Franklin Electric Co., Inc. (FELE) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Franklin Electric Q3 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Patrick Davis, Treasurer. Sir, you may begin.

Thank you, Marcella, and welcome everybody to Franklin Electric's Third Quarter 2012 Earnings Conference Call. With me today are Scott Trumbull, our Chairman and CEO; John Haines, our CFO; Robert Stone, SVP and President, International Water Systems; and Gregg Sengstack, President and COO. On today's call, Scott will review our third quarter and year-to-date business results and then John will review our third quarter and year-to-date financial results. When John is through, we'll have some time for questions and answers. Before we begin, let me remind you that any forward-looking statements contained herein, including those relating to market conditions or the company's financial results, costs, expenses, expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties. These risks and uncertainties include, but are not limited to, general economic and currency conditions, various conditions specific to the company's business and industry, new housing starts, weather conditions, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the company's accounting policies and future trends and other risk, which are detailed in the company's SEC filings and are included in item 1A of Part 1 of the company's annual report on Form 10-K for the fiscal year ended December 31, 2011, exhibit 99.1 attached thereto, and in Item 1A of Part II of the company's quarterly reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available and, except as required by law, the company assumes no obligation to update any forward-looking statements. I will now turn the call over to our Chairman and CEO. Scott?

Thank you, Patrick. We're pleased to report third quarter earnings per share after, non-GAAP adjustments, of $0.92, an increase of 12% compared to the prior year and a record for any third quarter in the company's history. Additionally, our operating income after non-GAAP adjustments was $33.7 million, a solid increase of 17% versus the third quarter of 2011. Our consolidated operating income margins, after non-GAAP adjustments, improved by 130 basis points compared to the record third quarter that we reported last year. We attribute much of the margin improvement to productivity gains in our manufacturing facilities, which resulted in reducing third quarter direct labor and burden costs as a percentage of sales by 70 basis points compared to the prior year. This equated to a little over half of our operating income margin improvement. Our margins also benefited from leverage on organic sales growth, led by our Fueling and Water businesses in developing regions. Our consolidated sales increased by 6% compared to the third quarter last year, in spite of foreign exchange translation effects, which reduced our sales growth rate by almost 600 basis points. Our organic sales growth during the quarter, excluding both acquisitions and foreign exchange, was 6%. Turning to a review of our Water Systems businesses, our water systems team in Latin America turned in an outstanding sales performance during the quarter. Our Latin American Water Systems sales represent about 12% of our consolidated sales, and increased organically by about 26% compared to the third quarter prior year. An important contributor to this growth was the rapid market acceptance of our recently-launched groundwater pump and motor product line in Brazil. We also enjoyed sales gains in Mexico as ongoing dry weather increased the demand for irrigation pumping systems. In addition, we are benefiting from our new distribution center in Chile. We are planning to open additional new distribution centers elsewhere in Latin America. Our Asia Pacific water systems team also turned in a strong quarter. Our Asia Pacific Water Systems sales represent about 6% of our consolidated sales and increased organically by 13%, compared to the third quarter last year. Over the past 2 years, we've invested in expanding our sales and distribution network across this region, with particular emphasis on the ASEAN countries. Improved product availability from our new distribution center in Singapore is helping us to increase our sales rapidly across this region. We're also planning to open additional new distribution centers elsewhere in the Asia-Pacific arena. Our Water Systems sales in the U.S. and Canada represents about 43% of our consolidated sales and grew by 12% during the quarter. Excluding acquisitions and the impact of foreign currency translation, U.S./Canada sales were flat compared to the third quarter 2011. Sales of groundwater pumping equipment grew at a high-single-digit rate as we continued to gain share and benefit from strength in the agricultural irrigation market. However, our growth in the groundwater market was offset by a decline in residential wastewater pump sales. We are aware, from trade association data, that the entire residential wastewater pump market in the U.S. and Canada has declined by 34% through the second quarter this year. Last year was a particularly strong year for residential wastewater sales due to the wet weather conditions in the Midwest and Northeast, and 2012 has been particularly dry. While our residential wastewater sales have not declined nearly as much as the overall market, we have nevertheless been caught in the downdraft. It is reasonable to assume there will be a recovery of the residential wastewater pump market next year, with a return to more normal weather conditions. Sales of mobile pumping systems were modestly below our expectations in the quarter due to the slowdown in drilling activity associated with low natural gas prices. Our U.S./Canada sales of water systems drives and controls continued to grow at a double-digit rate during the quarter. As the cost of manufacturing electronic drives has come down and the performance has improved, more and more of our customers are including drive and control packages in their pumping systems installations. These packages protect the system from failure, reduce electricity consumption and provide for controlling key system performance parameters, such as pressure and flow. Franklin is a leader in providing customized drive and control systems to the pumping markets that we serve. Our focus up to now has been on lower horsepower applications, up to around 5 horsepower. During the third quarter, we announced the acquisition of Cerus Industrial, a rapidly growing manufacturer of higher horsepower drives and control packages for fluid transfer applications. High horsepower water systems pumps and motors represent about 30% of our consolidated sales, and nearly every one of them is installed with a drive or control package that is provided by someone else. With Cerus, we're now in a position to supply these products ourselves and offer our customers an optimized motor pump and control solution. The benefits we will offer our customers include reducing installation costs, reducing operating costs, increasing reliability and improved warranty protection. The benefit for Franklin, when we sell a control package with our pump and motor, it usually doubles our revenue per installation. Our Water Systems sales in Europe, the Middle East and Africa represents about 18% of our consolidated sales, with about half in Europe and half in the Middle East and Africa. Our sales in this region declined organically by about 1% due principally to the weak economic conditions in Europe, which offset double-digit sales growth in the Gulf region and North Africa. Our Fueling Systems business represents about 20% of consolidated sales and grew organically by 10% during the quarter. Our fueling sales were up across all of our global regions except Europe, achieving double-digit growth in Latin America, Asia Pacific and the Middle East and Africa. Sales of our fuel pumping product line grew rapidly in these markets, as station owners throughout the developing world continue the conversion from suction pumping systems to Franklin's pressure pumping systems. I should point out that while 97% of the stations in North America have converted to Franklin's pressure pumping technology, less than 25% of the stations in the rest of the world have changed to pressure pumping. But the conversion is ongoing. Our fueling sales in the U.S. and Canada were up about 6% during the quarter while our fueling sales in Europe declined organically by about 2% compared to the third quarter last year. As we look forward to the fourth quarter, we continue to be cognizant of the weak economic conditions in Europe and the negative impact that foreign currency translation is having on our reported sales and earnings. Nevertheless, we expect that during the fourth quarter, our Water Systems sales will grow by 6% to 9% and our Water Systems operating income, after non-GAAP adjustments, will grow by 9% to 12%. We are anticipating that our Fueling Systems sales will grow by 6% to 9% compared to the fourth quarter prior year and that our fueling operating income will grow by 10% to 13%. Overall, we believe that our EPS, after non-GAAP adjustments, will increase by 9% to 12% compared to the fourth quarter 2011. Thank you, and I'll now turn the call over to our CFO, John Haines.

Thank you, Scott. Our fully diluted earnings per share were $0.91 for the third quarter 2012, which is a record for any third quarter in the company's history and an increase of 14% compared to the $0.80 fully diluted earnings per share the company reported in the third quarter 2011. As we note in the tables in the earnings release, there are 2 items referred to as the non-GAAP adjustments in the third quarter of 2012 and one item in the third quarter of 2011 that impacted operating income and EPS that were not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the company. In the third quarter of 2012, there was approximately $22 million of non-GAAP adjustments related to transaction costs associated with the Cerus acquisition and asset impairments related to previously-announced manufacturing realignments that resulted in a $0.01 charge to EPS. In the third quarter of 2011, the company's EPS included $0.02 of restructuring charges. So after considering both of these non-GAAP items, third quarter 2012 EPS is $0.92, which is 12% higher than the $0.82 the company reported in the third quarter 2011. Overall, the 2012 third quarter revenue, gross profit, operating income, net income and earnings per share were records for any third quarter in the company's history. Water Systems revenues were $189.8 million in the third quarter 2012, an increase of $10.4 million or about 6% versus the third quarter 2011. Sales from businesses acquired since the third quarter of 2011 were $13.8 million or 8%. Water Systems sales were reduced by $11.4 million or a decrease of about 6% in the quarter due to the impact of foreign currency translation when compared to the third quarter 2011. Water Systems organic sales growth, which excludes sales from acquisitions and the impact of foreign currency translation, was 4%. As Scott indicated, sales growth in the third quarter was led by Latin America and Asia Pacific regions. Water Systems operating income after non-GAAP adjustments was $35.3 million in the third quarter 2012, an increase of 19% versus the third quarter 2011. The third quarter operating income margin after non-GAAP adjustments was 18.6%, and was up 210 basis points compared to the 16.5% in the third quarter of 2011. This increase was primarily a result of margin improvement due to productivity gains in the company's manufacturing facilities, which resulted in reduced direct labor and variable burden costs and a favorable sales mix, partially offset by raw material costs, which increased at a slower rate than the prior year. Fueling Systems sales were $47.8 million or 20% of consolidated sales in the third quarter of 2012 and increased about 6% from the third quarter 2011. Fueling Systems sales were reduced by $1.6 million or a decrease of about 4% in the quarter due to the impact of foreign currency translation, when compared to the third quarter of 2011. Fueling Systems sales growth, excluding the impact of foreign currency translation, was 10%. Fueling Systems operating income, after non-GAAP adjustments, was $11.4 million in the third quarter of 2012 compared to $9.6 million after non-GAAP adjustments in the third quarter of 2011, an increase of 19%. The third quarter operating income margin after non-GAAP adjustments was 23.8% and increased by 250 basis points compared to the 21.3% of net sales in the third quarter of 2011. Operating income improved in Fueling Systems due to leverage on fixed costs from higher sales volume. The company's consolidated gross profit was $82.6 million for the third quarter 2012, an increase of $8.9 million or about 12% from the third quarter of 2011. The gross profit, as a percent of net sales, was 34.8% for the third quarter of 2012 from 32.8% for the third quarter of 2011, a 200 basis point improvement. The gross profit margin increase was primarily due to productivity improvements in the company's manufacturing facilities. Selling, general and administrative expenses were $49 million in the third quarter of 2012 compared to $44.8 million from the third quarter of the prior year, an increase of $4.2 million or about 9%. The increase attributed to businesses acquired since the third quarter of 2011 was $2.9 million or about a 6% increase. Additional increases in SG&A in the third quarter of 2012 were $0.7 million related to information technology expenditures for software, telephone and other acquisition integration costs, as well as higher stock and performance-based compensation expenses. The effective tax rate for the third quarter 2012 was about 28.1%, which the company believes is also a reasonable estimate for full year 2012. The projected tax rate is higher than 2011, due to the stronger U.S. dollar which, in effect, reduces foreign earnings when translated to U.S. dollars and has increased the percentage of U.S.-based earnings on a consolidated basis. The tax rate continues to be lower than the statutory rate of 35%, primarily due to the indefinite reinvestment of certain foreign earnings and reduced taxes on foreign and repatriated earnings after the restructuring of certain foreign entities. The company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations, current cash on hand and available credit. The company ended the third quarter of 2012 with a cash balance of about $96 million, which was $57 million less than the end of 2011. The cash balance decreased from year end, primarily as a result of the Pioneer and Cerus acquisitions and higher than normal capital spending. The company had no outstanding balance on its primary revolving debt agreement at the end of the third quarter of 2012 or 2011. As Scott mentioned, as we thought through our guidance for the fourth quarter 2012, we were mindful of the continuing impact foreign currency translation will have on our results. Due to the strengthening of the U.S. dollar against many international currencies, we currently believe our fourth quarter sales will be negatively impacted by about 3% and our fourth quarter earnings per share will be negatively impacted by about 4% or about $0.02 on the $0.50 reported in the fourth quarter of 2011. This concludes our prepared remarks and we'd now like to open the call up for questions.

[Operator Instructions] Our first question comes from Matt Summerville from KeyBanc.

This is actually Joe Radigan on for Matt. Let me start with -- on the north rick water side [ph] . Can you talk about the competitive environment and specifically did you see an uptick in quarter end discounting? And [indiscernible]?

This is Gregg Sengstack, the President of the company will respond to that. Go ahead, Gregg.

Sure, Joe. Thank you. We did not see any unusual pattern at the end of the third quarter. We saw kind of a normal quarter end.

Okay. And then can you, Gregg, -- can you kind of give us your assessment on channel inventories? Do you get the sense that distributors are being more cautious heading into the end of the year? And then also, where do your distributors sit, in terms of reaching their annual sales targets and how could that impact Q4?

I would say that, in general, there's a level of caution in the market that we're seeing. I think you're seeing that throughout many of your industrial companies are reporting. We've had a good year in Ag. As Scott pointed out, we've had a weak year in wastewater due to dry conditions. So we are mindful of that coming into the end of the year. And as we look to distribution, I think that some people are going to, would be inclined to reach for just higher levels and other people may not. So I don't see again an unusual pattern coming into the end of the year for people relative to achieving sales levels for different discount structures.

Okay. And then on the Ag side, the center pivot OEMs have talked about how they're selling more equipment for dry land applications where farmers are at least planning to irrigate some land for the first time going into next year. Farm incomes are still pretty robust. Are you hearing similar things from your distributor base or are you seeing it in bid activity on some of the Ag motors going into that type of application?

Well, there is some seasonality to our business. We are coming in towards the end of the year. It is continuing to be dry. We do recognize that farmers have discretionary income. And so I think that the information you're getting is valid and we'll continue to see additional use of irrigation equipment to deal with the dry conditions. Wouldn't say there's anything that we're seeing that's unusual in our activity at this point.

Okay. And then last question. Scott, you've talked about the growth in drives for at least for the last -- this quarter and last quarter, can you talk a little bit more about Cerus? And specifically, the in-house capability that it gives you on these drives? And how you can leverage that competitively? I mean, you touched on it, but what -- you said it would double sales on the -- for what was getting sold with the drive currently. I'm assuming these are higher-margin products as well and then can you talk about maybe the timing of when you'll see that benefit and any R&D that you have to invest into that area?

Cerus is headquartered in Portland. Total sales of the company are less than $20 million. Franklin has focused our drive production and market development activity, up to now, as I mentioned in my comments, on drives less than 5 horsepower. And the reason we've done that is to build a base, a unit volume base, a unit volume base for buying components and just building an economy of scale in that business. So our in-house factory is focused on producing drives in that size range. However, the dollar value of what Franklin produces is tilted somewhat toward the higher horsepower applications. And we've seen that end of our business grow more rapidly than the lower horsepower end of our business. And we've become very interested in being able to supply a total system solution to our higher horsepower customer base, as we are doing with the residential applications in the groundwater business with our lower horsepower product lines. And to do that, we needed a platform that had experience building these kind of drives and had relationships with vendors that enabled them to buy components at a cost level that would enable us to be highly competitive in this arena. And without going into details regarding commercial arrangements, one of the strategic advantages that Cerus has, although a relatively small company, is a proprietary relationship with a drive manufacturer that gives Cerus a cost base that enables us to be highly competitive -- that will enable us to be highly competitive in the market for drives for higher horsepower groundwater applications. And that's the primary reason why we're excited about the Cerus acquisition and what drew our attention to the company. That, combined with the fact that they had started to enter the groundwater pumping market, and a number of our distributor customers told us that they were very happy with the Cerus product line and recommended that we get to know those guys. So it was really our customer base that brought us to Cerus. At this point, we think that this will be a meaningful part of our business, that we will be able to, in the drive and control applications, in the larger water systems, groundwater systems, in particular, [indiscernible] customer base, will not only be able to sell all the pump and motor as we've always done, but also be able now to sell the drive packages. And we think the customers will have a strong incentive to deal with us. However, I don't want to overstate the case, these customers all are buying their drives and controls now from an existing supplier. They've had relationship for years and we're going to have to go in and chip away at that and convince them that buying from Franklin the total system is a better deal for them, overall better value than doing it the way they've been doing it. So this will take a while for us to develop the market, but we fully expect that this will be a very important part of our business and a differentiator. And yes, there is a lot of technology in these products and they should enable us to, over time, improve our profit margins as well.

Our next question comes from Mike Halloran from Robert Baird.

So let's start in the margin side here. Very, very strong in the quarter. And so, let's first go with the fueling side. Relative to the revenue level, could you just talk about how sustainable this is? If there was some mix benefit on that side of the business? Or there is very good incremental profitability on that side and revenue levels at very nice absolute levels and so, maybe you could just talk about the sustainability here, relative to mix and then relative to where the absolute revenue levels are.

Okay, Gregg Sengstack will respond to your question.

Mike, I would say there was nothing that was specific -- unusual in the fueling mix in the quarter. We do get good operating leverage, as you pointed out. So this kind of sales run rate, along with this tight expense control that our Fueling team has been doing over the last several quarters, has resulted in the operating income that you saw for this quarter.

Yes, we had really good year-on-year fixed cost control in the quarter and 10% organic growth in our Fueling business, and those 2 things combined result in a nice pop in margins. I don't think we saw any unusual mix effect.

No, that makes sense. That's good to hear. And then, when I think about the margins for the Water business, obviously, aided by the Ag side and some mix in the quarter, but you look at the revenue level and in the quarter ahead here, and the margins are still staying at a particularly good level. So maybe you could talk about a couple of things: one, just Linares facility, how that's trending? If you seeing any upside, relative to expectations there? And what kind of pull through you guys are thinking about from the standpoint of incremental margins on a go-forward basis? And if you've see that change at all because of some of the cost-saving initiatives and the performance you've seen lately?

Over the last 5 years, we've devoted a lot of our energy, both in the factories and in our engineering staff to moving product. We've shut down 8 factories over that timeframe, in total. We've consolidated a lot of production into -- on the water side, our Linares facility and our Wilburton, Oklahoma facility and on the fueling side into our operation in Madison. And when you do that, that's really disruptive inside the plants, because everybody is learning a new job all the time. As you bring more and more equipment in and you relocate equipment in the factories in order to lean them out and provide for space for incremental -- operations and what have you. So that's all slowed down this year. We will continue to incrementally move production into Linares. But the major disruption of big changes in production mix is behind us. And with that, the management team can really focus on driving productivity improvements. And that's what we're seeing. Much of the gain is coming out of Linares. And as I mentioned, while our overall operating income margin improvement in the quarter in Water was 130 basis points, 70 of it came from a reduction in labor -- direct labor and burden cost, as a percentage of sales. And that has an awful lot to do with streamlining and focus on the factory floor. And I think we'll be able to hold onto that. But you're right, we also had some help from favorable mix due to the Ag business which, on balance, is a little more profitable than other areas of our business. So that was helpful also during the quarter.

And then, last for me. Can we talk a little about seasonality 3Q to 4Q in the Water business, specifically in the top line? It sounds like some of the pressures that you talked about in the third quarter aren't going to be a lot different as you hit the fourth quarter. But maybe you could also frame that in the context of your Ag side of the business, which is often very strong in the third quarter, fades in the fourth quarter. And what you're seeing, are you seeing any greater than normal seasonal climbs as you look 3Q to 4Q here? Or if it's just more of the same types of pressures with similar seasonality as you move forward?

The fourth quarter is our most unpredictable quarter. And because there are so many moving parts in the quarter that are not necessarily related to the actual primary end demand for the product. You've got the issue of our customers making a decision at the end of the year, do they want to stretch to buy in some inventory in order to move to a higher discount level? And those kind of decisions, which are made independently by our customers really can, on the increment, influence the -- how the fourth quarter ends up. But it tends to be the most unpredictable quarter. That, combined with the fact that between September of this year and the end of February next year, we have price increases announced across our business platform; about 85% of our business will be in the midst of executing price increases during this period. And that will have an effect on demand patterns across the -- as people will -- usually, they'll choose to buy up -- to avoid the immediate impact of the price increase and so we'll see. We've also had price increases in the first quarter last year as well. But how people choose to manage their inventories in the face of these increases will also be a factor. And so I -- with that disclaimer, I would say that we wouldn't expect to see seasonality this year. Our expectation is that seasonality this year won't be materially different than what we've seen in the past.

The next question comes from Michael Roomberg from Ladenburg Thalmann.

I just wanted to ask you a quick question on the mining market. I know that's been a powerful driver of the water business over the last few years and has been expected to play a big role in your growth of Pioneer. Can you just comment on what you're seeing in that market currently given the decline in activity overall in the industry?

The mining market has been a pretty solid performer for us. We would say that it's maybe 3% or 4% of our sales, combined with another 3% or 4% in the Oil and Gas, so the extraction industries have been maybe 6% to 8% of our total sales over the last several quarters. And while Oil & Gas has trended down, we've seen our mine dewatering business remain more or less stable on a global basis over the last several quarters. We've been putting a more focused effort on the mining business. We have one of our best marketing people calling on the mines globally and explaining, perhaps more clearly than we have in the past, Franklin's dewatering capabilities and product line. We have some new products that we're developing that have particular application with this industry. And so we may be gaining share. It's hard to get good data on that, but perhaps our outlook might be a little different than some of our competitors' outlooks in this particular product line.

And I just wanted to go back to the drive question and as it relates to Cerus as well. Scott, last quarter, I think you had given a percentage increase in your growth for drives, I think the number was 28% last quarter. Do you have that number available for the third quarter?

Just a second and I'll see if I can track it down here. Our drive business in the third quarter increased by 24%, in units.

Okay. And with respect to Cerus, I understand that they compete in some other non-typical Franklin markets such as HVAC. How -- obviously, small relative sales figure, but do you have any plans for that aspect of their business where they participate in markets that are not core Franklin-type markets?

Yes, we're going to -- we're not fully integrating Cerus because we want them to continue to pursue those applications as well. And so we're going to continue to encourage them to develop those markets, as well as working with our Water Systems team to build out our -- the pump side of their businesses on a global basis.

Okay. And then lastly, Scott, can you remind us what regions and countries have been most aggressive in transitioning to pressure pumping from suction?

Boy, that's -- I would say across the board -- we're seeing a lot of activity in India right now. In fact, I would say of -- that, that's been a -- it's a pretty sizable shift among the large oil companies in India toward pressure pumping. Still a long way to go, but a -- it's been a major source of growth for us. China has continued to move in that direction. Gregg, do you -- the ASEAN region, excuse me, is moving in that direction.

Michael, wherever you -- if you think of the developing world as being where most new installations are occurring, that's when you're going to see a lot of pressure because they'll put in the first time. As Scott's pointed out, in India, while 2 of the 3 major oil companies have been putting in pressure for the last several years, the largest one is now accelerating their efforts in putting in pressure systems on a retrofit basis. And then, of course, you see opportunities in Latin America, Southern Africa and so on. So the traditional, say, Western Europe is slower to move on this, but the emerging markets are quicker to adopt pressure systems.

Mike, in total, there are about 170,000 stations in North America, 97% of which have already converted to pressure. Outside of North America or U.S./Canada, outside of U.S./Canada, there are about 600,000 stations and we estimate 23% have converted to pressure. So there's a lot of headroom for growth here. But the trend is, clearly, that a conversion is steadily occurring.

Yes. No, that seems fairly clear with the results for the last few years. Just lastly, can you bring us up to speed with coal bed methane? And how your rollout of the new product systems has been going versus your expectations thus far?

We have 20 systems in beta test across the world, presently. A couple of them have been in for approaching 2 years now. That's very encouraging because the key to this is convincing, first ourselves, and then convincing the market that we have a system that is more robust than the alternatives that are out there. Encouragingly, with the large oil and gas company that has had the systems in place for a while, we just, in the last several days got an order for 7 complete systems, additional systems. So the people that have been most exposed to this, through the beta test phase, are now turning into customers. We will declare it commercial by the end of December, and I anticipate that most of 2013 will be spent kind of going company by company, doing demonstration projects because it's -- the industry is relatively conservative when it comes to changing their approach to artificial lift and deliquification. And they'll want -- they'll see the advantages, I think, they're very explainable advantages of our system, including cost. But they'll all want to give it a try. So I think 2013 will be a period of putting in trials across the oil patch in the U.S. and in Southern Africa and Australia, New Zealand, perhaps, 1 or 2 other countries as well. And we'll start to see meaningful sales of this product in 2014 and beyond.

And at this time, I'm showing no further questions. I would like to turn the call over to Mr. Scott Trumbull for closing remarks.

Well, that ends our third quarter conference call. We thank you for your attention and your interest in our company.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a great day.