Huttig Building Products, Inc.
Q4 2017 Earnings Call Transcript

Published: 6 Mar 2018

[Operator:]

Good morning and welcome to the Huttig Building Products Fourth Quarter and Full Year 2017 Earnings Call. [Operator Instructions] I would now like to turn the call over to our host, Corporate Controller, Jim Murphy. Please go ahead sir.

[Jim Murphy:]

Thank you, and welcome everyone to our fourth quarter and full year 2017 earnings call. With me this morning is Jon Vrabely, President and Chief Executive Officer and Bob Furio, Executive Vice President and Chief Operating Officer. Today, we will discuss our operating and financial results and we will also update you on our outlook for 2018. Following our prepared remarks, we will open the call 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 afterwards. Also, to the extent you’re listening to this call on a replay, information could already have changed. Additional information about factors that could potentially impact our financial results is included in the earnings release issued yesterday and our filings with the SEC. During this call we will discuss certain non-GAAP financial measures. 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 our website. 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 our investor relations page on our website under “Financials”. And now it is my pleasure to turn the call over to Jon.

[Jon Vrabely:]

Thank you, Jim. Good morning everyone and thank you for joining us. Today we will update you on our progress and the implementation of our strategic plan and our financial results for the fourth quarter and full year through December 31, 2017. As we completed the second full year of implementing and executing our accelerated growth and diversification strategic plan, 2017 can best be described as a year of investment, transition and change for Huttig. Our plan is to transform Huttig into a more diversified company that possesses significant, sustainable, above market growth opportunities for many years into the future. Over the past two years, we have created, quantified and prioritized the substantial growth and diversification opportunities that are required to accomplish this transformation. In addition, we are confident that we have developed the right strategic plan to focus and guide our way towards the achievement of our goals. In 2017, through the continued investment in our infrastructure, people and technology platform we set the foundation and built the structure to execute our growth and diversification strategy. We made strategic capital and operating investments to execute our product line expansion and market segment penetration organic growth initiatives. The national expansion of our Huttig-Grip product line is truly an investment in Huttig itself as we build and expand our proprietary brand of construction fasteners and specialty building products. To provide some perspective on the scope of the Huttig-Grip initiative it took approximately 15 major specialty building products and construction fastener product categories that we historically sold and managed on a local or in some cases a multi – level and developed supply programs to expand the breadth of every category to ensure that we have a complete category offering. We also centralized the sourcing procurement and management of those programs and simultaneously expanded those programs across our locations on a national basis. Over the course of 2017, we integrated the legacy programs into the new Huttig-Grip program designed and created all of the private-label packaging for thousands of items, increase the size of our facilities by approximately 300,000 square feet purchased and installed over $1 million of new ranking across our facilities, established and staffed a centralized international sourcing supply chain management, procurement and logistics department, bedded and set up international suppliers in more than 15 countries across the globe, and hired more than 16 new associates of which approximately 55 are in sales, sales support or international sourcing and supply chain roles. Through our investments in automated high-capacity pre finished store lines and segment focused sales resources, further penetration of the repair and remodeled market segment diversifies our business to be less dependent on new home construction, reinforces our position as the largest value add door fabricator to the professional residential construction market in the country, and accelerates growth in higher value and higher gross margin products. The investments we made in our high capacity automated prefinished door line in Florida is now operational, and we are nearing the completion of a similar investment in our Saco, Maine door fabricator facility. We expanded our Saco facility by 40,000 square feet to support the installation of a new high-speed prefinished door line identical to the line we recently installed in Florida. This investment was critical to support the growing demand in New England and provides the opportunity to grow our share of the value add prefinished exterior door market. In addition to the above initiatives, we continue to invest in our organization to attract the best talent to achieve our goal of creating a top performing, disciplined organization with the most talented, engaged and empowered people. We also continued to invest in our technology platform to derive improved operating efficiencies in the functional areas of the business while delivering advanced customer interface technology to make Huttig the clearest vital choice for the products we sell. As a result of the investments we made throughout 2017, our total operating expenses increased approximately 21% with approximately 65% of the increase being directly attributed to the Huttig-Grip expansion. Throughout the course of the year, and especially in the fourth quarter, we experienced higher than normal recurring cost as well as non-recurring cost that were necessary during the operational preparedness stage of the plan. Some of these cost included but were not limited to, legal costs, warehouse preparation, ranking installation, marketing design collateral and travel. As we fully transition into the sales execution stage of the plan, we expect to continue to experience some level of these types of costs, but anticipate that many of these costs will normalize throughout the course of 2018. While all of the front end investments negatively impacted our financial results in 2017, they were a fundamental requirement to set the structure to provide control, accountability and most importantly scale to support our long-term growth plans. We continue to believe that these investments made in operating expenses and capital will accelerate our growth and diversify our business which will improve operating leverage and increase the value of the company over the intermediate-term. In the fourth quarter of 2017, we began to transition to the sales execution stage of the growth strategy. Executing the sales strategy will be no less challenging than building the infrastructure, but our recent progress and market feedback has only reinforced the belief that our strategy is sound. In December 2017, we introduced our expanded Huttig-Grip program to more than 300 of the most prominent pro-lumber and pro-specialty dealers from across the country at our Huttig reward select event. The event which included support and participation of our core products national strategic supply partners allowed us to showcase our entire portfolio of products and services and was the perfect venue to launch the introduction of the expanded Huttig-Grip program. The feedback we received was overwhelmingly positive, as we received commitments for new business in 2018 covering hundreds of individual customers shipped to locations. For the full year 2017, sales were approximately 753 million, which represents an approximate increase of 6% over 2016. Based on our segment revenue mix, we are confident that we maintained or slightly grew our total share of the new construction and repair remodel market segments for the products we sell. For the year, total housing starts were up approximately 2%, with single-family starts increasing approximately 8% and multifamily starts declining approximately 10%. In the fourth quarter of 2017, sales were approximately $179 million, an increase of approximately 9% over the prior year quarter. As compared to the prior year fourth quarter, total housing starts were flat with single-family starts increasing approximately 7% and multifamily starts declining approximately 13%. Our revenue growth trajectory has continued into the first quarter of 2018. Through the first two months of 2018, our total revenue is up more than 16% as compared to the same prior year period. In addition, we have made 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%, in January 2018, to approximately 38% and in February 2018 to approximately 46%. Furthermore, through the first two months of 2018, we doubled our incremental Huttig-Grip revenue as compared to the same prior year period. The year-over-year growth through the first two months of 2018 represents approximately 86% of the total incremental revenue growth that we achieved in all of 2017. Effective January 1, 2018, we announced several changes to our senior leadership team and structure. We believe the new structure better supports the transformational change we are driving through the organization, leverages the industry and managerial experience of the executives that joined Huttig over the course of the past year across the entire company, and aligned the Huttig-Grip expansion with our corporate structure and field operations. In addition to the changes amongst the senior leadership team, we are driving a cultural change throughout the entire organization to align and engage all of our associates in this transformational process. The process of transforming a 133-year-old company whose performance has historically risen and fallen in direct correlation to the single-family new construction housing market into a top performing accountable growth oriented and diversified company is not for those effective [ph] change commitment and hard work. The entire management team is aligned and 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 large, 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. Now I’d like to turn the call back over to Jim, to discuss the income statement and balance sheet.

[Jim Murphy:]

Thank you. As John mentioned, fourth quarter net sales were approximately $179 million compared to $164 million during the fourth quarter of 2016, an increase of nearly 9%. Gross margins were 20.5% of net sales during the fourth quarter 2017, compared to 21.7% for the same period last year. For the full year, we increased sales 6% ending the year with $753.2 million in net sales compared to $713.9 million in 2016. Gross margins were 20.7% for the year, compared to 21.2% for the full year 2016. The decrease in margins for both the quarter and the full year were largely driven by higher production cost, with our millwork products as well as our higher proportion of direct sales in our overall mix. Our operating expenses were $42.3 million during the fourth quarter of 2017 or 23.6% of net sales compared to $33.8 million or 20.6% of net sales during the fourth quarter of 2016. For the full year, operating expenses were $155.7 million or 20.7% of net sales compared to $128.5 million or 18% of net sales for the full year 2016. The increase in operating expenses for the full year was driven by higher personnel cost approximately $14.2 million and non personal cost of $12.5 million including higher costs relating to our marketing efforts, rent and legal costs associated with the PrimeSource Litigation. While our cost have increased, and we have yet to generate adequate incremental gross profit to cover these increases, we believe we have established the foundation and platform we need to execute our strategy as we move into 2018. As it relates to income taxes, an income tax provision of $3.2 million was recognized for the year ended December 31, 2017 compared to $7.2 million for the year ended December 31, 2016. The tax expense in 2017 was driven by the impact of The Tax Cut and Job Act, the company recognized $4.5 million in tax expense related to the net change in our deferred tax assets and liabilities as a result of The Tax Acts reduction of the U.S. federal rate from 35% to 21%. Excluding the impact of this adjustment, as well as other immaterial adjustments, the company would have recognized the tax benefit of approximately $1.3. All this resulted in us reporting a net loss from continuing operations of a $8.9 million during the fourth quarter 2017 compared to net income from continuing operations of $1.1 million in the fourth quarter of 2016. For the full year, we reported a net loss from continuing operations of $6.2 million compared to net income from continuing operations of $13.3 million in 2016. Adjusted EBITDA was a negative $3.7 million during the quarter, compared to a positive $3.4 million for the fourth quarter 2016, a $7.2 million for the full year 2017 compared to $28.3 million for the full year 2016. Turning to the balance sheet, we ended the year with total available liquidity of $51.7 million which is comprised of $51.4 million of additional committed borrowing capacity under our revolving credit facility, and $300,000 of cash on hand. We ended the fourth quarter with total debt of $103 million, which resulted in net total debt to capitalization of 60.9% at December 31, 2017. Looking at our cash flow, we reported approximately $33.5 million in cash used in continuing operations for the full year 2017, driven largely by the buildup of inventory in support of the Huttig-Grip initiative and we ended the year with approximately $112 million of inventory on hand. Since the company’s sources much of its private label construction fastener products internationally, the lead time required to build inventories is substantially longer than many of our legacy product lines in our core business. Because of this extended lead time, it also requires more working capital and inventory. Whether that inventory resides in one of our distribution centers or is in transit on the water, but also provides the opportunity for higher margins. As we look to 2018 to support growing demand, we anticipate a further buildup of an inventory through the first half of the year. Other items impacting the cash flows for 2017 were approximately $6.1 million in capital expenditures and another $4.6 million net of taxes related to our environmental obligations. While our fourth quarter results were disappointing, we have continued to state that 2017 was going to be an investment for our company and that these investments were going to have a significant impact on our financial performance. However, we truly believe that we are making substantial progress towards the launch of the Huttig-Grip initiative as we fully transition into the sales execution stage. We continue to remain focused on executing our strategy and based on our growth of the first two months of 2018, we will believe and we will continue to make progress throughout the balance of the year. Now, we’ll take questions.

[Operator:]

[Operator Instructions] Our first question comes from [Indiscernible]. Your line is now open.

[Unidentified Analyst:]

Hey, thank you guys. I like the idea that you're sort of getting a whole new product of fasteners under your train of doors. I have basically have two simple questions. Without going into too much, but giving you some kind of clarity, whatever happened to your CFO who seem to really have a very good handle on things and did he just decide to leave or did it just now work out in the culture or what’s the story about that?

[Jon Vrabely:]

So Don, we filed an 8-K back I believe on or about February 2 and a subsequent 8-K on or about February 22, so at this point we have limited our comment to what has been disclosed publicly.

[Unidentified Analyst:]

Okay, sometime reveal a little more because he always seemed to have a good handle on things. My next, my last question here about this and I’ll get back in the queue, is you know if you look at other securities or stocks or equities in your space, you see that they are reaching new highs and you couldn’t have a better opportunity if you believe what you’re telling us to have some kind of even modest stock buyback program of available cash and that doesn’t have to be overwhelming but the signaling effect, that you’re telling the investor community and you are telling your board that you passionately believe your stock is undervalued, and that the future will be better than the past. I mean your stock is your stock is sort of the depression level, and it’s absurd that you’re not sort of announcing and encouraging via signaling effect that you really believe that you got the right program and you are going in the right direction, it’s not a hard thing to do, but it don’t doesn’t take a lot of money, but it does take a commitment to say we really are passionate about what we are doing and what we believe what the future is. And we talked about this last time but I just think that the concept is a modest stock buyback with some you are available cash is one of the best signaling things you can do in the marketplace. Do you have any comment about that?

[Jon Vrabely:]

My comment would be that the – my comment would be that the board on a very consistent basis reviews and analyzed all of our available and potential uses of cash, including stock buybacks. So it is not an issue that we have not visited in the past or that we won’t visit again in the future as we consistently review all of the options available to us for cash use and cash deployment and in doing the best that we can to increase the value of the company.

[Unidentified Analyst:]

And my last, just I don't want to know about time, but the last I know you had a great concept when I visited the couple of your plants about these premium doors, you know these $8,000, $9000 doors, and it seems to me the whole specialty remodeling area is just a real unmet need. It’s a great business. I think you’re – and you’re the guy should be the prime beneficiaries of your premium products with great margins. Are you working on that little bit?

[Jon Vrabely:]

Yes, sir. As we discussed in the script, we made a significant investment in our Florida fabrication facility where we completed the installation of a high-capacity automated high-speed door prefinishing line and we have made a very similar investment in New England out of our Saco, Maine facility to also continue to pursue growth in the repair remodel segment which is really one of our two primary organic growth initiatives that we invested heavily in 2017 and we’ll continue to invest in growing that segment.

[Unidentified Analyst:]

Okay. That’s a very good business. Thank you so much.

[Jon Vrabely:]

You’re welcome sir.

[Operator:]

Thank you. And our next question comes from Chris Colvin with Breach Inlet Capital. Your line is now open.

[Chris Colvin:]

Hey, Jon. Thanks for taking my question. I know you stated this, but there's a lot of helpful information in your script there, but I didn’t get it all down. I think it can maybe helpful to repeat for others. How much of your fourth quarter growth was from the Huttig-Grip line?

[Jon Vrabely:]

Of the 9% growth or approximate 9% growth in Q4, Chris, I don't have that break out directly in front of me. So, we will work on -- we've got the number, we’ll work on that math right now and see if we can provide an answer here even prior to the end of the call.

[Chris Colvin:]

Okay. Didn’t you reference 86% of the growth? Was that for the second half of the year or what number was that?

[Jon Vrabely:]

Yes. So, the 86% was really referencing our growth in the first two months of 2018 as compared to our total incremental growth throughout the full year of 2017.

[Chris Colvin:]

That was the growth in Huttig-Grip?

[Jon Vrabely:]

Incremental growth in Huttig-Grip products in January and February of 2018 was 86% of the total incremental growth that we experienced throughout all of 2017.

[Chris Colvin:]

Got you. And so what kind of run rate is Huttig-Grip right now run rate in sales. And then are you still targeting this 175 to 250? And can you give us kind of your view on getting to that amount. What does it look like this year and next year? Any kind of color you give us on ramping up to that?

[Jon Vrabely:]

Yes. So Chris, I will tell you, we don’t and we have not and we will not break out revenue by product line. We have never done that and at this point in time Huttig-Grip is a product line, so we just do not provide that level of detail. I can tell you that as we entered the sales execution stage of the strategy in the fourth quarter of 2017 the feedback from the market and from the customer base both existing and targeted prospective customer bases has been very, very positive as represented by the numbers we provided in the script around our -- really around our getting to a point in time where we are tracking towards actually breaking even on the sizable investment that we may throughout 2017 in the growth initiative around how Huttig-Grip.

[Chris Colvin:]

Okay. I guess, that without providing the specific numbers today or track to get there, do you still think its 175 million, the $250 million market opportunity to Huttig-Grip?

[Jon Vrabely:]

Yes. I would tell you that, again the – you know the basis that we used was incredibly high level kind of total market opportunity in construction fasteners and at this point in time nothing has changed our opinion that that level of opportunity is available to us.

[Chris Colvin:]

Okay. And that's helpful. Switching to the R&R, you finish your Florida facility. What are you doing to really increase demand there and increase utilization of that new facility, increase store sales and then addition of that, did you state that the Northeast facility is now finished or what the timing on that and getting it ramped up?

[Jon Vrabely:]

Yes. So we’re approaching -- we are approaching the completion of the Saco facility which should be coming online April or May of this year fully functional. And now that we are fully operational in Florida, the plan is to be frank relatively simple, which is to continue to penetrate that prefinished fabricated exterior door market throughout Florida, but the lift will primarily come from the other six or seven locations that we will be able to service out of the Florida fabrication center where historically we have not had a very strong penetration of that market or of those trading areas or of those markets with a solid best-in-class prefinished program. The investment we made in Florida allows us to deliver to those markets a true best-in-class product with significantly reduced lead times.

[Chris Colvin:]

That's helpful. And then, last two on gross margins, do you expect those to begin to expand again in 2018 or not?

[Jon Vrabely:]

Well, I would tell you that, I am certainly not pleased with our gross profit performance in 2017. We continue our shipping profit initiative which paid significant dividends over the course of the past several years and allowed us to actually increase our gross profit percentage without deterring or impacting revenue and revenue growth. So there are some controllable factors from an operating perspective that impact our ultimate adjusted gross profit which to be frank in 2017, we underperformed. So it is a key operating initiative as we head into 2018 that we are highly focused on those controllable aspects of the business to get them back under control, so we do not continue to experience a level of erosion that we experienced throughout 2017.

[Chris Colvin:]

Okay. That’s helpful. And last question is, on OpEx, I may have missed this color, but it increased about $4 million quarter-over-quarter, here now at a $42 million or I guess like $165 million, $179 million run rate. How much in that run rate are these legal expenses and more temporary just to get everything kind of going. So I guess I'm trying to get a sense of what is the new kind of the 2018 run rate for OpEx?

[Jon Vrabely:]

Yes. And as I said in the script as we begin to transition into the sales execution stage, we will continue to experience some level of higher than normal kind of recurring cost structure, but in addition to that we would anticipate that we see some level of also non-recurring costs and over the course of 2018 we believe that that will normalize. But again to try to provide some level of expectation around what that normalized run rate from an OpEx perspective will be in 2018 kind of crosses the threshold of providing guidance. And so I'm going to stick with my statement that we certainly experienced level of non-recurring costs in 2017 as well as higher than what would be normal rate recurring costs. We would anticipate to continue to see some level of that in 2018, but we believe as we get further into 2018 we will get to what will be a kind of recurring normalized cost structure at least from an operating perspective.

[Chris Colvin:]

Okay. And I guess you can quantify with recurring normalized OpEx structures?

[Jon Vrabely:]

Not today, because we are still working through what will be the required amount of marketing funds that we will need to spend on an annual basis to support the Huttig-Grip initiative wherein essence we are taking on the marketing and sales functions of those products as if we were the manufacturer of those products. In addition to that, getting a normalized travel run rate associated with the push that we are making today to get out and see as many customers as possible. So it’s very difficult Chris to really define in detail what we believe that future kind of normalized recurring cost structure will be. So to put a number on it I think would be irresponsible. We’re just not far enough into the process. We made a significant transition in Q4 from truly all hands on deck, preparedness stage to launch to then transitioning to full blown sales launch and sales execution and we are really a month or two into that process. So to try to determine at this point, well, this will, on a longer run basis, this should be the normalized expense ratios for those items is just difficult to quantify. I will tell you from an OpEx perspective beyond the investments in the growth initiative we are scrutinizing every dollar of expense whether it would be related to core or whether it would be related to an initiative because we are we are in a relatively low margin business and we have always done I think historically a good job of managing our expense structure and we continue to remain focused on ensuring whether it's related to core or whether it’s related to one of our growth initiatives that we are diligently managing our expense structure.

[Chris Colvin:]

Understood. Well, I appreciate the color and congrats on really start to get some traction with this growth here. Obviously if we can get any kind of operating leverage which it sounds like we’ll have some more visibility on that here in the next two quarters than it starts to turn into a very interesting story. So people can see what the normalized profits are. So congrats on getting some good traction and I look forward to watching your progress.

[Jon Vrabely:]

Thank you.

[Operator:]

Thank you. And our next question comes from Greg Ison with Singular Research. Your line is now open.

[Robert Maltbie:]

Good morning, Jon. This is Robert Maltbie sitting in Greg Ison. He had a dental appointment this morning. So I’m sitting in for him. So couple of questions, regarding, is there a search for a new CFO and what’s the timeframe on that?

[Jon Vrabely:]

Yes. We are actively engaged in starting that process and it is being quarterbacked and run by our VP of Human Resources. So, yes, absolutely we are. And I would tell you that we – it’s an active process that we are engaged in as we speak.

[Robert Maltbie:]

Okay. And regarding the, I guess, you'd say the higher costs in Millwork, the sales or personnel and marketing efforts, what steps are you taking to mitigate against recurrence of those higher costs in 2018?

[Jon Vrabely:]

So, as I said just in the previous -- kind of the previous caller that we always I think historically done a very good job of mitigating our cost structure and ensuring that whatever incremental expenses that we were adding to the organization were specifically required and used to either support strategic initiatives or just the fundamental growth in the business. 2017 was difficult to truly quantify and measure in the core business what cost were attributed to setting up our warehouses and clearing out space and securing and setting up the 300,000 square feet of incremental space. How much of that is going to be recurring to service the new business? The marketing costs associated with establishing the packaging and the labeling associated with the thousands of products that are now literally roll up under the Huttig-Grip brand that we had to create all of that marketing collateral for. The sales effort that we are now moving into to truly convert customers on a ship-to by ship-to basis, so I would tell you have a handle on what we are spending and why we are spending it. We also believe that over time many of those what I would call higher than non-recurring normalized cost will diminish once we get further into the sales execution process, but at this point it is still too early to truly try to peg what that number is. I will reiterate what I said to Chris Colvin which is we understand the cost structure. We are diligent in digging into the cost structure. And we’ll take a very conservative approach to ensure that we are spending incremental expense dollars to support a growth initiative specifically or to support incremental revenue growth.

[Robert Maltbie:]

Thank you. Regarding you mentioned your longer lead times needed for inventory and you’re furthering that buildup going into 2018. Can you give color as to the impact on your liquidity and also possibly the impact on your cost structure for doing that here early on in 2018?

[Jim Murphy:]

This is Jim. So, obviously as we continue to look kind of into 2018 we have a little of expectation of build here. Obviously the revolver that we have in place now is sufficient enough to handle where we’re going with this. I don’t think you’re going to see anything significant or dramatically different over that the month a bit [ph]. So from a liquidity position we feel pretty comfortable where we’re at. Obviously we monitor, maintain review, keep an eye on this is as 2017 as continue to grow. We continue to monitor and we continue to do so going into 2018. So, where we sit today? I would say nothing really puts a lot of red flags or alerts out. But again, we’ll continue to track and maintain and where that inventory level is that sweet spot, we’ll see how that plays out throughout 2018. So I don’t know anybody had anything to add, but…

[Robert Maltbie:]

Terrific. And finally, would trying to get a couple of data points straight here if I heard them correctly. You said that your total revenues year-over-year was up to February, up 16%. Was that correct?

[Jon Vrabely:]

Only, yes, 16 year-over-year for the two months January and February of 2018 we are up in total revenue 16% over the same period in 2017.

[Robert Maltbie:]

Again, you mentioned the data points 86% of this growth being by the Huttig-Grip, would that apply to that figure as well?

[Jon Vrabely:]

Yes. That's actually incorrect. 86, so we grew Huttig-Grip incrementally during those two months; January and February of 2018. The incremental growth of Huttig-Grip during that two-month period of time was 86% of our total incremental Huttig-Grip growth for all of 2017. So, it really speaks to the trend of growth – of incremental growth on a year-over-year basis of Huttig-Grip products, that in the first two months of 2018 our incremental growth was 86% of our total incremental growth in Huttig-Grip product for all of 2017. So, Robert, we have to move on. We have other callers in the queue that would like to ask questions and we’ve asked that everybody limited to one question and one follow-up and then if you have more we would ask that you rejoined back into the queue.

[Robert Maltbie:]

Okay, okay. Thank you.

[Jon Vrabely:]

Okay. Thank you.

[Operator:]

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

[Alan Weber:]

Hi, Jon. Good morning.

[Jon Vrabely:]

Hey, good morning, Alan.

[Alan Weber:]

So, when you talk about the January and February Huttig-Grip revenues, what does that mean? I know you’re not going to give actual dollar, but just what is that mean if you are successful for the year, in other words the clients you picked up, how often would they renew and like that? What would that mean on yearly basis?

[Jon Vrabely:]

Alan, I will tell you that just based off of the fact that we really in the month of December truly began to transition into the sales execution stage of the Huttig-Grip initiative. And we had customers in both December and January commit to conversion programs across hundreds of individual kind of customer ship to locations. We are in the process right now of meeting with those customers, quantifying what those opportunities mean and determining a timeline by which we can adequately and successfully convert those programs. So there's still an incredible amount of variables that are associated, we’re trying to truly peg what that might mean to 2018 revenues. I think the key is that as we have seen really being almost at a -- for lack of a better term kind of a breakeven point in Q3 of approximately 11% based on incremental gross profit as comps to incremental investment cost during that period. That number jumping to approximately 28% in Q4, jumping to approximately 38% in Q – I’m sorry, in January and then jumping to approximately 46% in February. We are certainly trending in the right direction as we continue to execute the sales plan associated with the initiative. At a high level again that transition has really just started to happen and take hold. I mentioned in the script that executing the sales stage of the initiative will be truly no less challenging than executing the kind of foundational setup of this launch as well as trying to provide some level of color as far as scope and everything that we have to go through throughout the course of 2017 just to get to the point where we could begin to execute the sales stage of the initiative. So I would just tell you from a trend perspective, I think is going the way that I would have anticipated that it would go which was slow and painful through the initial investment and foundational setup stage now as we are truly executing the sales stage of the plan, it’s no less challenging but it is a heck of a lot more fun.

[Alan Weber:]

Okay, great. All right, thanks Jon

[Jon Vrabely:]

You’re welcome, Alan.

[Operator:]

Thank you. And I’m showing no further questions in the queue at this time. I’d like to turn the call back over to Jon Vrabely for any closing remarks.

[Jon Vrabely:]

Thank you Jimmy. In closing, I would like to thank all of the Huttig associates for their contributions and continued commitment to our success. I also would like to thank our customers, and our supply partners for the trust they place in us every day to care for their business. And finally, I would like to thank all of you for your interest and your ownership in our company and your participation in the call today. Look forward to speaking to you over the course of the next 60 days as we report Q1 results. Thank you very much.

[Operator:]

Ladies and gentlemen, this does conclude your program and you may all disconnect. Everyone have a great day