TTM Technologies, Inc. (TTMI) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the TTM Technologies Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, November 1, 2012. And I would now like to turn the conference over to Diane Weiglin, Executive Assistant of TTM. Please go ahead.

During the course of this call, the company will make forward-looking statements that relate to future events or performance. These statements reflect the company's current expectations, and the company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized. Furthermore, we wish to caution you that these statements involve risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include, but are not limited to, the company's dependence upon the electronics industry, contemplated significant capital expenditures and related financing requirements, the company's dependence upon a small number of customers, the unpredictability of and potential fluctuation in future revenues and operating results and other risk factors set forth in the company's most recent SEC filings. The company also will present non-GAAP financial information in this call. For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the company's press release, which was filed with the SEC and which is posted on TTM's website. Participating on today's call are TTM's President and Chief Executive Officer, Kent Alder; TTM's CFO, Steve Richards; and Canice Chung, President of TTM's Asia Pacific business unit. I would now like to turn the call over to Mr. Alder. Please go ahead, Kent.

Okay. Thank you, Diane, and good afternoon and thanks for joining us for our third quarter 2012 conference call. As usual, I'll begin with a review of our business, and then Steve will follow with a discussion of our financial performance. And then we'll open the call for your questions. So let's start with a review of the highlights for the quarter. Net sales were $339 million; gross margin, 15.4%. Non-GAAP net income was $18.1 million or $0.22 per diluted share. GAAP net loss attributable to stockholders was $208.3 million or $2.54 per share. Adjusted for onetime expenses, GAAP net income would have been $8.3 million or $0.10 per diluted share, and we'll add some more color and give more details later on in the call. We're disappointed with our results for this third quarter. While a number of anticipated product launches occurred during the quarter, key program launches took place later in the quarter than we expected. Higher labor costs and other manufacturing inefficiencies associated with bringing on workers to support the delayed programs negatively impacted our gross margin for the quarter. Consequently, our third quarter results did not improve as we expected. The global softening of demand for printed circuit boards also impacted our performance in what was typically a seasonally strong quarter. Our North American results declined from Q2 due to softer demand, and our Asia Pacific performance was affected by program timing for a couple of customers. During the third quarter, the percentage of advanced HDI product remain unchanged from the last quarter, comprising approximately 23% of our Asia Pacific segment's revenue. Our HDI percentage did not increase as expected due to the delays in program timing. With the continued ramp of multiple customer programs that utilize advanced HDIs in the fourth quarter, we expect that advanced HDI will resume growing as a portion of our overall product mix. I'd like to comment quickly now on some of the results of our operating segments for the third quarter, and then Steve will add more during his portion of the call. Asia Pacific had sales of $215.7 million in the third quarter, up from $195.6 million in the second quarter. Our rigid-flex and flexible printed circuit board and assembly business accounted for 12% of sales in the third quarter, an increase from 5% in the second quarter. Gross margin for the Asia Pacific segment was 14.6% in the third quarter compared to 15.4% in the second quarter. As noted, the decline in gross margin was primarily due to higher operating expenses as we increased headcount and added additional advanced HDI capacity in support of customer program launches. In addition, the flex assembly work has a higher material content that allows us to broaden our product offering to some key customers. Capacity utilization in our HDI facilities increased slightly, and our conventional capacity utilization decreased slightly. On a blended basis, our Q3 utilization in Asia Pacific during the quarter was about the same as it was in the second quarter in the mid-70s. In the fourth quarter, we anticipate increased revenue from our touchpad tablet and smartphone customers, which we expect will improve margin and earnings. The North America segment recorded third quarter sales of $123.9 million, down from $132.3 million in the second quarter. The decline in revenue was primarily due to softer demand from our networking/communications and high-end computing customers. On a dollar basis, revenue in our aerospace and defense end market increased from the second quarter. Gross margin for our North America segment was 16.8% compared to 18.5% in the second quarter. This margin decline reflects our lower facility utilization in our commercial printed circuit board factories. Our capacity utilization in North America was approximately 65% in the third quarter compared to the low to mid-70s in the second quarter. In the fourth quarter, we expect continued soft demand with our network and high-end computing customers. Therefore, we are continuing a furlough program in Chippewa Falls and implementing other cost management actions in our commercial printed circuit board business to more closely align our labor costs with customer demand. On a year-over-year basis, third quarter sales in Asia Pacific declined 2.9% from $223 million in 2011. In North America, sales decreased 9.8% from $137.4 million in 2011. Now moving on to our end markets. Third quarter sales in our largest end market, networking/communications, comprised 29% of total sales compared to 32% in the second quarter. Sales in this end market declined sequentially due to lower global demand. We continue to counter the softer demand with our participation in a broad range of market segments such as enterprise, service provider, Internet and telecom infrastructure, and we believe the long-term prospects for this end market remain solid. However, we expect conditions in this end market to remain challenging in the fourth quarter and revenue to be down sequentially. Computing storage peripherals is our second largest end market. Sales in this end market represented 21% of total sales, the same as in the second quarter. Sales to touchpad tablet customers grew substantially in the third quarter. However, this increase was offset by softer demand from our high-end server customers. In the fourth quarter, we expect sales on this end market to increase as we continue to ramp production through various touchpad tablet programs. Consistent with last quarter, the aerospace and defense end market represented 16% of third quarter sales. We are seeing solid growth from our commercial aerospace customers within this end market. On the defense side of the business, we continue to benefit from our broad program penetration and participation levels. In addition, revenue associated with foreign military sales programs is helping to offset the weaker demand conditions for our U.S. defense-related business. Like others serving the defense market, we will closely follow developments on sequestration. We expect sales in the fourth quarter to be down slightly due primarily to program and calendar timing. As expected, sales in the cellphone end market increased significantly in the third quarter and represented 15% of sales compared to 12% in the second quarter. Growth in this end market was fueled by the launch of a new program for a key customer. We expect sales to further increase in the fourth quarter in this end market. The medical/industrial/instrumentation end market represented 8% of sales in the third quarter compared to 9% in the second quarter. This slight decline was primarily due to softer demand from medical customers. We expect sales in this end market to be flat in the fourth quarter. Sales in the other end market increased to 11% of sales in the third quarter from 10% in the second quarter. The increase in sales was due to a strong demand for wireless modular substrate printed circuit boards for handheld devices, as well as sales for eReader products in the third quarter. We expect this market to be down in the fourth quarter but with growth to resume in future quarters. Our top 5 customers accounted for 31% of sales in the third quarter compared with 29% of sales in the second quarter. In alphabetical order, our top 5 OEM customers were Apple, Cisco, Ericsson, Huawei and IBM, the same as last quarter; and we had one customer who accounted for 14% of sales during the quarter. ASPs increased due to product mix shifts in both Asia Pacific and North America. Asia Pacific's ASP increased 1% from the second quarter, reflecting higher substrate business as well as an increase in our flexible printed circuit board assembly business. In North America, ASPs increased approximately 4%, primarily due to a shift in our product mix toward aerospace and defense. As we have previously noted, our capital investments, our focus on advanced HDI expansion and technological improvements, we are on track to invest $120 million to $135 million in 2012 as we expand our manufacturing capabilities in advanced HDI, which provides the best growth opportunity for our business. In summary, we are pleased with our broad customer engagement, which expanded during the third quarter with some highly anticipated product launches. And given the uncertainties in the macro environment, we believe our diversification across end markets and customers continues to serve us well. Our focus remains on driving operational performance by expanding our market share of advanced HDI, optimizing efficiencies and providing customers with excellent global service. In the fourth quarter, we expect increased contributions to our financial performance from our advanced HDI, flex and rigid-flex business for touchpad tablets, smartphones and eReaders, but we also expect that continued headwinds in the conventional side of our business, particularly within network and the communications end markets, will be a drag on earnings. And now I'll turn the time over to Steve, and he can review our financial performance for the third quarter.

Thanks, Kent, and good afternoon, everyone. Third quarter net sales of $339 million increased $11.6 million or 3.5% from the second quarter net sales of $327.4 million. Gross margin was 15.4% in the third quarter compared to 16.7% in the second quarter. Selling and marketing expense was $8.7 million in the third quarter compared to $9 million in the second quarter. As a percentage of net sales, selling and marketing expense in the third quarter was 2.6%, down from 2.8% in the prior quarter. Third quarter G&A expense was $23.7 million or 7% of sales compared to $23.5 million or 7.2% of net sales in the second quarter. Amortization of intangibles was $4.1 million in both the second and third quarters. Operating loss for the third quarter was $202.7 million compared to operating income in the second quarter of $18.1 million. Included in operating results for the third quarter of 2012 were noncash charges of $218.4 million to write down goodwill, customer-related intangibles and property, plant and equipment. As the result of our declining financial performance and stock price, we had to evaluate several assets, including goodwill, for potential impairment. Excluding these asset impairment charges, operating income for the third quarter would have been $15.7 million. The Asia Pacific segment's third quarter operating loss before amortization of intangibles was $206.8 million compared to operating income of $11.2 million in the second quarter. Excluding the impairment charges, third quarter operating income before amortization of intangibles for the Asia Pacific segment would have been $11.6 million. The North America segment's operating income before amortization of intangibles in the third quarter was $8.2 million compared to $11.1 million in the second quarter. Interest expense was $6.4 million in both the second and third quarters. In addition, we recorded a loss on extinguishment of debt of $5.5 million in relation to our September refinancing. In the third quarter, we recorded an income tax benefit of $850,000 on a pretax loss of $213.5 million. Approximately $3.3 million of this tax benefit was nonrecurring. Resulting $2.5 million of tax expense reflects an effective tax rate of approximately 24% in the third quarter, a decrease from the second quarter effective tax rate of 35%. The decrease in our effective tax rate was primarily due to the greater contribution to pretax income of our operations in China, which bear a lower tax rate. In addition, we benefited from operating loss carryforwards at one of our facilities in China which offset its third quarter profits. Net loss attributable to stockholders for the third quarter was $208.3 million or $2.54 per share compared to net income in the second quarter of $7.4 million or $0.09 per diluted share. Excluding the noncash goodwill and asset impairments, the debt extinguishment expense and the nonrecurring portion of the income tax benefit, net income attributable to stockholders would have been $8.3 million or $0.10 per diluted share in the third quarter of 2012. Third quarter non-GAAP net income attributable to stockholders was $18.1 million or $0.22 per diluted share. This compares to second quarter non-GAAP net income attributable to stockholders of $13.6 million or $0.17 per diluted share. Non-GAAP net income attributable to stockholders adds back amortization of intangibles, stock-based compensation expense, noncash interest expense, asset impairments, restructuring and other charges, as well as the income tax effects related to these expenses. Adjusted EBITDA, which adds back asset impairments, for the third quarter was $36.5 million or 10.8% of net sales compared to second quarter adjusted EBITDA of $42.3 million or 12.9% of net sales. The lower EBITDA reflects the $5.5 million loss on extinguishment of debt recorded in the third quarter. We entered into a new credit facility totaling $540 million in September. This new facility resolved the near-term maturities under our previous facility and has no scheduled repayments for the first 18 months. The proceeds from this credit facility were used to repay in full the outstanding loans under the previous $582.5 million multi-tranche credit facility and also will be used for working capital for our Asia Pacific operations. Cash and cash equivalents at end of the third quarter totaled $280.8 million, an increase of $32.3 million from $248.5 million at the end of the second quarter. Net debt was $305.4 million at the end of the third quarter, up slightly from $299.9 million in the second quarter. Cash flow from operations in the third quarter was approximately $43 million. Capital expenditures for the third quarter were approximately $30 million. This reflects approximately $23 million for Asia Pacific and $7 million in North America. Depreciation for the third quarter is $21 million. Now I'd like to turn to our guidance for the fourth quarter. In the fourth quarter, we expect revenue to be in the range of $360 million to $380 million. We expect GAAP earnings attributable to stockholders in a range from $0.07 to $0.14 per diluted share, and non-GAAP earnings attributable to stockholders in a range from $0.14 to $0.21 per diluted share. This is based on a diluted share count for the fourth quarter of approximately 82.5 million shares. Despite the expected increase in revenue from Q3 to Q4, our lower performance expectations in North America will dampen the EPS benefit from improved performance for our advanced HDI work in Asia Pacific. We expect that SG&A expense will be about 10% of revenue in the fourth quarter. We will record amortization of intangibles expense of about $2.5 million. We expect interest expense to total about $7 million. We expect our blended tax rate to be approximately 21% in the fourth quarter. We believe this is an appropriate time to review our long-term margin targets. We established in those targets a year ago, there have been significant changes from a macro environment and a number of changes in our cost structure. This is increased labor expense, as well as in our product mix and pricing dynamics. Therefore, we're revising our long-term gross margin target to approximately 19% and operating margin target to approximately 9%. Before we address questions, I'd like to mention that we will be participating in the HSBC Annual Investor Forum on November 14 in Boston; the UBS Global Technology Conference on November 15 in New York; and the GE Asia Investor Conference on December 12 in Hong Kong. We'll provide further details in an upcoming press release. With that, let's open the call to your questions.

[Operator Instructions] And our first question comes from the line of Paramveer Singh from Stifel, Nicolaus. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: So looking at your guidance, it seems that you're guiding gross margin somewhat flat. And I mean, I would think with the higher mix of HDI coming on, that should shift positively. I mean, if you could give a little more color on that, that'd be great.

Yes, thanks for the question. And we're experiencing what we anticipated with our advanced HDI. We think that will have some pretty nice growth in the fourth quarter and the profit margin associated with that are in place. The offset to that is the headwinds that we got with our conventional printed circuit boards and the underutilization in our facilities on the conventional facilities, both in Asia Pacific and North America are putting a drag on our earnings. So it's hard for, I guess, hard for everyone to see the positive impacts we're having with our advanced HDI work. And as we look forward, and hopefully that as the macro environment improves and we can have some of our underutilized facilities become more utilized, that will make a dramatic impact on our profits. We have a lot of leverage in our model, as you know, and that is the offset to the advanced HDI. Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division: Great. Also, I just wanted to get color on your HDI margins. Are you seeing assumed gross margin on the HDI side that you were seeing a year or so ago? Or is it lower margin on new product ramps? We've heard a lot of guys for a smartphone customer seeing lower gross margin in the current quarter. I was wondering if you guys are seeing the same thing.

Yes, I think if you go back in history with our advanced HDI and several years ago when that was relatively new technology, there were some pretty significant margins that were attached to that product gross margins. And they got negotiated down pretty, I guess, significantly, if you will. And so when we look at it today, the gross margins we get on our advanced HDI products are still the most attractive for us out of all of our products that we manufacture. But as the capacity has with HDI increased, the negotiation process or prices with HDI are probably similar to the negotiations for the other products we produced. However, there are still fewer competitors with advanced HDI, so I think you can see that helps our margins overall. So we're still pretty enthusiastic about HDI, the growth opportunities and the aspects there and the opportunities we have to grow our business and compete in the printed circuit board marketplace.

And our next question comes from the line of Shawn Harrison from Longbow Research.

I guess to follow up on the long-term targets, those were the GAAP targets, right, Steve?

Yes.

So we'd add about 150 basis points to that to kind of get the long-term non-GAAP targets?

Yes, you'd still have amortization of intangibles. Although given the impairment of our intangible balance, that number is declining. So it was $4.1 million in Q3. We estimated about $2.5 million for amort of intangibles in Q4.

Okay. Wait, could you say that again, I'm sorry, Steve?

You've been adding back $4.1 million of amort of intangibles to your noncash numbers in the past. That would be going down about $2.5 million going forward because we reduced the balance of intangibles in the third quarter.

And then you have the $2.5 million of stock-based comp every quarter as well?

Yes, that's pretty consistent.

Okay. And then I guess second, just in terms of the guidance, I'm trying to triangulate this a bit. SG&A at 10% of sales, what's that -- what do you -- what's that on a non- GAAP basis. And the same thing with the interest expense. Is it still $2 million of noncash in there?

Yes, so the convertible debt we have that has that noncash interest expense, that will keep accreting over time through May 2015 when that debt matures. So that's still a consistent number. It'll actually add up a little bit each quarter over time. In terms of the 10% of SG&A expense, the only piece that's really noncash there is going to be the stock-based comp expense. So that's probably no more than 1%.

Okay. Okay. And then I guess I just wanted to talk about the demand environment, particularly smartphones, tablets, et cetera, given that you had some delays in kind of launching what seems to be those products in what looks to be a pretty robust demand environment, how would you expect that to go into kind of the new year? Typically, I know you see a sharp falloff. But is there enough demand to kind of mitigate some of the typical seasonality?

Shawn, that's a good question. And if I start with maybe the fourth quarter, when we looked at our backlog, you look at our backlog for the end of the second quarter, compare our interim backlog at the end of the third quarter, we're $40 million higher on backlog, which is why we're confident on the $250 million revenue line that we're forecasting for this quarter. And then if you go out beyond that and look into the first quarter, there will be some seasonal downturns there. How much, we're not sure. But there is always the seasonal downturns. Some of the products that we make for the smartphone, touchpad tablet, it seems like demand tails off there around -- a little bit after Thanksgiving and so forth. But now given the fact that some of these product launches happened late in the third quarter, demand could hold and maybe have a little more benefit in the first quarter. So -- but what I'll do is I'll ask Canice to, who's a little closer to that, give you his feedback on that. So Canice, are you there?

I'm here. I'm here. I'm here. [indiscernible] and I call back, okay. In Asia Pacific, okay, what we see is that we drive [ph] on the new product launches and then the momentum, the order booking are still very strong. And unlike in Q3, which we are expecting more order to come in the later part of the quarter, but then in Q4, we did have a much more order already comes in, in the early part of the quarter which we will -- relatively fewer [ph] for the quarters.

And then Canice, how do you think it looks in the first quarter relative to past quarters?

I think the running in of the mobile phone business is very helpful for us because the mobile phone demand is far higher than that of the tablets demand globally, okay. So running into the first quarter, it's -- there are also issues with the holiday shutdown in China, that the working days were not exactly very, very long, okay, in Q1, for everybody in the Q1. So I'm not expecting there will be any significance of the drop-back in the Q1 there.

And our next question comes from the line of Steven Fox from Cross Research.

Just a couple of questions regarding some of the new product ramps. I was wondering if there's any way to sort of quantify some of the cost pressures that you talked about on gross margins. You mentioned increased headcount, and then I guess you had underutilized equipment though in the third quarter. So just trying to understand those headwinds and how they turn maybe into sort of benefits to gross margins this quarter. And then I had a follow-up.

Okay. Yes, Steven, and when we look at our headcount, if I go back into March in Asia Pacific, we had just over 14,000 employees. And then you realize that we had to add some more employees to comply with some of the social laws and so forth. So when we look at our headcount in June, we were up to $15.3 million and a lot of that was to counteract the reduced overtime and so forth. And then in August, in preparation for these programs release, we were at $16.7 million. So we went up another $1.4 million or 1,000 in headcount. So that's pretty significant labor cost that we bring on, get trained and make sure we're ready for these product ramps. And then when they don't happen, you sit there with a little bit of a labor cost that you don't have. And then every time you run into a program launch and so forth, smoothing out the first passes and developing the process flows, making sure your yields are in line and so forth, there's somewhat of a learning curve that you go through. And in the first -- and so as you introduce these new products, you go through that learning curve and then you just get better and better and better, and your yields and margins and inefficiencies kind of decrease. And so that's what the challenge was that we had in the third quarter. Now we're into the fourth quarter, I think we've got the right amount of labor involved and the inefficiencies are now behind us. So we're pretty optimistic on what can happen with our advanced HDI work in the fourth quarter.

Okay. And then just looking at where utilization is on the advanced HDI business maybe exiting the fourth quarter. Can you talk about where it can go and then the implications for your capital spending next calendar year? And then just very lastly, it seems like the flexible board and rigid-flex business started to become a little bit sizable. Can you just give a little color on the type of growth you're expecting and why maybe over the next 12 months there?

Sure. Yes, I think on the -- I forgot the first question, though.

Utilization...

Utilization. Yes, sorry about that. On our HDI utilization, in Asia Pacific, we ran at about 85%. When we exited the quarter, we were up to the 95%, pretty much at maximum capacity with HDI. And then of course, the conventionals, the facilities, the capacity utilization continue to decrease down to maybe the high 60s, 68% so that's where we're at on capacity utilization. Our substrate business, we are growing that business. It's a niche business. It's doing really well for us, and it ties right in with the smartphones and touchpad tablet products. It ties into the handheld products and so forth. We also on the rigid-flex and the flex business, there again, that are opportunities that come to us as we service our smartphone and touchpad tablet customers. And it's not mainstream type of flex, if you will. It's more specialize and more particular right to the customers that we are serving. And we continue to look at that business and service our customers as part of a broad product offering to our customers. So we anticipate that, that will continue to grow. A portion of our CapEx has gone into expanding that capability. And it's the portion of the business that came to us pretty naturally. But as that grows and we get more efficient and more capable in that, we're starting to look and see if we can expand that business. So it's went from like 5% to 12% of our revenue in the fourth quarter, and we anticipate that, that will continue to grow. On the CapEx, we're in the process here of putting together our CapEx numbers for next year. There's a couple of directions we could go, but it's pretty clear to us that the investments that we made in the past will probably not be as sizable in the upcoming years. I got some numbers that I'd like to throw out that maybe help clarify this a little bit. When I go back to the first quarter of 2011, our conventional work was 57% of our total revenue in Asia Pacific. And in the fourth quarter, we're forecasting about 39%. And our HDI and our substrate rigid-flex and flex assembly work over that same time period, Q1 to -- in Q1 was 43%; now it's 61%. So you can see that as we invest in our advanced HDI and our substrate and our flex business, we're getting a pretty solid return on the revenue. And it continues to go up, and we continue to like what that product market does for us and the opportunities that we have there. So I think our CapEx in the past is generating the revenue that we anticipate. We have come under a little margin pressure on some of those products. But overall, it's still the right thing to do. I like that the technology that we have and the end markets that we serve and the customers that we serve within those end markets. So I think we're putting the company in the right place to have a pretty good future. I wish I could be more clear on your CapEx for 2013, but we're still in the process of developing those budgets and looking at alternatives that we have in front of us for 2013.

And our next question comes from the line of Amitabh Passi from UBS.

I apologize if you gave this number out, what was the percentage of HDI and advanced HDI in your Asia Pac business?

The percentage of...

Well, the advanced HDI was 23% this quarter, same as last quarter. And I believe the regular HDI was like 18%, for a total of 41%.

Right.

Okay. And then the utilization rates you gave us for the conventional PCB side in the high 60s, was that applicable to North America as well? Or was that just your facilities in Asia?

That was just in Asia. Our capacity utilization rate in North America is running at 65%. It's down about 10% from the prior quarter.

Okay. And then Kent, I was just curious, maybe you could just help us understand demand terms in your networking and comms segment. During the quarter, how did orders generally proceed? And if you can give us any incremental insight into the December quarter between the networking and wireless segments.

Yes, in the networking and telecommunication, I mean, it's still a very tough end market for us, and we have yet to see any buildout of the Internet infrastructure. And we're forecasting that in the fourth quarter, we don't see anything that's going to make any difference for us in the fourth quarter. Now having said that, if you look at that business longer term, with the amount of data and other transmitted over the Internet, we believe that that's still, at some point in time, will be a solid Internet infrastructure for us. So we've seen within that the kind of the high-end routers, the slow in demand, sometimes the midrange for routers and switches have been okay.

And just my final question, Steve, for you, what should we expect for potential wage inflation into 2013? Should we expect a similar pattern where, going into the second quarter, we tend to see a bit of a spike?

Yes, it's a bit too soon to say given kind of the softening of the Chinese economy and growth-related change in government there. But I do think that we'd see some further wage pressures probably in the same time we did this year and last year about Q2. We, of course, would see that kind of augmented by Code of Conduct changes as well. So I think there'd be just the kind of government-mandated wage increases, and I would hope they'd be in that 10%-ish range, maybe less, but it's just too soon to say.

[Operator Instructions] And our next question comes from the line of Rich Kugele from Needham & Company. Richard Kugele - Needham & Company, LLC, Research Division: Just one last question on the networking side. Obviously, a couple of the Asian customers that you dealt with in the past were a focal point of Washington recently, and I'm just wondering if you changed your strategy in dealing with them at all, if you expect it to impact to your growth opportunities with them or if you think you can offset it elsewhere.

Yes, Rich, that's a good question. And certainly, we listen to the comments coming out of Washington and the committees and the recommendations there. We don't think -- we think it's way too early in the process to make any changes in our strategy, and that doesn't -- and it hasn't impacted our relationship with those customers. And those customers, I think they have some growth opportunities we'd like to take advantage of and be part of. And so as far as we can see right now, there is no change in any relationships, and there is no intentions on our side or the other side to alter what we do.

And at this time, there are no further questions in my queue. I would like to turn the conference back over to Mr. Alder for closing comments.

Okay. Well, again, thank you very much for everyone in attending. We certainly appreciate the questions. If you have follow-up questions, let Steve or myself know, and we'll be very happy to answer those questions for you. And I would like to -- just hope that everyone that's been impacted by the storm on the East Coast is faring well, and hopefully life gets back to normal for all those that are impacted. We watch the news, and wish everyone the best there. So with that, we'll conclude this call and look forward to seeing you next quarter. Thank you very much.

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today's conference, it will be available until November 6, 2012, at midnight. You may access the replay system at anytime by dialing 1 (800) 406-7325 or (303) 590-3030 and entering the access code of 4572041 pound. We thank you, all, for your participation. And at this time, you may now disconnect.