Huttig Building Products, Inc.
Q2 2018 Earnings Call Transcript

Published: 31 Jul 2018

[Operator:]

Good morning, and welcome to the Huttig Building Products Second Quarter 2018 Earnings Call. Participants will be in a listen-only mode until the end of the call then the company will have a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded. [Operator Instructions] I would now like to turn the call over to Phil Keipp. Please, go ahead, sir.

[Phil Keipp:]

Thank you, and welcome to Huttig’s Second Quarter 2018 Earnings Call. As announced in a press release issued yesterday, I have been retained by Huttig, as a Senior Financial Consultant. I previously served as Vice President and Chief Financial Officer of the company from July 2009 through June 2015. I am pleased to be part of the call today, and look forward to supporting senior leadership team and the organization and the continued execution of a strategic plan. With me this morning is Jon Vrabely, President, Chief Executive Officer and Interim Chief Financial Officer; and Bob Furio, Executive Vice President and Chief Operating Officer. During the call today, they will discuss our second quarter operating and financial results and will provide an outlook for the balance of 2018. Following the prepared remarks, the call will be opened up for questions. Let me take a moment to remind you that today’s discussion reflects management’s views as of today and may include forward-looking statements. Actual results could differ materially from those currently anticipated, and Huttig disclaims any obligation to update information discussed in this call as a result of developments that occur afterward. Also, to the extent you are listening to this call on a replay, information could have already changed. Additional information about factors that could potentially impact the financial results is included in the earnings release issued yesterday and our filings with the SEC. During this call, certain non-GAAP financial measures will be discussed. A description of any non-GAAP adjustments and reconciliation to the most comparable GAAP measures can be found in the earnings release issued yesterday and on the company’s website at www.huttig.com. Today’s call is being webcast live and recorded. If you ask a question, it will be included in our live transmission and in any future use of the recording. You can replay the call on the Investor Relations page of the website under Financials. And now, it is my pleasure to turn the call over to Bob.

[Bob Furio:]

Thank you, Phil. Good morning, everyone, and thank you for joining our second quarter 2018 earnings call. Today, we will update you on our continued progress in the implementation of our strategic plan and our financial results for the second quarter and year-to-date through June 30, 2018. I will focus on the implementation status of our strategic plan and Jon will provide a report on our financial performance. I am pleased to report that our revenue growth trajectory continued in the second quarter of 2018. Net sales were approximately $223 million, which represents an increase of 12.4% over the second quarter of 2017. Total housing starts during the quarter were up approximately 7.7% with single-family starts increasing approximately 8.5% and multifamily starts increasing approximately 5.7%. On a year-to-date basis through the first six months of 2018, our total revenue was $421.4 million, which represents a 12.6% increase over the first six months of 2017. Based on our segment revenue mix, we believe that we grew our sales slightly more than 6% above the growth in the residential construction market in year-to-date. During the quarter, we grew our pre-finished door revenue by 25% and Huttig-Grip revenue by 94% as compared to the same prior year period. To put our Huttig-Grip growth into perspective, we generated 72% more incremental revenue in Huttig-Grip products in the second quarter of 2017 than the incremental Huttig product revenue we achieved in all of 2017. Through the first six months of 2018, our incremental revenue growth for Huttig-Grip products surpassed our full year incremental 2017 growth by more than 300%. Total Huttig-Grip revenue through the first six months of 2018 was 81% of the total Huttig-Grip revenue we generated in the full year 2017. And by early August 2018, we expect we will exceed our 2017 full year revenue of Huttig-Grip products. As previously stated, since embarking on our accelerated growth strategy in early 2017, our goal is to transform Huttig into a more diversified company that possesses significant, sustainable, above-market growth opportunities for many years into the future. At the same time, we expect our strategy will make us less susceptible to the volatility in a new residential construction market. Since launching the sales execution stage at the Huttig-Grip national expansion initiative in December 2017 and based on our segment revenue mix, we have grown our total revenue at a rate that was nearly double that of the growth in the national residential construction market in each of the prior three quarters. As we’ve increased our focus on the product related to our growth initiatives, we have de-emphasized, or in some cases, completely rationalized some lower margin, more commoditized products in our core categories. Our core products growth in the quarter and on a year-to-date basis was approximately 6%. Based on our segment revenue mix, we grew revenue in our core products at or slightly above the market in the second quarter and through the first six months of 2018. In addition, we continue to make progress in closing the profitability gap associated with the Huttig-Grip expansion plan. In the third quarter of 2017, incremental gross profit dollars from incremental Huttig-Grip revenue covered approximately 11% of the same period incremental investment costs. In the fourth quarter of 2017, the coverage ratio increased to approximately 28%, and in the first quarter of 2018 increased to approximately 44% and increased again in the second quarter of 2018 to approximately 54%. Looking forward to the balance of 2018, we will continue to focus on executing sales plans, managing our operating expenses and managing our inventory to support our current and near-term sales projections. Now I’d like to turn the call over to Jon to discuss our financial performance.

[Jon Vrabely:]

Thank you, Bob. Second quarter 2018 net sales were $223.4 million, which was $24.7 million or 12.4% higher than the second quarter 2017. Through the first six months of 2018, net sales were $421.4 million, which was $47 million or 13% higher than 2017. The revenue increase in the quarter and on a year-to-date basis was primarily attributed to an increase in residential construction activity as well as the organic growth derived from the execution of our growth initiatives. We grew all product categories in the second quarter and through the first six months of 2018 as compared to 2017. Gross margins were 20.2% of net sales during the quarter 2018 compared to 21.2% during the prior year period. Through the first six months of 2018 gross margins were 19.9% of net sales compared to 20.8% during the prior year period. The 100 basis point reduction in gross margin percent during the quarter and the 90 basis point reduction year-to-date were largely driven by the increase in direct sales volumes as well as the proportional increase in building products sales as compared to the growth of higher – of other higher margin product categories. Our operating expenses were $43 million during the second quarter of 2018 compared to $38.1 million during the second quarter of 2017. Personnel costs increased approximately $2.2 million, primarily as a result of wage increases, higher variable compensation, higher health care costs and additional sales and warehouse personnel related to the execution of our strategic growth initiatives. Non-personnel costs increased approximately $2.7 million, primarily as a result of higher fuel prices, increased contract hauling costs and expenses associated with the PrimeSource litigation and settlement. As a percentage of sales, operating expenses were 19.2% in the second quarter of 2018 and 2017, respectively. Excluding expenses associated with the PrimeSource litigation and settlement, operating expenses would have been approximately $40.5 million or 18.1% of sales for the second quarter of 2018 as compared to $37.5 million or 18.9% of sales in the prior year period. Year-to-date, operating expenses were $82.2 million compared to $75.1 million in 2017. The increase in operating expenses on a year-to-date basis were driven by the same factors that impacted the increase in the quarter. Excluding expenses associated with the PrimeSource litigation and settlement, operating expenses would have been approximately $78.8 million or 18.7% of sales for the six-month period as compared to $73.8 million or 19.7% of sales in the prior year period. Net income from continuing operations was $0.2 million during the second quarter of 2018 as compared to net income from continuing operations of $2.3 million in the second quarter of 2017. Adjusted EBITDA was $6.5 million during the second quarter of 2018 as compared to $6.4 million for the second quarter of 2017. Year-to-date, we generated a net loss from continuing operations of $0.2 million as compared to net income of $1.4 million in 2017. Adjusted EBITDA was $8.8 million through the first six months of 2018 as compared to $7.2 million in 2017, an increase of $1.6 million or 25% over the prior year. Turning to the balance sheet. We ended the quarter with total debt of $179.5 million compared to $103 million at the end of December 2017 and $104.4 million at the end of June 2017. We used approximately $30.1 million in cash during the quarter – during the second quarter 2018 as compared to $22 million in the prior year period. At June 30, 2018, net inventory was approximately $147.4 million as compared to $111.9 million at the end of December 2017, and $96.6 million at the end of June 2017. Our working capital ratio for the second quarter of 2018 was 22.1% of quarterly sales compared to 16.9% in the prior year period. The increase in debt is primarily related to the initial inventory build required to support the Huttig-Grip initiative, as well as the traditional seasonal increases in inventory and accounts receivables. With the Huttig-Grip inventory build in place, we anticipate that the balance of 2018 will reflect a more normalized trend with debt and inventory levels coming down throughout second half of the year. Beginning in the first quarter of 2017, we made significant investments that impacted the income statement and balance sheet to build the infrastructure and platform to execute our accelerated growth plans. Over the balance of 2017, we continue to increase those investments, resulting in a widening quarter-over-quarter negative financial performance trend. We continue to believe that trend bottomed and began to flatten out in the fourth quarter of 2017 and early in the first quarter of 2018, and do not foresee the need to add any meaningful level of incremental expense to the organization in the near term. As a result of these investments we made to expand our pre-finished capabilities, we gained momentum in growing our revenue in the repair, remodel segment throughout 2017, and coupled with the national launch of the Huttig-Grip product expansion in December 2017. We have achieved a level of revenue growth in a very short period of time that we believe supports the fundamental basis of our strategy. To-date, the majority of the growth we have experienced from the Huttig-Grip initiative has primarily been generated from large users of a fairly narrow mix of more commoditized items in the category. This has impacted our sales mix, gross margins and ability to work through our initial Huttig-Grip inventory in a more balanced manner. We are in the very early stages of growing our construction fastener share in our core customer segment, the pro-lumber dealer. And as we continue to gain traction in this critical segment, we will increase our sales across the entire breadth of the category, positively impacting our sales mix, margins and inventory position. Despite the magnitude, complexity and challenges we have faced in executing a strategy of this magnitude, as demonstrated by our revenue growth and modest improvement in EBITDA over the first six months of 2018, we have turned the corner and begun to generate a moderate level of operating leverage on our incremental revenue. Barring any unanticipated interruption in our revenue growth trends, we anticipate that we will continue to leverage our revenue and strengthen the balance sheet throughout the balance of the year. We fully understood the risks and challenges as we embarked on this journey to transform Huttig into a more diversified, growth-oriented company. Our goals are lofty and we have had to make significant investments to establish the infrastructure, hire the talent, procure the equipment and build the inventory to execute our plan and achieve our goals. While nothing of this magnitude is easy or goes exactly as planned, we have made remarkable progress over the past 15 months, while many have tried and failed, including Huttig over the years, we have accomplished what no other company in the industry has accomplished. We have built the infrastructure, created the platform and have successfully become a viable national wholesale distributor of private label construction fasteners to the retail, pro-lumber dealer, pro-specialty dealer, construction supply, concrete supply, and staff the dealer customer segments across the country. Over the past 15 months, we have successfully built the platform to compete on a national basis to significantly increase our share of the sizable construction fastener market that has historically been predominantly served by only one national supplier. Strategically, we are on track and remain committed to executing our strategy to transform Huttig into a more diversified company that possesses significant, sustainable, above-market growth opportunities for many years into the future. We believe this transformation will result in the creation of a company that breaks through the financial constraints of commodity-type distribution businesses to establish a new financial model that creates significant value for our shareholders and provides the opportunity for best-in-class valuation multiples. Operator, we will now take questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of James Winchester of QVP. Your line is now open.

[James Winchester:]

Yes, good morning. And welcome back, Phil Keipp. Good to hear your name involved with the company again. Going back to a comment that was made about incremental gross profit being at about 44% in the first quarter and progressing to 54% in the second quarter. Could you give us sort of what your view is as to when that will reach a 100% and begin contributing above and beyond the capital investment for the program? And secondly, unrelated question, but I am curious whether you have any sensitivity to tariffs in your sourcing programs internationally?

[Jon Vrabely:]

Well, good morning, James and thank you for participant in the call. This is Jon Vrabely. I will take the first question and Bob will chime in on the tariff question. So great question. We track, obviously, our continued progress in covering the incremental investment that we have made in the Huttig-Grip initiative. I will tell you that we take a very conservative approach in that measurement, while we continue to make progress in closing that profitability gap. At this point, our goal is to close that gap in its entirety on a go-forward basis certainly by the end of 2018. There are obviously many factors that play a role in us achieving that goal. But currently, we believe the goal is achievable and that is what we are working towards.

[James Winchester:]

Okay. And relating to that is the timing of that measurement in any way tied or affected by the timing of annual purchase programs from your customers?

[Jon Vrabely:]

Yes, not – excuse me, not particularly, it really – I would tell you that the probably largest contributing factor is our ability to continue to scale up our penetration of the pro-lumber dealer customer segment. Our strategy from the very beginning was truly based off of the fact that there is really limited competition in the construction fastener category on a national basis. Customers want choice. Our relationships – historical relationships within Huttig at the pro-lumber dealer segment are decades and decades long. Many of the folks that we’ve added to the organization over the course of the past year to 18 months also bring with them significant relations in that customer segment. And we are starting to make progress in penetrating that segment. And it is complex. It is cumbersome. It’s – it requires a great deal of front-end work to be able to truly change out and convert a pro-lumber dealers business. And while we are making progress, we continue to work to be able to scale that in a manner that we can execute those conversions flawlessly and ensure to the customer that we will be able to continue to service their business flawlessly on an ongoing basis. So I would tell you from my perspective that is the largest single variable to us continuing to close that profitability gap. Bob, you want talk about the tariff question?

[Bob Furio:]

Sure. Sure, James. There is certainly exposure to tariffs and dumping duties. And long story short is those tariffs that are imposed are passed back to marketplace. So the end-user is the one who ends up paying for those tariffs or duty assessments that are out there. One of the things that we have is, we have a very good team that tries to stay in front of this activity, both on dumping duties and tariffs. We have a good law firm that we work with. And we have a consultant on staff by name of Mona Zinman, who has been deeply involved with dumping duties and tariffs for the last 15 years or so. She’s testified in front of the Department of Trade, and very well versed on these activities. One of the good things is that, as Jon talked about, building our initial Huttig-Grip inventories is that we have effectively done that. We have a very good stock position on a lot of fastener items. And if the proposed increases do in fact go into effect September 1, that’s an opportunity for us to make additional margin on the existing inventory that we own.

[James Winchester:]

All right. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Greg Eisen of Singular Research. Your line is now open.

[Greg Eisen:]

Thank you and good morning. In your comments, it sounds like you paired back some of your lower margin exposure in sales of the core product categories, yet, at the same time, you mentioned some of the sales at Huttig-Grip were probably say, lower margin due to large purchases of more commodity products by larger customers. What – I guess, it’s a two part question. What is the time frame from that you expect your Huttig-Grip sales to start skewing towards higher margin sales versus what you experienced this quarter? And what’s the – and then also what’s the time frame for you to essentially anniversary disposing of lower margin sales in the core business at which point your growth rate will be even higher? So that’s my question.

[Jon Vrabely:]

So the question around the Huttig-Grip sales mix, Greg, again, I think in the script, we talked about the challenges that we have faced in prepping and really preparing to penetrate the pro-lumber dealer segment on previous calls with regards to the delays that we’ve experienced in really getting our packaged fastener program ready to launch. It was the last piece of the program that we put in place, which is the driver of the conversion business in the pro-lumber dealer segment. Throughout the course of Q1 of 2018, and really, I would say, by the end of the first quarter of 2018, that program was pretty well in place and products are pretty well in stock across our geography. So prior to really being in a position to capture share in the pro-lumber dealer segment, our growth had come from customers in other segments that primarily buy more commoditized items in the category, as well as a much narrower mix of the entire category. So on one hand, to be frank, I was pleased with the level of growth that we had achieved kind of to date, because it was primarily coming from customer segments that really help us diversify our revenue and insulate ourselves to some degree from the volatility of the single-family new home construction market. On the other hand, it has impacted our ability to achieve the margins that we know are – that we can achieve in the category. And really, we are left today with more inventory than we need to support the revenue levels that we are at today. So as we continue to penetrate the pro-lumber dealer segment, those issues will begin to correct themselves just based off of the breadth of the product that pro-lumber dealers buy and the mix of those products, which are primarily out of warehouse, much less directs. They require more of a service level and more value add, which should allow us to begin to work on our margins, as we increase our share in that segment. So time frame, we are neck deep in that process right now. We have converted customers virtually across the country at this point in time. And we have a sales pipeline in place today that should continue to provide the opportunity for us to grow in that segment rapidly over the foreseeable future. I’m sorry, I kind of lost track of your second question.

[Greg Eisen:]

Just in the core business, you said that you deemphasized some lower margin sales. Could you give us some color on that subject kind of what product types you are deemphasizing? And how material is that? And could you share what you think your growth rate would have been on a year-over-year basis, excluding that deemphasizing?

[Jon Vrabely:]

Sure. So historically, we have, from a product strategy perspective, Huttig has historically and consistently reviewed our product mix. And it’s no different today, except for the fact that it’s actually been expedited over the course of the past 12 to 18 months as a result of the amount of new products and new inventory that we were adding to support our growth initiatives. So throughout 2017, I would tell you, we really did not see an impact in any – as a result of any of the kind of rationalizations that we went through. And it is not – I would tell you, it is certainly not significant, but it is important, because we are through this process focused in legacy core categories of truly doing a deeper dive than when I would say, we’ve done in the past to identify lower margin, more commoditized products that may require more room to inventory, where we through this transition, believe that there is a much better opportunity to make those inventory dollar investments and space investments in the newer products that we are adding or have added to our mix. So what would our growth rate have been? I would tell you that, it’s – that delta would not be material or significant. But it’s certainly did have a bit of an impact across some of our core product categories. Certainly in the quarter and I would also say on a year-to-date basis. So not significant, but we continue to work through it. And it is having a slight impact to date. I think as we continue to grow our pre-finished business and as we continue to grow our exterior millwork business, as we continue to grow our Huttig-Grip products, it will, obviously, have even a less or less of an impact and will become virtually unnoticeable.

[Greg Eisen:]

Got it, got it. And if I can just ask one quick follow-up regarding the PrimeSource litigation. Is it completely behind you now? Can we expect that there will be zero charges related to PrimeSource in Q3 and Q4?

[Jon Vrabely:]

As we – I think, as we communicated in the earnings release and even a little bit as we talked about our adjusted EBITDA in the second quarter and year-to-date, it is behind us. There are absolutely zero restrictions on future business activities from any of the parties that were involved in the claims or counterclaims made by both organizations.

[Greg Eisen:]

That’s good to hear. Thank you very much. Thanks for your time.

[Jon Vrabely:]

Thank you, Greg.

[Operator:]

And our next question comes from Alan Weber of Robotti Advisors. Your line is now open.

[Alan Weber:]

Hi, Jon, good morning. How are you?

[Jon Vrabely:]

Hey, Alan, I’m doing well. How are you doing?

[Alan Weber:]

Good. Phil, great to have you back. So just a few things. When you gave – when you talked about the Huttig-Grip revenued as a course, and I think it was 50-something-percent in the second quarter, this is just a small thing. Is that – did you – is that kind of fill what’s the PrimeSource litigation settlement in those numbers?

[Bob Furio:]

Alan, I’m going to tell you that my inclination is that it is not in that analysis.

[Alan Weber:]

Okay, okay. And then…

[Jon Vrabely:]

Now I want to clarify that and focus on the word inclination, because, to be frank, as Bob and I are looking at each other, it certainly would be something that we want to go back and verify. But I do not believe it is – I do not believe the litigation costs are included in that data.

[Alan Weber:]

Okay. I mean, right. Either way, more important, the trends are going in the right direction, that’s more important than…

[Jon Vrabely:]

And as I said earlier, we take a conservative approach to that analysis, but it is – it’s consistent and has been consistent from day one. And yes, we continue to make progress towards closing that gap and that is a top priority.

[Alan Weber:]

And if you look at – what did you say, I missed that?

[Jon Vrabely:]

No. I didn’t say anything else.

[Alan Weber:]

Okay. And so if you look out into next year or into 2020, as you rollout more of the Huttig-Grip to your core customer, we should start to see a clear improvement on the working capital, kind of, where you are versus where you are today right? And right, and I guess, you’ll get some improvement in gross margin, but then we’ll get a big bump improvement in the operating leverage, the operating expenses relative to revenue. And I guess, can you get that closer to where you were two or three years ago?

[Jon Vrabely:]

First, I would tell you that even in the second quarter of 2018 and on a year-to-date basis, when we basically took our OpEx levels in both periods, 2017 and 2018, and excluded the cost of litigation and settlement in those periods, we saw and discussed in the script today that we are actually already leveraging that incremental revenue against our OpEx structure. And I believe, on a quarterly basis, comparing both periods, we saw about an 80 basis point improvement year-over-year Q2 2018 to Q2 2017. And on a year-to-date basis, I believe that improvement was 100 basis points in OpEx ratio as a percent of sales. So the challenge I would say, and what – and I guess, really what I tried to communicate in the script was 2017 and throughout all of 2017, we were investing in every single month on a month- over-month basis throughout the course of 2017. Those investments grew and accumulated. We do believe that we bottomed out in Q4 of 2017 and certainly flattened out in Q4 of 2017, as we rolled into the early part of 2018. We are now beginning to see after two quarters in 2018 that the revenue line in conjunction to our OpEx structure, we are starting to see some level of leverage as that trend has not only flattened out, but begins to move in the other direction. And we believe going forward that we have kind of crossed that line in the early part of 2018, where, as we go forward and we begin to comp against prior year through the balance of 2018, we will begin to see fairly significant improvement on a go-forward basis. So where and when do I believe that we can get back to 4% EBITDA margins that we generated in 2016, I obviously do not believe that will happen this year, but there is nothing that tells me that the strategy is flawed in any way, shape or form to the extent that we will not ultimately get back and improve, which has been our strategy and our stated strategy going all the way back to 2015 is that we want to create a company that breaks through the financial constraints of large commodity-type distribution businesses. And we believe with the opportunities that we’ve identified, quantified and are beginning to execute in a much more meaningful way that we are on the right track to continue that progress going forward.

[Alan Weber:]

Okay. Great, Jon. Thank you very much.

[Jon Vrabely:]

You’re welcome.

[Operator:]

And our next question comes from the line of Tom Spiro of Spiro Capital. Your line is now open.

[Tom Spiro:]

Tom Spiro, Spiro Capital. Good morning.

[Jon Vrabely:]

Hi, Tom.

[Tom Spiro:]

Hi, Jon. I wanted to do one – first, one follow-up question to the tariff question asked earlier in the call. As you look at our primary competitors, whether the one national competitor or perhaps we have some regional competitors, and you look at their sourcing. Do they have the same exposure to tariffs and similar way of protections kinds of things that we do? Or do they – is their geographic sourcing very much different from ours?

[Bob Furio:]

It’s a really good question. And the simplest way to put this is everybody is sitting in the same boat. Everybody that is importing product anywhere, really, within the world is exposed to these tariffs equally. So there is nobody excluded, nobody has a magic wand or a magic wall that protects them from any of these tariffs. Everybody fights the same battle. And one of the things that it does do is the limited amount of domestic production that’s in the U.S. It just increases the cost there also. So the entire market moves by that – by those tariffs and everybody absorbs the same costs and everybody passes on those same costs again to the end-users.

[Tom Spiro:]

All right. That’s very helpful. And then sticking with the Huttig-Grip, you mentioned earlier in the call that there is one national competitor that’s had the lion share of that business. And our strategy is basically to take share, I guess, from that national competitor and other players. What kind of competitive response have you seen as we began to ramp up sales?

[Jon Vrabely:]

Yes, I think – I will – Bob is actually the COO closer to that from a field perspective. So Bob, if you don’t mind.

[Bob Furio:]

Yes. I think like any good competitor, they are out there trying to protect what they feel their turf from their area. But the fact of the matter is, the market needs another competitor. The market has wanted another competitor, provider, supplier for the construction fastener line on a national scale. And because there really wasn’t anybody else on a national level, a lot very good regional and local competitors for sure, but nobody on a national level. Customers have wanted choices and they now have a choice. So regardless of what the incumbent may do to try to protect their territory, there are – there is a large portion of the market that is looking for an option and want an option. And that is one of the things that we are providing today.

[Tom Spiro:]

And is your pitch to some of these customers that they should stock both lines, yours and your competitors? Or it’s really – or they can only be one guy on the shelf and it should be your product?

[Bob Furio:]

Selfishly, we want everything. So the bottom line is when we put together our marketing programs for the product categories, we try to make sure that they’re uniform, so they flow together. So part of retailers’ desires to have a program that has a nice flow. It’s esthetically pleasing, it flows, it’s easy for a consumer to find what they’re looking for. It’s well advertised, it’s well marketed, et cetera. So there are benefits to that, significant benefits. And that is one of the things that we certainly sell to our customer base is the ability to provide a standard, uniform set across a very diverse product category.

[Tom Spiro:]

And does your customers’ customer, that is the ultimate user of the product, does he care whose product he is buying or is it really the buying decision of your customer, say the pro-lumber dealer and the ultimate user isn’t different?

[Bob Furio:]

I think at the end of the day, the do-it-yourself, we can award your type of a person doesn’t have a strong preference. So we’re going to go with whatever that retailer suggest or what that retailer has. And part of our relationship building with those retailers is making sure that we have good quality products, good relationship with that retailer. We train their people. So that they can sell our product. When you get to the pro-users, brand and brand specific-type of products does come into play. Again if a retailer or a one-step roofing house or concrete house or staff to distributor feels comfortable with your brand, they’re going to have a very good success rate of selling that brand to their customer base. So again, at the end of the day, the do-it-yourself already doesn’t really have a preference, but professional contractor certainly does. And again, part of our job is education, our part of our job is on the manufacturing and the branding side and selling the features and benefits that our products – absolutely do provide that are superior to the competition.

[Tom Spiro:]

Thanks a lot and good luck.

[Jon Vrabely:]

Thank you.

[Bob Furio:]

Thank you, Tom.

[Operator:]

Our next question comes from the line of [indiscernible]. Your line is open.

[Unidentified Analyst:]

Just a quick question on your sales personnel and sales training. And just would like to get a little bit more insight into the sales training by product categories. It looks like the complexity of your product has increased between high margin and low margin. So can you walk us through – you hired additional sales personnel, what’s the training of the personnel and how that works with your growth initiatives?

[Bob Furio:]

Yes, so that’s a very good question. And one of the things that we originally set out to do was put specialists, product specialists especially, as it relates to building products and construction fasteners in every one of our distribution centers. And what I should mention is that multiple product specialists in each distribution center. Their job is to train the legacy sales force. Their job is to help management understand the product category. Their job is to help forecast inventory request, make these significant calls with the larger dealers, et cetera. And there is a learning curve. There is a learning curve in case of some of our product specialists on some of our product categories and there is also certainly a learning curve with the legacy sales force in certain percentage of our distribution centers because we have had distribution centers who are – were selling some level of fasteners previously or had been in the fastener category previously. So we have built a very good sales platform, sales training platform for the product specialists as well as for our sales people. We have, what we refer to is our Huttig University and our employees have worked, which is available to everybody 24 hours a day, seven days a week. We have training modules out there. We have product information sheets. We have product application videos. We use a lot of YouTube application as well. So we provide our sales force a very diverse way of getting product and product knowledge. But the most important is really with those product specialists that we have at every one of our distribution centers working hand-in-hand every day with our sales force.

[Unidentified Analyst:]

Great. Thanks guys.

[Operator:]

And I’m showing no further questions at this time. I would now like to turn the call back over to Jon Vrabely for closing remarks.

[Jon Vrabely:]

Thank you, Mark. This continues to be an exciting time for our company. We still have a lot of work to do to fully execute our strategy, but I’m pleased to see the results of all of the hard work that has taken place over the past year begin to be reflected in our financial performance. I’m proud of the work we have done to transform our company. And I want to thank all of the Huttig associates for their contributions to our continued success. I also want to thank our customers and supply partners for the trust they place in us every day to care for their business. Finally, I want to thank all of you for your interest and ownership in our company, and your participation in our call today. We look forward to speaking to you again in the near future, when we report our third quarter results. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.