General Dynamics Corporation (GD) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 General Dynamics Earnings Conference Call. My name is Carissa, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host, Ms. Erin Linnihan, Director of Investor Relations. Please proceed.

Thank you, Carissa, and good morning, everyone. Welcome to the General Dynamics fourth quarter conference call. As always, any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K and 10-Q filings. With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

Good morning to all, and thank you, Erin. For those of you who do not know, Erin is our new Director for Investor Relations. She's replaced Amy Gilliland who's been assigned to a broader portfolio, reporting directly to me. I'm not going to spend a lot of time on the fourth quarter, which is dominated by the charges. You're going to hear more about that from Hugh Redd. I do intend to spend time -- some time giving you a sense of my thinking about 2012, and then spend a bit more time on 2013. I'll try to keep my remarks somewhat brief to provide sufficient time to address your questions. With respect to the fourth quarter, I would focus you on the revenue drop versus the same quarter a year ago. The single largest cause of which is the revenue decline at European Land Systems. This is a salient fourth quarter impact that carries over into 2013, which we'll talk about in a bit more detail. For the full year 2012, let's first talk about Aerospace. The group had notable growth. Sales and earnings increased by double-digits. At Gulfstream, both revenue and earnings were strong, with revenue up over $800 million and earnings up $110 million. There was some decrease in margin as a result of a mix shift toward early production G650 and 280s. Of course, we had higher default penalties in the prior year that somewhat inflated the 2011 margin. Gulfstream also brought to market 2 clean sheet aircraft that entered into service pretty much on the schedule we first announced back to you in 2008. Jet Aviation performed better than 2011, with revenues up almost 10% and earnings better than last year without regard to charges. The management team at Jet has addressed the underlying operational…

Thank you, Phebe, and good morning. I intend to discuss in detail the charges in the quarter, including goodwill impairment and a few other miscellaneous financial items before the question-and-answer period. But before I discuss the goodwill impairment, I would like to address other discrete charges, which impact the fourth quarter by segment. First impacting the Aerospace group. We recorded a $191 million impairment of intangible assets associated with Jet Aviation's maintenance business. Jet's business, particularly in Europe, has been impacted negatively by recent economic conditions and an increasingly competitive marketplace, where we are seeing OEMs perform maintenance work that was previously performed by third-parties like Jet. As a result of these market trends, in the fourth quarter, we reviewed the long-lived assets associated with Jet's maintenance business and eliminated the remaining value of the intangible assets. We have repositioned Jet's maintenance business to match anticipated future demand and as a result, expect it to remain profitable in the future. Next, impacting the Combat group. We recorded a charge of $405 million related to our European Land Systems business. Included in this amount is $292 million for accruals for contract disputes, primarily related to our contract with the government of Portugal for 260 Pandur vehicles. During the quarter, we were notified by the Portuguese Minister of National Defense that the contract was terminated for an alleged breach of contract. Subsequent to that notification, the customer has drawn $73 million on bank guarantees related to the contract. While we have asserted that we are not in breach of the contract and that the termination of the contract was invalid, we reserved the receivables and inventory on our books and accrued an estimate to satisfy the remaining obligations to close out the contract. We filed a demand for arbitration to protect our…

Thanks, Hugh. [Operator Instructions] Carissa, could you please remind participants how to enter the queue.

[Operator Instructions] And your first question comes from the line of Myles Walton of Deutsche Bank.

The question I have is on IS&T margins, and you talked about up 20 basis points on a clean compare in 2012. I just want to make sure that's 8.2%, is that roughly the range?

Yes.

Okay. And could you talk about what the step down has been structurally? Where is the long-term margin opportunity? And maybe for Hugh, was there an -- is there an amortization benefit that's coming in '13 to IS&T that's in that 8.2%?

Let me give you a little bit and then we'll let Hugh answer. Let me give you a little bit of color on 2012 margins and then 2013 margins, all right? We had, as I mentioned, about a 20 -- 270 basis point compression in 2012 margins. And the way I think about the margins is, is here's what's going on. We talked about C4 in '12, and we are confident that their reset plan reflects their market reality and shows considerable improvement year-over-year. The IS&T services have become an increasingly large segment in IS&T, the IT services, and GDIT is a lower margin business than the other IT businesses. Going forward, there are 2 main drivers for 2013, C4 sales and earnings and margins are up in '13 as against '12 before nonrecurring charges, and their margin expansion is around 80 basis points. We've also addressed the operational problems at GD U.K., and we have some stabilization there as well. Offsetting that margin improvement is IT services has about a $350 million lower revenue target and margin compression of about 50 basis points. So net-net, that's how we're rolling up to about an 8.2% margin. Hugh, you want to address the amortization?

Yes, Myles, there will be less amortization in 2013. I think the number is probably $25 million, maybe slightly more. That has been reflected in the projections that Phebe has and the guidance she's given you.

Okay. I'll stick to one, but Phebe, is there a longer-term margin expansion story for IS&T or is this kind of what we should think about as the business?

There's a longer-term, and let me take this opportunity to explain that. One of the things that ought to be clear is that we have reset the IS&T plan across each one of the businesses, and we have done a very, very realistic program by program analysis that drove our revenue estimate by about 5% lower. And to fire test those assumptions, as part of our planning process, we used a parametric analysis based on several benchmarks including book-to-bill, established budgets and backlogs. So the result of where we're guiding you to in IS&T seems reasonable to me in both program assumptions and by application of the benchmarks. The history tell us a reasonable parametric test of our assumption. So when I think about IS&T, and let's talk about C4 in particular. This is a superb management team that given a realistic and reset plan and given their order book has margin potential. I'm just not going to lead you there, margin expansion potential. I'm just not going to lead you there yet. And that goes into -- that's relevant for '13 and '14. What we see over our long-range plan for IS&T is margin expansion across-the-board, but it's going to be slow and deliberative.

And your next question comes from the line of Cai Von Rumohr of Cowen.

So Gulfstream, could you give us some color on how many 650s did you deliver in the year? How many completions? And give us some color on the delivery assumptions behind your comments on Aerospace for 2013?

Yes, look, we -- as I highlighted and will be re-highlighted in our press release, we delivered 37 aircraft to customers in the quarter, including 31 large cabins, and we're not going to breakout aircraft delivery by model type, and I certainly don't intend to going forward. I can tell you that based on what we reported before, we had 6 G650s that are into service in the fourth quarter. Let me give you a little bit of background on margins. Let's take '12, okay? Starting in the third and fourth quarter, margins were impacted by higher cost of goods sold in connection with the completions and retrofit work for the G650. As a result, we have a temporary disequilibrium between green production and completions as we accommodate some retrofit work out of cycle. We've got to work our way through that over the year. And so that leads me into 2013, and I talked to you about margins in 2013, there are 2 things driving. One is the mix shift, with the larger proportion of 650 and 280s with lower margins at the moment compared with 450s and 550s. It's also about 650 production, which I alluded to, and we have factored the green and completion production rates to account for the balance -- this imbalance in production flow from green completions that will take the duration of the year to resolve. Let me give you, I think it might be helpful for you to understand where we are, and I will give you some color, I think some real detail on how we're seeing our rates and our margins. So let's talk about 650 manufacturing. Overall, the manufacturing of these aircraft is going well. However, not surprisingly, due to the prolonged FAA certification process and our decision to continue manufacturing G650s during that process, there is currently this disequilibrium between initial and final phase manufacturing. And that disequilibrium is the result of retrofit work, mandated by changes to the configuration of initial G650 green aircraft after they were manufactured to conform with FAA approved configuration. So as I say, we've got through the margin guidance we've got in 2013. Anticipate taking the majority of the year to rebalance our initial phase and final phase production. We have some opportunity there, but I'm not willing to call it yet.

And your next question comes from the line of David Strauss with UBS.

I want to talk about cash. Cash relative to adjusted earnings for the full year came in below 100%. Can you talk about, a couple of things, cash conversion in 2013 and then how you plan on -- your plan in terms of deploying the cash, obviously, relative to some of your peers, your dividend yield is a little bit lower, share repurchase, you haven't been as aggressive, focusing more on acquisitions. So just wanted to hear what you were thinking in terms of deploying that cash? And it looks like your guidance for the year doesn't assume anything for share repurchase, if I'm correct?

That's correct. So let me give you a little bit on cash. And you've seen this in '12, and you're going to see it again in '13. Our cash generation in the underlying business continues to be superb. We have considerable CapEx in '12 and again in '13. In '13, we're planned at about $618 million. This is primarily at Gulfstream, and I can tell you we're going to work that number very, very hard. We also have some headwinds in cash with respect to pension, and as I mentioned, a higher CapEx. But let me talk to you a minute about some subject that's near and dear to my heart, and that's capital deployment. I think it should be clear from what I've told you is that I'm going to remain, and as is our management team, focused on operations in 2013. I can tell you, there is almost no acquisition candidates in the current pipeline. I also believe that the acquisition process at GD is somewhat broken, and I will not venture back into that market until we have reestablished the discipline in this process. And I can give you a little bit more color on this. If you consider the acquisitions that were made in Combat, Force Protection in particular, and the repair businesses in Marine, they were excellent. IS&T acquisitions haven't been so far. Regarding dividend and share repurchases, I'm just not going to get ahead of my board, guys, all right?

Your next question comes from the line of Carter Copeland of Barclays.

I have just a broader question. I mean, it seems that after a lot of these changes, you've conducted a very broad business review here. And I wondered if you might discuss the scale and the scope of those actions? And anything it may have revealed broadly about the business, its structure, its competitiveness outside of the weakness that you've obviously called out in AIS and C4 Systems and ELS. Anything you sort of learned that you intend to apply to how you want to run the company in 2013 and beyond?

Yes, that's a very good question. It ought to be clear from the charges that in some respect we took our eye off the ball. Some of our business units performed superbly, but that benefit hasn't accrued to the benefit or that value hasn't accrued to the benefit of our shareholder, and you can better believe that we are going to be focused like a laser beam on that. I can tell you that I have -- I'm very close to our business unit presidents. I know their business. They know their business, and we are completely aligned with the prime directive. And that prime directive is drive cost out of our business, generate earnings and cash, expand our margins and reassure our shareholders that we're wise stewards of their capital. We are going to be focused on operations, and you're going to see that across every single one of our businesses. And let me tell you something else, too, as I think about our business. One of our key jobs is to manage and mitigate risk. And classical risk area argues for diversification, and one of the things that I think we need to understand about GD is we have diversification in 2 respects. First and clearly, we have diversification and countercyclicality with Aerospace and Defense businesses, right, it's pretty active manner. Second however, within our Defense businesses, we are somewhat countercyclical. With the Navy and the Army, our exposure to the Army and the offsetting exposure to the Navy portfolio. So while I see some contraction in our Army market, the Navy tends to be as a result of tactical changes in the budget. The Navy tends to be more strategically driven and vary depending on whether we are in a hot war, that balance between the Navy and the Army. So when you look at that, even within the defense portfolio, I like our balance.

That's great. And just as a follow-up to that, Phebe, as you think about the portfolio, you made the comments around M&A and the deal process being broken in some fashions. As you look back over some of the deals that were done, is there the scope for portfolio transformation and divestiture at some point or is it too early to say at this point?

I'm not looking at reshaping our portfolio at the moment. I don't see any compelling reason to do that. We've reset our businesses. Some of the acquisitions that we've made, I'm not a particular fan of, and had I been consulted wouldn't have done. But that said, the teams that we've got around each of these acquisitions are well poised to do -- to perform well. They're poised to perform well. And I got a lot of confidence in these guys, I got to tell you.

And your next question comes from the line of Howard Rubel of Jefferies. Howard A. Rubel - Jefferies & Company, Inc., Research Division: I want to follow a little bit on Carter, but turn the twist a little bit, and how are you thinking about -- well, kind of bidding and approaching market opportunities. Because the defense budget, while it's north of $500 billion, in many cases, there's great opportunities to take advantage of things you know well and Electric Boat for underseas, UAVs as an example or we saw the other day, you're looking at teaming with an aerospace company to go after a trainer. And then I have a follow-up to that.

Yes, so, look, let's take that in several parts. What you're going to see us do is pursue -- and I can't say this enough -- pursue margin expansion and generate cash and earnings. We are not going to chase revenue. We're going to stick to our knitting and do what we know how to do. This company has a long history of operating excellence, and it's perform, perform, perform. Now that said, we've got, if you look across the portfolio, we've got some real opportunities for organic growth. And I would point you to the Marine group. When you look at the 2-per year Virginia-class, as well as the Ohio replacement program, we've got, frankly, unprecedented growth in the modern era in Marine. And that to me is again all about performance. I like where we are on Combat Systems. It's interesting that nobody has asked me this question, but I'm going to answer it anyway because I'm itching to. The story in Combat Systems over the last few years has really been about Europe. It's not about the domestic or it's not about our domestic companies. They're pretty stable. And Land Systems, the big gorilla there, is extremely stable on its vehicle orders and on its vehicle backlog, and they know how to do what they do. So I like where Combat is. I like where Marine is. Aerospace, we've got to take advantage of the growth in Aerospace, and IS&T, we've repositioned, we've reset their plans. Their backlog is stable and those guys know how to do what they're going to do. So I think we're very well-positioned to deal with any changes that we see in the defense budget because -- yes, let me tell you something, that all comes down to agility, right? What I want to know is, give us the balls and the strikes and we're going to react. Tell us what the spending is going to be, allocate any cuts across the various portfolios and then it's our job to rightsize our businesses, drive costs out and perform for our customers and our shareholders and our people. Howard A. Rubel - Jefferies & Company, Inc., Research Division: And I mean, I think that goes to sort of being careful about contracting. I mean that's -- performance is part of it, but...

Hey, you got that right. Hey, listen, if you think about GD, one of the things that we do very, very well is all about contracts. If you get bad tees and fees in a contract, you are so far behind the power curve that it takes you a long time to dig your way out of that hole. We are absolutely ruthless in our attention to our contracting. And we have got some terrific estimators and some very, very good contract people. And that is, by the way, that is the foundation that we build this business on. Howard A. Rubel - Jefferies & Company, Inc., Research Division: I see it at M&E [ph], the development programs for the Zumwalt I guess really speak to that.

Don't they ever. That is -- that program is doing better than anyone could have expected. And I'll tell you, this is just my own little view, but when those ships hit their speed, I think they're going to have a profound impact. I'm out of my lane when I talk about that, but you know what, it's just my intuition.

Your next question comes from the line of Robert Spingarn of Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: You talked earlier in your opening a bit about the defense cuts embedded in your guidance. Perhaps, you could give us a little bit more specificity there? And then I'm wondering if you could apply your expectations maybe a little longer term, Phebe, to the segments, particularly to Combat and IS&T, and where you think the trough is in those businesses, at least from a revenue standpoint, whether it's '13, '14, '15, how you think about that?

As I see the defense market at the moment, I think IS&T has gone through its trough. I don't see anything under my current projections that would suggest that we've got considerable revenue decline in that business. That said, as I mentioned earlier, because it's a shorter-cycle business and we've got a fair amount of O&M exposure there, they are more vulnerable and more susceptible to dramatic changes in the defense budget. But as of now, and even if I look at -- you can make some estimates about planned cuts, I think we've seen the trough. But let me move to Combat for a minute because I think understanding our order book will help you a little bit. We have anticipated a number of significant international opportunities that we are very well positioned for, but that's really all I'm going to say about that at the moment. You should see some of those opportunities drop into our backlog in the first quarter. But let's think about Combat's backlog more broadly. It's about 1.2x sales at year end, and as I look at the book-to-bill for the entire group, it's been largely increasing quarter-over-quarter in 2012. And Land Systems' book-to-bill has increased significantly, and in the fourth quarter, approached 1:1. And to give you a touch more color on that, what I'm looking at for 2013 is sales growth in the international realm of about 44%. So when I step back and say, okay, if I look at my order book, I look at my book-to-bill, I look at how I'm positioned, how our company is positioned in Land Systems, as well as some of our shorter-cycle businesses, we ought to be able to do extremely well here, and we're reflecting that in our plan. And by the way, when I say plan, I've got a '13 plan, but I see possibility for margin expansion and earnings and cash generation well into '13, '14 and '15. So we got a nice balance here. Robert Spingarn - Crédit Suisse AG, Research Division: So given the book-to-bill in '12 at Combat and the sales guidance you've got there, at what point in the year will we need to see these international orders before you'd find that solidify?

I think you ought to see them drop into our backlog in the first quarter. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. And then just lastly on the...

By the way, I would not be leading you implicit in the guidance that I have given without a fair amount of confidence in these various orders. Robert Spingarn - Crédit Suisse AG, Research Division: Well, and that brings me to just the final part of the question, which is the guidance range is fairly narrow at $0.10, and just given the last couple of years, why not a slightly wider range?

Look, the way I think about this, here's kind of what we've done. We've cleaned up our business, 2013 is our reset year, and I'm going to be pretty conservative here. But don't get out ahead of me, but I'm going to be pretty conservative here and I think that's prudent. We've got some potential budget cuts coming our way. I've got -- the business unit presidents and I are aligned in taking cost out. But I'm going to stay in a fairly narrow band here, in a range that I feel comfortable in guiding you to at the moment. If I see some upside in the year, I'm going to come back at you.

And your next question comes from the line of Sam Pearlstein of Wells Fargo.

Just a quick follow-up on that is that in the past, there's been a target for international Combat being about 40% of the total Combat Systems revenues. Do you still see that as a target?

I think we're going to be slightly in -- look, I don't have a target, I'm just telling you what I'm seeing in our pipeline and in our book-to-bill and our backlog. But I'm not -- I think it's in the -- getting approaching the mid-40s.

Okay. And then I guess the bigger question is just in thinking about the different things you've said in the acquisition discipline, et cetera, is there any change in any of the incentives, and I guess the focus historically has been earnings, free cash and ROIC with respect to the charges and everything that went into '12, how do you see the real drivers and key things that you and your management team need to focus on for incentive compensation changing?

Yes. Now listen, the issues with respect to what I consider to be a somewhat broken internal process, we will address. And you can bet your bottom dollar we're going to address it. But I want to incent this management team to do what we're telling you we're going to do. And the value proposition for GD, margin expansion, earnings and cash. Focus on the basic, perform, perform, perform. Meet our plans and deliver that value to our shareholders and our customers. Can't be any more simple than that.

And your next question comes from the line of Ron Epstein of Bank of America Merrill Lynch.

So when you think about just kind of maybe a big strategy question here, about how -- where the budget's going, how your portfolio is positioned, you yourself having been in O&B [ph] and knowing how downturns go. I mean, how is that flavoring, if you will or coloring how you think about the portfolio, how you think about the business? And when I think about General Dynamics 3 years from now, 4 years from now, and you've been in that seat for a while, I mean, what do I have to look forward to? Can you give me some color on that, think strategy?

Look, I'm going to focus on operations in '13 and we're going to continue to do what we are capable of doing on the operations side. And I think you couple that, that discipline that we've had and we're capable of, with very prudent and shareholder-friendly capital deployment. Hey, listen, one of the things that we need to do is reassure our investors that we are wise stewards of their capital, and we will intend to do that. So I will be very cautious going forward, shareholder-friendly, continue to perform, focus on our customers and our people and lead this -- it's interesting, you both lead and serve the management team and the company, and I got to tell you, we are a very, very tight, cohesive management team. And I've got an awful lot of confidence in them.

Can I ask one follow-on as a part of that? Besides the operations, and that's kind of clear and you talked a lot about that, but strategically what do you see as your biggest challenge ahead of you?

Well, strategically, what we need to do is manage Defense, the Defense businesses in a slightly -- in a down market or in a declining market. And in my mind, we ought to be able to make money. In fact, we should make money as a good cyclical in a down market. And what does that mean? It means that you stay focused on the things that I talked about and that you perform agilely. You've got to be agile. You've got to be able to react quickly to the balls and strikes that come your way. It's all about agility and it's -- that's what a good cyclical does. It's what we're going to do. So I look at that as a challenge, and the opportunity is to take advantage of the growth where we've got it. And that's clear at Gulfstream and in parts of our other businesses where we're going to have organic growth. Did that answer your question?

Yes, yes, I think so. I mean, I guess the question is, how about parts of the business where you don't have growth, what do you do with those?

Then you're going to drive for earnings and cash, aren't you? I mean, there is no point chasing revenue or pretending that one is in a growth market when you're not. I think what you want from us is realism, putting the mirror up to our face and saying, here's what we see. And based on what we see, delivering on our promises.

[Operator Instructions] Your next question will come from the line of Peter Arment of Sterne Agee. Peter J. Arment - Sterne Agee & Leach Inc., Research Division: A question regarding Combat Systems again back, but in particular in the backlog. You saw a 10% drop in the kind of the funded backlog, maybe you could just give us a little color exactly what the moving pieces were there. And back focusing on I guess the international piece. At the end of 3Q, 42% of the mix was tied to the wheeled vehicle area in terms of the portfolio. What gives you kind of the confidence that -- is it the indigenous manufacturing aspect of kind of where these operations are that you're going to continue to sustain that or we're not going to be hit with what I think could be some choppiness as you've kind of indicated?

Look, the vehicle -- let's talk about Land Systems. The vehicle market is year-over-year from '12 to '13, our vehicle line of business. That's both tracked and wheeled is essentially flat. And it's a mix of domestic production and international. And I think we have, in fact, we have reflected declines in our decreases in our domestic Army customer's requirements. And we're balancing those with international orders. It's just that simple, and that business -- so given that balance and given what they've got in their backlog and given what you're likely to see in the first quarter in terms of additional backlog, I like that balance. I think that's a diversified and frankly, risk-adjusted portfolio. Peter J. Arment - Sterne Agee & Leach Inc., Research Division: Okay. And just I guess what I was alluding to was more the timing aspect. So the orders coming through for the first quarter that you kind of basically sounds like you can already see kind of offsets that, the pressure that we kind of already understood on the domestic side?

That's right.

And your next question comes from the line of Yair Reiner of Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: I think you mentioned earlier that the defense outlook you have is based on the full year CR. Now it looks as though the budget for 2013 could be a bit smaller than the CR. How should we think about what happens if that budget does get passed? And then also, it does seem as though the potential of sequestration could hit may be increasing, how are you thinking about that today?

The budget that we see for '13, we have factored into our plan. And we can sustain within the current planning cuts across the portfolio. If they get at the level of sequestration or some of sequestration and I take a look at '13 and '14 and the need to come back and rebalance and reassess our guidance, I will. But I got to tell you, even if we've got pretty significant cuts in '13, we have seen very, very little impact as I walk through each of my businesses on the defense side. So absent some, as I mentioned earlier, draconian cuts, we're going to be all right in '13.

And your next question comes from the line Jason Gursky of Citigroup.

I wanted to just focus on Gulfstream for a minute, and get a sense of the current demand in the marketplace. Both on what you would describe at your lower end, as well as the higher end and maybe just walk us around the world on how demand is shaping up and really specifically maybe give us a sense of where we are from a backlog perspective in number of months, particularly for your large cabin aircraft x G650?

Let me preface my answer with giving you some details about our production rates. We're planning 139 green deliveries, 113 large cabin and 26 mid-cabin. And to my point earlier about the rebaselining of completions and manufacturing, we're going to -- our fly rates reflect about a 50% increase in outfitted deliveries. So look, what does that tell you? If you know us, what you know is that we have historically used our production rates to adjust with respect to our -- reflecting our backlog. And that's exactly what we've done here. Everything that I see in the backlog, as well as in our current pipeline, makes me very comfortable with those production rates. We still have demand for our 450, 550, 650, the 280 is coming on strong. And we are well-positioned this year. As I told you, the issue here is at this moment not about our production rates. And look, if you know us, and you know us over time, and you've watched us over time, if we see a -- if something happens and some exogenous factor happens in the overall economy, we will adjust our production rates and we'll come back at you. But I'm not seeing that at the moment. This is very realistic and doable.

Okay. And then just specifically on kind of regional demand and how it's shaping up?

Yes, so interestingly, the largest demand we saw was in our -- was within the Fortune 500 as they're replenishing their fleet. And then I think if you think about the demographics across our portfolio, Asia was down, not surprisingly. And regarding the details about who makes up what percentage, approximately 30% were from individuals, 30% from private and 40% from public companies. But one of the things, again, I like about that backlog and our order book is that it's balanced. We've got North America, we've got Europe, we've got Middle East, Asia. And they tend to ebb and flow somewhat countercyclically. So the good -- one of the very good things that I see is that the Fortune 500s are back into the market.

Thank you for joining our call today. If you have any additional questions, I can be reached at (703) 876-3583. Thank you, and have a great day.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.