO was kind of sold at kind of a breakeven cost over a lot of years. Can you just briefly describe your relationship over the years with HALO and why you decided to exit?

Sure, yes. We did sell it for more than we purchased it for. Then we -- as you mentioned, recently celebrated our fifth-year anniversary with HALO. And I think that we put -- we believed, when looking at HALO, that it was a -- an opportunistic transaction for us, that really allowed us to not only expand our liquidity, but also with that liquidity, allow us to provide the capital to make acquisitions that we believe would create more value for our shareholders over the long haul. And we are pretty pleased with the efforts that we had at HALO. We think we did some great things there with the existing management team, but we just felt that we were -- we could serve our shareholders better by taking the opportunity to strategically sell the business and redeploy that capital into other opportunities.

Okay. And then, as we think about kind of, as we think about where you look for new acquisitions going forward? As I've always thought about HALO, it really -- I know a few of you, have referred to it -- this is -- but I've always looked at it as a rollup strategy. You just -- you constantly were buying little players in the space and trying to be the biggest player in the space, and eventually, you'd sell. And that's what happened. Now if you look at -- what I think are maybe some, a few more recent purchases, whether it would be CamelBak, ERGObaby and Liberty, it doesn't feel like, it's the same type of model. Going forward, would you focus more on kind of the Liberty, CamelBak kind of model, where you take at leading product, and you expand distribution, and you expand the footprint of the product versus a rollup? Or would you still be open to rollup strategies, after the HALO experience?

Look, I think we'll remain open to looking at transactions that we think are compelling and that can create value for our shareholders. I do think that we are always interested in making add-on acquisitions to existing or future subsidiaries to the extent that makes sense. I think that the companies that you referenced probably are indicative of the type of opportunities that we found most compelling to date. I wouldn't want to automatically rule out the notion of pursuing what -- the reference to a rollup strategy. But I would say that we have gravitated more recently to the types of companies that you described and we find those companies to be compelling. But I think that again, I think that we have a lot of success with the rollup strategy at HALO and I think we and they, worked together very effectively pursuing that strategy. So I wouldn't state necessarily that, that's not a strategy that we would ever pursue again.

Okay. And then one final one on the acquisition front. Can you just give us some broad strokes on what you are seeing out there with relationship to pricing, and willingness of sellers? And do you think that will be impacted at all? I play a lot in the middle market with business development companies, and they talk about how the tax changes are going to impact M&A volumes? Can you just speak broadly about the market and what you're seeing in the acquisition front?

Sure. I think that the deal flow continues to be solid. I wouldn't say it's overwhelming, but it's steady. The pricing expectations, I think, are always a challenge. But I think pricing is pretty robust right now for acquisitions. And I think that despite some ups and downs along the way, I think that the lending market remains very supportive of buyout transactions. There continues to be a lot of cash available to deploy, both by companies and financial buyers. We've heard some of the same talk that you heard, with respect to changes in tax laws being a potential motivator, or an increase in transaction activity over the balance of this year, which really is what happened last year as well, or 2 years ago, I'm sorry, where we -- where there were speculation that there would be changes in tax laws. So we've seen that before, and we're hearing the talk about it happening again. At this point, it's -- it remains somewhat speculative. It's probably a little early to see that type of flood in terms of getting transactions done before the end of the year, but I would say if that is going to happen, it would probably -- we would probably see evidence of that tax-driven increase in deal flow over the next 2 to 4 months.

Okay, great. And then just one quick last one on the impact of potential European issues and how that may impact any of your businesses. Just any thoughts there on your exposure to the European economies?

Look, I think across our portfolio, there are subsidiaries that have different levels of exposure to the European economies. Some that have more international sales than others, include Fox, include CamelBak...

ERGO...

ERGObaby, these are the companies -- Arnold. Those are the companies that jump out from our group of subsidiaries that have international exposure. I think, like everyone, we remain concerned and cautious about what's happening in Europe. It is -- I would say through the first quarter, our results have not been reflective of a weakening of business within Europe. However, the events of the last week certainly have created more and more concern broadly about the direction in Europe. And so we pay attention to it. Obviously, it's very, very hard to predict how it might impact our businesses going forward. We remain concerned, and are concerned, however, to get performance to-date is encouraging. So we try to balance evaluating performance to-date versus how it might impact us going forward, but it's really impossible for us to predict but obviously, something that we remained cautious about. And the management teams at the subsidiaries that I mentioned, really as well as all of our subsidiaries, are keenly focused on this and paying attention, and doing what they need to do to not only grow their businesses in that region. But to protect their business in that region if necessary.

And moving on, we have a question from Robert Dodd with Raymond James.

If this [indiscernible] companies, a little bit more. To start off in Liberty. I mean, you mentioned the -- it's in the queue, et cetera, the new production line. And it mentioned hitting that -- hitting expenses, but also indicated a note that it prohibited you meeting full demand. I mean, how much of an impact was that in Q1? Can you give us a bit more color? And then secondly on Liberty, last time we had an election year, there was a lot of activity in the firearms market. I mean, are you seeing any preliminary pickup in demand related to that kind of thing?

Yes, I'll start on the first one. And Robert, I'll probably answer your question a little bit more qualitatively than quantitatively. How -- so the first quarter demand in the new production line, how did those things interact. The, first let me say, the demand was broad-based across Liberty's production line, be it on the smaller safes, which come off the new production line, to the larger safes, which come off their existing roll form production line. The -- we had hoped that the new line would be operating at a greater level of efficiency, earlier in the quarter than it have. Now the good news is that our efficiency has increased each month in this first quarter, and it's rapidly approaching where we want it to be. But we -- the demand across all products remains so robust that we need all of our lines working. We've added an extra shift. I mean, we are doing things that everything we can to do -- to ramp up our production, to keep up with demand. But in the world of problems, they would refer to this one at the high class problem. The demand continues to just be extremely robust. So I would say that even if the new lite line had been more efficient than it was -- and it was quite efficient, I don't want to paint that wrong picture -- but if it had been producing where it was -- where they had hoped it would be, we still would've not been able to satisfy all of the demand for our products. And so I think it is, where I would say more of the production line, getting up to speed, I think reflects itself more so on our bottom line and on our margins, because we…

Okay a very helpful color. A couple more. On CamelBak, I mean you mentioned you -- obviously Q1 was very strong, indicated that in reference to basically packs being strong, gloves being weak. I mean is this -- do you think -- and that obviously helped margins, et cetera. I mean is that a permanent shift, do you think? Or is that just an anomalous mix in the first quarter?

No, I think that the strengths in the packs and the bottles are representative of the business, as we see it moving forward. I think the gloves is a smaller component of the business, and will always have probably a bit more lumpier profile in terms of its business being up or being down. But I think that, that -- we would expect the mix of business, as you think about bottles, packs and gloves to -- I think the first quarter is fairly representative of how we see the balance of the year.

Okay, great. And then on -- the last one for me, on Advanced Circuits. I mean you know that obviously their sense in promotional activity that's been going on for a little while, some discounting, new longer-term contracts, there's -- a more aggressive competitor and do you expect some of these trends to continue throughout the year? I mean, when do we start lapping some of the long-term contract renewals? And should we, at this point be expecting to see it, have a down year?

Well, we don't have long-term contracts, So we won't expect to have kind of a runoff of those. This is a -- a lot of the work is, there are some project work that goes on, and the defense work. But given that the vast majority of the business is on the quick-turn and quick-turn production and prototyping side, most of that doesn't lend itself to longer-term contracts. So we don't really see any concerns with contract lapses. And in terms of, what we see year-over-year, I think that we have said and kind of we'd maintain that, we believe there is growth in our assembly business, but the quick-turn part of the circuit board business is kind of a flattish to maybe up a little bit. And then there are significant pressure on some of the longer lead, higher tax up is going, mostly into the defense market. So if you put that all together, we kind of are looking at right now, a flattish type year and this is a company that is extremely well at getting the maximum amount of efficiency, out of the revenue. So I would say, Robert, we kind of, think of it as flattish on top line, probably kind of flat also in terms of the EBITDA. And a lot of this, I think, will depend on, what we see out of going forward, when the ship will turn, will be based on what we're seeing out of the military market. Unfortunately, right now, because of the uncertainty that's been created on the looming cut that are coming, a lot of the project that normally would be well in advance of projects getting put into full service, that's really where we work more in the R&D side of that. Those things are being delayed until there's a little more certainty. I would hope as the year goes on, and that as we get closer to 2013, that there starts to become more clarity around what military spending will be and in what areas, and that will start to open up the first strings in terms of new R&D projects.

[Operator Instructions] And we will move on to Martin Perlman with Martin Perlman Associates.

I just want to make sure I heard right. I believe you said that you're looking for a modest CAD growth even after the sale of HALO. Now does that compare -- and absence of Staffmark?

Yes, that's correct. So our projections for CAD for the full year of 2012 is expected to be show a modest increase over the CAD that was generated in 2011.

And we will go next to J.T. Rogers with Janney Capital Markets.

I had a -- this question again on the segments. I guess first of all on the Tridien, since you guys have been spending -- assuming you're spending in the R&D in this segment for a while now. I was wondering if there are any new product or any significant new product rollouts that might be on the horizon, that could potentially offset some of the pricing pressure you've been seeing there or maybe drive some increased growth?

Yes, J.T., I would say the R&D pipeline is quite full right now. And so we've got a number of projects that are advancing through. We would expect, right now, to see some new products introduced at the latter part of this year, and then really to have kind of a pretty nice progression in 2013 of new product introductions. So there -- we would expect some modest contribution at the back end of the year from some of the new products, but really this is kind of a 2013 rollout of a lot of these products. And we think we're well on track to kind of meet some of the 2013 expectations here. So I wouldn't put a lot -- expect a lot in 2012 contribution. If anything, it will just be a little bit from a couple of products that roll in the fourth quarter.

Okay, great. And then just sort of on a bottom line base, I mean could you get back to sort of I guess a 2010 or 2009 type EBITDA number with these rollouts?

Yes. I mean, I think, look -- our goal we've made a lot of investments in the business, and you guys are seeing that come through in terms of increased SG&A spend. A lot of things I think come into play with what you said there. We do believe that we've got a business just broadly, we believe we have a business that is very well positioned in terms of demographic trends and overall tailwinds behind it. Clearly, we suffered some margin compression, that we need to offset going forward. And we got some new products that we'll be rolling that we think will -- because of their proprietary nature and the IP that we have built into those, will command better margins. All of that put together leads us to believe, over kind of a reasonable period of time, we'll regain our profitability. But this is a process and it's not something that I would guide you to say 2013 should be expecting to fully recover back to our peak years of 2010. But we do feel very good about the efforts that are ongoing there, and the general industry and think this is the company that, over time, should be able to regain its profitability levels.

Okay, great. And then on the ERGObaby, just wondering if you had some more detail on the expansion of their -- sort of core baby carrier business. I think when you back out on the contribution of Orbit Baby, growth is -- it has -- is down year-over-year, and is essentially flat quarter-over-quarter. I'm just wondering what's going on here? And then, I know you mentioned something about the distribution channel, but you're sort of backing that out. How does -- how did the expansion of the baby carriers, sort of progressing?

Yes. So we're really excited about what's going on at ERGObaby. I think, domestically, we have expanded our distribution and we're now fully in Babies "R" Us. And we have -- we're on some target and so in their online and we feel that we're starting to get much broader distribution here domestically. We're also working on international distribution and getting new distributors, qualified and up and running, and we have markets in Europe and Asia that are coming on, and showing some nice growth. And so we're very bullish and positive about the expansion of the distribution channel that's occurred under our ownership and continues to occur. I think the numbers that you're referencing, J.T., which are correct, is kind of flattish outside of Orbit Baby year-over-year, is a function of timing of shipments that we have to some of our larger international distributors. And so what you'll see here is that because the international, especially our Asian distributors, are -- can be rather large in terms of their buying pattern, it's about them, sometimes getting some inventory in, and then selling through that. It doesn't always follow quarter-to-quarter, when they're going to be placing orders. Last year, we may have gotten a huge order from one of our distributors, and this year that may have fallen into Q2. So I think we are very pleased at the trends that we're seeing in the business, and the -- what our expectations are, broadly across both the international and domestic for the soft-structured carrier side. And we think that when you go over a kind of longer period of time, 6 months, 9 months, a year, and do comparisons, you'll find that -- and that will smooth out some of the lumpiness of international orders. I think you'll find that the growth is materializing reasonably well there.

And we do have a follow-up question from Troy Ward with the Stifel, Nicolaus.

Hey just really quick. On the comment where you expect, your CAD expectations this year to have modest growth over next year, does that assume any additions to the business segments throughout 2012?

No, it does not assume any acquisitions.

And we will hear next from Jim Stone with PSK Advisors.

I'm wondering, if we step back from the company and look broadbrush at it, and look at the year-over-year performance where we've had the shareholder equity decline, earnings have improved but they're still not positive, I'm wondering -- and we look at the total economy, and what's happened to it over the last year, I'm wondering if this suggests that maybe we ought to be altering some of our strategies? And what it's telling you?

Well, I think, perhaps our perspective is a little bit different than what you laid out. I think we see our company is doing quite well. And I -- so maybe we need to be a bit more granular on some of the numbers, in support of your opening remarks. But I think that we remain very confident in our group of subsidiaries, in their performance, as well as in our strategy. So I'm happy to discuss further, but I think again we remain quite confident in our strategy as well as very encouraged by the performance of our subsidiary companies.

And with no further questions in the queue, I'd now like to turn the call back over to Alan Offenberg for any additional, or closing remarks.

Thank you all for joining us today. We really appreciate your time and we look forward to speaking with you next quarter. Take care.

And ladies and gentlemen, that does conclude this call. We thank you for participating today.