Sensata Technologies Holding plc (ST) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Sensata Technologies Holding N.V. Fourth Quarter 2012 Earnings Conference Call. At this time, I would like to inform you that this conference call is being recorded [Operator Instructions]. For opening remarks and introductions, I would like to turn the call over to Jacob Sayer, Vice President of Investor Relations and Corporate Communications. Mr. Sayer, you may begin.

Thank you, Angel, and good morning, everyone. Earlier today, Sensata issued a press release describing our financial performance for the fourth quarter and full year 2012. If you did not receive a copy, you may obtain it from the Investor Relations section of our website at sensata.com. This call is being webcast live and a replay will also be available at the Investor Relations section of our website. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on the business environment as we currently see it and, as such, does include certain risks and uncertainties. Please refer to our press release and our 10-K and 10-Q filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections or goals described in today's discussion. In addition to U.S. GAAP reporting, Sensata reports certain financial measures that do not conform to Generally Accepted Accounting Principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release, as well as on our website. Comments made during today's call will primarily refer to our non-GAAP financial results. On the call with me today are Martha Sullivan, our President and Chief Executive Officer; Bob Hureau, our Chief Financial Officer; and Jeff Cote, our Chief Operating Officer. Martha will review some highlights from the quarter and the year and will then discuss trends in the end markets that we serve. Bob will provide a more detailed review of our financial results, including the segment data for our Sensors & Controls business units for the fourth quarter and full year 2012. He'll also outline some of our -- outline our financial guidance for the first quarter and full year 2013. [Operator Instructions] I'll now turn the call over to Martha Sullivan, our President and Chief Executive Officer. Martha?

Thank you, Jacob, and thank you all for joining in our fourth quarter conference call. I'm satisfied with our results during a challenging fourth quarter. Despite continued macro weakness from several of the end markets we serve, we delivered net revenue and adjusted net income at the midpoint of guidance. The financial highlights include net revenue for the fourth quarter ended December 31, 2012, was $445 million, a decrease of approximately 2% from net revenue of $453 million in the fourth quarter ended December 31, 2011. Adjusted net income for the fourth quarter was $85 million or $0.47 per diluted share, an increase of 4% from the year-ago period adjusted net income of $82 million or $0.45 per diluted share. And net revenue for the full year 2012 was $1,914,000,000, an increase of 5% over the full year 2011 net revenue of $1,827,000,000. Adjusted net income for 2012 was approximately $357 million or $1.96 per diluted share, flat versus 2011. The macroeconomic landscape today continues to be weak, and unfortunately, Sensata is not immune from this. Over the past 2 years, the risks facing the global economy had been skewed to the downside. In the coming years, some of the biggest threats, another U.S. recession, a Eurozone meltdown and a China hard landing appear to be less menacing. On the upside, the massive monetary stimulus put in place in many key economies over the past 1.5 years should eventually have a positive impact in the stage appear set for a modest acceleration of growth in the latter part of the year and into 2014. Now let me provide some color on each of the regions in which we operate around the globe. In Europe, the economy continues to deteriorate on multiple levels, leading to declining vehicle demand. According to third-party data, December marks the 15th straight monthly decline in European light vehicle registrations. For the full year, car registrations in Europe were down approximately 8% to the lowest level of registrations since 1995. Europe's biggest market, Germany, experienced registrations down 3% for the year, while many of the southern European countries were down double digits. In the month of December alone, auto registrations were down 16% from the prior year. As formal sales reports don't exist in Europe, registrations remain the best proxy for underlying demand. According to third-party data, fourth quarter light vehicle production was down 11% in Europe year-on-year. We believe European production was actually worse than that in the fourth quarter. In the U.S., light vehicle sales performed well in 2012 as expected. Demand for heavy trucks and commercial vehicles weakened substantially in the second half of the year, weighed down by economic weakness and uncertainty, partly related to the U.S. elections, fiscal cliff and ongoing federal budget negotiations. Heavy vehicle off-road and commercial truck production contracted 17.5% in the second half of 2012 versus the first half. We expect HVOR production to remain low through the first quarter of 2013. Privately owned housing starts were a positive area in the fourth quarter of 2012, up 13% sequentially and up 37% year-on-year. Finally, in Asia, China is undertaking efforts to rebalance its economy away from manufacturing investment and toward domestic consumption. After weak consumer demand there in 2012, we expect Chinese consumption to turn in 2013. Light vehicle production grew 6% in 2012 in China and grew 11% in the rest of Asia. Vehicle production growth in Asia x China during 2012 reflects a temporary uplift after the rebuilding of the automotive supply chain in Japan. This now represents a headwind in 2013. Approximately 1.1 million vehicles that should have been built in the first half of 2011 were instead built in the fourth quarter of that year and the first half of 2012. Fourth quarter 2012 auto production in Asia x China was roughly flat with the fourth quarter of 2010 before the earthquake and tsunami in Japan. For the first quarter of 2013, current third-party estimates call for year-on-year automotive production down 2% in the Americas; growth of 3% in China; Europe, down 10%; and the rest of Asia, down 12%, as compared to the first quarter of 2012. Expectations are for global automotive production levels in 2013 to be up slightly as compared to 2012. Current year party estimates for 2013 are for automotive production growth of 1% to 3% in the Americas; 8% to 10% in China; Europe, down 1% to 3%; and the rest of Asia, down 6% to 8%. As a reminder, Sensata content per vehicle is the highest in Europe and the lowest in China. As for Controls, we serve many end markets such as HVAC, appliance and industrial. We believe a good proxy for growth in the Controls business is GDP growth in the major economies of the world where our products are consumed. The U.S. GDP is expected to have modest growth this year, Europe is expected to slightly contract and Japan is expected to be flat. As you know, content is an important secular growth driver of our business. We recognize content growth correlates to the economy and to the proximity of regulatory requirements. This means content growth for Sensata is impacted by significant end market deterioration and will, from time to time, fall outside of the tight 7% to 10% band we've signaled in the past. Shifts in end markets, consumer choice and OEM cost-cutting, such as delays to new programs or accelerating product transitions, will all impact content growth. As a consequence, there will be years, like 2009 and 2013, low points for the economy where new program launches get delayed and our content growth comes in below the range. There will also be years like 2010 when OEMs launch -- when OEM launches catch up and where our content comes in at the high end of the range. We've analyzed these trends with customers and regulators and continue to believe our growth platform remains sound. We are confident in the impact of our design wins over the longer run, 3 to 5 years. In any given quarter or even over a year, however, content growth for the company may fall outside of the range. OEM long-term investment models aren't changing, however, and neither are the government regulations that drive them. The revenue growth opportunity for Sensata is as robust as ever. Strategy analytics expect automotive sensor revenues to grow by 9% CAGR through 2016 as carmakers respond to tightening, environmental, fuel mileage and safety regulations, as well as consumer expectations. Turning that market growth into growth for Sensata comes through our new business wins. During 2012, we won new designs representing over $300 million of annual revenue. These new business wins will have a positive impact on our revenue beginning in 2014 through 2017, and in some cases will continue to ramp after that point. An example of a large new business win during the year includes the differential pressure sensors. These are used in exhaust treatment systems for diesel vehicles. In the future, we expect to supply greater than 60% of this $150 million global market. Another example is the launch of In-Cylinder Pressure Sensor, a category we pioneered by another major OEM. While it is still early days for in-cylinder pressure-sensing applications, we believe this category will represent $100 million to $150 million in annual revenue for us within the next 5 years. I'll now turn the call over to Bob to review our fourth quarter results in more detail and provide guidance. Bob?

Thank you, Martha. Net revenue for the fourth quarter of 2012 of $445.4 million decreased 1.8% compared to the fourth quarter of 2011. The decrease in net revenue was due to a 1% decline in organic revenue, a 2% decline due to unfavorable foreign currency exchange rates, partially offset by 1% growth from acquisitions. Net revenue for the full year 2012 of $1.91 billion grew 4.8% compared to 2011. The increase in net revenue was due to 2% organic revenue growth and 5% growth from acquisitions, partially offset by a 2% decline due to unfavorable foreign currency exchange rates. For the fourth quarter and full year 2012, revenue growth from increasing content was 8% and 7%, respectively. As Martha mentioned, we recognize that content growth has been and can be volatile in the short term. We also recognize that it can be confusing, given it applies largely to the Sensors business and does interact with market unit growth. As a consequence, we plan to continue to describe content growth but we'll provide the content growth rate annually. We'll do this separately from explaining our quarterly revenue performance. Adjusted EBITDA for the fourth quarter was $124 million or 27.8% of net revenue. Adjusted net income was $85.3 million or 19.2% of net revenue. The adjusted net income index was higher than the fourth quarter of the prior year and sequentially higher than the third quarter of 2012, due primarily to lower operating expenses. This reduction in costs more than offset the impact from unfavorable foreign currency exchange rates and lower revenue. Adjusted EBITDA for the full year 2012 was $514.7 million or 26.9% of net revenue. Adjusted net income for the full year 2012 was $356.6 million or 18.6% of net revenue. The adjusted net income index for the full year 2012 was lower than the prior year, due primarily to the impact of unfavorable foreign currency exchange rates, primarily the euro to US dollar exchange rate, which averaged 1.28 in 2012 compared to 1.39 in 2011. The total foreign currency exchange rate impact in 2012 compared to 2011 was approximately $0.17 per diluted share. Total integration costs for the fourth quarter and full year were $3.7 million and $14.3 million, respectively. For the full year 2012, this equates to approximately $0.08 per diluted share. Now let me summarize our restructuring costs. We incurred total restructuring and special charges of $34 million and $52 million in the fourth quarter and full year 2012, respectively. Restructuring and special charges for the full year include approximately $12 million, which we announced in December associated with the retirement of our prior Chief Executive Officer. Excluding this charge, our total restructuring and special charges for the year were in line with guidance we provided on the third quarter conference call. As we previously noted, the majority of these costs relate to the fire at and restructuring of our facility in South Korea. As a reminder, these costs have been excluded from both adjusted net income and adjusted EBITDA. During the fourth quarter 2012, we recorded a total income tax benefit of $64 million. This benefit relates primarily to the release of a valuation allowance associated with certain deferred tax assets, primarily our net operating loss carryforwards on the books of our subsidiaries in the Netherlands. This tax benefit was excluded from our both adjusted net income and adjusted EBITDA. Cash at December 31, 2012 was $414 million. During the year, we generated $343 million in free cash flow, an increase of 59% compared to 2011. We utilized some of the free cash flow to commence with our share repurchase program. During the fourth quarter, we've repurchased approximately 500,000 shares at an average price of $29.75. Capital expenditures for the full year 2012 were $55 million. We managed capital expenditures slightly below our long-term model of 3% to 4% of revenue given the challenging economic environment we faced during the year. As of December 31, our net debt was $1.4 billion and our net leverage ratio was 2.7x. Our target net leverage ratio continues to be 2x to 3x adjusted EBITDA. Now I'd like to comment on the performance of our 2 businesses. Sensors' net revenue was $316 million for the fourth quarter, down 7% from the fourth quarter of 2011 and down 7% sequentially from the third quarter. The Sensors' net revenue performance compared to prior year and prior quarter reflect weakness in both the European light vehicle and the North American commercial vehicle markets. In addition, Sensors' net revenue was negatively impacted by foreign currency exchange rates compared to the prior year. Sensors' profit from operations was $91 million or 28.8% of Sensors' net revenue. The Sensors' profit from operations index was higher than the fourth quarter 2011 and higher than the third quarter 2012, due primarily to the various cost reduction initiatives that offset the impact from lower revenues. Controls' net revenue was $130 million for the fourth quarter, up 14.5% from the fourth quarter of 2011 and down 2% sequentially. The Controls' net revenue performance compared to the prior year reflects the end market and supply chain disruption that occurred largely during the fourth quarter of 2011, and sequentially reflects capacity constraints related to the fire at our facility in South Korea. Controls' profit from operations was $38.1 million or 29.4% of Controls' net revenue. Controls' profit from operations index was higher than the fourth quarter 2011 and lower than the third quarter 2012, due primarily to the leverage related to higher and lower volumes, respectively. Our financial guidance for the full year 2013 includes the following: net revenue of $1.93 billion to $2.03 billion, an increase of 3.5% from 2012 at the midpoint. We expect content growth in 2013 to be in the 5% to 6% range; adjusted net income per share up $2 to $2.20, approximately 19% of net revenue and an increase of 7% from 2012 at the midpoint; $182 million diluted shares outstanding, flat to 2012; adjusted EBITDA of $530 million to $560 million, approximately 28% of net revenue at the midpoint; capital expenditures of $70 million to $90 million or approximately 4% of net revenue; free cash flow of $340 million to $380 million. Our priorities for the use of cash remain the same, acquisitions and share repurchases. With another strong year of free cash flow and $400 million-plus of cash on the balance sheet today, we'll have significant capital available and ready for deployment. We expect net restructuring and special charges to be 0 for the year. Proceeds from insurance related to the fire should offset remaining costs to move out of the South Korean facility. And finally, we've hedged the vast majority of euro-denominated earnings at a rate of 1.30. Accordingly, the year-over-year impact from currencies should be minimal. Our financial guidance for the first quarter of 2013 includes the following: net revenue of $450 million to $470 million, a decrease of 7% at the midpoint compared to the first quarter of 2012 and up 3% sequentially from the fourth quarter of 2012. While this is significantly lower than normal seasonal growth for the first quarter, we expect the balance of the year to be stronger than normal seasonal patterns. Our current bill rate stands at 90% of the midpoint of this guidance; adjusted net income per diluted share of $0.43 to $0.47, approximately 18% of net revenue at the midpoint; and adjusted EBITDA of $118 million to $126 million, approximately 27% of net revenue at the midpoint. I'll now turn the call back to Martha for a summary.

Before we take questions, I thought I would share with you our vision for the future of Sensata. Our goal is to remain a world leader and early innovator in mission-critical sensors and electrical protection. Near-term economic weakness notwithstanding, the underlying drivers of growth for Sensata remains strong. These include the world's ongoing need for improved safety, energy efficiency and a cleaner environment. I believe Sensata will double in net revenue over the next 5 years. Our strategic roadmap includes adding $150 million to $250 million in acquired revenue on average per year and finding opportunities to move into adjacent high-growth end markets. It also calls for 7% to 10% organic revenue growth on average per year and growing earnings faster than organic net revenue. While certain of our end markets are weak, they appear to be near their low points. A return to growth in these markets, combined with increasing content, leads us to be confident in the growth of the business. We now like to open it up for questions. Angel, please introduce the first question.

[Operator Instructions] Your first question comes from the line of Amit Daryanani.

Just two questions for me. First, I wanted to just understand and make sure I heard this right, but you guys are talking about content growth that you're going to disclose annually and not on a quarterly basis going forward. And if that's correct, could you just maybe talk about how do you see, just generally, when you think about content growth, is there any seasonality on a quarterly basis that we should be thinking about? And then for 2013 specifically, I'm assuming the way of your dynamics work, content growth starts at a low point in Q1 and ramps up through the year, is that reasonable?

So just to confirm, yes, you heard correctly, Amit. We are going to move towards the discussion of content growth on an annual basis. And that is just recognizing the perturbations that we go through quarter-to-quarter, trying to chase that and communicate that, we think, creates as much confusion as anything. It's an important trend over the long run. In terms of the quarter-to-quarter transition, it really is a function of when we see programs landing. I think it does become a little stronger in the second half of the year. We've raised it between 5% to 6%. We expect it will stay within that range as we move through the year.

Got it. And then if I just look at the 2013 guidance, if my model works fine, you're looking about 10 basis points of operating margin expansion for the full year. So could you maybe just talk about, given some of the tailwinds you have from just incremental revenue leverage to restructuring benefits and synergies, what are the offsets that are preventing better operating margin expansion than the 10 basis points you guys are talking about?

Right. Amit, this is Bob. So just to reiterate, $2 to $2.20 of EPS guide for 2013. That's up 7% at the midpoint and that's up 12% at the top end of the range. We've built in a number of the tailwinds that we've been talking about all year. Those include the rolling off of integration expenses, the continued realization of synergies associated with the acquired businesses and continued savings or incremental savings from our restructuring activities that we launched over the course of 2012. So those are all built into the guidance. There are some things going the other way. First, operating expenses. In 2012, particularly as we ended the year with the $445 million of revenue in the fourth quarter, we managed those operating expenses pretty tightly. Some of those expenses need to come back into the P&L of 2013 to support the business for the long run. That's the first item. Second item is R&D. We want to continue to inch that index up and we'll do that to the tune of 20 to 30 basis points going from '12 to '13. That's an important driver of our long-term revenue and content growth. And then lastly, cash taxes. We had a great year in 2012. We typically guide cash taxes to a 4% to 6% range, 4% to 6% of adjusted EBIT range. We were below the bottom end of that range in 2012 at about 3.8%. That's going to inch up next year to a little bit above the midpoint of that 4% to 6% range. It's about $0.05 to $0.06 of EPS deterioration year-over-year. But importantly, when we look at the cash tax rate over the long range, we're confident that we're still in that 4% to 6% of cash tax range. So those are some of the operating expenses that come back into the P&L that mitigate some of the tailwinds. I think the last point is, with respect to end markets, as Martha mentioned in the prepared remarks, much of the growth that's tied to the end markets is really back-end loaded. In the first quarter, end markets have revenue down year-over-year, and given that, we just think it's prudent to be a little cautious.

Fair enough, and that's really helpful. But I found this, sort of -- clarify this, historically, Q1 has been the peak for SG&A and then the numbers actually, current, dwindled down a little bit over the next quarters. Is that a comparable dynamic to expect for 2013?

I think it is. I think that's reasonable.

And our next question comes from the line of Robert Wertheimer.

I think you guys just touched on this, but I wanted to ask about the pace of margin throughout the quarter. SG&A looked really tight and I didn't know if any of that SG&A control was structural or whether it was really clamping down. So did something in the gross margin trend worse than you thought in the quarter? And if so, what might it have been?

Well, not really worse than we thought. We managed expenses very tightly. We knew that going into the quarter when we guided down to a $445 million midpoint revenue. Just trying to manage through an index in the fourth quarter and we met that guidance.

Okay, great. That's helpful. And then you mentioned how mix and content growth that you have can vary depending on launch delays and such. Were there any material launch delays happening in the last month or 2 or 3 or, really, since you gave last guidance? I'm just curious about the decisions and the timing of when OEMs make those decisions. If you're sort of through that hump or whether it worsened and whether there's more ahead and potentially either way.

Yes. Look, I would say that we began to see some of those pushouts more in the second half when we looked at that trend and then we said, "What time is it, economically?" We've looked going ahead into '13 and early '14 and said, "How do we really need to line that up against what is the weaker market?" So we did see some program pushouts in Europe, also in developed Asia that were more back half of rollouts. And that generally, as we enter into the year, that's when those firm up.

Great. And if I can sneak in one positive one, it seems as though in China, there's a general pickup in sentiment and including appliance. That was a headwind for you guys last year. Have you seen that business really shift in the last 2, 3 months?

We have. Our Controls business in China in particular was up strongly in the fourth quarter of the year. We're beginning to see that backlog build. So we do think that, that's a positive overall.

And your next question comes from the line of Michael Stein [ph].

I just want to touch on cash utilization front. You mentioned the deal pipeline remains strong. Could I just get an update on seller multiple expectations you're seeing? And then secondly on that, you mentioned that you're looking for acquisition share repurchases as a primary use of cash. Can you talk about the balance of that between years and then if either of those are in your current 2013 guidance?

Sure, and there are no assumed acquisitions in the guidance and their share count is assumed to be constant '12 to '13. But to get back to your question about M&A, I'll just give you a little more color on that. We've expanded both the scale and the scope of interest in acquisitions. And so from a scale standpoint, we're looking at targets that are now smaller and larger than where we've been focused on in the past. From a scope standpoint, we've really expanded the end markets where we think we can find great opportunities in industrial sensing and electrical protection in particular, and we've added to the bandwidth of the team in order to get that done. I think with that expansion, we expect to see valuations that are more in line with the returns expectations that we have for that important growth vector.

Okay. Could you just give us an update on the timing of the MSP synergies and whether any of the synergies are in the first quarter guidance or that's more in the back half of the year now?

Yes, just as a reminder, the way we get to the synergies, it's in MSP, it's very much a cost play and so it was a phenomena of moving from high-cost manufacturing locations, which came with the acquisition to our very cost-effective back end. To get that done, we go through a process of actually building up inventory in the high-cost location. And that inventory does not get drawn down until the end of the first quarter and somewhat into the second, but we expect to see that impact in the second quarter. I will tell you that in the fourth quarter, we began to see our shipments come from our China facility. We were able to compare the cost performance there to what was in our investment plan and it is very much on track. When we pro forma the business based on that cost performance, we're getting to a level of earnings index that's very close to the company average. So we're excited and pleased about the results we're seeing in MSP.

And your next question comes from the line of Wamsi Mohan.

When you look at your revenue guidance for the first quarter, you're well below normal quarter-on-quarter trends. How much of this would you attribute to weaker demand and how much to continued inventory productions? And then what gives you the confidence that you'll see better than sequential after that?

Sure. It's very much end market demand based. We're not assuming an inventory correction in the first quarter. But at some cases, we've got some pretty tough comps from a market demand standpoint, Wamsi. If you look at commercial truck in particular, even in Europe, although the first half was not at great levels last year, you look at the level of where that market is now, down significantly in the first quarter. There are some other sort of onetime issues around developed Asia auto, where, if you look at the comps on the rebound of the tsunami in the first half of 2012, that makes the demand comp difficult. So a lot of what we're talking about here is mature markets, demand-based, not assuming another inventory correction in the first.

Okay. And on content growth, I mean, I understand there are a lot of underlying factors. There's mix, there's a lot of different platforms. But when you look at 2013 as one of the years where it's coming in below 7 to 10, can you provide some context around potentially what sort of engine transition numbers you're now expecting in '13 versus maybe before? And how that may be -- how the shape of that curve is between '11, '12, '13, '14, something like that, that gives us some sense of where that moment is happening, how we should we be thinking about content growth from a longer-term perspective?

Absolutely. An important question, an area we've spent quite a bit of time. What we've been looking at is what pushed out, what let that pushout. And in many cases, we had customers who were launching ahead of the hard requirement for emissions regulation in 2014. So if you look at your -- for example, there's a very hard requirement in September of 2014 to meet some specific tailpipe emissions and it's a requirement around new platforms launched. And so we've seen that customer base, looked at what had been discretionary pull-aheads. They would generally do that to de-risk the technology utilization and they're taking a little more risk, given the phenomena of deteriorating markets there. So from similar things in mature Asia, what we do is we've gone back now and said, "When have we seen this in the past and what does the curve look like?" So for example, in 2009, which was a very low market worldwide, we saw a similar phenomena, and 2010 turned into an 11% content growth year for us. So I think the actual shape of that recovery is going to be somewhat dependent on what markets do between -- for the next 18, 24 months, but we recognize a hard requirement in the back half of 2014 and we are continuing to support those launches with customers. In one case, we had a cylinder pressure sensor program push out at Daimler, for example. And we're shipping right now preproduction quantities in support of that launch in 2014. So a little bit of color on the actual program impact, but also trying to compare time periods in the past where we think we're now recognizing a similar phenomena.

And your next question comes from the line of Ambrish Srivastava.

And just sticking with content growth, is there something with visibility that has deteriorated that you guys don't feel the -- that you have the confidence to give it on a quarterly basis? And I understand the long-term focus that you have and that's what we should be focusing on, but just curious with why the delta? And then on the positive side, my second question is potential positive. What's the update at Toyota, Martha?

Okay, sure. So there is nothing that's changed on visibility in terms of our design wins. So that phenomena remains the same. That investment cycle is, I think, the development cycle's similar to what we've seen in the past. What we're recognizing is that there have been a number of other factors that introduce volatility into the content growth in the short term. And so having visibility forward-looking as to what the diesel take rate is going to be, understanding exactly what the OEM share shift might be if Toyota gains in a particular quarter, and these are all things that not within our control in terms of the -- in comparison to design wins, but they do affect the overall content performance. So given that volatility, we're spending a lot of time sort of chasing what we think our perturbations and that can confuse the overall performance in the business. Relative to Toyota, so the development programs remain on track. The long cycle programs, we think they're very important to our future and so it continues to be a good focus for us. We would think if that is impacting our revenue, it would be in the 2015, 2016 timeframe.

And our next question comes from the line of Jim Suva.

Regarding the M&A, can you maybe just -- I just wanted to clarify, is any pending or not yet announced M&A included in your full year guidance? Because I think I heard you say your full 5-year guidance are close to double the company spent [ph] which does -- can you just kind of clarify the 2 of those. And then on the M&A front, you mentioned you're broadening your scale and scope. Can you help us quantify a little bit about when you talked about the scale increase, what the old program was aimed at and what the new one is and also same with the scope, about the old versus new and how we should start to think about the M&A of a bigger pipeline at hand?

Sure. And you're right. When we've talked about doubling over the 5 years, that includes an assumption on average over those years' acquisition performance, and I mentioned $150 million to $250 million on average in that timeframe. It's not included in the 2013 guidance, so let me be very clear about that. I think to get to your larger question, which is what is different about the approach, it's -- this is not dramatically different, but it is, I think, trying to increase the probability of us completing a disciplined acquisition. So in terms of scale, we've talked before about $100 million to $200 million being the sort of target of interest. We've moved that scale down. We're looking at down to $25 million and up to $300 million to $400 million. In the lower end of that range, that allows us to execute those acquisitions inside of our business units. On the higher end of the range, we look at our wherewithal and our understanding and competencies inside our familiar end markets and we think we're capable of doing an acquisition of that particular range. So I would say those are the primary things we're doing to make sure that we are putting cash to use in the most effective way that we can for our shareholders. In terms of end markets, we talk a lot about the end markets that we're in. We're a very strong player in the light vehicle global market and the commercial truck market. There are adjacencies in end markets where we think there are great sensor opportunities. And so we've expanded beyond those end markets and we play today in some of those end markets like, for example, HVAC. We play in some areas of power management. We're looking at those more broadly in terms of the acquisitions.

And your next question comes from the line of Christopher Glynn. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: If we think about some of your long-term margin targets that you've articulated, wondering if the gross margin, if maybe we wanted to talk about reframing that and expectation for gross margin within the guidance range. Just wondering if the long-term ANI target is becoming more OpEx-leveraged now.

Not really much change in the gross margin long-range targets, Chris. I think our focus is still on 20% to 23% adjusted net income index, and I do think it's a function of leverage and improvements in margin associated with best cost sourcing and things of that nature. So no real structural change and still on target for 20% to 23% ANI.

Okay. And on the -- one more on the M&A side, are there any deals that you see out there of the potential scope and scale that might require little equity to fund them?

We haven't seen that, so if you, again, you look at the cash wherewithal of the business, at this point, that's not something that we think we would need to do in order to execute a deal.

And your next question comes from the line of Shawn Harrison.

Going back to the $300 million of new program wins during 2012, was that net of programs rolling off or how should we think of that figure?

That is not net of programs rolling off. So when we talk about content growth, it is a net number. So for example, the guidance 5% to 6% is a net number. When we talk about the actual wins, that's not net of roll-off, so they're independent.

Okay. Is there a way to calculate what it would be net of the roll-off so just to kind get a different figure to look at?

Yes, that's really difficult because the way you have to think about that $300 million is that, that is the stabilized value of the revenue that we secured. And those programs get to stabilization at different rates, anywhere from 3 to even 6 years out in time. So then you have -- trying to net sort of the roll-off in those same years. The way we try to manage that, Chris, is just to look at what's going to happen inside of any one year and how that impacts the overall content, the content win. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay, and then 2 brief follow-ups, just hoping for some commentary on the depreciating yen and how that's affecting guidance into the first half of the year. And also if I missed it, just in North America, the auto aspect of the business is down little a bit more than I would've thought sequentially in the fourth quarter. Any incremental commentary there?

So Shawn, in our guide for 2013, there really is little currency impact on a year-over-year basis. Let me speak a little bit to the euro and to the yen. As I mentioned in the prepared remarks, we've hedged -- we've largely hedged our euro exposure, which were along on at $1.30. Obviously, the euro is trading at a little higher than that, $1.34 right now, and if it stayed there, there would be a little bit upside on the euro for the unhedged piece. But going the other way, we're also long on the yen. And so as you saw in December, with the yen ramping up to JPY 88, JPY 89, we are partially hedged on the yen, but with the yen trading at JPY 90, JPY 91 right now, there's risk there. So net-net at this point in time, we think we're balanced with respect to currency in 2013.

And relative to the question about the Americas, much of that impact was from the heavy truck. The inventory that we saw in the second half of the year, that hits us predominantly in the Americas.

Your next question comes from the line of Steven Fox.

Just 2 questions from me. Just one more on acquisitions. I thought I heard during your prepared remarks that you mentioned possibly expanding into other product sets besides sensors and controls? And if I did, could you just sort of elaborate on that? And then secondly, with regards to the full year outlook, how much are you banking on maybe a heavy truck buy-aheads before 2014 regulations kick in in North America? If you could just sort of talk about that a little bit, that'd be helpful.

Sure. No, we didn't talk about expanding beyond sensors and electrical protection. We think those are really important mission-critical solutions to a number of end markets. So the expansion is really more into adjacent end markets, looking for ways to bring our strong competencies and portfolio into those markets.

And then -- and just, I'm sorry, before you go on, in terms of electrical protection, you're not defining it any differently than you have in the past, is that correct?

No, we are not. That's correct. Relative to the truck question, that is not a big assumption that we have in place, so we've been looking at our expectations more from the standpoint of end truck demand and the number of inches [ph] that go into those trucks. We do have content wins that are important into that vertical, but we're not assuming a big pull ahead into 2014. That could present some upside.

And your next question comes from the line of Drew Pierson. Drew Pierson - JP Morgan Chase & Co, Research Division: Appreciate the detail on the margins. I'm just wondering if I can drill down on a couple of the items you called out, specifically, the restructuring savings and then some of the OpEx that comes back. Could you just size those, even maybe just qualitatively? Are those similar in size or can you quantify those, just to give an idea of the magnitude?

Yes, we're -- Drew, we're probably not going to be explicit on the quantitative guide. I would say that the restructuring savings that we build in is consistent with the comments that we made in prior earnings calls. From 2012 to 2013, we were going to see a little bit of upside when we annualize that restructuring savings. In terms of operating expenses, I think for the year, SG&A was in and around 7.5% of revenue. Adjusted SG&A, that's going to inch up a little bit going into 2013. Drew Pierson - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And then on the 1Q, I think I heard you talk about a 90% bill rate. If I'm not mistaken, that's maybe a little higher than normal. Is there a reason for that and maybe just provide some color.

Yes, it's pretty consistent. Just keep in mind we're a week later on this call and this is also the quarter where we've got the Chinese New Year phenomena. So when you kind of normalize for those 2 elements, we think it's pretty much on track. Drew Pierson - JP Morgan Chase & Co, Research Division: Makes sense. And then lastly, just briefly, is there a European auto production assumption kind of at the midpoint of your guidance?

We're assuming down 3% from 2012, so that would align to the midpoint.

And you do have a follow-up question from the line of Wamsi Mohan.

Martha, when I look at 2013 guidance, it looks so similar to the guidance that was given a year ago for 2012 in some ways, just showing what a tough year sort of navigated here. But that was on a base of lower revenue and earnings. So in 2013, it appears macro factors are improving, production rate sort of seems similar embedded within guidance with mix, obviously, slightly different better in Europe. China is bottoming out. Gross margin should improve from the acquisition benefits. I hear Bob's comments on higher OpEx and tax, but just if we work the math out, it feels like your EPS guidance should be higher. It just feels as though that the guidance is somewhat conservative and I wondered if you could comment on that.

Yes. Look, I think, really, we're being more full ranging in our view of potential outcomes here with the benefit of another year behind us, looking at how that year played out. And then even back half in to prior years, just trying to look at the entire span of outcomes and choose what we think is the most appropriate middle-of-the-road expectation. So not certainly -- not consciously being conservative, but when we look at the fact that we still got markets that -- we can say they're bottoming, but they are really, really down. And we're recognizing that those have impacts not just from a mature market demand, but there is influence on things like content growth. And so playing all that into the guide, we think, is pretty important. And don't view it as being overly conservative.

Okay, thanks. And then just last one for me here. On MSP, I think you commented, I might've missed this, but what -- can you talk about the integration progress? Should we still expect a step up in 2Q? Or are there any inventory dynamics in MSP that are going to delay margin improvement beyond sort of 2Q full run rate?

No, we expect to see that impact in the second quarter, and as I mentioned, we have now the ability to look at where the business would be running if we were not having to bleed off the high cost inventory. And when we look at that performance, we're pleased. We think it gets us to an ANI index on that business that's right in line with the company performance.

As there are no more questions, I'd like to turn the conference call back over to Mr. Sayer for closing remarks. Mr. Sayer?

I like to thank you, all, for joining our financial results call today. Later this quarter, Sensata will be participating in the Goldman Sachs Technology Investor Conference out in San Francisco on February 12, Barclays Industrial Conference in Miami on February 21, and the Morgan Stanley Tech Conference, which is going to take this in San Francisco on February 25th. We appreciate your continued interest in and support of the company and look forward to speaking with you and on the road and again, next quarter. Thank you, all, and goodbye.

Thank you, everybody.

That concludes the call for today. You may now disconnect.