EnerSys (ENS) Q2 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the EnerSys Quarter 2 2014 Earnings Conference Call. My name is Annette, and I will be your coordinator for today. [Operator Instructions] Please be advised this conference is being recorded for replay purposes. I will now turn the conference over to John Craig, Chairman, President, CEO of EnerSys. Please proceed, sir.

[Technical Difficulty] As you know, last night, we released our earnings and our guidance. I would like to remind everybody that we are going to be using some slides this morning. And if you haven't pulled those up already, you can go to our website at www.enersys.com and look under the Investor Relationship tab and you can follow through the slide so that we're going to cover. Before we get started to get into details on second quarter results, I'm going to ask our CFO, Mike Schmidtlein, to cover information regarding forward-looking statements. So Mike, could you take it from there please?

Thank you, John, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance, and are applicable only as of the dates of such statements. For a list of factors which could affect our future results including our earnings estimates, see forward-looking statements included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operation set forth in our quarterly report on Form 10-Q for the quarter ended September 29, 2013, which was filed with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release dated November 6, 2013, which is located on our website at www.enersys.com. Now, let me turn it back to you John.

Okay, Mike, thank you very much. As you know, last night, we released our second quarter financial results of $0.87 per share, which exceeded our guidance of $0.81 to $0.85. Reflecting our results was a sequential reduction in sales due to the vacation season in both Europe and the United States. As you may have seen last night, we also released our third quarter guidance of between $1 and $1.04 per share, which if we achieve that level, or midpoint of that level, that would be the highest quarter in the company's history. In the third quarter, as compared to prior year, we will benefit from increased volume, the Purcell and Quallion acquisitions that we completed just recently, and increased pricing to offset higher commodity costs. As you can see on Slide 3, we reported quarter sales of $568 million. Our gross profit of 25.4% has put us once again, over our 25% target. Operating margins was a strong 11.1%, which is the seventh consecutive quarter of exceeding our 10% minimum target. I want to turn your attention to Slide 4 and update you as of recent actions we have taken to create additional shareholder value, and grow our business and profitability to achieve our target of $4 billion in sales with a minimum of 10% operating earnings. In October, we completed our $150 million acquisition of Purcell Systems, a leading manufacturer of thermal managed electronic equipment and battery cabinet enclosures. I'm excited about the synergistic business opportunities from this acquisition. First, we can now provide our customers with a fully integrated enclosed solution for their equipment deployment. Second, EnerSys global sales and marketing provides us an opportunity for Purcell to expand its business across the world. Third, the majority of Purcell sales are in telecommunication and broadband markets. Additional sales into the UPS, utility, rail and military offer Purcell additional opportunities for growth. Last Friday, we closed our $30 million acquisition of Quallion and manufacture of lithium-ion cells of batteries for high integrity applications in medical devices, defense, aviation and space. The Quallion acquisition is a great strategic fit with EnerSys. First, it enables EnerSys to have a complete control over the entire the lithium cell and battery production process. We can manufacture our own lithium-ion cells, which is very important to most of our customers. Second, with both Quallion and our ABSL space business, EnerSys is now a leading provider of battery technology to the global space market. Third, Quallion's leadership position in lithium-ion batteries for implantable and external medical devices expands EnerSys lithium product offerings into key strategic high growth markets. We remain active on several additional acquisition opportunities, some of which we anticipate completing before the end of this fiscal year. Also, we continue to execute our strategic plan of getting our EMEA operations or regions to a minimum of 10% operating earnings. Last week, our Board of Directors approved another quarterly dividend of $0.125 per share which is payable in December in addition to our current year stock buyback program totaling $38 million at the end of October. Now, commenting on our current business activities. Order rates for motive power, reserve power and Aerospace & Defense product lines are up year-over-year. The Americas and Asian regions are enjoying strong year-over-year orders, while EMEA region has experienced modest growth. In closing, our vision of EnerSys growing to $4 billion in annual revenue is certainly beginning to take shape, thanks to our over 10,000 employees worldwide and the recent acquisitions. We welcome the Purcell and Quallion employees to the EnerSys family and look forward to us jointly growing EnerSys shareholder value. I previously stated during our last investor call that fiscal 2014 second half earnings would be stronger than our first half. We still retain our strong earnings view for the second half, as evidenced by our third quarter midpoint guidance of $1.02 per share. Now, Mike, if I may ask you to pick up from there and get into a little bit more details on our results and our guidance.

Thanks, John. For those of you following along on our webcast, I'm starting with Slide 5. Our second quarter net sales increased 3% over the prior year to $569 million from 1% increases in volume, price and currency translation. On a regional basis, our sales in Asia decreased 7% in the second quarter to $58 million, while Europe's second quarter net sales increased 4% to $223 million, and the Americas were up 4% to $288 million. In the Americas, 4% organic volume was the reason for the increase, with 1% pricing negated by an unfavorable currency impact of 1%. In Asia, volume declined 3% due to the completion of a large order last year from a customer, as well as an unfavorable currency impact of 3% along with lower pricing of 1%. Europe had a 4% currency gain and 1% higher pricing, partially offset by a 1% volume decline. On a product line basis, net sales for motive power were up 7% to $289 million while our reserve power decreased 2% to $280 million. Motive Power enjoyed a 6% volume gain and a 1% favorable currency, while reserve power incurred a 3% volume drop, offset by 1% in higher pricing. Please now refer to Slide 6. On a sequential quarterly basis, second quarter net sales were down by 5% to the first quarter, due primarily to lower organic volume. Asia was up 14%, while the Americas region was down 9%, and Europe declined 3% during their normal holiday months. On a product line basis, reserve power and motive power lines were both down 5%. Now, a few comments about our adjusted consolidated earnings performance. As you know, we utilized certain non-GAAP measures in analyzing our company's operating performance, specifically excluding highlighted items. Accordingly, my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's Form 8-K, which includes our press release dated November 6, 2013, for details concerning these highlighted items. Please now turn to Slide 7. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $1 million with the operating margin down 50 basis points. On a sequential basis, our second quarter operating earnings were flat, but margins improved on lower volume and commodity costs. From a historical perspective, operating earnings remained strong at 11.1% of sales. The declines from the prior year reflect higher commodity costs. Our results, when compared to Q1, are encouraging as our second fiscal quarter is traditionally our weakest. Operating expenses, which have increased in the second quarter over the prior year and prior quarter rates, are expected to normalize in our second half with full year expenses comparable to prior year when measured as a percentage of sales. Our Americas business segment achieved an operating earnings percentage of 15.3% versus 15.8% in the second quarter of last year, primarily from the impact of higher commodity costs. On a sequential basis, Americas second quarter increased 210 basis points from the 13.2% margin posted in the first quarter as a result of receiving commodity cost, despite lower volume. Europe's operating earnings percentage of 6.8% was above last year's second quarter of 6.5%, but slightly below the first quarter rate of 7% due to lower volume. The operating earnings percentage in our Asia business segment decreased in the second quarter this year to 7.1% from 10.6% in the second quarter of last year, and from 10.3% in the prior quarter. Asia's operating earnings were $4.1 million for the second quarter, reflecting 7% lower revenue from the prior year, as discussed earlier. Please move to Slide 8. As previously noted on Slide 7, our second quarter adjusted consolidated operating earnings was $63 million with a decrease of 2% in comparison to the prior year, with the operating margin declining 50 basis points to 11.1%. Excluded from our adjusted operating earnings for the second quarter was approximately $2.2 million of pre-tax highlighted items. Our adjusted consolidated net earnings of $43 million decreased 4% from the prior year to 7.6% of sales for a 50 basis-point decline with the book tax rate decreasing to 27%. EPS decreased 5% to $0.87 on lower net earnings and higher shares outstanding. The higher average diluted shares result primarily from our convertible debt, which becomes dilutive when our shares rise above $40.60. This convertible debt dilution added over 1 million shares to our EPS calculation and decreased EPS by $0.02 in our second quarter. Our adjusted effective income tax rate of 27% for the second quarter was slightly lower than the prior quarter. We believe our tax rate for the third quarter of fiscal 2014 will be between 26% and 29%. And for the full year, we expect a 28% rate on our as adjusted earnings. Our as reported rate for the full year, will be positively impacted next quarter by an item, which I will describe later. Please now turn to Slides 9 and 10. As usual, we have provided information on a year-to-date basis similar to that of our second quarter on the prior pages. These 2 pages are for your reference and I don't intend to cover year-to-date results. Please now turn to Slide 11. Now, some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have [ph] $273 million on hand in cash and short-term investment as of September 29, 2013, with over $480 million undrawn credit facilities around the world. We generated over $91 million in cash from operations in our first 2 quarters of fiscal 2014. Even after $45 million of share buybacks and dividends through the second quarter, our leverage ratio remains near 0. As John mentioned, and as noted in our subsequent events footnote to the 10-Q and our press release recently announced, we recently announced the acquisition of [indiscernible] businesses for a combined price of $150 million. We these acquisitions, and nearly $50 million of authorized share buybacks, we expect our leverage ratio will still remain under 1.0x. Capital expenditures were $25 million for the first half of fiscal 2014, compared to $27 million in fiscal 2013. We expect to generate adjusted diluted net earnings per share of between $1 and $1.04 in our third quarter fiscal 2014, which excludes an expected net credit of $0.10 per share, net of our restructuring programs and acquisition activities, which will result from the removal of a valuation allowance on our deferred tax asset created by German net operating losses accumulated prior to our ownership in 2002. This guidance reflects slightly over $.03 of dilution caused by our convertible debts, converting with premium, which I previously mentioned becomes dilutive when our shares exceed $40.60. At current share prices, this will add up to 1.6 million shares to our diluted shares outstanding, making our expected average diluted shares outstanding for our second half to be approximately 49.75 million shares net of our expected share buybacks. We anticipate our gross profit rate in the third fiscal quarter to remain in the 25% range, as a result of lower lead cost. We expect to sustain our goal of 25% for our second half of fiscal 2014. In conclusion, we believe we remain well positioned to take advantage of future opportunities. Now, let me turn the call back to John.

Thank you, Mike. And then I'd like to now open the lines up for questions.

[Operator Instructions] The first question comes from the line of Tim Mulrooney of William Blair.

I was wondering if you could share with us any insight on how your motive business is doing recently? And maybe any update on order trends there?

Yes, the motive power business orders are picking up quite nicely. When you take a look at worldwide on orders 4-week average orders -- I'm looking at the 4-week average on a per day basis compared to prior year is actually up 22.6%. So we're really starting to see things come back quite nicely in that area, and orders.

Okay. And just one more. I was wondering if you could talk a little bit about that 3% decline we saw in the reserve business. Is that more a function of difficult comparisons? Or are you seeing any weakness in any particular market like telecom or UPS?

Well, as you know, as we stated in the past, the reserve power business could be a rather lumpy business. When the telecoms are buying a lot of batteries that in 1 quarter, the next quarter, it could be down. But if you take a look at -- and the other thing is, this was our second quarter. So if you look at the specific numbers on our first quarter reserve power globally committed $292 million and was down to $280 million, so down a $12 million quarter-to-quarter. But when you look at what's going to happen in the third quarter, it's popping right back up again. The order pattern is very strong that we're seeing coming in right now. The order pattern in total on reserve power globally is up above 28%, looking at a 4-week average. And as we've talked before, in Europe, in the summer months, and to a lesser extent, United States with the vacations and holidays, things-- sales drop right of. If you took about -- let me give you an example of that, our first quarter we came in at $597 million, we drop down to $569 million. But if you look at last year, it was $593 million down to $554 million, that's first quarter to second quarter. The pattern repeats itself almost every year, so I'm not at all concerned about what we're seeing in the reserve power drop down in Q2. And again, I emphasize when you take a look worldwide orders on a 4-week average, compared to the last year are up about 28%.

Next line of question comes from the line of William Bremer of Maxim Group.

Let's first start off with dim plate pure lead. Where are there in terms of levels, and in terms of your underlying capacity there?

Capacity-wise, we're in very good shape. As you know, probably 1, 1.5 years ago, we invested about $60 million, so that we wouldn't be in a situation that we couldn't deliver products to our customers that bought them in a timely manner. So capacity-wise, we're in very good shape. Our Newport Wale plant is running at near capacity. Our Warrensburg plant is a little less. And we do have some capability now in our ROS France plant. So we're in good shape in that area.

Okay. Would you say backlog is close to near record levels there?

Yes, it is.

Okay. Great, it's good to hear. Now, you touched on some of your end markets earlier, specifically telecom. Can you give us an update? What's surprising you at this point in terms of end markets? And are you -- and then if we touch up a little bit more on telecom, what do you seeing in terms of the 3G to 4G rollout globally at this time?

Well, I'll start with the U.S. The 3G to 4G rollout is near completion as they are adding more sites. But I think when we look at the U.S. we're way ahead than the rest of the world in 4G. When you look at, and you ask what surprises me, look at China Mobile, that's a surprise to me when I learned that they have over 740 million subscribers. That's twice the population -- more than twice the population of the United States. They're going to spend $32 billion to get 4G up and running, they're anticipating it will be in place in China in the second half of calendar 2014. We expect that we're going to see some real nice upside take place there. On the downside slightly upside, I'm surprised that Europe has taken so long to go from 3G to 4G. They're just starting right now, just a point that it's taken this long, but it's starting to take off there's. Some of the major cities you're seeing 4G over there. And I think once the commission, the EU commission, and the telecom companies come to an agreement out there, so how the telecom companies can finance to go to 4G, when that agreement is reached, I think they're going to see some very nice upside with EnerSys batteries being sold at that market.

Okay just one little quick follow-up on that front, specifically in the China market. When do you think you'll be start seeing those type of orders come through? If they're expecting more of a second half for some built. How early will you see that contribution?

Right now, it's starting. And it's in our forecast, the $1.02 midpoint forecast that we have. Asia, we expect to see some better results in third quarter than second quarter. And in part is because of what we just talked about our China Mobile, their ordering things. And we're starting to see the order pattern pick up.

The next part of question comes from Elaine Kwei of Jefferies.

Actually just a follow-up on that question regarding China. What should we think about in terms of the sales and the margin trajectory there in Asia? I mean when do we need to see to get back to those kind of double-digit margins that you've had in Asia in the past?

Well, let's talk about that quarter that just ended here. And when you take a look at Asia, if you look at our first quarter, we're 10.3% operating earnings and we dropped down to 7.1% in the second quarter. If you get behind the numbers, and you look at it, I'm not concerned about the operations side, but there are 2 things that happened, one is FX and the other is a bad debt provision. If you took those 2 things out, we will be north 10% right now. The bad debt provision is something we put in place conservative, Mike and his team are conservative accountants, and I'm very happy to say that and they put provision in place. I believe and according to President of our Asian operation, there's a strong chance we might pull some of that back. When you look at going forward, and what I just mentioned about China Mobile and about other things that are happening there, I think that you're going to see -- I hope to see a very strong third quarter, much better third quarter than the second quarter. Again, from an operations standpoint, I'm not disappointed in Asia. When I first looked at the numbers, the 10.3% going to 7.1%, I'm very concerned about it, but I got behind it, and look, it's FX and that bad debt provision they put in place, you strip those up, we're running pretty well.

It sounds great. And in terms of the -- could you also give us an update on the capacity expansion there in China, and how that's proceeding with the plants? And are you starting to -- it sounds like timing could work out very well with this 4G buildout as well?

Yes, it's working out very well with us. I think the one thing that I would say with it is the volume ramped up faster and our [indiscernible]plant than we anticipated. We're putting additional equipment online. Just to back up, you remember we said we're building a factory capable of supporting $150 million in revenue. And that's the factory size. But, honestly, we're not going to build that factory with all the equipment day 1. As the volume comes, we will add more equipment. I would say we got slightly behind in adding the equipment because the order pattern come in very strong for us. And we're keeping up with it, but we're working some overtime and some other things to keep it -- to keep customers satisfied with it. We're in the process of putting more equipment in place. I would say that, that facility is certainly probably running about 40% of their volumes, 35% to 40%, of the $150 million capacity. But it's running near 100% of the equipment capacity. So, very pleased of what I'm seeing there. The other plant is the [indiscernible] plant. The [indiscernible] plant, which is more of a motive Power plant, we have broken ground and we're just in construction phase of it right now.

Okay, that's really helpful. It sounds like a great problem you have with the orders. And just quickly on the acquisition, is Purcell fully integrated now into results. And would you say Quallion is little more of a technology play? Or is there opportunity for some pretty meaningful revenue growth as well?

Well, let's take Purcell. Purcell is -- our guys have done an excellent job of integrating in the company. In fact, I'm very impressed with the management team of Purcell and very impressed with management team of EnerSys of how the 2 groups got together and barriers were knocked out day one. I mean we had the president of our South American operation on the phone with the General Manager of Purcell talking about business growth there. There's meetings going to be taking place across Europe. In fact, there's one later this month in Stockholm, at a senior level. How we expand Purcell into Europe? The integration has been fantastic with that. Now, we're going to keep Purcell as a separate company. It won't be called EnerSys, and the reason for that is, we want to be selling cabinets not only to put EnerSys batteries in, but if the customers wants to buy our competitor's battery, if they do that, we don't want to exclude Purcell from being the cabinet provider. So I think there's a lot of great opportunities and upside in that area. Now, going to Quallion to your question, I'd say that's both first of Quallion is accretive to our EnerSys P&L. The other thing about Quallion, there are several things that is very important. #1, is that we are now a provider that from the raw materials all the way through to the final battery, we are the only company that I know in the world that can actually do that. Not just build cells but put them in batteries, but we actually manufacture the raw material going into the battery itself. It's something the United States government will help invest into with Title III money. It's something that we've had numerous conversations with government officials about buying Quallion over the years. And I think we've got some very great growth opportunities with Quallion and our ABSL operation in Longmont, Colorado and also with our operation in the U.K. The next area we get into, which I think is a very exciting area for growth, I think we're going to see a lot more batteries that are going to be deployed in the medical field, both implantable and external batteries for medical devices. Roughly 30% of the revenue of Quallion is already selling into that field. And during our due diligence, I'm talking to major customers, that buy those type of batteries, the growth projection that they're seeing are big going forward. So I think we got a nice opportunity to grow in Aerospace & Defense. I think we got a great opportunity to grow in medical with that acquisition.

[Operator Instructions] And the next line of question comes from Jeff Osborne from Stifel. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: I was just wondering, John, if you can give us an update on the Green Mountain Power trial with OptiGrid. I think that's been up and running about a year. I didn't hear it mentioned on the call. But -- That's Part 1 of the question. Part 2 is, just are you starting to AR QRP activity out of California, given the state legislation that they have passed there.

I can't answer the specific question on California because I don't know. All I know on it is for sure we've got more orders and activity [indiscernible] is out there. It is a lot of interest in it. To date, we've sold 1 unit, everything is working well on it. This is one of these things where it takes a long time for the utility companies and others to take and really evaluate this, decided where go to it. I would say that there's nobody out there selling large -- big large systems right now that of any significant volume. And what I'm referring to is someone said that, that market could be $100 billion someday. Today, the order activity coming in globally on that is hard to believe that it will never get to $100 billion. Now, that being said, as I said, the interest is very high, a lot of quote activity, a lot of people coming and looking at the systems, but we just have to wait and see how this thing takes off. This goes back to the thing if you talk about risk and reward. For us to take and build the system to try it out, it was about $0.5 million, and if you look at -- some say it's a $100 billion market, well make it 10% of that, so $10 billion market, something that you potentially could have a lot of upside in the future. I don't anticipate in the next year, you're going to see major orders in that. That's an investment for the future. Michael, do you want to pick up on that?

Yes, I was going to add, Jeff. I think as we looked at other opportunities in terms of acquisitions and just as we look at how we can extend OptiGrid, we become -- we've become more convinced that, that micro-grid storage application has real traction and it is going to grow. So we're very bullish on that. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Just a couple other housekeeping questions. On the Quallion acquisition that maybe I misinterpreted the press release, but I was thinking that you are potentially going to move some of your manufacturing from Germany to their facility, which I believe is in California. A, is that correct? And then b, what's the timing on that?

No, I don't think we're going to be moving production operations. The quantity operations that we have in Germany, it is a different lithium technology. The thing that we really like about Quallion and everything that we've heard from customers, is superior to everything else as being, that's out there. What they have developed and the history behind that company was, they developed a lithium-ion battery mainly for the medical devices. And then, there's an offshoot of that, they really got into the Aerospace & Defense area. So no, I don't anticipate that we'll be moving operations at all on that from here to Europe.

Germany is larger format product is being made in Germany. Quallion cells are of a smaller format size. So we would not envision combining those operations. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then is the accretion on Purcell and Quallion kind of right away? Or is there a 6 to 9 months lag? How are you thinking about modeling those, I know they're relatively minor to the model itself, but just so we have some clarity on that would be helpful.

I usually don't break these things out, or like to break them out, but since this is the first quarter, I'm going to answer your question specifically on it. In this particular quarter, third quarter, we're going to be looking at about $0.04 accretion due to those 2 acquisitions. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great to hear. Last question just for Mike. How should we be thinking about CapEx for the fiscal year? And any preliminary plans for the upcoming fiscal year, would be helpful?

Well, I think you're going to see this year we're fairly comparable, I think we're at $24 million through the turn halfway through. I would expect we're going to be around $50 million, $55 million, which is pretty normal for us. Some years, we're in the $60 million, so that's typically when we're in some of these plant expansions. When [indiscernible] was being finished, it was in the 60s. [indiscernible] when it's near the sort of the later stages, it will probably cause next year to be in the 60s. So typically, I would say the $50 million range is pretty normal for us. That's where I'd expected it this year. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I apologize, one real quick one here. On the margins, nice improvement you mentioned the lead as a part of the rationale and mix. Was there any changes on the thin plate pure lead or other premium products as a percentage of the total? I think in the past you talked about kind of 30-ish percent, is that...

It's running in the same range. One point of clarity, I gave a number that wasn't quite correct here earlier when you talked about motive power. I mentioned the motive power was up 23%. That's 23% in the United States. Globally, it's up 10% on motive power.

The next question comes from Michael Gallo of CL King. Michael W. Gallo - CL King & Associates, Inc., Research Division: John, could you just give us your view on the Purcell acquisition. The size of the global market, my understanding of Purcell is primarily a domestic business. How big you think this can be? I mean it seems that there's a tremendous amount of synergy with your existing customer base and being able to really bundle the complete end-to-end solution. So I was wondering as we look out 3 to 5 years, what's your vision for this business are?

Mike, when we put the model together on this thing, we looked at it and decided on what the price we're going to pay for it and to be blunt about that when you look at it's going to be primarily a U.S. operation and growing that conservative model together because -- and then we look at it, how big do we think we really can grow. The answer is we don't know. We don't know for sure. Because Purcell has not been that strong outside United States. But I'll tell you this, the day the press release went out, 5 major companies in Europe called our Vice President of our reserve power division and said, we are excited about this, we want to talk to you about cabinets. And these are big companies. So I mentioned that we have a meeting in Stockholm coming up here at the end of this month. And it's going to be, how do we take Purcell and go to the next level and really put it in Europe? And our financial model said, we didn't put a lot in there. We need to sort that out. And I can't give you the exact numbers on it, because I don't know. But I'll tell you this, what I'm seeing and hearing on the interest level, it's hard to quantify it of course, but the hearsay on it, I think we can get probably to the same size or close the same size in Europe than it is in the United States. But will have to see. It's story to tell. But even they just of the rights that we put in our model and still a great investment for us. But I think there's a lot of upside that we haven't put into the model yet. Mike, you want to pick on that one too?

Yes, you find enclosures nearly everywhere. And I think with our global reach and the diversification over the products and markets that we touch, that we really see this as a product line that we can take and sell as integral part of our portfolio in a lot of different applications.

This is that part of it saying which is very exciting. Purcell sells the cabinets they hire our third party to installed the cabinet, they farm all that out. We have restructured our reserve power service group, meaning we're putting and all those together where we can handle all the logistics and everything. Purcell, day one has started to work with our reserve power team about doing that installation. So, I think that's an upside for the reserve power group. But that second thing is Purcell has not been selling anything of significance in the military, into the rail business, and we do a lot of business in military and in the rail business also. So there's upside there. Third thing I mentioned in South America, Fourth thing is even in China, there's an interest on the Asia business, and I also mention Europe. We're going to start this out but my gut is that there's much more upside of this thing that we put in our financial model. Michael W. Gallo - CL King & Associates, Inc., Research Division: And then just a clarification, you clarified the motive orders to being up 10% globally and 22% in the U.S. The number you gave on the reserve up 28%, was that the U.S. number? And if it is, what was the global number?

The U.S. number on reserve power is up 15.5%. Those are orders over the last 4 weeks. Globally, it's up 28% or 27.5% to be exact. Michael W. Gallo - CL King & Associates, Inc., Research Division: Okay. So the 28% was globally.

That's correct.

Thank you for all your questions ladies and gentlemen. That concludes question-and-answer session. I would now like to turn the conference over to John Craig for closing remarks. Thank you.

Well, thank you, everybody, for calling in. We appreciate your interest in our company. And I can assure you that 10,000 employees with EnerSys are doing everything we possibly can to continue to increase shareholder value. We don't hide it all that we're heading towards the $4 billion. We don't hide it at all that we're heading Europe, to get Europe to 10% operating earnings, which is a target that we've shot for, for a long time. And it has alluded us. I believe that we will get there in a not-too-distant future. I'm very excited about everything going on right now. And I think we're going to continue to see good performance going out our company. And again, thank you for calling in. Everyone, have a good day.

Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.