Armstrong Flooring, Inc.
Q1 2017 Earnings Call Transcript

Published: 8 May 2017

[Operator:]

Greetings, and welcome to the Armstrong Flooring First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Doug Bingham, Vice President, Treasury and Investor Relations for Armstrong Flooring. Thank you. You may begin.

[Douglas Bingham:]

Thank you for joining us today for Armstrong Flooring's first quarter 2017 earnings conference call. Today's call is hosted by Chief Executive Officer, Don Maier; and Chief Financial Officer, Jay Thompson. We trust you have seen our first quarter press release this morning. Additionally, a copy of the slide presentation to accompany this call is available on the Investors section of our website at www.armstrongflooring.com. I refer you to Slide 2 of that presentation and advise you that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong Flooring, please review our SEC filings. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures to the most directly comparable GAAP measures is included in the press release and in the appendix of this presentation. With that, I will now turn the call over to Don.

[Donald Maier:]

Thank you, Doug. Good morning, everyone, and thank you for joining us for our first quarter 2017 earnings call. Today, I will discuss our operating highlights and business activity. Jay will then cover additional details on our financial results before I conclude with our outlook for the year. After our prepared remarks, we will open up the call to answer your questions. Page 3 provides some key highlights of our financial results. During the quarter we made continued progress on our strategic priorities including innovation based growth initiatives, strengthen distributor relationships and productivity enhancements. First quarter 2017 results were below prior year as expected, for both net sales and adjusted EBITDA. This is largely influenced by the timing of significant load-in and promotional activities in our Wood segment in the prior year quarter. These timings impacts on year-over-year comparisons were further amplified by the occurrence in the first quarter, which is historically our seasonally lightest quarter, as most of our shipments occur in the second and third quarter. Looking beyond these timing issues, we've demonstrated further progress on our innovation-based growth initiatives with our luxury vinyl tile or LVT category growing at double digit pace and well in excess of the market. This was helped by the success of our product lines with Diamond 10 technology and rigid core. We experienced overall better conditions in our commercial end markets, especially in our vinyl composition tile or VCT segment. First quarter 2017 adjusted EBITDA was $8.9 million, which compared to $12.5 million in the prior year quarter. While this performance was impacted by lower sales, we did benefit from continued productivity improvements and the favorable overlap of the LVT manufacturing facility ramp up. Additionally, during the quarter, we began the organizational realignment of our go-to- market structure, which is on-track to better align our selling efforts with our customers and to generate $6 million to $7 million of annual SG&A savings. As previously announced in March, we initiated a $50 million share repurchase program, which we believe will be an effective way to deliver additional value to our shareholders. During the quarter, we repurchased approximately $5 million worth of common stock representing 10% of the program and roughly 1% of our outstanding shares. We ended the quarter with a sound balance sheet and a capital position to support our growth objectives. We are confident in our ability to produce another year of positive cash flow, which we plan to invest in attractive opportunities to improve returns, including growth initiatives, share repurchases and M&A activity. In regards to M&A, earlier today we were very pleased to announce our definitive asset purchase agreement of Mannington Mills VCT business. VCT is one of our more profitable categories which benefits from our broad product portfolio and deep customer relationships within a well-structured industry. Upon closing, we will be able to significantly increase sales in this attractive category while improving our manufacturing capacity utilization. I'll just go through the acquisition in more depth shortly. Turning to our strategic priorities on Page 4. We are confident in our ability to meet our full year 2017 objectives and drive closer towards our medium term EBITDA margin goal of 10%. We had discussed these priorities at length on prior calls and remain committed to our growth strategy while also taking the necessary actions to revitalize our legacy business. Continuous innovation and durability in design across all major Wood and Resilient categories remains a central part of our strategy to improve our mix of sales from higher growth products, while maintaining strong competitive positions in legacy categories. We continue to expand the roll out of our highly successful Diamond 10 technology across our product portfolio. For example, our residential sheet with Diamond 10 technology is creating a lot of excitement as we roll it out. To that end, we continue to support new product rollouts with marketing investments to deepen customer engagement and expand our share of wallet with distributors, retailers, and other channel partners. We are investing in merchandising and displays to further increase our presence in retail and support our distributors in the marketplace. Additionally, we anticipate that our go-to-market realignment efforts will improve our competitive positioning and profitability as we achieve greater alignment with our distributors and enhance customer support and communication. LVT continues to be the fastest growing part of the hard surface flooring industry. Armstrong LVT products are helping to drive this trend with the Company posting another quarter of double digit LVT growth. We expect to continue growing faster the market through our innovative designs and structures. Our focus on introducing award-winning designs to refresh our product offerings is helping us win new specifications and consumers in our targeted end markets. One recent award amongst many is the Platinum or highest honor in the awards for design excellence in the LVT category, which is among the largest and most prestigious award programs for product and product design in the architecture and design industry. Additionally, we received the award of excellence in LVT for innovation, which is based on an annual vote of over 2,000 retailers. In our Wood business, our plan is centered on improving ROIC over the next several years to establish a more profitable foundation from which to grow. We plan to accomplish this through our three-pronged approach to improve segment performance, which includes productivity, a focus on higher margin products and a differentiated approach with entry level products. First, we have a long-history of driving productivity in our plants and this will remain a focus moving forward as we look to improve production yields, scrap rates and product quality. Second, we are aiming to improve our mix in margins through new offerings and higher end products, while reinforcing our leadership position in design. Third, at the entry level, we are in the process of developing new products to improve our cost profile including a differentiated supply chain to service this demand. Overall, we are confident in our ability to drive our strategic priorities in the medium term and expect to continue executing on these objectives as we build upon our strong brand legacy and market leadership to drive shareholder value. Moving to our acquisition update on Page 5. As I touched on earlier today, we announced our plans to purchase Mannington's VCT business, which we expect to close at an attractive multiple on very favorable terms to Armstrong Flooring. This acquisition is a logical step for our business on several fronts, and we are pleased to strengthen our position in this attractive category. VCT is a very important product for our commercial customers. It is a significant category within the hard surface flooring industry. The addition of this business will build upon our strong history and deep expertise in VCT. We'll be able to increase our VCT volume and make more efficient use of our production capacity and go-to-market structure. As a result, we expect to increase revenue within this well-structured VCT category which has historically generated above average profitability within our product portfolio. As we have mentioned, on previous calls, we are absolutely committed to improving our performance in all categories that we serve. This acquisition is consistent with that commitment and directly supports our growth ambitions. Even as we work to complete this transaction, we continue to pursue innovation across multiple categories with a goal of providing an even more competitive line-up of award winning products for our customers. We look forward to completing this acquisition during the second quarter of 2017. Before, I turn the call over to Jay, I would like to thank him for his service and dedication to helping us build value through a truly unique opportunity during his tenure with us. In April, we issued a press release announcing Jay's decision to step down from his position as CFO, effective today. After a long and difficult decision, he accepted a CFO position at a private equity-backed Pennsylvania company in the consumer packaged goods industry. This opportunity strongly aligns with his prior experience. Jay has been a valuable member of our senior leadership team and we truly appreciate his numerous contributions to the Company. The Company has already begun the search for a new Chief Financial Officer and we will update you on our progress as appropriate. We have significant depth of talent within our existing financial team including our Controller, Kim Boscan, who will serve as our Interim CEO. Kim's deep experience in corporate finance matters makes him well suited to lead our finance function during this transition period. I'll now turn the call over to Jay to walk through the details of our financial performance.

[John Jay Thompson:]

Thank you, Don. Good morning to those on the call today. Let me direct you to Page 6 which provides our key highlights for the first quarter. First quarter 2017 net sales were down approximately 7%. The first quarter of 2017 had the most challenging quarterly prior year comp of the quarters this year. In the first quarter LVT shipments continued to grow, however overall volume was lower largely due to the timing of load-in and Wood promotional activity in the prior year quarter, along with a declining trend in our legacy Resilient portfolio. Both segments were impacted by competitive price pressure. Adjusted EBITDA decreased $3.7 million to $8.9 million compared to the prior year quarter. This was explained by the impact of lower sales which more than offset $7 million of improvement from continued manufacturing productivity gains, including the ramp up of our LVT facility, which more than offset higher input costs. The first quarter decline in net sales and adjusted EBITDA is not indicative of our underlying business prospects, which support our unchanged outlook for 2017. Now turning to our Resilient segment results on Page 7, net sales were down 2% primarily due to continued competitive price pressure. Double digit volume growth in LVT from both sourced and manufactured products offset traditional resilient volume declines, while positively augmenting our mix. Commercial end market stabilized somewhat during the quarter and provided some relief to our traditional vinyl tile and sheet product shipment trends. However, the shifting consumer preference to LVT continues to pressure these two categories. Additionally, as mentioned on our prior call, vinyl sheet shipments were significantly impacted by lower sales in the strategic retail customer channel, which we expect to continue to be a head wind through the fourth quarter. Despite lower sales, adjusted EBITDA $7.7 million improved by $3.1 million versus the prior year quarter with segment adjusted EBITDA as a percentage of net sales of 4.8%, a 200 basis point improvement from the prior year quarter. The largest driver to this improvement came from lower unit cost in our LVT manufacturing operations in Lancaster, which had meaningful ramp-up cost in the prior year period. With respect to input cost, rate savings more than offset higher raw material prices. We're focused on realizing of course of our announced February price increases of 3% to 6% across most products in our legacy commercial portfolio. More recently, in May, we announced price increases of 3% to 5% percent on products in our residential sheet category. These increases are intended to help compensate for the rise in raw material inputs, as well as partly recover price compression carried forward from the half of 2016. Now, moving to our Wood segment results on Page 8, Q1 net sales of $105 million were down 13% compared to the prior year with most of the decline attributable to the timing of load-in and promotional activity between the two periods. In the prior year first quarter, volumes benefited from higher shipment level to support inventory requirements in a key strategic account, as well as other promotional activity which did not recur in the first quarter of 2017. This timing dynamic affected both engineered and solid wood. Competitive price pressure persisted in both categories. Wood adjusted EBITDA was $1.2 million as compared to $8 million in the prior year quarter. This was a result of the impact of lower sales and higher lumber costs that offset productivity gains. We experienced modest but steady lumber input cost inflation in the marketplace through 2016. Lumber costs have been fairly steady so far in 2017. Based on the multi-quarter lag between the purchase of lumber inputs and the shipment of finish wood flooring products, we continue to expect unit lumber costs flowing through our P&L to be unfavorable on a year-over-year basis despite being relatively stable on a sequential basis during 2017. Now an additional point of clarification on the 20% tariff on U.S. imports of Canadian softwood lumber. It's important to note that Armstrong only purchases hardwood lumber and we don't expect any material impact on our input costs from this new trade development, which only impacts softwood lumber. Turning to our free cash flow and liquidity on Page 9. In the first quarter, consistent with our expectations, we experienced a $46 million outflow of free cash flow as compared to a $37 million outflow in the prior year quarter. The $9 million difference was driven by lower year-over-year operating profit and the timing of capital spending in the current quarter. Of the $13 million of capital expenditures in the quarter, $8 million of that related to projects conducted later in 2016, where the commitment occurred at the end of 2016 and the cash settlement didn't occur until 2017. The first quarter capital consumption is consistent with the seasonal nature our business, as we typically generate our highest periods of cash flow in the middle of the year and see outflows during the first and fourth quarters as we build inventory, with the first quarter in a given year typically more significant of an outflow than the fourth quarter. Our first quarter free cash flow performance is consistent with our plan to deliver positive free cash flow for the year. We purchased nearly $5 million worth of AFI stock in the first quarter. We believe our active $50 million repurchase program demonstrates confidence in our business transformation. Despite the seasonal liquidity outflow, we ended the quarter with a strong balance sheet with approximately $73 million of debt and $33 million of cash, providing us with ample liquidity to pursue our growth objectives and flexibility to invest in our business. I'll now hand the call back to Don, to discuss the full year outlook

[Donald Maier:]

Thanks Jay. Turning the Slide 10. Based on our first quarter results, we reiterate our full year 2017 outlook. We continue to expect adjusted EBITDA in 2017 to be in the range of $75 million to $85 million with favorable year-on-year improvements heavily weighted towards the back half of 2017. This EBITDA range includes an unchanged $8 million to $10 million in raw material headwind, mainly tied to lumber. We expect the realignment of our go-to-market structure to generate run rate annualized SG&A savings of roughly $6 million to $7 million by year end. We expect capital expenditures in the range of $45 million to $50 million with maintenance CapEx approximating 2% to 2.5% of sales and the balance of the spending on high return investments. We anticipate that 2017 will be another year of positive free cash flow. In regards to our planned acquisition of Mannington VCT business, we expect the transaction to close during the second quarter of 2017 subject to customary closing conditions. The upfront purchase price of $36 million will be funded through a combination of cash and availability on the existing asset based revolving credit facility. We expect this transaction to be accretive to earnings in 2018 as we drive profitability through added efficiencies and improve capacity, utilizing existing facilities and distribution models. Looking at our medium term financial goals on Slide 11. We remain committed to growing faster than the industry average of our product categories over the medium term. As discussed, we are working very hard to offset the structural industry headwinds in our legacy portfolio through innovation, a widening share of wallet and LVT penetration. We remain committed to advancing our strategy over the next several years and driving our business through a targeted 10% EBITDA margin by 2020. We believe we have a clear strategy with moldable levers to achieve our margin goals under various growth scenarios. First, we continue to expect to achieve 20% to 30% fall through on incremental sales. This fall through is supported by higher volumes driving better utilization levels across our plant network. It is also made possible by our pricing initiatives to outpace inflation. Additionally, we expect higher unit margins from the continued mix shift towards LVT and higher end products across the portfolio. Second, ongoing productivity initiative will continue to represent an important part of our value creation as we target additional projects to augment gross margin particularly in our wood business. Third, our plan to drive $6 million to $7 million of annual SG&A savings through streamlined operations is already in the works and we have the flexibility to prudently manage our spend while at the same time working to grow sales. As we grow our EBITDA margin over the medium term, we expect free cash flow generations to grow in response and add strong capital position. Just expanding capital base will provide us the opportunity to execute on our $50 million share repurchase program and announced acquisition while keeping within our targeted level ratios of 1.5 to 2 times EBITDA and preserving ample liquidity to invest in internal product, projects and other initiatives to drive growth. This is an exciting time for Armstrong Flooring, and we look forward to fully capitalizing on our unique opportunity. Operator, we are now ready to take questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of Mike Wood with Nomura Instinet. Please proceed with your question.

[Mike Wood:]

First just wanted to ask a little bit more on the Mannington VCT purchase. Is it primarily a cost or sales synergies that you're justifying the acquisition? And what are the benefits of scale in combining the businesses? And does it help you to achieve any shelf space goals of distribution?

[Donald Maier:]

Mike, thanks for the question, and we're really excited about this. We see both the opportunity for nice growth on the top line, and given the profitability of the VCT segment, nice flow through the P&L. In addition, this is an asset purchase and we will be consolidating the manufacturing into our existing infrastructure. And so that will provide a nice improvement in our capacity utilization of our VCT facilities.

[Mike Wood:]

Would the purchase be immediately accretive to earnings? I know you mentioned 2018 accretion, but would we expect anything in the back half of the year?

[Donald Maier:]

So, we obviously are going to be facing some startup costs as we transition customers over to our product lines. Additionally, we see a ramp up pending a closing here in Q2. And so, the timing effect of the ramp up, and then the incremental investments will have minimal impact on 2017.

[Mike Wood:]

Great. And just one more question on the Wood. Can you give us some color on the point of sale trends? I know you stated, I think it was 23% volume growth last year in the quarter. So, just curious to help us model forward quarters to know what the growth rate might have been in this past quarter.

[Donald Maier:]

So, on the Wood side of the business, obviously as you mentioned we had a very strong sales quarter in Q1, making a tough comp in a quarter-over-quarter basis. In addition, if you recall back in Q1, we had a significant amount of load-in, as well as additional promotional activities that we did not repeat in 2017. And so, looking at the comparison of that quarter, certainly, is not indicative of the Wood business for us. Having said that, we are committed to focusing on driving the return on invested capital within our wood business, rather than just going after top-line growth that in some segments it can be very helpful to increasing shareholder value, but other portions of our wood line would take us the other way.

[Mike Wood:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Alvaro Lacayo with Gabelli & Company. Please proceed with your question.

[Alvaro Lacayo:]

Good morning, everyone.

[Donald Maier:]

Good morning.

[Alvaro Lacayo:]

I have a question regarding the managing VCT purchase as well. Maybe you can give us a little bit more context around the market dynamics around VCT? Our standing is, it's a bit of a flat grower, but there is decent competitive dynamics there. So, if you can touch a little bit on that? And maybe if you can provide a little bit more details on – you said it was an attractive multiple, if you could provide maybe a little bit more color on roughly what that multiple was? And then, on cost synergies from a magnitude standpoint, how big is that opportunity once you guys have the fully integrated?

[Donald Maier:]

Thank you for the question. So, first and foremost, it is important to note that we have not closed on the transaction, and as such, we have not incorporated any of that into our guidance that we've provided. And we look forward to closing on this transaction in the quarter, and then providing frankly a lot more information on the questions that you've asked for. At this point in time, we are kind of limited on what we can say as the transaction has not close, but the key points that you mentioned are appropriate. It is an attractive industry structure. We are going to be improving our capacity utilization within our facilities. And this is an importance segment for the commercial resilient end-users. So, the combination of those I think really creates a unique opportunity for us, and we are very excited about this acquisition.

[Alvaro Lacayo:]

Got it. Okay. And then, I think the question was asked a little bit earlier, but I didn't get the clarification on, the organic growth for the Wood segment, and maybe I asked in a different way. How big was the impact from the load-in in Q1 of last year? Just to get an idea of organically what was going on during the quarter?

[Donald Maier:]

The gap that we saw in quarter-over-quarter can almost fully be explained by the promotional activities that I mentioned that we did not repeat the load-in, and then the inventory actions that were implied in that. So that accounted for the lion's share of the difference.

[Alvaro Lacayo:]

Okay. And then just in terms of pricing, as you mentioned the February announcement on commercial, you also said, you just recently announced one on the residential side. Maybe if you could just talk about market dynamics and talk about both different the Resilient segment in terms of the confidence you have in passing those – some of that pricing through? And if in general, you've seen sort of a competitive response in terms of the industry trying to pass price to offset at least raw material inflation?

[Donald Maier:]

Yeah. So, you're right, we implemented a commercial increase across our legacy portfolio, so everywhere except for LVT back in February and that was depending on product, a 3% to 6% increase. And then, we just recently announced on the residential sheet side of the business a 3% to 5% increase on product specific areas. These are really being driven by an increase in input costs that we are seeing along with energy costs and transportation costs. And so, those obviously are impacting the entire industry. And based on what I've seen, there is been a number of similar moves competitively out there on pricing. And so, that I would say overall it would increase our confidence in being able to achieve the increases in the market.

[Alvaro Lacayo:]

Okay. Thank you very much.

[Operator:]

Thank you. Our next question comes from line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question.

[Judy Ann:]

Thanks. Actually this is Judy Ann for Keith. Just a clarification on the Wood segment. You talked about the $1 million benefit from manufacturing, and input costs, and the adjusted EBITDA. Is there any way you can kind of sort out spit out how much of that was the productivity gains verses the higher input lumber costs? And also kind of where you are in your wood initiatives with productivity in the other one you mentioned? Thanks.

[John Jay Thompson:]

Hi Judy, this is Jay. Thank you for the question. The bridge does show favorability in manufacturing costs. We did have unfavorable year-over-year input costs in wood. We have talked about $8 million to $10 million of year-over-year inflation for the business, input cost inflation, most of that's on the wood side. And a portion of that did hit in the first quarter, so our manufacturing productivity initiatives, probably more than offset that. We've not specifically broken the $8 to $10 out by quarter, but that was the dynamic. The productivity initiatives are really part of our ongoing program to drive productivity in the plants. It's really part of the DNA of the business that we run productivity projects throughout the year, incorporate into our plan across both our Wood and Resilient plants, and so we expect that to continue to help us offset inflation as we move forward.

[Judy Ann:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from line of John Baugh with Stifel. Please proceed with your question.

[John Baugh:]

Good morning and thank you for taking my questions. I was curious first on LVT production ramp, there continues to be a year-over-year EBITDA tailwind. And I presume we'll remain so until you get closer to a good level of production. But I am wondering if you could help us to think about the magnitude of the impact year-over-year in EBITDA as that plant is ramping and the comparisons, I guess get more difficult or the magnitude of tailwind from that going forward?

[John Jay Thompson:]

Good morning, John. It's Jay again. So, we've not put a specific number to the LVT startup costs in 2016. We've talked about that being in the millions. It's less than $10 million material to the overall P&L. The costs were highest at the beginning of the year in 2016, so the highest amount of that costs we lap in the first quarter. And then those costs continue will lap them throughout the year, but the lap will get less and less as we move through the year. So, the majority of the cost was in the first half of 2016, lots of it in the second half. So, hopefully that gives you some sense of how to think about modeling it.

[John Baugh:]

That's helpful. Thank you. And then on Wood pricing, I appreciate the $8 million to $10 million of lumber cost inflation. It sounds like maybe that picked up a little bit in the next couple of quarter. I want you to comment on that. But is the expectation that pricing will be sequentially in Wood for flat or is that sequentially under some pressure still, just trying to get a sense of that spread as we go through the rest of the year between pricing of wood versus your cost of lumber inflation, which is broken out $8 million to $10 million?

[John Jay Thompson:]

Yes. Let me try to parse that apart for you. During 2016, we saw a steady increase in input cost, so the year-over-year price or lumber cost comparison will narrow as we move through the year and we'll get almost to flat by the end of the year. In terms of pricing, we saw price compression in the Wood business primarily in the second half of the year, so the spreads are – the comp spreads are going to get a lot easier as we move through the year, and the second half, we shouldn't see the same margin pressure on the wood business that we saw in the first quarter.

[John Baugh:]

So, translated, we didn't – we haven't' seen or we'll see little bit of stable wood pricing year-to-date?

[John Jay Thompson:]

That's right. Yeah.

[John Baugh:]

Okay.

[John Jay Thompson:]

More or less stable since the end of the year and our expectation is that those wood input cost fold during the year.

[John Baugh:]

I'm just curious, I appreciate the issues with closing the VCT deal, is there some range of sales though you could give us that they were doing and then if not, when might we expect to get more details on that acquisition? Thank you.

[Donald Maier:]

John, we obviously at this point can't disclose any of that information, given when the transaction's at. But our expectation is to be able to give you all of those details in our second quarter earnings call.

[John Baugh:]

And it sounds like the – you told us that the acquisition is not included in guidance currently and that there will be transition cost put presumably offset with some level of profitability but it's hard to make a call right now whether it will be enough to offset the transition cost or any kind of color there, or you are going to defer on that one as well? Thank you.

[Donald Maier:]

Yeah. I think you are thinking about it right, but we have to defer until we get closed on this and then we'll give you the full view. But you are correct, it's not included in our current guidance.

[John Baugh:]

Thank you and good luck.

[Donald Maier:]

Thank you.

[John Jay Thompson:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jim Barrett with CL King.

[Jim Barrett:]

Good morning, everyone.

[Donald Maier:]

Good morning.

[Jim Barrett:]

Jay, good luck in your new position.

[John Jay Thompson:]

Thank you, Jim.

[Jim Barrett:]

Don, if I could just ask another sort of general question about the Mannington transaction. I assume you are buying purchasing, manufacturing assets and I though you implied you would – these Mannington branded vinyl composition tile sales would be transitioned over to the Armstrong brand name over time. Is that the way in for 30,000 feet the transaction is happening?

[Donald Maier:]

Yeah. So, it's an asset purchase, so we are getting the equipment associated with the VCT business and intellectual property that is associated with the VCT business, and we will be then providing Armstrong branded products as a substitute for the previously sold products.

[Jim Barrett:]

I see. And then my second question, and Jay, this maybe a question for you. The $6 million to $7 million in savings from the realignment of the go-to-market initiative, is that – are we likely to start seeing that on a going-forward basis, or does that get phased in over a longer period of time?

[John Jay Thompson:]

We will start seeing the benefit of that beginning in the second quarter, and we'll see benefit of it throughout this year, and by the end of the year, we'll achieve the $6 million to $7 million run rate.

[Jim Barrett:]

Thank you, both.

[Donald Maier:]

Great. Thank you.

[John Jay Thompson:]

Thank you.

[Operator:]

Thank you. Mr. Maier there are no further questions. I'll turn the floor back to you for final remarks.

[Donald Maier:]

Well great. Well, thanks everybody for joining us today. We truly do appreciate your interest in Armstrong Flooring and we look forward to updating you on future calls. Have a great day. Thank you.

[Operator:]

Thank you. This concludes the teleconference. You may disconnect your lines at this time. Thank you for your participation.