Garmin Ltd. (GRMN) Q1 2014 Earnings Report, Transcript and Summary

Kerri Thurston - Director of Investor Relations Clifton A. Pemble - Chief Executive Officer, President, Director, President of Garmin International Inc, President of Garmin USA Inc and President of Garmin AT Inc Kevin S. Rauckman - Chief Financial Officer, Principal Accounting Officer, Treasurer, Treasurer of Garmin International Inc, Treasurer of Garmin Usa Inc, Director of Garmin International Inc and Director of Garmin USA Inc

Yair Reiner - Oppenheimer & Co. Inc., Research Division Mark Sue - RBC Capital Markets, LLC, Research Division John F. Bright - Avondale Partners, LLC, Research Division Jonathan Ho - William Blair & Company L.L.C., Research Division Charles L. Anderson - Dougherty & Company LLC, Research Division Benjamin James Bollin - Cleveland Research Company Kristine T. Liwag - BofA Merrill Lynch, Research Division Tavis C. McCourt - Raymond James & Associates, Inc., Research Division Matthew P. McKee - Morgan Keegan & Company, Inc., Research Division Douglas Clark - Goldman Sachs Group Inc., Research Division Jeremy David - Citigroup Inc, Research Division Andrew Spinola - Wells Fargo Securities, LLC, Research Division Brad Erickson - Pacific Crest Securities, Inc., Research Division

Good day, everyone, and welcome to the Garmin First Quarter 2014 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Kerri Thurston. Please go ahead.

Thank you. Good morning, everyone. We'd like to welcome you to Garmin Ltd.'s First Quarter 2014 Earnings Call. Please note that the earnings press release and the related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/doc. An archive of the webcast and a related transcript will also be available on our website later today. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, earnings, market share, product introductions, future demand for our products and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K filed with the SEC. Presenting on behalf of Garmin Ltd. this morning are Cliff Pemble, President and CEO; and Kevin Rauckman, CFO and Treasurer. At this time, I'll turn the call over to Cliff.

Thank you, Kerri, and good morning, everyone. As announced earlier this morning, Garmin reported strong first quarter revenue and margin performance, with revenue, operating income and pro forma EPS growth. Consolidated revenues increased 10% year-over-year, with revenue from Aviation, Fitness, Marine and Outdoor growing 22% on a combined basis. These segments contributed 58% of the total revenue and 75% of the operating profit in the first quarter. Gross margins improved year-over-year to 57% from 52% in 2013 due to the amortization of previously deferred revenue and improved segment mix. Operating margins were 21%, an increase from 15% in prior year. This resulted in operating income growth of 51% on a consolidated basis, with each segment contributing. These strong results allowed us to generate $0.55 of pro forma EPS in the quarter, an increase of 38% over 2013. Kevin will discuss our financial results in greater detail in a few minutes, but first I'll walk through a review of our results segment-by-segment. Beginning with the Fitness segment, revenue grew 38% on a year-over-year basis, as our new running products performed well and we began shipping our vívofit activity tracker. We delivered gross and operating margins of 64% and 33%, respectively. Operating income grew 68% in the quarter as the operating margin extended by almost 600 basis points due to higher sales. The launch of the vívofit in the first quarter has gone well, and we expect it to be a driver growth for the remainder of the year as the wellness market rapidly expands. In cycling, we announced the Edge 1000, a high-end solution that sets a new standard for cycling computers. The Edge 1000 features a large sunlight-readable color display, passive touch, competitive segment capabilities and smartphone connectivity. Finally, while we are currently expressing a period of strong growth fueled…

Thank you, Cliff, and good morning, everyone. I'd like to begin by reviewing our financial results and then move to summary comments on both the balance sheet and the cash flow. So we posted revenue of $583 million for the quarter, with pro forma net income of $108 million. Our pro forma EPS was $0.55 per share, excluding the FX gain in during the quarter. Our revenue represents an increase of 10% year-over-year, as previously highlighted by Cliff. Gross margin was strong at 57%, a 480-basis-point increase from prior year, driven by the segment mix with improved margins in each segment and the amortization of previously deferred revenues. Operating margin was 21%, an increase of 560 basis points from the prior year. This is the result of the gross margin favorability of 480 basis points, as well as the operating expense favorability of 80 basis points. The total operating expenses did increase by $14 million, or 7%. Each of the operating expense categories will be discussed in detail on a later slide. Our effective tax rate increased to 16.6% in the quarter, with the prior year rate positively impacted by a $6.3 million benefit from the retroactive reinstatement of the Federal R&D tax credit, which again expired at the end of December 2013. Our pro forma EPS, which is adjusted for the foreign currency gains, $0.55 representing a 38% increase year-over-year. And we shipped 2.5 million units during the quarter, basically flat from our 2013 results. Total company average selling price was $234 per unit, up 10% from $213 in Q1 2013, driven primarily by the segment mix and reduced revenue deferrals. Next, you can see how our first quarter revenue breaks down by segment. I'd just like to briefly highlight the charts on this page, which illustrate the Auto/Mobile…

[Operator Instructions] And our first question is from Yair Reiner with Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: A question on the deferred revenue. It seems as though it came in -- the net amount of deferred revenue, a bit higher than I was forecasting. Was there any change in the way that you account for the deferred revenue?

No, we do have expected higher deferred revenue in Q1 because of this being a seasonally weaker period. So the -- so really wasn't any major changes to what we've deferred from the past. And I think, as we go through the year, will see less of a dramatic impact as what we have in Q1. Yair Reiner - Oppenheimer & Co. Inc., Research Division: And then, I guess, still trying to figure out the trajectory of the Auto/Mobile business. Can you give me -- give us maybe a sense of what the total non-PND sales were in 2013? And how those non-PND sales might trend this year? So can you kind of back in to what do expect for the PND market?

Are you -- you are referring to just the Auto/Mobile segment specifically? Yair Reiner - Oppenheimer & Co. Inc., Research Division: Exactly. How much of the Auto/Mobile is non-PND? And what is the absolute kind of trend in 2013 -- 2014 versus '13?

Yes, I think what you're getting at is you want us to document what our Auto OEM businesses is. We just don't make that public. But I would just say the Auto OEM revenues did grow, and we're still expecting our units decline in PND to be around 17% year-over-year, which is what, what we've said in the past. And as we go forth through the full year, I think you'll see our Auto/Mobile segment in total still come down between 10% and 15% on revenue. So really no major changes from what we communicated at the last quarterly earnings call.

Our next question is from Mark Sue with RBC Capital Markets.

Just a question on the Fitness market, particularly with vívofit. It's a very fluid market, there's a lot of sub-segmentation and changing dynamics related to competition, some people leaving, some new people coming in. Just kind of your working assumptions for vívofit unit growth? And how we should also think about ASPs that might actually stimulate the demand further?

I think, as Cliff commented, we got off on to a really good start with vívofit. We believe the market is sizable market, roughly about 10 million -- probably about close to 10 million units this year. So being a new player in the Fitness area, the Fitness activity trackers, this is a key part of our growth business in our Fitness segment. However I do want to also just remind people that, while vívofit got off to a great start, the rest of our fitness business also did well, especially in the running category.

Kevin, are you finding that consumers will elect one or the other, a watch or a band? Or are you finding that there's market growth in both segments? How should we kind of think about that on a going forward basis?

I think we were seeing both. I mean, we've introduced, for example, the recent Forerunner 220 and 620, which have done very well, which is the watch category and that, of course, the vívofit being the band, we think there's a lot of upside there too. so I think, there -- it's not either/or, it's -- we're going to get both from -- growth from both of those sub-segments.

Okay. That's helpful. And Outdoor, it seems the outdoor camera, the VIRB, we're kind of rebooting that. Maybe some of the lessons learned from, I guess, the initial launch and how we've not actually gained some share in this market? What happens to the existing products? Are we clearing those out through the channel as we get ready for the new products? Maybe if you could help give us some sense of that would be helpful.

Mark, I think as I mentioned in my remarks, we know that the market is mature, and we know that there's entrenched competitors in the market, and therefore it does take some time to penetrate the market, we're viewing this as a marathon rather than a sprint. And so, as I mentioned, we're increasing our promotional activities, we're also increasing our R&D activities to be able to have a robust product pipeline. At this stage, we're focusing on our existing offerings, and I think in the future we'll have additional innovations that we'll bring into market.

And we'll take our next call from John Bright with Avondale Partners.

Aftermarket demand in Marine and Aviation versus the peak periods, where does this stand today?

I think those markets, John, have been down anywhere from 40% to 50% at -- from their highest to their lowest. They're coming off of their lows from where they were, but, obviously, and speaking just generally about industry, the industry took a massive hit as part of the financial crisis. We've been able to outperform that market by taking share, as well as new product offerings that are stimulating demand in those areas.

In the Marine segment last year, if I recall right, the products -- new products weren't in the market for this quarter but they then actually picked up nicely in the June quarter, and you had good acceptance for the Marine products. Does that make a meaningfully tough comparison for June?

Yes, I mentioned in my remarks that the first quarter of this year was strong, and compared to last year, it was a very weak comparable. So going forward, we do face the stronger comparables of last year that we're comping against.

On the Auto side of the equation, you mentioned growth in OEM in the quarter. And then in prepared text talk, it seemed like you are trying about some optimism around the OEM business looking forward. Is there any additional tactical information that you can share with us?

We don't have any substantial information we can share at this time. We continue to manage a robust pipeline of business development. And we do have progress that we're making in the segment as well, with our credibility as a Tier 1 software and infotainment supplier. So it's a slow-moving industry, but in general, I feel positive about the progress we've made to date.

Another question, geographically, it looks like EMEA, it was the strongest market for you. What were the products that were leading that strength?

Well, it's very interesting. EMEA did well across all of the different segments. I think, the one -- maybe the one positive surprise is the PND decline in EMEA was a little bit lower than what we had anticipated going in, that even in the Outdoor, the Fitness and the Marine businesses all did well in Europe.

[Operator Instructions] Our next question is from Jonathan Ho with William Blair. Jonathan Ho - William Blair & Company L.L.C., Research Division: I just wanted to understand a little bit better. Like, you've talked in, I believe, both the Fitness, Outdoor and Auto segments about increasing some of the investments around R&D, as well as marketing spend. Can you maybe give us a sense around magnitude for that spending increase? As well as where you expect to sort of redirect that spending?

Generally speaking, we're trying to manage the investment within the sales growth that we're experiencing. Obviously, in some areas that are very new, we have to ramp it up much more aggressively. But on average, that's what we're trying to accomplish. Jonathan Ho - William Blair & Company L.L.C., Research Division: Got it. And then just in terms of, I guess, the progress with the VIRB, what's been sort of the feedback that you've gotten from the channel? Is this fully deployed in all of the mass market channels at this point? And just wanted to get a sense from you as to what do you think are some of the issues that will sort of help accelerate that growth over time?

I feel that our deployment in mass market is probably light, compared to where we had wished to be. I think we're in a few of the smaller Outdoor retail stores, but we have yet to get placement in some of the larger big box retailers. And so product placement has obviously been an issue. As well as, as I mentioned before, I think the existence of entrenched competitors in this market is a factor.

And our next call is from Charlie Anderson with Dougherty & Company. Charles L. Anderson - Dougherty & Company LLC, Research Division: Just starting on Fitness, I wonder if you guys could talk about sort of channel fill and maybe sell-in versus sell-through. Obviously, it was sort of a partial shipping of vívofit. What was sort of the spend dynamic there? Is this a partial quarter? Just all those dynamics to help us understand the growth rate and -- versus what we should see going forward?

Yes, I think our -- as you point out, our sell-in on vívofit has just started partially in the quarter. It's still very early in the life cycle of this product and in the year, but I would say that we're encouraged by the sell-through reports that we're hearing from the field. I think, as Kevin mentioned, our strongest contributor to growth in the Fitness segment was our strong running product line and, of course, those have been out now for a while. And there's really no issue of sell-in, sell-through going on there. We feel like it's strong demand from customers that are pulling that product through. Charles L. Anderson - Dougherty & Company LLC, Research Division: And then, you mentioned some pricing pressure on Marine. I wondered if this is a nagging issues or a structural issue? Or if you feel like it's temporary and cyclical in nature?

I think it depends on what your time frame is for how you evaluate, whether it's short-term or long-term. The way we see it is that the market has experienced a lot of challenging conditions and competitors are vying for the business that's there and that's put pressure on pricing. We're seeing, as you've seen in our results, the margins come up as we've introduced new products and innovations. So we feel like over the long-term, it can move back towards where we were, but we are not, at this point, overly optimistic that, that will come in the short-term.

Our next question is from Ben Bollin with Cleveland Research.

One question I had on vívofit, in particular, is when you look at this market, the wellness opportunity, how do you view your position from either a market share standpoint? Or how big do you think you can be within that? And then kind of what's the backlog look like? It looks like there's extended lead times today. Does that can have any impact on when this vívoki can launch? Then I have follow-up as well.

Okay. So we feel like the market is very fragmented, as you pointed out, but we entered these markets with the intention of being leaders. We are cautious in terms of how much market share that we can get in both the short-term and the long-term, if the market's very fragmented. Our experience in the PND market is that, in a highly fragmented and growing market, your ability to capture large amount of shares early is more challenging. But we again, feel like this is a market where we offer a lot of value and capability and, therefore, we're going to be continuing to work on our innovation and the products that we're offering.

And maybe a follow-up. We're just a couple of months into the sell-in of the vívofit and backlogs have continued to remain pretty strong. So we'll have to -- continue to manage that as we go forward in the next couple of quarters. But so far, the trends looks pretty positive.

And then follow-up, commented on new products, new categories within the prepared remarks. Any detail you could provide as you think about new categories not necessarily what they are? But any thoughts on how those cam opportunities may compare with some of the recently introduced products and markets that you've entered? Are these comparable opportunities? How do you think about those market sizes?

I think, really no specifics at this time. We continue to search for opportunities in closely related adjacent spaces to where we are. And as you know, many of our businesses are niche focused in general, and so we're continuing to search for those kinds of opportunities.

And our next question is with Ron Epstein with Bank of America Merrill Lynch.

It's actually Kristine Liwag calling in for Ron. So a few quarters ago, you guys have said it may take a few years to get Aviation margins to the 30s level again. And in this quarter, Aviation margins were 30%. So can you give us more color on what drove Aviation margin strength? Is it volume, timing of R&D spend, sales mix? And how should we think about the cadence of these items for the year?

I think it's all 3, it's all of the above. I think when you see a 19% growth rate, that's above what our full year guidance is. It's a very of much volume dependent business and since we have strong revenue growth that helps. But our gross margins also grew and then pricing and the new business opportunities, I think are -- has helped us hit 30%. So we want to be, I think, cautious in the fact that we were excited about that type of profitability, but it doesn't necessarily mean it's a trend. We'll have to just see how Aviation progresses throughout the rest of this year.

So would it be fair to say that if business jet volumes actually do recover then 30% is kind of the new watermark for Aviation margins?

I think it probably requires more than just that. Of course, that would be helpful but the retrofit market needs to continue to perform well. And again, from our expense point of view, we're growing R&D and we're also comping against Qs 2 through 4 last year which were very strong. So I think all of those are factors that are in the mix.

And our next call is -- question is from Tavis McCourt with Raymond James. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Kevin, I know it's kind of difficult to predict the deferred revenue. But if we look at last year, Q1, you pulled off a significant amount of revenue from the balance sheet in Q1. And then the deferred revenue balance kind of stabilized through the rest of the year. Is that a reasonable case scenario for this year? Or is there some other pattern that we should be thinking about as we try to forecast this Auto/Mobile segment?

I think it is similar to that because Q1 being our lightest quarter from a PND shipment, and that has an impact on the results. And so we are -- we also hit a threshold were about 80% of all of our PND units now have lifetime map, lifetime traffic, so we defer that percentage. That really hasn't changed. As we go through Q2, Q3 and Q4, we should see a decrease in the amount of amortized revenues that we're going to experience. So I think, it's pretty -- I think you're trend is probably pretty close. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: And I appreciate you don't want to give the OEM revenues, but I was also hoping to ask around the question a little bit, maybe get a little more clarification. The shipments into the Mercedes, that is for turn-by-turn navigation app, correct? And I just wanted to make sure if that was revenue booked in the first quarter related to that? Or is that happening starting in the second quarter?

The revenue was booked in the first quarter for Mercedes. It is a software application. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: And that -- then the revenue rec for that is upon the shipment from the OEM?

I think...

No...

No, it's when we ship it.

Right. Revenue recognition is when we sell into that -- into the channel.

Yes. Matthew P. McKee - Morgan Keegan & Company, Inc., Research Division: And then are you willing to give kind of an aggregate percentage of the Auto/Mobile business that made up, not just of OEM, but also of some of the specialty PND products that you think there's some growth in -- in dash cam and other kind of products that there might be growth in?

No, we really won't break it down below that. I think, the PND still makes up the vast majority of our Auto/Mobile segments and Auto OEM, obviously, as we said, did grow, and then you mentioned dash cam, that those are more, I would say, niche opportunities for us to grow that segment, but we don't -- we won't quantify how much that is. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Great. And final question, Cliff, I think you guys kind of run the business from an investment standpoint on a project-by-project basis. But I was wondering if there is a kind of an operating margin target or level that we should be thinking about in Fitness and Outdoor, given what appears to be all kinds of new opportunities for growth, given the improvements in sensor technology and wireless and excitement about wearables, et cetera?

Well, I think for the traditional businesses and product segments that we served in Fitness and Outdoor, we still target the margin profile that we've historically had in those businesses with gross margins, in the 60s range and the operating margins in the 30s arrange. As those market segments have new categories and also there's some expansion of the market size as we move down to more beginning customers, if you will, especially in Fitness, the margin profile will definitely come down. Especially in the Fitness market, as the wellness market gets competitive and pricing we would expect to come down in the long-term. That will tend to weigh on the margins in Fitness. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: But no specific target operating margin level. So when you're investing in R&D and sales and marketing, it's not around an envelope of operating margin target, it's more project-by-project?

No, it's really, I would call it, opportunities and the ability to penetrate new segments in the market and serve more customers.

Just to clarify, Tavis, you want question on the Auto OEM. Let me just make sure everybody understands the revenue recognition. We recognize revenue on any of our Auto OEM deals on a vehicle-by-vehicle. So for Mercedes, for example, we take revenue for the number of cars that they're selling, and it's not one lump sum payment that we get, it's vehicle-by-vehicle.

[Operator Instructions] And our next question is from Simona Jankowski with Goldman Sachs.

It's Doug Clark for Simona Jankowski. One more question on the deferral impact. I think last quarter you had mentioned that you expect the full impact on the EPS basis to be about $0.20 to $0.30, probably about $0.30. It looks like on my math, the full impact in the first quarter was pretty much $0.20. So for the full year, do you expect the impact to be larger than the former guidance? And again, if so, really why was the first quarter so outside?

Well, actually the first quarter impact was about $0.16 after net income tax effect. So as I said earlier, we're expecting that number to decline over the next couple of quarters. So there's really no major change from our earlier expectations of up to as much as $0.30 for the year.

Okay. Great, that's helpful. And then one more follow-up on the VIRB. In association with the promotion and advertising spending that's going on, does that mean that you will expand the channel and distribution ahead of the next generation VIRB product? Or would that be something that you would wait to do until the next generation comes out?

No we're working to expand the distribution.

And then one more quick follow-up actually. With about $200 million left in the repurchase, do you expect to fully execute that by the end of 2014?

Well, we would just -- it's hard to predict what the rest of the year is going to look like. But we have been in the market pretty much every day, so we will likely be more aggressive, as we said earlier, to buy back stock this year. Whether we get all the way through it, it's hard to predict at this point.

And our next question is from Jeremy David with Citi.

Two questions. First on Outdoor. Margins were very strong in Q1, and to me that's confirming that categories you have been in for a while are doing well, but VIRB is not doing that well. But, excluding VIRB, what really drove this strength in your Auto portfolio in Q1? I know you're expecting that strength to last for the rest of the year. And finally, considering the weaker VIRB revenue that you're now expecting, it's 10% to 15% growth for Outdoor in '14 still on the table? Or that might not be achievable?

Well, I think if you look at the entire categories of our Outdoor segment, dog tracking and training, the golf products, just the traditional handhelds markets. Excluding the VIRB, those are all very high margin products. So, we -- that's really what drove the operating result -- operating margin results for the quarter. In terms of your question on full year guidance as we said earlier, we're not planning to give any adjustment to our earlier expectations. Outdoor came in at plus 10%. We've said 10% to 15% for the full year, so we will plan to update not only our total company but also the Outdoor segment after Q2.

Okay, fair enough. And if I can have a follow-up on -- could you comment on the inventory situation across your businesses. I think, TomTom had a good Q1 yesterday, part of it was channel fill for PNDs. Could you comment about PND inventories broadly speaking? And maybe anything out of the normal in terms of inventory for your other products across all businesses?

Yes, no real changes to the inventory cycles. PND is a matured business. We're very much watching both sell-in and sell-through, we don't have any major risks there. And inventory in general, I think, the key driver of our inventory increase was really preparing ourselves for the, as I said, seasonally strong Q2 with bringing to market like vívofit, the marine products and others.

And our next question is with Andrew Spinola with Wells Fargo.

Cliff, I was hoping you could expand on your comments about the action camera market being mature. I mean, it seemed like to me one of the opportunities, big opportunities for Garmin in this market is as that sort of niche product in the extreme sport arena expanded into more mass markets like aviation, marine, swimming, cycling, where you are so strong there was an opportunity for you to capture share without necessarily having to take share from the existing markets. And so just I'm a little confused by the use of the word mature. Do you not see any underlying market growth in action cameras, or why do you describe it as mature?

Well, you're probably touching on a couple of different dynamics there. The action camera market has existed for several years now. And so right now, there's really no credible documentation on what the market size is and what the growth is. But it would appear to us based on the fact that these devices are used in a lot of highly active, extreme lifestyles that the market, being in existence for a while, is probably more in a flatter growth right now than hyper growth type of a mode. And that's one dynamic. But in terms of share, that's a different dynamic. Yes, it's true that we do serve all those different markets, and we do see strong interest and acceptance of our product, particularly in those niche market areas like aviation and marine where we are very strong. And so we see encouraging signs there. Whereas a lot of the more mass market distribution and the mass market customer is weaker than we like. So those are really the dynamics around the comments that I made.

And our next question is from Brad Erickson with Pacific Crest Securities.

First, the press release, and you guys have mentioned that the business generally exceeded expectations in -- your own expectations in Q1. Can you corner just rank order maybe the top couple of segments that contributed in terms of being so meaningfully ahead of those initial expectations?

Well, clearly, Fitness has performed very, very well, and so that was 1 driver. I think Auto/Mobile is our largest segment, performed ahead of our expectations and made big differences there as well. Aviation performed well. So I'd say those are top 3 and, of course, we're pleased with our performance in Marine as well, and Outdoor did, respectively. So across the board, we feel positive about the results.

And then, just a follow-up on vívofit. Can you remind us of just kind of where we're in the time line in terms of being at full distribution on that product. And if we're not sort of when we should expect to be at full distribution?

I think out of the gate, we were able to secure a lot of strong distribution for this product. So we feel very good about where we're at. We still feel like there's more doors to capture. And many of those retailers where we're currently not positioned are planning for resets in the future. Let's say, by the summer time frame and into the fall, we should be at a point where we feel like we're at full presence in the market.

And we do have a follow-up call from Yair Reiner with Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Just in terms of the CapEx, it expanded a little bit. Is -- are some of these growth opportunities you are also requiring -- you to grow some of your equipment and installed base and kind of what's the forecast for the year?

Yes, I think we did raise our expectation on CapEx because of the $15 million in Q1 to probably closer to $60 million for the year. And we are investing in several areas, we're investing in a few facilities, but also surface map technology to production lines to capture these opportunities like vívofit. So there's several factors that, that's what's driving a slight increase in our CapEx expectations. Yair Reiner - Oppenheimer & Co. Inc., Research Division: And then you also mentioned in your prepared remarks with respect to the Aviation market that it's still a difficult market out there. Those remarks has been echoed by others in the space. Is there any worry that some of the shipments you are expecting in the new platforms in the OE side, later this year could get pushed out? Or are you still feeling okay about the OE deliveries you had in your plan?

I think there's still some uncertainty around the planning on the OEM side because of the market conditions. The business jet market remains weak as we've been saying and so we simply need to watch, as the year goes along, to see how the OEM sales follow through.

And the follow-up call from Mark Sue with RBC Capital Markets.

Kevin, just with the slight increase in CapEx, how we should think about free cash flow for the full year with your working capital requirements? And also, your inclination to kind of repurchase shares at these elevated levels, how you're kind of thinking about the share repurchase?

Well, first of all, we haven't really changed our expectation of free cash flows, so we're still expecting in between $550 million and $600 million, which is what we stated at the beginning -- at our last earnings call. And in terms of buyback, I think, we're like many other investors, we're price-sensitive but we're also wanting to be more aggressive to use our cash to -- from a dilutive effect to take some of the shares out of the market. So I think we've proven on the last couple of quarters that we're willing to buy consistently, like I said, we've been in the market pretty much every day since our last earnings announcement. So we'll see how that progresses throughout 2014.

Okay. I think that is -- that concludes the questions for the day. So we want to thank everyone again for your contribution and for your questions. And look forward to updating you as we go through the remainder of the year. Thanks very much.

This concludes today's conference. Thank you for your participation.